<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 16, 1999
REGISTRATION NO. 333-76899
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HEALTHGATE DATA CORP.
(Exact name of registrant as specified in its charter)
------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7379 04-3220927
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization) 25 CORPORATE DRIVE, SUITE 310
BURLINGTON, MASSACHUSETTS 01803
(781) 685-4000
</TABLE>
(Address, including zip code and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
WILLIAM S. REECE
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
HEALTHGATE DATA CORP.
25 CORPORATE DRIVE, SUITE 310
BURLINGTON, MASSACHUSETTS 01803
(781) 685-4000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
STEPHEN M. KANE, ESQ. DANIELLE CARBONE, ESQ.
RICH, MAY, BILODEAU & FLAHERTY, P.C. SHEARMAN & STERLING
294 WASHINGTON STREET 599 LEXINGTON AVENUE
BOSTON, MASSACHUSETTS 02108 NEW YORK, NEW YORK 10022
(617) 482-1360 (212) 848-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
------------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED (1) SHARE (2) PRICE FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value.................... 5,290,000 $12.00 $63,480,000 $17,648
</TABLE>
(1) Includes 690,000 shares which the underwriters have an option to purchase
from HealthGate Data Corp. to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
<TABLE>
<S> <C> <C>
SUBJECT TO COMPLETION, DATED JULY 16, 1999
PROSPECTUS
</TABLE>
4,600,000 Shares
[LOGO]
Common Stock
This is an initial public offering of shares of common stock of HealthGate
Data Corp. HealthGate expects that the public offering price will be between
$10.00 and $12.00 per share.
Our common stock has been approved for trading and quotation on the Nasdaq
National Market under the symbol "HGAT."
Our business involves significant risks. These risks are described under the
caption "Risk Factors" beginning on page 9.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
---------------------
<TABLE>
<S> <C> <C>
Per Share Total
Public offering price........................................... $ $
Underwriting discounts and commissions.......................... $ $
Proceeds, before expenses, to HealthGate........................ $ $
</TABLE>
The underwriters may also purchase up to an additional 690,000 shares of
common stock at the public offering price, less the underwriting discounts and
commissions, to cover over-allotments.
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
---------------------
SG COWEN
BANC OF AMERICA SECURITIES LLC
VOLPE BROWN WHELAN & COMPANY
, 1999
<PAGE>
[The inside cover contains pictures of our www.healthgate.com Web site and
co-branded CHOICE Web sites and other pages displaying our content, technology
and advertising and sponsorship opportunities.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Page
<S> <C> <C> <C>
Prospectus Summary............................... 5 Management....................................... 61
Risk Factors..................................... 9 Certain Transactions............................. 68
Use of Proceeds.................................. 23 Principal Stockholders........................... 69
Dividend Policy.................................. 23 Description of Capital Stock..................... 71
Capitalization................................... 24 Shares Eligible for Future Sale.................. 74
Dilution......................................... 25 Underwriting..................................... 77
Selected Consolidated Financial Data............. 26 Legal Matters.................................... 78
Management's Discussion and Analysis of Experts.......................................... 79
Financial Condition and Results of Where You Can Find More Information.............. 79
Operations..................................... 29 Consolidated Financial Statements................ F-1
Business......................................... 40
</TABLE>
---------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. WE
ARE OFFERING TO SELL AND SEEKING OFFERS TO BUY SHARES OF OUR COMMON STOCK ONLY
IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED
IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS,
REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF OUR
COMMON STOCK.
---------------------
UNTIL , 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
WE HAVE REGISTERED THE TRADEMARKS "HEALTHGATE," "HEALTHGATE DATA," "MEDGATE"
AND "READER" IN THE UNITED STATES AND HAVE FILED TRADEMARK REGISTRATION
APPLICATIONS FOR "CHOICE," "ACTIVEPRESS" AND THE HEALTHGATE LOGO IN THE UNITED
STATES. ALL OTHER TRADEMARKS, SERVICE MARKS OR TRADE NAMES REFERRED TO IN THIS
PROSPECTUS ARE THE PROPERTY OF THEIR RESPECTIVE OWNERS.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS ONLY A SUMMARY. YOU SHOULD CAREFULLY READ THE MORE DETAILED
INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING OUR CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES. OUR BUSINESS INVOLVES SIGNIFICANT RISKS. YOU
SHOULD CAREFULLY CONSIDER THE INFORMATION UNDER THE HEADING "RISK FACTORS."
UNLESS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES: (1) THE
CONVERSION OF ALL OUTSTANDING SHARES OF OUR PREFERRED STOCK INTO 8,666,019
SHARES OF COMMON STOCK UPON THE CLOSING OF THIS OFFERING; (2) A 4.564 -FOR-1
STOCK SPLIT EFFECTIVE IMMEDIATELY PRIOR TO THE DATE OF THIS PROSPECTUS; AND (3)
NO EXERCISE BY THE UNDERWRITERS OF THE OVER-ALLOTMENT OPTION.
THE COMPANY
HealthGate is an Internet provider of reliable, objective, comprehensive and
up-to-date healthcare information helping physicians and other healthcare
professionals, patients and health-conscious consumers make better informed
healthcare decisions. We have aggregated and developed what we believe are the
most extensive health and medical libraries of any online provider, currently
totaling approximately 27 million different pages of health and medical
information from over 190 sources representing 27 independent content providers.
Given the depth and breadth of our content, we provide healthcare
information to a wide range of online users. Our online library targeted to
physicians and other healthcare professionals includes internationally
recognized journals such as the NEW ENGLAND JOURNAL OF MEDICINE, bibliographic
databases such as MEDLINE, handbooks such as the Drug Information Handbook,
decision support materials such as the Poisoning and Toxicology Compendium and
Continuing Medical Education programs from the Boston University School of
Medicine and Professional Postgraduate Services. Our patient focused online
library includes patient education materials such as a series of over 3,000
patient education brochures published by the Clinical Reference Systems division
of Access Health. We have also created "Healthy Living" Webzines, a proprietary
series of industry recognized consumer health magazines distributed exclusively
through the Web, and have produced Wellness Centers, which are compilations of
selected information from our online libraries for consumers, on 100 of the most
prevalent illnesses, diseases and medical conditions.
We adapt and integrate this diverse content through our internally developed
software programs, which include our proprietary ReADER-Registered Trademark-
natural language searching software, designed to facilitate the search and
retrieval of relevant information in response to each user's searching needs. In
addition, our activePress-TM- service uses our technology to provide text
conversion and Web site development and hosting services for traditional print
publishers.
We distribute our content through a network of proprietary and affiliated
Web sites that comprise the HealthGate Network. The HealthGate Network includes:
- our own Web sites, www.healthgate.com and www.bewell.com in the United
States and www.healthgate.co.uk in the United Kingdom;
- customized, co-branded CHOICE-TM- Web sites for institutions, principally
hospitals, which carry both HealthGate's and the institution's name and
are designed as a seamless component of the institution's own Web site;
and
- other third party Web sites to which we syndicate our proprietary and
licensed content.
Subject specific Web sites dedicated to healthcare are one of the most
popular segments of the Internet. According to Cyber Dialogue, Inc., an industry
research firm, during the 12-month period ended July 1998, approximately 17
million adults in the United States searched online for health and medical
information, a number which Cyber Dialogue estimates will grow to approximately
33 million
5
<PAGE>
in 2000. We believe that with our extensive content libraries and distribution
network we are positioned to capture a leading share of the online health
audience as this industry continues to grow.
Our strategy includes the following key elements:
- providing leading healthcare content and technology;
- expanding the HealthGate Network;
- continuing to build the HealthGate brand;
- broadening the range of offered products and services;
- pursuing acquisitions and additional strategic affiliations; and
- continuing to grow internationally.
We currently engage in the following activities:
- developing co-branded CHOICE Web sites for hospitals and other
institutions, and distributing content through these CHOICE Web sites;
- offering banner advertising and sponsorship of discrete portions of our
content libraries to pharmaceutical companies, other healthcare
advertisers and other businesses and organizations;
- providing our activePress Web publishing services to traditional print
publishers;
- syndicating content to third party Web sites; and
- participating in electronic commerce opportunities, also known as
e-commerce, including selling articles from full-text journals, monthly
online subscriptions and medical text books.
Our success depends on our ability to effectively implement our strategy,
which involves significant challenges and risks identified in this prospectus
under the heading "Risk Factors," including our ability to manage our growth,
compete in the rapidly evolving Internet industry, market CHOICE Web sites and
attract additional users, advertisers and sponsors to the HealthGate Network.
We have lost money since we started our business, and as of June 30, 1999,
we had an accumulated deficit of approximately $23.5 million.
We are incorporated under the laws of the State of Delaware and our
executive offices are located at 25 Corporate Drive, Suite 310, Burlington,
Massachusetts 01803. Our telephone number is (781) 685-4000.
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock we are offering...................... 4,600,000 shares
Common stock to be outstanding after this
offering.......................................... 18,523,264 shares
Underwriters' over-allotment option............... 690,000 shares
Use of proceeds................................... To repay $2,000,000 of outstanding
indebtedness and for general corporate
purposes, including working capital,
expansion of our sales and marketing
efforts, content development and
licensing, advertising and brand
promotion and acquisitions or
investments. See "Use of Proceeds."
Nasdaq National Market symbol..................... HGAT
</TABLE>
The number of shares of our common stock to be outstanding immediately after
the offering is based on the number of shares outstanding on June 30, 1999. This
number does not take into account 2,372,677 shares of our common stock subject
to options outstanding under our stock option plans or other option agreements
at June 30, 1999 with a weighted exercise price of $1.68 per share. This number
also does not take into account outstanding warrants to purchase 549,551 shares
of our common stock at June 30, 1999, with a weighted average exercise price of
$.11 per share, or a warrant to purchase 1,369,200 shares of our common stock
with an exercise price of $8.25 per share, which we issued on June 17, 1999. See
"Business--Strategic Affiliations--Marketing and Distribution Affiliations."
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Unaudited pro forma basic and diluted net loss per share have been
calculated assuming the conversion of all outstanding preferred stock into
common stock, as if the shares had converted immediately upon their issuance.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
------------------------------- ----------------------
1996 1997 1998 1998 1999
--------- --------- --------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenue........................................... $ 408 $ 1,285 $ 2,434 $ 1,212 $ 1,052
Total costs and expenses................................ 3,120 3,820 4,975 2,121 5,777
Loss from operations.................................... (2,712) (2,535) (2,541) (909) (4,725)
Net loss................................................ (2,726) (2,541) (2,878) (1,001) (4,950)
Preferred stock dividends and accretion of preferred
stock to redemption value............................. (264) (540) (594) (298) (8,049)
Net loss attributable to common stockholders............ (2,990) (3,081) (3,472) (1,299) (12,999)
Basic and diluted net loss per share attributable to
common stockholders................................... $ (.57) $ (.59) $ (.66) $ (.25) $ (2.48)
Shares used in computing basic and diluted net loss per
share attributable to common stockholders............. 5,228 5,229 5,233 5,229 5,240
Unaudited pro forma basic and diluted net loss per
share................................................. $ (.27) $ (0.41)
Shares used in computing unaudited pro forma basic and
diluted net loss per share............................ 10,610 11,982
</TABLE>
7
<PAGE>
The following table contains a summary of our balance sheet:
- on an actual basis at June 30, 1999;
- on a pro forma as adjusted basis at June 30, 1999 to reflect (a) the sale
of 4,600,000 shares of common stock offered hereby at an assumed initial
public offering price per share of $11.00, (b) the conversion of all
outstanding shares of redeemable convertible preferred stock into
8,666,019 shares of common stock, and (c) the repayment of a long-term
note payable of $2,000,000 with proceeds from the offering.
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C> <C>
JUNE 30, 1999
<CAPTION>
PRO FORMA
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities....................................... $ 2,570 $ 45,920
Working capital........................................................................ 12 43,362
Total assets........................................................................... 15,955 59,305
Long-term debt and capital lease obligations........................................... 1,646 175
Redeemable convertible preferred stock................................................. 14,939 --
Common stock and other stockholders' equity (deficit).................................. (4,271) 55,488
</TABLE>
8
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION. YOU SHOULD ALSO REFER TO THE OTHER INFORMATION IN THIS
PROSPECTUS, INCLUDING OUR FINANCIAL STATEMENTS AND THE RELATED NOTES. THE RISKS
AND UNCERTAINTIES DESCRIBED BELOW ARE THOSE THAT WE CURRENTLY BELIEVE MAY
MATERIALLY AFFECT OUR COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES THAT WE ARE
UNAWARE OF OR THAT WE CURRENTLY DEEM IMMATERIAL ALSO MAY BECOME IMPORTANT
FACTORS THAT AFFECT OUR COMPANY.
THIS PROSPECTUS ALSO CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THE RISKS FACED BY US DESCRIBED BELOW AND ELSEWHERE IN THIS
PROSPECTUS.
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY AND HAVE RECENTLY INTRODUCED NEW SERVICES
WHICH MAKES AN EVALUATION OF OUR BUSINESS BASED ON PAST OPERATING RESULTS
DIFFICULT.
We have been in business since February 1994, but we did not generate
revenue until January 1996. Through December 31, 1996, the majority of our
activities were related to development of products and services, exploration of
different sales and marketing channels, the build-up of hardware and software
infrastructure to support our www.healthgate.com Web site and the establishment
of the business, operations and financing of our company. Since 1997, we have
introduced new services and experienced significant growth in our operating
revenue relative to prior periods. Therefore, our historical financial
information is of limited value in evaluating our future operating results. An
investor in our common stock must consider the risks, expenses and difficulties
frequently encountered by companies in the early stages of development,
especially companies in a rapidly changing market like the market for Internet
services.
WE HAVE A HISTORY OF LOSSES AND WE EXPECT THAT LOSSES WILL CONTINUE FOR THE
FORESEEABLE FUTURE.
We have lost money in every period since we started our business and we had
an accumulated deficit of approximately $10.5 million as of December 31, 1998
and $23.5 million as of June 30, 1999. We plan to invest heavily to continue to
develop and expand our content libraries, to market our CHOICE Web sites, to
attract traffic to our Web sites at www.healthgate.com and www.healthgate.co.uk,
to increase our customer base, to upgrade our technology, to expand
internationally and to continue to build the HealthGate brand. As a result, we
expect to continue to lose money for the foreseeable future. We can not assure
you that we will ever achieve or sustain profitability or that our operating
losses will not increase in the future.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY WHICH MAY AFFECT THE
MARKET PRICE OF OUR COMMON STOCK IN A MANNER UNRELATED TO OUR LONG-TERM
PERFORMANCE.
We expect our quarterly revenue, expenses and operating results to fluctuate
significantly in the future, which could affect the market price of our common
stock in a manner unrelated to our long-term operating performance. Quarterly
fluctuations could result from a number of factors, including:
- the amount and timing of costs to expand our operations;
- addition of new content providers or changes in our relationships with our
most important content providers, which may require more expenditures in
the early stages of these relationships;
- the level of usage of the HealthGate Network which could impact, among
other things, recognition of revenue in connection with advertising and
sponsorship sales that are tied to the number of times advertisement or
sponsorship banners are displayed to users;
9
<PAGE>
- seasonality of spending by the advertising industry, which is generally
lower in the first and third calendar quarters; and
- the amount and timing of expenses required to integrate operations and
technologies from acquisitions, joint ventures or other business
combinations or investments.
We expect to increase the level of activity and spending in our operations,
particularly in sales and marketing and research and development. We base our
expense levels in part upon our expectations concerning future revenue and these
expense levels are predominantly fixed in the short-term. If we have lower
revenue than expected, we may not be able to reduce our spending in the
short-term in response. Any shortfall in revenue would have a direct impact on
our results of operations. In this event, the price of our common stock may
fall. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
NON-CASH EXPENSES RELATED TO THE AMORTIZATION OF A RECENTLY ISSUED WARRANT WILL
ADVERSELY AFFECT FUTURE OPERATING RESULTS.
Beginning in the fiscal quarter ending June 30, 1999, we are amortizing as
an expense over a 12 month period the $10.3 million value of a warrant we issued
to General Electric Company in June 1999 in connection with our development and
distribution agreement with GE Medical Systems, a division of General Electric.
The value of this warrant was determined using the Black-Scholes option pricing
model. This non-cash amortization expense will have an adverse effect on our
operating results and may cause the market price of our common stock to fall in
the near term. See "Business--Strategic Affiliations--Marketing and Distribution
Affiliations."
OUR BUSINESS PROSPECTS WILL SUFFER IF WE ARE NOT ABLE TO SUCCESSFULLY BUILD
RECOGNITION FOR THE HEALTHGATE BRAND.
We believe that increasing awareness of the HealthGate brand is important to
our ability to attract additional users, customers, advertisers, sponsors and
strategic partners. We believe the importance of brand recognition will increase
in the future as the number of Web sites providing healthcare information
products and services increases. We plan to allocate significant resources to
develop and build brand recognition by expanding the reach of the HealthGate
Network, primarily through increasing the number of CHOICE Web sites and
promoting these CHOICE Web sites and our own Web sites. However, we can not
assure you that our efforts to build brand awareness will be successful.
WE FACE INTENSE COMPETITION IN PROVIDING OUR INTERNET-BASED HEALTHCARE
INFORMATION PRODUCTS AND SERVICES AND WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY.
The market for Internet services and products is relatively new, intensely
competitive and rapidly changing. Since the Internet's commercialization in the
early 1990s, the number of Web sites on the Internet competing for users'
attention has proliferated with no substantial barriers to entry. There are more
than 15,000 Web sites offering users healthcare content, products and services,
and we expect that competition will continue to grow. With low barriers to entry
in a relatively new and rapidly evolving industry, the types of entities against
which we compete, directly and indirectly, for subscribers, consumers, content
and service providers, advertisers, sponsors and acquisition candidates is
broad. Presently, our competitors include the following types of companies:
- publishers and distributors of traditional print media targeted to
healthcare professionals, patients and health-conscious consumers, many of
which have established or may establish their own Web sites;
- large healthcare information systems companies, such as McKesson HBOC and
Shared Medical Systems;
10
<PAGE>
- online services or Web sites targeted to the healthcare industry
generally, such as WebMD, Medscape, Inteli-health, OnHealth and
drkoop.com;
- public sector and non-profit Web sites that provide healthcare information
without advertising or commercial sponsorships, such as the National
Library of Medicine and the American Medical Association;
- Web sites, such as Yahoo!, America Online and Lycos, which provide access
to healthcare related information and services; and
- vendors of healthcare information, products and services distributed
through other means, including direct sales, mail and fax messaging.
Many of our competitors enjoy significant competitive advantages including:
greater resources that can be devoted to the development, promotion and sale of
their products and services; longer operating histories; greater brand
recognition; and larger customer bases.
We also compete with other Web sites, traditional print media and other
sources of healthcare information for a share of total advertising budgets. If
advertisers perceive the Internet or the HealthGate Network to be limited or
ineffective advertising media, they may be reluctant to devote a portion of
their advertising budget to Internet advertising or to advertising on the
HealthGate Network. See "Business--Competition."
OUR BUSINESS IS EXPANDING RAPIDLY AND OUR BUSINESS PROSPECTS MAY SUFFER IF WE
ARE NOT ABLE TO MANAGE OUR GROWTH THROUGH IMPLEMENTATION OF BETTER INTERNAL
CONTROLS.
Since we began our business in 1994, we have significantly expanded our
operations over a short period of time. We have grown from three employees at
the end of 1994 to 73 full-time employees as of June 30, 1999, and we expect to
add a significant number of additional personnel in the near future. Several
members of our senior management joined us during 1998 or early 1999, including
Mary B. Miller, our Chief Financial Officer, and Hamid Tabatabaie, our Vice
President of Sales and Marketing. We believe the successful integration of our
senior management will be critical to our ability to effectively manage our
growth. Our rapid growth has placed a substantial strain on our management,
operational and financial resources and systems.
On June 30, 1999, we received a letter from our independent accountants
which discussed a material weakness in our internal controls related to revenue
recognition. This material weakness resulted in the restatement of our unaudited
results of operations for the three months ended March 31, 1999 to reverse
$82,000 of revenue, as discussed in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section. The letter emphasized
the need for a clearly defined, formal revenue accounting model for the
contracts underlying each type of transaction that generates revenue for us. In
addition, the letter emphasized the need for ongoing and proper communication
among our financial, operational and sales personnel and between us and our
independent accountants regarding key terms and conditions relating to our
contractual relationships. We have begun implementing additional financial and
management controls and procedures which we believe will address these concerns.
We can not guarantee that our management team will be able to effectively manage
the growth of our operations or that our systems, procedures and controls will
be adequate to support our expanding operations.
WE MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR GROWTH AND ACQUISITION
STRATEGY.
Key elements of our growth strategy include making acquisitions of, or
significant investments in, complementary companies, products or technologies to
increase our content libraries, technological capabilities and customer base and
entering into other strategic affiliations. To date, we have not made any major
acquisitions or investments. For our acquisition strategy to be successful, we
will need to identify content sources, technologies and businesses that are
complementary to ours, integrate
11
<PAGE>
disparate technologies and corporate cultures and possibly manage a
geographically dispersed company. We may also lose key employees while
integrating any new companies. For these reasons, we may not be successful in
integrating any acquired businesses or technologies and may not achieve
anticipated revenue and cost benefits. Simultaneously pursuing acquisitions,
strategic affiliations and other elements of our growth strategy could be
expensive, time consuming and may strain our resources. If we are not successful
in implementing our growth and acquisition strategy, our business, results of
operations and the market price of our common stock could be adversely affected.
In addition, we may be required to amortize significant amounts of goodwill
and other intangible assets in connection with future acquisitions, which could
adversely affect our results of operations and the market price of our common
stock.
COMPETITION FOR HIGHLY-SKILLED PERSONNEL IS INTENSE AND THE SUCCESS OF OUR
BUSINESS DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL.
Our performance depends on the continued services and performance of our
executive officers and key employees, including William S. Reece, our President,
Chief Executive Officer and Chairman of the Board, Mary B. Miller, our Chief
Financial Officer and Treasurer, Mark A. Israel, our Chief Technology Officer,
Hamid Tabatabaie, our Vice President of Sales and Marketing and Rick Lawson, our
Vice President of Content and Secretary. We maintain key person life insurance
payable to us on Mr. Reece in the amount of $1 million. We do not maintain key
person life insurance policies on any other officers or employees. Our future
success also depends on our ability to identify, attract, hire, train, retain
and motivate highly skilled technical, managerial, editorial, marketing and
customer service personnel. Competition for highly-skilled personnel is intense.
In particular, skilled technical employees are highly sought after in the Boston
area, and we can not guarantee that we will be able to attract or retain these
employees.
THE SUCCESS OF OUR BUSINESS WILL DEPEND ON OUR ABILITY TO SELL ADVERTISING ON
THE HEALTHGATE NETWORK.
We derived approximately 18% of our revenue in the six months ended June 30,
1999 from the sale of general and targeted banner advertising, including barter
revenue, and sponsorships of discrete topic areas on the HealthGate Network,
compared to 29% of our revenue in the six months ended June 30, 1998 and 27% of
our revenue in the year ended December 31, 1998. In general, barter revenue has
been decreasing as a percentage of revenue. Barter advertising revenue was
$67,000 or 6% of total revenue for the six months ended June 30, 1999 compared
to $233,000 or 19% of total revenue for the six months ended June 30, 1998 and
$436,000 or 18% of total revenue for the year ended December 31, 1998. We
anticipate that barter revenue will continue to decrease as a percentage of
total revenue in the future. Barter revenue is not a source of cash available to
fund our operations. Under our sponsorship arrangements, a sponsor's name or a
message selected by the sponsor is included on each page of the topic area
together with a click-through link to the sponsor's Web site.
Our future success depends on our ability to generate and increase revenue
from advertising and sponsorship which will depend on a number of factors,
including:
- the development of the Internet as an advertising medium;
- the amount of traffic on the HealthGate Network and the number of
registered and unique users of our content; and
- our ability to achieve and demonstrate registered and unique user
demographic characteristics that are attractive to sponsors and
advertisers.
Most of our advertisements to date have been displayed on our own Web sites
and have been sold on the basis of the number of impressions, or times that an
advertisement appears in page views downloaded by users, rather than on the
number of click-throughs, or user requests for additional information made by
clicking on the advertisement. We can not guarantee that our advertising
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customers will accept our internal and third party measurements of these
impressions received by advertisements on the HealthGate Network, or that these
measurements will be free from errors. If we are unable to accurately measure
these impressions or have our advertising customers accept these measurements,
advertisers may not be willing to buy advertising space from us. In addition,
there are currently a variety of pricing models for selling advertising on the
Internet. It is difficult to predict which model, if any, will emerge as the
industry standard. This uncertainty makes it difficult to project our future
advertising rates and revenue that we may generate from advertising.
THE SUCCESS OF OUR BUSINESS WILL DEPEND ON OUR ABILITY TO SELL A SUBSTANTIAL
NUMBER OF CO-BRANDED CHOICE WEB SITES.
A key element of our strategy is to expand the HealthGate Network by
establishing co-branded CHOICE Web sites. We commercially introduced our CHOICE
Web site product in early 1999 and as of June 30, 1999 had delivered 17 CHOICE
Web sites to enterprise clients. As part of our agreements with most of these
initial CHOICE clients, we have guaranteed advertising and sponsorship revenue
in an amount approximately equal to the fees paid by them during the initial
term of their CHOICE Web site agreements and, in a few cases, in amounts that
exceed those fees. To date, we have entered into these types of arrangements for
promotional purposes to establish our CHOICE Web site product but have
discontinued the use of these arrangements as a standard practice. However, we
can not assure you that we will not use this or a similar type of promotion in
the future.
Under these guarantees, we are obligated to pay these CHOICE clients,
generally quarterly, for advertising and sponsorship even if we do not generate
any revenue from the sale of advertising and sponsorship on their sites. For
those CHOICE Web sites for which we have guaranteed advertising and sponsorship,
we do not recognize revenue unless the guaranteed amount is less than the fee
paid to us. We only recognize ratably the net revenue represented by the
difference between the fee paid and the guarantee owed. As a result, we have
recognized only $12,150 in revenue for CHOICE Web sites sold through June 30,
1999. As we sell advertising or sponsorship on these CHOICE Web sites to third
parties, we will recognize advertising revenue from these sites. For those
CHOICE sites for which we do not guarantee advertising and sponsorship revenue
we recognize the fee paid ratably over the term of the agreement. To date we
have sold advertising or sponsorship on only three CHOICE sites. We cannot
guarantee that we will be successful in selling advertising or sponsorship on
these or additional sites in the future.
Our CHOICE product is new and unproven and we cannot assure you that we will
be able to sell additional CHOICE products without advertising and sponsorship
guarantees or without lowering the price of the product.
THE PERFORMANCE OF OUR WEB SITES AND COMPUTER SYSTEMS IS CRITICAL TO OUR
BUSINESS AND OUR BUSINESS WILL SUFFER IF WE EXPERIENCE SYSTEM FAILURES.
The performance of our Web sites and computer systems is critical to our
reputation and ability to attract and retain users, customers, advertisers and
subscribers. We provide products and services based on sophisticated computer
and telecommunications software and systems, which often experience development
delays and may contain undetected errors or failures when introduced into our
existing systems. Although we have only experienced one minor unscheduled
service interruption of approximately four hours since the beginning of 1998, we
can not guarantee that we will not experience more significant service
interruptions in the future. We are also dependent upon Web browsers and
Internet service providers to provide Internet users access to our Web sites.
Many of them have experienced significant outages in the past and could
experience outages, delays and other difficulties in the future due to system
failures. For example, on August 7, 1996, a major Internet service provider
experienced a service outage of over 20 hours. We also depend on certain
information providers to deliver information and data feeds to us on a timely
basis. Our Web sites could experience disruptions or interruptions in service
due to the failure or delay in the transmission or receipt of this information.
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System errors or failures that cause a significant interruption, for example, 24
hours or more, in the availability of our content or an increase in response
time on our Web sites could cause us to lose potential or existing users,
customers, advertisers or subscribers and could result in damage to our
reputation and brand name or a decline in our stock price.
Given our reliance on our own and third party computer and
telecommunications software and systems, any of the following occurrences could
cause response time delays or system failures on our Web sites:
- a sudden and significant increase in the number of users of our Web sites;
- any failure or delay in the transmission or receipt of downloads from our
content providers;
- any disruption in our Internet access through our third party Internet
service providers;
- any failure of our third party Internet service providers to handle higher
volumes of users; and
- fire, hurricanes, power loss, break-ins, computer viruses and other events
beyond our control.
In March 1999, we entered into a one year Internet Data Center Services
Agreement with Exodus Communications, Inc. to house all of our central computer
facility servers at Exodus's Internet Data Center in Waltham, Massachusetts. We
do not presently maintain fully redundant systems at separate locations, so our
operations depend on Exodus's ability to protect the systems in its data center
against damage from fire, power loss, water damage, telecommunications failure,
vandalism and similar events. Although Exodus provides comprehensive facilities
management services, including human and technical monitoring of all production
servers, Exodus does not guarantee that our Internet access will be
uninterrupted, error-free or secure. We have also developed a disaster recovery
plan to respond to system failures. We can not guarantee that our disaster
recovery plan is capable of being implemented successfully, if at all. Finally,
we maintain property insurance for our equipment, but do not maintain business
interruption insurance. We can not guarantee that our insurance will be adequate
to compensate us for all losses that may occur as a result of any system
failure.
WE RETAIN CONFIDENTIAL CUSTOMER INFORMATION IN OUR DATABASE AND IF WE FAIL TO
PROTECT THIS INFORMATION AGAINST SECURITY BREACHES WE MAY LOSE CUSTOMERS.
We retain confidential customer information in our database. Therefore, it
is critical that our facilities and infrastructure remain secure and that they
are perceived by consumers to be secure. Despite the implementation of security
measures, our infrastructure may be vulnerable to physical break-ins, computer
viruses, programming errors or similar disruptive problems. A material security
breach could damage our reputation or result in liability to us. We believe that
maintaining the trust of our customers is important for us to be able to grow
our business and, therefore, we believe that any damage to our reputation or
liability arising from one or more security breaches could adversely affect our
business, results of operations and the market price of our common stock.
WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE TO SUPPORT OUR GROWTH AND SUCH
ADDITIONAL FINANCING MAY NOT BE AVAILABLE TO US.
We expect that the net proceeds from this offering, combined with our
current cash resources, will be sufficient to meet our requirements for at least
the next 12 months. However, as we continue our efforts to grow our business in
the rapidly changing and highly competitive market for Internet-based healthcare
products and services, we may need to raise additional financing to support
expansion, develop new or enhanced products and services, respond to competitive
pressures, acquire complementary businesses or technologies or take advantage of
unanticipated business opportunities. We may need to raise additional funds by
selling debt or equity securities, by entering into strategic relationships or
through other arrangements. We may be unable to raise any additional amounts on
reasonable terms when they are needed. Any additional equity financing may cause
investors to
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experience dilution, and any additional debt financing may result in
restrictions on our operations or our ability to pay dividends in the future.
OUR BUSINESS PROSPECTS MAY SUFFER IF WE ARE NOT ABLE TO KEEP UP WITH THE RAPID
TECHNOLOGICAL DEVELOPMENTS IN THE INTERNET INDUSTRY.
The Internet industry is characterized by rapid technological developments,
evolving industry standards, changes in user and customer requirements and
frequent new service and product introductions and enhancements. The
introduction of new technology or the emergence of new industry standards and
practices could render our systems and, in turn, our products and services,
obsolete and unmarketable or require us to make significant unanticipated
investments in research and development to upgrade our systems in order to
maintain the marketability of our products. To be successful, we must continue
to license or develop leading technology, enhance our existing products and
services and respond to emerging industry standards and practices on a timely
and cost-effective basis. If we are unable to successfully respond to these
developments, particularly in light of the rapid technological changes in the
Internet industry generally and the highly competitive market in which we
operate, our business, results of operations and the market price of our common
stock could be adversely affected.
THE YEAR 2000 PROBLEM COULD SIGNIFICANTLY DISRUPT OUR OPERATIONS, CAUSING A
DECLINE IN CASH FLOW AND REVENUE AND OTHER DIFFICULTIES.
Many currently installed computer systems and software products are unable
to distinguish between twentieth century dates and twenty-first century dates.
As a result, many companies' software and computer systems may need to be
upgraded or replaced to comply with these Year 2000 requirements. Our business
is dependent on the operation of numerous systems that could potentially be
impacted by Year 2000 related problems.
As of June 30, 1999, we have completed internal assessments of our Year 2000
readiness, with an emphasis on our operating and administrative systems and the
proprietary software systems and third party software and hardware we use to
deliver services to our customers, and are not aware of any Year 2000 problems
that could reasonably be expected to have a material adverse effect on our
business. Many of our vendors of material software, hardware and services have
indicated that the products we use are currently Year 2000 compliant. However,
we can not guarantee that we have identified or will identify all Year 2000
compliance problems in our infrastructure that may require substantial revisions
and fixes. Also, despite our testing and reviews, we may experience Year 2000
problems related to the third party software, hardware or other systems on which
we are reliant, and any of these problems may be time consuming or expensive to
fix.
We believe that the most reasonably likely worst case scenario would result
in a prolonged Internet, telecommunications or electrical failure which would
affect our ability to meet our commitments to our customers or decrease the use
of the Internet, thus preventing our users from accessing our services. We have
given a warranty in our activePress agreement with Blackwell Science that our
applications and services are Year 2000 compliant. If our applications and
services fail to be Year 2000 compliant, this agreement could be terminated or
we could be liable for damages, either of which could have a material adverse
effect on our business. In addition, the purchasing patterns of customers or
potential customers may be affected by Year 2000 questions, and any significant
delays in purchasing decisions could also affect us. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Compliance Readiness Disclosure."
WE MAY BE SUBJECT TO LIABILITY FOR INFORMATION RETRIEVED FROM OUR WEB SITE.
As a publisher and distributor of online information, we may be subject to
third party claims for defamation, negligence, copyright or trademark
infringement or other theories based on the nature and content of information
supplied on our Web sites. We could also become liable if confidential
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information is disclosed inappropriately. These types of claims have been
brought, sometimes successfully, against online service providers in the past.
We could be subject to liability with respect to content that may be accessible
through our Web sites or third party Web sites linked from our Web sites. For
example, claims could be made against us if material deemed inappropriate for
viewing by children could be accessed through our Web sites or if a
professional, patient or consumer relies on healthcare information accessed
through our Web sites to their detriment. Even if any of the kinds of claims
described above do not result in liability to us, we could incur significant
costs in investigating and defending against them and in implementing measures
to reduce our exposure to this kind of liability. Our insurance may not cover
potential claims of this type or may not be adequate to cover all costs incurred
in defense of potential claims or to indemnify us for all liability that may be
imposed.
WE DEPEND ON OUR CONTENT PROVIDERS, AS THE SUCCESS OF OUR BUSINESS DEPENDS ON
OUR ABILITY TO PROVIDE A COMPREHENSIVE LIBRARY OF HEALTHCARE INFORMATION.
With the exception of our Healthy Living series of Webzines, we license all
of our content from third parties. With a few exceptions, these licenses are
generally non-exclusive, have an initial term of one year and are renewable. In
addition, a significant number of these licenses permit cancellation by the
content provider upon 30 to 90 days notice. We can not guarantee that we will be
able to continue to license our present content or sufficient additional content
to provide a diverse and comprehensive library. In the future, we may not be
able to license content at reasonable cost. In addition, one or more of our
publishers or other content providers may grant one of our competitors an
exclusive arrangement with respect to a significant database or periodical, or
elect to compete directly against us by making its content exclusively available
through its own Web site. Presently, we believe it would be difficult to replace
the NEW ENGLAND JOURNAL OF MEDICINE and the journals made available by Blackwell
Science with other journals of the same reputation. These sources are committed
to us through April 2001 and February 2000, respectively, but if either of them
chooses not to renew the agreements they have with us, our business could be
adversely affected because the quality of our content is important in attracting
online users, advertisers and CHOICE customers.
WE RELY ON OUR WEB-BASED MAGAZINES TO INCREASE TRAFFIC ON OUR WEB SITES.
A key element of our strategy involves our continued development of our
Healthy Living series of consumer oriented Webzines. Articles for our Webzines
are written by freelance medical writers who we engage to write specific
articles. If these medical writers and our editorial board are not successful in
producing articles for our Webzines that are topical, informative and timely, we
may fail to attract a significant number of users to our Web sites. Without
substantial traffic on our Web sites, we will be severely hindered in selling
advertising on our Web pages and in building the brand name recognition we
believe is necessary to be competitive.
THE MAJORITY OF OUR REVENUE HAS HISTORICALLY BEEN DERIVED FROM A FEW CUSTOMERS
AND THE LOSS OF ANY OF THESE CUSTOMERS COULD ADVERSELY AFFECT OUR BUSINESS.
Historically, we have generated a substantial portion of our revenue from a
few customers. For the six months ended June 30, 1999, two customers, Blackwell
Science, one of our largest stockholders, and WebMD, accounted for 38%, and 13%,
respectively, of our total revenue. For the year ended December 31, 1998,
Blackwell Science and WebMD accounted for 44% and 18%, respectively of our total
revenue. We expect to continue to generate a substantial portion of our revenue
in the near future from these customers and the loss of any of them could
adversely affect our business. Our present agreements with Blackwell Science and
WebMD run through February 2000 and October 1999, respectively.
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OUR RELATIONSHIP WITH OUR AFFILIATES BLACKWELL SCIENCE AND GENERAL ELECTRIC MAY
GIVE RISE TO CONFLICTS OF INTEREST.
Blackwell Science and one of its affiliates will own approximately 12.7% of
our outstanding common stock after this offering and Blackwell and another of
its affiliates are our largest customer, accounting for approximately 38% of our
revenue for the six months ended June 30, 1999 and 44% of our revenue for the
year ended December 31, 1998. Because Blackwell and its affiliates are
significant customers and stockholders, our relationship with them could give
rise to conflicts of interest, although no conflicts of interest presently
exist.
General Electric will beneficially own approximately 19.4% of our
outstanding common stock after this offering, including 1,369,200 shares
issuable under a warrant. Additionally, we have entered into a development and
distribution agreement with GE Medical Systems, an operating division of General
Electric. Because General Electric is both a strategic affiliate and
stockholder, our relationship with them could give rise to conflicts of
interest, although no conflicts of interest presently exist.
Blackwell and General Electric may influence the terms on which we do
business with them in the future or the terms on which we do business with other
providers of healthcare products and services who compete with them.
OUR BUSINESS MAY BE ADVERSELY AFFECTED IF WE ARE NOT ABLE TO EFFECTIVELY PROTECT
OUR INTELLECTUAL PROPERTY RIGHTS.
We regard our trademarks, service marks, copyrights, trade secrets and
similar intellectual property as important to our business, and we rely upon
trademark and copyright law, trade secret protection and confidentiality and/or
license agreements with our employees, customers, strategic partners and others
to protect our rights in this property. We have registered our "HealthGate,"
"HealthGate Data," "MedGate" and "ReADER" trademarks in the U.S. and we have
pending U.S. applications for our HealthGate logo, "CHOICE" and "activePress"
trademarks. Effective trademark, copyright and trade secret protection may not
be available in every country in which our products and services are distributed
or made available through the Internet. Therefore, we can not guarantee that the
steps we have taken to protect our proprietary rights will be adequate to
prevent infringement or misappropriation by third parties or will be adequate
under the laws of some foreign countries which may not protect HealthGate's
proprietary rights to the same extent as do the laws of the United States.
It is possible that other businesses will adopt product or service names
similar to ours. This may hinder our ability to build brand identity and
possibly lead to customer confusion. In the future, we may have to litigate
against these businesses and others to enforce and protect our trademarks,
service marks, trade secrets, copyrights and other intellectual property rights.
Any enforcement litigation would divert management resources and be expensive
and may not effectively protect our intellectual property.
Although we believe that our proprietary rights do not infringe on the
intellectual property rights of others, other parties may assert infringement
claims against us or claim that we have violated a patent or infringed a
copyright, trademark or other proprietary rights belonging to them. These
claims, even if they are without merit, could result in our spending a
significant amount of time and money to dispose of them.
We license almost all of our content from third parties. Under most of our
license agreements, the licensor has agreed to defend and indemnify us for
losses with respect to third-party claims that the licensed content infringes
third-party proprietary rights. However, we can not assure you that these
provisions will be adequate to protect us from infringement claims.
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OUR BUSINESS MAY BE ADVERSELY AFFECTED IF WE ARE UNABLE TO CONTINUE TO LICENSE
SOFTWARE THAT IS NECESSARY FOR THE DEVELOPMENT OF PRODUCT AND SERVICE
ENHANCEMENTS.
We rely on a variety of technologies that are licensed from third parties,
including our database software and Internet server software, which is used in
our Web sites to perform key functions. These third party licenses may not be
available to us on commercially reasonable terms in the future. The loss of or
inability to maintain any of these licenses could delay the introduction of
software enhancements, interactive tools and other features until equivalent
technology could be licensed or developed.
RISKS RELATED TO OUR INDUSTRY
OUR BUSINESS PROSPECTS DEPEND ON THE CONTINUED GROWTH IN USE OF THE INTERNET.
We believe that our future success will require the continued development
and widespread acceptance of the Internet and online services as a medium for
obtaining and distributing healthcare and medical information. Internet use is
at an early stage of development and may be inhibited by a number of factors,
such as:
- Internet infrastructure which is not able to support the demands placed on
it, or its performance and reliability declining as usage increases;
- security concerns with respect to transmission over the Internet of
confidential information, such as credit card numbers;
- privacy concerns; and
- governmental regulation.
OUR BUSINESS PROSPECTS ARE UNCERTAIN, AS THE MARKET FOR ONLINE HEALTHCARE
INFORMATION AND SERVICES IS STILL DEVELOPING.
The online healthcare information market is in the early stages of
development, is rapidly evolving and is characterized by an increasing number of
market entrants who have introduced competing products and services. As is
typical in the case of a new and rapidly evolving industry, demand and market
acceptance for recently introduced products and services are subject to a high
level of uncertainty and risk. Therefore, it is difficult to predict with any
assurance the size of the market for online healthcare information or its growth
rate. We can not guarantee that physicians, hospitals and other healthcare
providers and consumers will view obtaining healthcare information through the
Internet as an acceptable way to address their healthcare information needs.
OUR BUSINESS PROSPECTS DEPEND ON THE USE OF THE INTERNET AS AN ADVERTISING
MEDIUM.
Most potential advertisers and their advertising agencies have only limited
experience with the Internet as an advertising medium and have not devoted a
significant portion of their advertising expenditures to Internet-based
advertising. Therefore, it is too early to know whether advertisers or
advertising agencies will be persuaded to allocate portions of their budgets to
Internet-based advertising or, if so persuaded, whether they will find
Internet-based advertising to be an effective means of promoting their products
and services relative to traditional print and broadcast media. Acceptance of
the Internet among advertisers and advertising agencies will depend, to a large
extent, on the level of use of the Internet by consumers and upon growth in the
commercial use of the Internet, neither of which has yet been proven.
There is intense competition for advertising revenue on high-traffic Web
sites, which has resulted in significant price competition. Currently, there are
a variety of pricing models for selling advertising on the Internet. Several of
the most popular pricing models are based on the number of impressions or
click-throughs, the duration over which an advertisement is displayed or the
number of keywords to which the advertisement will be linked. It is difficult to
predict which, if any, will emerge as the
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industry standard. This uncertainty makes it difficult to project our future
advertising rates and revenue that we may generate from advertising. In
addition, filter software programs that limit or prevent advertising from being
delivered to a Web users' computers are available. It is unclear whether this
type of software will become widely accepted. However, if it does, it would
negatively affect Internet-based advertising, as advertisers will be less likely
to advertise on the Internet if they have no assurance they will reach their
desired audience.
GOVERNMENT REGULATION OF THE INTERNET MAY RESULT IN INCREASED COSTS OF USING THE
INTERNET WHICH COULD ADVERSELY AFFECT OUR BUSINESS.
Currently, there are a number of laws that regulate communications or
commerce on the Internet. Several telecommunications carriers have petitioned
the Federal Communications Commission to regulate Internet service providers and
online service providers in a manner similar to long distance telephone carriers
and to impose access fees on these providers. Regulation of this type, if
imposed, could substantially increase the cost of communicating on the Internet
and adversely affect our business, results of operations and the market price of
our common stock.
PRIVACY-RELATED REGULATION OF THE INTERNET COULD ADVERSELY AFFECT OUR BUSINESS.
Internet user privacy has become an issue both in the United States and
abroad. The Federal Trade Commission and government agencies in some states and
countries have been investigating certain Internet companies regarding their use
of personal information. Any regulations imposed to protect the privacy of
Internet users may affect the way in which we currently collect and use personal
information.
The European Union (EU) has adopted a directive that imposes restrictions on
the collection and use of personal data, guaranteeing citizens of EU member
states certain rights, including the right of access to their data, the right to
know where the data originated and the right to recourse in the event of
unlawful processing. We can not assure you that this directive will not
adversely affect our activities in EU member states.
As is typical with most Web sites, our Web sites place certain information
(cookies) on a user's hard drive without the user's knowledge or consent. This
technology enables Web site operators to target specific users with a particular
advertisement and to limit the frequency with which a user is shown a particular
advertisement. Some currently available Internet browsers allow users to modify
their browser settings to remove cookies at any time or to prevent cookies from
being stored on their hard drives. In addition, some Internet commentators,
privacy advocates and governmental bodies have suggested limiting or eliminating
the use of cookies. If this technology is reduced or limited, the Internet may
become less attractive to advertisers and sponsors.
A feature of our own Web sites includes the retention of personal
information about our users. We have a stringent privacy policy covering this
information. However, if third parties were able to penetrate our network
security and gain access to, or otherwise misappropriate, our users' personal
information, we could be subject to liability. Such liability could include
claims for misuses of personal information, such as for unauthorized marketing
purposes or unauthorized use of credit cards. These claims could result in
litigation, our involvement in which, regardless of the outcome, could require
us to expend significant financial resources. We could incur additional expenses
if new regulations regarding the use of personal information are introduced or
if any regulator chooses to investigate our privacy practices.
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TAX TREATMENT OF COMPANIES ENGAGED IN INTERNET COMMERCE MAY ADVERSELY AFFECT THE
INTERNET INDUSTRY AND OUR COMPANY.
Tax authorities on the federal, state, and local levels are currently
reviewing the appropriate tax treatment of companies engaged in Internet
commerce. New state tax regulations may subject us to additional state sales,
income and other taxes. A recently passed federal law places a temporary
moratorium on certain types of taxation on Internet commerce. We can not predict
the effect of current attempts at taxing or regulating commerce over the
Internet. It is also possible that the governments of other states and foreign
countries also might attempt to regulate our transmission of content on our Web
sites and throughout the rest of the HealthGate Network. Any new legislation,
regulation or application or interpretation of existing laws would likely
increase our cost of doing business and may adversely affect our results of
operations and the market price of our common stock.
WE MAY BE SUBJECT TO LIABILITY FOR CLAIMS THAT THE DISTRIBUTION OF MEDICAL
INFORMATION TO CONSUMERS CONSTITUTES PRACTICING MEDICINE OVER THE INTERNET.
States and other licensing and accrediting authorities prohibit the
unlicensed practice of medicine. We do not believe that our publication and
distribution of healthcare information online constitutes practicing medicine.
However, we can not guarantee that one or more states or other governmental
bodies will not assert claims contrary to our belief. Any claims of this nature
could result in our spending a significant amount of time and money to defend
and dispose of them.
RISKS RELATED TO THIS OFFERING
BECAUSE WE ARE AN INTERNET BASED COMPANY, OUR COMMON STOCK PRICE MAY BE VOLATILE
AND YOU MAY NOT BE ABLE TO SELL YOUR SHARES AT OR ABOVE THE INITIAL PUBLIC
OFFERING PRICE.
The stock market in general, and the market for technology and Internet
related companies in particular, has experienced extreme price and volume
fluctuations, in particular over the last 12 months. These broad market and
industry fluctuations may adversely affect the market price of our common stock,
regardless of our actual operating performance. The initial public offering
price for the shares of our common stock will be determined by negotiations
between us and the representatives of the underwriters and may not be indicative
of prices that will prevail in the market. You may not be able to resell your
shares at or above the initial public offering price due to a number of factors,
including:
- changes in the market valuations of other Internet or online service
companies;
- actual or anticipated quarterly fluctuations in our operating results;
- changes in expectations of future financial performance or changes in
estimates of securities analysts;
- announcements of technological innovations;
- announcements relating to strategic relationships, acquisitions or
industry consolidation;
- customer relationship developments; and
- conditions affecting the Internet or healthcare industries.
VOLATILITY OF OUR COMMON STOCK PRICE MAY EXPOSE US TO SECURITIES LITIGATION.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted. Due to the extreme price and volume fluctuations historically
experienced by Internet related stocks, particularly over the last 12 months, we
may be particularly susceptible to this kind of litigation. If this were to
happen to us, litigation would be expensive and would divert management's
attention from then-existing business operations. In addition, any litigation
that resulted in liability against us could adversely affect our business,
financial condition and the market price of our common stock.
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OUR MANAGEMENT HAS BROAD DISCRETION IN SPENDING THE PROCEEDS OF THIS OFFERING
AND MAY DO SO IN WAYS WITH WHICH OUR STOCKHOLDERS DISAGREE.
Other than the repayment of approximately $2 million of outstanding
indebtedness under a subordinated term loan, we have no specific plans for the
net proceeds of this offering. We intend to use the remainder of the net
proceeds for general corporate purposes, including working capital, expansion of
our sales and marketing efforts, content development and licensing, and
advertising and brand promotion. We may also use a portion of the proceeds for
the acquisition of or investment in companies, technologies or assets that
complement our business. However, we have not determined the amounts we plan to
expend in any of these areas or the timing of these expenditures. Consequently,
our board of directors and management will have significant flexibility in using
the net proceeds of this offering. Because of the number and variability of
factors that determine our use of the net proceeds of this offering, we cannot
assure you that such uses will not vary from our current intentions or that
stockholders will agree with the uses we have chosen. See "Use of Proceeds."
INVESTORS WILL INCUR IMMEDIATE DILUTION.
The initial offering price of our common stock will be substantially higher
than the pro forma net tangible book value per share of the outstanding common
stock immediately after the offering. If you purchase common stock in this
offering, you will incur immediate and substantial dilution in the pro forma net
tangible book value per share of the common stock from the price you pay for
common stock. Assuming an initial public offering price of $11.00 per share, you
will experience a net tangible book value dilution per share of $8.54. We also
have a large number of outstanding stock options and warrants to purchase the
common stock with exercise prices significantly below the estimated initial
public offering price of the common stock. To the extent that these options and
warrants are exercised, there will be further dilution. See "Dilution."
OUR OFFICERS, DIRECTORS AND THEIR AFFILIATED ENTITIES WILL HAVE SIGNIFICANT
CONTROL OF HEALTHGATE AFTER THIS OFFERING.
After this offering, our officers and directors will own approximately 22%
of our outstanding common stock. In addition, entities with which our outside
directors are affiliated will own approximately 24% of our outstanding common
stock. If our officers, directors and their affiliated entities act together,
they will be able to significantly influence the management and affairs of
HealthGate and will have the ability to control most matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. This concentration of ownership may have the
effect of delaying, deferring or preventing an acquisition of HealthGate and may
adversely affect the market price of our common stock. See "Principal
Stockholders."
OUR CERTIFICATE OF INCORPORATION AND BYLAWS INCLUDE ANTI-TAKEOVER PROVISIONS
WHICH MAY DETER OR PREVENT A TAKEOVER ATTEMPT.
Some provisions of our certificate of incorporation and bylaws and
provisions of Delaware law may deter or prevent a takeover attempt, including an
attempt that might result in a premium over the market price for our common
stock. See "Description of Capital Stock--Anti-takeover Effects of Provisions of
the Restated Charter and Restated Bylaws." These provisions include:
STAGGERED BOARD OF DIRECTORS. Our board of directors is divided into three
classes serving terms currently expiring in 2000, 2001 and 2002 and directors
may only be removed for cause. These provisions may limit the ability of holders
of common stock to remove our board of directors through a proxy contest.
STOCKHOLDER PROPOSALS. Our stockholders must give advance notice, generally
60 days prior to the relevant meeting, for stockholder nominations of candidates
for our board of directors and for certain other business to be conducted at any
stockholders' meeting. This limitation on stockholder proposals
21
<PAGE>
could inhibit a change of control by delaying action on any proposed change in
control until the annual meeting of stockholders.
PREFERRED STOCK. Our certificate of incorporation authorizes our board of
directors to issue up to 10 million shares of preferred stock having such rights
as may be designated by our board of directors, without shareholder approval.
This issuance of preferred stock could inhibit a change in control by making it
more difficult to acquire the majority of our voting stock.
DELAWARE ANTITAKEOVER STATUTE. The Delaware corporation law restricts
certain business combinations with interested stockholders upon their acquiring
15% or more of our common stock. This statute may have the effect of inhibiting
a non-negotiated merger or other business combination.
FUTURE SALES OF LARGE AMOUNTS OF OUR COMMON STOCK HELD BY EXISTING STOCKHOLDERS
COULD ADVERSELY AFFECT OUR STOCK PRICE.
The market price for our common stock could fall substantially if our
stockholders sell large amounts of our common stock in the public market
following this offering. These sales, or the possibility that these sales may
occur, could also make it more difficult for us to sell equity or equity related
securities if we need to do so in the future to address then-existing financing
needs. The number of shares of common stock available for sale in the public
market is limited by restrictions under federal securities law requiring the
registration or exemption from registration in connection with the sale of
securities. In addition, sales of our common stock are restricted by lock-up
agreements that we, our directors and officers and most of our existing
stockholders have entered into with the underwriters. The lock-up agreements
restrict us, our directors and officers and substantially all of our existing
stockholders, from selling or otherwise disposing of any shares for a period of
180 days after the date of this prospectus without the prior written consent of
SG Cowen Securities Corporation. SG Cowen Securities Corporation may, however,
in its sole discretion and without notice, release all or any portion of the
shares from the restrictions in the lock-up agreements.
After this offering, we will have 18,523,264 outstanding shares of common
stock. These shares will become eligible for sale in the public market as
follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE ELIGIBLE FOR PUBLIC RESALE
- --------------------------- ----------------------------------------------------------------
<S> <C>
4,921,429 Date of this prospectus (includes the 4,600,000 shares sold in
this offering)
10,312,301 180 days after the date of this prospectus
3,289,534 At various times thereafter, subject to applicable holding
period requirements
</TABLE>
We intend to file one or more registration statements to register shares of
common stock subject to outstanding stock options and common stock reserved for
issuance under our stock option plan after the expiration of the 180-day lockup.
We expect the additional registration statement to become effective immediately
upon filing. In addition, upon completion of this offering and the conversion of
our outstanding preferred stock into common stock, which will happen upon the
completion of this offering, the holders of approximately 8,666,019 shares of
our common stock will have the right to require us to register their shares for
sale to the public. If these holders cause a large number of shares to be
registered and sold in the public market, our stock price could fall. See
"Shares Eligible for Future Sale."
WE HAVE NO INTENTION TO PAY DIVIDENDS ON OUR COMMON STOCK.
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain all future earnings to finance the expansion of our
business.
22
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the 4,600,000
shares of common stock in this offering will be approximately $45.4 million
($52.4 million if the underwriters' over-allotment is exercised in full),
assuming an initial public offering price of $11.00 per share and after
deducting estimated underwriting discounts and commissions and offering expenses
payable by us. The principal reasons for this offering are to provide working
capital, to create a public market for our common stock and to facilitate our
future access to public capital markets.
We expect to use $2,000,000 of the net proceeds of this offering to repay
all of the indebtedness outstanding under a subordinated note. This note bears
interest at the fixed rate of 13% per year and is scheduled to mature on March
26, 2003.
We expect to use the remainder of the net proceeds of this offering for
general corporate purposes, including working capital, expansion of our sales
and marketing efforts, content development and licensing, and advertising and
brand promotion. We may also use a portion of the proceeds for the acquisition
of or investment in companies, technologies or assets that complement our
business. However, we have no present understandings, commitments or agreements
with respect to any potential acquisitions or investments. Further, we have no
current specific plan for the amounts we may spend on any of the areas listed
above or the timing of these expenditures. As a result, our management will have
broad discretion to allocate the net proceeds from this offering. Pending these
uses, we intend to invest the net proceeds of this offering in short term,
investment grade, interest bearing instruments.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain all future earnings to finance the expansion of our
business and, therefore, do not anticipate declaring or paying any cash
dividends on our common stock in the foreseeable future.
23
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of HealthGate on an actual
basis at June 30, 1999, and on a pro forma as adjusted basis at June 30, 1999 to
reflect (a) the sale of 4,600,000 shares of common stock offered hereby at an
assumed initial public offering price per share of $11.00, (b) the conversion of
all outstanding shares of redeemable convertible preferred stock into 8,666,019
shares of common stock, and (c) the repayment of a long-term note payable of
$2,000,000 with proceeds from this offering. This information should be read in
conjunction with HealthGate's financial statements and related notes appearing
elsewhere in this prospectus.
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, 1999
------------------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------------- --------------
<S> <C> <C>
Long-term portion of capital lease obligations.................................... $ 174,989 $ 174,989
Long-term note payable............................................................ 1,470,604 --
-------------- --------------
Total note payable and long-term capital lease obligations.................... 1,645,593 174,989
-------------- --------------
Redeemable convertible preferred stock, $.01 par value:
Series A--1,000 shares authorized, issued and outstanding actual; none issued
or outstanding pro forma as adjusted........................................ 700,231 --
Series B--1,000 shares authorized, issued and outstanding actual; none issued
or outstanding pro forma as adjusted........................................ 2,136,968 --
Series C--1,000 shares authorized, issued and outstanding actual; none issued
or outstanding pro forma as adjusted........................................ 1,282,496 --
Series D--1,667 shares authorized, issued and outstanding actual; none issued
or outstanding pro forma as adjusted........................................ 3,067,150 --
Series E--720,757 shares authorized, issued and outstanding actual; none
issued or outstanding pro forma as adjusted................................. 7,751,810 --
-------------- --------------
Total redeemable convertible preferred stock................................ 14,938,655 --
-------------- --------------
Common stock and other stockholders' equity (deficit):
Common stock, $.01 par value: 20,000,000 shares authorized actual, 100,000,000
shares authorized pro forma as adjusted; 5,257,245 shares issued and
outstanding actual, and 18,523,264 shares issued and outstanding pro forma
as adjusted................................................................. 52,572 185,232
Additional paid-in capital........................................................ 21,128,841 81,284,836
Accumulated deficit............................................................... (23,460,828) (23,990,224)
Deferred compensation............................................................. (1,991,351) (1,991,351)
-------------- --------------
Total common stock and other stockholders' equity (deficit)................. (4,270,766) 55,488,493
-------------- --------------
Total capitalization........................................................ $ 12,313,482 $ 55,663,482
-------------- --------------
-------------- --------------
</TABLE>
24
<PAGE>
DILUTION
The pro forma net tangible book value of HealthGate as of June 30, 1999 was
$735,000, or $.05 per share of common stock. Pro forma net tangible book value
per share represents the amount of total tangible assets less total liabilities,
divided by the number of shares of common stock outstanding after giving effect
to the conversion of all outstanding preferred stock into 8,666,019 shares of
common stock upon the closing of the offering.
After giving effect to the sale of 4,600,000 shares of common stock we are
offering at an assumed initial public offering price of $11.00 per share and
after deducting estimated underwriting discounts and commissions and offering
expenses, HealthGate's pro forma net tangible book value as of June 30, 1999
would have been approximately $45.6 million, or $2.46 per share. This represents
an immediate increase in pro forma net tangible book value of $2.41 per share to
existing stockholders and an immediate dilution of $8.54 per share to new
investors purchasing shares of common stock in the offering. The following table
illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................................................ $ 11.00
Pro forma net tangible book value per share at June 30, 1999................................. $ .05
Increase attributable to the offering........................................................ 2.41
---------
Pro forma net tangible book value per share after the offering................................. 2.46
---------
Net tangible book value dilution per share to new investors in the offering.................... $ 8.54
---------
---------
</TABLE>
The following table summarizes, as of June 30, 1999, on the pro forma basis
described above, the total number of shares and consideration paid to HealthGate
and the average price per share paid by the existing stockholders and by new
investors purchasing shares of common stock in this offering at an assumed
initial public offering price of $11.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders................................. 13,923,264 75.2% $ 12,719,351 20.1% $ .91
New Investors......................................... 4,600,000 24.8% 50,600,000 79.9% 11.00
------------ ----- ------------- ----- -----------
Totals.......................................... 18,523,264 100.0% $ 63,319,351 100.0% $ 3.42
------------ ----- ------------- ----- -----------
------------ ----- ------------- ----- -----------
</TABLE>
This discussion and table assumes no exercise of options outstanding under
HealthGate's stock option plans. As of June 30, 1999, there were options
outstanding to purchase a total of 2,372,677 shares of common stock at a
weighted average exercise price of $1.68 per share. To the extent that any of
these options are exercised, there will be further dilution to new investors.
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with our financial statements and the related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," appearing elsewhere in this prospectus. The consolidated statement
of operations data for the years ended December 31, 1996, 1997 and 1998, and the
consolidated balance sheet data as of December 31, 1997 and 1998, are derived
from, and qualified by reference to, our audited financial statements included
elsewhere in this prospectus. The consolidated statement of operations data for
the period from inception (February 8, 1994) through December 31, 1994 and for
year ended December 31, 1995, and the consolidated balance sheet data as of
December 31, 1994, 1995 and 1996 are derived from our audited financial
statements that do not appear in this prospectus. The selected financial data as
of June 30, 1999, and for the six months ended June 30, 1998 and 1999 are
derived from unaudited financial statements included elsewhere in this
prospectus. In the opinion of management, the unaudited financial statements
have been prepared on a basis consistent with the audited financial statements
which appear elsewhere in this prospectus and include all adjustments, which are
only normal recurring adjustments, necessary for a fair presentation of the
financial position and results of operations for the unaudited periods. The
historical results are not necessarily indicative of the operating results to be
expected in the future.
Unaudited pro forma basic and diluted net loss per share have been
calculated assuming the conversion of all outstanding preferred stock into
common stock, as if the shares had converted immediately upon their issuance.
26
<PAGE>
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(FEBRUARY 8,
1994) (UNAUDITED)
THROUGH SIX MONTHS ENDED JUNE
DECEMBER 31, YEAR ENDED DECEMBER 31, 30,
----------------- ------------------------------------------ ------------------------
1994 1995 1996 1997 1998 1998 1999
----------------- --------- --------- --------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Total revenue........................ $ -- $ 1 $ 408 $ 1,285 $ 2,434 $ 1,212 $ 1,052
------ --------- --------- --------- --------- ----------- -----------
Cost and expenses:
Cost of revenue................... -- 15 492 912 1,181 537 875
Research and development.......... 12 447 980 891 1,450 544 1,827
Sales and marketing............... -- 98 1,080 1,496 1,414 599 2,012
General and administrative........ 27 252 568 521 930 441 1,063
------ --------- --------- --------- --------- ----------- -----------
Total costs and expenses........ 39 812 3,120 3,820 4,975 2,121 5,777
------ --------- --------- --------- --------- ----------- -----------
Loss from operations................. (39) (811) (2,712) (2,535) (2,541) (909) (4,725)
------ --------- --------- --------- --------- ----------- -----------
Interest and other expense........... (--) (4) (14) (6) (337) (92) (225)
------ --------- --------- --------- --------- ----------- -----------
Net loss............................. (39) (815) (2,726) (2,541) (2,878) (1,001) (4,950)
Preferred stock dividends and
accretion of preferred stock to
redemption value................... (--) (65) (264) (540) (594) (298) (8,049)
------ --------- --------- --------- --------- ----------- -----------
Net loss attributable to common
stockholders....................... $ (39) $ (880) $ (2,990) $ (3,081) $ (3,472) (1,299) (12,999)
------ --------- --------- --------- --------- ----------- -----------
------ --------- --------- --------- --------- ----------- -----------
Basic and diluted net loss per share
attributable to common
stockholders....................... $ (.01) $ (.18) $ (.57) $ (.59) $ (.66) $ (.25) $ (2.48)
Shares used in computing basic and
diluted net loss per share
attributable to common
stockholders....................... 4,616 4,948 5,228 5,229 5,233 5,229 5,240
Unaudited pro forma basic and diluted
net loss per share................. $ (0.27) $ (0.41)
Shares used in computing unaudited
pro forma basic and diluted net
loss per share..................... 10,610 11,982
</TABLE>
27
<PAGE>
The following table contains a summary of our balance sheet:
- on an actual basis at December 31, 1994, 1995, 1996, 1997 and 1998 and
June 30, 1999;
- on a pro forma as adjusted basis at June 30, 1999 to reflect (a) the sale
of 4,600,000 shares of common stock offered hereby at an assumed initial
public offering price per share of $11.00, (b) the conversion of all
outstanding shares of redeemable convertible preferred stock into
8,666,019 shares of common stock, and (c) the repayment of a long-term
note payable of $2,000,000 with proceeds from this offering.
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, 1999
DECEMBER 31, -----------------------
----------------------------------------------------- PRO FORMA
1994 1995 1996 1997 1998 ACTUAL AS ADJUSTED
--------- --------- --------- --------- --------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities.................................... $ 4 $ 105 $ 1,156 $ 29 $ 961 $ 2,570 $ 45,920
Working capital (deficit)....................... (2) (216) 585 (867) -- 12 43,362
Total assets.................................... 4 612 1,791 781 2,371 15,955 59,305
Long-term debt and capital lease obligations.... -- 172 79 17 3,655 1,646 175
Redeemable convertible preferred stock.......... -- 845 4,763 6,295 6,889 14,939 --
Common stock and other stockholders' equity
(deficit)..................................... (2) (757) (3,740) (6,821) (9,735) (4,271) 55,488
</TABLE>
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES WHICH APPEAR ELSEWHERE IN THIS
PROSPECTUS. THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS PROSPECTUS,
PARTICULARLY UNDER THE HEADING "RISK FACTORS."
OVERVIEW
HealthGate is an Internet provider of reliable, objective, comprehensive and
up-to-date healthcare information helping physicians and other healthcare
professionals, patients and health-conscious consumers make better informed
healthcare decisions. We have aggregated and developed what we believe are the
most extensive health and medical libraries of any online provider, currently
totaling approximately 27 million different pages of health and medical
information from over 190 sources. This content includes internationally
recognized journals, authoritative government sources and extensive
bibliographic databases representing 27 independent content providers. We adapt
and integrate this diverse content through our internally developed software
programs, which include our proprietary ReADER-Registered Trademark- natural
language searching software, in order to facilitate search and retrieval of
relevant information. In addition, we use our technology to provide text
conversion and Web site hosting services for traditional print publishers,
thereby increasing the online healthcare resources accessible through our
content libraries.
We distribute our content through a network of proprietary and affiliated
Web sites that comprise the HealthGate Network. The HealthGate Network includes
(1) our own Web sites, www.healthgate.com and www.bewell.com in the United
States and www.healthgate.co.uk in the United Kingdom; (2) customized,
co-branded CHOICE Web sites for institutions, principally hospitals, which carry
both HealthGate's and the institution's name and are designed as a seamless
component of the institution's own Web site; and (3) other third party Web sites
to which we syndicate content.
We derive revenue primarily from (1) services and (2) online advertising,
sponsorship and e-commerce.
To date, services revenue has been derived principally from development,
implementation and hosting fees associated with our activePress service and, to
a lesser extent, from syndicating our content to third party Web sites. Revenue
from activePress services and content syndication is recognized ratably over the
terms of the agreements which generally range from one to two years. We
commercially introduced our CHOICE Web site product in early 1999 and as of June
30, 1999 had delivered 17 CHOICE Web sites to enterprise clients. Beginning in
the second half of fiscal 1999, we expect to derive increased services revenue
through CHOICE Web site development, implementation and hosting. Revenue from
fees received for CHOICE Web site development, implementation and hosting is
recognized ratably over the terms of the underlying agreements, which generally
range from one to three years. For any arrangement in which we guarantee
advertising and sponsorship revenue to the CHOICE customer, we do not recognize
fees paid by the customer as revenue but as a customer deposit, up to the amount
of the applicable guarantee. For these CHOICE accounts, we recognize as revenue
the excess of the fee paid over the guarantee owed ratably over the term of the
customer's agreement.
Advertising and sponsorship revenue includes revenue from banner advertising
and sponsorship of discrete portions of our content libraries. Advertising
revenue is derived principally from short-term advertising contracts in which we
typically guarantee a minimum number of impressions to be delivered to users
over a specified period of time for a fixed fee. Advertising revenue is
recognized in the period in which the advertisement is displayed at the lesser
of the ratio of impressions delivered over total
29
<PAGE>
guaranteed impressions or on a straight line basis over the term of the
contract, provided that we do not have any significant obligations remaining. To
the extent that minimum guaranteed impressions are not met, we defer recognition
of the corresponding revenue until the guaranteed impressions are delivered. We
use NetGravity's AdServer software to track banner advertising impressions and
issue a NetGravity Traffic Report weekly to our advertisers. Our advertising
statistics are audited to assure accuracy by the Audit Bureau of Circulation
Interactive, an independent audit bureau in the advertising industry.
Sponsorship revenue is derived principally from contracts ranging from one to
six months. Sponsorships are designed to support broad marketing objectives,
including brand promotion, awareness, product introductions, online research and
the integration of advertising with editorial content. Sponsorship revenue is
generally recognized ratably over the terms of the applicable agreements.
Advertising and sponsorship revenue also includes barter revenue, which
represents an exchange by us of advertising space on our own Web sites for
reciprocal advertising space on other Web sites. Revenue from barter
transactions is recognized during the period in which we display the
advertisements. Barter transactions are recorded at the estimated fair value of
the advertisements provided, unless the fair value of the advertising services
received is more evident. Barter expenses are recognized when our advertisements
are run on the reciprocal Web sites, which is typically in the same period
during which the advertisements are run on our own Web sites. Barter expenses
are included in sales and marketing expenses. These barter transactions have no
impact on our cash flows and, typically, no significant impact on our results of
operations. We anticipate that barter revenue will continue to decrease as a
percentage of total revenue in the future as we continue to focus on selling
advertising for cash.
E-commerce revenue has been derived principally from individual user online
subscriptions and from transaction fees for fee-based access to portions of our
own Web sites. Revenue from user subscriptions is recognized ratably over the
subscription period, and revenue from transaction-based fees is recognized when
the related service is provided. We expect that transactional fees associated
with our providing full-text journal articles from our activePress clients will
result in increased e-commerce revenue. Additionally, we are exploring other
e-commerce opportunities to offer products and services to our users.
Our business model is still in an emerging stage, and revenue and income
potential from our business is unproven. Our limited operating history makes an
evaluation of our business and our prospects difficult. Investors should not use
our past results as a basis to predict future performance. We have incurred net
losses since inception and had an accumulated deficit of approximately $10.5
million as of December 31, 1998 and $23.5 million as of June 30, 1999. We intend
to significantly increase our sales and marketing efforts and expenditures. We
also intend to continue to invest in content development and licensing and
advertising and brand promotion. As a result, we expect to incur additional
losses for the foreseeable future, and we can not assure investors that we will
ever achieve significant revenue or profitability or, if either significant
revenue or profitability is achieved, that we will be able to sustain them. See
"Risk Factors--We have a limited operating history and have recently introduced
new services which makes an evaluation of our business based on past operating
results difficult." Also, see "Risk Factors--We have a history of losses and we
expect that losses will continue for the foreseeable future."
We recorded deferred compensation of $2,307,000 in the six months ended June
30, 1999, representing the difference between the exercise price of stock
options granted and the fair market value of the underlying common stock at the
date of grant. The difference is recorded as a reduction of stockholders' equity
and is being amortized over the vesting period of the applicable options,
typically three years. Of the total deferred compensation amount, $316,000 had
been amortized as of June 30, 1999. The amortization of deferred compensation is
recorded as an operating expense. We currently
30
<PAGE>
expect to amortize the following remaining amounts of deferred compensation as
of June 30, 1999 in the periods indicated:
<TABLE>
<S> <C>
July 1, 1999--December 31, 1999................................... $ 386,000
January 1, 2000--December 31, 2000................................ 769,000
January 1, 2001--December 31, 2001................................ 769,000
January 1, 2002--June 30, 2002.................................... 67,000
</TABLE>
On June 11, 1999, we entered into a development and distribution agreement
with GE Medical Systems. Under the terms of this agreement, GE Medical Systems
may sell our CHOICE Web site product and GE Medical Systems branded enhanced
versions of our CHOICE Web site product through its worldwide sales force into
its worldwide customer base of hospitals and other patient care facilities. In
connection with this agreement, on June 17, 1999, we issued a warrant to General
Electric Company for the purchase of up to 1,369,200 shares of our common stock.
The warrant has a term of five years and an exercise price of $8.25 per share
(subject to an adjustment in the event that the initial public offering price is
below $8.25) and is immediately exercisable. The fair value of this warrant was
determined to be $10,300,000 using the Black-Scholes option pricing model. This
amount has been recorded as marketing and distribution rights, and will be
amortized as sales and marketing expense on a straight-line basis over the one
year contractual term of the related development and distribution agreement.
During the six months ended June 30, 1999, amortization expense totaled
$367,000. See "Business--Strategic Affiliations--Marketing and Distribution
Affiliations."
RESTATEMENT OF 1999 FIRST QUARTER REVENUE
During the three months ended March 31, 1999, we recognized services revenue
of $82,000 related to two CHOICE Web site agreements. During the second quarter
of 1999, it was learned that certain material terms related to advertising
revenue guaranteed to the customers of these sites had not been finalized at
March 31, 1999. Accordingly, we have restated our results of operations for the
three months ended March 31, 1999 to reverse the $82,000 of services revenue
related to these sites. These amounts were recorded as customer deposits. In the
opinion of management, all adjustments necessary to revise the quarterly
financial statements have been recorded. Below is a summary of our results of
operations for the three months ended March 31, 1999:
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31, 1999
-------------------
<S> <C>
AS PREVIOUSLY REPORTED:
Revenue...................................................................... $ 614,805
Loss from operations......................................................... (1,462,147)
Net loss..................................................................... (1,620,193)
Net loss attributable to common stockholders................................. (1,768,900)
Basic and diluted net loss per share attributable to common stockholders..... $ (.34)
Pro forma basic and diluted net loss per share............................... $ (.15)
AS RESTATED:
Revenue...................................................................... $ 532,805
Loss from operations......................................................... (1,544,147)
Net loss..................................................................... (1,702,193)
Net loss attributable to common stockholders................................. (1,850,900)
Basic and diluted net loss per share attributable to common stockholders..... $ (.35)
Pro forma basic and diluted net loss per share............................... $ (.16)
</TABLE>
31
<PAGE>
RESULTS OF OPERATIONS
Through December 31, 1996, we were a development stage company, and the
majority of our activities were related to development of products and services,
exploration of different sales and marketing channels, the build-up of hardware
and software infrastructure to support our www.healthgate.com Web site and the
establishment of the business, operations and financing of our company. In 1997,
1998 and the six months ended June 30, 1999, we experienced growth in our
business and introduced new services. Therefore, while comparisons are drawn
below, in many instances meaningful conclusions cannot be drawn from them.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1999 WITH THE SIX MONTHS ENDED JUNE
30, 1998
REVENUE
Total revenue was $1,052,000 for the six months ended June 30, 1999 compared
to $1,212,000 for the six months ended June 30, 1998, a decrease of $160,000 or
13%. Services revenue for the six months ended June 30, 1999 increased to
$740,000 from $716,000 for the six months ended June 30, 1998, due primarily to
an increase in the revenue derived from content syndication fees. Advertising
and sponsorship revenue decreased by $160,000 to $193,000 in the six months
ended June 30, 1999 from $353,000 in the six months ended June 30, 1998, due
primarily to a $166,000 decrease in barter advertising arrangements for the six
months ended June 30, 1999 to $67,000 from $233,000 for the six months ended
June 30, 1998. Therefore, advertising paid for with cash increased by $6,000 to
$126,000 in the six months ended June 30, 1999 from $120,000 in the six months
ended June 30, 1998. This decrease is due to our continued reduction in emphasis
on barter arrangements and increased focus on selling advertising for cash.
E-commerce revenue decreased to $119,000 in the six months ended June 30, 1999
from $143,000 in the six months ended June 30, 1998. This net decrease in
e-commerce revenue was due primarily to a decrease in subscription revenue
resulting from a decrease in the number of subscriptions. During this time, we
elected to provide more content for free through our own Web sites in order to
attract additional users to our own Web sites. In the six months ended June 30,
1999, two customers represented 51% of total revenue, Blackwell Science (38%)
and WebMD (13%). In the six months ended June 30, 1998, two customers
represented 61% of total revenue, Blackwell Science (42%) and WebMD (19%).
As part of our agreements with most of our initial CHOICE customers, we have
guaranteed advertising and sponsorship revenue in an amount approximately equal
to the fees paid by the customer, regardless of whether we sell any advertising
or sponsorship on the customer's CHOICE Web site. For any agreements with
guarantees, we have not recognized fees paid by the customer as revenue but as a
customer deposit, up to the amount of the applicable guarantee. We entered into
this type of arrangement for promotional purposes, but have discontinued the use
of this arrangement as a standard practice. For these CHOICE customers, we
recognize as revenue the excess of the fee paid over the guarantee owed ratably
over the terms of these customers' agreements.
COSTS AND EXPENSES
COST OF REVENUE. Cost of revenue consists primarily of salaries and related
costs for personnel directly involved with providing our Web services, royalties
associated with licensed content, and related equipment and software costs. Cost
of revenue increased 63% to $875,000 in the six months ended June 30, 1999 from
$537,000 in the six months ended June 30, 1998, due primarily to higher royalty
expense for more licensed content and higher depreciation costs related to
additional equipment purchases.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of salaries and related costs associated with the development and
support of our Web-based service offerings. Research and development expenses
increased 236% to $1,827,000 in the six months ended June 30, 1999 from
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$544,000 in the six months ended June 30, 1998, due primarily to additional
salaries and related costs from the hiring of technical and development
personnel.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions and related costs for sales and marketing personnel, as
well as the cost of advertising, marketing and promotional activities. Sales and
marketing expenses increased to $2,012,000 in the six months ended June 30, 1999
from $599,000 in the six months ended June 30, 1998. This increase was primarily
due to additional salaries and related costs associated with the newly hired
sales and marketing personnel, and increased advertising and brand promotion
activities. In addition, a non-cash expense of $367,000 was recorded for the
amortization expense associated with a warrant to purchase 1,369,200 shares of
our common stock issued to General Electric Company in connection with a
development and distribution arrangement. The fair value of this warrant was
determined using the Black-Scholes option pricing model and is being amortized
on a straight-line basis over 12 months.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries and related costs for executive and administrative
personnel, as well as legal, accounting and insurance costs. General and
administrative expenses increased 141% to $1,063,000 in the six months ended
June 30, 1999 from $441,000 in the six months ended June 30, 1998. This increase
was due primarily to salaries and related costs for newly hired administrative
personnel, higher salaries and related costs for existing personnel and
increased professional services fees. In addition, we amortized $316,000 of the
total deferred compensation relating to stock options as an expense in the six
months ended June 30, 1999. The remaining total deferred compensation is being
amortized over the vesting period of the individual options.
INTEREST EXPENSE, NET
Interest expense, net of interest income, increased to $230,000 in the six
months ended June 30, 1999 from $92,000 in the six months ended June 30, 1998.
The increase was due primarily to interest incurred on a $2,000,000 subordinated
note and an increase in interest expense associated with capital leases.
Interest expense for the six months ended June 30, 1999 also included debt
discount and issuance cost amortization totaling $42,000 related to the
subordinated note.
INCOME TAXES
We have incurred significant losses for all periods from inception through
June 30, 1999. As of June 30, 1999, we had a net operating loss carryforward of
approximately $14 million for financial reporting purposes. Certain future
changes in the share ownership of HealthGate, as defined in the Tax Reform Act
of 1996, may restrict the utilization of carryforwards. A valuation allowance
has been recorded for the entire deferred tax asset as a result of uncertainties
regarding the utilization of the asset due to HealthGate's lack of earnings
history.
COMPARISON OF YEAR ENDED DECEMBER 31, 1998 WITH YEAR ENDED DECEMBER 31, 1997
REVENUE
Total revenue was $2,434,000 in 1998 compared to $1,285,000 in 1997, an
increase of $1,149,000 or 89%. Services revenue in 1998 was $1,486,000, which
was comprised primarily of revenue from our activePress arrangement with
Blackwell Science, one of our stockholders, and revenue from content syndication
arrangements. The service arrangement with Blackwell expires in February 2000.
Services revenue in 1997 was not significant. Advertising and sponsorship
revenue decreased to $665,000 in 1998 from $863,000 in 1997, due primarily to a
decrease in revenue under barter advertising arrangements to $436,000 in 1998
from $607,000 in 1997. During 1998, we began to place less emphasis on barter
arrangements and focus more on selling advertising for cash. We anticipate that
barter revenue will continue to decrease as a percentage of total revenue in the
future. E-commerce revenue decreased to
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$283,000 in 1998 from $333,000 in 1997. This decrease in e-commerce revenue was
due primarily to a decrease of $24,000 in transaction based fees resulting from
a decrease in the number of full text journal transactions and due to a decrease
of $26,000 in subscription revenue attributable to a decrease in the number of
subscriptions. During this time, we elected to provide more content for free
through our own Web sites in order to generate additional advertising revenue by
attracting additional users to our Web sites. In 1998, two customers represented
62% of total revenue, Blackwell Science (44%) and WebMD (18%). In 1997, two
customers represented 37% of total revenue, Lycos (19%) and Blackwell Science
(18%).
COSTS AND EXPENSES
COST OF REVENUE. Cost of revenue consists primarily of salaries and related
costs for personnel directly involved with providing our Web services, royalties
associated with licensed content, and related equipment and software costs. Cost
of revenue increased 29% to $1,181,000 in 1998 from $912,000 in 1997. The
increase was primarily attributable to higher royalty expenses for licensed
content.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of salaries and related costs associated with the development and
support of our Web-based service offerings. Research and development expenses
increased 63% to $1,450,000 in 1998 from $891,000 in 1997, due primarily to
salaries associated with newly hired development personnel and related
recruiting costs. We anticipate that research and development expenses will
continue to increase as HealthGate develops and enhances its Web-based service
offerings, and hires additional technical and development personnel.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
employee salaries, commissions and related costs, as well as the cost of
advertising, marketing and promotional activities. Sales and marketing expenses
decreased 5% to $1,414,000 in 1998 from $1,496,000 in 1997, due primarily to a
corresponding decrease in expenses under barter advertising arrangements to
$418,000 in 1998 from $617,000 in 1997. The decrease in barter advertising
expenses was the result of our entering fewer barter advertising arrangements in
1998. The decrease in barter advertising expenses was partially offset by
increased salaries and related costs associated with newly hired sales and
marketing staff. We expect that sales and marketing expenses will increase as we
continue to expand our sales, marketing and advertising activities and hire
additional personnel for our sales and marketing force.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries and related costs for executive and administrative
personnel, as well as legal, accounting and insurance costs. General and
administrative expenses increased 78% to $929,000 in 1998 from $521,000 in 1997.
The increase was due primarily to salaries and related costs associated with
newly hired administrative personnel, higher salaries and related costs
attributable to existing personnel and increased fees for professional services.
We expect that general and administrative expenses will continue to grow as we
increase our staffing to support expanded operations and facilities, and incur
expenses related to being a public company.
INTEREST EXPENSE, NET
Interest expense, net of interest income, increased to $327,000 in 1998 from
$6,000 in 1997. The increase was due primarily to interest incurred on a
$2,000,000 convertible note payable to Blackwell Science and a $2,000,000
subordinated note, both issued in 1998, and to an increase in interest expense
associated with capital leases. Interest expense in 1998 includes debt discount
and debt issuance cost amortization totaling $54,000 related to the subordinated
note.
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INCOME TAXES
As of December 31, 1998, HealthGate generated a net operating loss
carryforward of $8,492,000. HealthGate's net operating loss carryforwards expire
beginning in 2010. Certain future changes in the share ownership of HealthGate,
as defined in the Tax Reform Act of 1996, may restrict the utilization of
carryforwards. A valuation allowance has been recorded for the entire deferred
tax asset as a result of uncertainties regarding the utilization of the asset
due to HealthGate's lack of earnings history.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 WITH YEAR ENDED DECEMBER 31, 1996
REVENUE
Total revenue was $1,285,000 in 1997 compared to $408,000 in 1996, an
increase of $877,000 or 215%. The increase in total revenue was due primarily to
growth in advertising and sponsorship revenue, and to a lesser extent, an
increase in e-commerce revenue resulting from a higher volume of fee-based
transactions on our Web sites. Included in total revenue is revenue from barter
advertising transactions, which increased to $607,000 in 1997 from $125,000 in
1996. In 1997, two customers represented 37% of total revenue, Lycos (19%) and
Blackwell Science (18%). In 1996, two customers represented 26% of total
revenue, Infoseek (15%) and Lycos (11%); additionally, a single research and
development arrangement represented 21% of total revenue.
COSTS AND EXPENSES
COST OF REVENUE. Cost of revenue increased 85% to $912,000 in 1997 from
$492,000 in 1996. The increase in cost of revenue resulted primarily from
expanding our infrastructure to support increased activity on our Web sites, and
included higher salary and related costs, increased royalty costs associated
with licensed content and increased costs related to equipment and software.
RESEARCH AND DEVELOPMENT. Research and development expenses decreased 9% to
$891,000 in 1997 from $980,000 in 1996. The decrease was due primarily to a
reduction in costs associated with outside engineers and consultants, as we
realized cost savings by transitioning most development work to our own
employees. This decrease was partially offset by salaries associated with newly
hired development personnel and related costs.
SALES AND MARKETING. Sales and marketing expenses increased 39% to
$1,496,000 in 1997 from $1,080,000 in 1996. The increase was due primarily to
higher advertising costs, and to salaries and related costs associated with new
staff hired to support our expanded sales and marketing efforts. Barter
advertising expenses included in total sales and marketing expenses increased to
$617,000 in 1997 from $115,000 in 1996, as a result of increased barter
advertising arrangements in 1997.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased
8% to $521,000 in 1997 from $568,000 in 1996. This decrease was due primarily to
reduced professional services costs, partially offset by increased salaries and
related costs associated with administrative personnel.
INTEREST EXPENSE, NET
Interest expense, net of interest income, decreased to $6,000 in 1997 from
$14,000 in 1996, due primarily to increased interest income earned on higher
average cash balances invested.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily by the private
placement of debt and equity securities. In the period 1994 through 1997, we
received net proceeds of $4,434,000 from the issuance of several series of
redeemable convertible preferred stock. During 1998, we received net proceeds of
$3,929,000 through the issuance of a $2,000,000 convertible note payable to
Blackwell
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Science and a $2,000,000 subordinated note with detachable warrants. The
$2,000,000 subordinated note, which we plan to repay with a portion of the
proceeds of this offering, is secured by substantially all of our tangible and
intangible assets. We have generally financed computer and related hardware
needs through equipment lease financing arrangements. As of June 30, 1999, we
had approximately $1,780,000 of cash and cash equivalents and $791,000 in short
term marketable securities.
In April 1999, we issued 546,028 shares of newly authorized Series E
redeemable convertible preferred stock for gross proceeds of $6,250,000. In
connection with the issuance of the Series E preferred stock, we paid $300,000
of fees and expenses to a placement agent, paid $110,000 of other issuance costs
and issued to the placement agent warrants to purchase 24,919 shares of our
common stock at an exercise price of $2.51 per share with an ascribed value of
$200,000. The placement fee, other issuance costs and warrant value was
reflected as a reduction of the proceeds from the Series E preferred stock
issuance. An additional 174,729 shares of Series E preferred stock were issued
upon conversion of the $2,000,000 convertible note payable to Blackwell Science.
The Series E preferred stock ranks senior in liquidation to the other classes of
preferred stock, and has certain veto rights. The Series E preferred stock
accrues cumulative annual dividends at 7% of its liquidation value (initially
$8,250,000). The dividends are compounded annually and, unless paid, are added
to the Series E preferred stock liquidation value. The Series E preferred stock
is convertible into a number of shares of common stock determined by dividing
the liquidation value by a conversion price per share of $2.51. The conversion
price is to be adjusted for certain dilutive events.
At the time of issuance, each share of Series E preferred stock was
convertible into one share of common stock, which represents a discount from the
fair value of common stock on the date of the Series E issuance. The value
attributable to this conversion right represents an incremental yield, or a
beneficial conversion feature, which was recognized as a return to the preferred
stockholders. This amount, equal to the proceeds from the Series E offering, was
reported as accretion of preferred stock to redemption value of $7,639,000 in
the consolidated statement of operations in the period ended June 30, 1999 and
represents a non-cash charge in the determination of net loss attributable to
common stockholders.
For the six months ended June 30, 1999, the cash used in operations was
$3,464,000. Cash used during this period was primarily due to the net loss of
$4,950,100, offset partially by depreciation and amortization of $651,000,
non-cash compensation expense of $316,000, an increase of $206,000 in accounts
receivable and unbilled accounts receivable, an increase of $276,000 in prepaid
expenses and other current assets, an increase of $1,014,000 in other assets, an
increase of $1,006,000 in accounts payable, an increase of $899,000 in accrued
payroll and other accrued expenses and an increase of $116,000 in deferred
revenue. For the six months ended June 30, 1998, the cash used in operations was
$810,000. Cash used during this period was primarily due to the net loss of
$1,001,000, offset partially by depreciation and amortization of $177,000, a net
decrease of $133,000 in accounts receivable and unbilled accounts receivable, an
increase of $35,000 in prepaid expenses and other current assets, a decrease in
other assets of $17,000, a decrease of $110,000 in accounts payable, an increase
of $109,000 in accrued payroll and other accrued expenses and a decrease of
$99,000 in deferred revenue. Increases in operating assets and liabilities were
primarily due to the growth of business and operations during these periods.
Cash used for investing activities consisted primarily of purchases of
short-term marketable securities and property and equipment of $787,000 and
$657,000, respectively, during the six months ended June 30, 1999. During the
six months ended June 30, 1998, property and equipment purchases were $185,000.
We also entered into capital leases for computer equipment totaling $135,000 and
$49,000 during the six months ended June 30, 1999 and 1998, respectively.
Cash provided by financing activities during the six months ended June 30,
1999 consisted primarily of net proceeds received from the issuance of the
Series E redeemable convertible preferred
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stock of $5,839,000 partially offset by payments for capital lease obligations
of $127,000. During the six months ended June 30, 1998, we received net proceeds
from the issuance of a subordinated note payable and warrants of $1,929,000
which was partially offset by payments for capital lease obligations of $71,000.
At June 30, 1999, we had outstanding commitments under capital leases of
$448,000 and under operating leases for equipment and office space of $560,000.
In addition, future minimum payments under content license agreements totaled
$1,980,000 at June 30, 1999. We expect our commitments under content licensing
to increase as we expand our content libraries.
We have received a report from our independent accountants containing an
explanatory paragraph that describes the uncertainity as to our ability to
continue as a going concern due to our historical negative cash flow and because
as of the date they rendered their opinion we did not have access to sufficient
committed capital to meet our projected operations needs through at least
December 31, 1999. We currently anticipate that the net proceeds from this
offering will be sufficient to meet our presently anticipated working capital,
capital expenditure and business expansion requirements for at least the next 12
months. However, we may need to raise additional funds within the next 12 months
to further expand sales and marketing, develop new or enhanced products and
services, respond to competitive pressures, acquire or invest in complementary
businesses or take advantage of unanticipated opportunities. Our future capital
needs will depend upon numerous factors, including the success of our existing
and new product and service offerings and competing technological and market
developments. We may be required to raise additional funds through public or
private financing, strategic relationships or other arrangements. We can not
guarantee that additional funding, if needed, will be available on terms
acceptable to us, or at all.
YEAR 2000 COMPLIANCE READINESS DISCLOSURE
IMPACT OF THE YEAR 2000
Many currently installed computer systems and software products are unable
to distinguish between twentieth century dates and twenty-first century dates.
As a result, many companies' software and computer systems may need to be
upgraded or replaced to comply with these Year 2000 requirements. Our business
is dependent on the operation of numerous systems that could potentially be
impacted by Year 2000 related problems. Those systems include, among others:
hardware and software systems used by us to deliver services to our customers,
including our proprietary software systems as well as hardware and software
supplied by third parties; communications networks, such as the Internet and
private intranets, which we depend on to provide content to our customers;
internal systems of our customers and suppliers; hardware and software we use
internally to manage our business; and non-information technology systems and
services we use in our business such as the telecommunications and building
systems.
STATE OF READINESS
COSTS. To date, we have not incurred material costs in identifying or
evaluating Year 2000 compliance issues, although consideration of the Year 2000
question is an integral part of all our on-going developmental and operational
reviews. Most of our expenses to date have related to and are expected to
continue to relate to the operating costs associated with time spent by
employees in the evaluation process and Year 2000 compliance testing generally.
We presently anticipate that future expenditures will be less than $200,000. As
a young company, we purchased or developed new hardware and software at a time
when our suppliers and developers were sensitive to issues surrounding the Year
2000 problem.
RISKS. We have completed internal assessments of our Year 2000 readiness,
with emphasis on our operating and administrative systems and the proprietary
software systems and third party software and hardware we use to deliver
services to our customers and users, and are not aware of any Year 2000
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problems that could reasonably be expected to have a material adverse effect on
our business. Our assessment plans have consisted of internal testing of our
systems, contacting third party vendors of hardware, software and services to us
and to our users, assessing and implementing repairs or replacements as required
and developing contingency plans in the event of Year 2000 problems arising as
the year ends. HealthGate has contacted its major vendors for software, hardware
and related services. These vendors have indicated that they are Year 2000
compliant. However, we can not guarantee that we have identified or will
identify all Year 2000 compliance problems in our infrastructure that may
require substantial revisions and fixes. Also, despite our testing and reviews,
we may experience Year 2000 problems related to the third party software,
hardware or other systems on which we are reliant, and any of these problems may
be time consuming or expensive to fix. We have given a warranty in our
activePress agreement with Blackwell Science that our applications and services
are Year 2000 compliant. If our applications and services fail to be Year 2000
compliant, this agreement could be terminated or we could be liable for damages,
either of which could have a material adverse effect on our business. In
addition, the purchasing patterns of customers or potential customers may be
affected by Year 2000 questions, and any significant delays in making purchasing
decisions could either directly or indirectly affect us.
In addition, we cannot be assured that the governmental agencies, utility
companies, Internet access companies, third party providers and others outside
our control will be Year 2000 compliant. The failure by these entities to be
Year 2000 compliant could result in a systemic failure beyond our control. We
believe that the most reasonably likely worst case scenario would result in a
prolonged Internet, telecommunications or electrical failure which would affect
our ability to meet our commitments to our customers or prevent our users from
accessing our Web sites or services, either of which, in turn, could have a
material adverse effect on our business, results of operations and financial
condition.
CONTINGENCY PLAN
We have been engaged in an ongoing assessment of our readiness and have
developed contingency plans to address Year 2000 problems that may arise. The
results of our analyses and the responses received from third party vendors and
service providers were taken into account in developing these plans.
RECENT ACCOUNTING PRONOUNCEMENTS
We adopted Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income," effective January 1, 1998. This statement
requires a full set of general purpose financial statements to be expanded to
include the reporting of "comprehensive income." Comprehensive income is
comprised of two components, net income and other comprehensive income. During
the years ended December 31, 1996, 1997 and 1998, we had no items qualifying as
other comprehensive income; accordingly, the adoption of SFAS No. 130 had no
impact on our financial statements.
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
which supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise." This statement changes the way public business enterprises report
segment information, including financial and descriptive information about their
selected segment information in interim and annual financial statements. Under
SFAS No. 131, operating segments are defined as revenue-producing components of
the enterprise which are generally used internally for evaluating segment
performance. SFAS No. 131 is effective for our fiscal year ended December 31,
1998 and had no effect on our financial position or results of operations. We
operate in one segment, which is providing healthcare and related information to
institutions and individuals through the Internet.
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In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. HealthGate does
not expect SFAS No. 133 to have a material effect on its financial position or
results of operations.
In February 1998, the Accounting Standards Executive Committee (AcSEC)
issued Statement of Position (SoP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SoP 98-1 establishes the
accounting for costs of software products developed or purchased for internal
use, including when such costs should be capitalized. SoP 98-1 will be effective
for HealthGate beginning in fiscal 1999, and HealthGate does not expect adoption
of this SoP to have a material effect on its financial position or results of
operations.
In April 1998, the AcSEC issued SoP 98-5, "Reporting on the Costs of
Start-Up Activities." Start-up activities are defined broadly as those one-time
activities related to the opening of a new facility, introducing a new product
or service, conducting business in a new territory, conducting business with a
new class of customer, commencing some new operation or organizing a new entity.
SoP 98-5 requires that the cost of start-up activities be expensed as incurred.
SoP 98-5 is effective for HealthGate beginning in fiscal 1999, and HealthGate
does not expect adoption of this SoP to have a material effect on its financial
position or results of operations.
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BUSINESS
OVERVIEW
HealthGate is an Internet provider of reliable, objective, comprehensive and
up-to-date healthcare information helping physicians and other healthcare
professionals, patients and health-conscious consumers make better informed
healthcare decisions. We have aggregated and developed what we believe are the
most extensive health and medical libraries of any online provider, currently
totaling approximately 27 million different pages of health and medical
information from over 190 sources. This content includes internationally
recognized journals, authoritative government sources and extensive
bibliographic databases representing 27 independent content providers. We adapt
and integrate this diverse content through our internally developed software
programs, which include our proprietary ReADER-Registered Trademark- natural
language searching software, designed to facilitate the search and retrieval of
relevant information in response to each user's searching needs.
Given the depth and breadth of our content, we provide healthcare
information to a wide range of online users, including physicians and other
healthcare professionals, patients and health-conscious consumers. Our online
library targeted to physicians and other healthcare professionals includes
internationally recognized journals such as the NEW ENGLAND JOURNAL OF MEDICINE,
bibliographic databases such as MEDLINE, handbooks such as the Drug Information
Handbook, decision support materials such as the Poisoning and Toxicology
Compendium and Continuing Medical Education programs from the Boston University
School of Medicine and Professional Postgraduate Services. Our patient focused
online library includes patient education materials such as a series of over
3,000 patient education brochures published by the Clinical Reference Systems
division of Access Health. We have also created "Healthy Living" Webzines, a
proprietary series of industry recognized consumer health magazines distributed
exclusively through the Web, and have produced Wellness Centers, which are
compilations of selected information from our online libraries for consumers, on
100 of the most prevalent illnesses, diseases and medical conditions. In
addition, we use our technology to provide text conversion and Web site hosting
services for traditional print publishers, thereby increasing the number of
online healthcare resources accessible through our content libraries. While we
aggregate and develop content with the goal of meeting the specific needs of
professionals, patients and health-conscious consumers, we do not restrict
access to the target audience, for instance, giving patients and consumers
access to more in-depth information like leading medical journals written for
medical professionals.
We distribute our content through a network of proprietary and affiliated
Web sites that comprise the HealthGate Network. The HealthGate Network includes
(1) our own Web sites, www.healthgate.com and www.bewell.com in the United
States and www.healthgate.co.uk in the United Kingdom; (2) customized,
co-branded CHOICE-TM- Web sites, which carry both HealthGate's and an enterprise
client's name, designed as a seamless component of an enterprise client's Web
site; principally hospitals as well as other institutions; and (3) other third
party Web sites to which we syndicate our proprietary and licensed content under
license agreements.
We currently engage in the following activities:
- developing co-branded CHOICE Web sites for enterprise clients and
distributing content through these CHOICE Web sites;
- offering banner advertising and sponsorship of discrete portions of our
content libraries to pharmaceutical companies, other healthcare
advertisers and other businesses and organizations;
- providing our activePress-TM- Web publishing services to traditional print
publishers;
- syndicating content to third party Web sites; and
- participating in e-commerce opportunities, including selling articles from
full-text journals, monthly online subscriptions and medical text books.
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INDUSTRY BACKGROUND
During the past decade, the Internet has emerged as a significant global
communications medium and an effective alternative to many forms of traditional
media. The Internet enables consumers to instantly retrieve information,
communicate with others and engage in e-commerce. As a result, Internet use is
growing rapidly. According to Jupiter Communications, an industry research firm,
the number of Internet users in the United States is expected to grow from
approximately 63 million in 1998 to approximately 116 million by 2002.
The rapid growth of the Internet as a tool for communication, entertainment
and e-commerce has resulted in a proliferation of Web sites dealing with myriad
topics, products and services. Web sites such as America Online and Yahoo!
developed in response to Internet users' need for a simple means of navigating
the Internet. As the number of Internet users has increased, discrete user
groups have developed that share the same interests, such as people searching
for health and medical information, world and national news headlines and
personal investment information. These groups have, in turn, created a demand
for more focused subject specific Web sites. These subject specific Web sites
are a growing segment of the Internet. Among the most popular topics of these
types of Web sites is healthcare. According to Cyber Dialogue, Inc., an industry
research firm, during the 12-month period ended July 1998, approximately 17
million adults in the United States searched online for health and medical
information, a number which Cyber Dialogue estimates will grow to approximately
33 million in 2000. Further, Cyber Dialogue research indicates that 70% of
adults who seek health and medical information online believe that the
availability of this information on the Internet enables them to make better
informed healthcare choices.
This demand for online healthcare content is creating many opportunities for
businesses to reach new consumers and expand their relationships with existing
customers. According to Cyber Dialogue, people that use the Internet to retrieve
online medical information are an attractive audience to businesses because
these individuals are typically older and more affluent than the general online
population. The Internet, unlike traditional media sources, allows businesses to
effectively target these consumers in an interactive manner. Through banner ads
and sponsorships, businesses are able to dynamically market their goods and
services in an efficient manner. According to Jupiter Communications, online
health and medical advertising in the U.S. is expected to grow from $12.3
million in 1998 to $265.1 million in 2002. In addition to providing a new
marketing medium, the Internet has become a new distribution channel for
businesses, through which they can sell products to consumers.
We believe that the company that establishes a clear brand identity as a
reliable source of comprehensive online healthcare information and services will
have a significant opportunity to capture a leading share of the online health
audience as this industry continues to grow.
BUSINESS STRATEGY
Our objective is to capture a leading share of the online health audience as
this industry continues to grow. We plan to achieve this objective by delivering
a broad array of healthcare content and related services to healthcare
professionals, patients and consumers through the HealthGate Network. Our
strategy includes the following key elements:
PROVIDE LEADING HEALTHCARE CONTENT AND TECHNOLOGY. We seek to continually
expand our health and medical content libraries to enable healthcare
professionals, patients and consumers to easily satisfy their health-related
information needs without leaving the HealthGate Network. We are currently
focusing on expanding our content in the areas of prescription and over the
counter drugs, mental health, toxicology, decision support, alternative health,
geriatrics and continuing education. In addition to continually expanding our
content, we intend to continue integrating content with technology in order to
enhance the online user experience. We are currently pursuing technology
initiatives designed
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to provide enhanced alert services, more sophisticated database searching
capabilities and personalization and content customization for the individual
users. Given the diversity of health-related Web sites, and the varying degrees
of quality and amount of information available on these Web sites, we believe
professionals, patients and consumers have a desire to be able to access
reliable, objective, comprehensive and up-to-date information on specific topics
in a user-friendly manner. We plan to continue to lead the way in making this
information accessible to both healthcare professionals and lay people.
EXPAND THE HEALTHGATE NETWORK. The HealthGate Network consists of (1) our
own Web sites, www.healthgate.com, www.bewell.com and www.healthgate.co.uk; (2)
clients' co-branded CHOICE Web sites; and (3) other third party Web sites
including Inteli-Health and WebMD, which carry our syndicated content under
license agreements. We plan to increase the number of CHOICE Web sites on the
HealthGate Network through expanded marketing efforts, using both our in-house
sales force and value added resellers, such as Data General Corporation and GE
Medical Systems, which resell our products and services together with their
complementary products and services. We intend to further expand the HealthGate
Network by continuing to syndicate portions of our content libraries to other
health-related Web sites. By expanding the HealthGate Network, we believe we
will be able to continue to increase user traffic, thereby enabling us to
generate increased revenue from advertising, sponsorships and e-commerce
opportunities.
CONTINUE TO BUILD THE HEALTHGATE BRAND. We believe that increased awareness
of the HealthGate brand will be important to our ability to continue to build
our user base and to attract additional customers, advertisers, sponsors and
strategic affiliates. We plan to allocate significant resources to continue to
build brand recognition by expanding the reach of the HealthGate Network. By
continuing to increase the number of co-branded CHOICE Web sites, we plan to
attract new users and build online communities, which are linked groups of users
with similar health related interests, by leveraging the name recognition of
local enterprises, including hospitals and other healthcare organizations,
corporations and academic institutions. We build brand awareness on our
www.healthgate.com, www.bewell.com and www.healthgate.co.uk Web sites by
offering users free access to a portion of our content libraries. Moreover, we
will continue to syndicate content under license agreements that require
licensees to display our name prominently on the syndicated content pages. These
agreements also require these licensees to enable users to reach our
www.healthgate.com Web site from the licensee's Web site by clicking on a
HealthGate link. In addition, we plan to build recognition of the HealthGate
brand through online and traditional media advertising, including advertising on
CHOICE Web sites, other promotional activities and marketing initiatives, and
through additional strategic affiliations.
BROADEN THE RANGE OF PRODUCTS AND SERVICES. We believe that broadening the
variety of products and services offered through the HealthGate Network will
allow us to better serve existing users, attract new users and keep our users on
the HealthGate Network for longer periods per visit. We intend to enhance our
offering of products and services to provide physician counseling services,
clinical trial recruitment and an integrated platform for linking clinical
information and patient education materials with electronic medical records. We
plan to leverage the HealthGate Network, including our enterprise-based CHOICE
accounts, to market these new, predominantly fee-based products and services. We
believe that these products and services will also make the HealthGate Network
even more attractive to potential advertisers and sponsors seeking a targeted
audience. Additionally, we are pursuing e-commerce partners to further leverage
revenue opportunities from the HealthGate Network user base.
PURSUE ACQUISITIONS AND ADDITIONAL STRATEGIC AFFILIATIONS. We intend to
pursue an acquisition and affiliation strategy focusing on proprietary content
and complementary technologies and services. Acquiring providers of proprietary
content will allow us to customize acquired content to better meet the needs of
our users and clients, as well as allow us to increase our user base. We also
plan to
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continue to pursue additional strategic affiliations with content providers to
expand our libraries, similar to our activePress content affiliations with
Blackwell Science and the NEW ENGLAND JOURNAL OF MEDICINE. In addition, we
intend to pursue exclusive strategic affiliations with content providers to
produce additional unique content, similar to our arrangement to produce a
consumer version of the NEW ENGLAND JOURNAL OF MEDICINE with the Massachusetts
Medical Society. We also plan to pursue strategic affiliations with companies
that offer complementary technologies, products and services, such as Web site
design and development firms, electronic medical records providers and online
prescription information and transaction service companies.
CONTINUE TO GROW INTERNATIONALLY. Interest in obtaining reliable healthcare
information is universal. We believe that a significant opportunity exists to
establish HealthGate as the premier supplier of healthcare information over the
Internet in markets outside the United States. Building upon the expertise
gained from the May 1998 launch of our www.healthgate.co.uk Web site, which was
specifically developed for United Kingdom users, we intend to establish
additional HealthGate country specific Web sites. Our strategy includes
licensing and creating content of specific interest to a particular country's
users, in addition to providing internationally recognized English language
sources of medical information, such as MEDLINE, and customizing and translating
the user interface into the local language. In addition, we plan to continue
syndicating portions of our content libraries to online providers in foreign
markets. For example, we have established relationships with online providers in
Italy and Australia who are providing co-branded HealthGate syndicated content
as part of their product offerings.
HEALTHGATE CONTENT
We believe we offer professionals, patients and consumers one of the most
reliable, objective, comprehensive and up-to-date collections of health and
medical information available on the Internet, with presently over 27 million
different pages of healthcare information from over 190 sources. Our content
libraries are updated regularly with the latest available health and medical
information, on a daily, weekly or monthly basis, or as appropriate. We segment
our content libraries into appropriate collections to facilitate access for
professionals, patients and consumers. However, content from any collection is
available to any type of user under a variety of pricing structures. For
example, a patient who might typically access one of our free Healthy Living
Webzines for general information about a particular medical condition, illness
or disease is also able to access relevant articles in the
professionally-oriented NEW ENGLAND JOURNAL OF MEDICINE for a one time
transaction fee in order to explore the most recent and authoritative scientific
studies of that condition, illness or disease.
Generally, certain licensed content, including MEDLINE, CANCERLIT and
AIDSLINE, is free to users throughout the HealthGate Network. Other licensed
content, including PsycINFO, CINAHL and the EMBASE Cardiology Consultant, is
accessible for a fee on a transaction specific basis or through subscription
plans. In order to meet the needs of their communities of users, CHOICE Web site
clients and licensees of our syndicated content pay us to make selected portions
of our libraries available to their users.
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We compile our online libraries in three ways: (1) licensing content from
healthcare and medical information providers; (2) developing proprietary
in-house content; and (3) licensing content from our activePress publishing
clients in conjunction with providing these clients with Web site development
and hosting services. These categories of content are described in the following
table:
<TABLE>
<CAPTION>
CONTENT PROVIDER DESCRIPTION REPRESENTATIVE SOURCES DISTRIBUTION CHANNELS
<S> <C> <C> <C>
Independent Well known, - MEDLINE (National - healthgate.com
Licensors authoritative content Library of Medicine) - CHOICE Web sites
sources licensed from - Adult Health Advisor - Syndicated third
government agencies, (Clinical Reference party Web sites
professional Systems) - healthgate.co.uk
associations, not-for- - Continuing Medical
profit organizations, Education (Boston
medical centers, University School of
publishers and other Medicine)
third parties. - Reuters Medical News
(Reuters Health)
- EMBASE Cardiology
Consultant (Elsevier
Science B.V.)
HealthGate Ten different industry - Healthy Athlete - healthgate.com
recognized magazines - Healthy Eating - CHOICE Web sites
developed by HealthGate - Healthy Man - Syndicated third
specifically for - Healthy Mind party Web sites
Web-based distribution. - Healthy Parenting - healthgate.co.uk
Updated weekly with new - Healthy Sexuality
articles, written or - Healthy Traveler
purchased by - Healthy Woman
HealthGate. - RxAlert
- Alternative Health
activePress Full-text journals and - NEW ENGLAND JOURNAL - nejm.org
Clients similar content from OF MEDICINE - blackwell-synergy.com
traditional print (Massachusetts - healthgate.com
publishers, converted Medical Society) - CHOICE Web sites
for Web access and - BRITISH JOURNAL OF - Syndicated third
hosted by HealthGate's SURGERY party Web sites
activePress unit for a (Blackwell Science) - healthgate.co.uk
fee.
</TABLE>
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LICENSED CONTENT
This category includes well known, independent and authoritative health and
medical content licensed by us for distribution via the HealthGate Network. This
content is typically peer-reviewed and many of our licensed content sources are
recognized by healthcare professionals and academia for their high quality.
Content in this category includes the following types of information and
representative sources:
- bibliographic databases, such as MEDLINE, produced by the National Library
of Medicine; CANCERLIT, produced by the National Cancer Institute; and
EMBASE Drugs and Pharmacology, produced by Elsevier Science B.V.;
- patient education and consumer health materials, such as the Merriam
Webster Medical Dictionary, the Advisor Series of over 3,000 informational
brochures from Clinical Reference Systems and compilations of information
that we prepare on 100 of the most prevalent medical conditions, illnesses
and diseases and make available through our Wellness Centers;
- Continuing Medical Education programs, such as those produced by
Professional Postgraduate Services, a division of Physicians World
Communications Group;
- decision support materials, such as the Poisoning and Toxicology
Compendium published by Lexi-Comp, Inc.; and
- newsfeeds, such as Reuters Medical News and the Los Angeles Times
Syndicate.
All licensed content must meet certain criteria prior to being added to our
content libraries. The criteria used to evaluate the content include the content
provider's own review process, comparison with comparable sources and the
frequency of updates.
HEALTHGATE PROPRIETARY CONTENT
This category currently includes ten Web-based consumer health magazines we
produce called Healthy Living. The Webzines in the Healthy Living series cover
subjects such as men's health, women's health, parenting, nutrition, travel
medicine, sexuality, sports medicine, mental health, prescription and
over-the-counter drugs and alternative health. Articles for these publications
are written by medical writers, physicians, dentists, dieticians and nurses
exclusively for us. These articles discuss current health trends, newly
published research findings, health-related lifestyle issues and late breaking
topics recommended by the Healthy Living Editorial Board. This Editorial Board
is comprised of five physicians affiliated with institutions including the
Harvard University School of Medicine, Boston University School of Medicine,
Massachusetts General Hospital and Dana Farber Cancer Institute. In order to
assure accurate and high quality content, all articles are reviewed prior to
publication by medical editors and by our Editorial Board. Several Healthy
Living Webzines have been recognized for their quality by the American Medical
Writers Association, Tufts University School of Nutrition, Lycos and the Disney
Go Network.
ACTIVEPRESS CONTENT
This category currently includes the NEW ENGLAND JOURNAL OF MEDICINE,
published by the Massachusetts Medical Society, and all medical, scientific and
technical journals published by the worldwide publishing units of Blackwell
Science. Through our activePress service, we convert these journals for delivery
through the Internet and provide access to the converted journals by developing
and hosting these publishers' Web sites. In addition to being paid a fee for our
activePress development, implementation and hosting services, we receive the
right to distribute these journals through our www.healthgate.com and
www.healthgate.co.uk Web sites. We are also able to distribute the Blackwell
Science journals throughout the rest of the HealthGate Network.
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STRATEGIC AFFILIATIONS
We believe that strategic affiliations enable us to acquire content more
rapidly, develop and further distribute our products and services, generate
additional traffic on our own Web sites and CHOICE Web sites, enhance the
HealthGate brand and capitalize on additional revenue opportunities. We have
entered into strategic affiliations for healthcare content, related products and
services, marketing and online distribution and syndication with the following
companies:
ACTIVEPRESS CONTENT AFFILIATIONS
BLACKWELL SCIENCE, LTD. Through our activePress service, we are the
exclusive developer on the Web of a collection of 200 full text journals for
Blackwell Science. Blackwell Science is the largest publisher of medical
societies' journals and one of the world's largest medical publishers. We have
converted and currently offer online 66 different peer reviewed journal titles
from Blackwell Science's worldwide publishing units, and we have contracted to
convert the remaining 134 Blackwell Science titles and we expect to do so as the
publisher makes them available to us from time to time during the initial term
of the agreement. As part of this service, we link these journals with the
MEDLINE bibliographic database and make them available to Blackwell Science's
individual and institutional subscribers through the www.blackwell-synergy.com
Web site, developed and hosted by us. Our hosting services include storing,
maintaining and updating all converted journals on our computer system,
providing links between these journals and other relevant databases, providing
secure transaction processing through the Web site and managing advertising and
sponsorship for the Web site. In addition to the revenue derived from the
development and hosting of the www.blackwell-synergy.com Web site, we receive a
fee for each online subscriber to a Blackwell journal and a transactional fee
for each Blackwell journal article purchased through the HealthGate Network. We
have the right to syndicate these journals throughout the HealthGate Network and
allocate revenue from syndication with Blackwell Science. The initial term of
our activePress agreement with Blackwell Science runs through February 2000.
Until September 30, 1999, Blackwell Science has the right to extend the term of
the agreement to February 28, 2001. If this right is exercised, Blackwell
Science may renew the agreement annually for up to three additional years.
NEW ENGLAND JOURNAL OF MEDICINE. We recently entered into an agreement with
the Massachusetts Medical Society, publisher of the NEW ENGLAND JOURNAL OF
MEDICINE, the most cited publication in medicine, to be the exclusive developer
and host of an enhanced Web site for the JOURNAL using our activePress service.
Through this enhanced Web site, developed using our activePress service, the
JOURNAL will offer electronic subscriptions and be able to provide individual
article delivery and links to the MEDLINE bibliographic database, thereby
improving reader access to this important resource. As part of this agreement,
when this enhanced Web site is re-launched, we will have the right to distribute
the JOURNAL through our own Web sites, through CHOICE Web sites, and, with the
prior approval of the publisher, through syndication to third party Web sites.
In addition to the revenue derived from the development and hosting of this Web
site, we receive a fee for each online subscriber to the JOURNAL and a
transactional fee for each JOURNAL article purchased by a non-subscriber. The
initial term of our activePress agreement with the Massachusetts Medical Society
runs through April 2001 and is renewable annually by mutual agreement. Until the
JOURNAL's enhanced Web site is re-launched, which we currently expect to occur
by the end of 1999, HealthGate users and JOURNAL subscribers are able to access
the JOURNAL's existing Web site through a link from HealthGate's own Web site.
During this interim period, HealthGate users will be able to access various
portions of the JOURNAL's existing Web site, but only JOURNAL subscribers will
be able to access the past issues of the JOURNAL available online.
OTHER CONTENT AFFILIATION
CONSUMER VERSION OF THE NEW ENGLAND JOURNAL OF MEDICINE. Effective June 15,
1999, we entered into an agreement with the Massachusetts Medical Society to
create a Web-based consumer version of
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the NEW ENGLAND JOURNAL OF MEDICINE. Under this agreement, we will be the
exclusive distributor of this unique version of the JOURNAL, although, beginning
six months after delivering the first issue to us, the Society may make this
version of the JOURNAL available on its own Web sites. We will pay an annual fee
of $500,000 for the Society to re-write all original articles appearing each
week in the JOURNAL in common, non-technical language. We, in turn, plan to use
our technology platform to adapt and integrate this content and to link it to
MEDLINE, to drug databases, to other content sources and to relevant sites on
the Web. We currently intend to make the publication available through
subscription. We plan to sell both targeted advertising and sponsorship on these
pages. Revenue derived from the consumer version of the JOURNAL will be shared
by the Society and us. We expect to release the consumer version of the JOURNAL
by the end of 1999. The initial term of this agreement is two years from the
date on which the Society delivers the first issue to us and is renewable for
two additional 18 month periods by mutual agreement.
PRODUCT AND SERVICE AFFILIATIONS
PHYSICIANS WORLD COMMUNICATIONS GROUP. We have a strategic affiliation with
Physicians World Communications Group, an independent medical education company
in the United States. Professional Postgraduate Services, a division of
Physicians World, is accredited by the Accreditation Council for Continuing
Medical Education to offer Category 1 Continuing Medical Education (CME) credit.
Physicians World pays us to format original CME programs for the Web to enhance
the ease of use and quality of the educational experience by adding
interactivity, graphics and audio and video components. We share the revenue
with Physicians World generated from physicians purchasing these programs
through the HealthGate Network. We are implementing a strategic plan with
Physicians World to increase sponsorship funding for the development of new
courses to be provided through this relationship. We are Physicians World's
exclusive development and distribution partner for CME programs over the Web.
Under our agreement with Physicians World, we have agreed, with the exception of
CME programs developed by Boston University School of Medicine, to develop CME
programs for Web distribution only in conjunction with Physicians World.
BOSTON UNIVERSITY SCHOOL OF MEDICINE. We have a strategic affiliation with
Boston University School of Medicine to distribute Continuing Medical Education
programs developed by the School of Medicine through our own Web sites, through
our CHOICE Web sites and through licensees of our syndicated content. Boston
University is accredited by the Accreditation Council for Continuing Medical
Education to offer Category 1 CME credit. We include 23 different CME programs
from Boston University in our content libraries. We plan to develop additional
programs with Boston University through this relationship.
Physicians take CME courses in order to: (1) comply with state licensure
requirements; (2) qualify for lower insurance premiums; and (3) fulfill
membership requirements of professional associations. Generally, Category 1 CME
courses are considered by most physicians to be more valuable than other types
of CME courses. Approximately 20 hours of Category 1 credit is required annually
by most states for physician re-licensure.
MARKETING AND DISTRIBUTION AFFILIATIONS
DATA GENERAL CORPORATION. We have a strategic marketing affiliation with
Data General Corporation, an information technology products and services
company. Data General has a current customer base of approximately 2,500
hospitals and healthcare institutions worldwide and a sales and marketing group
dedicated to healthcare. Data General's healthcare customer base presents an
attractive target market for our CHOICE Web sites. As a value added reseller,
Data General will offer our co-branded CHOICE product to complement the suite of
products and services that it currently offers to its customers, which products
and services include electronic medical records services, imaging and archival
software and Web-authoring tools. Data General will distribute our CHOICE
product to
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its customers by purchasing it from us and then reselling it to specific
enterprises based on a CHOICE end-user license agreement entered into between
HealthGate and the specific enterprise. We have granted Data General an
exclusive right to resell our CHOICE product to a defined group of its current
customers until December 31, 1999. This exclusive right may be extended if Data
General achieves sales targets, to be determined by mutual agreement, by that
date. Data General has agreed that, during the term of the agreement, it will
not market any other products or services that are similar to our CHOICE Web
site product. The initial term of our agreement with Data General runs through
June 2001 and is renewable for one additional year by mutual agreement.
GE MEDICAL SYSTEMS. On June 11, 1999 we entered into a development and
distribution agreement with GE Medical Systems, the medical diagnostic equipment
and services division of General Electric Company. Under the terms of this
agreement, we will develop and host GE Medical Systems branded enhanced versions
of our CHOICE Web site product. GE Medical Systems will have an exclusive
worldwide right to sell these enhanced CHOICE Web sites to hospitals and other
patient care facilities. GE Medical Systems will also have the exclusive right
to sell our CHOICE Web site product to a select group of hospitals and other
patient care facilities. In addition, GE Medical Systems will have the
non-exclusive right to sell our CHOICE Web site product to other healthcare
institutions, subject, in certain cases, to our prior consent. GE Medical
Systems has a worldwide customer base of hospitals and other patient care
institutions and a sales and marketing organization dedicated to healthcare. GE
Medical Systems' customer base presents an attractive audience for both our own
CHOICE Web sites and the enhanced GE Medical Systems branded versions of our
CHOICE Web sites. Revenue derived from CHOICE Web sites sold by GE Medical
Systems will be shared by GE Medical Systems and us. The initial term of our
development and distribution agreement with GE Medical Systems is one year and
is renewable annually by mutual agreement.
In connection with the development and distribution agreement, we issued to
General Electric Company a warrant for the purchase of up to 1,369,200 shares of
our common stock. The warrant has a term of five years, an exercise price of
$8.25 per share (subject to an adjustment in the event that the initial public
offering price is below $8.25) and is immediately exercisable. The shares of
common stock issuable under the warrant will have registration rights similar to
the registration rights provided to GE Capital Equity Investments, Inc. and
Blackwell Science. See "Shares Eligible for Future Sale-- Registration Rights."
The fair value of the warrant of $10,300,000 was recorded as marketing and
distribution rights in assets, and will be amortized as sales and marketing
expense on a straight-line basis over the one year contractual term of the
related development and distribution agreement. During the six months ended June
30, 1999, amortization expense totaled $367,000.
SYNDICATION AFFILIATIONS
We have formed strategic syndication affiliations with five high-traffic,
health-related Web sites to distribute portions of our content libraries through
licensing agreements. Our present syndication affiliations are with WebMD,
Inteli-health, America's Health Network, the American Medical Association and
MedCast. In addition to providing licensing fees to us, these agreements, in
most cases, provide for sharing advertising and sponsorship revenue generated
through these third party Web sites. Through licensed syndication, we are able
to leverage the user bases of these HealthGate Network Web sites to drive
additional traffic to our content libraries in order to further increase
awareness of the HealthGate brand and develop additional advertising and
sponsorship and e-commerce revenue opportunities. Our name, embedded with a link
to our www.healthgate.com Web site, is displayed on each page viewed by the user
accessing our syndicated content through third party Web sites.
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HEALTHGATE'S PRODUCTS AND SERVICES
We have established four distinct product and service offerings: (1) our own
Web sites; (2) CHOICE Web sites; (3) content syndication; and (4) activePress
services. The target groups for these products and services cover a broad
spectrum of customers and users, providing multiple revenue sources, as
summarized in the following chart.
<TABLE>
<CAPTION>
TARGET CUSTOMER AND USER
PRODUCTS AND SERVICES GROUPS REVENUE SOURCES
<S> <C> <C>
www.healthgate.com Individuals - Advertising and sponsorship
www.healthgate.co.uk - Professionals - E-commerce
- Patients
- Consumers
CHOICE Web sites Enterprises - Services
- Hospitals - Annual hosting fees
- Healthcare institutions - Development fees
- Integrated Delivery - Licensing fees
Networks - Advertising and sponsorship
- Businesses - E-commerce
- Colleges and universities
Content Syndication Third party health - Services
information Web sites - Annual hosting fees
- WebMD - Development fees
- Inteli-Health - Licensing fees
- America's Health Network - Advertising and sponsorship
- American Medical - E-commerce
Association
- MedCast
activePress service Publishers - Services
- Blackwell Science - Annual hosting fees
- Massachusetts Medical - Development fees
Society - E-commerce
</TABLE>
THE WWW.HEALTHGATE.COM AND WWW.HEALTHGATE.CO.UK WEB SITES
We provide healthcare information, products and services through our own Web
sites, www.healthgate.com in the United States and www.healthgate.co.uk in the
United Kingdom. The www.healthgate.com Web site, targeted to a wide range of
users, was the first to provide free Web access to the complete MEDLINE
database. This site provides a range of medical information, from basic
background information on general health matters, wellness, illnesses and
diseases to in-depth scientific research on specific medical conditions, from a
variety of licensed and proprietary content sources. The content available on
this site is divided into collections targeted to professionals, patients or
consumers. However, content from all collections is available to any type of
user. For example, a patient can access an article on a specific medical
condition in the professionally oriented NEW ENGLAND JOURNAL OF MEDICINE.
Content sources include patient education and wellness information,
bibliographic databases, Continuing Medical Education programs and decision
support materials. Presently, our consumer information is accessible through
www.healthgate.com and www.bewell.com, our companion consumer Web site. We plan
to combine our www.bewell.com Web site with our www.healthgate.com Web site by
the end of 1999.
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The healthgate.co.uk site, launched in May 1998, is our first
country-specific Web site. In addition to internationally recognized sources of
medical information, such as MEDLINE, this site provides access to content of
specific interest to users in the United Kingdom. We use our existing technology
platform to provide easy access to the information on this site. We also use our
technology platform to conform our content to local cultural and language
nuances.
Users may access portions of our content libraries on our own Web sites for
free. Other licensed content, such as PsycINFO, CINAHL, the EMBASE Cardiology
Consultant, and articles from the journals we make available, are available for
a fee on a transaction specific basis.
CO-BRANDED CHOICE WEB SITES FOR ENTERPRISE CLIENTS
Our CHOICE Web sites are customized, co-branded Web sites linked to an
enterprise's own Web site to provide an enterprise with the ability to offer
online healthcare information to its communities of users. We market CHOICE Web
sites to the following types of enterprises:
- HEALTHCARE INSTITUTIONS--Healthcare Institutions include hospitals,
managed care organizations and physician groups. These institutions may
wish to provide online healthcare information to their staff and patients
and better market their services to the local community.
- INTEGRATED DELIVERY NETWORKS--Integrated Delivery Networks are networks of
hospitals and clinics. Integrated Delivery Networks can utilize CHOICE Web
sites as part of their suite of services to achieve better brand
recognition while still maintaining the personalized level of service from
each individual component in their network.
- CORPORATE ENTITIES--Our CHOICE Web sites enable any business to provide
its employees health and wellness information through corporate intranets
and extranets. By providing information for health and wellness programs,
businesses may be able to lower their direct healthcare costs, reduce sick
days and increase worker productivity.
- COLLEGES AND UNIVERSITIES--Students, faculty and staff can use our CHOICE
Web sites to access information needed for research papers, theses,
dissertations and for information concerning their own health.
We establish co-branded Web sites customized for our CHOICE clients to
provide healthcare information from our content libraries and related services
tailored to the needs of the specific enterprise's users. Our content and
services are offered to the CHOICE client in separate modules so that the
enterprise client can choose to have all or individual segments of our content
libraries and services available through its CHOICE Web site. The three basic
content modules divide our content libraries into:
- a professional series, which offers clinically oriented content such as
MEDLINE;
- a patient series, which includes 3,000 different condition-specific
informational brochures; and
- a consumer series, featuring general introductory magazine articles from
our Healthy Living Webzines.
We are continually developing additional service modules for our CHOICE
clients. For example, we recently added the following new module options:
- PRINTING MODULE FOR PATIENT BROCHURES. Allows printing of customized
patient information brochures using content from our content libraries
with a signature look and feel unique to the specific CHOICE customer,
using customized headers and footers, including organization name, logo,
physician name, contact information and other appropriate information.
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- RESOURCE LOCATOR MODULE, WITH CONTENT SENSITIVE LINKS. Allows information
retrieval on any of the hospital's physicians, facilities, special
services or programs, using the hospital's or independent information
databases, such as OneSource, a database of physicians.
We further customize the CHOICE Web site by designing it to be a seamless
component of the enterprise's existing Web site. We have developed a number of
templates for CHOICE Web site design from which we are able to conform the
design with the enterprise's own Web site. Because we use a standard format for
our content and have developed flexible Web site templates, we are generally
able to bring CHOICE Web sites online within 10 to 15 business days of signing
an agreement with a CHOICE client.
To date, we have sold CHOICE Web sites under agreements that provide for a
development, implementation fee and hosting fees to be paid by the enterprise
client for a term of one to three years. As of June 30, 1999, we had delivered
17 co-branded CHOICE Web sites providing health information to hospitals,
including Swedish Medical Center (Seattle, Washington), St. Joseph's Hospital, a
unit of Carondelet Health Systems (Kansas City, Missouri) and Winchester
Hospital (Winchester, Massachusetts), and one university, Indiana State
University (Terre Haute, Indiana). The CHOICE client can also choose to
participate in advertising and sponsorship and e-commerce opportunities for its
CHOICE Web site. The revenue from these opportunities is allocated between the
CHOICE client and us. We have sold most of our initial CHOICE Web sites on a
promotional basis, under which we guarantee certain amounts of advertising and
sponsorship revenue to these CHOICE sites, generally in amounts equal to the
fees to be paid by these customers. We intend to market our CHOICE Web site
product to additional target enterprise clients including Integrated Delivery
Networks and corporate entities, but have not yet sold a CHOICE Web site to
either of these target client groups.
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The following is an example of Web pages from a CHOICE Web site we developed
and host for Hallmark Health.
[Screen shots of co-branded CHOICE Web site, with the following captions:
Co-branded CHOICE site designed for Hallmark Health, Malden,
Massachusetts.
Professionals can access databases, reference materials, the latest news
and CME courses to assist in patient care and in research.
Patients can search 3,000 different brochures for information on
specific, illnesses and conditions.
Health-conscious consumers can access HealthGate's Webzines to help them
lead a healthier lifestyle.]
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CONTENT SYNDICATION
We selectively syndicate portions of our content libraries to other
high-traffic, health-related Web sites pursuant to licensing agreements. Through
syndication, we are able to drive additional traffic to the HealthGate Network
in order to further increase awareness of the HealthGate brand and develop
additional advertising, sponsorship and e-commerce revenue opportunities. Our
name, embedded with a link to our www.healthgate.com Web site, is displayed on
each page viewed by the user accessing our syndicated content through third
party Web sites. In addition to generating revenue from licensing fees for the
syndication of our content, most of these syndication arrangements provide for
sharing advertising and sponsorship revenue generated through these Web sites.
To date, however, we have only realized revenue from these licensing fees and
have not recognized any revenue from advertising and sponsorship or e-commerce
on these Web sites. Presently, we have syndication affiliations with WebMD,
Inteli-health, America's Health Network, the American Medical Association and
MedCast. For the six months ended June 30, 1999, our content syndication
arrangement with WebMD, which is scheduled to run through October 1999,
accounted for 13% of our total revenue.
ACTIVEPRESS SERVICE FOR PUBLISHERS
Our activePress service, which was launched in 1998, provides a full service
Web-based solution to publishers and other parties that wish to offer Web-based
access to print materials or databases. Through this service, healthcare
publishers can reach an Internet audience through Web sites that we develop and
host. The activePress service utilizes our existing technology platform and
expertise to develop and host Web sites, convert the publisher's information for
the Internet and link the published information with relevant databases, such as
MEDLINE, enabling the publisher to deliver an enhanced electronic version of the
print publication to subscribers, institutions and authorized third parties. As
a result of these relationships, we also hold Web hosting rights to these
publications, requiring anyone seeking an online article from one of these
journals to access the publication either through the activePress enabled site
or through the HealthGate Network.
activePress service revenue includes fees for converting, hosting and
storing information and providing development, support and maintenance.
Additionally, transactional revenue is derived from fees associated with users'
access to the publisher's content. These fees, which may be paid by the user or
the publisher, are derived on a per subscriber, per page or per article basis.
Blackwell Science and Massachusetts Medical Society, the publisher of the
NEW ENGLAND JOURNAL OF MEDICINE, are currently clients of our activePress
service. See "--Strategic Affiliations."
ADVERTISING AND SPONSORSHIP
The depth and breadth of our content and the variety of our distribution
channels developed for specific audiences of healthcare consumers offer
advertisers and sponsors opportunities to target their messages to particular
user groups. Advertisers may target groups by demographics such as gender and
geographic location or advertise more broadly to the general population of
health information users. The HealthGate Network's underlying technology
platform recognizes a wide range of information about individual users. This, in
turn, allows us to selectively target banner advertisements to users viewing
specific topics or content sources. For example, we can place a banner
advertisement for Tylenol on all users' screens searching our content for
information on headaches. We also intend to offer advertisers the opportunity to
employ one-to-one advertising or niche marketing. This type of advertising
allows advertisers to target individual users based on registration details,
both through banner advertising and through e-mail.
We track banner advertising impressions and click-through rates for these
advertisements and issue a NetGravity Traffic Report weekly to our advertisers.
Statistics provided to both potential and current
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advertisers about our traffic patterns are audited by Audit Bureau of
Circulation Interactive to assure accuracy.
Recent advertisers on the HealthGate Network, predominantly on our own Web
sites, have included the following pharmaceutical companies, manufacturers of
consumer and health goods, providers of health information and others.
- Pharmaceutical companies, including American Home Products (Enbrel),
Johnson & Johnson (Tylenol and Procrit), Pfizer (Zyrtec) and Biogen
(Avonex);
- Consumer health goods, including HealthShop.com (vitamins and
supplements), SelfCare (health aids), and Soma Corporation (online
drugstore);
- Providers of health information, including W.B. Saunders (books) and
MedBookStore.com (books); and
- Others, including Entrepreneur Magazine, the U.S. Air Force, the U.S.
Army, the WALL STREET JOURNAL, NextCard and Ameritrade.
In June 1999, approximately 5.1 million advertisements were displayed on our
own Web sites, approximately 1.5 million of which were sold for cash to
advertisers, approximately 127,000 of which were used to fulfill barter
arrangements and the remainder of which were used for internal marketing
purposes.
We offer sponsorship opportunities to companies that wish to target specific
topics, content sources or CHOICE Web sites. Sponsorships are designed to
support broad marketing objectives, including branding and product
introductions, generally on an exclusive basis. For example, sponsorships allow
businesses to have their name, message or products appear together with a link
to their own Web site in every page of a Healthy Living Webzine, a CHOICE Web
site or a condition specific Wellness Center. Sponsorships are sold for specific
periods of time and portions of the Web site.
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The following screen illustrates opportunities for advertising and
sponsorship within a co-branded CHOICE Web site:
[Screen shot of a co-branded CHOICE Web site, with lines indicating logo,
advertising, sponsorship and additional feature areas of the page.]
E-COMMERCE
Currently, we use e-commerce to provide portions of our licensed content,
including PsycINFO, CINAHL, the EMBASE Cardiology Consultant and full-text
journals via the activePress service on a pay per view or transaction fee basis.
In addition, we provide users the opportunity to purchase medical textbooks and
other print products from MedBookStore, a Web-based medical bookstore offered by
Medsite Publishing, and photocopies of articles not available from our
collection of full-text journals from Infotrieve, a document delivery service.
Also, users can subscribe to certain fee-based content sources on a monthly
basis.
We believe that significant opportunities exist to provide additional
healthcare related products to professionals, patients and consumers using our
technology platform and the HealthGate Network. In order to pursue these
opportunities, we are exploring options for expanding the products and services
currently offered using e-commerce.
SALES AND MARKETING
We sell our products and services through our own direct sales force and
through value added resellers. Our direct sales force consists of two teams: (1)
CHOICE Web site sales; and (2) advertising and sponsorship sales. We divide the
United States and Canada into seven direct sales regions for CHOICE Web site
sales and assign direct sales representatives to each region. Our CHOICE Web
site
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sales team consists of two groups, outside sales and inside sales. The outside
sales group is responsible for delivering focused and targeted marketing for
CHOICE Web sites, content syndication customers and other customers, increasing
consumer awareness of the HealthGate brand and establishing campaigns to develop
brand loyalty. Our inside sales group is responsible for facilitating the entire
sales process, identifying leads through telemarketing and supporting our
customers. The inside sales group's support functions include maintenance of
customer and prospect databases, online demonstration sessions, preparation of
presentations and proposals and development of relationships with current and
future clients. Our advertising and sponsorship sales efforts are conducted from
our headquarters in Burlington, Massachusetts.
In addition to our direct sales force, we have established a value added
reseller relationship with Data General. Through this relationship, we leverage
the cross selling opportunities offered by Data General's worldwide healthcare
sales force in their sales calls to their customer base of approximately 2,500
hospitals and healthcare institutions worldwide.
On June 11, 1999, we entered into a development and distribution
relationship with GE Medical Systems pursuant to which GE Medical Systems will
be able to sell our CHOICE Web site product and GE Medical Systems branded
enhanced versions of our CHOICE Web site product through its worldwide sales
force into its worldwide customer base of hospitals and other patient care
facilities. See "--Strategic Affiliations--Marketing and Distribution
Affiliations."
In Europe, our sales efforts are coordinated through our subsidiary,
HealthGate Europe, Limited, based in London. HealthGate Europe concentrates its
efforts on licensing our syndicated content to third parties and developing
additional activePress relationships.
We presently market our products and services through traditional means,
including direct mail, print advertising and telemarketing. We also use
Web-based banner advertising and sponsorship on our own Web sites, portions of
the HealthGate Network, including CHOICE Web sites, and other third-party sites,
targeted linking on the HealthGate Network and e-mail alerts to registered users
of our own Web sites. We are also considering adding radio and television
advertising to our marketing efforts.
We expect to use a portion of the net proceeds of this offering to expand
our sales and marketing efforts. See "Use of Proceeds."
CUSTOMER SERVICE
We are committed to providing a high level of service and support to our
clients and users. We believe that customer service is important to our ability
to attract and retain clients and users. We provide service and support via a
toll-free telephone number, e-mail and, on the Web site itself, through help
screens and Frequently Asked Questions (FAQ) areas. The customer service staff
includes medical librarians who are experienced in medical information
retrieval. We intend to add additional staff in the third quarter of 1999 in
order to extend customer service coverage into evening hours and weekends.
TECHNOLOGY PLATFORM
Our technology, consisting of internally developed and commercially
available software programs, is designed to leverage the benefits of modular
components so that all elements of our various content libraries and other
databases can be channeled into one unified platform. From this platform, we can
quickly and easily adapt all of this content and other data for numerous online
applications, such as: (1) standardizing the appearance of disparate content
sources; (2) integrating advertising and sponsorship; and (3) facilitating
information retrieval for our customers and users. In addition, the modular
composition of our technology platform enables us to reuse, update, scale,
extend and replace
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components as needed. As content is added to our technology platform and moves
through the various modules during processing, each individual module adds
specific and unique features and functionality to the content.
There are three specific groups of modules: (1) Content Standardization; (2)
Content Enhancement; and (3) Content Delivery. Unless otherwise noted, all
modules are either available through the HealthGate Network or through our
activePress service. We plan to integrate modules presently available only
through our activePress service into the HealthGate Network.
CONTENT STANDARDIZATION
CONTENT NORMALIZATION. The content normalization module converts original
content, regardless of format supplied by the content provider, into a single,
consistent Extensible Markup Language (XML) format. XML is a markup language
used to identify structures and their roles within a document. For example,
words within a document are classified as structures. The specific words in the
document's footnotes are indicative of the role these words, or structures, have
in the document. Meta-information, or information describing the content
supplied by the provider, is retained. However, this module adds additional
tagging to the provider-supplied meta-information for use in the searching,
topics and dynamic formatting modules. The use of XML in the content
normalization module enables us to offer, through other modules, multiple
product offerings with different features, while using the same content from the
same repository.
CONTENT ANALYSIS. The content analysis module attaches value-added
information to content. For example, footnotes, endnotes or bibliographies from
journal articles are linked to abstracts or more detailed information found in
other content sources such as MEDLINE. Features under development include the
linking of drug trade names to a pharmaceutical source, identifying company
names and providing appropriate links to other sources and associating content
with various conditions, illnesses or related topics.
CONTENT MATCHING. The content matching module integrates three separate
databases enabling them to interact and relay information to each other as a
user moves through our various content sources. The different databases are
Users, Content Sources and Usage. The content matching module tracks individual
users (Users) through the HealthGate Network, recording what content they use
(Content Source), and recording the transaction for later use (Usage).
CONTENT ENHANCEMENT
AUTHENTICATION, ACCESS CONTROL AND E-COMMERCE. The authentication, access
control and e-commerce module confirms a user's identity, allows the user access
to the various content sources and records any transaction or usage for that
user. This module is analogous to a content store, offering access to content on
a fee per use basis. These sales can be via a one-time credit card transaction
or through institutional access. This module allows us to package content
through different methods to different user groups using various pricing models.
For example, information from a particular journal can be sold to the user by
year, by the issue, by the article, or even by the page.
SEARCHING. The searching module, using our ReADER search software that
provides a natural language searching tool, enables professionals, patients and
consumers access to content without regard for the level of their expertise,
knowledge of medical terms, or knowledge of specific database searching
commands. For example, if a user searches the MEDLINE database for the common
concept "CAT Scan," the ReADER tool would translate that phrase into a search
for the medical term "Tomography, X-Ray Computed" yielding more relevant
results.
TOPICS. The topics module creates topic hierarchies or organizes specific
content for the professionals, patients, or consumers according to pre-defined
algorithms. Topics are created using both
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searching and keyword technologies. Patient and consumer topics are organized by
medical condition. Professional topics are organized by medical specialty.
Topics allow for quick access to the latest information without requiring the
user to search multiple content sources.
ADVERTISING. The advertising module enables us to target specific
advertisements to individuals or groups based on demographic information, user
registration, or specific content sources. For example, a user searching for
information on headaches could be shown an advertisement for Tylenol. This
module also handles scheduling of advertisements, reporting of results to
advertisers and the placement and screening of advertisements.
PERSONALIZATION. The personalization module enables content to be
customized for the individual user. Among the features provided through this
module are user-managed subscriptions and commerce, e-mail updates and saved
searches. A new feature under development will allow a user to create a
customized Web page displaying only information based upon a user provided
profile. Personalization is currently available through our activePress service
and is being integrated into the HealthGate Network.
RELEVANT INFORMATION LINKING. The relevant information linking module
enables dynamic cross-referencing or linking among related content and features.
For example, content targeted for the physician can be linked to corresponding
patient education materials, enabling the physician to produce a customized
brochure handout, written specifically for the patient, without accessing
multiple content sources.
COMMUNITY BUILDING. Currently under development, the community building
module will enable users to interact and establish relationships with other
users possessing similar health-oriented interests. For example, discussion
groups can be formed around specific conditions, individual journal articles, or
treatment options. An option currently available called "Send to a Friend"
enables users to send e-mail, with a link to a specific article from content
available from HealthGate, to friends or colleagues.
ADAPTIVE PROFILING. Currently under development, the adaptive profiling
module modifies what a user sees or is alerted to based upon the user's
behavior, usage of a particular content source and navigation by the user
through the site.
CONTENT DELIVERY
DYNAMIC FORMATTING. The dynamic formatting module allows for active layout
of content for presentation to the user. Formatting can be based upon a specific
user's registration information, the type of content the user is viewing, the
CHOICE Web site and access point. The utilization of Extensible Style Language
(XSL) allows for quick and efficient formatting modifications. For example, XSL
converts or transforms information stored in XML into other data formats, such
as Hypertext Markup Language (HTML), used to construct most Web pages. This
module gives us the option of having multiple product offerings with different
features, while using the same content from the same repository.
COMPETITION
The market for Internet services and products is relatively new, intensely
competitive and rapidly changing. With no substantial barriers to entry, over
15,000 Web sites presently offer users healthcare content and products and
services, and we expect that competition will continue to grow. We compete,
directly and indirectly, for subscribers, consumers, content and service
providers, advertisers, sponsors and acquisition candidates with a variety of
companies from traditional healthcare print publishers and distributors, to
health focused and general Web sites, to large healthcare information systems
companies.
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Many of our competitors enjoy significant competitive advantages including:
greater resources that can be devoted to the development, promotion and sale of
their products and services; longer operating histories; greater brand
recognition; and larger customer bases.
We believe that the principal competitive factors in our target markets are
comprehensiveness of content, integration with existing technologies, brand name
recognition, performance, ease of use, pricing, features and quality of support.
We also believe that we are the only provider among our competitors to serve all
of our target markets and that the combination of the depth and breadth of our
content libraries and the flexibility of our technology platform allows us to
compete favorably in each of our target markets. See "Risk Factors--We face
intense competition in providing our Internet-based healthcare information
products and services and we may not be able to compete effectively."
We syndicate portions of our content to other competing health related Web
sites, including WebMD and Inteli-health. We believe that the benefits of
content syndication, including additional traffic to the HealthGate Network,
increased awareness of the HealthGate brand and additional advertising and
sponsorship and e-commerce opportunities, outweigh the disadvantages of a
potential increase in competition that may result from our content syndication
to these competitors. See "Business--HealthGate's Products and Services--Content
Syndication."
GOVERNMENTAL REGULATION
Currently, there are a number of laws that regulate communications or
commerce on the Internet. Federal, state, local and foreign governments and
agencies are considering laws and regulations that address issues such as user
privacy, pricing, online content regulation, taxation and the characteristics
and quality of online products and services. In addition, several
telecommunications carriers have petitioned the Federal Communications
Commission to regulate Internet service providers and online service providers
in a manner similar to long distance telephone carriers and to impose access
fees on these providers. Regulation of this type, if imposed, could
substantially increase the cost of communicating on the Internet.
Internet user privacy has become an issue both in the United States and
abroad. The Federal Trade Commission and government agencies in some states and
countries have been investigating certain Internet companies regarding their use
of personal information. Any regulations imposed to protect the privacy of
Internet users may affect the way in which we currently collect and use personal
information.
As is typical with most Web sites, our Web sites place "cookies" on a user's
hard drive without the user's knowledge or consent. This technology enables Web
site operators to target specific users with a particular advertisement and to
limit the frequency with which a user is shown a particular advertisement.
Certain currently available Internet browsers allow users to modify their
browser settings to remove cookies at any time or to prevent cookies from being
stored on their hard drives. If this technology is reduced or limited, the
Internet may become less attractive to advertisers and sponsors.
It may take years to determine the extent to which existing laws related to
issues such as intellectual property ownership and infringement, libel,
obscenity and personal privacy are applicable to the Internet and for new laws
to be adopted. Any new laws or regulations relating to the Internet, or the
application or interpretation of existing laws, could slow the growth in the use
of the Internet, decrease demand for our Web sites or otherwise materially
adversely affect our business. See "Risk Factors--Government regulation of the
Internet may result in increased costs of using the Internet which could
adversely affect our business," "--Privacy-related regulation of the Internet
could adversely affect our business," "--Tax treatment of companies engaged in
Internet commerce may adversely affect the Internet industry and our company"
and "--We may be subject to liability for claims that the distribution of
medical information to consumers constitutes practicing medicine on the
Internet."
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INTELLECTUAL PROPERTY
We regard our intellectual property as important to our business, and we
rely upon trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with our employees, customers,
strategic partners and others to protect our rights in this property. Effective
trademark, copyright and trade secret protection may not be available in every
country in which our products and media properties are distributed or made
available through the Internet. Therefore, we can not guarantee that the steps
we have taken to protect our proprietary rights will be adequate to prevent
infringement or misappropriation by third parties or will be adequate under the
laws of some foreign countries which may not protect our proprietary rights to
the same extent as do the laws of the United States.
We license almost all of our content from third parties. Although under most
of our license agreements, the licensor has agreed to defend and indemnify us
for losses with respect to third-party claims that the licensed content
infringes third-party proprietary rights, we can not assure you that these
provisions will be adequate to protect us from infringement claims.
We also rely on a variety of technologies that are licensed from third
parties, including our database and Internet server software, which is used for
our Web sites to perform key functions. These third-party licenses may not be
available to us on commercially reasonable terms in the future. The loss of or
inability to maintain any of these licenses could delay the introduction of
software enhancements, interactive tools and other features until equivalent
technology can be licensed or developed. See "Risk Factors--Our business may
suffer if we are not able to effectively protect our intellectual property
rights."
EMPLOYEES
As of June 30, 1999, we had a total of 73 full-time employees. Of these
employees, 38 serve in research and development, 8 serve in administration and
27 serve in sales and marketing. None of our employees is represented by a labor
union. We consider our relations with employees to be good.
FACILITIES
Our principal executive offices are located in Burlington, Massachusetts, in
approximately 20,600 square feet of space occupied under a lease which expires
on June 30, 2000. We have an option to lease the space for an additional five
year term. In addition to the Burlington space, our central computer facility is
located at an Exodus Communications, Inc. Internet Data Center in Waltham,
Massachusetts. We believe that current space is adequate and that additional
space is available for expansion if needed.
LEGAL PROCEEDINGS
We are not currently a party to or aware of any material legal proceedings
involving us.
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MANAGEMENT
The following table sets forth certain information regarding our executive
officers, key employees and directors as of June 30, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------------ --- ---------------------------------------------------
<S> <C> <C>
William S. Reece...................................... 33 Chairman of the Board of Directors, President and
Chief Executive Officer
Mary B. Miller........................................ 41 Chief Financial Officer and Treasurer
Mark A. Israel........................................ 30 Chief Technology Officer
Hamid Tabatabaie...................................... 37 Vice President of Sales and Marketing
Rick Lawson........................................... 40 Vice President of Content and Secretary
Tina M. H. Blair, M.D. (1)............................ 51 Director
Jonathan J. G. Conibear (1)........................... 47 Director
Edson D. de Castro (2)................................ 60 Director
David Friend (2)...................................... 51 Director
Chris H. Horgen (1), (2).............................. 52 Director
</TABLE>
- ------------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
WILLIAM S. REECE is a founder of HealthGate and has served as a member of
our board of directors and our President and Chief Executive Officer since our
inception in 1994. Mr. Reece has served as the Chairman of our board of
directors since December 1994. From June 1988 to May 1994, Mr. Reece served in
several positions, including Vice President, Sales and Marketing, Manager of
U.S. Sales and Marketing Representative at PaperChase, a medical literature
retrieval software company owned by Beth Israel Hospital in Boston.
MARY B. MILLER has served as our Chief Financial Officer and Treasurer since
April 1999. From 1998 to 1999, Ms. Miller was self-employed as a financial
consultant for small and medium sized high technology firms. From 1996 to 1998,
Ms. Miller was Vice President of Finance and Chief Financial Officer of
Multilink, Inc., a communications company. From 1988 to 1996, Ms. Miller held
several positions at Progress Software Corporation, a publicly-traded computer
software company, including Director of Finance and Administration and Chief
Accounting Officer, U.S. Controller and Assistant Controller. Ms. Miller is a
Certified Public Accountant.
MARK A. ISRAEL has served as our Chief Technology Officer since July 1997.
From September 1995 to July 1997, Mr. Israel served as a system architect and
director at Individual Inc., an Internet news company. From September 1992 to
September 1995, Mr. Israel served as a Senior Consultant at Fusion Systems
Group, a software consulting firm. From 1991 to September 1992, Mr. Israel
served as a Consultant at Cambridge Technology Partners, a software consulting
firm.
HAMID TABATABAIE has served as our Vice President of Sales and Marketing
since April 1998. From January 1998 to April 1998, Mr. Tabatabaie served as the
Chief Executive Officer of System Architects Inc., a patient educational
interaction and entertainment company he founded. From 1993 to 1997, Mr.
Tabatabaie was Chief Executive Officer of System Concepts Associates, a health
care information systems consulting and integration company that later merged
with Multimedia Medical Systems. From 1990 to 1993, Mr. Tabatabaie served as
national health care sales director for Data General Corporation.
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RICK LAWSON is a founder of HealthGate and has served as our Vice President
of Content and Secretary since November 1994. From November 1987 to November
1994, Mr. Lawson served in several positions, including Vice President, Account
Services/Operations, Director of User Services and Manager of Customer Service
at PaperChase, a medical literature retrieval software company owned by Beth
Israel Hospital in Boston.
TINA M. H. BLAIR, M.D. has served as a member of our board of directors
since March 1995. Since 1995, Dr. Blair has served as a partner and Director of
Emergency Medicine for Emergency Medical Associates of New Jersey, based at
Mountainside Hospital in Montclair, New Jersey. From 1992 to 1995, Dr. Blair
served as a physician on the staff at Addison Gilbert Hospital in Gloucester,
Massachusetts.
JONATHAN J. G. CONIBEAR has served as a member of our board of directors
since December 1996. Since 1986, Mr. Conibear has served as Executive Director
of Blackwell Science, Ltd., the largest publisher of medical societies' journals
and one of the world's largest medical publishers, with headquarters in Oxford,
UK. From 1985 to 1997, Mr. Conibear had other responsibilities with Blackwell
Science, including President, Blackwell Science Inc., Blackwell's U.S.
subsidiary, Chair, Blackwell's Asian subsidiary, and Sales Director. From 1974
to 1985, Mr. Conibear served in various positions with Oxford University Press.
EDSON D. DE CASTRO has served as a member of our board of directors since
December 1994. Since 1997, Mr. de Castro has been a self-employed business
consultant. From 1992 to 1997, Mr. de Castro was Chairman of Xenometrix, Inc., a
biotechnology company. From 1989 to 1990 Mr. de Castro was Chairman of the Board
of Directors of Data General Corporation. From 1968 to 1989, Mr. de Castro
served as President and Chief Executive Officer of Data General. Mr. de Castro
is a director of Boston Life Sciences, Inc., a biotechnology company, AVAX
Technologies, Inc., a biopharmaceutical company, and of UOL Publishing Inc., a
publisher of educational courseware for Internet training programs. Mr. de
Castro is also a trustee of Boston University and a Member of the Visiting
Committee of Clark University School of Management. Mr. de Castro is also a
Member of the Corporation of Partners Healthcare System Inc.
DAVID FRIEND has served as a member of our board of directors since April
1995. Since 1995, Mr. Friend has also served as Chairman of the Board of
Directors of FaxNet Corp., a provider of messaging services to the
telecommunications industry. During 1994 and 1995, Mr. Friend served as a
lecturer at Massachusetts Institute of Technology. From 1983 to 1994, Mr. Friend
served as Chairman of the board of directors of Pilot Software, an international
software firm. Mr. Friend is also a Director of Nichols Research Corporation, a
publicly-traded information technology company.
CHRIS H. HORGEN has served as a member of our board of directors since
October 1995. Since 1991, Mr. Horgen has served as Chairman of the Board of
Directors and Chief Executive Officer of Nichols Research Corporation, a
publicly-traded information technology company. From 1976 to 1997, Mr. Horgen
also served in a number of other positions with Nichols Research, including
Chief Executive Officer, Co-Chairman of the board of directors, and Executive
Vice President. Mr. Horgen is also a Director of South Trust Bank of Alabama,
N.A.
Executive officers of HealthGate are elected by the board of directors on an
annual basis and serve at the pleasure of the board of directors. There are no
family relationships among any of our executive officers or directors.
Pursuant to an amended and restated stockholders agreement, which will
terminate upon the closing of this offering, stockholders owning a majority of
our outstanding shares have agreed to elect as directors (1) a designee of GE
Capital Equity Investments, (2) two designees of our founders, William S. Reece,
Rick Lawson and Barry Manuel, (3) two designees of the holders of Series A
preferred stock, and (4) one designee of the holders of Series B preferred
stock. Mr. Reece and
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Mr. de Castro are the founders' designees; Mr. Friend and Dr. Blair are the
Series A holders' designees; and Mr. Horgen is the Series B holders' designee.
To date, GE Capital Equity Investments has not designated a person to serve as a
director.
In connection with its purchase of shares of our Series E preferred stock,
GE Capital Equity Investments, Inc. obtained the right, which it has not
exercised, to appoint a director to our board of directors. Additionally, we
have agreed that effective with the closing of a public offering of our common
stock, unless waived by GE Capital Equity Investments, we will nominate and
recommend for election as a director a designee of GE Capital Equity
Investments.
CLASSIFIED BOARD OF DIRECTORS
Our amended and restated certificate of incorporation and bylaws provide
that the size of the board shall be determined by resolution of the board. The
board is currently composed of six members.
Our stockholders have approved an amended and restated certificate of
incorporation that will take effect upon the closing of this offering and will
include a provision to establish a classified board of directors. Upon the
closing of this offering, our board of directors will be divided into three
classes. One class of directors will be elected each year at the annual meeting
of stockholders for a term of three years. Dr. Blair and Mr. Friend will serve
in the class whose term expires at the annual meeting of stockholders in 2000;
Mr. Horgen and Mr. Conibear will serve in the class whose term expires at the
annual meeting of stockholders in 2001; and Mr. Reece and Mr. de Castro will
serve in the class whose term expires at the annual meeting of stockholders in
2002. All directors will hold office until their successors have been duly
elected and qualified.
BOARD COMMITTEES
We have established an Audit Committee and a Compensation Committee.
AUDIT COMMITTEE. The Audit Committee consists of Messrs. de Castro, Friend
and Horgen. The Audit Committee's primary responsibilities are to assist the
board of directors by making recommendations to the board regarding the
selection of independent auditors, reviewing the results and scope of the audit
and other services provided by our independent auditors, and reviewing our
balance sheet, statement of operations and cash flows.
COMPENSATION COMMITTEE. The Compensation Committee consists of Dr. Blair
and Messrs. Conibear and Horgen. The Compensation Committee makes
recommendations to the board concerning salaries and incentive compensation for
our employees and consultants, including all executive officers and the Chief
Executive Officer.
DIRECTOR COMPENSATION
Directors of HealthGate who are also our employees will not receive
additional compensation for serving as directors. As compensation for their
services in 1996 through 1998, in December 1996, each of our non-employee
directors was granted stock options for the purchase of 34,230 shares of our
common stock under our 1994 Stock Option Plan. These options have an exercise
price of $1.01 per share, vested in three equal annual installments in 1996,
1997, and 1998 and expire in December 2001.
As compensation for their services in 1999 through 2001, in January 1999,
each of our non-employee directors was granted stock options for the purchase of
11,410 shares of our common stock under our 1994 Stock Option Plan. These
options have an exercise price of $0.77 per share, vest in three equal annual
installments in January 1999, 2000 and 2001 based on continuing service as a
director through each applicable period and expire in January 2004.
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<PAGE>
In addition, Mr. de Castro was granted options to purchase an additional
11,410 shares of our common stock in November 1997 for consulting services he
rendered to us after the option grant date and prior to December 31, 1998. This
option has an exercise price of $0.43 per share, fully vested during 1998 and
expires in November 2002.
Our directors do not receive cash remuneration for their services as
directors. We currently reimburse our non-employee directors for the
out-of-pocket expenses they incur in connection with rendering services as
directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serves as a member of the board of directors
or compensation committee of any entity that has one or more of its executive
officers serving as a member of our board of directors or Compensation
Committee. Our Compensation Committee currently consists of Dr. Blair and
Messrs. Conibear and Horgen, none of whom has ever been an officer or employee
of HealthGate.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to or earned during the
year ending December 31, 1998 by our Chief Executive Officer and our two other
most highly compensated executive officers (the "Named Executive Officers")
whose total salary and bonus exceeded $100,000 for services rendered to
HealthGate in all capacities during 1998. No executive officer who would
otherwise have been included in such table on the basis of salary and bonus
earned for fiscal year 1998 has resigned or otherwise been terminated as of the
date of this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------
ANNUAL COMPENSATION SECURITIES
----------------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION ($)
- -------------------------------------------- --------- ----------- ----------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
William S. Reece............................ 1998 138,583 66,500(1) 296,660(2) --
President and Chief
Executive Officer
Mark A. Israel.............................. 1998 126,000 32,000(1) 136,920 --
Chief Technology Officer
Hamid Tabatabaie(3)......................... 1998 151,846 -- 187,124 --
Vice President of Sales and Marketing
</TABLE>
- ------------------------
(1) Represents amounts awarded in January 1999 for bonuses earned in 1998.
(2) Excludes a non-incentive stock option granted in January 1998 for 45,640
shares of our common stock, awarded as a bonus for services rendered in 1996
and 1997.
(3) Mr. Tabatabaie was elected by the board of directors to serve as Vice
President of Sales and Marketing on May 22, 1998. Mr. Tabatabaie's 1998
salary includes commissions and reflects compensation earned from April
through December 1998.
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OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1998
The following table sets forth information concerning the individual grants
of stock options to each of the Named Executive Officers during the fiscal year
ending December 31, 1998. All options were granted under our 1994 Stock Option
Plan.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL
-------------------------------------------- RATES OF STOCK PRICE
NUMBER OF PERCENT OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS GRANTED TO OPTION TERM (1)
UNDERLYING OPTIONS EMPLOYEES IN FISCAL EXERCISE EXPIRATION ----------------------
NAME GRANTED (#) YEAR(%)(2) PRICE($/SH) DATE 5%($) 10%($)
- -------------------- ------------------- ----------------------- ------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
William S. Reece.... 342,300(3) 36.0 1.635 1/23/03 $ 154,466 $ 341,953
Mark A. Israel...... 136,920 14.4 1.635 1/23/03 $ 61,787 $ 136,781
Hamid Tabatabaie.... 187,124 19.7 0.657 5/22/03 $ 33,932 $ 75,117
</TABLE>
- ------------------------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date. These assumptions are not intended to forecast future
appreciation of our stock price. The potential realizable value computation
does not take into account federal or state income tax consequences of
option exercises or sales of appreciated stock. The actual gains, if any, on
the stock option exercises will depend on the future performance of the
common stock, the optionee's continued employment through applicable vesting
periods and the date on which the options are exercised and the underlying
shares are sold.
(2) In 1998, we granted options to employees to purchase an aggregate of 951,594
shares of common stock.
(3) Includes a non-qualified option for 45,640 shares fully vested upon grant
and an incentive stock option for 296,660 shares, 1/3 of which vested on
January 23, 1999, 1/3 of which will vest on January 23, 2000, and the
remaining 1/3 of which will vest on January 23, 2001, subject to Mr. Reece's
continuing employment with HealthGate.
AGGREGATED OPTION EXERCISES IN 1998
AND 1998 YEAR-END OPTION VALUES
The following table sets forth certain information with respect to the
number and value of unexercised options held by the Named Executive Officers on
December 31, 1998. None of the Named Executive Officers exercised stock options
in 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS AT
AT FISCAL YEAR-END(#) FISCAL YEAR-END($)(1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William S. Reece.......................................... 45,640 296,660 $ 427,419 $ 2,778,221
Mark A. Israel............................................ 47,465 232,080 $ 444,510 $ 2,173,429
Hamid Tabatabaie.......................................... 0 187,124 -- $ 1,935,424
</TABLE>
- ------------------------
(1) There was no public trading market for the common stock on December 31,
1998. Accordingly, for purposes of this table, the values in these columns
have been calculated assuming an initial public offering price of $11.00 per
share (rather than a determination of the fair market value of the common
stock on December 31, 1998), less the aggregate exercise price of the
options.
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<PAGE>
EMPLOYEE BENEFIT PLANS
1994 STOCK OPTION PLAN. Our 1994 Stock Option Plan was adopted by the board
of directors and approved by the stockholders in June 1994. The 1994 Stock
Option Plan provides for the grant of "incentive stock options" intended to
qualify under Section 422 of the Internal Revenue Code and stock options that do
not so qualify. The granting of incentive stock options is subject to the
limitations set forth in the 1994 Stock Option Plan. Our directors, officers,
employees and consultants are eligible to receive grants under the 1994 Stock
Option Plan. The purpose of the 1994 Stock Option Plan is to promote the
interests of HealthGate and our stockholders by encouraging and enabling
eligible employees and other persons affiliated with HealthGate to acquire stock
in HealthGate. We believe that the granting of options will stimulate the
efforts of these persons, strengthen their desire to remain with HealthGate,
provide them with more aligned interests in HealthGate's success and assure a
closer identification between them and HealthGate.
The 1994 Stock Option Plan is administered by our board of directors, which,
subject to the limitations on incentive stock options discussed above, has
authority to determine the optionees, the number of shares covered by an option,
the option exercise price, the term of the option, the vesting schedule and
other terms and conditions. The 1994 Stock Option Plan provides for the grant of
options covering up to 2,966,600 shares of common stock. If an option expires,
terminates or is forfeited for any reason during the term of the 1994 Stock
Option Plan without having been exercised in full, the shares subject to the
unexercised portion of such option will again be available for grant pursuant to
the 1994 Stock Option Plan.
As of June 30, 1999, options for a total of 2,118,919 shares of common stock
are outstanding under the 1994 Stock Option Plan. In addition, 28,958 shares of
common stock have been purchased pursuant to exercises of options. A total of
818,723 shares remain available for issuance under the 1994 Stock Option Plan.
401(K) PLAN. We have established a tax-qualified employee savings and
retirement plan, or the 401(k) Plan, which covers all of our full-time employees
who have completed three months of service. Under the 401(k) Plan, eligible
employees may defer up to 15% of their pre-tax earnings, subject to the Internal
Revenue Service's annual contribution limit. The 401(k) Plan permits additional
discretionary matching contributions by us on behalf of all participants in the
401(k) Plan in such a percentage amount as may be determined annually by the
board of directors. To date, we have made no matching contributions. The 401(k)
Plan is intended to qualify under Section 401 of the Internal Revenue Code so
that contributions by employees or by us to the 401(k) Plan, and income earned
on plan contributions, are not taxable to employees until withdrawn from the
401(k) Plan, and so that our contributions, if any, will be deductible by us
when made. The trustee under the 401(k) Plan, at the direction of each
participant, invests the assets of the 401(k) Plan in any of a number of
investment options.
EMPLOYMENT AGREEMENT
Under an employment agreement dated October 1, 1995, HealthGate agreed to
employ Mr. Reece as Chairman of the Board, President and Chief Executive Officer
of HealthGate for a period of three years beginning on October 1, 1995, to be
automatically renewed on an annual basis, unless either party does not wish to
extend the employment agreement, in which case the agreement will terminate
three years from the applicable renewal date. Under the agreement, Mr. Reece's
minimum base salary is $110,000 per annum, subject to annual review by the board
of directors. Mr. Reece is also eligible to participate in any bonus programs we
adopt. Mr. Reece's 1998 annual base salary was $142,000, plus a bonus of
$66,500, as determined by the board of directors. Mr. Reece's 1999 annual base
salary is $200,000, and, pursuant to his employment agreement, he is eligible
for additional bonuses to be determined by the board of directors.
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<PAGE>
We may terminate Mr. Reece's employment for malfeasance, nonfeasance or
breach of the employment agreement, as determined by 75% of the board of
directors. If we terminate Mr. Reece's employment for malfeasance, nonfeasance
or breach of the employment agreement, Mr. Reece will be entitled to receive a
lump sum severance payment equal to 12 months' compensation at his then-current
base salary, the amount of any bonus paid to him in the previous contract year,
and any accrued bonus through the date of termination, plus any benefits to
which he is entitled for 12 months following the date of termination. We may
also terminate Mr. Reece's employment if Mr. Reece is convicted of a felony
involving HealthGate. If we terminate Mr. Reece's employment for conviction of a
felony involving HealthGate, Mr. Reece will not be entitled to any further
compensation under the employment agreement, except as may be required by
applicable law.
In addition, Mr. Reece may elect to terminate the employment agreement for
good reason or following a change in control of HealthGate. In the event of an
election for good reason or change in control, Mr. Reece will be entitled to a
lump sum severance payment equal to 12 months' compensation at his then-current
base salary, any accrued bonus through the date of election, plus any benefits
to which he is entitled for 12 months following the date of election.
We do not have employment agreements with any of our other employees or
executive officers.
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<PAGE>
CERTAIN TRANSACTIONS
Pursuant to the terms of various leases, ranging in terms from at-will to
two years, in 1996, 1997 and 1998, we leased our main offices in Malden,
Massachusetts from Leonard School Associates, Inc., the owner of these offices
until December 1998. Pursuant to these leases, in 1996 we paid rent of
approximately $58,000, in 1997 we paid rent of approximately $84,000 and in 1998
we paid rent of approximately $89,000. Leonard School Associates is owned in
part by Barry M. Manuel, M.D. Dr. Manuel holds options to purchase 25,558 shares
of our common stock, and holds, for himself and through trusts for which he is
the trustee and has sole voting power, an aggregate of 1,369,200 shares of our
common stock. Dr. Manuel is also the father-in-law of William S. Reece, our
Chairman, President and Chief Executive Officer.
In March 1998, we entered into an Electronic Journal Software Development
and Management Agreement with Blackwell Science. Blackwell Science is the
holder, together with Blackwell Wissenshafts-Verlag GmbH, a wholly-owned
subsidiary of Blackwell Science, of all of our issued and outstanding Series D
Convertible Preferred Stock, and Jonathan Conibear, one of our directors, is an
Executive Director of Blackwell Science. Pursuant to this agreement, we have
agreed to develop and host through February 28, 2000, a Web site for Blackwell
Science's journals and other publications. We completed the development of this
Web site in 1998. Blackwell Science has paid a total of $1,050,000 for the
development and hosting of the Web site. Total fees payable to us for continued
hosting and management of the Blackwell Science Web site during the initial term
of the agreement are expected to be approximately $350,000. During 1998 and
1997, our revenue from Blackwell Science represented 44% and 18% of our total
revenue for those respective years. In addition, pursuant to the terms of a
Stock Purchase Agreement dated as of December 20, 1996 between HealthGate and
Blackwell Science, in the event we attempt to expand into Europe or Asia, we
have agreed to negotiate in good faith with Blackwell Science to determine in
what manner Blackwell Science may serve as our primary strategic alliance
partner in connection with such expansion.
In May 1998, we purchased certain of the assets, principally computer
hardware and software and office furnishings, of Systems Architects, Inc. for
$70,000 in cash. Systems Architects, Inc. was a company owned by Hamid
Tabatabaie, our Vice President of Sales and Marketing.
In September 1998, we received a $2,000,000 convertible bridge loan from
Blackwell Science. The loan accrued interest at a rate of 12% per year. The
principal amount of this loan was converted into 174,729 Series E preferred
stock in April 1999 concurrently with, and at the same per share price as, the
private placement of Series E preferred stock to GE Capital Equity Investments,
Inc. Upon conversion, all accrued and unpaid interest due on this loan was paid
to Blackwell Science in cash.
In connection with the sale of Series B preferred stock to Nichols Research
Corporation in 1996, we agreed to use certain consulting services of Nichols
Research. In 1996, we paid Nichols Research approximately $203,000 for these
consulting services. Additionally in 1996, we paid Nichols Research
approximately $90,900 under a capital lease arrangement for computer equipment.
Nichols Research is one of our stockholders and Chris Horgen, one of our
directors, is Chairman of the Board of Directors of Nichols Research.
In April 1999, pursuant to the terms of a Stock Purchase Agreement, we
issued and sold 546,028 shares of our Series E preferred stock to GE Capital
Equity Investments for an aggregate consideration of $6,250,000 in cash.
In June 1999, we entered into a development and distribution agreement with
GE Medical Systems pursuant to which we will develop GE Medical Systems branded
enhanced versions of our CHOICE Web site product. In connection with this
agreement, we issued to General Electric Company a warrant for the purchase of
up to 1,369,200 shares of our common stock. The warrant has a term of five
years, an exercise price of $8.25 per share (subject to an adjustment in the
event that the initial public offering price is below $8.25) and is immediately
exercisable. GE Capital Equity Investments, Inc., a stockholder of HealthGate is
an affiliate of General Electric Company.
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<PAGE>
\
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of June 30, 1999 and as adjusted to reflect the
sale of the shares of common stock offered hereby by: (a) each person who we
know owns beneficially more than 5% of our common stock; (b) each of our
directors; (c) each of the Named Executive Officers; and (d) all of our
directors and executive officers as a group. Unless otherwise indicated, the
mailing address for each person and business entity listed below is c/o
HealthGate Data Corp., 25 Corporate Drive, Suite 310, Burlington, MA 01803.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY OWNED
(1)
SHARES --------------------------
BENEFICIALLY BEFORE THE AFTER THE
BENEFICIAL OWNER OWNED OFFERING OFFERING
- ------------------------------------------------------------------------------- ----------- ------------- -----------
<S> <C> <C> <C>
General Electric Company(2).................................................... 3,861,271 25.2% 19.4%
2135 Easton Turnpike
Fairfield, CT 06431
William S. Reece (3)........................................................... 2,403,630 17.1 12.9
Blackwell Science, Ltd. (4).................................................... 2,364,877 16.9 12.7
Oxney Mead, Oxford
OX2 0EL, United Kingdom
Jonathan J. G. Conibear (5).................................................... 2,364,877 16.9 12.7
Chris H. Horgen (6)............................................................ 2,145,349 15.4 11.6
Nichols Research Corporation................................................... 2,107,317 15.1 11.4
4040 Memorial Parkway, S.
Huntsville, AL 35802
Barry M. Manuel, M.D. (7)...................................................... 1,394,758 10.0 7.5
65 Wellesley Road
Belmont, MA 02478
Rick Lawson (8)................................................................ 958,440 6.9 5.2
David Friend (9)............................................................... 494,116 3.5 2.7
Tina M. H. Blair, M.D. (9)..................................................... 397,533 2.8 2.1
Edson D. de Castro (10)........................................................ 150,078 1.1 *
Mark A. Israel (11)............................................................ 140,570 1.0 *
Hamid Tabatabaie (12).......................................................... 62,527 *
Executive officers and directors as a group (8 persons) (13)................... 8,158,680 56.1% 42.6%
</TABLE>
- ------------------------
* Less than one percent of outstanding shares.
(1) Percentage ownership is based on 13,923,264 shares outstanding as of June
30, 1999. Shares of common stock subject to options and warrants currently
exercisable or exercisable within 60 days of June 30, 1999 are deemed
outstanding for the purpose of computing the percentage ownership of the
person holding such options but are not deemed outstanding for computing the
percentage ownership of any other person. Unless otherwise indicated below,
the persons and entities named in the table have sole voting and sole
investment power with respect to all shares beneficially owned, subject to
community property laws where applicable.
(2) Includes 1,369,200 shares issuable pursuant to a warrant granted to General
Electric Company in connection with our development and distribution
agreement with GE Medical Systems, an operating unit of General Electric
Company, and 2,492,071 shares owned by GE Capital Equity Investments, Inc.,
a wholly-owned subsidiary of General Electric Capital Corporation and an
affiliate of General Electric Company. GE Capital Equity shares beneficial
ownership of the 2,492,071 outstanding shares with General Electric Capital
Corporation and GE Medical Systems with respect to all shares held of record
by GE Capital Equity.
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<PAGE>
(3) Includes 144,450 shares of common stock issuable upon the exercise of stock
options.
(4) Includes 38,031 shares of common stock issuable upon the exercise of stock
options and 67,140 shares owned by Blackwell Wissenschafts-Verlag GmbH, a
wholly-owned subsidiary of Blackwell Science.
(5) Includes 38,031 shares of common stock issuable to Blackwell Science upon
the exercise of stock options, 2,020,418 shares of common stock owned by
Blackwell Science and 304,626 shares owned by Blackwell Wissenschafts-Verlag
GmbH. Mr. Conibear is Executive Director of Blackwell Science. Mr. Conibear
disclaims beneficial ownership of all shares issuable to or owned, directly
or indirectly, by Blackwell Science.
(6) Includes 38,031 shares of common stock issuable to Mr. Horgen, individually,
upon exercise of stock options and 2,107,317 shares of common stock owned by
Nichols Research Corporation. Mr. Horgen is Chairman of the board of
directors of Nichols Research Corporation. Mr. Horgen disclaims beneficial
ownership of shares owned by Nichols Research.
(7) Includes 1,026,900 shares owned by Dr. Manuel, 342,300 shares held in trusts
for which Dr. Manuel serves as trustee for the benefit of his children and
grandchildren and 25,558 shares issuable to Dr. Manuel upon the exercise of
stock options. Dr. Manuel disclaims beneficial ownership of the 342,300
shares held in trust for the benefit of his children and grandchildren.
(8) Includes 45,640 shares of common stock issuable upon exercise of stock
options.
(9) Includes 38,031 shares of common stock issuable upon exercise of stock
options.
(10) Includes 111,055 shares of common stock issuable upon exercise of stock
options.
(11) Includes 117,750 shares of common stock issuable upon exercise of stock
options.
(12) Includes 62,527 shares of common stock issuable upon exercise of stock
options.
(13) Includes 618,339 shares of common stock issuable upon exercise of stock
options.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of HealthGate consists of:
- 20,000,000 shares of common stock, $0.01 par value per share;
- 1,000 shares of Series A Convertible Preferred Stock, par value $0.01;
- 1,000 shares of Series B Convertible Preferred Stock, par value $0.01;
- 1,000 shares of Series C Convertible Preferred Stock, par value $0.01;
- 1,667 shares of Series D Convertible Preferred Stock, par value $0.01; and
- 829,962 shares of Series E Convertible Preferred Stock, par value $0.01.
As of June 30, 1999, there were outstanding:
- 5,257,245 shares of common stock, held by 17 holders of record;
- 1,000 shares of Series A Stock, held by 16 holders of record;
- 1,000 shares of Series B Stock, held by one holder of record;
- 1,000 shares of Series C Stock, held by 22 holders of record;
- 1,667 shares of Series D Stock, held by two holders of record; and
- 720,757 shares of Series E Stock, held by two holders of record.
Effective upon the closing of this offering, the Series Stock will convert
into 8,666,019 shares of common stock.
Immediately after the closing of this offering, we will have 18,523,264
shares of common stock outstanding, assuming no exercise of options to acquire
2,372,677 additional shares of common stock or warrants to purchase 1,918,751
additional shares of common stock that are outstanding as of the date of this
prospectus.
Our amended and restated charter and our amended and restated bylaws will
each become effective upon the closing of this offering. Upon the effectiveness
of the amended and restated charter, our authorized capital stock will consist
of 100,000,000 shares of common stock, $.01 par value per share, and 10,000,000
shares of preferred stock, $.01 par value per share.
The description set forth below gives effect to the filing of the amended
and restated charter and the adoption of the amended and restated bylaws. The
following summary is qualified in its entirety by reference to our amended and
restated charter and bylaws, copies of which are filed as exhibits to the
registration statement of which this prospectus is a part.
COMMON STOCK
Holders of common stock are entitled to one vote per share for each share
held of record on all matters submitted to a vote of stockholders. Holders of
common stock do not have cumulative voting rights, and therefore the holders of
a majority of the shares of common stock voting for the election of directors
may elect all of our directors standing for election. Subject to preferences
that may be applicable to the holders of outstanding shares of preferred stock,
if any, the holders of common stock are entitled to receive dividends as may be
declared by the board of directors. In the event of a liquidation, dissolution
or winding up of our affairs, whether voluntary or involuntary, and subject to
the rights of the holders of outstanding shares of preferred stock, if any, the
holders of shares of common stock shall be entitled to receive, on a pro rata
basis, all of our remaining assets available for distribution to our
stockholders. The holders of common stock have no preemptive, redemption,
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<PAGE>
conversion or subscription rights. All outstanding shares of common stock are,
and the shares of common stock to be issued pursuant to this offering will be,
fully paid and non-assessable.
PREFERRED STOCK
The board is authorized to issue, subject to any limitations prescribed by
Delaware law, preferred stock in one or more series. At the time of issuance,
and without further vote or action by the stockholders, the board can:
- establish the number of shares to be included in each series;
- fix the powers, designations, preferences and relative participating,
optional or other special rights, and the qualifications, limitations or
restrictions thereof, of the shares of each series; and
- increase or decrease the number of shares of any series, subject to the
existing number of authorized shares of preferred stock.
The board is authorized to issue preferred stock with voting, conversion and
other rights and preferences that could adversely affect the voting power or
other rights of the holders of common stock. Therefore, although we have no
current plans to issue shares of preferred stock, the issuance of preferred
stock or of rights to purchase preferred stock could have the effect of making
it more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, a majority of the outstanding voting stock of
HealthGate.
WARRANTS
HealthGate has issued warrants to purchase an aggregate of 549,551 shares of
common stock, subject to certain antidilution adjustments. Warrants to purchase
524,632 shares have an exercise price of $0.00004 per share, may be exercised at
any time and expire in March 2008. Warrants to purchase 24,919 shares have an
exercise price of $2.51 per share, may be exercised at any time after April 20,
2000 and expire on April 21, 2002. Holders of warrants to purchase 524,632
shares of common stock are entitled to registration rights covering the shares
of common stock issuable upon exercise of these warrants. See "Shares Eligible
for Future Sale--Registration Rights."
Additionally, in connection with a development and distribution agreement
with GE Medical Systems, on June 17, 1999, HealthGate issued to General Electric
Company a warrant for the purchase of up to 1,369,200 shares of common stock
with an exercise price of $8.25 per share (subject to an adjustment in the event
that the initial public offering price is below $8.25) and is immediately
exercisable. General Electric will also have registration rights covering the
shares of common stock issuable under the warrant. See "Business--Strategic
Affiliations--Marketing and Distribution Affiliations" and "Shares Eligible for
Future Sale--Registration Rights."
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE RESTATED CHARTER AND BYLAWS
The amended and restated charter and the amended and restated bylaws contain
certain provisions that could discourage potential takeover attempts and make
more difficult attempts by stockholders to change HealthGate's management. The
amended and restated charter authorizes the board to issue, without stockholder
approval, shares of preferred stock in one or more series and to fix the voting
powers, preferences and rights and the qualifications, limitations and
restrictions of those shares. Although we have no current plans to issue
preferred stock, the issuance of preferred stock or of rights to purchase
preferred stock could make it more difficult for a third party to acquire, or
discourage a third party from attempting to acquire, a majority of our
outstanding voting stock.
The amended and restated charter also provides for the division of the board
of directors into three classes as nearly equal in size as possible with
staggered three-year terms and for removal of directors only for cause. The
classification of the board of directors and the limitation on removal of
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<PAGE>
directors only for cause could make it more difficult for a third party to
acquire, or discourage a third party from attempting to acquire, control of
HealthGate. The amended and restated charter further provides that stockholders
may act only at stockholders' meetings and not by written consent in lieu of a
stockholders' meeting. The amended and restated bylaws provide that nominations
for directors may not be made by stockholders at any annual or special meeting
unless the stockholder intending to make a nomination notifies HealthGate of its
intentions a specified number of days, generally 60, in advance of the meeting
and furnishes to HealthGate certain information regarding itself and the
intended nominee. These provisions could delay any stockholder actions that are
favored by the holders of a majority of our outstanding stock until the next
stockholders' meeting. These provisions may also discourage another person or
entity from making a tender offer for HealthGate's common stock, because that
person or entity, even if it acquired a majority of the outstanding common stock
could only take action at a duly called stockholders' meeting and not by written
consent. The amended and restated bylaws also provide that special meetings of
stockholders may be called only by the Chief Executive Officer or a majority of
the directors. In addition, a stockholder wishing to bring business before any
annual or special meeting of stockholders must give advance notice to the
corporation, generally 60 days prior to the meeting, describing the proposal and
providing information regarding all stockholders known to be supporting the
proposal, including any material interest the supporting stockholders may have
in the proposal.
LIMITATION OF LIABILITY
The amended and restated charter provides that no director will be
personally liable to HealthGate or to any stockholder for monetary damages
arising out of such director's breach of fiduciary duty, except to the extent
that the elimination or limitation of liability is not permitted by the Delaware
General Corporation Law. The Delaware General Corporation Law, as currently in
effect, permits charter provisions eliminating the liability of directors for
breach of fiduciary duty, except that directors remain liable for:
(1) any breach of the director's duty of loyalty to a company or its
stockholders;
(2) any acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
(3) any payment of a dividend or approval of a stock purchase that is
illegal under Section 174 of the Delaware General Corporation Law; or
(4) any transaction from which the director derived an improper personal
benefit.
A principal effect of this provision of the amended and restated charter is
to limit or eliminate the potential liability of our directors for monetary
damages arising from breaches of their duty of care, unless the breach involves
one of the four exceptions described in (1) through (4) above. The provision
does not prevent stockholders from obtaining injunctive or other equitable
relief against directors, nor does it shield directors from liability under
federal or state securities laws.
The amended and restated charter and the amended and restated bylaws further
provide for the indemnification of directors and officers to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law, including
circumstances in which indemnification is otherwise discretionary. HealthGate
has entered into indemnification agreements with each of its directors and
officers, pursuant to which HealthGate has agreed to indemnify such directors to
the fullest extent permitted by law for amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 18,523,264 shares of common
stock outstanding, including 8,666,019 shares of common stock issuable upon
conversion of our outstanding preferred stock (assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding options and
warrants). Of these shares, the 4,600,000 shares we are offering will be freely
tradable in the public market without restriction or further registration under
the Securities Act of 1933. However, any shares purchased by our "affiliates,"
as that term is defined in Rule 144 under the Securities Act, may generally only
be sold in compliance with the limitations of Rule 144 described below. The
remaining 13,923,264 shares of common stock outstanding upon completion of this
offering will be "restricted securities" as that term is defined in Rule 144
under the Securities Act. Restricted securities may not be sold except in
compliance with the registration requirements of the Securities Act or an
applicable exemption under the Securities Act, including an exemption pursuant
to Rule 144.
SALES OF RESTRICTED SECURITIES
Upon completion of this offering, 321,429 of the restricted securities will
become eligible for sale in the public market pursuant to Rule 144. Upon the
expiration of the lock-up agreements entered into by us, our executive officers
and directors and all principal stockholders and most of our other stockholders
in connection with this offering, 10,312,301 of the restricted securities may be
sold pursuant to Rules 144 or 701, subject in some cases to the volume and other
limitations imposed by those rules. The remaining 3,289,534 shares will be
eligible for sale upon the expiration of a one-year holding period, subject to
the restrictions and conditions of Rule 144.
In general, under Rule 144 as currently in effect, a person, including any
affiliate of HealthGate who has beneficially owned shares for at least one year,
will be entitled to sell in "brokers' transactions" or directly to market makers
within any three-month period commencing 90 days after the date of this
prospectus, a number of restricted securities that does not exceed the greater
of (1) 1% of the class of such shares then outstanding (approximately 185,233
shares immediately after this offering); or (2) the average weekly trading
volume of the common stock during the four calendar weeks immediately preceding
the sale. In addition, a person who is not an affiliate of HealthGate at any
time during the three months preceding any sale by such person, and who has
beneficially owned the shares proposed to be sold for at least two years, is
entitled to sell such shares under Rule 144(k) without regard to the limitations
described above.
In addition, existing holders with an aggregate of 9,187,910 shares of
common stock have the right to require registration of their shares under
certain circumstances. However, holders of 8,991,816 shares of this common stock
have entered into lock-up agreements with respect to these shares, which provide
that they will not sell or otherwise dispose of any shares of common stock
without the prior written consent of SG Cowen Securities Corporation for a
period of 180 days from the date of this prospectus. SG Cowen Securities
Corporation may, in its sole discretion and at any time without notice, release
all or any portion of the securities subject to lock-up agreements. See
"Registration Rights" and "Underwriting."
OPTIONS
As of June 30, 1999, options to purchase an aggregate of 1,239,769 shares of
common stock were fully vested. Holders of fully vested options to purchase
76,062 shares of common stock have the right to require registration of their
shares under certain circumstances. Of the total shares issuable pursuant to
vested options, 1,057,678 are subject to 180-day lock-up agreements. As of June
30, 1999, options to purchase an additional 1,132,908 shares of common stock
were outstanding, but are subject to future vesting, and an additional 818,723
shares of common stock were available for future grants under our 1994 Stock
Option Plan. See "Management--Employee Benefit Plans."
In general, under Rule 701 of the Securities Act, any employee, officer or
director of, or consultant or advisor to HealthGate who purchases shares from
HealthGate pursuant to a written
74
<PAGE>
compensatory stock option or other benefit plan or written contract relating to
compensation is eligible to resell such shares, in each case commencing 90 days
after the date of this prospectus, in reliance on Rule 144, but without
compliance with certain restrictions contained in Rule 144. Shares acquired
pursuant to Rule 701 may be sold by nonaffiliates without regard to the holding
period, volume limitations, information or notice requirements of Rule 144, and
by affiliates without regard to the holding period requirement.
We intend to file one or more registration statements on Form S-8 under the
Securities Act to register all shares of common stock subject to outstanding
stock options and common stock issuable pursuant to our 1994 Stock Option Plan.
We expect to file these registration statements following the expiration of the
180-day lockup period described below, and these registration statements are
expected to become effective upon filing. Shares covered by these registration
statements will be eligible for sale in the public markets.
WARRANTS
As of June 30, 1999, warrants to purchase 1,893,832 shares of common stock
were exercisable. In addition, outstanding warrants to purchase 24,919 shares of
common stock will become exercisable on April 21, 2000. All shares issuable
under outstanding warrants are subject to 180-day lock-up agreements. We have
granted registration rights with respect to the 1,893,832 shares of common stock
issuable under the presently exercisable outstanding warrants. See "Registration
Rights."
LOCK-UP AGREEMENTS
HealthGate, all of our executive officers and directors, all principal
stockholders and other existing stockholders who, upon the closing of this
offering, will beneficially own an aggregate of 13,601,835 outstanding shares of
common stock, together with holders of options to purchase 1,990,442 shares of
common stock and holders of warrants to purchase 1,918,751 shares of common
stock, have agreed that for a period 180 days following the date of this
prospectus, without the prior written consent of SG Cowen Securities
Corporation, they will not
- directly or indirectly, offer, sell, assign, transfer, encumber, pledge,
contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to
purchase, lend or otherwise dispose of, other than by operation of law,
any shares of common stock or any securities convertible into or
exercisable or exchangeable for common stock (including, without
limitation, common stock which may be deemed to be beneficially owned in
accordance with the rules and regulations promulgated under the Securities
Act); or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of common
stock whether any such transaction described above is to be settled by
delivery of common stock or such other securities, in cash or otherwise.
REGISTRATION RIGHTS
We have granted registration rights to most of our existing stockholders
covering:
- 521,891 shares of outstanding common stock;
- 5,376,485 shares of common stock issuable upon conversion of the Series
Stock;
- 91,280 shares of common stock issuable upon exercise of outstanding
options; and
- 524,632 shares of common stock issuable upon exercise of outstanding
warrants.
These shares are referred to as "Registrable Securities." In addition, under
a registration agreement with GE Capital Equity Investments, Inc., Blackwell
Science and Blackwell Wissenschafts-Verlag GmbH, we have granted registration
rights with respect to 3,289,534 shares of common stock issuable upon conversion
of the Series E Stock (the "GE-Blackwell Securities"). Additionally we
75
<PAGE>
entered into a registration agreement with General Electric Company granting
registration rights with respect to 1,369,200 shares of common stock issuable
upon exercise of a warrant. See "Business-- Strategic Affiliations--Marketing
and Distribution Affiliations." The registration rights relating to the
securities issuable upon exercise of this warrant are substantially similar to
the registration rights of the GE-Blackwell Securities described below.
DEMAND REGISTRATION RIGHTS. Subject to certain limitations in the
registration agreements, the holders of at least 40% of the Registrable
Securities may require, on two occasions at any time after six months from the
closing of this offering, that we use our best efforts to register all or part
of the Registrable Securities on Form S-1 or any similar long-form registration
statement. In addition, subject to certain limitations in the registration
agreements, the holders of at least 25% of the Registrable Securities may also
require, on four occasions at any time six months from the closing of this
offering, that we use our best efforts to register all or a portion of the
Registrable Securities on Form S-3 or any similar short-form registration
statement when use of one or more of these forms becomes available to us.
Subject to certain limitations in the registration agreement between us and
GE Capital Equity Investments, Blackwell Science and a Blackwell affiliate, the
holders of the GE-Blackwell Securities may require, on two occasions at any time
six months from the closing of this offering, that we use our best efforts to
register all or part of the GE-Blackwell Securities for public resale on Form
S-1 or any similar long-form registration, provided that the aggregate offering
value of each such long-form registration includes the lesser of:
- at least 30% of the common stock issuable upon conversion of the initial
87,364 shares of Series E Stock issued to GE Capital Equity Investments,
and
- the GE-Blackwell Securities requested to be registered having a minimum
anticipated offering price of at least $5 million. In addition, subject to
limitations in the registration agreements currently, the holders of the
GE-Blackwell Securities may also require, on four occasions at any time
six months from the closing of this offering, that we use our best efforts
to register all or a portion of the Registrable Securities on Form S-3 or
any similar short-form registration when use of one or more of these forms
becomes available to us.
PIGGYBACK REGISTRATION RIGHTS. If we register any of our common stock,
either for our own account or for the account of other security holders, and the
registration form to be used may be used for the registration of the Registrable
Securities or the GE-Blackwell Securities, the holders of the Registrable
Securities and the GE-Blackwell Securities are entitled to include their shares
of common stock in the registration. A majority of the holders of Registrable
Securities and GE-Blackwell Securities have waived their rights to register
securities in connection with this offering.
In all cases, a holder's right to include shares in a demand or piggyback
registration is subject:
- to the registration priority arrangement reached among HealthGate and the
holders of the Registrable Securities or GE-Blackwell Securities; and
- in an underwritten registration, to the ability of the underwriters to
limit the number of shares included in the offering.
All fees, costs and expenses of all of the registrations will be paid by us,
and all selling expenses (e.g. underwriting discounts, selling commissions and
stock transfer taxes) relating to the Registrable Securities or GE-Blackwell
Securities will be paid by the holders of the securities being registered.
76
<PAGE>
UNDERWRITING
HealthGate and the underwriters named below have entered into an
underwriting agreement with respect to the shares being offered. Subject to
certain conditions, each underwriter has severally agreed to purchase the number
of shares indicated in the following table at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
prospectus. SG Cowen Securities Corporation, Banc of America Securities LLC and
Volpe Brown Whelan & Company, LLC are the representatives of the underwriters.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
SG Cowen Securities Corporation..................................................
Banc of America Securities LLC...................................................
Volpe Brown Whelan & Company, LLC................................................
----------
Total........................................................................ 4,600,000
----------
----------
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are conditional and may be terminated at their discretion based on their
assessment of the state of the financial markets. The obligations of the
underwriters may also be terminated upon the occurrence of the other events
specified in the underwriting agreement. The underwriters are severally
committed to purchase all of the common stock being offered by us if any shares
are purchased, other than those covered by the over-allotment option described
below.
The underwriters, at the request of HealthGate, have reserved for sale to
HealthGate employees, friends and family members of employees and to certain
other persons, including employees of companies with which HealthGate does
business, at the initial public offering price, up to five percent of the shares
of common stock to be sold in this offering. The number of shares available for
sale to the general public will be reduced to the extent that any reserved
shares are purchased. Any reserved shares not so purchased will be offered by
the underwriters to the general public on the same basis as the other shares
offered hereby.
The underwriters propose to offer the common stock directly to the public at
the public offering price set forth on the cover page of this prospectus. The
underwriters may offer the common stock to securities dealers at that price less
a concession not in excess of $ per share. Securities dealers may reallow a
concession not in excess of $ per share to other dealers. After the shares of
the common stock are released for sale to the public, the underwriters may vary
the offering price and other selling terms from time to time.
We have granted to the underwriters an option to purchase up to 690,000
additional shares of common stock at the public offering price set forth on the
cover of this prospectus to cover over-allotments, if any. The option is
exercisable for a period of 30 days. If the underwriters exercise their
over-allotment option, the underwriters have severally agreed to purchase shares
in approximately the same proportion as shown in the table above.
The following table shows the per share and total public offering price, the
underwriting discount to be paid by HealthGate to the underwriters and the
proceeds from the sale of shares to the
77
<PAGE>
underwriters before HealthGate's expenses. This information is presented
assuming either no exercise or full exercise by the underwriters of their
over-allotment option.
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OPTION OPTION
--------- --------- ---------
<S> <C> <C> <C>
Public offering price...................................... $ $ $
Underwriting discount...................................... $ $ $
Proceeds, before expenses, to HealthGate................... $ $ $
</TABLE>
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments
that the underwriters may be required to make in respect of those liabilities.
HealthGate, our directors and executive officers, all principal stockholders
and other existing stockholders who hold an aggregate of 13,601,835 shares,
together with the holders of options to purchase 1,990,442 shares of common
stock and holders of warrants to purchase 1,918,751 shares of common stock, have
agreed with the underwriters that for a period of 180 days following the date of
this prospectus, without the prior written consent of SG Cowen Securities
Corporation, they will not dispose of or hedge any shares of common stock or any
securities convertible into or exchangeable for common stock.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, penalty bids and passive market making in
accordance with Regulation M under the Securities Exchange Act of 1934.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the
common stock in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the
representatives to reclaim a selling concession from a syndicate member when the
common stock originally sold by such syndicate member is purchased in a
syndicate covering transaction to cover syndicate short positions. In passive
market making, market makers in the common stock who are underwriters or
prospective underwriters may, subject to certain limitations, make bids for or
purchases of the common stock until the time, if any, at which a stabilizing bid
is made. These stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
The underwriters have advised us that they do not intend to confirm sales in
excess of 5% of the common stock offered hereby to any account over which they
exercise discretionary authority.
Prior to this offering, there has been no public market for the common
stock. Consequently, the initial public offering price was determined by
negotiations between us and the underwriters. Among the factors considered in
these negotiations were prevailing market conditions, the market capitalizations
and the stages of development of other companies that we and the underwriters
believe to be comparable to us, estimates of our business potential, our results
of operation in recent periods, the present state of our development and other
factors deemed relevant.
We estimate that our out of pocket expenses for this offering will be
approximately $1,708,000.
LEGAL MATTERS
The validity of the authorization and issuance of the securities offered
hereby will be passed upon for HealthGate by Rich, May, Bilodeau & Flaherty,
P.C., Boston, Massachusetts. Stephen M. Kane, a member of Rich, May, Bilodeau &
Flaherty, P.C., is an Assistant Secretary of HealthGate. Mr. Kane and other
attorneys of Rich, May, Bilodeau & Flaherty, P.C. will be purchasing shares from
the
78
<PAGE>
underwriters as part of HealthGate's reserved share program. Certain legal
matters will be passed upon for the underwriters by Shearman & Sterling, New
York, New York.
EXPERTS
The consolidated financial statements of HealthGate Data Corp. as of
December 31, 1997 and 1998 and for each of the three years in the period ended
December 31, 1998, which are included in this prospectus, have been so included
in reliance on the report (which contains an explanatory paragraph relating to
the Company's ability to continue as a going concern as described in Note 1 to
the financial statements) of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act, and the rules and regulations promulgated thereunder, with
respect to the shares of common stock offered by this prospectus. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement and the
exhibits thereto. Statements contained in this prospectus as to the contents of
any contract or other document that is filed as an exhibit to the registration
statement are not necessarily complete and each such statement is qualified in
all respects by reference to the full text of such contract or document.
You may read and copy all or any portion of the registration statement and
the exhibits at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the SEC located at Seven
World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can request
copies of these documents, upon payment of a duplication fee, by writing to the
SEC. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the SEC's public reference rooms. Also, the SEC maintains a World
Wide Web site on the Internet at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the SEC.
As a result of this offering, we will become subject to the information and
periodic reporting requirements of the Exchange Act and, in accordance
therewith, will file periodic reports, proxy and information statements and
other information with the SEC. These periodic reports, proxy and information
statements and other information will be available for inspection and copying at
the public reference facilities, regional offices and SEC's Web site referred to
above.
79
<PAGE>
HEALTHGATE DATA CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheet as of December 31, 1997 and 1998 and as of June 30, 1999 (unaudited)............ F-3
Consolidated Statement of Operations for the years ended December 31, 1996, 1997 and 1998 and the six
months ended June 30, 1998 and June 30, 1999 (unaudited)................................................. F-4
Consolidated Statement of Changes in Common Stock and Other Stockholders' Deficit for the years ended
December 31, 1996, 1997 and 1998 and the six months ended June 30, 1999 (unaudited)...................... F-5
Consolidated Statement of Cash Flows for the years ended December 31, 1996, 1997 and 1998 and the six
months ended June 30, 1998 and June 30, 1999 (unaudited)................................................. F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of HealthGate Data Corp.
The common stock split described in Note 1 to the financial statements has not
been consummated at July 15, 1999. When it has been consummated, we will be in a
position to furnish the following report:
"In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in common stock and other
stockholders' deficit and of cash flows present fairly, in all material
respects, the financial position of HealthGate Data Corp. and its subsidiary at
December 31, 1997 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred losses and negative cash flows
from operations since inception, which raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty."
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 15, 1999
F-2
<PAGE>
HEALTHGATE DATA CORP.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, JUNE 30, JUNE 30,
---------------------------- -------------- --------------
1997 1998 1999 1999
------------ -------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 29,045 $ 960,831 $ 1,779,622 $ 1,779,622
Marketable securities..................................... -- -- 790,864 790,864
Accounts receivable, including receivables from related
parties of $0 and $160,000 at December 31, 1997 and
1998, respectively, and $175,000 at June 30, 1999
(unaudited), and net of allowance for doubtful accounts
of $3,500 and $20,000 at December 31, 1997 and 1998,
respectively, and $34,000 at June 30, 1999
(unaudited)............................................. 291,828 362,189 547,014 547,014
Unbilled accounts receivable.............................. -- 12,386 33,886 33,886
Prepaid expenses and other current assets................. 101,966 225,482 501,971 501,971
------------ -------------- -------------- --------------
Total current assets.................................... 422,839 1,560,888 3,653,357 3,653,357
Fixed assets, net........................................... 324,689 806,793 1,351,063 1,351,063
Marketing and distribution rights........................... -- -- 9,933,000 9,933,000
Other assets................................................ 33,015 3,298 1,017,451 1,017,451
------------ -------------- -------------- --------------
Total assets............................................ $ 780,543 $ 2,370,979 $ 15,954,871 $ 15,954,871
------------ -------------- -------------- --------------
------------ -------------- -------------- --------------
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of capital lease obligation............... $ 85,541 $ 213,713 $ 272,825 $ 272,825
Accounts payable.......................................... 610,495 572,687 1,579,206 1,579,206
Accrued payroll........................................... 50,107 201,254 305,672 305,672
Other accrued expenses.................................... 81,349 228,880 1,023,052 1,023,052
Deferred revenue.......................................... 462,029 344,820 460,634 460,634
------------ -------------- -------------- --------------
Total current liabilities............................... 1,289,521 1,561,354 3,641,389 3,641,389
Long-term portion of capital lease obligation............... 16,927 226,401 174,989 174,989
Note payable to related party............................... -- 2,000,000 -- --
Long-term note payable...................................... -- 1,429,087 1,470,604 1,470,604
------------ -------------- -------------- --------------
Total liabilities....................................... 1,306,448 5,216,842 5,286,982 5,286,982
------------ -------------- -------------- --------------
Redeemable convertible preferred stock (Note 4)............. 6,294,602 6,889,431 14,938,655 --
------------ -------------- -------------- --------------
Common stock and other stockholders' equity (deficit):
Common stock, $.01 par value;
Authorized: 20,000,000 shares
Issued and outstanding: 5,228,515 and 5,234,334 shares
at December 31, 1997 and 1998, respectively and
5,257,245 shares at June 30, 1999 (unaudited) actual;
13,923,264 shares at June 30, 1999 pro forma
(unaudited)........................................... 52,285 52,343 52,572 139,233
Additional paid-in capital.................................. 116,354 673,867 21,128,841 35,980,835
Accumulated deficit......................................... (6,989,146) (10,461,504) (23,460,828) (23,460,828)
Deferred compensation....................................... -- -- (1,991,351) (1,991,351)
------------ -------------- -------------- --------------
Total common stock and other stockholders' equity
(deficit)............................................. (6,820,507) (9,735,294) (4,270,766) 10,667,889
------------ -------------- -------------- --------------
Commitments and contingencies (Note 9)......................
------------ -------------- -------------- --------------
Total liabilities, redeemable convertible preferred
stock and common stock and other stockholders' equity
(deficit)............................................. $ 780,543 $ 2,370,979 $ 15,954,871 $ 15,954,871
------------ -------------- -------------- --------------
------------ -------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
HEALTHGATE DATA CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
------------- ------------- ------------- ------------- --------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue, including revenue from
related parties of $0, $240,400,
and $1,070,500, in 1996, 1997 and
1998, respectively, and $512,600
(unaudited) and $399,100
(unaudited) in the six months ended
June 30, 1998 and 1999,
respectively....................... $ 408,244 $ 1,284,636 $ 2,434,124 $ 1,211,555 $ 1,052,097
------------- ------------- ------------- ------------- --------------
Cost and expenses:
Cost of revenue.................... 491,550 911,765 1,181,012 536,697 875,607
Research and development........... 980,373 890,577 1,450,106 544,340 1,826,931
Sales and marketing................ 1,080,187 1,496,356 1,414,179 599,127 2,012,091
General and administrative......... 567,822 521,323 929,479 440,908 1,062,703
------------- ------------- ------------- ------------- --------------
Total costs and expenses......... 3,119,932 3,820,021 4,974,776 2,121,072 5,777,332
------------- ------------- ------------- ------------- --------------
Loss from operations............... (2,711,688) (2,535,385) (2,540,652) (909,517) (4,725,235)
------------- ------------- ------------- ------------- --------------
Interest expense, net................ (14,497) (5,773) (327,100) (91,782) (229,751)
Other income (expense)............... -- -- (9,777) -- 4,886
------------- ------------- ------------- ------------- --------------
Net loss......................... (2,726,185) (2,541,158) (2,877,529) (1,001,299) (4,950,100)
Preferred stock dividends and
accretion of preferred stock to
redemption value................... (263,641) (539,644) (594,829) (297,413) (8,049,224)
------------- ------------- ------------- ------------- --------------
Net loss attributable to common
stockholders................... $ (2,989,826) $ (3,080,802) $ (3,472,358) $ (1,298,712) $ (12,999,324)
------------- ------------- ------------- ------------- --------------
------------- ------------- ------------- ------------- --------------
Basic and diluted net loss per share
attributable to common
stockholders....................... $ (.57) $ (.59) $ (.66) $ (.25) $ (2.48)
Shares used in computing basic and
diluted net loss per share
attributable to common
stockholders....................... 5,228,460 5,228,515 5,233,247 5,228,515 5,240,334
Unaudited pro forma basic and diluted
net loss per share................. $ (.27) $ (0.41)
Shares used in computing unaudited
pro forma basic and diluted net
loss per share..................... 10,609,732 11,981,538
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
HEALTHGATE DATA CORP.
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCK AND
OTHER STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
TOTAL COMMON
COMMON STOCK ADDITIONAL STOCK AND OTHER
---------------------- PAID-IN ACCUMULATED DEFERRED STOCKHOLDERS'
SHARES PAR VALUE CAPITAL DEFICIT COMPENSATION DEFICIT
--------- ----------- ------------ ------------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995............. 5,228,287 $ 52,283 $ 116,204 $ (918,518) $ (6,524) $ (756,555)
Compensation relating to grants of
stock options...................... 6,524 6,524
Exercise of common stock options..... 228 2 150 152
Accrual of cumulative dividends on
redeemable convertible preferred
stock and accretion to redemption
value.............................. (263,641) (263,641)
Net loss............................. (2,726,185) (2,726,185)
--------- ----------- ------------ ------------- ------------ -----------------
Balance, December 31, 1996............. 5,228,515 52,285 116,354 (3,908,344) -- (3,739,705)
Accrual of cumulative dividends on
redeemable convertible preferred
stock and accretion to redemption
value.............................. (539,644) (539,644)
Net loss............................. (2,541,158) (2,541,158)
--------- ----------- ------------ ------------- ------------ -----------------
Balance, December 31, 1997............. 5,228,515 52,285 116,354 (6,989,146) -- (6,820,507)
Exercise of common stock options..... 5,819 58 3,513 3,571
Issuance of common stock warrants.... 554,000 554,000
Accrual of cumulative dividends on
redeemable convertible preferred
stock and accretion to redemption
value.............................. (594,829) (594,829)
Net loss............................. (2,877,529) (2,877,529)
--------- ----------- ------------ ------------- ------------ -----------------
Balance, December 31, 1998............. 5,234,334 52,343 673,867 (10,461,504) -- (9,735,294)
Deferred compensation relating to
grants of stock options
(unaudited)........................ 2,307,246 (2,307,246) --
Compensation relating to grants of
stock options (unaudited).......... 315,895 315,895
Exercise of common stock options
(unaudited)........................ 22,911 229 9,154 9,383
Series E preferred stock beneficial
conversion feature (Note 4)
(unaudited)........................ 7,638,574 7,638,574
Issuance of common stock warrants.... 10,500,000 10,500,000
Accrual of cumulative dividends on
redeemable convertible preferred
stock and accretion to redemption
value (unaudited).................. (8,049,224) (8,049,224)
Net loss (unaudited)................. (4,950,100) (4,950,100)
--------- ----------- ------------ ------------- ------------ -----------------
Balance, June 30, 1999 (unaudited)..... 5,257,245 $ 52,572 $ 21,128,841 $ (23,460,828) $(1,991,351) $ (4,270,766)
--------- ----------- ------------ ------------- ------------ -----------------
--------- ----------- ------------ ------------- ------------ -----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
HEALTHGATE DATA CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
------------- ------------- ------------- ------------- --------------
(UNAUDITED)
Cash flows from operating activities:
Net loss...................................... $ (2,726,185) $ (2,541,158) $ (2,877,529) $ (1,001,299) $ (4,950,100)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............... 197,900 356,791 416,897 176,573 651,027
Loss (gain) on disposal of fixed assets..... -- -- 9,777 -- (4,886)
Compensation expense related to stock
options................................... 6,524 -- -- -- 315,895
Changes in assets and liabilities:
Accounts receivable....................... (63,144) (228,010) (70,361) 145,599 (184,825)
Unbilled accounts receivable.............. -- -- (12,386) (12,955) (21,500)
Prepaid expenses and other current
assets.................................. (24,684) (47,349) (123,516) (35,220) (276,489)
Other assets.............................. 1,870 (1,357) 29,717 16,894 (1,014,153)
Accounts payable.......................... 321,066 186,801 (37,808) (109,942) 1,006,519
Accrued payroll........................... (12,895) 35,091 151,147 41,934 104,418
Other accrued expenses.................... (1,433) 36,722 147,531 66,999 794,172
Deferred revenue.......................... 16,603 445,426 (117,209) (99,041) 115,814
------------- ------------- ------------- ------------- --------------
Net cash used in operating activities... (2,284,378) (1,757,043) (2,483,740) (810,458) (3,464,108)
------------- ------------- ------------- ------------- --------------
Cash flows from investing activities:
Purchases of marketable securities............ -- -- -- -- (787,442)
Proceeds from sale of fixed assets............ -- -- -- -- 6,535
Purchases of fixed assets..................... (152,824) (124,801) (277,538) (185,388) (657,301)
------------- ------------- ------------- ------------- --------------
Net cash used in investing activities........... (152,824) (124,801) (277,538) (185,388) (1,438,208)
Cash flows from financing activities:
Payments of capital lease obligations......... (165,793) (237,190) (239,785) (71,220) (126,850)
Proceeds from issuance of preferred and common
stock, net of issuance costs................ 3,653,901 992,353 3,571 -- 5,847,957
Proceeds from notes payable and warrants...... -- -- 3,929,278 1,929,278
------------- ------------- ------------- ------------- --------------
Net cash provided by financing
activities........................... 3,488,108 755,163 3,693,064 1,858,058 5,721,107
------------- ------------- ------------- ------------- --------------
Net increase (decrease) in cash and cash
equivalents................................... 1,050,906 (1,126,681) 931,786 862,212 818,791
Cash and cash equivalents, beginning of
period........................................ 104,820 1,155,726 29,045 29,045 960,831
------------- ------------- ------------- ------------- --------------
Cash and cash equivalents, end of period........ $ 1,155,726 $ 29,045 $ 960,831 $ 891,257 $ 1,779,622
------------- ------------- ------------- ------------- --------------
------------- ------------- ------------- ------------- --------------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
HealthGate paid cash for interest of approximately $24,000, $28,000 and $242,000
for the years ended December 31, 1996, 1997 and 1998, respectively, and $88,700
(unaudited) and $294,000 (unaudited) for the six months ended June 30, 1998 and
1999, respectively.
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES
HealthGate entered into capital leases for certain computer equipment totaling
approximately $87,000, $71,000 and $577,000 during the years ended December 31,
1996, 1997 and 1998, respectively, and $49,000 (unaudited) and $135,000
(unaudited) during the six months ended June 30, 1998 and 1999, respectively.
In connection with the issuance of the Series E redeemable convertible preferred
stock in April 1999, HealthGate issued a placement agent a warrant to purchase
up to 24,919 shares of HealthGate common stock at an exercise price of $2.51 per
share. A value of $200,000 was ascribed to the warrant. Also in April 1999, a
$2,000,000 convertible note payable to a related party was converted into
174,729 shares of HealthGate's Series E redeemable convertible preferred stock
(Note 3).
In June 1999, HealthGate issued a warrant to a related party in connection with
a development and distribution agreement. The fair value of the warrant of
$10,300,000 was recorded as marketing and distribution rights, and will be
amortized as a sales and marketing expense on a straight-line basis over the one
year contractual term of the related development and distribution agreement.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
HealthGate Data Corp. ("HealthGate") is an Internet provider of healthcare
information designed to help physicians and other healthcare professionals,
patients and health-conscious consumers make better-informed healthcare
decisions. HealthGate was incorporated in the State of Delaware on February 8,
1994.
HealthGate is subject to risks and uncertainties common to growing
technology-based companies, including rapid technological developments, reliance
on continued development and acceptance of the Internet, intense competition and
a limited operating history.
The Company intends to declare a 4.564 for 1 stock split in the form of a
stock dividend, subject to shareholder approval. All share and per share amounts
presented have been restated to reflect the stock split.
HealthGate has sustained losses and negative cash flows from operations
since its inception. HealthGate's ability to meet its obligations in the
ordinary course of business is dependent upon its ability to raise additional
financing through public or private equity financings, establish profitable
operations, enter into collaborative or other arrangements with corporate
sources, or secure other sources of financing to fund operations. Management
intends to raise working capital through additional equity and/or debt
financings in the near future. If anticipated financing transactions and
operating results are not achieved, management has the intent and believes it
has the ability to delay or reduce expenditures so as not to immediately require
additional financial resources, if such resources were not available on terms
acceptable to HealthGate. Nevertheless, these matters raise substantial doubt
about HealthGate's ability to continue as a going concern. This uncertainty will
be mitigated if HealthGate successfully completes the initial public offering of
its common stock which it is pursuing. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Significant accounting polices followed in the preparation of the financial
statements are as follows:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of HealthGate and
its wholly-owned subsidiary, HealthGate Europe Limited. All material
intercompany balances and transactions have been eliminated.
TRANSLATION OF FOREIGN CURRENCIES
The functional currency of HealthGate's foreign subsidiary is the local
currency. Adjustments resulting from the translation of the financial statements
of HealthGate's subsidiary into U.S. dollars, and foreign currency transaction
gains and losses included in the results of operations, have not been
significant.
CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
HealthGate considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. HealthGate
invests its excess cash in money market funds backed by U.S. Government
securities, U.S. Treasury securities and commercial paper which are subject to
minimal credit and market risk. HealthGate's cash equivalents are classified as
available for sale and
F-7
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
recorded at amortized cost, which approximates fair value. HealthGate's
marketable securities are classified as held-to-maturity and recorded at
amortized cost, which approximates fair value.
REVENUE RECOGNITION
HealthGate derives revenue primarily from user subscriptions and transaction
based fees, Web site development and hosting arrangements, content syndication
arrangements and the sale of advertising and sponsorships under short-term
contracts. Revenue from user subscriptions is recognized ratably over the
subscription period, and revenue from usage fees is recognized when the service
is provided. Revenue from Web site development and hosting arrangements and
content syndication arrangements is recognized ratably over the terms of the
underlying agreements, which generally range from one to three years. For any
arrangement in which HealthGate guarantees advertising revenue to the customer,
HealthGate records fees paid by the customer as a customer deposit, up to the
amount of the applicable guarantee.
Advertising revenue is derived principally from short-term advertising
contracts, in which HealthGate typically guarantees a minimum number of
impressions to be delivered to users over a specified period of time for a fixed
fee. Advertising revenue is recognized in the period in which the advertisement
is displayed, at the lesser of the ratio of impressions delivered over total
guaranteed impressions or a straight line basis over the term of the contract,
provided that no significant HealthGate obligations remain. To the extent that
minimum guaranteed impressions are not met, HealthGate defers recognition of the
corresponding revenue until the guaranteed impressions are delivered.
Sponsorship revenue is recognized ratably over the terms of the applicable
agreements, which generally range from one to six months.
Advertising and sponsorship revenue also includes barter revenue, which
represents an exchange by HealthGate of advertising space on HealthGate's Web
sites for reciprocal advertising space on other Web sites. Revenue from
advertising barter transactions is recognized during the period in which the
advertisements are displayed by HealthGate. Barter transactions are recorded at
the estimated fair value of the advertisements provided, unless the fair value
of the advertisments received is more evident. Barter expenses are recognized
when HealthGate's advertisements are run on the reciprocal Web sites, which is
typically in the same period as when the advertisements are run on HealthGate's
Web sites. Barter expenses are included in sales and marketing expenses. During
the years ended December 31, 1996, 1997 and 1998, revenue from barter
transactions was $125,000, $607,196 and $435,889, respectively.
Revenue from a research arrangement was recognized pursuant to the agreement
as the related work was performed. During the year ended December 31, 1996,
total revenue recognized and costs incurred under this arrangement were $87,171
and $81,442, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of HealthGate's financial instruments, which include
cash equivalents, accounts receivable, accounts payable, accrued expenses and
notes payable, approximate their fair values at December 31, 1997 and 1998.
F-8
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments which potentially expose HealthGate to concentrations
of credit risk consist primarily of trade accounts receivable. To minimize risk,
ongoing credit evaluations of customers' financial condition are performed,
although collateral generally is not required. At December 31, 1997, one
customer accounted for 63% of gross accounts receivable. At December 31, 1998,
two customers accounted for 20% and 11% of gross accounts receivable, and a
related party accounted for 42% of gross accounts receivable. For the year ended
December 31, 1996, two customers accounted for 15% and 11% of total revenue, and
revenue from a research arrangement accounted for 21% of total revenue. For the
year ended December 31, 1997, one customer accounted for 19% of total revenue,
and a related party accounted for 18% of total revenue. For the year ended
December 31, 1998, one customer accounted for 18% of total revenue and a related
party accounted for 44% of total revenue.
RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS
Costs incurred in the research and development of HealthGate's products are
expensed as incurred, except for certain software development costs. Costs
associated with the development of computer software are expensed prior to the
establishment of technological feasibility (as defined by Statement of Financial
Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed") and capitalized thereafter
when material to HealthGate's financial position or results of operations. Costs
eligible for capitalization have been insignificant to date.
FIXED ASSETS
Fixed assets are recorded at cost and depreciated over their estimated
useful lives, generally one to three years, using the straight-line method.
Fixed assets held under capital leases which involve a transfer of ownership are
amortized over the estimated useful life of the asset. Other fixed assets held
under capital leases are amortized over the shorter of the lease term or the
estimated useful life of the related asset. Repairs and maintenance costs are
expensed as incurred.
ACCOUNTING FOR STOCK-BASED COMPENSATION
HealthGate accounts for stock-based awards to employees using the intrinsic
value method as prescribed by Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, no compensation expense is recorded for options issued to employees
in fixed amounts and with fixed exercise prices at least equal to the fair
market value of HealthGate's common stock at the date of grant. HealthGate has
adopted the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," for disclosure purposes only (Note 5). All stock-based awards to
non-employees are accounted for at their fair value in accordance with SFAS No.
123 and related interpretations.
ADVERTISING COSTS
Advertising costs are charged to operations as incurred. Advertising costs
were approximately $410,000, $790,000 and $456,000 in the years ended December
31, 1996, 1997 and 1998, respectively, of which approximately $115,000, $617,000
and $418,000, respectively, related to barter transactions.
F-9
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UNAUDITED PRO FORMA BALANCE SHEET
Upon the closing of HealthGate's anticipated initial public offering, all
shares of redeemable convertible preferred stock outstanding at June 30, 1999
(Note 4) will automatically convert into 8,666,019 shares of common stock. This
conversion has been reflected in the unaudited pro forma balance sheet as of
June 30, 1999.
UNAUDITED INTERIM FINANCIAL DATA AND RESTATEMENT OF THE THREE MONTHS ENDED MARCH
31, 1999
The interim financial data as of June 30, 1999 and for the six months ended
June 30, 1998 and 1999 have been derived from unaudited financial statements of
HealthGate. Management believes HealthGate's unaudited financial statements have
been prepared on the same basis as the audited financial statements and include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial position and results of operations in such
periods. Results for the six months ended June 30, 1998 and June 30, 1999 have
not been audited and are not necessarily indicative of results to be expected
for the full fiscal year.
During the three months ended March 31, 1999, HealthGate recognized services
revenue of $82,000 related to two Web site development and hosting arrangements.
During the second quarter of 1999, it was learned that certain material terms
related to advertising revenue guaranteed to the customers of these sites had
not been finalized at March 31, 1999. Accordingly, HealthGate has restated its
results of operations for the three months ended March 31, 1999 to reverse the
$82,000 of services revenue related to these sites. These amounts were recorded
as customer deposits. In the opinion of management, all adjustments necessary to
revise the quarterly financial statements have
F-10
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
been recorded. Below is a summary of HealthGate's results of operations for the
three months ended March 31, 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
-------------------
<S> <C>
As previously reported:
Revenue.................................................................. $ 614,805
Loss from operations..................................................... (1,462,147)
Net loss................................................................. (1,620,193)
Net loss attributable to common stockholders............................. (1,768,900)
Basic and diluted net loss per share attributable to common
stockholders........................................................... $ (.34)
Pro forma basic and diluted net loss per share........................... $ (.15)
As restated:
Revenue.................................................................. $ 532,805
Loss from operations..................................................... (1,544,147)
Net loss................................................................. (1,702,193)
Net loss attributable to common stockholders............................. (1,850,900)
Basic and diluted net loss per share attributable to common
stockholders........................................................... $ (.35)
Pro forma basic and diluted net loss per share........................... $ (.16)
</TABLE>
ACTUAL AND UNAUDITED PRO FORMA NET LOSS PER SHARE
Net loss per share is computed in accordance with SFAS No. 128, "Earnings
Per Share." Basic net loss per share is computed by dividing net loss
attributable to common stockholders by the weighted average number of shares of
common stock outstanding. Diluted net loss per share does not differ from basic
net loss per share since potential common shares from conversion of preferred
stock and exercise of stock options and warrants are anti-dilutive for all
periods presented. Unaudited pro forma basic and diluted net loss per share have
been calculated assuming the conversion of all outstanding shares of preferred
stock into common shares, as if the shares had converted immediately upon their
issuance.
COMPREHENSIVE INCOME
HealthGate adopted SFAS No. 130, "Reporting Comprehensive Income," effective
January 1, 1998. This statement requires a full set of general purpose financial
statements to be expanded to include the reporting of "comprehensive income."
Comprehensive income is comprised of two components, net income and other
comprehensive income. During the years ended December 31, 1996, 1997 and 1998,
HealthGate had no items qualifying as other comprehensive income; accordingly,
the adoption of SFAS No. 130 had no impact on HealthGate's financial statements.
SEGMENT REPORTING
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business
F-11
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Enterprise." This statement changes the way public business enterprises report
segment information, including financial and descriptive information about their
selected segment information in interim and annual financial statements. Under
SFAS No. 131, operating segments are defined as revenue-producing components of
the enterprise which are generally used internally for evaluating segment
performance. SFAS No. 131 is effective for HealthGate's fiscal year ended
December 31, 1998 and had no effect on HealthGate's financial position or
results of operations. HealthGate operates in one segment, which is providing
healthcare information and related information to institutions and individuals
through the Internet.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. HealthGate does
not expect SFAS No. 133 to have a material effect on its financial position or
results of operations.
In February 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position ("SoP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SoP 98-1 establishes the
accounting for costs of software products developed or purchased for internal
use, including when such costs should be capitalized. SoP 98-1 will be effective
for HealthGate beginning in fiscal 1999, and HealthGate does not expect adoption
of this SoP to have a material effect on its financial position or results of
operations.
In April 1998, the AcSEC issued SoP 98-5, "Reporting on the Costs of
Start-Up Activities." Start-up activities are defined broadly as those one-time
activities related to the opening of a new facility, introducing a new product
or service, conducting business in a new territory, conducting business with a
new class of customer, commencing some new operation or organizing a new entity.
SoP 98-5 requires that the cost of start-up activities be expensed as incurred.
SoP 98-5 is effective for HealthGate beginning in fiscal 1999, and HealthGate
does not expect adoption of this SoP to have a material effect on its financial
position or results of operations.
F-12
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
USEFUL LIVES -------------------------- -------------
IN YEARS 1997 1998 1999
--------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Computer equipment and software....... 3 $ 295,384 $ 473,842 $ 933,730
Office equipment and fixtures......... 3 80,592 127,349 302,814
Computer equipment under capital
lease............................... 1-3 549,228 1,126,659 1,261,209
------------ ------------ -------------
925,204 1,727,850 2,497,753
------------ ------------ -------------
Less--Accumulated depreciation and
amortization........................ (600,515) (921,057) (1,146,690)
------------ ------------ -------------
$ 324,689 $ 806,793 $ 1,351,063
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
Depreciation and amortization expense on fixed assets was $197,900, $356,791
and $363,088 in 1996, 1997 and 1998, respectively, and $159,799 (unaudited) and
$245,933 (unaudited) for the six months ended June 30, 1998 and 1999,
respectively, of which $132,055, $248,217 and $186,475 in 1996, 1997, and 1998,
respectively, and $83,777 (unaudited) and $111,974 (unaudited) for the six
months ended June 30, 1998 and 1999, respectively, related to amortization of
assets held under capital lease. Accumulated amortization on assets under
capital lease was $417,961 and $604,436 at December 31, 1997 and 1998,
respectively, and $716,410 (unaudited) at June 30, 1999.
3. NOTES PAYABLE
On March 26, 1998, HealthGate issued a $2,000,000 subordinated note payable
(the "Note") with detachable warrants, for net cash proceeds of approximately
$1,929,000. The Note bears interest at an annual rate of 13.0%, payable monthly.
The principal amount is due on March 26, 2003, but may be prepaid without
penalty. The Note is secured by substantially all of HealthGate's tangible and
intangible assets, and limits HealthGate's ability to issue additional debt.
In connection with the Note, HealthGate issued warrants to purchase 392,504
shares of its common stock at an exercise price per share of $0.00004. Further,
on December 31, 1998, HealthGate issued warrants to purchase an additional
132,128 shares at an exercise price of $0.00004 per share, as HealthGate did not
achieve a minimum 1998 revenue target defined in the agreement. Under the terms
of the Note agreement, HealthGate will be required to issue warrants to purchase
an additional 205,380 shares, 211,998 shares and 218,844 shares at an exercise
price of $0.00004 per share if the Note is outstanding on March 26, 2000, 2001
and 2002, respectively. The number of shares and exercise price of the issued
and contingently issuable warrants are to be adjusted for certain dilutive and
anti-dilutive events. The warrants are exercisable for a period of ten years
from March 26, 1998. The terms of the warrant agreement place certain
restrictions on the number of options, warrants and other convertible securities
which HealthGate may issue. These restrictions will expire upon an initial
public offering of HealthGate's common stock. HealthGate ascribed a value of
$261,000 to the warrants issued in March 1998 and $293,000 to the warrants
issued in December 1998, based on the fair value at the time of issuance. The
amount which was ascribed to the warrants was recorded as additional paid-in
capital
F-13
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. NOTES PAYABLE (CONTINUED)
and a discount from the face value of the Note. The discount is being amortized
to interest expense over the life of the note using the effective interest
method.
On September 29, 1998, the Company issued a convertible note (the
"Convertible Note") in the principal amount of $2,000,000 to an existing
preferred stockholder. The Convertible Note bore interest at an annual rate of
12%, and was due on March 31, 1999. In April 1999, the Convertible Note was
converted into 174,729 shares of the HealthGate's Series E redeemable
convertible preferred stock (Note 4). Since the Convertible Note was converted
into preferred stock in April 1999, it has been classified as long-term in
HealthGate's balance sheet at December 31, 1998.
4. REDEEMABLE CONVERTIBLE PREFERRED STOCK
A summary of redeemable convertible preferred stock activity for the years
ended December 31, 1996, 1997 and 1998 and the six months ended June 30, 1999 is
as follows:
<TABLE>
<CAPTION>
SERIES
SERIES A SERIES B SERIES C SERIES D E
----------------- ------------------- ------------------- ------------------- ------
CARRYING CARRYING CARRYING CARRYING
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE SHARES
------ -------- ------ ---------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995......... 1,000 $454,310 250 $ 390,905 -- $ -- -- $ -- --
Issuance of Series B............... 750 1,200,000
Issuance of Series C, net of
issuance costs of $22,009...... 1,000 977,991
Issuance of Series D, net of
issuance costs of $24,242...... 1,000 1,475,758
Accrual of cumulative dividends and
accretion to redemption
value.......................... 70,265 136,971 43,501 12,904
------ -------- ------ ---------- ------ ---------- ------ ---------- ------
Balance, December 31, 1996......... 1,000 524,575 1,000 1,727,876 1,000 1,021,492 1,000 1,488,662 --
Issuance of Series D, net of
issuance costs of $8,147....... 667 992,353
Accrual of cumulative dividends and
accretion to redemption
value.......................... 70,262 163,637 104,402 201,343
------ -------- ------ ---------- ------ ---------- ------ ---------- ------
Balance, December 31, 1997......... 1,000 594,837 1,000 1,891,513 1,000 1,125,894 1,667 2,682,358 --
Accrual of cumulative dividends and
accretion to redemption
value.......................... 70,262 163,637 104,402 256,528
------ -------- ------ ---------- ------ ---------- ------ ---------- ------
Balance, December 31, 1998......... 1,000 665,099 1,000 2,055,150 1,000 1,230,296 1,667 2,938,886 --
Issuance of Series E, net of
issuance costs of $611,426 and
of a beneficial conversion
feature of $7,638,574
(unaudited).................... 720,757
Accrual of cumulative dividends and
accretion to redemption value
(unaudited).................... 35,132 81,818 52,200 128,264
------ -------- ------ ---------- ------ ---------- ------ ---------- ------
Balance at June 30, 1999
(unaudited).................... 1,000 $700,231 1,000 $2,136,968 1,000 $1,282,496 1,667 $3,067,150 720,757
------ -------- ------ ---------- ------ ---------- ------ ---------- ------
------ -------- ------ ---------- ------ ---------- ------ ---------- ------
<CAPTION>
TOTAL
CARRYING CARRYING
VALUE VALUE
---------- ----------
<S> <C> <C>
Balance, December 31, 1995......... $ -- $ 845,215
Issuance of Series B............... 1,200,000
Issuance of Series C, net of
issuance costs of $22,009...... 977,991
Issuance of Series D, net of
issuance costs of $24,242...... 1,475,758
Accrual of cumulative dividends and
accretion to redemption
value.......................... 263,641
---------- ----------
Balance, December 31, 1996......... -- 4,762,605
Issuance of Series D, net of
issuance costs of $8,147....... 992,353
Accrual of cumulative dividends and
accretion to redemption
value.......................... 539,644
---------- ----------
Balance, December 31, 1997......... -- 6,294,602
Accrual of cumulative dividends and
accretion to redemption
value.......................... 594,829
---------- ----------
Balance, December 31, 1998......... -- 6,889,431
Issuance of Series E, net of
issuance costs of $611,426 and
of a beneficial conversion
feature of $7,638,574
(unaudited).................... -- --
Accrual of cumulative dividends and
accretion to redemption value
(unaudited).................... 7,751,810 8,049,224
---------- ----------
Balance at June 30, 1999
(unaudited).................... $7,751,810 $14,938,655
---------- ----------
---------- ----------
</TABLE>
CONVERSION
Each preferred share is convertible into common stock at the option of the
preferred stockholder or automatically upon the closing of an initial public
offering of HealthGate's common stock in which proceeds from the public equal or
exceed $10,000,000. The number of common shares to which a holder of the
preferred stock is entitled upon conversion is based upon the conversion rates
defined by HealthGate's Amended and Restated Certificate of Incorporation,
(approximately 1,086.59 for 1, 1,822.87 for 1, 632.80 for 1 and 917.45 for 1 for
holders of Series A, B, C and D preferred stock, respectively, at December 31,
1998). At December 31, 1998, the outstanding preferred stock is convertible into
a total of 5,376,485 common shares. The conversion rates are to be adjusted for
certain
F-14
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
dilutive and anti-dilutive events. HealthGate has reserved 1,391,500, 1,822,900,
632,800 and 1,529,400 shares of common stock for the conversion of Series A, B,
C and D preferred stock, respectively.
LIQUIDATION, DISSOLUTION OR WINDING UP OF HEALTHGATE
In the event of any liquidation, dissolution or winding up of HealthGate,
the holders of Series A, B, C and D preferred stock are entitled to receive, on
a pro-rata basis, $500, $1,600, $1,000 and $1,500 per share, respectively, plus
all accrued and unpaid dividends.
VOTING, REGISTRATION AND OTHER RIGHTS
The holders of the preferred stock are entitled to vote, together with the
holders of common stock, on all matters submitted to stockholders for a vote.
Each preferred stockholder is entitled to the number of votes equal to the
number of shares of common stock into which each Series A, B, C and D share is
convertible at the time of such vote.
DIVIDENDS
The holders of the Series A, B, C and D preferred stock are entitled to
receive cumulative annual dividends in the amount of $50, $160, $100 and $150
per share, respectively, whether or not declared by the Board of Directors.
These dividends are payable upon liquidation, dissolution or winding-up of
HealthGate, or upon redemption of the respective preferred stock.
REDEMPTION
On each of the fifth, sixth and seventh anniversaries of the applicable
series closing date, HealthGate is required to redeem 33-1/3 percent of the
Series A, B, C and D preferred stock at a redemption price equal to $500,
$1,600, $1,000 and $1,500 per share, respectively, plus accrued and unpaid
dividends through the redemption date.
Required redemption amounts for each of the five years following December
31, 1998, for the preferred stock, excluding any cumulative and unpaid
dividends, are as follows:
<TABLE>
<CAPTION>
REDEMPTION
AMOUNT
------------
<S> <C>
1999............................................................................ $ --
2000............................................................................ 700,000
2001............................................................................ 1,866,833
2002............................................................................ 1,866,834
2003............................................................................ 1,166,833
------------
$ 5,600,500
------------
------------
</TABLE>
ISSUANCE OF PREFERRED STOCK
In April 1999, HealthGate issued 546,028 shares of newly authorized Series E
redeemable convertible preferred stock to GE Capital Equity Investments for
gross proceeds of $6,250,000. In connection with the issuance of the Series E
preferred stock, HealthGate paid $300,000 of fees to a
F-15
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
placement agent, paid other issue costs of $111,426, and issued the placement
agent a warrant to purchase up to 24,919 shares of HealthGate common stock at an
exercise price of $2.51 per share. The Company has ascribed a value to the
warrant of $200,000. The placement fee, other issue costs and warrant value have
been reflected as a reduction of the proceeds from the Series E preferred stock
issuance. An additional 174,729 shares of Series E preferred stock were issued
upon conversion of a convertible note (Note 3). The Series E preferred stock
ranks senior in liquidation to other classes of preferred stock, and has certain
veto rights. The Series E preferred stock accrues cumulative annual dividends at
7% of its liquidation value (initially $8,250,000). The dividends are compounded
annually and, unless paid, are added to the Series E preferred stock liquidation
value. The Series E preferred stock is convertible into a number of shares of
common stock determined by dividing the liquidation value by a conversion price
per share of $2.51. The conversion price is to be adjusted for certain dilutive
events.
Each share of Series E preferred stock is convertible into 4.564 shares of
common stock, which represents a discount from the fair value of common stock on
the date of the Series E issuance. The value attributable to this conversion
right represents an incremental yield, or a beneficial conversion feature, which
will be recognized as a return to the preferred stockholders. This amount, equal
to the net proceeds from the Series E offering of approximately $7,639,000,
which includes conversion of the convertible note, has been recorded as
accretion of preferred stock to redemption value in the consolidated statement
of operations in the period ended June 30, 1999, and represents a non-cash
charge in the determination of net loss attributable to common stockholders.
5. COMMON STOCK AND OTHER STOCKHOLDERS' DEFICIT
COMMON STOCK
Each share of common stock entitles the holder to one vote on all matters
submitted to a vote of HealthGate's stockholders. Common stockholders are
entitled to receive dividends, if any, as may be declared by the Board of
Directors, subject to any preferential dividend rights of the preferred
stockholders.
A 50-for-1 split of HealthGate's common stock became effective on January
23, 1998. All shares of common stock, options, and warrants and per share
amounts included in the accompanying financial statements have been adjusted to
give retroactive effect to the stock split for all periods presented.
STOCK OPTION PLANS
In June 1994, HealthGate adopted the HealthGate Data Corp. 1994 Stock Option
Plan (the "1994 Plan") which provides for the granting of both incentive stock
options and nonqualified options to employees, directors and consultants. The
1994 Plan, as amended, allows for a maximum of 2,966,600 options to purchase
shares of common stock to be issued prior to December 2004. The exercise price
of any incentive stock option granted under the 1994 Plan shall not be less than
the fair market value of the stock on the date of grant, as determined in good
faith by the Board of Directors, or less than 110% of the fair value in the case
of optionees holding more than 10% of the total combined voting power of all
classes of HealthGate's stock. Options granted under the 1994 Plan are
exercisable for a period of not longer than ten years from the date of grant, or
five years in the case of optionees holding more than 10% of the combined voting
power of all classes of HealthGate's stock.
F-16
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. COMMON STOCK AND OTHER STOCKHOLDERS' DEFICIT (CONTINUED)
HealthGate applies APB 25 and related interpretations in accounting for
employee and director options granted under the 1994 Plan. Since inception
(February 8, 1994) through December 31, 1998, no compensation expense has been
recognized for options granted to employees under this plan. During 1996 and
1997, HealthGate granted options to purchase 34,230 and 11,410 shares of common
stock, respectively, to a member of its Board of Directors for consulting
services rendered. The options vested during 1997 and 1998 as the consulting
services were provided. The compensation expense related to these options was
not significant. Had compensation cost attributable to the 1994 Plan and other
options been determined based on the fair value of the options at the grant
date, consistent with the provisions of FAS 123, HealthGate's net loss and net
loss per share would have been increased to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net loss
As reported.......................................... $(2,726,185) $(2,541,158) $(2,877,529)
Pro forma............................................ (2,749,727) (2,580,033) (2,904,547)
Basic and diluted net loss per share attributable
to common stockholders
As reported.......................................... $ (.57) $ (.59) $ (.66)
Pro forma............................................ (.58) (.60) (.67)
</TABLE>
Because the determination of the fair value of all options granted after
HealthGate becomes a public entity will include an expected volatility factor,
additional option grants are expected to be made subsequent to December 31,
1998, and most options vest over several years, the above pro forma effects are
not necessarily indicative of the pro forma effects on future years.
Under SFAS No. 123, the fair value of each employee option grant is
estimated on the date of grant using the Black-Scholes option pricing model to
apply the minimum value method with the following weighted-average assumptions
used for grants made during the years ended December 31, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Expected option term (years).................................................. 4 4 4
Risk-free interest rate....................................................... 5.70% 6.16% 5.29%
Expected volatility........................................................... 0.0% 0.0% 0.0%
Dividend yield................................................................ 0.0% 0.0% 0.0%
</TABLE>
F-17
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. COMMON STOCK AND OTHER STOCKHOLDERS' DEFICIT (CONTINUED)
A summary of the status of HealthGate's options as of December 31, 1996,
1997 and 1998 and changes during the years then ended are presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1996 1997 1998
---------------------- ------------------------ ------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ----------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year.......................... 682,774 $ .20 1,060,445 $ .50 1,508,173 $ .39
Granted......................... 604,730 1.01 703,997 .41 951,594 1.27
Exercised....................... (228) .61 -- -- (5,819) .61
Canceled........................ (226,831) .94 (256,269) .89 (481,388) .27
--------- ----------- --------- ----- --------- -----
Outstanding at end of year...... 1,060,445 $ .50 1,508,173 $ .39 1,972,560 $ .84
--------- ----------- --------- ----- --------- -----
--------- ----------- --------- ----- --------- -----
Options available for grant at
end of year................... 562,285 570,957 100,751
--------- --------- ---------
--------- --------- ---------
Weighted-average fair value of
options granted during the
year.......................... $ .20 $ .09 $ .04
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
WEIGHTED-AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ---------------------------------- ----------- ------------------- ------------------- ---------- -------------------
under $.22........................ 258,322 3.58 $ .02 255,470 $ .02
$.22--$.44........................ 602,448 4.01 .41 372,760 .41
$.44--$.66........................ 306,244 4.10 .65 107,966 .63
$.66--$.88........................ -- -- -- -- --
$.88--$1.10....................... 189,406 3.99 1.01 179,119 1.01
$1.63............................. 616,140 4.06 1.63 188,265 1.63
----------- ----------
1,972,560 1,103,580
----------- ----------
----------- ----------
</TABLE>
DEFERRED COMPENSATION
During the six months ended June 30, 1999, HealthGate granted stock options
to purchase 340,526 shares of its common stock with exercise prices ranging from
$.77 to $8.25 per share. HealthGate recorded compensation expense and deferred
compensation relating to these options totaling approximately $316,000 and
$2,307,000, respectively, representing the differences between the estimated
fair market value of the common stock on the date of grant and the exercise
price. Compensation related to options which vest over three years was recorded
as a component of stockholders' deficit and is being amortized over the vesting
periods of the related options.
F-18
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. COMMON STOCK AND OTHER STOCKHOLDERS' DEFICIT (CONTINUED)
SUBSEQUENT ISSUANCE OF WARRANT TO RELATED PARTY
On June 11, 1999, HealthGate entered into a development and distribution
agreement with GE Medical Systems ("GEMS"), an affiliate of a Series E preferred
stock investor (Note 4). In connection with this agreement, HealthGate issued to
General Electric Company a warrant to purchase up to 1,369,200 shares of
HealthGate's common stock at an exercise price per share of $8.25 (subject to
potential adjustments for certain equity offerings subsequent to the warrant's
issuance and other events). The warrant is immediately exercisable, and has a
term of five years. The fair value of this warrant was determined to be
$10,300,000 using the Black-Scholes option pricing model, which may be adjusted
to reflect the final value of the warrant as determined on the effective date of
certain events defined in the warrant. The value of the warrant has been
recorded as marketing and distribution rights, and will be amortized as a sales
and marketing expense on a straight-line basis over the one year contractual
term of the related development and distribution agreement. During the six
months ended June 30, 1999, amortization expense totaled $367,000.
6. INCOME TAXES
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1997 1998
------------ ------------
Deferred tax assets:
Net operating loss carryforwards.................................................... $ 2,303,707 $ 3,506,205
Other............................................................................... 247,946 259,980
------------ ------------
Deferred tax assets................................................................... 2,551,653 3,766,185
------------ ------------
Deferred tax asset valuation allowance................................................ (2,551,653) (3,766,185)
------------ ------------
$ -- $ --
------------ ------------
------------ ------------
</TABLE>
Realization of total deferred tax assets is dependent upon the generation of
future taxable income. HealthGate has provided a valuation allowance for the
full amount of its deferred tax assets, since realization of these future
benefits is not sufficiently assured.
Income taxes computed using the federal statutory income tax rate differs
from HealthGate's effective tax primarily due to the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
<S> <C> <C> <C>
1996 1997 1998
----------- ----------- -------------
Income tax benefit at U.S. federal statutory tax rate.................... $ (954,165) $ (889,405) $ (1,007,135)
State taxes, net of federal tax impact................................... (166,591) (152,211) (170,165)
Other.................................................................... (5,688) (32,083) (37,232)
Change in valuation allowance............................................ 1,126,444 1,073,699 1,214,532
----------- ----------- -------------
Provision for income taxes............................................. $ -- $ -- $ --
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
At December 31, 1998, HealthGate has net operating loss carryforwards and
research and development tax credit carryforwards of approximately $8,492,000
and $82,000, respectively, available
F-19
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
for federal and foreign purposes to reduce future taxable income and future tax
liabilities, respectively. If not utilized, these carryforwards will expire at
various dates ranging from 2010 to 2018. Under the provisions of the Internal
Revenue Code, certain substantial changes in HealthGate's ownership may have
limited, or may limit in the future, the amount of net operating loss and
research and development tax credit carryforwards which could be used annually
to offset future taxable income and income tax liability. The amount of any
annual limitation is determined based upon HealthGate's value prior to an
ownership change.
7. 401(K) PLAN
During 1996, HealthGate established a defined contribution savings plan
under Section 401(k) of the Internal Revenue Code. This plan covers
substantially all employees who meet minimum age and service requirements and
allows participants to defer a portion of their annual compensation on a pre-tax
basis. Company contributions to the plan may be made at the discretion of the
Board of Directors. There were no contributions made to the plan by HealthGate
during the years ended December 31, 1996, 1997 or 1998.
8. OTHER RELATED PARTY TRANSACTIONS
Through December 1998, a stockholder of HealthGate was a partial owner of
the building in which HealthGate leases office space. HealthGate incurred rental
costs of approximately $58,000, $84,000 and $89,000 under this lease agreement
during the years ended December 31, 1996, 1997 and 1998, respectively.
In connection with the Series B preferred stock purchase agreement,
HealthGate was required to use the services of the sole Series B investor for
certain consulting work. During 1996, HealthGate incurred consulting costs with
this investor totaling approximately $203,000. HealthGate also leases certain
computer equipment from this investor under a noncancelable capital lease
arrangement. Payments under this lease during the years ended December 31, 1996,
1997 and 1998 totaled approximately $90,900, $1,500 and $7,500, respectively.
In May 1998, HealthGate purchased certain fixed assets from an employee for
total consideration of $70,000.
9. COMMITMENTS
HealthGate leases all facilities under operating lease agreements and
certain equipment under noncancelable capital lease agreements. Total rent
expense under noncancelable operating leases was approximately $58,800, $84,100
and $89,900 for the years ended December 31, 1996, 1997 and 1998,
F-20
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS (CONTINUED)
respectively. The future minimum lease commitments under all noncancelable
leases at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- ----------
<S> <C> <C>
1999.................................................................. $ 390,112 $ 257,106
2000.................................................................. 265,083 214,298
2001.................................................................. -- 29,880
---------- ----------
Total future payments................................................. $ 655,195 501,284
----------
----------
Less--amount representing interest.................................... (61,170)
----------
Present value of minimum lease payments............................... $ 440,114
----------
----------
</TABLE>
HealthGate has entered into agreements to license content for its services
from various unrelated third parties. Future minimum license payments under
these agreements as of December 31, 1998 totaled approximately $445,617.
In June 1999, HealthGate entered into a content development and distribution
agreement requiring HealthGate to make annual payments of $500,000 for two
years.
10. GEOGRAPHIC AND SEGMENT INFORMATION
HealthGate operates in one segment, which is providing healthcare and
related information to institutions and individuals through the Internet.
HealthGate's revenue from external customers was derived from the following:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ------------ ------------
<S> <C> <C> <C>
United States......................................... $ 408,244 $ 1,259,886 $ 1,665,717
Europe................................................ -- 24,750 768,406
---------- ------------ ------------
Total................................................. $ 408,244 $ 1,284,636 $ 2,434,123
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
Substantially all of HealthGate's long-lived assets were located in the
United States for all periods presented.
F-21
<PAGE>
[THE INSIDE BACK COVER CONTAINS A DIAGRAM ENTITLED
"HEALTHGATE-REGISTERED TRADEMARK-: THE GATEWAY TO HEALTH INFORMATION" SHOWING
CONTENT SOURCES, THE HEALTHGATE NETWORK AND PROFESSIONALS, PATIENTS AND
CONSUMERS.]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,600,000 Shares
[LOGO]
Common Stock
------------------------
PROSPECTUS
------------------
SG COWEN
BANC OF AMERICA SECURITIES LLC
VOLPE BROWN WHELAN & COMPANY
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by HealthGate
in connection with the sale of the common stock being registered hereby. All the
amounts shown are estimates, except the SEC registration fee and the NASD filing
fee.
<TABLE>
<S> <C>
SEC registration fee.................................................... $ 17,648
NASD filing fee......................................................... 6,000
Nasdaq listing fee...................................................... 94,000
Blue Sky fee and expenses............................................... 5,000
Printing and engraving expenses......................................... 250,000
Legal fees and expenses................................................. 750,000
Auditors' accounting fees and expenses.................................. 450,000
Transfer Agent and Registrar fees....................................... 10,000
Miscellaneous expenses.................................................. 125,352
---------
Total............................................................... $1,708,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article IX of HealthGate's Restated Charter provides as follows:
To the maximum extent permitted by the General Corporation Law of the State
of Delaware as the same exists or may hereafter be amended, no director of the
Corporation shall be personally liable to the Corporation or to any of its
stockholders for monetary damages arising out of such director's breach of
fiduciary duty as a director of the Corporation. No amendment to or repeal of
the provisions of this paragraph shall apply to or have any effect on the
liability or the alleged liability of any director of the Corporation with
respect to any act or failure to act of such director occurring prior to such
amendment or repeal.
Section 10 of HealthGate's Restated Bylaws provides as follows:
Section 10. INDEMNIFICATION
10.1 Officers, Directors and Others. Each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he, or a person of whom
he or she is the legal representative, is or was a director or officer of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee, fiduciary, or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, shall be indemnified and
held harmless by the corporation to the fullest extent which it is empowered to
do so unless prohibited from doing so by the General Corporation Law of the
State of Delaware, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than said law permitted
the corporation to provide prior to such amendment) against all expense,
liability and loss (including attorneys' fees actually and reasonably incurred
by such person in connection with such proceeding) and such indemnification
shall inure to the benefit of his or her heirs, executors and administrators;
provided, however, that, except as provided in Section 10.2 hereof, the
corporation shall indemnify any such person seeking indemnification in
connection with a proceeding initiated by such person only if such proceeding
was authorized by the board of directors. The right to indemnification conferred
in this Section 10 shall be a contract right and, subject to Sections 10.2 and
10.5 hereof, shall include the right to be paid by the corporation the expenses
incurred in defending any such proceeding in advance of its final disposition.
The corporation may, by action of the board of directors, provide
II-1
<PAGE>
indemnification to employees and agents of the corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
10.2 Procedure; Timing. Any indemnification of a director or officer of the
corporation under Section 10.1 or advance of expenses under Section 10.5 shall
be made promptly, and in any event within thirty days, upon the written request
of the director or officer. If a determination by the corporation that the
director or officer is entitled to indemnification pursuant to this Section 10
is required, and the corporation fails to respond within sixty days to a written
request for indemnity, the corporation shall be deemed to have approved the
request. If the corporation denies a written request for indemnification or
advancing of expenses, in whole or in part, or if payment in full pursuant to
such request is not made within thirty days, the right to indemnification or
advances as granted by this Section 10 shall be enforceable by the director or
officer in any court of competent jurisdiction. Such person's costs and expenses
incurred in connection with successfully establishing his or her right to
indemnification, in whole or in part, in any such action shall also be
indemnified by the corporation. It shall be a defense to any such action (other
than an action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any, has been tendered to the corporation) that the claimant has not met the
standards of conduct which make it permissible under the General Corporation Law
of the State of Delaware for the corporation to indemnify the claimant for the
amount claimed, but the burden of such defense shall be on the corporation.
Neither the failure of the corporation (including its board, independent legal
counsel or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the General Corporation Law of the State of Delaware, nor an actual
determination by the corporation (including its board, independent legal counsel
or its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
10.3 Rights Not Exclusive. The rights to indemnification and the payment of
expenses incurred in defending a proceeding in advance of its final disposition
conferred in this Section 10 shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, provision of the
Restated Certificate, bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
10.4 Insurance. The corporation may purchase and maintain insurance on its
own behalf and on behalf of any person who is or was a director, officer,
employee, fiduciary or agent of the corporation or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him or her and incurred by him or her in any such
capacity, whether or not the corporation would have the power to indemnify such
person against such liability under this Section 10.
10.5 Expenses. Expenses incurred by any person described in Section 10.1 in
defending a proceeding shall be paid by the corporation in advance of such
proceeding's final disposition unless otherwise determined by the board in the
specific case upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount if it shall ultimately be determined that he or she
is not entitled to be indemnified by the corporation. Such expenses incurred by
other employees and agents may be so paid upon such terms and conditions, if
any, as the board deems appropriate.
10.6 Other Persons. Persons who are not covered by the foregoing provisions
of this Section 10 and who are or were employees or agents of the corporation,
or who are or were serving at the request of the corporation as employees or
agents of another corporation, partnership, joint venture, trust or other
enterprise, may be indemnified to the extent authorized at any time or from time
to time by the board.
10.7 Contract Right. The provisions of this Section 10 shall be deemed to be
a contract right between the corporation and each director or officer who serves
in any such capacity at any time while
II-2
<PAGE>
this Section 10 and the relevant provisions of the General Corporation Law of
the State of Delaware or other applicable law are in effect, and any repeal or
modification of this Section 10 or any such law shall not affect any rights or
obligations then existing with respect to any state of facts or proceeding then
existing.
10.8 Use of "corporation". For purposes of this Section 10, references to
"the corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, member, manager, employee
or agent of another corporation, limited liability company, partnership, joint
venture, trust or other enterprise, shall stand in the same position under this
Section 10 with respect to the resulting or surviving corporation as he or she
would have with respect to such constituent corporation if its separate
existence had continued.
OTHER INDEMNIFICATION PROVISIONS
Section 145 of the Delaware General Corporation Law, as amended, provides
that a corporation has the power to indemnify a director, officer, employee or
agent of the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonably cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
Under Section 6(b) of the Underwriting Agreement, the underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed as
Exhibit 1.1 hereto.
The Registrant intends to obtain insurance which insures the officers and
directors of the Registrant against certain losses and which insures the
Registrant against certain of its obligations to indemnify such officers and
directors.
The Registrant has entered into indemnification agreements with each of its
directors and officers, pursuant to which the Registrant has agreed to indemnify
such directors to the fullest extent permitted by law for amounts paid and
expenses incurred in connection with an action or proceeding to which he or she
is or is threatened to be made a party by reason of such position.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any director or officer.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this Registration Statement, we
have sold the following securities in transactions exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) or Rule 701
promulgated under Section 3(b) thereof:
On June 14, 1996, we issued and sold 250 shares of our Series B Convertible
Preferred Stock to Nichols Research Corporation for an aggregate consideration
of $400,000 in cash.
II-3
<PAGE>
Between August 21, 1996 and September 3, 1996, we issued and sold an
aggregate of 1,000 shares of our Series C Convertible Preferred Stock to 5
existing stockholders and 17 new investors for an aggregate consideration of
$1,000,000 in cash.
On October 4, 1996, we issued and sold 228 shares of our common stock for an
aggregate consideration of $140 in cash to a former employee who exercises an
outstanding stock option.
On December 20, 1996, we issued and sold 1,000 shares of our Series D
Convertible Preferred Stock to Blackwell Science, Ltd. for an aggregate
consideration of $1,500,000 in cash.
On April 29, 1997, we issued and sold 333 shares of our Series D Convertible
Preferred Stock to Blackwell Science, Ltd. for an aggregate consideration of
$499,500 in cash.
On September 19, 1997, we issued and sold 334 shares of our Series D
Convertible Preferred Stock to Blackwell Wissenschafts-Verlag GmbH for an
aggregate consideration of $501,000 in cash.
On March 26, 1998, we issued a warrant to purchase 114,950 shares of our
common stock to Petra Capital, LLC as additional consideration for Petra's
$2,000,000 loan to us.
On July 14, 1998, we issued and sold 228 shares of our common stock for an
aggregate consideration of $140 in cash to a former employee who exercised an
outstanding stock option.
On October 20, 1998, we issued and sold 5,590 shares of our common stock for
an aggregate consideration of $3,430 in cash to a former employee who exercised
an outstanding stock option.
On February 3, 1999, we issued and sold 91 shares of our common stock for an
aggregate consideration of $56.80 in cash to a former employee who exercised an
outstanding stock option.
On April 7, 1999, we issued and sold 87,364 shares of our Series E
Convertible Preferred Stock to GE Capital Equity Investments, Inc. for an
aggregate consideration of $999,994.55 in cash and 174,729 shares of our Series
E Convertible Preferred Stock to Blackwell Science, Ltd. for an aggregate
consideration of $2,000,000, paid by means of Blackwell's conversion of the
principal amount due under a convertible promissory note issued by us to
Blackwell on September 29, 1998 in the principal amount of $2,000,000. In
connection with our sale of our Series E Convertible Preferred Stock to GE
Capital Equity Investments, we paid Dain Rauscher Wessels a placement agent
commission of $40,000 in cash.
On April 21, 1999, we issued and sold 458,664 shares of our Series E
Convertible Preferred Stock to GE Capital Equity Investments for an aggregate
consideration of $5,250,005.74 in cash. In connection with this sale, we paid
Dain Rauscher Wessels a placement agent commission of $210,000 in cash. In
addition, in connection with this sale and the April 7, 1999 sale of Series E
Convertible Preferred Stock to GE Capital Equity Investments, we issued Dain
Rauscher Wessels a warrant to purchase 24,919 shares of our common stock for
$2.51 per share and reimbursed them $50,000 in cash for their out of pocket
expenses. In addition, we incurred $110,000 in other issuance-related expenses.
On May 14, 1999, we issued and sold 22,820 shares of our common stock for an
aggregate consideration of $9,328 in cash to an executive officer who exercised
an outstanding stock option.
On June 17, 1999, we issued a warrant to purchase 1,369,200 shares of our
common stock to General Electric Company in connection with a development and
distribution agreement we entered into with GE Medical Systems.
II-4
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<C> <S>
1.1*** Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of the Registrant, dated March 14, 1995, as further
amended by a Certificate of Amendment of Amended and Restated Certificate of Incorporation, dated May
23, 1995, as further amended by a Certificate of Amendment of Amended and Restated Certificate of
Incorporation, dated October 17, 1995, as further amended by a Certificate of Amendment of Amended and
Restated Certificate of Incorporation, dated August 19, 1996, as further amended by a Certificate of
Amendment of Amended and Restated Certificate of Incorporation, dated December 19, 1996, as further
amended by a Certificate of Amendment of Amended and Restated Certificate of Incorporation, dated June
20, 1997, as further amended by a Certificate of Amendment of Amended and Restated Certificate of
Incorporation, dated March 26, 1998, as further amended by a Certificate of Amendment of Amended and
Restated Certificate of Incorporation, dated May 22, 1998, as further amended by a Certificate of
Amendment of Amended and Restated Certificate of Incorporation, dated April 2, 1999.
3.2*** Certificate of Amendment of Amended and Restated Certificate of Incorporation, in the form to be filed
prior to the offering.
3.3*** Amended and Restated Certificate of Incorporation of the Registrant, in the form to be filed
immediately prior to the offering.
3.4* Amended and Restated Bylaws of the Registrant.
3.5*** Second Amended and Restated Bylaws of the Registrant, in the form to be effective upon the
consummation of the offering.
4.1*** Specimen Common Stock certificate.
4.2* Registration Agreement dated March 16, 1995 by and between the Registrant, David Friend and William
Nelson.
4.3* Registration Agreement dated October 18, 1995 by and between the Registrant and Nichols Research
Corporation.
4.4* Registration Agreement dated August 21, 1996 by and between the Registrant and certain investor
signatories thereto.
4.5* Registration Agreement dated December 20, 1996 by and between the Registrant and Blackwell Science,
Ltd.
4.6* Registration Agreement dated March 26, 1998 by and between the Registrant and Petra Capital, LLC.
4.7* Registration Agreement dated April 7, 1999 by and between the Registrant, GE Capital Equity
Investments, Inc., Blackwell Science, Ltd. and Blackwell Wissenschafts-Verlag GmbH.
4.8* Amendment to Purchase Agreements and Registrations Agreements dated as of March 23, 1998 by and among
the Registrant and certain stockholder signatories thereto.
4.9* Amended and Restated Stockholders Agreement dated April 7, 1999 by and among the Registrant and
certain stockholder signatories thereto.
4.10 Registration Agreement dated as of June 17, 1999 by and between the Registrant and General Electric
Company.
5.1*** Form of opinion of Rich, May, Bilodeau & Flaherty, P.C., as to the legality of the shares being
registered.
10.1* Electronic Journal Software Development, Hosting and Management Agreement dated as of March 20, 1998
by and between Blackwell Science Limited, Munksgaard International Publishers Ltd. and the Registrant
(excluding Schedules).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<C> <S>
10.2* activePress Journal Hosting and Delivery Agreement dated April 20, 1999 by and between Massachusetts
Medical Society and the Registrant.
10.3* Content License Agreement dated as of October 1, 1998 by and between Clinical Reference Systems, a
division of Access Health, Inc. and the Registrant (excluding Exhibit B).
10.4* Electronic Media License Agreement dated as of June 16, 1998 by and between Western Adventist Health
Services, d/b/a Cinahl Information Systems, and the Registrant.
10.5* Agreement dated as of January 1997 by and between Physicians World Communications Group and the
Registrant.
10.6* Agreement dated as of June 18, 1998 by and between Data General Corporation and the Registrant
(excluding Schedules).
10.7* Sub-Lease Agreement dated March 1, 1999 by and between Synopsys, Inc. and the Registrant (excluding
Exhibits).
10.8* Internet Data Center Services Agreement dated as of December 30, 1998 by and between Exodus
Communications, Inc. and the Registrant.
10.9* 1994 Stock Option Plan of the Registrant, as amended.
10.10* Form of Incentive Stock Option Agreement granted under 1994 Stock Option Plan of the Registrant.
10.11* Form of Non-Employee Director Option Agreement granted under 1994 Stock Option Plan of the Registrant.
10.12* Stock Option Agreement dated as of December 9, 1996 by and between the Registrant and Edson D. de
Castro.
10.13* Stock Option Agreement dated as of November 12, 1997 by and between the Registrant and Edson D. de
Castro.
10.14* Employment Agreement dated as of October 1, 1995 by and between the Registrant and William S. Reece.
10.15* Loan and Security Agreement dated as of March 26, 1998 by and between the Registrant and Petra
Capital, LLC.
10.16* First Amendment to Loan and Security Agreement and Stock Purchase Warrant dated as of April 7, 1999 by
and between the Registrant and Petra Capital, LLC.
10.17* $2,000,000 Secured Promissory Note of the Registrant dated March 26, 1998 and payable to the order of
Petra Capital, LLC.
10.18* Stock Purchase Warrant dated as of March 26, 1998 issued by the Registrant in favor of Petra Capital,
LLC.
10.19* Stock Purchase Agreement dated as of April 5, 1999 by and between the Registrant, GE Capital Equity
Investments, Inc. and Blackwell Science, Ltd., without exhibits or schedules.
10.20** Stock Purchase Warrant dated as of April 21, 1999 issued by the Registrant in favor of Dain Rauscher
Wessels.
10.21* Standard Distribution Agreement dated as of July 28, 1998 by and between the Registrant and
Inteli-Health, Inc.
10.22* Standard Distribution Agreement dated July 15, 1998 by and between the Registrant and AHN Partners,
L.P. d/b/a America's Health Network.
10.23* Hyperlink Agreement dated May 29, 1996 by and between the Registrant and the American Medical
Association.
10.24* Standard Distribution Agreement dated June 3, 1998 by and between the Registrant and Greenberg News
Networks, Inc.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<C> <S>
10.25* Web Site Hosting Agreement dated October 30, 1998 by and between the Registrant and Endeavor
Technologies, Inc.
10.26* Continuing Medical Education Programs License Agreement dated as of April 1, 1996 between the
Registrant and the Trustees of Boston University.
10.27 Development and Distribution Agreement dated as of June 11, 1999 between Registrant and GE Medical
Systems (excluding Exhibits).
10.28 Content Development and Distribution Agreement dated as of June 15, 1999 by and between the Registrant
and Massachusetts Medical Society (excluding Schedules).
10.29 Amendment to Standard Distribution Agreement, Value Added Reseller, dated June 11, 1999 by and between
the Registrant and Data General Corporation.
10.30 Warrant Purchase Agreement dated as of June 11, 1999 by and between the Registrant and General
Electric Company (excluding Exhibits and Schedules).
10.31 Warrant to Purchase Common Stock of the Registrant, dated June 17, 1999, issued to General Electric
Company.
21.1* List of Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants.
23.2*** Consent of Rich, May, Bilodeau & Flaherty, P.C. (included in Exhibit 5.1)
24.1* Power of Attorney contained on signature page of Registration Statement on Form S-1 filed on April 23,
1999.
27.1 Financial Data Schedule.
99.1** Schedule II--Valuation and Qualifying Accounts.
</TABLE>
- ------------------------
* Previously filed with the Registrant's Registration Statement on Form S-1,
filed with the Securities and Exchange Commission on April 23, 1999.
** Previously filed with the Registrant's Amendment No. 1 to Registration
Statement on Form S-1 filed on May 21, 1999.
*** Previously filed with the Registrant's Amendment No. 2 to Registration
Statement on Form S-1 filed on June 14, 1999.
(B) FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation and Qualifying Accounts (See Exhibit 99.1)
All other schedules have been intentionally omitted because they are either
not required or the information has been included in the Notes to the
Consolidated Financial Statements included as part of this Registration
Statement.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under "Item
14--Indemnification of Directors and Officers" above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
II-7
<PAGE>
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Burlington,
Massachusetts, on this 16th day of July, 1999.
HEALTHGATE DATA CORP.
By: /s/ WILLIAM S. REECE
-----------------------------------------
William S. Reece
CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY AND SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
Chairman of the Board of
/s/ WILLIAM S. REECE Directors, Chief
- ------------------------------ Executive Officer and July 16, 1999
William S. Reece President (Principal
executive officer)
Chief Financial Officer and
/s/ MARY B. MILLER Treasurer (Principal
- ------------------------------ financial and accounting July 16, 1999
Mary B. Miller officer)
* /s/ TINA M. H. BLAIR Director
- ------------------------------ July 16, 1999
Tina M. H. Blair, M.D.
* /s/ JONATHAN J. G. Director
CONIBEAR
- ------------------------------ July 16, 1999
Jonathan J. G. Conibear
* /s/ EDSON D. DE CASTRO Director
- ------------------------------ July 16, 1999
Edson D. de Castro
* /s/ DAVID FRIEND Director
- ------------------------------ July 16, 1999
David Friend
* /s/ CHRIS H. HORGEN Director
- ------------------------------ July 16, 1999
Chris H. Horgen
/s/ WILLIAM S. REECE
----------------------------------------
William S. Reece
*By ATTORNEY-IN-FACT
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
1.1*** Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of the Registrant, dated March 14, 1995, as further
amended by a Certificate of Amendment of Amended and Restated Certificate of Incorporation, dated May
23, 1995, as further amended by a Certificate of Amendment of Amended and Restated Certificate of
Incorporation, dated October 17, 1995, as further amended by a Certificate of Amendment of Amended and
Restated Certificate of Incorporation, dated August 19, 1996, as further amended by a Certificate of
Amendment of Amended and Restated Certificate of Incorporation, dated December 19, 1996, as further
amended by a Certificate of Amendment of Amended and Restated Certificate of Incorporation, dated June
20, 1997, as further amended by a Certificate of Amendment of Amended and Restated Certificate of
Incorporation, dated March 26, 1998, as further amended by a Certificate of Amendment of Amended and
Restated Certificate of Incorporation, dated May 22, 1998, as further amended by a Certificate of
Amendment of Amended and Restated Certificate of Incorporation, dated April 2, 1999.
3.2*** Certificate of Amendment of Amended and Restated Certificate of Incorporation, in the form to be filed
prior to the offering.
3.3*** Amended and Restated Certificate of Incorporation of the Registrant, in the form to be filed
immediately prior to the offering.
3.4* Amended and Restated Bylaws of the Registrant.
3.5*** Second Amended and Restated Bylaws of the Registrant, in the form to be effective upon the
consummation of the offering.
4.1*** Specimen Common Stock certificate.
4.2* Registration Agreement dated March 16, 1995 by and between the Registrant, David Friend and William
Nelson.
4.3* Registration Agreement dated October 18, 1995 by and between the Registrant and Nichols Research
Corporation.
4.4* Registration Agreement dated August 21, 1996 by and between the Registrant and certain investor
signatories thereto.
4.5* Registration Agreement dated December 20, 1996 by and between the Registrant and Blackwell Science,
Ltd.
4.6* Registration Agreement dated March 26, 1998 by and between the Registrant and Petra Capital, LLC.
4.7* Registration Agreement dated April 7, 1999 by and between the Registrant, GE Capital Equity
Investments, Inc., Blackwell Science, Ltd. and Blackwell Wissenschafts-Verlag GmbH.
4.8* Amendment to Purchase Agreements and Registrations Agreements dated as of March 23, 1998 by and among
the Registrant and certain stockholder signatories thereto.
4.9* Amended and Restated Stockholders Agreement dated April 7, 1999 by and among the Registrant and
certain stockholder signatories thereto.
4.10 Registration Agreement dated as of June 17, 1999 by and between the Registrant and General Electric
Company.
5.1*** Form of opinion of Rich, May, Bilodeau & Flaherty, P.C., as to the legality of the shares being
registered.
10.1* Electronic Journal Software Development, Hosting and Management Agreement dated as of March 20, 1998
by and between Blackwell Science Limited, Munksgaard International Publishers Ltd. and the Registrant
(excluding Schedules).
10.2* activePress Journal Hosting and Delivery Agreement dated April 20, 1999 by and between Massachusetts
Medical Society and the Registrant.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.3* Content License Agreement dated as of October 1, 1998 by and between Clinical Reference Systems, a
division of Access Health, Inc. and the Registrant (excluding Exhibit B).
10.4* Electronic Media License Agreement dated as of June 16, 1998 by and between Western Adventist Health
Services, d/b/a Cinahl Information Systems, and the Registrant.
10.5* Agreement dated as of January 1997 by and between Physicians World Communications Group and the
Registrant.
10.6* Agreement dated as of June 18, 1998 by and between Data General Corporation and the Registrant
(excluding Schedules).
10.7* Sub-Lease Agreement dated March 1, 1999 by and between Synopsys, Inc. and the Registrant (excluding
Exhibits).
10.8* Internet Data Center Services Agreement dated as of December 30, 1998 by and between Exodus
Communications, Inc. and the Registrant.
10.9* 1994 Stock Option Plan of the Registrant, as amended.
10.10* Form of Incentive Stock Option Agreement granted under 1994 Stock Option Plan of the Registrant.
10.11* Form of Non-Employee Director Option Agreement granted under 1994 Stock Option Plan of the Registrant.
10.12* Stock Option Agreement dated as of December 9, 1996 by and between the Registrant and Edson D. de
Castro.
10.13* Stock Option Agreement dated as of November 12, 1997 by and between the Registrant and Edson D. de
Castro.
10.14* Employment Agreement dated as of October 1, 1995 by and between the Registrant and William S. Reece.
10.15* Loan and Security Agreement dated as of March 26, 1998 by and between the Registrant and Petra
Capital, LLC.
10.16* First Amendment to Loan and Security Agreement and Stock Purchase Warrant dated as of April 7, 1999 by
and between the Registrant and Petra Capital, LLC.
10.17* $2,000,000 Secured Promissory Note of the Registrant dated March 26, 1998 and payable to the order of
Petra Capital, LLC.
10.18* Stock Purchase Warrant dated as of March 26, 1998 issued by the Registrant in favor of Petra Capital,
LLC.
10.19* Stock Purchase Agreement dated as of April 5, 1999 by and between the Registrant, GE Capital Equity
Investments, Inc. and Blackwell Science, Ltd., without exhibits or schedules.
10.20** Stock Purchase Warrant dated as of April 21, 1999 issued by the Registrant in favor of Dain Rauscher
Wessels.
10.21* Standard Distribution Agreement dated as of July 28, 1998 by and between the Registrant and
Inteli-Health, Inc.
10.22* Standard Distribution Agreement dated July 15, 1998 by and between the Registrant and AHN Partners,
L.P. d/b/a America's Health Network.
10.23* Hyperlink Agreement dated May 29, 1996 by and between the Registrant and the American Medical
Association.
10.24* Standard Distribution Agreement dated June 3, 1998 by and between the Registrant and Greenberg News
Networks, Inc.
10.25* Web Site Hosting Agreement dated October 30, 1998 by and between the Registrant and Endeavor
Technologies, Inc.
10.26* Continuing Medical Education Programs License Agreement dated as of April 1, 1996 between the
Registrant and the Trustees of Boston University.
10.27 Development and Distribution Agreement dated as of June 11, 1999 between Registrant and GE Medical
Systems (excluding Exhibits).
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.28 Content Development and Distribution Agreement dated as of June 15, 1999 by and between the Registrant
and Massachusetts Medical Society (excluding Schedules).
10.29 Amendment to Standard Distribution Agreement, Value Added Reseller, dated June 11, 1999 by and between
the Registrant and Data General Corporation.
10.30 Warrant Purchase Agreement dated as of June 11, 1999 by and between the Registrant and General
Electric Company (excluding Exhibits and Schedules).
10.31 Warrant to Purchase Common Stock of the Registrant, dated June 17, 1999, issued to General Electric
Company.
21.1* List of Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants.
23.2*** Consent of Rich, May, Bilodeau & Flaherty, P.C. (included in Exhibit 5.1)
24.1* Power of Attorney contained on signature page of Registration Statement on Form S-1 filed on April 23,
1999.
27.1 Financial Data Schedule.
99.1** Schedule II--Valuation and Qualifying Accounts.
</TABLE>
- ------------------------
* Previously filed with the Registrant's Registration Statement on Form S-1,
filed with the Securities and Exchange Commission on April 23, 1999.
** Previously filed with the Registrant's Amendment No. 1 to Registration
Statement on Form S-1 filed on May 21, 1999.
*** Previously filed with the Registrant's Amendment No. 2 to Registration
Statement on Form S-1 filed on June 14, 1999.
<PAGE>
Exhibit 4.10
REGISTRATION AGREEMENT
THIS AGREEMENT dated as of June 17, 1999 is made between HealthGate
Data Corp., a Delaware corporation (the "Company") and General Electric Company,
a New York Corporation or one or more of its affiliates (the "Purchaser").
WHEREAS, the Company and the Purchaser have entered into a Warrant
Purchase Agreement of even date herewith (the "Purchase Agreement"); and
WHEREAS, the Company and the Purchaser desire to provide for certain
arrangements with respect to the registration of shares of capital stock of the
Company under the Securities Act of 1933;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. DEMAND REGISTRATIONS.
(a) REQUESTS FOR REGISTRATION. At any time commencing upon the
earlier of (i) six months after the closing of a public offering of the
Company's Common Stock pursuant to a registration statement filed under the
Securities Act and (ii) the second anniversary of the Closing, the holders of
the Registrable Securities may request registration under the Securities Act of
all or part of their Registrable Securities on (i) Form S-1 or any similar or
successor long-form registration ("Long-Form Registrations"), or (ii) Form S-3
or any similar or successor short-form registration ("Short-Form
Registrations"), if a Short-Form Registration is then available to the Company.
Within twenty business days after receipt of any such request, the Company will
give written notice of such requested registration to all other holders of
Registrable Securities and will include in such registration all Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within 15 days after the receipt of the Company's notice. All
registrations requested pursuant to this paragraph 1(a) are referred to herein
as "Demand Registrations".
(b) LONG-FORM REGISTRATION. The holders of Registrable
Securities will be entitled to request one Long-Form Registration in which the
Company will pay all Registration Expenses. A registration will not count as a
Long-Form Registration until it has become effective unless discontinued at the
request of the holders of the Registrable Securities included therein.
(c) SHORT-FORM REGISTRATIONS. In addition to the Long-Form
Registration provided pursuant to paragraph l(b), the holders of Registrable
Securities will be entitled to request not more than two Short-Form
Registrations in which the Company will pay all Registration Expenses. Demand
Registrations will be Short-Form Registrations whenever the Company is permitted
to use any applicable short form. Once the Company has become subject to the
reporting requirements of the Securities Exchange Act, the Company will use its
best efforts to make Short-Form Registrations available for the sale of
Registrable Securities.
<PAGE>
(d) PRIORITY ON DEMAND REGISTRATIONS. Except for the piggyback
registration rights set forth in Section 2 of each of the following agreements:
(i) the Company's Registration Agreement with David Friend and William Nelson,
dated March 16, 1995, (ii) the Company's Registration Agreement with Nichols
Research Corporation, dated October 18, 1995, (iii) the Company's Registration
Agreement with Purchasers of Series C Shares, dated August 21, 1996, (iv) the
Company's Registration Agreement with Petra Capital, LLC, dated March 26, 1998,
and (v) the Company's Registration Agreement with GE Capital Equity Investments,
Inc., dated March__, 1999, and except for the registration rights set forth in
the Company's Registration Agreement with Blackwell Science, Ltd., dated
December 20, 1996, (which piggyback and registration rights are subject to the
priority in such registration of all Registrable Securities and are subject to
cut-back as provided in the second sentence of this paragraph 1(d)), the Company
will not include in any Demand Registration any securities which are not
Registrable Securities without the written consent of the holders of a majority
of the Registrable Securities requesting such registration. If a Demand
Registration is an underwritten offering, and the managing underwriters advise
the Company in writing that in their opinion the number of Registrable
Securities and other securities requested to be included pursuant to the
registration rights described in the first sentence of this Section 1(d)
(together with the Registrable Securities, the "Requested Securities") exceeds
the number of Requested Securities which can be sold in such offering, the
Company will include in such registration prior to the inclusion of any
securities which are not Requested Securities the number of Requested Securities
requested to be included which in the opinion of such underwriters can be sold,
pro rata among the respective holders on the basis of the amount of Requested
Securities owned. Any Persons other than holders of Registrable Securities who
participate in Demand Registrations must pay their share of the Registration
Expenses as provided in paragraph 5 unless otherwise agreed to by the Company's
board of directors.
(e) RESTRICTIONS. If, at the time of any request to register
Registrable Securities pursuant to this paragraph 1, the Company
(i) has filed, or has definite plans to file within
90 days after the time of the request, a registered public offering as to which
the holders may include Registrable Securities pursuant to paragraph 2, or
(ii) is engaged in any other activity which, in the
good faith determination of the Company's board of directors, would be adversely
affected by the requested registration to the material detriment of the Company,
then the Company's board of directors may at its option direct that such request
be delayed for a period not in excess of six months from the effective date of
such offering or ninety days from the date of commencement of such other
activity, as the case may be, and such right to delay a requested registration
may not be exercised by the Company more than once in any 12-month period. If
the holders of Registrable Securities included therein elect to discontinue a
delayed registration, the Company will pay all of the Registration Expenses in
connection therewith, and such registration will not count as one of the
permitted Demand Registrations. The Company will not in any event be obligated
to effect any
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Demand Registration within six months after the effective date of a previous
Demand Registration.
(f) SELECTION OF UNDERWRITERS. The holders of a majority of
the Registrable Securities included in any Demand Registration will have the
right to select the investment banker(s) and manager(s) to administer the
offering, subject to the Company's approval which will not be unreasonably
withheld.
(g) OTHER REGISTRATION RIGHTS. Except as provided in this
Agreement and subject to the provisions of Section 8 herein, the Company will
not grant to any Persons the right to request the Company to register any equity
securities of the Company, or any securities convertible or exchangeable into or
exercisable for such securities, without the written consent of the holders of a
majority of the Registrable Securities; provided that the Company may grant
rights to other Persons to participate in Piggyback Registrations so long as
such rights are subject to the provisions of paragraphs 2(c) and 2(d) hereof.
2. PIGGYBACK REGISTRATIONS.
(a) RIGHT TO PIGGYBACK. Whenever the Company proposes to
register any of its securities under the Securities Act (other than pursuant to
a Demand Registration) and the registration form to be used may be used for the
registration of Registrable Securities (a "Piggyback Registration"), the Company
will give prompt written notice to all holders of Registrable Securities of its
intention to effect such a registration and will include in such registration
all Registrable Securities with respect to which the Company has received
written requests for inclusion therein within 15 days after the Company gives
its notice. The right of holders of Registrable Securities to such Piggyback
Registrations shall be unlimited.
(b) PIGGYBACK EXPENSES. The Registration Expenses of the
holders of Registrable Securities will be paid by the Company in all Piggyback
Registrations.
(c) PRIORITY ON INITIAL PUBLIC OFFERING REGISTRATION. If a
Piggyback Registration is an underwritten primary registration on behalf of the
Company which is an initial public offering, and the managing underwriters
advise the Company in writing that in their opinion the number of securities
requested to be included in such registration exceeds the number which can be
sold in such offering, the Company will include in such registration (i) first,
the securities the Company proposes to sell, (ii) second, the Registrable
Securities and the securities that may be registered pursuant to registration
rights granted to holders of the Series E Preferred Stock (the "Series E
Registrable Securities") which are requested to be included in such
registration, pro rata among the holders of such securities on the basis of the
number of shares owned by such holders, and (iii) third, other securities
requested to be included in such registration. Notwithstanding the foregoing,
the Purchaser hereby waives its rights to include any equity securities of the
Company in the Company's initial public offering and the Company represents that
no other equity holders will include equity securities of the Company in any
such initial public offering.
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<PAGE>
(d) PRIORITY ON PRIMARY AND SECONDARY REGISTRATIONS. If a
Piggyback Registration is an underwritten primary registration on behalf of the
Company which is not an initial public offering, or a secondary registration on
behalf of holders of the Company's securities, and the managing underwriters
advise the Company in writing that in their opinion the number of securities
requested to be included in such registration exceeds the number which can be
sold in such offering, the Company will include in such registration (i) first,
the securities requested to be included in such registration by the Company for
its own account up to a maximum aggregate offering price of $20 million, if such
registration is being initiated by the Company, (ii) second, the Registrable
Securities and the Series E Registrable Securities which are requested to be
included in such registration, pro rata among the holders of such securities on
the basis of the number of shares owned by such holders and (iii) third, other
securities requested to be included in such registration.
(e) OTHER REGISTRATIONS. If the Company has previously filed a
registration statement with respect to Registrable Securities pursuant to
paragraph 1 or pursuant to this paragraph 2, and if such previous registration
has not been withdrawn or abandoned, the Company will not file or cause to be
effected any other registration of any of its equity securities or securities
convertible or exchangeable into or exercisable for its equity securities under
the Securities Act (except on Form S-8 or any successor form), whether on its
own behalf or at the request of any holder or holders of such securities, until
a period of at least six months has elapsed from the effective date of such
previous registration.
3. HOLDBACK AGREEMENTS.
(a) Each holder of Registrable Securities agrees not to effect
any public sale or distribution of equity securities of the Company, or any
securities convertible into or exchangeable or exercisable for such securities,
during (i) the seven days prior to and the 180-day period beginning on the
effective date of any underwritten Demand Registration or any underwritten
Piggyback Registration in which Registrable Securities are included (except as
part of such underwritten registration) (ii) the 180-day period following the
date of the final prospectus filed by the Company with the Securities and
Exchange Commission in connection with the first underwritten public offering of
the Company's common stock unless the underwriters managing such registered
public offering otherwise agree.
(b) The Company agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and during the 180-day period beginning on the effective date of any
underwritten Demand Registration or any underwritten Piggyback Registration in
which Registrable Securities are included (except as part of such underwritten
registration or pursuant to registrations on Form S-8 or any successor form)
unless the underwriters managing such registered public offering otherwise
agree, and (ii) to use its best efforts to cause each Person who holds at least
5% of the Common Stock of the Company (on a fully-diluted basis), acquired at
any time after the date of this Agreement (other than in a registered public
offering), to agree not to effect any public sale or distribution of any such
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<PAGE>
securities during such period (except as part of such underwritten registration,
if otherwise permitted) unless the underwriters managing such registered public
offering otherwise agree.
4. REGISTRATION PROCEDURES. Whenever the holders of Registrable
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, the Company will use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof, and pursuant thereto the Company will as
expeditiously as possible:
(a) prepare and file with the Securities and Exchange
Commission a registration statement with respect to such Registrable Securities,
and use its best efforts to cause such registration statement to become
effective (provided that before filing a registration statement or prospectus or
any amendments or supplements thereto, the Company will furnish to the counsel
selected by the holders of a majority of the Registrable Securities covered by
such registration statement copies of all such documents proposed to be filed,
which documents will be subject to the review of such counsel);
(b) prepare and file with the Securities and Exchange
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period of not less than 90 days and
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
(c) furnish to each seller of such Registrable Securities such
number of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (provided, that the Company will not be required
to (i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii) subject itself
to taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction);
(e) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company will prepare
a supplement or
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<PAGE>
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any fact necessary to make the
statements therein not misleading;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed;
(g) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
(h) enter into such customary agreements (including an
underwriting agreement in customary form) and take all such other actions as the
holders of a majority of the Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities; and
(i) make available for inspection by any seller of such
Registrable Securities, any underwriter participating in any disposition
pursuant to this Agreement, and any attorney, accountant or other agent retained
by any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all information reasonably requested
by any such seller, underwriter, attorney, accountant or agent in connection
with such registration statement. In connection with any Demand Registration or
Piggyback Registration, the holders of Registrable Securities will expeditiously
supply the Company with all information and copies of all documents reasonably
necessary to effect such registration in compliance with the Securities Act and
the rules and regulations thereunder and shall otherwise cooperate with the
Company and its counsel in expediting the effectiveness of any such
registration.
5. REGISTRATION EXPENSES.
(a) Except as otherwise provided herein, all expenses incident
to the Company's performance of or compliance with this Agreement, including
without limitation all registration and filing fees, fees and expenses of
compliance with securities or blue sky laws, printing expenses, messenger and
delivery expenses, and fees and disbursements of counsel for the Company and all
independent certified public accountants, underwriters (excluding underwriters'
discounts and commissions) and other Persons retained by the Company and all
other expenses of the Company, including internal expenses (including without
limitation all salaries and expenses of its officers and employees performing
legal or accounting duties), the expense of any annual audit, the expense of any
liability insurance and the expenses and fees for listing the securities to be
registered on each securities exchange on which similar securities issued by the
Company are then listed (all such expenses being herein called "Registration
Expenses") will be borne by the Company.
(b) To the extent Registration Expenses are not required to be
paid by the Company, each holder of securities included in any registration
hereunder will pay those Registration Expenses allocable to the registration of
such holder's securities so included, and
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<PAGE>
any Registration Expenses not so allocable will be borne by all sellers of
securities included in such registration in proportion to the aggregate selling
price of the securities to be so registered.
6. INDEMNIFICATION.
(a) The Company agrees to indemnify, to the extent permitted
by law, each holder of Registrable Securities and, as applicable, such holder's
officers and directors and each Person who controls such holder (within the
meaning of the Securities Act) against all losses, claims, damages, liabilities
and expenses caused by any untrue or alleged untrue statement of material fact
contained in any registration statement, prospectus or preliminary prospectus or
any amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same are caused by or
contained in any information furnished in writing to the Company by such holder
expressly for use therein or by such holder's failure to deliver a copy of the
registration statement or prospectus or any amendments or supplements thereto
after the Company has furnished such holder with a sufficient number of copies
of the same. In connection with an underwritten offering, the Company will
indemnify such underwriters, their officers and directors and each Person who
controls such underwriters (within the meaning of the Securities Act) to the
same extent as provided above with respect to the indemnification of the holders
of Registrable Securities; provided that such underwriters indemnify the Company
to the same extent as provided in subparagraph (b) below with respect to the
indemnification of the Company by the holders of Registrable Securities.
(b) In connection with any registration statement in which a
holder of Registrable Securities is participating, each such holder will furnish
to the Company in writing such information and affidavits as the Company
reasonably requests for use in connection with any such registration statement
or prospectus and, to the extent permitted by law, will indemnify the Company,
its directors and officers and each Person who controls the Company (within the
meaning of the Securities Act) against all losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission or alleged untrue statement or omission is
contained in any information or affidavit so furnished in writing by such
holder; provided, that the obligation to indemnify will be several, not joint
and several, among such holders of Registrable Securities participating in the
registration and the liability of each such holder of Registrable Securities
will be in proportion to and limited to the net proceeds received by such holder
from the sale of Registrable Securities pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder will (i)
give prompt written notice to the indemnifying party of any claim with respect
to which such person seeks indemnification and (ii) unless in the reasonable
judgment of counsel for such indemnified party (given in writing) a conflict of
interest between such indemnified and indemnifying parties exists with respect
to such claim, permit such indemnifying party to assume the defense of such
claim
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<PAGE>
with counsel reasonably satisfactory to the indemnified party. If such defense
is so assumed, the indemnifying party will not be subject to any liability for
any settlement made by the indemnified party without the indemnifying party's
consent (but such consent will not be unreasonably withheld). An indemnifying
party who is not entitled to, or elects not to, assume the defense of a claim
will not be obligated to pay the fees and expenses of more than one counsel for
all parties indemnified by such indemnifying party with respect to such claim,
unless in the reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim.
(d) The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling Person
of such indemnified party and will survive the transfer of securities. The
Company also agrees to make such provisions for contribution to any indemnified
party in the event the Company's indemnification is unavailable for any reason
as are reasonably requested by any indemnified party.
7. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
participate in any underwritten registration hereunder unless such Person (a)
agrees to sell such Person's securities on the basis provided in the
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
8. AMENDMENT OF REGISTRATION AGREEMENT. If the Company desires to enter
into or does enter into a Registration Agreement with any Person at any time (a
"New Registration Agreement") and such New Registration Agreement provides for
rights more beneficial to such Person than those rights provided to the
Purchaser herein or provided to the Purchaser pursuant to any amendment,
restatement or modification of this Agreement, the Company and the Purchaser
shall agree to further amend, restate or modify this Agreement to provide the
Purchaser with the equivalent rights as those provided in the New Registration
Agreement.
9. DEFINITIONS.
(a) The term "Registrable Securities" means (i) any Common
Stock issued upon the exercise of the Warrant issued to the Purchaser pursuant
to the Purchase Agreement or any other security issued by the Company to the
Purchaser after the date of this Agreement, (ii) any Common Stock issued or
issuable with respect to the Common Stock referred to in clause (i) by way of a
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization, and (iii) any
other shares of Common Stock held by Persons holding securities described in
clauses (i) or (ii) above. As to any particular Registrable Securities, such
securities will cease to be Registrable Securities when they have ceased to be
Restricted Securities under the particular Purchase Agreement pursuant to which
such securities were issued; provided that any securities which cease to be
Restricted Securities solely because they have become eligible for transfer
pursuant to Rule 144 (or any similar rule then in force) will not cease to be
Registrable Securities until they have actually been
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sold in compliance with Rule 144 (or any similar rule then in force). For
purposes of this Agreement, a Person will be deemed to be a holder of
Registrable Securities whenever such Person has the right to acquire such
Registrable Securities (by conversion, election to exercise purchase right or
otherwise), but disregarding any legal restrictions upon the exercise of such
right), whether or not such acquisition has actually been effected.
(b) Unless otherwise stated, other capitalized terms contained
herein have the meanings set forth in the Purchase Agreement.
10. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company will not hereafter
enter into any agreement with respect to its securities which is inconsistent
with the rights granted to the holders of Registrable Securities in this
Agreement.
(b) ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company
will not take any action, or permit any change to occur, with respect to its
securities which would materially and adversely affect the ability of the
holders of Registrable Securities to include such Registrable Securities in a
registration undertaken pursuant to this Agreement or which would materially and
adversely affect the marketability of such Registrable Securities in any such
registration (including, without limitation, effecting a stock split or a
combination of shares).
(c) REMEDIES. Any Person having rights under any provision of
this Agreement will be entitled to enforce such rights specifically, to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law.
(d) AMENDMENTS AND WAIVERS. Except as otherwise provided
herein, the provisions of this Agreement may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of holders
of a majority of the Registrable Securities.
(e) SUCCESSORS AND ASSIGNS. All covenants and agreements in
this Agreement by or on behalf of any of the parties hereto will bind and inure
to the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not; provided, however, that no transferee of any
Purchaser shall be entitled to any rights hereunder unless such transferee (a)
acquires a number of Registrable Securities representing not less than 150,000
shares of Common Stock on an as converted basis (as proportionally adjusted for
stock splits, stock dividends and recapitalization affecting the Common Stock)
or (b) is a member of the "affiliated group" of the Purchaser (as defined
below). The Company shall be given written notice by the Purchaser a reasonable
time after such transfer stating the name and address of the transferee and
identifying the securities with respect to which its rights hereunder are being
assigned. Any transferee to whom rights hereunder are transferred shall, as a
condition to such transfer, deliver to the Company a written instrument by which
the transferee agrees to be bound by the obligations imposed upon the Purchaser
hereunder to the same extent as if such transferee were an original party
hereto. As used herein, the term "affiliated group" includes the Purchaser's or
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any transferee's spouse, parents, siblings and descendants (whether natural or
adopted) and any trust solely for the benefit of such person and/or such person
spouse, parents, siblings and/or descendants and, in the case of a corporation,
limited liability company or partnership, any shareholder or partner thereof or
any entity which controls, is controlled by or is under common control with such
corporation, limited liability company or partnership.
(f) SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(g) COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts, any one of which need not contain
the signatures of more than one party, but all such counterparts taken together
will constitute one and the same Agreement.
(h) DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO SUBMIT TO THE EXCLUSIVE JURISDICTION
OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES OF AMERICA, IN
EACH CASE LOCATED IN THE COUNTY OF NEW YORK, FOR ANY ACTION, PROCEEDING OR
INVESTIGATION IN ANY COURT OR BEFORE ANY GOVERNMENTAL AUTHORITY ("LITIGATION")
ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
HEREBY (AND AGREES NOT TO COMMENCE ANY LITIGATION RELATING THERETO EXCEPT IN
SUCH COURTS), AND FURTHER AGREES THAT SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR
DOCUMENT BY U.S. REGISTERED MAIL TO ITS RESPECTIVE ADDRESS SET FORTH IN THIS
AGREEMENT SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY LITIGATION BROUGHT
AGAINST IT IN ANY SUCH COURT. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY LITIGATION
ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY IN THE
COURTS OF THE STATE OF NEW YORK OR THE UNITED STATES OF AMERICA, IN EACH CASE
LOCATED IN THE COUNTY OF NEW YORK, AND HEREBY FURTHER IRREVOCABLY AND
UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT
ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. EACH OF THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHTS TO TRIAL
BY
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JURY IN CONNECTION WITH ANY LITIGATION ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(j) NOTICES. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
will be in writing and will be deemed to have been given when delivered
personally, sent by confirmed fax or mailed by certified or registered mail,
return receipt requested and postage prepaid, to the recipient. Such notices,
demands and other communications will be sent
To the Company: HealthGate Data Corp.
25 Corporate Drive, Suite 310
Burlington, MA 01803
Fax: (781) 685-4040
Attention: William S. Reece, President
with a copy to: Stephen M. Kane, Esq.
Rich, May, Bilodeau & Flaherty, P.C.
294 Washington Street
Boston, MA 02108
Fax: (617) 556-3889
To the Purchaser: GE Medical Systems
300 North Grandview Blvd.
Waukesha, Wisconsin
Attention: General Counsel
Fax:_________________________
with a copy to: Steven Shoemate, Esq.
Gibson Dunn & Crutcher LLP
200 Park Avenue
New York, New York 10166-0193
Fax: (212) 351-4035
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
HEALTHGATE DATA CORP.
By: /s/ William S. Reece
---------------------------------
William S. Reece, President
GENERAL ELECTRIC COMPANY
By: /s/ Michael A. Jones
---------------------------------
Michael A. Jones
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Exhibit 10.27
DEVELOPMENT AND DISTRIBUTION AGREEMENT
BETWEEN
GE MEDICAL SYSTEMS
AND
HEALTHGATE DATA CORP.
JUNE 11, 1999
<PAGE>
DEVELOPMENT AND DISTRIBUTION AGREEMENT
This Agreement, effective as of June 11, 1999, is between GE Medical
Systems, a division of General Electric Company, a corporation organized and
existing under the laws of the state of New York ("GEMS"), and HealthGate Data
Corp., a corporation organized and existing under the laws of the state of
Delaware ("HealthGate").
RECITALS
A. HealthGate owns or has rights to certain "HealthGate Products" (as
defined below) which are used in health, medicine, training and education.
B. GEMS owns or has rights to certain content, satellite broadcast
programming and branding and related goods and services which are used in
health, medicine, training and education, and which are used to distribute
information about, and to promote, its other goods and services.
C. The parties intend to develop certain enhanced or supplemented
embodiments of HealthGate Products (called "GEMS Products" herein, as defined
below) by integrating certain Marks (as defined below), content, programming and
e-commerce capabilities of GEMS with the HealthGate Products. GEMS is granted a
limited worldwide right hereunder to distribute HealthGate Products, including
an exclusive right to distribute HealthGate Products to the Exclusive Customers
(as defined below), and an exclusive worldwide right to distribute GEMS
Products. The parties are to share Revenue (as defined herein) in connection
therewith.
D. Simultaneous with this Agreement, the parties are entering into a
Warrant Purchase Agreement (the "Warrant Agreement") of even date herewith,
under which General
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Electric Company or one or more of its affiliates acquires a warrant to purchase
certain stock of HealthGate as set forth therein.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises and covenants set forth below, the parties agree as follows:
ARTICLE I
DEFINITIONS
Capitalized terms herein shall have the following meanings for purposes of
this Agreement:
1.1 "Agreement" has the meaning set forth in the preamble.
1.2 "HealthGate Products" means all present and all future releases,
versions and embodiments of the suite of HealthGate products and services
currently known as "CHOICE," that are developed for or marketed or sold to the
Healthcare Marketplace, including any future products or services having a
different name but substituting for or superseding, or performing the same or
equivalent function as, or competing with, CHOICE, but not including those
current products or services listed on Exhibit B attached hereto with respect to
which HealthGate is prohibited by existing obligations to content providers from
allowing distribution by GEMS.
1.3 "Healthcare Marketplace" means institutions, organizations and
corporations in the business of delivering patient care, including but not
limited to hospitals, multi-hospital systems, clinics, out-patient centers,
healthcare group purchasing organizations and integrated delivery networks.
1.4 "GEMS Products" means products resulting from HealthGate Products
(i) being enhanced or supplemented with content contributed by GEMS, regardless
of format, or (ii) to which Marks of GEMS are applied, or (iii) for which GEMS
contributes any development costs.
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1.5 "Products" means HealthGate Products sold or deemed sold by GEMS and
GEMS Products, singly and jointly.
1.6 "Exclusive Customers" means the companies and institutions listed in
Exhibit A hereto.
1.7 "Revenue" means all monetary consideration and the fair market value
of all non-monetary consideration actually received, not including any sales or
value-added taxes, and less any returns or refunds. In the case of Revenue in a
currency other than United States dollars, such Revenue shall be converted to
United States dollars using the exchange rate in effect on the last day of the
calendar quarter during which such Revenue is received.
1.8 "Qualified Lead" means a lead with an Exclusive Customer for which
HealthGate delivers written notice to GEMS (a) identifying such Exclusive
Customer, (b) identifying a contact at such Exclusive customer, (c) summarizing
the web capabilities of and HealthGate proposals made to such Exclusive Customer
as of the date of such notice, and (d) describing any discussions between
HealthGate and such Exclusive Customer as of the date of such notice.
1.9 "Confidential Information" means any information received by a party
that is marked "Confidential" or "Proprietary" or, in the case of information
that is disclosed orally, is reduced to writing and such writing is delivered to
the receiving party confirming the oral disclosure and identifying the oral
disclosure as "Confidential" within 30 days after the oral disclosure.
Confidential Information shall not include any information that the receiving
party can demonstrate, by a preponderance of the evidence, is already known to
it at the time of the disclosure, is in the public domain other than as
consequence of breach by it of its obligation hereunder not to disclose the
information, is received from another without an obligation of
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confidentiality, or is thereafter independently developed by it without the use
of any such information.
1.10 "Marks" has the meaning set forth in Section 6.5 below.
1.11 "Control" has the meaning set forth in Section 13.3 below.
1.12 "Integration Support" has the meaning set forth in Article 2 below.
1.13 "Competitive Activities" means GEMS selling of any enterprise-wide
supplemental website healthcare content to the Healthcare Marketplace other than
as provided hereunder. As of the signing of this Agreement, "Competitive
Activities" shall mean those offered by drkoop.com and AHN. "Competitive
Activities" shall not include departmental and educational solutions, shall not
include GEMS' existing distribution arrangements with the Health Channel, and
shall not include TiP.
1.14 "List Price" means, with respect to the sale of Products during a
calendar quarter, the lesser of (a) the list price for HealthGate Products last
published by HealthGate prior to such calendar quarter and (b) any discounted
prices at which HealthGate directly or indirectly distributes comparable volumes
of HealthGate Products to end users during such calendar quarter. "List Price"
does not include any sales or value-added taxes, surcharges, discounts, refunds
or credits.
ARTICLE II
DEVELOPMENT
2.1 DEVELOPMENT OF GEMS PRODUCTS. The parties will collaborate in the
development of GEMS Products by integrating into HealthGate Products those
portions of GEMS' content, programming and branding and related goods and
services as may be designated by GEMS from time to time. The GEMS Products will
be directed toward specific areas of expertise of GEMS,
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including, but not limited to, radiology, cardiology and women's health, and
related educational materials, and GEMS e-commerce applications. More
specifically, the parties anticipate that the GEMS Products will include
continuing education and continuing medical education, e-commerce, medical
content, health and wellness content and consulting services.
2.2. INTEGRATION SUPPORT. During the term of this agreement, HealthGate
will provide Integration Support (as defined below) to GEMS as follows:
(a) Upon receipt of a request for Integration Support from GEMS,
each of which shall be written with sufficient detail to enable
HealthGate's personnel to estimate the programming and other requirements
thereof, HealthGate shall promptly deliver to GEMS a written project
outline which will outline the scope of work and the number of man hours
required to fulfill such request (each, a "Project Outline"). Any
modifications to the GEMS request for Integration Support shall require a
further request from GEMS and a further Project Outline from HealthGate.
(b) At its expense, HealthGate will provide up to 300 man-hours of
Integration Support to GEMS during each calendar quarter. Subject to
Section 2.2(c) below, all Integration Support provided to GEMS in excess
of 300 man-hours during each calendar quarter shall be provided to GEMS on
an as available basis and at the expense of GEMS, based on the actual time
and materials costs incurred by HealthGate in providing such additional
Integration Support and on terms and conditions no less favorable than
those granted to others.
(c) Any time or material expenses incurred by HealthGate in excess
of the time and materials set forth in a Project Outline (as modified in
accordance with Section 2.2(a) above) shall be borne by HealthGate, and
any such excess man-hours shall
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not apply for any purpose against the 300 man-hours agreed to be provided
under Section 2.2(b) above.
(d) "Integration Support" includes, but is not limited to, the
following services: review of requests submitted by GEMS as contemplated
under Section 2.2(a) above; preparation and delivery of Project Outlines;
and design, development, testing and implementation of all necessary
services and support for the integration of GEMS Marks, links to GEMS
Websites and the integration of GEMS' content and look and feel of GEMS
into HealthGate Products for the purpose of creating GEMS Products.
2.3 CREATION OF DERIVATIVE WORKS. HealthGate will provide all necessary
technical support to GEMS in the creation and development of derivative works of
and new content or features for GEMS Products, subject to the ownership
provisions of Article III below and such other terms and conditions as agreed
upon by the parties from time to time. Such terms and conditions will be
reasonable, and no less favorable to GEMS than those offered by HealthGate to
others under similar circumstances. The parties may mutually agree for
HealthGate to provide such support at the expense of GEMS, the shared expense of
GEMS and HealthGate, or the expense of HealthGate, which agreement shall have
the effect described in Article III and Section 7.2(b).
ARTICLE III
OWNERSHIP
3.1 OWNERSHIP OF GEMS PRODUCTS. GEMS will own, and HealthGate hereby
assigns and agrees to assign to GEMS, all elements of GEMS Products that (i)
constitute, or are derivative works of, GEMS content, regardless of format
(including without limitation works of authorship, source and object code, and
databases) or (ii) for which GEMS contributes
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development costs. Such assignment shall include all copyrights, trade secret
rights and other intellectual property rights thereto, with the unrestricted
right to reproduce, prepare derivative works, use, distribute, perform and
display such elements. HealthGate will have no rights to any such elements
unless expressly provided otherwise in writing by GEMS.
3.2 OWNERSHIP OF HEALTHGATE PRODUCTS. HealthGate shall own all
HealthGate Products and any elements of GEMS Products that do not constitute,
and are not derivative works of, GEMS content and for which GEMS does not
contribute development costs, including all copyrights, trade secret rights and
other intellectual property rights thereto, subject to the distribution rights
of GEMS under Section 4.1 below and other rights of GEMS hereunder.
3.3 GEMS OWNERSHIP OF WORK FOR WHICH GEMS FUNDS DEVELOPMENT. All work,
including associated technology, developed by HealthGate and funded by GEMS
shall be owned by GEMS and all rights therein together with all intellectual
property rights shall be owned by GEMS, unless HealthGate delivers to GEMS clear
and convincing proof including corroborated records showing prior ownership of
such rights by HealthGate, and GEMS agrees with such ownership, in advance of
such development. HealthGate hereby grants GEMS a royalty-free, irrevocable,
non-exclusive license to allow GEMS to copy, modify, distribute, perform
publicly such portions of the delivered work, and to use any portions of any
associated technology that are not owned by GEMS in connection with GEMS'
commercialization of the delivered work.
3.4 HEALTHGATE'S RIGHTS IN WORK FOR WHICH GEMS FUNDS DEVELOPMENT. GEMS
hereby grants to HealthGate a royalty-free, irrevocable, non-exclusive license
to allow HealthGate to copy, modify, distribute, perform publicly the technology
associated with the work for which GEMS funded development, but only outside the
field of medical imaging and patient
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monitoring and only without the involvement of any competitors of GEMS including
but not limited to those listed in Exhibit C hereto.
3.5 ASSIGNMENTS. Except as provided in this Article III and subject to
the licenses and other rights under this Agreement, each party retains ownership
of its respective underlying intellectual property rights. Each party agrees to
take such action as may be reasonably required to effectuate the ownership
provisions of this Article III, including without limitation the execution and
delivery of instruments of assignment, recordation or registration, and the
giving of truthful testimony.
3.6 ENFORCEMENT. Each party shall promptly notify the other of any
infringement or other violation by any third party of any patent, copyright,
trade secret, trademark or other intellectual property right related to the
Products. The party owning such right may enforce such right against such third
party, and the other party shall reasonably cooperate with such enforcement at
the enforcing party's expense. Any damages or other monetary recovery in the
enforcement action shall be retained by the enforcing party.
ARTICLE IV
DISTRIBUTION RIGHTS
4.1 GRANT OF RIGHTS GOVERNING GEMS PRODUCTS. HealthGate hereby grants
to GEMS and its affiliates an exclusive worldwide right and license to
distribute, and arrange for subdistribution through GEMS subdistributors that
do not engage in any activities that would be deemed Competitive Activities
if engaged in by GEMS, GEMS Products on such terms and conditions as GEMS may
determine, consistent with the provisions of this Agreement.
4.2 GRANT OF RIGHTS GOVERNING HEALTHGATE PRODUCTS.
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(a) HealthGate hereby grants to GEMS a worldwide right and license,
exclusive except as provided in this Section 4.2(a), to distribute, and
arrange for subdistribution through GEMS subdistributors that do not engage
in any activities that would be deemed Competitive Activities if engaged in
by GEMS, HealthGate Products on such terms and conditions as GEMS may
determine, consistent with the provisions of this Agreement to the Exclusive
Customers. If GEMS engages in any Competitive Activities, then HealthGate may
convert such right and license to nonexclusive upon 30 days notice to GEMS.
HealthGate may continue to market or sell HealthGate Products to any
Exclusive Customer, for a period of 90 days after execution of this
Agreement, but any resulting sale of any HealthGate Products shall be deemed
a sale by GEMS for purposes of the sharing of Revenues and other provisions
of this Agreement. After the first 90 day period of this Agreement,
HealthGate may deliver to GEMS written notice of a Qualified Lead with any
Exclusive Customer. If within 90 days after receiving such notice from
HealthGate, GEMS fails to consummate a sale to, or receive a commitment from,
such Exclusive Customer, or achieve other significant demonstrated progress
toward a sale to such Exclusive Customer, then HealthGate at its option upon
notice to GEMS may thereafter distribute or arrange for the distribution of
HealthGate Products to such Exclusive Customer.
(b) HealthGate hereby grants to GEMS a nonexclusive worldwide right
and license to distribute HealthGate Products, other than to the Exclusive
Customers, on such terms and conditions as GEMS may determine, consistent
with the provisions of this Agreement in those instances in which a customer
desires to purchase HealthGate Products and the distribution to such customer
does not violate any then-existing exclusive distribution obligation of
HealthGate and subject to HealthGate prior consent. In addition, GEMS shall
have the non-exclusive right to distribute HealthGate Products to Quorum.
4.3 REVOCATION OR TRANSFER OF CONFLICTING DISTRIBUTION RIGHTS. If
HealthGate has previously granted distribution rights to others for any of the
Exclusive Customers, then
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HealthGate shall revoke such rights or cause them to be transferred to GEMS in
accordance with all the provisions herein.
4.4 UNAVAILABLE CONTENT. Promptly after the date of this Agreement,
HealthGate shall exert its best efforts with each of its content providers that
prohibit the distribution of their content through GEMS Products or otherwise
prohibit distribution by GEMS to waive such prohibition and allow such
distribution. HealthGate will regularly keep GEMS informed of HealthGate's
efforts and progress in obtaining such waivers.
4.5 PROHIBITED DISTRIBUTORS. HealthGate will not distribute or allow the
distribution of any HealthGate Products or any components, portions, modules or
other constituents of HealthGate Products, or any product or service competitive
to HealthGate Products, by any company listed in Exhibit C hereto; provided,
however, the limitation provided under this Section 4.5 shall only apply to the
Healthcare Marketplace and shall not limit HealthGate's ability to enter into
transactions or arrangements not involving the Healthcare Marketplace; and
provided further, HealthGate will be released from the limitation provided under
this Section 4.5 at its option upon 30 days prior notice to GEMS if GEMS engages
in any Competitive Activities.
4.6 TERMS OF DISTRIBUTION. The general terms and conditions of the
distribution of Products by GEMS will be as set forth in a Standard End User
License Agreement substantially in the form agreed upon by the parties from time
to time.
4.7 NO BEST EFFORTS OR RESTRICTIONS. The loss of exclusivity by GEMS
with respect to the Exclusive Customers as set forth in Section 4.2 above is
HealthGate's sole remedy for any failure by GEMS to make sales of Products.
Except as expressly set forth herein, GEMS will not be restricted in its conduct
of any activities by this Agreement; the distribution activities of GEMS for the
Products shall be as determined by GEMS in its sole discretion subject to the
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terms and conditions of this Agreement; and GEMS shall not be obligated to
undertake any "best efforts" or any other particular commitment level.
4.8 MEETINGS. The parties will meet approximately each calendar quarter
to discuss market conditions and strategies for the effective sale and
distribution of the Products.
ARTICLE V
SERVICES AND SUPPORT
5.1 WEBSITE DESIGN AND HOSTING. HealthGate, at its expense, shall
design, develop, maintain, update, support and host the websites for all
Products; provided, however, with respect to products, services and applications
that are resident on non-HealthGate servers, HealthGate shall only be
responsible for maintaining the links between HealthGate's servers and such
other servers. Promptly upon request, HealthGate shall deliver to GEMS and, if
required under the applicable end user agreement, to customer's quarterly usage,
tracking and similar information related to each such customer's website, such
information to include, if applicable, page views, numbers of unique visitors,
numbers of visits to sections, advertisers' and sponsors' usage and click
throughs.
5.2 TRAINING. At the request of GEMS, and on a date and at a location
chosen by GEMS and provided to HealthGate a reasonable time in advance,
HealthGate shall provide one comprehensive training session for the GEMS sales
and marketing force to launch the sales and marketing of the Products by GEMS.
While this Agreement is in effect, on a quarterly basis, and on a date and at a
location chosen by GEMS and provided to HealthGate a reasonable time in advance,
HealthGate will conduct a comprehensive training session for individuals
selected by GEMS as GEMS internal trainers for the sales and marketing of the
Products. In addition, while this Agreement is in effect, HealthGate shall
provide such additional training and sales support to
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GEMS as it may reasonably request in the sales and marketing of the Products.
HealthGate and GEMS shall each pay the travel, lodging and other related
expenses of their respective personnel in connection with any of the
above-referenced training. HealthGate shall also bear the cost of the necessary
ancillary print materials related to such training. GEMS and HealthGate shall
share equally the cost of any facilities usage expenses of all such training,
except for training that takes place at HealthGate's offices, for which
HealthGate shall bear such expenses, provided that HealthGate approves such
expenses in advance.
5.3 SURVIVAL OF SERVICES AND SUPPORT. HealthGate's provision of the
services described in this Article V shall survive termination or expiration of
this Agreement with respect to then active Products customers (i.e. those with
which an end user agreement is then in effect) and Products customers for which
there are commitments prior to termination or expiration.
5.4 RIGHT OF GEMS TO SUPPORT. If, during or after the term of this
Agreement, HealthGate fails to provide service to one or more Products customer
consistent with the level of service mutually deemed satisfactory from time to
time by HealthGate and GEMS, with such initial level of satisfactory service to
be established by HealthGate and GEMS within 60 days after the date of this
Agreement, GEMS and HealthGate will meet and work together in good faith to
address and resolve any such service level issue. If any such service level
issue is not remedied in a timely manner such that the level of service provided
to such Products customers is not at least equal to the then mutually
agreed to level of service, HealthGate shall fully cooperate with GEMS, to
enable GEMS, at HealthGate's expense, to provide such services; provided,
however, HealthGate's liability under this Section 5.4 shall be limited to the
amount of actual revenue it shall have received from the sale of Products to the
affected customers.
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ARTICLE VI
MARKETING
6.1 GEMS' MARKETING. GEMS and HealthGate will work collaboratively to
develop the overall strategic marketing plan for the Products in accordance with
this Article VI.
6.2 COOPERATION BY HEALTHGATE. HealthGate at its expense (except to the
extent provided otherwise in this Article VI) will cooperate as reasonably
requested by GEMS in marketing the Products. Without limiting the generality of
the foregoing sentence, HealthGate (i) on a timely basis will provide to GEMS
all relevant technical, marketing and other information regarding the Products
and will provide appropriate artwork for marketing communications; and (ii) in
advance of each calendar quarter will review with GEMS the HealthGate budget and
detailed plan for the marketing of Products and HealthGate's plans for public
relations and enhancing and building company image and branding for such
calendar quarter.
6.3 COOPERATION BY GEMS. GEMS will be responsible for the production and
distribution of marketing communications regarding GEMS Products. During the
initial one-year term of this Agreement, GEMS will incorporate HealthGate's name
into marketing communications for GEMS Products to the extent consistent with
General Electric Company corporate guidelines. GEMS will include the GEMS
Products (and prices therefor) in its product catalog or equivalent supporting
materials. The GEMS Products may be included as a part of industry trade shows
and exhibitions in which GEMS participates, at GEMS discretion. The GEMS
Products may be included as a part of GEMS public advertising strategy, at GEMS
discretion. The expenses attributable to the inclusion of the GEMS Products in
such trade shows,
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exhibitions, and advertisements will be split evenly between GEMS and
HealthGate, provided that HealthGate approves such expenses in advance.
6.4 TIP PROGRAMMING AND OTHER WEBSITES. GEMS may, at its option, promote
HealthGate on GEMS TiP TV to the extent TiP content has been posted on
HealthGate hosted websites such as HealthGate.com and bewell.com. Such promotion
may be in the form of a tag line reading substantially as "To access a web-based
copy of this program, please contact HealthGate.com." GEMS, at its discretion,
will determine what GEMS content is available for HealthGate sponsored websites
and the prices charged to HealthGate for such content. GEMS may also, with the
assistance of HealthGate, promote the Products in TiP TV magazine. HealthGate
may choose to sponsor TiP programming, subject to program availability. Pricing
for such sponsorship will be set at the then current sponsorship market price
less a discount to be agreed upon by the parties taking into consideration the
development costs expended by GEMS and other market factors, such discount to be
no more than 15%. In exchange for the discounted sponsorship fee, HealthGate
will be named as such program's sponsor.
6.5 BRANDING. Each party reserves all rights to any name, marks and
logos ("Marks") it may have. GEMS will have the right, but not the obligation,
to include its Marks in the Products, and to prohibit the inclusion of the Marks
or advertising of any company if such company is in competition with GEMS in any
goods or services distributed by GEMS. The Products will also include the name
of HealthGate, consistent with applicable General Electric Company corporate
guidelines including without limitation guidelines to avoid confusion of
customers, sales forces and others and to produce and maintain market identity.
Each use by HealthGate of any Marks of GEMS, whether in advertising or marketing
materials, company announcements or offering circulars, informational materials,
public events, or otherwise, shall
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be subject to the prior written approval of GEMS. Neither party shall by this
Agreement obtain any right, title, or interest in or to any Marks of the other
party or its affiliates. Accordingly, neither party shall use any Marks
confusingly similar to or likely to cause confusion with the Marks of the other
or of any other person or entity. This Section 6.5 shall survive termination of
this Agreement. Violation of this Section 6.5 shall entitle the owner of the
Mark to seek any legal or equitable remedy it has, whether arising under this
Agreement or otherwise.
ARTICLE VII
REVENUE SHARING
7.1 HEALTHGATE PRODUCTS. Unless otherwise agreed by the parties (as, for
example, to address promotional activities or volume accounts), all Revenues
collected by either party for subscriptions to HealthGate Products sold by GEMS,
or for upgrades, services or enhancements thereto (but not including GEMS
Products, which are addressed in Section 7.2 below) sold by either party, shall
be divided such that 70% of the List Price is received by HealthGate and the
remainder is received by GEMS.
7.2 GEMS PRODUCTS. Unless otherwise agreed by the parties (as, for
example, to address promotional activities or volume accounts), all Revenues
collected by either party for subscriptions to GEMS Products sold by GEMS, or
upgrades, services or enhancements thereto sold by either party, shall be
divided such that:
(a) 70% of the List Price of any HealthGate Products components in
such GEMS Products is received by HealthGate and the remainder is received by
GEMS, except as provided in Subsection (b) below.
(b) If such GEMS Products or upgrades, services or enhancements
thereto shall have been created or developed by HealthGate at its own expense
or partial expense by agreement of
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the parties under Section 2.3 above, then the division of Revenues shall be
modified as the parties agree upon in advance of such creation or development
taking into consideration the expense so incurred by HealthGate.
7.3 ADVERTISING REVENUE. All Revenues collected by either party for
advertisements or other promotional material included in the Products during
the term of this Agreement shall be divided 90% to HealthGate and 10% to GEMS.
7.4 E-COMMERCE. All Revenues collected by either party from e-commerce
offered on the Products not involving products or services of GEMS or its
affiliates, shall be divided 90% to HealthGate and 10% to GEMS. Any Revenues
collected by either party from e-commerce offered on the Products involving
products or services of GEMS or its affiliates, for the first two and one-half
years following the date of this Agreement, shall be retained 100% by GEMS, and
any such Revenues collected after such two and one-half year period shall be
divided as the parties negotiate in good faith considering (a) the level of
effort expended by each party to enable such e-commerce, (b) prevailing market
conditions, (c) comparable third party web-based distribution fees, (d) the
price points of GEMS Products, (e) the volume of sales and (f) in no event shall
be any less favorable to GEMS than the fees charged by HealthGate to others.
7.5 SURVIVAL OF REVENUE SHARING. The Revenue sharing arrangements set
forth in this Article VII shall survive the termination or expiration of this
Agreement with respect to then active Products customers (i.e. those with which
an end user agreement is then in effect) and Products customers for which GEMS
has a signed commitment.
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ARTICLE VIII
ACCOUNTING
8.1 ACCOUNTING. Reconciliation of accounts in accordance with the
Revenue sharing arrangements set forth in Article VII above shall be made within
45 days after each calendar quarter with respect to Revenues received during
such calendar quarter, by each party delivering to the other party a check (or
by making a wire transfer or in such other reasonable manner as the receiving
party may direct) for the amount due without offset for any amount due from the
other party together with the report described in Section 8.2 below.
8.2 RECORDS. Each party shall keep complete and accurate records showing
its Revenues hereunder, for the term of this Agreement and a period of one year
thereafter. Each party shall deliver to the other party a written report
accompanying each of the payments described in Section 8.1 above setting forth
the share of Revenues due to the other party and the calculation thereof.
ARTICLE IX
WEBSITE LINKING
9.1 LINKING. HealthGate will make available the HealthGate Products for
linking to GEMS websites, and will provide all necessary formatting services and
support for such linking in a manner that is invisible to users. Such services
and support will be on such reasonable terms and conditions as the parties may
agree upon, and no less favorable to GEMS than those granted to others in
similar circumstances.
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ARTICLE X
WARRANTIES AND INDEMNITIES
10.1 REPRESENTATIONS AND WARRANTIES OF HEALTHGATE. HealthGate represents
and warrants to GEMS as follows:
(a) that HealthGate is a validly existing corporation in good
standing under the laws of the State of Delaware;
(b) that HealthGate has full corporate power and authority to
execute and deliver this Agreement and to perform its obligations
hereunder;
(c) that HealthGate has full right, power and authority to enter
into and perform its obligations under this Agreement, and that HealthGate
has the right to grant to and vest in GEMS all rights and licenses set
forth in this Agreement, free and clear of any and all claims, rights and
obligations whatsoever;
(d) that except for any portion of the Products that may be
created by GEMS, to the knowledge of HealthGate no part of the Products is
or shall be an imitation or copy of, or shall infringe upon, any other
materials, or shall violate or infringe upon any common law or statutory
rights of any person or entity, including without limitation rights
relating to defamation, contract, trademark, patent, copyright, trade
secret, privacy or publicity;
(e) that HealthGate has not sold, assigned, leased, licensed, or
in any other way disposed of or encumbered any of the rights or licenses
granted to GEMS in this Agreement other than a security interest granted
to Petra Capital LLC in connection with a subordinated loan to HealthGate;
and
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(f) that all versions of the Products delivered to GEMS under this
Agreement shall be free from any specification nonconformities,
significant programming errors or defects in workmanship or materials and
shall operate and run in a reasonable and efficient business manner
(including, with respect to HealthGate's internal systems only, being free
of any Year 2000 defects or nonconformities due to the passage of the year
1999). In the event of any breach of this Section 10.1 (f), other than
those based on any Year 2000 defects or nonconformities due to the passage
of the year 2000 not related to HealthGate's internal systems, HealthGate
shall, at its sole expense, immediately correct the nonconformity or other
defect.
10.2 REPRESENTATIONS AND WARRANTIES OF GEMS. GEMS represents and warrants
to HealthGate as follows:
(a) that GEMS is a validly existing corporation in good standing
under the laws of the State of New York;
(b) that it has full corporate power and authority to execute and
deliver this Agreement and to perform the transactions contemplated
hereunder; and
(c) that, with respect to any portion of the Products that may be
created by GEMS, to the knowledge of GEMS no such portion of the Products
is or shall be an imitation or copy of, or shall infringe upon, any other
materials, or shall violate or infringe upon any common law or statutory
rights of any person or entity, including without limitation rights
relating to defamation, contract, trademark, patent, copyright, trade
secret, privacy or publicity.
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10.3 INDEMNITY. Each party will indemnify and hold harmless the other'
from and against any liability, costs or expenses (including attorney fees)
based upon any action, claim or assertion inconsistent with the warranties and
representations of Section 10.1 or 10.2 above. The indemnified party shall
promptly notify the indemnifying party of any such action or assertion and shall
cooperate in the defense thereof. The indemnifying party shall have the right to
direct the defense of any such action, claim or assertion, subject to the
indemnified party's approval of any settlement thereof and the indemnified
party's right to take such actions as may be reasonably necessary to protect its
rights hereunder.
10.4 INSURANCE. HealthGate will maintain insurance coverage for product
liabilities and other claims arising from the Products in the policy amount of
$5 million combined single limit per occurrence and $5 million in the aggregate
(with a self-insured retention of $10,000 per occurrence and $50,000 aggregate).
During the term of the Agreement, HealthGate covenants to maintain such
insurance policy and to take such steps, as necessary, to name GEMS as an
additional insured under such insurance policy. Evidence of the existence and
amount of the insurance policy shall be provided by HealthGate to GEMS upon GEMS
written request.
10.5 NO OTHER WARRANTIES. THE WARRANTIES EXPRESSED IN THIS ARTICLE X ARE
IN LIEU OF ALL OTHER WARRANTIES, WHETHER EXPRESSED OR IMPLIED OR ARISING BY
PERFORMANCE, CUSTOM OR USAGE IN THE TRADE, AND THE PARTIES HEREBY DISCLAIM ALL
OTHER WARRANTIES, INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
10.6 NO CONSEQUENTIAL DAMAGES. Except as expressly set forth herein, in
no event shall either party be liable under, or in connection with, this
Agreement for any indirect, special,
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incidental, punitive or consequential losses, expenses or damages whatsoever,
including, but not limited to, loss of revenue or profits or increased costs as
a result of inability to operate, inability to fulfill contracts with third
parties, or similar matters or events. The limitations, exclusions and
disclaimers in this Agreement shall apply irrespective of the nature of the
cause of the action or demand, including but not limited to breach of contract,
negligence, tort or any other legal theory and shall survive any breach or
breaches and/or failure of the essential purpose of this Agreement, or any
remedy contained in this Agreement.
ARTICLE XI
CONFIDENTIALITY
11.1 OBLIGATION. Each party agrees that any Confidential Information
furnished or disclosed to it by the other party shall be treated as confidential
by it and used by it only as expressly authorized herein, that it shall not
disclose such Confidential Information to others without the prior written
consent of the disclosing party, and that it shall take all necessary measures
to protect the confidentiality of such Confidential Information that it takes to
protect its own similar proprietary or confidential information (and that such
measures shall in no event be less than those required by law to protect the
confidentiality and proprietary nature of such information), EXCEPT insofar as:
(a) expressly provided otherwise herein or in any other written
agreement with the disclosing party or required by law;
(b) such Confidential Information is necessarily disclosed by its
use in products manufactured and sold or otherwise disposed of by the
disclosing party; or
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(c) such Confidential Information is necessarily disclosed to bona
fide subcontractors of the receiving party provided that such
subcontractors agree to maintain such Confidential Information in
confidence and to protect such Confidential Information from disclosure to
others to the extent of the foregoing requirements of this Section and to
limit their use of such Confidential Information to fulfilling their
obligations as a subcontractor or supplier.
11.2 COOPERATIVE DEVELOPMENT. Without limiting the generality of Section
11.1 above, should any joint development effort be undertaken by the parties
involving software owned by GEMS, then GEMS may in its sole discretion make
source code for such software available to HealthGate to the extent reasonably
necessary for HealthGate to perform the development or maintenance obligations
agreed upon by the parties or provided hereunder. HealthGate shall not use such
source code or software except in performing such obligations and shall not
disclose it to anyone other than its employees who both (a) require access
thereto in order to allow HealthGate to perform such obligations and (b) have
agreed in writing to refrain from using or disclosing it other than as permitted
hereunder.
11.3 OTHER CONFIDENTIALITY AGREEMENT. Except to the extent modified
hereunder, all the obligations of the Confidentiality Agreement made as of March
25, 1999 between General Electric Company and HealthGate remain in full force
and effect as provided thereunder.
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ARTICLE XII
TERM AND TERMINATION
12.1 TERM. This Agreement shall be for an initial term of one year,
automatically renewed for successive one-year periods unless either party
delivers to the other party written notice of non-renewal at least 90 days prior
to the end of the initial term or any renewal term.
12.2 EARLY TERMINATION. This Agreement may be terminated by GEMS in its
sole discretion and shall have no further force and effect if, as of June 14,
1999, the transactions contemplated by the Warrant Agreement between General
Electric Company and HealthGate dated on or about the date hereof have not been
closed and the Warrant to be issued to General Electric Company thereunder has
not been issued by HealthGate. GEMS shall have no liability for such termination
and shall retain any other rights or remedies it may have in regard to such
termination. If either party commits a material breach of this Agreement or the
Warrant Agreement, then the other party may deliver written notice of such
breach to the breaching party. If the breaching party fails to remedy such
breach within 30 days after such notice, then the other party may terminate this
Agreement by written notice of termination. A material breach shall be deemed to
include without limitation any failure to remit in a timely manner amounts due
under Article VII above, any violation by HealthGate of the exclusive
distribution rights of GEMS under Article IV above, any breach of any of the
representations or warranties of Article X, any violation by HealthGate of any
of the Confidentiality Obligations of Article XI, and any dissolution,
insolvency, bankruptcy, appointment of a receiver or trustee, making of an
assignment for the benefit of creditors, the commencement of any proceeding
(state or federal) relating to the administration of creditors rights generally,
or the failure generally to pay debts as they become due.
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12.3 REMEDIES. Upon any termination of this Agreement pursuant to this
Article XII, each party shall have all rights and remedies available to it
hereunder and at law or in equity, it being understood that the exercise of any
one remedy is not meant to be exclusive of any other remedy and that all
remedies hereunder are intended to be cumulative. Following termination, the
terminating party may suspend any and all performance hereunder except as
provided under Section 12.4 below.
12.4 SURVIVAL AND POST-TERMINATION RIGHTS. The provisions of Sections
5.3, 5.4 and Article VIII (to the extent provided in each such Section and
Article) and Articles I, X, XI and XIII and Sections 3.1 through 3.4, 4.7 and
6.5 shall survive any termination or expiration of this Agreement. No
termination or expiration shall in any way terminate or otherwise affect the
right of any user or customer of GEMS with respect to any Products.
ARTICLE XIII
MISCELLANEOUS
13.1 ENTIRE AGREEMENT. This Agreement together with the Warrant Agreement
constitute the entire agreement and understanding of the parties with regard to
the subject matter hereof. This Agreement shall not be modified or supplemented
except by a written instrument signed by both parties.
13.2 NOTICES. Any notice required or permitted under this Agreement shall
be deposited in First Class Mail addressed as follows:
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If to GEMS:
GE Medical Systems
3000 North Grandview Blvd.
Waukesha, WI 53186
Attention: General Manager, E-Commerce
Mail Code: 440
Telephone: (414) 584-4862
Facsimile: (414) 544-3470
With a copy to:
GE Medical Systems
3000 North Grandview Blvd.
Waukesha, WI 53186
Attention: General Counsel
If to HealthGate:
HealthGate Data Corp., Inc.
25 Corporate Drive, Suite 310
Burlington, MA 01803
Attention: GEMS Project Manager
Telephone: 781-685-4000
Facsimile: 781-685-4040
With a copy to:
Stephan M. Kane, Esq.
Rich, May, Bilodeau & Flaherty, P.C.
294 Washington Street
Boston, MA 02108-4675
Telephone: 617-556-3827
Facsimile: 617-556-3891
13.3 NO ASSIGNMENT BY HEALTHGATE. Neither this Agreement nor any rights
or obligations may be assigned or transferred by HealthGate except with the
written consent of GEMS. GEMS may assign this Agreement freely to any affiliates
of GEMS, and may assign to non-affiliates of GEMS to the extent such assignments
are not contrary to pre-existing obligations by HealthGate to its content
providers (in which case HealthGate will exert its best efforts to obtain
waivers of such obligations). GEMS shall notify HealthGate of any assignment
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that is not to a GEMS affiliate, and the assignee shall agree in writing to
assume all obligations of GEMS. Any transaction or series of related
transactions pursuant to which any entity or person (including without
limitation any of their respective affiliates) first acquires after the
effective date of this Agreement, directly or indirectly, an aggregate amount of
fifty percent (50%) or more voting control or fifty percent (50%) or more of the
equity securities ("Control") of HealthGate (or of any entity directly or
indirectly having Control of HealthGate) or by contract or otherwise obtains the
right to appoint at least fifty percent (50%) of the Board of Directors of
HealthGate (or any entity directly or indirectly having Control of HealthGate),
shall be deemed an assignment of rights under this Agreement for purposes of
this Section 13.3. Further, any sale, assignment, pledge, hypothecation, or
exclusive license of any of the copyrights, patents, trade secret rights or
other intellectual property rights in or relating to any of the Products (other
than that security interest referenced in Section 10.1(e) above) shall be deemed
an assignment of this Agreement for purposes of this Section 13.3. Any purported
assignment or other transaction in violation of this Section 13.3 shall be null
and void and of no force or effect.
13.4 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York without reference to
any conflict of law principles.
13.5 ARBITRATION. Any dispute under this Agreement shall be finally
resolved by arbitration by a panel of three arbitrators (or such other number as
the parties may agree to) in New York, New York, in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. The
arbitrators may award attorney fees to the prevailing party to the extent they
may deem appropriate. The parties hereto waive all rights to trial by jury in
any
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action, suit or proceeding brought to enforce or defend any rights or remedies
arising under or in connection with this Agreement, whether grounded in tort,
contract or otherwise.
13.6 CONFIDENTIALITY. No public announcements may be made of the contents
of this Agreement except as mutually agreed in writing.
13.7 RELATIONSHIPS OF THE PARTIES. Each party is an independent
contractor under this Agreement. No party shall have any express or implied
right or authority to assume or create any obligations on behalf of or in the
name of the other party or to bind the other party to any contract, agreement or
undertaking with any third party.
13.8 INTERPRETATION. When a reference is made in this Agreement to a
Section, such reference shall be to a Section of this Agreement unless otherwise
indicated. Whenever the words "included", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." References to a person are also to its successors and assigns, and
references to any statute are also to all rules, regulations and orders
promulgated thereunder. No rule of construction shall be applied to the
disadvantage of a party by reason of that party having been responsible for the
preparation of this Agreement or any part hereof.
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Executed on the dates set forth below.
GE Medical Systems, a division of
General Electric Company
By: /s/ Michael A. Jones
--------------------------------------
Title: /s/ GM Global Business Development
-----------------------------------
Date: June 11, 1999
------------------------------------
HealthGate Data Corp.
By: /s/ William S. Reece
------------------------------------
Title: Chief Executive Officer
------------------------------------
Date: June 11, 1999
------------------------------------
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Exhibit 10.28
CONFIDENTIAL INFORMATION
CONTENT DEVELOPMENT AND DISTRIBUTION AGREEMENT
THIS AGREEMENT is entered into as of June 15, 1999, by and between HealthGate
Data Corp., a Delaware corporation ("HealthGate"), having an address at 25
Corporate Drive, Suite 310, Burlington, Massachusetts 01803 and the
Massachusetts Medical Society, a Massachusetts corporation (the "Society"),
having an address at 1440 Main Street, Waltham, Massachusetts 02154.
WHEREAS, the Society is the owner and publisher of The New England Journal of
Medicine ("NEJM");
WHEREAS, HealthGate, among other business activities, distributes health and
biomedical content through the Internet;
WHEREAS, HealthGate desires to engage the Society to assist in the development
of a version of NEJM written for the consumer reader;
NOW THEREFORE, in consideration of the foregoing, the mutual promises set forth
in this Agreement and for other good and valuable consideration, the receipt and
adequacy of which is acknowledged by all parties, the parties hereby agree as
follows:
1. CONTENT. The Society shall develop and deliver all Content to HealthGate,
in a mutually agreed upon electronic format, for posting on the World Wide
Web Sites owned or operated by HealthGate (the "Sites"). As set forth in
Section 11 below, the Society retains all ownership and copyright of the
Content. HealthGate shall not make any changes to the Content without the
prior written consent of the Society. The Sites shall include copyright
notices and other notices of right title and interest to the Content. Both
parties agree, within 15 working days after executing this Agreement, to
develop a detailed specification describing the Content, which shall be
attached to this Agreement as Schedule A. Generally, the Content shall be
described as follows:
(a) The Content is a companion consumer version of NEJM which summarizes
the findings, reports, information, etc. presented in each original
article published in NEJM;
(b) The Content shall include an article for every original article
appearing in the weekly printed version of NEJM;
(c) The Content will be updated weekly, corresponding to the normal print
publication schedule of NEJM;
(d) Each update to the Content shall be delivered to HealthGate no later
than 10 workings days prior to the publication date for the
corresponding print issue;
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CONFIDENTIAL INFORMATION
(e) The Society shall make reasonable efforts to deliver to HealthGate the
first issue of the Content 120 days after execution of this Agreement;
(f) Each article shall average approximately 1,000 to 1,500 words in
length and be written on a reading level appropriate for the
non-healthcare professional reader. The parties shall mutually agree
upon the applicable reading level;
(g) Each article shall also include the following information
corresponding to the original article: (i) detailed bibliographic
information; (ii) author contact information; (iii) bulleted points
covering the major issue of the article; (iv) a companion title,
written for the consumer, interpreting the corresponding original
article title; (v) a link to the full-text of the original article on
the NEJM site, located at www.nejm.org;
(h) Subject to the Society obtaining necessary ownership rights, each
weekly update of the Content shall contain the editorials and letters
to the editor as appearing in the corresponding print issue;
(i) Subject to the Society obtaining necessary ownership rights,
HealthGate shall have the right to reproduce and include in the
Content the images, graphics, photographs, etc. corresponding to
articles originally published in NEJM. All such images shall be
delivered to HealthGate as part of the weekly update schedule.
HealthGate shall have the right to use said images, with the prior
approval of the Society, in the promotion of the Content;
(j) Subject to mutual agreement of the parties, HealthGate will enhance
the Content with applicable hypertext links to other sites, including
the NEJM site. HealthGate will establish links, with the assistance of
the Society, from portions of the Content to the corresponding
original articles found on the NEJM site. HealthGate shall manage such
links to the NEJM site. Any revenue associated with said links shall
be shared according to Section 6 (e).
(k) A table of contents for the corresponding print issue will be included
with each weekly update to the Content.
(l) Weekly updates to the Content shall be released at 5:00 p.m. Eastern
Time on the Wednesday before the date of publication. HealthGate shall
not make the updates to the Content available to the public or any
third party prior to this time.
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CONFIDENTIAL INFORMATION
(m) HealthGate shall design a template for the display of the Content
which shall be subject to review and approval by the Society. The
display of the Content shall not vary from the template approved by
the Society, except as may be mutually agreed upon by the parties from
time to time.
(n) The title (the "Title") used to identify the Content shall be subject
to mutual agreement of the parties and the Title and all proprietary
rights and goodwill related thereto, shall be the exclusive property
of the Society.
(o) HealthGate shall not make any changes to the Content without the
written approval of the Society.
2. SOFTWARE AND HARDWARE. HealthGate shall be responsible for all Software and
Hardware necessary to design, develop, and mount the Content on its servers
and host the Content on its Sites.
3. ACTIVITY REPORTS. During the time that HealthGate hosts and distributes the
Content, HealthGate shall provide to the Society activity reports detailing
access and usage of the Content. HealthGate shall provide the Society with
activity reports concerning access to the Site within 30 days of the end of
any month.
4. ADVERTISING. HealthGate shall have the right to place advertising and
sponsorship on the Content. Policies regarding advertising and sponsorship
shall be subject to mutual agreement between the parties.
5. MARKETING AND PROMOTION.
(a) The Society agrees to provide free "space available" advertising in
NEJM, no less than two times per year, to promote the Content.
HealthGate shall assume all costs associated with the production of
any advertisement used to promote the Content on this space available
basis. Specifications for these advertisements shall be provided by
the Society.
(b) The Society agrees to mention the Content and its availability through
the Sites, including a specific Web site address that shall be
provided by HealthGate, in each print issue of NEJM. The Society shall
have the rights to use HealthGate's trade names, trademarks and
service marks in said promotion.
(c) The Society may, at its discretion, promote the Content in its
marketing material, provided that the HealthGate trade name and a
HealthGate Web site to be designated by HealthGate is used in
conjunction with said promotion.
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CONFIDENTIAL INFORMATION
(d) HealthGate shall promote the availability of and access to the Content
using a variety of methods, which shall include, but not be limited
to, e-mail, advertising, and linking. Such promotional efforts shall
be subject to Section 16 (a)
6. FEES.
(a) PRODUCTION, DEVELOPMENT, AND LICENSING. HealthGate shall remit to the
Society $500,000 annually to cover all costs associated with the
production, development, and licensing of the Content. In the first
year of this Agreement, HealthGate shall remit to the Society the
annual fees in the following manner: $100,000 upon signing on this
Agreement, $200,000 upon release of the first issue of the Content,
$100,000 180 days after the delivery of the first issue, and $100,000
270 days after the delivery of the first issue. In subsequent years,
HealthGate shall make four equal payments of $125,000 payable 90 days
apart, with the first payment due on anniversary of the release of the
first issue.
(b) ADVERTISING. HealthGate shall remit to the Society a percentage of any
revenue generated by HealthGate for the sale of advertising and/or
sponsorship revenue placed on the Content, as defined in Schedule B.
(c) PRINT PRODUCTS. During the term of this Agreement and for a period of
5 years following expiration or termination of this Agreement for any
reason, any revenue from print products derived from the Content
produced during the term of this Agreement shall be shared equally
between the two parties, after expenses.
(d) SALES TO OTHER WEB SITES. HealthGate shall remit to the Society a
percentage of any revenue generated by HealthGate for the licensing of
the Content or portions thereof to other Web sites or other parties
(in accordance with Section 7 (a)), as defined in Schedule B.
(e) SALES ATTRIBUTED TO LINKS TO NEJM. HealthGate shall remit to the
Society a percentage of any revenue attributed to a link from the
Content to the corresponding original article at the NEJM site (in
accordance with Section 1 (j)), as defined in Schedule B.
(f) ACTIVITY REPORTS. All payments and fees described in Section 6 (b),
(d), and (e) shall be based upon the activity reports referred to
Section 3. Any payments shall be made to the Society within 30 days
after submission of Activity Reports.
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CONFIDENTIAL INFORMATION
(g) OTHER FEES. There are no other fees contemplated by the parties in
association with this Agreement.
7. EXCLUSIVITY.
(a) HealthGate shall have exclusive rights to distribute the Content
through its own Web sites or through sites owned or operated by
HealthGate during the term of this Agreement. HealthGate may
distribute the Content to other Web sites, not owned or operated by
HealthGate, with the prior written approval of the Society, whose
approval shall not be unreasonably withheld.
(b) Notwithstanding the foregoing, the Society shall, six months after
the delivery of the first issue of the Content, have the right to
post the Content on one or more of the Society's web sites. This
exception shall be granted provided that each article displayed at
the NEJM Web site (i) includes a message that the Content was
developed jointly by the Society and HealthGate; (ii) is provided in
the same manner in which it is made available on the HealthGate site,
including, but not limited to, user registration, release date,
advertising sold by HealthGate (provided that such advertising
complies with the Society's advertising policies for the web site)
and served from the HealthGate server, and any value added services
provided by HealthGate, such as links to the MEDLINE database or to
other sites or services; (iii) includes a link to the Content hosted
by HealthGate; and (iv) is posted on the same schedule as the Content
is posted by HealthGate. This exception to Section 7 (a) shall not
waive either party's rights as outlined elsewhere in this Agreement.
8. INITIAL TERM. The Initial Term of this Agreement shall commence upon
delivery of the Content to HealthGate and, unless terminated earlier as set
forth herein, shall continue for a period of two (2) years after such date
(the "Initial Term").
9. RENEWAL. After the Initial Term, HealthGate may renew this Agreement
(subject to the termination provisions of Section 10) for up to two (2)
additional 18 month periods, provided that HealthGate's option to extend
the term shall be conditioned upon there being no material uncured defaults
or breaches by HealthGate at the time of HealthGate's exercise of such
option.
10. TERMINATION.
(a) Either party may terminate this Agreement without cause upon the last
date of the Initial Term or any subsequent renewal term by giving
written notice of termination
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CONFIDENTIAL INFORMATION
to the other party no later than ninety (90) days prior to the end of
the Initial Term or of any subsequent one year term. Upon termination
by either party, HealthGate may continue to use the Content produced
during the term of this Agreement to fulfill any outstanding
commitments, obligations, or contracts for a period no longer than
12 months after termination or expiration of this Agreement, subject
to terms and conditions which shall be mutually agreed upon by the
parties at the time.
(b) In the event that any use of the Content by HealthGate is, in the
opinion of the Society, injurious to the reputation or goodwill of
NEJM, the Society may terminate this Agreement upon 30 days written
notice to HealthGate, unless HealthGate shall remedy such use within
the 30 day period or be undertaking actions to remedy such use to the
satisfaction of the Society.
11. INTELLECTUAL PROPERTY RIGHTS.
(a) HEALTHGATE PROPERTY. HealthGate shall own and retain all right, title
and interest in (i) the Software (as defined in Section 2), and (ii)
the copyrights in the Software; and (iii) computer code written by
HealthGate for the format, appearance and presentation of the Content
(collectively, the "HealthGate Properties"), subject only to (x) the
Society's right, title and interest in the Content (as defined in
Section 1) contained therein and any derivative work based upon the
content, (y) the Title and the Society's other trade names,
trademarks and service marks and (z) any other information of the
Society provided to HealthGate hereunder (collectively, "Society's
Property").
(b) SOCIETY'S PROPERTY. The Society shall own and retain all right, title
and interest in the Society's Property. Any use of any trademark owned
by the Society shall inure to the exclusive benefit of the Society.
Upon expiration or termination of this Agreement, HealthGate shall
discontinue use of the Society's Property except as provided for in
Section 10 (a).
(c) HEALTHGATE CONFIDENTIAL INFORMATION. The Society understands and
acknowledges that the HealthGate Properties are subject to protection
as copyrighted works of authorship of HealthGate or HealthGate's
suppliers under the United States Copyright Act, and represent
valuable confidential or proprietary information of HealthGate.
Further, the Society understands and acknowledges that any
confidential information pertaining, INTER ALIA, to HealthGate's
customers, finances, internal operations and methods of compiling,
manipulating, presenting and disseminating Software or information,
which is disclosed to the Society (collectively, "HealthGate
Confidential Information"), represent valuable confidential
information of HealthGate entitled to protection as trade secrets. The
Society shall keep
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CONFIDENTIAL INFORMATION
confidential, and shall protect from unauthorized disclosure by its
employees and agents, the HealthGate Confidential Information and all
copies or physical embodiments thereof in any media in its possession,
and shall limit access to such HealthGate Confidential Information to
those of its personnel who require such access in connection with the
Society's use thereof as permitted by this Agreement. The Society
shall secure and protect the HealthGate Confidential Information and
any and all copies and other physical embodiments thereof in any media
in its possession in a manner consistent with the steps taken by the
Society to protect its own trade secrets. The Society shall take
appropriate action by instruction or agreement with its employees who
are permitted access to the HealthGate Confidential Information or any
copy or other physical embodiment thereof in any media in its
possession, to satisfy its obligations hereunder. Promptly upon
discovery that any person has acquired possession, use or knowledge of
any part of the HealthGate Confidential Information other than as
authorized by this Agreement, the Society shall notify HealthGate of
such fact and the surrounding circumstances. The obligations of this
Section 11(c) shall survive any termination of this Agreement. The
obligations of this Section 11(c) shall not apply to any information
which (a) is generally known to the public, or becomes so known other
than by reason of a breach by the Society of its obligations
hereunder, (b) was known to the Society prior to its disclosure by
HealthGate, or (c) is learned by the Society from a third party who is
not in breach of an obligation of confidentiality in making such
disclosure.
(d) SOCIETY'S CONFIDENTIAL INFORMATION. HealthGate understands and
acknowledges that any Society's Property contained in the Site, are
subject to protection as copyrighted works of authorship of the
Society, and represent valuable or proprietary confidential
information of the Society. Further, HealthGate understands and
acknowledges that the Society information pertaining, INTER ALIA, to
the Society's subscribers, customers, finances, internal operations,
sales practices and procedures which is disclosed to HealthGate
(collectively, "Society's Confidential Information"), represent
valuable confidential information of the Society entitled to
protection as trade secrets. HealthGate shall keep confidential, and
shall protect from unauthorized disclosure by its employees and
agents, the Society's Confidential Information and all copies or
physical embodiments thereof in its possession, and shall limit access
to such Society's Confidential Information to those of its personnel
and personnel of its consultants or agents who require such access in
connection with HealthGate's use thereof as permitted by this
Agreement. HealthGate shall secure and protect the Society's
Confidential Information and any and all copies and other physical
embodiments thereof in its possession in a
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CONFIDENTIAL INFORMATION
manner consistent with the maintenance of the Society's rights and
interest therein. HealthGate shall take appropriate action by
instruction or agreement with its employees, agents and consultants
who are permitted access to the Society's Confidential Information or
any copy or other physical embodiment thereof, to satisfy HealthGate's
obligations hereunder. Promptly upon discovery that any person has
acquired possession, use or knowledge of any part of the Society's
Confidential Information other than as authorized by this Agreement,
HealthGate shall notify the Society of such fact and the surrounding
circumstances. The obligations of this Section 11(d) shall survive any
termination of this Agreement. The obligations of this Section 11(d)
shall not apply to any information which (a) is generally known to the
public, or becomes so known other than by reason of a breach by
HealthGate of its obligations hereunder, (b) was known to HealthGate
prior to its disclosure by the Society, or (c) is learned by
HealthGate from a third party who is not in breach of an obligation of
confidentiality in making such disclosure.
(e) PUBLIC AUTHORITY EXCEPTIONS. The parties' respective obligations under
this Section 11 shall not apply where disclosure is required, directed
or ordered by statute, regulation or a public authority, in legal or
administrative proceedings, in connection with the sale of securities
in the event of the filing of a Form S-1 Registration Statement or a
similar statement for the sale of securities by HealthGate with the
Securities Exchange Commission ("SEC") or any state authority or
otherwise. Notwithstanding the foregoing, and so that the other party
may timely present its objections to such disclosure, each party shall
provide the other party with timely notice of a request, requirement
or demand to disclose such information or matter which is either made
by a public authority, directed to a public authority or required by
the rules and regulations of statute, regulation or a public
authority.
12. REPRESENTATIONS AND WARRANTIES.
(a) AUTHORITY. Each party hereby represents and warrants that it has the
full right, power and authority to enter into and perform this
Agreement, and this Agreement has been duly authorized, executed and
delivered and constitutes the valid and binding obligation of such
party enforceable in accordance with its terms.
(b) HEALTHGATE. HealthGate hereby represents and warrants that: (i) it
has, and will have throughout the term of this Agreement, all rights
necessary to perform its obligations as set forth in this Agreement;
(ii) the HealthGate Property licensed hereunder does not and will not
infringe any trade name, trademark or copyright.
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(c) THE SOCIETY. The Society hereby represents and warrants that: (i) it
has, and will have throughout the term of this Agreement, all right,
title and interest in and to the Content and Society Properties,
except for items that are in the public domain or that are obtained
under valid licenses, (ii)) it has and will have the right to grant
the license granted herein, (iii) the Society Content and Property do
not and will not infringe any trade name, trademark or copyright, and
(iv) there are no material suits, claims or proceedings currently
pending or threatened against the Society based upon the Content and
that the Society will promptly advise HealthGate of the pendency or
threat of any such suits, claims or proceedings relating to the
Content or the Site arising during the term of this Agreement.
13. INDEMNIFICATION.
(a) THE SOCIETY'S INDEMNIFICATION. The Society shall indemnify, defend and
hold harmless HealthGate and its officers, employees, agents,
affiliates and subsidiaries against and from all losses, expenses,
damages and costs including, without limitation, reasonable attorneys'
fees, that may at any time be incurred by any of them by reason of (i)
any allegation, claim or suit threatened, made or brought against any
of them related to any matter covered by the representations and
warranties or set forth in Sections 12 (a) and 12 (c) above, (ii) any
allegation, claim or suit threatened, made or brought against any of
them that is based upon or arises from any actual or alleged error,
inaccuracy or other defect in the Society's Content or Properties and
(iii) any breach by the Society of any provision of this Agreement.
(b) HEALTHGATE'S INDEMNIFICATION. HealthGate shall indemnify, defend and
hold harmless each Society and its officers, employees, agents,
affiliates and subsidiaries against and from all losses, expenses,
damages and costs including, without limitation, reasonable attorney's
fees, that may at any time be incurred by any of them by reason of any
allegation, claim or suit threatened, made or brought against any of
them related to (i) any matter covered by the representations and
warranties set forth in Sections 12 (a) and 12 (b) above and (ii) any
breach by HealthGate of any provision of this Agreement.
(c) NOTICE; DEFENSE OF CLAIMS. Each party shall give prompt written notice
to the other party of any claim for indemnification hereunder,
specifying to the extent known the amount and nature of the claim, and
any matter which in the opinion of such party is likely to give rise
to an indemnification claim. The indemnifying party shall have the
right to control the defense through
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CONFIDENTIAL INFORMATION
counsel of its choosing. The indemnified party shall have the right to
the extent of its interests to participate on its own behalf and at
its own expense in such matter or its settlement through counsel of
its choosing.
14. EXCLUSION OF IMPLIED WARRANTIES AND LIMITATION OF LIABILITY. EXCEPT AS SET
FORTH HEREIN, NEITHER PARTY MAKES ANY WARRANTY OR REPRESENTATION TO THE
OTHER, EITHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IN NO
EVENT, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, SHALL EITHER PARTY BE
LIABLE TO THE OTHER FOR LOST PROFITS OR ANY OTHER INDIRECT, INCIDENTAL, OR
CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS
AGREEMENT.
15. ASSIGNMENT. Neither party may assign, sublicense or otherwise transfer in
whole or in part, any of the party's rights or obligations under this
Agreement without the written consent of the other party.
16. MISCELLANEOUS.
(a) PUBLICITY. HealthGate shall not distribute or publicly display or
communicate the name or trademarks of the Society without the prior
written approval of the Society, whose approval shall not be
unreasonably withheld. The Society agrees to respond to any written
request submitted by HealthGate regarding the use of the name or
trademarks of the Society within ten (10) working days of the
submission of a request; however any failure to respond to HealthGate
shall not be deemed approval. Notwithstanding the foregoing, the
Society hereby consents to the use of its name and trademarks, and the
reference to this Agreement, and if appropriate, the filing of this
Agreement, in connection with any filings made by HealthGate with the
Securities and Exchange Commission and any other applicable state
securities regulators concerning an initial or any other public
offering of its securities.
(b) RELATIONSHIP OF PARTIES. The relationship of the parties hereto shall
be that of independent contractors. Nothing herein shall be construed
to create any partnership, joint venture, or similar relationship or
to subject the parties to any implied duties or obligations respecting
the conduct of their affairs which are not expressly stated herein.
Neither party shall have any right or authority to assume or create
any obligation or responsibility, either express or implied, on behalf
of or in the name of the other party, or to bind the other party in
any matter or thing whatsoever.
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CONFIDENTIAL INFORMATION
(c) NOTICES. Notices to either party under or relating to this Agreement
shall be in writing to the address indicated on the first page of this
Agreement, Attention: President, and shall be deemed effective when
received, or on the second day following the date after depositing the
notice with a reputable, overnight delivery service (such as FedEx or
U.P.S.).
(d) SEVERABILITY. The terms and conditions of this Agreement are
severable. If any term or condition of this Agreement is deemed to be
illegal or unenforceable under any rule of law, all other terms shall
remain in force. Further, the term or condition which is held to be
illegal or unenforceable shall remain in effect as far as possible in
accordance with the intention of the parties.
(e) ENTIRE AGREEMENT; MODIFICATIONS. The parties hereto agree that this
Agreement represents the complete and exclusive statement of the
Agreement between the parties, and supersedes all prior proposals and
understandings, oral or written, relating to the subject matter of
this Agreement. This Agreement may be amended only in writing executed
by the parties hereto.
(f) EFFECT OF WAIVER. Failure by either party to enforce any provision of
this Agreement shall not be deemed a waiver of that provision or of
any other provision of this Agreement.
(g) FORCE MAJEURE. Neither party shall be responsible for any delay nor
failure in performance resulting from acts beyond the control of such
party. Such acts shall include but not be limited to an act of God; an
act of war; a riot; an epidemic, fire, flood or other disaster; an act
of government; and a strike or lockout; provided that, in order to be
excused from delay or failure to perform, such party must act
diligently to remedy the cause of such delay or failure.
(h) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
(i) VENUE. Except with respect to any dispute subject to arbitration in
accordance with the provisions of Section 15 (j) below, each party
hereto hereby irrevocably agrees that any legal action or proceeding
arising out of this Agreement shall be brought only in the Superior
Court of The Commonwealth of Massachusetts in and for Middlesex County
or the United States District Court for the Eastern Division of the
District of Massachusetts (or, if such court does not have subject
matter jurisdiction over such dispute, in any other state or federal
court located in the Commonwealth of
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CONFIDENTIAL INFORMATION
Massachusetts), preserving, however, all rights of removal to a
federal court under 28 U.S.C. Section 1441. Each party hereto
irrevocably waives any objection to the venue of the aforesaid courts
in connection with any legal action or proceeding against it arising
out of this Agreement. Each party hereto also agrees that any trial
arising out of or in connection with a claim against it in connection
with this Agreement shall be before the court and each party's right
to a trial by jury is hereby waived. Each party hereto irrevocably
consents to the service of process outside the territorial
jurisdiction of said courts in any such action or proceeding by
mailing copies thereof by registered United States mail, postage
prepaid, to its address as specified above.
(j) ARBITRATION. Any question, dispute, disagreement, or difference of any
kind whatsoever which may arise between the Society and HealthGate
under, out of, or in connection with this Agreement, or the carrying
out of the work hereunder (whether during the progress of the work or
after its completion, and whether before or after the termination
abandonment or breach of this Agreement) shall be tried to be settled
amicably upon mutual consultation with good faith, and in failing so
shall be submitted to arbitration in Boston, Massachusetts to a panel
of one arbitrator under the rules of the American Arbitration
Association.
(k) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall take effect as an original, and all
of which, together, shall evidence one and the same Agreement.
(l) SECTION HEADINGS; EXHIBITS. The section, subsection and Schedule
headings used herein are for reference and convenience only, and shall
not enter into the interpretation hereof. The Schedules referred to
herein and attached hereto, or to be attached hereto, are incorporated
herein to the same extent as if set forth in full herein.
(m) NEUTRAL CONSTRUCTION. The parties to this Agreement agree that this
Agreement was negotiated fairly between them at arm's length and that
the final terms of this Agreement are the product of the parties'
negotiations. Each party warrants and represents that it has sought
and received legal counsel of its own choosing with regard to the
contents of this Agreement and the rights and obligations affected
hereby. The parties agree that this Agreement shall be deemed to have
been jointly and equally drafted by them, and that the provisions of
this Agreement therefore should not be construed against a party or
parties on the grounds that the party or parties drafted or was more
responsible for drafting the provision(s).
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CONFIDENTIAL INFORMATION
(n) CERTAIN TERMS.
"Internet" means the world-wide network of computers commonly
understood to provide some or all of the following features, among
others: electronic mail, file transfers through File Transfer Protocol
("FTP"), Telnet access to local and remote computers, Usenet
Newsgroups, Gopher access to information on local and remote
computers, Wide Area Information Servers ("WAIS"), and World Wide Web
access.
"World Wide Web" or "Web" means all of the web pages that are
accessible to a typical computer user with appropriate access to the
Internet and a web browser.
(q) EMPLOYEES. Neither HealthGate nor the Society shall hire or seek to
engage the services of, nor offer to pay commissions, compensation or
any other form of incentives to the employees or consultants of the
other for any purpose whatsoever without the express written consent
of the other party. This provision shall expire eighteen (18) months
after the termination of this Agreement.
(r) COOPERATION. Each party shall cooperate with the other party as is
reasonably necessary to further the purposes of this Agreement and the
other party's performance hereunder.
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CONFIDENTIAL INFORMATION
Executed as of the date set forth above, as a document under seal, by the duly
authorized representatives of the parties hereto.
HealthGate Data Corp.
By: /s/ Rick Lawson
---------------
Rick Lawson
VP, Content
Massachusetts Medical Society
By: /s/ Harry L. Greene, II
-----------------------
Name: Harry L. Greene, II
Title: Executive Vice President
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Exhibit 10.29
AMENDMENT TO STANDARD DISTRIBUTION AGREEMENT, VALUE ADDED RESELLER (VAR),
DATED JUNE 20, 1998, BETWEEN HEALTHGATE DATA CORP. AND DATA GENERAL CORPORATION
A. The following institutions are excluded from the definition of VAR
Territory as referenced in Section 1.2 and as defined in Schedule D.
1. Harvard Medical Complex (except Spaulding Rehabilitation Hospital and
Cambridge Health Alliance)
2. Columbia Pres.-New York Hospital and associated Columbia and Cornell
teaching hospitals (except New Milford Hospital)
3. Sloan Kettering Cancer Hospital.
4. University of Massachusetts @ Worcester (except University of
Massachusetts Medical Center)
5. Hospital for Special Surgery, NYC
6. Hospital of the University of Pennsylvania, Philadelphia
7. Robert Wood Johnson Medical Center, NJ
8. Johns Hopkins Medical Center and Associated Hospitals
9. National Inst. of Health Clinical Center and Suburban Hospital,
Bethesda
10. Duke Medical Complex
11. Bowman Gray Medical Center and Associated Hospitals
12. Emory University Complex
13. University of Alabama
14. Vanderbilt Complex
15. University of Pittsburgh complex
16. Cleveland Clinic
17. University of Toronto complex (except Toronto Hospital)
18. McGill University Complex
19. University of Western Ontario, London, Ont.
20. University of Chicago complex
21. University of Illinois complex
22. Northwestern University complex
23. Medical College of Wisconsin
24. University of Wisconsin, Madison
25. Mayo Clinic
26. Texas Medical Center/U Texas @, MD Anderson Houston,
27. University of Texas Dallas (Southwestern Medical Center, Parkland
Hospital)
28. University of Iowa
29. University of Utah
30. University of Washington complex, Seattle
31. University of British Columbia/Vancouver General Hospital. (except
Vancouver General Hospital)
32. UCSF complex
33. Stanford
34. UCLA complex
35. Cedars Sinai Medical Center
36 Columbia / HCA
37. HealthSouth
<PAGE>
B. HealthGate hereby agrees that exclusivity period applicable to the VAR
Territory as described in Schedule D, with the exceptions of those
institutions noted in Section A above, is extended through December 31,
1999. Said exclusivity may be further extended if Data General achieves
certain mutually agreed upon sales objectives by this date. Both parties
agree to negotiate these objectives within five working days of the
execution of this Amendment.
C. HealthGate and Data General hereby agree that, notwithstanding the fact
that there are several MEDITECH/DataGeneral accounts within Quorum (which
includes hospitals owned and managed by Quorum) Data General shall have a
non-exclusive right, without any requirement to register each prospect in
advance of licensing any HealthGate product or service, to resell the
HealthGate product and services listed in Schedules A and C to Quorum.
Accepted and Agreed to:
Data General Corporation. HealthGate Data Corp.
By: /s/ Robert S. Iacono By: /s/ William S. Reece
Name: Robert S. Iacono Name: William S. Reece
Title: V.P. WW Healthcare Title: CEO
Date: June 10, 1999 Date: June 11, 1999
<PAGE>
Exhibit 10.30
HEALTHGATE DATA CORP.
WARRANT PURCHASE AGREEMENT
June 11, 1999
<PAGE>
WARRANT PURCHASE AGREEMENT
This Warrant Purchase Agreement (this "Agreement"), is made as of June 11,
1999 by and between HealthGate Data Corp., Inc., a Delaware corporation (the
"COMPANY") and General Electric Company, a New York Corporation or one or more
of its affiliates (the "Purchaser").
RECITALS
WHEREAS, the Purchaser and the Company are contemporaneously entering into
a Distribution Agreement of even date herewith (the "DISTRIBUTION AGREEMENT");
and
WHEREAS, as a material condition to the Purchaser's willingness to enter
into the Distribution Agreement, the Company has agreed to issue to the
Purchaser a warrant to purchase shares of capital stock of the Company, subject
to the terms and conditions of this Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1 ISSUANCE OF WARRANT. Subject to the terms and conditions hereof, on
the date of the execution of this Agreement or such later date as the conditions
to closing herein are satisfied (the "Closing"), the Company shall issue to the
Purchaser, and the Purchaser shall accept from the Company, the Warrant in the
form attached as EXHIBIT A hereto.
2. DELIVERIES TO BE MADE AT THE CLOSING.
2.1. AGREEMENTS TO BE EXECUTED. The following documents shall be
executed prior to or simultaneously with the Closing:
(i) DISTRIBUTION AGREEMENT. The Company and the Purchaser will
have entered into a Distribution Agreement, in substantially the form set
forth in EXHIBIT B attached hereto (the "DISTRIBUTION AGREEMENT"), and the
Distribution Agreement will be in full force and effect as of the Closing.
(ii) REGISTRATION AGREEMENT. The Company and the Purchaser will
have entered into a Registration Agreement in substantially the form set
forth in Exhibit C attached hereto (the "REGISTRATION AGREEMENT") and the
Registration Agreement will be in full force and effect as of the Closing
and the Company shall have obtained any requisite consents, agreements or
waivers from the stockholders of the Company on or prior to the Closing.
(iii) STOCKHOLDERS AGREEMENT. The Company and the other parties
to the Amended and Restated Stockholders Agreement dated April 7, 1999
shall have executed and delivered an amendment to the Stockholders
Agreement adding Purchaser to such agreement, including tag-along rights
for Purchaser equivalent to those granted to GE Capital therein with
<PAGE>
respect to the Common Stock and extending such rights for a term ending
upon the consummation of an IPO or the expiration of the 5 year term hereof
(the "STOCKHOLDERS AGREEMENT").
(iv) LOCK-UP AGREEMENT. The Purchaser shall have executed and
delivered to the Company a Lock-up Agreement in substantially the form
attached hereto as Exhibit D.
2.2 CLOSING DOCUMENTS. The Company will deliver, or cause to be
delivered, to the Purchaser all of the following documents:
(i) the opinion of Rich, May, Bilodeau & Flaherty, P.C., counsel
for the Company, which shall be in the form set forth in EXHIBIT E
attached hereto and which will be addressed to the Purchaser and dated
the date of the Closing;
(ii) certified copies of the resolutions duly adopted by the
Company's board of directors authorizing the execution, delivery and
performance of this Agreement, the Registration Agreement, the
Stockholders Agreement and each of the other agreements contemplated
hereby, the issuance and sale of the Warrant, the reservation for
issuance of 300,000 shares of Common Stock for issuance upon exercise
of the Warrant, and all other transactions contemplated by this
Agreement;
(iii) certified copies of the Certificate of Incorporation and
the Company's bylaws, each as in effect as of the Closing; and
(iv) such other documents relating to the transactions
contemplated by this Agreement as the Purchaser or its counsel may
reasonably request.
3. COVENANTS. The rights of the Purchaser under Article 3 (other than
Sections 3.1(vii), 3.4, 3.5, 3.6 and 3.8) shall terminate at the earlier of such
time as the Company consummates an IPO or the Warrant is exercised in full or
terminated.
3.1 FINANCIAL STATEMENTS AND OTHER INFORMATION. The Company will,
upon the written request of the Purchaser, deliver to the Purchaser (so long as
the Purchaser holds any portion of the Warrant and this covenant is in effect,
except the Company shall have no such obligation while its Registration
Statement on Form S-1 (No. 333-76899) is on file with the SEC and has not been
abandoned or withdrawn) and to each transferee of the Purchaser who has acquired
and holds the Warrant
(i) as soon as available but in any event within 30 days after
the end of each monthly accounting period in each fiscal year, (a)
unaudited consolidated statements of income and cash flows and changes
in consolidated financial position of the Company and its Subsidiaries
for such monthly period and for the period from the beginning of the
fiscal year to the end of such monthly period and consolidated balance
sheets of the Company and its Subsidiaries as of the end of such
monthly period, setting forth in each case comparisons to the annual
budget
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and to the corresponding period in the preceding fiscal year, all
prepared in accordance with generally accepted accounting principles,
consistently applied, and (b) a management summary of the month's
events including new business development, material legal matters,
bookings, backlogs, staffing levels, and sales projections;
(ii) accompanying the statements referred to in subparagraph (i),
an Officer's Certificate stating that there is no Event of
Noncompliance in existence and that there has occurred no event of
default under any other material agreement to which the Company or any
of its Subsidiaries is a party or, if any Event of Noncompliance or
any such event of default exists, specifying the nature and period of
existence thereof, and what actions the Company and its Subsidiaries
have taken and propose to take with respect thereto;
(iii) as soon as practicable and in any event within 90 days
after the end of each fiscal year, audited consolidated statements of
income and cash flows and changes in financial position of the Company
and its Subsidiaries for such fiscal year, and consolidated balance
sheets of the Company and its Subsidiaries as of the end of such
fiscal year, setting forth in each case comparisons to the preceding
fiscal year, all prepared in accordance with generally accepted
accounting principles, consistently applied, and accompanied by, with
respect to the consolidated portions of such statements, an audit
opinion by a Big Five public accounting firm selected by the Company;
(iv) promptly upon receipt thereof, a copy of the annual
management letter of the Company's independent accountants to the
Company's board of directors and any additional reports, management
letters or other detailed information concerning significant aspects
of the Company's operations and financial affairs given to the Company
by its independent accountants (and not otherwise contained in other
materials provided hereunder);
(v) at least 30 days prior to the end of each fiscal year, an
annual operating budget prepared on a monthly basis for the Company
and its Subsidiaries for the succeeding fiscal year (displaying
anticipated statements of income, changes in financial position and
balance sheets) and an annual budget for capital expenditures of the
Company and its Subsidiaries, which budgets shall be approved by the
Company's board of directors, and promptly upon preparation thereof
any other significant budgets which the Company prepares, and any
revisions of such annual or other budgets;
(vi) promptly (but in any event within five business days) after
the discovery or receipt of notice of any Event of Noncompliance, any
event of default under any material agreement to which it or any of
its Subsidiaries is a party, or any other material adverse event or
circumstance affecting the Company or any Subsidiary (including the
filing of any material litigation against the Company or
3
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any Subsidiary which, if determined adversely, would have a material
adverse effect on the business, assets, financial condition, results
of operations or prospects of the Company and its Subsidiaries taken
as a whole), an Officer's Certificate specifying the nature and period
of existence thereof and what actions the Company and its Subsidiaries
have taken and propose to take with respect thereto;
(vii) promptly upon transmission thereof, copies of the Company's
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Annual
Reports to Stockholders filed with the Securities and Exchange
Commission; and
(viii) with reasonable promptness, such other information and
financial data concerning the Company as any Person entitled to
receive materials under this Section 3.1 may reasonably request.
Except as otherwise required by law or judicial order or decree or by any
governmental regulatory agency or authority, the Purchaser and each Person
receiving information regarding the Company pursuant to Sections 3.1 or 3.2 will
use commercially reasonable efforts to maintain the confidentiality of all
nonpublic information obtained by it hereunder which the Company has reasonably
designated as proprietary or confidential in nature; provided that each such
Person may disclose any financial information regarding the Company and its
Subsidiaries in connection with the transfer of the Warrant or Underlying Common
Stock if such Person's transferee agrees in writing to be bound by the
provisions hereof. As a condition to disclosure of such information to any
Person other than the Purchaser, the Company may request receipt of written
confirmation by such Person that such Person will abide by the foregoing
confidentiality provisions.
3.2 INSPECTION OF PROPERTY. The Company will permit any
representatives designated by any Person (so long as the Purchaser holds any
portion of the Warrant and this covenant is in effect, except the Company shall
have no such obligation while its Registration Statement on Form S-1 (No.
333-76899) is on file with the SEC and has not been abandoned or withdrawn) upon
reasonable notice and during normal business hours, to (i) visit and inspect any
of the properties of the Company, (ii) examine the corporate and financial
records of the Company and make copies thereof or extracts therefrom and (iii)
discuss the affairs, finances and accounts of the Company and its Subsidiaries
with the directors, officers, key employees and independent accountants of the
Company, in each case subject to the confidentiality provisions of the last
subsection of Section 3.1 and provided that such visits, inspections,
examinations and discussions will be at the Purchaser's expense and will not
unreasonably interfere with the Company's normal business operations and that
the Company will not be required to disclose hereunder any technical proprietary
information relating to its business.
3.3 AFFIRMATIVE COVENANTS. The Company will, and will cause each
Subsidiary to:
(i) at all times cause to be done all things reasonably necessary to
maintain, preserve and renew its corporate existence and all material
licenses, authorizations and permits necessary to the conduct of its
businesses;
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(ii) maintain and keep its properties in good repair, working order
and condition, ordinary wear and tear excepted, and from time to time make
all necessary or desirable repairs, renewals and replacements, so that its
businesses may be properly and advantageously conducted at all times,
except where the failure to so comply would not have a material adverse
effect on the business, assets, financial condition, results of operations
or prospects of the Company and its Subsidiaries taken as a whole;
(iii) pay and discharge when payable all taxes, assessments and
governmental charges imposed upon its properties or upon the income or
profits therefrom (in each case before the same become delinquent and
before penalties accrue thereon) and all claims for labor, materials or
supplies which if unpaid might by law become a lien upon any of its
property, to the extent to which the failure to so pay or discharge might
reasonably be expected to have a material adverse effect upon the business,
assets, financial condition, results of operations or prospects of the
Company and its Subsidiaries taken as a whole, unless and to the extent
that the same are being contested in good faith and by appropriate
proceedings and adequate reserves (as determined in accordance with
generally accepted accounting principles, consistently applied) have been
established on its books with respect thereto;
(iv) comply with all other obligations which it incurs pursuant to any
contract or agreement, whether oral or written, express or implied, as such
obligations become due to the extent to which the failure to so comply
might reasonably be expected to have a material adverse effect upon the
business, assets, financial condition, results of operations or prospects
of the Company and its Subsidiaries taken as a whole, unless and to the
extent that the same are being contested in good faith and by appropriate
proceedings and adequate reserves (as determined in accordance with
generally accepted accounting principles, consistently applied) have been
established on its books with respect thereto;
(v) comply with all applicable laws, rules, regulations and orders of
all domestic and foreign governmental authorities, including, without
limitation, the Foreign Corrupt Practices Act, the violation of which might
reasonably be expected to have a material adverse effect upon the business,
assets, financial condition, results of operations or prospects of the
Company and its Subsidiaries taken as a whole;
(vi) apply for and use its best efforts to continue in force with
responsible insurance companies adequate insurance covering risks of such
types and in such amounts as are customary for corporations of similar size
engaged in similar lines of business and, without limiting the foregoing,
maintain "key man" life insurance covering William S. Reece (so long as
such individual is an employee of the Company) and naming the Company as
beneficiary in the amount of $1,000,000 for each such policy, the proceeds
of which will be available for general corporate purposes of the Company;
and
(vii) maintain proper books of record and account which fairly present
its financial condition and results of operations and make provisions on
its financial statements
5
<PAGE>
for all such proper reserves as in each case are required in accordance
with generally accepted accounting principles, consistently applied.
3.4 COMPLIANCE WITH AGREEMENTS. The Company will use its best efforts
to perform and observe (i) all of its obligations to the Warrant Holders and all
of its obligations to each holder of the Underlying Common Stock including those
under the Stockholders Agreement and (ii) all of its obligations to each holder
of Registrable Securities set forth in the Registration Agreement.
3.5 CURRENT PUBLIC INFORMATION. At all times after the Company has
filed a registration statement with the Securities and Exchange Commission
pursuant to the requirements of either the Securities Act or the Securities
Exchange Act, the Company will file all reports required to be filed by it under
the Securities Act and the Securities Exchange Act and the rules and regulations
adopted by the Securities and Exchange Commission thereunder, and will take such
further action as any holder or holders of Restricted Securities may reasonably
request, all to the extent required to enable such holders to sell Restricted
Securities pursuant to Rule 144 adopted by the Securities and Exchange
Commission under the Securities Act (as such rule may be amended from time to
time) or any similar rule or regulation hereafter adopted by the Securities and
Exchange Commission.
3.6 RESERVATION OF COMMON STOCK. The Company will at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrant,
300,000 shares of Common Stock. All shares of Common Stock which are so issuable
will, when issued, be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges. The Company will take all such actions
as may be necessary to assure that all such shares of Common Stock may be so
issued without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of stock may
be listed (except for official notice of issuance which will be promptly
transmitted by the Company upon issuance).
3.7 PROPRIETARY RIGHTS. The Company will, and will cause each
Subsidiary to, use its best efforts to possess and maintain all material
Proprietary Rights which the Company deems necessary to the conduct of their
respective businesses and own all right, title and interest in and to, or have a
valid license or right for, all material Proprietary Rights used by the Company
or any Subsidiary in the conduct of their respective businesses.
3.8 PUBLIC DISCLOSURES. The Company will not, nor will it permit any
Subsidiary to, disclose the Purchaser's name or identity as an investor in the
Company in any press release or other public announcement or in any document or
material filed with any governmental entity, without the prior written consent
of the Purchaser, unless such disclosure is required by applicable law or
governmental regulations or by order of a court of competent jurisdiction in
which case prior to making such disclosure the Company will use reasonable
efforts to give written notice to the Purchaser describing in reasonable detail
the proposed content of such disclosure and will permit the Purchaser to review
and comment upon the form and substance of such disclosure. Notwithstanding the
foregoing, the Company may describe its strategic affiliation with the
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Purchaser and GE Medical Systems in the Company's filings with the SEC provided
that it obtains the Purchaser's or GE Medical Systems prior review (which shall
be provided promptly) and written consent, which consent shall not be
unreasonably withheld.
3.9 CONTENT RESTRICTIONS. Neither the Company nor any of its
Subsidiaries will host, display, provide or aggregate non-healthcare information
on its proprietary and customer websites that might be considered pornographic,
lewd or obscene in nature. The Purchaser acknowledges that future issues of
"Healthy Sexuality" which are consistent with the format, content and tone of
issues prior to the date of this Agreement shall not constitute a breach of this
Section 3.9.
3.10 ERISA. Neither the Company nor any Subsidiary shall incur any
material liability with respect to retiree medical or death benefits or unfunded
benefits payable after termination of employment. All employee benefit plans and
arrangements maintained or contributed to by the Company, any Subsidiary or any
ERISA Affiliate shall be maintained in compliance in all material respects with
all applicable law, including any reporting requirements. With respect to any
plan maintained by or contributed to by the Company or any Subsidiary, neither
the Company nor any Subsidiary will fail to make any contribution due from it
under the terms of such plan or as required by law. An "ERISA Affiliate" for
purposes of this Section is any trade or business, whether or not incorporated,
which, together with the Company, is under common control, as described in
Section 414(b) or (c) of the Code.
3.11 BEST EFFORTS. The Company will take or cause to be taken all
actions and make or cause to be made all filings necessary or appropriate in
connection with the consummation of the transactions contemplated by this
agreement and the performance of the Company's obligations hereunder.
4. TRANSFER OF RESTRICTED SECURITIES.
(i) Restricted Securities are transferable pursuant to (a) public
offerings registered under the Securities Act, (b) Rule 144 of the
Securities and Exchange Commission (or any similar rule then in force) if
such rule is available, (c) to any Affiliate of the Purchaser and (d)
subject to the conditions specified in subparagraph (ii) below, any other
legally available means of transfer;
(ii) In connection with the transfer of any Restricted Securities
(other than a transfer described in Section 4(i)(a), (b) or (c) above), the
holder thereto will deliver written notice to the Company describing in
reasonable detail the transfer or proposed transfer, together with an
opinion of counsel which (to the Company's reasonable satisfaction) is
knowledgeable in securities law matters (an "Approved Counsel") to the
effect that such transfer of Restricted Securities may be effected without
registration of such Restricted Securities under the Securities Act. In
addition, if the holder of the Restricted Securities delivers to the
Company an opinion of an Approved Counsel that no subsequent transfer of
such Restricted Securities will require registration under the Securities
Act, the Company
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will promptly upon such contemplated transfer deliver new certificates for
such Restricted Securities which do not bear the Securities Act legend set
forth in Section 7.3. If the Company is not required to deliver new
certificates for such Restricted Securities not bearing such legend, the
holder thereof will not transfer the same until the prospective transferee
has confirmed to the Company in writing its agreement to be bound by the
conditions contained in this Section and Section 7.3.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. As a material
inducement to the Purchaser to enter into this Agreement and purchase the
Warrant, the Company hereby represents and warrants to Purchaser as of the date
of this Agreement (unless made as of a specific date) that:
5.1 ORGANIZATION AND CORPORATE POWER. Each of the Company and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated and is
duly qualified to do business in every jurisdiction in which its ownership of
property or its conduct of business requires it to qualify. The Company has all
requisite corporate power and authority and all material licenses, permits and
authorizations necessary to own and operate its properties, to carry on its
business as now conducted and presently proposed to be conducted and to carry
out the transactions contemplated by this Agreement. The copies of the Company's
and each Subsidiary's charter documents and bylaws, which have been furnished to
the Purchaser's counsel, reflect all amendments made thereto at any time prior
to the date of this Agreement and are correct and complete.
5.2 CAPITAL STOCK AND RELATED MATTERS. As of the Closing and
immediately thereafter, the authorized capital stock of the Company will consist
of (i) 1,000 shares of Series A Convertible Preferred Stock, $.01 par value (the
"Series A Preferred"), 1,000 of which are issued and outstanding, (ii) 1,000
shares of Series B Convertible Preferred Stock, $.01 par value (the "Series B
Preferred"), 1,000 of which are issued and outstanding, (iii) 1,000 shares of
the Series C Convertible Preferred Stock, $.01 par value (the "Series C
Preferred"), 1,000 of which are issued and outstanding, (iv) 1,667 shares of the
Series D Convertible Preferred Stock, $.0l par value (the "Series D Preferred"),
1,667 of which are issued and outstanding, (v) 829,962 shares of Series E
Preferred, 720,757 of which are issued and outstanding and (vi) 20,000,000
shares of Common Stock, of which 1,146,895 shares are issued and outstanding,
304,950 shares have been reserved for issuance upon conversion of the Series A
Preferred and 399,400 shares have been reserved for issuance upon conversion of
the Series B Preferred and 138,650 shares have been reserved for issuance upon
conversion of the Series C Preferred and 335,100 shares have been reserved for
issuance upon conversion of the Series D Preferred and 720,757 shares have been
reserved for issuance upon conversion of the Series E Preferred and 300,000
shares have been reserved for the issuance by all necessary corporate action
upon exercise of the Warrant. The 300,000 shares of Common Stock reserved for
issuance upon exercise of the Warrant will represent, as of the Closing, in
excess of 7.19% of the Company's Common Stock and options on a Fully-Diluted
Basis, as set forth in EXHIBIT F hereto. As of the Closing, neither the Company
nor any Subsidiary will have outstanding any stock or securities convertible or
exchangeable for any shares of its capital stock, nor will it have outstanding
any rights or options to subscribe for or to purchase its capital stock or any
stock or securities convertible into or exchangeable for its
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capital stock, except for the Series A Preferred, the Series B Preferred, the
Series C Preferred, the Series D Preferred, and the Series E Preferred and
except for this Warrant and any options, rights or warrants to purchase shares,
of capital stock of the Company issued to members of the board of directors,
employees, consultants and advisors of the Company, and GE Capital Equity
Investments, Inc. as more fully set forth on SCHEDULE 5.2 attached hereto. As of
the Closing, neither the Company nor any Subsidiary will be subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock, except pursuant to the Certificate of
Incorporation. As of the Closing, all of the outstanding shares of the Company's
capital stock will be validly issued, fully paid and nonassessable.
5.3 SUBSIDIARIES. Except as set forth on SCHEDULE 5.3 attached
hereto, the Company does not own or hold any rights to acquire any shares of
stock or any other security or interest in any other Person.
5.4 AUTHORIZATION: NO BREACH. The execution, delivery and performance
of this Agreement, the Registration Agreement and the Stockholders Agreement and
all other agreements contemplated hereby and thereby, the transactions
contemplated hereby and thereby have been duly authorized by the Company and are
within the corporate power and authority of the Company. As of the date of their
execution and delivery by the Company, this Agreement, the Registration
Agreement, the Stockholders Agreement and all other agreements contemplated
hereby will be duly executed and delivered by the Company and each will
constitute a valid and binding obligation of the Company, enforceable in
accordance with its terms; except that such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally. The execution and
delivery by the Company of this Agreement, the Registration Agreement, the
Stockholders Agreement and all other agreements contemplated hereby and thereby,
the offering, sale and issuance of the Warrant hereunder, the issuance of the
Common Stock upon exercise of the Warrant do not and will not (i) conflict with
or result in a breach of the terms, conditions or provisions of, (ii) constitute
a default under, (iii) result in the creation of any lien, security interest,
charge or encumbrance upon the Company's or any Subsidiary's capital stock or
assets pursuant to, (iv) give any third party the right to accelerate any
obligation under, (v) result in a violation of, or (vi) require any
authorization, consent, approval, exemption or other action by or notice to any
court or administrative or governmental body pursuant to, the Certificate of
Incorporation or bylaws of the Company or any Subsidiary, or any law, statute,
rule or regulation to which the Company or any Subsidiary is subject, or any
agreement, instrument, order, judgment or decree to which the Company or any
Subsidiary is subject.
5.5 FINANCIAL STATEMENTS; BOOKS AND RECORDS. The audited consolidated
balance sheets of the Company and its Subsidiaries as of December 31, 1998 and
1997 and the related audited consolidated statements of income and cash flows
for each of the years ended December 31, 1998, 1997 and 1996 have been
previously delivered to Purchaser. Such financial statements (including the
notes thereto, if any) were prepared in accordance with GAAP, are accurate and
complete in all material respects, are in accordance with the books and records
of the Company. All the books, records and accounts of the Company and its
Subsidiaries are in all material respects true and complete, are maintained in
accordance with good business practice and
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all laws applicable to its business, and accurately present and reflect in all
material respects all of the transactions therein described. The Company has
previously delivered to the Purchaser true, correct and complete texts of all of
the minutes relating to meetings of the stockholders, board of directors and
committees of the board of directors of the Company and each Subsidiary since
their respective dates of incorporation.
5.6 ABSENCE OF UNDISCLOSED LIABILITIES. Neither the Company nor any
of its Subsidiaries has any material obligation or liability (whether accrued,
absolute, contingent, unliquidated or otherwise, whether or not known to the
Company, whether due or to become due) arising out of transactions entered into
at or prior to the Closing, or any action or inaction at or prior to the
Closing, or any state of facts existing at or prior to the Closing, other than:
(i) liabilities set forth on the Latest Balance Sheet (including the notes
thereto), (ii) liabilities and obligations which have arisen after the date of
the Latest Balance Sheet in the ordinary course of business (none of which is a
liability resulting from breach of contract, breach of warranty, tort,
infringement, claim or lawsuit) or in connection with the transactions described
in this Agreement and (iii) other liabilities and obligations expressly
disclosed in the other Schedules to this Agreement.
5.7 NO MATERIAL ADVERSE CHANGE. Since January 1, 1999, there has been
no material adverse change in the Company's business, assets, financial
condition, results of operations, prospects, employee relations, customer
relations or otherwise.
5.8 ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth on Schedule
5.8 hereto, the representations and warranties set forth in Section 6.8 of the
Stock Purchase Agreement dated as of April 5, 1999 between the Company, GE
Capital Equity Investments, Inc. and Blackwell Science, Ltd. (the "April Stock
Purchase Agreement") remain true complete and correct in all material respects.
5.9 ASSETS. The Company and each Subsidiary have good and marketable
title to, or a valid and subsisting leasehold interest in, the properties and
assets used by them, located on their premises or shown on the Latest Balance
Sheet or acquired thereafter, free and clear of all liens, security interests,
charges and encumbrances, except as disclosed on the Latest Balance Sheet
(including the notes thereto). The Company's and each Subsidiary's buildings,
equipment and other tangible assets are in good operating condition in all
material respects and are fit for use in the ordinary course of business.
5.10 TAX MATTERS. The Company and each Subsidiary have filed or caused
to be filed all tax returns which they are required to file; all such returns
are true and correct in all material respects; the Company and each Subsidiary
have paid all taxes owed by them or which they are obligated to withhold from
amounts owing to any employee, creditor or third party; neither the Company nor
any Subsidiary has waived any statute of limitations with respect to taxes or
agreed to any extension of time with respect to a tax assessment or deficiency;
the assessment of any additional taxes for periods for which returns have been
filed is not expected; and there are no material unresolved questions or claims
concerning the Company's or any Subsidiary's tax liability. The Company and its
Subsidiaries have paid or caused to be paid, or have established reserves that
the Company reasonably believes to be adequate, for all federal income tax
liabilities and state
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income tax liabilities applicable to the Company or any of its Subsidiaries for
all fiscal years which have not been examined and reported on by the taxing
authorities. For the purpose of this Agreement, "tax" or "taxes" means any
federal, state, local or foreign income, gross receipts, windfall profits,
severance, property, production, sales, use, transfer, gains, license, excise,
employment, payroll, withholding, value added, estimated, alternative or add on
minimum tax, or any other tax, custom, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or any
penalty, addition to tax or additional amount imposed by any governmental
authority.
5.11 CONTRACTS AND COMMITMENTS. Except as set forth on Schedule 5.11
hereto, the representations and warranties set forth in Section 6.11 of the
April Stock Purchase Agreement remain true complete and correct in all material
respects.
5.12 PROPRIETARY RIGHTS. The Company and its Subsidiaries possess all
material Proprietary Rights necessary to the present and contemplated conduct of
their respective businesses and (i) the Company and its Subsidiaries own all
right, title, and interest in and to all of such Proprietary Rights, (ii) there
have been no claims made against the Company or any Subsidiary for the assertion
of the invalidity, abuse, misuse, or unenforceability of any of such rights, and
there are, to the best of the Company's knowledge, no grounds for the same,
(iii) neither the Company nor any Subsidiary has received a notice of conflict
with the asserted rights of others within the last five years, and (iv) the
conduct of the Company's and each Subsidiary's business has not, to the best of
the Company's knowledge, infringed any such rights of others. Each employee or
consultant of the Company or any Subsidiary is a party to a confidentiality
agreement relating to the business of the Company and its Subsidiaries. Each
technical employee or consultant of the Company or any Subsidiary, excluding
consultants hired for intellectual property expertise in a particular topic
distinct from the Company's business, is a party to an invention assignment
agreement relating to the business of the Company and its Subsidiaries.
5.13 LITIGATION, ETC. Except as set forth in SCHEDULE 5.13, there are
no actions, suits, proceedings, orders, investigations or claims pending or, to
the best of the Company's knowledge, threatened against or affecting the Company
or any Subsidiary at law or in equity, or before or by any governmental
department, commission, board, bureau, agency or instrumentality; neither the
Company nor any Subsidiary is subject to any arbitration proceedings under
collective bargaining agreements or otherwise or, to the best of the Company's
knowledge, any governmental investigations or inquiries (including inquiries as
to the qualification to hold or receive any license or permit); and, to the best
of the Company's knowledge, there is no basis for any of the foregoing. Neither
the Company nor any of its Subsidiaries is in default in any material respect
with respect to any judgment, order, writ, injunction, decree or award.
5.14 BROKERAGE. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement binding
upon the Company or any Subsidiary; provided, however, that this representation
excludes any claim arising out of or due to any action of the Purchaser. The
Company will pay, and hold the Purchaser harmless against, any liability, loss
or expense
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(including, without limitation, reasonable attorneys' fees and out-of-pocket
expenses) arising in connection with any such claim.
5.15 GOVERNMENTAL CONSENT, ETC. No permit, consent, approval or
authorization of, or declaration to or filing with, any governmental authority
is required in connection with the valid execution, delivery and performance by
the Company of this Agreement or the other agreements contemplated hereby, or
the consummation by the Company of any other transactions contemplated hereby or
thereby.
5.16 INSURANCE. The representations and warranties set forth in
Section 6.16 of the April Stock Purchase Agreement remain true complete and
correct in all material respects.
5.17 EMPLOYEES AND ERISA.
(i) The Company is not aware that any executive or key employee of
the Company or any Subsidiary or any group of employees of the Company or
any Subsidiary has any plans to terminate employment with the Company or
any Subsidiary, the Company and each Subsidiary have complied in all
material respects with all laws relating to the employment of labor,
including provisions thereof relating to wages, hours, equal opportunity,
collective bargaining and the payment of social security and other taxes,
and the Company is not aware that it or any Subsidiary has any material
labor relations problems.
(ii) Neither the Company, its Subsidiaries nor any of their respective
employees is a party to any consulting or employment agreements containing
any non-compete or confidentiality provisions relating to the present or
proposed business activities of the Company and its Subsidiaries;
(iii) Neither the Company nor any Subsidiary presently maintains or
contributes to, or ever has maintained or contributed to, any "employee
benefit plan," as such term is defined in Section 3 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), with respect
to which the Company is required to file Internal Revenue Service Form
5500, and neither the Company nor any Subsidiary presently contributes to
or ever has contributed to any "multiemployer plan," as such term is
defined in Section 3 of ERISA.
5.18 COMPLIANCE WITH LAWS. Neither the Company nor any Subsidiary is
in violation of any domestic or foreign law or any regulation or requirement,
including without limitation, the Foreign Corrupt Practices Act, which violation
might reasonably be expected to have a material adverse effect upon the
business, assets, financial condition, result of operations or prospects of the
Company and its Subsidiaries, and neither the Company nor any Subsidiary has
received notice of any such violation.
5.19 DISCLOSURE. Neither this Agreement nor any of the schedules,
attachments, written statements, documents, certificates or other items prepared
or supplied to the Purchaser by
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or on behalf of the Company with respect to the transactions contemplated hereby
contain any untrue statement of a material fact or omit a material fact
necessary to make each statement contained herein or therein not misleading.
There is no fact which the Company has not disclosed to the Purchaser in writing
and of which any of its officers, directors or executive employees is aware and
which could reasonably be anticipated to have a material adverse effect upon the
existing or expected financial condition, operating results, assets, customer
relations, employee relations or business prospects of the Company and its
Subsidiaries.
5.20 POSSESSION OF FRANCHISES, LICENSES, ETC. The Company and its
Subsidiaries possess all franchises, certificates, licenses, permits and other
authorizations from governmental or political subdivisions or regulatory
authorities that are necessary in any material respect to the Company or any of
its Subsidiaries for the ownership, maintenance and operation of their
respective properties and assets, and neither the Company nor any of its
Subsidiaries is in violation of any thereof in any material respect.
5.21 HOLDING COMPANY ACT AND INVESTMENT COMPANY ACT. Neither the
Company nor any Subsidiary is: (i) a "public utility company" or a "holding
company," or an "affiliate" or a "subsidiary company" of a "holding company," or
an "affiliate" of such a "subsidiary company," as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended, or (ii) a "public
utility," as defined in the Federal Power Act, as amended, or (iii) an
"investment company" or an "affiliated person" thereof or an "affiliated person"
of any such "affiliated person," as such terms are defined in the Investment
Company Act of 1940, as amended.
5.22 ENVIRONMENTAL AND OTHER REGULATIONS. The Company and its
Subsidiaries are in compliance with all applicable federal, state, local and
foreign laws and regulations relating to protection of the environment and human
health, and are in compliance in all material respects with all other applicable
federal, state, local and foreign laws and regulations, including, without
limitation, those relating to equal employment opportunity and employment
safety. There are no claims, notices, civil, criminal or administrative actions,
suits, hearings, investigations, inquiries or proceedings pending or, to the
best knowledge of the Company, threatened against the Company or any Subsidiary
that are based on or related to any environmental matters, including any
disposal of hazardous substances at any place, or the failure to have any
required environmental permits, and there are no past or present conditions that
are likely to give rise to any liability or other obligations of the Company or
any Subsidiary under any environmental laws.
5.23 YEAR 2000. The representations and warranties set forth in
Section 6.24 of the April Stock Purchase Agreement remain true complete and
correct in all material respects.
6. DEFINITIONS. For the purposes of this Agreement, the following terms
have the meanings set forth below:
"AFFILIATE" shall have the meaning ascribed to such term in Rule 12b-2
of the General Rules and Regulations under the Securities Exchange Act of 1934,
as amended.
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"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" means the Company's common stock, $.01 par value per
share, having the rights set forth in Article 4 of the Certificate of
Incorporation.
"CONSOLIDATED NET WORTH" means the consolidated stockholders' equity
of the Company determined in accordance with generally accepted accounting
principles consistently applied.
"CONVERTIBLE SECURITIES" means evidences of indebtedness, capital
shares or other securities which are convertible into or exchangeable for, with
or without payment of additional consideration, shares of Common Stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event.
"EVENT OF NONCOMPLIANCE" means any instance of the Company's failure,
under the provisions of the Certificate of Incorporation, to perform its
obligations to the holders of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred or Series E Preferred.
"FACILITIES" means any facilities or equipment used by the Company or
its Subsidiaries in any location, including HVAC systems, mechanical systems,
elevators, security systems, fire suppression systems, telecommunications
systems, fax machines, copy machines, and equipment, whether or not owned by the
Company or its Subsidiaries.
"FULLY DILUTED BASIS" means the number of shares of Common Stock
outstanding, plus (x) the number of shares of Common Stock into which all
outstanding Convertible Securities of the Company would be convertible and (y)
the number of shares of Common Stock which would be issuable upon the exercise
of all warrants, rights or options to purchase shares of Common Stock then
outstanding.
"GAAP" means the generally accepted accounting principles in the
United States.
"INTERNAL MIS SYSTEMS" means any computer software and systems
(including hardware, firmware, operating system software, utilities, and
applications software) used in the ordinary course of business by or on behalf
of the Company or its Subsidiaries, including the Company's and its
Subsidiaries' payroll, accounting, billing/receivables, inventory, asset
tracking, customer service, human resources, and e-mail systems.
"INVESTMENT" as applied to any Person means (i) any direct or indirect
purchase or other acquisition by such Person of any note, stock, securities or
other ownership interest in any other Person and (ii) any capital contribution
by such Person to any other Person.
"OFFERING PRICE" means the price at which a share of the Company's
Common Stock will be offered at the Public Offering.
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"OFFICER'S CERTIFICATE" means a certificate signed by the Company's
president or its chief financial officer, stating that (i) the officer signing
such certificate has made or has caused to be made such investigations as are
necessary in order to permit him to verify the accuracy of the information set
forth in such certificate and (ii) to the best of such officer's knowledge, such
certificate does not misstate any material fact and does not omit to state any
fact necessary to make the certificate not misleading.
"PERSON" means an individual, a partnership, a corporation, limited
liability company, limited liability partnership, an association, a joint stock
company, a trust, a joint venture, an unincorporated organization and a
governmental entity or any department, agency or political subdivision thereof.
"PRODUCTS" means any products offered or furnished by the Company or
any of its Subsidiaries, or any predecessor in interest of the Company or any of
its Subsidiaries, currently or at any time in the past, including without
limitation each item of hardware, software, or firmware; any system, equipment,
or products consisting of or containing one or more thereof; and any and all
enhancements, upgrades, customizations, modifications, and maintenance thereto.
"PROPRIETARY RIGHTS" means any patents, registered and common law
trademarks, service marks, trade names, copyrights, licenses and other similar
rights (including, without limitation, know-how, trade secrets and other
confidential information) and applications for each of the foregoing, if any.
"PUBLIC OFFERING" means a firm commitment underwritten public offering
of the Company's Common Stock pursuant to a registration statement filed with
the Securities and Exchange Commission in which the Company's common stock is
issued at a price that implies a Company post-closing equity value of at least
$150,000,000.
"RELATED PARTY" means any officer, director or beneficial holder of 5%
or more of the outstanding shares of capital stock of the Company, any spouse,
former spouse, child, parent, parent of a spouse, sibling or a grandchild of any
such officer, director or beneficial holder of the Company, and any Affiliate of
any of the foregoing persons.
"RESTRICTED SECURITIES" means (i) the Warrant issued hereunder, (ii)
the Common Stock issued upon exercise of the Warrant and (iii) any securities
issued with respect to the securities referred to in clauses (i) or (ii) above
by way of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization. As to
any particular Restricted Securities, such securities will cease to be
Restricted Securities when they have (a) been effectively registered under the
Securities Act and disposed of in accordance with the registration statement
covering them, (b) been transferred pursuant to Rule 144 or become eligible for
sale pursuant to Rule 144(k) (or any similar rule then in force) under the
Securities Act or (c) been otherwise transferred and new certificates for them
not bearing the Securities Act legend set forth in Section 7.3 have been
delivered by the Company in accordance with Section 5(ii). Whenever any
particular securities cease to be Restricted Securities, the holder
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thereof will be entitled to receive from the Company, without expense, new
securities of like tenor not bearing a Securities Act legend of the character
set forth in Section 7.3.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended, or any similar federal law then in force.
"SECURITIES AND EXCHANGE COMMISSION" includes any governmental body or
agency succeeding to the functions thereof.
"SERVICES" means any services offered or furnished by the Company or
any of its Subsidiaries, or any predecessor in interest of the Company or any of
its Subsidiaries, currently or at any time in the past.
"SUBSIDIARY" means any corporation of which the securities having a
majority of the ordinary voting power in electing the board of directors are, at
the time as of which any determination is being made, owned by the Company
either directly or through one or more Subsidiaries;
"UNDERLYING COMMON STOCK" means (i) the Common Stock issued or
issuable upon exercise of the Warrant and (ii) any Common Stock issued or
issuable with respect to the Common Stock referred to in clause (i) above by way
of stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. Any Person who
holds the Warrant will be deemed to be the holder of the Underlying Common Stock
obtainable upon exercise of the Warrant, regardless of any restriction on the
exercise of the Warrant. As to any particular shares of Underlying Common Stock,
such shares will cease to be Underlying Common Stock when they have (a) been
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, (b) been distributed to the
public pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act or (c) ceased to be Restricted Securities other than for the
reasons set forth in clauses (a) and (b).
"YEAR 2000 COMPLIANT" means that (1) the products, services, or other
item(s) at issue accurately process, provide and/or receive all date/time data
(including calculating, comparing, sequencing, processing and outputting)
within, from, into, and between centuries (including the twentieth and
twenty-first centuries and the years 1999 and 2000), including leap year
calculations, and (2) neither the performance nor the functionality nor the
Company's or any of its Subsidiaries' provision of the products, services, and
other item(s) at issue will be affected by any dates/times prior to, on, after,
or spanning January 1, 2000.
7. MISCELLANEOUS.
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7.1 EXPENSES; INDEMNIFICATION.
(i) The Company agrees to pay the Purchaser $15,000 simultaneously
with the execution and delivery of the Warrant in compensation for certain
of the Purchaser's expenses incurred in connection herewith. In addition,
the Company agrees to pay the Purchaser for all costs and expenses of the
Purchaser relating to the enforcement of the rights granted under this
Agreement and the agreements contemplated hereby, if the Company is found
to have breached its obligations under any such agreement.
(ii) The Company further agrees to indemnify and save harmless the
Purchaser and its respective officers, directors, partners, employees,
trustees and agents, each person who controls the Purchaser within the
meaning of the Securities Act or the Exchange Act, from and against any and
all costs, expenses, damages or other liabilities resulting from any breach
of any representation, warranty, covenant or agreement set forth in this
Agreement, and the agreements contemplated hereby by the Company or any
legal, administrative or other proceedings brought by any third party
arising out of the transactions contemplated hereby and thereby; provided
that, if and to the extent that such indemnification is unenforceable for
any reason, the Company shall make the maximum contribution to the payment
and satisfaction of such indemnified liability which shall be permissible
under applicable laws.
(iii) The indemnified party under this Section 7.1 will, promptly
after the receipt of notice of the commencement of any action against such
indemnified party in respect of which indemnity may be sought from the
Company on account of an indemnity agreement contained in this Section 7.1,
notify the Company in writing of the commencement thereof. The omission of
any indemnified party so to notify the Company of any such action shall not
relieve the Company from any liability which it may have to such
indemnified party except to the extent the Company shall have been
prejudiced by the omission of such indemnified party so to notify the
Company, pursuant to this Section 7.1. In case any such action shall be
brought against any indemnified party and it shall notify the Company of
the commencement thereof, the Company shall be entitled to participate
therein and, to the extent that it may wish, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party, and after
notice from the Company to such indemnified party of its election so to
assume the defense thereof, the Company will not be liable to such
indemnified party under this Section 7.1 for any legal or other expense
subsequently incurred by such indemnified party in connection with the
defense thereof nor for any settlement thereof entered into without the
consent of the Company; provided that (i) if the Company shall elect not to
assume the defense of such claim or action or (ii) if the indemnified party
reasonably determines (x) that there may be a conflict between the
positions of the Company and of the indemnified party in defending such
claim or action or (y) that there may be legal defenses available to such
indemnified party different from or in addition to those available to the
Company, then separate counsel for the indemnified party shall be entitled
to participate in and conduct the defense, in the case of (i) and (ii)(x),
or such
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different defenses, in the case of (ii)(y), and the Company shall be liable
for any reasonable legal or other expenses incurred by the indemnified
party in connection with the defense.
7.2 REMEDIES. The Purchaser will have all rights and remedies set
forth in this Agreement, the Registration Agreement and the Stockholders
Agreement and all rights and remedies which such holders have been granted at
any time under any other agreement or contract and all of the rights which such
holders have under any law. Any Person having any rights under any provision of
this Agreement will be entitled to enforce such rights specifically, to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law.
7.3 PURCHASER'S INVESTMENT & OTHER REPRESENTATIONS The Purchaser
hereby represents and warrants as follows:
(i) INVESTMENT. The Purchaser is acquiring the Restricted Securities
purchased hereunder or acquired pursuant hereto for its own account for
investment and not with a view to, or for sale in connection with, any
public distribution thereof, nor with any present intention of distributing
or selling the same to the public; and the Purchaser is aware of the
restrictions and limitations affecting its right and ability to sell or
transfer such securities; provided that nothing contained herein will
prevent the Purchaser and subsequent holders of Restricted Securities from
transferring such securities in compliance with the provisions of Section 4
hereof.
(ii) AUTHORITY. The Purchaser has full power and authority to enter
into and to perform this Agreement in accordance with its terms. The
Purchaser has not been organized, reorganized or recapitalized specifically
for the purpose of investing in the Company.
(iii) ACCREDITED INVESTOR. The Purchaser is an Accredited Investor
within the definition set forth in Securities Act Rule 501(a).
(iv) RESTRICTIVE LEGEND. The Warrant Certificate will be imprinted
with a legend in substantially the following form:
"THE WARRANT EVIDENCED OR CONSTITUTED HEREBY, AND ALL SHARES OF
COMMON STOCK ISSUABLE HEREUNDER, HAVE BEEN AND WILL BE ISSUED
WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("THE ACT") AND MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED,
PLEDGED OR HYPOTHECATED WITHOUT REGISTRATION UNDER THE ACT UNLESS
EITHER (I) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, IN
FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY, TO THE
EFFECT THAT REGISTRATION IS NOT REQUIRED IN CONNECTION WITH SUCH
DISPOSITION OR (II) THE SALE OF SUCH SECURITIES IS MADE PURSUANT
TO SECURITIES AND EXCHANGE COMMISSION RULE 144."
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(v) ORGANIZATION AND CORPORATE POWER. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware. The Purchaser has all requisite corporate power and authority to
carry out the transactions contemplated by this Agreement.
(vi) AUTHORIZATION; NO BREACH. The execution, delivery and performance
of this Agreement and all other agreements and the transactions
contemplated hereby have been duly authorized by the Purchaser. This
Agreement and all other agreements contemplated hereby each constitutes a
valid and binding obligation of the Purchaser, enforceable in accordance
with its terms; except as enforcement thereof may be limited by any
applicable bankruptcy, reorganization, insolvency, moratorium, or similar
laws affecting rights of creditors generally. The execution and delivery by
the Purchaser of this Agreement and all other agreements contemplated
hereby and thereby and the fulfillment of and compliance with the
respective terms hereof and thereof by the Purchaser, do not and will not
(i) conflict with or result in a breach of the terms, conditions or
provisions of, (ii) result in a violation of, or (iii) require any
authorization, consent, approval, exemption or other action by or notice to
any court or administrative or governmental body pursuant to, the charter
or bylaws of the Purchaser, or any law, statute, rule or regulation to
which the Purchaser is subject, or any agreement, instrument, order,
judgment or decree to which the Purchaser is subject.
(vii) BROKERAGE. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement
binding upon the Purchaser or Company or any Subsidiary; provided, however,
that this representation excludes any claim arising out of or due to any
action of the Company. The Purchaser will pay, and hold the Company
harmless against, any liability, loss or expense (including, without
limitation, reasonable attorneys' fees and out-of-pocket expenses) arising
in connection with any such claim.
(viii) GOVERNMENTAL CONSENT, ETC. No permit, consent, approval or
authorization of, or declaration to or filing with, any governmental
authority is required in connection with the execution, delivery and
performance by the Purchaser of this Agreement or the other agreements
contemplated hereby, or the consummation by the Purchaser of any other
transactions contemplated hereby or thereby.
7.4 RISK AND DUE DILIGENCE. Purchaser understands that the operation
of the Company's business is subject to numerous risks and that the Warrant and
Underlying Common Stock is a speculative investment that involves a high degree
of risk of loss of the entire investment therein. Purchaser is cognizant of and
understands such risks, including those set forth on Schedule 7.4 attached
hereto. Purchaser has been allowed, upon request, to examine any document or
agreement listed in the Schedules hereto, and has had the opportunity to obtain
any information concerning the Company, including the opportunity to ask
questions of and receive answers from authorized representatives of the Company
concerning this investment.
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<PAGE>
7.5 CONSENT TO AMENDMENTS. Except as otherwise expressly provided
herein, the provisions of this Agreement may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Purchaser. No other course of dealing between the Company and the holder of the
Warrant or Underlying Common Stock or any delay in exercising any rights
hereunder or under the Certificate of Incorporation will operate as a waiver of
any rights of any such holders.
7.6 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
issuance and delivery of the Warrant, regardless of any investigation made by or
on behalf of any party, but shall expire upon the earlier of (i) a fully
completed Public Offering by the Company or (ii) two years after the date of
Closing.
7.7 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto will bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not. This Agreement may be assigned by the Purchaser to any transferee of any
portion of the Warrant or any Underlying Common Stock. This Agreement may not be
assigned by the Company.
7.8 SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement. It is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms, provisions, covenants
and restrictions without including any of such which may be hereafter declared
invalid, void or unenforceable.
7.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each party and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
7.10 DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
7.11 GOVERNING LAW; CONSENT TO JURISDICTION. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES
HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED
STATES OF AMERICA, IN EACH CASE LOCATED IN THE COUNTY OF NEW YORK,
20
<PAGE>
FOR ANY ACTION, PROCEEDING OR INVESTIGATION IN ANY COURT OR BEFORE ANY
GOVERNMENTAL AUTHORITY ("LITIGATION") ARISING OUT OF OR RELATING TO THIS
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY (AND AGREES NOT TO COMMENCE
ANY LITIGATION RELATING THERETO EXCEPT IN SUCH COURTS), AND FURTHER AGREES THAT
SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR DOCUMENT BY U.S. REGISTERED MAIL TO
ITS RESPECTIVE ADDRESS SET FORTH IN THIS AGREEMENT SHALL BE EFFECTIVE SERVICE OF
PROCESS FOR ANY LITIGATION BROUGHT AGAINST IT IN ANY SUCH COURT. EACH OF THE
PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION TO
THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY IN THE COURTS OF THE STATE OF NEW YORK OR THE
UNITED STATES OF AMERICA, IN EACH CASE LOCATED IN THE COUNTY OF NEW YORK, AND
HEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR
CLAIM IN ANY SUCH COURT THAT ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE PARTIES IRREVOCABLY AND
UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
AND ALL RIGHTS TO TRIAL BY JURY IN CONNECTION WITH ANY LITIGATION ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
7.12 PUBLICITY. Each of the parties hereto agrees that it will make no
statement regarding the transactions contemplated hereby which is inconsistent
with any press release agreed to by the parties hereto. Notwithstanding the
foregoing, each of the parties hereto may, in documents required to be filed by
it with any regulatory body, make such statements with respect to the
transactions contemplated hereby as each may be advised is legally necessary
upon advice of its counsel.
7.13 NOTICES. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally or
mailed by certified or registered mail, return receipt requested and postage
prepaid, to the recipient. Such notices, demands and other communications will
be sent
To the Company:
HealthGate Data Corp.
25 Corporate Drive, Suite 310
Burlington, MA 01803
Attention: William S. Reece, Chief Executive Officer
Telephone (781) 685-4000
Fax (781) 685-4040
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With a copy to:
Stephen M. Kane, Esq.
Rich, May, Bilodeau & Flaherty, P.C.
294 Washington Street
Boston, MA 02108
Telephone (617) 482-1360
Fax (617) 556-3889
To Purchaser:
GE Medical Systems
3000 North Grandview Blvd.
Waukesha, Wisconsin 53186
Attention: General Counsel
With a copy to:
Steven Shoemate, Esq.
Gibson Dunn & Crutcher LLP
200 Park Avenue
New York, NY 10166-0193
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
22
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
HEALTHGATE DATA CORP. GENERAL ELECTRIC COMPANY
By: /S/ WILLIAM S. REECE By: /S/ MICHAEL A. JONES
-------------------------- -------------------------------
William S. Reece Michael A. Jones
Chairman and President GM, Global Business Development
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<PAGE>
Exhibit 10.31
WARRANT
THE WARRANT EVIDENCED OR CONSTITUTED HEREBY, AND ALL SHARES OF COMMON STOCK
ISSUABLE HEREUNDER, HAVE BEEN AND WILL BE ISSUED WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("THE ACT") AND MAY NOT BE SOLD, OFFERED FOR
SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED WITHOUT REGISTRATION UNDER THE ACT
UNLESS EITHER (i) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, IN FORM AND
SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT
REGISTRATION IS NOT REQUIRED IN CONNECTION WITH SUCH DISPOSITION OR (ii) THE
SALE OF SUCH SECURITIES IS MADE PURSUANT TO SECURITIES AND EXCHANGE COMMISSION
RULE 144.
WARRANT TO PURCHASE COMMON STOCK
OF HEALTHGATE DATA CORP.
(Subject to Adjustment)
NO. 1
THIS CERTIFIES THAT, for value received, General Electric Company, a New
York Corporation or one or more of its affiliates, or their permitted registered
assigns ("HOLDER"), is entitled, subject to the terms and conditions of this
Warrant, at any time or from time to time after June 17, 1999 (the "EFFECTIVE
DATE"), and before 5:00 p.m. Eastern Daylight Time on June 17, 2004 (the
"EXPIRATION DATE"), to purchase from HealthGate Data Corp., a Delaware
corporation (the "Company" or the "Corporation") 300,000 shares of Common Stock
of the Company. The exercise price per share ("Purchase Price") shall be $37.653
(which price is expected to be $8.25 per share for 1,369,200 shares upon
application of the provisions of Section 4.3 hereof as required upon the
Company's proposed 4.564 for 1 stock split). This Purchase Price may be repriced
once, but only once, for all Warrant shares outstanding, if and upon the first
to occur of the following:
(i) Consummation of an IPO in which the IPO Price per share of the Common
Stock is less than $37.653 per share, which shall result in repricing to a price
per share of 75% of the IPO Price, such repricing to be effective with the
consummation of the IPO.
(ii) Consummation of a Qualified Private Placement, prior to an IPO,
which shall result in repricing to a price per share of 70% of the Private
Placement Price, such repricing to be effective with the consummation of the
Qualified Private Placement.
<PAGE>
(iii) Consummation of a Company Sale, prior to an IPO, implying an equity
value of the Company at greater than $150,000,000, which shall result in
repricing to a price per share of 75% of the Company Sale Price, such repricing
to be effective with the consummation of such Company Sale.
(iv) Consummation of a Company Sale, prior to an IPO, implying an equity
value of the Company at less than $150,000,000, which shall result in repricing
to a price per share of the lower of 75% of the Company Sale Price or $13.74 per
share (which price is expected to be $3.011 per share for 1,369,200 shares upon
application of the provisions of Section 4.3 hereof as required upon the
Company's proposed 4.564 for 1 stock split).
(v) Failure of the Company to consummate an IPO, a Qualified Private
Placement or a Company Sale on or before December 31, 1999, which shall result
in repricing to a price per share of $13.74 per share (which price is expected
to be $3.011 per share for 1,369,200 shares upon application of the provisions
of Section 4.3 hereof as required upon the Company's proposed 4.564 for 1 stock
split), such repricing to be effective as of January 1, 2000.
Both the number of shares of Common Stock purchasable upon exercise of this
Warrant and the Purchase Price are subject to adjustment and change as provided
herein. This Warrant is issued pursuant to that certain Warrant Purchase
Agreement, dated June 11, 1999 (the "PURCHASE AGREEMENT"), between the Company
and Holder.
1. CERTAIN DEFINITIONS. Terms used, but not defined herein shall have the
meaning assigned to them in the Purchase Agreement. As used in this Warrant the
following terms shall have the following respective meanings:
"CHANGE OF CONTROL" shall mean any transaction or series of related
transactions pursuant to which any entity or person (including without
limitation any of their respective affiliates) other than an existing
stockholder of the Company or an existing stockholder's affiliate first acquires
after the effective date of this Agreement, directly or indirectly, an aggregate
amount of fifty percent (50%) or more voting control or fifty percent (50%) or
more of the equity securities ("Control") of the Company (or of any entity
directly or indirectly having Control of the Company) or by contract or
otherwise obtains the right to appoint at least fifty percent (50%) of the Board
of Directors of the Company (or any entity directly or indirectly having Control
of the Company).
"COMPANY SALE" shall mean any Change of Control of the Company effected
by issuance of an equity interest (not to include a registered public offering
or Qualified Private Placement), a capital reorganization, reclassification,
consolidation, merger or sale of all or substantially all of the Company's
assets.
"COMPANY SALE PRICE" shall mean the per share common equivalent price
paid (or implied by the consideration received) for the Company in the event of
a Company Sale.
2
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"FAIR MARKET VALUE" of a share of Common Stock (or any other security as
applicable) as of a particular date shall mean:
(a) If traded on a securities exchange or the Nasdaq National
Market, the Fair Market Value shall be deemed to be the average of the closing
prices of the Common Stock of the Company on such exchange or market over the 5
business days ending immediately prior to the applicable date of valuation;
(b) If actively traded over-the-counter, the Fair Market Value
shall be deemed to be the average of the closing bid prices over the 30-day
period ending immediately prior to the applicable date of valuation; and
(c) If there is no active public market, the Fair Market Value
shall be the value thereof, as agreed upon by the Company and the Holder;
provided, however, that if the Company and the Holder cannot agree on such
value, such value shall be determined by an independent valuation firm
experienced in valuing businesses such as the Company and jointly selected in
good faith by the Company and the Holder. Fees and expenses of the valuation
firm shall be paid for equally by the Company and the Purchaser.
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
"IPO" shall mean the Company's first firm commitment underwritten public
offering of the Company's Common Stock pursuant to a registration statement
filed with the Securities and Exchange Commission in which the Company's common
stock is issued at an IPO Price implying a post closing equity value of no less
than $150,000,000 and which is closed prior to December 31, 1999.
"PERSON" shall mean any individual, firm, corporation, partnership or
other entity, and shall include any successor (by merger or otherwise) of such
entity.
"PRIVATE PLACEMENT PRICE" will be the price at which one share of Common
Stock (or its convertible or exchangeable equivalent) was sold in a Qualified
Private Placement.
"QUALIFIED PRIVATE PLACEMENT" shall mean an offering of the Company's
Common Stock that is exempt from the registration requirements of the Act, in
which the Company's common stock is issued at a Private Placement Price implying
an equity value of no less than $150,000,000, at an aggregate offering price of
not less than $10,000,000 and which is closed prior to December 31, 1999.
"REGISTERED HOLDER" shall mean any Holder in whose name this Warrant is
registered upon the books and records maintained by the Company.
"WARRANT" as used herein, shall include this Warrant and any warrant
delivered in substitution or exchange therefor as provided herein.
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<PAGE>
"COMMON STOCK" shall mean the Common Stock of the Company and any other
securities at any time receivable or issuable upon exercise of this Warrant.
2. EXERCISE OF WARRANT
2.1. PAYMENT. Subject to compliance with the terms and conditions of
this Warrant and applicable securities laws, this Warrant may be exercised, in
whole or in part at any time or from time to time, on or before the Expiration
Date by the delivery (including, without limitation, delivery by facsimile) of
the form of Notice of Exercise attached hereto as EXHIBIT 1 (the "Notice of
Exercise"), duly executed by the Holder, at the principal office of the Company,
and as soon as practicable after such date, surrendering
(a) this Warrant at the principal office of the Company, and
(b) payment, (i) in cash (by check) or by wire transfer, (ii) by
cancellation by the Holder of indebtedness of the Company to the Holder; or
(iii) by a combination of (i) and (ii), of an amount equal to the product
obtained by multiplying the number of shares of Common Stock being purchased
upon such exercise by the then effective Purchase Price (the "Exercise Amount"),
provided that if Holder is subject to HSR Act Restrictions (as defined in
Section 2.5 below), the Exercise Amount shall be paid to the Company within five
(5) business days of the termination of all HSR Act Restrictions.
2.2. NET ISSUE EXERCISE. In lieu of the payment methods set forth in
Section 2.1(b) above, the Holder may elect to exchange all or some of the
Warrant for shares of Common Stock equal to the value of the amount of the
Warrant being exchanged on the date of exchange. If Holder elects to exchange
this Warrant as provided in this Section 2.2, Holder shall tender to the Company
the Warrant for the amount being exchanged, along with written notice of
Holder's election to exchange some or all of the Warrant, and the Company shall
issue to Holder the number of shares of the Common Stock computed using the
following formula:
X - Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued to
Holder.
Y = the number of shares of Common Stock purchasable under the
amount of the Warrant being exchanged (as adjusted to the date of
such calculation).
A = the Fair Market Value of one share of the Company's Common
Stock.
B = Purchase Price (as adjusted to the date of such calculation).
All references herein to an "exercise" of the Warrant shall include an
exchange pursuant to this Section 2.2.
2.3. "EASY SALE" EXERCISE. In lieu of the payment methods set forth in
Section 2.1(b) and Section 2.2 above, when permitted by law and applicable
regulations (including Nasdaq and
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<PAGE>
NASD rules), the Holder may pay the Purchase Price through a "same day sale"
commitment from the Holder (and if applicable a broker-dealer that is a member
of the National Association of Securities Dealers (a "NASD Dealer")), whereby
the Holder irrevocably elects to exercise this Warrant and to sell a portion of
the Shares so purchased to pay for the Purchase Price and the Holder (or, if
applicable, the NASD Dealer) commits upon sale (or, in the case of the NASD
Dealer, upon receipt) of such Shares to forward the Purchase Price directly to
the Company.
2.4. STOCK CERTIFICATES; FRACTIONAL SHARES. As soon as practicable on
or after the date a person or persons are entitled to receive certificates for
shares of Common Stock, the Company shall issue and deliver to the person or
persons entitled to receive the same a certificate or certificates for the
number of whole shares of Common Stock issuable upon such exercise, together
with cash in lieu of any fraction of a share equal to such fraction of the
current Fair Market Value of one whole share of Common Stock as of the date of
exercise of this Warrant. No fractional shares or scrip representing fractional
shares shall be issued upon an exercise of this Warrant.
2.5. HSR ACT. The Company hereby acknowledges that exercise of this
Warrant by Holder may subject the Company and/or the Holder to the filing
requirements of the HSR Act and that Holder may be prevented from exercising
this Warrant until the expiration or early termination of all waiting periods
imposed by the HSR Act ("HSR Act Restrictions"). If on or before the Expiration
Date Holder has sent the Notice of Exercise to Company and Holder has not been
able to complete the exercise of this Warrant prior to the Expiration Date
because of HSR Act Restrictions, the Holder shall be entitled to complete the
process of exercising this Warrant in accordance with the procedures contained
herein notwithstanding the fact that completion of the exercise of this Warrant
would take place after the Expiration Date.
2.6. PARTIAL EXERCISE; EFFECTIVE DATE OF EXERCISE. In case of any
partial exercise of this Warrant, the Company shall cancel this Warrant upon
surrender hereof and shall execute and deliver a new Warrant of like tenor and
date for the balance of the shares of Common Stock purchasable hereunder. This
Warrant shall be deemed to have been exercised immediately prior to the close of
business on the date of its surrender for exercise as provided above. However,
if Holder is subject to HSR Act filing requirements this Warrant shall be deemed
to have been exercised on the date immediately following the date of the
expiration of all HSR Act Restrictions. The person entitled to receive the
shares of Common Stock issuable upon exercise of this Warrant shall be treated
for all purposes as the holder of record of such shares as of the close of
business on the date the Holder is deemed to have exercised this Warrant.
2.7. EXERCISE SUBJECT TO UNDERWRITER LOCKUP AGREEMENTS. In the case of
an underwritten public offering of the equity securities of the Company, the
Purchaser shall be required to execute "lockup" agreements prohibiting the
exercise of the Warrant and the sale of the common shares underlying the Warrant
provided that the execution of such agreements are requested by the
underwriters, and provided further that the prohibition on sale and exercise
shall not be longer than 180 days.
2.8. EXERCISE IN CONNECTION WITH AN IPO. Upon receipt of a written
notice of the
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<PAGE>
Company's intention to raise capital by selling shares of Common Stock in an IPO
(the "IPO NOTICE"), which notice shall be delivered to Holder at least thirty
(30) but not more than ninety (90) days before the anticipated date of the
filing with the Securities and Exchange Commission of the registration statement
associated with the IPO, the Holder shall promptly notify the Company whether or
not the Holder intends to exercise this Warrant in order to sell the resulting
shares of Common Stock in the IPO. Notwithstanding whether or not an IPO Notice
has been delivered to Holder or any other provision of this Warrant to the
contrary, if Holder decides to exercise this Warrant while a registration
statement is on file with the Securities and Exchange Commission (the "SEC") in
connection with the IPO, this Warrant shall be deemed exercised on the
consummation of the IPO and the value of a share of Common Stock (the "IPO
Price") will be the price at which one share of Common Stock was sold to the
public in the IPO. If Holder has elected to exercise this Warrant pursuant to
this Section 2.8 while a registration statement is on file with the Securities
and Exchange Commission in connection with an IPO and the IPO is not consummated
(or is consummated at an implied equity valuation less than $150,000,000 such
that it does not qualify as an IPO), then Holder's exercise of this Warrant
shall not be effective unless Holder confirms in writing Holder's intention to
go forward with the exercise of this Warrant, in which case the Purchase Price
will be whatever price was in effect at the time without regard to the price
that would have been applicable had the IPO occurred. Notwithstanding the
foregoing, the Holder shall not be permitted to sell shares of Common Stock in
the IPO if in the opinion of the underwriters of the IPO, such a sale would have
a material adverse affect on the IPO. Purchaser acknowledges that the Company
has previously filed a Registration Statement on Form S-1 (Reg. No. 333-76899)
(and that the underwriters for such proposed IPO have advised the Company that
no shares of selling stockholders should be included in such Registration
Statement. Accordingly, unless the Company and its underwriters expressly agree
otherwise, the Company has no obligation to include any of the shares issuable
under this Warrant in Registration Statement No. 333-76899 and Purchaser has
accepted the Company's previous notice of such proposed IPO as timely. The
Company represents and warrants that no other of its equity holders will be
permitted to sell any shares of Common Stock in the Company's proposed initial
public offering described in Registration Statement No. 333-76899.
2.9 EXERCISE IN CONNECTION WITH A COMPANY SALE. Upon receipt of a
written notice of a Company Sale pursuant to Section 4.6 hereof (a "Company Sale
Notice"), in addition to any rights that the Holder may have in connection with
a Company Sale constituting an Organic Change, the Holder shall promptly notify
the Company whether or not the Holder will exercise this Warrant in connection
with the consummation of the Company Sale. If Holder has elected to exercise
this Warrant in connection with such Company Sale and such Company Sale is not
consummated, then Holder's exercise of this Warrant shall not be effective
unless Holder confirms in writing Holder's intention to go forward with the
exercise of this Warrant, in which case the Purchase Price will be whatever
price was in effect without regard to the Company Sale.
3. VALID ISSUANCE: TAXES. All shares of Common Stock issued upon the
exercise of this Warrant shall be validly issued, fully paid and non-assessable,
and the Company shall pay all taxes and other governmental charges that may be
imposed in respect of the issue or delivery thereof. The Company shall not be
required to pay any tax or other charge imposed in
6
<PAGE>
connection with any transfer involved in the issuance of any certificate for
shares of Common Stock in any name other than that of the Registered Holder of
this Warrant, and in such case the Company shall not be required to issue or
deliver any stock certificate or security until such tax or other charge has
been paid, or it has been established to the Company's reasonable satisfaction
that no tax or other charge is due.
4. ADJUSTMENT OF PURCHASE PRICE, TERMS AND NUMBER OF SHARES. The number of
shares of Common Stock issuable upon exercise of this Warrant (or any shares of
stock or other securities or property receivable or issuable upon exercise of
this Warrant) and the Purchase Price are subject to adjustment in accordance
with the following, provided no adjustment shall be made pursuant to Sections
4.1 or 4.2 if a price adjustment is made pursuant to Section 1 or Section 4.7
hereof and provided further that there shall be no such adjustment pursuant to
Section 4.1(b), 4.2 or Section 4.7 after the consummation of a public offering
meeting the definition of an IPO in all respects except that it need not occur
prior to December 31, 1999:
4.1. ADJUSTMENT OF PURCHASE PRICE.
(a) In order to prevent dilution of the rights granted
hereunder, the Purchase Price and number of shares of Common Stock for which
this Warrant is exerciseable will be subject to adjustment from time to time
pursuant to this Section 4.1; provided, however, that notwithstanding the
foregoing, no adjustment to the Purchase Price will be made or considered under
this Section 4.1 with respect to the issuance of shares of Common Stock upon the
exercise of convertible securities, options, warrants and other rights which
were outstanding or issuable under the Company's 1994 Stock Option Plan as of
the date hereof and disclosed in the Schedules to the Warrant Purchase
Agreement.
(b) If and whenever after the Effective Date the Corporation
issues or sells, or in accordance with Article 4 is deemed to have issued or
sold, any share of Common Stock for a consideration per share less than the
Purchase Price in effect immediately prior to such time, except as provided in
Section 4.1(a), then forthwith upon such issue or sale the Purchase Price will
be reduced to the Purchase Price determined by multiplying the Purchase Price in
effect immediately prior to such issue or sale by a fraction, the numerator of
which shall be equal to the sum of (1) the number of shares of Common Stock
deemed outstanding immediately prior to such issue or sale plus (2) the number
of shares of Common Stock which would have been issued in exchange for the
aggregate consideration received by the Corporation upon such issue or sale if
such shares had been issued or sold at the Purchase Price, and the denominator
of which shall be the number of shares of Common Stock Deemed Outstanding
immediately after such issue or sale. In addition, the number of shares for
which this Warrant is exerciseable shall be adjusted to equal the quotient of
(1) the aggregate Purchase Price for purchase of all shares of Common Stock for
which the Warrant was exerciseable immediately prior to such issue or sale
divided by (2) the new Purchase Price as adjusted pursuant to the terms hereof.
4.2. EFFECT ON PURCHASE PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Purchase Price under Section 4.1, the following will be
applicable:
7
<PAGE>
(a) ISSUANCE OF RIGHTS OR OPTIONS. If the Corporation in any
manner grants any right, warrant or option to subscribe for or to purchase
Common Stock or any stock or other securities convertible into or exchangeable
for Common Stock, (such rights or options being herein called "Options" and such
convertible or exchangeable stock or securities being herein called "Convertible
Securities") and the price per share for which Common Stock is issuable upon the
exercise of any such Options or upon conversion or exchange of any such
Convertible Securities is less than the Purchase Price in effect immediately
prior to the time of the granting of such Option, then the total maximum number
of shares of Common Stock issuable upon the exercise of such Option or upon
conversion or exchange of the total maximum amount of such Convertible Security
issuable upon the exercise of such Option will be deemed to be outstanding and
to have been issued and sold by the Corporation for such price per share. For
purposes of this subparagraph 4.2(a), the "price per share for which Common
Stock is issuable" will be determined by dividing (A) the total amount, if any,
received or receivable by the Corporation as consideration for the granting of
such Options, plus the minimum aggregate amount of additional consideration
payable to the Corporation upon exercise of such Options, plus in the case of
such Options which are related to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the Corporation upon the
issuance or sale of such Convertible Securities and the conversion or exchange
thereof, by (B) the total maximum number of shares of Common Stock issuable upon
the exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options. No further
adjustment of the Purchase Price will be made upon the actual issuance of such
Common Stock or of such Convertible Security upon the exercise of such Options
or upon the actual issuance of such Common Stock upon conversion or exchange of
such Convertible Security.
(b) ISSUANCE OF CONVERTIBLE SECURITIES. If the Corporation in
any manner issues or sells any Convertible Securities and the price per share
for which Common Stock is issuable upon conversion or exchange thereof is less
than the Purchase Price in effect immediately prior to the time of such issue or
sale, then forthwith upon such issue or sale the Purchase Price will be reduced
as set forth in Section 4.1(b). For purposes of determining the new Purchase
Price, the maximum number of shares of Common Stock issuable upon conversion or
exchange of such Convertible Securities will be deemed to be outstanding and to
have been issued and sold by the Corporation for such price per share. For
purposes of this subparagraph 4.2(b), the "price per share for which Common
Stock is issuable" will be determined by dividing (A) the total amount received
or receivable by the Corporation as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion or
exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities. No
further adjustment of the Purchase Price will be made upon the actual issuance
of Common Stock upon conversion or exchange of such Convertible Securities, and
if any such issuance or sale of such Convertible Securities is made upon
exercise of any Options for which adjustments of the Purchase Price had been or
are to be made pursuant to other provisions of this Article 4, no further
adjustment of the Purchase Price will be made by reason of such issuance or
sale.
8
<PAGE>
(c) CHANGE IN OPTION PRICE OR CONVERSION RATE. If the purchase
price provided for in any Options, the additional consideration (if any) payable
upon the issue, conversion or exchange of any Convertible Securities, or the
rate at which any Convertible Securities are convertible into or exchangeable
for Common Stock change at any time, the Purchase Price in effect at the time of
such change will be readjusted to the Purchase Price which would have been in
effect at such time had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or charged
conversion rate, as the case may be, at the time initially granted, issued or
sold.
(d) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
SECURITIES. Upon the expiration of any Option or the termination of any right to
convert or exchange any Convertible Security without the exercise of any such
Option or right, the Purchase Price then in effect hereunder will be adjusted to
the Purchase Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Security, to the extent
outstanding immediately prior to such expiration or termination, never been
issued.
(e) CALCULATION OF CONSIDERATION RECEIVED. If any Common Stock,
Option or Convertible Security is issued or sold or deemed to have been issued
or sold for cash, the consideration received therefor will be deemed to be the
gross amount received by the Corporation therefor. In case any Common Stock,
Option or Convertible Security is issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation will be the fair value (as defined INFRA) of such consideration,
except where such consideration consists of securities, in which case the amount
of consideration received by the Corporation will be the Fair Market Value
thereof as of the date of receipt. If any Common Stock, Option or Convertible
Security is issued in connection with any merger in which the Corporation is the
surviving corporation, the amount of consideration therefor will be deemed to be
the fair value of such portion of the net assets and business of the
non-surviving corporation as is attributable to such Common Stock, Option or
Convertible Security, as the case may be. The fair value of any consideration
other than cash and securities will be determined in good faith jointly by the
Corporation and the holder of the Warrant. If such parties are unable to reach
agreement within a reasonable period of time, the fair value of such
consideration will be determined by an independent appraiser jointly selected by
the Corporation and the holder of the Warrant.
(f) INTEGRATED TRANSACTIONS. In case any Option is issued in
connection with the issue or sale of other securities of the Corporation,
together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the Option
will be deemed to have been issued for a consideration to be determined pursuant
to the procedures set forth in Section 4.2(e).
(g) TREASURY SHARES. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or for
the account of the Corporation or any Subsidiary, and the disposition of any
shares so owned or held will be considered an issue or sale of Common Stock.
9
<PAGE>
(h) RECORD DATE. If the Corporation takes a record of the
holders of Common Stock for the purpose of entitling them (i) to receive a
dividend or other distribution payable in Common Stock, Options or Convertible
Securities or (ii) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date will be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or upon the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be; provided that if such dividend, distribution or
subscription is not ultimately consummated, no adjustment will be made to the
Purchase Price hereunder or, if so made, such adjustment will be rescinded.
4.3. SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Corporation at
any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Purchase Price in effect immediately prior to such
subdivision will be proportionately reduced, and if the Corporation at any time
combines (by reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Purchase
Price in effect immediately prior to such combination will be proportionately
increased. In addition, the number of shares of Common Stock into which the
Warrant is exerciseable shall be adjusted proportionately in accordance with
Section 4.1(a).
4.4. REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.
Any capital reorganization, reclassification, consolidation, merger or sale of
all or substantially all of the Company's assets to another Person which is
effected in such a way that holders of Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities or assets
with respect to or in exchange for Common Stock is referred to herein as an
"Organic Change". Prior to consummation of any Organic Change, the Corporation
will make appropriate provisions (in form and substance satisfactory to the
holder of the Warrant) to ensure that the holder of the Warrant will thereafter
have the right to acquire and receive, in lieu of or in addition to the shares
of Common Stock immediately theretofore acquirable and receivable upon the
exercise of such holder's Warrant, such shares of stock, securities or assets as
such holder would have received in connection with such Company Sale if such
holder had converted his or her Warrant immediately prior to such Organic
Change. In any such case, the Corporation will make appropriate provisions (in
form and substance satisfactory to the holder of the Warrant) to ensure that the
provisions of this Article 4 and Article 5 will thereafter be applicable to the
Warrant (including, in the case of any such consolidation, merger or sale in
which the successor corporation or purchasing corporation is other than the
Corporation, an immediate adjustment of the Purchase Price to the value for the
Common Stock reflected by the terms of such consolidation, merger or sale, and a
corresponding immediate adjustment in the number of shares of Common Stock
acquirable and receivable upon exercise of the Warrant, if the value so
reflected is less than the Purchase Price in effect immediately prior to such
consolidation, merger or sale). The Corporation will not effect any such
consolidation, merger or sale, unless prior to the consummation thereof, the
successor corporation (if other than the Corporation) resulting from
consolidation or merger or the corporation purchasing such assets assumes by
written instrument (in form reasonably satisfactory to the holder of the
Warrant), the obligation to deliver to each such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to acquire.
10
<PAGE>
4.5. CERTAIN EVENTS. If any event occurs of the type contemplated by
the provisions of this Article 4 but not expressly provided for by such
provisions, then the Corporation's Board of Directors will make an appropriate
adjustment in the Purchase Price and the number of shares of Common Stock
issuable upon exercise of this Warrant so as to protect the rights of the holder
of the Warrant; provided that no such adjustment will increase the Purchase
Price as otherwise determined pursuant to this Article 4 or decrease the number
of shares of Common Stock issuable upon exercise of the Warrant.
4.6. NOTICES.
(a) Within five Business Days of any adjustment of the Purchase
Price pursuant to Article 4 hereof or the establishment or reestablishment of
any price pursuant to the Purchase Price provisions in clauses (i) through (v)
of the first paragraph of this Warrant, the Corporation will give written notice
thereof to the holder of the Warrant; provided that this provision shall not be
construed to create a presumption that the Holder has conceded its right to
challenge the Company's adjustment if it believes it was not done in accordance
with the terms of this Agreement.
(b) The Corporation will give written notice to the holder of
the Warrant at least 20 days prior to the date on which the Corporation closes
its books or takes a record (i) with respect to any dividend or distribution
upon Common Stock, (ii) with respect to any pro rata subscription offer to
holders of Common Stock or (iii) for determining rights to vote with respect to
any Company Sale, Organic Change, dissolution or liquidation.
(c) The Corporation will also give written notice to the holder
of the Warrant at least 20 days prior to the date on which any Company Sale or
Organic Change will take place.
(d) The Company will give written notice to the holder of the
Warrant at least 20 days prior to the date on which any Qualified Private
Placement is consummated. If Holder has elected to exercise this Warrant after
receipt of a Private Placement Notice but before the consummation of the
Qualified Private Placement, and the Private Placement is not consummated (or is
consummated at an implied equity valuation less than $150,000,000 or an
aggregate net offering price of not less than $10,000,000, such that it does not
qualify as a Qualified Private Placement), then Holder's exercise of this
Warrant shall not be effective unless Holder confirms in writing Holder's
intention to go forward with the exercise of this Warrant, in which case the
Purchase Price will be whatever price was in effect at the time of exercise
without regard to the price that would have applied had the Qualified Private
Placement been consummated.
4.7. MOST FAVORED NATION TREATMENT. The terms of this Warrant shall be
automatically amended without any action on the part of the Company to conform
to the terms of any other Options or Convertible Securities issued by the
Company twelve months after the Effective Date to the extent that those terms
are more favorable to the holder of such Options or Convertible Securities than
the terms of this Warrant are to the Holder; provided, however that no Purchase
11
<PAGE>
Price or other adjustment shall be made with respect to Options under the
Company's 1994 Stock Option Plan. Accordingly, in addition to any other items to
be adjusted hereunder, the Purchase Price shall be adjusted to the extent
necessary to be at least as favorable to the Holder as those of any such Options
or Convertible Securities issued within twelve months after the Effective Date
exclusive of Options granted under the Company's 1994 Stock Option Plan. The
Company shall provide notice to the holder of any issuance of Options or
Convertible Securities made within 12 months after the Effective Date and will
enter into any agreement reasonably requested to evidence the amendment of the
terms or pricing indicated hereby.
5. PURCHASE RIGHTS. If at any time the Corporation grants, issues or sells
any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"), then the holder of the Warrant will be
entitled to acquire at the time of exercise of the Warrant by such holder (based
on the number of shares of Common Stock issued upon such exercise), upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which
such holder could have acquired if such holder had held the number of shares of
Common Stock acquirable upon exercise of such holder's Warrant immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights; provided, however, that holder of the Warrant shall not
be entitled to any Purchase Rights under this Article 5 if such holders have
received an adjustment in the Purchase Price of the Warrant under Article 4 with
respect to the issuance of such Purchase Rights.
6. REPLACEMENT. Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder will be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of the Warrant, and in
the case of any such loss, theft or destruction, upon receipt of indemnity
satisfactory to the Corporation (provided that if the holder is an institutional
investor its own agreement will be satisfactory), or, in the case of any such
mutilation upon surrender of such mutilated warrant, the Corporation will (at
the holder's expense) execute and deliver in lieu of such warrant a new warrant
of identical tenor representing the warrant represented by such lost, stolen,
destroyed or mutilated warrant and dated the date of such lost, stolen,
destroyed or mutilated warrant.
7. RESERVATION OF COMMON STOCK. The Company hereby covenants that at all
times there shall be reserved for issuance and delivery upon exercise of this
Warrant such number of shares of Common Stock or other shares of capital stock
of the Company as are from time to time issuable upon exercise of this Warrant
and, from time to time, will take all steps necessary to amend its Certificate
of Incorporation to provide sufficient reserves of shares of Common Stock
issuable upon exercise of this Warrant. All such shares shall be duly
authorized, and when issued upon such exercise, shall be validly issued, fully
paid and non-assessable, free and clear of all liens, security interests,
charges and other encumbrances or restrictions on sale and free and clear of all
preemptive rights, except encumbrances or restrictions arising under federal or
state securities laws. Issuance of this Warrant shall constitute full authority
to the Company's officers who are charged with the duty of executing stock
certificates to execute and
12
<PAGE>
issue the necessary certificates for shares of Common Stock and Common Stock
upon the exercise of this Warrant.
8. TRANSFER AND EXCHANGE. Subject to Article 9, this Warrant and all rights
hereunder may be freely transferred in whole or in part, on the books of the
Company maintained for such purpose at the principal office of the Company
referred to above, by the Registered Holder hereof in person, or by duly
authorized attorney, upon surrender of this Warrant properly endorsed and upon
payment of any necessary transfer tax or other governmental charge imposed upon
such transfer. Upon any partial transfer, the Company will issue and deliver to
the Registered Holder a new Warrant or Warrants with respect to the shares of
Common Stock not so transferred. Each taker and holder of this Warrant, by
taking or holding the same, consents and agrees that when this Warrant shall
have been so endorsed, the person in possession of this Warrant may be treated
by the Company, and all other persons dealing with this Warrant, as the absolute
owner hereof for any purpose and as the person entitled to exercise the rights
represented hereby, any notice to the contrary notwithstanding; provided,
however that until a transfer of this Warrant is duly registered on the books of
the Company, the Company may treat the Registered Holder hereof as the owner for
all purposes.
9. RESTRICTIONS ON TRANSFER. The Holder, by acceptance hereof, agrees that,
absent an effective registration statement filed with the SEC under the
Securities Act of 1933, as amended (the "1933 Act"), covering the disposition or
sale of this Warrant or the Common Stock issued or issuable upon exercise
hereof, as the case may be, and registration or qualification under applicable
state securities laws, such Holder will not sell, transfer, pledge, or
hypothecate any or all such Warrants or Common Stock, as the case may be, unless
either (i) the Company has received an opinion of counsel, in form and substance
reasonably satisfactory to the Company, to the effect that such registration is
not required in connection with such disposition or (ii) the sale of such
securities is made pursuant to SEC Rule 144.
10. COMPLIANCE WITH SECURITIES LAWS. By acceptance of this Warrant, the
holder hereby represents, warrants and covenants that any shares of stock
purchased upon exercise of this Warrant shall be acquired for investment only
and not with a view to, or for sale in connection with, any distribution
thereof; that the Holder has had such opportunity as such Holder has deemed
adequate to obtain from representatives of the Company such information as is
necessary to permit the Holder to evaluate the merits and risks of its
investment in the company; that the Holder is able to bear the economic risk of
holding such shares as may be acquired pursuant to the exercise of this Warrant
for an indefinite period; that the Holder understands that the shares of stock
acquired pursuant to the exercise of this Warrant will not be registered under
the 1933 Act (unless otherwise required pursuant to exercise by the Holder of
the registration rights, if any, previously granted to the registered Holder)
and will be "restricted securities" within the meaning of Rule 144 under the
1933 Act and that the exemption from registration under Rule 144 will not be
available for at least one year from the date of exercise of this Warrant,
subject to any special treatment by the SEC for exercise of this Warrant
pursuant to Section 2.2, and even then will not be available unless a public
market then exists for the stock, adequate information concerning the Company is
then available to the public, and other terms and conditions of Rule 144 are
complied with; and that all stock certificates representing shares
13
<PAGE>
of stock issued to the Holder upon exercise of this Warrant may have affixed
thereto a legend substantially in the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES
ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE
AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED
UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS
SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
11. NO RIGHTS OR LIABILITIES AS STOCKHOLDERS. This Warrant shall not entitle
the Holder to any voting rights or other rights as a stockholder of the Company.
In the absence of affirmative action by such Holder to purchase Common Stock by
exercise of this Warrant, no provisions of this Warrant, and no enumeration
herein of the rights or privileges of the Holder hereof shall cause such Holder
hereof to be a stockholder of the Company for any purpose.
12. REGISTRATION RIGHTS. All shares of Common Stock issuable upon exercise of
this Warrant shall be "Registrable Securities" or such other definition of
securities entitled to registration rights pursuant to the Purchase Agreement,
and are entitled, subject to the terms and conditions of that agreement, to all
registration rights granted to holders of Registrable Securities thereunder.
13. NOTICES. All notices and other communications from the Company to the
Holder shall be given in accordance with the Purchase Agreement.
14. HEADINGS. The headings in this Warrant are for purposes of convenience in
reference only, and shall not be deemed to constitute a part hereof.
15. LAW GOVERNING. This Warrant shall be construed and enforced in accordance
with, and governed by, the laws of the State of New York.
16. NO IMPAIRMENT. The Company will not, by amendment of its Certificate of
Incorporation or bylaws, or through reorganization, consolidation, merger,
dissolution, issue or sale of securities, sale of assets or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be
14
<PAGE>
necessary or appropriate in order to protect the rights of the Registered Holder
of this Warrant against impairment. Without limiting the generality of the
foregoing, the Company (a) will not increase the par value of any shares of
stock issuable upon the exercise of this Warrant above the amount payable
therefor upon such exercise, and (b) will take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and non-assessable shares of Common Stock upon exercise of this
Warrant.
17. SEVERABILITY. If any term, provision, covenant or restriction of this
Warrant is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
18. COUNTERPARTS. For the convenience of the parties, any number of
counterparts of this Warrant may be executed by the parties hereto and each such
executed counterpart shall be, and shall be deemed to be, an original
instrument.
19. NO INCONSISTENT AGREEMENTS. The Company will not on or after the date of
this Warrant enter into any agreement with respect to its securities which is
inconsistent with the rights granted to the Holders of this Warrant or otherwise
conflicts with the provisions hereof. The rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to holders of the Company's securities under any other
agreements, except rights that have been waived.
20. SATURDAYS, SUNDAYS AND HOLIDAYS. If the Expiration Date falls on a
Saturday, Sunday or legal holiday, the Expiration Date shall automatically be
extended until 5:00 p.m. the next business day.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
the Effective Date.
GENERAL ELECTRIC COMPANY HEALTHGATE DATA CORP.
By: /S/ MICHAEL A. JONES By: /S/ WILLIAM S. REECE
--------------------------- ------------------------------
MICHAEL A. JONES WILLIAM S. REECE
- --------------------------------- ----------------------------------
Printed Name Printed Name
GM, GLOBAL BUSINESS DEVELOPMENT CEO
- --------------------------------- ----------------------------------
Title Title
SIGNATURE PAGE TO WARRANT
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated July 15, 1999,
relating to the financial statements of HealthGate Data Corp., which appears
in such Prospectus. We also consent to the application of such report to the
Financial Statement Schedule for the three years ended December 31, 1998
listed under Item 16(b) of this Registration Statement when such schedule is
read in conjunction with the financial statements referred to in our report.
The audits referred to in such report also included this schedule. We also
consent to the references to us under the heading "Experts" in such
Prospectus.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
July 15, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
AMENDMENT NO. 3 TO FORM S-1 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001081630
<NAME> HEALTHGATE DATA CORP.
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 960,831 1,779,622
<SECURITIES> 0 790,864
<RECEIVABLES> 394,575 614,900
<ALLOWANCES> (20,000) (34,000)
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,560,888 13,586,357
<PP&E> 1,727,850 2,497,753
<DEPRECIATION> (921,057) (1,146,690)
<TOTAL-ASSETS> 2,370,979 15,954,871
<CURRENT-LIABILITIES> 1,561,354 3,641,389
<BONDS> 0 0
0 0
6,889,431 14,938,655
<COMMON> 52,343 52,572
<OTHER-SE> (9,787,637) (4,323,338)
<TOTAL-LIABILITY-AND-EQUITY> 2,370,979 15,954,871
<SALES> 0 0
<TOTAL-REVENUES> 2,434,124 1,052,097
<CGS> 0 0
<TOTAL-COSTS> 1,181,012 875,607
<OTHER-EXPENSES> 3,777,264 4,887,725
<LOSS-PROVISION> 16,500 14,000
<INTEREST-EXPENSE> 327,100 229,751
<INCOME-PRETAX> (2,877,529) (4,950,100)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,877,529) (4,950,100)
<DISCONTINUED> 0 0
<EXTRAORDINARY> (594,829) (8,049,224)
<CHANGES> 0 0
<NET-INCOME> (3,472,358) (12,999,324)
<EPS-BASIC> (.66) (2.48)
<EPS-DILUTED> (.66) (2.48)
</TABLE>
