-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JdIzxQ0+64+a+goSSPFhhz9MiMrtbE883jlINf1m86es7zK0ilq/AtDDIo8Evs5a 33d2kn57x9oYYJrEDzoLPw== 0000950123-99-004077.txt : 19990505 0000950123-99-004077.hdr.sgml : 19990505 ACCESSION NUMBER: 0000950123-99-004077 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 31 FILED AS OF DATE: 19990504 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDSCAPE INC CENTRAL INDEX KEY: 0001014845 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133879679 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-77665 FILM NUMBER: 99609586 BUSINESS ADDRESS: STREET 1: 134 WEST 29TH STREET CITY: NEW YORK STATE: NY ZIP: 10001-5399 BUSINESS PHONE: 2127603100 MAIL ADDRESS: STREET 1: 134 WEST 29TH STREET CITY: NEW YORK STATE: NY ZIP: 10001-5399 S-1 1 MEDSCAPE, INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 4, 1999 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ MEDSCAPE, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 7375 13-3879679 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
------------------------ 134 WEST 29TH STREET NEW YORK, NEW YORK 10001-5399 (212) 760-3100 ------------------------ (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ PAUL T. SHEILS PRESIDENT AND CHIEF EXECUTIVE OFFICER MEDSCAPE, INC. 134 WEST 29TH STREET NEW YORK, NEW YORK 10001-5399 (212) 760-3100 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF AGENT FOR SERVICE) ------------------------ COPIES TO: JOHN P. SCHMITT, ESQ. STEVEN A. MUSELES, ESQ. PATTERSON, BELKNAP, WEBB & TYLER LLP HOGAN & HARTSON L.L.P. 1133 AVENUE OF THE AMERICAS 555 13TH STREET, N.W. NEW YORK, NEW YORK 10036-6710 WASHINGTON, D.C. 20004-1109 (212) 336-2000 (202) 637-5600
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. 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, check the following box. [ ] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, 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, 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(d) 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 delivery of the Prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------------------ CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED PRICE REGISTRATION FEE(1) - --------------------------------------------------------------------------------------------------------------- Common Stock, $.01 par value................................ $57,500,000 $15,985 - --------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------
(1) Determined pursuant to Rule 457(o) under the Securities Act of 1933. ------------------------ 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE PERMITTED BY US FEDERAL SECURITIES LAWS TO OFFER THESE SECURITIES USING THIS PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN DECLARED EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THAT WOULD NOT BE PERMITTED OR LEGAL. SUBJECT TO COMPLETION -- , 1999 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PROSPECTUS , 1999 MEDSCAPE LOGO MEDSCAPE, INC. SHARES OF COMMON STOCK - -------------------------------------------------------------------------------- MEDSCAPE, INC.: THE OFFERING: - - We operate Medscape.com, - We are offering shares of a leading healthcare Web Site our that provides comprehensive, common stock. authoritative and timely medical information and interactive - The underwriters have an option to programs to physicians, allied purchase an additional shares healthcare professionals, such as from Medscape to cover over-allotments. pharmacists and nurses, and consumers. - We anticipate that the initial public offering price will be between - - Medscape, Inc. $ and $ per share. 134 West 29th Street - This is our initial public offering New York, New York 10001-5399 and no public market currently exists (212) 760-3100 for our shares. PROPOSED SYMBOL/MARKET: - We intend to use the net proceeds of - - MSCP/we intend to apply for listing this offering for general corporate on the Nasdaq National Market. purposes, including funding operating losses, working capital and capital needs. We may use a portion to acquire or invest in complementary businesses or technologies. - Closing: , 1999
- ----------------------------------------------------------------------------- Per Share Total - ----------------------------------------------------------------------------- Public offering price: $ $ Underwriting fees: Proceeds to Medscape: - -----------------------------------------------------------------------------
THIS INVESTMENT INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 6. - -------------------------------------------------------------------------------- Neither the SEC nor any state securities commission has determined whether this prospectus is truthful or complete. Nor have they made, nor will they make, any determination as to whether anyone should buy these securities. Any representation to the contrary is a criminal offense. - -------------------------------------------------------------------------------- DONALDSON, LUFKIN & JENRETTE BT ALEX. BROWN BEAR, STEARNS & CO. INC. The undersigned are facilitating Internet distribution. WIT CAPITAL CORPORATION DLJDIRECT INC. 3 ------------------------ [ARTWORK TO BE INCLUDED WILL INCLUDE MEDSCAPE'S LOGO, SCREEN SHOTS OF MEDSCAPE'S WEB SITE, A DESCRIPTION OF SOME OF OUR SERVICE OFFERINGS AND LOGOS OF SOME OF OUR STRATEGIC PARTNERS.] 4 TABLE OF CONTENTS
PAGE Prospectus Summary................ 3 Risk Factors...................... 6 Use of Proceeds................... 19 Dividend Policy................... 19 Capitalization.................... 20 Dilution.......................... 21 Pro Forma Consolidated Statements of Operations................... 22 Selected Consolidated Financial Data............................ 23 Management's Discussion and Analysis of Financial Condition and Results of Operations....... 24 Business.......................... 31
PAGE Management........................ 43 Transactions with Related Parties......................... 50 Principal Stockholders............ 52 Description of Capital Stock...... 55 Shares Eligible for Future Sale... 57 Underwriting...................... 59 Validity of the Shares............ 61 Experts........................... 61 Where You Can Find More Information..................... 61 Index to Consolidated Financial Statements...................... F-1
i 5 PROSPECTUS SUMMARY The information below is only a summary of more detailed information included in other sections of this prospectus. This summary may not contain all the information that is important to you or that you should consider before buying shares in the offering. The other information is important, so please read this entire prospectus carefully. MEDSCAPE, INC. OUR BUSINESS We operate Medscape.com, a leading healthcare Web site that provides comprehensive, authoritative and timely medical information and interactive programs to physicians, allied healthcare professionals, such as pharmacists and nurses, and consumers. We offer a wide range of high-quality medical information, including original, proprietary articles written for us by renowned medical experts. We also offer what we believe is the Web's largest collection of free, peer-reviewed, full-text medical journal articles and one of the Web's most extensive libraries of continuing medical education accredited programs. We supplement our medical content with a variety of non-medical information, community features and interactive programs that make Medscape.com a full-service healthcare destination Web site. As of March 31, 1999, Medscape.com had more than one million registered members worldwide, including over 180,000 registered as physicians, 500,000 registered as allied healthcare professionals and 350,000 registered as consumers. Medscape.com is designed to meet the needs of our members in a personalized and easy-to-use manner. We organize our professional information by medical specialty area, such as oncology and cardiology, to make it easier for our members to access the information most relevant to them. Our extensive and up-to-date medical content and easy-to-use searching features assist medical professionals in keeping abreast of medical advances and obtaining fast, online answers to medical questions, helping them to make more informed diagnoses. We believe our consumer members view Medscape.com as a trusted source of healthcare information because of our high-quality content and our credibility with physicians. To enhance and personalize the consumer experience, we plan to launch a separate consumer site that will provide consumer-oriented information organized by health topic and offer community features and interactive healthcare information programs. The consumer site will also operate under the Medscape brand. Our database of registered members, coupled with our ability to deliver advertisements to specific groups within our membership base, enables pharmaceutical, medical device and other healthcare companies to reach substantially all segments of their target audience. Our advertisers and sponsors include over 30 of the world's largest pharmaceutical companies. OUR MARKET OPPORTUNITY We believe the $1 trillion healthcare industry is being changed by the emergence of the Internet as a global medium for communications, news, information and commerce. In particular, we believe that the Internet can cost-effectively address the increasing need for timely, comprehensive and authoritative medical information caused by: - the accelerated development of new medical and pharmaceutical therapies; - increased time constraints on physicians who are faced with an ever-increasing volume of information; and - consumers taking greater interest in health-related issues. We address these needs by providing high-quality, timely and well-organized medical content on Medscape.com. Medscape.com allows consumers easy access to the same high-quality medical content available to physicians, helping them become better informed about health-related issues. Our Web site is conveniently accessible wherever and whenever our members choose. The organization of our site and breadth of our membership base enables our advertisers and sponsors, including pharmaceutical, medical device and other healthcare companies, to deliver targeted marketing programs and interactive services directly to all of their important healthcare constituencies. 3 6 OUR STRATEGY Our objective is to be the premier online healthcare destination Web site where physicians, allied healthcare professionals and consumers find reliable and comprehensive information that enables them to make better and more informed medical and health decisions. We believe we are positioned to become the preferred online advertising medium and e-commerce partner in the healthcare sector. We intend to achieve our objective by pursuing the following strategies: - strengthening the Medscape brand; - expanding and enhancing our content offerings; - growing membership and audience loyalty; - developing strategic alliances and enhancing distribution; and - generating multiple revenue streams. OUR HISTORY Medscape, Inc. was incorporated in New York in March 1996 and commenced operations in April 1996. Medscape, Inc. was reincorporated in Delaware in December 1998. In October 1998, we purchased Healthcare Communications Group, LLC, which operated a leading HIV Web site. Our executive offices are located at 134 West 29th Street, New York, New York, 10001-5399. Our telephone number is (212) 760-3100. Our Web site is located at www.medscape.com. Information contained on our Web site is not part of this prospectus. Medscape is our registered service mark. Each other trademark, trade name or service mark of any other company appearing in this prospectus is the property of its holder. THE OFFERING Common stock offered by Medscape............ shares Common stock to be outstanding after this offering.................................. shares Use of proceeds............................. We intend to use the net proceeds of this offering for general corporate purposes, including funding operating losses, working capital and capital needs. We may use a portion to acquire or invest in complementary businesses or technologies. Proposed Nasdaq National Market Symbol...... MSCP
The outstanding share information is based on our shares outstanding as of , 1999. This information excludes: - shares of common stock subject to options granted under our 1996 Stock Option Plan and outstanding as of April 30, 1999 at a weighted average exercise price of $ per share; and - shares of common stock reserved for outstanding warrants at an exercise price of $ per share. CONVENTIONS WHICH APPLY TO THIS PROSPECTUS Unless we indicate otherwise, all information in this prospectus reflects the following: - the conversion of our outstanding Class B Common Stock on a one-for-one basis into Class A Common Stock, and the redesignation of our Class A Common Stock as common stock, both of which will occur concurrently with the completion of this offering; - the conversion of our Series A Preferred Stock, Series C-1 Preferred Stock, and Series D Preferred Stock, all on a one-for-one basis, and our Series C Preferred Stock, on an approximately 1.07-for-one basis, into Class A Common Stock, and the redesignation of our Class A Common Stock as common stock, all of which will occur immediately prior to the completion of this offering; 4 7 - an increase in the number of our authorized shares of common stock to to be effected concurrently with this offering; and - no exercise by the underwriters of their over-allotment option to purchase up to additional shares of common stock. The prospectus does not reflect the for-one stock split of our common stock, to be effected in May 1999. SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) The following table summarizes our financial data for the nine months ended December 31, 1996 and for each of the two years in the period ended December 31, 1998 and the three month periods ended March 31, 1998 and 1999, which have been derived from our consolidated financial statements and the notes thereto. The pro forma data for the year ended December 31, 1998 have been prepared as though the acquisition of Healthcare Communications Group, LLC had occurred on January 1, 1998. For a more detailed explanation of these financial data, see "Selected Consolidated Financial Data" and our financial statements located elsewhere in this prospectus.
HISTORICAL ------------------------------------- YEAR ENDED PRO FORMA THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, YEAR ENDED MARCH 31, DECEMBER 31, ----------------- DECEMBER 31, --------------------- 1996 1997 1998 1998 1998 1999 CONSOLIDATED STATEMENTS OF OPERATIONS DATA: Revenues............................ $ 1,015 $ 1,522 $ 3,069 $ 5,654 $ 550 $ 1,644 ------- ------- ------- --------- --------- --------- Operating expenses: Editorial, production, content and technology...................... 1,182 1,790 2,563 4,300 396 1,231 Sales and marketing............... 278 1,201 2,344 2,344 299 1,081 General and administration........ 830 1,823 1,775 2,643 360 765 Depreciation and amortization..... 41 160 280 399 47 88 ------- ------- ------- --------- --------- --------- Total operating expenses... 2,331 4,974 6,962 9,686 1,102 3,165 ------- ------- ------- --------- --------- --------- Loss from operations................ (1,316) (3,452) (3,893) (4,032) (552) (1,521) Interest expense (income)......... 28 12 (249) (251) (49) (82) ------- ------- ------- --------- --------- --------- Net loss............................ $(1,344) $(3,464) $(3,644) $ (3,781) $ (503) $ (1,439) ======= ======= ======= ========= ========= ========= Basic net loss per share(1)......... $ $ $ $ $ $ Weighted average number of shares of common stock outstanding..........
MARCH 31, 1999 ------------------------ ACTUAL AS ADJUSTED(2) CONSOLIDATED BALANCE SHEET DATA: Current assets.............................................. $22,985 Working capital............................................. 19,302 Total assets................................................ 25,403 Stockholders' equity........................................ 21,720
- --------------- (1) We calculate loss per common share by dividing the loss attributable to common shares by the weighted average number of shares outstanding. We do not include outstanding common stock options and warrants in the loss per common share calculation, as their effect is anti-dilutive. (2) Adjusted to give effect to this offering, assuming net proceeds of $ . 5 8 RISK FACTORS You should consider carefully the risks described below and the other information in this prospectus before deciding to invest in shares of our common stock. If any of the following risks actually occurs, our business, financial condition and results of operations would likely suffer. In this case, the market price of our common stock could decline, and you may lose all or a part of the money you pay to buy our common stock. OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT. We initiated our operations in April 1996. As a result, we have only a limited operating history on which you can base an evaluation of our business and prospects. Our prospects must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development, particularly companies in new and rapidly evolving markets like ours. Some of these risks and uncertainties relate to our ability to: - attract and maintain a large base of users; - develop and introduce desirable services and compelling and original content to members and users; - establish and maintain strategic relationships with distribution partners and service and content providers; - establish and maintain relationships with sponsors and with advertisers and their advertising agencies; - respond effectively to competitive and technological developments; and - build an infrastructure to support our business. We cannot assure you that we will be successful in addressing these risks and uncertainties. Our failure to do so could have a material adverse effect on our financial condition. WE ARE NOT PROFITABLE AND EXPECT TO CONTINUE TO INCUR LOSSES. We have not achieved profitability. We expect to continue to incur net losses for the foreseeable future and may never become profitable. We have incurred net losses of approximately $9.9 million during the period from our inception through March 31, 1999. Our ability to generate significant revenues is uncertain. We cannot be certain that our growth to date will continue. Almost all of our revenues to date have been derived from advertising sales and sponsorships. As our business evolves, we expect to introduce a number of new products and services. With respect to both current and future product and service offerings, we expect to increase significantly our operating expenses to increase our customer base, enhance our brand image and support our infrastructure. For us to make a profit, our revenues and gross profit margins will need to increase sufficiently to cover these and other future costs. Otherwise, we may never make a profit. Even if we become profitable, we may not sustain or increase our profits on a quarterly or annual basis in the future. WE DEPEND ON THE PHARMACEUTICAL INDUSTRY FOR A SIGNIFICANT PORTION OF OUR REVENUES. Our near-term and long-term prospects depend upon selling our services to the pharmaceutical industry. In 1998, 92% of our revenues were derived from services provided to pharmaceutical companies, and three pharmaceutical companies in particular provided 48% of our 1998 revenues. Accordingly, our success is highly dependent on the sales and marketing expenditures of pharmaceutical companies and our ability to attract these expenditures. Our revenues could seriously decrease if there were adverse developments in the pharmaceutical industry including: - an increase in the use of generic drugs instead of branded drugs; - a reduction in sales and marketing expenditures of pharmaceutical companies; 6 9 - public or private market initiatives or reforms designed to regulate the manner in which pharmaceutical companies promote their products; - regulatory or legislative developments that discourage or prohibit these activities; - a decrease in the number of new drugs being developed; or - current legislative and regulatory attempts to control drug costs for Medicare and Medicaid patients, including proposals in the U.S. Congress. OUR BUSINESS MODEL IS UNPROVEN AND THE MARKET MAY NOT ACCEPT IT. Our success is dependent upon achieving significant market acceptance of our services by physicians, allied healthcare professionals and consumers. We cannot guarantee that medical professionals or consumers will accept Medscape.com, or even the Internet, as a replacement for traditional sources of healthcare information. Market acceptance of Medscape.com depends upon continued growth in the use of the Internet generally and, in particular, as a source of healthcare information services for medical professionals and consumers. The Internet may not prove to be a viable channel for these services due to: - inadequate development of necessary infrastructure, such as reliable network backbones, or complementary services, such as high-speed modems and security procedures for the transmission of confidential healthcare information; - implementation of competing technologies; - delays in the development or adoption of new standards and protocols required to handle increased levels of Internet activity; and - governmental regulation or other reasons. Failure to achieve and maintain market acceptance of Medscape.com would seriously harm our business. WE DEPEND ON REVENUES FROM ADVERTISING AND SPONSORSHIPS, AND THE ACCEPTANCE AND EFFECTIVENESS OF INTERNET ADVERTISING AND SPONSORSHIP IS UNCERTAIN. Our future success depends on an increase in the use of the Internet as an advertising medium. We derive most of our revenues from the sale of advertisements and sponsorships on our site, and we expect to continue to do so for the foreseeable future. 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. Many of our advertising customers and sponsors have limited experience with Internet advertising and sponsorship, and may ultimately conclude that Internet advertising and sponsorship are not effective relative to traditional advertising media and sponsorship opportunities. Different pricing models are used to sell advertising on the Web, and it is difficult to predict which model, if any, will emerge as the industry standard. This makes it difficult to project our future advertising and sponsorship rates and revenues. In addition, widespread adoption or increased use by Internet users of "filter" software programs that allow them to limit or remove advertising from their desktops or the adoption of this type of software by Internet access providers could have a material adverse effect on the viability of advertising on the Internet and on our financial condition. We cannot assure you that the market for Internet advertising will continue to emerge or will become sustainable. If the market for Internet advertising and sponsorships fails to develop or develops more slowly than we expect, our revenues will decline. OUR OPERATING RESULTS WILL BE SEASONAL AND MAY FLUCTUATE FROM QUARTER TO QUARTER. Because a substantial portion of our revenues come from sponsorships associated with major medical conferences that occur less frequently in the summer months, our results of operations have historically been seasonal. Our limited operating history makes it difficult to assess the impact of this seasonal factor on our 7 10 business and our stock price. Should the major medical conferences' schedule change, our operating results would be affected accordingly. Because of seasonality and other factors, our operating results will likely continue to vary from quarter to quarter. Since a substantial portion of our current and future costs are fixed, if our revenues fall short of expectations, we may not be able to adjust our fixed expenses to compensate for this shortfall on a timely basis. OUR SUCCESS IS DEPENDENT UPON OUR ACHIEVING MARKET ACCEPTANCE FOR OUR MEDSCAPE BRAND. We believe that broad recognition and a favorable audience perception of the Medscape brand are essential to our future success. Successful positioning of the Medscape brand will largely depend on: - the success of our advertising and promotional efforts; and - our ability to continue to provide a high-quality experience for our audience. We incurred sales and marketing expenses of $2.3 million during the year ended December 31, 1998. To increase awareness of the Medscape brand, we expect to spend significantly more on sales and marketing in the future. If our brand enhancement strategy is unsuccessful, these expenses may never be recovered and we may be unable to increase future revenues. In addition, even if brand recognition increases, the number of Medscape.com users may not increase. Furthermore, even if the number of new users increases, those users may not become registered members or use Medscape.com regularly. OUR ADVERTISING AND SPONSORSHIP REVENUE IS CONCENTRATED AMONG A LIMITED NUMBER OF ADVERTISERS AND SPONSORS, AND OUR ADVERTISING AND SPONSORSHIP CONTRACTS ARE GENERALLY SHORT-TERM. A limited number of advertisers and sponsors accounted for almost half of our advertising and sponsorship revenues for the quarter ended March 31, 1999. In 1998, we derived approximately 27% of our revenue from Genentech Incorporated, 14% from Roche Laboratories and 7% from Johnson & Johnson. We believe that a substantial amount of revenue from advertising and sponsorship sales in any given future period may continue to come from a relatively small number of advertisers and sponsors. If any of our major advertisers or sponsors were to substantially cut back on advertising or sponsorship expenditures or stop using our services, our revenues would decline. We typically sell advertisements and sponsorships for a one year period or less. As a result, we cannot assure you that any of our current advertisers or sponsors will purchase advertising or sponsorships from us in the future, and we may not be able to successfully attract additional advertisers or sponsors. The loss of any of the advertisers or sponsors that account for a material portion of our total revenues, or the non-payment or late payment of amounts due from significant advertisers and sponsors, could seriously harm our business. WE MAY NOT BE ABLE TO KEEP UP WITH RAPID TECHNOLOGICAL OR OTHER CHANGES. The markets in which we compete are characterized by rapidly changing technology, evolving technological standards in the industry, frequent new service and product announcements and changing consumer demands. Our future success will depend on our ability to adapt to these changes and to continuously improve the performance, features and reliability of our service in response to competitive services and product offerings and the evolving demands of the marketplace. We may not be able to do so. In addition, the widespread adoption of new Internet, networking or telecommunications technologies or other technological changes could require us to incur substantial expenditures to modify or adapt our services or infrastructure, which might impact our ability to become or remain profitable. WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY. The market for Internet content, products, services and advertising is new, rapidly evolving and intensely competitive. We currently compete, or potentially compete, with many providers of Web content, information services and products, as well as traditional media and promotional efforts, for audience attention and 8 11 advertising and sponsorship expenditures. We expect competition to intensify in the future. Barriers to entry are not significant, and current and new competitors may be able to launch new Web sites at a relatively low cost. We compete, directly and indirectly, for members, consumers, content providers, advertisers, sponsors and acquisition candidates with: - companies and organizations providing or maintaining online services or Web sites targeted to physicians or the healthcare industry; - companies and organizations providing or maintaining general purpose consumer online services which provide access to healthcare content and services; - companies and organizations providing or maintaining public sector and non-profit Web sites that provide healthcare information and services without advertising or commercial sponsorships; - companies and organizations providing or maintaining Web search and retrieval services and other high-traffic Web sites; - publishers and distributors of traditional media, including those targeted to medical professionals, many of which have established or may establish Web sites; and - vendors of healthcare information, products and services distributed through other means, including direct sales, mail and fax messaging. Competition for members, users and advertisers, as well as competition in the electronic commerce market, is intense and is expected to increase significantly. WE MAY BE UNABLE TO EFFECTIVELY MANAGE OUR RAPID GROWTH. Our ability to successfully offer services and products and implement our business plan in a rapidly evolving market requires an effective planning and management process. We have increased, and plan to continue to increase, the scope of our operations. These expansion efforts could be expensive and may put a strain on management, and, if we do not manage growth properly, could adversely affect our business. To manage our future growth, we will need to: - improve existing or implement new operational and financial systems, procedures and controls; - expand, train and manage our employee base; and - maintain close coordination among our technical, finance, marketing, sales and editorial staffs. If we are unable to manage growth effectively, our business would be seriously harmed. WE MAY NOT BE ABLE TO RETAIN AND ATTRACT KEY PERSONNEL. Competition for personnel with experience in Internet content and commerce is intense. If we do not succeed in attracting new employees or retaining and motivating our current and future employees, our business could suffer significantly. We believe our performance is substantially dependent on: - our ability to retain and motivate our senior management and other key employees; and - our ability to identify, attract, hire, train, retain and motivate other highly skilled technical, managerial, editorial, marketing and customer services personnel. OUR FUTURE SUCCESS DEPENDS UPON FURTHER DEVELOPING AND ENHANCING OUR STRATEGIC RELATIONSHIPS. Although we have a variety of sources of traffic to our Web site, we expect a growing percentage of our traffic to be generated by strategic distribution partners. If we are not successful in developing and enhancing our strategic relationships, our business could be harmed. We formed our existing relationships recently and our distribution partners may not view their relationships with us as significant to their own business. As a result, they may reassess their commitment to us or decide to compete directly with us in the future. We generally do not have agreements that prohibit our distribution partners from competing against us directly or 9 12 from contracting with our competitors. Our arrangements with our distribution partners generally do not establish minimum performance requirements, but instead rely on the voluntary efforts of our distribution partners. As a result, we cannot guarantee that these relationships will be successful. OUR FUTURE SUCCESS DEPENDS UPON OUR ABILITY TO MAINTAIN OUR EXISTING RELATIONSHIPS WITH CONTENT PROVIDERS, TO BUILD NEW RELATIONSHIPS WITH OTHER CONTENT PROVIDERS AND TO CONTINUE TO OBTAIN ORIGINAL CONTENT FROM MEDICAL EXPERTS. Our Web site includes content licensed from independent providers and original content created for us by expert medical professionals. We have entered into relationships with approximately 45 companies representing over 100 publications, medical databases and newsfeeds to obtain content for Medscape.com, and we intend to enter into additional relationships in the future. Our success depends significantly on our ability to maintain our existing relationships with these content providers, to build new relationships with other content providers and to continue to obtain original content from medical experts. Many of our agreements with content providers are non-exclusive, and competitors offer, or could offer, content that is similar or the same as ours. If content providers, including our current providers, offer information to users or our competitors on more favorable terms than offered to us, we could become less competitive and our business and prospects could be harmed. In addition, the failure by our content providers to deliver high-quality content from reliable sources and to continuously upgrade their content in response to user demand and evolving healthcare industry trends could result in user dissatisfaction and inhibit our ability to attract users and add members. Our agreements with expert medical professionals who provide us with a majority of our original proprietary content are generally short-term and project-based. We cannot assure you that we will be able to attract expert medical professionals to provide us with original proprietary content in the future. Our failure to acquire original proprietary content written by expert medical professionals would have a negative effect on our content, resulting in a likely decline in our revenues. OUR SUCCESS DEPENDS UPON OUR ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY. Our intellectual property is important to our business. Our efforts to protect our intellectual property may not be adequate. Unauthorized parties may infringe upon or misappropriate our products, services or proprietary information. 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 could be subject to intellectual property infringement claims as the number of our competitors grows. These claims, even if not meritorious, could be expensive and divert our attention from operating our company. If we become liable to third parties for infringing their intellectual property rights, we could be required to pay a substantial damage award and to develop comparable non-infringing intellectual property or obtain a license or cease providing the services 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. OUR ACTIVITIES MAY EXPOSE US TO MALPRACTICE LIABILITY AND OTHER LIABILITY INHERENT IN HEALTHCARE DELIVERY. Patients who file lawsuits against doctors often name as defendants all persons or companies with any relationship to the doctors. As a result, patients may file lawsuits against us based on treatment provided by physicians who maintain Web pages at our site. In addition, a court or government agency may take the position that our delivery of health information, or information delivered by a third-party site that a consumer accesses through our Web site, exposes us to malpractice or other personal injury liability for wrongful delivery of healthcare services or erroneous health information. We cannot assure you that the amount of insurance we maintain with insurance carriers will be sufficient to cover all of the losses we might incur from these claims and legal actions. In addition, insurance for some risks is difficult, impossible or too costly to obtain, and as a result, we may not be able to purchase insurance for some types of risks. 10 13 OUR SYSTEMS MAY EXPERIENCE FAILURES. If we are not able to operate our Web site 24 hours a day, seven days a week, with limited interruptions, our business would be seriously harmed. Our Web site may be required to accommodate a high volume of traffic and deliver frequently updated information. We may experience slower response times or system failures due to increased traffic on our Web site or for a variety of other reasons. We depend on content providers to provide information and data feeds on a timely basis. Our Web site could experience disruptions or interruptions in service due to the failure or delay in the transmission or receipt of this information. In addition, our members and consumers depend on Internet service providers and other Web site operators for access to our Web site. These providers and operators have experienced significant outages in the past and could experience outages, delays and other difficulties in the future due to system failures unrelated to our systems. Moreover, the Internet infrastructure may not be able to support continued growth in its use. We do not maintain redundant systems or facilities for all of our services. To operate with limited interruption, our service and content providers must guard against: - damage from fire, power loss and other natural disasters; - communications failures; - software and hardware errors or failures; - security breaches, computer viruses and similar disruptive problems; and - other potential interruptions. We have experienced periodic system interruptions in the past, and we cannot guarantee that they will not occur again. Any significant interruptions in our services or an increase in response time could result in a loss of potential or existing users and members, strategic partners or advertisers and sponsors and, if sustained or repeated, could reduce the attractiveness of our Web site to these parties in the future. Our insurance policies have low coverage limits and, therefore, cannot adequately compensate us for any material losses that may occur due to disruptions in our service. Any significant interruption in our operations would negatively affect our business, financial condition and operating results. STATE RESTRICTIONS ON THE PRACTICE OF MEDICINE MAY 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 adversely affect our business. The laws in some states prohibit some business entities, such as our company, from practicing medicine. This is commonly referred to as the prohibition against the "corporate practice of medicine." These laws generally 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 laws restrict our activities and the extent to which we can provide medical advice to consumers. If challenged, we cannot assure you that our activities would be found to be in compliance with these laws. WE DEPEND UPON OUR MEMBERS TO PROVIDE US WITH ACCURATE REGISTRATION INFORMATION ABOUT THEMSELVES. We classify our members as physicians, allied healthcare professionals and consumers based on the information that members supply to us at the time of registration, and we cannot guarantee that this information is accurate, or that our members are who they say they are. In addition, possible changes in state or federal confidentiality laws may make it more costly and more difficult to verify the accuracy of information about our members. We are conducting an ongoing verification effort that may result in some members being reclassified because of incomplete or inaccurate information that they supplied at the time of registration. A significant amount of reclassifications may make us less attractive to advertisers, and revenues may decrease. 11 14 WE MAY INCUR LIABILITY FOR CONTENT AND USER DATA. 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 users. We cannot assure you that third parties or users will not bring claims against us relating to proprietary rights or use of personal information. Our general liability insurance may not cover or be adequate for potential claims of this type. HEALTHCARE REFORMS AND THE COST OF REGULATORY COMPLIANCE COULD NEGATIVELY AFFECT OUR BUSINESS. The healthcare industry is heavily regulated. Various laws, regulations and guidelines promulgated by government, industry and professional bodies affect, among other matters, the provision, licensing, labeling, marketing, promotion and reimbursement of healthcare services and products, including pharmaceutical products. A federal law commonly known as the Medicare/Medicaid antikickback law, and several similar state laws, prohibit payments that are intended to induce physicians or others either to refer patients or to acquire or arrange for or recommend the acquisition of healthcare products or services, including pharmaceuticals. Another federal law, commonly known as the "Stark" law, prohibits physicians from referring Medicare and Medicaid patients for designated health services to entities with which they have a financial relationship, unless that relationship qualifies for an explicit exception to the referral ban. It is possible that additional or changed laws, regulations or guidelines could be adopted in the future. Our failure or our clients' failure to comply with any applicable regulatory requirements or industry guidelines could: - limit or prohibit business activities; - subject us or our clients to adverse publicity; or - increase the costs of regulatory compliance or subject us or our clients to monetary fines or other penalties. In addition, healthcare reform measures have been considered by the U.S. Congress and other federal and state bodies during recent years. The intent of the proposals generally has been to reduce the growth of total healthcare expenditures and expand healthcare coverage. Implementation of government healthcare reform may adversely affect promotional and marketing expenditures by pharmaceutical companies, which could decrease the business opportunities available to us. THE INTERNET IS SUBJECT TO MANY GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES THAT MAY AFFECT OUR ABILITY TO CONDUCT BUSINESS. Any new law or regulation pertaining to the Internet, or the application or interpretation of existing laws, could decrease demand for our services, increase our cost of doing business or otherwise have a material adverse effect on our business and prospects. Laws and regulations may be adopted in the future that address Internet-related issues, including online content, user privacy, pricing and quality of products and services. For example, although it was held unconstitutional, the Communications Decency Act of 1996 prohibited the transmission over the Internet of various types of information and content. In addition, several telecommunications carriers are seeking to have telecommunications over the Internet regulated by the Federal Communications Commission in the same manner as other telecommunications services. Because the growing popularity and use of the Internet has burdened the existing telecommunications infrastructure in many areas, local exchange carriers have petitioned the FCC to regulate Internet service providers in a manner similar to long distance telephone carriers and to impose access fees on the Internet service providers. Currently, U.S. privacy law consists of disparate state and federal statutes regulating specific industries that collect personal data. Most of them predate and therefore do not specifically address online activities. However, European nations are now implementing a European Union Data Privacy Directive regulating the transmission and storage of personal information and data. In addition, a number of comprehensive legislative and regulatory privacy proposals are now under consideration by federal, state and local govern- 12 15 ments in the United States. We cannot guarantee that the United States or foreign nations will not adopt legislation aimed at protecting Internet users' privacy. Any such legislation could negatively affect our business. Moreover, it may take years to determine the extent to which existing laws governing issues like property ownership, libel, negligence and personal privacy are applicable to the Internet. SOME OF OUR ACTIVITIES ARE SUBJECT TO STATE AND FEDERAL LAWS THAT PROTECT INDIVIDUAL HEALTH INFORMATION AND GOVERN OWNERSHIP, USE AND DISCLOSURE OF THAT INFORMATION. Consumers sometimes enter private health information about themselves or their family members when using our services. Also, our systems record use patterns when consumers access our databases that may reveal health-related information or other private information about the user. Numerous federal and state laws and regulations govern collection, dissemination, use and confidentiality of patient-identifiable health information, including: - state privacy and confidentiality laws; - state pharmacy laws; - 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 health data. The U.S. Congress currently is considering proposed legislation that would establish a new federal standard for protection and use of health information. In addition, the laws of other countries also govern the use of and disclosure of health information. We cannot assure you that our systems for safeguarding patient health information from unauthorized disclosure or use will preclude successful claims against us for violation of applicable law. We also cannot assure you that other third-party sites that consumers access through our site will maintain systems to safeguard this health information. In addition, future laws or changes in current laws may necessitate costly adaptations to our systems. If we fail to comply with current or future laws or regulations governing the collection, dissemination, use and confidentiality of patient health information, this failure could have a material adverse effect on our business, operating results and financial condition. We intend to develop medical information systems and market research services that we will use to collect, analyze and report aggregate medical care, medical research, outcomes and financial data pertaining to items such as prescribing patterns and usage habits. Some states have enacted legislation regulating the aggregation of health information and the manipulation, use and ownership of that aggregated data, even when this data does not reveal the patient's identity. Because this area of the law is rapidly changing, we cannot assure you that our collection, analysis and reporting of aggregate healthcare data maintained in our database will at all times and in all respects comply with current or future laws or regulations governing the ownership, collection and use of this data. We cannot assure you that future laws or changes in current laws governing the ownership, collection and use of aggregate healthcare data will not necessitate costly adaptations to our systems or limit our ability to use this data. WE ARE SUBJECT TO FDA REGULATIONS. The U.S. Food and Drug Administration regulates the form and content of labeling, advertising and promotional materials, including direct-to-consumer prescription drug and medical device advertising, prepared by, or for, pharmaceutical or medical device companies. Any information developed by, or for, pharmaceutical and medical device companies, either alone or together with us, that promotes the use of their products and is put on our Web site is covered by the full array of FDA requirements and enforcement actions. Accordingly, if we are required to comply with FDA regulations, the time-consuming, burdensome and expensive nature of compliance could harm our: - relationships with pharmaceutical and medical device companies; 13 16 - ability to continue to provide some of our services or content; or - ability to introduce new services or content in a timely manner. In addition, the FDA has been considering the development of a broad set of policies dealing with the promotion of pharmaceutical and medical device products on the Internet. They have not done so to date. In the future, the FDA may develop new regulatory policies that may more tightly regulate the format and content of this information on the Internet. The FDA may also alter its present policies on the direct-to-consumer advertising of prescription drugs and medical devices in a way that would reduce or restrict the amount of this information available to consumers. Therefore, existing FDA rules and enforcement actions and regulatory policies that the FDA may develop in the future could have a material adverse effect on our ability to provide existing or future applications or services to our audience or obtain the necessary corporate sponsorship to do so. Some computer applications and software are considered medical devices and are subject to regulation by the FDA. If any of our current or future services or applications are regulated by the FDA as medical devices, we would be subject to various laws, regulations and policies enforced by the FDA or other governmental authorities, including both premarket and postmarket requirements. Noncompliance with applicable FDA requirements, including those related to pharmaceutical and medical device promotional practices and the pre-market and post-market approval requirements for medical devices, can result in an enforcement action that could substantially harm our business. Changes in existing regulatory requirements, our failure to comply with current or future requirements or adoption of new requirements could negatively affect our business. INTERNET SALES MAY BECOME TAXABLE. The tax treatment of the Internet and e-commerce is currently unsettled and any legislation that substantially impairs the growth of e-commerce could seriously harm our business and prospects. A number of 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 some other Internet activities. A recently enacted law places a temporary moratorium on selected types of taxation on Internet commerce. We cannot predict the effect of current attempts at taxing or regulating commerce over the Internet. WE HAVE LIMITED EXPERIENCE WITH INTERNATIONAL OPERATIONS, WHICH MAY RESULT IN OUR INABILITY TO SUCCEED ON AN INTERNATIONAL LEVEL. To date, we have had limited experience in developing localized versions of our online services and in marketing and operating our online services internationally. One element of our strategy is to develop our online service brands in international markets. To achieve this, we intend to enter into relationships with foreign business partners. We may experience difficulty in obtaining such partners and managing international operations because of distance, trade regulation, language barriers and cultural differences. Our revenues could be adversely affected if we or our future foreign business associates are unable to successfully market and operate our online services in foreign markets. ONLINE SECURITY BREACHES COULD HARM OUR BUSINESS. The secure transmission of confidential information over the Internet is essential in maintaining confidence in Medscape.com and will be increasingly important as we expand our consumer-oriented offerings. Substantial or ongoing security breaches on our system or other Internet-based systems could significantly harm our business. A party that is able to circumvent our security systems could steal proprietary information or cause interruptions in our operations. Security breaches could also damage our reputation and expose us to a risk of loss or litigation and possible liability. We may need to incur substantial expense to protect against and remedy security breaches and their consequences. Our insurance policies carry low coverage limits, which may not be adequate to reimburse us for losses caused by security breaches. We cannot guarantee that our security measures will prevent security breaches. 14 17 We also face risks associated with security breaches affecting third parties conducting business over the Internet. Consumers generally are concerned with security and privacy on the Internet and any publicized security problems could inhibit the growth of the Internet and, therefore, the Medscape.com service. WE WOULD LOSE REVENUES AND INCUR SIGNIFICANT COSTS IF OUR SYSTEMS OR MATERIAL THIRD-PARTY SYSTEMS ARE NOT YEAR 2000 COMPLIANT. The failure of our internal systems or material third-party systems to be Year 2000 compliant would significantly harm our business. The Year 2000 issue is the potential for system and processing failures of date-related data and the result of computer-controlled systems using two digits rather than four to define the applicable year. For example, computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. Medscape may be affected by Year 2000 issues related to non-compliant information technology systems or non-information technology systems operated by Medscape or by third parties. As a result, we could suffer a significant number of business disruptions and inefficiencies for us, our service and content providers and our members and users that may divert our time and attention and financial and human resources from our ordinary business activities. In addition, we cannot be certain that governmental agencies, utility companies, Internet access companies, third-party service providers and others outside of our control will be Year 2000 compliant. The failure by these entities to be Year 2000 compliant could result in a systemic failure beyond our control, such as a prolonged Internet, telecommunications or electrical failure, that could also prevent us from delivering our services to our customers, decrease the use of the Internet or prevent users from accessing our Web site which would lead to a decline in our revenues. SPENDING BY OUR ADVERTISERS AND SPONSORS TO EVALUATE AND ADDRESS YEAR 2000 COMPLIANCE COULD RESULT IN LOWER DEMAND FOR OUR SERVICES. Year 2000 compliance issues could also cause a significant number of companies, including our current advertisers and sponsors, to reevaluate their current system needs and, as a result, consider switching to other systems and means of advertising. This could result in a decrease in our advertising and sponsorship revenues. Also, during the next six months advertisers and sponsors are likely to increase their focus on addressing Year 2000 compliance issues, creating the risk that they may reallocate expenditures to fix Year 2000 problems of existing systems. Although we have not experienced these effects to date, if advertisers or sponsors defer Internet advertising and commerce and related services because of such a reallocation, it would adversely affect our business and operating results. WE MAY FAIL TO EFFECTIVELY INTEGRATE AND MANAGE OUR RECENT OR POTENTIAL ACQUISITIONS. We have recently acquired two medical Web sites and our strategy is to acquire other selected medical Web sites that complement or expand our service. We are now finalizing the integration of the technologies, service offerings, operations and systems of our recently acquired sites. Potential challenges to the successful integration of Web sites we acquire include: - our ability to attract their users to our Web site; - our ability to market and sell these Web sites' services to our clients; - centralization and consolidation of financial, operational and administrative functions; - elimination of unnecessary costs; - the technological integration of these Web sites' services with ours; and - the integration of these Web sites' personnel with ours. The process of integrating potential acquisitions could be complex and place significant demands on our management, technical, financial and other resources. 15 18 The successful integration of the acquisitions is critical to our future success. We cannot guarantee that our systems, procedures, controls and existing space will be adequate to support the integration of these acquisitions into our operations. We cannot guarantee that any of our acquisitions will result in sufficient sales or earnings to justify our investment in, or our expenses related to, the acquisitions. POTENTIAL ACQUISITIONS COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS, DILUTE STOCKHOLDER VALUE AND ADVERSELY AFFECT OUR OPERATING RESULTS. We may make investments in or acquire complementary products, technologies and businesses. These acquisitions and investments could disrupt our ongoing business, distract our management and employees and increase our expenses. If we acquire a company, we could face difficulties in assimilating that company's personnel and operations. In addition, the key personnel of the acquired company may decide not to work for us. Acquisitions of additional services or technologies also involve risks of incompatibility and the need for integration into our existing services and marketing, sales and support efforts. If we finance the acquisitions by issuing equity securities, this could dilute our existing stockholders. Any amortization of goodwill or other assets, or other charges resulting from the costs of these acquisitions, could adversely affect our operating results. OUR STOCK PRICE IS LIKELY TO BE VOLATILE. The market prices of the securities of Internet-related companies have been very volatile. We cannot guarantee that our investors will be able to sell their shares at or above the initial public offering price. In the past, following periods of volatility in the market price for a company's securities, stockholders have often instituted securities class action litigation. If a lawsuit were to be filed against us, it could result in substantial costs and the diversion of our management's attention and resources, which could seriously harm our business. OUR EXISTING STOCKHOLDERS WILL MAINTAIN CONTROL OF OUR COMPANY. Upon completion of this offering, our present directors and executive officers, holders of more than 5% of our common stock and their affiliates will beneficially own approximately % of the outstanding common stock. As a result, these stockholders, if they act as a group, will be able to control all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions. This control may have the effect of delaying or preventing a change in control of Medscape, which could negatively affect our stock price. WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS. Based on our current operating plan, we anticipate that the net proceeds of this offering, together with our available funds, will be sufficient to satisfy our anticipated needs for working capital, capital expenditures and business expansion for at least the next 12 months. After that time, we may need additional capital. Alternatively, we may need to raise additional funds sooner to fund more rapid expansion, to develop new or enhanced services, or to respond to competitive pressures. If we raise additional funds by issuing equity or convertible debt securities, the percentage ownership of our stockholders will be diluted. Furthermore, any new securities could have rights, preferences and privileges senior to those of the common stock. We currently do not have any commitments for additional financing. We cannot be certain that additional financing will be available when and to the extent required or that, if available, it will be on acceptable terms. If adequate funds are not available on acceptable terms, we may not be able to fund our expansion, develop or enhance our products or services or respond to competitive pressures. WE HAVE BROAD DISCRETION IN THE USE OF PROCEEDS FROM THIS OFFERING. We intend to use the net proceeds from this offering for general corporate purposes, funding operating losses, working capital and capital expenditures. We may also use a portion of the proceeds for potential strategic alliances and acquisitions. Our management will have significant flexibility in applying the net 16 19 proceeds of the offering, including uses with which the stockholders may not agree. The failure of our management to apply such funds effectively could seriously harm our business. A SIGNIFICANT NUMBER OF SHARES ARE ELIGIBLE FOR RESALE, AND THEIR SALE COULD REDUCE OUR STOCK PRICE. Sales of substantial amounts of common stock in the public market following this offering, or the perception that those sales will occur, could negatively affect the market price of our common stock. After the completion of this offering, shares of common stock will be outstanding. Of such shares, only the shares sold in this offering will be tradable in the public market without restriction. The remaining shares of common stock that will be outstanding after this offering are "restricted securities" within the meaning of Rule 144 under the Securities Act, and may not be publicly resold, except in compliance with the registration requirements of the Securities Act or under an exemption from registration, including that provided by Rule 144. Beginning 90 days after the date of this prospectus, shares and shares issuable upon exercise of options will be eligible for resale in the public market, subject to compliance with volume, timing and other requirements of Rule 144 and Rule 701 under the Securities Act and to the lock-up agreements described below. The remaining shares of currently outstanding common stock and shares issuable upon exercise of options which will vest after the 90-day period will become eligible for resale under Rule 144 and Rule 701 at various times within the next year, and some of these shares could be sold earlier if the holders exercise their registration rights described below. We and some of our existing stockholders holding an aggregate of shares of common stock have agreed not to offer, sell or contract to sell or otherwise dispose of any common stock for a period of 180 days after the date of this prospectus without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation, except under limited circumstances. In its sole discretion, and at any time without notice, Donaldson, Lufkin & Jenrette Securities Corporation may release all or any portion of the shares subject to these lock-ups. The holders of shares of common stock have the right in specified circumstances to require us to register their shares under the Securities Act, for resale to the public. If these stockholders, by exercising their registration rights, cause a large number of shares to be registered and sold in the public market, those sales could negatively affect on the market price for our common stock. Specifically, the holders of approximately shares of common stock have the right to demand registration of their shares beginning on the date days after the effective date of the registration statement relating to an initial public offering. If we were required to include shares held by these stockholders in a registration statement filed by us, those sales could negatively affect on our ability to raise needed capital. In addition, within approximately days after the date of this prospectus, we expect to register under the Securities Act a total of shares of common stock reserved for issuance upon exercise of outstanding stock options or reserved for issuance under our stock option plans. In connection with entering into acquisitions and strategic relationships, we have issued and may continue to issue options and warrants to purchase significant amounts of common stock. The issuance of significant amounts of options and warrants in the future, particularly options and warrants with exercise prices below the fair market value of the common stock at the time of issuance, could cause the market price of our stock to decline. WE HAVE ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT AN ACQUISITION OF MEDSCAPE. Some provisions of our certificate of incorporation and bylaws, sections of the Delaware General Corporation Law and the ability of our board of directors to issue shares of preferred stock could make it more difficult for a third party to acquire us, even if a change in control would be beneficial to our stockholders. These provisions could also make it more difficult to remove incumbent directors. 17 20 OUR SECURITIES HAVE NO PRIOR PUBLIC MARKET, AND WE CANNOT ASSURE YOU THAT OUR STOCK PRICE WILL NOT DECLINE AFTER THIS OFFERING. Before this offering, there has not been a public market for our common stock. The initial public offering price has been determined by negotiations between us and the representatives of the underwriters. See "Underwriting" for a discussion of the factors considered in determining the initial public offering price. The trading market price of our common stock may decline below the initial public offering price. In addition, an active public market for our common stock may not develop or be sustained after this offering. YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION. The price you will pay for our common stock will be substantially higher than the pro forma tangible book value per share of outstanding common stock. As a result, you will experience immediate and substantial dilution in tangible book value per share, and the current stockholders of our company will experience an immediate increase in the tangible book value per share of their shares of common stock. The dilution that you will experience in this offering will be approximately per share. Furthermore, to the extent that we issue additional shares of common stock in connection with acquisitions or any strategic partner agreements, or other outstanding options or warrants to purchase common stock are exercised, there will be further dilution. FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements based on our current expectations, assumptions, estimates and projections about Medscape and our industry. We generally identify forward-looking statements in this prospectus using words like "believe," "intend," "expect," "may," "will," "should," "plan," "project," "contemplate," "anticipate" or similar statements. These statements are based on our beliefs as well as assumptions we made using information currently available to us. Because these statements reflect our current views concerning future events, these forward-looking statements involve risks and uncertainties. Medscape's actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors, as more fully described in "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" and elsewhere in this prospectus. Medscape undertakes no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future. 18 21 USE OF PROCEEDS Assuming an initial public offering price of $ per share and after deducting estimated underwriting discounts and commissions and our estimated offering expenses, the net proceeds from the sale of the shares of common stock in this offering are estimated to be approximately $ million. The net proceeds will be approximately $ million if the underwriters' over-allotment option is exercised in full. The principal purposes of this offering are to: - obtain additional capital; - create a public market for our common stock; - enhance our ability to acquire other businesses, products or technologies; and - facilitate future access by us to public equity markets. We currently expect to use the net proceeds of this offering for general corporate purposes, including funding operating losses, working capital and capital needs. We also may use a portion of the net proceeds of this offering to acquire or invest in complementary businesses or technologies, although we have no present commitments or agreements with respect to any material acquisition or investment. Pending such uses, we intend to invest the net offering proceeds in short-term, interest-bearing, investment-grade securities. The forgoing represents our present intentions based upon our present plans and business conditions. The occurrence of unforeseen events or changed business conditions, however, could result in the application of the proceeds of this offering in a manner other than as described in this prospectus. DIVIDEND POLICY We have never declared or paid any cash dividends on our common stock or other securities and we do not intend to pay any cash dividends with respect to our common stock in the foreseeable future. We intend to retain any earnings for use in the operation of our business and to fund future growth. 19 22 CAPITALIZATION The following shows the cash and cash equivalents and capitalization of Medscape as of March 31, 1999 on an actual basis, and as adjusted to give effect to the sale of shares of common stock offered by Medscape at the initial public offering price and the application of the estimated net proceeds as described in "Use of Proceeds," the -for-one stock split, the authorization of 5,000,000 shares of preferred stock effective as of the closing of the offering, and the automatic conversion of securities into common stock to occur upon the closing of this offering. The table should be read together with the financial statements and the related notes and the other information included elsewhere in this prospectus.
AS OF MARCH 31, 1999 ------------------------- ACTUAL AS ADJUSTED (IN THOUSANDS) Cash and cash equivalents................................... $ 20,633 $ ======== ========= Shareholders' equity: Series A Preferred Stock, par value $.01; shares authorized, issued and outstanding (actual); no shares authorized, issued or outstanding (as adjusted)............................................. $ 8 $ Series C Preferred Stock, par value $.01 shares authorized, issued and outstanding (actual); no shares authorized, issued or outstanding (as adjusted)............................................. 15 Series C-1 Preferred Stock, par value $.01; shares authorized, issued and outstanding (actual); no shares authorized, issued or outstanding (as adjusted)............................................. 9 Series D Preferred Stock, par value $.01; shares authorized, issued and outstanding (actual); no shares authorized, issued or outstanding (as adjusted)............................................. 18 Preferred Stock, par value $.01; no shares authorized, issued or outstanding (actual); 5,000,000 shares authorized, no shares issued or outstanding (as adjusted)............................................. -- Class A Common Stock, par value $.01; shares authorized, issued and outstanding (actual); shares issued and outstanding and redesignated as common stock (as adjusted)............ 4 Class B Common Stock, par value $.01; shares authorized shares issued and outstanding (actual); no shares authorized, issued or outstanding (as adjusted)......................................... 23 Warrants............................................... 85 Additional paid-in capital............................. 32,079 Treasury stock......................................... (3) Notes receivable....................................... (628) Accumulated deficit.................................... (9,890) -------- --------- Total shareholders' equity........................ 21,720 -------- --------- Total capitalization.............................. $ 21,720 $ ======== =========
The outstanding share information is based on our shares outstanding as of March 31, 1999. This information excludes: - shares of common stock subject to options granted under our 1996 Stock Option Plan and outstanding as of March 31, 1999 at a weighted average exercise price of $ per share; and - shares of common stock reserved for outstanding warrants at an exercise price of $ per share. 20 23 DILUTION Our net tangible book value as of March 31, 1999 was approximately $19.7 million, or $ per share of common stock. Net tangible book value per share is equal to Medscape's total net tangible book value, which is total tangible assets less total liabilities, divided by the number of shares of common stock outstanding on that date after giving pro forma effect to the -for-one stock split and preferred stock conversion. Dilution per share equals the difference between the amount per share paid by purchasers of shares of common stock in this offering and the net tangible book value per share of shares of common stock offered by us in this offering. Assuming an initial public offering price of $ per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and the application of the estimated net proceeds from this offering, Medscape's net tangible book value as of March 31, 1999 would have been $ million, or $ per share. This represents an immediate increase in pro forma net tangible book value to existing stockholders of $ per share and an immediate dilution to purchasers in this offering of $ per share. The following table illustrates the per share dilution: Assumed initial public offering price................ $ -- Pro forma net tangible book value per share prior to this offering...................................... $ -- Increase per share attributable to this offering..... -- Adjusted pro forma net tangible book value per share after this offering................................ -- Dilution per share to new investors(1)............... $ --
- --------------- (1) Assuming the exercise in full of the underwriters' over allotment option, the adjusted pro forma net tangible book value of Medscape at March 31, 1999 would have been approximately $ per share, representing an immediate increase in net tangible book value of $ per share to our existing stockholders and an immediate dilution in net tangible book value of $ per share to purchasers in this offering. The following table illustrates, on a pro forma basis, as of March 31, 1999, the difference between the number of shares of common stock purchased from Medscape, the total consideration paid and the average price per share paid by existing stockholders and by the purchasers in this offering at an assumed initial public offering price of $ per share and before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
SHARES PURCHASED TOTAL CONSIDERATION ------------------ ------------------- AVERAGE PRICE PER NUMBER PERCENT AMOUNT PERCENT SHARE Existing stockholders..... % % $ Purchasers in this offering................ -------- --- --------- --- Total........... 100% $ 100% ======== === ========= ===
The discussion and table assume no exercise of options outstanding under our 1996 Stock Option Plan. As of March 31, 1999, there were options outstanding to purchase a total of shares of common stock at a weighted average price of $ per share and shares issuable upon exercise of outstanding warrants with a weighted average exercise price of $ per share. To the extent that any of these options and warrants are exercised, there will be further dilution to new investors. 21 24 PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) The following unaudited pro forma consolidated statement of operations present Medscape's consolidated results of operations for the year ended December 31, 1998, after giving effect to the Healthcare Communications Group, LLC acquisition and the other adjustments referred to below, in each case as if this transaction had occurred on January 1, 1998. The pro forma data does not give effect to this offering. The pro forma data is not necessarily indicative of the results that would have been achieved, nor is it indicative of Medscape's future results.
HEALTHCARE COMMUNICATIONS HISTORICAL GROUP, LLC PRO FORMA YEAR ENDED JANUARY 1, 1998 YEAR ENDED DECEMBER 31, TO PRO FORMA DECEMBER 31, 1998 OCTOBER 27, 1998 ADJUSTMENTS(1) 1998 CONSOLIDATED STATEMENTS OF OPERATIONS DATA: Revenues.................................... $ 3,069 $2,585 $ -- $ 5,654 --------- ------ ----- --------- Operating expenses: Editorial, production, content and technology............................. 2,563 1,737 -- 4,300 Sales and marketing....................... 2,344 -- -- 2,344 General and administration................ 1,775 868 -- 2,643 Depreciation and amortization............. 280 9 110 399 --------- ------ ----- --------- Total operating expenses.......... 6,962 2,614 110 9,686 --------- ------ ----- --------- Loss from operations........................ (3,893) (29) (110) (4,032) Interest expense (income)................. (249) (2) -- (251) --------- ------ ----- --------- Net loss.................................... $ (3,644) $ (27) $(110) $ (3,781) ========= ====== ===== ========= Basic net loss per share(2)................. $ $ Weighted average number of shares of common stock outstanding.........................
- --------------- (1) Adjustment represents amortization of goodwill for the 10 months ended October 27, 1998. (2) We calculate loss per common share by dividing the loss attributable to common shares by the weighted average number of shares outstanding. We do not include outstanding common stock options and warrants in the loss per common share calculation, as their effect is anti-dilutive. 22 25 SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) Shown below are selected financial data for the nine months ended December 31, 1996 and for each of the years in the two year period ended December 31, 1998 and for the three months ended March 31, 1998 and 1999. The selected consolidated financial data presented below with respect to the nine months ended December 31, 1996 and for the years ended December 31, 1997 and 1998 and the three months ended March 31, 1998 and 1999 have been derived from the financial statements appearing elsewhere in this prospectus. Deloitte & Touche LLP, independent auditors, have audited the consolidated financial statements for the nine months ended December 31, 1996 and two year period ended December 31, 1998. In our opinion the unaudited consolidated financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which consist only of normal recurring adjustments, necessary for a fair presentation of the financial position and the results of operations for these periods. Operating results for the three months ended March 31, 1998 and 1999 are not necessarily indicative of the results that may be expected for the full year. The information shown below is qualified by reference to and should be read together with the financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.
HISTORICAL ----------------------------------------- YEARS ENDED THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, MARCH 31, DECEMBER 31, --------------------- --------------------- 1996 1997 1998 1998 1999 CONSOLIDATED STATEMENTS OF OPERATIONS DATA: Revenues........................... $ 1,015 $ 1,522 $ 3,069 $ 550 $ 1,644 ------- --------- --------- --------- --------- Operating expenses: Editorial, production, content and technology................ 1,182 1,790 2,563 396 1,231 Sales and marketing.............. 278 1,201 2,344 299 1,081 General and administration....... 830 1,823 1,775 360 765 Depreciation and amortization.... 41 160 280 47 88 ------- --------- --------- --------- --------- Total operating expenses............... 2,331 4,974 6,962 1,102 3,165 ------- --------- --------- --------- --------- Loss from operations............... (1,316) (3,452) (3,893) (552) (1,521) Interest expense (income)........ 28 12 (249) (49) (82) ------- --------- --------- --------- --------- Net loss........................... $(1,344) $ (3,464) $ (3,644) $ (503) $ (1,439) ======= ========= ========= ========= ========= Basic loss per share(1)............ $ $ $ $ $ Weighted average number of shares of common stock outstanding......
AS OF DECEMBER 31, AS OF MARCH 31, ------------------------- ---------------- 1996 1997 1998 1998 1999 CONSOLIDATED BALANCE SHEET DATA: Current assets.................................. $ 560 $4,294 $3,038 $7,409 $22,985 Working capital................................. (1,570) 2,350 1,368 5,874 19,302 -------- ------ ------ ------ ------- Total assets.................................... 836 4,633 5,414 7,723 25,403 Stockholders' equity............................ (1,294) 2,689 3,744 6,188 21,720
- --------------- (1) We calculate loss per common share by dividing the loss attributable to common shares by the weighted average number of shares outstanding. We do not include outstanding common stock options and warrants in the loss per common share calculation as their effect is anti-dilutive. 23 26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our financial condition and operations should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to, those described under "Risk Factors" and elsewhere in this prospectus. OVERVIEW We operate Medscape.com, a leading healthcare Web site for physicians, allied healthcare professionals, such as pharmacists and nurses, and consumers. Our Web site is a valuable resource that enables our members to make better informed healthcare decisions. We provide comprehensive, authoritative and timely medical information, including original proprietary articles written for us by renowned medical experts and what we believe is the Web's largest collection of free, full-text, peer-reviewed articles. We supplement our medical content with a variety of non-medical information, community features and interactive programs, that make Medscape.com a full-service healthcare destination Web site. Medscape, Inc. commenced operations in April 1996. In October 1998, we acquired Healthcare Communications Group, LLC, which operated a leading HIV Web site. In the first quarter of 1999, we acquired the trademarks and hired key employees of Bonehome.com, a leading orthopedic Web site, and CompuRx, Inc., a healthcare market research company serving pharmaceutical and other healthcare companies. The Bonehome.com and CompuRx transactions were not material to our financial statements. These transactions are consistent with our strategy to be the leading online information source for selected medical specialties and to broaden our revenue streams. Since our inception, we have derived substantially all of our revenues from advertising and sponsorships from pharmaceutical companies. We also generate revenues from our e-commerce partners who either provide us with a placement fee or a commission on sales of their products generated through our Web site. We offer banner advertising to third-party advertisers and generally guarantee delivery of a specified number of advertising impressions. We derive sponsorship revenues from the development of client-sponsored content, including modules on disease topics and editorial coverage of medical conferences. We expect our revenues to be seasonal due to the scheduling of major medical conferences. We recognize banner advertising revenues in the period that we display the advertisement, provided that no significant obligations remain and collection of the resulting receivable is probable. We recognize revenues from modules and editorial coverage of medical conferences on a cost of completion basis. We recognize revenues from e-commerce based on commissions when earned from our third-party partners or, in cases where third-party partners pay placement fees to us, over the life of the product placement. To date, we have incurred substantial costs to create and enhance our content, build brand awareness, develop our infrastructure and grow our business, and have yet to achieve significant revenue. As a result, we have incurred operating losses in each fiscal quarter since we were formed. We expect operating losses and negative cash flow to continue for the foreseeable future as we intend to significantly increase our operating expenses to grow our business. These costs could have an adverse effect on our future financial condition or operating results. We believe that period-to-period comparison of our financial results is not necessarily meaningful and you should not rely upon them as an indication of our future performance. RESULTS OF OPERATIONS The following descriptions of the components of revenues and expenses apply to the Comparison of Results of Operations: - Revenues. Revenues consist primarily of sales of advertising banners and sponsorships for developing content for modules and medical conferences. Revenues also include commission revenues or 24 27 placement fees from product sales, such as medical books, and market research services to pharmaceutical and other healthcare companies. - Editorial, Production, Content and Technology. Product development expenses consist primarily of salaries, third-party content acquisition costs, the development of sponsored content and expenditures associated with maintaining and enhancing our Web site. - Sales and Marketing. Sales and marketing expenses consist primarily of salaries, commissions, advertising, promotions and related marketing costs. - General and Administration. General and administration expenses consist primarily of salaries, facility costs and fees for professional services. - Depreciation and Amortization. Depreciation expense reflects the charge for depreciation of capitalized fixed assets, including computer equipment, Web site servers and related equipment, and the amortization of office leasehold improvements. Additionally, this category includes goodwill amortization related to corporate acquisitions. - Interest Expense/Income. Interest expense is related to loans that a related party provided to Medscape, which were fully repaid by the end of 1998. Interest income consists primarily of interest earned on cash and cash equivalents generated from private placements of equity securities. The following tables present, for the periods given, selected data from Medscape's statements of operations and this data as a percentage of net revenues. We have derived our statements of operations data for 1996, 1997 and 1998 periods from our audited financial statements. We have derived the statement of operations data for the first quarters of 1998 and 1999 from our unaudited financial statements which, in our opinion, have been prepared on substantially the same basis as the audited financial statements and includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information. This information should be read together with the financial statements and notes thereto included elsewhere in this prospectus. The operating results in any period are not necessarily indicative of the results that may be expected for any future period.
HISTORICAL ------------------------------------------- NINE MONTHS YEAR ENDED THREE MONTHS ENDED DECEMBER 31, ENDED MARCH 31, DECEMBER 31, ----------------------- ---------------- 1996 1997 1998 1998 1999 (IN THOUSANDS) Revenues................................... $ 1,015 $ 1,522 $ 3,069 $ 550 $ 1,644 ------- ------- ------- ------ ------- Operating Expenses: Editorial, production, content and technology.......................... 1,182 1,790 2,563 396 1,231 Sales and marketing................... 278 1,201 2,344 299 1,081 General and administration............ 830 1,823 1,775 360 765 Depreciation and amortization......... 41 160 280 47 88 ------- ------- ------- ------ ------- Total operating expenses......... 2,331 4,974 6,962 1,102 3,165 ------- ------- ------- ------ ------- Loss from operations....................... (1,316) (3,452) (3,893) (552) (1,521) Interest expense (income)............. 28 12 (249) (49) (82) ------- ------- ------- ------ ------- Net loss................................... $(1,344) $(3,464) $(3,644) $ (503) $(1,439) ======= ======= ======= ====== =======
25 28
HISTORICAL -------------------------------- NINE MONTHS YEAR ENDED THREE MONTHS ENDED ENDED DECEMBER 31, MARCH 31, DECEMBER 31 ----------------- ------------------ 1996 1997 1998 1998 (IN THOUSANDS) 1999 Revenues..................................... 100.0% 100.0% 100.0% 100.0% 100.0% ------- ------- ------- ------ ------- Operating expenses: Editorial, production, content and technology............................ 116.5 117.6 83.5 72.0 74.9 Sales and marketing..................... 27.4 78.9 76.4 54.4 65.8 General and administration.............. 81.8 119.8 57.8 65.5 46.5 Depreciation and amortization........... 4.0 10.5 9.1 8.5 5.4 ------- ------- ------- ------ ------- Total operating expenses........... 229.7 326.8 226.8 200.4 192.5 ------- ------- ------- ------ ------- Loss from operations......................... (129.7) (226.8) (126.8) (100.4) (92.5) Interest expense (income)............... 2.8 0.8 (8.1) (8.9) (5.0) ------- ------- ------- ------ ------- Net loss..................................... (132.4)% (227.6)% (118.7)% (91.5)% (87.5)% ======= ======= ======= ====== =======
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND 1999 Revenues and operating expenses for the first quarter of 1999 include Healthcare Communications Group, which we acquired in October 1998. Revenues. Revenues increased 199% from $550,000 for the three months ended March 31, 1998 to $1.6 million for the three months ended March 31, 1999. The increase in revenues was driven by the inclusion of Healthcare Communications Group revenues during the first quarter of 1999 and an increase in the number of advertisers and sponsors on our Web site. Editorial, Production, Content and Technology. Product development expenses increased 211% from $396,000 for the three months ended March 31, 1998 to $1.2 million for the three months ended March 31, 1999. The increase in costs was primarily due to increased variable costs related to the development of sponsored content and costs associated with expanding and enhancing editorial content and the functionality of our Web site. Sales and Marketing. Sales and marketing expenses increased 262% from $299,000 for the three months ended March 31, 1998 to $1.1 million for the three months ended March 31, 1999. The increase in costs was primarily due to increased costs related to the continued development and implementation of our marketing and branding campaigns and additional sales and marketing personnel. General and Administration. General and administration expenses increased 113% from $360,000 for the three months ended March 31, 1998 to $765,000 for the three months ended March 31, 1999. The increase in costs was primarily a result of expenses related to increased personnel, professional service fees and facility expenses necessary to support our growth. Depreciation and Amortization. Depreciation and amortization expenses increased 87% from $47,000 for the three months ended March 31, 1998 to $88,000 for the three months ended March 31, 1999. The increase in costs was attributable to increased purchases of fixed assets and amortization of goodwill related to the Healthcare Communications Group acquisition in October 1998. Interest Expense/Income. Net interest income for the three months ended March 31, 1999 was $82,000 compared to $49,000 for the three months ended March 31, 1998. The higher interest income was due to a higher average of net cash and cash equivalents balance as a result of our issuance of preferred stock during the three months ended March 31, 1999. Income Taxes. As of March 31, 1999, Medscape had federal net operating loss carryforwards of approximately $10.1 million which will be available to reduce future taxable income. The federal net operating loss carryforwards expire beginning in 2011 through 2019. A valuation allowance has been recorded for the 26 29 entire deferred tax asset as a result of uncertainties regarding the realization of the asset due to our lack of earnings history. COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1998 Operating results for the year ended December 31, 1998 include the results of Healthcare Communications Group, which we acquired in October 1998. Revenues. Revenues increased 102% from $1.5 million for the year ended December 31, 1997 to $3.1 million for the year ended December 31, 1998. The increase in revenues was driven by the inclusion of Healthcare Communications Group revenues for November and December 1998 and an increase in the number of advertisers and sponsors on our Web site. Editorial, Production, Content and Technology. Product development expenses increased 43% from $1.8 million for the year ended December 31, 1997 to $2.6 million for the year ended December 31, 1998. The increase in costs was primarily due to increased variable costs associated with the development of sponsored content as well as from additional editorial, production and technology personnel. Sales and Marketing. Sales and marketing expenses increased 95% from $1.2 million for the year ended December 31, 1997 to $2.3 million for the year ended December 31, 1998. The increase in costs was primarily due to the expansion of our sales force and client services staff and costs related to marketing and branding campaigns. General and Administration. General and administration expenses remained essentially flat at $1.8 million for the years ended December 31, 1997 and 1998. General and administration costs in 1997 included certain non-recurring service fees charged by a related party. Recurring costs increased in 1998 as a result of hiring several senior managers and related recruitment fees and increased support costs in line with the increase in our number of personnel. Depreciation and Amortization. Depreciation and amortization expenses increased 75% from $160,000 for the year ended December 31, 1997 to $280,000 for the year ended December 31, 1998. The increase in costs was largely attributable to increased purchases of fixed assets and amortization of goodwill resulting from the Healthcare Communications Group acquisition in October 1998. Interest Expense/Income. Net interest expense for the year ended December 31, 1997 was $12,000. Net interest income for the year ended December 31, 1998 was $249,000. The improvement was due to higher average net cash and cash equivalents balances as a result of the issuance of preferred stock at the end of 1997 and in 1998, as well as the payment in full of all outstanding loans in 1998. COMPARISON OF NINE MONTHS ENDED DECEMBER 31, 1996 AND YEAR ENDED DECEMBER 31, 1997 Revenues. Revenues increased 50% from $1.0 million for the period from April 1, 1996, when we commenced operations, to December 31, 1996 to $1.5 million, for the year ended December 31, 1997. The increase in revenues was driven primarily by an increase in the number of advertisers and sponsors on our Web site and the inclusion of twelve months of revenues for the year ended December 31, 1997 versus nine months for the prior period. Editorial, Production, Content and Technology. Product development expenses increased 51% from $1.2 million for the nine months ended December 31, 1996 to $1.8 million for the year ended December 31, 1997. The increase in costs was primarily due to increased number of personnel required to develop our core product offerings and the inclusion of twelve months of costs for the year ended December 31, 1997 versus nine months for the prior period. Sales and Marketing. Sales and marketing expenses increased 332% from $278,000 for the nine months ended December 31, 1996 to $1.2 million for the year ended December 31, 1997. The increase in costs was primarily due to increased sales and marketing personnel and promotional costs and inclusion of twelve months of costs for the year ended December 31, 1997 versus nine months for the prior period. 27 30 General and Administration. General and administration expenses increased 120% from $830,000 for the nine months ended December 31, 1996 to $1.8 million for the year ended December 31, 1997. The increase in costs was primarily a result of non-recurring items in 1997, including certain service fees paid to a related party and the twelve month period versus nine months of operations. Depreciation and Amortization. Depreciation and amortization expenses increased 290% from $41,000 for the nine months ended December 31, 1996 to $160,000 for the year ended December 31, 1997. The increase in costs was primarily attributable to increased purchases of fixed assets and the inclusion of twelve months of costs for the year ended December 31, 1997 versus nine months for the prior year. Interest Expense/Income. Interest expense for the nine months ended December 31, 1996 was $28,000 as compared with $12,000 for the year ended December 31, 1997. We earned income on net cash and cash equivalents balances from the issuance of preferred stock offset by interest paid, at commercial rates, on a loan to Medscape. LIQUIDITY AND CAPITAL RESOURCES Since our inception, we have largely financed our operations through the private placement of equity securities and, to a lesser extent, from revenues generated from advertising and sponsorship sales and loans received from a related party. Net cash used in operating activities was $80,000, $3.6 million and $4.2 million for the period from April 1, 1996 through December 31, 1996 and for the years ended December 31, 1997 and 1998, respectively. Net cash used in operating activities for the three months ended March 31, 1999 was $1.4 million. Cash used in operating activities from April 1, 1996 through March 31, 1999 was attributable to funding net operating losses and increases in accounts receivable and prepaid expenses, which were partially offset by increases in deferred revenues, accrued expenses and accounts payable. Net cash used in investing activities was $318,000, $222,000 and $1.5 million for the period from April 1, 1996 through December 31, 1996 and for the years ended December 31, 1997 and 1998, respectively. Net cash used in investing activities for the three months ended March 31, 1999 was $130,000. Cash used in investing activities related primarily to the purchase of tangible fixed assets and the acquisition of Healthcare Communications Group in October of 1998. Cash provided by financing activities was $597,000, $7.3 million and $3.6 million for the period from April 1, 1996 through December 31, 1996 and for the years ended December 31, 1997 and 1998, respectively. For the quarter ended March 31, 1999, gross proceeds provided by financing activities were $20.6 million. As of March 31, 1999, the primary source of liquidity for Medscape was $20.6 million of cash and cash equivalents. As of this date, we had no bank credit facility. We expect to incur significantly higher costs, particularly content creation costs and sales and marketing costs to grow our business. We believe that the net proceeds from this offering, together with current cash and cash equivalents and any cash generated from operations, will be sufficient to meet anticipated cash needs for working capital and capital expenditures for at least the next 12 months following the offering. However, if during that period or thereafter we are not successful in generating sufficient cash flow from operations or in raising additional capital when required in sufficient amounts and on terms acceptable to us, these failures could have a material adverse effect on our business, results of operations and financial condition. If we raise additional funds through the issuance of equity securities, the percentage ownership of our then current stockholders would be reduced. NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." SFAS No. 130 establishes new rules for the reporting and display of 28 31 comprehensive income and its components. We have no elements of comprehensive income; we operate in one segment in the United States. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" which establishes accounting and reporting standards for derivative instruments and hedging activities for our year ended December 31, 2000. Generally, it requires that a entity recognize all derivatives as either an asset or liability and measure those instruments at fair value, as well as identify the conditions for which a derivative may be specifically designed as a hedge. We currently do not have any derivative instruments and we do not engage in any hedging activities. During 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Policy No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This statement is applicable to our 1999 financial statements and will require us to capitalize certain payroll and payroll-related costs and other costs that are directly related to the development of certain systems. Amortization of these costs will be over the life of the systems. We are currently evaluating the effect of this statement on our financial statements. YEAR 2000 Many currently installed computer systems and software products are coded to accept only two-digit entries in the date code field and cannot reliably distinguish dates beginning on January 1, 2000 from dates prior to the year 2000. Many software and computer systems used by companies and governmental agencies may need to be upgraded or replaced in order to correctly process dates beginning in 2000 and comply with Year 2000 requirements. We are conducting a comprehensive review of our computer based operating, financial and administrative systems to ensure that all such systems are, or prior to the end of 1999 will be, Year 2000 compliant. We are also reviewing our non-information technology systems, such as telephone switches, fax machines, security systems, elevators and other common devices for Year 2000 problems. Our Year 2000 review project includes the following phases: - conducting a comprehensive inventory of our internal systems and the systems acquired or to be acquired by us; - assessing and prioritizing any required remediation; - remediating any problems by repairing or, if appropriate, replacing the non-compliant systems; and - testing all remediated systems for Year 2000 compliance. We have substantially completed the first three phases of our Year 2000 review project and plan to complete the fourth phase by the end of the third quarter of 1999. Based upon the results of our review to date, it appears that there are no significant Year 2000 issues within our systems that would have a negative effect on our ability to conduct business. In addition to assessing the readiness of our systems, we have been gathering information from and have initiated communications with our third-party systems and software vendors, as well as other suppliers, to identify and, to the extent possible, resolve issues involving the Year 2000 problem. Based on representations made to us by applicable suppliers, we believe that the third-party software and systems that are material to our business are Year 2000 compliant. However, we have limited or no control over the actions of our third-party suppliers. Thus, while we expect that we will be able to resolve any significant Year 2000 problems with our systems, we cannot guarantee that our third-party suppliers will resolve all Year 2000 problems with their systems before the occurrence of a material disruption to our business. Any failure of material third-party suppliers to resolve Year 2000 problems with their systems in a timely manner would have a negative effect on our ability to conduct business. To date, we have spent an immaterial amount on Year 2000 compliance issues but expect to incur approximately an additional $50,000 in connection with evaluating and addressing these issues. Most of our 29 32 expenses have related to operating costs associated with the time spent by employees and consultants in the evaluation process and Year 2000 compliance matters generally. These expenses, if higher than anticipated, could have a negative effect on our financial condition. We expect to identify and resolve by September 30, 1999 all Year 2000 problems that could materially adversely affect our business, financial condition or operating results. We cannot assure you, however, that we will achieve full Year 2000 compliance before the end of 1999. A failure of our computer systems or the failure of our suppliers or customers to effectively upgrade their software and systems for transition to the year 2000 could have a material adverse effect on our business, financial condition and results of operations. In addition, we cannot be certain that governmental agencies, utility companies, Internet access companies, third-party service providers and others outside of our control will be Year 2000 compliant. The failure by these entities to be Year 2000 compliant could result in a systemic failure beyond our control, such as a prolonged Internet, telecommunications or electrical failure, that could prevent us from delivering our services to our customers, decrease the use of the Internet or prevent users from accessing our Web site, any of which could have a material adverse effect on our business, financial condition and results of operations. We completed an acquisition during 1998 and are finalizing the integration of the systems of the acquired business into our operations. Those systems are included in our Year 2000 review. For any other acquisitions that we may complete prior to the end of 1999, we will evaluate the extent of the Year 2000 problems associated with such potential acquisition and the cost and timing of remediation. This work will be done as part of the due diligence process as well as post-acquisition integration. We cannot assure you, however, that the systems of any acquired business will be Year 2000 compliant when we acquire them or will be capable of timely remediation. As discussed above, we are engaged in an ongoing Year 2000 assessment and have not yet developed any contingency plans. We will take the results of our assessment into account in determining the nature and extent of any contingency plans. 30 33 BUSINESS MEDSCAPE We operate Medscape.com, a leading healthcare Web site for physicians, allied healthcare professionals, such as pharmacists and nurses, and consumers. Our Web site is a valuable resource that enables our members to make better informed healthcare decisions. We provide comprehensive, authoritative and timely medical information, including original proprietary articles written for us by renowned medical experts. We supplement our medical content with a variety of non-medical information, community features and interactive programs that make Medscape.com a full-service healthcare destination site. As of March 31, 1999, Medscape.com had more than one million registered members worldwide, including over 180,000 registered as physicians, 500,000 registered as allied healthcare professionals and 350,000 registered as consumers. Our registered member base allows us to provide pharmaceutical, medical device and other healthcare companies with direct access to their target audiences. Medscape.com is currently organized by medical specialty area, such as oncology and cardiology, to make it easier for our members to access the information most relevant to them. Our medical content and interactive programs assist medical professionals in keeping abreast of medical advances. Our original, exclusive and proprietary content includes such innovative features as next day summaries of major medical conferences and online, peer-reviewed medical journals. We also provide proprietary interactive programs that test a medical professional's diagnostic skills and understanding of recent medical developments. We provide access to extensive online medical databases and what we believe is the Web's largest collection of free, peer-reviewed, full-text medical articles. In addition, we offer physicians the opportunity to earn continuing medical education credits that are required by most states' licensing boards. We believe that consumers view Medscape.com as a trusted source of healthcare information because of our high-quality content and credibility with physicians. To enhance and personalize the consumer experience, we plan to launch a separate consumer site that will provide consumer-oriented information, community features and interactive programs. We plan to organize our consumer site by health topics, such as diabetes and asthma, and general health and wellness. The consumer site will also operate under the Medscape brand and will be linked to the professional site to provide members registered as consumers with Medscape.com's full suite of comprehensive medical information. Medscape was incorporated in New York in March 1996 and commenced operations in April 1996. Medscape was reincorporated in Delaware in December 1998. In October 1998, we purchased Healthcare Communications Group, which operated a leading HIV Web site. INDUSTRY BACKGROUND THE INTERNET The Internet has emerged as a global medium for communications, news, information and commerce. International Data Corporation estimates that the number of Web users worldwide will increase from approximately 97 million at the end of 1998 to 320 million by the end of 2002. IDC also estimates that the number of Web users in the United States will increase from approximately 52 million at the end of 1998 to 136 million by the end of 2002. A number of factors drive the Internet's continued growth, including the large and growing installed base of personal computers, a rapidly expanding and improving Internet delivery infrastructure and an explosion of content and commerce offerings on the Web. The Internet allows content delivery in a manner not possible through traditional broadcast and print media. These traditional media can have large audiences but generally are limited to a specific geographic area, can deliver only limited content and are not effective for distributing detailed information quickly. The Internet is distinct from traditional media in that it offers immediate access to dynamic and interactive content and enables instantaneous communication among users. As a result, the Internet has become an important alternative to traditional media, enabling users to seek current information and to communicate with one another. These characteristics, combined with the fast growth of Internet, have created a powerful, 31 34 rapidly expanding direct marketing and sales channel. Advertisers can target very specific demographic groups, measure the effectiveness of advertising campaigns and quickly revise them in response to the prompt feedback allowed by the Internet's technology. As users increasingly rely on the Internet for their information needs, they have sought more detailed content on a wide variety of specific subjects. Utilizing subject-specific sites, users can find information on selected topics quickly, easily and cost effectively, making these sites a very attractive resource for users. In addition to offering detailed and comprehensive content, many of these subject-specific sites have developed online communities that allow users to communicate with each other and to engage in other interactive activities. We believe these community features are attractive to users who want to express themselves and who seek to interact with other users who have similar interests. RELEVANT DYNAMICS IN THE HEALTHCARE INDUSTRY Healthcare is the largest sector of the U.S. economy, accounting for approximately $1 trillion in annual spending. As the focal point of the healthcare delivery system, the approximately 620,000 prescribing physicians in the United States directly or indirectly control approximately 80% of the $1 trillion in annual expenditures. This makes physicians attractive marketing targets for pharmaceutical companies, medical device manufacturers and other healthcare companies. According to IMS Health, in 1998, pharmaceutical companies spent over $10 billion on promotional and educational activities targeting physicians in the United States. According to Scott-Levin, approximately $5.7 billion of these expenditures were on 59 million face-to-face product details, a process in which a sales representative explains to a physician the therapeutic benefits and adverse effects of new or existing drugs. This amount represents an increase of 14.6% over 1997 detailing expenditures. In addition, pharmaceutical companies spent approximately $1.9 billion on medical journal print advertising, promotional meetings and events. Continuing changes in the healthcare industry, including the increasing adoption of managed care plans and the need to keep informed about rapidly emerging medical and pharmaceutical therapies, are placing increasing pressures on physicians' time. Physicians must keep abreast of the latest developments within their medical specialty to provide their patients with the best possible care and to meet continuing medical education requirements. There is a vast flow of information from many sources, including traditional medical journals, medical textbooks, industry conferences and other trade literature. The sheer volume of medical information and the time constraints that physicians face make it extremely difficult for them to stay current and to quickly and efficiently access the information most relevant to their practice. We believe that physicians value services that allow them to easily find and manage information they are seeking. Consumers are taking a more active role in seeking information sources on health and wellness topics and educating themselves on available treatment options. This trend is driven by the proliferation of new therapies and the increased oversight of treatment options by payors. Traditional media have sought to meet this demand for consumer-oriented healthcare information by introducing magazines focused on health and wellness and by increasing news coverage of healthcare-related issues. We believe that consumers, like physicians, value a comprehensive healthcare site with high-quality content, community features and interactive programs that help them make better informed healthcare decisions and simplify management of their healthcare needs. Pharmaceutical, medical device and other healthcare companies recently have increased their efforts to influence consumer behavior with targeted advertising and promotions. This trend has been influenced in part by new guidelines for direct-to-consumer advertising of pharmaceuticals issued by the U.S. Food and Drug Administration in August 1997. As a result, according to Scott-Levin, pharmaceutical companies spent an estimated $1.3 billion on direct-to-consumer advertising for prescription drugs in 1998, an increase of 30% over 1997. CONVERGENCE OF THE INTERNET AND THE HEALTHCARE INDUSTRY The Internet is an effective medium for accessing timely and relevant medical information. Health and medical information is one of the fastest growing areas of interest on the Internet. According to Cyber 32 35 Dialogue, one-third of all Web users in the United States use the Internet to locate healthcare information, half of whom are searching for information on a specific disease or health condition. Physicians are using the Internet as a valuable source of the latest medical information. According to a June 1998 PERQ/HCI report, over 52% of physicians accessed medical information online, up from 37% in the prior year. The Internet allows physicians to access, at their convenience, recent healthcare articles and reports, link to authoritative medical databases and earn continuing medical education credits. Consumers are also using the Internet to find information that will enable them to better understand and manage their own, their family's and their friends' healthcare needs and to interact with other users who have similar healthcare interests. According to Cyber Dialogue, during the 12-month period ending June 1998, approximately 17 million adults in the United States searched online for health and medical information. It is estimated that this number will grow to over 33 million by 2000. We believe that community features are particularly important to healthcare consumers, because medical information is often complex and intimidating and consumers value communication, information and testimonials from peers who share similar health concerns. According to Cyber Dialogue, 70% of consumers who access healthcare information on the Internet feel more empowered to make healthcare decisions. In addition, approximately 50% of such consumers make offline purchases after seeking information on the Internet. Cyber Dialogue also reports that Web users seeking healthcare information are typically better educated, have higher household incomes and are more experienced with the Internet than the general population of Internet users. THE MEDSCAPE SOLUTION Medscape.com is a healthcare destination site that provides medical professionals and consumers with comprehensive, authoritative and timely medical information and interactive programs. We believe Medscape.com is positioned to help users make better informed healthcare decisions and change the way people access information and communicate about healthcare. We believe the following factors drive our success: We provide comprehensive, authoritative and timely medical information. Medscape.com provides high-quality, timely and original content on important healthcare trends and disease topics. Using the real-time publishing capabilities of the Internet, we can deliver this content to our audience faster and more cost effectively than traditional print media, which is limited by publication schedules and physical distribution. Many of our articles are written by industry-leading medical experts and are peer-reviewed by other physicians to insure they meet the highest standards of medical integrity. Our experienced editorial staff is headed by Medscape's Editor in Chief, Dr. George D. Lundberg, who was the Editor of the prestigious Journal of the American Medical Association for 17 years. We supplement our extensive original content with one of the Web's largest collections of free, peer-reviewed, full-text medical articles, one of the Web's most extensive libraries of continuing medical education accredited programs, and exclusive third-party Web access to a leading drug and disease database. Our medical specialty areas are carefully designed and their features are regularly updated by our editorial and quality control staff. Our site is well organized and easy-to-use. Our Web site is designed to meet the needs of our members in a personalized and easy-to-use manner. We organize our professional information by medical specialty area, the way physicians practice, and we plan to organize our consumer-oriented information areas by health topic. In addition to high-quality medical content, our consumer site will provide community features and interactive programs to help consumers make better informed healthcare decisions and to simplify management of their healthcare needs. Unlike many other healthcare Web sites, we allow consumers to access the same high-quality medical information as physicians. We provide our clients with cost-effective access to our audience. Our membership registration profiles give us the ability to segment our audience based on their medical specialty or healthcare interest. In addition, our proprietary membership profile and traffic database enables us to provide advertising and sponsored content targeted to the specific profile our clients seek to reach. We also offer online programs that complement many of the pharmaceutical companies' off-line promotional and educational efforts. For 33 36 example, we expand the audience of sponsored medical conferences by making next-day summaries of the proceedings available to members who were unable to attend. In addition, we believe Medscape.com creates an attractive e-commerce environment for health-related products. We bring physicians, allied healthcare professionals and consumers together under a single brand. One of our key advantages is Medscape.com's ability to attract three of the most important healthcare communities: physicians, allied healthcare professionals and consumers. By attracting these important communities to our single brand, we believe we are positioned to become the preferred online advertising medium and e-commerce partner in the healthcare sector. GROWTH STRATEGY Our objective is to be the premier online healthcare destination Web site where physicians, allied healthcare professionals and consumers find reliable and comprehensive information to make better and more informed medical and health decisions. We intend to achieve this objective by pursuing the following strategies: Strengthening the Medscape Brand. We intend to establish Medscape as the leading single brand for online healthcare information. We believe that strengthening our brand awareness is critical to attracting and retaining members, advertisers, sponsors and strategic partners. To achieve this objective, we plan to pursue an aggressive brand development strategy through strategic distribution relationships, online and off-line advertising, promotions, media coverage and word-of-mouth support. Expanding and Enhancing Our Content Offerings. We intend to expand the content on both our professional and consumer sites by adding new medical specialty areas, enlarging our editorial staff and utilizing our extensive relationships with leading medical experts. We intend to enhance the consumer experience by adding consumer-oriented health condition and general health and wellness information, community features and interactive programs that take advantage of our credibility with medical professionals and our existing professional medical specialty content. Growing Membership and Audience Loyalty. We intend to grow our medical professional membership and increase the frequency and length of their visits to our site. Our objective is to establish Medscape.com as an integral part of the medical professional's daily work flow by continuing to offer compelling content, providing interactive programs and services and building relationships with relevant healthcare organizations. We plan to substantially grow consumer membership by offering a superior consumer experience with compelling content, community features and interactive programs that we believe will increase member loyalty, repeat usage and time spent on our site. Developing Strategic Alliances and Enhancing Distribution. We plan to increase traffic, market share and revenues through strategic alliances, distribution relationships and selected acquisitions. We are pursuing distribution relationships with high-traffic Web sites that target both medical professionals and consumers. We are also pursuing professional distribution relationships with healthcare companies to provide medical content to their medical professionals and become a part of their daily work flow. For example, we are a content provider to PhyCor Online, the private physician intranet of PhyCor, the United States' largest physician practice management company with over 27,000 physicians. Generating Multiple Revenue Streams. We believe our attractive audience demographics and high-quality content offerings provide us with significant opportunities to develop multiple revenue streams. In addition to advertising and sponsorships, we have begun to generate e-commerce revenues from such sources as our online medical bookstore, drugstore, and pay-per-view services for selected full-text articles, and from our online market research services. We plan to expand our e-commerce offerings to include medical supplies and other health-related offerings. We are also developing other research products that we expect will complement pharmaceutical companies' product detailing efforts. In addition, we plan to introduce products and services that appeal directly to our international and allied healthcare members. 34 37 THE MEDSCAPE.COM SITE MEDICAL SPECIALTY AREAS We designed our Web site to meet the needs of our members in a personalized and easy-to-use manner. We currently organize our professional information by the following medical specialty and subject areas:
Cardiology Orthopedics Diabetes and Endocrinology Pediatrics Gastroenterology Pharmacotherapy HIV/AIDS Primary Care Infectious Diseases Psychiatry Internal Medicine Respiratory Care Managed Care Surgery Molecular Medicine Urology Multispecialty Women's Health Oncology
Each of the medical specialty and subject areas will have a program director and a scientific advisory board dedicated to developing the content for that area. We plan to expand into new medical specialty areas that appeal to our current membership base and attract new members. Our objective is to be the category leader in each of our medical specialty areas by delivering the highest quality specialty-based content and selectively acquiring other high-quality medical specialty Web sites. As part of this strategy, we acquired Healthcare Communications Group, which operated of a leading HIV Web site, in October 1998, and Bonehome.com, a leading orthopedic site, in February 1999. REGISTERED MEMBERS To utilize all of Medscape.com's features, users must register as members. This enables us to deliver targeted medical content based on our members' registration profiles. As of March 31, 1999, Medscape.com had over one million registered members worldwide, an increase of 19% from January 1, 1999 and 160% from January 1, 1998. The registration process enables members to choose a home page tailored to their medical specialty or interest. Accordingly, a cardiologist accessing Medscape.com is automatically directed to Medscape Cardiology, rather than a more generic home page. However, every member, regardless of medical specialty or professional status, has access to the full suite of exclusive, original and licensed content through a uniform, easy-to-use interface. Registration information also enables us to deliver targeted advertising messages to the specific audience profile our clients seek to reach. For example, an oncologist in New York can be targeted with different messages than a cardiologist in Chicago. Not only can advertising clients choose to target one or more of Medscape.com's medical professional groups, but they can also deliver their message to our large group of consumer members. To encourage initial use, our consumer site will allow visitors to access selected features without registering as a member. Visitors, however, will have to register as members to have access to all the features of Medscape.com, including the interactive programs. OUR CONTENT Medscape.com offers three distinct types of high-quality content to members: Original, exclusive and proprietary content. Our original content is written exclusively for Medscape by medical experts, many of whom are internationally renowned in their specialties. This content includes: - Next Day Summaries(SM) -- highlights of selected presentations at major medical conferences, published on our site the day after the presentations are delivered, providing physicians and other members 35 38 with immediate, easy-to-read authoritative summaries of new data, therapies and procedures discussed at the meeting; - Medscape General Medicine(SM) -- pioneering, primary-source, peer-reviewed general medical journal launched in March 1999. Published exclusively online and accessible free of charge to all Medscape.com members, Medscape General Medicine will provide prompt delivery of articles relating to important new clinical research and trials, public health studies and other significant medical developments; - Clinical Management Series -- interactive practice modules that include state-of-the-art treatment information and clinical cases for particular diseases, each of which is accredited for continuing medical education; - Treatment Updates -- authoritative evaluations of significant new changes in therapies; and - eMed Journals -- peer-reviewed, electronic medical journals written exclusively for Medscape.com covering HIV/AIDS, cardiology, oncology, psychiatry, orthopedics, respiratory medicine and women's health. Two of our eMed Journals, Clinical Care Options in HIV and Medscape Women's Health, have already been indexed in Index Medicus, the National Library of Medicine's prestigious MEDLINE database. We have also developed innovative, proprietary interactive medical programs that allow physicians to enter clinical data points and obtain feedback on available treatment options. We also offer an array of proprietary, challenging and instructional interactive features to test a physician's medical knowledge. Interactive self-assessment elements include: - PicTours(R) -- image-based case challenges testing the physician's diagnostic skills; - Today's Question -- testing the physician's understanding of recent developments in the physician's medical specialty; and - ECG of the Week -- images of cardiograms with case histories testing the physician's diagnostic skills, supplied by leading cardiologists. High-quality, third-party content. We believe Medscape.com contains the Web's largest collection of free, peer-reviewed, full-text medical articles and one of the Web's most extensive libraries of continuing medical education accredited programs. Medscape.com also provides exclusive third-party Web access to the National Drug Data File, a leading drug and disease database of Hearst Corporation's First DataBank. Numerous prestigious medical publishers, universities, hospitals and professional organizations are part of our strategic content partner program known as Medscape Publishers' Circle(R). Through this program, Medscape.com aggregates, organizes, and places in context content from over 100 medical journals, textbooks, news services and other publications, and offers integrated, easy-to-use searching of vast medical databases, including over nine million abstracts of medical journals available in the National Library of Medicine's MEDLINE, AIDSLINE and TOXLINE databases. In addition, through an agreement with Dow Jones & Company, Medscape.com provides free searching of more than 500 leading medical publications, including such leading titles as the Journal of the American Medical Association, the British Medical Journal, The Lancet, and abstracts from the New England Journal of Medicine. Members can immediately retrieve online a full-text copy of the article or abstract for a fee. Non-medical content. We also provide an array of non-medical content on subjects of particular interest to medical professionals and health-conscious consumers. Medscape Money & Medicine offers personal finance features, including stock quotes, portfolio tracking and business news, and valuable practice management features that provide business information that is directly relevant to a medical practice. Members can also learn about the developments in managed care in a special Managed Care topic area. The Medscape Humor & Medicine section provides readers with medical jokes, cartoons, DeFUNitions, crossword puzzles and other entertaining features that generate traffic to and increase usage of our site. 36 39 OUR MEMBER SERVICES We offer a number of services that complement our high-quality content offerings and make Medscape.com a preferred destination site, including: Continuing Medical Education. Approximately half the states require physicians and certain other medical professionals to certify annually that they have accumulated a minimum number of continuing medical education hours in order to maintain licensure. Medscape.com offers our professional members what we believe is one of the Web's largest libraries of continuing medical education programs. Our extensive continuing medical education programs are produced in association with entities accredited by the Accreditation Council for Continuing Medical Education. From the convenience of their home or office computer, our professional members can obtain continuing medical education credits by accessing a variety of accredited editorial resources and programs including online journal articles, our Next Day Summaries of medical conferences, in-depth Treatment Updates and our state-of-the-art Clinical Management Series. Physician Web Sites. We offer our members registered as physicians the opportunity to create home pages for their medical practices that can be accessed by their patients and the general public. In addition to details about their practice, including office address, phone number, medical specialty, types of insurance accepted, hospital affiliations and languages spoken, our Physician Web Sites will soon permit a physician to offer links to disease-specific information from Medscape.com as well as the general searching capability of Medscape.com. We believe these Physician Web Sites will keep Medscape's high-quality medical information at the center of the communication between physician and patient, and keep the physician at the center of the healthcare dialogue. Interactive Consumer Programs. We expect the initial phase of Medscape.com's enhanced consumer site to be launched in the second half of 1999. In addition to high-quality content, we expect to provide interactive programs, like diaries, to enable our consumer members to simplify management of their healthcare needs. e-Commerce and Services. Through a series of strategic partners, we offer our audience the opportunity to purchase a variety of goods and services. The Medscape MedBookstore offers members the opportunity to purchase discounted medical texts from a collection of over 90,000 titles through our partner MedSite Publishing Inc. The Medscape Job Center offers a comprehensive job-listing/posting service for medical professionals through our partner NetMed, Inc. The Medscape Drugstore offers our members the ability to purchase online a wide range of health, beauty and wellness products through drugstore.com. Community Features. Medscape Mail, a free service, enables members to send and receive Web-based email. Medscape Mail, powered by CommTouch, is especially useful for mobile professionals like physicians, who often require email access from multiple locations, such as their homes, offices, clinics and hospitals or during travel. Discussion areas on many medical articles and physician-only discussion groups are also available. Our new Ask-the-Expert feature, which will allow members registered as physicians to present interesting cases to leading experts online for comments, is expected to be launched later this year. OUR HEALTHCARE COMPANY SERVICES We offer healthcare companies many value-added online services including: Medscape Profiles. The Internet offers significant advantages over traditional mail surveys and focus groups in terms of speed and cost savings. U.S. pharmaceutical and other healthcare companies are estimated to spend as much as $1 billion annually on custom and syndicated market research. Medscape Profiles, our online market research division, has already successfully piloted several custom research projects and has recruited a 1,000+ physician panel from our member base to conduct custom and syndicated online research quickly and efficiently. In addition, our registration and traffic pattern database provides us with a valuable and expanding source of proprietary data about viewing habits and usage patterns. This database helps pharmaceutical companies correlate prescribing behavior with promotions and content seen by physicians and consumers. 37 40 Medscape MedPyx. We plan to introduce Medscape MedPyx as an educational research program that will assist pharmaceutical companies in better understanding the physician's knowledge base and prescribing patterns. In 1998, pharmaceutical company sales representatives conducted more than 59 million details to office- and hospital-based physicians. We believe that Medscape MedPyx will provide pharmaceutical companies with a cost-effective method of evaluating and improving their existing detailing activities. EDITORIAL, DESIGN AND PRODUCTION Our editorial staff is headed by Dr. George D. Lundberg, Medscape Editor in Chief and the former Editor of the Journal of the American Medical Association. As of March 31, 1999, our editorial, design and production staff consisted of 28 professionals who are all experienced medical editors, writers and producers. We intend to significantly increase our number of editors as we add additional medical specialty areas. We have assembled specialty-specific editorial boards for Medscape.com and have also assembled a Medscape.com scientific advisory board consisting of 16 of the world's leading physicians, academicians and healthcare experts, who will also serve as the editorial board of Medscape General Medicine, our newly launched primary source online medical journal. We have an easy-to-use interface that incorporates original and proprietary content written by medical experts with an extensive library of licensed content and medical databases. Each medical specialty area is headed by a program director responsible for building and continuously updating that area's content. We seek to be the premier online information resource in each of our medical specialty areas. To support this effort, we cover major medical conferences in many specialties and plan to attend over 20 different conferences in 1999, with our editors and medical experts summarizing and reporting on the breaking medical research and news delivered at these events. SALES As of March 31, 1999, we had a direct sales organization consisting of six sales professionals, with an average of 16 years experience, and seven sales operations staff employees. We plan to hire additional sales professionals, many of whom will be focused on selling banner advertisements and sponsorships in our expanded Medscape.com consumer site. We generally seek to hire individuals with significant experience selling to pharmaceutical and other healthcare companies and their advertising agencies. MARKETING AND PUBLIC RELATIONS We employ a variety of methods to promote the Medscape brand and to attract traffic and new members, including advertising on other Internet sites and in medical journals, pharmaceutical and other healthcare publications, and other targeted publications. To extend the Medscape brand, we encourage other healthcare sites to integrate our branded search box with full searching capability across all the Medscape.com databases directly into their services. Medscape.com is also one of the Tell Me More links on the bottom of selected articles appearing on the Health Channel of MSNBC.com. We believe in the value of direct, in person marketing and plan to staff a Medscape.com booth at over 13 major medical meetings and conferences in 1999. We use our booth presence to cross promote our Next Day Summaries(SM) of the medical conferences. We have also effectively used Medscape Academies, in which we offer free Internet training for physicians at major medical meetings, as a way to introduce physicians to the power of the Internet as a communications and educational medium, and to Medscape.com as a premier source of high-quality medical information on the Internet. We supplement these efforts with direct mail campaigns targeted at medical professionals, and plan to significantly increase these activities in 1999. Our professional distribution strategy is designed to have Medscape.com's medical content be available within major Internet-accessible healthcare information system platforms like hospital intranets, electronic medical record systems and physician practice management company intranets. This strategy integrates Medscape.com into the daily workflow of their medical professionals with frequent reminders of and easy 38 41 access to our selection of medical content. Consistent with this strategy in 1998, we signed a content distribution agreement with PhyCor, the largest physician practice management organization in the United States. Our internal public relations staff oversees a comprehensive public relations program which we believe is a key component of our marketing and brand recognition strategy. We target key business, medical and healthcare marketing publications, and encourage their reporters to use Medscape.com for their medical news and research needs, in an effort to build both brand awareness and loyalty among news organizations. INFRASTRUCTURE, OPERATIONS AND TECHNOLOGY Our business is supported by a reliable, scalable and secure system platform. Using a combination of proprietary online solutions and commercially available licensed technologies, we have deployed systems for online content dissemination, site analysis, and Web- and email-based member support. We have developed a database management and online publication system to index, retrieve and display information. This system allows for rapid searching, viewing and distribution of content including text, photos, graphics and other images. Our hardware and software systems are based on a distributed processing model that allows applications to be distributed among multiple parallel servers. Our hardware servers, storage systems, Internet connections and networks allow our online systems to operate continuously 24 hours a day and seven days a week. We do not maintain offsite redundant systems and facilities but we plan to outsource our Web-hosting in the future. This outsourcing will provide faster and more reliable connections to the Internet backbone and enhanced reliability and scalability. COMPETITION We face competition both in attracting visitor traffic and in generating revenue across all our business lines. We compete with numerous companies and organizations for the attention of medical professionals and consumers including traditional off-line media such as print journals, conferences, continuing medical education programs and symposia. We also face significant competition from online information resources. There are thousands of healthcare-related sites on the Internet. Also, several large consumer sites offer specialized healthcare channels as part of their general services. In addition, there are many companies that provide non-Internet based marketing and advertising services to the healthcare industry. These competitors include advertising agencies, consulting firms, marketing and communications companies and contract sales and marketing organizations. We believe that competition for our audience and sources of revenue will continue to increase. Some of our current and potential competitors may have competitive advantages compared to us, including: - greater resources to devote to the development, promotion and sale of their services; - greater financial, technical and marketing resources; - greater brand recognition and larger marketing budgets; and - larger customer and user bases. We believe that the principal competitive factors in attracting and retaining members are the depth, breadth and timeliness of services and brand recognition. Other important factors in attracting and retaining members include ease of use, quality of service and cost. We believe that the principal competitive factors that will continue to attract advertisers and sponsors to Medscape.com include price, the number of medical professionals and consumers who use our Web site, the demographics of our member base and the creative implementation of advertisement placements. Competition is likely to increase significantly as new companies enter the market and current competitors expand their services. There can be no assurance that we will be able to compete successfully against current and future competitors or that the competitive pressures we face will not seriously harm our business. 39 42 GOVERNMENT REGULATION OF THE INTERNET AND HEALTHCARE INDUSTRIES THE INTERNET We are subject to various laws and regulations relating to our business. Currently, few laws or regulations are directly applicable to access to the Internet. However, because of the Internet's popularity and increasing use, new laws and regulations may be adopted. Such laws and regulations may cover issues such as: - user privacy; - pricing; - content; - copyrights and other intellectual property rights; - distribution; and - characteristics and quality of products and services. Currently, U.S. privacy law consists of disparate state and federal statutes regulating specific industries that collect personal data. Most of them pre-date and therefore do not specifically address online activities. However, European nations are now implementing a European Union Data Privacy Directive regulating the transmission and storage of personal information and data. In addition, a number of comprehensive legislative and regulatory privacy proposals are now under consideration by federal, state and local governments in the United States. For example, the Federal Trade Commission's recently published proposed regulations implementing the Children's On-line Privacy Protection Act of 1998 and, under authority established in the Health Insurance Portability and Accountability Act of 1996, regulations are being prepared by the Secretary of Health and Human Services that will be applicable to electronically transmitted or stored health information. These regulations are scheduled to be published in late 1999, absent intervening Congressional action. The growth of the Internet and e-commerce, coupled with publicity regarding Internet fraud, may lead to the enactment of more stringent consumer protection laws. These laws may impose additional burdens on our business. For example, the Department of Commerce is actively developing safe harbors for activities in various industry sectors to help U.S. companies meet standards for conducting electronic commerce with EU countries as they implement the EU Data Privacy Directive. In addition, the Federal Trade Commission has informed Congress of its intentions to use its general consumer protection authority to protect online consumers from deceptive practices that jeopardize online consumers' privacy. In addition, state legislatures are considering and are likely to adopt more protective consumer and health privacy legislation. States also may elect to use their consumer protection statutes in ways that are analogous to the FTC activities. The enactment of any additional laws or regulations may impede the growth of the Internet, which could decrease our potential revenues from e-commerce or otherwise adversely affect our business, financial condition and operating results. Laws and regulations directly applicable to e-commerce and Internet communications are becoming more prevalent. The most recent session of Congress enacted Internet laws regarding online copyright infringement. Although not yet enacted, Congress is considering laws regarding Internet taxation. These are recent enactments, and there is uncertainty regarding their marketplace impact. In addition, various jurisdictions already have enacted laws that are not specifically directed to e-commerce but that could affect our business. The applicability of many of these laws to the Internet is uncertain and could expose us to substantial liability. Any new legislation or regulation regarding the Internet, or the application of existing laws and regulations to the Internet, could negatively affect us. If we were alleged to violate federal, state or foreign, civil or criminal law, even if we could successfully defend such claims, it could negatively affect us. 40 43 THE U.S. FOOD AND DRUG ADMINISTRATION The FDA regulates the form and content of labeling, advertising and promotional materials, including direct-to-consumer prescription drug and medical device advertising, prepared by, or for, pharmaceutical or medical device companies. Generally, these companies must limit these materials to discussions of the FDA-approved claims and, in limited circumstances, to a limited number of claims not approved by the FDA. Therefore, any information developed by, or for, pharmaceutical and medical device companies that promotes the use of their products and is put on our Web site is subject to the full array of the FDA requirements and enforcement actions. Any information that is jointly prepared by us and a pharmaceutical or medical device company, intended to promote the use of a product and put on our Web site, is also subject to the full array of FDA requirements and enforcement actions. The FDA regulatory actions may include correction to, or removal of, information on our Web site and the conveyance of FDA-required corrective information to our audience. The FDA has been considering the development of a broad set of policies dealing with the promotion of pharmaceutical and medical device products on the Internet. They have not done so to date. In the future, the FDA may develop new regulatory policies that may more tightly regulate the format and content of this information on the Internet. The FDA may also alter its present policies on the direct-to-consumer advertising of prescription drugs and medical devices in a way that would reduce or restrict the amount of this information available to consumers. Therefore, existing FDA rules and enforcement actions and regulatory policies that the FDA may develop in the future could have a material adverse effect on our ability to provide existing or future applications or services to our audience or obtain the necessary corporate sponsorship to do so. Some computer applications and software are considered medical devices and are subject to regulation by the FDA. We believe that some of our current applications or services are or could be regulated by the FDA as a medical device. Additionally, we may expand our applications and service offerings into areas that subject us to the FDA's medical device regulations. To the extent that any of our current or future services or applications are regulated by the FDA as devices, we would be subject to various laws, regulations and policies enforced by the FDA and other governmental authorities that include both pre-market and post-market requirements. The FDA's regulations and policies on the regulation of software products and the transmission of medical information are evolving. Changes in existing regulatory requirements, our failure to comply with current or future requirements or adoption of new requirements could negatively affect us. In some cases, medical device advertising is also regulated by the Federal Trade Commission. We believe that complying with FDA regulations may be time consuming, burdensome and expensive and could negatively affect our ability to continue providing some applications or services, or to introduce new applications or services in a timely manner. Noncompliance with applicable FDA requirements, including those related to pharmaceutical and medical device promotional practices and the pre-market and post-market approval requirements for medical devices, can result in an enforcement action by the FDA including warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure of the government to grant pre-market clearance or pre-market approval for devices, withdrawal of marketing clearances or approvals, and criminal prosecution. INTELLECTUAL PROPERTY AND DOMAIN NAME We protect our intellectual property through a combination of license agreements, trademark, service mark, copyright and trade secret laws and other methods. We obtain the majority of our content under license agreements with publishers, through assignments or work for hire arrangements with third parties and from internal staff development. We currently have no patents or patents pending for our current online services and do not anticipate that patents will become a significant part of our intellectual property in the foreseeable future. We also enter into confidentiality agreements with our employees, consultants, vendors and customers and license agreements with third parties and we generally seek to control access to and distribution of our technology, documentation and other proprietary information. We currently hold the domain name Medscape.com. The legal status of intellectual property on the Internet is currently subject to various uncertainties. 41 44 LEGAL PROCEEDINGS We are not a party to any material legal proceedings. EMPLOYEES As of March 31, 1999, we had 83 full-time employees. None of our employees is covered by a collective bargaining agreement. We consider our employee relations to be good. FACILITIES We are headquartered in New York, New York, where we lease approximately 17,975 square feet of office space, under two leases that expire June 30, 2004 and June 30, 2009. We have also leased offices in Fairfield, New Jersey, where some of our employees work. Other of our employees work remotely, frequently in home offices, in Potomac, Maryland; Aurora, Colorado; Chicago, Illinois; London, England; and Milford, Massachusetts. We currently anticipate that we will require additional space as we hire more personnel. 42 45 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS Shown below are the names, ages and positions of the executive officers and directors of Medscape:
NAME AGE POSITION Paul T. Sheils............................ 44 President, Chief Executive Officer and Director Peter M. Frishauf......................... 50 Executive Committee Chairman, Founder and Director Jeffrey L. Drezner, M.D., Ph.D............ 51 Executive Vice President and Director Steven R. Kalin........................... 35 Chief Operating Officer and Chief Financial Officer George D. Lundberg, M.D................... 66 Editor in Chief Meg Walsh................................. 36 President, Medscape Consumer David Yakimischak......................... 37 Chief Technology Officer Marc Butlein.............................. 60 Director Esther Dyson.............................. 47 Director Alan J. Patricof.......................... 64 Director, Chairman of the Board Carlo A. von Schroeter.................... 35 Director Oakleigh Thorne........................... 41 Director
PAUL T. SHEILS, President, Chief Executive Officer and Director. Prior to joining Medscape in February 1998, Mr. Sheils was Vice President of Dow Jones Interactive Publishing from 1994 to 1998 and was Executive Director from 1993 to 1994. Mr. Sheils was responsible for all of Dow Jones' corporate and consumer online businesses including The Wall Street Journal Interactive Edition, the largest subscription-based publication on the Web, and Dow Jones Interactive, an award-winning online business intelligence and research service. Mr. Sheils holds a BA from Williams College and a JD from Fordham Law School. PETER M. FRISHAUF, Executive Committee Chairman, Founder and Director. Mr. Frishauf has over 20 years of experience in the medical information field. In 1982, Mr. Frishauf founded the predecessor of SCP Communications, Inc., a medical publishing, education and clinical trial company, and served as SCP's President and Chief Executive Officer until April 1996. Mr. Frishauf continues to serve on the board of directors of SCP Communications, Inc. From April 1996 through February 1998, Mr. Frishauf served as the Chief Executive Officer of Medscape. In addition to being a director of Medscape since it commenced operations in 1996, he holds the executive position of Executive Committee Chairman. Mr. Frishauf holds a BA from New York University and an MS in Journalism from Columbia University. JEFFREY L. DREZNER, M.D., Ph.D., Executive Vice President and Director. Dr. Drezner practiced medicine for 14 years before founding Integrated Care Systems, Inc., an HIV-focused, alternate-site healthcare delivery company, in 1987. From 1992 to 1995, Dr. Drezner was Vice President of Clinical Programs at Homedco, Inc., a home and alternate-site healthcare delivery company. In 1995, Dr. Drezner founded Healthcare Communications Group, LLC, which developed one of the first online continuing medical education programs and summaries of next day medical conferences programs on the Internet, operated the highly acclaimed Clinical Care Options for HIV and Oncology Web sites and is now a wholly owned subsidiary of Medscape. Dr. Drezner became a director and officer of Medscape when Medscape acquired Healthcare Communications Group in October 1998. Dr. Drezner holds a BS from the University of California at Berkeley, an MD degree from the University of Southern California School of Medicine and a Ph.D. from the Southern California Psychoanalytic Institute. STEVEN R. KALIN, Chief Operating Officer and Chief Financial Officer. Prior to joining Medscape in October 1998, Mr. Kalin was with ESPN since 1995, most recently as Vice President of Business Development for ESPN Internet Ventures, where he was responsible for ESPN.com's strategic partnerships. From 1990 to 1995, Mr. Kalin was a Senior Engagement Manager with McKinsey & Co., specializing in the media industry. Mr. Kalin holds a BA from Brown University and an MBA from Harvard Business School. GEORGE D. LUNDBERG, M.D., Editor in Chief. Prior to joining Medscape in February 1999, Dr. Lundberg served as Editor of the Journal of the American Medical Association for 17 years. Dr. Lundberg also served as 43 46 the Editor in Chief of Scientific Information and Multimedia, a publication of the American Medical Association, from 1982 until 1999. Dr. Lundberg holds an MS degree from Baylor University and BS and MD degrees from the University of Alabama. Dr. Lundberg holds honorary degrees from four U.S. universities. MEG WALSH, President, Medscape Consumer. Prior to joining Medscape in March 1999, Ms. Walsh was Managing Director of HealthTech Digital, a leading interactive consumer healthcare agency, which Ms. Walsh founded in 1996 and sold to Lowe McAdams Healthcare/Interpublic Group in September 1997. From 1995 to 1996, Ms. Walsh was Director of Marketing for Time Life Medical. Ms. Walsh also held positions as Assistant V.P. of Sales for Physicians World, a professional healthcare communications organization, from 1992 to 1995, and before that was a Sales Manager for Johnson & Johnson. Ms. Walsh holds a BA from Rider University. DAVID YAKIMISCHAK, Chief Technology Officer. Prior to joining Medscape in March 1999, Mr. Yakimischak was the Director of Product Development at Dow Jones Interactive Publishing where he was responsible for bringing all new electronic products to market. Mr. Yakimischak had been with Dow Jones since 1994. Mr. Yakimischak studied engineering and computer science at the University of Toronto. MARC BUTLEIN, Director. Mr. Butlein is Chairman of MAS Communications, an e-commerce consulting business. In 1989, he co-founded META Group, a leading worldwide information technology market assessment and consulting firm. Mr. Butlein served as Chairman of META Group until April 1998. Mr. Butlein is a director of META Group and Aeneid, an Internet software business. Mr. Butlein joined the Medscape board in October 1997 as a designee of Media Technology Ventures. Mr. Butlein received a BA from the University of Connecticut and worked on his doctorate in political science at the Maxwell School of Citizenship and Public Affairs at Syracuse University. ESTHER DYSON, Director. Ms. Dyson has been the chairman of EDventure Holdings, publisher of the newsletter Release 1.0, since 1982. Ms. Dyson is the author of Release 2.0, an acclaimed book about cyberspace. Ms. Dyson joined the Medscape board in June 1996. She is also interim chairman of the Internet Corporation for Assigned Names and Numbers and is a director of three software companies -- Accent Software, Graphisoft and Scala Business Solutions. She also sits on the boards of directors of Uproar.com, an online game company, and PRT Group, a systems integrator. Ms. Dyson holds a BA from Harvard College. ALAN J. PATRICOF, Chairman of the Board. Mr. Patricof is co-Chairman of Patricof & Co. Ventures, Inc., a venture capital firm with operations in eight countries and over $6 billion under management, which he founded in 1969. Mr. Patricof joined as Chairman of the Board in 1996. Mr. Patricof serves on the boards of directors of Boston Properties, a real estate investment trust; NTL Corp., a communications company; and CORECOMM, Inc., a telecommunications company. In 1995, he served as Chairman of the White House Conference on Small Business Commission. Mr. Patricof holds a BS in finance from Ohio State University and an MS from Columbia University Graduate School of Business. CARLO A. VON SCHROETER, Director. Mr. von Schroeter is a General Partner of Weston Presidio Capital, a private equity and venture capital firm. Prior to joining Weston Presidio Capital at its inception in September 1992, Mr. von Schroeter was a Vice President with Security Pacific Capital. Mr. von Schroeter has served as a director of Medscape since March 1999 as a designee of Weston Presidio Capital. Mr. von Schroeter also serves on the boards of directors of MapQuest.com, Inc., a leading online provider of mapping and destination information, and several private companies. Mr. von Schroeter holds a BS from Queen's University, Canada and an MBA from Harvard Business School. OAKLEIGH THORNE, Director. Since October 1996, Mr. Thorne has served as the Chairman and Chief Executive Officer of TBG Information Investors, LLC, a private equity partnership, and as the Co-President of Blumenstein/Thorne Information Partners I, L.P., a private equity partnership. From April 1995 to August 1996, Mr. Thorne was President and CEO, and from January 1991 to April 1995, the Executive Vice President, of Commerce Clearing House, Inc., a leading provider of tax and business law information, software and services. Mr. Thorne joined the Medscape board in March 1998 as TBG Information Investors LLC's designee. He also serves as the Chairman of the Board of SCP Communications, Inc. Mr. Thorne 44 47 holds a BS from Boston University School of Journalism and an MBA from Columbia University Graduate School of Business. BOARD COMPOSITION We currently have eight directors. In accordance with the terms of our restated certificate of incorporation, which will become effective upon the closing of this initial public offering, the terms of office of the directors will be divided into three classes: Class I, whose term will expire at the annual meeting of stockholders to be held in 2000; Class II, whose term will expire at the annual meeting of stockholders to be held in 2001; and Class III, whose term will expire at the annual meeting of stockholders to be held in 2002. The Class I directors will be Paul T. Sheils, Peter M. Frishauf and Marc Butlein, the Class II directors will be Esther Dyson, Oakleigh Thorne and Jeffrey D. Drezner, M.D., Ph.D. and the Class III directors will be Alan J. Patricof and Carlo A. von Schroeter. At each annual meeting of stockholders after the initial classification or special meeting in lieu thereof, the successors to directors whose terms will then expire will be elected to serve from the time of election and qualification until the third annual meeting following election or special meeting held in lieu thereof. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one third of the directors. This classification of our board of directors may have the effect of delaying or preventing changes in control or management of Medscape. COMMITTEES OF THE BOARD OF DIRECTORS Our board of directors has established an audit committee and a compensation committee. The audit committee assists the board of directors in fulfilling its responsibilities of ensuring that management is maintaining an adequate system of internal controls to assure: - that assets are safeguarded and that financial reports are properly prepared; - consistent application of generally accepted accounting principles; and - compliance with management's policies and procedures. In performing these functions, the audit committee meets periodically with the independent auditors and management to review their work and confirm that they are properly discharging their respective responsibilities. The audit committee also: - recommends an independent audit firm to audit financial statements and to perform services related to the audit; - reviews the scope and results of the audit with the independent accountants; - reviews with management and the independent accountants our annual operating results; - considers the adequacy of the internal accounting control procedures; and - considers accountants' independence. The audit committee currently consists of Oakleigh Thorne and Marc Butlein. The primary function of the compensation committee is to determine management and executive compensation and establish fringe benefit and other compensation policies. The compensation committee is also responsible for the administration of our stock option plan, including reviewing management recommendations with respect to option grants and taking such other actions as may be required in connection with our compensation and incentive plans. The compensation committee currently consists of Esther Dyson and Alan J. Patricof. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Mr. Patricof, a member of the compensation committee, is Co-Chairman of Patricof & Co. Ventures, Inc., that manages APA Excelsior IV, L.P., Coutts & Co. Cayman Ltd. c/o APA Excelsior IV/Offshore L.P., Patricof Private Investment Club and APA Excelsior Fund. In our March 5, 1999 private placement of Series D Preferred Stock, APA Excelsior IV, L.P. purchased shares, Coutts & Co. Cayman Ltd. c/o APA Excelsior IV/Offshore, L.P. purchased shares and Patricof Private Placement Investment Club, L.P. purchased shares, all at a purchase price of $ per share. 45 48 DIRECTOR COMPENSATION Medscape reimburses its directors for out-of-pocket expenses related to attending meetings of the board of directors. Non-employee directors are also entitled to stock option grants under our stock option plan. Medscape currently does not intend to pay cash fees to directors for attendance at meetings. EXECUTIVE COMPENSATION The following table shows the total compensation paid for the year ended December 31, 1998 for our Chief Executive Officer and the Executive Committee Chairman, the only other executive officer whose annual salary and bonus exceeded $100,000 in 1998. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS ANNUAL COMPENSATION SECURITIES ----------------------- UNDERLYING NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS Paul T. Sheils............................ $171,750(1) $85,000 President and Chief Executive Officer Peter M. Frishauf......................... $ 80,000 * (2) Executive Committee Chairman
- --------------- (1) Mr. Sheils joined Medscape in February 1998. His annualized salary was $195,000. (2) In accordance with the terms of his agreement, Mr. Frishauf elected to receive options to purchase shares of common stock instead of a cash bonus of $35,000 to which he would have otherwise been entitled. OPTION GRANTS IN LAST FISCAL YEAR The following table shows grants of stock options to Medscape's Chief Executive Officer and to the Executive Committee Chairman for the year ended December 31, 1998. We have never granted any stock appreciation rights. The exercise price per share of each option was equal to the fair market value of the common stock on the date of grant as determined by the board of directors. Potential realizable values are net of exercise price before taxes, and are based on the assumption that our common stock appreciates at the annual rate shown (compounded annually) from the date of grant until the expiration of the ten-year term. These numbers are calculated based on the requirements of the Securities and Exchange Commission and do not reflect our estimate of future stock price growth. OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1998
POTENTIAL REALIZABLE VALUE AT ASSUMED INDIVIDUAL GRANTS ANNUAL ---------------------------------------------------------- RATES OF STOCK NUMBER OF PRICE SECURITIES PERCENT OF TOTAL APPRECIATION FOR UNDERLYING OPTIONS GRANTED TO EXERCISE OPTION NAME OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ------------------- - ---- GRANTED FISCAL YEAR(%)(1) SHARE($/SH) DATE 5% 10% Paul T. Sheils....... 37.7% 2/15/08 $ $ Peter M. Frishauf.... 7.7% 12/14/08
- --------------- (1) Based on options to purchase an aggregate of shares of common stock granted under our stock option plan in the year ended December 31, 1998 to employees, consultants and directors of Medscape. 46 49 FISCAL YEAR END OPTION VALUES The following table provides certain summary information concerning stock options held as of December 31, 1998 by our Chief Executive Officer and by the Executive Committee Chairman. The value of unexercised in-the-money options at fiscal year-end is based on $ per share, the assumed fair market value of the common stock at December 31, 1998, less the exercise price per share.
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED OPTIONS UNEXERCISED IN-THE MONEY SHARES AT FISCAL YEAR-END OPTIONS AT FISCAL YEAR-END ACQUIRED VALUE --------------------------- --------------------------- NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE Paul T. Sheils....... $ $ Peter M. Frishauf.... $ (1)
- --------------- (1) Based on a value of $ per share, the fair market value of the common stock at August 18, 1998, as determined by the board of directors, minus the exercise price. 1996 STOCK OPTION PLAN The following summary description of the Medscape, Inc. 1996 Stock Option Plan may not contain all the information that is important to you. You should refer to the exhibits that are part of the registration statement for a copy of the stock option plan. Types of Awards. The stock option plan provides for grants of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and stock options which are not intended to qualify as incentive stock option, or nonqualified stock options. Shares Subject to the Stock Option Plan. The total number of shares of common stock that may be issued under the stock option plan is shares. These shares may be authorized but unissued common stock or authorized and issued common stock that has been reacquired by Medscape and held in our treasury. If any grant expires or for any reason is terminated or unexercised, the shares of common stock relating to such grant again become available for issuance with respect to grants under the stock option plan. The compensation committee has the authority to make appropriate adjustments to the total number of shares available for issuance under the stock option plan and to the number of shares that may be purchased and the exercise price applicable to outstanding stock options under the stock option plan in the event of a merger, consolidation, reorganization, stock dividend, stock split, or other similar change affecting our capital structure. Eligibility. Grants may be made to any full or part-time employee of Medscape and of our current or future subsidiaries, and to any consultant, director or independent contractor providing services to Medscape or any of our subsidiaries, in each case as determined by the compensation committee. Administration. Our compensation committee administers the stock option plan. The compensation committee has the authority to make grants under the stock option plan, including the authority, in its discretion, to select the individuals to receive grants, to determine, consistent with the stock option plan, the terms of such grant, and the terms and provisions of each option agreement under the stock option plan reflecting awards, and to prescribe rules and make interpretations regarding the stock option plan which are final and conclusive. Stock Options. The compensation committee may grant incentive stock options and nonqualified stock options to eligible persons that permit the optionee to purchase shares of common stock from Medscape at a fixed price and in accordance with such terms, as determined by the compensation committee, relating to, among others, option exercise price, exercisability, method of payment of the option exercise price, and the option exercise periods applicable after the optionee's termination of service, with all such terms set forth in the option agreement and not otherwise inconsistent with the stock option plan. The term of any nonqualified stock option granted under the stock option plan may not exceed 15 years from the grant date. 47 50 In the case of any grant intended to constitute an incentive stock option, the exercise price will be no less than the fair market value of the common stock on the date of grant and the option term may not exceed 10 years from the grant date. Further, the aggregate fair market value, determined at the date the option is granted, of stock with respect to which incentive stock options granted under the stock option plan are exercisable for the first time in any calendar year by any eligible employee may not exceed $100,000. Unless otherwise provided in an option agreement, if we undergo a "change in control," as defined in the stock option plan, then all outstanding options will become fully exercisable. Nonassignability. Except as may otherwise be provided in a option agreement with respect to the grant of a nonqualified stock option, no grant is assignable or transferable by an optionee other than by will or the laws of descent and distribution and during the optionee's lifetime such grant may be exercisable only by the optionee. Amendment and Termination. Our board of directors may amend or discontinue the stock option plan at any time, provided that any stock option plan amendment that would increase the maximum number shares of common stock available for issuance under the stock option plan, modify the eligibility requirements for participation in the stock option plan, decrease the minimum option price, or extend the maximum option term will require stockholder approval. In addition, the board of directors may not change the terms of any outstanding grant if such change would be materially adverse to the optionee without the optionee's consent. Federal Income Tax Consequences. The following is a brief description of certain U.S. federal income tax consequences of grants under the stock option plan based upon the laws in affect on the date hereof. Incentive Stock Options. No federal taxable income should be recognized by the employee upon the grant or exercise of an incentive stock option. If the shares of common stock acquired upon exercise of an incentive stock option are not disposed of within two years of the date of grant or within one year after the transfer of the shares to the employee upon exercise of the incentive stock option, then: - upon the sale of the shares, any amount realized in excess of the exercise price of the option will be taxed as long-term capital gain; and - no deduction will be allowed to us for federal income tax purposes. The exercise of an incentive stock option may result in an alternative minimum tax liability to the employee. If the stock acquired upon the exercise of an incentive stock option is disposed of prior to the expiration of the holding periods described above, then, generally: - the employee will recognize ordinary income in an amount equal to the excess, if any, of the fair market value of the shares at exercise, or, if less, the amount realized on the disposition of the shares, over the exercise price of the option; and - Medscape will be entitled to deduct the ordinary income so recognized by the employee. Any further gain recognized by the employee will be taxed as short-term or long-term capital gain, depending upon the length of time the employee held the shares, and such amount will not be deductible by Medscape. Nonqualified Stock Options. With respect to nonqualified stock options: - no federal taxable income should be recognized by the optionee at the time the option is granted; - generally upon exercise of the option, the optionee will recognize ordinary income in an amount equal to the difference between the exercise price of the option and the fair market value of the shares purchased on the date of exercise and we generally will be entitled to a tax deduction in the same amount; and - upon disposition of the shares acquired, generally any appreciation or depreciation after the date of exercise is treated by the optionee either as long-term or short-term capital gain or loss, depending upon the length of time that the optionee held the shares. 48 51 Section 162(m) Limitations. The stock option plan is subject to a special initial public offering-related transition rule under Code Section 162(m). Medscape's tax deduction upon the exercise of a nonqualified stock option by certain executive officers would be subject to the limitations of Section 162(m) of the Code if a nonqualified stock option is granted after this offering with an exercise price less than the fair market value of the common stock on the date of grant. As of March 31, 1999, there were options to purchase shares outstanding and shares available for future grant. EMPLOYMENT AGREEMENTS Agreement with Paul T. Sheils. Under a three-year employment agreement dated January 26, 1998, Paul T. Sheils became our President and Chief Executive Officer on February 16, 1998 at an initial base salary of $195,000. Mr. Sheils' base salary was increased to $225,000 effective February 16, 1999 and he was granted options to purchase an additional shares of common stock at an exercise price of $ per share. The employment agreement includes a $35,000 signing bonus, a 1998 performance bonus of up to $52,500 based on reaching certain performance targets, and 1999 and 2000 performance bonuses, the target amounts of which cannot be less than $35,000 per year and are based on meeting performance targets developed by our compensation committee. The employment agreement also granted Mr. Sheils incentive stock options to purchase shares of our common stock at $ per share. These incentive stock options are subject to the provisions of our stock option plan and an incentive stock option agreement between Mr. Sheils and Medscape. One-third of Mr. Sheils' incentive stock options vested on the first anniversary of his employment and the remaining incentive stock options will vest after that date in equal monthly installments until the third anniversary of Mr. Sheils' employment. Regardless of these vesting provisions, the incentive stock options are 100% exercisable on the date of a "corporate change," which is defined in the stock option plan. If Mr. Sheils' employment is terminated for any reason other than his death, disability or serious misconduct, he may exercise any vested incentive stock options within 90 days of his termination. However, the incentive stock options are forfeited if Mr. Sheils is terminated for serious misconduct. Also, if Mr. Sheils' employment is terminated because of his death or disability, Mr. Sheils or his estate may exercise any vested incentive stock options within one year after termination. Until a firm commitment underwritten public offering is consummated, we and certain of our stockholders have first refusal rights to any of our common stock purchased by Mr. Sheils' or his estate by exercising incentive stock options. Under his employment agreement, Mr. Sheils agreed not to compete with Medscape and not to solicit our customers or employees for one year after the termination of his employment, with limited exceptions. However, if he is terminated without cause, the noncompetition and nonsolicitation restrictions are limited to six months and the noncompetition restrictions will apply only to his employment by certain healthcare-oriented Web sites. Mr. Sheils is also entitled to six months' salary if he is terminated by us without cause, and may himself terminate the employment agreement for any reason upon 60 days' notice. In accordance with the terms of the employment agreement, Medscape and certain of our stockholders amended a stockholders' agreement dated October 27, 1997, which was subsequently replaced by the current amended and restated stockholders agreement dated March 5, 1999, to provide that Mr. Sheils would serve as a director of Medscape as long as he is our President. Agreement with Peter M. Frishauf. Under a three-year employment agreement dated February 16, 1998, Peter M. Frishauf became Chairman of the executive committee of Medscape at a base salary of $80,000. Under the employment agreement, Mr. Frishauf has agreed to dedicate at least one-half of his business time to Medscape. His employment agreement provides for performance bonuses of up to $50,000 per year if certain performance targets are met. The performance bonuses may be paid, at Mr. Frishauf's option in cash, in shares of our common stock, the fair market value of which will be equal to the performance bonus amount, or options for shares of our common stock, the fair market value of which will be equal to 150% of the performance bonus amount. Mr. Frishauf also agreed not to compete with Medscape and not to 49 52 solicit our customers or employees for one year following the termination of his employment, with limited exceptions. Mr. Frishauf may terminate the employment agreement for any reason upon 60 days' notice to us. TRANSACTIONS WITH RELATED PARTIES Since January 1, 1998, there has not been nor is there currently proposed any transaction or series of similar transactions to which Medscape or any of its subsidiaries was or is to be a party in which the amount involved exceeds $60,000 and in which any director, executive officer, holder of more than 5% of the common stock of Medscape or any member of the immediate family of any of those people had or will have a direct or indirect material interest other than (a) compensation agreements and other arrangements that are described above for the named executive officers and (b) the transactions described below. SERIES D TRANSACTION On March 5, 1999, we sold shares of Series D Preferred Stock at a purchase price of $ per share, which was paid in cash. The purchasers of the Series D Preferred Stock included the following holders of more than 5% of the common stock, assuming the conversion of outstanding preferred shares: - Media Technology Ventures, L.P. -- shares. - MTV Entrepreneurs Fund, L.P. -- shares. - CSK Venture Capital Co. Ltd. (CSK-1(A)) -- shares. - CSK Venture Capital Co., Ltd. (CSK-1(B)) -- shares. - CSK Venture Capital Co., Ltd. (CSK-2) -- shares. - Weston Presidio Capital II, L.P. -- shares. - Weston Presidio Capital III, L.P. -- shares. - WPC Entrepreneur Fund, L.P. -- shares. - Highland Capital Partners IV -- shares. - Highland Entrepreneurs Fund IV -- shares. - APA Excelsior IV, L.P. -- shares. - Patricof Private Investment Club, L.P. -- shares. - Coutts & Co. Cayman Ltd. c/o APA Excelsior IV/Offshore, L.P. -- shares. Alan J. Patricof, the Chairman of Medscape's board, is a Co-Chairman at Patricof & Co. Ventures, Inc., that manages APA Excelsior IV, L.P., Coutts & Co. Cayman Ltd. c/o APA Excelsior IV/Offshore, L.P., Patricof Private Investment Club and APA Excelsior Fund. Carlo A. von Schroeter, a director of Medscape and designee of Weston Presidio Capital, is a General Partner at Weston Presidio Capital, that manages Weston Presidio Capital II, L.P., Weston Presidio Capital III, L.P. and WPC Entrepreneur Fund, L.P. Mr. von Schroeter was elected as a director as a condition to the investment by these entities. ACQUISITION OF HEALTHCARE COMMUNICATIONS GROUP, LLC In October 1998 we acquired all the membership interests of Healthcare Communications Group for shares of our Class B Common Stock, and $1,075,000 in cash. Dr. Jeffrey L. Drezner owned the majority of the membership interests of Healthcare Communications Group, LLC. Contemporaneously with our acquisition of Healthcare Communication Group, we hired Dr. Drezner as Executive Vice President with an initial base salary of $195,000 and, as a condition to the acquisition, Dr. Drezner was elected as a director of Medscape. In connection with Dr. Drezner's employment agreement, he purchased restricted shares of Class B Common Stock in exchange for a promissory note in the principal amount of $627,950 with 5.12% interest per annum. This note is secured by a pledge of the stock and the principle 50 53 remains outstanding. These restricted shares will vest in yearly installments over a three year period through December 31, 2001, based upon the achievement of targeted revenue performance goals. Restricted shares which do not vest are subject to forfeiture. SERIES C TRANSACTION On March 17, 1998, pursuant to amendments to an earlier financing agreement entered into by various investors in October 31, 1997 involving the purchase of shares of Series C Preferred Stock at $ per share, we sold an additional shares of Series C Preferred Stock at a purchase price of $ per share, which was paid in cash. This investment triggered anti-dilution provisions inherent in the outstanding shares of Series C Preferred Stock, making them convertible into shares of common stock upon conversion. The shares of Series C Preferred Stock, which are convertible into shares of common stock upon conversion, were redesignated as Series C-1 Preferred Stock on March 5, 1999, in connection with the Series D Transaction described above to distinguish their conversion rate from that of the March 1997 investors. The purchasers of the shares of Series C Preferred Stock included the following holders of more than 5% of the common stock, assuming the conversion of outstanding preferred shares: - TBG Information Investors, LLC -- shares. - Media Technology Ventures, L.P. -- shares. - Media Technology Ventures Entrepreneurs Fund, L.P. -- shares. Oakleigh Thorne, a director of Medscape, is Chairman and Chief Executive Officer of TBG Information Investors, LLC. Mr. Thorne was elected as a director as a condition to the investment by TBG Information Investors, LLC. Marc Butlein, a designee of Media Technology Ventures, L.P. and Media Technology Ventures Entrepreneurs Fund, L.P., was elected as a director as a condition to the earlier investment by Media Technology Ventures, L.P. and Media Technology Entrepreneurs Fund, L.P. in March 1997. TRANSACTIONS WITH SCP COMMUNICATIONS, INC. On April 1, 1996, we entered into an agreement with SCP Communications, Inc. for administrative and support services, including accounting, clerical, secretarial and receptionist assistance. We renewed this agreement in each of 1997 and 1998. From April 1, 1996 until March 31, 1997, we paid SCP Communications $35,000 per month for these services. Beginning on April 1, 1997 through June 30, 1998, as we expanded our own administrative and support services, this amount was reduced to $12,000 per month. The service agreement increased to $14,950 for the period July 1, 1998 to April 30, 1999 to reflect additional services. Under this agreement, we agreed to reimburse out-of-pocket costs incurred by SCP Communications in connection with these services. We terminated the agreement on April 30, 1999. On April 1, 1996, we also entered into a financing agreement with SCP Communications that provided that they would advance funds to us under certain circumstances. The agreement provided for financing of up to $1 million, payable on demand, with interest at SCP Communications' borrowing rate plus 2%, payable quarterly. We received loan proceeds of $550,000 in 1996 and further proceeds of $1 million in 1997. In 1997 we repaid $1.15 million to SCP Communications reducing the balance to $359,000 at December 31, 1997. We fully repaid this balance in 1998. Peter M. Frishauf and Oakleigh Thorne currently serve as directors of SCP Communications. Peter M. Frishauf was the Chief Executive Officer of SCP Communications until April 1996, and an employee of SCP Communications until January 15, 1999. TBG Information Investors, LLC owns a majority of the outstanding voting stock of SCP Communications. Alan J. Patricof resigned as a director of SCP Communications, Inc. on November 25, 1997. 51 54 PRINCIPAL STOCKHOLDERS The following table shows information with respect to beneficial ownership of our common stock, as of March 31, 1999, after giving pro forma effect to the preferred stock conversion and as adjusted to reflect the sale of the common stock offered by Medscape in this offering, for: - each person known by Medscape to beneficially own more than 5% of the common stock; - each director of Medscape; - each executive officer named in the Summary Compensation Table; and - all directors and executive officers of Medscape as a group. Beneficial ownership is determined under the rules of the Securities and Exchange Commission and includes voting or investment power with respect to the securities. Unless indicated otherwise below, the address for each listed director and officer is Medscape, Inc., 134 West 29th Street, New York, New York 10001-5399. Except as indicated by footnote, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. The number of shares of common stock outstanding used in calculating the percentage for each listed person includes the shares of common stock underlying options held by that person that are exercisable within 60 days of March 31, 1999 but excludes shares of common stock underlying options held by any other person. Percentage of beneficial ownership is based on shares of common stock outstanding as of March 31, 1999, after giving effect to the conversion of the convertible preferred stock, and shares of common stock outstanding after completion of this offering.
SHARES OF PERCENTAGE BENEFICIALLY OWNED COMMON STOCK BEFORE AFTER NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING Entities associated with Patricof & Co. Ventures, Inc.(1)............................................ 17% Entities associated with CSK Venture Capital Co., Ltd.(2)............................................ 7 Entities associated with Highland Capital Partners, Inc.(3)............................................ 8 Entities associated with Media Technology Ventures(4)........................................ 10 TBG Information Investors, LLC....................... 9 Entities associated with Weston Presidio Capital Funds(5)........................................... 8 Paul T. Sheils(6).................................... 2 Jeffrey L. Drezner, M.D., Ph.D.(7)................... 17 Peter M. Frishauf(8)................................. 9 Marc Butlein(9)...................................... * Esther Dyson(10)..................................... * Alan J. Patricof(11)................................. 18 Carlo A. von Schroeter(12)........................... 8 Oakleigh Thorne(13).................................. 9 All executive officers and directors as a group (12 persons)(14)................................... 63
- --------------- * Less than one percent. (1) Represents shares held in record by APA Excelsior IV, L.P., shares held of record by Coutts & Co. Cayman Ltd. c/o APA Excelsior IV/Offshore, L.P., shares held of record by Patricof Private Investment Club, L.P., shares held of record by APA Excelsior Fund and shares held of record by Patricof & Co. Ventures, Inc. Each of the above funds disclaims ownership of any other above fund. Patricof & Co. Ventures, Inc. Manages APA Excelsior IV, L.P., Coutts & Co. Cayman Represents shares held of record by APA Excelsior IV, L.P., shares held of record by Coutts & Co. Cayman Ltd. c/o APA Excelsior IV/Offshore, L.P., shares held of record by Patricof Private Investment Club, L.P., shares held of record by APA 52 55 Excelsior Fund and shares held of record by Patricof & Co. Ventures, Inc. Each of the above funds disclaims ownership of any other above fund. Patricof & Co. Ventures, Inc. manages APA Excelsior IV, L.P., Coutts & Co. Cayman Ltd. c/o APA Excelsior IV/Offshore, L.P., Patricof Private Investment Club and APA Excelsior Fund. The address for Patricof & Co. Ventures, Inc. is c/o Alan J. Patricof, 445 Park Avenue, New York, NY 10021. (2) Represents shares held of record by CSK Venture Capital Co., Ltd., as investment manager for CSK-1(B) Investment Fund, shares held of record by CSK Venture Capital Co., Ltd., as investment manager for CSK-2 Investment Fund, shares held of record by CSK Venture Capital Co., Ltd., as investment manager for CSK-1(A) Investment Fund. Each of the above funds disclaims ownership of any other above fund. The address for the CSK Venture Capital Co., Ltd. is CSK Corporation, Kenchikukaikan, 7F, 5-26-20 Shiba, Minato-Ku, Tokyo 108-0014, Japan. (3) Represents shares held of record by Highland Capital Partners IV Limited Partnership and shares held of record by Highland Entrepreneurs' Fund IV Limited Partnership. Each of the above funds disclaims ownership of any other above fund. Highland Capital Partners, Inc. manages Highland Capital Partners IV Limited Partnership and Highland Entrepreneurs' Fund IV Limited Partnership. The address for the Highland Capital Partners, Inc. is Two International Place, Boston, MA 02100. (4) Represents shares held in record by Media Technology Ventures, L.P. and shares held of record by Media Technology Ventures Entrepreneurs Fund, L.P. Each of the above funds disclaims ownership of any other above fund. The address for the Media Technology Ventures entities is One First Street, Los Angeles, CA 94022. (5) Represents shares held of record by Weston Presidio Capital II, L.P., shares held of record by Weston Presidio Capital III, L.P. and shares held of record by WPC Entrepreneur Fund, L.P. Each of the above funds disclaims beneficial ownership of any other above fund. Weston Presidio Capital manages Weston Presidio Capital II, L.P., Weston Presidio Capital III, L.P. and WPC Entrepreneur Fund, L.P. The address for Weston Presidio Capital is One Federal Street, 21st Floor, Boston, MA 02110-2004. (6) Includes shares of common stock issuable upon the exercise of options exercisable within 60 days of March 31, 1999. (7) Includes shares of restricted stock issued pursuant to the terms of Dr. Drezner's employment agreement. (8) Includes shares of common stock issuable upon exercise of options exercisable within 60 days of March 31, 1999. (9) Includes shares of common stock issuable upon exercise of options exercisable within 60 days of March 31, 1999. (10) Includes shares of common stock issuable upon exercise of options exercisable within 60 days of March 31, 1999. (11) Represents shares held in record by APA Excelsior IV, L.P., shares held of record by Coutts & Co. Cayman Ltd. c/o APA Excelsior IV/Offshore, L.P., shares held of record by Patricof Private Investment Club, L.P., shares held of record by APA Excelsior Fund, shares held of record by Patricof & Co. Ventures, Inc. and shares held of record by Mr. Patricof's sons. Also includes shares of common stock issuable upon exercise of options exercisable within 60 days of March 31, 1999. Mr. Patricof disclaims beneficial ownership to the shares held of record by his sons, and disclaims beneficial ownership of the shares held of record by the above entities except to the extent of his pecuniary interest. The address for all of the above is c/o Alan J. Patricof, 445 Park Avenue, New York, NY 10021. (12) Includes shares held of record by Weston Presidio Capital II, L.P., shares held of record by Weston Presidio Capital III, L.P. and shares held of record by WPC Entrepreneur Fund, L.P., for both of which Mr. von Schroeter is a general partner of the managing partner. Mr. von 53 56 Schroeter disclaims beneficial ownership of the shares held of record by the above entities except to the extent of his pecuniary interest. (13) Includes shares of common stock issuable upon exercise of options exercisable within 60 days of March 31, 1999. Also includes shares held of record by TBG Information Investors, LLC, for which Mr. Thorne serves as Chairman and CEO. Mr. Thorne disclaims beneficial ownership of the shares held of record by TBG Information Investors, LLC except to the extent of his pecuniary interest. (14) Includes shares issuable upon the exercise of options exercisable within 60 days of March 31, 1999. 54 57 DESCRIPTION OF CAPITAL STOCK Upon the closing of this offering, our amended and restated certificate of incorporation will authorize the issuance of up to shares of common stock, par value $0.01 per share, and 5,000,000 shares of preferred stock, par value $0.01 per share, the rights and preferences of which may be established from time to time by our board of directors. As of April 30, 1999, shares of common stock were outstanding and shares of convertible preferred stock convertible into shares of common stock upon the completion of this offering were issued and outstanding. As of April 30, 1999, we had 77 stockholders. COMMON STOCK Upon the closing of this offering, all shares of Class B Common Stock will automatically convert on a one-for-one basis into Class A Common Stock, which will be redesignated as common stock. Each holder of common stock is entitled to one vote for each share on all matters to be voted upon by the stockholders and there are no cumulative voting rights. Subject to preferences that may be applicable to any preferred stock outstanding at the time, holders of common stock are entitled to receive ratable dividends, if any, as may be declared from time to time by the board of directors out of funds legally available for that purpose. In the event of a liquidation, dissolution or winding up of Medscape, holders of common stock would be entitled to share in our assets remaining after the payment of liabilities and liquidation preferences on any outstanding preferred stock. Holders of common stock have no preemptive or conversion rights or other subscription rights and there are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are, and shares of common stock offered by Medscape in this offering, when issued and paid for, will be, fully paid and nonassessable. PREFERRED STOCK Upon the closing of this offering, all outstanding shares of preferred stock will convert into shares of common stock. Upon the closing of this offering, the board of directors will be authorized, subject to Delaware law, without stockholder approval, from time to time to issue up to an aggregate of 5,000,000 shares of preferred stock in one or more series. The board of directors can fix the rights, preferences and privileges of the shares of each series and any qualifications, limitations or restrictions. Issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, a majority of our outstanding voting stock. We have no present plans to issue any shares of preferred stock. WARRANTS Upon the completion of this offering, we will have outstanding warrants to purchase shares of common stock at a weighted average exercise price of $0.01 per share. These warrants became exercisable on March 5, 1999 and expire on March 5, 2002. REGISTRATION RIGHTS After the offering, the holders of shares of our common stock will be entitled to registration rights. These rights include demand registration rights and rights to require us to include their common stock in future registration statements we file with the SEC. The holders may also require us to register their common stock once we are eligible to use a short-form registration statement. However, holders of substantially all of these shares have agreed not to exercise their registration rights until 180 days after the date of this prospectus. Registration of shares of common stock upon the exercise of demand registration rights would result in the covered shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of this registration. 55 58 CHARTER AND BYLAW PROVISIONS AND DELAWARE ANTI-TAKEOVER STATUTE Under Delaware law, we may not engage in a "business combination," which includes a merger or sale of more than 10% of the corporation's assets, with any "interested stockholder," namely, a stockholder who owns 15% or more of Medscape's outstanding voting stock, as well as affiliates and associates of any such persons, for three years following the time that stockholder became an interested stockholder unless: - the transaction in which the stockholder became an interested stockholder is approved by our board of directors prior to the time the interested stockholder attained that status; - upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of Medscape outstanding at the time the transaction commenced, excluding those shares owned by persons who are directors and also officers; or - at or after the time the stockholder became an interested stockholder the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder. The authorization of undesignated preferred stock makes it possible for the board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of Medscape. These and other provisions may have the effect of deterring hostile takeovers or delaying changes in control or management of Medscape. LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS Medscape's certificate of incorporation limits the liability of directors to the fullest extent permitted by the Delaware law. In addition, the certificate of incorporation and Bylaws provide that Medscape will indemnify directors and officers of Medscape to the fullest extent permitted by Delaware law. We believe that the provisions in our certificate of incorporation and bylaws are necessary to attract and retain qualified persons as directors and officers. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the common stock is . 56 59 SHARES ELIGIBLE FOR FUTURE SALE If our stockholders sell substantial amounts of common stock, including shares issued upon the exercise of outstanding options, in the public market following this offering, the market price of our common stock could fall. These sales also might make it more difficult for us to sell equity or equity-related securities in the future and at a time and price that we deem appropriate. Upon completion of this offering, we will have outstanding an aggregate of shares of our common stock, assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options or warrants. As of April 30, 1999, we had approximately 77 holders of common stock, after giving effect to the conversion of the convertible preferred stock. Of these shares, all of the shares sold in this offering will be freely tradeable without restriction or further registration under the Securities Act, unless such shares are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. This leaves shares eligible for sale in the public market as follows:
NUMBER OF SHARES DATE ............................. After the date of this prospectus. ............................. After 180 days from the date of this prospectus (subject, in some cases, to volume limitations). ............................. At various times after 180 days from the date of this prospectus.
LOCK-UP AGREEMENTS All of our officers and directors and substantially all of our current stockholders have signed lock-up agreements under which they agreed not to transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock, for a period of 180 days after the date of this prospectus. Transfers or dispositions can be made sooner with the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation. RULE 144 In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who has beneficially owned shares of our common stock for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: - 1% of the number of shares of our common stock then outstanding, which will equal approximately [ ] shares immediately after this offering; or - the average weekly trading volume of our common stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale. Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about Medscape, Inc. RULE 144(K) Under Rule 144(k), a person who is not deemed to have been one of our affiliates at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner other than an affiliate, is entitled to sell those shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Therefore, unless otherwise restricted, Rule 144(k) shares may be sold immediately upon the completion of this offering. RULE 701 In general, under Rule 701 of the Securities Act as currently in effect, any of our employees, consultants or advisors who purchases shares of our common stock from us in connection with a compensatory stock or 57 60 option plan or other written agreement is eligible to resell those shares 90 days after the effective date of this offering in reliance on Rule 144, but without compliance with some of the restrictions, including the holding period, contained in Rule 144. REGISTRATION RIGHTS After this offering, the holders of shares of our common stock, or their transferees, will be entitled to certain rights with respect to the registration of those shares under the Securities Act. After this registration, these shares of our common stock become freely tradeable without restriction under the Securities Act. These sales could have a material adverse effect on the trading price of our common stock. STOCK OPTIONS Shortly after this offering, we intend to file a registration statement on Form S-8 covering the shares of common stock reserved for issuance under our stock option plan. Shares of common stock registered under any registration statement will, subject to Rule 144 volume limitations applicable to affiliates, be available for sale in the open market, unless the shares are subject to vesting restrictions or the lock-up agreements described above. 58 61 UNDERWRITING Subject to the terms and conditions of an underwriting agreement, dated as of , 1999, the underwriters named below, who are represented by Donaldson, Lufkin & Jenrette Securities Corporation, BT Alex. Brown Incorporated and Bear, Stearns & Co. Inc. have severally agreed to purchase from Medscape the respective number of shares of common stock shown opposite their names below.
NUMBER OF UNDERWRITERS SHARES Donaldson, Lufkin & Jenrette Securities Corporation......... BT Alex. Brown Incorporated................................. Bear, Stearns & Co. Inc..................................... -------- Total............................................. ========
The underwriting agreement provides that the obligations of the several underwriters to purchase and accept delivery of the shares of common stock offered in this prospectus require the approval by their counsel of legal matters and other conditions. The underwriters must purchase and accept delivery of all the shares of common stock offered through this prospectus, other than those shares covered by the over-allotment option described below, if any are purchased. The underwriters propose to initially offer some of the shares of common stock directly to the public at the public offering price on the cover page of this prospectus and some of the shares of common stock to dealers, including the underwriters, at the public offering price less a concession not in excess of $ per share. The underwriters may allow, and these dealers may re-allow, to other dealers a concession not in excess of $ per share. After the initial offering of the common stock, the representatives of the underwriters may change the public offering price and other selling terms at any time without notice. The underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. An electronic prospectus is available on the respective Web sites maintained by DLJdirect Inc., a selected dealer and an affiliate of Donaldson, Lufkin & Jenrette Securities Corporation, Wit Capital Corporation, and other dealers and selected dealers designated by Wit Capital Corporation. The underwriters have agreed to allocate a limited number of shares to these underwriters and selected dealers for sale to their brokerage account holders. Other than the prospectus in electronic format, the information on these Web sites relating to the offering is not part of this prospectus and has not been approved and/or endorsed by Medscape or any underwriter, and should not be relied on by prospective investors. Medscape has granted to the underwriters an option, exercisable within 30 days after the date of this prospectus, to purchase, from time to time, in whole or in part, up to an aggregate of additional shares of common stock at the public offering price less underwriting discounts and commissions. The underwriters may exercise this option solely to cover over-allotments, if any, made in connection with the offering. To the extent that the underwriters exercise this option, each underwriter will become obligated, under conditions specified in the underwriting agreement, to purchase its pro rata portion of the additional shares based on that underwriter's percentage underwriting commitment as indicated in the preceding table. Medscape has agreed to indemnify the underwriters against liabilities specified in the underwriting agreement, including liabilities under the Securities Act, or to contribute to payments that the underwriters may be required to make because of these liabilities. 59 62 Each of Medscape, our executive officers and directors and substantially all of our stockholders has agreed, for a period of 180 days after the date of this prospectus without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation, not to: - offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; or - enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any common stock. The underwriting agreement contains limited exceptions to these lock-up agreements. In addition, during this 180-day period, Medscape has also agreed not to file any registration statement for, and each of its executive officers, directors and several stockholders of Medscape has agreed not to make any demand for, or exercise any right for, the registration of any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock without Donaldson, Lufkin & Jenrette Securities Corporation's prior written consent. Prior to the offering, there has been no established trading market for the common stock. Medscape and the underwriters negotiated the public offering price for the shares of common stock offered by this prospectus. The factors they considered in determining the public offering price included: - the history of and the prospects for the industry in which Medscape competes; - the past and present operations of Medscape; - the historical results of operations of Medscape; - the prospects for future earnings of Medscape; - the recent market prices of securities of generally comparable companies; and - the general condition of the securities markets at the time of the offering. Other than in the United States, no action has been taken by Medscape or the underwriters that would permit a public offering of the shares of common stock offered by this prospectus in any jurisdiction where action for that purpose is required. The shares of common stock offered through this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements associated with the offer and sale of any the shares of common stock offered through this prospectus be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. You should inform yourself and observe any restrictions relating to the offering of the common stock and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any shares of common stock offered in this prospectus in any jurisdiction in which an offer or a solicitation is unlawful. As a result of the offering, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may over-allot the offering, creating a syndicate short position. The underwriters may bid for and purchase shares of common stock in the open market to cover a syndicate short position or to stabilize the price of the common stock. In addition, the underwriting syndicate may reclaim selling concessions from syndicate members if the syndicate repurchases previously distributed common stock in syndicate covering transactions, in stabilization transactions or in some other way or if Donaldson, Lufkin & Jenrette Securities Corporation receives a report that indicates clients of such syndicate members have "flipped" the common stock. These activities may stabilize or maintain the market price of the common stock above independent market levels. The underwriters are not required to engage in these activities, and may end any of these activities at any time. The underwriters, at our request, have reserved for sale at the initial public offering price up to ten percent of the shares of common stock to be sold in this offering for sale to our employees and other persons 60 63 designated by us. The number of shares available for sale to the general public will be reduced to the extent that any reserved shares are purchased. Any reserved shares not so purchased will be offered by the underwriters on the same basis as the other shares offered through this prospectus. VALIDITY OF THE SHARES The validity of the shares of common stock offered through this prospectus will be passed upon for us by Patterson, Belknap, Webb & Tyler LLP, New York, New York. Certain legal matters in connection with this offering will be passed upon for the underwriters by Hogan & Hartson L.L.P., Washington, D.C. EXPERTS The financial statements of Medscape as of and for the years ended December 31, 1998 and December 31, 1997 and the nine months ended December 31, 1996, and Healthcare Communications Group, LLC as of and for the period ended October 27, 1998 and as of and for the year ended December 31, 1997 included in this prospectus, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing in this prospectus and are included in reliance upon the reports of that firm given upon their authority as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION We have filed with the SEC a registration statement on Form S-1, including amendments to it, relating to the common stock offered by us. This prospectus does not contain all of the information set forth in the registration statement and its exhibits and schedules. Statements contained in this prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance reference is made to the copy of that contract or document filed as an exhibit to the registration statement, each statement being qualified in all respects by that reference. For further information with respect to Medscape and our common stock, reference is made to the registration statement and its exhibits and schedules. A copy of the registration statement may be inspected without charge at the SEC's principal office in Washington, D.C. and copies of all or any part thereof may be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, the New York Regional Office located at Seven World Trade Center, New York, New York 10048, and the Chicago Regional Office located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, upon payment of fees prescribed by the SEC. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the SEC's Web site is http://www.sec.gov. Medscape intends to furnish its stockholders with annual reports containing audited financial statements certified by its independent auditors. 61 64 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE MEDSCAPE, INC. Independent Auditors' Report................................ F-2 Consolidated Balance Sheets as of December 31, 1997 and December 31, 1998......................................... F-3 Consolidated Statements of Operations for Nine Months Ended December 31, 1996, and for the Years Ended December 31, 1997 and December 31, 1998................................ F-4 Consolidated Statements of Shareholders' Equity (Deficiency) for the Nine Months Ended December 31, 1996, and for the Years Ended December 31, 1997 and December 31, 1998....... F-5 Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 1996, and for the Years Ended December 31, 1997 and December 31, 1998............................ F-6 Notes to Consolidated Financial Statements.................. F-7 Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets as of December 31, 1998 and March 31, 1999 (unaudited)....................... F-16 Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 1998 and March 31, 1999 (unaudited)............................................... F-17 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1998 and March 31, 1999 (unaudited)............................................... F-18 Notes to the Condensed Consolidated Financial Statements.... F-19 HEALTHCARE COMMUNICATIONS GROUP, LLC Independent Auditors' Report................................ F-21 Balance Sheets as of December 31, 1997 and October 27, 1998...................................................... F-22 Statements of Operations for the Year Ended December 31, 1997 and the Ten Months Ended October 27, 1998............ F-23 Statements of Member's Capital for the Year Ended December 31, 1997 and the Ten Months Ended October 27, 1998........ F-24 Statements of Cash Flows for the Year Ended December 31, 1997 and the Ten Months Ended October 27, 1998............ F-25 Notes to Financial Statements............................... F-26
F-1 65 INDEPENDENT AUDITORS' REPORT Medscape, Inc. New York, New York We have audited the accompanying consolidated balance sheets of Medscape, Inc. and its subsidiary ("Medscape") as of December 31, 1997 and 1998, and the related consolidated statements of operations, shareholders' equity (deficiency), and cash flows for the nine months ended December 31, 1996 and each of the two years in the period ended December 31, 1998. These consolidated financial statements are the responsibility of Medscape's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated 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 audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of Medscape at December 31, 1997 and 1998 and the results of its operations and its cash flows for the nine months ended December 31, 1996 and the two years then ended December 31, 1998, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP New York, New York February 12, 1999 F-2 66 MEDSCAPE, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------- 1997 1998 ASSETS Current Assets: Cash and cash equivalents (Note 2)........................ $ 3,627,903 $ 1,594,939 Accounts receivable....................................... 634,200 1,350,194 Prepaid expenses and other assets......................... 31,691 92,911 ----------- ----------- Total current assets.............................. 4,293,794 3,038,044 Property and equipment -- Net............................... 279,005 379,588 Intangible assets -- Net.................................... 59,831 46,144 Goodwill -- Net............................................. -- 1,950,268 ----------- ----------- Total assets...................................... $ 4,632,630 $ 5,414,044 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable.......................................... $ 90,948 $ 330,402 Accrued expenses.......................................... 154,529 308,394 Accrued compensation...................................... 13,000 152,248 Accrued vacation.......................................... 56,679 28,812 Due to related party...................................... 465,918 50,862 Loan payable.............................................. 358,949 -- Deferred revenue.......................................... 803,884 799,523 ----------- ----------- Total current liabilities......................... 1,943,907 1,670,241 ----------- ----------- Commitments (Notes 10 and 12) Shareholders' Equity: Common stock, Class A -- par value $.01; 6,000,000 shares authorized, 431,600 issued and outstanding............. 4,316 4,316 Common stock, Class B -- par value $.01; 6,000,000 shares authorized, 690,658 and 2,316,927 issued and outstanding............................................ 6,906 23,169 Preferred stock, Series A -- par value $.01; 1,000,000 shares authorized, 788,200 shares issued and outstanding............................................ 7,882 7,882 Preferred stock, Series B -- par value $.01; 1,000,000 shares authorized, 0 issued and outstanding............ -- -- Preferred stock, Series C -- par value $.01; 4,000,000 shares authorized, 1,478,359 and 2,410,760 issued and outstanding............................................ 14,784 24,108 Additional paid-in-capital................................ 7,463,239 12,767,469 Treasury stock............................................ -- (3,277) Notes receivable.......................................... -- (627,950) Accumulated deficit....................................... (4,808,404) (8,451,914) ----------- ----------- Total shareholders' equity........................ 2,688,723 3,743,803 ----------- ----------- Total liabilities and shareholders' equity........ $ 4,632,630 $ 5,414,044 =========== ===========
See notes to consolidated financial statements. F-3 67 MEDSCAPE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, ------------------------- 1996 1997 1998 Revenues.............................................. $ 1,015,358 $ 1,522,183 $ 3,069,045 ----------- ----------- ----------- Operating expenses: Editorial, production, content and technology....... 1,181,783 1,790,588 2,563,419 Sales and marketing................................. 278,269 1,200,745 2,343,962 General administration.............................. 830,354 1,822,595 1,774,649 Depreciation and amortization....................... 41,325 159,862 279,528 ----------- ----------- ----------- Total Operating Expenses.................... 2,331,731 4,973,790 6,961,558 ----------- ----------- ----------- Loss from operations.................................. (1,316,373) (3,451,607) (3,892,513) Interest (income) expense........................... 28,117 12,307 (249,003) ----------- ----------- ----------- Net loss.............................................. $(1,344,490) $(3,463,914) $(3,643,510) =========== =========== =========== Basic net loss per shares............................. $ (1.66) $ (3.15) $ (2.50) Weighted average number of shares of common stock outstanding......................................... 810,493 1,100,221 1,454,623
See notes to consolidated financial statements. F-4 68 MEDSCAPE, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY) FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND THE YEARS ENDED DECEMBER 31, 1997 AND 1998
CLASS A CLASS B SERIES A SERIES B COMMON STOCK COMMON STOCK PREFERRED STOCK PREFERRED STOCK ---------------- ------------------- ---------------- ------------------ SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT Balance, April 1, 1996............. -- $ -- -- $ -- -- $ -- -- $ -- Initial capitalization -- April 1, 1996............................ 11,592 116 17,238 172 21,170 212 -- -- Stock split, 37.232 to 1.......... 420,008 4,200 624,562 6,246 767,030 7,670 -- -- Exercise of stock options......... -- -- 9,000 90 -- -- -- -- Net loss.......................... -- -- -- -- -- -- -- -- ------- ------ --------- ------- ------- ------ -------- ------- Balance, December 31, 1996......... 431,600 4,316 650,800 6,508 788,200 7,882 -- -- Issuance of Preferred B Stock..... -- -- -- -- -- -- 123,974 1,240 Conversion of Preferred Stock..... -- -- -- -- -- -- (123,974) (1,240) Issuance of Preferred C Stock..... -- -- -- -- -- -- -- -- Exercise of stock options......... -- -- 39,858 398 -- -- -- -- Contributed capital............... -- -- -- -- -- -- -- -- Net loss.......................... -- -- -- -- -- -- -- -- ------- ------ --------- ------- ------- ------ -------- ------- Balance, December 31, 1997......... 431,600 4,316 690,658 6,906 788,200 7,882 -- -- Purchase of Treasury Stock........ -- -- -- -- -- -- -- -- Options issued to nonemployees.... -- -- -- -- -- -- -- -- Issuance of Preferred C Stock..... -- -- -- -- -- -- -- -- Issuance of Common B Stock (acquisition)................... -- -- 1,460,348 14,604 -- -- -- -- Exercise of stock options......... -- -- 165,921 1,659 -- -- -- -- Net loss.......................... -- -- -- -- -- -- -- -- ------- ------ --------- ------- ------- ------ -------- ------- Balance, December 31, 1998......... 431,600 $4,316 2,316,927 $23,169 788,200 $7,882 -- $ -- ======= ====== ========= ======= ======= ====== ======== ======= SERIES C PREFERRED STOCK ADDITIONAL ------------------- PAID-IN ACCUMULATED TREASURY NOTES SHARES AMOUNT CAPITAL DEFICIT STOCK RECEIVABLE TOTAL Balance, April 1, 1996............. -- $ -- $ -- $ -- $ -- $ -- $ -- Initial capitalization -- April 1, 1996............................ -- -- 49,500 -- -- -- 50,000 Stock split, 37.232 to 1.......... -- -- (18,116) -- -- -- -- Exercise of stock options......... -- -- 153 -- -- -- 243 Net loss.......................... -- -- -- (1,344,490) -- -- (1,344,490) --------- ------- ----------- ----------- ------- --------- ----------- Balance, December 31, 1996......... -- -- 31,537 (1,344,490) -- -- (1,294,247) Issuance of Preferred B Stock..... -- -- 1,498,760 -- -- -- 1,500,000 Conversion of Preferred Stock..... 326,087 3,261 (2,021) -- -- -- -- Issuance of Preferred C Stock..... 1,152,272 11,523 5,288,924 -- -- -- 5,300,447 Exercise of stock options......... -- -- 3,675 -- -- -- 4,073 Contributed capital............... -- -- 642,364 -- -- -- 642,364 Net loss.......................... -- -- -- (3,463,914) -- -- (3,463,914) --------- ------- ----------- ----------- ------- --------- ----------- Balance, December 31, 1997......... 1,478,359 14,784 7,463,239 (4,808,404) -- -- 2,688,723 Purchase of Treasury Stock........ -- -- -- -- (3,277) -- (3,277) Options issued to nonemployees.... -- -- 65,000 -- -- -- 65,000 Issuance of Preferred C Stock..... 932,401 9,324 3,990,675 -- -- -- 3,999,999 Issuance of Common B Stock (acquisition)................... -- -- 1,241,296 -- -- (627,950) 627,950 Exercise of stock options......... -- -- 7,259 -- -- -- 8,918 Net loss.......................... -- -- -- (3,643,510) -- -- (3,643,510) --------- ------- ----------- ----------- ------- --------- ----------- Balance, December 31, 1998......... 2,410,760 $24,108 $12,767,469 $(8,451,914) $(3,277) $(627,950) $ 3,743,803 ========= ======= =========== =========== ======= ========= ===========
See notes to consolidated financial statements. F-5 69 MEDSCAPE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND THE YEARS ENDED DECEMBER 31, 1997 AND 1998
NINE MONTHS ENDED YEARS ENDED DECEMBER 31, ------------------------- 1996 1997 1998 OPERATING ACTIVITIES Net loss............................................ $(1,344,490) $(3,463,914) $(3,643,510) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.................... 41,325 159,862 279,528 Recruiting fees -- issuance of options........... -- -- 65,000 Changes in assets and liabilities: (Increase) decrease in accounts receivable....... (350,733) (283,467) 474,365 Increase in prepaid expenses..................... (10,431) (21,260) (6,489) Increase in accounts payable and accruals........ 225,979 89,178 149,742 Increase (decrease) in due to related party...... 645,758 (179,840) (415,056) Increase (decrease) in deferred revenue.......... 712,224 91,660 (1,125,556) ----------- ----------- ----------- Net cash used in operating activities....... (80,368) (3,607,781) (4,221,976) ----------- ----------- ----------- INVESTING ACTIVITIES Purchase of property and equipment.................. (245,543) (221,850) (262,350) Acquisition of intangible assets.................... (72,632) -- -- Payments for business acquired, net of cash acquired (note 1)......................................... -- -- (1,195,330) ----------- ----------- ----------- Net cash used in investing activities....... (318,175) (221,850) (1,457,680) ----------- ----------- ----------- FINANCING ACTIVITIES Proceeds from loan.................................. 546,667 962,283 -- Payment of loan..................................... (1,150,000) (358,949) Proceeds from issuance of preferred stock........... 7,882 6,800,447 3,999,999 Proceeds from exercise of stock options............. 42,361 4,073 8,918 Purchase of treasury stock.......................... -- -- (3,276) Contributed capital................................. -- 642,364 -- ----------- ----------- ----------- Cash provided by financing activities....... 596,910 7,259,167 3,646,692 ----------- ----------- ----------- Increase (decrease) in cash and cash equivalents...... 198,367 3,429,536 (2,032,964) Cash and cash equivalents, beginning of period........ -- 198,367 3,627,903 ----------- ----------- ----------- Cash and cash equivalents, end of period.............. $ 198,367 $ 3,627,903 $ 1,594,939 =========== =========== ===========
See notes to consolidated financial statements. F-6 70 MEDSCAPE, INC. CONSOLIDATED NOTES TO FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND THE YEARS ENDED DECEMBER 31, 1997 AND 1998 1. ORGANIZATION AND NATURE OF BUSINESS Medscape, Inc. was formed and incorporated under the laws of the State of New York in March 1996, and commenced operations in April 1996. Medscape was reincorporated in Delaware in December 1998. Medscape operates Medscape.com, a leading healthcare Web site for physicians, allied healthcare professionals such as pharmacists and nurses, and consumers. The Medscape Web site is a valuable resource that enables members to make better informed healthcare decisions. Medscape provides comprehensive, authoritative and timely medical information, including original proprietary articles written by renowned medical experts. Medscape sells advertising and sponsorship, market research and other services to pharmaceutical, medical device and other healthcare companies. Medscape also sells products, such as medical books, to physicians, allied healthcare professionals and consumers. Effective October 27, 1998, Medscape consummated an acquisition in accordance with a purchase agreement with Healthcare Communications Group, LLC, ("HCG") a Maryland corporation. HCG is a medical communications/education company that develops, produces and distributes unique live, print, digital and Internet-based programs for healthcare professionals funded by pharmaceutical companies. The agreement provided for the purchase of the membership interests of HCG. The purchase price of $1,837,359 was allocated principally to working capital and assets, including accounts receivable and goodwill (see below). The acquisition of HCG has been accounted for by the purchase method of accounting and, accordingly, the purchase price has been allocated to the assets acquired and the liabilities assumed based on their respective estimated fair values at the date of acquisition. The excess of the purchase price over the aggregated estimated fair values of the net tangible assets acquired has been recorded as goodwill, which is being amortized over fifteen years. The purchase price was allocated in the following manner: Purchase price: Cash at closing........................................... $ 1,075,000 Legal and accounting fees................................. 134,410 Common stock 730,174 shares at $.86 (Note 8).............. 627,949 ----------- 1,837,359 Liabilities assumed: Accounts payable.......................................... $ 74,777 Demand note, Medscape..................................... 275,000 Deferred revenue.......................................... 1,121,193 Payroll tax liabilities................................... 5,182 1,476,152 ---------- Assets purchased: Cash...................................................... 14,081 Accounts receivable....................................... 1,190,359 Prepaid expenses.......................................... 54,730 Fixed assets.............................................. 76,777 Intangibles............................................... 5,383 (1,341,330) ---------- ----------- Total goodwill.............................................. $ 1,972,181 ===========
F-7 71 MEDSCAPE, INC. CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) The following presents, on a pro forma basis, Medscape's operations as if Medscape and HCG were combined as of the beginning of the periods presented.
JANUARY 1, ------------------------- 1997 1998 (UNAUDITED) Total revenue.............................................. $ 4,677,687 $ 5,653,660 =========== =========== Net loss................................................... $(3,086,341) $(3,671,093) =========== ===========
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION The consolidated financial statements include the accounts of Medscape and its subsidiary, HCG. The results of the subsidiary acquired are included from the date of acquisition. All significant intercompany accounts and transactions have been eliminated in consolidation. USE OF ESTIMATES The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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 those estimates. CASH AND CASH EQUIVALENTS For purposes of the statements of cash flows, Medscape considers all highly liquid short-term cash investments purchased with maturities of three months or less as cash and cash equivalents. CONCENTRATION OF CREDIT RISK Medscape's financial instruments that are exposed to concentration of credit risks consist primarily of cash and cash equivalents and trade accounts receivable. Medscape maintains its cash and cash equivalents in bank accounts which, at times exceeds federally insured limits. Medscape has not experienced any losses in such accounts. Medscape believes it is not exposed to any significant credit risk on cash and cash equivalents. Concentrations of credit risks with respect to accounts receivable are limited because of Medscape's expanding customer base and the credit worthiness of its three major customers (see Note 11), making up the majority of the accounts receivable balance. DEPRECIATION AND AMORTIZATION Medscape provides for depreciation of property and equipment based on the estimated useful lives of the applicable assets and the life of leases or the life of the leasehold improvement if less, using the straight-line method. Expenditures for renewals and improvements which extend the useful lives of assets are capitalized, while maintenance and repairs are charged to operations as incurred. F-8 72 MEDSCAPE, INC. CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) GOODWILL, INTANGIBLE ASSETS AND RELATED AMORTIZATION Goodwill represents the excess of cost over the fair value of the net assets acquired of HCG and is being amortized using the straight-line method over fifteen years. Medscape periodically reviews the value of its goodwill to determine if impairment has occurred. Intangible assets consist of trademarks and organization costs, which are being amortized using the straight-line method over their estimated useful life. IMPAIRMENT OF ASSETS Medscape's long-lived assets and identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the net carrying amount may not be recoverable. When such events occur, Medscape measures impairment by comparing the carrying value of the long-lived asset to the estimated undiscounted future cash flows expected to result from use of the assets and their eventual disposition. If the sum of the expected undiscounted future cash flows is less than the carrying amount of the assets, Medscape would recognize an impairment loss. Medscape determined that, as of December 31, 1997 and 1998, there had been no impairment in the carrying value of the long-lived assets. REVENUE RECOGNITION Income is derived from a variety of sources including advertising, sponsorship of on-line journals, medical conferences, market research and e-commerce. Revenues from advertising are recognized in the period in which the advertisement is displayed. Revenue from sponsored programs, such as medical conferences, are recognized on a percentage of completion basis. At December 31, 1998 and 1997, there were no uncompleted projects. Revenues from sponsored content and market research are recognized upon completion of the project. DEFERRED REVENUE Deferred revenue represents amounts billed in excess of revenues recognized. Included in accounts receivable are amounts due (under contract) relating to deferred revenue. INCOME TAXES Medscape accounts for income taxes under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes. SFAS No. 109 establishes financial accounting and reporting standards for the effect of income taxes that result from activities during the current and preceding years. SFAS No. 109 requires an asset and liability approach for financial reporting for income taxes. NET LOSS PER COMMON SHARE Basic loss per common share was computed by dividing net loss by the weighted average number of shares of common stock outstanding. Diluted loss per common share has not been presented since the impact for options and warrants would have been anti-dilutive. NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information. SFAS No. 130 establishes new rules for the F-9 73 MEDSCAPE, INC. CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) reporting and display of comprehensive income and its components. Medscape has no elements of comprehensive income. Medscape operates in one segment in the United States. In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which establishes accounting and reporting standards for derivative instruments and hedging activities for Medscape's year ended December 31, 2000. Generally, it requires that an entity recognize all derivatives as either an asset or liability and measure those instruments at fair value, as well as identify the conditions for which a derivative may be specifically designed as a hedge. Medscape currently does not have any derivative instruments and is not engaged in hedging activities. During 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued SOP No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. This statement is applicable to Medscape's 1999 financial statements and will require Medscape to capitalize certain payroll and payroll related costs and other costs that are directly related to the development of certain systems of Medscape. Medscape will amortize these costs over the anticipated life of the systems. Management is currently evaluating the effect of this statement on Medscape's financial statements. RECLASSIFICATIONS Certain prior years' amounts have been reclassified to conform to the current year presentation. 3. PROPERTY AND EQUIPMENT Property and equipment, consist of the following:
DECEMBER 31, --------------------- USEFUL LIFE DESCRIPTION 1997 1998 (IN YEARS) Computers.......................................... $ 268,032 $ 601,501 3 Furnitures and fixtures............................ 62,196 66,163 5 Leasehold improvements............................. 137,163 138,855 2 --------- --------- 467,391 806,519 Less accumulated depreciation...................... (188,386) (426,931) --------- --------- Property and equipment -- net...................... $ 279,005 $ 379,588 ========= =========
4. INTANGIBLE ASSETS Intangible assets consist of the following:
DECEMBER 31, ------------------- USEFUL LIFE DESCRIPTION 1997 1998 (IN YEARS) Trademarks........................................... $ 50,000 $ 55,383 15 Organization costs................................... 22,632 22,632 5 -------- -------- 72,632 78,015 Less accumulated amortization........................ (12,801) (31,871) -------- -------- Intangible assets -- net............................. $ 59,831 $ 46,144 ======== ========
In 1997, Medscape changed the useful life of intangible assets from 40 years for Trademarks and 15 years for Organization costs to 15 and 5 years, respectively, to more properly reflect their expected useful lives in the current business environment. The impact of the change was not material to Medscape's financial statements. F-10 74 MEDSCAPE, INC. CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. GOODWILL Goodwill consists of the following:
DECEMBER 31, USEFUL LIFE DESCRIPTION 1998 (IN YEARS) Goodwill.................................................... $1,972,181 15 Less accumulated amortization............................... (21,913) ---------- Goodwill -- net............................................. $1,950,268 ==========
6. INCOME TAXES No provision for income taxes has been made because Medscape has sustained cumulative losses since the commencement of its operations. At December 31, 1998, Medscape had net operating loss carryforwards ("NOLs") of approximately $8,619,000 which will be available to reduce future taxable income. The NOLs are scheduled to expire in the following years: 2011..................................................... $1,344,000 2012..................................................... $3,306,000 2018..................................................... $3,969,000
In accordance with SFAS No. 109, Medscape has computed the components of deferred income taxes as follows:
DECEMBER 31, 1997 1998 Deferred tax assets........................................ $ 1,961,000 $ 3,447,510 Less valuation allowance................................... (1,961,000) (3,447,510) ----------- ----------- Net deferred tax assets.................................... $ -- $ -- =========== ===========
Medscape's net operating losses primarily generated the deferred tax assets. At December 31, 1998 and 1997, a valuation allowance is provided as the realization of the deferred tax benefits is not likely. 7. RETIREMENT PLAN Medscape has a 401(k) Retirement/Savings Plan (the "Plan") for all eligible employees. Employees are eligible to participate after they have completed three months of service. Medscape is not required to, but may match employee contributions. In addition, Medscape may make a discretionary contribution to the Plan. Medscape did not make any voluntary contributions to the Plan for the year ended December 31, 1997 or December 31, 1998. 8. SHAREHOLDERS' EQUITY (DEFICIENCY) The authorized capital stock of Medscape consists of Class A Common Stock, Class B Common Stock (collectively the "Common Stock") and Series A, Series B and Series C Preferred Stock (collectively the "Preferred Stock"). Class A and Class B Common Stock have identical powers except that Class B Common Stock does not have any voting power, including voting for the election of directors or for any other purpose except as required by law. On May 23, 1996, Medscape's Board of Directors and stockholders declared a 37.232 to 1 stock split to stockholders of record on April 1, 1996. A total of 1,811,600 additional shares were issued in conjunction with F-11 75 MEDSCAPE, INC. CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) the stock split. All Preferred Stock Class A Common Stock and Class B common Stock related data and per share amounts in the accompanying financial statements for all periods presented have been restated to reflect the stock split. The Series A Preferred Stock has a liquidation preference equivalent to $.02686 per share, except that the first 788,200 shares of the Preferred Stock issued shall have a liquidation preference of $21,170. The Series C Preferred Stock has a liquidation preference equivalent to $4.60 per share, except that the first 2,517,586 shares of the Preferred Stock issued shall have a liquidation preference of $10,800,446 plus cumulative dividends thereon at the rate of 6% per annum. If upon liquidation, Medscape's assets are insufficient to permit the payment of this amount, the entire assets shall be distributed ratably among the holders of the Preferred Stock. After payment of the liquidation preference, Medscape's remaining assets shall be distributed among the holders of the Common and Preferred Stock according to the number of shares held by each shareholder. The Preferred Stock is convertible at the option of the shareholder at any time into one share of Class A Common Stock for each share of the Preferred Stock. In the event of any stock dividend, stock split, recapitalization or like occurrence not affecting the Common and Preferred Stock in a like manner, the conversion ratio shall be adjusted ratably. In January 1997, Medscape issued 123,974 shares of Series B Preferred Stock at $12.10 per share for $1,500,000. In October 1997, Medscape issued 1,152,272 shares of Series C Preferred Stock at $4.60 per share for $5,300,447. As part of this offering, Medscape converted all of the Series B Preferred Stock outstanding for 326,087 shares of Series C Preferred stock at $4.60 per share. The total capital raised in 1997 from these offerings was $6,800,447, of which $800,000 was used to pay the principal and interest on the loan payable to SCP Communications, Inc. ("SCP"), a related party, with the remainder used to fund Medscape's ongoing operations. During 1997, SCP contributed to capital $642,364 which Medscape owed to it under an administrative services agreement (note 12). In March 1998, Medscape issued 932,401 shares of Series C Preferred Stock at $4.29 per share for $3,999,999. In October 1998, Medscape issued 730,174 shares of Class B Common Stock in connection with the acquisition of Healthcare Communications Group. Medscape also received a note for $627,950 from the majority shareholder in lieu of payment for an additional 730,174 shares of Class B Common Stock. The note is presented in the Equity section as a contra to shareholders equity. 9. STOCK OPTION PLAN During 1996, the Board of Directors adopted the Medscape, Inc. 1996 Stock Option Plan (the "Plan"). Pursuant to the Plan, the Board of Directors granted incentive stock options to certain key employees and non-qualified stock options to certain key non-employees all at fair value. Under the Plan approved by the Board of Directors, the total number of shares of Class B Common Stock that may be granted is 2,200,000. The incentive stock options granted permit the key employees the right and option to purchase shares of Class B Common Stock. Except for a change of control, as defined, an option may not be exercised within one year from the date of the grant and no option will be exercisable after 10 years from the date granted. Stock options vest over a three or four-year period, with one-third or one-quarter of the options becoming exercisable one year from date of grant. In the opinion of Medscape's management, all options granted were at fair market value at the date of grant. The non-qualified stock options also permit certain non-employees the right and option to purchase shares of Class B Common Stock. Except for a change of control, as defined, an option may not be exercised within one year from the date of the grant and no option will be exercisable after 10 years from the date F-12 76 MEDSCAPE, INC. CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) granted. Stock options vest over a three-year period, with one-third of the options becoming exercisable one year from date of grant. In the opinion of Medscape's management, all options granted were at fair market value at the date of grant. In addition, the non-qualified stock options granted permit other non-employees the option to purchase shares of Class B Common Stock. One-third of the options are exercisable one year from date of grant. In the opinion of Medscape's management, all options granted were at fair market value at the date of grant. Transactions involving the incentive stock options granted to key employees are summarized as follows:
EXERCISE OPTION PRICE SHARES PER SHARE Options outstanding April 1, 1996........................... -- $ -- Granted................................................... 124,844 .027 Exercised................................................. -- -- Canceled.................................................. (10,973) -- ------- ----------- Options outstanding December 31, 1996....................... 113,871 .027 Granted................................................... 223,000 .36 & .43 Exercised................................................. (3,191) .027 Canceled.................................................. (43,991) -- ------- ----------- Options outstanding December 31, 1997....................... 289,689 .027-.43 Granted................................................... 660,047 .43 & .86 Exercised................................................. (3,119) .027 & .36 Canceled.................................................. (19,250) .36 & .043 ------- ----------- Options outstanding December 31, 1998....................... 927,367 $ .027-.86 ======= ===========
Employee Options exercisable at December 31, 1997 and 1998 were 25,330 and 137,949, respectively. No options were exercisable at December 31, 1996. Transactions involving non-qualified stock options granted to non-employees are summarized as follows:
EXERCISE OPTION PRICE SHARES PER SHARE Options outstanding April 1, 1996.......................... -- -- Granted.................................................. 789,967 $ .027 Exercised................................................ (9,000) .027 Canceled................................................. -- -- --------- ------------ Options outstanding December 31, 1996...................... 780,967 .027 Granted.................................................. 70,000 .36 Exercised................................................ (36,667) .027 Canceled................................................. (2,407) .027 --------- ------------ Options outstanding December 31, 1997...................... 811,893 .027 & .36 Granted.................................................. 136,000 .430 & .86 Exercised................................................ (162,802) .027 & .36 Canceled................................................. (35,871) .027 & .043 --------- ------------ Options outstanding December 31, 1998...................... 749,220 $ .027-.86 ========= ============
Non-employee options exercisable at December 31, 1997 and 1998 were 250,297 and 399,332, respectively. No options were exercisable at December 31, 1996. F-13 77 MEDSCAPE, INC. CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) SFAS No. 123 provides for a fair value based method of accounting for employee options and options granted to non-employees and measures compensation expense using an option valuation model that takes into account, as of the grant date, the exercise price and expected life of the option, the current price of the underlying stock and its expected volatility, expected dividends on the stock, and the risk-free interest rate for the expected term of the options. For the years ended December 31, 1996 and 1997 the fair value of options granted to non-employees were nominal as determined using the Black Scholes option pricing model. For options granted to non-employees in 1998, an amount equal to the fair value of the services provided aggregating $65,000 is included as a charge to general and administrative expenses in the 1998 statement of operations. Medscape has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25") and related interpretations in accounting for its employee stock options. Medscape has issued its options at fair value at the date of grant. Under APB 25, because the exercise price of Medscape's employee stock options equals the fair value of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma disclosures as if Medscape adopted the cost recognition requirement under SFAS 123 is presented below.
DECEMBER 31, ------------------------------------ 1996 1997 1998 Net loss as reported............................. $1,344,490 $3,463,914 $3,643,510 Net loss pro forma............................... 1,344,970 3,482,361 3,718,546
The fair value of options granted under the Plan for the years ended December 31, 1997 and 1998, in complying with SFAS 123 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used: no dividend yield, no expected volatility, risk free interest rate of 5.66% as of December 31, 1997 and 4.60% as of December 31, 1998, and expected lives of 3.25 years. Pro forma compensation cost of options granted under the Plan is measured based on the discount from fair value. 10. EMPLOYMENT AGREEMENTS Medscape has employment agreements with four employees ranging from one to five years, with commitments aggregating in each of the years, ending December 31; $571,000 in 1999, $470,000 in 2000, $179,000 in 2001, $195,000 in 2002 and 2003. 11. MAJOR CUSTOMERS Sales to two major customers for the nine months ended December 31, 1996 represent 73% and 22%. For the year ended December 31, 1997, sales to three major customers represented 15%, 14% and 13%. For the year ended December 31, 1998, sales to the three major customers represent 27%, 14% and 7%. At December 31, 1997 and 1998, these three customers represented 4% and 15% of accounts receivable, respectively. 12. ADMINISTRATIVE SERVICES AGREEMENT On April 1, 1996, Medscape and SCP, a company controlled by the same stockholders, entered into a administrative services agreement under which SCP provided Medscape with certain administrative, support services, and sufficient space for Medscape to conduct its business. Such agreement had been extended through April 30, 1999. F-14 78 MEDSCAPE, INC. CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) At December 31, 1998, Medscape owed SCP an aggregate of $50,862 under this agreement as compared to $465,916 at December 31, 1997. SCP provided services aggregating, $740,739, $1,074,307 and $749,415 for the years ended December 31, 1998, December 31, 1997 and the period ended December 31, 1996, respectively. In management's opinion, all such services were provided and paid for at a fair market value. Medscape and SCP have entered into a ten-year "Publishers' Circle Agreement" whereby SCP grants Medscape the right to distribute its content on the Web and to provide the content for worldwide on-line search and retrieval. Additionally, SCP agrees to promote Medscape in its publications, and run advertising in every issue of its journals. In return, SCP can sell all Medscape products including banner advertising for which SCP will receive a commission. 13. SUBSEQUENT EVENTS (UNAUDITED) In March 1999, Medscape issued 1,757,683 shares of Series D Preferred Stock at $11.72 per share for gross proceeds of $20,600,019. In March 1999 the Board of Directors increased the authorized shares of Class A Stock that can be issued to 11,000,000 and lowered the authorized shares of Preferred Stock to 4,956,643. The Board of Directors of Medscape has approved an increase in the total number of Class B Common Stock that may be granted under the Medscape, Inc., 1996 Stock Option Plan, to 3,300,000. F-15 79 MEDSCAPE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1998 AND MARCH 31, 1999 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, MARCH 31, 1998 1999 ------------ --------- Assets Current Assets: Cash and cash equivalents................................. $ 1,595 $20,633 Accounts receivable....................................... 1,350 2,093 Prepaid expenses and other assets......................... 93 259 ------- ------- Total current assets.............................. 3,038 22,985 Property and equipment -- net............................... 380 404 Intangible assets -- net.................................... 46 95 Goodwill -- net............................................. 1,950 1,919 ------- ------- Total assets...................................... $ 5,414 $25,403 ======= ======= Liabilities and shareholders' equity Current liabilities: Accounts payable.......................................... $ 330 $ 40 Accrued expenses.......................................... 489 1,741 Due to related party...................................... 51 104 Deferred revenue.......................................... 800 1,798 ------- ------- Total current liabilities......................... 1,670 3,683 ------- ------- Shareholders' equity: Common stock, Class A -- par value $.01; 6,000,000 and 11,000,000 at December 31, 1998 and March 31, 1999 shares authorized, 431,600 issued and outstanding...... 4 4 Common stock, Class B -- par value $.01; 6,000,000 shares authorized, 2,316,927 issued and outstanding........... 23 23 Preferred stock, Series A -- par value $.01; 1,000,000 and 788,200 shares authorized at December 31, 1998 and March 31, 1999, 788,200 shares issued and outstanding............................................ 8 8 Preferred stock, Series C -- par value $.01; 4,000,000 and 1,478,359 shares authorized at December 31, 1998 and March 31, 1999, 2,410,760 and 1,478,359 issued and outstanding............................................ 24 15 Preferred stock, Series C-1 -- par value $.01; 932,401 shares at March 31, 1999, 932,401 issued and outstanding and authorized............................. -- 9 Preferred stock, Series D -- par value $.01; 1,757,683 shares at March 31, 1999, 1,757,683 issued and outstanding and authorized............................. -- 18 Warrants.................................................. -- 85 Additional paid-in-capital................................ 12,767 32,079 Treasury stock............................................ (3) (3) Notes receivable.......................................... (628) (628) Accumulated deficit....................................... (8,451) (9,890) ------- ------- Total shareholders' equity........................ 3,744 21,720 ------- ------- Total liabilities and shareholders' equity........ $ 5,414 $25,403 ======= =======
See notes to condensed consolidated financial statements. F-16 80 MEDSCAPE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 AND 1999 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED --------------------- MARCH 31, MARCH 31, 1998 1999 Revenues.................................................... $ 550 $ 1,644 --------- --------- Operating expenses: Editorial, production, content and technology............. 396 1,231 Sales and marketing....................................... 299 1,081 General and administration................................ 360 765 Depreciation and amortization............................. 47 88 --------- --------- Total operating expenses.......................... 1,102 3,165 --------- --------- Loss from operations........................................ (552) (1,521) Interest income -- net.................................... (49) (82) --------- --------- Net loss.................................................... $ (503) $ (1,439) ========= ========= Basic net loss per shares................................... $ (0.45) $ (0.52) Weighted average number of shares of common stock outstanding............................................... 1,128,161 2,748,527
See notes to condensed consolidated financial statements. F-17 81 MEDSCAPE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 1998 AND 1999 (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED ---------------------- MARCH 31, MARCH 31, 1998 1999 OPERATING ACTIVITIES Net loss.................................................. $ (503) $(1,439) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.......................... 47 88 Changes in assets and liabilities: Decrease (increase) in accounts receivable............. 431 (743) Increase in prepaid expenses........................... (10) (166) Increase (decrease) in accounts payable and accruals... 7 (223) (Decrease) increase in due to related party............ (268) 53 (Decrease) increase in deferred revenue................ (123) 998 ------ ------- Net cash in operating activities.................. (419) (1,432) ------ ------- INVESTING ACTIVITIES Purchase of property and equipment........................ (22) (80) Intangible assets......................................... -- (50) ------ ------- Net cash used in investing activities............. (22) (130) ------ ------- FINANCING ACTIVITIES Proceeds from issuance of preferred stock................. 4,000 20,600* ------ ------- Cash provided by financing activities............. 4,000 20,600 ------ ------- Increase in cash and cash equivalents....................... 3,559 19,038 Cash and cash equivalents, beginning of period.............. 3,628 1,595 ------ ------- Cash and cash equivalents, end of period.................... $7,187 $20,633 ====== =======
- ------------------------- * Reflects gross proceeds before certain liabilities for expenses of the offering. See notes to condensed consolidated financial statements. F-18 82 MEDSCAPE, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 1999 1. BASIS OF PRESENTATION Medscape, Inc. ("Medscape") has prepared the condensed financial statements of which these notes are part, pursuant to the rules and regulations of the Securities and Exchange Commission (the "Commission"). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations; however, in the opinion of Medscape's management, the Condensed Financial statements include all adjustments, consisting only of normal recurring accruals, necessary to present fairly the financial information for such periods. These Condensed Financial Statements should be read in conjunction with the Financial Statements of Medscape for the year ended December 31, 1998. 2. PRIVATE PLACEMENT OF PREFERRED STOCK On March 5, 1999, Medscape completed a private placement of its Series D Preferred Stock (1,757,683 shares) for which it received $19,414,547 (gross proceeds $20,600,019 less expenses of the private placement of $1,185,472). In connection with such private placement, Medscape issued 5,867 warrants of Class B Common Stock to its investment bank. Each warrant entitles the warrantholder to purchase 1 share of common stock for $0.01 with a warrant. The value of the warrants was determined using the Black Scholes pricing model and was recorded in the balance sheet at March 31, 1999 at a value of $85,000. 3. PREFERRED STOCK SERIES C AND C-1 On March 5, 1999, 932,401 shares of Series C Preferred Stock that had been issued on February 19 and March 9, 1998 were redesignated as Series C-1 Preferred Stock. 4. INCOME TAXES No provision for income taxes has been made because Medscape has sustained cumulative losses since the commencement of its operations. At March 31, 1999, Medscape had net operating loss carryforwards ("NOLs") of approximately $10,093,000 which will be available to reduce future taxable income. The NOLs are scheduled to expire in the following years: 2011..................................................... $1,344,000 2012..................................................... 3,306,000 2018..................................................... 3,969,000 2019..................................................... 1,474,000
In accordance with SFAS No. 109, Medscape has computed the components of deferred income taxes as follows:
DECEMBER 31, MARCH 31, 1998 1999 Deferred tax assets........................................ $ 3,447,510 $ 4,133,000 Less valuation allowance................................... (3,447,510) (4,133,000) ----------- ----------- Net deferred tax assets.................................... $ -- $ -- =========== ===========
F-19 83 MEDSCAPE, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) Medscape's net operating losses primarily generated the deferred tax assets. At December 31, 1998 and March 31, 1999, a valuation allowance is provided as the realization of the deferred tax benefits is not likely. 5. SUBSEQUENT EVENTS Medscape is in the process of filing an initial public offering with the Commission. On consummation of the offering, all Preferred shares will convert to Common Shares. F-20 84 INDEPENDENT AUDITORS' REPORT Healthcare Communications Group, LLC Potomac, Maryland We have audited the accompanying balance sheets of Healthcare Communications Group, LLC ("HCG") as of December 31, 1997 and October 27, 1998, and the related statements of operations, members' capital, and cash flows for the year ended December 31, 1997 and the ten months ended October 27, 1998. These financial statements are the responsibility of HCG's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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 audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of HCG at December 31, 1997 and October 27, 1998, and the results of its operations and its cash flows for the year ended December 31, 1997 and the ten months ended October 27, 1998 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP New York, New York April 9, 1999 F-21 85 HEALTHCARE COMMUNICATIONS GROUP, LLC BALANCE SHEETS DECEMBER 31, 1997 AND OCTOBER 27, 1998
DECEMBER 31, OCTOBER 27, 1997 1998 ASSETS Current assets: Cash and cash equivalents (Note 2)........................ $ 54,286 $ 14,081 Accounts receivable....................................... 520,388 1,190,359 Prepaid expenses and other assets......................... 116,063 54,730 -------- ---------- Total current assets.............................. 690,737 1,259,170 Property and equipment -- net (Note 3)...................... 29,875 76,777 Intangible assets -- net.................................... 6,800 5,383 -------- ---------- Total assets...................................... $727,412 $1,341,330 ======== ========== LIABILITIES AND MEMBERS' CAPITAL (DEFICIENCY IN CAPITAL) Liabilities: Accounts payable.......................................... $121,306 $ 23,012 Accrued expenses.......................................... 47,243 56,946 Demand note due to Medscape, Inc. (Note 4)................ -- 275,000 Deferred revenue (Note 2)................................. 190,000 1,121,193 -------- ---------- Total liabilities................................. 358,549 1,476,151 Commitments (Note 4) Members' capital (deficiency in capital).................... 368,863 (134,821) -------- ---------- Total liabilities and members' capital............ $727,412 $1,341,330 ======== ==========
See notes to financial statements. F-22 86 HEALTHCARE COMMUNICATIONS GROUP, LLC STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE TEN MONTHS ENDED OCTOBER 27, 1998
TEN YEAR MONTHS ENDED ENDED DECEMBER 31, OCTOBER 27, 1997 1998 Revenues.................................................... $3,155,504 $2,584,615 ---------- ---------- Operating expenses: Editorial, production, content and technology............. 1,853,118 1,736,351 General and administration................................ 923,547 867,970 Depreciation and amortization............................. 4,231 9,419 ---------- ---------- Total operating expenses.......................... 2,780,896 2,613,740 ---------- ---------- Income (loss) from operations............................... 374,608 (29,125) Interest income........................................... (2,965) (1,542) ---------- ---------- Net income (loss)........................................... $ 377,573 $ (27,583) ========== ==========
See notes to financial statements. F-23 87 HEALTHCARE COMMUNICATIONS GROUP, LLC STATEMENTS OF MEMBERS' CAPITAL (DEFICIENCY IN CAPITAL) FOR THE TEN MONTHS ENDED OCTOBER 27, 1998 AND YEAR ENDED DECEMBER 31, 1997 Members' capital, January 1, 1997........................... $ 148,636 Net income for the year ended December 31, 1997........... 377,573 Distribution to members during 1997....................... (157,346) --------- Members' capital, December 31, 1997......................... 368,863 Net loss for the ten months ended October 27, 1998........ (27,583) Distribution to members during 1998....................... (476,101) --------- Members' deficiency in capital, October 27, 1998............ $(134,821) =========
See notes to financial statements. F-24 88 HEALTHCARE COMMUNICATIONS GROUP, LLC STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 AND TEN MONTHS ENDED OCTOBER 27, 1998
DECEMBER 31, OCTOBER 27, 1997 1998 OPERATING ACTIVITIES Net income (loss)......................................... $ 377,573 $ (27,583) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization.......................... 4,231 9,419 Changes in assets and liabilities: Decrease (increase) in accounts receivable............. 1,148,237 (669,971) Decrease in prepaid expenses........................... 2,873 61,333 Increase (decrease) in accounts payable and accruals... 120,613 (88,591) (Decrease) increase in deferred revenue................ (1,474,979) 931,193 ----------- --------- Net cash provided by operating activities......... 178,548 215,800 ----------- --------- INVESTING ACTIVITIES Purchase of property and equipment........................ (27,412) (54,904) ----------- --------- Net cash used in investing activities............. (27,412) (54,904) ----------- --------- FINANCING ACTIVITIES Distributions to members.................................. (157,346) (476,101) Demand note due to Medscape, Inc.......................... -- 275,000 ----------- --------- Net cash used in financing activities............. (157,346) (201,101) ----------- --------- Decrease in cash and cash equivalents....................... (6,210) (40,205) Cash and cash equivalents, beginning of period.............. 60,496 54,286 ----------- --------- Cash and cash equivalents, end of period.................... $ 54,286 $ 14,081 =========== =========
See notes to financial statements. F-25 89 HEALTHCARE COMMUNICATIONS GROUP, LLC NOTES TO FINANCIAL STATEMENTS TEN MONTHS ENDED OCTOBER 27, 1998 AND YEAR ENDED DECEMBER 31, 1997 1. ORGANIZATION AND NATURE OF BUSINESS Healthcare Communications Group, ("HCG") is a Maryland limited liability company, founded on November 17, 1995. HCG is a medical communications/education company that develops, produces and distributes unique live, print, digital and Internet-based programs for healthcare professionals that are funded by pharmaceutical companies. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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 those estimates. CASH AND CASH EQUIVALENTS For the purposes of the statements of cash flows, HCG considers all highly liquid short-term cash investments purchased with maturities of three months or less as cash and cash equivalents. CONCENTRATION OF CREDIT RISK HCG's financial instruments that are exposed to concentration of credit risks consist primarily of cash and cash equivalents and trade accounts receivable. HCG maintains its cash and cash equivalents in bank accounts which, at times exceeds federally insured limits. HCG has not experienced any losses in such accounts. HCG believes it is not exposed to any significant credit risk on cash and cash equivalents. Concentrations of credit risks with respect to accounts receivable are limited because of HCG's expanding customer base and credit worthiness of its three major customers (see Note 5), making up the majority of the accounts receivable balance. DEPRECIATION AND AMORTIZATION HCG provides for depreciation of property and equipment based on the estimated useful lives of the applicable assets and the life of leases, using the straight-line method. Expenditures for renewals and improvements which extend the useful lives of assets are capitalized, while maintenance and repairs are charged to operations as incurred. Intangible assets consists of trademarks which are being amortized using the straight-line method over their estimated useful life. REVENUE RECOGNITION Revenue from custom programs, such as on-line conference summaries and custom modules produced by HCG, are recognized on a percentage of completion basis. Revenues from conferences and other events produced by HCG are recognized upon completion of the conference or event. At December 31, 1997 and October 27, 1998, there were no uncompleted projects. F-26 90 HEALTHCARE COMMUNICATIONS GROUP, LLC NOTES TO FINANCIAL STATEMENTS (CONTINUED) DEFERRED REVENUE Deferred revenue represents amounts billed in excess of revenues recognized. Included in accounts receivable are amounts due (under contract) relating to deferred revenue. IMPAIRMENT OF ASSETS HCG's long-lived assets and identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the net carrying amount may not be recoverable. When such events occur, HCG measures impairment by comparing the carrying value of the long-lived asset to the estimated undiscounted future cash flows expected to result from use of the assets and their eventual disposition. If the sum of the expected undiscounted future cash flows is less than the carrying amount of the assets, HCG would recognize an impairment loss. HCG determined that, as of December 31, 1997 and October 27, 1998, there had been no impairment in the carrying value of the long-lived assets. INCOME TAXES Under present income tax regulations, HCG pays no federal, state or local income taxes. For tax purposes, any income or loss is included in the income tax returns of the members. NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information. SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components. HCG has no elements of comprehensive income. HCG operates in one segment in the United States. In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which establishes accounting and reporting standards for derivative instruments and hedging activities for HCG's year ended December 31, 2000. Generally, it requires that an entity recognize all derivatives as either an asset or liability and measure those instruments at fair value, as well as identify the conditions for which a derivative may be specifically designed as a hedge. Management is currently evaluating the effect of this statement on HCG's financial statements. During 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued SOP No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. This statement is applicable to HCG's 1999 financial statements and will require HCG to capitalize certain payroll and payroll related costs and other costs that are directly related to the development of certain systems of HCG. HCG will amortize these costs over the anticipated life of the systems. Management is currently evaluating the effect of this statement on HCG's financial statements. 3. PROPERTY AND EQUIPMENT Property and equipment, consist of the following:
DECEMBER 31, OCTOBER 27, USEFUL LIFE DESCRIPTION 1997 1998 (IN YEARS) Computers and equipment............................ $26,441 $ 79,507 5 Furnitures and fixtures............................ 6,959 8,797 7 ------- -------- 33,400 88,304 Less accumulated depreciation...................... (3,525) (11,527) ------- -------- Property and equipment -- net...................... $29,875 $ 76,777 ======= ========
F-27 91 HEALTHCARE COMMUNICATIONS GROUP, LLC NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. DEMAND NOTE As of October 27, 1998, the demand note consists of $215,000 and $60,000, borrowed on October 26 and October 23, 1998, respectively, from Medscape, Inc. at an annual interest rate of 8% (Note 6). Under the terms of the demand note, HCG was required to use the proceeds to pay amounts owed to vendors prior to the acquisition by Medscape, Inc. 5. MAJOR CUSTOMERS Sales to three major customers for the year ended December 31, 1997 and the ten months ended October 27, 1998 represented 43% and 53% of total sales, respectively. At December 31, 1997 and October 27, 1998, these three customers represented 34% and 76% accounts receivable, respectively. 6. SUBSEQUENT EVENT Effective October 27, 1998, the membership interests of HCG were purchased by Medscape, Inc., a New York corporation. F-28 92 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- , 1999 [MEDSCAPE, INC. LOGO] SHARES OF COMMON STOCK ---------------------------- PROSPECTUS ---------------------------- DONALDSON, LUFKIN & JENRETTE BT ALEX. BROWN BEAR, STEARNS & CO. INC. --------------------- WIT CAPITAL CORPORATION DLJDIRECT INC. - -------------------------------------------------------------------------------- We have not authorized any dealer, salesperson or other person to give you written information other than this prospectus or to make representations as to matters not stated in the prospectus. You must not rely on unauthorized information. This prospectus is not an offer to sell these securities or our solicitation of your offer to buy the securities in any jurisdiction where that would not be permitted or legal. Neither the delivery of this prospectus nor any sales made hereunder after the date of this prospectus shall create an implication that the information contained herein or the affairs of Medscape, Inc. have not changed since the date hereof. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Until [ , 1999], (25 days after the date of this prospectus), all dealers that effect transactions in these shares of common stock may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions. - -------------------------------------------------------------------------------- 93 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (1) The following table sets forth the expenses payable by Medscape in connection with this offering (excluding underwriting discounts and commissions):
NATURE OF EXPENSE AMOUNT SEC Registration Fee...................................... $ 15,985 NASD Filing Fee........................................... 6,250 Nasdaq National Market Listing Fee........................ * Accounting Fees and Expenses.............................. * Legal Fees and Expenses................................... * Printing Expenses......................................... * Blue Sky Qualification Fees and Expenses.................. $ 2,500 Transfer Agent's Fee...................................... * Miscellaneous............................................. * ---------- Total............................................. $ * ==========
- --------------- (1) The amounts set forth above, except for the SEC and NASD fees, are in each case estimated. * To be completed by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS In accordance with Section 145 of the Delaware General Corporation Law, Article V of our certificate of incorporation provides that no director of Medscape shall be personally liable to Medscape or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (1) for any breach of the director's duty of loyalty to Medscape or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) in respect of certain unlawful dividend payments or stock redemptions or repurchases, or (4) for any transaction from which the director derived an improper personal benefit. In addition, our certificate of incorporation provides that if the Delaware General Corporation Law is amended to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Article VII of our bylaws provides for indemnification by Medscape of its officers and certain non-officer employees under certain circumstances against expenses, including attorneys fees, judgments, fines and amounts paid in settlement, reasonably incurred in connection with the defense or settlement of any threatened, pending or completed legal proceeding in which any such person is involved by reason of the fact that such person is or was an officer of employee of Medscape or any subsidiary of Medscape or served in any capacity with any other entity at the request of Medscape if such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of Medscape, and, with respect to criminal actions or proceedings, if such person had no reasonable cause to believe his or her conduct was unlawful. Medscape maintains directors and officers liability insurance that covers its officers and directors against certain losses that may arise out of their positions with Medscape and covers Medscape for liabilities it may incur to indemnify its officers and directors. II-1 94 Under section of the underwriting agreement filed as Exhibit 1.1 hereto, the underwriters have agreed to indemnify, under certain conditions, Medscape, its directors, certain officers and persons who control Medscape within the meaning of the Securities Act against certain liabilities. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES The following is a description of the sale of unregistered common stock for the last three years: (1) On January 17, 1997, we sold 123,974 shares of Series B Preferred Stock to CSK Venture Capital Co., Ltd. at a purchase price of $12.099 per share, which was paid in cash. (2) On October 31, 1997, we sold 1,152,523 shares of Series C Preferred Stock to 18 investors at a purchase price of $4.60 per share, which was paid in cash. In addition, we also issued 349,650 shares of Series C Preferred Stock to CSK Venture Capital Co., Ltd. in exchange for its 123,974 shares of Series B Preferred Stock. (3) On February 19 and March 9, 1998, we sold 932,401 additional shares of Series C Preferred Stock to three investors at a purchase price of $4.29 per share, which was paid in cash. This purchase caused an adjustment of the purchase price of the previously purchased Series C Preferred Stock in section (2) above from $4.60 to $4.29. On March 5, 1999, the 932,401 shares of Series C Preferred Stock from the February 19 and March 9, 1998 closing were redesignated as Series C-1 Preferred Stock. (4) On October 27, 1998, as part of an Employment and Restricted Stock Purchase Agreement, we sold 730,174 restricted shares of non-voting Class B Common Stock to Jeffrey L. Drezner, M.D., Ph.D. at a purchase price of $0.86 per share, which was paid with a promissory note secured by a pledge of the shares. (5) On March 5, 1999, we sold 1,757,683 shares of Series D Preferred Stock to 15 investors at a purchase price of $11.72 per share, which was paid in cash. (6) On March 5, 1999 we issued warrants to purchase a total of 5,867 shares of Class B Common Stock to Credit Suisse First Boston with an exercise price of $.01 in connection with the Series D financing. (7) Since April 1996 we have granted options to purchase 2,708,281 shares of Class B Common Stock to a total of 134 employees, consultants and non-employee directors at exercise prices ranging from $.02 to $8.50 per share. (8) Since July 1996 we have sold 377,549 shares of Class B Common Stock, pursuant to the exercise of some of the options described in section (7) above, to a total of 36 employees, consultants and non-employee directors exercise prices ranging from $.02 to $.86 per share. The sales 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, or Regulation D promulgated thereunder, or, with respect to issuances to employees, Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving a public offering or transactions pursuant to compensatory benefit plans and contracts relating to compensation as provided under such Rule 701. The recipients of securities in each such transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the instruments representing such securities issued in such transactions. All recipients had adequate access, through their relationships with the Company, to information about Medscape, Inc. II-2 95 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT NUMBER DESCRIPTION 1.1* Form of Underwriting Agreement. 2.1 Asset Purchase Agreement between Medscape, Inc. and SCP Communications, Inc., dated April 1, 1996. 2.2 Administrative Services Agreement between Medscape, Inc. and SCP Communications, Inc., dated April 1, 1996. 2.3 Financing Agreement between Medscape, Inc. and SCP Communications, Inc., dated April 1, 1996. 2.4 Purchase Agreement between Medscape, Inc. and the holders of all of the membership interests of Healthcare Communications Group, L.L.C. dated October 27, 1998. 2.5 Letter Agreement between Medscape, Inc. and Ira Kirshenbaum, M.D., dated February 2, 1999 regarding the sale of assets of bonehome.com. 2.6 Bill of Sale between Medscape, Inc. and CompuRx and, dated March 25, 1999. 3.1 Amended and Restated Certificate of Incorporation, as currently in effect. 3.2* Form of Amended and Restated Certificate of Incorporation, to be filed prior to the closing of the offering made under this Registration Statement. 3.3 Bylaws. 4.1* Form of Specimen Common Stock Certificate. 5.1* Opinion of Patterson, Belknap, Webb & Tyler LLP as to the validity of the securities being offered. 10.1 Agreement of Lease between Medscape, Inc. and R.A.A. Realty Company LP dated February 1999. 10.2* Lease Assignment made by SCP Communications, Inc. made in favor of Medscape, Inc. 10.3* Agreement of Lease between Surgical Care Publishing, Inc. and Satyanman, Inc., dated October 7, 1996. 10.4* Agreement of Lease between Surgical Care Publishing, Inc. and Satyanman, Inc., dated August 29, 1995. 10.5* Agreement of Lease between Surgical Care Publishing, Inc., and Satyanman, Inc., dated March 17, 1994. 10.6* Agreement of Lease between Surgical Care Publishing, Inc. and Satyanman, Inc., dated August 18, 1993. 10.7 Employment Agreement between Medscape, Inc. and Paul T. Sheils, dated January 26, 1998. 10.8 Employment Agreement between Medscape, Inc. and Steven Kalin, dated September 30, 1998. 10.9 Employment and Restricted Stock Purchase Agreement between Medscape, Inc. and Jeffrey L. Drezner, M.D., Ph.D., dated October 27, 1998. 10.10 Promissory Note dated October 27, 1998, in the principal amount of $627,949.64 made by Jeffrey L. Drezner, M.D., Ph.D. in favor of Medscape, Inc. 10.11 Employment Agreement between Medscape, Inc. and Peter M. Frishauf, dated February 16, 1998. 10.12 Employment Agreement between Medscape, Inc. and George D. Lundberg, M.D., dated February 15, 1999.
II-3 96
EXHIBIT NUMBER DESCRIPTION 10.13 Employment Agreement between Medscape, Inc. and David Yakimischak, dated March 15, 1999. 10.14 Employment Agreement between Medscape, Inc. and Meg Walsh, dated March 4, 1999. 10.15 1996 Stock Option Plan. 10.16 Form of Incentive Stock Option Agreement. 10.17 Form of Non-Qualified Stock Option Agreement. 10.18 Nonemployee Director Stock Option Plan. 10.19 Stock Purchase Agreement between Medscape, Inc. and investors, dated October 31, 1997 in respect of the Series C Preferred Stock. 10.20 First Amendment to Stock Purchase Agreement between Medscape, Inc. and investors, dated February 19, 1998. 10.21 Supplemental Agreement to Amendment to Stock Purchase Agreement and First Amendment to, and Waiver of Certain Terms of, Stockholders' Agreement between Medscape, Inc. and investors, dated March 9, 1998 in respect of the Series C Preferred Stock. 10.22 Series D Preferred Stock Purchase Agreement between Medscape, Inc. and investors, dated March 5, 1999. 10.23 Amended and Restated Stockholders' Agreement, dated March 5, 1999. 10.24 Form of Copyright Assignment. 10.25 Form of Letter to Authors. 21.1 Subsidiaries of Medscape, Inc. 23.1* Consent of Patterson, Belknap, Webb & Tyler LLP (included in Exhibit 5.1 hereto). 23.2 Consent of Deloitte & Touche LLP. 24.1 Powers of Attorney (included on the signature pages hereto).
- --------------- * To be filed by Amendment to this Registration Statement. ITEM 17. UNDERTAKINGS 1. The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. 2. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of Medscape, Inc. pursuant to the foregoing provisions, or otherwise, Medscape, Inc. has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Medscape, Inc. of expenses incurred or paid by a director, officer, or a controlling person of Medscape, Inc. 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, Medscape, Inc. 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 and will be governed by the final adjudication of such issue. 3. The undersigned registrant hereby undertakes that: a. 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 II-4 97 Rule 430A and contained in a form of prospectus filed by Medscape, Inc. pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. b. 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-5 98 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Medscape, Inc. has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in New York, New York on May 4, 1999. MEDSCAPE, INC. By: /s/ PAUL T. SHEILS --------------------------------------- Name: Paul T. Sheils Title: President and Chief Executive Officer POWER OF ATTORNEY Each individual whose signature appears below constitutes and appoints each of Paul T. Sheils, Peter M. Frishauf and Steven R. Kalin, such person's true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for such person and in such person's name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement (or to any other registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act), and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that any said attorney-in-fact and agent, or any substitute or substitutes of any of them, may lawfully do or cause to be done by virtue hereof. II-6 99 Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ PAUL T. SHEILS President, Chief Executive Officer May 4, 1999 - --------------------------------------------- and Director (Principal Executive Paul T. Sheils Officer) /s/ STEVEN R. KALIN Chief Operating Officer and Chief May 4, 1999 - --------------------------------------------- Financial Officer (Principal Steven R. Kalin Financial Accounting Officer) /s/ ALAN J. PATRICOF Chairman of the Board of Directors May 4, 1999 - --------------------------------------------- Alan J. Patricof /s/ JEFFREY L. DREZNER Executive Vice President and Director May 4, 1999 - --------------------------------------------- Jeffrey L. Drezner, M.D., Ph.D. /s/ PETER M. FRISHAUF Chairman-Executive Committee and May 4, 1999 - --------------------------------------------- Director Peter M. Frishauf /s/ MARC BUTLEIN Director May 4, 1999 - --------------------------------------------- Marc Butlein /s/ ESTHER DYSON Director May 4, 1999 - --------------------------------------------- Esther Dyson /s/ CARLO A. VON SCHROETER Director May 4, 1999 - --------------------------------------------- Carlo A. von Schroeter /s/ OAKLEIGH THORNE Director May 4, 1999 - --------------------------------------------- Oakleigh Thorne
II-7 100 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE 1.1* Form of Underwriting Agreement. 2.1 Asset Purchase Agreement between Medscape, Inc. and SCP Communications, Inc., dated April 1, 1996. 2.2 Administrative Services Agreement between Medscape, Inc. and SCP Communications, Inc., dated April 1, 1996. 2.3 Financing Agreement between Medscape, Inc. and SCP Communications, Inc., dated April, 1996. 2.4 Purchase Agreement between Medscape, Inc. and the holders of all of the membership interests of Healthcare Communications Group, L.L.C. dated October 27, 1998. 2.5 Letter Agreement between Medscape, Inc. and Ira Kirshenbaum, M.D., dated February 2, 1999 regarding the sale of assets of bonehome.com. 2.6 Bill of Sale between Medscape, Inc. and CompuRx, dated March 25, 1999. 3.1 Amended and Restated Certificate of Incorporation, as currently in effect. 3.2* Form of Amended and Restated Certificate of Incorporation, to be filed prior to the closing of the offering made under this Registration Statement. 3.3 Bylaws. 4.1* Form of Specimen Common Stock Certificate. 5.1* Opinion of Patterson, Belknap, Webb & Tyler LLP as to the validity of the securities being offered. 10.1 Agreement of Lease between Medscape, Inc. and R.A.A. Realty Company LP dated February 1999. 10.2* Lease Assignment made by SCP Communications, Inc. made in favor of Medscape, Inc. 10.3* Agreement of Lease between Surgical Care Publishing, Inc. and Satyanman, Inc., dated October 7, 1996. 10.4* Agreement of Lease between Surgical Care Publishing, Inc. and Satyanman, Inc., dated August 29, 1995. 10.5* Agreement of Lease between Surgical Care Publishing, Inc. and Satyanman, Inc., dated March 17, 1994. 10.6* Agreement of Lease between Surgical Care Publishing, Inc. and Satyanman, Inc., dated August 18, 1993. 10.7 Employment Agreement between Medscape, Inc. and Paul T. Sheils, dated January 26, 1998. 10.8 Employment Agreement between Medscape, Inc. and Steven Kalin, dated September 30, 1998. 10.9 Employment and Restricted Stock Purchase Agreement between Medscape, Inc. and Jeffrey L. Drezner, M.D., Ph.D., dated October 27, 1998. 10.10 Promissory Note dated October 27, 1998, in the principal amount of $627,949.64 made by Jeffrey L. Drezner, M.D., Ph.D. in favor of Medscape, Inc. 10.11 Employment Agreement between Medscape, Inc. and Peter M. Frishauf, dated February 16, 1998. 10.12 Employment Agreement between Medscape, Inc. and George D. Lundberg, M.D., dated February 15, 1999. 10.13 Employment Agreement between Medscape, Inc. and David Yakimischak, dated March 15, 1999. 10.14 Employment Agreement between Medscape, Inc. and Meg Walsh, dated March 4, 1999. 10.15 1996 Stock Option Plan. 10.16 Form of Incentive Stock Option Agreement. 10.17 Form of Non-Qualified Stock Option Agreement. 10.18 Nonemployee Director Stock Option Plan. 10.19 Stock Purchase Agreement, between Medscape, Inc. and investors dated October 31, 1997 in respect of the Series C Preferred Stock.
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EXHIBIT NUMBER DESCRIPTION PAGE 10.20 First Amendment to Stock Purchase Agreement between Medscape, Inc. and investors, dated February 19, 1998. 10.21 Supplemental Agreement to Amendment to Stock Purchase Agreement and First Amendment to, and Waiver of Certain Terms of, Stockholders' Agreement between Medscape, Inc. and investors, dated March 9, 1998 in respect of the Series C Preferred Stock. 10.22 Series D Preferred Stock Purchase Agreement between Medscape, Inc. and investors, dated March 5, 1999. 10.23 Amended and Restated Stockholders' Agreement, dated March 5, 1999. 10.24 Form of Copyright Assignment. 10.25 Form of Letter to Authors. 21.1 Subsidiaries of Medscape, Inc. 23.1* Consent of Patterson, Belknap, Webb & Tyler LLP (included in Exhibit 5.1 hereto). 23.2 Consent of Deloitte & Touche LLP. 24.1 Powers of Attorney (included on the signature page hereto).
- --------------- * To be filed by Amendment to this Registration Statement. EX-2.1 2 ASSET PURCHASE AGREEMENT 1 Exhibit 2.1 ASSETS PURCHASE AGREEMENT, dated as of April 1, 1996 (this "Agreement"), by and between (1) MEDSCAPE, INC., a New York corporation ("Purchaser"); and (2) SCP COMMUNICATIONS, INC., a Delaware corporation ("Seller"). W I T N E S S E T H : WHEREAS, Seller has commenced a business known as "Medscape" as an on-line medical information site on the World Wide Web; WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to purchase from Seller, certain of the business assets of the Seller utilized in the Medscape business (the "Business"), together with the goodwill associated with the Business, as are identified to be purchased by Purchaser under this Agreement (collectively, the "Purchased Assets" ), upon the terms and subject to the conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual benefits to be derived and the representations and warranties, conditions and promises herein contained, and intending to be legally bound hereby, Seller and Purchaser hereby agree as follows: ARTICLE I GENERAL 1.01. Purchased Assets. (a) As of the date hereof, Seller shall convey, sell, transfer, assign and deliver unto Purchaser, and its successors and assigns forever, the Purchased Assets as set on Exhibit 1.01 hereof, together with the goodwill associated with the Business and all other intangible assets which derive from the Business together with copies of all files, books and records relating to the Purchased Assets. (b) From and after the date hereof, Seller shall give to Purchaser and its representatives free and unrestricted access to the books, files and records of Seller relating to the Business. Prior to destroying or disposing of such books, files and records, Seller shall give 30-days notice to Purchaser of the intended destruction or disposition, and Purchaser shall have the right to take possession of the same or to make copies of the same at its expense. 1.02. Excluded Assets. The Purchased Assets shall not include any right, title, interest and claims of Seller in, to or under any of the following assets: cash and cash equivalents; tax returns; articles of incorporation and by-laws of Seller; corporate minutes; seals and stock books of Seller; bank deposits or accounts of Seller; refunds or claims for refunds of taxes payable by Seller; and any other assets tangible or intangible, which do not relate to the Business. 2 2 1.03. Leased Assets. Seller hereby leases to Purchaser for a term of one (1) year the equipment identified on Exhibit 1.03 hereto for the annual rental set forth on such Exhibit and on such other terms and conditions as the parties may mutually agree. 1.04. No Liabilities Assumed by Purchaser. Purchaser shall not assume any liabilities, payments or obligations of Seller (absolute, contingent or otherwise) arising out of the Business, the ownership or operation of any of the Purchased Assets, or the consummation of the transactions under this Agreement or otherwise. 1.05. Purchase Price. (a) The purchase price (the "Purchase Price") for the Purchased Assets shall be $50,000, payable to Seller in cash and the assumption of the lease obligations set forth in section 1.03. (b) The Purchase Price shall be allocated among each item or class of the Purchased Assets for all tax purposes in accordance with the allocation schedule attached hereto as Exhibit 1.05. The parties agree that they will prepare and file their respective federal and any state or local income tax returns, and any sales tax returns or other filings, based on such allocation of the Purchase Price, and shall not take a position in any tax proceeding, tax audit or otherwise inconsistent with such allocation. ARTICLE II REPRESENTATIONS AND WARRANTIES 2.01. Representations and Warranties of Seller. Seller represents and warrants to Purchaser as follows, and acknowledges and confirms that Purchaser is relying upon such representations and warranties in connection with the execution, delivery and performance of this Agreement: (a) Organization and Good Standing. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. (b) Consents, Authorizations, Binding Effect, Etc. Seller may execute, deliver and perform this Agreement without the necessity of any consent, approval, authorization or waiver or giving any notice or otherwise (including without limitation any consent of or notice to any other stockholder of Seller), except for such consents, approvals, authorizations, waivers and notices which have been obtained and are unconditional and remain in full force and effect and such notices which have been given. This Agreement has been duly authorized, executed and delivered by Seller and this Agreement constitutes the legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms. The execution, delivery and performance of this Agreement by Seller will not (1) constitute a violation of the certificate of information or the 3 3 by-laws of Seller, as amended and in effect on the date hereof (2) conflict with, result in the breach of or constitute a default under any contract, lease, agreement, license, commitment or order of, or binding upon, Seller, (3) constitute a violation of any statute, judgment, order, decree or regulation or rule of any court, governmental authority or arbitrator applicable or relating to Seller or the Purchased Assets, or (4) result in the creation of any lien upon any of the Purchased Assets pursuant to the provisions of any of the foregoing. Each tangible and intangible Purchased Asset owned or used by Seller immediately prior hereto will be owned or available for use by Purchaser immediately subsequent to the Closing hereunder on the same basis as the Seller used such asset or right. (c) Insurance. Exhibit 2.01(c) hereto contains a list of all policies of insurance maintained by Seller with respect to the Business in effect on the date hereof and generally describing the coverage thereby. There are no claims pending, or to the best knowledge of Seller, threatened under said policies or disputes with underwriters, and all premiums due and payable have been paid and all such policies are in full force and effect in accordance with their respective terms. In addition, Seller has no reason to believe that any circumstance exists which could give rise to a claim under Seller's errors and omissions or other policies. (d) Litigation and Compliance. There are no actions, suits, claims or proceedings, whether in equity or at law, pending or threatened, and to the best knowledge of Seller, there are no governmental or administrative investigations pending or threatened, against Seller with respect to the Business. To the best of its knowledge, Seller is in, and has conducted its operations in, material compliance with, and is not in material default or violation under, and has not conducted its operations in material violation of, any law, rule, regulation, decree or order (including without limitation environmental, safety and health matters and matters relating to the employment of labor, employee civil rights, and equal employment opportunities) applicable to Seller and the Business. To the best of its knowledge, Seller has duly filed all reports and returns required to be filed by it with governmental authorities and has obtained all governmental permits and licenses and other governmental consents which are required in connection with the operation of the Business by Seller. (e) Intellectual Property. To the best of its knowledge, Seller owns or has the right to use pursuant to written license, sublicense, agreement or permission all intellectual property necessary for the operation of the Business as presently conducted. As used in this Agreement, intellectual property means and includes (a) patents, patent applications, patent disclosures and improvements thereto; (b) trademarks, service marks, trade dress, logos, trade names and corporate names (including without limitation all brand names and trade style), and registrations and applications for registration thereof and all rights related thereto, including all good will; (c) copyrights and registrations and applications for registration thereof; (d) computer software, data and documentation; (e) trade secrets and confidential business information (including ideas, know-how, 4 4 inventions, drawings, specifications, manuals, designs, plans, proposals, technical data, copyrightable works, financial, marketing and business data, pricing and cost information, business and marketing plans and customer and supplier lists and information and all other proprietary information); and (f) license agreements or other rights related to the foregoing and any rights or causes of action resulting from any infringement or violation of any of the foregoing. Seller is not aware of any basis for any claim by any third party that Seller's operation of the Business infringes the patents, trademarks, copyrights, trade secrets or other intellectual property rights of any third party. Seller has made no claims that a third party has violated or infringed any of Seller's patents, trademarks, copyrights, trade secrets or other proprietary rights. Exhibit 1.01 sets forth all patents and patent applications, trademarks, service marks, trade names and registrations and applications for registrations, copyright registrations and license agreements or other rights related to the foregoing and any rights or causes of action resulting from any infringement or violation of any of the foregoing. Except as disclosed on Exhibit 1.01 Seller has not made any registration or application with respect to any of the intellectual property transferred to Purchaser hereunder. All of patents, trademark and service mark registrations, and copyright registrations listed in Exhibit 1.01 are in full force, are held of record in Seller's name free and clear of all liens and encumbrances, and are not the subject of any cancellation or reexamination proceeding or any other proceeding challenging their extent or validity. Seller is the applicant of record in all patent applications, and applications for trademark, service mark, and copyright registration listed in Exhibit 1.01, and no opposition, extension of time to oppose, interference, rejection, or refusal to register has been received in connection with any such application. No order, holding, decision or judgment has been rendered by any governmental authority, and no agreement, consent or stipulation exists, which would limit Seller's use of any intellectual property included in the Purchased Assets. Exhibit 1.01 also identifies each material item of intellectual property that any third party owns and that Seller uses pursuant to license, sublicense, agreement or permission. Seller has made available to representatives of Purchaser correct and complete copies of all such licenses, sublicenses, agreements and permissions (as amended to date). With respect to each such item of intellectual property, the license, sublicense, agreement or permission covering the item is legal, valid, binding, enforceable and in full force and effect and will continue to be legal, valid, binding, enforceable and in full force and effect following the consummation of the transactions contemplated by this Agreement. (f) Employees. Exhibit 2.01(f) lists the employees of the Business. Seller is not a party to nor bound by any collective bargaining agreement. (g) Pension and Other Employee Plans and Agreements. Exhibit 2.01(g) hereto sets forth all of the pension plans, deferred compensation plans, other employee 5 5 benefit plans, employee agreements and severance arrangements relating to the Business, and Seller has delivered to Purchaser true and complete copies of all of the foregoing, as amended and in effect on the date hereof. Except as identified on Exhibit 2.01(g) hereto, none of such plans or agreements constitutes a pension plan as defined in Section 3 (2) of the Employee Retirement Income Security Act of 1974 as amended. (h) Contracts, Etc. All contracts, leases, instruments, licenses, commitments, orders and other agreements relating to the Business to which Seller is party or by which Seller is bound or which relate to the Purchased Assets are listed on Exhibit 2.01(h) hereto. Each of such agreements remain in full force and effect, and, to the best of Seller's knowledge, there are no existing defaults by Seller under any of such agreements. 2.02. Representations and Warranties of Purchaser. Purchaser represents and warrants to Seller as follows, and acknowledges and confirms that Seller is relying upon such representations and warranties in connection with the execution, delivery and performance of this Agreement: (a) Organization and Good Standing. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of New York. (b) Consents, Authorizations, Binding Effect, Etc. Purchaser may execute, deliver and perform this Agreement without the necessity of any consent, approval, authorization or waiver or giving any notice or otherwise (including without limitation any consent of or notice to any other stockholder of Purchaser), except for such consents, approvals, authorizations, waivers and notices which have been obtained and are unconditional and remain in full force and effect and such notices which have been given. This Agreement has been duly authorized, executed and delivered by Purchaser and this Agreement constitutes legal, valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms. The execution, delivery and performance of this Agreement by Purchaser will not (1) constitute a violation of the certificate of incorporation or the by-laws of Purchaser, as amended and in effect on the date hereof (2) conflict with, result in the breach of or constitute a default under any contract, lease, agreement, license, commitment or order of, or binding upon, Purchaser, or (3) constitute a violation of any statute, judgment, order, decree or regulation or rule of any court, governmental authority or arbitrator applicable or relating to Purchaser. ARTICLE III CLOSING Deliveries at the Closing. Simultaneously with the execution of this Agreement, (i) Seller shall execute, acknowledge (if appropriate) and deliver to Purchaser (x) the Bill of Sale and 6 6 (y) such other instruments of sale, transfer, conveyance and assignment as Purchaser reasonably may request, in each case sufficient to convey, transfer and deliver to Purchaser good and marketable title to all the Purchased Assets; (ii) Purchaser shall execute, acknowledge (if appropriate) and deliver to Seller such instruments of assumption as Seller reasonably may request; and (iii) Purchaser shall deliver the cash Purchase Price. ARTICLE IV MISCELLANEOUS 4.01. Further Actions. From time to time, as and when requested by Purchaser or Seller, Seller (if requested by Purchaser) , and Purchaser (if requested by Seller) , shall execute and deliver, or cause to be executed and delivered, such documents and instruments and shall take, or cause to be taken, such further or other actions as may be deemed necessary or desirable to carry out the intent and purposes of this Agreement, to convey, transfer, assign and deliver to Purchaser, and its successors and assigns, the Purchased Assets (or to evidence any of the foregoing) and to consummate and give effect to the other transactions, covenants and agreements contemplated hereby. 4.02. Broker's Fees. Seller and Purchaser represent and warrant to the other that each has no obligation or liability to any broker or finder by reason of the transactions which are the subject of this Agreement. 4.03. Expenses. Except as otherwise specifically provided herein, Seller and Purchaser shall each bear its own costs and expenses in connection with the negotiation, execution and the delivery of this Agreement and the consummation of the transactions hereunder. Seller shall pay all sales taxes and any other transfer fees and taxes arising out of the transactions contemplated by this Agreement. 4.04. Entire Agreement. This Agreement, which includes Exhibits hereto and the other documents, agreements and instruments executed and delivered pursuant to or in connection with this Agreement, contains the entire agreement among the parties hereto with respect to the transactions contemplated by this Agreement and supersedes all prior arrangements or understandings with respect thereto. 4.05. Descriptive Headings. The headings of this Agreement are descriptive and are for convenience only and shall not control or affect the meaning or construction of any provision of this Agreement. 4.06. Notices. All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if sent by registered or certified mail (receipt requested), 7 7 facsimile transmission (with receipt confirmed), or receipted courier or delivery service, addressed as follows, and shall be deemed given when received at the office indicated below: If to Seller: SCP Communications, Inc. 134 West 29th Street New York, New York 10001 Attention: Donald Edwards Chief Financial Officer If to Purchaser: Medscape, Inc. 134 West 29th Street New York, New York 10001 Attention: Peter Frishauf Chief Executive Officer Any party may by notice change the address to which notice or other communications to it are to directed. 4.07. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York (other than the choice of law principles thereof). Any action, suit or other proceeding initiated by a Seller or Purchaser against the other under or in connection with, this Agreement may be brought only in any Federal or state court in the State of New York, as the party bringing such action, suit or proceeding shall elect, having jurisdiction over the subject matter thereof. Seller and Purchaser hereby submit themselves to the jurisdiction of any such court, and agree to refrain from initiating or maintaining any legal proceeding in any other forum or jurisdiction. Seller and Purchaser further agree to waive any right to trial by jury in connection with any such proceeding, or any claim in connection therewith. 4.08. Survival of Representations and Warranties. All representations and warranties contained herein or made pursuant hereto shall survive the closing of the transactions hereunder and the delivery of the Bill of Sale for a period of eighteen months after the closing. 4.09. Waivers and Amendments. Any waiver of any term or condition of this Agreement, or any amendment or supplementation of this Agreement, shall be effective only if in writing. A waiver of any breach or failure to enforce any of the terms or conditions of this Agreement shall not in any way affect, limit or waive a party's rights hereunder at any time to enforce strict compliance thereafter with every term or condition of this Agreement. 8 8 4.10. Third Party Rights. Notwithstanding any other provision of this Agreement, this Agreement shall not create benefits on behalf of any third party or other person, and this Agreement shall be effective only as between the parties hereto, their successors and permitted assigns. 4.11. Illegalities. In the event that any provision contained in this Agreement shall be determined to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and the remaining provisions of this Agreement shall not, at the election of the party for whose benefit the provision exists, be in any way impaired. 9 9 IN WITNESS WHEREOF, the undersigned have executed this Agreement on and as of the date first above written. SCP COMMUNICATIONS, INC. By: /s/ Donald Edwards ------------------------------ Name: Donald Edwards Title: Chief Financial Officer MEDSCAPE, INC. By: /s/ Peter Frishauf ------------------------------ Name: Peter Frishauf Title: Chief Executive Officer 10 Assets Purchase Agreement Exhibit 1.01 - Purchased Assets Trademark: MED SCAPE Trademark: MED SCAPE THE ONLINE RESOURCE FOR BETTER PATIENT CARE Trademark: BannerLink Trademark: PicTour Trademark: Internet Medical Marketing Trademark: Publishers' Circle 11 Assets Purchase Agreement Exhibit 1.05 - Purchase Price
Purchase Price -------- Trademark: MED SCAPE $ 25,000 Trademark: MEDSCAPE THE ONLINE RESOURCE FOR BETTER PATIENT CARE $ 5,000 Trademark: BannerLink $ 5,000 Trademark: PicTour $ 5,000 Trademark: Internet Medical Marketing $ 5,000 Trademark: Publishers' Circle $ 5,000 -------- Total: $ 50,000 --------
12 Assets Purchase Agreement Exhibit 1.03 - Leased Assets Computer Equipment leased for a one year term for $2,000 per month
Vendor Date # Item CDW Incorporated 3/11/96 1 ATI Exclaim 2MB #55979-Medscape Web Server CDW Incorporated 3/27/96 1 Apple PB 5300s (16/750) CDW#05796 CDW Incorporated 3/27/96 1 Apple PB 5300cs (8/500) CDW#62904 CDW Incorporated 3/27/96 1 8MB RAM 5300cs CDW#61393 CDW Incorporated 3/27/96 1 Global Village PowerPort Platinum Pro CDW Incorporated 3/27/96 1 Megahertz Cruise Card 28.8 PC Card #58075 CDW Incorporated 3/14/96 1 PPC7500/100 (16/500) #57205 CDW Incorporated 3/14/96 1 Sony 15SX #61888 CDW Incorporated 3/14/96 3 PPC7500/100 (16/500) #57205 CDW Incorporated 3/14/96 2 1GB Internal HD #65250 CDW Incorporated 3/14/96 4 Sony 15SX #61888 CDW Incorporated 3/14/96 1 HDI 30 to 50pin Cable #37966 CDW Incorporated 3/14/96 1 Quark Express #63937 CDW Incorporated 3/14/96 1 PPC 7500 (16/lGB/4CD) CDW Incorporated 3/14/96 1 Norton Update #64414 CDW Incorporated 3/14/96 1 OmniPage Professional Upgrade CDW Incorporated 2/19/96 1 16MB Chip for 5300 #58842 CDW Incorporated 2/16/96 1 Tripplit Smart 2000rm xl #63426 CDW Incorporated 2/16/96 1 TrippLite RT2 #49214 Farallon 2/12/96 1 Timbuktu Upgrade 10--pack CDW Incorporated 2/22/96 1 Apple 7500/100 (16/1) CDW Incorporated 2/22/96 2 16MB DIMMS #56182 CDW Incorporated 2/22/96 10 TDK Blank CD# CDW Incorporated 2/22/96 1 Newer Technologies Microdock 63850 CDW Incorporated 1/9/96 2 Apple 7500/100 (16/lGB/CD) CDW Incorporated 1/9/96 1 NEC MultiSync XV17 CDW Incorporated 1/9/96 2 16 DIMM for 7500/10 CDW Incorporated 1/5/96 1 Epson ES1200C Professional Scanner #44508 CDW Incorporated 12/18/95 1 Apple 5300 Active (16/750) CDW Incorporated 12/18/95 1 Apple 7500/100 (16/1GB/CD) CDW Incorporated 12/18/95 1 Apple Extended Keyboard II CDW Incorporated 12/18/95 1 Apple 1705 Multiscan Monitor CDW Incorporated 12/18/95 1 Global Village PowerPort Platinum Pro Compu-D Intemation 7/18/95 2 Apple Powermac 6100/66/8/500
Page 1 13 Compu-D Intemation 7/18/95 4 16 MB Ram Upgrade Compu-D Intemation 9/8/95 2 Apple Computer 7500/100 16/1 GIG CD Apple Computer 4/28/95 2 M3350Z/ACable 15M TWST-PR-INT Apple Computer 5/12/96 1 M2848G/A Quicktake 100 Travel Case-GE Apple Computer 5/12/96 1 M379OLL/A Camera Mac Qtake 150-USA Apple Computer 5/12/96 1 M2655 G/AQuicktake 100 Battery Booster Apple Computer 4/28/96 4 M3089LL/A Monitor RGB 15 Multiple Scan Apple Computer 4/28/96 1 M2471LL/A PTR 110V LW 16/600 PS-USA Apple Computer 4/28/96 1 M3351Z/A Ethernet 10T/5 WRKGRP HUB-IN Apple Computer 4/28/96 2 Local Talk, Conn Kit DIN-8-USA Apple Computer 4/28/95 1 M2650G/A 500 Sht Feeder LW 16/600 PS- Apple Computer 7/13/95 1 M2650G/A 500 Sht Feeder LW 16/600 PS- Apple Computer 7/13/95 10 M0437Z/B Ethernet Twisted Pair Trans- Apple Computer 7/13/95 1 M4423LL/A CPU PWR MAC 9500 16/2G/CD/13 Apple Computer 7/13/95 1 M1859Z/D At Ease 3.0-INT Apple Computer 7/13/95 1 M2471LL/A PTR 110V LW 16/600 PS-USA Apple Computer 7/13/95 1 M3298LL/A CRD Domestic Fax Card, LW 16/ Apple Computer 7/13/95 1 B2432LL/A BNDL CD600E W/SCSI SYS CBL-U Apple Computer 8/10/95 10 M2473G/A Toner Cartridge LW-GEN Apple Computer 8/10/95 4 M3503LL/A Apple SCSI Active Terminator Apple Computer 9/8/95 2 M1814Z/A Sys Upgr Top Cov Pwrbk Duo D Apple Computer 9/8/95 1 M3298LL/A CRD Domestic Fax Card, LW 16/ Apple Computer 9/8/95 7 M3102LL/A CPU PWR MAC 7500 16/1GB CD-U
Page 2 14 Assets Purchase Agreement Exhibit 2.01(c) - Insurance
Type of Coverage Coverage - -------------------------------------------------------------------------------- Commercial Business Package: Contents Prop. Lmt. $ 350,000 Deductible $ 500 Valuation REPL Business Interrupt $ 50,000 Extra Exp. INCL. Transit Cov. $ 25,000 Prop. of Others on Premises $ 25,000 Dies, Cuts, Molds, Etc.-Artwork $ 25,000 Off Premises Cov. $ 25,000 Valuable Papers INCL. Computer Hardware (Mini Micro) $ 150,000 Media Coverage (Mini Micro) $ 22,500 Robbery In & Out $10000./2000. Burglary INCL. Employee Fidelity/Dishonesty $ 5,000 Plate Glass/Sign Cov. See Bus. Link BUS LINK ENDT. Mini-Micro Computer Cov. with Transit Cov. $150,000 & 25,000Tran $2,000,000 per person & $1,000,000 umbrella per occurrence General Liab.-Aggreg. Lmt. Personal Injury Product Liability $1,000,000 per person Fire Legal Liability $1,000,000 per person Water Damage Legal $ 50,000 Non-Owner Autom. Liab. INCL. Malpractice (E&O) Liab. INCL. Other Insurance: Umbrella Liability $ 1,000,000 Worker Compensation All employees NY State Disability All employees
15 Assets Purchase Agreement Exhibit 2.01(f) - Employees
Employee Name Title - ------------- ----- Stephen E. Smith VP, Director Editorial Design & Production Daniel P. Mckillen VP, Sales William T. Seitz VP, IT Susan Bergman VP, Business Development Gregory Fortescue Marketing Manager Vincent J. Keane Web Designer Leah Wang Assistant Editor Chris Pepper Systems Administrator Deborah J. Norton Production David E. Orbach Production Theodore A. Singer Coordinator Craig A. Pearlman Production Assistant Gerard Donnelly Design Assistant
16 Assets Purchase Agreement Exhibit 2.01(g) - Employee Benefits Medical Insurance (including Dental) Life Insurance Supplemental Disability Insurance 401(k) Plan (with Profit Sharing Contribution by company) Cafeteria Plan - Medical Cafeteria Plan - Dependent Care State Unemployment Federal Unemployment Disability Workers Compensation EX-2.2 3 ADMINISTRATIVE SERVICES AGREEMENT 1 Exhibit 2.2 ADMINISTRATIVE SERVICES (the "Agreement") dated as of April 1, 1996 between SCP COMMUNICATIONS, INC., a Delaware corporation ("SCP") and MEDSCAPE, INC. ("Medscape"). For good and valuable consideration, the receipt and legal sufficiency of which are hereby expressly acknowledged, the parties hereto agree as follows: 1. Engagement. Upon the terms and subject to the conditions hereof, Medscape hereby engages SCP to provide Medscape with the Services (as defined in Section 2 hereof), and SCP hereby agrees to provide Medscape with the Services. 2. Administrative and Support Services. During the term hereof, SCP agrees to provide the administrative support and services (including accounting, clerical, secretarial and receptionist assistance) described on Schedule A attached hereto and incorporated herein by reference, and any other administrative services reasonably requested by Medscape and agreed to by SCP (hereinafter referred to as the "Services"). Subject to the provisions of Section 3, SCP agrees to provide the Services (I) in good faith, (ii) in a professional and workmanlike manner and (iii) in accordance with the reasonable instructions of Medscape. 3. Mutual Support and Cooperation. (a) Each of SCP and Medscape agrees that it will take all steps reasonably necessary, at its own expense: (i) to designate key individuals to perform its obligations hereunder; (ii) to conduct periodic meetings of all such key individuals and others as necessary; 2 2 (iii) to fully cooperate with all reasonable requests for assistance; and (iv) to take such further steps and execute such further documents as may be reasonably necessary. (b) The parties will make diligent efforts through their respective key individuals to identify the causes of any problems in the Services and to make adjustments, in an equitable fashion, in order to address and resolve such problems, including the substitution or modification of the Services and the corresponding compensation therefor. 4. Fees. SCP will invoice Medscape for the Services performed hereunder on a monthly basis at the rate of $35,000 per month, plus such other out-of-pocket costs incurred by SCP as shall be separately stated. Each invoice shall set forth a reasonable explanation of the services rendered during such month and, if requested by Medscape, supporting documentation in reasonable detail. Medscape will pay each invoice in full no later than the 30th day of the month following the month in which such invoice is dated. Each party shall be responsible for paying all taxes, if any, imposed upon it by applicable law in connection with this Agreement. 5. Term and Termination. (a) Except as provided in Section 5(b) hereof, the term of this Agreement shall commence on the date hereof and shall terminate at the close of business on the first anniversary of the date hereof. (b) Either party may, by delivering written notice thereof to the other party, terminate any or all of its obligations under this Agreement, effective immediately, if the other party hereto: 3 3 (i) is rendered bankrupt or becomes insolvent, and such insolvency is not cured within 15 days after written notice, or files a written petition in bankruptcy or an answer admitting the material facts recited in such petition filed by another, or discontinues its business, or has a receiver or other custodian of any kind appointed to administer any substantial amount of its property; or (ii) commits a material breach of its duties, obligations or understandings under this Agreement, which breach is not cured within 30 days following written notice of such breach from the nonbreaching party. Any such termination shall be in addition to any other rights or remedies available at law or in equity to the terminating party. (c) Each party hereto agrees to consult in advance with the other party and to bring to the attention of the other party any problems, differences of opinion, disagreements or any other matters which may lead such party to terminate or seek to terminate this Agreement. The purpose and intent of the parties in including this provision is to insure that both parties to this Agreement are made aware of any problems arising out of or relating to this Agreement or the relationship of the parties hereunder, so that the parties hereto may, in good faith, consult with one another concerning such problems and, where possible, resolve such problems to the parties' mutual satisfaction, thereby preserving their contractual relationship and goodwill and mutual respect presently existing between the parties to this Agreement. 4 4 6. Force Majeure. Any failure or delay in the performance by SCP of its obligations hereunder shall not be a breach of this Agreement if such failure or delay arises out of or results primarily from fire, storm, flood, earthquake or other acts of God, explosions, wars, insurrections, strikes, work stoppages or slowdowns, epidemic or quarantine restrictions, unforeseen equipment failure or inability to obtain essential raw materials despite commercially reasonable best efforts to do so (the occurrence of any of the foregoing shall be an "Event of Force Majeure"). 7. Confidentiality. It is stipulated and agreed that during the term of this Agreement, SCP and Medscape will be in a position to become acquainted with each other's confidential, privileged and proprietary information including, without limitation, identities of suppliers; expenses; pricing techniques and strategies; profits and product line profitability information; existing and future product information; research and development programs; specifications for products; software designs; know-how, trade secrets and other intellectual property; business plans and records; customer names, lists, files and other customer information; budget and financial information and the goals and objectives of the other party; methods, practices and techniques for promoting and marketing products; personnel matters and other confidential processes, formulae or materials regarded by such party as privileged, proprietary or confidential (each parties' respective confidential information is referred to herein as such party's "Confidential Information"). SCP agrees that the Confidential Information of Medscape, and Medscape, and SCP agrees that the Confidential Information of SCP, is an integral and key part of the assets of 5 5 each respective entity and that the unauthorized use or disclosure of the other party's Confidential Information would seriously damage the owner thereof in its business. As a consequence of the above, SCP and Medscape hereby agree that, during the term of this Agreement and thereafter: (d) SCP and Medscape shall not, directly or indirectly, (I) use any of the other party's Confidential Information or (ii) divulge, disclose, furnish or make accessible, or cause any person to divulge, disclose or furnish, any aspects of the other party's Confidential Information to any person or entity (other than the other party), except as may be reasonably necessary to perform their respective obligations hereunder, as may be expressly authorized by the other party in writing or as required by law or pursuant to a court order; provided, however, that, prior to any such compelled disclosure, the party whose obligation it is to keep such information confidential shall have given the other party notice of the circumstances relating to such compelled disclosure and an opportunity to seek an appropriate protective order with respect thereto. (e) SCP and Medscape shall each refrain from any action or conduct which might reasonably or foreseeably be expected to compromise the confidentiality or proprietary nature of the other party's Confidential Information. (f) The term "Confidential Information" as used in this section shall not include information (I) which is or becomes available to the public through no act, omission or fault of, and absent any breach of a covenant or obligation hereunder by, the party whose obligation is to keep such information confidential or (ii) which the party whose obligation it is 6 6 to keep such information confidential may have received lawfully from any third party without restrictions as to disclosure thereof. 8. Assignment/Successors. Neither Party hereto may assign this Agreement or any rights hereunder to any other Person, without the prior written consent of the other party hereto. This Agreement shall be binding upon and inure to the benefit of the successors of the parties hereto. 9. Waiver of Breach. The failure of any party hereto to enforce at any time any of the provisions of this Agreement shall in no way be construed to constitute a waiver of any such provision nor in any way to affect the validity of this Agreement or any part hereof, including the right of any party thereafter to enforce each and every provision. The waiver by any party to this Agreement of any breach or violation of any provision of this Agreement by the other party hereto shall not operate or be construed to be a waiver of any subsequent breach or violation thereof. 10. Severability. The terms and conditions of this Agreement are hereby deemed by the parties to be severable, and the invalidity or unenforceability of any one or more of the provisions of this Agreement shall not affect the validity and enforceability of the other provisions hereof. 7 7 11. Notices. Any notice contemplated by or required or permitted to be given under this Agreement shall be in writing and (a) sent by telecopier, with a copy promptly sent by first class mail, (b) delivered personally, (C) sent by next day or overnight courier or delivery or (d) mailed by registered or certified mail, return receipt requested, postage prepaid, as follows: SCP: SCP Communications, Inc. 134 West 29th Street New York, New York 10001-5304 Attention: Donald Edwards Medscape: Medscape, Inc. 134 West 29th Street New York, New York 10001-5304 Attention: Peter Frishauf or, in each case, at such other address or facsimile number as may be specified in writing to the other parties hereto. Such notices, requests and other communications sent as provided hereinabove shall be effective: (w) if sent by telecopier on a business day between the hours of 9:00 a.m. and 6:00 p.m. New York time, upon sending, but if sent by telecopier at any other time, upon the next business day; (x) upon receipt, when personally delivered; (y) the next business day, if sent by overnight courier or delivery; and (z) if sent by registered or certified mail, return receipt requested, upon the expiration of the fifth business day after being deposited in the United States mail. 12. Choice of Law. This Agreement shall in all respects be governed by and construed in accordance with the laws of the State of New York. 8 8 13. Relationship of the Parties. SCP and Medscape are acting solely as independent contractors under this Agreement. It is expressly understood and agreed by the parties hereto that nothing in this Agreement, its provisions or transactions and relationships contemplated hereby shall constitute either party as the agent, employee, partner or legal representative of the other for any purpose whatsoever, nor shall either party hold itself out as such. Neither party to this Agreement shall have the authority to bind or commit the other party hereto in any manner or for any purpose whatsoever, except as may be expressly provided for herein, but rather each party shall at all times act and conduct itself in all respects and events as an independent contractor. This Agreement creates no relationships of joint venturers, partners, associates or principal and agent between the parties hereto. 14. Construction of Agreement; Entire Agreement; Amendments. This Agreement may be executed in counterparts in order to provide each party hereto with a fully executed original hereof. In that this Agreement was prepared as a result of negotiation and mutual agreement between the parties hereto, neither this Agreement nor any provision hereof shall be construed against either party hereto as the party who prepared this Agreement or any such provision. This Agreement reflects the complete understanding of the parties as of the date hereof and constitutes their entire agreement regarding the subject matter hereof, all prior negotiations, representations and statements having been merged herein. This Agreement may be amended only by a written amendment between the parties hereto. 9 9 IN WITNESS WHEREOF, the parties have executed this Agreement by the signature of their respective, duly authorized corporate officers as of the day and year first above written. SCP COMMUNICATIONS, INC. /s/ Donald Edwards ------------------------------- By: Donald Edwards Its: Chief Financial Officer MEDSCAPE, INC. /s/ Peter Frishauf ------------------------------- By: Peter Frishauf Its: Chief Executive Officer EX-2.3 4 FINANCING AGREEMENT 1 Exhibit 2.3 FINANCING AGREEMENT (the "Agreement") dated as of April 1, 1996 between SCP COMMUNICATIONS, INC., a Delaware corporation ("SCP") and MEDSCAPE, INC. ("Medscape"). For good and valuable consideration, the receipt and legal sufficiency of which are hereby expressly acknowledged, the parties hereto agree as follows: 1. Financing. From time to time during the term of this Agreement and upon the request of Medscape, SCP shall advance funds to Medscape to assist Medscape in promoting and furthering the its business; provided that the principal balance of the financing pursuant to this Section 1 outstanding at any time shall not exceed $1,000,000. Advances pursuant to this Section 1 shall be repayable on demand and bear interest payable quarterly on the first of each January, April, July and October at an annual rate equal to the rate SCP pays from time to time under its credit agreement with Chemical Bank plus 2 percentage points, but in no event less than 10% per annum. Medscape agrees to execute such documentation, including one or more promissory notes, as SCP may reasonably request to evidence the financing hereunder. 2. Term and Termination. A. Except as provided in Section 2(B) hereof, the term of this Agreement shall commence on the date hereof and shall terminate at the close of business on the first anniversary of the date hereof. B. Either party may, by delivering written notice thereof to the other party, terminate any or all of its obligations under this Agreement, effective immediately, if the other party hereto: 2 1. is rendered bankrupt or becomes insolvent, and such insolvency is not cured within 15 days after written notice, or files a written petition in bankruptcy or an answer admitting the material facts recited in such petition filed by another, or discontinues it business, or has a receiver or other custodian of any kind appointed to administer any substantial amount of its property; or 2. commits a material breach under this Agreement, which breach is not cured within 30 days following written notice of such breach from the non-breaching party. Any such termination shall be in addition to any other rights or remedies available at law or in equity to the terminating party. 3. Assignment/Successors. Neither party hereto may assign this Agreement or any rights hereunder to any other Person, without the prior written consent of the other party hereto. This Agreement shall be binding upon and inure to the benefit of the successors of the parties hereto. 4. Waiver of Breach. The failure of any party hereto to enforce at any time any of the provisions of this Agreement shall in no way be construed to constitute a waiver of any such provision nor in any way to affect the validity of this Agreement or any part hereof, including the right of any party thereafter to enforce each and every provision. The waiver by any party to this Agreement of any breach or violation of any provision of this Agreement by the other party hereto shall not operate or be construed to be a waiver of any subsequent breach or violation thereof. 2 3 5. Severability. The terms and conditions of this Agreement are hereby deemed by the parties to be severable, and the invalidity or unenforceability of any one or more of the provisions of this Agreement shall not affect the validity and enforceability of the other provisions hereof. 6. Notices. Any notice contemplated by or required or permitted to be given under this Agreement shall be in writing and (a) sent by telecopier, with a copy promptly sent by first class mail, (b) delivered personally, (c) sent by next day or overnight courier or delivery or (d) mailed by registered or certified mail, return receipt requested, postage prepaid, as follows: SCP: SCP Communications, Inc. 134 West 29th Street New York, New York 10001-5304 Attention: Donald Edwards Medscape: Medscape, Inc. 134 West 29th Street New York, New York 10001-5304 Attention: Peter Frishauf or, in each case, at such other address or facsimile number as may be specified in writing to the other parties hereto. Such notices, requests and other communications sent as provided hereinabove shall be effective: (w) if sent by telecopier on a business day between the hours of 9:00 a.m. and 6:00 p.m. New York, New York time, upon sending, but if sent by telecopier at any other time, upon the next business day; (x) upon receipt, when personally delivered; (y) the next business day, if sent by overnight courier or delivery; and (z) if sent by registered or certified mail, return receipt requested, upon the expiration of the fifth business day after being deposited in the United States mail. 3 4 7. Choice of Law. This Agreement shall in all respects be governed by and construed in accordance with the laws of the State of New York. 8. Construction of Agreement; Entire Agreement; Amendments. This Agreement may be executed in counterparts in order to provide each party hereto with a fully executed original hereof. In that this Agreement was prepared as a result of negotiation and mutual agreement between the parties hereto, neither this Agreement nor any provision hereof shall be construed against either party hereto as the party who prepared this Agreement or any such provision. This Agreement reflects the complete understanding of the parties as of the date hereof and constitutes their entire agreement regarding the subject matter hereof, all prior negotiations, representations and statements having been merged herein. This Agreement may be amended only by a written amendment between the parties hereto. IN WITNESS WHEREOF, the parties have executed this Agreement by the signature of their respective, duly authorized corporate officers as of the day and year first above written. SCP COMMUNICATIONS, INC. /s/ Donald Edwards ---------------------------- By: Donald Edwards Its: Chief Financial Officer MEDSCAPE, INC. /s/ Peter Frishauf ---------------------------- By: Peter Frishauf Its: Chief Executive Officer 4 EX-2.4 5 PURCHASE AGREEMENT 1 Exhibit 2.4 PURCHASE AGREEMENT between MEDSCAPE, INC. and the holders of all of the membership interests of HEALTHCARE COMMUNICATIONS GROUP, L.L.C. Dated as of October 27, 1998 2 TABLE OF CONTENTS ARTICLE I Purchase and Sale of the Interests...............................2 1.1 Purchase and Sale................................................2 1.2 Purchase Price...................................................2 1.3 Closing..........................................................3 1.4 Sellers' Representative..........................................4 ARTICLE II Representations and Warranties of the Sellers....................5 2.1 Organization; Standing and Power; Business of the Company........5 2.2 No Conflicts.....................................................5 2.3 Capitalization...................................................6 2.4 Right to Transfer................................................7 2.5 Binding Effect...................................................7 2.6 Other Equity Interests...........................................8 2.7 Financial Statements, Books and Records and Accounts Receivable..8 2.8 Taxes............................................................9 2.9 Legal Proceedings...............................................10 2.10 Labor and Employee Benefit Matters..............................11 2.11 Compliance with Laws............................................16 2.12 Insurance.......................................................16 2.13 Contracts.......................................................17 2.14 Affiliate Transactions..........................................18 2.15 Properties......................................................19 2.16 Information Technology..........................................19 2.17 Data and Intellectual Property..................................20 2.18 Bank Accounts...................................................20 2.19 Website Traffic.................................................20 2.20 Absence of Certain Changes......................................21 2.21 Relationship with Advertisers, Suppliers and Customers..........23 2.22 Undisclosed Liabilities.........................................23 2.23 Finder's Fees...................................................24 2.24 No Material Omissions...........................................24 ARTICLE III Representations and Warranties of the Purchaser.................25 3.1 Organization; Standing and Power; Business of the Purchaser.....25 3.2 No Conflicts....................................................25 3.3 Capitalization..................................................26 3.4 Due Authorization of the Shares.................................26 3.5 Binding Effect..................................................27 3.6 Other Equity Interests..........................................27 3.7 Financial Statements, Books and Records and Accounts Receivable......................................................27 3.8 Taxes...........................................................28 3.9 Legal Proceedings...............................................29 3 3.10 Labor and Employee Benefit Matters..............................30 3.11 Compliance with Laws............................................34 3.12 Insurance.......................................................34 3.13 Contracts.......................................................34 3.14 Properties......................................................34 3.15 Intellectual Property...........................................35 3.16 Website Traffic.................................................35 3.17 Absence of Certain Changes......................................35 3.18 Relationship with Advertisers, Suppliers and Customers..........36 3.19 Undisclosed Liabilities.........................................36 3.20 Finder's Fees...................................................37 3.21 No Material Omissions...........................................37 ARTICLE IV Covenants.......................................................38 4.1 The Sellers' Confidentiality Obligations........................38 4.2 No Solicitation of Employees or Consultants, Non-Interference...39 4.3 Taxes...........................................................41 4.4 Covenant Not to Compete.........................................41 4.5 Tax Matters.....................................................42 ARTICLE V Conditions to Obligations.......................................44 5.1 Conditions to Sellers' Obligations..............................44 5.2 Conditions to the Purchaser's Obligations.......................45 ARTICLE VI Indemnification.................................................47 6.1 Indemnification by Sellers......................................47 6.2 Indemnification by the Purchaser................................48 6.3 Indemnity Procedure for Third Party Claims......................48 6.4 Tax Indemnification.............................................50 6.5 Waiver of Right to Contribution.................................51 6.6 Sole Remedy.....................................................51 ARTICLE VII Miscellaneous...................................................51 7.1 Expenses........................................................51 7.2 Interpretation..................................................51 7.3 Further Assurances..............................................52 7.4 Amendment and Waiver............................................52 7.5 Notice..........................................................52 7.6 Survival of Representations, Warranties and Covenants...........53 7.7 Binding Agreement; Assignment...................................54 7.8 Severability....................................................55 7.9 Captions........................................................55 7.10 Counterparts....................................................55 7.11 Governing Law...................................................55 7.12 Remedies........................................................56 4 7.13 Public Announcements............................................57 7.14 Entire Agreement; Termination of All Prior Agreements Between Company and Sellers.....................................57 5 INDEX TO EXHIBITS Exhibit A Amended and Restated Stockholders Agreement Exhibit B Form of Employment Agreement with Jeffrey Drezner, M.D., Ph.D. 6 INDEX TO SCHEDULES HCG Schedules: Schedule 1.1 - Interest in HCG to be sold by each Seller Schedule 1.2(a) - Portion of Cash Purchase Price Payable to each Seller Schedule 1.2(b) - Number of Medscape Shares Deliverable to each Seller Schedule 2.1 - Description of Business of HCG Schedule 2.7(a) - HCG Balance Sheets Schedule 2.7(b) - HCG Income Statements Schedule 2.8 - Taxes - HCG Schedule 2.9 - Legal Proceedings - HCG Schedule 2.10 - Labor and Employee Benefit Matters - HCG Schedule 2.11 - Violations of Law - HCG Schedule 2.12 - Insurance - HCG Schedule 2.13 - Contracts - HCG Schedule 2.14 - Affiliate Transactions - HCG Schedule 2.15 - Real Property - HCG Schedule 2.16 - Information Technology - HCG Schedule 2.17 - Data and Intellectual Property - HCG Schedule 2.18 - Bank Accounts - HCG Schedule 2.20 - Adverse Changes - HCG Schedule 2.21 - Major Customers of HCG; Relationship with Customers and Suppliers Schedule 2.22 - Undisclosed Liabilities - HCG Medscape Schedules: Schedule 3.1 - Description of Medscape Business Schedule 3.3 - Capitalization of Medscape Schedule 3.7(a) - Medscape Balance Sheets Schedule 3.7(b) - Medscape Income Statements Schedule 3.8 - Taxes - Medscape Schedule 3.9 - Legal Proceedings - Medscape Schedule 3.10 - Labor and Employee Benefit Matters - Medscape Schedule 3.11 - Violations of Law - Medscape Schedule 3.14 - Real Property Leasehold Interests - Medscape Schedule 3.15 - Intellectual Property - Medscape Schedule 3.17 - Adverse Changes - Medscape Schedule 3.18 - Relations with Customers and Suppliers - Medscape Schedule 3.19 - Undisclosed Liabilities - Medscape 7 PURCHASE AGREEMENT THIS PURCHASE AGREEMENT (this "Agreement"), dated as of October ___, 1998, by and between MEDSCAPE, INC., a New York corporation with offices at 134 West 29th Street, New York, New York 10001 (the "Purchaser"), and each of the individuals listed on the signature page hereto (each, a "Seller" and, collectively, the "Sellers"), W I T N E S S E T H : WHEREAS, the Sellers own collectively all of the issued and outstanding membership interests of HEALTHCARE COMMUNICATIONS GROUP, L.L.C., a Maryland limited liability company (the "Company"); WHEREAS, the Purchaser desires to purchase from the Sellers, and the Sellers desire to sell to the Purchaser, all of the issued and outstanding membership interests of the Company; NOW THEREFORE, in consideration of the mutual promises hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: 8 ARTICLE I Purchase and Sale of the Interests 1.1 Purchase and Sale. At the Closing (as defined in Section 1.3 hereof) and upon the terms and subject to the conditions of this Agreement, the Sellers shall sell to the Purchaser, and the Purchaser shall purchase from the Sellers, all (but not less than all) of the membership interests of the Company (the "Interests"). In order to accomplish such transaction, each Seller shall sell to the Purchaser the Interests set forth opposite such Seller's name on Schedule 1.1 hereto. 1.2 Purchase Price. At the Closing, in consideration of the sale of the Interests by the Sellers: (a) Cash Purchase Price. The Purchaser shall pay to the Sellers, in the manner set forth in Section 1.4 hereof, the aggregate sum of One Million Seventy- Five Thousand ($1,075,000) Dollars (the "Cash Purchase Price") in cash. The portion of the Cash Purchase Price payable to each Seller shall be the amount set forth opposite such Seller's name on Schedule 1.2(a) hereto. (b) In Kind Purchase Price. The Purchaser shall issue and deliver to the Sellers an aggregate of 730,174 shares (the "Shares") of the Purchaser's non-voting Class B Common Stock (the "In Kind Purchase Price"). The Purchaser and the Sellers agree that the Shares have a fair market value of $0.86 per share as of the date of this Agreement and agree to report for Tax purposes consistent with this valuation. The portion of the Shares deliverable to each Seller shall be as set forth on Schedule 1.2(b) hereto. 2 9 1.3 Closing. The closing of the sale and purchase of the Interests (the "Closing") shall take place at the offices of Patterson, Belknap, Webb & Tyler LLP, 1133 Avenue of the Americas, New York, New York, at 10:00 a.m. on the date hereof (the "Closing Date"). At the Closing, (a) the Purchaser shall: (i) pay to the Sellers the Cash Purchase Price in immediately available funds by wire transfer to payment accounts designated by the Sellers' Representative (as defined in Section 1.4 below); (ii) pay the In Kind Purchase Price by delivering to each Seller the number of Shares set forth opposite such Seller's name on Schedule 1.2(b) hereof; (iii) deliver to the Sellers' Representative the certificates of an executive officer of the Purchaser described in Sections 5.1(a) and (b) hereof; (iv) deliver to the Sellers' Representative an amended and restated stockholders' agreement (the "Amended and Restated Stockholders' Agreement"), duly executed by all parties thereto necessary to effect the amendments therein other than the Sellers, in the form attached hereto as Exhibit A; and (v) deliver to the Sellers such other documents as the Sellers' Representative or the Sellers' counsel may reasonably request to demonstrate satisfaction of the conditions and compliance with the covenants set forth in this Agreement; and (b) each of the Sellers shall deliver, or cause to be delivered, to the Purchaser: 3 10 (i) instruments of transfer, assignment and conveyance in form and substance satisfactory to the Purchaser and its counsel, evidencing the sale of the Interests to the Purchaser; (ii) the certificates of the Sellers' Representative described in Sections 5.2(a) and (b) hereof; (iii) the Amended and Restated Stockholders' Agreement, duly executed by each of the Sellers; and (iv) such other documents as the Purchaser or its counsel may reasonably request to demonstrate satisfaction of the conditions and compliance with the covenants set forth in this Agreement. 1.4 Sellers' Representative. Each of the Sellers hereby constitutes and appoints Jeffrey L. Drezner, M.D., Ph.D., as the representative and attorney-in-fact of such Seller (the "Sellers' Representative") with full power and authority to act for all Sellers under this Agreement including to do and perform such acts as are specifically required by this Agreement to be performed by the Sellers' Representative. The Sellers' Representative shall not be liable to any other Seller for any actions taken by him pursuant to this power of attorney except in the case of his willful misconduct. The Sellers' Representative may, on behalf of all Sellers, execute amendments to this Agreement or waivers of any of the provisions hereof; provided that any such amendment or waiver does not adversely affect one or more Sellers in a manner which is materially different than each other Seller. This power of attorney shall be deemed coupled with an interest, shall survive and not be affected by the bankruptcy or disability of any Seller, and shall extend to each Seller's successors. 4 11 ARTICLE II Representations and Warranties of the Sellers Each of the Sellers, severally with respect to Sections 2.4 and 2.5, and jointly and severally with respect to all other sections of this Article II, hereby represents and warrants to the Purchaser as follows: 2.1 Organization; Standing and Power; Business of the Company. The Company is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Maryland, with all requisite limited liability company power and authority and all governmental licenses, authorizations, consents and approvals required to own its properties and to conduct its business as presently conducted and as presently proposed to be conducted. The Sellers' Representative has delivered to the Purchaser true, correct and complete copies of the limited liability company agreement of the Company, including all amendments (the "LLC Agreement") and the Certificate of Formation of the Company. The business of the Company consists solely of the business described on Schedule 2.1 hereto and related activities (the "Business"). The Company was formed on November 17, 1995. 2.2 No Conflicts. The execution, delivery and performance by such Seller of this Agreement, the consummation of the transactions contemplated hereby and compliance by such Seller with the terms hereof will not (a) violate, conflict with, cause an event of default under, give rise to a right of termination, cancellation or acceleration of any right or obligation of the Company under, or result in the creation or imposition of any lien, mortgage, security interest, charge, encumbrance or restriction (a "Lien") on any asset of the Company or on any Interest under any agreement, 5 12 instrument, license, franchise, judgment, order, law, rule or regulation by which such Seller or the Company is bound or to which the Company's property is subject, or (b) violate or conflict with the LLC Agreement or Certificate of Formation of the Company. 2.3 Capitalization. The only equity interests in the Company are the Interests. The Interests are valid membership interests entitled to the rights, powers and privileges set forth in the LLC Agreement. Except for the obligations set forth in this Agreement, no party has any right or obligation to purchase or sell, or any option or similar right to purchase, any membership interest in the Company. The Interests are freely transferable to the Purchaser pursuant to the terms of this Agreement. The Company has not issued any securities other than the Interests. The Interests were not issued in violation of any federal or state securities law or any other legal requirement. Other than this Agreement, there are no outstanding subscriptions, rights, options, warrants, conversion rights, agreements or other claims for the purchase or acquisition from the Company or any Seller of any membership interests of the Company or any other securities of the Company or obligating the Company to issue, repurchase or otherwise acquire any membership interests of the Company or any other securities of the Company or any securities convertible into, exercisable or exchangeable for, or otherwise entitling the holder to acquire any membership interests of the Company or any other securities of the Company. 2.4 Right to Transfer. Such Seller now has, and will have at Closing, good and valid legal title to the Interest set forth opposite such Seller's name on 6 13 Schedule 1.1 hereto and full beneficial ownership thereof and full legal right and power to transfer and deliver to the Purchaser such Interest in the manner provided in this Agreement, and upon the purchase of such Interest pursuant to the terms of this Agreement, the Purchaser will receive good and valid legal title thereto and full beneficial ownership thereof, free and clear of all Liens, restrictions, encumbrances and rights of others of any kind other than those created or permitted by the Purchaser. 2.5 Binding Effect. Such Seller has all requisite capacity and authority to execute this Agreement and to consummate the transactions contemplated hereby and thereby. This Agreement has been duly executed and delivered by such Seller. The execution and delivery of this Agreement by the Sellers and the consummation of the transactions contemplated hereby by the Sellers do not and will not require the approval of any other party. Assuming the due execution and delivery of this Agreement by the Purchaser, this Agreement constitutes a valid and binding obligation of such Seller, enforceable against such Seller in accordance with its terms subject to applicable bankruptcy, insolvency, moratorium and other similar laws relating to the enforcement of creditor's rights generally, the availability of equitable remedies and to general equity principles. 2.6 Other Equity Interests. The Company does not have, and has not had at any time, any direct or indirect equity interest in any other corporation, partnership, joint venture, limited liability company or other entity or any commitment to acquire any such equity interest. 2.7 Financial Statements, Books and Records and Accounts Receivable. 7 14 (a) The unaudited balance sheet of the Company as of December 31, 1997 and the unaudited balance sheet (the "HCG Interim Balance Sheet") of the Company as of September 30, 1998 (the "HCG Interim Date"), annexed hereto as Schedule 2.7(a) (collectively the "HCG Balance Sheets") have been prepared from the books and records of the Company and fairly present in all material respects the financial position of the Company as of the respective dates thereof in conformity with generally accepted accounting principles consistently applied ("GAAP") (except as noted on Schedule 2.7(a)), and include all adjustments required for a fair presentation. (b) The unaudited statement of income of the Company for the year ended December 31, 1997 and the unaudited statement of income for the Company for the nine months ended September 30, 1998, annexed hereto as Schedule 2.7(b) (collectively the "HCG Income Statements" and, together with the HCG Balance Sheets, the "HCG Financial Statements") have been prepared from the books and records of the Company and fairly present in all material respects the results of operations of the Company for the periods covered thereby in conformity with GAAP (except as noted on Schedule 2.7(b)), and include all adjustments required for a fair presentation. (c) The books of account, membership interest record books, and other records of the Company, all of which have been made available to the Purchaser by the Sellers, are true, correct and complete. 2.8 Taxes. Except as set forth on Schedule 2.8, (a) the Company has timely paid and will timely pay all Taxes (as defined below) required to be paid on or before the Closing Date by the Company for all periods up to and including the Closing Date, has accrued for all Taxes for all periods up to and including the Closing Date 8 15 which Taxes are not required to be paid on or before the Closing Date, has timely withheld or collected and will timely withhold or collect all Taxes required to be withheld or collected on or before the Closing Date by the Company for all periods up to and including the Closing Date, has timely deposited and will timely deposit all Taxes required to be deposited on or before the Closing Date by the Company for all periods up to and including the Closing Date, and has timely filed and will timely file all material Tax returns required to be filed on or before the Closing Date by the Company with respect to such Taxes for all periods up to and including the Closing Date and each such return was or will be when filed true, correct and complete in all material respects, (b) to the knowledge of such Seller, no notice of any proposed adjustment or notice of underpayment has been issued by any Governmental Entity (as hereinafter defined) with respect to any such Taxes, (c) to the knowledge of such Seller, no claim has been asserted, proposed or threatened with respect to any such Taxes that remain outstanding, (d) no extension of the time for assessment of any such Taxes has been requested or granted (other than any such extension that is no longer in effect), (e) no protests are pending with respect to any such Taxes, (f) there are no Liens for Taxes (except Liens for Taxes not yet due) on any assets of the Company, and no action, proceeding or investigation has been instituted or, to the knowledge of such Seller threatened, against the Company which would give rise to any such Lien and (g) to the knowledge of such Seller, no audit, action or proceeding or investigation of the Company relating to any Tax is currently ongoing and no audit of the Company relating to any Tax has been undertaken within the preceding five years. The Sellers have provided to the Purchaser all Federal and state income tax returns filed by the Company since January 1, 1995 and will make available any documentation ancillary 9 16 thereto reasonably requested by the Purchaser. The Company (i) has been filing both Federal and state partnership tax returns to the extent required by law since its inception and (ii) has not elected to be taxed as a corporation for the current or any future tax period. For purposes of this Agreement, "Tax" means any obligation or liability (including any tax, withholding, fee or excise imposed by any Governmental Entity (as hereinafter defined), including any gross or net income, franchise, employment-related, real or personal property, transfer, intangibles, documentary, gains, sales or use tax, together with any and all interest, penalties and additions imposed with respect thereto. 2.9 Legal Proceedings. Schedule 2.9 sets forth a true, correct and complete list of all claims, suits, actions, arbitrations, legal, administrative and other proceedings, and, to the knowledge of such Seller, governmental investigations, to which the Company or such Seller is a party or which, to the knowledge of such Seller, are specifically applicable to such Seller or the Company or any of its properties, assets, operations or Business or any of the transactions contemplated by this Agreement and which are currently pending or were pending at any time since the date of the Company's formation. To such Seller's knowledge, (i) no claim, suit, action, arbitration, proceeding or investigation of the nature or relating to the matters described in the preceding sentence has been threatened and (ii) there is no basis for any suit, action, arbitration, proceeding or investigation of such nature or relating to such matters. Except as described on Schedule 2.9 hereto, neither the Company nor such Seller is in default under any judgment, order, writ, injunction or decree of any court, arbitrator, administrative agency or commission or governmental body, agency, official or authority, domestic or foreign (a "Governmental Entity") specifically applicable to 10 17 such Seller or the Company or any of its properties, assets, operations or business, and there is no such judgment, order, writ, injunction or decree of any kind in effect enjoining or restraining the Company or any member or officer of the Company from taking any action of any kind. To the knowledge of such Seller, no material distributed by the Company prior to the Closing Date contains any material that is libelous or an invasion of privacy or infringes any similar right of any third party. 2.10 Labor and Employee Benefit Matters. (a) Schedule 2.10 hereto contains a true and complete list of (i) each plan, program, policy, payroll practice, contract, agreement or other arrangement providing for compensation, severance, termination pay, performance awards, stock or stock-related awards, fringe benefits or other employee pension or welfare benefits of any kind, whether formal or informal, funded or unfunded, written or oral and whether or not legally binding, which is now sponsored, maintained, contributed to or required to be contributed to, by the Company or pursuant to which the Company has, or could reasonably be expected to have, any liability, including, without limitation, any "employee benefit plan" within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") (each a "Benefit Plan"); and (ii) each management, employment, bonus, option, equity (or equity related), severance, consulting, noncompete, confidentiality or similar agreement or contract currently in effect between the Company and any current, former or retired employee, officer, consultant, independent contractor, agent or partner of the Company (each an "Employee Agreement"). The Company does not currently sponsor, maintain, contribute to, nor is it required to contribute to, nor has the Company ever sponsored, maintained, contributed to or been required to contribute to, or incurred any liability to, 11 18 (i) any "defined benefit plan" (as defined in ERISA Section 3(35)), (ii) any "multiemployer plan" (as defined in ERISA Section 3(37)) or any plan that has two or more contributing sponsors at least two of whom are not under common control (within the meaning of Section 4063 of ERISA), (iii) any plan that is, is intended to be, or has ever been treated as a "qualified plan" (within the meaning of Section 401(a) of the Code) or any plan that is, is intended to be, or has ever been treated as a plan subject to Title IV of ERISA, or (iv) any Benefit Plan or Employee Agreement which provides, or has any liability to provide, life insurance, medical, severance or other employee welfare benefits to any employee (or spouse or dependent thereof) upon or following the employee's retirement or termination of employment, except as required by Section 4980B of the Code or Part 6 of Title I of ERISA. (b) The Company is not and has never been (i) a member of a "controlled group of companies," under "common control" or an "affiliated service group" within the meaning of Sections 414(b), (c) or (m) of the Code, (ii) required to be aggregated under Section 414(o) of the Code, or (iii) under "common control," within the meaning of Section 4001(a)(14) of ERISA, or any regulations promulgated or proposed under any of the foregoing sections, in each case with any other entity. (c) The Company has provided to the Purchaser accurate and complete copies of all documents embodying or relating to each Benefit Plan and each Employee Agreement, including all amendments thereto, trust or funding agreements relating thereto, the two most recent annual reports required under ERISA, the most recent determination letter received from the Internal Revenue Service, if any, and the most recent summary plan description (with all material modifications). 12 19 (d) All contributions required to be made to or with respect to any Benefit Plan or Employee Agreement by applicable law or regulation or by any plan document or other contractual undertaking, and all premiums due or payable with respect to insurance policies funding any Benefit Plan or Employee Agreement, for any period through the Closing Date have been or, as applicable, shall be, timely made or paid in full or, to the extent not required to be made or paid on or before the Closing Date, shall be fully disclosed on Schedule 2.10. (e) Each Benefit Plan is currently, and has been at all times prior to the Closing Date, maintained substantially in accordance with its terms and in compliance in all material respects with all applicable laws, statutes, orders, rules and regulations, including, without limitation, ERISA and the Code. There is not now, nor to such Seller's knowledge do any circumstances exist that could reasonably be expected to give rise to, any requirement for the posting of security with respect to a Benefit Plan or Employee Agreement or the imposition of any Lien on the assets of the Company under applicable law, including, without limitation, ERISA and the Code. (f) Except as set forth on Schedule 2.10, the execution of, and performance of the transactions contemplated by, this Agreement will not (either alone or upon the occurrence of any additional or subsequent events directly related to the transactions contemplated by this Agreement) constitute an event under any Benefit Plan or Employee Agreement that will or may result in any payment, acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligations to fund benefits with respect to any employee or former employee or any spouse or dependent thereof. 13 20 (g) Schedule 2.10 hereto lists all current employees of the Company. Except as set forth on Schedule 2.10, (i) the Company is not delinquent in payments to any of its employees for any wages, salaries, commissions, bonuses or other direct compensation for any services performed by the date hereof or amounts required to be reimbursed by them to the date hereof, (ii) the Company is in material compliance with all applicable federal, state and local laws, rules and regulations respecting employment, employment practices, labor, terms and conditions of employment and wages and hours, (iii) the Company is not bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, commitment or arrangement with any labor union, and no labor union has requested or has sought to represent any of the employees, representatives or agents of the Company, (iv) there is no labor strike, dispute, slowdown or stoppage actually pending, or, to the knowledge of such Seller, threatened, against or involving the Company, and (v) to the knowledge of such Seller, no salaried key employee has any plans to terminate his or her employment with the Company. (h) For purposes of this Section 2.10, the term "employee" shall be considered to include individuals rendering personal services to the Company as independent contractors. (i) Schedule 2.10 contains a true, correct and complete list of the name of each individual who is employed by the Company on the date hereof along with his or her current job title, base compensation, eligibility for bonus compensation or any other compensation, date of hire, last date and amount of increase in compensation, any employee benefit which is not generally available to employees of the Company and employment address. Schedule 2.10 contains a true, correct and 14 21 complete list of persons currently rendering services to the Company, or who have rendered services to the Company since the formation of the Company for which the Company is obligated to issue a Form 1099, as consultants or independent contractors, along with information regarding compensation and reimbursement levels for each such person during all such periods, and each such person who was classified as a consultant or an independent contractor was properly so classified under applicable laws and regulations and no federal, state or local taxes should have been withheld from any payment made to any such person which were not withheld. (j) Except as set forth on Schedule 2.10, with respect to each Benefit Plan or Employee Agreement, there have been no "prohibited transactions" (within the meaning of Section 406 of ERISA and Section 4975 of the Code) and no fiduciary with respect to any Benefit Plan or Employee Agreement has incurred, or to such Seller's knowledge can reasonably be expected to incur, liability for a breach of fiduciary duty or other failure to act or comply in connection with the administration or investment of the assets of any Benefit Plan. Further, no action, suit, proceeding, or hearing, or to such Seller's knowledge, investigation with respect to any Benefit Plan or Employee Agreement is pending or, to the knowledge of such Seller, threatened. None of the members, officers or employees of the Company has, nor does such Seller have, any knowledge of any existing circumstances that could reasonably be expected to give rise to any action, suit, proceeding, hearing, or investigation involving a Benefit Plan or Employee Agreement. 2.11 Compliance with Laws. The conduct of the Business complies in all material respects with (a) all statutes, laws, regulations, ordinances, rules, licenses, judgments, orders or decrees applicable thereto (including regulations promulgated by 15 22 the Food and Drug Administration), including compliance with any government contractor affirmative action plan, if applicable, and (b) the LLC Agreement and Certificate of Formation of the Company. Except as set forth on Schedule 2.11, the Company has not received notice of any alleged violation of any statute, law, regulation, ordinance, rule, judgment, order, decree or license applicable thereto or to its properties from any Governmental Entity or other person and such Seller has no knowledge of any such violation. 2.12 Insurance. The Company maintains insurance policies with insurers, in such amounts and against such risks of the Company as are customary and reasonable for the Business and its assets. Schedule 2.12 lists and describes briefly all policies of liability, theft, fire, title, workers' compensation and other forms of insurance and surety bonds insuring the Company or the employees, properties, assets and Business of the Company. All policies listed in Schedule 2.12 are in full force and effect; no such policy or the future proceeds thereof has been assigned to any other person; and all premiums and other payments due under or on account of any such policy have been paid except where the failure to make such payment would not result in the termination of any such policy. 2.13 Contracts. Except as set forth on Schedule 2.13, the Company is not a party to or bound by any written or oral (a) employment or consulting agreement; (b) joint venture or partnership contract or agreement; (c) contract or agreement restricting the right of the Company to compete with any other person or entity, which would apply after the Closing; (d) any loan agreement, indenture, promissory note or conditional sales agreement or any pledge, security agreement, deed of trust, financing statement or any other document granting or evidencing a Lien on any assets of the 16 23 Company; (e) any guarantee, assumption of an obligation for borrowed money or purchase money indebtedness or other obligation of reimbursement of any maker of a letter of credit; (f) contract, agreement or commitment providing for the purchase or sale of assets outside the ordinary course of business; (g) agreement, contract or commitment relating to capital expenditures in excess of $5,000 in any single case or $10,000 in the aggregate; (h) licenses, whether as licensor or licensee, of any material invention (whether patented or not), trade secret, know-how, copyright, trademark or trade name or other intellectual property, except for pre-packaged software; (i) lease or sublease of, or option relating to, real estate; (j) lease as lessee or lessor of personal property; (k) capitalized lease or sale-leaseback; (l) data licensing, distribution, supply or development agreement or Internet or web-site agreement; (m) royalty agreement; (n) any revocable or irrevocable power of attorney; (o) software agreement, except for pre-packaged software; (p) promotional agreement; (q) other contract or agreement entered into other than in the ordinary course of business; or (r) other contract or agreement providing for payments to or from the Company in excess of $25,000 in the aggregate or requiring one year or longer to perform. All of the foregoing types of contracts and agreements are hereinafter referred to as "Contracts." Except as set forth thereon, each Contract set forth on Schedule 2.13 is in full force and effect and, to the knowledge of such Seller is legal, valid and binding and enforceable against each other person or party thereto. Except as set forth on Schedule 2.13, the Company is not nor, to the knowledge of such Seller, is any other party to any such Contract, in material breach thereof or default thereunder and there does not exist under any provision thereof any event that, with the giving of notice or the lapse of time or both, would constitute such a material breach or default by the Company or, to the 17 24 knowledge of such Seller, by any other party to any such Contract. Except as set forth on Schedule 2.13, the Sellers' Representative has delivered or made available to the Purchaser true, correct and complete copies of each of such written Contracts or provided summaries of any such oral Contracts. 2.14 Affiliate Transactions. Except as disclosed in Schedule 2.14, (a) neither any Seller nor any of their respective Affiliates has provided or caused to be provided, and does not currently provide or cause to be provided, to the Company any assets, services (other than as an employee or partner) or facilities or has made any payments to or on behalf of the Company and (b) the Company has not provided or caused to be provided, and does not currently provide or cause to be provided, to any Seller or any Seller's Affiliates any assets, services or facilities or has made any payment (other than member distributions, salary, bonus or business expense reimbursement payments made to a Seller in the ordinary course of business) to or on behalf of any Seller or any Seller's Affiliates. An "Affiliate" of any party means any person or entity directly or indirectly controlling, controlled by or under common control with such party and shall include any officer, director, member, partner or other equity holder of any such entity and the spouse or any issue of a natural person or any trust for their benefit. As used in this Agreement, the term "person" shall mean any individual, corporation, partnership, limited liability company, joint venture, trust, business association or other entity, including a Governmental Entity. 2.15 Properties. Schedule 2.15 contains a true, correct and complete list of all real property leasehold interests of the Company (the "Leasehold Interests"). The Company has the legal right to possess and quietly enjoy the real property in which it has Leasehold Interests and has received no notice from any person asserting any 18 25 claim or right inconsistent therewith. The Company has never owned in fee any interest in real property. 2.16 Information Technology. Schedule 2.16 set forth a list and brief description of all computer hardware, software and networks used by the Company and identifies which are owned by the Company directly and which are licensed to the Company for use. Except as set forth on Schedule 2.16, the Company has the unrestricted right to use all software associated with its databases. 2.17 Data and Intellectual Property. (a) Except as set forth in Schedule 2.17, the Company has the unrestricted right to use and holds the copyright to all of the data which comprise all of its databases including data taken directly from any and all external sources as well as derived data. (b) Except as set forth on Schedule 2.17, (i) the Company has not been sued or charged or been a defendant in any claim, suit, action or proceeding which involves a claim of infringement of any intellectual property rights, (ii) to the knowledge of such Seller, there are no other claims that the Company is infringing any existing patent, trademark or copyright or any basis for any such claim, without regard to whether any such patent, trademark or copyright is ultimately found to be valid, and (iii) to the knowledge of such Seller, the use of intellectual property rights in connection with the Business, as currently being conducted, does not infringe the patent, trademark, copyright or any other right of any third party. 2.18 Bank Accounts. Schedule 2.18 sets forth a true, correct and complete list of each bank at which the Company has an account or safe deposit box 19 26 and the address of each such bank, the number of such account or box and the name of each individual authorized to draw on or have access thereto. 2.19 Website Traffic. The website traffic statistics set forth on the report dated October 3, 1998, previously delivered to the Purchaser by the Company are true, correct and complete in all material respects. 2.20 Absence of Certain Changes. Since the HCG Interim Date, except as set forth on Schedule 2.20, the Company has conducted the Business in the ordinary course and maintained its records and books of account in reasonable detail which accurately and fairly reflect the transactions of the Company in all material respects. Since the HCG Interim Date there has not been, except as disclosed on Schedule 2.20: (a) Any materially adverse change in the nature of the Business, the results of the Company's operations, the Company's assets, the Company's financial condition, or the manner of conducting the Business; (b) Any damage, destruction or casualty loss (whether or not covered by insurance) adversely affecting the Business, the results of operations, the assets or the financial condition of the Company or its ability to carry on its operations substantially as presently conducted and as proposed to be conducted; (c) Any declaration, setting aside or payment of distributions in respect of the Interests; (d) Any entering into of any employment agreement, or any increase in the compensation payable, or to become payable, by the Company to any of its officers or partners, employees or agents over the rates payable at the Interim Date; 20 27 (e) Any issuance of securities of the Company, including options, warrants or other agreements evidencing or requiring such issuance; (f) Any amendment or termination of, default by the Company or, to the knowledge of any Seller, default by any other party under, any contract, agreement or license to which the Company is a party and which materially adversely affects the Company; (g) Any labor dispute or collective labor negotiation involving the Company; (h) Any discharge or satisfaction of any lien, encumbrance, obligation or liability (accrued, absolute, fixed or contingent) of the Company except in the ordinary course of business; (i) Incurrence by the Company of any obligation or liability (accrued, absolute, fixed or contingent) except current liabilities incurred, and obligations entered into, in the ordinary course of business and consistent with prior practice (for purposes of this Agreement, the Purchaser and the Sellers agree that the incurrence of any debt other than normal trade credit shall not be in the ordinary course of business); (j) Institution of any severance, retirement, bonus, equity option, profit sharing pension plan or similar agreement or changes made in any such existing plans of the Company, other than severance or bonus arrangements with employees of the Company entered into in the ordinary course of business consistent with past practices or as otherwise specifically contemplated hereby; (k) Any capital expenditure involving an amount of more than Five Thousand ($5,000) Dollars in any one instance or an aggregate of more than Ten Thousand ($10,000) Dollars; 21 28 (l) Announcement or initiation of any general increase in compensation, bonus, insurance or employee benefits involving employees of the Company; (m) Sale or disposition (other than inventory in the ordinary course of business), or lease of any property of the Company or mortgage, pledge, or grant or imposition of any Lien on any asset or property of the Company; (n) Cancellation or waiver of any claims or rights with a value in excess of Five Thousand ($5,000) Dollars; or (o) Any amendment to the LLC Agreement of the Company. 2.21 Relationship with Advertisers, Suppliers and Customers. Schedule 2.21 sets forth a true, correct and complete list of each customer of the Company which represented in excess of five (5%) percent of the Company's revenues in any of the fiscal years ended December 31, 1997 or December 31, 1996 or which in the good faith judgment of the Sellers is expected to account for in excess of five (5%) percent of the Company's revenues in the fiscal year ended December 31, 1998, and identifies any such customer which has terminated its relationship with the Company or significantly reduced the volume of business conducted by it with the Company since January 1, 1995. Except as described in Schedule 2.21, such Seller has no actual knowledge that any significant supplier of goods, products or services to the Company, or any significant customer of the Company, (i) has made any material complaint or objection with respect to the service or any business practices of the Company or the transactions contemplated hereby or (ii) will cease to do business, or significantly reduce the business conducted, with the Purchaser with respect to the Business after or as a result of the consummation of any transactions contemplated hereby. 22 29 2.22 Undisclosed Liabilities. Except (a) as disclosed in Schedule 2.22 or the other Schedules hereto, (b) as and to the extent disclosed or reserved against on the HCG Interim Balance Sheet, (c) as incurred after the HCG Interim Date in the ordinary course of business consistent with prior practice and not prohibited by this Agreement, or (d) as incurred in connection with this Agreement or any of the transactions contemplated hereby, the Company does not have any material liabilities or obligations of any nature, absolute, accrued, contingent or otherwise and whether due or to become due required by GAAP to be set forth on the HCG Interim Balance Sheet. 2.23 Finder's Fees. There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of the Company or such Seller who would have a claim to any fee or commission from the Company or such Seller or the Purchaser or any of their respective Affiliates in connection with the transactions contemplated by this Agreement. 2.24 No Material Omissions. Neither this Agreement (including the Schedules) nor any certificate delivered pursuant hereto contains any untrue statement of a material fact relating to the Sellers or the Company or omits to state a material fact relating to the Sellers or the Company necessary to make the statements made, in light of the circumstances in which they are made, not misleading. In each case where a representation and warranty is made "to the knowledge" of any Seller, such Seller has made inquiry of the responsible officer, employee or agent of the Company whose responsibilities with the Company would include those matters which are the subject of the representation and warranty. 23 30 ARTICLE III Representations and Warranties of the Purchaser The Purchaser represents and warrants to the Sellers as follows: 3.1 Organization; Standing and Power; Business of the Purchaser. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of New York, with all requisite corporate power and authority and all governmental licenses, authorizations, consents and approvals required to own its properties and to conduct its business as presently conducted and as presently proposed to be conducted. The Purchaser has delivered to the Sellers' Representative true, correct and complete copies of the certificate of incorporation of (the "Charter") and the Bylaws of the Purchaser. The business of the Purchaser consists solely of the business described on Schedule 3.1 hereto and related activities (the "Medscape Business"). 3.2 No Conflicts. The execution, delivery and performance by the Purchaser of this Agreement, the consummation of the transactions contemplated hereby and compliance by the Purchaser with the terms hereof will not (a) violate, conflict with, cause an event of default under, give rise to a right of termination, cancellation or acceleration of any right or obligation of the Purchaser under, or result in the creation or imposition of any Lien on any asset of the Purchaser or on any Shares under any agreement, instrument, License, franchise, judgment, order, law, rule or regulation by which the Purchaser is bound or to which the Purchaser's property is subject, nor (b) violate or conflict with the Charter or Bylaws of the Purchaser. 24 31 3.3 Capitalization. The capitalization of the Purchaser is as set forth on Schedule 3.3 hereto. Except for the obligations set forth in this Agreement or as set forth on Schedule 3.3, no party has any right or obligation to purchase or sell, or any option or similar right to purchase, any security of the Purchaser. Other than this Agreement or as set forth on Schedule 3.3, there are no outstanding subscriptions, rights, options, warrants, conversion rights, agreements or other claims for the purchase or acquisition from the Purchaser or any securities of the Purchaser or obligating the Purchaser to issue, repurchase or otherwise acquire any securities of the Purchaser or any securities convertible into, exercisable or exchangeable for, or otherwise entitling the holder to acquire any securities of the Purchaser. The Shares which constitute the In Kind Purchase Price represent, on a fully diluted basis as of the date hereof, ten (10%) percent of the shares of capital stock of the Purchaser. For these purposes "fully diluted" is calculated assuming that all shares of the Purchaser's preferred stock are converted into shares of the Purchaser's common stock at the applicable conversion ratio, all outstanding stock options are exercised and options to purchase all additional shares of the Purchaser's common stock currently reserved under the Medscape Stock Award Plan are made and such options are exercised but excluding the restricted shares described in Section 5.1(f) below. The issuance of the Shares will not trigger any "antidilution" provision of any existing security of the Purchaser. 3.4 Due Authorization of the Shares. The issuance, sale and delivery of the Shares pursuant to this Agreement have been duly authorized by all requisite corporate action on the part of the Purchaser and when issued, sold and delivered in accordance with this Agreement, the Shares will be validly issued and outstanding, fully 25 32 paid and non-assessable, free and clear of all Liens, restrictions, encumbrances and rights of others of any kind other than those created or permitted by the Sellers. 3.5 Binding Effect. The Purchaser has all requisite power and authority to execute this Agreement and to consummate the transactions contemplated hereby and thereby. This Agreement has been duly executed and delivered by the Purchaser. The execution and delivery of this Agreement by the Purchaser and the consummation of the transactions contemplated hereby by the Purchaser do not and will not require the approval of any other party. Assuming the due execution and delivery of this Agreement by the Sellers, this Agreement constitutes a valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms subject to applicable bankruptcy, insolvency, moratorium and other similar laws relating to the enforcement of creditor's rights generally, the availability of equitable remedies and to general equity principles. 3.6 Other Equity Interests. The Purchaser does not have, and has not had at any time, any direct or indirect equity interest in any other corporation, partnership, joint venture, limited liability company or other entity or any commitment to acquire any such equity interest. 3.7 Financial Statements, Books and Records and Accounts Receivable. (a) The audited balance sheet of the Purchaser as of December 31, 1997 and the unaudited balance sheet of the Purchaser (the "Medscape Interim Balance Sheet") as of September 30, 1998 (the "Medscape Interim Date"), annexed hereto as Schedule 3.7(a) (collectively the "Medscape Balance Sheets") have been prepared from the books and records of the Purchaser and fairly present the financial 26 33 position of the Purchaser as of the respective dates thereof in conformity with generally accepted accounting principles consistently applied ("GAAP") (except as noted on Schedule 3.7(a)), and include all adjustments required for a fair presentation. (b) The audited statement of income of the Purchaser for the year ended December 31, 1997 and the unaudited statement of income for the Purchaser for the nine months ended September 30, 1998, annexed hereto as Schedule 3.7(b) (collectively the "Medscape Income Statements" and, together with the Medscape Balance Sheets, the "Medscape Financial Statements") have been prepared from the books and records of the Purchaser and fairly present the results of operations of the Purchaser for the periods covered thereby in conformity with GAAP (except as noted on Schedule 3.7(b)), and include all adjustments required for a fair presentation. (c) The books of account, stock record books, and other records of the Purchaser, all of which have been made available to the Sellers' Representative by the Purchaser, are true, correct and complete. 3.8 Taxes. Except as set forth on Schedule 3.8, (a) the Purchaser has timely paid and will timely pay all Taxes required to be paid on or before the Closing Date by the Purchaser for all periods up to and including the Closing Date, has accrued for all Taxes for all periods up to and including the Closing Date which Taxes are not required to be paid on or before the Closing Date, has timely withheld or collected and will timely withhold or collect all Taxes required to be withheld or collected on or before the Closing Date by the Purchaser for all periods up to and including the Closing Date, has timely deposited and will timely deposit all Taxes required to be deposited on or before the Closing Date by the Purchaser for all periods up to and including the Closing Date, and has timely filed and will timely file all material Tax returns required to be filed 27 34 on or before the Closing Date by the Purchaser with respect to such Taxes for all periods up to and including the Closing Date and each such return was or will be when filed true, correct and complete in all material respects, (b) to the knowledge of Purchaser, no notice of any proposed adjustment or notice of underpayment has been issued by any Governmental Entity with respect to any such Taxes, (c) to the knowledge of Purchaser, no claim has been asserted, proposed or threatened with respect to any such Taxes that remain outstanding, (d) no extension of the time for assessment of any such Taxes has been requested or granted (other than any such extension that is no longer in effect), (e) no protests are pending with respect to any such Taxes, (f) there are no Liens for Taxes (except Liens for Taxes not yet due) on any assets of the Purchaser, and no action, proceeding or investigation has been instituted or, to the knowledge of the Purchaser threatened, against the Purchaser which would give rise to any such Lien and (g) to the knowledge of the Purchaser, no audit, action or proceeding or investigation of the Purchaser relating to any Tax is currently ongoing and no audit of the Purchaser relating to any Tax has been undertaken within the preceding five years. 3.9 Legal Proceedings. Schedule 3.9 sets forth a true, correct and complete list of all claims, suits, actions, arbitrations, legal, administrative and other proceedings, and, to the knowledge of the Purchaser, governmental investigations, to which the Purchaser is a party or which, to the knowledge of the Purchaser, are specifically applicable to the Purchaser or any of its properties, assets, operations or the Medscape Business or any of the transactions contemplated by this Agreement and which are currently pending or were pending at any time since January 1, 1995. To the Purchaser's knowledge, (i) no claim, suit, action, arbitration, proceeding or investigation 28 35 of the nature or relating to the matters described in the preceding sentence has been threatened and (ii) there is no basis for any suit, action, arbitration, proceeding or investigation of such nature or relating to such matters. Except as described on Schedule 3.9 hereto, the Purchaser is not in default under any judgment, order, writ, injunction or decree of any Governmental Entity specifically applicable to the Purchaser or any of its properties, assets, operations or business, and there is no such judgment, order, writ, injunction or decree of any kind in effect enjoining or restraining the Purchaser or any director or officer of the Purchaser from taking any action of any kind. To the knowledge of the Purchaser, no material distributed by the Purchaser prior to the Closing Date contains any material that is libelous or an invasion of privacy or infringes any similar right of any third party. 3.10 Labor and Employee Benefit Matters. (a) Schedule 3.10 hereto contains a true and complete list of (i) each plan, program, policy, payroll practice, contract, agreement or other arrangement providing for compensation, severance, termination pay, performance awards, stock or stock-related awards, fringe benefits or other employee pension or welfare benefits of any kind, whether formal or informal, funded or unfunded, written or oral and whether or not legally binding, which is now sponsored, maintained, contributed to or required to be contributed to, by the Purchaser or pursuant to which the Purchaser has, or could reasonably be expected to have, any liability, including, without limitation, any "employee benefit plan" within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") (each a "Medscape Benefit Plan"); and (ii) each management, employment, bonus, option, equity (or equity related), severance, consulting, noncompete, confidentiality or similar agreement or contract 29 36 currently in effect between the Purchaser and any current, former or retired employee, officer, consultant, independent contractor, agent or partner of the Company (each a "Medscape Employee Agreement"). The Purchaser does not currently sponsor, maintain, contribute to, nor is it required to contribute to, nor has the Purchaser ever sponsored, maintained, contributed to or been required to contribute to, or incurred any liability to, (i) any "defined benefit plan" (as defined in ERISA Section 3(35)), (ii) except as described on Schedule 3.10, any "multiemployer plan" (as defined in ERISA Section 3(37)) or any plan that has two or more contributing sponsors at least two of whom are not under common control (within the meaning of Section 4063 of ERISA), (iii) any plan that is, is intended to be, or has ever been treated as a "qualified plan" (within the meaning of Section 401(a) of the Code) or any plan that is, is intended to be, or has ever been treated as a plan subject to Title IV of ERISA, or (iv) any Medscape Benefit Plan or Medscape Employee Agreement which provides, or has any liability to provide, life insurance, medical, severance or other employee welfare benefits to any employee (or spouse or dependent thereof) upon or following the employee's retirement or termination of employment, except as required by Section 4980B of the Code or Part 6 of Title I of ERISA. (b) Except as set forth in Schedule 3.10, the Purchaser is not and has never been (i) a member of a "controlled group of companies," under "common control" or an "affiliated service group" within the meaning of Sections 414(b), (c) or (m) of the Code, (ii) required to be aggregated under Section 414(o) of the Code, or (iii) under "common control," within the meaning of Section 4001(a)(14) of ERISA, or any regulations promulgated or proposed under any of the foregoing sections, in each case with any other entity. 30 37 (c) The Purchaser has provided to the Sellers accurate and complete copies of all documents embodying or relating to each Medscape Benefit Plan and each Medscape Employee Agreement, including all amendments thereto, trust or funding agreements relating thereto, the two most recent annual reports required under ERISA, the most recent determination letter received from the Internal Revenue Service, if any, and the most recent summary plan description (with all material modifications). (d) All contributions required to be made to or with respect to any Medscape Benefit Plan or Medscape Employee Agreement by applicable law or regulation or by any plan document or other contractual undertaking, and all premiums due or payable with respect to insurance policies funding any Medscape Benefit Plan or Medscape Employee Agreement, for any period through the Closing Date have been or, as applicable, shall be, timely made or paid in full or, to the extent not required to be made or paid on or before the Closing Date, shall be fully disclosed on Schedule 3.10. (e) Each Medscape Benefit Plan is currently, and has been at all times prior to the Closing Date, maintained substantially in accordance with its terms and in compliance in all material respects with all applicable laws, statutes, orders, rules and regulations, including, without limitation, ERISA and the Code. There is not now, nor to the Purchaser's knowledge do any circumstances exist that could reasonably be expected to give rise to, any requirement for the posting of security with respect to a Medscape Benefit Plan or Medscape Employee Agreement or the imposition of any Lien on the assets of the Purchaser under applicable law, including, without limitation, ERISA and the Code. 31 38 (f) Except as set forth on Schedule 3.10, the execution of, and performance of the transactions contemplated by, this Agreement will not (either alone or upon the occurrence of any additional or subsequent events directly related to the transactions contemplated by this Agreement) constitute an event under any Medscape Benefit Plan or Medscape Employee Agreement that will or may result in any payment, acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligations to fund benefits with respect to any employee or former employee or any spouse or dependent thereof. (g) Except as set forth on Schedule 3.10, with respect to each Medscape Benefit Plan or Medscape Employee Agreement, there have been no "prohibited transactions" (within the meaning of Section 406 of ERISA and Section 4975 of the Code) and no fiduciary with respect to any Medscape Benefit Plan or Medscape Employee Agreement has incurred, or to the Purchaser's knowledge can reasonably be expected to incur, liability for a breach of fiduciary duty or other failure to act or comply in connection with the administration or investment of the assets of any Medscape Benefit Plan. Further, no action, suit, proceeding, or hearing, or to the Purchaser's knowledge, investigation with respect to any Medscape Benefit Plan or Medscape Employee Agreement is pending or, to the knowledge of any Purchaser, threatened. 3.11 Compliance with Laws. The conduct of the Medscape Business complies in all material respects with (a) all statutes, laws, regulations, ordinances, rules, licenses, judgments, orders or decrees applicable thereto (including regulations promulgated by the Food and Drug Administration), including compliance with any government contractor affirmative action plan, if applicable, and (b) the Charter and Bylaws of the Purchaser. Except as set forth on Schedule 3.11, the Purchaser has not 32 39 received notice of any alleged violation of any statute, law, regulation, ordinance, rule, judgment, order, decree or license applicable thereto or to its properties from any Governmental Entity or other person and the Purchaser has no knowledge of any such violation. 3.12 Insurance. The Purchaser maintains insurance policies with insurers, in such amounts and against such risks of the Purchaser as are customary and reasonable for the Medscape Business and its assets. 3.13 Contracts. The Purchaser is not in material breach of any material Contract to which it is a party. 3.14 Properties. (a) Schedule 3.14 contains a true, correct and complete list of all real property leasehold interests the Purchaser (the "Medscape Leasehold Interests"). The Purchaser has the legal right to possess and quietly enjoy the real property in which it has Medscape Leasehold Interests and has received no notice from any person asserting any claim or right inconsistent therewith. The Purchaser has never owned in fee any interest in real property. 3.15 Intellectual Property. (a) Except as set forth in Schedule 3.15, the Purchaser has the unrestricted right to use and holds the copyright to all of the data which comprises all of its data bases including data taken directly from any and all external sources as well as derived data. 33 40 (b) Except as set forth on Schedule 3.15, (i) the Purchaser has not been sued or charged or been a defendant in any claim, suit, action or proceeding which involves a claim of infringement of any intellectual property rights, (ii) to the knowledge of the Purchaser, there are no other claims that the Purchaser is infringing any existing patent, trademark or copyright or any basis for any such claim, without regard to whether any such patent, trademark or copyright is ultimately found to be valid, (iii) to the knowledge of the Purchaser, the use of the intellectual property rights in connection with the Medscape Business, as currently being conducted, does not infringe the patent, trademark, copyright or any other right of any third party. 3.16 Website Traffic. The website traffic statistics set forth in the report dated August 30, 1998, previously delivered to the Company by the Purchaser are true, correct and complete in all material respects. 3.17 Absence of Certain Changes. Since the Medscape Interim Date, except as set forth on Schedule 3.17, the Purchaser has conducted the Medscape Business in the ordinary course and maintained its records and books of account in reasonable detail which accurately and fairly reflect the transactions of the Purchaser in all material respects. Since the Medscape Interim Date there has not been, except as disclosed on Schedule 3.17: (a) Any materially adverse change in the nature of the Medscape Business, the results of the Purchaser's operations, the Purchaser's assets, the Purchaser's financial condition, or the manner of conducting the Medscape Business; (b) Any damage, destruction or casualty loss (whether or not covered by insurance) adversely affecting the Medscape Business, the results of operations, the 34 41 assets or the financial condition of the Purchaser or its ability to carry on its operations substantially as presently conducted and as proposed to be conducted; or (c) Any declaration, setting aside or payment of distributions in respect of any capital stock. 3.18 Relationship with Advertisers, Suppliers and Customers. Except as described in Schedule 3.18, the Purchaser has no actual knowledge that any significant supplier of goods, products or services to the Purchaser, or any significant customer of the Purchaser, (i) has made any material complaint or objection with respect to the service or any business practices of the Purchaser or the transactions contemplated hereby or (ii) will cease to do business, or significantly reduce the business conducted, with the Purchaser with respect to the Business after or as a result of the consummation of any transactions contemplated hereby. 3.19 Undisclosed Liabilities. Except (a) as disclosed in Schedule 3.19 or the other Schedules hereto, (b) as and to the extent disclosed or reserved against on the Medscape Interim Balance Sheet, (c) as incurred after the Medscape Interim Date in the ordinary course of business consistent with prior practice and not prohibited by this Agreement, or (d) as incurred in connection with this Agreement or any of the transactions contemplated hereby, the Purchaser does not have any material liabilities or obligations of any nature, absolute, accrued, contingent or otherwise and whether due or to become due required by GAAP to be set forth on the Medscape Interim Balance Sheet. 3.20 Finder's Fees. There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of the Purchaser who would have a claim to any fee or commission from the Purchaser or the 35 42 Seller or any of their respective Affiliates in connection with the transactions contemplated by this Agreement. 3.21 No Material Omissions. Neither this Agreement (including the Schedules) nor any certificate delivered pursuant hereto by the Purchaser contains any untrue statement of a material fact relating to the Purchaser or omits to state a material fact relating to the Purchaser necessary to make the statements made, in light of the circumstances in which they are made, not misleading. In each case where a representation and warranty is made "to the knowledge" of the Purchaser, the Purchaser has made diligent inquiry of the responsible officer, employee or agent of the Purchaser whose responsibilities with the Purchaser would include those matters which are the subject of the representation and warranty. ARTICLE IV Covenants 4.1 The Sellers' Confidentiality Obligations. The Sellers acknowledge that from and after the Closing, the Purchaser will have a legitimate and continuing proprietary interest in the protection of trade secrets and confidential information, knowledge and data of the Company and any similar information with respect to the Purchaser (collectively, the "Confidential Information") which is provided to any Seller. Except as disclosure may be ordered by a Governmental Entity of competent jurisdiction or as otherwise required by law, each Seller severally agrees that such Seller and such Seller's Affiliates will maintain and cause to be maintained the confidentiality of all Confidential Information related to the Business or the Medscape Business, the Company or the Purchaser or any of its Affiliates, which is held by or 36 43 known to any of them and shall not disclose the Confidential Information to any person. In the event that any Seller or any of such Seller's Affiliates is notified that he, she or it is or may become legally compelled to disclose any of the Confidential Information, such Seller will provide the Purchaser with prompt written notice of the existence, terms and circumstances surrounding such notice so that the Purchaser may, at its cost and expense, seek a protective order or other appropriate remedy. In the event that such protective order or other remedy is not obtained prior to the time disclosure is required, the Sellers will furnish only that portion of the Confidential Information that they are advised in writing by counsel is legally required to be furnished, and will furnish to the Purchaser a copy of such written advice of counsel. The Sellers and their Affiliates shall not use any Confidential Information for any of their benefit or the benefit of any other person. Information, knowledge or data shall not be deemed to be Confidential Information to the extent that it is or becomes generally available to the public other than as a result of disclosure by a Seller or any of Seller's Affiliates, or becomes available to the Sellers on a nonconfidential basis from a source other than the Company or the Purchaser or any of its Affiliates or is known to a Seller prior to its disclosure to such Seller by the Company or the Purchaser or any of its Affiliates. 4.2 No Solicitation of Employees or Consultants, Non-Interference. Jeffrey Drezner, M.D., Ph.D., agrees that for the period during which he shall be in the Purchaser's employ and for a period of one year after the termination of such employment for any reason whatsoever, he will not, within the United States and its territories and possessions, or in any other geographical area in which the Purchaser has an office or a client (the "Medscape Territory"), directly or indirectly, on his own behalf or on behalf of anyone else engaged in a business which is directly competitive 37 44 with the Purchaser, without the prior written consent of the Purchaser (i) persuade or attempt to persuade any customer of the Purchaser or its affiliates as of the date of the termination of his employment, to cease doing business with, or to reduce the amount of business it does with, the Purchaser or its affiliates or solicit the business of any of the Purchaser's or its affiliates' customers as of the date of the termination of his employment with the Purchaser, (ii) render to or for any customer of the Purchaser or its affiliates as of the date of the termination of his employment with the Purchaser any services of the type rendered by the Purchaser to its customers unless such services are rendered as an employee or consultant of the Purchaser or (iii) solicit or encourage to leave the employ of the Purchaser or its affiliates, or to become employed by any person other than the Purchaser, any employee of the Purchaser or its affiliates, or any individual who was an employee of the Purchaser or its or affiliates during the one year prior to the termination of his employment with the Purchaser. Jeffrey Drezner, M.D., Ph.D., agrees that for the period during which he shall be in the Purchaser's employ and for a period of six months after the termination of such employment for any reason whatsoever, he will not, within the Medscape Territory, directly or indirectly, on his own behalf or on behalf of anyone else engaged in a business which is directly competitive with the Purchaser, without the prior written consent of the Purchaser's, employ any employee of the Purchaser or its affiliates, or any individual who was an employee of the Purchaser or its affiliates during the three month period prior to the termination of his employment. Jeffrey Drezner, M.D., Ph.D., acknowledges and agrees that the restrictions and obligations imposed on him or her by virtue of this Section 4.2 are, in light of the circumstances, fair and reasonable as to type, scope and period of time, and are reasonably required for the protection of the Purchaser and the goodwill associated 38 45 with the business of the Purchaser. It is the intent Jeffrey Drezner, M.D., Ph.D., and the Purchaser that this Agreement be enforceable and restrict the Purchaser's activities only to the extent permitted by applicable law. Therefore, if any provision of this Section 4.2 as presently written shall be construed to be illegal, invalid or unenforceable by a court of competent jurisdiction, said illegal, invalid or unenforceable provision shall be deemed to be amended and shall be construed by the court to have the broadest type, scope and duration permissible under applicable law, and if no validating construction is possible, shall be severable from the rest of this Agreement, and the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. 4.3 Taxes. The Sellers shall be liable for any obligation or liability of the Company or the Sellers for transfer or sales taxes or other taxes attributable to, arising from or associated with the sale or transfer from the Sellers to the Purchaser of the Interests and the Sellers shall prepare and file all required returns relating to such taxes. 4.4 Covenant Not to Compete. Jeffrey Drezner, M.D., Ph.D., agrees that for the period during which he shall be in the Purchaser's employ and for a period of one year after the termination of such employment for any reason whatsoever, he shall not, whether as an owner, shareholder (other than in his capacity as holder of less than 2% of the shares of any corporation whose shares are traded on a national securities exchange or over the counter which shall be excepted from this restriction), partner, employee, consultant, advisor, independent contractor or otherwise, directly or indirectly compete with the business of the Purchaser in any manner. Jeffrey Drezner, M.D., Ph.D., acknowledges and agrees that the restrictions and obligations imposed on 39 46 him by virtue of this Section 4.4 are, in light of the circumstances, fair and reasonable as to type, scope and period of time, and are reasonably required for the protection of the Purchaser and the goodwill associated with the business of the Purchaser. It is the intent of Jeffrey Drezner, M.D., Ph.D., and the Purchaser that this Agreement be enforceable and restrict Jeffrey Drezner, M.D., Ph.D.'s, activities only to the extent permitted by applicable law. Therefore, if any provision of this Section 4.4 as presently written shall be construed to be illegal, invalid or unenforceable by a court of competent jurisdiction, said illegal, invalid or unenforceable provision shall be deemed to be amended and shall be construed by the court to have the broadest type, scope and duration permissible under applicable law, and if no validating construction is possible, shall be severable from the rest of this Agreement, and the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. 4.5 Tax Matters. The following provisions shall govern the allocation of responsibility as between the Purchaser and the Sellers for certain Tax matters following the Closing Date: (a) Tax Periods Ending on or Before the Closing Date. The Sellers shall prepare, at the Company's expense, all Tax returns for the Company for all periods ending on or prior to the Closing Date which are due after the Closing Date, such returns to be prepared in a manner consistent with prior years. The Purchaser (or, if required by law, the Sellers) shall timely file or shall cause the Company to timely file such Tax returns (if timely prepared by the Sellers), provided that the Sellers shall be liable for any and all Taxes actually due and payable with respect to any period prior to 40 47 January 1, 1998 to the extent such liability was not accrued and reflected on the HCG Interim Balance Sheet or otherwise set forth in the Schedules attached hereto. (b) Tax Periods Beginning Before and Ending After the Closing Date. The Purchaser shall prepare or cause to be prepared and file or cause to be filed any Tax returns of the Company for Tax periods which begin before the Closing Date and end after the Closing Date. The Sellers shall pay to the Purchaser not later than fifteen (15) days prior to the date such Taxes are due with respect to such periods an amount equal to the portion of such Taxes actually due and payable with respect to the portion of such Taxable period ending on December 31, 1997 to the extent such Taxes were not accrued and reflected on the HCG Interim Balance Sheet. For purposes of this Section, in the case of any Taxes that are imposed on a periodic basis and are payable for a Taxable period that includes (but does not end on) December 31, 1997, the portion of such Tax which relates to the portion of such Taxable period ending on December 31, 1997 shall (x) in the case of any Taxes other than Taxes based upon or related to income or receipts, be deemed to be the amount of such Tax for the entire Taxable period multiplied by a fraction the numerator of which is the number of days in the Taxable period ending on the Closing Date and the denominator of which is the number of days in the entire Taxable period, and (y) in the case of any Tax based upon or related to income or receipts be deemed equal to the amount which would be payable if the relevant Taxable period ended on December 31, 1997. Any credits relating to a Taxable period that begins before and ends after December 31, 1997 shall be taken into account as though the relevant Taxable period ended on December 31, 1997. 41 48 (c) Cooperation on Tax Matters. (i) The Purchaser, the Company and the Sellers shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of Tax returns pursuant to this Section and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and (upon the other party's request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided. (ii) The Purchaser and the Sellers further agree, upon request, to use their commercially reasonable efforts to obtain any certificate or other document from any governmental authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to, with respect to the transactions contemplated hereby). (d) Notification of Inquiry. If the Purchaser or the Company becomes aware of any assessment, official inquiry, examination or proceeding that could result in an official determination with respect to Taxes due or payable for any Taxable year or Tax period ending on or before the Closing Date, the Purchaser shall promptly notify the Sellers in writing and shall permit the Sellers to participate at their own expense in any such official inquiry, examination or proceeding. If the Sellers become aware of any official inquiry, examination or proceeding that could result in an official determination with respect to Taxes due or payable by the Company, the Sellers shall 42 49 promptly so notify the Purchaser in writing and shall permit the Purchaser and the Company to participate at their own expense in any such official inquiry, examination or proceeding. ARTICLE V Conditions to Obligations 5.1 Conditions to Sellers' Obligations. The obligation of the Sellers to sell the Interests and to cause the sale of the Interests pursuant to the provisions of this Agreement shall be subject to the satisfaction at or before the Closing of the following conditions, which may be waived by the Sellers' Representative: (a) the Purchaser shall have performed and complied in all material respects with its covenants and agreements contained herein and the Sellers' Representative shall have received a certificate to this effect from an executive officer of the Purchaser; (b) the representations and warranties of the Purchaser contained in Article III of this Agreement shall be true, correct and complete in all material respects at and as of the Closing Date, and the Sellers' Representative shall have received a certificate to this effect from an executive officer of the Purchaser; (c) the Company shall have entered an employment and restricted stock purchase agreement with Jeffrey Drezner, M.D., Ph.D., in the form of Exhibit B hereto (the "Drezner Employment Agreement"); (d) the Amended and Restated Stockholders' Agreement shall have been executed and delivered by all parties thereto necessary to effect the amendments therein other than the Sellers; and 43 50 (e) Jeffrey Drezner, M.D., Ph.D., shall have been elected a director of the Purchaser effective as of the Closing; and (f) the restricted shares issuable to Jeffrey Drezner, M.D., Ph.D. pursuant to the Drezner Employment Agreement shall have been issued simultaneously with the Closing. 5.2 Conditions to the Purchaser's Obligations. The obligation of the Purchaser to purchase the Interests from the Sellers pursuant to the provisions of this Agreement shall be subject to the satisfaction at or before the Closing of the following conditions, which may be waived by the Purchaser: (a) The Sellers shall have performed and complied in all material respects with their covenants and agreements contained herein and the Purchaser shall have received a certificate to this effect from the Sellers' Representative; (b) the representations and warranties of each Seller contained in Article ll of this Agreement shall be true, correct and complete in all material respects at and as of the Closing Date, and the Purchaser shall have received a certificate to this effect from the Sellers' Representative; (c) the Sellers shall have obtained consents from all third parties which are required for the transfer of the Interests or the operation of the Business after the Closing Date, including any consents to assignment of any Contract to which the Company is a party where the transfer of the Interests to the Purchaser may be deemed an assignment of such Contract; (d) the Company shall have entered into the Drezner Employment Agreement, in the form of Exhibit B hereto; and 44 51 (e) the Amended and Restated Stockholders' Agreement shall have been executed and delivered by all parties thereto necessary to effect the amendments therein. ARTICLE VI Indemnification 6.1 Indemnification by Sellers. (a) Subject to the limitations set forth in this Agreement, each of the Sellers jointly and severally, agrees promptly to indemnify, defend and hold harmless the Purchaser from and against any and all assessments, judgments, debts, obligations, liabilities, losses, costs, damages or expenses (including interest, penalties and reasonable out-of-pocket fees, expenses and disbursements in connection with any action, suit or proceeding) net of insurance proceeds actually received (collectively, "Damages"), suffered, paid or incurred by the Purchaser or the Company resulting from or caused by or arising out of any breach of the representations and warranties made by any Seller to the Purchaser in this Agreement or in any Schedule hereto or any certificate delivered hereunder (provided; that liability for the representations and warranties in Section 2.4 and 2.5, which are made severally, rather than jointly and severally, shall be several). In addition, each of the Sellers severally agrees promptly to indemnify, defend and hold harmless the Purchaser from and against any and all Damages suffered, paid or incurred by the Purchaser or the Company resulting from or caused by or arising out of any failure by such Seller to perform any of his or her covenants or agreements contained in this Agreement. 45 52 (b) Notwithstanding anything contained in this Agreement to the contrary, indemnification under Section 6.1(a) is subject to the limitations that (i) the aggregate amount of all payments required to be made by any Seller in satisfaction of claims for indemnification pursuant to Section 6.1(a) shall not exceed the portion of the Cash Purchase Price paid and the then fair market value of the Shares delivered to him and (ii) no claim for indemnification may be made until and thereafter only to the extent that the aggregate of Damages for which the Sellers would otherwise be liable exceeds $75,000. 6.2 Indemnification by the Purchaser. (a) The Purchaser agrees to indemnify and hold harmless the Sellers from and against any and all Damages suffered, paid or incurred by any Seller resulting from or caused by or arising out of: (i) any breach of the representations and warranties made by the Purchaser in this Agreement or any certificate delivered hereunder and (ii) any failure by the Purchaser to perform any covenant or agreement of the Purchaser contained in this Agreement. (b) Notwithstanding anything contained in this Agreement to the contrary, that (i) the aggregate of all payments to be made by the Purchaser in satisfaction for claims for indemnification pursuant to this Section 6.2 shall not exceed the aggregate value of the Cash Purchase Price and the then fair market value of the Shares and (ii) no claim for indemnification may be made until and thereafter only to the extent that the aggregate amount of Damages for which the Purchaser would otherwise be liable exceeds $75,000. 6.3 Indemnity Procedure for Third Party Claims. 46 53 Promptly after receipt by a party seeking indemnification hereunder (an "Indemnified Party") of notice of any claim or the commencement by any third party of any action, suit or proceeding which might result in the other party hereto (the "Indemnifying Party") becoming obligated to indemnify or make any other payment to the Indemnified Party under this Agreement, the Indemnified Party shall notify the Indemnifying Party forthwith in writing of the commencement thereof or of the claim, and shall furnish the Indemnifying Party with all information and documents relating thereto promptly after its receipt thereof. The failure of the Indemnified Party to so notify the Indemnifying Party shall not relieve the Indemnifying Party from any liability which it may have on account of this indemnification or otherwise, except and only to the extent that the Indemnifying Party is materially prejudiced thereby. The Indemnifying Party shall have the right, within thirty (30) days after being so notified, to assume and control the defense of such claim, litigation or proceeding with counsel reasonably satisfactory to the Indemnified Party in good faith and at the Indemnifying Party's own expense; provided that unless and until the Indemnifying Party shall assume such defense pursuant to this sentence, the Indemnified Party shall have the right to conduct and control the defense of such claim, litigation or proceeding (including the settlement thereof) without the Indemnifying Party's consent and shall be entitled to payment from the Indemnifying Party of all reasonable costs of such defense (including attorney's fees and expenses). In any such claim, litigation or proceeding the defense of which the Indemnifying Party shall have so assumed, the Indemnified Party shall have the right to participate therein and retain its own counsel at its own expense, unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of the same counsel or (ii) the named parties to any such litigation or 47 54 proceeding (including impleaded parties) include both the Indemnifying Party and the Indemnified Party, and representation of such parties by the same counsel would be inappropriate due to actual or potential differing interests between them; in the case of clause (ii) above, such separate counsel may be retained by the Indemnified Party at the expense of the Indemnifying Party. The Indemnifying Party may elect to settle any claim, action or proceeding defended by it without the written consent of the Indemnified Party provided that such settlement is limited to payment of monetary damages which are payable in full by the Indemnifying Party and the Indemnified Party is fully discharged at the time of the settlement from any liability with respect to the claim, action or proceeding, and the Indemnified Party shall not admit any liability with respect thereto or settle, compromise, pay or discharge the same without the prior written consent of the Indemnifying Party so long as the Indemnifying Party is controlling or defending such claim in good faith. The Indemnifying Party may not enter into any settlement that is not limited to payment of monetary damages without the Indemnified Party's prior written consent which will not be unreasonably withheld. Each of the Sellers and the Purchaser covenant to use all reasonable efforts to cooperate fully with respect to the defense of any claim, action or proceeding covered by this Section 6.3. 6.4 Tax Indemnification. (a) Notwithstanding any limitation on indemnification set forth in Section 6.1 or 6.3 of the Agreement and without regard to any other limitation on liability set forth in the Agreement, after the Closing Date, the Sellers, jointly and severally, will fully indemnify, defend and hold harmless the Purchaser from and against any and all Damages resulting from, arising out of or relating to Taxes for periods ending on or 48 55 before December 31, 1997, or for any Taxes not disclosed in Schedule 2.8, imposed on the Company for, or resulting from the denial of any deduction or credit claimed for, any taxable period ending on or before the Closing Date. (b) This Section 6.4 shall remain in force for the period described in Section 7.6 of the Agreement. 6.5 Waiver of Right to Contribution. Each Seller hereby waives, effective as of the Closing Date, any rights which such Seller may have against the Company in connection with any contribution or indemnification for payments made after the Closing Date pursuant to this Agreement or otherwise. 6.6 Sole Remedy. In the event of a breach of a representation or warranty or covenant hereunder, the remedy of the beneficiary of such representation or warranty or covenant shall be limited solely to the indemnity set forth in this Article VI. ARTICLE VII Miscellaneous 7.1 Expenses. Except as provided below, each party will pay all of his, her or its own expenses in connection with the negotiation of this Agreement, the performance of his, her or its obligations hereunder and the consummation of the transactions contemplated hereby. The Sellers shall not charge any such expenses to the Company. Purchaser shall reimburse one-half of the Sellers' legal expenses payable to Goodwin, Procter & Hoar LLP in connection with the negotiation and documentation of the transaction contemplated hereby and by the Drezner Employment Agreement up to a maximum total reimbursement of $25,000. 49 56 7.2 Interpretation. When a reference is made in this Agreement to a Section, Schedule or Exhibit, such reference shall be to a Section, Schedule or Exhibit of this Agreement unless otherwise indicated. The table of contents contained in this Agreement is for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "included," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." All accounting terms not defined in this Agreement shall have the meanings determined by GAAP. 7.3 Further Assurances. Each of the parties hereto covenants and agrees to take any and all such further action and to execute, acknowledge and deliver such instruments, documents and agreements as any other party may reasonably request to effectuate, consummate or confirm the transactions contemplated hereby. 7.4 Amendment and Waiver. This Agreement may be amended only in a writing signed by the Sellers' Representative and the Purchaser. Any provision of this Agreement may be waived by the party entitled to the benefit thereof only in a writing executed by the party against whom such waiver is sought to be enforced. No waiver shall be deemed a waiver of any other provision of this Agreement, and no waiver of a breach hereunder shall be deemed a waiver of any other or subsequent breach of this Agreement. 7.5 Notice. All notices, demands and other communications to be given or delivered hereunder shall be in writing and will be deemed to have been given if personally delivered or sent by overnight courier (in each such case delivery will be 50 57 effective upon receipt) or by confirmed facsimile to the addresses indicated below or to such other addresses as the parties may specify on notice as herein provided: If to the Purchaser, to: Medscape, Inc. 134 West 29th Street New York, New York 10001 Telecopy No. (212) 760-3140 Attention: Mr. Paul T. Sheils President and Chief Executive Officer with a copy to: Patterson, Belknap, Webb & Tyler LLP 1133 Avenue of the Americas New York, New York 10036-6710 Telecopy No. (212) 336-2222 Attention: John P. Schmitt, Esq. If to the Sellers, to: Jeffrey L. Drezner, MD, Ph.D. Sellers' Representative Healthcare Communications Group, L.L.C. 10819 Pleasant Hill Drive Potomac, MD 20854 Telecopy No. (301) 299-1124 with a copy to: Goodwin, Procter & Hoar LLP Exchange Place Boston, Massachusetts 02109-2881 Telecopy No. (617) 305-6550 Attention: H. David Henken, Esq. John J. Egan, Esq. 7.6 Survival of Representations, Warranties and Covenants. Notwithstanding any investigation by any party hereto, each of the representations and warranties of the parties and the related indemnification obligations that are set forth in this Agreement or in any certificate delivered hereunder shall survive the Closing Date 51 58 until the first anniversary of the Closing Date (the "Expiration Date") except those representations and warranties contained in Section 2.4 and Section 3.4 (Capitalization) which shall survive indefinitely and Section 2.8 and Section 3.8 (Taxes), and 2.10 and 3.10 (Labor and Employee Benefit Matters) which shall remain in force until the expiration of the applicable statute of limitations; provided, however, that delivery by one party to the other of notice of a breach of any representation or warranty, specifying the breach in reasonable detail, on or prior to the Expiration Date, or the expiration of the applicable statute of limitations, as the case may be, shall be deemed to preserve such party's claim solely with respect to that particular breach of representation and warranty. Those covenants contained in this Agreement that contemplate or may involve actions to be taken or obligations in effect after the Closing Date shall survive the Closing Date until the expiration of the applicable statute of limitations. 7.7 Binding Agreement; Assignment. This Agreement and all of the provisions hereof will be binding upon and inure to the benefit of the parties hereto and their respective successors. The Sellers may not assign their rights or delegate their duties hereunder without the prior written consent of the Purchaser, which consent may be granted, withheld or conditioned in the sole and absolute discretion of the Purchaser. The Purchaser may not assign its rights or delegate its duties hereunder, whether by operation of law or otherwise, to any non-affiliated third party, without the prior written consent of the Sellers' Representative, which consent may be granted, withheld or conditioned in the sole and absolute direction of the Sellers' Representative. 7.8 Severability. Whenever possible, each provision of this Agreement will be interpreted in such a manner as to be effective and valid under applicable law, 52 59 but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 7.9 Captions. The captions used in this Agreement are for convenience of reference only and do not constitute a part of this Agreement and will not be deemed to limit, characterize or in any way affect any provision of this Agreement and all provisions of this Agreement will be enforced and construed as if no captions had been used in this Agreement. 7.10 Counterparts. This Agreement may be executed in two or more counterparts, each of which need not contain signatures of more than one party, but all such counterparts taken together will constitute one and the same instrument. Signatures may be exchanged by telecopy, with original signatures to follow. Each party to this Agreement agrees that it will be bound by his, her or its own telecopied signature and that he, she or it accepts the telecopied signatures of the other parties to this Agreement. 7.11 Governing Law. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of New York, without reference to the choice of law provisions thereof. Any legal action or proceeding with respect to this Agreement or any transaction related hereto shall be brought in the courts of the State of New York or of the United States District Court for the Southern District of New York, and, by the execution and delivery of this Agreement, each of the parties hereto hereby consents for himself, herself and itself and in respect of his, her or its property to the exclusive jurisdiction of the aforesaid courts and agrees that service of process in any 53 60 legal action or proceeding with respect to this Agreement or any transaction related hereto may be made on such party by delivery of such process by certified mail, return receipt requested, to such party at its address for notice pursuant to Section 7.5 of this Agreement with the same effect as if such process was personally served on such party within the State of New York. Each of the parties hereto hereby irrevocably waives, to the extent permitted by applicable law, any objection, including, but not limited to, any objection to the laying of venue or based on the ground of forum non conveniens, which he, she or it may now or hereafter have to the bringing of any action or proceeding in such jurisdictions in respect of this Agreement or any transaction related hereto. Nothing contained herein shall affect the right of any party hereto to serve process in any other manner permitted by law. 7.12 Remedies. All rights, remedies or powers hereby conferred shall, to the extent not prohibited by law, be deemed cumulative and not exclusive of any other thereof, or of any other rights, remedies or powers available. No single or partial exercise of any right, remedy or power by a party shall preclude further exercise thereof. No delay or omission to exercise any right, power or remedy accruing to a party upon the occurrence of any breach of any warranty, covenant or agreement contained in this Agreement shall impair any such right, power or remedy or be construed to be a waiver of any such breach or any acquiescence therein or to any similar breach thereafter occurring. In addition to such other rights and remedies as the Purchaser may have at equity or in law with respect to any breach of this Agreement, if Jeffrey L. Drezner, M.D., Ph.D. commits a material breach of any of the provisions of Sections 4.2 and 4.4, the Purchaser shall have the right and remedy to have such provisions specifically enforced by any court having equity jurisdiction, it being 54 61 acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Purchaser and that money damages will not provide an adequate remedy to the Purchaser. 7.13 Public Announcements. No public announcement concerning the transactions contemplated hereby may be made by either party without the consent of the other except as may be required by law or the rules of any applicable securities exchange. 7.14 Entire Agreement; Termination of Certain Prior Agreements Between Company and Sellers. This Agreement (including the Exhibits, Schedules, documents and instruments referred to herein) constitutes the entire agreement and understanding of the parties hereto and thereto with respect to the subject matter hereof and thereof and supersedes all other prior agreements and understandings, both written or oral, between such parties with respect to the subject matter hereof and thereof. Without limitation to the foregoing, each party hereto understands and agrees that all prior employment agreements between the Company and any of the Sellers shall terminate effective as of the Closing. 55 62 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered on their behalf as of the day and year first above written. MEDSCAPE, INC. By: /s/ Paul T. Sheils ----------------------------- Name: Paul T. Sheils Title:President and Chief Executive Officer /s/ Jeffrey L. Drezner ----------------------------- Jeffrey L. Drezner /s/ Melanie Moore ----------------------------- Melanie Moore /s/ Sandra Sims ----------------------------- Sandra Sims /s/ Jason Rosenbaum ----------------------------- Jason Rosenbaum 56 EX-2.5 6 LETTER AGREEMENT 1 Exhibit 2.5 MEDSCAPE, INC. February 2, 1999 Ira Kirschenbaum, M.D. Suite 300 309 Mamaroneck Avenue White Plains, New York 10603 Dear Ira: The following sets forth the terms upon which you have agreed to sell, and Medscape, Inc. ("Medscape") has agreed to purchase, all right, title and interest in and to the content, url address, trademarks, service marks and other assets of bonehome.com (the "Web Site"), a web site that provides clinical articles, interactive tools and related information on orthopedic medicine, procedures and related topics to orthopedic surgeons, clinicians and consumers (the "Assets"). A complete list of the Assets is attached hereto as Exhibit A. 1. Purchase and Sale. You shall sell to Medscape, and Medscape shall purchase from you (the "Sale"), the Assets upon the terms and conditions set forth herein. The closing of the Sale (the "Closing") shall take place simultaneously with the execution and delivery of this letter agreement at the offices of Patterson, Belknap, Webb & Tyler LLP, 1133 Avenue of the Americas, New York, New York. At the Closing: a. You shall execute and deliver to Medscape a bill of sale in the form attached hereto as Exhibit B pursuant to which you shall transfer title to the Assets to Medscape, and you shall execute and deliver to Medscape such further instruments of transfer and conveyance as it may reasonably request to transfer effectively title to the Assets. From and after the Closing, you agree to use your reasonable best efforts to assist in transferring the content of the Web Site to Medscape.com; b. Medscape shall grant to you options (the "Options") to purchase 25,000 shares of Medscape's Class B Common Stock, par value $.01 per share (the "Stock") at an exercise price of $2.50 per share, pursuant to the Medscape Stock Option Plan and pursuant to Medscape's standard stock option agreement (as modified to reflect the terms hereof), copies of which are attached hereto as Exhibit C. One-half of the Options shall vest as of the Closing and the balance shall vest on the first anniversary of the Closing unless your employment by Medscape shall have been 2 terminated prior to such anniversary (other than by the Company without Good Cause (as defined in the employment agreement described below)). Upon your exercise of any Options, Medscape shall pay you an additional $1.64 for each share of Stock acquired upon such exercise. c. Each of you and Medscape will execute and deliver an employment agreement in the form attached hereto as Exhibit D (the "Employment Agreement"). d. Medscape shall not assume any liabilities in connection with the Sale. 2. Representations and Warranties of Dr. Kirschenbaum. You hereby represent and warrant to Medscape as follows: a. Title to Assets. You have good, valid and marketable title to the Assets, free and clear of all claims, liens, security interests, pledges, restrictions, encumbrances and rights of others of any kind (including without limitation liens or other encumbrances imposed by any taxing authority) (collectively "Liens"). All of the Assets are owned directly by you and upon the Sale, Medscape will receive good, valid and marketable title thereto, free and clear of all Liens. b. Authority. You have all requisite capacity and authority to execute and deliver this letter agreement and each of the Exhibits hereto and to consummate the transactions contemplated hereby and thereby and such execution, delivery and consummation by you do not require the approval of any other party. Each of this letter agreement and the Exhibits hereto have been duly executed and delivered by you and each constitutes your legal, valid and binding obligation enforceable against you in accordance its terms. c. Sufficiency of Assets. The Assets comprise all of the assets which are necessary to maintain the Web Site. d. Litigation. There is no lawsuit, claim, action or proceeding pending, or to your knowledge threatened, against or affecting you relating to the Web Site or the Assets of the transactions contemplated hereby. e. Intellectual Property. Except as set forth on Schedule 2.e, you have the unrestricted right to use and hold the copyright to (and hereby assign the same to Medscape) all of the data which comprise all of the databases used in connection with the Web Site including data taken directly from any and all external sources as well as derived data. The Web Site does not infringe, and has not at any time infringed, any patent, trademark, copyright or other intellectual property right of any person or entity. f. Web Site Traffic. The Web Site traffic statistics set forth on Schedule 2.f are true, complete and correct. 2 3 g. No Employees. You do not now employ, and have not at any time employed, any person in connection with the Web Site. h. Finders, etc. There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of you who would have a claim to any fee or commission from you or Medscape in connection with the transactions contemplated by this letter agreement. i. Investment Intent; Suitability. You are acquiring the Options, and the Stock issuable upon the exercise thereof, for investment purposes only and not with a view to the distribution thereof. You further understand that the Options are not transferable [except under the limited circumstances permitted by the Stock Option Plan and the stock option agreement attached as Exhibit C] and that the shares of Stock issuable upon the exercise thereof may not be sold unless the sale is registered under the Securities Act of 1933, as amended, or is exempt therefrom. You acknowledge that you have such knowledge and experience in financial and business matters as to enable you to evaluate the merits and risks of an investment in the capital stock of Medscape. You further acknowledge that you have made your own independent investigation of Medscape and have been given the opportunity to ask questions of senior personnel of Medscape; provided, that except for the representations set forth in Section 3 below, you have not relied upon any representation or warranty made by Medscape or any of its personnel in making your investment decision. 3. Representations and Warranties of Medscape a. Authority. Medscape has all requisite power and authority to execute and deliver this letter agreement and each of the Exhibits hereto and to consummate the transactions contemplated hereby and thereby and such execution, delivery and consummation by Medscape does not require the approval of any other party. Each of this letter agreement and the Exhibits hereto have been duly executed and delivered by Medscape and each constitutes its legal, valid and binding obligation enforceable against Medscape in accordance its terms. b. Due Authorization of Options and Stock. The issuance, sale and delivery of the Options and the Stock have been duly authorized by all requisite corporate action on the part of Medscape. Upon the exercise of the Options, the issuance of the Stock in accordance with the terms thereof and payment of the option price in full, the Stock will be validly issued and outstanding, fully paid and non-assessable, free and clear of all Liens of any kind other than those created or permitted by you. c. Litigation. There is no lawsuit, claim, action or proceeding pending, or to the knowledge of Medscape threatened, against or affecting Medscape which relates to the transactions contemplated hereby. 3 4 d. Finders, etc. There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of Medscape who would have a claim to any fee or commission from you or Medscape in connection with the transactions contemplated by this letter agreement. e. Financial Statements. The audited balance sheet of Medscape as of December 31, 1997 and the unaudited balance sheet of Medscape as of December 31, 1998 annexed hereto as Schedule 3.e.1 have been prepared from the books and records of Medscape and fairly present in all material respects the financial position of Medscape as of the respective dates thereof in conformity with generally accepted accounting principles consistently applied ("GAAP") (except as noted on Schedule 3.e.1). The audited statement of income of Medscape for the year ended December 31, 1997 and the unaudited income statement of Medscape as of December 31, 1998 annexed hereto as Schedule 3.e.2 have been prepared from the books and records of Medscape and fairly present in all material respects the results of operations of Medscape for the respective periods covered thereby in conformity with GAAP (except as noted on Schedule 3.e.2. f. Stock Option Plan. The Stock Option Plan included as part of Exhibit C is a true and complete copy of Medscape's Stock Option Plan as in effect on the date hereof. 4. Covenants a. Restrictive Covenants. The provisions of Section 9 and Section 10 of the Employment Agreement are incorporated by reference herein. You acknowledge that the incorporation of the restrictive covenants and remedies in this letter agreement is a material inducement to Medscape's execution and delivery hereof and its consummation of the transactions contemplated hereby. b. Further Assurances. Each of the parties hereto covenants and agrees to take any and all such further action and to execute, acknowledge and deliver such instruments, documents and agreements as the other party may reasonably request to effectuate, consummate or confirm the transactions contemplated hereby. 5. Survival of Representations and Warranties; Indemnification. a. The representations and warranties of the parties hereto shall survive the Closing and the Sale. b. You agree promptly to indemnify, defend and hold harmless Medscape from and against any and all assessments, judgments, debts, obligations, liabilities, losses, costs, damages or expenses (including interest, penalties and reasonable out-of-pocket fees, expenses and disbursements in connection with any action, suit or proceeding) (collectively, "Damages"), suffered, paid or incurred by Medscape resulting 4 5 from or caused by or arising out of any breach of the representations and warranties made by you to Medscape in this letter agreement or in any Exhibit or Schedule hereto or any certificate delivered hereunder or resulting from or caused by or arising out of any failure by you to perform any of your covenants or agreements contained herein or therein or relating to any of your liabilities which are not assumed by Medscape. c. Medscape agrees promptly to indemnify and hold harmless you from and against any and all Damages suffered, paid or incurred by you resulting from or caused by or arising out of any breach of the representations and warranties made by Medscape in this letter agreement or any Exhibit or Schedule hereto or any certificate delivered hereunder or resulting from or caused by or arising out of any failure by Medscape to perform any covenant or agreement of Medscape contained in this letter agreement. d. Promptly after receipt by a party seeking indemnification hereunder (an "Indemnified Party") of notice of any claim or the commencement by any third party of any action, suit or proceeding which might result in the other party hereto (the "Indemnifying Party") becoming obligated to indemnify or make any other payment to the Indemnified Party under this letter agreement, the Indemnified Party shall notify the Indemnifying Party forthwith in writing of the commencement thereof or of the claim, and shall furnish the Indemnifying Party with all information and documents relating thereto promptly after its receipt thereof. The failure of the Indemnified Party to so notify the Indemnifying Party shall not relieve the Indemnifying Party from any liability which it may have on account of this indemnification or otherwise, except and only to the extent that the Indemnifying Party is materially prejudiced thereby. The Indemnifying Party shall have the right, within thirty (30) days after being so notified, to assume and control the defense of such claim, litigation or proceeding with counsel reasonably satisfactory to the Indemnified Party in good faith and at the Indemnifying Party's own expense; provided that unless and until the Indemnifying Party shall assume such defense pursuant to this sentence, the Indemnified Party shall have the right to conduct and control the defense of such claim, litigation or proceeding (including the settlement thereof) without the Indemnifying Party's consent and shall be entitled to payment from the Indemnifying Party of all reasonable costs of such defense (including attorney's fees and expenses). In any such claim, litigation or proceeding the defense of which the Indemnifying Party shall have so assumed, the Indemnified Party shall have the right to participate therein and retain its own counsel at its own expense, unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of the same counsel or (ii) the named parties to any such litigation or proceeding (including impleaded parties) include both the Indemnifying Party and the Indemnified Party, and representation of such parties by the same counsel would be inappropriate due to actual or potential differing interests between them; in the case of clause (ii) above, such separate counsel may be retained by the Indemnified Party at the expense of the Indemnifying Party. The Indemnifying Party may elect to settle any claim, action or proceeding defended by it without the written consent of the Indemnified Party provided that such settlement is limited to payment of monetary 5 6 damages which are payable in full by the Indemnifying Party and the Indemnified Party is fully discharged at the time of the settlement from any liability with respect to the claim, action or proceeding, and the Indemnified Party shall not admit any liability with respect thereto or settle, compromise, pay or discharge the same without the prior written consent of the Indemnifying Party so long as the Indemnifying Party is controlling or defending such claim in good faith. The Indemnifying Party may not enter into any settlement that is not limited to payment of monetary damages without the Indemnified Party's prior written consent which will not be unreasonably withheld. Each of the parties covenants to use all reasonable efforts to cooperate fully with respect to the defense of any claim, action or proceeding covered by this Section 5. 6. Miscellaneous. a. Entire Agreement. This letter agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and no amendment, waiver or modification hereof shall be valid or binding unless made in writing and signed by the party against whom enforcement thereof is sought. This letter agreement supersedes all prior agreements, representations and understandings of the parties hereto relating to the purchase of the Assets by Medscape. b. No Reliance. The parties hereto each represent to the other that in executing this letter agreement each does not rely upon, and has not relied upon, any representation or statement not set forth herein with regard to the subject matter, basis or effect of this letter agreement or otherwise. c. Notices. All notices, consents, waivers or other communications required or permitted to be given or made pursuant to any of the provisions of this letter agreement (collectively, "Notices") shall be in writing and shall be deemed to have been duly given or made for all purposes if sent by certified or registered mail, return receipt requested, and postage prepaid, hand delivered, sent by confirmed telecopy or other confirmed electronic means or by express mail service or other verified overnight courier service to the party at its or his address as it appears below, or at such other address as either party may specify by Notice give to the other party in accordance with this Section 6.c and with copies to the parties indicated below. A Notice shall only be deemed given or received on a business day (any day other than Saturday, Sunday or Federal legal holiday). The date any such Notice shall be deemed given and received is: (i) if hand delivered, on the date of hand delivery; (ii) if sent by registered or certified mail, three (3) business days following the posting of the mail; (iii) if sent by express mail or other verified overnight courier service, the date received; or (iv) if sent by confirmed telecopy or other confirmed electronic means, the date when receipt is confirmed by the same means: If to you: Ira Kirschenbaum, M.D. 6 7 Suite 300 309 Mamaroneck Avenue White Plains, New York 10603 Telecopy No.: (212) 208-4638 with a copy to: Paul M. Millman, Esq. 399 Knollwood Road White Plains, New York 10603 Telecopy No.: (914) 684-0196 If to Medscape: Medscape, Inc. 134 W. 29th Street New York, NY 10001 Attention: Mr. Paul T. Sheils, President and CEO Telecopy No.: (212) 760-3140 with a copy to: Patterson, Belknap, Webb & Tyler LLP 1133 Avenue of the Americas New York, New York 10036-6710 Telecopy No.: (212) 336-2222 Attention: John P. Schmitt, Esq. d. No Assignment. Neither this letter agreement nor the right to receive any payments hereunder may be assigned by Dr. Kirschenbaum, and any attempted assignment shall be null and void and of no effect. This letter agreement shall be binding upon Dr. Kirschenbaum, his heirs, executors and administrators and upon Medscape, its successors and assigns. e. No Modification. No termination, alteration, modification or variation or waiver of this letter agreement or any of the provisions hereof shall be effective unless in writing executed by the parties hereto, or in the case of a waiver, by the party or parties waiving compliance. No waiver of any default or breach of this letter agreement shall be deemed a continuing waiver or a waiver of any other breach or default. No course of dealing nor any delay on the part of either party in exercising any rights hereunder shall operate as a waiver of any such rights. f. Governing Law. This letter agreement shall be governed, interpreted and construed according to the internal laws of the State of New York without regard to conflict of laws principles. Any legal action or proceeding with respect to this letter 7 8 agreement or any transaction related hereto shall be brought in the courts of the State of New York or of the United States District Court for the Southern District of New York, and, by the execution and delivery of this letter agreement, each of the parties hereto hereby consents for itself and in respect of its property to the exclusive jurisdiction of the aforesaid courts and agrees that service of process in any legal action or proceeding with respect to this letter agreement or any transaction related hereto may be made on such party by delivery of such process by certified mail, return receipt requested, to such party at its address set forth in the heading hereof with the same effect as if such process was personally served on such party within the State of New York. Each of the parties hereto hereby irrevocably waives, to the extent permitted by applicable law, any objection, including, but not limited to, any objection to the laying of venue or based on the ground of forum non conveniens, which it may now or hereafter have to the bringing of any action or proceeding in such jurisdictions in respect of this letter agreement or any transaction related hereto. Nothing contained herein shall affect the right of any party hereto to serve process in any other manner permitted by law. g. Severability. Should any clause, paragraph or part of this letter agreement be held or declared to be void or illegal for any reason by a court of competent jurisdiction, such provision shall be ineffective, but all other clauses, paragraphs or parts of this letter agreement which can be effected without such illegal clause, paragraph or part shall nevertheless remain in full force and effect. h. Headings. The headings and captions contained in this letter agreement are for reference purposes only and shall not affect the meaning or interpretation of this letter agreement. i. Expenses. Each party shall be responsible for its own expenses in connection with the negotiation, documentation and consummation of the transactions contemplated hereby. If the foregoing correctly reflects our agreement with respect to the foregoing, please sign below where indicated whereupon this letter agreement will become binding upon you and Medscape. Very truly yours, MEDSCAPE, INC. BY: /s/ Paul T.Shiels ----------------------------- Paul T. Sheils President and Chief Executive Officer 8 9 AGREED: /s/ Ira Kirschenbaum - ---------------------- Ira Kirschenbaum, M.D. 9 EX-2.6 7 BILL OF SALE 1 Exhibit 2.6 BILL OF SALE THIS BILL OF SALE, made as of March 25, 1999, is by and between COMPURX, INC., a New Jersey corporation with offices located at 271 Rt. 46W, Suite D-205, Fairfield, New Jersey 07004 (the "Seller"), and MEDSCAPE, INC., a Delaware corporation (the "Purchaser"); W I T N E S S E T H: THAT WHEREAS, the Purchaser has agreed to purchase from the Seller, and the Seller has agreed to sell to the Purchaser, all of the Seller's right, title and interest in and to certain assets as more fully described herein; NOW, THEREFORE, in consideration of the mutual agreements set forth herein and the payment to the Seller by the Purchaser of the Purchase Price (as defined below), the receipt, adequacy and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Upon the payment by the Purchaser to the Seller of a purchase price of Fifty Thousand Dollars ($50,000) (the "Purchase Price"), the Seller hereby grants, bargains, sells, assigns, transfers, delivers and conveys to the Purchaser, its successors and assigns, forever, all of the Seller's right, title and interest in and to the trade name "CompuRx" (the "Trade Name"), the computer equipment listed on Schedule A attached hereto (the "Equipment") and that certain lease, attached hereto as Schedule B, by and between the Seller and Eugene Rushton for the premises located at 271 Rt. 46W, Suite D-205, Fairfield, New Jersey (the "Lease" and, collectively with the Trade Name and the Equipment, the "Assets"). 2. The Seller represents that it has and the Purchaser is hereby receiving good and marketable title to each of the Assets, free and clear of any lien, claim, encumbrance, security interest or adverse claim whatsoever, except those liens created by the Purchaser. 3. The Purchaser is hereby assuming all of the Seller's obligations, duties and liabilities under the Lease. 4. Upon the transfer of the Assets, the Seller shall promptly either dissolve or change its name to one that is not confusingly similar to "CompuRx." 5. From time to time, as and when requested by a party hereto, a party shall execute and deliver, or cause to be executed and delivered, all such documents, instruments, and shall take all such actions and do all such things, or cause all such actions to be taken and all such things to be done, as such other party may reasonably 2 deem necessary to consummate and receive the benefits of the transactions provided for in this Bill of Sale, including as may be necessary or appropriate to effectuate the transfer of the Trade Name. IN WITNESS WHEREOF, the Seller and the Purchaser have caused this Bill of Sale to be executed as of the date first above written. COMPURX, INC. By: /s/ Thomas W. Luciani ------------------------- Thomas W. Luciani President MEDSCAPE, INC. By: /s/ ------------------------- Name: Title: EX-3.1 8 AMENDED ADN RESTATED CERTIFICATE OF INCORPORATION 1 Exhibit 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF MEDSCAPE (DEL.), INC. Paul T. Sheils hereby certifies that: 1. The present name of this corporation is Medscape (DEL.), Inc. (the "Corporation"). The Corporation was originally incorporated under the name Medscape (DEL.), Inc., and the date of filing the original Certificate of Incorporation of the Corporation with the Secretary of State of the State of Delaware is August 25, 1998, as amended on December 23, 1998. 2. He is the duly elected President of the Corporation. 3. The Certificate of Incorporation of the Corporation, as amended, is hereby amended and restated to read as follows: FIRST: The name of the Corporation is Medscape, Inc. SECOND: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware. THIRD: The address of the registered office in the State of Delaware is 1209 Orange Street, Wilmington, DE 19801, and the name of the registered agent of the Corporation in the State of Delaware is The Corporation Trust Company in the County of New Castle. FOURTH: (A) The total number of shares of all classes of stock which the Corporation is authorized to issue is twenty-one million nine hundred fifty-six thousand six hundred forty-three (21,956,643), of which eleven million (11,000,000) shares shall be Class A Common Stock with a par value of one cent ($.01) per share, six million (6,000,000) shares shall be Class B (NonVoting) Common Stock with a par value of one cent ($.01) per share, and four million nine hundred fifty-six thousand six hundred forty-three (4,956,643) shares shall be Preferred Stock with a par value of one cent ($.01) per share. (B) The Class A Common Stock and the Class B (NonVoting) Common Stock (collectively the "Common Stock") shall have identical powers, rights, preferences, limitations and other characteristics, share for share, except that as otherwise required by law, the holders of shares of the Class B (NonVoting) Common Stock shall not have any voting power or vote for the election of directors or vote for any other purpose. Upon consummation of a firm commitment underwritten public offering of any class of common stock of the Corporation filed pursuant to a registration statement under the Securities Act of 1933, as amended (a "Public Offering") or immediately prior to the consummation of a "Corporate Change" (as hereafter defined), all shares of Class B Common Stock shall automatically convert on a one-for-one basis into Class A Common Stock, which shall be redesignated as Common Stock, $.01 par value, of 2 2 the Corporation. A "Corporate Change" shall mean any event or transaction where: (i) the Corporation shall not be the surviving entity in any merger, consolidation or other reorganization (or survives only as a subsidiary of an entity other than a previously wholly owned subsidiary of the Corporation), (ii) the Corporation sells, leases or exchanges or agrees to sell, lease or exchange all or substantially all of its assets to any other person or entity (other than a wholly owned subsidiary of the Corporation), (iii) the Corporation is to be dissolved and liquidated (including pursuant to Section 4(b) hereof), (iv) any person or entity, including a "group" as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires or gains ownership or control (including, without limitation, power to vote) of more than 50% of the outstanding shares of the Corporation's voting stock (based upon voting power), provided, that the fact that a stockholder is a party to the Amended and Restated Stockholders Agreement dated March 5, 1999 among the Corporation and the other parties thereto, as amended, or any successor agreement thereto (the "Stockholders Agreement"), shall not be deemed to constitute the formation of a group, or (v) as a result of or in connection with a contested election of directors, the persons who were directors of the Corporation before such election shall cease to constitute a majority of the Board of Directors of the Corporation. (C) The rights, preferences and privileges and qualifications, limitations and restrictions granted to and imposed on the capital stock of the Corporation shall be as set forth below in this Article Fourth. References hereinafter made to Sections shall mean the Sections contained in this Article Fourth (C). 1. Definitions. As used herein, the following terms shall have the following definitions: (a) "Additional Stock" shall have the meaning set forth in Section 5(c)(ii) hereof. (b) "Bylaws" shall mean the Bylaws of the Corporation. (c) "Common Stock" shall mean (a) the Corporation's Class A Common Stock and Class B Common stock, par value $.01 per share, as authorized on the date hereof, and (b) any other capital stock of any class or classes (however designated) of the Corporation, authorized on or after the date hereof, the holders of which shall have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating distributions after the payment of dividends and distributions on any shares entitled to preference under this Certificate of Incorporation (as the same may be further amended from time to time). (d) "Common Stock Equivalents" shall have the meaning set forth in Section 5(c)(iii) hereof. 3 3 (e) "Conversion Price" shall have the meaning set forth in Section 5(a)(i) hereof. (f) "Conversion Rights" shall have the meaning set forth in Section 5 hereof. (g) "Convertible Securities" means any indebtedness or shares of stock convertible into or exchangeable for Common Stock. (h) "Effective Price" of shares of Additional Stock means the quotient determined by dividing (i) the total number of such shares of Additional Stock issued or sold, or deemed to have been issued or sold, by the Corporation under Section 5 hereof, into (ii) the consideration received by the Corporation under Section 5 hereof for the issuance of such shares of Additional Stock. (i) "Initial Redemption Date" shall have the meaning set forth in Section 8(c) hereof. (j) "Option" means rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities. (k) "Option Holders" shall have the meaning set forth in Section 8(a) hereof. (l) "Optional Redemption Notice" shall have the meaning set forth in Section 8(c) hereof. (m) "Optional Series C Redemption" shall have the meaning set forth in Section 8(a) hereof. (n) "Original Series A Issue Price" means $0.0269 per share of Series A Preferred Stock (appropriately adjusted for stock splits, reverse stock splits and similar type transactions or occurrences with respect to the Series A Preferred Stock). (o) "Original Series C Issue Price" means $4.60 per share of Series C Preferred Stock and Series C-1 Preferred Stock (appropriately adjusted for stock splits, reverse stock splits and similar type transactions or occurrences with respect to the Series C Preferred Stock or Series C-1 Preferred Stock). 4 4 (p) "Original Series D Issue Price" means $11.72 per share of Series D Preferred Stock (appropriately adjusted for stock splits, reverse stock splits and similar type transactions or occurrences with respect to the Series D Preferred Stock). (q) "Qualified Public Offering" means the consummation of an offering of equity securities of the Corporation pursuant to an effective registration statement under the Securities Act under which the public offering price per share is not less than $17.58 per share (as adjusted for any stock split, stock dividend or recapitalization after March 5, 1999) and the aggregate gross proceeds received by the Corporation equals or exceeds $20 million. (r) "Series A Liquidation Preference" means, as to each share of Series A Preferred Stock, the greater of (i) $.0269 per share, plus all declared but unpaid dividends thereon, if any, as adjusted for stock splits, reverse stock splits and similar type transactions or occurrences with respect to the Series A Preferred Stock or (ii) the amount per share the holders would be entitled to receive if the holders had converted such shares of Series A Preferred Stock into Class A Common Stock immediately prior to the effectiveness of the event constituting the liquidation, dissolution or winding up of the Corporation. (s) "Series C Liquidation Preference" means, as to each share of Series C Preferred Stock and Series C-1 Preferred Stock, the greater of (i) the Original Series C Issue Price plus cumulative dividends thereon at the rate of six percent (6%) per annum, as adjusted for stock splits, reverse stock splits and similar transactions or occurrences with respect to the Series C Preferred Stock or Series C-1 Preferred Stock or (ii) the amount per share the holders would be entitled to receive if the holders had converted such shares of Series C Preferred Stock or Series C-1 Preferred Stock into Class A Common Stock immediately prior to the effectiveness of the event constituting the liquidation, dissolution or winding up of the Corporation. (t) "Series D Liquidation Preference" means, as to each share of Series D Preferred Stock, the greater of (i) the Original Series D Issue Price plus cumulative dividends thereon at the rate of six percent (6%) per annum, as adjusted for stock splits, reverse stock splits and similar transactions or occurrences with respect to the Series D Preferred Stock or (ii) the amount per share the holders would be entitled to receive if the holders had converted such shares of Series D Preferred Stock into Class A Common Stock immediately prior to the effectiveness of the event constituting the liquidation, dissolution or winding up of the Corporation. (u) "Series C Issuance Date" means October 31, 1997. (v) "Series D Issuance Date" means March 5, 1999. 2. Series and Number of Shares. The authorized number of shares of Series A Preferred Stock shall be 788,200, the authorized number of shares of Series C Preferred Stock 5 5 shall be 1,478,359, the authorized number of shares of Series C-1 Preferred Stock shall be 932,401 and the authorized number of shares of Series D Preferred Stock shall be 1,757,683. Shares of Series A, Series C, Series C-1 and Series D Preferred Stock retired, redeemed, purchased or otherwise acquired by the Corporation in any manner whatsoever shall be cancelled and shall not be reissued, sold or transferred. 3. Dividend Rights. (a) The holders of Series D Preferred Stock shall be entitled to receive cumulative compound annual dividends per share at the rate of six percent (6%) of the Original Series D Issue Price (as adjusted for any stock dividends, combinations, or splits with respect to such shares), prior and in preference to any dividends on any other capital stock of the Corporation. Such dividends shall begin accruing on March 5, 1999, shall be cumulative and shall be payable on the earlier of a Corporate Change or a Public Offering. Notwithstanding the foregoing, in the event that the Corporation files, prior to March 5, 2000, a registration statement under the Securities Act covering the sale of its Common Stock which results in the consummation of the sale of such securities before the later of March 5, 2000 or four months after the date of filing of such registration statement at a public offering price of not less than $17.58 per share (as adjusted for any stock split, stock dividend or recapitalization after March 5, 1999), then the cumulative dividend described in this Section 3(a) shall not be due and payable. (b) No dividends shall be declared, paid or set apart on any capital stock of the Corporation until the cumulative dividends set forth in Section 3(a) have been paid on all outstanding shares of Series D Preferred Stock. After such payment, any additional dividends declared by the Board of Directors shall be payable (i) first to the holders of shares of Series C Preferred Stock on the basis of the shares of Class A Common Stock into which such shares are then convertible at a rate of six percent (6%) of the Original Series C Issue Price per annum (but in no event more than the amount per share paid to the Series D Preferred holders pursuant to Section 3(a)) and (ii) then ratably among the holders of shares of Series D Preferred, Series C Preferred Stock, Series C-1 Preferred Stock, Class A Common Stock and Class B Common Stock (on the basis of the shares of class A Common Stock into which such shares are then convertible); provided, that dividends on outstanding shares of Series D Preferred Stock, Series C Preferred Stock and Series C-1 Preferred Stock shall be paid or declared and set apart for payment before any dividends shall be paid or declared and set apart for payment on any other capital stock of the Corporation with respect to the same dividend period. No dividends shall be payable on the shares of Series A Preferred Stock. (c) With respect to any dividends declared in accordance with Section 3(b) above, no right shall accrue to holders of Series C Preferred Stock, Series C-1 Preferred Stock or Series D Preferred Stock by reason of the fact that dividends on said shares are not declared in any prior year, nor shall any undeclared or unpaid dividend bear or accrue any 6 5 interest. In addition, except for the dividends set forth in Section 3(a) hereof, no dividends shall be paid on the Series C Preferred Stock, Series C-1 Preferred Stock or Series D Preferred Stock if such payment would violate the terms of any instrument governing indebtedness of the Corporation or any directly or indirectly owned subsidiary of the Corporation. 4. Liquidation Preference. (a) Priority. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the assets of the Corporation legally available for distribution to its shareholders, shall be distributed in the following order of priority: (i) The holders of shares of Series D Preferred Stock shall be entitled to receive, prior and in preference to any distribution in such liquidation, dissolution or winding up of any of the assets of the Corporation to the holders of shares of Class A and Class B Common Stock and Series A Preferred Stock, Series C Preferred Stock and Series C-1 Preferred Stock by reason of their ownership thereof, an amount per share equal to the Series D Liquidation Preference for each outstanding share of Series D Preferred Stock then held by them; the holders of shares of Series C Preferred Stock and Series C-1 Preferred Stock shall be entitled to receive, prior and in preference to any distribution in such liquidation, dissolution or winding up of any assets of the Corporation to the holders of shares of Class A and Class B Common Stock and Series A Preferred Stock by reason of their ownership thereof, an amount per share equal to the Series C Liquidation Preference for each outstanding share of Series C Preferred Stock or Series C-1 Preferred Stock held by them; and the holders of shares of Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution in such liquidation, dissolution or winding up of any assets of the Corporation to the holders of shares of Class A and Class B Common Stock by reason of their ownership thereof, an amount per share equal to the Series A Liquidation Preference for each outstanding share of Series A Preferred Stock held by them. If upon the occurrence of any such distribution, the assets of the Corporation thus distributed among the holders of shares of Series A, Series C, Series C-1 and Series D Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire assets of the Corporation legally available for distribution shall be distributed first to the holders of shares of Series D Preferred Stock, second to the holders of shares of Series C Preferred Stock and Series C-1 Preferred Stock and third to the holders of shares of Series A Preferred Stock all payable to the extent that such holders are satisfied in full in accordance with the foregoing priority of distributions. (ii) After the distributions described in Section 4(a)(i) hereof have been made, then, to the extent available, the remaining assets of the Corporation 7 7 shall be distributed among the holders of shares of Series C Preferred Stock, Series C-1 Preferred Stock, Series D Preferred Stock and Class A and Class B Common Stock pro rata based on the number of shares of Class A Common Stock held (or deemed to be held, on an as-converted basis, for the holders of the Series C, Series C-1 and Series D Preferred Stock) by each. (b) Consolidation, Merger, Etc. For purposes of this Section 4, (i) any transaction or series of related transactions involving a consolidation or merger or other corporate reorganization of the Corporation in which the stockholders of the Corporation who were stockholders immediately prior to such consolidation, merger or reorganization own less than 50% of the voting power of the Corporation immediately after such consolidation, merger or reorganization or in which outstanding shares of the Corporation are exchanged for securities or other consideration issued, or caused to be issued, by the acquiring corporation or its subsidiary (other than a mere reincorporation transaction) and in which stockholders of the Corporation who were stockholders immediately prior to such transaction receive less than 50% of the voting power of the surviving corporation, or (ii) a sale, lease or other disposition of all or substantially all of the assets of the Corporation shall be deemed to be a liquidation, dissolution or winding up within the meaning of this Section 4. 5. Conversion. The holders of shares of Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) Right to Convert. (i) Each share of Series A, Series C, Series C-1 and Series D Preferred Stock shall be convertible, at the option of the holder thereof, at any time or from time to time after the date of issuance of such share, at the office of the Corporation or any transfer agent for the Preferred Stock, into such number of fully paid and nonassessable shares of Class A Common Stock as is determined by dividing the Original Issue Price for such share by the conversion price (the "Conversion Price") at the time in effect for such share. The Original Issue Price and the initial Conversion Price per share for shares of Series A Preferred Stock shall be the Original Series A Issue Price; the Original Issue Price per share for shares of Series C Preferred Stock shall be the Original Series C Issue Price and the Conversion Price per share for the Series C Preferred Stock shall be $4.29; the Original Issue Price and the initial Conversion Price per share for shares of Series C-1 Preferred Stock shall be $4.29; and the Original Issue Price and the initial Conversion Price per share for shares of Series D Preferred Stock shall be the Original Series D Issue Price; provided, however, that the Conversion Price for the Preferred Stock shall be subject to adjustment as set forth in Section 5(c) hereof . 8 8 (ii) Each share of Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock shall automatically be converted into fully paid and nonassessable shares of Class A Common Stock at the Conversion Price at the time in effect for such series, immediately prior to the consummation of the Corporation's sale of its Common Stock in a Qualified Public Offering. In addition, (1) each share of Series A Preferred Stock shall automatically be converted into fully paid and nonassessable shares of Class A Common Stock at the Conversion Price at the time in effect for such series in the event that the holders of at least 70% of the Series A Preferred Stock then outstanding consent in writing to such conversion; and (2) each share of Series C Preferred Stock and Series C-1 Preferred Stock shall automatically be converted into fully paid and nonassessable shares of Class A Common Stock at the Conversion Price at the time in effect for such series in the event that the holders of at least 70% of the Series C Preferred Stock and Series C-1 Preferred Stock then outstanding consent in writing to such conversion. (b) Mechanics of Conversion. Before any holder of shares of Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock or Series D Preferred Stock shall be entitled to convert any of such shares into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Preferred Stock and shall give written notice by mail, postage prepaid, or hand delivery, to the Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Class A Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holders of shares of Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock or Series D Preferred Stock, as the case may be, or to the nominee or nominees of such holders, a certificate or certificates for the number of shares of Class A Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock or Series D Preferred Stock to be converted, and the person or persons entitled to receive the shares of Class A Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Class A Common Stock as of such date. If the conversion is in connection with an underwritten offering of securities registered pursuant to the Securities Act of 1933, as amended, the conversion may, at the option of any holder tendering the Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock or Series D Preferred Stock for conversion, be conditioned upon the closing with the underwriter of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive Class A Common Stock issuable upon such conversion of the Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock or Series D Preferred Stock, as the case may be, shall not be deemed to have converted such Preferred Stock until immediately prior to the closing of such sale of securities. 9 9 (c) Conversion Price Adjustments of Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock. The Conversion Price of the Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock shall be subject to adjustment from time to time as follows: (i) (A) Upon each issuance (or deemed issuance pursuant to the provisions hereof) by the Corporation of any Additional Stock after the Series D Issuance Date, without consideration or for an Effective Price per share less than the Conversion Price with respect to any series of Preferred Stock in effect immediately prior to the issuance (or deemed issuance) of such Additional Stock, then (1) the Conversion Price for the Series D Preferred Stock in effect immediately prior to each issuance (or deemed issuance) shall be adjusted to reflect the Effective Price of the Additional Stock so issued until the Conversion Price for the Series D Preferred Stock has been adjusted downward to $8.68 per share and (2) the Conversion Prices for the Series A Preferred Stock, the Series C Preferred Stock and the Series C-1 Preferred Stock, and the Conversion Price of the Series D Preferred Stock once it has been adjusted downward to $8.68 in accordance with subparagraph (1) above, in effect immediately prior to each issuance (or deemed issuance) shall be adjusted to a price determined by multiplying such Conversion Price by a fraction, (i) the numerator of which shall be the number of outstanding shares of Common Stock and shares of Common Stock then issuable upon exercise or conversion of outstanding securities of the Corporation immediately prior to such issuance plus the number of shares of Common Stock which the aggregate consideration received (or deemed received) by the Corporation for such issuance would purchase at such Conversion Price; and (ii) the denominator of which shall be the number of outstanding shares of Common Stock and shares of Common Stock then issuable upon exercise or conversion of outstanding securities of the Corporation immediately after such issuance including the Additional Stock so issued. (B) No adjustment of the Conversion Price for the Preferred Stock shall be made in an amount less than one-half of one cent ($0.005) per share, provided that any adjustments which are not required to be made by reason of this sentence shall be carried forward and shall be taken into account in any subsequent adjustment to the Conversion Price. No adjustment of the Conversion Price for any series of Preferred Stock pursuant to this Section 5(c)(i) shall have the effect of increasing such Conversion Price for such series above the Conversion Price for such series in effect immediately prior to such adjustment. (C) In the case of the issuance of securities of the Corporation for cash, the amount of consideration received by the Corporation for such securities shall be deemed to be the amount of cash paid therefor before deducting any discounts, commissions or other expenses allowed, paid or incurred by the Corporation for any underwriting or otherwise in connection with the issuance and sale thereof. 10 10 (D) In the case of the issuance of securities of the Corporation for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to have a dollar value equal to the fair market value of such noncash consideration, irrespective of any accounting treatment thereof, as determined by the Board of Directors. (E) In the case of the issuance (whether before, on or after the Series D Issuance Date) of Options or Convertible Securities, the following provisions shall apply for all purposes of this Section 5(c)(i) and Section 5(c)(ii) hereof: (1) With respect to Options to purchase Class A or Class B Common Stock, the aggregate maximum number of shares of Common Stock deliverable upon exercise of such Options shall be deemed to have been issued at the time such options were issued and for a consideration equal to the consideration (determined in the manner provided in Section 5(c)(i)(C) and Section 5(c)(i)(D) hereof), if any, received by the Corporation for such Options plus the minimum exercise price provided in such Options for Common Stock covered thereby. (2) With respect to Convertible Securities and Options to purchase Convertible Securities, the aggregate maximum number of shares of Common Stock deliverable upon the conversion or exchange of any such Convertible Securities and the aggregate maximum number of shares of Common Stock issuable upon the exercise of such Options to purchase Convertible Securities and the subsequent conversion or exchange of such Convertible Securities shall be deemed to have been issued at the time such Convertible Securities or such Options were issued and for a consideration equal to the consideration, if any, received by the Corporation for any such Convertible Securities and Options (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by the Corporation upon the conversion or exchange of such Convertible Securities or the exercise of such Options and the conversion or exchange of the Convertible Securities issuable upon exercise of such Options (the consideration in each case to be determined in the manner provided in Section 5(c)(i)(C) and 5(c)(i)(D) hereof). (3) In the event of any change in the number of shares of Common Stock deliverable, or in the consideration payable to the Corporation, upon exercise of such Options or upon conversion or exchange of such Convertible Securities, including, but not limited to, a change resulting from the antidilution provisions thereof, the applicable Conversion Prices of the Series A, C, C-1 and D Preferred Stock, to the extent in any way affected by or computed using such Options or Convertible Securities, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such Options or the conversion or exchange of such Convertible Securities. 11 11 (4) Upon the expiration or termination of any such Options or any such rights to convert or exchange Convertible Securities, the applicable Conversion Prices of the Series A, C, C-1 and D Preferred Stock, to the extent in any way affected by or computed using such Options or Convertible Securities, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and Options and Convertible Securities which remain in effect) that were actually issued upon the exercise of such Options or upon the conversion or exchange of such Convertible Securities. (5) The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to Section 5(c)(i)(E)(1) and (2) hereof shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either Section 5(c)(i)(E)(3) or (4) hereof. (ii) "Additional Stock" shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to Section 5(c)(i)(E) hereof) by the Corporation after the Series D Issuance Date other than: (a) Common Stock issued pursuant to a transaction described in Section 5(c)(iii) hereof; (b) shares of Common Stock or options to purchase such Common Stock issued or to be issued to officers, employees or directors of, or consultants to, the Corporation, pursuant to any agreement, plan or arrangement approved by the Board of Directors of the Corporation; (c) Common Stock issued or issuable upon conversion of shares of Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock; (d) Common Stock issued or to be issued by the Corporation pursuant to equipment lease financing arrangements with equipment lessors, or Common Stock reissued after the repurchase thereof by the Corporation as a result of any termination of a restricted stock purchase agreement or other employee equity plan or arrangement to which the Corporation is a party, which are approved by the Board of Directors; and (e) warrants to purchase up to 9,000 shares of Class A Common Stock (and the Common Stock issuable upon exercise thereof). (iii) In the event the Corporation at any time or from time to time after the Series D Issuance Date fixes a record date for the effectuation of a split or 12 12 subdivision of the outstanding shares of Common Stock or the determination of holders of shares of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of any consideration by such holder for the additional shares of Common Stock or Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend, distribution, split or subdivision if no record date is fixed), the applicable Conversion Prices of the Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock shall be appropriately decreased so that the number of shares of Class A Common Stock issuable on conversion of each share of Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock shall be increased in proportion to such increase in the aggregate number of shares issuable with respect to Common Stock Equivalents, with the number of shares issuable with respect to Common Stock Equivalents determined from time to time in the manner provided for deemed issuances in Section 5(c)(i)(E) hereof. (iv) If the number of shares of Common Stock outstanding at any time after the Series D Issuance Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the applicable Conversion Prices for the Series A Preferred Stock, Series C Preferred Stock, Series C-1 and Series D Preferred Stock shall be appropriately increased so that the number of shares of Class A Common Stock issuable on conversion of each share of Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock shall be decreased in proportion to such decrease in the outstanding shares of Common Stock. (d) Other Distributions. In the event the Corporation shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in Section 5(c)(iii) hereof, then, in each such case for the purpose of this Section 5(d), the holders of shares of Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were holders of the number of shares of Class A Common Stock into which their shares of Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock are convertible as of the record date fixed for the determination of the holders of shares of Common Stock entitled to receive such distribution. (e) Recapitalization. If at any time or from time to time there shall be a recapitalization of Common Stock (other than a subdivision, combination or consolidation, 13 13 merger or sale of assets or stock transaction otherwise provided for herein), provision shall be made so that each holder of shares of Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock shall thereafter be entitled to receive, upon conversion of the Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock, the number of shares of stock or other securities or property of the Corporation or otherwise, receivable upon such recapitalization by a holder of the number of shares of Common Stock into which such shares of Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock could have been converted immediately prior to such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 5 with respect to the rights of the holders of shares of Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock after the recapitalization to the end that the provisions of this Section 5 (including adjustments of the applicable Conversion Prices then in effect and the number of shares purchasable upon conversion of the Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable. (f) No Impairment. The Corporation will not, by amendment of this Certificate of Incorporation or through any reorganization, recapitalization or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of shares of the Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock against impairment. (g) No Fractional Shares. No fractional shares shall be issued upon conversion of the Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock or Series D Preferred Stock, and the number of shares of Class A Common Stock to be issued shall be rounded down to the nearest whole share, and there shall be no payment to a holder of shares of Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock or Series D Preferred Stock for any such rounded fractional share. Whether or not fractional shares result from such conversion shall be determined on the basis of the total number of shares of Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock or Series D Preferred Stock the holder is at the time converting into Class A Common Stock and the number of shares of Class A Common Stock issuable upon such aggregate conversion. (h) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the applicable Conversion Prices of the Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock pursuant to this Section 5, the Corporation, at its expense, shall promptly compute such adjustment or 14 14 readjustment in accordance with the terms hereof and prepare and furnish to each holder of shares of Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of shares of Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock or Series D Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustment and readjustment, (ii) the applicable Conversion Prices at the time in effect and (iii) the number of shares of Class A Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock or Series D Preferred Stock. (i) Notices of Record Date. In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of shares of Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock, at least twenty (20) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. (j) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Class A Common Stock, solely for the purpose of effecting the conversion of the shares of Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock, such number of its shares of Class A Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock, and if at any time the number of authorized but unissued shares of Class A Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock, then in addition to such other remedies as shall be available to the holder of such shares of Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Class A Common Stock to such number of shares as shall be sufficient for such purposes. (k) Notices. Any notice required by the provisions of this Section 5 to be given to the holders of shares of Series A Preferred Stock, Series C Preferred Stock, Series 15 15 C-1 Preferred Stock and Series D Preferred Stock shall be deemed given when received if delivered via courier or sent by facsimile, by telex, or by United States mail, postage prepaid, and addressed to each holder of record at his, her or its address appearing on the books of the Corporation. 6. Status of Converted Stock. In the event any shares of Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock are converted pursuant to Section 5 hereof, the shares so converted shall be canceled, retired and eliminated and shall not be reissued by the Corporation. 7. Voting Rights. (a) Each holder of a share of Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock shall have the right to one vote for each share of Class A Common Stock into which such Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock could then be converted (with any fractional share determined on an aggregate conversion basis being rounded down to the nearest whole share). (b) The Board of Directors of the Corporation shall be determined and shall be elected in accordance with the provisions of the Stockholders Agreement. (c) At any meeting called for the purpose of electing directors, the presence in person or by proxy of the holders of record of a majority in interest of the Corporation's voting securities shall constitute a quorum for the election of directors to be elected by such holders. (d) Any action required to be taken at any meeting of stockholders, or any action which may be taken at any meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote if a consent in writing, setting forth the action as taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous consent shall be given to those stockholders who have not consented in writing. (e) Except as otherwise provided in this Certificate of Incorporation of the Corporation or by applicable law, the holders of shares of Series A Preferred Stock, Series C 16 16 Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock shall be entitled to notice of any shareholders' meeting in accordance with the Bylaws of the Corporation and applicable law, and shall vote, together with the holders of shares of Class A Common Stock (and any other class or series of stock entitled to vote together as one class with the Class A Common Stock), with respect to any question upon which holders of shares of Class A Common Stock have the right to vote, as a single class. 8. Optional Redemption of Series D Preferred Stock, Series C Preferred Stock and Series C-1 Preferred Stock. (a) Series C Preferred Stock. Subject to the provisions of Section 8(b) below, at any time after five (5) years from the Series C Issuance Date, but in no event more frequently than once per year, the holders of at least sixty percent (60%) (the "Option Holders") of the then outstanding shares of Series C Preferred Stock and Series C-1 Preferred Stock, voting together as a class, may notify the Corporation that all or some of the shares of Series C Preferred Stock and Series C-1 Preferred Stock held by such holders shall be redeemed (an "Optional Series C Redemption"). Upon its receipt of such notice, the Corporation shall (to the extent it is then lawfully able to do so), but subject to the provisions of Section 8(b) below, redeem from the holders requesting such redemption (including those holders who later request redemption on a timely basis as hereinafter provided) the outstanding shares of Series C Preferred Stock and Series C-1 Preferred Stock specified in said request by payment in cash in respect of each share redeemed of an amount equal to the Series C Liquidation Preference. Upon receipt of any such request as to an Optional Series C Redemption, the Corporation shall promptly give written notice of the redemption request to each nonrequesting holder of record of the shares of Series C Preferred Stock and Series C-1 Preferred Stock and to each holder of shares of Series D Preferred Stock, postage prepaid, at the post office address last shown on the records of the Corporation. With respect to a Optional Series C Redemption, nonrequesting holders of shares of Series C Preferred Stock and Series C-1 Preferred Stock shall have thirty (30) days from the date such notice is mailed to request in writing redemption of their Series C Preferred Stock and Series C-1 Preferred Stock on the terms contained herein and on the date of redemption set forth in Section 8(c), and all such requests shall be deemed to have been received by the Corporation on the date of the initial request by the Option Holders. Notwithstanding the foregoing, if the Series D Preferred Stock has elected to be redeemed pursuant to Section 8(b) below, no payments shall be made with respect to this Section 8(a) until the Series D Liquidation Preference (including any principal, interest or other amounts represented by a promissory note) with respect to each share of Series D Preferred Stock then outstanding shall have been paid in full. (b) If (i) the Series D Preferred Stock has not been converted to Common Stock pursuant to Section 5(a) (ii) on or before March 5, 2004 or (ii) in the event that any other capital stock of the Corporation (or any securities convertible into or exercisable or 17 17 exchangeable into capital stock of the corporation) is to be redeemed for any reason, upon the election (the "Series D Election") by the holders of sixty-six and two-thirds of the then outstanding shares of Series D Preferred Stock, the Corporation shall redeem all of the shares of Series D Preferred Stock by paying a per share sum equal to the Series D Liquidation Preference. The Series D Liquidation Preference shall be paid before any redemption payment is made in respect of any other capital stock of the Corporation (or any securities convertible into or exercisable or exchangeable into capital stock of the Corporation). The Corporation shall pay to each holder of Series D Preferred Stock (who has not converted pursuant to Section 5 prior to the date of such redemption) on the 90th day after the date of the Series D Election the Series D Liquidation Preference in cash in an amount equal to one-third of the Series D Liquidation Preference and in the form of a promissory note in an aggregate amount equal to two-thirds of the Series D Liquidation Preference. The note shall bear interest, compounded quarterly, through the date of payment, at the Defined Rate (as defined herein) on the Initial Redemption Date (as defined below), such rate to be computed on the basis of a 360-day year. Payments on the promissory note shall be payable in two annual installments on each annual anniversary of the Initial Redemption Date (each a "Redemption Date") for such Series D Preferred Stock unless such anniversary falls on a day which is not a business day in San Francisco, California, in which case the applicable redemption installment shall be due and payable on the next business day. (c) Redemption Date. Subject to Section 8(b), the Corporation shall redeem the shares of Series C Preferred Stock, Series C-1 Preferred Stock or Series D Preferred Stock to be redeemed hereunder no later than ninety (90) days after the date of the request by the initially requesting holders of shares of Series C Preferred Stock, Series C-1 Preferred Stock or Series D Preferred Stock, as the case may be. Such date shall be the "Initial Redemption Date" as described herein. (d) Procedure. At least thirty (30) days prior to the Initial Redemption Date, written notice shall be mailed, postage prepaid, to the holder of record of shares of Series C Preferred Stock, Series C-1 Preferred Stock or Series D Preferred Stock to be redeemed, at such holder's post office address last shown on the records of the Corporation, notifying such holder of the redemption of such shares to be redeemed at that time, specifying the Initial Redemption Date, the applicable redemption price, and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, such holder's certificate or certificates representing the shares to be redeemed (such notice is hereinafter referred to as the "Optional Redemption Notice"). On or after the Initial Redemption Date, each holder of shares of Series C Preferred Stock, Series C-1 Preferred Stock or Series D Preferred Stock to be redeemed shall surrender such holder's certificate or certificates representing shares to the Corporation, in the manner and at the place designated in the Optional Redemption Notice, and thereupon the applicable redemption price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner of such shares and each surrendered 18 18 certificate shall be canceled. In the event less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (e) Insufficient Funds. If the funds of the Corporation legally available for redemption of shares of Series C Preferred Stock, Series C-1 Preferred Stock or Series D Preferred Stock on any Redemption Date are insufficient to redeem the total number of shares of Series C Preferred Stock, Series C-1 Preferred Stock or Series D Preferred Stock to be redeemed on such date, those funds that are legally available shall be used to redeem the maximum number of shares of Series D Preferred Stock first ratably among the holders of such shares to be redeemed. To the extent that funds remain after payment of the full Series D Liquidation Preference (including any and all principal, interest and other amounts represented by any promissory notes issued to the holders upon redemption), those funds will be used to redeem the maximum number of shares of Series C Preferred Stock and Series C-1 Preferred Stock ratably. The shares of Preferred Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of the Corporation are legally available for redemption of shares of Preferred Stock such funds shall immediately be used to redeem the balance of the shares which the Corporation has become obligated to redeem on any Redemption Date but which it has not redeemed, at a price per share equal to the applicable redemption price (as previously determined), plus interest, compounded quarterly and calculated on the basis of a 360 day year, on the Initial Redemption Price at the Defined Rate (as defined hereinafter) accrued from and after the Initial Redemption Date to the date of actual redemption. As used herein, the "Defined Rate" shall mean a rate per annum equal to (i) the highest rate then paid by the Corporation for indebtedness for borrowed money, plus one hundred (100) basis points, or (ii) if the Corporation has no indebtedness for borrowed money then outstanding, then ten percent (10%), but in no event more than the maximum amount permissible by law. (f) Limitation on Optional Redemption of Series C and C-1 Preferred Stock. If the aggregate Series C Liquidation Preference payable on a Redemption Date exceeds fifty percent (50%) of the Corporation's cumulative retained earnings (as adjusted to reflect previous repurchases), calculated in accordance with generally accepted accounting principles consistently applied, on such date, then the Corporation only need redeem the maximum number of shares of Series C Preferred Stock and Series C-1 Preferred Stock ratably among the holders of such shares to be redeemed, such that the aggregate Series C Liquidation Preference does not exceed fifty percent of cumulative retained earnings. The shares of Series C Preferred Stock and Series C-1 Preferred Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. At the end of each fiscal quarter thereafter when the Corporation has generated additional retained earnings, fifty percent of such additional retained earnings shall immediately be used to redeem the balance of the shares which the Corporation has become obligated to redeem on any Redemption Date but which it has not redeemed, at a price per share equal to the Series C Liquidation Preference (as previously determined), plus 19 19 interest, compounded quarterly and calculated on the basis of a 360 day year, on the Series C Liquidation Preference at the Defined Rate accrued from and after the Redemption Date to the date of actual redemption. (g) Deposit of Optional Redemption Price. On or prior to the Initial Redemption Date, the Corporation shall deposit the redemption price with respect to all shares of Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock designated for redemption in the Optional Redemption Notice or the Series D Election and not yet redeemed with a bank or trust company having aggregate capital and surplus in excess of $50,000,000.00 as a trust fund for the benefit of the respective holders of the shares designated for the redemption and not yet redeemed, with irrevocable instructions and authority to the bank or trust company to pay the redemption price for such shares to their respective holders on or after the Initial Redemption Date upon receipt of notification from the Corporation that such holder has surrendered his shares certificate to the Corporation pursuant to Section 8(c) hereof, subject to the priority provision contained in Section 8(b) providing for payment of the Series D Liquidation Preference in absolute priority to the redemption payments to other shareholders. Such instructions shall also provide that any funds deposited by the Corporation pursuant to this Section 8(g) for the redemption of shares subsequently converted into shares of Common Stock no later than the third (3rd) day preceding the Initial Redemption Date shall be returned to the Corporation forthwith upon such conversion. The balance of any funds deposited by the Corporation pursuant to this Section 8(g) remaining unclaimed at the expiration of two (2) years following the Initial Redemption Date shall be returned to the Corporation upon its request expressed in a resolution of its Board of Directors; provided, however, that the Corporation's obligation to pay the applicable redemption price shall continue. (h) Notwithstanding any provision of this Section 8 to the contrary, the Corporation shall not make any redemption payments in respect of its capital stock (or any securities convertible into or exercisable or exchangeable into capital stock of the Corporation), from and after any election by the holders of the Series D Preferred Stock to cause such shares to be redeemed hereunder unless and until the aggregate Series D Liquidation Preference in respect thereof (including, without limitation, any principal, interest and any other amounts due on any promissory notes issued to such holders upon redemption) shall have been paid in full. (i) The Corporation will not, by amendment of its Certificate if Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by this Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 8 and in taking all action as may be necessary or appropriate to protect the redemption rights of the holders of the Series D Preferred Stock, Series C Preferred Stock and Series C-1 Preferred Stock against impairment. 20 20 9. Common Stock. (a) Dividend Rights. The holders of shares of Class A Common Stock and Class B Common Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of any asset of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors, subject to the preference, liquidation and participation rights of the Series A Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock, more fully set forth in Sections 3 and 4 hereof. (b) Liquidation Rights. Upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation shall be distributed as provided in Section 4 hereof. (c) Redemption. Common Stock is not redeemable without the consent of the holder thereof. (d) Voting Rights. The holder of each share of Class A Common Stock shall have the right to one vote, and shall be entitled to notice of any meeting in accordance with the Bylaws of the Corporation, and shall be entitled to vote upon such matters and in such manner as may be provided by law. Class B Common Stock shall have no voting rights. 10. Restrictions and Limitations. (a) So long as shares of Series C Preferred Stock, Series C-1 Preferred Stock or Series D Preferred Stock remain outstanding, the Corporation shall not, without the consent of the holders of a majority of the Series C Preferred Stock and Series C-1 Preferred Stock then outstanding, voting together as a separate class, and the consent of the holders of sixty-six and two-thirds of the Series D Preferred Stock then outstanding, voting as a separate class: (i) Authorize or issue, or obligate itself to issue, any other equity security (including any security convertible into or exercisable for any equity security) senior to or on a parity with the Series D Preferred Stock as to dividend rights or redemption rights or liquidation preferences; (ii) Pay, declare or set aside any dividend on any equity security not in accordance with Sections 3 and 4 hereof; (iii) Authorize or enter into any merger, consolidation, recapitalization or reorganization, or sale of substantially all of its assets unless in such merger, consolidation, recapitalization, reorganization or sale the holders of the Series D Preferred receive at least $17.58 (as adjusted for stock splits, reverse stock splits and 21 21 similar type transactions or occurrences after March 5, 1999) per share of Series D Preferred Stock; or (iv) Repurchase or acquire its own shares other than pursuant to this Certificate of Incorporation or in connection with shares held by employees upon the termination of such employee's employment with the Corporation pursuant to the terms and conditions of an employment agreement previously approved by the Corporation's Board of Directors. (b) So long as shares of Series C Preferred Stock or Series C-1 Preferred Stock remain outstanding, the Corporation shall not, without the consent of the holders of a majority of the Series C Preferred Stock and Series C-1 Preferred Stock then outstanding, voting together as a separate class, amend or repeal any provision of the Certificate of Incorporation or Bylaws of the Corporation if such amendment would change any of the rights, preferences or privileges provided herein for the benefit of, or adversely affect, the Series C Preferred Stock or Series C-1 Preferred Stock. (c) So long as shares of Series D Preferred Stock remain outstanding, the Corporation shall not, without the consent of the holders of sixty-six and two-thirds of the Series D Preferred Stock then outstanding, voting as a separate class, amend or repeal any provision of the Certificate of Incorporation or Bylaws of the Corporation if such amendment would change any of the rights, preferences or privileges provided herein for the benefit of, or adversely affect, the Series D Preferred Stock. FIFTH: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for (i) any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) any matter in respect of which such director shall be liable under Section 174 of the Delaware General Corporation Law or any amendment thereto or successor provision thereof, or (iv) any transaction from which the director derived an improper personal benefit. If the General Corporation Law of the State of Delaware is amended hereafter to authorize further elimination or limitation of liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of the State of Delaware. Neither the amendment nor repeal of this Article FIFTH, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article FIFTH, shall eliminate or reduce the effect of this Article FIFTH in respect of any matter occurring, or any cause of action, suit, or claim that, but for this Article FIFTH, would accrue or arise, prior to such amendment, repeal, or adoption of an inconsistent provision. The Corporation shall, to the full extent permitted by Section 145 of the Delaware General Corporation Law, as amended from time to time, indemnify all persons whom it has the power to indemnify pursuant thereto. 22 22 * * * 4. The foregoing Amended and Restated Certificate of Incorporation has been duly adopted by the Corporation's Board of Directors and stockholders in accordance with the provisions of Section 228, 242 and 245 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the undersigned has duly executed this Amended and Restated Certificate of Incorporation this 5th day of March, 1999 and declares under the penalty of perjury that the matters set forth in the foregoing Certificate are true of his own knowledge. /s/ Paul T. Sheils ------------------------- Paul T. Sheils President EX-3.3 9 BY-LAWS 1 Exhibit 3.3 BY-LAWS OF MEDSCAPE (DEL.), INC. --------------------------- ARTICLE I Stockholders SECTION 1. Annual Meetings. Subject to change by resolution of the Board of Directors, the annual meeting of the stockholders of the Corporation for the purpose of electing directors and for the transaction of such other business as may be brought before the meeting shall be held on the fourth Tuesday in April of each year, if not a legal holiday, and if a legal holiday, then on the next succeeding day not a legal holiday. The meeting may be held at such time and such place within or without the State of New York as shall be fixed by the board of Directors and stated in the notice of the meeting. SECTION 2. Special Meetings. Special meetings of the stockholders may be called at any time by the Board of Directors, the Chairman of the Board or the President. Special meetings shall be held on the date and at the time and place either within or without the State of New York as specified in the notice thereof. SECTION 3. Notice of Meetings. Except as otherwise expressly required by law or the Certificate of Incorporation of the Corporation, written notice stating the place and time of the meeting, and in the case of a special meeting, the purpose or purposes of such meeting, shall be given by the Secretary to each stockholder entitled to vote thereat at his address as it appears on the records of the Corporation not less than ten nor more than sixty days prior to the meeting. Notice of any meeting of stockholders shall not be required to be given to any stockholder who shall attend such meeting in person or by proxy; and if any stockholder shall, in person or by attorney thereunto duly authorized, waive notice of any meeting, in writing or by telegraph, cable or wireless, whether before or after such meeting be held, the notice thereof need not be given to him. The attendance of any stockholder at a meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice by him. Notice of any adjourned meeting of stockholders need not be given except as 1 2 provided in SECTION 5 of this ARTICLE I. SECTION 4. Quorum. Subject to the provisions of law and the Certificate of Incorporation in respect of the quorum and vote that shall be required for a specific action, the number of shares the holders of which shall be present or represented by proxy at any meeting of stockholders in order to constitute a quorum for the transaction of any business shall be at least fifty percent of all the shares issued and outstanding and entitled to vote at such meeting. SECTION 5. Adjournment. At any meeting of stockholders, whether or not there shall be a quorum present, the holders of a majority of shares voting at the meeting, whether present in person at the meeting or represented by proxy at the meeting, may adjourn the meeting from time to time. Except as provided by law, notice of such adjourned a meeting need not be given otherwise than by announcement of the time and place of such adjourned meeting at the meeting at which the adjournment is taken. At any adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally called. SECTION 6. Organization. The Chairman of the Board or, in his absence or nonelection, the President or, in the absence of both the foregoing officers, the Executive Vice President or, in the absence of any of the foregoing officers, a Vice President shall call meetings of the stockholders to order and shall act as Chairman of such meetings. In the absence of the Chairman of the Board, the President, the Executive Vice President or a Vice President, the holders of a majority in number of the shares of the capital stock of the Corporation present in person or represented by proxy and entitled to vote at such meeting shall elect a Chairman, who may be the Secretary of the Corporation. The Secretary of the Corporation shall act as secretary of all meetings of the stockholders; but in the absence of the Secretary, the Chairman may appoint any person to act as secretary of the meeting. SECTION 7. Voting. Each stockholder shall, except as otherwise provided by law or by the Certificate of Incorporation, at every meeting of the stockholders, be entitled to one vote in person or by proxy for each share of capital stock entitled to vote held by such stockholder, but no proxy shall be voted on after three years from its date, unless said proxy provides for a longer period. Upon the demand of any stockholder, the vote for directors and the vote upon any matter before the meeting shall be by ballot. Except as otherwise provided by law, the Certificate of Incorporation or these By-laws, all elections for directors shall be decided by plurality vote, and all other matters shall be decided by a majority of the votes cast thereon. SECTION 8. Stockholders List. A complete list of the stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order with the address of each and the number of shares held by each, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the 2 3 meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole thereof and may be inspected by any stockholder who is present. SECTION 9. Addresses of Stockholders. Each stockholder shall designate to the Secretary of the Corporation an address at which notices of meetings and all other corporate notices may be served upon or mailed to him, and if any stockholder shall fail to designate such address, corporate notices may be served upon him by mail directed to him at his last known post office address. SECTION 10. Inspectors of Election. The Board of Directors may at any time appoint one or more persons to serve as Inspectors of Election at the next succeeding annual meeting of stockholders or at any other meeting or meetings and the Board of Directors may at any time fill any vacancy in the office of Inspector. If the Board of Directors fails to appoint Inspectors, or if any Inspector appointed be absent or refuse to act, or if his office becomes vacant and be not filled by the Board of Directors, the Chairman of any meeting of the stockholders may appoint one or more temporary Inspectors for such meeting. All proxies shall be filed with the Inspectors of Election of the meeting before being voted upon. SECTION 11. Action by Consent. Unless otherwise provided in the Certificate of Incorporation, any action required to be taken at any meeting of stockholders, or any action which may be taken at any meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE II Board of Directors SECTION 1. General Powers. The property, affairs and business of the Corporation shall be managed by or under the direction of the Board of Directors. SECTION 2. Number, Qualification and Term of Office. The number of directors shall be such as the Board of Directors may by resolution direct. Directors need not be stockholders. Each director shall hold office for the term for which he is appointed or elected and until his successor shall have been elected and shall qualify, or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Directors need not be elected by ballot, except upon demand of any stockholder. The Chairman of the Board, if one be elected, shall be chosen from among the directors. 3 4 SECTION 3. Quorum and Manner of Action. Except as otherwise provided by law, the Certificate of Incorporation or these By-laws, a majority of the Board of Directors shall be required to constitute a quorum for the transaction of business at any meeting, and the act of a majority of the directors present and voting at any meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum, a majority of the directors present may adjourn any meeting from time to time until a quorum be had. Notice of any adjourned meeting need not be given. The directors shall act only as a board and individual directors shall have no power as such. SECTION 4. Place of Meeting, etc. The Board of Directors may hold its meetings, have one or more offices and keep the books and records of the Corporation at such place or places within or without the State of New York as the Board may from time to time determine or as shall be specified or fixed in the respective notices or waivers of notice thereof. SECTION 5. Regular Meetings. A regular meeting of the Board of Directors shall be held for the election of officers and the transaction of other business as soon as practicable after each annual meeting of stockholders, and other regular meetings of the Board shall be held at such times and places as the Board shall direct. No notice shall be required for any regular meeting of the Board of Directors but a copy of every resolution fixing or changing the time or place of regular meetings shall be mailed to every director at least three days before the first meeting held in pursuance thereof. SECTION 6. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President, the Executive Vice President, a Vice President or any two Directors. The Secretary or an Assistant Secretary shall give notice of the time and place of each special meeting by mailing a written notice of the same to each director at his last known post office address at least two days before the meeting or by causing the same to be delivered personally or to be transmitted by telegraph, cable, wireless, telephone or orally at least twenty-four hours before the meeting to each director. SECTION 7. Action by Consent. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting, if a written consent thereto is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee. SECTION 8. Organization. At each meeting of the Board of Directors the Chairman of the Board or, in his absence or nonelection, the President or, in the absence of both of the foregoing officers, a director chosen by a majority of the directors shall act as Chairman. The Secretary or, in his absence, an Assistant Secretary or, in the absence of both the Secretary and Assistant Secretary, any person appointed by the Chairman shall act as secretary of the meeting. 4 5 SECTION 9. Resignations. Any director of the Corporation may resign at any time by giving written notice to the Board of Directors, the President or the Secretary of the Corporation. The resignation of any director shall take effect at the time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 10. Removal of Directors. Except as otherwise provided by law or the Certificate of Incorporation, any director may be removed, either with or without cause, at any time by the affirmative vote of a majority in interest of the holders of record of the stock having voting power at an annual meeting or at a special meeting of the stockholders called for the purpose; and the vacancy in the Board caused by any such removal may be filled by the stockholders at such meeting or by the Board of Directors in the manner provided in SECTION 11 of this ARTICLE II. SECTION 11. Vacancies. Any vacancy in the Board of Directors caused by death, resignation, removal (whether or not for cause), disqualification, an increase in the number of directors or any other cause may be filled by the majority vote of the remaining directors of the Corporation at the next annual meeting, any regular meeting or any special meeting called for such purpose. Each director so elected shall hold office for the unexpired term or for such lesser term as may be designated and until his successor shall be duly elected and qualified, or until his death or until he shall resign or shall have been removed in the manner herein provided. In case all the directors shall die or resign or be removed or disqualified, any stockholder having voting powers may call a special meeting of the stockholders, upon notice given as herein provided for meetings of the stockholders, at which directors may be elected for the unexpired term. SECTION 12. Compensation of Directors. Directors shall receive such sums for their services and expenses as may be directed by resolution of the Board; provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for their services and expenses. SECTION 13. Committees. By resolution or resolutions passed by a majority of whole Board at any meeting of the Board of Directors, the directors may designate one or more committees, each committee to consist of three or more directors. To the extent provided in said resolution or resolutions, unless otherwise provided by law, such committee or committees shall have and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, including the power and authority to authorize the seal of the Corporation to be affixed to all papers which may require it, to declare dividends and to authorize the issuance of shares of capital stock of the Corporation. Further, the Board of Directors may designate one or more directors as alternate members of a committee who may replace an absent or disqualified member at any meeting. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously 5 6 appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. A committee may make such rules for the conduct of its business and may appoint such committees and assistants as it shall from time to time deem necessary. One-third of the members of a committee shall constitute a quorum for the transaction of business of such committee. Regular meetings of a committee shall be held at such times as such committee shall from time to time by resolution determine. No notice shall be required for any regular meeting of a committee but a copy of every resolution fixing or changing the time or place of regular meetings shall be mailed to every member of such committee at least three days before the first meeting held in pursuance thereof. Special meetings of a committee may be called by the chairman of such committee or the secretary of such committee, or any two members thereof. The Secretary of te Corporation or the secretary of such committee shall give notice of the time and place of each Special Meeting by mail at least two days before such meeting or by telegraph, cable, wireless, telephone or orally at least twenty-four hours before the meeting to each member of such committee. SECTION 14. Participation in Meetings. Members of the Board of Directors or of any committee may participate in any meeting of the Board or committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting. ARTICLE III Officers SECTION 1. Number. The officers of the Corporation shall be a President, a Treasurer and a Secretary. In addition, the Board may elect a Chairman of the Board, an Executive Vice President, one or more Vice Presidents and such other officers as may be appointed in accordance with the provisions of SECTION 3 of this ARTICLE III. Any number of offices may be held by the same person, except that the office of President and Secretary may not be held by the same person. SECTION 2. Election, Term of Office and Qualifications. The officers shall be elected annually by Board of Directors at their first meeting after each annual meeting of the stockholders of the Corporation. Each officer, except such officers as may be appointed in accordance with the provisions of SECTION 3 of this ARTICLE III, shall hold office until his successor shall have been duly elected and qualified, or until his death or until he shall have resigned or shall have become disqualified or shall have been removed in the manner hereinafter provided. SECTION 3. Subordinate Officers. The Board of Directors or the President may from time to time appoint such other officers, including one or more Assistant Treasurers and 6 7 one or more Assistant Secretaries, and such agents and employees of the Corporation as may be deemed necessary or desirable. Such officers, agents and employees shall hold office for such period and upon such terms and conditions, have such authority and perform such duties as in these By-laws provided or as the Board of Directors or the President may from time to time prescribe. The Board of Directors or the President may from time to time authorize any officer to appoint and remove agents and employees and to prescribe the powers and duties thereof. SECTION 4. Removal. Any officer may be removed, either with or without cause, by the vote of a majority of the whole Board of Directors or, except in case of any officer elected by the Board of Directors, by any committee or superior officer upon whom the power of removal may be conferred by the Board of Directors or by these By-laws. SECTION 5. Resignations. Any officer may resign at any time by giving written notice to the Board of Directors, the President or the Secretary. Any such resignation shall take effect at the date of receipt of such notice or at any later time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 6. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled for the unexpired portion of the term in the manner prescribed in these By-laws for regular election or appointment to such office. SECTION 7. The Chairman of the Board. The Chairman of the Board shall preside, if present, at all meetings of the stockholders and at all meetings of the Board of Directors, and shall serve as the representative of the Board of Directors and shall perform such other duties and have such other powers as from time to time may be assigned to him by the Board of Directors or prescribed by these By-laws. SECTION 8. The President. The President shall be the chief executive officer of the Corporation and shall have general direction of the affairs of the Corporation and general supervision over its several officers, subject, however, to the control of the Board of Directors. The President shall report to the Chairman of the Board as the representative of the Board of Directors. At each annual meeting and from time to time the President shall report to the stockholders and the Board of Directors all matters within his knowledge which the interest of the Corporation may require to be brought to their notice, may sign with the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary any or all certificates of stock of the Corporation, shall preside, in the absence of the Chairman of the Board, at all meetings of the stockholders and at all meetings of the Board of Directors, shall sign and execute in the name of the Corporation all contracts or other instruments authorized by the Board of Directors, except in cases where the signing and execution thereof shall be expressly delegated or permitted by the Board or by these By-laws to some other officer or agent of the Corporation, and in general shall perform such duties and have such powers, incident to the office of President and perform such other duties and have such other powers as from time to time may be assigned to him by the 7 8 Board of Directors or prescribed by these By-laws. SECTION 9. The Vice Presidents. A Vice President may sign with the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary certificates of stock of the Corporation and shall have such other powers and shall perform such other duties as from time to time may be assigned to him by the Board of Directors or the President or prescribed by these By-laws. SECTION 10. The Secretary. The Secretary shall keep or cause to be kept, in books provided for the purpose, the minutes of the meetings of the stockholders, the Board of Directors and any committee when so required, shall see that all notices are duly given in accordance with the provisions of these By-laws and as required by law, shall be custodian of the records and the seal of the Corporation and see that the seal is affixed to all documents, the execution of which on behalf of the Corporation under its seal is duly authorized in accordance with the provisions of these By-laws, shall keep or cause to be kept a register of the post office address of each stockholder, may sign with the President or any Vice President certificates of stock of the Corporation, and in general shall perform such duties and have such powers incident to the office of Secretary and shall perform such other duties and have such other powers as from time to time may be assigned to him by the Board of Directors by the President or prescribed by these By-laws. SECTION 11. Assistant Secretaries. Any Assistant Secretary shall, at the request of the Secretary or in his absence or disability, perform the duties of the Secretary and when so acting shall have all the powers of, and be subject to all the restrictions upon, the Secretary and shall perform such other duties and have such other powers as from time to time may be assigned to him by the President, the Secretary or the Board of Directors or prescribed by these By-laws. SECTION 12. The Treasurer. The Treasurer shall have charge and custody of, and be responsible for, all funds and securities of the Corporation, and deposit all such funds in the name of the Corporation in such banks, trust companies or other depositaries as shall be selected in accordance with the provisions of these By-laws, shall at all reasonable times exhibit his books of account and records, and cause to be exhibited the books of account and records of any corporation controlled by the Corporation to any of the directors of the Corporation upon application during business hours at the office of the Corporation, or such other corporation, where such books and records are kept, shall render a statement of the condition of the finances of the Corporation at all regular meetings of the Board of Directors and a full financial report at the annual meeting of the stockholders, shall, if called upon to do so, receive and give receipts for moneys due and payable to the Corporation from any source whatsoever, may sign with the President or any Vice President certificates of stock of the Corporation, and in general shall perform such duties and have such powers incident to the office of Treasurer and shall perform such other duties and have such other powers as from time to time may be assigned to him by the Board of Directors or the President or prescribed by these By-laws. 8 9 SECTION 13. Assistant Treasurers. Any Assistant Treasurer shall, at the request of the Treasurer or in his absence or disability, perform the duties of the Treasurer and when so acting shall have all the powers of, and be subject to all the restrictions upon, the Treasurer and shall perform such duties and have such other powers as from time to time may be assigned to him by the President, the Treasurer or the Board of Directors or prescribed by these By-laws. SECTION 14. Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors. No officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the Corporation. ARTICLE IV Contracts, Checks, Drafts, Bank Accounts, etc. SECTION 1. Contracts, etc., How Executed. Except as otherwise provided in these By-laws, the Board of Directors may authorize any officer or officers, employee or employees or agent or agents of the Corporation to enter into any contract or execute and deliver any instrument, on behalf and in the name of the Corporation, and such authority may be general or confined to specific instances; and, unless so authorized by the Board of Directors or by a committee appointed in accordance with the provisions of these By-laws or otherwise by these By-laws, no officer, employee or agent shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or render it liable peculiarly for any purpose or amount. SECTION 2. Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, employee or employees or agent or agents of the Corporation as shall from time to time be determined by resolution of the Board of Directors. SECTION 3. Deposits. All funds of the Corporation shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositaries as the Board of Directors or committee appointed by the Board of Directors may designate from time to time or as may be designated from time to time by any officer or officers, employee or employees or agent or agents of the Corporation to whom such power may be delegated by the Board of Directors; and for the purpose of such deposit, any officer or officers, employee or employees or agent or agents of the Corporation as from time to time shall be determined by resolution of the Board of Directors or committee appointed by the Board of Directors may endorse, assign and deliver checks, drafts and other orders for the payment of money which are payable to the order of the Corporation. SECTION 4. General and Special Bank Accounts. The Board of Directors or 9 10 committee appointed by the Board of Directors may authorize from time to time the opening and keeping with such banks, trust companies or other depositaries as it may designate of general and special bank accounts and may make such special rules and regulations with respect thereto, not inconsistent with the provisions of these By-laws, as it may deem expedient. SECTION 5. Proxies. Except as otherwise provided in these By-laws or in the Certificate of Incorporation of the Corporation, and unless otherwise provided by resolution of the Board of Directors, the President may appoint from time to time an attorney or attorneys, or agent or agents, of the Corporation, on behalf and in the name of the Corporation, to cast the votes which the Corporation may be entitled to cast as a stockholder or otherwise in any other corporation any of whose stock or other securities may be held by the Corporation, at meetings of the holders of the stock or other securities of such other corporation, or to consent in writing to any action by such other corporation, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed on behalf and in the name of the Corporation and under its corporate seal, or otherwise, all such written proxies or other instruments as he may deem necessary or proper in the premises. ARTICLE V Stock and Its Transfer SECTION 1. Certificates of Stock. Certificates for shares of the capital stock of the Corporation shall be in such form not inconsistent with law as shall be approved by the Board of Directors. They shall be numbered in order of their issue and shall be signed by the Chairman of the Board, the President, or any Vice President, and by the Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary of the Corporation, and the seal of the Corporation shall be affixed thereto. Any of or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who shall have signed or whose facsimile signature shall have been placed upon any such certificate or certificates shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature shall have been used thereon had not ceased to be such officer or officers of the Corporation. SECTION 2. Transfer of Stock. Transfer of shares of the capital stock of the Corporation shall be made only on the books of the Corporation by the holder thereof, or by his attorney thereunto authorized by a power of attorney duly executed and filed with the Secretary of the Corporation, or a transfer agent of the Corporation, if any, on surrender of the certificate or certificates for such shares properly endorsed. A person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof as regards the Corporation, and 10 11 the Corporation shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware; provided that whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact, if known to the Secretary or to said transfer agent, shall be so expressed in the entry of transfer. SECTION 3. Lost, Destroyed and Mutilated Certificates. The holder of any stock issued by the Corporation shall immediately notify the Corporation of any loss, destruction or mutilation of the certificate therefor or the failure to receive a certificate of stock issued by the Corporation, and the Board of Directors or the Secretary of the Corporation may, in its or his discretion, cause to be issued to such holder a new certificate or certificates of stock, upon compliance with such rules, regulations and/or procedures as may be prescribed or have been prescribed by the Board of Directors with respect to the issuance of new certificates in lieu of such lost, destroyed or mutilated certificate or certificates of stock issued by the Corporation which are not received, including the posting with the Corporation of a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. SECTION 4. Transfer Agent and Registrar; Regulations. The Corporation shall, if and whenever the Board of Directors shall so determine, maintain one or more transfer offices or agencies, each in the charge of a transfer agent designated by the Board of Directors, where the shares of the capital stock of the Corporation shall be directly transferable, and also one or more registry offices, each in the charge of a registrar designated by the Board of Directors, where such shares of stock shall be registered, and no certificate for shares of the capital stock of the Corporation, in respect of which a Registrar and/or Transfer Agent shall have been designated, shall be valid unless countersigned by such Transfer Agent and registered by such Registrar, if any. The Board of Directors shall also make such additional rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates for shares of the capital stock of the Corporation. SECTION 5. Fixing Date for Determination of Stockholder Of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, to express consent to corporate action in writing without a meeting, to receive payment of any dividend or other distribution or allotment of any rights, to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action, and only such stockholders as shall be stockholders of record of the date so fixed shall be entitled to such notice of and to vote at such meeting and any adjournment thereof, to express consent to any such corporate action, to receive payment of such dividend or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid. If the stock transfer books are to be closed for the purpose of 11 12 determining stockholders entitled to notice of or to vote at a meeting in the case of a merger or consolidation, the books shall be closed at least twenty days before such meeting. ARTICLE VI Seal The Board of Directors shall provide a suitable seal containing the name of the Corporation, which seal shall be in the charge of the Secretary and which may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. If and when so directed by the Board of Directors, a duplicate of the seal may be kept and be used by an officer of the Corporation designated by the Board. ARTICLE VII Miscellaneous Provisions SECTION 1. Fiscal Year. The fiscal year of the Corporation shall end on such date of each year as shall be determined by the Board of Directors of the Corporation. SECTION 2. Waivers of Notice. Whenever any notice of any nature is required by law, the provisions of the Certificate of Incorporation or these By-laws to be given, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after it stated therein shall be deemed equivalent thereto. SECTION 3. Qualifying in Foreign Jurisdictions. The Board of Directors shall have the power at any time and from time to time to take or cause to be taken any and all measures which they may deem necessary for qualification to do business as a foreign corporation in any one or more foreign jurisdictions and for withdrawal therefrom. SECTION 4. Indemnification. The Corporation shall, to the full extent permitted by the laws of the State of Delaware, as amended from time to time, indemnify all directors and officers whom it has the power to indemnify pursuant thereto. ARTICLE VIII Amendments All By-laws of the Corporation shall be subject to alteration or repeal, and new By-laws not inconsistent with any provision of the Certificate of Incorporation of the Corporation or any provision of law, may be made, either by the affirmative vote of the holders 12 13 of record of a majority of the outstanding stock of the Corporation entitled to vote in respect thereof, given at an annual meeting or at any special meeting, provided that notice of the proposed alteration or repeal or of the proposed new By-laws be included in the notice of such meeting, or by the affirmative vote of a majority of the members of the Board of Directors at any regular or special meeting. 13 EX-10.1 10 AGREEMENT OF LEASE 1 Exhibit 10.1 AGREEMENT OF LEASE, made as of this _________ day of February 1999, between R.A.A. REALTY COMPANY LP party of the first part, hereinafter referred to as OWNER, and MEDSCAPE INC. party of the second part, hereinafter referred to as TENANT, W I T N E S S E T H : Owner hereby leased to tenant and tenant hereby hires from Owner ENTIRE SECOND FLOOR AS PER EXHIBIT A ANNEXED HERETO. OWNER SHALL NOT HAVE THE _________ TO RELOCATE THE TENANT TO ANOTHER PREMISES FOR ANY REASON in the building known as 134 West 29th Street in the Borough of Manhattan, City of New York, for the term of FIVE (5) YEARS AND FOUR (4) MONTHS (or until such term shall sooner cease and expire as hereinafter provided) to commence on the 1st day of March nineteen hundred and ninety-nine, and to end on the 30th day of June, two thousand and four and both dates inclusive, at an annual rental rate of as per Article 41 of Rider annexed hereto which Tenant agrees to pay in lawful money of the United States which shall be legal tender in payment of all debts and dues, public and private, at the time of payment, in equal monthly installments in advance on the first day of each month during said term, at the office of Owner or such other place as Owner may designate, without any set off or deduction whatsoever, except that Tenant shall pay the first monthly installment(s) on the execution hereof (unless this lease be a renewal). In the event that, at the commencement of the term of this lease, or thereafter, Tenant shall be in default in the payment of rent to Owner pursuant to the terms of another lease with 2 Owner or with Owner's predecessor in interest, Owner may at Owner's option and without notice to Tenant add the amount of such arrears to any monthly installment of rent payable hereunder and the same shall be payable to Owner as additional rent. The parties hereto, for themselves, their heirs, distributees, executors, administrators, legal representatives, successors and assigns, hereby covenant as follows: RENT: 1. Tenant shall pay the rent as above and as hereinafter provided. OCCUPANCY: 2. Tenant shall use and occupy demised premises for general and executive offices provided such use is in accordance with the certificate of occupancy for the building, if any, and for no other purpose. ALTERATIONS: 3. Tenant shall make no changes in or to the demised premises of any nature without Owner's prior written consent. Subject to the prior written consent of Owner, and to the provisions of this article, Tenant, at Tenant's expense, may make alterations, installations, additions or improvements which are nonstructural and which do not affect utility services or plumbing or electrical lines, in or to the interior of the demised premises using contractors or mechanics first approved in each instance by Owner, not to be unreasonably with-held. Tenant shall, at its expense, before making any alterations, additions, installations or improvements obtain all permits, approvals and certificates required by any governmental or quasi-governmental bodies and (upon completion) certificates of final approval thereof and shall deliver promptly duplicates of all such permits, approvals and certificates to Owner. Tenant agrees to carry and will cause Tenant's contractors and sub-contractors to carry such workman's compensation, general liability, personal and property damage insurance as Owner may reasonably require. If any mechanic's lien is filed against the demised premises, or the building of which the same forms a 2 3 part, for work claimed to have been done for, or materials furnished to, Tenant, whether or not done pursuant to this article, the same shall be discharged by Tenant within One hundred twenty (120) days thereafter, at Tenant's expense, by payment or filing the bond required by law or otherwise. All fixtures and all paneling, partitions, railings and like installations, installed in the premises at any time, either by Tenant or by Owner on tenant's behalf, shall, upon installation, become the property of Owner and shall remain upon and be surrendered with the demised premises unless Owner, by notice to Tenant no later than twenty days prior to the date fixed as the termination of this lease, elects to relinquish Owner's right thereto and to have them removed by Tenant, in which event the same shall be removed from the demised premises by Tenant prior to the expiration of lease, at Tenant's expense. Nothing in this Article shall be construed to give Owner title to or to prevent Tenant's removal of trade fixtures, moveable office furniture and equipment, but upon removal of any such from the premises or upon removal of other installations as may be required by Owner, Tenant shall immediately and at its expense, repair and restore the premises to the condition existing prior to installation and repair any damage to the demised premises or the building due to such removal. All property permitted or required to be removed by Tenant at the end of the term remaining in the premises after Tenant's removal shall be deemed abandoned and may, at the election of Owner, either be retained as Owner's property or removed from the premises by Owner, at Tenant's expense. 3 4 REPAIRS:* 4. Owner shall maintain and repair the exterior of and the public portions of the building. Tenant shall, throughout the term of this lease, take good care of the demised premises including the bathrooms and lavatory facilities (if the demised premises encompass the entire floor of the building) and the windows and window frames and, the fixtures and appurtenances therein and at Tenant's sole cost and expense promptly make all repairs thereto and to the building, whether structural or non structural in nature, caused by or resulting from the carelessness, omission, neglect or improper conduct of Tenant, Tenant's servants, employees, or licensees, arising from such Tenant conduct or omission, when required by other provisions of this lease, including Article 6. Tenant shall also repair all damage to the building and the demised premises caused by the moving of Tenant's fixtures, furniture or equipment. All the aforesaid repairs shall be of quality or class equal to the original work or construction. If Tenant fails, after ten days notice, to proceed with due diligence to make repairs required to be made by Tenant, the same may be made by the Owner at the expense of Tenant, and the expenses thereof incurred by Owner shall be collectable, as additional rent, after rendition of a bill or statement therefor. If the demised premises be or become infested with vermin, Tenant shall, at its expense, cause the same to be exterminated. Tenant shall give Owner prompt notice of any defective condition in any plumbing, heating system or electrical lines located in the demised premises and following such notice, Owner shall remedy the condition with due diligence, but at the expense of Tenant, if repairs are necessitated by damage or injury attributable to Tenant, Tenant's servants, agents, - -------- *Owner hereby agrees to cause such repairs, replacements and improvements to be made with reasonable promptness, and to take reasonable steps to minimize any inconvenience to Tenant arising therefrom, provided however, that this shall not obligate Owner to incur any additional overtime cost nor entitle Tenant to deduct or abate the rent or any other payment. 4 5 employees, invitees or licensees as aforesaid. Except as specifically provided in Article 9 or elsewhere in this lease, there shall be no allowance to the Tenant for a diminution of rental value and no liability on the part of Owner by reason of inconvenience, annoyance or injury to business arising from Owner, Tenant or others making or failing to make any repairs, alterations, additions or improvements in or to any portion of the building or the demised premises or in and to the fixtures, appurtenances or equipment thereof. It is specifically agreed that Tenant shall not be entitled to any set off or reduction of rent by reason of any failure of Owner to comply with the covenants of this or any other article of this lease. Tenant agrees that Tenant's sole remedy at law in such instance will be by way of any action for damages for breach of contract. The provisions of this Article 4 with respect to the making of repairs shall not apply in the case of fire or other casualty with regard to which Article 9 hereof shall apply. WINDOW CLEANING: 5. Tenant will not clean nor require, permit, suffer or allow any window in the demised premises to be cleaned from the outside in violation of Section 202 of the New York State Labor Law or any other applicable law or of the Rules of the Board of Standards and Appeals, or of any other Board or body having or asserting jurisdiction. REQUIREMENTS OF LAW, FIRE INSURANCE: 6. Prior to the commencement of the lease term, if Tenant is then in possession, and at all times thereafter Tenant shall, at Tenant's sole cost and expense, promptly comply with all present and future laws, orders and regulations of all state, federal, municipal and local governments, departments, commissions and boards and any direction of any public officer pursuant to law, and all orders, rules and regulations of the New York Board of Fire Underwriters, or the Insurance Services Office, or any similar body which shall impose any violation, order or duty upon Owner or Tenant with respect to the demised premises, arising out 5 6 of Tenant's use or manner of use thereof, or, with respect to the building, if arising out of Tenant's use or manner of use of the demised premises of the building (including the use permitted under the lease). Except as provided in Article 30 hereof, nothing herein shall require Tenant to make structural repairs or alterations unless Tenant has, by its manner of use of the demised premises or method of operation therein, violated any such laws, ordinances, orders, rules, regulations or requirements with respect thereto. Tenant shall not do or permit any act or thing to be done in or to the demised premises which is contrary to law, or which will invalidate or be in conflict with public liability, fire or other policies of insurance at any time carried by or for the benefit of Owner. Tenant shall not keep anything in the demised premises except as now or hereafter permitted by the Fire Department, Board of Fire Underwriters, Fire Insurance Rating Organization and other authority having jurisdiction, and then only in such manner and such quantity so as not to increase the rate for fire insurance applicable to the building, nor use the premises in a manner which will increase the insurance rate for the building or any property located therein over that in effect prior to the commencement of Tenant's occupancy. If by reason of failure to comply with the foregoing the fire insurance rate shall, at the beginning of this lease or at any time thereafter, be higher than it otherwise would be, then Tenant shall reimburse Owner, as additional rent hereunder, for that portion of all fire insurance premiums thereafter paid by Owner which shall have been charged because of such failure by Tenant. In any action or proceeding wherein Owner and Tenant are parties, a schedule or "make-up" or rate for the building or demised premises issued by a body making fire insurance rates applicable to said premises shall be conclusive evidence of the facts therein stated and of the several items and charges in the fire insurance rates then applicable to said premises. Tenant shall not place a load 6 7 upon any floor of the demised premises exceeding the floor load per square foot area which it was designed to carry and which is allowed by law. Owner reserves the right to prescribe the weight and position of all safes, business machines and mechanical equipment. Such installations shall be placed and maintained by Tenant, at Tenant's expense, in settings sufficient, in Owner's judgment, to absorb and prevent vibration, noise and annoyance. Limitation on load/sq. ft. is 120 Lbs. (One hundred twenty pounds). SUBORDINATION: 7. This lease is subject and subordinate to all ground or underlying leases and to all mortgages which may now or hereafter affect such leases or the real property of which demised premises are a part and to all renewals, modifications, consolidations, replacements and extensions of any such underlying leases and mortgages. This clause shall be self-operative and no further instrument or subordination shall be required by any ground or underlying lessor or by any mortgagee, affecting any lease or the real property of which the demised premises are a part. In confirmation of such subordination, Tenant shall from time to time execute promptly any certificate that Owner may request. TENANT'S LIABILITY INSURANCE PROPERTY LOSS, DAMAGE, INDEMNITY: 8. Owner or its agents shall not be liable for any damage to property of Tenant or of others entrusted to employees of the building, nor for loss of or damage to any property of Tenant by theft or otherwise, nor for any injury or damage to persons or property resulting from any cause of whatsoever nature, unless caused by or due to the negligence of Owner, its agents, servants or employees; Owner or its agents shall not be liable for any damage caused by other tenants or persons in, upon or about said building or caused by operations in connection of any private, public or quasi public work. If at any time any windows of the demised premises are temporarily 7 8 closed, darkened or bricked up (or permanently closed, darkened or bricked up, if required by law) for any reason whatsoever including, but not limited to Owner's own acts, Owner shall not be liable for any damage Tenant may sustain thereby and Tenant shall not be entitled to any compensation therefor nor abatement or diminution of rent nor shall the same release Tenant from its obligations hereunder nor constitute an eviction. Tenant shall indemnify and save harmless Owner against and from all liabilities, obligations, damages, penalties, claims, costs and expenses for which Owner shall not be reimbursed by insurance, including reasonable attorney's fees, paid, suffered or incurred as a result of any breach by Tenant, Tenant's agents, contractors, employees, invitees, or licensees, of any covenant or condition of this lease, or the carelessness, negligence or improper conduct of the Tenant, Tenant's agents, contractors, employees, invitees or licensees. Tenant's liability under this lease extends to the acts and omissions of any sub-tenant, and any agent, contractor, employee, invitee or licensee of any sub-tenant. In case any action or proceeding is brought against Owner by reason of any such claim, Tenant, upon timely written notice from Owner, will, at Tenant's expense, resist or defend such action or proceeding by counsel approved by Owner in writing, such approval not to be unreasonably withheld. DESTRUCTION, FIRE AND OTHER CASUALTY: 9. (a) If the demised premises or any part thereof shall be damaged by fire or other casualty, Tenant shall give immediate notice thereof to Owner and this lease shall continue in full force and effect except as hereinafter set forth. (b) If the demised premises are partially damaged or rendered partially unusable by fire or other casualty, the damages thereto shall be repaired by and at the expense of Owner and the rent and other items of additional rent, until such repair shall be substantially completed, shall be apportioned from the day following the casualty according to the part of the premises which is usable. (c) If the 8 9 demised premises are totally damaged or rendered wholly unusable by fire or other casualty, then the rent and other items of additional rent as hereinafter expressly provided shall be proportionately paid up to the time of the casualty and thenceforth shall cease until the date when the premises shall have been repaired and restored by Owner (or sooner reoccupied in part by Tenant then rent shall be apportioned as provided in subsection (b) above), subject to Owner's right to elect not to restore the same as hereinafter provided. (d) If the demised premises are rendered wholly unusable or (whether or not the demised premises are damaged in whole or in part) if the building shall be so damaged that Owner shall decide to demolish it or to rebuild it, then, in any of such events, Owner may elect to terminate this lease by written notice to Tenant, given within forty-five (45) days after such fire or casualty, or 30 days after adjustment of the insurance claim for such fire or casualty, whichever is sooner, specifying a date for the expiration of the lease, which date shall not be more than 60 days after the giving of such notice, and upon the date specified in such notice the term of this lease shall expire as fully and completely as if such date were the date set forth above for the termination of this lease and Tenant shall forthwith quit, surrender and vacate the premises without prejudice however, to Owner's rights and remedies against Tenant under the lease provisions in effect prior to such termination, and any rent owing shall be paid up to such date and any payments of rent made by Tenant which were on account of any period subsequent to such date shall be returned to Tenant. Unless Owner shall serve a termination notice as provided for herein, Owner shall make the repairs and restorations under the conditions of (b) and (c) hereof, with all reasonable expedition, subject to delays due to adjustment of insurance claims, labor troubles and causes beyond Owner's control. After any such casualty, Tenant shall cooperate with Owner's restoration by removing from the premises as 9 10 promptly as reasonably possible, all of Tenant's salvageable inventory and movable equipment, furniture, and other property. Tenant's liability for rent shall resume five (5) days after written notice from Owner that the premises are substantially ready for Tenant's occupancy. (e) Nothing contained hereinabove shall relieve Tenant from liability that may exist as a result of damage from fire or other casualty. Notwithstanding the foregoing, including Owner's obligation to restore under subparagraph (b) above, each party shall look first to any insurance in its favor before making any claim against the other party for recovery for loss or damage resulting from fire or other casualty, and to the extent that such insurance is in force and collectible and to the extent permitted by law, Owner and Tenant each hereby releases and waives all right of recovery with respect to subparagraphs (b), (d) and (e) above, against the other or any one claiming through or under each of them by way of subrogation or otherwise. The release and waiver herein referred to shall be deemed to include any loss or damage to the demised premises and/or to any personal property, equipment, trade fixtures, goods and merchandise located therein. The foregoing release and waiver shall be in force only if both releasors' insurance policies contain a clause providing that such a release or waiver shall not invalidate the insurance. If, and to the extent, that such waiver can be obtained only by the payment of additional premiums, then the party benefitting from the waiver shall pay such premium within ten days after written demand or shall be deemed to have agreed that the party obtaining insurance coverage shall be free of any further obligation under the provisions hereof with respect to waiver of subrogation. Tenant acknowledges that Owner will not carry insurance on Tenant's furniture and or furnishings or any fixtures or equipment, improvements, or appurtenances removable by Tenant and agrees that Owner will not be obligated to repair any damage thereto or replace the same. (f) Tenant hereby 10 11 waives the provisions of Section 227 of the Real Property Law and agrees that the provisions of this article shall govern and control in lieu thereof. EMINENT DOMAIN: 10. If the whole or any part of the demised premises shall be acquired or condemned by Eminent Domain for any public or quasi public use or purpose, then and in that event, the term of this lease shall cease and terminate from the date of title vesting in such proceeding and Tenant shall have no claim for the value of any unexpired term of said lease. Tenant shall have the right to make an independent claim to the condemning authority for the value of Tenant's moving expenses and personal property, trade fixtures and equipment, provided Tenant is entitled pursuant to the terms of the lease to remove such property, trade fixtures and equipment at the end of the term and provided further such claim does not reduce Owner's award. ASSIGNMENT, MORTGAGE, ETC.: 11. Tenant, for itself, its heirs, distributees, executors, administrators, legal representatives, successors and assigns, expressly covenants that it shall not assign, mortgage or encumber this agreement, nor underlet, or suffer or permit the demised premises or any part thereof to be used by others, without the prior written consent of Owner in each instance. Transfer of the majority of the stock of a corporate Tenant or the majority partnership interest of a partnership Tenant shall be deemed an assignment. If this lease be assigned, or if the demised premises or any part thereof be underlet or occupied by anybody other than Tenant, Owner may, after default by Tenant, collect rent from the assignee, under-tenant or occupant, and apply the net amount collected to the rent herein reserved, but no such assignment, underletting, occupancy or collection shall be deemed a waiver of this covenant, or the acceptance of the assignee, under-tenant or occupant as tenant, or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained. The consent by 11 12 Owner to an assignment or underletting shall not in any wise be construed to relieve Tenant from obtaining the express consent in writing of Owner to any further assignment or underletting. ELECTRIC CURRENT: 12. Rates and conditions in respect to submetering or rent inclusion, as the case may be, to be added in RIDER attached hereto. Tenant covenants and agrees that at all times its use of electric current shall not exceed the capacity of existing feeders to the building or the risers or wiring installation and Tenant may not use any electrical equipment which, in Owner's opinion, reasonably exercised, will overload such installations or interfere with the use thereof by other tenants of the building. The change at any time of the character of electric service shall in no wise make Owner liable or responsible to Tenant, for any loss, damages or expenses which Tenant may sustain. ACCESS TO PREMISES: 13. Owner or Owner's agents shall have the right (but shall not be obligated) to enter the demised premises in any emergency at any time, and, at other reasonable times, to examine the same and to make such repairs, replacements and improvements as Owner may deem necessary and reasonably desirable to any portion of the building or which Owner may elect to perform in the premises after Tenant's failure to make repairs or perform any work which Tenant is obligated to perform under this lease, or for the purpose of complying with laws, regulations and other directions of governmental authorities. Tenant shall permit Owner to use and maintain and replace pipes and conduits in and through the demised premises and to erect new pipes and conduits therein provided, wherever possible, they are within walls or otherwise concealed. Owner may, during the progress of any work in the demised premises, take all necessary materials and equipment not said premises without the same constituting an eviction nor shall the Tenant be entitled to any abatement of rent while such work is in progress nor to any 12 13 damages by reason of loss or interruption of business or otherwise. Throughout the term hereof Owner shall have the right to enter the demised premises at reasonable hours for the purpose of showing the same to prospective purchasers or mortgagees of the building, and during the last six months of the term for the purpose of showing the same to prospective tenants and may, during said six months period, place upon the demised premises the usual notices "To Let" and "For Sale" which notices Tenant shall permit to remain thereon without molestation. If Tenant is not present to open and permit an entry into the demised premises, Owner or Owner's agents may enter the same whenever such entry may be necessary or permissible by master key or forcibly and provided reasonable care is exercised to safeguard Tenant's property, such entry shall not render Owner or its agents liable therefor, nor in any event shall the obligations of Tenant hereunder be affected. If during the last month of the term Tenant shall have removed all or substantially all of Tenant's property therefrom. Owner may immediately enter, alter, renovate or redecorate the demised premises without limitation or abatement of rent, or incurring liability to Tenant for any compensation and such act shall have no effect on this lease or Tenant's obligation hereunder. VAULT, VAULT SPACE, AREA: 14. No vaults, vault space or area, whether or not enclosed or covered, not within the property line of the building is leased hereunder, anything contained in or indicated on any sketch, blue print or plan, or anything contained elsewhere in this lease to the contrary notwithstanding. Owner makes no representation as to the location of the property line of the building. All vaults and vault space and all such areas not within the property line of the building, which Tenant may be permitted to use and/or occupy, is to be used and/or occupied under a revocable license, and if any such license be revoked, or if the amount of such space or area be diminished or required by any federal, state or municipal authority or public utility, Owner 13 14 shall not be subject to any liability nor shall Tenant be entitled to any compensation or diminution or abatement of rent, nor shall such revocation, diminution or requisition be deemed constructive or actual eviction. Any tax, fee or charge of municipal authorities for such vault or area shall be paid by Tenant, if used by Tenant, whether or not specifically leased hereunder. OCCUPANCY: 15. Tenant will not at any time use or occupy the demised premises in violation of the certificate of occupancy issued for the building of which the demised premises are a part. Tenant has inspected the premises and accepts them as is, subject to the riders annexed hereto with respect to Owner's work, if any. In any event, Owner makes no representation as to the condition of the premises and Tenant agrees to accept the same subject to violations, whether or not of record. If any governmental license or permit shall be required for the proper and lawful conduct of Tenant's business, Tenant shall be responsible for and shall procure and maintain such license or permit. BANKRUPTCY: 16. (A) Anything elsewhere in this lease to the contrary notwithstanding, this lease may be canceled by Owner by sending of a written notice to Tenant within a reasonable time after the happening of any one or more of the following events: (1) the commencement of a case in bankruptcy or under the laws of any state naming Tenant as the debtor; or (2) the making by Tenant of an assignment or any other arrangement for the benefit of creditors under any state statute. Neither Tenant nor any person claiming through or under Tenant, or by reason of any statute or order of court, shall thereafter be entitled to possession of the premises demised but shall forthwith quit and surrender the premises. If this lease shall be assigned in accordance with its terms, the provisions of this Article 16 shall be applicable only to the party then owning Tenant's interest in this lease. 14 15 (b) It is stipulated and agreed that in the event of the termination of this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any other provisions of this lease to the contrary, be entitled 1to recover from Tenant as and for liquidated damages an amount equal to the difference between the rental reserved hereunder for the unexpired portion of the term demised and the fair and reasonable rental value of the demised premises for the same period. In the computation of such damages the difference between any installment of rent becoming due hereunder after the date of termination and the fair and reasonable rental value of the demised premises for the same period. In the computation of such damages the difference between any installment of rent becoming due hereunder after the date of termination and the fair and reasonable rental value of the demised premises for the period for which such installment was payable shall be discounted to the date of termination at the rate of four percent (4%) per annum. If such premises or any part thereof be relet by the Owner for the unexpired term of said lease, or any part thereof, before presentation of proof of such liquidated damages to any court, commission or tribunal, the amount of rent reserved upon such reletting shall be deemed to be the fair and reasonable rental value for the part or the whole of the premises so re-let during the term of the re-letting. Nothing herein contained shall limit or prejudice the right of the Owner to prove for and obtain as liquidated damages by reason of such termination, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, such damages are to be proved, whether or not such amount be greater, equal to, or less than the amount of the difference referred to above. DEFAULT: 17. (1) If Tenant defaults in fulfilling any of the covenants of this lease other than the covenants for the payment of rent or additional rent; or if the demised premises becomes 15 16 vacant or deserted "or if this lease be rejected under Section 235 of Title 11 of the U.S. Code (bankruptcy code);" or if any execution or attachment shall be issued against Tenant or any of Tenant's property whereupon the demised premises shall be taken or occupied by someone other than Tenant; or if Tenant shall make default with respect to any other lease between Owner and Tenant; or if Tenant shall have failed, after_____ days written notice, to redeposit with Owner any portion of the security deposited hereunder which Owner has applied to the payment of any rent and additional rent due and payable hereunder or failed to move into or take possession of the premises within _____ days after the commencement of the term of this lease, of which fact Owner shall be the sole judge; then in any one or more of such events, upon Owner serving a written _____ days notice upon Tenant specifying the nature of said default and upon the expiration of said _____ days, if Tenant shall have failed to comply with or remedy such default, or if the said default or omission complained of shall be of a nature that the same cannot be completely cured or remedied within said _____ day period, and if Tenant shall not have diligently commenced during such default within such fifteen (15) day period, and shall not thereafter with reasonable diligence and in good faith, proceed to remedy or cure such default, then Owner may serve a written five (5) days' notice of cancellation of this lease upon Tenant, and upon the expiration of said five (5) days this lease and the term thereunder shall end and expire as fully and completely as if the expiration of such five (5) day period were the day herein definitely fixed for the end and expiration of this lease and the term thereof and Tenant shall then quit and surrender the demised premises to Owner but Tenant shall remain liable as hereinafter provided. (2) If the notice provided for in (1) hereof shall have been given, and the term shall expire as aforesaid; or if Tenant shall make default in the payment of the rent reserved herein 16 17 or any item of additional rent herein mentioned or any part of either or in making any other payment herein required; then and in any of such events Owner may without notice, re-enter the demised premises either by force or otherwise, and dispossess Tenant by summary proceedings or otherwise, and the legal representative of Tenant or other occupant of demised premises and remove their effects and hold the premises as if this lease had not been made, and Tenant hereby waives the service of notice of intention to re-enter or to institute legal proceedings to that end. If Tenant shall make default hereunder prior to the date fixed as the commencement of any renewal or extension of this lease, Owner may cancel and terminate such renewal or extension agreement by written notice. REMEDIES OF OWNER AND WAIVER OF REDEMPTION:** 18. In case of any such default, re-entry, expiration and/or dispossess by summary proceedings or otherwise, (a) the rent, shall become due thereupon and be paid up to the time of such re-entry, dispossess and/or expiration, (b) Owner may re-let the premises or any part or parts thereof, either in the name of Owner or otherwise, for a term or terms, which may at Owner's option be less than or exceed the period which would otherwise have constituted the balance of the term of this lease and may grant concessions or free rent or charge a higher rental than that in this lease, (c) Tenant or the legal representatives of Tenant shall also pay Owner as liquidated damages for the failure of Tenant to observe and perform said Tenant's covenants herein contained, any deficiency between the rent hereby reserved and or covenanted to be paid and the net amount, if any, of the rents collected on account of the subsequent lease or leases of the demised premises for each month of the period - -------------- **Owner shall use best efforts to relet the premises and shall be obligated to mitigate the damages to the extent of rent collected upon reletting, if and when such rent is collected, after deducting all actual expenses incurred in such reletting. 17 18 which would otherwise have constituted the balance of the term of this lease. The failure of Owner to re-let the premises or any part or parts thereof shall not release or affect Tenant's liability for damages. In computing such liquidated damages there shall be added to the said deficiency such expenses as Owner may incur in connection with re-letting, such as legal expenses, reasonable attorneys' fees, brokerage, advertising and for keeping the demised premises in good order or for preparing the same for re-letting. Any such liquidated damages shall be paid in monthly installments by Tenant on the rent day specified in this lease and any suit brought to collect the amount of the deficiency for any month shall not prejudice in any way the rights of Owner to collect the deficiency for any subsequent month by a similar proceeding. Owner, in putting the demised premises in good order or preparing the same for re-rental may, at Owner's option, make such alterations, repairs, replacements, and/or decorations in the demised premises as Owner, in Owner's sole judgment, considers advisable and necessary for the purpose of re-letting the demised premises, and the making of such alterations, repairs, replacements, and/or decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid. Owner shall in no event be liable in any way whatsoever for failure to re-let the demised premises, or in the event that the demised premises are re-let, for failure to collect the rent thereof under such re-letting, and in no event shall Tenant be entitled to receive any excess, if any, of such net rents collected over the sums payable by Tenant to Owner hereunder. In the event of a breach or threatened breach by Tenant of any of the covenants or provisions hereof, Owner shall have the right of injunction and the right to invoke any remedy allowed at law or in equity as if re-entry, summary proceedings and other remedies were not herein provided for. Mention in this lease of any particular remedy, shall not preclude Owner from any other remedy, 18 19 in law or in equity. Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws. FEES AND EXPENSES: 19. If Tenant shall default in the observance or performance of any material term or covenant on Tenant's part to be observed or performed under or by virtue of any of the terms or provisions in any article of this lease, after notice if required and upon expiration of any applicable grace period if any, (except in an emergency), then, unless otherwise provided elsewhere in this lease, Owner may immediately or at any time thereafter and after ten (10) days without notice perform the obligation of Tenant thereunder. If Owner, in connection with the foregoing or in connection with any default by Tenant in the covenant to pay rent hereunder, makes any expenditures or incurs any obligations for the payment of money, including but not limited to reasonable attorney's fees, in instituting, prosecuting or defending any action or proceedings, and prevails in any such action or proceeding, then Tenant will reimburse Owner for such reasonable sums so paid or obligations incurred with interest and costs. The foregoing expenses incurred by reason of Tenant's default shall be deemed to be additional rent hereunder and shall be paid by Tenant to Owner within ten (10) days of rendition of any bill or statement to Tenant therefor. If Tenant's lease term shall have expired at the time of making of such expenditures or incurring of such obligations, such sums shall be recoverable by Owner as damages. BUILDING ALTERATIONS AND MANAGEMENT: 20. Owner shall have the right at any time without the same constituting an eviction and without incurring liability to Tenant therefor to change the arrangement and or location of public entrances, passageways, doors, doorways, corridors, elevators, stairs, toilets or other public parts of the building and to change the name, number or 19 20 designation by which the building may be known. There shall be no allowance to Tenant for diminution of rental value and no liability on the part of Owner by reason of inconvenience, annoyance or injury to business arising from Owner or other Tenant making any repairs in the building or any such alterations, additions and improvements. Furthermore, Tenant shall not have any claim against Owner by reason of Owner's imposition of any controls of the manner of access to the building by Tenant's social or business visitors as the Owner may deem necessary for the security of the building and its occupants. NO REPRESENTATIONS BY OWNER: 21. Neither Owner nor Owner's agents have made any representations or promises with respect to the physical condition of the building, the land upon which it is erected or the demised premises, the rents, leases, expenses of operation or any other matter or thing affecting or related to the demised premises or the building except as herein expressly set forth and no rights, easements or licenses are acquired by Tenant by implication or otherwise except as expressly set forth in the provisions of this lease. Tenant has inspected the building and the demised premises and is thoroughly acquainted with their condition and agrees to take the same "as is" on the date possession is tendered and acknowledges that the taking of possession of the demised premises by Tenant shall be conclusive evidence that the said premises and the building of which the same form a part were in good and satisfactory condition at the time such possession was so taken, except as to latent defects. All understandings and agreements heretofore made between the parties hereto are merged in this contract, which alone fully and completely expresses the agreement between Owner and Tenant and any executory agreement hereafter made shall be ineffective to change, modify, discharge or effect an abandonment of it in 20 21 whole or in part, unless such executory agreement is in writing and signed by the party against whom enforcement of the change, modification, discharge or abandonment is sought. END OF TERM: 22. Upon the expiration or other termination of the term of this lease, Tenant shall quit and surrender to Owner the demised premises, boom clean, in good order and condition, ordinary wear and damages which Tenant is not required to repair as provided elsewhere in this lease excepted, and Tenant shall remove all its property from the demised premises. Tenant's obligation to observe or perform this covenant shall survive the expiration or other termination of this lease. If the last day of the term of this Lease or any renewal thereof, falls on Sunday, this lease shall expire at noon on the preceding Saturday unless it be a legal holiday in which case it shall expire at noon on the preceding business day. QUIET ENJOYMENT: 23. Owner covenants and agrees with Tenant that upon Tenant paying the rent and additional rent and observing and performing all the terms, covenants and conditions, on Tenant's part to be observed and performed, Tenant may peaceably and quietly enjoy the premises hereby demised, subject, nevertheless, to the terms and conditions of this lease including, but not limited to, Article 34 hereof and to the ground leases, underlying leases and mortgages hereinbefore mentioned. FAILURE TO GIVE POSSESSION: 24. If Owner is unable to give possession of the demised premises on the date of the commencement of the term hereof, because of the holding-over or retention of possession of any tenant, undertenant or occupants or if the demised premises are located in a building being constructed, because such building has not been sufficiently completed to make the premises ready for occupancy or because of the fact that a certificate of occupancy has not been procured or if Owner has not competed any work required to be performed by Owner, or for any 21 22 other reason, Owner shall not be subject to any liability for failure to give possession on said date and the validity of the lease shall not be impaired under such circumstances, nor shall the same be construed in any [wise]way to extend the term of this lease, but the rent payable hereunder shall be abated (provided Tenant is not responsible for Owner's inability to obtain possession or complete any work required) until after Owner shall have given Tenant notice that Owner is able to deliver possession in the condition required by this lease. If permission is given to Tenant to enter into the possession of the demised premises or to occupy premises other than the demised premises prior to the date specified at the commencement of the term of this lease, Tenant covenants and agrees that such possession and/or occupancy shall be deemed to be under all the terms, covenants, conditions and provisions of this lease, except the obligation to pay the fixed annual rent set forth in page one of this lease. The provisions of this article are intended to constitute "an express provision to the contrary" within the meaning of Section 223-a of the New York Real Property Law. NO WAIVER: 25. The failure of Owner to seek redress for violation of, or to insist upon the strict performance of any covenant or condition of this lease or of any of the Rules or Regulations, set forth or hereafter adopted by Owner, shall not prevent a subsequent act which would have originally constituted a violation from having all the force and effect of an original violation. The receipt by Owner of rent with knowledge of the breach of any covenant of this lease shall not be deemed a waiver of such breach and no provision of this lease shall be deemed to have been waived by Owner unless such waiver be in writing signed by Owner. No payment by Tenant or receipt by Owner of a lesser amount than the monthly rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or 22 23 statement of any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Owner may accept such check or payment without prejudice to Owner's right to recover the balance of such rent or pursue any other remedy in this lease provided. All checks tendered to Owner as and for the rent of the demised premises shall be deemed payments for the account of Tenant. Acceptance by Owner of rent from anyone other than Tenant shall not be deemed to operate as an attornment to Owner by the payor of such rent or as a consent by Owner to an assignment or subletting by Tenant of the demised premises to such payor, or as a modification of the provisions of this lease. No act or thing done by Owner or Owner's agents during the term hereby demised shall be deemed an acceptance of a surrender of said premises, and no agreement to accept such surrender shall be valid unless in writing signed by Owner. No employee of Owner or Owner's agent shall have any power to accept the keys of said premises prior to the termination of the lease and the delivery of keys to any such agent or employee shall not operate as a termination of the lease or a surrender of the premises. WAIVER OF TRIAL BY JURY: 26. It is mutually agreed by and between Owner and Tenant that the respective parties hereto shall and they hereby do waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other (except for personal injury or property damage) on any matters whatsoever arising out of or in any way connected with this lease, the relationship of Owner and Tenant, Tenant's use of or occupancy of said premises, and any emergency statutory or any other statutory remedy. It is further mutually agreed that in the event Owner commences any proceeding or action for possession including a summary proceeding for possession of the premises, Tenant will not interpose any counterclaim of 23 24 whatever nature or description in any such proceeding including a counterclaim under Article 4 except for statutory mandatory counterclaims. INABILITY TO PERFORM: 27. This Lease and the obligation of Tenant to pay rent hereunder and perform all of the other covenants and agreements hereunder on part of Tenant to be performed shall in no wise be affected, impaired or excused because Owner is unable to fulfill any of its obligations under this lease or to supply or is delayed in supplying any service expressly or impliedly to be supplied or is unable to make, or is delayed in making any repair, additions, alterations or decorations or is unable to supply or is delayed in supplying any equipment, fixtures or other materials if Owner is prevented or delayed from so doing by reason of strike or labor troubles or any cause whatsoever beyond Owner's sole control including, but not limited to, government preemption or restrictions or by reason of any rule, order or regulation of any department or subdivision thereof of any government agency or by reason of the conditions which have been or are affected, either directly or indirectly, by war or other emergency. BILLS AND NOTICES: 28. Except as otherwise in this lease provided, a bill statement, notice or communication which Owner may desire or be required to give to Tenant, shall be deemed sufficiently given or rendered if, in writing, delivered to Tenant personally or sent by registered or certified mail addressed to Tenant at the building of which the demised premises form a part or at the last known residence address or business address of Tenant or left at any of the aforesaid premises addressed to Tenant, and the time of the rendition of such bill or statement and of the giving of such notice or communication shall be deemed to be the time when the same is delivered to Tenant, mailed, or left at the premises as herein provided. Any notice by Tenant to Owner 24 25 must be served by registered or certified mail addressed to Owner at the address first hereinabove given or at such other address as Owner shall designate by written notice. WATER CHARGES: 29. If Tenant requires, uses or consumes water for any purpose in addition to ordinary lavatory purposes (of which fact Tenant constitutes Owner to be the sole judge) Owner may install a water meter and thereby measure Tenant's water consumption for all purposes. Tenant shall pay Owner for the cost of the meter and the cost of the installation, thereof, and throughout the duration of Tenant's occupancy Tenant shall keep said meter and installation equipment in good working order and repair at Tenant's own cost and expense in default of which Owner may cause such meter and equipment to be replaced or repaired and collect the cost thereof from Tenant, as additional rent. Tenant agrees to pay for water consumed, as shown on said meter as and when bills are rendered, and on default in making such payment Owner may pay such charges and collect the same from Tenant, as additional rent. Tenant covenants and agrees to pay, as additional rent, the sewer rent, charge or any other tax, rent, levy or charge which now or hereafter is assessed, imposed or a lien upon the demised premises or the realty of which they are part pursuant to law, order or regulation made or issued in connection with the use, consumption, maintenance or supply of water, water system or sewage or sewage connection system. If the building or the demised premises or any part thereof is supplied with water through a meter through which water is also supplied to other premises Tenant shall pay to Owner as additional rent on the first day of each month, ________% ($ ) of the total meter charges as Tenant's portion. Independently of and in addition to any of the remedies reserved to Owner hereinabove or elsewhere in this lease, Owner may sue for and 25 26 collect any monies to be paid by Tenant or paid by Owner for any of the reasons or purposes hereinabove set forth. SPRINKLERS: 30. Anything elsewhere in this lease to the contrary notwithstanding, if the New York Board of Fire Underwriters, or the New York Fire Insurance Exchange or any bureau, department or official of the federal, state or city government recommend or require the installation of a sprinkler system or that any changes, modifications, alterations or additional sprinkler heads or other equipment be made or supplied in an existing sprinkler system by reason of Tenant's business, or the location of partitions, trade fixtures, or other contents of the demised premises, or for any other reason, or if any such sprinkler system installations, modifications, alterations, additional sprinkler heads or other such equipment, become necessary to prevent the imposition of a penalty or charge against the full allowance for a sprinkler system in the fire insurance rate set by any said Exchange or by any fire insurance company, Tenant shall, at Tenant's expense, promptly make such sprinkler system installations, changes, modifications, alterations, and supply additional sprinkler heads or other equipment as required whether the work involved shall be structural or non-structural in nature. Tenant shall pay to Owner as additional rent the sum of $____________, on the first day of each month during the term of this lease, as Tenant's portion of the contract price for sprinkler supervisory service. ELEVATORS, HEAT, CLEANING: 31. As long as Tenant is not in default under any [of] the covenants of this lease beyond the applicable grace period provided in this lease for the curing of such defaults, Owner shall: (a) provide necessary passenger elevator facilities on business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to 1 p.m.; (b) if freight elevator service is provided, same shall be provided only on regular business days Monday through Friday inclusive, 26 27 and on those days only between the hours of 9 a.m. and 12 noon and between 1 p.m. and 5 p.m.; (c) furnish heat, water and other services supplied by Owner to the demised premises, when and as required by law, on business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to 1 p.m.; (d) clean the public halls and public portions of the building which are used in common by all tenants. Tenant shall, at Tenant's expense, keep the demised premises, including the windows, clean and in order, to the reasonable satisfaction of Owner, and for that purpose shall employ the person or persons, or corporation approved by Owner. Tenant shall pay to Owner the cost of removal of any of Tenant's refuse and rubbish from the building. Bills for the same shall be rendered by Owner to Tenant at such time as Owner may elect and shall be due and payable hereunder, and the amount of such bills shall be deemed to be, and be paid as, additional rent. Tenant shall, however, have the option of independently contracting for the removal of such rubbish and refuse in the event that Tenant does not wish to have same done by employees of Owner. Under such circumstances, however, the removal of such refuse and rubbish by others shall be subject to such rules and regulations as, in the judgement of Owner, are necessary for the proper operation of the building. Owner reserves the right to stop service of the heating, elevator, plumbing and electric systems, when necessary, by reason of accident, or emergency, or for repairs, alterations, replacements or improvements, in the judgement of Owner desirable or necessary to be made, until said repairs, alterations, replacements or improvements shall have been completed. If the building of which the demised premises are a part supplies manually operated elevator service, Owner may proceed diligently with alterations necessary to substitute automatic control elevator service without in any way affecting the obligations of Tenant hereunder. 27 28 SECURITY: 32. Tenant has deposited with Owner the sum of $22,000. - as security for the faithful performance and observance by Tenant of the terms, provisions and conditions of this lease; it is agreed that in the event Tenant defaults in respect of any of the terms, provisions and conditions of this lease, including, but not limited to, the payment of rent and additional rent, Owner may use, apply or retain the whole or any part of the security so deposited to the extent required for the payment of any rent and additional rent or any other sum as to which Tenant is in default or for any sum which Owner may expend or may be required to expend by reason of Tenant's default in respect of any of the terms, covenants and conditions of this lease, including but not limited to, any damages or deficiency in the reletting of the premises, whether such damages or deficiency accrued before or after summary proceedings or other re-entry by Owner. In the event that Tenant shall fully and faithfully comply with all of the terms, provisions, covenants and conditions of this lease, the security shall be returned to Tenant after the date fixed as the end of the Lease and after delivery of entire possession of the demised premises to Owner. In the event of a sale of the land and building or leasing of the building, of which the demised premises form a part, Owner shall have the right to transfer the security to the vendee or lessee and Owner shall thereupon be released by Tenant from all liability for the return of such security; and Tenant agrees to look to the new Owner solely for the return of said security, and it is agreed that the provisions hereof shall apply to every transfer or assignment made of the security to a new Owner. Tenant further covenants that it will not assign or encumber or attempt to assign or encumber the monies deposited herein as security and that neither Owner nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. 28 29 CAPTIONS: 33. The captions are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope of this lease nor the intent of any provision thereof. DEFINITIONS: 34. The term "Owner" as used in this lease means only the owner of the fee or of the leasehold of the building, or the mortgagee in possession, for the time being of the land and building (or the owner of a lease of the building or of the land and building) of which the demised premises form a part, so that in the event of any sale or sales of said land and building or of lease, or in the event of a lease of said building, or of the land and building, the said Owner shall be and hereby is entirely freed and relieved of all covenants and obligations of Owner hereunder, and it shall be deemed and construed without further agreement between the parties or their successors in interest, or between the parties and the purchaser, at any such sale, or the said lessee of the building, or of the land and building, that the purchaser or the lessee of the building has assumed and agreed to carry out any and all covenants and obligations of Owner hereunder. The words "re-enter" and re-entry" as used in this lease are not restricted to their technical legal meaning. The term "rent" includes the annual rental rate whether so expressed or expressed in monthly installments, and "additional rent." "Additional rent" means all sums which shall be due to Owner from Tenant under this lease, in addition to the annual rental rate. The term "business days" as used in this lease, shall exclude Saturdays, Sundays and all days observed by the State or Federal Government as legal holidays and those designated as holidays by the applicable building service union employees service contract or by the applicable Operating Engineers contract with respect to HVAC service. Wherever it is expressly provided in this lease that consent shall not be unreasonably withheld, such consent shall not be unreasonably delayed. 29 30 ADJACENT EXCAVATION-SHORING: 35. If an excavation shall be made upon land adjacent to the demised premises, or shall be authorized to be made, Tenant shall afford to the person causing or authorized to cause such excavation, license to enter upon the demised premises for the purpose of doing such work as said person shall deem necessary to preserve the wall or the building of which demised premises form a part from injury or damage and to support the same by proper foundations without any claim for damages or indemnity against Owner, or diminution or abatement of rent. RULES AND REGULATIONS: 36. Tenant and Tenant's servants, employees, agents, visitors, and licensees shall observe faithfully, and comply strictly with, the Rules and Regulations annexed hereto and such other and further reasonable Rules and Regulations as Owner or Owner's agents may from time to time adopt. Notice of any additional rules or regulations shall be given in such manner as Owner may elect. In case Tenant disputes the reasonableness of any additional Rule or Regulation hereafter made or adopted by Owner or Owner's agents, the parties hereto agree to submit the question of the reasonableness of such Rule or Regulation for decision to the New York office of the American Arbitration Association, whose determination shall be final and conclusive upon the parties hereto. The right to dispute the reasonableness of any additional Rule or Regulation upon Tenant's part shall be deemed waived unless the same shall be asserted by service of a notice, in writing upon Owner within fifteen (15) days after the giving of notice thereof. Nothing in this lease contained shall be construed to impose upon Owner any duty or obligation to enforce the Rules and Regulations or terms, covenants or conditions in any other lease, as against any other tenant and Owner shall not be liable to Tenant for violation of the same by any other tenant, its servants, employees, agents, visitors or licensees. 30 31 GLASS: 37. Owner shall replace, at the expense of the Tenant, any and all plate and other glass damaged or broken from any cause whatsoever in and about the demised premises. Owner may insure, and keep insured, at Tenant's expense, all plate and other glass in the demised premises for and in the name of Owner. Bills for the premiums therefor shall be rendered by Owner to Tenant at such times as Owner may elect, and shall be due from, and payable by, Tenant when rendered, and the amount thereof shall be deemed to be, and be paid, as additional rent. ESTOPPEL CERTIFICATE: 38. Tenant, at any time, and from time to time, upon at least 10 days' prior notice by Owner, shall execute, acknowledge and deliver to Owner, and/or to any other person, firm or corporation specified by Owner, a statement certifying that this Lease is unmodified in full force and effect (or, if there have been modifications, that the same is in full force and effect as modified and stating the modifications), stating the dates to which the rent and additional rent have been paid, and stating whether or not there exists any default by Owner under this Lease, and, if so, specifying each such default. DIRECTOR BOARD LISTING: 39. If, at the request of and as accommodation to Tenant, Owner shall place upon the directory board in the lobby of the building, one or more names of persons other than Tenant, such directory board listing shall not be construed as the consent by Owner to an assignment or subletting by Tenant to such person or persons. SUCCESSORS AND ASSIGNS: 40. The covenants, conditions and agreements contained in this lease shall bind and inure to the benefit of Owner and Tenant and their respective heirs, distributees, executors, administrators, successors, and except as otherwise provided in this lease, their assigns. Tenant shall look only to Owner's estate and interest in the land and building for the satisfaction of Tenant's remedies for the collection of a judgement (or other judicial process) 31 32 against Owner in the event of any default by Owner hereunder, and no other property or assets of such Owner (or any partner, member, officer or director thereof, disclosed or undisclosed), shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant's remedies under or with respect to this lease, the relationship of Owner and Tenant hereunder, or Tenant's use and occupancy of the demised premises. Space to be filled in or deleted. Para 32 continued- Such Security Deposit shall not bear any interest. In Witness Whereof, Owner and Tenant have respectively signed and sealed this lease as of the day and year first above written. Witness for Owner: R.A.A. REALTY COMPANY LP - ------------------------- --------------------------- [L.S.] Witness for Tenant: MEDSCAPE INC. - ------------------------- --------------------------- [L.S.] 32 33 Rider Agreement Dated February 1999., Between R.A.A. Realty Company LP., as Owner and Medscape Inc., as Tenant. ------------------------------------------- 41. BASE RENT: A. Tenant shall pay to the Owner base rent for the demised premises in accordance with the provisions of the printed form of this Lease as follows: $153,333.- from 03/01/1999 to 06/30/2000 that is $9,583.33/mo $119,000.- from 07/01/2000 to 06130/2001 that is $9,916.67/mo $123,000.- from 07/01/2001 to 06/30/2002 that is $10,250.00/mo $127,000.- from 07/01/2002 to 06/30/2003 that is $10,583.33/mo $131,000.- from 07/01/2003 to 06/30/2004 that is $10,916.67/mo Rent will be abated through April 15, 1999 42. OPTION TO RENEW: A. Provided Tenant is not in default in any of the material terms, covenants or condition of this Lease, including but not limited to the obligation to pay rent or additional rent, and provided further that Owner has not during the initial term of the Lease commenced any summary proceeding for possession or rent that has resulted in a judgement in favor of Owner, whether by stipulation or after trial, Tenant shall have the right to renew this Lease for an additional Five (5) year term commencing July lst, 2004 and expiring June 30, 2009 The base rent for the renewal term shall be as follows: $140,000.- from 07/01/2004 to 06/30/2005 that is $11,666.67/mo $144,000.- from 07/01/2005 to 06/30/2006 that is $12,000.00/mo $148,000.- from 07/01/2006 to 06/30/2007 that is $12,333.33/mo $152,000.- from 07/01/2007 to 06/30/2008 that is $12,666.67/mo $156,000.- from 07/01/2008 to 06/30/2009 that is $13,000.00/mo -1- 34 B. If the Tenant exercises the option to renew the lease; tenant shall notify Landlord in writing on or before December 31, 2003 that it intends to renew the Lease. The failure by Tenant to notify Landlord timely of its intention to renew shall constitute an affirmative election by Tenant not to renew the lease upon which Landlord may reasonably rely, if it so desires to recent the demised premises to a third party. 43. SUBLEASE Owner represents and Tenant understands and agrees that Owner is the proprietary lessee of the demised premises pursuant to a Proprietary Lease between Owner, as lessee and 134 West 29th Street Owners Corp, as lessor ("Owners Corporation"). All rights of Tenant are subject to the Proprietary Lease. Tenant shall observe each and every covenant of the Proprietary Lease on the part to be performed by Owner as lessee under the Proprietary Lease. Observance of the terms, covenants and conditions of the Proprietary Lease by the Tenant except the financial obligation shall be deemed a substantial obligation of this tenancy. This lease is conditioned upon Owner's obtaining the written consent from the Owner Corporation to this lease by 02/28/99. 44. PAYMENT OF RENT AND ADDITIONAL RENT A. The payment of all rent and additional rent under this lease shall constitute a substantial obligation of this tenancy entitling the Owner to exercise all its rights and remedies under Article 17 of this lease. B. It shall not constitute a bar, preclusion or election of remedies against the enforcement of a landlord's rights and remedies under Article 17 of this lease for nonpayment of rent or additional rent if the Owner has already commenced a proceeding or action to recover the rent or additional rent. C. Tenant covenants and agrees that the monthly installments of annual rent shall be paid by Tenant to Owner on or before the first day of each month without notice or demand by Owner. In the event that such installments of annual rental shall not be paid by the Fifth (5) day of the month or any item of additional rent shall not be paid within the applicable time period following written demand therefore, the owner shall give a written notice to the Tenant. If the Tenant does not pay the amount due within three (3) days of receipt of such written notice then the Tenant shall pay to the Owner as additional rent, a late charge equal to two (2%) percent of such monthly installment or item of additional rent . D. If Owner receives from Tenant any payment less than the sum of the annual rent, additional rent and other amount due under this Lease, (Partial Payment), or Tenant is in arrears in payment of any amount due under this Lease, in its sole discretion, may -2- 35 allocate such Partial Payment or payment in whole or in part to any other charges or to any combination thereof. E. If the Tenant's checks are returned by his bank for any reason whatsoever three times during the term of the lease, then, the Owner, at Owner's option, shall have the right, to demand payment of future installments of rent or additional rent by certified, bank or teller's check or by postal money order. 45. CONDITION OF PREMISES Tenant acknowledges that it has inspected demised premises and is familiar with the physical condition of same and Tenant agrees to accept the demised premises in their AS IS physical condition. Owner represents that substantially all the friable Asbestos Containing Material has been either removed or contained throughout the building and in the demised premises. Owner will defend, indemnify and hold harmless Tenant, its affiliates, its employees, agents and insurers, from and against all losses, claims, damages, fines and expenses (including without limitation reasonable legal fees) resulting from any environmental remediation required by applicable laws, regulations or directives of properly constituted governmental authorities as a result of the release of any toxic or hazardous substance or waste on or about the Demised Premises by anyone other that Tenant, its affiliates, its employees, agents or contractors. 46. USE A. Tenant shall use and occupy the demised premises solely for the use specified in Article 2 of the printed form of this lease and for no other purposes. Tenant specifically covenants and agrees that Tenant shall not use the demised premises or any part thereof, nor permit the demised premises of any part thereof to be used for sleeping or residential purposes or for overnight accommodations. B. In addition, Tenant shall not suffer nor permit the demised premises or any part thereof to be used in any manner, or anything to be done therein, or suffer or permit anything to be brought into or kept therein, which would in any way (i) violate any of the provisions of any grant, lease or mortgage or requirements of public authorities (ii) make void or voidable any fire or liability insurance policy then in force with respect to the building, (iii) make unattainable or more difficult to obtain from reputable insurance companies authorized to do business in New York State fire insurance with extended coverage, or liability, elevator, boiler or any other insurance maintained by Landlord, (iv) cause physical damage to the building or any part thereof, (v) constitute a public or private nuisance, (vi) impair, the appearance, character or reputation of the building, (vii) impair or interfere with any of the building services or the proper -3- 36 and heating, cleaning, or other servicing of the building or the demised premises or impair or interfere with or tend to impair or interfere with the use of the other areas of the building by, or occasion discomfort, annoyance or inconvenience to, Owner or any of the other tenants or occupants of the building, (viii) violate any of the terms, covenants or conditions contained in this Lease, or (ix) be illegal, unlawful, or result in the creation of a public or private nuisance. C. Owner makes no representations, guarantees, or acknowledgments that the use designated in the Lease by the Tenant is permitted under any statute, ordinance, rule, regulation, or other present or future law promulgated by any state, federal, municipal, or local government or agency or authority thereof. In the event that said use is illegal or determined by any notice of violation or order issued by the aforesaid appropriate governmental authority, then upon six (6) days prior written notice given in accordance with this Lease, this Lease and the term thereof shall expire on the last day of said notice as if said day were the last day of the term of this Lease. D. If any governmental licence or permit shall be required for the proper and lawful conduct of Tenant's business, Tenant, at Tenant's sole cost and expense, shall duly procure and thereafter maintain such licence or permit and submit the same to inspection by Owner Tenant, at Tenant's sole cost and expense, shall at all times comply with the terms and conditions of each such licence or permit. E. The Owner represents to the best of his knowledge that the Premises may be used for an office and there are no outstanding violations on the Premises, that the Landlord is aware, that would preclude Tenant from obtaining a building permit for alterations. 47. BROKERAGE The parties warrant and represent to each other that they had no dealings with any broker or agent in connection with this Lease. The Tenant shall have no obligation with respect to any commission payable to said broker. The parties covenant and agree to hold each other harmless and indemnify each other from and against any and all costs, expenses or liability for any compensation, commissions, fees and charges claimed by any broker with respect to this Lease or the negotiation thereof. The obligation of Tenant contained in the Article shall survive the expiration or earlier termination of this Lease. 48. RUBBISH REMOVAL AND CLEANING A. Tenant covenants and agrees to maintain the demised premises and adjacent public and/or common areas in a condition of proper cleanliness, orderliness and state of attractive appearance at all times. Tenant shall also be responsible and shall contract for -4- 37 the removal of all rubbish from the demised premises at its sole cost and expense, in accordance with any and all applicable municipal codes and regulations. If Tenant fails or refuses to remove any rubbish from, in or around the demised premises, the Owner may contract to have same removed and the Tenant shall pay for actual costs of said removal as additional rent. 49. INSURANCE A. Tenant shall obtain or procure its own fire, rental, liability, or other casualty insurance as may be required under the terms of this Lease. Supplementary Article 9 of this Lease, each party shall look first to any insurance in its favor before making any claim against the other party for recovery of loss or damage resulting from fire or any other casualty. B. (1) Tenant shall, at its sole cost and expense, procure and maintain throughout the term of this Lease a comprehensive general liability policy of insurance insuring Tenant, Owner and Owners Corporation against any and all risks and/or liability for property damage and bodily injury to or death of a person or persons in, on or about the demised premises, occasioned by or arising out of or in connection with the use or occupancy of the demised premises, and a fire insurance policy (including extended coverage, vandalism and malicious mischief) covering the demised premises and Tenant's property. Such policies must be obtained from an insurance company rated "A" or better by A.M. Best Company, Inc. in an amount not less than $1,000,000.00 with respect to the bodily injuries or to death of any one person, in an amount not less than $1,000,000.00 per occurrence, and in an amount of not less than $250,000.00 for property damage, and shall name Owner and Owner's Corporation as additional insureds. Tenant will deliver the original policy and all original renewals of said policy to owner on demand. (2) Tenant shall at all times during this Lease is in effect maintain for its own benefit, fire and casualty insurance for all the contends, fixtures, personal, property, inventory and other moveable or nonmoveable property of Tenant. C. Tenant agrees to pay all premiums and charges for the insurance required to be maintained by Tenant pursuant to the terms of this Lease. If Tenant fails to make any such payments when due, or in the event of its failure to deliver and/or pay the premium thereon, then Owner after giving 10 days written notice to the Tenant and opportunity to cure, may pay said premium or charge (but in no event shall be obligated to do so), and upon written demand to Tenant, Owner may collect said payment as additional rent, or deem Tenant to be in default of substantial obligation of its tenancy. The failure to maintain and/or renew the above policies of insurance shall constitute a breach of a substantial obligation of this tenancy. -5- 38 50. ADDITIONAL RENT A. All payments, other than the base rental as adjusted from time to time, to be made by Tenant pursuant to this Lease shall be deemed additional rent, whether or not specifically so called, and, in the event of any non-payment thereof, Owner shall have all rights and remedies provided for herein or by law for non-payment of rent. B. Should Tenant default in the timely performance of any covenant, term or condition herein contained on Tenant's part to be performed, Owner, at its option and without thereby waiving such a default, may perform or cause the Managing Agent of the Building to perform the same for and on account of, and at the expense of the Tenant after five (5) days written notice (except in the event of an emergency, i.e., threat of personal injury and/or damage or destruction of property, when no notice shall be required. Tenant shall pay as an item of additional rent all costs and expenses which Owner may incur any of Tenant's defaults within five (5) days following delivery of a written demand therefore which costs and expenses shall included, but not be limited to, materials, fees paid to architects, engineers, attorneys, contractors, subcontractors fines and penalties. C. Owner's failure during the term of this Lease to prepare and deliver any statements of bills required to be delivered to Tenant pursuant to the provisions of this lease, or Owner's failure to make a demand for the payment of any item of additional rent, shall not in any way be deemed to be a waiver of, or cause Owner to forfeit or surrender its rights to collect such additional rent during the terms of this lease. Tenant's liability for the payment of any item of additional rent shall survive the expiration or sooner termination of this Lease. 51. NO WAIVER BY OWNER A. The receipt of any rent, or any portion thereof, whether specifically reserved or payable under any of the covenants herein contain, after a default on the part of the Tenant (whether such rent is due before or after such default) shall not be deemed to operate as a waiver of any default or of any current default or of the right of Owner to enforce the payment of any rent herein reserved or to declare a forfeiture to this Lease and to recover the possession of the demised premises provided in this Lease. Nor shall B. Owner's acceptance of rent during any time in which Tenant is in default of any provision hereunder shall not constitute a waiver of such default, and Tenant specifically agrees and consents that rent must be paid by Tenant during any default and Tenant specifically agrees that such acceptance shall be made without prejudice to Owner's right to Terminate this Lease and shall not be deemed a consent to any default of the Lease. -6- 39 52. BILLS AND NOTICES Supplementing Article 28 of this lease, any notice, bill, statement, or communication required to be given under the terms of this Lease by the Owner shall be sufficiently given by the Owner's agent or attorney-at-law or in-fact, whether or not any authorization is annexed. Any notice, bill, statement, or communication required to be given shall be sufficiently given when mailed. 53. ELECTRICITY SERVICE A. (1) Landlord shall redistribute or furnish electrical energy to or for the use of Tenant in the Premises for the operation of the lighting fixtures and the electrical receptacles installed in the Premises. Tenant's electrical consumption shall be measured by the meter currently installed in the Premises. The cost of electricity utilized by Tenant shall be paid for by Tenant to Landlord as additional rent and shall be calculated at the then applicable rate prescribed by the public utility company serving the Premises for submetered electrical energy, plus (i) Landlord's charge for overhead and supervision in the amount of ten percent (10%) of the total electric bill and (ii) any taxes or other charges in connection therewith. If any tax shall be imposed upon Landlord's receipts from the sale or resale of electrical energy to Tenant, the prorata share applicable to the electrical energy service received by Tenant shall be passed on to, included in the bill of, and paid by Tenant if and to the extent permitted by law. Landlord shall bill Tenant, monthly, for the cost of its consumption of electricity in the Premises and Tenant shall pay the amount thereof at the time of payment of each installment of Rent. If either the quantity of character of electrical services is changed by the public utility or other company supplying electrical service to the Building or is no longer available or suitable for Tenant's requirements, no such change, unavailability or unsuitability shall constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution or rent, or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Landlord, or its agents, by reason of inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's. (2) Any additional feeders or risers which are required to supply any additional electrical requirements which Tenant may have, and all other equipment proper and necessary in connection with such feeders or risers, shall be installed by Landlord upon Tenant's request, at the sole cost and expense of Tenant, provided that, in Landlord's reasonable judgment, such additional feeders or riders are necessary and are permissible under application laws and insurance regulations and the installation of such feeders or risers will not cause permanent damage or injury to the Building or the Premises or cause or create a dangerous or hazardous condition or entail excessive or unreasonable alterations or interface with or disturb other tenants or occupants of the Building. At no time shall the use of electrical energy in the Premises exceed the capacity of the existing feeders or wiring installations then serving the Premises. Tenant shall not make or perform, or permit the making or performance of, any alterations to wiring installations or other electrical facilities in or serving the Premises without the prior consent of -7- 40 Landlord in each instance. Any such Alterations, additions or consent by Landlord shall be subject to the provisions of this Lease including, but not limited to, the provisions of Article 3 hereof. (3) Landlord reserves the right to discontinue furnishing electricity to Tenant in the Premises on not less than sixty (60) days' written notice to Tenant. If Landlord exercises such right to discontinue, or is compelled to discontinue furnishing electricity to Tenant, this Lease shall continue in full force and effect and shall be unaffected thereby, except only that from and after the effective date of such discontinuance, Landlord shall not be obliged to furnish electricity to Tenant. If Landlord so discontinues furnishing electricity to Tenant, Tenant shall arrange to obtain electricity directly from the public utility or other company servicing the Building. Such electricity may be furnished to Tenant by means of the then existing electrical facilities serving the Premises to the extent that the same are available, suitable and safe for such purposes. All meters and all additional panel boards, feeders, risers, wiring and other conductors and equipment which may be required to obtain electricity, of substantially the same quantity, quality and character, shall be installed by Landlord at Tenant's sole cost and expense. Landlord shall not voluntarily discontinue furnishing electricity to Tenant until Tenant is able to receive electricity directly from the public utility or other company servicing the Building. (4) Landlord shall not be liable to tenant in any way for any interruption, curtailment or failure or defect in the supply or character of electricity furnished to the premises by reason of any requirement, act or omission or Landlord or of any public utility or other company servicing the Building with electricity or for any other reason except Landlord's negligence or willful conduct. B. Tenant shall not be released or excused from the performance of any of its obligations under this Lease for any change in the quantity or quality of service, failure or interruption or curtailment or cessation of Utilities service for any reason whatsoever except Landlord's negligence or willful misconduct and no such change, failure, interruption or curtailment or cessation shall constitute a constructive or partial eviction or entitle Tenant to an abatement of, offset against, or deduction from rent or additional rent or impose any liability upon Owner. C. Owner shall not be obligated to provide hot water, air conditioning, and ventilation service to the demised premises. 54. ESTOPPEL CERTIFICATE A. Upon Owner's written request, Tenant. shall confirm the existence of this Lease and any modifications hereto as evidenced by a written agreement, and/or specific terms hereof (said form shall hereinafter be referred to as a "Estoppel Certificate"). Tenant shall within five (5) days from receipt of an Estoppel Certificate, execute the same in the -8- 41 presence of a notary public who shall thereafter complete the acknowledgment and Tenant shall return said Estoppel Certificate to Owner and/or Owner's designee by the means specified. All parties to whom said Estoppel Certificate is addressed shall be absolutely entitled to rely upon the reservations of Tenant therein contained and Tenant shall be forever barred from refuting any statements therein set forth as of the date to which said Estoppel Certificate speaks. Upon written request, Landlord shall deliver to tenant an Estoppel Certificate. B. If, in connection with obtaining financing, a bank, insurance company, or other lending institution shall request reasonable modifications in this Lease as a condition to such financing, Tenant will not unreasonably withhold, delay or defer its consent thereto, provided that such modifications do not increase the obligations of Tenant hereunder or materially adversely affect the leasehold interest or rights hereby created. 55. NO LIABILITY ON LANDLORD A. Tenant shall indemnify and save Owner harmless against (i) any and all claims against Owner of whatever nature arising from any wrongful act, omission or negligence of Tenant, its contractors, licensees, agents servants, employees, invitees and or visitors. (ii) any and all claims against the owner arising from any accident, injury or damage occurring outside of the demised premises but within or about the land and building where accident, injury or damage result from any act, omissions or negligence of Tenant, its contractors, licensees, agents, servants, employees, invitees and/or visitors, (iii) any breach, violation or nonperformance of any of the terms, covenants, and conditions contained in this lease on the part of the Tenant to be fulfilled, kept, observed and performed. This indemnity and hold harmless covenant shall include indemnity from and against any and all liability, fines, suits, demands, costs and expenses (including attorneys' fees and disbursements) of any kind or nature incurred in connection with any such claim or proceeding brought thereon, and the defense thereof by the owner. The indemnity and hold harmless covenant shall survive the expiration or the earlier termination of the term of this Lease and for any period of time prior to the commencement of the term of this Lease during which Tenant was given access to the demised premises. B. Tenant shall reimburse Owner as an item of additional rent within ten (10) days following written demand therefor, for all expenditures incurred by or damages or fines sustained or incurred by owner due to Tenant's default of the provisions of this Article. C. Notwithstanding anything provided in this Lease or provided at law or in equity to the contrary, in the event that Tenant shall obtain a monetary judgement against Owner in any action or proceeding, Tenant shall seek satisfaction of such a judgement only from Owner's estate and interest in the demised premises comprising of Cooperative Unit # 201/2, 203, 204, 205, 206, 207, 208, 209/10 in 134 West 29th Street Owners Corporation, and -9- 42 not other property or other assets belonging to owner or its directors, officers, partners, principals (disclosed or undisclosed) or employees shall be subject to lien, levy, execution or other enforcement procedure for the satisfaction of any such judgement arising from the relationship of landlord and tenant hereunder, Tenant's use and occupancy of the demised premises or this Lease. If Tenant shall acquire a lien on such other property or assets by judgement or otherwise, Tenant shall promptly release such lien by executing and delivering to Owner an instrument to the effect prepared by Owner, Tenant's covenants as contained in the Article shall survive the expiration or the earlier termination of the term of this Lease. 56. MECHANICS' LIEN In no event shall any material or equipment be incorporated into the demised premises in connection with any alterations, installations, additions, improvements, repairs or replacements made by Tenant including, but not limited to, Tenant's changes, which is subject to any lien, encumbrance, chattel mortgage, security interest or charge of any kind whatsoever, or is subject to any conditional sale or other similar or dissimilar title retention agreement with this express written consent of Owner. Tenant specifically covenants that any personal property which Tenant shall bring to or install in the demised premises which requires special handling shall not be subject to any security interest held by a third party. Any mechanic's or materialman's lien filed against the lands and/or the building or Owner's interest therein, for work claimed to have been done, or for materials claimed to have been furnished to Tenant, shall be discharged by Tenant within one hundred twenty (120) days thereafter, at Tenant's sole cost and expense, by filing a bond as provided by law or otherwise. If Tenant shall fail to have discharged any lien or encumbrance described in this Article, Owner, shall have the right but not the obligation, to cause such lien or encumbrance to be discharged by bonding or otherwise, and Tenant shall reimburse Owner as an item of additional rent, for all actual costs and expenses which owner incurs, including reasonable attorneys' fees and disbursements, within ten (10) days following written demand. 57. GOVERNMENTAL REGULATIONS A. In the event the Tenant makes any alterations, decorations, installations, etc., including but not limited to, Tenant's changes, if any, that do not comply with applicable building regulations, administrative agency, governmental or quasi-governmental agency regulations, or that may result in the imposition of any fines, penalties (civil or criminal) or any monetary awards, costs or fees against Landlord, Tenant shall be liable for any and all costs associated therewith including, but not limited to, attorney's fees, architects' fees, engineering fees, penalties, fines, renovation costs, construction costs, consultation and any and all other costs, which shall be deemed additional rent and due upon receipt of Owner's statement therefor. -10- 43 B. Supplementing the provisions of Article 6 hereof, Tenant shall promptly comply with and give prompt notice to Owner of any notice it receives of the violation of any present or future law, order, ordinance, or regulation of any governmental entity, department, commission, or any direction of any public officer pursuant to law or of the New York Board of Fire Underwriters or the use or occupation thereof, and Tenant shall effect such compliance its sole cost and expense. 58. LIMITATION ON RENT A. If, at the commencement of, or at any time during the term of this lease, the rent reserved in this Lease is not fully collectible by reason of any federal, state, county or city law, proclamation, order or regulation, or direction of a public officer or body pursuant to law, Tenant agrees to take such steps as Owner may request to permit Owner to collect the maximum rents which may be legally permissible from time to time during the continuance of such legal rent restriction (but not in excess of the amounts reserved therefore under this Lease). Upon the termination of such legal rent restriction, Tenant shall pay to Owner to the extent permitted by law, an amount equal to (a) the rents which would have been paid pursuant to this lease to such legal rent restriction less (b) the rents paid by Tenant to Owner during the period such legal rent restriction was in effect. B. To the maximum extent permitted by law, Tenant hereby waives any right to continued occupancy of the demised premises after the expiration of the Lease imposed by any statute, rule or ordinance. If Tenant by regulatory statute, rule or ordinance is entitled to continued occupancy, and so long as such stature is in effect or applies to Tenant, then Tenant shall be obligated to pay rent on a month-to-month basis at a new base rent equal to 125% of the highest monthly rent set forth in this Lease plus any and all additional rents denominated herein, and the terms herein shall ply to such statutory tenancy to the extent they do not conflict with statute, rule or ordinance. 59. ENTIRE AGREEMENT This Lease contains the entire understanding arrived at between the parties and all prior discussions and negotiations are merged herein and may not be extended, renewed, terminated, or otherwise modified except by an instrument in writing signed by the party against whom enforcement of any such modification if sought. 60. LEASE NOT BINDING UNLESS EXECUTED AND DELIVERED It is specifically understood and agreed that this Lease is offered to Tenant for signature subject to Owner's acceptance and approval and that Tenant has hereunto -11- 44 affixed its signature with the understanding that this Lease shall not in any way bind owner until such time as the same has been approved and executed by Landlord and delivered to Tenant. 61. SEVERABILITY This lease shall be construed without regard to any presumption or other rule requiring construction against the party causing this Lease or any part thereof to be drafted. If any provision of this Lease shall be determined to be void or unenforceable by any court of competent jurisdiction, then such determination shall not affect any other provisions of this Lease, all of which other provisions shall remain in full force and effect; and it is the intention of the parties hereto that if any provision of this Lease is capable of two constructions, one which would render the provision valid, then the provision shall have the meaning which renders it valid. 62. NO COUNTERCLAIMS Tenant shall and hereby does waive its right and agrees not to interpose any counterclaim or set off, of whatever nature or description, in any proceeding or action that may be instituted by Owner against Tenant to recover rent, additional rent, other charges, possession, or for damages, or in connection with any matters or claims whatsoever arising out of our in any way connected with this lease, or any renewal, extension, holdover, or modification thereof, or the relationship of owner and Tenant, or Tenant's use or occupancy of said premises. This clause, as well as the "waiver of jury trial" provision of this lease, shall survive the expiration, early termination, or cancellation of this lease or the term thereof. Nothing herein contained, however, shall be construed as a waiver of Tenant's right to commence a separate action on a bona fide claim against Owner. 63. OWNER'S CONSENT If Tenant shall request Owner's approval or consent and Owner shall fail or refuse to give such approval or consent, Tenant shall not be entitled to any damages for any withholding or delay of such approval or consent by Owner except where it is determined that Owner's willfully acted in bad faith it otherwise being intended that Tenant's sole remedy shall be an action for injunction or specific performance (the rights to money damages or other remedies being hereby specifically waived), and that such remedy shall be available only in those cases where Owner shall have expressly agreed in writing not to unreasonably withhold its consent or approval or where, as a matter of law, Owner may not unreasonably withhold its consent or approval. -12- 45 64. SUBORDINATION AND ATTORNMENT A. This Lease and all rights of Tenant hereunder are and shall be subject and subordinate in all respects to all underlying leases and to all mortgages and building loan agreements, including without limitation leasehold mortgages, which may now or hereafter affect the land and/or the building and/or any of such leases, whether or not such mortgages shall also cover other lands and/or buildings, to each and every advance made or hereafter to be made under such mortgages and/or building loan agreements, and all renewals, modifications, replacements, assignments, and extensions of such leases, building loan agreements, mortgages and spreaders and consolidations of such mortgages. This Article shall be self-operative and no further instrument of subordination shall be required. In confirmation of such subordination, Tenant shall promptly, at its sole cost and expense, execute and deliver any instrument in recordable form that Owner, the lessor of any such lease of the holder of any such mortgage or any of their respective assigns or successors-in-interest may reasonably request to evidence such subordination. The leases to which this Lease is, at the time referred to, subject and subordinate pursuant to this Article are hereinafter sometimes called "superior leases" and the mortgages to which this Lease is, at the time referred to, subject and subordinate pursuant to this Article are hereinafter sometimes called "superior mortgages" and the lessor of a superior lease or its successor-in-interest, at the time referred to, is sometimes hereinafter called a "lessor" and the holder of a superior mortgage or its successor-in-interest at the time referred to is sometimes hereinafter called a "holder". B. In the event of any act or omission of Owner which would give tenant the right, immediately or after lapse of a period off time, to cancel or terminate this lease, or to claim a partial or total eviction, Tenant shall not exercise such right (i) until it has given written notice of such act or omission to the lease, and (ii) unless such act or omission shall be one which is not capable of being remedied by Owner or such holder or lessor within a reasonable period of time, until a reasonable period of time, for remedying such act or omission shall have elapsed following the giving of such notice and following the time when such holder or lessor shall have become entitled under such superior mortgage or superior lease, as the case may be, to remedy the same (to which reasonable period shall in no event be less that the period to which Owner would be entitled under this Lease otherwise, after similar notice, to effect such remedy, ) provided such holder or lessor shall with due diligence give Tenant written notice of its intention to and commence and continue to, remedy such act or omission. C. If the fee owner of the lands and/or building of which the demised premises form a part, the lessor of a superior lease of the holder of a superior mortgage shall succeed to the rights of Owner under this lease, whether through possession or foreclosure action or through termination for any reason of the leasehold estate covering the lands and/or building or by delivery succeeding to Owner's rights (herein sometimes called "successor Landlord") and upon such successor Owner's written agreement to accept Tenant's attornment, Tenant shall attorn to and recognize such successor landlord as Tenant's landlord under this -13- 46 Lease. The foregoing provisions shall inure to the benefit of any such successor Landlord, and shall be self-operative upon any demand, without requiring any further instrument to give effect to said provisions. Tenant, however, upon demand of any such successor landlord, agrees to execute, from time to time, an instrument in confirmation of such attornment which is satisfactory to such successor landlord. Upon such attornment this lease shall continue in full force and effect for the remainder of the term originally demised under this lease as, or as if it were, a direct lease between successor landlord and Tenant upon all of the terms, covenants, conditions, agreements and provisions as are set forth in this lease except that the successor landlord shall not: (i) be liable for any previous act or omission of owner under this Lease; (ii) be subject to any offset, not expressly provided for in this lease, which shall have theretofore accrued to Tenant against Owner or (iii) be bound by any previous modification of this lease, not expressly provided for in this lease, or by any previous prepayment of more than one month's installments of fixed annual rent, unless such modification or prepayment shall have been expressly approved in writing by the successor landlord through or by reason of which the successor landlord shall have succeeded to the rights of Owner under this lease. D. Landlord hereby agrees to request from any lessor under a Superior Lease, or trustee or mortgages of a Mortgage superior to the interest of Tenant hereunder, an agreement in the standard form customarily employed by such lessor, trustee or mortgagee pursuant to which such lessor, trustee, or mortgagee shall agree that the leasehold estate granted to Tenant and the rights of Tenant pursuant to this Lease to quiet and peaceful possession under this Lease shall not be terminated, modified, affected or disturbed by an action which any such trustee or mortgagee may take to foreclose any such mortgage, or which any such lessor may take to terminate such Superior Lease. Such agreement shall remain in effect so long as Tenant shall pay the Rent, escalations, additional rents, and other amounts to be paid by Tenant under the Lease, within any applicable grace periods provided for hereunder, without offsets or defenses thereto, and as long as Tenant shall fully perform and comply with all the other terms, covenants, conditions and provisions of this Lease on the part of the Tenant to be performed or complied with. 65. OCCUPANCY TAX Tenant shall pay any occupancy tax or rent tax now in effect or hereafter enacted directly to the taxing authority responsible for the collection of the same. In the event such occupancy tax or rent tax is payable by Owner in the first instance or hereafter required to be paid by owner, such tax shall be paid to owner additional rent within ten (10) days following Owner's written demand therefor. Nothing contained herein shall be deemed to require -14- 47 Tenant to pay municipal, state, federal income, inheritance, estate, succession, transferor gift or any corporate franchise tax imposed upon Owner. 66. REPAIRS AND MAINTENANCE A. Tenant shall, at its sole cost and expense, take good care of and make all interior repairs and replacements to the demised premises and the fixtures and appurtenances therein, nonstructural, foreseen and/or unforseen, and ordinary and/or extraordinary during the Term of this lease, which shall include, without limitation, all repairs and replacements of the demised premises, electrical, ventilating systems, floors, walls, ceiling, doors, pipes, conduits appurtenant to the demised premises as and when needed so as to preserve, maintain and/or keep the demised premises in good working order, conditions and/or repair and in tenantable condition, reasonable wear and tear, obsolescence and damage from the elements, fire and other casualty. B. The quality of workmanship and materials used with respect to the repairs, replacements, maintenance and other work required to be done under the Article and/or Article 4 hereof shall be at least equal in quality and class to the original materials and workmanship. 67. CONFLICTS If there is any conflict between the terms contained in the printed form lease and the terms contained in this Rider, the provisions of this Rider shall govern. 68. HOLDING OVER Should Tenant hold over in possession after the expiration or sooner termination of the term of the Lease, such holding-over shall not be deemed to extend or renew this Lease, but such holding-over shall be on the terms and conditions of this Lease except that the charge for use and occupancy for each calender month shall be 125% of the highest monthly rent set forth in this Lease plus all items of additional rent set forth herein. 69. ASSIGNMENT AND SUBLETTING Tenant, for itself, its heirs, distributees, executors, administrators, legal representatives, successors and assignees, expressly covenants that it shall not assign, mortgage, pledge, encumber, or otherwise transfer this Lease, nor underlet, nor suffer, nor permit the Premises or any part thereof to be used or occupied by others (whether for desk space, mailing privileges or otherwise), without the prior written consent of Landlord in each instance -15- 48 which shall not be unreasonably withheld or delayed. If this Lease be assigned, or if the Premises or any part thereof be underlet or occupied by anybody other than Tenant, Landlord may, after default by Tenant, collect rent from the assignee, undertenant or occupant, and apply the net amount collected to the Rent herein reserved, but no assignment, underletting, occupancy or collection shall be deemed a waiver of the provisions hereof, the acceptance of the assignee, undertenant or occupant as tenant, or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained. The consent by Landlord to an assignment or underletting shall not in any way be construed to relieve Tenant from obtaining the express consent in writing of Landlord to any further assignment or underletting. In no event shall any permitted sublessee assign or encumber its sublease or further sublet all or any portion of its sublet space, or otherwise suffer or permit the sublet space or any part thereof tor be used or occupied by others, without Landlord's prior written consent, in each instance. Any assignment, sublease, mortgage, pledge, encumbrance or transfer in contravention of this Article shall be void. Owner hereby agrees that Tenant may allow all or part of the premises to be occupied by its affiliates or sublet all or part of the premises to its affiliates provided, that such agreements, terms, provisions and conditions contained in this Lease. Owner shall cause to list Tenant and its affiliates to be posted on the building directory in the lobby. Tenant may also assign this Lease to an affiliate. A transfer of this Lease in connection with a merger, sale of assets or corporate acquisition or reorganization shall not require Landlord's consent, nor shall a transfer of Tenant's stock in connection with a public offering, private placement or sale to any outside part constitutes an assignment requiring Landlord's consent. 70. Notwithstanding anything to the contrary contained herein, Owner shall remain responsible for maintaining and repairing the heating and plumbing systems (except Air-conditioning) provided such repair results from problems not caused by Tenant, its affiliates, its agents, its employees or its contractors. 71. Tenant has requested and Owner has agreed to allow non-powered bicycles to be brought in the Demised Premises, provided however that, the freight elevators which are open on weekdays (Monday through Friday between 10:00 a.m. to 6:00 p.m.) are used only to transport them from street level floor to the 2nd floor). Tenant shall assume all liability including but not limited to theft, damage to property and any third party claim, with respect to the bicycles being brought into the building. 72. Notwithstanding anything to the contrary contained herein, Tenant shall have access to building 24 hours a day, 7 days a week by private key. However, Owner shall not provide heat and freight elevator services on holidays and after office hours. -16- 49 73. Tenant is aware that currently the premises are occupied. Owner shall try to deliver vacant premises by February 28, 1999. In the event there is delay in delivering the vacant possession of the premises, then the rent shall begin 45 days after delivery of vacant possession. Tenant may terminate the lease if possession is not delivered by March 31, 1999. R.A.A. Realty Company L.P. -------------------------- Owner. By: /s/ ---------------------- Medscape Inc. -------------------------- Tenant. By: /s/ Steven Kalin -------------------------- -17- EX-10.7 11 EMPLOYMENT AGREEMENT WITH PAUL T. SHEILS 1 Exhibit 10.7 EXECUTION COPY EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into on the 26th day of January, 1998 by and between MEDSCAPE, INC., a New York corporation (the "Company"), and PAUL T. SHEILS ("Executive"). 1. Employment and Term. The Company will employ Executive as President and Chief Executive Officer of the Company, and Executive shall accept such employment, for a three year period commencing February 16, 1998 (the "Employment Date"), subject to earlier termination pursuant to the terms hereof. Executive shall at all times report to, and shall be subject to the policies established by, the Company's Board of Directors (the "Board"). Executive shall during the term of this Agreement serve as a full voting member of the Board. Executive shall be responsible for all segments of the Company's business and all other officers of the Company shall report to Executive. 2. Performance. Executive shall (i) loyally and conscientiously perform all his duties and obligations under this Agreement to the best of his abilities; (ii) devote substantially all of his business time, attention, energy and efforts to the business of the Company; and (iii) not directly or indirectly render any services of a commercial or professional nature to any other person or organization without the prior written consent of the Board. 3. Compensation and Benefits. (a) Base Salary. During the first year of this Agreement, the Company shall pay Executive a base salary of $195,000 per year, payable in accordance with the Company's standard payroll policy. Executive's base salary during the second and third years of this Agreement shall be determined by the Compensation Committee of the Board, but in no event shall the base salary in such years be less than the base salary payable in the first year. (b) Signing Bonus. On or before the Employment Date, the Company shall pay Executive a one-time signing bonus of $35,000. (c) Performance Bonuses. In addition to the base salary, the Company shall pay Executive a performance bonus in respect of the calendar year 1998 in accordance with the Performance Bonus & Goals set forth in Exhibit A. Executive's performance bonus and goals during, calendar years 1999 and 2000 shall be developed by the Compensation Committee of the Board after consultation with Executive, but in no event shall the performance bonus at target (budget) in each such year be less than $35,000 in the aggregate. Executive shall be entitled to any bonus earned with respect to any calendar year so long as Executive remains employed by the Company at the end of such year, but shall not be entitled to any portion of the bonus for any calendar year in which he is not employed by the Company at year end. Any performance bonus shall be payable as soon as practicable after each calendar year during the term of this Agreement. 2 2 (d) Stock Option. On the Employment Date, Executive shall be granted an incentive stock option to purchase 300,000 shares of Class B Common Stock, par value $.01 per share pursuant to the Company's 1996 Stock Option Plan (the "Option Plan"). The stock option agreement, including the terms of such grant, is attached to this Agreement as Exhibit B. (e) Benefits. During the term hereof, Executive shall be entitled to all such family health and medical benefits (including, dental) and all life and disability insurance as are provided to the senior executives of the Company. (f) Vacation. Executive shall be entitled to paid vacation each year in accordance with the Company's vacation policy for its senior executives. 4. Restrictive Covenants. (a) Noncompetition During Employment. During his employment with the Company, Executive shall not, directly or indirectly, either as an employee, consultant, agent, principal, partner, stockholder, corporate officer, director, or in any other individual or representative capacity, engage or participate in any business or organization that is competitive with the business of the Company. (b) Noncompetition After Employment. Executive agrees that for the one year period following termination of his employment with the Company, he will not (i) directly or indirectly, either as employee, consultant, agent, principal, partner, stockholder, corporate officer, director, or in any other individual or representative capacity, engage or participate in any business or organization that is competitive with the business of the Company at the time of such termination; (ii) solicit, divert or take away, or attempt to solicit, divert or to take away, the business or patronage of any of the clients, customers or accounts of the Company (except on behalf of a business unrelated to the business of the Company); or (iii) encourage or solicit any employee of the Company to leave the employ of the Company for any reason; provided, however, that in the event Executive is terminated by the Company without "Good Cause" (as defined in Section 5(b)), the provisions of this Section 4(b) shall apply only for a period of six (6) months following termination of employment and the provisions of Section 4(b)(i) shall only prohibit Executive from engaging or participating, in the manner described in clause (i) above, in the businesses or other organizations that own the following Websites (subject to the exception in Section 4(c)(i)): Physicians Online, Medec Interactive, Harrisons On Line and the American Medical Association. (c) Exceptions. Notwithstanding the provisions of this Section 4, nothing herein shall prohibit Executive from (i) holding less than two percent (2%) of the outstanding capital stock of a publicly held corporation engaged in a business that competes with the business of the Company; (ii) serving on one or more Boards of Directors of non-profit corporations so long as, in the aggregate, such commitments do not interfere with the performance of Executive's duties for the Company; or (iii) after his employment with the Company terminates for any reason, being 3 3 employed by a multi-division corporation that competes with the Company so long as Executive's responsibilities do not extend to the specific division of such corporation that competes with the Company and so long as Executive does not work in such division or advise or otherwise assist such division. (d) Remedies and Interpretation. The restrictions contained in this Section 4 and in Section 6 of this Agreement are necessary for the protection of the business and goodwill of the Company and are considered by Executive to be reasonable for such purpose. Executive agrees that any breach of this Section 4 or Section 6 by Executive is likely to cause the Company substantial and irrevocable damage and therefore, in the event of any such breach, Executive agrees that the Company, in addition to any other remedies that may be available, shall be entitled to specific performance and other injunctive relief, without proving actual damages. If any restriction set forth in this Section 4 or in Section 6 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable. 5. Termination of Employment. (a) Death or Disability. In the event of the Executive's death or "Disability" (as defined below), the Company may by written notice to Executive terminate Executive's employment effective not less than 30 days after the date of such notice. "Disability" means a mental or physical condition that renders Executive incapable of performing his duties and obligations under this Agreement for a period of six consecutive months, or more than 210 days in any eight month period, in the written opinion of a competent physician specializing in such condition selected by the Board who has personally examined and evaluated Executive's condition. Executive agrees to submit to appropriate medical examination by such physician at the Company's expense and that such physician's determination shall be final. If this Agreement is terminated by Company under this Section 5(a), the Company shall pay Executive or his estate within 10 days after the effective date of such termination any unpaid compensation (including any accrued but unpaid vacation pay and bonuses accrued in accordance with Section 3(c) hereof) accrued through such effective date, provided that no severance amount shall be payable. (b) Termination for Good Cause. The Company may terminate Executive's employment at any time for "Good Cause," as defined below. "Good Cause" means gross misconduct, gross neglect of duties (including by reason of alcohol or drug, dependency), acts involving moral turpitude, conviction of a felony, material breach by Executive of this Agreement that is not substantially cured within 30 business days after receipt of written notice from the Company of such breach, or any act or omission involving fraud, embezzlement or misappropriation of any property of the Company by Executive. 4 4 (c) Termination without Good Cause. If the Company terminates Executive's employment without Good Cause, the Company shall (i) give Executive written notice of such termination at least 60 days prior to the effective date of such termination; (ii) pay Executive within 10 business days after the effective date of such termination all unpaid compensation (including any accrued but unpaid vacation pay and bonuses accrued in accordance with Section 3(c) hereof) accrued through the effective date of such termination; (iii) pay Executive monthly severance payments equal to Executive's base monthly salary in effect at the time of such termination for a period of six months after the effective date of such termination (provided the Company may, in its discretion, upon receipt of a written request from Executive, pay such unpaid compensation and severance payments in a lump sum); and (iv) provide Executive full family health and medical benefits (including dental) and all life and disability insurance as are provided to the senior executives of the Company for a period of six months after the effective date of such termination. (d) Termination by Executive. Executive may terminate this Agreement by giving the Company written notice at least 60 days prior to the effective date of such termination. If Executive terminates this Agreement under this Section 5(d), the Company shall pay Executive only any unpaid compensation (including any accrued but unpaid vacation pay) accrued through the effective date of such termination, but Executive shall not be entitled to any severance payments. (e) Resignation as Director. Upon termination of Executive's employment pursuant to this Agreement, he shall resign as a director and an officer of the Company. 6. Development Rights and Confidential Information. (a) Developments. Executive agrees that any developments by way of invention, design, copyright, trademark, software, magazine or journal concept or other matters which may be developed or perfected by him during the term of this Agreement or which are in process or under investigation during the term of this Agreement, and which relate to the business of the Company or its subsidiaries, shall be the property of the Company. The Employee will, at the request and expense of the Company, assist the Company in applying for and prosecuting letters patent thereon in the United States or in foreign countries if the Company reasonably requests, and will assign and will transfer the same to the Company together with any letters patent, copyrights, trademarks and applications therefor. (b) Confidentiality. Executive agrees not to disclose or use Confidential Information of the Company except in connection with his employment with the Company. For purposes of this Section 6(b), the term "Confidential Information" shall mean all information in any manner relating to the Company's business including, but not limited to, information regarding business plans and strategies, trade secrets, "know-how", inventions, software, finances, markets, properties, methods of doing business, processes, customers, staff resumes, executive compensation, or suppliers, whether or not such information is labeled or otherwise identified as confidential. Irrespective of the foregoing, no information will be deemed "Confidential Information" if such 5 5 information (i) is a part of the public knowledge or literature or becomes part of the public knowledge or literature, in either case from a source other than Executive or a source acting at Executive's direction, (ii) is received by Executive in writing, without binder of secrecy, from a third party who is entitled to convey such information to the public, or (iii) is required by law or court order to be disclosed. Upon termination of this Agreement, Executive will deliver to the Company all equipment, records, copies of records and any other written information of or pertaining to the Company or any subsidiary of the Company which are then in his possession. 7. Company Covenants. The Company covenants and agrees with Executive, as a condition to his acceptance of employment with the Company, to take all actions within its power and to use its best efforts to obtain the approvals of third parties (including without limitation, the shareholders of the Company and/or parties to relevant agreements) necessary or appropriate, to accomplish the following as soon as reasonably practicable: (a) Amendment of Restated Certificate of Incorporation. Amendment of the Company's Restated Certificate of Incorporation to provide that, upon the consummation of a firm commitment underwritten public offering of any class of common stock of the Company pursuant to a registration statement under the Securities Act of 1933, as amended, or immediately prior to the consummation of a Corporate Change (as defined in the Option Plan), all shares of Class A Common Stock, $.01 par value per share of the Company, and all shares of Class B Common Stock, $.01 par value per share of the Company, shall automatically convert into a single class of Common Stock, S.01 par value of the Company, on a one-for-one basis. (b) Increase in Option Plan Shares. Approval by the Company's shareholders of an increase in the aggregate number of shares reserved for issuance under the Option Plan from 1,400,000 shares to 1,700,000 shares, as previously approved by the Board. (c) Amendment to Stockholders' Agreement. Amendment of Section 2(b) of the Stockholders' Agreement, dated as of the 31st day of October, 1997, by and among the Company and the other parties thereto, to provide that Executive shall be entitled to serve as a director of the Company for so long as he is the President of the Company. Executive shall become a party to such amendment for purposes of Section 2 thereof. 8. Miscellaneous. (a) Governing Law. This Agreement shall be governed by, and interpreted in accordance with, the laws of New York applicable to contracts made and performed in New York. (b) Arbitration. Any dispute between Executive and the Company with respect to the terms of this Agreement, or any claim arising out of or relating to this Agreement, will 6 6 be submitted to and be settled by final and binding arbitration in New York, New York, in accordance with the rules of the American Arbitration Association. (c) Entire Agreement. This Agreement, including all exhibits and schedules attached hereto, constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements relating to the subject matter hereof. No amendment or modification of this Agreement shall be effective unless in writing and signed by both parties hereto. (d) Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be construed, if possible, so as to be enforceable under applicable law; if such construction is not possible, then such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. (e) Successors and Assigns. The rights and obligations of the Company under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Company. Executive shall not be entitled to assign any of his rights or obligations under this Agreement. (f) Notices. All notices required or permitted under this Agreement shall be in writing, and shall be deemed effective upon delivery as evidenced by delivery receipt via overnight delivery service or registered or certified mail to the addresses set forth on the signature page, or such other address as either party shall designate to the other in accordance with this provision. (g) Waiver. A waiver by either party of any breach hereof by the other party shall not be construed as a waiver of any subsequent breach. (h) Counterparts. This agreement may be executed in counterparts with the same force and effect as if each signatory had executed the same instrument. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. MEDSCAPE, INC. By /s/ /s/ Paul T. Sheils --------------------------- ----------------------------- Title: President PAUL T. SHEILS 7 7 134 West 29th Street 18 Crown Terrace New York, NY 10001 Yardley, PA 19067 8 EXHIBIT A PERFORMANCE BONUS GOALS & PAYMENTS The "Target Bonus" (the annual amount payable if the "target" level for each goal is achieved) is $35,000 in the aggregate for each of calendar years 1998, 1999 and 2000. If the Threshold Level for all goals is achieved, Executive will receive a bonus payment equal to 25% of the Target Bonus; if the "Superior Level" for all goals is achieved, Executive will receive a bonus payment equal to 150% of the Target Bonus. Actual bonus payments will be calculated on a linear basis between the Threshold Level and the Target Level and between the Target Level and Superior Level, as the case may be; provided, however, that the bonus calculation shall be measured for each separate goal based on the weighting ascribed to that goal. The following example illustrates this plan: Assume that in 1998, the Company achieves (1) 100% of budgeted revenue, (2) 110% of budgeted EBITDA, and (3) 95% of U.S. MD Registrants. The bonus earned would be $35,000, consisting of (1) $10.5M ($35M x 30%) with respect to revenues, (2) $14M ($35M x 30% + (2/3 x 50% of Target Bonus for such goal)), and $10.5M ($35M x 40% x (2/3 x 75% of Target Bonus for such goal + 25% of Target Bonus for such goal)). The goals, their weighting and the performance levels are as follows:
GOAL WEIGHTING THRESHOLD* TARGET* SUPERIOR Medscape Revenue 30% 85% of Budget Budget 115% of Budget Medscape EBITDA 30% 85% of Budget Budget 115% of Budget U.S. MD Registrants 40% 85% of Budget Budget 115% of Budget
* Based on 1998 Budget (draft) dated December 10, 1997. 9 EXHIBIT B MEDSCAPE, INC. INCENTIVE STOCK OPTION AGREEMENT THIS AGREEMENT, made as of the ____ day of February, 1998, by and between Medscape, Inc., a New York corporation (the "Company"), and Paul T. Sheils (the "Employee"). WITNESSETH THAT: WHEREAS, the Company pursuant to its 1996 Stock Option Plan, as amended (the "Plan") wishes to grant this stock option to the Employee. NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto hereby agree as follows: 1. Grant of Option. The Company hereby grants to the Employee, on the date set forth above, the right and option (hereinafter called "the option") to purchase all or any part of an aggregate of 300,000 shares of Class B Common Stock, par value $0.01 per share, of the Company at the price of $.43 per share and subject to the terms and conditions set forth herein. This option is intended to be an incentive stock option within the meaning of Section 422 of the Internal Revenue Code 1986, as amended (the "Code"). 2. Duration and Exercisabilitv. (a) Except as provided in Section 2(c) below, this option shall become exercisable with respect to one third of the total number of shares subject to the option grant upon the Employee's completion of the first twelve (12) months of employment and with respect to the balance of the shares, in successive equal monthly installments, over the next two years, such that this option shall be fully exercisable after three (3) full years of employment. This option shall in all events terminate ten (10) years after the date of grant (or, in the case of a shareholder of the Company owning more than 10% of the voting power of stock of the Company and its affiliates, five (5) years from the date of grant). (b) During the lifetime of Employee, the option shall be exercisable only by Employee and shall not be assignable or transferable by Employee, other than by will or the laws of descent and distribution. (c) Notwithstanding the installment exercise provision set forth in Section 2(a) above and subject to the other terms and conditions set forth herein, this option may be exercised as to 100% of the shares of Class B Common Stock of the Company for which this option was granted 10 2 on the date of a "Corporate Change" (as such term is defined under Section 13 of the Plan). Immediately following any Corporate Change, the option shall terminate and cease to be outstanding, except to the extent assumed by any successor corporation (or parent thereof). 3. Effect of Termination of Employment. (a) In the event that Employee shall cease to be employed by the Company or its subsidiaries, if any, for any reason other than Employee's Serious Misconduct (as such term is defined in Section 3(d) hereof), or Employee's death or Disability (as such term is defined in Section 3(e) hereof), Employee shall have the right to exercise the option at any time within 90 days after such termination of employment to the extent of the full number of shares the Employee was entitled to purchase under the option on the date of termination, subject to the condition that no option shall be exercisable after the expiration of the term of the option. (b) In the event that Employee shall cease to be employed by the Company or its subsidiaries, if any, by reason of Employee's Serious Misconduct (as defined in Section 3(d)) during the course of employment, the option shall terminate as of the date of the Serious Misconduct. (c) If Employee shall die while in the employ of the Company or a subsidiary, if any, or within 90 days after termination of employment for any reason other than Serious Misconduct (as defined in Section 3(d)), or if employment is terminated because Employee has incurred a Disability (as defined in Section 3(e)) while in the employ of the Company or a subsidiary, if any, and the Employee shall not have fully exercised the option, such option may be exercised at any time within twelve (12) months after Employee's death or date of termination of employment for Disability by Employee, his personal representatives, administrators or guardians, as applicable, or by any person or persons to whom the option is transferred by will or the applicable laws of descent and distribution, to the extent of the full number of shares Employee was entitled to purchase under the option on the date of death or, in the case of death within 90 days after termination of employment, on the date of termination of employment, if earlier, or date of termination for such Disability and subject to the condition that no option shall be exercisable after the expiration of the term of the option. (d) "Serious Misconduct" shall mean conduct inimical to the interests of the Company which causes material economic damage to the Company (for example, misappropriation of Company funds) or conduct which significantly interferes with the individual's ability to perform their duties (for example, alcohol or illicit drug dependency) and shall be determined by the Committee or Board of Directors, whose determination shall be final. (e) "Disability" shall mean a mental or physical conditions that renders Employee incapable of performing his duties and obligations under this Agreement for a period of six consecutive months, or more than 210 days in any eight month period, in the written opinion of a competent physician specializing in such condition selected by the Committee or Board of Directors 11 3 who has personally examined and evaluated Employee's condition. Employee agrees to submit to appropriate medical examination by such physician at the Company's expense and that such physician's determination shall be final. 4. Manner of Exercise. (a) The option can be exercised only by Employee or other proper party by delivering within the option period written notice to the Company at its principal office. The notice shall state the number of shares as to which the option is being exercised and be accompanied by payment in full of the option price for all shares designated in the notice. (b) Employee may pay the option price in cash, by check (bank check, certified check or personal check), by money order or, with the approval of the Company, (i) by delivering to the Company for cancellation certificates representing Class B Common Stock of the Company with a fair market value as of the date of exercise equal to the option price or the portion thereof being paid by tendering such shares, (ii) by delivering to the Company a combination of cash and certificates representing Class B Common Stock of the Company with an aggregate fair market value equal to the option price, or (iii) provided the following is permitted under the Securities Act of 1933, as amended, through a special sale and remittance procedure ("cashless exercise") pursuant to which the Employee shall concurrently provide irrevocable written instructions (A) to a Company-designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Company, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Company, by reason of such exercise and (B) to the Company to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale. For purposes of clauses (i) and (ii), the fair market value of the Company's Class B Common Stock as of any date shall be reasonably determined in good faith by the Committee or the Board from time to time. 5. Restrictions on Issuance of Shares. Notwithstanding the provisions of Section 2, the Company shall have no obligation to deliver any certificate or certificates representing shares of Class B Common Stock upon exercise of an option until the following conditions shall be satisfied: (a) (i) The shares with respect to which the option has been exercised are at the time of the issue of such shares effectively registered under applicable Federal and State securities laws as now in force or hereafter amended; or (ii) counsel for the Company shall have given an opinion that the issuance of such shares upon exercise of the option is exempt from registration under Federal and State securities laws as now in force or hereafter amended or the Company is otherwise satisfied in its discretion that such exercise complies with such securities laws; and 12 4 (b) In either event the Company has complied with all applicable laws and regulations, including without limitation all regulations required by any stock exchange upon which the Company's outstanding Class B Common Stock is then listed. (c) The Employee shall represent, warrant, covenant and agree in writing that the Option Shares (as defined in Section 6) are being acquired for his own account for investment purposes only and not with a view to distribution or any other disposition thereof. The Company shall use reasonable efforts to the extent it deems practicable to bring about the compliance with the above conditions within a reasonable time except that the Company shall be under no obligation to cause a registration statement or a post-effective amendment to any registration statement to be prepared solely for the purpose of covering the issue of shares in respect of which any option may be exercised or to permit any Employee to effect a registration of his or her shares in connection with a registration of shares by the Company. 6. Right of First Refusal. Until the consummation of a firm commitment underwritten public offering of the Company's common stock pursuant to a registration statement under the Securities Act of 1933, as amended, the Company and the Investor Stockholders (as such term is defined in the Stockholders Agreement, dated as of October 31, 1997 (the "Stockholders' Agreement"), by and among the Company and the Existing Stockholders, the Investor Stockholders and any Additional Stockholders, as such terms are defined therein shall be entitled to the following right of first refusal. (a) Transfer of Shares. The Employee shall not transfer any shares of Class B Common Stock obtained upon exercise of the option ("Option Shares") or any right or interest therein then owned by him except by a transfer that meets the requirements of this Section 6. In the event that the Employee proposes to transfer any portion of the Option Shares, whether voluntarily or involuntarily, other than a Permitted Transfer or in connection with a Corporate Change, then at least thirty (30) days prior to such transfer, the Employee shall give notice (the "Notice") to the Company and the Investor Stockholders of his intention to effect such transfer. The Notice shall set forth (i) the class, series and number of Option Shares to be sold by the Employee ("Transferred Shares"), (ii) the date or proposed date of the transfer and the name and address of the proposed transferee, and (iii) the principal terms of the transfer, including the cash or other property or consideration to be received upon such transfer. (b) Company's Option. The Company shall have the option, but not the obligation, to purchase any or all of the Transferred Shares on the same terms as specified in the Notice. Within thirty (30) days after the receipt of the Notice, the Company shall give written notice to the Employee and the Investor Stockholders (the "Company Notice") stating whether or not it elects to exercise its option to purchase, the number of Transferred Shares, if any, it elects to purchase, and a date and time for consummation of the purchase not more than thirty (30) days after 13 5 the receipt of the Company Notice by the Employee. Failure by the Company to give such notice within such time period shall be deemed an election by it not to exercise its option. (c) Investor Stockholders' Option. If the Company fails to exercise its right to purchase under subparagraph (b) hereof, or exercises its right to purchase for less than all of the Transferred Shares, then the Investor Stockholders shall have the option, but not the obligation, to purchase, pro rata to their ownership interest in the shares of Common Stock issued or issuable to such stockholder upon the conversion of shares of Series C Preferred Stock of the Company, any or all of the remaining Transferred Shares on the same terms as specified in the Notice. Not later than thirty (30) days after the Investor Stockholders receive the Company Notice, each Investor Stockholder shall give written notice to the Employee and the Company (the "Investor Notice") stating whether or not it elects to exercise its option to purchase, the number of the remaining Transferred Shares, if any, that it elects to purchase, and a date and time for consummation of the purchase not more than thirty (30) days after the receipt of the Investor Notice by the Employee. Failure by an Investor Stockholder to give such notice within such time period shall be deemed an election by it not to exercise its option. If the Company and the Investor Stockholders exercise their respective rights to purchase for less than all the Transferred Shares, then the Employee shall thereafter be free to transfer the remaining Transferred Shares on the terms provided in the Notice, free and clear of any restrictions under this Section 6. (d) Definitions. For purposes of this Section 6, the term "Permitted Transfer" shall mean a transfer to a spouse (other than pursuant to any divorce or separation proceedings or settlement), parents, children (natural or adopted), stepchildren or grandchildren or a trust for any of their benefit (each recipient being a "Permitted Transferee"); provided, however, that prior to such transfer, such Permitted Transferee shall agree in writing to be bound by the obligations imposed upon the Employee under this Section 6 as if such transferee were originally a signatory to this Agreement. (e) Application of Provisions. In each case, any Transferred Shares not purchased by the proposed transferee in accordance with Section 6(c) hereof may not be sold or otherwise disposed of until they are again offered to the Company and the Investor Stockholders under the procedures specified in Sections 6(a), (b) and (c) hereof. (f) Transfers Void. Any attempted transfer by the Employee in violation of the terms of this Section 6 shall be ineffective to vest in any transferee any interest held by the Employee in the Transferred Shares. Without limiting, the foregoing, any purported transfer in violation hereof shall be ineffective as against the Investor Stockholders and the Company, and the Company and the Investor Stockholders shall have a continuing right and option (but not an obligation), until the restrictions contained in this Section 6 terminate, to purchase the shares purported to be transferred by the Employee for a price and on terms the same as those at which the purported transfer was effected. 14 6 7. Miscellaneous. (a) This option is issued pursuant to the Plan and is subject to its terms. All capitalized terms used in this agreement that are not otherwise defined herein shall have the meanings set forth in the Plan. A copy of the Plan has been delivered to Optionee with this Option. (b) This Agreement shall not confer on Employee any right with respect to continuance of employment by the Company or any of its subsidiaries, nor will it interfere in any way with the right of the Company to terminate such employment at any time. Employee shall have none of the rights of a shareholder with respect to shares subject to this option until such shares shall have been issued to Optionee upon exercise of this option. (c) The exercise of all or any part of this option shall only be effective at such time that the sale of Class B Common Stock pursuant to such exercise will not violate any state or Federal or State securities or other laws. (d) If there shall be any change in the Class B Common Stock of the Company through merger, consolidation, reorganization, recapitalization, conversion, dividend in the form of stock (of whatever amount), stock split or other similar change in the corporate structure of the Company, and all or any portion of the option shall then be unexercised and not yet expired, then appropriate adjustments in the outstanding option shall be made by the Company, in order to prevent dilution or enlargement of option rights. Such adjustments shall include, where appropriate, changes in the number of shares of Class B Common Stock and price per share subject to the outstanding option. (e) The Company shall at all times during the term of the option reserve and keep available such number of shares as will be sufficient to satisfy the requirements of this Agreement. (f) If Employee shall dispose of any of the Class B Common Stock of the Company acquired by Employee pursuant to the exercise of the option within two (2) years from the date this option was granted or within one (1) year after the transfer of any such shares to Employee upon exercise of this option, then, in order to provide the Company with the opportunity to claim the benefit of any income tax deduction which may be available to it under the circumstances and to report any taxable income of Employee which may result, Employee shall promptly notify the Company of the date of acquisition and disposition of such shares, the number of shares so disposed of, and the consideration, if any, received for such shares. In order to comply with all applicable federal or state income tax laws or regulations, the Company may take such action as it deems appropriate to insure (i) notice to the Company within the time periods described above and (ii) that, if necessary, all applicable federal or state payroll, withholding, income or other taxes are withheld or collected from Employee. 15 7 (g) The Plan permits the Board or Committee to provide for terms in the grant of an option thereunder that differ from the terms of the Plan and, accordingly, the terms of this Agreement shall govern with respect to any conflict between this Agreement and the Plan. 8. Notices. Notices to be given hereunder shall be in writing and shall be delivered personally or sent by registered or certified mail, postage prepaid, return receipt requested, and addressed, if to the Employee at 134 West 29th Street, New York, New York, or such other address as the Employee specifies in writing to the Company, and if to the Company to its then principal office. 9. Entire Agreement. This instrument contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements relating to the subject matter hereof and may be changed only by an agreement in writing and signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. 10. Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the State of New York. 11. Severability. In case any one or more of the provisions hereof shall be determined to be invalid or unenforceable, either in whole or in part, this Agreement shall be deemed amended to delete or modify, as necessary, the offending provision or provisions and to alter the balance of this Agreement in order to render the same valid and enforceable. EX-10.8 12 EMPLOYMENT AGREEMENT WITH STEVEN KALIN 1 Exhibit 10.8 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the 30th day of September, 1998 by and between MEDSCAPE, INC., a New York corporation (the "Company"), and STEVEN R. KALIN ("Executive"). 1. Employment and Term. The Company will employ Executive as Vice President, Finance & Corporate Development of the Company, and Executive shall accept such employment, during the period commencing October 1, 1998 until terminated pursuant to the terms hereof (the "Employment Period"). In this capacity, Executive will, among other things, be the senior financial executive at Medscape, responsible for (i) assisting the Chief Executive Officer ("CEO") and others in negotiating and concluding strategic relationships, including all private and public equity and debt financings, strategic joint ventures, acquisitions and mergers; (ii) all financial matters of the Company, including all strategic planning, financial reporting, cash management, accounting (payroll, A/P, A/R) matters, the relationship with our outside auditor, and managing the day-to-day operations of the Finance Department (including human resources); and (iii) all corporate and product business analysis and planning, including all long-range plans, acquisition, joint venture and product/feature financial analyses. Such duties may change from time to time in the discretion of the CEO. 2. Performance. Executive shall (i) loyally and conscientiously perform all his duties and obligations under this Agreement to the best of his abilities; (ii) devote all of his business time, attention, energy and efforts to the business of the Company; and (iii) not directly or indirectly render any services of a commercial or professional nature to any other person or organization without the prior written consent of the CEO. 3. Compensation and Benefits. (a) Base Salary. During the Employment Period, the Company shall pay Executive a base salary of no less than $135,000 per year, payable in accordance with the Company's standard payroll policy. (b) Performance Bonuses. In addition to the base salary, the Company shall pay Executive a performance bonus of $10,000 in 1998 if Medscape reaches 100,000 registered U.S. physicians by December 31, 1998. Performance bonuses in 1999 and beyond will be paid in accordance with the Company's standard Performance Bonus Plan for senior executives. (c) Benefits. During the term hereof, Executive shall be entitled to all such family health and medical benefits (including dental) and all life and disability insurance as are provided to the senior executives of the Company. 2 2 (d) Vacation. Executive shall be entitled to paid vacation each year in accordance with the Company's vacation policy for its senior executives. 4. Restrictive Covenants. (a) Noncompetition During Employment. During his employment with the Company, Executive shall not, directly or indirectly, either as an employee, consultant, agent, principal, partner, stockholder, corporate officer, director, or in any other individual or representative capacity, engage or participate in any business or organization that is competitive with the business of the Company. (b) Noncompetition After Employment. Executive agrees that for the one year period following termination of his employment with the Company, he will not (i) directly or indirectly, either as employee, consultant, agent, principal, partner, stockholder, corporate officer, director, or in any other individual or representative capacity, engage or participate in any business or organization that is competitive with the business of the Company at the time of such termination; (ii) solicit, divert or take away, or attempt to solicit, divert or to take away, the business or patronage of any of the clients, customers or accounts of the Company (except on behalf of a business unrelated to the business of the Company); or (iii) encourage or solicit an employee of the Company to leave the employ of the Company for any reason. (c) Exceptions. Notwithstanding the provisions of this Section 4, nothing herein shall prohibit Executive from (i) holding less than two percent (2%) of the outstanding capital stock of a publicly held corporation engaged in a business that competes with the business of the Company; (ii) serving on one or more Boards of Directors of non-profit corporations so long as, in the aggregate, such commitments do not interfere with the performance of Executive's duties for the Company; or (iii) after his employment with the Company terminates for any reason, being employed by a multi-division corporation that competes with the Company so long as Executive's responsibilities do not extend to the specific division of such corporation that competes with the Company and so long as Executive does not work in such division or advise or otherwise assist such division. (d) Remedies and Interpretation. The restrictions contained in this Section 4 and in Section 6 of this Agreement are necessary for the protection of the business and goodwill of the Company and are considered by Executive to be reasonable for such purpose. Executive agrees that any breach of this Section 4 or Section 6 by Executive is likely to cause the Company substantial and irrevocable damage and therefore, in the event of any such breach, Executive agrees that the Company, in addition to any other remedies that may be available, shall be entitled to specific performance and other injunctive relief, without proving actual damages. If any restriction set forth in this Section 4 or in Section 6 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable. 3 3 5. Termination of Employment. (a) Death or Disability. In the event of the Executive's death or "Disability" (as defined below), the Company may by written notice to Executive terminate Executive's employment effective not less than 30 days after the date of such notice. "Disability" means a mental or physical condition that renders Executive incapable of performing his duties and obligations under this Agreement for a period of six consecutive months, or more than 210 days in any eight month period, in the written opinion of a competent physician specializing in such condition selected by the Board who has personally examined and evaluated Executive's condition. Executive agrees to submit to appropriate medical examination by such physician at the Company's expense and that such physician's determination shall be final. If this Agreement is terminated by Company under this Section 5(a), the Company shall pay Executive or his estate within 10 days after the effective date of such termination any unpaid compensation (including any accrued but unpaid vacation pay and bonuses accrued in accordance with Section 3(c) hereof) accrued through such effective date, provided that no severance amount shall be payable. (b) Termination for Good Cause. The Company may terminate Executive's employment at any time for "Good Cause," as defined below. "Good Cause" means gross misconduct, gross neglect of duties (including by reason of alcohol or drug dependency), acts involving moral turpitude, conviction of a felony, material breach by Executive of this Agreement that is not substantially cured within 30 business days after receipt of written notice from the Company of such breach, or any act or omission involving fraud, embezzlement or misappropriation of any property of the Company by Executive. (c) Termination Without Good Cause. If the Company terminates Executive's employment without Good Cause within the first 24 months of the Employment Period, the Company shall (i) give the Executive written notice of such termination at least 30 days prior to the effective date of such termination; (ii) pay Executive within 10 business days after the effective date all unpaid compensation accrued through the effective date of such termination; (iii) pay Executive monthly severance payments equal to the Executive's base monthly salary in effect at the time of such termination for a period of five months after the effective date of such termination; and (iv) provide Executive the same family health and medical benefits and all life and disability insurance he was receiving as of the effective date of such termination for a period of five months after the effective date of such termination. (d) Termination by Executive. Executive may terminate this Agreement by giving the Company written notice at least 60 days prior to the effective date of such termination. If Executive terminates this Agreement under this Section 5(d), the Company shall pay Executive only any unpaid compensation (including any accrued but unpaid vacation pay) accrued through the effective date of such termination, but Executive shall not be entitled to any severance pavements. 6. Development Rights and Confidential Information. 4 4 (a) Developments. Executive agrees that any developments by way of invention, design, copyright, trademark, software, magazine or journal concept or other matters which may be developed or perfected by him during the term of this Agreement or which are in process or under investigation during the term of this Agreement, and which relate to the business of the Company or its subsidiaries, shall be the property of the Company. The Employee will, at the request and expense of the Company, assist the Company in applying for and prosecuting letters patent thereon in the United States or in foreign countries if the Company reasonably requests, and will assign and will transfer the same to the Company together with any letters patent, copyrights, trademarks and applications therefor. (b) Confidentiality. Executive agrees not to disclose or use Confidential Information of the Company except in connection with his employment with the Company. For purposes of this Section 6(b), the term "Confidential Information" shall mean all information in any manner relating to the Company's business including, but not limited to, information regarding business plans and strategies, trade secrets, "know-how", inventions, software, finances, markets, properties, methods of doing business, processes, customers, staff resumes, executive compensation, or suppliers, whether or not such information is labeled or otherwise identified as confidential. Irrespective of the foregoing, no information will be deemed "Confidential Information" if such information (i) is a part of the public knowledge or literature or becomes part of the pubic knowledge or literature, in either case from a source other than Executive or a source acting at Executive's direction, (ii) is received by Executive in writing, without binder of secrecy, from a third party who is entitled to convey such information to the public, or (iii) is required by law or court order to be disclosed. Upon termination of this Agreement, Executive will deliver to the Company all equipment, records, copies of records and any other written information of or pertaining to the Company or any subsidiary of the Company which are then in his possession. 7. Miscellaneous. (a) Governing Law. This Agreement shall be governed by, and interpreted in accordance with, the laws of New York applicable to contracts made and performed in New York. (b) Arbitration. Any dispute between Executive and the Company with respect to the terms of this Agreement, or any claim arising out of or relating to this Agreement, will be submitted to and be settled by final and binding arbitration in New York, New York, in accordance with the rules of the American Arbitration Association. (c) Entire Agreement. This Agreement, including all exhibits and schedules attached hereto, constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements relating to the subject matter hereof. No amendment or modification of this Agreement shall be effective unless in writing and signed by both parties hereto. 5 5 (d) Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be construed, if possible, so as to be enforceable under applicable law; if such construction is not possible, then such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. (e) Successors and Assigns. The rights and obligations of the Company under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Company. Executive shall not be entitled to assign any of his rights or obligations under this Agreement. (f) Notices. All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon delivery as evidenced by delivery receipt via overnight delivery service or registered or certified mail to the addresses set forth on the signature page, or such other address as either party shall designate to the other in accordance with this provision. (g) Waiver. A waiver by either party of any breach hereof by the other party shall not be construed as a waiver of any subsequent breach. (h) Counterparts. This agreement may be executed in counterparts with the same force and effect as if each signatory had executed the same instrument. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. MEDSCAPE, INC. By: /s/ Paul T. Sheils /s/ Steven R. Kalin ----------------------------- ------------------- Paul T. Sheils Steven R. Kalin President & CEO 39 Druid Hill Road Summit, NJ 07901 134 West 29th Street New York, NY 10001 EX-10.9 13 EMPLOYMENT AND RESTRICTED STOCK PURCHASE AGREEMENT 1 Exhibit 10.9 EMPLOYMENT AND RESTRICTED STOCK PURCHASE AGREEMENT THIS AGREEMENT, made as of October 27, 1998, by and between MEDSCAPE, INC., a New York corporation with offices at 134 West 29th Street, New York, New York 10001 ("Medscape"), and JEFFREY L. DREZNER, M.D., Ph.D., an individual residing at 10819 Pleasant Hill Drive, Potomac, MD 20854 ("Executive"), W I T N E S S E T H: WHEREAS, contemporaneously with the execution of this Agreement, Medscape, Executive and other parties named therein are entering into a Purchase Agreement, dated as of the date first set forth above (the "Purchase Agreement"), pursuant to which Medscape is purchasing all the membership interests of Healthcare Communications Group, L.L.C. ("HCG"), including all the membership interests held by Executive; and WHEREAS, Medscape desires to employ Executive and Executive is willing to undertake such employment on the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties hereto agree as follows: 1. Employment. Medscape hereby employs Executive during the Term (as hereinafter defined) as the Executive Vice President of Medscape. As such, Executive will have responsibility for the Sales and Marketing departments of Medscape and such other duties as are reasonably assigned by the Chief Executive Officer of Medscape. In addition, Steve Smith, Vice-President-Editorial, or any successor thereto, will report to Executive with respect to (i) Medscape's Editorial or Scientific Advisory Boards and (ii) the original, MD-authored material published by Medscape. (Mr. Smith will report to the Chief Executive Officer of Medscape with respect to his other areas of responsibility.) Executive shall report to the Chief Executive Officer of Medscape. Effective upon execution and delivery of this Agreement, Executive has been elected and agrees to serve as a member of Medscape's Board of Directors. Throughout the term of this Agreement, Medscape shall nominate Executive for election as a director and use its best efforts to ensure such election by the shareholders of Medscape. Executive will not receive additional consideration for his service as a director of Medscape or any subsidiary or affiliate of Medscape, during the term of this Agreement. 2. Performance of Services. 2 (a) Executive hereby accepts such employment and agrees that throughout the period of his employment hereunder he will devote his full business time, attention, knowledge and skills, faithfully, diligently and to the best of his ability, in furtherance of the business of Medscape and will perform the duties assigned to him pursuant to Paragraph 1 hereof, subject, at all times, to the direction and control of the Chief Executive Officer of Medscape, and to the policies of Medscape generally applicable to its employees. (b) Executive will be based in the Potomac, Maryland area at his home office for the term of this Agreement unless otherwise mutually agreed to between the Executive and Medscape. Executive acknowledges and agrees that the performance of his duties hereunder may require substantial out-of-town travel, including, without limitation, to Medscape's headquarters in New York, New York, and Executive agrees to undertake such travel as is reasonably necessary to fulfill such duties. Executive understands and agrees that Medscape, in its sole discretion, may, from time to time, seek to enter into a key-man-life insurance policy with Executive as the named insured and with Medscape as the named beneficiary. Executive's sole obligation in regard to this insurance policy is to cooperate with reasonable requests, including submitting to a physical exam if requested by the insurance company, and to consent to the issuance of such a policy. 3. Term. Executive shall be employed for an initial term commencing as of the date hereof (the "Commencement Date"), and ending on the fifth anniversary of such date (the "Term"), unless his employment is terminated prior to the expiration of the Term pursuant to the provisions hereof. The Term may be renewed for successive three year terms on terms and conditions mutually agreed to between the Executive and Medscape. 4. Compensation. (a) Base Compensation. As compensation for his services hereunder, during the Term, Medscape will pay to Executive a salary (the "Base Salary") at the rate of One Hundred and Ninety-Five Thousand ($195,000.00) Dollars per annum, payable in accordance with Medscape's standard payroll procedures. Upon the earlier of (i) December 31, 1999 or (ii) the successful completion of Medscape's initial public offering of securities, the Base Salary may be adjusted upward, but not downward, upon the mutual agreement of the Executive and the Chief Executive Officer of Medscape, subject to the approval of the Compensation Committee of the Board of Directors. (b) Cash Performance Bonus. For the calendar year ending December 31, 1998, Executive will receive a cash bonus equal to that portion of $50,000 pro rated by the ratio of (x) the number of days between the Commencement Date and December 31, 1998 to (y) Three Hundred and Sixty-Five (365), if Medscape's Revenues (as defined in Annex A) are at least six million, five hundred thousand dollars 2 3 ($6,500,000) on a consolidated basis. For the calendar year ending December 31, 1999, Executive will receive a cash bonus of $50,000 if the Target Performance Goal for that period (as defined in Annex A) is achieved or surpassed. For the calendar years ending December 31, 2000 and December 31, 2001, Executive will receive a cash bonus in an amount to be determined by the Chief Executive Officer, subject to the approval of the Compensation Committee, if, for each such year, the Target Performance Goal for that year (as defined in Annex A) is achieved or surpassed. For all periods of the Term after December 31, 2001, Executive will receive cash bonuses in such amounts and subject to achieving such performance goals as are determined by the Chief Executive Officer, subject to the approval of the Compensation Committee. (c) Restricted Share Purchase. Effective upon execution and delivery of this Agreement, Medscape shall sell to Executive and Executive shall purchase from Medscape, in accordance with the terms of the note (the "Note") attached hereto as Exhibit 1 and the pledge agreement (the ("Pledge Agreement") attached hereto as Exhibit 2, at a purchase price of $0.86 per share, 730,174 restricted shares of Medscape's non-voting Class B Common Stock, $0.01 par value per share (the "Restricted Shares") (such number of shares being equal to, as of the date hereof, ten (10%) percent of the equity of Medscape on a fully diluted basis assuming that all shares of Medscape's preferred stock are converted into shares of Medscape's common stock at the applicable conversion ratio, all outstanding stock options are exercised and that options to purchase all additional shares of Medscape's common stock currently reserved under the Medscape Stock Award Plan are made and such options are exercised but excluding any shares of Medscape's stock issued pursuant to the Purchase Agreement to the Sellers (as defined in the Purchase Agreement)). The Restricted Shares may not be transferred by Executive until they have vested in accordance with the terms of Annex A and are released as collateral from the Pledge Agreement, and shall be subject to the repurchase option and the other terms and conditions set forth on Annex A. Additionally, the Restricted Shares shall be subject to the terms and conditions of that certain Stockholders' Agreement dated October 31, 1997, as amended as of February 19, 1998 and as of the date hereof, by and among Medscape and the stockholders of Medscape (the "Stockholders' Agreement"). (d) Other Benefits. Executive shall be entitled to all family health and medical benefits (including dental) and all life and disability insurance as are provided to the senior executives of Medscape. For any Company benefit plan dependent upon years of service, to the extent permitted under applicable law, Executive shall be credited for all years during which he was employed by, or served as managing member of, HCG. 5. Expenses. Medscape shall reimburse Executive for all expenses reasonably incurred by him in connection with the performance of his duties hereunder and the business of Medscape, including, without limitation, the purchase of a laptop computer and similar office equipment for Executive's home office, the payment of a reasonable utilities reimbursement and reimbursement for coach air fare in connection 3 4 with business travel, upon the submission to Medscape of appropriate vouchers therefor, all in accordance with Medscape's policies and procedures as in effect from time to time for senior executive officers. 6. Vacation. Executive shall be entitled to paid vacation at full pay each year during the period of his employment hereunder in accordance with Medscape's vacation policy for its senior executives, such vacation to be taken at times mutually agreeable to Executive and the Chief Executive Officer of Medscape. Executive shall be credited for all years during which he was employed by, or served as a managing member of, HCG, in connection with determining his vacation eligibility under Medscape's policies. 7. Confidentiality. (a) Executive shall not, at any time during or following expiration or termination of his employment hereunder, regardless of the manner, reason, time or cause thereof, directly or indirectly reveal, report, publish, disclose, transfer or furnish to any person not entitled to receive the same for the immediate benefit of Medscape, any Proprietary Information. The term "Proprietary Information" means all information of any nature whatsoever, and in any form, which at the time or times concerned relates to any aspect of the business of Medscape and which is confidential, proprietary and not generally known to persons engaged in businesses similar to that conducted by Medscape. Proprietary Information includes, but is not limited to, items, materials and information concerning the following: marketing plans or strategies; budgets; designs; promotional strategies; client preferences and policies; creative activities for clients; concepts; trade secrets; product plans; financial information and all documentation, reports and data (recorded in any form) relating to the foregoing. Notwithstanding the foregoing, "Proprietary Information" shall not include (i) any information to the extent it becomes generally known through no fault of Executive, (ii) any information known to Executive prior to the disclosure thereof by Medscape (as evidenced by the written records of Executive), (iii) any information which Executive is required to disclose as a result of a subpoena or other legal process or (iv) any information available on a non-confidential basis from a source other than Medscape. (b) Executive agrees that all memoranda, notes, records, papers or other documents and all copies thereof, computer disks, computer software programs and the like (collectively, "documents") relating to the operations or businesses of Medscape, its affiliates or their respective clients (even if prepared by him) and involving Proprietary Information, in any way obtained by him during his employment hereunder or his prior employment by HCG shall be the property of Medscape. Except for use for the benefit of Medscape, Executive shall not copy or duplicate any of the aforementioned documents or objects, nor remove them from Medscape's facilities. Executive shall comply with any and all procedures which Medscape may adopt for all Medscape employees from time to time to preserve the confidentiality of Proprietary Information and the confidentiality of property of the types 4 5 described immediately above, whether or not such property contains a legend indicating its confidential nature. (c) Upon termination of Executive's employment with Medscape for any reason whatsoever and at any other time upon Medscape's request, Executive (or his personal representative) shall deliver to Medscape all property described in this Paragraph 7 which is in his possession or control. 8. Representation and Warranty. Executive represents and warrants to Medscape that he is not a party to any prior employment agreement or other agreement which restricts, interferes with or impairs, or which might be claimed to restrict, interfere with or impair, in any way, Executive's use of any information or Executive's execution or performance of this Agreement. 9. Intellectual Property. In consideration of Medscape's employment of Executive hereunder and the compensation of Executive as provided herein, Executive agrees that all of his work for Medscape and its affiliates during the term of this Agreement is work for hire and shall be the sole and absolute property of Medscape. Executive agrees that he will, at Medscape's request and cost, do whatever is reasonably necessary to secure the rights thereto and therein to Medscape. 10. Restrictive Covenants. (a) Executive agrees that his services hereunder are of a special, unique, extraordinary and intellectual character, and his position with Medscape places him in a position of confidence and trust with the customers and employees of Medscape and its affiliates. Executive further acknowledges that the rendering of services to the customers of Medscape and its affiliates necessarily requires the disclosure of Proprietary Information of Medscape. The parties hereto agree that in the course of Executive's employment with Medscape, Executive may develop a personal acquaintanceship and relationship with Medscape's and its affiliates' customers, and a knowledge of those customers' affairs and requirements which may constitute the primary contact of Medscape and its affiliates with such customers. Executive acknowledges that Medscape's and its affiliates' relationships with its established customers may therefore be placed in Executive's hands in confidence and trust. Executive consequently agrees that it is reasonable and necessary for the protection of the goodwill and business of Medscape that Executive make the covenants contained herein. Accordingly, Executive agrees that, so long as he shall be in Medscape's employ and for a period of one year after the termination of such employment for any reason whatsoever, he shall not, whether as an owner, shareholder (other than in his capacity as holder of less than 2% of the shares of any corporation whose shares are traded on a national securities exchange or over the counter which shall be excepted from this restriction), partner, employee, consultant, advisor, independent contractor or otherwise, directly or indirectly compete with the business of Medscape in any manner. Additionally, Executive agrees that so long as 5 6 he shall be in Medscape's employ and for a period of one year after the termination of such employment for any reason whatsoever, Executive will not, within the United States and its territories and possessions, or in any other geographical area in which Medscape has an office or a client (the "Medscape Territory"), directly or indirectly, on Executive's own behalf or on behalf of anyone else engaged in a business which is directly competitive with Medscape, without the prior written consent of Medscape, (i) persuade or attempt to persuade any customer of Medscape or its affiliates as of the date of the termination of Executive's employment, to cease doing business with, or to reduce the amount of business it does with, Medscape or its affiliates or solicit the business of any of Medscape's or its affiliates' customers as of the date of the termination of Executive's employment hereunder, (ii) render to or for any customer of Medscape as of the date of the termination of Executive's employment hereunder any services of the type rendered by Medscape to its customers unless such services are rendered as an employee or consultant of Medscape or (iii) solicit or encourage to leave the employ of Medscape or its affiliates, or to become employed by any person other than Medscape, any employee of Medscape or its affiliates, or any individual who was an employee of Medscape or its or affiliates during the one year prior to the termination of Executive's employment. Executive further agrees that so long as he shall be in Medscape's employ and for a period of six months after the termination of such employment for any reason whatsoever, Executive will not, within the Medscape Territory, directly or indirectly, on Executive's own behalf or on behalf of anyone else engaged in a business which is directly competitive with Medscape, without the prior written consent of Medscape, employ any employee of Medscape or its affiliates, or any individual who was an employee of Medscape or its affiliates during the three months prior to the termination of Executive's employment. (b) Executive has carefully considered the nature and extent of the restrictions upon him and the rights and remedies conferred upon Medscape under this Agreement, and hereby acknowledges and agrees that the same (i) are reasonable in time and territory, (ii) are designed to eliminate competition which otherwise would be unfair to Medscape, (iii) do not stifle the inherent skill and experience of Executive, (iv) would not operate as a bar to Executive's sole means of support, (v) are fully required to protect the legitimate interests of Medscape and (vi) do not confer a benefit upon Medscape disproportionate to the detriment to Executive or the benefit otherwise afforded him by this Agreement and the Purchase Agreement. (c) Executive and Medscape acknowledge and agree that the restrictions and obligations imposed on Executive by virtue of this Paragraph 10 are, in light of the circumstances, fair and reasonable as to type, scope and period of time, and are reasonably required for the protection of Medscape and the goodwill associated with the business of Medscape. Additionally, Medscape and Executive understand that such restrictions are entered into in connection with the Purchase Agreement. However, it is the intent of Executive and Medscape that this Agreement be enforceable and restrict Executive's activities only to the extent permitted by applicable law. Therefore, if any provision of this Paragraph 10 as presently written shall be construed 6 7 to be illegal, invalid or unenforceable by a court of competent jurisdiction, said illegal, invalid or unenforceable provision shall be deemed to be amended and shall be construed by the court to have the broadest type, scope and duration permissible under applicable law, and if no validating construction is possible, shall be severable from the rest of this Agreement, and the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. 11. Certain Remedies. The parties hereto acknowledge that, in the event of a breach or a threatened breach by Executive of any of his obligations under Paragraphs 7, 9 or 10 of this Agreement, Medscape will not have an adequate remedy at law. Accordingly, in the event of any such breach or threatened breach by Executive, Medscape shall be entitled to such equitable and injunctive relief as may be available to restrain Executive and any business, firm, partnership, individual, corporation or entity participating in such breach or threatened breach from the violation of the provisions hereof. Nothing herein shall be construed as prohibiting Medscape from pursuing any other remedies available at law or in equity for such breach, including the recovery of damages. 12. Termination of Employment; Compensation. Executive's employment hereunder shall terminate upon his resignation or death and may be terminated by Medscape at any time for Good Cause (as defined below) or by reason of Executive's incapacity. In the event that Executive's employment is terminated by reason of his resignation (other than for Good Reason as hereinafter defined), death or incapacity, or by Medscape for Good Cause, Executive shall be entitled only to his base salary to the date of termination. In the event that Executive's employment is terminated by Medscape without Good Cause and not because of Executive's incapacity or by Executive for Good Reason during the Term hereof, Executive shall be entitled to receive his base salary (plus any accrued but unpaid vacation and bonus pay, if any) through the date of termination, plus a severance amount equal to 12 months Base Salary and the continuation of health benefits until the first anniversary of such termination. For purposes of this Agreement, "incapacity" shall mean Executive's inability, by reason of a physical or mental infirmity, or both, actively to perform, on a full-time basis, the executive and managerial services contemplated under this Agreement for a continuous period of sixty (60) days or for an aggregate period of one hundred eighty (180) days in any consecutive twelve month period. Medscape shall have the right to terminate the employment of Executive hereunder at any time following his incapacity. For purposes of this Agreement, "Good Cause" shall mean gross misconduct, gross neglect of duties (including by reason of alcohol or drug dependency), acts involving moral turpitude, conviction of a felony, material breach by Executive of this employment agreement in each case that is not substantially cured within thirty (30) business days after receipt of written notice from Medscape of such 7 8 breach, or any act or omission involving fraud, embezzlement or misappropriation of any property of Medscape by Executive. For purposes of this Agreement "Good Reason" means that (i) Medscape has significantly reduced the nature or scope of the authority, powers, functions or duties attached to Executive's position as the Executive Vice President of Medscape (a "Demotion"), (ii) Executive is not elected as a director or ceases to be a director of Medscape when he is willing to so serve and there does not exist Good Cause and Executive is not in a state of incapacity (a "Board Removal"), or (iii) Medscape has otherwise committed any material breach of this Agreement, and in any such case has not substantially cured such within thirty (30) days after Executive's written notice thereof to Company. Notwithstanding the foregoing, a Demotion or a Board Removal in any year following a year where Executive has failed to achieve at least 50% of the Target Performance Goal for that prior year shall not constitute Good Reason. 13. Entire Agreement. This Agreement (including Annex A and Exhibit 1 which form an integral part hereof) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and no amendment, waiver or modification hereof shall be valid or binding unless made in writing and signed by the party against whom enforcement thereof is sought. This Agreement supersedes all prior agreements, representations and understandings of the parties hereto relating to the employment of Executive by Medscape. 14. No Reliance. The parties hereto each represent to the other that in executing this Agreement each does not rely upon, and has not relied upon, any representation or statement not set forth herein with regard to the subject matter, basis or effect of this Agreement or otherwise. 15. Notices. All notices, consents, waivers or other communications required or permitted to be given or made pursuant to any of the provisions of this Agreement (collectively, "Notices") shall be in writing and shall be deemed to have been duly given or made for all purposes if sent by certified or registered mail, return receipt requested, and postage prepaid, hand delivered, sent by confirmed telecopy or other confirmed electronic means or by express mail service or other verified overnight courier service to the party at its or his address as it appears on the first page of this Agreement, or at such other address as either party may specify by Notice give to the other party in accordance with this Paragraph 15 and with copies to the parties indicated below. A Notice shall only be deemed given or received on a business day (any day other than Saturday, Sunday or Federal legal holiday). The date any such Notice shall be deemed given and received is: (i) if hand delivered, on the date of hand delivery; (ii) if sent by registered or certified mail, three business days following the posting of the mail; (iii) if sent by express mail or other verified overnight courier service, the date received; or (iv) if sent by confirmed telecopy or other confirmed electronic means, the date when receipt is confirmed by the same means (The telecopy number 8 9 for Medscape presently being: (212) 760-3140. The telecopy number for Executive presently being: (301) 299-1124). If a notice is being provided to Executive, a copy shall also be provided to: Goodwin, Procter & Hoar LLP Exchange Place Boston, Massachusetts 02109-2881 Telecopy No.: (617) 305-6550 Attention: H. David Henken, Esq. John J. Egan, Esq. If a notice is being provided to Medscape, a copy shall also be provided to: Patterson, Belknap, Webb & Tyler LLP 1133 Avenue of the Americas New York, New York 10036-6710 Telecopy No.: (212) 336-2222 Attention: John P. Schmitt, Esq. 16. No Assignment. Neither this Agreement nor the right to receive any payments hereunder may be assigned by Executive. This Agreement shall be binding upon Executive, his heirs, executors and administrators and upon Medscape, its successors and assigns. 17. No Modification. No termination, alteration, modification or variation or waiver of this Agreement or any of the provisions hereof shall be effective unless in writing executed by the parties hereto, or in the case of a waiver, by the party or parties waiving compliance. No waiver of any default or breach of this Agreement shall be deemed a continuing waiver or a waiver of any other breach or default. No course of dealing nor any delay on the part of either party in exercising any rights hereunder shall operate as a waiver of any such rights. 18. Governing Law. This Agreement shall be governed, interpreted and construed according to the internal laws of the State of New York without regard to conflict of laws principles. Any legal action or proceeding with respect to this Agreement or any transaction related hereto shall be brought in the courts of the State of New York or of the United States District Court for the Southern District of New York, and, by the execution and delivery of this Agreement, each of the parties hereto hereby consents for itself and in respect of its property to the exclusive jurisdiction of the aforesaid courts and agrees that service of process in any legal action or proceeding with respect to this Agreement or any transaction related hereto may be made on such party by delivery of such process by certified mail, return receipt requested, to such party at its address set forth in the heading hereof with the same effect as if such process was personally served on such party within the State of New York. Each of the 9 10 parties hereto hereby irrevocably waives, to the extent permitted by applicable law, any objection, including, but not limited to, any objection to the laying of venue or based on the ground of forum non conveniens, which it may now or hereafter have to the bringing of any action or proceeding in such jurisdictions in respect of this Agreement or any transaction related hereto. Nothing contained herein shall affect the right of any party hereto to serve process in any other manner permitted by law. 19. Severability. Should any clause, paragraph or part of this Agreement be held or declared to be void or illegal for any reason by a court of competent jurisdiction, such provision shall be ineffective, but all other clauses, paragraphs or parts of this Agreement which can be effected without such illegal clause, paragraph or part shall nevertheless remain in full force and effect. 20. Headings The headings and captions contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. 21. Withholding. Anything to the contrary notwithstanding, all payments required to be made by Medscape hereunder to the Executive shall be subject to withholding of such amounts relating to taxes as Medscape may reasonably determine it should withhold pursuant to any applicable law or regulation. 22. Survival. The provisions of Paragraphs 7, 8, 9,10, 11, 12,13, 18 and 19 and of this Paragraph 22 shall survive the termination or expiration of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the day and year first above written. MEDSCAPE, INC. By: /s/ Paul T. Sheils /s/ Jeffrey L. Drezner ------------------------------------- ------------------------------- Paul T. Sheils Jeffrey L. Drezner, M.D., Ph.D. President and Chief Executive Officer 10 11 ANNEX A TERMS AND CONDITIONS AND PERFORMANCE GOALS FOR RESTRICTED SHARES
GOAL THRESHOLD TARGET 12/31/99 Revenue* $10 million $11.3 million 12/31/00 Revenue* $19.8 million $22 million 12/31/01 Revenue* $31.5 million $35 million
* Revenue - means all revenues recognized under Medscape's written recognition policy from CME educational grants, the sale of advertising (banners, sponsorships, etc.) in Medscape.com and related print publications, clinical content (e.g., premium tier, pay-per-view, etc.), and meetings revenue. "Revenues" shall not include any revenues generated by Medscape other than those listed above, including, without limitation, revenues or fees from the sale, licensing or other exploitation of Medscape International (e.g., Medscape Canada) or Medscape Profiles (online research, data mining, etc.), or licensing fees or from non-clinical content areas such as Money & Medicine, Medscape Travel or similar features except, in any such case, for revenues generated by you or by the sales group reporting to you, and shall not include revenues included in Medscape's consolidated revenues as a result of any acquisition, merger or other combination of Medscape and another entity (other than HCG). - -------- Vesting Pursuant to Target Goal Achievement. Up to one-third of the Restricted Shares will vest on December 31 of each of 1999, 2000 and 2001 (the "Performance Vesting Dates") provided (i) Executive achieves the annual Revenue Goals ("Performance Goals") set forth above; and (ii) Executive is an employee of Medscape and there does not exist Good Cause to terminate the Executive on each such Performance Vesting Date. Subject to clause (ii) above, 100% of the Restricted Shares subject to vesting on a Performance Vesting Date will vest if the Target 11 12 Performance Goal (the "Target Performance Goal" for any year being represented by the right-most column above under the heading "Target" and the "Threshold Performance Goal" for any year being represented by the middle column under the heading "Threshold") for such Performance Vesting Date is achieved. Subject to clause (ii) above, 90% of the Restricted Shares subject to vesting on a Performance Vesting Date will vest if the Threshold Performance Goal for such Performance Vesting Date is achieved. If Executive is not an employee on a Performance Vesting Date or there exists Good Cause to terminate the Executive on such date, no Restricted Shares will vest on such date. Additionally, if the Threshold Performance Goal is not met at the time of any Performance Vesting Date, then none of the Restricted Shares applicable to such period will vest. The actual number of Restricted Shares vested on any Performance Vesting Date will be calculated on a linear basis between the Threshold Level and the Target Level (based upon a scale between 90% at the Threshold Level and 100% at the Target Level). Other Vesting Provisions. In addition, (a) all previously unvested Restricted Shares will vest on the seventh anniversary of the Commencement Date provided Executive remains an employee of Medscape and there does not exist Good Cause to terminate the Executive on such date and (b) the portion of previously unvested Restricted Shares for which the Performance Vesting Date has not yet occurred shall vest upon the termination (or constructive termination, upon the Executive's resignation for Good Reason (as defined in the Agreement to which this Annex A is appended)) by Medscape of Executive's employment other than for (x) Good Cause (as defined in the Agreement to which this Annex A is appended) or (y) Executive's failure to attain at least 50% of the Target Revenue Goal in any year; provided, however, with respect to clause (y), such clause shall cease to be applicable if in any year subsequent to the year in which the Executive fails to attain at least 50% of the Target Revenue Goal, Executive attains at least 50% of the Target Revenue Goal applicable to that subsequent year. Further, if (a) the Stockholders' Agreement is further amended without the consent of the Executive in a manner which materially adversely affects the rights of the Executive expressed therein as of the date hereof or (b) after the first anniversary of the Commencement Date but prior to the second anniversary of such date there is a Change of Control (as defined below) of Medscape and Executive resigns, one-half of the portion of previously unvested Restricted Shares for which the Performance Vesting Date has not occurred shall immediately vest. If after the second anniversary of the Commencement Date but prior to the third anniversary of such date, there is a Change of Control of Medscape and Executive resigns, all of the previously unvested Restricted Shares for which the Performance Vesting Date has not occurred shall immediately vest. For purposes of this Annex A, if the Chief Executive Officer of Medscape has actual notice of Good Cause, Medscape must notify Executive within 30 days of such notice or that particular instance of Good Cause shall be waived for purposes of determining the vesting of Restricted Shares hereunder. "Change of Control" for purposes in this Annex A means and includes each of the following: (i) the acquisition, in one or more transactions, of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act of 1934, as amended (the 12 13 "Exchange Act")) by any person or entity or any group of persons or entities who constitute a group (within the meaning of Section 13(d)(3) of the Exchange Act), and who are not stockholders of Medscape as of the date hereof, of any securities of Medscape such that, as a result of such acquisition, such person, entity or group beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, more than 50% of Medscape's outstanding voting securities entitled to vote on a regular basis for a majority of the members of the Board of Directors of Medscape, (ii) the stockholders of Medscape approve a merger or consolidation of Medscape with any other corporation or other entity, other than a merger or consolidation which would result in the voting securities of Medscape outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the total voting power represented by the voting securities of Medscape or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of Medscape approve a plan of complete liquidation of Medscape or an agreement for the sale or disposition by Medscape of (in one or more transactions) all or substantially all of Medscape's assets or (iii) any sale of all or substantially all of Medscape's assets. Any Restricted Shares which do not vest in accordance with the terms of this Annex A, or which can no longer vest at any time in accordance with the provisions of this Annex A, shall be forfeited by Executive and he shall have no further rights with respect to any such forfeited shares except as may be provided for in the Repurchase Option. Medscape shall hold a master certificate in respect to any Restricted Shares that have not yet vested and, subject to the provisions of the Note and Pledge, upon the request of the Executive, shall promptly provide to Executive a certificate for any Restricted Shares which have vested. Executive shall have all the rights of a holder of Class B Common Stockholder for all Restricted Shares not yet vested except as provided herein or in any other agreement by which Executive may be bound or restricted. Repurchase Option; Repayment Upon Acceleration of Note and Pledge. In the event Executive ceases to be employed by Medscape for any reason (a "Termination Event"), Medscape shall have the right and option (the "Repurchase Option") to repurchase all, but not less than all, of the unvested Restricted Shares (immediately after giving effect such termination) (the "Unvested Shares") at a per share repurchase price equal to $0.86 (adjusted for stock splits, stock dividends and the like). Medscape may elect to exercise its Repurchase Option pursuant to the provisions of the immediately succeeding paragraph. In the event that Medscape does not elect to exercise its Repurchase Option, all of the Unvested Shares shall thereafter be deemed to be vested Shares. In the event that Medscape accelerates the due date of the Note in accordance with the terms thereof upon Executive's termination of employment with Medscape, Executive will be entitled to satisfy his obligations thereunder with a cash payment or with a payment of Medscape Shares at their then fair market value as agreed between Executive and Medscape or with a combination of cash or Medscape Shares so valued. 13 14 Exercise of Repurchase Option and Closing. Medscape will be deemed to have exercised the Repurchase Option on the date which is 45 days after the Termination Event (or on such other date to which the parties may mutually agree) unless it provides written notice to Executive within 45 days after the Termination Event, in the manner set forth in Section 15 of the Agreement to which this Annex A is appended, of its election not to exercise the Repurchase Option. If and to the extent the Repurchase Option is not so exercised within such 45-day period, the Repurchase Option shall expire and terminate effective upon the expiration of such 45-day period. The closing of any such repurchase of Unvested Shares shall be held at the principal office of Medscape, or at such other locations as the parties to such repurchase may mutually determine. At any such closing, Medscape shall pay to the Executive or any holder of the Unvested Shares the aggregate repurchase price for the Unvested Shares to be purchased by certified or bank check. At such time, the Executive or any holder of the Unvested Shares shall deliver to Medscape the certificate or certificates representing the Unvested Shares so repurchased, duly endorsed for transfer, free and clear of any liens or encumbrances. 14 EX-10.10 14 PROMISSORY NOTE 1 Exhibit 10.10 October 27, 1998 PROMISSORY NOTE FOR VALUE RECEIVED, the undersigned ("Drezner") hereby promises to pay to Medscape, Inc. or its successor ("Medscape"), at such place or places as may be specified by Medscape or any holder hereof, in legal tender of the United States of America, the principal amount of $627,949.64 (the "Principal"), with interest at the rate of 5.12% per annum, compounded annually, on the unpaid balance. Interest shall be payable on each anniversary of the date hereof commencing October 27, 1999. The Drezner shall pay to Medscape, within ten (10) days after receipt thereof, the net after-tax proceeds from any sales of shares of the Class B Common Stock, par value $.01 per share, of the Medscape held or being acquired at the date hereof, or any successor securities, in reduction of Principal until such time as the Principal has been repaid in full, and in connection with each such payment shall pay accrued but unpaid interest on the amount so prepaid. For purposes hereof, net after-tax proceeds refers to the amount received upon any sale of such shares, less brokerage commissions or underwriting discounts, other expenses of every kind, including documentary, excise and other taxes, if any, directly relating to the sale and an amount equal to the federal, state and local taxes on any gain from such sale (as determined by multiplying the amount of such gain by the combined maximum federal, state and local tax rate applicable to the sale of such shares by the Drezner, taking into account the holding period for such shares and any federal income tax deduction for state and local income taxes). In any event, any principal then unpaid shall be due and payable, with accrued interest thereon, on the earlier of (i) October 26, 2005 or (ii) at Medscape's election, 90 days following Drezner's termination as an employee of Medscape, such election to be made by written notice from Medscape to Drezner within five (5) business following such termination (the "Repayment Date"). This Note is subject to the terms of, and the payment hereof is secured by, a certain Pledge Agreement dated as of the date hereof by and between Drezner and Medscape (the "Pledge Agreement"). In case an Event of Default, as defined in the Pledge Agreement, shall occur, the aggregate unpaid balance of Principal and accrued interest may be declared to be due and payable in the manner and with the effect provided in the Pledge Agreement. The Medscape shall have recourse to the Collateral as defined under the Pledge Agreement in connection with the repayment of this Note, and also against any other assets of the Drezner up to the Recourse Amount (as hereinafter defined); the Medscape shall have full recourse against the Drezner's assets (including, but not limited to, the collateral pledged pursuant to the Pledge Agreement) to recover the Recourse Amount. The Recourse Amount as of any time shall mean 25% of the Principal amount hereof and interest due thereon reduced by 25% of each payment of Principal (and related interest payments) made by or on behalf of the Drezner from any source. Unless otherwise directed by the Drezner, all sums paid by the Drezner or otherwise received by Medscape on account of sums owing hereunder shall be deemed to reduce the Recourse amount on a proportionate basis. 2 2 Drezner may discharge the obligations undertaken hereby, at any time, by repaying the outstanding principal balance and accrued interest thereon, without penalty. Drezner may, without penalty, make a partial prepayment of Principal and/or interest in any amount at any time and may thereby reduce any required future payment hereunder by the amount of such prepayment. Drezner expressly waives presentment for payment, protest and demand, notice of protest, demand and dishonor and expressly agrees that this Note may be extended from time to time without in any way affecting the liability of Drezner. No delay or omission on the part of Medscape in exercising any right hereunder shall operate as a waiver of such right or of any other right under this Note. This Note may from time to time be extended by Medscape, with or without notice to Drezner, and any related right may be waived, exchanged, surrendered or otherwise dealt with, all without affecting the liability of Drezner, in each case in the sole discretion of Medscape. This Note may not be changed, modified or terminated orally, but only by an agreement in writing and signed by the Drezner and Medscape. This Note shall be governed by and construed in accordance with the laws of the state of New York. DREZNER /s/ Jeffrey E. Drezner ------------------------------ Jeffrey E. Drezner, M.D. Ph.D. EX-10.11 15 EMPLOYMENT AGREEMENT WITH PETER M. FRISHAUF 1 Exhibit 10.11 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the 16th day of February, 1998 by and between MEDSCAPE, INC., a New York corporation (the "Company"), and PETER M. FRISHAUF ("Executive"). 1. Employment and Term. The Company will employ Executive as Chairman of the Executive Committee of the Company, and Executive shall accept such employment, for a three year period commencing February 16, 1998 (the "Employment Period"), subject to earlier termination pursuant to the terms hereof. Executive shall at all times report to the Chief Executive Officer of the Company. Executive's principal focus shall be the development of new products and services for the Company. 2. Performance. Executive shall (i) loyally and conscientiously perform all his duties and obligations under this Agreement to the best of his abilities; (ii) devote one-half of his business time, attention, energy and efforts to the business of the Company; and (iii) not directly or indirectly render any services of a commercial or professional nature to any other person or organization (other than SCP Communications, Inc. ("SCP")) without the prior written consent of the Board. The Company acknowledges and agrees that Executive will devote one-half of his time performing his obligations under his Employment Agreement with SCP. 3. Compensation and Benefits. (a) Base Salary. During, the Employment Period, the Company shall pay Executive a base salary of $80,000 per year, payable in accordance with the Company's standard payroll policy. (b) Performance Bonuses. In addition to the base salary, the Company shall pay Executive a performance bonus in respect of each of 1998, 1999 and 2000 ("Bonus Years"), in accordance with the Performance Bonus & Goals set forth in Exhibit A. Executive shall be entitled to any bonus earned with respect to any Bonus Year so long as Executive remains employed by the Company on December 31 of such Bonus Year, but shall not be entitled to any portion of the bonus for any Bonus Year in which he is not employed by the Company on December 31 of such Bonus Year. Any performance bonus shall be payable within 30 days after approval by the Board of Directors of the Company of the Company's financial statements for such Bonus Year. (c) Performance Bonus Payment. The performance bonus for each year shall be paid, at Executive's election, in, either: (i) cash; or 2 2 (ii) that number of shares (the "Bonus Share Amount") of Class B Common Stock, par value $.01 per share, of the Company ("Class B Common Stock") equal to the bonus amount divided by the "Price Per Bonus Share," as defined below. "Price Per Bonus Share" means the fair market value of each share of Class B Common Stock as of December 31 of such Bonus Year as determined by the Company's Board of Directors taking into account the restrictions on sale and nonvoting nature of such shares; or (iii) fully vested and exercisable incentive stock options to purchase that number of shares of Class B Common Stock equal to 150% of the Bonus Share Amount, pursuant to the Company's 1996 Stock Option Plan, as the same may be amended from time to time (the "Option Plan"). (d) Benefits. During the term hereof, Executive shall be entitled to all such family health and medical benefits (including dental) and all life and disability insurance as are provided to the senior executives of the Company; provided, however, that Executive shall not be entitled to any such benefits or insurance if Executive is receiving substantially similar benefits and insurance in connection with his employment by SCP. (e) Vacation. Executive shall be entitled to paid vacation each year in accordance with the Company's vacation policy for its senior executives. 4. Restrictive Covenants. (a) Noncompetition During Employment. During his employment with the Company, Executive shall not, directly or indirectly, either as an employee, consultant, agent, principal, partner, stockholder, corporate officer, director, or in any other individual or representative capacity, engage or participate in any business or organization that is competitive with the business of the Company. (b) Noncompetition After Employment. Executive agrees that for the one year period following termination of his employment with the Company, he will not (i) directly or indirectly, either as employee, consultant, agent, principal, partner, stockholder, corporate officer, director, or in any other individual or representative capacity, engage or participate in any business or organization that is competitive with the business of the Company at the time of such termination; (ii) solicit, divert or take away, or attempt to solicit, divert or to take away, the business or patronage of any of the clients, customers or accounts of the Company (except on behalf of a business unrelated to the business of the Company); or (iii) encourage or solicit any employee of the Company to leave the employ of the Company for any reason. 3 3 (c) Exceptions. Notwithstanding, the provisions of this Section 4, nothing herein shall prohibit Executive from (i) holding less than two percent (2%) of the outstanding capital stock of a publicly held corporation engaged in a business that competes with the business of the Company; (ii) serving on one or more Boards of Directors of non-profit corporations so long as, in the aggregate, such commitments do not interfere with the performance of Executive's duties for the Company; or (iii) after his employment with the Company terminates for any reason, being employed by a multi-division corporation that competes with the Company so long as Executive's responsibilities do not extend to the specific division of such corporation that competes with the Company and so long as Executive does not work in such division or advise or otherwise assist such division. (d) Remedies and Interpretation. The restrictions contained in this Section 4 and in Section 6 of this Agreement are necessary for the protection of the business and goodwill of the Company and are considered by Executive to be reasonable for such purpose. Executive agrees that any breach of this Section 4 or Section 6 by Executive is likely to cause the Company substantial and irrevocable damage and therefore, in the event of any such breach, Executive agrees that the Company, in addition to any other remedies that may be available, shall be entitled to specific performance and other injunctive relief, without proving actual damages. If any restriction set forth in this Section 4 or in Section 6 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable. 5. Termination of Employment. (a) Death or Disability. In the event of the Executive's death or "Disability" (as defined below), the Company may by written notice to Executive terminate Executive's employment effective not less than 30 days after the date of such notice. "Disability" means a mental or physical condition that renders Executive incapable of performing his duties and obligations under this Agreement for a period of six consecutive months, or more than 210 days in any eight month period, in the written opinion of a competent physician specializing in such condition selected by the Board who has personally examined and evaluated Executive's condition. Executive agrees to submit to appropriate medical examination by such physician at the Company's expense and that such physician's determination shall be final. If this Agreement is terminated by Company under this Section 5(a), the Company shall pay Executive or his estate within 10 days after the effective date of such termination any unpaid compensation (including any accrued but unpaid vacation pay and bonuses accrued in accordance with Section 3(c) hereof) accrued through such effective date, provided that no severance amount shall be payable. 4 4 (b) Termination for Good Cause. The Company may terminate Executive's employment at any time for "Good Cause," as defined below. "Good Cause" means gross misconduct, gross neglect of duties (including by reason of alcohol or drug dependency), acts involving moral turpitude, conviction of a felony, material breach by Executive of this Agreement that is not substantially cured within 30 business days after receipt of written notice from the Company of such breach, or any act or omission involving fraud, embezzlement or misappropriation of any property of the Company by Executive. (c) Termination by Executive. Executive may terminate this Agreement by giving the Company written notice at least 60 days prior to the effective date of such termination. If Executive terminates this Agreement under this Section 5(d), the Company shall pay Executive only any unpaid compensation (including any accrued but unpaid vacation pay) accrued through the effective date of such termination, but Executive shall not be entitled to any severance payments. (d) Resignation as Director. Upon termination of Executive's employment pursuant to this Agreement, he shall resign as a director and an officer of the Company. 6. Development Rights and Confidential Information. (a) Developments. Executive agrees that any developments by way of invention, design copyright, trademark, software, magazine or journal concept or other matters which may be developed or perfected by him during the term of this Agreement or which are in process or under investigation during the term of this Agreement, and which relate to the business of the Company or its subsidiaries, shall be the property of the Company. The Employee will, at the request and expense of the Company, assist the Company in applying for and prosecuting letters patent thereon in the United States or in foreign countries if the Company reasonably requests, and will assign and will transfer the same to the Company together with any letters patent, copyrights, trademarks and applications therefor. (b) Confidentiality. Executive agrees not to disclose or use Confidential Information of the Company except in connection with his employment with the Company. For purposes of this Section 6(b), the term "Confidential Information" shall mean all information in any manner relating to the Company's business including, but not limited to, information regarding business plans and strategies, trade secrets, "know-how", inventions, software, finances, markets, properties, methods of doing business, processes, customers, staff resumes, executive compensation, or suppliers, whether or not such information is labeled or otherwise identified as confidential. Irrespective of the foregoing, no information will be deemed "Confidential Information" if such information (i) is a part of the public knowledge or 5 5 literature or becomes part of the public knowledge or literature, in either case from a source other than Executive or a source acting at Executive's direction, (ii) is received by Executive in writing, without binder of secrecy, from a third party who is entitled to convey such information to the public, or (iii) is required by law or court order to be disclosed. Upon termination of this Agreement, Executive will deliver to the Company all equipment, records, copies of records and any other written information of or pertaining to the Company or any subsidiary of the Company which are then in his possession. 7. Miscellaneous. (a) Governing Law. This Agreement shall be governed by, and interpreted in accordance with, the laws of New York applicable to contracts made and performed in New York. (b) Arbitration. Any dispute between Executive and the Company with respect to the terms of this Agreement, or any claim arising out of or relating to this Agreement, will be submitted to and be settled by final and binding arbitration in New York, New York, in accordance with the rules of the American Arbitration Association. (c) Entire Agreement. This Agreement, including all exhibits and schedules attached hereto constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements relating to the subject matter hereof. No amendment or modification of this Agreement shall be effective unless in writing and signed by both parties hereto. (d) Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be construed, if possible, so as to be enforceable under applicable law, if such construction is not possible, then such provision shall be excluded from this Agreement and the balance cf the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. (e) Successors and Assigns. The rights and obligations of the Company under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Company. Executive shall not be entitled to assign any of his rights or obligations under this Agreement. (f) Notices. All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon delivery as evidenced by delivery receipt via overnight delivery service or registered or certified mail to the addresses set forth on the 6 6 signature page, or such other address as either party shall designate to the other in accordance with this provision. (g) Waiver. A waiver by either party of any breach hereof by the other party shall not be construed as a waiver of any subsequent breach. (h) Counterparts. This agreement may be executed in counterparts with the same force and effect as if each signatory had executed the same instrument. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. MEDSCAPE, INC. By: /s/ Paul T. Sheils /s/ Peter M. Frishauf ------------------------ ------------------------- Paul T. Sheils Peter M. Frishauf President & CEO 134 West 29th Street 134 West 29th Street New York, NY 10001 New York, NY 10001 7 7 EXHIBIT A Performance Bonus Goals & Payments The "Target Bonus" (the annual amount payable if the "Target" level for each goal is achieved) is $50,000 in the aggregate for each of calendar years 1998, 1999 and 2000. If the Threshold Level for all goals is achieved, Executive will receive a bonus payment equal to 25% of the Target Bonus; if the "Superior Level" for all goals is achieved, Executive will receive a bonus payment equal to 150% of the Target Bonus. Actual bonus payments will be calculated on a linear basis between the Threshold Level and the Target Level and between the Target Level and Superior Level, as the case may be; provided, however, that the bonus calculation shall be measured for each separate goal based on the weighting ascribed to that goal. The goals, their weighting and the performance levels are as follows:
Goal Weighting Threshold* Target* Superior* Medscape Revenue 30% ($15,000) 85% of Budget Budget 115% of Budget Medscape EBITDA 30% ($15,000) 85% of Budget Budget 115% of Budget U.S. MD Registrants 40% ($20,000) 85% of Budget Budget 115% of Budget
* Based on 1998 Budget (draft) dated December 10, 1997. EX-10.12 16 EMPLOYMENT AGREEMENT WITH GEORGE D. LUNDBERG, M.D. 1 Exhibit 10.12 VIA FACSIMILE February 15, 1999 George D. Lundberg, M.D. 3750 North Lakeshore Drive Apartment 7A Chicago, IL 60613 EMPLOYMENT AGREEMENT Dear George, I'm thrilled to extend to you an offer to join the senior execution team of Medscape, Inc. ("Medscape" or the "Company") as Editor-in-Chief, on the following terms and conditions. 1. DUTIES. As Editor-in-Chief, you will report to the Chief Executive Officer of the Company, and be responsible for (i) setting and enforcing Medscape's editorial strategy and guidelines, with the mutual goals of maintaining absolute editorial integrity and ensuring that Medscape becomes the standard of excellence for online healthcare content; and (ii) cultivating Medscape's strategic relationships with major medical universities and associations. You will be Medscape's "Ambassador at Large," carrying your twin messages of editorial integrity and excellence to the world through speaking engagements, professional associations and press interviews. We would also fully expect and welcome your ideas and suggestions on Medscape's strategic positioning and promotion to our core audiences of physicians, allied healthcare professionals and consumers. Your role at Medscape will be your primary professional commitment, but you will be permitted to retain and continue your part-time teaching positions, independent speaking engagements, seats on foundation boards and medical committee, and consulting to companies and organizations, subject to the noncompete provisions of Section 4 below. 2. COMPENSATION AND BENEFITS. Your compensation package would consist of base salary, options, office and secretarial allowances, vacation and other benefits, as follows: a. Base Salary. Your salary shall be $200,000, payable in accordance with 2 our standard Company payroll practices. You shall earn on a pro rata a basis an annual cash bonus of at least $25,000, payable on each anniversary of your Start Date. Your salary shall be reviewed by the Medscape CEO on each anniversary of your Start Date. b. Incentive Stock Options. On your Start Date, you will be granted incentive options to purchase 60,000 shares of Class B Common Stock of Medscape, par value $.01 per share, at the fair market value as determined by the Board of Directors ("Incentive Options"). The Company's Stock Option Plan provides that Incentive Options vest over a period of 4 years as follows: one quarter of the Options with become exercisable on the first anniversary of your Start Date, and the balance of the Incentive Options will become exercisable in equal monthly installments over the succeeding three years, such that all these Incentive Options will be fully vested over four full years of employment. Incentive Options are issued pursuant to, and are subject to the terms of, the Company's Stock Option Plan and Agreement, copies of which are being forwarded to you. The Option Plan provides, among other things, that all options must be exercised within 10 years after date of grant. c. Office, Equipment and Secretarial Allowances. The Company shall pay for all reasonable office, office equipment (computers, copy machines, etc.) and secretarial expenses in Chicago or Boston, and, of course, provide you a place to hang your hat here in our hip offices on 29th Street. Your secretary shall be a Medscape employee. The Company shall pay (or promptly reimburse you) for all reasonable travel (domestic - coach; international - business class) and entertainment expenses relating to your role at Medscape. The Company shall also pay for all your business-related cellular phone charges. d. Association Dues. Medscape would pay for your membership dues for professional associations up to a maximum of $2,000 per year. e. Vacation. You shall be entitled to four weeks of paid vacation each year. f. Health and Life Insurance. You shall be eligible for all standard medical, dental, disability and life insurance coverages offered by the Company to its full-time employees, summaries of which shall be promptly delivered to you. 3. TERM & TERMINATION. The initial term of your employment shall commence as of February 15, 1999 (the "Start Date") and expire on the fourth anniversary of the Start Date. a. Termination for Good Cause. The Company may terminate you for "Good Cause," as defined below, at any time by written notice (the "Good Cause Termination Notice"). Within 10 days after the effective date of such Notice, the Company shall pay you any unpaid salary (including any accrued but unpaid bonus amount) accrued through the effective date of such termination, and no 3 severance amounts shall be paid, and all Options unvested as of the effective date of Good Cause Termination Notice shall be extinguished. For purposes of this Agreement, "Good Cause" means gross misconduct (including acts or omissions) in connection with your duties hereunder, conviction of a felony, material breach by you of this Agreement that is not substantially cured within 30 business days after receipt of written notice from Medscape of such breach, or any act or omission involving fraud, embezzlement or theft in connection with your employment hereunder. b. Other Termination. If your employment terminates for any reason other than those specified in clauses (a), (c), (d) or (e) of this Section 3, within 30 days after such termination (i) the Company shall pay you any unpaid salary (including any accrued but unpaid bonus pay) accrued through the effective date of such termination, (ii) any Options that have been awarded hereunder but have not yet fully vested shall vest upon such termination; and (iii) you shall receive a severance payment equal to your annual salary and annual bonus in effect at the time of such termination. c. Termination Upon Death. In the event of your death, your employment hereunder shall be terminated effective as of the date of such death, and the Company shall pay your estate within 30 days after such date any unpaid salary (including any accrued but unpaid bonus pay) accrued through the effective date of such termination, and no severance amounts shall be paid, and all options vested as of the date of such death shall be exercisable in accordance with the provisions of the Stock Option Plan, and all unvested options as of such date shall be extinguished. d. Termination Upon Disability. In the event of your "Disability" (as defined below), the Company may terminate your employment upon not less than 30 days' prior written notice (the "Disability Notice"). "Disability" means a mental or physical condition that renders you incapable of performing your duties and obligations under this for a period of six consecutive months, or more than 210 days in any eight month period, in the written opinion of a competent physician specializing in such condition selected by the Company's Board of Directors who has personally evaluated and examined you. You agree to submit to appropriate medical examination by such physician at the Company's expense and such physician's determination shall be final. Within 10 days after the Disability Notice, the Company shall pay you any unpaid salary (including any accrued but unpaid bonus amount) accrued through the effective date of such termination, and no severance amounts shall be paid, and all Options unvested as of the effective date of Disability Notice shall be extinguished. e. Voluntary Termination by You. You may terminate this Agreement at any time by giving the Company 60 days' prior written notice ("Voluntary Termination Notice"). Within 10 days after the effective date of the Voluntary Termination Notice, the Company shall pay you any unpaid salary (including any 4 accrued but unpaid bonus amount) accrued through the effective date of such termination, and no severance amounts shall be paid, and all Options unvested as of the effective date of Voluntary Termination Notice shall be extinguished. 4. NON-COMPETE. During the term of this Agreement and for one year following the expiration or termination of your employment, you agree that you will not, as an employee, director, owner or consultant or otherwise, compete, directly or indirectly, with the business of Medscape; provided, however, that you may (i) own less than 2% of outstanding stock of public companies that compete with Medscape; and (ii) engage in occasional writing assignments for print publications. For purposes hereof, the term "business of Medscape" means the business of providing medical, health, wellness and related information or services in electronic form on the internet, dedicated networks or successors thereto, over-the-air, broadcast (TV and cable) and related means; provided, however, that this in no way prevents you from appearing on radio, TV or cable programs that are not competitive with Medscape's business. In addition, you agree that for the one year period following termination of your employment with the Company, you will not (i) solicit, divert or take away, or attempt to solicit, divert or take away, the business or patronage of any of the clients, customers or accounts of the Company (except on behalf of a business unrelated to the business of the Company); or (ii) encourage or solicit any employee of the Company to leave the employ of the Company for any reason. The restrictions contained in this Section 4 and in Section 5 of this Agreement are necessary for the protection of the business and goodwill of the Company and are considered by you to be reasonable for such purpose. You agree that any breach of this Section 4 or Section 5 by you is likely to cause the Company substantial and irrevocable damage and therefore, in the event of any such breach, you agree that the Company, in addition to any other remedies that may be available, shall be entitled to specific performance and other injunctive relief, without proving actual damages. If any restriction set forth in this Section 4 or in Section 5 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable. 5. CONFIDENTIAL INFORMATION. You agree not to disclose or use "Confidential Information," as defined below, of the Company except in connection with your employment with the Company. "Confidential Information" means all information in any manner relating to the Company's business including, but not limited to, information regarding business plans and strategies, trade secrets, "know how," inventions, software, finances, markers, properties, methods of doing business, processes, customers, and employee compensation, whether or not such information is labeled as confidential. Notwithstanding the foregoing, no information will be deemed "Confidential Information" if such information (i) is or becomes part of the public knowledge or literature from a source other than you or a source acting on your behalf; (ii) is received by you in writing, without binder of secrecy, from a third party entitled to convey such information to the public; or (iii) is required by law or a court order to be disclosed. Upon termination or expiration of this Agreement, you will deliver to the Company all equipment, records, copies of records and any other Confidential 5 Information in written or electronic form then in your possession. You agree that any developments by way of design, copyright, trademark, software, electronic medical publication or service concept or other matters which may be developed or perfected by you during the term of this Agreement, and which relate to the business of Medscape, shall be the property of the Company. You will assign and will transfer the same to the Company together with any copyrights, trademarks and applications therefor. 6. MISCELLANEOUS. a. Entire Agreement. This Agreement, together with the Option Agreement and Option Plan referred to herein, constitutes the entire Agreement between the parties with respect to the subject matter hereof, and supersedes all prior agreements relating hereto. No amendment hereto shall be effective unless in writing and signed both parties. b. New York Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, applicable to contracts made and performed in New York. c. Arbitration. Any dispute between you and the Company with respect to the terms of this Agreement, or any claim arising out of or relating to this Agreement, will be submitted to and be settled by final and binding arbitration. d. Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be construed, if possible, so as to be enforceable under applicable law; if such construction is not possible, then such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. e. Successors and Assigns. The rights and obligations of the Company under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Company. You shall no be entitled to assign any of his rights or obligations under this Agreement. f. Notices. All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon delivery as evidenced by delivery receipt via overnight delivery services or registered or certified mail to the addresses set forth on the signature page, or such other address as either party shall designate to the other in accordance with this provision. g. Waiver. A waiver by either party of any breach hereof by the other party shall not be construed as a waiver of any subsequent breach. h. Counterparts. This agreement may be executed in counterparts with the same force and effect as if each signatory had executed the same instrument. 15 6 If acceptable, please sign both copies of this letter agreement and return one fully-executed original to me, and welcome to Medscape. Very truly yours, MEDSCAPE, INC. By: /s/ Paul T. Sheils ------------------------- Paul T. Sheils President & CEO Agreed and Accepted: /s/ George D. Lundberg - ------------------------- George D. Lundberg, M.D. 2/15/99 EX-10.13 17 EMPLOYMENT AGREEMENT WITH DAVID YAKIMISCHAK 1 EXHIBIT 10.13 [MEDSCAPE LETTERHEAD] March 15, 1999 Mr. David Yakimischak 28 Beech Avenue Madison, NJ 07940 EMPLOYMENT AGREEMENT Dear David, I'm thrilled to extend to you an offer to join the senior management team of Medscape, Inc. ("Medscape" or the "Company") as Chief Technology Officer, on the following terms and conditions. 1. DUTIES. As Chief Technology Officer, you will be responsible for formulating and implementing Medscape.com's technical strategy to ensure that it has the technical platforms necessary to maintain its role as the leading healthcare site on the World Wide Web. You will work out of our lovely offices on 29th Street, and report to the Chief Executive Officer. Medscape's IT Group (including the server, network and PC support group) would report to you. Your start date will be March 15, 1999 (the "Start Date"). 2. COMPENSATION AND BENEFITS. Your compensation package would consist of a base salary, performance bonus, stock options and other benefits, as follows: (a) BASE SALARY. Your salary shall be $150,000 per year, payable in accordance with our standard Company payroll practices. Your salary shall be reviewed by the Medscape CEO on each anniversary of your Start Date. (b) PERFORMANCE BONUS. You will also receive a $20,000 performance bonus in cash if mutually agreeable performance goals (e.g., on-time, on-budget completion of technical projects, system uptime, etc.) are met. (c) INCENTIVE STOCK OPTIONS. On your Start Date, you will be granted incentive stock options to purchase 35,000 shares of Medscape's Class B Common Stock, par value $.01 per share, at an exercise price per share equal to the fair market value of 2 such options as determined by the Medscape Board of Directors as of your Start Date ("Incentive Options"). The Company's Stock Option Plan provides that Incentive Options vest over a period of four years as follows: one quarter of the Incentive Options will become exercisable on the first anniversary of your Start Date, and the balance of the Incentive Options will become exercisable in equal monthly installments over the succeeding three years, such that all these Incentive Options will be fully vested after four full years of employment. Incentive Options are issued pursuant to, and are subject to the terms of, the Company's Stock Option Plan and an Incentive Stock Option Agreement, copies of which will be forwarded to you. The Stock Option Plan provides, among other things, that all options must be exercised within 10 years after the date of grant. (d) VACATION. You shall be entitled to three weeks of paid vacation in the first year of your employment and three weeks each year thereafter. (e) HEALTH AND LIFE INSURANCE. You shall be eligible for all standard medical, dental and life insurance coverages offered by the Company to its full-time employees, summaries of which shall be promptly delivered to you. 3. TERM & TERMINATION. The initial term of your employment shall commence on your Start Date and expire on the fourth anniversary of the Start Date. Your employment hereunder will terminate upon your resignation or death and may be terminated by the Company at any time for or without Good Cause (as defined below) or by reason of your Disability (as defined below). In the event that your employment is terminated by reason of your death or resignation, or by the Company for Good Cause or because of your Disability, you or your estate, as the case may be, will be entitled only to your accrued and unpaid salary as of the date of termination. In the event that your employment is terminated by the Company without Good Cause (and not because of your Disability) during the initial term of your employment, you shall be entitled to receive your accrued and unpaid salary as of the date of termination plus six (6) months salary. "Disability" means a mental or physical condition that renders you incapable of performing your duties and obligations under this Agreement for a period of six consecutive months, or more than 210 days in any eight month period, in the written opinion of a competent physician specializing in such condition selected by the Medscape Board of Directors who has personally examined and evaluated your condition. The Company shall have the right to terminate your employment hereunder at any time following your Disability. "Good Cause" means gross misconduct, gross neglect of duties (including by reason of alcohol or drug dependency), acts involving moral turpitude, conviction of a felony, material breach by you of this Agreement that is not substantially cured within 30 business days after receipt of written notice from the Company of such breach, or any act or omission involving fraud, embezzlement or misappropriation of any property of the Company by you. 4. NON-COMPETE. 2 3 (a) NON-COMPETE. You agree that your services hereunder are of a special, unique, extraordinary and intellectual character, and your position with the Company places you in a position of confidence and trust with the customers and employees of the Company and its affiliates. You further acknowledge that the rendering of services to the customers of the Company and its affiliates necessarily requires the disclosure of Confidential Information (as defined below) of the Company. You and the Company agree that in the course of your employment with the Company, you may develop a personal acquaintanceship and relationship with the Company's and its affiliates' customers, and a knowledge of those customers' affairs and requirements which may constitute the primary contact of the Company and its affiliates with such customers. You acknowledge that the Company's and its affiliates' relationships with its established customers may therefore be placed in your hands in confidence and trust. You consequently agree that it is reasonable and necessary for the protection of the goodwill and business of the Company that you make the covenants contained herein. Accordingly, you agree that, so long as you are in the Company's employ and for a period of one year after the termination of such employment for any reason whatsoever, you will not, whether as an owner, shareholder (other than in your capacity as holder of less than two percent (2%) of the shares of any corporation whose shares are traded on a national securities exchange or over the counter, which shall be excepted from this restriction), partner, employee, consultant, advisor, independent contractor or otherwise, directly or indirectly compete with the business of the Company in any manner. (b) NON-SOLICITATION. Additionally, you agree that so long as you are in Medscape's employ and for a period of one year after the termination of such employment for any reason whatsoever, you will not, within the United States and its territories and possessions, or in any other geographical area in which the Company has an office or a client (the "Medscape Territory"), directly or indirectly, on your own behalf or on behalf of anyone else engaged in a business which is directly competitive with the Company, without the prior written consent of the Company: (i) persuade or attempt to persuade any customer of the Company or its affiliates as of the date of the termination of your employment, to cease doing business with, or to reduce the amount of business it does with, the Company or its affiliates or solicit the business of any of the Company's or its affiliates' customers as of the date of the termination of your employment hereunder; (ii) render to or for any customer of the Company as of the date of the termination of your employment hereunder any services of the type rendered by the Company to its customers unless such services are rendered as an employee or consultant of the Company; or (iii) solicit or encourage to leave the employ of the Company or its affiliates, or to become employed by any person other than the Company, any employee of the Company or its affiliates, or any individual who was an employee of the Company or its affiliates during the one year prior to the termination of your employment. You further agree that so long as you are in the Company's employ and for a period of one year after the termination of such employment for any reason whatsoever, you will not, within the Medscape Territory, directly or indirectly, on your own behalf or on behalf of anyone else engaged in a business which is directly competitive with the Company, without the prior written consent of the Company, employ any employee of the Company or its affiliates, 3 4 or any individual who was an employee of the Company or its affiliates during the six months prior to the termination of your employment. (c) ACKNOWLEDGMENT. You have carefully considered the nature and extent of the restrictions upon you and the rights and remedies conferred upon the Company under this Agreement, and hereby acknowledge and agree that the same (i) are reasonable in time and territory, (ii) are designed to eliminate competition which otherwise would be unfair to the Company, (iii) do not stifle your inherent skill and experience, (iv) would not operate as a bar to your sole means of support, (v) are fully required to protect the legitimate interests of the Company and (vi) do not confer a benefit upon the Company disproportionate to the detriment to you or the benefit otherwise afforded you by this Agreement. You and the Company acknowledge and agree that the restrictions and obligations imposed on you by virtue of this Paragraph 4 are, in light of the circumstances, fair and reasonable as to type, scope and period of time, and are reasonably required for the protection of the Company and the goodwill associated with the business of the Company. However, it is the intent of you and the Company that this Agreement be enforceable and restrict your activities only to the extent permitted by applicable law. Therefore, if any provision of this Paragraph 4 as presently written shall be construed to be illegal, invalid or unenforceable by a court of competent jurisdiction, said illegal, invalid or unenforceable provision shall be deemed to be amended and shall be construed by the court to have the broadest type, scope and duration permissible under applicable law, and if no validating construction is possible, shall be severable from the rest of this Agreement, and the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. 5. DEVELOPMENT RIGHTS AND CONFIDENTIAL INFORMATION. (a) DEVELOPMENT RIGHTS. You agree that any developments by way of invention, design, copyright, trademark, software or other matters which may be developed or perfected by you during the term of your employment by the Company or which are in process or under investigation during such term, and which relate to the business of the Company or its subsidiaries ("Developments"), shall be the property of the Company. You will, at the request and expense of the Company, assist the Company in applying for and prosecuting letters patent for any Development in the United States or in foreign countries if the Company reasonably requests, and will assign and will transfer the same to the Company together with any letters patent, copyrights, trademarks and applications therefor. (b) CONFIDENTIAL INFORMATION. You agree not to disclose or use Confidential Information (as hereinafter defined) of the Company except in connection with your employment by the Company. "Confidential Information" means all information in any manner relating to the Company's business including, but not limited to, information regarding business plans and strategies, trade secrets, "know how," inventions, software, finances, markets, properties, methods of doing business, processes, customers, staff 4 5 resumes, employee compensation or suppliers, whether or not such information is labeled or otherwise identified as confidential. "Confidential Information" does not include information that: (i) is part of the public knowledge or literature or becomes part of the public knowledge or literature, in either case from a source other than you or a source acting at your direction, (ii) is received by you in writing from a third party who is entitled to convey such information to the public, or (iii) is required by law or court order to be disclosed. Upon termination of your employment hereunder, you will deliver to the Company all equipment, records, copies of records and any other written information of or pertaining to the Company or any subsidiary of the Company which is then in your possession. 6. CERTAIN REMEDIES. You and the Company acknowledge that, in the event of a breach or a threatened breach by you of any of you obligations under Paragraphs 4 or 5 of this Agreement, the Company will not have an adequate remedy at law. Accordingly, in the event of any such breach or threatened breach by you, the Company will be entitled to such equitable and injunctive relief as may be available to restrain you and any business, firm, partnership, individual, corporation or entity participating in such breach or threatened breach from the violation of the provisions hereof. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available at law or in equity for such breach, including the recovery of damages. 7. MISCELLANEOUS. (a) ENTIRE AGREEMENT. This Agreement, together with the Incentive Stock Option Agreement and Stock Option Plan referred to herein, constitutes the entire Agreement between the parties with respect to the subject mater hereof, and supersedes all prior agreements relating hereto. No amendment hereto shall be effective unless in writing and signed by both parties. (b) GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, applicable to contracts made and performed in New York. Any legal action or proceeding with respect to this Agreement or any transaction related hereto shall be brought in the courts of the State of New York or of the United States District Court for the Southern District of New York, and, by the execution and delivery of this Agreement, each of the parties hereto hereby consents for itself and in respect of its property to the exclusive jurisdiction of the aforesaid courts and agrees that service of process in any legal action or proceeding with respect to this Agreement or any transaction related hereto may be made on such party by delivery of such process by certified mail, return receipt requested, to such party at its address set forth in the heading hereof with the same effect as if such process were personally served on such party within the State of New York. Each of the parties hereto hereby irrevocably waives, to the extent permitted by applicable law, any objection, including, but not limited to, any objection to the laying of venue or based on the ground of forum non conveniens, which it may now or hereafter have to the bringing of any action or 5 6 proceeding in such jurisdictions in respect of this Agreement or any transaction related hereto. Nothing contained herein shall affect the right of any party hereto to serve process in any other manner permitted by law. (c) SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be construed, if possible, so as to be enforceable under applicable law; if such construction is not possible, then such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. (d) SUCCESSORS AND ASSIGNS. The rights and obligations of the Company under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Company. You shall not be entitled to assign any of your rights or obligations under this Agreement. (e) NOTICES. All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon delivery as evidenced by delivery receipt via overnight delivery service or registered or certified mail to (x) if to you, at the address set forth above, and (y) if to Medscape, to 134 West 29th Street, New York, New York 10001; or such other address as either party shall designate to the other in accordance with this provision. (g) NO MODIFICATION. No termination, alteration, modification or variation or waiver of this Agreement or any of the provisions hereof shall be effective unless in writing executed by the parties hereto, or in the case of a waiver, by the party or parties waiving compliance. No waiver of any default or breach of this Agreement shall be deemed a continuing waiver or a waiver of any other breach or default. No course of dealing nor any delay on the part of either party in exercising any rights hereunder shall operate as a waiver of any such rights. (h) COUNTERPARTS. This agreement may be executed in counterparts with the same force and effect as if each signatory had executed the same instrument. (i) HEADINGS. The headings and captions contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. (j) WITHHOLDING. Anything to the contrary notwithstanding, all payments required to be made by Medscape hereunder to you shall be subject to withholding of such amounts relating to taxes as Medscape may reasonably determine it should withhold pursuant to any applicable law or regulation. (k) SURVIVAL. The provisions of Paragraphs 3, 4, 5, and 6, and of this Paragraph 7 shall survive the termination or expiration of this Agreement. 6 7 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the day and year first above written. If acceptable, please sign both copies of this letter agreement and return one fully executed original to me, and welcome to Medscape! Very truly yours, MEDSCAPE, INC. By: /s/ Paul T. Sheils ______________________ Paul T. Sheils President & CEO AGREED AND ACCEPTED: /s/ David Yakismischak _________________________ David Yakismischak 7 EX-10.14 18 EMPLOYMENT AGREEMENT WITH MEG WALSH 1 EXHIBIT 10.14 EMPLOYMENT AGREEMENT THIS AGREEMENT, made as of March 4, 1999, is by and between MEDSCAPE, INC., a New York corporation with offices at 134 West 29th Street, New York, New York 10001 ("Medscape"), and MEG WALSH, an individual with an address at 520 Hudson Street, Suite 151, New York, NY 10014 ("Walsh"). 1. Employment. Medscape hereby employs Walsh during the Term (as hereinafter defined) as President, Medscape Consumer Division, and she will report directly to the Executive Vice President of Medscape. As such, Walsh's responsibilities will include the formulation and implementation of Medscape's strategy to leverage and extend medscape.com.'s position as the leading professional healthcare website to also become the leading consumer healthcare website. Walsh will be directly responsible for all sales of banners, sponsorships and related promotional products to pharmaceutical and other sponsors of Medscape Consumer Division, as well as developing and managing new product lines for Medscape Consumer Division (e.g., webcasting). In addition to Walsh's sales responsibilities, she will also be directly responsible for Medscape Consumer's metric marketing group (Amy Drill and her staff). The Medscape Consumer sales group and the Medscape Consumer metric marketing group will report to Walsh. If and when a free-standing consumer marketing department is created, it will report to Walsh. 2. Performance of Services. (a) Walsh hereby accepts such employment and agrees that throughout the period of her employment hereunder she will devote such business time and attention, as well as her full knowledge and skills, faithfully, diligently and to the best of her ability, in furtherance of the business of Medscape in connection with the performance of her duties as described in Paragraph 1 hereof, and subject, at all times, to the policies of Medscape generally applicable to its employees. (b) Medscape Consumer Division will receive dedicated support from the other Medscape departments: Editorial, Marketing, Production, Business Development and Finance. 3. Term. Walsh shall be employed for an initial term commencing as of the date hereof (the "Commencement Date"), and ending on the third anniversary of such date (the "Term"), unless her employment is terminated prior to the expiration of the Term pursuant to the provisions hereof. 2 4. Compensation. (a) Base Compensation. As compensation for her services hereunder, during the Term, Medscape will pay to Walsh a salary (the "Base Salary") at the rate of One Hundred Sixty-Five Thousand ($165,000.00) Dollars per annum, payable in accordance with Medscape's standard payroll procedures. The Base Salary may be increased annually based on the recommendation of Medscape's Executive Vice President and President and the approval of its Board of Directors. (b) Signing Cash Bonus. Walsh will be entitled to a signing bonus payment ("Signing Cash Bonus") of Ten Thousand ($10,000.00) Dollars, payable within sixty (60) days of the Commencement Date. (c) Performance Cash Bonus. In addition to Walsh's Base Salary and Signing Cash Bonus, Walsh will be entitled to a performance bonus payment of Fifty Thousand ($50,000.00) Dollars ("Performance Cash Bonus") should the revenues actually received by Medscape (recognized in accordance with Medscape's revenue recognition policy) from Medscape Consumer Division ("Consumer Revenues") meet or exceed Four Million ($4,000,000.00) Dollars on or before the date which is fifteen months after the Commencement Date. (d) Stock Options. (i) In addition to Walsh's Base Salary, Signing Cash Bonus and Performance Cash Bonus, Walsh will be granted on the Commencement Date 85,000 options to purchase Medscape's Class B Common Stock ("Common Stock") at an exercise price of $2.50 per share (the "Incentive Stock Options"). The Incentive Stock Options will vest over a period of four (4) years as follows: one-fourth (1/4) of the Incentive Stock Options will become exercisable on the first anniversary of the Commencement Date, and the balance of the Incentive Stock Options will become exercisable in equal monthly installments over the next succeeding three (3) years. (ii) In addition to Walsh's Base Salary, Signing Cash Bonus, Performance Bonus and Incentive Stock Options, Walsh will be granted upon the Commencement Date 70,000 options to purchase Medscape's Class B Common Stock at an exercise price of $2.50 per share (the "Additional Stock Options"), which shall fully vest on the earlier of (i) the seventh anniversary of this Agreement provided that Walsh is a Medscape employee on such anniversary or (ii) the dates set forth below if Consumer Revenues meet or exceed the following amounts: Date Consumer Revenues Additional Stock Options 2 3 June 4, 2000 $4,000,000 to 4,999,999* 25,000 June 4, 2000 $5,000,000 and up* 10,000 June 4, 2001 $8,000,000 to 8,999,999** 25,000 June 4, 2001 $9,000,000 and up** 10,000
* During the period from the Commencement Date to June 4, 2000. **During the period commencing June 4, 2000 to June 4, 2001. Notwithstanding the foregoing, to the extent that the value of the Additional Stock Options vesting in any one year, when aggregated with the Incentive Stock Options (collectively with the Additional Stock Options, the "Compensation Options") vesting in that same year exceeds $100,000.00, the vesting of those excess Additional Stock Options ("Excess Option") shall roll over to the next succeeding year in which the aggregate value of Compensation Options does not exceed $100,000. (iii) If Walsh's employment hereunder is terminated prior to the vesting of any Compensation Options, such unvested Compensation Options shall be forfeited except that any Excess Options shall vest in full upon such termination and provided that if Walsh's employment is terminated by Medscape without Good Cause (as defined below), and Consumer Revenues to date in such year have met or exceeded the amount(s) which would trigger earlier vesting as provided in Paragraph 4(d)(ii), Additional Stock Options will vest as if the date of termination were the anniversary date. Except to the extent inconsistent with the terms hereof, the terms and conditions of the Incentive Stock Options and Additional Options will be subject to the Medscape 1996 Stock Option Plan, as amended and Medscape's current form of Incentive Stock Option Agreement. The Compensation Options shall constitute and be treated as "incentive stock options" as defined under Section 422 of the Internal Revenue Code of 1986, as amended, for federal income tax purposes. 5. Expenses. Medscape shall reimburse Walsh for all expenses reasonably incurred by her in connection with the performance of her duties hereunder and the business of Medscape, upon the submission to Medscape of appropriate vouchers therefor, all in accordance with Medscape's policies and procedures as in effect from time to time. Medscape shall also pay fifty (50%) percent of the documented fees and disbursements of counsel to Walsh for services in connection with the negotiation and documentation of this Agreement up to a maximum reimbursement of $1,500.00. 6. Vacation. Walsh shall be entitled to three (3) weeks paid vacation during the first year of her employment hereunder, and three (3) weeks paid vacation per year thereafter. 3 4 7. Benefits. Walsh shall be entitled to such family health and medical benefits (including dental), all other employee benefits generally afforded to senior executives of Medscape and all life and disability insurance as is provided to Medscape employees generally. 8. Development Rights and Confidential Information. (a) Walsh agrees that any developments by way of invention, design, copyright, trademark, software or other matters which may be developed or perfected by her during the Term or which are in process or under investigation during the Term, and which relate to the business of the Company or its subsidiaries ("Developments"), shall be the property of Medscape. Walsh will, at the request and expense of Medscape, assist Medscape in applying for and prosecuting letters patent for any Development in the United States or in foreign countries if Medscape reasonably requests, and will assign and will transfer the same to Medscape together with any letters patent, copyrights, trademarks and applications therefor. (b) Walsh agrees not to disclose or use Confidential Information (as hereinafter defined) of Medscape except in connection with her employment by Medscape. For purposes of this Section 8(b), the term "Confidential Information" shall mean all information in any manner relating to Medscape's business including, but not limited to, information regarding business plans and strategies, trade secrets, "know how," inventions, software, finances, markets, properties, methods of doing business, processes, customers, staff resumes, employee compensation, or suppliers, whether or not such information is labeled or otherwise identified as confidential. Irrespective of the foregoing, no information will be deemed "Confidential Information" if such information: (i) is part of the public knowledge or literature or becomes part of the public knowledge or literature, in either case from a source other than Walsh or a source acting at her direction, (ii) is received by Walsh in writing from a third party who is entitled to convey such information to the public, or (iii) is required by law or court order to be disclosed. Upon termination of Walsh's employment hereunder, she will deliver to Medscape all equipment, records, copies of records and any other written information of or pertaining to Medscape or any subsidiary of Medscape which are then in her possession. 9. Representation and Warranty. Walsh represents and warrants to Medscape that she is not a party to any prior employment agreement or other agreement which restricts, interferes with or impairs, or which might be claimed to restrict, interfere with or impair, in any way, Walsh's use of any information or Walsh's execution or performance of this Agreement. 4 5 10. Restrictive Covenants. (a) Walsh agrees that her services hereunder are of a special, unique, extraordinary and intellectual character, and her position with Medscape places her in a position of confidence and trust with the customers and employees of Medscape and its affiliates. Walsh further acknowledges that the rendering of services to the customers of Medscape and its affiliates necessarily requires the disclosure of Confidential Information of Medscape. The parties hereto agree that in the course of Walsh's employment with Medscape, Walsh may develop a personal acquaintanceship and relationship with Medscape's and its affiliates' customers, and a knowledge of those customers' affairs and requirements which may constitute the primary contact of Medscape and its affiliates with such customers. Walsh acknowledges that Medscape's and its affiliates' relationships with its established customers may therefore be placed in Walsh's hands in confidence and trust. Walsh consequently agrees that it is reasonable and necessary for the protection of the goodwill and business of Medscape that Walsh make the covenants contained herein. Accordingly, Walsh agrees that, so long as she shall be in Medscape's employ and for a period of nine months after the termination of such employment for any reason whatsoever other than by Medscape without Good Cause, or by virtue of Medscape's failure to renew this Agreement, she shall not, whether as an owner, shareholder (other than in her capacity as holder of less than two (2%) percent of the shares of any corporation whose shares are traded on a national securities exchange or over the counter which shall be excepted from this restriction), partner, employee, consultant, advisor, independent contractor or otherwise, directly or indirectly compete with the business of Medscape in any manner; provided, that the foregoing covenant not to compete shall not apply to Walsh if (i) her employment is terminated due to the non-renewal of this Agreement upon the expiration of the Term or (ii) she is entitled to severance pay pursuant to the third sentence of Section 12 below and waives in writing in advance such right to severance pay. Additionally, Walsh agrees that so long as she shall be in Medscape's employ and for a period of one year after the termination of such employment for any reason whatsoever, Walsh will not, within the United States and its territories and possessions, or in any other geographical area in which Medscape has an office or a client (the "Medscape Territory"), directly or indirectly, on Walsh's own behalf or on behalf of anyone else engaged in a business which is directly competitive with Medscape, without the prior written consent of Medscape: (i) persuade or attempt to persuade any customer of Medscape or its affiliates as of the date of the termination of Walsh's employment, to cease doing business with, or to reduce the amount of business it does with, Medscape or its affiliates or solicit the business of any of Medscape's or its affiliates' customers as of the date of the termination of Walsh's employment hereunder; (ii) render to or for any customer of Medscape as of the date of the termination of Walsh's employment hereunder any services of the type rendered by Medscape to its customers unless such services are rendered as an employee or consultant of Medscape; or (iii) solicit or encourage to leave the employ of Medscape 5 6 or its affiliates, or to become employed by any person other than Medscape, any employee of Medscape or its affiliates, or any individual who was an employee of Medscape or its or affiliates during the one year prior to the termination of Walsh's employment. Walsh further agrees that so long as she shall be in Medscape's employ and for a period of one year after the termination of such employment for any reason whatsoever, Walsh will not, within the Medscape Territory, directly or indirectly, on Walsh's own behalf or on behalf of anyone else engaged in a business which is directly competitive with Medscape, without the prior written consent of Medscape, employ any employee of Medscape or its affiliates, or any individual who was an employee of Medscape or its affiliates during the six months prior to the termination of Walsh's employment. (b) Walsh has carefully considered the nature and extent of the restrictions upon her and the rights and remedies conferred upon Medscape under this Agreement, and hereby acknowledges and agrees that the same (i) are reasonable in time and territory, (ii) are designed to eliminate competition which otherwise would be unfair to Medscape, (iii) do not stifle the inherent skill and experience of Walsh, (iv) would not operate as a bar to Walsh's sole means of support, (v) are fully required to protect the legitimate interests of Medscape and (vi) do not confer a benefit upon Medscape disproportionate to the detriment to Walsh or the benefit otherwise afforded her by this Agreement. (c) Walsh and Medscape acknowledge and agree that the restrictions and obligations imposed on Walsh by virtue of this Paragraph 10 are, in light of the circumstances, fair and reasonable as to type, scope and period of time, and are reasonably required for the protection of Medscape and the goodwill associated with the business of Medscape. However, it is the intent of Walsh and Medscape that this Agreement be enforceable and restrict Walsh's activities only to the extent permitted by applicable law. Therefore, if any provision of this Paragraph 10 as presently written shall be construed to be illegal, invalid or unenforceable by a court of competent jurisdiction, said illegal, invalid or unenforceable provision shall be deemed to be amended and shall be construed by the court to have the broadest type, scope and duration permissible under applicable law, and if no validating construction is possible, shall be severable from the rest of this Agreement, and the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. 11. Certain Remedies. The parties hereto acknowledge that, in the event of a breach or a threatened breach by Walsh of any of her obligations under Paragraphs 8 or 10 of this Agreement, Medscape will not have an adequate remedy at law. Accordingly, in the event of any such breach or threatened breach by Walsh, Medscape shall be entitled to such equitable and injunctive relief as may be available to restrain Walsh and any business, firm, partnership, individual, corporation or entity 6 7 participating in such breach or threatened breach from the violation of the provisions hereof. Nothing herein shall be construed as prohibiting Medscape from pursuing any other remedies available at law or in equity for such breach, including the recovery of damages. 12. Termination of Employment; Compensation. Walsh's employment hereunder shall terminate upon her resignation or death and may be terminated by Medscape at any time for or without Good Cause (as hereinafter defined) or by reason of Walsh's Disability. In the event that Walsh's employment is terminated by reason of her death or resignation, or by Medscape for Good Cause or because of Walsh's Disability, Walsh or her estate, as the case may be, shall be entitled only to her accrued and unpaid Base Salary as of the date of termination. In the event that Walsh's employment is terminated by Medscape without Good Cause (and not because of Walsh's Disability) during the Term hereof, Walsh shall be entitled to receive her Base Salary through the earlier of (a) the end of the Term and (b) nine (9) months from the date of termination, plus any accrued but unpaid Performance Cash Bonus, if any, through the date of termination. For purposes of this Agreement, "Disability" means a mental or physical condition that renders Walsh incapable of performing her duties and obligations under this Agreement for a period of six consecutive months, or more than 210 days in any eight month period, in the written opinion of a competent physician specializing in such condition selected by the Medscape Board of Directors who has personally examined and evaluated her condition. Medscape shall have the right to terminate the employment of Walsh hereunder at any time following her Disability. For purposes of this Agreement, "Good Cause" means gross misconduct, gross neglect of duties (including by reason of alcohol or drug dependency), acts involving moral turpitude, conviction of a felony, material breach by Walsh of this Agreement that is not substantially cured within 30 business days after receipt of written notice from Medscape of such breach, or any act or omission involving fraud, embezzlement or misappropriation of any property of the Company by Walsh. 13. Entire Agreement. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and no amendment, waiver or modification hereof shall be valid or binding unless made in writing and signed by the party against whom enforcement thereof is sought. This Agreement supersedes all prior agreements, representations and understandings of the parties hereto relating to the employment of Walsh by Medscape. 14. No Reliance. The parties hereto each represent to the other that in executing this Agreement each does not rely upon, and has not relied upon, any 7 8 representation or statement not set forth herein with regard to the subject matter, basis or effect of this Agreement or otherwise. 15. Notices. All notices, consents, waivers or other communications required or permitted to be given or made pursuant to any of the provisions of this Agreement (collectively, "Notices") shall be in writing and shall be deemed to have been duly given or made for all purposes if sent by certified or registered mail, return receipt requested, and postage prepaid, hand delivered, sent by confirmed telecopy or other confirmed electronic means or by express mail service or other verified overnight courier service to the party at its or her address as it appears on the first page of this Agreement, or at such other address as either party may specify by Notice give to the other party in accordance with this Paragraph 15 and with copies to the parties indicated below. A Notice shall only be deemed given or received on a business day (any day other than Saturday, Sunday or Federal legal holiday). The date any such Notice shall be deemed given and received is: (i) if hand delivered, on the date of hand delivery; (ii) if sent by registered or certified mail, three (3) business days following the posting of the mail; (iii) if sent by express mail or other verified overnight courier service, the date received; or (iv) if sent by confirmed telecopy or other confirmed electronic means, the date when receipt is confirmed by the same means (The telecopy number for Medscape is: (212) 760-3140. The telecopy number for Walsh is: ________________). If a notice is being provided to Walsh, a copy shall also be provided to: William M. Pollak, Esq. Putney, Twombly, Hall & Hirson 521 Fifth Avenue, 10th Floor New York, New York 10175 If a notice is being provided to Medscape, a copy shall also be provided to: Patterson, Belknap, Webb & Tyler LLP 1133 Avenue of the Americas New York, New York 10036-6710 Telecopy No.: (212) 336-2222 Attention: John P. Schmitt, Esq. 16. No Assignment. Neither this Agreement nor the right to receive any payments hereunder may be assigned by Walsh, and any attempted assignment shall be null and void and of no effect. This Agreement shall be binding upon Walsh, her heirs, executors and administrators and upon Medscape, its successors and assigns. 8 9 17. No Modification. No termination, alteration, modification or variation or waiver of this Agreement or any of the provisions hereof shall be effective unless in writing executed by the parties hereto, or in the case of a waiver, by the party or parties waiving compliance. No waiver of any default or breach of this Agreement shall be deemed a continuing waiver or a waiver of any other breach or default. No course of dealing nor any delay on the part of either party in exercising any rights hereunder shall operate as a waiver of any such rights. 18. Governing Law. This Agreement shall be governed, interpreted and construed according to the internal laws of the State of New York without regard to conflict of laws principles. Any legal action or proceeding with respect to this Agreement or any transaction related hereto shall be brought in the courts of the State of New York or of the United States District Court for the Southern District of New York, and, by the execution and delivery of this Agreement, each of the parties hereto hereby consents for itself and in respect of its property to the exclusive jurisdiction of the aforesaid courts and agrees that service of process in any legal action or proceeding with respect to this Agreement or any transaction related hereto may be made on such party by delivery of such process by certified mail, return receipt requested, to such party at its address set forth in the heading hereof with the same effect as if such process was personally served on such party within the State of New York. Each of the parties hereto hereby irrevocably waives, to the extent permitted by applicable law, any objection, including, but not limited to, any objection to the laying of venue or based on the ground of forum non conveniens, which it may now or hereafter have to the bringing of any action or proceeding in such jurisdictions in respect of this Agreement or any transaction related hereto. Nothing contained herein shall affect the right of any party hereto to serve process in any other manner permitted by law. 19. Severability. Should any clause, paragraph or part of this Agreement be held or declared to be void or illegal for any reason by a court of competent jurisdiction, such provision shall be ineffective, but all other clauses, paragraphs or parts of this Agreement which can be effected without such illegal clause, paragraph or part shall nevertheless remain in full force and effect. 20. Headings. The headings and captions contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. 21. Withholding. Anything to the contrary notwithstanding, all payments required to be made by Medscape hereunder to Walsh shall be subject to withholding of such amounts relating to taxes as Medscape may reasonably determine it should withhold pursuant to any applicable law or regulation. 22. Survival. The provisions of Paragraphs 8, 9, 10, 11, 12, 13, 14, 18 9 10 and 19 and of this Paragraph 22 shall survive the termination or expiration of this Agreement. 23. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original but all of which shall constitute a single instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the day and year first above written. MEDSCAPE, INC. By: /s/ Paul T. Sheils /s/ Meg Walsh ------------------------------------- ----------------------------- Paul T. Sheils Meg Walsh President and Chief Executive Officer 10 EX-10.15 19 1996 STOCK OPTION PLAN 1 Exhibit 10.15 MEDSCAPE, INC. 1996 STOCK OPTION PLAN 1. Purpose of Plan This Plan shall be known as the "Medscape, Inc. 1996 Stock Option Plan" and is hereinafter referred to as the "Plan". The purpose of the Plan is to aid in maintaining and developing personnel capable of assuring the future success of Medscape, Inc., a New York corporation (the "Company"), to offer such personnel additional incentives to put forth maximum efforts for the success of the business, and to afford them an opportunity to acquire a proprietary interest in the Company, through stock options as provided herein. Options granted under this Plan may be either incentive stock options ("Incentive Stock Options") within the meaning of Section 422 of the Internal Revenue Code of 1986 (the "Code"), or options which do not qualify as Incentive Stock Options ("Nonqualified Options"). 2. Stock Subject to Plan The stock to be subject to options under the Plan shall be the Company's authorized Class B Common Stock, par value $.01 per share. Such shares may be either authorized but unissued shares, or issued shares which have been reacquired by the Company. The maximum number of shares for which options may be exercised under this Plan shall be 1,400,000. If an option under the Plan expires, or for any reason is terminated or unexercised with respect to any shares, such shares shall again be available for options thereafter granted during the term of the Plan. 2 2 3. Administration of Plan (a) The Plan shall be administered by the compensation committee (the "Committee") of one or more directors of the Company, which committee shall be appointed from time to time by the Board of Directors of the Company or, in the absence of such appointment, by the Board of Directors. The term "Committee" herein shall mean such compensation committee or the Board, as appropriate. (b) The Committee shall have plenary authority in its discretion, but subject to the express provisions of the Plan: (i) To determine the purchase price of the Common Stock covered by each option; (ii) To determine the employees and non-employees where applicable to whom such options shall be granted and the time or times at which such options shall be granted and the number of shares to be subject to each option; (iii) To determine the terms of exercise of each option and other terms with respect thereto; (iv) To accelerate the time at which all or any part of an option may be exercised; (v) To amend or modify the terms of any option; (vi) To interpret the Plan; (vii) To prescribe, amend and rescind rules and regulations relating to the Plan; 3 3 (viii) To determine the terms and provisions of each option agreement under the Plan (which agreements need not be identical), including the designation of those options intended to be Incentive Stock Options; and (ix) To make all other determinations necessary or advisable for the administration of the Plan, subject to the exclusive authority of the Board of Directors under Section 14 herein to amend or discontinue the Plan; (c) The Committee's determinations on the foregoing matters, unless otherwise disapproved by the Board of Directors of the Company, shall be final and conclusive. Any action permitted to be taken by the Committee pursuant to this Plan may also be taken by the Board of Directors of the Company. (d) The Committee shall select one of its members as its Chairman and shall hold its meetings at such times and places as it may determine. A majority of its members shall constitute a quorum. All determinations of the Committee shall be made by not less than a majority of its members. Any decision or determination reduced to writing and signed by all of the members of the Committee shall be fully effective as if it had been made by a majority vote at a meeting duly called and held. The grant of an option shall be effective only if a written agreement shall have been duly executed and delivered by and on behalf of the Company following the action of the Committee or the Board, but such option shall be deemed effective as of the date of grant. The Committee may appoint a Secretary and may make such rules and regulations for the conduct of its business as it shall deem advisable. 4 4 4. Eligibility Incentive Stock Options may only be granted under this Plan to any full or part-time key employee (which term as used herein includes, but is not limited to, officers and directors who are also employees) of the Company and of its present and future subsidiary corporations (herein called "subsidiaries"). Consultants, directors or independent contractors providing valuable services to the Company or one of its subsidiaries who are not also employees thereof shall be eligible to receive options which do not qualify as Incentive Stock Options. In determining the persons to whom options shall be granted and the number of shares subject to each option, the Committee may take into account the nature of services rendered by the grantees of the option, their present and potential contributions to the success of the Company, and such other factors as the Committee in its discretion shall deem relevant. A person who has been granted an option under this Plan may be granted an additional option or options under the Plan if the Committee shall so determine; provided, however that for Incentive Stock Options, to the extent the aggregate fair market value (determined at the time the Incentive Stock Option is granted) of the Common Stock with respect to which all Incentive Stock Options are exercisable for the first time by an employee during any calendar year (under all plans described in subsection (d)(1) of Section 422 of the Code of his or her employer corporation and its parent and subsidiary corporations) exceeds $100,000, such options shall be treated as options which do not qualify as Incentive Stock Options. 5 5 5. Price The option price for all Nonqualified Stock Options granted under the Plan shall be determined by the Committee in its sole discretion. The option price for all Incentive Stock Options granted under the Plan shall be determined by the Committee but shall not be less than 100% of the fair market value of the Common Stock at the date of granting of such option. For all valuation purposes under the Plan, the fair market value of the Class B Common Stock shall be as reasonably determined in good faith by the Committee or the Board from time to time. 6. Term Each option and all rights and obligations thereunder shall, subject to the provisions of Section 9, expire on the date determined by the Committee and specified in the option agreement. The Committee shall be under no duty to provide terms of like duration for options granted under the Plan but the term of an Incentive Stock Option may not extend more than ten (10) years from the date of granting of such option and the term of options granted under the Plan which do not qualify as Incentive Stock Options may not extend more than fifteen (15) years from the date of granting of such option. 7. Exercise of Option (a) The Committee shall have full and complete authority to determine whether the option will be exercisable in full at any time or from time to time during the term of the option, or to provide for the exercise thereof in such installments, upon the occurrence of such events and at such times during the term of the option as the Committee may determine. 6 6 (b) The exercise of any option granted hereunder shall only be effective at such time that the transfer of Common Stock pursuant to such exercise will not violate any state or federal securities or other laws. (c) An optionee electing to exercise an option shall give written notice to the Company, at its principal office, of such election and of the number of shares subject to such exercise. The full purchase price of such shares shall be tendered with such notice of exercise. Payment shall be made to the Company in cash (including bank check, certified check, personal check, or money order), or, at the discretion of the Committee and as specified by the Committee, (i) by delivering certificates for the Company's Common Stock already owned by the optionee or to be acquired pursuant to the exercise of the option, in each case having a fair market value as of the date of grant equal to the full purchase price of the shares, or (ii) a combination of cash and such shares. The fair market value of such tendered shares shall be determined as provided in Section 5 herein. 8. Additional Restrictions The Committee shall have full and complete authority to determine whether all or any part of the Common Stock of the Company acquired upon exercise of any of the options granted under the Plan shall be subject to restrictions on the transferability thereof or any other restrictions affecting in any manner the optionee's rights with respect thereto (including the right but not the obligation in favor of the Company to repurchase such Common Stock and/or such options upon termination of employment under various circumstances) but any such restriction shall be contained in the agreement relating to such options or in a supplemental written 7 7 agreement to which such optionee is a party. The Committee may in its discretion as a condition to the exercise of an option require the optionee (or his or her personal representatives, administrators, or guardians in the case of the optionee's death) to assume the obligations of stockholders set forth in any effective stockholders' agreement to which holders of Class B Common Stock are generally parties. 9. Effect of Termination of Employment, Death or Disability Unless otherwise determined by the Committee: (a) In the event that an optionee shall cease to be employed by the Company or its subsidiaries, if any, for any reason other than his or her serious misconduct (as such term is defined in Section 9(e) hereof) or his or her death or disability (as such term is defined in Section 9(f) hereof), such optionee shall have the right to exercise the option at any time within 90 days after such termination of employment to the extent of the full number of shares he or she was entitled to purchase under the option on the date of termination, subject to the condition that no option shall be exercisable after the expiration of the term of the option. (b) In the event that an optionee shall cease to be employed by the Company or its subsidiaries, if any, by reason of his or her serious misconduct (as defined in Section 9(e)) during the course of his or her employment, the option shall be terminated as of the date of the misconduct. (c) If the optionee shall die while in the employ of the Company or a subsidiary, if any, or die within 90 days after termination of employment for any reason other than serious misconduct (as defined in Section 9(e)), or if employment is terminated because 8 8 optionee has become disabled as defined in Section 9(f) while in the employ of the Company or a subsidiary, if any, and such optionee shall not have fully exercised the option, such option may be exercised at any time within 90 days after his or her death or date of termination of employment for such disability by optionee, personal representatives, administrators, or guardians of the optionee, as applicable, or by any person or persons to whom the option is transferred by will or the applicable laws of descent and distribution, to the extent of the full number of shares he or she was entitled to purchase under the option on the date of death, or in the case of death within 90 days after termination of employment, on the date of termination of employment, or date of termination for such disability and subject to the condition that no option shall be exercisable after the expiration of the term of the option. (d) Nothing in the Plan or in any agreement thereunder shall confer on any employee any right to continue in the employ of the Company or any of its subsidiaries or affect, in any way, the right of the Company or any of its subsidiaries to terminate his or her employment at any time. (e) "Serious Misconduct" shall mean conduct inimical to the interests of the Company which causes economic damage to the Company (for example, misappropriation of Company funds) or conduct which significantly interferes with the individual's ability to perform his or her duties (for example, alcohol or illicit drug dependency) and shall be determined by the Committee or the Board of Directors, whose determination shall be final. (f) "Disability" shall mean the physical or mental incapacity to perform the individual's duties for the Company on a full-time basis for a period of six (6) consecutive 9 9 months or a number of days aggregating more than 210 days in any eight (8) month period based upon competent medical evidence. The employee must agree to submit himself or herself for appropriate medical examination to a physician of the Company's designation, who shall determine whether competent medical evidence of disability exists and whose determination shall be final. (g) For purposes of this Section 9, employment shall be deemed to include service as a consultant, independent contractor or director. (h) The provisions of this Section 9 may be modified or changed under the terms of any written option agreement entered into between the Company and the Optionee and approved by the Committee. 10. Ten Percent Shareholder Rule Notwithstanding any other provision in the Plan, if at the time an option is otherwise to be granted pursuant to the Plan the optionee owns directly or indirectly (within the meaning of Section 424(d) of the Code) stock of the Company possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or its parent or subsidiary corporations, if any (within the meaning of Sections 424(e) and 424(f) of the Code), then any Incentive Stock Option to be granted to such optionee pursuant to the Plan shall satisfy the requirements of Section 422(c)(5) of the Code, and the option price shall be not less than 110% of the fair market value of the Common Stock of the Company on the grant date determined as described herein, and such option by its terms shall not be exercisable after the expiration of five (5) years from the date such option is granted. 10 10 11. Non-Transferability No Incentive Stock Option granted under the Plan shall be transferable by an optionee, otherwise than by will or the laws of descent or distribution as provided in Section 9(c) herein and during the lifetime of an optionee an Incentive Stock Option shall be exercisable only by such optionee. The terms of the written option agreement entered into between the Company and the optionee may provide for the transferability of options which are not Incentive Stock options in any manner determined by the Committee in its sole discretion. 12. Dilution or Other Adjustments If there shall be any change in the Class B Common Stock through merger, consolidation, reorganization, recapitalization, dividend in the form of stock (of whatever amount), stock split or other similar change in the corporate structure, appropriate adjustments in the Plan and outstanding options shall be made by the Committee. In the event of any such changes, adjustments shall include, where appropriate, changes in the aggregate number of shares subject to the Plan, the number of shares and the price per share subject to outstanding options in order to prevent dilution or enlargement of the option. 13. Change in Control of the Company Except as otherwise provided in the written option agreement entered into between the Company and the optionee, if (i) the Company shall not be the surviving entity in any merger, consolidation or other reorganization (or survives only as a subsidiary of an entity other than a previously wholly-owned subsidiary of the Company), (ii) the Company sells, leases or exchanges or agrees to sell, lease or exchange all or substantially all of its assets to any other 11 11 person or entity (other than a wholly-owned subsidiary of the Company), (iii) the Company is to be dissolved and liquidated, (iv) any person or entity, including a "group" as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, acquires or gains ownership or control (including, without limitations power to vote) of more than 50% of the outstanding shares of the Companies voting stock (based upon voting power), or (v) as a result of or in connection with a contested election of directors, the persons who were directors of the Company before such election shall cease to constitute a majority of the Board of Directors of the Company (each such event is referred to herein as a ("Corporate Change"), then effective as of the earlier of (1) the date of approval by the stockholders of the Company of such merger, consolidation, reorganization, sale, lease or exchange of assets or dissolution or such election of directors or (2) the date of such Corporate Change, this Option shall be exercisable in full. 14. Amendment or Discontinuance of Plan The Board of Directors may amend or discontinue the Plan at any time. No amendment of the Plan, however, shall without the affirmative vote of stockholders owning at least 51% of the outstanding voting stock of the Company: (i) Increase the maximum number of shares under the Plan as provided in Section 2 herein (except as contemplated in Section 12), (ii) decrease the minimum option price provided in Section 5, (iii) extend the maximum option term under Section 6, or (iv) modify the eligibility requirements for participation in the Plan. The Board of Directors shall not materially alter or impair the terms of any option theretofore granted under the Plan in a manner materially adverse to the optionee without the consent of the holder of the option. 12 12 15. Time of Granting The granting of an option shall occur upon the earliest of the date of any resolution adopted by the Committee or the Board of Directors (if followed by the execution of an option agreement) or the execution and delivery of an option agreement to an optionee. 16. Income Tax Withholding In order to comply with all applicable federal or state income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal or state payroll, withholding, income or other taxes, are withheld or collected from such optionee. In order to assist an optionee in paying all federal and state taxes to be withheld or collected upon exercise of an option which does not qualify as an Incentive Stock Option hereunder, the Committee, in its absolute discretion and subject to such additional terms and conditions as it may adopt, shall permit the optionee to satisfy such tax obligation by (i) electing to have the Company withhold a portion of the shares otherwise to be delivered upon exercise of such option with a fair market value, determined in accordance with Section 5 herein, equal to such taxes or (ii) delivering to the Company shares of Common Stock other than the shares issuable upon exercise of such option with a fair market value, determined in accordance with Section 5, equal to such taxes. 17. Effective Date and Termination of Plan (a) The Plan was approved by the Board of Directors on May 23, 1996, and shall be approved by the stockholders of the Company who are entitled to vote thereon within twelve (12) months thereof. 13 13 (b) Unless the Plan shall have been discontinued as provided in Section 14 hereof, the Plan shall terminate on January 14, 2002. No option may be granted after such termination, but termination of the Plan shall not, without the consent of the optionee, alter or impair any rights or obligations under any option theretofore granted. EX-10.16 20 FORM OF INCENTIVE STOCK OPTION AGREEMENT 1 Exhibit 10.16 MEDSCAPE, INC. INCENTIVE STOCK OPTION AGREEMENT THIS AGREEMENT, dated December 15, 1997, is between Medscape, Inc., a New York corporation (the "Company"), and _____________________ (the "Employee"), sets forth the terms and conditions under which the Company grants to Employee an Incentive Stock Option pursuant to the Company's 1996 Stock Option Plan, as amended (the "Plan"). 1. Grant of Option. The Company hereby grants to the Employee, on the date set forth above, the right and option (the "Option") to purchase all or any part of an aggregate of ____________________ shares of Class B Common Stock, par value $.01 per share, of the Company at the price of $.00 per share and subject to the terms and conditions set forth herein. This Option is intended to be an Incentive Stock Option within the meaning of Section 422 of the Internal Revenue Code 1986, as amended (the "Code"). 2. Duration and Exercisability. (a) Except as provided in Section 2(c) below, this Option shall become exercisable with respect to one quarter of the total number of shares subject to the Option grant on December 15, 1998 and with respect to the balance of the shares, in successive equal monthly installments over the next three years commencing January 15, 1999 and thereafter on the fifteenth day of each month, such that this Option shall be fully exercisable on December 15, 2001. This Option shall in all events terminate ten (10) years after the date of grant (or, in the case of a shareholder of the Company owning more than 10% of the voting power of stock of the Company and its affiliates, five (5) years from the date of grant). (b) During the lifetime of Employee, the Option shall be exercisable only by Employee and shall not be assignable or transferable by Employee, other than by will or the laws of descent and distribution. (c) Notwithstanding the installment exercise provision set forth in Section 2(a) above and subject to the other terms and conditions set forth herein, this Option may be exercised as to 100% of the shares of Class B Common Stock of the Company for which this Option was granted on the date of a "Corporate Change" (as such term is defined under Section 13 of the Plan). 3. Effect of Termination of Employment. (a) In the event that Employee shall cease to be employed by the Company or its subsidiaries, if any, for any reason other than Employee's Serious Misconduct (as such term is defined in Section 3(d) hereof), or Employee's death or Disability (as such term is defined in Section 3(e) hereof), Employee shall have the right to exercise the Option at any time within 90 days after 2 2 such termination of employment to the extent of the full number of shares the Employee was entitled to purchase under the Option on the date of termination, subject to the condition that no Option shall be exercisable after the expiration of the term of the Option. (b) In the event that Employee shall cease to be employed by the Company or its subsidiaries, if any, by reason of Employee's Serious Misconduct during the course of employment, the Option shall terminate as of the date of the Serious Misconduct. (c) If Employee shall die while in the employ of the Company or a subsidiary, if any, or within 90 days after termination of employment for any reason other than Serious Misconduct, or if employment is terminated because Employee has incurred a Disability while in the employ of the Company or a subsidiary, if any, and the Employee shall not have fully exercised the Option, such Option may be exercised at any time within twelve (12) months after Employee's death or date of termination of employment for Disability by Employee, his personal representatives, administrators or guardians, as applicable, or by any person or persons to whom the Option is transferred by will or the applicable laws of descent and distribution, to the extent of the full number of shares Employee was entitled to purchase under the Option on the date of death or, in the case of death within 90 days after termination of employment, on the date of termination of employment, or date of termination for such Disability and subject to the condition that no Option shall be exercisable after the expiration of the term of the Option. (d) "Serious Misconduct" shall mean conduct inimical to the interests of the Company which causes economic damage to the Company (for example, misappropriation of Company funds) or conduct which significantly interferes with the individual's ability to perform their duties (for example, alcohol or illicit drug dependency) and shall be determined by the Company's Compensation Committee or the Board of Directors whose determination shall be final. (e) "Disability" shall mean the physical or mental incapacity to perform the individual's duties for the Company on a full-time basis for a period of six (6) consecutive months or a number of days aggregating more than 210 days in any eight (8) month period based upon competent medical evidence. The employee agrees to submit himself or herself for appropriate medical examination to a physician of the Company's designation, who shall determine whether competent medical evidence of disability exists and whose determination shall be final. 4. Manner of Exercise. (a) The Option can be exercised only by Employee or other proper party by delivering within the Option period written notice to the Company at its principal office. The notice shall state the number of shares as to which the Option is being exercised and be accompanied by payment in full of the Option price for all shares designated in the notice. 3 3 (b) Employee may pay the Option price in cash, by check (bank check, certified check or personal check), by money order or, with the approval of the Company, (i) by delivering to the Company for cancellation certificates representing Class B Common Stock of the Company with a fair market value as of the date of exercise equal to the Option price or the portion thereof being paid by tendering such shares, (ii) by delivering to the Company a combination of cash and certificates representing Class B Common Stock of the Company with an aggregate fair market value equal to the Option price, or (iii) provided the following is permitted under the Securities Act of 1933, as amended, through a special sale and remittance procedure ("cashless exercise") pursuant to which the Employee shall concurrently provide irrevocable written instructions (A) to a Company-designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Company, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Company, by reason of such exercise and (B) to the Company to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale. For purposes of clauses (i) and (ii), the fair market value of the Company's Class B Common Stock as of any date shall be reasonably determined in good faith by the Committee or the Board from time to time. 5. Restrictions on Issuance of Shares. Notwithstanding any provision herein, the Company shall have no obligation to deliver any certificate or certificates representing shares of Class B Common Stock upon exercise of an Option until the following conditions shall be satisfied: (a) (i) The shares with respect to which the Option has been exercised are at the time of the issue of such shares effectively registered under applicable Federal and State securities laws as now in force or hereafter amended; or (ii) counsel for the Company shall have given an opinion that the issuance of such shares upon exercise of the Option is exempt from registration under Federal and State securities laws as now in force or hereafter amended or the Company is otherwise satisfied in its discretion that such exercise complies with such securities laws; and (b) In either event the Company has complied with all applicable laws and regulations, including without limitation all regulations required by any stock exchange upon which the Company's outstanding Class B Common Stock is then listed. (c) The Employee shall represent, warrant, covenant and agree in writing that the Option Shares (as defined in Section 6) are being acquired for his own account for investment purposes only and not with a view to distribution or any other disposition thereof. (d) The Company shall use reasonable efforts to the extent it deems practicable to bring about the compliance with the above conditions within a reasonable time except that the Company shall be under no obligation to cause a registration statement or a post-effective amendment to any registration statement to be prepared solely for the purpose of covering the issue 4 4 of shares in respect of which the Option may be exercised or to permit any Employee to effect a registration of his or her shares in connection with a registration of shares by the Company. 6. Right of First Refusal. (a) Until the consummation of a firm commitment underwritten public offering of the Company's common stock pursuant to a registration statement under the Securities Act of 1933, as amended, the Company and the Investor Stockholders (as such term is defined in the Stockholders' Agreement, dated as of October 31, 1997 as amended (the "Stockholders' Agreement")), by and among the Company and the Existing Stockholders, the Investor Stockholders and any Additional Stockholders, as such terms are defined therein, shall be entitled to the following right of first refusal: (i) Transfer of Shares. The Employee shall not transfer any shares of Class B Common Stock obtained upon exercise of the Option ("Option Shares") or any right or interest therein then owned by the Employee except by a transfer that meets the requirements of this Section 6. In the event that the Employee proposes to transfer any portion of the Option Shares, whether voluntarily or involuntarily, other than a "Permitted Transfer" or in connection with a "Corporate Change", then at least thirty (30) days prior to such proposed transfer, the Employee shall give notice (the "Notice") to the Company and the Investor Stockholders of his intention to effect such transfer. The Notice shall set forth (a) the class, series and number of Option Shares to be sold by the Employee ("Transferred Shares"); (b) the date or proposed date of the transfer and the name and address of the proposed transferee; and (c) the principal terms of the transfer, including the cash or other property or consideration to be received upon such transfer. (ii) Company's Option. The Company shall have the Option, but not the obligation, to purchase any or all of the Transferred Shares on the same terms as specified in the Notice. Within thirty (30) days after the receipt of the Notice, the Company shall give written notice to the Employee and the Investor Stockholders (the "Company Notice") stating whether or not it elects to exercise its Option to purchase, the number of Transferred Shares, if any, it elects to purchase, and a date and time for consummation of the purchase not more than thirty (30) days after the receipt of the Company Notice by the Employee. Failure by the Company to give such notice within such time period shall be deemed an election by it not to exercise its Option. (iii) Investor Stockholders' Option. If the Company fails to exercise its right to purchase under subparagraph (a)(ii) hereof, or exercises its right to purchase for less than all of the Transferred Shares, then the Investor Stockholders shall have the Option, but not the obligation, to purchase, pro rata to their ownership interest in the shares of Common Stock issued or issuable to such Investor Stockholder upon the conversion of shares of Series C Preferred Stock of the Company, any or all of the remaining Transferred Shares on the same terms as specified in the Notice. Not later than thirty (30) days after the Investor Stockholders receive the Company Notice, each Investor Stockholder shall give written notice to the Employee and the Company (the "Investor Notice") stating whether or not it elects to exercise its Option to purchase, the number of 5 5 the remaining Transferred Shares, if any, that it elects to purchase, and a date and time for consummation of the purchase not more than thirty (30) days after the receipt of the Investor Notice by the Employee. Failure by an Investor Stockholder to give such notice within such time period shall be deemed an election by it not to exercise its Option. If the Company and the Investor Stockholders exercise their respective rights to purchase for less than all the Transferred Shares, then the Employee shall thereafter be free to transfer the remaining Transferred Shares on the terms provided in the Notice, free and clear of any restrictions under this Section 6. (iv) Definitions. For purposes of this Section 6, the term "Permitted Transfer" shall mean a transfer to a spouse (other than pursuant to any divorce or separation proceedings or settlement), parents, children (natural or adopted), stepchildren or grandchildren or a trust for any of their benefit (each recipient being a "Permitted Transferee"); provided, however, that prior to such transfer, such Permitted Transferee shall agree in writing to be bound by the obligations imposed upon the Employee under this Section 6 as if such transferee were originally a signatory to this Agreement. (v) Application of Provisions. In each case, any Transferred Shares not purchased by the proposed transferee in accordance with Section 6(a)(iii) hereof may not be sold or otherwise disposed of until they are again offered to the Company and the Investor Stockholders under the procedures specified in Sections 6(a)(i), (ii) and (iii) hereof. (b) Transfers Void. Any attempted transfer by the Employee in violation of the terms of this Section 6 shall be ineffective to vest in any transferee any interest held by the Employee in the Transferred Shares. Without limiting the foregoing, any purported transfer in violation hereof shall be ineffective as against the Investor Stockholders and the Company, and the Company and the Investor Stockholders shall have a continuing right and Option (but not an obligation), until the restrictions contained in this Section 6 terminate, to purchase the shares purported to be transferred by the Employee for a price and on terms the same as those at which the purported transfer was effected. 7. Miscellaneous. (a) This Option is issued pursuant to the Plan and is subject to its terms. All capitalized terms used in this agreement that are not otherwise defined herein shall have the meanings set forth in the Plan. A copy of the Plan has been delivered to Employee with this Option. (b) This Agreement shall not confer on Employee any right with respect to continuance of employment by the Company or any of its subsidiaries, nor will it interfere in any way with the right of the Company to terminate such employment at any time. Employee shall have none of the rights of a shareholder with respect to shares subject to this Option until such shares shall have been issued to Employee upon exercise of this Option. 6 6 (c) The exercise of all or any part of this Option shall only be effective at such time that the sale of Class B Common Stock pursuant to such exercise will not violate any state or Federal or State securities or other laws. (d) If there shall be any change in the Class B Common Stock of the Company through merger, consolidation, reorganization, recapitalization, conversion, dividend in the form of stock (of whatever amount), stock split or other similar change in the corporate structure of the Company, and all or any portion of the Option shall then be unexercised and not yet expired, then appropriate adjustments in the outstanding Option shall be made by the Company, in order to prevent dilution or enlargement of Option rights. Such adjustments shall include, where appropriate, changes in the number of shares of Class B Common Stock and price per share subject to the outstanding Option. (e) The Company shall at all times during the term of the Option reserve and keep available such number of shares as will be sufficient to satisfy the requirements of this Agreement. (f) If Employee shall dispose of any of the Class B Common Stock of the Company acquired by Employee pursuant to the exercise of the Option within two (2) years from the date this Option was granted or within one (1) year after the transfer of any such shares to Employee upon exercise of this Option, then, in order to provide the Company with the opportunity to claim the benefit of any income tax deduction which may be available to it under the circumstances and to report any taxable income of Employee which may result, Employee shall promptly notify the Company of the date of acquisition and disposition of such shares, the number of shares so disposed of, and the consideration, if any, received for such shares. In order to comply with all applicable federal or state income tax laws or regulations, the Company may take such action as it deems appropriate to insure (i) notice to the Company within the time periods described above and (ii) that, if necessary, all applicable federal or state payroll, withholding, income or other taxes are withheld or collected from Employee. (g) In the event of any conflict between this Agreement and the terms of the Plan, the provisions of the Plan shall control. 8. Notices. Notices to be given hereunder shall be in writing and shall be delivered personally or sent by registered or certified mail, postage prepaid, return receipt requested, and addressed, if to the Employee at 134 West 29th Street, New York, New York 10001, or such other address as the Employee specifies in writing to the Company, and if to the Company to its then principal office. 9. Entire Agreement. This instrument contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements relating to the subject matter hereof and 7 7 may be changed only by an agreement in writing and signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. 10. Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the State of New York. 11. Severability. In case any one or more of the provisions hereof shall be determined to be invalid or unenforceable, either in whole or in part, this Agreement shall be deemed amended to delete or modify, as necessary, the offending provision or provisions and to alter the balance of this Agreement in order to render the same valid and enforceable. MEDSCAPE, INC. Employee By: _________________________ ______________________________ Paul T. Sheils employee name President & CEO EX-10.17 21 FORM OF NON-QUALIFIED STOCK OPTION AGREEMENT 1 Exhibit 10.17 Medscape, Inc. Nonqualified Stock Option Agreement THIS AGREEMENT, made as of the 23rd day of May, 1996, by and between Medscape, Inc., a New York corporation (the "Company"), and _______ (the "Optionee"). WITNESSETH, THAT: WHEREAS, the Company wishes to grant this stock option to the Optionee. NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto hereby agree as follows: 1. Grant of Option The Company hereby grants to the Optionee, on the date set forth above, the right and option (hereinafter called "the option") to purchase all or any part of an aggregate of XXXXXXX shares of Class B Common Stock, par value $.01 per share, at the price of $.027 per share on and subject to the terms and conditions set forth herein. This option is intended to be a nonqualified stock option. 2. Duration and Exercisability (a) Except as provided in paragraphs (c) and (e) below, this option may not be exercised by Optionee until the expiration of one (1) year from the date of grant, and this option shall in all events terminate ten (10) years after the date of grant. Subject to the other terms and conditions set-forth herein, this option may be exercised by Optionee in cumulative installments as follows:
========================================================================== Cumulative percentage of On or after each of the shares as to which option is following dates exercisable -------------------------------------------------------------------------- June 1, 1997 33.3% -------------------------------------------------------------------------- June 1, 1998 66.6% -------------------------------------------------------------------------- June 1, 1999 100.0% ==========================================================================
(b) During the lifetime of Optionee, the option shall be exercisable only by Optionee and shall not be assignable or transferable by Optionee, other than by will or the laws of descent and distribution. (c) Notwithstanding the installment exercise provision set forth in paragraph (a) above and subject to the other terms and conditions set forth herein, this option may be exercised as to 100% of the shares of Common Stock of the Company for which this option was 2 2 granted on the date of a "change of control" as hereinafter defined. Notwithstanding the provisions of the Plan, a "change of control" shall mean the date on which the Board of Directors of the Company, in its sole and absolute discretion, determines that a significant change in the stock ownership of the Company or in the ownership of substantially all of the assets of the Company has occurred, whether or not a "Corporate Change" shall be deemed to have occurred under the 1996 Stock Option Plan (the "Plan"). (d) In consideration of the grant of the option provided in Section 1 hereof, the Optionee agrees that upon exercise of the option, in whole or in part, the Optionee at the election of the Board of Directors shall enter into and be bound by the terms and provisions of such agreements among stockholders generally as the Board shall designate. (e) Notwithstanding the foregoing, however, the Optionee's right to exercise the Option shall be subject to satisfaction of the requirements under Section 2(e) of the SCP Option (related to performance based vesting) and the option may be exercised only to the same percentage that the SCP Option is exercisable. The "SCP Option" shall mean the option granted on the date hereof to the Optionee by SCP Communication, Inc. 3. Manner of Exercise (a) The option can be exercised only by Optionee or other proper party by delivering within the option period written notice to the Company at its principal office. The notice shall state the number of shares as to which the option is being exercised and be accompanied by payment in full of the option price for all shares designated in the notice. (b) Optionee may pay the option price in cash, by check (bank check, certified check or personal check), by money order, or with the approval of the Company (i) by delivering to the Company for cancellation certificates representing Common Stock of the Company with a fair market value as of the date of exercise equal to the option price or the portion thereof being paid by tendering such shares, (ii) by delivering to the Company a combination of cash, and by delivering for cancellation certificates representing Common Stock of the Company with an aggregate fair market value equal to the option price. For these purposes, the fair market value of the Company's Common Stock as of any date shall be reasonably determined in good faith by the Committee or the Board from time to time. 4. Restrictions on Issuance of Shares Notwithstanding the provisions of Section 2, the Company shall have no obligation to deliver any certificate or certificates representing shares of Common Stock upon exercise of an option until the following conditions shall be satisfied: 3 3 (a) The shares with respect to which the option has been exercised are at the time of the issue of such shares effectively registered under applicable Federal and State securities laws as now in force or hereafter amended; or (b) Counsel for the Company shall have given an opinion that the issuance of such shares upon exercise of the option is exempt from registration under Federal and State securities laws as now in force or hereafter amended or the Company is otherwise satisfied in its discretion that such exercise complies with such securities laws; and (c) In either event the Company has complied with all applicable laws and regulations, including without limitation all regulations required by any stock exchange upon which the Company's outstanding Common Stock is then listed. The Company shall use reasonable efforts to the extent it deems practicable to bring about the compliance with the above conditions within a reasonable time except that the Company shall be under no obligation to cause a registration statement or a posteffective amendment to any registration statement to be prepared at its expense solely for the purpose of covering the issue of shares in respect of which any option may be exercised or to permit any Optionee to effect a registration of his or her shares in connection with a registration of shares by the Company. 5. Miscellaneous (a) This option is issued pursuant to the Plan and is subject to its terms. The terms of the Plan are available for inspection during business hours at the principal offices of the Company. (b) This Agreement shall not confer on Optionee any right with respect to continuance of employment by the Company or any of its subsidiaries, nor will it interfere in any way with the right of the Company to terminate such employment at any time. Optionee shall have none of the rights of a shareholder with respect to shares subject to this option until such shares shall have been issued to Optionee upon exercise of this option. (c) The exercise of all or any part of this option shall only be effective at such time that the sale of Common Stock pursuant to such exercise will not violate any state or Federal or State securities or other laws. (d) If there shall be any change in the Common Stock of the Company through merger, consolidation, reorganization, recapitalization, dividend in the form of stock (of whatever amount), stock split or other similar change in the corporate structure of the Company, and all or any portion of the option shall then be unexercised and not yet expired, then appropriate adjustments in the outstanding option shall be made by the Company, in order to 4 4 prevent dilution or enlargement of option rights. Such adjustments shall include, where appropriate, changes in the number of shares of Common Stock and the price per share subject to the outstanding option. (e) The Company shall at all times during the term of the option reserve and keep available such number of shares as will be sufficient to satisfy the requirements of this Agreement. (f) The Plan permits the Board or Committee to provide for terms in the grant of an option thereunder that differ from the terms of the Plan and, accordingly, the terms of this Agreement shall govern with respect to any conflict between this Agreement and the Plan. 6. Notices Notices to be given hereunder shall be in writing and shall be delivered personally or sent by registered or certified mail, postage prepaid, return receipt requested, and addressed, if to the Optionee at 134 West 29th Street, New York, New York, or such other address as the Optionee specifies in writing to the Company, and if to the Company to its then principal office. 7. Entire Agreement This instrument contains the entire agreement between the parties and supersedes all prior agreements and may be changed only by an agreement in writing and signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. 8. Governing Law This Agreement shall be construed and enforced in accordance with the laws of the State of New York. 9. Severability In case any one or more of the provisions hereof shall be determined to be invalid or unenforceable, either in whole or in part, this Agreement shall be deemed amended to delete or modify, as necessary, the offending provision or provisions and to alter the balance of this Agreement in order to render the same valid and enforceable. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the day and year first above written. 5 5 OPTIONEE: By:_________________________ Name: Medscape, Inc. By:_________________________ Title: Peter Frishauf, Acting CEO EX-10.18 22 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN 1 Exhibit 10.18 MEDSCAPE, INC. NONEMPLOYEE DIRECTOR'S STOCK OPTION AGREEMENT THIS AGREEMENT, dated December 12, 1997, is between Medscape, Inc., a New York corporation (the "Company"), and (the "Director") sets forth the terms and conditions under which the Company grants to the Director a Nonqualified Stock Option pursuant to the Company's 1996 Stock Option Plan, as amended (the "Plan"). 1. Grant of Option. The Company hereby grants to the Director, on the date set forth above, the right and option (the "Option") to purchase all or an part of an aggregate of _____ shares of Class B Common Stock, par value $.0l per share, of the Company at the price of $0.00 per share and subject to the terms and conditions set forth herein. This Option shall not be treated as an Incentive Stock Option within the meaning of Section 422 of the Internal Revenue Code 1986, as amended (the "Code"). 2. Duration and Exercisability. (a) Except as provided in Section 2(c) below, this Option shall become exercisable with respect to one third of the total number of shares subject to the Option grant on December 12, 1998 and with respect to the balance of the shares, in successive equal monthly installments over the next two years commencing January 12, 1999 and thereafter on the nineteenth day of each month, such that this Option shall be fully exercisable on December 12, 2000. This Option shall in all events terminate ten (10) years after the date of grant. (b) During the lifetime of the Director, the Option shall be exercisable only by the Director and shall not be assignable or transferable by the Director, otherwise than by will or the laws of descent and distribution and may be exercised only by the Director during the Director's lifetime except for transfer to, and exercise by, members of the Director's immediate family. The term "immediate family" shall mean a Director's spouse and direct descendants and any entity in which such spouse and direct descendants hold more than 60% in value of the beneficial interests (the "Family Member"). This Option may be exercised only while the Director remains a member of the Board of Directors of the Company (the "Board") and will terminate and cease to be exercisable upon the Director's termination of membership on the Board, except that: (i) If Director's membership on the Board terminates by reason of disability, this Option may be exercised in full by the Director (or his or her estate or the Family Member who acquires this Option by transfer or the person who acquires this Option by will or the laws of descent and distribution or otherwise by reason of the death of Director) at any time during the period of ninety (90) days following such termination. (ii) If the Director dies while a member of the Board Directors, the estate of such Director or the Family Member who acquires this Option by transfer or the person who acquires this Option by will or the laws of descent and distribution or otherwise by reason of the death of the Director, may exercise this Option in full at any time during the period of ninety 2 (90) days following the date of the Director's death. (iii) If the Director's membership on the Board terminates for any reason other than as described in (i) or (ii) above, this Option may be exercised by the Director (or his or her Family Member in the event of a transfer to such Family Member) at any time during the period of ninety (90) days following such termination or by the Director's estate (or the Family Member who acquires this Option by transfer or the person who acquires this Option by will or the laws of descent and distribution or otherwise by reason of the death of the Director) during a period of ninety (90) days following the Director's death if the Director dies during such initial ninety (90) day period, but in each case only as to the number of shares the Director was entitled to purchase hereunder upon exercise of this Option as of the date the Director's membership on the Board so terminates; provided that the Board may extend the period during which this Option may be exercised pursuant to this subsection (b) prior to the termination of such Director's membership on the Board. (iv) Unless and until a certificate or certificates representing such shares shall have been issued by the Company to the Director, the Director (or the person permitted to exercise the Option pursuant to the terms hereof) shall not be or have any of the rights or privileges of a stockholder of the Company with respect to shares acquirable upon an exercise of this Option. (v) Director agrees that the shares of Stock which the Director may acquire by exercising this Option will not be sold or otherwise disposed of in any manner which would constitute a violation of any applicable federal or state securities laws. The Director also agrees (i) that the certificates representing the shares of Stock purchased under this Option may bear such legend or legends as the Company deems appropriate in order to assure compliance with applicable securities laws, (ii) that the Company may refuse to register the transfer of the shares of Stock purchased under this Option on the stock transfer records of the Company if such proposed transfer would in the opinion of counsel satisfactory to the Company constitute a violation of any applicable securities law and (iii) that the Company may give related instructions to its transfer agent, if any, to stop registration of the transfer of the shares of Stock purchased under this Option. (c) Notwithstanding the installment exercise provision set forth in Section 2(a) above and subject to the other terms and conditions set forth herein, this Option may be exercised as to 100% of the shares of Class B Common Stock of the Company for which this Option was granted on the date of a "Corporate Change" (as such term is defined under Section 13 of the Plan). 3. Manner of Exercise. (a) The Option can be exercised only by the Director or other proper party by delivering within the Option period written notice to the Company at its principal office. The notice shall state the number of shares as to which the Option is being exercised and be accompanied by payment in full of the Option price for all shares designated in the notice. (b) The Director may pay the Option price in cash, by check (bank check, 2 3 certified check or personal check), by money order or, with the approval of the Company, (i) by delivering to the Company for cancellation certificates representing Class B Common Stock of the Company with a fair market value as of the date of exercise equal to the Option price or the portion thereof being paid by tendering such shares, or (ii) by delivering to the Company a combination of cash and certificates representing Class B Common Stock of the Company with an aggregate fair market value equal to the Option price. For purposes of clauses (i) and (ii), the fair market value of the Company's Class B Common Stock as of any date shall be reasonably determined in good faith by the Committee or the Board from time to time. 4. Restrictions on Issuance of Shares. Notwithstanding any provision herein, the Company shall have no obligation to deliver any certificate or certificates representing shares of Class B Common Stock upon exercise of an Option until the following conditions shall be satisfied: (a) (i) The shares with respect to which the Option has been exercised are at the time of the issue of such shares effectively registered under applicable federal and state securities laws as now in force or hereafter amended; or (ii) counsel for the Company shall have given an opinion that the issuance of such shares upon exercise of the Option is exempt from registration under federal and state securities laws as now in force or hereafter amended or the Company is otherwise satisfied in its discretion that such exercise complies with such securities laws; and (b) In either event the Company has compiled with all applicable laws and regulations, including without limitation all regulations required by any stock exchange upon which the Company's outstanding Class B Common Stock is then listed. (c) The Director shall represent, warrant, covenant and agree in writing that the Option Shares (as defined in Section 5) are being acquired for his own account for investment purposes only and not with a view to distribution or any other disposition thereof. (d) The Company shall use reasonable efforts to the extent it deems practicable to bring about the compliance with the above conditions within a reasonable time except that the Company shall be under no obligation to cause a registration statement or a post-effective amendment to any registration statement to be prepared solely for the purpose of covering the issue of shares in respect of which the Option may be exercised or to permit any Director to effect a registration of his or her shares in connection with a registration of shares by the Company. 5. Right of First Refusal. (a) Until the consummation of a firm commitment underwritten public offering of the Company's common stock pursuant to a registration statement under the Securities Act of 1933, as amended, the Company And the Investor Stockholders (as such term is defined in the Stockholders' Agreement, dated as of October 31, 1997 as amended (the "Stockholders' Agreement")), by and among the Company and the Existing Stockholders, the Investor Stockholders and any Addition Stockholders, as such terms are defined therein, shall be 3 4 entitled to the following right of first refusal: (i) Transfer of Shares. The Director shall not transfer any shares of Class B Common Stock obtained upon exercise of the Option ("Option Shares") or any right or interest therein then owned by the Director except by a transfer that meets the requirements of this Section 5. In the event that the Director proposes to transfer any portion of the Option Shares, whether voluntarily or involuntarily, other than a "Permitted Transfer" or in connection with a "Corporate Change", then at least thirty (30) days prior to such proposed transfer, the Director shall give notice (the "Notice") to the Company and the Investor Stockholders of his intention to effect such transfer. The Notice shall set forth (a) the class, series and number of Option Shares to be sold by the Director ("Transferred Shares"); (b) the date or proposed date of the transfer and the name and address of the proposed transferee; and (c) the principal terms of the transfer, including the cash or other property or consideration to be received upon such transfer. (ii) Company's Option. The Company shall have the Option, but not the obligation, to purchase any or all of the Transferred Shares on the same terms as specified in the Notice. Within thirty (30) days after the receipt of the Notice, the Company shall give written notice to the Director and the Investor Stockholders (the "Company Notice") stating whether or not it elects to exercise its Option to purchase, the number of Transferred Shares, if any, it elects to purchase, and a date and time for consummation of the purchase not more than thirty (30) days after the receipt of the Company Notice by the Director. Failure by the Company to give such notice within such time period shall be deemed an election by it not to exercise its Option. (iii) Investor Stockholders' Option. If the Company fails to exercise its right to purchase under subparagraph (a)(ii) hereof, or exercises its right to purchase for less than all of the Transferred Shares, then the Investor Stockholders shall have the Option, but not the obligation, to purchase, pro rata to their ownership interest in the shares of Common Stock issued or issuable to such Investor Stockholder upon the conversion of shares of Series C Preferred Stock of the Company, any or all of the remaining Transferred Shares on the same terms as specified in the Notice. Not later than thirty (30) days after the Investor Stockholders receive the Company Notice, each Investor Stockholder shall give written notice to the Director and the Company (the "Investor Notice") stating whether or not it elects to exercise its Option to purchase, the number of the remaining Transferred Shares, if any, that it elects to purchase, and a date and time for consummation of the purchase not more than thirty (30) days after the receipt of the Investor Notice by the Director. Failure by an Investor Stockholder to give such notice within such time period shall be deemed an election by it not to exercise its Option. If the Company and the Investor Stockholders exercise their respective rights to purchase for less than all the Transferred Shares, then the Director shall thereafter be free to transfer the remaining Transferred Shares on the terms provided in the Notice, free and clear of any restrictions under this Section 5. (iv) Definitions. For purposes of this Section 5, the term "Permitted Transfer" shall mean a transfer to a spouse (other than pursuant to any divorce or separation proceedings or settlement), parents, children (natural or adopted), stepchildren or grandchildren or a trust for any of their benefit (each recipient being a "Permitted Transferee"); provided, 4 5 however, that prior to such transfer, such Permitted Transferee shall agree in writing to be bound by the obligations imposed upon the Director under this Section 5 as if such transferee were originally a signatory to this Agreement. (v) Application of Provisions. In each case, any Transferred Shares not purchased by the proposed in accordance with Section 5(a)(iii) hereof may not be sold or otherwise disposed of until they are again offered to the Company and the Investor Stockholders under the procedures specified in Sections 5(a)(i), (ii) and (iii) hereof. (b) Transfers Void. Any attempted transfer by the Director in violation of the terms of this Section 5 shall be ineffective to vest in any transferee any interest held by the Director in the Transferred shares. Without limiting the foregoing, any purported transfer in violation hereof shall be ineffective as against the Investor Stockholders and the Company, and the Company and the Investor Stockholders shall have a continuing right and Option (but not an obligation), until the restrictions contained in this Section 5 terminate, to purchase the shares purported to be transferred by the Director for a price and on terms the same as those at which the purported transfer was effected. 6. Miscellaneous. (a) This Option is issued pursuant to the Plan and is subject to its terms. All capitalized terms used in this agreement that are not otherwise defined herein shall have the meanings set forth in the Plan. A copy of the Plan has been delivered to Director with this Option. (b) This Agreement shall not confer on Director any right with respect to continuance of employment by the Company or any of its subsidiaries, nor will it interfere in any way with the right of the Company to terminate such employment at any time. The Director shall have none of the rights of a shareholder with respect to shares subject to this Option until such shares shall have been issued to The Director upon exercise of this Option. (c) The exercise of all or any part of this Option shall only be effective at such time that the sale of Class B Common Stock pursuant to such exercise will not violate any state or federal or state securities or other laws. (d) If there shall be any change in the Class B Common Stock of the Company through merger, consolidation, reorganization, recapitalization, conversion, dividend in the form of stock (of whatever amount), stock split or other similar change in the corporate structure of the Company, and all or any portion of the Option shall then be unexercised and not yet expired, then appropriate adjustments in the outstanding Option shall be made by the Company, in order to prevent dilution or enlargement of Option rights. Such adjustments shall include, where appropriate, changes in the number of shares of Class B Common Stock and price per share subject to the outstanding Option. (e) The Company shall at all times during the term of the Option reserve and keep available such number of shares as will be sufficient to satisfy the requirements of this 5 6 Agreement. (f) In the event of any conflict between this Agreement and the terms of the Plan, the provisions of the Plan shall control. 7. Notices. Notices to be given hereunder shall be in writing and shall be delivered personally or sent by registered or certified mail, postage prepaid, return receipt requested, and addressed, if to the Director at 134 West 29th Street, New York, New York 10001, or such other address as the Director specifies in writing, to the Company, and if to the Company to its then principal office. 8. Entire Agreement. This instrument contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements relating to the subject matter hereof and may be changed only by an agreement in writing and signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. 9. Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the State of New York. 10. Severability. In case any one or more of the provisions hereof shall be determined to be invalid or unenforceable, either in whole or in part, this Agreement shall be deemed amended to delete or modify, as necessary, the offending provision or provisions and to alter the balance of this Agreement in order to render the same valid and enforceable. MEDSCAPE, INC. Director By:__________________________ _____________________________ Paul T. Sheils President & CEO 6 EX-10.19 23 STOCK PURCHASE AGREEMENT 1 Exhibit 10.19 - -------------------------------------------------------------------------------- STOCK PURCHASE AGREEMENT BY AND BETWEEN MEDSCAPE, INC. AND EACH OF THE PERSONS LISTED ON SCHEDULE A HERETO DATED: OCTOBER 31, 1997 - -------------------------------------------------------------------------------- 2 STOCK PURCHASE AGREEMENT TABLE OF CONTENTS Page ---- SECTION 1. Definitions...............................................-1- SECTION 2. Restated and Amended Certificate of Incorporation.........-5- SECTION 3. Issuance of Acquired Preferred Shares and Reservation of Reserved Shares........................................-5- SECTION 4. Agreement to Sell and Purchase the Acquired Preferred Shares....................................................-5- SECTION 5. Delivery of Securities....................................-5- SECTION 6. Representations and Warranties of the Corporation.........-5- 6.1. Organization..............................................-5- 6.2. Equity Investments........................................-6- 6.3. Capitalization............................................-6- 6.4. Financial Information.....................................-7- 6.5. Absence of Undisclosed Liabilities........................-8- 6.6. Absence of Changes........................................-8- 6.7. Encumbrances; Burdensome Restrictions.....................-8- 6.8. Intellectual Property Rights..............................-9- 6.9. Litigation................................................-9- 6.10. No Defaults..............................................-10- 6.11. Labor Agreements and Actions.............................-10- 6.12. Compliance...............................................-10- 6.13. Authorization of this Agreement and the Stockholders' Agreement, Etc. ........................................-10- 6.14. Authorization of Acquired Preferred Shares and Reserved Shares..........................................-11- 6.15. Offerees.................................................-11- 6.16. Offering Exemption.......................................-12- 6.17. No Governmental Consent or Approval Required.............-12- 6.18. Agreements...............................................-12- 6.19. Offering of the Acquired Preferred Shares................-13- 6.20. Brokers..................................................-13- 6.21. Registration Rights......................................-13- 6.22. Compliance with ERISA; Benefit Plans.....................-13- 6.23. Investment Company Act...................................-14- 6.24. Qualified Small Business Stock...........................-14- 6.25. Environmental Matters....................................-14- -i- 3 6.26. Descriptive Memorandum...................................-14- 6.27. Employees................................................-14- 6.28. Proprietary Information and Inventions Agreements........-15- 6.29. Tax Returns and Payments.................................-15- 6.30. Full Disclosure..........................................-15- SECTION 7. Representations, Warranties and Covenants of each of the Investors.................................-15- SECTION 8. Conditions to and Deliveries at Closing..................-17- 8.1. Acquired Preferred Shares; Purchase Price................-17- 8.2. Corporate Proceedings; Consents, Etc.....................-17- 8.3. Restated and Amended Certificate of Incorporation........-17- 8.4. Stockholders' Agreement..................................-17- 8.5. Opinion of Counsel. ....................................-17- 8.6. Certificate of Secretary.................................-18- 8.7. Adverse Proceedings......................................-18- 8.8. Board of Directors.......................................-18- SECTION 9. Covenants of the Corporation.............................-18- 9.1. Access to Records........................................-18- 9.2. Financial Reports........................................-19- 9.3. Use of Proceeds..........................................-20- 9.4. Reserve for Reserved Shares. ...........................-20- 9.5. Qualified Small Business Stock...........................-20- 9.6. Directors' Expenses and Grant of Stock Options...........-21- 9.7. Key Man Life Insurance...................................-21- SECTION 10. Additional Investors.....................................-21- SECTION 11. Exchanges; Lost, Stolen or Mutilated Stock Certificates..-21- SECTION 12. Survival of Representations, Warranties and Agreements, Etc..........................................-22- SECTION 13. Remedies.................................................-22- SECTION 14. Expenses.................................................-22- SECTION 15. Successors and Assigns; Parties in Interest..............-22- SECTION 16. Entire Agreement.........................................-22- SECTION 17. Notices..................................................-23- -ii- 4 SECTION 18. Changes..................................................-23- SECTION 19. Counterparts.............................................-23- SECTION 20. Headings.................................................-23- SECTION 21. Nouns and Pronouns.......................................-24- SECTION 22. Governing Law............................................-24- SECTION 23. Severability.............................................-24- SECTION 24. Jurisdiction.............................................-24- SECTION 25. Broker's Fees............................................-24- SECTION 26. Exculpation Among Investors..............................-24- EXHIBITS EXHIBIT A Restated Certificate of Incorporation....................-25- EXHIBIT B Bylaws...................................................-27- EXHIBIT C Stockholders' Agreement..................................-27- SCHEDULES SCHEDULE 6.3 Shares Owned and Options Granted.........................-28- SCHEDULE 6.5 Liabilities ............................................-30- SCHEDULE 6.7 Encumbrances; Burdensome Restrictions....................-32- SCHEDULE 6.8 Exceptions to Intellectual Property Rights...............-33- SCHEDULE 6.9 Litigation...............................................-34- SCHEDULE 6.12 Compliance with Laws.....................................-35- -iii- 5 SCHEDULE 6.18 Agreements...............................................-36- SCHEDULE 6.20 Brokers..................................................-38- SCHEDULE 6.21 Registration Rights......................................-39- -iv- 6 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (the "Agreement") made as of this 31st day of October, 1997, by and between MEDSCAPE, INC., a New York corporation (the "Corporation"), having its principal office at 134 West 29th Street, New York, NY 10001-5399, each of the persons listed on Schedule A hereto (each, an "Investor" and collectively, the "Investors"), and any person who becomes a stockholder of the Corporation pursuant to the terms and conditions hereof (the "Additional Investors"). WITNESSETH: WHEREAS, the Corporation is engaged in the business of operating a medical Internet site on the Worldwide Web; WHEREAS, on January 17, 1997, the Corporation entered into three stock purchase agreements, in substantially identical form and substance (collectively, the "January Agreements"), with CSK Venture Capital Co., Ltd., as investment manager for CSK-1(A), CSK-1(B) and CSK-2 (collectively, "CSK"), pursuant to which the Corporation issued and sold, and CSK acquired and purchased, 123,974 shares of the Corporation's Series B Preferred Stock; WHEREAS, the Corporation now intends to issue the Acquired Preferred Shares on the terms contemplated herein (the "Financing"); WHEREAS, each Investor desires to purchase that number of Acquired Preferred Shares as set forth opposite its name on Schedule A hereto, subject to the terms and conditions contained herein; NOW, THEREFORE, in consideration of the premises contained herein and other good and valuable consideration, receipt of which is mutually acknowledged, the parties hereto agree as follows: SECTION 1. Definitions. All capitalized terms used in this Agreement shall have the meanings assigned to them elsewhere in this Agreement or as specified below: "Acquired Preferred Shares" shall mean, collectively, the shares of Series C Preferred Stock purchased by the Investors, and the 123,974 shares of Exchanged Preferred Stock to be issued to CSK as a result of the Series B Exchange hereunder. "Action" shall have the meaning set forth in Section 6.9 hereof. 7 "Board of Directors" shall have the meaning set forth in Section 8.3 hereof. "Bylaws" shall mean the Corporation's Restated and Amended Bylaws, a copy of which are attached hereto as Exhibit B. "Class A Common Stock" shall mean the Common Stock of the Corporation designated as Class A Common Stock in the Restated Certificate of Incorporation. "Class B Common Stock" shall mean the Common Stock of the Corporation designated as Class B Common Stock in the Restated Certificate of Incorporation. "Closing" shall mean the closing of the transactions contemplated under this Agreement, which shall take place at the offices of Dechert Price & Rhoads, 30 Rockefeller Plaza, New York, NY 10112, on or before October 31, 1997, or such other place or time as shall be mutually agreed upon by the parties hereto in writing. "Commission" shall mean the United States Securities and Exchange Commission. "Common Stock" shall mean (a) the Corporation's Class A Common Stock, par value $.01 per share, as authorized on the date of this Agreement, (b) the Corporation's Class B Common Stock, par value $.01 per value, as authorized on the date of this Agreement, (C) any other capital stock of any class or classes (however designated) of the Corporation, authorized on or after the date hereof, the holders of which shall have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating distributions after the payment of dividends and distributions on any shares entitled to preference under the Restated Certificate of Incorporation (as the same may be further amended from time to time after the Closing), and (d) any other securities into which or for which any of the securities described in clauses (a), (b) or (C) of this definition may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. "Descriptive Memorandum" shall have the meaning set forth in Section 6.26 hereof. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as the same may from time to time be amended. -2- 8 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder, all as the same shall be in effect at the time. "Exchanged Preferred Stock" shall mean 123,974 shares of Series C Preferred Stock to be issued to CSK as a result of the Series B Exchange. "Intellectual Property Rights" shall mean all industrial and intellectual property rights, including without limitation, Proprietary Information, patents, patent applications, patent rights, mask works, mask work applications, trademarks, trademark applications, trade names, service marks, service mark applications, copyrights, copyright applications, know-how, certificates of public convenience and necessity, franchises, licenses, trade secrets, proprietary processes and formulae. "Interim Balance Sheet" and "Interim Financial Statements" shall have the meanings set forth in Section 6.4(a) hereof. "Person" shall mean and include an individual, a corporation, a partnership, a trust, an unincorporated organization and a government or any department, agency or political subdivision thereof. "Proprietary Information" shall mean all customer lists, source and object code, algorithms, architecture, structure, display screens, layouts, processes, inventions, trade secrets, know-how, development tools and other proprietary rights owned by the Corporation pertaining to any product or service manufactured, marketed or sold, or proposed to be manufactured, marketed or sold (as the case may be), by the Corporation or used, employed or exploited in the development, license, sale, marketing or distribution or maintenance thereof, and all documentation and media constituting, describing or relating to the above, including without limitation, manuals, memoranda, know-how, notebooks, records and disclosures. "Purchase Price" shall have the meaning set forth in Section 4 hereof. "Qualified Public Offering" means the consummation of an offering of equity securities of the Corporation pursuant to an effective registration statement under the Securities Act under which the public offering price per share is not less than $15 per share (as adjusted for any stock split, stock dividend or recapitalization after October 31, 1997) and the aggregate gross proceeds received by the Corporation equals or exceeds $20 million. "Register", "registered" and "registration" shall refer to a registration effected by preparing and filing a registration statement in compliance with the -3- 9 Securities Act, and the declaration or ordering of effectiveness of such registration statement. "Reserved Shares" shall mean the shares of Class A Common Stock reserved for issuance upon conversion of the Acquired Preferred Shares. "Restated Certificate of Incorporation" shall mean the Corporation's Restated and Amended Certificate of Incorporation setting forth the designations, rights, preferences and privileges and qualifications, limitations and restrictions of the Series C Preferred Stock, filed in the Office of the Secretary of State of New York on October 27, 1997, a copy of which is attached hereto as Exhibit A. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder, all as the same shall be in effect at the time. "Series A Preferred Stock" shall mean the Corporation's authorized and outstanding shares of Series A Convertible Preferred Stock, par value $.01 per share, having the designations, rights, preferences and privileges and qualifications, limitations and restrictions of preferred stock set forth in the Restated Certificate of Incorporation, of which 788,200 shares are outstanding as of the date hereof. "Series B Exchange" shall mean the issuance to CSK by the Corporation of the shares of Exchanged Preferred Stock in exchange for the delivery to the Corporation by CSK of 123,974 shares of the Series B Preferred Stock as contemplated hereunder. "Series B Preferred Stock" shall mean the Corporation's authorized and outstanding shares of Series B Convertible Preferred Stock, par value $.01 per share, having the designations, rights, preferences and privileges and qualifications, limitations and restrictions set forth in the Restated Certificate of Incorporation, of which 123,974 shares are outstanding as of the date hereof, and all of which shall be exchanged, as of the Closing Date, into shares of Exchanged Preferred Stock as a result of the Series B Exchange. "Series C Preferred Stock" shall mean the Corporation's authorized and outstanding shares of Series C Convertible Preferred Stock, par value $.01 per share, having the designations, rights, preferences and privileges and qualifications, limitations and restrictions set forth in the Restated Certificate of Incorporation. "Stockholders' Agreement" shall mean the Stockholders' Agreement among the Corporation, the Investors and the stockholders named therein, substantially in the form attached hereto as Exhibit C. -4- 10 SECTION 2. Restated and Amended Certificate of Incorporation. The Corporation has filed with the Secretary of State of New York the Restated Certificate of Incorporation setting forth the designations, rights, preferences and privileges and the qualifications, limitations and restrictions of the Series C Preferred Stock. SECTION 3. Issuance of Acquired Preferred Shares and Reservation of Reserved Shares. Subject to the terms and conditions hereof, the Corporation has authorized the issuance of the Acquired Preferred Shares, and the Corporation has also authorized the reservation of the Reserved Shares, for issuance upon conversion of the Acquired Preferred Shares. SECTION 4. Agreement to Sell and Purchase the Acquired Preferred Shares. The Corporation hereby sells to each of the Investors, severally and not jointly, and, subject to and in reliance upon the representations, warranties, terms and conditions of this Agreement, each of the Investors, severally and not jointly, hereby purchases from the Corporation, that number of Acquired Preferred Shares set forth opposite its name on Schedule A hereto, at a purchase price of $4.60 per share (the "Purchase Price"). SECTION 5. Delivery of Securities. At the Closing, the Corporation shall issue and deliver to each Investor a stock certificate representing the Acquired Preferred Shares registered in the name of the Investor. Delivery is being made to each Investor against receipt, hereby acknowledged, by the Corporation, of a certified check or checks payable to the order of the Corporation or by wire transfer funds to the account of the Corporation in the amount of the Purchase Price. SECTION 6. Representations and Warranties of the Corporation. The Corporation hereby represents and warrants to each of the Investors as follows: 6.1. Organization. The Corporation (a) is a corporation duly organized, validly existing and in good standing under the laws of the State of New York, (b) has all requisite corporate power and authority to own, lease and operate its properties and assets to carry on its business as presently conducted and to execute, deliver and perform this Agreement and the Stockholders' Agreement, to issue and deliver the Acquired Preferred Shares, to issue and deliver the shares of Exchanged Preferred Stock, to reserve the Reserved Shares for issuance, and to issue and deliver the Reserved Shares upon conversion of the Acquired Preferred Shares, and (c) is duly qualified as a foreign corporation and in good standing to do business in all such jurisdictions, if any, in which the conduct of its business or its ownership, leasing or operation of property or assets requires such qualification, except for those jurisdictions in which failure to so qualify would not have a material adverse effect on the business or assets of the Corporation. Copies of the Corporation's Restated Certificate of -5- 11 Incorporation and Bylaws as in effect on the date hereof are respectively attached hereto as Exhibits A and B. 6.2. Equity Investments. The Corporation has never had, nor does it presently have, any subsidiaries, nor has it owned, nor does it presently own, any capital stock or other proprietary interest or other voting control, directly or indirectly, in any corporation, association, trust, partnership, joint venture or other entity. 6.3. Capitalization. The authorized capital stock of the Corporation immediately upon the consummation at the Closing of the transactions contemplated hereby, and giving effect thereto, shall consist of: (a) 1,000,000 shares of Series A Preferred Stock, of which 788,200 shares are validly issued and outstanding and fully paid and nonassessable, except as may otherwise be provided in Section 630 of the New York Business Corporation Law (the "BCL"); (b) 1,000,000 shares of Series B Preferred Stock, of which 123,974 shares are validly issued and outstanding and fully paid and nonassessable, except as may otherwise be provided in Section 630 of the BCL, and of which 123,974 shares shall be exchanged for a like number of shares of Exchanged Preferred Stock as of the Closing; (c) 4,000,000 shares of Series C Preferred Stock, of which an aggregate of which 1,478,360 shares have been validly issued to the Investors at the Closing and are outstanding, fully paid upon receipt from each of the Investors of each Purchase Price due therefrom pursuant to Section 4 hereof and nonassessable, except as may otherwise be provided in Section 630 of the BCL; (d) 6,000,000 shares of Class A Common Stock of which 431,600 shares are validly issued and outstanding and fully paid and nonassessable except as otherwise may be provided in Section 630 of the BCL; and 1,478,360 shares are duly reserved for issuance in connection with the conversion of the Acquired Preferred Shares; (e) 6,000,000 shares of Class B Common Stock, of which (i) 668,991 shares are validly issued and outstanding, and fully paid and nonassessable, except as may otherwise be provided in Section 630 of the BCL; and (ii) 1,372,809 shares are duly reserved for issuance under outstanding and future options. -6- 12 Schedule 6.3 attached hereto contains a list of (i) all holders of capital stock of the Corporation, including the number of shares of capital stock of the Corporation held by each such holder, and (ii) all outstanding warrants, options, agreements, convertible securities or other commitments pursuant to which the Corporation is or may become obligated to issue any shares of its Common Stock or other capital stock or other securities of the Corporation, which names all persons entitled to receive such shares or other securities and the shares of Common Stock or other capital stock or other securities required to be issued thereunder. Except as set forth on Schedule 6.3 attached hereto, (a) there are no preemptive or similar rights to purchase or otherwise acquire shares of Common Stock or other capital stock of the Corporation pursuant to any provision of law, the Restated and Amended Certificate of Incorporation or Bylaws or any agreement to which the Corporation is a party, or otherwise, except as contemplated by this Agreement or the Stockholders' Agreement, and (b) there is no agreement, restriction or encumbrance (such as a right of first refusal, right of first offer, proxy, voting agreement, etc.) with respect to the sale or voting of any shares of Common Stock or other capital stock of the Corporation (whether outstanding or issuable upon conversion or exercise of outstanding securities) except as contemplated by this Agreement and the Stockholders' Agreement. 6.4. Financial Information. (a) The Corporation has previously delivered to each of the Investors the unaudited balance sheet of the Corporation as of June 30, 1997 (the "Interim Balance Sheet") and the related unaudited statements of operations and statements of income and cash flows for the six months then ended, prepared by the Corporation (collectively with the Interim Balance Sheet, the "Interim Financial Statements") and the audited balance sheet of the Corporation as of December 31, 1996 and the related statement of operations for the nine months then ended as reported on by Deloitte and Touche, LLP (the "1996 Audited Financial Statements"). (b) The Interim Financial Statements and the 1996 Audited Financial Statements (together with any notes thereto) referred to in the foregoing clause (a) of this Section 6.4 (i) are correct and complete in all material respects and (ii) are in accordance with the books and records of the Corporation; provided, however, that the Interim Financial Statements are subject to changes resulting from year-end audit adjustments which the Corporation believes will not be material. 6.5. Absence of Undisclosed Liabilities. Except as listed on Schedule 6.5 hereof, as of the date of this Agreement, (a) the Corporation had no liability in excess of $25,000 of any nature (matured or unmatured, fixed or contingent) which was not provided for or disclosed on the Interim Balance Sheet, and (b) all -7- 13 liability reserves established by the Corporation were adequate in all material respects. There were no material loss contingencies (as such term is used in the Statement of Financial Accounting Standards No. 5 issued by the Financial Accounting Standards Board in March 1975) which were not adequately provided for in the 1996 Audited Financial Statements or the Interim Balance Sheet. 6.6. Absence of Changes. Except as listed on Schedule 6.6 and, with respect to the capitalization, as listed on Schedule 6.3, since June 30, 1997 there has not been (a) any adverse change in the financial condition, results of operations, assets, liabilities or business of the Corporation, taken as a whole, (b) any borrowing or agreement to borrow any funds or any liability or obligation of any nature whatsoever (contingent or otherwise) incurred by the Corporation, other than current liabilities or obligations incurred in the ordinary course of business, (C) any asset or property of the Corporation made subject to a lien of any kind, (d) any waiver of any valuable right of the Corporation, or the cancellation of any debt or claim held by the Corporation, (e) any payment of dividends on, or other distributions with respect to, or any direct or indirect redemption or acquisition of, any shares of the Common Stock or other capital stock of the Corporation, or any agreement or commitment therefor, (f) any issuance of any stocks, bonds or other securities of the Corporation or options, warrants or rights or agreements or commitments to purchase or issue such securities or grant such options, warrants or rights, (g) any mortgage, pledge, sale, assignment or transfer of any tangible or intangible assets of the Corporation, except with respect to tangible assets in the ordinary course of business, (h) any damage, destruction or loss (whether or not covered by insurance) adversely affecting the assets, property or business of the Corporation, (i) any change in the accounting methods or practices followed by the Corporation or (j) any commitment (contingent or otherwise) to do any of the foregoing. 6.7. Encumbrances; Burdensome Restrictions. Except as set forth on Schedule 6.7 attached hereto, the Corporation owns outright all of its property and assets, real, personal or fixed, tangible or intangible, reflected as assets on the Interim Balance Sheet or not so reflected because not required to be reflected, but which are used or useful in the business of the Corporation, or acquired by the Corporation since the date of the Interim Balance Sheet (other than assets disposed of in the ordinary course of business since that date), subject to no mortgages, liens, security interests, pledges, charges or other encumbrances of any kind. The Corporation is not obligated under any contract or agreement or subject to any charter or other corporate restriction which materially adversely affects the Corporation's business, properties, assets, prospects or condition (financial or otherwise). 6.8. Intellectual Property Rights. Except as set forth on Schedule 6.8 attached hereto: -8- 14 6.8.1. Intellectual Property. To the best of the Corporation's knowledge, there are no material Intellectual Property Rights necessary or required to enable the Corporation to carry on its business as now conducted which are not owned by the Corporation or which the Corporation does not have the legal right to use. 6.8.2. Proprietary Information of Third Parties. To the best of its knowledge, the Corporation has not violated or infringed, and is not currently violating or infringing, the material Intellectual Property Rights of any other person or entity. The Corporation has not received any communications alleging that the Corporation (or any of its employees or consultants) has violated or infringed or, by conducting its businesses as presently proposed to be conducted, would violate or infringe, the material Intellectual Property Rights of any other person or entity. The Corporation is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with their duties to the Corporation or that would conflict with the Corporation's business as proposed to be conducted. Neither the execution nor delivery of this Agreement, nor the carrying on of the Corporation's business by the employees of the Corporation, nor the conduct of the Corporation's business as proposed, will, to the Corporation's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any employee is now obligated. The Corporation does not believe it is or will be necessary to utilize any inventions, trade secrets or proprietary information of any of its employees made prior to their employment by the Corporation, except for inventions, trade secrets or proprietary information that have been assigned to the Corporation. 6.9. Litigation. Except as set forth on Schedule 6.9 hereof, there is no action, suit, proceeding, claim, arbitration or investigation ("Action") pending (or, to the best of the Corporation's knowledge, currently threatened) against the Corporation, its activities, properties or assets. To the best of the Corporation's knowledge, there is no factual or legal basis for any such Action that might result, individually or in the aggregate, in any material adverse change in the business, properties or financial condition of the Corporation. The Corporation is not a party to or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality and there is no Action by the Corporation currently pending or which the Corporation intends to initiate. 6.10. No Defaults. The Corporation is not in default (a) under its Restated Certificate of Incorporation or Bylaws, or under any note, indenture, mortgage, lease, purchase or sales order, or any other material contract, agreement or instrument to which it is a party or by which it or any of its property or assets is bound or affected or (b) with respect to any order, writ, injunction, judgment or decree of any court or any -9- 15 federal, state, municipal or other domestic or foreign governmental department, commission, board, bureau, agency or instrumentality. To the best of the Corporation's knowledge, there exists no condition, event or act which constitutes, or which after notice, lapse of time or both, would constitute, a default under any of the foregoing. 6.11. Labor Agreements and Actions. The Corporation is not bound by or subject to any contract, commitment or arrangement with any labor union, and to the Corporation's best knowledge, no labor union has requested, sought or attempted to represent any employees, representatives or agents of the Corporation. There is no strike or other labor dispute involving the Corporation pending nor, to the Corporation's best knowledge, threatened, nor is the Corporation aware of any labor organization activity involving its employees. 6.12. Compliance. To the best of its knowledge, except as set forth on Schedule 6.12 hereof, the Corporation (a) has complied in all respects with all federal, state, local and foreign laws, ordinances, regulations and orders applicable to its business or the ownership of its property or assets which would have a material adverse effect on the Corporation in the event of a failure so to comply, and the Corporation has not received notice of any claimed default with respect to such laws, ordinances, rules and regulations; and (b) has or has applied for all federal, state, local and foreign governmental licenses and permits necessary or required to enable it to carry on its business as now conducted and as presently proposed to be conducted in any material respect. Such licenses and permits, if issued, are in full force and effect, no violations have been recorded in respect of any such licenses or permits, and no proceeding is pending or, to the best of the Corporation's knowledge, threatened to revoke or limit any thereof. None of the aforesaid licenses and permits shall be affected in any material adverse respect by this Agreement or the Stockholders' Agreement. 6.13. Authorization of this Agreement and the Stockholders' Agreement, Etc. The execution, delivery and performance by the Corporation of this Agreement and the Stockholders' Agreement have been duly authorized by all requisite corporate action by the Corporation, and each constitutes the valid and binding obligation of the Corporation, enforceable in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium and similar laws affecting creditors' rights generally and to general principles of equity. The execution and delivery of this Agreement and the Stockholders' Agreement by the Corporation, the consummation of the transactions contemplated hereby and thereby and compliance with the provisions hereof and thereof by the Corporation, and the issuance, sale and delivery of the Acquired Preferred Shares and the Reserved Shares by the Corporation will not (a) violate any provision of law, statute, rule or regulation, or any ruling, writ, injunction, order, judgment or decree of any court, administrative agency or other governmental body applicable to the Corporation or (b) conflict with or result in any -10- 16 breach of any of the terms, conditions or provisions of, or constitute (with due notice or lapse of time, or both) a default (or give rise to any right of termination, cancellation or acceleration) under, the Restated Certificate of Incorporation or Bylaws, or under any note, indenture, mortgage, lease, purchase or sales order or other material contract, agreement or instrument to which the Corporation is a party or by which it or any of its property or assets is bound or affected, or (c) result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Corporation. 6.14. Authorization of Acquired Preferred Shares and Reserved Shares. The designation, issuance, sale and delivery of the Acquired Preferred Shares, and the reservation, issuance, sale and delivery of the Reserved Shares, have been duly authorized by all requisite corporate action of the Corporation, and when issued, sold and delivered in accordance with this Agreement, the Acquired Preferred Shares and Reserved Shares will be validly issued and outstanding, fully paid and nonassessable (except as may be otherwise provided in Section 630 of the BCL), and are not subject to preemptive or any other similar rights of the stockholders of the Corporation or others except as otherwise provided herein or in the Stockholders' Agreement. The designations, powers, preferences and rights and the qualifications, limitations and restrictions of the Acquired Preferred Shares are as stated in the Restated Certificate of Incorporation. 6.15. Offerees. The Corporation has not offered any Common Stock, or any security or securities similar to the Series C Preferred Stock or the Common Stock, for sale to, or solicited any offers to buy any of the foregoing from, or otherwise approached or negotiated in respect thereof, with any Person or Persons other than a limited number of institutional or other sophisticated investors deemed to be "accredited investors," as such term is defined in Rule 501(a) of Regulation D adopted under the Securities Act, and other than certain employees and directors who were granted stock options and, in any event, all such offerings were exempt from registration under, and in accordance with, the Securities Act and applicable state securities and "blue sky" laws. 6.16. Offering Exemption. The offering and sale of the Acquired Preferred Shares and the sale of the Reserved Shares upon conversion of the Acquired Preferred Shares are exempt from registration under the Securities Act. The aforesaid offering and sale are also exempt from registration under applicable state securities and "blue sky" laws or will be exempt upon the timely filing of notices with the appropriate states. 6.17. No Governmental Consent or Approval Required. Except for the filing of any notice subsequent to the Closing that may be required under applicable federal and/or state securities laws (which, if required, shall be filed on a timely basis as may be so required) or consents or approvals which have been obtained, no consent, -11- 17 approval or authorization of, or declaration to, or filing with, any Person (governmental or private) is required for the valid authorization, execution, delivery and performance by the Corporation of this Agreement or the Stockholders' Agreement or for the valid authorization, designation, issuance, sale and delivery of the Acquired Preferred Shares or the Reserved Shares. 6.18. Agreements. Except as listed on Schedule 6.18, the Corporation is not a party to any written or oral contract not made in the ordinary course of business and, whether or not made in the ordinary course of business, the Corporation is not a party to any written or oral (a) contract with any labor union, (b) contract for the future purchase of fixed assets or for the future purchase of materials, supplies or equipment in excess of normal operating requirements, (c) contract for the employment of any officer, individual employee or other person on a full-time basis or any contract with any person on a consulting basis, (d) bonus, pension, profit-sharing, retirement, stock purchase, stock option, hospitalization, medical insurance or similar plan, contract or understanding in effect with respect to employees or any of them or the employees of others, (e) agreement or indenture relating to the borrowing of money or to the mortgaging, pledging or otherwise placing of a lien on any property or assets of the Corporation, (f) guaranty of any obligation for borrowed money or otherwise, (g) lease or agreement under which the Corporation is lessee of or holds or operates any property, real or personal, owned by any other party, (h) lease or agreement under which the Corporation is lessor of or permits any third party to hold or operate any property, real or personal, owned or controlled by the Corporation, (i) agreement or other commitment for capital expenditures in excess of $100,000, (j) distributor, dealer, manufacturer's representative or sales agency agreement which is not terminable on less than ninety (90) days' notice without cost or other liability to the Corporation (except for agreements which, in the aggregate, are not material to the business of the Corporation); (k) contract, agreement or commitment under which the Corporation is obligated to pay any broker's fees, finder's fees or any such similar fees, to any third party, (l) contract, agreement or commitment under which the Corporation has issued, or may become obligated to issue, any shares of Common Stock or other capital stock of the Corporation, or any warrants, options, convertible securities or other commitments pursuant to which the Corporation is or may become obligated to issue any shares of its Common Stock or other capital stock, (m) contract, agreement or commitment under which the Corporation is obligated to repurchase or otherwise acquire or retire any shares of its Common Stock or other capital stock, or (n) any other contract, agreement, arrangement or understanding which is material to the operation of the business of the Corporation. 6.19. Offering of the Acquired Preferred Shares. Neither the Corporation nor any person authorized or employed by the Corporation as agent, broker, dealer or otherwise in connection with the offering or sale of the Acquired Preferred Shares or any security of the Corporation similar to the Acquired Preferred -12- 18 Shares has offered the Acquired Preferred Shares or any such similar security for sale to, or solicited any offer to buy the Acquired Preferred Shares or any such similar security from, or otherwise approached or negotiated with respect thereto with, any person or persons (other than the issuance of shares of Class A and Class B Common Stock and Preferred Stock in connection with the formation of the Corporation, the Financing and the grant of stock options to employees and others and the exercise of such stock options), and neither the Corporation nor any person acting on its behalf has taken or will take any other action (including, without limitation, any offer, issuance or sale of any security of the Corporation under circumstances which might require the integration of such security with the Acquired Preferred Shares under the Securities Act or the rules and regulations of the Commission thereunder), in either case so as to subject the offering, issuance or sale of the Acquired Preferred Shares to the registration provisions of the Securities Act. 6.20. Brokers. Except as provided in Schedule 6.20, neither the Corporation nor any of the Corporation's officers, directors, employees or stockholders has employed any broker or finder in connection with the transactions contemplated by this Agreement. 6.21. Registration Rights. Except as contemplated by this Agreement and the Stockholders' Agreement, or as set forth on Schedule 6.21, no Person has any right to cause the Corporation to effect the registration under the Securities Act of any shares of Common Stock or any other securities (including without limitation, debt securities) of the Corporation. 6.22. Compliance with ERISA; Benefit Plans. The Corporation does not (a) maintain, and it has never maintained, any employee benefit plan subject to ERISA or (b) contribute to, and has never contributed to, any such employee benefit plan maintained by any other person or entity. 6.23. Investment Company Act. The Corporation is not an "investment company" as that term is defined in, and is not otherwise subject to regulation under, the Investment Company Act of 1940. 6.24. Qualified Small Business Stock. The Acquired Preferred Shares constitute "qualified small business stock" as defined in Section 1202 (c) of the Code. 6.25. Environmental Matters. No Hazardous Substances have been used, handled, generated, processed, treated, stored, transported to or from, released, discharged or disposed of by the Corporation or any third party on, about or beneath any real property owned or leased by the Corporation, the result of which would have a material adverse effect on the Corporation. For purposes of this Agreement, the term -13- 19 "Hazardous Substances" shall mean any substance regulated under any federal, state or local environmental law or regulation. 6.26. Descriptive Memorandum. The information provided by the Corporation in the Descriptive Memorandum dated June 1997 and the Supplement thereto (collectively, the "Descriptive Memorandum") furnished to each of the Investors has been prepared in good faith by the Corporation and to the best of the knowledge of the Corporation does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading; provided that the Descriptive Memorandum includes certain statements, estimates and projections and other forward looking information which reflects various assumptions made by the Corporation concerning anticipated results which may or may not prove to be correct. No representations or warranties are made as to the accuracy of such statements, estimates and projections and other forward looking information. 6.27. Employees. To the Corporation's knowledge, no employee of the Corporation, nor any consultant with whom the Corporation has contracted, is in violation of any term of any employment contract, proprietary information agreement or any other agreement relating to the right of any such individual to be employed by, or to contract with, the Corporation because of the nature of the business to be conducted by the Corporation, and to the Corporation's knowledge the continued employment by the Corporation of its present employees, and the performance of the Corporation's contracts with its independent contractors, will not result in any such violation. The Corporation has not received any notice alleging that any such violation has occurred. No employee of the Corporation has been granted the right to continued employment by the Corporation or to any material compensation following termination of employment with the Corporation. The Corporation is not aware that any officer or key employee, or that any group of key employees, intends to terminate their employment with the Corporation, nor does the Corporation have a present intention to terminate the employment of any officer, key employee or group of key employees. 6.28. Proprietary Information and Inventions Agreements. Each former and current employee, officer and consultant of the Corporation has executed a Proprietary Information and Inventions Agreement in the form delivered to the Investors or to their counsel. No current employee, officer or consultant of the Corporation has excluded works or inventions made prior to his or employment with the Corporation from his or her assignment of inventions pursuant to such employee, officer or consultant's Proprietary Information and Inventions Agreement. 6.29. Tax Returns and Payments. The Corporation has timely filed all tax returns (federal, state and local) required to be filed by it. All taxes shown to be due and payable on such returns, any assessments imposed, and to the Corporation's knowledge all other taxes due and payable by the Corporation on or before the Closing -14- 20 have been paid or will be paid prior to the time they become delinquent. The Corporation has not been advised (a) that any of its returns, federal, state or other, have been or are being audited as of the date hereof, or (b) of any deficiency in assessment or proposed adjustment to its federal, state or other taxes. The Corporation has no knowledge of any liability of any tax to be imposed upon its properties or assets as of the date of this Agreement that is not adequately provided for. 6.30. Full Disclosure. This Agreement, the Exhibits hereto, the Stockholders' Agreement, the Descriptive Memorandum and all other documents delivered by the Corporation to Investors or their attorneys or agents in connection herewith or therewith or with the transactions contemplated hereby or thereby taken together, to the Corporation's knowledge, do not contain any untrue statement of a material fact nor omit to state a material fact necessary in order to make the statements contained herein or therein not misleading. To the Corporation's knowledge, there are no facts (other than economic, political or other factors of general application) which (individually or in the aggregate) materially adversely affect the business, assets, liabilities, financial condition, prospects or operations of the Corporation that have not been set forth in the Agreement, the Exhibits hereto, the Stockholders' Agreement or in other documents delivered to Investors or their attorneys or agents in connection herewith. SECTION 7. Representations, Warranties and Covenants of each of the Investors. Each of the Investors represents, warrants and covenants, severally and not jointly, to the Corporation that: (a) it has received and reviewed a copy of the Descriptive Memorandum prior to the Closing Date; (b) the execution, delivery and performance of this Agreement and the Stockholders' Agreement have been duly authorized by all requisite action by the Investor and each constitutes the valid and binding obligation of the Investor, enforceable in accordance with its terms; subject to applicable bankruptcy, reorganization, insolvency, moratorium and similar laws affecting creditors' rights generally and to general principles of equity. (c) it is acquiring the Acquired Preferred Shares and, in the event that it should acquire Reserved Shares upon conversion of the Acquired Preferred Shares, it will be acquiring the Reserved Shares, for its own account, for investment and not with a view to the distribution thereof within the meaning of the Securities Act; -15- 21 (d) it understands that the Acquired Preferred Shares have not been and, except as provided in this Agreement or in the Stockholders' Agreement, the Reserved Shares will not be, registered under the Securities Act, by reason of their issuance by the Corporation in a transaction exempt from the registration requirements of the Securities Act; and that except as provided in this Agreement or in the Stockholders' Agreement, the Acquired Preferred Shares and the Reserved Shares must be held by it indefinitely unless a subsequent disposition thereof is registered under the Securities Act or is exempt from registration; (e) it understands that the exemption from registration afforded by Rule 144 (the provisions of which are known to it) promulgated under the Securities Act depends on the satisfaction of various conditions, and that, if and when applicable, Rule 144 may only afford the basis for sales in limited amounts; (f) it will not transfer any of the Acquired Preferred Shares or the Reserved Shares except in compliance with the Stockholders' Agreement and applicable law; (g) it has not employed any broker or finder in connection with the transactions contemplated by this Agreement; (h) it has had an opportunity to ask questions of the officers of the Corporation regarding the Corporation's business, management and financial affairs and has received all information as it has deemed necessary or appropriate as a prudent and knowledgeable investor in evaluating the purchase of the Acquired Preferred Shares; (i) it is an "accredited investor" as defined in Rule 501(a) promulgated under the Securities Act; and (j) to the best of its knowledge, its purchase of the Acquired Preferred Shares will not constitute a violation by the Investor of any rule, law or regulation applicable to it. SECTION 8. Conditions to and Deliveries at Closing. At or before the Closing: 8.1. Acquired Preferred Shares; Purchase Price. Each Investor shall have received a stock certificate evidencing its ownership of the Acquired Preferred Shares, which Acquired Preferred Shares shall have been duly authorized and issued by the Corporation, and the Corporation shall have received the Purchase Price due from each Investor. -16- 22 8.2. Corporate Proceedings; Consents, Etc. All corporate and other proceedings to be taken and all waivers and consents to be obtained in connection with the transactions contemplated by this Agreement and the Stockholders' Agreement shall have been taken or obtained and all documents incident thereto shall be satisfactory in form and substance to the Investor and to its counsel and each of the Investors shall have received all such originals or certified or other copies of such documents it may reasonably have requested. 8.3. Restated and Amended Certificate of Incorporation. The Board of Directors of the Corporation (the "Board of Directors") shall have duly adopted resolutions in form acceptable to each of the Investors setting forth, among other things, (a) the designations, rights, preferences and privileges and qualifications, limitations and restrictions of the Series C Preferred Stock, and (b) a limitation on the liability of its directors to the fullest extent permitted under New York law, substantially in the form of the Restated Certificate of Incorporation, and such Restated Certificate of Incorporation shall have been filed with and accepted by the Secretary of State of New York and shall have become effective and evidence of the foregoing in form satisfactory to each of the Investors shall have been delivered thereto. 8.4. Stockholders' Agreement. The Stockholders' Agreement shall have been executed and delivered by the Corporation and such other parties named therein. In addition, the Corporation and such parties shall have complied with all of the terms and conditions of the Stockholders' Agreement, including without limitation, the placement of the legends required to be placed on securities owned by such parties. 8.5. Opinion of Counsel. An opinion of counsel to the Corporation, in form and substance reasonably satisfactory to the Investors, shall have been executed and delivered to each of the Investors by such counsel. 8.6. Certificate of Secretary. Each of the Investors shall have received a certificate of the Secretary of the Corporation, dated the date of the Closing, to the effect that (a) attached thereto is a true and complete copy of the Restated Certificate of Incorporation and the Bylaws of the Corporation (as amended through such date) as in effect on the date thereof, (b) attached thereto is a true and complete copy of resolutions adopted by the Board of Directors authorizing the execution, delivery and performance of this Agreement and the Stockholders' Agreement, the issuance of the Acquired Preferred Shares, the reserving of the Reserved Shares for issuance upon conversion of the Acquired Preferred Shares, and certifying that such resolutions are the only resolutions of the Board of Directors with respect to such matters, (c) the Corporation is in good standing in reliance on a good standing certificates from the Secretary of State of New York as of a recent date, and (d) such other matters as may be reasonably requested by each of the Investors. 8.7. Adverse Proceedings. No suit, action, or other proceeding seeking to restrain, prevent or change the transactions contemplated hereby or in the -17- 23 Stockholders' Agreement or otherwise questioning the validity or legality of such transactions shall have been threatened or instituted and be pending. 8.8. Board of Directors. Upon the Closing, the authorized size of the Board of Directors of the Corporation shall be five members and the Board of Directors shall initially consist of Mr. Alan Patricof, Mr. Peter Frishauf, one designee of Media Technology Ventures, L.P. and Media Technology Ventures Entrepreneurs Fund, L.P. (collectively, "MTV"), one designee of the Investors (excluding MTV) and one designee to be nominated by a majority of Mr. Alan Patricof, Mr. Peter Frishauf and the designee of MTV. SECTION 9. Covenants of the Corporation. So long as the Series C Preferred Stock is outstanding: 9.1. Access to Records. 9.1.1. General. The Corporation shall afford to a designated representative of each of the Investors free and full access, at all reasonable times, and with reasonable prior notice, to all of the books, records and properties of the Corporation and to all officers, employees and accountants or auditors of the Corporation for any reasonable purpose whatsoever. Each of the Investors shall maintain the confidentiality of any confidential and Proprietary Information so obtained by it which is not otherwise available from other sources that are free from similar restrictions; provided, however, that the foregoing, shall in no way limit or otherwise restrict the ability of each of the Investors or such authorized representatives to disclose any such information concerning the Corporation which it may be required to disclose (a) to its partners, board members or stockholders, to the extent required to satisfy its fiduciary obligations to such persons, or (b) otherwise pursuant to or as required by law. 9.1.2. Rights of MTV. So long as it is the beneficial owner of at least 50,000 shares of the Acquired Preferred Shares (as adjusted for any stock splits, dividends, or recapitalizations), a representative from MTV shall have the right, after providing the Corporation with reasonable prior notice, to visit the Corporation's principal offices for meetings with the Corporation's management four (4) times per year, for a period of one (1) day per visit. The Corporation agrees to reimburse MTV for reasonable expenses incurred by it in connection with these visits up to a maximum amount of $10,000 per year. 9.2. Financial Reports. The Corporation covenants and agrees that so long as an Investor beneficially owns at least five percent (5%) of the Acquired Preferred Shares issued in the Financing (or at least five percent (5%) of the Reserved Shares issuable upon conversion of the Acquired Preferred Shares) it shall furnish to each such Investor the following: -18- 24 9.2.1. Monthly Reports. As soon as practicable, and in any case within thirty (30) days after the end of each monthly accounting period, monthly unaudited financial statements (all prepared in accordance with generally accepted accounting principles consistently applied), including (a) an unaudited balance sheet of the Corporation as of the last day of such monthly accounting period, (b) an unaudited statement of income of the Corporation for such monthly accounting period, (c) an unaudited cash flow statement of the Corporation for such monthly accounting period, and (d) unaudited comparisons of the information specified in sub-sections (a), (b) and (c) hereof with (i) the comparable monthly accounting period from the Corporation's prior fiscal year and, to the extent practical, (ii) the annual budget of the Corporation. 9.2.2. Quarterly Reports. As soon as practicable and in any event within thirty (30) days after the end of each fiscal quarter, an unaudited report on financial and operational highlights of the Corporation regarding the most recent fiscal quarter. 9.2.3. Annual Reports. As soon as practicable and in any event within 120 days after the end of each fiscal year, a balance sheet as of the end of such fiscal year, a statement of income and a statement of cash flows of the Corporation for such year, setting forth in each case in comparative form the figures from the Corporation's previous fiscal year, all prepared in accordance with generally accepted accounting principles consistently applied and audited by independent auditors engaged by the Corporation. 9.2.4. Annual Budgets. As soon as practicable and in any event prior to the commencement of each fiscal year, an annual budget of the Corporation for the next succeeding fiscal year. 9.2.5. Other Information. Promptly, from time to time, until the consummation of a Qualified Public Offering, such other information regarding the business, prospects, financial condition, operations, property or affairs of the Corporation as the Investor reasonably may request. 9.2.6. Subsidiaries. If for any period the Corporation shall have any subsidiary or subsidiaries whose accounts are consolidated with those of the Corporation, then in respect of such period, the financial statements and other information delivered pursuant to the foregoing Sections 9.2.1, 9.2.2, 9.2.3 and 9.2.4 shall be the consolidated financial statements of the Corporation and all such consolidated subsidiaries. If the accounts of such subsidiary or subsidiaries are not consolidated, the financial statements and other information contemplated by the foregoing Sections 9.2.1, 9.2.2, 9.2.3 and 9.2.4 shall be furnished with respect to such unconsolidated subsidiary or subsidiaries. 9.3. Use of Proceeds. The net proceeds received by the Corporation from the sale of the Acquired Preferred Shares shall be used by the Corporation for the purchase of equipment, to retire $800,000 of debt currently due and payable by the -19- 25 Corporation to SCP Communications, Inc. ("SCP"), and for other general and working capital purposes. 9.4. Reserve for Reserved Shares. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Class A Common Stock, for the purpose of effecting the conversion of the Acquired Preferred Shares and otherwise complying with the terms of this Agreement, such number of its duly authorized shares of Class A Common Stock as shall be sufficient to effect the conversion of the Acquired Preferred Shares from time to time outstanding or otherwise to comply with the terms of this Agreement. If at any time the number of authorized but unissued shares of Class A Common Stock shall not be sufficient to effect the conversion of the Series C Preferred Shares or otherwise to comply with the terms of this Agreement, the Corporation will forthwith take such corporate action as may be necessary to increase its authorized but unissued shares of Class A Common Stock to such number of shares as shall be sufficient for such purposes. The Corporation will obtain any authorization, consent, approval or other action by or make any filing with any court or administrative body that may be required under applicable state securities laws in connection with the issuance of shares of Class A Common Stock upon conversion of the Acquired Preferred Shares. 9.5. Qualified Small Business Stock. The Corporation shall submit to its stockholders (including each of the Investors) and to the Internal Revenue Service any reports that may be required under Section 1202(d)(1)(C) of the Code and any related Treasury Regulations. 9.6. Directors' Expenses and Grant of Stock Options. Each of the directors shall be entitled to be reimbursed by the Corporation for his reasonable expenses incurred in attending meetings of the Board and in representing the Corporation, and shall be entitled to receive $500 for each Board meeting attended in person. In addition, each director who was not a director of the Corporation prior to the Closing Date shall receive within 90 days following the Closing Date stock options exercisable for 18,000 shares of Class B Common Stock, at an exercise price of not less than $.36 per share, which shall vest on an annual basis over three years from the date of issuance thereof. 9.7. Key Man Life Insurance. Within ninety (90) days after the Closing Date, the Corporation shall have purchased and obtained a renewable term life insurance policy on the life of the chief executive officer of the Corporation, which such policy shall be in the amount of at least $1,000,000 and shall designate the Corporation as the sole beneficiary thereof. SECTION 10. Additional Investors. Notwithstanding any provision to the contrary contained herein or in the Stockholders' Agreement, the Corporation may, in its sole discretion, within ninety (90) days after the date of the Closing, effect the placement of up to 1,100,000 additional shares of Series C Preferred Stock or Common Stock, or warrants to purchase such Series C Preferred Stock or Common -20- 26 Stock, to Additional Investors. As a condition to any such transaction(s), each Additional Investor shall agree to execute this Agreement and become bound by the terms, conditions and obligations hereof. SECTION 11. Exchanges; Lost, Stolen or Mutilated Stock Certificates. Upon surrender by each of the Investors to the Corporation of any certificate representing Acquired Preferred Shares or Reserved Shares purchased or acquired hereunder, the Corporation at its expense shall issue in exchange therefor, and deliver to each such Investor, a new certificate or certificates representing such shares, in such denominations as may be requested by such Investor. Upon receipt of evidence satisfactory to the Corporation of the loss, theft, destruction or mutilation of any certificate representing any Acquired Preferred Shares or Reserved Shares purchased or acquired by each of the Investors hereunder, and in case of any such loss, theft or destruction, upon delivery of any indemnity agreement satisfactory to the Corporation, or in case of any such mutilation, upon surrender and cancellation of such certificate, the Corporation at its expense shall issue and deliver to each such Investor a new certificate for such Acquired Preferred Shares or Reserved Shares of like tenor, in lieu of such lost, stolen or mutilated certificate. SECTION 12. Survival of Representations, Warranties and Agreements, Etc. All representations and warranties hereunder shall survive the Closing for a period of eighteen (18) months. All agreements contained herein shall survive indefinitely until, by their respective terms, they are no longer operative. No action or claim for damages resulting from breaches of representations and warranties of the Corporation shall be brought or made after the expiration of an eighteen (18) month period from the date hereof, except with respect to any breaches of the representations and warranties of the Corporation made pursuant to Sections 6.8.2 and 6.29 hereof, for which no action or claim for damages shall be brought or made after the expiration of three (3) years from the date hereof. SECTION 13. Remedies. In case any one or more of the representations, warranties, covenants and/or agreements set forth in this Agreement shall have been breached by the Corporation, each Investor may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including, but not limited to, an action for damages as a result of any such untruth, inaccuracy or breach and/or an action for specific performance of any such covenant or agreement contained in this Agreement. SECTION 14. Expenses. The Corporation and each of the Investors agree that each party hereto shall bear their own legal and other expenses with respect to the transactions contemplated hereby, including, without limitation, the preparation of this Agreement and the Stockholders' Agreement; provided, however, that upon the successful completion of the Financing, the Corporation agrees to pay up to $10,000 of legal fees and related costs incurred by Cooley Godward LLP, counsel to certain of the Investors, within sixty (60) days after delivery to the Corporation by such Investors of a written invoice therefor. -21- 27 SECTION 15. Successors and Assigns; Parties in Interest. This Agreement shall bind and inure to the benefit of (a) the Corporation, each of the Investors and each other Person who shall become a registered holder of any certificate representing the Acquired Preferred Shares or the Reserved Shares, and (b) the respective successors and assigns of the Corporation, each of the Investors and each such other Person. The rights of each of the Investors in this Agreement are assignable to any registered holder of the Series C Preferred Stock or the Reserved Shares except to the extent such assignees received such stock or shares in a transaction involving a public offering or purchase on a securities exchange. SECTION 16. Entire Agreement. This Agreement (as amended from time to time) and the other writings referred to herein or delivered pursuant hereto which form a part hereof (including the Schedules and Exhibits hereto) contain the entire agreement among the parties with respect to the subject matter hereof and supersede all prior and contemporaneous arrangement or understanding with respect thereto. SECTION 17. Notices. All notices, requests, consents and other communications hereunder to any party shall be deemed to be sufficient if contained in a written instrument delivered in person or duly sent by air mail first class registered or certified, return receipt requested, postage prepaid, or by facsimile in any case addressed to the Corporation at the address set forth below, and to each Investor at the address set forth opposite its name on Schedule A hereto or such other address as may hereafter be designated in writing by the addressee to the addressor listing all parties: If to the Corporation, to: Medscape, Inc. 134 W. 29th Street New York, NY 10001-5399 Fax (212) 760-3140 Attention: President & CEO with a copy to: Dechert Price & Rhoads 30 Rockefeller Plaza New York, NY 10112 Attention: Roger Mulvihill -22- 28 All such notices, advises and communications shall be deemed to have been received (a) in the case of personal delivery, on the date of such delivery and (b) in the case of mailing, on the third day after the posting thereof. SECTION 18. Changes. The terms and provisions of this Agreement may not be modified or amended, or any of the provisions hereof waived, temporarily or permanently, except pursuant to the written consent of the Corporation and each of the Investors. SECTION 19. Counterparts. This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. SECTION 20. Headings. The headings of the sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement. SECTION 21. Nouns and Pronouns. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of names and pronouns shall include the plural and vice-versa. SECTION 22. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflict of laws. SECTION 23. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 24. Jurisdiction. The parties hereto agree that any suit, action or proceeding instituted against one or more of them with respect to this Agreement (including any exhibits hereto) shall be brought in any federal or state court located in the State of New York. The parties hereto, by the execution and delivery of this Agreement, irrevocably waive any objection or defense to the institution of any action in New York based on improper venue, the convenience of the forum or the jurisdiction of such courts, or from the execution of judgments resulting therefrom, and the parties hereto irrevocably accept and submit to the jurisdiction of the aforesaid courts in any suit, action or proceeding and consent to the service of process by certified mail at the address set forth in Section 17 hereof. -23- 29 SECTION 25. Broker's Fees. Except as disclosed by the Corporation on Schedule 6.20 attached hereto, each party hereto represents and warrants that no agent, broker, investment banker, person or firm acting on behalf of or under the authority of such party hereto is or will be entitled to any broker's or finder's fees or any other commission directly or indirectly in connection with the transactions contemplated herein. Each party hereto further agrees to indemnify each other party for any claims, losses or expenses incurred by such other party as a result of the representation in this Section 25 being untrue. SECTION 26. Exculpation Among Investors. Each Investor acknowledges that it is not relying upon any person, firm, or corporation, other than the Corporation and its officers and directors, in making its investment or decision to invest in the Corporation. Each Investor agrees that no Investor nor the respective controlling persons, officers, directors, partners, agents, or employees of any Investor shall be liable for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with the Acquired Preferred Shares or the Reserve Shares. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on their behalf. MEDSCAPE, INC. By:/s/ Peter Frishauf --------------------------- Name: Peter Frishauf Title: President INVESTORS: CSK VENTURE CAPITAL CO., LTD. as Investment Manager for CSK-1(A) Investment Fund By: /s/ Max Kuroishi ------------------------- Name: Max Kuroishi Title: Director CSK VENTURE CAPITAL CO., LTD. as Investment Manager for CSK-1(B) Investment Fund By: /s/ Max Kuroishi ------------------------- Name: Max Kuroishi Title: Director CSK VENTURE CAPITAL CO., LTD. as Investment Manager for CSK-2 Investment Fund By: /s/ Max Kuroishi ------------------------- Name: Max Kuroishi Title: Director MEDIA TECHNOLOGY VENTURE, L.P. By: /s/ Barry Weinman ------------------------- Name: Barry Weinman Title: General Partner MEDIA TECHNOLOGY VENTURE ENTREPRENEURS FUND, L.P. By: /s/ Barry Weinman ------------------------- Name: Barry Weinman Title: General Partner -24- 30 ROBERT BERNHARD, WILLIAM L. BERNHARD, FRANK A. WEIL, AND LAWRENCE B. BUTTENWEISER TRUSTEES U/A DATED 9/3/64 F/B/O ROBERT A. BERNHARD FAMILY By: /s/ Robert A. Bernhard ------------------------- Name: Robert A. Bernhard Title: Trustee ROBERT BERNHARD, WILLIAM L. BERNHARD, JOHN L. LOEB, AND BENJAMIN J. BUTTENWEISER TRUSTEES U/W/D DOROTHY L. BERNHARD F/B/O ROBERT A. BERNHARD ARTICLE 9TH By: /s/ Robert A. Bernhard ------------------------- Name: Robert A. Bernhard Title: Trustee THE EXCELSIOR FUND IV By: ------------------------- Name: Title: WORMSER FRERES By: /s/ Marcel Wormser ------------------------- Name: Marcel Wormser Title: Principal TOLEDOT INVESTMENTS By: ------------------------- Name: Title: WORMSER FRERES By: ------------------------- Name: Title: TOLEDOT INVESTMENTS By: ------------------------- Name: Title: -25- 31 BE PARTNERS By: /s/ Jeffrey Benton ------------------------- Name: Jeffrey Benton Title: Managing Partner By: /s/ Robert Lessin ------------------------- Name: Robert Lessin RHL VENTURES LLC By: ------------------------- Name: Title: OPPENHEIMER & CO., INC. By: /s/ Matthew J. Maryles ------------------------- Name: Matthew J. Maryles Title: Managing Director /s/ Richard Linhart - ------------------------- Richard Linhart /s/ Esther Dyson - ------------------------- Esther Dyson INVESTORS: APA EXCELSIOR IV, L.P. By: AP EXCELSIOR IV PARTNERS, L.P., its General Partner By: PATRICOF & CO. MANGERS, INC., its General Partner By: /s/ Patricia M. Cloherty ------------------------- Name: Patricia M. Cloherty Title: President APA EXCELSIOR IV/OFFSHORE, L.P. By: PATRICOF & CO. VENTURES, INC. Its Investment Advisor By: /s/ Patricia M. Cloherty -------------------------------- Name: Patricia M. Cloherty Title: President PATRICOF PRIVATE INVESTMENT CLUB, L.P. By: AP EXCELSIOR IV PARTNERS, L.P., its General Partner By: PATRICOF & CO. MANAGERS, INC., its General Partner By: /s/ Patricia M. Cloherty -------------------------------- Name: Patricia M. Cloherty Title: President -26- 32 /s/ Roger Mulvihill - ----------------------- Roger Mulvihill /s/ Mary Mulvihill - ----------------------- Mary Mulvihill /s/ Mark Braunstein - ----------------------- Mark Braunstein, M.D. /s/ Victor Scaravilli - ----------------------- Victor Scaravilli -27- 33 SCHEDULE A
================================================================================ Number of Acquired Purchase Investor Address Shares Price - -------- ------- ------ ----- - -------------------------------------------------------------------------------- CSK Venture Capital Co., 7th Floor, Kenchiku-kaikan, 434,783(1) $2,000,000 Ltd. 5-26-20 Shiba, Minato-ku, Tokyo, 108, Japan - -------------------------------------------------------------------------------- Media Technology One First Street, 385,150 $1,771,690 Ventures, L.P. Suite 12 Los Altos, CA 94022 - -------------------------------------------------------------------------------- Media Technology One First Street, 49,730 $ 228,758 Ventures Entrepreneurs Suite 12 Fund, L.P. Los Altos, CA 94022 - -------------------------------------------------------------------------------- Robert Bernhard, William c/o Bernhard 32,609 $ 150,000 L. Bernhard, Frank A. Management Weil, and Lawrence B. 6 East 43rd Street Buttenweiser, Trustees 28th Floor U/A Dated 9/3/64 F/B/O New York, NY 10017 Robert A. Bernhard Family - -------------------------------------------------------------------------------- Robert Bernhard, William c/o Bernhard 32,608 $ 150,000 L. Bernhard, John L. Management Loeb, and Benjamin J. 6 East 43rd Street Buttenweiser, Trustees 28th Floor U/W/D Dorothy L. New York, NY 10017 Bernhard F/B/O Robert A. Bernhard Article 9th - -------------------------------------------------------------------------------- Wormser Freres Banque D'Escompte 108,696 $ 500,000 13 Blvd. Haussmann 75009 Paris, France - -------------------------------------------------------------------------------- Oppenheimer & Co., Inc. World Financial Center 65,217 $ 300,000 39th Floor New York, NY 10281 Attn: Dave Shotland - -------------------------------------------------------------------------------- RHL Ventures LLC c/o Robert Lessin 54,348 $ 250,000 131 South Woodland St. Englewood, NJ 07631 - --------------------------------------------------------------------------------
- -------- (1) Includes 123,974 shares of Series C Preferred Stock to be issued to CSK as a result of the Series B Exchange. 34
- -------------------------------------------------------------------------------- Victor Scaravilli c/o Mole Constructors 21,739 $ 100,000 29100 Hall Street Solon, OH 44139-3090 - -------------------------------------------------------------------------------- Richard Linhart c/o Opus Capital Partners 10,870 $ 50,000 1776 Broadway 18th Floor New York, NY 10019 - -------------------------------------------------------------------------------- Roger Mulvihill c/o Dechert, Price & Rhoads 3,261 $ 15,000 30 Rockefeller Plaza 23rd Floor New York, NY 10112 - -------------------------------------------------------------------------------- Mary Mulvihill c/o Dechert, Price & Rhoads 7,609 $ 35,000 30 Rockefeller Plaza 23rd Floor New York, NY 10112 - -------------------------------------------------------------------------------- BE Partners 440 So. LaSalle Street 21,739 $ 100,000 Suite 1124 Chicago, IL 60605 - -------------------------------------------------------------------------------- Esther Dyson c/o EDventure Holdings, Inc. 10,870 $ 50,000 104 Fifth Avenue 20th Floor New York, NY 10011-6901 - -------------------------------------------------------------------------------- Mark Braunstein, M.D. c/o Patient Care Technologies 10,870 $ 50,000 2 Executive Park West NE Atlanta, GA 30329 - -------------------------------------------------------------------------------- APA Excelsior IV, L.P. c/o Patricof & Co. 181,826 $ 836,400 Ventures, Inc. 445 Park Avenue New York, NY 10022 - -------------------------------------------------------------------------------- APA Excelsior IV c/o Patricof & Co. 32,087 $ 147,600 Offshore, L.P. Ventures, Inc. 445 Park Avenue New York, NY 10022 - -------------------------------------------------------------------------------- The Patricof Private c/o Patricof & Co. 3,478 $ 15,999 Investment Club Ventures, Inc. 445 Park Avenue New York, NY 10022 ================================================================================
-29- EX-10.20 24 FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT 1 Exhibit 10.20 FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT DATED OCTOBER 31, 1997 THIS FIRST AMENDMENT (this "First Amendment") is entered into as of February 19, 1998, by and between Medscape, Inc. (the "Company") and each of the persons listed on Schedule A hereto (collectively, the "Series C Investors"). WHEREAS, the Company and the Series C Investors entered into that certain Stock Purchase Agreement dated as of October 31, 1997 (the "Stock Purchase Agreement"); WHEREAS, on October 27, 1997, the Company filed in the Office of the Secretary of State of New York a Restated and Amended Certificate of Incorporation (the "Restated Certificate") setting forth, among other things, the designations, rights, preferences and privileges and qualifications, limitations and restrictions of the Series C Preferred Stock; WHEREAS, pursuant to Section 10 of the Stock Purchase Agreement, the Series C Investors granted the Company the right to sell up to 1,100,000 additional shares of Series C Preferred Stock or Common Stock, or warrants to purchase such Series C Preferred Stock or Common Stock, to Additional Investors within ninety days after the Closing, and pursuant to Section 5(c)(ii)(D) of the Restated Certificate, the Company may issue up to 1,100,000 shares of Additional Stock (as defined in the Restated Certificate) prior to January 29, 1998 without effecting the adjustments in conversion price contemplated therein; WHEREAS, the Company has received a written offer from Blumenstein/Thorne Information Partners I, L.P. ("BTIP") to purchase 699,301 Acquired Preferred Shares for an aggregate purchase price of $3,000,000, or $4.29 per share, on substantially the same terms and conditions as set forth in the Stock Purchase Agreement, subject to certain amendments agreed upon by the Company and BTIP, and upon consummation thereof BTIP has agreed to execute the Stock Purchase Agreement as of October 31, 1997 as though executed on that date and become bound by substantially all of the terms, conditions and obligations thereof, subject to certain amendments agreed upon by the Company and BTIP (the "BTIP Sale"); WHEREAS, it is impracticable to consummate the BTIP Sale within ninety days after the Closing or prior to January 29, 1998; WHEREAS, the Company and the Series C Investors desire that BTIP become an Additional Investor and have agreed to waive the ninety day time period referred to in Section 10 of the Stock Purchase Agreement in order to permit the Company to consummate the BTIP Sale; WHEREAS, pursuant to the terms of the Stock Purchase Agreement, as heretofore in effect, for purposes of preventing the dilution of the interests of the Series C Investors as a result of the BTIP Sale, the Conversion Price of the Series C Preferred Stock would be reduced to $4.29 per share upon the consummation of the BTIP Sale; 2 WHEREAS, it is intended that the adjustment to the Conversion Price satisfy the antidilution provisions of Treasury Regulation ss.1.305-7(b); and WHEREAS, it is necessary to amend the Stock Purchase Agreement to reflect the aforesaid agreements. NOW, THEREFORE, in consideration of the premises contained herein and other good and valuable consideration, receipt of which is mutually acknowledged, the parties hereto agree as follows: SECTION 1. Definitions. Capitalized terms used but not defined herein shall have the meanings set forth in the Stock Purchase Agreement. SECTION 2. Amendments. The Stock Purchase Agreement is hereby amended as follows: (a) In Section 10, solely for purposes of consummating the BTIP Sale, the phrase "within ninety (90) days after the date of the Closing," is deleted in its entirety; (b) Upon (i) BTIP's payment to the Company of the purchase price for that number of Acquired Preferred Shares set forth opposite its name on revised Schedule A attached hereto, and (ii) BTIP's execution of the Addendum Signature Page to the Stock Purchase Agreement, attached hereto as Schedule B, BTIP shall be deemed an Additional Investor and the Addendum Signature Page shall be made part of the Stock Purchase Agreement. (c) Schedule A of the Stock Purchase Agreement is hereby amended and restated in its entirety as Schedule A hereto. (d) Schedule 6.3 of the Stock Purchase Agreement is hereby amended and restated in its entirety as Schedule 6.3 hereto. SECTION 3. Conditions to Effectiveness. This First Amendment shall become effective upon the execution hereof by the Company and each of the Series C Investors. SECTION 4. Severability. Any provision of this First Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 5. Captions. The captions in this First Amendment are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. SECTION 6. Stock Purchase Agreement to Remain in Full Force and Effect. Except as amended hereby, the Stock Purchase Agreement shall remain in full force and effect and is hereby ratified, adopted and confirmed in all respects. All references in the Stock -2- 3 Purchase Agreement to "herein," or words of like import, and all references to the Stock Purchase Agreement in any agreement or document shall hereafter be deemed to refer to the Stock Purchase Agreement, as amended hereby. SECTION 7. Governing Law. This First Amendment shall be governed and construed in accordance with the laws of the State of New York. SECTION 8. Counterparts. This First Amendment may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts taken together, shall constitute but one and the same amendment. [The remainder of this page intentionally left blank] -3- 4 IN WITNESS WHEREOF, the parties hereto have executed this First Amendment as of the date first set forth above. MEDSCAPE, INC. By: /s/ --------------------------- Name: Title: INVESTORS: CSK VENTURE CAPITAL CO., LTD., as investment manager for CSK-1(A) Investment Fund By: /s/ Masahiro Aozono -------------------------------- Name: Masahiro Aozono Title: President CSK VENTURE CAPITAL CO., LTD., as investment manager for CSK-1(B) Investment Fund By: /s/ Masahiro Aozono -------------------------------- Name: Masahiro Aozono Title: President CSK VENTURE CAPITAL CO., LTD., as investment manager for CSK-2 Investment Fund By: /s/ Masahiro Aozono -------------------------------- Name: Masahiro Aozono Title: President MEDIA TECHNOLOGY VENTURES, L.P. By: /s/ Barry Weinman -------------------------------- Name: Barry Weinman Title: General Partner MEDIA TECHNOLOGY VENTURES ENTREPRENEURS FUND, L.P. By: /s/ Barry Weinman -------------------------------- Name: Barry Weinman Title: General Partner ROBERT BERNHARD, WILLIAM L. BERNHARD, FRANK A. WEIL, AND LAWRENCE B. BUTTENWEISER TRUSTEES U/A DATED 9/3/64 F/B/O ROBERT A. BERNHARD FAMILY By: /s/ Robert A. Bernhard -------------------------------- Name: Robert A. Bernhard Title: Trustee ROBERT BERNHARD, WILLIAM L. BERNHARD, JOHN L. LOEB, AND -4- 5 BENJAMIN J. BUTTENWEISER TRUSTEES U/W/D DOROTHY L. BERNHARD F/B/O ROBERT A. BERNHARD ARTICLE 9TH By: /s/ Robert A. Bernhard -------------------------------- Name: Robert A. Bernhard Title: Trustee APA EXCELSIOR IV, L.P. By: APA Excelsior IV Partners, L.P. its General Partner By: Patricof & Co. Managers, Inc. its General Partner By: /s/ -------------------------------- Name: Title: APA EXCELSIOR IV/OFFSHORE, L.P. By: Patricof & Co. Ventures, Inc. its Investment Advisor By: /s/ -------------------------------- Name: Title: THE PATRICOF PRIVATE INVESTMENT CLUB, L.P. By: APA Excelsior IV Partners, L.P. its General Partner By: Patricof & Co. Managers, Inc. its General Partner By: /s/ -------------------------------- Name: Title: WORMSER FRERES By: /s/ Marcel Wormser -------------------------------- Name: Marcel Wormser Title: Administrateur BE PARTNERS By: /s/ Timothy Sommerfield -------------------------------- Name: Timothy Sommerfield Title: Partner /s/ Robert Lessin - -------------------------------- Robert Lessin OPPENHEIMER & CO., INC. By:/s/ Matthew J. Maryles -------------------------------- Name: Matthew J. Maryles Title: Managing Director -5- 6 TOLEDOT INVESTMENTS, L.P. By: /s/ -------------------------------- Name: Richard Title: General Partner /s/ Esther Dyson - ------------------------------------ Esther Dyson /s/ Victor Scaravilli - ------------------------------------ Victor Scaravilli /s/ Roger Mulvihill - ------------------------------------ Roger Mulvihill /s/ Mary Mulvihill - ------------------------------------ Mary Mulvihill /s/ Mark Braunstein - ------------------------------------ Mark Braunstein, M.D. ACKNOWLEDGED AND AGREED: BLUMENSTEIN/THORNE INFORMATION PARTNERS I, L.P. By: Blumenstein/Thorne Information Partners L.L.C., its General Partner By: /s/ Oakleigh Thorne -------------------------- Name: Oakleigh Thorne Title: Co-President -6- 7 SCHEDULE A
================================================================================ Number of Acquired Investor Address Shares Purchase Price - -------- ------- ------ -------------- - -------------------------------------------------------------------------------- CSK Venture Capital Co., 7th Floor, Kenchiku-kaikan, 434,783(1) $2,000,000 Ltd. 5-26-20 Shiba, Minato-ku, Tokyo, 108, Japan - -------------------------------------------------------------------------------- Media Technology One First Street, 385,150 $1,771,690 Ventures, L.P. Suite 12 Los Altos, CA 94022 - -------------------------------------------------------------------------------- Media Technology One First Street, 49,730 $ 228,758 Ventures Entrepreneurs Suite 12 Fund, L.P. Los Altos, CA 94022 - -------------------------------------------------------------------------------- Robert Bernhard, William c/o Bernhard 32,609 $ 150,000 L. Bernhard, Frank A. Management Weil, and Lawrence B. 6 East 43rd Street Buttenweiser, Trustees 28th Floor U/A Dated 9/3/64 F/B/O New York, NY 10017 Robert A. Bernhard Family - -------------------------------------------------------------------------------- Robert Bernhard, William c/o Bernhard 32,608 $ 150,000 L. Bernhard, John L. Management Loeb, and Benjamin J. 6 East 43rd Street Buttenweiser, Trustees 28th Floor U/W/D Dorothy L. New York, NY 10017 Bernhard F/B/O Robert A. Bernhard Article 9th - -------------------------------------------------------------------------------- Wormser Freres Banque D'Escompte 108,696 $ 500,000 13 Blvd. Haussmann 75009 Paris, France - -------------------------------------------------------------------------------- Oppenheimer & Co., Inc. World Financial Center 65,217 $ 300,000 39th Floor New York, NY 10281 Attn: Dave Shotland - -------------------------------------------------------------------------------- RHL Ventures LLC c/o Robert Lessin 54,348 $ 250,000 131 South Woodland St. Englewood, NJ 07631 - -------------------------------------------------------------------------------- Victor Scaravilli c/o Mole Constructors 21,739 $ 100,000 29100 Hall Street Solon, OH 44139-3090 - -------------------------------------------------------------------------------- Richard Linhart c/o Opus Capital Partners 10,870 $ 50,000 1776 Broadway 18th Floor New York, NY 10019 - --------------------------------------------------------------------------------
- -------- (1) Includes 123,974 shares of Series C Preferred Stock to be issued to CSK as a result of the Series B Exchange. 8
- -------------------------------------------------------------------------------- Roger Mulvihill c/o Dechert, Price & Rhoads 3,261 $ 15,000 30 Rockefeller Plaza 23rd Floor New York, NY 10112 - -------------------------------------------------------------------------------- Mary Mulvihill c/o Dechert, Price & Rhoads 7,609 $ 35,000 30 Rockefeller Plaza 23rd Floor New York, NY 10112 - -------------------------------------------------------------------------------- BE Partners 440 So. LaSalle Street 21,739 $ 100,000 Suite 1124 Chicago, IL 60605 - -------------------------------------------------------------------------------- Esther Dyson c/o EDventure Holdings, Inc. 10,870 $ 50,000 104 Fifth Avenue 20th Floor New York, NY 10011-6901 - -------------------------------------------------------------------------------- Mark Braunstein, M.D. c/o Patient Care Technologies 10,870 $ 50,000 2 Executive Park West NE Atlanta, GA 30329 - -------------------------------------------------------------------------------- APA Excelsior IV, L.P. c/o Patricof & Co. 181,826 $ 836,400 Ventures, Inc. 445 Park Avenue New York, NY 10022 - -------------------------------------------------------------------------------- APA Excelsior IV c/o Patricof & Co. 32,087 $ 147,600 Offshore, L.P. Ventures, Inc. 445 Park Avenue New York, NY 10022 - -------------------------------------------------------------------------------- The Patricof Private c/o Patricof & Co. 3,478 $ 15,999 Investment Club Ventures, Inc. 445 Park Avenue New York, NY 10022 - -------------------------------------------------------------------------------- Blumenstein/Thorne c/o Blumenstein/Thorne 699,301(2) $3,000,000 Information Partners I, Information Partners L.L.C. L.P. P.O. Box 871 Lake Forest, IL 60045 ================================================================================
- ---------- (2) Acquired at a purchase price of $4.29 per share. 9 SCHEDULE B Addendum Signature Page to Stock Purchase Agreement 10 ADDENDUM SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT BY AND BETWEEN MEDSCAPE, INC. AND EACH OF THE PERSONS LISTED ON SCHEDULE A DATED: OCTOBER 31, 1997 This Agreement is executed by the undersigned on February 19, 1998, as though the undersigned were an original party to this Agreement as of October 31, 1997; provided, however, that for purposes of the undersigned's execution of this Agreement and its purchase of 699,301 Acquired Preferred Shares, the Purchase Price shall be $4.29 per share. BLUMENSTEIN/THORNE INFORMATION PARTNERS I, L.P. By: Blumenstein/Thorne Information Partners L.L.C., its General Partner By: /s/ Oakleigh Thorne -------------------------- Name: Oakleigh Thorne Its: Co-President 19 11 SCHEDULE 6.3
Shares Owned Options Granted ------------------------------------------------------ --------------- Series A Series B Series C Class A Class B Preferred Preferred Preferred Common Common Total Stockholders Stock Stock Stock Stock Stock Options - ------------ ----- ----- ----- ----- ----- ------- The Excelsior Fund I 788,200 264,600 Peter Frishauf 431,600 122,600 103,800 Timothy Fallon 324,000 Robert Bernhard 130,600 35,000 Alan Patricof (and designees) 6,000 46,000 Esther Dyson 10,870 3,000 15,000 Arthur Bushkin 6,000 12,000 Stephen Smith 16,800 45,601 Gregory Fortescue 3,089 Jerry Donnelly 102 Katharine Rice 21,600 72,000 Stephen Frishauf 32,200 Patricof & Co. Ventures, Inc. 31,200 APA Excelsior IV, L.P. 181,826 APA Excelsior IV/Offshore, L.P. 32,087 The Patricof Private Investment Club 3,478 Louis Del Guercio 15,600 Janice Beam 11,600 Richard Bassin 4,000 Medscape Employees 227,328 Employee Reserved Options 256,253 SCP Employees 235,827 CSK Venture Capital Co., Ltd. 434,783 Media Technology Ventures, L.P. 385,150 Media Technology Ventures Entrepreneurs Fund, L.P. 49,730
12 SCHEDULE 6.3 (continued)
Shares Owned Options Granted ------------------------------------------------------ --------------- Series A Series B Series C Class A Class B Preferred Preferred Preferred Common Common Total Stockholders Stock Stock Stock Stock Stock Options - ------------ ----- ----- ----- ----- ----- ------- Robert Bernhard, William L. Bernhard, Frank A. Weil, and Lawrence B. Buttenweiser, Trustees U/A Dated 9/3/64 F/B/O Robert A. Bernhard Family 32,609 Robert Bernhard, William L. Bernhard, John L. Loeb, and Benjamin J. Buttenweiser, Trustees U/W/D Dorothy L. Bernhard F/B/O Robert A. Bernhard Article 9th 32,608 Wormser Freres 108,696 Oppenheimer & Co., Inc. 65,217 RHL Ventures LLC 54,348 Richard Linhart 21,739 Victor Scaravilli 21,739 BE Partners 21,739 Roger Mulvihill 3,261 Mary Mulvihill 7,609 Mark Braunstein, M.D. 10,870 Blumenstein/Thorne Information Partners I, L.P. 699,301 ------- -------- -------- ------- ------- --------- TOTAL: 788,200 0 2,177661 431,600 668,991 1,372,809
EX-10.21 25 SUPPLEMENTAL AGREEMENT 1 Exhibit 10.21 SUPPLEMENTAL AGREEMENT TO AMENDMENT TO STOCK PURCHASE AGREEMENT AND FIRST AMENDMENT TO, AND WAIVER OF CERTAIN TERMS OF, STOCKHOLDERS' AGREEMENT THIS SUPPLEMENTAL AGREEMENT (this "Supplemental Agreement") is entered into on this 9th day of March, 1998 by and among Medscape, Inc. (the "Company"), the Series C Stockholders of the Company (collectively, the "Series C Stockholders") and Blumenstein/Thorne Information Partners I, L.P. ("BTIP"). WHEREAS, the Company and the Series C Stockholders entered into a Stock Purchase Agreement ("Stock Purchase Agreement") and a Stockholders' Agreement ("Stockholders' Agreement"), each dated as of October 31, 1997; WHEREAS, the Company and the Series C Stockholders have recently acted to permit BTIP to purchase 699,301 Acquired Preferred Shares for an aggregate purchase price of $3,000,000 on substantially the same terms and conditions as contained in the Stock Purchase Agreement (the "BTIP Sale"), and in furtherance thereof executed a certain Amendment to the Stock Purchase Agreement dated February 19, 1998 ("Stock Purchase Amendment") and a certain First Amendment to, and Waiver of Certain Provisions of, the Stockholders' Agreement dated February 19, 1998 ("First Stockholders' Amendment"); WHEREAS, the Company has received a written offer from Media Technology Ventures, L.P. and Media Technology Ventures Entrepreneurs Fund, L.P., both of which are Series C Stockholders (collectively, "MTV"), to purchase, in the aggregate, an additional 233,100 Acquired Preferred Shares for an aggregate purchase price of $1,000,000, or $4.29 per share, on substantially the same terms and conditions as set forth in the Stock Purchase Agreement as though acquired as of October 31, 1997 (the "MTV Sale"); WHEREAS, the Company, the Series C Stockholders and BTIP desire to effect the MTV Sale as though the terms and conditions thereof were contemplated by, and approved pursuant to, the Stock Purchase Amendment and the First Stockholders' Amendment; and WHEREAS, it is necessary to amend the Stock Purchase Amendment and the First Stockholders' Amendment to reflect the aforesaid agreements. NOW, THEREFORE, for good and valuable consideration, the parties hereto agree as follows: SECTION 1. Definitions. Capitalized terms used but not defined herein shall have the meanings set forth in the Stock Purchase Agreement, as amended. 2 SECTION 2. Amendments. (a) The Stock Purchase Amendment and the First Stockholders' Amendment are each hereby amended, respectively, to include therein the terms and conditions of the MTV Sale as though consummated as of October 31, 1997, and any and all actions, amendments, waivers and consents taken, made or rendered thereby are, to the extent necessary in order to permit the consummation of the MTV Sale, hereby amended to encompass and effectuate the MTV Sale, including, specifically, and without limitation, (i) the waiver by each Series C Stockholder of its rights of first offer under Section 3 of the Stockholders' Agreement with respect to the MTV Sale, and (ii) the agreement by each Series C Stockholder, solely for purposes of consummating the MTV Sale, to omit from Section 10 of the Stock Purchase Agreement the phrase "within ninety (90) days after the date of the Closing." (b) Schedule A of the Stock Purchase Agreement is hereby amended and restated in its entirety as Schedule A hereto, and Schedule 6.3 of the Stock Purchase Agreement is hereby amended and restated in its entirety as Schedule 6.3 hereto. (c) Upon (i) MTV's payment to the Company of the aggregate purchase price of $1,000,000 for an aggregate of 233,100 Acquired Preferred Shares, and (ii) MTV's execution of the Addendum Signature Page to the Stock Purchase Agreement, attached hereto as Schedule B, the Addendum Signature Page shall be made part of the Stock Purchase Agreement and the Company shall deliver to MTV stock certificates for the additional Acquired Preferred Shares purchased by MTV hereunder. SECTION 3. Conditions to Effectiveness. This Supplemental Agreement shall become effective upon the execution hereof by the Company, each of the Series C Stockholders, MTV and BTIP. SECTION 4. Severability. Any provision of this Supplemental Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 5. Captions. The captions in this Supplemental Agreement are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. SECTION 6. Full Force and Effect. Except as amended hereby, the Stock Purchase Amendment and the First Stockholders' Amendment shall remain in full force and effect and are hereby ratified, adopted and confirmed in all respects. SECTION 7. Governing Law. This Supplemental Agreement shall be governed and construed in accordance with the laws of the State of New York. -2- 3 SECTION 8. Counterparts. This Supplemental Agreement may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts taken together, shall constitute but one and the same agreement. [The remainder of this page intentionally left blank] -3- 4 IN WITNESS WHEREOF, the parties hereto have executed this Supplemental Agreement as of the date first set forth above. MEDSCAPE, INC. By: /s/ Paul T. Sheils ---------------------------- Name: Paul T. Sheils Title: President and CEO CSK VENTURE CAPITAL CO., LTD., as investment manager for CSK-1(A) Investment Fund By: /s/ Masahiro Aozono ----------------------------------- Name: Masahiro Aozono Title: President CSK VENTURE CAPITAL CO., LTD., as investment manager for CSK-1(B) Investment Fund By: /s/ Masahiro Aozono ----------------------------------- Name: Masahiro Aozono Title: President CSK VENTURE CAPITAL CO., LTD., as investment manager for CSK-2 Investment Fund By: /s/ Masahiro Aozono ----------------------------------- Name: Masahiro Aozono Title: President MEDIA TECHNOLOGY VENTURES, L.P. By: /s/ Barry Weinman ----------------------------------- Name: Barry Weinman Title: General Partner MEDIA TECHNOLOGY VENTURES ENTREPRENEURS FUND, L.P. By: /s/ Barry Weinman ----------------------------------- Name: Barry Weinman Title: General Partner ROBERT BERNHARD, WILLIAM L. BERNHARD, FRANK A. WEIL, AND LAWRENCE B. BUTTENWEISER TRUSTEES U/A DATED 9/3/64 F/B/O ROBERT A. BERNHARD FAMILY By: /s/ Robert A. Bernhard ----------------------------------- Name: Robert A. Bernhard Title: Trustee -4- 5 ROBERT BERNHARD, WILLIAM L. BERNHARD, JOHN L. LOEB, AND BENJAMIN J. BUTTENWEISER TRUSTEES U/W/D DOROTHY L. BERNHARD F/B/O ROBERT A. BERNHARD ARTICLE 9TH By: /s/ Robert A. Bernhard ----------------------------------- Name: Robert A. Bernhard Title: Trustee APA EXCELSIOR IV, L.P. By: APA Excelsior IV Partners, L.P. its General Partner By: Patricof & Co. Managers, Inc. its General Partner By: /s/ Alan Patricof ----------------------------------- Name: Alan Patricof Title: APA EXCELSIOR IV/OFFSHORE, L.P. By: Patricof & Co. Ventures, Inc. its Investment Advisor By: /s/ Alan Patricof ----------------------------------- Name: Alan Patricof Title: THE PATRICOF PRIVATE INVESTMENT CLUB, L.P. By: APA Excelsior IV Partners, L.P. its General Partner By: Patricof & Co. Managers, Inc. its General Partner By: /s/ Alan Patricof ----------------------------------- Name: Alan Patricof Title: WORMSER FRERES By: /s/ Marcel Wormser ----------------------------------- Name: Marcel Wormser Title: Administrateur BE PARTNERS By: /s/ Timothy Sommerfield ----------------------------------- Name: Timothy Sommerfield Title: Partner /s/ Robert Lessin ----------------------------------- Robert Lessin OPPENHEIMER & CO., INC. By: /s/ Matthew J. M. ----------------------------------- Name: Matthew J. M. Title: Managing Director -5- 6 TOLEDOT INVESTMENTS, L.P. By: /s/ Richard Linhart ----------------------------------- Name: Richard Linhart Title: /s/ Richard Linhart Richard Linhart /s/ Esther Dyson - ----------------------------------- Esther Dyson /s/ Victor Scaravilli - ----------------------------------- Victor Scaravilli /s/ Roger Mulvihill - ----------------------------------- Roger Mulvihill /s/ Mary Mulvihill - ----------------------------------- Mary Mulvihill /s/ Mark Braunstein - ----------------------------------- Mark Braunstein, M.D. BLUMENSTEIN/THORNE INFORMATION PARTNERS I, L.P. By: Blumenstein/Thorne Information Partners L.L.C., its General Partner By:/s/ Oakleigh Thorne ----------------------------------- Name: Oakleigh Thorne Title: Co-President -6- 7 SCHEDULE A ================================================================================
Number of Investor Address Acquired Shares Purchase Price - -------- ------- --------------- -------------- - -------------------------------------------------------------------------------- CSK Venture Capital 7th Floor, Kenchiku- 434,783(1) $2,000,000 Co., Ltd. kaikan, 5-26-20 Shiba, Minato-ku, Tokyo 108, Japan - -------------------------------------------------------------------------------- Media Technology One First Street, 591,583(2) $2,657,288 Ventures, L.P. Suite 12 Los Altos, CA 94022 - -------------------------------------------------------------------------------- Media Technology One First Street, 76,397(3) $ 343,159 Ventures Suite 12 Entrepreneurs Fund, Los Altos, CA 94022 L.P. - -------------------------------------------------------------------------------- Robert Bernhard, Bernhard Management 32,609 $ 150,000 William L. Bernhard, 6 East 43rd Street Frank A. Weil, and 28th Floor Lawrence B. New York, NY 10017 Buttenweiser, Trustees U/A Dated 9/3/64 F/B/O Robert A. Bernhard Family - -------------------------------------------------------------------------------- Robert Bernhard, Bernhard Management 32,608 $ 150,000 William L. Bernhard, 6 East 43rd Street John L. Loeb, and 28th Floor Benjamin J. New York, NY 10017 Buttenweiser, Trustees U/W/D Dorothy L. Bernhard F/B/O Robert A. Bernhard Article 9th - --------------------------------------------------------------------------------
- ---------- (1) Includes 123,974 shares of Series C Preferred Stock issued to CSK as a result of the Series B Exchange. (2) 206,433 shares of which are being acquired at $4.29 per share pursuant to this Supplemental Agreement as of October 31, 1997. (3) 26,667 shares of which are being acquired at $4.29 per share pursuant to this Supplemental Agreement as of October 31, 1997. 8 - -------------------------------------------------------------------------------- Wormser Freres Banque D'Escompte 108,696 $ 500,000 13 Blvd. Haussmann 75009 Paris, France - -------------------------------------------------------------------------------- Oppenheimer & Co., World Financial Center 65,217 $ 300,000 Inc. 39th Floor New York, NY 10281 Attn: Dave Shotland - -------------------------------------------------------------------------------- RHL Ventures LLC c/o Robert Lessin 54,348 $ 250,000 131 South Woodland St. Englewood, NJ 07631 - -------------------------------------------------------------------------------- Victor Scaravilli Mole Constructors 21,739 $ 100,000 29100 Hall Street Solon, OH 44139-3090 - -------------------------------------------------------------------------------- Richard Linhart Opus Capital Partners 10,869 $ 50,000 1776 Broadway 18th Floor New York, NY 10019 - -------------------------------------------------------------------------------- Toledot Investments, Opus Capital Partners 10,870 $ 50,000 L.P. 1776 Broadway 18th Floor New York, NY 10019 - -------------------------------------------------------------------------------- Roger Mulvihill Dechert, Price & Rhoads 3,261 $ 15,000 30 Rockefeller Plaza 23rd Floor New York, NY 10112 - -------------------------------------------------------------------------------- Mary Mulvihill Dechert, Price & Rhoads 7,609 $ 35,000 30 Rockefeller Plaza 23rd Floor New York, NY 10112 - -------------------------------------------------------------------------------- BE Partners 440 So. LaSalle Street 21,739 $ 100,000 Suite 2118 Chicago, IL 60605 - -------------------------------------------------------------------------------- Esther Dyson EDventure Holdings, Inc. 10,870 $ 50,000 104 Fifth Avenue 20th Floor New York, NY 10011-6901 - -------------------------------------------------------------------------------- Mark Braunstein, Patient Care Technologies 10,870 $ 50,000 M.D. 2 Executive Park West NE Atlanta, GA 30329 - --------------------------------------------------------------------------------
9 - -------------------------------------------------------------------------------- APA Excelsior IV, Patricof & Co. Ventures, 181,826 $ 836,400 L.P. Inc. 445 Park Avenue New York, NY 10022 - -------------------------------------------------------------------------------- APA Excelsior IV Patricof & Co. Ventures, 32,087 $ 147,600 Offshore, L.P. Inc. 445 Park Avenue New York, NY 10022 - -------------------------------------------------------------------------------- The Patricof Private Patricof & Co. Ventures, 3,478 $ 15,999 Investment Club Inc. 445 Park Avenue New York, NY 10022 - -------------------------------------------------------------------------------- Blumenstein/Thorne Blumenstein/Thorne 699,301(4) $3,000,000 Information Partners Information Partners I, L.P. P.O. Box 871 Lake Forest, IL 60045 ================================================================================
- ---------- (4) Acquired at a purchase price of $4.29 per share. 10 SCHEDULE B Addendum Signature Page to Stock Purchase Agreement 11 ADDENDUM SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT BY AND BETWEEN MEDSCAPE, INC. AND EACH OF THE PERSONS LISTED ON SCHEDULE A DATED: OCTOBER 31, 1997 This Agreement is executed by the undersigned on February ___, 1998, as though executed as of October 31, 1997; provided, however, that for purposes of the undersigned's execution of this Agreement and its purchase, in the aggregate, of 233,100 Acquired Preferred Shares, the Purchase Price shall be $4.29 per share. MEDIA TECHNOLOGY VENTURES, L.P. By: /s/ Barry Weinman --------------------------- Name: Barry Weinman Title: General Partner MEDIA TECHNOLOGY VENTURES ENTREPRENEURS FUND, L.P. By: /s/ Barry Weinman --------------------------- Name: Barry Weinman Title: General Partner 20 12 SCHEDULE 6.3
Shares Owned Options Granted ------------------------------------------------------ --------------- Series A Series B Series C Class A Class B Preferred Preferred Preferred Common Common Total Stockholders Stock Stock Stock Stock Stock Options - ------------ ----- ----- ----- ----- ----- ------- The Excelsior Fund I 788,200 264,600 Peter Frishauf 431,600 122,600 103,800 Timothy Fallon 324,000 Robert Bernhard 152,267 13,333 Marc Butlein 9,000 Alan Patricof (and designees) 6,000 46,000 Esther Dyson 10,870 3,000 15,000 Arthur Bushkin 6,000 12,000 Stephen Smith 16,800 45,601 Gregory Fortescue 3,089 Jerry Donnelly 102 Katharine Rice 21,600 72,000 Stephen Frishauf 32,200 Patricof & Co. Ventures, Inc. 31,200 APA Excelsior IV, L.P. 181,826 APA Excelsior IV/Offshore, L.P. 32,087 The Patricof Private Investment Club 3,478 Louis Del Guercio 15,600 Janice Beam 11,600 Richard Bassin 4,000 Lydia Cavieux 7,620 Medscape Employees 525,089 Employee Reserved Options 181,039 SCP Employees 196,660 Ramsey/Beirne 100,000 CSK Venture Capital Co., Ltd. 434,783 Media Technology Ventures, L.P. 591,583 Media Technology Ventures Entrepreneurs Fund, L.P. 76,397
13 SCHEDULE 6.3 (continued)
Shares Owned Options Granted ------------------------------------------------------ --------------- Series A Series B Series C Class A Class B Preferred Preferred Preferred Common Common Total Stockholders Stock Stock Stock Stock Stock Options - ------------ ----- ----- ----- ----- ----- ------- Robert Bernhard, William L. Bernhard, Frank A. Weil, and Lawrence B. Buttenweiser, Trustees U/A Dated 9/3/64 F/B/O Robert A. Bernhard Family 32,609 Robert Bernhard, William L. Bernhard, John L. Loeb, and Benjamin J. Buttenweiser, Trustees U/W/D Dorothy L. Bernhard F/B/O Robert A. Bernhard Article 9th 32,608 Wormser Freres 108,696 Oppenheimer & Co., Inc. 65,217 RHL Ventures LLC 54,348 Richard Linhart 10,869 Toledot Investments, L.P. 10,870 Victor Scaravilli 21,739 BE Partners 21,739 Roger Mulvihill 3,261 Mary Mulvihill 7,609 Mark Braunstein, M.D. 10,870 Blumenstein/Thorne Information Partners I, L.P. 699,301 ------- -------- --------- ------- ------- --------- TOTAL: 788,200 0 2,410,760 431,600 698,278 1,643,522
EX-10.22 26 SERIES D PREFERRED STOCK PURCHASE AGREEMENT 1 Exhibit 10.22 ---------------------------------- MEDSCAPE, INC. SERIES D PREFERRED STOCK PURCHASE AGREEMENT ---------------------------------- March 5, 1999 2 TABLE OF CONTENTS Page ---- 1. Purchase and Sale of Stock ......................................... 1 1.1 Sale and Issuance of Series D Preferred Stock ............... 1 1.2 Closing ..................................................... 1 2. Representations and Warranties of the Company ...................... 1 2.1 Organization, Good Standing and Qualification ............... 1 2.2 Capitalization and Voting Rights ............................ 2 2.3 Subsidiaries ................................................ 3 2.4 Authorization ............................................... 3 2.5 Valid Issuance of Preferred and Common Stock ................ 4 2.6 Consents and Approvals ...................................... 4 2.7 Compliance with Law ......................................... 5 2.8 Litigation .................................................. 5 2.9 Proprietary Rights .......................................... 6 2.10 Compliance with Other Instruments ........................... 6 2.11 Affiliates .................................................. 7 2.12 Contracts ................................................... 7 2.13 Permits ..................................................... 9 2.14 Disclosure .................................................. 9 2.15 Registration Rights ......................................... 10 2.16 Corporate Documents ......................................... 10 2.17 Title to and Sufficiency of Property and Assets ............. 10 2.18 Financial Statements ........................................ 11 2.19 Absence of Certain Changes .................................. 11 2.20 Employee Benefit Plans ...................................... 12 2.21 Tax Returns, Payments and Elections ......................... 12 2.22 Environmental Compliance .................................... 13 2.23 Absence of Certain Commercial Practices ..................... 14 2.24 Insurance ................................................... 15 2.25 Minute Books ................................................ 15 2.26 Real Property ............................................... 15 2.27 Employees ................................................... 15 2.28 Section 83(b) Elections ..................................... 16 2.29 Offering .................................................... 16 2.30 Labor Agreements and Actions ................................ 16 2.31 Directors and Officers ...................................... 17 (i) 3 3. Representations and Warranties of the Investors....................... 17 3.1 Authorization.................................................... 17 3.2 Purchase Entirely for Own Account................................ 17 3.3 Disclosure of Information........................................ 17 3.4 Investment Experience............................................ 18 3.5 Accredited Investor.............................................. 18 3.6 Restricted Securities............................................ 18 3.7 Further Limitations on Disposition............................... 18 3.8 Legends.......................................................... 19 4. [Intentionally Deleted]............................................... 19 5. Conditions of Investor's Obligations at Closing....................... 19 5.1 Representations and Warranties................................... 19 5.2 Performance...................................................... 20 5.3 Qualifications and Consents...................................... 20 5.4 Proceedings and Documents........................................ 20 5.5 Compliance Certificate........................................... 20 5.6 Stockholders Agreement........................................... 20 5.7 Board Representation............................................. 20 5.8 Non-Compete and Non-Disclosure Agreements........................ 20 5.9 Opinion of Company Counsel....................................... 21 6. Conditions of the Company's Obligations at Closing.................... 21 6.1 Representations and Warranties................................... 21 6.2 Performance...................................................... 21 6.3 Stockholders Agreement........................................... 21 6.4 Qualifications................................................... 21 7. Covenants of the Company.............................................. 21 7.1 Use of Proceeds.................................................. 21 7.2 Key Man Insurance................................................ 21 8. Miscellaneous......................................................... 22 8.1 Survival of Warranties........................................... 22 8.2 Benefit of Agreement; Successors and Assigns..................... 22 8.3 Governing Law.................................................... 22 8.4 Counterparts..................................................... 22 8.5 Titles and Subtitles............................................. 22 8.6 Notices.......................................................... 22 8.7 Finder's Fee..................................................... 22 8.8 Expenses......................................................... 23 (ii) 4 8.9 Amendments and Waivers......................................... 23 8.10 Severability................................................... 23 8.11 Integration.................................................... 23 8.12 Costs of Enforcement........................................... 24 Exhibit A Form of Amended and Restated Certificate of Incorporation Exhibit B Form of Stockholders Agreement Exhibit C Form of Opinion of Company Counsel Schedule A Schedule of Investors Schedule B Disclosure Schedule (iii) 5 SERIES D PREFERRED STOCK PURCHASE AGREEMENT THIS SERVICE D PREFERRED STOCK PURCHASE AGREEMENT is made as of the 5th day of March, 1999, by and among Medscape, Inc., a Delaware corporation (the "Company"), and the investors listed on Schedule A hereto, each of which is herein referred to as an "Investor." THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Purchase and Sale of Stock. 1.1 Sale and Issuance of Series D Preferred Stock. (a) The Company shall adopt and file with the Secretary of State of Delaware on or before the Closing (as defined below) the Amended and Restated Certificate of Incorporation (the "Restated Certificate of Incorporation") in the form attached hereto as Exhibit A. (b) Subject to the terms and conditions of this Agreement, each Investor agrees, severally and not jointly, to purchase at the Closing, and the Company agrees to sell and issue to each Investor at the Closing, that number of shares of the Company's Series D Preferred Stock (the "Series D Preferred Stock") set forth opposite each Investor's name on Schedule A hereto for the purchase price set forth thereon. 1.2 Closing. The purchase and sale of the Series D Preferred Stock shall take place at the offices of Brobeck, Phleger & Harrison LLP, One Embarcadero Place, 2200 Geng Road, Palo Alto, CA on March 5, 1999, or at such other time and place as the Company and Investors acquiring in the aggregate more than half of the shares of the Series D Preferred Stock mutually agree upon (which time and place are designated as the "Closing"). At the Closing, the Company shall deliver to each Investor purchasing shares of Series D Preferred Stock at such Closing a certificate representing the Series D Preferred Stock which such Investor is so purchasing against delivery to the Company by such Investor of a check or wire transfer in the amount of the purchase price therefor payable to the Company's order. 2. Representations and Warranties of the Company. The Company hereby represents and warrants to each Investor that, except as set forth on the Disclosure Schedule (Schedule B hereto) furnished to each Investor, which exceptions shall be deemed to be representations and warranties as if made hereunder: 2.1 Organization, Good Standing and Qualification. Each of the Company and each Subsidiary (as such term is defined below) is a corporation duly organized, validly 1 6 existing and in good standing under the laws of the jurisdiction of its incorporation and has full power and authority to carry on its business as now conducted and as proposed to be conducted and to own its properties and assets. Each of the Company and each Subsidiary is duly qualified or licensed to transact business as a foreign corporation in good standing in every jurisdiction in which its ownership of property or the conduct of its business requires such qualification or licensing except where the failure to be so qualified or licensed would not have a material adverse effect on its business, properties, assets, operations or financial condition or, in the case of the Company, on its ability to execute and deliver this Agreement and the Stockholders Agreement (as defined below) and to consummate the transactions contemplated hereby and thereby. 2.2 Capitalization and Voting Rights. The entire authorized capital stock of the Company consists of: (a) Preferred Stock. 4,956,643 shares of Preferred Stock (the "Preferred Stock"), of which 788,200 shares have been designated Series A Preferred Stock, 1,478,359 shares have been designated Series C Preferred Stock, 932,401 shares have been designated Series C-1 Preferred Stock and 1,757,683 shares have been designated Series D Preferred Stock. Of the authorized Preferred Stock, 788,200 shares of Series A Preferred, 1,478,359 shares of Series C Preferred Stock and 932,401 shares of Series C-1 Preferred Stock are issued and outstanding and are held beneficially and of record by the persons and in the amounts specified in Schedule 2.2 of the Disclosure Schedule. The rights, privileges and preferences of the Series A Preferred Stock, the Series C Preferred Stock, Series C-1 Preferred Stock and the Series D Preferred Stock are as stated in the Company's Restated Certificate of Incorporation attached hereto as Exhibit A. Each share of the Series A Preferred Stock is convertible into one share of Class A Common Stock, each share of the Series C Preferred Stock is convertible into 1.072261 shares of Class A Common Stock and each share of Series C-1 Preferred Stock is convertible into one share of Class A Common Stock. (b) Common Stock. 17,000,000 shares of common stock ("Common Stock"), of which 11,000,000 shares have been designated Class A Common Stock and 6,000,000 shares have been designated Class B (Non-Voting) Common Stock. Of the authorized Common Stock, 431,600 shares of Class A Common Stock and 2,316,927 shares of Class B Common Stock are issued and outstanding and are held beneficially and of record by the persons and in the amounts specified in Schedule 2.2 of the Disclosure Schedule. (c) Except for (I) the conversion privileges of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock, (ii) any rights provided for in this Agreement, the Amended and Restated Stockholders Agreement dated as of the date hereof in the form attached as Exhibit B hereto (the "Stockholders Agreement") and the Restated Certificate of Incorporation, and (iii) 2,485,221 shares of Common Stock reserved under the Company's stock plans, of which 2,038,586 shares are subject to outstanding options, there are no outstanding options, warrants, rights (including conversion or preemptive rights), debentures or other securities convertible into or exchangeable 2 7 or exercisable for shares of capital stock of the Company, and there are no outstanding contracts, commitments or arrangements by which the Company is or may become bound to issue, repurchase, retire or otherwise acquire (contingent or otherwise) any shares of its capital stock or any security convertible into or exchangeable for any of its capital stock. The Company is not a party or subject to any agreement or understanding, and, to the Company's knowledge, except for the Restated Certificate of Incorporation and the Stockholders Agreement, there is no agreement or understanding, between any persons and/or entities which affects or relates to the voting or giving of written consents with respect to any security or by a director of the Company. 2.3 Subsidiaries. Schedule 2.3 of the Disclosure Schedule contains the name, jurisdiction of organization, authorized shares or equity capital and number and percentage of outstanding shares or equity interests of each corporation, limited liability company, partnership, or other entity, of which securities or other interests having the power to elect a majority of that entity's board of directors or similar governing body, or otherwise have the power to direct the business and policies of that entity, are owned, directly or indirectly, by the Company (each a "Subsidiary" and collectively the "Subsidiaries"). All of the outstanding shares of the capital stock of each Subsidiary of the Company have been validly issued and are fully paid and nonassessable and are owned, beneficially and of record, by the Company, free and clear of any liens, security interests or other encumbrances. There are no agreements, contracts or obligations, options, rights or other commitments of any character relating to the issuance of any securities by any Subsidiary of the Company. None of the securities issued, offered or sold by any Subsidiary of the Company was issued, offered or sold in violation of any applicable federal or state securities laws or the rules and regulations promulgated thereunder. The Company does not own, directly or indirectly, any capital stock or equity securities of any other corporation or have any direct or indirect equity or ownership interest in any business corporation, partnership, joint venture or entity other than the Subsidiaries listed in Schedule 2.3 of the Disclosure Schedule. 2.4 Authorization. All action (corporate and other) on the part of the Company, its officers, directors and shareholders necessary for the authorization, execution and delivery by the Company of this Agreement and the Stockholders Agreement, the performance of all obligations of the Company hereunder and thereunder, the approval, execution and filing with the Secretary of State of Delaware of the Restated Certificate of Incorporation and the authorization, issuance (or reservation for issuance), sale and delivery of the Series D Preferred Stock and the Common Stock issuable upon conversion of the Series D Preferred Stock has been taken or will be taken prior to the Closing. This Agreement and the Stockholders Agreement have been executed and delivered by the Company and each constitutes a valid and legally binding obligation of the Company, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights of creditors, and except to the extent that the availability of any equitable remedy is subject to the discretion of a court or limited by law. 3 8 2.5 Valid Issuance of Preferred and Common Stock. (a) The Series D Preferred Stock which is being purchased by the Investors hereunder, when issued, sold and delivered in accordance with the terms hereof for the consideration expressed herein, will be duly and validly issued, fully paid and nonassessable, and none will be issued in violation of any preemptive or similar rights and, based in part upon the representations of the Investors in this Agreement, will be issued in compliance with all applicable securities laws as presently in effect, of the United States and each of the states whose securities laws govern the issuance of any of the Series D Preferred Stock hereunder, and will be free of restrictions on transfer other than restrictions on transfer under applicable state and federal securities laws. The Class A Common Stock issuable upon conversion of the Series D Preferred Stock has been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Restated Certificate of Incorporation, shall be duly and validly issued, fully paid and nonassessable, and, based in part upon the representations of the Investors in this Agreement, shall be issued in compliance with all applicable securities laws, as presently in effect, of the United States and each of the states whose securities laws govern the issuance of any of the Series D Preferred Stock (or the Class A Common Stock issuable upon conversion thereof) and will be free of restrictions on transfer other than restrictions on transfer under this Agreement and the Stockholders Agreement and under applicable state and federal securities laws. The Company has reserved sufficient authorized but unissued Class A Common Stock for issuance upon conversion of the Series D Preferred Stock. (b) The outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock, Class A Common Stock and Class B (Non-Voting) Common Stock are all duly and validly authorized and issued, fully paid and nonassessable, and none were issued in violation of the preemptive or similar rights (whether statutory or contractual) of any person. None of such shares were issued, offered or sold by the Company in violation of any applicable federal or state securities laws or the rules and regulations thereunder. 2.6 Consents and Approvals. The execution, delivery and performance of this Agreement and the Stockholders Agreement and the consummation of the transactions contemplated hereby and thereby by the Company do not require the consent, approval, license or authorization of, notice to, or declaration, filing or registration with, any third party or governmental authority and will not result in any breach or default which could result in the termination of, the material impairment or forfeiture of any of the Company's rights under or any payments being made by the Company with respect to any of the Permits (as defined in Section 2.13) or any Contracts (as defined in Section 2.12 hereof). 2.7 Compliance with Law. The Company and each of its Subsidiaries have conducted their businesses and are in compliance in all material respects with all applicable federal, state and local laws, statutes, licensing requirements, rules and regulations, and, to the knowledge of the Company, judicial or administrative decisions applicable to the conduct of their businesses. Neither the Company nor any Subsidiary has received any citations, 4 9 complaints, consent orders, compliance schedules or other similar enforcement orders or received any other notice from any governmental authority or person regarding any material violation of, or failure to comply in any material respect with, any legal requirements relating to the operations or any assets or properties of the Company and the Subsidiaries, or regarding the obligation on the part of the Company or any of the Subsidiaries to undertake or bear the cost of any remedial action. 2.8 Litigation. (a) There are no actions at law, suits in equity or claims pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries or their respective businesses or properties, or, to the knowledge of the Company, their respective officers, directors and employees and, to the knowledge of the Company, there is no reasonable basis for any action, suit or claim which would reasonably be expected to result in a material adverse change in the business, assets, properties, operations or financial condition of the Company and its Subsidiaries; (b) there are no governmental proceedings or investigations pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries; (c) there is no action, suit or proceeding pending or, to the knowledge of the Company, threatened which questions the legality or propriety of the transactions contemplated by this Agreement; (d) neither the Company nor any Subsidiary is a party to or bound by, and the properties and assets of such companies are not subject to, any judgments, writs, decrees, injunctions or orders of any governmental authority; (e) to the knowledge of the Company, neither the Company nor any Subsidiary is engaged in any claims with any of its present or former officers, directors, employees, partners, joint venturers or shareholders, as the case may be, or any representative thereof; and (f) there is no action, suit or claim by the Company or any of its Subsidiaries currently pending or that the Company or its Subsidiaries intend to initiate. 2.9 Proprietary Rights. The Company and its Subsidiaries owns or possess sufficient legal rights (or can obtain such legal rights without a material adverse effect to the Company and its Subsidiaries) of all trademarks, service marks, trade names, copyrights, trade secrets, and proprietary rights necessary for their respective businesses as now conducted and as proposed to be conducted, and to the best of the Company's knowledge, without any conflict with or infringement of the rights of others. There are no outstanding options, licenses, or agreements of any kind relating to the foregoing, nor is the Company or any Subsidiary bound by or a party to any options, licenses or agreements of any kind with respect to the patents, 5 10 trademarks, service marks, trade names, copyrights, trade secrets, information, licenses, and proprietary rights of any other person or entity. Neither the Company nor any Subsidiary has received any communications alleging that the Company or any Subsidiary has violated or, by conducting its business as proposed, would violate any of the patents, trademarks, service marks, trade names, copyrights or trade secrets, information or other proprietary rights of any other person or entity. Neither the Company nor any Subsidiary is aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or is subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of his or her best efforts to promote the interests of the Company and its Subsidiaries in accordance with applicable law or that would conflict with the businesses of the Company and its Subsidiaries as proposed to be conducted. Neither the execution nor delivery of this Agreement or the Stockholders Agreement, nor the carrying on of the businesses of the Company and its Subsidiaries, nor the conduct of the businesses of the Company and its Subsidiaries as proposed, will conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument known to the Company under which any of the employees of the Company or any Subsidiary is now obligated, the occurrence of which would reasonably be expected to have a material adverse effect on the Company and its Subsidiaries. 2.10 Compliance with Other Instruments. Neither the Company nor any Subsidiary is in violation or default of any provisions of its respective charter documents or of any judgment, order, writ or decree to which it is a party or by which it is bound. Neither the Company nor any Subsidiary is in violation of any provisions of any contract, agreement or instrument, the violation of which could result in a material adverse change in the business, assets, properties, operations or financial condition of the Company and its Subsidiaries. The execution, delivery and performance of this Agreement and the Stockholders Agreement and the consummation of the transactions contemplated hereby and thereby by the Company will not (I) result in any such violation or default or (ii) violate, be in conflict with or constitute, with or without the passage of time and giving of notice, a default under any such provision, agreement, judgment, order, writ or decree to which the Company or a Subsidiary is bound or (iii) result in the creation of any lien, charge or encumbrance upon any assets of the Company or any Subsidiary, or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization, or approval applicable to the business or operations or any of the assets or properties of the Company or any Subsidiary. 2.11 Affiliates. Set forth on Schedule 2.11 of the Disclosure Schedule hereto is a list of (I) all of the obligations of the Company and its Subsidiaries to all officers, directors, shareholders, affiliates and employees thereof, including any member of their immediate families (other than normal accrued wages, travel expense vouchers, bonuses, options and other employee benefits) and (ii) all of the obligations of such officers, directors, shareholders, affiliates and employees, including any member of their immediate families (other than expense advances, for purposes such as travel, meals, lodging and other similar expenses, made in the ordinary course of business) to the Company or any Subsidiary. Except as set forth in Schedule 2.11 of the Disclosure Schedule, to the knowledge of the Company, no officer, director or shareholder of the 6 11 Company or any Subsidiary (a) owns, directly or indirectly, any interest in (except stockholdings of 5% or less for investment purposes in securities of publicly held and traded companies), or is an employee of, any corporation, firm or other business entity that is a competitor, lessor, lessee, customer, franchisee or supplier of, or otherwise is affiliated or competes with, the Company or any Subsidiary, or (b) owns, directly or indirectly, in whole or in part, any real estate, any tangible or intangible property or confidential information that is material to the conduct of the business of the Company or any Subsidiary. No member of the immediate family of any officer or director of the Company or its Subsidiaries is directly or indirectly interested in any material contract with the Company or with any of its Subsidiaries. All salaries and other compensation paid to employees for work performed on the Company's or any Subsidiary's behalf is paid for by the Company or such Subsidiary. 2.12 Contracts. (a) Neither the Company nor any Subsidiary is a party to or bound by: (i) any note, bond, debenture or other evidence of indebtedness, or any contract, agreement, instrument, proposed transaction, judgement, order, writ, decree, commitment or understanding under which it has borrowed any money or issued any note, bond, debenture or other evidence of indebtedness, or any mortgage, pledge, security agreement, deed of trust, financing statement or other document granting any lien, encumbrance or security interest (including liens, encumbrances or security interests upon properties acquired under conditional sales, capital leases and other title retention or security devices), or any guaranty or endorsement (other than endorsements for collection in the ordinary course of business) of, or other contingent obligations in respect of, indebtedness for borrowed money or other liabilities or obligations of others; (ii) any contract, agreement, instrument, proposed transaction, judgement, order, writ, decree, commitment, arrangement or understanding relating to any joint venture, partnership or sharing of profits or losses with any person or permitting any person to utilize any technology, knowhow or proprietary information of the Company or any Subsidiary; (iii) any contract, agreement, instrument, proposed transaction, judgement, order, writ, decree, commitment, arrangement or understanding for the future purchase by the Company of any materials, equipment, services, or supplies, which (w) involves the payment of more than $50,000, (x) continues for a period of more than one year, (y) by its terms requires the Company to purchase the entire output of a supplier, or (z) provides that any supplier will be the exclusive supplier of the Company or any Subsidiary; (iv) any contract, agreement, instrument, proposed transaction, judgement, order, writ, decree, commitment, arrangement or understanding for the sale or 7 12 other disposition by the Company or any Subsidiary of its assets or properties other than in the ordinary course of business, or for the merger or consolidation of the Company or any Subsidiary with any other person or entity; or (v) any contract, agreement, instrument, proposed transaction, judgement, order, writ, decree, commitment, arrangement or understanding containing covenants purporting to limit the freedom of the Company or any Subsidiary to compete in any line of business or in any geographic area or to require the Company or any Subsidiary to maintain any information as confidential. (b) Copies of all contracts, agreements or instruments identified in Schedule 2.12 of the Disclosure Schedule have been made available to counsel for the Investors. Each of such contracts, agreements and instruments (herein collectively called "Contracts") constitutes a valid and binding obligation of the Company or a Subsidiary and is in full force and effect and the consummation of the transactions contemplated by this Agreement will not (I) result in any breach, default, impairment or forfeiture of any rights thereunder or (ii) require the approval, consent, or act of, or the making of any declaration, filing or registration with, any other party or any governmental authority. The Company and/or its Subsidiary has fulfilled and performed in all material respects its obligations under each of the Contracts required to be performed prior to the date hereof, and neither the Company nor any Subsidiary is in or, to the knowledge of the Company, alleged to be in, breach or default under, nor is there, to the knowledge of the Company, alleged to be any basis for termination of, any of the Contracts and, to the knowledge of the Company, no other party to any of the Contracts has materially breached or defaulted thereunder, and, to the knowledge of the Company, no event has occurred and no condition or state of facts exists which, with the passage of time or the giving of notice or both, would constitute such a default or breach by the Company or any Subsidiary or by any such other party. Except as set forth in Schedule 2.12 of the Disclosure Schedule, neither the Company nor any Subsidiary is currently renegotiating any of the Contracts or paying liquidated damages in lieu of performance thereunder. (c) Neither the Company nor any Subsidiary has engaged in the past six (6) months in any discussion (I) with any representative of any corporation or corporations which is reasonably likely to lead to the consolidation or merger of the Company or any Subsidiary with or into any such corporation or corporations, (ii) with any corporation, partnership, association or other business entity or any individual which is reasonably likely to lead to the sale, conveyance or disposition of all or substantially all of the assets of the Company or any Subsidiary or a transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company or any Subsidiary is disposed of, or (iii) with any representative of any corporation or corporations which is reasonably likely to lead to any other form of acquisition, liquidation, dissolution or winding up of the Company or any Subsidiary. 2.13 Permits. The Company and each Subsidiary have all permits, franchises, authorities, licenses and certifications of approval or authorizations which by law the Company 8 13 or such Subsidiary shall have obtained in order lawfully to conduct its business (collectively the "Permits"), except where the failure to obtain such Permit would not reasonably be expected to result in any material adverse change to the Company and its Subsidiaries or any material payments being made by the Company. No notice of cancellation or default or any material dispute concerning any such Permit has been received by, or is known to, the Company. Each of the Permits is valid, subsisting and in full force and effect and the consummation of the transactions contemplated by this Agreement will not (I) result in any breach, default, impairment or forfeiture of any rights thereunder or (ii) require the consent, approval, or act of, or the making of any filing with, any third party or any governmental authority. 2.14 Disclosure. (a) The Company has fully provided each Investor with all the information which such Investor has requested for deciding whether to purchase the Series D Preferred Stock and has answered all questions posed by such Investors. Neither this Agreement, the Company's Private Placement Memorandum dated February 1999 (except as set forth in Section 2.14(b) and as qualified by Section 2.14(c)) or the Financial Statements (as defined below) nor any certificates delivered to the Investors or their counsel at the Closing, when read together, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading, in light of the circumstances under which they were made. (b) Notwithstanding the foregoing, with respect to the financial projections of the Company's performance and the information relating to the size of the industry in which the Company competes that are contained in the Private Placement Memorandum, the Company represents only that it has prepared such projections and information in good faith based upon reasonable assumptions. (c) Schedule 2.14 of the Disclosure Schedule sets forth the registered members, new member sign-ups, unique users, visits (sessions) and page views relating to the Company's Web site as of the periods indicated thereon and hereby replaces in its entirety any web traffic or like information provided in the Private Placement Memorandum. The information set forth on Schedule 2.14 is true and correct (subject to a 10% deviation with respect to each of the numbers set forth thereon). 2.15 Registration Rights. Except as provided in the Stockholders Agreement, the Company has not granted or agreed to grant any registration rights, including piggyback rights, to any person or entity. 2.16 Corporate Documents. The Restated Certificate of Incorporation and Bylaws of the Company are in the form provided to counsel for the Investors prior to the date hereof. 9 14 2.17 Title to and Sufficiency of Property and Assets. The properties and assets of the Company and its Subsidiaries (including, without limitation, the assets and properties reflected on the Company's balance sheet as of December 31, 1998) are in good operating condition and repair (subject to normal wear and tear consistent with the age of the properties or assets) and are sufficient for all operations of the Company and its Subsidiaries as currently conducted. The Company and its Subsidiaries own or lease their respective properties and assets free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens which arise in the ordinary course of business and do not materially impair the Company's ownership or use of such property or assets. With respect to the property and assets it leases, each of the Company and its Subsidiaries is in material compliance with such leases and, to the best of its knowledge, holds a valid leasehold interest free of any liens, claims or encumbrances which would materially impair the Company's use of such leasehold. 2.18 Financial Statements. The Company has delivered to each Investor audited financial statements (balance sheet, statement of operations, changes in stockholders' equity and statement of cash flows) for the Company and its Subsidiaries on a consolidated basis at and for the year ended December 31, 1997 (the "Audited Financial Statements")and unaudited financial statements for the Company and its Subsidiaries on a consolidated basis (balance sheet, statement of operations, changes in stockholders' equity and statement of cash flows) at December 31, 1998 and for the twelve-month period then ended (the "Interim Financial Statements" and, collectively with the Audited Financial Statements, the "Financial Statements"). The Financial Statements are complete and correct in all material respects and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods indicated and with each other, except that the Interim Financial Statements do not contain all footnotes required by generally accepted accounting principles and are subject to normal year-end adjustments which the Company does not presently believe will be material in amount or character. The Financial Statements present fairly the financial condition and operating results of the Company and its Subsidiaries on a consolidated basis as of the dates and for the periods indicated therein in all material respects. Except as set forth in the Financial Statements, the Company and its subsidiaries has no liabilities, contingent or otherwise, other than (I) liabilities incurred in the ordinary course of business subsequent to December 31, 1998, and (ii) obligations incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in the Financial Statements, which, in both cases, individually or in the aggregate, are not material to the financial condition or operating results of the Company. The Company maintains and will continue to maintain a system of accounting established and administered in accordance with generally accepted accounting principles. 2.19 Absence of Certain Changes. Except as disclosed on the face of the Interim Financial Statements, since December 31, 1998, neither the Company nor any Subsidiary has: 10 15 (a) incurred any increase in indebtedness for borrowed money over the level thereof reflected in the Financial Statements or granted any security interest in any of its assets or other property to secure any obligation for borrowed money; (b) issued or sold any capital stock; (c) received any notices of a default or breach of any Contract; (d) waived, compromised or permitted to lapse any claims or rights of material value, or sold, transferred or otherwise disposed of any assets or other properties, except in the ordinary course of business; (e) adopted or amended in any respect any employee benefit plan or bonus, profit sharing, deferred compensation, incentive, stock option or stock purchase, paid time off for sickness or other plan, program or arrangement for the benefit of employees, consultants or directors, or granted any general increase in the compensation of employees (including any such increase pursuant to any bonus, profit sharing or other compensation or incentive plan, program or commitment) or any increase in the compensation payable or to become payable to any officer or director; (f) made any capital commitments in excess of $50,000 in the aggregate; (g) declared, paid or set aside for payment any dividend or other distribution in respect of its capital stock, or directly or indirectly redeemed, purchased or otherwise acquired or agreed to acquire any shares of its capital stock; (h) paid, loaned or advanced any amount to, or sold, transferred or leased any properties or assets to, or entered into any other agreement or arrangement with, any of its officers, directors or other affiliates, except for (I) normal business advances to employees consistent with past practice and (ii) payment of compensation to officers; (i) suffered any damage, destruction, loss or claim to or against any property or asset with an aggregate value in excess of $50,000, whether or not covered by insurance; (j) initiated or maintained any proceedings with respect to its sale, merger, consolidation, liquidation or reorganization other than pursuant to the terms of this Agreement; or (k) agreed, whether in writing or otherwise, to take any action described in this Section 2.19. 11 16 2.20 Employee Benefit Plans. Neither the Company nor any Subsidiary has any Employee Benefit Plan as defined in the Employee Retirement Income Security Act of 1974. The Company has made all necessary filings with all regulatory agencies relating to any of its Employee Benefit Plans. 2.21 Tax Returns, Payments and Elections. The Company and each Subsidiary have timely filed all tax returns and reports as required by law. These returns and reports are complete and correct in all material respects. The Company and each Subsidiary have timely paid all taxes and other assessments due, except those contested by it in good faith which are listed in Schedule 2.21 of the Disclosure Schedule. The provisions for taxes in the Financial Statements are sufficient for all accrued and unpaid taxes as of the dates of the Financial Statements. No deficiencies or assessments for any taxes have been asserted, proposed or assessed against the Company or any Subsidiary by the Internal Revenue Service or any other taxing authority which remain unpaid and neither the Company nor any Subsidiary has received notice of any such deficiency or assessment from any taxing authority. Neither the Company nor any Subsidiary has elected pursuant to the Internal Revenue Code of 1986, as amended (the "Code"), to be treated as a collapsible corporation pursuant to Section 1362(a) of the Code, nor has it made any other elections pursuant to the Code (other than elections which relate solely to methods of accounting, depreciation or amortization) which would have a material adverse effect on the business, properties, assets, operations or financial condition of the Company and its Subsidiaries. 2.22 Environmental Compliance. (a) The Company and each Subsidiary are in compliance with and have no liability under all applicable federal, state and local environmental laws, regulations and ordinances governing its business, properties or assets with respect to all discharges into the ground and surface water, emissions into the ambient air (including laws relating to noise) and generation, accumulation, storage, treatment, transportation, labeling or disposal of waste materials, except where such noncompliance would not have a material adverse effect on its business, properties, assets, operations or financial condition. (b) As used herein, "Hazardous Material" means any hazardous or toxic substance, pollutant or waste which is regulated by any federal, state or local governmental authority; including, but not limited to, hazardous substances as defined under the Comprehensive Environmental Response, Compensation and Liability Act, as amended, hazardous waste as defined under the Resource Conservation and Recovery Act, as amended, air pollutants regulated under the Clean Air Act as amended, pollutants as defined under the Clean Water Act, as amended, any pesticide as defined by the Federal Insecticide, Fungicide, and Rodenticide Act, any hazardous chemical substance or mixture or imminently hazardous substance or mixture regulated by the Toxic Substances Control Act. (c) To the best of the Company's knowledge, no release, emission or discharge of any reportable quantities (as set forth in Title 40, Code of Federal Regulations Section 302) 12 17 of Hazardous Material into the environment (including the soil, groundwater, surface water or waterways, and air) is presently occurring on or from any property owned, leased or operated by the Company or any Subsidiary except pursuant to and in compliance with a federal, state or local permit. (d) To the best of the Company's knowledge, no reportable quantities (as set forth in Title 40, Code of Federal Regulations Section 302) of Hazardous Material are located in the soil, groundwater, surface water, or waterways at or under any property owned, leased or operated by the Company or any Subsidiary in quantities or concentrations sufficient to require removal or remediation under the Comprehensive Environmental Response, Compensation and Liability Act, as amended. (e) Neither the Company nor any Subsidiary has ever been held legally responsible for any release of any Hazardous Material; (I) received notification from any federal, state or other governmental authority of potential liability for any release of Hazardous Material; or (f) been required to pay the costs or expenses incurred for the release of any Hazardous Material. (f) To the best of the Company's knowledge, neither the Company nor any Subsidiary has shipped any Hazardous Materials in any reportable quantities (as set forth in Title 40, Code of Federal Regulations, Section 302) to any hazardous waste treatment, storage or disposal facility which is listed or proposed for listing on the National Priority List established by the U.S. Environmental Protection Agency under the Comprehensive Environmental Response, Compensation and Liability Act or any similar state Superfund site cleanup list. (g) To the best of the Company's knowledge, no Hazardous Materials are present in buildings presently leased, owned, or otherwise occupied by the Company or any Subsidiary in amounts or concentrations that could have a material adverse affect upon the business, assets, properties, operations or financial condition of the Company and its Subsidiaries if such Hazardous Materials were required to be removed. 2.23 Absence of Certain Commercial Practices. Neither the Company and its Subsidiaries nor, to the best of the Company's knowledge, any officer, director, employee or agent of the Company or the Subsidiaries (or any person acting on behalf of any of the foregoing), has (I) given or agreed to give any gift or similar benefit of more than nominal value on behalf of the Company or any Subsidiary to any official of any governmental authority (domestic or foreign), to induce the recipient or his employer to do business, grant favorable treatment or compromise or forego any claim, (ii) made any significant payment which is illegal under prevailing law (regardless of the jurisdiction in which such payment was made) to promote or retain sales or to help, procure or maintain good relations with suppliers, (iii) engaged in any activity which constitutes a violation of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations promulgated thereunder, (iv) engaged in any practice violating any United States federal law prohibiting compliance with an unsanctioned foreign boycott or (v) failed to perform its obligations in any respect under any contract with, or violated in any 13 18 material respect any federal law known to the Company in its dealings with, the federal government or any agency or department thereof, including, but not limited to, any law with respect to conspiracy to defraud, false claims, conspiracy to defraud the United States, embezzlement or theft of public money, fraud and false statements, false demands against the United States, mail fraud, wire fraud, RICO, and truth in negotiations, which failure would have a material adverse effect on the business, properties, assets, operations or financial condition of the Company and its Subsidiaries. No such gift or benefit is required in connection with the operations of the Company or the Subsidiaries or their businesses to avoid any fine, penalty, cost, expense or adverse change in the business, assets, properties, operations or financial condition of the Company and its Subsidiaries. 2.24 Insurance. The Company and each Subsidiary have in full force and effect insurance of the type and in amounts which are reasonably adequate for their businesses (subject to reasonable deductibles). Schedule 2.25 of the Disclosure Schedule under the title "Insurance" identifies (indicating policy owners, carriers and effective dates) all policies of insurance, including insurance providing benefits for employees, owned, held or maintained by or for the benefit of the Company and the Subsidiaries or under which any of such companies is a named insured on the date hereof. All such policies are in full force and effect and no notice of cancellation or termination has been received with respect to such insurance except as set forth on the Disclosure Schedule under such caption. 2.25 Minute Books. No amendment or other document relating to the Restated Certificate of Incorporation of the Company has been filed in the Office of the Secretary of State of Delaware since December 23, 1998 except for the Restated Certificate of Incorporation. No amendment or other document relating to the charter of any Subsidiary has been filed in the offices of the Secretary of State of their respective states of incorporation except as set forth in the Disclosure Schedule under the caption "Subsidiaries." The copies of the Bylaws and corporate minutes of the Company and the Subsidiaries made available to counsel for the Investors on or before the date hereof are true, correct and complete copies of the Bylaws and corporate minutes of the Company and the Subsidiaries. 2.26 Real Property. Neither the Company nor any Subsidiary owns any real property. 2.27 Employees. (a) Neither the Company nor any Subsidiary is a party to or bound by any (I) employee collective bargaining agreement, employment agreement, consulting, advisory or service agreement, deferred compensation agreement, confidentiality agreement or covenant not to compete; (ii) contract or agreement with any officer, director or employee (other than employment agreements disclosed in response to clause (I)); or (iii) benefit plan or bonus, profit sharing, deferred compensation, incentive, stock option or stock purchase, or paid time off for sickness plan, program or arrangement with respect to their employees. Neither the Company nor any Subsidiary is a party to or bound by any severance plan or program or other severance 14 19 arrangement for their employees. The consummation of the transactions contemplated by this Agreement will not result in any severance liability to any employee of the Company or any of its Subsidiaries. (b) Neither the Company nor any Subsidiary has engaged in any unfair labor practice, unlawful employment practice or unlawful discriminatory practice in the conduct of its business. The Company and its Subsidiaries have complied in all material respects with all applicable legal requirements relating to prices, wages, hours and collective bargaining and have complied in all material respects with all applicable legal requirements relating to the payment and withholding of taxes; and based in part upon the representations of such employees, the Company believes that the Company and its Subsidiaries have withheld all amounts required by law or agreement to be withheld from the wages or salaries of employees and are not liable for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing. The relations of the Company and its Subsidiaries with their respective employees are satisfactory. 2.28 Section 83(b) Elections. To the best of the Company's knowledge, all elections and notices required by Section 83(b) of the Code and any analogous provisions of applicable state tax laws have been timely filed by all individuals who have purchased shares of the Company's Common Stock. 2.29 Offering. Subject to the truth and accuracy of each Investor's representations set forth in Section 3 of this Agreement, the offer, sale and issuance of the Series D Preferred Stock as contemplated by this Agreement are exempt from the registration requirements of the Securities Act of 1933, as amended, and neither the Company nor any authorized agent acting on its behalf will take any action hereafter that would cause the loss of such exemption. 2.30 Labor Agreements and Actions. Neither the Company nor any of its Subsidiaries is bound by or subject to (and none or their assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the best of the Company's or any of its Subsidiaries' knowledge, has sought to represent any of the employees, representatives or agents of the Company or any of its Subsidiaries. There is no strike or other labor dispute involving the Company or any of its Subsidiaries pending, or the best of the Company's or any of its Subsidiaries' knowledge, threatened, nor is the Company or any of its Subsidiaries aware of any labor organization activity involving its employees. Neither the Company nor any of its Subsidiaries is aware that any officer or key employee, or that any group of key employees, intends to terminate their employment with the Company or any Subsidiary, nor does the Company or any Subsidiary have a present intention to terminate the employment of any of the foregoing. The employment of each officer and employee of the Company or any Subsidiary is terminable at the will of the Company or any Subsidiary as the case may be. 15 20 2.31 Directors and Officers. As of the date hereof, the Company's directors are Alan Patricof, Esther Dyson, Marc Butlein, Oakleigh Thorne, Paul Sheils, Peter Frishauf and Jeffrey Drezner. The Company's officers are Paul T. Sheils (President and CEO), Peter Frishauf (Chairman, Executive Committee, Founder and Assistant Secretary), Jeffrey L. Drezner, M.D., Ph.D. (Executive Vice President and Assistant Treasurer), Steven Kalin (Vice President, Finance and Corporate Development and Treasurer), Stephen E. Smith (Vice President, Editorial and Secretary), Alex Martin (Vice President, Sales and Marketing), and William Seitz (Vice President, Information Technology). 3. Representations and Warranties of the Investors. Each Investor, severally as to itself, hereby represents and warrants that: 3.1 Authorization. Such Investor has full power and authority to enter into this Agreement. This Agreement has been duly authorized, executed and delivered by such Investor and constitutes its valid and legally binding obligation, enforceable in accordance with its terms. 3.2 Purchase Entirely for Own Account. This Agreement is made with each Investor in reliance upon such Investor's representation to the Company, which by such Investor's execution of this Agreement such Investor hereby confirms, that the Series D Preferred Stock and the Class A Common Stock issuable upon conversion of the Series D Preferred Stock (collectively, the "Securities") will be acquired for investment for such Investor's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof in contravention of applicable law, and that such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, each Investor further represents that such Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities. 3.3 Disclosure of Information. Such Investor has received all the information it considers necessary or appropriate for deciding whether to purchase the Series D Preferred Stock. Such Investor further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Series D Preferred Stock. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 2 of this Agreement or the right of the Investors to rely thereon. 3.4 Investment Experience. Such Investor is an institutional or individual investor in securities of companies in the development or growth stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Securities. If other than an individual, such Investor also represents it has not been organized for the purpose of acquiring the Securities. 16 21 3.5 Accredited Investor. Such Investor is and at the Closing will be an "accredited investor" within the meaning of SEC Rule 501 of Regulation D, as presently in effect. 3.6 Restricted Securities. Such Investor understands that the Securities it is purchasing are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Securities Act of 1933, as amended (the "Act"), only in certain limited circumstances. In this connection, such Investor represents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. Such Investor acknowledges that its investment in the Securities may be an illiquid investment requiring the Investor to bear the economic risk of the investment for an indefinite period and that the Company may never be able to comply with the requirements of Rule 144. 3.7 Further Limitations on Disposition. Without in any way limiting the representations set forth above, such Investor further agrees not to make any disposition of all or any portion of the Securities unless and until the transferee has agreed in writing for the benefit of the Company to be bound by the terms of this Agreement (provided and to the extent that such terms are then applicable and provided that any Investor is making such disposition in a transaction other than pursuant to Rule 144 or under an effective registration statement under the Act and in accordance with any applicable state securities laws), and (a) Such Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (b) If reasonably requested by the Company, such Investor shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Act. Notwithstanding the provisions of paragraphs (a) and (b) above, no such registration statement or opinion of counsel shall be necessary for a transfer by an Investor that is a partnership to a partner of such partnership or a retired partner of such partnership who retires after the date hereof, or to the estate of any such partner or retired partner or the transfer by gift, will or intestate succession of any partner to his or her spouse or to the siblings, lineal descendants or ancestors of such partner or his or her spouse, if the transferee agrees in writing to be subject to the terms hereof to the same extent as if he or she were an original Investor hereunder. 3.8 Legends. It is understood that the certificates evidencing the Securities may bear one or all of the following legends: 17 22 (a) "These securities have not been registered under the Securities Act of 1933 or any applicable state securities laws. They may not be sold, offered for sale, pledged or hypothecated in the absence of a registration statement in effect with respect to the securities under such Securities Act or an opinion of counsel reasonably satisfactory to the Company that such registration is not required or unless sold pursuant to an exemption to such Securities Act or except as otherwise provided in the Series D Preferred Stock Purchase Agreement dated as of March 5, 1999." (b) "A statement of all the designations, preferences, rights and qualifications, limitations or restrictions granted to or imposed upon the respective classes and/or series of shares of stock of the Company and upon the holders thereof may be obtained by any shareholder upon request and without charge, at the principal office of the Company." (c) "The shares evidenced by this certificate are subject to the terms and conditions of a certain Stockholders Agreement which includes a voting agreement. Copies of the Stockholders Agreement may be obtained upon written request to the Company's secretary. (d) Any legend required by the securities laws of any state. 4. [Intentionally Deleted] 5. Conditions of Investor's Obligations at Closing. The obligations of each Investor under Section 1 of this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions, the waiver of which shall not be effective against any Investor who does not consent in writing thereto: 5.1 Representations and Warranties. The representations and warranties of the Company contained in Section 2 shall be true and correct on and as of the Closing with the same force and effect as though such representations and warranties had been made on and as of the date of the Closing. 5.2 Performance. The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 5.3 Qualifications and Consents. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state or of any third party that are required in connection with the lawful issuance or sale of the Series D Preferred Stock pursuant to this Agreement shall be duly obtained and effective as of the Closing. 5.4 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto 18 23 shall be reasonably satisfactory in form and substance to Investors' special counsel, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request. 5.5 Compliance Certificate. The President of the Company shall deliver to each Investor at such Closing a certificate certifying that the conditions specified in Sections 5.1, 5.2 and 5.3 have been fulfilled and stating that there shall have been no material adverse change in the business, assets, properties, operations or financial condition of the Company and its Subsidiaries since December 31, 1998. 5.6 Stockholders Agreement. The Company, the Investors, a majority of the holders of the Series A Preferred Stock, a majority of the holders of the Series B Preferred Stock, a majority of the holders of the Series C Preferred Stock, those other persons designated as Founders therein (collectively, the "Founders"), shall have entered into the Stockholders Agreement in the form attached as Exhibit B hereto and such agreement shall thereby have become effective. 5.7 Board Representation. The authorized number of directors of the Board shall be set at nine and a representative of Weston Presidio Capital shall have been elected to the Company's Board of Directors. The Bylaws of the Company shall have been amended to reflect the foregoing. 5.8 Non-Compete and Non-Disclosure Agreements. Each of Paul Sheils, Peter Frishauf, Jeffrey Drezner, Steven Kalin and George Lundberg shall have entered into a non-compete agreement in form reasonably acceptable to the Investors. Each of the employees of the Company shall have entered into a non-disclosure, proprietary information, inventions and non-solicitation agreement in form reasonably acceptable to the Investors. 5.9 Opinion of Company Counsel. Each Investor shall have received from Patterson, Belknap, Webb & Tyler LLP, counsel for the Company, an opinion, dated as of the Closing, substantially in the form attached hereto as Exhibit C. 6. Conditions of the Company's Obligations at Closing. The obligations of the Company to each Investor under this Agreement are subject to the fulfillment on or before the Closing applicable to such Investor of each of the following conditions by that Investor: 6.1 Representations and Warranties. The representations and warranties of the Investor contained in Section 3 shall be true and correct on and as of the Closing with the same force and effect as though such representations and warranties had been made on and as of the Closing. 6.2 Performance. The Investor shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be 19 24 performed or complied with by it on or before the Closing, including, without limitation, payment of the purchase price specified in Section 1.1. 6.3 Stockholders Agreement. The Investor shall have entered into the Stockholders Agreement in the form attached as Exhibit B hereto. 6.4 Qualifications. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state or of any third party that are required in connection with the lawful issuance or sale of the Series D Preferred Stock pursuant to this Agreement shall be duly obtained and effective as of the Closing. 7. Covenants of the Company. 7.1 Use of Proceeds. The Company shall use all proceeds received from the Investors for working capital consistent with financial budgets approved from time to time by the Board of Directors of the Company. 7.2 Key Man Insurance. The Company shall obtain, within ninety days of the Closing, key man life insurance of $3.0 million on the life of Paul Sheils, with the proceeds of such insurance payable to the Company. 8. Miscellaneous. 8.1 Survival of Warranties. The warranties, representations and covenants of the Company and Investors contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the Investors or the Company. 8.2 Benefit of Agreement; Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of the Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as otherwise expressly provided in this Agreement. 8.3 Governing Law. This Agreement shall be governed by and construed under the laws of the State of Delaware, without regard to such State's choice of law provisions. 8.4 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 20 25 8.5 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 8.6 Notices. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery or telecopy (receipt confirmed, with a copy to be sent by certified or registered mail as set forth herein) to the party to be notified or upon deposit with the United States Post Office, by registered or certified mail, postage prepaid and addressed to the party to be notified at the address indicated for such party on the signature page hereof, or at such other address as such party may designate by ten (10) days' advance written notice to the other parties. 8.7 Finder's Fee. Each Investor, severally as to itself, represents that it neither is nor will be obligated for any finder's fee or commission in connection with this transaction. Each Investor, severally and not jointly, agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability or asserted liability) for which the Investor or any of its officers, partners, employees, or representatives is responsible. Except for the fee described in Schedule 8.7 to Credit Suisse First Boston Corporation (which fee will be paid by the Company promptly after consummation of this transaction), the Company represents that it neither is nor will be obligated for any finder's fee or commission in connection with this transaction. The Company agrees to indemnify and hold harmless each Investor from any liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. 8.8 Expenses. The Company shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Agreement. The Company shall also pay up to $40,000 of the fees and expenses incurred by the Investors in connection with this Agreement, including the fees and expenses of Brobeck Phleger & Harrison LLP. 8.9 Amendments and Waivers. Except as expressly specified herein, any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of at least 66 2/3% of the Class A Common Stock issued or issuable upon conversion of the Series D Preferred Stock. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any securities purchased under this Agreement at the time outstanding (including securities into which such securities are convertible), each future holder of all such securities and the Company. 8.10 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and 21 26 the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 8.11 Integration. This Agreement (including all exhibits and schedules thereto and certificates or other documents delivered in connection with the Closing hereunder), together with the Stockholders Agreement, the Restated Certificate of Incorporation and the Bylaws, embody the entire agreement and understanding of the parties hereto in respect of the actions and transactions contemplated by this Agreement. There are no restrictions, promises, inducements, representations, warranties, covenants or undertakings that shall be binding upon any party to this Agreement, other than those expressly set forth or referred to herein and in the Stockholders Agreement, the Restated Certificate of Incorporation and the Bylaws. 8.12 Costs of Enforcement. The reasonable costs and expenses of the prevailing party in enforcement proceedings brought hereunder or under the Stockholders Agreement shall be paid by the non-prevailing parties to such proceedings. 22 27 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. MEDSCAPE, INC. /s/ Paul T. Sheils ------------------------------------ By: Paul T. Sheils Its: CEO Address: 134 West 29th Street New York, NY 10001-5399 WESTON PRESIDIO CAPITAL II, L.P. By: Weston Presidio Capital Management II, LP, its General Partner By: /s/ ---------------------------- WESTON PRESIDIO CAPITAL III, L.P. By: Weston Presidio Capital Management III, LLC, its General Partner By: /s/ --------------------------- WPC ENTREPRENEUR FUND, L.P. By: Weston Presidio Capital Management III, LLC, its General Partner By: /s/ ---------------------------- CSK VENTURE CAPITAL CO., LTD. CSK VENTURE CAPITAL CO., LTD. AS INVESTMENT MANAGER FOR AS INVESTMENT MANAGER FOR 23 28 CSK-1(B) INVESTMENT FUND CSK-1(A) INVESTMENT FUND By: /s/ Kinya Nakagome By: /s/ Kinya Nakagome - --------------------------------- ----------------------------------- Name: Kinya Nakagome Name: Kinya Nakagome Title: Managing Director Title: Managing Director Address: Kenchikukaikan, 7F Address: Kenchikukaikan, 7F 5-26-20 Shiba, Minato-ku 5-26-20 Shiba, Minato-ku Tokyo 108-0014 Japan Tokyo 108-0014 Japan CSK VENTURE CAPITAL CO., LTD. AS INVESTMENT MANAGER FOR CSK-2 INVESTMENT FUND By: /s/ Kinya Nakagome - ----------------------------------- Name: Kinya Nakagome Title: Managing Director Address: Kenchikukaikan, 7F 5-26-20 Shiba, Minato-ku Tokyo 108-0014 Japan HEARST COMMUNICATIONS, INC. By: /s/ Kenneth A. Bronfin -------------------------------- Kenneth A. Bronfin Its: Senior Vice President Address: 959 8th Avenue New York, NY 10019 24 29 WORMSER FRERES By: /s/ Marcel Wormser ------------------------------- Marcel Wormser Its: Administrateur Address: Banque D'Escompte 13 Blvd. Haussmann 75009 Paris France MEDIA TECHNOLOGY VENTURES, L.P. 25 30 By: /s/ Barry M. Weinman - ----------------------------- Name: Barry M. Weinman Title: Managing Member of the General Partner MEDIA TECHNOLOGY VENTURES ENTREPRENEURS FUND, L.P. By: /s/ Barry M. Weinman - ----------------------------- Name: Barry M. Weinman Title: Managing Member of the General Partner APA EXCELSIOR IV, L.P. By: APA EXCELSIOR IV PARTNERS, L.P., its General Partner By: PATRICOF & CO. MANAGERS, INC., its General Partner 26 31 By: /s/ Alan J. Patricof ----------------------------------- Name: Alan J. Patricof Title: Chairman APA EXCELSIOR IV/OFFSHORE, L.P. By: PATRICOF & CO. VENTURES, INC., ----------------------------------- its Investment Advisor By: /s/ Alan J. Patricof ----------------------------------- Name: Alan J. Patricof Title: Chairman PATRICOF PRIVATE INVESTMENT CLUB, L.P. By: APA EXCELSIOR IV PARTNERS, L.P., its General Partner By: PATRICOF & CO. MANAGERS, INC., its General Partner By: /s/ Alan J. Patricof ------------------------------------ Name: Alan J. Patricof Title: Chairman HIGHLAND CAPITAL PARTNERS IV LIMITED PARTNERSHIP By: Highland Management Partners IV LLC, its General Partner By: /s/ ------------------------------------ HIGHLAND ENTREPRENEURS ' FUND IV, 27 32 LIMITED PARTNERSHIP By: Highland Entrepreneurs' Fund IV LLC, its General Partner By: /s/ --------------------------------------- Member 28 33
SCHEDULE A DOLLAR INVESTOR SHARES CERTIFICATE INVESTMENT - -------- ------ ----------- ---------- Media Technology Ventures, L.P. 75,568 PD 1 $ 885,656.96 MTV Entrepreneurs Fund, L.P 9,757 PD 2 114,352.04 CSK Venture Capital Co. Ltd. (CSK-1(A)) 28,442 PD 3 333,340.24 CSK Venture Capital Co., Ltd. (CSK-1(B)) 28,442 PD 4 333,340.24 CSK Venture Capital Co., Ltd. (CSK-2) 28,441 PD 5 333,328.52 Hearst Communications, Inc. 85,325 PD 6 1,000,000.00 Wormser Freres 51,195 PD 8 600,000.00 Weston Presidio Capital II, L.P. 255,973 PD 9 3,000,003.56 Weston Presidio Capital III, L.P. 406,392 PD 10 4,762,914.24 WPC Entrepreneur Fund, L.P. 20,229 PD 11 237,083.88 Highland Capital Partners IV 655,290 PD 12 7,679,998.80 Highland Entrepreneurs Fund IV 27,304 PD 14 320,002.88 APA Excelsior IV, L.P. 71,365 PD 16 836,391.94 Patricof Private Investment Club, L.P. 1,365 PD 18 15,997.80 APA Excelsior IV/Offshore, L.P. 12,595 PD 19 147,607.54 ------ ---------- Total 1,757,683 [PD 7,13, $20,600,018.64 15 & 17 VOID]
29 EX-10.23 27 AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT 1 Exhibit 10.23 AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT THIS AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT (this "Agreement") made as of this 5th day of March, 1999, by and among MEDSCAPE, INC., a Delaware corporation (the "Corporation"), having its principal office at 134 W. 29th Street, New York, New York 10001-5399, certain existing stockholders of the Corporation listed on Schedule I attached hereto under "Existing Stockholders," each having an address as indicated thereon (the "Existing Stockholders"), the persons listed on Schedule I under "Investor Stockholders," each having an address as indicated on Schedule I (collectively, the "Investor Stockholders"), and any subsequent stockholder of the Corporation who becomes a party to this Agreement pursuant to the terms and conditions hereof (the "Additional Stockholders", and collectively, with the Existing Stockholders and the Investor Stockholders, the "Stockholders"). This Agreement amends and restates in its entirety the Stockholders Agreement, dated as of October 31, 1997, as amended on February 19, 1998 and October 23, 1998, by and among the Corporation and the Existing Stockholders (the "Antecedent Agreement"). BACKGROUND The Corporation is a corporation duly organized and existing under the laws of the State of Delaware with a total authorized capitalization of 21,956,643 shares of which (a) 788,200 shares are designated as Series A Preferred Stock, par value $.01 per share, of which 788,200 shares are issued and outstanding as of this date; (b) 1,478,359 shares are designated as Series C Preferred Stock, par value $.01 per share, of which 1,478,359 shares are issued and outstanding as of this date, (c) 932,401 shares are designated as Series C-1 Preferred Stock, par value $.01 per share, of which 932,401 shares are issued and outstanding as of this date, (d) 1,757,683 shares are designated as Series D Preferred Stock, par value $.01 per share, of which 1,757,683 shares shall be issued effective upon the Closing, (e) 11,000,000 shares are designated as Class A Common Stock, par value $.01 per share, of which 431,600 shares are issued and outstanding as of this date, 1,585,185 shares are duly reserved for issuance in connection with the conversion of Series C Preferred Stock, 932,401 shares are duly reserved for issuance in connection with the conversion of the Series C-1 Preferred Stock and 1,757,683 shares are duly reserved for issuance in connection with conversion of Series D Preferred Stock and (f) 6,000,000 shares are designated as Class B Common Stock, par value $.01 per share, of which (i) 2,316,927 shares are issued and outstanding as of this date and (ii) 2,485,221 shares are duly reserved for issuance to officers, directors and employees of the Corporation pursuant to the Corporation's stock option plan or other arrangements approved by the Corporation's Board of Directors. This Agreement is 2 being entered into in connection with the Closing to amend and restate the Antecedent Agreement in accordance with Section 12 thereof. Each of the Stockholders owns that number of shares of Preferred Stock and Common Stock (together with any other shares of capital stock of the Corporation now owned or hereafter acquired by the Stockholders and their successors or assigns from any Person by any means, including without limitation, any acquisition by gift, purchase, dividend, conversion, stock split, recapitalization or otherwise, collectively, the "Shares") set forth opposite the name of each such Stockholder on Schedule II attached hereto. It is deemed to be in the best interest of the Corporation and the Stockholders that provision be made for the continuity and stability of the business and policies of the Corporation and, to that end, the Corporation and the Stockholders hereby set forth their agreement with respect to the Shares. NOW, THEREFORE, in consideration of the premises and of the mutual consents and obligations hereinafter set forth, the parties hereto hereby further agree as follows: SECTION 1. Definitions. All capitalized terms used in this Agreement shall have the meanings assigned to them elsewhere in this Agreement or as specified below: "Affiliate" of any Person shall mean any Person directly or indirectly controlling, controlled by or under common control with such Person. "Closing" shall mean the closing of the transactions contemplated under the Purchase Agreement which shall take place effective as of the first date set forth above. "Closing Date" shall mean the date on which the Closing under the Purchase Agreement occurs, which shall be a date simultaneous with the execution and delivery of this Agreement. "Commission" shall mean the United States Securities and Exchange Commission. "Common Directors" shall have the meaning set forth in Section 2(b)(vii) hereof. "Common Stock" shall mean (a) the Corporation's Class A Common Stock, par value $.01 per share, as authorized on the date of this Agreement, (b) the Corporation's Class B Common Stock, par value $.01 per share, as authorized on the date of this Agreement, (c) any other capital stock of any class or classes (however designated) of the Corporation, authorized on or after the date hereof, the holders of -2- 3 which shall have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating distributions after the payment of dividends and distributions on any shares entitled to preference under the Restated Certificate of Incorporation (as the same may be further amended from time to time after the Closing), and (d) any other securities into which or for which any of the securities described in clause (a), (b) or (c) of this definition may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. "Corporation Notice" shall have the meaning set forth in Section 4(b) hereof. "Designated Offering" shall mean a firmly underwritten public offering registered under the Securities Act with an aggregate minimum gross offering price to the public of $20,000,000 with a per share price equal to no less than $17.58 per share (as adjusted for any stock split, stock dividend or recapitalization after March 5th, 1999). "Equity Securities" shall have the meaning set forth in Section 3(a) hereof. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder, all as the same shall be in effect at the time. "Exchange Act Registration Statement" shall mean a registration statement filed pursuant to the Exchange Act, relating to any class of equity securities of the Corporation. "Excluded Form" shall mean a registration statement filed pursuant to the Securities Act on Form S-8, S-4 or any similar or successor forms. "Excluded Securities" shall mean those securities described in Section 3(g) hereof. "Existing Registrable Securities" shall mean: (a) all the shares of Common Stock of the Corporation, other than Investor Registrable Securities, that are now owned or may hereafter be acquired by any Holder or its permitted successors and assigns, and any other shares of Common Stock acquired by such Holder pursuant to Sections 3 or 4 of this Agreement; and (b) any shares of Common Stock of the Corporation issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of all such shares of Common Stock described in clause (a) of this definition; excluding in all cases, however, (i) any Existing Registrable Securities sold pursuant to registration under the Securities Act or (ii) any Existing Registrable Securities sold, subsequent to the Corporation's initial public offering of -3- 4 securities registered under the Securities Act, pursuant to Rule 144 (or similar or successor rule) promulgated under the Securities Act. "Form S-3" shall mean the form under the Securities Act as is in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the Commission which permit inclusion or incorporation of substantial information by reference to other documents filed by the Corporation with the Commission. "Holder" shall mean any holder of Common Stock owning of record Registrable Securities that have not been sold to the public and, for purposes of this Agreement, a record holder of the Series C Stock or Series D Preferred Stock convertible into such Registrable Securities shall be deemed to be the Holder of such Registrable Securities; provided, however, that the Corporation shall in no event be obligated to register the Series C Stock or Series D Preferred Stock, and that Holders of Registrable Securities shall not be required to convert their shares of Series C Stock or Series D Preferred Stock into Common Stock in order to exercise the registration rights granted under Section 6 hereof, until immediately before the closing of the offering to which the registration relates. "Initiating Holders" shall have the meaning set forth in Section 6(d)(ii) hereof. "Investor Notice" shall have the meaning set forth in Section 4(c) hereof. "Investor Registrable Securities" shall mean: (a) all the shares of Common Stock of the Corporation issued or issuable upon the conversion of the shares of Series C Stock or Series D Preferred Stock that are now owned or may hereafter be acquired by any Holder or its permitted successors and assigns, and any other shares of Common Stock acquired by such Holder pursuant to Sections 3 or 4 of this Agreement; and (b) any shares of Common Stock of the Corporation issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of all such shares of Common Stock described in clause (a) of this definition; excluding in all cases, however, (i) any Investor Registrable Securities sold pursuant to registration under the Securities Act or (ii) any Investor Registrable Securities sold, subsequent to the Corporation's initial public offering of securities registered under the Securities Act, pursuant to Rule 144 (or similar or successor rule) promulgated under the Securities Act. "Investor Registrable Securities then outstanding" shall mean the number of shares of Investor Registrable Securities that are then issued and outstanding or are then issuable pursuant to the exercise or conversion of then outstanding and then exercisable options, warrants or convertible securities. -4- 5 "Limited Sales" shall mean, for the period of one year after the date hereof, (a) aggregate sales of no more than 5% of the outstanding Series A Preferred Stock and (b) aggregate sales of no more than 5% of the outstanding Series C Stock. "MTV Director" shall have the meaning set forth in Section 2(b)(i) hereof. "Notice of Acceptance" shall have the meaning set forth in Section 3(c) hereof. "Offer" shall have the meaning set forth in Section 3(a) hereof. "Permitted Transfer" and "Permitted Transferee" shall have the meanings set forth in Section 4(d) hereof. "Person" shall mean and include an individual, a corporation, a partnership, a trust, an unincorporated organization and a government or any department, agency or political subdivision thereof. "Preferred Stock" shall mean (a) the Corporation's Series A Preferred Stock, par value $.01 per share, as authorized on the date of this Agreement, (b) the Corporation's Series C Preferred Stock, par value $.01 per share, as authorized on the date of this Agreement, (c) the Corporation's Series C-1 Preferred Stock, par value $.01 per share, as authorized on the date of this Agreement, (d) the Corporation's Series D Preferred Stock, par value $.01 per share, as authorized on the date of this Agreement, and (e) any other securities into which or for which any of the securities described in clause (a), (b), (c) or (d) of this definition may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. "Purchase Agreement" shall mean the Stock Purchase Agreement dated as of the date hereof, between the Corporation and certain of the Investor Stockholders and additional investors, as the same may be amended from time to time. "registered" and "registration" shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement. "Registrable Securities" shall mean, collectively, Existing Registrable Securities and Investor Registrable Securities. "Registration Expenses" shall have the meaning set forth in Section 6(d) hereof. "Remaining Securities" shall have the meaning set forth in Section 3(d) hereof. -5- 6 "Restated Certificate of Incorporation" shall mean the Corporation's Restated and Amended Certificate of Incorporation, filed in the Office of the Secretary of State of Delaware on March 5, 1999, a copy of which is attached hereto as Exhibit A. "Sale Shares" shall have the meaning set forth in Section 4(a) hereof. "Section 4 Shares" shall mean any shares of Common Stock or Preferred Stock issued to the Section 4 Stockholders. "Section 4 Shares Transfer" shall have the meaning set forth in Section 4(a) hereof. "Section 4 Stockholders" shall mean Jeffrey L. Drezner, Excelsior Fund 1, Peter Frishauf, Steven Kalin and Paul Sheils. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder, all as the same shall be in effect at the time. "Series C Director" shall have the meaning set forth in Section 2(b)(ii) hereof. "Series D Director" shall have the meaning set forth in Section 2(b)(iii) hereof. "Series A Preferred Stock" shall mean the Corporation's authorized and outstanding shares of Series A Convertible Preferred Stock, par value $.01 per share, having the designations, rights, preferences and privileges and qualifications, limitations and restrictions set forth in the Restated Certificate of Incorporation, of which 788,200 shares are outstanding as of the date hereof. "Series C Preferred Stock" shall mean the Corporation's authorized and outstanding shares of Series C Convertible Preferred Stock, par value $.01 per share, having the designations, rights, preferences and privileges and qualifications, limitations and restrictions set forth in the Restated Certificate of Incorporation. "Series C-1 Preferred Stock" shall mean the Corporation's authorized and outstanding shares of Series C-1 Convertible Preferred Stock, par value $.01 per share, having the designations, rights, preferences and privileges and qualifications, limitations and restrictions set forth in the Restated Certificate of Incorporation. "Series C Stock" shall mean the Series C Preferred Stock and the Series C-1 Preferred Stock taken together. -6- 7 "Series D Preferred Stock" shall mean the Corporation's authorized and outstanding shares of Series D Convertible Preferred Stock, par value $.01 per share, having the designations, preferences and privileges and qualifications, limitations and restrictions set forth in the Restated Certificate of Incorporation. "transfer" shall mean any sale, assignment, transfer, disposition, donation, pledge, bequest, hypothecation, gift, conveyance, encumbrance or any other disposition or transfer of a Share or any interest or rights (legal or equitable) therein by any means whatsoever, whether direct or indirect, absolute or conditional, voluntary or involuntary, by operation of law (including without limitation, by operation of the laws of descent and distribution) or otherwise. "Transferring Stockholder" shall have the meaning set forth in Section 4(a) hereof. "TS Notice" shall have the meaning set forth in Section 4(a) hereof. "Violation" shall have the meaning set forth in Section 6(j)(i) hereof. SECTION 2. Election of Directors. (a) The Stockholders shall take all steps necessary, acting in their respective capacities as stockholders, directors or officers of the Corporation, as the case may be, to perform their obligations and agreements hereunder, to cause the Corporation to perform its obligations and agreements hereunder and under the Purchase Agreement and to implement and cause the Corporation to implement the provisions of this Agreement and the Purchase Agreement, including without limitation, the calling and holding of stockholders' meetings for the election of directors or the election of directors by consent in writing. (b) The Board of Directors of the Corporation shall consist of a maximum of nine (9) directors. At each annual meeting of the stockholders of the Corporation, and at each special meeting of the stockholders of the Corporation called for the purpose of electing directors of the Corporation, and at any time at which stockholders of the Corporation shall have the right to, or shall, vote for or consent in writing to the election of directors of the Corporation, then, and in each such event, the Stockholders agree that they shall vote all Shares owned by them for the election of the Board of Directors in the following manner: (i) Media Technology Ventures, L.P. and Media Technology Ventures Entrepreneurs Fund, L.P (collectively, "MTV") shall be entitled, but not obligated, so long as MTV is the holder of record of at least five percent (5%) of a class of voting equity securities of the Corporation then outstanding, to elect one (1) director (the "MTV Director"); -7- 8 (ii) the holders of record of shares of Series C Stock, excluding MTV, voting together as a separate class, shall be entitled, but not obligated, so long as such holders are the holders of record, in the aggregate, of at least five percent (5%) of the outstanding shares of Series C Stock constituting at least 200,000 shares, to elect one (1) director, who shall be nominated by the holders of record of a majority of the shares of Series C Stock, excluding MTV, then outstanding (the "Series C Director"); (iii) the holders of record of shares of Series D Preferred Stock, voting together as a separate class, shall be entitled, but not obligated, to elect one (1) director, who shall be nominated by the holders of record of a majority of the shares of Series D Preferred Stock then outstanding (the "Series D Director"); (iv) TBG Information Investors, LLC ("TBG") shall be entitled, but not obligated, so long as TBG is the holder of record of at least five percent (5%) of a class of voting equity securities of the Corporation then outstanding, to elect one (1) director (the "TBG Director"); (v) upon nomination by the Board of Directors and for so long as he is employed as Chief Executive Officer of the Corporation, the Stockholders shall elect Paul T. Sheils as a director of the Corporation; (vi) upon nomination by the Board of Directors and for so long as he is employed as Executive Vice President of the Corporation, the Stockholders shall elect Jeffrey L. Drezner, M.D., Ph.D., as a director of the Corporation; and (vii) the holders of record of shares of Class A Common Stock and Series A Preferred Stock, voting together as a single class, shall elect three (3) directors, two (2) of whom shall be nominated by the holders of record of a majority of the shares of Class A Common Stock and Series A Preferred Stock then outstanding, and one (1) of whom shall be nominated by a majority of the two directors so nominated pursuant this Section 2(b)(vii) and the MTV Director (collectively, the "Common Directors"); provided, however, that (1) Mr. Peter Frishauf or his designee shall hold and continue to hold one (1) of the Common Directors seats provided for in this Section 2(b)(vii) so long as Mr. Frishauf or his nominee is the holder of record of, in the aggregate, at least five percent (5%) of a class of voting equity securities of the Corporation and (2) Mr. Alan Patricof or his designee shall hold and continue to hold one (1) of the Common Directors seats provided for in this Section 2(b)(vii) so long as The Excelsior Fund I, APA Excelsior IV, L.P., APA Excelsior IV Offshore, -8- 9 L.P. or The Patricof Private Investment Club, or their nominees, are the holders of record of, in the aggregate, at least five percent (5%) of a class of voting equity securities of the Corporation. (c) In the event that either MTV or the holders of Series C Stock is no longer entitled to elect to the Board of Directors the MTV Director or the Series C Director as provided in Section 2(b)(i) and 2(b)(ii) above, respectively, then such director(s) shall be nominated by a majority vote of the Board of Directors. (d) At any such meeting called for the purpose of electing directors, the presence in person or by proxy of (i) MTV or its authorized representative, in the case of the election of the MTV Director, (ii) TBG or its authorized representative, in the case of the election of the TBG Director, (iii) the holders of record of a majority of the shares of Series C Stock (excluding MTV) then outstanding, in the case of the election of the Series C Director, (iv) the holders of record of a majority of the shares of the Series D Preferred Stock outstanding in the case of the Series D Director, and (v) the holders of record of a majority of the shares of the Class A Common Stock and the Series A Preferred Stock then outstanding, in the case of the election of the Common Directors, shall constitute a quorum for the election of directors to be elected by such holders. The Stockholders agree to take any actions deemed advisable by the Board to amend the Bylaws of the Corporation to reflect the quorum conditions reflected in this Section 2(e). (e) A vacancy in any directorship entitled to be elected by MTV (including without limitation, a vacancy resulting from the decision during an earlier election by MTV not to fill the directorship to be held by the MTV Director) shall be filled only by vote or written consent of MTV, in the manner set forth herein. A vacancy in any directorship entitled to be elected by TBG (including without limitation, a vacancy resulting from the decision during an earlier election by TBG not to fill the directorship to be held by the TBG Director) shall be filled only by vote or written consent of TBG, in the manner set forth herein. A vacancy in any directorship entitled to be elected by the holders of record of shares of Series C Stock (including without limitation, a vacancy resulting from the decision during an earlier election by the holders of the Series C Stock not to fill the directorship to be held by the Series C Director) shall be filled only by vote or written consent of the holders of record of shares of Series C Stock (excluding MTV), in the manner set forth herein. A vacancy in any directorship elected by the holders of record of shares of Class A Common Stock, Series A Preferred Stock and Series B Preferred Stock shall be filled only by vote or written consent of the holders of record of shares of Class A Common Stock, Series A Preferred Stock and Series B Preferred Stock, in the manner set forth herein. A vacancy in any directorship elected by the holders of record of shares of Series D Preferred Stock shall be filled only by vote or written consent of the holders of record of Series D Preferred Stock. -9- 10 (f) Except as may otherwise be provided by law, each MTV Director who shall have been elected as provided in this Section 2 may be removed during his term of office, whether with or without cause, only by MTV. Except as may otherwise be provided by law, each TBG Director who shall have been elected as provided in this Section 2 may be removed during his term of office, whether with or without cause, only by TBG. Except as may otherwise be provided by law, each Series C Director who shall have been elected as provided in this Section 2 may be removed during his term of office, whether with or without cause, only by the holders of record of a majority of the shares of Series C Stock (excluding MTV) then outstanding. Except as may otherwise be provided by law, each Common Director who shall have been elected as provided in this Section 2 may be removed during his term of office, whether with or without cause, only by the holders of record of a majority of the shares of Class A Common Stock, Series A Preferred Stock and Series B Preferred Stock then outstanding. Except as may otherwise be provided by law, each Series D Director who shall have been elected in this Section 2 may be removed during his term of office, whether with or without cause, only by the holders of record of a majority of the Series D Preferred Stock then outstanding. (g) Each MTV Director, Series C Director, Series D Director and Common Director shall be entitled to one (1) vote on all matters which directors are entitled to vote on. In addition to the rights granted to all directors as contained in the Corporation's By-laws, the MTV Director, the Series C Director and the Series D Director shall each have the right to call meetings of the Board of Directors and management of the Corporation, upon no less than five (5) days' prior written notice; provided, that any such meetings are called no more frequently than once per fiscal quarter. (h) Highland Capital Partners ("Highland") shall be entitled to have one observer (the "Highland Observer") selected by Highland present at all meetings of the Board and at all meetings of any committee of the Board and such observer shall be notified of any such meetings, including such meetings' time and place, in the same manner as the directors of the Corporation and the members of the respective committee of the Board, as applicable. The Highland Observer shall have the same access to information concerning the business and operations of the Corporation and at the same time as the directors of the Corporation, and shall be entitled to participate in discussions and consult with, and make proposals and furnish advice to, the Board and the committees of the Board, but shall not have the right to vote. (i) Unless otherwise agreed by the respective Series D Director or the Highland Observer, the Corporation shall pay all reasonable travel expenses and other out-of-pocket reasonable disbursements incurred by the Series D Director and the Highland Observer, as the case may be, in connection with their attending meetings of the Board or of any committee thereof. -10- 11 SECTION 3. Right of First Offer. So long as a Stockholder is a holder of at least 50,000 shares of Common Stock (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits, and the like), or at least 50,000 shares Series C Stock or Series D Preferred Stock convertible into shares of Common Stock, or any combination thereof (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits, and the like), such Stockholder shall be entitled to the following right of first offer: (a) Except in the case of Excluded Securities, the Corporation shall not issue, sell or exchange, agree to issue, sell or exchange, or reserve or set aside for issuance, sale or exchange, (i) any shares of Common Stock, (ii) any other equity security of the Corporation, (iii) any debt security of the Corporation which by its terms is convertible into or exchangeable for, with or without consideration, any equity security of the Corporation, or (iv) any option, warrant or other right to subscribe for, purchase or otherwise acquire any equity security of the Corporation (collectively, the "Equity Securities"), unless in each case the Corporation shall have first offered to sell to such Stockholder the Equity Securities, at a price and on such other terms as shall have been specified by the Corporation in writing delivered to the Stockholder (the "Offer"), which Offer by its terms shall remain open and irrevocable for a period of thirty (30) days from the date the Offer is received by such Stockholder. (b) Each such Stockholder shall have the right to purchase up to its pro rata share of the Equity Securities. As used in this Section 3, each such Stockholder's "pro rata share" shall be that amount of the Equity Securities which would result in the Stockholder's owning the same percentage of the Corporation's issued and outstanding Common Stock after the issuance of Equity Securities as the Stockholder owned immediately prior to the issuance (assuming in each case the issuance of all shares issuable upon the conversion or exercise, as the case may be, of (i) the shares of Series A Preferred Stock, Series C Stock and Series D Preferred Stock held by such Stockholder, if any, and (ii) the Equity Securities). (c) Notice of a Stockholder's intention to accept, in whole or in part, an Offer shall be evidenced by a writing signed by such Stockholder and delivered to the Corporation at or prior to the end of the 30-day period commencing with the date the Offer is received by such Stockholder (or, if later, within 10 days after the giving of any written notice of a material change in such Offer), setting forth such portion (specifying number of shares, principal amount or the like) of the Equity Securities as such Stockholder elects to purchase (the "Notice of Acceptance"). (d) The Corporation shall have 90 days from the expiration of the foregoing 30-day period to sell all or any part of such Equity Securities as to which a Notice of Acceptance has not been given by the Stockholders (the "Remaining Securities") to any other Person or Persons, but only upon terms and conditions in all material respects, including without limitation, unit price and interest rates (but -11- 12 excluding payment of legal fees of counsel of the purchaser), which are no more favorable, in the aggregate, to such other Person or Persons or less favorable to Corporation than those set forth in the Offer. Upon the closing of the sale to such other Person or Persons of all the Remaining Securities, which shall include payment of the purchase price to the Corporation in accordance with the terms of the Offer, if a Stockholder has timely submitted a Notice of Acceptance, it shall purchase from the Corporation, and the Corporation shall sell to such Stockholder, the Equity Securities in respect of which a Notice of Acceptance was delivered to the Corporation by the Stockholder at the terms specified in the Offer. The purchase by a Stockholder of any Equity Securities is subject in all cases to the preparation, execution and delivery by the Corporation and such Stockholder of a purchase agreement and other customary documentation relating to such Equity Securities as is satisfactory in form and substance to such Stockholder and its counsel. (e) In each case, any Equity Securities not purchased by eligible Stockholders or by a Person or Persons in accordance with Section 3(d) may not be sold or otherwise disposed of until they are again offered to the Stockholders under the procedures specified in Sections 3(a), (b), (c) and (d) hereof. (f) The Corporation agrees that on or before the issuance to any Person of any Equity Securities not purchased by the Stockholders, it shall cause such Person to agree in writing to be bound by the obligations imposed upon Stockholders under this Agreement as if such Person were originally a signatory to this Agreement. (g) The rights of the eligible Stockholders under this Section 3 shall not apply to the following securities (the "Excluded Securities"): (i) up to 2,700,000 shares (or such higher number of shares as may be approved from time to time by (x) a majority in interest of the outstanding voting stock of the Corporation, (y) a majority in interest of the Series C Stock voting separately as a single class and (z) 66 2/3 in interest of the Series D Preferred Stock voting separately as a single class) of Common Stock or options to purchase shares of Common Stock, issued or to be issued to officers, employees or directors of, or consultants to, the Corporation, pursuant to any agreement, plan or arrangement approved by the Board of Directors of the Corporation and the Stockholders; (ii) Common Stock issued as a stock dividend or upon any stock split or other subdivision or combination of shares of Common Stock; (iii) Common Stock issued upon conversion of any shares of Preferred Stock; -12- 13 (iv) any securities issued for consideration other than cash pursuant to a merger, consolidation, acquisition or similar business combination; (v) Common Stock issued or to be issued by the Corporation pursuant to equipment lease financing with equipment lessors, or Common Stock reissued after the repurchase thereof by the Corporation as a result of any termination of a restricted stock purchase agreement or other employee equity plan or arrangement to which the Corporation is a party, which are approved by the Board of Directors; (vi) Common Stock issued pursuant to transactions or agreements which have been approved by (x) a majority in interest of the outstanding voting stock of the Corporation, (y) a majority in interest of the Series C Stock voting separately as a single class and (z) 66 2/3 in interest of the Series D Preferred Stock voting separately as a single class; and (vii) warrants to purchase up to 9,000 shares of Class A Common Stock (and the Common Stock issuable upon exercise thereof). (h) Notwithstanding the foregoing provisions of this Section 3, the rights of the Stockholders and the obligations of the Corporation under this Section 3 shall be inapplicable to a Designated Offering and the provisions of this Section 3 shall terminate upon the consummation of such Designated Offering. SECTION 4. Right of First Refusal. The Corporation and the Investor Stockholders shall be entitled to the following right of first refusal: (a) Transfer of Shares. The Section 4 Stockholders shall not transfer (each, a "Transferring Stockholder"), either in a single transaction or in a series of transactions, in the aggregate, in excess of ten percent (10%) of the Section 4 Shares or any right or interest therein then owned by him or it except by a transfer that meets the requirements of this Section 4 and of this Agreement generally. In the event that a Transferring Stockholder proposes to transfer any portion of the Section 4 Shares in excess of ten percent (10%) thereof (each, a "Section 4 Shares Transfer"), whether voluntarily or involuntarily, other than a Permitted Transfer, then at least ninety (90) days prior to any Section 4 Shares Transfer, such Transferring Stockholder shall give notice (the "TS Notice") to the Corporation and the Investor Stockholders of his or its intention to effect the Section 4 Shares Transfer. The TS Notice shall set forth (i) the class, series and number of Section 4 Shares in excess of ten percent (10%) thereof to be sold by the Transferring Stockholder (the "Sale Shares"), (ii) the date or proposed date of the Section 4 Shares Transfer and the name and address of the proposed transferee, (iii) the principal terms of the Section 4 Shares Transfer, including the cash or other property or consideration to be received upon such Section 4 Shares Transfer, and (iv) the percentage which the number of Sale Shares constitutes with respect to the -13- 14 aggregate number of Section 4 Shares then held by the Transferring Stockholder. In the case of a proposed transfer by way of gift or if the nature of the transfer is such that no readily determinable consideration is to be paid for the transfer of the Sale Shares, then a bona fide transfer price for purposes of this Section 4(a) shall be determined by the Board of Directors of the Corporation promptly upon the Corporation's receipt of, and as of the date of, the TS Notice. (b) Corporation's Option. The Corporation shall have the option, but not the obligation, to purchase any or all of the Sale Shares on the same terms as specified in the TS Notice. Within thirty (30) days after the receipt of the TS Notice, the Corporation shall give written notice to the Transferring Stockholder and the Investor Stockholders (the "Corporation Notice") stating whether or not it elects to exercise its option to purchase, the number of Sales Shares, if any, it elects to purchase, and a date and time for consummation of the purchase not more than ninety (90) days after the receipt of the Corporation Notice by the Transferring Stockholder. The Transferring Stockholder shall not be entitled to vote, either as a stockholder or a director (if applicable), in connection with the decision of the Corporation whether to exercise its option to purchase the Sale Shares, provided, that, if his or its vote is required for valid corporate action, then he or it shall vote, insofar as legally permissible, in accordance with the decision of the majority of the other directors or stockholders, as the case may be. Failure by the Corporation to give such notice within such time period shall be deemed an election by it not to exercise its option. (c) Investor Stockholders' Option. If the Corporation fails to exercise its right to purchase under subparagraph (b) hereof, or exercises its right to purchase for less than all of the Sale Shares, then the Investor Stockholders shall have the option, but not the obligation, to purchase, pro rata to their ownership interest in the shares of Common Stock issued or issuable to such stockholder upon the conversion of shares of Series C Stock and Series D Preferred Stock, any or all of the remaining Sale Shares on the same terms as specified in the TS Notice. Not later than thirty (30) days after the Investor Stockholders receive the Corporation Notice, each Investor Stockholder shall give written notice to the Transferring Stockholder and the Corporation (the "Investor Notice") stating whether or not it elects to exercise its option to purchase, the number of the remaining Sales Shares, if any, it elects to purchase, and a date and time for consummation of the purchase not more than sixty (60) days after the receipt of the Investor Notice by the Transferring Stockholder. Failure by an Investor Stockholder to give such notice within such time period shall be deemed an election by it not to exercise its option. If the Corporation and Investor Stockholders exercise their respective rights to purchase for less than all the Sale Shares, then the Transferring Stockholder shall thereafter be free to transfer the remaining Sale Shares on the terms provided in the TS Notice (subject to the provisions of Section 5); provided, however, that the Sale Shares shall continue to be subject to the terms of this Agreement and any such transferee shall agree in writing to be bound by the -14- 15 obligations imposed upon Stockholders under this Agreement as if such transferee were originally a signatory to this Agreement. (d) Definitions. For purposes of this Agreement, the term "Permitted Transfer" shall mean a Section 4 Shares Transfer to a spouse (other than pursuant to any divorce or separation proceedings or settlement), parents, children (natural or adopted), stepchildren or grandchildren or a trust for any of their benefit in the case of a Transferring Stockholder that is an individual (each recipient being a "Permitted Transferee"); provided, however, that prior to such Section 4 Shares Transfer, such Permitted Transferee shall agree in writing to be bound by the obligations imposed upon Stockholders under this Agreement as if such transferee were originally a signatory to this Agreement. (e) Application of Provisions. In each case, any Sale Shares not purchased by the proposed transferee in accordance with Section 4(c) hereof may not be sold or otherwise disposed of until they are again offered to the Corporation and the Investor Stockholders under the procedures specified in Sections 4(a), (b) and (c) hereof. (f) Transfers Void. Any attempted Section 4 Shares Transfer by the Section 4 Stockholders in violation of the terms of this Section 4 shall be ineffective to vest in any transferee any interest held by the Transferring Stockholder in the Section 4 Shares. Without limiting the foregoing, any purported Section 4 Shares Transfer in violation hereof shall be ineffective as against the Investor Stockholders and the Corporation, and the Corporation and the Investor Stockholders shall have a continuing right and option (but not an obligation), until the restrictions contained in this Section 4 terminate, to purchase the shares purported to be transferred by the Transferring Stockholders for a price and on terms the same as those at which the purported Section 4 Shares Transfer was effected. (g) Termination of Restrictions. The restrictions in this Section 4 shall terminate upon the consummation of a Designated Offering, except that the restrictions in this Section 4 may terminate earlier with respect to The Excelsior Fund I in the event that all of the Section 4 Shares owned by The Excelsior Fund I are distributed to its partners. SECTION 5. Rights to Participate in Transfer. (a) Transfers by Transferring Stockholder. In the event the Transferring Stockholder desires to effect a Section 4 Shares Transfer, other than a Permitted Transfer, and all the Sale Shares have not been purchased by the Investor Stockholders or the Corporation in the exercise of their respective rights of first refusal in accordance with the terms of Section 4, then, upon receipt of the TS Notice specified in Section 4(a), each Investor Stockholder shall have the right (by written notice to the -15- 16 Transferring Stockholder and the Corporation to be sent within sixty (60) days after the Investor Stockholder receives the TS Notice) to require the Transferring Stockholder to cause to be purchased from such Investor Stockholder the number of shares of Common Stock issued or issuable upon conversion of shares of Series C Stock and Series D Preferred Stock then held by such Investor Stockholder that equals (x) the number of remaining Sale Shares that the Transferring Stockholder proposes to transfer, multiplied by (y) the percentage determined by dividing (i) the number of shares of Series C Stock or Series D Preferred Stock (or Class A Common Stock, as the case may be) then held by the Investor Stockholder by (ii) the sum of the number of shares of Series C Stock and Series D Preferred Stock (or Class A Common Stock, as the case may be) then held by all of the Investor Stockholders plus the number of Section 4 Shares then held by the Transferring Stockholder. For purposes of this Section 5, the Series C Stock and Series D Preferred Stock shall be treated as if it had been converted into the number of shares of Class A Common Stock then issuable upon such conversion. (b) Terms of Purchase. The purchase from the Investor Stockholders pursuant to this Section 5 shall be on the same terms and conditions, including per Share price (which shall in all events be paid by bank cashier's or certified check) and date of Section 4 Shares Transfer, as are received by the Transferring Stockholder and stated in the TS Notice provided to the Investor Stockholders. (c) Termination of Restrictions. The restrictions in this Section 5 shall terminate upon the consummation of a Designated Offering, except that the restrictions in this Section 5 may terminate earlier with respect to The Excelsior Fund I in the event that all of the Section 4 Shares owned by The Excelsior Fund I are distributed to its partners. SECTION 6. Transfer of Securities; Registration Rights. (a) Restriction on Transfer. The Shares shall not be transferable except upon the conditions specified in this Section 6, which conditions are intended to ensure compliance with the provisions of the Securities Act and applicable state securities laws in respect of the transfer thereof. (b) Restrictive Legend. Each certificate for the Shares issued after the date hereof and each certificate for any such securities issued to subsequent transferees of any such certificate or any Shares issued prior to the date hereof shall (unless otherwise permitted by the provisions of Section 6(c)) be stamped or otherwise imprinted with the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN -16- 17 REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW. ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT DATED MARCH 5, 1999, AMONG MEDSCAPE, INC. AND CERTAIN OTHER SIGNATORIES THERETO (AS THE SAME MAY BE AMENDED AND/OR RESTATED FROM TIME TO TIME), AND NO TRANSFER OF THESE SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. UPON THE FULFILLMENT OF CERTAIN OF SUCH CONDITIONS, MEDSCAPE, INC. HAS AGREED TO DELIVER TO THE HOLDER HEREOF A NEW CERTIFICATE, NOT BEARING THIS LEGEND, FOR THE SECURITIES REPRESENTED HEREBY REGISTERED IN THE NAME OF THE HOLDER HEREOF. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF MEDSCAPE, INC." (c) Notice of Transfer. The holder of any Shares, by acceptance thereof agrees, prior to any transfer thereof, to give written notice to the Corporation of such holder's intention to effect such transfer and to comply in all other respects with the provisions of this Section 6(c) and the other applicable provisions of this Agreement. Each such notice shall describe the manner and circumstances of the proposed transfer and shall be accompanied by (i) the written opinion, addressed to the Corporation, of counsel for the holder of such Shares, as to whether in the opinion of such counsel (which counsel shall be reasonably satisfactory to counsel to the Corporation) such proposed transfer involves a transaction requiring registration of such shares under the Securities Act, and (ii) in the case of Registrable Securities, if in the opinion of such counsel such registration is required, a written request addressed to the Corporation by the Holder of Registrable Securities, describing in detail the proposed method of disposition and requesting the Corporation to effect the registration of such Registrable Securities pursuant to the terms and conditions of Sections 6(d), 6(e) or 6(f), as the case may be; provided, however, that no such opinion shall be required in the case of a transfer by any Holder of Registrable Securities (A) which is a (1) partnership to a partner of such Holder, or a retired partner of such Holder who retires after the date hereof, or the estate of any such partner or retired partner, if the transferee agrees in writing to be subject to the terms of this Section 6 to the same extent as if such transferee were originally a signatory to this Agreement, or (2) corporation to any Affiliate of such corporation, including without limitation, any officer, director or stockholder of such corporation, or (B) in connection with a transaction complying with the requirements of Rule 144 (as amended from time to time) -17- 18 promulgated under the Securities Act (or successor rule thereto). If in such opinion of counsel the proposed transfer may be effected without registration under the Securities Act, the holder shall thereupon be entitled to transfer the Shares in accordance with the terms of the notice delivered by it to the Corporation, subject to the other requirements of this Agreement. Each certificate or other instrument evidencing the securities issued upon the transfer of any Shares (and each certificate or other instrument evidencing any untransferred balance of such securities) shall bear the legend set forth in Section 6(b) unless (x) in such opinion of counsel registration of future transfer is not required by the applicable provisions of the Securities Act or (y) the Corporation shall have waived the requirement of such legend; provided, however, that such legend shall not be required (1) on any certificate or other instrument evidencing the securities issued upon such transfer in the event such transfer shall be made in compliance with the requirements of Rule 144 (as amended from time to time) promulgated under the Securities Act (or successor rule thereto) or (2) on any certificate or other instrument which is immediately resalable (whether or not such resale is proposed) under Rule 144(k) or successor thereto. The Corporation agrees, upon the request of a Stockholder, to make available to such Stockholder and to any prospective transferee of its Shares or Registrable Securities the information concerning the Corporation described in Rule 144A(d)(4) under the Securities Act. (d) Demand Registration. (i) If the Corporation receives at any time after six (6) months after the closing of the Corporation's first underwritten public offering of shares pursuant to a registration statement, a written request from (A) the Holders of at least fifty percent (50%) of shares of the Investor Registrable Securities then outstanding excluding Holders described in clause (B) hereof, or (B) any Holder who purchased more than 650,000 shares of Series D Preferred Stock issued pursuant to the Purchase Agreement (a "Series D Holder"), that the Corporation file a registration statement on Form S-1 (or similar successor forms) under the Securities Act covering the registration of the Investor Registrable Securities having an aggregate offering price, before deduction of underwriter discounts and commissions, of at least $5,000,000, then the Corporation shall, within ten (10) business days after the receipt thereof, give written notice of such request to all Holders, and use its best efforts to effect, as soon as practicable, the registration under the Securities Act of all Investor Registrable Securities which the Holders request to be registered and included in such registration, subject only to the limitations of this Section 6(d). (ii) If the Holders initiating the registration request under this Section 6(d) ("Initiating Holders") intend to distribute the Investor Registrable Securities covered by their request by means of an underwriting, they shall so advise the Corporation as a part of their request made pursuant to this Section 6(d) and the Corporation shall include such information in the written notice -18- 19 referred to in Section 6(d)(i) hereof. In such event, the right of any Holder to include such Holder's Investor Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Investor Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the managing underwriter or underwriters selected for such underwriting by the Investor Stockholders and reasonably acceptable to the Corporation. (iii) The Corporation shall not be obligated to effect, or take any action to effect, any such registration pursuant to this Section 6(d): (A) In any particular jurisdiction in which the Corporation would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance except as may be required by the Securities Act; (B) After the Corporation has initiated four (4) such registrations pursuant to this Section 6(d) two of which may only be initiated by a Series D Holder and two of which may only be initiated by Holders of Registrable Securities who are not Series D Holders; (C) During the period starting with the date sixty (60) days prior to the Corporation's good faith estimate of the date of filing of, and ending on a date one hundred eighty (180) days after the effective date of, a Corporation-initiated registration; provided that the Corporation is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; (D) If the Initiating Holders propose to dispose of shares of Investor Registrable Securities which may be immediately registered on Form S-3 pursuant to a request made under Section 6(f) hereof; (E) If, (1) in the good faith judgement of the Board of Directors of the Corporation such registration would be seriously detrimental to the Corporation and the Board of Directors of the Corporation concludes, as a result, that it is essential to defer the filing of such registration statement at such time, and (2) the Corporation shall furnish to the Holders a certificate signed by the President of the Corporation stating that in the good faith judgement of the Board of Directors of the Corporation, it would be seriously detrimental to the Corporation for such registration statement to be filed in the near future and that it is, therefore, essential to defer the filing of such registration statement, then the -19- 20 Corporation shall have the right to defer such filing (except as provided in clause (C) above) for a period of not more than one hundred twenty (120) days after receipt of the request of the Initiating Holders, and, provided further, that the Corporation shall not defer its obligation in this manner more than once in any twelve-month period. (iv) All expenses incurred in connection with any demand registration effected pursuant to this Section 6(d), including without limitation all federal and "blue sky" registration and qualification fees, printers' and accounting fees, and fees and disbursements of counsel for the Corporation (but excluding underwriters' discounts and commissions and expenses of special counsel of selling Holders)(the "Registration Expenses") shall be borne by the Corporation. In addition, each Holder participating in a registration pursuant to this Section 6(d) shall bear its proportionate share of all discounts, commissions or other amounts payable to underwriters in connection with such offering. (e) Piggyback Registrations. (i) The Corporation shall notify all Holders of Existing Registrable Securities and Investor Registrable Securities in writing at least thirty (30) days prior to filing any registration statement under the Securities Act for purposes of effecting a public offering of securities of the Corporation (including, but not limited to, registration statements initiated upon the request of Holders of Investor Registrable Securities and registration statements relating to secondary offerings of securities of the Corporation, but excluding registration statements on an Excluded Form or relating to any employee benefit plan or a corporate reorganization) and shall afford each such Holder an opportunity to include in such registration statement all or any part of the Registrable Securities then held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by such Holder shall, within twenty (20) days after receipt of the above-described notice from the Corporation, so notify the Corporation in writing, and in such notice shall inform the Corporation of the number of Registrable Securities such Holder wishes to include in such registration statement. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Corporation, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Corporation with respect to offerings of its securities, all upon the terms and conditions set forth herein. (ii) If the registration statement under which the Corporation gives notice under this Section 6(e) is for an underwritten offering, the Corporation shall so advise the Holders of Registrable Securities. In such event, the right of any such Holder's Registrable Securities to be included in a -20- 21 registration pursuant to this Section 6(e) shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in such customary form with the managing underwriter or underwriters selected for such underwriting. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Corporation and the underwriter, delivered at least five (5) business days prior to the effective date of the registration statement. Any Registrable Securities withdrawn from such underwriting shall be withdrawn from the registration. (iii) Notwithstanding any other provision of Section 6(e)(ii), if the registration is the first registered offering of the Corporation's securities to the general public, the Corporation may limit, to the extent so advised by the underwriters, the amount of securities (including the Registrable Shares) to be included in the registration by the Corporation's stockholders (including the Holders), or may exclude, to the extent so advised by the underwriters, such underwritten securities entirely from such registration. If the registration is the second or any subsequent registered offering of the Corporation's securities to the general public, the Corporation may limit, to the extent so advised by the underwriters, the amount of securities to be included in the registration by the Corporation's stockholders (including the Holders); provided, however, that the aggregate value of securities (including Registrable Securities) to be included in such registration by the Holders may not be so reduced to less than thirty percent (30%) of the total value of all securities included in such registration. The Corporation shall so advise all Holders of securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated first to the Corporation for securities being sold for its own account, second to Holders of Investor Registrable Securities pro rata based upon the number of Registrable Securities held by any such Holder, and thereafter as set forth in this Section 6(e). Any Registrable Securities excluded from such underwriting shall be excluded from the registration. (iv) If any shares are withdrawn from the registration or if the number of shares of Registrable Securities to be included in such registration was previously reduced as a result of marketing factors as provided in this Section 6(e), the Corporation shall then offer to all persons who have retained the right to include securities in the registration the right to include additional securities in a subsequent registration in the aggregate amount equal to the number of shares so withdrawn, with such shares to be allocated among the persons requested additional inclusion in accordance with this Section 6(e). -21- 22 (v) All Registration Expenses incurred in connection with a registration pursuant to this Section 6(e) shall be borne by the Corporation. (f) Form S-3 Registration. In the event that the Corporation receives from (A) the Holders of at least thirty percent (30%) of the Registrable Securities held by all Holders other than Series D Holders, or (B) a Series D Holder, a written request or requests that the Corporation effect a registration on Form S-3, and any related qualification or compliance with respect to all or part of the Registrable Securities owned by such Holders, then the Corporation shall: (i) Promptly give written notice of the proposed registration and the Holders' request therefor, and any related qualification or compliance, to all Holders of Registrable Securities; and (ii) As soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within twenty (20) days after receipt of such written notice from the Corporation; provided, however, that the Corporation shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 6(f): (A) if S-3 is not available for such offering by the Holders; (B) if the Holders propose to sell Registrable Securities at an aggregate gross offering price to the public of less than $1,000,000.00; (C) if the Corporation has, within the six (6)-month period preceding the date of such request, already effected one registration for the Holders pursuant to Section 6(e) or 6(f); or (D) in any particular jurisdiction in which the Corporation would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. (iii) The Corporation is obligated to effect that number of registrations on Form S-3 requested by the Holders pursuant to this Section 6(f), but shall not be obligated to effect more than two (2) such registrations per year. (iv) Subject to the foregoing, the Corporation shall file a Form S-3 registration statement, as the case may be, covering the Registrable Securities to be registered pursuant to this Section 6(f) as soon as practicable after receipt of the request or requests of the Holders for such registration. The Corporation shall pay all Registration Expenses in connection with each demand for registration pursuant to this Section 6(f). (v) Form S-3 registrations shall not be deemed registrations as described in Section 6(d) above. -22- 23 (g) Additional Registration Rights. If the Corporation grants registration rights to holders of any security of the Corporation which are more favorable to such holders than the registration rights granted hereunder, then such more favorable registration rights shall also be deemed to be granted to the Holders of the Registrable Securities hereunder, and the Corporation covenants and agrees to take any and all steps necessary to modify the terms of this Agreement to so provide. (h) Obligations of the Corporation. Whenever required to effect the registration of any Registrable Securities under this Agreement, the Corporation shall, as expeditiously as reasonably possible: (i) Prepare and file with the Commission a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become and remain effective; (ii) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement and to keep such registration statement effective, in the case of a firm commitment underwriting, until each underwriter has completed the distribution of all securities purchased by it and, in the case of any other offering, until the earlier of the sale of all Registrable Securities covered thereby or one hundred eighty (180) days after the effective date thereof; provided, however, that such 180-day period shall be extended for a period of time equal to the period the Holder refrains from selling any Registrable Securities included in such registration at the request of an underwriter of the Common Stock or if the Corporation has provided the notice described in subparagraph (vii) below; (iii) Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of the Registrable Securities owned by them that are included in such registration; (iv) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided, that the Corporation shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions; -23- 24 (v) Use its best efforts to list the securities covered by such registration statement with any securities exchange, if any, on which the Common Stock of the Corporation is then listed; (vi) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement; (vii) Notify each Holder of Registrable Securities and each underwriter under such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; (viii) Furnish, at the request of any Holder requesting registration of Registrable Securities, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, a "comfort" letter dated as of such date, from the independent certified public accountants of the Corporation, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of the Registrable Securities; and (ix) Make available for inspection by each seller of Registrable Securities, any underwriter participating in any distribution pursuant to such registration statement, and any attorney, accountant or other agent retained by such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Corporation, and cause the Corporation's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement. (i) Furnish Information. It shall be a condition precedent to the obligations of the Corporation to take any action pursuant to Sections 6(d), 6(e) and 6(f) that the selling Holders shall furnish to the Corporation such information regarding -24- 25 themselves, the Registrable Securities held by them, and the intended method of disposition of such securities as shall be required to effect the registration of their Registrable Securities. (j) Indemnification. In the event any Registrable Securities are included in a registration statement under Sections 6(d), 6(e) or 6(f): (i) To the extent permitted by law, the Corporation shall indemnify and hold harmless each Holder, the partners, officers and directors of each Holder, any underwriter (as defined in the Securities Act) for such Holder and each Person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively, a "Violation"): (A) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (B) 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 (C) any violation or alleged violation by the Corporation of the Securities Act, the Exchange Act, any federal or state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any federal or state securities law in connection with the offering covered by such registration statement, and the Corporation shall reimburse each such Holder, or a partner, officer or director, underwriter or controlling Person of such Holder for any legal or other expenses reasonably incurred by them, as incurred, in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 6(j) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Corporation (which consent shall not be unreasonably withheld), nor shall the Corporation be liable in any case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for -25- 26 use in connection with such registration by such Holder, or a partner, officer, director, underwriter or controlling Person of such Holder. (ii) To the extent permitted by law, each selling Holder shall indemnify and hold harmless the Corporation, each of its directors and officers who have signed the registration statement, each Person, if any, who controls the Corporation within the meaning of the Securities Act, any underwriter and any other Holder selling securities under such registration statement or any of such other Holder's partners, directors or officers or any Person who controls such Holder within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages or liabilities (joint or several) to which the Corporation or any such director, officer, controlling Person, underwriter or other such Holder, or a partner, director, officer or controlling Person of such other Holder may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder shall reimburse any legal or other expenses reasonably incurred by the Corporation or any such director, officer, controlling Person, underwriter or other Holder, partner, officer, director or controlling Person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 6(j) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; and provided, further, that the total amounts payable in indemnity by a Holder under this Section 6(j)(ii) in respect of any Violation shall not exceed the net proceeds received by such Holder in the registered offering out of which such Violation arises. (iii) Promptly after receipt by an indemnified party under this Section 6(j) of notice of the commencement of any action (including any governmental action), such indemnified party shall, if a claim in respect thereof is to be made against any indemnifying party under this Section 6(j), deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing -26- 27 interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 6(j), but the omission so to deliver written notice to the indemnifying party shall not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 6(j). (iv) In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (A) any Holder exercising rights under this Agreement, or any controlling Person of any such Holder, makes a claim for indemnification pursuant to this Section 6(j) but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 6(j) provides for indemnification in such case, or (B) contribution under the Securities Act may be required on the part of any such selling Holder or any such controlling Person in circumstances for which indemnification is provided under this Section 6(j), then, and in each such case, the Corporation or such Holder shall contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that such Holder is responsible for the portion represented by the percentage that the public offering price of its Registrable Securities offered by and sold under such registration statement bears to the public offering price of all securities offered by and sold under such registration statement, and the Corporation and other selling Holders are responsible for the remaining portion; provided, however, that, in any such case, (1) no such Holder shall be required to contribute any amount in excess of the public offering price of all such Registrable Securities offered and sold by such Holder pursuant to such registration statement; and (2) no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. (v) The obligations of the Corporation and Holders under this Section 6(j) shall survive the completion of any offering of Registrable Securities in a registration statement, and the termination of this Agreement. (k) "Market Stand-Off" Agreement and Coordination of Certain Sales. Each Holder hereby agrees that it shall not, to the extent requested by the Corporation and an underwriter of Common Stock of the Corporation, sell or otherwise transfer or dispose of any Registrable Securities (other than Registrable Securities being registered in such offering) for up to that period of time following the effective date of a -27- 28 registration statement of the Corporation filed under the Securities Act as is requested by the managing underwriter(s) of such offering, not to exceed 90 days; provided, however, that all officers, directors and ten percent (10%) or greater stockholders of the Corporation then holding Common Stock of the Corporation shall enter into similar agreements. Each Holder further agrees that, except for the Limited Sales, it shall not sell or otherwise transfer or dispose of any securities of the Corporation for a period of one year after the date hereof unless such securities are sold pursuant to an underwritten public offering in which all Holders of Investor Registrable Securities are offered the opportunity to participate in the registration pro rata based on the total number of securities held by them. All Holders agree that they shall be solely responsible for the coordination of any Limited Sales among themselves. In order to enforce the foregoing covenant, the Corporation may impose stop transfer instructions with respect to the then-remaining Registrable Securities of each Holder (and the shares or securities of every other Person subject to the foregoing restriction) until the end of such period. (l) Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Registrable Securities to the public without registration, after such time as a public market exists for the Common Stock of the Corporation, the Corporation agrees to: (i) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date of the first registration under the Securities Act filed by the Corporation for an offering of its securities to the general public; (ii) File with the Commission in a timely manner all reports and other documents required of the Corporation under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); and (iii) So long as a Holder owns any Registrable Securities, furnish to the Holder forthwith upon request a written statement by the Corporation as to its compliance with the reporting requirements of said Rule 144 (at any time after 90 days after the effective date of the first registration statement filed by the Corporation for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to the requirements of the Exchange Act), a copy of the most recent annual or quarterly report of the Corporation, and such other reports and documents of the Corporation as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any -28- 29 such securities without registration (at any time after the Corporation has become subject to the reporting requirements of the Exchange Act). (m) Removal of Legends, Etc. Notwithstanding the foregoing provisions of this Section 6, the restrictions imposed by this Section 6 upon the transferability of any Registrable Securities shall cease and terminate when any such Registrable Securities are sold or otherwise disposed of in accordance with the intended method of disposition by the seller or sellers thereof set forth in the registration statement or as otherwise contemplated by Section 6(c) which does not require that the securities transferred bear the legend set forth in Section 6(b). Whenever the restrictions imposed by this Section 6 shall terminate as herein provided, the Holder of any Registrable Securities as to which such restrictions have terminated shall be entitled to receive from the Corporation, without expense, one or more new certificates not bearing the restrictive legend set forth in Section 6(b) and not containing any other reference to the restrictions imposed by this Section 6. (n) Filing of Reports Under the Exchange Act. The Corporation shall give prompt notice to the Stockholders of: (i) the filing of an Exchange Act Registration Statement; and (ii) the effectiveness of such Exchange Act Registration Statement and the number of shares of such class of equity securities outstanding as reported in such Exchange Act Registration Statement, in order to enable the Stockholders to comply with any reporting requirements under the Exchange Act or the Securities Act. The Corporation shall, at any time after the Corporation shall register any shares of Common Stock under the Securities Act and upon the written request of a Stockholder, file an Exchange Act Registration Statement relating to any class of Equity Securities of the Corporation then held by such Stockholder, whether or not the class of equity securities with respect to which such request is made shall be held by at least the number of Persons which would require the filing of a registration statement under Section 12(g)(1) of the Exchange Act. If the Corporation shall have filed an Exchange Act Registration Statement or a registration statement (including an offering circular under Regulation A promulgated under the Securities Act) pursuant to the requirements of the Securities Act (and in any event, at all times following the initial public offering of any of the securities of the Corporation), the Corporation shall comply with all the reporting requirements of the Exchange Act (whether or not it shall be required to do so), and shall comply with all other public information reporting requirements of the Commission as a condition to the availability of an exemption from the Securities Act (under Rule 144 thereof, as amended from time to time, or successor rule thereto or otherwise) for the sale of Common Stock by the Stockholders. The Corporation shall cooperate with the Stockholders in supplying such information as may be necessary for the -29- 30 Stockholders to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of an exemption from the Securities Act (under Rule 144 thereof or otherwise) for the sale of Common Stock by the Stockholders. (o) Transfer or Assignment of Registration Rights. The rights to cause the Corporation to register securities granted to a Holder by the Corporation pursuant to this Section 6 may be transferred or assigned by a Holder only to a transferee or assignee of not less than 50,000 shares of Registrable Securities (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits, and the like), provided that the Corporation is given written notice at the time of or within a reasonable time after said transfer and assignment, stating the name and address of the transferee or assignee and identifying the securities with respect to which such registration rights are being transferred or assigned, and, provided further, that the transferee or assignee of such rights assumes in writing the obligations of such Holder under this Section 6. (p) Termination of Registration Rights. The right of any Holder to request registration or inclusion in any registration pursuant to Section 6(d), 6(e) or 6(f) shall terminate on the earlier of (i) ten (10) years after the closing of the first registered public offering of Common Stock of the Corporation, or (ii) on such date as all shares of Registrable Securities held or entitled to be held upon conversion or exercise by such Holder may immediately be sold under Rule 144 during any 90-day period. (q) Information Rights. Until the closing of the Designated Offering, the Corporation shall either deliver to each Investor Stockholder who owns directly or indirectly at least 85,000 shares of Series C Stock or Series D Preferred Stock (or Class A Common Stock issued upon conversion thereof). (i) as soon as practicable, but in any event within one hundred twenty (120) days after the end of each fiscal year of the Corporation, an income statement for such fiscal year, a balance sheet of the Corporation and a statement of stockholder's equity as of the end of such year, and a schedule as to the sources and applications of funds for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles, and audited and certified by independent public accountants approved by the Board of Directors of the Corporation; (ii) as soon as practicable, but in any event within thirty (30) days of the end of each month, an unaudited income statement (showing actual, budget and prior month) and schedule as to the sources and application of funds and balance sheet for and as of the end of such month, in reasonable detail; -30- 31 (iii) as soon as practicable, but in any event within forty- five (45) days of the end of each fiscal quarter, an unaudited income statement, schedule as to the sources and applications of funds and balance sheet for and as of the end of each such quarter, in reasonable detail; and (iv) as soon as practicable, but in any event thirty (30) days prior to the end of each fiscal year, a budget for the next fiscal year, prepared on a monthly basis, including income statements, balance sheets and applications of funds statements for such months and, as soon as practicable after the adoption thereof, any revisions to such annual budget. SECTION 7. Duration of Agreement. Except for those provisions that, by their terms, terminate sooner, all rights and obligations of each Stockholder under this Agreement shall terminate as to such Stockholder upon the earlier of (a) the transfer in accordance with this Agreement of all Shares held by such Stockholder, or (b) upon written consent of (i) the Stockholders holding a majority of the shares of Series C Stock (or the Class A Common Stock issued upon conversion thereof), (ii) the Stockholders holding at least 66 2/3 of the shares of Series D Preferred Stock, and (iii) the Stockholders holding a majority of the shares of Class A Common Stock (other than those shares specified in subparagraph (i) above). SECTION 8. Severability; Governing Law. If any provisions of this Agreement shall be determined to be illegal and unenforceable by any court of law, the remaining provisions shall be severable and enforceable in accordance with their terms. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to the conflict of laws principles thereof; provided, however, in the event that any provision of this Agreement is unenforceable under the laws of the State of New York and is enforceable under the laws of the State of Delaware, then such provision shall be construed in accordance with the laws of the State of Delaware to permit the enforceability of this Agreement to the fullest extent. SECTION 9. Conflicting Agreements. This Agreement supersedes all other existing agreements or understandings between the stockholders of the Corporation. SECTION 10. Benefits of Agreement. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, legal representatives and heirs. Subject to the terms of this Agreement, the Stockholders may transfer any or all of its rights hereunder to any purchaser or transferee of all or a portion of its shares of Preferred Stock or Common Stock, including any right or interest therein, without the prior written consent of the Corporation or any Stockholder. In the event of such transfer, such transferee shall be deemed to be the "Stockholder " and a "Holder", as appropriate, for purposes of this -31- 32 Agreement, and may again transfer such rights in accordance with, and subject to, the terms of this Agreement. SECTION 11. Notices. All notices, requests, consents and other communications hereunder to any party shall be deemed to be sufficient if contained in a written instrument delivered in person or duly sent by first class registered or certified mail, return receipt requested, postage prepaid, addressed to such party at the address set forth below or such other address as may hereafter be designated in writing by the addressee to the addressor listing all parties: (a) If to the Corporation, to: Medscape, Inc. 134 W. 29th Street New York, NY 10001-5399 Fax (212) 760-3140 Attention: President & CEO with a copy to: Patterson, Belknap, Webb & Tyler LLP 1133 Avenue of the Americas New York, NY 10036-6710 Attention: John P. Schmitt, Esq. (b) If to the Stockholders, at the addresses specified on Schedule I attached hereto. All such notices, advises and communications shall be deemed to have been received (a) in the case of personal delivery, on the date of such delivery and (b) in the case of mailing, on the third day after the posting thereof. SECTION 12. Changes. The terms and provisions of this Agreement may not be modified or amended, or any of the provisions hereof waived, temporarily or permanently, except pursuant to the written consent of (a) the Corporation, (b) the Stockholders holding a majority of the shares of Series C Stock, (v) the Stockholders holding at least 66 2/3 of the shares of Series D Preferred Stock (or the Class A Common Stock issued upon conversion thereof), and (d) the Stockholders holding a -32- 33 majority of the shares of Class A Common Stock (other than those shares specified in subparagraph (b) above). Any rights applicable to a Stockholder may be waived by such Stockholder without the consent of the Corporation or the other Stockholders. Any modification or amendment pursuant to this Section may terminate any right or obligation provided for herein whether or not deemed vested or accrued. Upon approval of modifications or amendments by the requisite percentages of the Stockholders hereunder, the Corporation shall not be required to independently give its consent. SECTION 13. Rights of Dr. Drezner as a Stockholder. Dr. Jeffrey L. Drezner ("Dr. Drezner") shall (a) have all the rights of an Investor Stockholder as are set forth in Sections 4, 5 and Subsection 6(e) of this Agreement (including under Subsection 6(e) as it relates to the piggyback rights to be included within a demand registration initiated pursuant to Subsection 6(d), and, for such purposes, it is understood that the last sentence of Subsection 6(d)(i) shall be read as if it were amended to include at its end: "and Section 6(e)(iii)"), (b) have the right to vote in connection with a modification to the Stockholder Agreement in accordance with Section 12 thereof, (c) have the rights of an Additional Stockholder with respect to all other provisions of this Agreement, and (d) be bound by the other terms and conditions of this Stockholders' Agreement. It is understood and agreed that, in regard to restricted shares issued pursuant to the Employment and Restricted Stock Purchase Agreement, dated October 27, 1998, by and between the Corporation and Dr. Drezner, Dr. Drezner shall only have rights under this Agreement for such restricted shares after they have vested in accordance with the terms thereof (such vested shares, along with the 642,553 shares issued to Dr. Drezner pursuant to the Purchase Agreement, dated October 27, 1998, by and among the Corporation, Dr. Drezner and certain other parties thereto, or to be acquired by Dr. Drezner upon realization of the pledge of 36,509 shares by Jason Rosenbaum to Dr. Drezner, the "Vested Shares"). For purposes of effectuating Dr. Drezner's rights as an Investor Stockholder pursuant to Sections 4 and 5 of this Agreement, to the extent that Dr. Drezner exercises his rights pursuant to Subsections 4(c) or 5(a) thereof, (x) the Vested Shares held by Dr. Drezner shall be counted as shares of Class A Common Stock issuable upon conversion of the Series C Stock for purposes of the formulas set forth therein; and (y) each of the Corporation and Dr. Drezner agrees to exchange any Vested Shares for which Dr. Drezner seeks to require the Transferring Stockholder to cause to be purchased in accordance with such Subsection 5(a) for a like number of shares of Class A Common Stock, such exchange to be effective immediately prior to such purchase (without any additional consideration) with the intent that the purchaser receive Class A Common Stock pursuant to such transaction. In connection with any vote pursuant to Section 12 of this Agreement, Dr. Drezner shall vote with the holders of Series C Stock as a single class, with each Vested Share held by Dr. Drezner having the rights to the number of votes as each share of Class A Common Stock has under the Corporation's Amended and Restated Certificate of Incorporation (the "Certificate"), and each share of Series C Stock having the rights to the number of votes for such series as is set forth in the Certificate. -33- 34 SECTION 14. Captions. The captions herein are inserted for convenience only and shall not define, limit, extend or describe the scope of this Agreement or affect the construction hereof. SECTION 15. Nouns and Pronouns. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms and the singular form of names and pronouns shall include the plural and vice-versa. SECTION 16. Merger Provision. This Agreement (as the same may be amended from time to time) and the Purchase Agreement constitute the entire agreement among the parties pertaining to the subject matter hereof and supersede all prior and contemporaneous agreements therewith. SECTION 17. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same instrument. [The remainder of this page intentionally left blank] -34- 35 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date and year first written above. MEDSCAPE, INC. By: /s/ Paul T. Sheils ------------------------------------- Paul T. Sheils President and Chief Executive Officer [Signature page to Stockholders Agreement - 1] 36 (STOCKHOLDER WITH RIGHTS UNDER SECTION 13) /s/ Jeffrey L. Drezner ----------------------------------- Jeffrey L. Drezner, M.D., Ph.D. ----------------------------------- Melanie Moore ----------------------------------- Sandra Sims ----------------------------------- Jason Rosenbaum [Signature page to Stockholders Agreement - 2] 37 INVESTOR STOCKHOLDERS (EXISTING SERIES C CONVERTIBLE PREFERRED STOCK) /s/ Esther Dyson CSK VENTURE CAPITAL CO., LTD., - ------------------------------- as investment manager for CSK-1(B) ESTHER DYSON Investment Fund APA EXCELSIOR IV, L.P. By: /s/ Kinya Nakagome ------------------------------------- Name: Kinya Nakagome By: /s/ Alan Patricof Title: Managing Director --------------------------- Name: Alan Patricof Title: CSK VENTURE CAPITAL CO., LTD., as investment manager for CSK-2 COUTTS & CO. (CAYMAN) LTD., C/F Investment Fund APA EXCELSIOR IV/OFFSHORE, L.P. By: /s/ Alan Patricoff By: /s/ Kinya Nakagome --------------------------- ------------------------------------- Name: Alan Patricof Name: Kinya Nakagome Title: Title: Managing Director THE PATRICOF PRIVATE INVESTMENT CLUB MEDIA TECHNOLOGY VENTURES, L.P. By: /s/ Alan Patricof By: /s/ Barry M. Weinman --------------------------- ------------------------------------- Name: Alan Patricof Name: Barry M. Weinman Title: Title: Managing Member of the General Partner CSK VENTURE CAPITAL CO., LTD., as investment manager for CSK-1(A)) MEDIA TECHNOLOGY VENTURES Investment Fund ENTREPRENEURS FUND, L.P. By: /s/ Kinya Nakagome By: /s/ Barry M. Weinman --------------------------- ------------------------------------- Name: Kinya Nakogome Name: Barry M. Weinman Title: Managing Director Title: Managing Member of the General Partner ROBERT A. BERNHARD, WILLIAM L. RHL VENTURES LLC BERNHARD, FRANK A. WEIL, AND [Signature page to Stockholders Agreement - 3] 38 LAWRENCE B. BUTTENWEISER, TRUSTEES U/A DATED 9/3/64 F/B/O By: /s/ ROBERT A. BERNHARD FAMILY -------------------------------- Name: Title: By: /s/ Robert A. Bernhard TOLEDOT INVESTMENTS, L.P. --------------------------------- Name: Robert A. Bernhard Title: Trustee By: /s/ Richard Linhart -------------------------------- RICHARD LINHART, GENERAL PARTNER ROBERT A. BERNHARD, WILLIAM L. BERNHARD, JOHN L. LOEB, AND BENJAMIN J. BUTTENWEISER, /s/ Richard Linhart TRUSTEES U/W/D DOROTHY L. ------------------------------------ BERNHARD F/B/O ROBERT A. RICHARD LINHART BERNHARD ARTICLE 9TH By: /s/ Robert A. Bernhard /s/ Victor Scaravilli --------------------------------- ------------------------------------ Name: Robert A. Bernhard VICTOR SCARAVILLI Title: Trustee BE PARTNERS WORMSER FRERES By: /s/ Timothy Sommerfield -------------------------------- Name: Timothy Sommerfield By: /s/ Marcel Wormser Title: Partner --------------------------------- Name: Marcel Wormser Title: Administrateur /s/ Mark Braunstein Wormser Freres, Paris ------------------------------------ MARK BRAUNSTEIN, M.D. OPPENHEIMER & CO., INC. TBG INFORMATION INVESTORS, L.L.C. By: /s/ Nathan Gantcher By: /s/ Oakleigh Thorne - ------------------------------------- -------------------------------- Name: Nathan Gantcher Name: Oakleigh Thorne Title: Vice Chairman Title: Chairman & CEO /s/ Roger Mulvihill - ------------------------------------- ROGER MULVIHILL /s/ Mary Mulvihill - ------------------------------------- MARY MULVIHILL EXISTING STOCKHOLDERS (SERIES A PREFERRED STOCKHOLDER) [Signature page to Stockholders Agreement - 4] 39 THE EXCELSIOR FUND I By: /s/ Alan Patricof ------------------- Name: Alan Patricof Title: (CLASS A COMMON STOCKHOLDER) /s/ Peter M. Frishauf ------------------------ PETER M. FRISHAUF [Signature page to Stockholders Agreement - 5] 40 INVESTING STOCKHOLDERS (NEW SERIES D CONVERTIBLE PREFERRED STOCK) CSK VENTURE CAPITAL CO., LTD. CSK VENTURE CAPITAL CO., LTD. AS AS INVESTMENT MANAGER FOR INVESTMENT MANAGER FOR CSK-1(B) INVESTMENT FUND CSK-1(A) INVESTMENT FUND By: /s/ Kinya Nakagome By: /s/ Kinya Nakagome --------------------------------- ---------------------------------- Name: Kinya Nakagome Name: Kinya Nakagome Title: Managing Director Title: Managing Director Address: Kenchikukaikan, 7F Address: Kenchikukaikan, 7F 5-26-20 Shiba, Minato-ku 5-26-20 Shiba, Minato-ku Tokyo 108-0014 Japan Tokyo 108-0014 Japan CSK VENTURE CAPITAL CO., LTD. AS INVESTMENT MANAGER FOR CSK-2 INVESTMENT FUND By: /s/ Kinya Nakagome --------------------------------- Name: Kinya Nakagome Title: Managing Director Address: Kenchikukaikan, 7F 5-26-20 Shiba, Minato-ku Tokyo 108-0014 Japan HEARST COMMUNICATIONS, INC. By: /s/ Kenneth A. Bronfin ---------------------------------- Name: Kenneth A. Bronfin Title: Senior Vice President Address: 959 8th Avenue, Suite 331 New York, NY 10019 [Signature page to Stockholders Agreement - 6] 41 WORMSER FRERES By: /s/ Marcel Wormser ---------------------------------- Name: Marcel Wormser Title: Administrateur, Wormser Freres, Paris Address: Banque D'Escompte 13 Blvd. Haussmann 75009 Paris France [Signature page to Stockholders Agreement - 7] 42 MEDIA TECHNOLOGY VENTURES, L.P. By: /s/ Barry M. Weinman ---------------------------------------------- Name: Barry M. Weinman Title: Managing Member of the General Partner MEDIA TECHNOLOGY VENTURES ENTREPRENEURS FUND, L.P. By: /s/ Barry M. Weinman ---------------------------------------------- Name: Barry M. Weinman Title: Managing Member of the General Partner [Signature page to Stockholders Agreement - 8] 43 APA EXCELSIOR IV, L.P. By: APA EXCELSIOR IV PARTNERS, L.P., its General Partner By: PATRICOF & CO. MANAGERS, INC., its General Partner By: /s/ Alan J. Patricof ----------------------------------- Name: Alan J. Patricof Title: Chairman APA EXCELSIOR IV/OFFSHORE, L.P. By: PATRICOF & CO. VENTURES, INC., its Investment Advisor By: /s/ Alan J. Patricof ----------------------------------- Name: Alan J. Patricof Title: Chairman PATRICOF PRIVATE INVESTMENT CLUB, L.P. By: APA EXCELSIOR IV PARTNERS, L.P., its General Partner By: PATRICOF & CO. MANAGERS, INC., its General Partner By: /s/ Alan J. Patricof ----------------------------------- Name: Alan J. Patricof Title: Chairman [Signature page to Stockholders Agreement - 9] 44 WESTON PRESIDIO CAPITAL II, L.P. By: Weston Presidio Capital Management II, LP, its General Partner By: /s/ ------------------------------------ WESTON PRESIDIO CAPITAL III, L.P. By: Weston Presidio Capital Management III, LLC, its General Partner By: /s/ ------------------------------------ WPC ENTREPRENEUR FUND, L.P. By: Weston Presidio Capital Management III, LLC, its General Partner By: /s/ ------------------------------------ HIGHLAND CAPITAL PARTNERS IV LIMITED PARTNERSHIP By: Highland Management Partners IV LLC, its General Partner By: /s/ ------------------------------------ Member HIGHLAND ENTREPRENEURS' FUNDS IV, LIMITED PARTNERSHIP By: Highland Entrepreneurs' Fund IV LLC, its General Partner By: /s/ ------------------------------------ Member [Signature page to Stockholders Agreement - 10] 45 (SECTION 4 STOCKHOLDERS NOT SIGNING IN ANOTHER CAPACITY) ---------------------------- /s/ Steven Kalin ---------------------------- Steven Kalin /s/ Paul Sheils ---------------------------- Paul Sheils [Signature page to Stockholders Agreement - 11] EX-10.24 28 FORM OF COPYRIGHT ASSIGNMENT 1 March 3, 1999 Exhibit 10.24 Article ID No. MHA To: Title: "" - -------------------------------------------------------------------------------- PLEASE RETURN THIS FORM TO MICHAEL H. FRIEDBERG IN THE ENCLOSED ENVELOPE OR BY FAX (212/760-3140). COPYRIGHT ASSIGNMENT Note: Author(s) who are U.S. government employees whose work fits the description in the U.S. Copyright Act of a "U.S. Government Work" must complete the "Statement of Author(s) of a United States Government Work" in lieu of this copyright assignment form. Copyright law requires that all manuscripts be accompanied by the following written statement, signed by the principal author: "In consideration of the Publisher's accepting for publication my (our) article or other written work [title of manuscript] and in the event the work is published, I (we) transfer to the Publisher all right, title, and interest in my (our) article or other written work, including (1) copyright; (2) the right to grant permission to re-publish the article in whole or in part, worldwide, and without fee; (3) the right to produce preprints or reprints for sale or free distribution worldwide; and (4) the right to re-publish or distribute the article worldwide in a collection of articles or in any other format, media, or means, electronic or mechanical, including electronic information retrieval systems, indexing, and abstracting services. I (we) accept responsibility for releasing the work on behalf of any and all co-authors, and I (we) affirm that the article or other written work has not been previously published, is not subject to copyright or other rights except my (our) own to be transferred to the publisher, and has not otherwise been submitted for publication." COMPENSATION: As total compensation for your preparation of the contribution and the above grant and assignment of rights, you will receive the honorarium as separately agreed. If Medscape publishes the contribution(s) in print form, you will be entitled to receive ten (10) free copies of the publication. You may purchase additional copies at Medscape's production cost; requests for large quantities must be received prior to the first production. ----------------------------------- Author ----------------------------------- Signature ----------------------------------- Date EX-10.25 29 FORM OF LETTER TO AUTHORS 1 Exhibit 10.25 Date Name Address Address Address Dear _____, Thank you for agreeing to author a module to be included in Medscape's HIV care management series, addressing the clinical management of individuals with HIV infection for publication online and, potentially, in print. Your topic is _______________________________. Your involvement allows Medscape to offer high-caliber and innovative self-study CME modules for physicians, pharmacists and advance-practice nurses. I have included the manuscript specifications in this mailing to help you get started. Also included in this mailing is a Faculty Information Form, Disclosure, and Copyright Forms. These forms are required by our joint CME sponsor and the American Medical Association as this program is supported by an unrestricted educational grant from a commercial sponsor, XXX. The following submission date reflects the time required for my editing, peer review (by a member of the Clinical Care Options for HIV Scientific Advisory Board), your final online review and production by the online publisher and print production house. Please contact me if you foresee any problems arising with this timeline. Please plan to return the following items to me by FRIDAY, DATE via Federal Express (for tracking capabilities): - - Faculty Information Form - - Faculty Disclosure Form - - Most current C.V. - - Completed Medical Writer and Consent & Release Form - - Personal photo (for reproduction online and print monograph) 2 - - Topic abstract (see enclosed manuscript specifications) in both hard copy and IBM- compatible (preferably Word Perfect) disc - - Topic Learning Objectives (see enclosed manuscript specifications) in hard copy and IBM- compatible (preferably Word Perfect) disc - - Completed hard copy of the manuscript, including, if possible, 2 copies of all slides and photos - - Completed manuscript on IBM-compatible (preferably Microsoft Word) disc - - PLEASE DO NOT E-MAIL ME THESE MATERIALS. All text for the module may be submitted on one disc. Finally, these modules target a wide-ranging audience of clinical practitioners -- nurse practitioners, advance nurse clinicians, physician assistants, pharmacists and physicians. Although these professionals may provide care to an HIV population, HIV care may not be the bulk of their clinical practice. In fact, some of our readers do not treat HIV+ patients at all, but review our site for general updates on the topic. Thus, these modules serve both as a guide to direct clinical practice and possibly, to some readers, as an in-depth introduction to the topic. Please feel free to contact me concerning any questions you may have during the development of these materials. I am delighted to be working with you on this project! Sincerely, Edward King HIV Program Director 3 INFORMATION FOR AUTHOR: 1. MANUSCRIPT SPECIFICATIONS: Manuscripts must be typewritten, single-spaced and approximately 25-30 pages in length. Each manuscript must include: a) Five (5) Learning Objectives. b) Abstract, briefly addressing the need for a course on this topic, and contents of the offering. c) One (1) to two (2) page (single-spaced) case presentation to introduce the topic and focus the reader on key points of the text. The case will be presented throughout the text in sequential stages to facilitate the participants' understanding of the clinical application of each major section of the manuscript. d) Text, organized under specific subheadings (single-spaced): - identify 3 - 4 key points - include lab detail, clinical photos or slides, tables or charts as appropriate to the evaluation of patients or to summarize key clinical information - indicate to editor as soon as possible, any items requiring copyright approval (see Consent Form) - submit two (2) copies of any slides or photos to be used e) Text conclusions describing "clinical pearls." f) References to source articles (identified in text-- see Dr. Kuritzkes' module). g) Further suggested readings (optional, brief list of any other key articles). h) Post-Test: five (5) questions in multiple-choice format, four (4) choices and one (1) correct answer. i) Brief explanation of correct answer to each of the five post-test questions. Program manuscripts should be submitted in hard copy and on disc file in IBM-compatible format (preferably Microsoft Word) to: Edward King Telephone: +44 171 622 3864 Medscape, Inc. Facsimile: +44 171 498 4509 21 Union Road E-mail: edward_king@mail.medscape.com London, SW4 6JQ UK 2. UPDATES: Program offerings may require periodic updates (after 6-12 months) by the Chairperson/Author. 3. COMPENSATION: a) Chairperson/Author agrees to work as Independent Contractor b) $X,000.00 to be paid upon submission of Faculty Information Update Form, Faculty Disclosure Form, C.V., Learning Objectives, Abstract and Writer's Consent Form c) $X,000.00 to be paid upon completion of final manuscript, slides and post-test, including any final edits in review d) $X,000.00 to be paid upon completion of updated manuscript approximately 6-12 months after initial release of the online program FACULTY INFORMATION UPDATE FORM 4 Please complete the following information for our records: FACULTY MEMBER: NAME DEGREE SPECIALTY -------------------------------------------------------------- ACADEMIC TITLE -------------------------------------------------------------- (Indicate Professor, Assistant or Associate Professor, or Chairman, etc.) DEPARTMENT -------------------------------------------------------------- (Department where teaching position is held) FULL NAME OF MEDICAL SCHOOL -------------------------------------------------------------- (Institution where above academic title is held, i.e., Medical School, School of Medicine, Medical College, etc.) CITY OF SCHOOL -------------------------------------------------------------- CLINICAL TITLE -------------------------------------------------------------- (Director, Chief of department or section in a clinic or hospital, or staff physician) CLINICAL DEPARTMENT -------------------------------------------------------------- HOSPITAL -------------------------------------------------------------- (Hospital where clinical title is held, i.e., hospital, clinic or medical center) CITY OF HOSPITAL -------------------------------------------------------------- PREFERRED MAILING ADDRESS -------------------------------------------------------------- -------------------------------------------------------------- -------------------------------------------------------------- CITY STATE ZIP + 4 -------------------------------------------------------------- EXPRESS MAIL ADDRESS (IF DIFFERENT FROM ABOVE) -------------------------------------------------------------- HONORARIA SHOULD BE MADE PAYABLE TO: -------------------------------------------------------------- ADDRESS: -------------------------------------------------------------- BUSINESS TELEPHONE ( ) FAX # ( ) -------------------------------------------------------------- HOME TELEPHONE ASSISTANT / NURSE -------------------------------------------------------------- SOCIAL SECURITY # OR TAX ID # -------------------------------------------------------------- Please attach a current copy of your Curriculum Vitae and Faculty Disclosure Information Statement, and return at your earliest convenience to: Medscape, Inc., Attn: Michael H. Friedberg, 134 W. 29th St., New York, NY 10001-5399 If you have any questions regarding these forms, please contact: MICHAEL FRIEDBERG (212) 760-3243 EX-21.1 30 SUBSIDIARIES 1 Exhibit 21.1 Subsidiary Healthcare Communications Group, LLC Organized in Maryland EX-23.2 31 CONSENT OF DELOITTE & TOUCHE LLP 1 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of Medscape, Inc. on Form S-1 of our report dated February 12, 1999 relating to the financial statements of Medscape, Inc. and of our report dated April 9, 1999 relating to the financial statements of Healthcare Communications Group, LLC appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the headings "Selected Consolidated Financial Data" and "Experts" in such Prospectus. DELOITTE & TOUCHE LLP New York, New York May 4, 1999 -----END PRIVACY-ENHANCED MESSAGE-----