-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PwYrXZfUvX0ufLGLqPOyxM+qwwbgspTxb7fYYLsWOHOgGkYtC2ZqUoLJzWFvOEkP J5xfq3sHYyfeMbihpFZzTQ== 0000950136-01-500025.txt : 20010426 0000950136-01-500025.hdr.sgml : 20010426 ACCESSION NUMBER: 0000950136-01-500025 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20010425 GROUP MEMBERS: INVESCO PRIVATE CAPITAL INC GROUP MEMBERS: IPC DIRECT ASSOCIATES SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: HEALTH GRADES INC CENTRAL INDEX KEY: 0001027915 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-OFFICES & CLINICS OF DOCTORS OF MEDICINE [8011] IRS NUMBER: 621623449 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-58765 FILM NUMBER: 1610570 BUSINESS ADDRESS: STREET 1: 44 UNION BLVD STREET 2: STE 600 CITY: LAKEWOOD STATE: CO ZIP: 80228 BUSINESS PHONE: 3037160041 MAIL ADDRESS: STREET 1: 44 UNION BOULEVARD STREET 2: SUITE 600 CITY: LAKEWOOD STATE: CO ZIP: 80228 FORMER COMPANY: FORMER CONFORMED NAME: HEALTHGRADES COM INC DATE OF NAME CHANGE: 20000118 FORMER COMPANY: FORMER CONFORMED NAME: SPECIALTY CARE NETWORK INC DATE OF NAME CHANGE: 19961210 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: INVESCO PRIVATE CAPITAL INC CENTRAL INDEX KEY: 0001128452 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 1315 PEACHTREE STREET STREET 2: SUITE 500 CITY: ATLANTA STATE: GA ZIP: 30309 BUSINESS PHONE: 2122789000 MAIL ADDRESS: STREET 1: 1315 PEACHTREE STREET STREET 2: SUITE 500 CITY: ATLANTA STATE: GA ZIP: 30309 SC 13D/A 1 file001.txt AMENDMENT TO SCHEDULE 13D ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 (Amendment No. 2)* Health Grades, Inc. - -------------------------------------------------------------------------------- (Name of Issuer) Common Stock - -------------------------------------------------------------------------------- (Title of Class of Securities) 84748M 10 2 - -------------------------------------------------------------------------------- (CUSIP Number) Deborah O'Neal-Johnson INVESCO, Inc. 1315 Peachtree Street Atlanta, Georgia 30309 (404) 892-0896 - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) April 16, 2001 - -------------------------------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of ss.ss.240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. [ ] * The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). CUSIP No.: 84748M 10 2 - -------------------------------------------------------------------------------- 1. Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only). CHANCELLOR V, L.P. - -------------------------------------------------------------------------------- 2. Check the Appropriate Box if a Member of a Group (See Instructions): (a) [ ] (b) [X] - -------------------------------------------------------------------------------- 3. SEC Use Only: - -------------------------------------------------------------------------------- 4. Source of Funds (See Instructions): WC - -------------------------------------------------------------------------------- 5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e): [ ] - -------------------------------------------------------------------------------- 6. Citizenship or Place of Organization: Delaware - -------------------------------------------------------------------------------- Number of 7. Sole Voting Power Shares 0 Beneficially ---------------------------------------------------------------- Owned by 8. Shared Voting Power Each 5,982,350 Reporting ---------------------------------------------------------------- Person With 9. Sole Dispositive Power 0 ---------------------------------------------------------------- 10. Shared Dispositive Power 5,982,350 - -------------------------------------------------------------------------------- 11. Aggregate Amount Beneficially Owned by Each Reporting Person: 5,982,350 - -------------------------------------------------------------------------------- 12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions): [ ] - -------------------------------------------------------------------------------- 13. Percent of Class Represented by Amount in Row (11): 25.96% - -------------------------------------------------------------------------------- 14. Type of Reporting Person (See Instructions): PN - -------------------------------------------------------------------------------- CUSIP No.: 84748M 10 2 - -------------------------------------------------------------------------------- 1. Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only). IPC DIRECT ASSOCIATES V, L.L.C. - -------------------------------------------------------------------------------- 2. Check the Appropriate Box if a Member of a Group (See Instructions): (a) [ ] (b) [X] - -------------------------------------------------------------------------------- 3. SEC Use Only: - -------------------------------------------------------------------------------- 4. Source of Funds (See Instructions): WC - -------------------------------------------------------------------------------- 5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e): [ ] - -------------------------------------------------------------------------------- 6. Citizenship or Place of Organization: Delaware - -------------------------------------------------------------------------------- Number of 7. Sole Voting Power Shares 0 Beneficially --------------------------------------------------------------- Owned by 8. Shared Voting Power Each 5,982,350 Reporting --------------------------------------------------------------- Person With 9. Sole Dispositive Power 0 --------------------------------------------------------------- 10. Shared Dispositive Power 5,982,350 - -------------------------------------------------------------------------------- 11. Aggregate Amount Beneficially Owned by Each Reporting Person: 5,982,350 - -------------------------------------------------------------------------------- 12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions): [ ] - -------------------------------------------------------------------------------- 13. Percent of Class Represented by Amount in Row (11): 25.96% - -------------------------------------------------------------------------------- 14. Type of Reporting Person (See Instructions): OO - -------------------------------------------------------------------------------- CUSIP No.: 84748M 10 2 - -------------------------------------------------------------------------------- 1. Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only). INVESCO PRIVATE CAPITAL, INC. - -------------------------------------------------------------------------------- 2. Check the Appropriate Box if a Member of a Group (See Instructions): (a) [ ] (b) [X] - -------------------------------------------------------------------------------- 3. SEC Use Only: - -------------------------------------------------------------------------------- 4. Source of Funds (See Instructions): WC - -------------------------------------------------------------------------------- 5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e): [ ] - -------------------------------------------------------------------------------- 6. Citizenship or Place of Organization: Delaware - -------------------------------------------------------------------------------- Number of 7. Sole Voting Power Shares 0 Beneficially -------------------------------------------------------------- Owned by 8. Shared Voting Power Each 5,982,350 Reporting -------------------------------------------------------------- Person With 9. Sole Dispositive Power 0 -------------------------------------------------------------- 10. Shared Dispositive Power 5,982,350 - -------------------------------------------------------------------------------- 11. Aggregate Amount Beneficially Owned by Each Reporting Person: 5,982,350 - -------------------------------------------------------------------------------- 12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions): [ ] - -------------------------------------------------------------------------------- 13. Percent of Class Represented by Amount in Row (11): 25.96% - -------------------------------------------------------------------------------- 14. Type of Reporting Person (See Instructions): CO - -------------------------------------------------------------------------------- This Amendment No. 2 amends and supplements the Schedule 13D originally filed on March 27, 2000 (the "Schedule 13D"), as amended by Amendment No. 1 to the Schedule 13D filed on March 26, 2001 ("Amendment No. 1"), by the undersigned relating to the shares of common stock, $0.001 par value per share, (the "Common Stock") of Health Grades, Inc. (the "Company"). Unless indicated otherwise, all defined terms used herein shall have the respective meanings ascribed to them in the Schedule 13D. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION Item 3 of the Schedule 13D is hereby amended and supplemented by adding the following at the end thereof: Chancellor has entered into an agreement with the Company and another investor under which Chancellor and the other investor may provide equity financing to the Company of up to $2,000,000. Under the agreement, the Company was granted an option, exercisable as of or prior to December 31, 2001, to sell additional shares of Common Stock and warrants to Chancellor for a purchase price of up to $1,168,400. The number of shares and warrants that would be issued is based on the market price of the Common Stock on the date the Company exercises its option, but in no event less than $0.15 per share. In consideration for Chancellor entering into the agreement, the Company has issued to Chancellor a six year warrant to purchase 292,100 shares of Common Stock at an exercise price of $0.26 per share, the closing price of the Common Stock on April 16, 2001. In addition to the foregoing, the Company has agreed to reprice options to purchase 58,420 shares of Common Stock, owned by Chancellor, to an exercise price of $0.26 per share. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER Item 5 of the Schedule 13D is hereby amended and restated in its entirety as follows: TOTAL OUTSTANDING SHARES. According to information provided to the Filing Persons by the Company, the number of shares of Common Stock outstanding on March 31, 2001 was 21,273,425 and the number of shares of Common Stock subject to warrants held by Chancellor was 1,767,350 for a total of 23,040,775 shares. CHANCELLOR. As of the date of filing of this Schedule 13D, Chancellor is the holder of record of 5,982,350 shares of Common Stock of the Company, consisting of 4,215,000 shares of Common Stock and warrants to purchase 1,767,350 shares of Common Stock exercisable within 60 days hereof, representing approximately 25.96% of the outstanding Common Stock, and has shared voting and investment power with respect to such securities. IPC. IPC as sole General Partner of Chancellor, may also be deemed to have shared voting and investment power with respect to such securities. IPC disclaims beneficial ownership of such securities except to the extent of its pecuniary interest therein. PRIVATE CAPITAL. Under the investment management agreement with Chancellor, Private Capital has shared dispositive power and voting power with respect to the securities held by Chancellor. Private Capital disclaims beneficial ownership of such securities except to the extent of its pecuniary interest therein. On April 16, 2001, Chancellor acquired a warrant to purchase 292,100 shares of Common Stock from the Company. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER Item 6 of the Schedule 13D is hereby amended and supplemented by adding the following at the end thereof: On April 16, 2001, Chancellor entered into an agreement with the Company and another investor under which the Company was granted an option, exercisable as of or prior to December 31, 2001, to sell additional shares of Common Stock and warrants to Chancellor for a purchase price of up to $1,168,400. The number of shares and warrants that would be issued is based on the market price of the Common Stock on the date the Company exercises its option, but in no event less than $0.15 per share. EXHIBIT INDEX NO. DESCRIPTION OF EXHIBIT - --- ---------------------- Exhibit A Agreement of Joint Filing, dated April 25, 2001, among the Filing Persons. Exhibit B Co-Sale and Voting Agreement, dated March 17, 2000, previously filed. Exhibit C Letter Agreement, dated April 16, 2001. Signature After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this amended statement is true, complete and correct. Date: April 25, 2001 CHANCELLOR V, L.P. By its general partner: IPC Direct Associates V, L.L.C. By its Managing Member: INVESCO Private Capital, Inc. By: /s/ Alessandro Piol ---------------------------------- Name: Alessandro Piol Its: Managing Director IPC DIRECT ASSOCIATES V, L.L.C. By its Managing Member: INVESCO Private Capital, Inc. By: /s/ Alessandro Piol ---------------------------------- Name: Alessandro Piol Its: Managing Director INVESCO PRIVATE CAPITAL, INC. By: /s/ Alessandro Piol ---------------------------------- Name: Alessandro Piol Its: Managing Director EX-99.A 2 file002.txt AGREEMENT REGARDING JOINT FILING EXHIBIT A AGREEMENT REGARDING JOINT FILING In accordance with Rule 13d-1(k) under the Securities Exchange Act of 1934, as amended, the undersigned hereby agrees to the joint filing on behalf of each of them of a Statement on Schedule 13D as promulgated by the SEC, including any pertinent amendments thereto, and including, where applicable, additions or deletions to the group represented by the undersigned, with respect to the Common Stock, $0.001 par value per share, of Health Grades, Inc., and that this Agreement be included as an Exhibit to such filing. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to constitute one and the same Agreement. IN WITNESS WHEREOF, each of the undersigned hereby executes this Agreement as of April 25, 2001. CHANCELLOR V, L.P. By its general partner: IPC Direct Associates V, L.L.C. By its Managing Member: INVESCO Private Capital, Inc. By: /s/ Alessandro Piol ---------------------------------- Name: Alessandro Piol Its: Managing Director IPC DIRECT ASSOCIATES V, L.L.C. By its Managing Member: INVESCO Private Capital, Inc. By: /s/ Alessandro Piol ---------------------------------- Name: Alessandro Piol Its: Managing Director INVESCO PRIVATE CAPITAL, INC. By: /s/ Alessandro Piol ---------------------------------- Name: Alessandro Piol Its: Managing Director EX-99.C 3 file003.txt LETTER AGREEMENT, DATED APRIL 16, 2001 Exhibit C April 16, 2001 Chancellor V, L.P. Essex Woodlands Health Ventures Fund IV, L.P. c/o INVESCO Private Capital, Inc. 190 S. LaSalle Street 1166 Avenue of the Americas Suite 2800 New York, NY 10036 Chicago, IL 60603 Attn.: Howard Goldstein, Attn.: Marc Sandroff, Managing Director Managing Director Gentlemen: This letter sets forth the terms of our agreement with regard to your commitment to provide equity financing of up to $2,000,000 to us: 1. Chancellor V, L.P. ("Chancellor") and Essex Woodlands Health Ventures Fund IV, L.P. ("Essex") hereby grants to Health Grades, Inc. (the "Company") the option (the "Put"), which may be exercised in its sole discretion at any time or from time to time on or prior to December 31, 2001, to sell common stock of the Company to Chancellor and Essex at an aggregate purchase price of up to $2,000,000. 2. In consideration for the commitment of Essex and Chancellor to purchase shares of Company Common Stock pursuant to this agreement, the Company will issue to Essex and Chancellor warrants (the "Commitment Warrants") to purchase 500,000 shares of Company Common Stock, $.001 par value, at an exercise price per share equal to the closing market price per share of the Company's Common Stock, as reported by Nasdaq, on the date of this agreement, or, if the agreement is publicly announced following the opening of, but Chancellor V, L.P. Essex Woodlands Health Ventures Fund IV, L.P. April 16, 2001 Page 2 prior to the close of, trading on the Nasdaq Stock Market, at the last such closing market price reported on the preceding trading day (the "Commitment Price"). The Commitment Warrants will expire six years from the date of this agreement. In addition, warrants to purchase Company Common Stock issued to Essex and Chancellor on March 16, 2000 (the "March 16 Warrants") are hereby amended in respect of an aggregate of 100,000 shares issuable upon exercise of such warrants so that the Warrant Price (as defined in the March 16 warrants) will be reduced to the Commitment Price. 3. If the Company determines to exercise the Put, it will provide a notice (the "Put Notice") to Chancellor and Essex indicating the dollar amount of Common Stock to be sold. The price per share (the "Put Price") will be equal to the lesser of the Commitment Price and the closing market price per share of the Company's Common Stock as reported by Nasdaq (or, if the Company's Common Stock is not included on Nasdaq, as reported on the Nasdaq OTC Bulletin Board), or, if last sale information is not available, the mean of the last reported bid and asked prices as reported on the Nasdaq OTC Bulletin Board (or, if not so reported, as published by Pink Sheets LLC), or, if not so reported or published, as agreed to in good faith by the Company, Chancellor and Essex, in any case on the date of the Put Notice, but in no event less than $0.15 per share. 4. In connection with any purchase of common stock under paragraph 3 above, Essex and Chancellor also shall be issued warrants (the "Put Warrants") to purchase a number of shares determined in accordance with the following formula: Chancellor V, L.P. Essex Woodlands Health Ventures Fund IV, L.P. April 16, 2001 Page 3 N = A X 2,525,250 ----------------- $14,430,000 Where N = the number of warrants to be issued and A = the dollar amount of Common Stock purchased The Put Warrants shall have a term of six years from the date of issuance and an exercise price per share equal to the Put Price. 5. Payment for the shares to be sold to Chancellor and Essex, and delivery of Common Stock and warrants to Chancellor and Essex in connection with any exercise by the Company of the Put, will be made within three business days following the date of the applicable Put Notice. 6. In the event the Company effects a stock split, reverse stock split, stock dividend or similar action, the number of shares underlying the Put Warrants issued thereafter, the Commitment Price and the $.15 per share minimum purchase price for the common stock will be appropriately adjusted. 7. The dollar amount of the obligation to purchase Company securities made by Chancellor and Essex and the securities to be repriced or issued to Chancellor and Essex pursuant to this agreement shall be apportioned 58.42% to Chancellor and 41.58% to Essex. The obligations of Chancellor and Essex under this agreement are several and not joint. 8. [INTENTIONALLY OMITTED] Chancellor V, L.P. Essex Woodlands Health Ventures Fund IV, L.P. April 16, 2001 Page 4 9. The Company shall pay the reasonable legal fees of counsel to Chancellor and Essex in connection with the negotiation of this agreement. 10. The Company hereby reaffirms the representations and warranties made in the sections listed below of the Amended and Restated Stock Purchase Agreement, dated as of March 3, 2000, among the Company, Essex, Chancellor and the other parties thereto (the "SPA") (provided, that for the purposes of this paragraph 10 and paragraph 11 hereof, reference in the SPA to the "Agreement" will be deemed to mean this agreement, references to "Shares" will be deemed to mean the Company Common Stock to be issued upon exercise of the Put, references to "Warrants" shall be deemed to mean the Commitment Warrants and the Put Warrants, and references to "Warrant Stock" shall be deemed to mean the shares of Company Common Stock issuable upon exercise of the Put Warrant and the Commitment Warrant (exceptions to any individual section described below shall be deemed to apply to all other sections): 3.1; 3.2; 3.3; 3.4(a)and (c) (excluding, in Section 3.4(a), the fourth sentence and the words "and in the amounts set forth in Section 3.4" in the third sentence and except that 21,273,425 shares of Common Stock are issued and outstanding, including Common Stock sold pursuant to the SPA and the Stock and Warrant Purchase Agreement, dated March 16, 2000, between the Company and certain of its executive officers (the "S&W Agreement"), options to purchase 6,154,074 shares are outstanding (of which options to purchase 168,047 shares are subject to shareholder approval, at the Company's 2001 annual meeting, of an increase in the number of shares issuable under the Company's 1996 Equity Compensation Plan) and warrants to purchase 3,320,000 shares, other than the Chancellor V, L.P. Essex Woodlands Health Ventures Fund IV, L.P. April 16, 2001 Page 5 Commitment Warrants, are outstanding); 3.5; 3.6 (except that: the term "1998 Financial Statements" shall refer to the Company's balance sheet and statement of operations as of and for the period ended December 31, 1999, and the term "Financial Statements" shall mean the 1998 Financial Statements (as redefined) and the Company's combined unaudited balance sheet and statement of operations as of and for the period ended September 30, 2000; the 1998 Financial Statements were audited (and not prepared by) a certified public accountant; and as publicly disclosed by the Company, certain of the financial statements are being restated to eliminate barter revenues and related expenses); 3.7 (except that the September 30, 1999 date shall be deemed to be September 30, 2000 and except for: transactions pursuant to an Agreement and General Release between the Company and Patrick Jaeckle (the "Jaeckle Agreement"), the terms of which were approved by a special committee of the Board of Directors (including Essex's designated director); the termination or pending termination of employment of certain officers, which has been discussed by the Board of Directors; compensation provided with the approval of the Compensation Committee or the Board of Directors (which includes Essex's designated director); settlement of litigation with respect to a former affiliated practice (previously disclosed publicly by the Company) resulting in cash proceeds to the Company of $1,750,000 and a loss, for financial statement purposes, of approximately $350,000; reduction in indebtedness owed to the Company by a former affiliated practice in exchange for accelerated repayment of the remaining balance (previously disclosed publicly by the Company); repayment of the outstanding balance of the Company's bank indebtedness; change in accounting practice relating to barter revenue (previously disclosed publicly by the Company); the purchase by the Chancellor V, L.P. Essex Woodlands Health Ventures Fund IV, L.P. April 16, 2001 Page 6 Company of a server and related equipment for approximately $50,000 and grants of stock options approved by the Compensation Committee or otherwise in accordance with the terms of the 1996 Equity Compensation Plan; settlement of a dispute with a former affiliated practice in which the Company received $350,000 in cash and 38,779 shares of its Common Stock and recorded a loss, for financial statement purposes of $91,938; a loan of $35,000 to an officer (the "Officer Loan"), of which $23,913 is currently outstanding; and the Company's agreement with GeoAccess, Inc., which was approved by the Board of Directors); 3.8 (except for the Jaeckle Agreement and except that many of the obligations described in the Disclosure Schedule were subsequently satisfied or disclosed in the Company's financial statements); 3.9 (except that the lien addressed in the disclosure schedule is not longer in effect); 3.10, 3.11, 3.12 (except for: litigation initially commenced by the Company against a nursing home referenced in the Risk Factor section of the Company's Form S-1 registration statement (registration no. 333-39600); and litigation against a vendor in which the Company contests a $190,000 obligation); 3.13 (excluding the first three sentences and except for matters disclosed above); 3.14 (except for the S&W Agreement and the agreement by which the Company acquired the minority interests in HG.com, Inc., each of which have previously been provided to Essex and Chancellor, and certain of the matters discussed above); 3.15 (second and third sentences only, applying, for this purpose, the definition of "Contracts" in the first sentence and except for nonpayment of an obligation to a vendor that is the subject of litigation described adjacent to the reference to Section 3.12 (based on, among other things, the Company's claim that the vendor is in breach of its obligations)); 3.16 (except for: registration rights under the SPA, registration Chancellor V, L.P. Essex Woodlands Health Ventures Fund IV, L.P. April 16, 2001 Page 7 rights effected through the previous filing of a registration statement and registration rights provided to SmallCaps Online LLC in connection with an agreement approved by the Board of Directors); 3.17 (except that the Company will rely on the exemption from registration provided under Section 4(2) of the Securities Act and stockholder approval of exercise of the Put is required to maintain continued listing on the Nasdaq Small Cap Market); 3.18; 3.19 (except that no brokerage or finders fees are being paid in connection with this agreement); 3.20 (except for agreements relating to the election of designees of Essex and Chancellor); 3.21; 3.22; 3.23; 3.24 (except that minutes of several recent meetings of the Board of Directors or Board Committees are yet to be drafted or are subject to approval of the Board of Directors or appropriate Board Committee); 3.25 (except that the SCN Retirement Savings Plan has been replaced with a new 401(k) plan); 3.26; 3.27, 3.28 (except that such representation shall be to the knowledge of the Company; 3.29 (except that the Company no longer has bank debt service obligations); 3.30 (first and third sentence only, except the Company has filed a Form 12b-25 in respect of its Annual Report on Form 10-K for the year ended December 31, 2000, references to amendments shall include, as appropriate, supplements, and references to "SEC Reports" shall be deemed to mean the Company's annual report on Form 10-K for the year ended December 31, 1999, quarterly reports on Forms 10-Q and proxy statements filed thereafter, and registration statement on Form S-1 (registration no. 333-39600) and prospectus supplements related to the prospectus included therein); 3.32 (first sentence only; the Company has fully paid its obligation under the Credit Agreement); 3.33 (except for the third sentence); and 3.36 (except that in respect of the last Chancellor V, L.P. Essex Woodlands Health Ventures Fund IV, L.P. April 16, 2001 Page 8 sentence, the Company has provided information to designees of Chancellor and Essex in their capacities as members of the Board of Directors and Board Committees). 11. Each of Essex and Chancellor hereby reaffirms all of the representations made in Section IV of the SPA (subject to the same redefinition of terms as is set forth in the introductory clause of paragraph 10). 12. All Common Stock issued to Chancellor and Essex hereunder (including Common Stock issuable upon exercise of the Commitment Warrants and the Put Warrants) will be "Registrable Securities" for the purposes of Section VII of the SPA. Essex and Chancellor agree that the restrictions on transferability in the SPA will apply to the securities issued and issuable pursuant to this agreement (for this purpose, "Shares" as used in the SPA shall mean shares of Company Common Stock issuable upon exercise of the Put, "Warrant Stock" shall mean shares of Company Common Stock issuable upon exercise of the Commitment Warrants and the Put Warrants, and "Warrants" shall mean the Commitment Warrants and the Put Warrants. 13. The Commitment Warrants and the Put Warrants shall be in the form attached hereto. 14. The parties will cooperate with each other and execute such additional instruments and documents as are reasonably necessary to carry out the transactions contemplated by this agreement. Chancellor V, L.P. Essex Woodlands Health Ventures Fund IV, L.P. April 16, 2001 Page 9 15. This agreement shall be governed by the internal law of the State of Delaware. 16. This agreement may be executed in two or more counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. Chancellor V, L.P. Essex Woodlands Health Ventures Fund IV, L.P. April 16, 2001 Page 2 17. Notices under this agreement will be deemed given if delivered personally or by commercial overnight courier (in the case of Chancellor and Essex, to the addresses set forth above; in the case of the Company, to Health Grades, Inc., 44 Union Boulevard - Suite 600, Lakewood, Colorado 80228, Attn: Kerry Hicks, Chief Executive Officer), or by facsimile (with confirmation of receipt) as follows: Chancellor - 212-278-3723; Essex - 312-444-6034; Company - 303-716-1298, in each case to the attention of the persons identified above Very truly yours, HEALTH GRADES, INC. By: /s/ Kerry Hicks --------------------------- Its: Chief Executive Officer Accepted as of the date first set forth above: CHANCELLOR V, L.P. By: IPC Direct Associates V, L.L.C. Its General Partners By: INVESCO Private Capital Its Managing Member By: /s/ Howard Goldstein ----------------------------------- Its: Manging Director ESSEX WOODLANDS HEALTH VENTURES FUND IF, L.P. By: Essex Woodland Health Ventures IV, L.P. Its General Partner By: /s/ Marc Sandroff --------------------------- Its Managing Director -----END PRIVACY-ENHANCED MESSAGE-----