<PAGE>   1
                                                                   EXHIBIT 10.12
                     TERMS OF EMPLOYMENT WITH HS.COM, INC.


This document (the Agreement) outlines the terms of employment between Charles
Smith, of 380 Vista Abierta, El Cajon, California, 92019 (Smith), and hs.com,
Inc. a Delaware corporation with a principal place of business at 7777 Alvarado
Road, Suite 401, La Mesa, CA 91941 (the Company).

Position: Smith's position will be President of the Company.

Responsibilities: Smith will discharge faithfully and to the best of his ability
the duties of the office of President as they are set forth in the Company's
bylaws and as required under Delaware Corporation law. Smith will serve at the
direction and pleasure of the Board of Directors of the Company, and he will
devote substantially all of his working time and effort to performing his duties
and responsibilities on behalf of the Company.

Term: The term of Smith's employment is one (1) year, commencing on September
26, 1998, and this agreement will be renewed for successive periods of one (1)
year unless notice of termination is given by either party no fewer than
thirty (30) days prior to the expiration of any such one year employment period.

Salary: Smith's regular salary rate will be $150,000.  Payments will be
made twice each month in the amount of $6,250.00, less applicable payroll taxes
and other deductions required by law or that Smith authorizes in writing.
Smith's annual salary will be subject to review and increase, but not decrease,
from time to time as decided by the Board of Directors, provided that Smith's
annual salary rate will increase to $216,000 upon the occurrence of any of the
following events: the registration of the securities of the Company in a public
offering; the merger of the Company with a publicly traded corporation; or the
investment of a cumulative total of $3,000,000 in the capital stock of the
Company on or after November 1, 1998.

Bonus: Smith will be eligible to participate in any incentive bonus program that
the Company's Board of Directors may establish for its executive employees. The
expected terms of the bonus program will be a maximum bonus of 50% of the salary
paid during the year in which the bonus is earned, based on achievement of
company-wide financial and other success objectives.

Equity Compensation: In addition to the cash compensation to be paid as set
forth above, the Company will issue to Smith 42,000 shares of the Company's
common stock (the "Shares"). Three-fourths of the Shares, (including any
additional shares issued to Smith in respect of such Shares as a result of a
stock split, stock dividend or other event) are subject to divestiture on the
following condition:

        If Smith completes twelve (12) or more months of continuous employment
        with the Company under this Agreement but less than forty-eight (48)
        consecutive months, for each full month and any partial month less than
        forty-eight (48) months of such continuous employment, 2.0833% of the
        Shares shall be divested.



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Divested shares shall revert to the Company, and Smith shall receive no
compensation for them or have any rights whatever in regard to them.

The certificates representing the Shares shall bear a legend stating that the
Shares: 1) are not registered under federal or state securities laws; and 2) may
not be transferred until registered or the Company's legal counsel issues an
opinion stating that such restrictions need no longer apply. The legend shall
contain any other restrictions as are required by law. The Company will hold in
escrow the certificates representing the Shares that are subject to divestiture.
At Smith's request, the Company will deliver to him certificates representing
any Shares held in escrow by the Company that are no longer subject to
divestiture. During the period that the Shares or any part of them are subject
to being divested under this provision, Smith shall be deemed the record owner
and shall have all other rights incident to ownership of such Shares, including
the right to notice of meetings and the right to vote on any matters on which
holders of the Company's common stock are entitled to vote.

Anything in this provision to the contrary notwithstanding, upon a change in
control of the Company (as defined below), the divestiture conditions set forth
in this provision shall be of no further force and effect on the date such
change in control becomes effective. As used here, the term change in control
shall mean either: 1) a merger of the Company into or consolidation of the
Company with another corporation, and less than 50% of the directors of the
resulting corporation immediately following the merger or consolidation were
directors of the Company immediately prior to the merger or consolidation, or 2)
a sale by the Company of all or substantially all of its assets.

Benefits: The Company does not yet have a benefit program in place for its
executives and employees. When it establishes one, Smith and his dependents will
be eligible to participate in that program on the terms of eligibility
established by the Company.

Termination: Events that will automatically terminate this agreement will be
Smith's death or a disability that prevents him from performing substantially
all of his duties and responsibilities for a period of 90 days.

Severance Compensation: In the event that the Company terminates or elects not
to renew Smith's employment without cause, as defined below, he will be entitled
to continue to receive his regular salary only for the period of one year
following the effective date of termination. That salary continuation shall be
payable at the Company's election in either a lump sum or on the same basis as
his regular salary. The Company will withhold from such severance payment or
payments those payroll taxes and other amounts required by law or authorized by
Smith in writing. If Smith's employment is terminated for cause, he will not be
entitled to receive any severance pay or any other severance compensation. For
purposes of this provision, cause is defined as any of the following: 1)
material acts of dishonesty; 2) a repeated violation of Company policy (whether
or not written) after receiving written notice of such policy; 3) failure by
Smith to perform any material aspect of his duties after written warning
received from the Board of Directors; or 4) the breach by Smith of any term of
this Agreement.



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Non-Competition and Confidentiality: By virtue of Smith's position as President
of the Company, he will come to possess significant amounts of confidential
information about the Company and the way that it conducts its business. Even if
some or all of that information is available from other or public sources, Smith
will have been exposed to it in a way such that his use of that information
after termination of his employment would enable him to compete unfairly against
the Company. For that reason, for one (1) year following the termination of
Smith's employment with the Company, he will not engage, directly or indirectly,
in any activity that is competitive with the business of Company as and where it
was conducted or planned to be conducted at the time of Smith's termination,
regardless of the reason for or circumstances of his termination. Smith will be
obligated to maintain the confidentiality of any trade secret or confidential
business information that he acquires about the Company during his employment,
and Smith will refrain from using any such information until it becomes publicly
available through lawful means. These restrictions are in addition to, not in
place of, any protection provided to trade secret information under California
law.

Assignment: The Company may assign its rights and obligations under this
agreement, in which event it shall be binding upon, and inure to the benefit of,
the person or entity to whom it is assigned.

Entire Agreement: This Agreement contains the entire understanding and agreement
reached between Smith and the Company, and it supersedes any discussions or
agreements that have been had or made prior to its execution. It may only be
modified by a writing signed by the party against which the modification is to
be enforced.

Governing Law: This Agreement will be enforce in accordance with the laws of the
State of California.


hs.com, Inc.                           Charles Smith




By: /s/ MICHAEL D. CHERMAK              /s/ CHARLES SMITH
   ---------------------------         --------------------------
Michael D. Chermak
Chairman


Date:  11/12/98                        Date:   11/12/98


Per M. Chermak at signing on 11/12/98. The interpretation of employment is one
year guaranteed, and then one year roll-overs automatically unless the 30 day
notice is given by either party. There is no "at will" clause or intent in this
agreement.

/s/ LORI O'BRIEN                       11/17/98
------------------------------
LORI O'BRIEN




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                            [MEDIBUY.COM LETTERHEAD]
May 14,1999



Mr. Charlie Smith
President
Medibuy.com
7777 Alvarado Road
Suite 401
La Mesa, CA 91941


Dear Charlie:

Per your original employment agreement, the level of compensation promised in
the agreement exceeds your current compensation by $18,000. This decision was
required to maintain executive salaries at a consistent level during company
financing negotiations.

To ensure the terms of your original agreement remain intact, you will be
granted a single cash bonus of $18,000 to accommodate this difference in salary
structure. This payment will be made no later than June 15th, 1999.

Sincerely,



/s/ MICHAEL D. CHERMAK
------------------------
Michael D. Chermak
Chairman
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                     FIRST AMENDMENT TO EMPLOYMENT AGREEMENT

        THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment") is
entered into as of October 26, 1999 (the "Effective Date"), by and between
MEDIBUY.COM, INC., a Delaware corporation (the "Company") and CHARLES R. SMITH
("Executive").

        WHEREAS, the Company and Executive previously entered into an Employment
Agreement, dated November 12, 1998 (the "Employment Agreement"); and

        WHEREAS, the parties desire to amend the Employment Agreement as set
forth in this Amendment.

        NOW THEREFORE, in consideration of the mutual benefits contained herein,
the parties, intending to be legally bound, hereby agree as follows:

        1.      Except as otherwise defined herein, capitalized terms used but
not defined herein shall have the meanings given to them in the Employment
Agreement.

        2.      The Employment Agreement is hereby amended as follows:

                (a)     Executive will hold the position of Executive Vice
President of Customer Advocacy and no longer hold the position of President of
the Company.

                (b)     For purposes of clarification, the parties agree that
Executive was entitled to receive 36,000 pre-stock split shares of the Company's
common stock rather than 42,000 pre-stock split shares; and

                (c)     The following provision hereby amends and restates the
last paragraph under the heading "Equity Compensation" in its entirety:

                        In the event of (i) a sale, lease or other disposition
                of all or substantially all of the assets of the Company, (ii) a
                merger or consolidation in which the Company is not the
                surviving corporation or (iii) a reverse merger in which the
                Company is the surviving corporation but the shares of Common
                Stock outstanding immediately preceding the merger are converted
                by virtue of the merger into other property, whether in the form
                of securities, cash or otherwise, then any surviving corporation
                or acquiring corporation shall assume the Shares or shall
                substitute similar stock awards for the Shares. In the event any
                surviving corporation or acquiring corporation refuses to assume
                the Shares or to substitute similar stock awards for the Shares
                and Executive employment has not been terminated, then with
                respect to the Shares held by Executive, the vesting of Shares
                subject to divesting shall be accelerated in full at or prior to
                such event.

                        After the first date upon which any security of the
                Company is listed (or approved for listing) upon notice of
                issuance on any securities exchange or designated (or approved
                for designation) upon notice of issuance as a national market
                security on an interdealer quotation system if such securities
                exchange or interdealer quotation system has been certified in
                accordance with the provisions


                                       1.
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                of Section 25100(o) of the California Corporate Securities Law
                of 1968 (the "Listing Date") and in the event of an acquisition
                by any person, entity or group within the meaning of Section
                13(d) or 14(d) of the Securities Exchange Act of 1934 (the
                "Exchange Act"), as amended, or any comparable successor
                provisions (excluding any employee benefit plan, or related
                trust, sponsored or maintained by the Company) of the beneficial
                ownership (within the meaning of Rule 13d-3 promulgated under
                the Exchange Act, or comparable successor rule) of securities of
                the Company representing at least fifty percent (50%) of the
                combined voting power entitled to vote in the election of the
                Board of Directors of the Company (the "Board"), then with
                respect to the Shares held by Executive, if Executive's
                continuous service has not terminated, the vesting of the Shares
                subject to the divesting shall be accelerated in full.

                        After the Listing Date, in the event that the
                individuals who, as of the Listing Date, are members of the
                Board (the "Incumbent Board"), cease for any reason to
                constitute at least fifty percent (50%) of the Board, then with
                respect to the Shares subject to divesting held by Executive, if
                Executive's continuous service has not terminated, the vesting
                of the Shares subject to divesting shall be accelerated in full.
                If the election, or nomination for election, by the Company's
                shareholders of any new director of the Board was approved by a
                vote of at least fifty percent (50%) of the Incumbent Board,
                such new director shall be considered as a member of the
                Incumbent Board.

        3.      This Amendment shall be governed by and construed in accordance
with the laws of the State of California as such laws are applied to contracts
entered into and performed entirely within California by California residents.

        4.      This Amendment may be signed in any number of counterparts, each
of which will be deemed an original, and all of which taken together shall
constitute one and the same instrument.

        5.      Except as specifically amended hereby, the Employment Agreement
shall remain in full force and effect. This Amendment constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and supersedes all prior agreements or understandings, inducements
or conditions, express or implied, written or oral, between the parties with
respect to the subject matter hereof.

        IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.


                                       MEDIBUY.COM, INC.


/s/ CHARLES R. SMITH                   By: /s/ DENNIS J. MURPHY
-----------------------------------       --------------------------------------
CHARLES R. SMITH                       Name: Dennis J. Murphy
                                           -------------------------------------
                                       Title: President & Chief Executive
                                              Officer
                                             -----------------------------------


                                       2.