Health Grades Inc – ‘PRES14A’ for 1/28/02

On:  Friday, 12/14/01   ·   For:  1/28/02   ·   Accession #:  1035704-1-500547   ·   File #:  0-22019

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Preliminary Proxy Solicitation Material — Special Meeting   —   Schedule 14A
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Document/Exhibit                   Description                      Pages   Size 

 1: PRES14A     Preliminary Proxy Statement - Special Meeting         37    142K 

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SCHEDULE 14A
(RULE 14a-101)

 INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION
 PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
 EXCHANGE ACT OF 1934 (AMENDMENT NO. )

                                                        [Enlarge/Download Table]
                                                                                     
Filed by the Registrant [X]                                                          

Filed by a Party other than the Registrant [ ]                                       

Check the appropriate box:                                                           
[X] Preliminary Proxy Statement                  [ ] Confidential, For Use of the    
                                                     Commission Only (as permitted by
                                                     Rule 14a-6(e)(2))               
[  ] Definitive Proxy Statement                                                      
[  ] Definitive Additional Materials                                                 
[  ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12                   

 Health Grades, Inc.
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(Name of Registrant as Specified in Its Charter)

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 (Name of Person(s) Filing Proxy Statement if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):                              
[X] No fee required.                                                
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)     
    (1) and 0-11. (1) Title of each class of securities to which transaction
applies:                                                    

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(2) Aggregate number of securities to which transaction applies:      

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(3) Per unit price or other underlying value of transaction computed  
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):                                 

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(4) Proposed maximum aggregate value of transaction:                  

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(5) Total fee paid:                                                 

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[ ] Fee paid previously with preliminary materials.                   

    [ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid   
previously. Identify the previous filing by registration statement number, or   
the form or schedule and the date of its filing.                                

(1)  Amount previously paid:                                        

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(2)  Form, Schedule or Registration Statement No.:                  

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(3)  Filing Party:                                                  

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(4)  Date Filed:                                                    

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 HEALTH GRADES, INC.

 NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

Dear Stockholder:                                                               

It is my pleasure to invite you to attend a Special Meeting of
Stockholders of Health Grades, Inc., to be held at our corporate headquarters,  
44 Union Boulevard, Lakewood, Colorado, on Friday, January 18, 2002 at 9:00 a.m.
local time. The meeting will be held for the following purposes:                

     1.       To vote upon a proposal to approve the Health Grades, Inc.
Stock Purchase Plan.                        

        2.       To vote upon a proposal to amend the Health Grades, Inc. 1996
            Equity Compensation Plan by (a) increasing the number of
                 shares of Health Grades common stock that may be issued under
                  the plan to 13,000,000 shares and (b) increasing the number of
                  shares underlying options that may be granted to a participant
in any calendar year to 2,000,000.          

3.       To vote upon a proposal to amend our Certificate of  
                Incorporation to increase the number of shares of our common
                stock that we are authorized to issue to 100,000,000 shares.

         4.       To act upon such other matters as may properly come before the
meeting.                                    

   Holders of record of our common stock at the close of business on
December 10, 2001 are entitled to receive this notice and to vote at the meeting
or any adjournment.                                                             

        Your vote is important. Whether or not you plan to attend the meeting,
we urge you to complete, sign and return your proxy card as soon as possible in 
the envelope provided. This will ensure representation of your shares in the    
event you are not able to attend the meeting. You may revoke your proxy and vote
in person at the meeting if you so desire.                                      

 Allen Dodge
December __, 2001                  Senior Vice President - Finance,             
                           Chief Financial Officer and Secretary

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44 UNION BOULEVARD
 SUITE 600
LAKEWOOD, COLORADO 80228

 PROXY STATEMENT

This proxy statement is being furnished in connection with the
solicitation of proxies on behalf of the Board of Directors of Health Grades,   
Inc. for a special meeting of stockholders. We are first mailing copies of this 
proxy statement, the attached notice of special meeting of stockholders and the 
enclosed form of proxy on or about December __, 2001.                           

        At the special meeting, holders of our common stock will vote upon the
proposals described in the attached Notice of Special Meeting of Stockholders.  
Our Board of Directors has fixed the close of business on December 10, 2001 as  
the record date for the determination of stockholders entitled to notice of, and
to vote at, the special meeting or any adjournment of the special meeting.      
Accordingly, you may vote at the special meeting only if you are a holder of    
record of common stock at the close of business on the record date. As of the   
record date, 34,606,758 shares of common stock were issued and outstanding.     

    If you complete and return your proxy card and we receive it at or
prior to the special meeting, your shares will be voted in accordance with your 
directions. You can specify your choices by marking the appropriate boxes on the
enclosed proxy card. If your proxy card is signed and returned without          
directions, the shares will be voted for approval of the proposals to adopt the 
Health Grades, Inc. Stock Purchase Plan, amend the Health Grades, Inc. 1996     
Equity Compensation Plan and amend our certificate of incorporation. You may    
revoke your proxy at any time before it is voted at the meeting by sending a    
notice of revocation to our Secretary, executing a later-dated proxy or voting  
by ballot at the meeting.                                                       

         The holders of a majority of our common stock entitled to vote, present
in person or represented by proxy, will constitute a quorum for the transaction 
of business. Abstentions and broker "non-votes" are counted as present and      
entitled to vote for purposes of determining a quorum. A broker "non-vote"      
occurs when a nominee holding shares for a beneficial owner does not vote on a  
particular proposal because the nominee does not have discretionary voting power
with respect to that item and has not received instructions from the beneficial 
owner.                                                                          

   Holders of common stock are entitled to one vote per share on all
matters properly brought before the meeting. The proposal to amend our          
certificate of incorporation requires the affirmative vote of the holders of a  
majority of our outstanding shares of common stock. All other matters to be     
acted upon at the meeting will be determined by the affirmative vote of the     
holders of the majority of the common stock present in person or represented by 
proxy and entitled to vote. On the proposal to amend our certificate of         
incorporation, abstentions and broker "non-votes" will have the same effect as  
shares voted against the proposal. On all other proposals, abstentions will have
the same effect as a vote against the proposal, while a broker "non-vote"       
generally is not counted for purposes of voting on these matters.               

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       The Board of Directors is not aware of any other matters that will be
brought before the meeting other than those described in this proxy statement.  
However, if any other matters properly come before the meeting, the persons     
named on the enclosed proxy card will vote in accordance with their best        
judgment on such matters.                                                       

OWNERSHIP OF OUR COMMON STOCK BY CERTAIN PERSONS                                

        The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of December 10, 2001 by (i) each    
person known to us to own beneficially more than five percent of our common     
stock (including such person's address), (ii) our six most highly paid executive
officers during 2001, including one executive officer who is no longer employed 
by the Company (iii) each director and (iv) all directors and executive officers
as a group.                                                                     

                                                                [Download Table]


                                            NUMBER OF SHARES         PERCENT OF     
                 NAME OF BENEFICIAL OWNER  BENEFICIALLY OWNED  OUTSTANDING SHARES(1)
                 ------------------------  ------------------  ---------------------
                                                                                    
Kerry R. Hicks(2)                              2,802,533               7.8          
Patrick M. Jaeckle(3)                          1,826,475               5.1          
David G. Hicks(4)                                527,036               1.5          
Peter A. Fatianow(5)                             586,079               1.7          
Sarah P. Loughran(6)                             460,334               1.3          
Michael D. Phillips(7)                            17,496                *           
Peter J. Stahl, III(8)                           335,834               1.0          
Marc S. Sandroff(9)                            9,947,430              27.6          
Mats Wahlstrom(10)                               156,677                *           
Leslie S. Matthews, M.D.(11)                     108,450                *           
Peter H. Cheesbrough(12)                          86,102                *           
John J. Quattrone(13)                              6,667                *           
Chancellor V, L.P.(14)                        13,976,153              38.2          
Essex Woodlands Health Ventures                                                     
Fund IV, L.P.(15)                              9,947,430              27.6          

All directors and executive officers as a     14,779,101              38.7          
   group (11 persons)(16)                                                           

----------                                                                      
* Less than one percent.                                                        

(1)      Applicable percentage of ownership is based on 34,606,758 shares of    
        common stock outstanding on December 10, 2001. Beneficial ownership is
        determined in accordance with the rules of the Securities and Exchange
 Commission and means voting or investment power with respect to
        securities. Shares of common stock issuable upon the exercise of stock
      options exercisable currently or within 60 days of December 10, 2001
   are deemed outstanding and to be beneficially owned by the person
        holding such option for purposes of computing such person's percentage
        ownership, but are not deemed outstanding for the purpose of computing
the percentage ownership of any other person. Except for      

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     shares held jointly with a person's spouse or subject to applicable
   community property laws, or as indicated in the footnotes to this
       table, each stockholder identified in the table possesses sole voting
       and investment power with respect to all shares of common stock shown
as beneficially owned by such stockholder.                    

(2)      Includes 10,000 shares of common stock held by The David G. Hicks      
       Irrevocable Children's Trust, warrants to purchase 350,000 shares and
         945,448 shares underlying stock options. Does not include 60,000 shares
       of common stock held by The Hicks Family Irrevocable Trust, for which
        shares Mr. Hicks disclaims beneficial ownership. Mr. Hicks' address is
   Health Grades, Inc., 44 Union Boulevard, Suite 600, Lakewood, CO,
80228.                                                        

(3)      Includes warrants to purchase 175,000 shares and 861,351 shares        
     underlying stock options. Does not include 100,000 shares of common
    stock held by The Patrick M. Jaeckle Family Irrevocable Children's
         Trust, for which shares Mr. Jaeckle disclaims beneficial ownership. Mr.
Jaeckle's address is 119 The Hills Drive, Austin, TX 78738.   

(4)      Includes warrants to purchase 17,500 shares and 383,255 shares         
underlying stock options.                                     

(5)      Includes 33,334 shares underlying stock options.                       

(6)      Includes 33,334 shares underlying stock options.                       

(7)      Includes 17,496 shares underlying stock options.                       

(8)      Includes 133,334 shares underlying stock options. Mr. Stahl was Chief  
Operating Office of the Company through October 31, 2001.     

(9)      Includes 8,544,000 shares and 1,403,430 shares underlying warrants held
    by Essex Woodlands Health Ventures Fund IV, L.P. (the "Fund"). Mr.
         Sandroff is a Managing Director of Essex Woodlands Health Ventures Fund
         IV, L.L.C. , which is the General Partner of the Fund. Mr. Sandroff and
        the Fund's other two managing directors, James L. Currie and Martin P.
        Satter, have the power by unanimous consent to buy and sell our common
stock and direct the voting of shares of our common stock. Mr.
  Sandroff's address is Essex Woodlands Health Ventures, 190 South
LaSalle Street, Suite 2800, Chicago, IL 60603.                

(10)     Includes 56,677 shares underlying stock options.                       

(11)     Includes 66,667 shares underlying stock options.                       

(12)     Includes 65,012 shares underlying stock options.                       

(13)     Includes 6,667 shares underlying stock options.                        

(14)     Includes warrants to purchase 1,971,820 shares. The address of         
        Chancellor V, L.P. is 1166 Avenue of the Americas, New York, NY 10036.

(15)     Includes warrants to purchase 1,403,430 shares. The address of Essex   
      Woodlands Health Ventures Fund IV, L.P. is 190 South LaSalle Street,
Suite 2800, Chicago, IL 60603. See note 9                     

(16)     Includes warrants to purchase 1,770,930 shares and 1,789,944 shares    
underlying stock options.                                     

 PROPOSAL TO APPROVE THE HEALTH GRADES, INC.
 STOCK PURCHASE PLAN

      Our Board of Directors has adopted, subject to stockholder approval,
the Health Grades, Inc. Stock Purchase Plan (the "Stock Purchase Plan"). Under  
the Stock Purchase Plan, up to 6,000,000 shares of Company Common Stock may be  
purchased by participating employees, subject to adjustment in the event of     
stock splits, stock dividends, recapitalization, or other changes in the        
outstanding Common Stock. The Stock Purchase Plan will be in effect only for    
2002 and is intended to align the interests of management and the stockholders  
and to give certain executive and other management employees the opportunity to 
participate in the growth of the Company. In adopting the Plan, the Board wished
to facilitate the purchase of a quantity of shares that would cause its         
executive officers and certain other selected employees to acquire a meaningful 
ownership interest, thereby enhancing our ability to retain these employees. In 
addition, by requiring salary reductions in order to make purchases under the   
Stock Purchase Plan, the Board believes it is further aligning interests with   
stockholders.                                                                   

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    The Stock Purchase Plan is not intended to qualify as an "employee
stock purchase plan" within the meaning of Section 423 of the Internal Revenue  
Code of 1986 as amended (the "Code").                                           

  The Stock Purchase Plan is set forth in Appendix A to this Proxy
Statement. Our description of the Stock Purchase Plan is qualified in its       
entirety by reference to Appendix A.                                            

    The Compensation Committee of the Board of Directors, or any other
committee appointed by the Board for such purpose (the "Committee"), will       
administer the Stock Purchase Plan. Our employees and employees of any of our   
subsidiaries are eligible to participant in the Stock Purchase Plan if they have
been designated as eligible employees by the Committee. Subject to stockholder  
approval of the Stock Purchase Plan, the Committee has authorized 15 employees, 
including all executive officers, to participate in the Plan.                   

     Under the Stock Purchase Plan, participating employees may purchase
shares of Company Common Stock by electing to have payroll deductions in 2002 of
up to 30 percent of their annual base rate of pay (excluding bonuses, overtime  
pay, commissions, severance pay, relocations expenses and fringe benefits) as in
effect on January 1, 2002. This election may be made only during the period     
beginning on January 21, 2002 and ending on January 25, 2002. The participants  
who elect to make payroll deductions will purchase the number of restricted     
shares of our common stock equal to the participant's annual base rate of pay as
of January 1, 2002 divided by the fair market value of a share of our common    
stock. For this purpose, the fair market value of our common stock is the       
average of the last reported sales prices on each of the 20 trading days ending 
on, and including January 28, 2002, as reported on the OTC Bulletin Board. On   
December 10, 2001, the last reported sales price of our common stock on the OTC 
Bulletin Board was $0.05 per share. All base pay withheld by an employer under  
the Stock Purchase Plan will become a part of the general assets of Health      
Grades, free of any trust or other restriction, and may be used for any         
corporate purpose. The total base salary or wages that a participant would      
otherwise earn during each payroll period for which a salary reduction agreement
is in effect during 2002 will be reduced by a pro rated portion of the          
compensation that the participant elects to forgo based on the number of payroll
periods remaining in the year after the salary reduction agreement becomes      
effective.                                                                      

The shares will be restricted shares that may not be assigned,
transferred, pledged or otherwise disposed of by a participant until they vest. 
Prior to vesting or forfeiture, a participant may vote his or her shares and    
receive any dividends on his or her restricted shares. A participant's          
restricted shares will become fully vested, and all restrictions will lapse as  
of December 31, 2002 if the participant continues to be employed by us or one of
our subsidiaries at that date. If a participant's employment with us or one of  
our subsidiaries terminates for any reason prior to December 31, 2002, no       
further salary reduction will be made, the participant will forfeit the number  
of restricted shares that are attributable to the remaining payroll periods left
in the year and all remaining shares held by the participant will immediately   
become fully vested and no longer subject to restrictions.                      

        If, in connection with salary reduction of all participants in respect
of a payroll period, the aggregate funds to be withheld to purchase restricted  
shares would enable the purchase of a number of restricted shares in excess of  
the number of shares then authorized for issuance under                         

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the Stock Purchase Plan or would cause us to issue shares in excess of the      
number of shares authorized under our Amended and Restated Certificate of       
Incorporation, the amount of each participant's salary reduction and the number 
of restricted shares that would otherwise be delivered to the participant will  
be proportionately reduced in order to eliminate the excess.                    

         In the event of a merger or consolidation in which Health Grades is not
the surviving or resulting corporation (or survives only as a subsidiary of     
another corporation), unless the Board of Directors determines otherwise, each  
participant will automatically become fully vested in his or her restricted     
shares immediately prior to the merger or consolidation.                        

   All distributions of shares under the Stock Purchase Plan will be
subject to applicable federal, state and local tax withholding requirements of  
the Internal Revenue Service or other taxing authority that requires such       
withholding. We may require that participants pay to us (or make other          
arrangements satisfactory to us for the payment of) the amount of any federal,  
state or local taxes that we are required to withhold with respect to the       
receipt of shares under the Stock Purchase Plan, or we may deduct from the      
participant's wages or other compensation the amount of any withholding taxes   
due with respect to the receipt of the shares under the Stock Purchase Plan. We 
will pay all administrative expenses associated with the operation of the plan. 

     Our Board of Directors may amend the plan at any time; however, the
Board of Directors will not amend the plan without stockholder approval if such 
approval is required by applicable law. Moreover, our Board of Directors will   
not amend provisions relating to material participant entitlements, where such  
amendments would be to the advantage of participants, without prior stockholder 
approval except in the case of minor amendments to benefit the administration of
the Stock Purchase Plan, to take account of a change in legislation or to obtain
or maintain favorable tax or regulatory treatment for participants.             

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL TO APPROVE   
THE STOCK PURCHASE PLAN.                                                        

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 PROPOSAL TO AMEND THE 1996 EQUITY
 COMPENSATION PLAN

       Our 1996 Equity Compensation Plan (the "Plan") provides for grants of
stock options to our employees and employees of our subsidiaries, certain       
consultants and advisers, and non-employee members of our Board of Directors    
("non-employee directors"). Shares of our common stock ("Shares") may be issued 
upon exercise of stock options issued under the Plan. The Plan was designed to  
serve as an incentive to participants to contribute materially to our growth,   
thereby benefiting our stockholders and aligning the economic interests of the  
participants with those of our stockholders.                                    

         At the meeting, we will present a proposal to our stockholders to amend
the Plan by (1) increasing the number of Shares reserved for issuance under the 
Plan from 8,000,000 to 13,000,000 and (2) increasing the number of shares       
underlying options that may be granted to a participant in any calendar year    
from 500,000 to 2,000,000. Our Board of Directors believes that the grant of    
options has been an important component of our compensation program. However,   
most of our outstanding options have exercise prices well in excess of our      
current market price. We believe that, at least with respect to a significant   
portion of our outstanding stock options, this situation resulted from market   
forces outside of the control of our management. In addition, our Board of      
Directors believes that, as we have reduced our employees and executive staff,  
we must provide meaningful incentives to encourage the remaining members of our 
management and other employees to continue to devote their efforts to the long  
term success of the Company. Moreover, in light of our publicly announced       
efforts to control variable costs and reduce personnel costs, our Board of      
Directors has determined that it is appropriate to put more emphasis on         
stock-based compensation for our employees. The proposed increase in the annual 
maximum grant to an individual participant reflects these considerations.       

      As of December 10, 2001, options to purchase 2,064,592 shares of our
common stock remain available for grant under the Plan. The exercise price of   
all of the options was below the $0.05 closing price per share reported on that 
date on the OTC Bulletin Board.                                                 

  The Plan is set forth in Appendix B to this Proxy Statement. Our
description of the Plan is qualified in its entirety by reference to Appendix B.

The key provisions of the Plan are as follows:                

     General. If the proposal is approved, the Plan will authorize up to
13,000,000 Shares for issuance, subject to adjustment in certain circumstances  
discussed below. If and to the extent stock options that have been granted under
the Plan terminate, expire or are canceled without being exercised, the Shares  
subject to those stock options will again be available for grant under the Plan.
If the proposal is approved, no individual may receive grants of stock options  
for more than an aggregate of 2,000,000 Shares in any calendar year during the  
term of the Plan.                                                               

      Administration of the Plan. The Board of Directors or a committee of
not less than two persons appointed by the Board of Directors from among its    
members (the "Committee") administers and interprets the Plan. The Compensation 
Committee of the Board of Directors                                             

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whose members currently are Peter H. Cheesbrough, John J. Quattrone and Marc S. 
Sandroff, currently serves as the Committee. However, with respect to the grant 
of stock options to non-employee directors and other members of the Committee,  
the Board of Directors exercises the authority of the Committee. The Committee  
has the authority to determine (i) persons to whom stock options may be granted 
under the Plan, (ii) the type, number of underlying Shares and other terms of   
each stock option, (iii) the time when the grants of stock options will be made 
and (iv) any other matters arising under the Plan. In addition, a Non-Officer   
Grant Committee of the Board of Directors may grant options to employees who are
not our officers, subject to limitations described below. Kerry Hicks, our Chief
Executive Officer, currently serves on the Non-Officer Grant Committee.         

        The Committee has full power and authority to administer and interpret
the Plan, to make factual determinations and to adopt or amend such rules,      
regulations, agreements and instruments for implementing the Plan and for       
conduct of its business as it deems necessary or advisable, in its sole         
discretion.                                                                     

         Grants and Awards. All grants of stock options are subject to the terms
and conditions set forth in the Plan and to other terms and conditions          
consistent with the Plan that are specified in writing by the Committee in a    
grant instrument given to the individual receiving the grant. The Committee must
approve the form and provisions of each grant instrument. Grants of options     
under the Plan need not be uniform as among other recipients of the same type of
grant.                                                                          

      Eligibility for Participation. Subject to the terms of the Plan, the
Committee is responsible for designating our employees and consultants and      
advisors and those of any of our subsidiaries who may participate in the Plan.  
As of December 10, 2001, 40 employees were eligible for grants of stock options 
under the Plan. The Committee is authorized to select the persons to receive    
grants of stock options (the "grantees") from among those eligible and to       
determine the number of Shares that are subject to each grant of a stock option.
To be eligible, consultants and advisors must render bona fide services and such
services must not be in connection with an offer or sale of securities in a     
capital raising transaction.                                                    

        Grant of Stock Options. The Committee may grant stock options intended
to qualify as incentive stock options ("ISOs"), within the meaning of Section   
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or so-called 
"non-qualified stock options" that are not intended to so qualify ("NQSOs").    
Only employees may receive ISOs.                                                

        The Committee fixes the option price per Share at the date of grant of
the stock option. The option price of any ISO granted under the Plan may not be 
less than the fair market value of the underlying Shares on the date of grant,  
and the option price of any NQSO may be equal to, less than or greater than the 
fair market value of the underlying Shares on the date of grant. However, if the
grantee of an ISO is a person who holds more than 10% of the combined voting    
power of all classes of our outstanding stock, the option price per Share of an 
ISO must be at least 110% of the fair market value of a Share on the date of    
grant. To the extent that the aggregate fair market value of Shares, determined 
as of the date of the grant, with respect to which any ISOs granted under the   
Plan and any other plan to a grantee initially become exercisable during any    
calendar year exceeds $100,000, the ISOs, to the extent of that excess,         

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must be treated as NQSOs. On December 10, 2001 the fair market value of our     
common stock, determined in accordance with the Plan, was $0.05.                

      Term of Stock Option. The term of each stock option is determined by
the Committee but may not exceed ten years from the date of grant, or five years
from the date of grant if the grantee of an ISO is a person who holds more than 
10% of the combined voting power of all classes of our outstanding stock. Stock 
options are subject to earlier termination as described below under "Termination
of Stock Options as a Result of Termination of Employment or Service, Disability
or Death." The Committee also determines the vesting period for stock options,  
if any, and specifies the vesting schedule in the grant instrument. The         
Committee, in its sole discretion, may accelerate the exercisability of any     
stock option.                                                                   

Grants by Non-Employee Grant Committee. The Non-Employee Grant
Committee may grant options (not to exceed 25,000 Shares underlying the grant of
such options to a single employee in a calendar year or 100,000 Shares          
underlying all such options in any calendar quarter) to new employee hires and  
to employees promoted to non-officer positions. Such options may vest over no   
less than three years, must have an exercise price per Share at least equal to  
the fair market value of a Share on the date of grant and may not have a term   
exceeding ten years. Such options will be ISOs to the extent permissible under  
the Code.                                                                       

      Payment for Shares Underlying Stock Option. A grantee may exercise a
stock option by delivering to us a notice of exercise and payment of the option 
price. The grantee may pay the option price in cash or by check or wire transfer
in immediately available funds, or by delivering Shares that the grantee already
owns (subject to such restrictions as the Committee deems appropriate). The     
Committee has the option to designate additional methods of payment, including  
payment through a broker in accordance with procedures permitted by Regulation T
of the Federal Reserve Board. At the time of exercise, the grantee must pay the 
option price and the amount of any federal, state or local withholding tax due  
in connection with such stock option exercise.                                  

       Termination of Stock Options as a Result of Termination of Employment
or Service, Disability or Death. If a grantee ceases to serve as an employee,   
director, consultant or advisor to Health Grades or our subsidiaries for any    
reason other than disability, death or "termination for cause" (as defined in   
the Plan) that person's stock option will terminate 90 days following the date  
on which he or she ceases to serve. If the person's service ceases due to the   
person becoming disabled within the meaning of Section 22(e)(3) of the Code, his
or her stock option will terminate one year following the date on which he or   
she ceases to serve. In the event of the death of a grantee while providing     
service or within three months after he or she ceases to serve, the grantee's   
personal representative may exercise the stock option until one year from the   
date of death. However, in each case described above, the Committee may specify 
a different termination date, but the new termination date cannot be later than 
expiration of the initial term of the stock option. If a grantee's service      
ceases due to "termination for cause" as defined in the Plan, the grantee's     
stock options will terminate immediately.                                       

  Restrictions on Transferability of Stock Options. Subject to the
exceptions set forth below, no stock option granted under the Plan may be       
transferred, except by will or the laws of descent and distribution. However,   
(i) if permitted in any specific case by the Committee in its                   

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sole discretion, an NQSO may be transferred pursuant to a "qualified domestic   
relations order," within the meaning of the Code or of Title I of the Employee  
Retirement Income Security Act of 1974 and (ii) the Committee may provide in a  
grant instrument that a grantee may transfer stock options to his or her family 
members or other persons or entities according to terms that the Committee      
determines.                                                                     

        Amendment or Termination of the Plan. The Board of Directors may amend
or terminate the Plan at any time. Nevertheless, the Board of Directors may not 
amend the Plan without stockholder approval if stockholder approval is required 
by Section 162(m) of the Code and the Plan is subject to Section 162(m). The    
Plan will terminate on October 14, 2006 unless it is terminated earlier by the  
Board of Directors or it is extended by the Board of Directors with approval of 
the stockholders. The termination of the Plan will not affect the power and     
authority of the Committee over outstanding stock options.                      

       Amendment and Termination of Outstanding Stock Options. A termination
or amendment of the Plan that occurs after a grant is made will not result in   
the termination or amendment of the stock option unless the grantee consents,   
but the Committee may revoke any stock option that contains terms contrary to   
applicable law, or modify any grant to bring it into compliance with any valid  
and mandatory government regulation. Stock options may also be modified,        
replaced or exchanged under the "Change of Control" provisions described below. 

        Adjustment Provisions. If there is any change in the number or kind of
Shares outstanding due to a stock dividend, spin off, recapitalization, stock   
split, or combination or exchange of shares, or merger, reorganization or       
consolidation, reclassification or change in the par value or similar event, or 
if the value of our outstanding Shares are substantially reduced as a result of 
a spin-off or our payment of an extraordinary dividend or distribution, the     
number of Shares available for stock options, the maximum number of Shares for  
which any individual participating in the Plan may receive stock options in any 
year, the kind of shares issued under the Plan and the number of shares and     
option price per share subject to outstanding stock options will be             
appropriately adjusted by the Committee to reflect any increase or decrease in  
the number of, or change in kind or value of, issued shares of our stock.       

      Change of Control Provisions. In the event of a "Change of Control,"
all outstanding stock options will automatically become immediately exercisable,
unless the Committee determines otherwise. In addition, subject to certain      
exceptions, upon a Change of Control where Health Grades is not the surviving   
corporation (or survives only as a subsidiary of another corporation), all      
outstanding stock options that are not exercised will be assumed by, or replaced
with comparable options by, the surviving corporation, unless the Committee     
determines otherwise.                                                           

     In the event of a Change of Control, the Committee may require that
grantees surrender their outstanding stock options in exchange for a payment (in
cash or Shares as determined by the Committee) equal to the amount by which the 
then fair market value of the Shares subject to the grantee's outstanding       
options exceeds the option price.                                               

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   The Plan limits the discretion of the Committee if its membership
changes following a Change of Control or if actions of the Committee could have 
certain adverse accounting or tax effects.                                      

       Under the Plan, a "Change of Control" will be deemed to have occurred
upon the earliest to occur of the following events:                             

        o        any "person" (as the term is used in Sections 13(d) and 14(d)
                of the Securities Exchange Act of 1934) becomes a beneficial
              owner of securities representing 35% or more of the voting
              power of our then outstanding securities, except where the
acquisition is approved by the Board;       

       o        our stockholders approve (or, if stockholder approval is not
             required, the Board approves) an agreement providing for:

                 o       our merger or consolidation with another corporation,
  subject to certain exceptions;

               o       a sale or other disposition of all or substantially
all of our assets; or       

o       our liquidation or dissolution;     

        o        any person has commenced a tender offer or exchange offer for
           35% or more of the voting power of our then outstanding
Shares; or                                  

      o        a majority of the members of the Board of Directors elected
                 have been members of the Board of Directors for less than two
                 years, unless the election or nomination for election of each
               new director who was not a director at the beginning of the
                 two year period was approved by a vote of at least two-thirds
             of the directors then in office who were directors at the
beginning of the two year period.           

       Section 162(m). Under Section 162(m) of the Code, we may be precluded
from claiming a federal income tax deduction for total remuneration in excess of
$1,000,000 paid to the chief executive officer or to any of the other four most 
highly compensated officers in any one year. Total remuneration includes amounts
received upon the exercise of stock options granted under the Plan. An exception
does exist, however, for "performance-based compensation," including amounts    
received upon the exercise of stock options pursuant to a plan approved by      
stockholders that meets certain requirements. The Plan is intended to allow     
grants of options thereunder to meet the requirements of "performance-based     
compensation."                                                                  

        Option grants, net of cancellations, to purchase Shares have been made
under the Plan from inception of the Plan through December 10, 2001, as follows:
Kerry R. Hicks, 1,429,876 Shares; David G. Hicks, 554,861 Shares; Peter A.      
Fatianow, 116,369 Shares; Sarah P. Loughran, 116,369 Shares; Michael D.         
Phillips, 68,387 Shares; current executive officers as a group, 2,412,523       
shares; current non-employee directors as a group, 275,591 Shares; and all other
current employees as a group, 956,463 Shares.                                   

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   The following table sets forth information regarding the grant of
options to individuals and groups referred to below that are subject to         
stockholder approval of the proposed amendment to the Plan. The Company notes   
that based on the last reported sales price of the Company's common stock on    
December 10, 2001, as reported on the OTC Bulletin Board, that the aggregate    
exercise price for the 5,760,606 options to be issued to the Company's employees
subject to stockholder approval is approximately $290,000.                      

 NEW PLAN BENEFITS

 HEALTH GRADES, INC. 1996 EQUITY COMPENSATION PLAN

                                                        [Enlarge/Download Table]


                                                                                 Number of Shares 
Name and Position                                                               Underlying Options
-----------------                                                               ------------------
                                                                                                  
Kerry R. Hicks                                                                                    
 Chief Executive Officer.......................................................     1,493,104     
David G. Hicks                                                                                    
  Executive Vice President - Information Technology............................       900,000     
Peter A. Fatianow                                                                                 
  Senior Vice President-Business Development...................................       600,000     
Sarah P. Loughran                                                                                 
  Senior Vice President - Provider Services....................................       900,000     
Michael D. Phillips                                                                               
  Senior Vice President - Provider Sales.......................................       400,000     
Executive Group................................................................     4,893,104     
Non-Executive Director Group...................................................            --     
Non-Executive Officer Employee Group...........................................       867,502     

        Federal Tax Consequences. There are no federal income tax consequences
to a grantee or to Health Grades upon the grant of an NQSO under the Plan. Upon 
the exercise of an NQSO, a grantee will recognize ordinary compensation income  
in an amount equal to the excess of the fair market value of the Shares         
underlying the NQSO at the time of exercise over the option price of the NQSO,  
and we generally will be entitled to a corresponding federal income tax         
deduction in that amount. Upon the sale of Shares acquired by the exercise of an
NQSO, a grantee will have a capital gain or loss (long-term or short-term       
depending upon the length of time the Shares were held) in an amount equal to   
the difference between the amount realized upon the sale and the grantee's      
adjusted tax basis in the Shares (the option price plus the amount of ordinary  
income recognized by the grantee at the time of exercise of the NQSO).          

       A grantee of an ISO will not recognize taxable income for purposes of
the regular income tax, upon either the grant or exercise of the ISO. However,  
for purposes of the alternative minimum tax imposed under the Code, the amount  
by which the fair market value of the Shares acquired upon exercise exceeds the 
option price will be treated as an item of adjustment and included in the       
computation of the recipient's alternative minimum taxable income in the year of
exercise. A grantee who disposes of the Shares acquired upon exercise of an ISO 
after two years from the date the ISO was granted and after one year from the   
date such Shares were transferred to him or her will recognize long-term capital
gain or loss in the amount of the difference between the amount realized on the 
sale and the option price (or the grantee's other tax basis in the Shares), and 
we will not be entitled to any tax deduction by reason of the grant or exercise 
of the ISO. As a general rule, if a grantee disposes of the Shares acquired upon
exercise of an ISO before satisfying both holding period requirements (a        
"disqualifying disposition"), his or her gain recognized on such a disposition  
will be taxed as ordinary income to the extent of the difference between the    
fair market value of such Shares on the date of exercise and the option price,  
and we                                                                          

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will be entitled to a deduction in that amount. The gain, if any, in excess of  
the amount recognized as ordinary income on such a disqualifying disposition    
will be long-term or short-term capital gain, depending upon the length of time 
the grantee held his or her Shares prior to the disposition.                    

       THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL TO
AMEND THE PLAN.                                                                 

 PROPOSAL TO AMEND OUR
CERTIFICATE OF INCORPORATION TO INCREASE
 THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK

Our Board of Directors has adopted and is recommending to our 
stockholders for approval at the meeting a proposed amendment to Article 4,     
Section 4.1 of our Certificate of Incorporation that would increase the number  
of authorized shares of our common stock from 50,000,000 shares to 100,000,000  
shares.                                                                         

    On December 10, 2001, there were 34,606,758 shares of common stock
issued and outstanding, 4,170,000 shares reserved for issuance upon the exercise
of outstanding warrants and 8,000,000 shares reserved for issuance under our    
1996 Equity Compensation Plan. In addition, if the Stock Purchase Plan and the  
Amendment to the 1996 Equity Compensation Plan is approved, 11,000,000          
additional shares will be reserved for issuance under those plans.              

         Adoption of this proposal would enable us to have sufficient authorized
common stock for issuance if the Stock Purchase Plan and the Amendment to the   
1996 Equity Compensation Plan is approved. In addition, adoption of this        
proposal would permit our Board of Directors, without further approval of our   
stockholders, except as may be required by Delaware law, to issue additional    
shares of our common stock, from time to time as the Board of Directors may     
determine, for such consideration as the Board of Directors establishes.        

        In addition to providing us with the ability to issue shares under our
stock based compensation plans, the availability of additional shares of common 
stock would provide flexibility in structuring possible acquisitions of other   
businesses, enable us to raise additional equity capital if and when needed and 
allow the Board of Directors, in its discretion, to declare stock splits or     
stock dividends in the future. We have no present plans, arrangements or        
understanding with respect to possible acquisitions, financings, stock splits or
dividends requiring the availability of additional authorized common stock.     

      Although the Board of Directors would only authorize the issuance of
additional shares of common stock based on its judgment as to the best interests
of Health Grades and its stockholders, the issuance of additional authorized    
shares could have the effect of dilution of the voting power or book value per  
share of the outstanding shares of common stock. The Board of Directors (if     
consistent with its fiduciary responsibilities) may also issue shares to deter  
future attempts to gain control over the Company.                               

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         The additional shares of common stock for which authorization is sought
would be identical to the shares of our common stock now authorized. No change  
would be made to our authorized preferred stock if the proposal is approved.    

      If the amendment is approved, the text of Article IV, Section 4.1 of
the Company's Certificate of Incorporation will be as follows:                  

      "4.1 AUTHORIZED AMOUNT. The Corporation shall be authorized to issue
One Hundred Two Million (102,000,000) shares of capital stock, of which One     
Hundred Million (100,000,000) shares shall be Common Stock, par value $0.001 per
share and Two Million (2,000,000) shares shall be Preferred Stock, par value    
$0.001 per share."                                                              

       THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL TO
ADOPT THE AMENDMENT TO OUR CERTIFICATE OF INCORPORATION.                        

 OTHER MATTERS

        Alan Kittner resigned from our Board of Directors in November 2001. As
we have previously disclosed, we and several of our executive officers have     
agreed to take such actions as are in our control so that one designee of       
Chancellor V, L.P. ("Chancellor") is elected to the Board of Directors. Mr.     
Kittner was Chancellor's designee. We have been advised by Chancellor that it   
does not intend to designate a replacement for Mr. Kittner, and will irrevocably
waive its right to designate a director in the future.                          

        Peter J. Stahl III, formerly our Chief Operating Officer, ceased to be
an employee of Health Grades effective October 31, 2001.                        

 ADVANCE NOTICE PROCEDURES

    In accordance with our by-laws, notice relating to nominations for
director or proposed business to be considered at the 2002 annual meeting of    
stockholders must be given no earlier than March 21, 2002 nor later than April  
20, 2002. These requirements do not affect the deadline for submitting          
stockholder proposals for inclusion in the proxy statement, nor do they apply to
questions a stockholder may wish to ask at the meeting. Stockholders may request
a copy of the by-law provisions discussed above from the Secretary, Health      
Grades, Inc., 44 Union Boulevard, Suite 600, Lakewood, Colorado 80228.          

 STOCKHOLDER PROPOSALS

Stockholders may submit proposals on matters appropriate for  
stockholder action at annual meetings in accordance with regulations adopted by 
the Securities and Exchange Commission. Any proposal that an eligible           
stockholder desires to have presented at the 2001 annual meeting of stockholders
concerning a proper subject for inclusion in the proxy statement                

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and for consideration at the annual meeting will be included in our proxy       
statement and related proxy card if we receive it no later than January 29,     
2002.                                                                           

 SOLICITATION OF PROXIES

 We will pay the cost of solicitation of proxies for the special
meeting. In addition to the mailing of the proxy material, such solicitation may
be made, without extra compensation, in person or by telephone or telecopy by   
our directors, officers or regular employees.                                   

        The above Notice and Proxy Statement are sent by order of the Board of
Directors.                                                                      

 Allen Dodge
                      Senior Vice President - Finance,
                           Chief Financial Officer and Secretary

Dated:  December __, 2001                                                       

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                                                                      APPENDIX A

 HEALTH GRADES, INC.
 STOCK PURCHASE PLAN

ARTICLE 1 
INTRODUCTION

               1.1 Statement of Purpose. The purpose of the Health Grades,
Inc. Stock Purchase Plan is to provide certain executives and other management  
employees of Health Grades, Inc. (the "Company") and its subsidiaries with the  
opportunity to purchase shares of common stock of the Company through a         
voluntary reduction in base salary. The Board of Directors of the Company has   
adopted this plan in order to further align the interests of management and the 
stockholders and to give certain executives and other management employees the  
opportunity to participate in the growth of the Company.                        

                1.2 Internal Revenue Code and ERISA Considerations. The Plan
is not intended to be an employee stock purchase plan under section 423 of the  
Internal Revenue Code of 1986, as amended (the "Code") or an "employee benefit  
plan," under section 3(3) of the Employee Retirement Income Security Act of     
1974, as amended ("ERISA").                                                     

ARTICLE 2 
 DEFINITIONS

            2.1 "Board" means the board of directors of the Company.

                 2.2 "Committee" means the Compensation Committee of the Board
of Directors, or any other Committee appointed by the Board to administer the   
Plan.                                                                           

                 2.3 "Company" shall have the meaning set forth in Section 1.1
above.                                                                          

                2.4 "Compensation" means a Participant's regular annual base
rate of pay paid by his or her Employer in effect on January 1, 2002, excluding 
bonuses, overtime pay, commissions, severance pay, relocation expenses and      
fringe benefits.                                                                

2.5 "Effective Date" means January 1, 2002. 

              2.6 "Eligible Employee" means each employee of an Employer
designated by the Committee.                                                    

            2.7 "Employer" means Health Grades, Inc. and each of its
majority-owned or wholly owned subsidiaries that participate in the Plan with   
the approval of the Board.                                                      

                 2.8 "Exchange Act" means the Securities Exchange Act of 1934,
as amended.                                                                     

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                  2.9 "Fair Market Value" means the average of the last reported
sales prices of Shares on the 20 trading days ending on, and including January  
28, 2002, as reported on the OTC Bulletin Board.                                

                 2.10 "Participant" means each Eligible Employee who elects to
participate in the Plan in accordance with Section 4.1.                         

                  2.11 "Plan" means the Health Grades, Inc. Stock Purchase Plan,
as the same is set forth herein and as the same may hereafter be amended.       

2.12 "Plan Year" means 2002.                

         2.13 "Participation Election Period" means the period
beginning on January 21, 2002 and ending on January 25, 2002.                   

                  2.14 "Restricted Shares" means Shares issued to an employee by
the Company that are subject to forfeiture in accordance with Section 6.1. Once 
Shares become vested in accordance with Section 6.1 they will no longer be      
Restricted Shares.                                                              

          2.15 "Salary Reduction Agreement" means the instrument
prescribed by the Committee pursuant to which an Eligible Employee may enroll as
a Participant and elect to reduce his or her Compensation to purchase Shares.   

              2.16 "Salary Reduction Percentage" means the percentage by
which each Participant in the Plan has elected to reduce his Compensation to    
purchase Shares. The Salary Reduction Percentage may be different with respect  
to each Participant in the Plan.                                                

                2.17 "Shares" means shares of common stock, $.001 par value,
of the Company.                                                                 

ARTICLE 3 
SHARES

             3.1 Authorized Shares. Subject to adjustment as described
below, the aggregate number of Shares that may be issued or transferred under   
the Plan is 6,000,000 Shares. The Shares may be authorized but unissued Shares  
or treasury Shares.                                                             

                 3.2 Adjustments. If there is any change in the number or kind
of Shares outstanding by reason of (i) a stock dividend, spinoff,               
recapitalization, stock split, or combination or exchange of shares, (ii) a     
merger, reorganization or consolidation, (iii) a reclassification or change in  
par value, or (iv) any other extraordinary or unusual event affecting the       
outstanding Shares as a class without the Company's receipt of consideration,   
the maximum number of Shares available under the Plan and the kind of stock     
issuable under the Plan may be appropriately adjusted by the Board to reflect   
any increase or decrease in the number of, or                                   

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change in the kind or value of, issued Shares; provided, however, that any      
fractional Shares resulting from such adjustment may be eliminated.             

 ARTICLE 4
 PARTICIPATION

                  4.1 Participation. Any Eligible Employee may elect to become a
Participant in the Plan by executing and filing with the Committee a Salary     
Reduction Agreement during the Participation Election Period. An Eligible       
Employee's election to participate in the Plan shall be effective as of January 
1, 2002.                                                                        

            4.2 Discontinuance of Participation. A Participant shall
automatically cease to be a Participant in the Plan on the date he or she ceases
to be employed by an Employer.                                                  

ARTICLE 5 
SALARY REDUCTION

           5.1 Salary Reduction. During the Participation Election
Period, each Participant shall set forth on the Salary Reduction Agreement the  
percentage of Compensation that the Participant shall forgo during the Plan Year
in exchange for Shares. A Participant may reduce his Compensation by any whole  
percentage up to 30 percent. The total base salary or wages that a Participant  
would otherwise earn during each payroll period for which a Salary Reduction    
Agreement is in effect during the Plan Year shall be reduced by an amount equal 
to the percentage of Compensation the Participant elects to forgo times his     
Compensation (the "Annual Salary Reduction") divided by the number of payroll   
periods remaining in the Plan Year after the Salary Reduction Agreement becomes 
effective. All Compensation withheld by an Employer under the Plan shall become 
a part of the general assets of the Company, free of any trust or other         
restriction, and may be used for any corporate purpose.                         

                5.2 Purchase of Shares. The number of Shares to be purchased
by a Participant who submits a Salary Reduction Agreement shall be determined by
dividing the Annual Salary Reduction by the Fair Market Value of the Shares.    
Notwithstanding the foregoing, the Participant shall not receive any fractional 
Shares, but will receive, at the end of the Plan Year, cash equal to the Fair   
Market Value of the fraction he would have been entitled to receive.            

                 5.3 Issuance of Certificates. Stock certificates representing
the Restricted Shares shall be issued to the each Participant as soon as        
administratively possible after the beginning of the Plan Year. The stock       
certificates shall contain a legend giving appropriate notice of the            
restrictions on the Shares. Each Participant shall be entitled to have the      
restrictive legend removed from his or her stock certificate representing the   
Restricted Shares when the Shares become fully vested and are no longer subject 
to forfeiture.                                                                  

                 5.4 Participants Rights. During the period when a Participant
holds Restricted Shares, he or she shall receive any cash dividends issued with 
respect to the Restricted Shares,                                               

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may vote the Restricted Shares and may participate in any distribution pursuant 
to a plan of dissolution or complete liquidation of the Company. In the event a 
dividend or distribution payable in stock or other property or a                
reclassification, split up or similar event occurs while a Participant holds    
Restricted Shares, the Shares or other property issued or declared with respect 
to the non-vested Restricted Shares shall be subject to the same terms and      
conditions relating to vesting as the Restricted Shares to which they relate.   

ARTICLE 6 
VESTING AND NONASSIGNABILITY

               6.1 Vesting of Restricted Stock. A Participant's Restricted
Shares shall become fully vested, and all restrictions shall lapse as of the    
last day of the Plan Year if the Participant continues to be employed by an     
Employer until such date. Upon full vesting, the restrictive legend shall be    
removed from the Shares. If a Participant's employment with an Employer         
terminates for any reason prior to the last day of the Plan Year in which the   
Restricted Shares were transferred or issued to the Participant, no further     
salary reduction will be made and the Participant shall forfeit a number of     
Restricted Shares equal to the number of Shares that would have been purchased  
by the Participant had the Participant's employment continued until the end of  
the Plan Year, multiplied by a fraction, the numerator of which shall be the    
number of payroll periods in the Plan Year with respect to which salary         
reduction has not yet occurred and the denominator of which shall be the total  
number of payroll periods in the Plan Year after a Salary Reduction Agreement is
in effect, and all Restricted Shares held by the Participant that are not so    
forfeited shall immediately vest. A Participant whose employment with an        
Employer terminates prior to the end of the Plan Year shall immediately return  
the Restricted Shares to the Company, and the Company shall return to the       
Participant a certificate for the portion of the Restricted Shares that are not 
forfeited, without the restrictive legend.                                      

                6.2 Nonassignability of Restricted Shares. During the period
before the Restricted Shares vest, the Restricted Shares may not be assigned,   
transferred, pledged or otherwise disposed of by a Participant. Any attempt to  
assign, transfer, pledge or otherwise dispose of the shares contrary to the     
provisions hereof, and the levy of any execution, attachment or similar process 
upon the shares, shall be null, void and without effect.                        

ARTICLE 7 
SPECIAL ADJUSTMENTS 

     7.1 Shares Unauthorized. If, in connection with a
Participant's salary reduction in respect of a payroll period, the aggregate    
funds to be withheld to purchase Restricted Shares would enable the purchase of 
a number of Restricted Shares in excess of the number of Shares then authorized 
for issuance under the Plan or would cause the Company to issue Shares in excess
of the number of Shares authorized under the Company's Amended and Restated     
Certificate of Incorporation, the Salary Reduction Percentage and the number of 
Restricted Shares that would otherwise be delivered to the Participant shall be 
proportionately reduced in order to eliminate any such excess.                  

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                7.2 Effect of Certain Transactions. In the event of a merger
or consolidation in which the Company is not the surviving or resulting         
corporation (or survives only as a subsidiary of another corporation), unless   
the Board determines otherwise, each Participant shall automatically become     
fully vested in his or her Restricted Shares immediately prior to the           
effectiveness of the merger or consolidation.                                   

ARTICLE 8 
MISCELLANEOUS 

             8.1 Rights of Participants. Nothing in this Plan shall be
construed as giving any Participant any right to be retained by or in the employ
of an Employer or any other employment rights.                                  

       8.2 Administrative Costs. The Company shall pay all
administrative expenses associated with the operation of the Plan.              

                 8.3 The Committee. The Committee shall have the authority and
power to administer the Plan and to make, adopt, construe, and enforce rules and
regulations not inconsistent with the provisions of the Plan. The Committee     
shall have the fullest discretion permissible under law in the discharge of its 
duties. The Committee's interpretations and decisions in respect of the Plan,   
the rules and regulations pursuant to which it is operated, and the rights of   
Participants hereunder shall be final and conclusive.                           

               8.4 Withholding of Taxes. All distributions of Shares under
the Plan shall be subject to applicable federal, state and local tax withholding
requirements of the Internal Revenue Service or other taxing authority that     
requires such withholding. A Employer may require that Participants pay to the  
Employer (or make other arrangements satisfactory to the Company for the payment
of) the amount of any federal, state or local taxes that the Employer is        
required to withhold with respect to the receipt of Shares under the Plan, or   
the Employer may deduct from the Participant's wages or other compensation the  
amount of any withholding taxes due with respect to the receipt of the Shares   
under the Plan.                                                                 

               8.5 Amendment of the Plan. The Board may amend or terminate
the Plan at any time; provided, however, that the Board:                        

                (a) shall not amend the Plan without stockholder approval if
such approval is required by the Exchange Act, the Code or other applicable law,
and                                                                             

       (b) shall not amend provisions relating to material
Participant entitlements, where such amendments would be to the advantage of    
Participants, without prior stockholder approval; provided, however, that this  
requirement to obtain stockholder approval will not apply to any minor amendment
to benefit the administration of the Plan, to take account of a change in       
legislation or to obtain or maintain favorable tax or regulatory treatment for  
Participants of one or more Employers.                                          

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                  8.6 Termination of the Plan. The Plan shall continue in effect
until December 31, 2002.                                                        

                8.7 Repurchase of Shares. The Employer shall not be required
to purchase or repurchase from any Participant any of the Shares that the       
Participant acquires under the Plan.                                            

                  8.8 Notice. A Salary Reduction Agreement and any notice that a
Participant delivers pursuant to the Plan shall be effective only when received 
by the Committee. Delivery of the Salary Reduction Agreement or any notice to   
the Company, and delivery of any notice to a Participant may be made by hand or 
by certified mail, sent postage prepaid. Salary Reduction Agreements and notices
to the Company shall be addressed to the Chief Financial Officer of the Company 
at 44 Union Boulevard, Suite 600 Lakewood, CO 80228. Any notice to the          
Participant shall be addressed to the Participant at the most recent address    
shown on the payroll of the Employer, or to such other address as the           
Participant may designate to an Employer in writing.                            

                  8.9 Government Regulation. An Employer's obligation to deliver
the Shares under the Plan is at all times subject to all approvals of any       
governmental authority required in connection with the authorization, issuance, 
sale or delivery of such Shares.                                                

              8.10 Headings, Captions, Gender. The headings and captions
herein are for convenience of reference only and shall not be considered as part
of the text. The masculine shall include the feminine, and vice versa.          

        8.11 Severability of Provisions, Prevailing Law. The
provisions of the Plan shall be deemed severable. In the event any such         
provision is determined to be unlawful or unenforceable by a court of competent 
jurisdiction or by reason of a change in an applicable statute, the Plan shall  
continue to exist as though such provision had never been included therein (or, 
in the case of a change in an applicable statute, had been deleted as of the    
date of such change). The Plan shall be governed by the laws of the State of    
Delaware to the extent such laws are not in conflict with, or superseded by,    
federal law.                                                                    

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                                                                      APPENDIX B

HEALTHGRADES.COM, INC.
 1996 EQUITY COMPENSATION PLAN

         The purpose of the HealthGrades.com, Inc. 1996 Equity Compensation Plan
(the "Plan") is to provide (i) designated employees (including employees who are
also officers or directors) of HealthGrades.com, Inc. (the "Company") and its   
subsidiaries, (ii) certain consultants and advisors to the Company or its       
subsidiaries and (iii) non-employee members of the Board of Directors of the    
Company (the "Board") with the opportunity to receive grants of incentive stock 
options and nonqualified stock options ("Options"). The Company believes that   
the Plan will encourage the participants to contribute materially to the growth 
of the Company, thereby benefiting the Company's shareholders, and will align   
the economic interests of the participants with those of the shareholders.      

1.       Administration                                       

         (a) The Plan may be administered by the Board or by a
committee (the "Committee") or two or more directors appointed by the Board.    
Notwithstanding the foregoing, the Board of Directors shall exercise the powers 
of the Committee with respect to the grant of options to members of the Board   
who are not employees of the Company or its subsidiaries or who are members of  
the Committee ("Non-Employee Directors"). With respect to employees who are not 
officers of the Company, the Board of Directors may delegate certain Committee  
powers to a Non-Officer Grant Committee pursuant to the provisions of Section 18
hereof. If no administrative committee is appointed, all references in the Plan 
to the "Committee" shall be deemed to refer to the Board.                       

          (b) The Committee shall have the sole authority to (i)
determine the individuals to whom Options shall be granted under the Plan, (ii) 
determine the type, size and terms of the Options to be granted to each such    
individual, (iii) determine the time when the Options will be granted and the   
duration of any applicable exercise period, including the criteria for          
exercisability and the acceleration of exercisability and (iv) deal with any    
other matters arising under the Plan.                                           

            (c) The Committee shall have full power and authority to
administer and interpret the Plan, to make factual determinations and to adopt  
or amend such rules, regulations, agreements and instruments for implementing   
the Plan and for the conduct of its business as it deems necessary or advisable,
in its sole discretion. The Committee's interpretations of the Plan and all     
determinations made by the Committee pursuant to the powers vested in it        
hereunder shall be conclusive and binding on all persons having any interest in 
the Plan or in any awards granted hereunder. All powers of the Committee shall  
be executed in its sole discretion, in the best interest of the Company, not as 
a fiduciary, and in keeping with the objectives of the Plan and need not be     
uniform as to similarly situated individuals.                                   

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2.       Options                                              

                 Options granted under the Plan may be incentive stock options
("Incentive Stock Options") or nonqualified stock options ("Nonqualified Stock  
Options") as described in Section 5. All Options shall be subject to the terms  
and conditions set forth herein and to such other terms and conditions          
consistent with the Plan as the Committee deems appropriate and as are specified
in writing by the Committee to the individual in a grant instrument (the "Grant 
Instrument") or an amendment to the Grant Instrument. The Committee shall       
approve the form and provisions of each Grant Instrument.                       

3.       Shares Subject to the Plan                           

                (a) Subject to the adjustment specified below, the aggregate
number of shares of common stock of the Company ("Company Stock") that may be   
issued under the Plan is 13,000,000 shares. If the Company Stock becomes        
publicly traded as a result of a public offering under the Securities Act of    
1933, as amended, the maximum aggregate number of shares of Company Stock that  
shall be subject to Options granted under the Plan to any individual during any 
calendar year shall be 2,000,000 shares. The shares may be authorized but       
unissued shares of Company Stock or reacquired shares of Company Stock,         
including shares purchased by the Company on the open market for purposes of the
Plan. If and to the extent Options granted under the Plan terminate, expire, or 
are canceled, forfeited, exchanged or surrendered without having been exercised,
the shares subject to such Options shall again be available for purposes of the 
Plan.                                                                           

                 (b) If there is any change in the number or kind of shares of
Company Stock outstanding (i) by reason of a stock dividend, spin off,          
recapitalization, stock split, or combination or exchange of shares, (ii) by    
reason of a merger, reorganization or consolidation in which the Company is the 
surviving corporation, (iii) by reason of a reclassification or change in par   
value, or (iv) by reason of any other extraordinary or unusual event affecting  
the outstanding Company Stock as a class without the Company's receipt of       
consideration, or if the value of outstanding shares of Company Stock is        
substantially reduced as a result of a spinoff or the Company's payment of an   
extraordinary dividend or distribution, the maximum number of shares of Company 
Stock available for Options, the maximum number of shares of Company Stock for  
which any individual participating in the Plan may receive Options in any year, 
the number of shares covered by outstanding Options, the kind of shares issued  
under the Plan, and the price per share of such Options shall be appropriately  
adjusted by the Committee to reflect any increase or decrease in the number of, 
or change in the kind or value of, issued shares of Company Stock to preclude,  
to the extent practicable, the enlargement or dilution of rights and benefits   
under such Options; provided, however, that any fractional shares resulting from
such adjustment shall be eliminated. Any adjustments determined by the Committee
shall be final, binding and conclusive.                                         

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4.       Eligibility for Participation                        

         (a) All employees of the Company and its subsidiaries
("Employees"), including Employees who are officers or members of the Board, and
Non-Employee Directors shall be eligible to participate in the Plan. Consultants
and advisors who perform services to the Company or any of its subsidiaries     
("Key Advisors") shall be eligible to participate in the Plan if the Key        
Advisors render bona fide services and such services are not in connection with 
the offer or sale of securities in a capital-raising transaction. The term "Key 
Advisors" shall include personnel of medical practices that have entered into   
and remain subject to management agreements with the Company or any subsidiary, 
and the provision of services to those practices shall be considered the        
performance of services with respect to the Company for purposes of the Plan.   

              (b) The Committee shall select the Employees, Non-Employee
Directors and Key Advisors to receive Options and shall determine the number of 
shares of Company Stock subject to a particular grant in such manner as the     
Committee determines. Employees, Key Advisors and Non-Employee Directors who    
receive Options under this Plan shall hereinafter be referred to as "Grantees". 

5.       Granting of Options                                  

                  (a) Number of Shares. The Committee shall determine the number
of shares of Company Stock that will be subject to each grant of Options to     
Employees, Non-Employee Directors and Key Advisors.                             

(b) Type of Option and Price.               

                      (i)      The Committee may grant Incentive Stock
                               Options that are intended to qualify as
                                    "incentive stock options" within the meaning
                                   of section 422 of the Internal Revenue Code
                            of 1986, as amended (the "Code"), or
                               Nonqualified Stock Options that are not
                                  intended so to qualify, or any combination
                                   of Incentive Stock Options and Nonqualified
                                 Stock Options, all in accordance with the
                              terms and conditions set forth herein.
                                   Incentive Stock Options may be granted only
                                    to Employees. Nonqualified Stock Options may
                             be granted to Employees, Non-Employee
                   Directors and Key Advisors.

                           (ii)     The purchase price (the "Exercise Price") of
                                   Company Stock subject to an Option shall be
                                    determined by the Committee and may be equal
                               to, greater than, or less than the Fair
                                  Market Value (as defined below) of a share
                               of such Stock on the date the Option is
                                granted; provided, however, that (x) the
                                   Exercise Price of an Incentive Stock Option
                                    shall be equal to, or greater than, the Fair
                                   Market Value of a share of Company Stock on
                              the date the Incentive Stock Option is
                          granted and (y) an Incentive Stock

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                                Option may not be granted to an Employee
                             who, at the time of grant, owns stock
                                    possessing more than 10 percent of the total
                               combined voting power of all classes of
                             stock of the Company or any parent or
                             subsidiary of the Company, unless the
                                 Exercise Price per share is not less than
                                110% of the Fair Market Value of Company
                   Stock on the date of grant.

                        (iii)    If Company Stock is publicly traded, then
                                the Fair Market Value per share shall be
                                   determined as follows: (x) if the principal
                                 trading market for the Company Stock is a
                                  national securities exchange or the Nasdaq
                               National Market, the last reported sale
                                 price thereof on the relevant date or, if
                              there were no trades on that date, the
                                   latest preceding date upon which a sale was
                                    reported, or (y) if the Company Stock is not
                              principally traded on such exchange or
                                  market, the mean between the last reported
                                    "bid" and "asked" prices of Company Stock on
                                    the relevant date, as reported on Nasdaq or,
                              if not so reported, as reported by the
                                   National Daily Quotation Bureau, Inc. or as
                                   reported in a customary financial reporting
                                   service, as applicable and as the Committee
                               determines. If the Company Stock is not
                                   publicly traded or, if publicly traded, not
                                    subject to reported transactions or "bid" or
                                  "asked" quotations as set forth above, the
                               Fair Market Value per share shall be as
                    determined by the Committee.

              (c) Option Term. The Committee shall determine the term of
each Option. The term of any Option shall not exceed ten years from the date of 
grant. However, an Incentive Stock Option that is granted to an Employee who, at
the time of grant, owns stock possessing more than 10 percent of the total      
combined voting power of all classes of stock of the Company, or any parent or  
subsidiary of the Company, may not have a term that exceeds five years from the 
date of grant.                                                                  

       (d) Exercisability of Options. Options shall become
exercisable in accordance with such terms and conditions, consistent with the   
Plan, as may be determined by the Committee and specified in the Grant          
Instrument or an amendment to the Grant Instrument. The Committee may accelerate
the exercisability of any or all outstanding Options at any time for any reason.

       (e) Termination of Employment, Disability or Death.

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                           (i)      Except as provided below, an Option may only
                                  be exercised while the Grantee is employed
                                   by, or providing service to, the Company as
                                 an Employee, Key Advisor or member of the
                                    Board. In the event that a Grantee ceases to
                                  be employed by, or provide service to, the
                         Company for any reason other than
                                "disability", death, or "termination for
                             cause", any Option which is otherwise
                                  exercisable by the Grantee shall terminate
                                   unless exercised within 90 days of the date
                                  on which the Grantee ceases to be employed
                                  by, or provide service to, the Company (or
                                  within such other period of time as may be
                               specified by the Committee), but in any
                                  event no later than the date of expiration
                            of the Option term. Unless otherwise
                                  specified by the Committee, any portion of
                                  the Grantee's Option that is not otherwise
                               exercisable as of the date on which the
                                   Grantee ceases to be employed by or provide
                                    service to the Company shall terminate as of
  such date.

                    (ii)     In the event the Grantee ceases to be
                               employed by, or provide service to, the
                                Company on account of a "termination for
                                 cause" by the Company, any Option held by
                                  the Grantee shall terminate as of the date
                                the Grantee ceases to be employed by, or
                        provide service to, the Company.

                    (iii)    In the event the Grantee ceases to be
                               employed by, or provide service to, the
                                  Company because the Grantee is "disabled",
                                    any Option which is otherwise exercisable by
                                    the Grantee shall terminate unless exercised
                                   within one year after the date on which the
                                    Grantee ceases to be employed by, or provide
                               service to, the Company (or within such
                                   other period of time as may be specified by
                                 the Committee), but in any event no later
                                 than the date of expiration of the Option
                                    term. Any of the Grantee's Options which are
                                   not otherwise exercisable as of the date on
                                   which the Grantee ceases to be employed by,
                                or provide service to, the Company shall
                  terminate as of such date.

                        (iv)     If the Grantee dies while employed by, or
                                   providing service to, the Company or within
                                   90 days after the date on which the Grantee
                                  ceases to be employed, or provide service,
                                    on account of a termination of employment or
                                  service specified in Section 5(e)(i) above
                                   (or within such other period of time as may
                                  be specified by the Committee), any Option
                                    that is otherwise exercisable by the Grantee
                                   shall terminate unless exercised within one
                                year after the date on which the Grantee
                                    ceases to be employed by, or provide service
                                    to, the Company (or within such other period
                          of time as may be specified by the
                                  Committee), but in any event no later than

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                                  the date of expiration of the Option term.
                                 Any of the Grantee's Options that are not
                               otherwise exercisable as of the date on
                                   which the Grantee ceases to be employed by,
                                or provide service to, the Company shall
                  terminate as of such date.

                 (v)      For purposes of this Section 5(e):

                                 (1)     The term "Company" shall mean the
                                  Company and its parent and
                                     subsidiary corporations. With
                                        respect to personnel employed by
                                           medical practices that have entered
                                    into, and remain subject to,
                                      management agreements with the
                                           Company or any subsidiary, the term
                                        "Company" shall include any such
                                          medical practice, but only so long
                                          as the practice remains subject to
                                  such management agreement.

                                  (2)     "Employed by, or providing service
                                   to, the Company" shall mean
                                        employment as an Employee or the
                                            provision of services to the Company
                                         as a Key Advisor or member of the
                                       Board (so that, for purposes of
                                           exercising Options, a Grantee shall
                                            not be considered to have terminated
                                       employment or ceased to provide
                                            services until the Grantee ceases to
                                       be an Employee, Key Advisor and
                             member of the Board).

                                    (3)      "Disability" shall mean a Grantee's
                                      becoming disabled within the
                                            meaning of section 22(e)(3) of the
               Code.

                                    (4)     "Termination for cause" shall mean a
                                         finding by the Committee that the
                                       Grantee has breached his or her
                                           employment or service contract with
                                           the Company, or has been engaged in
                                  disloyalty to the Company,
                                      including, without limitation,
                                   fraud, embezzlement, theft,
                                        commission of a felony or proven
                                          dishonesty in the course of his or
                                         her employment or service, or has
                                  disclosed trade secrets or
                                       confidential information of the
                                          Company to persons not entitled to
                                        receive such information. In the
                                       event a Grantee's employment or
                                           service is terminated for cause, in
                                 addition to the immediate
                                       termination of all Options, the
                                           Grantee shall automatically forfeit
                                           all shares underlying any exercised
                                          portion of an Option for which the
                                         Company has not yet delivered the
                                          share certificates, upon refund by
                                         the Company of the Exercise Price
                                            paid by the Grantee for such shares.

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                  (f) Exercise of Options. A Grantee may exercise an Option that
has become exercisable, in whole or in part, by delivering a notice of exercise 
to the Company with payment of the Exercise Price. The Grantee shall pay the    
Exercise Price for an Option (i) in cash or by check or wire transfer in        
immediately available funds, (ii) by delivering shares of Company Stock owned by
the Grantee (including Company Stock acquired in connection with the exercise of
an Option, subject to such restrictions as the Committee deems appropriate) and 
having a Fair Market Value on the date of exercise equal to the Exercise Price  
or (iii) by such other method as the Committee may approve, including payment   
through a broker in accordance with procedures permitted by Regulation T of the 
Federal Reserve Board. Shares of Company Stock used to exercise an Option shall 
have been held by the Grantee for the requisite period of time to avoid adverse 
accounting consequences to the Company with respect to the Option. The Grantee  
shall pay the Exercise Price and the amount of any withholding tax due (pursuant
to Section 6) at the time of exercise. Shares of Company Stock shall not be     
issued upon exercise of an Option until the Exercise Price is fully paid and any
required withholding is made.                                                   

               (g) Limits on Incentive Stock Options. Each Incentive Stock
Option shall provide that, if the aggregate Fair Market Value of the stock on   
the date of the grant with respect to which Incentive Stock Options are         
exercisable for the first time by a Grantee during any calendar year, under the 
Plan or any other stock option plan of the Company or a parent or subsidiary,   
exceeds $100,000, then the option, as to the excess, shall be treated as a      
Nonqualified Stock Option. An Incentive Stock Option shall not be granted to any
person who is not an Employee of the Company or a parent or subsidiary (within  
the meaning of section 424(f) of the Code). If and to the extent that an Option 
designated as an Incentive Stock Option fails so to qualify under the Code, the 
Option shall remain outstanding according to its terms as a Nonqualified Stock  
Option.                                                                         

6.       Withholding of Taxes                                 

                 (a) Required Withholding. All Options under the Plan shall be
granted subject to any applicable federal (including FICA), state and local tax 
withholding requirements. The Company shall have the right to deduct from wages 
paid to the Grantee any federal, state or local taxes required by law to be     
withheld with respect to Options, or the Company may require the Grantee or     
other person receiving shares upon exercise of an Option to pay to the Company  
the amount of any such taxes that the Company is required to withhold.          

                 (b) Election to Withhold Shares. If the Committee so permits,
a Grantee may elect to satisfy the Company's income tax withholding obligation  
with respect to an Option by having shares withheld up to an amount that does   
not exceed the Grantee's maximum marginal tax rate for federal (including FICA),
state and local tax liabilities. The election must be in a form and manner      
prescribed by the Committee and shall be subject to the prior approval of the   
Committee.                                                                      

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7.       Transferability of Options                           

                (a) Except as provided below, only the Grantee or his or her
authorized representative may exercise rights under an Option. A Grantee may not
transfer those rights except by will or by the laws of descent and distribution 
or, with respect to Nonqualified Options, if permitted in any specific case by  
the Committee in its sole discretion, pursuant to a qualified domestic relations
order (as defined under the Code or Title I of the Employee Retirement Income   
Security Act of 1974, as amended, or the rules thereunder). When a Grantee dies,
the representative or other person entitled to succeed to the rights of the     
Grantee ("Successor Grantee") may exercise such rights. A Successor Grantee must
furnish proof satisfactory to the Company of his or her right to receive the    
Grant under the Grantee's will or under the applicable laws of descent and      
distribution.                                                                   

                 (b) Notwithstanding the foregoing, the Committee may provide,
in a Grant Instrument, that a Grantee may transfer Nonqualified Stock Options to
family members or other persons or entities according to such terms as the      
Committee may determine.                                                        

8        Change of Control of the Company                     

                 As used herein, a "Change of Control" shall be deemed to have
occurred if:                                                                    

              (a) After the effective date of the Plan, any "person" (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes a    
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly  
or indirectly, of securities of the Company representing 35% or more of the     
voting power of the then outstanding securities of the Company, except where the
acquisition is approved by the Board;                                           

       (b) The shareholders of the Company approve (or, if
shareholder approval is not required, the Board approves) an agreement providing
for (i) the merger or consolidation of the Company with another corporation     
where the shareholders of the Company, immediately prior to the merger or       
consolidation, will not beneficially own, immediately after the merger or       
consolidation, shares entitling such shareholders to a majority of all votes to 
which all shareholders of the surviving corporation would be entitled in the    
election of directors, or where the members of the Board, immediately prior to  
the merger or consolidation, would not, immediately after the merger or         
consolidation, constitute a majority of the board of directors of the surviving 
corporation, (ii) a sale or other disposition of all or substantially all of the
assets of the Company, or (iii) a liquidation or dissolution of the Company;    

                 (c) Any person has commenced a tender offer or exchange offer
for 35% or more of the voting power of the then outstanding shares of the       
Company; or                                                                     

              (d) After this Plan is approved by the shareholders of the
Company, directors are elected such that a majority of the members of the Board 
shall have been members of the Board for less than two years, unless the        
election or nomination for election of each new director who was not a director 
at the beginning of such two-year period was approved by a vote of at           

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least two-thirds of the directors then still in office who were directors at the
beginning of such period.                                                       

9.       Consequences of a Change of Control                  

                 (a) Upon a Change of Control, unless the Committee determines
otherwise, (i) the Company shall provide each Grantee with outstanding Options  
written notice of such Change of Control and (ii) all outstanding Options shall 
automatically accelerate and become fully exercisable.                          

                  (b) In addition, upon a Change of Control described in Section
8(b)(i) where the Company is not the surviving corporation (or survives only as 
a subsidiary of another corporation), unless the Committee determines otherwise,
all outstanding Options that are not exercised shall be assumed by, or replaced 
with comparable options by, the surviving corporation. Any replacement options  
shall entitle the Grantee to receive the same amount and type of securities as  
the Grantee would have received as a result of the Change of Control had the    
Grantee exercised the Options immediately prior to the Change of Control.       

                (c) Notwithstanding the foregoing, subject to subsection (d)
below, in the event of a Change of Control, the Committee may require that      
Grantees surrender their outstanding Options in exchange for a payment by the   
Company, in cash or Company Stock as determined by the Committee, in an amount  
equal to the amount by which the then Fair Market Value of the shares of Company
Stock subject to the Grantee's outstanding Options exceeds the Exercise Price of
the Options.                                                                    

               (d) Notwithstanding the foregoing, the Committee making the
determinations under this Section 9 following a Change of Control must be       
comprised of the same members as those on the Committee immediately before the  
Change of Control. If the Committee members do not meet this requirement, the   
automatic provisions of Subsections (a) and (b) shall apply, and the Committee  
shall not have discretion to vary them.                                         

                (e) Notwithstanding anything in the Plan to the contrary, in
the event of a Change of Control, the Committee shall not have the right to take
any actions described in the Plan (including without limitation actions         
described in Subsection (c) above) that would make the Change of Control        
ineligible for pooling of interest accounting treatment or that would make the  
Change of Control ineligible for desired tax treatment if, in the absence of    
such right, the Change of Control would qualify for such treatment and the      
Company intends to use such treatment with respect to the Change of Control.    

10.      Amendment and Termination of the Plan                

               (a) Amendment. The Board may amend or terminate the Plan at
any time; provided, however, that if the Company Stock becomes publicly traded, 
the Board shall not amend the Plan without shareholder approval if such approval
is required by Section 162(m) of the Code and if Section 162(m) is applicable to
the Plan.                                                                       

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                (b) Termination of Plan. The Plan shall terminate on the day
immediately preceding the tenth anniversary of its effective date unless        
terminated earlier by the Board or unless extended by the Board with the        
approval of the shareholders.                                                   

           (c) Termination and Amendment of Outstanding Options. A
termination or amendment of the Plan that occurs after an Option is granted     
shall not materially impair the rights of a Grantee unless the Grantee consents 
or unless the Committee acts under Section 17(b). The termination of the Plan   
shall not impair the power and authority of the Committee with respect to an    
outstanding Option. Whether or not the Plan has terminated, an outstanding      
Option may be terminated or modified under Sections 9 and 17(b) or may be       
amended by agreement of the Company and the Grantee consistent with the Plan.   

             (d) Governing Document. The Plan shall be the controlling
document. No other statements, representations, explanatory materials or        
examples, oral or written, may amend the Plan in any manner. The Plan shall be  
binding upon and enforceable against the Company and its successors and assigns.

11.      Funding of the Plan                                  

                  This Plan shall be unfunded. The Company shall not be required
to establish any special or separate fund or to make any other segregation of   
assets to assure the payment of any Options under this Plan. In no event shall  
interest be paid or accrued on any Options.                                     

12.      Rights of Participants                               

                Nothing in this Plan shall entitle any Employee, Key Advisor
or other person to any claim or right to be granted an Option under this Plan.  
Neither this Plan nor any action taken hereunder shall be construed as giving   
any individual any rights to be retained by or in the employ of the Company or  
any other employment rights.                                                    

13.      No Fractional Shares                                 

            No fractional shares of Company Stock shall be issued or
delivered pursuant to the Plan or any Option. The Committee shall determine     
whether cash, other awards or other property shall be issued or paid in lieu of 
such fractional shares or whether such fractional shares or any rights thereto  
shall be forfeited or otherwise eliminated.                                     

14.      Requirements for Issuance of Shares                  

                 No Company Stock shall be issued or transferred in connection
with any Option hereunder unless and until all legal requirements applicable to 
the issuance or transfer of such Company Stock have been complied with to the   
satisfaction of the Committee. The Committee shall have the right to condition  
any Option granted to any Grantee hereunder on such Grantee's                   

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undertaking in writing to comply with such restrictions on his or her subsequent
disposition of such shares of Company Stock as the Committee shall deem         
necessary or advisable as a result of any applicable law, regulation or official
interpretation thereof and certificates representing such shares may be legended
to reflect any such restrictions. Certificates representing shares of Company   
Stock issued under the Plan will be subject to such stop-transfer orders and    
other restrictions as may be applicable under such laws, regulations and        
interpretations, including any requirement that a legend or legends be placed   
thereon.                                                                        

15.      Headings                                             

              Section headings are for reference only. In the event of a
conflict between a title and the content of a Section, the content of the       
Section shall control.                                                          

16.      Effective Date of the Plan.                          

               Subject to the approval of the Company's shareholders, this
Plan shall be effective on October 15, 1996.                                    

17.      Miscellaneous                                        

             (a) Options in Connection with Corporate Transactions and
Otherwise. Nothing contained in this Plan shall be construed to (i) limit the   
right of the Committee to grant Options under this Plan in connection with the  
acquisition, by purchase, lease, merger, consolidation or otherwise, of the     
business or assets of any corporation, firm or association, including options   
granted to employees thereof who become Employees of the Company, or for other  
proper corporate purpose, or (ii) limit the right of the Company to grant stock 
options or make other awards outside of this Plan. Without limiting the         
foregoing, the Committee may grant Options to an employee of another corporation
who becomes an Employee by reason of a corporate merger, consolidation,         
acquisition of stock or property, reorganization or liquidation involving the   
Company or any of its subsidiaries in substitution for a stock option or        
restricted stock grant made by such corporation. The Committee shall prescribe  
the provisions of the substitute Options.                                       

                (b) Compliance with Law. The Plan, the grant and exercise of
Options, and the obligations of the Company to issue or transfer shares of      
Company Stock under Options shall be subject to all applicable laws and to      
approvals by any governmental or regulatory agency as may be required. The      
Committee may revoke any Grant if it is contrary to law or modify a Grant to    
bring it into compliance with any valid and mandatory government regulation. The
Committee may also adopt rules regarding the withholding of taxes on payments to
Grantees. The Committee may, in its sole discretion, agree to limit its         
authority under this Section.                                                   

                (c) Ownership of Stock. A Grantee or Successor Grantee shall
have no rights as a shareholder with respect to any shares of Company Stock     
covered by an Option until the shares are issued or transferred to the Grantee  
or Successor Grantee on the stock transfer records of the Company.              

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                 (d) Governing Law. The validity, construction, interpretation
and effect of the Plan and Grant Instruments issued under the Plan shall        
exclusively be governed by and determined in accordance with the law of the     
State of Delaware.                                                              

18.      Non-Officer Grant Committee                          

            The Board of Directors may establish a Non-Officer Grant
Committee which, notwithstanding anything in this Plan to the contrary, shall   
have the power, solely with respect to employees of the Company that are not    
officers of the Company, to grant options, subject to the following terms and   
limitations:                                                                    

                 (a) The Non-Officer Grant Committee may grant options only in
connection with the hiring of new employees or in connection with the promotion 
of employees to non-officer positions.                                          

                (b) The maximum number of shares of Company Stock underlying
option grants made to any individual employee by the Non-Officer Grant Committee
may not exceed 25,000 in any calendar year.                                     

             (c) The Non-Officer Grant Committee shall grant Incentive
Stock Options to the extent permissible under the Code; otherwise, such options 
shall be Non-Qualified Stock Options.                                           

                  (d) The Non-Officer Grant Committee may set such vesting terms
with respect to the options as it deems appropriate; provided, however, that no 
more than one-third of the shares of Company Stock underlying an option (subject
to adjustment to avoid fractional shares) may vest in any calendar year, and no 
options may vest until the first anniversary of the date of grant.              

                  (e) The Exercise Price per share of any options granted by the
Non-Officer Grant Committee shall be at least equal to the Fair Market Value of 
a share of Company Stock on the date of grant.                                  

                 (f) The Non-Officer Grant Committee may provide for an option
term shorter than ten years.                                                    

         (g) In all other respects, the options granted by the
Non-Officer Grant Committee shall be governed by the terms of the Grant         
Instruments relating to Incentive Stock Options or Non-Qualified Stock Options, 
as appropriate and in the form then authorized by the Committee.                

          (h) The Non-Officer Grant Committee powers shall be as
enumerated in this section; the Non-Officer Grant Committee shall not otherwise 
perform the functions of the Committee under this Plan.                         

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           (i) The Committee may also grant options to non-officer
employees in accordance with the provisions of the Plan.                        

                (j) The maximum number of shares underlying options that may
be granted by the Non-Officer Grant Committee in any calendar quarter shall not 
exceed 100,000.                                                                 

Amended :         June 5, 1997                                                  
July 25, 1997                               
September 12, 1997                          
June 5, 1998                                
March 27, 2000                              
April 25, 2000                              
June 20, 2000                               
June 18, 2001                               
[January 18, 2002]                          

PRES14A
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(front)                                                                         

 HEALTH GRADES, INC.

SPECIAL MEETING OF STOCKHOLDERS - January 18, 2002

 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

        The undersigned hereby appoints KERRY R. HICKS and DAVID G. HICKS with
full power of substitution, proxies of the undersigned to represent the         
undersigned and to vote all shares of Common Stock of Health Grades, Inc. which 
the undersigned would be entitled to vote if personally present at the Special  
Meeting of Stockholders of Health Grades, Inc. to be held at the offices of the 
Company, 44 Union Boulevard, Lakewood, Colorado, at 9:00 a.m. local time on     
January 18, 2002 and at any adjournment thereof, subject to the directions      
indicated on the reverse.                                                       

         IF INSTRUCTIONS ARE GIVEN IN THE SPACES ON THE REVERSE SIDE HEREOF, THE
SHARES WILL BE VOTED IN ACCORDANCE THEREWITH; IF INSTRUCTIONS ARE NOT GIVEN, THE
SHARES WILL BE VOTED FOR THE PROPOSAL TO APPROVE THE HEALTH GRADES, INC. STOCK  
PURCHASE PLAN; FOR THE PROPOSAL TO AMEND THE HEALTH GRADES, INC. 1996 EQUITY    
COMPENSATION PLAN; AND FOR THE PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF   
INCORPORATION. THIS PROXY ALSO DELEGATES DISCRETIONARY AUTHORITY TO VOTE WITH   
RESPECT TO ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY   
ADJOURNMENT OR POSTPONEMENT THEREOF.                                            

(Continued and to be signed on reverse side)

(reverse)                                                                       

A. [X]  Please mark your votes as in this example                               

1. Proposal to approve the Health Grades, Inc.       FOR   AGAINST  ABSTAIN     
Stock Purchase Plan.                              [ ]     [ ]      [ ]    

2. Proposal to amend the Health Grades, Inc. 1996    FOR   AGAINST  ABSTAIN     
Equity Compensation Plan.                         [ ]     [ ]      [ ]    

3. Proposal to amend the Company's Certificate of    FOR   AGAINST  ABSTAIN     
Incorporation.                                    [ ]     [ ]      [ ]    

4. To vote on such other matters that may properly come before the meeting.     

THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING AND
PROXY STATEMENT OF HEALTH GRADES, INC.                                          

Signature:                        Signature:                   Date:            
         ----------------                   ----------------        ----------

Note: Please sign this proxy exactly as name(s) appear hereon. When signing as  
attorney-in-fact, executor, administrator, trustee or guardian, please add your 
title as such, and if signed as a corporation, please sign with full corporate  
name by duly authorized officer or officers and affix the corporate seal. Where 
stock is issued in the name of two or more persons, all such persons should     
sign.                                                                           

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘PRES14A’ Filing		Date		First		Last			Other Filings
		10/14/06		12
		12/31/02		7		23			10-K,  10-K/A,  NT 10-K
		4/20/02		16
		3/21/02		16
		1/29/02		17
For Period End:		1/28/02		7		19
		1/25/02		7		19
		1/21/02		7		19
		1/18/02		3		37
		1/1/02		7		20
Filed on:		12/14/01
		12/10/01		3		15
		10/31/01		6		16			8-K
		6/18/01		36
		6/20/00		36					DEF 14A
		4/25/00		36
		3/27/00		36					SC 13D
		6/5/98		36					DEF 14A
		9/12/97		36
		7/25/97		36
		6/5/97		36
		10/15/96		34
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