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As filed with the Securities and Exchange Commission on June 18, 2015

Registration No. 333-204577


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDMENT NO. 3
TO

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

TELADOC, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  7389
(Primary Standard Industrial
Classification Code Number)
  04-3705970
(I.R.S. Employer
Identification No.)

2 Manhattanville Road
Suite 203
Purchase, New York 10577
(203) 635-2002
(Address, including zip code, and telephone number, including area code, of the registrant's principal executive offices)

Jason Gorevic
Mark Hirschhorn
Teladoc, Inc.
2 Manhattanville Road, Suite 203
Purchase, New York 10577
(203) 635-2002
(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Marc D. Jaffe
Rachel W. Sheridan
Brandon J. Bortner
Latham & Watkins LLP
885 Third Avenue
New York, NY 10022
(212) 906-1200

 

Adam C. Vandervoort
Chief Legal Officer & Secretary
Teladoc, Inc.
2 Manhattanville Road, Suite 203
Purchase, New York 10577
(203) 635-2002

 

Alexander D. Lynch
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
(212) 310-8000

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.

            If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.     o

            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.     o

            If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

            If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

            Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  o   Accelerated filer  o   Non-accelerated filer  ý
(Do not check if a
smaller reporting company)
  Smaller reporting company  o

               
 
Title of Securities
to be registered

  Amount to be
registered(a)

  Proposed maximum
offering price
per share(b)

  Proposed maximum
aggregate offering
price(a)(b)

  Amount of
registration fee(c)

 

Common stock, $0.001 par value per share

  8,050,000   $17.00   $136,850,000   $15,902

 

(a)
Includes 1,050,000 additional shares of common stock that may be purchased by the underwriters.
(b)
Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(a) promulgated under the Securities Act of 1933, as amended.
(c)
Of this amount, $11,620 was previously paid in connection with the initial filing of this Registration Statement on May 29, 2015.

             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 that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

   


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Subject to completion, dated June 18, 2015

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Prospectus

7,000,000 Shares

GRAPHIC

Common Stock

This is the initial public offering of shares of common stock of Teladoc, Inc. We are selling 7,000,000 shares of common stock.

Prior to this offering, there has been no public market for our common stock. We expect the public offering price to be between $15.00 and $17.00 per share. We have applied for listing of our common stock on the New York Stock Exchange, or the NYSE, under the symbol "TDOC."

We are an "emerging growth company" as defined by the Jumpstart Our Business Startups Act of 2012 and, as such, we have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings. See "Prospectus Summary—Implications of Being an Emerging Growth Company."

Investing in our common stock involves risks that are described in the "Risk Factors" section beginning on page 20 of this prospectus.



  Per Share     Total    

Public offering price

  $     $    

Underwriting discount

  $     $    

Proceeds, before expenses, to us

  $     $    

We have granted the underwriters an option for a period of 30 days to purchase up to an additional 1,050,000 shares of common stock.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares to purchasers on or about                          , 2015.

J.P. Morgan       Deutsche Bank Securities

 

        William Blair    
Wells Fargo Securities       SunTrust Robinson Humphrey

   

                          , 2015


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GRAPHIC


TABLE OF CONTENTS

 
  Page

Prospectus Summary

  1

Risk Factors

 
20

Special Note Regarding Forward-Looking Statements

 
53

Use of Proceeds

 
54

Dividend Policy

 
55

Capitalization

 
56

Dilution

 
58

Selected Historical Financial Information

 
60

Unaudited Pro Forma Consolidated Financial Information

 
62

Management's Discussion and Analysis of Financial Condition and Results of Operations

 
67

Business

 
90

Management

 
116

Executive and Director Compensation

 
124

Certain Relationships and Related Person Transactions

 
138

Principal Stockholders

 
140

Description of Capital Stock

 
143

Shares Eligible for Future Sale

 
149

Material U.S. Federal Income Tax Consequences to Non-U.S. Holders

 
152

Underwriting

 
157

Legal Matters

 
163

Experts

 
163

Where You Can Find More Information

 
163

Index to Financial Statements

 
F-1



          You should rely only on the information contained in this prospectus and in any related free-writing prospectus we prepare or authorize. We have not, and the underwriters have not, authorized anyone to give you any other information and take no responsibility for any other information that others may give you. We are offering to sell, and seeking offers to buy, the common stock only in jurisdictions where offers and sales are permitted. The information in this document may only be accurate on the date of this document, regardless of its time of delivery or of any sales of the common stock. Our business, financial condition, results of operations or cash flows may have changed since such date.

i


Market, Industry and Other Data

         This prospectus includes estimates regarding market and industry data and forecasts, which are based on publicly available information, industry publications and surveys, reports from government agencies, reports by market research firms or other independent sources and our own estimates based on our management's knowledge of and experience in the market sectors in which we compete.

         Certain monetary amounts, percentages and other figures included in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables or charts may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.

Trademarks

         We own or otherwise have rights to the trademarks and service marks, including those mentioned in this prospectus, used in conjunction with the marketing and sale of our products and services. This prospectus includes trademarks, such as Teladoc and AmeriDoc, which are protected under applicable intellectual property laws and are our property and the property of our subsidiaries. This prospectus also contains trademarks, service marks, copyrights and trade names of other companies, which are the property of their respective owners. We do not intend our use or display of other companies' trademarks, copyrights or trade names to imply a relationship with, or endorsement or sponsorship of us by any other companies. Solely for convenience, our trademarks and trade names referred to in this prospectus may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and trade names.

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PROSPECTUS SUMMARY

          This summary highlights information contained elsewhere in this prospectus. Because this is only a summary, it does not contain all of the information that may be important to you. You should read this entire prospectus and should consider, among other things, the matters set forth under "Risk Factors," "Selected Historical Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our audited consolidated financial statements and related notes thereto appearing elsewhere in this prospectus before making your investment decision. Unless otherwise indicated or the context otherwise requires, references in this prospectus to "Teladoc," the "Company," "our company," "we," "us" and "our" refer to Teladoc, Inc., a Delaware corporation, together with its consolidated subsidiary. References herein to "fiscal year" refer to our fiscal years, which end on December 31.

Overview

         We are the nation's first and largest telehealth platform, delivering on-demand healthcare anytime, anywhere, via mobile devices, the internet, video and phone. Our solution connects consumers, or our Members, with our over 1,100 board-certified physicians and behavioral health professionals, or our Providers, who treat a wide range of conditions and cases from acute diagnoses such as upper respiratory infection, urinary tract infection and sinusitis to dermatological conditions, anxiety and smoking cessation. Nearly 11 million unique Members now benefit from access to Teladoc 24 hours a day, seven days a week, 365 days a year, at a cost of $40 per visit. Our solution is delivered with a median response time of less than ten minutes from the time a Member requests a telehealth visit to the time they speak with a Teladoc physician. We completed approximately 300,000 telehealth visits in 2014.

         The Teladoc solution is transforming the access, cost and quality dynamics of healthcare delivery for all of our market participants. Our Members rely on Teladoc to remotely access affordable, on-demand healthcare whenever and wherever they choose. Employers, health plans and health systems, or our Clients, purchase our solution to reduce their healthcare spending while at the same time offering convenient, affordable, high-quality healthcare to their employees or beneficiaries. Our Providers have the ability to generate meaningful income and deliver their services more efficiently with no administrative burden. We believe the value proposition of our solution is evidenced by our overall Member satisfaction rate, which has exceeded 95% over the last six years, and a 104% annual net dollar retention rate among our Clients on average over the last three years. We further believe any consumer, employer or health plan or practitioner interested in a better approach to healthcare is a potential Teladoc Member, Client or Provider.

         According to the Centers for Disease Control and Prevention, or the CDC, there are approximately 1.25 billion ambulatory care visits in the United States per year, including those at primary care offices, hospital emergency rooms, outpatient clinics and other settings. We estimate that approximately 417 million, or 33%, of these visits could be treated through telehealth.

         The U.S. healthcare system is experiencing a growing crisis of access, cost and quality of care due to inefficiencies in today's healthcare system and barriers between participants. According to the National Association of Community Health Centers, or the NACHC, approximately 62 million individuals in the United States currently have no or inadequate access to primary care as a result of physician shortages. Additionally, according to the Department of Health and Human Services, the Patient Protection and Affordable Care Act, or PPACA, has already expanded coverage to 16.4 million of the 47 million previously uninsured Americans. This number is widely expected to increase over the next several years due to individual and employer mandates, premium subsidies, state health insurance exchanges and ban on withholding coverage due to pre-existing medical conditions, increasing demand for access to primary care physicians. Absent convenient access to a primary care physician, individuals will most likely either not seek care at all or visit emergency

 

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rooms or urgent care clinics, the most expensive and often inefficient settings for their primary care needs. These market dynamics impact not only the consumers seeking care, but also the health plans and employers that ultimately bear all or a portion of these costs. According to the CDC, 79.7% of emergency room visits not resulting in a hospital admission were due to lack of access to an alternative provider, and a recent study published in The Journal of American Medical Association estimated that approximately $734 billion, or 27%, of all healthcare spending in 2011 was wasted due to factors such as the provision of unnecessary services, inefficient delivery of care and inflated prices.

         Innovators in other industries have solved access, cost and quality inefficiencies through the implementation of technology platforms and business models that deliver products and services on-demand and create new economies by connecting and empowering both consumers and businesses. We have taken the same approach to solving the pervasive access, cost and quality challenges facing the current healthcare system. Consumers' ability to access high-quality, affordable care has been limited by many factors such as physician availability, prohibitive costs, physician office hours and geographic locations. Likewise, burdensome administration, cancellations, unfilled appointment slots, geographic constraints and business hour limitations have historically impacted physician efficiency and, as a result, constrained physicians' income. We have created a platform that is uniquely positioned to bridge the supply and demand gap between physicians and consumers by fundamentally changing the way market participants access and deliver healthcare—eliminating traditional barriers and inefficiencies between participants and empowering them to engage in a healthcare marketplace anytime, anywhere. Our platform provides our Members with access to board-certified physicians, comprehensive clinical programs and consumer engagement strategies in an economic model that delivers multiple benefits to all participants. The unique combination of these features enables us to dynamically and efficiently match consumer demand and physician availability in real-time.

         Our underlying technology platform is complex, deeply integrated and has been purpose-built over the last ten years for the evolving healthcare marketplace. Our platform is highly scalable and can support substantial growth in our current membership base. Our platform provides for broad interconnectivity between healthcare constituents and, we believe, uniquely positions us as a focal point in the rapidly evolving healthcare industry to introduce innovative, technology-based solutions, such as remote patient monitoring, post-discharge treatment plan adherence and in-home and chronic care.

         Our solution offers our Clients substantial savings opportunities and an attractive return on investment, or ROI. We recently commissioned Veracity Healthcare Analytics, an independent healthcare data analytics company, to perform an independent study of the nation's largest home-improvement retailer, a Client since 2012, representing over 150,000 of our Members as of December 31, 2014. The study was prepared on behalf of Veracity Healthcare Analytics by two doctors of medicine and a doctor of science and pharmacy, in each case, professors at leading academic institutions. The study found that this Client saved $1,157 on average per employee when its employees received care through Teladoc instead of receiving care in other settings for the same diagnosis. The study also measured the total healthcare expenditure per-Member-per-month during the 16-month period immediately preceding the implementation of Teladoc in order to establish a trend and predict the Client's average monthly expenditure per-Member-per-month over the 20-month period following the introduction of Teladoc. The study demonstrated a meaningful reduction in average per-Member-per-month spending of $21.30 to the Client relative to predicted cost, or a monthly healthcare expenditure savings of 10.2% per Member. Additionally, during 2014 the Client achieved an ROI of approximately $9.00 for every $1.00 spent per Member. Finally, the study demonstrated that 92% of the Client's employees that used Teladoc for a medical issue resolved their issue completely and did not require a follow up visit at a physician's office, emergency room or other location. We believe these results are representative of the results

 

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achieved by our other Clients as well as the value proposition we can provide the broader U.S. healthcare system.

         We currently serve over 4,000 employers, health plans, health systems and other entities. These Clients collectively purchase access to our solution for our nearly 11 million Members. We believe our Business to Business to Consumer, or B2B2C, distribution strategy is the most efficient method by which to reach consumers and deliver telehealth to our Members. We have over 20 health plans as Clients, including some of the largest in the United States such as Aetna, Blue Shield of California, Highmark and Centene. Health plans serve as Clients as well as distribution channels to self-insured employer Clients that contract with us through a health plan relationship. Our over 1,600 direct and administrative services only, or ASO, employer Clients include 160 Fortune 1000 companies and industry leaders such as Accenture, Bank of America, Pepsi and Shell. We also have a number of health system Clients such as Henry Ford, Memorial Hermann and Mount Sinai. The remainder of our Clients are from channel partners such as brokers, resellers and consultants who sell into a range of small, medium and large enterprises. Over the past two years, we have more than doubled our client and membership bases. We believe telehealth is in the early stages of what eventually will become widespread adoption. A 2014 Towers Watson study suggests as many as 71% of employers with more than 1,000 employees are expected to offer telehealth by 2017.

         We generate revenue from our Clients on a contractually recurring, per-Member-per-month, subscription access fee basis, which provides us with significant revenue visibility. In addition, under the majority of our Client contracts, we generate additional revenue on a per-telehealth visit basis, through a visit fee. Subscription access fees are paid by our Clients on behalf of their employees, dependents and other beneficiaries, while visit fees are paid by either Clients or Members. We generated $19.9 million and $43.5 million in revenue for the years ended December 31, 2013 and 2014, respectively, representing 119% year-over-year growth, and $9.4 million and $16.5 million for the three months ended March 31, 2014 and 2015, respectively, representing 75% year-over-year growth. For the three months ended March 31, 2015, 80% and 20% of our revenue were derived from subscription access fees and visit fees, respectively, and for the year ended December 31, 2014, 85% and 15% of our revenue were derived from subscription access fees and visit fees, respectively.

Industry Challenges and Our Opportunity

         Barriers and inefficiencies in the current U.S. healthcare system present market participants with three major challenges: (i) consumers lack sufficient access to high-quality, cost-effective healthcare at appropriate sites of care, while bearing an increasing share of costs; (ii) employers and health plans lack an effective solution that reduces costs while enhancing healthcare access for beneficiaries and (iii) providers lack flexibility to increase productivity by delivering care on their own terms. Market participants are therefore increasingly unable to effectively and efficiently receive, deliver or administer healthcare. At the same time, the emergence of technology platforms solving massive structural challenges in other industries has highlighted the need for a similar solution in healthcare. We believe there is a significant opportunity to solve these challenges through a trusted solution, such as ours, that matches consumer demand and physician supply in real-time, while offering health plans and employers an attractive, cost-effective healthcare alternative for their beneficiaries.

    Growing Healthcare Access Crisis for Consumers

         Consumers in the United States are experiencing challenges in obtaining access to affordable, high-quality healthcare at appropriate sites of care. A 2014 NACHC report found that 62 million individuals in the United States have no or inadequate access to primary care as a result of local

 

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physician shortages. According to a 2014 Merritt Hawkins study, the average lead time to see a primary care physician across various metro areas was 19 days. We believe provider supply is projected to further contract, evidenced by the 2014 Survey of America's Physicians: Practice Patterns and Perspectives, or the 2014 Survey of America's Physicians, where 81% of physicians describe themselves as either over-extended or at full capacity. Additionally, according to a 2010 Association of American Medical Colleges, or AAMC, report, the healthcare system will have a shortage of approximately 131,000 physicians by 2025, including a shortage of approximately 52,000 primary care physicians. Given expected population growth and aging in the United States, as well as the projected increase in healthcare demand from PPACA implementation, the supply and demand gap for access to healthcare services is expected to further widen, placing additional pressure on an already overburdened healthcare system that lacks physician capacity and diagnoses-appropriate access points.

         This access crisis has resulted in U.S. consumers either seeking care at inappropriate, more costly settings, such as hospital emergency rooms, or foregoing needed care entirely. According to the CDC, there are approximately 1.25 billion in-person ambulatory care visits in the United States per year, including those at primary care offices, hospital emergency rooms, outpatient clinics and other settings. We estimate that approximately 417 million, or 33%, of these visits could be treated through telehealth.

    Healthcare Cost Burden and Lack of Viable Options for Health Plans and Employers

         The U.S. healthcare system is burdened by significant waste and extreme variations in access, cost and quality of care. A recent study published in The Journal of American Medical Association estimates that approximately $734 billion, or 27%, of all healthcare spending in 2011 was wasted due to factors such as the provision of unnecessary services, inefficient delivery of care and inflated prices. When consumers are forced to seek care at inappropriate and more costly sites of care, those cost inefficiencies impact not only the consumer, but also the health plans and employers that ultimately bear all or a portion of these costs.

         The costs and associated burdens on health plans, employers and consumers are only expected to increase. The Centers for Medicare & Medicaid Services, or CMS, forecasted U.S. national health expenditures to reach $3.1 trillion, or approximately 18% of the U.S. Gross Domestic Product, or GDP, in 2014, and approximately 20% of GDP by 2022. A 2013 survey by the National Business Group on Health and Towers Watson indicated that employers bear on average approximately two-thirds of their employee's healthcare costs and CMS forecasted U.S. employers to spend approximately $660 billion on healthcare in 2015. Despite the significant amount of dollars spent, U.S. healthcare outcomes remain inferior relative to those of many other countries.

         The unsustainable levels of spending on healthcare and extreme inefficiencies in the system have driven an increased focus by employers and health plans to control healthcare expenditures. Governments, private insurance companies and self-insured employers are implementing meaningful cost containment measures, including shifting financial responsibility to patients through higher co-pays and deductibles and delivering healthcare through alternative, more cost-effective methods. The increasing shift of financial responsibility to patients coupled with increased pricing transparency has, in turn, heightened beneficiary focus on healthcare alternatives. According to a 2013 survey for Prudential Insurance by MRops, Inc. and Oxygen Research Inc., 49% of employers are extremely or very likely to eventually offer only high deductible health plans, or HDHPs. As consumers take responsibility for a larger share of their healthcare costs and spend more on healthcare services, they are also demanding higher quality care, greater control in how and where they receive care, increased convenience and more service for every dollar spent.

 

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    Challenging Environment for Physicians is Constraining Supply

         Physicians face declining compensation paired with diminishing productivity due to a combination of reimbursement cuts and an increasing administrative burden. These factors have contributed to physician dissatisfaction and negatively impacted their desire to practice medicine. Medscape's 2014 Physician Compensation Report shows that 50% of all physicians do not feel fairly compensated and 42% would not choose medicine as their career today.

         In response to this growing dissatisfaction, physicians are reducing access to healthcare in a number of different ways. The 2014 Survey of America's Physicians indicated that 44% of physicians plan to take steps to limit access to their practices, including cutting back on the number of patients seen, working part-time, closing their practices to new members, seeking non-clinical jobs or retiring. Notably, 39% of surveyed physicians indicated they plan to accelerate retirement given changes in the healthcare environment. Further, administrative challenges are expected to increase. According to the same survey, 50% of physicians anticipate the implementation of the tenth revision of the International Statistical Classification of Diseases and Related Health Problems, or ICD-10, to cause severe administrative problems in their practices. This is expected to further increase the 20% of daily time surveyed physicians indicated they already spend on non-clinical paperwork, which is constraining their productivity. These constraints have driven physicians to seek more control over the way they deliver care to new and existing patients, increase their income and reduce the amount of time they spend on administration.

    Opportunity to Remove Barriers Through an Innovative Platform that Benefits All Participants

         We believe we have a significant opportunity to solve access, cost and quality of care challenges through a platform that matches consumer demand and physician availability in real-time, while offering health plans and employers an attractive, cost-effective alternative for their beneficiaries through our platform. As consumerism in healthcare increases and consumers and providers become accustomed to on-demand services in other industries, they are similarly demanding technology-powered solutions for their healthcare needs. The emergence and subsequent rapid adoption of technologies such as big data and analytics, cloud-based solutions, online video and mobile applications represents an enormous opportunity for healthcare innovation. We believe the confluence of consumer empowerment, emergence of broad technology solutions and focus by all constituents on providing high-quality, cost-effective healthcare creates a unique opportunity for a disruptive platform that transforms the way consumers access, providers deliver and employers and health plans administer high-quality, cost-efficient healthcare.

Our Value Proposition

         We focus exclusively on delivering on-demand healthcare anytime, anywhere, via mobile devices, the internet, video and phone. We believe our solution provides market participants a value proposition that is differentiated from the traditional healthcare system.

    Value Proposition for Members

         Our philosophy is to center care around the Member. We believe we offer our Members the following value proposition.

    On-Demand Care .    We offer our Members 24 hours a day, seven days a week, 365 days a year access to high-quality, on-demand care without the burdens associated with travel and wait times. We provide our Members with access to our Providers with a median response time of less than ten minutes from the time a Member requests a telehealth visit, as compared to an average primary care appointment lead time of 19 days.

 

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    Access to High-Quality Physician Network .    We have secured our Providers' services through a long-term services agreement with Teladoc Physicians, P.A., or Teladoc PA, a professional association, that has agreed to provide our Members, through its physicians, access to telehealth services and recommended treatment 24 hours per day, 365 days per year. Our contracted physician network is comprised of approximately 675 board-certified physicians with an average of 20 years of experience, and, according to a 2014 RAND study, Teladoc increased access for Members who used it, as more than one-third of Teladoc visits occurred on weekends and holidays when primary care physicians were not available.

    Ease of Use .    Our user-friendly interface offers Members access to care via mobile devices, the internet, video and phone, whenever and wherever each individual chooses.

    Cost-Efficient Care .    The average primary care physician visit costs $145 and the average emergency room visit costs $1,957 according to the Agency for Healthcare Research and Quality and PLoS ONE, respectively. At $40 per Teladoc visit, we offer our Members substantial savings, which is meaningful as employers and health plans shift costs to cost conscious consumers.

    Superior Experience .    We recently commissioned Veracity Healthcare Analytics, an independent healthcare data analytics company, to perform resource utilization and health spending analyses on two of our largest Clients, the nation's largest home-improvement retailer and Rent-A-Center. The related studies were prepared on behalf of Veracity Healthcare Analytics by two doctors of medicine and a doctor of science and pharmacy, in each case, professors at leading academic institutions. Each study demonstrated that 92% of participating Members' diagnoses were completely resolved during the 30-day period following the initial Teladoc visit, which we believe evidences the overall enhanced consumer experience we provide all of our Members and is reflected in over 95% of our Members indicating by survey that they were satisfied with our services over each of the past six years.

    Value Proposition for Clients

         We believe we offer our Clients the following value proposition.

    Proven Return on Investment .    Our solution offers our Clients substantial savings opportunities and a proven ROI. We recently commissioned independent studies on each of two of our large Clients collectively representing approximately 175,000 of our Members. These studies demonstrated meaningful client-savings and substantial client-ROI resulting from the use of our solution. We believe these findings are representative of the results achieved by our other Clients and the value proposition we offer the broader U.S. healthcare system.

    High-Quality Care .    Our solution is backed by over 100 proprietary Evidence Based clinical guidelines that assist Provider and Member decisions and criteria regarding diagnosis, management and treatment. These guidelines were specifically designed for telehealth using clinical expertise and the best available clinical evidence derived from systematic research. We also deploy the telehealth industry's highest credentialing requirements, which, together with our clinical guidelines, lead to quality interactions and reliable resolutions.

    Consumer Engagement .    Our predictive models allow us to identify Members most likely to use our solution and to increase adoption by Members, which in turn drives ROI for Clients. We use claims data, plan design and other metrics to influence behavior. For example, we identify Members who have been high utilizers of emergency rooms and urgent care and seek to re-direct their non-emergency visits to our lower-cost solution. Our engagement strategies are supported by our self-service communications portals for Provider and Member

 

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      interaction as well as our initiatives to promote worksite marketing and executive sponsorship to drive awareness and adoption by Members.

    Beneficiary Satisfaction .    We believe our Clients also benefit from Member satisfaction with us and our solution, as evidenced by our overall Member satisfaction rate of over 95% over the last six years and 104% annual net dollar retention rate among our Clients on average over the last three years.

    Value Proposition for Providers

         We believe we offer our Providers the following value proposition.

    Meaningful Income .    Our solution empowers physicians and other healthcare professionals with the convenience of immediate access to new patients without the administrative burden. Teladoc physicians have the ability to earn approximately $150 per hour on our platform, representing an over 50% increase to the average full-time physician hourly wage of $99.00 according to a 2013 Becker's Healthcare Report. Further, a number of Teladoc physicians generate income in excess of $100,000 per year on our platform.

    Enhanced Work Flexibility and Productivity .    We offer physicians and other healthcare professionals control and scheduling flexibility to determine when and where they practice medicine. Our solution enables physicians to be more productive by performing telehealth visits outside of office hours and during down-time in their schedules as nearly 50% of our visits occur outside of normal business hours when many traditional care settings are not accessible. Our Providers are able to work while traveling, on weekends or on holidays.

    Simple Reimbursement and Significantly Reduced Administration .    We reimburse physicians and healthcare providers electronically, twice per month, which significantly reduces their administrative burden. With no claims forms or paperwork to complete and no physical office to manage, our model allows physicians to focus their attention on delivering high-quality care to their patients.

Our Competitive Strengths

         We believe the following are our key competitive strengths.

    Leading Solution and First-Mover Advantage

         Our solution is composed of an integrated technology platform, high-quality Provider network, sophisticated consumer engagement strategies and entrenched distribution channels. We have developed a strong brand, established strong relationships with Clients and have become a leading telehealth platform in the United States. Our history of innovation and long-standing operating history provide us with a significant first-mover advantage, including what we believe are the following telehealth industry firsts:

    Integrated Technology Platform .    We were the first to build a scalable, integrated technology platform for telehealth with an Application Program Interface, or API, that powers direct connectivity between Providers and Members and multiple real-time payor integrations.

    High-Quality Provider Network .    We were the first to deliver nationwide access to board-certified physicians 24 hours a day, seven days a week, 365 days a year and establish over 100 proprietary Evidence Based clinical guidelines specifically designed for telehealth. In addition, we are the first and only telehealth company that has received certification by the National Committee for Quality Assurance, or NCQA, an independent, not-for-profit,

 

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      healthcare-oriented organization founded in 1990 dedicated to improving healthcare quality and verifying adherence to national standards of excellence in the provision of healthcare.

    Consumer Engagement Strategies .    We were the first to implement sophisticated behavioral analytics and predictive modeling to better understand our Members and to drive increased engagement with Teladoc.

    Innovative Technology Platform

         Our integrated solution positions us at the center of the patient, provider and payor relationship and as a key participant in the rapidly emerging, technology-powered healthcare industry. We continually incorporate new product features into our platform to meet the evolving needs of the highly complex healthcare industry. We believe our technology platform contains several differentiating features, including the following:

    Purpose-Built .    Our platform is built specifically to serve the needs of consumers, employers and health plans and providers. We believe that ours is the only platform that incorporates the core functionality required to offer telehealth in a single system.

    Integration and Interoperability .    Our fully functional API powers external connectivity, and we have deep integration with other premier healthcare solutions, including electronic prescribing, HSA payment and administration, care coordination and cost transparency. In addition, we pride ourselves on what we believe is unmatched integration with the payor community that enables us to uniquely provide real-time eligibility, checking, real-time Member financial liability calculations and clinical data exchange.

    Customization for Members, Clients and Providers .    Each of our constituents has their own purpose-built interface.

    Significant and Measureable Return on Investment

         Our solution offers our Clients substantial savings opportunities and an attractive ROI. We recently commissioned an independent study of the nation's largest home-improvement retailer, a Client that represented over 150,000 of our Members as of December 31, 2014. The study found that this Client saved $1,157 on average per telehealth visit when its employees received care through Teladoc instead of receiving care in other settings for the same diagnosis. The study also measured the total healthcare expenditure per-Member-per-month during the 16-month period immediately preceding the implementation of Teladoc in order to establish a trend and predict the Client's average monthly expenditure per-Member-per-month over the 20-month period following the introduction of Teladoc. The study demonstrated a meaningful reduction in average per-Member-per-month spending of $21.30 to the Client relative to predicted cost, or a monthly healthcare expenditure savings of 10.2% per Member. Additionally, during 2014 the Client achieved an ROI of approximately $9.00 for every $1.00 spent per Member. Finally, the study demonstrated that 92% of the Client's employees that used Teladoc for a medical issue resolved their issue completely and did not require a follow up visit at a physician's office, emergency room or other location. We believe these results are representative of the results achieved by our other Clients as well as the value proposition we can provide the broader U.S. healthcare system.

    Highly Scalable Platform

         Our platform is highly scalable and can currently provide the same level of Member support and response time for upwards of 10,000 visits per day versus our current rate of approximately 1,500 visits per day on average. Similarly, our platform is currently equipped to serve over 100 million Members and can be scaled quickly to serve even higher volumes. Further, our platform has been built to accommodate the seamless and quick introduction of new services and products,

 

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such as behavioral health, dermatology and other services that are currently in development stages. We believe our highly scalable platform provides us with significant growth opportunities within our existing membership and client bases and allows us to grow with low capital expenditure requirements.

    Clinical Capabilities Tailored to Telehealth

         We believe that by directly recruiting, credentialing, training and contracting with our Providers we have built our clinical capabilities in a manner that supports the operational complexity of and commitment to clinical quality required in telehealth. Our Providers are board-certified with an average of 20 years of experience and are credentialed through an NCQA-certified process. The NCQA's accreditation process involves a comprehensive on-site and off-site review by a team of physicians and managed care experts that evaluates more than 60 quality-related healthcare standards, including quality management and improvement and utilization management. The results of the evaluation are reviewed by the NCQA's National Review Oversight Committee prior to their assigning an accreditation level. The NCQA's requirements are developed with the input and support of health plans, providers, purchasers, unions and consumer groups. Our clinical capabilities are designed specifically for telehealth. For example, our Members have the option to share a record of every visit and their electronic medical record, or EMR, with their existing physicians. Prior to every visit, the Provider reviews the Member's proprietary EMR and certifies to this review by completing a multi-step checklist. During and following the visit, the Provider references our over 100 proprietary Evidence Based clinical guidelines and other telehealth-specific content. In addition, Members and Providers remain connected following visits. Members receive personalized notes, patient education materials and are able to ask questions of our clinical team via the Teladoc Message Center. Over 10% of all visits are reviewed by our clinical quality assurance staff to ensure adherence to appropriate treatment and prescription patterns. We believe our track record of zero medical malpractice claims is a testament to our Providers' clinical quality.

    Well-Established Distribution Channels and Strategic Alliances

         We have spent over ten years developing sales channels and strategic alliances, which we believe provide an opportunity to sell our solution through trusted partners and are not easily replicated. Our solution is sold through a highly efficient and effective B2B2C distribution network wherein we reach consumers through our Clients and channel partners rather than marketing our solution directly to potential Members. We sell through a direct sales force to our Clients who in turn buy our solution on behalf of their beneficiaries. In addition, a range of third-parties including brokers, agents, benefits consultants and resellers, whom we refer to as channel partners, sell our solution to various end markets. Notably, many of our health plan Clients also act as channel partners because they resell our solution to their ASO accounts and other customers. We believe the breadth of our distribution strategy allows us to reach employers of nearly every size and in nearly every market, which are capable of purchasing our solution for a large number of beneficiaries, rather than attempting to sell our solution one consumer at a time.

Our Growth Strategies

         The following are our key growth strategies.

    Expand our Membership with New and Existing Clients

         We intend to increase our membership by adding additional Members from both existing Clients and from new Clients. We plan to execute this strategy by further penetrating existing relationships and by pursuing new relationships through our distribution channels and an expanded sales team. Within existing accounts, we believe our current membership represents only a fraction of the potential Members available to us. Our existing health plan Clients and self-insured Clients

 

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associated with these health plans currently purchase our solution for only 9% of their beneficiaries in the aggregate, which provides us the opportunity to grow our membership base by more than 50 million individuals within these existing Clients alone. Similarly, we have 160 Fortune 1000 Clients, representing a significant opportunity for new Client growth with large employers. We are investing heavily in new marketing technologies and support staff to aid our sales force in penetrating existing accounts, lead generation, new Client generation and implementations. We further believe that as market leader in the telehealth industry, we have a strong, established brand and are uniquely positioned to capitalize on the Business to Consumer, or B2C, channel in the future.

    Expand into New Clinical Specialties

         We currently offer our Clients access to over 1,100 board-certified physicians who treat a wide range of conditions and cases from acute diagnoses such as upper respiratory infection, urinary tract infection and sinusitis to dermatological conditions. We also currently offer direct-to-Member access to behavioral health professionals who treat conditions such as anxiety and smoking cessation. We intend to leverage our highly scalable platform by expanding into new clinical specialties, such as standalone dermatology services, second opinions and chronic conditions such as diabetes, and by focusing on expanding our services amongst current Clients such as by offering behavioral health as a commercial service to our Clients. As we expand our clinical offerings, we intend to further eliminate gaps in continuity of care in order to provide coordinated care along the healthcare delivery continuum.

    Leverage Existing Sales Channels and Penetrate New Markets

         We have developed a highly effective distribution network to target large employers and we are committing incremental sales and marketing resources to the small and medium business, or SMB, sales channel to increase our penetration within this market. Additionally, we intend to further penetrate the provider market, notably hospitals and group physician practices, as we believe our solution offers these markets an attractive platform from which to generate substantial income by acquiring new patients and to better participate in emerging risk-sharing and value-based payment models, such as Accountable Care Organizations and Patient-Centered Medical Homes. Lastly, with expanded access to available health insurance as a result of PPACA implementation, we intend to pursue health insurance exchanges, which represent an attractive new sales channel.

    Expand Across Care Settings and Use Cases

         We intend to expand our solution across use cases and additional care settings. We also continually explore ancillary opportunities to broaden our business, including by expanding our relationship with Medicare Advantage and Medicaid Managed Care plans. We believe our services have wide applicability across new use cases, including home care, post discharge, wellness/screening and chronic care. We are also currently extending the number, range and functionality of our benefits applications, and will continue to respond quickly to evolving market needs with innovative solutions, including broadened health kiosk access, mobile applications, biometric devices and at-home testing.

    Increase Engagement by Our Members

         We believe there is significant opportunity within our existing membership base to increase engagement by continually increasing awareness of and loyalty to our solution. We believe our solution can become the single source for on-demand healthcare for our Members by continuing to add new and complementary products and services, third-party connections and other strategic alliances. We will continually refine and enhance our user experience, which is a critical driver of new and repeat engagement and we will continue validating our Member satisfaction with surveys

 

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and other proactive tools. We are also building robust data repositories to strengthen our predictive models and multi-channel marketing strategies to provide a more complete picture of our Members, enhancing our ability to lead targeted and purposeful campaigns, and we will continue to invest heavily in marketing technologies that allow us to increase Member touch-points. Lastly, we will continue to actively engage Clients in benefit design, worksite marketing and executive sponsorship strategies to drive awareness about our solution.

    Expand through Focused Acquisitions

         We plan to continue to leverage our know-how and the scale of our platform to selectively pursue acquisitions. To date, we have completed three acquisitions that have expanded our distribution capabilities and broadened our service offering, including into areas such as behavioral health. Our acquisition strategy is centered on acquiring technologies, products, capabilities, clinical specialties and distribution channels that are highly scalable and rapidly growing. We will continue to evaluate and pursue acquisition opportunities that are complementary to our business.

Risks Related to Our Business

         Investing in our common stock involves substantial risk. You should carefully consider all of the information in this prospectus prior to investing in our common stock. There are several risks related to our business and our ability to leverage our strengths described elsewhere in this prospectus that are described under "Risk Factors" elsewhere in this prospectus. Among these important risks are the following:

    ongoing legal challenges to our business model that assert that our business model does not meet applicable legal requirements in order for our affiliated physicians to prescribe medications for our Members, and new state actions against our business model;

    the inability, or potential inability, of our providers to conduct visits in certain states due to our ongoing legal challenges regarding the prescription of medication in connection with a telehealth visit;

    our dependence on our relationships with affiliated professional entities to contract for the clinical and professional services provided to our Members;

    evolving government regulations and our ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to or our business, compliance with which may require us to change our practices at an undeterminable and possibly significant monetary cost;

    our ability to operate in the heavily regulated healthcare industry, failure of which could result in penalties, significant changes to our operations or adverse publicity;

    our history of net losses and accumulated deficit;

    the impact of recent healthcare reform legislation and other changes in the healthcare industry;

    risks of the loss of any of our significant Clients;

    risks associated with the immaturity of the telehealth market and limited consumer acceptance of telehealth;

    risks associated with a decrease in the number of individuals offered benefits by our Clients or the number of products and services to which they subscribe;

    our ability to establish and maintain strategic relationships with third parties;

    our ability to recruit and retain a network of qualified Providers;

 

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    risk that the insurance we maintain may not fully cover all potential exposures;

    rapid technological change in the telehealth market;

    risks associated with federal and state privacy regulations regarding the use and disclosure of personally identifiable information or medical information and the significant liability that could result from a cybersecurity breach or our failure to comply with such regulations;

    our ability to compete in the growing telehealth industry among both established companies and new entrants;

    risks associated with a material weakness in internal control over financial reporting related to the breadth of our internal accounting team that has been identified; and

    the amount of the costs, fees, expenses and charges related to this initial public offering and the related costs of being a public company.

Implications of Being an Emerging Growth Company

         As a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, enacted in April 2012. An "emerging growth company" may take advantage of exemptions from some of the reporting requirements that are otherwise applicable to public companies that are not emerging growth companies. These exemptions include:

    being permitted to present only two years of audited consolidated financial statements and only two years of related Management's Discussion and Analysis of Financial Condition and Results of Operations in this prospectus;

    not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, in the assessment of our internal control over financial reporting;

    reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and

    exemption from the requirements of holding a nonbinding advisory vote on executive compensation and obtaining stockholder approval of any golden parachute payments not previously approved.

         We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until the last day of our fiscal year following the fifth anniversary of the completion of this offering. However, if certain events occur prior to the end of such five-year period, including, but not limited to, if we become a "large accelerated filer," or if our annual gross revenue exceeds $1.0 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period.

         We have elected to take advantage of certain of the reduced disclosure obligations in the registration statement of which this prospectus is a part and may elect to take advantage of some, but not all, of the reduced reporting requirements in future filings. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.

         In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

 

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Company Information

         Teladoc, Inc. was incorporated in the State of Texas on June 13, 2002 and changed its state of incorporation to the State of Delaware on October 16, 2008. Our principal executive offices are located at 2 Manhattanville Road, Suite 203, Purchase, New York 10577, and our telephone number is (203) 635-2002. We also maintain offices and our physician network operations center at several facilities in the Dallas, Texas area. Our website address is www.teladoc.com. Information on, or accessible through, our website is not part of this prospectus, nor is such content incorporated by reference herein, and should not be relied upon in determining whether to make an investment in our common stock.

 

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THE OFFERING

Common stock offered by us

  7,000,000 shares.

Common stock outstanding after this offering

 

35,796,346 shares.

Option to purchase additional shares

 

We have granted the underwriters a 30-day option to purchase up to an additional 1,050,000 shares of common stock.

Use of proceeds

 

We estimate the proceeds to us from this offering will be approximately $100.0 million, based on an assumed public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds from this offering for working capital and other general corporate purposes, including to expand our current business through acquisitions of, or investments in, other businesses, products or technologies. However, we have no commitments with respect to any such acquisitions or investments at this time. See "Use of Proceeds."

Dividend policy

 

We do not currently pay and do not currently anticipate paying dividends on our common stock following this offering. Any declaration and payment of future dividends to holders of our common stock may be limited by restrictive covenants in our debt agreements, and will be at the sole discretion of our board of directors. See "Dividend Policy," "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness" and "Description of Capital Stock."

Proposed NYSE symbol

 

"TDOC"

LOYAL3 platform

 

At our request, the underwriters have reserved up to 5% of the shares of common stock in this offering, for sale at the public offering price, through the LOYAL3 platform. See "Underwriting—The LOYAL3 Platform."

Risk factors

 

See "Risk Factors" beginning on page 20 of this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

         Unless we specifically state otherwise, throughout this prospectus the number of shares of our common stock to be outstanding after completion of this offering is based on 28,796,346 shares outstanding as of June 17, 2015 and excludes:

    shares of common stock sold or issued pursuant to the exercise of options subsequent to June 17, 2015;

 

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    3,733,279 shares of common stock issuable upon the exercise of options outstanding as of June 17, 2015 at a weighted average exercise price of $5.68 per share;

    131,239 shares of common stock issuable upon the exercise of warrants outstanding as of June 4, 2015 at a weighted average exercise price of $2.95 per share;

    2,186,447 shares of common stock reserved for issuance under our 2015 Incentive Award Plan, which we plan to adopt in connection with this offering; and

    364,407 shares of common stock reserved for issuance under our Employee Stock Purchase Plan, which we plan to adopt in connection with this offering.

         Unless we specifically state otherwise, all information in this prospectus assumes:

    the automatic conversion of all outstanding shares of our preferred stock into 25,450,441 shares of our common stock, which will occur immediately prior to the closing of this offering;

    no exercise of the option to purchase additional shares by the underwriters;

    an initial offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus;

    the filing of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws immediately prior to the closing of this offering; and

    the completion of a one-for-2.2859 reverse split of our common stock effected on June 17, 2015.

 

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SUMMARY HISTORICAL FINANCIAL INFORMATION

         The following table sets forth our summary historical consolidated financial information for the periods and as of the dates indicated. The balance sheet data as of December 31, 2013 and 2014 and the statement of operations data for the years ended December 31, 2013 and 2014 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The balance sheet data as of March 31, 2015 and the statement of operations data for the three months ended March 31, 2014 and 2015 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The balance sheet data as of March 31, 2014 have been derived from our unaudited consolidated financial statements not included in this prospectus. We completed our acquisitions of Consult A Doctor, Inc., or Consult A Doctor, on August 29, 2013, AmeriDoc, LLC, or AmeriDoc, on May 1, 2014 and Compile, Inc., d/b/a BetterHelp, or BetterHelp, on January 23, 2015. The results of operations of Consult A Doctor and AmeriDoc since the respective acquisition dates have been included in our audited consolidated financial statements included elsewhere in this prospectus. The results of operations of Consult A Doctor, AmeriDoc and BetterHelp since the respective acquisition dates have been included in our unaudited consolidated financial statements included elsewhere in this prospectus. You should read the information contained in this table in conjunction with "Selected Historical Financial Information," "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our audited consolidated financial statements and the related notes thereto included elsewhere in this prospectus. The unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of our management, include all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the information set forth herein. Interim financial results are not necessarily indicative of results that may be expected for the full fiscal year, and our historical results are not indicative of the results to be expected in the future.

 

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  Year Ended December 31,   Three Months Ended March 31,  
 
  2013   2014   2014   2015  
 
  (dollars in thousands, except share and per share data)
 

Consolidated Statements of Operations Data:

                         

Revenue

  $ 19,906   $ 43,528   $ 9,407   $ 16,488  

Cost of revenue

    4,186     9,929     1,982     5,281  

Gross profit

    15,720     33,599     7,425     11,207  

Operating expenses:

                         

Advertising and marketing

    4,090     7,662     2,518     4,341  

Sales

    4,441     11,571     2,145     3,682  

Technology and development

    3,532     7,573     1,192     2,906  

General and administrative

    8,772     19,623     3,344     11,968  

Depreciation and amortization

    754     2,320     414     903  

Loss from operations

    (5,869 )   (15,150 )   (2,188 )   (12,593 )

Interest income (expense), net

    (56 )   (1,499 )   (54 )   (568 )

Net loss before taxes

    (5,925 )   (16,649 )   (2,242 )   (13,161 )

Income tax provision (benefit)

    94     388     72     (458 )

Net loss

  $ (6,019 ) $ (17,037 ) $ (2,314 ) $ (12,703 )

Per Share Data:

                         

Net loss per share, basic and diluted

  $ (8.05 ) $ (10.25 ) $ (2.35 ) $ (5.87 )

Weighted-average shares used to compute basic and diluted net loss per share

    1,222,268     1,962,845     1,423,732     2,162,413  

Pro forma net loss per share, basic and diluted (unaudited)

        $ (0.86 )       $ (0.46 )

Weighted-average shares used to compute basic and diluted pro forma net loss per share (unaudited)

          23,506,977           27,612,862  

Other Data:

   
 
   
 
   
 
   
 
 

Visits

    127,107     298,833     65,243     148,696  

Members

    6.2 million     8.1 million     7.1 million     10.6 million  

EBITDA(1)

  $ (5,115 ) $ (12,830 ) $ (1,774 ) $ (11,690 )

 

 
  As of March 31, 2015  
 
  Actual   Pro Forma(2)   Pro Forma as
Adjusted(3)(4)
 
 
  (in thousands)
 

Consolidated Balance Sheets Data:

                   

Cash and cash equivalents

  $ 32,060   $ 18,782   $ 118,792  

Working capital

    25,617     12,339     112,349  

Total assets

    87,361     104,583     204,593  

Total liabilities

    45,994     45,994     45,994  

Total stockholders' equity (deficit)

    (79,399 )   58,588     158,598  

(1)
To supplement our financial information presented in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, we use the following additional non-U.S. GAAP financial measures to clarify and enhance an understanding of past performance: EBITDA. We believe that the presentation of this financial measure enhances an

 

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    investor's understanding of our financial performance. We further believe that this financial measure is a useful financial metric to assess our operating performance from period-to-period by excluding certain items that we believe are not representative of our core business. We use certain financial measures for business planning purposes and in measuring our performance relative to that of our competitors. We utilize EBITDA as the primary measure of segment performance.

    EBITDA consists of net income (loss) before interest, taxes, depreciation and amortization. We believe that making such adjustment provides investors meaningful information to understand our results of operations and ability to analyze financial and business trends on a period-to-period basis.

    We believe these financial measures are commonly used by investors to evaluate our performance and that of our competitors. However, our use of the term EBITDA may vary from that of others in our industry. EBITDA should not be considered as an alternative to net loss before taxes, net loss, earnings per share or any other performance measures derived in accordance with U.S. GAAP as measures of performance.

    EBITDA has an important limitation as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:

    EBITDA:

    does not reflect the significant interest expense on our debt; and

    eliminates the impact of income taxes on our results of operations; and

    although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any expenditures for such replacements; and

    other companies in our industry may calculate EBITDA differently than we do, limiting the usefulness of EBITDA as comparative measures.

    We compensate for these limitations by using EBITDA along with other comparative tools, together with U.S. GAAP measurements, to assist in the evaluation of operating performance. Such U.S. GAAP measurements include gross profit, net loss, net loss per share and other performance measures.

    In evaluating these financial measures, you should be aware that in the future we may incur expenses similar to those eliminated in this presentation. Our presentation of EBITDA should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.

    The following table reconciles net loss to EBITDA for the periods presented:

 
  Year Ended
December 31,
  Three Months
Ended March 31,
 
 
  2013   2014   2014   2015  
 
  (in thousands)
 

Net loss

  $ (6,019 ) $ (17,037 ) $ (2,314 ) $ (12,703 )

Interest income (expense), net

    (56 )   (1,499 )   (54 )   (568 )

Income taxes

    94     388     72     (458 )

Depreciation and amortization

    754     2,320     414     903  

EBITDA

  $ (5,115 ) $ (12,830 ) $ (1,774 ) $ (11,690 )

 

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(2)
The pro forma consolidated balance sheet data gives effect to the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 25,450,441 shares of our common stock, which will occur immediately prior to the closing of this offering, and the consummation of our acquisition of Stat Health Services Inc., or StatDoc, on June 17, 2015.

(3)
The pro forma as adjusted consolidated balance sheet data gives further effect to our issuance and sale of 7,000,000 shares of common stock in this offering at an assumed initial public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

(4)
The pro forma as adjusted information presented in the summary consolidated balance sheet data above is illustrative only and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase (decrease) in the assumed initial public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, working capital, total assets, total liabilities and total stockholders' equity/(deficit) by approximately $6.5 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1.0 million shares in the number of shares offered by us at the assumed initial public offering price would increase (decrease) each of cash and cash equivalents, total assets, total liabilities and total stockholders' equity/(deficit) by approximately $14.9 million.

 

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RISK FACTORS

          An investment in our common stock involves a high degree of risk. You should consider carefully the following risks, together with the other information contained in this prospectus before you decide whether to buy our common stock. If any of the events contemplated by the following discussion of risks should occur, our business, financial condition, results of operations and cash flows could suffer significantly. As a result, the market price of our common stock could decline, and you may lose all or part of the money you paid to buy our common stock. The following is a summary of all the material risks known to us.

Risks Related to Our Business

Our business could be adversely affected by ongoing legal challenges to our business model or by new state actions restricting our ability to provide the full range of our services in certain states.

         Our ability to conduct business in each state is dependent upon the state's treatment of telemedicine (and of remote healthcare delivery in general, such as the permissibility of, and requirements for, physician cross-coverage practice) under such state's laws, rules and policies governing the practice of medicine, which are subject to changing political, regulatory and other influences. Cross-coverage regulation refers to the state rules under which one doctor is permitted to treat the regular patients of another doctor remotely. Some state medical boards have established new rules or interpreted existing rules in a manner that limits or restricts our ability to conduct our business as currently conducted in other states. Some of these actions have resulted in litigation and the suspension of our operations in certain states.

         For instance, the Texas Medical Board, or the TMB, asserted in 2011 that our Providers do not form the required relationships with our Members in the course of telehealth visits that would support the prescription of medications. As a result of this position, we initiated two lawsuits against the TMB, both of which are pending in Texas state courts. On December 31, 2014, the Austin Court of Appeals granted our request for summary judgment in the first suit, invalidating the TMB's prior position that our operations do not comply with the current TMB regulations governing the practice of medicine. This Court of Appeals decision may be subject to an appellate hearing in the Texas Supreme Court. In the second suit, we filed a request for a temporary injunction to restrain the TMB from communicating, implementing and enforcing an "emergency rule" it issued on January 16, 2015, purporting to amend the Texas Administrative Code to require an in-person examination of a patient before a Texas physician may lawfully prescribe medication. On February 2, 2015, the Travis County District Court granted our request for a temporary injunction, which remains in effect and prohibits the TMB from communicating, implementing and enforcing the emergency rule. The TMB's subsequent passage of the rule described below may have mooted one or both of these cases, but they remain active. We are currently unable to make a reasonable estimate of when either of these cases will be resolved, whether we will ultimately prevail, or the amount or range of loss that could result from an unfavorable outcome in either action.

         On April 10, 2015, the TMB adopted revisions to the rules governing medical practice that would require, in most instances, in-person examinations prior to prescribing medications. Our present business model does not include in-person examinations of our Members before prescribing medications. We challenged these rule amendments on April 29, 2015 by filing a lawsuit against the TMB in the United States District Court for the Western District of Texas, Austin Division requesting that they be enjoined as unlawful under the Sherman Antitrust Act and the Commerce Clause of the U.S. Constitution, and a related hearing was held on May 22, 2015 on our motion for preliminary injunction. On May 29, 2015, this court granted our request for a preliminary injunction of the rule amendments, pending ultimate trial on the amendments' validity, which trial date has yet to be set. Accordingly, for so long as the preliminary injunction remains in place, the rule amendments as proposed will not go into effect in Texas.

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         Business in the State of Texas accounted for approximately $3.3 million, or 20%, and $10 million, or 23%, of our revenue during the three months ended March 31, 2015 and the year ended December 31, 2014, respectively. If the TMB's rule revisions go into effect as written and we are unable to adapt our business model in compliance with the TMB rule, our ability to operate our business in the State of Texas could be materially adversely affected, which would have a material adverse effect on our business, financial condition and results of operations.

         In addition, during 2014, we voluntarily suspended our business operations in the States of Arkansas and Idaho in response to formal and informal communications among us, our affiliated physicians, and the respective boards of medicine in each state. In each state, the board of medicine took the position that our business model did not meet the state's applicable legal requirements in order for our affiliated physicians to prescribe medications for our Members. In March 2015, Idaho Governor Otter signed the Idaho Telehealth Access Act, which redefined telehealth services in Idaho in a manner that will allow us to resume operations in Idaho in July 2015. In addition, in April 2015, Arkansas enacted its own Telemedicine Act allowing a telehealth provider to establish a relationship with a patient through an in-person examination or through another manner adopted by rule of the Arkansas State Medical Board. We remain in active discussions with the relevant authorities in Arkansas to demonstrate the safety and benefits inherent to our business. Despite these discussions, we cannot guarantee that we will be able to resume operations in Arkansas.

         It is possible that the laws and rules governing the practice of medicine in one or more states may change in a manner analogous to what occurred in Texas and Arkansas. If this were to happen, and we were unable to adapt our business model accordingly, our operations in such states would be disrupted, which could have a material adverse effect on our business, financial condition and results of operations.

We are dependent on our relationships with affiliated professional entities, which we do not own, to provide physician services, and our business would be adversely affected if those relationships were disrupted.

         There is a risk that state authorities in some jurisdictions may find that our contractual relationships with our physicians violate laws prohibiting the corporate practice of medicine. These laws generally prohibit the practice of medicine by lay persons or entities and are intended to prevent unlicensed persons or entities from interfering with or inappropriately influencing the physician's professional judgment. The extent to which each state considers particular actions or contractual relationships to constitute improper influence of professional judgment varies across the states and is subject to change and to evolving interpretations by state boards of medicine and state attorneys general, among others. As such, we must monitor our compliance with laws in every jurisdiction in which we operate on an ongoing basis and we cannot guarantee that subsequent interpretation of the corporate practice of medicine laws will not further circumscribe our business operations. State corporate practice of medicine doctrines also often impose penalties on physicians themselves for aiding the corporate practice of medicine, which could discourage physicians from participating in our network of providers.

         The corporate practice of medicine prohibition exists in some form, by statute, regulation, board of medicine or attorney general guidance, or case law, in at least 42 states, all of which we operate in, though the broad variation between state application and enforcement of the doctrine makes an exact count difficult. Due to the prevalence of the corporate practice of medicine doctrine, including in the states where we predominantly conduct our business, we contract for Provider services through a services agreement with Teladoc Physicians, P.A., or Teladoc PA, which is a 100% physician-owned independent entity that has agreements with several professional corporations, to contract with physicians and professional corporations that contract with physicians for the clinical and professional services provided to our Members. See "Business—Physicians and

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Healthcare Professionals" for a more detailed discussion of the Services Agreement. We do not own Teladoc PA or the professional corporations with which it contracts. Teladoc PA is owned by Dr. Timothy Howard, one of our Providers, and the professional corporations are owned by physicians licensed in their respective states. While we expect that these relationships will continue, we cannot guarantee that they will. A material change in our relationship with Teladoc PA, or among Teladoc PA and the contracted professional corporations, whether resulting from a dispute among the entities, a change in government regulation, or the loss of these affiliations, could impair our ability to provide services to our Members and could have a material adverse effect on our business, financial condition and results of operations. In addition, the arrangement in which we have entered to comply with state corporate practice of medicine doctrines could subject us to additional scrutiny by federal and state regulatory bodies regarding federal and state fraud and abuse laws. Any scrutiny, investigation, or litigation with regard to our arrangement with Teladoc PA could have a material adverse effect on our business, financial condition and results of operations.

Evolving government regulations may require increased costs or adversely affect our results of operations.

         In a regulatory climate that is uncertain, our operations may be subject to direct and indirect adoption, expansion or reinterpretation of various laws and regulations. Compliance with these future laws and regulations may require us to change our practices at an undeterminable and possibly significant initial monetary and annual expense. These additional monetary expenditures may increase future overhead, which could have a material adverse effect on our results of operations.

         We have identified what we believe are the areas of government regulation that, if changed, would be costly to us. These include: rules governing the practice of medicine by physicians; licensure standards for doctors and behavioral health professionals; laws limiting the corporate practice of medicine; cybersecurity and privacy laws; laws and rules relating to the distinction between independent contractors and employees; and tax and other laws encouraging employer-sponsored health insurance. There could be laws and regulations applicable to our business that we have not identified or that, if changed, may be costly to us, and we cannot predict all the ways in which implementation of such laws and regulations may affect us.

         In the states in which we operate, we believe we are in compliance with all applicable regulations, but, due to the uncertain regulatory environment, certain states may determine that we are in violation of their laws and regulations. In the event that we must remedy such violations, we may be required to modify our services and products in such states in a manner that undermines our solution's attractiveness to Clients, Members or Providers, we may become subject to fines or other penalties or, if we determine that the requirements to operate in compliance in such states are overly burdensome, we may elect to terminate our operations in such states. In each case, our revenue may decline and our business, financial condition and results of operations could be materially adversely affected.

         Additionally, the introduction of new services may require us to comply with additional, yet undetermined, laws and regulations. Compliance may require obtaining appropriate state medical board licenses or certificates, increasing our security measures and expending additional resources to monitor developments in applicable rules and ensure compliance. The failure to adequately comply with these future laws and regulations may delay or possibly prevent some of our products or services from being offered to Clients and Members, which could have a material adverse effect on our business, financial condition and results of operations.

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We conduct business in a heavily regulated industry and if we fail to comply with these laws and government regulations, we could incur penalties or be required to make significant changes to our operations or experience adverse publicity, which could have a material adverse effect on our business, financial condition, and results of operations.

         The healthcare industry is heavily regulated and closely scrutinized by federal, state and local governments. Comprehensive statutes and regulations govern the manner in which we provide and bill for services and collect reimbursement from governmental programs and private payors, our contractual relationships with our Providers, vendors and Clients, our marketing activities and other aspects of our operations. Of particular importance are:

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         Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. Achieving and sustaining compliance with these laws may prove costly. Failure to comply with these laws and other laws can result in civil and criminal penalties such as fines, damages, overpayment recoupment loss of enrollment status and exclusion from the Medicare and Medicaid programs. The risk of our being found in violation of these laws and regulations is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are sometimes open to a variety of interpretations. Our failure to accurately anticipate the application of these laws and regulations to our business or any other failure to comply with regulatory requirements could create liability for us and negatively affect our business. Any action against us for violation of these laws or regulations, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management's attention from the operation of our business and result in adverse publicity.

         To enforce compliance with the federal laws, the U.S. Department of Justice and the Department of Health and Human Services Office of Inspector General, or OIG, have recently increased their scrutiny of healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Dealing with investigations can be time- and resource-consuming and can divert management's attention from the business. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business. In addition, because of the potential for large monetary exposure under the federal False Claims Act, which provides for treble damages and mandatory minimum penalties of $5,500 to $11,000 per false claim or statement, healthcare providers often resolve allegations without admissions of liability for significant and material amounts to avoid the uncertainty of treble damages that may be awarded in litigation proceedings. Such settlements often contain additional compliance and reporting requirements as part of a consent decree, settlement agreement or corporate integrity agreement. Given the significant size of actual and potential settlements, it is expected that the government will continue to devote substantial resources to investigating healthcare providers' compliance with the healthcare reimbursement rules and fraud and abuse laws.

         The laws, regulations and standards governing the provision of healthcare services may change significantly in the future. We cannot assure you that any new or changed healthcare laws, regulations or standards will not materially adversely affect our business. We cannot assure you that a review of our business by judicial, law enforcement, regulatory or accreditation authorities will not result in a determination that could adversely affect our operations.

We have a history of cumulative losses, which we expect to continue, and we may never achieve or sustain profitability.

         We have incurred significant losses in each period since our inception. We incurred net losses of $6.0 million and $17.0 million for the years ended December 31, 2013 and 2014, respectively, and $2.3 million and $12.7 million for the three months ended March 31, 2014 and 2015, respectively. As of March 31, 2015, we had an accumulated deficit of $85.2 million. These losses and accumulated deficit reflect the substantial investments we made to acquire new Clients, build our proprietary network of healthcare providers and develop our technology platform. We intend to

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continue scaling our business to increase our client, member and provider bases, broaden the scope of services we offer and expand our applications of technology through which Members can access our services. Accordingly, we anticipate that cost of revenue and operating expenses will increase substantially in the foreseeable future. These efforts may prove more expensive than we currently anticipate and we may not succeed in increasing our revenue sufficiently to offset these higher expenses. We cannot assure you that we will achieve profitability in the future or that, if we do become profitable, we will be able to sustain or increase profitability. Our prior losses, combined with our expected future losses, have had and will continue to have an adverse effect on our stockholders' equity and working capital. As a result of these factors, we may need to raise additional capital through debt or equity financings in order to fund our operations, and such capital may not be available on reasonable terms, if at all. See "—We may require additional capital to support business growth, and this capital may not be available to us on acceptable terms or at all."

The impact of recent healthcare reform legislation and other changes in the healthcare industry and in healthcare spending on us is currently unknown, but may adversely affect our business, financial condition and results of operations.

         Our revenue is dependent on the healthcare industry and could be affected by changes in healthcare spending and policy. The healthcare industry is subject to changing political, regulatory and other influences. The PPACA made major changes in how healthcare is delivered and reimbursed, and increased access to health insurance benefits to the uninsured and underinsured population of the United States.

         The PPACA, among other things, increased the number of individuals with Medicaid and private insurance coverage, implemented reimbursement policies that tie payment to quality, facilitated the creation of accountable care organizations that may use capitation and other alternative payment methodologies, strengthened enforcement of fraud and abuse laws and encouraged the use of information technology. Many of these changes require implementing regulations which have not yet been drafted or have been released only as proposed rules.

         Such changes in the regulatory environment may also result in changes to our payor mix that may affect our operations and revenue. While the PPACA is expected to increase the number of persons with covered health benefits, we cannot accurately estimate the payment rates for any additional persons that are expected to be covered by health benefits. For example, the PPACA's expansion of Medicaid coverage could cause patients who otherwise would have selected private healthcare to participate in government sponsored healthcare programs, and Medicaid and other government programs typically reimburse providers at substantially lower rates than private payors. Our revenue may be adversely impacted if states pursue lower rates or cost-containment strategies as a result of any expansion of their existing Medicaid programs to include additional persons, particularly in states experiencing budget deficits. Exchanges created to facilitate coverage for new persons to be covered by health benefits may also place additional pricing pressure on all providers, regardless of payor. The full impact of many of the provisions under the PPACA is unknown at this time. For example, the PPACA established an Independent Payment Advisory Board that, beginning January 16, 2014, can recommend changes in payment for physicians under certain circumstances, which the Department of Health and Human Services, or HHS, generally would be required to implement unless Congress enacts superseding legislation. The PPACA also requires HHS to develop a budget-neutral, value-based payment modifier that provides for differential payment under the Medicare Physician Fee Schedule, or the MPFS, for physicians or groups of physicians that is linked to quality of care furnished compared to cost. Physicians in groups of 100 or more eligible professionals who submit claims to Medicare under a single tax identification number will be subject to the value modifier in 2015, based on their performance in calendar year 2013; the modifier will apply to all other physicians by 2017. HHS has not yet

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developed a value-based payment modifier option for hospital-based physicians. We cannot assure you that our Clients will not impose similar payment modifiers for services that we provide.

         Physician payments under the MPFS are updated on an annual basis according to a statutory formula. Because application of the statutory formula for the update factor would have resulted in a decrease in total physician payments for the past several years, Congress has intervened with interim legislation to prevent the reductions. For 2014, CMS projected a rate reduction of 20.1% from 2013 levels and earlier estimates had projected a 24.4% reduction. A series of laws was enacted that delayed the scheduled reduction in physician payments and provided for a 0.5% increase through December 31, 2014, and a zero percent update from 2014 payment amounts to the 2015 Physician Fee Schedule through March 31, 2015.

         President Obama signed the Medicare Access and CHIP Reauthorization Act of 2015, or MACRA, on April 16, 2015, which repealed and replaced the SGR formula for Medicare payment adjustments to physicians. MACRA provides a permanent end to the annual interim legislative updates that had previously been necessary to delay or prevent significant reductions to payments under the Physician Fee Schedule. MACRA extended existing payment rates under PAMA through June 30, 2015, with a 0.5% update for July 1, 2015, through December 31, 2015 and for each calendar year through 2019, after which there will be a 0% annual update each year through 2025. In addition, MACRA requires the establishment of the Merit-Based Incentive Payment System, beginning in 2019, under which physicians may receive performance-based payment incentives or payment reductions based on their performance with respect to clinical quality, resource use, clinical improvement activities, and meaningful use of electronic health records. MACRA also requires CMS, beginning in 2019, to provide incentive payments for physicians and other eligible professionals that participate in alternative payment models, such as accountable care organizations, that emphasize quality and value over the traditional volume-based fee-for-service model. MACRA is still new and the manner in which it will be implemented is not certain, but at this time, we do not believe that this law will have a material effect on our future revenues.

         In November 2012, CMS adopted a rule under the PPACA that generally allowed physicians in certain specialties who provide eligible primary care services to be paid at the Medicare reimbursement rates in effect in calendar years 2013 and 2014 instead of state-established Medicaid reimbursement rates, referred to as the Medicaid-Medicare Parity. Generally, state Medicaid reimbursement rates are lower than federally established Medicare rates. During 2013, state agencies were required to submit their state plan amendments, or SPAs, outlining how they will implement the rule, including frequency and timing of payments to CMS for review and approval. In December 2013, CMS indicated that all SPAs had been approved for enhanced Medicaid-Medicare Parity reimbursement through December 2014. Congress did not act before the end of the year to extend the Medicaid-Medicare Parity and the rule expired. Legislation has been proposed to retroactively extend Medicaid-Medicare Parity for calendar year 2015 but has not yet been enacted. Certain states have decided to fully or partially extend the Medicaid-Medicare Parity. It is unclear at this time how these limited state increases or the continued failure to extend the rule at the federal level will impact our business.

         In addition, certain provisions of the PPACA authorize voluntary demonstration projects, which include the development of bundling payments for acute, inpatient hospital services, physician services and postacute services for episodes of hospital care. The Medicare Acute Care Episode Demonstration is currently underway at several healthcare system demonstration sites. Further, the PPACA may adversely affect payors by increasing medical costs generally, which could have an effect on the industry and potentially impact our business and revenue as payors seek to offset these increases by reducing costs in other areas. The full impact of these changes on us cannot be determined at this time.

         Finally, other legislative changes have been proposed and adopted in the United States since the PPACA was enacted. On August 2, 2011, the Budget Control Act of 2011 was enacted, which,

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among other things, created the Joint Select Committee on Deficit Reduction, or the Joint Committee, to recommend proposals in spending reductions to Congress. The Joint Committee did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering the legislation's automatic reduction to several government programs. This included aggregate reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2024 unless additional Congressional action is taken. On January 2, 2013, the American Taxpayer Relief Act was signed into law, which, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments and other third-party payors will pay for healthcare products and services, which could adversely affect our business, financial condition and results of operations.

A significant portion of our revenue comes from a limited number of Clients, the loss of which would have a material adverse effect on our business, financial condition and results of operations.

         Historically, we have relied on a limited number of Clients for a substantial portion of our total revenue. For the year ended December 31, 2014, one Client represented approximately 4.5% of our total revenue. In addition, for the years ended December 31, 2014 and 2013, our top ten Clients by revenue accounted for 28.1% and 41.1% of our total revenue, respectively. We also rely on our reputation and recommendations from key Clients in order to promote our solution to potential new Clients. The loss of any of our key Clients, or a failure of some of them to renew or expand their subscriptions, could have a significant impact on the growth rate of our revenue, reputation and our ability to obtain new Clients. In addition, mergers and acquisitions involving our Clients could lead to cancellation or non-renewal of our contracts with those Clients or by the acquiring or combining companies, thereby reducing the number of our existing and potential Clients and Members.

The telehealth market is immature and volatile, and if it does not develop, if it develops more slowly than we expect, if it encounters negative publicity or if our solution does not drive Member engagement, the growth of our business will be harmed.

         The telehealth market is relatively new and unproven, and it is uncertain whether it will achieve and sustain high levels of demand, consumer acceptance and market adoption. Our success will depend to a substantial extent on the willingness of our Members to use, and to increase the frequency and extent of their utilization of, our solution, as well as on our ability to demonstrate the value of telehealth to employers, health plans, government agencies and other purchasers of healthcare for beneficiaries. Negative publicity concerning our solution or the telehealth market as a whole could limit market acceptence of our solution. If our Clients and Members do not perceive the benefits of our solution, or if our solution does not drive Member engagement, then our market may not develop at all, or it may develop more slowly than we expect. Similarly, individual and healthcare industry concerns or negative publicity regarding patient confidentiality and privacy in the context of telehealth could limit market acceptance of our healthcare services. If any of these events occurs, it could have a material adverse effect on our business, financial condition or results of operations.

If the number of individuals covered by our employer, health plan and other Clients decreases, or the number of applications or services to which they subscribe decreases, our revenue will likely decrease.

         Under most of our Client contracts, we base our fees on the number of individuals to whom our Clients provide benefits and the number of applications or services subscribed to by our Clients. Many factors may lead to a decrease in the number of individuals covered by our Clients

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and the number of applications or services subscribed to by our Clients, including, but not limited to, the following:

         If the number of individuals covered by our employer, health plan and other Clients decreases, or the number of applications or services to which they subscribe decreases, for any reason, our revenue will likely decrease.

Our growth depends in part on the success of our strategic relationships with third parties.

         In order to grow our business, we anticipate that we will continue to depend on our relationships with third parties, including our partner organizations and technology and content providers. For example, we partner with a number of price transparency, HSA and other benefits platforms to deliver our solution to their consumers. Identifying partners, and negotiating and documenting relationships with them, requires significant time and resources. Our competitors may be effective in providing incentives to third parties to favor their products or services or to prevent or reduce subscriptions to, or utilization of, our products and services. In addition, acquisitions of our partners by our competitors could result in a decrease in the number of our current and potential Clients, as our partners may no longer facilitate the adoption of our applications by potential Clients. If we are unsuccessful in establishing or maintaining our relationships with third parties, our ability to compete in the marketplace or to grow our revenue could be impaired and our results of operations may suffer. Even if we are successful, we cannot assure you that these relationships will result in increased Client use of our applications or increased revenue.

Our business and growth strategy depend on our ability to maintain and expand a network of qualified Providers. If we are unable to do so, our future growth would be limited and our business, financial condition and results of operations would be harmed.

         Our success is dependent upon our continued ability to maintain a network of qualified Providers. If we are unable to recruit and retain board-certified physicians and other healthcare professionals, it would have a material adverse effect on our business and ability to grow and would adversely affect our results of operations. In any particular market, Providers could demand higher payments or take other actions that could result in higher medical costs, less attractive service for our Clients or difficulty meeting regulatory or accreditation requirements. Our ability to develop and maintain satisfactory relationships with Providers also may be negatively impacted by other factors not associated with us, such as changes in Medicare and/or Medicaid reimbursement levels and other pressures on healthcare providers and consolidation activity among hospitals, physician groups and healthcare providers. The failure to maintain or to secure new cost-effective Provider contracts may result in a loss of or inability to grow our membership base, higher costs, healthcare provider network disruptions, less attractive service for our Clients and/or difficulty in meeting regulatory or accreditation requirements, any of which could have a material adverse effect on our business, financial condition and results of operations.

We may become subject to medical liability claims, which could cause us to incur significant expenses and may require us to pay significant damages if not covered by insurance.

         Our business entails the risk of medical liability claims against both our Providers and us. Although we and Teladoc PA carry insurance covering medical malpractice claims in amounts that we believe are appropriate in light of the risks attendant to our business, successful medical liability claims could result in substantial damage awards that exceed the limits of our and Teladoc PA's

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insurance coverage. Teladoc PA carries professional liability insurance covering $1.0 million per claim and $3.0 million in the aggregate for itself and each of its healthcare professionals (our Providers), and we separately carry a general insurance policy, which covers medical malpractice claims, covering $5.0 million per claim and $5.0 million in the aggregate. In addition, professional liability insurance is expensive and insurance premiums may increase significantly in the future, particularly as we expand our services. As a result, adequate professional liability insurance may not be available to our Providers or to us in the future at acceptable costs or at all.

         Any claims made against us that are not fully covered by insurance could be costly to defend against, result in substantial damage awards against us and divert the attention of our management and our Providers from our operations, which could have a material adverse effect on our business, financial condition and results of operations. In addition, any claims may adversely affect our business or reputation.

Rapid technological change in our industry presents us with significant risks and challenges .

         The telehealth market is characterized by rapid technological change, changing consumer requirements, short product lifecycles and evolving industry standards. Our success will depend on our ability to enhance our solution with next-generation technologies and to develop or to acquire and market new services to access new consumer populations. There is no guarantee that we will possess the resources, either financial or personnel, for the research, design and development of new applications or services, or that we will be able to utilize these resources successfully and avoid technological or market obsolescence. Further, there can be no assurance that technological advances by one or more of our competitors or future competitors will not result in our present or future applications and services becoming uncompetitive or obsolete.

A decline in the prevalence of employer-sponsored healthcare or the emergence of new technologies may render our solution obsolete or require us to expend significant resources in order to remain competitive.

         The U.S. healthcare industry is massive, with a number of large market participants with conflicting agendas, is subject to significant government regulation and is currently undergoing significant change. Changes in our industry, for example, away from high-deductible health plans, or the emergence of new technologies as more competitors enter our market, could result in our solution being less desirable or relevant.

         For example, we currently derive the majority of our revenue from sales to Clients that purchase healthcare for their employees (either via insurance or self-funded benefit plans). A large part of the demand for our solution depends on the need of these employers to manage the costs of healthcare services that they pay on behalf of their employees. Some experts have predicted that the PPACA will encourage employer-sponsored health insurance to become significantly less prevalent as employees migrate to obtaining their own insurance over the state-sponsored insurance marketplaces. Were this to occur, there is no guarantee that we would be able to compensate for the loss in revenue from employers by increasing sales of our solution to health insurance companies or to individuals or government agencies. In such a case, our results of operations would be adversely affected.

         If healthcare benefits trends shift or entirely new technologies are developed that replace existing solutions, our existing or future solutions could be rendered obsolete and our business could be adversely affected. In addition, we may experience difficulties with software development, industry standards, design or marketing that could delay or prevent our development, introduction or implementation of new applications and enhancements.

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If our new applications and services are not adopted by our Clients, or if we fail to continue to innovate and develop new applications and services that are adopted by our Clients, our revenue and results of operations will be adversely affected.

         To date, we have derived a substantial majority of our revenue from sales of our primary care telehealth solution, and our longer-term results of operations and continued growth will depend on our ability successfully to develop and market new applications and services that our Clients want and are willing to purchase. In addition, we have invested, and will continue to invest, significant resources in research and development to enhance our existing solution and introduce new high-quality applications and services. If existing Clients are not willing to make additional payments for such new applications, or if new Clients and Members do not value such new applications, it could have a material adverse effect on our business, financial condition and results of operations. If we are unable to predict user preferences or if our industry changes, or if we are unable to modify our solution and services on a timely basis, we may lose Clients. Our results of operations would also suffer if our innovations are not responsive to the needs of our Clients, appropriately timed with market opportunity or effectively brought to market.

We rely on data center providers, Internet infrastructure, bandwidth providers, third-party computer hardware and software, other third parties and our own systems for providing services to our Clients and Members, and any failure or interruption in the services provided by these third parties or our own systems could expose us to litigation and negatively impact our relationships with Clients, adversely affecting our brand and our business.

         We serve all of our Clients and Members from two data centers, one located in Dallas, Texas and the other located in the Metro New York City area. While we control and have access to our servers, we do not control the operation of these facilities. The owners of our data center facilities have no obligation to renew their agreements with us on commercially reasonable terms, or at all. If we are unable to renew these agreements on commercially reasonable terms, or if one of our data center operators is acquired, we may be required to transfer our servers and other infrastructure to new data center facilities, and we may incur significant costs and possible service interruption in connection with doing so. Problems faced by our third-party data center locations with the telecommunications network providers with whom we or they contract or with the systems by which our telecommunications providers allocate capacity among their clients, including us, could adversely affect the experience of our Clients and Members. Our third-party data center operators could decide to close their facilities without adequate notice. In addition, any financial difficulties, such as bankruptcy faced by our third-party data centers operators or any of the service providers with whom we or they contract may have negative effects on our business, the nature and extent of which are difficult to predict.

         Additionally, if our data centers are unable to keep up with our growing needs for capacity, this could have an adverse effect on our business. For example, a rapid expansion of our business could affect the service levels at our data centers or cause such data centers and systems to fail. Any changes in third-party service levels at our data centers or any disruptions or other performance problems with our solution could adversely affect our reputation and may damage our Clients and Members' stored files or result in lengthy interruptions in our services. Interruptions in our services may reduce our revenue, cause us to issue refunds to Clients for prepaid and unused subscriptions, subject us to potential liability or adversely affect Client renewal rates.

         In addition, our ability to deliver our internet-based services depends on the development and maintenance of the infrastructure of the Internet by third parties. This includes maintenance of a reliable network backbone with the necessary speed, data capacity, bandwidth capacity and security. Our services are designed to operate without interruption in accordance with our service level commitments. However, we have experienced and expect that we may experience future interruptions and delays in services and availability from time to time. In the event of a catastrophic

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event with respect to one or more of our systems, we may experience an extended period of system unavailability, which could negatively impact our relationship with Clients and Members. To operate without interruption, both we and our service providers must guard against:

         We also rely on computer hardware purchased or leased and software licensed from third parties in order to offer our services, including software from Apple Computer and Microsoft Corporation, and routers and network equipment from Cisco and Hewlett-Packard Company. These licenses are generally commercially available on varying terms. However, it is possible that this hardware and software may not continue to be available on commercially reasonable terms, or at all. Any loss of the right to use any of this hardware or software could result in delays in the provisioning of our services until equivalent technology is either developed by us, or, if available, is identified, obtained and integrated.

         We exercise limited control over third-party vendors, which increases our vulnerability to problems with technology and information services they provide. Interruptions in our network access and services may in connection with third-party technology and information services reduce our revenue, cause us to issue refunds to Clients for prepaid and unused subscription services, subject us to potential liability or adversely affect Client renewal rates. Although we maintain a $5.0 million security and privacy damages policy and an additional $2.0 million in coverage under our general liability policy, the coverage under our policies may not be adequate to compensate us for all losses that may occur related to the services provided by our third-party vendors. In addition, we may not be able to continue to obtain adequate insurance coverage at an acceptable cost, if at all.

We could incur substantial costs as a result of any claim of infringement of another party's intellectual property rights.

         In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights. Companies in the Internet and technology industries are increasingly bringing and becoming subject to suits alleging infringement of proprietary rights, particularly patent rights, and our competitors and other third parties may hold patents or have pending patent applications, which could be related to our business. These risks have been amplified by the increase in third parties, which we refer to as non-practicing entities, whose sole primary business is to assert such claims. On June 8, 2015, American Well Corporation filed a complaint against our company in the United States District Court for the District of Massachusetts alleging that certain of our operating platform's technology infringes one of its patents that we are currently seeking to invalidate pursuant to a petition for inter partes review that we filed with the U.S. Patent and Trademark Office's Patent Trial and Appeals Board in March 2015. See "Business—Legal Proceedings." Regardless of the merits of this or any other intellectual property litigation, we may be required to expend significant management time and financial resources on the defense of such claims, and any adverse outcome of any such claim or the above referenced review could have a material adverse effect on our business, financial condition or results of operations. We expect that we may receive in the future additional notices that claim we or our Clients using our solution have misappropriated or misused other parties' intellectual property rights, particularly as the number of competitors in our market grows and the functionality of applications amongst

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competitors overlaps. Our existing or any future litigation, whether or not successful, could be extremely costly to defend, divert our management's time, attention and resources, damage our reputation and brand and substantially harm our business.

         In addition, in most instances, we have agreed to indemnify our Clients against certain third-party claims, which may include claims that our solution infringes the intellectual property rights of such third parties. Our business could be adversely affected by any significant disputes between us and our Clients as to the applicability or scope of our indemnification obligations to them. The results of any intellectual property litigation to which we may become a party, or for which we are required to provide indemnification, may require us to do one or more of the following:

         If we are required to make substantial payments or undertake any of the other actions noted above as a result of any intellectual property infringement claims against us or any obligation to indemnify our Clients for such claims, such payments or costs could have a material adverse effect on our business, financial condition and results of operations.

If our arrangements with our Providers or our Clients are found to violate state laws prohibiting the corporate practice of medicine or fee splitting, our business, financial condition and our ability to operate in those states could be adversely impacted.

         The laws of many states, including states in which our Clients are located, prohibit us from exercising control over the medical judgments or decisions of physicians and from engaging in certain financial arrangements, such as splitting professional fees with physicians. These laws and their interpretations vary from state to state and are enforced by state courts and regulatory authorities, each with broad discretion. We enter into agreements with a professional association, Teladoc PA, which enters into contracts with our Providers pursuant to which they render professional medical services. In addition, we enter into contracts with our Clients to deliver professional services in exchange for fees. These contracts include management services agreements with our affiliated physician organizations pursuant to which the physician organizations reserve exclusive control and responsibility for all aspects of the practice of medicine and the delivery of medical services. Although we seek to substantially comply with applicable state prohibitions on the corporate practice of medicine and fee splitting, state officials who administer these laws or other third parties may successfully challenge our existing organization and contractual arrangements. If such a claim were successful, we could be subject to civil and criminal penalties and could be required to restructure or terminate the applicable contractual arrangements. A determination that these arrangements violate state statutes, or our inability to successfully restructure our relationships with our Providers to comply with these statutes, could eliminate Clients located in certain states from the market for our services, which would have a materially adverse effect on our business, financial condition and results of operations.

If our Providers are characterized as employees, we would be subject to employment and withholding liabilities.

         We structure our relationships with our Providers in a manner that we believe results in an independent contractor relationship, not an employee relationship. An independent contractor is generally distinguished from an employee by his or her degree of autonomy and independence in providing services. A high degree of autonomy and independence is generally indicative of a contractor relationship, while a high degree of control is generally indicative of an employment

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relationship. Although we believe that our Providers are properly characterized as independent contractors, tax or other regulatory authorities may in the future challenge our characterization of these relationships. If such regulatory authorities or state, federal or foreign courts were to determine that our Providers are employees, and not independent contractors, we would be required to withhold income taxes, to withhold and pay social security, Medicare and similar taxes and to pay unemployment and other related payroll taxes. We would also be liable for unpaid past taxes and subject to penalties. As a result, any determination that our Providers are our employees could have a material adverse effect on our business, financial condition and results of operations.

Any future litigation against us could be costly and time-consuming to defend.

         We may become subject, from time to time, to legal proceedings and claims that arise in the ordinary course of business such as claims brought by our Clients in connection with commercial disputes or employment claims made by our current or former associates. Litigation may result in substantial costs and may divert management's attention and resources, which may substantially harm our business, financial condition and results of operations. Insurance may not cover such claims, may not provide sufficient payments to cover all of the costs to resolve one or more such claims and may not continue to be available on terms acceptable to us. A claim brought against us that is uninsured or underinsured could result in unanticipated costs, thereby reducing our revenue and leading analysts or potential investors to reduce their expectations of our performance, which could reduce the market price of our stock.

We will incur significantly increased costs and devote substantial management time as a result of operating as a public company.

         As a public company, we will incur significant legal, accounting and other expenses that we do not incur as a private company. For example, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and will be required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations subsequently implemented by the SEC and the NYSE, including the establishment and maintenance of effective disclosure and financial controls, changes in corporate governance practices and required filing of annual, quarterly and current reports with respect to our business and results of operations. We expect that compliance with these requirements will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. In addition, we expect that our management and other personnel will need to divert attention from operational and other business matters to devote substantial time to these public company requirements. In particular, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act, which will increase when we are no longer an emerging growth company. We may also need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and may need to establish an internal audit function.

         We also expect that operating as a public company will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. This could also make it more difficult for us to attract and retain qualified people to serve on our board of directors, our board committees or as executive officers.

Certain state tax authorities may assert that we have a state nexus and seek to impose state and local income taxes which could adversely affect our results of operations.

         We are currently licensed to operate in all fifty states and file state income tax returns in 20 states. There is a risk that certain state tax authorities where we do not currently file a state income

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tax return could assert that we are liable for state and local income taxes based upon income or gross receipts allocable to such states. States are becoming increasingly aggressive in asserting a nexus for state income tax purposes. We could be subject to state and local taxation, including penalties and interest attributable to prior periods, if a state tax authority successfully asserts that our activities give rise to a nexus. Such tax assessments, penalties and interest may adversely affect our results of operations.

Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.

         In general, under Section 382 of the U.S. Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an "ownership change" is subject to limitations on its ability to utilize its pre-change net operating losses, or NOLs, to offset future taxable income. A Section 382 "ownership change" generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. As of March 31, 2015, we have approximately $65.8 million of federal net operating loss carryforwards available to offset future taxable income which, if not utilized, will begin to expire in 2024. Our ability to utilize NOLs may be currently subject to limitations due to a prior ownership change. In addition, this offering and future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Code, further limiting our ability to utilize NOLs arising prior to such ownership change in the future. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. We have recorded a full valuation allowance against the deferred tax assets attributable to our NOLs.

Our proprietary software may not operate properly, which could damage our reputation, give rise to claims against us or divert application of our resources from other purposes, any of which could harm our business, financial condition and results of operations.

         The Teladoc proprietary application platform provides our Members and Providers with the ability to, among other things, register for our services; complete, view and edit medical history; request a visit (either scheduled or on demand) and conduct a visit (via video or phone). Proprietary software development is time-consuming, expensive and complex, and may involve unforeseen difficulties. We may encounter technical obstacles, and it is possible that we may discover additional problems that prevent our proprietary applications from operating properly. We are currently implementing software with respect to a number of new applications and services. If our solution does not function reliably or fails to achieve Client expectations in terms of performance, Clients could assert liability claims against us or attempt to cancel their contracts with us. This could damage our reputation and impair our ability to attract or maintain Clients.

         Moreover, data services are complex and those we offer have in the past contained, and may in the future develop or contain, undetected defects or errors. Material performance problems, defects or errors in our existing or new software and applications and services may arise in the future and may result from interface of our solution with systems and data that we did not develop and the function of which is outside of our control or undetected in our testing. These defects and errors, and any failure by us to identify and address them, could result in loss of revenue or market share, diversion of development resources, harm to our reputation and increased service and maintenance costs. Defects or errors may discourage existing or potential Clients from purchasing our solution from us. Correction of defects or errors could prove to be impossible or impracticable. The costs incurred in correcting any defects or errors may be substantial and could have a material adverse effect on our business, financial condition and results of operations.

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In order to support the growth of our business, we may need to incur additional indebtedness under our current credit facilities or seek capital through new equity or debt financings, which sources of additional capital may not be available to us on acceptable terms or at all.

         Our operations have consumed substantial amounts of cash since inception and we intend to continue to make significant investments to support our business growth, respond to business challenges or opportunities, develop new applications and services, enhance our existing solution and services, enhance our operating infrastructure and potentially acquire complementary businesses and technologies. For the three months ended March 31, 2014 and 2015, our net cash used in operating activities was $2.2 million and $10.3 million, respectively. For the years ended December 31, 2013 and 2014, our net cash used in operating activities was $6.1 million and $11.4 million, respectively. As of March 31, 2015, we had $32.1 million of cash and cash equivalents, which are held for working capital purposes. As of March 31, 2015, we had borrowings of $22.5 million under our credit facilities and the ability to borrow up to an additional $7.3 million. Borrowings under our credit facilities are secured by substantially all of our properties, rights and assets. Additionally, the credit agreements governing our credit facilities contain certain customary restrictive covenants that limit our ability to incur additional indebtedness and liens, merge with other companies or consummate certain changes of control, acquire other companies, engage in new lines of business, make certain investments, pay dividends and transfer or dispose of assets as well as a financial covenant that requires us to maintain a specified level of recurring revenue growth. These covenants could limit our ability to seek capital through the incurrence of new indebtedness or, if we are unable to meet our recurring revenue growth obligation, require us to repay any outstanding amounts with sources of capital we may otherwise use to fund our business, operations and strategy.

         Our future capital requirements may be significantly different from our current estimates and will depend on many factors, including our growth rate, subscription renewal activity, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new or enhanced services and the continuing market acceptance of telehealth. Accordingly, we may need to engage in equity or debt financings or collaborative arrangements to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing secured by us in the future could involve additional restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, during times of economic instability, it has been difficult for many companies to obtain financing in the public markets or to obtain debt financing, and we may not be able to obtain additional financing on commercially reasonable terms, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, it could have a material adverse effect on our business, financial condition and results of operations.

Failure to adequately expand our direct sales force will impede our growth.

         We believe that our future growth will depend on the continued development of our direct sales force and its ability to obtain new Clients and to manage our existing client base. Identifying and recruiting qualified personnel and training them requires significant time, expense and attention. It can take six months or longer before a new sales representative is fully trained and productive. Our business may be adversely affected if our efforts to expand and train our direct sales force do not generate a corresponding increase in revenue. In particular, if we are unable to hire and develop sufficient numbers of productive direct sales personnel or if new direct sales personnel are unable to achieve desired productivity levels in a reasonable period of time, sales of our services will suffer and our growth will be impeded.

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We may be unable to successfully execute on our growth initiatives, business strategies or operating plans.

         We are continually executing a number of growth initiatives, strategies and operating plans designed to enhance our business. For example, we recently entered into new specialist healthcare professional markets as well as into B2C markets. The anticipated benefits from these efforts are based on several assumptions that may prove to be inaccurate. Moreover, we may not be able to successfully complete these growth initiatives, strategies and operating plans and realize all of the benefits, including growth targets and cost savings, that we expect to achieve or it may be more costly to do so than we anticipate. A variety of risks could cause us not to realize some or all of the expected benefits. These risks include, among others, delays in the anticipated timing of activities related to such growth initiatives, strategies and operating plans, increased difficulty and cost in implementing these efforts, including difficulties in complying with new regulatory requirements and the incurrence of other unexpected costs associated with operating the business. Moreover, our continued implementation of these programs may disrupt our operations and performance. As a result, we cannot assure you that we will realize these benefits. If, for any reason, the benefits we realize are less than our estimates or the implementation of these growth initiatives, strategies and operating plans adversely affect our operations or cost more or take longer to effectuate than we expect, or if our assumptions prove inaccurate, our business, financial condition and results of operations may be materially adversely affected.

Our use and disclosure of personally identifiable information, including health information, is subject to federal and state privacy and security regulations, and our failure to comply with those regulations or to adequately secure the information we hold could result in significant liability or reputational harm and, in turn, a material adverse effect on our client base, membership base and revenue.

         Numerous state and federal laws and regulations govern the collection, dissemination, use, privacy, confidentiality, security, availability and integrity of personally identifiable information, or PII, including protected health information, or PHI. These laws and regulations include the Health Information Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their implementing regulations (referred to collectively as HIPAA). HIPAA establishes a set of basic national privacy and security standards for the protection of PHI by health plans, healthcare clearinghouses and certain healthcare providers, referred to as covered entities, and the business associates with whom such covered entities contract for services, which includes us.

         HIPAA requires healthcare providers like us to develop and maintain policies and procedures with respect to PHI that is used or disclosed, including the adoption of administrative, physical and technical safeguards to protect such information. HIPAA also implemented the use of standard transaction code sets and standard identifiers that covered entities must use when submitting or receiving certain electronic healthcare transactions, including activities associated with the billing and collection of healthcare claims.

         HIPAA imposes mandatory penalties for certain violations. Penalties for violations of HIPAA and its implementing regulations start at $100 per violation and are not to exceed $50,000 per violation, subject to a cap of $1.5 million for violations of the same standard in a single calendar year. However, a single breach incident can result in violations of multiple standards. HIPAA also authorizes state attorneys general to file suit on behalf of their residents. Courts will be able to award damages, costs and attorneys' fees related to violations of HIPAA in such cases. While HIPAA does not create a private right of action allowing individuals to sue us in civil court for violations of HIPAA, its standards have been used as the basis for duty of care in state civil suits such as those for negligence or recklessness in the misuse or breach of PHI.

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         In addition, HIPAA mandates that the Secretary of HHS conduct periodic compliance audits of HIPAA covered entities or business associates for compliance with the HIPAA Privacy and Security Standards. It also tasks HHS with establishing a methodology whereby harmed individuals who were the victims of breaches of unsecured PHI may receive a percentage of the Civil Monetary Penalty fine paid by the violator.

         HIPAA further requires that patients be notified of any unauthorized acquisition, access, use or disclosure of their unsecured PHI that compromises the privacy or security of such information, with certain exceptions related to unintentional or inadvertent use or disclosure by employees or authorized individuals. HIPAA specifies that such notifications must be made "without unreasonable delay and in no case later than 60 calendar days after discovery of the breach." If a breach affects 500 patients or more, it must be reported to HHS without unreasonable delay, and HHS will post the name of the breaching entity on its public web site. Breaches affecting 500 patients or more in the same state or jurisdiction must also be reported to the local media. If a breach involves fewer than 500 people, the covered entity must record it in a log and notify HHS at least annually.

         Numerous other federal and state laws protect the confidentiality, privacy, availability, integrity and security of PII, including PHI. These laws in many cases are more restrictive than, and may not be preempted by, the HIPAA rules and may be subject to varying interpretations by courts and government agencies, creating complex compliance issues for us and our Clients and potentially exposing us to additional expense, adverse publicity and liability.

         New health information standards, whether implemented pursuant to HIPAA, congressional action or otherwise, could have a significant effect on the manner in which we must handle healthcare related data, and the cost of complying with standards could be significant. If we do not comply with existing or new laws and regulations related to PHI, we could be subject to criminal or civil sanctions.

         Because of the extreme sensitivity of the PII we store and transmit, the security features of our technology platform are very important. If our security measures, some of which are managed by third parties, are breached or fail, unauthorized persons may be able to obtain access to sensitive Client and Member data, including HIPAA-regulated PHI. As a result, our reputation could be severely damaged, adversely affecting Client and Member confidence. Members may curtail their use of or stop using our services or our client base could decrease, which would cause our business to suffer. In addition, we could face litigation, damages for contract breach, penalties and regulatory actions for violation of HIPAA and other applicable laws or regulations and significant costs for remediation, notification to individuals and for measures to prevent future occurrences. Any potential security breach could also result in increased costs associated with liability for stolen assets or information, repairing system damage that may have been caused by such breaches, incentives offered to Clients or other business partners in an effort to maintain our business relationships after a breach and implementing measures to prevent future occurrences, including organizational changes, deploying additional personnel and protection technologies, training employees and engaging third-party experts and consultants. While we maintain insurance covering certain security and privacy damages and claim expenses in the amount of $5.0 million per claim, we may not carry insurance or maintain coverage sufficient to compensate for all liability and in any event, insurance coverage would not address the reputational damage that could result from a security incident.

         We outsource important aspects of the storage and transmission of Client and Member information, and thus rely on third parties to manage functions that have material cyber-security risks. We attempt to address these risks by requiring outsourcing subcontractors who handle Client and Member information to sign business associate agreements contractually requiring those subcontractors to adequately safeguard personal health data to the same extent that applies to us and in some cases by requiring such outsourcing subcontractors to undergo third-party security examinations. In addition, we periodically hire third-party security experts to assess and test our

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security posture. However, we cannot assure you that these contractual measures and other safeguards will adequately protect us from the risks associated with the storage and transmission of Client and Members' proprietary and protected health information.

         We also publish statements to our Members that describe how we handle and protect personal information. If federal or state regulatory authorities or private litigants consider any portion of these statements to be untrue, we may be subject to claims of deceptive practices, which could lead to significant liabilities and consequences, including, without limitation, costs of responding to investigations, defending against litigation, settling claims and complying with regulatory or court orders.

         We also send SMS text messages to potential end users who are eligible to use our service through certain customers and partners. While we obtain consent from or on behalf of these individuals to send text messages, federal or state regulatory authorities or private litigants may claim that the notices and disclosures we provide, form of consents we obtain or our SMS texting practices, are not adequate. These SMS texting campaigns are potential sources of risk for class action lawsuits and liability for our company. Numerous class-action suits under federal and state laws have been filed in the past year against companies who conduct SMS texting programs, with many resulting in multi-million dollar settlements to the plaintiffs. Any future such litigation against us could be costly and time-consuming to defend.

Our quarterly results may fluctuate significantly, which could adversely impact the value of our common stock.

         Our quarterly results of operations, including our revenue, gross margin, net loss and cash flows, has varied and may vary significantly in the future, and period-to-period comparisons of our results of operations may not be meaningful. Accordingly, our quarterly results should not be relied upon as an indication of future performance. Our quarterly financial results may fluctuate as a result of a variety of factors, many of which are outside of our control, including, without limitation, the following:

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         We are particularly subject to fluctuations in our quarterly results of operations because the costs associated with entering into Client contracts are generally incurred up front, while we generally recognize revenue over the term of the contract. Further, most of our revenue in any given quarter is derived from contracts entered into with our Clients during previous quarters. Consequently, a decline in new or renewed contracts in any one quarter may not be fully reflected in our revenue for that quarter. Such declines, however, would negatively affect our revenue in future periods and the effect of significant downturns in sales of and market demand for our solution, and potential changes in our rate of renewals or renewal terms, may not be fully reflected in our results of operations until future periods. Our subscription model also makes it difficult for us to rapidly increase our total revenue through additional sales in any period, with the exception of the first quarter during peak benefits enrollment, as revenue from new Clients must be recognized over the applicable term of the contract. Accordingly, the effect of changes in the industry impacting our business or changes we experience in our new sales may not be reflected in our short-term results of operations. Any fluctuation in our quarterly results may not accurately reflect the underlying performance of our business and could cause a decline in the trading price of our common stock.

If we fail to manage our growth effectively, our expenses could increase more than expected, our revenue may not increase and we may be unable to implement our business strategy.

         We have experienced significant growth in recent periods, which puts strain on our business, operations and employees. For example, we grew from 95 full-time employees at December 31, 2013 to 222 full-time employees at December 31, 2014 and 259 full-time employees at March 31, 2015. We have also more than doubled our client and membership bases over the past two years. We anticipate that our operations will continue to rapidly expand. To manage our current and anticipated future growth effectively, we must continue to maintain and enhance our IT infrastructure, financial and accounting systems and controls. We must also attract, train and retain a significant number of qualified sales and marketing personnel, customer support personnel, professional services personnel, software engineers, technical personnel and management personnel, and the availability of such personnel, in particular software engineers, may be constrained.

         A key aspect to managing our growth is our ability to scale our capabilities to implement our solution satisfactorily with respect to both large and demanding Clients, who currently constitute the substantial majority of our client base, as well as smaller Clients who are becoming an increasingly larger portion of our client base. Large Clients often require specific features or functions unique to their membership base, which, at a time of significant growth or during periods of high demand, may strain our implementation capacity and hinder our ability to successfully implement our solution to our Clients in a timely manner. We may also need to make further investments in our technology and automate portions of our solution or services to decrease our costs. If we are unable to address the needs of our Clients or Members, or our Clients or Members are unsatisfied with the quality of our solution or services, they may not renew their contracts, seek to cancel or terminate their relationship with us or renew on less favorable terms, any of which could cause our annual net dollar retention rate to decrease.

         Failure to effectively manage our growth could also lead us to over-invest or under-invest in development and operations, result in weaknesses in our infrastructure, systems or controls, give rise to operational mistakes, financial losses, loss of productivity or business opportunities and result in loss of employees and reduced productivity of remaining employees. Our growth is expected to require significant capital expenditures and may divert financial resources from other projects such as the development of new applications and services. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our revenue may not increase or may grow more slowly than expected and we may be unable to implement our

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business strategy. The quality of our services may also suffer, which could negatively affect our reputation and harm our ability to attract and retain Clients.

We incur significant upfront costs in our Client relationships, and if we are unable to maintain and grow these Client relationships over time, we are likely to fail to recover these costs, which could have a material adverse effect on our business, financial condition and results of operations.

         We derive most of our revenue from subscription access fees. Accordingly, our business model depends heavily on achieving economies of scale because our initial upfront investment is costly and the associated revenue is recognized on a ratable basis. We devote significant resources to establish relationships with our Clients and implement our solution and related services. This is particularly so in the case of large enterprises that, to date, have comprised a substantial majority of our client base and revenue and often request or require specific features or functions unique to their particular business processes. Accordingly, our results of operations will depend in substantial part on our ability to deliver a successful experience for both Clients and Members and persuade our Clients to maintain and grow their relationship with us over time. Additionally, as our business is growing significantly, our Client acquisition costs could outpace our build-up of recurring revenue, and we may be unable to reduce our total operating costs through economies of scale such that we are unable to achieve profitability. If we fail to achieve appropriate economies of scale or if we fail to manage or anticipate the evolution and in future periods, demand, of the subscription access fee model, our business, financial condition and results of operations could be materially adversely affected.

If our existing Clients do not continue or renew their contracts with us, renew at lower fee levels or decline to purchase additional applications and services from us, it could have a material adverse effect on our business, financial condition and results of operations.

         We expect to derive a significant portion of our revenue from renewal of existing Client contracts and sales of additional applications and services to existing Clients. As part of our growth strategy, for instance, we have recently focused on expanding our services amongst current Clients. As a result, achieving a high annual net dollar retention rate and selling additional applications and services are critical to our future business, revenue growth and results of operations.

         Factors that may affect our annual net dollar retention rate and our ability to sell additional applications and services include, but are not limited to, the following:

         We enter into subscription access contracts with our Clients. These contracts generally have stated initial terms of one year. Most of our Clients have no obligation to renew their subscriptions for our solution after the initial term expires. In addition, our Clients may negotiate terms less advantageous to us upon renewal, which may reduce our revenue from these Clients and may decrease our annual net dollar retention rate. Our future results of operations also depend, in part, on our ability to expand into new clinical specialties and across care settings and use cases. If our Clients fail to renew their contracts, renew their contracts upon less favorable terms or at lower fee levels or fail to purchase new products and services from us, our revenue may decline or our future revenue growth may be constrained.

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         In addition, after the initial contract year, a significant number of our Client contracts allow Clients to terminate such agreements for convenience at certain times, typically with one to three months advance notice. We typically incur the expenses associated with integrating a Client's data into our healthcare database and related training and support prior to recognizing meaningful revenue from such Client. Subscription access revenue is not recognized until our products are implemented for launch, which is generally from one to three months from contract signing. If a Client terminates its contract early and revenue and cash flows expected from a Client are not realized in the time period expected or not realized at all, our business, financial condition and results of operations could be adversely affected.

Our sales and implementation cycle can be long and unpredictable and requires considerable time and expense, which may cause our results of operations to fluctuate.

         The sales cycle for our solution from initial contact with a potential lead to contract execution and implementation, varies widely by Client, ranging from a number of days to approximately 24 months. Some of our Clients undertake a significant and prolonged evaluation process, including to determine whether our services meet their unique healthcare needs, which frequently involves evaluation of not only our solution but also an evaluation of those of our competitors, which has in the past resulted in extended sales cycles. Our sales efforts involve educating our Clients about the use, technical capabilities and potential benefits of our solution. Moreover, our large enterprise Clients often begin to deploy our solution on a limited basis, but nevertheless demand extensive configuration, integration services and pricing concessions, which increase our upfront investment in the sales effort with no guarantee that these Clients will deploy our solution widely enough across their organization to justify our substantial upfront investment. It is possible that in the future we may experience even longer sales cycles, more complex Client needs, higher upfront sales costs and less predictability in completing some of our sales as we continue to expand our direct sales force, expand into new territories and market additional applications and services. If our sales cycle lengthens or our substantial upfront sales and implementation investments do not result in sufficient sales to justify our investments, it could have a material adverse effect on our business, financial condition and results of operations.

We operate in a competitive industry, and if we are not able to compete effectively, our business, financial condition and results of operations will be harmed.

         While the telehealth market is in an early stage of development, it is competitive and we expect it to attract increased competition, which could make it difficult for us to succeed. We currently face competition in the telehealth industry for our solution from a range of companies, including specialized software and solution providers that offer similar solutions, often at substantially lower prices, and that are continuing to develop additional products and becoming more sophisticated and effective. These competitors include MDLIVE, Inc., American Well Corporation and Doctor on Demand, Inc. In addition, large, well-financed health plans have in some cases developed their own telehealth tools and may provide these solutions to their customers at discounted prices. Competition from specialized software and solution providers, health plans and other parties will result in continued pricing pressures, which is likely to lead to price declines in certain product segments, which could negatively impact our sales, profitability and market share.

         Some of our competitors may have greater name recognition, longer operating histories and significantly greater resources than we do. Further, our current or potential competitors may be acquired by third parties with greater available resources. As a result, our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements and may have the ability to initiate or withstand substantial price competition. In addition, current and potential competitors have established, and may in the future establish, cooperative relationships with vendors of complementary products, technologies or services to increase the availability of their solutions in the marketplace.

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Accordingly, new competitors or alliances may emerge that have greater market share, a larger customer base, more widely adopted proprietary technologies, greater marketing expertise, greater financial resources and larger sales forces than we have, which could put us at a competitive disadvantage. Our competitors could also be better positioned to serve certain segments of the telehealth market, which could create additional price pressure. In light of these factors, even if our solution is more effective than those of our competitors, current or potential Clients may accept competitive solutions in lieu of purchasing our solution. If we are unable to successfully compete in the telehealth market, our business, financial condition and results of operations could be materially adversely affected.

If we cannot implement our solution for Clients or resolve any technical issues in a timely manner, we may lose Clients and our reputation may be harmed.

         Our Clients utilize a variety of data formats, applications and infrastructure and our solution must support our Clients' data formats and integrate with complex enterprise applications and infrastructures. If our platform does not currently support a Client's required data format or appropriately integrate with a Client's applications and infrastructure, then we must configure our platform to do so, which increases our expenses. Additionally, we do not control our Clients' implementation schedules. As a result, if our Clients do not allocate the internal resources necessary to meet their implementation responsibilities or if we face unanticipated implementation difficulties, the implementation may be delayed. If the Client implementation process is not executed successfully or if execution is delayed, we could incur significant costs, Clients could become dissatisfied and decide not to increase utilization of our solution or not to implement our solution beyond an initial period prior to their term commitment or, in some cases, revenue recognition could be delayed. In addition, competitors with more efficient operating models with lower implementation costs could jeopardize our Client relationships.

         Our Clients and Members depend on our support services to resolve any technical issues relating to our solution and services, and we may be unable to respond quickly enough to accommodate short-term increases in Member demand for support services, particularly as we increase the size of our client and membership bases. We also may be unable to modify the format of our support services to compete with changes in support services provided by competitors. It is difficult to predict Member demand for technical support services, and if Member demand increases significantly, we may be unable to provide satisfactory support services to our Members. Further, if we are unable to address Members' needs in a timely fashion or further develop and enhance our solution, or if a Client or Member is not satisfied with the quality of work performed by us or with the technical support services rendered, then we could incur additional costs to address the situation or be required to issue credits or refunds for amounts related to unused services, and our profitability may be impaired and Clients' dissatisfaction with our solution could damage our ability to expand the number of applications and services purchased by such Clients. These Clients may not renew their contracts, seek to terminate their relationship with us or renew on less favorable terms. Moreover, negative publicity related to our Client relationships, regardless of its accuracy, may further damage our business by affecting our reputation or ability to compete for new business with current and prospective Clients. If any of these were to occur, our revenue may decline and our business, financial condition and results of operations could be adversely affected.

We depend on our senior management team, and the loss of one or more of our executive officers or key employees or an inability to attract and retain highly skilled employees could adversely affect our business.

         Our success depends largely upon the continued services of our key executive officers. These executive officers are at-will employees and therefore they may terminate employment with us at any time with no advance notice. We maintain "key person" insurance in the amount of $4.0 million for Jason Gorevic, our Chief Executive Officer, but not for any of our other executive officers or any

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of our other key employees. We also rely on our leadership team in the areas of research and development, marketing, services and general and administrative functions. From time to time, there may be changes in our executive management team resulting from the hiring or departure of executives, which could disrupt our business. The replacement of one or more of our executive officers or other key employees would likely involve significant time and costs and may significantly delay or prevent the achievement of our business objectives.

         To continue to execute our growth strategy, we also must attract and retain highly skilled personnel. Competition is intense for qualified professionals. We may not be successful in continuing to attract and retain qualified personnel. We have from time to time in the past experienced, and we expect to continue to experience in the future, difficulty in hiring and retaining highly skilled personnel with appropriate qualifications. The pool of qualified personnel with experience working in the healthcare market is limited overall. In addition, many of the companies with which we compete for experienced personnel have greater resources than we have.

         In addition, in making employment decisions, particularly in high-technology industries, job candidates often consider the value of the stock options or other equity instruments they are to receive in connection with their employment. Volatility in the price of our stock may, therefore, adversely affect our ability to attract or retain highly skilled personnel. Further, the requirement to expense stock options and other equity instruments may discourage us from granting the size or type of stock option or equity awards that job candidates require to join our company. Failure to attract new personnel or failure to retain and motivate our current personnel, could have a material adverse effect on our business, financial condition and results of operations.

If we fail to develop widespread brand awareness cost-effectively, our business may suffer.

         We believe that developing and maintaining widespread awareness of our brand in a cost-effective manner is critical to achieving widespread adoption of our solution and attracting new Clients. Our brand promotion activities may not generate Client awareness or increase revenue, and even if they do, any increase in revenue may not offset the expenses we incur in building our brand. If we fail to successfully promote and maintain our brand, or incur substantial expenses in doing so, we may fail to attract or retain Clients necessary to realize a sufficient return on our brand-building efforts or to achieve the widespread brand awareness that is critical for broad Client adoption of our solution.

Our marketing efforts depend significantly on our ability to receive positive references from our existing Clients.

         Our marketing efforts depend significantly on our ability to call upon our current Clients to provide positive references to new, potential Clients. Given our limited number of long-term Clients, the loss or dissatisfaction of any Client could substantially harm our brand and reputation, inhibit widespread adoption of our solution and impair our ability to attract new Clients and maintain existing Clients. Any of these consequences could lower our annual net dollar retention rate and have a material adverse effect on our business, financial condition and results of operations.

Any failure to protect our intellectual property rights could impair our ability to protect our technology and our brand.

         Our success depends in part on our ability to enforce our intellectual property and other proprietary rights. We rely upon a combination of trademark and trade secret laws, as well as license and access agreements and other contractual provisions, to protect our intellectual property and other proprietary rights. In addition, we attempt to protect our intellectual property and proprietary information by requiring our employees, consultants and certain of our contractors to execute confidentiality and assignment of inventions agreements. These laws, procedures and restrictions provide only limited protection and any of our intellectual property rights may be challenged, invalidated, circumvented, infringed or misappropriated. To the extent that our

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intellectual property and other proprietary rights are not adequately protected, third parties may gain access to our proprietary information, develop and market solutions similar to ours or use trademarks similar to ours, each of which could materially harm our business. Unauthorized parties may also attempt to copy or obtain and use our technology to develop applications with the same functionality as our solution, and policing unauthorized use of our technology and intellectual property rights is difficult and may not be effective. The failure to adequately protect our intellectual property and other proprietary rights could have a material adverse effect on our business, financial condition and results of operations.

We may acquire other companies or technologies, which could divert our management's attention, result in dilution to our stockholders and otherwise disrupt our operations and we may have difficulty integrating any such acquisitions successfully or realizing the anticipated benefits therefrom, any of which could have a material adverse effect on our business, financial condition and results of operations.

         We may in the future seek to acquire or invest in businesses, applications and services or technologies that we believe could complement or expand our solution, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated.

         In addition, we have limited experience in acquiring other businesses. If we acquire additional businesses, we may not be able to integrate the acquired personnel, operations and technologies successfully, or effectively manage the combined business following the acquisition. We also may not achieve the anticipated benefits from the acquired business due to a number of factors, including, but not limited to:

         In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our results of operations based on this impairment assessment process, which could adversely affect our results of operations.

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         Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our results of operations. In addition, if an acquired business fails to meet our expectations, our business, financial condition and results of operations may suffer.

Taxing authorities may successfully assert that we should have collected or in the future should collect sales and use or similar taxes which could adversely affect our results of operations.

         We do not collect sales and use and similar taxes in any states based on our belief that our services are not subject to such taxes in any state. Sales and use and similar tax laws and rates vary greatly from state to state. Certain states in which we do not collect such taxes may assert that such taxes are applicable, which could result in tax assessments, penalties and interest with respect to past services, and we may be required to collect such taxes for services in the future. Such tax assessments, penalties and interest or future requirements may adversely affect our results of operations.

Economic uncertainties or downturns in the general economy or the industries in which our Clients operate could disproportionately affect the demand for our solution and negatively impact our results of operations.

         General worldwide economic conditions have experienced significant downturns during the last ten years, and market volatility and uncertainty remain widespread, making it potentially very difficult for our Clients and us to accurately forecast and plan future business activities. During challenging economic times, our Clients may have difficulty gaining timely access to sufficient credit or obtaining credit on reasonable terms, which could impair their ability to make timely payments to us and adversely affect our revenue. If that were to occur, our financial results could be harmed. Further, challenging economic conditions may impair the ability of our Clients to pay for the applications and services they already have purchased from us and, as a result, our write-offs of accounts receivable could increase. We cannot predict the timing, strength or duration of any economic slowdown or recovery. If the condition of the general economy or markets in which we operate worsens, our business could be harmed.

The estimates of market opportunity and forecasts of market growth included in this prospectus may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all.

         Market opportunity estimates and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The estimates and forecasts in this prospectus relating to the size and expected growth of the telehealth market may prove to be inaccurate. Even if the market in which we compete meets our size estimates and forecasted growth, our business could fail to grow at similar rates, if at all.

Natural or man-made disasters and other similar events may significantly disrupt our business and negatively impact our business, financial condition and results of operations.

         Our offices may be harmed or rendered inoperable by natural or man-made disasters, including earthquakes, power outages, fires, floods, nuclear disasters and acts of terrorism or other criminal activities, which may render it difficult or impossible for us to operate our business for some period of time. For example, our headquarters are located in the greater New York City area, a region with a history of terrorist attacks and hurricanes. Any disruptions in our operations related to the repair or replacement of our offices, could negatively impact our business and results of operations and harm our reputation. Although we maintain a $1.0 million insurance policy covering damage to property we rent and have an additional $2.0 million of coverage under our general

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insurance policy, such insurance may not be sufficient to compensate for losses that may occur. Any such losses or damages could have a material adverse effect on our business, financial condition and results of operations. In addition, our Clients' facilities may be harmed or rendered inoperable by such natural or man-made disasters, which may cause disruptions, difficulties or material adverse effects on our business.

Future sales to Clients outside the United States or with international operations may expose us to risks inherent in international sales that, if realized, could adversely affect our business.

         We may in the future expand internationally. Operating in international markets requires significant resources and management attention and will subject us to regulatory, economic and political risks that are different from those in the United States. Because of our limited experience with international operations, our international expansion efforts may not be successful in creating demand for our products and services outside of the United States or in effectively selling our solutions in the international markets we enter. In addition, we will face risks in doing business internationally that could adversely affect our business, including, but not limited to, the following:

         If we denominate our international contracts in local currencies, fluctuations in the value of the U.S. dollar and foreign currencies may impact our results of operations when translated into U.S. dollars.

Risks Related to this Offering and Ownership of Our Common Stock

After this offering, our executive officers, directors and principal stockholders, if they choose to act together, will continue to retain significant voting power.

         Upon the closing of this offering, our executive officers, directors and stockholders who owned more than 5% of our outstanding common stock before this offering and their respective affiliates

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will, in the aggregate, hold shares representing approximately 62.9% of our outstanding common stock. As a result, if these stockholders were to choose to act together, they would be able to control or significantly influence all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, would control or significantly influence the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of ownership control may:

We have an unremediated material weakness in internal control over financial reporting. Our failure to establish and maintain effective internal control over financial reporting could result in our failure to meet our reporting obligations and cause investors to lose confidence in our reported financial information, which in turn could cause the trading price of our common stock to decline.

         In connection with our most recent audit, we identified a material weakness in our internal control over financial reporting. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

         The material weakness pertains to the breadth of our internal accounting team. Specifically, we do not have a sufficient number of accounting personnel to effectively design and operate proper internal controls over financial reporting. We are working to remediate the material weakness. We have begun taking steps and plan to take additional measures to remediate the underlying causes of the material weakness, primarily through the continued hiring of additional accounting personnel. The actions that we are taking are subject to ongoing senior management review, as well as audit committee oversight. Although we plan to complete this remediation process as quickly as possible, we cannot at this time estimate how long it will take to fully remediate the material weakness. If our remedial measures are insufficient to address the material weakness, or if significant deficiencies or material weaknesses in our internal control over financial reporting are discovered or occur in the future, it may adversely affect the results of our management evaluations and, when required, annual auditor attestation reports regarding the effectiveness of our internal control over financial reporting required by Section 404 of the Sarbanes-Oxley Act. In addition, if we are unable to successfully remediate the material weakness and if we are unable to produce accurate and timely financial statements or we are required to restate our financial results, our common stock price may be adversely affected and we may be unable to maintain compliance with the NYSE listing requirements.

If you purchase shares of common stock in this offering, you will suffer immediate dilution of your investment.

         The initial public offering price of our common stock will be substantially higher than the net tangible book value per share of our common stock. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share that substantially exceeds our net tangible book value per share after this offering. To the extent shares subsequently are issued under outstanding options or warrants, you will incur further dilution. Based on an assumed initial public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, you will experience immediate dilution of $13.60 per share,

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representing the difference between our pro forma net tangible book value per share, after giving effect to this offering, and the assumed initial public offering price.

An active trading market for our common stock may not develop.

         Prior to this offering, there has been no public market for our common stock. The initial public offering price for our common stock will be determined through negotiations with the underwriters. Although we intend to apply to have our common stock approved for listing on the NYSE, an active trading market for our common stock may never develop or be sustained following this offering. If an active market for our common stock does not develop, it may be difficult for you to sell the shares of our common stock you purchase in this offering without depressing the market price for our common stock or at all.

The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our common stock in this offering.

         Our stock price is likely to be volatile. The stock market has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, you may not be able to sell your common stock at or above the initial public offering price. The market price for our common stock may be influenced by many factors, including, but not limited to:

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

         Our management and board of directors will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common stock. You may not agree with our decisions, and our use of the proceeds may not yield any return on your investment. We intend to use the net proceeds of this offering for working capital and general corporate purposes, including to expand our current business through acquisitions of, or investments in, other businesses, products or technologies. However, we have no commitments with respect to any such acquisitions or investments at this time, and our use of these proceeds may differ substantially from our current plans. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our common stock to decline and delay the development of our new applications and services. Pending their

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use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value. You will not have the opportunity to influence our decision on how to use our net proceeds from this offering.

A significant portion of our total outstanding shares are eligible to be sold into the market in the near future, which could cause the market price of our common stock to drop significantly, even if our business is doing well.

         Sales of a substantial number of shares of our common stock in the public market, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. After this offering, we will have outstanding 35,796,346 shares of common stock based on the number of shares outstanding as of June 17, 2015. This includes the shares that we are selling in this offering, which may be resold in the public market immediately without restriction, unless purchased by our affiliates or existing stockholders. Substantially all of the remaining 28,796,346 shares are currently restricted as a result of securities laws or lock-up agreements but will become eligible to be sold at various times beginning 180 days after this offering. Moreover, after this offering, holders of an aggregate of approximately 28,796,346 shares of our common stock will have rights, subject to specified conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We also intend to register all shares of common stock that we may issue under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates and the lock-up agreements described in the "Underwriting" section of this prospectus.

We are an "emerging growth company," and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.

         We are an "emerging growth company," as defined in the JOBS Act and may remain an emerging growth company for up to five years. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:

         We have taken advantage of reduced reporting burdens in this prospectus. In particular, in this prospectus, we have provided only two years of audited financial statements and have not included all of the executive compensation related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may

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be reduced or more volatile. In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of these accounting standards until they would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our stock, our stock price and trading volume could decline.

         The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no or few securities or industry analysts commence coverage of us, the trading price for our common stock would be negatively impacted. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual property or our stock performance, or if our results of operations fail to meet the expectations of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Provisions in our amended and restated certificate of incorporation and amended and restated bylaws and under Delaware law could make an acquisition of our company, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

         Provisions in our amended and restated certificate of incorporation and our amended and restated bylaws that will become effective upon the closing of this offering may discourage, delay or prevent a merger, acquisition or other change in control of our company that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions include those establishing:

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         Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the General Corporation Law of the State of Delaware, or the DGCL, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

         Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty or other wrongdoing by any of our directors, officers, employees or agents to us or our stockholders, (3) any action asserting a claim arising pursuant to any provision of the DGCL or our amended and restated certificate of incorporation or amended and restated bylaws, (4) any action to interpret, apply, enforce or determine the validity of our amended and restated certificate of incorporation or amended and restated bylaws or (5) any action asserting a claim governed by the internal affairs doctrine. This choice of forum provision may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could have a material adverse effect our business, financial condition or results of operations.

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Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation will be your sole source of gain, if any.

         We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. Any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.

We could be subject to securities class action litigation.

         In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. If we face such litigation, it could result in substantial costs and a diversion of management's attention and resources, which could have a material adverse effect on our business, financial condition or results of operations.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

         Many statements made in this prospectus that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements and should be evaluated as such. Forward-looking statements include information concerning possible or assumed future results of operations, including descriptions of our business plan and strategies. These statements often include words such as "anticipate," "expect," "suggests," "plan," "believe," "intend," "estimates," "targets," "projects," "should," "could," "would," "may," "will," "forecast," and other similar expressions. These forward-looking statements and projections are contained throughout this prospectus, including the sections entitled "Prospectus Summary," "Risk Factors," "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." We base these forward-looking statements or projections on our current expectations, plans and assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances and at such time. As you read and consider this prospectus, you should understand that these statements are not guarantees of performance or results. The forward-looking statements and projections are subject to and involve risks, uncertainties and assumptions and you should not place undue reliance on these forward-looking statements or projections. Although we believe that these forward-looking statements and projections are based on reasonable assumptions at the time they are made, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements and projections. Factors that may materially affect such forward-looking statements and projections include, but are not limited to the following:

         These cautionary statements should not be construed by you to be exhaustive and are made only as of the date of this prospectus. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should evaluate all forward-looking statements made in this prospectus in the context of these risks and uncertainties.

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USE OF PROCEEDS

         We estimate the proceeds to us from this offering will be approximately $100.0 million, based on an assumed public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters' option to purchase additional shares from us is exercised in full, we estimate that we will receive additional net proceeds of $15.6 million.

         Each $1.00 increase (decrease) in the assumed public offering price would increase (decrease) the net proceeds to us by approximately $6.5 million, after deducting estimated underwriting discounts and commissions and other estimated offering expenses payable by us, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. Each increase (decrease) of 1.0 million in the number of shares offered by us would increase (decrease) the net proceeds to us by approximately $14.9 million, after deducting estimated underwriting discounts and commissions and other estimated offering expenses payable by us, assuming the public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus. Any increase or decrease in the net proceeds would not change our intended use of proceeds.

         We intend to use the net proceeds from this offering for working capital and other general corporate purposes, including to expand our current business through acquisitions of, or investments in, other businesses, products or technologies. However, we have no commitments with respect to any such acquisitions or investments at this time.

         Our management will have broad discretion in the application of the net proceeds from this offering to us, and investors will be relying on the judgment of our management regarding the application of the proceeds. Pending their use, we plan to invest our net proceeds from this offering in short-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.

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DIVIDEND POLICY

         We have never declared or paid dividends on our common stock. We do not expect to pay dividends on our common stock for the foreseeable future. Instead, we anticipate that all of our earnings, if any, will be used for the operation and growth of our business. Any future determination to declare cash dividends would be subject to the discretion of our board of directors and would depend upon various factors, including our results of operations, financial condition and liquidity requirements, restrictions that may be imposed by applicable law and our contracts and other factors deemed relevant by our board of directors.

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CAPITALIZATION

         The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2015, as follows:

         Our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this information in conjunction with our audited consolidated financial statements and the related notes appearing at the end of this prospectus and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section and other financial information contained in this prospectus.

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  As of March 31, 2015  
 
  Actual   Pro Forma   Pro Forma
As
Adjusted(1)
 
 
  (in thousands, except par value and share data)
 

Cash and cash equivalents

  $ 32,060   $ 18,782   $ 118,792  

Long-term bank and other debt

  $ 25,054   $ 25,054   $ 25,054  

Convertible preferred stock, $0.001 par value per share; 50,479,286 shares authorized, 50,452,939 shares issued and outstanding, actual; 1,000,000 shares authorized, no shares issued or outstanding, pro forma and pro forma as adjusted; aggregate liquidation value of $117,914 as of March 31, 2015

    117,914          

Redeemable common stock, $0.001 par value: 113,294 common shares issued and outstanding

    2,852          

Stockholders' equity:

                   

Common stock, $0.001 par value per share: 73,559,000 shares authorized, 4,709,331 shares issued and outstanding, actual; 75,000,000 shares authorized, pro forma and pro forma as adjusted; 28,796,346 shares issued and outstanding, pro forma; 35,796,346 shares issued and outstanding, pro forma as adjusted

    2     29     36  

Additional paid in capital

    5,792     143,752     243,755  

Accumulated deficit

    (85,193 )   (85,193 )   (85,193 )

Total stockholders' equity (deficit)

    (79,399 )   58,588     158,598  

Total capitalization

  $ 66,421   $ 83,643   $ 183,653  

(1)
Each $1.00 increase (decrease) in the assumed initial public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, additional paid in capital, total stockholders' equity/(deficit) and total capitalization by approximately $6.5 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1.0 million shares in the number of shares offered by us at the assumed initial public offering price per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, additional paid in capital, total stockholders' equity/(deficit) and total capitalization by approximately $14.9 million. The as adjusted information discussed above is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.

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DILUTION

         If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share and the net tangible book value per share after this offering and the use of proceeds therefrom.

         As of March 31, 2015, we had a historical net tangible book value (deficit) of approximately $(1.0) million, or $(0.47) per share. Our historical net tangible book value per share represents total tangible assets less total liabilities divided by the number of shares of common stock outstanding as of March 31, 2015.

         Our pro forma net tangible book value (deficit) as of March 31, 2015 was $(14.3) million, or $(0.50) per share, based on shares of our common stock outstanding as of March 31, 2015, after giving effect to the automatic conversion of all outstanding shares of our preferred stock into common stock upon the closing of this offering and the consummation of our acquisition of StatDoc as if it had occurred on such date.

         After giving further effect to the sale of 7,000,000 shares of common stock in this offering at an assumed initial public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2015 would have been approximately $85.7 million, or approximately $2.40 per share. This amount represents an immediate increase in pro forma net tangible book value of $2.90 per share to our existing stockholders and an immediate dilution of approximately $13.60 per share to new investors participating in this offering. We determine dilution by subtracting the pro forma as adjusted net tangible book value per share after this offering from the amount of cash that a new investor paid for a share of common stock. The following table illustrates this dilution:

Assumed initial public offering price per share

        $ 16.00  

Historical net tangible book value (deficit) per share as of March 31, 2015

  $ (0.47 )      

Increase (decrease) per share attributable to the conversion of our preferred stock and consummation of acquisition of StatDoc

    (0.03 )      

Pro forma net tangible book value (deficit) per share as of March 31, 2015

    (0.50 )      

Increase per share attributable to this offering

    2.90        

Pro forma as adjusted net tangible book value per share after this offering

          2.40  

Dilution per share to new investors in this offering

        $ 13.60  

         Each $1.00 increase (decrease) in the assumed initial public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted net tangible book value per share after this offering by approximately $0.18, and dilution in pro forma net tangible book value per share to new investors by approximately $0.82, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each increase (decrease) of 1.0 million shares in the number of shares offered by us would increase (decrease) our pro forma as adjusted net tangible book value per share after this offering by approximately $0.34 per share and decrease (increase) the dilution to new investors by approximately $0.34 per share, assuming that the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions and the estimated offering expenses payable by us.

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         If the underwriters exercise their option to purchase additional shares of our common stock in full, the pro forma as adjusted net tangible book value after this offering would be $2.76 per share, the increase in pro forma net tangible book value per share would be $0.36 and the dilution per share to new investors would be $0.36 per share, in each case assuming an initial public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus.

         The following table summarizes on the pro forma as adjusted basis described above, as of March 31, 2015, the differences between the number of shares purchased from us, the total consideration paid to us in cash and the average price per share that existing stockholders and new investors paid. The calculation below is based on an assumed initial public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 
  Shares Purchased   Total Consideration    
 
 
  Average
Price Per
Share
 
 
  Number   Percent   Amount   Percent  
 
  (in thousands, other than shares and percentages)
 

Existing stockholders

    28,796,346     80.4 % $ 144,518,717     56.3 % $ 5.02  

New investors

    7,000,000     19.6     112,000,000     43.7     16.00  

Total

    35,796,346     100 % $ 256,518,717     100 %      

         The foregoing tables and calculations are based on the number of shares of our common stock outstanding as of June 17, 2015, after giving effect to the automatic conversion of all outstanding shares of our preferred stock into common stock upon the closing of this offering, and excludes:

         To the extent any of these outstanding options or warrants is exercised, there will be further dilution to new investors. If all of such outstanding options and warrants had been exercised for cash as of March 31, 2015, the pro forma as adjusted net tangible book value per share after this offering would be $2.71, and total dilution per share to new investors would be $13.29.

         If the underwriters exercise their option to purchase additional shares of our common stock in full:

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SELECTED HISTORICAL FINANCIAL INFORMATION

         The following table sets forth our selected historical consolidated financial information. The balance sheet data as of December 31, 2013 and 2014 and the statement of operations and cash flow data for the years ended December 31, 2013 and 2014 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The balance sheet data as of March 31, 2015 and the statement of operations data for the three months ended March 31, 2014 and 2015 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The balance sheet data as of March 31, 2014 have been derived from our unaudited consolidated financial statements not included in this prospectus. We completed our acquisitions of Consult A Doctor on August 29, 2013, AmeriDoc on May 1, 2014 and BetterHelp on January 23, 2015. The results of operations of Consult A Doctor and AmeriDoc since the respective acquisition dates have been included in our audited consolidated financial statements included elsewhere in this prospectus. The results of operations of Consult A Doctor, AmeriDoc and BetterHelp since the respective acquisition dates have been included in our unaudited consolidated financial statements included elsewhere in this prospectus. You should read the information contained in this table in conjunction with "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited consolidated financial statements and the related notes thereto included elsewhere in this prospectus. The unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of our management, include all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the information set forth herein. Interim financial results are not necessarily indicative of results that may be expected for the full fiscal year, and our historical results are not indicative of the results to be expected in the future.

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  Year Ended December 31,   Three Months Ended March 31,  
 
  2013   2014   2014   2015  
 
  (dollars in thousands, except share and per share data)
 

Consolidated Statements of Operations Data:

                         

Revenue

  $ 19,906   $ 43,528   $ 9,407   $ 16,488  

Cost of revenue

    4,186     9,929     1,982     5,281  

Gross profit

    15,720     33,599     7,425     11,207  

Operating expenses:

                         

Advertising and marketing

    4,090     7,662     2,518     4,341  

Sales

    4,441     11,571     2,145     3,682  

Technology and development

    3,532     7,573     1,192     2,906  

General and administrative

    8,772     19,623     3,344     11,968  

Depreciation and amortization

    754     2,320     414     903  

Loss from operations

    (5,869 )   (15,150 )   (2,188 )   (12,593 )

Interest income (expense), net

    (56 )   (1,499 )   (54 )   (568 )

Net loss before taxes

    5,925     (16,649 )   (2,242 )   (13,161 )

Income tax provision (benefit)

    94     388     72     (458 )

Net loss

  $ (6,019 ) $ (17,037 ) $ (2,314 )   (12,703 )

Per Share Data:

                         

Net loss per share, basic and diluted

  $ (8.05 ) $ (10.25 ) $ (2.35 ) $ (5.87 )

Weighted-average shares used to compute basic and diluted net loss per share

    1,222,268     1,962,845     1,423,732     2,162,413  

Pro forma net loss per share, basic and diluted (unaudited)

        $ (0.86 )       $ (0.46 )

Weighted-average shares used to compute basic and diluted pro forma net loss per share (unaudited)

          23,506,977           27,612,862  

Other Data:

   
 
   
 
   
 
   
 
 

Visits

    127,107     298,833     65,243     148,696  

Members

    6.2 million     8.1 million     7.1 million     10.6 million  

EBITDA(1)

  $ (5,115 ) $ (12,830 ) $ (1,774 ) $ (11,690 )

 

 
  As of December 31,   As of
March 31,
 
 
  2013   2014   2015  
 
  (in thousands)
 

Consolidated Balance Sheets Data:

                   

Cash and cash equivalents

  $ 3,212   $ 46,436   $ 32,060  

Working capital

    1,685     41,638     25,617  

Total assets

    27,386     92,007     87,361  

Total liabilities

    8,331     38,776     45,994  

Total stockholders' deficit

    (55,452 )   (67,535 )   (79,399 )

(1)
For information about EBITDA, including its limitations, the manner in which it is calculated and a reconciliation from our net loss to EBITDA, see note (1) under the heading "Prospectus Summary—Summary Historical Financial Information" elsewhere in this prospectus.

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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

         On May 1, 2014, we acquired AmeriDoc, LLC, or AmeriDoc, a provider of telemedicine solutions to small- and medium-sized businesses sold exclusively through brokers and resellers. AmeriDoc was acquired for $17.2 million.

         On May 22, 2015, our company and StatDoc executed an Agreement and Plan of Merger. The acquisition of StatDoc closed, on June 17, 2015. StatDoc is a telemedicine provider, focused on managed care, health system and self-insured clients. The purchase price for the proposed StatDoc acquisition was $30.5 million, comprised of $13.3 million of cash and $17.2 million of Teladoc stock and any working capital adjustments as defined in the Agreement and Plan of Merger.

         The following unaudited pro forma consolidated statement of operations and unaudited pro forma consolidated balance sheet has been derived from the audited consolidated financial statements of Teladoc for the year ended December 31, 2014, the audited consolidated financial statements of AmeriDoc for the period ended April 30, 2014 and the audited financial statements of StatDoc for the year ended December 31, 2014. The unaudited pro forma consolidated financial information has been adjusted for the acquisitions of AmeriDoc and StatDoc as if each had been completed on January 1, 2014, in the case of the unaudited pro forma consolidated statement of operations, and December 31, 2014, in the case of the unaudited pro forma consolidated balance sheet. The pro forma adjustments are based on the best information available and certain assumptions that management believes are reasonable under the circumstances. The assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with this unaudited pro forma financial information. The unaudited pro forma consolidated financial information is presented for illustrative and informative purposes only and is not intended to represent or be indicative of what our results of operations or financial position would have been had the acquisitions of AmeriDoc and StatDoc actually occurred on the dates indicated. The unaudited pro forma financial information should be read in conjunction with the information contained in our audited consolidated financial statements and the audited financial statements of each of AmeriDoc and StatDoc included elsewhere in this prospectus. The unaudited pro forma financial information also should not be considered representative of our future results of operations. The transactions have been accounted for as acquisitions of AmeriDoc and StatDoc. Under the acquisition method of accounting, with respect to each acquisition, the purchase price was allocated to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective estimated fair market values with any excess purchase price allocated to goodwill. As of the date of this prospectus, the valuation studies for AmeriDoc were completed and deemed final and the estimated fair market value of the assets acquired and liabilities assumed and the related allocations of purchase price are based on the actual net tangible and intangible assets that existed as of the closing date of the acquisition.

         For further information on the AmeriDoc acquisition, see Note 3 to our audited consolidated financial statements included elsewhere in this prospectus.

         As of the date of this document, we have not yet performed the detailed final valuation studies necessary to arrive at the final required estimates of the fair market value of the StatDoc assets to be acquired and StatDoc liabilities to be assumed and the related allocations of purchase price, as the acquisition has not yet closed. Accordingly, we have made certain adjustments to the historical book values of the assets and liabilities of StatDoc to reflect preliminary estimates of the fair value of intangible assets acquired with the residual excess of the purchase price over the historical net assets of StatDoc recorded as goodwill and intangible assets. Actual results may differ from those reflected in the unaudited pro forma financial statements once we have completed the valuation studies necessary to finalize the required purchase price allocations and other acquisition related adjustments for StatDoc. There can be no assurances that such finalization will not result in material changes.

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UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2014

 
  Teladoc
For the year ended
December 31, 2014
  AmeriDoc
For the period from
January 1, 2014 to
April 30, 2014
  StatDoc
for the year ended
December 31, 2014
  Adjustments
Unaudited
  For the year ended
December 31, 2014
Pro Forma
Unaudited
 
 
  (in thousands, except share and per share data)
 

Revenue

  $ 43,528   $ 1,814   $ 2,317   $   $ 47,659  

Cost of revenue

    9,929     568     460         10,957  

Gross profit

    33,599     1,246     1,857         36,702  

Operating expenses:

                               

Advertising and marketing

    7,662     13     481         8,156  

Sales

    11,571     479     1,064         13,114  

Technology and development

    7,573     97     1,011         8,681  

General and administrative

    19,623     1,729     2,547         23,899  

Depreciation and amortization

    2,320     9     81     1,492 (A,B)   3,902  

Loss from operations

    (15,150 )   (1,081 )   (3,327 )   (1,492 )   (21,050 )

Other income

            83         83  

Interest income (expense), net

    (1,499 )   (8 )       8 (C)   (1,499 )

Net loss before taxes

    (16,649 )   (1,089 )   (3,244 )   (1,484 )   (22,466 )

Income taxes

    388     5             393  

Net loss

  $ (17,037 ) $ (1,094 ) $ (3,244 ) $ (1,484) (D) $ (22,859 )

Per share data:

                               

Net loss per share, basic and diluted

  $ (10.25 ) $ (0.56 ) $ (1.65 ) $ (0.49 ) $ (8.62 )

Weighted-average shares used to compute basic and diluted net loss per share

    1,962,845     1,962,845     1,962,845     3,013,883 (E)   3,013,883  

Pro forma net loss per share, basic and diluted (unaudited)

  $ (0.86 ) $ (0.05 ) $ (0.14 ) $ (0.06 ) $ (1.05 )

Weighted-average shares used to compute basic and diluted pro forma net loss per share (unaudited)

    23,506,977     23,506,977     23,506,977     24,557,815 (F)   24,557,815  

   

See accompanying notes to unaudited pro forma consolidated statement of operations.

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Notes to Unaudited Pro Forma Consolidated Statement of Operations

(A)
Reflects the estimated additional amortization of $157 as a result of increasing the value of AmeriDoc's intangible assets including client lists and non-compete agreements based on the final valuation and estimated useful lives.

(B)
Reflects the estimated additional amortization of $1,335 as a result of increasing the value of StatDoc's intangible assets including client lists, non-compete agreements and technology based on the valuation and estimated useful lives.

(C)
Represents the reversal of all of the interest expense recognized by AmeriDoc as their outstanding debt would have been fully repaid in conjunction with the acquisition.

(D)
Reflects the impact of the pro forma adjustments to the consolidated net loss.

(E)
Reflects the issuance of 1,051,038 shares of Teladoc common stock at a par value of $0.001 for the acquisition of StatDoc.

(F)
Reflects the issuance of 1,051,038 shares of Teladoc common stock at a par value of $0.001 for the acquisition of StatDoc.

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UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2014

 
  Teladoc
As of
December 31, 2014
  StatDoc
As of
December 31, 2014
  Adjustments
Unaudited
  As of
December 31, 2014
Pro Forma Unaudited
 
 
  (in thousands, except share and per share information)
 

Assets

                         

Current assets:

                         

Cash and cash equivalents

  $ 46,436   $ 1,509   $ (13,278 )(A) $ 34,667  

Accounts receivable, net

    6,839     193         7,032  

Due from officer

    253     34         287  

Prepaid expenses and other current assets

    1,122     7         1,129  

Deferred taxes

    12             12  

Total current assets

    54,662     1,743     (13,278 )   43,127  

Property and equipment, net

    1,065     35         1,100  

Goodwill

    28,454         21,897 (B)   50,351  

Intangible assets, net

    7,530     118     7,250 (C)   14,898  

Other assets

    296     29         325  

Total assets

  $ 92,007   $ 1,925   $ 15,869   $ 109,801  

Liabilities, convertible preferred stock and stockholders' deficit

                         

Current liabilities:

                         

Accounts payable

  $ 2,210   $ 208   $   $ 2,418  

Accrued expenses and other current liabilities

    6,623     364         6,987  

Accrued compensation

    3,358             3,358  

Long term bank and other debt—current

    833             833  

Total current liabilities

    13,024     572         13,596  

Other liabilities

    62             62  

Deferred taxes

    494             494  

Long term bank and other debt

    25,196             25,196  

Commitments and contingencies

   
 
   
 
   
 
   
 
 

Convertible preferred stock

    117,914     17,638     (17,638 )(D)   117,914  

Redeemable common stock

    2,852             2,852  

Stockholders' equity (deficit):

                         

Common stock

    2     2     (1 )(E)   3  

Additional paid-in capital

    4,953     2,904     14,317 (F)   22,174  

Accumulated deficit

    (72,490 )   (19,191 )   19,191 (G)   (72,490 )

Total stockholders' deficit

    (67,535 )   (16,285 )   33,507     (50,313 )

Total liabilities, convertible preferred stock and stockholders' deficit

  $ 92,007   $ 1,925   $ 15,869   $ 109,801  

   

See accompanying notes to unaudited pro forma consolidated balance sheet.

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Notes to Unaudited Pro Forma Consolidated Balance Sheet

(A)
Represents 45% of the total purchase price of StatDoc that is intended to be paid in conjunction with the acquisition.

(B)
Represents preliminary goodwill that will be recognized by StatDoc in conjunction with the acquisition by Teladoc.

(C)
Reflects the preliminary increase in value of StatDoc's intangible assets including client lists, non-compete agreements and technology based on the preliminary valuation report.

(D)
Reflects convertible preferred stock of StatDoc that will be eliminated in conjunction with the acquisition.

(E)
Reflects the issuance of 1,051,038 shares of common stock of Teladoc at a par value of $0.001 ($1) for the acquisition of StatDoc, less $2 of common stock of StatDoc that will be eliminated in conjunction with the acquisition.

(F)
Reflects the issuance of 1,051,038 shares of common stock of Teladoc at a par value of $0.001 ($17,221) for the acquisition of StatDoc at $16 per share, less $2,904 of additional paid-in capital of StatDoc that will be eliminated in conjunction with the acquisition.

(G)
Reflects accumulated deficit of StatDoc that will be eliminated in conjunction with the acquisition.

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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          The following discussion summarizes the significant factors affecting the results of operations, financial condition, liquidity and cash flows of our company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with "Prospectus Summary—Summary Historical Financial Information," "Selected Historical Financial Information" and the audited consolidated financial statements and the related notes thereto included elsewhere in this prospectus. The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and all other non-historical statements in this discussion are forward-looking statements and are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this prospectus, particularly in the section entitled "Risk Factors."

Overview

         We are the nation's first and largest telehealth platform, delivering on-demand healthcare anytime, anywhere, via mobile devices, the internet, video and phone. Our solution connects consumers, or our Members, with our over 1,100 board-certified physicians and behavioral health professionals who treat a wide range of conditions and cases from acute diagnoses such as upper respiratory infection, urinary tract infection and sinusitis to dermatological conditions, anxiety and smoking cessation. Nearly 11 million unique Members now benefit from access to Teladoc 24 hours a day, seven days a week, 365 days a year, at a cost of $40 per visit. Our solution is delivered with a median response time of less than ten minutes from the time a Member requests a telehealth visit to the time they speak with a Teladoc physician. We completed approximately 300,000 telehealth visits in 2014.

         The Teladoc solution is transforming the access, cost and quality dynamics of healthcare delivery for all of our market participants. Our Members rely on Teladoc to remotely access affordable, on-demand healthcare whenever and wherever they choose. Our Clients purchase our solution to reduce their healthcare spending while at the same time offering convenient, affordable, high-quality healthcare to their employees or beneficiaries. Our Providers have the ability to generate meaningful income and deliver their services more efficiently with no administrative burden. We believe the value proposition of our solution is evidenced by our overall Member satisfaction rate, which has exceeded 95% over the last six years, and a 104% annual net dollar retention rate among our Clients on average over the last three years. We further believe any consumer, employer or health plan or practitioner interested in a better approach to healthcare is a potential Teladoc Member, Client or Provider.

         We generate revenue from our Clients on a contractually recurring, per-Member-per-month, subscription access fee basis, which provides us with significant revenue visibility. In addition, under the majority of our Client contracts, we generate additional revenue on a per-telehealth visit basis, through a visit fee. Subscription access fees are paid by our Clients on behalf of their employees, dependents and other beneficiaries, while visit fees are paid by either Clients or Members. We generated $19.9 million and $43.5 million in revenue for the years ended December 31, 2013 and 2014, respectively, representing 119% year-over-year growth, and $9.4 million and $16.5 million for the three months ended March 31, 2014 and 2015, respectively, representing 75% year-over-year growth. We had net losses of $6.0 million and $17.0 million for the years ended December 31, 2013 and 2014, respectively, and $2.3 million and $12.7 million for the three months ended March 31, 2014 and 2015, respectively. For the three months ended March 31, 2015, 80% and 20% of our revenue were derived from subscription access fees and visit fees, respectively, and for the year

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ended December 31, 2014, 85% and 15% of our revenue were derived from subscription access fees and visit fees, respectively.

Acquisition History

         We have scaled and intend to continue to scale our platform through the pursuit of selective acquisitions. To date, we have completed the three acquisitions detailed below, which we believe have expanded our distribution capabilities and broadened our service offering.

         In August 2013, we acquired Consult A Doctor for $16.6 million, net of cash acquired. In May 2014, we acquired AmeriDoc for $17.2 million, net of cash acquired. Both of these acquired businesses specialized in providing telehealth solutions to small- and medium-sized businesses through broker distribution channels. These acquisitions added new distribution opportunities that we believe are an important element of our growth strategy. See Note 3 to our audited consolidated financial statements included elsewhere in this prospectus and the audited consolidated financial statements of Consult A Doctor and AmeriDoc included elsewhere in this prospectus.

         In January 2015, we completed the acquisition of BetterHelp, a provider of direct-to-consumer, behavioral health services, for $3.5 million in cash and a $1.0 million promissory note and we have agreed to make annual payments to the sellers equal to 15% of the total net revenue generated by the BetterHelp business for each of the next three years. We believe this acquisition will help us broaden our service into the direct-to-consumer and behavioral health sector. See Note 3 to our unaudited consolidated financial statements included elsewhere in this prospectus.

         On June 17, 2015, we closed our acquisition of StatDoc for aggregate consideration of $30.5 million, comprised of $13.3 million of cash and $17.2 million of our common stock (or 1,051,038 shares), subject to post-closing working capital adjustments as defined in the Agreement and Plan of Merger governing the acquisition. StatDoc is a telemedicine provider, focused on managed care, health system and self-insured clients. See the audited financial statements of StatDoc included elsewhere in this prospectus.

Key Factors Affecting Our Performance

         Number of Members.     Our revenue growth rate and long-term profitability are affected by our ability to increase our number of Members because we derive a substantial portion of our revenue from subscription access fees via Client contracts that provide Members access to our professional Provider network in exchange for a contractual based monthly fee. Revenue is driven primarily by the number of Clients, the number of Members in a Client's population, the number of services contracted for by a Client and the contractually negotiated prices of our services and the negotiated pricing that is specific to that particular Client. We believe that increasing our membership is an integral objective that will provide us with the ability to continually innovate our services and support initiatives that will enhance Member experiences and lead to increasing or maintaining our existing annual net dollar retention rate.

         Number of Visits.     We also realize revenue in connection with the completion of a visit. Accordingly, our visit revenue, or visit fees, increase as the number of visits increase. Visit fee revenue is driven primarily by the number of Clients, the number of Members in a Client's population, Member utilization of our Provider network services and the contractually negotiated prices of our services. We believe that increasing our current Member utilization rate is a key objective in order for our Clients to realize tangible healthcare savings with our service.

         Annual Net Dollar Retention Rate.     We disclose annual net dollar retention rate as a supplemental measure of our organic revenue growth. We believe annual net dollar retention rate is an important metric that provides insight into the long-term value and stability of our subscription agreements and our ability to retain and grow revenue from our existing Clients. Because we typically enter into annual contracts with our Clients, a large percentage of our Client agreements

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have reached the end of their original terms and, as a result, we have observed significant renewal rates. We observed a 104% annual net dollar retention rate among our Clients on average over the last three years. We calculate annual net dollar retention rate as the aggregate annualized subscription contract value as of the last day of a calendar year from our Clients that have been under contract with us for at least 12 months divided by the aggregate annualized subscription contract value from all our Clients as of the last day of the prior calendar year. We calculate the annualized subscription contract value for each Client by multiplying the monthly recurring revenue of such Client by 12. For the purposes of annual net dollar retention rate, we count health plan Clients separately from each self-insured employer Client that contracts with us through a health plan relationship.

         Seasonality.     We typically experience the strongest increases in consecutive quarterly revenue during the fourth and first quarters of each year, which coincides with traditional annual benefit enrollment seasons. In particular, as a result of many Clients' introduction of new services at the very end of the current year, or the start of each year, the majority of our new Client contracts have an effective date of January 1. Additionally, as a result of national seasonal cold and flu trends, we experience our highest level of visit fees during the first and fourth quarters of each year when compared to other quarters of the year. Conversely, the second quarter of the year has historically been the period of lowest utilization of our Provider network services relative to the other quarters of the year. See "Risk Factors—Risks Related to Our Business—Our quarterly results may fluctuate significantly, which could adversely impact the value of our common stock."

Components of Results of Operations

    Revenue

         We generate in excess of 80% of our revenue from our Clients who purchase access to our professional Provider network for their employees, dependents and other beneficiaries. Our Client contracts include a per-Member-per-month subscription access fee as well as a visit fee for each completed visit, which is either paid to us by the Client, the Member or both parties. Accordingly, we generate subscription access revenue from our subscription access fees and visit revenue from our visit fees.

         Subscription access revenue accounted for approximately 83% and 85% of our total revenue during the years ended December 31, 2013 and 2014, respectively, and 85% and 80% during the three months ended March 31, 2014 and 2015, respectively. Subscription access revenue is driven primarily by the number of Clients, the number of Members in a Client's population, the number of services contracted for by a Client and the contractually negotiated prices of our services. Visit fee revenue is driven primarily by the number of Clients, the number of Members in a Client's population, Member utilization of our professional Provider network services and the contractually negotiated prices of our services.

         We recognize subscription access fees monthly when the following criteria are met: (i) there is an executed subscription agreement, (ii) the Member has access to the service, (iii) collection of the fees is reasonably assured and (iv) the amount of fees to be paid by the Client and Member is fixed and determinable. Our agreements generally have a term of one year. The majority of Clients renew their contracts with us following their first year of services. We generally invoice our Members in advance on a monthly basis. Visit fees are recognized as incurred and billed in arrears.

         See "—Critical Accounting Policies and Estimates—Revenue Recognition" for a more detailed discussion of our revenue recognition policy.

    Cost of Revenue

         Cost of revenue primarily consists of fees paid to our Providers, costs incurred in connection with our Provider network operations, which include employee-related expenses (including salaries and benefits) and costs related to our contracted third-party call center and insurance, which

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includes coverage for medical malpractice claims. Cost of revenue is driven primarily by the number of visits completed in each period. Many of the elements of the cost of revenue are relatively variable and semi-variable, and can be reduced in the near-term to offset any decline in our revenue. Our business and operational models are designed to be highly scalable and leverage variable costs to support revenue-generating activities. While we currently expect to grow our headcount to build our Provider network operations center and to enhance our sales and technology capabilities, we believe our increased investment in automation and integration capabilities and economies of scale in our Provider network operations center operating model, will position us to grow our revenue at a greater rate than our cost of revenue.

    Gross Profit

         Our gross profit is our total revenue minus our total cost of revenue, and our gross margin is our gross profit expressed as a percentage of our total revenue. Our gross margin has been and will continue to be affected by a number of factors, including the fees we charge our Clients, the number of visits we complete and the costs of running our Provider network operations center. We expect our annual gross margin to remain relatively steady over the near term, although our quarterly gross margin is expected to fluctuate from period to period depending on the interplay of these factors.

    Advertising and Marketing Expenses

         Advertising and marketing expenses consist primarily of personnel and related expenses for our marketing staff, including costs of communications materials that are produced to generate greater awareness and utilization among our Clients and Members. Marketing costs also include third-party independent research, trade shows and brand messages, public relations costs and stock-based compensation for our advertising and marketing employees. Our advertising and marketing expenses exclude any allocation of occupancy expense and depreciation and amortization.

         We expect our advertising and marketing expenses to increase for the foreseeable future as we continue to increase the size of our advertising and marketing operations and expand into new products and markets. Our advertising and marketing expenses will fluctuate as a percentage of our total revenue from period to period due to the seasonality of our total revenue and the timing and extent of our advertising and marketing expenses. We will continue to invest in advertising and marketing by hiring additional personnel and promoting our brand through a variety of marketing and public relations activities.

    Sales Expenses

         Sales expenses consist primarily of employee-related expenses, including salaries, benefits, commissions, employment taxes, travel and stock-based compensation costs for our employees engaged in sales, account management and sales support. Our sales expenses exclude any allocation of occupancy expense and depreciation and amortization.

         We expect our sales expenses to increase as we strategically invest to expand our business. We expect to hire additional sales personnel and related account management and sales support personnel to capture an increasing amount of our market opportunity. As we scale our sales and related account management and sales support personnel in the short- to medium-term, we expect these expenses to increase in both absolute dollars and as a percentage of revenue. We will continue to invest in sales by hiring additional sales and account management and sales support personnel.

    Technology and Development Expenses

         Technology and development expenses include personnel and related expenses for software engineering, information technology infrastructure, security and compliance and product

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development. Technology and development expenses also include outsourced software engineering services, the costs of operating our on-demand technology infrastructure and stock-based compensation for our technology and development employees. Our technology and development expenses exclude any allocation of occupancy expense and depreciation and amortization.

         We expect our technology and development expenses to increase for the foreseeable future as we continue to invest in the development of our technology platform. Our technology and development expenses may fluctuate as a percentage of our total revenue from period to period due to the seasonality of our total revenue and the timing and extent of our technology and development expenses. Historically, the majority of our technology and development expenses has been expensed.

    General and Administrative Expenses

         General and administrative expenses include personnel and related expenses of, and professional fees incurred by, our executive, finance, legal and human resources departments. They also include stock-based compensation and all facilities costs including, utilities, communications and facilities maintenance. Our general and administrative expenses exclude any allocation of depreciation and amortization.

         We expect our general and administrative expenses to increase for the foreseeable future following the completion of this offering due to the additional legal, accounting, insurance, investor relations and other costs that we will incur as a public company, as well as other costs associated with continuing to grow our business. However, we expect our general and administrative expenses to remain steady as a percentage of our total revenue over the near-term. Our general and administrative expenses may fluctuate as a percentage of our total revenue from period to period due to the seasonality of our total revenue and the timing and extent of our general and administrative expenses.

    Depreciation and Amortization

         Depreciation and amortization consists primarily of depreciation of fixed assets, amortization of capitalized software development costs and amortization of acquisition-related intangible assets.

    Interest Income (Expense)

         Interest income (expense) consists of interest costs associated with our bank and other debt.

    Income Tax Provision (Benefit)

         We account for income taxes using the liability method, under which deferred tax assets and liabilities are determined based on the future tax consequences attributable to differences between the financial reporting carrying amounts of existing assets and liabilities and their respective tax bases and tax credit and NOLs. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to be in effect when the differences are expected to reverse. We assess the likelihood that deferred tax assets will be recovered from future taxable income, and a valuation allowance is established when necessary to reduce deferred tax assets to the amounts more likely than not expected to be realized. We have also recorded deferred tax liabilities arising principally from the difference between treatment of the goodwill between tax and financial accounting book purposes. We have provided a full valuation allowance for our deferred tax assets at December 31, 2014 and March 31, 2015, due to the uncertainty surrounding the future realization of such assets. As of December 31, 2014 and March 31, 2015, we have approximately $54.1 million and $65.8 million, respectively, of federal NOLs available to offset future taxable income. If not utilized, the federal NOLs begin to expire in 2024 and 2025, respectively. See "Risk Factors—Risks Related to Our Business—Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations."

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Results of Operations

    Comparison of the Three Months Ended March 31, 2014 and 2015

         The following table sets forth our consolidated statement of operations data for the three months ended March 31, 2014 and 2015 and the dollar and percentage change between the two periods:

 
  Three Months Ended March 31,   Change  
 
  2014   2015   $   %  
 
  (in thousands, except percentages)
 

Revenue

  $ 9,407   $ 16,488   $ 7,081     75 %

Cost of revenue

    1,982     5,281     3,299     166 %

Gross profit

    7,425     11,207     3,782     51 %

Operating expenses:

   
 
   
 
   
 
   
 
 

Advertising and marketing

    2,518     4,341     1,824     72 %

Sales

    2,145     3,682     1,537     72 %

Technology and development

    1,192     2,906     1,714     144 %

General and administrative

    3,344     11,968     8,624     258 %

Total operating expenses

    9,199     22,897     13,698     149 %

EBITDA(1)

    (1,774 )   (11,690 )   (9,916 )   559 %

Depreciation and amortization

    414     903     489     118 %

Loss from operations

    (2,188 )   (12,593 )   (10,405 )   475 %

Interest income (expense), net

    (54 )   (568 )   514     942 %

Net loss before taxes

    (2,242 )   (13,161 )   (10,918 )   487 %

Income tax provision (benefit)

    72     (458 )   530     739 %

Net loss

  $ (2,314 ) $ (12,703 ) $ (10,389 )   449 %
(1)
For information about EBITDA, including its limitations, the manner in which it is calculated and a reconciliation from our net loss to EBITDA, see note (1) under the heading "Prospectus Summary—Summary Historical Financial Information" elsewhere in this prospectus.

         We completed our acquisitions of Consult A Doctor on August 29, 2013, AmeriDoc on May 1, 2014 and BetterHelp on January 23, 2015. The results of operations of Consult A Doctor and AmeriDoc since the respective acquisition dates have been included in our audited consolidated financial statements included elsewhere in this prospectus. The results of operations of Consult A Doctor, AmeriDoc and BetterHelp since the respective acquisition dates have been included in our unaudited consolidated financial statements included elsewhere in this prospectus.

         Revenue.     Total revenue was $9.4 million for the three months ended March 31, 2014, compared to $16.5 million during the three months ended March 31, 2015, an increase of $7.1 million, or 75%. The increase in revenue was substantially driven by an increase in new Clients and the number of new Members generating additional subscription access fees. The increase in subscription access fees was due to the addition of new Clients, as the number of Members increased by 48% from March 31, 2014 to March 31, 2015. We also experienced 65,243 visits, representing $1.4 million of visit fees for the three months ended March 31, 2014, compared to 148,696 visits, representing $3.3 million of visit fees during the three months ended March 31, 2015, an increase of $1.9 million, or 129%.

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         Cost of Revenue.     Cost of revenue was $2.0 million for the three months ended March 31, 2014 compared to $5.3 million for the three months ended March 31, 2015, an increase of $3.3 million, or 166%. The increase was primarily due to increased costs associated with our third-party call center and hiring of additional personnel to manage our physician network operations and increased provider fees and insurance costs.

         Gross Profit.     Gross profit was $7.4 million, or 79% as a percentage of revenue, for the three months ended March 31, 2014 compared to $11.2 million, or 68%, as a percentage of revenue, for the three months ended March 31, 2015, an increase of $3.8 million, or 51%. This increase was primarily due to revenue growth.

         Advertising and Marketing Expenses.     Advertising and marketing expenses were $2.5 million for the three months ended March 31, 2014 compared to $4.3 million for the three months ended March 31, 2015, an increase of $1.8 million, or 72%. This increase primarily consisted of increased independent research initiatives, sponsorship of professional organizations and trade shows of $1.3 million, increased staffing of $0.2 million and other expenses of $0.3 million.

         Sales Expenses.     Sales expenses were $2.1 million for the three months ended March 31, 2014 compared to $3.7 million for the three months ended March 31, 2015, an increase of $1.6 million, or 74%. This increase primarily consisted of increased staffing and sales commissions of $1.1 million, increased travel and entertainment expenses of $0.3 million and an increase to other sales expenses of $0.2 million.

         Technology and Development Expenses.     Technology and development expenses were $1.2 million for the three months ended March 31, 2014 compared to $2.9 million for the three months ended March 31, 2015, an increase of $1.7 million, or 144%. This increase resulted primarily from hiring additional personnel totaling $1.2 million, professional fees of $0.3 million related to the ongoing project to improve and optimize our technology platform and other expenses of $0.2 million.

         General and Administrative Expenses.     General and administrative expenses were $3.3 million for the three months ended March 31, 2014 compared to $12.0 million for the three months ended March 31, 2015, an increase of $8.6 million, or 258%. This increase was driven primarily by an increase in employee-related expenses of approximately $3.4 million as a result of growth in total employee headcount to 259 at March 31, 2015 as compared to 95 at March 31, 2014. Additionally, costs incurred in our physician network operations center in connection with enhancing our Member services increased by $1.1 million and professional fees, principally legal, increased by $2.9 million for the three months ended March 31, 2015 as compared to March 31, 2014. Other expenses, which include charges related to severance costs totaling $0.9 million, the abandonment of our Greenwich, Connecticut office and bad debt expenses, increased from $0.9 million at March 31, 2014 to $2.2 million at March 31, 2015, an increase of $1.3 million.

         Depreciation and Amortization.     Depreciation and amortization was $0.4 million for the three months ended March 31, 2014 compared to $0.9 million for the year three months ended March 31, 2015, an increase of $0.5 million, or 118%. This increase was primarily due to amortization expense of acquisition-related intangible assets of $0.2 million, an increase in amortization expense of capitalized software of $0.1 million and an increase of $0.2 million of depreciation expense on an increased base of fixed assets that grew from $1.5 million at March 31, 2014 to $2.7 million at March 31, 2015.

         Interest Expense.     Interest expense was approximately $0.1 million for the three months ended March 31, 2014 compared to $0.6 million for the three months ended March 31, 2015, an increase of $0.5 million. Interest expense consists of interest costs associated with our bank and other debt.

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    Comparison of the Years Ended December 31, 2013 and 2014

         The following table sets forth our consolidated statement of operations data for the years ended December 31, 2013 and 2014 and the dollar and percentage change between the two periods:

 
  Year Ended December 31,   Change  
 
  2013   2014   $   %  
 
  (in thousands, except percentages)
 

Revenue

  $ 19,906   $ 43,528   $ 23,622     119 %

Cost of revenue

    4,186     9,929     5,743     137 %

Gross profit

    15,720     33,599     17,879     114 %

Operating expenses:

   
 
   
 
   
 
   
 
 

Advertising and marketing

    4,090     7,662     3,572     87 %

Sales

    4,441     11,571     7,130     161 %

Technology and development

    3,532     7,573     4,041     114 %

General and administrative

    8,772     19,623     10,851     124 %

Total operating expenses

    20,835     46,429     25,594     123 %

EBITDA(1)

    (5,115 )   (12,830 )   (7,715 )   151 %

Depreciation and amortization

    754     2,320     1,566     208 %

Loss from operations

    (5,869 )   (15,150 )   (9,281 )   158 %

Interest income (expense), net

    (56 )   (1,499 )   (1,443 )   2,558 %

Net loss before taxes

    (5,925 )   (16,649 )   (10,724 )   181 %

Income taxes

    94     388     294     313 %

Net loss

  $ (6,019 ) $ (17,037 ) $ (11,018 )   183 %
(1)
For information about EBITDA, including its limitations, the manner in which it is calculated and a reconciliation from our net loss to EBITDA, see note (1) under the heading "Prospectus Summary—Summary Historical Financial Information" elsewhere in this prospectus.

         We completed our acquisitions of Consult A Doctor on August 29, 2013 and AmeriDoc on May 1, 2014. The results of operations of Consult A Doctor and AmeriDoc since the respective acquisition dates have been included in our audited consolidated financial statements included elsewhere in this prospectus.

         Revenue.     Total revenue was $19.9 million for the year ended December 31, 2013, compared to $43.5 million during the year ended December 31, 2014, an increase of $23.6 million, or 119%. The increase in revenue was substantially driven by an increase in new Clients and the number of new Members generating additional subscription access fees. The increase in subscription access fees was due to the addition of new Clients, as the number of Members increased by 31% from December 31, 2013 to December 31, 2014. We also experienced 127,107 visits, representing $3.3 million of visit fees for the year ended December 31, 2013, compared to 298,833 visits, representing $6.5 million of visit fees during the year ended December 31, 2014, an increase of $3.2 million, or 97%.

         Cost of Revenue.     Cost of revenue was $4.2 million for the year ended December 31, 2013 compared to $9.9 million for the year ended December 31, 2014, an increase of $5.7 million, or 137%. The increase was primarily due to increased costs associated with our third-party call center and hiring of additional personnel to manage our physician network operations and increased provider fees and insurance costs.

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         Gross Profit.     Gross profit was $15.7 million, or 79% as a percentage of revenue, for the year ended December 31, 2013 compared to $33.6 million, or 77%, as a percentage of revenue, for the year ended December 31, 2014, an increase of $17.9 million, or 114%. This increase was primarily due to revenue growth.

         Advertising and Marketing Expenses.     Advertising and marketing expenses were $4.1 million for the year ended December 31, 2013 compared to $7.7 million for the year ended December 31, 2014, an increase of $3.6 million, or 87%. This increase primarily consisted of increased independent research initiatives, sponsorship of professional organizations and trade shows of $1.7 million, increased staffing of $0.6 million and other expenses of $1.3 million.

         Sales Expenses.     Sales expenses were $4.4 million for the year ended December 31, 2013 compared to $11.6 million for the year ended December 31, 2014, an increase of $7.1 million, or 161%. This increase primarily consisted of increased staffing and sales commissions of $6.2 million, increased travel and entertainment expenses of $0.4 million and an increase to other sales expenses of $0.5 million.

         Technology and Development Expenses.     Technology and development expenses were $3.5 million for the year ended December 31, 2013 compared to $7.6 million for the year ended December 31, 2014, an increase of $4.0 million, or 114%. This increase resulted primarily from hiring additional personnel totaling $2.3 million, professional fees of $1.3 million related to the ongoing project to improve and optimize our technology platform and other expenses of $0.4 million.

         General and Administrative Expenses.     General and administrative expenses were $8.8 million for the year ended December 31, 2013 compared to $19.6 million for the year ended December 31, 2014, an increase of $10.9 million, or 124%. This increase was driven primarily by an increase in employee-related expenses of approximately $3.9 million as a result of growth in total employee headcount from 222 at December 31, 2014 as compared to 95 at December 31, 2013. Additionally, costs incurred in our physician network operations for Member service increased by $2.1 million and professional fees increased by $2.6 million for the year ended December 31, 2014 as compared to December 31, 2013. Other expenses, which include office-related charges and bad debt expenses, increased from $2.0 million at December 31, 2013 to $4.3 million at December 31, 2014, an increase of $2.2 million, and were incurred to support the growth of our business.

         Depreciation and Amortization.     Depreciation and amortization was $0.8 million for the year ended December 31, 2013 compared to $2.3 million for the year ended December 31, 2014, an increase of $1.6 million, or 208%. This increase was primarily due to amortization expense of acquisition-related intangible assets of $1.2 million, an increase in amortization expense of capitalized software of $0.2 million and an increase of $0.2 million of depreciation expense on an increased base of fixed assets that grew from $1.3 million at December 31, 2013 to $2.3 million at December 31, 2014.

         Interest Expense.     Interest expense was approximately $0.1 million for the year ended December 31, 2013 compared to $1.5 million for the year ended December 31, 2014, an increase of $1.4 million. Interest expense consists of interest costs associated with our bank and other debt.

Quarterly Results

         The following tables set forth selected unaudited quarterly consolidated statements of operations data for each of the four quarters in the year ended December 31, 2014 and the first quarter ended March 31, 2015, expressed as dollar amounts and percentage of revenue for each such quarter. The information for each of these quarters has been prepared on the same basis as

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the audited annual consolidated financial statements included elsewhere in this prospectus and, in the opinion of management, includes all adjustments, which includes all normal recurring adjustments, necessary for the fair presentation of the results of operations for these periods in accordance with U.S. GAAP. This data should be read in conjunction with our audited and unaudited consolidated financial statements and related notes included elsewhere in this prospectus. These quarterly results of operations are not necessarily indicative of our results of operations for a full year or any future period.

(in thousands, unaudited)
  3/31/2014   % of
Revenue
  6/30/2014   % of
Revenue
  9/30/2014   % of
Revenue
  12/31/2014   % of
Revenue
  3/31/2015   % of
Revenue
 

Revenue

  $ 9,407     100 % $ 10,289     100 % $ 10,905     100 % $ 12,927     100 % $ 16,488     100 %

Cost of revenue

    1,982     21 %   2,027     20 %   2,151     20 %   3,769     29 %   5,281     32 %

Gross profit

    7,425     79 %   8,262     80 %   8,754     80 %   9,158     71 %   11,207     68 %

Operating expenses:

   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Advertising and marketing

    2,518     27 %   1,436     14 %   1,984     18 %   1,724     13 %   4,341     26 %

Sales

    2,145     23 %   3,033     29 %   3,263     30 %   3,130     24 %   3,682     22 %

Technology and development

    1,192     13 %   2,064     20 %   1,960     18 %   2,357     18 %   2,906     18 %

General and administrative

    3,344     36 %   4,033     39 %   4,754     44 %   7,492     58 %   11,968     73 %

Total operating expenses

    9,199     98 %   10,566     103 %   11,961     110 %   14,703     114 %   22,897     139 %

Depreciation and amortization

    414     4 %   554     5 %   650     6 %   702     5 %   903     5 %

Loss from operations

    (2,188 )   (23 )%   (2,858 )   (28 )%   (3,857 )   (35 )%   (6,247 )   (48 )%   (12,593 )   (76 )%

Interest income (expense), net

    (54 )   (1 )%   (350 )   (3 )%   (510 )   (5 )%   (585 )   (5 )%   (568 )   (3 )%

Net loss before taxes

    (2,242 )   (24 )%   (3,208 )   (31 )%   (4,367 )   (40 )%   (6,832 )   (53 )%   (13,161 )   (80 )%

Income tax provision (benefit)

    72     1 %   (7 )   0 %   162     1 %   161     1 %   (458 )   (3 )%

Net loss

  $ (2,314 )   (25 )% $ (3,201 )   (31 )% $ (4,529 )   (42 )% $ (6,993 )   (54 )% $ (12,703 )   (77 )%

         We typically experience the strongest increases in consecutive quarterly revenue during the fourth and first quarters of each year, which coincides with traditional annual benefit enrollment seasons. See "—Key Factors Affecting Our Performance—Seasonality."

Liquidity and Capital Resources

         The following table presents a summary of our cash flow activity for the periods set forth below:

 
  Year Ended
December 31,
  Three Months
Ended
March 31,
 
 
  2013   2014   2014   2015  
 
  (in thousands)
 

Consolidated Statements of Cash Flows Data

                         

Net cash used in operating activities

  $ (6,053 ) $ (11,359 ) $ (2,196 ) $ (10,336 )

Net cash used in investing activities

    (17,756 )   (15,578 )   (401 )   (4,068 )

Net cash provided by financing activities

    18,327     70,161     385     28  

Total

  $ (5,482 ) $ 43,224     (2,212 ) $ (14,376 )

         Our principal sources of liquidity were cash and cash equivalents totaling $32.1 million as of March 31, 2015, which were held for working capital purposes. Our cash and cash equivalents are comprised of money market funds.

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         Since our inception, we have financed our operations primarily through private sales of equity securities and to a lesser extent, bank borrowings. We believe that our existing cash and cash equivalents will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. Our future capital requirements will depend on many factors including our growth rate, contract renewal activity, number of visits, the timing and extent of spending to support product development efforts, our expansion of sales and marketing activities, the introduction of new and enhanced services offerings and the continuing market acceptance of telehealth. We may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies and intellectual property rights. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, financial condition and results of operations would be adversely affected. See "Risk Factors—Risks Related to Our Business—Our quarterly results may fluctuate significantly, which could adversely impact the value of our common stock."

    Cash Used in Operating Activities

         For the year ended December 31, 2014, cash used in operating activities was $11.4 million. The negative cash flows resulted primarily from our net loss of $17.0 million, partially offset by depreciation and amortization of $2.3 million, allowance for doubtful debts of $1.3 million, deferred income taxes of $0.4 million and stock-based compensation of $0.5 million, as well as the effect of changes in working capital and other balance sheet accounts resulting in cash inflows of approximately $1.0 million, all of which was due to year-over-year growth.

         For the year ended December 31, 2013, cash used in operating activities was $6.1 million. The cash used primarily related to our net loss of $6.0 million, partially offset by depreciation and amortization of $0.8 million, allowance for doubtful debts of $0.5 million, deferred income taxes of $0.1 million and stock-based compensation of $0.3 million and the effect of changes in working capital and other balance sheet accounts resulting in cash outflows of approximately $1.8 million, all of which was due to year-over-year growth.

         For the three months ended March 31, 2015, cash used in operating activities was $2.2 million, as compared to $10.3 million for the three months ended March 31, 2015. The increase in cash used in operating activities of $8.1 million was primarily the result of additional headcount, increased marketing expenses, costs incurred to improve and optimize our technology platform, increases in our physician network operations and office-related charges to support the growth of our business.

    Cash Used in Investing Activities

         Cash used in investing activities of $15.6 million for the year ended December 31, 2014 principally due to our acquisition of AmeriDoc, which required cash payments of $13.6 million, and of purchases of property and equipment totaling $1.1 million and investments in internally developed capitalized software of $0.7 million.

         Cash used in investing activities of $17.8 million for the year ended December 31, 2013 was principally due to our acquisition of Consult A Doctor, which required initial cash payments of $16.5 million, and of purchases of property and equipment totaling $0.2 million and investments in internally developed capitalized software of $1.1 million.

         Cash used in investing activities was $0.4 million during the three months ended March 31, 2014, as compared to $4.1 million for the three months ended March 31, 2015. The increase in cash used in investing activities was primarily due to the acquisition of BetterHelp.

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    Cash Provided by Financing Activities

         Our primary financing activities have consisted of private sales of preferred stock and bank and other borrowings.

         Cash provided by financing activities for the year ended December 31, 2014 of $70.2 million was primarily due to $50.1 million in proceeds from the issuance of preferred stock and $0.7 million of proceeds from the exercise of employee stock options. During this period, we borrowed $19.7 million from a bank. We also repurchased $0.4 million of our preferred and common stock.

         Cash provided by financing activities of $18.3 million for the year ended December 31, 2013 was primarily attributable to the issuance of preferred stock of $14.8 million and $0.6 million of proceeds from the exercise of employee stock options. During this period, we also borrowed $3.0 million from a bank and repurchased $0.1 million of preferred stock.

         Cash provided by financing activities was $0.4 million during the three months ended March 31, 2014, as compared to $0.0 million during the three months ended March 31, 2015. The decrease in cash provided by financing activities of $0.4 million was primarily due to fewer options being exercised.

Indebtedness

         In August 2013, we entered into a Loan and Security Agreement with Silicon Valley Bank, or SVB, that provided for a Term Loan facility in the amount of $7.0 million with an interest rate of prime rate plus 1%. The Term Loan facility is payable in 48 monthly installments commencing April 2015. Our maximum borrowings under this facility totaled $3.0 million in 2013. The Loan and Security Agreement also provided for a Revolving Advance facility that we did not utilize in 2013.

         In May 2014, we entered into an Amended and Restated Loan and Security Agreement with SVB that provided for a Revolving Advance facility and a Term Loan facility, or the Amended Term Loan facility. The Revolving Advance facility provides for borrowings up to $12.0 million based on 300% of our monthly recurring revenue. Borrowings under the Revolving Advance facility were $4.7 million at December 31, 2014, and the facility carries interest at a rate of 0.75% above the prime rate per annum and matures in April 2016. Interest payments are payable monthly in arrears. We entered into an Amendment to the Revolving Advance Facility in March 2015 that extended its maturity to April 2017.

         The Amended Term Loan facility provides for borrowings up to $5.0 million. As of December 31, 2014, the Company had utilized the total $5.0 million available under this facility. The Amended Term Loan facility carries interest at a rate of 1.00% above the prime rate per annum. Interest payments are payable monthly in arrears. Payments on the Amended Term Loan facility will commence in May 2015 and continue with 47 equal month payments of principal plus interest.

         In May 2014, we entered into a Subordinated Loan and Security Agreement with SVB that provided for Mezzanine Term Loans totaling $13.0 million. The total $13.0 million drawdown of the mezzanine facility was completed in September 2014. The mezzanine facility carries interest at a rate of 10.00% per annum and matures in May 2017. Interest payments are payable monthly in arrears. In connection with entry into the mezzanine facility, we granted two affiliates of SVB warrants to purchase an aggregate of 131,239 shares of our common stock at an exercise price of $2.95 per share. The warrants are immediately exercisable and have a ten-year term. We also granted SVB a security interest in significantly all of our assets. The mezzanine facility has been used to fund the expansion of our business. We refer to the Amended Loan and Security Agreement together with the Subordinated Loan and Security Agreement as the SVB Facilities.

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         We incurred approximately $0.2 million of loan origination costs in connection with the SVB Facilities and amortized approximately $0.1 million of these costs during the year ended December 31, 2014.

         Effective with the purchase of AmeriDoc, we executed a subordinated promissory note in the amount of $3.5 million payable to the seller of AmeriDoc on April 30, 2015. The subordinated promissory note carries interest at a rate of 10.00% annual interest and is subordinated to the SVB Facilities. In December 2014, we, the seller of AmeriDoc and SVB executed an amended and restated subordinated promissory note, or the AmeriDoc Promissory Note, that extended the maturity of the Note to April 30, 2017.

         Effective with the purchase of BetterHelp, on January 23, 2015, we executed an unsecured, subordinated promissory note in the original principal amount of $1.0 million payable to the seller and an executive of BetterHelp, with all principal and interest, which bears at an annual rate of 5.00%, payable on the third anniversary of closing of the BetterHelp acquisition.

         See Note 8 to our unaudited consolidated financial statements included elsewhere in this prospectus.

Contractual Obligations and Commitments

         The following summarizes our contractual obligations as of December 31, 2014:

 
  Payment Due by Period  
 
  Total   Less than
1 Year
  1 to 3
Years
  4 to 5
Years
  More than
5 Years
 
 
  (in thousands)
 

Operating leases

  $ 2,467   $ 910   $ 1,557   $   $  

Obligations under SVB Facilities and AmeriDoc Promissory Note

    26,200     833     24,950     417      

Interest associated with long-term debt

    4,791     2,041     2,747     3      

Total

  $ 33,458   $ 3,784   $ 29,254   $ 420   $  

         Our existing office and hosting co-location facilities lease agreements provide us with the option to renew and generally provide for rental payments on a graduated basis. Our future operating lease obligations would change if we entered into additional operating lease agreements as we expand our operations and if we exercised the office and hosting co-location facilities lease options. The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions and the approximate timing of the transaction. Obligations under contracts that we can cancel without a significant penalty are not included in the table above.

Off-Balance Sheet Arrangements

         During the periods presented, we did not have, nor do we currently have, any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We are therefore not exposed to the financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships.

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Critical Accounting Policies and Estimates

         The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in our audited consolidated financial statements and accompanying notes included elsewhere in this prospectus. We base our estimates on historical experience, current business factors and various other assumptions that we believe are necessary to consider to form a basis for making judgments about the carrying values of assets and liabilities, the recorded amounts of revenue and expenses and the disclosure of contingent assets and liabilities. Our company is subject to uncertainties such as the impact of future events, economic and political factors and changes in our business environment; therefore, actual results could differ from these estimates. Accordingly, the accounting estimates used in the preparation of our audited consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in reported results of operations; if material, the effects of changes in estimates are disclosed in the notes to our audited consolidated financial statements. Significant estimates and assumptions by management affect the allowance for doubtful accounts, the carrying value of long-lived assets (including goodwill and intangible assets), the carrying value, capitalization and amortization of software development costs, the provision for income taxes and related deferred tax accounts, certain accrued liabilities, revenue recognition, contingencies, litigation and related legal accruals and the value attributed to employee stock options and other stock-based awards.

         On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.

         We believe that of our significant accounting policies, which are described in Note 2 to our audited consolidated financial statements included elsewhere in this prospectus, and specifically the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies that we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.

    Revenue Recognition

         We offer two types of subscription access revenue contracts: (i) contracts that provide for a fixed monthly charge for access and unlimited visits per Member and (ii) contracts that provide for a fixed monthly charge for access and a contractually defined cost for each visit. Any visit fee revenue that is not included in the subscription access revenue is recognized when the service has been provided to the Member.

         We recognize a substantial portion of our revenue from contracts that provide Clients with subscription access to our professional Provider network, on a subscription basis for a fixed monthly fee which entitles the Client's Members to unlimited consults, or visits. The contracts are generally for a one-year term and have an automatic renewal feature for additional years.

         We commence revenue recognition for the subscription access service on the date that the services are made available to the Client and its Members, which is considered the implementation date, provided all of the following criteria are met:

    there is an executed subscription agreement;

    the Member has access to the service;

    collection of the fees is reasonably assured; and

    the amount of fees to be paid by the Client and Member is fixed or determinable.

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    Subscription Access Revenue

         Subscription access revenue recognition commences on the date that our services are made available to the Client, which is considered the implementation date, provided all of the other criteria described above are met. Revenue is recognized over the term of the contract and is based on the terms in our Client contracts, which can provide for a variable periodic fee based upon the actual number of Members.

    Revenue From Visit Fees

         Revenue from visits is comprised of all revenue that is earned in connection with the completion of a visit. We recognize revenue as the visits are completed.

         Our contracts do not generally contain refund provisions for fees earned related to services performed. However, certain of our contracts include performance guarantees that are based upon minimum employee or Member utilization and guarantees by us for specific service level performance of our services. When subscription access revenue is refundable, we defer revenue recognition until the end of the respective contractual period when the performance guarantees are met. We issued credits amounting to approximately $0.2 million and $0.4 million for the years ended December 31, 2013 and 2014, respectively, and $0.1 million and $0.04 million for the three months ended March 31, 2014 and 2015, respectively.

    Cost of Revenue

         Cost of revenue primarily consists of fees paid to the Providers, costs incurred in connection with our Provider network operations which include employee-related expenses (including salaries and benefits) and costs related to our contracted third-party call center and insurance, which includes coverage for medical malpractice claims.

    Property and Equipment

         Property and equipment are stated at cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective asset as follows:

Computer equipment   3 years
Furniture and equipment   5 years
Leasehold improvements   Shorter of the lease term or the estimated useful lives of the improvements

         Maintenance and repairs are charged to expense as incurred, and improvements are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the consolidated statement of operations in the period realized.

    Internal-Use Software

         Internal-use software is included in intangible assets and is amortized on a straight-line basis over 3 years.

         For our development costs related to our software development tools that enable our Members and Providers to interact, we capitalize costs incurred during the application development stage. Costs related to minor upgrades, minor enhancements and maintenance activities are expensed as incurred.

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    Goodwill and Other Intangible Assets

         Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized, but is tested for impairment annually on October 1 or more frequently if events or changes in circumstances indicate that the asset may be impaired. Our impairment tests are based on a single operating segment and reporting unit structure. The goodwill impairment test involves a two-step process. The first step involves comparing the fair value of our reporting unit to its carrying value, including goodwill. The fair value of the reporting unit is estimated using a discounted cash flows analysis. If the carrying value of the reporting unit exceeds its fair value, the second step of the test is performed by comparing the carrying value of the goodwill in the reporting unit to its implied fair value. An impairment charge is recognized for the excess of the carrying value of goodwill over its implied fair value.

         Our annual goodwill impairment test resulted in no impairment charges in either of the years ended December 31, 2013 and 2014.

         Other intangible assets resulted from business acquisitions and include Client relationships and non-compete agreements. Client relationships are amortized over a period of 2 to 10 years in relation to expected future cash flows, while non-compete agreements are amortized over a period of 3 to 5 years using the straight-line method, and trademarks are amortized over a period of 3 years using the straight-line method.

    Income Taxes

         We account for income taxes using the liability method, under which deferred tax assets and liabilities are determined based on the future tax consequences attributable to differences between the financial reporting carrying amounts of existing assets and liabilities and their respective tax bases and tax credit and net operating loss carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to be in effect when the differences are expected to reverse.

         We assess the likelihood that deferred tax assets will be recovered from future taxable income, and a valuation allowance is established when necessary to reduce deferred tax assets to the amounts more likely than not expected to be realized.

         We recognize and measure uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken or expected to be taken by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Significant judgment is required to evaluate uncertain tax positions. We evaluate our uncertain tax positions on a regular basis. Our evaluations are based on a number of factors, including changes in facts and circumstances, changes in tax law, correspondence with tax authorities during the course of audit and effective settlement of audit issues.

    Warranties and Indemnification

         Our arrangements generally include certain provisions for indemnifying Clients against liabilities if there is a breach of a Client's data or if our service infringes a third party's intellectual property rights. To date, we have not incurred any material costs as a result of such indemnifications.

         We have also agreed to indemnify our directors and executive officers for costs associated with any fees, expenses, judgments, fines and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by

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reason of the person's service as a director or officer, including any action by us, arising out of that person's services as our director or officer or that person's services provided to any other company or enterprise at our request. We maintain director and officer liability insurance coverage that would generally enable us to recover a portion of any future amounts paid. We may also be subject to indemnification obligations by law with respect to the actions of our employees under certain circumstances and in certain jurisdictions.

    Concentrations of Risk and Significant Clients

         Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. Although we deposit our cash with multiple financial institutions, our deposits, at times, may exceed federally insured limits.

         During the years ended December 31, 2013 and 2014 and the three months ended March 31, 2014 and 2015, all of our revenue was generated by Clients located in the United States. No Client represented over 10% of revenue for any of the years ended December 31, 2013 or 2014 or the three months ended March 31, 2014 or 2015.

         One Client represented 22% of accounts receivable at December 31, 2013. As of December 31, 2014, March 31, 2014 and March 31, 2015, no Client accounted for more than 10% of accounts receivable.

    Stock-Based Compensation

         All stock-based awards are measured based on the grant-date fair value of the awards and are generally recognized in our consolidated statements of operations over the period during which the employee is required to perform services in exchange for the award (generally requiring a four-year vesting period for each award). We estimate the fair value of stock options granted using the Black-Scholes option-pricing model.

         Given the absence of a public trading market, our board of directors considered numerous objective and subjective factors to determine the fair value of our common stock at each grant date. These factors included, but were not limited to, (i) contemporaneous valuations of common stock performed by unrelated third-party specialists; (ii) the prices for our preferred stock sold to outside investors; (iii) the rights, preferences and privileges of our preferred stock relative to our common stock; (iv) the lack of marketability of our common stock; (v) developments in the business; and (vi) the likelihood of achieving a liquidity event, such as an initial public offering or a merger or acquisition of our Company, given prevailing market conditions.

         The assumptions used in the Black-Scholes option-pricing model were determined as follows:

    Volatility.   Since we do not have a trading history for our common stock, the expected volatility was derived from the historical stock volatilities of several unrelated public companies within our industry that we consider to be comparable to our business over a period equivalent to the expected term of the stock option grants.

    Risk-Free Interest Rate.   The risk-free interest rate is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options.

    Expected Term.   The expected term represents the period that our stock-based awards are expected to be outstanding. When establishing the expected term assumptions, we used the "simplified" method because we do not have adequate historical data.

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    Dividend Yield.   We have never declared or paid any cash dividends and do not plan to pay cash dividends in the foreseeable future, and therefore, we use an expected dividend yield of zero.

    Forfeiture Rate.   We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest.

         The fair value of each employee stock option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions and fair value per share:

 
  Year Ended
December 31,
  Three months Ended
March 31,
 
 
  2013   2014   2014   2015  

Volatility

    51.0% - 53.4 %   53.3% - 53.7 %       50.4% - 51.0 %

Expected life (in years)

    7.0     7.0         7.0  

Risk-free interest rate

    1.15% - 2.21 %   1.92% - 2.30 %       1.58% - 1.92 %

Dividend yield

                 

Weighted-average fair value of underlying common stock

    $1.07     $5.53         $4.62  

         Total compensation costs charged as an expense for stock-based awards, including stock grants, recognized in the components of operating expenses in our consolidated statements of operations totaled $0.3 million and $0.5 million for the years ended December 31, 2013 and 2014, respectively and $0.2 million and $0.8 million for the three months ended March 31, 2014 and 2015, respectively.

         As of March 31, 2015, we had $6.4 million in unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over a weighted-average period of approximately 3.6 years.

Stock Plan and Stock Options

         Our Second Amended and Restated Stock Incentive Plan, or the Prior Plan, provides for the issuance of incentive and non-statutory options to our employees and non-employees. Options issued under the Prior Plan are exercisable for periods not to exceed ten years, vest over four years and are issued at the fair value of the shares of common stock on the date of grant as determined by our board of directors, which obtains periodic third-party valuations to assist their determination process.

         The Prior Plan provides for the early exercise of stock options for certain individuals as determined by their respective option agreements.

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         Activity under the Prior Plan since January 2013 is as follows (in thousands, except share and per share amounts and years):

 
  Shares
Available
for Grant
  Number of
Shares
Outstanding
  Weighted-Average
Exercise
Price
  Weighted-Average
Remaining
Contractual
Life in Years
  Aggregate
Intrinsic
Value
 

Balance at January 1, 2013

    331,478     2,147,391   $ 1.12     7.91   $ 1,425  

Increase in Prior Plan authorized shares

    1,099,200                          

Stock option grants

    (736,398 )   736,398   $ 1.07              

Stock options exercised

        (737,597 ) $ 0.80              

Stock options cancelled

        (31,123 ) $ 1.01              

Balance at December 31, 2013

    694,280     2,115,069   $ 1.14     8.28   $ 4,058  

Increase in Prior Plan authorized shares

    1,621,795                          

Stock option grants

    (1,574,104 )   1,574,104   $ 5.53              

Stock options exercised

        (786,074 ) $ 0.97              

Stock options cancelled

        (27,993 ) $ 1.60              

Balance at December 31, 2014

    741,971     2,875,106   $ 3.73     8.38   $ 6,758  

Stock option grants

    (629,491 )   629,491   $ 8.71              

Stock options exercised

          (22,166 ) $ 1.28              

Stock options cancelled

    78,577     (78,577 ) $ 5.33              

Stock options expired

    33,596     (33,596 ) $ 8.66              

Balance at March 31, 2015

    224,653     3,370,258   $ 4.50     8.89   $ 17,156  

Vested or expected to vest March 31, 2015

          3,048,235   $ 4.39     8.83   $ 15,898  

Exercisable as of March 31, 2015

          629,675   $ 1.49     7.20   $ 5,105  

         The total grant-date fair value of stock options granted during the three months ended March 31, 2014 and 2015 was $0 million and $2.9 million, respectively. The total grant-date fair value of stock options vested during the three months ended March 31, 2014 and 2015 was $0.1 million and $0.3 million, respectively. The total intrinsic value of the options exercised during the three months ended March 31, 2014 and 2015, was $0.2 million and $0.1 million, respectively. The intrinsic value is the difference of the current fair value of the stock and the exercise price of the stock option.

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         Since January 2013 to the date immediately preceding the date of this prospectus, we have granted options to purchase shares of common stock as follows:

Grant
Date
  Options
Granted
  Exercise
Price
  Fair Value
Per Share
  Fair Value
per Option
 

April 2013

    179,955   $ 1.67   $ 1.67   $ 0.89  

December 2013

    455,070     1.67     1.67     1.10  

April 2014

    106,741     2.95     2.95     1.65  

August 2014

    137,801     2.95     2.95     1.65  

September 2014

    432,652     6.01     6.01     3.36  

December 2014

    896,909     6.01     6.01     3.31  

February 2015

    438,121     8.71     8.71     4.62  

March 2015

    185,480     8.71     8.71     4.62  

March 2015

    5,890     9.60     9.60     5.03  

         The aggregate intrinsic value of vested and unvested stock options as of March 31, 2015 was $17.2 million, based on a price of $4.50 per share, the estimated value of common stock based on the respective valuation report as of March 31, 2015.

         The following discussion relates primarily to our determination of the fair value per share of our common stock for purposes of calculating stock-based compensation costs. A combination of the factors described below in each period led to the changes in the fair value of our common stock. Notwithstanding the fair value reassessments described below, we believe we applied a reasonable valuation method to determine the stock option exercise prices on the respective stock option grant dates.

         We determined the fair market value of our common stock to be $1.67 per share as of December 31, 2012. Our estimated fair market valuation applied 100% weighting to the Probability Weighted Expected Returns Method an Equity Allocation Method, which considered the present value of the future expected returns for the common shareholders. To arrive at the concluded value of $1.67 per share, we applied a discount for lack of marketability of 30% and a discount for lack of control of 23% to the fair market value of a single common share as of December 31, 2012. We applied a 0% weighting to Current Value Methods, specifically the Guideline Public Company Method and the Industry Transactions Method.

         We determined the fair market value of our common stock to be $2.95 per share as of December 31, 2013. Our estimated fair market valuation applied 100% weighting to the Probability Weighted Expected Returns Method an Equity Allocation Method, which considered the present value of the future expected returns for the common shareholders. To arrive at the concluded value of $2.95 per share, we applied a discount for lack of marketability of 25% and a discount for lack of control of 23% to the fair market value of a single common share as of December 31, 2013. We applied a 0% weighting to Current Value Methods, specifically the Discounted Cash Flow Method, the Guideline Public Company, the Industry Transactions Method and the Backsolve Method.

         We determined the fair market value of our common stock to be $6.01 per share as of October 1, 2014. Our estimated fair market valuation applied 100% weighting to the Probability Weighted Expected Returns Method an Equity Allocation Method, which considered the present value of the future expected returns for the common shareholders. To arrive at the concluded value

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of $6.01 per share, we applied a discount for lack of marketability of 20% to the fair market value of a single common share as of October 1, 2014. Since our valuation inputs utilized were on a minority basis, no discount for lack of control was applied. We applied a 0% weighting to Current Value Methods, specifically the Discounted Cash Flow Method, the Guideline Public Company, the Industry Transactions Method and the Backsolve Method.

         We determined the fair market value of our common stock to be $8.71 per share as of December 31, 2014. Our estimated fair market valuation applied 100% weighting to the Probability Weighted Expected Returns Method an Equity Allocation Method, which considered the present value of the future expected returns for the common shareholders. To arrive at the concluded value of $8.71 per share, we applied a discount for lack of marketability of 20% to the fair market value of a single common share as of December 31, 2014. Since our valuation inputs utilized were on a minority basis, no discount for lack of control was applied. We applied a 0% weighting to Current Value Methods, specifically the Discounted Cash Flow Method, the Guideline Public Company, and the Industry Transactions Method.

         We determined the fair market value of our common stock to be $9.60 per share as of March 31, 2015. Our estimated fair market valuation applied 100% weighting to the Probability Weighted Expected Returns Method an Equity Allocation Method, which considered the present value of the future expected returns for the common shareholders. To arrive at the concluded value of $9.60 per share, we applied a discount for lack of marketability of 10% to the fair market value of a single common share as of March 31, 2015. Since our valuation inputs utilized were on a minority basis, no discount for lack of control was applied. We applied a 0% weighting to Current Value Methods, specifically the Discounted Cash Flow Method, the Guideline Public Company, and the Industry Transactions Method.

         We expect to recognize total compensation expense of approximately $6.4 million for unvested stock options as of March 31, 2015, which is expected to be recognized during the four years ended March 31, 2019.

    Initial Public Offering Price

         In consultation with the underwriters for this offering, we determined the estimated price range for this offering, as set forth on the cover page of this prospectus. The midpoint of the price range is $16.00 per share. In comparison, our estimate of the fair value of our common stock was $9.60 per share as of March 31, 2015. We note that, as is typical in IPOs, the estimated price range for this offering was not derived using a formal determination of fair value, but was determined by negotiation between us and the underwriters. Among the factors that were considered in setting this range were the following:

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         We believe that the difference between the fair value of our common stock as of March 31, 2015 and the midpoint of the price range for this offering is the result of these factors as well as the fact that the estimated initial public offering price range necessarily assumes that the initial public offering has occurred, a public market for our common stock has been created and that our preferred stock converted into common stock in connection with the initial public offering, and therefore excludes any discount for lack of marketability of our common stock, which was factored into the March 31, 2015 valuation.

JOBS Act Accounting Election

         In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period, and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

Quantitative and Qualitative Disclosures about Market Risk

    Interest Rate Sensitivity

         We had cash and cash equivalents totaling $3.2 million, $46.4 million, $1.0 million and $32.1 million as of December 31, 2013 and 2014 and March 31, 2014 and 2015, respectively. This amount was invested primarily in money market funds. The cash and cash equivalents are held for working capital purposes. Our investments are made for capital preservation purposes. We do not enter into investments for trading or speculative purposes. All our investments are denominated in U.S. dollars.

         Our cash equivalents are subject to market risk due to changes in interest rates. Fixed rate securities may have their market value adversely affected due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectation due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates.

         We do not believe that an increase or decrease in interest rates of 100-basis points would have a material effect on our business, financial condition or results of operations. Fluctuations in the value of our money market funds caused by a change in interest rates (gains or losses on the carrying value) are recorded in other income and are realized only if we sell the underlying securities.

    Recently Issued and Adopted Accounting Pronouncements

         In July 2013, the Financial Accounting Standards Board, or FASB, issued guidance regarding the presentation of unrecognized tax benefits when a net operating loss carryforward, similar tax loss, or tax credit carryforward exists. The new guidance requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the audited consolidated financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward when settlement in this manner is available under the tax law. This guidance is effective on a prospective basis for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2013. Retrospective and early adoption is permitted. We adopted this guidance in our first quarter of 2014. The adoption of this guidance had no impact on our financial disclosures and results.

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         In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) . This revenue recognition guidance supersedes existing U.S. GAAP guidance, including most industry-specific guidance. The core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance identifies steps to apply in achieving this principle. This updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. We are currently evaluating the potential impact of this guidance on our financial disclosures and results, including whether we elect retrospective, or modified retrospective, adoption methods.

         In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period , requiring that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments in this guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. We are currently evaluating the potential impact of this guidance on our financial disclosures and results.

         In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern . This guidance addresses management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. Management's evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. ASU 2014-15 is effective for interim or annual periods beginning after December 15, 2016. Early adoption is permitted. We do not expect to early adopt this guidance and are currently evaluating the impact of the adoption of this guidance on our financial disclosures and results.

         In April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs , which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The revised guidance is effective beginning in the quarter ending March 31, 2016 and is required to be applied retrospectively. Early adoption is permitted. We are currently evaluating the potential impact of this guidance on our financial disclosures and results.

         In April 2015, the FASB issued ASU 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement , which provides guidance in determining whether a cloud computing arrangement includes a software license. If it is determined that a cloud computing arrangement does include a software license, the software element should be accounted for consistent with the acquisition of other software licenses. If the arrangement does not include a software license, it should be accounted for as a service contract. The revised guidance is effective beginning in the quarter ending March 31, 2016 and can be applied prospectively to all arrangements entered into or materially modified after the effective date or retrospectively. Early adoption is permitted. We are currently evaluating the potential impact of this guidance on our financial disclosures and results.

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BUSINESS

Overview

         We are the nation's first and largest telehealth platform, delivering on-demand healthcare anytime, anywhere, via mobile devices, the internet, video and phone. Our solution connects our Members, with our over 1,100 board-certified physicians and behavioral health professionals who treat a wide range of conditions and cases from acute diagnoses such as upper respiratory infection, urinary tract infection and sinusitis to dermatological conditions, anxiety and smoking cessation. Nearly 11 million unique Members now benefit from access to Teladoc 24 hours a day, seven days a week, 365 days a year, at a cost of $40 per visit. Our solution is delivered with a median response time of less than ten minutes from the time a Member requests a telehealth visit to the time they speak with a Teladoc physician. We completed approximately 300,000 telehealth visits in 2014.

         The Teladoc solution is transforming the access, cost and quality dynamics of healthcare delivery for all of our market participants. Our Members rely on Teladoc to remotely access affordable, on-demand healthcare whenever and wherever they choose. Our Clients purchase our solution to reduce their healthcare spending while at the same time offering convenient, affordable, high-quality healthcare to their employees or beneficiaries. Our Providers have the ability to generate meaningful income and deliver their services more efficiently with no administrative burden. We believe the value proposition of our solution is evidenced by our overall Member satisfaction rate, which has exceeded 95% over the last six years, and a 104% annual net dollar retention rate among our Clients on average over the last three years. We further believe any consumer, employer or health plan or healthcare professional interested in a better approach to healthcare is a potential Teladoc Member, Client or Provider.

         According to the CDC, there are approximately 1.25 billion ambulatory care visits in the United States per year, including those at primary care offices, hospital emergency rooms, outpatient clinics and other settings. We estimate that approximately 417 million, or 33%, of these visits could be treated through telehealth. We believe that the total addressable market for telehealth in the United States consists of the ambulatory care telehealth opportunity, a subset of visits currently delivered in urgent and retail care settings and care foregone by those currently not accessing the healthcare delivery system.

         The U.S. healthcare system is experiencing a growing crisis of access, cost and quality of care due to inefficiencies in today's healthcare system and barriers between participants. According to the NACHC, approximately 62 million individuals in the United States currently have no or inadequate access to primary care as a result of physician shortages. Additionally, according to the Department of Health and Human Services, the PPACA has already expanded coverage to 16.4 million of the 47 million previously uninsured Americans. This number is widely expected to increase over the next several years due to individual and employer mandates, premium subsidies, state health insurance exchanges and ban on withholding coverage due to pre-existing medical conditions, increasing demand for access to primary care physicians. Absent convenient access to a primary care physician, individuals will most likely either not seek care at all or visit emergency rooms or urgent care clinics, the most expensive and often inefficient settings for their primary care needs. These market dynamics impact not only the consumers seeking care, but also the health plans and employers that ultimately bear all or a portion of these costs. According to the CDC, 79.7% of emergency room visits not resulting in a hospital admission were due to lack of access to an alternative provider, and a recent study published in The Journal of American Medical Association estimated that approximately $734 billion, or 27%, of all healthcare spending in 2011 was wasted due to factors such as the provision of unnecessary services, inefficient delivery of care and inflated prices. In particular, according to Truven Analytics, 71% of emergency room visits by

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patients with employer-sponsored insurance coverage are for causes that do not require immediate attention in the emergency room, or are preventable with proper outpatient care.

         Innovators in other industries have solved access, cost and quality inefficiencies through the implementation of technology platforms and business models that deliver products and services on-demand and create new economies by connecting and empowering both consumers and businesses. We have taken the same approach to solving the pervasive access, cost and quality challenges facing the current healthcare system. Consumers' ability to access high-quality, affordable care has been limited by many factors such as physician availability, prohibitive costs, physician office hours and geographic locations. Likewise, burdensome administration, cancellations, unfilled appointment slots, geographic constraints and business hour limitations have historically impacted physician efficiency and, as a result, constrained physicians' income. We have created a platform that is uniquely positioned to bridge the supply and demand gap between physicians and consumers by fundamentally changing the way market participants access and deliver healthcare—eliminating traditional barriers and inefficiencies between participants and empowering them to engage in a healthcare marketplace anytime, anywhere. Our platform provides our Members with access to board-certified physicians, comprehensive clinical programs and consumer engagement strategies in an economic model that delivers multiple benefits to all participants. The unique combination of these features enables us to dynamically and efficiently match consumer demand and physician availability in real-time.

         Our underlying technology platform is complex, deeply integrated and purpose-built over the last ten years for the evolving healthcare marketplace. Our platform is highly scalable and can support substantial growth in our current membership base. Our platform provides for broad interconnectivity between healthcare constituents and, we believe, uniquely positions us as a focal point in the rapidly evolving healthcare industry to introduce innovative, technology-based solutions, such as remote patient monitoring, post-discharge treatment plan adherence and in-home and chronic care.

         Our solution offers our Clients substantial savings opportunities and an attractive ROI. We recently commissioned Veracity Healthcare Analytics, an independent healthcare analytics company, to perform an independent study of the nation's largest home-improvement retailer, a Client since 2012, representing over 150,000 of our Members as of December 31, 2014. The study was prepared on behalf of Veracity Healthcare Analytics by two doctors of medicine and a doctor of science and pharmacy, in each case, professors at leading academic institutions. The study found that this Client saved $1,157 on average per employee when its employees received care through Teladoc instead of receiving care in other settings for the same diagnosis. The study also measured the total healthcare expenditure per-Member-per-month during the 16-month period immediately preceding the implementation of Teladoc in order to establish a trend and predict the Client's average monthly expenditure per-Member-per-month over the 20-month period following the introduction of Teladoc. The study demonstrated a meaningful reduction in average per-Member-per-month spending of $21.30 to the Client relative to predicted cost, or a monthly healthcare expenditure savings of 10.2% per Member. Additionally, during 2014 the Client achieved an ROI of approximately $9.00 for every $1.00 spent per Member. Finally, the study demonstrated that 92% of the Client's employees that used Teladoc for a medical issue resolved their issue completely and did not require a follow up visit at a physician's office, emergency room or other location. We believe these results are representative of the results achieved by our other Clients as well as the value proposition we can provide the broader U.S. healthcare system.

         We currently serve over 4,000 employers, health plans, health systems and other entities. These Clients collectively purchase access to our solution for our nearly 11 million Members. We believe our B2B2C distribution strategy is the most efficient method by which to reach consumers and deliver telehealth to our Members. We have over 20 health plans as Clients, including some of

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the largest in the United States such as Aetna, Blue Shield of California, Highmark and Centene. Health plans serve as Clients as well as distribution channels to self-insured employer Clients that contract with us through a health plan relationship. Our over 1,600 direct and ASO employer Clients include 160 Fortune 1000 companies and industry leaders such as Accenture, Bank of America, Pepsi and Shell. We also have a number of health system clients such as Henry Ford, Memorial Hermann and Mount Sinai. The remainder of our Clients are from channel partners such as brokers, resellers and consultants who sell into a range of small, medium and large enterprises. Over the past two years, we have more than doubled our client and membership bases. We believe telehealth is in the early stages of what eventually will become widespread adoption. A 2014 Towers Watson study suggests as many as 71% of employers with more than 1,000 employees are expected to offer telehealth by 2017.

         We generate revenue from our Clients on a contractually recurring, per-Member-per-month, subscription access fee basis, which provides us with significant revenue visibility. In addition, under the majority of our Client contracts, we generate additional revenue on a per-telehealth visit basis, through a visit fee. Subscription access fees are paid by our Clients on behalf of their employees, dependents and other beneficiaries, while visit fees are paid by either Clients or Members. We generated $19.9 million and $43.5 million in revenue in 2013 and 2014, respectively, representing 119% year-over-year growth, and $9.4 million and $16.5 million for the three months ended March 31, 2014 and 2015, respectively, representing 75% year-over-year growth. For the three months ended March 31, 2015, 80% and 20% of our revenue were derived from subscription access fees and visit fees, respectively. For the year ended December 31, 2014, 85% and 15% of our revenue were derived from subscription access fees and visit fees, respectively.

Industry Challenges and Our Opportunity

         Barriers and inefficiencies in the current U.S. healthcare system present market participants with three major challenges: (i) consumers lack sufficient access to high-quality, cost-effective healthcare at appropriate sites of care, while bearing an increasing share of costs; (ii) employers and health plans lack an effective solution that reduces costs while enhancing healthcare access for beneficiaries and (iii) providers lack flexibility to increase productivity by delivering care on their own terms. Market participants are therefore increasingly unable to effectively and efficiently receive, deliver or administer healthcare. At the same time, the emergence of technology platforms solving massive structural challenges in other industries has highlighted the need for a similar solution in healthcare. We believe there is a significant opportunity to solve these challenges through a trusted solution, such as ours, that matches consumer demand and physician supply in real-time, while offering health plans and employers an attractive, cost-effective healthcare alternative for their beneficiaries.

    Growing Healthcare Access Crisis for Consumers

         Consumers in the United States are experiencing challenges in obtaining access to affordable, high-quality healthcare at appropriate sites of care. A 2014 NACHC report found that 62 million individuals in the United States have no or inadequate access to primary care as a result of local physician shortages. According to a 2014 Merritt Hawkins study, the average lead time to see a primary care physician across various metro areas was 19 days. We believe provider supply is projected to further contract, evidenced by the 2014 Survey of America's Physicians, where 81% of physicians describe themselves as either over-extended or at full capacity. Additionally, according to a 2010 AAMC report, the healthcare system will have a shortage of approximately 131,000 physicians by 2025, including a shortage of approximately 52,000 primary care physicians. Given expected population growth and aging in the United States, as well as the projected increase in healthcare demand from PPACA implementation, the supply and demand gap for access to

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healthcare services is expected to further widen, placing additional pressure on an already overburdened healthcare system that lacks physician capacity and diagnoses-appropriate access points.

         This access crisis has resulted in U.S. consumers either seeking care at inappropriate, more costly settings such as hospital emergency rooms, or foregoing needed care entirely. According to the CDC, there are approximately 1.25 billion ambulatory care visits in the United States per year, including those at primary care offices, hospital emergency rooms, outpatient clinics and other settings. We estimate that approximately 417 million, or 33%, of these visits could be treated through telehealth.

    Healthcare Cost Burden and Lack of Viable Options for Health Plans and Employers

         The U.S. healthcare system is burdened by significant waste and extreme variations in access, cost and quality of care. A recent study published in The Journal of American Medical Association estimates that approximately $734 billion, or 27%, of all healthcare spending in 2011 was wasted due to factors such as the provision of unnecessary services, inefficient delivery of care and inflated prices. When consumers are forced to seek care at inappropriate and more costly sites of care, those cost inefficiencies impact not only the consumer, but also the health plans and employers that ultimately bear all or a portion of these costs.

         The costs and associated burdens on health plans, employers and consumers are only expected to increase. CMS forecasted U.S. national health expenditures to reach $3.1 trillion, or approximately 18% of the U.S. GDP in 2014, and approximately 20% of GDP by 2022. A 2013 survey by the National Business Group on Health and Towers Watson indicated that employers bear on average approximately two-thirds of their employee's healthcare costs and CMS forecasted U.S. employers to spend approximately $660 billion on healthcare in 2015. Despite the significant amount of dollars spent, U.S. healthcare outcomes remain inferior relative to those of many other countries.

         The unsustainable levels of spending on healthcare and extreme inefficiencies in the system have driven an increased focus by employers and health plans to control healthcare expenditures. Governments, private insurance companies and self-insured employers, are implementing meaningful cost containment measures, including shifting financial responsibility to patients through higher co-pays and deductibles and delivering healthcare through alternative, more cost-effective methods. The increasing shift of financial responsibility to patients coupled with increased pricing transparency has, in turn, heightened beneficiary focus on healthcare alternatives. According to a 2013 survey for Prudential Insurance by MRops, Inc. and Oxygen Research Inc., 49% of employers are extremely or very likely to eventually offer only HDHPs. As consumers take responsibility for a larger share of their healthcare costs and spend more on healthcare services, they are also demanding higher quality care, greater control in how and where they receive care, increased convenience and more service for every dollar spent.

    Challenging Environment for Physicians is Constraining Supply

         Physicians face declining compensation paired with diminishing productivity due to a combination of reimbursement cuts and an increasing administrative burden. These factors have contributed to physician dissatisfaction and negatively impacted their desire to practice medicine. Medscape's 2014 Physician Compensation Report shows that 50% of all physicians do not feel fairly compensated and 42% would not choose medicine as their career today.

         In response to this growing dissatisfaction, physicians are reducing access to healthcare in a number of different ways. The 2014 Survey of America's Physicians indicated that 44% of physicians plan to take steps to limit access to their practices, including cutting back on the

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number of patients seen, working part-time, closing their practices to new members, seeking non-clinical jobs or retiring. Notably, 39% of surveyed physicians indicated they plan to accelerate retirement given changes in the healthcare environment. Further, administrative challenges are expected to increase. According to the same survey, 50% of physicians anticipate the implementation of the tenth revision of the ICD-10 to cause severe administrative problems in their practices. This is expected to further increase the 20% of daily time surveyed physicians indicated they already spend on non-clinical paperwork, which is constraining their productivity. A study by Physicians for a National Health Program showed medical billing paperwork and insurance-related red tape cost the United States economy approximately $471 billion in 2012, 80% of which was wasted due to inefficiency. These constraints have driven physicians to seek more control over the way they deliver care to new and existing patients, increase their income and reduce the amount of time they spend on administration.

         Physicians have responded to these challenges by shifting payment models and patient mix. Medscape's 2014 Physician Compensation Report showed a 100% increase from 2011 to 2013 in the percent of physicians transitioning to cash-only models, no longer accepting insurance. A 2014 Merritt Hawkins study found that 54.3% of physicians in the United States' 15 largest cities are not accepting new Medicaid patients. We believe there is a significant opportunity for a single source solution that addresses these physician needs.

    Opportunity to Remove Barriers Through an Innovative Platform that Benefits All Participants

         We believe we have a significant opportunity to solve access, cost and quality of care challenges through a platform that matches consumer demand and physician availability in real-time, while offering health plans and employers an attractive, cost-effective alternative for their beneficiaries through our platform. As consumerism in healthcare increases and consumers and providers become accustomed to on-demand services in other industries, they are similarly demanding technology-powered solutions for their healthcare needs. The emergence and subsequent rapid adoption of technologies such as big data and analytics, cloud-based solutions, online video and mobile applications represents an enormous opportunity for healthcare innovation. We believe the confluence of consumer empowerment, emergence of broad technology solutions and focus by all constituents on providing high-quality, cost-effective healthcare creates a unique opportunity for a disruptive platform that transforms the way consumers access, providers deliver and employers and health plans administer high-quality, cost-efficient healthcare.

Our Competitive Strengths

         We believe the following are our key competitive strengths.

    Leading Solution and First-Mover Advantage

         Our solution is composed of an integrated technology platform, high-quality Provider network, sophisticated consumer engagement strategies and entrenched distribution channels. We have developed a strong brand, established strong relationships with Clients and have become a leading telehealth platform in the United States. Our history of innovation and long-standing operating history provide us with a significant first-mover advantage, including what we believe are the following telehealth industry firsts:

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         The following graphic outlines the simple, convenient and intuitive Teladoc Member experience supported by our integrated, scalable and responsive solution:

LOGO

    Innovative Technology Platform

         Our integrated solution positions us at the center of the patient, provider and payor relationship and as a key participant in the rapidly emerging, technology-powered healthcare industry. We continually incorporate new product features into our platform to meet the evolving needs of the highly complex healthcare industry. We believe our technology platform contains several differentiating features, including the following.

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    Significant and Measureable Return on Investment

         Our solution offers our Clients substantial savings opportunities and an attractive ROI. We recently commissioned an independent study of the nation's largest home-improvement retailer, a Client since 2012, representing over 150,000 of our Members as of December 31, 2014. The study found that this Client saved $1,157 on average per employee when its employees received care through Teladoc instead of receiving care in other settings for the same diagnosis. The study also measured the total healthcare expenditure per-Member-per-month during the 16-month period immediately preceding the implementation of Teladoc in order to establish a trend and predict the Client's average monthly expenditure per-Member-per-month over the 20-month period following the introduction of Teladoc. The study demonstrated a meaningful reduction in average per-Member-per-month spending of $21.30 to the Client relative to predicted cost, or a monthly healthcare expenditure savings of 10.2% per Member. Additionally, during 2014 the Client achieved an ROI of approximately $9.00 for every $1.00 spent per Member. Finally, the study demonstrated that 92% of the Client's employees that used Teladoc for a medical issue resolved their issue completely and did not require a follow up visit at a physician's office, emergency room or other location. We believe these results are representative of the results achieved by our other Clients as well as the value proposition we can provide the broader U.S. healthcare system.

    Highly Scalable Platform

         Our platform is highly scalable and can currently provide the same level of Member support and response time for upwards of 10,000 visits per day versus our current rate of approximately 1,500 visits per day on average. Similarly, our platform is currently equipped to serve over 100 million Members and can be scaled quickly to serve even higher volumes. Further, our platform has been built to accommodate the seamless and quick introduction of new services and products, such as behavioral health, dermatology and other services that are currently in the development stages. We have the ability to respond quickly to evolving market needs with innovative solutions, such as broadened health kiosk access, mobile applications, biometric devices and at-home testing, to enhance our solution and support our leadership position. We believe our highly scalable platform provides us with significant growth opportunities within our existing membership and client bases and allows us to grow with low capital expenditure requirements.

    Clinical Capabilities Tailored to Telehealth

         We believe that by directly recruiting, credentialing, training and contracting with our Providers we have built our clinical capabilities in a manner that supports the operational complexity of and commitment to clinical quality required in telehealth. Our Providers are board-certified with an average of 20 years of experience and are credentialed through an NCQA-certified process. The NCQA's accreditation process involves a comprehensive on-site and off-site review by a team of

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physicians and managed care experts that evaluates more than 60 quality-related healthcare standards, including quality management and improvement and utilization management. The results of the evaluation are reviewed by the NCQA's National Review Oversight Committee prior to their assigning an accreditation level. The NCQA's requirements are developed with the input and support of health plans, providers, purchasers, unions and consumer groups. The NCQA's accreditation process is not telehealth specific; rather, since its formation in 1990, the NCQA established, and consistently updates, its quality standards and performance measures for a broad range of healthcare entities by building consensus around important health care quality issues. In determining its quality standards and performance measures, the NCQA works with large employers, policymakers, doctors, patients and health plans to determine areas of focus and how to promote improvement within them. Health plans in every state, the District of Columbia and Puerto Rico are NCQA accredited. According to the NCQA, these certified plans cover 109 million Americans or 70.5% of all Americans enrolled in health plans.

         Our clinical capabilities are designed specifically for telehealth. For example, our Members have the option to share a record of every visit and their EMR with their existing physicians. In circumstances where a Member reports that they do not have a primary care physician, the Teladoc Provider educates the Member on the importance of establishing this relationship. Prior to every visit, the Provider reviews the Member's proprietary EMR and certifies to this review by completing a multi-step checklist. During and following the visit, the Provider references our over 100 proprietary Evidence Based clinical guidelines and other telehealth-specific content. In addition, Members and Providers remain connected following visits. Members receive personalized notes, patient education materials and are able to ask questions of our clinical team via the Teladoc Message Center. Over 10% of all visits are reviewed by our clinical quality assurance staff to ensure adherence to appropriate treatment and prescription patterns. We believe our track record of zero medical malpractice claims is a testament to our Providers' clinical quality.

    Well-Established Distribution Channels and Strategic Alliances

         We have spent over ten years developing sales channels and strategic alliances, which we believe provide an opportunity to sell our solution through trusted partners and are not easily replicated. Our solution is sold through a highly efficient and effective B2B2C distribution network wherein we reach consumers through our Clients and channel partners rather than marketing our solution directly to potential Members. We sell through a direct sales force to our Clients who in turn buy our solution on behalf of their beneficiaries. In addition, a range of third-parties including brokers, agents, benefits consultants and resellers, whom we refer to as channel partners, sell our solution to various end markets. Notably, many of our health plan Clients also act as channel partners because they resell our solution to their ASO accounts and other customers. We believe the breadth of our distribution strategy allows us to reach employers of nearly every size and in nearly every market, which are capable of purchasing our solution for a large number of beneficiaries, rather than attempting to sell our solution one consumer at a time.

Our Growth Strategies

         The following are our key growth strategies.

    Expand Our Membership with New and Existing Clients

         We intend to increase our membership by adding additional Members from both existing Clients and from new Clients. We plan to execute this strategy by further penetrating existing relationships and by pursuing new relationships through our distribution channels and an expanded sales team. Within existing accounts, we believe our current membership represents only a fraction of the potential Members available to us. Our existing health plan Clients and self-insured Clients

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associated with these health plans currently purchase our solution for only 9% of their beneficiaries in the aggregate, which provides us the opportunity to grow our membership base by more than 50 million individuals within these existing Clients alone. Similarly, we have 160 Fortune 1000 Clients, representing a significant opportunity for new Client growth with large employers. We are investing heavily in new marketing technologies and support staff to aid our sales force in penetrating existing accounts, lead generation, new Client generation and implementations. We further believe that as market leader in the telehealth industry, we have a strong, established brand and are uniquely positioned to capitalize on the B2C channel in the future.

    Expand into New Clinical Specialties

         We currently offer our Clients access to over 1,100 board-certified physicians who treat a wide range of conditions and cases from acute diagnoses such as upper respiratory infection, urinary tract infection and sinusitis to dermatological conditions. We also currently offer direct-to-Member access to behavioral health professionals who treat conditions such as anxiety and smoking cessation. We intend to leverage our highly scalable platform by expanding into new clinical specialties, such as standalone dermatology services, second opinions and chronic conditions such as diabetes, and by focusing on expanding our services amongst current Clients such as by offering behavioral health as a commercial service to our Clients. As we expand our clinical offerings, we intend to further eliminate gaps in continuity of care in order to provide coordinated care along the healthcare delivery continuum. For example, we continue to expand our behavioral health product offering. According to the 2012 white paper from the U.S. Department of Health and Human Services, approximately 46 million adults in the U.S. suffer from mental illness with more than 11 million adults reporting an unmet need for mental healthcare. Compounding this unmet need, the shortage of psychiatrists and behavioral health resources has become acute nationwide. According to a 2014 Merritt Hawkins report, psychiatrists are essentially aging out of the workforce, with over 70% of psychiatrists 50 years of age or older. Furthermore, industry surveys indicate that turnover amongst mental health professionals is significantly higher than that of primary care physicians and in the future, the growing demand for psychiatric services is expected to be addressed by primary care physicians.

    Leverage Existing Sales Channels and Penetrate New Markets

         We have developed a highly effective distribution network to target large employers and we are committing incremental sales and marketing resources to the SMB sales channel to increase our penetration within this market. Additionally, we intend to further penetrate the provider market, notably hospitals and group physician practices, as we believe our solution offers these markets an attractive platform from which to generate substantial income by acquiring new patients and to better participate in emerging risk-sharing and value-based payment models, such as Accountable Care Organizations and Patient-Centered Medical Homes. Lastly, with expanded access to available health insurance as a result of PPACA implementation, we intend to pursue health insurance exchanges, which represent an attractive new sales channel.

    Expand Across Care Settings and Use Cases

         We intend to expand our solution across use cases and additional care settings. We also continually explore ancillary opportunities to broaden our business, including by expanding our relationship with Medicare Advantage and Medicaid Managed Care plans. We believe our services have wide applicability across new use cases, including home care, post discharge, wellness/screening and chronic care. We are also currently extending the number, range and functionality of our benefits applications, and will continue to respond quickly to evolving market needs with innovative solutions, including broadened health kiosk access, mobile applications, biometric devices and at-home testing.

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    Increase Engagement by Our Members

         We believe there is significant opportunity within our existing membership base to increase engagement by continually increasing awareness of and loyalty to our solution. We believe our solution can become the single source for on-demand healthcare for our Members by continuing to add new and complementary products and services, third-party connections and other strategic alliances. We will continually refine and enhance our user experience, which is a critical driver of new and repeat engagement and we will continue validating our Member satisfaction with surveys and other proactive tools. For example, Members who download our mobile application are shown to be three times more likely to use our solution. We are in the process of redesigning our mobile application and website to further drive Member engagement. Further, we believe our current initiative to bring the remainder of our customer service function in-house will drive stronger relationships with our Members. We are also building robust data repositories to strengthen our predictive models and multi-channel marketing strategies to provide a more complete picture of our Members, enhancing our ability to lead targeted and purposeful campaigns and we will continue to invest heavily in marketing technologies that allow us to increase Member touch-points. Lastly, we will continue to actively engage Clients in benefit design, worksite marketing and executive sponsorship strategies to drive awareness about our solution.

    Expand Through Focused Acquisitions

         We plan to continue to leverage our know-how and the scale of our platform to selectively pursue acquisitions. To date, we have completed three acquisitions that have expanded our distribution capabilities and broadened our service offering, including into areas such as behavioral health. Our acquisition strategy is centered on acquiring technologies, products, capabilities, clinical specialties and distribution channels that are highly scalable and rapidly growing. We will continue to evaluate and pursue acquisition opportunities that are complementary to our business.

Technology and Operations

         Our integrated platform supports rapid and efficient access to, and evaluation of, information from a variety of healthcare network participants. It has a user-friendly interface designed to empower Members and dependents to remotely access healthcare whenever and wherever each individual chooses (via mobile devices, the internet, video and phone).

         Our enterprise scale platform is architected for real-time sharing of clinical and non-clinical data in real time among the Teladoc constituents, which include: Members, Providers, physician network operations center staff, nurses, SureScripts for electronic medication prescription writing, routing and fulfillment and health plans for real-time eligibility checking, real-time Member financial responsibility calculations, claims processing, clinical summaries and clinical alerts.

         The Teladoc Provider network leverages our technology platform for managing custom visit queues that automatically and instantly route available visits to appropriate Providers based upon proprietary algorithms. Providers use our internet-based application or iOs app for viewing their visit queue, scheduling visits and following the proprietary Teladoc workflow for reviewing Members' medical history and symptoms, documenting the actual visits, e-Prescribing, if appropriate, and sending applicable medical content with follow up instructions to the Member via a secure message center.

         We use data and analytics to predict demand patterns by geography and we recruit and manage our Provider network to meet the demands of our patients. Our complex algorithms enable us to effectively manage/allocate supply and onboard Providers to meet demand while maintaining one-hour guaranteed response times, with a median response time of less than ten minutes.

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         Additionally, our platform's external connectivity and easy integration with EMR and outside systems extends its functionality and customer features, which include:

         REST is a stateless, scalable web services architecture that utilizes open communication standards such as HTTP and HTTPS, and has been widely adopted for system-to-system communications. Having a documented set of RESTful API's enables our Clients and Members to access our solution using a custom or pre-existing website. For example, a Teladoc health plan Client can offer its Members the ability to access our solution through their existing Member portal. Members can also register for Teladoc, complete their medical history, select a pharmacy and request a consult without having to access the Teladoc Member site. All of these functions are provided via the Client's website that makes system calls to the Teladoc API to process the requests.

         The following graphic displays our robust technology architecture that supports our platform:

GRAPHIC

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         We host our applications and serve all of our Members from two redundant data centers in geographically diverse locations. We rely on third-party vendors to operate these data centers, which are designed to host computer systems that require high levels of availability and have redundant subsystems and compartmentalized security zones. We utilize commercially available hardware for our data center servers. Due to the sensitive nature of our Members and Clients' data, we have a heightened focus on data security and protection. We have implemented telehealth industry-standard processes, policies and tools through all levels of our software development and network administration, including regularly scheduled vulnerability scanning and third-party penetration testing in order to reduce the risk of vulnerabilities in our system. On an annual basis, we also undergo independent, third-party HIPAA and SSAE 16 audits.

         We have achieved over 99.9% uptime over the last 12 months. Systems are continually monitored for any signs of problems and preemptive action is taken when necessary. Encrypted backup files are transmitted over secure connections to a redundant server storage device in a secondary data center. Our data center facilities employ advanced measures to ensure physical integrity, including redundant power and cooling systems and advanced fire and flood prevention.

         We have also successfully grown our business to a level that supports the establishment of a Teladoc-owned physician network operations center that we expect to open by the end of May 2015. Through this internal operations center, our employees will service Teladoc Members and Clients and we expect to expand our customer service and compliance monitoring operations.

Sales and Marketing

         We sell our services through our direct sales organization. Our direct sales team is comprised of enterprise-focused field sales professionals who are organized principally by geography and account size. Our field professionals are supported by a sales operations staff, including product technology experts, lead generation professionals and sales data experts. We maintain relationships with key industry participants including benefit consultants, brokers, group purchasing organizations and health plan and hospital partners.

         We generate Client leads, accelerate sales opportunities and build brand awareness through our marketing programs. Our marketing programs target human resource, benefits and finance executives in addition to technology and health professionals, senior business leaders and healthcare channel partners. Our principal marketing programs include use of our website to provide information about our company and our solution, as well as learning opportunities for potential Members; demand generation; field marketing events; integrated marketing campaigns (including direct email and online advertising); and participation in industry events, trade shows and conferences.

Clients and Members

         Our Clients consist of (i) employers, including 160 Fortune 1000 companies, (ii) health plans and (iii) health systems and other entities. As of March 1, 2015, we had over 4,000 Clients and our services reached nearly 11 million Members. The following is a selection of our Clients:

         Within existing accounts, we believe our current membership represents only a fraction of the potential Members available to us. For example, our existing health plan Clients and self-insured Clients associated with these health plans currently purchase our solution for only 9% of their

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beneficiaries in aggregate, reflecting a significant opportunity for membership growth. We believe there are in excess of 50 million potential Members within these existing Clients alone.

         No Client represented over 10% of our revenue for the years ended December 31, 2013 or 2014 or for the three months ended March 31, 2014 or 2015.

Case Studies

         We recently commissioned independent studies of two of our Clients. The results of those studies, as well as an example of our success with health plans, are demonstrated below. We believe these results are representative of the results achieved by our other Clients as well as the value proposition Teladoc can provide the broader U.S. healthcare system.

Commissioned Independent Studies

         During the first quarter of 2014, we commissioned Veracity Healthcare Analytics, an independent healthcare data analytics company located in Chestnut Hill, Massachusetts that was founded in 2013, to perform resource utilization and health spending analyses on two of our largest Clients, the nation's largest home-improvement retailer and Rent-A-Center. The related studies were delivered to us during the first quarter of 2015 for an aggregate cost to us of $237,760 and were prepared on behalf of Veracity Healthcare Analytics by two doctors of medicine and a doctor of science and pharmacy, in each case, professors at leading academic institutions. We primarily commissioned these studies to assess the value of our solution from a Client cost-savings perspective and, in turn, to assist us in further developing sales, marketing and pricing strategies.

         Veracity Healthcare Analytics employed two types of analyses in the studies it conducted. In both studies, it conducted an "episode-based" analysis, and in the study of the nation's largest home-improvement retailer, it also conducted a "per-Member-per-month" analysis. The purpose of each analysis was to compare spending on medical care and prescriptions before and after the implementation of Teladoc within these two large employers. While recent regulatory changes in the U.S. healthcare system were not specifically considered, we do not believe recent changes in the U.S. healthcare system, including the PPACA, impact the efficacy of the studies because, according to Veracity Healthcare Analytics, these regulations have a minimal impact on large employers with existing employee benefit plans, which constitute a significant number of our Clients.

         In each case, the "episode-based" analysis calculated short-term spending and resource use by the employer's beneficiaries who used Teladoc for the first time as compared to similar beneficiaries who instead received care for the same diagnosis during the same period of care in physician offices or emergency departments. The analysis for the nation's largest home-improvement retailer spanned a period of 20 months and the analysis for Rent-A-Center spanned 24 months, and in each case used claims data during the same benefits year to isolate the costs associated with a 30-day episode of care starting with a beneficiary's initial contact with the healthcare system via Teladoc or traditional point of care location, as applicable. To eliminate variability in the data due to population differences, a matching process was created from claims data to match Teladoc users with office or emergency department users on 16 different characteristics, including reason for the healthcare visit, age, gender, calendar quarter of visit, comorbidity score and number of prior hospitalizations, outpatient visits and emergency department visits. In order to identify follow-up care directly related to the reason patients first sought care from Teladoc or in an alternative setting, clinical review of the claims information was used to determine the subsequent claims and related costs associated with the initial condition, including whether a prescription covered by a claim was related to the initial diagnosis.

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         The matching process resulted in pairings with like profiles and allowed for the following subsets to be analyzed:

In both studies, the post-matching propensity score model predicting use of Teladoc services versus office and emergency department visits was determined to be well balanced on baseline characteristics indicating reliable comparisons. Specifically, Veracity Healthcare Analytics determined the c-statistic propensity score model predicting use of Teladoc services versus office and emergency department visits, in each case, to be 0.9 or above. A c-statistic propensity score is used to compare the goodness of fit of logistic regression models. Models are typically considered reasonable when the c-statistic is higher than 0.7 and strong when "c" exceeds 0.8. Further, Veracity Healthcare Analytics used p -values to evaluate the significance of the study results. P -values are used in the context of null hypothesis testing to quantify statistical significance. A p -value of less than 0.05 is a common measure of statistical significance and a p -value of less than 0.01 is considered a more stringent test. Both independent studies found p -values of less than 0.01, indicating statistical significance of the results. Accordingly, we believe the comparison groups for each medical condition analyzed provided a sufficiently large sample size with which to provide reliable comparisons regardless of whether a matched pair was in the same or different geographic locations. Additionally, a significant majority of pairs were matched based on the top ten medical conditions underlying calls to Teladoc among sampled beneficiaries and, as a result, we believe these studies not only provided a representative sample of cover episodes, but also correctly focused on the episodes most germane to assessing Teladoc's efficacy.

         Costs were based upon the amounts allowed under the insurance claims and no restriction was made based on the diagnoses associated with these services. Costs include total cost of care (both medical and prescription drug spending). As the episode-based analysis focused solely on a comparison of cohorts during a predefined episode of care, these analyses did not assess episode costs relative to the employer's aggregate benefit costs.

         The "per-Member-per-month" analysis deployed by Veracity Healthcare Analytics' study of the nation's largest home-improvement retailer compared the average use and spending patterns among 131,576 of the employer's beneficiaries, comparing the same beneficiaries both before and after May 2012, when Teladoc was first implemented by the employer as part of its benefits offering and made available to its beneficiaries. The per-Member-per-month analysis was an isolated comparison of total actual cost and use rates for these beneficiaries from May 2012 through December 2013 to their projected total cost and use rates during the same period based on claims information from these beneficiaries during the 16 months immediately prior to Teladoc's implementation (as a result, the projected cost and use rates assumed Teladoc was never implemented). Additionally of note, the analysis compared actual and projected spending under the same benefits scheme in order to minimize variability. In its study, Veracity Healthcare Analytics also noted that because the employer began offering Teladoc in the middle of a benefits year (May

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2012) rather than at the beginning of one, the analysis was likely to have isolated the specific impact of Teladoc without confounding it with concurrent changes in employer benefit design or introduction of other quality improvement programs by the employer. As a result, we believe the claim information from the 16-month period from January 2011 to April 2012 prior to Teladoc's implementation is representative of the claim period from May 2012 to December 2013 notwithstanding the differing length of claims periods.

         One of our most significant Clients is the nation's largest home-improvement retailer, a Client since 2012, representing over 150,000 of our Members as of December 31, 2014. As mentioned above, the independent study of this Client's Members was conducted using healthcare utilization data and employed two basic analytic approaches. A "per-Member-per-month" analysis that evaluated average resource use and spending among 131,576 beneficiaries of the Client, or 8.1% of our Members at the outset of the study. The study compared the same beneficiaries both before and after Teladoc began offering services in May 2012 over a period of 20 months. In addition, an "episode-based" analysis evaluated short-term spending and resource use by beneficiaries of the Client who used Teladoc as compared to similar beneficiaries who instead received care for the same conditions in physician offices or emergency rooms.

         We determined estimated 2014 cost savings above based on the cost savings per episode identified by Veracity Healthcare Analytics during the study ( i.e. , $191 and $2,661 per office and emergency department visit, respectively). During 2014, the Client's beneficiaries accounted for 8,945 Teladoc visits. Of the 8,945 Member visits during 2014, we respectively applied $191 and $2,661 of estimated savings to each visit based on an analysis of Client claims data detailing the historical mix of office visits and emergency department visits for comparable episodes in the Client's beneficiary population. The gross cost savings were then reduced by the Client's $593,406 subscription access fee for 2014, which resulted in $5.36 million of estimated cost savings for the Client during 2014. The quotient of the Client's total net cost savings and related subscription access fee during 2014 resulted in the Client's ROI of approximately $9.00 to $1.00.

         Rent-A-Center represented over 24,000 of our Members as of December 31, 2014. We believe Rent-A-Center is experiencing a meaningful ROI due to close collaboration with Teladoc resulting in strong corporate sponsorship, successful deployment and strong adoption by Members. Similar to the study of the nation's largest home-improvement retailer, the independent study we commissioned of Rent-A-Center, which was conducted on 21,308 of Rent-A-Center's beneficiaries, or 1.3% of our Members at the outset of the study, over a period of 24 months, examined the

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impact on short-term spending and resource use of our solution, as compared to similar beneficiaries who instead received care for the same conditions in physician offices or emergency departments. Of the 21,308 beneficiaries, 3,418 Teladoc users had episodes during the period deemed eligible for matching with an episode from a Rent-A-Center beneficiary who did not use Teladoc, but did make an office or emergency department visit. As noted above under the heading "—Episode-Based Analysis Methodology," this matching process resulted in 2,624 matched pairs of Teladoc episodes and office visit episodes and 1,845 matched pairs of Teladoc episodes and emergency department episodes. The study found that when comparing individuals who used Teladoc with similar individuals who received care in other settings for the same condition, spending was substantially lower for Teladoc users.

         We determined estimated 2014 cost savings above based on the cost savings per episode identified by Veracity Healthcare Analytics during the study ( i.e. , $284 and $2,419 per office and emergency department visit, respectively). During 2014, Rent-A-Center's beneficiaries accounted for 4,098 Teladoc visits. Of the 4,098 Member visits during 2014, we respectively applied $284 and $2,419 of estimated savings to each visit based on an analysis of Rent-A-Center claims data detailing the historical mix of office visits and emergency department visits for comparable episodes in the Rent-A-Center beneficiary population. The gross cost savings were then reduced by Rent-A-Center's $146,610 subscription access fee for 2014, which resulted in $1.73 million of estimated cost savings to Rent-A-Center during 2014. The quotient of Rent-A-Center's total net cost savings and related subscription access fee during 2014 resulted in Rent-A-Center's $11.80 to $1.00 ROI.

Health Plan Case Studies

Aetna

         We have a long-standing relationship with Aetna dating back to 2011. Aetna is one of the nation's largest health plans with 22.2 million beneficiaries as of December 31, 2014. Through a number of initiatives, we have grown membership to over 2.6 million Members with Aetna as of March 1, 2015. In addition to contracting with Aetna, we also contract directly with many organizations that are in ASO and other relationships with Aetna. Typically, these are self-insured employers. We plan to specifically continue to target national employers, mid-market accounts and fully-insured populations by partnering with Aetna.

         We believe our success with Aetna is indicative of our ability to grow membership within existing accounts where considerable opportunity remains. Though we consider our membership with Aetna to be significant, at 2.6 million of a potential 22.2 million Members we believe there is considerable opportunity for growth in this account. The following highlights a number of our

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successes with Aetna and our track record of increasing Membership across different business lines:

Year
  New
Members
  Aggregate
Members
  Highlight
2011     658,800     658,800  

Aetna relationship begins with roll-out to select fully-insured populations

2012     39,200     698,000  

Aetna launches Teladoc in select self-insured national accounts

Adds six ASO Clients and one fully-insured state

2013     630,000     1,328,000  

Aetna purchases Teladoc for its own employees

Adds 49 ASO Clients and three fully-insured states

2014     629,800     1,957,800  

Adds 95 ASO Clients

2015     663,200     2,621,000  

Aetna implements our solution in select Managed Medicaid pilot population

Aetna expands Teladoc to select additional national account Clients

Oscar Health Insurance

         Oscar Health Insurance, or Oscar, who has been a Client since 2013, is a consumer-oriented health insurance plan. Our solution is embedded directly into Oscar's interfaces for beneficiaries, a strategy that we intend to pursue aggressively with other health plans. We believe our close integration with Oscar is a primary driver of our high growth and Member engagement in this account.

Seasonality

         A significantly higher proportion of our Members enter into new subscription agreements with us or renew previous agreements in the third and fourth quarters of the year compared to the first and second quarters. This seasonality is related to the employee benefits cycle, as Clients typically want to make our applications available at the beginning of a new benefits year, which generally occurs in the first quarter. We also experience a higher proportion of our visits in the first and fourth quarters of the year, primarily due to occurrence of the cold and flu season. These variations are expected to continue in the future. Consequently, it may be more meaningful to focus on annual rather than interim results.

Research and Development

         Our ability to compete depends, in large part, on our continuous commitment to rapidly introduce new services, technologies, features and functionality. Our product development team, which as of December 31, 2014, consisted of 40 employees, is responsible for the design, development, testing and certification of our solution. In addition, we utilize certain third-party

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development services to perform application development services. We focus our efforts on developing new products and further enhancing the usability, functionality, reliability, performance and flexibility of our solution.

Competition

         We view as our competitors those companies that currently (or in the future will) (i) develop and market telehealth technology (devices and systems) or (ii) provide telehealth, such as the delivery of on-demand access to healthcare. In the provision of telehealth, competition focuses on, among other factors, experience in operation, customer service, quality of technology and know-how and reputation. Our key competitors in the telehealth market are Doctor On Demand, MDLive and American Well.

Physicians and Healthcare Professionals

         We contract for our Providers' services through the Services Agreement with Teladoc PA, and, therefore, our Providers are not our employees. Under the Services Agreement, we have agreed to serve, on an exclusive basis, as manager and administrator of Teladoc PA's non-medical functions and services related to the provision of the telehealth services by physicians employed by or under contract with Teladoc PA. Teladoc PA has agreed to provide our Members, through its physicians, access to telehealth services and recommended treatment 24 hours per day, 365 days per year. The Services Agreement also requires Teladoc PA to maintain the state licensure and other credentialing requirements of its physicians. The non-medical functions and services we provide under the Services Agreement primarily include Member management services such as maintaining a call center for our Members to request a visit with Teladoc PA's physicians (our Providers), Member billing and collection administration and maintenance and storage of Member medical records. Under the Services Agreement, Teladoc PA currently pays us an access fee of $25,000 per month for call center and medical records maintenance, a fixed fee of $65,000 per month for our provision of management and administrative services and a license fee of $10,000 per month for the non-exclusive use of the Teladoc trade name. Additionally, we are required to maintain, for our company and our employees, general insurance of at least $1.0 million per occurrence and $3.0 million in the aggregate. Similarly, Teladoc PA is required to maintain, for itself and its physicians, professional liability insurance of at least $1.0 million per occurrence and $3.0 million in the aggregate. The Services Agreement has a 20-year term and expires in February 2025 unless earlier terminated upon mutual agreement of the parties or unilaterally by a party following the commencement of bankruptcy or liquidation proceeds by the non-terminating party, a material breach of the Services Agreement by the non-terminating party or a governmental or judicial termination order related to the Services Agreement.

         Our Providers are paid promptly, every two weeks via direct deposit or check. Our Providers bear no out-of-pocket medical malpractice expenses when delivering care on our platform. Teladoc PA carries professional liability insurance covering $1.0 million per claim and $3.0 million in the aggregate for itself and each of its healthcare professionals (our Providers), and we separately carry a general insurance policy, which covers medical malpractice claims, covering $5.0 million per claim and $5.0 million in the aggregate. We have not had a medical malpractice claim in our over ten-year operating history.

Employees

         As of March 31, 2015, we had 259 employees, including 51 in technology and development and 86 in sales and marketing. We consider our relationship with our employees to be good. None of our employees are represented by a labor union or party to a collective bargaining agreement.

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Facilities

         Our principal executive offices are located in Dallas, Texas, where we occupy facilities totaling approximately 7,495 square feet under a lease that expires in April 2017, and in Purchase, New York, where we occupy facilities totaling approximately 15,868 square feet under a lease that expires in August 2018. We use these facilities for administration, sales and marketing, technology and development and customer support. We also lease offices elsewhere in the United States.

         We are also in the process of opening a physician network operations center in a 57,000 square foot leased space in Dallas, Texas that we expect to open by the end of May 2015. Our physician network operations center will assume, among other functions, the customer service and Member-to-Provider routing functions that we have historically outsourced to a third-party call center, Connextions (an Optum company). We formally terminated our contractual relationship with Connextions on April 16, 2015. Connextions has agreed to continue to provide its services to us through September 2015 while we concurrently increase our in-house physician network operations center resources leading-up to our full internalization of the functions previously outsourced to Connextions on or prior to September 30, 2015.

         We intend to procure additional space as we add employees and expand geographically. We believe that our facilities are adequate to meet our needs for the immediate future, and that, should it be needed, suitable additional space will be available to accommodate any such expansion of our operations.

Government Regulation

         The healthcare industry and the practice of medicine are extensively regulated at both the state and federal levels. Our ability to operate profitably will depend in part upon our ability, and that of our affiliated Providers, to maintain all necessary licenses and to operate in compliance with applicable laws and rules. Those laws and rules continue to evolve, and we therefore devote significant resources to monitoring developments in healthcare and medical practice regulation. As the applicable laws and rules change, we are likely to make conforming modifications in our business processes from time to time. In many jurisdictions where we operate, neither our current nor our anticipated business model has been the subject of judicial or administrative interpretation. We cannot assure you that a review of our business by courts or regulatory authorities will not result in determinations that could adversely affect our operations or that the healthcare regulatory environment will not change in a way that restricts our operations.

    Provider Licensing, Medical Practice, Certification and Related Laws and Guidelines

         The practice of medicine, including the provision of behavioral health services, is subject to various federal, state and local certification and licensing laws, regulations and approvals, relating to, among other things, the adequacy of medical care, the practice of medicine (including the provision of remote care and cross-coverage practice), equipment, personnel, operating policies and procedures and the prerequisites for the prescription of medication. The application of some of these laws to telehealth is unclear and subject to differing interpretation.

         Physicians and behavioral health professionals who provide professional medical or behavioral health services to a patient via telehealth must, in most instances, hold a valid license to practice medicine or to provide behavioral health treatment in the state in which the patient is located. In addition, certain states require a physician providing telehealth to be physically located in the same state as the patient. We have established systems for ensuring that our affiliated physicians and behavioral health professionals are appropriately licensed under applicable state law and that their provision of telehealth to our Members occurs in each instance in compliance with applicable rules governing telehealth. Failure to comply with these laws and regulations could result in our services

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being found to be non-reimbursable or prior payments being subject to recoupments and can give rise to civil or criminal penalties.

    Corporate Practice of Medicine; Fee-Splitting

         We contract with physicians or physician-owned professional associations and professional corporations to deliver our services to their patients. We frequently enter into management services contracts with these physicians and physician-owned professional associations and professional corporations pursuant to which we provide them with billing, scheduling and a wide range of other services, and they pay us for those services out of the fees they collect from patients and third-party payors. These contractual relationships are subject to various state laws, including those of New York, Texas and California, that prohibit fee-splitting or the practice of medicine by lay entities or persons and are intended to prevent unlicensed persons from interfering with or influencing the physician's professional judgment. In addition, various state laws also generally prohibit the sharing of professional services income with nonprofessional or business interests. Activities other than those directly related to the delivery of healthcare may be considered an element of the practice of medicine in many states. Under the corporate practice of medicine restrictions of certain states, decisions and activities such as scheduling, contracting, setting rates and the hiring and management of non-clinical personnel may implicate the restrictions on the corporate practice of medicine.

         State corporate practice of medicine and fee-splitting laws vary from state to state and are not always consistent among states. In addition, these requirements are subject to broad powers of interpretation and enforcement by state regulators. Some of these requirements may apply to us even if we do not have a physical presence in the state, based solely on our engagement of a Provider licensed in the state or the provision of telehealth to a resident of the state. However, regulatory authorities or other parties, including our Providers, may assert that, despite these arrangements, we are engaged in the corporate practice of medicine or that our contractual arrangements with affiliated physician groups constitute unlawful fee-splitting. In this event, failure to comply could lead to adverse judicial or administrative action against us and/or our Providers, civil or criminal penalties, receipt of cease-and-desist orders from state regulators, loss of Provider licenses, the need to make changes to the terms of engagement of our Providers that interfere with our business and other materially adverse consequences.

    Federal and State Fraud and Abuse Laws

    Federal Stark Law

         We are subject to the federal self-referral prohibitions, commonly known as the Stark Law. Where applicable, this law prohibits a physician from referring Medicare patients to an entity providing "designated health services" if the physician or a member of such physician's immediate family has a "financial relationship" with the entity, unless an exception applies. The penalties for violating the Stark Law include the denial of payment for services ordered in violation of the statute, mandatory refunds of any sums paid for such services, civil penalties of up to $15,000 for each violation and twice the dollar value of each such service and possible exclusion from future participation in the federally-funded healthcare programs. A person who engages in a scheme to circumvent the Stark Law's prohibitions may be fined up to $100,000 for each applicable arrangement or scheme. The Stark Law is a strict liability statute, which means proof of specific intent to violate the law is not required. In addition, the government and some courts have taken the position that claims presented in violation of the various statutes, including the Stark Law can be considered a violation of the federal False Claims Act (described below) based on the contention that a provider impliedly certifies compliance with all applicable laws, regulations and other rules when submitting claims for reimbursement. A determination of liability under the Stark

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Law could have a material adverse effect on our business, financial condition and results of operations.

    Federal Anti-Kickback Statute

         We are also subject to the federal Anti-Kickback Statute. The Anti-Kickback Statute is broadly worded and prohibits the knowing and willful offer, payment, solicitation or receipt of any form of remuneration in return for, or to induce, (i) the referral of a person covered by Medicare, Medicaid or other governmental programs, (ii) the furnishing or arranging for the furnishing of items or services reimbursable under Medicare, Medicaid or other governmental programs or (iii) the purchasing, leasing or ordering or arranging or recommending purchasing, leasing or ordering of any item or service reimbursable under Medicare, Medicaid or other governmental programs. Certain federal courts have held that the Anti-Kickback Statute can be violated if "one purpose" of a payment is to induce referrals. In addition, a person or entity no longer does not need to have actual knowledge of this statute or specific intent to violate it to have committed a violation, making it easier for the government to prove that a defendant had the requisite state of mind or "scienter" required for a violation. Moreover, the government may assert that a claim including items or services resulting from a violation of the Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act, as discussed below. Violations of the Anti-Kickback Statute can result in exclusion from Medicare, Medicaid or other governmental programs as well as civil and criminal penalties, including fines of $50,000 per violation and three times the amount of the unlawful remuneration. Imposition of any of these remedies could have a material adverse effect on our business, financial condition and results of operations. In addition to a few statutory exceptions, OIG has published safe harbor regulations that outline categories of activities that are deemed protected from prosecution under the Anti-Kickback Statute provided all applicable criteria are met. The failure of a financial relationship to meet all of the applicable safe harbor criteria does not necessarily mean that the particular arrangement violates the Anti-Kickback Statute. However, conduct and business arrangements that do not fully satisfy each applicable safe harbor may result in increased scrutiny by government enforcement authorities, such as the OIG.

    False Claims Act

         Both federal and state government agencies have continued civil and criminal enforcement efforts as part of numerous ongoing investigations of healthcare companies and their executives and managers. Although there are a number of civil and criminal statutes that can be applied to healthcare providers, a significant number of these investigations involve the federal False Claims Act. These investigations can be initiated not only by the government but also by a private party asserting direct knowledge of fraud. These "qui tam" whistleblower lawsuits may be initiated against any person or entity alleging such person or entity has knowingly or recklessly presented, or caused to be presented, a false or fraudulent request for payment from the federal government, or has made a false statement or used a false record to get a claim approved. In addition, the improper retention of an overpayment for 60 days or more is also a basis for a False Claim Act action, even if the claim was originally submitted appropriately. Penalties for False Claims Act violations include fines ranging from $5,500 to $11,000 for each false claim, plus up to three times the amount of damages sustained by the federal government. A False Claims Act violation may provide the basis for exclusion from the federally-funded healthcare programs. In addition, some states have adopted similar fraud, whistleblower and false claims provisions.

    State Fraud and Abuse Laws

         Several states in which we operate have also adopted similar fraud and abuse laws as described above. The scope of these laws and the interpretations of them vary from state to state and are enforced by state courts and regulatory authorities, each with broad discretion. Some state

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fraud and abuse laws apply to items or services reimbursed by any third-party payor, including commercial insurers, not just those reimbursed by a federally-funded healthcare program. A determination of liability under such state fraud and abuse laws could result in fines and penalties and restrictions on our ability to operate in these jurisdictions.

    Other Healthcare Laws

         HIPAA established several separate criminal penalties for making false or fraudulent claims to insurance companies and other non-governmental payors of healthcare services. Under HIPAA, these two additional federal crimes are: "Healthcare Fraud" and "False Statements Relating to Healthcare Matters." The Healthcare Fraud statute prohibits knowingly and recklessly executing a scheme or artifice to defraud any healthcare benefit program, including private payors. A violation of this statute is a felony and may result in fines, imprisonment or exclusion from government-sponsored programs. The False Statements Relating to Healthcare Matters statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact by any trick, scheme or device or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. A violation of this statute is a felony and may result in fines or imprisonment. This statute could be used by the government to assert criminal liability if a healthcare provider knowingly fails to refund an overpayment. These provisions are intended to punish some of the same conduct in the submission of claims to private payors as the federal False Claims Act covers in connection with governmental health programs.

         In addition, the Civil Monetary Penalties Law imposes civil administrative sanctions for, among other violations, inappropriate billing of services to federally funded healthcare programs and employing or contracting with individuals or entities who are excluded from participation in federally funded healthcare programs. Moreover, a person who offers or transfers to a Medicare or Medicaid beneficiary any remuneration, including waivers of co-payments and deductible amounts (or any part thereof), that the person knows or should know is likely to influence the beneficiary's selection of a particular provider, practitioner or supplier of Medicare or Medicaid payable items or services may be liable for civil monetary penalties of up to $10,000 for each wrongful act. Moreover, in certain cases, providers who routinely waive copayments and deductibles for Medicare and Medicaid beneficiaries can also be held liable under the Anti-Kickback Statute and civil False Claims Act, which can impose additional penalties associated with the wrongful act. One of the statutory exceptions to the prohibition is non-routine, unadvertised waivers of copayments or deductible amounts based on individualized determinations of financial need or exhaustion of reasonable collection efforts. The OIG emphasizes, however, that this exception should only be used occasionally to address special financial needs of a particular patient. Although this prohibition applies only to federal healthcare program beneficiaries, the routine waivers of copayments and deductibles offered to patients covered by commercial payers may implicate applicable state laws related to, among other things, unlawful schemes to defraud, excessive fees for services, tortious interference with patient contracts and statutory or common law fraud.

    State and Federal Health Information Privacy and Security Laws

         There are numerous U.S. federal and state laws and regulations related to the privacy and security of PII, including health information. In particular, the federal Health Insurance Portability and Accountability Act of 1996, as amended by HITECH, and their implementing regulations, which we collectively refer to as HIPAA, establish privacy and security standards that limit the use and disclosure of PHI and require the implementation of administrative, physical, and technical safeguards to ensure the confidentiality, integrity and availability of individually identifiable health information in electronic form. Teladoc, our Providers and our health plan Clients are all regulated as covered entities under HIPAA. Since the effective date of the HIPAA Omnibus Final Rule on September 23, 2013, HIPAA's requirements are also directly applicable to the independent

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contractors, agents and other "business associates" of covered entities that create, receive, maintain or transmit PHI in connection with providing services to covered entities. Although we are a covered entity under HIPAA, we are also a business associate of other covered entities when we are working on behalf of our affiliated medical groups.

         Violations of HIPAA may result in civil and criminal penalties. The civil penalties range from $100 to $50,000 per violation, with a cap of $1.5 million per year for violations of the same standard during the same calendar year. However, a single breach incident can result in violations of multiple standards. We must also comply with HIPAA's breach notification rule. Under the breach notification rule, covered entities must notify affected individuals without unreasonable delay in the case of a breach of unsecured PHI, which may compromise the privacy, security or integrity of the PHI. In addition, notification must be provided to the HHS and the local media in cases where a breach affects more than 500 individuals. Breaches affecting fewer than 500 individuals must be reported to HHS on an annual basis. The regulations also require business associates of covered entities to notify the covered entity of breaches by the business associate.

         State attorneys general also have the right to prosecute HIPAA violations committed against residents of their states. While HIPAA does not create a private right of action that would allow individuals to sue in civil court for a HIPAA violation, its standards have been used as the basis for the duty of care in state civil suits, such as those for negligence or recklessness in misusing personal information. In addition, HIPAA mandates that HHS conduct periodic compliance audits of HIPAA covered entities and their business associates for compliance. It also tasks HHS with establishing a methodology whereby harmed individuals who were the victims of breaches of unsecured PHI may receive a percentage of the Civil Monetary Penalty fine paid by the violator. In light of the HIPAA Omnibus Final Rule, recent enforcement activity, and statements from HHS, we expect increased federal and state HIPAA privacy and security enforcement efforts.

         HIPAA also required HHS to adopt national standards establishing electronic transaction standards that all healthcare providers must use when submitting or receiving certain healthcare transactions electronically. On January 16, 2009, HHS released the final rule mandating that everyone covered by HIPAA must implement ICD-10 for medical coding on October 1, 2013, which has since been subsequently extended to October 1, 2015.

         Many states in which we operate and in which our patients reside also have laws that protect the privacy and security of sensitive and personal information, including health information. These laws may be similar to or even more protective than HIPAA and other federal privacy laws. For example, the laws of the State of California, in which we operate, are more restrictive than HIPAA. Where state laws are more protective than HIPAA, we must comply with the state laws we are subject to, in addition to HIPAA. In certain cases, it may be necessary to modify our planned operations and procedures to comply with these more stringent state laws. Not only may some of these state laws impose fines and penalties upon violators, but also some, unlike HIPAA, may afford private rights of action to individuals who believe their personal information has been misused. In addition, state laws are changing rapidly, and there is discussion of a new federal privacy law or federal breach notification law, to which we may be subject.

         In addition to HIPAA, state health information privacy and state health information privacy laws, we may be subject to other state and federal privacy laws, including laws that prohibit unfair privacy and security practices and deceptive statements about privacy and security and laws that place specific requirements on certain types of activities, such as data security and texting.

         In recent years, there have been a number of well-publicized data breaches involving the improper use and disclosure of PII. Many states have responded to these incidents by enacting laws requiring holders of personal information to maintain safeguards and to take certain actions in response to a data breach, such as providing prompt notification of the breach to affected

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individuals and state officials. In addition, under HIPAA and pursuant to the related contracts that we enter into with our business associates, we must report breaches of unsecured PHI to our contractual partners following discovery of the breach. Notification must also be made in certain circumstances to affected individuals, federal authorities and others.

Intellectual Property

         We own and use trademarks and service marks on or in connection with our services, including both unregistered common law marks and issued trademark registrations in the United States. We also have trademark applications pending to register marks in the United States. In addition, we rely on certain intellectual property rights that we license from third parties and on other forms of intellectual property rights and measures, including trade secrets, know-how and other unpatented proprietary processes and nondisclosure agreements, to maintain and protect proprietary aspects of our products and technologies. Other than the trademark Teladoc (and design), which is pending registration and which is not subject to any known rights of others, including any impairments, assignments or pledges, we do not believe our business is dependent to a material degree on trademarks, patents, copyrights or trade secrets. We require our employees, consultants and certain of our contractors to execute confidentiality, agreements in connection with their employment or consulting relationships with us. We also require our employees and consultants to disclose and assign to us all inventions conceived during the term of their employment or engagement while using our property or which relate to our business.

         On June 8, 2015, American Well Corporation filed a complaint against our company in the United States District Court for the District of Massachusetts alleging that certain of our operating platform's technology infringes one of its patents that we are currently seeking to invalidate pursuant to an inter partes review that we filed with the Patent Trial and Appeals Board in March 2015. See "—Legal Proceedings."

Legal Proceedings

         From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. Except as described below, we are not presently a party to any legal proceedings that, in the opinion of our management, would individually or taken together have a material adverse effect on our business, financial condition, results of operations or cash flows. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity, reputational harm and other factors.

         We are the plaintiff in three lawsuits in the Texas courts against the Texas Medical Board, or the TMB. In the first suit, Teladoc v. TMB and Leshikar , on December 31, 2014, the Austin Court of Appeals granted our request for summary judgment, invalidating the TMB's prior assertion that our Providers do not form "proper professional relationships" with our Members in the course of telehealth visits such as would support the prescription of medications. The TMB has filed a petition for review with the Texas Supreme Court to ask that Court if it will allow the TMB to appeal the Court of Appeals' decision. In the second suit, Teladoc v. TMB and Freshour , on February 2, 2015, the Travis County District Court granted our request for a temporary injunction restraining the TMB from enforcing an "emergency rule" it issued on January 16, 2015 purporting to amend the Texas Administrative Code so as to require a "face-to-face" examination of a patient before a Texas physician may lawfully prescribe medication. This suit is set for trial on November 9, 2015. In the third suit, Teladoc et al. v. TMB et al., the United States District Court for the Western District of Texas, Austin Division, held a hearing on May 22, 2015, on our motion for preliminary injunction of the rule amendments the TMB adopted on April 10, 2015, that seek to effect substantively identical restrictions as the issues in the two prior lawsuits. On May 29, 2015, this court granted our request for a preliminary injunction of the rule amendments, pending ultimate trial on the merits, which trial

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date has yet to be set. Management is unable to make a reasonable estimate of when these matters will be resolved or the amount or range of loss that could result from an unfavorable outcome in these matters. See "Risk Factors—Risks Related to Our Business—Our business could be adversely affected by ongoing legal challenges to our business model or by new state actions restricting our ability to provide the full range of our services in certain states."

         On June 8, 2015, American Well Corporation filed a complaint against our company in the United States District Court for the District of Massachusetts alleging that certain of our operating platform's technology infringes U.S. Patent No. 7,590,550, or the '550 patent, entitled, "Connecting consumers with services providers," and seeking both injunctive and monetary relief. We believe this claim was in direct response to the preemptive challenge to the validity of the '550 patent that we commenced in March 2015 by filing a petition requesting that the U.S. Patent and Trademark Office's Patent Trial and Appeals Board, or the PTAB, conduct an inter partes review of certain claims of the '550 patent. We intend to continue to pursue our preemptive challenge to the validity of the '550 patent before the PTAB and also vigorously defend the claims made in American Well Corporation's subsequent lawsuit. We may be required to expend significant management time and financial resources on the defense of such claims, which could harm our business or results of operations. The legal cost of this litigation is not estimable at this time, and we expect to expense the cost of the litigation as it is incurred. See "Risk Factors—Risks Related to Our Business—We could incur substantial costs as a result of any claim of infringement of another party's intellectual property rights."

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MANAGEMENT

         The following table provides information regarding our executive officers and our board of directors:

Name
 
Age
 
Position

Jason Gorevic

  43   President, Chief Executive Officer and Director

Mark Hirschhorn

 

50

 

Executive Vice President and Chief Financial Officer

Adam C. Vandervoort

 

40

 

Chief Legal Officer and Secretary

Gabriel R. Cappucci

 

52

 

Senior Vice President, Controller and Chief Accounting Officer

Michael King

 

51

 

Chief Sales Officer

Martin R. Felsenthal

 

46

 

Director

William H. Frist, M.D.

 

63

 

Director

Michael Goldstein

 

73

 

Director

Thomas Mawhinney

 

47

 

Director

Thomas G. McKinley

 

63

 

Director

Dana G. Mead, Jr.

 

56

 

Director

Arneek Multani

 

41

 

Director

James Outland

 

49

 

Director

David B. Snow, Jr.

 

60

 

Director and Chairman of the Board

          Jason Gorevic has been our President and Chief Executive Officer and a member of our board of directors since June 2009. Prior to joining Teladoc, Mr. Gorevic worked in various capacities at WellPoint, Inc., including President of Empire BlueCross BlueShield and Senior Vice President and Chief Sales and Product Officer. From 2002 to 2005, Mr. Gorevic was a member of Empire BlueCross BlueShield's leadership team, as Chief Sales and Marketing Officer. From July 2000 to December 2001, Mr. Gorevic served as Chief Executive Officer of Gemfinity, an electronic marketplace and purchasing aggregator that he founded. From July 1999 to July 2000, he served as General Manager of Business Messaging at Mail.com, Inc., a provider of Internet messaging services, and from April 1998 to June 1999, he served as Mail.com's Vice President of Operations. From 1993 to 1998, Mr. Gorevic worked at Oxford Health Plans, Inc., and held a variety of positions in marketing, medical management and operations as well as Director of Service Strategy. Mr. Gorevic earned a B.A. in international relations from the University of Pennsylvania. Our board of directors has concluded that Mr. Gorevic should serve as a director because of his leadership role with our company and his broad experience in the healthcare industry.

          Mark Hirschhorn became our Executive Vice President and Chief Financial Officer in October 2012. Mr. Hirschhorn is an experienced senior financial executive who has worked with numerous entrepreneurial ventures in a variety of different market segments. From April 2004 to October 2012, Mr. Hirschhorn served as Executive Vice President and Chief Financial Officer of RCS/Media Monitors, an international software technology company that serves the media and entertainment markets. From 2000 to 2003, Mr. Hirschhorn served as the Chief Financial Officer in a number of technology companies, including BT Radianz. From 1996 to 2000, he spent five years as the Vice President and Global Controller of RSL Communications, a publicly traded multinational telecommunications company, and as Chief Financial Officer of Deltathree Communications, a publicly traded RSL subsidiary and pioneer in VOIP technology. He started his professional career

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with Deloitte and spent nine years with the firm. Mr. Hirschhorn earned a B.A. from Rutgers University and an M.B.A. from Rutgers Business School. Mr. Hirschhorn is a CPA and a member of American Institute of Certified Public Accountants.

          Adam C. Vandervoort became our Chief Legal Officer and Secretary in February 2015. From 2006 through January 2015, Mr. Vandervoort was Corporate Vice President, General Counsel and Secretary of Independence Holding Company (IHC), a public insurance holding company. Prior to that, he was an in-house attorney with FedEx Corporation and practiced corporate law with a large firm. Mr. Vandervoort holds A.B. and A.M. degrees from the University of Chicago and a J.D. from the University of Pennsylvania Law School. He is admitted to practice law in the states of California, Connecticut, New York and Tennessee.

          Gabriel R. Cappucci became our Senior Vice President, Controller & Chief Accounting Officer in May 2015. Prior to joining Teladoc, Mr. Cappucci had a nearly 20 year career at Medco Health Solutions, Inc. where he held a variety of finance roles including SVP & Controller, Chief Accounting Officer. Most recently, he was Chief Financial Officer of Enclara Pharmacia, a privately held company providing hospice pharmacy services. Mr. Cappucci began his professional career with KPMG LLP where he was a Senior Manager and he is a graduate of Boston College's Carroll School of Management. Mr. Cappucci is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants.

          Michael King became our Chief Sales Officer in July 2010. Prior to joining Teladoc, Mr. King held various positions at Healthways, Inc., beginning in 2001, and was most recently Senior Vice President of Insight and Innovations after serving as Senior Vice President of Sales. During his tenure, he was responsible for the creation, implementation, and execution of all sales business plans. In addition to sales operation, he also directed consultant relationship management, product marketing, and messaging. Prior to his time with Healthways, Mr. King held various positions at CareSteps.com, WellPath Community Health Plans, Doctors Health Plan, and Aetna. Mr. King earned a B.S. in Employment Relations and Management from Michigan State University and attended the General Managers program at Harvard Business School.

          Martin R. Felsenthal, became a member of our board of directors in November 2009. Mr. Felsenthal has been a Partner of HLM Venture Partners, a venture capital firm since 2007. Mr. Felsenthal was previously a General Partner of Salix Ventures, a venture capital firm, where he focused on investments in healthcare services and healthcare information technology. He joined Salix Ventures in 1997. Mr. Felsenthal is currently a director of Vericare Management, Inc., OnShift, Inc. and ClearDATA Networks. Previously, he served on the boards of Aperio Technologies, Inc., Change Healthcare Corporation, Titan Health, U.S. Renal Care, PayerPath and CombiMatrix Corporation. In 2014, Mr. Felsenthal began working as an Advisor to California Healthcare Foundation Health Innovation Fund, which supports business models with the potential to significantly lower the cost of care or to improve access to care for underserved populations. Mr. Felsenthal earned a B.A. from Princeton University and an M.B.A. from the Stanford University Graduate School of Business. Our board of directors has concluded that Mr. Felsenthal should serve as a director because of his broad experience in the healthcare industry and his significant directorship experience.

          William H. Frist, M.D. became a member of our board of directors in September 2014. Senator Frist is a Partner in Cressey & Company, a private equity firm focused exclusively on investing in and building leading healthcare businesses. He is Chairman of the Cressey Distinguished Executive Council. As a U.S. Senator, he represented Tennessee for 12 years where he served on both the Finance and HELP committees responsible for writing all health legislation. He served as U.S. Senate Majority Leader from 2003 to 2006. Prior to the Senate, Senator Frist spent 20 years in clinical medicine, completing surgical training at Harvard's Massachusetts General Hospital and Stanford and he subsequently founded the Vanderbilt Multi-Organ Transplant Center. Senator Frist serves as an adjunct professor of Cardiac Surgery at Vanderbilt University and Clinical

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Professor of Surgery at Meharry Medical College. His previous board service includes Princeton University, the Smithsonian Institution and the Clinton Bush Haiti Fund. Senator Frist currently serves as a director of the publicly held companies Select Medical and AECOM. In addition, he is on the boards of Theranos, Unitek, Aegis, Aspire, MDSave, Cognosante and Accolade. He previously served as a director of URS Corporation from November 2009 to 2014, and on the board of Third National Bank from 1990 to1994. He is chairman of Hope Through Healing Hands, a nonprofit which focuses on maternal and child health, and SCORE, a collaborative K12 education reform organization. His current board services include the Robert Wood Johnson Foundation, Kaiser Family Foundation, Harvard Medical School Board of Fellows, Center for Strategic and International Studies, Partnership for a Healthier America campaign to fight childhood obesity and the Nashville Health Center Care Council. He is a Senior Fellow at the Bipartisan Policy Center, where he is co-leader of the Health Project. Senator Frist earned his B.A. from Princeton University and M.D. from Harvard Medical School. Our board of directors has concluded that Senator Frist should serve as a director because of his significant directorship experience and his broad experience in the healthcare industry.

          Michael Goldstein became a member of our board of directors in February 2015. Mr. Goldstein was employed by Ernst & Young (and its predecessor firms) from 1963 to 1979, including six years as an audit partner. Mr. Goldstein served as Chairman of Toys "R" Us, Inc. from 1998 to 2001, Chief Executive Officer from 1999 to 2000, Vice Chairman and Chief Executive Officer from 1994 to 1998 and Chief Financial Officer from 1983 to 1994. Mr. Goldstein is a director and chairman of the audit committee of Pacsun since 2004 and a director, chairman of the governance, compliance and nominating committee and member of the audit committee and corporate strategy committee of Bioscrip since 2015. Mr. Goldstein has served as director of various private companies and not-for-profit charitable organizations. Mr. Goldstein served on the boards of the following public companies within the last five years: Charming Shoppes, Inc. from 2008 to 2012; 4 Kids Entertainment, Inc. from 2002 to 2012; Martha Stewart Living Omnimedia, Inc. from 2004 to 2010; and Medco Health Solutions, Inc. from 2005 to 2012. Our board of directors believes Mr. Goldstein is qualified to serve as a director of the Company due to his experience and governance leadership roles on the Boards of various other public companies, as well as his extensive background in finance, both as an audit partner and as a finance executive and chief executive officer of a large public corporation.

          Thomas Mawhinney became a member of our board of directors in September 2014. He is currently a General Partner of Icon Ventures, a technology venture capital firm, having joined the firm in 2003. Before joining Icon, Mr. Mawhinney was with Canaan Partners, an early-stage venture capital firm with $2 billion under management, from 2001 to 2003. As an entrepreneur, Mr. Mawhinney co-founded and spent five years as President and Chief Operating Officer of North Systems, a venture-backed software company. Prior to his time with North Systems, he developed his skills as a technology investor and entrepreneur working as a Senior Associate at Summer Partners. Mr. Mawhinney is on the Boards of Directors of or actively involved with Awarepoint, Bill.com, Groundwork, Huddle, Ionic Security, KIXEYE, MarketLive, Reputation.com, Voltage Security, Xambala, Yodle and Zephyr Health and previously served on the board at Monitise. Mr. Mawhinney graduated with honors, earning a B.A. from Harvard University and received his M.B.A. from the Stanford University Graduate School of Business. Our board of directors has concluded that Mr. Mawhinney should serve as a director because of his significant directorship experience and his broad experience in the technology industry.

          Thomas G. McKinley became a member of our board of directors in November 2009. Mr. McKinley is a General Partner and the West Coast Representative for Cardinal Partners, a venture capital firm focused exclusively on healthcare investing. Prior to joining Cardinal, Mr. McKinley was the co-founder and Co-Managing Partner of Partech International. Mr. McKinley has over 35 years of investment experience. Mr. McKinley currently serves on the board of directors of lifeIMAGE, a cloud-based medical imaging sharing platform for hospitals, physicians, and

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patients. Mr. McKinley earned an undergraduate degree in Economics from Harvard University, an M.S. in Accounting from New York University and an M.B.A. from the Stanford University Graduate School of Business. Our board of directors has concluded that Mr. McKinley should serve as a director because of his significant directorship experience and his broad experience in the healthcare and technology industries.

          Dana G. Mead, Jr. became a member of our board of directors in August 2011. Mr. Mead is a strategic advisor to Kleiner Perkins Caufield & Byers, where he served as a partner in the life sciences practice from 2005 to 2015. Mr. Mead currently serves on the boards of Intersect ENT as well as several privately held Kleiner Perkins Caufield & Byers portfolio companies. From 1992 to 2005, Mr. Mead worked for Guidant where he held numerous positions including, most recently, President of Guidant Vascular Intervention. Mr. Mead earned a B.A. from Lafayette College and an M.B.A. from the University of Southern California. Our board of directors has concluded that Mr. Mead should serve as a director because of his significant directorship experience and his broad experience in the healthcare industry.

          Arneek Multani became a member of our board of directors in 2008. Mr. Multani is a Managing Director of Trident Capital and joined the firm in 2002. He leads Trident's Healthcare Information Technology practice and co-leads Trident's Growth Equity practice. Prior to joining Trident, Mr. Multani was an Associate at McCown De Leeuw, a private equity firm specializing in leveraged buy-outs, where he focused on investing in the health and fitness industries. He started his career as an analyst at Morgan Stanley & Co in the Media & Telecommunications area of the Mergers & Acquisitions Group. Mr. Multani currently sits on the board of directors of Imagine Health, MedSave USA, HealthMEDX, Acclaris, and is a Board Observer at Advanced ICU Care. Mr. Multani's past directorships and observerships include Resolution Health and Profex. He earned a B.S. in Economics from Wharton School of Business and a B.A.S. in Systems Engineering from the Moore School of Engineering at the University of Pennsylvania, where he graduated summa cum laude. He earned his M.B.A. from the Stanford University Graduate School of Business. Our board of directors has concluded that Mr. Multani should serve as a director because of his broad experience in the healthcare industry and his significant core business skills, including financial and strategic planning.

          James Outland became a member of our board of directors in May 2006. Mr. Outland is a Managing Partner and co-founder of New Capital Partners, a private equity firm which invests in high growth companies primarily in the Southeastern United States and Texas. He has over 25 years of private equity, mergers and acquisitions and business development leadership experience in both entrepreneurial business ventures and well-established corporations. Prior to co-founding New Capital Partners, Mr. Outland served in various key roles in the healthcare industry as an officer of UnitedHealth Group after its acquisition of Complete Health Services and as a Principal at Momentum Health Services where he specialized in mergers & acquisitions. He began his career developing an entrepreneurial business within ProServ, Inc., a leader in the sports marketing industry which was subsequently acquired by SFX and later Clear Channel. He opened a West Coast office and later led the business development for ProServ athletes and properties in the Southeast. Mr. Outland also served as the Chief Executive Officer for Senior Whole Health during its first years of operation, in addition to his role as Chairman of the Board. He has led numerous private equity investments and currently serves as Chairman of the Board for Repay Holdings, MDnetSolutions and Medsurant LLC. He previously served on the Boards of PrismPointe Technologies, Senior Whole Health and Styx Capital. He graduated from Southern Methodist University with a B.A. in Political Science and a B.F.A. in Advertising. Our board of directors has concluded that Mr. Outland should serve as a director because of his broad experience in the healthcare industry and his significant core business skills, including financial and strategic planning.

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          David B. Snow, Jr. became a member of our board of directors in February 2014 and became Chairman of our board of directors in December 2014. Mr. Snow currently serves as Chairman and chief executive officer of Cedar Gate Technologies, Inc., a provider of analytic and information technology services to doctor and hospital organizations entering risk-based reimbursement arrangements with insurers, since February 2014. Until April 2012, Mr. Snow was Chairman and Chief Executive Officer of Medco Health Solutions, Inc., a leading pharmacy benefit manager. His current board service includes CareCentrix and Pitney Bowes, Inc., where he has been a director since 2006. He formerly served as a director of Medco Health Solutions, Inc. In addition to his experience as the chief executive officer of a public company, Mr. Snow has a strong background in operations, having served in leadership positions at several companies including WellChoice (Empire Blue Cross Blue Shield) and Oxford Health Plans. Mr. Snow earned a B.S. in Economics from Bates College and a Master's Degree in Health Care Administration from Duke University. Our board of directors has concluded that Mr. Snow should serve as a director because of his broad experience in the healthcare industry and his significant core business skills, including financial and strategic planning.

Board Composition and Election of Directors

         Subject to the rights of the holders of any series of preferred stock to elect additional directors under specified circumstances, our board of directors may establish the authorized number of directors from time to time by resolution. Our board of directors currently consists of ten members. Our current certificate of incorporation and investors' rights agreement (as defined below in "Certain Relationships and Related Person Transactions") among certain investors, including entities associated with Kleiner Perkins Caufield & Byers, HLM Venture Partners, Cardinal Partners, Trident Capital Partners, New Capital Partners and Icon Ventures, entered into in connection with our convertible preferred stock financings, provide for one director to be elected by holders of our Series A convertible preferred stock and Series A-1 convertible preferred stock, one director to be elected by holders of our Series B convertible preferred stock, two directors to be elected by holders of our Series C convertible preferred stock, one director to be elected by holders of our Series D convertible preferred stock, one director to be elected by holders of our Series F convertible preferred stock, one director constituting the individual serving as the then-current Chief Executive Officer, or the CEO Designee, of the Company and two directors to be elected by a majority of the other members of our board of directors, or the Mutual Designees. Mr. Outland is the designee of our Series A and Series A-1 convertible preferred stock, Mr. Multani is the designee of our Series B convertible preferred stock, Messrs. Felsenthal and McKinley are the designees of our Series C-1 convertible preferred stock, Mr. Mead is the designee of our Series D convertible preferred stock, Mr. Mawhinney is the designee of our Series F convertible preferred stock, Mr. Gorevic is the CEO Designee and Mr. Snow, Senator Frist and Mr. Goldstein are the Mutual Designees.

         The provisions of the investors' rights agreement and of our certificate of incorporation by which Messrs. Outland, Multani, Felsenthal, McKinley, Mead and Mawhinney were elected will no longer be in effect upon the consummation of this offering and there will be no other contractual obligations regarding the election of our directors. Each of our current directors will continue to serve until the election and qualification of his or her successor, or his or her earlier death, resignation or removal.

    Director Independence

         Our board of directors currently consists of ten members. Our board of directors has determined that all of our directors except Mr. Gorevic do not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is "independent" as that term is defined under the rules of the NYSE. There are no family relationships among any of our directors or executive officers.

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    Classified Board of Directors

         In accordance with our amended and restated certificate of incorporation that will go into effect upon the closing of this offering, our board of directors will be divided into three classes with staggered, three-year terms. At each annual meeting of stockholders, the successors to directors whose terms then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. Effective upon the closing of this offering, our directors will be divided among the three classes as follows:

         Our amended and restated certificate of incorporation that will go into effect upon the closing of this offering will provide that the authorized number of directors may be changed only by resolution of our board of directors. 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. The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control of our company. Our directors may be removed only for cause by the affirmative vote of the holders of at least two-thirds of our outstanding voting stock entitled to vote in the election of directors. See "Risk Factors—Risks Related to this Offering and Ownership of Our Common Stock—Provisions in our amended and restated certificate of incorporation and amended and restated bylaws and under Delaware law could make an acquisition of our company, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management."

Role of the Board in Risk Oversight

         One of the key functions of our board of directors is informed oversight of our risk management process. Our board of directors does not have a standing risk management committee, but rather administers this oversight function directly through our board of directors as a whole, as well as through various standing committees of our board of directors that address risks inherent in their respective areas of oversight. In particular, our board of directors is responsible for monitoring and assessing strategic risk exposure and our audit committee has the responsibility to consider and discuss our major financial risk exposures and the steps our management has taken to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken. The audit committee also monitors compliance with legal and regulatory requirements. Our compensation committee assesses and monitors whether any of our compensation policies and programs has the potential to encourage excessive risk-taking. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire board is regularly informed through committee reports about such risks.

Board Committees

         Our board of directors directs the management of our business and affairs and conducts its business through meetings of our board of directors and three standing committees: the audit committee, the compensation committee and the regulatory and compliance committee. Effective upon completion of this offering, we expect that our board of directors will also have a nominating

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and corporate governance committee. In addition, from time to time, other committees may be established under the direction of our board of directors when necessary or advisable to address specific issues.

         Each of the audit committee, the compensation committee, the quality assurance and regulatory compliance committee and the nominating and corporate governance committee will operate under a charter that will be approved by our board of directors in connection with this offering. A copy of each of the audit committee, compensation committee and nominating and corporate governance committee charters will be available on our website upon completion of this offering.

    Audit Committee

         Our audit committee, which following this offering will consist of Messrs. Goldstein (Chairman), Snow and Outland, will be responsible for, among its other duties and responsibilities, assisting our board of directors in overseeing: our accounting and financial reporting processes and other internal control processes, the audits and integrity of our financial statements, our compliance with legal and regulatory requirements, the qualifications and independence of our independent registered public accounting firm and the performance of our internal audit function and independent registered public accounting firm. Our audit committee will be directly responsible for the appointment, compensation, retention and oversight of our independent registered public accounting firm.

         Our board of directors has determined that Mr. Goldstein is an "audit committee financial expert" as such term is defined under the applicable regulations of the SEC and has the requisite accounting or related financial management expertise and financial sophistication under the applicable rules and regulations of the NYSE. Our board of directors has also determined that Messrs. Goldstein, Snow and Outland are independent under Rule 10A-3 under the Exchange Act and the NYSE standard, for purposes of the audit committee.

    Compensation Committee

         Our compensation committee, which following this offering will consist of Messrs. McKinley (Chairman) and Multani, will be responsible for, among its other duties and responsibilities, reviewing and approving the compensation philosophy for our Chief Executive Officer, reviewing and approving all forms of compensation and benefits to be provided to our other executive officers and reviewing and overseeing the administration of our equity incentive plans.

         Our board has determined that each of Messrs. McKinley and Multani is independent under the applicable rules and regulations, is a "non-employee director" as defined in Rule 16b-3 promulgated under the Exchange Act and is an "outside director" as that term is defined in Section 162(m) of the Code.

    Quality Assurance and Regulatory Compliance Committee

         Our quality assurance and regulatory compliance committee, which following this offering will consist of Senator Frist (Chairman) and Messrs. Felsenthal and Mead, will be responsible for assisting our board of directors in discharging its responsibilities relating to legal and regulatory compliance (excluding matters of financial compliance, which are subject to the oversight of the Audit Committee).

    Nominating and Corporate Governance Committee

         Our nominating and corporate governance committee, which following this offering will consist of Messrs. Snow (Chairman), Felsenthal and Mawhinney, will be responsible for, among its other duties and responsibilities, identifying and recommending candidates to our board of directors for

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election to our board of directors, reviewing the composition of members of our board of directors and its committees, developing and recommending to our board of directors corporate governance guidelines that are applicable to us and overseeing our board of directors and its committees evaluations.

Compensation Committee Interlocks and Insider Participation

         During the fiscal year ended December 31, 2014, the members of our compensation committee were Messrs. McKinley and Multani. No member of our compensation committee is or has been our current or former officer or employee. None of our executive officers served as a director or a member of a compensation committee (or other committee serving an equivalent function) of any other entity, one of whose executive officers served as a director or member of our compensation committee during the fiscal year ended December 31, 2014.

Code of Ethics and Code of Conduct

         We will adopt a written code of business conduct and ethics, to be effective upon the closing of this offering, that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. Upon completion of this offering, our code of business conduct and ethics will be available on our website at www.teladoc.com . In addition, we intend to post on our website all disclosures that are required by law or the listing standards of concerning any amendments to, or waivers from, any provision of the code. The reference to our website address does not constitute incorporation by reference of the information contained at or available through our website and you should not consider it to be a part of this prospectus.

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EXECUTIVE AND DIRECTOR COMPENSATION

          The following contains forward-looking statements that are based on our current plans and expectations regarding future compensation programs. See "Special Note Regarding Forward-Looking Statements." Actual compensation programs that we adopt may differ from the programs summarized in this discussion.

Executive Compensation

         This section discusses the material components of the executive compensation program offered to our named executive officers identified below. For 2014, our named executive officers were:

         We are an "emerging growth company," within the meaning of the JOBS Act, and have elected to comply with the reduced compensation disclosure requirements available to emerging growth companies under the JOBS Act.

2014 Summary Compensation Table

Name and Principal Position
  Year   Salary
($)
  Bonus
($)(1)
  Option
Awards
($)(2)
  Non-Equity
Incentive Plan
Compensation
($)(3)
  All Other
Compensation
($)
  Total
($)
 

Jason Gorevic

    2014     361,084     68,530     516,124     168,987     21,219 (4)   1,135,944  

President and Chief Executive Officer

                                           

Mark Hirschhorn

   
2014
   
309,500
   

   
473,887
   
100,588
   
21,219

(5)
 
905,194
 

Executive Vice President and Chief Financial Officer

                                           

Michael King

   
2014
   
259,000
   

   
207,772
   
509,537
   
16,400

(6)
 
992,709
 

Chief Sales Officer

                                           

(1)
Mr. Gorevic was granted a $68,530 discretionary bonus in 2014 in recognition of his performance.

(2)
Represents the aggregate grant date fair value of stock options granted during 2014 computed in accordance with ASC Topic 718, excluding the effect of estimated forfeitures. For a description of the assumptions used in valuing these awards, see Note 13 to our audited consolidated financial statements included elsewhere in this prospectus.

(3)
Represents amounts earned for 2014 under our annual performance based bonus program. In addition, for Mr. King, the amount includes $509,537 for sales commissions paid with respect to 2014. For additional information, see "—Performance Bonuses" below.

(4)
Represents company matching contributions to Mr. Gorevic's 401(k) plan account of $10,400 and company-paid health insurance premiums on his behalf of $10,819.

(5)
Represents company matching contributions to Mr. Hirschhorn's 401(k) plan account of $10,400 and company-paid health insurance premiums on his behalf of $10,819.

(6)
Represents company matching contributions to Mr. King's 401(k) plan account of $10,400 and company-paid health insurance premiums on his behalf of $6,000.

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Narrative Disclosure to Summary Compensation Table

         The primary elements of compensation for our named executive officers are base salary, annual performance bonuses, commissions and equity-based compensation awards. The named executive officers also participate in employee benefit plans and programs that we offer to our other full-time employees on the same basis.

    Base Salaries

         We pay our named executive officers a base salary to compensate them for the satisfactory performance of services rendered to our company. The base salary payable to each named executive officer is intended to provide a fixed component of compensation reflecting the executive's skill set, experience, role and responsibilities. Base salaries for our named executive officers have generally been set at levels deemed necessary to attract and retain individuals with superior talent.

         Effective March 16, 2014, our board of directors approved an increase in Mr. Gorevic's base salary from $350,000 to $364,000, Mr. Hirschhorn's base salary from $300,000 to $312,000 and Mr. King's base salary from $240,000 to $264,000.

    Performance Bonuses

         We offer our named executive officers the opportunity to earn annual cash incentives to compensate them for attaining short-term company and individual performance goals. Each of Messrs. Gorevic and Hirschhorn has an annual target bonus that that is expressed as a percentage of his annual base salary. The 2014 target bonus percentages for our named executive officers were 36% for Mr. Gorevic and 25% for Mr. Hirschhorn. Mr. King's short-term incentive compensation for 2014 was commissions based.

         Our compensation committee, based upon the recommendation of our Chief Executive Officer, establishes company performance goals each year and, at the completion of the year, determines actual bonus payouts after assessing company performance against these goals and a named executive officer's individual performance and contributions to the company's achievements. The 2014 company performance goals for Messrs. Gorevic and Hirschhorn were based on our revenue, EBITDA, member satisfaction, total revenue and current year's and completed telehealth visits.

         For 2014, Mr. King was entitled to receive commissions based on a percentage of incremental revenue generated from sales to new Clients, subject to achievement of a threshold annual incremental revenue amount.

         The actual cash bonuses earned by our named executive officers, and the actual sales commission earned by Mr. King, for 2014 are reported under the "Non-Equity Incentive Plan Compensation" column of the 2014 Summary Compensation Table above.

         In addition, upon the completion of this offering, Mr. Hirschhorn will be entitled to a special cash bonus of $100,000 in recognition of his extraordinary efforts in connection with this offering.

    Equity Compensation

         We grant stock options to our named executive officers as the long-term incentive component of their compensation. We have historically granted stock options to named executive officers when they commenced employment with us and have from time to time thereafter made additional grants as and when our board of directors determined appropriate to reward, retain or encourage particular named executive officers.

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         Our stock options typically have an exercise price equal to the fair market value of our common stock on the date of grant, as determined by our board of directors, and vest as to 25% of the underlying shares on the first anniversary of the date of grant and in equal monthly installments over the following 36 months, subject to the holder's continued employment with us. From time to time, our board of directors may also construct alternate vesting schedules as it determines are appropriate to motivate particular employees. Our stock options may be intended to qualify as incentive stock options under the Code. Stock options granted to our named executive officers may be subject to accelerated vesting in certain circumstances, as described in the section titled "Employment Arrangements."

         We granted stock options in the following amounts to our named executive officers during 2014:

Named Executive Officer
  2014 Options Granted
(#)
 

Jason Gorevic

    155,519  

Mark Hirschhorn

    142,463  

Michael King

    62,606  

         These options were granted under the Prior Plan, subject to our standard option terms described above.

         In connection with this offering, we intend to adopt a 2015 Incentive Award Plan, or the 2015 Plan, to facilitate the grant of cash and equity incentives to our directors, employees (including our named executive officers) and consultants and to enable our company to obtain and retain the services of these individuals, which we believe is essential to our long-term success. Following the effective date of our 2015 Plan, we will not make any further grants under our Prior Plan. However, the Prior Plan will continue to govern the terms and conditions of the outstanding awards granted under it. For further information about the 2015 Plan, see "—2015 Incentive Award Plan" below.

    Retirement, Health, Welfare and Additional Benefits

         Our named executive officers are eligible to participate in our employee benefit plans and programs, including medical and dental benefits, flexible spending accounts and short- and long-term disability and life insurance, to the same extent as our other full-time employees, subject to the terms and eligibility requirements of those plans, except that we pay the full cost of the healthcare coverage for our named executive officers. We also sponsor a 401(k) defined contribution plan in which our named executive officers may participate, subject to limits imposed by the Code, to the same extent as our other full-time employees. Currently, we match 100% of contributions made by participants in the 401(k) plan up to 4% of eligible annual compensation. All matching contributions are fully vested when made.

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Outstanding Equity Awards at 2014 Fiscal Year-End

 
   
  Option Awards  
Name
  Grant Date   Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
  Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
  Equity Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
  Option
Exercise
Price
($)
  Option
Expiration
Date
 

Jason Gorevic

    12/22/2014         155,519 (1)         6.01     12/22/2024  

    12/11/2013             89,606 (2)   1.67     12/11/2023  

    12/11/2013         89,606 (3)         1.67     12/11/2023  

    4/16/2012     144,386     170,332 (1)         1.07     4/16/2022  

    1/25/2011     32,446     3,605 (1)         0.80     1/25/2021  

Mark Hirschhorn

    12/22/2014         109,654 (1)         6.01     12/22/2024  

    9/10/2014         32,810 (1)         6.01     9/10/2024  

    12/11/2013             24,042 (2)   1.67     12/11/2023  

    12/11/2013         24,042 (3)         1.67     12/11/2023  

    12/31/2012         126,718 (1)         1.07     12/31/2022  

Michael King

    12/22/2014         62,606 (1)         6.01     12/22/2024  

    12/11/2013             15,902 (2)   1.67     12/11/2023  

    12/11/2013         15,464 (3)         1.67     12/11/2023  

    4/16/2013     24,821     34,750 (1)         1.07     4/16/2023  

    1/25/2011     8,720     489 (1)         0.80     1/25/2021  

    7/26/2010     7,382               0.80     7/26/2020  

(1)
The option vests as to 25% of the total shares underlying the option on the first anniversary of the grant date and in equal monthly installments over the ensuing 36 months, subject to the holder's continued employment with us through the applicable vesting date and potential accelerated vesting as described in the section titled "Employment Arrangements."

(2)
The option vests as to 25% of the total shares underlying the option on January 1, 2016 and in equal monthly installments over the ensuing 36 months, subject to the holder's continued employment with us through the applicable vesting date and our achievement of certain financial and operational targets in 2014. In February 2015, our board of directors determined that these targets had been achieved.

(3)
The option vests as to 25% of the total shares underlying the option on January 1, 2015 and in equal monthly installments over the ensuing 36 months, subject to the holder's continued employment with us through the applicable vesting date and potential accelerated vesting as described in the section titled "Employment Arrangements."

Employment Arrangements

         We have entered into employment agreements with each of our named executive officers that will become effective on the closing of this offering. Certain key terms of these agreements are described below.

    Jason Gorevic

         The employment agreement with Mr. Gorevic entitles him to an initial annual base salary of $425,000 and an annual target bonus opportunity of 100% of his gross base salary wages for 2015

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and his annual base salary thereafter. In addition, Mr. Gorevic is eligible to earn a potential bonus for over-performance of at least 150% of his annual base salary.

         In the event Mr. Gorevic is terminated by us without cause or he resigns for good reason, subject to his timely executing a release of claims in our favor, he is entitled to receive: (i) 18 months of continued base salary and life insurance; (ii) up to 18 months of continued medical, dental or vision coverage pursuant to COBRA, if elected; (iii) a pro rata portion of the bonus he would have earned for the year of termination and (iv) accelerated vesting of time-based equity awards scheduled to vest within 12 months following the date of termination and continued eligibility to vest in awards subject to performance-based vesting conditions if and to the extent such performance conditions are satisfied during that 12-month period. If the termination occurs within 12 months following a change in control, subject to his timely executing a release of claims in our favor, Mr. Gorevic is entitled to receive the following in lieu of the severance benefits described in the previous sentence: (i) a lump-sum payment equal to 150% of his base salary plus target bonus opportunity; (ii) 18 months of continued life insurance; (iii) up to 18 months of continued medical, dental or vision coverage pursuant to COBRA, if elected; (iv) a pro rata portion of the bonus he would have earned for the year of termination and (v) accelerated vesting of his time-based equity awards and continued eligibility to vest in awards subject to performance-based vesting conditions if and to the extent such performance conditions are thereafter satisfied.

         The employment agreement contains restrictive covenants pursuant to which Mr. Gorevic has agreed to refrain from competing with us or soliciting our employees or customers for a period of 18 months following his termination of employment, provided that Mr. Gorevic may perform services for competitors with multiple lines of business if he (i) does not participate in any material respect in the competing business and (ii) if multiple lines of business report to Mr. Gorevic, any competing business lines account for less than 15% of the net revenue over the prior year for the business lines reporting to him.

         For purposes of the employment agreement:

    "Cause" generally means, subject to certain notice requirements and cure rights, Mr. Gorevic's (i) breach of his duty of loyalty or his willful breach of his duty of care to us; (ii) material failure or refusal to comply with reasonable written policies, standards and regulations established by our board of directors; (iii) commission of a felony, an act of theft, embezzlement or misappropriation of our funds or property of material value or an act of fraud involving us; (iv) willful misconduct or gross negligence which causes or reasonably could cause material harm to our standing, condition or reputation; (v) material violation of our code of ethics or written policies concerning harassment or discrimination or (vi) material breach of his confidentiality agreement with us or a material provision of his employment agreement.

    "Good reason" generally means, subject to certain notice requirements and cure rights, (i) a material reduction in the aggregate amount of Mr. Gorevic's base salary and target bonus without his consent (except for a reduction applicable to the management team generally); (ii) a material reduction in his overall responsibilities or authority, or scope of duties; (iii) removal from the board of directors; (iv) a requirement that he relocate his residence outside of Rye, New York or relocate his principal place of employment outside of the New York City metropolitan area or (v) our material breach of the employment agreement.

    Mark Hirschhorn and Michael King

         The employment agreements with Messrs. Hirschhorn and King are for an unspecified term and entitle them to initial annual base salaries of $335,000 and $274,600, respectively, subject to annual review and adjustment. Mr. Hirschhorn is entitled to an annual target bonus opportunity of

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65% of his gross base salary wages for 2015 and his annual base salary thereafter. Mr. King is entitled to an annual bonus opportunity based on certain corporate, new business and net-dollar retention goals for a portion of 2015 and 2016, and an annual target bonus opportunity of 75% of his annual base salary thereafter.

         In the event either of Messrs. Hirschhorn or King is terminated by us without cause or he resigns for good reason, subject to his timely executing a release of claims in our favor, he is entitled to receive: (i) 12 months of continued base salary and life insurance; (ii) up to 12 months of continued medical, dental or vision coverage pursuant to COBRA, if elected and (iii) accelerated vesting of time-based equity awards scheduled to vest within 6 months following the date of termination and continued eligibility to vest in awards subject to performance-based vesting conditions if and to the extent such performance conditions are satisfied during that 6-month period. If either of Messrs. Hirschhorn's or King's termination occurs within 12 months following a change in control, subject to his timely executing a release of claims in our favor, he is entitled to receive the following in lieu of the severance benefits described in the previous sentence: (i) a lump-sum payment equal to his base salary plus target bonus opportunity; (ii) 12 months of continued life insurance; (iii) up to 12 months of continued medical, dental or vision coverage pursuant to COBRA, if elected; (iv) a pro rata portion of the bonus he would have earned for the year of termination and (v) accelerated vesting of his time-based equity awards and continued eligibility to vest in awards subject to performance-based vesting conditions if and to the extent such performance conditions are thereafter satisfied.

         The employment agreements contain restrictive covenants pursuant to which each of Mr. Hirschhorn and Mr. King has agreed to refrain from competing with us or soliciting our employees or customers following his termination of employment for a period of 12 months.

         For purposes of the employment agreements, "cause" has the same meaning as in Mr. Gorevic's employment agreement. "Good reason" generally means, with respect to Mr. Hirschhorn or Mr. King, subject to certain notice requirements and cure rights, (i) a material reduction in the aggregate amount of his base salary and target bonus without his consent (except for a reduction applicable to the management team generally); (ii) a material reduction in his overall responsibilities or authority, or scope of duties (except following a change in control in certain circumstances with respect to Mr. King); (iii) a requirement that he relocate his principal place of employment outside of the New York City metropolitan area or (iv) our material breach of the employment agreement.

Long-Term Incentive Plans

         The following summarizes the material terms of the long-term incentive plans in which our employees, including the named executive officers, participate.

    2015 Incentive Award Plan

         Eligibility and Administration.     Our employees, consultants and directors, and employees, consultants and directors of our subsidiaries will be eligible to receive awards under the 2015 Plan. Following our initial public offering, the 2015 Plan will generally be administered by our board of directors with respect to awards to non-employee directors and by our compensation committee with respect to other participants, each of which may delegate its duties and responsibilities to committees of our directors and/or officers (referred to collectively as the plan administrator below), subject to certain limitations that may be imposed under the 2015 Plan, Section 16 of the Exchange Act and/or stock exchange rules, as applicable. The plan administrator will have the authority to make all determinations and interpretations under, prescribe all forms for use with, and adopt rules for the administration of, the 2015 Plan, subject to its express terms and conditions. The plan

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administrator will also set the terms and conditions of all awards under the 2015 Plan, including any vesting and vesting acceleration conditions.

         Limitation on Awards and Shares Available.     An aggregate of 2,186,447 shares of our common stock will initially be available for issuance under awards granted pursuant to the 2015 Plan. The number of shares initially available for issuance will be increased by (i) the number of shares represented by awards outstanding under our Prior Plan that are forfeited, lapse unexercised or are settled in cash and which following the effective date of the 2015 Plan are not issued under the Prior Plan and (ii) an annual increase on January 1 of each calendar year beginning in 2016 and ending in 2025, equal to the least of (A) 1,876,722 shares, (B) 5 percent of the shares of common stock outstanding on the final day of the immediately preceding calendar year and (C) such smaller number of shares as determined by our board of directors. No more than 20,953,672 shares of common stock may be issued upon the exercise of incentive stock options. Shares issued under the 2015 Plan may be authorized but unissued shares, shares purchased in the open market or treasury shares.

         If an award under the 2015 Plan is forfeited, expires or is settled for cash, any shares subject to such award may, to the extent of such forfeiture, expiration or cash settlement, be used again for new grants under the 2015 Plan. Awards granted under the 2015 Plan upon the assumption of, or in substitution for, awards authorized or outstanding under a qualifying equity plan maintained by an entity with which we enter into a merger or similar corporate transaction will not reduce the shares available for grant under the 2015 Plan.

         Awards.     The 2015 Plan provides for the grant of stock options, including incentive stock options, or ISOs, and nonqualified stock options, or NSOs, restricted stock, dividend equivalents, stock payments, restricted stock units, or RSUs, stock appreciation rights, or SARs, and other stock or cash based awards. Certain awards under the 2015 Plan may constitute or provide for a deferral of compensation, subject to Section 409A of the Code, which may impose additional requirements on the terms and conditions of such awards. All awards under the 2015 Plan will be set forth in award agreements, which will detail the terms and conditions of the awards, including any applicable vesting and payment terms and post-termination exercise limitations. Awards other than cash awards generally will be settled in shares of our common stock, but the plan administrator may provide for cash settlement of any award. A brief description of each award type follows.

    Stock Options.   Stock options provide for the purchase of shares of our common stock in the future at an exercise price set on the grant date. ISOs, by contrast to NSOs, may provide tax deferral beyond exercise and favorable capital gains tax treatment to their holders if certain holding period and other requirements of the Code are satisfied. The exercise price of a stock option generally will not be less than 100% of the fair market value of the underlying share on the date of grant (or 110% in the case of ISOs granted to certain significant stockholders), except with respect to certain substitute options granted in connection with a corporate transaction. The term of a stock option may not be longer than ten years (or five years in the case of ISOs granted to certain significant stockholders). Vesting conditions determined by the plan administrator may apply to stock options and may include continued service, performance and/or other conditions.

    SARs.   SARs entitle their holder, upon exercise, to receive from us an amount equal to the appreciation of the shares subject to the award between the grant date and the exercise date. The exercise price of a SAR will generally not be less than 100% of the fair market value of the underlying share on the date of grant (except with respect to certain substitute SARs granted in connection with a corporate transaction), and the term of a SAR may not be longer than ten years. Vesting conditions determined by the plan administrator may apply to SARs and may include continued service, performance and/or other conditions.

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    Restricted Stock and RSUs.   Restricted stock is an award of nontransferable shares of our common stock that remain forfeitable unless and until specified conditions are met and which may be subject to a purchase price. RSUs are contractual promises to deliver shares of our common stock in the future, which may also remain forfeitable unless and until specified conditions are met and may be accompanied by the right to receive the equivalent value of dividends paid on shares of our common stock prior to the delivery of the underlying shares. Delivery of the shares underlying RSUs may be deferred under the terms of the award or at the election of the participant, if the plan administrator permits such a deferral. Conditions applicable to restricted stock and RSUs may be based on continuing service, the attainment of performance goals and/or such other conditions as the plan administrator may determine.

    Other Stock or Cash Based Awards.   Other stock or cash based awards are awards of cash, fully vested shares of our common stock and other awards valued wholly or partially by referring to, or otherwise based on, shares of our common stock. Other stock or cash based awards may be granted to participants and may also be available as a payment form in the settlement of other awards, as standalone payments and as payment in lieu of base salary, bonus, fees or other cash compensation otherwise payable to any individual who is eligible to receive awards. The plan administrator will determine the terms and conditions of other stock or cash based awards, which may include vesting conditions based on continued service, performance and/or other conditions.

         Performance Awards.     Performance awards include any of the foregoing awards that are granted subject to vesting and/or payment based on the attainment of specified performance goals or other criteria the plan administrator may determine, which may or may not be objectively determinable. Performance criteria upon which performance goals are established by the plan administrator may include but are not limited to: net earnings or losses (either before or after one or more of interest, taxes, depreciation, amortization and non-cash equity-based compensation expense); gross or net sales or revenue or sales or revenue growth; net income (either before or after taxes) or adjusted net income; profits (including but not limited to gross profits, net profits, profit growth, net operation profit or economic profit), profit return ratios or operating margin, budget or operating earnings (either before or after taxes or before or after allocation of corporate overhead and bonus); cash flow (including operating cash flow and free cash flow or cash flow return on capital); return on assets; return on capital or invested capital; cost of capital; return on stockholders' equity; total stockholder return; return on sales; costs, reductions in costs and cost control measures; expenses; working capital; earnings or loss per share; adjusted earnings or loss per share; price per share or dividends per share (or appreciation in or maintenance of such price or dividends); regulatory achievements or compliance; implementation, completion or attainment of objectives relating to research, development, regulatory, commercial or strategic milestones or developments; market share; economic value or economic value added models; division, group or corporate financial goals; customer satisfaction/growth; customer service; employee satisfaction; recruitment and maintenance of personnel; human resources management; supervision of litigation and other legal matters; strategic partnerships and transactions; financial ratios (including those measuring liquidity, activity, profitability or leverage); debt levels or reductions; sales-related goals; financing and other capital raising transactions; cash on hand; acquisition activity; investment sourcing activity; and marketing initiatives, any of which may be measured in absolute terms or as compared to any incremental increase or decrease, peer group results or market performance indicators or indices.

         Certain Transactions.     In connection with certain transactions and events affecting our common stock, including a change in control, or change in any applicable laws or accounting principles, the plan administrator has broad discretion to take action under the 2015 Plan to prevent

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the dilution or enlargement of intended benefits, facilitate such transaction or event, or give effect to such change in applicable laws or accounting principles. This includes canceling awards, accelerating the vesting of awards, providing for the assumption or substitution of awards by a successor entity, adjusting the number and type of shares available and replacing or terminating awards under the 2015 Plan. In addition, in the event of certain non-reciprocal transactions with our stockholders, or an "equity restructuring," the plan administrator will make equitable adjustments to the 2015 Plan and outstanding awards as it deems appropriate to reflect the equity restructuring.

         Provisions of the 2015 Plan Relating to Director Compensation.     The 2015 Plan provides that the plan administrator may establish compensation for non-employee directors from time to time subject to the 2015 Plan's limitations. Prior to commencing this offering, our stockholders approved the initial terms of our non-employee director compensation program, which is described below under the heading "—Director Compensation." Our board of directors or its authorized committee may modify the non-employee director compensation program from time to time in the exercise of its business judgment, taking into account such factors, circumstances and considerations as it shall deem relevant from time to time, provided that the sum of any cash compensation or other compensation and the grant date fair value of any equity awards granted as compensation for services as a non-employee director during any fiscal year may not exceed $650,000. The plan administrator may make exceptions to this limit for individual non-employee directors in extraordinary circumstances, as the plan administrator may determine in its discretion, provided that the non-employee director receiving such additional compensation may not participate in the decision to award such compensation or in other compensation decisions involving non-employee directors.

         Plan Amendment and Termination.     Our board of directors may amend or terminate the 2015 Plan at any time; however, except in connection with certain changes in our capital structure, stockholder approval will be required for any amendment that increases the number of shares available under the 2015 Plan. The plan administrator will have the authority, without the approval of our stockholders, to amend any outstanding stock option or SAR to reduce its price per share. No award may be granted pursuant to the 2015 Plan after the tenth anniversary of the date on which our board of directors adopted the 2015 Plan.

         Foreign Participants, Claw-Back Provisions, Transferability and Participant Payments.     With respect to foreign participants, the plan administrator may modify award terms, establish subplans and/or adjust other terms and conditions of awards, subject to the share limits described above. All awards will be subject to the provisions of any claw-back policy implemented by our company to the extent set forth in such claw-back policy and/or in the applicable award agreement. With limited exceptions for estate planning, domestic relations orders, certain beneficiary designations and the laws of descent and distribution, awards under the 2015 Plan are generally non-transferable prior to vesting and are exercisable only by the participant. With regard to tax withholding obligations arising in connection with awards under the 2015 Plan, and exercise price obligations arising in connection with the exercise of stock options under the 2015 Plan, the plan administrator may, in its discretion, accept cash, wire transfer or check, shares of our common stock that meet specified conditions, a promissory note, a "market sell order," such other consideration as it deems suitable or any combination of the foregoing.

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    2015 Employee Stock Purchase Plan

         Effective the day prior to commencing this offering, our board of directors adopted and our stockholders approved a 2015 Employee Stock Purchase Plan, or the ESPP. The material terms of the ESPP, as it is currently contemplated, are summarized below.

         Shares Available; Administration.     A total of 364,407 shares of our common stock are initially reserved for issuance under our ESPP. In addition, the number of shares available for issuance under the ESPP will be annually increased on January 1 of each calendar year beginning in 2016 and ending in 2025, by an amount equal to the least of: (a) 93,617 shares, (b) 0.25% of the shares outstanding on the final day of the immediately preceding calendar year and (c) such smaller number of shares as is determined by our board of directors.

         Our board of directors or the compensation committee will have authority to interpret the terms of the ESPP and determine eligibility of participants. We expect that the compensation committee of our board of directors will be the initial administrator of the ESPP.

         Eligibility.     Our employees are eligible to participate in the ESPP if they are customarily employed by us or a participating subsidiary for more than 20 hours per week and more than five months in any calendar year. However, an employee may not be granted rights to purchase common stock under our ESPP if such employee, immediately after the grant, would own (directly or through attribution) stock possessing 5% or more of the total combined voting power or value of all classes of our common or other class of stock.

         Grant of Rights.     The ESPP is intended to qualify under Section 423 of the Code and stock will be offered under the ESPP during offering periods. The length of the offering periods under the ESPP will be determined by the plan administrator and may be up to 27 months long. Employee payroll deductions will be used to purchase shares on each purchase date during an offering period. The purchase dates for each offering period will be the final trading day in each offering period. Offering periods under the ESPP will commence when determined by the plan administrator. The plan administrator may, in its discretion, modify the terms of future offering periods.

         The ESPP permits participants to purchase common stock through payroll deductions of up to 25% of their eligible compensation, which includes a participant's gross base compensation for services to us, including overtime payments, and excluding sales commissions, incentive compensation, bonuses, expense reimbursements, fringe benefits and other special payments. The plan administrator will establish a maximum number of shares that may be purchased by a participant during any offering period, which, in the absence of a contrary designation, will be 25,000 shares. In addition, no employee will be permitted to accrue the right to purchase stock under the ESPP at a rate in excess of $25,000 worth of shares during any calendar year during which such a purchase right is outstanding (based on the fair market value per share of our common stock as of the first day of the offering period).

         On the first trading day of each offering period, each participant will automatically be granted an option to purchase shares of our common stock. The option will expire at the end of the applicable offering period, and will be exercised at that time to the extent of the payroll deductions accumulated during the offering period. Unless the plan administrator otherwise determines, the purchase price of the shares will be 85% of the lower of the fair market value of our common stock on the first trading day of the offering period or on the purchase date, which will be the final trading day of the offering period. Participants may voluntarily end their participation in the ESPP at any time at least one week prior to the end of the applicable offering period, and will be paid their accrued payroll deductions that have not yet been used to purchase shares of common stock. Participation ends automatically upon a participant's termination of employment.

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         A participant may not transfer rights granted under the ESPP other than by will, the laws of descent and distribution or as otherwise provided under the ESPP.

         Certain Transactions.     In the event of certain transactions or events affecting our common stock, such as any stock dividend or other distribution, change in control, reorganization, merger, consolidation or other corporate transaction, the plan administrator will make equitable adjustments to the ESPP and outstanding rights. In addition, in the event of the foregoing transactions or events or certain significant transactions, including a change in control, the plan administrator may provide for (1) either the replacement of outstanding rights with other rights or property or termination of outstanding rights in exchange for cash, (2) the assumption or substitution of outstanding rights by the successor or survivor corporation or parent or subsidiary thereof, if any, (3) the adjustment in the number and type of shares of stock subject to outstanding rights, (4) the use of participants' accumulated payroll deductions to purchase stock on a new purchase date prior to the next scheduled purchase date and termination of any rights under ongoing offering periods or (5) the termination of all outstanding rights.

         Plan Amendment.     The plan administrator may amend, suspend or terminate the ESPP at any time. However, stockholder approval of any amendment to the ESPP will be obtained for any amendment which increases the aggregate number or changes the type of shares that may be sold pursuant to rights under the ESPP, changes the corporations or classes of corporations whose employees are eligible to participate in the ESPP or changes the ESPP in any manner that would cause the ESPP to no longer be an employee stock purchase plan within the meaning of Section 423(b) of the Code.

    Prior Plan

         Our board of directors and stockholders have approved the Prior Plan, under which we may grant stock options and restricted stock awards to employees, directors and consultants or other service providers of our company or its affiliates. We have reserved a total of 5,586,591 shares of our common stock for issuance under the Prior Plan.

         Following the effectiveness of the 2015 Plan, we will not make any further grants under the Prior Plan. However, the Prior Plan will continue to govern the terms and conditions of the outstanding awards granted under it. Shares of our common stock subject to awards granted under the Prior Plan that are forfeited, lapse unexercised or are settled in cash and which following the effective date of the 2015 Plan are not issued under the Prior Plan will be available for issuance under the 2015 Plan.

         Administration.     Our board of directors administers the Prior Plan and has the authority to issue awards under the Prior Plan, to interpret the Prior Plan and awards outstanding thereunder, to select the employees, directors, consultants and other service providers who will participate in the Prior Plan, to determine the size and type of awards under the Prior Plan, to prescribe, amend and waive rules and regulations relating to the Prior Plan, to determine the terms and provisions of award agreements under the Prior Plan, to amend the terms and conditions of any outstanding award (as provided in and subject to the Prior Plan) and to make all other determinations in the judgment of our board of directors that are necessary and desirable for the administration of the Prior Plan. Our board of directors may delegate its authority under the Prior Plan to a committee. Following the effectiveness of this offering, we anticipate that our board of directors will delegate its general administrative authority under the Prior Plan to its compensation committee.

         Types of Awards.     The Prior Plan provides for the grant of non-qualified and incentive stock options to employees, directors and consultants or other service providers of the company or its affiliates, except that stock options intended to qualify as incentive stock options under the Code

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may only be granted to employees. As of the date of this prospectus, stock option awards are outstanding under the Prior Plan.

         Certain Transactions.     In the event of any change in corporate capitalization, such as a stock split, or a corporate transaction, such as any merger, consolidation, separation, including a spin-off, or other distribution of stock or property of the company, any reorganization or any partial or complete liquidation of the company, the number and class of shares that may be delivered under the Prior Plan and the number and class of and/or price of shares subject to outstanding awards granted under the Prior Plan, may be adjusted as determined to be appropriate by our board of directors, in its sole discretion, to prevent dilution or enlargement of rights.

         Amendment and Termination.     Our board of directors may terminate, suspend, alter or amend the Prior Plan from time to time, provided that no termination, amendment or modification may adversely affect in any material way an outstanding award without the holder's written consent.

Director Compensation

         We have not historically paid our non-employee directors for their service on our board of directors. Mr. Gorevic, our Chief Executive Officer, also serves on our board of directors but receives no additional compensation for this service.

         In February 2014, we began paying Mr. Snow cash fees in the amount of $10,000 per calendar quarter as compensation for his service on our board of directors. In September 2014, we began paying Senator Frist cash fees in the amount of $10,000 per calendar quarter as compensation for his service on our board of directors. We also granted stock options to Mr. Snow and Senator Frist as compensation during 2014. The terms of these awards are described below.

         No other non-employee director received compensation for service on our board of directors in 2014.

         Effective upon the effectiveness of the registration statement of which this prospectus forms a part, our board of directors granted each of Messrs. Felsenthal, Mawhinney, McKinley, Mead, Multani and Outland an option to purchase 18,374 shares of our common stock at an exercise price per share equal to the public offering price of our common stock in this offering. These options will vest in three substantially equal annual installments following the date of grant, subject to the director's continued service as a non-employee director through the applicable vesting date. Vesting of the options will accelerate in full immediately prior to a change in control or if the director serves the remainder of his term as a director during which the options are granted and either voluntarily elects not to stand for reelection or elects to stand for reelection and is not reelected by stockholders, in each case, at the first annual meeting of stockholders that occurs on or after the end of such term.

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2014 Director Compensation Table

Name
  Fees Earned or
Paid in Cash
($)
  Option
Awards
($)(3)
  All Other
Compensation
($)
  Total
($)
 

David B. Snow, Jr. 

    33,333     237,065         270,398  

William H. Frist, M.D. 

    13,333     294,737         308,070  

Martin R. Felsenthal

                 

Thomas Mawhinney

                 

Thomas G. McKinley

                 

Dana G. Mead, Jr. 

                 

Arneek Multani

                 

James Outland

                 

John Reardon(1)

                 

Sam Havens(2)

            90,593     90,593  

(1)
Mr. Reardon resigned from our board of directors effective February 27, 2014.

(2)
Mr. Havens resigned from our board of directors effective September 10, 2014. The amount shown represents consulting fees paid to Mr. Havens in 2014 under the terms of his consulting agreement with the Company.

(3)
Represents the aggregate grant date fair value of stock options granted during 2014 computed in accordance with ASC Topic 718, excluding the effect of estimated forfeitures. For a description of the assumptions used in valuing these awards, see Note 13 to our audited consolidated financial statements included elsewhere in this prospectus. The table below shows the aggregate number of option awards (exercisable and unexercisable) held by each non-employee director as of December 31, 2014. None of our non-employee directors held stock awards as of that date.

Name
  Options Outstanding at
Fiscal Year End
 

David B. Snow, Jr. 

    101,929 (a)

William H. Frist, M.D. 

    87,930 (b)

Martin R. Felsenthal

     

Thomas Mawhinney

     

Thomas G. McKinley

     

Dana G. Mead, Jr. 

     

Arneek Multani

     

James Outland

     

John Reardon

     

Sam Havens

     

(a)
In 2014, we granted Mr. Snow an option to purchase 61,245 shares of our common stock for an exercise price per share of $2.95 and an additional option to purchase 40,684 shares of our common stock for an exercise price per share of $6.01. These options vest as to 25% of the underlying shares on September 10, 2015 and in equal monthly installments over the following 36 months, subject to Mr. Snow's continued service and accelerated vesting in connection with a change in control. In addition, in connection with this offering, 50% of the unvested options will become vested.

(b)
In 2014, Senator Frist received and option to purchase 87,930 shares of our common stock for an exercise price per share of $6.01. The option vests as to 25% of the underlying shares on

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    September 10, 2015 and in equal monthly installments over the following 36 months, subject to Senator Frist's continued service and accelerated vesting in connection with a change in control. In addition, in connection with this offering, 50% of the unvested options will become vested.

             In connection with this offering, we expect to implement a compensation program for our non-employee directors under which each non-employee director will receive the following amounts for their services on our board of directors:

    an option to purchase 18,374 shares of our common stock upon the director's initial election or appointment to our board of directors that occurs after our initial public offering;

    if the director has served on our board of directors for at least six months as of the date of an annual meeting of stockholders, an option to purchase 12,249 shares of our common stock on the date of the annual meeting;

    an annual director fee of $40,000;

    an additional annual fee of $20,000 for service as Chairman of the Board; and

    if the director serves on a committee of our board of directors, an additional annual fee as follows:

    chairman of the audit committee, $20,000;

    audit committee member other than the chairman, $10,000;

    chairman of the compensation committee, $10,000;

    compensation committee member other than the chairman, $5,000;

    chairman of the nominating and corporate governance committee, $7,500;

    nominating and corporate governance committee member other than the chairman, $3,000;

    chairman of the quality assurance and regulatory compliance committee, $10,000; and

    quality assurance and regulatory compliance committee member other than the chairman, $5,000.

         Stock options granted to our non-employee directors under the program will have an exercise price equal to the fair market value of our common stock on the date of grant and will expire not later than ten years after the date of grant. The stock options granted upon a director's initial election or appointment will vest in three substantially equal annual installments following the date of grant. The stock options granted annually to directors will vest in a single installment on the earlier of the day before the next annual meeting of stockholders or the first anniversary of the date of grant. In addition, all unvested stock options will vest in full upon the occurrence of a change in control.

         Director fees under the program will be payable in arrears in four equal quarterly installments not later than the 15th day following the final day of each fiscal quarter, provided that the amount of each payment will be prorated for any portion of a quarter that a director is not serving on our board of directors and no fee will be payable in respect of any period prior to the effective date of the registration statement of which this prospectus is a part.

         Each member of our board of directors is entitled to be reimbursed for reasonable travel and other expenses incurred in connection with attending meetings of our board of directors and any committee of our board of directors on which he or she serves.

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CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

         The following includes a summary of transactions since January 1, 2012 to which we have been a party, in which the amount involved exceeded or will exceed $120,000 and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which are described under "Executive and Director Compensation." We also describe below certain other transactions with our directors, executive officers and stockholders.

Preferred Stock Financing

         On September 9, 2014 we sold to investors in private placements an aggregate of 11,329,068 shares of our Series F preferred stock at a purchase price of $4.4355 per share, for aggregate consideration of $50.3 million.

         On August 28, 2013 we sold to investors in private placements an aggregate of 6,227,169 shares of our Series E preferred stock at a purchase price of $2.4088 per share, for aggregate consideration of $15.0 million.

         The following table sets forth the aggregate number of shares of preferred stock acquired by the listed holders of more than 5% of our capital stock. Each share of our preferred stock identified in the following table will convert into 0.4375 shares of common stock immediately prior to the closing of this offering.

Participants
  Series F
Preferred Stock
  Series E
Preferred Stock
 

5% or greater stockholders (1)

             

Entities affiliated with Icon Ventures

    4,509,076      

CHP III, L.P. 

    980,568     2,490,867  

HLM Venture Partners II, L.P. 

    980,568     2,490,867  

KPCB Holdings, Inc., as nominee

    662,565      

Entities affiliated with Trident Capital

    584,381     999,113  

(1)
For additional details regarding these stockholders, their equity holdings in our Company and their affiliates, see the footnotes to the table under the heading "Principal Stockholders" elsewhere in this prospectus.

Investors' Rights Agreement

         We have entered into our Fifth Amended and Restated Investors' Rights Agreement, dated as of September 10, 2014, as amended by the First Amendment to the Fifth Amended and Restated Investors' Rights Agreement, dated as of February 9, 2015 or, collectively, our investors' rights agreement, with certain holders of our convertible preferred stock, including entities with which certain of our directors are affiliated. These stockholders are entitled to rights with respect to the registration of their shares following this offering under the Securities Act of 1933, as amended, or the Securities Act. For a description of these registration rights, see "Description of Capital Stock—Registration Rights."

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Employment Agreements

         In connection with this offering, we intend to enter into new employment agreements with our named executive officers. For more information regarding these agreements, see "Executive and Director Compensation—Employment Arrangements."

Indemnification Agreements

         We intend to enter into indemnification agreements with each of our directors and executive officers. These agreements, among other things, require us or will require us to indemnify each director (and in certain cases their related venture capital funds) and executive officer to the fullest extent permitted by Delaware law, including indemnification of expenses such as attorneys' fees, judgments, fines and settlement amounts incurred by the director or executive officer in any action or proceeding, including any action or proceeding by or in right of us, arising out of the person's services as a director or executive officer, as applicable. For further information, see "Description of Capital Stock—Limitations on Liability and Indemnification of Officers and Directors."

Stock Option Grants to Executive Officers and Directors

         We have granted stock options to our executive officers and certain of our directors as more fully described in the section entitled "Executive and Director Compensation."

Employee Loan

         In May 2013, we loaned Jason Gorevic, our Chief Executive Officer, $0.3 million in connection with his exercise of options to purchase 312,474 shares of our common stock, or the Exercise Shares. The loan was evidenced by a full recourse promissory note, accruing interest on the outstanding principal amount at a rate of 2% per annum, and was secured by a pledge of the Exercise Shares. The entire principal amount and all accrued and unpaid interest of the loan was repaid in full in February 2015. See Note 10 to our audited consolidated financial statements and Note 9 to our unaudited consolidated financial statements, each included elsewhere in this prospectus.

Policies and Procedures for Related Person Transactions

         Our board of directors will adopt a written related person transaction policy, to be effective upon the closing of this offering, setting forth the policies and procedures for the review and approval or ratification of related person transactions. This policy will cover, with certain exceptions set forth in Item 404 of Regulation S-K under the Securities Act, any transaction, arrangement or relationship or any series of similar transactions, arrangements or relationships, in which we were or are to be a participant, where the amount involved exceeds $120,000 in any fiscal year and a related person had, has or will have a direct or indirect material interest, including, without limitation, purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness and employment by us of a related person. In reviewing and approving any such transactions, our board of directors is tasked to consider all relevant facts and circumstances, including, but not limited to, whether the transaction is on terms comparable to those that could be obtained in an arm's length transaction and the extent of the related person's interest in the transaction. Any member of our board of directors who is a related person with respect to a transaction under review will not be permitted to participate in the discussions or approval or ratification of the transaction. However, such member of our board of directors will provide all material information concerning the transaction to our board of directors. All of the transactions described in this section occurred prior to the adoption of this policy.

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PRINCIPAL STOCKHOLDERS

         The following table sets forth information with respect to the beneficial ownership of our common stock, as of June 17, 2015 by:

         The number of shares beneficially owned by each stockholder is determined under rules issued by the SEC. Under these rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting power or investment power. Applicable percentage ownership prior to this offering is based on 28,796,346 shares of our common stock outstanding as of June 17, 2015, assuming the conversion of all outstanding shares of preferred stock into common stock, which will automatically occur immediately prior to the closing of this offering. As of June 17, 2015, our preferred stock was convertible into 25,450,441 shares of our common stock. Percentage ownership after this offering is based on 35,796,346 shares, which further reflects the 7,000,000 shares in this offering. In computing the number of shares beneficially owned by an individual or entity and the percentage ownership of that person, shares of common stock subject to options or other rights held by such person that are currently exercisable or will become exercisable within 60 days of June 17, 2015 are considered outstanding, although these shares are not considered outstanding for purposes of computing the percentage ownership of any other person. Unless noted otherwise, the address of all listed stockholders is c/o 2 Manhattanville Road, Suite 203, Purchase, New York 10577. Each of the stockholders listed has sole voting and investment power with respect to the shares beneficially owned by the stockholder unless noted otherwise, subject to community property laws where applicable.

 
  Shares beneficially
owned prior to the
offering
  Shares beneficially
owned after the
offering
 
Name of beneficial owner
  Number   Percent   Number   Percent  

5% stockholders

                         

CHP III, L.P.(1)

    4,980,468     17.3 %   4,980,468     13.9 %

HLM Venture Partners II, L.P.(2)

    4,980,468     17.3     4,980,468     13.9  

Entities affiliated with Trident Capital(3)

    4,852,225     16.9     4,852,225     13.6  

KPCB Holdings, Inc., as nominee(4)

    3,337,086     11.6     3,337,086     9.3  

Entities affiliated with Icon Ventures(5)

    1,972,560     6.9     1,972,560     5.5  

Named executive officers and directors

                         

Jason Gorevic(6)

    1,172,589     4.0     1,172,589     3.3  

Mark Hirschhorn(7)

    247,429     *     247,429     *  

Michael King(8)

    206,530     *     206,530     *  

Martin R. Felsenthal

                 

William H. Frist, M.D. 

                 

Michael Goldstein

                 

Thomas Mawhinney

                 

Thomas G. McKinley

                 

Dana G. Mead, Jr. 

                 

Arneek Multani

                 

James Outland(9)

    897     *     897     *  

David B. Snow, Jr.(10)

    36,100     *     36,100     *  

All executive officers and directors as a group (13 persons)(11)

    1,663,545     5.5     1,663,545     4.4  

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*
Denotes less than 1.0% of beneficial ownership.

(1)
Includes 4,980,468 shares of common stock issuable upon conversion of preferred stock held by CHP III, L.P. John K. Clarke, Brandon H. Hull and John J. Park are the managing members of CHP III Management, LLC, the General Partner of CHP III, L.P., and exercise shared voting, investment and dispositive rights with respect to the shares of stock held by CHP III, L.P. Each of Messrs. Clarke, Hull and Park disclaims beneficial ownership of the shares identified in this footnote except as to his respective proportionate pecuniary interest in such shares. The address for all entities and individuals affiliated with CHP III, L.P. is 230 Nassau Street, Princeton, NJ 08542.

(2)
Includes 4,980,468 shares of common stock issuable upon conversion of preferred stock held by HLM Venture Partners II, L.P. HLM Venture Associates II, L.L.C. is the general partner of HLM Venture Partners II, L.P. Edward L. Cahill and Peter J. Grua are the managing members of HLM Venture Associates II, L.L.C. and exercise shared voting, investment and dispositive rights with respect to the shares of stock held by HLM Venture Partners II, L.P. Each of Messrs. Cahill and Grua may be deemed a beneficial owner of the reported shares but each disclaims beneficial ownership of the shares identified in this footnote except to the extent of any indirect pecuniary interest therein. The address for all entities and individuals affiliated with HLM Venture Partners II, L.P. is c/o HLM Venture Partners, 222 Berkeley Street, Boston, MA 02116.

(3)
Includes 52,221 shares of common stock and 4,618,841 shares of common stock issuable upon conversion of preferred stock held by Trident Capital Fund-VI, L.P., or Trident Fund VI, and 2,205 shares of common stock and 179,139 shares of common stock issuable upon conversion of preferred stock held by Trident Capital Fund-VI Principals Fund, LLC, or Trident Principals VI. Trident Capital Management-VI, L.L.C., or TCM-VI, is the sole general partner of Trident Fund VI and the sole managing member of Trident Principals VI. Donald R. Dixon, Arneek Multani and John Moragne are the managing members of TCM-VI and exercise shared voting, investment and dispositive rights with respect to the shares of stock held by each of Trident Fund VI and Trident Principals VI. Each of Donald R. Dixon, Arneek Multani and John Moragne may be deemed a beneficial owner of the reported shares but disclaims beneficial ownership of the shares identified in this footnote except as to his respective proportionate pecuniary interest in such shares. The address for all entities and individuals affiliated with TCM-VI is c/o Trident Capital, Inc., 505 Hamilton Avenue, Suite 200, Palo Alto, CA 94301.

(4)
Represents 3,337,086 shares held by KPCB Holdings, Inc., as nominee. The shares are held in the name of "KPCB Holdings, Inc., as nominee" for the account of KPCB Digital Growth Fund, LLC and KPCB DGF Founders Fund, LLC (collectively, the Funds). John Doerr, Ted Schlein, Brook Byers, Bing Gordon and Mary Meeker are managing members of KPCB DGF Associates, LLC, the managing member of the Funds and, therefore, may be deemed to share voting and investment power over the shares held by the Funds

(5)
Reflects 493,140, 493,140 and 986,280 shares of common stock issuable upon conversion of preferred stock held by Icon Ventures II, L.P., or Icon II, Icon Ventures IV, L.P., or Icon IV, and Icon Ventures V, L.P., or Icon V, respectively. Joseph Horowitz and Thomas Mawhinney are the managing members of Icon Management Associates II, LLC, or MA II, the general partner of Icon II, and Joseph Horowitz, Thomas Mawhinney and Jeb Miller are the managing members of Icon Management Associates IV, LLC , or MA IV, and Icon Management Associates V, LLC, or MA V, the general partner of Icon IV and Icon V, respectively The managing members of MA II, MA, IV and MA V may be deemed to share voting and investment power with respect to the shares of stock held by each of Icon II, Icon IV and Icon IV. Mr. Mawhinney owns no securities of our company directly. The address for each of these entities is 505 Hamilton Avenue, Suite 310, Palo Alto, CA 94301.

(6)
Includes 921,465 shares of common stock, 5,793 shares of common stock issuable upon conversion of preferred stock and 245,331 shares of common stock issuable upon exercise of outstanding stock options exercisable within 60 days of June 17, 2015.

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(7)
Includes 228,002 shares of common stock, 7,865 shares of common stock issuable upon conversion of preferred stock and 11,562 shares of common stock issuable upon exercise of outstanding stock options exercisable within 60 days of June 17, 2015.

(8)
Includes 144,875 shares of common stock, 4,194 shares of common stock issuable upon conversion of preferred stock and 57,461 shares of common stock issuable upon exercise of outstanding stock options exercisable within 60 days of June 17, 2015.

(9)
Includes 897 shares of common stock issuable upon exercise of outstanding stock options exercisable within 60 days of June 17, 2015.

(10)
Includes 36,100 shares of common stock issuable upon exercise of outstanding stock options exercisable within 60 days of June 17, 2015.

(11)
Includes 1,294,342 shares of common stock, 17,851 shares of common stock issuable upon conversion of preferred stock and 1,663,544 shares of common stock issuable upon exercise of outstanding stock options exercisable within 60 days of June 17, 2015.

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DESCRIPTION OF CAPITAL STOCK

General

         The following description summarizes some of the terms of our common stock, amended and restated certificate of incorporation and amended and restated bylaws that will become effective upon the closing of this offering, the investors' rights agreement and of the DGCL. Because it is only a summary, it does not contain all the information that may be important to you. For a complete description, you should refer to our amended and restated certificate of incorporation, amended and restated bylaws and the investors' rights agreement, copies of which have been or will be filed as exhibits to the registration statement of which this prospectus forms a part, as well as the relevant provisions of the DGCL. The description of our common stock and preferred stock reflects changes to our capital structure that will occur upon the closing of this offering.

         Following the closing of this offering, our authorized capital stock will consist of 75,000,000 shares of common stock, par value $0.001 per share, and 1,000,000 shares of preferred stock, par value $0.001 per share.

         As of June 17, 2015, we had 28,796,346 shares of our common stock outstanding held of record by approximately 200 holders and 50,452,939 shares of our preferred stock convertible into 25,450,441 shares of our common stock as of such date. Pursuant to our amended and restated certificate of incorporation, all of our outstanding shares of preferred stock will automatically be converted into 25,450,441 shares of our common stock immediately prior to the closing of this offering.

Common Stock

         Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. An election of directors by our stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote on the election. Subject to the supermajority votes for some matters, other matters shall be decided by the affirmative vote of our stockholders having a majority in voting power of the votes cast by the stockholders present or represented and voting on such matter. Our amended and restated certificate of incorporation and amended and restated bylaws also provide that our directors may be removed only for cause and only by the affirmative vote of the holders of at least two-thirds in voting power of the outstanding shares of capital stock entitled to vote thereon. In addition, the affirmative vote of the holders of at least two-thirds in voting power of the outstanding shares of capital stock entitled to vote thereon is required to amend or repeal, or to adopt any provision inconsistent with, several of the provisions of our amended and restated certificate of incorporation. See below under "—Anti-takeover Effects of Delaware Law and Our Certificate of Incorporation and Bylaws—Amendment of Charter Provisions." Holders of our common stock are entitled to receive proportionately any dividends as may be declared by our board of directors, subject to any preferential dividend rights of any series of preferred stock that we may designate and issue in the future.

         In the event of our liquidation or dissolution, the holders of our common stock are entitled to receive proportionately our net assets available for distribution to stockholders after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of our common stock have no preemptive, subscription, redemption or conversion rights. Our outstanding shares of common stock are, and the shares offered by us in this offering will be, when issued and paid for, validly issued, fully paid and nonassessable. The rights, preferences and privileges of holders of our common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.

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Warrants

         As of June 17, 2015, we had outstanding two warrants to purchase an aggregate of 131,239 shares of our common stock at an exercise price of $2.95 per share. The warrants have a ten-year term. See Note 13 to our unaudited consolidated financial statements included elsewhere in this prospectus.

Preferred Stock

         Under the terms of our amended and restated certificate of incorporation that will become effective upon the closing of this offering, our board of directors is authorized to direct us to issue shares of preferred stock in one or more series without stockholder approval. Our board of directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock.

         The purpose of authorizing our board of directors to issue preferred stock and determine its rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions, future financings and other corporate purposes, could have the effect of making it more difficult for a third-party to acquire, or could discourage a third-party from seeking to acquire, a majority of our outstanding voting stock. Upon the closing of this offering, there will be no shares of preferred stock outstanding and we have no present plans to issue any shares of preferred stock.

Options

         As of June 17, 2015, our outstanding options to purchase common stock consisted of options to purchase 3,733,279 shares of our common stock.

Registration Rights

         Upon the closing of this offering, pursuant to the investors' rights agreement, holders of approximately 28,796,346 shares of our common stock or their transferees will be entitled to the following rights with respect to the registration of such shares for public resale under the Securities Act. If exercised, these registration rights would enable holders to transfer these shares without restriction under the Securities Act when the applicable registration statement is declared effective.

         Subject to the 180-day lock-up restrictions described elsewhere in this prospectus, following the closing of this offering, holders of a majority of our common stock issued upon the conversion of our preferred stock, may request in writing that we effect a resale registration under the Securities Act with respect to all or part of our common stock held by them, subject to certain exceptions. If the holders requesting registration intend to distribute their shares by means of an underwriting, the managing underwriter of such offering will have the right to limit the numbers of shares to be underwritten for reasons related to the marketing of the shares.

    Piggyback Registration Rights

         Under the investors' rights agreement, at any time after this offering we propose to register any of our stock or other securities under the Securities Act, subject to certain exceptions, the holders of registrable securities will be entitled to notice of the registration and to include their shares of registrable securities in the registration. If our proposed registered offering is an underwritten offering, the managing underwriter of such offering will have the right to limit the number of shares to be underwritten for reasons related to the marketing of the shares.

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    Form S-3 Registration Rights

         If, at any time after we become entitled under the Securities Act to register our shares on a registration statement on Form S-3, the holders of at least 20% of the registrable securities underlying our preferred stock may request that we file a resale registration statement on Form S-3 with respect to their registrable securities provided the aggregate price to the public in the offering would be at least $5.0 million.

    Expenses

         Ordinarily, other than underwriting discounts and commissions, we will be required to pay all expenses incurred by us related to any registration effected pursuant to the exercise of these registration rights. These expenses may include all registration and filing fees, printing expenses, fees and disbursements of our counsel, reasonable fees and disbursements of a counsel for the selling security holders and blue sky fees and expenses.

    Termination of Registration Rights

         The registration rights will continue for five years following the completion of this offering, or for any particular stockholder holding registrable securities, the earlier of the time the stockholder can sell all of its registrable securities in compliance with Rule 144 under the Securities Act in a 90-day period.

Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and Bylaws

         Some provisions of Delaware law, our amended and restated certificate of incorporation and our amended and restated bylaws could make the following transactions more difficult: an acquisition of us by means of a tender offer; an acquisition of us by means of a proxy contest or otherwise or the removal of our incumbent officers and directors. It is possible that these provisions could make it more difficult to accomplish or could deter transactions that stockholders may otherwise consider to be in their best interest or in our best interests, including transactions which provide for payment of a premium over the market price for our shares.

         These provisions, summarized below, are intended to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of the increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging these proposals because negotiation of these proposals could result in an improvement of their terms.

    Undesignated Preferred Stock

         The ability of our board of directors, without action by the stockholders, to issue up to             shares of undesignated preferred stock with voting or other rights or preferences as designated by our board of directors could impede the success of any attempt to change control of us. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of our company.

    Stockholder Meetings

         Our amended and restated bylaws provide that a special meeting of stockholders may be called only by our chairman of the board, chief executive officer or president (in the absence of a chief executive officer), or by a resolution adopted by a majority of our directors.

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    Requirements for Advance Notification of Stockholder Nominations and Proposals

         Our amended and restated bylaws establish advance notice procedures with respect to stockholder proposals to be brought before a stockholder meeting and the nomination of candidates for election as directors, other than nominations made by or at the direction of our board of directors or a committee of our board of directors.

    Elimination of Stockholder Action by Written Consent

         Our amended and restated certificate of incorporation eliminates the right of stockholders to act by written consent without a meeting.

    Staggered Board

         Our board of directors is divided into three classes. The directors in each class will serve for a three-year term, one class of directors being elected each year by our stockholders. For more information on the classified board, see "Management—Board Composition and Election of Directors." This system of electing and removing directors may tend to discourage a third-party from making a tender offer or otherwise attempting to obtain control of us, because it generally makes it more difficult for stockholders to replace a majority of the directors.

    Removal of Directors

         Our amended and restated certificate of incorporation provides that no member of our board of directors may be removed from office by our stockholders except for cause and, in addition to any other vote required by law, upon the approval of the holders of at least two-thirds in voting power of the outstanding shares of stock entitled to vote in the election of directors.

    Stockholders not Entitled to Cumulative Voting

         Our amended and restated certificate of incorporation does not permit stockholders to cumulate their votes in the election of directors. Accordingly, the holders of a majority of the outstanding shares of stock entitled to vote in any election of directors can elect all of the directors standing for election, if they choose, other than any directors that holders of our preferred stock may be entitled to elect.

    Delaware Anti-Takeover Statute

         We are subject to Section 203 of the DGCL, which prohibits persons deemed to be "interested stockholders" from engaging in a "business combination" with a publicly held Delaware corporation for three years following the date these persons become interested stockholders unless the business combination is, or the transaction in which the person became an interested stockholder was, approved in a prescribed manner or another prescribed exception applies. Generally, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within three years prior to the determination of interested stockholder status did own, 15% or more of a corporation's voting stock. Generally, a "business combination" includes a merger, asset or stock sale or other transaction resulting in a financial benefit to the interested stockholder. The existence of this provision may have an anti-takeover effect with respect to transactions not approved in advance by our board of directors.

    Choice of Forum

         Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative form, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for: (1) any derivative action or proceeding brought on our behalf;

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(2) any action asserting a claim of breach of a fiduciary duty or other wrongdoing by any of our directors, officers, employees or agents to us or our stockholders; (3) any action asserting a claim against us arising pursuant to any provision of the DGCL or our amended and restated certificate of incorporation or amended and restated bylaws; (4) any action to interpret, apply, enforce or determine the validity of our amended and restated certificate of incorporation or amended and restated bylaws; or (5) any action asserting a claim governed by the internal affairs doctrine. Our amended and restated certificate of incorporation also provides that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of and to have consented to this choice of forum provision. It is possible that a court of law could rule that the choice of forum provision contained in our amended and restated certificate of incorporation is inapplicable or unenforceable if it is challenged in a proceeding or otherwise. This choice of forum provision has important consequences to our stockholders. See "Risk Factors—Risks Related to this Offering and Ownership of Our Common Stock—Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees."

    Amendment of Charter Provisions

         The amendment of any of the above provisions, except for the provision making it possible for our board of directors to issue preferred stock and the provision prohibiting cumulative voting, would require approval by holders of at least two-thirds in voting power of the outstanding shares of stock entitled to vote thereon.

         The provisions of Delaware law, our amended and restated certificate of incorporation and our amended and restated bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in the composition of our board and management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.

Limitations on Liability and Indemnification of Officers and Directors

         The DGCL authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors' fiduciary duties, subject to certain exceptions. Our amended and restated certificate of incorporation will include a provision that eliminates the personal liability of directors for monetary damages for any breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL. The effect of these provisions will be to eliminate the rights of us and our stockholders, through stockholders' derivative suits on our behalf, to recover monetary damages from a director for breach of fiduciary duty as a director, including breaches resulting from grossly negligent behavior. However, exculpation will not apply to any director if the director has acted in bad faith, knowingly or intentionally violated the law, authorized illegal dividends or redemptions or derived an improper benefit from his or her actions as a director.

         Our amended and restated bylaws will provide that we must indemnify and advance expenses to our directors and officers to the fullest extent authorized by the DGCL. We also will be expressly authorized to carry directors' and officers' liability insurance providing indemnification for our directors, officers and certain employees for some liabilities. We believe that these indemnification and advancement provisions and insurance will be useful to attract and retain qualified directors and officers.

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         The limitation of liability, indemnification and advancement provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. In addition, your investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.

         There is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought.

Transfer Agent and Registrar

         The transfer agent and registrar for our common stock will be American Stock Transfer & Trust Company, LLC.

Listing

         We have applied to have our common stock listed on the NYSE under the symbol "TDOC."

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SHARES ELIGIBLE FOR FUTURE SALE

         Immediately prior to this offering, there was no public market for our common stock. Future sales of substantial amounts of common stock in the public market, or the perception that such sales may occur, could adversely affect the market price of our common stock.

         Upon the closing of this offering, we will have outstanding an aggregate of 35,976,346 shares of common stock, assuming the issuance of 7,000,000 shares of common stock offered by us in this offering, the automatic conversion of all outstanding shares of our preferred stock into 25,450,441 shares of our common stock and no exercise of options after June 17, 2015. Of these shares, all shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except for any shares purchased by our "affiliates," as that term is defined in Rule 144 under the Securities Act, or Rule 144, whose sales would be subject to Rule 144 resale restrictions described below, other than the holding period requirement.

         The remaining 28,796,346 shares of common stock will be "restricted securities," as that term is defined in Rule 144 under the Securities Act. These restricted securities are eligible for public sale only if they are registered under the Securities Act or if they qualify for an exemption from registration under Rules 144 or 701 under the Securities Act, which are summarized below. We expect that substantially all of these shares will be subject to the 180-day lock-up period under the lock-up agreements described below. Upon expiration of the lock-up period, we estimate that approximately 28,796,346 shares will be available for sale in the public market, subject in some cases to applicable volume limitations under Rule 144.

         In addition, of the 3,733,279 shares of our common stock that were subject to stock options outstanding as of June 17, 2015, options to purchase 2,374,279 shares of common stock were vested as of June 17, 2015 and, upon exercise, these shares will be eligible for sale subject to the lock-up agreements described below and Rules 144 and 701 under the Securities Act.

Lock-Up Agreements

         In connection with this offering, we and each of our directors and executive officers and holders of substantially all of our outstanding capital stock, will agree that, without the prior written consent of the representatives of the underwriters, we and they will not, subject to limited exceptions, during the period ending 180 days after the date of this prospectus:

whether any transaction described above is to be settled by delivery of our common stock or such other securities, in cash or otherwise.

         Upon the expiration of the applicable lock-up periods, substantially all of the shares subject to such lock-up restrictions will become eligible for sale, subject to the limitations discussed above. For a further description of these lock-up agreements, please see "Underwriting."

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Rule 144

    Affiliate Resales of Restricted Securities

         In general, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, a person who is an affiliate of ours, or who was an affiliate at any time during the 90 days before a sale, who has beneficially owned shares of our common stock for at least six months would be entitled to sell in "broker's transactions" or certain "riskless principal transactions" or to market makers, a number of shares within any three-month period that does not exceed the greater of:

         Affiliate resales under Rule 144 are also subject to the availability of current public information about us. In addition, if the number of shares being sold under Rule 144 by an affiliate during any three-month period exceeds 5,000 shares or has an aggregate sale price in excess of $50,000, the seller must file a notice on Form 144 with the SEC and the NYSE concurrently with either the placing of a sale order with the broker or the execution directly with a market maker.

    Non-Affiliate Resales of Restricted Securities

         In general, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, a person who is not an affiliate of ours at the time of sale, and has not been an affiliate at any time during the three months preceding a sale, and who has beneficially owned shares of our common stock for at least six months but less than a year, is entitled to sell such shares subject only to the availability of current public information about us. If such person has held our shares for at least one year, such person can resell under Rule 144(b)(1) without regard to any Rule 144 restrictions, including the 90-day public company requirement and the current public information requirement.

         Non-affiliate resales are not subject to the manner of sale, volume limitation or notice filing provisions of Rule 144.

Rule 701

         In general, under Rule 701 under the Securities Act, or Rule 701, any of an issuer's employees, directors, officers, consultants or advisors who purchases shares from the issuer in connection with a compensatory stock or option plan or other written agreement before the effective date of a registration statement under the Securities Act is entitled to sell such shares 90 days after such effective date in reliance on Rule 144. An affiliate of the issuer can resell shares in reliance on Rule 144 without having to comply with the holding period requirement and non-affiliates of the issuer can resell shares in reliance on Rule 144 without having to comply with the current public information and holding period requirements.

         The SEC has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Exchange Act, along with the shares acquired upon exercise of such options, including exercises after an issuer becomes subject to the reporting requirements of the Exchange Act.

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Equity Plans

         We intend to file one or more registration statements on Form S-8 under the Securities Act to register all shares of common stock subject to outstanding stock options and common stock issued or issuable under our stock plans. We expect to file the registration statement covering shares offered pursuant to our stock plans shortly after the date of this prospectus, permitting the resale of such shares by nonaffiliates in the public market without restriction under the Securities Act and the sale by affiliates in the public market, subject to compliance with the resale provisions of Rule 144.

Registration Rights

         Upon the closing of this offering, the holders of approximately 28,796,346 shares of common stock, which includes all of the shares of common stock issuable upon the automatic conversion of our preferred stock upon the closing of this offering, or their transferees will be entitled to various rights with respect to the registration of these shares under the Securities Act. Registration of these shares under the Securities Act would result in these shares becoming fully tradable without restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates. See "Description of Capital Stock—Registration Rights" for additional information. Shares covered by a registration statement will be eligible for sale in the public market upon the expiration or release from the terms of any lock-up agreements.

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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS

         The following discussion is a summary of the material U.S. federal income tax consequences to Non-U.S. Holders (as defined below) of the purchase, ownership and disposition of our common stock issued pursuant to this offering, but does not purport to be a complete analysis of all potential tax effects. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local or non-U.S. tax laws are not discussed. This discussion is based on the Code, Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the U.S. Internal Revenue Service, or the IRS, in each case in effect as of the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a Non-U.S. Holder of our common stock. We have not sought and will not seek any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take a contrary position to that discussed below regarding the tax consequences of the purchase, ownership and disposition of our common stock.

         This discussion is limited to Non-U.S. Holders that hold our common stock as a "capital asset" within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax consequences relevant to a Non-U.S. Holder's particular circumstances, including the impact of the Medicare contribution tax on net investment income. In addition, it does not address consequences relevant to Non-U.S. Holders subject to special rules, including, without limitation:

         If an entity treated as a partnership for U.S. federal income tax purposes holds our common stock, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding our common stock and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.

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          THIS DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TAX ADVICE. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.

Definition of a Non-U.S. Holder

         For purposes of this discussion, a "Non-U.S. Holder" is any beneficial owner of our common stock that is neither a "U.S. person" nor an entity treated as a partnership for U.S. federal income tax purposes. A U.S. person is any person that, for U.S. federal income tax purposes, is or is treated as any of the following:

Distributions

         As described in the section entitled "Dividend Policy," we do not anticipate declaring or paying dividends to holders of our common stock in the foreseeable future. However, if we do make distributions of cash or property on our common stock, such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Amounts not treated as dividends for U.S. federal income tax purposes will constitute a return of capital and first be applied against and reduce a Non-U.S. Holder's adjusted tax basis in its common stock, but not below zero. Any excess will be treated as capital gain and will be treated as described below under "—Sale or Other Taxable Disposition."

         Subject to the discussion below on effectively connected income, backup withholding and FATCA (as defined below), dividends paid to a Non-U.S. Holder of our common stock will be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of the dividends (or such lower rate specified by an applicable income tax treaty, provided the Non-U.S. Holder furnishes a valid IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable (or other applicable documentation), certifying qualification for the lower treaty rate). If a Non-U.S. Holder holds the stock through a financial institution or other intermediary, the Non-U.S. Holder will be required to provide appropriate documentation to the intermediary, which then will be required to provide certification to the applicable withholding agent, either directly or through other intermediaries. A Non-U.S. Holder that does not timely furnish the required documentation, but that qualifies for a reduced treaty rate, may obtain a refund of any excess amounts withheld by timely filing an

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appropriate claim for refund with the IRS. Non-U.S. Holders should consult their tax advisors regarding their entitlement to benefits under any applicable income tax treaty.

         If dividends paid to a Non-U.S. Holder are effectively connected with the Non-U.S. Holder's conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment or fixed base in the United States to which such dividends are attributable), the Non-U.S. Holder will be exempt from the U.S. federal withholding tax described above. To claim the exemption, the Non-U.S. Holder must furnish to the applicable withholding agent a valid IRS Form W-8ECI, certifying that the dividends are effectively connected with the Non-U.S. Holder's conduct of a trade or business within the United States.

         Any such effectively connected dividends generally will be subject to U.S. federal income tax on a net income basis at the regular graduated rates. A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected dividends, as adjusted for certain items. Non-U.S. Holders should consult their tax advisors regarding any applicable tax treaties that may provide for different rules.

Sale or Other Taxable Disposition

         Subject to the discussion of FATCA below, a Non-U.S. Holder will not be subject to U.S. federal income tax on any gain realized upon the sale or other taxable disposition of our common stock unless:

         Gain described in the first bullet point above generally will be subject to U.S. federal income tax on a net income basis at the regular graduated rates. A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected gain, as adjusted for certain items.

         Gain described in the second bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty), which may be offset by U.S. source capital losses of the Non-U.S. Holder (even though the individual is not considered a resident of the United States), provided the Non-U.S. Holder has timely filed U.S. federal income tax returns with respect to such losses.

         With respect to the third bullet point above, we believe we currently are not, and do not anticipate becoming, a USRPHC. Because the determination of whether we are a USRPHC depends, however, on the fair market value of our USRPIs relative to the fair market value of our non-U.S. real property interests and our other business assets, there can be no assurance we currently are not a USRPHC or will not become one in the future. Even if we are or were to become

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a USRPHC, gain arising from the sale or other taxable disposition by a Non-U.S. Holder of our common stock will not be subject to U.S. federal income tax if our common stock is "regularly traded," as defined by applicable Treasury Regulations, on an established securities market and such Non-U.S. Holder owned, actually or constructively, 5% or less of our common stock throughout the shorter of the five-year period ending on the date of the sale or other taxable disposition or the Non-U.S. Holder's holding period.

         Non-U.S. Holders should consult their tax advisors regarding potentially applicable income tax treaties that may provide for different rules.

Information Reporting and Backup Withholding

         Payments of dividends on our common stock will not be subject to backup withholding, provided the applicable withholding agent does not have actual knowledge or reason to know the holder is a United States person and the holder either certifies its non-U.S. status, such as by furnishing a valid IRS Form W-8BEN or W-8BEN-E, as applicable, or W-8ECI, or otherwise establishes an exemption. However, information returns are required to be filed with the IRS in connection with any dividends on our common stock paid to the Non-U.S. Holder, regardless of whether any tax was actually withheld. In addition, proceeds of the sale or other taxable disposition of our common stock within the United States or conducted through certain U.S.-related brokers generally will not be subject to backup withholding or information reporting if the applicable withholding agent receives the certification described above and does not have actual knowledge or reason to know that such holder is a United States person, or the holder otherwise establishes an exemption. Proceeds of a disposition of our common stock conducted through a non-U.S. office of a non-U.S. broker generally will not be subject to backup withholding or information reporting.

         Copies of information returns that are filed with the IRS may also be made available under the provisions of an applicable treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides or is established.

         Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a Non-U.S. Holder's U.S. federal income tax liability, provided the required information is timely furnished to the IRS.

Additional Withholding Tax on Payments Made to Foreign Accounts

         Withholding taxes may be imposed under Sections 1471 to 1474 of the Code (such Sections commonly referred to as the Foreign Account Tax Compliance Act, or FATCA) on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on dividends on, or gross proceeds from the sale or other disposition of, our common stock paid to a "foreign financial institution" or a "non-financial foreign entity" (each as defined in the Code), unless (1) the foreign financial institution undertakes certain diligence and reporting obligations, (2) the non-financial foreign entity either certifies it does not have any "substantial United States owners" (as defined in the Code) or furnishes identifying information regarding each substantial United States owner or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in (1) above, it must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain "specified United States persons" or "United States-owned foreign entities" (each as defined in the Code), annually report certain information about such accounts and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. Foreign financial institutions located in

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jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules.

         Under the applicable Treasury Regulations and IRS guidance, withholding under FATCA generally will apply to payments of dividends on our common stock and, on or after January 1, 2017, to payments of gross proceeds from the sale or other disposition of such stock.

         Prospective investors should consult their tax advisors regarding the potential application of withholding under FATCA to their investment in our common stock.

          THIS DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TAX ADVICE. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.

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UNDERWRITING

         We are offering the shares of common stock described in this prospectus through a number of underwriters. J.P. Morgan Securities LLC and Deutsche Bank Securities Inc. are acting as joint book-running managers of the offering and as representatives of the underwriters. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriters, and each underwriter has severally agreed to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of shares of common stock listed next to its name in the following table:

Name
  Number
of
Shares
 

J.P. Morgan Securities LLC

       

Deutsche Bank Securities Inc. 

       

William Blair & Company, L.L.C. 

       

Wells Fargo Securities, LLC

       

SunTrust Robinson Humphrey, Inc. 

       

Total

    7,000,000  

         The underwriters are committed to purchase all the shares of common stock offered by us if they purchase any shares. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may also be increased or the offering may be terminated.

         The underwriters propose to offer the shares directly to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $             per share. After the initial public offering of the shares, the offering price and other selling terms may be changed by the underwriters. Sales of shares made outside of the United States may be made by affiliates of the underwriters.

         The underwriters have an option to buy up to 1,050,000 additional shares of common stock from us to cover sales of shares by the underwriters which exceed the number of shares specified in the table above. The underwriters have 30 days from the date of this prospectus to exercise this over-allotment option. If any shares are purchased with this over-allotment option, the underwriters will purchase shares in approximately the same proportion as shown in the table above. If any additional shares of common stock are purchased, the underwriters will offer the additional shares on the same terms as those on which the shares are being offered.

         The underwriting fee is equal to the public offering price per share of common stock less the amount paid by the underwriters to us per share of common stock. The underwriting fee is $             per share. The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters assuming both no exercise and full exercise of the underwriters' option to purchase additional shares.

 
  Without
over-allotment
exercise
  With full
over-allotment
exercise
 

Per Share

  $     $    

Total

  $     $    

         We estimate that the total expenses of this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the underwriting discounts and commissions, will be approximately $4.1 million. We have also agreed to pay the filing fees incident

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to, and the fees and disbursements of counsel for the underwriters in connection with, the required review by FINRA in connection with this offering, as set forth in the underwriting agreement.

         A prospectus in electronic format may be made available on the web sites maintained by one or more underwriters, or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters and selling group members that may make Internet distributions on the same basis as other allocations.

         We have agreed that, subject to limited exceptions, we will not (i) offer, pledge, announce the intention to sell, 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 dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, or (ii) enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any shares of common stock or any such other securities (regardless of whether any of these transactions are to be settled by the delivery of shares of common stock or such other securities, in cash or otherwise), in each case without the prior written consent of J.P. Morgan Securities LLC and Deutsche Bank Securities Inc. for a period of 180 days after the date of this prospectus.

         Our directors and executive officers, and certain of our significant shareholders have entered into lock-up agreements with the underwriters prior to the commencement of this offering pursuant to which each of these persons or entities has agreed, subject to limited exceptions, for a period of 180 days after the date of this prospectus not to, without the prior written consent of J.P. Morgan Securities LLC and Deutsche Bank Securities Inc., (1) offer, pledge, announce the intention to sell, 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 our common stock or any securities convertible into or exercisable or exchangeable for our common stock (including, without limitation, common stock or such other securities which may be deemed to be beneficially owned by such directors, executive officers, managers and members in accordance with the rules and regulations of the SEC and securities which may be issued upon exercise of a stock option or warrant) or (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the common stock or such other securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of common stock or such other securities, in cash or otherwise, or (3) make any demand for or exercise any right with respect to the registration of any shares of our common stock or any security convertible into or exercisable or exchangeable for our common stock.

         We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act.

         We have applied to have our common stock approved for listing/quotation on the NYSE under the symbol "TDOC."

         In connection with this offering, the underwriters may engage in stabilizing transactions, which involves making bids for, purchasing and selling shares of common stock in the open market for the purpose of preventing or retarding a decline in the market price of the common stock while this offering is in progress. These stabilizing transactions may include making short sales of the common stock, which involves the sale by the underwriters of a greater number of shares of common stock than they are required to purchase in this offering, and purchasing shares of

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common stock on the open market to cover positions created by short sales. Short sales may be "covered" shorts, which are short positions in an amount not greater than the underwriters' over-allotment option referred to above, or may be "naked" shorts, which are short positions in excess of that amount. The underwriters may close out any covered short position either by exercising their over-allotment option, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which the underwriters may purchase shares through the over-allotment option. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market that could adversely affect investors who purchase in this offering. To the extent that the underwriters create a naked short position, they will purchase shares in the open market to cover the position.

         The underwriters have advised us that, pursuant to Regulation M of the Securities Act, they may also engage in other activities that stabilize, maintain or otherwise affect the price of the common stock, including the imposition of penalty bids. This means that if the representatives of the underwriters purchase common stock in the open market in stabilizing transactions or to cover short sales, the representatives can require the underwriters that sold those shares as part of this offering to repay the underwriting discount received by them.

         These activities may have the effect of raising or maintaining the market price of the common stock or preventing or retarding a decline in the market price of the common stock and, as a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions on the NYSE, in the over-the-counter market or otherwise.

         Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters. In determining the initial public offering price, we and the representatives of the underwriters expect to consider a number of factors including:

         Neither we nor the underwriters can assure investors that an active trading market will develop for our common stock or that the shares will trade in the public market at or above the initial public offering price.

         Certain of the underwriters and their affiliates have provided in the past to us and our affiliates and may provide from time to time in the future certain commercial banking, financial advisory, investment banking and other services for us and such affiliates in the ordinary course of their business, for which they have received and may continue to receive customary fees and commissions. In addition, from time to time, certain of the underwriters and their affiliates may effect transactions for their own account or the account of customers, and hold on behalf of themselves

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or their customers, long or short positions in our debt or equity securities or loans, and may do so in the future.

         Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

The LOYAL3 Platform

         At our request, the underwriters have reserved up to 5% of the shares of common stock offered by this prospectus to be offered to our employees, customers, partners and individual investors, through a platform administered by LOYAL3 Securities, Inc., which we refer to in this prospectus as the "LOYAL3 Platform." Such purchases of shares in this offering through the LOYAL3 Platform will be at the initial public offering price, will be otherwise fee-free to investors and will be in dollar amounts that may include fractional shares. The LOYAL3 Platform is designed to facilitate participation of individual purchasers in initial public offerings in amounts starting at $100. Individual investors in the United States who are interested in purchasing shares of common stock in this offering though the LOYAL3 platform may go to LOYAL3's website for information about how to become a customer of LOYAL3, which is required to purchase shares of common stock through the LOYAL3 Platform. Sales of our common stock by investors using the LOYAL3 Platform will be completed through a batch or combined order process typically only once per day. The LOYAL3 Platform and information on the LOYAL3 website do not form a part of this prospectus. LOYAL3 Securities, Inc. is a U.S.-registered broker-dealer unaffiliated with our company.

Notice to Prospective Investors in the European Economic Area

         In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a "Relevant Member State"), from and including the date on which the European Union Prospectus Directive (the "EU Prospectus Directive") was implemented in that Relevant Member State (the "Relevant Implementation Date") an offer of securities described in this prospectus may not be made to the public in that Relevant Member State prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the EU Prospectus Directive, except that, with effect from and including the Relevant Implementation Date, an offer of securities described in this prospectus may be made to the public in that Relevant Member State at any time:

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         For the purposes of this provision, the expression an "offer of securities to the public" in relation to any securities in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe for the securities, as the same may be varied in that Member State by any measure implementing the EU Prospectus Directive in that Member State. The expression "EU Prospectus Directive" means Directive 2003/71/EC (and any amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State) and includes any relevant implementing measure in each Relevant Member State, and the expression "2010 PD Amending Directive" means Directive 2010/73/EU.

Notice to Prospective Investors in the United Kingdom

         In addition, in the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are "qualified investors" (as defined in the Prospectus Directive) (i) who have professional experience in matters relating to investments falling within Article 19 (5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "Order") and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as "relevant persons"). This document must not be acted on or relied on in the United Kingdom by persons who are not relevant persons. In the United Kingdom, any investment or investment activity to which this document relates is only available to, and will be engaged in with, relevant persons.

Notice to Prospective Investors in Switzerland

         The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange ("SIX") or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.

         Neither this document nor any other offering or marketing material relating to the offering, us or the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA ("FINMA"), and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes ("CISA"). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.

Notice to Prospective Investors in Hong Kong

         This prospectus has not been approved by or registered with the Securities and Futures Commission of Hong Kong or the Registrar of Companies of Hong Kong. The shares may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), (ii) to "professional investors" as defined in the meaning of the Securities and

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Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder or (iii) in other circumstances which do not result in the document being a "prospectus" within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong) and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.

Notice to Prospective Investors in Singapore

         This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the "SFA"), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA.

         Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is: (a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries' rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except: (i) to an institutional investor (for corporations, under Section 274 of the SFA) or to a relevant person defined in Section 275(2) of the SFA, or to any person pursuant to an offer that is made on terms that such shares, debentures and units of shares and debentures of that corporation or such rights and interest in that trust are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other assets, and further for corporations, in accordance with the conditions specified in Section 275 of the SFA; (ii) where no consideration is or will be given for the transfer; or (iii) where the transfer is by operation of law.

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LEGAL MATTERS

         The validity of the shares being sold in this offering will be passed upon for us by Latham & Watkins LLP, New York, New York. Certain legal matters will be passed upon on behalf of the underwriters by Weil, Gotshal & Manges LLP, New York, New York.


EXPERTS

         The consolidated financial statements of Teladoc, Inc. at December 31, 2013 and 2014, and for each of the two years in the period ended December 31, 2014, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

         The consolidated financial statements of Consult A Doctor, Inc. at August 29, 2013, and for the period from January 1, 2013 to August 29, 2013, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

         The consolidated financial statements of AmeriDoc, LLC at December 31, 2013 and April 30, 2014, and for the year ended December 31, 2013 and the period from January 1, 2014 to April 30, 2014, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

         The financial statements of Stat Health Services Inc. at December 31, 2014 and for the year ended December 31, 2014, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young, LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm 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 pursuant to the Securities Act. This prospectus, which constitutes part of the registration statement, does not contain all the information set forth in the registration statement. For further information, we refer you to the registration statement and the exhibits and schedules filed as a part of the registration statement. Statements contained in this prospectus as to the contents of any contract or other document filed as an exhibit to the registration statement are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, we refer you to the copy of the contract or document that has been filed.

         You may inspect a copy of the registration statement and the exhibits and schedules to the registration statement without charge at the Public Reference Room of the SEC at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can receive copies of these documents upon payment of a duplicating fee by writing to the SEC. The SEC maintains a web site at www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. You can also inspect our registration statement on this web site.

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         Upon completion of this offering, we will become subject to the information and reporting requirements of the Exchange Act pursuant to Section 13 thereof. Our filings with the SEC (other than those exhibits specifically incorporated by reference into the registration statement of which this prospectus forms a part) are not incorporated by reference into this prospectus.

         You may obtain a copy of any of our filings, at no cost, by writing or telephoning us at:

Teladoc, Inc.
2 Manhattanville Road, Suite 203
Purchase, New York 10577
(203) 635-2002

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INDEX TO FINANCIAL STATEMENTS

 
  Page(s)

Audited Consolidated Financial Statements of Teladoc, Inc.

   

Report of Independent Registered Public Accounting Firm

  F-2

Consolidated Balance Sheets

  F-3

Consolidated Statements of Operations

  F-4

Consolidated Statements of Convertible Preferred Stock and Stockholders' Deficit

  F-5

Consolidated Statements of Cash Flows

  F-6

Notes to Audited Consolidated Financial Statements

  F-7

Audited Consolidated Financial Statements of Consult A Doctor, Inc.

 
 

Report of Independent Auditors

  F-33

Consolidated Balance Sheet

  F-34

Consolidated Statement of Operations

  F-35

Consolidated Statement of Changes in Stockholders' Deficit

  F-36

Consolidated Statement of Cash Flows

  F-37

Notes to Audited Consolidated Financial Statements

  F-38

Audited Consolidated Financial Statements of AmeriDoc, LLC

 
 

Report of Independent Auditors

  F-49

Consolidated Balance Sheets

  F-50

Consolidated Statements of Operations

  F-51

Consolidated Statements of Members' Deficit

  F-52

Consolidated Statements of Cash Flows

  F-53

Notes to Audited Consolidated Financial Statements

  F-54

Audited Financial Statements of Stat Health Services Inc.

 
 

Report of Independent Auditors

  F-60

Balance Sheet

  F-61

Statement of Operations

  F-62

Statement of Changes in Convertible Preferred Stock and Stockholders' Deficit

  F-63

Statement of Cash Flows

  F-64

Notes to Audited Financial Statements

  F-65

Unaudited Consolidated Financial Statements of Teladoc, Inc.

 
 

Consolidated Balance Sheets

  F-75

Consolidated Statements of Operations

  F-76

Consolidated Statements of Convertible Preferred Stock and Stockholders' Deficit

  F-77

Consolidated Statements of Cash Flows

  F-78

Notes to Unaudited Consolidated Financial Statements

  F-79

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of
Teladoc, Inc.

         We have audited the accompanying consolidated balance sheets of Teladoc, Inc. as of December 31, 2013 and 2014, and the related consolidated statements of operations, convertible preferred stock and stockholders' deficit, and cash flows for each of the two years in the period ended December 31, 2014. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

         We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Teladoc, Inc. at December 31, 2013 and 2014, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.

 

/s/ Ernst & Young LLP

New York, New York
March 24, 2015 except for Note 17,
as to which the date is June 4, 2015 and
the last two paragraphs of Note 18,
as to which the date is June 17, 2015

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TELADOC, INC.

Consolidated Balance Sheets

(in thousands, except share and per share data)

 
   
   
  Pro Forma
Stockholders'
Equity as of
December 31,
2014
 
 
  As of December 31,  
 
  2013   2014  
 
   
   
  (unaudited)
 

Assets

                   

Current assets:

                   

Cash and cash equivalents

  $ 3,212   $ 46,436        

Accounts receivable, net of allowance of $728 and $1,785, respectively

    2,610     6,839        

Due from officer

    253     253        

Prepaid expenses and other current assets

    743     1,122        

Deferred taxes

    8     12        

Total current assets

    6,826     54,662        

Property and equipment, net

    331     1,065        

Goodwill

    14,786     28,454        

Intangible assets, net

    5,350     7,530        

Other assets

    93     296        

Total assets

  $ 27,386   $ 92,007        

Liabilities, convertible preferred stock and stockholders' deficit

                   

Current liabilities:

                   

Accounts payable

  $ 67   $ 2,210        

Accrued expenses and other current liabilities

    3,687     6,623        

Accrued compensation

    1,387     3,358        

Long-term bank and other debt-current

        833        

Total current liabilities

    5,141     13,024        

Other liabilities

    88     62        

Deferred taxes

    102     494        

Long term bank and other debt

    3,000     25,196        

Commitments and contingencies

                   

Convertible preferred stock, $0.001 par value; 39,081,371 and 50,479,286 shares authorized as of December 31, 2013 and 2014; 37,590,286 and 50,452,939 shares issued as of December 31, 2013 and 2014 with liquidation preference of $71,655 and $117,914 as of December 31, 2013 and 2014; no shares authorized or issued and outstanding pro forma (unaudited)

    71,655     117,914        

Redeemable common stock, $0.001 par value; 113,294 common shares issued and outstanding

    2,852     2,852        

Stockholders' equity (deficit):

                   

Common stock, $0.001 par value; 26,487,663 and 32,179,448 shares authorized as of December 31, 2013 and 2014; 1,302,759 and 2,037,999 shares issued and outstanding as of December 31, 2013 and 2014, 32,179,448 shares authorized and 27,601,734 issued pro forma (unaudited);

    1     2   $ 27  

Additional paid-in capital

        4,953     125,694  

Accumulated deficit

    (55,453 )   (72,490 )   (72,490 )

Total stockholders' equity (deficit)

    (55,452 )   (67,535 )   53,231  

Total liabilities, convertible preferred stock and stockholders' deficit

  $ 27,386   $ 92,007   $    

   

See accompanying notes to audited consolidated financial statements.

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TELADOC, INC.

Consolidated Statements of Operations

(in thousands, except per share data)

 
  Year Ended December 31,  
 
  2013   2014  

Revenue

  $ 19,906   $ 43,528  

Cost of revenue

    4,186     9,929  

Gross profit

    15,720     33,599  

Operating expenses:

             

Advertising and marketing

    4,090     7,662  

Sales

    4,441     11,571  

Technology and development

    3,532     7,573  

General and administrative

    8,772     19,623  

Depreciation and amortization

    754     2,320  

Loss from operations

    (5,869 )   (15,150 )

Interest income(expense), net

    (56 )   (1,499 )

Net loss before taxes

    (5,925 )   (16,649 )

Income taxes

    94     388  

Net loss

  $ (6,019 ) $ (17,037 )

Net loss per share, basic and diluted

  $ (8.05 ) $ (10.25 )

Weighted-average shares used to compute basic and diluted net loss per share

    1,222,268     1,962,845  

Pro forma net loss per share, basic and diluted (unaudited)

        $ (0.86 )

Weighted-average shares used to compute basic and diluted pro forma net loss per share (unaudited)

          23,506,977  

   

See accompanying notes to audited consolidated financial statements.

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TELADOC, INC.

Consolidated Statements of Convertible Preferred Stock
and Stockholders' Deficit

(in thousands, except share data)

 
  Convertible
Preferred Stock
  Redeemable
Common Stock
   
   
   
   
   
   
 
 
   
  Common Stock    
   
   
 
 
   
  Additional
Paid-In
Capital
  Accumulated
Deficit
  Total
Stockholders'
Deficit
 
 
  Shares   Amount   Shares   Amount    
  Shares   Amount  
                                                             

Balance as of January 1, 2013

    31,371,102   $ 53,130     113,294   $ 2,852         565,162   $ 1   $   $ (46,534 ) $ (46,533 )

Issuance of Series E preferred stock for cash, net of issuance costs

    6,227,169     14,803                                  

Accretion of Series E Preferred Stock to redemption amount

        197                         (197 )       (197 )

Repurchase of convertible preferred stock

    (7,985 )   (99 )                       28         28  

Exercise of stock options

                        737,597         595         595  

Preferred dividend

        3,624                         (724 )   (2,900 )   (3,624 )

Stock Based Compensation

                                298         298  

Net Loss

                                    (6,019 )   (6,019 )

Balance as of December 31, 2013

    37,590,286   $ 71,655     113,294   $ 2,852         1,302,759   $ 1   $   $ (55,453 ) $ (55,452 )

Issuance of Series F preferred stock for cash, net of issuance costs

    11,329,068     50,082                                  

Accretion of Series F Preferred Stock to redemption amount

        168                         (168 )       (168 )

Preferred dividend

        2,920                         (2,920 )       (2,920 )

Preferred dividends retired and converted to Series F preferred stock

    1,553,917     (6,892 )                       6,892         6,892  

Warrants issued

                                219         219  

Repurchase of convertible preferred stock and common stock

    (20,332 )   (19 )               (50,834 )       (349 )       (349 )

Exercise of stock options, net

                        786,074     1     746         747  

Stock Based Compensation

                                533         533  

Net Loss

                                    (17,037 )   (17,037 )

Balance as of December 31, 2014

    50,452,939   $ 117,914     113,294   $ 2,852         2,037,999   $ 2   $ 4,953   $ (72,490 ) $ (67,535 )

   

See accompanying notes to audited consolidated financial statements.

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TELADOC, INC.

Consolidated Statements of Cash Flows

(in thousands)

 
  Year Ended December 31,  
 
  2013   2014  

Operating activities:

             

Net loss

  $ (6,019 ) $ (17,037 )

Adjustments to reconcile net loss to net cash used in operating activities:

             

Depreciation and amortization

    754     2,320  

Allowance for doubtful debts

    504     1,308  

Stock-based compensation

    298     533  

Deferred income taxes

    94     388  

Accretion of interest

    2     106  

Changes in operating assets and liabilities:

             

Accounts receivable

    (928 )   (5,079 )

Due from officer

    (253 )    

Prepaid expenses and other current assets

    (663 )   (436 )

Other assets

    37     (185 )

Accounts payable

    (1,099 )   2,099  

Accrued expenses and other current liabilities

    329     2,679  

Accrued compensation

    802     1,971  

Other liabilities

    89     (26 )

Net cash used in operating activities

    (6,053 )   (11,359 )

Investing activities:

   
 
   
 
 

Purchase of property and equipment

    (204 )   (1,069 )

Purchase of internal software

    (1,090 )   (665 )

Acquisition of business, net of cash acquired

    (16,462 )   (13,844 )

Net cash used in investing activities

    (17,756 )   (15,578 )

Financing activities:

   
 
   
 
 

Proceeds from the exercise of stock options and warrants

    595     747  

Proceeds from issuance of convertible preferred stock

    14,803     50,082  

Proceeds from borrowing under bank and other debt

    3,000     19,700  

Repurchase of stock

    (71 )   (368 )

Net cash provided by financing activities

    18,327     70,161  

Net (decrease) increase in cash and cash equivalents

    (5,482 )   43,224  

Cash and cash equivalents at beginning of year

    8,694     3,212  

Cash and cash equivalents at end of year

  $ 3,212     46,436  

Interest paid:

  $ 32   $ 1,191  

   

See accompanying notes to audited consolidated financial statements.

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TELADOC, INC.

Notes to Audited Consolidated Financial Statements

Note 1. Organization and Description of Business

         Teladoc, Inc. ("Teladoc", or the "Company") was incorporated in the State of Texas in June 2002 and changed its state of incorporation to the State of Delaware in October 2008. The Company's principal executive offices are located in Dallas, Texas and Purchase, New York. Teladoc is the nation's largest telehealth company.

         The Company completed the acquisition of Consult A Doctor, Inc. ("CADR") and AmeriDoc, LLC ("AmeriDoc"), two companies engaged in telehealth activities similar to Teladoc, in 2013 and 2014, respectively. Upon the effective date of each respective merger, each entity merged with and into Teladoc.

Note 2. Summary of Significant Accounting Policies

    Basis of Presentation and Principles of Consolidation

         These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). The consolidated financial statements include the results of Teladoc, a professional association and six professional corporations: Teladoc Physicians, P.A., Teladoc Physicians, P.C. formed and operated in Alaska; Teladoc Physicians, P.C. formed and operated in California; Teladoc Physicians, P.C. formed and operated in Colorado; Teladoc Physicians, P.C. formed and operated in Michigan; Teladoc Physicians, P.C. formed and operated in New Jersey; and Teladoc Physicians, P.C. formed and operated in New York (collectively, the "Association").

         Teladoc Physicians, P.A. is party to a Services Agreement by and among it and the six professional corporations noted above pursuant to which each professional corporation provides services to Teladoc Physicians, P.A. Each professional corporation is established pursuant to the requirements of its respective domestic jurisdiction governing the corporate practice of medicine.

         The Company holds a variable interest in the Association which contracts with physicians and other health professionals in order to provide services to Teladoc. The Association is considered a variable interest entity ("VIE") since it does not have sufficient equity to finance its activities without additional subordinated financial support. An enterprise having a controlling financial interest in a VIE, must consolidate the VIE if it has both power and benefits—that is, it has (1) the power to direct the activities of a VIE that most significantly impact the VIE's economic performance (power) and (2) the obligation to absorb losses of the VIE that potentially could be significant to the VIE or the right to receive benefits from the VIE that potentially could be significant to the VIE (benefits). The Company has the power and rights to control all activities of the Association and funds and absorbs all losses of the VIE. Total revenue and net loss for the VIE were $3.3 million and $(1.0) million and $6.5 million and $(3.9) million for the years ended December 31, 2013 and 2014, respectively. The VIE's total assets were $1.0 million and $2.1 million at December 31, 2013 and 2014, respectively. Total liabilities for the VIE were $6.1 million and $11.2 million at December 31, 2013 and 2014, respectively. The VIE total stockholders' deficit was $5.2 million and $9.1 million at December 31, 2013 and 2014, respectively.

         All significant intercompany transactions and balances have been eliminated.

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TELADOC, INC.

Notes to Audited Consolidated Financial Statements

    Business Combinations

         The Company accounts for its business combinations using the acquisition method of accounting. The cost of an acquisition is measured as the aggregate of the acquisition date fair values of the assets transferred and liabilities assumed by the Company to the sellers and equity instruments issued. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date. The excess of (i) the total costs of acquisition over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill.

    Use of Estimates

         The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company bases its estimates on historical experience, current business factors, and various other assumptions that the Company believes are necessary to consider to form a basis for making judgments about the carrying values of assets and liabilities, the recorded amounts of revenue and expenses, and the disclosure of contingent assets and liabilities. The Company is subject to uncertainties such as the impact of future events, economic and political factors, and changes in the Company's business environment; therefore, actual results could differ from these estimates. Accordingly, the accounting estimates used in the preparation of the Company's financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Company's operating environment changes.

         Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in reported results of operations; if material, the effects of changes in estimates are disclosed in the notes to the consolidated financial statements. Significant estimates and assumptions by management affect the allowance for doubtful accounts, the carrying value of long-lived assets (including goodwill and intangible assets), the carrying value, capitalization and amortization of software development costs, the provision for income taxes and related deferred tax accounts, certain accrued liabilities, revenue recognition, contingencies, litigation and related legal accruals and the value attributed to employee stock options and other stock-based awards.

    Pro Forma Stockholders' Equity and Net Loss Per Share (Unaudited)

         In January 2015, the Company's board of directors approved the filing of a registration statement relating to an initial public offering of its common stock. Upon the effectiveness of the Registration Statement, all of the outstanding shares of convertible preferred stock (the "Preferred Stock") will automatically convert into shares of common stock of the Company, upon the approval of the holders of a majority of the outstanding shares of the Preferred Stock or provided that the initial public offering (i) is at a price per share (equal to at least $16.5188) and (ii) results in net proceeds to the Company of at least $40.0 million of proceeds, in each case, net of any underwriting discount and commissions. The December 31, 2014 unaudited pro forma stockholders' equity data has been prepared assuming the conversion of the Preferred Stock outstanding into shares of common stock of the Company. Pro forma basic and diluted net loss per share were computed to give effect to the conversion of the Preferred Stock into common stock of the Company using the if-converted method as though the conversion and reclassification had

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TELADOC, INC.

Notes to Audited Consolidated Financial Statements

occurred as of the beginning of the first period presented or on the original date of issuance, if later.

    Segment Information

         The Company's chief operating decision maker, its Chief Executive Officer ("CEO"), reviews the financial information presented on a consolidated basis for purposes of allocating resources and evaluating its financial performance. Accordingly, the Company has determined that it operates in a single reporting segment—health services.

    Revenue Recognition

         The Company offers two types of subscription access revenue contracts: (i) contracts that provide for a fixed monthly charge for access and unlimited visits per Member and (ii) contracts that provide for a fixed monthly charge for access and a contractually defined cost for each visit. Any visit fee revenue that is not included in the subscription access revenue is recognized when the service has been provided to the Member.

         The Company recognizes a substantial portion of its revenue from contracts that provide employers and health plans ("Clients") with subscription access to the Company's network of physicians and other healthcare professionals ("Providers") on a subscription basis for a fixed monthly fee which entitles the Client's employees and their beneficiaries ("Members") to unlimited consultations ("visits"). The contracts are generally for a one-year term and have an automatic renewal feature for additional years.

         The Company commences revenue recognition for the subscription access service on the date that the services are made available to the Client and its Members, which is considered the implementation date, provided all of the following criteria are met:

         Subscription access revenue recognition commences on the date that the Company's services are made available to the Client, which is considered the implementation date, provided all of the other criteria described above are met. Revenue is recognized over the term of the Client contract and is based on the terms in the Client contracts, which can provide for a variable periodic fee based upon the actual number of Members.

         Revenue from visits is comprised of all revenue that is earned in connection with the completion of a visit. The Company recognizes revenue as the visits are completed.

         The Company's contracts do not generally contain refund provisions for fees earned related to services performed. However, certain of the Company's contracts include performance guarantees that are based upon minimum employee or Member utilization and guarantees by the Company for

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TELADOC, INC.

Notes to Audited Consolidated Financial Statements

specific service level performance of the Company's services. The Company defers revenue recognition when subscription access revenue is refundable until the end of the respective contractual period when the performance guarantees are met. The Company issued credits amounting to approximately $0.2 million and $0.4 million for the years ended December 31, 2013 and 2014, respectively.

    Cost of Revenue

         Cost of revenue primarily consists of fees paid to the Providers, costs incurred in connection with the Company's Provider network operations, which include employee-related expenses (including salaries and benefits) and costs related to the contracted third-party call center and medical malpractice insurance.

    Cash and Cash Equivalents

         Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less from the date of purchase. The Company's cash and cash equivalents generally consist of investments in money market funds, U.S. treasury securities and U.S. government-issued obligations. Cash and cash equivalents are stated at fair value.

    Accounts Receivable and Allowance for Doubtful Accounts

         Accounts receivable are recorded at the invoiced amount, net of allowances for doubtful accounts. The allowance for doubtful accounts is based on the Company's assessment of the collectability of accounts. The Company regularly reviews the adequacy of the allowance for doubtful accounts by considering the age of each outstanding invoice and the collection history of each customer to determine whether a specific allowance is appropriate. Accounts receivable deemed uncollectable are charged against the allowance for doubtful accounts when identified.

    Property and Equipment

         Property and equipment are stated at cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective asset as follows:

Computer equipment   3 years
Furniture and equipment   5 years
Leasehold improvements   Shorter of the lease term or the estimated useful lives of the improvements

         Maintenance and repairs are charged to expense as incurred, and improvements are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the consolidated statement of operations in the period realized.

    Internal-Use Software

         Internal-use software is included in intangible assets and is amortized on a straight-line basis over 3 years. For the Company's development costs related to its software development tools that enable its Members and Providers to interact, the Company capitalizes costs incurred during the

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TELADOC, INC.

Notes to Audited Consolidated Financial Statements

application development stage. Costs related to minor upgrades, minor enhancements and maintenance activities are expensed as incurred.

    Goodwill and Other Intangible Assets

         Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized, but is tested for impairment annually on October 1 or more frequently if events or changes in circumstances indicate that the asset may be impaired. The Company's impairment tests are based on a single operating segment and reporting unit structure. The goodwill impairment test involves a two-step process. The first step involves comparing the fair value of the Company's reporting unit to its carrying value, including goodwill. The fair value of the reporting unit is estimated using a discounted cash flows analysis. If the carrying value of the reporting unit exceeds its fair value, the second step of the test is performed by comparing the carrying value of the goodwill in the reporting unit to its implied fair value. An impairment charge is recognized for the excess of the carrying value of goodwill over its implied fair value.

         The Company's annual goodwill impairment test resulted in no impairment charges in any of the periods presented in the consolidated financial statements.

         Other intangible assets resulted from business acquisitions and include Client relationships and non-compete agreements. Client relationships are amortized over a period of 10 years in relation to expected future cash flows, while non-compete agreements are amortized over a period of 3 to 5 years using the straight-line method.

    Stock-Based Compensation

         All stock-based compensation is measured based on the grant-date fair value of the awards and recognized on a straight-line basis over the period during which the employee is required to perform services in exchange for the award (generally the vesting period of the award). The Company estimates the fair value of employee stock options using the Black-Scholes option-pricing model.

    Income Taxes

         The Company accounts for income taxes using the liability method, under which deferred tax assets and liabilities are determined based on the future tax consequences attributable to differences between the financial reporting carrying amounts of existing assets and liabilities and their respective tax bases and tax credit and net operating loss carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to be in effect when the differences are expected to reverse.

         The Company assesses the likelihood that deferred tax assets will be recovered from future taxable income, and a valuation allowance is established when necessary to reduce deferred tax assets to the amounts more likely than not expected to be realized.

         The Company recognizes and measures uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken or expected to be taken by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be

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TELADOC, INC.

Notes to Audited Consolidated Financial Statements

realized upon ultimate settlement. Significant judgment is required to evaluate uncertain tax positions. The Company evaluates its uncertain tax positions on a regular basis. Its evaluations are based on a number of factors, including changes in facts and circumstances, changes in tax law, correspondence with tax authorities during the course of audit and effective settlement of audit issues.

    Warranties and Indemnification

         The Company's arrangements generally include certain provisions for indemnifying Clients against liabilities if there is a breach of a Client's data or if the Company's service infringes a third party's intellectual property rights. To date, the Company has not incurred any material costs as a result of such indemnifications.

         The Company has also agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person's service as a director or officer, including any action by the Company, arising out of that person's services as a director or officer or that person's services provided to any other company or enterprise at the Company's request. The Company maintains director and officer liability insurance coverage that would generally enable it to recover a portion of any future amounts paid. The Company may also be subject to indemnification obligations by law with respect to the actions of its employees under certain circumstances and in certain jurisdictions.

    Advertising and Marketing Expenses

         Advertising and marketing include all communications and campaigns to the Company's Clients and Members and related employees' costs and are expensed as incurred. For the years ended December 31, 2013 and 2014, advertising expenses were $3.0 million and $6.0 million, respectively.

    Concentrations of Risk and Significant Clients

         The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, and accounts receivable. Although the Company deposits its cash with multiple financial institutions, its deposits, at times, may exceed federally insured limits.

         During the years ended December 31, 2013 and 2014, all of the Company's revenue was generated by Clients located in the United States. No Client represented over 10% of revenue for the years ended December 31, 2013 and 2014.

         One Client represented 22% of accounts receivable at December 31, 2013. As of December 31, 2014, no Client accounted for more than 10% of accounts receivable.

    Recently Issued and Adopted Accounting Pronouncements

         In July 2013, the Financial Accounting Standards Board ("FASB") issued guidance regarding the presentation of unrecognized tax benefits when a net operating loss carryforward, similar tax loss, or tax credit carryforward exists. The new guidance requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the consolidated financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward when settlement in this manner is available under the tax law. This guidance

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TELADOC, INC.

Notes to Audited Consolidated Financial Statements

is effective on a prospective basis for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2013. Retrospective and early adoption is permitted. The Company adopted this guidance in the first quarter of 2014. The adoption of this guidance had no impact on the consolidated financial statements.

         In May 2014, the FASB issued updated guidance on revenue from contracts with customers. This revenue recognition guidance supersedes existing GAAP guidance, including most industry-specific guidance. The core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance identifies steps to apply in achieving this principle. This updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. We are currently evaluating the potential impact of this guidance on its financial disclosures and results, including whether the Company elects retrospective, or modified retrospective, adoption methods.

         In June 2014, the FASB issued stock compensation guidance requiring that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments in this guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company is currently evaluating the potential impact of this guidance on its financial disclosures and results.

         In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern. This guidance addresses management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. Management's evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. ASU 2014-15 is effective for interim or annual periods beginning after December 15, 2016. Early adoption is permitted. The Company does not expect to early adopt this guidance and is currently evaluating the impact of the adoption of this guidance on its financial disclosures and results.

Note 3. Business Acquisitions

         On August 29, 2013, the Company completed the acquisition of CADR, a company engaged in telehealth activities similar to Teladoc, through the purchase of 100% of CADR's outstanding common stock for $16.6 million, net of cash acquired, including adjustments for a working capital in the amount of $0.2 million, which was paid in 2014. CADR was acquired to help the Company expand its presence into the local and regional insurance broker markets to reach Clients that previously did not have access to the Company's services. Upon the effective date of the merger, CADR merged with and into Teladoc. The acquisition is considered an asset acquisition for tax purposes and as such, the goodwill resulting from this acquisition is tax deductible.

         On May 1, 2014, the Company completed the acquisition of AmeriDoc, a company engaged in telehealth activities similar to Teladoc, through the purchase of 100% of AmeriDoc's outstanding members' interests for $17.2 million, net of cash acquired, including a $3.5 million promissory note and adjustments for working capital in the amount of $0.2 million. AmeriDoc was acquired to help the Company expand its initial investment in the local and regional insurance broker markets to reach clients that previously did not have access to the Company's services. Upon the effective date of the merger, AmeriDoc merged with and into Teladoc. The acquisition is considered an asset acquisition for tax purposes and as such, the goodwill resulting from this acquisition is tax deductible.

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TELADOC, INC.

Notes to Audited Consolidated Financial Statements

         The two acquisitions were accounted for using the acquisition method of accounting, which requires, among other things, the assets acquired and the liabilities assumed be recognized at their fair values as of the acquisition date. The results of CADR were included within the consolidated financial statements commencing August 29, 2013. The results of AmeriDoc were included within the consolidated financial statements commencing May 1, 2014.

         The purchase price of the acquisitions was allocated based upon the fair value of the assets acquired and liabilities assumed at the date of acquisition.

         The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at each acquisition date. The Company, with the assistance of third-party valuations, estimated the fair value of the acquired tangible and intangible assets.

         Identifiable assets acquired and liabilities assumed (in thousands):

 
  CADR   AmeriDoc  

Purchase price

  $ 17,187   $ 17,214  

Less:

             

Cash

    538     57  

Accounts receivable

    558     458  

Other assets

    37     18  

Client relationships

    3,810     2,980  

Non-compete agreements

    910     520  

Accounts payable

    (934 )   (43 )

Uncertain tax position

    (2,705 )    

Other liabilities

        (257 )

Goodwill

  $ 14,973   $ 13,481  

         The value of the goodwill is expected to be 73% deductible for income tax purposes for CADR and 100% deductible for AmeriDoc.

         The Company's unaudited pro forma revenue and net loss for 2013 and 2014 below have been prepared as if CADR had been purchased on January 1, 2013 and AmeriDoc had been purchased on January 1, 2013.

 
  Pro Forma  
(in thousands)
  2013   2014  

Revenue

  $ 26,304   $ 45,342  

Net loss

  $ (9,087 ) $ (18,280 )

Note 4. Property and Equipment, Net

         Property and equipment, net, consist of the following (in thousands):

 
  As of December 31,  
 
  2013   2014  

Computer equipment

  $ 1,025     1,959  

Furniture and equipment

    233     368  

Total

    1,258     2,327  

Accumulated depreciation

    (927 )   (1,262 )

Property and equipment, net

  $ 331   $ 1,065  

         Depreciation expense for the years ended December 31, 2013 and 2014 was $0.2 million and $0.3 million respectively.

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TELADOC, INC.

Notes to Audited Consolidated Financial Statements

Note 5. Intangible Assets, Net

         Intangible assets consist of the following (in thousands):

 
  Useful
Life
  Gross Value   Accumulated
Amortization
  Net Carrying
Value
 

December 31, 2013

                       

Client relationships

  10 years   $ 3,810   $ (327 ) $ 3,483  

Non-compete agreements

  3 years     910     (101 )   809  

Internal software

  3 years     1,220     (162 )   1,058  

Intangible assets, net

      $ 5,940   $ (590 ) $ 5,350  

December 31, 2014

                       

Client relationships

  10 years   $ 6,790   $ (1,565 ) $ 5,225  

Non-compete agreements

  3 to 5 years     1,430     (474 )   956  

Internal software

  3 years     1,885     (536 )   1,349  

Intangible assets, net

      $ 10,105   $ (2,575 ) $ 7,530  

         Amortization expense for intangible assets was $0.6 million and $2.0 million for the years ended December 31, 2013 and 2014, respectively.

         Periodic amortization that will be charged to expense over the remaining life of the intangible assets as of December 31, 2014 is as follows (in thousands):

Years Ending December 31,

       

2015

  $ 2,221  

2016

    1,786  

2017

    1,149  

2018

    749  

2019

    552  

Thereafter

    1,073  

  $ 7,530  

Note 6. Goodwill

         Goodwill consists of the following (in thousands):

 
  As of December 31,  
 
  2013   2014  

Beginning balance

  $   $ 14,786  

Additions

    14,786     13,267  

Net working capital adjustments (CADR and AmeriDoc acquisitions)

        401  

Goodwill

  $ 14,786   $ 28,454  

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TELADOC, INC.

Notes to Audited Consolidated Financial Statements

Note 7. Accrued Expenses and Other Current Liabilities

         Accrued expenses and other current liabilities consist of the following (in thousands):

 
  As of December 31,  
 
  2013   2014  

Professional fees

  $   $ 963  

Consulting/customer service fees

    413     1,118  

Uncertain tax position

    2,705     2,705  

Others

    569     1,837  

Total

  $ 3,687   $ 6,623  

Note 8. Fair Value Measurements

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

         The Company measures its financial assets and liabilities at fair value at each reporting period using a fair value hierarchy that requires it to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument's classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:

         The Company measures its cash equivalents at fair value on a recurring basis. The Company classifies its cash equivalents within Level 1 because they are valued using observable inputs that reflect quoted prices for identical assets in active markets.

         The following tables present information about the Company's assets that are measured at fair value on a recurring basis using the above input categories (in thousands):

 
  December 31, 2013  
 
  Level 1   Level 2   Level 3  

Cash and cash equivalents

  $ 3,212   $   $  

 

 
  December 31, 2014  
 
  Level 1   Level 2   Level 3  

Cash and cash equivalents

  $ 46,436   $   $  

Assets and Liabilities that are Measured at Fair Value on a Non-recurring Basis

         Assets and liabilities that are measured at fair value on a non-recurring basis relate primarily to the Company's tangible fixed assets, goodwill and other intangible assets, which are remeasured when the derived fair value is below carrying value on the Company's consolidated balance sheets. For these assets, the Company does not periodically adjust carrying value to fair value except in the event of impairment. When the Company determines that impairment has occurred, the carrying

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TELADOC, INC.

Notes to Audited Consolidated Financial Statements

value of the asset is reduced to fair value and the difference is recorded within operating income in the consolidated statements of operations.

Note 9. Long Term Bank and Other Debt

         Long-term bank and other debt consist of the following (in thousands):

 
  As of December 31,  
 
  2013   2014  

SVB Mezzanine Term Loan less debt discount of $171 for warrants

  $   $ 12,829  

SVB Term Loan facility

    3,000     5,000  

SVB Revolving Advance facility

        4,700  

Subordinated Promissory Note

        3,500  

Total

  $ 3,000   $ 26,029  

Less: current portion

        (833 )

Long term bank and other debt

  $ 3,000   $ 25,196  

         Long term bank and other debt are stated at amortized cost, which approximates fair value.

         In August 2013, the Company entered into a Loan and Security Agreement with Silicon Valley Bank ("SVB") that provided for a Term Loan facility in the amount of $7.0 million with an interest rate of prime rate plus 1%. The Term Loan facility is payable in 48 monthly installments commencing April 2015. The Company's maximum borrowings under this facility totaled $3.0 million in 2013. The Loan and Security Agreement also provided the Company with a $3.0 million Revolving Advance facility that the Company did not utilize in 2013.

         In May 2014, the Company entered into an Amended and Restated Loan and Security Agreement with SVB that provided for a Revolving Advance facility and a Term Loan facility (the "Amended Term Loan facility"). The Revolving Advance facility provides for borrowings up to $12.0 million based on 300% of the Company's monthly recurring revenue, as defined therein. Borrowings under the Revolving Advance facility were $4.7 million at December 31, 2014, and the facility carries interest at a rate of 0.75% above the prime rate per annum and matures in April 2016. Interest payments are payable monthly in arrears. The Company entered into an amendment to the Revolving Advance Facility in March 2015 that extended its maturity to April 2017.

         The Amended Term Loan facility provides for borrowings up to $5.0 million. As of December 31, 2014, the Company had utilized the total $5.0 million available under this facility. The Amended Term Loan facility carries interest at a rate of 1.00% above the prime rate per annum. Interest payments are payable monthly in arrears. Payments on the Amended Term Loan facility will commence in May 2015 and continue with 47 equal monthly payments of principal plus interest.

         In May 2014, the Company entered into a Subordinated Loan and Security Agreement with SVB that provided for Mezzanine Term Loans totaling $13.0 million. The total $13.0 million drawdown of the mezzanine facility was completed in September 2014. The mezzanine facility carries interest at a rate of 10.00% per annum and matures in May 2017. Interest payments are payable monthly in arrears. In connection with entry into the mezzanine facility, the Company granted two affiliates of SVB warrants to purchase an aggregate of 131,239 shares of common stock of the Company at an exercise price of $2.95 per share. The warrants are immediately exercisable and have a 10-year term. The Company also granted SVB a security interest in significantly all of the Company's assets. The mezzanine facility has been used to fund the expansion of the Company's business. The Amended Loan and Security Agreement and the Subordinated Loan and Security Agreement are collectively referred to as the "SVB Facilities."

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TELADOC, INC.

Notes to Audited Consolidated Financial Statements

         The Company incurred approximately $0.2 million of loan origination costs in connection with the SVB facilities and amortized approximately $0.1 million of these costs during the year ended December 31, 2014.

         Effective with the purchase of AmeriDoc, the Company executed a Subordinated Promissory Note in the amount of $3.5 million payable to the seller of AmeriDoc on April 30, 2015. The Subordinated Promissory Note carries interest at a rate of 10.00% annual interest and is subordinated to the SVB Facilities. In March 2015, the Company, the seller of AmeriDoc and SVB executed an Amended and Restated Subordinated Promissory Note that extended the maturity of the Note to April 30, 2017.

         Payments due are as follows (in thousands):

 
  Total  

2015

  $ 833  

2016

    5,950  

2017

    17,750  

2018

    1,250  

2019 and thereafter

    417  

Total

  $ 26,200  

Note 10. Related Party Transaction

         In May 2013, the Company issued a loan to an officer of the Company in the amount of $0.3 million. This was a non-cash transaction, whereby the loan proceeds were used to exercise options to purchase 312,474 shares of common stock options of the Company at an exercise price of $0.80 per share. The loan carries interest at the rate of 2% per annum and is due and payable upon the earlier of (i) May 13, 2017 and (ii) the occurrence of a "Change of Control" as defined in the promissory note evidencing the loan. The officer is required to make monthly interest payments. At December 31, 2013 and 2014, the balance of the loan was $0.3 million. The loan was repaid in full to the Company in February 2015.

Note 11. Commitments and Contingencies

    Leases and Contractual Obligations

         The Company leases office space under non-cancelable operating leases in Greenwich, Connecticut; Purchase, New York and Dallas, Texas. As of December 31, 2014, the future minimum lease payments under non-cancelable operating leases are as follows (in thousands):

 
  Operating
Leases
 

2015

  $ 910  

2016

    924  

2017

    427  

2018

    206  

2019 and thereafter

     

  $ 2,467  

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TELADOC, INC.

Notes to Audited Consolidated Financial Statements

         All of the total future minimum lease payments relate to facilities space. The facility lease agreements generally provide for rental payments on a graduated basis and for options to renew, which could increase future minimum lease payments if exercised. The Company recognizes rent expense on a straight-line basis over the lease period and have accrued for rent expense incurred but not paid. Deferred rent represents the difference between actual operating lease payments due and straight-line rent expense. The excess is recorded as a deferred rent liability in the early periods of the lease, when cash payments are generally lower than straight-line rent expense, and are reduced in the later periods of the lease when payments begin to exceed the straight-line expense. Rent expense for the years ended December 31, 2013 and 2014 was $0.5 million and $0.8 million, respectively.

    Letter of Credit

         In November 2014, the Company arranged for SVB to issue a Letter of Credit on its behalf in the amount of $0.3 million in lieu of a cash deposit in connection with the Company's Purchase, NY office lease. This Letter of Credit expires by its terms at the lease expiration date in September 2018.

Note 12. Convertible Preferred Stock (the "Preferred Stock")

         At December 31, the Preferred Stock consists of the following:

December 31, 2013
  Shares
Authorized
  Shares
Outstanding
  Common
Shares Upon
Conversion
  Liquidation
Preference
 

Series A

    418,634     418,634     1,628,498   $ 6,525,816  

Series A-1

    53,957     53,957     282,689     1,146,000  

Series B

    263,839     263,839     1,790,050     7,216,736  

Series C-1

    18,287,483     18,287,483     8,000,124     19,501,104  

Series D

    13,000,000     12,339,204     5,397,962     21,883,033  

Series E

    7,057,458     6,227,169     2,724,165     15,382,197  

    39,081,371     37,590,286     19,823,488   $ 71,654,886  

December 31, 2014
  Shares
Authorized
  Shares
Outstanding
  Common
Shares Upon
Conversion
  Liquidation
Preference
 

Series A

    418,634     418,634     1,628,498   $ 5,232,925  

Series A-1

    53,957     53,957     282,689     918,955  

Series B

    263,839     263,839     1,790,050     5,768,378  

Series C-1

    18,287,483     18,267,759     7,991,497     15,253,579  

Series D

    12,339,204     12,339,204     5,397,962     18,600,005  

Series E

    6,227,169     6,227,169     2,724,165     15,000,005  

Series F

    12,889,000     12,882,377     5,635,580     57,139,783  

    50,479,286     50,452,939     25,450,441   $ 117,913,630  

         As of December 31, 2014, the significant terms applicable to the Series A through Series F Preferred Stock were as follows:

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TELADOC, INC.

Notes to Audited Consolidated Financial Statements

    Dividend Rights

         Prior to the issuance of the Series F Preferred Stock, the Series A—E Preferred Stock accrued cumulative dividends at the per annum rate of 7.5% of the respective original purchase price (as previously adjusted for a reverse stock split and, with respect to the Series A, A-1 and B Preferred Stock, anti-dilution protection) for each such series of Preferred Stock. Such dividends were payable when, as and if declared by the Company's board of directors, but prior and in preference to any dividend on the common stock of the Company. In connection with the issuance of the Series F Preferred Stock, all such accrued and accumulated dividends (which totaled approximately $13.8 million at August 31, 2014) were converted into Series F Preferred Stock at a rate of $0.50 of Series F Preferred Stock per $1.00 in accrued dividends, resulting in the issuance of approximately 1,554,000 shares of Series F Preferred Stock on September 10, 2014. There are no longer any accrued or unpaid dividends on the Preferred Stock, and no such dividends are required to accrue or be declared by the Company.

    Conversion Rights

         Each share of Preferred Stock is convertible, at any time and at the option of the holder of such share, into shares of the common stock of the Company, at the following ratios (subject to adjustment as described below):

Series of Preferred Stock
  Original
Issue Price
  Conversion
Price
  Number of Shares of
Common Stock Issued
for each Preferred Share
Upon Conversion
(= Original Issue Price/
Conversion Price)
 

Series F

  $ 4.4355   $ 10.1391     0.4375  

Series E

  $ 2.4088   $ 5.5063     0.4375  

Series D

  $ 1.5074   $ 3.4458     0.4375  

Series C-1

  $ 0.835   $ 1.909     0.4375  

Series B

  $ 12.95   $ 1.909     6.7846  

Series A-1

  $ 10.00   $ 1.909     5.2391  

Series A

  $ 7.425   $ 1.909     3.8900  

         Additionally, all shares of the Preferred Stock will be automatically converted into shares of common stock of the Company at the ratios set forth above (subject to adjustment as described below) upon (i) the approval of the holders of a majority of the outstanding shares of the Preferred Stock (voting as a single class on an as-converted basis, and which includes holders of at least a majority of the outstanding shares of Series F Preferred Stock) or (ii) the closing of a firmly underwritten public offering of the common stock of the Company at a per share price of at least $16.5188 (prior to underwriting discounts and commissions) and that results in aggregate proceeds to the Company of at least $40 million (net of underwriting discounts and commissions).

         Subject to limited exceptions, the conversion price for each series of the Preferred Stock will be subject to an adjustment to reduce dilution in the event that the Company issues additional equity securities at a purchase price less than the applicable conversion price for such series of the Preferred Stock.

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TELADOC, INC.

Notes to Audited Consolidated Financial Statements

    Liquidation Rights

         In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the assets of the Company available for distribution will be distributed to the Company's stockholders in the following order of priority:

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TELADOC, INC.

Notes to Audited Consolidated Financial Statements

         Subject to limited exceptions, unless waived by holders of at least (i) a majority of the outstanding shares of Preferred Stock (voting together as a single class on an as-converted to common stock basis), and (ii) a majority of the outstanding Series F Preferred Stock, a merger, combination, consolidation, or sale of voting control of the Company or sale or transfer of substantially all of the assets of the Company, in each case in which the Company's stockholders do not own a majority of the voting shares of the surviving or acquiring corporation, will be deemed to be a liquidation event. If such deemed liquidation event is structured as a merger, combination, consolidation or sale of voting control, the proceeds of such transaction must be distributed to the stockholders in the order described above. If, alternatively, the deemed liquidation event is structured as a sale of assets, and the Company does not dissolve within 90 days after such deemed liquidation event, the holders of Preferred Stock may elect (pursuant to a procedure and in an order of priority similar to that described under "Redemption" below) to have their shares redeemed by the Company in exchange applicable Liquidation Amount described above.

    Protective Provisions

         Subject to limited exceptions and certain additional restrictions, so long as at least three million shares of Preferred Stock remain outstanding, the Company may not do any of the following without the consent of holders of a majority of the Preferred Stock (voting together as a single class on an as-converted to common stock basis):

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TELADOC, INC.

Notes to Audited Consolidated Financial Statements

         Additionally, for so long as at least twenty-five percent (25%) of the number of shares of any series of Preferred Stock remain issued and outstanding, the Company may not (i) take any action that materially and adversely alters the rights of such series of the Preferred Stock unless substantially similar action is taken with respect to all of the other series of the Preferred Stock or (ii) create any additional class or series of capital stock which ranks senior or pari passu to such series of the Preferred Stock, in each such case without the consent of the holders of a majority (which majority must, in certain cases, include the consent of certain named institutional investors) of the outstanding shares of the respective, affected series of the Preferred Stock, voting as a separate class.

    Redemption

         On and after September 1, 2019, the holders of shares Preferred Stock may require that such shares be redeemed by the Company out of lawfully available funds, as follows:

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TELADOC, INC.

Notes to Audited Consolidated Financial Statements

         All shares of the Preferred Stock have been presented outside of permanent stockholders' deficit, because there are redemption events outside of the Company's control.

Note 13. Common Stock and Stockholders' Deficit

    Capitalization

         Subject to limited exceptions, the Company may issue common stock subject to approval by (i) the board of directors of the Company (including the approval of the director appointed by the holders of Series D Preferred Stock and the director appointed by the holders of Series F Preferred Stock), or (ii) holders of a majority of the Preferred Stock (voting together as a single class on an as-converted to common stock basis). The aggregate number of shares of common stock that the Company will have authority to issue is 32,179,448 shares of common stock, having a par value of $0.001 per share.

    Redeemable Common Stock

         The holders of at least a majority of the Preferred Stock have agreed that, following the redemption of all the Preferred Stock, the total 59,048 shares of Common Stock held by Series A Preferred shareholders will be subject to a redemption price equal to the greater of (i) the sum of (A) 2.25 times 2.2859 times the Series A Investors Common Stock price, plus (B) any dividends declared but unpaid thereon and (ii) the Series A Investors Common Stock appraised value.

         The holders of at least a majority of the Preferred Stock have agreed that, following the redemption of all the Preferred Stock, the total 54,246 shares of Common Stock held by Series B Preferred shareholders will be subject to a redemption price equal to the greater of (1) the sum of (A) 2.25 times 2.2859 times the Series B Investors Common Stock price, plus (B) any dividends declared but unpaid thereon and (ii) the Series B Investors Common Stock appraised value. The Company has recorded the Series B Common Stock $2.1 million redemption value and the Series A Common Stock $0.8 million value together in mezzanine equity in the accompanying consolidated balance sheets.

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TELADOC, INC.

Notes to Audited Consolidated Financial Statements

    Warrants

         On May 2, 2014, the Company issued 131,239 common stock warrants to purchase an aggregate of 131,239 shares of its common stock at an exercise price of $2.95 per share to two entities affiliated with SVB. The common stock warrants were immediately exercisable upon issuance and have a 10-year term. The fair value of the common stock warrants on the date of issue was approximately $0.2 million which was recorded as an increase to additional paid in capital and as a debt discount.

    Stock Plan and Stock Options

         The Company's Second Amended and Restated Stock Incentive Plan (the "Plan") provides for the issuance of incentive and nonstatutory options to its employees and non-employees. Options issued under the Plan are exercisable for periods not to exceed ten years, vest over four years and are issued at the fair value of the shares of common stock on the date of grant as determined by the Company's board of directors, which obtains periodic third-party valuations to assist their determination process.

         The Plan provides for the early exercise of stock options for certain individuals as determined by their respective option agreements.

         Activity under the Plan is as follows (in thousands, except share and per share amounts and years):

 
  Shares
Available
for Grant
  Number of
Shares
Outstanding
  Weighted-
Average
Exercise
Price
  Weighted-
Average
Remaining
Contractual
Life in Years
  Aggregate
Intrinsic
Value
 

Balance at January 1, 2013

    331,478     2,147,391   $ 1.12     7.91   $ 1,425  

Increase in Plan authorized shares

    1,099,200                          

Stock option grants

    (736,398 )   736,398   $ 1.07              

Stock options exercised

        (737,597 ) $ 0.80              

Stock options cancelled

        (31,123 ) $ 1.01              

Balance at December 31, 2013

    694,280     2,115,069   $ 1.14     8.28   $ 4,058  

Increase in Plan authorized shares

    1,621,795                          

Stock option grants

    (1,574,104 )   1,574,104   $ 5.53              

Stock options exercised

          (786,074 ) $ 0.96              

Stock options cancelled

          (27,993 ) $ 1.60              

Balance at December 31, 2014

    741,971     2,875,106   $ 3.73     8.38   $ 6,758  

Vested or expected to vest December 31, 2014

          2,722,807   $ 3.68     8.81   $ 6,496  

Exercisable as of December 31, 2014

          809,921   $ 2.29     7.46   $ 3,182  

         The total grant-date fair value of stock options granted during the years ended December 31, 2013 and 2014, was $0.7 million, and $4.8 million, respectively. The total grant-date fair value of stock options vested during the years ended December 31, 2013 and 2014 was $0.3 million and $0.8 million, respectively. The total intrinsic value of the options exercised during the years ended

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TELADOC, INC.

Notes to Audited Consolidated Financial Statements

December 31, 2013 and 2014, was $1.6 million and $3.8 million, respectively. The intrinsic value is the difference of the current fair value of the stock and the exercise price of the stock option.

    Stock-Based Compensation

         All stock-based awards to employees are measured based on the grant-date fair value of the awards and are generally recognized in the Company's consolidated statement of operations over the period during which the employee is required to perform services in exchange for the award (generally requiring a four-year vesting period for each award). The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model. Compensation cost is generally recognized over the vesting period of the applicable award using the straight-line method.

         Given the absence of a public trading market, the Company's board of directors considered numerous objective and subjective factors to determine the fair value of its common stock at each grant date. These factors included, but were not limited to, (i) contemporaneous valuations of common stock performed by unrelated third-party specialists; (ii) the prices for the Preferred Stock sold to outside investors; (iii) the rights, preferences and privileges of the Preferred Stock relative to the common stock; (iv) the lack of marketability of the common stock; (v) developments in the business; and (vi) the likelihood of achieving a liquidity event, such as an initial public offering or a merger or acquisition of the Company, given prevailing market conditions.

         The assumptions used in the Black-Scholes option-pricing model were determined as follows:

         Volatility.     Since the Company does not have a trading history for its common stock, the expected volatility was derived from the historical stock volatilities of several unrelated public companies within its industry that it considers to be comparable to its business over a period equivalent to the expected term of the stock option grants.

         Risk-Free Interest Rate.     The risk-free interest rate is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options.

         Expected Term.     The expected term represents the period that the stock-based awards are expected to be outstanding. When establishing the expected term assumption, the Company used the "simplified" method because the Company does not have adequate historical data.

         Dividend Yield.     The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future, and therefore, it used an expected dividend yield of zero.

         Forfeiture rate.     The Company uses historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest.

         The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions and fair value per share:

 
  Year Ended
December 31,
 
  2013   2014

Volatility

  51.0% – 53.4%   53.3% – 53.7%

Expected life (in years)

  7.0   7.0

Risk-free interest rate

  1.15% – 2.21%   1.92% – 2.30%

Dividend yield

   

Weighted-average fair value of underlying common stock

  $1.07   $5.53

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TELADOC, INC.

Notes to Audited Consolidated Financial Statements

         Total compensation costs charged as an expense for stock-based awards, including stock options, recognized in the components of operating expenses are as follows (in thousands):

 
  Year Ended
December 31,
 
 
  2013   2014  

Administrative and marketing

  $ 11   $ 23  

Sales

    14     75  

Technology and development

    12     39  

General and administrative

    261     396  

Total stock-based compensation expense

  $ 298   $ 533  

         As of December 31, 2014, the Company had $5.3 million in unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over a weighted-average period of approximately 3.7 years.

Note 14. Income Taxes

         The components of loss from continuing operations before income taxes were generated solely in the United States as follows (in thousands):

 
  Year Ended
December 31,
 
 
  2013   2014  

United States

  $ (5,925 ) $ (16,649 )

         As a result of the Company's history of net operating losses and full valuation allowance against its deferred tax assets, only the timing differences attributable to the treatment of the amortization of goodwill generated the income tax provision for the years ended December 31, 2013 and 2014.

         Reconciliations of the statutory federal income tax rate and the Company's effective tax rate consist of the following (in thousands):

 
  Year Ended
December 31,
 
 
  2013   2014  

Tax at federal statutory rate

  $ (2,014 ) $ (5,661 )

State and local tax

    (326 )   (916 )

Non-deductible stock compensation

    116     210  

Non-deductible expenses

    41     87  

Change in valuation allowance

    2,277     6,668  

Income tax

  $ 94   $ 388  

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TELADOC, INC.

Notes to Audited Consolidated Financial Statements

         Significant components of the Company's deferred tax assets and liabilities were as follows (in thousands):

 
  As of
December 31,
 

Deferred tax assets (liabilities):

    2013     2014  

Net operating loss carryforwards

  $ 15,556   $ 21,381  

Accrued expenses

    287     705  

Stock-based compensation

    205     198  

Amortization

    34     (87 )

Property and equipment

    (434 )   (321 )

Valuation allowance

    (15,742 )   (22,358 )

Net deferred tax assets (liabilities)

  $ (94 ) $ (482 )

         The Company has provided a full valuation allowance for its deferred tax assets at December 31, 2013 and 2014, due to the uncertainty surrounding the future realization of such assets. Therefore, no benefit has been recognized for the net operating loss carryforwards and other deferred tax assets.

         The valuation allowance increased by $2.3 million and $6.6 million during the years ended December 31, 2013 and 2014, respectively.

         As of December 31, 2014, the Company had approximately $54.1 million of federal net operating loss carryforwards available to offset future taxable income. If not utilized, the federal net operating loss carryforwards begin to expire in 2024. The deferred tax asset related to its net operating losses include no excess tax benefit of stock option exercises, which, when realized, will be recorded as a credit to additional paid-in capital.

         The Company's ability to utilize the net operating loss and tax credit carryforwards in the future may be subject to substantial restrictions in the event of past or future ownership changes as defined in Section 382 of the U.S. Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). In the event the Company should experience an ownership change, as defined in the Internal Revenue Code, utilization of its net operating loss carryforwards and tax credits could be limited.

         The Company evaluates tax positions for recognition using a more-likely-than-not recognition threshold, and those tax positions eligible for recognition are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon the effective settlement with a taxing authority that has full knowledge of all relevant information. In 2013, the Company recorded an uncertain tax position of $2.3 million. There were no additional uncertain tax positions in 2014.

         The Company does not anticipate that the total amounts of unrecognized tax benefits will significantly increase or decrease in the next 12 months.

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TELADOC, INC.

Notes to Audited Consolidated Financial Statements

         In 2013 and 2014, the Company recognized approximately $0.1 million and $0.1 million, respectively, of interest expense related to unrecognized tax benefits. At December 31, 2013 and 2014, the Company had a liability for the payment of interest and penalties of approximately $0.4 million and $0.5 million, respectively, related to unrecognized tax benefits.

         The Company's policy is to include interest and penalties related to unrecognized tax benefits as a component of "Interest income (expense), net" in the Company's consolidated statement of operations.

         The Company's primary tax jurisdiction is the United States. The Company's 2011 through 2014 tax years are open to examination by U.S. federal and state tax authorities.

Note 15. Net Loss per Share

         Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock of the Company outstanding during the period. Diluted net loss per share is computed by giving effect to all potential shares of common stock of the Company, including the Preferred Stock and outstanding stock options and warrants, to the extent dilutive. Basic and diluted net loss per share was the same for each period presented as the inclusion of all potential shares of common stock of the Company outstanding would have been anti-dilutive.

         The following table presents the calculation of basic and diluted net loss per share for the Company's common stock (in thousands, except per share data):

 
  Year Ended
December 31,
 
 
  2013   2014  

Net loss

  $ (6,019 ) $ (17,037 )

Preferred stock dividends

    (3,624 )   (2,920 )

Accretion of preferred stock

    (197 )   (168 )

Net loss available to common stockholders

  $ (9,840 ) $ (20,125 )

Weighted-average shares used to compute basic and diluted net loss per share

    1,222     1,963  

Basic and diluted net loss per share

  $ (8.05 ) $ (10.25 )

         The following securities were excluded from the calculation of diluted net loss per share for common stock because their effect would have been anti-dilutive for the periods presented (in thousands):

 
  Year Ended
December 31,
 
 
  2013   2014  

Stock options

    22     22  

Preferred stock

    37,590     50,453  

    Unaudited Pro Forma Net Loss per Share

         Pro forma basic and diluted net loss per share were computed to give effect to the conversion of the Preferred Stock into common stock of the Company using the if-converted method as though

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TELADOC, INC.

Notes to Audited Consolidated Financial Statements

the conversion and reclassification had occurred as of the beginning of the first period presented or the original date of issuance, if later.

         The following table presents the calculation of basic and diluted pro forma net loss per share (in thousands, except net loss per share data):

 
  Year Ended
December 31,
2014
 

Net loss

  $ (17,037 )

Preferred stock dividends

    (2,920 )

Accretion of preferred stock

    (168 )

Net loss available to common stockholders

  $ (20,125 )

Pro Forma net loss per share - weighted average shares

    23,507  

Pro Forma basic and diluted net loss per share

  $ (0.86 )

Basic net loss per share - weighted average shares

   
1,963
 

Preferred conversion

    21,544  

Pro Forma net loss per share - weighted average shares

    23,507  

Note 16. 401(k) Plan

         The Company has established a 401(k) plan that qualifies as a deferred compensation arrangement under Section 401 of the Internal Revenue Code. All employees over the age of 21 are eligible to participate in the plan. The Company contributes 100% of an employee's elective deferral up to 4% of eligible earnings up to a maximum of $0.3 million. The Company made matching contributions to participants' accounts totaling $0.2 million and $0.4 million during the years ended December 31, 2013 and 2014, respectively.

Note 17. Legal Matters

         The Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. At December 31, 2014, the Company was party to the following legal proceedings:

         Teladoc is plaintiff in three lawsuits in the Texas courts against the Texas Medical Board (the "TMB"). In the first suit , Teladoc v. TMB and Leshikar , on December 31, 2014, the Austin Court of Appeals granted Teladoc's request for summary judgment, invalidating the TMB's prior assertion that Teladoc's doctors do not form "proper professional relationships" with Teladoc's members in the course of telehealth consultations such as would support the prescription of medications. The TMB has filed a petition for review with the Texas Supreme Court to ask that Court if it will allow the TMB to appeal the Court of Appeals's decision. In the second suit, Teladoc v. TMB and Freshour , on February 2, 2015, the Travis County District Court granted Teladoc's request for a temporary injunction restraining the TMB from enforcing an "emergency rule" it issued on January 16, 2015 purporting to amend the Texas Administrative Code so as to require a "face-to-face" examination of a patient before a Texas physician may lawfully prescribe medication. This suit is set for trial on November 9, 2015. In the third suit, Teladoc et al. v. TMB et al., the United States District Court for the Western District of Texas, Austin Division, held a hearing on May 22, 2015 on Teladoc's motion

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TELADOC, INC.

Notes to Audited Consolidated Financial Statements

for preliminary injunction of the rule amendments the TMB adopted on April 10, 2015, that seek to effect substantively identical restrictions as the issues in the two prior lawsuits. On May 29, 2015, this court granted Teladoc's request for a preliminary injunction of the rule amendments, pending ultimate trial on the merits, which trial date has yet to be set. Given the nature and status of these lawsuits, the Company cannot yet determine the amount or reasonable range of a potential loss, if any, though it does not believe a material loss is probable in connection with any of the lawsuits.

         Business in the State of Texas accounted for $10 million of the Company's consolidated revenue during the year ended December 31, 2014. If the TMB's revisions go into effect as written and Teladoc is unable to adapt its business model in compliance with the TMB rule, its ability to operate its business in the State of Texas could be materially adversely affected, which would have a material adverse effect on its business, financial condition and results of operations.

         Teladoc may become subject to legal proceedings, claims and litigation arising in the ordinary course of its business. Other than as stated the Company is not a party to any material legal proceeding, and it is not aware of any pending or threatened litigation that would have a material adverse effect on its business, results of operations, cash flows or financial condition should such litigation be resolved unfavorably.

Note 18. Subsequent Events

         For the consolidated financial statements for the year ended and as of December 31, 2014, the Company evaluated subsequent events through March 24, 2015, which is the date the consolidated financial statements were available to be issued.

         On January 23, 2015, the Company completed the acquisition of Compile, Inc. d/b/a BetterHelp ("BetterHelp"), through a merger in which BetterHelp became a wholly-owned subsidiary of the Company. The merger consideration paid by the Company in connection with this acquisition consisted of (i) $3.5 million in cash at closing (subject to certain adjustments, including adjustments for any working capital deficiency at closing), (ii) an unsecured, subordinated promissory note in the original principal amount of $1.0 million, with all principal and interest being payable on the third anniversary of closing, and (iii) revenue sharing equal to 15% of the annual net revenue of the BetterHelp business (but not the Company's other business) for three years following closing. BetterHelp was acquired to help the Company expand its operations in the direct-to-consumer and behavioral health sector.

         In February 2015, the Company executed a lease agreement for approximately 57,000 square feet of office space near Dallas, Texas that it intends to use for its physician network operations center and administrative purposes. In connection with this lease, the Company arranged for SVB to issue a letter of credit on its behalf in the amount of $1.0 million in lieu of a cash deposit. The letter of credit expires in February 2016.

         The Company intends to consolidate its three other Dallas office locations into this new facility. The lease has a ten-year initial term and provides for two five-year extensions. Future minimum lease and associated utility payments under this agreement are approximately $9.4 million. The minimum annual lease and associated utility payments under this agreement are approximately $0.9 million.

         In connection with the Company's planned abandonment of its Greenwich, Connecticut office, the Company intends to recognize an abandonment expense of approximately $0.4 million in its March 31, 2015 consolidated financial statements.

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TELADOC, INC.

Notes to Audited Consolidated Financial Statements

         On March 11, 2015, the Company executed an amendment to the Revolving Advance facility that extended its maturity to April 2017.

         On June 17, 2015, the Company filed a Certificate of Amendment to the Company's Certificate of Incorporation to effect a one-for-2.2859 reverse stock split of all outstanding shares of common stock with the Secretary of State of the State of Delaware. The Certificate of Amendment provides that every 2.2859 shares of the Company's issued and outstanding common stock automatically combine into one issued and outstanding share of the Company's common stock. The Certificate of Amendment did not change the par value of the Company's common stock and preferred stock. All shares and per share amounts in the consolidated financial statements and accompanying notes have been retroactively adjusted to give effect to the reverse stock split. In addition, the Certificate of Amendment authorizes that the number of authorized shares of the Company's common stock is increased to 75,000,000 shares and that the Company's authorized preferred stock is 50,479,286 shares.

         On June 17, 2015, the Company closed its acquisition of Stat Health Services Inc. for aggregate consideration of $30.5 million, comprised of $13.3 million of cash and $17.2 million of its common stock (or 1,051,038 shares), subject to post-closing working capital adjustments as defined in the Agreement and Plan of Merger governing the acquisition. Stat Health Services Inc. is a telemedicine provider, focused on managed care, health system and self-insured clients.

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Report of Independent Auditors

To the Board of Directors and Stockholders of
Consult A Doctor, Inc.

         We have audited the accompanying consolidated financial statements of Consult A Doctor, Inc., which comprise the consolidated balance sheet as of August 29, 2013, and the related consolidated statement of operations, changes in stockholders' deficit and cash flows for the period from January 1, 2013 to August 29, 2013, and the related notes to the consolidated financial statements.

Management's Responsibility for the Financial Statements

         Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.

Auditor's Responsibility

         Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

         An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

         We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

         In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Consult A Doctor, Inc. at August 29, 2013, and the consolidated results of their operations and their cash flows for the period from January 1, 2013 to August 29, 2013 in conformity with U.S. generally accepted accounting principles.


 

 

/s/ Ernst & Young LLP

New York, New York
March 24, 2015

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CONSULT A DOCTOR, INC.

Consolidated Balance Sheet

 
  August 29, 2013  

Assets

       

Cash and cash equivalents

  $ 538,496  

Accounts receivable, net of allowance for doubtful accounts of $33,963

    558,090  

Prepaid expenses and other current assets

    37,038  

Total current assets

    1,133,624  

Property and equipment, net

    8,664  

Total assets

  $ 1,142,288  

Liabilities and stockholders' deficit

       

Accounts payable

  $ 245,278  

Accrued expenses and other current liabilities

    1,561,572  

Series A preferred stock—warrant liability

    123,984  

Due to Teladoc

    1,500,000  

Convertible notes, net of debt discount of $227,051

    1,675,449  

Total current liabilities

    5,106,283  

Stockholders' deficit

   
 
 

Series A preferred stock—$0.001 par value, 8,000,000 shares authorized and 6,363,670 shares issued and outstanding

    6,300  

Common stock—$0.001 par value, 10,000,000 shares authorized and 2,505,500 shares issued and outstanding

    2,506  

Additional paid-in capital

    8,510,955  

Accumulated deficit

    (12,483,756 )

Total stockholders' deficit

    (3,963,995 )

Total liabilities and stockholders' deficit

  $ 1,142,288  

   

See accompanying notes to audited consolidated financial statements.

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CONSULT A DOCTOR, INC.

Consolidated Statement of Operations

For the period from January 1, 2013 to August 29, 2013

Revenue

  $ 3,192,713  

Cost of revenue

    1,459,168  

Gross profit

    1,733,545  

Advertising and marketing expenses

    137,957  

Sales expenses

    618,949  

Technology and development expenses

    754,845  

General and administrative expenses

    2,063,448  

Asset impairment charges

    363,606  

Depreciation

    5,373  

Loss from operations

    (2,210,633 )

Other income (expense)

       

Change in fair value of embedded derivative and warrant liability

    728,255  

Interest expense

    (537,544 )

Net loss before taxes

    (2,019,922 )

Income taxes

     

Net loss

  $ (2,019,922 )

   

See accompanying notes to audited consolidated financial statements.

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CONSULT A DOCTOR, INC.

Consolidated Statement of Changes in Stockholders' Deficit

For the period from January 1, 2013 to August 29, 2013

 
  Preferred Stock   Common Stock    
   
   
 
 
  Additional
Paid-in
Capital
  Accumulated
Deficit
   
 
 
  Shares   Par Value   Shares   Par Value   Total  

Balance, January 1, 2013

    6,363,670   $ 6,300     2,365,500   $ 2,366   $ 8,496,343   $ (10,463,834 ) $ (1,958,825 )

Stock option exercises

            140,000     140             140  

Stock-based compensation

                    48,612         48,612  

Repurchase of options

                    (34,000 )       (34,000 )

Net loss

                        (2,019,922 )   (2,019,922 )

Balance, August 29, 2013

    6,363,670   $ 6,300     2,505,500   $ 2,506   $ 8,510,955   $ (12,483,756 ) $ (3,963,995 )

   

See accompanying notes to audited consolidated financial statements.

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CONSULT A DOCTOR, INC.

Consolidated Statement of Cash Flows

For the period from January 1, 2013 to August 29, 2013

Cash flows used in operating activities

       

Net loss

  $ (2,019,922 )

Adjustments to reconcile net loss to net cash used in operating activities:

       

Depreciation

    5,373  

Bad debt expense

    35,764  

Asset impairment charges

    363,606  

Stock-based compensation

    48,612  

Accretion of interest

    380,773  

Change in fair value of embedded derivative and warrant liability

    (728,255 )

Changes in operating assets and liabilities:

       

Receivables

    (155,098 )

Prepaid expenses and other current assets

    (13,982 )

Accounts payable

    (106,011 )

Accrued expenses and other current liabilities

    992,040  

Net cash used in operating activities

    (1,197,100 )

Cash flows from financing activities

       

Proceeds from Teladoc

    1,500,000  

Purchase of stock options

    (34,000 )

Stock option exercises

    140  

Repayments on line of credit

    (299,670 )

Issuance of convertible notes

    535,000  

Net cash provided by financing activities

    1,701,470  

Net increase in cash and cash equivalents

    504,370  

Cash and cash equivalents, beginning of year

    34,126  

Cash and cash equivalents, end of year

  $ 538,496  

Interest paid

    8,091  

   

See accompanying notes to audited consolidated financial statements

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CONSULT A DOCTOR, INC.

Notes to Consolidated Financial Statements

1. Nature of Business

         Consult A Doctor, Inc. (the "Company" or "Consult A Doctor") is a Delaware corporation that provides telehealth services to clients and their customers.

         The Company executed an Agreement and Plan of Merger dated as of August 29, 2013, providing for the sale of 100% of the common stock and 100% of the preferred stock (the "Series A Preferred Stock") of the Company to Teladoc, Inc. ("Teladoc"). Upon the effective date of the merger, the Company merged with and into Teladoc which continues as the surviving corporation (see Note 12).

2. Summary of Significant Accounting Policies

Principles of Consolidation

         The consolidated financial statements include the accounts of Consult A Doctor, Inc. and its wholly-owned subsidiary, Telemed Physician Solutions, LLC. All significant intercompany transactions and balances have been eliminated.

Basis of Preparation

         These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). The following is a summary of the significant accounting and reporting policies used in preparing the consolidated financial statements.

Use of Estimates

         The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates, and such differences could be material to the consolidated financial position and results of operations. Significant estimates and assumptions affect the allowance for doubtful accounts, the carrying value, capitalization, and amortization of software and website development costs, warrant liability, convertible note derivative liability, and the value attributed to employee stock options.

Revenue Recognition

         The Company recognizes a substantial portion of its revenue from contracts that provide clients with subscription access to the Company's professional provider network for a fixed monthly fee which entitles the client's members to unlimited consultations ("visits"). The contracts are generally for a one year term and automatically renew for additional years.

         The Company commences revenue recognition for the subscription access service on the date that the services are made available to the client and its members, which is considered the implementation date, provided all of the following criteria are met:

    there is an executed subscription agreement;

    the member has access to the services;

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CONSULT A DOCTOR, INC.

Notes to Consolidated Financial Statements

    collection of the fees is reasonably assured; and

    the amount of fees to be paid by the client and member is fixed and determinable.

         Any consultation revenue that is not included in the subscription access service is recognized when the service has been provided to the member.

Cost of Revenue

         Cost of revenue primarily consists of fees paid to the physician network providers, costs incurred in connection with the provider network operations which include employee-related expenses (including salaries, benefits and stock-based compensation) and costs related to medical malpractice insurance.

Advertising and Marketing Expenses

         Advertising and marketing costs are expensed as incurred.

Sales Expenses

         Sales expenses consists principally of employee-related costs and travel.

Cash and Cash Equivalents

         Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less from the date of purchase. Cash and cash equivalents generally consist of investments in money market funds, U.S. treasury securities and U.S. government-issued obligations. Cash and cash equivalents are stated at fair value.

Accounts Receivable and Allowance for Doubtful Accounts

         Accounts receivable are recorded at the invoiced amount, net of allowances for doubtful accounts. The allowance for doubtful accounts is based on the Company's assessment of the collectability of accounts. The Company regularly reviews the adequacy of the allowance for doubtful accounts by considering the age of each outstanding invoice and the collection history of each customer to determine whether a specific allowance is appropriate. Accounts receivable deemed uncollectable are charged against the allowance for doubtful accounts when identified.

Concentration of Credit Risk

         Financial instruments that potentially subject the Company to concentrations of credit risk are cash and cash equivalents and accounts receivable. At times, the Company's deposits in banks may exceed federally insured limits. In addition, other cash equivalents may expose the Company to certain credit risks. The Company has not experienced any losses in such accounts and does not believe it is exposed to any significant risk. The Company assesses the creditworthiness of its customers before extending credit. Accounts receivable are written off only when all efforts to collect the accounts have been exhausted.

         One customer represented 28% of total revenue for the period from January 1, 2013 to August 29, 2013 and accounted for 43% of accounts receivable at August 29, 2013.

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CONSULT A DOCTOR, INC.

Notes to Consolidated Financial Statements

         Although the Company does not expect that the customer will fail to meet its obligations, the Company is potentially exposed to concentrations of credit risk if the customer failed to perform according to the terms of the contracts.

Property and Equipment

         Property and equipment are stated at cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective asset as follows:

Computer equipment

  3 years

Furniture and equipment

  5 years

         Maintenance and minor repairs are charged to expense as incurred. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the consolidated statement of operation.

Income Taxes

         The Company accounts for income taxes using the liability method, under which deferred tax assets and liabilities are determined based on the future tax consequences attributable to differences between the financial reporting carrying amounts of existing assets and liabilities and their respective tax bases and tax credit and net operating loss carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to be in effect when the differences are expected to reverse.

         The Company has assessed the likelihood that deferred tax assets will be recovered from future taxable income, and a valuation allowance is established when necessary to reduce deferred tax assets to the amounts more likely than not expected to be realized.

         The Company recognizes and measures uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken or expected to be taken by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Significant judgment is required to evaluate uncertain tax positions. The Company evaluates uncertain tax positions on a regular basis. The evaluations are based on a number of factors, including changes in facts and circumstances, changes in tax law, correspondence with tax authorities during the course of audit and effective settlement of audit issues. The Company recognizes interest and penalties related to uncertain tax positions in income taxes. There were no interest and penalties recorded on uncertain tax positions for the period from January 1, 2013 to August 29, 2013.

Long-lived Assets

         The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the undiscounted expected cash flows is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value.

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CONSULT A DOCTOR, INC.

Notes to Consolidated Financial Statements

         From the period from January 1, 2013 to August 29, 2013, the Company recognized $363,606 of asset impairment charge for the cost of internal developed software projects abandoned.

Stock-based Compensation

         All stock-based compensation to employees is measured based on the grant-date fair value of the awards and recognized on a straight-line basis over the period during which the employee is required to perform services in exchange for the award (generally the vesting period of the award). The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model.

Warranties and Indemnification

         The Company's contracts generally include certain provisions for indemnifying customers against liabilities if there is a breach of a customer's data or if the Company's service infringes a third party's intellectual property rights. To date, the Company has not incurred any material costs as a result of such indemnifications and has not accrued any liabilities related to such obligations in these consolidated financial statements.

         The Company has also agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person's service as a director or officer, including any action by the Company, arising out of that person's services as our director or officer or that person's services provided to any other company or enterprise at our request. The Company maintains director and officer insurance coverage that would generally enable the Company to recover a portion of any future amounts paid. The Company may also be subject to indemnification obligation by law with respect to the actions of our employees under certain circumstances and in certain jurisdictions.

3. Property and Equipment, Net

         Property and equipment, net consists of the following:

 
  August 29, 2013  

Computer equipment

  $ 41,655  

Office furniture and equipment

    11,878  

Total

    53,533  

Accumulated depreciation

    (44,869 )

Property and equipment, net

  $ 8,664  

         Depreciation expense for the period from January 1, 2013 to August 29, 2013 was $5,373.

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CONSULT A DOCTOR, INC.

Notes to Consolidated Financial Statements

4. Accrued Expenses

         As of August 29, 2013, accrued expenses consisted of the following:

Professional fees

  $ 714,448  

Compensation

    557,382  

Interest

    244,714  

Other

    45,028  

Total

  $ 1,561,572  

5. Fair Value Measurements

         The Company measures financial assets and liabilities at fair value at each reporting period using a fair value hierarchy that requires that they maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument's classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company classifies financial instruments in Level 3 of the fair value hierarchy when there is reliance on at least one significant unobservable impact to the valuation model. In addition to these unobservable inputs, the valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly.

    Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

    Level 2—Include other inputs that are directly or indirectly observable in the marketplace.

    Level 3—Unobservable inputs that are supported by little or no market activity.

         The Company measures cash and cash equivalents, Series A preferred stock warrant liability and derivative liability related to convertible notes at fair value on a recurring basis. Cash equivalents are classified within Level 1 because they are valued using observable inputs that reflect quoted prices for identical assets in active markets and the Series A preferred stock warrants and derivative liabilities within Level 3 because they are valued using valuation techniques using certain inputs which are unobservable in the market. The Company classifies financial instruments in Level 3 of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly.

 
  Level 1   Level 2   Level 3  

Cash and cash equivalents

  $ 538,496   $   $  

Series A preferred stock warrant liability

            123,984  

Derivative liability

             

Total

  $ 538,496   $   $ 123,984  

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CONSULT A DOCTOR, INC.

Notes to Consolidated Financial Statements

         The following table reconciles the beginning and ending balance of the Company's Level 3 liabilities:

Series A preferred stock warrants

       

Fair value at January 1, 2013

  $ 114,297  

Warrants issued

    9,850  

Change in fair value recorded in operations

    (163 )

Fair value at August 29, 2013

  $ 123,984  

Derivative liability

       

Fair value at January 1, 2013

  $ 533,199  

Derivative issued

    194,893  

Change in fair value recorded in operations

    (728,092 )

Fair value at August 29, 2013

  $  

6. Line of Credit

         The Company had a $300,000 facility under a Line of Credit Agreement with a bank. Prior to closing of the sale of the Company to Teladoc, the Company repaid the total amount outstanding of $299,670 and terminated the Line of Credit Agreement.

7. Income Taxes

         The Company has no provision or benefit for income taxes for the period from January 1, 2013 to August 29, 2013.

         Significant components of the Company's deferred income taxes as of August 29, 2013 are shown below:

Deferred tax assets:

       

Net operating loss carry-forward

  $ 2,914,374  

Accrued expenses

    13,415  

Total deferred tax assets

    2,927,789  

Deferred tax liabilities:

   
 
 

Depreciation

    (3,423 )

Prepaid expenses

    (14,630 )

Total deferred tax liabilities

    (18,053 )

Less: valuation allowance

   
(2,909,736

)

Net deferred tax assets

  $  

         The Company has provided a full valuation allowance for the deferred tax assets at August 29, 2013, due to the uncertainty surrounding the future realization of such assets. Therefore, no benefit has been recognized for the net operating loss carryforwards and other deferred tax assets. The Company's total valuation allowance increased by $796,132 during the period from January 1, 2013 to August 29, 2013.

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CONSULT A DOCTOR, INC.

Notes to Consolidated Financial Statements

         The Company has available net operating loss carry-forwards of approximately $7,378,000 which are available to offset future taxable income, if any. If not utilized, the federal net operating loss carryforwards begin to expire in 2029.

         The Company's ability to utilize the net operating loss and tax credit carryforwards in the future may be subject to substantial restrictions in the event of past or future ownership changes as defined in Section 382 of the U.S. Internal Revenue Code of 1986, as amended. In the event the Company should experience an ownership change, as defined, utilization of our net operating loss carryforwards and tax credits could be limited.

         The Company's 2010 to 2013 tax return remains subject to examination by the Internal Revenue Service.

8. Debt

    Due to Teladoc

         In connection with the July 2013 execution of Teladoc's Letter of Intent to acquire the Company (see Note 12), Teladoc and the Company executed a Loan and Security Agreement pursuant to which Teladoc provided the Company with a $1,500,000 secured loan. In the event Teladoc did not complete the acquisition of the Company by August 31, 2013, Teladoc had agreed to pay a breakup fee in the sum of $500,000 (net against the loan) and the remaining loan amount of $1,000,000 was to accrue interest at 5% per year, to be paid in seven equal installment of $142,857.14 plus interest beginning June 30, 2014 with the final payment due to Teladoc on December 31, 2014. This loan was to be due and payable on Teladoc's demand at any time following a transaction that provides the Company, or shareholders of the Company, cash or cash equivalents in excess of $5,000,000.

    Convertible Notes

         During various dates in 2012 and 2013, the Company issued convertible notes (collectively, the "Notes") in the aggregate principal sum of $1,367,500 and $535,000, respectively, each accruing interest at a rate of 12% per annum. The Notes mature on December 31, 2013, at which time principal and accrued interest thereon become due, unless automatically converted prior to maturity upon the occurrence of a Qualified Equity Financing into Series B Preferred Stock (or equivalent securities), as defined, at the price applicable to the new investors, less a 30% discount. A Qualified Equity Financing is defined as the Company's sale of Series B Preferred Stock (or equivalent shares) for aggregate cash consideration of at least $3,000,000 in gross proceeds on or before December 31, 2013.

         In conjunction with the issuance of the Notes, the Company bifurcated an embedded derivative, which represents the discount feature upon the occurrence of a conversion, as described above. The fair value of the embedded derivative was recorded as a debt discount. The Company is required to mark to market the derivative each reporting period, as well as amortize the debt discount, using the effective interest rate method with the change in fair value of the derivative instrument recorded through the statement of operations and the amortization of the debt discount recorded as interest expense. The change in the fair value of derivative and the amortization of the debt discount for the period from January 1, 2013 to August 29, 2013 amount to $728,092 and $380,773, respectively.

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CONSULT A DOCTOR, INC.

Notes to Consolidated Financial Statements

    Warrants

         In conjunction with the issuance of the Notes, the Company also issued in the lenders' Series A preferred stock purchase warrants (the "Warrants"). These detachable Warrants were issued to induce the lenders into making the loan to the Company. The Warrants grant the holders the right to purchase for $1 per share, at any time until expiration in 2022, an aggregate of 204,103 shares of the Company's Series A preferred stock. The exercise price and number of shares are subject to adjustments for increases or decreases in the number of shares outstanding that may result from dividends or other distributions payable in such shares, or subdivisions, splits or reverse splits involving such shares. In addition, the Warrants entitle the holders to participate on a pro rata basis in any offering by the Company of rights to purchase the preferred shares. In the event of a capital reorganization, capital reclassification, consolidation or merger, as defined, the Warrants may be exercised or exchanged for cash or other assets to which holders of the shares would be entitled.

         The fair value for these Warrants upon issuance was calculated using the Black-Scholes option-pricing model. As the underlying preferred shares of the outstanding warrants are redeemable at the option of the holder, the fair value is re-measured each reporting period. The Company recorded income of $163 associated with these Warrants for period from January 1, 2013 to August 29, 2013.

         The assumptions used in the Black-Scholes option-pricing model were determined as follows:

         Volatility.     Since the Company does not have a trading history for its common stock, the expected volatility was derived from the historical stock volatilities of several unrelated public companies within our industry that the Company considers to be comparable to its business over a period equivalent to the expected term of the warrants.

         Risk-Free Interest Rate.     The risk-free rate that the Company used is based on U.S. Treasury zero-coupon issues with terms similar to the expected term on the options.

         Expected Life.     The expected term represents the remaining contractual term of the warrants.

         Dividend Yield.     The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future, and therefore, it uses an expected dividend yield of zero.

9. Equity-Based Compensation

         The Company established the 2013 Equity Incentive Plan with an effective date of February 4, 2013. Under this plan, current employees who had shares issued under previous plans were given options to replace those that had been granted. The shares generally vest in four years after the grant date as long as the individual is an employee of the Company and have a contractual term of 10 years. The shares provide for accelerated vesting upon the consummation of a sale of the Company. The Company recorded $14,752 of incremental stock based compensation as a result of the sale of the Company.

         All stock-based payments to employees are measured based on the grant-date fair value of the awards and are recognized in our statement of operations over the period during which the employee is required to perform services in exchange for the award (generally the vesting period of

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CONSULT A DOCTOR, INC.

Notes to Consolidated Financial Statements

the award). The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model.

         Given the absence of a public trading market, the Company's board of directors considered recent sales of common stock to determine the fair value of the common stock at each grant date.

 
  Shares
Available
for
Grant
  Number of
Shares
Outstanding
  Weighted-
Average
Exercise
Price
  Weighted-
Average
Remaining
Contractual
Life in
Years
 

Balance at January 1, 2013

    780,587     140,000   $ 0.01     9.0  

Stock option grants

    (489,687 )   489,687     0.22     9.4  

Stock options exercised

          (140,000 )   0.01      

Surrender/purchase in connection with the purchase of the Company

          (452,187 )   0.22      

Balance at August 29, 2013

    290,900     37,500     0.22     9.4  

Vested or expected to vest August 29, 2013

          37,500     0.22     9.4  

Exercisable as of August 29, 2013

          37,500     0.22     9.4  

         The assumptions used in the Black-Scholes option-pricing model were determined as follows:

         Volatility.     Since the Company does not have a trading history for its common stock, the expected volatility was derived from the historical stock volatilities of several unrelated public companies within its industry that we consider to be comparable to its business over a period equivalent to the expected term of the stock option grants.

         Risk-Free Interest Rate.     The risk-free rate that we used is based on U.S. Treasury zero-coupon issues with terms similar to the expected term on the options.

         Expected Life.     The expected life represents the period that the Company's stock-based awards are expected to be outstanding. When establishing the expected life assumption, the Company used the "simplified" method prescribed in ASC Topic 718 for companies that do not have adequate historical data.

         Dividend Yield.     The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future, and therefore, it uses an expected dividend yield of zero.

         The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions and fair value per share:

Volatility

    53.4 %

Expected life (in years)

    7.0  

Risk-free interest rate

    1.36 %

Dividend yield

     

Fair value of underlying common stock

  $ 0.22  

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CONSULT A DOCTOR, INC.

Notes to Consolidated Financial Statements

         The total stock units from previous plans that were converted into options on February 4, 2013 were 267,187 and there were 222,500 granted throughout the year.

10. Shareholders' Deficit

    Common Stock

         At August 29, 2013, the Company had 10,000,000 shares of common stock authorized, with a par value of $0.001 with 2,505,000 shares, issued and outstanding. Common stockholders are entitled to one vote per share.

    Series A Preferred Stock

         Prior to January 1, 2013, the Company issued 6,363,670 shares of Series A Preferred Stock at $1 per share. Significant terms of the Series A preferred stock are as follows:

Dividends

         From the date of the issuance of any shares of Series A Preferred Stock, dividends at the rate of ten percent (10%) per annum of the applicable Series A Original Issue Price ($1.00) per share shall accrue on such shares of Series A Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Preferred Stock), and compound annually on December 31. Accruing dividends shall accrue from day to day (whether or not declared), shall be cumulative, and, when and if declared by the Board, shall be payable (i) in cash or, (ii) with respect to up to seventy percent (70%) of any dividends owed to the holders of Series A Preferred Stock, at the option of, and in the percentage specified by, each of the holders of Series A Preferred Stock, shall be payable in shares of Series A Preferred Stock valued at the Series A Conversion Price in effect of the date such divided accrued. Accruing dividends on the Series A Preferred Stock shall be paid in full upon the consummation of a qualified initial public offering, at a conversion time or other Series A mandatory conversion time. Cumulative undeclared dividends at August 29, 2013 were $1,812,524.

Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales

         In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, each holder of shares of Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders before any payment shall be made to the holders of its common stock by reason of their ownership thereof, an amount per share of Series A Preferred Stock equal to two times (2x) the Series A Original Issue Price plus any Accruing Dividends accrued but unpaid thereon, whether or not declared, together with any other dividends declared but unpaid thereon. If upon any such liquidation, dissolution or winding up of the Company, the assets of the Company available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series A Preferred Stock the full amount to which they shall be entitled, the holders of shares of Series A Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. As of August 29, 2013 the liquidation preference amounted to $12,727,340.

Voting

         On any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of

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CONSULT A DOCTOR, INC.

Notes to Consolidated Financial Statements

meeting), each holder of outstanding shares of Series A Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of common stock into which the shares of Series A Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter; provided however that the holders of Series A Preferred Stock shall have no right to vote on the election of the Common Directors, as defined. Holders of Series A Preferred Stock shall vote together with the holders of common stock as a single class.

Conversion

         Each share of Series A Preferred Stock shall be convertible, at the option of the holder, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and non-assessable shares of common stock as is determined by dividing the Series A Original Issue Price by the Series A Conversion Price in effect at the time of conversion. The "Series A Conversion Price" shall initially be equal to $1.00.

Redemption

         Shares of Series A Preferred Stock shall be redeemed by the Company out at a price equal to the highest of (i) the Series A Original Issue Price, plus all accrued but unpaid dividends; and (ii) Fair Market Value as of the date of the applicable redemption request, at any time on or after the fifth (5th) anniversary of the original issue date, after receipt by the Company of written notice requesting redemption of shares of Series A Preferred Stock from the holders of a requisite majority of the Series A Preferred Stock on a date not less than ninety (90) days after the date of the Redemption Request.

         The remaining 636,330 authorized Series A Preferred Stock are "undesignated" and may be used for future conversion of the outstanding convertible notes and warrants. The Series A Preferred Stock will have liquidation preference over all other classes and of equity in any event of liquidation, dissolution or winding up of the Company. In the event of any voluntary or involuntary liquidation or dissolution of the Company, each holder of shares of Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets of the company available for distribution to its Series A Preferred Stockholders before any payment shall be made to the holders of common stock. Holders of the outstanding shares of Series A Preferred Stock are entitled to an ordinary dividend at an annual rate of 10% per share. Dividends shall accrue cumulatively and compound annually on December 31 of each year. Dividends shall be payable when, as and if declared by the Board of Directors in cash or in equivalent shares as defined by the Amended and Restated Certificate of Incorporation of the Company.

11. Commitments and Contingencies

         At August 29, 2013, the Company was subject to various claims and legal actions which are being handled in the ordinary course of business. In management's opinion, these matters are not expected to have a material adverse effect upon the Company's consolidated financial position, results of operations or cash flows.

12. Subsequent Events

         Subsequent events were evaluated through March 24, 2015, which is the date these consolidated financial statements were available to be issued.

         The Company executed an Agreement and Plan of Merger dated as of August 29, 2013, providing for the sale of all of its issued and outstanding common and Series A preferred stock to Teladoc. The aggregate cash consideration of $16.6 million which reflected the impact of certain working capital deficiencies at closing working capital. Upon the effective date of the merger, the Company merged with and into Teladoc, which continued as the surviving corporation.

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Report of Independent Auditors

To Members of
AmeriDoc, LLC

         We have audited the accompanying consolidated financial statements of AmeriDoc, LLC, which comprise the consolidated balance sheets as of December 31, 2013 and April 30, 2014, and the related consolidated statements of operations, changes in members' deficit and cash flows for the year ended December 31, 2013 and the period from January 1, 2014 to April 30, 2014, and the related notes to the consolidated financial statements.

Management's Responsibility for the Financial Statements

         Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.

Auditor's Responsibility

         Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

         An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

         We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

         In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of AmeriDoc, LLC at December 31, 2013 and April 30, 2014, and the consolidated results of their operations and their cash flows for the year ended December 31, 2013 and the period from January 1, 2014 to April 30, 2014 in conformity with U.S. generally accepted accounting principles.


 

 

/s/ Ernst & Young LLP

New York, New York
March 24, 2015

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AMERIDOC, LLC

Consolidated Balance Sheets

 
  December 31, 2013   April 30, 2014  

Assets

             

Cash and cash equivalents

  $ 35,045   $ 57,202  

Accounts receivable

    353,745     456,229  

Other receivables

    1,706     1,180  

Prepaid expenses

    69,506     65,869  

Total current assets

    460,002     580,480  

Property and equipment, net

   
187,008
   
178,288
 

Investment in equity investee

    521,000     521,000  

Other assets

    15,695     15,695  

Total assets

  $ 1,183,705   $ 1,295,463  

Liabilities and members' deficit

             

Accounts payable

  $ 89,866   $ 43,270  

Accrued expenses

    303,805     1,598,742  

Line of credit

    99,262     96,350  

Current portion of long-term debt

    220,000     388,800  

Due to related parties

    447,039     480,128  

Total current liabilities

    1,159,972     2,607,290  

Long-term portion of debt

   
226,000
   
 

Other long-term liabilities

    196,037     180,996  

Members' deficit

    (398,304 )   (1,492,823 )

Total liabilities and members' deficit

  $ 1,183,705   $ 1,295,463  

   

See accompanying notes to audited consolidated financial statements.

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AMERIDOC, LLC

Consolidated Statements of Operations

 
  For the year ended
December 31, 2013
  For the period from
January 1, 2014 to
April 30, 2014
 

Revenue

  $ 3,204,741   $ 1,813,701  

Cost of revenue

    886,987     568,224  

Gross profit

    2,317,754     1,245,477  

Advertising and marketing expenses

   
52,916
   
13,177
 

Sales

    810,727     479,230  

Technology and development expenses

    451,627     97,047  

General and administrative expenses

    1,141,712     1,728,411  

Depreciation

    29,014     8,720  

Loss from operations

    (168,242 )   (1,081,108 )

Interest expense

    2,246     7,657  

Loss before taxes

    (170,488 )   (1,088,765 )

Income taxes

    29,461     5,681  

Net loss

  $ (199,949 ) $ (1,094,446 )

   

See accompanying notes to audited consolidated financial statements.

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AMERIDOC, LLC

Consolidated Statements of Members' Deficit

Members' deficit as of January 1, 2013

  $ (192,617 )

Distributions

   
(5,738

)

Net loss

    (199,949 )

Members' deficit as of December 31, 2013

   
(398,304

)

Distributions

   
(73

)

Net loss

    (1,094,446 )

Members' deficit as of April 30, 2014

  $ (1,492,823 )

   

See accompanying notes to audited consolidated financial statements.

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AMERIDOC, LLC

Consolidated Statements of Cash Flows

 
  For the year ended
December 31, 2013
  For the period from
January 1, 2014 to
April 30, 2014
 

Cash flows from operating activities

             

Net loss

  $ (199,949 ) $ (1,094,446 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities

             

Depreciation

    29,014     8,720  

Forgiveness of debt

        (13,200 )

Changes in operating assets and liabilities:

             

Accounts receivable and other receivables

    (90,038 )   (101,958 )

Prepaid expenses and other assets

    (47,006 )   3,637  

Accounts payable

    78,462     (46,596 )

Accrued expenses and other long-term liabilities

    120,454     1,279,896  

Net cash provided by (used in) operating activities

    (109,063 )   36,053  

Cash flows from investing activities
Purchase in equity investee investment

    (75,000 )   (44,000 )

Net cash used in investing activities

    (75,000 )   (44,000 )

Cash flows from financing activities

             

Advances from related parties, net

    109,657     33,089  

Borrowings on line of credit

    99,262      

Repayments on line of credit

        (2,912 )

Repayments on long term debt

    (150,000 )    

Distributions to members

    (5,738 )   (73 )

Net cash provided by financing activities

    53,181     30,104  

Net increase (decrease) in cash and cash equivalents

    (130,882 )   22,157  

Cash and cash equivalents, beginning of year

    165,927     35,045  

Cash and cash equivalents, end of year

  $ 35,045   $ 57,202  

Interest paid

  $ 2,246   $ 7,657  

   

See accompanying notes to audited consolidated financial statements.

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AMERIDOC, LLC

Notes to Consolidated Financial Statements

1. Nature of Business

         AmeriDoc, LLC (the "Company") is a Texas limited liability company that provides telehealth services to clients and their customers.

         The Company and its Members executed an Agreement and Plan of Merger dated as of May 1, 2014, providing for the sale of all of the membership interests of the Company to Teladoc, Inc. ("Teladoc"). Upon the effective date of the merger, the Company merged with and into Teladoc, which continued as the surviving corporation (see Note 9).

2. Summary of Significant Accounting Policies

Principles of Consolidation

         The consolidated financial statements include the accounts of AmeriDoc, LLC and its wholly-owned subsidiary, AmeriDoc Physicians Network, LLC. All significant intercompany transactions and balances have been eliminated.

Basis of Preparation

         The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). The following is a summary of the significant accounting and reporting policies used in preparing the consolidated financial statements.

Use of Estimates

         The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and such differences could be material to the consolidated financial position and results of operations.

Revenue Recognition

         The Company recognizes a substantial portion of its revenue from contracts that provide clients with subscription access to the Company's professional provider network for a fixed monthly fee which entitles the client's members to unlimited consultations ("visits"). The contracts are generally for a one year term and automatically renew for additional years.

         The Company commences revenue recognition for the subscription access service on the date that the services are made available to the client and its members, which is considered the implementation date, provided all of the following criteria are met:

    there is an executed subscription agreement;

    the member has access to the services;

    collection of the fees is reasonably assured; and

    the amount of fees to be paid by the client and member is fixed and determinable.

         Any consultation revenue that is not included in the subscription access service is recognized when the service has been provided to the member.

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AMERIDOC, LLC

Notes to Consolidated Financial Statements

Cost of Revenue

         Cost of revenue primarily consists of fees paid to the physician network providers, costs incurred in connection with the provider network operations which include employee-related expenses (including salaries and benefits) and costs related to medical malpractice insurance.

Cash and Cash Equivalents

         Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less from the date of purchase. Cash and cash equivalents generally consist of investments in money market funds, U.S. treasury securities and U.S. government-issued obligations. Cash and cash equivalents are stated at fair value and represent a level 1 disclosure according to the fair value hierarchy for which there are observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Accounts Receivable and Allowance for Doubtful Accounts

         Accounts receivable are recorded at the invoiced amount, net of allowances for doubtful accounts. The allowance for doubtful accounts is based on the Company's assessment of the collectability of accounts. The Company regularly reviews the adequacy of the allowance for doubtful accounts by considering the age of each outstanding invoice and the collection history of each customer to determine whether a specific allowance is appropriate. Accounts receivable deemed uncollectable are charged against the allowance for doubtful accounts when identified. There was no allowance for doubtful accounts recorded as of April 30, 2014 and December 31, 2013.

Advertising and Marketing Expenses

         Advertising and marketing costs are expensed as incurred. For the year ended December 31, 2013 and for the period from January 1, 2014 to April 30, 2014, advertising expenses were $52,916 and $13,177, respectively.

Concentrations of Credit Risk

         Financial instruments that potentially subject the Company to concentrations of credit risk are cash and cash equivalents and accounts receivable. At times, the Company's deposits in banks may exceed federally insured limits. In addition, other cash equivalents may expose the Company to certain credit risks. The Company has not experienced any losses in such accounts and does not believe it is exposed to any significant risk. The Company assesses the creditworthiness of its customers before extending credit. Accounts receivable are written off only when all efforts to collect the accounts have been exhausted.

         Two customers represented 26% and 19%, respectively, of total revenue for the year ended December 31, 2013. Three customers represented 16%, 11% and 10%, respectively, of total revenue for the period from January 1, 2014 to April 30, 2014.

         Two customers accounted for 40% and 23% of accounts receivable at December 31, 2013. Two customers accounted for 33% and 24% of accounts receivable at April 30, 2014.

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AMERIDOC, LLC

Notes to Consolidated Financial Statements

         Although the Company does not expect that these customers will fail to meet their obligations, the Company is potentially exposed to concentrations of credit risk if these customers fail to perform according to the terms of the contracts.

Members' Equity

         As of both December 31, 2013 and April 30, 2014, the Company had three members with ownership interests of 79%, 14% and 7%. The membership agreement provides that each member has the right to vote in proportion to their membership percentage interest with respect to any matter, that members will not be personally liable to any third party for any debt, obligation or liability of the Company, whether that liability or obligation arises in contract, tort or otherwise, and that the failure of the Company to observe any formalities or requirements relating to the exercise of its powers or management of its business or affairs under the Company's operating agreement will not be grounds for imposing personal liability on the members for liabilities of the Company.

Operating Leases

         The Company leases office space under an operating lease expiring in 2020. This lease agreement contains rent holidays and rent escalation provisions for which the Company has recognized a deferred rent liability. The Company recognizes rent expense on a straight-line basis over the lease period.

Property and Equipment

         Property and equipment are stated at cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective asset as follows:

Computer equipment

  3 years

Furniture and equipment

  5 years

Leasehold improvements

  Shorter of the lease term or the estimated useful lives of the improvements

         Maintenance and repairs are charged to expense as incurred, and improvements are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the consolidated statement of operations.

Income Taxes

         The Company is taxed as a partnership and therefore does not incur income taxes at the Federal level. The Company's earnings and losses are included in the personal returns of the members.

Long-lived Assets

         The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the undiscounted expected cash flows is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value.

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AMERIDOC, LLC

Notes to Consolidated Financial Statements

There has been no impairment charges recorded in any of the periods presented in the consolidated financial statements.

3. Property and Equipment, net

         Property and equipment, net consisted of the following:

 
  December 31, 2013   April 30, 2014  

Furniture and equipment

  $ 17,504   $ 17,504  

Leasehold improvements

    209,287     209,287  

Total

    226,791     226,791  

Accumulated depreciation

    (39,783 )   (48,503 )

Property and equipment, net

  $ 187,008   $ 178,288  

         Depreciation expense for the year ended December 31, 2013 and for the period from January 1, 2014 to April 30, 2014 was $29,014 and $8,720, respectively.

4. Investment in Equity Investee

         On December 24, 2013, the Company completed an acquisition, in the amount of $521,000, for a 15.57% equity interest in Telemed Services LLC ("Telemed"), which is 79% owned by the majority Member of the Company. The Company accounts for its investment in Telemed as an equity method investment since the Company had the ability to exercise significant influence over Telemed but did not exercise control.

         The Company continually reviews its equity method investment to determine whether a decline in fair value below the carrying value is other than temporary. The primary factors the Company considers in its determination are the length of time that the fair value of the investment is below the Company's carrying value and the financial condition, operating performance and the prospects of the equity investee. If the decline in fair value is deemed to be other than temporary, the carrying value of the equity investee is written down to fair value. There were no impairment charges on the Company's investment for the year ended December 31, 2013 and during the period from January 1, 2014 to April 30, 2014.

5. Accrued Expenses

         Accrued expenses consisted of the following:

 
  December 31, 2013   April 30, 2014  

Accrued fees

  $   $ 1,241,624  

Accrued compensation

    207,272     264,139  

Accrued rent

    12,480     16,621  

Lease improvement allowance

    26,161     26,161  

Accrued franchise tax payable

    29,461     34,983  

Other

    28,431     15,214  

  $ 303,805   $ 1,598,742  

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AMERIDOC, LLC

Notes to Consolidated Financial Statements

6. Debt

    Line of Credit

         The Company has a line of credit with a financial institution in the amount of up to $100,000. Interest on the line of credit is payable monthly at 7.25%. The line of credit is secured by the personal guarantee of the Company's controlling member. The balance payable on the line of credit as of April 30, 2014 and December 31, 2013, was $96,350 and $99,262, respectively.

    Long-Term Debt

         On December 24, 2013, the Company acquired the Telemed interest for the sum of $521,000, payable as follows: $75,000 paid on December 24, 2013 with the balance payable in 18 equal monthly installment payments of $22,000 per month commencing March 20, 2014 with a final payment of $50,000 in September 2015. During 2014, $13,200 of the outstanding balance was forgiven by the equity interest seller.

7. Due to Related Parties

         The Company received advances from certain of its members to fund its operations during 2014 and 2013. These advances are non-interest bearing. Total amounts were $365,696 and $344,131 as of December 31, 2013 and April 30, 2014, respectively.

         On October 7, 2013, the Company executed a note with one of its members in the amount of $144,000 with a maturity date of October 7, 2015. The note accrues interest at the rate of 12.95%. The Company is required to make monthly interest-only installments through March 2014. Monthly installments of principal and interest are payable effective April 2014. During 2013, the Company repaid a portion of the loan such that $81,343 remained outstanding as of December 31, 2013. During 2014, the Company borrowed an additional $50,000 under this note. At April 30, 2014, the balance of the note, including accrued interest was $135,997.

8. Commitments and Contingencies

         At December 31, 2013 and April 30, 2014, the Company is obligated for future lease payments under its office lease. The lease expires October 31, 2020. Total rent expense for the year ended December 31, 2013 and for the period from January 1, 2014 to April 30, 2014 was $80,555 and $30,335, respectively. Annual minimum lease payments under the non-cancellable operating lease as of April 30, 2014 are as follows:

 
  Total Gross
Commitment
 

2014

  $ 74,113  

2015

    133,403  

2016

    178,743  

2017

    183,103  

2018

    183,974  

2019 and thereafter

    345,279  

  $ 1,098,615  

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AMERIDOC, LLC

Notes to Consolidated Financial Statements

         The Company is reimbursed for 40% of its office rental costs by a related party, based on the amount of square footage of the leased office space that the related party occupies.

         At December 31, 2013 and April 30, 2014, the Company was subject to various claims and legal actions which are being handled in the ordinary course of business. In management's opinion, these matters are not expected to have a material adverse effect upon the Company's consolidated financial position, results of operations or cash flows.

9. Subsequent Events

         Subsequent events were evaluated through March 24, 2015, which is the date the financial statements were available to be issued.

         The Company and its members executed an Agreement and Plan of Merger dated as of May 1, 2014, providing for the sale of all of the membership interests of the Company to Teladoc. The aggregate cash consideration of $17.2 million included adjustments for a working capital excess at closing. Upon the effective date of the merger, the Company merged with and into Teladoc, which continued as the surviving corporation.

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Report of Independent Auditors

To the Board of Directors and Stockholders of
Stat Health Services Inc.

         We have audited the accompanying financial statements of Stat Health Services Inc. (the Company) which comprise the balance sheet as of December 31, 2014, and the related statements of operations, changes in convertible preferred stock and stockholders' deficit and cash flows for the year then ended, and the related notes to the financial statements.

Management's Responsibility for the Financial Statements

         Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.

Auditor's Responsibility

         Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

         An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

         We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

         In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Stat Health Services Inc. at December 31, 2014, and the results of its operations and its cash flows for the year ended December 31, 2014 in conformity with U.S. generally accepted accounting principles.

Stat Health Services Inc.'s Ability to Continue as a Going Concern

         The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has losses from operations that raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.


 

 

/s/ Ernst & Young LLP

Denver, Colorado
June 5, 2015

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STAT HEALTH SERVICES INC.

Balance Sheet

 
  December 31, 2014  

Assets

       

Cash and cash equivalents

  $ 1,508,819  

Accounts receivable

    193,240  

Accounts receivable from significant shareholders and affiliates

    34,358  

Prepaid expenses and other current assets

    6,726  

Total current assets

    1,743,143  

Property and equipment, net

    34,595  

Intangible assets, net

    117,851  

Notes receivable from employees

    21,100  

Other assets

    7,877  

Total assets

  $ 1,924,566  

Liabilities, convertible preferred stock and stockholders' deficit

   
 
 

Accounts payable

  $ 208,247  

Accounts payable to significant shareholders and affiliates

    155,072  

Accrued expenses

    38,326  

Deferred income

    170,087  

Total current liabilities

    571,732  

Commitments and Contingencies

   
 
 

Convertible Preferred Stock-Series A—$0.001 par value, 23,000,000 shares authorized and 22,602,794 shares issued and outstanding

    17,637,905  

Stockholders' deficit

   
 
 

Common Stock—$0.001 par value, 32,000,000 shares authorized and 2,226,767 shares issued and outstanding

    2,227  

Additional paid-in capital

    2,903,583  

Accumulated deficit

    (19,190,881 )

Total stockholders' deficit

    (16,285,071 )

Total liabilities, convertible preferred stock and stockholders' deficit

  $ 1,924,566  

   

See accompanying notes to audited financial statements.

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STAT HEALTH SERVICES INC.

Statement of Operations

For the year ended December 31, 2014

Revenue

  $ 2,317,417  

Cost of revenue

    460,778  

Gross profit

    1,856,639  

Operating expenses:

       

Marketing and advertising

    481,689  

Selling expenses

    1,063,723  

Technology and development

    1,010,862  

General and administrative

    2,546,865  

Depreciation and amortization

    80,905  

Loss from operations

    (3,327,405 )

Other income (expense)

       

Grant income

    83,333  

Interest income

    1,830  

Interest expense

    (1,447 )

Net loss before taxes

    (3,243,689 )

Income taxes

     

Net loss

  $ (3,243,689 )

   

See accompanying notes to audited financial statements.

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STAT HEALTH SERVICES INC.

Statement of Changes in Convertible Preferred Stock and Stockholders' Deficit

For the year ended December 31, 2014

 
  Convertible
Preferred Stock
   
   
   
   
   
   
 
 
   
  Common Stock    
   
   
 
 
   
  Additional
Paid-In
Capital
  Accumulated
Deficit
   
 
 
  Shares   Amount    
  Shares   Amount   Total  

Balance, January 1, 2014

      $         18,191,533   $ 18,191   $ 10,683,623   $ (10,985,040 ) $ (283,226 )

Issuance of Common Stock

                2,110,000     2,110     18,990         21,100  

Issuance of Convertible Stock Preferred Stock

    4,469,528     3,438,107                          

Exchange of Common Stock to Convertible Preferred Stock

    18,133,266     14,199,798         (18,133,266 )   (18,133 )   (9,219,513 )   (4,962,152 )   (14,199,798 )

Stock option exercise

                58,500     59     29,191         29,250  

Stock-based compensation

                        1,391,292         1,391,292  

Net loss

                            (3,243,689 )   (3,243,689 )

Balance, December 31, 2014

    22,602,794   $ 17,637,905         2,226,767   $ 2,227   $ 2,903,583   $ (19,190,881 ) $ (16,285,071 )

   

See accompanying notes to audited financial statements.

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STAT HEALTH SERVICES INC.

Statement of Cash Flows

For the year ended December 31, 2014

Cash flows used in operating activities

       

Net loss

  $ (3,243,689 )

Adjustments to reconcile net loss to net cash used in operating activities:

       

Depreciation and amortization

    80,905  

Stock-based compensation

    1,391,292  

Changes in operating assets and liabilities:

       

Accounts receivable

    (89,251 )

Prepaid expenses and other current assets

    (3,419 )

Other assets

    17,533  

Accounts payable

    52,383  

Accrued expenses

    (109,760 )

Deferred income

    (163,371 )

Net cash used in operating activities

    (2,067,377 )

Cash flows used in investing activities

       

Purchase of property and equipment

    (33,747 )

Cash flows from financing activities

       

Proceeds from issuance of convertible preferred stock

    3,438,107  

Net increase in cash and cash equivalents

    1,336,983  

Cash and cash equivalents, beginning of year

    171,836  

Cash and cash equivalents, end of year

  $ 1,508,819  

Supplemental cash flow information:

       

Cash paid for interest

  $ 1,447  

   

See accompanying notes to audited financial statements.

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STAT HEALTH SERVICES INC.

Notes to Audited Financial Statements

1. Nature of Business

         Stat Health Services Inc. (the "Company") is a Delaware corporation that provides telehealth services to clients and their customers.

         The Company has incurred a net loss of $3,243,689 for the year ended December 31, 2014, and the accumulated deficit is $19,190,881 as of December 31, 2014. In addition, net cash flows used in operations were $2,067,377 for the year ended December 31, 2014. The Company's ability to continue operations and fund its expenditures is dependent on continued ongoing contributions and support of the existing shareholders, further investments from outside investors or a sale of the Company. There can be no assurance the Company will be able to obtain additional funding.

         The Company executed an Agreement and Plan of Merger dated as of May 22, 2015, providing for the merger of the Company into a wholly owned subsidiary of Teladoc, Inc. ("Teladoc"). Upon the effective date of the merger, the Company will merge with and into a wholly owned subsidiary of Teladoc, which subsidiary will continue as the surviving corporation of the merger and the separate existence of the Company will cease.

2. Summary of Significant Accounting Policies

Basis of Preparation

         These financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). The following is a summary of the significant accounting and reporting policies used in preparing the financial statements.

Use of Estimates

         The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and such differences could be material to the financial position and results of operations. Significant estimates and assumptions affect the allowance for doubtful accounts, the carrying value, capitalization and amortization of software and website development costs, warrants, and the value attributed to stock options.

Revenue Recognition

         The Company provides tele-health services to its customers. The Company recognizes a substantial portion of its revenue from contracts that provide clients with subscription access to the Company's professional provider network of physicians for a fixed monthly fee which entitles the client's members to consultations with physicians ("visits") for a per visit fee. The contracts are generally for a one to two year term and automatically renew for additional years.

         The Company recognizes revenue for the subscription access service on the date that the services are made available to the client and its members, which is considered the implementation date, provided all of the following criteria are met:

    there is an executed subscription agreement;

    the member has access to the services;

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STAT HEALTH SERVICES INC.

Notes to Audited Financial Statements

    collection of fees is reasonably assured; and

    the amount of fees to be paid by the client and member is fixed and determinable.

         Any consultation revenue that is not included in the subscription access service is recognized when the service has been provided to the member by the physician.

Costs of Revenue

         Costs of revenue primarily consist of fees paid to the physician network providers and direct costs incurred in connection with the provider network operations.

Marketing and Advertising Expenses

         Marketing and advertising costs are expensed as incurred. For the year-ended December 31, 2014 market and advertising expenses were $267,577.

Selling Expenses

         Selling expenses consist principally of sales commissions, employee-related cost and travel.

Cash and Cash Equivalents

         Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less from the date of purchase. Cash and cash equivalents generally consist of investments in money market funds and are stated at fair value.

Accounts Receivable and Allowance for Doubtful Accounts

         Accounts receivable are recorded at the invoiced amount, net of allowances for doubtful accounts. The allowance for doubtful accounts is based on the Company's assessment of the collectability of accounts. The Company regularly reviews the adequacy of the allowance for doubtful accounts by considering the age of each outstanding invoice and the collection history of each customer to determine whether a specific allowance is appropriate. Accounts receivable deemed uncollectable are charged against the allowance for doubtful accounts when identified. Management determined no allowance was necessary at December 31, 2014.

Concentration of Credit Risk

         Financial instruments that potentially subject the Company to concentrations of credit risk are cash and cash equivalents and accounts receivable. At times, the Company's deposits in banks may exceed federally insured limits. In addition, other cash equivalents may expose the Company to certain credit risks. The Company has not experienced any losses in such accounts and does not believe it is exposed to any significant risk. The Company assesses the creditworthiness of its customers before extending credit. Accounts receivable are written off only when all efforts to collect the accounts have been exhausted.

         Two customers represented approximately 22% and 11%, respectively, of total revenue for the year ended December 31, 2014. One of these customers accounted for approximately 11% of accounts receivable at December 31, 2014. Although the Company does not expect that these customers will fail to meet their obligations, the Company is potentially exposed to concentrations of credit risk if these customers failed to perform according to the terms of the contracts.

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STAT HEALTH SERVICES INC.

Notes to Audited Financial Statements

Property and Equipment

         Property and equipment are stated at cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective asset as follows:

Computer equipment

  3 years

Furniture and equipment

  5 years

Leasehold improvements

  Shorter of useful life or lease term

         Expenditures for additions and betterments that extend the useful lives of equipment are capitalized and depreciated over the estimated remaining useful lives of the related assets. Expenditures for repairs and maintenance are charged to expense as incurred. Gains and losses on sales and retirements are reflected in income during the year of actual sale or retirement.

Intangible Assets

         Internal use software is included in intangible assets and is amortized on a straight-line basis over three years. For the Company's development costs related to its software development tools that enable it members and service providers to interact, the Company capitalizes costs incurred during the application development stage. Costs related to minor upgrades, minor enhancements and maintenance activities are expensed as incurred.

Long-lived Assets

         In accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 360, Property, Plant and Equipment , long-lived assets, such as equipment and leaseholds, and identified intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated future undiscounted cash flows expected to be generated by an asset. For this test, assets are grouped with other assets to the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the carrying amount of an asset grouping exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset grouping. Management determined that no impairment of long-lived assets existed as of December 31, 2014.

Income Taxes

         The Company accounts for income taxes using the liability method, under which deferred tax assets and liabilities are determined based on the future tax consequences attributable to differences between the financial reporting carrying amounts of existing assets and liabilities and their respective tax bases and tax credit and net operating loss carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to be in effect when the differences are expected to reverse.

         The Company assesses likelihood that deferred tax assets will be recovered from future taxable income, and a valuation allowance is established when necessary to reduce deferred tax assets to amounts more likely than not expected to be realized.

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STAT HEALTH SERVICES INC.

Notes to Audited Financial Statements

         The Company recognizes and measures uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken or expected to be taken by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Significant judgment is required to evaluate uncertain tax positions. The Company evaluates uncertain tax positions on a regular basis. The evaluations are based on a number of factors, including changes in facts and circumstances, changes in tax law, correspondence with tax authorities during the course of audit and effective settlement of audit issues. The Company recognizes interest and penalties to uncertain tax positions in income tax expense. There were no interest and penalties recorded on uncertain tax positions for the year-ended December 31, 2014.

Stock-based Compensation

         The Company accounts for service and performance stock options under the recognition and measurement provisions of ASC 718, Compensation—Stock Compensation . This guidance requires that compensation cost relating to share-based payment transactions with service conditions be recognized in the financial statements. That cost is measured based on the fair value of the equity or liability instruments issued. The standard requires entities to measure the cost of employee services received in exchange for stock options based on the grant-date fair value of the award and to recognize the cost over the period the employee is required to provide services for the award. The Company recognizes compensation expense under ASC 718 over the requisite service period using the straight-line method. The Company uses the Black-Scholes option-pricing model to estimate the fair value of its share-based payments for stock options with service conditions.

         The accounting guidance requires that compensation cost for awards with performance conditions be recognized if and when the Company concludes that it is probable that the performance condition will be achieved, net of an estimate of pre-vesting forfeitures. The Company is required to reassess the probability of vesting at each reporting period for awards with performance conditions and adjust compensation expense based on its probability assessment. In certain situations, a company may not be able to determine that it is probable that a performance condition will be satisfied until the event occurs.

Warranties and Indemnification

         The Company's contracts generally includes certain provisions for mutual indemnification from damages, liabilities and expenses sustained in connection with the breach or performance of any of the obligations under such agreement. To date, the Company has not incurred any material costs as a result of such indemnifications and has not accrued any liabilities related to such obligations in the financial statements. The Company has entered into service-level agreements with certain customers warranting defined levels of performance and response and permitting those customers to receive credits or refunds of amounts paid to the Company related to access subscription services in the event that we fail to meet those levels. To date, the Company has not experienced any significant failures to meet defined levels of performance and response as a result of those agreements, and accordingly, the Company has not accrued any liabilities in the financial statements.

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STAT HEALTH SERVICES INC.

Notes to Audited Financial Statements

         The Company has also agreed to indemnify its directors and executive officers for liabilities, losses, or expenses reasonably incurred by such person in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person's service as a director or officer, including any action by the Company, arising out of that person's services as a director or officer or that person's services provided to any other company or enterprise at the Company's request. The Company provides such indemnification through the Company's certificate of incorporation and bylaws, and in some instances, indemnification agreements with directors and officers. The Company maintains director and officer insurance coverage that would generally enable the Company to recover a portion of any future amounts paid. The Company may also be subject to indemnification obligation by law with respect to the actions of employees under certain circumstances and in certain jurisdictions.

3. Property and Equipment, Net

         Property and equipment, net consists of the following:

 
  December 31, 2014  

Computer equipment

  $ 41,569  

Furniture and equipment

    24,164  

Leasehold improvements

    9,497  

Total

    75,230  

Accumulated depreciation

    (40,635 )

Property and equipment, net

  $ 34,595  

         Depreciation expense for the year ended December 31, 2014 was $21,980.

4. Lease Commitment

         The lease on the Company's office facilities expires in March 2016. Rent expense for the year ended December 31, 2014 was approximately $60,350. In connection with this lease, the Company has issued warrants to the lessor to purchase 17,604 shares of Class A Common Stock at a price of $0.001 per share. These warrants were exercised in April, 2015.

5. Intangible Assets, Net

         Intangible assets consist of the following at December 31:

 
   
  2014  
 
  Average Useful
Life (Years)
  Gross
Carrying
Amount
  Accumulated
Amortization
  Net
Carrying
Amount
 

Mobile Platform Costs

    3   $ 176,776   $ (58,925 ) $ 117,851  

         Amortization expense for the year ended December 31, 2014 was $58,925. Estimated aggregate amortization expense is $58,925 for each year ending December 31, 2015 and 2016. The Company has not recognized any impairment losses as of December 31, 2014.

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STAT HEALTH SERVICES INC.

Notes to Audited Financial Statements

6. Grant Income

         In 2013, the Company received a grant from the state of Arizona for $250,000. The grant was provided for costs to be incurred by the Company on mobile application and related technology including hiring of senior developer. As a condition of the grant if, the Company relocates any or all corporate facilities of the Company within three years of the effective date of the grant agreement, it shall repay the grant payment to the State of Arizona. The Company is recognizing this grant as other income over a three year period.

7. Income Taxes

         The Company has no provision or benefit for income taxes for year-ended December 31, 2014.

         Significant components of the Company's deferred income taxes as of December 31, 2014 are shown below:

Deferred tax assets:

       

Deferred revenue

  $ 37,000  

Property and equipment

    3,000  

Intangibles

    826,000  

Stock compensation

    138,000  

Federal NOL carry forward

    3,144,000  

State NOL carry forward

    348,000  

Other

    10,000  

Total deferred tax assets

    4,506,000  

Less: valuation allowance

    (4,506,000 )

Net deferred tax assets

  $  

         The Company has provided a full valuation allowance for the deferred tax assets at December 31, 2014, due to the uncertainty surrounding the future realization of such assets. Therefore, no benefit has been recognized for the net operating loss carryforwards and other deferred tax assets. The Company's total valuation allowance increased by $506,000 during the period.

         The Company has available net operating loss carry-forwards of $9,247,000 which are available to offset future taxable income, if any. If not utilized, the federal net operating loss carryforwards begin to expire in 2030.

         The Company's ability to utilize the net operating loss and tax credit carryforwards in the future may be subject to substantial restrictions in the event of past or future ownership changes as defined in Section 382 of the U.S. Internal Revenue Code of 1986 as amended. In the event the Company should experience an ownership change, as defined, utilization of the net operating loss carryforwards and tax credits could be limited.

         The Company's 2010 to 2013 tax returns remain subject to examination by the IRS.

8. Stock-Based Compensation

         The Company established the four separate equity incentive plans: (a) 2009 Equity Incentive Plan—Plan A; (b) 2009 Equity Incentive Plan—Plan B; (c) 2010 Equity Incentive Plan—Plan A; and

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STAT HEALTH SERVICES INC.

Notes to Audited Financial Statements

(d) 2010 Equity Incentive Plan—Plan B (collectively, the "Plans"). Under the Plans, rights to exercise the options granted generally vest over a three-year period following the grant date so long as the recipient remains in continuous service to Company and have a contractual term of 10 years. The terms of the options provide for accelerated vesting upon a change in control of Company in the event a successor company refuses to assume or substitute the term of the options.

         All stock-based payments to employees are measured based on the grant-date fair value of the awards and are recognized in the statement of operations over the period during which the employee is required to perform services in exchange for the award (generally the vesting period of the award). The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model.

         Given the absence of a public trading market, the board of directors considered recent sales of common stock to determine the fair value of the common stock at each grant date, as well as a recent third-party valuation.

         The Company has also issued stock options to non-employees which are recognized as expense at fair value when the services are performed. Non-employee options are included in the table below.

 
  Shares
Available
for
Grant
  Number of
Shares
Outstanding
  Weighted-
Average
Exercise
Price
  Weighted-
Average
Remaining
Contractual
Life in
Years
 

Balance at January 1, 2014

    174,750     3,325,250     0.50     7.74  

Stock option grants

    (2,204,000 )   1,196,500     0.52     9.45  

Stock options exercised

        (58,500 )   0.52      

Cancelled / forfeited

    2,302,750     (2,302,750 )            

Balance at December 31, 2014

    273,500     2,160,500     0.52     8.67  

Vested or expected to vest December 31, 2014

          2,160,500              

Exercisable as of December 31, 2014

          611,114              

         The total grant-date fair value of stock options granted during the year ended December 31, 2014 was $492,381. The total grant-date fair value of stock options vested during the year ended December 31, 2014 was $287,483. The total intrinsic value of the options exercised during the year ended December 31, 2014 was $29,250. The intrinsic value is the difference of the current fair value of the stock and the exercise price of the stock option.

         The fair value of each option grant was estimated on the date of grant for employees and when the services were performed for non-employees using the Black-Scholes option-pricing model with the following assumptions and fair value per share:

Volatility

    85.00 %

Expected life (in years)

    7.00  

Risk-free interest rate

    2.17% – 2.71 %

Dividend yield

     

Fair value of underlying common stock

    $.52  

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STAT HEALTH SERVICES INC.

Notes to Audited Financial Statements

         The assumptions used in the Black-Scholes option-pricing model were determined as follows:

         Volatility.     Since there is no trading history for the Company's common stock, the expected volatility was derived from the historical stock volatilities of several unrelated public companies within the industry that were considered to be comparable to the business over a period equivalent to the expected term of the stock option grants.

         Expected life.     The expected term represents the period that the stock-based awards are expected to be outstanding.

         Risk-free interest rate.     The risk-free rate used is based on U.S. Treasury zero-coupon issues with terms similar to the expected term on the options.

         Dividend yield.     No cash dividends have been declared or paid and the Company does not plan to pay cash dividends in the foreseeable future; therefore, the Company used an expected dividend yield of zero.

         Total compensation cost charged as an expense for stock based awards, including stock options recognized in the components of operating expenses are as follows:

Cost of sales

  $ 28,119  

Advertising and marketing

    19,714  

Selling expenses

    35,726  

Technology and development

    83,171  

General and administrative

    1,224,562  

Total

  $ 1,391,292  

         As of December 31, 2014, the Company had $481,520 in unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over a weighted average period of approximately 1.7 years.

         In 2014, the Company also issued 2,110,000 shares of common stock to certain key executives in exchange for previously held stock options. This resulted in approximately $1,100,000 of additional stock-based compensation expense.

         In 2014, the Company granted a board member a bonus, in lieu of requiring a cash payment, to exercise 58,500 options.

9. Common Stock

         At December 31, 2014, there were 32,000,000 shares of common stock, par value of $0.001 ("Common Stock") authorized, of which 2,226,767 shares were issued and outstanding. The holders of Common Stock are entitled to one vote for each share on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Subject to the preferences that may be applicable to any then-outstanding preferred stock, the holders of Common Stock will be entitled to receive such dividends, if any, as may be declared by the Board of Directors from time to time out of legally available funds. Upon the liquidation, dissolution, or winding up of the Company, after payment of all debts and other liabilities and subject to the prior rights of holders of any preferred stock then outstanding, the holders of Common Stock will be entitled to share ratably in all assets that are legally available for distribution. The holders of common stock have no preemptive, subscription, redemption, or conversion rights

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STAT HEALTH SERVICES INC.

Notes to Audited Financial Statements

10. Convertible Preferred Stock—Series A

         At December 31, 2014, there were 23,000,000 shares of Series A Convertible Preferred Stock, par value of $0.001 ("Series A Preferred") authorized, of which 22,602,794 shares were issued and outstanding. The Series A Preferred have an aggregate liquidation preference of approximately $0.9176 per Series A Preferred share. The Series A Preferred are convertible into common shares, at the option of the holder, at the conversion rate in effect at the time multiplied by the number of Series A Preferred being converted as defined in the Series A Preferred agreement (one-to-one at December 31, 2014). Each share of Series A Preferred will convert automatically into shares of Common Stock, at the conversion rate in effect at the time, upon (a) the closing of a Qualified Public Offering (as defined), or (b) the date specified by unanimous vote or consent of the Key Investors (as defined). Holders of Series A Preferred are entitled to one vote per share, on an as-if-converted to Common Stock basis. The holders of Series A Preferred are also entitled to dividends, when, as, and if declared by the Board of Directors, at a rate determined by the Board of Directors, payable in preference and priority to any payment of any cash dividend on Common Stock. The dividends on Series A Preferred will not accrue and are not cumulative. Upon the liquidation, dissolution, or winding up of the Company, and after the receipt of the liquidation preference, the holders of Series A Preferred will not participate further in the assets then remaining for distribution and all remaining assets available for distribution, if any, will be distributed among the holders of Common Stock on a pro-rata basis.

         One holder of Series A Preferred will have the right, upon the occurrence of certain events, to redeem up to 4,469,528 shares of Series A Preferred at a price equal to the fair market value of such Series A Preferred on the date such redemption notice is delivered. If such redemption notice is received, the Company will have the obligation to redeem the shares of Series A Preferred from such holder in three equal annual installments, commencing on the one year anniversary date of the redemption date. The right to request redemption of the shares of Series A Preferred is not transferrable by the holder.

    Recapitalization

         In connection with the issuance of Series A Preferred Stock discussed above, each holder of Company's Class A Common Stock immediately prior to the Series A Preferred Stock issuance was offered the right to exchange each share of Class A Common Stock for one share of Company's Series A Preferred Stock. At the same time, the Company issued 2,110,000 shares of its common stock to certain key executives as discussed in Note 8.

11. Commitments and Contingencies

         At December 31, 2014 there were no claims or legal actions which, in management's opinion, are expected to have a material adverse effect upon the Company's financial position, results of operations or cash flows.

         The Company has entered into several employment agreements with key employees which if terminated without cause require payment of six months' salary as severance.

12. Related Party Transactions

         For the year-ended December 31, 2014, revenue includes $136,237, cost of revenue includes $390,842 and general and administrative expenses includes $60,000 of expenses from significant

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STAT HEALTH SERVICES INC.

Notes to Audited Financial Statements

shareholders and their affiliates. The balance sheet reflects $34,358 of accounts receivables from and $155,072 accounts payable to significant shareholders and their affiliates as of December 31, 2014.

         The Company has notes receivable from certain key executives of $21,100 as of December 31, 2014. Notes receivable carry interest at the rate of 3% per annum and shall be due and payable upon the earlier of i) February 27, 2019 and ii) a liquidation event as defined in the notes receivable agreements or sale of common stock by the executives.

13. Subsequent Events

         Subsequent events were evaluated through June 5, 2015, which is the date the financial statements were available to be issued.

         Subsequent to the year end, the Company signed an amendment agreement with a professional services provider, a significant shareholder, and its affiliates to terminate the Company's obligation to pay future bonuses or share of the Company's retained profits to the service provider. As a result of these terminations, the Company is required to pay an amount of $441,080 in twelve equal installments starting from earlier of i) completion of the Company's Series B financing, if any and ii) September 1, 2015. The amount becomes due and payable as lump sum if the Company is acquired or there is a change in control. Under the amendment agreement, the Company is also obligated to reimburse the service provider for future certain state licensing, credentialing, and other expenses necessary to permit participation in the programs offered by the Company.

         Subsequent to the year end, the Company signed a settlement and release agreement with a previous professional service provider to terminate the Company's obligations to pay bonus fee based on the Company's future retained earnings and per member visit revenue payments to the service provider. As a result of these terminations, the Company is required to pay an amount of $190,000 within 30 days of any equity financing of the Company and not later than 90 days of the agreement date.

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TELADOC, INC.

Consolidated Balance Sheets

(in thousands, except share and per share data)

 
  As of
December 31,
2014
  As of
March 31,
2015
  Pro Forma
Stockholders'
Equity as of
March 31,
2015
 
 
   
  (unaudited)
  (unaudited)
 

Assets

                   

Current assets:

                   

Cash and cash equivalents

  $ 46,436   $ 32,060        

Accounts receivable, net of allowance of $2,635 and $1,785, respectively

    6,839     8,680        

Due from officer

    253            

Prepaid expenses and other current assets

    1,122     2,695        

Deferred taxes

    12     27        

Total current assets

    54,662     43,462        

Property and equipment, net

    1,065     1,218        

Goodwill

    28,454     33,149        

Intangible assets, net

    7,530     9,247        

Other assets

    296     285        

Total assets

  $ 92,007   $ 87,361        

Liabilities, convertible preferred stock and stockholders' deficit

                   

Current liabilities:

                   

Accounts payable

  $ 2,210   $ 3,572        

Accrued expenses and other current liabilities

    6,623     10,439        

Accrued compensation

    3,358     2,688        

Long-term bank and other debt-current

    833     1,146        

Total current liabilities

    13,024     17,845        

Other liabilities

    62     2,521        

Deferred taxes

    494     726        

Long term bank and other debt

    25,196     24,902        

Commitments and contingencies

                   

Convertible preferred stock, $0.001 par value; 50,479,286 shares authorized as of March 31, 2015 and December 31, 2014; 50,452,939 shares issued as of March 31, 2015 and December 31, 2014 with liquidation preference of $117,914 as of March 31, 2015 and December 31, 2014; no shares authorized or issued and outstanding pro forma (unaudited)

    117,914     117,914        

Redeemable common stock, $0.001 par value; 113,294 common shares issued and outstanding

    2,852     2,852        

Stockholders' equity (deficit):

                   

Common stock, $0.001 par value; 32,179,448 shares authorized as of March 31, 2015 and December 31, 2014; 2,060,165 and 2,037,999 shares issued and outstanding as of March 31, 2015 and December 31, 2014, 32,179,448 shares authorized and 27,623,900 issued pro forma (unaudited);

    2     2   $ 27  

Additional paid-in capital

    4,953     5,792     126,533  

Accumulated deficit

    (72,490 )   (85,193 )   (85,193 )

Total stockholders' equity (deficit)

    (67,535 )   (79,399 ) $ 41,367  

Total liabilities, convertible preferred stock and stockholders' deficit

  $ 92,007   $ 87,361        

   

See accompanying notes to unaudited consolidated financial statements.

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TELADOC, INC.

Consolidated Statements of Operations

(in thousands, except per share data, unaudited)

 
  Three Months
Ended March 31,
 
 
  2014   2015  

Revenue

  $ 9,407   $ 16,488  

Cost of revenue

    1,982     5,281  

Gross profit

    7,425     11,207  

Operating expenses:

             

Advertising and marketing

    2,518     4,341  

Sales

    2,145     3,682  

Technology and development

    1,192     2,906  

General and administrative

    3,344     11,968  

Depreciation and amortization

    414     903  

Loss from operations

    (2,188 )   (12,593 )

Interest income(expense), net

    (54 )   (568 )

Net loss before taxes

    (2,242 )   (13,161 )

Income tax provision (benefit)

    72     (458 )

Net loss

  $ (2,314 ) $ (12,703 )

Net loss per share, basic and diluted

  $ (2.35 ) $ (5.87 )

Weighted-average shares used to compute basic and diluted net loss per share

    1,423,732     2,162,413  

Pro forma net loss per share, basic and diluted (unaudited)

        $ (0.46 )

Weighted-average shares used to compute basic and diluted pro forma net loss per share (unaudited)

          27,612,862  

   

See accompanying notes to unaudited consolidated financial statements.

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TELADOC, INC.

Consolidated Statement of Convertible Preferred Stock
and Stockholders' Deficit

(in thousands, except share data, unaudited)

 
  Convertible
Preferred Stock
  Redeemable
Common Stock
   
   
   
   
   
 
 
  Common Stock    
   
   
 
 
  Additional
Paid-In
Capital
  Accumulated
Deficit
  Total
Stockholders'
Deficit
 
 
  Shares   Amount   Shares   Amount   Shares   Amount  

Balance as of December 31, 2014

    50,452,939   $ 117,914     113,294   $ 2,852     2,037,999   $ 2   $ 4,953   $ (72,490 ) $ (67,535 )

Exercise of stock options, net

                    22,166         28         28  

Stock based compensation

                            811         811  

Net loss

                                (12,703 )   (12,703 )

Balance as of March 31, 2015

    50,452,939   $ 117,914     113,294   $ 2,852     2,060,165   $ 2   $ 5,792   $ (85,193 ) $ (79,399 )

   

See accompanying notes to unaudited consolidated financial statements.

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TELADOC, INC.

Consolidated Statements of Cash Flows

(in thousands, unaudited)

 
  Three Months Ended March 31,  
 
  2014   2015  

Operating activities:

             

Net loss

  $ (2,314 ) $ (12,703 )

Adjustments to reconcile net loss to net cash used in operating activities:

             

Depreciation and amortization

    414     903  

Allowance for doubtful debts

    255     451  

Stock-based compensation

    162     811  

Deferred income taxes

    72     (458 )

Accretion of interest

    2     39  

Changes in operating assets and liabilities:

             

Accounts receivable

    (3,067 )   (2,281 )

Due from officer

        253  

Prepaid expenses and other current assets

    4     (1,593 )

Other assets

    (6 )   12  

Accounts payable

    1,858     1,357  

Accrued expenses and other current liabilities

    256     3,475  

Accrued compensation

    161     (670 )

Other liabilities

    7     68  

Net cash used in operating activities

    (2,196 )   (10,336 )

Investing activities:

   
 
   
 
 

Purchase of property and equipment

    (219 )   (365 )

Purchase of internal software

    (182 )   (434 )

Acquisition of business, net of cash acquired

        (3,269 )

Net cash used in investing activities

    (401 )   (4,068 )

Financing activities:

   
 
   
 
 

Proceeds from the exercise of stock options and warrants

    385     28  

Net cash provided by financing activities

    385     28  

Net decrease in cash and cash equivalents

    (2,212 )   (14,376 )

Cash and cash equivalents at beginning of year

    3,212     46,436  

Cash and cash equivalents at end of year

    1,000   $ 32,060  

Interest paid:

  $ 32   $ 424  

   

See accompanying notes to unaudited consolidated financial statements.

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TELADOC, INC.

Notes to Unaudited Consolidated Financial Statements

Note 1. Organization and Description of Business

         Teladoc, Inc. ("Teladoc", or the "Company") was incorporated in the State of Texas in June 2002 and changed its state of incorporation to the State of Delaware in October 2008. The Company's principal executive offices are located in Dallas, Texas and Purchase, New York. Teladoc is the nation's largest telehealth company.

         The Company completed the acquisition of Consult A Doctor, Inc. ("CADR"), AmeriDoc, LLC ("AmeriDoc") and Compile, Inc. d/b/a BetterHelp ("BetterHelp"), three companies engaged in telehealth activities similar to Teladoc, in 2013, 2014 and 2015, respectively. Upon the effective date of each respective merger, each entity merged with and into Teladoc.

Note 2. Summary of Significant Accounting Policies

    Basis of Presentation and Principles of Consolidation

         These unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company's management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals and adjustments) necessary to present fairly the financial postion, results of operations and cash flows of th Company at the dates and for the periods indicated. The interim results for the period ended March 31, 2015 are not necessarily indicative of results for the full 2015 fiscal year or any other future interim periods.

         The unaudited consolidated financial statements include the results of Teladoc, a professional association and six professional corporations: Teladoc Physicians, P.A., Teladoc Physicians, P.C. formed and operated in Alaska; Teladoc Physicians, P.C. formed and operated in California; Teladoc Physicians, P.C. formed and operated in Colorado; Teladoc Physicians, P.C. formed and operated in Michigan; Teladoc Physicians, P.C. formed and operated in New Jersey; and Teladoc Physicians, P.C. formed and operated in New York (collectively, the "Association").

         Teladoc Physicians, P.A. is party to a Services Agreement by and among it and the six professional corporations noted above pursuant to which each professional corporation provides services to Teladoc Physicians, P.A. Each professional corporation is established pursuant to the requirements of its respective domestic jurisdiction governing the corporate practice of medicine.

         The Company holds a variable interest in the Association which contracts with physicians and other health professionals in order to provide services to Teladoc. The Association is considered a variable interest entity ("VIE") since it does not have sufficient equity to finance its activities without additional subordinated financial support. An enterprise having a controlling financial interest in a VIE, must consolidate the VIE if it has both power and benefits—that is, it has (1) the power to direct the activities of a VIE that most significantly impact the VIE's economic performance (power) and (2) the obligation to absorb losses of the VIE that potentially could be significant to the VIE or the right to receive benefits from the VIE that potentially could be significant to the VIE (benefits). The Company has the power and rights to control all activities of the Association and funds and absorbs all losses of the VIE. Total revenue and net loss for the VIE were $3.3 million and $(2.4) million and $1.4 million and $(0.6) million for the three months ended March 31, 2015

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Notes to Unaudited Consolidated Financial Statements

and 2014, respectively. The VIE's total assets were $1.9 million and $2.1 million at March 31, 2015 and December 31, 2014, respectively. Total liabilities for the VIE were $13.5 million and $11.2 million at March 31, 2015 and December 31, 2014, respectively. The VIE total stockholders' deficit was $11.5 million and $9.1 million at March 31, 2015 and December 31, 2014, respectively.

         All significant intercompany transactions and balances have been eliminated.

    Business Combinations

         The Company accounts for its business combinations using the acquisition method of accounting. The cost of an acquisition is measured as the aggregate of the acquisition date fair values of the assets transferred and liabilities assumed by the Company to the sellers and equity instruments issued. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date. The excess of (i) the total costs of acquisition over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill.

    Use of Estimates

         The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company bases its estimates on historical experience, current business factors, and various other assumptions that the Company believes are necessary to consider to form a basis for making judgments about the carrying values of assets and liabilities, the recorded amounts of revenue and expenses, and the disclosure of contingent assets and liabilities. The Company is subject to uncertainties such as the impact of future events, economic and political factors, and changes in the Company's business environment; therefore, actual results could differ from these estimates. Accordingly, the accounting estimates used in the preparation of the Company's financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Company's operating environment changes.

         Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in reported results of operations; if material, the effects of changes in estimates are disclosed in the notes to the consolidated financial statements. Significant estimates and assumptions by management affect the allowance for doubtful accounts, the carrying value of long-lived assets (including goodwill and intangible assets), the carrying value, capitalization and amortization of software development costs, the calculation of a contingent liability in connection with an earn-out, the provision for income taxes and related deferred tax accounts, certain accrued liabilities, revenue recognition, contingencies, litigation and related legal accruals and the value attributed to employee stock options and other stock-based awards.

    Pro Forma Stockholders' Equity and Net Loss Per Share (Unaudited)

         In January 2015, the Company's board of directors approved the filing of a registration statement relating to an initial public offering of its common stock. Upon the effectiveness of the Registration Statement, all of the outstanding shares of convertible preferred stock (the "Preferred

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TELADOC, INC.

Notes to Unaudited Consolidated Financial Statements

Stock") will automatically convert into shares of common stock of the Company, upon the approval of the holders of a majority of the outstanding shares of the Preferred Stock or provided that the initial public offering (i) is at a price per share (equal to at least $16.5188) and (ii) results in net proceeds to the Company of at least $40.0 million of proceeds, in each case, net of any underwriting discount and commissions. The March 31, 2015 unaudited pro forma stockholders' equity data has been prepared assuming the conversion of the Preferred Stock outstanding into shares of common stock of the Company. Pro forma basic and diluted net loss per share were computed to give effect to the conversion of the Preferred Stock into common stock of the Company using the if-converted method as though the conversion and reclassification had occurred as of the beginning of the first period presented or on the original date of issuance, if later.

    Segment Information

         The Company's chief operating decision maker, its Chief Executive Officer ("CEO"), reviews the financial information presented on a consolidated basis for purposes of allocating resources and evaluating its financial performance. Accordingly, the Company has determined that it operates in a single reporting segment—health services.

    Revenue Recognition

         The Company offers two types of subscription access revenue contracts: (i) contracts that provide for a fixed monthly charge for access and unlimited visits per Member and (ii) contracts that provide for a fixed monthly charge for access and a contractually defined cost for each visit. Any visit fee revenue that is not included in the subscription access revenue is recognized when the service has been provided to the Member.

         The Company recognizes a substantial portion of its revenue from contracts that provide employers and health plans ("Clients") with subscription access to the Company's network of physicians and other healthcare professionals ("Providers") on a subscription basis for a fixed monthly fee which entitles the Client's employees and their beneficiaries ("Members") to unlimited consultations ("visits"). The contracts are generally for a one-year term and have an automatic renewal feature for additional years.

         The Company commences revenue recognition for the subscription access service on the date that the services are made available to the Client and its Members, which is considered the implementation date, provided all of the following criteria are met:

         Subscription access revenue recognition commences on the date that the Company's services are made available to the Client, which is considered the implementation date, provided all of the

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Notes to Unaudited Consolidated Financial Statements

other criteria described above are met. Revenue is recognized over the term of the Client contract and is based on the terms in the Client contracts, which can provide for a variable periodic fee based upon the actual number of Members.

         Revenue from visits is comprised of all revenue that is earned in connection with the completion of a visit. The Company recognizes revenue as the visits are completed.

         The Company's contracts do not generally contain refund provisions for fees earned related to services performed. However, certain of the Company's contracts include performance guarantees that are based upon minimum employee or Member utilization and guarantees by the Company for specific service level performance of the Company's services. The Company defers revenue recognition when subscription access revenue is refundable until the end of the respective contractual period when the performance guarantees are met. The Company issued credits amounting to approximately $0.1 million for each of the three months ended March 31, 2015 and 2014.

    Accounts Receivable and Allowance for Doubtful Accounts

         Accounts receivable are recorded at the invoiced amount, net of allowances for doubtful accounts. The allowance for doubtful accounts is based on the Company's assessment of the collectability of accounts. The Company regularly reviews the adequacy of the allowance for doubtful accounts by considering the age of each outstanding invoice and the collection history of each customer to determine whether a specific allowance is appropriate. Accounts receivable deemed uncollectable are charged against the allowance for doubtful accounts when identified.

    Goodwill and Other Intangible Assets

         Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized, but is tested for impairment annually on October 1 or more frequently if events or changes in circumstances indicate that the asset may be impaired. The Company's impairment tests are based on a single operating segment and reporting unit structure. The goodwill impairment test involves a two- step process. The first step involves comparing the fair value of the Company's reporting unit to its carrying value, including goodwill. The fair value of the reporting unit is estimated using a discounted cash flows analysis. If the carrying value of the reporting unit exceeds its fair value, the second step of the test is performed by comparing the carrying value of the goodwill in the reporting unit to its implied fair value. An impairment charge is recognized for the excess of the carrying value of goodwill over its implied fair value.

         The Company's annual goodwill impairment test resulted in no impairment charges in any of the periods presented in the consolidated financial statements.

         Other intangible assets resulted from business acquisitions and include Client relationships, non-compete agreements and trademarks. Client relationships are amortized over a period 10 years for CADR and AmeriDoc and 2 years for BetterHelp, a recent acquisition, in relation to expected future cash flows, while non-compete agreements are amortized over a period of 3 to 5 years using

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Notes to Unaudited Consolidated Financial Statements

the straight-line method. Trademarks are amortized over a period of 3 years using the straight-line method.

    Stock-Based Compensation

         All stock-based compensation is measured based on the grant- date fair value of the awards and recognized on a straight-line basis over the period during which the employee is required to perform services in exchange for the award (generally the vesting period of the award). The Company estimates the fair value of employee stock options using the Black-Scholes option-pricing model.

    Income Taxes

         The Company accounts for income taxes using the liability method, under which deferred tax assets and liabilities are determined based on the future tax consequences attributable to differences between the financial reporting carrying amounts of existing assets and liabilities and their respective tax bases and tax credit and net operating loss carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to be in effect when the differences are expected to reverse.

         The Company assesses the likelihood that deferred tax assets will be recovered from future taxable income, and a valuation allowance is established when necessary to reduce deferred tax assets to the amounts more likely than not expected to be realized.

         The Company recognizes and measures uncertain tax positions using a two- step approach. The first step is to evaluate the tax position taken or expected to be taken by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Significant judgment is required to evaluate uncertain tax positions. The Company evaluates its uncertain tax positions on a regular basis. Its evaluations are based on a number of factors, including changes in facts and circumstances, changes in tax law, correspondence with tax authorities during the course of audit and effective settlement of audit issues.

    Recently Issued and Adopted Accounting Pronouncements

         In July 2013, the Financial Accounting Standards Board ("FASB") issued guidance regarding the presentation of unrecognized tax benefits when a net operating loss carryforward, similar tax loss, or tax credit carryforward exists. The new guidance requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the consolidated financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward when settlement in this manner is available under the tax law. This guidance is effective on a prospective basis for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2013. Retrospective and early adoption is permitted. The Company adopted this guidance in the first quarter of 2014. The adoption of this guidance had no impact on the consolidated financial statements.

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TELADOC, INC.

Notes to Unaudited Consolidated Financial Statements

         In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) . This revenue recognition guidance supersedes existing GAAP guidance, including most industry-specific guidance. The core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance identifies steps to apply in achieving this principle. This updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The Company is currently evaluating the potential impact of this guidance on its financial disclosures and results, including whether the Company elects retrospective, or modified retrospective, adoption methods.

         In June 2014, the FASB issued issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period , requiring that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments in this guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company is currently evaluating the potential impact of this guidance on its financial disclosures and results.

         In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern . This guidance addresses management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. Management's evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. ASU 2014-15 is effective for interim or annual periods beginning after December 15, 2016. Early adoption is permitted. The Company does not expect to early adopt this guidance and is currently evaluating the impact of the adoption of this guidance on its financial disclosures and results.

         In April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs , which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The revised guidance is effective for the Company beginning in the quarter ending March 31, 2016 and is required to be applied retrospectively. Early adoption is permitted. The Company is currently evaluating the potential impact of this guidance on its financial disclosures and results.

         In April 2015, the FASB issued ASU 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement , which provides guidance in determining whether a cloud computing arrangement includes a software license. If it is determined that a cloud computing arrangement does include a software license, the software element should be accounted for consistent with the acquisition of other software licenses. If the arrangement does not include a software license, it should be accounted for as a service contract. The revised guidance is effective for the Company beginning in the quarter ending March 31, 2016 and can be applied prospectively to all arrangements entered into or materially modified after the effective date or retrospectively. Early adoption is permitted. The Company is currently evaluating the potential impact of this guidance on its financial disclosures and results.

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Notes to Unaudited Consolidated Financial Statements

Note 3. Business Acquisitions

         On May 1, 2014, the Company completed the acquisition of AmeriDoc, a company engaged in telehealth activities similar to Teladoc, through the purchase of 100% of AmeriDoc's outstanding members' interests for $17.2 million, net of cash acquired, including a $3.5 million promissory note and adjustments for working capital in the amount of $0.2 million. AmeriDoc was acquired to help the Company expand its initial investment in the local and regional insurance broker markets to reach clients that previously did not have access to the Company's services. Upon the effective date of the merger, AmeriDoc merged with and into Teladoc. The acquisition is considered an asset acquisition for tax purposes and as such, the goodwill resulting from this acquisition is tax deductible.

         On January 23, 2015, the Company completed the acquisition of BetterHelp, through a merger in which BetterHelp became a wholly-owned subsidiary of the Company. The merger consideration paid by the Company in connection with this acquisition consisted of (i) $3.5 million in cash at closing and adjustments for working capital deficiency in the amount of $0.2 million and (ii) earn-out payments equal to 15% of the annual net revenue of the BetterHelp business (but not the Company's other business) for three years following closing. The Company has computed the value of these future payments from internally produced revenue projections and has recorded a contingent liability in the amount of $2.4 million as of March 31, 2015. The earn-out payments are considered as additional purchase consideration. The Company also issued an unsecured, subordinated promissory note in the amount of $1.0 million, with all principal and interest at a rate of 5% per annum being payable on the third anniversary of the closing to the selling shareholders and another executive of BetterHelp. If the employment of the promissory note holders is terminated, then they forfeit their right to receive the promissory note. As such, the Company has determined the promissory note to be compensatory and is accruing the expense over the service term. BetterHelp was acquired to help the Company expand its operations in the direct-to-consumer and behavioral health sector. The acquisition is considered a stock acquisition for tax purposes and as such, the goodwill resulting from this acquisition is not tax deductible.

         The two acquisitions were accounted for using the acquisition method of accounting, which requires, among other things, the assets acquired and the liabilities assumed be recognized at their fair values as of the acquisition date. The results of AmeriDoc were included within the consolidated financial statements commencing May 1, 2014. The results of BetterHelp were included within the consolidated financial statements commencing January 23, 2015.

         The purchase price of the acquisitions was allocated based upon the fair value of the assets acquired and liabilities assumed at the date of acquisition.

         The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at each acquisition date. The Company, with the assistance of third-party valuations, estimated the fair value of the acquired tangible and intangible assets.

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TELADOC, INC.

Notes to Unaudited Consolidated Financial Statements

         Identifiable assets acquired and liabilities assumed (in thousands):

 
  BetterHelp   AmeriDoc  

Purchase price

  $ 5,749   $ 17,214  

Less:

             

Cash

    89     57  

Accounts receivable

    11     458  

Other assets

    4     18  

Client relationships

    141     2,980  

Non-compete agreements

    910     520  

Internal software

    780      

Trademarks

    140      

Accounts payable

    (6 )   (43 )

Deferred tax

    (675 )    

Other liabilities

    (340 )   (257 )

Goodwill

  $ 4,695   $ 13,481  

         The Company's unaudited pro forma revenue and net loss for the three months ended March 31, 2015 below have been prepared as if BetterHelp had been purchased on January 1, 2015.

 
  Pro Forma  
 
  Three Months
Ended
March 31,
 
(in thousands)
  2015  

Revenue

  $ 16,614  

Net loss

  $ (12,722 )

Note 4. Intangible Assets, Net

         Intangible assets consist of the following (in thousands):

 
  Useful
Life
  Gross Value   Accumulated
Amortization
  Net Carrying
Value
 

March 31, 2015

                       

Client relationships

  2-10 years   $ 6,931   $ (1,947 ) $ 4,984  

Non-compete agreements

  3 to 5 years     2,340     (633 )   1,707  

Trademarks

  3 years     140     (10 )   130  

Internal software

  3 years     3,099     (673 )   2,426  

Intangible assets, net

      $ 12,510   $ (3,263 ) $ 9,247  

December 31, 2014

                       

Client relationships

  10 years   $ 6,790   $ (1,565 ) $ 5,225  

Non-compete agreements

  3 to 5 years     1,430     (474 )   956  

Internal software

  3 years     1,885     (536 )   1,349  

Intangible assets, net

      $ 10,105   $ (2,575 ) $ 7,530  

         Amortization expense for intangible assets was $0.7 million and $0.4 million for the three months ended March 31, 2015 and 2014, respectively.

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Notes to Unaudited Consolidated Financial Statements

Note 5. Goodwill

         Goodwill consists of the following (in thousands):

Beginning balance—December 31, 2014

  $ 28,454  

Additions—BetterHelp acquisition

    4,695  

Ending balance—March 31, 2015

  $ 33,149  

Note 6. Accrued Expenses and Other Current Liabilities

         Accrued expenses and other current liabilities consist of the following (in thousands):

 
  As of December 31,   As of March 31,  
 
  2014   2015  

Professional fees

  $ 963   $ 1,934  

Consulting/customer service fees

    1,118     877  

Uncertain tax position

    2,705     2,705  

Legal fees

    389     1,929  

Others

    1,448     2,994  

Total

  $ 6,623   $ 10,439  

Note 7. Fair Value Measurements

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

         The Company measures its financial assets and liabilities at fair value at each reporting period using a fair value hierarchy that requires it to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument's classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:

         Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

         Level 2—Include other inputs that are directly or indirectly observable in the marketplace.

         Level 3—Unobservable inputs that are supported by little or no market activity.

         The Company measures its cash equivalents at fair value on a recurring basis. The Company classifies its cash equivalents within Level 1 because they are valued using observable inputs that reflect quoted prices for identical assets in active markets.

         The following tables present information about the Company's assets and liabilities that are measured at fair value on a recurring basis using the above input categories (in thousands):

 
  March 31, 2015  
 
  Level 1   Level 2   Level 3  

Cash and cash equivalents

  $ 32,060   $   $  

Contingent liability

          $ 2,298  

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Notes to Unaudited Consolidated Financial Statements


 
  December 31, 2014  
 
  Level 1   Level 2   Level 3  

Cash and cash equivalents

  $ 46,436   $   $  

         There were no transfers between fair value measurement levels during the three months ended March 31, 2015.

         The following table reconciles the beginning and ending balance of the Company's Level 3 liabilities:

Contingent liability

   
 
 

Fair value at inception

  $ 2,391  

Payments earned

    (36 )

Change in fair value

    (57 )

Fair value at March 31, 2015

  $ 2,298  

Note 8. Long Term Bank and Other Debt

         Long-term bank and other debt consist of the following (in thousands):

 
  As of December 31,   As of March 31,  
 
  2014   2015  

SVB Mezzanine Term Loan less debt discount of $152 and $171 for warrants

  $ 12,829   $ 12,848  

SVB Term Loan facility

    5,000     5,000  

SVB Revolving Advance facility

    4,700     4,700  

Subordinated Promissory Note

    3,500     3,500  

Total

  $ 26,029   $ 26,048  

Less: current portion

    (833 )   (1,146 )

Long term bank and other debt

  $ 25,196   $ 24,902  

         Long term bank and other debt are stated at amortized cost, which approximates fair value.

         In August 2013, the Company entered into a Loan and Security Agreement with Silicon Valley Bank ("SVB") that provided for a Term Loan facility in the amount of $7.0 million with an interest rate of prime rate plus 1%. The Term Loan facility is payable in 48 monthly installments commencing April 2015. The Company's maximum borrowings under this facility totaled $3.0 million in 2013. The Loan and Security Agreement also provided the Company with a $3.0 million Revolving Advance facility that the Company did not utilize in 2013.

         In May 2014, the Company entered into an Amended and Restated Loan and Security Agreement with SVB that provided for a Revolving Advance facility and a Term Loan facility (the "Amended Term Loan facility"). The Revolving Advance facility provides for borrowings up to $12.0 million based on 300% of the Company's monthly recurring revenue, as defined therein. Borrowings under the Revolving Advance facility were $4.7 million at December 31, 2014, and the facility carries interest at a rate of 0.75% above the prime rate per annum and matures in April 2016. Interest payments are payable monthly in arrears. The Company entered into an amendment

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Notes to Unaudited Consolidated Financial Statements

to the Revolving Advance Facility in March 2015 that extended its maturity to April 2017. In May 2015, the Company increased the borrowings to $11.5 million.

         The Amended Term Loan facility provides for borrowings up to $5.0 million. As of December 31, 2014, the Company had utilized the total $5.0 million available under this facility. The Amended Term Loan facility carries interest at a rate of 1.00% above the prime rate per annum. Interest payments are payable monthly in arrears. Payments on the Amended Term Loan facility will commence in May 2015 and continue with 47 equal monthly payments of principal plus interest.

         In May 2014, the Company entered into a Subordinated Loan and Security Agreement with SVB that provided for Mezzanine Term Loans totaling $13.0 million. The total $13.0 million drawdown of the mezzanine facility was completed in September 2014. The mezzanine facility carries interest at a rate of 10.00% per annum and matures in May 2017. Interest payments are payable monthly in arrears. In connection with entry into the mezzanine facility, the Company granted two affiliates of SVB warrants to purchase an aggregate of 131,239 shares of common stock of the Company at an exercise price of $2.95 per share. The warrants are immediately exercisable and have a 10-year term. The Company also granted SVB a security interest in significantly all of the Company's assets. The mezzanine facility has been used to fund the expansion of the Company's business. The Amended Loan and Security Agreement and the Subordinated Loan and Security Agreement are collectively referred to as the "SVB Facilities."

         The Company incurred approximately $0.2 million of loan origination costs in connection with the SVB facilities and amortized approximately $0.1 million of these costs during the three months ended March 31, 2015.

         Effective with the purchase of AmeriDoc, the Company executed a Subordinated Promissory Note in the amount of $3.5 million payable to the seller of AmeriDoc on April 30, 2015. The Subordinated Promissory Note carries interest at a rate of 10.00% annual interest and is subordinated to the SVB Facilities. In March 2015, the Company, the seller of AmeriDoc and SVB executed an Amended and Restated Subordinated Promissory Note that extended the maturity of the Note to April 30, 2017.

Note 9. Related Party Transaction

         In May 2013, the Company issued a loan to an officer of the Company in the amount of $0.3 million. This was a non-cash transaction, whereby the loan proceeds were used to exercise options to purchase 312,474 shares of common stock options of the Company at an exercise price of $0.80 per share. The loan carries interest at the rate of 2% per annum and is due and payable upon the earlier of (i) May 13, 2017 and (ii) the occurrence of a "Change of Control" as defined in the promissory note evidencing the loan. The officer is required to make monthly interest payments. At December 31, 2013 and 2014, the balance of the loan was $0.3 million. The loan was repaid in full to the Company in February 2015.

Note 10. Lease Abandonment Charge

         In connection with the Company's abandonment of its Greenwich, Connecticut office, the Company incurred $0.4 million in lease abandonment charges during the three months ended

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Notes to Unaudited Consolidated Financial Statements

March 31, 2015 included within general and administrative expenses in the consolidated income statement. The following table details the associated liability (in thousands):

Balance January 1, 2015

  $  

Charged to expense

    375  

Paid or otherwise settled

     

Balance March 31, 2015

  $ 375  

Note 11. Commitments and Contingencies

         The Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of its business.

         Teladoc is plaintiff in three lawsuits in the Texas courts against the Texas Medical Board (the "TMB"). In the first suit, Teladoc v. TMB and Leshikar , on December 31, 2014, the Austin Court of Appeals granted Teladoc's request for summary judgment, invalidating the TMB's prior assertion that Teladoc's doctors do not form "proper professional relationships" with Teladoc's members in the course of telehealth consultations such as would support the prescription of medications. The TMB has filed a petition for review with the Texas Supreme Court to ask that Court if it will allow the TMB to appeal the Court of Appeals's decision. In the second suit, Teladoc v. TMB and Freshour , on February 2, 2015, the Travis County District Court granted Teladoc's request for a temporary injunction restraining the TMB from enforcing an "emergency rule" it issued on January 16, 2015 purporting to amend the Texas Administrative Code so as to require a "face-to-face" examination of a patient before a Texas physician may lawfully prescribe medication. This suit is set for trial on November 9, 2015. In the third suit, Teladoc et al. v. TMB et al. , the United States District Court for the Western District of Texas, Austin Division, held a hearing on May 22, 2015 on Teladoc's motion for preliminary injunction of the rule amendments the TMB adopted on April 10, 2015 that seek to effect substantively identical restrictions as the issues in the two prior lawsuits. On May 29, 2015, the court granted Teladoc's request for a preliminary injunction of the rule amendments, pending ultimate trial on the amendments' validity, which trial date has yet to be set. Given the nature and status of these lawsuits, the Company cannot yet determine the amount or reasonable range of a potential loss, if any, though it does not believe a material loss is probable in connection with any of the lawsuits.

         Business in the State of Texas accounted for approximately $10 million of the Company's consolidated revenue during the year ended December 31, 2014. If the TMB's revisions go into effect as written and Teladoc is unable to adapt its business model in compliance with the TMB rule, its ability to operate its business in the State of Texas could be materially adversely affected, which would have a material adverse effect on its business, financial condition and results of operations.

         The Company routinely assess all of its litigation and threatened litigation as to the probability of ultimately incurring a liability and records its best estimate of the ultimate loss in situations where it assesses the likelihood of loss as probable and estimable. In this regard, the Company establishes accrual estimates for various lawsuits, claims, investigations and proceedings when it is probable that an asset has been impaired or a liability incurred at the date of the financial statements and the loss can be reasonably estimated. At March 31, 2015, the Company has established accruals for certain of its various lawsuits, claims, investigations and proceedings based

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Notes to Unaudited Consolidated Financial Statements

upon estimates of the most likely outcome in a range of loss or the minimum amounts in a range of loss if no amount within a range is a more likely estimate. The Company does not believe that at March 31, 2015 any reasonably possible losses in excess of the amounts accrued would be material to the unaudited consolidated financial statements.

Note 12. Convertible Preferred Stock (the "Preferred Stock")

         The Preferred Stock consists of the following:

March 31, 2015
  Shares
Authorized
  Shares
Outstanding
  Common
Shares Upon
Conversion
  Liquidation
Preference
 

Series A

    418,634     418,634     1,628,498   $ 5,232,925  

Series A-1

    53,957     53,957     282,689     918,955  

Series B

    263,839     263,839     1,790,050     5,768,378  

Series C-1

    18,287,483     18,267,759     7,991,497     15,253,579  

Series D

    12,339,204     12,339,204     5,397,962     18,600,005  

Series E

    6,227,169     6,227,169     2,724,165     15,000,005  

Series F

    12,889,000     12,882,377     5,635,580     57,139,783  

    50,479,286     50,452,939     25,450,441   $ 117,913,630  

 

December 31, 2014
  Shares
Authorized
  Shares
Outstanding
  Common
Shares Upon
Conversion
  Liquidation
Preference
 

Series A

    418,634     418,634     1,628,498   $ 5,232,925  

Series A-1

    53,957     53,957     282,689     918,955  

Series B

    263,839     263,839     1,790,050     5,768,378  

Series C-1

    18,287,483     18,267,759     7,991,497     15,253,579  

Series D

    12,339,204     12,339,204     5,397,962     18,600,005  

Series E

    6,227,169     6,227,169     2,724,165     15,000,005  

Series F

    12,889,000     12,882,377     5,635,580     57,139,783  

    50,479,286     50,452,939     25,450,441   $ 117,913,630  

         As of March 31, 2015, the significant terms applicable to the Series A through Series F Preferred Stock were as follows:

    Dividend Rights

         Prior to the issuance of the Series F Preferred Stock, the Series A—E Preferred Stock accrued cumulative dividends at the per annum rate of 7.5% of the respective original purchase price (as previously adjusted for a reverse stock split and, with respect to the Series A, A-1 and B Preferred Stock, anti-dilution protection) for each such series of Preferred Stock. Such dividends were payable when, as and if declared by the Company's board of directors, but prior and in preference to any dividend on the common stock of the Company. In connection with the issuance of the Series F Preferred Stock, all such accrued and accumulated dividends (which totaled approximately $13.8 million at August 31, 2014) were converted into Series F Preferred Stock at a rate of $0.50 of Series F Preferred Stock per $1.00 in accrued dividends, resulting in the issuance of approximately 1,554,000 shares of Series F Preferred Stock on September 10, 2014. There are no longer any accrued or unpaid dividends on the Preferred Stock, and no such dividends are required to accrue or be declared by the Company.

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Notes to Unaudited Consolidated Financial Statements

    Conversion Rights

         Each share of Preferred Stock is convertible, at any time and at the option of the holder of such share, into shares of the common stock of the Company, at the following ratios (subject to adjustment as described below):

Series of Preferred Stock
  Original
Issue Price
  Conversion
Price
  Number of Shares of
Common Stock Issued
for each Preferred Share
Upon Conversion
(= Original Issue Price/
Conversion Price)
 

Series F

  $ 4.4355   $ 10.1391     0.4375  

Series E

  $ 2.4088   $ 5.5063     0.4375  

Series D

  $ 1.5074   $ 3.4458     0.4375  

Series C-1

  $ 0.835   $ 1.909     0.4375  

Series B

  $ 12.95   $ 1.909     6.7846  

Series A-1

  $ 10.00   $ 1.909     5.2391  

Series A

  $ 7.425   $ 1.909     3.8900  

         Additionally, all shares of the Preferred Stock will be automatically converted into shares of common stock of the Company at the ratios set forth above (subject to adjustment as described below) upon (i) the approval of the holders of a majority of the outstanding shares of the Preferred Stock (voting as a single class on an as-converted basis, and which includes holders of at least a majority of the outstanding shares of Series F Preferred Stock) or (ii) the closing of a firmly underwritten public offering of the common stock of the Company at a per share price of at least $16.5188 (prior to underwriting discounts and commissions) and that results in aggregate proceeds to the Company of at least $40 million (net of underwriting discounts and commissions).

         Subject to limited exceptions, the conversion price for each series of the Preferred Stock will be subject to an adjustment to reduce dilution in the event that the Company issues additional equity securities at a purchase price less than the applicable conversion price for such series of the Preferred Stock.

    Liquidation Rights

         In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the assets of the Company available for distribution will be distributed to the Company's stockholders in the following order of priority:

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TELADOC, INC.

Notes to Unaudited Consolidated Financial Statements

         Subject to limited exceptions, unless waived by holders of at least (i) a majority of the outstanding shares of Preferred Stock (voting together as a single class on an as-converted to common stock basis), and (ii) a majority of the outstanding Series F Preferred Stock, a merger, combination, consolidation, or sale of voting control of the Company or sale or transfer of substantially all of the assets of the Company, in each case in which the Company's stockholders do not own a majority of the voting shares of the surviving or acquiring corporation, will be deemed to be a liquidation event. If such deemed liquidation event is structured as a merger, combination, consolidation or sale of voting control, the proceeds of such transaction must be distributed to the stockholders in the order described above. If, alternatively, the deemed liquidation event is

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Notes to Unaudited Consolidated Financial Statements

structured as a sale of assets, and the Company does not dissolve within 90 days after such deemed liquidation event, the holders of Preferred Stock may elect (pursuant to a procedure and in an order of priority similar to that described under "Redemption" below) to have their shares redeemed by the Company in exchange applicable Liquidation Amount described above.

    Protective Provisions

         Subject to limited exceptions and certain additional restrictions, so long as at least three million shares of Preferred Stock remain outstanding, the Company may not do any of the following without the consent of holders of a majority of the Preferred Stock (voting together as a single class on an as-converted to common stock basis):

         Additionally, for so long as at least twenty-five percent (25%) of the number of shares of any series of Preferred Stock remain issued and outstanding, the Company may not (i) take any action that materially and adversely alters the rights of such series of the Preferred Stock unless substantially similar action is taken with respect to all of the other series of the Preferred Stock or

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Notes to Unaudited Consolidated Financial Statements

(ii) create any additional class or series of capital stock which ranks senior or pari passu to such series of the Preferred Stock, in each such case without the consent of the holders of a majority (which majority must, in certain cases, include the consent of certain named institutional investors) of the outstanding shares of the respective, affected series of the Preferred Stock, voting as a separate class.

    Redemption

         On and after September 1, 2019, the holders of shares Preferred Stock may require that such shares be redeemed by the Company out of lawfully available funds, as follows:

         All shares of the Preferred Stock have been presented outside of permanent stockholders' deficit, because there are redemption events outside of the Company's control.

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Notes to Unaudited Consolidated Financial Statements

Note 13. Common Stock and Stockholders' Deficit

    Capitalization

         Subject to limited exceptions, the Company may issue common stock subject to approval by (i) the board of directors of the Company (including the approval of the director appointed by the holders of Series D Preferred Stock and the director appointed by the holders of Series F Preferred Stock), or (ii) holders of a majority of the Preferred Stock (voting together as a single class on an as-converted to common stock basis). The aggregate number of shares of common stock that the Company will have authority to issue is 32,179,448 shares of common stock, having a par value of $0.001 per share.

    Redeemable Common Stock

         The holders of at least a majority of the Preferred Stock have agreed that, following the redemption of all the Preferred Stock, the total 59,048 shares of Series A Common Stock will be subject to a redemption price equal to the greater of (i) the sum of (A) 2.25 times 2.2859 times the Series A Investors Common Stock price, plus (B) any dividends declared but unpaid thereon and (ii) the Series A Investors Common Stock appraised value.

         The holders of at least a majority of the Preferred Stock have agreed that, following the redemption of all the Preferred Stock, the total 54,246 shares of Series B Common Stock will be subject to a redemption price equal to the greater of (1) the sum of (A) 2.25 times 2.2859 times the Series B Investors Common Stock price, plus (B) any dividends declared but unpaid thereon and (ii) the Series B Investors Common Stock appraised value. The Company has recorded the Series B Common Stock $2.1 million redemption value and the Series A Common Stock $.8 million value together in mezzanine equity in the accompanying consolidated balance sheets.

    Warrants

         On May 2, 2014, the Company issued 131,239 common stock warrants to purchase an aggregate of 131,239 shares of its common stock at an exercise price of $2.95 per share to two entities affiliated with SVB. The common stock warrants were immediately exercisable upon issuance and have a 10-year term. The fair value of the common stock warrants on the date of issue was approximately $0.2 million which was recorded as an increase to additional paid in capital and as a debt discount.

    Stock Plan and Stock Options

         The Company's Second Amended and Restated Stock Incentive Plan (the "Plan") provides for the issuance of incentive and nonstatutory options to its employees and non-employees. Options issued under the Plan are exercisable for periods not to exceed ten years, vest over four years and are issued at the fair value of the shares of common stock on the date of grant as determined by the Company's board of directors, which obtains periodic third-party valuations to assist their determination process.

         The Plan provides for the early exercise of stock options for certain individuals as determined by their respective option agreements.

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Notes to Unaudited Consolidated Financial Statements

         Activity under the Plan is as follows (in thousands, except share and per share amounts and years):

 
  Shares
Available
for Grant
  Number of
Shares
Outstanding
  Weighted-
Average
Exercise
Price
  Weighted-
Average
Remaining
Contractual
Life in Years
  Aggregate
Intrinsic
Value
 

Balance at December 31, 2014

    741,971     2,875,106   $ 3.73     8.38   $ 6,758  

Increase in Plan authorized shares

                               

Stock option grants

    (629,491 )   629,491   $ 8.71              

Stock options exercised

          (22,166 ) $ 1.28              

Stock options cancelled

    78,577     (78,577 ) $ 5.33              

Stock options expired

    33,596     (33,596 ) $ 8.66              

Balance at March 31, 2015

    224,653     3,370,258   $ 4.50     8.89   $ 17,156  

Vested or expected to vest March 31, 2015

          3,048,235   $ 4.39     8.83   $ 15,898  

Exercisable as of March 31, 2015

          629,675   $ 1.49     7.20   $ 5,105  

         The total grant-date fair value of stock options granted during the three months ended March 31, 2014 and 2015 was $0 million and $2.9 million, respectively.

    Stock-Based Compensation

         All stock-based awards to employees are measured based on the grant-date fair value of the awards and are generally recognized in the Company's consolidated statement of operations over the period during which the employee is required to perform services in exchange for the award (generally requiring a four-year vesting period for each award). The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model. Compensation cost is generally recognized over the vesting period of the applicable award using the straight-line method.

         Given the absence of a public trading market, the Company's board of directors considered numerous objective and subjective factors to determine the fair value of its common stock at each grant date. These factors included, but were not limited to, (i) contemporaneous valuations of common stock performed by unrelated third-party specialists; (ii) the prices for the Preferred Stock sold to outside investors; (iii) the rights, preferences and privileges of the Preferred Stock relative to the common stock; (iv) the lack of marketability of the common stock; (v) developments in the business; and (vi) the likelihood of achieving a liquidity event, such as an initial public offering or a merger or acquisition of the Company, given prevailing market conditions.

         The assumptions used in the Black-Scholes option-pricing model were determined as follows:

         Volatility.     Since the Company does not have a trading history for its common stock, the expected volatility was derived from the historical stock volatilities of several unrelated public companies within its industry that it considers to be comparable to its business over a period equivalent to the expected term of the stock option grants.

         Risk-Free Interest Rate.     The risk-free interest rate is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options.

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TELADOC, INC.

Notes to Unaudited Consolidated Financial Statements

         Expected Term.     The expected term represents the period that the stock-based awards are expected to be outstanding. When establishing the expected term assumption, the Company used the "simplified" method because the Company does not have adequate historical data.

         Dividend Yield.     The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future, and therefore, it used an expected dividend yield of zero.

         Forfeiture rate.     The Company uses historical data to estimate pre- vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest.

         The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions and fair value per share:

 
  Three Months
Ended
March 31,
  Three Months
Ended
March 31,
 
  2014   2015

Volatility

    50.4% – 51.0%

Expected life (in years)

    7.0

Risk-free interest rate

    1.58% – 1.92%

Dividend yield

   

Weighted-average fair value of underlying common stock

    $4.62

         Total compensation costs charged as an expense for stock-based awards, including stock options, recognized in the components of operating expenses are as follows (in thousands):

 
  Three Months
Ended
March 31,
  Three Months
Ended
March 31,
 
 
  2014   2015  

Administrative and marketing

  $ 6   $ 17  

Sales

    27     71  

Technology and development

    13     40  

General and administrative

    116     683  

Total stock-based compensation expense

  $ 162   $ 811  

         As of March 31, 2015, the Company had $6.4 million in unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over a weighted-average period of approximately 3.6 years.

Note 14. Income Taxes

         As a result of the Company's history of net operating losses, the Company has provided for a full valuation allowance against its deferred tax assets for assets more-likely-than-not not to be realized. A deferred tax provision was recognized for each of the three months ended March 31, 2014 and 2015, attributable to the timing differences with respect to the treatment of the amortization of goodwill. Additionally, a deferred tax benefit was recognized for the three months ended March 31, 2015, resulting from business combinations and the related temporary differences.

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TELADOC, INC.

Notes to Unaudited Consolidated Financial Statements

         All of the Company's operations, and resulting deferred tax assets, were generated in the United States.

Note 15. Net Loss per Share

         Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock of the Company outstanding during the period. Diluted net loss per share is computed by giving effect to all potential shares of common stock of the Company, including the Preferred Stock and outstanding stock options and warrants, to the extent dilutive. Basic and diluted net loss per share was the same for each period presented as the inclusion of all potential shares of common stock of the Company outstanding would have been anti-dilutive.

         The following table presents the calculation of basic and diluted net loss per share for the Company's common stock (in thousands, except per share data):

 
  Three Months Ended
March 31,
 
 
  2014   2015  

Net loss

  $ (2,314 ) $ (12,703 )

Preferred stock dividends

    (1,031 )    

Net loss available to common stockholders

  $ (3,345 ) $ (12,703 )

Weighted-average shares used to compute basic and diluted net loss per share

    1,424     2,162  

Basic and diluted net loss per share

  $ (2.35 ) $ (5.87 )

         The following securities were excluded from the calculation of diluted net loss per share for common stock because their effect would have been anti-dilutive for the periods presented (in thousands):

 
  Three Months Ended
March 31,
 
 
  2014   2015  

Stock options

    22      

Preferred stock

    37,591     50,453  

    Unaudited Pro Forma Net Loss per Share

         Pro forma basic and diluted net loss per share were computed to give effect to the conversion of the Preferred Stock into common stock of the Company using the if-converted method as though the conversion and reclassification had occurred as of the beginning of the first period presented or the original date of issuance, if later.

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TELADOC, INC.

Notes to Unaudited Consolidated Financial Statements

         The following table presents the calculation of basic and diluted pro forma net loss per share (in thousands, except net loss per share data):

 
  Three Months Ended
March 31,
 
 
  2015  

Net loss

  $ (12,703 )

Preferred stock dividends

     

Net loss available to common stockholders

  $ (12,703 )

Pro Forma net loss per share—weighted average shares

    27,613  

Pro Forma basic and diluted net loss per share

  $ (0.46 )

Basic net loss per share—weighted average shares

    2,162  

Preferred conversion

    25,451  

Pro Forma net loss per share—weighted average shares

    27,613  

Note 16. Subsequent Events

         For the unaudited consolidated financial statements for the three months ended March 31, 2015, the Company evaluated subsequent events through May 15, 2015, which is the date the unaudited consolidated financial statements were available to be issued.

         On June 17, 2015, the Company filed a Certificate of Amendment to the Company's Certificate of Incorporation to effect a one-for-2.2859 reverse stock split of all outstanding shares of common stock with the Secretary of State of the State of Delaware. The Certificate of Amendment provides that every 2.2859 shares of the Company's issued and outstanding common stock automatically combine into one issued and outstanding share of the Company's common stock. The Certificate of Amendment did not change the par value of the Company's common stock and preferred stock. All shares and per share amounts in the consolidated financial statements and accompanying notes have been retroactively adjusted to give effect to the reverse stock split. In addition, the Certificate of Amendment authorizes that the number of authorized shares of the Company's common stock is increased to 75,000,000 shares and that the Company's authorized preferred stock is 50,479,286 shares.

         On June 17, 2015, the Company closed its acquisition of Stat Health Services Inc. for aggregate consideration of $30.5 million, comprised of $13.3 million of cash and $17.2 million of its common stock (or 1,051,038 shares), subject to post-closing working capital adjustments as defined in the Agreement and Plan of Merger governing the acquisition. Stat Health Services Inc. is a telemedicine provider, focused on managed care, health system and self-insured clients.

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GRAPHIC



7,000,000 Shares

GRAPHIC

Common Stock

Prospectus



J.P. Morgan   Deutsche Bank Securities

 

 

William Blair

 

 

Wells Fargo Securities

 

 

 

SunTrust Robinson Humphrey



          Through and including                           , 2015 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

   


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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.    Other Expenses of Issuance and Distribution

         The actual and estimated expenses in connection with this offering, all of which will be borne by us, are as follows:

SEC Registration Fee

  $ 15,902  

FINRA Filing Fee

    21,028  

Printing and Engraving Expense

    275,000  

Legal Fees

    2,500,000  

Accounting Fees

    1,100,000  

Blue Sky Fees

    15,000  

NYSE Listing Fees

    25,000  

Transfer Agent Fee

    5,000  

Miscellaneous

    193,070  

Total

  $ 4,150,000  

Item 14.    Indemnification of Directors and Officers

         Reference is made to Section 102(b)(7) of the DGCL, which enables a corporation in its original certificate of incorporation or an amendment thereto to eliminate or limit the personal liability of a director for violations of the director's fiduciary duty, except (1) for any breach of the director's duty of loyalty to the corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) pursuant to Section 174 of the DGCL, which provides for liability of directors for unlawful payments of dividends of unlawful stock purchase or redemptions or (4) for any transaction from which a director derived an improper personal benefit.

         Reference is also made to Section 145 of the DGCL, which provides that a corporation may indemnify any person, including an officer or director, who was or is threatened to be made, party to any threatened, pending or completed legal action, suit or proceeding, whether civil, criminal, administrative or investigative, other than an action by or in the right of such corporation, by reason of the fact that such person was an officer, director, employee or agent of such corporation or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such officer, director, employee or agent acted in good faith and in a manner he reasonably believed to be in, or not opposed to, our best interest and, for criminal proceedings, had no reasonable cause to believe that his conduct was unlawful. A Delaware corporation may indemnify any officer or director in an action by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses that such officer or director actually and reasonably incurred.

         Our amended and restated certificate of incorporation to be filed as an exhibit to this registration statement will provide that our directors will not be personally liable to us or our stockholders for monetary damages resulting from breach of their fiduciary duties. However, nothing contained in such provision will eliminate or limit the liability of directors (1) for any breach of the

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director's duty of loyalty to us or our stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (3) under Section 174 of the DGCL or (4) for any transaction from which the director derived an improper personal benefit.

         Our amended and restated certificate of incorporation and our amended and restated bylaws will provide for indemnification of the officers and directors to the full extent permitted by applicable law.

         In addition, we will enter into agreements to indemnify our directors and executive officers containing provisions, which are in some respects broader than the specific indemnification provisions contained in the DGCL. The indemnification agreements may require us, among other things, to indemnify such persons against expenses, including attorneys' fees, judgments, liabilities, fines and settlement amounts incurred by any such person in actions or proceedings, including actions by us or in our right, that may arise by reason of their status or service as our director or executive officer and to advance expenses incurred by them in connection with any such proceedings. The proposed form of such indemnification agreement is to be filed as Exhibit 10.7 to this Registration Statement.

         The proposed form of Underwriting Agreement, to be filed by amendment as Exhibit 1.1 to this Registration Statement, will provide for indemnification by the underwriters of the registrant and its officers and directors for certain liabilities arising under the Securities Act, or otherwise.

Item 15.    Recent Sales of Unregistered Securities

         The information presented in this Item 15 gives effect to the 1-for-2.2859 stock split, which was effectuated with the filing of the certificate of amendment to our certificate of incorporation on June 17, 2015. Since January 1, 2012, we have granted to our directors, officers and employees options to purchase an aggregate of 3,787,356 shares of our common stock with per share exercise prices equal to $1.07, $1.67, $2.95, $6.01 or $8.71 under our Second Amended and Restated Stock Incentive Plan, which we refer to as the existing equity incentive plan.

         Since January 1, 2012, 20 of our directors, officers and current and former employees have exercised options and purchased an aggregate of 1,666,412 shares of our common stock, net of exercise price and tax withholding, at per share prices equal to $0.80, $1.07, $1.67, $2.95 or $6.01 under the existing equity incentive plan.

         On September 9, 2014, we issued 11,329,068 shares of Series F Preferred Stock for aggregate consideration of $50.3 million to accredited investors pursuant to Section 4(a)(2) of the Securities Act and Rule 506 thereunder.

         On August 28, 2013, we issued 6,227,169 shares of Series E Preferred Stock for aggregate consideration of $15.0 million to accredited investors pursuant to Section 4(a)(2) of the Securities Act and Rule 506 thereunder.

         On May 2, 2014, we issued warrants to purchase 131,239 shares of our common stock at an exercise price of $2.95 per share to accredited investors pursuant to Section 4(a)(2) of the Securities Act and Rule 506 thereunder.

         Unless otherwise stated, the sales of the above securities were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(2) of the Securities Act or Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. Individuals who purchased stock as described above represented their intention to acquire the stock for investment only and not with

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a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the share certificates issued in such transactions.

Item 16.    Exhibits and Financial Statement Schedules

(A)
Exhibits

Exhibit No.   Description of Exhibit
  1.1   Form of Underwriting Agreement

 

2.1

**

Agreement and Plan of Merger, dated as of August 29, 2013, among Consult A Doctor, Inc., Douglas L. O'Keefe, as Stockholder Representative, Wolf Shlagman, John J. Karabees, Morgenthau Accelerator Fund,  LP, Arturo Castillo, Promociones Bursatiles, S.A., New World Angels VI (Consult a Doctor), LLC and Teladoc, Inc.

 

2.2

**

Agreement and Plan of Merger, dated as of May 1, 2014, among AmeriDoc, LLC, David E. Lindsey, Michael R. Thompson, David E. Lindsey, as Member Representative, and Teladoc, Inc.

 

2.3

**

Agreement and Plan of Merger, dated as of May 22, 2015, among Teladoc, Inc., Stat Health, LLC, Stat Health Services Inc. and John Barravecchia, as Equityholder Representative

 

3.1

 

Amended and Restated Certificate of Incorporation of Teladoc, Inc.

 

3.2

 

Amended and Restated Bylaws of Teladoc, Inc.

 

4.1

**

Fifth Amended and Restated Investors' Rights Agreement, dated as of September 10, 2014

 

4.2

**

First Amendment to the Fifth Amended and Restated Investors' Rights Agreement, dated as of February 9, 2015

 

4.3

**

Amended and Restated Subordinated Promissory Note, dated as of May 2, 2014, by and between Teladoc, Inc. and David E. Lindsey, as Member Representative

 

4.4

**

Subordinated Promissory Note, dated as of January 23, 2015, by and between Teladoc, Inc. and Alon Matas, as Seller Representative

 

5.1

 

Opinion of Latham & Watkins LLP

 

10.1

**

Amended and Restated Loan and Security Agreement, dated as of May 2, 2014, by and between Silicon Valley Bank and Teladoc, Inc.

 

10.2

**

Intellectual Property Security Agreement, dated as of May 2, 2014, by and between Silicon Valley Bank and Teladoc, Inc.

 

10.3

**

Subordinated Loan and Security Agreement, dated as of May 2, 2014, by and between Silicon Valley Bank and Teladoc, Inc.

 

10.4

**

First Loan Modification Agreement in respect of the Amended and Restated Loan and Security Agreement, dated as of March 11, 2015, by and between Silicon Valley Bank and Teladoc, Inc.

 

10.5

**

First Loan Modification Agreement in respect of the Subordinated Loan and Security Agreement, dated as of March 11, 2015, by and between Silicon Valley Bank and Teladoc, Inc.

 

10.6

 

[Reserved]

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Exhibit No.   Description of Exhibit
  10.7   Form of Indemnification Agreement

 

10.8

**

Teladoc, Inc. Second Amended and Restated Stock Incentive Plan

 

10.8.1

 

First Amendment to Teladoc, Inc. Second Amended and Restated Stock Incentive Plan

 

10.8.2

 

Second Amendment to Teladoc, Inc. Second Amended and Restated Stock Incentive Plan

 

10.9

**

Form of Stock Option Agreement under the Teladoc, Inc. Second Amended and Restated Stock Incentive Plan

 

10.10

 

Teladoc, Inc. 2015 Incentive Award Plan

 

10.11

 

Form of Stock Option Agreement under the Teladoc, Inc. 2015 Incentive Award Plan

 

10.12

 

Form of Restricted Stock Agreement under the Teladoc, Inc. 2015 Incentive Award Plan

 

10.13

 

Form of Restricted Stock Unit Agreement under the Teladoc, Inc. 2015 Incentive Award Plan

 

10.14

 

Teladoc, Inc. Employee Stock Purchase Plan

 

10.15

**

Amended and Restated Services Agreement, dated as of February 15, 2015, between Teladoc, Inc. and Teladoc Physicians, P.A.

 

10.16

**

Office Building Lease, dated as of February 26, 2015, between Blackhorse Lakepointe, LP and Teladoc, Inc.

 

10.17

**

Agreement to Serve as Director, dated as of February 27, 2014, between David B. Snow, Jr. and Teladoc, Inc.

 

10.18

**

Agreement to Serve as Director, dated as of September 10, 2014, between Senator William H. Frist, M.D. and Teladoc, Inc.

 

10.19

 

Executive Employment Agreement between Teladoc Inc. and Jason Gorevic

 

10.20

 

Executive Employment Agreement between Teladoc Inc. and Mark Hirschhorn

 

10.21

 

Executive Employment Agreement between Teladoc Inc. and Michael King

 

21.1

**

List of Subsidiaries

 

23.1

 

Consent of Latham & Watkins LLP (included in Exhibit 5.1)

 

23.2

 

Consent of Ernst & Young LLP as to Teladoc, Inc.

 

23.3

 

Consent of Ernst & Young LLP as to Consult A Doctor, Inc. and AmeriDoc, LLC

 

23.4

 

Consent of Ernst & Young LLP as to Stat Health Services Inc.

 

24.1

**

Powers of Attorney (included in the signature pages to this registration statement)

*
To be filed by amendment.

**
Previously filed.

(B)
Financial Statement Schedules

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Item 17.    Undertakings

         The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

         Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC 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 us of expenses incurred or paid by a director, officer or controlling person of us 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, we will, unless in the opinion of counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

         We hereby undertake that:

    (i)
    for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective; and

    (ii)
    for purposes of determining any liability under the Securities Act, 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.

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Signatures

         Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Purchase, state of New York, on June 18, 2015.


 

 

TELADOC, INC.

 

 

By:

 

/s/ JASON GOREVIC  
       
Jason Gorevic
President and Chief Executive Officer

         Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and as of the dates indicated.

Signature
 
Title
 
Date

 

 

 

 

 

 

 
/s/ JASON GOREVIC

Jason Gorevic
  President, Chief Executive Officer and Director (Principal Executive Officer)   June 18, 2015

/s/ MARK HIRSCHHORN

Mark Hirschhorn

 

Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

 

June 18, 2015

*  

Martin R. Felsenthal

 

Director

 

June 18, 2015



William H. Frist, M.D.

 

Director

 

June 18, 2015

*  

Michael Goldstein

 

Director

 

June 18, 2015

*  

Thomas Mawhinney

 

Director

 

June 18, 2015



Thomas G. McKinley

 

Director

 

June 18, 2015



Dana G. Mead, Jr.

 

Director

 

June 18, 2015

*  

Arneek Multani

 

Director

 

June 18, 2015

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Signature
 
Title
 
Date

 

 

 

 

 

 

 
*  

James Outland
  Director   June 18, 2015

*  

David B. Snow, Jr.

 

Director

 

June 18, 2015

*By:

 

/s/ MARK HIRSCHHORN

Mark Hirschhorn
Attorney-in-fact

 

 

 

 

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EXHIBIT INDEX

Exhibit
No.
  Description of Exhibit
  1.1   Form of Underwriting Agreement

 

2.1

**

Agreement and Plan of Merger, dated as of August 29, 2013, among Consult A Doctor, Inc., Douglas L. O'Keefe, as Stockholder Representative, Wolf Shlagman, John J. Karabees, Morgenthau Accelerator Fund,  LP, Arturo Castillo, Promociones Bursatiles, S.A., New World Angels VI (Consult a Doctor), LLC and Teladoc, Inc.

 

2.2

**

Agreement and Plan of Merger, dated as of May 1, 2014, among AmeriDoc, LLC, David E. Lindsey, Michael R. Thompson, David E. Lindsey, as Member Representative, and Teladoc, Inc.

 

2.3

**

Agreement and Plan of Merger, dated as of May 22, 2015, among Teladoc, Inc., Stat Health, LLC, Stat Health Services Inc. and John Barravecchia, as Equityholder Representative

 

3.1

 

Amended and Restated Certificate of Incorporation of Teladoc, Inc.

 

3.2

 

Amended and Restated Bylaws of Teladoc, Inc.

 

4.1

**

Fifth Amended and Restated Investors' Rights Agreement, dated as of September 10, 2014

 

4.2

**

First Amendment to the Fifth Amended and Restated Investors' rights agreement, dated as of February 9, 2015

 

4.3

**

Amended and Restated Subordinated Promissory Note, dated as of May 2, 2014, by and between Teladoc, Inc. and David E. Lindsey, as Member Representative

 

4.4

**

Subordinated Promissory Note, dated as of January 23, 2015, by and between Teladoc, Inc. and Alon Matas, as Seller Representative

 

5.1

 

Opinion of Latham & Watkins LLP

 

10.1

**

Amended and Restated Loan and Security Agreement, dated as of May 2, 2014, by and between Silicon Valley Bank and Teladoc, Inc.

 

10.2

**

Intellectual Property Security Agreement, dated as of May 2, 2014, by and between Silicon Valley Bank and Teladoc, Inc.

 

10.3

**

Subordinated Loan and Security Agreement, dated as of May 2, 2014, by and between Silicon Valley Bank and Teladoc, Inc.

 

10.4

**

First Loan Modification Agreement in respect of the Amended and Restated Loan and Security Agreement, dated as of March 11, 2015, by and between Silicon Valley Bank and Teladoc, Inc.

 

10.5

**

First Loan Modification Agreement in respect of the Subordinated Loan and Security Agreement, dated as of March 11, 2015, by and between Silicon Valley Bank and Teladoc, Inc.

 

10.6

 

[Reserved]

 

10.7

 

Form of Indemnification Agreement

 

10.8

**

Teladoc, Inc. Second Amended and Restated Stock Incentive Plan

 

10.8.1

 

First Amendment to Teladoc, Inc. Second Amended and Restated Stock Incentive Plan

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Exhibit
No.
  Description of Exhibit
  10.8.2   Second Amendment to Teladoc, Inc. Second Amended and Restated Stock Incentive Plan

 

10.9

**

Form of Stock Option Agreement under the Teladoc, Inc. Second Amended and Restated Stock Incentive Plan

 

10.10

 

Teladoc, Inc. 2015 Incentive Award Plan

 

10.11

 

Form of Stock Option Agreement under the Teladoc, Inc. 2015 Incentive Award Plan

 

10.12

 

Form of Restricted Stock Agreement under the Teladoc, Inc. 2015 Incentive Award Plan

 

10.13

 

Form of Restricted Stock Unit Agreement under the Teladoc, Inc. 2015 Incentive Award Plan

 

10.14

 

Teladoc, Inc. Employee Stock Purchase Plan

 

10.15

**

Amended and Restated Services Agreement, dated as of February 15, 2015, between Teladoc, Inc. and Teladoc Physicians, P.A.

 

10.16

**

Office Building Lease, dated as of February 26, 2015, between Blackhorse Lakepointe, LP and Teladoc, Inc.

 

10.17

**

Agreement to Serve as Director, dated as of February 27, 2014, between David B. Snow, Jr. and Teladoc, Inc.

 

10.18

**

Agreement to Serve as Director, dated as of September 10, 2014, between Senator William H. Frist, M.D. and Teladoc, Inc.

 

10.19

 

Executive Employment Agreement between Teladoc Inc. and Jason Gorevic

 

10.20

 

Executive Employment Agreement between Teladoc Inc. and Mark Hirschhorn

 

10.21

 

Executive Employment Agreement between Teladoc Inc. and Michael King

 

21.1

**

List of Subsidiaries

 

23.1

 

Consent of Latham & Watkins LLP (included in Exhibit 5.1)

 

23.2

 

Consent of Ernst & Young LLP as to Teladoc, Inc.

 

23.3

 

Consent of Ernst & Young LLP as to Consult A Doctor, Inc. and AmeriDoc, LLC

 

23.4

 

Consent of Ernst & Young LLP as to Stat Health Services Inc.

 

24.1

**

Powers of Attorney (included in the signature pages to this registration statement)

*
To be filed by amendment.

**
Previously filed.

II-9




Exhibit 1.1

 

UNDERWRITING AGREEMENT

 

TELADOC, INC.

 

[7,000,000] shares of common stock, par value $0.001 per share

Underwriting Agreement

 

June [ · ], 2015

 

J. P. Morgan Securities LLC

Deutsche Bank Securities Inc.
As Representatives of the
                several Underwriters listed
                in Schedule 1 hereto

 

c/o J. P. Morgan Securities LLC

383 Madison Avenue

New York, New York 10179

 

c/o Deutsche Bank Securities Inc.

60 Wall Street

New York, New York 10005

 

Ladies and Gentlemen:

 

Teladoc, Inc., a Delaware corporation (the “Company”), proposes to issue and sell to the several underwriters listed in Schedule 1 hereto (the “Underwriters”), for whom J.P. Morgan Securities LLC and Deutsche Bank Securities Inc. are acting as representatives (the “Representatives”), an aggregate of [7,000,000] shares of common stock, par value $0.001 per share, of the Company (the “Underwritten Shares”) and, at the option of the Underwriters, up to an additional [1,050,000] shares of common stock of the Company (the “Option Shares”).  The Underwritten Shares and the Option Shares are herein referred to as the “Shares.”  The shares of common stock of the Company to be outstanding after giving effect to the sale of the Shares are referred to herein as the “Stock.”

 

The Underwriters have agreed to reserve a portion of the Shares, up to [ · ] Shares, for sale by a directed share underwriter (the “Directed Share Underwriter”) to the Company’s employees, customers, partners and individual investors (collectively, “Participants”), as set forth in the Prospectus (as hereinafter defined) under the heading “Underwriting” (the “Directed Share Program”).  The Shares to be sold in the Directed Share Program are referred to hereinafter as the “Directed Shares”.

 

The Company hereby confirms its agreement with the several Underwriters concerning the purchase and sale of the Shares, as follows:

 

1.                                       Registration Statement .  The Company has prepared and filed with the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the “Securities Act”), a registration statement (File No. 333-204577), including a prospectus, relating to the Shares.  Such registration statement, as amended at the time it became effective, including the information, if any, deemed pursuant to Rule 430A, 430B or 430C under the Securities Act to be part of the registration statement at the time of its

 



 

effectiveness (“Rule 430 Information”), is referred to herein as the “Registration Statement”; and as used herein, the term “Preliminary Prospectus” means each prospectus included in such registration statement (and any amendments thereto) before effectiveness, any prospectus filed with the Commission pursuant to Rule 424(a) under the Securities Act and the prospectus included in the Registration Statement at the time of its effectiveness that omits Rule 430 Information, and the term “Prospectus” means the prospectus in the form first used (or made available upon request of purchasers pursuant to Rule 173 under the Securities Act) in connection with confirmation of sales of the Shares.  If the Company has filed an abbreviated registration statement pursuant to Rule 462(b) under the Securities Act (the “Rule 462 Registration Statement”), then any reference herein to the term “Registration Statement” shall be deemed to include such Rule 462 Registration Statement.  Capitalized terms used but not defined herein shall have the meanings given to such terms in the Registration Statement and the Prospectus.

 

At or prior to the Applicable Time (as defined below), the Company had prepared the following information (collectively with the pricing information set forth on Annex A, the “Pricing Disclosure Package”): a Preliminary Prospectus dated June [18], 2015 and each “free-writing prospectus” (as defined pursuant to Rule 405 under the Securities Act) listed on Annex A hereto.

 

“Applicable Time” means [ · ] [A/P].M., New York City time, on June [ · ], 2015.

 

2.                                       Purchase of the Shares by the Underwriters .

 

(a)                                  The Company agrees to issue and sell the Underwritten Shares to the several Underwriters as provided in this underwriting agreement (this “Agreement”), and each Underwriter, on the basis of the representations, warranties and agreements set forth herein and subject to the conditions set forth herein, agrees, severally and not jointly, to purchase from the Company the respective number of Underwritten Shares set forth opposite such Underwriter’s name in Schedule 1 hereto at a price per share (the “Purchase Price”) of $[ · ].

 

In addition, the Company agrees to issue and sell the Option Shares to the several Underwriters as provided in this Agreement, and the Underwriters, on the basis of the representations, warranties and agreements set forth herein and subject to the conditions set forth herein, shall have the option to purchase, severally and not jointly, from the Company the Option Shares at the Purchase Price less an amount per share equal to any dividends or distributions declared by the Company and payable on the Underwritten Shares but not payable on the Option Shares.

 

If any Option Shares are to be purchased, the number of Option Shares to be purchased by each Underwriter shall be the number of Option Shares which bears the same ratio to the aggregate number of Option Shares being purchased as the number of Underwritten Shares set forth opposite the name of such Underwriter in Schedule 1 hereto (or such number increased as set forth in Section 10 hereof) bears to the aggregate number of Underwritten Shares being purchased from the Company by the several Underwriters, subject, however, to such adjustments to eliminate any fractional Shares as the Representatives in their sole discretion shall make.

 

The Underwriters may exercise the option to purchase Option Shares at any time in whole, or from time to time in part, on or before the thirtieth day following the date of the Prospectus, by written notice from the Representatives to the Company.  Such notice shall set forth the aggregate number of Option Shares as to which the option is being exercised and the date and time when the Option Shares are to be delivered and paid for, which may be the same date and time as the Closing Date (as hereinafter defined) but shall not be earlier than the Closing Date nor later than the tenth full business day (as hereinafter defined) after the date of such notice (unless such time and date are postponed in accordance

 

2



 

with the provisions of Section 10 hereof).  Any such notice shall be given at least two business days prior to the date and time of delivery specified therein.

 

(b)                                  The Company understands that the Underwriters intend to make a public offering of the Shares as soon after the effectiveness of this Agreement as in the judgment of the Representatives is advisable, and initially to offer the Shares on the terms set forth in the Prospectus.  The Company acknowledges and agrees that the Underwriters may offer and sell Shares to or through any affiliate of an Underwriter.

 

(c)                                   Payment for the Shares shall be made by wire transfer in immediately available funds to the account specified by the Company to the Representatives in the case of the Underwritten Shares at the offices of Weil, Gotshal & Manges LLP at 10:00 A.M., New York City time, on July [ · ], 2015(1), or at such other time or place on the same or such other date, not later than the fifth business day thereafter, as the Representatives and the Company may agree upon in writing or, in the case of the Option Shares, on the date and at the time and place specified by the Representatives in the written notice of the Underwriters’ election to purchase such Option Shares.  The time and date of such payment for the Underwritten Shares is referred to herein as the “Closing Date”, and the time and date for such payment for the Option Shares, if other than the Closing Date, is herein referred to as the “Additional Closing Date”.

 

Payment for the Shares to be purchased on the Closing Date or the Additional Closing Date, as the case may be, shall be made against delivery to the Representatives for the respective accounts of the several Underwriters of the Shares to be purchased on such date, with any transfer taxes payable in connection with the sale of such Shares duly paid by the Company.  Delivery of the Shares shall be made through the facilities of The Depository Trust Company (“DTC”) unless the Representatives shall otherwise instruct.  The certificates for the Shares will be made available for inspection and packaging by the Representatives at the office of DTC or its designated custodian not later than 1:00 P.M., New York City time, on the business day prior to the Closing Date or the Additional Closing Date, as the case may be.

 

(d)                                  The Company acknowledges and agrees that the Underwriters are acting solely in the capacity of an arm’s length contractual counterparty to the Company with respect to the offering of Shares contemplated hereby (including in connection with determining the terms of the offering) and not as a financial advisor or a fiduciary to, or an agent of, the Company or any other person.  Additionally, neither the Representatives nor any other Underwriter are advising the Company or any other person as to any legal, tax, investment, accounting or regulatory matters in any jurisdiction.  The Company shall consult with its own advisors concerning such matters and shall be responsible for making its own independent investigation and appraisal of the transactions contemplated hereby, and the Underwriters shall have no responsibility or liability to the Company with respect thereto.  Any review by the Underwriters of the Company, the transactions contemplated hereby or other matters relating to such transactions will be performed solely for the benefit of the Underwriters and shall not be on behalf of the Company.

 


(1) NTD: date to be four business days after date of Agreement assuming pricing after close of market.

 

3



 

3.                                       Representations and Warranties of the Company .  The Company represents and warrants to each Underwriter that:

 

(a)                                  Preliminary Prospectus.   No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and each Preliminary Prospectus included in the Pricing Disclosure Package, at the time of filing thereof, complied in all material respects with the Securities Act, and no Preliminary Prospectus, at the time of filing thereof, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation and warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in any Preliminary Prospectus, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 7(b) hereof.

 

(b)                                  Pricing Disclosure Package .  The Pricing Disclosure Package as of the Applicable Time did not, and as of the Closing Date and as of the Additional Closing Date, as the case may be, will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation and warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in such Pricing Disclosure Package, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 7(b) hereof.

 

(c)                                   Issuer Free Writing Prospectus.  Other than the Registration Statement, the Preliminary Prospectus and the Prospectus, the Company (including its agents and representatives, other than the Underwriters in their capacity as such) has not prepared, used, authorized, approved or referred to and will not prepare, use, authorize, approve or refer to any “written communication” (as defined in Rule 405 under the Securities Act) that constitutes an offer to sell or solicitation of an offer to buy the Shares (each such communication by the Company or its agents and representatives (other than a communication referred to in clause (i) below) an “Issuer Free Writing Prospectus”) other than (i) any document not constituting a prospectus pursuant to Section 2(a)(10)(a) of the Securities Act or Rule 134 under the Securities Act or (ii) the documents listed on Annex A hereto, each electronic road show and any other written communications approved in writing in advance by the Representatives.  Each such Issuer Free Writing Prospectus complied in all material respects with the Securities Act, has been or will be (within the time period specified in Rule 433) filed in accordance with the Securities Act (to the extent required thereby) and, when taken together with the Preliminary Prospectus accompanying, or delivered prior to delivery of such Issuer Free Writing Prospectus, did not, and as of the Closing Date and as of the Additional Closing Date, as the case may be, will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation and warranty with respect to any statements or omissions made in each such Issuer Free Writing Prospectus or Preliminary Prospectus in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in such Issuer Free Writing Prospectus or Preliminary Prospectus, it being understood and

 

4



 

agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 7(b) hereof.

 

(d)                                  Emerging Growth Company .  From the time of initial confidential submission of the Registration Statement to the Commission (or, if earlier, the first date on which the Company engaged directly or through any person authorized to act on its behalf in any Testing-the-Waters Communication) through the date hereof, the Company has been and is an “emerging growth company,” as defined in Section 2(a) of the Securities Act (an “Emerging Growth Company”).  “Testing-the-Waters Communication” means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Securities Act.

 

(e)                                   Testing-the-Waters Materials.  The Company (i) has not alone engaged in any Testing-the-Waters Communications other than Testing-the-Waters Communications with the consent of the Representatives with entities that are qualified institutional buyers within the meaning of Rule 144A under the Securities Act or institutions that are accredited investors within the meaning of Rule 501 under the Securities Act and (ii) has not authorized anyone other than the Representatives to engage in Testing-the-Waters Communications.  The Company reconfirms that the Representatives have been authorized to act on its behalf in undertaking Testing-the-Waters Communications by virtue of a writing substantially in the form of Exhibit A hereto.  The Company has not distributed or approved for distribution any Written Testing-the-Waters Communications other than those listed on Annex B hereto.  “Written Testing-the-Waters Communication” means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Securities Act.  Any individual Written Testing-the-Waters Communication does not conflict with the information contained in the Registration Statement or the Pricing Disclosure Package, complied in all material respects with the Securities Act, and when taken together with the Pricing Disclosure Package as of the Applicable Time, did not, and as of the Closing Date and as of the Additional Closing Date, as the case may be, will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

 

(f)                                    Registration Statement and Prospectus.   The Registration Statement has been declared effective by the Commission.  No order suspending the effectiveness of the Registration Statement has been issued by the Commission, and no proceeding for that purpose or pursuant to Section 8A of the Securities Act against the Company or related to the offering of the Shares has been initiated or, to the knowledge of the Company, threatened by the Commission; as of the applicable effective date of the Registration Statement and any post-effective amendment thereto, the Registration Statement and any such post-effective amendment complied and will comply in all material respects with the Securities Act, and did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading; and as of the date of the Prospectus and any amendment or supplement thereto and as of the Closing Date and as of the Additional Closing Date, as the case may be, the Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation and warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in the Registration Statement and the Prospectus and any amendment or supplement thereto, it being

 

5



 

understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 7(b) hereof.

 

(g)                                   Financial Statements.   The financial statements (including the related notes thereto) of the Company and its consolidated subsidiaries included in the Registration Statement, the Pricing Disclosure Package and the Prospectus comply in all material respects with the applicable requirements of the Securities Act and present fairly in all material respects the financial position of the Company and its consolidated subsidiaries as of the dates indicated and the results of their operations and the changes in their cash flows for the periods specified; such financial statements have been prepared in conformity with generally accepted accounting principles in the United States applied on a consistent basis throughout the periods covered thereby, and any supporting schedules included in the Registration Statement present fairly in all material respects the information required to be stated therein; the other financial information included in the Registration Statement, the Pricing Disclosure Package and the Prospectus has been derived from the accounting records of the Company and its consolidated subsidiaries and presents fairly in all material respects the information shown thereby; and the pro forma financial information and the related notes thereto included in the Registration Statement, the Pricing Disclosure Package and the Prospectus have been prepared in accordance with the applicable requirements of the Securities Act and the assumptions underlying such pro forma financial information are reasonable and are set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus.

 

(h)                                  No Material Adverse Change.   Since the date of the most recent financial statements of the Company included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (i) there has not been any change in the capital stock (other than the issuance of shares of Common Stock upon exercise of stock options and warrants described as outstanding in, and the grant of options and awards under existing equity incentive plans described in, the Registration Statement, the Pricing Disclosure Package and the Prospectus), short-term debt or long-term debt of the Company or any of its subsidiaries, or any dividend or distribution of any kind declared, set aside for payment, paid or made by the Company on any class of capital stock, or any material adverse change, or any development that could reasonably be expected to result in a prospective material adverse change, in or affecting the business, properties, management, financial position, stockholders’ equity or results of operations of the Company and its subsidiaries taken as a whole; (ii) neither the Company nor any of its subsidiaries has entered into any transaction or agreement (whether or not in the ordinary course of business) that is material to the business of the Company and its subsidiaries taken as a whole or incurred any liability or obligation, direct or contingent, that is material to the Company and its subsidiaries taken as a whole; and (iii) neither the Company nor any of its subsidiaries has sustained any loss or interference with its business that is material to the Company and its subsidiaries taken as a whole and that is either from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor disturbance or dispute or any action, order or decree of any court or arbitrator or governmental or regulatory authority, except in each case as otherwise disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus.

 

(i)                                      Organization and Good Standing.   The Company and each of its subsidiaries have been duly organized and are validly existing and in good standing under the laws of their respective jurisdictions of organization, are duly qualified to do business and are in good standing in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such qualification, and have all power and authority necessary

 

6



 

to own or hold their respective properties and to conduct the businesses in which they are engaged, except where the failure to be so qualified or in good standing or have such power or authority would not, individually or in the aggregate, have a material adverse effect on the business, properties, management, financial position, stockholders’ equity or results of operations of the Company and its subsidiaries taken as a whole or on the performance by the Company of its obligations under this Agreement (a “Material Adverse Effect”).  The subsidiaries listed in Exhibit 21.1 to the Registration Statement are the only significant subsidiaries of the Company.

 

(j)                                     Capitalization.   The Company has an authorized capitalization as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus under the heading “Capitalization”; all the outstanding shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable and are not subject to any pre-emptive or similar rights; except as described in or expressly contemplated by the Pricing Disclosure Package and the Prospectus, there are no outstanding rights (including, without limitation, pre-emptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interest in the Company or any of its subsidiaries, or any contract, commitment, agreement, understanding or arrangement of any kind relating to the issuance of any capital stock of the Company or any such subsidiary, any such convertible or exchangeable securities or any such rights, warrants or options; the capital stock of the Company conforms in all material respects to the description thereof contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus; and all the outstanding shares of capital stock or other equity interests of each subsidiary owned, directly or indirectly, by the Company have been duly and validly authorized and issued, are fully paid and non-assessable (except as otherwise described in the Registration Statement, the Pricing Disclosure Package and the Prospectus,) and are owned directly or indirectly by the Company, free and clear of any lien, charge, encumbrance, security interest, restriction on voting or transfer or any other claim of any third party.

 

(k)                                  Stock Options.  With respect to the stock options (the “Stock Options”) granted pursuant to the stock-based compensation plans of the Company and its subsidiaries (the “Company Stock Plans”), (i) each Stock Option intended to qualify as an “incentive stock option” under Section 422 of the Code so qualifies, (ii) each grant of a Stock Option was duly authorized no later than the date on which the grant of such Stock Option was by its terms to be effective (the “Grant Date”) by all necessary corporate action, including, as applicable, approval by the board of directors of the Company (or a duly constituted and authorized committee thereof) and any required stockholder approval by the necessary number of votes or written consents, and the award agreement governing such grant (if any) was duly executed and delivered by each party thereto, (iii) each such grant was made in accordance with the terms of the Company Stock Plans, the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and all other applicable laws and regulatory rules or requirements, including the rules of the New York Stock Exchange (the “Exchange”) and any other exchange on which Company securities are traded, and (iv) each such grant was properly accounted for in accordance with GAAP in the financial statements (including the related notes) of the Company. The Company has not knowingly granted, and there is no and has been no policy or practice of the Company of granting, Stock Options prior to, or otherwise coordinating the grant of Stock Options with, the release or other public announcement of material information regarding the Company or its subsidiaries or their results of operations or prospects.

 

(l)                                      Due Authorization.   The Company has full right, power and authority to execute and deliver this Agreement and to perform its obligations hereunder; and all action required to be

 

7



 

taken for the due and proper authorization, execution and delivery by it of this Agreement and the consummation by it of the transactions contemplated hereby has been duly and validly taken.

 

(m)                              Underwriting Agreement.  This Agreement has been duly authorized, executed and delivered by the Company.

 

(n)                                  The Shares.  The Shares to be issued and sold by the Company hereunder have been duly authorized and, when issued and delivered and paid for as provided herein, will be duly and validly issued, will be fully paid and nonassessable and will conform to the descriptions thereof in the Registration Statement, the Pricing Disclosure Package and the Prospectus; and the issuance of the Shares is not subject to any preemptive or similar rights.

 

(o)                                  [Reserved] .

 

(p)                                  No Violation or Default.   Neither the Company nor any of its subsidiaries is (i) in violation of its charter or by-laws or similar organizational documents; (ii) in default, and no event has occurred that, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject; or (iii) in violation of any law or statute or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority, except, in the case of clauses (ii) and (iii) above, for any such default or violation that would not, individually or in the aggregate, have a Material Adverse Effect.

 

(q)                                  No Conflicts.  The execution, delivery and performance by the Company of this Agreement, the issuance and sale of the Shares by the Company and the consummation by the Company of the transactions contemplated by this Agreement, the Pricing Disclosure Package and the Prospectus will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, (ii) result in any violation of the provisions of the charter or by-laws or similar organizational documents of the Company or any of its subsidiaries or (iii) result in the violation of any law or statute or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority, except, in the case of clauses (i) and (iii) above, for any such conflict, breach, violation or default that would not, individually or in the aggregate, have a Material Adverse Effect.

 

(r)                                     No Consents Required.   No consent, approval, authorization, order, license, registration or qualification of or with any court or arbitrator or governmental or regulatory authority is required for the execution, delivery and performance by the Company of this Agreement, the issuance and sale of the Shares and the consummation of the transactions contemplated by this Agreement, except for the registration of the Shares under the Securities Act and such consents, approvals, authorizations, orders and registrations or qualifications as may be required by the Financial Industry Regulatory Authority, Inc. (“FINRA”), the applicable stock exchange and under applicable state securities laws in connection with the purchase and distribution of the Shares by the Underwriters.

 

8



 

(s)                                    Legal Proceedings.   Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there are no legal, governmental or regulatory investigations, actions, suits or proceedings pending to which the Company or any of its subsidiaries is or, to the knowledge of the Company, may be a party or to which any property of the Company or any of its subsidiaries is or may be the subject that, individually or in the aggregate, if determined adversely to the Company or any of its subsidiaries, could reasonably be expected to have a Material Adverse Effect; no such investigations, actions, suits or proceedings are threatened or, to the knowledge of the Company, contemplated by any governmental or regulatory authority or threatened by others; and (i) there are no current or pending legal, governmental or regulatory actions, suits or proceedings that are required under the Securities Act to be described in the Registration Statement, the Pricing Disclosure Package or the Prospectus that are not so described in the Registration Statement, the Pricing Disclosure Package and the Prospectus and (ii) there are no statutes, regulations or contracts or other documents that are required under the Securities Act to be filed as exhibits to the Registration Statement or described in the Registration Statement, the Pricing Disclosure Package or the Prospectus that are not so filed as exhibits to the Registration Statement or described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.

 

(t)                                     Independent Accountants .  Ernst & Young LLP, who have certified certain financial statements of the Company and its subsidiaries, is an independent registered public accounting firm with respect to the Company and its subsidiaries within the applicable rules and regulations adopted by the Commission and the Public Company Accounting Oversight Board (United States) and as required by the Securities Act.

 

(u)                                  Title to Real and Personal Property .  The Company and its subsidiaries have good and marketable title in fee simple (in the case of real property) to, or have valid and marketable rights to lease or otherwise use, all items of real and personal property and assets that are material to the respective businesses of the Company and its subsidiaries, in each case free and clear of all liens, encumbrances, claims and defects and imperfections of title except those that (i) do not materially interfere with the use made and proposed to be made of such property by the Company and its subsidiaries or (ii) could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

 

(v)                                  Title to Intellectual Property .  The Company and its subsidiaries own or possess adequate rights to use all material patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses and know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) necessary for the conduct of their respective businesses as currently conducted and as proposed to be conducted in the Pricing Disclosure Package and the Prospectus, and the conduct of their respective businesses will not conflict in any material respect with any such rights of others. The Company and its subsidiaries have not received any notice of any claim of infringement, misappropriation or conflict with any such rights of others in connection with its patents, patent rights, licenses, inventions, trademarks, service marks, trade names, copyrights and know-how, which could reasonably be expected to result in a Material Adverse Effect.

 

(w)                                No Undisclosed Relationships .  No relationship, direct or indirect, exists between or among the Company or any of its subsidiaries, on the one hand, and the directors, officers, stockholders, customers or suppliers of the Company or any of its subsidiaries, on the other, that is required by the Securities Act to be described in the Registration Statement and the Prospectus and that is not so described in such documents and in the Pricing Disclosure Package.

 

9



 

(x)                                  Investment Company Act .  The Company is not and, after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, will not be required to register as an “investment company” or an entity “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder (collectively, the “Investment Company Act”).

 

(y)                                  Taxes.   The Company and its subsidiaries have paid all federal, state, local and foreign taxes and filed all tax returns required to be paid or filed through the date hereof; and except as otherwise disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there is no tax deficiency that has been, or could reasonably be expected to be, asserted against the Company or any of its subsidiaries or any of their respective properties or assets.

 

(z)                                   Licenses and Permits.   The Company and its subsidiaries possess all licenses, certificates, permits and other authorizations issued by, and have made all declarations and filings with, the appropriate federal, state, local or foreign governmental or regulatory authorities that are necessary for the ownership or lease of their respective properties or the conduct of their respective businesses as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, except where the failure to possess or make the same would not, individually or in the aggregate, have a Material Adverse Effect; and except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, neither the Company nor any of its subsidiaries has received notice of any revocation or modification of any such license, certificate, permit or authorization or has any reason to believe that any such license, certificate, permit or authorization will not be renewed in the ordinary course, except where the failure to pay or file or where such revocation, modification or non-renewal has not and would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(aa)                           No Labor Disputes.   Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, (i) no labor disturbance by or dispute with employees of the Company or any of its subsidiaries exists or, to the knowledge of the Company, is contemplated or threatened, and (ii) the Company is not aware of any existing or imminent labor disturbance by, or dispute with, the employees of any of its or its subsidiaries’ principal suppliers, contractors or customers.

 

(bb)                           Compliance with and Liability under Environmental Laws.   (i) The Company and its subsidiaries (a) are, and at all prior times were, in compliance with any and all applicable federal, state, local and foreign laws, rules, regulations, requirements, decisions, judgments, decrees, orders and the common law relating to pollution or the protection of the environment, natural resources or human health or safety, including those relating to the generation, storage, treatment, use, handling, transportation, Release or threat of Release of Hazardous Materials (collectively, “Environmental Laws”), (b) have received and are in compliance with all permits, licenses, certificates or other authorizations or approvals required of them under applicable Environmental Laws to conduct their respective businesses, (c) have not received notice of any actual or potential liability under or relating to, or actual or potential violation of, any Environmental Laws, including for the investigation or remediation of any Release or threat of Release of Hazardous Materials, and have no knowledge of any event or condition that would reasonably be expected to result in any such notice, (d) are not conducting or paying for, in whole or in part, any investigation, remediation or other corrective action pursuant to any Environmental Law at any location, and (e) are not a party to any order, decree or agreement that imposes any

 

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obligation or liability under any Environmental Law, and (ii) there are no costs or liabilities associated with Environmental Laws of or relating to the Company or its subsidiaries, except in the case of each of (i) and (ii) above, for any such matter, as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; and (iii) except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (a) there are no proceedings that are pending, or, to the knowledge of the Company, contemplated, against the Company or any of its subsidiaries under any Environmental Laws in which a governmental entity is also a party, other than such proceedings regarding which it is reasonably believed no monetary sanctions of $100,000 or more will be imposed, (b) the Company and its subsidiaries are not aware of any facts or issues regarding compliance with Environmental Laws, or liabilities or other obligations under Environmental Laws, including the Release or threat of Release of Hazardous Materials, that could reasonably be expected to have a material effect on the capital expenditures, earnings or competitive position of the Company and its subsidiaries, and (c) none of the Company and its subsidiaries anticipates material capital expenditures relating to any Environmental Laws.

 

(cc)                             Hazardous Materials .  There has been no storage, generation, transportation, use, handling, treatment, Release or threat of Release of Hazardous Materials by, relating to or caused by the Company or any of its subsidiaries (or, to the knowledge of the Company and its subsidiaries, any other entity (including any predecessor) for whose acts or omissions the Company or any of its subsidiaries is or could reasonably be expected to be liable) at, on, under or from any property or facility now or previously owned, operated or leased by the Company or any of its subsidiaries, or at, on, under or from any other property or facility, in violation of any Environmental Laws or in a manner or amount or to a location that could reasonably be expected to result in any liability under any Environmental Law, except for any violation or liability which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  “Hazardous Materials” means any material, chemical, substance, waste, pollutant, contaminant, compound, mixture, or constituent thereof, in any form or amount, including petroleum (including crude oil or any fraction thereof) and petroleum products, natural gas liquids, asbestos and asbestos containing materials, naturally occurring radioactive materials, brine, and drilling mud, regulated or which can give rise to liability under any Environmental Law.  “Release” means any spilling, leaking, seepage, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, or migrating in, into or through the environment, or in, into, from or through any building or structure.

 

(dd)                           Compliance with ERISA.   (i) Each employee benefit plan, within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), for which the Company or any member of its “Controlled Group” (defined as any organization which is a member of a controlled group of corporations within the meaning of Section 414 of the Internal Revenue Code of 1986, as amended (the “Code”)) would have any liability (each, a “Plan”) has been maintained in compliance with its terms and the requirements of any applicable statutes, orders, rules and regulations, including but not limited to ERISA and the Code; (ii) no prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to any Plan excluding transactions effected pursuant to a statutory or administrative exemption; (iii) for each Plan that is subject to the funding rules of Section 412 of the Code or Section 302 of ERISA, the minimum funding standard of Section 412 of the Code or Section 302 of ERISA, as applicable, has been satisfied (without taking into account any waiver thereof or extension of any amortization period) and is reasonably expected to be satisfied during the term of this Agreement in all material respects (without taking into account any waiver

 

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thereof or extension of any amortization period); (iv) the fair market value of the assets of each Plan exceeds the present value of all benefits accrued under such Plan (determined based on those assumptions used to fund the Plan); (v) no “reportable event” (within the meaning of Section 4043(c) of ERISA) has occurred or is reasonably expected to occur; (vi) neither the Company nor any member of the Controlled Group has incurred, nor reasonably expects to incur, any liability under Title IV of ERISA (other than contributions to the Plan or premiums to the PBGC, in the ordinary course and without default) in respect of a Plan (including a “multiemployer plan”, within the meaning of Section 4001(a)(3) of ERISA); and (vii) there is no pending audit or investigation by the Internal Revenue Service, the U.S. Department of Labor, the Pension Benefit Guaranty Corporation or any other governmental agency or any foreign regulatory agency with respect to any Plan; except where failure to comply with any of clauses (i) through (vii) of this Section 3(dd) would not, individually or in the aggregate, reasonable be expected to result in a Material Adverse Effect.

 

(ee)                             Disclosure Controls .  The Company and its subsidiaries maintain an effective system of “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that complies with the requirements of the Exchange Act and that has been designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, including controls and procedures designed to ensure that such information is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosure.

 

(ff)                               Accounting Controls.   The Company and its subsidiaries maintain systems of “internal control over financial reporting” (as defined in Rule 13a-15(f) of the Exchange Act) that comply with the requirements of the Exchange Act and have been designed by, or under the supervision of, the Company’s principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, including, but not limited to, internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles in the United States and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.  Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there are no material weaknesses in the Company’s internal controls.  The Company has advised the Company’s auditors and the Audit Committee of the Board of Directors of: (i) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which have adversely affected or are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information as to which the Company is aware; and (ii) to the knowledge of the Company, any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting.

 

(gg)                             Insurance.  The Company and its subsidiaries have insurance covering their respective properties, operations, personnel and businesses, including business interruption

 

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insurance, which insurance is in amounts and insures against such losses and risks as are generally maintained by companies engaged in the same or similar business and which the Company believes in good faith are adequate to protect the Company and its subsidiaries and their respective businesses; and neither the Company nor any of its subsidiaries has (i) received notice from any insurer or agent of such insurer that capital improvements or other expenditures are required or necessary to be made in order to continue such insurance or (ii) any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage at reasonable cost from similar insurers as may be necessary to continue its business.

 

(hh)                           No Unlawful Payments.   Neither the Company nor any of its controlled affiliates, subsidiaries, directors or officers nor, to the knowledge of the Company, any employee or agent of the Company or any of its subsidiaries, or other person known to the Company to be acting on behalf of the Company or any of its subsidiaries has (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made or taken an act in furtherance of an offer, promise or authorization of any direct or indirect unlawful payment or benefit to any foreign or domestic government official or employee, including of any government-owned or controlled entity or of a public international organization, or any person acting in an official capacity for or on behalf of any of the foregoing, or any political party or party official or candidate for political office; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended, or any applicable law or regulation implementing the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, or committed an offence under the Bribery Act 2010 of the United Kingdom or any other applicable anti-bribery or anti-corruption law; or (iv) made, offered, agreed, requested or taken an act in furtherance of any unlawful bribe or other unlawful benefit, including, without limitation, any rebate, payoff, influence payment, kickback or other unlawful or improper payment or benefit.  The Company and its subsidiaries have instituted, maintain and enforce, and intend to continue to maintain and enforce policies and procedures designed to promote and ensure compliance with all applicable anti-bribery and anti-corruption laws.

 

(ii)                                   Compliance with Anti-Money Laundering Laws .  The operations of the Company and its subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements, including those of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the applicable money laundering statutes of all jurisdictions where the Company or any of its subsidiaries conducts business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines issued, administered or enforced by any governmental agency (collectively, the “Anti-Money Laundering Laws”) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with respect to the Anti-Money Laundering Laws is pending or, to the knowledge of the Company, threatened.

 

(jj)                                 No Conflicts with Sanctions Laws.  Neither the Company nor any of its controlled affiliates, subsidiaries, directors or officers, nor, to the knowledge of the Company, any employee, agent or other person known to the Company to be acting on behalf of the Company or any of its subsidiaries is currently the subject or the target of any sanctions administered or enforced by the U.S. government, (including, without limitation, the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”) or the U.S. Department of State and including, without limitation, the designation as a “specially designated national” or “blocked person”), the United Nations Security Council (“UNSC”), the European Union, Her Majesty’s

 

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Treasury (“HMT”) or other relevant sanctions authority (collectively, “Sanctions”), nor is the Company, any of its subsidiaries located, organized or resident in a country or territory that is the subject or target of Sanctions, including, without limitation, Cuba, Iran, North Korea, Sudan and Syria (each, a “Sanctioned Country”); and the Company will not directly or indirectly use the proceeds of the offering of the Shares hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity (i) to fund or facilitate any activities of or business with any person that, at the time of such funding or facilitation, is the subject or target of Sanctions, (ii) to fund or facilitate any activities of or business in any Sanctioned Country or (iii) in any other manner that will result in a violation by any person (including any person participating in this transaction, whether as underwriter, advisor, investor or otherwise), of Sanctions.  For the past five years, the Company and its subsidiaries have not knowingly engaged in and are not now knowingly engaged in any dealings or transactions with any person that at the time of the dealing or transaction is or was the subject or the target of Sanctions or with any Sanctioned Country.

 

(kk)                           No Restrictions on Subsidiaries .  No subsidiary of the Company is currently prohibited, directly or indirectly, under any agreement or other instrument to which it is a party or is subject, from paying any dividends to the Company, from making any other distribution on such subsidiary’s capital stock, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring any of such subsidiary’s properties or assets to the Company or any other subsidiary of the Company.

 

(ll)                                   No Broker’s Fees.   Neither the Company nor any of its subsidiaries is a party to any contract, agreement or understanding with any person (other than this Agreement) that would give rise to a valid claim against the Company or any of its subsidiaries or any Underwriter for a brokerage commission, finder’s fee or like payment in connection with the offering and sale of the Shares.

 

(mm)                   No Registration Rights .  No person has the right to require the Company or any of its subsidiaries to register any securities for sale under the Securities Act by reason of the filing of the Registration Statement with the Commission or the issuance and sale of the Shares.

 

(nn)                           No Stabilization.   The Company has not taken, directly or indirectly, any action designed to or that could reasonably be expected to cause or result in any stabilization or manipulation of the price of the Shares.

 

(oo)                           Margin Rules .  The application of the proceeds received by the Company from the issuance, sale and delivery of the Shares as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus will not violate Regulation T, U or X of the Board of Governors of the Federal Reserve System or any other regulation of such Board of Governors.

 

(pp)                           Forward-Looking Statements.   No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in the Registration Statement, the Pricing Disclosure Package or the Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.

 

(qq)                           Statistical and Market Data.   Nothing has come to the attention of the Company that has caused the Company to believe that the statistical and market-related data included in the Registration Statement, the Pricing Disclosure Package and the Prospectus is not based on or derived from sources that are reliable and accurate in all material respects.

 

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(rr)                                 Sarbanes-Oxley Act .  There is and has been no failure on the part of the Company or, to the knowledge of the Company, any of the Company’s directors or officers, in their capacities as such, to comply with any provision of the Sarbanes-Oxley Act of 2002, as amended and the rules and regulations promulgated in connection therewith (the “Sarbanes-Oxley Act”), including Section 402 related to loans and Sections 302 and 906 related to certifications.

 

(ss)                               Status under the Securities Act .  At the time of filing the Registration Statement and any post-effective amendment thereto, at the earliest time thereafter that the Company or any offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) under the Securities Act) of the Shares and at the date hereof, the Company was not and is not an “ineligible issuer,” as defined in Rule 405 under the Securities Act.  The Company has paid the registration fee for this offering pursuant to Rule 457 under the Securities Act.

 

(tt)                                 No Ratings .  There are (and prior to the Closing Date, will be) no debt securities or preferred stock issued or guaranteed by the Company or any of its subsidiaries that are rated by a “nationally recognized statistical rating organization”, as such term is defined in Section 3(a)(62) of the Exchange Act.

 

(uu)                           Directed Share Program.  The Company represents and warrants that (i) the Registration Statement, the Pricing Disclosure Package and the Prospectus, any Preliminary Prospectus and any Issuer Free Writing Prospectuses comply in all material respects, and any further amendments or supplements thereto will comply in all material respects, with any applicable laws or regulations of foreign jurisdictions in which the Pricing Disclosure Package, the Prospectus, any Preliminary Prospectus and any Issuer Free Writing Prospectus, as amended or supplemented, if applicable, are distributed in connection with the Directed Share Program, and that (ii) no authorization, approval, consent, license, order, registration or qualification of or with any government, governmental instrumentality or court, other than such as have been obtained, is necessary under the securities laws and regulations of foreign jurisdictions in which the Directed Shares are offered outside the United States.  The Company has not offered, or caused the underwriters to offer, Shares to any person pursuant to the Directed Share Program with the specific intent to unlawfully influence (i) a customer or supplier of the Company to alter the customer or supplier’s level or type of business with the Company, or (ii) a trade journalist or publication to write or publish favorable information about the Company or its products.

 

4.                                       Further Agreements of the Company .  The Company covenants and agrees with each Underwriter that:

 

(a)                                  Required Filings.   The Company will file the final Prospectus with the Commission within the time periods specified by Rule 424(b) and Rule 430A under the Securities Act, will file any Issuer Free Writing Prospectus to the extent required by Rule 433 under the Securities Act; and will furnish copies of the Prospectus and each Issuer Free Writing Prospectus (to the extent not previously delivered) to the Underwriters in New York City prior to 10:00 A.M., New York City time, on the business day next succeeding the date of this Agreement in such quantities as the Representatives may reasonably request.

 

(b)                                  Delivery of Copies.   The Company will deliver, without charge, (i) to the Representatives, three signed copies of the Registration Statement as originally filed and each amendment thereto, in each case including all exhibits and consents filed therewith; and (ii) to each Underwriter (A) a conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits) and (B) during the Prospectus Delivery Period (as defined

 

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below), as many copies of the Prospectus (including all amendments and supplements thereto and each Issuer Free Writing Prospectus) as the Representatives may reasonably request.  As used herein, the term “Prospectus Delivery Period” means such period of time after the first date of the public offering of the Shares as in the opinion of counsel for the Underwriters a prospectus relating to the Shares is required by law to be delivered (or required to be delivered but for Rule 172 under the Securities Act) in connection with sales of the Shares by any Underwriter or dealer.

 

(c)                                   Amendments or Supplements, Issuer Free Writing Prospectuses.   Before preparing, using, authorizing, approving, referring to or filing any Issuer Free Writing Prospectus, and before filing any amendment or supplement to the Registration Statement or the Prospectus, the Company will furnish to the Representatives and counsel for the Underwriters a copy of the proposed Issuer Free Writing Prospectus, amendment or supplement for review and will not prepare, use, authorize, approve, refer to or file any such Issuer Free Writing Prospectus or file any such proposed amendment or supplement to which the Representatives reasonably objects.

 

(d)                                  Notice to the Representatives.   The Company will advise the Representatives promptly and confirm such advice in writing (which may be by electronic mail): (i) when the Registration Statement has become effective; (ii) when any amendment to the Registration Statement has been filed or becomes effective; (iii) when any supplement to the Prospectus, or any Issuer Free Writing Prospectus or any Written Testing-the-Waters Communication or any amendment to the Prospectus has been filed or distributed; (iv) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or the receipt of any comments from the Commission relating to the Registration Statement or any other request by the Commission for any additional information including, but not limited to, any request for information concerning any Testing-the-Waters Communication; (v) of the issuance by the Commission of any order suspending the effectiveness of the Registration Statement or preventing or suspending the use of any Preliminary Prospectus, any of the Pricing Disclosure Package, or the Prospectus or any Written Testing-the-Waters Communication] or the initiation or threatening of any proceeding for that purpose or pursuant to Section 8A of the Securities Act; (vi) of the occurrence of any event or development within the Prospectus Delivery Period as a result of which the Prospectus, the Pricing Disclosure Package, or any Issuer Free Writing Prospectus or any Written Testing-the-Waters Communication as then amended or supplemented would include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Prospectus, the Pricing Disclosure Package, or any such Issuer Free Writing Prospectus or any Written Testing-the-Waters Communication is delivered to a purchaser, not misleading; and of the receipt by the Company of any notice with respect to any suspension of the qualification of the Shares for offer and sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and the Company will use its best efforts to prevent the issuance of any such order suspending the effectiveness of the Registration Statement, preventing or suspending the use of any Preliminary Prospectus, any of the Pricing Disclosure Package or the Prospectus or any Written Testing-the-Waters Communication or suspending any such qualification of the Shares and, if any such order is issued, will obtain as soon as possible the withdrawal thereof.

 

(e)                                   Ongoing Compliance.   (1) If during the Prospectus Delivery Period (i) any event or development shall occur or condition shall exist as a result of which the Prospectus as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Prospectus is delivered to a purchaser, not misleading or (ii) it is

 

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necessary to amend or supplement the Prospectus to comply with law, the Company will immediately notify the Underwriters thereof and forthwith prepare and, subject to paragraph (c) above, file with the Commission and furnish to the Underwriters and to such dealers as the Representatives may designate such amendments or supplements to the Prospectus as may be necessary so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances existing when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus will comply with law and (2) if at any time prior to the Closing Date (i) any event or development shall occur or condition shall exist as a result of which the Pricing Disclosure Package as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Pricing Disclosure Package is delivered to a purchaser, not misleading or (ii) it is necessary to amend or supplement the Pricing Disclosure Package to comply with law, the Company will immediately notify the Underwriters thereof and forthwith prepare and, subject to paragraph (c) above, file with the Commission (to the extent required) and furnish to the Underwriters and to such dealers as the Representatives may designate such amendments or supplements to the Pricing Disclosure Package as may be necessary so that the statements in the Pricing Disclosure Package as so amended or supplemented will not, in the light of the circumstances existing when the Pricing Disclosure Package is delivered to a purchaser, be misleading or so that the Pricing Disclosure Package will comply with law.

 

(f)                                    Blue Sky Compliance.   The Company will qualify the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Representatives shall reasonably request and will continue such qualifications in effect so long as required for distribution of the Shares; provided that the Company shall not be required to (i) qualify as a foreign corporation or other entity or as a dealer in securities in any such jurisdiction where it would not otherwise be required to so qualify, (ii) file any general consent to service of process in any such jurisdiction or (iii) subject itself to taxation in any such jurisdiction if it is not otherwise so subject.

 

(g)                                   Earning Statement.  The Company will make generally available (electronically or otherwise) to its security holders and the Representatives as soon as practicable an earning statement that satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 of the Commission promulgated thereunder covering a period of at least twelve months beginning with the first fiscal quarter of the Company occurring after the “effective date” (as defined in Rule 158) of the Registration Statement.

 

(h)                                  Clear Market.   The Company will not, without the prior written consent of J.P. Morgan Securities LLC and Deutsche Bank Securities Inc. from the date of execution of this Agreement and continuing to and including the date 180 days after the date of the Prospectus, (i) 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, or file with the Commission a registration statement under the Securities Act relating to, any shares of Stock or any securities convertible into or exercisable or exchangeable for Stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, or (ii) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Stock or any such other securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Stock or such other securities, in cash or otherwise, without the prior written consent of the Representatives, other than (A) to the Underwriters pursuant to this Agreement, (B) upon the exercise of an option or warrant, the vesting of restricted stock units or the conversion or

 

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exchange of a security outstanding on the date hereof (including, without limitation, the automatic conversion of all outstanding shares of the Company’s preferred stock upon closing of the Offering) as referred to in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (C) pursuant to the stock-based compensation plans of the Company and its subsidiaries as referred to in the Registration Statement, the Pricing Disclosure Package and the Prospectus and (D) the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act, provided that such plan does not provide for the transfer of shares of common stock during the 180-day restricted period and the establishment of such plan does not require or otherwise result in any public filing or other public announcement of such plan during the 180-day restricted period, (E) shares of Stock or other securities issued in connection with a transaction with a third party that includes a bona fide commercial relationship (including joint ventures, marketing or distribution arrangements, collaboration agreements or intellectual property license agreements) or any acquisition of assets or not less than a majority or controlling portion of the equity of another entity, provided that (x) the aggregate number of shares of common stock that the Company may sell or issue or agree to sell or issue shall not exceed 5% of the total number of shares of common stock issued and outstanding immediately following the completion of the transactions contemplated by this Agreement and (y) each recipient of shares of common stock of securities convertible into or exercisable for Stock shall execute a lock-up agreement substantially in the form of Exhibit D hereto, or (F) the filing of any registration statement on Form S-8 or a successor form thereto relating to the shares of common stock granted pursuant to or reserved for issuance under the stock-based compensation plans of the Company and its subsidiaries referred to in clause (C).

 

If the Representatives, in their sole discretion, agree to release or waive the restrictions set forth in a lock-up letter described in Section 6(l) hereof for an officer or director of the Company and provide the Company with notice of the impending release or waiver substantially in the form of Exhibit B hereto at least three business days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver by a press release substantially in the form of Exhibit C hereto through a major news service at least two business days before the effective date of the release or waiver.

 

(i)                                      Use of Proceeds.   The Company will apply the net proceeds from the sale of the Shares as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus under the heading “Use of Proceeds.”

 

(j)                                     No Stabilization.   The Company will not take, directly or indirectly, any action designed to or that could reasonably be expected to cause or result in any stabilization or manipulation of the price of the Stock.

 

(k)                                  Exchange Listing.   The Company will use its best efforts to list, subject to notice of issuance, the Shares on the Exchange.

 

(l)                                      Reports.   Until the third anniversary of the date hereof, the Company will furnish to the Representatives, as soon as they are available, copies of all reports or other communications (financial or other) furnished to holders of the Shares, and copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange or automatic quotation system; provided the Company will be deemed to have furnished such reports and financial statements to the Representatives to the extent they are filed on the Commission’s Electronic Data Gathering, Analysis, and Retrieval system.

 

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(m)                              Record Retention .  The Company will, pursuant to reasonable procedures developed in good faith, retain copies of each Issuer Free Writing Prospectus that is not filed with the Commission in accordance with Rule 433 under the Securities Act.

 

(n)                                  Filings.   The Company will file with the Commission such reports as may be required by Rule 463 under the Securities Act.

 

(o)                                  Directed Share Program.   The Company will comply with all applicable securities and other laws, rules and regulations in each jurisdiction in which the Directed Shares are offered in connection with the Directed Share Program.

 

(p)                                  Emerging Growth Company .  The Company will promptly notify the Representatives if the Company ceases to be an Emerging Growth Company at any time prior to the later of (i) completion of the distribution of Shares within the meaning of the Securities Act and (ii) completion of the 180-day restricted period referred to in Section 4(h) hereof.

 

5.                                       Certain Agreements of the Underwriters .  Each Underwriter hereby represents and agrees that:

 

(a)                                  It has not used, authorized use of, referred to or participated in the planning for use of, and will not use, authorize use of, refer to or participate in the planning for use of, any “free writing prospectus”, as defined in Rule 405 under the Securities Act (which term includes use of any written information furnished to the Commission by the Company and not incorporated by reference into the Registration Statement and any press release issued by the Company) other than (i) a free writing prospectus that contains no “issuer information” (as defined in Rule 433(h)(2) under the Securities Act) that was not included (including through incorporation by reference) in the Preliminary Prospectus or a previously filed Issuer Free Writing Prospectus, (ii) any Issuer Free Writing Prospectus listed on Annex A or prepared pursuant to Section 3(c) or Section 4(c) above (including any electronic road show), or (iii) any free writing prospectus prepared by such underwriter and approved by the Company in advance in writing (each such free writing prospectus referred to in clauses (i) or (iii), an “Underwriter Free Writing Prospectus”).

 

(b)                                  It has not and will not, without the prior written consent of the Company, use any free writing prospectus that contains the final terms of the Shares unless such terms have previously been included in a free writing prospectus filed with the Commission; provided that any Underwriter using a term sheet shall notify the Company, and provide a copy of such term sheet to the Company, prior to, or substantially concurrently with, the first use of such term sheet.

 

(c)                                   It is not subject to any pending proceeding under Section 8A of the Securities Act with respect to the offering (and will promptly notify the Company if any such proceeding against it is initiated during the Prospectus Delivery Period).

 

6.                                       Conditions of Underwriters’ Obligations.   The obligation of each Underwriter to purchase the Underwritten Shares on the Closing Date or the Option Shares on the Additional Closing Date, as the case may be, as provided herein is subject to the performance by the Company of its covenants and other obligations hereunder and to the following additional conditions:

 

(a)                                  Registration Compliance; No Stop Order.   No order suspending the effectiveness of the Registration Statement shall be in effect, and no proceeding for such purpose or pursuant to Section 8A under the Securities Act shall be pending before or threatened by the Commission; the

 

19



 

Prospectus and each Issuer Free Writing Prospectus shall have been timely filed with the Commission under the Securities Act (in the case of an Issuer Free Writing Prospectus, to the extent required by Rule 433 under the Securities Act) and in accordance with Section 4(a) hereof; and all requests by the Commission for additional information shall have been complied with to the reasonable satisfaction of the Representatives.

 

(b)                                  Representations and Warranties.   The representations and warranties of the Company contained herein shall be true and correct on the date hereof and on and as of the Closing Date or the Additional Closing Date, as the case may be; and the statements of the Company and its officers made in any certificates delivered pursuant to this Agreement shall be true and correct on and as of the Closing Date or the Additional Closing Date, as the case may be.

 

(c)                                   No Material Adverse Change.   No event or condition of a type described in Section 3(h) hereof shall have occurred or shall exist, which event or condition is not described in the Pricing Disclosure Package (excluding any amendment or supplement thereto) and the Prospectus (excluding any amendment or supplement thereto) and the effect of which in the judgment of the Representatives makes it impracticable or inadvisable to proceed with the offering, sale or delivery of the Shares on the Closing Date or the Additional Closing Date, as the case may be, on the terms and in the manner contemplated by this Agreement, the Pricing Disclosure Package and the Prospectus.

 

(d)                                  Officers’ Certificate.   The Representatives shall have received on and as of the Closing Date or the Additional Closing Date, as the case may be, a certificate of the chief financial officer or chief accounting officer of the Company and one additional senior executive officer of the Company who is satisfactory to the Representatives (i) confirming that such officers have carefully reviewed the Registration Statement, the Pricing Disclosure Package and the Prospectus and, to the knowledge of such officers, the representations of the Company set forth in Sections 3(b) and 3(f) hereof are true and correct, (ii) confirming that the other representations and warranties of the Company in this Agreement are true and correct and that the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date or the Additional Closing Date, as the case may be, and (iii) to the effect set forth in paragraphs (a) and (c) above.

 

(e)                                   Comfort Letters.   (i) On the date of this Agreement and on the Closing Date or the Additional Closing Date, as the case may be, Ernst & Young LLP shall have furnished to the Representatives, at the request of the Company, letters, dated the respective dates of delivery thereof and addressed to the Underwriters, in form and substance reasonably satisfactory to the Representatives, containing statements and information of the type customarily included in accountants’ “comfort letters” to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus; provided, that the letter delivered on the Closing Date or the Additional Closing Date, as the case may be, shall use a “cut-off” date no more than three business days prior to such Closing Date or such Additional Closing Date, as the case may be.

 

(ii) On the date of this Agreement and on the Closing Date or the Additional Closing Date, as the case may be, the Company shall have furnished to the Representatives a certificate, dated the respective dates of delivery thereof and addressed to the Underwriters, of its chief financial officer with respect to certain financial data contained in the Pricing Disclosure Package and the Prospectus, providing “management comfort” with respect to such information, in form and substance reasonably satisfactory to the Representatives.

 

20


 

(f)            Opinion and 10b-5 Statement of Counsel for the Company.   Latham & Watkins LLP, counsel for the Company, shall have furnished to the Representatives, at the request of the Company, their written opinion and 10b-5 statement, dated the Closing Date or the Additional Closing Date, as the case may be, and addressed to the Underwriters, in form and substance reasonably satisfactory to the Representatives, to the effect set forth in Annex C hereto.

 

(g)           Opinion and 10b-5 Statement of Counsel for the Underwriters.   The Representatives shall have received on and as of the Closing Date or the Additional Closing Date, as the case may be, an opinion and 10b-5 statement of Weil, Gotshal & Manges LLP, counsel for the Underwriters, with respect to such matters as the Representatives may reasonably request, and such counsel shall have received such documents and information as they may reasonably request to enable them to pass upon such matters.

 

(h)           No Legal Impediment to Issuance.   No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any federal, state or foreign governmental or regulatory authority that would, as of the Closing Date or the Additional Closing Date, as the case may be, prevent the issuance or sale of the Shares; and no injunction or order of any federal, state or foreign court shall have been issued that would, as of the Closing Date or the Additional Closing Date, as the case may be, prevent the issuance or sale of the Shares.

 

(i)            Good Standing .  The Representatives shall have received on and as of the Closing Date or the Additional Closing Date, as the case may be, satisfactory evidence of the good standing of the Company and its subsidiaries in their respective jurisdictions of organization and their good standing as foreign entities in such other jurisdictions as the Representatives may reasonably request, in each case in writing or any standard form of telecommunication from the appropriate governmental authorities of such jurisdictions.

 

(j)            Exchange Listing.   The Shares to be delivered on the Closing Date or Additional Closing Date, as the case may be, shall have been approved for listing on the New York Stock Exchange, subject to official notice of issuance.

 

(k)           Lock-up Agreements .  The “lock-up” agreements, each substantially in the form of Exhibit D hereto, between you and certain shareholders, officers and directors of the Company relating to sales and certain other dispositions of shares of Stock or certain other securities, delivered to you on or before the date hereof, shall be full force and effect on the Closing Date or Additional Closing Date, as the case may be.

 

(l)            Additional Documents.   On or prior to the Closing Date or the Additional Closing Date, as the case may be, the Company shall have furnished to the Representatives such further certificates and documents as the Representatives may reasonably request.

 

All opinions, letters, certificates and evidence mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Underwriters.

 

7.             Indemnification and Contribution .

 

(a)           Indemnification of the Underwriters.   The Company agrees to indemnify and hold harmless each Underwriter, its affiliates, directors and officers and each person, if any, who controls such Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,

 

21



 

from and against any and all losses, claims, damages and liabilities (including, without limitation, legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted, as such fees and expenses are incurred), joint or several, that arise out of, or are based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, not misleading, or (ii) any untrue statement or alleged untrue statement of a material fact contained in the Prospectus (or any amendment or supplement thereto), any Issuer Free Writing Prospectus, any “issuer information” filed or required to be filed pursuant to Rule 433(d) under the Securities Act, any Written Testing-the-Waters Communication, any road show as defined in Rule 433(h) under the Securities Act approved by the Company (an “approved road show”) or any Pricing Disclosure Package (including any Pricing Disclosure Package that has subsequently been amended), or caused by any omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, in each case except insofar as such losses, claims, damages or liabilities arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in subsection (b) below.

 

(b)           Indemnification of the Company.   Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who signed the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the indemnity set forth in paragraph (a) above, but only with respect to any losses, claims, damages or liabilities that arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information furnished to the Company relating to such Underwriter in writing by such Underwriter through the Representatives expressly for use in the Registration Statement, the Prospectus (or any amendment or supplement thereto), any Issuer Free Writing Prospectus, any Written Testing-the-Waters Communication, any approved road show or any Pricing Disclosure Package (including any Pricing Disclosure Package that has subsequently been amended), it being understood and agreed upon that the only such information furnished by any Underwriter consists of the following information in the Prospectus furnished on behalf of each Underwriter:  the concession and reallowance figures appearing in the third paragraph under the caption “Underwriting,” the information contained in the twelfth paragraph under the caption “Underwriting.”

 

(c)           Notice and Procedures.   If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any person in respect of which indemnification may be sought pursuant to either paragraph (a) or (b) above, such person (the “Indemnified Person”) shall promptly notify the person against whom such indemnification may be sought (the “Indemnifying Person”) in writing; provided that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have under paragraph (a) or (b) above except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided , further , that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have to an Indemnified Person otherwise than under paragraph (a) or (b) above.  If any such proceeding shall be brought or asserted against an Indemnified Person and it shall have notified the Indemnifying Person thereof, the Indemnifying Person shall retain counsel reasonably satisfactory to the Indemnified Person (who shall not, without the consent of the Indemnified Person, be counsel to the Indemnifying Person) to represent the Indemnified Person in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding, as incurred.  In any such proceeding, any

 

22



 

Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary; (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person; (iii) the Indemnified Person shall have reasonably concluded that there may be legal defenses available to it that are different from or in addition to those available to the Indemnifying Person; or (iv) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interest between them.  It is understood and agreed that the Indemnifying Person shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be paid or reimbursed as they are incurred.  Any such separate firm for any Underwriter, its affiliates, directors and officers and any control persons of such Underwriter shall be designated in writing by J. P. Morgan Securities LLC and any such separate firm for the Company, its directors, its officers who signed the Registration Statement and any control persons of the Company shall be designated in writing by the Company.  The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Person agrees to indemnify each Indemnified Person from and against any loss or liability by reason of such settlement or judgment.  Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested that an Indemnifying Person reimburse the Indemnified Person for fees and expenses of counsel as contemplated by this paragraph, the Indemnifying Person shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by the Indemnifying Person of such request, and (ii) the Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement.  No Indemnifying Person shall, without the written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnification could have been sought hereunder by such Indemnified Person, unless such settlement (x) includes an unconditional release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding and (y) does not include any statement as to or any admission of fault, culpability or a failure to act by or on behalf of any Indemnified Person.

 

(d)           Contribution.   If the indemnification provided for in paragraphs (a) and (b) above is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and the Underwriters on the other, from the offering of the Shares or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Company, on the one hand, and the Underwriters on the other, in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations.  The relative benefits received by the Company, on the one hand, and the Underwriters on the other, shall be deemed to be in the same respective proportions as the net proceeds (before deducting expenses) received by the Company from the sale of the Shares and the total underwriting discounts and commissions received by the Underwriters in connection therewith, in each case as set forth in the table on the cover of the Prospectus, bear to the aggregate offering price of the Shares.  The relative fault of the Company, on the one hand, and the Underwriters on the other, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a

 

23



 

material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

 

(e)           Limitation on Liability.   The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to paragraph (d) above were determined by pro   rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d) above.  The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such Indemnified Person in connection with any such action or claim.  Notwithstanding the provisions of paragraphs (d) and (e), in no event shall an Underwriter be required to contribute any amount in excess of the amount by which the total underwriting discounts and commissions received by such Underwriter with respect to the offering of the Shares exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.  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.  The Underwriters’ obligations to contribute pursuant to paragraphs (d) and (e) are several in proportion to their respective purchase obligations hereunder and not joint.

 

(f)            Non-Exclusive Remedies.   The remedies provided for in this Section 7 paragraphs (a) through (e) are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Indemnified Person at law or in equity.

 

8.             Effectiveness of Agreement .  This Agreement shall become effective upon the execution and delivery hereof by the parties hereto.

 

9.             Termination .  This Agreement may be terminated in the absolute discretion of the Representatives, by notice to the Company, if after the execution and delivery of this Agreement and prior to the Closing Date or, in the case of the Option Shares, prior to the Additional Closing Date (i) trading generally shall have been suspended or materially limited on or by any of the New York Stock Exchange or The Nasdaq Stock Market; (ii) trading of any securities issued or guaranteed by the Company shall have been suspended on any exchange or in any over-the-counter market; (iii) a general moratorium on commercial banking activities shall have been declared by federal or New York State authorities; or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis, either within or outside the United States, that, in the judgment of the Representatives, is material and adverse and makes it impracticable or inadvisable to proceed with the offering, sale or delivery of the Shares on the Closing Date or the Additional Closing Date, as the case may be, on the terms and in the manner contemplated by this Agreement, the Pricing Disclosure Package and the Prospectus.

 

10.          Defaulting Underwriter .

 

(a)           If, on the Closing Date or the Additional Closing Date, as the case may be, any Underwriter defaults on its obligation to purchase the Shares that it has agreed to purchase hereunder on such date, the non-defaulting Underwriters may in their discretion arrange for the purchase of such Shares by other persons satisfactory to the Company on the terms contained in this Agreement.  If, within 36 hours after any such default by any Underwriter, the non-defaulting Underwriters do not arrange for the purchase of such Shares, then the Company shall be entitled to a further period of 36 hours within which

 

24



 

to procure other persons satisfactory to the non-defaulting Underwriters to purchase such Shares on such terms.  If other persons become obligated or agree to purchase the Shares of a defaulting Underwriter, either the non-defaulting Underwriters or the Company may postpone the Closing Date or the Additional Closing Date, as the case may be, for up to five full business days in order to effect any changes that in the opinion of counsel for the Company or counsel for the Underwriters may be necessary in the Registration Statement and the Prospectus or in any other document or arrangement, and the Company agrees to promptly prepare any amendment or supplement to the Registration Statement and the Prospectus that effects any such changes.  As used in this Agreement, the term “Underwriter” includes, for all purposes of this Agreement unless the context otherwise requires, any person not listed in Schedule 1 hereto that, pursuant to this Section 10, purchases Shares that a defaulting Underwriter agreed but failed to purchase.

 

(b)           If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by the non-defaulting Underwriters and the Company as provided in paragraph (a) above, the aggregate number of Shares that remain unpurchased on the Closing Date or the Additional Closing Date, as the case may be, does not exceed one-eleventh of the aggregate number of Shares to be purchased on such date, then the Company shall have the right to require each non-defaulting Underwriter to purchase the number of Shares that such Underwriter agreed to purchase hereunder on such date plus such Underwriter’s pro rata share (based on the number of Shares that such Underwriter agreed to purchase on such date) of the Shares of such defaulting Underwriter or Underwriters for which such arrangements have not been made.

 

(c)           If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by the non-defaulting Underwriters and the Company as provided in paragraph (a) above, the aggregate number of Shares that remain unpurchased on the Closing Date or the Additional Closing Date, as the case may be, exceeds one-eleventh of the aggregate amount of Shares to be purchased on such date, or if the Company shall not exercise the right described in paragraph (b) above, then this Agreement or, with respect to any Additional Closing Date, the obligation of the Underwriters to purchase Shares on the Additional Closing Date shall terminate without liability on the part of the non-defaulting Underwriters.  Any termination of this Agreement pursuant to this Section 10 shall be without liability on the part of the Company, except that the Company will continue to be liable for the payment of expenses as set forth in Section 11 hereof and except that the provisions of Section 7 hereof shall not terminate and shall remain in effect.

 

(d)           Nothing contained herein shall relieve a defaulting Underwriter of any liability it may have to the Company or any non-defaulting Underwriter for damages caused by its default.

 

11.          Payment of Expenses .

 

(a)           Whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, the Company will pay or cause to be paid all costs and expenses incident to the performance of its obligations hereunder, including without limitation, (i) the costs incident to the authorization, issuance, sale, preparation and delivery of the Shares and any taxes payable in that connection; (ii) the costs incident to the preparation, printing and filing under the Securities Act of the Registration Statement, the Preliminary Prospectus, any Issuer Free Writing Prospectus, any Pricing Disclosure Package and the Prospectus (including all exhibits, amendments and supplements thereto) and the distribution thereof; (iii)  the fees and expenses of the Company’s counsel and independent accountants; (iv) the fees and expenses incurred in connection with the registration or qualification and determination of eligibility for investment of the Shares under the state or foreign securities or blue sky laws of such jurisdictions as the Representatives may designate and the preparation, printing and distribution of a Blue

 

25



 

Sky Memorandum (including the related fees and expenses of counsel for the Underwriters), provided that the reimbursement obligation for such fees and expenses does not exceed $15,000; (v) the cost of preparing stock certificates; (vi) the costs and charges of any transfer agent and any registrar; (vii) all expenses and application fees incurred in connection with any filing with, and clearance of the offering by, FINRA, provided that the reimbursement obligation for any such fees and expenses representing fees and expenses of counsel for the Underwriters shall not exceed $30,000; (viii) all expenses incurred by the Company in connection with any “road show” presentation to potential investors, it being understood that except as provided in this Section 13 or Section 9 hereof, the Underwriters will pay all of the travel, lodging and other expenses of the Underwriters or any of their employees incurred by them in connection with any “roadshow” presentation to potential investors and 50% of the costs of any aircraft chartered in connection with the “road show” presentation; (ix) all expenses and application fees related to the listing of the Shares on the New York Stock Exchange and (x) all of the reasonable and documented fees and disbursements of counsel incurred by the Underwriters in connection with the Directed Share Program and stamp duties, similar taxes or duties or other taxes, if any, incurred by the Underwriters in connection with the Directed Share Program.

 

(b)           If (i) this Agreement is terminated pursuant to Section 9, (ii) the Company for any reason fails to tender the Shares for delivery to the Underwriters or (iii) the Underwriters decline to purchase the Shares for any reason permitted under this Agreement, the Company agrees to reimburse the Underwriters for all out-of-pocket costs and expenses (including the fees and expenses of their counsel) reasonably incurred by the Underwriters in connection with this Agreement and the offering contemplated hereby.

 

12.          Persons Entitled to Benefit of Agreement .  This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers and directors and any controlling persons referred to in Section 7 hereof.  Nothing in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein.  No purchaser of Shares from any Underwriter shall be deemed to be a successor merely by reason of such purchase.

 

13.          Survival .  The respective indemnities, rights of contribution, representations, warranties and agreements of the Company and the Underwriters contained in this Agreement or made by or on behalf of the Company or the Underwriters pursuant to this Agreement or any certificate delivered pursuant hereto shall survive the delivery of and payment for the Shares and shall remain in full force and effect, regardless of any termination of this Agreement or any investigation made by or on behalf of the Company or the Underwriters.

 

14.          Certain Defined Terms .  For purposes of this Agreement, (a) except where otherwise expressly provided, the term “affiliate” has the meaning set forth in Rule 405 under the Securities Act; (b) the term “business day” means any day other than a day on which banks are permitted or required to be closed in New York City; (c) the term “subsidiary” has the meaning set forth in Rule 405 under the Securities Act; and (d) the term “significant subsidiary” has the meaning set forth in Rule 1-02 of Regulation S-X under the Exchange Act.

 

15.          Miscellaneous .

 

(a)           Notices.   All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted and confirmed by any standard form of telecommunication.  Notices to the Underwriters shall be given to the Representatives c/o J. P. Morgan Securities LLC, 383 Madison Avenue, New York, New York 10179 (fax: (212) 622-8358); Attention

 

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Equity Syndicate Desk and c/o Deutsche Bank Securities Inc., 60 Wall Street, New York, New York 10005, Attention: Equity Capital Markets—Syndicate Desk, fax: (212) 797-9344, with a copy to Deutsche Bank Securities Inc., 60 Wall Street, 36th Floor, New York, New York 10005, Attention: General Counsel, Fax: (212) 797-4561.  Notices to the Company shall be given to it at 2 Manhattanville Road, Suite 203, Purchase, New York 10577 (fax: (203) 621-3098); Attention: Chief Executive Officer, with a copy, which shall not constitute notice, to Latham & Watkins LLP, 885 Third Avenue, New York, New York 10022 (fax: (212) 751-4864), Attention: Marc D. Jaffe.

 

(b)           Governing Law.   This Agreement and any claim, controversy or dispute arising under or related to this Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in such state.

 

(c)           Counterparts.   This Agreement may be signed in counterparts (which may include counterparts delivered by any standard form of telecommunication), each of which shall be an original and all of which together shall constitute one and the same instrument.

 

(d)           Amendments or Waivers.   No amendment or waiver of any provision of this Agreement, nor any consent or approval to any departure therefrom, shall in any event be effective unless the same shall be in writing and signed by the parties hereto.

 

(e)           Headings.   The headings herein are included for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement.

 

27



 

If the foregoing is in accordance with your understanding, please indicate your acceptance of this Agreement by signing in the space provided below.

 

 

Very truly yours,

 

 

 

TELADOC, INC.

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

Accepted:  As of the date first written above

 

J.P. Morgan Securities LLC

Deutsche Bank Securities Inc.

 

For itself and on behalf of the
several Underwriters listed
in Schedule 1 hereto.

 

 

J. P. MORGAN SECURITIES LLC

 

 

 

By:

 

 

 

Authorized Signatory

 

 

 

 

 

DEUTSCHE BANK SECURITIES INC.

 

 

 

By:

 

 

 

Authorized Signatory

 

 

 

 

 

By:

 

 

 

Authorized Signatory

 

 

28


 

Schedule 1

 

Underwriter

 

Number of Shares

 

J. P. Morgan Securities LLC

 

 

 

Deutsche Bank Securities Inc.

 

 

 

SunTrust Robinson Humphrey, Inc.

 

 

 

Wells Fargo Securities, LLC

 

 

 

William Blair & Company, L.L.C.

 

 

 

 

 

 

 

Total

 

 

 

 



 

Annex A

 

a.              Pricing Disclosure Package

 

None

 

b.  Pricing Information Provided Orally by Underwriters

 

Number of Shares:

 

Price:

 



 

Annex B

 

Written Testing-the-Waters Communications

 

Reference is made to the materials used in the testing the waters presentation made to potential investors by the Company, to the extent such materials are deemed to be a “written communication” within the meaning of Rule 405 under the Securities Act.

 



 

Exhibit A

 

EGC — Testing the waters authorization (to be delivered by the issuer to J.P. Morgan and Deutsche Bank Securities, Inc. in email or letter form)

 

In reliance on Section 5(d) of the Securities Act of 1933, as amended (the “Act”), Teladoc, Inc. (the “Issuer”) hereby authorizes J.P. Morgan Securities LLC (“J.P. Morgan”) and its affiliates and their respective employees and Deutsche Bank Securities Inc. (“Deutsche Bank”) and its affiliates and their respective employees, to engage on behalf of the Issuer in oral and written communications with potential investors that are “qualified institutional buyers”, as defined in Rule 144A under the Act, or institutions that are “accredited investors”, as defined in Regulation D under the Act, to determine whether such investors might have an interest in the Issuer’s contemplated initial public offering (“Testing-the-Waters Communications”).  A “Written Testing-the Waters Communication” means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Act.

 

The Issuer represents that it is an “emerging growth company” as defined in Section 2(a)(19) of the Act (“Emerging Growth Company”) and agrees to promptly notify J.P. Morgan and Deutsche Bank in writing if the Issuer hereafter ceases to be an Emerging Growth Company while this authorization is in effect.  If at any time following the distribution of any Written Testing-the-Waters Communication there occurs an event or development as a result of which such Written Testing-the-Waters Communication included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Issuer will promptly notify J.P. Morgan and Deutsche Bank and will promptly amend or supplement, at its own expense, such Written Testing-the-Waters Communication to eliminate or correct such  untrue statement or omission.

 

Nothing in this authorization is intended to limit or otherwise affect the ability of J.P. Morgan, Deutsche Bank, SunTrust Robinson Humphrey, Inc., Wells Fargo Securities, LLC and William Blair & Company, L.L.C. and their affiliates and employees, to engage in communications in which they could otherwise lawfully engage in the absence of this authorization, including, without limitation, any written communication containing only one or more of the statements specified under Rule 134(a) under the Act. This authorization shall remain in effect until the Issuer has provided to J.P. Morgan and Deutsche Bank a written notice revoking this authorization.  All notices as described herein shall be sent by email to the attention of David Ke, at david.ke@jpmorgan.com and John Reed, at John.Reed@db.com, with a copy to Alex Lynch at Alex.Lynch@weil.com .

 



 

Exhibit B

 

Form of Waiver of Lock-up

 

J.P. MORGAN SECURITIES LLC

 

DEUTSCHE BANK SECURITIES INC.

 

Teladoc, Inc.
Public Offering of Common Stock

 

, 20    

 

[Name and Address of
Officer or Director
Requesting Waiver]

 

Dear Mr./Ms. [Name]:

 

This letter is being delivered to you in connection with the offering by Teladoc, Inc. (the “Company”) of        shares of common stock, $0.001 par value (the “Common Stock”), of the Company and the lock-up letter dated                  , 20   (the “Lock-up Letter”), executed by you in connection with such offering, and your request for a [waiver] [release] dated                  , 2015, with respect to         shares of Common Stock (the “Shares”).

 

J.P. Morgan Securities LLC and Deutsche Bank Securities Inc. hereby agree to [waive] [release] the transfer restrictions set forth in the Lock-up Letter, but only with respect to the Shares, effective                   , 20  ; provided , however , that such [waiver] [release] is conditioned on the Company announcing the impending [waiver] [release] by press release through a major news service at least two business days before effectiveness of such [waiver] [release].  This letter will serve as notice to the Company of the impending [waiver] [release].

 

Except as expressly [waived] [released] hereby, the Lock-up Letter shall remain in full force and effect.

 



 

 

Yours very truly,

 

 

 

 

J. P. MORGAN SECURITIES LLC

 

 

 

 

By:

 

 

 

Authorized Signatory

 

 

 

 

 

 

 

DEUTSCHE BANK SECURITIES INC.

 

 

 

 

By:

 

 

 

Authorized Signatory

 

 

 

 

 

 

 

By:

 

 

 

Authorized Signatory

 

 

cc:  Company

 


 

Exhibit C

 

Form of Press Release

 

Teladoc, Inc.
[Date]

 

Teladoc, Inc. (“Company”) announced today that J.P. Morgan Securities LLC and Deutsche Bank Securities Inc., the lead book-running managers in the Company’s recent public sale of     shares of common stock, are [waiving] [releasing] a lock-up restriction with respect to    shares of the Company’s common stock held by [certain officers or directors] [an officer or director] of the Company. The [waiver] [release] will take effect on                      2015, and the shares may be sold on or after such date.

 

This press release is not an offer for sale of the securities in the United States or in any other jurisdiction where such offer is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended.

 



 

Exhibit D

 

FORM OF LOCK-UP AGREEMENT

 

, 20   

 

J. P. Morgan Securities LLC

Deutsche Bank Securities Inc.

As Representatives of the

several Underwriters listed
in Schedule 1 to the Underwriting Agreement

Referred to below

 

c/o J. P. Morgan Securities LLC

383 Madison Avenue

New York, New York 10179

 

c/o Deutsche Bank Securities Inc.

60 Wall Street

New York, New York 10005

 

Re:          Teladoc, Inc. -— Public Offering

 

Ladies and Gentlemen:

 

The undersigned understands that you, as Representatives of the several Underwriters, propose to enter into an underwriting agreement (the “Underwriting Agreement”) with Teladoc, Inc., a Delaware corporation (the “Company”), providing for the public offering (the “Public Offering”) by the several Underwriters named in Schedule 1 to the Underwriting Agreement (the “Underwriters”), of common stock of the Company (the “Securities”). Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Underwriting Agreement.

 

In consideration of the Underwriters’ agreement to purchase and make the Public Offering of the Securities, and for other good and valuable consideration receipt of which is hereby acknowledged, the undersigned hereby agrees that, without the prior written consent of J. P. Morgan Securities LLC and Deutsche Bank Securities Inc. on behalf of the Underwriters, the undersigned will not, during the period ending 180 days after the date of the prospectus relating to the Public Offering (the “Prospectus”) (the “Lock-Up Period”), (1) 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, $0.001 per share par value, of the Company (the “Common Stock”) or any securities convertible into or exercisable or exchangeable for Common Stock (including without limitation, Common Stock or such other securities which may be deemed to be beneficially owned by the undersigned in accordance with the rules and regulations of the Securities and Exchange Commission and securities that may be issued upon exercise of a stock option or warrant), or publicly disclose the intention to make any offer, sale, pledge or disposition, (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Common Stock or such other securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise or (3) make any demand for or exercise any right with respect to the registration of any shares

 



 

of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock, in each case other than (A) the Securities to be sold by the undersigned pursuant to the Underwriting Agreement, (B) transfers of shares of Common Stock or any security of the Company convertible, exercisable or exchangeable into Common Stock as a bona fide gift or gifts, (C) transfers of shares of Common Stock or any security of the Company convertible, exercisable or exchangeable into Common Stock to a trust or limited family partnership for the direct or indirect benefit of the undersigned or the immediate family of the undersigned, (D) transfers of shares of Common Stock or any security of the Company convertible, exercisable or exchangeable into Common Stock by will, other testamentary document or intestate succession to the legal representative, heir, beneficiary or a member of the immediate family of the undersigned, (E) if the undersigned is a corporation, partnership, limited liability company, trust or other business entity (1) transfers to another corporation, partnership, limited liability company, trust or other business entity that is an affiliate (as defined in Rule 405 promulgated under the Securities Act of 1933, as amended) of the undersigned or (2) distributions of shares of Common Stock or any security of the Company convertible into Common Stock to limited partners, limited liability company members or stockholders of the undersigned or holders of similar equity interests in the undersigned, (F) to any immediate family member or any investment fund or other entity controlled or managed by the undersigned, (G) to a nominee or custodian of a person or entity to whom a disposition or transfer would be permissible under clauses (B) through (F), (H) dispositions of shares of Common Stock to the Company (1) solely in an amount necessary to satisfy tax obligations (withholding or otherwise) in connection with the exercise of options to purchase Common Stock, the vesting of restricted shares of Common Stock, the settling of restricted shares of Common Stock or (2) in connection with the rights of the Company to cause the undersigned to sell shares of Common Stock in effect on the date hereof, (I) pursuant to any contractual arrangement that provides for the repurchase of the undersigned’s securities by the Company in connection with the termination of the undersigned’s employment or other service relationship with the Company or the undersigned’s failure to meet certain conditions set out upon receipt of such securities, (J) shares of Common Stock acquired by the undersigned in open market transactions after completion of the Offering, (K) pursuant to an order of a court or regulatory agency having jurisdiction over the undersigned and (L) in response to a bona fide third party takeover bid made to all holders of Common Stock or any other acquisition transaction whereby all or substantially all of the Common Stock are acquired by a third party, provided that if such transaction is not completed, any Securities in the Company subject to this Letter Agreement shall remain subject to the restrictions contained in this Letter Agreement; provided that (a) in the case of clauses (B) through (G), (1) each transferee shall execute and deliver to the Representatives a lock-up letter in the form of this paragraph, (2) no filing by any party under Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), shall be required or shall be made voluntarily in connection with such transfer or distribution during the Lock-Up Period, other than a Form 5 and (3) any such transfer or distribution does not involve a disposition for value except for with respect to Clause (E)(2) above, (b) in the case of clauses (H)(2) and (I), any filing made pursuant to Section 16(a) of the Exchange Act shall include a footnote describing the purpose of the transaction and (c) in the case of clauses (H)(1) and (J), no filing under Section 16(a) of the Exchange Act shall be required or shall be made voluntarily in connection with such transfer. For purposes of this Agreement, “immediate family” shall mean any relationship by blood, marriage or adoption, not more remote than first cousin.  If the undersigned is an officer or director of the Company, the undersigned further agrees that the foregoing provisions shall be equally applicable to any Company-directed Securities the undersigned may purchase in the Public Offering.

 

In addition, the foregoing restrictions shall not apply to (A) in the case of the exercise of stock options or similar rights granted pursuant to the Company’s equity incentive plans, transfers in connection with (1) the “net” or “cashless” exercise of such options in accordance with their terms, (2) the surrender of Common Stock in lieu of payment in cash of the exercise price thereof or (3) the satisfaction of the payment of the exercise price thereof, provided, that (x) following any such transfers, the foregoing

 



 

restrictions shall apply to any securities issued to and retained by the undersigned upon such exercise, and (y) in the case of clause (A), no filing under Section 16(a) of the Exchange Act shall be required or shall be made voluntarily in connection with such transfer, or (B) the establishment of any contract, instruction or plan (a “Plan”) that satisfies all of the requirements of Rule 10b5-1(c)(1)(i)(B) under the Exchange Act, provided that no sales of the undersigned’s securities shall be made pursuant to such a Plan prior to the expiration of the Lock-Up Period, and such a Plan may only be established if no public announcement of the establishment or existence thereof and no filing with the SEC or other regulatory authority in respect thereof or transactions thereunder or contemplated thereby, by the undersigned, the Company or any other person, shall be required, and no such announcement or filing is made voluntarily, by the undersigned, the Company or any other person, prior to the expiration of the Lock-Up Period.

 

If the undersigned is an officer or director of the Company, (i) J.P. Morgan Securities LLC and Deutsche Bank Securities Inc. on behalf of the Underwriters agree that, at least three business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of shares of Common Stock, J.P. Morgan Securities LLC and Deutsche Bank Securities Inc. will notify the Company of the impending release or waiver, and (ii) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service at least two business days before the effective date of the release or waiver.  Any release or waiver granted by J.P. Morgan Securities LLC and Deutsche Bank Securities Inc. on behalf of the Underwriters hereunder to any such officer or director shall only be effective two business days after the publication date of such press release.  The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer not for consideration and (b) the transferee has agreed in writing to be bound by the same terms described in this letter to the extent and for the duration that such terms remain in effect at the time of the transfer.

 

In furtherance of the foregoing, the Company, and any duly appointed transfer agent for the registration or transfer of the securities described herein, are hereby authorized to decline to make any transfer of securities if such transfer would constitute a violation or breach of this Letter Agreement.

 

The undersigned hereby represents and warrants that the undersigned has full power and authority to enter into this Letter Agreement.  All authority herein conferred or agreed to be conferred and any obligations of the undersigned shall be binding upon the successors, assigns, heirs or personal representatives of the undersigned.

 

The undersigned understands that, if (a) the Underwriting Agreement does not become effective by September 30, 2015, or (b) after becoming effective, the Underwriting Agreement (other than the provisions thereof which survive termination) shall terminate or be terminated prior to payment for and delivery of the Common Stock to be sold thereunder, the undersigned shall be released from, all obligations under this Letter Agreement.  The undersigned understands that the Underwriters are entering into the Underwriting Agreement and proceeding with the Public Offering in reliance upon this Letter Agreement.

 

This Letter Agreement and any claim, controversy or dispute arising under or related to this Letter Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflict of laws principles thereof.

 

 

Very truly yours,

 

 

 

[ NAME OF STOCKHOLDER ]

 



 

 

By:

 

 

 

Name:

 

 

Title:

 




Exhibit 3.1

 

FIFTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

 

OF

 

TELADOC, INC.

 

FIRST: The name of the Corporation is Teladoc, Inc. (the “Corporation”).

 

SECOND: The address of the Corporation’s registered office in the State of Delaware is 2711 Centreville Road, Suite 400 in the City of Wilmington, County of New Castle, Zip Code 19808. The name of its registered agent at that address is The Corporation Service Company.

 

THIRD: The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.

 

FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is 76,000,000 shares, consisting of (a) 75,000,000 shares of Common Stock, $0.001 par value per share (“Common Stock”), and (b) 1,000,000 shares of Preferred Stock, $0.001 par value per share (“Preferred Stock”).

 

The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation.

 

A.                       COMMON STOCK .

 

1.  General . The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights of the holders of the Preferred Stock of any series as may be designated by the Board of Directors upon any issuance of the Preferred Stock of any series.

 

2.  Voting . The holders of the Common Stock shall have voting rights at all meetings of stockholders, each such holder being entitled to one vote for each share thereof held by such holder; provided , however , that, except as otherwise required by law, holders of Common Stock shall not be entitled to vote on any amendment to this Certificate of Incorporation (which, as used herein, shall mean the certificate of incorporation of the Corporation, as amended from time to time, including the terms of any certificate of designations of any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon pursuant to this Certificate of Incorporation or the General Corporation Law of the State of Delaware. There shall be no cumulative voting.

 

The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law of the State of Delaware.

 

3.  Dividends . Dividends may be declared and paid on the Common Stock as and when determined by the Board of Directors subject to any preferential dividend or other rights of any then outstanding Preferred Stock and to the requirements of applicable law.

 

4.  Liquidation . Upon the dissolution or liquidation of the Corporation, whether voluntary or involuntary, holders of Common Stock will be entitled to receive all assets of the Corporation available for distribution to its stockholders, subject to any preferential or other rights of any then outstanding Preferred Stock.

 

1



 

B.                       PREFERRED STOCK .

 

Preferred Stock may be issued from time to time in one or more series, each of such series to have such terms as stated or expressed herein and in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors of the Corporation as hereinafter provided.

 

Authority is hereby expressly granted to the Board of Directors from time to time to issue the Preferred Stock in one or more series, and in connection with the creation of any such series, by adopting a resolution or resolutions providing for the issuance of the shares thereof and by filing a certificate of designations relating thereto in accordance with the General Corporation Law of the State of Delaware, to determine and fix the number of shares of such series and such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including without limitation thereof, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be stated and expressed in such resolutions, all to the fullest extent now or hereafter permitted by the General Corporation Law of the State of Delaware. Without limiting the generality of the foregoing, the resolution or resolutions providing for the issuance of any series of Preferred Stock may provide that such series shall be superior or rank equally or be junior to any other series of Preferred Stock to the extent permitted by law.

 

The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law of the State of Delaware.

 

FIFTH: Except as otherwise provided herein, the Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute and this Certificate of Incorporation, and all rights conferred upon stockholders herein are granted subject to this reservation.

 

SIXTH: In furtherance and not in limitation of the powers conferred upon it by the General Corporation Law of the State of Delaware, and subject to the terms of any series of Preferred Stock, the Board of Directors shall have the power to adopt, amend, alter or repeal the Bylaws of the Corporation. The stockholders may not adopt, amend, alter or repeal the Bylaws of the Corporation, or adopt any provision inconsistent therewith, unless such action is approved, in addition to any other vote required by this Certificate of Incorporation, by the affirmative vote of the holders of at least two-thirds in voting power of the outstanding shares of capital stock of the Corporation entitled to vote thereon. Notwithstanding any other provisions of law, this Certificate of Incorporation or the Bylaws of the Corporation, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least two-thirds in voting power of the outstanding shares of capital stock of the Corporation entitled to vote thereon shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article SIXTH.

 

SEVENTH: Except to the extent that the General Corporation Law of the State of Delaware prohibits the elimination or limitation of liability of directors for breaches of fiduciary duty, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, notwithstanding any provision of law imposing such liability. No amendment to or repeal of this provision shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. If the General Corporation Law of the State of Delaware is amended to permit further elimination or limitation of the personal 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 as so amended.

 

EIGHTH: This Article EIGHTH is inserted for the management of the business and for the conduct of the affairs of the Corporation.

 

1.  General Powers . The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.

 

2



 

2.  Number of Directors; Election of Directors . Subject to the rights of holders of any series of Preferred Stock to elect directors, the number of directors of the Corporation shall be established from time to time by the Board of Directors. Election of directors need not be by written ballot, except as and to the extent provided in the Bylaws of the Corporation.

 

3. Classes of Directors . Subject to the rights of holders of any series of Preferred Stock to elect directors, the Board of Directors shall be and is divided into three classes, designated as Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. The Board of Directors is authorized to assign members of the Board of Directors to Class I, Class II or Class III.

 

4.  Terms of Office . Subject to the rights of holders of any series of Preferred Stock to elect directors, each director shall serve for a term ending on the date of the third annual meeting of stockholders following the annual meeting of stockholders at which such director was elected; provided that each director initially assigned to Class I shall serve for a term expiring at the Corporation’s first annual meeting of stockholders held after the effectiveness of this Certificate of Incorporation; each director initially assigned to Class II shall serve for a term expiring at the Corporation’s second annual meeting of stockholders held after the effectiveness of this Certificate of Incorporation; and each director initially assigned to Class III shall serve for a term expiring at the Corporation’s third annual meeting of stockholders held after the effectiveness of this Certificate of Incorporation; provided further , that the term of each director shall continue until the election and qualification of his or her successor and be subject to his or her earlier death, resignation or removal.

 

5. Quorum . The greater of (a) a majority of the directors at any time in office and (b) one-third of the number of directors fixed pursuant to Section 2 of this Article EIGHTH shall constitute a quorum of the Board of Directors. If at any meeting of the Board of Directors there shall be less than such a quorum, a majority of the directors present may adjourn the meeting from time to time without further notice other than announcement at the meeting, until a quorum shall be present.

 

6. Action at Meeting . Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors unless a greater number is required by law or by this Certificate of Incorporation.

 

7. Removal . Subject to the rights of holders of any series of Preferred Stock, directors of the Corporation may be removed only for cause and only by the affirmative vote of the holders of at least two-thirds in voting power of the outstanding shares of capital stock of the Corporation entitled to vote thereon.

 

8. Vacancies . Subject to the rights of holders of any series of Preferred Stock, any vacancy or newly created directorship in the Board of Directors, however occurring, shall be filled only by vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director and shall not be filled by the stockholders, unless the Board of Directors determines by resolution that any such vacancy or newly created directorship shall be filled by the stockholders. A director elected to fill a vacancy shall hold office until the next election of the class for which such director shall have been chosen, subject to the election and qualification of a successor and to such director’s earlier death, resignation or removal.

 

9.  Stockholder Nominations and Introduction of Business, Etc . Advance notice of stockholder nominations for election of directors and other business to be brought by stockholders before a meeting of stockholders shall be given in the manner provided by the Bylaws of the Corporation.

 

10.  Amendments to Article . Notwithstanding any other provisions of law, this Certificate of Incorporation or the Bylaws of the Corporation, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least two-thirds in voting power of the outstanding shares of capital stock of the Corporation entitled to vote thereon shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article EIGHTH.

 

NINTH: Stockholders of the Corporation may not take any action by written consent in lieu of a meeting. Notwithstanding any other provisions of law, this Certificate of Incorporation or the Bylaws of the

 

3



Corporation, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least two-thirds in voting power of the outstanding shares of capital stock of the Corporation entitled to vote thereon shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article NINTH.

 

TENTH: Special meetings of stockholders for any purpose or purposes may be called at any time only by the Board of Directors, the chairperson of the Board of Directors, the chief executive officer or the president (in the absence of a chief executive officer), and may not be called by any other person or persons. Business transacted at any special meeting of stockholders shall be limited to the purpose or purposes stated in the notice of meeting. Notwithstanding any other provisions of law, this Certificate of Incorporation or the Bylaws of the Corporation, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least two-thirds in voting power of the outstanding shares of capital stock of the Corporation entitled to vote thereon shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article TENTH.

 

ELEVENTH: Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Corporation, (b) any action asserting a claim of breach of fiduciary duty owed by, or other wrongdoing by, any director, officer, employee or agent of the Corporation to the Corporation or the Corporation’s stockholders, creditors or other constituents, (c) any action asserting a claim arising pursuant to any provision of the General Corporation Law of the State of Delaware or this Certificate of Incorporation or the Bylaws of the Corporation, (d) any action to interpret, apply, enforce or determine the validity of this Certificate of Incorporation or the Bylaws of the Corporation or (e) any action asserting a claim governed by the internal affairs doctrine, in each case subject to said Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein; provided that, if and only if the Court of Chancery of the State of Delaware dismisses any such action for lack of subject matter jurisdiction, such action may be brought in another state or federal court sitting in the State of Delaware. To the fullest extent permitted by applicable law, any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article ELEVENTH. Notwithstanding any other provisions of law, this Certificate of Incorporation or the Bylaws of the Corporation, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least two-thirds in voting power of the outstanding shares of capital stock of the Corporation entitled to vote thereon shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article ELEVENTH. If any provision or provisions of this Article ELEVENTH shall be held to be invalid, illegal or unenforceable as applied to any person or entity or circumstance for any reason whatsoever, then, to the fullest extent permitted by law, the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Article ELEVENTH (including, without limitation, each portion of any sentence of this Article ELEVENTH containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) and the application of such provision to other persons or entities and circumstances shall not in any way be affected or impaired thereby.

 

4



 

IN WITNESS WHEREOF, this Certificate of Incorporation, which restates, integrates and amends the certificate of incorporation of the Corporation, and which has been duly adopted in accordance with Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware, has been executed by its duly authorized officer this       day of           , 2015.

 

 

 

TELADOC, INC.

 

 

 

 

By:

 

 

 

Name:

Jason Gorevic

 

 

Title:

President and Chief Executive Officer

 

5




Exhibit 3.2

 

AMENDED AND RESTATED

 

BYLAWS

 

OF

 

TELADOC, INC.

 

(a Delaware corporation)

 


 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

ARTICLE I - CORPORATE OFFICES

1

 

 

 

1.1

REGISTERED OFFICE

1

1.2

OTHER OFFICES

1

 

 

 

ARTICLE II - MEETINGS OF STOCKHOLDERS

1

 

 

 

2.1

PLACE OF MEETINGS

1

2.2

ANNUAL MEETING

1

2.3

SPECIAL MEETING

1

2.4

ADVANCE NOTICE PROCEDURES FOR BUSINESS BROUGHT BEFORE A MEETING

1

2.5

ADVANCE NOTICE PROCEDURES FOR NOMINATIONS OF DIRECTORS

5

2.6

NOTICE OF STOCKHOLDERS’ MEETINGS

7

2.7

MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE

7

2.8

QUORUM

7

2.9

ADJOURNED MEETING; NOTICE

8

2.10

CONDUCT OF BUSINESS

8

2.11

VOTING

8

2.12

STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING

9

2.13

RECORD DATE FOR STOCKHOLDER NOTICE; VOTING

9

2.14

PROXIES

9

2.15

LIST OF STOCKHOLDERS ENTITLED TO VOTE

9

2.16

POSTPONEMENT AND CANCELLATION OF MEETING

10

2.17

INSPECTORS OF ELECTION

10

 

 

 

ARTICLE III - DIRECTORS

10

 

 

 

3.1

POWERS

10

3.2

NUMBER OF DIRECTORS

10

3.3

ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS

10

3.4

RESIGNATION AND VACANCIES

11

3.5

PLACE OF MEETINGS; MEETINGS BY TELEPHONE

11

3.6

REGULAR MEETINGS

11

3.7

SPECIAL MEETINGS; NOTICE

11

3.8

QUORUM

12

3.9

BOARD ACTION BY CONSENT WITHOUT A MEETING

12

 



 

3.10

FEES AND COMPENSATION OF DIRECTORS

12

3.11

REMOVAL OF DIRECTORS

12

 

 

 

ARTICLE IV - COMMITTEES

12

 

 

 

4.1

COMMITTEES OF DIRECTORS

12

4.2

COMMITTEE MINUTES

13

4.3

MEETINGS AND ACTION OF COMMITTEES

13

 

 

 

ARTICLE V - OFFICERS

13

 

 

 

5.1

OFFICERS

13

5.2

APPOINTMENT OF OFFICERS

13

5.3

SUBORDINATE OFFICERS

13

5.4

REMOVAL AND RESIGNATION OF OFFICERS

14

5.5

VACANCIES IN OFFICES

14

5.6

REPRESENTATION OF SHARES OF OTHER CORPORATIONS

14

5.7

AUTHORITY AND DUTIES OF OFFICERS

14

 

 

 

ARTICLE VI - RECORDS AND REPORTS

14

 

 

 

6.1

MAINTENANCE OF RECORDS

14

 

 

 

ARTICLE VII - GENERAL MATTERS

14

 

 

 

7.1

EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS

14

7.2

STOCK CERTIFICATES; PARTLY PAID SHARES

14

7.3

SPECIAL DESIGNATION ON CERTIFICATES

15

7.4

LOST CERTIFICATES

15

7.5

CONSTRUCTION; DEFINITIONS

15

7.6

DIVIDENDS

15

7.7

FISCAL YEAR

15

7.8

SEAL

16

7.9

TRANSFER OF STOCK

16

7.10

STOCK TRANSFER AGREEMENTS

16

7.11

REGISTERED STOCKHOLDERS

16

7.12

WAIVER OF NOTICE

16

 

 

 

ARTICLE VIII - NOTICE BY ELECTRONIC TRANSMISSION

16

 

 

 

8.1

NOTICE BY ELECTRONIC TRANSMISSION

16

8.2

DEFINITION OF ELECTRONIC TRANSMISSION

17

 

 

 

ARTICLE IX - INDEMNIFICATION AND ADVANCEMENT

17

 

 

 

9.1

ACTIONS, SUITS AND PROCEEDINGS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION

17

9.2

ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION

18

9.3

INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY

18

9.4

NOTIFICATION AND DEFENSE OF CLAIM

18

9.5

ADVANCE OF EXPENSES

19

9.6

PROCEDURE FOR INDEMNIFICATION AND ADVANCEMENT OF EXPENSES

19

9.7

REMEDIES

19

 



 

9.8

LIMITATIONS

20

9.9

SUBSEQUENT AMENDMENT

20

9.10

OTHER RIGHTS

20

9.11

PARTIAL INDEMNIFICATION

20

9.12

INSURANCE

20

9.13

SAVINGS CLAUSE

21

9.14

DEFINITIONS

21

 

 

 

ARTICLE X - AMENDMENTS

21

 


 

AMENDED AND RESTATED BYLAWS

OF

TELADOC, INC.

 


 

ARTICLE I - CORPORATE OFFICES

 

1.1 REGISTERED OFFICE.

 

The registered office of Teladoc, Inc. (the “ Corporation ”) shall be fixed in the Corporation’s certificate of incorporation, as the same may be amended from time to time (the “ certificate of incorporation ”).

 

1.2 OTHER OFFICES.

 

The Corporation’s board of directors (the “ Board ”) may at any time establish other offices at any place or places where the Corporation is qualified to do business.

 

ARTICLE II - MEETINGS OF STOCKHOLDERS

 

2.1 PLACE OF MEETINGS.

 

Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the Board. The Board may, in its sole discretion, determine that a meeting of stockholders shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the General Corporation Law of the State of Delaware (the “ DGCL ”). In the absence of any such designation or determination, stockholders’ meetings shall be held at the Corporation’s principal executive office.

 

2.2 ANNUAL MEETING.

 

The Board shall designate the date and time of the annual meeting. At the annual meeting, directors shall be elected and other proper business properly brought before the meeting in accordance with Section 2.4 of these bylaws may be transacted.

 

2.3 SPECIAL MEETING.

 

A special meeting of the stockholders may be called at any time by the Board, chairperson of the Board, chief executive officer or president (in the absence of a chief executive officer), but such special meetings may not be called by any other person or persons.

 

No business may be transacted at such special meeting other than the business specified in such notice to stockholders. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board may be held.

 

2.4 ADVANCE NOTICE PROCEDURES FOR BUSINESS BROUGHT BEFORE A MEETING.

 

(a) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (i) brought before the meeting by the Corporation and specified in the notice of meeting given by or at the direction of the Board, (ii) brought before the meeting by or at the direction of the Board or (iii) otherwise properly brought before the meeting by a stockholder who (A) was a stockholder of record of the Corporation (and, with respect to any beneficial owner, if different, on whose behalf such business is proposed, only if such beneficial owner was the beneficial owner of shares of the Corporation) both at the time of giving the notice provided for in this Section 2.4

 

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and at the time of the meeting, (B) is entitled to vote at the meeting and (C) has complied with this Section 2.4 as to such business. Except for proposals properly made in accordance with Rule 14a-8 under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (as so amended and inclusive of such rules and regulations, the “ Exchange Act ”), and included in the notice of meeting given by or at the direction of the Board, the foregoing clause (iii) shall be the exclusive means for a stockholder to propose business to be brought before an annual meeting of the stockholders. Stockholders shall not be permitted to propose business to be brought before a special meeting of the stockholders, and the only matters that may be brought before a special meeting are the matters specified in the notice of meeting given by or at the direction of the person calling the meeting pursuant to Section 2.3 of these bylaws. Stockholders seeking to nominate persons for election to the Board must comply with Section 2.5 of these bylaws, and this Section 2.4 shall not be applicable to nominations except as expressly provided in Section 2.5 of these bylaws.

 

(b) Without qualification, for business to be properly brought before an annual meeting by a stockholder, the stockholder must (i) provide Timely Notice (as defined below) thereof in writing and in proper form to the secretary of the Corporation and (ii) provide any updates or supplements to such notice at the times and in the forms required by this Section 2.4. To be timely, a stockholder’s notice must be delivered to, or mailed and received at, the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred twenty (120) days prior to the first anniversary of the preceding year’s annual meeting; provided, however , that (x) if the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date or (y) with respect to the first annual meeting held after the Company’s initial public offering of its shares pursuant to a registration statement on Form S-1, notice by the stockholder to be timely must be so delivered, or mailed and received, not earlier than the one hundred twentieth (120 th) day prior to such annual meeting and not later than the ninetieth (90th) day prior to such annual meeting or, if later, the tenth (10th) day following the day on which public disclosure of the date of such annual meeting was first made (such notice within such time periods, “ Timely Notice ”). In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period for the giving of Timely Notice as described above.

 

(c) To be in proper form for purposes of this Section 2.4, a stockholder’s notice to the secretary of the Corporation shall set forth:

 

(i) As to each Proposing Person (as defined below), (A) the name and address of such Proposing Person (including, without limitation, if applicable, the name and address that appear on the Corporation’s books and records) and (B) the class or series and number of shares of the Corporation that are, directly or indirectly, owned of record or beneficially owned (within the meaning of Rule 13d-3 under the Exchange Act) by such Proposing Person, except that such Proposing Person shall in all events be deemed to beneficially own any shares of any class or series of the Corporation as to which such Proposing Person has a right to acquire beneficial ownership at any time in the future (the disclosures to be made pursuant to the foregoing clauses (A) and (B) are referred to as “ Stockholder Information ”);

 

(ii) As to each Proposing Person, (A) any derivative, swap or other transaction or series of transactions engaged in, directly or indirectly, by such Proposing Person, the purpose or effect of which is to give such Proposing Person economic risk similar to ownership of shares of any class or series of the Corporation, including, without limitation, due to the fact that the value of such derivative, swap or other transactions are determined by reference to the price, value or volatility of any shares of any class or series of the Corporation, or which derivative, swap or other transactions provide, directly or indirectly, the opportunity to profit from any increase in the price or value of shares of any class or series of the Corporation (“ Synthetic Equity Interests ”), which Synthetic Equity Interests shall be disclosed without regard to whether (x) the derivative, swap or other transactions convey any voting rights in such shares to such Proposing Person, (y) the derivative, swap or other transactions are required to be, or are capable of being, settled through delivery of such shares or (z) such Proposing Person may have entered into other transactions that hedge or mitigate the economic effect of such derivative, swap or other transactions, (B) any proxy (other than a revocable proxy or consent given in response to a solicitation made pursuant to, and in accordance with, Section 14(a) of the Exchange Act by way of a solicitation statement filed on Schedule 14A), agreement, arrangement, understanding or relationship pursuant to which such Proposing Person has or shares a right to vote any shares of any class or series of the Corporation, (C) any agreement, arrangement, understanding or relationship, including, without limitation, any repurchase or similar so-called “stock borrowing” agreement or arrangement, engaged in, directly or indirectly, by such Proposing Person, the purpose or effect of which is to mitigate loss to, reduce the economic risk (of ownership or otherwise) of shares of any class or series of the Corporation by, manage

 

2



 

the risk of share price changes for, or increase or decrease the voting power of, such Proposing Person with respect to the shares of any class or series of the Corporation, or which provides, directly or indirectly, the opportunity to profit from any decrease in the price or value of the shares of any class or series of the Corporation (“ Short Interests ”), (D) any rights to dividends on the shares of any class or series of the Corporation owned beneficially by such Proposing Person that are separated or separable from the underlying shares of the Corporation, (E) any performance related fees (other than an asset based fee) that such Proposing Person is entitled to based on any increase or decrease in the price or value of shares of any class or series of the Corporation, or any Synthetic Equity Interests or Short Interests, if any, (F)(x) if such Proposing Person is not a natural person, the identity of the natural person or persons associated with such Proposing Person responsible for the formulation of and decision to propose the business to be brought before the meeting (such person or persons, the “ Responsible Person ”), the manner in which such Responsible Person was selected, any fiduciary duties owed by such Responsible Person to the equity holders or other beneficiaries of such Proposing Person, the qualifications and background of such Responsible Person and any material interests or relationships of such Responsible Person that are not shared generally by any other record or beneficial holder of the shares of any class or series of the Corporation and that reasonably could have influenced the decision of such Proposing Person to propose such business to be brought before the meeting, and (y) if such Proposing Person is a natural person, the qualifications and background of such natural person and any material interests or relationships of such natural person that are not shared generally by any other record or beneficial holder of the shares of any class or series of the Corporation and that reasonably could have influenced the decision of such Proposing Person to propose such business to be brought before the meeting, (G) any significant equity interests or any Synthetic Equity Interests or Short Interests in any principal competitor of the Corporation held by such Proposing Persons, (H) any direct or indirect interest of such Proposing Person in any contract with the Corporation, any affiliate of the Corporation or any principal competitor of the Corporation (including, without limitation, in any such case, any employment agreement, collective bargaining agreement or consulting agreement), (I) any pending or threatened litigation in which such Proposing Person is a party or material participant involving the Corporation or any of its officers or directors, or any affiliate of the Corporation, (J) any material transaction occurring during the prior twelve months between such Proposing Person, on the one hand, and the Corporation, any affiliate of the Corporation or any principal competitor of the Corporation, on the other hand, (K) a summary of any material discussions regarding the business proposed to be brought before the meeting (x) between or among any of the Proposing Persons or (y) between or among any Proposing Person and any other record or beneficial holder of the shares of any class or series of the Corporation (including, without limitation, their names) and (L) any other information relating to such Proposing Person that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies or consents by such Proposing Person in support of the business proposed to be brought before the meeting pursuant to Section 14(a) of the Exchange Act (the disclosures to be made pursuant to the foregoing clauses (A) through (L) are referred to as “ Disclosable Interests ”); provided, however , that Disclosable Interests shall not include any such disclosures with respect to the ordinary course business activities of any broker, dealer, commercial bank, trust company or other nominee who is a Proposing Person solely as a result of being the stockholder directed to prepare and submit the notice required by these bylaws on behalf of a beneficial owner; and

 

(iii) As to each item of business that the stockholder proposes to bring before the annual meeting, (A) a reasonably brief description of the business desired to be brought before the annual meeting, the reasons for conducting such business at the annual meeting and any material interest in such business of each Proposing Person, (B) the text of the proposal or business (including, without limitation, the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend the bylaws of the Corporation, the language of the proposed amendment), (C) a reasonably detailed description of all agreements, arrangements and understandings between or among any of the Proposing Persons or between or among any Proposing Person and any other person or entity (including, without limitation, their names) in connection with the proposal of such business by such stockholder, (D) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business, (E) a representation whether the Proposing Person intends or is part of a group which intends (1) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to approve or adopt the proposal and/or (2) otherwise to solicit proxies or votes from stockholders in support of such proposal and (F) any other information relating to such item of business that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies in support of the business proposed to be brought before the meeting pursuant to Section 14(a) of the Exchange Act; provided, however , that the disclosures required by this paragraph (c) shall not include any disclosures with respect

 

3



 

to any broker, dealer, commercial bank, trust company or other nominee who is a Proposing Person solely as a result of being the stockholder directed to prepare and submit the notice required by these bylaws on behalf of a beneficial owner.

 

(d) For purposes of this Section 2.4, the term “ Proposing Person ” shall mean (i) the stockholder providing the notice of business proposed to be brought before an annual meeting, (ii) the beneficial owner or beneficial owners, if different, on whose behalf the notice of the business proposed to be brought before the annual meeting is made, (iii) any affiliate or associate (each within the meaning of Rule 12b-2 under the Exchange Act for the purposes of these bylaws) of such stockholder or beneficial owner and (iv) any other person with whom such stockholder or beneficial owner (or any of their respective affiliates or associates) is Acting in Concert (as defined below).

 

(e) A person shall be deemed to be “ Acting in Concert ” with another person for purposes of these bylaws if such person knowingly acts (whether or not pursuant to an express agreement, arrangement or understanding) in concert with, or towards a common goal relating to the management, governance or control of the Corporation in parallel with, such other person where (i) each person is conscious of the other person’s conduct or intent and this awareness is an element in their decision-making processes and (ii) at least one additional factor suggests that such persons intend to act in concert or in parallel, which such additional factors may include, without limitation, exchanging information (whether publicly or privately), attending meetings, conducting discussions, or making or soliciting invitations to act in concert or in parallel; provided , that a person shall not be deemed to be Acting in Concert with any other person solely as a result of the solicitation or receipt of revocable proxies or consents from such other person in response to a solicitation made pursuant to, and in accordance with, the Section 14(a) of the Exchange Act by way of a proxy or consent solicitation statement filed on Schedule 14A. A person Acting in Concert with another person shall be deemed to be Acting in Concert with any third party who is also Acting in Concert with such other person.

 

(f) A stockholder providing notice of business proposed to be brought before an annual meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 2.4 shall be true and correct as of the record date for determining stockholders entitled to notice of the annual meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the secretary of the Corporation at the principal executive offices of the Corporation not later than five (5) business days after the record date for determining stockholders entitled to notice of the annual meeting (in the case of the update and supplement required to be made as of the record date), and not later than eight (8) business days prior to the date for the meeting or, if practicable, any adjournment or postponement thereof (and, if not practicable, on the first practicable date prior to the date to which the meeting has been adjourned or postponed) (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof).

 

(g) Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with this Section 2.4. The presiding officer of an annual meeting shall, if the facts warrant, determine that the business was not properly brought before the meeting in accordance with this Section 2.4, and if he or she should so determine, he or she shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.

 

(h) The foregoing notice requirements of this Section 2.4 shall be deemed satisfied by a stockholder with respect to business other than a nomination if the stockholder has notified the Corporation of his, her or its intention to present a proposal at an annual meeting in compliance with applicable rules and regulations promulgated under the Exchange Act and such stockholder’s proposal has been included in a proxy statement that has been prepared by the Corporation to solicit proxies for such annual meeting. Nothing in this Section 2.4 shall be deemed to affect the rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.

 

(i) For purposes of these bylaws, “public disclosure” shall mean disclosure in a press release reported by a national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act.

 

4



 

(j) Notwithstanding the foregoing provisions of this Section 2.4, unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual meeting to present proposed business, such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 2.4, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the annual meeting and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the annual meeting.

 

2.5 ADVANCE NOTICE PROCEDURES FOR NOMINATIONS OF DIRECTORS.

 

(a) Nominations of any person for election to the Board at an annual meeting or at a special meeting (but only if the election of directors is a matter specified in the notice of meeting given by or at the direction of the person calling such special meeting) may be made at such meeting only (i) by or at the direction of the Board, including, without limitation, by any committee or persons appointed by the Board, or (ii) by a stockholder who (A) was a stockholder of record of the Corporation (and, with respect to any beneficial owner, if different, on whose behalf such nomination is proposed to be made, only if such beneficial owner was the beneficial owner of shares of the Corporation) both at the time of giving the notice provided for in this Section 2.5 and at the time of the meeting, (B) is entitled to vote at the meeting and (C) has complied with this Section 2.5 as to such nomination. The foregoing clause (ii) shall be the exclusive means for a stockholder to make any nomination of a person or persons for election to the Board to be considered by the stockholders at an annual meeting or special meeting.

 

(b) Without qualification, for a stockholder to make any nomination of a person or persons for election to the Board at an annual meeting, the stockholder must (i) provide Timely Notice (as defined in Section 2.4(b) of these bylaws) thereof in writing and in proper form to the secretary of the Corporation and (ii) provide any updates or supplements to such notice at the times and in the forms required by this Section 2.5. Without qualification, if the election of directors is a matter specified in the notice of meeting given by or at the direction of the person calling such special meeting, then for a stockholder to make any nomination of a person or persons for election to the Board at a special meeting, the stockholder must (i) provide timely notice thereof in writing and in proper form to the secretary of the Corporation at the principal executive offices of the Corporation and (ii) provide any updates or supplements to such notice at the times and in the forms required by this Section 2.5. To be timely, a stockholder’s notice for nominations to be made at a special meeting must be delivered to, or mailed and received at, the principal executive offices of the Corporation not earlier than the one hundred twentieth (120 th) day prior to such special meeting and not later than the ninetieth (90th) day prior to such special meeting or, if later, the tenth (10th) day following the day on which public disclosure (as defined in Section 2.4(i) of these bylaws) of the date of such special meeting was first made. In no event shall any adjournment or postponement of an annual meeting or special meeting or the announcement thereof commence a new time period for the giving of a stockholder’s notice as described above.

 

(c) To be in proper form for purposes of this Section 2.5, a stockholder’s notice to the secretary of the Corporation shall set forth:

 

(i) As to each Nominating Person (as defined below), the Stockholder Information (as defined in Section 2.4(c)(i) of these bylaws) except that for purposes of this Section 2.5, the term “Nominating Person” shall be substituted for the term “Proposing Person” in all places it appears in Section 2.4(c)(i);

 

(ii) As to each Nominating Person, any Disclosable Interests (as defined in Section 2.4(c)(ii), except that for purposes of this Section 2.5 the term “Nominating Person” shall be substituted for the term “Proposing Person” in all places it appears in Section 2.4(c)(ii) and the disclosure in clause (L) of Section 2.4(c)(ii) shall be made with respect to the election of directors at the meeting);

 

(iii) As to each person whom a Nominating Person proposes to nominate for election as a director, (A) all information with respect to such proposed nominee that would be required to be set forth in a stockholder’s notice pursuant to this Section 2.5 if such proposed nominee were a Nominating Person, (B) all information relating to such proposed nominee that is required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors in a contested election pursuant to Section 14(a) under the Exchange Act (including, without limitation, such proposed nominee’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected), (C) a description of all direct and indirect

 

5



 

compensation and other material monetary agreements, arrangements and understandings during the past three (3) years, and any other material relationships, between or among any Nominating Person, on the one hand, and each proposed nominee, his or her respective affiliates and associates and any other persons with whom such proposed nominee (or any of his or her respective affiliates and associates) is Acting in Concert (as defined in Section 2.4(e) of these bylaws), on the other hand, including, without limitation, all information that would be required to be disclosed pursuant to Item 404 under Regulation S-K if such Nominating Person were the “registrant” for purposes of such rule and the proposed nominee were a director or executive officer of such registrant (the disclosures to be made pursuant to the foregoing clauses (A) through (C) are referred to as “ Nominee Information ”), (D) a representation that the Nominating Person is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such nomination, (E) a representation whether the Nominating Person intends or is part of a group which intends (1) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to elect the nominee and/or (2) otherwise to solicit proxies or votes from stockholders in support of such nomination and (F) a completed and signed questionnaire, representation and agreement as provided in Section 2.5(g); and

 

(iv) The Corporation may require any proposed nominee to furnish such other information (A) as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as an independent director of the Corporation in accordance with the Corporation’s Corporate Governance Guidelines or (B) that could be material to a reasonable stockholder’s understanding of the independence or lack of independence of such proposed nominee.

 

(d) For purposes of this Section 2.5, the term “ Nominating Person ” shall mean (i) the stockholder providing the notice of the nomination proposed to be made at the meeting, (ii) the beneficial owner or beneficial owners, if different, on whose behalf the notice of the nomination proposed to be made at the meeting is made, (iii) any affiliate or associate of such stockholder or beneficial owner and (iv) any other person with whom such stockholder or such beneficial owner (or any of their respective affiliates or associates) is Acting in Concert.

 

(e) A stockholder providing notice of any nomination proposed to be made at a meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 2.5 shall be true and correct as of the record date for determining stockholders entitled to notice of the meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the secretary of the Corporation at the principal executive offices of the Corporation not later than five (5) business days after the record date for determining stockholders entitled to notice of the meeting (in the case of the update and supplement required to be made as of the record date), and not later than eight (8) business days prior to the date for the meeting or, if practicable, any adjournment or postponement thereof (and, if not practicable, on the first practicable date prior to the date to which the meeting has been adjourned or postponed) (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof).

 

(f) Notwithstanding anything in these bylaws to the contrary, no person shall be eligible for election as a director of the Corporation unless nominated in accordance with this Section 2.5. The presiding officer at the meeting shall, if the facts warrant, determine that a nomination was not properly made in accordance with this Section 2.5, and if he or she should so determine, he or she shall so declare such determination to the meeting and the defective nomination shall be disregarded.

 

(g) To be eligible to be a nominee for election as a director of the Corporation, the proposed nominee must deliver (in accordance with the time periods prescribed for delivery of notice under this Section 2.5) to the secretary of the Corporation at the principal executive offices of the Corporation a written questionnaire with respect to the background and qualification of such proposed nominee (which questionnaire shall be provided by the secretary upon written request) and a written representation and agreement (in form provided by the secretary upon written request) that such proposed nominee (i) is not and will not become a party to (A) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such proposed nominee, if elected as a director of the Corporation, will act or vote on any issue or question (a “ Voting Commitment ”) that has not been disclosed to the Corporation or (B) any Voting Commitment that could limit or

 

6



 

interfere with such proposed nominee’s ability to comply, if elected as a director of the Corporation, with such proposed nominee’s fiduciary duties under applicable law, (ii) is not, and will not become a party to, any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed to the Corporation and (iii) in such proposed nominee’s individual capacity and on behalf of the stockholder (or the beneficial owner, if different) on whose behalf the nomination is made, would be in compliance, if elected as a director of the Corporation, and will comply with applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Corporation.

 

(h) In addition to the requirements of this Section 2.5 with respect to any nomination proposed to be made at a meeting, each Nominating Person shall comply with all applicable requirements of the Exchange Act with respect to any such nominations.

 

(i) Notwithstanding the foregoing provisions of this Section 2.5, unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear at the meeting to present the proposed nomination, such proposed nomination shall not be considered, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 2.5, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting.

 

2.6 NOTICE OF STOCKHOLDERS’ MEETINGS.

 

Unless otherwise provided by law, the certificate of incorporation or these bylaws, the notice of any meeting of stockholders shall be sent or otherwise given in accordance with either Section 2.7 or Section 8.1 of these bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting as of the record date for determining the stockholders entitled to notice of the meeting. The notice shall specify the place, if any, date and hour of the meeting, the record date for determining the stockholders entitled to vote at the meeting (if such date is different from the record date for stockholders entitled to notice of the meeting), the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called.

 

2.7 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.

 

Notice of any meeting of stockholders shall be deemed given:

 

(a) if mailed, when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the Corporation’s records; or

 

(b) if electronically transmitted, as provided in Section 8.1 of these bylaws.

 

An affidavit of the secretary or an assistant secretary of the Corporation or of the transfer agent or any other agent of the Corporation that the notice has been given by mail or by a form of electronic transmission, as applicable, shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

 

2.8 QUORUM.

 

Unless otherwise provided by law, the certificate of incorporation or these bylaws, the holders of a majority in voting power of the capital stock issued and outstanding and entitled to vote, present in person, or by remote communication, if applicable, or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders. A quorum, once established at a meeting, shall not be broken by the withdrawal of enough votes to leave less than a quorum. If, however, a quorum is not present or represented at any meeting of the stockholders, then either (a) the chairperson of the meeting or (b) a majority in voting power of the stockholders entitled to vote thereon, present in person, or by remote communication, if applicable, or represented by proxy, shall

 

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have power to adjourn the meeting from time to time in the manner provided in Section 2.9 of these bylaws until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed.

 

2.9 ADJOURNED MEETING; NOTICE.

 

When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time, place, if any, thereof, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date for determining the stockholders entitled to vote is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting as of the record date for determining the stockholders entitled to notice of the adjourned meeting.

 

2.10 CONDUCT OF BUSINESS.

 

The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting by the person presiding over the meeting. The Board may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board, the person presiding over any meeting of stockholders shall have the right and authority to convene and (for any or no reason) to recess and/or adjourn the meeting, to prescribe such rules, regulations and procedures (which need not be in writing) and to do all such acts as, in the judgment of such presiding person, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board or prescribed by the presiding person of the meeting, may include, without limitation, the following: (a) the establishment of an agenda or order of business for the meeting; (b) rules and procedures for maintaining order at the meeting and the safety of those present (including, without limitation, rules and procedures for removal of disruptive persons from the meeting); (c) limitations on attendance at or participation in the meeting to stockholders entitled to vote at the meeting, their duly authorized and constituted proxies or such other persons as the presiding person of the meeting shall determine; (d) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (e) limitations on the time allotted to questions or comments by participants. The presiding person at any meeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting (including, without limitation, determinations with respect to the administration and/or interpretation of any of the rules, regulations or procedures of the meeting, whether adopted by the Board or prescribed by the person presiding over the meeting), shall, if the facts warrant, determine and declare to the meeting that a matter or business was not properly brought before the meeting and if such presiding person should so determine, such presiding person shall so declare to the meeting and any such matter or business not properly brought before the meeting shall not be transacted or considered. Unless and to the extent determined by the Board or the person presiding over the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.

 

2.11 VOTING.

 

The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.13 of these bylaws, subject to Section 217 (relating to voting rights of fiduciaries, pledgors and joint owners of stock) and Section 218 (relating to voting trusts and other voting agreements) of the DGCL.

 

Except as may be otherwise provided in the certificate of incorporation or these bylaws, each stockholder shall be entitled to one (1) vote for each share of capital stock held by such stockholder.

 

At all duly called or convened meetings of stockholders, at which a quorum is present, for the election of directors, a plurality of the votes cast shall be sufficient to elect a director. Except as otherwise provided by the certificate of incorporation, these bylaws, the rules or regulations of any stock exchange applicable to the Corporation, or applicable law or pursuant to any regulation applicable to the Corporation or its securities, all other elections and

 

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questions presented to the stockholders at a duly called or convened meeting, at which a quorum is present, shall be decided by the affirmative vote of the holders of a majority in voting power of the votes cast affirmatively or negatively (excluding abstentions) at the meeting by the holders entitled to vote thereon.

 

2.12 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.

 

Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders.

 

2.13 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING.

 

In order that the Corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If the Board so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however , that the Board may fix a new record date for determination of stockholders entitled to vote at the adjourned meeting, and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance herewith at the adjourned meeting.

 

In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled 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 may fix a record date, which shall not be more than sixty (60) days prior to such other action. If no such record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.

 

2.14 PROXIES.

 

Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of the DGCL. A proxy may be in the form of a telegram, cablegram or other means of electronic transmission which sets forth or is submitted with information from which it can be determined that the telegram, cablegram or other means of electronic transmission was authorized by the stockholder.

 

2.15 LIST OF STOCKHOLDERS ENTITLED TO VOTE.

 

The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting ( provided, however , if the record date for determining the stockholders entitled to vote is less than ten (10) days before the date of the meeting, the list shall reflect the stockholders entitled to vote as of the tenth day before the date of the meeting), arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. The Corporation shall not be required to include electronic mail addresses or other electronic contact information on such list. The Corporation shall not be required to include

 

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electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of at least ten (10) days prior to the meeting: (a) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (b) during ordinary business hours, at the Corporation’s principal executive office. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. Except as otherwise provided by law, the stock ledger shall be the only evidence as to the identity of the stockholders entitled to vote in person or by proxy and the number of shares held by each of them, and as to the stockholders entitled to examine the list of stockholders.

 

2.16 POSTPONEMENT AND CANCELLATION OF MEETING.

 

Any previously scheduled annual or special meeting of the stockholders may be postponed, and any previously scheduled annual or special meeting of the stockholders may be canceled, by resolution of the Board upon public notice given prior to the time previously scheduled for such meeting.

 

2.17 INSPECTORS OF ELECTION.

 

Before any meeting of stockholders, the Board shall appoint an inspector or inspectors of election to act at the meeting or its adjournment or postponement and make a written report thereof. The number of inspectors shall be either one (1) or three (3). If any person appointed as inspector fails to appear or fails or refuses to act, then the chairperson of the meeting may, and upon the request of any stockholder or a stockholder’s proxy shall, appoint a person to fill that vacancy. Unless otherwise required by law, inspectors may be officers, employees or agents of the Corporation. Such inspectors shall have the duties prescribed by law and shall take charge of the polls and, when the vote is completed, shall make a certificate of the result of the vote taken and of such other facts as may be required by law. The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three (3) inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein.

 

ARTICLE III - DIRECTORS

 

3.1 POWERS.

 

Subject to the provisions of the DGCL and any limitations in the certificate of incorporation relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board.

 

3.2 NUMBER OF DIRECTORS.

 

The authorized number of directors shall be determined from time to time by resolution of the Board, provided the Board shall consist of at least one (1) member. No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires.

 

3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.

 

Except as provided in Section 3.4 of these bylaws, each director, including, without limitation, a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until such director’s successor is elected and qualified or until such director’s earlier death, resignation or removal. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws. The Corporation may also have,

 

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at the discretion of the Board, a chairperson of the Board and a vice chairperson of the Board The certificate of incorporation or these bylaws may prescribe other qualifications for directors.

 

If so provided in the certificate of incorporation, the directors of the Corporation shall be divided into three (3) classes.

 

3.4 RESIGNATION AND VACANCIES.

 

Any director may resign at any time upon notice given in writing or by electronic transmission to the Corporation at its principal office or to the chairperson of the Board or the Corporation’s chief executive officer, president or secretary. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies.

 

Unless otherwise provided in the certificate of incorporation or these bylaws, vacancies and newly created directorships resulting from any increase in the authorized number of directors shall, unless the Board determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director’s successor shall have been elected and qualified. A vacancy in the Board shall be deemed to exist under these bylaws in the case of the death, removal or resignation of any director.

 

3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.

 

The Board may hold meetings, both regular and special, either within or outside the State of Delaware.

 

Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the Board, or any committee designated by the Board, may participate in a meeting of the Board, or any committee, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting pursuant to this bylaw shall constitute presence in person at the meeting.

 

3.6 REGULAR MEETINGS.

 

Regular meetings of the Board may be held without notice at such time and at such place as shall from time to time be determined by the Board; provided that any director who is absent when such determination is made shall be given notice of the determination. A regular meeting of the Board may be held without notice immediately after and at the same place as the annual meeting of stockholders.

 

3.7 SPECIAL MEETINGS; NOTICE.

 

Special meetings of the Board for any purpose or purposes may be called at any time by the chairperson of the Board, the chief executive officer, the president, the secretary or a majority of the authorized number of directors.

 

Notice of the time and place of special meetings shall be:

 

(a) delivered personally by hand, by courier or by telephone;

 

(b) sent by United States first-class mail, postage prepaid;

 

(c) sent by facsimile; or

 

(d) sent by electronic mail,

 

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directed to each director at that director’s address, telephone number, facsimile number or electronic mail address, as the case may be, as shown on the Corporation’s records.

 

If the notice is (a) delivered personally by hand, by courier or by telephone, (b) sent by facsimile or (c) sent by electronic mail, it shall be delivered or sent at least twenty-four (24) hours before the time of the holding of the meeting. If the notice is sent by United States mail, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. Any oral notice may be communicated to the director. The notice need not specify the place of the meeting (if the meeting is to be held at the Corporation’s principal executive office) nor the purpose of the meeting.

 

3.8 QUORUM.

 

The greater of (a) a majority of the directors at any time in office and (b) one-third of the number of directors established by the Board pursuant to Section 3.2 of these bylaws shall constitute a quorum of the Board for the transaction of business. The vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board, except as may be otherwise specifically provided by statute, the certificate of incorporation or these bylaws. If a quorum is not present at any meeting of the Board, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.

 

3.9 BOARD ACTION BY CONSENT WITHOUT A MEETING.

 

Unless otherwise restricted by the certificate of incorporation or these bylaws, 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 all members of the Board or committee, as the case may be, consent thereto in writing or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

 

3.10 FEES AND COMPENSATION OF DIRECTORS.

 

Unless otherwise restricted by the certificate of incorporation or these bylaws, the Board shall have the authority to fix the compensation of directors.

 

3.11 REMOVAL OF DIRECTORS.

 

Subject to the rights of the holders of the shares of any series of Preferred Stock, the Board or any individual director may be removed from office only for cause and only by the affirmative vote of the holders of at least two-thirds in voting power of the outstanding shares of capital stock of the Corporation entitled to vote thereon.

 

ARTICLE IV - COMMITTEES

 

4.1 COMMITTEES OF DIRECTORS.

 

The Board may designate one (1) or more committees, each committee to consist of one (1) or more of the directors of the Corporation. The Board may designate one (1) or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. 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 such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board or in these bylaws, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (a) approve or adopt, or recommend to the stockholders, any action or matter (other than the election or removal of directors) expressly required by the DGCL to be submitted to stockholders for approval, or (b) adopt, amend or repeal any bylaw of the Corporation.

 

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4.2 COMMITTEE MINUTES.

 

Each committee shall keep regular minutes of its meetings and report the same to the Board when required.

 

4.3 MEETINGS AND ACTION OF COMMITTEES.

 

Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of:

 

(a) Section 3.5 of these bylaws (place of meetings and meetings by telephone);

 

(b) Section 3.6 of these bylaws (regular meetings);

 

(c) Section 3.7 of these bylaws (special meetings and notice);

 

(d) Section 3.8 of these bylaws (quorum);

 

(e) Section 7.12 of these bylaws (waiver of notice); and

 

(f) Section 3.9 of these bylaws (action without a meeting),

 

with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the Board and its members. However :

 

(i) the time of regular meetings of committees may be determined either by resolution of the Board or by resolution of the committee;

 

(ii) special meetings of committees may also be called by resolution of the Board; and

 

(iii) notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws.

 

ARTICLE V - OFFICERS

 

5.1 OFFICERS.

 

The officers of the Corporation shall be a president and a secretary. The Corporation may also have, at the discretion of the Board, a chief executive officer, a chief financial officer or treasurer, one (1) or more vice presidents, one (1) or more assistant vice presidents, one (1) or more assistant treasurers, one (1) or more assistant secretaries, and any such other officers as may be appointed in accordance with the provisions of these bylaws. Any number of offices may be held by the same person.

 

5.2 APPOINTMENT OF OFFICERS.

 

The Board shall appoint the officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws, subject to the rights, if any, of an officer under any contract of employment.

 

5.3 SUBORDINATE OFFICERS.

 

The Board may appoint, or empower the chief executive officer or, in the absence of a chief executive officer, the president, to appoint, such other officers and agents as the business of the Corporation may require. Each of such officers and agents shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the Board may from time to time determine.

 

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5.4 REMOVAL AND RESIGNATION OF OFFICERS.

 

Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the Board at any regular or special meeting of the Board or, except in the case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board.

 

Any officer may resign at any time by giving written notice to the Corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice. Unless otherwise specified in the notice of resignation, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Corporation under any contract to which the officer is a party.

 

5.5 VACANCIES IN OFFICES.

 

Any vacancy occurring in any office of the Corporation shall be filled by the Board or as provided in Section 5.3 of these bylaws.

 

5.6 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.

 

The chairperson of the Board, the president, any vice president, the treasurer, the secretary or assistant secretary of this Corporation, or any other person authorized by the Board or the president or a vice president, is authorized to vote, represent and exercise on behalf of this Corporation all rights incident to any and all securities of any other entity or entities standing in the name of this Corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.

 

5.7 AUTHORITY AND DUTIES OF OFFICERS.

 

All officers of the Corporation shall respectively have such authority and perform such duties in the management of the business of the Corporation as may be designated from time to time by the Board and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board.

 

ARTICLE VI - RECORDS AND REPORTS

 

6.1 MAINTENANCE OF RECORDS.

 

The Corporation shall, either at its principal executive office or at such place or places as designated by the Board, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these bylaws as amended to date, accounting books and other records.

 

ARTICLE VII - GENERAL MATTERS

 

7.1 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.

 

The Board, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

 

7.2 STOCK CERTIFICATES; PARTLY PAID SHARES.

 

The shares of the Corporation shall be represented by certificates or shall be uncertificated. Certificates for the shares of stock, if any, shall be in such form as is consistent with the certificate of incorporation and applicable law. Every holder of stock represented by a certificate shall be entitled to have a certificate signed by, or in the name of the Corporation by the chairperson or vice-chairperson of the Board, or the president or vice-president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the Corporation representing the

 

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number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.

 

The Corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, or upon the books and records of the Corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the Corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.

 

7.3 SPECIAL DESIGNATION ON CERTIFICATES.

 

If the Corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock; provided, however , that, except as otherwise provided in Section 202 of the DGCL, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

 

7.4 LOST CERTIFICATES.

 

Except as provided in this Section 7.4, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the Corporation and cancelled at the same time. The Corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to give the Corporation 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 or uncertificated shares.

 

7.5 CONSTRUCTION; DEFINITIONS.

 

Unless the context requires otherwise, the general provisions, rules of construction and definitions in the DGCL shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term “person” includes both a corporation and a natural person.

 

7.6 DIVIDENDS.

 

The Board, subject to any restrictions contained in either (a) the DGCL or (b) the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property or in shares of the Corporation’s capital stock.

 

The Board may set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the Corporation, and meeting contingencies.

 

7.7 FISCAL YEAR.

 

The fiscal year of the Corporation shall be fixed by resolution of the Board and may be changed by the Board.

 

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7.8 SEAL.

 

The Corporation may adopt a corporate seal, which shall be adopted and which may be altered by the Board. The Corporation may use the corporate seal by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.

 

7.9 TRANSFER OF STOCK.

 

Shares of the Corporation shall be transferable in the manner prescribed by law and in these bylaws. Shares of stock of the Corporation shall be transferred on the books of the Corporation only by the holder of record thereof or by such holder’s attorney duly authorized in writing, upon surrender to the Corporation of the certificate or certificates representing such shares endorsed by the appropriate person or persons (or by delivery of duly executed instructions with respect to uncertificated shares), with such evidence of the authenticity of such endorsement or execution, transfer, authorization and other matters as the Corporation may reasonably require, and accompanied by all necessary stock transfer stamps. No transfer of stock shall be valid as against the Corporation for any purpose until it shall have been entered in the stock records of the Corporation by an entry showing the names of the persons from and to whom it was transferred.

 

7.10 STOCK TRANSFER AGREEMENTS.

 

The Corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the Corporation to restrict the transfer of shares of stock of the Corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.

 

7.11 REGISTERED STOCKHOLDERS.

 

The Corporation:

 

(a) shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner;

 

(b) shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares; and

 

(c) shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

 

7.12 WAIVER OF NOTICE.

 

Whenever notice is required to be given under any provision of the DGCL, the certificate of incorporation or these bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the certificate of incorporation or these bylaws.

 

ARTICLE VIII - NOTICE BY ELECTRONIC TRANSMISSION

 

8.1 NOTICE BY ELECTRONIC TRANSMISSION.

 

Without limiting the manner by which notice otherwise may be given effectively to stockholders pursuant to the DGCL, the certificate of incorporation or these bylaws, any notice to stockholders given by the Corporation under any provision of the DGCL, the certificate of incorporation or these bylaws shall be effective if given by a form of

 

16



 

electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the Corporation. Any such consent shall be deemed revoked if:

 

(a) the Corporation is unable to deliver by electronic transmission two (2) consecutive notices given by the Corporation in accordance with such consent; and

 

(b) such inability becomes known to the secretary or an assistant secretary of the Corporation or to the transfer agent, or other person responsible for the giving of notice.

 

However, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.

 

Any notice given pursuant to the preceding paragraph shall be deemed given:

 

(a)          if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice;

 

(b)          if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice;

 

(c)           if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (i) such posting and (ii) the giving of such separate notice; and

 

(d)          if by any other form of electronic transmission, when directed to the stockholder.

 

An affidavit of the secretary or an assistant secretary of the Corporation or of the transfer agent or other agent of the Corporation that the notice has been given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

 

8.2 DEFINITION OF ELECTRONIC TRANSMISSION.

 

For the purposes of these bylaws, an “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.

 

ARTICLE IX - INDEMNIFICATION AND ADVANCEMENT

 

9.1 ACTIONS, SUITS AND PROCEEDINGS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION.

 

The Corporation shall indemnify each person who was or is a party or threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was, or has agreed to become, a director or officer of the Corporation, or, while a director or officer of the Corporation, is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer, partner, employee or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, any employee benefit plan) (all such persons being referred to hereafter as an “ Indemnitee ”), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including, without limitation, attorneys’ fees), liabilities, losses, judgments, fines (including, without limitation, excise taxes and penalties arising under the Employee Retirement Income Security Act of 1974), and amounts paid in settlement actually and reasonably incurred by or on behalf of Indemnitee in connection with such action, suit or proceeding and any appeal therefrom, if Indemnitee acted in good faith and in a manner which Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.

 

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9.2 ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION.

 

The Corporation shall indemnify any Indemnitee who was or is a party to or threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that Indemnitee is or was, or has agreed to become, a director or officer of the Corporation, or, while a director or officer of the Corporation, is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer, partner, employee or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, any employee benefit plan), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including, without limitation, attorneys’ fees) actually and reasonably incurred by or on behalf of Indemnitee in connection with such action, suit or proceeding and any appeal therefrom, if Indemnitee acted in good faith and in a manner which Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation, except that no indemnification shall be made under this Section 9.2 in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Corporation, unless, and only to the extent, that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses (including, without limitation, attorneys’ fees) which the Court of Chancery of Delaware or such other court shall deem proper.

 

9.3 INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY.

 

Notwithstanding any other provisions of this Article IX, to the extent that an Indemnitee has been successful, on the merits or otherwise, in defense of any action, suit or proceeding referred to in Sections 9.1 and 9.2 of these bylaws, or in defense of any claim, issue or matter therein, or on appeal from any such action, suit or proceeding, Indemnitee shall be indemnified against all expenses (including, without limitation, attorneys’ fees) actually and reasonably incurred by or on behalf of Indemnitee in connection therewith. Without limiting the foregoing, if any action, suit or proceeding is disposed of, on the merits or otherwise (including, without limitation, a disposition without prejudice), without (a) the disposition being adverse to Indemnitee, (b) an adjudication that Indemnitee was liable to the Corporation, (c) a plea of guilty or nolo contendere by Indemnitee, (d) an adjudication that Indemnitee did not act in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation and (e) with respect to any criminal proceeding, an adjudication that Indemnitee had reasonable cause to believe his or her conduct was unlawful, Indemnitee shall be considered for the purposes hereof to have been wholly successful with respect thereto.

 

9.4 NOTIFICATION AND DEFENSE OF CLAIM.

 

As a condition precedent to an Indemnitee’s right to be indemnified, such Indemnitee must notify the Corporation in writing as soon as practicable of any action, suit, proceeding or investigation involving such Indemnitee for which indemnity will or could be sought. With respect to any action, suit, proceeding or investigation of which the Corporation is so notified, the Corporation will be entitled to participate therein at its own expense and/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to Indemnitee. After notice from the Corporation to Indemnitee of its election so to assume such defense, the Corporation shall not be liable to Indemnitee for any legal or other expenses subsequently incurred by Indemnitee in connection with such action, suit, proceeding or investigation, other than as provided below in this Section 9.4. Indemnitee shall have the right to employ his or her own counsel in connection with such action, suit, proceeding or investigation, but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of Indemnitee unless (a) the employment of counsel by Indemnitee has been authorized by the Corporation, (b) counsel to Indemnitee shall have reasonably concluded that there may be a conflict of interest or position on any significant issue between the Corporation and Indemnitee in the conduct of the defense of such action, suit, proceeding or investigation or (c) the Corporation shall not in fact have employed counsel to assume the defense of such action, suit, proceeding or investigation, in each of which cases the fees and expenses of counsel for Indemnitee shall be at the expense of the Corporation, except as otherwise expressly provided by this Article IX. The Corporation shall not be entitled, without the consent of Indemnitee, to assume the defense of any claim brought by or in the right of the Corporation or as to which counsel for Indemnitee shall have reasonably made the conclusion provided for in clause (b) above. The Corporation shall not be required to indemnify Indemnitee under this Article IX for any amounts paid in settlement of any action, suit, proceeding or investigation effected without its written consent. The Corporation shall not settle any action, suit, proceeding or investigation in any manner which

 

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would impose any penalty or limitation on Indemnitee without Indemnitee’s written consent. Neither the Corporation nor Indemnitee will unreasonably withhold or delay its consent to any proposed settlement.

 

9.5 ADVANCE OF EXPENSES.

 

Subject to the provisions of Sections 9.4 and 9.6 of these bylaws, in the event of any threatened or pending action, suit, proceeding or investigation of which the Corporation receives notice under this Article IX, any expenses (including, without limitation, attorneys’ fees) incurred by or on behalf of Indemnitee in defending an action, suit, proceeding or investigation or any appeal therefrom shall be paid by the Corporation in advance of the final disposition of such matter; provided , however , that the payment of such expenses incurred by or on behalf of Indemnitee in advance of the final disposition of such matter shall be made only upon receipt of an undertaking by or on behalf of Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined by final judicial decision from which there is no further right to appeal that Indemnitee is not entitled to be indemnified by the Corporation as authorized in this Article IX; and provided further that no such advancement of expenses shall be made under this Article IX if it is determined (in the manner described in Section 9.6 of these bylaws) that (a) Indemnitee did not act in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Corporation, or (b) with respect to any criminal action or proceeding, Indemnitee had reasonable cause to believe his or her conduct was unlawful. Such undertaking shall be accepted without reference to the financial ability of Indemnitee to make such repayment.

 

9.6 PROCEDURE FOR INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.

 

In order to obtain indemnification or advancement of expenses pursuant to Section 9.1, 9.2, 9.3 or 9.5 of these bylaws, an Indemnitee shall submit to the Corporation a written request. Any such advancement of expenses shall be made promptly, and in any event within 60 days after receipt by the Corporation of the written request of Indemnitee, unless (a) the Corporation has assumed the defense pursuant to Section 9.4 of these bylaws (and none of the circumstances described in Section 9.4 of these bylaws that would nonetheless entitle the Indemnitee to indemnification for the fees and expenses of separate counsel have occurred) or (b) the Corporation determines within such 60-day period that Indemnitee did not meet the applicable standard of conduct set forth in Section 9.1, 9.2 or 9.5 of these bylaws, as the case may be. Any such indemnification, unless ordered by a court, shall be made with respect to requests under Section 9.1 or 9.2 of these bylaws only as authorized in the specific case upon a determination by the Corporation that the indemnification of Indemnitee is proper because Indemnitee has met the applicable standard of conduct set forth in Section 9.1 or 9.2 of these bylaws, as the case may be. Such determination shall be made in each instance (a) by a majority vote of the directors of the Corporation consisting of persons who are not at that time parties to the action, suit or proceeding in question (“ disinterested directors ”), whether or not a quorum, (b) by a committee of disinterested directors designated by majority vote of disinterested directors, whether or not a quorum, (c) if there are no disinterested directors, or if the disinterested directors so direct, by independent legal counsel (who may, to the extent permitted by law, be regular legal counsel to the Corporation) in a written opinion or (d) by the stockholders of the Corporation.

 

9.7 REMEDIES.

 

The right to indemnification or advancement of expenses as granted by this Article IX shall be enforceable by Indemnitee in any court of competent jurisdiction. Neither the failure of the Corporation to have made a determination prior to the commencement of such action that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Corporation pursuant to Section 9.6 of these bylaws that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. In any suit brought by Indemnitee to enforce a right to indemnification or advancement, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall have the burden of proving that Indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article IX. Indemnitee’s expenses (including, without limitation, attorneys’ fees) reasonably incurred in connection with successfully establishing Indemnitee’s right to indemnification or advancement, in whole or in part, in any such proceeding shall also be indemnified by the Corporation to the fullest extent permitted by law. Notwithstanding the

 

19



 

foregoing, in any suit brought by Indemnitee to enforce a right to indemnification hereunder it shall be a defense that the Indemnitee has not met any applicable standard for indemnification set forth in the DGCL.

 

9.8 LIMITATIONS.

 

Notwithstanding anything to the contrary in this Article IX, except as set forth in Section 9.7 of these bylaws, the Corporation shall not indemnify an Indemnitee pursuant to this Article IX in connection with a proceeding (or part thereof) initiated by such Indemnitee unless the initiation thereof was approved by the Board. Notwithstanding anything to the contrary in this Article IX, the Corporation shall not indemnify (or advance expenses to) an Indemnitee to the extent such Indemnitee is reimbursed (or advanced expenses) from the proceeds of insurance, and in the event the Corporation makes any indemnification (or advancement) payments to an Indemnitee and such Indemnitee is subsequently reimbursed from the proceeds of insurance, such Indemnitee shall promptly refund indemnification (or advancement) payments to the Corporation to the extent of such insurance reimbursement.

 

9.9 SUBSEQUENT AMENDMENT.

 

No amendment, termination or repeal of this Article IX or of the relevant provisions of the DGCL or any other applicable laws shall adversely affect or diminish in any way the rights of any Indemnitee to indemnification or advancement of expenses under the provisions hereof with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the final adoption of such amendment, termination or repeal.

 

9.10 OTHER RIGHTS.

 

The indemnification and advancement of expenses provided by this Article IX shall not be deemed exclusive of any other rights to which an Indemnitee seeking indemnification or advancement of expenses may be entitled under any law (common or statutory), agreement or vote of stockholders or disinterested directors or otherwise, both as to action in Indemnitee’s official capacity and as to action in any other capacity while holding office for the Corporation, and shall continue as to an Indemnitee who has ceased to be a director or officer, and shall inure to the benefit of the estate, heirs, executors and administrators of Indemnitee. Nothing contained in this Article IX shall be deemed to prohibit, and the Corporation is specifically authorized to enter into, agreements with officers and directors providing indemnification and advancement rights and procedures different from those set forth in this Article IX. In addition, the Corporation may, to the extent authorized from time to time by the Board, grant indemnification and advancement rights to other employees or agents of the Corporation or other persons serving the Corporation and such rights may be equivalent to, or greater or less than, those set forth in this Article IX.

 

9.11 PARTIAL INDEMNIFICATION.

 

If an Indemnitee is entitled under any provision of this Article IX to indemnification by the Corporation for some or a portion of the expenses (including, without limitation, attorneys’ fees), liabilities, losses, judgments, fines (including, without limitation, excise taxes and penalties arising under the Employee Retirement Income Security Act of 1974) or amounts paid in settlement actually and reasonably incurred by or on behalf of Indemnitee in connection with any action, suit, proceeding or investigation and any appeal therefrom but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify Indemnitee for the portion of such expenses (including, without limitation, attorneys’ fees), liabilities, losses, judgments, fines (including, without limitation, excise taxes and penalties arising under the Employee Retirement Income Security Act of 1974) or amounts paid in settlement to which Indemnitee is entitled.

 

9.12 INSURANCE.

 

The Corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, any employee benefit plan) against any expense, liability or loss incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL.

 

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9.13 SAVINGS CLAUSE.

 

If this Article IX or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Indemnitee as to any expenses (including, without limitation, attorneys’ fees), liabilities, losses, judgments, fines (including, without limitation, excise taxes and penalties arising under the Employee Retirement Income Security Act of 1974) and amounts paid in settlement in connection with any action, suit, proceeding or investigation, whether civil, criminal or administrative, including, without limitation, an action by or in the right of the Corporation, to the fullest extent permitted by any applicable portion of this Article IX that shall not have been invalidated and to the fullest extent permitted by applicable law.

 

9.14 DEFINITIONS.

 

Terms used in this Article IX and defined in Section 145(h) and Section 145(i) of the DGCL shall have the respective meanings assigned to such terms in such Section 145(h) and Section 145(i).

 

ARTICLE X - AMENDMENTS .

 

Subject to the limitations set forth in Section 9.9 of these bylaws or the provisions of the certificate of incorporation, the Board is expressly empowered to adopt, amend or repeal the bylaws of the Corporation. The stockholders also shall have power to adopt, amend or repeal the bylaws of the Corporation; provided , however , that, in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by the certificate of incorporation, such action by stockholders shall require the affirmative vote of the holders of at least two-thirds in voting power of the outstanding shares of capital stock of the Corporation entitled to vote thereon.

 

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Exhibit 5.1

 

 

 

53rd at Third

 

 

885 Third Avenue

 

 

New York, New York 10022-4834

 

 

Tel: +1.212.906.1200 Fax: +1.212.751.4864

 

 

www.lw.com

 

 

 

FIRM / AFFILIATE OFFICES

 

Abu Dhabi

Milan

 

Barcelona

Moscow

 

 

Beijing

Munich

June 18, 2015

 

Boston

New Jersey

 

 

Brussels

New York

 

 

Century City

Orange County

 

 

Chicago

Paris

 

 

Doha

Riyadh

 

 

Dubai

Rome

 

 

Düsseldorf

San Diego

 

 

Frankfurt

San Francisco

 

 

Hamburg

Shanghai

 

 

Hong Kong

Silicon Valley

 

Teladoc, Inc.

2 Manhattanville Road, Suite 203

Purchase, NY 10577

 

Houston

Singapore

 

London

Tokyo

 

Los Angeles

Washington, D.C.

 

Madrid

 

 

Re:                              Registration Statement No. 333-204577;

8,050,000 shares of Common Stock, $0.001 par value per share of Teladoc, Inc.

 

Ladies and Gentlemen:

 

We have acted as special counsel to Teladoc, Inc., a Delaware corporation (the “ Company ”), in connection with the proposed issuance of up to 8,050,000 shares of common stock, $0.001 par value per share (the “ Shares ”).  The Shares are included in a registration statement on Form S—1 under the Securities Act of 1933, as amended (the “ Act ”), filed with the Securities and Exchange Commission (the “ Commission ”) on May 29, 2015 (Registration No. 333-204577) (as amended, the “ Registration Statement ”).  The term “Shares” shall include any additional shares of common stock registered by the Company pursuant to Rule 462(b) under the Act in connection with the offering contemplated by the Registration Statement.  This opinion is being furnished in connection with the requirements of Item 601(b)(5) of Regulation S-K under the Act, and no opinion is expressed herein as to any matter pertaining to the contents of the Registration Statement or related Prospectus, other than as expressly stated herein with respect to the issue of the Shares.

 

As such counsel, we have examined such matters of fact and questions of law as we have considered appropriate for purposes of this letter.  With your consent, we have relied upon certificates and other assurances of officers of the Company and others as to factual matters without having independently verified such factual matters.  We are opining herein as to General Corporation Law of the State of Delaware and we express no opinion with respect to any other laws.

 

Subject to the foregoing and the other matters set forth herein, it is our opinion that, as of the date hereof, when the Shares shall have been duly registered on the books of the transfer agent and registrar therefor in the name or on behalf of the purchasers, and have been issued by

 



 

the Company against payment therefor (not less than par value) in the circumstances contemplated by the form of underwriting agreement most recently filed as an exhibit to the Registration Statement, the issue and sale of the Shares will have been duly authorized by all necessary corporate action of the Company, and the Shares will be validly issued, fully paid and nonassessable.  In rendering the foregoing opinion, we have assumed that the Company will comply with all applicable notice requirements regarding uncertificated shares provided in the General Corporation Law of the State of Delaware.

 

This opinion is for your benefit in connection with the Registration Statement and may be relied upon by you and by persons entitled to rely upon it pursuant to the applicable provisions of the Act.  We consent to your filing this opinion as an exhibit to the Registration Statement and to the reference to our firm in the Prospectus under the heading “Legal Matters.”  We further consent to the incorporation by reference of this letter and consent into any registration statement filed pursuant to Rule 462(b) with respect to the Shares.  In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission thereunder.

 

 

Very truly yours,

 

 

 

/s/ Latham & Watkins LLP

 

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Exhibit 10.7

 

INDEMNIFICATION AGREEMENT

 

This Indemnification Agreement (“ Agreement ”) is made as of             , 2015 by and between Teladoc, Inc., a Delaware corporation (the “ Company ”), and                (“ Indemnitee ”).

 

RECITALS :

 

WHEREAS, directors, officers, and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself;

 

WHEREAS, highly competent persons have become more reluctant to serve as directors, officers, or in other capacities unless they are provided with adequate protection through insurance and adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;

 

WHEREAS, the Board of Directors of the Company (the “ Board ”) has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company and its stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;

 

WHEREAS, (i) the Certificate of Incorporation of the Company (the “ Certificate of Incorporation ”) and the By-laws of the Company (the “ By-laws ”) require indemnification of the officers and directors of the Company, (ii) Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (the “ DGCL ”) and (iii) the Certificate of Incorporation, the By-laws and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive and thereby contemplate that contracts may be entered into between the Company and members of the Board, officers and other persons with respect to indemnification;

 

WHEREAS, this Agreement is a supplement to and in furtherance of the Certificate of Incorporation and By-laws and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefore, nor to diminish or abrogate any rights of Indemnitee thereunder; and

 

WHEREAS, (i) Indemnitee does not regard the protection available under the Certificate of Incorporation, By-laws and insurance as adequate in the present circumstances, (ii) Indemnitee may not be willing to serve or continue to serve as a director or officer without adequate protection, (iii) the Company desires Indemnitee to serve in such capacity, and (iv) Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he be so indemnified.

 

AGREEMENT :

 

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

 

Section 1.                                            Definitions.    (a) As used in this Agreement:

 



 

Affiliate ” of any specified Person shall mean any other Person controlling, controlled by or under common control with such specified Person.

 

Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended.

 

Person ” shall mean any individual, corporation, partnership, limited partnership, limited liability company, trust, governmental agency or body or any other legal entity.

 

Corporate Status ” describes the status of a person who is or was a director, officer, employee or agent of (i) the Company or (ii) any other corporation, limited liability company, partnership or joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the request of the Company.

 

Disinterested Director ” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

 

Enterprise ” shall mean the Company and any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary.

 

Expenses ” shall mean all reasonable costs, expenses, fees and charges (including without limitation) attorneys’ fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding.  Expenses also shall include, without limitation, (i) expenses incurred in connection with any appeal resulting from, incurred by Indemnitee in connection with, arising out of, or in respect of or relating to, any Proceeding, including without limitation, the premium, security for, and other costs relating to any cost bond, supersedes bond, or other appeal bond or its equivalent, (ii) for purposes of Section 12(d) only, expenses incurred by Indemnitee in connection with the interpretation, enforcement or defense of Indemnitee’s rights under this Agreement, by litigation or otherwise, (iii) any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, and (iv) any interest, assessments or other charges in respect of the foregoing.  “Expenses” shall not include “Liabilities.”

 

Indemnity Obligations ” shall mean all obligations of the Company to Indemnitee under this Agreement, including the Company’s obligations to provide indemnification to Indemnitee and advance Expenses to Indemnitee under this Agreement.

 

Independent Counsel ” shall mean a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent:  (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder; provided, however, that the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.

 

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Liabilities ” means (i) all claims, liabilities, damages, losses, judgments, orders, fines, penalties and other amounts payable in connection with, arising out of, or in respect of or relating to any Proceeding, including, without limitation, amounts paid in settlement in any Proceeding and all costs and expenses in complying with any judgment, order or decree issued or entered in connection with any Proceeding or any settlement agreement, stipulation or consent decree entered into or issued in settlement of any Proceeding.

 

Proceeding ” shall mean any threatened, pending or completed action, claim, suit, arbitration, alternate dispute resolution mechanism, formal or informal hearing, inquiry or investigation, litigation, inquiry, administrative hearing or any other actual, threatened or completed judicial, administrative or arbitration proceeding (including, without limitation, any such proceeding under the Securities Act of 1933, as amended, or the Exchange Act or any other federal law, state law, statute or regulation), whether brought in the right of the Company or otherwise, and whether of a civil, criminal, administrative or investigative nature, in each case, in which Indemnitee was, is or will be, or is threatened to be, involved as a party, witness or otherwise by reason of the fact that Indemnitee is or was a director or officer of the Company, by reason of any actual or alleged action taken by Indemnitee or of any action on Indemnitee’s part while acting as director or officer of the Company, or by reason of the fact that he is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, limited liability company, partnership, joint venture, trust or other enterprise, in each case whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification, reimbursement, or advancement can be provided under this Agreement.

 

Sponsor Entities ” means (i) CHP III, L.P., HLM Venture Partners II, L.P., Trident Capital Fund-VI, L.P., Trident Capital Fund-VI Principals Fund, LLC, KPCB Holdings, Inc., Icon Ventures II, L.P., Icon Ventures IV, L.P. and Icon Ventures V, L.P. and (ii) any Affiliate of any Person listed in the preceding clause (i), provided , however , that neither the Company nor any of its subsidiaries shall be considered Sponsor Entities hereunder.

 

(b) For the purpose hereof, references to “fines” shall include any excise tax assessed with respect to any employee benefit plan; references to “serving at the request of the Company” shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a Person who acted in good faith and in a manner he reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in manner “not opposed to the best interests of the Company” as referred to in this Agreement.

 

Section 2.                                            Indemnity in Third-Party Proceedings.  The Company shall indemnify and hold harmless Indemnitee, to the fullest extent permitted by applicable law, from and against all Liabilities and Expenses suffered or reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with any Proceeding (other than any Proceeding brought by or in the right of the Company to procure a judgment in its favor), or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company and, in the case of a criminal proceeding, had no reasonable cause to believe that Indemnitee’s conduct was unlawful.

 

Section 3.                                            Indemnity in Proceedings by or in the Right of the Company.    The Company shall indemnify and hold harmless Indemnitee, to the fullest extent permitted by applicable law, from and against all Expenses suffered or incurred by Indemnitee or on Indemnitee’s behalf in connection with

 

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such Proceeding brought by or in the right of the Company to procure a judgment in its favor, or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company.  No indemnification for Expenses shall be made under this Section 3 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that the Delaware Court of Chancery or any court in which the Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification.

 

Section 4.                                            Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provisions of this Agreement, and without limiting the rights of Indemnitee under any other provision hereof, to the fullest extent permitted by applicable law, to the extent that Indemnitee is successful, on the merits or otherwise, in any Proceeding or in defense of any claim, issue, or matter therein, in whole or in part, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with each successfully resolved Proceeding, claim, issue, or matter.  For purposes of this Section and without limitation, the termination of any Proceeding or claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

 

Section 5.                                            Indemnification For Expenses of a Witness.   Notwithstanding any other provision of this Agreement, to the fullest extent permitted by applicable law and to the extent that Indemnitee is, by reason of Indemnitee’s Corporate Status, a witness or otherwise a participant in any Proceeding to which Indemnitee is not a party, Indemnitee shall be indemnified against all Expenses suffered or incurred by him or on his behalf in connection therewith.

 

Section 6.                                            Additional Indemnification.   Notwithstanding any limitation in Sections 2, 3, or 4, the Company shall indemnify Indemnitee to the fullest extent permitted by applicable law if Indemnitee is a party to or threatened to be made a party to any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) against all Expenses suffered or reasonably incurred by Indemnitee in connection with such Proceeding, including but not limited to:

 

(a)                                  the fullest extent permitted by the provision of the DGCL that authorizes or contemplates additional indemnification by agreement, or the corresponding provision of any amendment to or replacement of the DGCL, and

 

(b)                                  the fullest extent authorized or permitted by any amendments to or replacements of the DGCL adopted after the date of this Agreement that increase the extent to which a corporation may indemnify its officers and directors.

 

Section 7.                                            Exclusions.    Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to indemnify or hold harmless Indemnitee:

 

(a)                                  for which payment has actually been made to or on behalf of Indemnitee under any insurance policy obtained by the Company except with respect to any excess beyond the amount paid under such insurance policy;

 

(b)                                  for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Exchange Act or similar provisions of state statutory law or common law; or

 

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(c)                                   except as provided in Section 12(d) of this Agreement, in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee or any Sponsor Entity, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee or any Sponsor Entity against the Company or its directors, officers, employees or other indemnitees, unless (i) the Board authorized the Proceeding (or any part of any Proceeding) prior to its initiation or (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law.

 

Section 8.                                            Advancement.   In accordance with the pre-existing requirement of Article SEVENTH of the Certificate of Incorporation, and notwithstanding any provision of this Agreement to the contrary, the Company shall advance, to the extent not prohibited by law, the Expenses and Liabilities reasonably incurred by Indemnitee in connection with any Proceeding, and such advancement shall be made within thirty (30) days after the receipt by the Company of a statement or statements requesting such advances from time to time, whether prior to or after final disposition of any Proceeding.  Advances shall be unsecured and interest free.  Advances shall be made without regard to Indemnitee’s ability to repay the Expenses and without regard to Indemnitee’s ultimate entitlement to indemnification under the other provisions of this Agreement.  Advances shall include any and all Expenses reasonably incurred pursuing an action to enforce this right of advancement, including Expenses incurred preparing and forwarding statements to the Company to support the advances claimed.  The Indemnitee shall qualify for advances upon the execution and delivery to the Company of this Agreement, which shall constitute an undertaking providing that the Indemnitee undertakes to repay the amounts advanced to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company.  This Section 8 shall not apply to any claim made by Indemnitee for which indemnity is excluded pursuant to Section 7.

 

Section 9.                                            Procedure for Notification and Defense of Claim.

 

(a)                                  Indemnitee shall promptly notify the Company in writing of any Proceeding with respect to which Indemnitee intends to seek indemnification or advancement hereunder following the receipt by Indemnitee of written notice thereof.  The written notification to the Company shall include a description of the nature of the Proceeding and the facts underlying the Proceeding.  To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification following the final disposition of such action, suit or proceeding.  Any delay or failure by Indemnitee to notify the Company hereunder will not relieve the Company from any liability which it may have to Indemnitee hereunder or otherwise than under this Agreement, and any delay or failure in so notifying the Company shall not constitute a waiver by Indemnitee of any rights under this Agreement.  The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested indemnification.

 

(b)                                  In the event Indemnitee is entitled to indemnification and/or advancement with respect to any Proceeding, Indemnitee may, at Indemnitee’s option, (i) retain counsel selected by Indemnitee and approved by the Company (which approval shall not to be unreasonably withheld, conditioned or delayed) to defend Indemnitee in such Proceeding, at the sole expense of the Company, or (ii) have the Company assume the defense of Indemnitee in such Proceeding, in which case the Company shall assume the defense of such Proceeding with counsel selected by the Company and approved by Indemnitee (which approval shall not be unreasonably withheld, conditioned or delayed) within ten (10) days of the Company’s receipt of written notice of Indemnitee’s election to cause the Company to do so.  If the Company is required to assume the defense of any such Proceeding, it shall engage legal counsel

 

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for such defense, and the Company shall be solely responsible for all fees and expenses of such legal counsel and otherwise of such defense.  Such legal counsel may represent both Indemnitee and the Company (and/or any other party or parties entitled to be indemnified by the Company with respect to such matter) unless, in the reasonable opinion of legal counsel to Indemnitee, there is a conflict of interest between Indemnitee and the Company (or any other such party or parties) or there are legal defenses available to Indemnitee that are not available to the Company (or any such other party or parties).  Notwithstanding either party’s assumption of responsibility for defense of a Proceeding, each party shall have the right to engage separate counsel at its own expense.  The party having responsibility for defense of a Proceeding shall provide the other party and its counsel with all copies of pleadings and material correspondence relating to the proceeding.  Indemnitee and the Company shall reasonably cooperate in the defense of any Proceeding with respect to which indemnification is sought hereunder, regardless of whether the Company or Indemnitee assumes the defense thereof.  Indemnitee may not settle or compromise any Proceeding without the prior written consent of the Company, which consent shall not be unreasonably withheld, conditioned or delayed.  The Company may not settle or compromise any proceeding without the prior written consent of Indemnitee, which consent shall not be unreasonably withheld, conditioned or delayed.

 

Section 10.                                     Procedure Upon Application for Indemnification.

 

(a)                                  Upon written request by Indemnitee for indemnification pursuant to Section 9(a), if any determination by the Company is required by applicable law with respect to Indemnitee’s entitlement thereto, such determination shall be made (i) if Indemnitee shall request such determination be made by Independent Counsel, by Independent Counsel, and (ii) in all other circumstances (A) by a majority vote of the Disinterested Directors, even though less than a quorum of the Board, (B) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum of the Board, (C) if there are no such Disinterested Directors or, if such Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee, or (D) if so directed by the Board, by the stockholders of the Company; and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination.  Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination.  Any Expenses incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.  The Company will not deny any written request for indemnification hereunder made in good faith by Indemnitee unless a determination as to Indemnitee’s entitlement to such indemnification described in this Section 10(a) has been made.  The Company agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

 

(b)                                  In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 10(a) hereof, (i) the Independent Counsel shall be selected by the Company within ten (10) days of the Submission Date (the cost of such Independent Counsel to be paid by the Company), (ii) shall give written notice to Indemnitee advising it of the identity of the Independent Counsel so selected and (iii) Indemnitee may, within ten (10) days after such written notice

 

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of selection shall have been given, deliver to the Company Indemnitee’s written objection to such selection.  Such objection by Indemnitee may be asserted only on the ground that the Independent Counsel selected does not meet the requirements of “Independent Counsel” as defined in this Agreement.  If such written objection is made and substantiated, the Independent Counsel selected shall not serve as Independent Counsel unless and until Indemnitee withdraws the objection or a court has determined that such objection is without merit.  Absent a timely objection, the person so selected shall act as Independent Counsel.  If a written objection is so made by Indemnitee, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn.  If no Independent Counsel shall have been selected and not objected to before the later of (i) thirty (30) days after the later of submission by Indemnitee of a written request for indemnification pursuant to Section 10(a) hereof (the “ Submission Date ”) and (ii) ten (10) days after the final disposition of the Proceeding, each of the Company and Indemnitee shall select a law firm or member of a law firm meeting the qualifications to serve as Independent Counsel, and such law firms or members of law firms shall select the Independent Counsel.  Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 12(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).

 

Section 11.                                     Presumptions and Effect of Certain Proceedings.

 

(a)                                  In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall, to the fullest extent not prohibited by law, presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 9(a) of this Agreement, and the Company shall, to the fullest extent not prohibited by law, have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption.  Neither the failure of the Company (including by its directors or independent legal counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.

 

(b)                                  Subject to Section 12(e), if the person, persons or entity empowered or selected under Section 10 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefore, the requisite determination of entitlement to indemnification shall, to the fullest extent not prohibited by law, be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent a prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if (i) the determination is to be made by Independent Counsel and Indemnitee objects to the Company’s selection of Independent Counsel and (ii) the Independent Counsel ultimately selected requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto.

 

(c)                                   The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any

 

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criminal Proceeding, that Indemnitee had reasonable cause to believe that Indemnitee’s conduct was unlawful.

 

(d)                                  Reliance as Safe Harbor .  For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with the reasonable care by  the Enterprise.  The provisions of this Section 11(e) shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement.

 

(e)                                   Actions of Others .  The knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.

 

Section 12.                                     Remedies of Indemnitee.

 

(a)                                  Subject to Section 12(e), in the event that (i) a determination is made pursuant to Section 10 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement is not timely made pursuant to Section 8 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 10(a) of this Agreement within ninety (90) days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 4 or 5 or the last sentence of Section 10(a) of this Agreement within ten (10) days after receipt by the Company of a written request therefore, (v) payment of indemnification pursuant to Section 2, 3 or 6 of this Agreement is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification, or (vi) in the event that the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or Proceeding designed to deny, or to recover from, the Indemnitee the benefits provided or intended to be provided to the Indemnitee hereunder, Indemnitee shall be entitled to an adjudication by a court of Indemnitee’s entitlement to such indemnification and/or advancement.  Alternatively, Indemnitee, at Indemnitee’s option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association.  The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

 

(b)                                  In the event that a determination shall have been made pursuant to Section 10(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 12 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination.  In any judicial proceeding or arbitration commenced pursuant to this Section 12 the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement, as the case may be.

 

(c)                                   If a determination shall have been made pursuant to Section 10(a) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 12, absent a prohibition of such indemnification under applicable law.

 

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(d)                                  The Company shall, to the fullest extent not prohibited by law, be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 12 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.  It is the intent of the Company that the Indemnitee not be required to incur Expenses associated with the interpretation, enforcement or defense of Indemnitee’s rights under this Agreement by litigation or otherwise because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Indemnitee hereunder.  The Company shall indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall (within ten (10) days after receipt by the Company of a written request therefore) advance, to the extent not prohibited by law, such Expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advancement from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement or insurance recovery, as the case may be.

 

(e)                                   Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding; provided that, in absence of any such determination with respect to such Proceeding, the Company shall advance Expenses with respect to such Proceeding.

 

Section 13.                                     Non-exclusivity; Survival of Rights; Insurance; Subrogation.

 

(a)                                  The rights of indemnification and to receive advancement as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation, the By-laws, any agreement, a vote of stockholders or a resolution of directors, or otherwise.  No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in Indemnitee’s Corporate Status prior to such amendment, alteration or repeal.  To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement than would be afforded currently under the Certificate of Incorporation, the By-laws and/or this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change.  No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise.  The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

 

(b)                                  The Company hereby acknowledges that Indemnitee may have certain rights to indemnification, advancement and/or insurance provided by one or more Persons with whom or which Indemnitee may be associated (including, without limitation, any Sponsor Entity).  The Company hereby acknowledges and agrees that (i) the Company  shall be the indemnitor of first resort with respect to any Proceeding, Expense, Liability or matter that is the subject of the Indemnity Obligations, (ii) the Company shall be primarily liable for all Indemnification Obligations and any indemnification afforded to Indemnitee in respect of any Proceeding, Expense, Liability or matter that is the subject of Indemnity Obligations, whether created by law, organizational or constituent documents, contract (including this Agreement) or otherwise, (iii) any obligation of any other Persons with whom or which Indemnitee may be associated (including, without limitation, any

 

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Sponsor Entity) to indemnify Indemnitee and/or advance Expenses or Liabilities to Indemnitee in respect of any Proceeding shall be secondary to the obligations of the Company hereunder, (iv) the Company shall be required to indemnify Indemnitee and advance Expenses to Indemnitee hereunder to the fullest extent provided herein without regard to any rights Indemnitee may have against any other Person with whom or which Indemnitee may be associated (including, any Sponsor Entity) or insurer of any such Person and (v) the Company irrevocably waives, relinquishes and releases any other Person with whom or which Indemnitee may be associated (including, without limitation, any Sponsor Entity) from any claim of contribution, subrogation or any other recovery of any kind in respect of amounts paid by the Company hereunder.   In the event any other Person with whom or which Indemnitee may be associated (including, without limitations, any Sponsor Entity) or their insurers advances or extinguishes any liability or loss which is the subject of any Indemnity Obligation owed by the Company or payable under any Company insurance policy, the payor shall have a right of subrogation against the Company or its insurer or insurers for all amounts so paid which would otherwise be payable by the Company or its insurer or insurers under this Agreement.  In no event will payment of an Indemnity Obligation by any other Person with whom or which Indemnitee may be associated (including, without limitation, any Sponsor Entity) or their insurers affect the obligations of the Company hereunder or shift primary liability for any Indemnity Obligation to any other Person with whom or which Indemnitee may be associated (including, without limitation, any Sponsor Entity).  Any indemnification and/or insurance or advancement provided by any other Person with whom or which Indemnitee may be associated (including, without limitation, any Sponsor Entity) with respect to any liability arising as a result of Indemnitee’s Corporate Status or capacity as an officer or director of any Person is specifically in excess over any Indemnity Obligation of the Company or valid and any collectible insurance (including but not limited to any malpractice insurance or professional errors and omissions insurance) provided by the Company under this Agreement.

 

(c)                                   To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies and such policies shall provide for and recognize that the insurance polices are primary to any rights to indemnification, advancement or insurance proceeds to which the Indemnitee may be entitled from one or more Persons  with whom or which Indemnitee may be associated (including, without limitation, any Sponsor Entity) to the same extent as the Company’s indemnification and advancement obligations set forth in this Agreement.  If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies.  The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

 

(d)                                  In the event of any payment under this Agreement, the Company shall not be subrogated to the rights of recovery of Indemnitee, including rights of indemnification provided to Indemnitee from any other person or entity with whom Indemnitee may be associated (including, without limitation, any Sponsor Entity); provided , however , that the Company shall be subrogated to the extent of any such payment of all rights of recovery of Indemnitee under insurance policies of the Company or any of its subsidiaries.

 

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(e)                                   The indemnification and contribution provided for in this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of Indemnitee.

 

Section 14.                                     Duration of Agreement; Not Employment Contract.   This Agreement shall continue until and terminate upon the latest of: (i) ten (10) years after the date that Indemnitee shall have ceased to serve as a director of the Company or any other Enterprise and (ii) one (1) year after the final termination of any Proceeding then pending in respect of which Indemnitee is granted rights of indemnification or advancement hereunder and of any proceeding commenced by Indemnitee pursuant to Section 12 of this Agreement relating thereto.  This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and Indemnitee’s heirs, executors and administrators.  This Agreement shall not be deemed an employment contract between the Company (or any of its subsidiaries or any Enterprise) and Indemnitee.  Indemnitee specifically acknowledges that Indemnitee’s employment with the Company (or any of its subsidiaries or any Enterprise), if any, is at will, and the Indemnitee may be discharged at any time for any reason, with or without cause, except as may be otherwise provided in any written employment contract between Indemnitee and the Company (or any of its subsidiaries or any Enterprise), other applicable formal severance policies duly adopted by the Board, or, with respect to service as a director of the Company, by the Certificate of Incorporation, and By-laws, and the DGCL.

 

Section 15.                                     Severability.   If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

 

Section 16.                                     Enforcement.

 

(a)                                  The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director or officer of the Company.

 

(b)                                  This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided, however, that this Agreement is a supplement to and in furtherance of the Certificate of Incorporation, the By-laws and applicable law, and shall not be deemed a substitute therefore, nor to diminish or abrogate any rights of Indemnitee thereunder.

 

Section 17.                                     Modification and Waiver.   No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by the parties thereto.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver.

 

11



 

Section 18.                                     Notices.   All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if (a) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, (b) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed, (c) mailed by reputable overnight courier and receipted for by the party to whom said notice or other communication shall have been directed or (d) sent by facsimile transmission, with receipt of oral confirmation that such transmission has been received:

 

(a)                                  If to Indemnitee, at the address indicated on the signature page of this Agreement, or such other address as Indemnitee shall provide to the Company.

 

(b)                                  If to the Company to

 

Teladoc, Inc.
2 Manhattanville Road, Suite 203
Purchase, NY 10577
Attention:  Chief Executive Officer

 

or to any other address as may have been furnished to Indemnitee by the Company.

 

Section 19.                                     Contribution.   To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).

 

Section 20.                                     Applicable Law and Consent to Jurisdiction.   This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 12(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the “ Delaware Court ”), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (iv) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

 

Section 21.                                     Counterparts.   This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement.  Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

 

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Section 22.                                     Third-Party Beneficiaries.   The Sponsor Entities are intended third-party beneficiaries of this Agreement and shall have all of the rights afforded to Indemnitee under this Agreement.

 

Section 23.                                     Miscellaneous.   Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate.  The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

 

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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written.

 

TELADOC, INC.

 

INDEMNITEE

 

 

 

By:

 

 

 

Name:

 

 

Name:

 

Title:

 

 

Address:

 

 

 

 

 

 

 

 

 

 

 

 

14




Exhibit 10.8.1

 

FIRST AMENDMENT TO

 

TELADOC, INC.

 

SECOND AMENDED AND RESTATED STOCK INCENTIVE PLAN

 

THIS FIRST AMENDMENT (this “Amendment”) is made as of December 11, 2013 (“Effective Date”), to the TELADOC, INC. SECOND AMENDED AND RESTATED STOCK INCENTIVE PLAN (as amended, the “Plan”).

 

1.                                       All capitalized terms used herein without definition shall have the respective meanings ascribed thereto in the Plan.

 

2.                                       On and after the Effective Date, the Plan shall be amended as hereinafter set forth:

 

Section 1.3 of the Plan shall be amended and restated in its entirety to read as follows:  “1.3   Duration of the Plan .  This Plan shall commence on the Effective Date, and shall remain in effect, subject to the right of the Board to amend or terminate this Plan at any time pursuant to Article 9, until December 16, 2023.”

 

3.                                       Except as expressly modified by this Amendment, all of the terms and conditions of the Plan shall continue unchanged and in full force and effect.

 

[Signature Page Follows]

 



 

AS APPROVED BY THE BOARD OF DIRECTORS OF TELADOC, INC. ON December 11, 2013.

 

TELADOC, INC.

 

 

By:

/s/ Jason Gorevic

 

Name:

Jason Gorevic

 

Title:

Chief Executive Officer

 

 




Exhibit 10.8.2

 

SECOND AMENDMENT TO

 

TELADOC, INC.

 

SECOND AMENDED AND RESTATED STOCK INCENTIVE PLAN

 

THIS SECOND AMENDMENT (this “Second Amendment”) is made as of September 10, 2014 (“Effective Date”), to the TELADOC, INC. SECOND AMENDED AND RESTATED STOCK INCENTIVE PLAN (as amended, the “Plan”).

 

1.                                       All capitalized terms used herein without definition shall have the respective meanings ascribed thereto in the Plan.

 

2.                                       On and after the Effective Date, the Plan shall be amended as hereinafter set forth:

 

Section 4.1 of the Plan is hereby amended by deleting the number “eight million sixty three thousand one hundred twenty six (8,063,126)” in the second and third line thereof and substituting therein in its entirety “eleven million seven hundred seventy thousand three hundred eighty eight (11,770,388)”.

 

3.                                       Except as expressly modified by this Amendment, all of the terms and conditions of the Plan shall continue unchanged and in full force and effect.

 

[Signature Page Follows]

 



 

AS APPROVED BY THE BOARD OF DIRECTORS OF TELADOC, INC. ON September 10, 2014.

 

TELADOC, INC.

 

 

 

 

 

 

 

By:

/s/ Jason Gorevic

 

Name:

Jason Gorevic

 

Title:

Chief Executive Officer

 

 




Exhibit 10.10

 

TELADOC, INC.
2015 INCENTIVE AWARD PLAN

 

ARTICLE I.
PURPOSE

 

The Plan’s purpose is to enhance the Company’s ability to attract, retain and motivate persons who make (or are expected to make) important contributions to the Company by providing these individuals with equity ownership opportunities.  Capitalized terms used in the Plan are defined in Article XI.

 

ARTICLE II.
ELIGIBILITY

 

Service Providers are eligible to be granted Awards under the Plan, subject to the limitations described herein.

 

ARTICLE III.
ADMINISTRATION AND DELEGATION

 

3.1                                Administration .  The Plan is administered by the Administrator.  The Administrator has authority to determine which Service Providers receive Awards, grant Awards and set Award terms and conditions, subject to the conditions and limitations in the Plan.  The Administrator also has the authority to take all actions and make all determinations under the Plan, to interpret the Plan and Award Agreements and to adopt, amend and repeal Plan administrative rules, guidelines and practices as it deems advisable.  The Administrator may correct defects and ambiguities, supply omissions and reconcile inconsistencies in the Plan or any Award as it deems necessary or appropriate to administer the Plan and any Awards.  The Administrator’s determinations under the Plan are in its sole discretion and will be final and binding on all persons having or claiming any interest in the Plan or any Award.

 

3.2                                Appointment of Committees .  To the extent Applicable Laws permit, the Board may delegate any or all of its powers under the Plan to one or more Committees.  The Board may abolish any Committee or re-vest in itself any previously delegated authority at any time.

 

ARTICLE IV.
STOCK AVAILABLE FOR AWARDS

 

4.1                                Number of Shares .  Subject to adjustment under Article VIII and the terms of this Article IV, Awards may be made under the Plan covering up to the Overall Share Limit.  As of the Plan’s effective date under Section 10.3, the Company will cease granting awards under the Prior Plans; however, Prior Plan Awards will remain subject to the terms of the applicable Prior Plan. Shares issued under the Plan may consist of authorized but unissued Shares, Shares purchased on the open market or treasury Shares.

 

4.2                                Share Recycling .  If all or any part of an Award or Prior Plan Award expires, lapses or is terminated, exchanged for cash, surrendered, repurchased, canceled without having been fully exercised or forfeited, in any case, in a manner that results in the Company acquiring Shares covered by the Award or Prior Plan Award at a price not greater than the price (as adjusted to reflect any Equity Restructuring) paid by the Participant for such Shares or not issuing any Shares covered by the Award or Prior Plan Award, the unused Shares covered by the Award or Prior Plan Award will, as applicable, become or again

 



 

be available for Award grants under the Plan.  Further, Shares delivered (either by actual delivery or attestation) to the Company by a Participant to satisfy the applicable exercise or purchase price of an Award or Prior Plan Award and/or to satisfy any applicable tax withholding obligation (including Shares retained by the Company from the Award or Prior Plan Award being exercised or purchased and/or creating the tax obligation) will, as applicable, become or again be available for Award grants under the Plan.  The payment of Dividend Equivalents in cash in conjunction with any outstanding Awards or Prior Plan Awards shall not count against the Overall Share Limit.

 

4.3                                Incentive Stock Option Limitations .  Notwithstanding anything to the contrary herein, no more than 20,953,672 Shares may be issued pursuant to the exercise of Incentive Stock Options.

 

4.4                                Substitute Awards .  In connection with an entity’s merger or consolidation with the Company or the Company’s acquisition of an entity’s property or stock, the Administrator may grant Awards in substitution for any options or other stock or stock-based awards granted before such merger or consolidation by such entity or its affiliate.  Substitute Awards may be granted on such terms as the Administrator deems appropriate, notwithstanding limitations on Awards in the Plan.  Substitute Awards will not count against the Overall Share Limit, except that Shares acquired by exercise of substitute Incentive Stock Options will count against the maximum number of Shares that may be issued pursuant to the exercise of Incentive Stock Options under the Plan.

 

4.5                                Non-Employee Director Compensation .  Notwithstanding any provision to the contrary in the Plan, the Administrator may establish compensation for non-employee Directors from time to time, subject to the limitations in the Plan.  The Administrator will from time to time determine the terms, conditions and amounts of all such non-employee Director compensation in its discretion and pursuant to the exercise of its business judgment, taking into account such factors, circumstances and considerations as it shall deem relevant from time to time, provided that the sum of any cash compensation, or other compensation, and the value (determined as of the grant date in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, or any successor thereto) of Awards granted to a non-employee Director as compensation for services as a non-employee Director during any fiscal year of the Company may not exceed $650,000.  The Administrator may make exceptions to this limit for individual non-employee Directors in extraordinary circumstances, as the Administrator may determine in its discretion, provided that the non-employee Director receiving such additional compensation may not participate in the decision to award such compensation or in other compensation decisions involving non-employee Directors.

 

ARTICLE V.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

 

5.1                                General .  The Administrator may grant Options or Stock Appreciation Rights to Service Providers subject to the limitations in the Plan, including Section 9.9 with respect to Incentive Stock Options.  The Administrator will determine the number of Shares covered by each Option and Stock Appreciation Right, the exercise price of each Option and Stock Appreciation Right and the conditions and limitations applicable to the exercise of each Option and Stock Appreciation Right.  A Stock Appreciation Right will entitle the Participant (or other person entitled to exercise the Stock Appreciation Right) to receive from the Company upon exercise of the exercisable portion of the Stock Appreciation Right an amount determined by multiplying the excess, if any, of the Fair Market Value of one Share on the date of exercise over the exercise price per Share of the Stock Appreciation Right by the number of Shares with respect to which the Stock Appreciation Right is exercised, subject to any limitations of the Plan or that the Administrator may impose and payable in cash, Shares valued at Fair Market Value or a combination of the two as the Administrator may determine or provide in the Award Agreement.

 

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5.2                                Exercise Price .  The Administrator will establish each Option’s and Stock Appreciation Right’s exercise price and specify the exercise price in the Award Agreement.  The exercise price will not be less than 100% of the Fair Market Value on the grant date of the Option or Stock Appreciation Right.

 

5.3                                Duration of Options .  Each Option or Stock Appreciation Right will be exercisable at such times and as specified in the Award Agreement, provided that the term of an Option or Stock Appreciation Right will not exceed ten years.

 

5.4                                Exercise .  Options and Stock Appreciation Rights may be exercised by delivering to the Company a written notice of exercise, in a form the Administrator approves (which may be electronic), signed by the person authorized to exercise the Option or Stock Appreciation Right, together with, as applicable, payment in full (i) as specified in Section 5.5 for the number of Shares for which the Award is exercised and (ii) as specified in Section 9.5 for any applicable taxes.  Unless the Administrator otherwise determines, an Option or Stock Appreciation Right may not be exercised for a fraction of a Share.

 

5.5                                Payment Upon Exercise .  The exercise price of an Option must be paid in cash, wire transfer of immediately available funds or by check payable to the order of the Company or, subject to Section 10.8, any Company insider trading policy (including blackout periods) and Applicable Laws, by:

 

(a)                                  if there is a public market for Shares at the time of exercise, unless the Administrator otherwise determines, (A) delivery (including telephonically to the extent permitted by the Company) of an irrevocable and unconditional undertaking by a broker acceptable to the Company to deliver promptly to the Company sufficient funds to pay the exercise price, or (B) the Participant’s delivery to the Company of a copy of irrevocable and unconditional instructions to a broker acceptable to the Company to deliver promptly to the Company cash or a check sufficient to pay the exercise price; provided that such amount is paid to the Company at such time as may be required by the Administrator;

 

(b)                                  to the extent permitted by the Administrator, delivery (either by actual delivery or attestation) of Shares owned by the Participant valued at their Fair Market Value;

 

(c)                                   to the extent permitted by the Administrator, surrendering Shares then issuable upon the Option’s exercise valued at their Fair Market Value on the exercise date;

 

(d)                                  to the extent permitted by the Administrator, delivery of a promissory note or any other property that the Administrator determines is good and valuable consideration; or

 

(e)                                   any combination of the above permitted payment forms (including cash, wire transfer or check).

 

ARTICLE VI.
RESTRICTED STOCK; RESTRICTED STOCK UNITS

 

6.1                                General .  The Administrator may grant Restricted Stock, or the right to purchase Restricted Stock, to any Service Provider, subject to the Company’s right to repurchase all or part of such shares at their issue price or other stated or formula price from the Participant (or to require forfeiture of such shares) if conditions the Administrator specifies in the Award Agreement are not satisfied before the end of the applicable restriction period or periods that the Administrator establishes for such Award.  In addition, the Administrator may grant to Service Providers Restricted Stock Units, which may be subject to vesting and forfeiture conditions during the applicable restriction period or periods, as set forth in an Award Agreement.  The Administrator will determine and set forth in the Award Agreement the terms

 

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and conditions for each Restricted Stock and Restricted Stock Unit Award, subject to the conditions and limitations contained in the Plan.

 

6.2                                Restricted Stock .

 

(a)                                  Dividends .  Participants holding shares of Restricted Stock will be entitled to all ordinary cash dividends paid with respect to such Shares, unless the Administrator provides otherwise in the Award Agreement.  In addition, unless the Administrator provides otherwise, if any dividends or distributions are paid in Shares, or consist of a dividend or distribution to holders of Common Stock of property other than an ordinary cash dividend, the Shares or other property will be subject to the same restrictions on transferability and forfeitability as the shares of Restricted Stock with respect to which they were paid.

 

(b)                                  Stock Certificates .  The Company may require that the Participant deposit in escrow with the Company (or its designee) any stock certificates issued in respect of shares of Restricted Stock, together with a stock power endorsed in blank.

 

6.3                                Restricted Stock Units.

 

(a)                                  Settlement .  The Administrator may provide that settlement of Restricted Stock Units will occur upon or as soon as reasonably practicable after the Restricted Stock Units vest or will instead be deferred, on a mandatory basis or at the Participant’s election, in a manner intended to comply with Section 409A.

 

(b)                                  Stockholder Rights . A Participant will have no rights of a stockholder with respect to Shares subject to any Restricted Stock Unit unless and until the Shares are delivered in settlement of the Restricted Stock Unit.

 

(c)                                   Dividend Equivalents .  If the Administrator provides, a grant of Restricted Stock Units may provide a Participant with the right to receive Dividend Equivalents.  Dividend Equivalents may be paid currently or credited to an account for the Participant, settled in cash or Shares and subject to the same restrictions on transferability and forfeitability as the Restricted Stock Units with respect to which the Dividend Equivalents are granted and subject to other terms and conditions as set forth in the Award Agreement.

 

ARTICLE VII.
OTHER STOCK OR CASH BASED AWARDS

 

Other Stock or Cash Based Awards may be granted to Participants, including Awards entitling Participants to receive Shares to be delivered in the future and including annual or other periodic or long-term cash bonus awards (whether based on specified Performance Criteria or otherwise), in each case subject to any conditions and limitations in the Plan. Such Other Stock or Cash Based Awards will also be available as a payment form in the settlement of other Awards, as standalone payments and as payment in lieu of compensation to which a Participant is otherwise entitled.  Other Stock or Cash Based Awards may be paid in Shares, cash or other property, as the Administrator determines.  Subject to the provisions of the Plan, the Administrator will determine the terms and conditions of each Other Stock or Cash Based Award, including any purchase price, performance goal (which may be based on the Performance Criteria), transfer restrictions, and vesting conditions, which will be set forth in the applicable Award Agreement.

 

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ARTICLE VIII.
ADJUSTMENTS FOR CHANGES IN COMMON STOCK
AND CERTAIN OTHER EVENTS

 

8.1                                Equity Restructuring .  In connection with any Equity Restructuring, notwithstanding anything to the contrary in this Article VIII, the Administrator will equitably adjust each outstanding Award as it deems appropriate to reflect the Equity Restructuring, which may include adjusting the number and type of securities subject to each outstanding Award and/or the Award’s exercise price or grant price (if applicable), granting new Awards to Participants, and making a cash payment to Participants.  The adjustments provided under this Section 8.1 will be nondiscretionary and final and binding on the affected Participant and the Company; provided that the Administrator will determine whether an adjustment is equitable.

 

8.2                                Corporate Transactions .  In the event of any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), reorganization, merger, consolidation, combination, repurchase, recapitalization, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or sale or exchange of Common Stock or other securities of the Company, Change in Control, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, other similar corporate transaction or event, other unusual or nonrecurring transaction or event affecting the Company or its financial statements or any change in any Applicable Laws or accounting principles, the Administrator, on such terms and conditions as it deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event (except that action to give effect to a change in Applicable Law or accounting principles may be made within a reasonable period of time after such change) and either automatically or upon the Participant’s request, is hereby authorized to take any one or more of the following actions whenever the Administrator determines that such action is appropriate in order to (x) prevent dilution or enlargement of the benefits or potential benefits intended by the Company to be made available under the Plan or with respect to any Award granted or issued under the Plan, (y) to facilitate such transaction or event or (z) give effect to such changes in Applicable Laws or accounting principles:

 

(a)                                  To provide for the cancellation of any such Award in exchange for either an amount of cash or other property with a value equal to the amount that could have been obtained upon the exercise or settlement of the vested portion of such Award or realization of the Participant’s rights under the vested portion of such Award, as applicable; provided that, if the amount that could have been obtained upon the exercise or settlement of the vested portion of such Award or realization of the Participant’s rights, in any case, is equal to or less than zero, then the Award may be terminated without payment;

 

(b)                                  To provide that such Award shall vest and, to the extent applicable, be exercisable as to all shares covered thereby, notwithstanding anything to the contrary in the Plan or the provisions of such Award;

 

(c)                                   To provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and/or applicable exercise or purchase price, in all cases, as determined by the Administrator;

 

(d)                                  To make adjustments in the number and type of shares of Common Stock (or other securities or property) subject to outstanding Awards and/or with respect to which Awards may be granted under the Plan (including, but not limited to, adjustments of the limitations in Article IV hereof

 

5



 

on the maximum number and kind of shares which may be issued) and/or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding Awards;

 

(e)                                   To replace such Award with other rights or property selected by the Administrator; and/or

 

(f)                                    To provide that the Award will terminate and cannot vest, be exercised or become payable after the applicable event.

 

8.3                                Administrative Stand Still .  In the event of any pending stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other extraordinary transaction or change affecting the Shares or the share price of Common Stock, including any Equity Restructuring or any securities offering or other similar transaction, for administrative convenience, the Administrator may refuse to permit the exercise of any Award for up to sixty days before or after such transaction.

 

8.4                                General .  Except as expressly provided in the Plan or the Administrator’s action under the Plan, no Participant will have any rights due to any subdivision or consolidation of Shares of any class, dividend payment, increase or decrease in the number of Shares of any class or dissolution, liquidation, merger, or consolidation of the Company or other corporation.  Except as expressly provided with respect to an Equity Restructuring under Section 8.1 above or the Administrator’s action under the Plan, no issuance by the Company of Shares of any class, or securities convertible into Shares of any class, will affect, and no adjustment will be made regarding, the number of Shares subject to an Award or the Award’s grant or exercise price.  The existence of the Plan, any Award Agreements and the Awards granted hereunder will not affect or restrict in any way the Company’s right or power to make or authorize (i) any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, (ii) any merger, consolidation dissolution or liquidation of the Company or sale of Company assets or (iii) any sale or issuance of securities, including securities with rights superior to those of the Shares or securities convertible into or exchangeable for Shares.  The Administrator may treat Participants and Awards (or portions thereof) differently under this Article VIII.

 

ARTICLE IX.
GENERAL PROVISIONS APPLICABLE TO AWARDS

 

9.1                                Transferability .  Except as the Administrator may determine or provide in an Award Agreement or otherwise for Awards other than Incentive Stock Options, Awards may not be sold, assigned, transferred, pledged or otherwise encumbered, either voluntarily or by operation of law, except by will or the laws of descent and distribution, or, subject to the Administrator’s consent, pursuant to a domestic relations order, and, during the life of the Participant, will be exercisable only by the Participant.  References to a Participant, to the extent relevant in the context, will include references to a Participant’s authorized transferee that the Administrator specifically approves.

 

9.2                                Documentation .  Each Award will be evidenced in an Award Agreement, which may be written or electronic, as the Administrator determines. Each Award may contain terms and conditions in addition to those set forth in the Plan.

 

9.3                                Discretion .  Except as the Plan otherwise provides, each Award may be made alone or in addition or in relation to any other Award.  The terms of each Award to a Participant need not be identical, and the Administrator need not treat Participants or Awards (or portions thereof) uniformly.

 

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9.4                                Termination of Status .  The Administrator will determine how the disability, death, retirement, authorized leave of absence or any other change or purported change in a Participant’s Service Provider status affects an Award and the extent to which, and the period during which, the Participant, the Participant’s legal representative, conservator, guardian or Designated Beneficiary may exercise rights under the Award, if applicable.

 

9.5                                Withholding .  Each Participant must pay the Company, or make provision satisfactory to the Administrator for payment of, any taxes required by law to be withheld in connection with such Participant’s Awards by the date of the event creating the tax liability.  The Company may deduct an amount sufficient to satisfy such tax obligations based on the minimum statutory withholding rates from any payment of any kind otherwise due to a Participant.  Participants may satisfy such tax obligations in cash, by wire transfer of immediately available funds, by check made payable to the order of the Company, or subject to Section 10.8 and any Company insider trading policy (including blackout periods), (i) to the extent permitted by the Administrator, in whole or in part by delivery of Shares, including Shares retained from the Award creating the tax obligation, valued at their Fair Market Value, (ii) if there is a public market for Shares at the time the tax obligations are satisfied, unless the Administrator otherwise determines, (A) delivery (including telephonically to the extent permitted by the Company) of an irrevocable and unconditional undertaking by a broker acceptable to the Company to deliver promptly to the Company sufficient funds to satisfy the tax obligations, or (B) delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a broker acceptable to the Company to deliver promptly to the Company cash or a check sufficient to satisfy the tax withholding; provided that such amount is paid to the Company at such time as may be required by the Administrator, or (iii) any combination of the foregoing permitted payment forms (including cash, wire transfer or check).  If any tax withholding obligation will be satisfied under clause (i) of the immediately preceding sentence by the Company’s retention of Shares from the Award creating the tax obligation and there is a public market for Shares at the time the tax obligation is satisfied, the Company may elect to instruct any brokerage firm determined acceptable to the Company for such purpose to sell on the applicable Participant’s behalf some or all of the Shares retained and to remit the proceeds of the sale to the Company or its designee, and each Participant’s acceptance of an Award under the Plan will constitute the Participant’s authorization to the Company and instruction and authorization to such brokerage firm to complete the transactions described in this sentence.

 

9.6                                Amendment of Award; Repricing .  The Administrator may amend, modify or terminate any outstanding Award, including by substituting another Award of the same or a different type, changing the exercise or settlement date, and converting an Incentive Stock Option to a Non-Qualified Stock Option.  The Participant’s consent to such action will be required unless (i) the action, taking into account any related action, does not materially and adversely affect the Participant’s rights under the Award, or (ii) the change is permitted under Article VIII or pursuant to Section 10.6.  Notwithstanding the foregoing or anything in the Plan to the contrary, the Administrator may, without the approval of the stockholders of the Company, reduce the exercise price per share of outstanding Options or Stock Appreciation Rights or cancel outstanding Options or Stock Appreciation Rights in exchange for cash, other Awards or Options or Stock Appreciation Rights with an exercise price per share that is less than the exercise price per share of the original Options or Stock Appreciation Rights.

 

9.7                                Conditions on Delivery of Stock .  The Company will not be obligated to deliver any Shares under the Plan or remove restrictions from Shares previously delivered under the Plan until (i) all Award conditions have been met or removed to the Company’s satisfaction, (ii) as determined by the Company, all other legal matters regarding the issuance and delivery of such Shares have been satisfied, including any applicable securities laws and stock exchange or stock market rules and regulations, and (iii) the Participant has executed and delivered to the Company such representations or agreements as the Administrator deems necessary or appropriate to satisfy any Applicable Laws.  The Company’s inability

 

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to obtain authority from any regulatory body having jurisdiction, which the Administrator determines is necessary to the lawful issuance and sale of any securities, will relieve the Company of any liability for failing to issue or sell such Shares as to which such requisite authority has not been obtained.

 

9.8                                Acceleration .  The Administrator may at any time provide that any Award will become immediately vested and fully or partially exercisable, free of some or all restrictions or conditions, or otherwise fully or partially realizable.

 

9.9                                Additional Terms of Incentive Stock Options .  The Administrator may grant Incentive Stock Options only to employees of the Company, any of its present or future parent or subsidiary corporations, as defined in Sections 424(e) or (f) of the Code, respectively, and any other entities the employees of which are eligible to receive Incentive Stock Options under the Code.  If an Incentive Stock Option is granted to a Greater Than 10% Stockholder, the exercise price will not be less than 110% of the Fair Market Value on the Option’s grant date, and the term of the Option will not exceed five years.  All Incentive Stock Options will be subject to and construed consistently with Section 422 of the Code.  By accepting an Incentive Stock Option, the Participant agrees to give prompt notice to the Company of dispositions or other transfers (other than in connection with a Change in Control) of Shares acquired under the Option made within (i) two years from the grant date of the Option or (ii) one year after the transfer of such Shares to the Participant, specifying the date of the disposition or other transfer and the amount the Participant realized, in cash, other property, assumption of indebtedness or other consideration, in such disposition or other transfer.  Neither the Company nor the Administrator will be liable to a Participant, or any other party, if an Incentive Stock Option fails or ceases to qualify as an “incentive stock option” under Section 422 of the Code.  Any Incentive Stock Option or portion thereof that fails to qualify as an “incentive stock option” under Section 422 of the Code for any reason, including becoming exercisable with respect to Shares having a fair market value exceeding the $100,000 limitation under Treasury Regulation Section 1.422-4, will be a Non-Qualified Stock Option.

 

ARTICLE X.
MISCELLANEOUS

 

10.1                         No Right to Employment or Other Status .  No person will have any claim or right to be granted an Award, and the grant of an Award will not be construed as giving a Participant the right to continued employment or any other relationship with the Company.  The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan or any Award, except as expressly provided in an Award Agreement.

 

10.2                         No Rights as Stockholder; Certificates .  Subject to the Award Agreement, no Participant or Designated Beneficiary will have any rights as a stockholder with respect to any Shares to be distributed under an Award until becoming the record holder of such Shares.  Notwithstanding any other provision of the Plan, unless the Administrator otherwise determines or Applicable Laws require, the Company will not be required to deliver to any Participant certificates evidencing Shares issued in connection with any Award and instead such Shares may be recorded in the books of the Company (or, as applicable, its transfer agent or stock plan administrator).  The Company may place legends on stock certificates issued under the Plan that the Administrator deems necessary or appropriate to comply with Applicable Laws.

 

10.3                         Effective Date and Term of Plan .  The Plan will become effective on the day prior to the Public Trading Date and will remain in effect until the tenth anniversary of such date, unless earlier terminated by the Board.  No Awards may be granted under the Plan during any suspension period or after Plan termination.  Notwithstanding anything in the Plan to the contrary, an Incentive Stock Option may not be granted under the Plan after ten years from the earlier of (i) the date the Board adopted the

 

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Plan or (ii) the date the Company’s stockholders approved the Plan, but Awards previously granted may extend beyond that date in accordance with the Plan.  If the Plan is not approved by the Company’s stockholders, (i) it will not become effective, (ii) no Awards shall be granted thereunder, and (iii) the Prior Plans will continue in full force and effect in accordance with their terms.

 

10.4                         Amendment of Plan .  The Administrator may amend, suspend or terminate the Plan at any time; provided that no amendment, other than an increase to the Overall Share Limit, may materially and adversely affect any Award outstanding at the time of such amendment without the affected Participant’s consent.  Awards outstanding at the time of any Plan suspension or termination will continue to be governed by the Plan and the Award Agreement, as in effect before such suspension or termination.  The Board will obtain stockholder approval of any Plan amendment to the extent necessary to comply with Applicable Laws.

 

10.5                         Provisions for Foreign Participants .  The Administrator may modify Awards granted to Participants who are foreign nationals or employed outside the United States or establish subplans or procedures under the Plan to address differences in laws, rules, regulations or customs of such foreign jurisdictions with respect to tax, securities, currency, employee benefit or other matters.

 

10.6                         Section 409A .

 

(a)                                  General .  The Company intends that all Awards be structured to comply with, or be exempt from, Section 409A, such that no adverse tax consequences, interest, or penalties under Section 409A apply.  Notwithstanding anything in the Plan or any Award Agreement to the contrary, the Administrator may, without a Participant’s consent, amend this Plan or Awards, adopt policies and procedures, or take any other actions (including amendments, policies, procedures and retroactive actions) as are necessary or appropriate to preserve the intended tax treatment of Awards, including any such actions intended to (A) exempt this Plan or any Award from Section 409A, or (B) comply with Section 409A, including regulations, guidance, compliance programs and other interpretative authority that may be issued after an Award’s grant date.  The Company makes no representations or warranties as to an Award’s tax treatment under Section 409A or otherwise.  The Company will have no obligation under this Section 10.6 or otherwise to avoid the taxes, penalties or interest under Section 409A with respect to any Award and will have no liability to any Participant or any other person if any Award, compensation or other benefits under the Plan are determined to constitute noncompliant “nonqualified deferred compensation” subject to taxes, penalties or interest under Section 409A.

 

(b)                                  Separation from Service .  If an Award constitutes “nonqualified deferred compensation” under Section 409A, any payment or settlement of such Award upon a termination of a Participant’s Service Provider relationship will, to the extent necessary to avoid taxes under Section 409A, be made only upon the Participant’s “separation from service” (within the meaning of Section 409A), whether such “separation from service” occurs upon or after the termination of the Participant’s Service Provider relationship.  For purposes of this Plan or any Award Agreement relating to any such payments or benefits, references to a “termination,” “termination of employment” or like terms means a “separation from service.”

 

(c)                                   Payments to Specified Employees .  Notwithstanding any contrary provision in the Plan or any Award Agreement, any payment(s) of “nonqualified deferred compensation” required to be made under an Award to a “specified employee” (as defined under Section 409A and as the Administrator determines) due to his or her “separation from service” will, to the extent necessary to avoid taxes under Section 409A(a)(2)(B)(i) of the Code, be delayed for the six-month period immediately following such “separation from service” (or, if earlier, until the specified employee’s death) and will instead be paid (as set forth in the Award Agreement) on the day immediately following such six-month

 

9



 

period or as soon as administratively practicable thereafter (without interest).  Any payments of “nonqualified deferred compensation” under such Award payable more than six months following the Participant’s “separation from service” will be paid at the time or times the payments are otherwise scheduled to be made.

 

10.7                         Limitations on Liability .  Notwithstanding any other provisions of the Plan, no individual acting as a director, officer, other employee or agent of the Company or any Subsidiary will be liable to any Participant, former Participant, spouse, beneficiary, or any other person for any claim, loss, liability, or expense incurred in connection with the Plan or any Award, and such individual will not be personally liable with respect to the Plan because of any contract or other instrument executed in his or her capacity as an Administrator, director, officer, other employee or agent of the Company or any Subsidiary.  The Company will indemnify and hold harmless each director, officer, other employee and agent of the Company or any Subsidiary that has been or will be granted or delegated any duty or power relating to the Plan’s administration or interpretation, against any cost or expense (including attorneys’ fees) or liability (including any sum paid in settlement of a claim with the Administrator’s approval) arising from any act or omission concerning this Plan unless arising from such person’s own fraud or bad faith.

 

10.8                         Lock-Up Period .  The Company may, at the request of any underwriter representative or otherwise, in connection with registering the offering of any Company securities under the Securities Act, prohibit Participants from, directly or indirectly, selling or otherwise transferring any Shares or other Company securities during a period of up to one hundred eighty days following the effective date of a Company registration statement filed under the Securities Act, or such longer period as determined by the underwriter.

 

10.9                         Data Privacy .  As a condition for receiving any Award, each Participant explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of personal data as described in this section by and among the Company and its Subsidiaries and affiliates exclusively for implementing, administering and managing the Participant’s participation in the Plan.  The Company and its Subsidiaries and affiliates may hold certain personal information about a Participant, including the Participant’s name, address and telephone number; birthdate; social security, insurance number or other identification number; salary; nationality; job title(s); any Shares held in the Company or its Subsidiaries and affiliates; and Award details, to implement, manage and administer the Plan and Awards (the “ Data ”).  The Company and its Subsidiaries and affiliates may transfer the Data amongst themselves as necessary to implement, administer and manage a Participant’s participation in the Plan, and the Company and its Subsidiaries and affiliates may transfer the Data to third parties assisting the Company with Plan implementation, administration and management.  These recipients may be located in the Participant’s country, or elsewhere, and the Participant’s country may have different data privacy laws and protections than the recipients’ country.  By accepting an Award, each Participant authorizes such recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, to implement, administer and manage the Participant’s participation in the Plan, including any required Data transfer to a broker or other third party with whom the Company or the Participant may elect to deposit any Shares.  The Data related to a Participant will be held only as long as necessary to implement, administer, and manage the Participant’s participation in the Plan.  A Participant may, at any time, view the Data that the Company holds regarding such Participant, request additional information about the storage and processing of the Data regarding such Participant, recommend any necessary corrections to the Data regarding the Participant or refuse or withdraw the consents in this Section 10.9 in writing, without cost, by contacting the local human resources representative.  The Company may cancel Participant’s ability to participate in the Plan and, in the Administrator’s discretion, the Participant may forfeit any outstanding Awards if the Participant refuses or withdraws the consents in this Section 10.9.  For more information on the consequences of refusing or withdrawing consent, Participants may contact their local human resources representative.

 

10


 

10.10                  Severability .  If any portion of the Plan or any action taken under it is held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining parts of the Plan, and the Plan will be construed and enforced as if the illegal or invalid provisions had been excluded, and the illegal or invalid action will be null and void.

 

10.11                  Governing Documents .  If any contradiction occurs between the Plan and any Award Agreement or other written agreement between a Participant and the Company (or any Subsidiary) that the Administrator has approved, the Plan will govern, unless it is expressly specified in such Award Agreement or other written document that a specific provision of the Plan will not apply.

 

10.12                  Governing Law .  The Plan and all Awards will be governed by and interpreted in accordance with the laws of the State of Delaware, disregarding any state’s choice-of-law principles requiring the application of a jurisdiction’s laws other than the State of Delaware.

 

10.13                  Claw-back Provisions .  All Awards (including any proceeds, gains or other economic benefit the Participant actually or constructively receives upon receipt or exercise of any Award or the receipt or resale of any Shares underlying the Award) will be subject to any Company claw-back policy, including any claw-back policy adopted to comply with Applicable Laws (including the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder) as set forth in such claw-back policy or the Award Agreement.

 

10.14                  Titles and Headings .  The titles and headings in the Plan are for convenience of reference only and, if any conflict, the Plan’s text, rather than such titles or headings, will control.

 

10.15                  Conformity to Securities Laws .  Participant acknowledges that the Plan is intended to conform to the extent necessary with Applicable Laws.  Notwithstanding anything herein to the contrary, the Plan and all Awards will be administered only in conformance with Applicable Laws.  To the extent Applicable Laws permit, the Plan and all Award Agreements will be deemed amended as necessary to conform to Applicable Laws.

 

10.16                  Relationship to Other Benefits .  No payment under the Plan will be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Subsidiary except as expressly provided in writing in such other plan or an agreement thereunder.

 

10.17                  Broker-Assisted Sales . In the event of a broker-assisted sale of Shares in connection with the payment of amounts owed by a Participant under or with respect to the Plan or Awards, including amounts to be paid under the final sentence of Section 9.5: (a) any Shares to be sold through the broker-assisted sale will be sold on the day the payment first becomes due, or as soon thereafter as practicable; (b) such Shares may be sold as part of a block trade with other Participants in the Plan in which all participants receive an average price; (c) the applicable Participant will be responsible for all broker’s fees and other costs of sale, and by accepting an Award, each Participant agrees to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale; (d) to the extent the Company or its designee receives proceeds of such sale that exceed the amount owed, the Company will pay such excess in cash to the applicable Participant as soon as reasonably practicable; (e) the Company and its designees are under no obligation to arrange for such sale at any particular price; and (f) in the event the proceeds of such sale are insufficient to satisfy the Participant’s applicable obligation, the Participant may be required to pay immediately upon demand to the Company or its designee an amount in cash sufficient to satisfy any remaining portion of the Participant’s obligation.

 

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ARTICLE XI.
DEFINITIONS

 

As used in the Plan, the following words and phrases will have the following meanings:

 

11.1                         Administrator ” means the Board or a Committee to the extent that the Board’s powers or authority under the Plan have been delegated to such Committee.

 

11.2                         Applicable Laws ” means the requirements relating to the administration of equity incentive plans under U.S. federal and state securities, tax and other applicable laws, rules and regulations, the applicable rules of any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws and rules of any foreign country or other jurisdiction where Awards are granted.

 

11.3                         Award ” means, individually or collectively, a grant under the Plan of Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units or Other Stock or Cash Based Awards.

 

11.4                         Award Agreement ” means a written agreement evidencing an Award, which may be electronic, that contains such terms and conditions as the Administrator determines, consistent with and subject to the terms and conditions of the Plan.

 

11.5                         Board ” means the Board of Directors of the Company.

 

11.6                         Change in Control ” means and includes each of the following:

 

(a)                                  A transaction or series of transactions (other than an offering of Common Stock to the general public through a registration statement filed with the Securities and Exchange Commission or a transaction or series of transactions that meets the requirements of clauses (i) and (ii) of subsection (c) below) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company, any of its Subsidiaries, an employee benefit plan maintained by the Company or any of its Subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or

 

(b)                                  During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new Director(s) (other than a Director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in subsections (a) or (c)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the Directors then still in office who either were Directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or

 

(c)                                   The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:

 

12



 

(i)                                      which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “ Successor Entity ”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and

 

(ii)                                   after which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity; provided , however , that no person or group shall be treated for purposes of this clause (ii) as beneficially owning 50% or more of the combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction.

 

Notwithstanding the foregoing, if a Change in Control constitutes a payment event with respect to any Award (or portion of any Award) that provides for the deferral of compensation that is subject to Section 409A, to the extent required to avoid the imposition of additional taxes under Section 409A, the transaction or event described in subsection (a), (b) or (c) with respect to such Award (or portion thereof) shall only constitute a Change in Control for purposes of the payment timing of such Award if such transaction also constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5).

 

The Administrator shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change in Control has occurred pursuant to the above definition, the date of the occurrence of such Change in Control and any incidental matters relating thereto; provided that any exercise of authority in conjunction with a determination of whether a Change in Control is a “change in control event” as defined in Treasury Regulation Section 1.409A-3(i)(5) shall be consistent with such regulation.

 

11.7                         Code ” means the Internal Revenue Code of 1986, as amended, and the regulations issued thereunder.

 

11.8                         Committee ” means one or more committees or subcommittees of the Board, which may include one or more Company directors or executive officers, to the extent Applicable Laws permit.  To the extent required to comply with the provisions of Rule 16b-3, it is intended that each member of the Committee will be, at the time the Committee takes any action with respect to an Award that is subject to Rule 16b-3, a “non-employee director” within the meaning of Rule 16b-3; however, a Committee member’s failure to qualify as a “non-employee director” within the meaning of Rule 16b-3 will not invalidate any Award granted by the Committee that is otherwise validly granted under the Plan.

 

11.9                         Common Stock ” means the common stock of the Company.

 

11.10                  Company ” means Teladoc, Inc., a Delaware corporation, or any successor.

 

11.11                  Consultant ” means any person, including any adviser, engaged by the Company or its parent or Subsidiary to render services to such entity if the consultant or adviser: (i) renders bona fide services to the Company; (ii) renders services not in connection with the offer or sale of securities in a capital-raising transaction and does not directly or indirectly promote or maintain a market for the Company’s securities; and (iii) is a natural person.

 

13



 

11.12                  Designated Beneficiary ” means the beneficiary or beneficiaries the Participant designates, in a manner the Administrator determines, to receive amounts due or exercise the Participant’s rights if the Participant dies or becomes incapacitated.  Without a Participant’s effective designation, “Designated Beneficiary” will mean the Participant’s estate.

 

11.13                  Director ” means a Board member.

 

11.14                  Disability ” means a permanent and total disability under Section 22(e)(3) of the Code, as amended.

 

11.15                  Dividend Equivalents ” means a right granted to a Participant under the Plan to receive the equivalent value (in cash or Shares) of dividends paid on Shares.

 

11.16                  Employee ” means any employee of the Company or its Subsidiaries.

 

11.17                  Equity Restructuring ” means a nonreciprocal transaction between the Company and its stockholders, such as a stock dividend, stock split, spin-off or recapitalization through a large, nonrecurring cash dividend, that affects the number or kind of Shares (or other Company securities) or the share price of Common Stock (or other Company securities) and causes a change in the per share value of the Common Stock underlying outstanding Awards.

 

11.18                  Exchange Act ” means the Securities Exchange Act of 1934, as amended.

 

11.19                  Fair Market Value ” means, as of any date, the value of Common Stock determined as follows: (i) if the Common Stock is listed on any established stock exchange, its Fair Market Value will be the closing sales price for such Common Stock as quoted on such exchange for such date, or if no sale occurred on such date, the last day preceding such date during which a sale occurred, as reported in The Wall Street Journal or another source the Administrator deems reliable; (ii) if the Common Stock is not traded on a stock exchange but is quoted on a national market or other quotation system, the closing sales price on such date, or if no sales occurred on such date, then on the last date preceding such date during which a sale occurred, as reported in The Wall Street Journal or another source the Administrator deems reliable; or (iii) without an established market for the Common Stock, the Administrator will determine the Fair Market Value in its discretion.

 

11.20                  Greater Than 10% Stockholder ” means an individual then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or its parent or subsidiary corporation, as defined in Section 424(e) and (f) of the Code, respectively.

 

11.21                  Incentive Stock Option ” means an Option intended to qualify as an “incentive stock option” as defined in Section 422 of the Code.

 

11.22                  Non-Qualified Stock Option ” means an Option not intended or not qualifying as an Incentive Stock Option.

 

11.23                  Option ” means an option to purchase Shares.

 

11.24                  Other Stock or Cash Based Awards ” means cash awards, awards of Shares, and other awards valued wholly or partially by referring to, or are otherwise based on, Shares or other property.

 

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11.25                  Overall Share Limit ” means the sum of (i) 2,186,447 Shares; (ii) any shares of Common Stock which are subject to Prior Plan Awards which become available for issuance under the Plan pursuant to Article IV and (iii) an annual increase on the first day of each calendar year beginning January 1, 2016 and ending on and including January 1, 2025, equal to the least of (A) 1,876,722 Shares, (B) 5% of the aggregate number of shares of Common Stock outstanding on the final day of the immediately preceding calendar year and (C) such smaller number of Shares as is determined by the Board.

 

11.26                  Participant ” means a Service Provider who has been granted an Award.

 

11.27                  Performance Criteria ” mean the criteria (and adjustments) that the Administrator may select for an Award to establish performance goals for a performance period, which may include the following: net earnings or losses (either before or after one or more of interest, taxes, depreciation, amortization, and non-cash equity-based compensation expense); gross or net sales or revenue or sales or revenue growth; net income (either before or after taxes) or adjusted net income; profits (including but not limited to gross profits, net profits, profit growth, net operation profit or economic profit), profit return ratios or operating margin; budget or operating earnings (either before or after taxes or before or after allocation of corporate overhead and bonus); cash flow (including operating cash flow and free cash flow or cash flow return on capital); return on assets; return on capital or invested capital; cost of capital; return on stockholders’ equity; total stockholder return; return on sales; costs, reductions in costs and cost control measures; expenses; working capital; earnings or loss per share; adjusted earnings or loss per share; price per share or dividends per share (or appreciation in or maintenance of such price or dividends); regulatory achievements or compliance; implementation, completion or attainment of objectives relating to research, development, regulatory, commercial, or strategic milestones or developments; market share; economic value or economic value added models; division, group or corporate financial goals; customer satisfaction/growth; customer service; employee satisfaction; recruitment and maintenance of personnel; human resources management; supervision of litigation and other legal matters; strategic partnerships and transactions; financial ratios (including those measuring liquidity, activity, profitability or leverage); debt levels or reductions; sales-related goals; financing and other capital raising transactions; cash on hand; acquisition activity; investment sourcing activity; and marketing initiatives, any of which may be measured in absolute terms or as compared to any incremental increase or decrease, peer group results, or market performance indicators or indices.

 

11.28                  Plan ” means this 2015 Incentive Award Plan.

 

11.29                  Prior Plans ” means, collectively, the Teladoc, Inc. Second Amended and Restated Stock Incentive Plan and any prior equity incentive plans of the Company or its predecessor.

 

11.30                  Prior Plan Award ” means an award outstanding under the Prior Plans as of the Plan’s effective date in Section 10.3.

 

11.31                  Public Trading Date ” means the first date upon which the Common Stock is listed (or approved for listing) upon notice of issuance on any securities exchange or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system, or, if earlier, the date on which the Company becomes a “publicly held corporation” for purposes of Treasury Regulation Section 1.162-27(c)(1).

 

11.32                  Restricted Stock ” means Shares awarded to a Participant under Article VI subject to certain vesting conditions and other restrictions.

 

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11.33                  Restricted Stock Unit ” means an unfunded, unsecured right to receive, on the applicable settlement date, one Share or an amount in cash or other consideration determined by the Administrator to be of equal value as of such settlement date, subject to certain vesting conditions and other restrictions.

 

11.34                  Rule 16b-3 ” means Rule 16b-3 promulgated under the Exchange Act.

 

11.35                  Section 409A ” means Section 409A of the Code and all regulations, guidance, compliance programs and other interpretative authority thereunder.

 

11.36                  Securities Act ” means the Securities Act of 1933, as amended.

 

11.37                  Service Provider ” means an Employee, Consultant or Director.

 

11.38                  Shares ” means shares of Common Stock.

 

11.39                  Stock Appreciation Right ” means a stock appreciation right granted under Article V.

 

11.40                  Subsidiary ” means any entity (other than the Company), whether domestic or foreign, in an unbroken chain of entities beginning with the Company if each of the entities other than the last entity in the unbroken chain beneficially owns, at the time of the determination, securities or interests representing at least 50% of the total combined voting power of all classes of securities or interests in one of the other entities in such chain.

 

11.41                  Termination of Service ” means the date the Participant ceases to be a Service Provider.

 

* * * * *

 

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Exhibit 10.11

 

TELADOC, INC.
2015 INCENTIVE AWARD PLAN

 

STOCK OPTION GRANT NOTICE

 

Capitalized terms not specifically defined in this Stock Option Grant Notice (the “ Grant Notice ”) have the meanings given to them in the 2015 Incentive Award Plan (as amended from time to time, the “ Plan ”) of Teladoc, Inc. (the “ Company ”).

 

T he Company hereby grants to the participant listed below (“ Participant ”) the stock option described in this Grant Notice (the “ Option ”), subject to the terms and conditions of the Plan and the Stock Option Agreement attached hereto as Exhibit A (the “ Agreement ”), both of which are incorporated into this Grant Notice by reference.

 

Participant:

 

 

 

Grant Date:

 

 

 

Exercise Price per Share:

 

 

 

Shares Subject to the Option:

 

 

 

Final Expiration Date:

 

 

 

Vesting Commencement Date:

 

 

 

Vesting Schedule:

[To be specified in individual award agreements]

 

 

Type of Option

o   Incentive Stock Option          o   Non-Qualified Stock Option

 

By Participant’s signature below, Participant agrees to be bound by the terms of this Grant Notice, the Plan and the Agreement.  Participant has reviewed the Plan, this Grant Notice and the Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant Notice and fully understands all provisions of the Plan, this Grant Notice and the Agreement.  Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan, this Grant Notice or the Agreement.

 

 

TELADOC, INC.

 

PARTICIPANT

 

 

 

 

 

 

By:

 

 

By:

 

 

 

 

 

 

Print Name:

 

 

Print Name:

 

 

 

 

 

 

Title:

 

 

 

 

 



 

Exhibit A

 

STOCK OPTION AGREEMENT

 

Capitalized terms not specifically defined in this Agreement have the meanings specified in the Grant Notice or, if not defined in the Grant Notice, in the Plan.

 

ARTICLE I.
GENERAL

 

1.1                                Grant of Option .  Pursuant to the Grant Notice to which this Agreement is attached, the Company has granted to Participant the Option effective as of the grant date set forth in the Grant Notice (the “ Grant Date ”).

 

1.2                                Incorporation of Terms of Plan .  The Option is subject to the terms and conditions set forth in this Agreement and the Plan, which is incorporated herein by reference.  In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan will control.

 

ARTICLE II.
PERIOD OF EXERCISABILITY

 

2.1                                Commencement of Exercisability .  The Option will vest and become exercisable according to the vesting schedule in the Grant Notice (the “ Vesting Schedule ”) except that any fraction of a Share as to which the Option would be vested or exercisable will be accumulated and will vest and become exercisable only when a whole Share has accumulated.  Notwithstanding anything in the Grant Notice, the Plan or this Agreement to the contrary, unless the Administrator otherwise determines, the Option will immediately expire and be forfeited as to any portion that is not vested and exercisable as of Participant’s Termination of Service for any reason.

 

2.2                                Duration of Exercisability .  The Vesting Schedule is cumulative.  Any portion of the Option which vests and becomes exercisable will remain vested and exercisable until the Option expires.  The Option will be forfeited immediately upon its expiration.

 

2.3                                Expiration of Option .  The Option may not be exercised to any extent by anyone after, and will expire on, the first of the following to occur:

 

(a)                                  The final expiration date in the Grant Notice;

 

(b)                                  Except as the Administrator may otherwise approve, the expiration of three (3) months from the date of Participant’s Termination of Service, unless Participant’s Termination of Service is for Cause or by reason of Participant’s death or Disability;

 

(c)                                   Except as the Administrator may otherwise approve, the expiration of one (1) year from the date of Participant’s Termination of Service by reason of Participant’s death or Disability; and

 

(d)                                  Except as the Administrator may otherwise approve, Participant’s Termination of Service for Cause.

 

As used in this Agreement, “ Cause ” means (i) if Participant is a party to a written employment or consulting agreement with the Company or its Subsidiary in which the term “cause” is defined (a “ Relevant Agreement ”), “Cause” as defined in the Relevant Agreement, and (ii) if no Relevant Agreement exists, (A) the Administrator’s determination that Participant failed to substantially perform

 



 

Participant’s duties (other than a failure resulting from Participant’s Disability); (B) the Administrator’s determination that Participant failed to carry out, or comply with any lawful and reasonable directive of the Board or Participant’s immediate supervisor; (C) Participant’s conviction, plea of no contest, plea of nolo contendere, or imposition of unadjudicated probation for any felony or indictable offense or crime involving moral turpitude; (D) Participant’s unlawful use (including being under the influence) or possession of illegal drugs on the premises of the Company or any of its Subsidiaries or while performing Participant’s duties and responsibilities for the Company or any of its Subsidiaries; or (E) Participant’s commission of an act of fraud, embezzlement, misappropriation, misconduct, or breach of fiduciary duty against the Company or any of its Subsidiaries.

 

ARTICLE III.
EXERCISE OF OPTION

 

3.1                                Person Eligible to Exercise .  During Participant’s lifetime, only Participant may exercise the Option.  After Participant’s death, any exercisable portion of the Option may, prior to the time the Option expires, be exercised by Participant’s Designated Beneficiary as provided in the Plan.

 

3.2                                Partial Exercise .  Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised, in whole or in part, according to the procedures in the Plan at any time prior to the time the Option or portion thereof expires, except that the Option may only be exercised for whole Shares.

 

3.3                                Tax Withholding .

 

(a)                                  The Company has the right and option, but not the obligation, to treat Participant’s failure to provide timely payment in accordance with the Plan of any withholding tax arising in connection with the Option as Participant’s election to satisfy all or any portion of the withholding tax by requesting the Company retain Shares otherwise issuable under the Option.

 

(b)                                  Participant acknowledges that Participant is ultimately liable and responsible for all taxes owed in connection with the Option, regardless of any action the Company or any Subsidiary takes with respect to any tax withholding obligations that arise in connection with the Option.  Neither the Company nor any Subsidiary makes any representation or undertaking regarding the treatment of any tax withholding in connection with the awarding, vesting or exercise of the Option or the subsequent sale of Shares.  The Company and the Subsidiaries do not commit and are under no obligation to structure the Option to reduce or eliminate Participant’s tax liability.

 

ARTICLE IV.
OTHER PROVISIONS

 

4.1                                Adjustments .  Participant acknowledges that the Option is subject to adjustment, modification and termination in certain events as provided in this Agreement and the Plan.

 

4.2                                Notices .  Any notice to be given under the terms of this Agreement to the Company must be in writing and addressed to the Company in care of the Company’s Secretary at the Company’s principal office or the Secretary’s then-current email address or facsimile number.  Any notice to be given under the terms of this Agreement to Participant must be in writing and addressed to Participant (or, if Participant is then deceased, to the person entitled to exercise the Option) at Participant’s last known mailing address, email address or facsimile number in the Company’s personnel files.  By a notice given pursuant to this Section, either party may designate a different address for notices to be given to that party.  Any notice will be deemed duly given when actually received, when sent by email, when sent by

 

A- 2



 

certified mail (return receipt requested) and deposited with postage prepaid in a post office or branch post office regularly maintained by the United States Postal Service, when delivered by a nationally recognized express shipping company or upon receipt of a facsimile transmission confirmation.

 

4.3                                Titles .  Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

 

4.4                                Conformity to Securities Laws .  Participant acknowledges that the Plan, the Grant Notice and this Agreement are intended to conform to the extent necessary with all Applicable Laws and, to the extent Applicable Laws permit, will be deemed amended as necessary to conform to Applicable Laws.

 

4.5                                Successors and Assigns .  The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement will inure to the benefit of the successors and assigns of the Company.  Subject to the restrictions on transfer set forth in the Plan, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.

 

4.6                                Limitations Applicable to Section 16 Persons .  Notwithstanding any other provision of the Plan or this Agreement, if Participant is subject to Section 16 of the Exchange Act, the Plan, the Grant Notice, this Agreement and the Option will be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3) that are requirements for the application of such exemptive rule.  To the extent Applicable Laws permit, this Agreement will be deemed amended as necessary to conform to such applicable exemptive rule.

 

4.7                                Entire Agreement .  The Plan, the Grant Notice and this Agreement (including any exhibit hereto) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof.

 

4.8                                Agreement Severable .  In the event that any provision of the Grant Notice or this Agreement is held illegal or invalid, the provision will be severable from, and the illegality or invalidity of the provision will not be construed to have any effect on, the remaining provisions of the Grant Notice or this Agreement.

 

4.9                                Limitation on Participant’s Rights .  Participation in the Plan confers no rights or interests other than as herein provided.  This Agreement creates only a contractual obligation on the part of the Company as to amounts payable and may not be construed as creating a trust.  Neither the Plan nor any underlying program, in and of itself, has any assets.  Participant will have only the rights of a general unsecured creditor of the Company with respect to amounts credited and benefits payable, if any, with respect to the Option, and rights no greater than the right to receive the Shares as a general unsecured creditor with respect to the Option, as and when exercised pursuant to the terms hereof.

 

4.10                         Not a Contract of Employment .  Nothing in the Plan, the Grant Notice or this Agreement confers upon Participant any right to continue in the employ or service of the Company or any Subsidiary or interferes with or restricts in any way the rights of the Company and its Subsidiaries, which rights are hereby expressly reserved, to discharge or terminate the services of Participant at any time for any reason whatsoever, with or without Cause, except to the extent expressly provided otherwise in a written agreement between the Company or a Subsidiary and Participant.

 

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4.11                         Counterparts .  The Grant Notice may be executed in one or more counterparts, including by way of any electronic signature, subject to Applicable Law, each of which will be deemed an original and all of which together will constitute one instrument.

 

4.12                         Incentive Stock Options .  If the Option is designated as an Incentive Stock Option:

 

(a)                                  Participant acknowledges that to the extent the aggregate fair market value of shares (determined as of the time the option with respect to the shares is granted) with respect to which stock options intended to qualify as “incentive stock options” under Section 422 of the Code, including the Option, are exercisable for the first time by Participant during any calendar year exceeds $100,000 or if for any other reason such stock options do not qualify or cease to qualify for treatment as “incentive stock options” under Section 422 of the Code, such stock options (including the Option) will be treated as non-qualified stock options.  Participant further acknowledges that the rule set forth in the preceding sentence will be applied by taking the Option and other stock options into account in the order in which they were granted, as determined under Section 422(d) of the Code.  Participant also acknowledges that if the Option is exercised more than three (3) months after Participant’s Termination of Service, other than by reason of death or disability, the Option will be taxed as a Non-Qualified Stock Option.

 

(b)                                  Participant will give prompt written notice to the Company of any disposition or other transfer of any Shares acquired under this Agreement if such disposition or other transfer is made (a) within two (2) years from the Grant Date or (b) within one (1) year after the transfer of such Shares to Participant.  Such notice will specify the date of such disposition or other transfer and the amount realized, in cash, other property, assumption of indebtedness or other consideration, by Participant in such disposition or other transfer.

 

* * * * *

 

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Exhibit 10.12

 

TELADOC, INC.
2015 INCENTIVE AWARD PLAN

 

RESTRICTED STOCK GRANT NOTICE

 

Capitalized terms not specifically defined in this Restricted Stock Grant Notice (the “ Grant Notice ”) have the meanings given to them in the 2015 Incentive Award Plan (as amended from time to time, the “ Plan ”) of Teladoc, Inc. (the “ Company ”).

 

The Company has granted to the participant listed below (“ Participant ”) the shares of Restricted Stock described in this Grant Notice (the “ Restricted Shares ”), subject to the terms and conditions of the Plan and the Restricted Stock Agreement attached as Exhibit A (the “ Agreement ”), both of which are incorporated into this Grant Notice by reference.

 

Participant:

 

 

 

 

 

Grant Date:

 

 

 

 

 

Number of Restricted Shares:

 

 

 

 

 

Vesting Commencement Date:

 

 

 

 

 

Vesting Schedule:

 

[To be specified in individual award agreements]

 

By Participant’s signature below, Participant agrees to be bound by the terms of this Grant Notice, the Plan and the Agreement.  Participant has reviewed the Plan, this Grant Notice and the Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant Notice and fully understands all provisions of the Plan, this Grant Notice and the Agreement.  Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan, this Grant Notice or the Agreement.

 

TELADOC, INC.

 

PARTICIPANT

 

 

 

 

 

 

By:

 

 

By:

 

 

 

 

 

 

Print Name:

 

 

Print Name:

 

 

 

 

 

 

Title:

 

 

 

 

 



 

Exhibit A

 

RESTRICTED STOCK AGREEMENT

 

Capitalized terms not specifically defined in this Agreement have the meanings specified in the Grant Notice or, if not defined in the Grant Notice, in the Plan.

 

ARTICLE I.
GENERAL

 

1.1                                Issuance of Restricted Shares .  The Company will issue the Restricted Shares to the Participant effective as of the grant date set forth in the Grant Notice and will cause (a) a stock certificate or certificates representing the Restricted Shares to be registered in Participant’s name or (b) the Restricted Shares to be held in book-entry form.  If a stock certificate is issued, the certificate will be delivered to, and held in accordance with this Agreement by, the Company or its authorized representatives and will bear the restrictive legends required by this Agreement.  If the Restricted Shares are held in book-entry form, then the book-entry will indicate that the Restricted Shares are subject to the restrictions of this Agreement.

 

1.2                                Incorporation of Terms of Plan .  The Restricted Shares are subject to the terms and conditions set forth in this Agreement and the Plan, which is incorporated herein by reference.  In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan will control.

 

ARTICLE II.
VESTING, FORFEITURE AND ESCROW

 

2.1                                Vesting .  The Restricted Shares will become vested Shares (the “ Vested Shares ”) according to the vesting schedule in the Grant Notice except that any fraction of a Share that would otherwise become a Vested Share will be accumulated and will become a Vested Share only when a whole Vested Share has accumulated.

 

2.2                                Forfeiture .  In the event of Participant’s Termination of Service for any reason, Participant will immediately and automatically forfeit to the Company any Shares that are not Vested Shares (the “ Unvested Shares ”) at the time of Participant’s Termination of Service, except as otherwise determined by the Administrator or provided in a binding written agreement between Participant and the Company.  Upon forfeiture of Unvested Shares, the Company will become the legal and beneficial owner of the Unvested Shares and all related interests and Participant will have no further rights with respect to the Unvested Shares.

 

2.3                                Escrow .

 

(a)                                  Unvested Shares will be held by the Company or its authorized representatives until (i) they are forfeited, (ii) they become Vested Shares or (iii) this Agreement is no longer in effect.  By accepting this Award, Participant appoints the Company and its authorized representatives as Participant’s attorney(s)-in-fact to take all actions necessary to effect any transfer of forfeited Unvested Shares (and Retained Distributions (as defined below), if any, paid on such forfeited Unvested Shares) to the Company as may be required pursuant to the Plan or this Agreement and to execute such representations or other documents or assurances as the Company or such representatives deem necessary or advisable in connection with any such transfer.  The Company, or its authorized representative, will not be liable for any good faith act or omission with respect to the holding in escrow or transfer of the Restricted Shares.

 

(b)                                  All cash dividends and other distributions made or declared with respect to

 



 

Unvested Shares (“ Retained Distributions ”) will be held by the Company until the time (if ever) when the Unvested Shares to which such Retained Distributions relate become Vested Shares.  The Company will establish a separate Retained Distribution bookkeeping account (“ Retained Distribution Account ”) for each Unvested Share with respect to which Retained Distributions have been made or declared in cash and credit the Retained Distribution Account (without interest) on the date of payment with the amount of such cash made or declared with respect to the Unvested Share.  Retained Distributions (including any Retained Distribution Account balance) will immediately and automatically be forfeited upon forfeiture of the Unvested Share with respect to which the Retained Distributions were paid or declared.

 

(c)                                   As soon as reasonably practicable following the date on which an Unvested Share becomes a Vested Share, the Company will (i) cause the certificate (or a new certificate without the legend required by this Agreement, if Participant so requests) representing the Share to be delivered to Participant or, if the Share is held in book-entry form, cause the notations indicating the Share is subject to the restrictions of this Agreement to be removed and (ii) pay to Participant the Retained Distributions relating to the Share.

 

2.4                                Rights as Stockholder .  Except as otherwise provided in this Agreement or the Plan, upon issuance of the Restricted Shares by the Company, Participant will have all the rights of a stockholder with respect to the Restricted Shares, including the right to vote the Restricted Shares and to receive dividends or other distributions paid or made with respect to the Restricted Shares.

 

ARTICLE III.
TAXATION AND TAX WITHHOLDING

 

3.1                                Representation .  Participant represents to the Company that Participant has reviewed with Participant’s own tax advisors the tax consequences of the Restricted Shares and the transactions contemplated by the Grant Notice and this Agreement.  Participant is relying solely on such advisors and not on any statements or representations of the Company or any of its agents.

 

3.2                                Section 83(b) Election .  If Participant makes an election under Section 83(b) of the Code with respect to the Restricted Shares, Participant will deliver a copy of the election to the Company promptly after filing the election with the Internal Revenue Service.

 

3.3                                Tax Withholding .

 

(a)                                  The Company has the right and option, but not the obligation, to treat Participant’s failure to provide timely payment in accordance with the Plan of any withholding tax arising in connection with the Restricted Shares as Participant’s election to satisfy all or any portion of the withholding tax by requesting the Company retain Shares otherwise deliverable under the Award.

 

(b)                                  Participant acknowledges that Participant is ultimately liable and responsible for all taxes owed in connection with the Restricted Shares, regardless of any action the Company or any Subsidiary takes with respect to any tax withholding obligations that arise in connection with the Restricted Shares.  Neither the Company nor any Subsidiary makes any representation or undertaking regarding the treatment of any tax withholding in connection with the awarding, vesting or payment of the Restricted Shares or the subsequent sale of the Restricted Shares.  The Company and the Subsidiaries do not commit and are under no obligation to structure this Award to reduce or eliminate Participant’s tax liability.

 

A- 2



 

ARTICLE IV.
RESTRICTIVE LEGENDS AND TRANSFERABILITY

 

4.1                                Legends .  Any certificate representing a Restricted Share will bear the following legend until the Restricted Share becomes a Vested Share:

 

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO FORFEITURE IN FAVOR OF THE COMPANY AND MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A RESTRICTED STOCK AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.

 

4.2                                Transferability .  The Restricted Shares and any Retained Distributions are subject to the restrictions on transfer in the Plan and may not be sold, assigned or transferred in any manner unless and until they become Vested Shares.  Any attempted transfer or disposition of Unvested Shares or related Retained Distributions prior to the time the Unvested Shares become Vested Shares will be null and void.  The Company will not be required to (a) transfer on its books any Restricted Share that has been sold or otherwise transferred in violation of this Agreement or (b)  treat as owner of such Restricted Share or accord the right to vote or pay dividends to any purchaser or other transferee to whom such Restricted Share has been so transferred.  The Company may issue appropriate “stop transfer” instructions to its transfer agent, if any, or make appropriate notations to the same effect in its records.

 

ARTICLE V.
OTHER PROVISIONS

 

5.1                                Adjustments .  Participant acknowledges that the Restricted Shares are subject to adjustment, modification and termination in certain events as provided in this Agreement and the Plan.

 

5.2                                Notices .  Any notice to be given under the terms of this Agreement to the Company must be in writing and addressed to the Company in care of the Company’s Secretary at the Company’s principal office or the Secretary’s then-current email address or facsimile number.  Any notice to be given under the terms of this Agreement to Participant must be in writing and addressed to Participant at Participant’s last known mailing address, email address or facsimile number in the Company’s personnel files.  By a notice given pursuant to this Section, either party may designate a different address for notices to be given to that party.  Any notice will be deemed duly given when actually received, when sent by email, when sent by certified mail (return receipt requested) and deposited with postage prepaid in a post office or branch post office regularly maintained by the United States Postal Service, when delivered by a nationally recognized express shipping company or upon receipt of a facsimile transmission confirmation.

 

5.3                                Titles .  Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

 

5.4                                Conformity to Securities Laws .  Participant acknowledges that the Plan, the Grant Notice and this Agreement are intended to conform to the extent necessary with all Applicable Laws and, to the extent Applicable Laws permit, will be deemed amended as necessary to conform to Applicable Laws.

 

5.5                                Successors and Assigns .  The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement will inure to the benefit of the successors and assigns of the Company.  Subject to the restrictions on transfer set forth in this Agreement or the

 

A- 3



 

Plan, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.

 

5.6                                Limitations Applicable to Section 16 Persons .  Notwithstanding any other provision of the Plan or this Agreement, if Participant is subject to Section 16 of the Exchange Act, the Plan, the Grant Notice, this Agreement and the Restricted Shares will be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3) that are requirements for the application of such exemptive rule.  To the extent Applicable Laws permit, this Agreement will be deemed amended as necessary to conform to such applicable exemptive rule.

 

5.7                                Entire Agreement .  The Plan, the Grant Notice and this Agreement (including any exhibit hereto) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof.

 

5.8                                Agreement Severable .  In the event that any provision of the Grant Notice or this Agreement is held illegal or invalid, the provision will be severable from, and the illegality or invalidity of the provision will not be construed to have any effect on, the remaining provisions of the Grant Notice or this Agreement.

 

5.9                                Limitation on Participant’s Rights .  Participation in the Plan confers no rights or interests other than as herein provided.  This Agreement creates only a contractual obligation on the part of the Company as to amounts payable and may not be construed as creating a trust.  Neither the Plan nor any underlying program, in and of itself, has any assets.  Participant will have only the rights of a general unsecured creditor of the Company with respect to amounts credited and benefits payable, if any, with respect to the Award.

 

5.10                         Not a Contract of Employment .  Nothing in the Plan, the Grant Notice or this Agreement confers upon Participant any right to continue in the employ or service of the Company or any Subsidiary or interferes with or restricts in any way the rights of the Company and its Subsidiaries, which rights are hereby expressly reserved, to discharge or terminate the services of Participant at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written agreement between the Company or a Subsidiary and Participant.

 

5.11                         Counterparts .  The Grant Notice may be executed in one or more counterparts, including by way of any electronic signature, subject to Applicable Law, each of which will be deemed an original and all of which together will constitute one instrument.

 

* * * * *

 

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Exhibit 10.13

 

TELADOC, INC.
2015 INCENTIVE AWARD PLAN

 

RESTRICTED STOCK UNIT GRANT NOTICE

 

Capitalized terms not specifically defined in this Restricted Stock Unit Grant Notice (the “ Grant Notice ”) have the meanings given to them in the 2015 Incentive Award Plan (as amended from time to time, the “ Plan ”) of Teladoc, Inc. (the “ Company ”).

 

The Company hereby grants to the participant listed below (“ Participant ”) the Restricted Stock Units described in this Grant Notice (the “ RSUs ”), subject to the terms and conditions of the Plan and the Restricted Stock Unit Agreement attached hereto as Exhibit A (the “ Agreement ”), both of which are incorporated into this Grant Notice by reference.

 

Participant:

 

 

 

 

 

Grant Date:

 

 

 

 

 

Number of RSUs:

 

 

 

 

 

Vesting Commencement Date:

 

 

 

 

 

Vesting Schedule:

 

[To be specified in individual award agreements]

 

By Participant’s signature below, Participant agrees to be bound by the terms of this Grant Notice, the Plan and the Agreement.  Participant has reviewed the Plan, this Grant Notice and the Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant Notice and fully understands all provisions of the Plan, this Grant Notice and the Agreement.  Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan, this Grant Notice or the Agreement.

 

TELADOC, INC.

 

PARTICIPANT

 

 

 

 

 

 

By:

 

 

By:

 

 

 

 

 

 

Print Name:

 

 

Print Name:

 

 

 

 

 

 

Title:

 

 

 

 

 



 

Exhibit A

 

RESTRICTED STOCK UNIT AGREEMENT

 

Capitalized terms not specifically defined in this Agreement have the meanings specified in the Grant Notice or, if not defined in the Grant Notice, in the Plan.

 

ARTICLE I.
GENERAL

 

1.1                                Award of RSUs and Dividend Equivalents .

 

(a)                                  The Company has granted the RSUs to Participant effective as of the grant date set forth in the Grant Notice (the “ Grant Date ”).  Each RSU represents the right to receive one Share or, at the option of the Company, an amount of cash, in either case, as set forth in this Agreement.  Participant will have no right to the distribution of any Shares or payment of any cash until the time (if ever) the RSUs have vested.

 

(b)                                  The Company hereby grants to Participant, with respect to each RSU, a Dividend Equivalent for ordinary cash dividends paid to substantially all holders of outstanding Shares with a record date after the Grant Date and prior to the date the applicable RSU is settled, forfeited or otherwise expires.  Each Dividend Equivalent entitles Participant to receive the equivalent value of any such ordinary cash dividends paid on a single Share.  The Company will establish a separate Dividend Equivalent bookkeeping account (a “ Dividend Equivalent Account ”) for each Dividend Equivalent and credit the Dividend Equivalent Account (without interest) on the applicable dividend payment date with the amount of any such cash paid.

 

1.2                                Incorporation of Terms of Plan .  The RSUs are subject to the terms and conditions set forth in this Agreement and the Plan, which is incorporated herein by reference.  In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan will control.

 

1.3                                Unsecured Promise .  The RSUs and Dividend Equivalents will at all times prior to settlement represent an unsecured Company obligation payable only from the Company’s general assets.

 

ARTICLE II.
VESTING; FORFEITURE AND SETTLEMENT

 

2.1                                Vesting; Forfeiture .  The RSUs will vest according to the vesting schedule in the Grant Notice except that any fraction of an RSU that would otherwise be vested will be accumulated and will vest only when a whole RSU has accumulated.  In the event of Participant’s Termination of Service for any reason, all unvested RSUs will immediately and automatically be cancelled and forfeited, except as otherwise determined by the Administrator or provided in a binding written agreement between Participant and the Company.  Dividend Equivalents (including any Dividend Equivalent Account balance) will vest or be forfeited, as applicable, upon the vesting or forfeiture of the RSU with respect to which the Dividend Equivalent (including the Dividend Equivalent Account) relates.

 

2.2                                Settlement .

 

(a)                                  RSUs and Dividend Equivalents (including any Dividend Equivalent Account balance) will be paid in Shares or cash at the Company’s option as soon as administratively practicable after the vesting of the applicable RSU, but in no event more than sixty (60) days after the RSU’s vesting date.  Notwithstanding the foregoing, the Company may delay any payment under this Agreement that the Company reasonably determines would violate Applicable Law until the earliest date the Company

 



 

reasonably determines the making of the payment will not cause such a violation (in accordance with Treasury Regulation Section 1.409A-2(b)(7)(ii)), provided the Company reasonably believes the delay will not result in the imposition of excise taxes under Section 409A.

 

(b)                                  If an RSU is paid in cash, the amount of cash paid with respect to the RSU will equal the Fair Market Value of a Share on the day immediately preceding the payment date.  If a Dividend Equivalent is paid in Shares, the number of Shares paid with respect to the Dividend Equivalent will equal the quotient, rounded down to the nearest whole Share, of the Dividend Equivalent Account balance divided by the Fair Market Value of a Share on the day immediately preceding the payment date.

 

ARTICLE III.
TAXATION AND TAX WITHHOLDING

 

3.1                                Representation .  Participant represents to the Company that Participant has reviewed with Participant’s own tax advisors the tax consequences of this Award and the transactions contemplated by the Grant Notice and this Agreement.  Participant is relying solely on such advisors and not on any statements or representations of the Company or any of its agents.

 

3.2                                Tax Withholding .

 

(a)                                  The Company has the right and option, but not the obligation, to treat Participant’s failure to provide timely payment in accordance with the Plan of any withholding tax arising in connection with the RSUs or Dividend Equivalents as Participant’s election to satisfy all or any portion of the withholding tax by requesting the Company retain Shares otherwise issuable under the Award.

 

(b)                                  Participant acknowledges that Participant is ultimately liable and responsible for all taxes owed in connection with the RSUs and the Dividend Equivalents, regardless of any action the Company or any Subsidiary takes with respect to any tax withholding obligations that arise in connection with the RSUs or Dividend Equivalents.  Neither the Company nor any Subsidiary makes any representation or undertaking regarding the treatment of any tax withholding in connection with the awarding, vesting or payment of the RSUs or the Dividend Equivalents or the subsequent sale of Shares.  The Company and the Subsidiaries do not commit and are under no obligation to structure the RSUs or Dividend Equivalents to reduce or eliminate Participant’s tax liability.

 

ARTICLE IV.
OTHER PROVISIONS

 

4.1                                Adjustments .  Participant acknowledges that the RSUs, the Shares subject to the RSUs and the Dividend Equivalents are subject to adjustment, modification and termination in certain events as provided in this Agreement and the Plan.

 

4.2                                Notices .  Any notice to be given under the terms of this Agreement to the Company must be in writing and addressed to the Company in care of the Company’s Secretary at the Company’s principal office or the Secretary’s then-current email address or facsimile number.  Any notice to be given under the terms of this Agreement to Participant must be in writing and addressed to Participant at Participant’s last known mailing address, email address or facsimile number in the Company’s personnel files.  By a notice given pursuant to this Section, either party may designate a different address for notices to be given to that party.  Any notice will be deemed duly given when actually received, when sent by email, when sent by certified mail (return receipt requested) and deposited with postage prepaid in a post office or branch post office regularly maintained by the United States Postal Service, when delivered by a nationally recognized express shipping company or upon receipt of a facsimile transmission confirmation.

 

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4.3                                Titles .  Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

 

4.4                                Conformity to Securities Laws .  Participant acknowledges that the Plan, the Grant Notice and this Agreement are intended to conform to the extent necessary with all Applicable Laws and, to the extent Applicable Laws permit, will be deemed amended as necessary to conform to Applicable Laws.

 

4.5                                Successors and Assigns .  The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement will inure to the benefit of the successors and assigns of the Company.  Subject to the restrictions on transfer set forth in the Plan, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.

 

4.6                                Limitations Applicable to Section 16 Persons .  Notwithstanding any other provision of the Plan or this Agreement, if Participant is subject to Section 16 of the Exchange Act, the Plan, the Grant Notice, this Agreement, the RSUs and the Dividend Equivalents will be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3) that are requirements for the application of such exemptive rule.  To the extent Applicable Laws permit, this Agreement will be deemed amended as necessary to conform to such applicable exemptive rule.

 

4.7                                Entire Agreement .  The Plan, the Grant Notice and this Agreement (including any exhibit hereto) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof.

 

4.8                                Agreement Severable .  In the event that any provision of the Grant Notice or this Agreement is held illegal or invalid, the provision will be severable from, and the illegality or invalidity of the provision will not be construed to have any effect on, the remaining provisions of the Grant Notice or this Agreement.

 

4.9                                Limitation on Participant’s Rights .  Participation in the Plan confers no rights or interests other than as herein provided.  This Agreement creates only a contractual obligation on the part of the Company as to amounts payable and may not be construed as creating a trust.  Neither the Plan nor any underlying program, in and of itself, has any assets.  Participant will have only the rights of a general unsecured creditor of the Company with respect to amounts credited and benefits payable, if any, with respect to the RSUs and Dividend Equivalents, and rights no greater than the right to receive cash or the Shares as a general unsecured creditor with respect to the RSUs and Dividend Equivalents, as and when settled pursuant to the terms of this Agreement.

 

4.10                         Not a Contract of Employment .  Nothing in the Plan, the Grant Notice or this Agreement confers upon Participant any right to continue in the employ or service of the Company or any Subsidiary or interferes with or restricts in any way the rights of the Company and its Subsidiaries, which rights are hereby expressly reserved, to discharge or terminate the services of Participant at any time for any reason whatsoever, with or without Cause, except to the extent expressly provided otherwise in a written agreement between the Company or a Subsidiary and Participant.

 

4.11                         Counterparts .  The Grant Notice may be executed in one or more counterparts, including by way of any electronic signature, subject to Applicable Law, each of which will be deemed an original and all of which together will constitute one instrument.

 

* * * * *

 

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Exhibit 10.14

 

TELADOC, INC.
2015 EMPLOYEE STOCK PURCHASE PLAN

 

ARTICLE I.
PURPOSE

 

The purposes of this Teladoc, Inc. 2015 Employee Stock Purchase Plan (as it may be amended or restated from time to time, the “ Plan ”) are to assist Eligible Employees of Teladoc, Inc., a Delaware corporation (the “ Company ”), and its Designated Subsidiaries in acquiring a stock ownership interest in the Company pursuant to a plan which is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423(b) of the Code, and to help Eligible Employees provide for their future security and to encourage them to remain in the employment of the Company and its Designated Subsidiaries.

 

ARTICLE II.
DEFINITIONS AND CONSTRUCTION

 

Wherever the following terms are used in the Plan they shall have the meanings specified below, unless the context clearly indicates otherwise. The singular pronoun shall include the plural where the context so indicates. Masculine, feminine and neuter pronouns are used interchangeably and each comprehends the others.

 

2.1                                Administrator ” shall mean the entity that conducts the general administration of the Plan as provided in Article XI. The term “Administrator” shall refer to the Committee unless the Board has assumed the authority for administration of the Plan as provided in Article XI.

 

2.2                                Applicable Laws ” shall mean the requirements relating to the administration of equity incentive plans under U.S. federal and state securities, tax and other applicable laws, rules and regulations, the applicable rules of any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws and rules of any foreign country or other jurisdiction where rights under this Plan are granted.

 

2.3                                Board ” shall mean the Board of Directors of the Company.

 

2.4                                Change in Control ” shall mean and include each of the following:

 

(a)                                  A transaction or series of transactions (other than an offering of Common Stock to the general public through a registration statement filed with the Securities and Exchange Commission or a transaction or series of transactions that meets the requirements of clauses (i) and (ii) of paragraph (c) below) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company, any of its Subsidiaries, an employee benefit plan maintained by the Company or any of its Subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of

 



 

the Company possessing more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or

 

(b)                                  During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new director(s) (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in Section 2.4(a) or 2.4(c)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or

 

(c)                                   The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:

 

(i)                                      which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “ Successor Entity ”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and

 

(ii)                                   after which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity; provided , however , that no person or group shall be treated for purposes of this Section 2.4(c)(ii) as beneficially owning 50% or more of the combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction.

 

The Administrator shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change in Control has occurred pursuant to the above definition, the date of the occurrence of such Change in Control and any incidental matters relating thereto.

 

2.5                                Code ” shall mean the Internal Revenue Code of 1986, as amended from time to time, together with the regulations and official guidance promulgated thereunder.

 

2.6                                Common Stock ” shall mean the common stock of the Company and such other securities of the Company that may be substituted therefor pursuant to Article VIII.

 

2.7                                Company ” shall mean Teladoc, Inc., a Delaware corporation.

 

2.8                                Compensation ” of an Eligible Employee shall mean the gross base compensation received by such Eligible Employee as compensation for services to the Company

 

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or any Designated Subsidiary, including overtime payments and excluding sales commissions, incentive compensation, bonuses, expense reimbursements, fringe benefits and other special payments.

 

2.9                                Designated Subsidiary ” shall mean any Subsidiary designated by the Administrator in accordance with Section 11.3(b).

 

2.10                         Effectiv e Date ” shall mean the day prior to the Public Trading Date.

 

2.11                         Eligible Employee ” shall mean an Employee: (a) who does not, immediately after any rights under this Plan are granted, own (directly or through attribution) stock possessing 5% or more of the total combined voting power or value of all classes of Common Stock and other stock of the Company, a Parent or a Subsidiary (as determined under Section 423(b)(3) of the Code); (b) whose customary employment is for more than twenty hours per week; and (c) whose customary employment is for more than five months in any calendar year. For purposes of the foregoing clause (a), the rules of Section 424(d) of the Code with regard to the attribution of stock ownership shall apply in determining the stock ownership of an individual, and stock that an Employee may purchase under outstanding options shall be treated as stock owned by the Employee; provided , however , that the Administrator may provide in an Offering Document that an Employee shall not be eligible to participate in an Offering Period if: (i) such Employee is a highly compensated employee within the meaning of Section 423(b)(4)(D) of the Code; and/or (ii) such Employee has not met a service requirement designated by the Administrator pursuant to Section 423(b)(4)(A) of the Code (which service requirement may not exceed two years), and/or (iii) such Employee is a citizen or resident of a foreign jurisdiction and the grant of a right to purchase Common Stock under the Plan to such Employee would be prohibited under the laws of such foreign jurisdiction or the grant of a right to purchase Common Stock under the Plan to such Employee in compliance with the laws of such foreign jurisdiction would cause the Plan to violate the requirements of Section 423 of the Code, as determined by the Administrator in its sole discretion; provided , further , that any exclusion in clauses (i), (ii) or (iii) shall be applied in an identical manner under each Offering Period to all Employees, in accordance with Treasury Regulation Section 1.423-2(e).

 

2.12                         Employee ” shall mean any officer or other employee (as defined in accordance with Section 3401(c) of the Code) of the Company or any Designated Subsidiary. “Employee” shall not include any director of the Company or a Designated Subsidiary who does not render services to the Company or a Designated Subsidiary as an employee within the meaning of Section 3401(c) of the Code. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Company or Designated Subsidiary and meeting the requirements of Treasury Regulation Section 1.421-1(h)(2).  Where the period of leave exceeds three (3) months and the individual’s right to reemployment is not guaranteed either by statute or by contract, the employment relationship shall be deemed to have terminated on the first day immediately following such three (3)-month period.

 

2.13                         Enrollment Date ” shall mean the first Trading Day of each Offering Period.

 

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2.14                         Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended from time to time.

 

2.15                         Fair Market Value ” means, as of any date, the value of Common Stock determined as follows:  (i) if the Common Stock is listed on any established stock exchange, its Fair Market Value will be the closing sales price for such Common Stock as quoted on such exchange for such date, or if no sale occurred on such date, the last day preceding such date during which a sale occurred, as reported in The Wall Street Journal or another source the Administrator deems reliable; (ii) if the Common Stock is not traded on a stock exchange but is quoted on a national market or other quotation system, the closing sales price on such date, or if no sales occurred on such date, then on the last date preceding such date during which a sale occurred, as reported in The Wall Street Journal or another source the Administrator deems reliable; or (iii) without an established market for the Common Stock, the Administrator will determine the Fair Market Value in its discretion.

 

2.16                         Offering Document ” shall have the meaning given to such term in Section 4.1.

 

2.17                         Offering Period ” shall have the meaning given to such term in Section 4.1.

 

2.18                         Parent ” shall mean any corporation, other than the Company, in an unbroken chain of corporations ending with the Company if, at the time of the determination, each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

2.19                         Participant ” shall mean any Eligible Employee who has executed a subscription agreement and been granted rights to purchase Common Stock pursuant to the Plan.

 

2.20                         Plan ” shall mean this Teladoc, Inc. 2015 Employee Stock Purchase Plan, as it may be amended from time to time.

 

2.21                         Public Trading Date ” shall mean the first date upon which Common Stock is listed (or approved for listing) upon notice of issuance on any securities exchange or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system.

 

2.22                         Purchase Date ” shall mean the last Trading Day of each Offering Period.

 

2.23                         Purchase Price ” shall mean the purchase price designated by the Administrator in the applicable Offering Document (which purchase price shall not be less than 85% of the Fair Market Value of a Share on the Enrollment Date or on the Purchase Date, whichever is lower); provided , however , that, in the event no purchase price is designated by the Administrator in the applicable Offering Document, the purchase price for the Offering Periods covered by such Offering Document shall be 85% of the Fair Market Value of a Share on the Enrollment Date or on the Purchase Date, whichever is lower; provided , further , that the Purchase Price may be adjusted by the Administrator pursuant to Article VIII and shall not be less than the par value of a Share.

 

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2.24                         Securities Act ” shall mean the Securities Act of 1933, as amended from time to time.

 

2.25                         Share ” shall mean a share of Common Stock.

 

2.26                         Subsidiary ” shall mean any corporation, other than the Company, in an unbroken chain of corporations beginning with the Company if, at the time of the determination, each of the corporations other than the last corporation in an unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain; provided , however, that a limited liability company or partnership may be treated as a Subsidiary to the extent either (a) such entity is treated as a disregarded entity under Treasury Regulation Section 301.7701-3(a) by reason of the Company or any other Subsidiary that is a corporation being the sole owner of such entity, or (b) such entity elects to be classified as a corporation under Treasury Regulation Section 301.7701-3(a) and such entity would otherwise qualify as a Subsidiary.

 

2.27                         Trading Day ” shall mean a day on which national stock exchanges in the United States are open for trading.

 

ARTICLE III.
SHARES SUBJECT TO THE PLAN

 

3.1                                Number of Shares . Subject to Article VIII, the aggregate number of Shares that may be issued pursuant to rights granted under the Plan shall be 364,407 Shares.  In addition to the foregoing, subject to Article VIII, on the first day of each calendar year beginning on January 1, 2016 and ending on and including January 1, 2025, the number of Shares available for issuance under the Plan shall be increased by that number of Shares equal to the least of (a) 93,617 Shares, (b) 0.25% of the Shares outstanding on the final day of the immediately preceding calendar year and (c) such smaller number of Shares as determined by the Board. If any right granted under the Plan shall for any reason terminate without having been exercised, the Common Stock not purchased under such right shall again become available for issuance under the Plan.

 

3.2                                Stock Distributed . Any Common Stock distributed pursuant to the Plan may consist, in whole or in part, of authorized and unissued Common Stock, treasury stock or Common Stock purchased on the open market.

 

ARTICLE IV.
OFFERING PERIODS; OFFERING DOCUMENTS

 

4.1                                Offering Periods . The Administrator may from time to time grant or provide for the grant of rights to purchase Common Stock under the Plan to Eligible Employees during one or more periods (each, an “ Offering Period ”) selected by the Administrator. The terms and conditions applicable to each Offering Period shall be set forth in an “ Offering Document ” adopted by the Administrator, which Offering Document shall be in such form and shall contain such terms and conditions as the Administrator shall deem appropriate and shall be incorporated by reference into and made part of the Plan and shall be attached hereto as part of the Plan. The provisions of separate Offering Periods under the Plan need not be identical.

 

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4.2                                Offering Documents . Each Offering Document with respect to an Offering Period shall specify (through incorporation of the provisions of this Plan by reference or otherwise):

 

(a)                                  the length of the Offering Period, which period shall not exceed twenty-seven months;

 

(b)                                  the maximum number of Shares that may be purchased by any Eligible Employee during such Offering Period, which, in the absence of a contrary designation by the Administrator, shall be 25,000 Shares;

 

(c)                                   such other provisions as the Administrator determines are appropriate, subject to the Plan.

 

ARTICLE V.
ELIGIBILITY AND PARTICIPATION

 

5.1                          Eligibility . Any Eligible Employee who shall be employed by the Company or a Designated Subsidiary on a given Enrollment Date for an Offering Period shall be eligible to participate in the Plan during such Offering Period, subject to the requirements of this Article V and the limitations imposed by Section 423(b) of the Code.

 

5.2                          Enrollment in Plan .

 

(a)                                  Except as otherwise set forth in an Offering Document or determined by the Administrator, an Eligible Employee may become a Participant in the Plan for an Offering Period by delivering a subscription agreement to the Company by such time prior to the Enrollment Date for such Offering Period (or such other date specified in the Offering Document) designated by the Administrator and in such form as the Company provides.

 

(b)                                  Each subscription agreement shall designate a whole percentage of such Eligible Employee’s Compensation to be withheld by the Company or the Designated Subsidiary employing such Eligible Employee on each payday during the Offering Period as payroll deductions under the Plan. An Eligible Employee may designate any whole percentage of Compensation that is not less than 1% and not more than the maximum percentage specified by the Administrator in the applicable Offering Document (which percentage shall be 25% in the absence of any such designation) as payroll deductions. The payroll deductions made for each Participant shall be credited to an account for such Participant under the Plan and shall be deposited with the general funds of the Company.

 

(c)                                   A Participant may increase or decrease the percentage of Compensation designated in his or her subscription agreement, subject to the limits of this Section 5.2, or may suspend his or her payroll deductions, at any time during an Offering Period; provided , however , that the Administrator may limit the number of changes a Participant may make to his or her payroll deduction elections during each Offering Period in the applicable Offering Document (and in the absence of any specific designation by the Administrator, a Participant shall be allowed one change to his or her payroll deduction elections during each Offering Period). Any such change or suspension of payroll deductions shall be effective with the first full payroll period following five business days after the Company’s receipt of the new subscription

 

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agreement (or such shorter or longer period as may be specified by the Administrator in the applicable Offering Document). In the event a Participant suspends his or her payroll deductions, such Participant’s cumulative payroll deductions prior to the suspension shall remain in his or her account and shall be applied to the purchase of Shares on the next occurring Purchase Date and shall not be paid to such Participant unless he or she withdraws from participation in the Plan pursuant to Article VII.

 

(d)                                  Except as otherwise set forth in an Offering Document or determined by the Administrator, a Participant may participate in the Plan only by means of payroll deduction and may not make contributions by lump sum payment for any Offering Period.

 

5.3                                Payroll Deductions . Except as otherwise provided in the applicable Offering Document, payroll deductions for a Participant shall commence on the first payroll following the Enrollment Date and shall end on the last payroll in the Offering Period to which the Participant’s authorization is applicable, unless sooner terminated by the Participant as provided in Article VII or suspended by the Participant or the Administrator as provided in Section 5.2 and Section 5.6, respectively.

 

5.4                                Effect of Enrollment . A Participant’s completion of a subscription agreement will enroll such Participant in the Plan for each subsequent Offering Period on the terms contained therein until the Participant either submits a new subscription agreement, withdraws from participation under the Plan as provided in Article VII or ceases to be an Eligible Employee.

 

5.5                                Limitation on Purchase of Common Stock . An Eligible Employee may be granted rights under the Plan only if such rights, together with any other rights granted to such Eligible Employee under “employee stock purchase plans” of the Company, any Parent or any Subsidiary, as specified by Section 423(b)(8) of the Code, do not permit such employee’s rights to purchase stock of the Company or any Parent or Subsidiary to accrue at a rate that exceeds $25,000 of the fair market value of such stock (determined as of the first day of the Offering Period during which such rights are granted) for each calendar year in which such rights are outstanding at any time. This limitation shall be applied in accordance with Section 423(b)(8) of the Code.

 

5.6                                Suspension of Payroll Deductions . Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 5.5 or the other limitations set forth in this Plan, a Participant’s payroll deductions may be suspended by the Administrator at any time during an Offering Period. The balance of the amount credited to the account of each Participant that has not been applied to the purchase of Shares by reason of Section 423(b)(8) of the Code, Section 5.5 or the other limitations set forth in this Plan shall be paid to such Participant in one lump sum in cash as soon as reasonably practicable after the Purchase Date.

 

5.7                                Foreign Employees . In order to facilitate participation in the Plan, the Administrator may provide for such special terms applicable to Participants who are citizens or residents of a foreign jurisdiction, or who are employed by a Designated Subsidiary outside of the United States, as the Administrator may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Such special terms may not be more favorable than the terms of rights granted under the Plan to Eligible Employees who are residents of the

 

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United States. Moreover, the Administrator may approve such supplements to, or amendments, restatements or alternative versions of, this Plan as it may consider necessary or appropriate for such purposes without thereby affecting the terms of this Plan as in effect for any other purpose. No such special terms, supplements, amendments or restatements shall include any provisions that are inconsistent with the terms of this Plan as then in effect unless this Plan could have been amended to eliminate such inconsistency without further approval by the stockholders of the Company.

 

5.8                                Leave of Absence . During leaves of absence approved by the Company meeting the requirements of Treasury Regulation Section 1.421-1(h)(2) under the Code, a Participant may continue participation in the Plan by making cash payments to the Company on his or her normal payday equal to his or her authorized payroll deduction.

 

ARTICLE VI.
GRANT AND EXERCISE OF RIGHTS

 

6.1                                Grant of Rights . On the Enrollment Date of each Offering Period, each Eligible Employee participating in such Offering Period shall be granted a right to purchase the maximum number of Shares specified under Section 4.2, subject to the limits in Section 5.5, and shall have the right to buy, on each Purchase Date during such Offering Period (at the applicable Purchase Price), such number of whole Shares as is determined by dividing (a) such Participant’s payroll deductions accumulated prior to such Purchase Date and retained in the Participant’s account as of the Purchase Date, by (b) the applicable Purchase Price (rounded down to the nearest Share). The right shall expire on the last day of the Offering Period.

 

6.2                                Exercise of Rights . On each Purchase Date, each Participant’s accumulated payroll deductions and any other additional payments specifically provided for in the applicable Offering Document will be applied to the purchase of whole Shares, up to the maximum number of Shares permitted pursuant to the terms of the Plan and the applicable Offering Document, at the Purchase Price. No fractional Shares shall be issued upon the exercise of rights granted under the Plan, unless the Offering Document specifically provides otherwise. Any cash in lieu of fractional Shares remaining after the purchase of whole Shares upon exercise of a purchase right will be credited to a Participant’s account and carried forward and applied toward the purchase of whole Shares for the next following Offering Period. Shares issued pursuant to the Plan may be evidenced in such manner as the Administrator may determine and may be issued in certificated form or issued pursuant to book-entry procedures.

 

6.3                                Pro Rata Allocation of Shares . If the Administrator determines that, on a given Purchase Date, the number of Shares with respect to which rights are to be exercised may exceed (a) the number of Shares that were available for issuance under the Plan on the Enrollment Date of the applicable Offering Period, or (b) the number of Shares available for issuance under the Plan on such Purchase Date, the Administrator may in its sole discretion provide that the Company shall make a pro rata allocation of the Shares available for purchase on such Enrollment Date or Purchase Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all Participants for whom rights to purchase Common Stock are to be exercised pursuant to this Article VI on such Purchase Date, and shall either (i) continue all Offering Periods then in effect, or (ii) terminate

 

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any or all Offering Periods then in effect pursuant to Article IX. The Company may make pro rata allocation of the Shares available on the Enrollment Date of any applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional Shares for issuance under the Plan by the Company’s stockholders subsequent to such Enrollment Date. The balance of the amount credited to the account of each Participant that has not been applied to the purchase of Shares shall be paid to such Participant in one lump sum in cash as soon as reasonably practicable after the Purchase Date.

 

6.4                                Withholding . At the time a Participant’s rights under the Plan are exercised, in whole or in part, or at the time some or all of the Common Stock issued under the Plan is disposed of, the Participant must make adequate provision for the Company’s federal, state, or other tax withholding obligations, if any, that arise upon the exercise of the right or the disposition of the Common Stock. At any time, the Company may, but shall not be obligated to, withhold from the Participant’s compensation the amount necessary for the Company to meet applicable withholding obligations.

 

6.5                          Conditions to Issuance of Common Stock . The Company shall not be required to issue or deliver any certificate or certificates for, or make any book entries evidencing, Shares purchased upon the exercise of rights under the Plan prior to fulfillment of all of the following conditions:

 

(a)                                  The admission of such Shares to listing on all stock exchanges, if any, on which the Common Stock is then listed; and

 

(b)                                  The completion of any registration or other qualification of such Shares under any state or federal law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, that the Administrator shall, in its absolute discretion, deem necessary or advisable; and

 

(c)                                   The obtaining of any approval or other clearance from any state or federal governmental agency that the Administrator shall, in its absolute discretion, determine to be necessary or advisable; and

 

(d)                                  The payment to the Company of all amounts that it is required to withhold under federal, state or local law upon exercise of the rights, if any; and

 

(e)                                   The lapse of such reasonable period of time following the exercise of the rights as the Administrator may from time to time establish for reasons of administrative convenience.

 

ARTICLE VII.
WITHDRAWAL; CESSATION OF ELIGIBILITY

 

7.1                                Withdrawal . A Participant may withdraw all but not less than all of the payroll deductions credited to his or her account and not yet used to exercise his or her rights under the Plan at any time by giving written notice to the Company in a form acceptable to the Company no later than one week prior to the end of the Offering Period. All of the Participant’s payroll deductions credited to his or her account during an Offering Period shall be paid to such Participant as soon as reasonably practicable after receipt of notice of withdrawal and such

 

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Participant’s rights for the Offering Period shall be automatically terminated, and no further payroll deductions for the purchase of Shares shall be made for such Offering Period. If a Participant withdraws from an Offering Period, payroll deductions shall not resume at the beginning of the next Offering Period unless the Participant delivers to the Company a new subscription agreement.

 

7.2                                Future Participation . A Participant’s withdrawal from an Offering Period shall not have any effect upon his or her eligibility to participate in any similar plan that may hereafter be adopted by the Company or a Designated Subsidiary or in subsequent Offering Periods that commence after the termination of the Offering Period from which the Participant withdraws.

 

7.3                                Cessation of Eligibility . Upon a Participant’s ceasing to be an Eligible Employee for any reason, he or she shall be deemed to have elected to withdraw from the Plan pursuant to this Article VII and the payroll deductions credited to such Participant’s account during the Offering Period shall be paid to such Participant or, in the case of his or her death, to the person or persons entitled thereto under Section 12.4, as soon as reasonably practicable, and such Participant’s rights for the Offering Period shall be automatically terminated.

 

ARTICLE VIII.
ADJUSTMENTS UPON CHANGES IN STOCK

 

8.1                                Changes in Capitalization . Subject to Section 8.3, in the event that the Administrator determines that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), Change in Control, reorganization, merger, amalgamation, consolidation, combination, repurchase, recapitalization, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or sale or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event, as determined by the Administrator, affects the Common Stock such that an adjustment is determined by the Administrator to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended by the Company to be made available under the Plan or with respect to any outstanding purchase rights under the Plan, the Administrator shall make equitable adjustments, if any, to reflect such change with respect to (a) the aggregate number and type of Shares (or other securities or property) that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Section 3.1 and the limitations established in each Offering Document pursuant to Section 4.2 on the maximum number of Shares that may be purchased); (b) the class(es) and number of shares and price per Share subject to outstanding rights; and (c) the Purchase Price with respect to any outstanding rights.

 

8.2                                Other Adjustments . Subject to Section 8.3, in the event of any transaction or event described in Section 8.1 or any unusual or nonrecurring transactions or events affecting the Company, any affiliate of the Company, or the financial statements of the Company or any affiliate (including without limitation any Change in Control), or of changes in Applicable Law or accounting principles, the Administrator, in its discretion, and on such terms and conditions as it deems appropriate, is hereby authorized to take any one or more of the following actions whenever the Administrator determines that such action is appropriate in order to prevent the

 

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dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any right under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles:

 

(a)                                  To provide for either (i) termination of any outstanding right in exchange for an amount of cash, if any, equal to the amount that would have been obtained upon the exercise of such right had such right been currently exercisable or (ii) the replacement of such outstanding right with other rights or property selected by the Administrator in its sole discretion;

 

(b)                                  To provide that the outstanding rights under the Plan shall be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar rights covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices;

 

(c)                                   To make adjustments in the number and type of Shares (or other securities or property) subject to outstanding rights under the Plan and/or in the terms and conditions of outstanding rights and rights that may be granted in the future;

 

(d)                                  To provide that Participants’ accumulated payroll deductions may be used to purchase Common Stock prior to the next occurring Purchase Date on such date as the Administrator determines in its sole discretion and the Participants’ rights under the ongoing Offering Period(s) shall be terminated; and

 

(e)                                   To provide that all outstanding rights shall terminate without being exercised.

 

8.3                                No Adjustment Under Certain Circumstances . No adjustment or action described in this Article VIII or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause the Plan to fail to satisfy the requirements of Section 423 of the Code.

 

8.4                                No Other Rights . Except as expressly provided in the Plan, no Participant shall have any rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend, any increase or decrease in the number of shares of stock of any class or any dissolution, liquidation, merger, or consolidation of the Company or any other corporation. Except as expressly provided in the Plan or pursuant to action of the Administrator under the Plan, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of Shares subject to outstanding rights under the Plan or the Purchase Price with respect to any outstanding rights.

 

ARTICLE IX.
AMENDMENT, MODIFICATION AND TERMINATION

 

9.1                                Amendment, Modification and Termination . The Administrator may amend, suspend or terminate the Plan at any time and from time to time; provided , however , that approval of the Company’s stockholders shall be required to amend the Plan to: (a) increase the aggregate number, or change the type, of shares that may be sold pursuant to rights under the Plan under Section 3.1 (other than an adjustment as provided by Article VIII); (b) change the

 

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corporations or classes of corporations whose employees may be granted rights under the Plan; or (c) change the Plan in any manner that would cause the Plan to no longer be an “employee stock purchase plan” within the meaning of Section 423(b) of the Code.

 

9.2                                Certain Changes to Plan . Without stockholder consent and without regard to whether any Participant rights may be considered to have been adversely affected, to the extent permitted by Section 423 of the Code, the Administrator shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld from the Participant’s Compensation during an Offering Period, establish the exchange ratio applicable to amounts withheld from the Participant’s Compensation in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a Participant in a properly completed subscription agreement in order to adjust for delays or mistakes in the Company’s processing of payroll withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond with amounts withheld from the Participant’s Compensation, and establish such other limitations or procedures as the Administrator determines in its sole discretion to be advisable that are consistent with the Plan.

 

9.3                                Actions In the Event of Unfavorable Financial Accounting Consequences . In the event the Administrator determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Administrator may, in its discretion and, to the extent necessary or desirable, modify or amend the Plan to reduce or eliminate such accounting consequence including, but not limited to:

 

(a)                                  altering the Purchase Price for any Offering Period including an Offering Period underway at the time of the change in Purchase Price;

 

(b)                                  shortening any Offering Period so that the Offering Period ends on a new Purchase Date, including an Offering Period underway at the time of the Administrator action; and

 

(c)                                   allocating Shares.

 

Such modifications or amendments shall not require stockholder approval or the consent of any Participant.

 

9.4                                Payments Upon Termination of Plan . Upon termination of the Plan, the balance in each Participant’s Plan account shall be refunded as soon as practicable after such termination, without any interest thereon.

 

ARTICLE X.
TERM OF PLAN

 

The Plan shall be effective on the Effective Date. The effectiveness of the Plan shall be subject to approval of the Plan by the stockholders of the Company within twelve months following the date the Plan is first approved by the Board. No right may be granted under the Plan prior to such stockholder approval. No rights may be granted under the Plan during any period of suspension of the Plan or after termination of the Plan.

 

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ARTICLE XI.
ADMINISTRATION

 

11.1                         Administrator . Unless otherwise determined by the Board, the Administrator of the Plan shall be the Compensation Committee of the Board (or another committee or a subcommittee of the Board to which the Board delegates administration of the Plan) (such committee, the “ Committee ”). The Board may at any time vest in the Board any authority or duties for administration of the Plan.

 

11.2                         Action by the Administrator . Unless otherwise established by the Board or in any charter of the Administrator, a majority of the Administrator shall constitute a quorum. The acts of a majority of the members present at any meeting at which a quorum is present and, subject to Applicable Law and the Bylaws of the Company, acts approved in writing by a majority of the Administrator in lieu of a meeting, shall be deemed the acts of the Administrator. Each member of the Administrator is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other Employee, the Company’s independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan.

 

11.3                         Authority of Administrator. The Administrator shall have the power, subject to, and within the limitations of, the express provisions of the Plan:

 

(a)                                  To determine when and how rights to purchase Common Stock shall be granted and the provisions of each offering of such rights (which need not be identical).

 

(b)                                  To designate from time to time which Subsidiaries of the Company shall be Designated Subsidiaries, which designation may be made without the approval of the stockholders of the Company.

 

(c)                                   To construe and interpret the Plan and rights granted under it, and to establish, amend and revoke rules and regulations for its administration. The Administrator, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.

 

(d)                                  To amend the Plan as provided in Article IX.

 

(e)                                   Generally, to exercise such powers and to perform such acts as the Administrator deems necessary or expedient to promote the best interests of the Company and its Subsidiaries and to carry out the intent that the Plan be treated as an “employee stock purchase plan” within the meaning of Section 423 of the Code.

 

11.4                         Decisions Binding . The Administrator’s interpretation of the Plan, any rights granted pursuant to the Plan, any subscription agreement and all decisions and determinations by the Administrator with respect to the Plan are final, binding, and conclusive on all parties.

 

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ARTICLE XII.
MISCELLANEOUS

 

12.1                         Restriction upon Assignment . A right granted under the Plan shall not be transferable other than by will or the applicable laws of descent and distribution, and is exercisable during the Participant’s lifetime only by the Participant. Except as provided in Section 12.4 hereof, a right under the Plan may not be exercised to any extent except by the Participant. The Company shall not recognize and shall be under no duty to recognize any assignment or alienation of the Participant’s interest in the Plan, the Participant’s rights under the Plan or any rights thereunder.

 

12.2                         Rights as a Stockholder . With respect to Shares subject to a right granted under the Plan, a Participant shall not be deemed to be a stockholder of the Company, and the Participant shall not have any of the rights or privileges of a stockholder, until such Shares have been issued to the Participant or his or her nominee following exercise of the Participant’s rights under the Plan. No adjustments shall be made for dividends (ordinary or extraordinary, whether in cash securities, or other property) or distribution or other rights for which the record date occurs prior to the date of such issuance, except as otherwise expressly provided herein or as determined by the Administrator.

 

12.3                         Interest . No interest shall accrue on the payroll deductions or contributions of a Participant under the Plan.

 

12.4                         Designation of Beneficiary .

 

(a)                                  A Participant may, in the manner determined by the Administrator, file a written designation of a beneficiary who is to receive any Shares and cash, if any, from the Participant’s account under the Plan in the event of such Participant’s death subsequent to a Purchase Date on which the Participant’s rights are exercised but prior to delivery to such Participant of such Shares and cash. In addition, a Participant may file a written designation of a beneficiary who is to receive any cash from the Participant’s account under the Plan in the event of such Participant’s death prior to exercise of the Participant’s rights under the Plan. If the Participant is married and resides in a community property state, a designation of a person other than the Participant’s spouse as his or her beneficiary shall not be effective without the prior written consent of the Participant’s spouse.

 

(b)                                  Such designation of beneficiary may be changed by the Participant at any time by written notice to the Company. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participant’s death, the Company shall deliver such Shares and/or cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such Shares and/or cash to the spouse or to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.

 

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12.5                         Notices . All notices or other communications by a Participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.

 

12.6                         Equal Rights and Privileges . Subject to Section 5.7, all Eligible Employees will have equal rights and privileges under this Plan so that this Plan qualifies as an “employee stock purchase plan” within the meaning of Section 423 of the Code. Subject to Section 5.7, any provision of this Plan that is inconsistent with Section 423 of the Code will, without further act or amendment by the Company, the Board or the Administrator, be reformed to comply with the equal rights and privileges requirement of Section 423 of the Code.

 

12.7                         Use of Funds . All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions.

 

12.8                         Reports . Statements of account shall be given to participating Eligible Employees at least annually, which statements shall set forth the amounts of payroll deductions, the Purchase Price, the number of Shares purchased and the remaining cash balance, if any.

 

12.9                         No Employment Rights . Nothing in the Plan shall be construed to give any person (including any Eligible Employee or Participant) the right to remain in the employ of the Company or any Parent or Subsidiary or affect the right of the Company or any Parent or Subsidiary to terminate the employment of any person (including any Eligible Employee or Participant) at any time, with or without cause.

 

12.10                  Notice of Disposition of Shares . Each Participant shall give prompt notice to the Company of any disposition or other transfer of any Shares purchased upon exercise of a right under the Plan if such disposition or transfer is made: (a) within two years from the Enrollment Date of the Offering Period in which the Shares were purchased or (b) within one year after the Purchase Date on which such Shares were purchased. Such notice shall specify the date of such disposition or other transfer and the amount realized, in cash, other property, assumption of indebtedness or other consideration, by the Participant in such disposition or other transfer.

 

12.11                  Governing Law . The Plan and any agreements hereunder shall be administered, interpreted and enforced under the internal laws of the State of Delaware without regard to conflicts of laws thereof or of any other jurisdiction.

 

12.12                  Electronic Forms . To the extent permitted by Applicable Law and in the discretion of the Administrator, an Eligible Employee may submit any form or notice as set forth herein by means of an electronic form approved by the Administrator. Before the commencement of an Offering Period, the Administrator shall prescribe the time limits within which any such electronic form shall be submitted to the Administrator with respect to such Offering Period in order to be a valid election.

 

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Exhibit 10.19

 

Execution Version

 

AMENDED AND RESTATED

 

EXECUTIVE EMPLOYMENT AGREEMENT

 

THIS AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (this “ Agreement ”) is made as of June 16, 2015, by and between Teladoc, Inc., a Delaware corporation (the “ Company ”), and Jason Gorevic, an individual resident of the State of New York (“ Executive ”) (collectively referred to as the “ Parties ” or individually referred to as a “ Party ”) and will become effective on the closing of the Company’s initial public offering of common stock pursuant to an effective registration statement filed under the Securities Act of 1933, as amended (the “ Effective Date ”).

 

1.                                       Employment; Duties; Full Time Employment . The Company hereby agrees to continue to employ Executive, and Executive hereby accepts continued employment, as the Chief Executive Officer of the Company. In such capacity, Executive shall be responsible for the operations of the Company and shall perform such executive duties and exercise such powers for the Company and its subsidiaries (if any) as the Board of Directors (“ Board ”) of the Company may lawfully assign to or vest in Executive from time to time. During the Term, subject to the requirements of applicable law, the Company shall propose to the Company’s stockholders at each applicable annual meeting the election or re-election, as applicable, of the Executive as a member of the Board and the Executive shall so serve without additional compensation if elected or re-elected. Executive shall promptly resign from the Board in the event his status as Chief Executive Officer terminates for any reason. From and after the Effective Date, Executive shall report directly to and shall be subject to the direction of the Board. Executive covenants and agrees that, at all times during the Term (as defined below), Executive shall devote Executive’s full business time and efforts to Executive’s duties as an employee of the Company and that Executive will not, without the prior consent of the Board, directly or indirectly, engage or participate in any other business or professional activities during the Term, other than non-conflicting personal investments managed on Executive’s personal time and activities for non-profit institutions, provided that such activities do not interfere or conflict with Executive’s obligations hereunder.  Notwithstanding anything in the foregoing to the contrary, beginning 12 months after the Effective Date, Executive may serve on up to two non-conflicting corporate boards with the approval of the Board (which shall not be unreasonably withheld); provided that such service does not materially interfere with Executive’s duties hereunder or violate Section 7 or the Confidentiality Agreement.

 

2.                                       Term . The Company agrees to continue to employ Executive, and Executive agrees to continue to serve the Company, on an at “will” basis, which means that either the Company or Executive may terminate Executive’s employment with the Company at any time, with or without Cause or Good Reason, as provided in Section 5 below. The period commencing with the Effective Date and ending on the effective date of any termination or resignation of Executive’s employment in accordance with the provisions hereof shall constitute the term of this Agreement (the “ Term ”).

 

3.                                       Compensation and Benefits . During the Term, the Company shall provide Executive with the following compensation and benefits:

 

(a)                                  Base Salary . The Company shall pay Executive a base salary (“ Base Salary ”) at the rate of $35,416.67 per month (less applicable deductions and withholdings), payable in periodic payments in accordance with the Company’s normal payroll practices. During the Term,

 



 

Executive’s compensation shall be reviewed by the Board from time to time and at least once every 12 months with the first such review occurring in the first calendar quarter of 2016. The Board may, in its sole discretion, increase or prospectively decrease Executive’s Base Salary; provided, however, that a material reduction in Executive’s Base Salary without Executive’s consent (except where there is a reduction generally applicable to the management team as a whole) shall constitute Good Reason (as defined below). Any increase or decrease in Base Salary (together with the then existing Base Salary) shall serve as the “Base Salary” under this Agreement.

 

(b)                                  Annual Bonus . Executive will be eligible for discretionary annual target bonuses in an amount determined by the Board (or the Compensation Committee thereof) in its sole discretion (each, a “ Target Bonus ”) based on the achievement of annual performance objectives determined, after consultation with the Executive, by the Board (or the Compensation Committee thereof). Additionally, for each year during the Term, the Board (or the Compensation Committee thereof), after consultation with the Executive, will establish “stretch” or “enhanced” performance objectives which, if met, would allow Executive to earn an additional bonus (the “ Stretch Bonus ,” and collectively with the Target Bonus, the “ Bonus ”) in excess of the Target Bonus. The performance objectives for each year of the Term shall be determined within the first sixty (60) days of such year. The structure of the Bonus and performance objectives may be adjusted from time-to-time by the Board (or the Compensation Committee thereof), and must remain in compliance with general Company compensation policies established and governed by the Board (or the Compensation Committee thereof). Except as provided in this Agreement, a Bonus will be earned only if the Company achieves the annual performance objectives and Executive is actively employed by the Company on the date that such annual performance objectives are achieved and on the date that bonuses are paid. Subject to the foregoing, Executive’s Target Bonus for the year that included the Effective Date shall be 100% of gross base salary wages actually paid to Executive for such year and shall be no less than 100% of Base Salary for all subsequent years during the Term.  The Executive’s Stretch Bonus for each year shall be no less than 150% of the Executive’s Target Bonus for such year. It is agreed that the performance objectives for each year during the Term shall be based largely upon financial objectives.

 

(c)                                   Long Term Incentives .  For each fiscal year during the Term, in the event the Board (or the Compensation Committee thereof) grants a long term equity and/or long term cash incentive award generally to the Company’s other senior executives following the Effective Date, the Board (or the Compensation Committee thereof) will grant Executive a market-competitive (as reasonably determined by the Board or Compensation Committee thereof) long term equity and/or cash incentive award on terms and conditions that are no less favorable to Executive than those granted generally to the Company’s other senior executives for the given fiscal year.  For the avoidance of doubt, this subsection (c) shall not include grants made to other senior executives in connection with their commencing employment.

 

(d)                                  Other Compensation and Benefits . In addition to the compensation specified above in this Section 3 , Executive shall be entitled to the following benefits during the Term: (i) to accrue up vacation for such number of weeks per calendar year as shall be specified under the Company’s vacation policy, to be taken in accordance with such policy, (ii) holidays and sick leave as made generally available to employees of the Company, and (iii) subject to eligibility therefor, the right to participate in any employee stock purchase plan, profit sharing plan, retirement plan, 401(k) plan, group medical plan, group dental plan, group life insurance plan and/or other health or insurance plan maintained by the Company for its senior executives generally and, if applicable,

 

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their family members. The Company reserves the right to cancel or change the benefit plans and programs it offers to its employees generally at any time.

 

4.                                       Business Expenses . The Company shall reimburse Executive for all reasonable and necessary business and travel expenses incurred by Executive in the performance of Executive’s duties under this Agreement. Such expenses shall be reimbursed in accordance with the Company’s guidelines, limits and procedures relating thereto and upon presentation of proper expense vouchers or receipts therefor.

 

5.                                       Termination .

 

(a)                                  Termination on Death or Disability . The Term will terminate automatically and immediately upon Executive’s death or, upon 30 days’ prior written notice from the Company, in the event of Executive’s Disability. For purposes of this Section 5 , “ Disability ” means that Executive, at or prior to the time notice is given, has been unable to substantially perform Executive’s duties under this Agreement for not less than sixty (60) work days within a six (6) consecutive month period as a result of Executive’s incapacity due to physical or mental illness. The Board (excluding Executive if Executive is at such time a member of the Board) shall make the determination as to the existence or absence of Executive’s Disability. Upon any termination for death or Disability, Executive will not be entitled to any further compensation from the Company, including without limitation severance pay, pay in lieu of notice or any other such compensation (other than accrued salary, and accrued and unused vacation, through Executive’s last day of employment).

 

(b)                                  Termination Without Cause; Resignation for Good Reason . During the Term, the Company shall be entitled to terminate Executive’s employment without Cause (as defined below) and Executive shall be entitled to resign (and thus terminate the Term) with Good Reason (as defined below), in each case at any time, in which case the following provisions shall apply:

 

(i)                                      Termination Absent Change of Control . Except as provided in Section 5(b)(ii) , if Executive’s employment hereunder is terminated by the Company without Cause or if Executive resigns for Good Reason, then Executive shall be entitled to receive the following severance benefits: (i) severance pay in the form of continuation of Executive’s Base Salary in effect on the effective date of termination or resignation, as applicable, for a period of eighteen (18) months, to be paid periodically in accordance with the Company’s normal payroll practices and subject to standard payroll deductions and withholdings; (ii) the Bonus earned for the prior year (if not previously paid), (iii) a pro rata portion of the Bonus Executive would have earned for the year of termination, which Bonus shall be determined based on Company financial performance results against Executive’s Company financial performance objectives for such year, payable in a lump sum at the same time bonuses are paid to Company senior executives generally (but in no event later than March 15 of the year following the year in which the termination occurs), (iv) all unvested equity or equity-based awards granted to Executive under any equity compensation plans of the Company that were scheduled to vest within twelve (12) months after the date of Executive’s termination or resignation shall immediately become vested as to time, with any such awards that are subject to performance-based vesting conditions remaining eligible to vest to the extent such performance conditions are satisfied during that twelve (12) month period (provided that nothing herein shall operate to extend the term, if any, of an award beyond the final expiration date provided in the applicable award agreement or prohibit the award from being treated in substantially the same

 

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manner as awards held by the Company’s other senior executives in the context of a Change of Control or other corporate transaction); (v) the Company shall continue Executive’s group life insurance coverage (provided that Executive shall reimburse the Company for any incremental cost of continuing such group life insurance coverage) in effect on the termination or resignation date for a period of eighteen (18) months following Executive’s termination or resignation; and (vi) if Executive timely elects continued medical, dental or vision coverage under one or more of the Company’s group medical, dental or vision plans pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“ COBRA ”), then the Company shall directly pay, or reimburse Executive for, the COBRA premiums for Executive and Executive’s covered dependents under such plans during the period commencing on Executive’s termination or resignation and ending upon the earliest of (A)  eighteen (18) months following Executive’s termination or resignation, (B) the date that Executive and/or Executive’s covered dependents become no longer eligible for COBRA and (C) the date Executive becomes eligible to receive such coverage from a subsequent employer (and Executive agrees to promptly notify the Company of such eligibility).  Notwithstanding the foregoing, if the Company determines that it cannot provide the benefit required by clause (iv) of the immediately preceding sentence without potentially violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act) or incurring an excise tax, the Company shall in lieu thereof provide to Executive a taxable monthly payment in an amount equal to the monthly COBRA premium that Executive would be required to pay to continue Executive’s and Executive’s covered dependents’ group health coverage in effect on the date of termination or resignation, which amount shall be based on the premium for the first month of COBRA coverage, shall be made regardless of whether Executive elects COBRA continuation coverage and shall commence in the month following the month in which the date of termination or resignation occurs and end on the earliest of (X) eighteen (18) months following Executive’s termination or resignation, (Y) the date that Executive and/or Executive’s covered dependents become no longer eligible for COBRA or (Z) the date Executive becomes eligible to receive healthcare coverage from a subsequent employer (and Executive agrees to promptly notify the Company of such eligibility).

 

(ii)                                   Termination in Connection with a Change of Control . If a Change of Control occurs during the Term and, within twelve (12) months following the Change of Control, Executive’s employment hereunder is terminated by the Company without Cause or if Executive resigns for Good Reason, then Executive shall be entitled to receive the following severance benefits in lieu of the severance benefits set forth in Section 5(b)(i) : (i) severance pay equal to the sum of (A)150% of Executive’s Base Salary in effect on the effective date of termination or resignation, as applicable, plus (B) 150% of Executive’s Target Bonus, payable in a single lump sum subject to standard deductions and withholdings; (ii) the Bonus earned for the prior year (if not previously paid); (iii)  a pro rata portion of the Bonus Executive would have earned for the year of termination, which Bonus shall be determined based on Company financial performance results against Executive’s Company financial performance objectives for such year, payable in a lump sum at the same time bonuses are paid to Company senior executives generally (but in no event later than March 15 of the year following the year in which the termination occurs), (iv) all unvested equity or equity-based awards granted to Executive under any equity compensation plans of the Company shall become immediately vested as to time and any such awards that are subject to performance-based vesting will remain eligible to vest to the extent the performance conditions are thereafter satisfied (provided that nothing herein shall operate to extend the term, if any, of an award beyond the final expiration date provided in the applicable award agreement or prohibit the award from

 

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being treated in substantially the same manner as awards held by the Company’s other senior executives in the context of a Change of Control or other corporate transaction); (v) the Company shall continue Executive’s group life insurance coverage (provided that Executive shall reimburse the Company for any incremental cost of continuing such group life insurance coverage) in effect on the termination or resignation date for a period of eighteen (18) months following Executive’s termination or resignation; and (vi) if Executive timely elects continued medical, dental or vision coverage under one or more of the Company’s group medical, dental or vision plans pursuant to COBRA, then the Company shall directly pay, or reimburse Executive for, the COBRA premiums for Executive and Executive’s covered dependents under such plans during the period commencing on Executive’s termination or resignation and ending upon the earliest of (A)  eighteen (18) months following Executive’s termination or resignation, (B) the date that Executive and/or Executive’s covered dependents become no longer eligible for COBRA or (C) the date Executive becomes eligible to receive healthcare coverage from a subsequent employer (and Executive agrees to promptly notify the Company of such eligibility).  Notwithstanding the foregoing, if the Company determines in its sole discretion that it cannot provide the benefits required under clause (vi) of the immediately preceding sentence without potentially violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act) or incurring an excise tax, the Company shall in lieu thereof provide to Executive a taxable monthly payment in an amount equal to the monthly COBRA premium that Executive would be required to pay to continue Executive’s and Executive’s covered dependents’ group health coverage in effect on the date of termination or resignation, which amount shall be based on the premium for the first month of COBRA coverage, shall be made regardless of whether Executive elects COBRA continuation coverage and shall commence in the month following the month in which the date of termination or resignation occurs and end on the earliest of (X) eighteen (18) months following Executive’s termination or resignation, (Y) the date that Executive and/or Executive’s covered dependents become no longer eligible for COBRA and (Z) the date Executive becomes eligible to receive healthcare coverage from a subsequent employer (and Executive agrees to promptly notify the Company of such eligibility).

 

(iii)                                Notwithstanding any provision of this Section 5(b)  to the contrary, if the severance payments would be considered “non-qualified deferred compensation” under Code Section 409A, the payment of severance payments shall commence on the first regularly scheduled payroll date of the Company after sixty (60) days following Executive’s date of termination or resignation; provided Executive has executed and delivered the general release (as described in Section 5(b)(iv) ) to the Company prior to such date (and not revoked the general release during the applicable revocation period). The form of the general release will be provided to the Executive not later than five (5) days following Executive’s date of termination.

 

(iv)                               Conditions Precedent . Any severance benefits contemplated by this Section 5(b)  are conditional on Executive (i) complying with the non-competition and non­ solicitation provisions of Section 7(c)  below, (ii) complying with the Confidentiality Agreement and (iii) delivering (without revoking) prior to receipt of such severance benefits, an effective, general release of claims in favor of the Company or its successor, its subsidiaries and their respective directors, officers and stockholders in a form acceptable to the Company or its successor, such form to contain a reaffirmation of Executive’s promises contained in Section 7 of this Agreement and the Confidentiality Agreement and a promise not to disparage the Company, its business, or its employees, officers, directors or stockholders.

 

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(v)                                  Deferred Compensation . Notwithstanding anything to the contrary in this Agreement, if Executive is a “specified employee” within the meaning of Section 409A of the Internal Revenue Code (“ Code ”) and any final regulations and guidance promulgated thereunder (“ Section 409A ”) at the time of Executive’s termination, and any portion of the severance payable to Executive, if any, pursuant to this Agreement, when considered together with any other severance payments or separation benefits which may be considered deferred compensation under Section 409A (together, the “ Deferred Compensation Separation Benefits ”), then only that portion of the Deferred Compensation Separation Benefits which do not exceed the Section 409A Limit (as defined below) may be made within the first six (6) months following Executive’s termination of employment in accordance with the payment schedule applicable to each payment or benefit. Any portion of the Deferred Compensation Separation Benefits in excess of the Section 409A Limit shall accrue and, to the extent such portion of the Deferred Compensation Separation Benefits would otherwise have been payable within the first six (6) months following Executive’s termination of employment, will become payable on the first payroll date that occurs on or after the date six (6) months and one (1) day following the date of Executive’s termination of employment. All subsequent Deferred Compensation Separation Benefits, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit. It is the intent of this Agreement to comply with the requirements of Section 409A so that none of the severance payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply. For purposes of this Agreement, “ Section 409A Limit ” shall mean the lesser of two (2) times: (i) Executive’s annualized compensation based upon the annual rate of pay paid to Executive during the Company’s taxable year preceding the Company’s taxable year of Executive’s termination of employment as determined under Treasury Regulation 1.409A-1(b)(9)(iii)(A)(l) and any Internal Revenue Service guidance issued with respect thereto; or (ii) the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Code for the year in which Executive’s employment is terminated.

 

(c)                                   Termination for Cause; Resignation without Good Reason . The Company may terminate Executive’s employment at any time for Cause, and Executive may resign at any time without Good Reason. Termination for Cause shall be effective on the date the Company gives notice to Executive of such termination in accordance with this Agreement. Resignation by Executive without Good Reason shall be effective on the date Executive gives notice to the Company of such resignation in accordance with this Agreement. In the event of the Company’s termination of Executive’s employment hereunder by the Company for Cause or Executive’s resignation from Executive’s employment without Good Reason, Executive will not be entitled to any further compensation from the Company including severance pay, pay in lieu of notice or any other such compensation (other than accrued salary, and accrued and unused vacation, through Executive’s last day of employment).

 

(d)                                  Definitions .

 

(i)                                      Change of Control . For the purpose of this Agreement, “ Change of Control ” shall mean (other than an initial public offering of the Company) (A) any transaction or series of related transactions resulting in the consummation of a merger, combination, consolidation or other reorganization of the Company with or into any third party, other than any such merger, combination, consolidation or reorganization following which the holders of capital stock of the Company immediately prior to such merger, combination, consolidation or reorganization continue to hold, solely in respect of their interests in the Company’s capital stock immediately prior to such

 

6



 

merger, combination, consolidation or reorganization, at least fifty-five percent (55%) of the voting power of the outstanding capital stock of the Company or the surviving or acquiring entity; (B) any transaction or series of related transactions resulting in the consummation of the sale, lease, exclusive or irrevocable licensing or other transfer of all or substantially all of the assets of the Company to a third party, other than any such sale, lease, exclusive or irrevocable licensing or transfer following which the holders of capital stock of the Company immediately prior to such sale, lease, exclusive or irrevocable licensing or transfer continue to hold, solely in respect of their interests in the Company’s capital stock immediately prior to such sale, lease, exclusive or irrevocable licensing or transfer, at least fifty-five percent (55%) of the voting power of the outstanding capital stock of the acquiring entity; or (C) any transaction or series of related transactions resulting in the transfer or issuance, whether by merger, combination, consolidation or otherwise, of Company securities to a person or group if, after such transfer or issuance, such person or group would hold fifty-five percent (55%) of the voting power of the outstanding capital stock of the Company; provided that, with respect to any Deferred Compensation Separation Benefits, the transaction or event described in clause (A), (B) or (C) shall only constitute a Change of Control for purposes of this Agreement if such transaction or event also constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5).

 

(ii)                                   Cause . For purposes of this Agreement, “ Cause ” shall mean (A) Executive’s breach of his duty of loyalty to the Company or Executive’s willful breach of his duty of care to the Company; (B) Executive’s material failure or refusal to comply with reasonable written policies, standards and regulations established by the Board from time to time which failure or refusal, if curable, is not cured to the reasonable satisfaction of the Board during the fifteen (15) day period following written notice of such failure or refusal from the Board; (C) the commission by Executive of a felony, an act of theft, embezzlement or misappropriation of funds or the property of the Company or its subsidiaries of material value or an act of fraud involving the Company or its subsidiaries, (D) willful misconduct or gross negligence of Executive which causes or reasonably could cause (for example, if it became publicly known) material harm to the Company’s standing, condition or reputation; (E) material violation of the Company’s Code of Ethics (or similar written policies concerning ethical behavior) or written policies concerning harassment or discrimination; or (F) any material breach by Executive of the provisions of the Employee Confidentiality Agreement (the “ Confidentiality Agreement ”) between Executive and the Company referred to in Section 7(a)  below or a material provision of this Agreement. The Board (excluding Executive if Executive is at such time a member of the Board) shall make all determinations relating to termination, including without limitation any determination regarding Cause, pursuant to this Section 5(d)(ii) .

 

(iii)                                Good Reason . For purposes of this Agreement, “ Good Reason ” shall mean one or more of the following, without Executive’s consent: (A) there is a material reduction in aggregate amount of Executive’s Base Salary and Target Bonus without Executive’s consent (except where there is a general reduction applicable to the management team generally), (B) there is a material reduction in Executive’s overall responsibilities or authority, or scope of duties below the position of a Chief Executive Officer of the Company, (C) Executive is no longer a member of the Board (other than as a result of a stockholder vote, by reason of resignation of such Board membership, termination of Executive’s employment hereunder with Cause or if Executive resigns without Good Reason), (D) Executive is required by the Company to relocate his residence outside of Rye, New York, or to relocate his principal place of employment outside of outside of the New York City metropolitan area or (E) any material breach by the Company of this Agreement. It is

 

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understood that Executive must assert any termination for Good Reason by written notice to the Company no later than forty-five (45) days following the date on which arises the event or events giving the Executive the right to assert such a termination, and the Company must have an opportunity within thirty (30) days following delivery of such notice to cure the Good Reason condition. In no instance will a resignation by Executive be deemed to be for Good Reason if it is made more than twelve (12) months following the initial occurrence of any of the events that otherwise would constitute Good Reason hereunder.

 

6.                                       Parachute Payments .

 

(a)                                  Notwithstanding any other provisions of this Agreement, in the event that any payment or benefit by the Company or otherwise to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (all such payments and benefits, including the payments and benefits under Section 5(b)(i)  and Section 5(b)(ii)  hereof, being hereinafter referred to as the “ Total Payments ”), would be subject (in whole or in part) to the excise tax imposed by Section 4999 of the Code (the “ Excise Tax ”), then the Total Payments shall be reduced (in the order provided in Section 6(b)) to the minimum extent necessary to avoid the imposition of the Excise Tax on the Total Payments, but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income and employment taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments), is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income and employment taxes on such Total Payments and the amount of the Excise Tax to which Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments).

 

(b)                                  The Total Payments shall be reduced in the following order:  (i) reduction on a pro-rata basis of any cash severance payments that are exempt from Section 409A of the Code, (ii) reduction on a pro-rata basis any non-cash severance payments or benefits that are exempt from Section 409A of the Code, (iii) reduction on a pro-rata basis of any other payments or benefits that are exempt from Section 409A of the Code, and (iv) reduction of any payments or benefits otherwise payable to Executive on a pro-rata basis or such other manner that complies with Section 409A of the Code; provided, in case of clauses (ii), (iii) and (iv), that reduction of any payments attributable to the acceleration of vesting of Company equity awards shall be first applied to Company equity awards that would otherwise vest last in time.

 

(c)                                   All determinations regarding the application of this Section 6 shall be made by an accounting firm or consulting group with experience in performing calculations regarding the applicability of Section 280G of the Code and the Excise Tax selected by the Company (the “ Independent Advisors ”).  For purposes of determinations, no portion of the Total Payments shall be taken into account which, in the opinion of the Independent Advisors, (i) does not constitute a “parachute payment” within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code) or (ii) constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the “base amount” (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation.  The costs of obtaining such determination and all related fees and expenses (including related fees and expenses incurred in any later audit) shall be borne by the Company.

 

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(d)                                  In the event it is later determined that a greater reduction in the Total Payments should have been made to implement the objective and intent of this Section 6 , the excess amount shall be returned immediately by Executive to the Company.

 

7.                                       Company Matters; Restrictive Covenants .

 

(a)                                  Proprietary Information and Inventions . Concurrently with or prior to the execution of this Agreement, Executive shall have signed a Confidentiality Agreement in the form required to be executed by each employee of the Company. As provided further in the Confidentiality Agreement, the Company will provide Executive with confidential and proprietary information concerning its operations, and Executive agrees that he will not disclose or use such information except on behalf of the Company.

 

(b)                                  Ventures . If, during the Term, Executive is engaged in or associated with the planning or implementing of projects, programs or ventures involving the Company and third parties, all rights in such projects, programs and ventures shall belong to the Company (or the third party, to the extent provided in any agreement between the Company and the third party). Except as formally approved by the Company, Executive shall not be entitled to any interest in such project, program or venture or to any commission, finder’s fee or other compensation in connection therewith other than the salary or other compensation to be paid to Executive as provided in this Agreement.

 

(c)                                   Non-Solicitation and Non-Competition .

 

(i)                                      Non-Solicitation . Executive agrees that, during the Term and for a period of eighteen (18) months from and after any termination of Executive’s employment with the Company, voluntary or involuntary, for any reason or no reason (the “ Non-Compete Period ”), Executive shall not (directly or indirectly, on behalf of Executive or any third party) (a) solicit, induce, recruit or encourage, or take any other action which is intended to induce or encourage or facilitate or has the effect of inducing or encouraging any of the Company’s employees to leave their employment with the Company or otherwise facilitates the hiring of any such employees by any person outside the Company; (b) solicit, interfere with, disrupt or attempt to disrupt any past, present or prospective relationship, contractual or otherwise, between the Company and any of its actual or prospective customers, suppliers, employees or stockholders, within the Geographic Area (as defined below), other than on behalf of the Company or any of its subsidiaries, directly or indirectly, without the prior written consent of the Company.

 

(ii)                                   Non-Competition . In addition, during the Non-Compete Period, Executive shall not, directly or indirectly, (a) engage in (whether as an employee, agent, consultant, advisor, independent contractor, proprietor, partner, officer, director or otherwise), (b) have any ownership interest in (except for passive ownership of one percent (1%) or less of any entity whose securities have been registered under the Securities Act of 1933, as amended, or Section 12 of the 1934 Act), or (c) participate in the financing, operation, management or control of, any firm, partnership, corporation, entity or business, that engages or participates in a “competing business purpose.” The term “ competing business purpose ” shall mean the Company’s business, including without limitation telephone and internet based physician consultation, as conducted or planned to be conducted by the Company at any time during the

 

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course of Executive’s employment with the Company (including without limitation products and services under development as of the date of termination). Notwithstanding the foregoing, it is hereby agreed that Executive may engage in (whether as an employee, agent, consultant, advisor, independent contractor, proprietor, partner, officer, director or otherwise) or participate in the financing, operation, management or control of any firm, partnership, corporation, entity or business that engages or participates in a competing business purpose (a “ Competing Entity ”), so long as (x) such Competing Entity engages or participates in multiple lines of business and (y) in such capacity

 

A.                                     Executive does not engage or participate in any material respect in a competing business purpose; and

 

B.                                     Multiple lines of business, including a line engaging a competing business purpose (a “Competing Line”), report to Executive, provided that the preceding twelve (12) months net revenue (“Net Revenue”) attributable to the Competing Line account for less than fifteen percent (15%) of the Net Revenue attributable to all lines of business reporting to Executive.

 

(iii)                                Geographic Area ” means any city, county or state, or any similar subdivision thereof, in each of the United States of America.

 

(iv)                               Separate Covenants . The covenants contained in Section 7(c)(i)  and 7(c)(ii)  shall be construed as a series of separate covenants, one for each city, county, state, or any similar subdivision in any Geographic Area. These covenants shall also be construed as a series of separate and successive covenants, one for each month of the Non-Compete Period. Except for geographic coverage, each such separate covenant shall be deemed identical in terms to the covenant contained in Section 7(c)(i)  and 7(c)(ii)  above. If, in any judicial or arbitral proceeding, a court or arbitrator refuses to enforce any of such separate covenants (or any part thereof), then such unenforceable covenant (or such part) shall be eliminated from this Agreement to the extent necessary to permit the remaining separate covenants (or portions thereof) to be enforced. In the event that the provisions of Section 7(c)(i)  and 7(c)(ii)  above are deemed to exceed the time, geographic or scope limitations permitted by applicable law, then such provisions shall be reformed to the maximum time, geographic or scope limitations, as the case may be, then permitted by such law. In the event that the applicable court or arbitrator does not exercise the power granted to it in the prior sentence, Executive and the Company agree to replace such invalid or unenforceable term or provision with a valid and enforceable term or provision that will achieve, to the extent possible, the economic, business and other purposes of such invalid or unenforceable term. The Parties acknowledge that the promises and covenants contained in this Section 7 are essential independent elements of this Agreement and that, but for Executive agreeing to comply with them, the Company would not employ Executive and would not provide Executive with confidential and proprietary information. Accordingly, the existence or assertion of any claim by Executive against the Company, whether based on this Agreement or otherwise, shall not operate as a defense to the Company’s enforcement of the promises and covenants in the Confidentiality Agreement and this Section 7. An alleged or actual breach of the Agreement by the Company will not be a defense to enforcement of any such promise or covenant in this Section 7 or the Confidentiality Agreement. The promises and covenants in this Section 7 and the Confidentiality Agreement will remain in full force and effect whether the Executive is terminated by the Company or voluntarily resigns.

 

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(v)                                  Acknowledgements . Executive acknowledges that the nature of the Company’s business is such that if Executive were to become employed by, or substantially involved in, the business of a competitor of the Company within the Non-Compete Period, it will be difficult for Executive not to rely on or use the Company’s trade secrets and confidential information. Therefore, Executive has agreed to enter into this Agreement to reduce the likelihood of disclosure of the Company’s trade secrets and confidential information. Executive therefore acknowledges and agrees that the promises in Section 7(c)  are ancillary to an otherwise enforceable agreement contained in this Agreement and the Confidentiality Agreement. Executive also acknowledges that the limitations of time, geography, and scope of activity agreed to above are reasonable because, among other things: (a) these non-competition and non­ solicitation agreements are entered into in connection with the offer of continued employment to Executive based upon the covenants agreed to Executive hereby, (b) the Company is engaged in a highly competitive industry; (c) Executive will have continued and unique access to the trade secrets and know-how of the Company, including without limitation the plans and strategy (and in particular the competitive strategy) of the Company; (d) Executive is receiving significant compensation in connection with Executive’s employment and the covenants provided herein; (e) these non-competition and non-solicitation agreements will not impose an undue hardship on Executive, and Executive acknowledges that in the event Executive’s employment with the Company ends, Executive will be able to obtain suitable and satisfactory employment in Executive’s chosen profession without violation of these covenants; and (f) these covenants provide no more protection than is reasonable and necessary to protect the trade secrets, confidential information, customer contacts and relationships, and goodwill of the Company.

 

(d)                                  Resignation on Termination . On termination of Executive’s employment, Executive shall immediately (and with contemporaneous effect) resign any directorships, offices or other positions that Executive may hold in the Company or any of its affiliates, unless otherwise requested by the Board.

 

(e)                                   Tolling of Non-Compete Period . The Non-Compete Period will not include any period(s) of violation of such promises in this Section 7 or the Confidentiality Agreement, it being understood that the extension of time provided in this Section 7(e)  may not exceed two (2) years.

 

8.                                       Non-disparagement . Upon termination of employment by the Company or resignation of employment by Executive for any reason, Executive shall not, directly, or through any other person or entity, make any public or private statements that are disparaging of the Company, its business or its employees, officers, directors, or stockholders; and the Company shall not, directly or through any other person or entity, make any public or private statements that are disparaging of Executive.

 

9.                                       ARBITRATION . THE PARTIES AGREE THAT ANY AND ALL DISPUTES ARISING OUT OF THE TERMS OF THIS AGREEMENT, THEIR INTERPRETATION, AND ANY OF THE MATTERS HEREIN RELEASED, SHALL BE SUBJECT TO ARBITRATION IN THE BOROUGH OF MANHATTAN, CITY OF NEW YORK, NEW YORK OR ANY SUBSEQUENT LOCATION WHERE THE PRINCIPAL OFFICES OF THE COMPANY ARE LOCATED BEFORE JAMS, PURSUANT TO ITS EMPLOYMENT ARBITRATION RULES & PROCEDURES (“ JAMS RULES ”) OR THE AMERICAN ARBITRATION ASSOCIATION IF JAMS IS NOT AVAILABLE. THE ARBITRATOR MAY GRANT INJUNCTIONS AND OTHER

 

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RELIEF IN SUCH DISPUTES. THE ARBITRATOR SHALL ADMINISTER AND CONDUCT ANY ARBITRATION IN ACCORDANCE WITH NEW YORK LAW, AND THE ARBITRATOR SHALL APPLY SUBSTANTIVE AND PROCEDURAL NEW YORK LAW TO ANY DISPUTE OR CLAIM, WITHOUT REFERENCE TO ANY CONFLICT-OF-LAW PROVISIONS OF ANY JURISDICTION. TO THE EXTENT THAT THE JAMS RULES CONFLICT WITH NEW YORK LAW, NEW YORK LAW SHALL TAKE PRECEDENCE. THE DECISION OF THE ARBITRATOR SHALL BE FINAL, CONCLUSIVE, AND BINDING ON THE PARTIES TO THE ARBITRATION. THE PARTIES AGREE THE ARBITRATOR SHALL HAVE THE POWER TO AWARD ANY REMEDIES AVAILABLE UNDER APPLICABLE LAW, AND THAT THE ARBITRATOR SHALL AWARD ATTORNEYS’ FEES AND COSTS TO THE PREVAILING PARTY, EXCEPT AS PROHIBITED BY LAW. THE PARTIES AGREE THAT THE PREVAILING PARTY IN ANY ARBITRATION SHALL BE ENTITLED TO INJUNCTIVE RELIEF IN ANY COURT OF COMPETENT JURISDICTION TO ENFORCE THE ARBITRATION AWARD. TO THE EXTENT PERMITTED BY LAW, THE COMPANY AND EXECUTIVE WILL SPLIT EQUALLY ANY ADMINISTRATIVE OR HEARING FEES CHARGED BY THE ARBITRATOR OR JAMS, EXCEPT THAT THE PARTY INITIATING THE ARBITRATION WILL PAY THE FULL FILING FEE. THE PARTIES HEREBY AGREE TO WAIVE THEIR RIGHT TO HAVE ANY DISPUTE BETWEEN THEM RESOLVED IN A COURT OF LAW BY A JUDGE OR JURY. NOTWITHSTANDING THE FOREGOING, THIS SECTION WILL NOT PREVENT EITHER PARTY FROM SEEKING INJUNCTIVE RELIEF (OR ANY OTHER PROVISIONAL REMEDY) FROM ANY COURT HAVING JURISDICTION OVER THE PARTIES AND THE SUBJECT MATTER OF THEIR DISPUTE RELATING TO THIS AGREEMENT AND THE AGREEMENTS INCORPORATED HEREIN BY REFERENCE. SHOULD ANY PART OF THE ARBITRATION AGREEMENT CONTAINED IN THIS SECTION CONFLICT WITH ANY OTHER ARBITRATION AGREEMENT BETWEEN THE PARTIES, THE PARTIES AGREE THAT THIS ARBITRATION AGREEMENT SHALL GOVERN.

 

10.                                Miscellaneous .

 

(a)                                  Withholding Taxes . The Company may withhold from all salary, bonus or other benefits payable under this Agreement all federal, state, local, city or other taxes as shall be required pursuant to any law or governmental regulation or ruling.

 

(b)                                  Entire Agreement; Binding Effect . This Agreement and the Confidentiality Agreement set forth the entire understanding between the Parties as to the subject matter of this Agreement and supersede all prior agreements, commitments, representations, writings and discussions between them (whether written or oral) on the subject matters herein; and neither of the Parties shall be bound by any obligations, conditions, warranties or representations with respect to the subject matter of this Agreement and the Confidentiality Agreement except as expressly provided herein or therein or as duly set forth on or subsequent to the date hereof in a written instrument signed by the proper and fully authorized representative of the Party to be bound hereby. This Agreement is binding on the Company and Executive and their respective successors and assigns (whether by assignment, by operation of law or otherwise); provided that neither this Agreement nor any rights or obligations hereunder may be assigned by Executive or the Company without the prior written consent of the other Party, except that the Company shall be entitled to assign this Agreement in connection with a Change of Control. No modification of or amendment to this Agreement will be effective unless such modification or amendment is (i) approved by the

 

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Board and (ii) in writing signed by an executive officer of the Company and Executive. The Company and Executive agree to work together in a commercially reasonable manner to consider amendments to this Agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition under Section 409A prior to actual payment to Executive.

 

(c)                                   Absence of Conflict . Executive represents and warrants that Executive’s employment by the Company as described herein will not conflict with and will not be constrained by any prior employment or consulting agreement or relationship. Executive further represents that he has no other agreements, relationships or commitments to any other person or entity that conflict with Executive’s obligations to the Company under this Agreement or Executive’s ability to become employed and perform the services for which Executive is being hired by the Company. Executive further agrees not to make use of any confidential or proprietary information of any other person or entity. Executive represents to Company that Executive has returned to his previous employer(s) all confidential information and property associated with any former employer’s business.

 

(d)                                  Voluntary Nature of Agreement; Legal Rights . Executive is executing this Agreement voluntarily and without any duress or undue influence by the Company or any other person or entity. Executive acknowledges that Executive has had the opportunity to consult with an attorney regarding the provisions of this Agreement and has either obtained such advice of counsel or knowingly waived the opportunity to seek such advice. Executive has carefully read this Agreement and has asked any questions needed for Executive to understand the terms, consequences and binding effect of this Agreement and fully understand it, including that Executive is waiving Executive’s right to a jury trial. Executive acknowledges that neither the Company nor its counsel have made any representations to him regarding the tax consequences to him for any payments made under this Agreement.

 

(e)                                   Waivers . No Party shall be deemed to have waived any right, power or privilege under this Agreement or any provisions hereof unless such waiver shall have been duly executed in writing and acknowledged by the Party to be charged with such waiver. The failure of any Party at any time to insist on performance of any of the provisions of this Agreement shall in no way be construed to be a waiver of such provisions, nor in any way to affect the validity of this Agreement or any part hereof. No waiver of any breach of this Agreement shall be held to be a waiver of any other subsequent breach.

 

(f)                                    Notices . All notices, approvals, consents, requests or demands required or permitted to be given under this Agreement shall be in writing and shall be deemed sufficiently given (i) upon delivery, if delivered by hand (ii) one business day after transmission, if sent by facsimile (confirmation received) or (iii) one business day after the business day of deposit with a reputable overnight courier for next business day delivery, freight prepaid (signature of receipt obtained). Notice in each case shall be addressed to the Party entitled to receive such notice at the following address (or other such addresses as the Parties may subsequently designate):

 

The Company:

Teladoc, Inc.

 

4100 Spring Valley

 

Suite 600

 

Dallas, TX 75244

 

Attn: Chief Financial Officer

 

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Executive :

 

(g)                                   Governing Law . This Agreement shall be governed by, and construed and enforced in accordance with New York law as it applies to contracts entered into and wholly to be performed therein by residents thereof. To the extent that any lawsuit is permitted under this Agreement, Executive hereby expressly consents to the exclusive personal jurisdiction of the state and federal courts located in the borough of Manhattan, City of New York, New York for any lawsuit arising out of or related to this Agreement.

 

(h)                                  Severability . Every provision of this Agreement is intended to be severable from every other provision of this Agreement. If any provision of this Agreement is held to be invalid, illegal or unenforceable, in whole or in part, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement; and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein except to the extent that such provision may be construed and modified so as to render it valid, lawful, and enforceable in a manner consistent with the intent of the Parties to the extent compatible with the applicable law as it shall then appear.

 

(i)                                      Effect of Headings . The Section and subsection headings contained herein are for convenience only and shall not affect the construction hereof.

 

(j)                                     Counterparts . This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original, and all such counterparts shall constitute but one instrument.

 

(k)                                  Separation from Service . Notwithstanding anything to the contrary in this Agreement, with respect to severance payments or any other amounts payable to Executive under this Agreement in connection with a termination of Executive’s employment that would be considered “non-qualified deferred compensation” under Section 409A of the Code, in no event shall a termination of employment be considered to have occurred under this Agreement unless such termination constitutes Executive’s “separation from service” with the Company as such term is defined in Treasury Regulation Section 1.409A-l(h) and any successor provision thereto.

 

(l)                                      Section 409A; Separate Payments. This Agreement is intended to be written, administered, interpreted and construed in a manner such that no payment or benefits provided under the Agreement become subject to (a) the gross income inclusion set forth within Section 409A(a)(l)(A) of the Code or (b) the interest and additional tax set forth within Section 409A(a)(l)(B) of the Code (collectively, “ Section 409A Penalties ”), including, where appropriate, the construction of defined terms to have meanings that would not cause the imposition of Section 409A Penalties. In no event shall the Company be required to provide a tax gross-up payment to Executive or otherwise reimburse Executive with respect to Section 409A Penalties. For purposes of Section 409A of the Code (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), each payment that Executive may be eligible to receive under this Agreement shall be treated as a separate and distinct payment and shall not collectively be treated as

 

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a single payment. The Company has urged Executive to seek advice from Executive’s own tax advisor regarding the tax consequences of this Agreement to Executive.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed as of the year and date first written above.

 

 

Company :

 

 

 

TELADOC, INC.

 

 

 

 

 

By:

/s/ Thomas G. McKinley

 

Name: Thomas G. McKinley

 

Title: Chair Compensation Committee

 

 

 

 

 

Executive :

 

 

 

 

 

/s/ Jason Gorevic

 

Jason Gorevic

 




Exhibit 10.20

 

Execution Version

 

EXECUTIVE EMPLOYMENT AGREEMENT

 

THIS EXECUTIVE EMPLOYMENT AGREEMENT (this “ Agreement ”) is made as of June 17, 2015, by and between Teladoc, Inc., a Delaware corporation (the “ Company ”) and Mark Hirschhorn (“ Executive ”) (collectively referred to as the “ Parties ” or individually referred to as a “ Party ”), and will become effective on the closing of the Company’s initial public offering of common stock pursuant to an effective registration statement filed under the Securities Act of 1933, as amended (the “ Effective Date ”).

 

1.                                       Employment; Duties; Full Time Employment . The Company hereby agrees to continue to employ Executive, and Executive hereby accepts continued employment, as the Executive Vice President & Chief Financial Officer of the Company. In such capacity, Executive shall be responsible for the operations of the Company and shall perform such executive duties and exercise such powers for the Company and its subsidiaries (if any) as the Chief Executive Officer or the Board of Directors (“ Board ”) of the Company may lawfully assign to or vest in Executive from time to time. Executive covenants and agrees that, at all times during the Term (as defined below), Executive shall devote Executive’s full business time and efforts to Executive’s duties as an employee of the Company and that Executive will not, without the prior consent of the Board, directly or indirectly, engage or participate in any other business or professional activities during the Term, other than non-conflicting personal investments managed on Executive’s personal time and activities for non-profit institutions, provided that such activities do not interfere or conflict with Executive’s obligations hereunder.

 

2.                                       Term . The Company agrees to continue to employ Executive, and Executive agrees to continue to serve the Company, on an at “will” basis, which means that either the Company or Executive may terminate Executive’s employment with the Company at any time, with or without Cause or Good Reason, as provided in Section 5 below. The period commencing with the Effective Date and ending on the effective date of any termination or resignation of Executive’s employment in accordance with the provisions hereof shall constitute the term of this Agreement (the “ Term ”).

 

3.                                       Compensation and Benefits . During the Term, the Company shall provide Executive with the following compensation and benefits:

 

(a)                                  Base Salary . The Company shall pay Executive a base salary (“ Base Salary ”) at the rate of $27,916.66 per month (less applicable deductions and withholdings), payable in periodic payments in accordance with the Company’s normal payroll practices. During the Term, Executive’s compensation shall be reviewed by the Board from time to time and at least once every 12 months with the first such review occurring in the first calendar quarter of 2016. The Board may, in its sole discretion, increase or prospectively decrease Executive’s Base Salary; provided, however, that a material reduction in Executive’s Base Salary without Executive’s consent (except where there is a reduction generally applicable to the management team as a whole) shall constitute Good Reason (as defined below). Any increase or decrease in Base Salary (together with the then existing Base Salary) shall serve as the “Base Salary” under this Agreement.

 

(b)                                  Annual Bonus . Executive will be eligible for discretionary annual target bonuses in an amount determined by the Board (or the Compensation Committee thereof) in its sole discretion (each, a “ Target Bonus ”) based on the achievement of annual performance objectives determined by the Board (or the Compensation Committee thereof). Additionally, for each year

 



 

during the Term, the Board (or the Compensation Committee thereof), after consultation with the Executive, will establish “stretch” or “enhanced” performance objectives which, if met, would allow Executive to earn an additional bonus (the “Stretch Bonus,” and collectively with the Target Bonus, the “ Bonus ”) in excess of the Target Bonus. The performance objectives for each year of the Term shall be determined within the first sixty (60) days of such year. The structure of the Bonus and performance objectives may be adjusted from time-to-time by the Board (or the Compensation Committee thereof), and must remain in compliance with general Company compensation policies established and governed by the Board (or the Compensation Committee thereof). Except as provided in this Agreement, a Bonus will be earned only if the Company achieves the annual performance objectives and Executive is actively employed by the Company on the date that such annual performance objectives are achieved and on the date that bonuses are paid. Subject to the foregoing, Executive’s Target Bonus for the year that included the Effective Date shall be 65% of gross base salary wages actually paid to Executive for such year and shall be no less than 65% of Base Salary for all subsequent years during the Term. The Executive’s Stretch Bonus for each year shall be no less than 150% of the Executive’s Target Bonus for such year.

 

(c)                                   Long Term Incentives . For each fiscal year during the Term, in the event the Board (or the Compensation Committee thereof) grants a long term equity and/or long term cash incentive award generally to the Company’s other senior executives following the Effective Date, the Board (or the Compensation Committee thereof) will grant Executive a market-competitive (as reasonably determined by the Board or Compensation Committee thereof) long term equity and/or cash incentive award on terms and conditions that are no less favorable to Executive than those granted generally to the Company’s other senior executives for the given fiscal year. For the avoidance of doubt, this subsection (c) shall not include grants made to other senior executives in connection with their commencing employment

 

(d)                                  Other Compensation and Benefits . In addition to the compensation specified above in this Section 3 , Executive shall be entitled to the following benefits during the Term: (i) to accrue up vacation for such number of weeks per calendar year as shall be specified under the Company’s vacation policy, to be taken in accordance with such policy, (ii) holidays and sick leave as made generally available to employees of the Company, and (iii) subject to eligibility therefor, the right to participate in any employee stock purchase plan, profit sharing plan, retirement plan, 401(k) plan, group medical plan, group dental plan, group life insurance plan and/or other health or insurance plan maintained by the Company for its senior executives generally and, if applicable, their family members. The Company reserves the right to cancel or change the benefit plans and programs it offers to its employees generally at any time.

 

4.                                       Business Expenses . The Company shall reimburse Executive for all reasonable and necessary business and travel expenses incurred by Executive in the performance of Executive’s duties under this Agreement. Such expenses shall be reimbursed in accordance with the Company’s guidelines, limits and procedures relating thereto and upon presentation of proper expense vouchers or receipts therefor.

 

5.                                       Termination .

 

(a)                                  Termination on Death or Disability . The Term will terminate automatically and immediately upon Executive’s death or, upon 30 days’ prior written notice from the Company, in the event of Executive’s Disability. For purposes of this Section 5 , “ Disability ” means that

 

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Executive, at or prior to the time notice is given, has been unable to substantially perform Executive’s duties under this Agreement for not less than sixty (60) work days within a six (6) consecutive month period as a result of Executive’s incapacity due to physical or mental illness. The Board (excluding Executive if Executive is at such time a member of the Board) shall make the determination as to the existence or absence of Executive’s Disability. Upon any termination for death or Disability, Executive will not be entitled to any further compensation from the Company, including without limitation severance pay, pay in lieu of notice or any other such compensation (other than accrued salary, and accrued and unused vacation, through Executive’s last day of employment).

 

(b)                                  Termination Without Cause; Resignation for Good Reason . During the Term, the Company shall be entitled to terminate Executive’s employment without Cause (as defined below) and Executive shall be entitled to resign (and thus terminate the Term) with Good Reason (as defined below), in each case at any time, in which case the following provisions shall apply:

 

(i)                                      Termination Absent Change of Control . Except as provided in Section 5(b)(ii) , if Executive’s employment hereunder is terminated by the Company without Cause or if Executive resigns for Good Reason, then Executive shall be entitled to receive the following severance benefits: (i) severance pay in the form of continuation of Executive’s Base Salary in effect on the effective date of termination or resignation, as applicable, for a period of 12 months, to be paid periodically in accordance with the Company’s normal payroll practices and subject to standard payroll deductions and withholdings; (ii) the Bonus earned for the prior year (if not previously paid), (iii) all unvested equity or equity-based awards granted to Executive under any equity compensation plans of the Company that were scheduled to vest within 6 months after the date of Executive’s termination or resignation shall immediately become vested as to time, with any such awards that are subject to performance-based vesting conditions remaining eligible to vest to the extent such performance conditions are satisfied during that 6 month period (provided that nothing herein shall operate to extend the term, if any, of an award beyond the final expiration date provided in the applicable award agreement or prohibit the award from being treated in substantially the same manner as awards held by the Company’s other senior executives in the context of a Change of Control or other corporate transaction); (iv) the Company shall continue Executive’s group life insurance coverage (provided that Executive shall reimburse the Company for any incremental cost of continuing such group life insurance coverage) in effect on the termination or resignation date for a period of twelve (12) months following Executive’s termination or resignation; and (v) if Executive timely elects continued medical, dental or vision coverage under one or more of the Company’s group medical, dental or vision plans pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“ COBRA ”), then the Company shall directly pay, or reimburse Executive for, the COBRA premiums for Executive and Executive’s covered dependents under such plans during the period commencing on Executive’s termination or resignation and ending upon the earliest of (A) 12 months following Executive’s termination or resignation, (B) the date that Executive and/or Executive’s covered dependents become no longer eligible for COBRA and (C) the date Executive becomes eligible to receive such coverage from a subsequent employer (and Executive agrees to promptly notify the Company of such eligibility).  Notwithstanding the foregoing, if the Company determines that it cannot provide the benefit required by clause (iv) of the immediately preceding sentence without potentially violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act) or incurring an excise tax, the Company shall in lieu thereof provide to Executive a taxable

 

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monthly payment in an amount equal to the monthly COBRA premium that Executive would be required to pay to continue Executive’s and Executive’s covered dependents’ group health coverage in effect on the date of termination or resignation, which amount shall be based on the premium for the first month of COBRA coverage, shall be made regardless of whether Executive elects COBRA continuation coverage and shall commence in the month following the month in which the date of termination or resignation occurs and end on the earliest of (X) 12 months following Executive’s termination or resignation, (Y) the date that Executive and/or Executive’s covered dependents become no longer eligible for COBRA or (Z) the date Executive becomes eligible to receive healthcare coverage from a subsequent employer (and Executive agrees to promptly notify the Company of such eligibility).

 

(ii)                                   Termination in Connection with a Change of Control . If a Change of Control occurs during the Term and, within twelve (12) months following the Change of Control, Executive’s employment hereunder is terminated by the Company without Cause or if Executive resigns for Good Reason, then Executive shall be entitled to receive the following severance benefits in lieu of the severance benefits set forth in Section 5(b)(i) : (i) severance pay equal to the sum of (A) Executive’s Base Salary in effect on the effective date of termination or resignation, as applicable, plus (B)  Executive’s Target Bonus, payable in a single lump sum subject to standard deductions and withholdings; (ii) the Bonus earned for the prior year (if not previously paid); (iii) a pro rata portion of the Bonus Executive would have earned for the year of termination, which Bonus shall be determined based on Company financial performance results against Executive’s Company financial performance objectives for such year, payable in a lump sum at the same time bonuses are paid to Company senior executives generally (but in no event later than March 15 of the year following the year in which the termination occurs), (iv) all unvested equity or equity-based awards granted to Executive under any equity compensation plans of the Company shall become immediately vested as to time and any such awards that are subject to performance-based vesting will remain eligible to vest to the extent the performance conditions are thereafter satisfied (provided that nothing herein shall operate to extend the term, if any, of an award beyond the final expiration date provided in the applicable award agreement or prohibit the award from being treated in substantially the same manner as awards held by the Company’s other senior executives in the context of a Change of Control or other corporate transaction); (v) the Company shall continue Executive’s group life insurance coverage (provided that Executive shall reimburse the Company for any incremental cost of continuing such group life insurance coverage) in effect on the termination or resignation date for a period of twelve (12) months following Executive’s termination or resignation; and (vi) if Executive timely elects continued medical, dental or vision coverage under one or more of the Company’s group medical, dental or vision plans pursuant to COBRA, then the Company shall directly pay, or reimburse Executive for, the COBRA premiums for Executive and Executive’s covered dependents under such plans during the period commencing on Executive’s termination or resignation and ending upon the earliest of (A) 12 months following Executive’s termination or resignation, (B) the date that Executive and/or Executive’s covered dependents become no longer eligible for COBRA or (C) the date Executive becomes eligible to receive healthcare coverage from a subsequent employer (and Executive agrees to promptly notify the Company of such eligibility).  Notwithstanding the foregoing, if the Company determines in its sole discretion that it cannot provide the benefits required under clause (vi) of the immediately preceding sentence without potentially violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act) or incurring an excise tax, the Company shall in lieu thereof provide to Executive a taxable monthly payment in an amount equal to the monthly COBRA

 

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premium that Executive would be required to pay to continue Executive’s and Executive’s covered dependents’ group health coverage in effect on the date of termination or resignation, which amount shall be based on the premium for the first month of COBRA coverage, shall be made regardless of whether Executive elects COBRA continuation coverage and shall commence in the month following the month in which the date of termination or resignation occurs and end on the earliest of (X) 12 months following Executive’s termination or resignation, (Y) the date that Executive and/or Executive’s covered dependents become no longer eligible for COBRA and (Z) the date Executive becomes eligible to receive healthcare coverage from a subsequent employer (and Executive agrees to promptly notify the Company of such eligibility).

 

(iii)                                Notwithstanding any provision of this Section 5(b)  to the contrary, if the severance payments would be considered “non-qualified deferred compensation” under Code Section 409A, the payment of severance payments shall commence on the first regularly scheduled payroll date of the Company after sixty (60) days following Executive’s date of termination or resignation; provided Executive has executed and delivered the general release (as described in Section 5(b)(iv) ) to the Company prior to such date (and not revoked the general release during the applicable revocation period). The form of the general release will be provided to the Executive not later than five (5) days following Executive’s date of termination.

 

(iv)                               Conditions Precedent . Any severance benefits contemplated by this Section 5(b)  are conditional on Executive (i) complying with the non-competition and non­ solicitation provisions of Section 7(c)  below, (ii) complying with the Confidentiality Agreement and (iii) delivering (without revoking) prior to receipt of such severance benefits, an effective, general release of claims in favor of the Company or its successor, its subsidiaries and their respective directors, officers and stockholders in a form acceptable to the Company or its successor, such form to contain a reaffirmation of Executive’s promises contained in Section 7 of this Agreement and the Confidentiality Agreement and a promise not to disparage the Company, its business, or its employees, officers, directors or stockholders.

 

(v)                                  Deferred Compensation . Notwithstanding anything to the contrary in this Agreement, if Executive is a “specified employee” within the meaning of Section 409A of the Internal Revenue Code (“ Code ”) and any final regulations and guidance promulgated thereunder (“ Section 409A ”) at the time of Executive’s termination, and any portion of the severance payable to Executive, if any, pursuant to this Agreement, when considered together with any other severance payments or separation benefits which may be considered deferred compensation under Section 409A (together, the “ Deferred Compensation Separation Benefits ”), then only that portion of the Deferred Compensation Separation Benefits which do not exceed the Section 409A Limit (as defined below) may be made within the first six (6) months following Executive’s termination of employment in accordance with the payment schedule applicable to each payment or benefit. Any portion of the Deferred Compensation Separation Benefits in excess of the Section 409A Limit shall accrue and, to the extent such portion of the Deferred Compensation Separation Benefits would otherwise have been payable within the first six (6) months following Executive’s termination of employment, will become payable on the first payroll date that occurs on or after the date six (6) months and one (1) day following the date of Executive’s termination of employment. All subsequent Deferred Compensation Separation Benefits, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit. It is the intent of this Agreement to comply with the requirements of Section 409A so that none of the severance payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any

 

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ambiguities herein will be interpreted to so comply. For purposes of this Agreement, “ Section 409A Limit ” shall mean the lesser of two (2) times: (i) Executive’s annualized compensation based upon the annual rate of pay paid to Executive during the Company’s taxable year preceding the Company’s taxable year of Executive’s termination of employment as determined under Treasury Regulation 1.409A-1(b)(9)(iii)(A)(l) and any Internal Revenue Service guidance issued with respect thereto; or (ii) the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Code for the year in which Executive’s employment is terminated.

 

(c)                                   Termination for Cause; Resignation without Good Reason . The Company may terminate Executive’s employment at any time for Cause, and Executive may resign at any time without Good Reason. Termination for Cause shall be effective on the date the Company gives notice to Executive of such termination in accordance with this Agreement. Resignation by Executive without Good Reason shall be effective on the date Executive gives notice to the Company of such resignation in accordance with this Agreement. In the event of the Company’s termination of Executive’s employment hereunder by the Company for Cause or Executive’s resignation from Executive’s employment without Good Reason, Executive will not be entitled to any further compensation from the Company including severance pay, pay in lieu of notice or any other such compensation (other than accrued salary, and accrued and unused vacation, through Executive’s last day of employment).

 

(d)                                  Definitions .

 

(i)                                      Change of Control . For the purpose of this Agreement, “ Change of Control ” shall mean (other than an initial public offering of the Company) (A) any transaction or series of related transactions resulting in the consummation of a merger, combination, consolidation or other reorganization of the Company with or into any third party, other than any such merger, combination, consolidation or reorganization following which the holders of capital stock of the Company immediately prior to such merger, combination, consolidation or reorganization continue to hold, solely in respect of their interests in the Company’s capital stock immediately prior to such merger, combination, consolidation or reorganization, at least fifty-five percent (55%) of the voting power of the outstanding capital stock of the Company or the surviving or acquiring entity; (B) any transaction or series of related transactions resulting in the consummation of the sale, lease, exclusive or irrevocable licensing or other transfer of all or substantially all of the assets of the Company to a third party, other than any such sale, lease, exclusive or irrevocable licensing or transfer following which the holders of capital stock of the Company immediately prior to such sale, lease, exclusive or irrevocable licensing or transfer continue to hold, solely in respect of their interests in the Company’s capital stock immediately prior to such sale, lease, exclusive or irrevocable licensing or transfer, at least fifty-five percent (55%) of the voting power of the outstanding capital stock of the acquiring entity; or (C) any transaction or series of related transactions resulting in the transfer or issuance, whether by merger, combination, consolidation or otherwise, of Company securities to a person or group if, after such transfer or issuance, such person or group would hold fifty-five percent (55%) of the voting power of the outstanding capital stock of the Company; provided that, with respect to any Deferred Compensation Separation Benefits, the transaction or event described in clause (A), (B) or (C) shall only constitute a Change of Control for purposes of this Agreement if such transaction or event also constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5).

 

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(ii)                                   Cause . For purposes of this Agreement, “ Cause ” shall mean (A) Executive’s breach of his duty of loyalty to the Company or Executive’s willful breach of his duty of care to the Company; (B) Executive’s material failure or refusal to comply with reasonable written policies, standards and regulations established by the Board from time to time which failure or refusal, if curable, is not cured to the reasonable satisfaction of the Board during the fifteen (15) day period following written notice of such failure or refusal from the Board; (C) the commission by Executive of a felony, an act of theft, embezzlement or misappropriation of funds or the property of the Company or its subsidiaries of material value or an act of fraud involving the Company or its subsidiaries, (D) willful misconduct or gross negligence of Executive which causes or reasonably could cause (for example, if it became publicly known) material harm to the Company’s standing, condition or reputation; (E) material violation of the Company’s Code of Ethics (or similar written policies concerning ethical behavior) or written policies concerning harassment or discrimination; or (F) any material breach by Executive of the provisions of the Employee Confidentiality Agreement (the “ Confidentiality Agreement ”) between Executive and the Company referred to in Section 7(a)  below or a material provision of this Agreement.

 

(i)                                      Good Reason . For purposes of this Agreement, “ Good Reason ” shall mean one or more of the following, without Executive’s consent: (A) there is a material reduction in aggregate amount of Executive’s Base Salary and Target Bonus without Executive’s consent (except where there is a general reduction applicable to the management team generally), (B) there is a material reduction in Executive’s overall responsibilities or authority, or scope of duties, (C) Executive is required by the Company to relocate his principal place of employment outside of outside of the New York City metropolitan area or (D) any material breach by the Company of this Agreement. It is understood that Executive must assert any termination for Good Reason by written notice to the Company no later than forty-five (45) days following the date on which arises the event or events giving the Executive the right to assert such a termination, and the Company must have an opportunity within thirty (30) days following delivery of such notice to cure the Good Reason condition. In no instance will a resignation by Executive be deemed to be for Good Reason if it is made more than twelve (12) months following the initial occurrence of any of the events that otherwise would constitute Good Reason hereunder.

 

6.                                       Parachute Payments .

 

(a)                                  Notwithstanding any other provisions of this Agreement, in the event that any payment or benefit by the Company or otherwise to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (all such payments and benefits, including the payments and benefits under Section 5(b)(i)  and Section 5(b)(ii)  hereof, being hereinafter referred to as the “ Total Payments ”), would be subject (in whole or in part) to the excise tax imposed by Section 4999 of the Code (the “ Excise Tax ”), then the Total Payments shall be reduced (in the order provided in Section 6(b)) to the minimum extent necessary to avoid the imposition of the Excise Tax on the Total Payments, but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income and employment taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments), is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income and employment taxes on such Total Payments and the amount of the Excise Tax to which Executive would be

 

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subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments).

 

(b)                                  The Total Payments shall be reduced in the following order:  (i) reduction on a pro-rata basis of any cash severance payments that are exempt from Section 409A of the Code, (ii) reduction on a pro-rata basis any non-cash severance payments or benefits that are exempt from Section 409A of the Code, (iii) reduction on a pro-rata basis of any other payments or benefits that are exempt from Section 409A of the Code, and (iv) reduction of any payments or benefits otherwise payable to Executive on a pro-rata basis or such other manner that complies with Section 409A of the Code; provided, in case of clauses (ii), (iii) and (iv), that reduction of any payments attributable to the acceleration of vesting of Company equity awards shall be first applied to Company equity awards that would otherwise vest last in time.

 

(c)                                   All determinations regarding the application of this Section 6 shall be made by an accounting firm or consulting group with experience in performing calculations regarding the applicability of Section 280G of the Code and the Excise Tax selected by the Company (the “ Independent Advisors ”).  For purposes of determinations, no portion of the Total Payments shall be taken into account which, in the opinion of the Independent Advisors, (i) does not constitute a “parachute payment” within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code) or (ii) constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the “base amount” (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation.  The costs of obtaining such determination and all related fees and expenses (including related fees and expenses incurred in any later audit) shall be borne by the Company.

 

(d)                                  In the event it is later determined that a greater reduction in the Total Payments should have been made to implement the objective and intent of this Section 6 , the excess amount shall be returned immediately by Executive to the Company.

 

7.                                       Company Matters; Restrictive Covenants .

 

(a)                                  Proprietary Information and Inventions . Concurrently with or prior to the execution of this Agreement, Executive shall have signed a Confidentiality Agreement in the form required to be executed by each employee of the Company. As provided further in the Confidentiality Agreement, the Company will provide Executive with confidential and proprietary information concerning its operations, and Executive agrees that he will not disclose or use such information except on behalf of the Company.

 

(b)                                  Ventures . If, during the Term, Executive is engaged in or associated with the planning or implementing of projects, programs or ventures involving the Company and third parties, all rights in such projects, programs and ventures shall belong to the Company (or the third party, to the extent provided in any agreement between the Company and the third party). Except as formally approved by the Company, Executive shall not be entitled to any interest in such project, program or venture or to any commission, finder’s fee or other compensation in connection therewith other than the salary or other compensation to be paid to Executive as provided in this Agreement.

 

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(c)                                   Non-Solicitation and Non-Competition .

 

(i)                                      Non-Solicitation . Executive agrees that, during the Term and for a period of 12 months from and after any termination of Executive’s employment with the Company, voluntary or involuntary, for any reason or no reason (the “ Non-Compete Period ”), Executive shall not (directly or indirectly, on behalf of Executive or any third party) (a) solicit, induce, recruit or encourage, or take any other action which is intended to induce or encourage or facilitate or has the effect of inducing or encouraging any of the Company’s employees to leave their employment with the Company or otherwise facilitates the hiring of any such employees by any person outside the Company; (b) solicit, interfere with, disrupt or attempt to disrupt any past, present or prospective relationship, contractual or otherwise, between the Company and any of its actual or prospective customers, suppliers, employees or stockholders, within the Geographic Area (as defined below), other than on behalf of the Company or any of its subsidiaries, directly or indirectly, without the prior written consent of the Company.

 

(ii)                                   Non-Competition . In addition, during the Non-Compete Period, Executive shall not, directly or indirectly, (a) engage in (whether as an employee, agent, consultant, advisor, independent contractor, proprietor, partner, officer, director or otherwise), (b) have any ownership interest in (except for passive ownership of one percent (1%) or less of any entity whose securities have been registered under the Securities Act of 1933, as amended, or Section 12 of the 1934 Act), or (c) participate in the financing, operation, management or control of, any firm, partnership, corporation, entity or business, that engages or participates in a “competing business purpose.” The term “ competing business purpose ” shall mean the Company’s business, including without limitation telephone and internet based physician consultation, as conducted or planned to be conducted by the Company at any time during the course of Executive’s employment with the Company (including without limitation products and services under development as of the date of termination).

 

(iii)                                Geographic Area ” means any city, county or state, or any similar subdivision thereof, in each of the United States of America.

 

(iv)                               Separate Covenants . The covenants contained in Section 7(c)(i)  and 7(c)(ii)  shall be construed as a series of separate covenants, one for each city, county, state, or any similar subdivision in any Geographic Area. These covenants shall also be construed as a series of separate and successive covenants, one for each month of the Non-Compete Period. Except for geographic coverage, each such separate covenant shall be deemed identical in terms to the covenant contained in Section 7(c)(i)  and 7(c)(ii)  above. If, in any judicial or arbitral proceeding, a court or arbitrator refuses to enforce any of such separate covenants (or any part thereof), then such unenforceable covenant (or such part) shall be eliminated from this Agreement to the extent necessary to permit the remaining separate covenants (or portions thereof) to be enforced. In the event that the provisions of Section 7(c)(i)  and 7(c)(ii)  above are deemed to exceed the time, geographic or scope limitations permitted by applicable law, then such provisions shall be reformed to the maximum time, geographic or scope limitations, as the case may be, then permitted by such law. In the event that the applicable court or arbitrator does not exercise the power granted to it in the prior sentence, Executive and the Company agree to replace such invalid or unenforceable term or provision with a valid and enforceable term or provision that will achieve, to the extent possible, the economic, business and other purposes of such invalid or unenforceable term. The Parties acknowledge that the promises and covenants contained in this Section 7 are essential independent elements of this Agreement and that, but for Executive agreeing to comply with them, the Company would not employ Executive and would not provide Executive with confidential and proprietary

 

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information. Accordingly, the existence or assertion of any claim by Executive against the Company, whether based on this Agreement or otherwise, shall not operate as a defense to the Company’s enforcement of the promises and covenants in the Confidentiality Agreement and this Section 7. An alleged or actual breach of the Agreement by the Company will not be a defense to enforcement of any such promise or covenant in this Section 7 or the Confidentiality Agreement. The promises and covenants in this Section 7 and the Confidentiality Agreement will remain in full force and effect whether the Executive is terminated by the Company or voluntarily resigns.

 

(v)                                  Acknowledgements . Executive acknowledges that the nature of the Company’s business is such that if Executive were to become employed by, or substantially involved in, the business of a competitor of the Company within the Non-Compete Period, it will be difficult for Executive not to rely on or use the Company’s trade secrets and confidential information. Therefore, Executive has agreed to enter into this Agreement to reduce the likelihood of disclosure of the Company’s trade secrets and confidential information. Executive therefore acknowledges and agrees that the promises in Section 7(c)  are ancillary to an otherwise enforceable agreement contained in this Agreement and the Confidentiality Agreement. Executive also acknowledges that the limitations of time, geography, and scope of activity agreed to above are reasonable because, among other things: (a) these non-competition and non­solicitation agreements are entered into in connection with the offer of continued employment to Executive based upon the covenants agreed to Executive hereby, (b) the Company is engaged in a highly competitive industry; (c) Executive will have continued and unique access to the trade secrets and know-how of the Company, including without limitation the plans and strategy (and in particular the competitive strategy) of the Company; (d) Executive is receiving significant compensation in connection with Executive’s employment and the covenants provided herein; (e) these non-competition and non-solicitation agreements will not impose an undue hardship on Executive, and Executive acknowledges that in the event Executive’s employment with the Company ends, Executive will be able to obtain suitable and satisfactory employment in Executive’s chosen profession without violation of these covenants; and (f) these covenants provide no more protection than is reasonable and necessary to protect the trade secrets, confidential information, customer contacts and relationships, and goodwill of the Company.

 

(d)                                  Resignation on Termination . On termination of Executive’s employment, Executive shall immediately (and with contemporaneous effect) resign any directorships, offices or other positions that Executive may hold in the Company or any of its affiliates, unless otherwise requested by the Board.

 

(e)                                   Tolling of Non-Compete Period . The Non-Compete Period will not include any period(s) of violation of such promises in this Section 7 or the Confidentiality Agreement, it being understood that the extension of time provided in this Section 7(e)  may not exceed two (2) years.

 

8.                                       Non-disparagement . Upon termination of employment by the Company or resignation of employment by Executive for any reason, Executive shall not, directly, or through any other person or entity, make any public or private statements that are disparaging of the Company, its business or its employees, officers, directors, or stockholders; and the Company shall not, directly or through any other person or entity, make any public or private statements that are disparaging of Executive.

 

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9.                                       ARBITRATION . THE PARTIES AGREE THAT ANY AND ALL DISPUTES ARISING OUT OF THE TERMS OF THIS AGREEMENT, THEIR INTERPRETATION, AND ANY OF THE MATTERS HEREIN RELEASED, SHALL BE SUBJECT TO ARBITRATION IN THE BOROUGH OF MANHATTAN, CITY OF NEW YORK, NEW YORK OR ANY SUBSEQUENT LOCATION WHERE THE PRINCIPAL OFFICES OF THE COMPANY ARE LOCATED BEFORE JAMS, PURSUANT TO ITS EMPLOYMENT ARBITRATION RULES & PROCEDURES (“ JAMS RULES ”) OR THE AMERICAN ARBITRATION ASSOCIATION IF JAMS IS NOT AVAILABLE. THE ARBITRATOR MAY GRANT INJUNCTIONS AND OTHER RELIEF IN SUCH DISPUTES. THE ARBITRATOR SHALL ADMINISTER AND CONDUCT ANY ARBITRATION IN ACCORDANCE WITH NEW YORK LAW, AND THE ARBITRATOR SHALL APPLY SUBSTANTIVE AND PROCEDURAL NEW YORK LAW TO ANY DISPUTE OR CLAIM, WITHOUT REFERENCE TO ANY CONFLICT-OF-LAW PROVISIONS OF ANY JURISDICTION. TO THE EXTENT THAT THE JAMS RULES CONFLICT WITH NEW YORK LAW, NEW YORK LAW SHALL TAKE PRECEDENCE. THE DECISION OF THE ARBITRATOR SHALL BE FINAL, CONCLUSIVE, AND BINDING ON THE PARTIES TO THE ARBITRATION. THE PARTIES AGREE THE ARBITRATOR SHALL HAVE THE POWER TO AWARD ANY REMEDIES AVAILABLE UNDER APPLICABLE LAW, AND THAT THE ARBITRATOR SHALL AWARD ATTORNEYS’ FEES AND COSTS TO THE PREVAILING PARTY, EXCEPT AS PROHIBITED BY LAW. THE PARTIES AGREE THAT THE PREVAILING PARTY IN ANY ARBITRATION SHALL BE ENTITLED TO INJUNCTIVE RELIEF IN ANY COURT OF COMPETENT JURISDICTION TO ENFORCE THE ARBITRATION AWARD. TO THE EXTENT PERMITTED BY LAW, THE COMPANY AND EXECUTIVE WILL SPLIT EQUALLY ANY ADMINISTRATIVE OR HEARING FEES CHARGED BY THE ARBITRATOR OR JAMS, EXCEPT THAT THE PARTY INITIATING THE ARBITRATION WILL PAY THE FULL FILING FEE. THE PARTIES HEREBY AGREE TO WAIVE THEIR RIGHT TO HAVE ANY DISPUTE BETWEEN THEM RESOLVED IN A COURT OF LAW BY A JUDGE OR JURY. NOTWITHSTANDING THE FOREGOING, THIS SECTION WILL NOT PREVENT EITHER PARTY FROM SEEKING INJUNCTIVE RELIEF (OR ANY OTHER PROVISIONAL REMEDY) FROM ANY COURT HAVING JURISDICTION OVER THE PARTIES AND THE SUBJECT MATTER OF THEIR DISPUTE RELATING TO THIS AGREEMENT AND THE AGREEMENTS INCORPORATED HEREIN BY REFERENCE. SHOULD ANY PART OF THE ARBITRATION AGREEMENT CONTAINED IN THIS SECTION CONFLICT WITH ANY OTHER ARBITRATION AGREEMENT BETWEEN THE PARTIES, THE PARTIES AGREE THAT THIS ARBITRATION AGREEMENT SHALL GOVERN.

 

10.                                Miscellaneous .

 

(a)                                  Withholding Taxes . The Company may withhold from all salary, bonus or other benefits payable under this Agreement all federal, state, local, city or other taxes as shall be required pursuant to any law or governmental regulation or ruling.

 

(b)                                  Entire Agreement; Binding Effect . This Agreement and the Confidentiality Agreement set forth the entire understanding between the Parties as to the subject matter of this Agreement and supersede all prior agreements, commitments, representations, writings and discussions between them (whether written or oral) on the subject matters herein; and neither of the Parties shall be bound by any obligations, conditions, warranties or representations with respect to the subject matter of this Agreement and the Confidentiality Agreement except as expressly

 

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provided herein or therein or as duly set forth on or subsequent to the date hereof in a written instrument signed by the proper and fully authorized representative of the Party to be bound hereby. This Agreement is binding on the Company and Executive and their respective successors and assigns (whether by assignment, by operation of law or otherwise); provided that neither this Agreement nor any rights or obligations hereunder may be assigned by Executive or the Company without the prior written consent of the other Party, except that the Company shall be entitled to assign this Agreement in connection with a Change of Control. No modification of or amendment to this Agreement will be effective unless such modification or amendment is (i) approved by the Board and (ii) in writing signed by an executive officer of the Company and Executive. The Company and Executive agree to work together in a commercially reasonable manner to consider amendments to this Agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition under Section 409A prior to actual payment to Executive.

 

(c)                                   Absence of Conflict . Executive represents and warrants that Executive’s employment by the Company as described herein will not conflict with and will not be constrained by any prior employment or consulting agreement or relationship. Executive further represents that he has no other agreements, relationships or commitments to any other person or entity that conflict with Executive’s obligations to the Company under this Agreement or Executive’s ability to become employed and perform the services for which Executive is being hired by the Company. Executive further agrees not to make use of any confidential or proprietary information of any other person or entity. Executive represents to Company that Executive has returned to his previous employer(s) all confidential information and property associated with any former employer’s business.

 

(d)                                  Voluntary Nature of Agreement; Legal Rights . Executive is executing this Agreement voluntarily and without any duress or undue influence by the Company or any other person or entity. Executive acknowledges that Executive has had the opportunity to consult with an attorney regarding the provisions of this Agreement and has either obtained such advice of counsel or knowingly waived the opportunity to seek such advice. Executive has carefully read this Agreement and has asked any questions needed for Executive to understand the terms, consequences and binding effect of this Agreement and fully understand it, including that Executive is waiving Executive’s right to a jury trial. Executive acknowledges that neither the Company nor its counsel have made any representations to him regarding the tax consequences to him for any payments made under this Agreement.

 

(e)                                   Waivers . No Party shall be deemed to have waived any right, power or privilege under this Agreement or any provisions hereof unless such waiver shall have been duly executed in writing and acknowledged by the Party to be charged with such waiver. The failure of any Party at any time to insist on performance of any of the provisions of this Agreement shall in no way be construed to be a waiver of such provisions, nor in any way to affect the validity of this Agreement or any part hereof. No waiver of any breach of this Agreement shall be held to be a waiver of any other subsequent breach.

 

(f)                                    Notices . All notices, approvals, consents, requests or demands required or permitted to be given under this Agreement shall be in writing and shall be deemed sufficiently given (i) upon delivery, if delivered by hand (ii) one business day after transmission, if sent by facsimile (confirmation received) or (iii) one business day after the business day of deposit with a

 

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reputable overnight courier for next business day delivery, freight prepaid (signature of receipt obtained). Notice in each case shall be addressed to the Party entitled to receive such notice at the following address (or other such addresses as the Parties may subsequently designate):

 

The Company:

Teladoc, Inc.

 

4100 Spring Valley

 

Suite 600

 

Dallas, TX 75244

 

Attn: Chief Financial Officer

 

Executive :

 

(g)                                   Governing Law . This Agreement shall be governed by, and construed and enforced in accordance with New York law as it applies to contracts entered into and wholly to be performed therein by residents thereof. To the extent that any lawsuit is permitted under this Agreement, Executive hereby expressly consents to the exclusive personal jurisdiction of the state and federal courts located in the borough of Manhattan, City of New York, New York for any lawsuit arising out of or related to this Agreement.

 

(h)                                  Severability . Every provision of this Agreement is intended to be severable from every other provision of this Agreement. If any provision of this Agreement is held to be invalid, illegal or unenforceable, in whole or in part, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement; and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein except to the extent that such provision may be construed and modified so as to render it valid, lawful, and enforceable in a manner consistent with the intent of the Parties to the extent compatible with the applicable law as it shall then appear.

 

(i)                                      Effect of Headings . The Section and subsection headings contained herein are for convenience only and shall not affect the construction hereof.

 

(j)                                     Counterparts . This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original, and all such counterparts shall constitute but one instrument.

 

(k)                                  Separation from Service . Notwithstanding anything to the contrary in this Agreement, with respect to severance payments or any other amounts payable to Executive under this Agreement in connection with a termination of Executive’s employment that would be considered “non-qualified deferred compensation” under Section 409A of the Code, in no event shall a termination of employment be considered to have occurred under this Agreement unless such termination constitutes Executive’s “separation from service” with the Company as such term is defined in Treasury Regulation Section 1.409A-l(h) and any successor provision thereto.

 

(l)                                      Section 409A; Separate Payments. This Agreement is intended to be written, administered, interpreted and construed in a manner such that no payment or benefits provided under the Agreement become subject to (a) the gross income inclusion set forth within Section 409A(a)(l)(A) of the Code or (b) the interest and additional tax set forth within Section

 

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409A(a)(l)(B) of the Code (collectively, “ Section 409A Penalties ”), including, where appropriate, the construction of defined terms to have meanings that would not cause the imposition of Section 409A Penalties. In no event shall the Company be required to provide a tax gross-up payment to Executive or otherwise reimburse Executive with respect to Section 409A Penalties. For purposes of Section 409A of the Code (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), each payment that Executive may be eligible to receive under this Agreement shall be treated as a separate and distinct payment and shall not collectively be treated as a single payment. The Company has urged Executive to seek advice from Executive’s own tax advisor regarding the tax consequences of this Agreement to Executive.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed as of the year and date first written above.

 

 

Company :

 

 

 

TELADOC, INC.

 

 

 

 

 

 

By:

/s/ Adam Vandervoort

 

Name: Adam Vandervoort

 

Title: CLO

 

 

 

 

 

Executive :

 

 

 

 

 

/s/ Mark Hirschhorn

 

Mark Hirschhorn

 




Exhibit 10.21

 

Execution Version

 

EXECUTIVE EMPLOYMENT AGREEMENT

 

THIS EXECUTIVE EMPLOYMENT AGREEMENT (this “ Agreement ”) is made as of June 17, 2015, by and between Teladoc, Inc., a Delaware corporation (the “ Company ”), and Michael King (“ Executive ”) (collectively referred to as the “ Parties ” or individually referred to as a “ Party ”), and will become effective on the closing of the Company’s initial public offering of common stock pursuant to an effective registration statement filed under the Securities Act of 1933, as amended (the “ Effective Date ”).

 

1.                                       Employment; Duties; Full Time Employment . The Company hereby agrees to continue to employ Executive, and Executive hereby accepts continued employment, as the Chief Sales Officer of the Company. In such capacity, Executive shall be responsible for the operations of the Company and shall perform such executive duties and exercise such powers for the Company and its subsidiaries (if any) as the Chief Executive Officer or the Board of Directors (“ Board ”) of the Company may lawfully assign to or vest in Executive from time to time. Executive covenants and agrees that, at all times during the Term (as defined below), Executive shall devote Executive’s full business time and efforts to Executive’s duties as an employee of the Company and that Executive will not, without the prior consent of the Board, directly or indirectly, engage or participate in any other business or professional activities during the Term, other than non-conflicting personal investments managed on Executive’s personal time and activities for non-profit institutions, provided that such activities do not interfere or conflict with Executive’s obligations hereunder.

 

2.                                       Term . The Company agrees to continue to employ Executive, and Executive agrees to continue to serve the Company, on an at “will” basis, which means that either the Company or Executive may terminate Executive’s employment with the Company at any time, with or without Cause or Good Reason, as provided in Section 5 below. The period commencing with the Effective Date and ending on the effective date of any termination or resignation of Executive’s employment in accordance with the provisions hereof shall constitute the term of this Agreement (the “ Term ”).

 

3.                                       Compensation and Benefits . During the Term, the Company shall provide Executive with the following compensation and benefits:

 

(a)                                  Base Salary . The Company shall pay Executive a base salary (“ Base Salary ”) at the rate of $22,883.33 per month (less applicable deductions and withholdings), payable in periodic payments in accordance with the Company’s normal payroll practices. During the Term, Executive’s compensation shall be reviewed by the Board from time to time and at least once every 12 months with the first such review occurring in the first calendar quarter of 2016. The Board may, in its sole discretion, increase or prospectively decrease Executive’s Base Salary; provided, however, that a material reduction in Executive’s Base Salary without Executive’s consent (except where there is a reduction generally applicable to the management team as a whole) shall constitute Good Reason (as defined below). Any increase or decrease in Base Salary (together with the then existing Base Salary) shall serve as the “Base Salary” under this Agreement.

 

(b)                                  Annual Bonus . Executive will be eligible for discretionary annual target bonuses in an amount determined by the Board (or the Compensation Committee thereof) in its sole discretion (each, a “ Target Bonus ”) based on the achievement of annual performance objectives determined by the Board (or the Compensation Committee thereof). Additionally, for each year

 



 

during the Term, the Board (or the Compensation Committee thereof), after consultation with the Executive, will establish “stretch” or “enhanced” performance objectives which, if met, would allow Executive to earn an additional bonus (the “ Stretch Bonus ,” and collectively with the Target Bonus, the “ Bonus ”) in excess of the Target Bonus. The performance objectives for each year of the Term shall be determined within the first sixty (60) days of such year, except for the first year of the Term. The structure of the Bonus and performance objectives may be adjusted from time-to-time by the Board (or the Compensation Committee thereof), and must remain in compliance with general Company compensation policies established and governed by the Board (or the Compensation Committee thereof). Except as provided in this Agreement, a Bonus will be earned only if the Company achieves the annual performance objectives and Executive is actively employed by the Company on the date that such annual performance objectives are achieved and on the date that bonuses are paid. Subject to the foregoing, Executive’s Target Bonus for calendar years 2017 and beyond shall be 75% of Base Salary. For calendar years 2017 and beyond, the Executive’s Stretch Bonus for each year shall be no less than 150% of the Executive’s Target Bonus for such year.  Beginning on July 1, 2015 and through the end of 2016, Executive shall be eligible to receive an annual Bonus based on corporate, new business and net retention goals, with payout amounts more specifically set forth on Exhibit A .

 

(c)                                   Long Term Incentives .  For each fiscal year during the Term, in the event the Board (or the Compensation Committee thereof) grants a long term equity and/or long term cash incentive award generally to the Company’s other senior executives following the Effective Date, the Board (or the Compensation Committee thereof) will grant Executive a market-competitive (as reasonably determined by the Board or Compensation Committee thereof) long term equity and/or cash incentive award on terms and conditions that are no less favorable to Executive than those granted generally to the Company’s other senior executives for the given fiscal year. For the avoidance of doubt, this subsection (c) shall not include grants made to other senior executives in connection with their commencing employment.

 

(d)                                  Other Compensation and Benefits . In addition to the compensation specified above in this Section 3 , Executive shall be entitled to the following benefits during the Term: (i) to accrue up vacation for such number of weeks per calendar year as shall be specified under the Company’s vacation policy, to be taken in accordance with such policy, (ii) holidays and sick leave as made generally available to employees of the Company, and (iii) subject to eligibility therefor, the right to participate in any employee stock purchase plan, profit sharing plan, retirement plan, 401(k) plan, group medical plan, group dental plan, group life insurance plan and/or other health or insurance plan maintained by the Company for its senior executives generally and, if applicable, their family members. The Company reserves the right to cancel or change the benefit plans and programs it offers to its employees generally at any time.

 

4.                                       Business Expenses . The Company shall reimburse Executive for all reasonable and necessary business and travel expenses incurred by Executive in the performance of Executive’s duties under this Agreement. Such expenses shall be reimbursed in accordance with the Company’s guidelines, limits and procedures relating thereto and upon presentation of proper expense vouchers or receipts therefor.

 

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5.                                       Termination .

 

(a)                                  Termination on Death or Disability . The Term will terminate automatically and immediately upon Executive’s death or, upon 30 days’ prior written notice from the Company, in the event of Executive’s Disability. For purposes of this Section 5 , “ Disability ” means that Executive, at or prior to the time notice is given, has been unable to substantially perform Executive’s duties under this Agreement for not less than sixty (60) work days within a six (6) consecutive month period as a result of Executive’s incapacity due to physical or mental illness. The Board (excluding Executive if Executive is at such time a member of the Board) shall make the determination as to the existence or absence of Executive’s Disability. Upon any termination for death or Disability, Executive will not be entitled to any further compensation from the Company, including without limitation severance pay, pay in lieu of notice or any other such compensation (other than accrued salary, and accrued and unused vacation, through Executive’s last day of employment).

 

(b)                                  Termination Without Cause; Resignation for Good Reason . During the Term, the Company shall be entitled to terminate Executive’s employment without Cause (as defined below) and Executive shall be entitled to resign (and thus terminate the Term) with Good Reason (as defined below), in each case at any time, in which case the following provisions shall apply:

 

(i)                                      Termination Absent Change of Control . Except as provided in Section 5(b)(ii) , if Executive’s employment hereunder is terminated by the Company without Cause or if Executive resigns for Good Reason, then Executive shall be entitled to receive the following severance benefits: (i) severance pay in the form of continuation of Executive’s Base Salary in effect on the effective date of termination or resignation, as applicable, for a period of 12 months, to be paid periodically in accordance with the Company’s normal payroll practices and subject to standard payroll deductions and withholdings; (ii) the Bonus earned for the prior year (if not previously paid), (iii) all unvested equity or equity-based awards granted to Executive under any equity compensation plans of the Company that were scheduled to vest within 6 months after the date of Executive’s termination or resignation shall immediately become vested as to time, with any such awards that are subject to performance-based vesting conditions remaining eligible to vest to the extent such performance conditions are satisfied during that 6 month period (provided that nothing herein shall operate to extend the term, if any, of an award beyond the final expiration date provided in the applicable award agreement or prohibit the award from being treated in substantially the same manner as awards held by the Company’s other senior executives in the context of a Change of Control or other corporate transaction); (iv) the Company shall continue Executive’s group life insurance coverage (provided that Executive shall reimburse the Company for any incremental cost of continuing such group life insurance coverage) in effect on the termination or resignation date for a period of twelve (12) months following Executive’s termination or resignation; and (v) if Executive timely elects continued medical, dental or vision coverage under one or more of the Company’s group medical, dental or vision plans pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“ COBRA ”), then the Company shall directly pay, or reimburse Executive for, the COBRA premiums for Executive and Executive’s covered dependents under such plans during the period commencing on Executive’s termination or resignation and ending upon the earliest of (A) 12 months following Executive’s termination or resignation, (B) the date that Executive and/or Executive’s covered dependents become no longer eligible for COBRA and (C) the date Executive becomes eligible to receive such coverage from a subsequent employer (and Executive agrees to promptly notify the Company of such eligibility).

 

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Notwithstanding the foregoing, if the Company determines that it cannot provide the benefit required by clause (iv) of the immediately preceding sentence without potentially violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act) or incurring an excise tax, the Company shall in lieu thereof provide to Executive a taxable monthly payment in an amount equal to the monthly COBRA premium that Executive would be required to pay to continue Executive’s and Executive’s covered dependents’ group health coverage in effect on the date of termination or resignation, which amount shall be based on the premium for the first month of COBRA coverage, shall be made regardless of whether Executive elects COBRA continuation coverage and shall commence in the month following the month in which the date of termination or resignation occurs and end on the earliest of (X) 12 months following Executive’s termination or resignation, (Y) the date that Executive and/or Executive’s covered dependents become no longer eligible for COBRA or (Z) the date Executive becomes eligible to receive healthcare coverage from a subsequent employer (and Executive agrees to promptly notify the Company of such eligibility).

 

(ii)                                   Termination in Connection with a Change of Control . If a Change of Control occurs during the Term and, within twelve (12) months following the Change of Control, Executive’s employment hereunder is terminated by the Company without Cause or if Executive resigns for Good Reason, then Executive shall be entitled to receive the following severance benefits in lieu of the severance benefits set forth in Section 5(b)(i) : (i) severance pay equal to the sum of (A) Executive’s Base Salary in effect on the effective date of termination or resignation, as applicable, plus (B)  Executive’s Target Bonus, payable in a single lump sum subject to standard deductions and withholdings; (ii) the Bonus earned for the prior year (if not previously paid); (iii) a pro rata portion of the Bonus Executive would have earned for the year of termination, which Bonus shall be determined based on Company financial performance results against Executive’s Company financial performance objectives for such year, payable in a lump sum at the same time bonuses are paid to Company senior executives generally (but in no event later than March 15 of the year following the year in which the termination occurs), (iv) all unvested equity or equity-based awards granted to Executive under any equity compensation plans of the Company shall become immediately vested as to time and any such awards that are subject to performance-based vesting will remain eligible to vest to the extent the performance conditions are thereafter satisfied (provided that nothing herein shall operate to extend the term, if any, of an award beyond the final expiration date provided in the applicable award agreement or prohibit the award from being treated in substantially the same manner as awards held by the Company’s other senior executives in the context of a Change of Control or other corporate transaction); (v) the Company shall continue Executive’s group life insurance coverage (provided that Executive shall reimburse the Company for any incremental cost of continuing such group life insurance coverage) in effect on the termination or resignation date for a period of twelve (12) months following Executive’s termination or resignation; and (vi) if Executive timely elects continued medical, dental or vision coverage under one or more of the Company’s group medical, dental or vision plans pursuant to COBRA, then the Company shall directly pay, or reimburse Executive for, the COBRA premiums for Executive and Executive’s covered dependents under such plans during the period commencing on Executive’s termination or resignation and ending upon the earliest of (A) 12 months following Executive’s termination or resignation, (B) the date that Executive and/or Executive’s covered dependents become no longer eligible for COBRA or (C) the date Executive becomes eligible to receive healthcare coverage from a subsequent employer (and Executive agrees to promptly notify the Company of such eligibility).  Notwithstanding the foregoing, if the Company determines in its

 

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sole discretion that it cannot provide the benefits required under clause (vi) of the immediately preceding sentence without potentially violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act) or incurring an excise tax, the Company shall in lieu thereof provide to Executive a taxable monthly payment in an amount equal to the monthly COBRA premium that Executive would be required to pay to continue Executive’s and Executive’s covered dependents’ group health coverage in effect on the date of termination or resignation, which amount shall be based on the premium for the first month of COBRA coverage, shall be made regardless of whether Executive elects COBRA continuation coverage and shall commence in the month following the month in which the date of termination or resignation occurs and end on the earliest of (X) 12 months following Executive’s termination or resignation, (Y) the date that Executive and/or Executive’s covered dependents become no longer eligible for COBRA and (Z) the date Executive becomes eligible to receive healthcare coverage from a subsequent employer (and Executive agrees to promptly notify the Company of such eligibility).

 

(iii)                                Notwithstanding any provision of this Section 5(b)  to the contrary, if the severance payments would be considered “non-qualified deferred compensation” under Code Section 409A, the payment of severance payments shall commence on the first regularly scheduled payroll date of the Company after sixty (60) days following Executive’s date of termination or resignation; provided Executive has executed and delivered the general release (as described in Section 5(b)(iv) ) to the Company prior to such date (and not revoked the general release during the applicable revocation period). The form of the general release will be provided to the Executive not later than five (5) days following Executive’s date of termination.

 

(iv)                               Conditions Precedent . Any severance benefits contemplated by this Section 5(b)  are conditional on Executive (i) complying with the non-competition and non­ solicitation provisions of Section 7(c)  below, (ii) complying with the Confidentiality Agreement and (iii) delivering (without revoking) prior to receipt of such severance benefits, an effective, general release of claims in favor of the Company or its successor, its subsidiaries and their respective directors, officers and stockholders in a form acceptable to the Company or its successor, such form to contain a reaffirmation of Executive’s promises contained in Section 7 of this Agreement and the Confidentiality Agreement and a promise not to disparage the Company, its business, or its employees, officers, directors or stockholders.

 

(v)                                  Deferred Compensation . Notwithstanding anything to the contrary in this Agreement, if Executive is a “specified employee” within the meaning of Section 409A of the Internal Revenue Code (“ Code ”) and any final regulations and guidance promulgated thereunder (“ Section 409A ”) at the time of Executive’s termination, and any portion of the severance payable to Executive, if any, pursuant to this Agreement, when considered together with any other severance payments or separation benefits which may be considered deferred compensation under Section 409A (together, the “ Deferred Compensation Separation Benefits ”), then only that portion of the Deferred Compensation Separation Benefits which do not exceed the Section 409A Limit (as defined below) may be made within the first six (6) months following Executive’s termination of employment in accordance with the payment schedule applicable to each payment or benefit. Any portion of the Deferred Compensation Separation Benefits in excess of the Section 409A Limit shall accrue and, to the extent such portion of the Deferred Compensation Separation Benefits would otherwise have been payable within the first six (6) months following Executive’s termination of employment, will become payable on the first payroll date that occurs on or after the date six (6) months and one (1) day following the date of Executive’s termination of employment. All

 

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subsequent Deferred Compensation Separation Benefits, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit. It is the intent of this Agreement to comply with the requirements of Section 409A so that none of the severance payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply. For purposes of this Agreement, “ Section 409A Limit ” shall mean the lesser of two (2) times: (i) Executive’s annualized compensation based upon the annual rate of pay paid to Executive during the Company’s taxable year preceding the Company’s taxable year of Executive’s termination of employment as determined under Treasury Regulation 1.409A-1(b)(9)(iii)(A)(l) and any Internal Revenue Service guidance issued with respect thereto; or (ii) the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Code for the year in which Executive’s employment is terminated.

 

(c)                                   Termination for Cause; Resignation without Good Reason . The Company may terminate Executive’s employment at any time for Cause, and Executive may resign at any time without Good Reason. Termination for Cause shall be effective on the date the Company gives notice to Executive of such termination in accordance with this Agreement. Resignation by Executive without Good Reason shall be effective on the date Executive gives notice to the Company of such resignation in accordance with this Agreement. In the event of the Company’s termination of Executive’s employment hereunder by the Company for Cause or Executive’s resignation from Executive’s employment without Good Reason, Executive will not be entitled to any further compensation from the Company including severance pay, pay in lieu of notice or any other such compensation (other than accrued salary, and accrued and unused vacation, through Executive’s last day of employment).

 

(d)                                  Definitions .

 

(i)                                      Change of Control . For the purpose of this Agreement, “ Change of Control ” shall mean (other than an initial public offering of the Company) (A) any transaction or series of related transactions resulting in the consummation of a merger, combination, consolidation or other reorganization of the Company with or into any third party, other than any such merger, combination, consolidation or reorganization following which the holders of capital stock of the Company immediately prior to such merger, combination, consolidation or reorganization continue to hold, solely in respect of their interests in the Company’s capital stock immediately prior to such merger, combination, consolidation or reorganization, at least fifty-five percent (55%) of the voting power of the outstanding capital stock of the Company or the surviving or acquiring entity; (B) any transaction or series of related transactions resulting in the consummation of the sale, lease, exclusive or irrevocable licensing or other transfer of all or substantially all of the assets of the Company to a third party, other than any such sale, lease, exclusive or irrevocable licensing or transfer following which the holders of capital stock of the Company immediately prior to such sale, lease, exclusive or irrevocable licensing or transfer continue to hold, solely in respect of their interests in the Company’s capital stock immediately prior to such sale, lease, exclusive or irrevocable licensing or transfer, at least fifty-five percent (55%) of the voting power of the outstanding capital stock of the acquiring entity; or (C) any transaction or series of related transactions resulting in the transfer or issuance, whether by merger, combination, consolidation or otherwise, of Company securities to a person or group if, after such transfer or issuance, such person or group would hold fifty-five percent (55%) of the voting power of the outstanding capital stock of the Company; provided that, with respect to any Deferred Compensation Separation Benefits, the transaction or event described in clause (A), (B) or (C) shall only constitute a Change of Control for

 

6



 

purposes of this Agreement if such transaction or event also constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5).

 

(ii)                                   Cause . For purposes of this Agreement, “ Cause ” shall mean (A) Executive’s breach of his duty of loyalty to the Company or Executive’s willful breach of his duty of care to the Company; (B) Executive’s material failure or refusal to comply with reasonable written policies, standards and regulations established by the Board from time to time which failure or refusal, if curable, is not cured to the reasonable satisfaction of the Board during the fifteen (15) day period following written notice of such failure or refusal from the Board; (C) the commission by Executive of a felony, an act of theft, embezzlement or misappropriation of funds or the property of the Company or its subsidiaries of material value or an act of fraud involving the Company or its subsidiaries, (D) willful misconduct or gross negligence of Executive which causes or reasonably could cause (for example, if it became publicly known) material harm to the Company’s standing, condition or reputation; (E) material violation of the Company’s Code of Ethics (or similar written policies concerning ethical behavior) or written policies concerning harassment or discrimination; or (F) any material breach by Executive of the provisions of the Employee Confidentiality Agreement (the “ Confidentiality Agreement ”) between Executive and the Company referred to in Section 7(a)  below or a material provision of this Agreement.

 

(i)                                      Good Reason . For purposes of this Agreement, “ Good Reason ” shall mean one or more of the following, without Executive’s consent: (A) there is a material reduction in aggregate amount of Executive’s Base Salary and Target Bonus without Executive’s consent (except where there is a general reduction applicable to the management team generally), (B) there is a material reduction in Executive’s overall responsibilities or authority, or scope of duties, it being understood that a reduction in Executive’s responsibilities or authority following a Change of Control shall not constitute Good Reason if (x) there is no demotion in Executive’s position or reduction of the scope of Executive’s duties within the Company or (y) Executive is given a position of materially similar or greater overall scope and responsibility with materially similar duties within the acquiring company, taking into appropriate consideration that a nominally lower hierarchical role in a larger company may involve similar or greater scope and responsibility than a nominally higher role in the hierarchy of a smaller company, (C) Executive is required by the Company to relocate his principal place of employment outside of outside of the New York City metropolitan area or (D) any material breach by the Company of this Agreement. It is understood that Executive must assert any termination for Good Reason by written notice to the Company no later than forty-five (45) days following the date on which arises the event or events giving the Executive the right to assert such a termination, and the Company must have an opportunity within thirty (30) days following delivery of such notice to cure the Good Reason condition. In no instance will a resignation by Executive be deemed to be for Good Reason if it is made more than twelve (12) months following the initial occurrence of any of the events that otherwise would constitute Good Reason hereunder.

 

6.                                       Parachute Payments .

 

(a)                                  Notwithstanding any other provisions of this Agreement, in the event that any payment or benefit by the Company or otherwise to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (all such payments and benefits, including the payments and benefits under Section 5(b)(i)  and Section 5(b)(ii) hereof, being hereinafter referred to as the “ Total Payments ”), would be subject (in whole or

 

7


 

in part) to the excise tax imposed by Section 4999 of the Code (the “ Excise Tax ”), then the Total Payments shall be reduced (in the order provided in Section 6(b)) to the minimum extent necessary to avoid the imposition of the Excise Tax on the Total Payments, but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income and employment taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments), is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income and employment taxes on such Total Payments and the amount of the Excise Tax to which Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments).

 

(b)                                  The Total Payments shall be reduced in the following order:  (i) reduction on a pro-rata basis of any cash severance payments that are exempt from Section 409A of the Code, (ii) reduction on a pro-rata basis any non-cash severance payments or benefits that are exempt from Section 409A of the Code, (iii) reduction on a pro-rata basis of any other payments or benefits that are exempt from Section 409A of the Code, and (iv) reduction of any payments or benefits otherwise payable to Executive on a pro-rata basis or such other manner that complies with Section 409A of the Code; provided, in case of clauses (ii), (iii) and (iv), that reduction of any payments attributable to the acceleration of vesting of Company equity awards shall be first applied to Company equity awards that would otherwise vest last in time.

 

(c)                                   All determinations regarding the application of this Section 6 shall be made by an accounting firm or consulting group with experience in performing calculations regarding the applicability of Section 280G of the Code and the Excise Tax selected by the Company (the “ Independent Advisors ”).  For purposes of determinations, no portion of the Total Payments shall be taken into account which, in the opinion of the Independent Advisors, (i) does not constitute a “parachute payment” within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code) or (ii) constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the “base amount” (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation.  The costs of obtaining such determination and all related fees and expenses (including related fees and expenses incurred in any later audit) shall be borne by the Company.

 

(d)                                  In the event it is later determined that a greater reduction in the Total Payments should have been made to implement the objective and intent of this Section 6 , the excess amount shall be returned immediately by Executive to the Company.

 

7.                                       Company Matters; Restrictive Covenants .

 

(a)                                  Proprietary Information and Inventions . Concurrently with or prior to the execution of this Agreement, Executive shall have signed a Confidentiality Agreement in the form required to be executed by each employee of the Company. As provided further in the Confidentiality Agreement, the Company will provide Executive with confidential and proprietary information concerning its operations, and Executive agrees that he will not disclose or use such information except on behalf of the Company.

 

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(b)                                  Ventures . If, during the Term, Executive is engaged in or associated with the planning or implementing of projects, programs or ventures involving the Company and third parties, all rights in such projects, programs and ventures shall belong to the Company (or the third party, to the extent provided in any agreement between the Company and the third party). Except as formally approved by the Company, Executive shall not be entitled to any interest in such project, program or venture or to any commission, finder’s fee or other compensation in connection therewith other than the salary or other compensation to be paid to Executive as provided in this Agreement.

 

(c)                                   Non-Solicitation and Non-Competition .

 

(i)                                      Non-Solicitation . Executive agrees that, during the Term and for a period of 12 months from and after any termination of Executive’s employment with the Company, voluntary or involuntary, for any reason or no reason (the “ Non-Compete Period ”), Executive shall not (directly or indirectly, on behalf of Executive or any third party) (a) solicit, induce, recruit or encourage, or take any other action which is intended to induce or encourage or facilitate or has the effect of inducing or encouraging any of the Company’s employees to leave their employment with the Company or otherwise facilitates the hiring of any such employees by any person outside the Company; (b) solicit, interfere with, disrupt or attempt to disrupt any past, present or prospective relationship, contractual or otherwise, between the Company and any of its actual or prospective customers, suppliers, employees or stockholders, within the Geographic Area (as defined below), other than on behalf of the Company or any of its subsidiaries, directly or indirectly, without the prior written consent of the Company.

 

(ii)                                   Non-Competition . In addition, during the Non-Compete Period, Executive shall not, directly or indirectly, (a) engage in (whether as an employee, agent, consultant, advisor, independent contractor, proprietor, partner, officer, director or otherwise), (b) have any ownership interest in (except for passive ownership of one percent (1%) or less of any entity whose securities have been registered under the Securities Act of 1933, as amended, or Section 12 of the 1934 Act), or (c) participate in the financing, operation, management or control of, any firm, partnership, corporation, entity or business, that engages or participates in a “competing business purpose.” The term “ competing business purpose ” shall mean the Company’s business, including without limitation telephone and internet based physician consultation, as conducted or planned to be conducted by the Company at any time during the course of Executive’s employment with the Company (including without limitation products and services under development as of the date of termination).

 

(iii)                                Geographic Area ” means any city, county or state, or any similar subdivision thereof, in each of the United States of America.

 

(iv)                               Separate Covenants . The covenants contained in Section 7(c)(i)  and 7(c)(ii)  shall be construed as a series of separate covenants, one for each city, county, state, or any similar subdivision in any Geographic Area. These covenants shall also be construed as a series of separate and successive covenants, one for each month of the Non-Compete Period. Except for geographic coverage, each such separate covenant shall be deemed identical in terms to the covenant contained in Section 7(c)(i) and 7(c)(ii) above. If, in any judicial or arbitral proceeding, a court or arbitrator refuses to enforce any of such separate covenants (or any part thereof), then such unenforceable covenant (or such part) shall be eliminated from this Agreement to the extent

 

9



 

necessary to permit the remaining separate covenants (or portions thereof) to be enforced. In the event that the provisions of Section 7(c)(i)  and 7(c)(ii)  above are deemed to exceed the time, geographic or scope limitations permitted by applicable law, then such provisions shall be reformed to the maximum time, geographic or scope limitations, as the case may be, then permitted by such law. In the event that the applicable court or arbitrator does not exercise the power granted to it in the prior sentence, Executive and the Company agree to replace such invalid or unenforceable term or provision with a valid and enforceable term or provision that will achieve, to the extent possible, the economic, business and other purposes of such invalid or unenforceable term. The Parties acknowledge that the promises and covenants contained in this Section 7 are essential independent elements of this Agreement and that, but for Executive agreeing to comply with them, the Company would not employ Executive and would not provide Executive with confidential and proprietary information. Accordingly, the existence or assertion of any claim by Executive against the Company, whether based on this Agreement or otherwise, shall not operate as a defense to the Company’s enforcement of the promises and covenants in the Confidentiality Agreement and this Section 7. An alleged or actual breach of the Agreement by the Company will not be a defense to enforcement of any such promise or covenant in this Section 7 or the Confidentiality Agreement. The promises and covenants in this Section 7 and the Confidentiality Agreement will remain in full force and effect whether the Executive is terminated by the Company or voluntarily resigns.

 

(v)                                  Acknowledgements . Executive acknowledges that the nature of the Company’s business is such that if Executive were to become employed by, or substantially involved in, the business of a competitor of the Company within the Non-Compete Period, it will be difficult for Executive not to rely on or use the Company’s trade secrets and confidential information. Therefore, Executive has agreed to enter into this Agreement to reduce the likelihood of disclosure of the Company’s trade secrets and confidential information. Executive therefore acknowledges and agrees that the promises in Section 7(c)  are ancillary to an otherwise enforceable agreement contained in this Agreement and the Confidentiality Agreement. Executive also acknowledges that the limitations of time, geography, and scope of activity agreed to above are reasonable because, among other things: (a) these non-competition and non­ solicitation agreements are entered into in connection with the offer of continued employment to Executive based upon the covenants agreed to Executive hereby, (b) the Company is engaged in a highly competitive industry; (c) Executive will have continued and unique access to the trade secrets and know-how of the Company, including without limitation the plans and strategy (and in particular the competitive strategy) of the Company; (d) Executive is receiving significant compensation in connection with Executive’s employment and the covenants provided herein; (e) these non-competition and non-solicitation agreements will not impose an undue hardship on Executive, and Executive acknowledges that in the event Executive’s employment with the Company ends, Executive will be able to obtain suitable and satisfactory employment in Executive’s chosen profession without violation of these covenants; and (f) these covenants provide no more protection than is reasonable and necessary to protect the trade secrets, confidential information, customer contacts and relationships, and goodwill of the Company.

 

(d)                                  Resignation on Termination . On termination of Executive’s employment, Executive shall immediately (and with contemporaneous effect) resign any directorships, offices or other positions that Executive may hold in the Company or any of its affiliates, unless otherwise requested by the Board.

 

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(e)                                   Tolling of Non-Compete Period . The Non-Compete Period will not include any period(s) of violation of such promises in this Section 7 or the Confidentiality Agreement, it being understood that the extension of time provided in this Section 7(e) may not exceed two (2) years.

 

8.                                       Non-disparagement . Upon termination of employment by the Company or resignation of employment by Executive for any reason, Executive shall not, directly, or through any other person or entity, make any public or private statements that are disparaging of the Company, its business or its employees, officers, directors, or stockholders; and the Company shall not, directly or through any other person or entity, make any public or private statements that are disparaging of Executive.

 

9.                                       ARBITRATION . THE PARTIES AGREE THAT ANY AND ALL DISPUTES ARISING OUT OF THE TERMS OF THIS AGREEMENT, THEIR INTERPRETATION, AND ANY OF THE MATTERS HEREIN RELEASED, SHALL BE SUBJECT TO ARBITRATION IN THE BOROUGH OF MANHATTAN, CITY OF NEW YORK, NEW YORK OR ANY SUBSEQUENT LOCATION WHERE THE PRINCIPAL OFFICES OF THE COMPANY ARE LOCATED BEFORE JAMS, PURSUANT TO ITS EMPLOYMENT ARBITRATION RULES & PROCEDURES (“ JAMS RULES ”) OR THE AMERICAN ARBITRATION ASSOCIATION IF JAMS IS NOT AVAILABLE. THE ARBITRATOR MAY GRANT INJUNCTIONS AND OTHER RELIEF IN SUCH DISPUTES. THE ARBITRATOR SHALL ADMINISTER AND CONDUCT ANY ARBITRATION IN ACCORDANCE WITH NEW YORK LAW, AND THE ARBITRATOR SHALL APPLY SUBSTANTIVE AND PROCEDURAL NEW YORK LAW TO ANY DISPUTE OR CLAIM, WITHOUT REFERENCE TO ANY CONFLICT-OF-LAW PROVISIONS OF ANY JURISDICTION. TO THE EXTENT THAT THE JAMS RULES CONFLICT WITH NEW YORK LAW, NEW YORK LAW SHALL TAKE PRECEDENCE. THE DECISION OF THE ARBITRATOR SHALL BE FINAL, CONCLUSIVE, AND BINDING ON THE PARTIES TO THE ARBITRATION. THE PARTIES AGREE THE ARBITRATOR SHALL HAVE THE POWER TO AWARD ANY REMEDIES AVAILABLE UNDER APPLICABLE LAW, AND THAT THE ARBITRATOR SHALL AWARD ATTORNEYS’ FEES AND COSTS TO THE PREVAILING PARTY, EXCEPT AS PROHIBITED BY LAW. THE PARTIES AGREE THAT THE PREVAILING PARTY IN ANY ARBITRATION SHALL BE ENTITLED TO INJUNCTIVE RELIEF IN ANY COURT OF COMPETENT JURISDICTION TO ENFORCE THE ARBITRATION AWARD. TO THE EXTENT PERMITTED BY LAW, THE COMPANY AND EXECUTIVE WILL SPLIT EQUALLY ANY ADMINISTRATIVE OR HEARING FEES CHARGED BY THE ARBITRATOR OR JAMS, EXCEPT THAT THE PARTY INITIATING THE ARBITRATION WILL PAY THE FULL FILING FEE. THE PARTIES HEREBY AGREE TO WAIVE THEIR RIGHT TO HAVE ANY DISPUTE BETWEEN THEM RESOLVED IN A COURT OF LAW BY A JUDGE OR JURY. NOTWITHSTANDING THE FOREGOING, THIS SECTION WILL NOT PREVENT EITHER PARTY FROM SEEKING INJUNCTIVE RELIEF (OR ANY OTHER PROVISIONAL REMEDY) FROM ANY COURT HAVING JURISDICTION OVER THE PARTIES AND THE SUBJECT MATTER OF THEIR DISPUTE RELATING TO THIS AGREEMENT AND THE AGREEMENTS INCORPORATED HEREIN BY REFERENCE. SHOULD ANY PART OF THE ARBITRATION AGREEMENT CONTAINED IN THIS SECTION CONFLICT WITH ANY OTHER ARBITRATION AGREEMENT BETWEEN THE PARTIES, THE PARTIES AGREE THAT THIS ARBITRATION AGREEMENT SHALL GOVERN.

 

11



 

10.                                Miscellaneous .

 

(a)                                  Withholding Taxes . The Company may withhold from all salary, bonus or other benefits payable under this Agreement all federal, state, local, city or other taxes as shall be required pursuant to any law or governmental regulation or ruling.

 

(b)                                  Entire Agreement; Binding Effect . This Agreement and the Confidentiality Agreement set forth the entire understanding between the Parties as to the subject matter of this Agreement and supersede all prior agreements, commitments, representations, writings and discussions between them (whether written or oral) on the subject matters herein; and neither of the Parties shall be bound by any obligations, conditions, warranties or representations with respect to the subject matter of this Agreement and the Confidentiality Agreement except as expressly provided herein or therein or as duly set forth on or subsequent to the date hereof in a written instrument signed by the proper and fully authorized representative of the Party to be bound hereby. This Agreement is binding on the Company and Executive and their respective successors and assigns (whether by assignment, by operation of law or otherwise); provided that neither this Agreement nor any rights or obligations hereunder may be assigned by Executive or the Company without the prior written consent of the other Party, except that the Company shall be entitled to assign this Agreement in connection with a Change of Control. No modification of or amendment to this Agreement will be effective unless such modification or amendment is (i) approved by the Board and (ii) in writing signed by an executive officer of the Company and Executive. The Company and Executive agree to work together in a commercially reasonable manner to consider amendments to this Agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition under Section 409A prior to actual payment to Executive.

 

(c)                                   Absence of Conflict . Executive represents and warrants that Executive’s employment by the Company as described herein will not conflict with and will not be constrained by any prior employment or consulting agreement or relationship. Executive further represents that he has no other agreements, relationships or commitments to any other person or entity that conflict with Executive’s obligations to the Company under this Agreement or Executive’s ability to become employed and perform the services for which Executive is being hired by the Company. Executive further agrees not to make use of any confidential or proprietary information of any other person or entity. Executive represents to Company that Executive has returned to his previous employer(s) all confidential information and property associated with any former employer’s business.

 

(d)                                  Voluntary Nature of Agreement; Legal Rights . Executive is executing this Agreement voluntarily and without any duress or undue influence by the Company or any other person or entity. Executive acknowledges that Executive has had the opportunity to consult with an attorney regarding the provisions of this Agreement and has either obtained such advice of counsel or knowingly waived the opportunity to seek such advice. Executive has carefully read this Agreement and has asked any questions needed for Executive to understand the terms, consequences and binding effect of this Agreement and fully understand it, including that Executive is waiving Executive’s right to a jury trial. Executive acknowledges that neither the Company nor its counsel have made any representations to him regarding the tax consequences to him for any payments made under this Agreement.

 

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(e)                                   Waivers . No Party shall be deemed to have waived any right, power or privilege under this Agreement or any provisions hereof unless such waiver shall have been duly executed in writing and acknowledged by the Party to be charged with such waiver. The failure of any Party at any time to insist on performance of any of the provisions of this Agreement shall in no way be construed to be a waiver of such provisions, nor in any way to affect the validity of this Agreement or any part hereof. No waiver of any breach of this Agreement shall be held to be a waiver of any other subsequent breach.

 

(f)                                    Notices . All notices, approvals, consents, requests or demands required or permitted to be given under this Agreement shall be in writing and shall be deemed sufficiently given (i) upon delivery, if delivered by hand (ii) one business day after transmission, if sent by facsimile (confirmation received) or (iii) one business day after the business day of deposit with a reputable overnight courier for next business day delivery, freight prepaid (signature of receipt obtained). Notice in each case shall be addressed to the Party entitled to receive such notice at the following address (or other such addresses as the Parties may subsequently designate):

 

The Company :

 

Teladoc, Inc.

 

 

4100 Spring Valley

 

 

Suite 600

 

 

Dallas, TX 75244

 

 

Attn: Chief Financial Officer

 

Executive :

 

(g)                                   Governing Law . This Agreement shall be governed by, and construed and enforced in accordance with New York law as it applies to contracts entered into and wholly to be performed therein by residents thereof. To the extent that any lawsuit is permitted under this Agreement, Executive hereby expressly consents to the exclusive personal jurisdiction of the state and federal courts located in the borough of Manhattan, City of New York, New York for any lawsuit arising out of or related to this Agreement.

 

(h)                                  Severability . Every provision of this Agreement is intended to be severable from every other provision of this Agreement. If any provision of this Agreement is held to be invalid, illegal or unenforceable, in whole or in part, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement; and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein except to the extent that such provision may be construed and modified so as to render it valid, lawful, and enforceable in a manner consistent with the intent of the Parties to the extent compatible with the applicable law as it shall then appear.

 

(i)                                      Effect of Headings . The Section and subsection headings contained herein are for convenience only and shall not affect the construction hereof.

 

(j)                                     Counterparts . This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original, and all such counterparts shall constitute but one instrument.

 

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(k)                                  Separation from Service . Notwithstanding anything to the contrary in this Agreement, with respect to severance payments or any other amounts payable to Executive under this Agreement in connection with a termination of Executive’s employment that would be considered “non-qualified deferred compensation” under Section 409A of the Code, in no event shall a termination of employment be considered to have occurred under this Agreement unless such termination constitutes Executive’s “separation from service” with the Company as such term is defined in Treasury Regulation Section 1.409A-l(h) and any successor provision thereto.

 

(l)                                      Section 409A; Separate Payments. This Agreement is intended to be written, administered, interpreted and construed in a manner such that no payment or benefits provided under the Agreement become subject to (a) the gross income inclusion set forth within Section 409A(a)(l)(A) of the Code or (b) the interest and additional tax set forth within Section 409A(a)(l)(B) of the Code (collectively, “ Section 409A Penalties ”), including, where appropriate, the construction of defined terms to have meanings that would not cause the imposition of Section 409A Penalties. In no event shall the Company be required to provide a tax gross-up payment to Executive or otherwise reimburse Executive with respect to Section 409A Penalties. For purposes of Section 409A of the Code (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), each payment that Executive may be eligible to receive under this Agreement shall be treated as a separate and distinct payment and shall not collectively be treated as a single payment. The Company has urged Executive to seek advice from Executive’s own tax advisor regarding the tax consequences of this Agreement to Executive.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed as of the year and date first written above.

 

 

Company :

 

 

 

TELADOC, INC.

 

 

 

 

 

By:

/s/ Adam Vandervoort

 

Name: Adam Vandervoort

 

Title: CLO

 

 

 

 

 

Executive :

 

 

 

 

 

/s/ Michael King

 

Michael King

 




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Exhibit 23.2


Consent of Independent Registered Public Accounting Firm

         We consent to the reference to our firm under the caption "Experts" and to the use of our report dated March 24, 2015 (except for Note 17, as to which the date is June 4, 2015 and the last two paragraphs of Note 18, as to which the date is June 17, 2015), in the Registration Statement (Form S-1) and related Prospectus of Teladoc, Inc. for the registration of shares of its common stock.

                                                                                             /s/ Ernst & Young LLP

New York, New York
June 17, 2015




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Consent of Independent Registered Public Accounting Firm

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Exhibit 23.3


Consent of Independent Auditors

         We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated March 24, 2015, with respect to the consolidated financial statements of Consult A Doctor, Inc. and AmeriDoc, LLC included in the Registration Statement (Form S-1) and related Prospectus of Teladoc, Inc. for the registration of shares of its common stock.

                                                                                             /s/ Ernst & Young LLP

New York, New York
June 17, 2015




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Consent of Independent Auditors

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Exhibit 23.4


Consent of Independent Auditors

         We consent to the reference to our firm under the caption "Experts" and to the use of our report dated June 5, 2015, with respect to the financial statements of Stat Health Services Inc. included in the Registration Statement (Form S-1) and related Prospectus of Teladoc, Inc. for the registration of shares of its common stock.

Denver, Colorado
June 17, 2015




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Consent of Independent Auditors