<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 10, 1999
REGISTRATION NO. 333-76899
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 6
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 organization) Classification Code Number) Identification No.)
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
176 FEDERAL STREET 599 LEXINGTON AVENUE
BOSTON, MASSACHUSETTS 02110 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
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED (1) SHARE (2) PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value.................... 4,312,500 $11.00 $47,437,500 $13,188 (3)
</TABLE>
(1) Includes 562,500 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.
(3) A filing fee of $17,648 has been paid previously.
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 NOVEMBER 10, 1999
PROSPECTUS
</TABLE>
3,750,000 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
$9.00 and $11.00 per share.
Our common stock has been approved for trading and quotation on the Nasdaq
National Market under the symbol "HGAT."
At our request, the underwriters will reserve at the initial public offering
price up to $5.0 million of common stock for sale to Snap! LLC, which has
expressed a non-binding interest in acquiring these shares. This would represent
an aggregate of 500,000 shares based on an assumed initial public offering price
of $10.00 per share.
Our business involves significant risks. These risks are described under the
caption "Risk Factors" beginning on page 10.
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 562,500 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
VOLPE BROWN WHELAN & COMPANY
WARBURG DILLON READ LLC
, 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............................. 68
Risk Factors........................... 10 Certain Transactions................... 75
Use of Proceeds........................ 26 Principal Stockholders................. 77
Dividend Policy........................ 26 Description of Capital Stock........... 79
Capitalization......................... 27 Shares Eligible for Future Sale........ 82
Dilution............................... 28 Underwriting........................... 86
Selected Consolidated Financial Data... 29 Legal Matters.......................... 88
Management's Discussion and Analysis of Experts................................ 88
Financial Condition and Results of Where You Can Find More Information.... 88
Operations........................... 32 Consolidated Financial Statements...... F-1
Business............................... 45
</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"
BEGINNING ON PAGE 11. UNLESS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS
ASSUMES: (1) THE CONVERSION OF ALL OUTSTANDING SHARES OF OUR PREFERRED STOCK
INTO 7,530,556 SHARES OF COMMON STOCK UPON THE CLOSING OF THIS OFFERING; (2) A
3.966 -FOR-1 STOCK SPLIT EFFECTIVE 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 approximately 300 sources representing 27 independent content
providers. In September 1999, our users viewed approximately 3.82 million
content pages on our own Web sites.
Given the depth and breadth of our content, we provide healthcare
information to a wide range of online users. We facilitate user-friendly access
to our content libraries by segmenting them into collections for professionals,
patients and consumers. Content from any collection is available to any type of
user under a variety of pricing structures, including free access, per
transaction fee access and subscription. 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 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, and businesses, which carry both HealthGate's and the entity's
name, are designed as a seamless component of the entity's own Web site
and, for certain institutions and businesses, complement the healthcare
information, products and services they already offer or sell through
their own Web sites; and
- other co-branded third party Web sites to which we syndicate our
proprietary and licensed content, including the Health Channel of
www.snap.com for which we are designated as an anchor tenant provider of
health content.
5
<PAGE>
Subject specific Web sites dedicated to healthcare are one of the most
popular segments of the Internet. A July 1999 research report published by Cyber
Dialogue, Inc., an industry research firm, estimates that approximately
25 million adults in the United States search online for health and medical
information, a number which Cyber Dialogue projects will grow to approximately
30 million 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 generate revenue from the following activities:
- syndicating content to third party Web sites;
- providing our activePress Web publishing services to traditional print
publishers;
- offering banner advertising and sponsorship of discrete portions of our
content libraries to pharmaceutical companies, other healthcare
advertisers and other businesses and organizations;
- participating in electronic commerce opportunities, also known as
e-commerce, including selling articles from full-text journals, monthly
online subscriptions and medical text books; and
- developing co-branded CHOICE Web sites for hospitals and other
institutions, and distributing content through these CHOICE Web sites.
For the six months ended June 30, 1999, the above activities generated
approximately 37%, 33%, 18%, 11% and 1%, respectively, of our total revenue.
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.
RISK FACTORS
An investment in our business involves significant risks. We urge you to
carefully read the section entitled "Risk Factors" beginning on page 9 of this
prospectus, which more fully describes the risks listed below and other risks
facing us, before making an investment decision.
- Our business model is unproven, and we operate in the highly competitive
and rapidly evolving Internet industry.
- We have a history of significant losses. For the six months ended
June 30, 1999, we lost approximately $5.0 million and as of June 30, 1999,
we had an accumulated deficit of approximately $23.5 million. We also
anticipate incurring losses, which may be substantial, for the foreseeable
future.
- We have received a report from our independent accountants containing an
explanatory paragraph stating that our historical losses and negative cash
flows from operations raise substantial doubt about our ability to
continue as a going concern.
- We must effectively manage the rapid growth of our business to be
successful.
- In June 1999 we received a letter from our independent accountants, which
discussed a material weakness in our internal controls related to revenue
recognition. This issue resulted in the restatement of our unaudited
financial statements for the three months ended March 31, 1999. We have
implemented additional financial and management controls and procedures to
address this issue.
6
<PAGE>
RECENT DEVELOPMENTS
For the three months ended September 30, 1999, our total revenue was
approximately $684,000 and our net loss was approximately $5.5 million. As of
September 30, 1999, we had approximately $808,000 of cash and cash equivalents
and a working capital deficit of approximately $3.1 million. Also, during the
third quarter, we delivered 22 co-branded CHOICE Web sites to enterprise
customers, bringing our total CHOICE Web sites to 39. We have also entered into
the following agreements:
- On November 2, 1999, we entered into a three-year development agreement
with Columbia Information Systems, Inc., a subsidiary of Columbia/HCA
Healthcare Corporation, to design, develop and maintain customized,
co-branded CHOICE Web sites for up to 280 Columbia/HCA hospitals and
affiliates. In addition, we will design, develop and maintain a health
portal site for Columbia Information Systems. We will also provide content
and services to both Columbia Information Systems' health portal site and
its customized, co-branded CHOICE Web site product. We expect to have the
customized, co-branded CHOICE Web site product ready for initial
distribution in the fourth quarter of 1999 and to have the health portal
site operational in the first quarter of 2000.
- On November 2, 1999 we entered into a three-year marketing and reseller
agreement with Columbia Information Systems under which Columbia
Information Systems agreed to endorse us as the preferred provider of
patient and consumer oriented health content for Web sites owned or
operated by Columbia/HCA hospitals and affiliates. In addition, we have a
right to make a first offer to provide services for adding content to the
Columbia Information Systems health portal site and any Web site owned or
operated by or affiliated with Columbia Information Systems or
Columbia/HCA. We also have the exclusive right to host on the Internet
content provided to us by certain Columbia Information Systems' or
Columbia/HCA affiliates.
- On October 29, 1999, we entered into a three-year strategic alliance
agreement with Snap! LLC, a search and aggregation Internet portal, and
Xoom.com, Inc., a direct marketing and e-commerce company. Snap and Xoom
are expected to combine with certain assets of National Broadcasting
Company, Inc. to form NBC Internet, Inc. Under our strategic alliance,
Snap will provide various services to us to promote our name, our
www.healthgate.com Web site, our co-branded CHOICE Web sites and the
products and services we offer, and we will design, develop and host a
co-branded Snap/HealthGate Web site, which will provide the features and
functionality of our www.healthgate.com Web site. After the co-branded Web
site is brought online, Snap will feature us as the anchor tenant, giving
us the exclusive right to be the most prominent content provider, for
seven of the major content areas within the Health Channel of Snap's Web
site.
In exchange for the services provided to us by Snap during the first year
of the agreement, we have agreed to pay Snap a minimum fee of $10.0
million and 500,000 shares of our common stock, plus a $250,000 production
and content integration fee. We have agreed to pay Snap minimum fees of
$15.0 million in each of the second and third years of the agreement for
the services provided to us by Snap in those years. We have also agreed to
pay Snap up to an additional $5.0 million in the first year, $10.0 million
in the second year and $15.0 million in the third year of the agreement if
Snap delivers more than certain minimum click-throughs to the co-branded
Snap/HealthGate Web site in the respective years.
- On September 27, 1999, we entered into a new two-year agreement with
Blackwell Science to expand and extend our activePress relationship with
Blackwell Science to host a Web site for Blackwell Science journals and
other publications through December 2001. We will convert, host and
maintain 272 online journals for Blackwell Science, an increase of 72
journals from our existing agreement. We also have the right to syndicate
these journals throughout the HealthGate Network and share revenue from
syndication with Blackwell Science.
7
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock we are offering...................... 3,750,000 shares
Common stock to be outstanding after this
offering.......................................... 16,445,472 shares
Underwriters' over-allotment option............... 562,500 shares
Use of proceeds................................... To pay $10,250,000 in first year fees to
Snap in connection with our strategic
alliance agreement with Snap, to repay
$2,000,000 of outstanding indebtedness,
and for general corporate purposes,
including working capital. 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 November 9, 1999.
This number does not take into account 1,790,915 shares of our common stock
subject to options outstanding under our stock option plans or other option
agreements at November 9, 1999 with a weighted average exercise price of $2.13
per share. This number also does not take into account outstanding warrants to
purchase 477,546 shares of our common stock at November 9, 1999, with a weighted
average exercise price of $.13 per share, a warrant to purchase 1,189,800 shares
of our common stock with an exercise price of $9.49 per share (subject to
adjustment), which we issued on June 17, 1999, and a warrant to purchase
1,941,035 shares of our common stock with an exercise price per share equal to
the initial public offering price (subject to adjustment), which we issued on
November 9, 1999. See "Business--Strategic Affiliations--Marketing and
Distribution Affiliations."
8
<PAGE>
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
YEAR ENDED DECEMBER 31, JUNE 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...... $ (.66) $ (.68) $ (.76) $ (.29) $ (2.85)
Shares used in computing basic and diluted
net loss per share attributable to common
stockholders............................. 4,543 4,543 4,548 4,543 4,554
Unaudited pro forma basic and diluted net
loss per share........................... $ (.31) $ (.48)
Shares used in computing unaudited pro
forma basic and diluted net loss per
share.................................... 9,220 10,412
</TABLE>
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 3,750,000 shares of common stock offered hereby at an assumed initial
public offering price per share of $10.00, (b) the conversion of all
outstanding shares of redeemable convertible preferred stock into
7,530,556 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>
JUNE 30, 1999
<S> <C> <C>
PRO FORMA
AS
ADJUSTED
ACTUAL (UNAUDITED)
-------- -------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities.......... $ 2,570 $33,058
Working capital........................................... 12 30,500
Total assets.............................................. 15,955 46,443
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) 42,626
</TABLE>
9
<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, WE EXPECT THAT LOSSES WILL CONTINUE FOR THE
FORESEEABLE FUTURE AND OUR INDEPENDENT ACCOUNTANTS HAVE EXPRESSED SUBSTANTIAL
DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.
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. We have received a report from our
independent accountants containing an explanatory paragraph stating that our
historical losses and negative cash flows from operations raise substantial
doubt about our ability to continue as a going concern. We will need to
successfully complete this offering or successfully execute our alternative
financing and operational plans to eliminate this uncertainty.
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;
10
<PAGE>
- 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;
- 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 RECENTLY ISSUED WARRANTS AND STOCK 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. The value of this warrant may be adjusted on the effective dates of
certain events defined in this warrant should any of these events occur. In
addition, beginning in the fiscal quarter ending December 31, 1999, we expect to
begin amortizing as an expense over a three-year period the fair value of a
warrant that we issued to CIS Holdings Inc. in connection with our marketing and
reseller agreement with Columbia Information Systems. Based on the currently
anticipated range of the offering price for this offering, we expect the fair
value of this warrant to range from $10.7 million to $13.1 million, calculated
using the Black-Scholes option pricing model. In addition, beginning in the
fiscal quarter ending December 31, 1999, we expect to begin recognizing as an
expense over a one-year period the fair value of the common stock that we issued
to Snap in connection with our strategic alliance. The non-cash expenses
associated with these warrants and the common stock issued to Snap will have an
adverse effect on our operating results and may cause the market price of our
common stock to fall. 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, promoting
these CHOICE Web sites and our own Web sites and through our alliance with Snap
and Xoom. However, we can not assure you that our efforts to build brand
awareness will be successful.
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OUR AGREEMENT WITH SNAP REQUIRES A SIGNIFICANT OUTLAY OF CASH AND THE SUCCESS OF
OUR BUSINESS WILL DEPEND IN PART ON THE SUCCESS OF OUR STRATEGIC ALLIANCE WITH
SNAP.
We have agreed to pay Snap a minimum of $10.3 million for the first twelve
months of our strategic alliance and a minimum of $15.0 million in each of the
following two years to promote our name, our www.healthgate.com Web site, our
co-branded CHOICE Web sites and our other products and services. If our
strategic alliance with Snap does not lead to a significant increase in our
sales of advertising and sponsorship and in sales of products and services
offered through the co-branded Snap/ HealthGate Web site and throughout the
HealthGate Network, our business, results of operations and financial condition
may be materially, adversely affected. In addition, if our strategic alliance
with Snap is terminated by Snap for certain material breaches by us, we have
agreed to pay Snap 55% of the fees due to Snap under the agreement for the
remaining term of the agreement, which could also have a material adverse effect
on our business, results of operations and financial condition.
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;
- 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."
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OUR BUSINESS IS EXPANDING RAPIDLY AND OUR BUSINESS PROSPECTS MAY SUFFER IF WE
ARE NOT ABLE TO EFFECTIVELY MANAGE THE GROWTH OF OUR OPERATIONS AND SUCCESSFULLY
INTEGRATE RECENT ADDITIONS TO OUR SENIOR MANAGEMENT TEAM.
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 83 full-time employees as of September 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 in 1999, including Mary B.
Miller, our Chief Financial Officer, and Richard J. Fecher, our Vice President
of Sales. 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. Our future success will depend in large part on our
ability to implement, improve and effectively utilize our operational,
management, marketing and financial resources and systems and train and manage
our employees. 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 HAVE HAD TO RESTATE OUR FINANCIAL STATEMENTS FOR THE FIRST QUARTER OF 1999
AND IF WE ARE NOT ABLE TO MONITOR AND FOLLOW OUR NEWLY IMPLEMENTED INTERNAL
CONTROLS, OUR BUSINESS PROSPECTS AND THE PRICE OF OUR COMMON STOCK MAY SUFFER.
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
financial statements 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 implemented additional financial and
management policies and procedures which we believe will address these concerns.
These controls and procedures will require continued monitoring and updating as
our business continues to evolve. If we are unsuccessful in following or
monitoring these internal controls and procedures, we may not be able to
accurately report our financial condition or our results of operations. If we
are unable to accurately report financial information, we could be subject to,
among other things, fines, securities litigation and a general loss of investor
confidence, any one of which could adversely affect our business prospects and
the price of our common stock.
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 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.
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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,
Richard J. Fecher, our Vice President of Sales, 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
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.
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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 September 30, 1999 had delivered 39
CHOICE Web sites to enterprise clients.
Under our CHOICE Web site arrangements, we are paid a fee for developing,
implementing and hosting a CHOICE Web site for our customer. In addition, the
arrangements typically provide the opportunity for us to place third party
advertising and sponsorship on the customer's CHOICE Web site. We collect the
fees for this advertising and sponsorship from the third party and pay a
commission to the customer. However, as part of our agreements with 14 of our
initial CHOICE customers, we have guaranteed that we will pay minimum
advertising and sponsorship commissions to these customers in amounts
approximately equal to the fees paid to us by the customer for the initial term
of their CHOICE agreements and, in a few cases, in amounts that exceed those
fees. We are obligated to pay these guaranteed commissions to the customer,
generally on a quarterly basis, regardless of whether or not we have actually
sold any advertising or sponsorship on the CHOICE Web site. 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.
For those CHOICE Web sites for which we have guaranteed advertising and
sponsorship commissions, we do not recognize revenue unless the guaranteed
commissions are less than the fee for developing, implementing and hosting paid
to us. Any excess of fees paid to us over guaranteed commissions is recognized
as revenue ratably over the term of the agreement. If the advertising and
sponsorship commissions that we guarantee to the customer exceed the fees paid
to us, we recognize the excess as expense upon signing the agreement. As we sell
advertising or sponsorship on these CHOICE Web sites to third parties, we will
recognize advertising revenue from these CHOICE Web sites. For those CHOICE Web
sites for which we do not guarantee advertising and sponsorship commissions, we
recognize as revenue the fee paid to us by the customer ratably over the term of
the agreement. To date, we have sold advertising or sponsorship on only five
CHOICE Web 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 can not 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. Our CHOICE
product is an important part of our business model and if we are unable to sell
a substantial number of CHOICE Web sites, our business prospects, results of
operations and the market price of our common stock could be materially
adversely affected.
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
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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. 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. In addition, as a result of our recent
strategic alliance with Snap, we have substantial financial
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commitments to Snap over the next three years. If this strategic alliance does
not lead to a significant increase in our sales of advertising and sponsorship
and in sales of products and services offered through the co-branded
Snap/HealthGate Web site and throughout the HealthGate Network, we may need to
raise more capital sooner than we had originally anticipated. 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 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 agreements with Blackwell Science and our
CHOICE Web site agreement with Columbia Information Systems that our
applications and services are Year 2000 compliant. If our applications and
services fail to be Year 2000 compliant, these agreements 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."
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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
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 December 2001, 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
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agreements with Blackwell Science run through December 2001. We are presently
negotiating with WebMD concerning the terms of the annual renewal of the
agreement which was contemplated for October 30, 1999. During our negotiations,
we are continuing to provide content to WebMD under the same terms as provided
under our earlier agreement. We can not assure you that we will be able to reach
mutually agreeable terms of renewal with WebMD, and, if we do not, we may lose
WebMD as a customer. Because WebMD represented 13% of our total revenue for the
six months ended June 30, 1999, the loss of WebMD as a customer may have a
material adverse effect on our business and results of operations.
OUR RELATIONSHIP WITH BLACKWELL SCIENCE, GENERAL ELECTRIC AND COLUMBIA
INFORMATION SYSTEMS MAY GIVE RISE TO CONFLICTS OF INTEREST.
Blackwell Science and one of its affiliates will beneficially own
approximately 12.5% 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.
Based on its current holdings, General Electric is expected to beneficially
own approximately 21.9% of our outstanding common stock after this offering,
including 1,189,800 shares issuable under a warrant. If the initial public
offering price is $10.00 and Snap purchases $5,000,000 (500,000 shares) of our
common stock for which it has expressed a non-binding interest, General Electric
is expected to beneficially own approximately 24.7% of our outstanding common
stock after this offering. Additionally, we have entered into a development and
distribution agreement with GE Medical Systems, an operating division of General
Electric and a strategic alliance with Snap, in which NBC, a subsidiary of
General Electric, owns a majority interest. Because General Electric is both a
strategic affiliate and stockholder, our relationship with them could give rise
to conflicts of interest.
After this offering, Columbia/HCA Healthcare Corporation, through its
indirect, wholly-owned subsidiary CIS Holdings, Inc., will beneficially own
approximately 10.6% of our outstanding common stock, based on the 1,941,035
shares issuable under the warrant we issued to CIS Holdings. We have also
entered into a development agreement and a marketing and reseller agreement with
Columbia Information Systems, which is also an indirect wholly-owned subsidiary
of Columbia/HCA. Because Columbia/HCA is both a strategic affiliate and the
beneficial owner of a significant percentage of our stock, our relationship with
them could give rise to conflicts of interest.
Blackwell Science, General Electric and Columbia/HCA 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
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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. On July 27, 1999, we
received a letter from the attorneys for the alleged holder of a patent covering
methods and systems for retrieving and presenting graphical and/or audio data
from a remote server in response to an end user query, raising the issue of
whether our www.healthgate.com Web site induces the infringement by others of
this patent. We are currently investigating this matter. At this time, however
we are unable to predict its outcome.
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.
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.
20
<PAGE>
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 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.
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<PAGE>
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.
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.
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<PAGE>
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.
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 $2.0 million of outstanding
indebtedness under a subordinated term loan and the payment of $10.3 million to
Snap due in the first year of our strategic alliance agreement, 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 $10.00 per share, you
will experience a net tangible book value dilution per share of $7.94. 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
23
<PAGE>
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 23.4% 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 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
24
<PAGE>
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 16,445,472 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>
4,031,936 Date of this prospectus (includes the 3,750,000
shares sold in this offering)
9,978,141 180 days after the date of this prospectus
2,435,395 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 8,030,556 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.
25
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the 3,750,000
shares of common stock in this offering will be approximately $32.5 million
($37.7 million if the underwriters' over-allotment is exercised in full),
assuming an initial public offering price of $10.00 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 $10,250,000 of the net proceeds of this offering to pay the
first year fees due to Snap under our strategic alliance agreement with Snap.
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, but we have no current
plan for the amounts we may spend on any specific aspect of our business or the
timing of these expenditures. 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. 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.
26
<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 3,750,000 shares of common stock offered hereby at an
assumed initial public offering price per share of $10.00, (b) the conversion of
all outstanding shares of redeemable convertible preferred stock into 7,530,556
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>
JUNE 30, 1999
---------------------------
PRO FORMA
ACTUAL AS ADJUSTED
------------ ------------
(UNAUDITED)
<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; 4,568,412 shares issued and
outstanding actual, and 15,848,968 shares issued and
outstanding pro forma as adjusted..................... 45,684 158,490
Additional paid-in capital.................................. 21,135,729 68,449,578
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) 42,625,493
------------ ------------
Total capitalization.................................. $ 12,313,482 $ 42,800,482
============ ============
</TABLE>
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<PAGE>
DILUTION
The pro forma net tangible book value of HealthGate as of June 30, 1999 was
$735,000, or $.06 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 7,530,556 shares of
common stock upon the closing of the offering.
After giving effect to the sale of 3,750,000 shares of common stock we are
offering at an assumed initial public offering price of $10.00 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 $32.7 million, or $2.06 per share. This represents
an immediate increase in pro forma net tangible book value of $2.00 per share to
existing stockholders and an immediate dilution of $7.94 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............. $10.00
Pro forma net tangible book value per share at June 30,
1999.................................................... $ .06
Increase attributable to the offering..................... 2.00
-----
Pro forma net tangible book value per share after the
offering................................................... 2.06
------
Net tangible book value dilution per share to new investors
in the offering............................................ $ 7.94
======
</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 $10.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders...................... 12,098,968 76.3% $12,719,351 25.3% $ 1.05
New Investors.............................. 3,750,000 23.7% 37,500,000 74.7% 10.00
---------- ----- ----------- ----- ------
Totals............................... 15,848,968 100.0% $50,219,351 100.0% $ 3.17
========== ===== =========== ===== ======
</TABLE>
This discussion and table assumes no exercise of options outstanding under
HealthGate's stock option plans. As of November 9, 1999, there were options
outstanding to purchase a total of 1,790,915 shares of common stock at a
weighted average exercise price of $2.13 per share. To the extent that any of
these options are exercised, there will be further dilution to new investors.
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<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 for
the six months ended June 30, 1999, and the consolidated balance sheet data as
of December 31, 1997 and 1998 and June 30, 1999, 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 for the six months
ended June 30, 1998 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. 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.
29
<PAGE>
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(FEBRUARY 8, 1994)
THROUGH SIX MONTHS ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31, JUNE 30,
------------------ ----------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
------------------ -------- -------- -------- -------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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) $ (.20) $ (.66) $ (.68) $ (.76) $ (.29) $ (2.85)
Shares used in computing basic
and diluted net loss per
share attributable to common
stockholders................ 4,011 4,300 4,543 4,543 4,548 4,543 4,554
Unaudited pro forma basic and
diluted net loss per
share....................... $ (.31) $ (.48)
Shares used in computing
unaudited pro forma basic
and diluted net loss per
share....................... 9,220 10,412
</TABLE>
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<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 3,750,000 shares of common stock offered hereby at an assumed initial
public offering price per share of $10.00, (b) the conversion of all
outstanding shares of redeemable convertible preferred stock into
7,530,556 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>
DECEMBER 31, JUNE 30, 1999
---------------------------------------------------- ----------------------
PRO FORMA
1994 1995 1996 1997 1998 ACTUAL AS ADJUSTED
-------- -------- -------- -------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities.......................... $ 4 $ 105 $ 1,156 $ 29 $ 961 $ 2,570 $33,058
Working capital (deficit)............. (2) (216) 585 (867) -- 12 30,500
Total assets.......................... 4 612 1,791 781 2,371 15,955 46,443
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) 42,626
</TABLE>
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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 approximately 300 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 and
businesses, which carry both HealthGate's and the entity's name, are designed as
a seamless component of the entity's own Web site and, for certain institutions
and businesses, complement the healthcare information, products and services
they already offer or sell through their own Web sites; and (3) other co-branded
third party Web sites to which we syndicate our proprietary and licensed
content, including the Health Channel of www.snap.com for which we are
designated as an anchor tenant provider of health 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 September 30, 1999 had delivered 39 CHOICE Web sites to enterprise clients.
Under our CHOICE Web site arrangements, we are generally paid an upfront fee
for developing, implementing and hosting a CHOICE Web site for our customer. In
addition, the arrangements typically provide the opportunity for us to place
third party advertising and sponsorship on the customer's CHOICE Web site. We
collect the fees for this advertising and sponsorship from the third party and
pay a commission to the customer. However, as part of our agreements with 14 of
our initial CHOICE customers, we guaranteed that we will pay minimum advertising
and sponsorship commissions to these customers in amounts approximately equal to
the fees paid to us by the customer for the initial term of their CHOICE
agreements and, in a few cases, in amounts that exceed those fees. Once
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these customers have paid the upfront fee to us or, if applicable, our
authorized reseller, we are obligated to pay these guaranteed commissions to the
customer, generally on a quarterly basis, regardless of whether or not we have
actually sold any advertising or sponsorship on the CHOICE Web site. We have
entered into these types of arrangements for promotional purposes to establish
our CHOICE Web site product but beginning in July 1999 have discontinued the use
of these arrangements as a standard practice.
Revenue from fees received for CHOICE Web site development, implementation
and hosting is recognized ratably over the term of the underlying agreement
between us, our CHOICE customer and, if applicable, our authorized reseller,
which generally ranges from one to three years. For those arrangements in which
we have guaranteed advertising and sponsorship commissions, we do not recognize
revenue unless the guaranteed commissions are less than the fees paid to us.
Rather, we recognize payments made to us as a customer deposit. Any excess of
fees paid to us over guaranteed commissions is recognized as revenue ratably
over the term of the agreement. If the advertising and sponsorship commissions
that we guarantee to the customer exceed the fees paid to us, we recognize the
excess as expense upon signing the agreement. For arrangements in which we sell
through a reseller, we do not recognize any revenue until an agreement between
us, our CHOICE customer and our authorized reseller has been finalized and the
CHOICE Web site has been delivered. As we sell advertising or sponsorship on
these CHOICE Web sites to third parties, we will recognize advertising revenue
from these CHOICE Web sites. As of September 30, 1999, we have sold advertising
or sponsorship on only five CHOICE Web sites. Payments made to customers under
advertising and sponsorship commission guarantees are recorded as reductions of
the related customer deposit.
Of the 39 CHOICE Web sites that we had delivered as of September 30, 1999,
we have arrangements with 14 of these CHOICE customers under which we guarantee
to them advertising and sponsorship commissions.
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 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
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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. E-commerce revenue declined during 1998 and in
the first six months of 1999 as we elected to provide more content for free
through our own Web sites in order to attract additional users to our own Web
sites. However, we expect that transactional fees associated with our providing
full-text journal articles from our activePress clients, including additional
Blackwell Science journals and the NEW ENGLAND JOURNAL OF MEDICINE, which is
expected to be fully operational by the end of 1999, will result in an increase
in e-commerce revenue beginning at the end of 1999. 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, we expect that losses will continue for the foreseeable future and
our independent accountants have expressed substantial doubt about our ability
to continue as a going concern."
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 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 standard 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. We believe that this agreement will benefit us through the
association of the GE Medical Systems name with HealthGate in general, and our
CHOICE product in particular, and through the efforts of GE Medical Systems to
distribute both our standard CHOICE product and the GE Medical Systems enhanced
versions of our CHOICE product. Therefore, in connection with this agreement, on
June 17, 1999, we issued a warrant to General Electric Company for the purchase
of up to 1,189,800
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shares of our common stock. The warrant has a term of five years and an exercise
price of $9.49 per share (subject to potential adjustments for certain equity
offerings subsequent to the warrant's issuance and other events) and is
immediately exercisable. The fair value of this warrant was determined to be
$10.3 million 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. In the event
the exercise price of this warrant is adjusted, its fair value will increase.
See "Business--Strategic Affiliations--Marketing and Distribution Affiliations."
In November 1999, we entered into a three-year marketing and reseller
agreement with Columbia Information Systems under which Columbia Information
Systems agreed to endorse us as the preferred provider of patient and consumer
oriented health content for Web sites owned or operated by Columbia/HCA
hospitals and affiliates. The agreement provides us, among other things, the
right to make a first offer to provide services for adding content to the
Columbia Information Systems health portal site and any Web site owned or
operated by or affiliated with Columbia Information Systems or Columbia/HCA. We
also have the exclusive right to host on the Internet content provided to us by
certain Columbia Information Systems or Columbia/HCA affiliates. Further,
Columbia Information Systems may distribute our CHOICE Web site product to
entities unaffiliated with Columbia/HCA, subject to our approval. We believe
that this agreement will benefit us, generally, through the association of the
Columbia Information Systems and Columbia/HCA names with HealthGate and through
their performance of the specific terms described above. In connection with this
agreement, we have issued a warrant to CIS Holdings, Inc. for the purchase of up
to 1,941,035 shares of our common stock. The warrant has a term of three years,
an exercise price per share equal to the initial public offering price (subject
to adjustment in certain circumstances) and is exercisable on the earlier of the
consummation of this offering, certain private placements of securities, a sale
of HealthGate or March 31, 2000. We expect to record the fair value of this
warrant as marketing and distribution rights, and amortize the value as a sales
and marketing expense on a straight-line basis over the three-year contractual
term of the related agreement. Based on the currently anticipated offering price
range, we expect the value of this warrant to range from approximately $10.7
million to $13.1 million. If the initial public offering price is above the
currently anticipated offering price range, this value will be higher. See
"Business--Strategic Affiliations--Marketing and Distribution Affiliations."
In October 1999, we entered into a three-year strategic alliance agreement
with Snap! LLC and Xoom.com, Inc. Under this agreement, Snap will provide
various services to us to promote our name, our www.healthgate.com Web site, our
co-branded CHOICE Web sites and the products and services we offer. In exchange
for the services provided to us by Snap during the first year of the agreement,
we have agreed to pay Snap a minimum fee of $10.0 million and 500,000 shares of
our common stock, plus a $250,000 production and content integration fee. We
have agreed to pay Snap minimum fees of $15.0 million in each of the second and
third years of the agreement for the services provided to us by Snap in those
years. We have also agreed to pay Snap up to an additional $5.0 million in the
first year, $10.0 million in the second year and $15.0 million in the third year
of the agreement if Snap delivers more than certain minimum click-throughs to
the co-branded Snap/HealthGate Web site in the respective years. We expect to
amortize the fair value of 250,000 shares of our common stock as a sales and
marketing expense on a straight-line basis over the first year of the related
agreement and to recognize the fair value of the other 250,000 shares based on
the delivery of advertising impressions in the first year of the agreement. We
expect the value of these shares to be approximately $4.5 million at the time of
issuance. However, the final value of these shares will be determined when Snap
and Xoom have combined with certain assets of NBC to form NBC Internet. See
"Business--Strategic Affiliations--Marketing and Distribution Affiliations."
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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 and
sponsorship commissions 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>
THREE MONTHS ENDED
MARCH 31, 1999
-------------------
(UNAUDITED)
<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............................................... $ (.39)
Pro forma basic and diluted net loss per share.............. $ (.18)
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............................................... $ (.41)
Pro forma basic and diluted net loss per share.............. $ (.18)
</TABLE>
We have implemented additional financial and management controls and
procedures which we believe will improve the controls surrounding the
recognition of revenues. See "Risk Factors--We have had to restate our financial
statements for the first quarter of 1999 and if we are not able to monitor and
follow our newly implemented internal controls, our business prospects and the
price of our common stock may suffer."
RECENT DEVELOPMENTS
For the three months ended September 30, 1999, our total revenue was
approximately $684,000 and our net loss was approximately $5.5 million. As of
September 30, 1999, we had approximately $808,000 of cash and cash equivalents
and a working capital deficit of approximately $3.1 million.
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.
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<PAGE>
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. This decrease is due to our continued reduction in emphasis on
barter arrangements and increased focus on selling advertising for cash.
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.
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 monthly subscriptions purchased by
individuals. This decrease in monthly subscriptions resulted in large part from
our continued implementation of our plan to provide more content for free
through our own Web sites in order to attract additional users to our own Web
sites and generate additional advertising revenue. 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 14 of our initial CHOICE customers, we have
guaranteed advertising and sponsorship commissions 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 $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, during the six months ended June 30,
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1999, a non-cash expense of $367,000 was recorded for the amortization expense
associated with a warrant to purchase 1,189,800 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 $12.4 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 new service arrangement with Blackwell Science expires in
December 2001. 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. In addition, advertising and sponsorship
revenue derived from cash sales decreased to $229,000 in 1998 from $256,000 in
1997, due to our editorial decision to eliminate sponsor-provided content areas.
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 $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
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attracting additional users to our own 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.
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.
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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 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
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preferred stock, we paid $300,000 of fees and expenses to a placement agent,
paid $111,000 of other issuance costs and issued to the placement agent warrants
to purchase 21,654 shares of our common stock at an exercise price of $2.89 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. Concurrently with the closing of this offering, we plan to pay in cash
all accrued dividends on the Series E preferred stock. At June 30, 1999, accrued
dividends on the Series E preferred stock totaled approximately $96,000. 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
$2.89. 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
$4,950,000, 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 $886,000 in deferred offering
costs related to this offering, an increase of $129,000 in other assets, an
increase of $1,007,000 in accounts payable, an increase of $428,000 in customer
deposits for CHOICE Web sites, an increase of $366,000 in other accrued
expenses, which consists primarily of $130,000 for advertising and sponsorship
commitments, $76,000 in professional fees, and $73,000 in real property lease
obligations, 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 our 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. Property and
equipment purchases during the six months ended June 30, 1999 included primarily
purchases of office furniture of $197,000 and computer equipment of $460,000.
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 stock of $5,839,000 partially offset
by payments for capital lease obligations of $127,000. During the
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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 $695,000. In addition, future minimum
payments under content license agreements totaled $1,665,000 at June 30, 1999.
We expect our commitments under content licensing to increase as we expand our
content libraries.
In October 1999, we entered into a three-year strategic alliance agreement
with Snap! LLC and Xoom.com, Inc. In exchange for the services provided to us by
Snap during the first year of the agreement, we have agreed to pay Snap a
minimum fee of $10.0 million and 500,000 shares of our common stock, plus a
$250,000 production and content integration fee. The $10.3 million cash
component of the first year minimum fee due to Snap is payable within thirty
days after the registration statement filed with the SEC in connection with this
offering is declared effective by the SEC. We have agreed to pay Snap minimum
fees of $15.0 million in each of the second and third years of the agreement for
the services provided to us by Snap in those years. We have also agreed to pay
Snap up to an additional $5.0 million in the first year, $10.0 million in the
second year and $15.0 million in the third year of the agreement if Snap
delivers more than certain minimum click-throughs to the co-branded
Snap/HealthGate Web site in the respective years. If Snap terminates the
agreement based on certain material breaches caused by us, we have agreed to
continue to pay Snap 55% of all fees payable by us under the agreement for the
remaining term of the agreement. If Snap and Xoom have not combined with certain
assets of NBC to form NBC Internet on or before March 31, 2000, we may terminate
the agreement and Snap must return to us all payments, including the common
stock we have issued to them as partial payment for the first year minimum fee,
made prior to the termination.
We currently anticipate that our available cash resources combined with the
net proceeds from this offering will be sufficient to meet our anticipated
working capital and capital expenditure requirements for at least twelve months
after the date of this prospectus. However, we may need to raise additional
funds within the next twelve 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. We can not guarantee that additional funding, if needed, will be
available on terms acceptable to us, or at all.
We have received a report from our independent accountants containing an
explanatory paragraph stating that our historical losses and negative cash flows
from operations raise substantial doubt about our ability to continue as a going
concern because, as of the date they rendered their opinion, we did not have
access to sufficient committed capital to meet our projected operating needs
through at least June 30, 2000. The proceeds of this offering would materially
exceed the cash required for us to continue operations through at least
June 30, 2000. If this offering is not successful, we intend to obtain
alternative financing through the private placement of debt or equity and reduce
expenditures to minimize our requirements for additional financial resources. We
believe that, if this offering is not completed, we will be able to successfully
execute our alternative plans.
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
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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 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.
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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.
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, 2000. HealthGate does
not expect SFAS No. 133 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 approximately 300 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. We facilitate
user-friendly access to our content libraries by segmenting them into
collections for these three principal user groups. Content from any collection
is available to any type of user under a variety of pricing structures,
including free access, per transaction fee access and subscription. 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 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 for institutions, principally hospitals, and
businesses, which carry both HealthGate's and an enterprise client's name, are
designed as a seamless component of an enterprise client's Web site and, for
certain institutions and businesses, complement the healthcare information,
products and services they already offer or sell through their own Web sites;
and (3) other third party co-branded Web sites to which we syndicate our
proprietary and licensed content, including the Health Channel of www.snap.com
for which we have been designated as an anchor tenant provider of health
content.
We currently generate revenue from the following activities:
- syndicating content to third party Web sites;
- providing our activePress-TM- Web publishing services to traditional print
publishers;
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- offering banner advertising and sponsorship of discrete portions of our
content libraries to pharmaceutical companies, other healthcare
advertisers and other businesses and organizations;
- participating in e-commerce opportunities, including selling articles from
full-text journals, monthly online subscriptions and medical text books;
and
- developing co-branded CHOICE Web sites for enterprise clients and
distributing content through these CHOICE Web sites.
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. A July 1999 research report published by Cyber
Dialogue, Inc., an industry research firm, estimates that approximately
25 million adults in the United States search online for health and medical
information, a number which Cyber Dialogue projects will grow to approximately
30 million in 2000.
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
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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
and geriatrics. 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 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 co-branded Web sites,
which will include a co-branded Snap/HealthGate Web site, and other third party
Web sites, including the Health Channel of www.snap.com for which we have been
designated as an anchor tenant provider of health content, and 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. We
recently entered into a strategic alliance with Snap under which they will
provide various services to us to promote our name, our www.healthgate.com Web
site, our co-branded CHOICE Web Sites and the products and services we offer. We
believe that our relationship with Snap will increase awareness of the
HealthGate brand and help drive traffic to the HealthGate Network. Additionally,
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, such as our affiliations with
Columbia Information Systems and Snap and Xoom.
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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 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 approximately 300 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.
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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.
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>
CONTENT PROVIDER DESCRIPTION REPRESENTATIVE SOURCES DISTRIBUTION CHANNELS
<S> <C> <C> <C>
Independent Well known, authoritative - MEDLINE (National Library - healthgate.com
Licensors content sources licensed of Medicine) - CHOICE Web sites
from government agencies, - Adult Health Advisor - Syndicated third party Web
professional associations, (Clinical Reference sites
not-for-profit Systems) - healthgate.co.uk
organizations, medical - Continuing Medical
centers, publishers and Education (Boston
other third parties. University School of
Medicine)
- Reuters Medical News
(Reuters Health)
- EMBASE Cardiology
Consultant (Elsevier
Science B.V.)
HealthGate Eleven different consumer - Healthy After 50 - healthgate.com
health magazines developed - Healthy Athlete - CHOICE Web sites
by HealthGate specifically - Healthy Eating - Syndicated third party Web
for Web-based distribution. - Healthy Man sites
Updated weekly with new - Healthy Mind - healthgate.co.uk
articles, written or - Healthy Parenting
purchased by HealthGate. - Healthy Rx
- Healthy Sexuality
- Healthy Traveler
- Healthy Woman
- Alternative Health
activePress Clients Full-text journals and - NEW ENGLAND JOURNAL OF - nejm.org
similar content from MEDICINE (Massachusetts - blackwell-synergy.com
traditional print Medical Society) - healthgate.com
publishers, converted for - BRITISH JOURNAL OF SURGERY - CHOICE Web sites
Web access and hosted by (Blackwell Science) - Syndicated third party Web
HealthGate's activePress sites
unit for a fee. - healthgate.co.uk
</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 eleven 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, alternative health and aging. 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 all 200 peer reviewed journal titles
covered by our initial agreement with Blackwell Science. 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 share revenue from
syndication with Blackwell Science. In September 1999, we entered into a new
two-year activePress agreement to expand and extend our activePress relationship
with Blackwell Science through December 2001. Under the terms of this new
agreement, effective January 1, 2000, we will enhance Blackwell Science's Web
site and convert and bring online an additional 72 full text journals.
NEW ENGLAND JOURNAL OF MEDICINE. In April 1999, we 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. In June 1999, we
entered into an agreement with the Massachusetts Medical Society to create a
Web-based consumer version of the NEW ENGLAND JOURNAL OF MEDICINE. Under this
agreement, we will be the exclusive distributor of this unique
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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 in early 2000. 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 have agreed to develop CME programs for Web
distribution exclusively with Physicians World, with the exception of CME
programs developed by Boston University School of Medicine and online continuing
healthcare professional education programs related to our recent arrangement
with HealthStream, Inc.
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 34 different CME programs
from Boston University in our content libraries. We plan to develop additional
programs with Boston University through this relationship.
HEALTHSTREAM, INC. In September 1999, we entered into a continuing
education services agreement with HealthStream, Inc., a provider of computer and
Web-based education and training services for the healthcare industry. This
agreement provides for the creation of a Web site, hosted by HealthStream and
co-branded by both HealthStream and HealthGate, and allows us to distribute
HealthStream's Category 1 Continuing Medical Education programs and other
accredited continuing education programs for nursing and allied health
professionals. We share the revenue generated from physicians and other
healthcare professionals purchasing these online programs. As part of this
agreement, HealthStream will pay us a minimum of $250,000 annually for, among
other things, sponsorship on our own Web sites and on our co-branded CHOICE Web
sites. The initial term of our continuing education services agreement with
HealthStream is two years and is renewable annually by mutual agreement.
Pursuant to a separate marketing services agreement with HealthStream we have
committed to spend $100,000 annually to promote the co-branded
HealthStream/HealthGate Web site. We have also agreed to purchase a minimum of
$150,000 of CME credits annually from HealthStream for distribution to
healthcare professionals for promotional purposes.
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
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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
COLUMBIA INFORMATION SYSTEMS, INC. In November 1999, we entered into a
three-year development agreement with Columbia Information Systems, Inc., a
subsidiary of Columbia/HCA Healthcare Corporation, to design, develop and
maintain customized, co-branded CHOICE Web sites for up to 280 Columbia/HCA
hospitals and affiliates. In addition, we will design, develop and maintain a
health portal site for Columbia Information Systems. We will also provide
content and services to both Columbia Information Systems' health portal site
and its customized, co-branded CHOICE Web site product. The agreement provides
for an annual license fee of $3.5 million to be paid by Columbia Information
Systems for all products and services that we provide under the agreement. The
annual license fee is subject to prospective adjustment in certain events,
including the delivery by us of fewer than 200 or more than 280 customized,
co-branded CHOICE Web sites. However, if we deliver fewer than 200 customized,
co-branded CHOICE Web sites, the adjustment is limited to a minimum annual
license fee of $2.5 million. In addition, we will share advertising and
sponsorship revenues and certain e-commerce revenues. The agreement may be
terminated without cause by Columbia Information Systems on June 1, 2001, upon
payment of a $1.0 million termination fee to HealthGate. We expect to have the
customized co-branded CHOICE Web site product ready for initial distribution in
the fourth quarter of 1999 and to have the health portal site operational in the
first quarter of 2000.
In November 1999, we entered into a separate three-year marketing and
reseller agreement with Columbia Information Systems under which Columbia
Information Systems agreed to endorse us as the preferred provider of patient
and consumer oriented health content for Web sites owned or operated by
Columbia/HCA hospitals and affiliates. The agreement provides us, among other
things, the right to make a first offer to provide services for adding content
to the Columbia Information Systems' health portal site and any Web site owned
or operated by or affiliated with Columbia Information Systems or Columbia/HCA.
We also have the exclusive right to host on the Internet content provided to us
by certain Columbia Information Systems or Columbia/HCA affiliates. Further,
Columbia Information Systems may distribute our CHOICE Web site product to
entities unaffiliated with Columbia/HCA, subject to our approval. In connection
with this agreement, we have issued a warrant to CIS Holdings, Inc. for the
purchase of up to 1,941,035 shares of our common stock. The warrant has a term
of three years, an exercise price per share equal to our initial public offering
price (subject to adjustment in certain circumstances) and will be exercisable
on the earlier of the consummation of this offering, certain private placements
of securities, a sale of HealthGate or March 31, 2000. The shares of common
stock issuable under the warrant will have registration rights similar to those
granted to holders of our Series A, B, C and D Stock. We expect to record the
fair value of this warrant as marketing and distribution rights, and amortize
the value as a sales and marketing expense on a straight-line basis over the
three year contractual term of the related agreement. Based on the currently
anticipated offering price range, we expect the value of this warrant to range
from approximately $10.7 million to $13.1 million. If the initial public
offering price is above the currently anticipated offering price range, this
value will be higher.
SNAP! LLC AND XOOM.COM, INC. In October 1999, we entered into a three-year
strategic alliance agreement with Snap! LLC and Xoom.com, Inc. Snap and Xoom are
expected to combine with certain assets of NBC to form NBC Internet. Under our
stratetic alliance agreement, Snap will provide various services to us to
promote our name, our www.healthgate.com Web site, our co-branded CHOICE Web
sites and the products and services we offer, and we will design, develop and
host a co-branded Snap/ HealthGate Web site, which will provide the features and
functionality of our www.healthgate.com Web site. After the co-branded
Snap/HealthGate Web site is brought online, Snap will feature us as the anchor
tenant, giving us the exclusive right to be the most prominent content provider,
for seven of the
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major content areas within the Health Channel of Snap's Web site. Both Snap's
Health Channel and the co-branded Snap/HealthGate Web site will contain portions
of our content libraries and link to our www.healthgate.com Web site to provide
users access to our complete content libraries. If Snap adds new content areas
to its Health Channel, we have a right of first offer to provide health-related
content to the new areas as long as our content continues to be of at least the
same quality as that of our top competitors. We will also have the exclusive
right to sell advertising on the co-branded Snap/ HealthGate Web site. Snap will
display various promotions for us, at discounted rates, designed to deliver
click-throughs to the co-branded Snap/HealthGate Web site, our co-branded CHOICE
Web sites and our www.healthgate.com Web site from Snap's www.snap.com Web site
and other Web sites affiliated with Snap. Snap has agreed to deliver a minimum
number of these promotions during each year of the agreement, but it will be
able to satisfy these minimums by displaying them within the six months
following the relevant year. If these minimums are not delivered within those
six months, Snap must refund a pro rata portion of the media fee paid by us
under the agreement. In addition, Snap will create and run a series of
television ads on the NBC television network, local television stations or cable
services featuring in part the health-related content areas of its Web sites and
our name, brand or services.
In exchange for the services provided to us by Snap during the first year of
the agreement, we have agreed to pay Snap a minimum fee of $10.0 million and
500,000 shares of our common stock, plus a $250,000 production and content
integration fee. The $10.3 million cash component of the first year minimum fee
due to Snap is payable within thirty days after the registration statement filed
with the SEC in connection with this offering is declared effective by the SEC.
We have agreed to pay Snap minimum fees of $15.0 million in each of the second
and third years of the agreement for the services provided to us by Snap in
those years. We have also agreed to pay Snap up to an additional $5.0 million in
the first year, $10.0 million in the second year and $15.0 million in the third
year of the agreement if Snap delivers more than certain minimum click-throughs
to the co-branded Snap/ HealthGate Web site in the respective years. Either Snap
or we may terminate this agreement if the other party commits a material breach.
If Snap terminates the agreement based on certain material breaches caused by
us, we have agreed to continue to pay Snap 55% of all fees payable by us under
the agreement for the remaining term of the agreement. If Snap and Xoom do not
combine with certain assets of NBC to form NBC Internet on or before March 31,
2000, we may terminate the agreement and Snap must return to us all payments,
including the common stock we have issued to them as partial payment for the
first year minimum fee, made prior to the termination.
GE MEDICAL SYSTEMS. In June 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 standard 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 standard 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 1,189,800 shares of
our common stock. The warrant has
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a term of five years, an exercise price of $9.49 per share (subject to potential
adjustments for certain equity offerings subsequent to the warrant's issuance
and other events) 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 $10.3 million 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. In the event the exercise
price of the warrant is adjusted downward, its fair value will increase.
DATA GENERAL CORPORATION. We have a strategic marketing affiliation with
Data General Corporation, an information technology products and services
company which has recently been acquired by EMC Corporation. 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 Web site 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 Web site product to
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 Web site 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.
SYNDICATION AFFILIATIONS
We have formed strategic syndication affiliations with three 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 and the American Medical Association. 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.
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.
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<TABLE>
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
- American Medical - Advertising and sponsorship
Association - E-commerce
activePress service Publishers - Services
- Blackwell Science - Annual hosting fees
- Massachusetts Medical - Development fees
Society - E-commerce
</TABLE>
In addition, we have established an alliance with Snap and Xoom to supply
portions of our content libraries to users of the Snap Web portal site and to
design, develop and host a co-branded Snap/ HealthGate Web site. We anticipate
that our relationship with Snap will drive traffic to the co-branded
Snap/HealthGate Web site, resulting in additional traffic to our own
www.healthgate.com Web site and our co-branded CHOICE Web sites that we host for
hospitals. We believe that additional traffic to these sites will increase
awareness of the HealthGate brand and develop additional advertising,
sponsorship and e-commerce revenue opportunities.
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.
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
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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 businesses to license our
content to complement their own information that they distribute on the
Web and the products and services they sell on the Web. In addition, 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
development, implementation and hosting fees to be paid by the enterprise client
for a term of one to three years. As of September 30, 1999, we had delivered 39
co-branded CHOICE Web sites providing health information to 32 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), one university, Indiana State University
(Terre Haute, Indiana), one corporate wellness center, Data General Corporation,
and 5 businesses, including GlobeRx.com, Handbag.com, Med-Emerg International,
Nichols TXEN and ProxyMed. 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 sold 14 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, but
have not yet sold a CHOICE Web site to this target client group.
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The following is an example of Web pages from a CHOICE Web site we developed
and host for Joseph Brant Memorial Hospital.
[Screen shots of co-branded CHOICE Web site, with the following captions:
Co-branded CHOICE site designed for Joseph Brant Memorial Hospital.
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 and the American Medical Association. For the six months ended
June 30, 1999, our content syndication arrangement with WebMD accounted for 13%
of our total revenue. We are presently negotiating with WebMD concerning the
terms and provisions of the annual renewal of the agreement which was
contemplated for October 30, 1999. During our negotiations, we are continuing to
provide content to WebMD under the same terms as provided under our earlier
agreement. We can not assure you that we will be able to reach mutually
agreeable terms of renewal with WebMD and, if we do not, we may lose WebMD as a
customer.
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."
WEB PORTAL ALLIANCE
We will provide access to selected portions of our content libraries to
users of Snap, a Web portal site. Web portal sites aggregate content from
various sources and make the content, or links to the content, available on a
single Web site, organized into related groupings of content, typically called
channels. We will be the anchor tenant, or most prominent provider of healthcare
information, for seven of the major content areas of Snap's Health Channel. Our
name will be prominently displayed throughout the Snap Health Channel. Users of
the Snap Health Channel will see selected portions of our content libraries on
the Snap Web site. When Snap users wish to access a complete article, not just
the portion available on the Snap Web site, they will link from the Snap Health
Channel to a co-branded Snap/HealthGate Web site that we will design, develop
and host or our www.healthgate.com Web site.
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We anticipate that our relationship with Snap will drive traffic to the
co-branded Snap/HealthGate Web site, resulting in additional traffic to our own
www.healthgate.com Web site and our co-branded CHOICE Web sites that we host for
hospitals. We believe that additional traffic to these sites will increase
awareness of the HealthGate brand and develop additional advertising,
sponsorship and e-commerce revenue opportunities. In addition to promoting the
HealthGate brand, we will have exclusive rights to sell advertising on the
co-branded Snap/HealthGate Web site.
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 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 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), Dr. Scholls (health aids) and
CVS.com (online drugstore);
- Providers of health information, including Medical Economics (books) and
MedBookStore.com (books); and
- Others, including Entrepreneur Magazine, the U.S. Air Force, the U.S.
Army, NextCard and Ameritrade.
In September 1999, approximately 8.7 million advertisements were displayed
on our own Web sites, approximately 2.2 million of which were sold for cash to
advertisers, approximately 63,000 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 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.
In June 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
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own Web sites, portions of the HealthGate Network and other third-party sites,
targeted linking on the HealthGate Network and e-mail alerts to registered users
of our own Web sites. Additionally, we have agreed to purchase a significant
amount of advertising and sponsorship on Snap.com and related Web sites as part
of our strategic alliance agreement with Snap. We intend to purchase additional
advertising and sponsorship on certain CHOICE 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.
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 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
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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 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
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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.
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
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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."
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."
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EMPLOYEES
As of September 30, 1999, we had a total of 83 full-time employees. Of these
employees, 43 serve in research and development, 10 serve in administration and
30 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 exercised an option to lease the space for an
additional term of up to five years and are presently in negotiations with our
landlord regarding the terms and conditions of our lease for the five additional
years. 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.
On July 27, 1999, we received a letter from the attorneys for the alleged
holder of a patent covering methods and systems for retrieving and presenting
graphical and/or audio data from a remote server in response to an end user
query, raising the issue of whether our www.healthgate.com Web site induces the
infringement by others of this patent. In lieu of pursuing a patent infringement
claim against us, we were informed in this letter that the alleged patent holder
was willing to release us from any and all past patent infringements and provide
us with a license for unlimited use of the patent for a one-time payment of
between $50,000 and $150,000. We are currently investigating this matter. At
this time, we are unable to predict the outcome of this matter.
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MANAGEMENT
The following table sets forth certain information regarding our executive
officers, key employees and directors as of October 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- --------
<S> <C> <C>
William S. Reece..................................... 34 Chairman of the Board of Directors,
President and Chief Executive Officer
Mary B. Miller....................................... 41 Chief Financial Officer and Treasurer
Mark A. Israel....................................... 31 Chief Technology Officer
Richard J. Fecher.................................... 40 Vice President of Sales
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)............................... 61 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.
RICHARD J. FECHER has served as our Vice President of Sales since
September 1999. From May 1999 to September 1999, Mr. Fecher served as our
National Sales Director. From August 1995 to April 1999, Mr. Fecher held various
sales management and sales positions within the healthcare, commercial and
financial divisions of Data General Corporation. From 1994 to 1995, Mr. Fecher
was an Account Manager with SiliconGraphics Computer Systems. From 1993 to 1994,
Mr. Fecher was a Regional Manager with Kendall Square Research. From 1986 to
1993, Mr. Fecher held various management and sales positions with 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 29,745 shares of our
common stock under our 1994 Stock Option Plan. These options have an exercise
price of $1.16 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
9,915 shares of our common stock under our 1994 Stock Option Plan. These options
have an exercise price of $0.89 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
9,915 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 had an exercise price of $0.49 per share, was fully vested during 1998
and was exercised by Mr. de Castro in October 1999.
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 $100,000 for services rendered to
HealthGate in all capacities during 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------- ---------------------------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION ($)
- --------------------------- -------- ---------- --------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
William S. Reece.................... 1998 138,583 66,500(1) 257,790(2) --
President and Chief
Executive Officer
Mark A. Israel...................... 1998 126,000 32,000(1) 118,980 --
Chief Technology Officer
Hamid Tabatabaie(3)................. 1998 151,846 -- 162,606 --
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 39,660
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. Mr. Tabatabaie resigned from HealthGate in
August 1999.
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<PAGE>
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
INDIVIDUAL GRANTS VALUE AT ASSUMED ANNUAL
------------------------------------------ RATES OF STOCK PRICE
PERCENT OF TOTAL APPRECIATION FOR
NUMBER OF 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..... 297,450(3) 36.0 1.882 1/23/03 $154,466 $341,953
Mark A. Israel....... 118,980 14.4 1.882 1/23/03 $ 61,787 $136,781
Hamid Tabatabaie..... 162,606 19.7 0.756 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 826,911
shares of common stock.
(3) Includes a non-qualified option for 39,660 shares fully vested upon grant
and an incentive stock option for 257,790 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............................... 39,660 257,790 $282,320 $1,835,078
Mark A. Israel................................. 41,246 201,671 $293,610 $1,435,602
Hamid Tabatabaie............................... 0 162,606 -- $1,340,524
</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 $9.00 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 2,577,900 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 November 9, 1999, options for a total of 1,649,726 shares of common
stock are outstanding under the 1994 Stock Option Plan. In addition, 121,667
shares of common stock have been purchased pursuant to exercises of options. A
total of 830,303 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.
73
<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.
74
<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 22,209 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 1,189,800 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 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 $1,400,000 for the development and hosting of the
Web site through December 1999. During 1998 and 1997, our revenue from Blackwell
Science represented 44% and 18% of our total revenue for those respective years.
In September 1999 we entered into a new activePress Journal Hosting and Delivery
Agreement with Blackwell Science pursuant to which the term of our services
relating to hosting and maintaining Blackwell Science's Web site was extended
through December 2001 and the scope of our services to be provided to Blackwell
Science will be expanded beginning January 1, 2000. Total fees payable to us
during the extended term are expected to be in excess of $800,000 annually. In
April 1999, we paid Blackwell Science $68,000 as a referral fee for their
assistance in adding several additional journals to our online libraries. 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 former 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
75
<PAGE>
Web site product. In connection with this agreement, we issued to General
Electric Company a warrant for the purchase of up to 1,189,800 shares of our
common stock. The warrant has a term of five years, an exercise price of $9.49
per share (subject to potential adjustments for certain equity offerings
subsequent to the warrant's issuance and other events) and is immediately
exercisable. GE Capital Equity Investments, Inc., a stockholder of HealthGate is
an affiliate of General Electric Company.
In October 1999, we entered into a three-year strategic alliance agreement
with Snap! LLC and Xoom.com, Inc. Under this agreement, Snap will provide
various services to us to promote our name, our www.healthgate.com Web site, our
co-branded CHOICE Web sites and the products and services we offer, and we will
design, develop and host a co-branded Snap/HealthGate Web site, which will
provide the features and functionality of our www.healthgate.com Web site. After
the co-branded Snap/ HealthGate Web site is brought online, Snap will feature us
as the anchor tenant, giving us the exclusive right to be the most prominent
content provider, for seven of the major content areas within the Health Channel
of Snap's Web site. In exchange for the services provided to us by Snap during
the first year of the agreement, we have agreed to pay Snap a minimum fee of
$10.0 million and 500,000 shares of our common stock, plus a $250,000 production
and content integration fee. We have agreed to pay Snap minimum fees of
$15.0 million in each of the second and third years of the agreement for the
services provided to us by Snap in those years. We have also agreed to pay Snap
up to an additional $5.0 million in the first year, $10.0 million in the second
year and $15.0 million in the third year of the agreement if Snap delivers more
than certain minimum click-throughs to the co-branded Snap/HealthGate Web site
in the respective years. NBC, a subsidiary of General Electric, owns a majority
interest in Snap.
In November 1999, we entered into a three-year development agreement with
Columbia Information Systems. Under this agreement, we will design, develop and
maintain a health portal site for Columbia Information Systems and design,
develop and maintain customized, co-branded CHOICE Web sites for up to 280
Columbia/HCA hospitals and affiliates. The agreement provides for an annual
license fee of $3.5 million to be paid by Columbia Information Systems for all
products and services that we provide under the agreement. The annual license
fee is subject to prospective adjustment in certain events, including the
delivery by us of fewer than 200 or more than 280 customized, co-branded CHOICE
Web sites. However, if we deliver fewer than 200 customized, co-branded CHOICE
Web sites, the adjustment is limited to a minimum annual license fee of $2.5
million. In addition, we will share advertising and sponsorship revenues and
certain e-commerce revenues. The agreement may be terminated without cause by
Columbia Information Systems on June 1, 2001, upon payment of a $1 million
termination fee to HealthGate.
In November 1999, we also entered into a separate three-year marketing and
reseller agreement with Columbia Information Systems, under which Columbia
Information Systems agreed to endorse us as the preferred provider of patient
and consumer oriented health content for Web sites owned or operated by
Columbia/HCA hospitals and affiliates. The agreement provides us, among other
things, the right to make a first offer to provide services for adding content
to the Columbia Information Systems health portal site and any Web sites owned
or operated by or affiliated with Columbia Information Systems or Columbia/HCA.
We also have the exclusive right to host on the Internet content provided to us
by certain Columbia Information Systems or Columbia/HCA affiliates. In addition,
Columbia Information Systems may distribute our CHOICE Web site product to
entities unaffiliated with Columbia/HCA, subject to our approval. In connection
with this agreement, we have issued to CIS Holdings, Inc., an indirect,
wholly-owned subsidiary of Columbia/HCA HealthCare Corporation and an affiliate
of Columbia Information Systems, a warrant for the purchase of up to 1,941,035
shares of our common stock. The warrant has a term of three years, an exercise
price per share equal to the initial public offering price (subject to
adjustment in certain circumstances) and is exercisable on the earlier to occur
of this offering, certain private placements of securities, a sale of HealthGate
or March 31, 2000.
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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 November 9, 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)................................. 3,855,347 27.8% 24.7%
2135 Easton Turnpike
Fairfield, CT 06431
William S. Reece (3)........................................ 2,088,693 16.3 12.6
Blackwell Science, Ltd. (4)................................. 2,058,321 16.2 12.5
Oxney Mead, Oxford
OX2 0EL, United Kingdom
Jonathan J. G. Conibear (5)................................. 2,058,321 16.2 12.5
Chris H. Horgen (6)......................................... 1,867,557 14.7 11.3
Nichols Research Corporation................................ 1,831,208 14.4 11.1
4040 Memorial Parkway, S.
Huntsville, AL 35802
Columbia/HCA Healthcare Corporation (7)..................... 1,941,035 13.3 10.6
One Park Plaza
Nashville, Tennessee 37203
Barry M. Manuel, M.D. (8)................................... 1,212,009 9.5 7.4
65 Wellesley Road
Belmont, MA 02478
Rick Lawson (9)............................................. 832,860 6.5 5.1
David Friend (10)........................................... 432,667 3.4 2.6
Tina M. H. Blair, M.D. (10)................................. 348,750 2.7 2.1
Edson D. de Castro (11)..................................... 133,716 1.1 *
Mark A. Israel (12)......................................... 122,152 1.0 *
Hamid Tabatabaie (13)....................................... 54,334 * *
Executive officers and directors as a group (9 persons) 7,051,864 53.9 41.9
(14)......................................................
</TABLE>
- ------------------------
* Less than one percent of outstanding shares.
(1) Percentage ownership is based on 12,695,472 shares outstanding as of
November 9, 1999. Shares of common stock subject to options and warrants
currently exercisable or exercisable within 60 days of November 9, 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 1,189,800 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 2,165,547 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 2,165,547 outstanding shares with General Electric Capital
77
<PAGE>
Corporation and GE Medical Systems with respect to all shares held of record
by GE Capital Equity. Also includes 500,000 shares of our common stock owned
by Snap! LLC, and, for purposes of calculating the percentage beneficially
owned after the offering only, and assuming an initial public offering price
of $10.00, 500,000 shares of our common stock for which Snap! LLC has
expressed a non-binding interest in acquiring in this offering. National
Broadcasting Company, Inc., a subsidiary of General Electric Company, owns a
majority interest in Snap! LLC.
(3) Includes 125,523 shares of common stock issuable upon the exercise of stock
options.
(4) Includes 36,349 shares of common stock issuable upon the exercise of stock
options and 266,277 shares owned by Blackwell Wissenschafts-Verlag GmbH, a
wholly-owned subsidiary of Blackwell Science.
(5) Includes 36,349 shares of common stock issuable to Blackwell Science upon
the exercise of stock options, 1,755,695 shares of common stock owned by
Blackwell Science and 266,277 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 36,349 shares of common stock issuable to Mr. Horgen, individually,
upon exercise of stock options and 1,831,208 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 1,941,035 shares issuable pursuant to a warrant issued to CIS
Holdings, Inc., an indirect, wholly-owned subsidiary of Columbia/HCA
HealthCare Corporation and an affiliate of Columbia Information Systems,
Inc., in connection with our marketing and reseller agreement with Columbia
Information Systems.
(8) Includes 872,520 shares owned by Dr. Manuel, 317,280 shares held in trusts
for which Dr. Manuel serves as trustee for the benefit of his children and
grandchildren and 22,209 shares issuable to Dr. Manuel upon the exercise of
stock options. Dr. Manuel disclaims beneficial ownership of the 317,280
shares held in trust for the benefit of his children and grandchildren.
(9) Includes 39,660 shares of common stock issuable upon exercise of stock
options.
(10) Includes 36,349 shares of common stock issuable upon exercise of stock
options.
(11) Includes 3,303 shares of common stock issuable upon exercise of stock
options.
(12) Includes 102,322 shares of common stock issuable upon exercise of stock
options.
(13) Mr. Tabatabaie resigned from HealthGate in August 1999. Includes 54,334
shares of common stock issuable upon exercise of stock options.
(14) Includes 376,544 shares of common stock issuable upon exercise of stock
options excluding the 54,334 shares issuable to Mr. Tabatabaie, HealthGate's
former Vice President of Sales and Marketing.
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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 November 9, 1999, there were outstanding:
- 5,164,916 shares of common stock, held by 18 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 7,530,556 shares of common stock.
Immediately after the closing of this offering, we will have 16,445,472
shares of common stock outstanding, assuming no exercise of options to acquire
1,790,915 additional shares of common stock or warrants to purchase 3,608,381
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,
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.
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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 477,546 shares of
common stock, subject to certain antidilution adjustments. Warrants to purchase
455,892 shares have an exercise price of $0.00005 per share, may be exercised at
any time and expire in March 2008. Warrants to purchase 21,654 shares have an
exercise price of $2.89 per share, may be exercised at any time after April 20,
2000 and expire on April 21, 2002. Holders of warrants to purchase 455,892
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 1,189,800 shares of common stock
with an exercise price of $9.49 per share (subject to potential adjustments for
certain equity offerings subsequent to the warrant's issuance and other events)
and is immediately exercisable. General Electric will also have registration
rights covering the shares of common stock issuable under the warrant.
In connection with our marketing and reseller agreement with Columbia
Information Systems, we issued to CIS Holdings, Inc. a warrant for the purchase
of up to 1,941,035 shares of common stock with an exercise price per share equal
to our initial public offering price (subject to adjustment in certain
circumstances). The warrant will be exercisable on the earlier to occur of the
consummation of this offering, certain private placements of securities, a sale
of HealthGate or March 31, 2000. CIS Holdings 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
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<PAGE>
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
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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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 16,445,472 shares of common
stock outstanding, including 7,530,556 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 3,750,000 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 12,695,472 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, 281,936 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, 9,978,141 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 2,435,395 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 164,455
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 8,255,626 shares of
common stock have the right to require registration of their shares under
certain circumstances. However, holders of 8,076,976 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 November 9, 1999, options to purchase an aggregate of 1,005,808 shares
of common stock were fully vested. Holders of fully vested options to purchase
66,096 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, 858,477 are subject to 180-day lock-up agreements. As of
November 9, 1999, options to purchase an additional 785,110 shares of common
stock were outstanding, but are subject to future vesting, and an additional
830,303 shares of common stock were available for future grants under our 1994
Stock Option Plan. See "Management--Employee Benefit Plans."
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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 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 November 9, 1999, warrants to purchase 1,645,692 shares of common
stock were exercisable and subject to 180-day lock-up agreements. In addition,
outstanding warrants to purchase 21,654 shares of common stock will become
exercisable on April 21, 2000. We have granted registration rights with respect
to the 1,645,692 shares of common stock issuable under the presently exercisable
outstanding warrants and we have granted registration rights to CIS Holdings in
connection with its warrant for 1,941,035 shares, which is exercisable on the
first to occur of the consummation of this offering, certain private placements
of our securities, a sale of HealthGate or March 31, 2000. CIS Holdings has
agreed to a 180-day lock-up agreement with respect to the shares issuable under
this warrant. See "Business--Strategic Affiliations--Marketing and Distribution
Affiliations" and "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 12,413,536 outstanding shares of
common stock, together with holders of options to purchase 1,493,138 shares of
common stock and holders of warrants to purchase 3,586,727 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:
- 440,027 shares of outstanding common stock;
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- 4,672,034 shares of common stock issuable upon conversion of the Series
Stock;
- 79,320 shares of common stock issuable upon exercise of outstanding
options; and
- 455,892 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 2,858,522 shares of common stock issuable upon conversion
of the Series E Stock (the "GE-Blackwell Securities"). Additionally we entered
into a registration agreement with General Electric Company granting
registration rights with respect to 1,189,800 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. We have also
agreed to enter into a registration agreement with CIS Holdings granting
registration rights with respect to 1,941,035 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 Registrable Securities described below. In addition,
we have granted piggy-back registration rights, which are subject to the
limitations on priority of registration permitted under all of our other
existing registration agreements, with respect to 500,000 shares of common stock
held by Snap.
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
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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.
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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, Volpe Brown Whelan & Company, LLC
and Warburg Dillon Read LLC, a subsidiary of UBS AG, are the representatives of
the underwriters.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
SG Cowen Securities Corporation.............................
Volpe Brown Whelan & Company, LLC...........................
Warburg Dillon Read LLC, a subsidiary of UBS AG.............
---------
Total................................................... 3,750,000
=========
</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 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.
At the request of HealthGate, the underwriters will reserve up to
$5.0 million of common stock at the initial public offering price for sale to
Snap! LLC. National Broadcasting Company, Inc., a subsidiary of General Electric
Company, owns a majority interest in Snap. This amount would represent an
aggregate of 500,000 shares, based on an assumed initial public offering price
of $10.00 per share, the mid-point of the price range indicated on the cover of
this prospectus. We cannot assure you that any of these reserved shares will be
purchased by Snap. Snap will agree that, if it purchases any shares of common
stock of HealthGate, it will not sell or otherwise dispose of such shares for a
period of 180 days following the date of this prospectus. Any reserved shares
not so purchased by Snap 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 562,500
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.
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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 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 12,413,536 shares,
together with the holders of options to purchase 1,493,138 shares of common
stock and holders of warrants to purchase 3,586,727 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, not including
the underwriting discount, will be approximately $2,387,500.
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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 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 June 30, 1999 and for each of the three years in
the period ended December 31, 1998 and the six months ended June 30, 1999, 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.
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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................................... F-3
Consolidated Statement of Operations for the years ended
December 31, 1996, 1997 and 1998 and the six months ended
June 30, 1998 (unaudited) and June 30, 1999............... 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...................................................... 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 (unaudited) and June 30, 1999............... 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 November 9, 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 June 30, 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 and the six months ended June 30, 1999, 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
August 2, 1999, except as to Note 11,
which is as of November 9, 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, 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........................................ 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
Deferred offering costs......................... -- -- 885,615 885,615
Other assets.................................... 33,015 3,298 131,836 131,836
---------- ------------ ------------ ------------
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
Customer deposits............................. -- -- 428,051 428,051
Other accrued expenses........................ 81,349 228,880 595,001 595,001
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: 4,543,447 and
4,548,503 shares at December 31, 1997 and
1998, respectively and 4,568,412 shares at
June 30, 1999 actual; 12,098,968 shares
at June 30, 1999 pro forma (unaudited).... 45,434 45,485 45,684 120,990
Additional paid-in capital...................... 123,205 680,725 21,135,729 35,999,078
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,
--------------------------------------- --------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ------------
(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 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................ $ (.66) $ (.68) $ (.76) $ (.29) $ (2.85)
Shares used in computing basic
and diluted net loss per
share attributable to common
stockholders................ 4,543,399 4,543,447 4,547,559 4,543,447 4,553,717
Unaudited pro forma basic and
diluted net loss per
share....................... $ (.31) $ (.48)
Shares used in computing
unaudited pro forma basic
and diluted net loss per
share....................... 9,219,587 10,411,652
</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......... 4,543,249 $45,432 $ 123,055 $ (918,518) $ (6,524) $ (756,555)
Compensation relating to grants
of stock options............... 6,524 6,524
Exercise of common stock
options........................ 198 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......... 4,543,447 45,434 123,205 (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......... 4,543,447 45,434 123,205 (6,989,146) -- (6,820,507)
Exercise of common stock
options........................ 5,056 51 3,520 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......... 4,548,503 45,485 680,725 (10,461,504) -- (9,735,294)
Deferred compensation relating to
grants of stock options........ 2,307,246 (2,307,246) --
Compensation relating to grants
of stock options............... 315,895 315,895
Exercise of common stock
options........................ 19,909 199 9,184 9,383
Series E preferred stock
beneficial conversion feature
(Note 4)....................... 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............ (8,049,224) (8,049,224)
Net loss......................... (4,950,100) (4,950,100)
--------- ------- ----------- ------------ ----------- ------------
Balance, June 30, 1999............. 4,568,412 $45,684 $21,135,729 $(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,
--------------------------------------- --------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
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)
Deferred offering costs......... -- -- -- -- (885,615)
Other assets.................... 1,870 (1,357) 29,717 16,894 (128,538)
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
Customer deposits............... -- -- -- -- 428,051
Other accrued expenses.......... (1,433) 36,722 147,531 66,999 366,121
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 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 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 21,654 shares of HealthGate common stock at an exercise price of $2.89 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 3.966 for 1 stock split, 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 its operations
since inception. These matters raise substantial doubt about HealthGate's
ability to continue as a going concern for at least the next twelve months.
Management currently intends to raise financing through a firm commitment
underwritten initial public offering, the proceeds of which are expected to
exceed cash requirements for the next twelve months. If the initial public
offering is not successfully completed, management intends to obtain alternative
financing through the private placement of debt or equity, and reduce
expenditures so as to minimize requirements for additional financial resources.
Management believes that, if this offering is not completed, HealthGate will be
able to successfully execute its alternative plans. 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 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.
F-7
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 between HealthGate, the customer and, if applicable,
HealthGate's authorized reseller, which generally range from one to three years.
For any arrangement in which HealthGate guarantees advertising commissions to
the customer, HealthGate records fees paid by the customer as a customer
deposit, up to the amount of the applicable guarantee. Payments made to
customers under these guarantees are recorded as reductions of the related
customer deposit. The excess of the fee paid by the customer to HealthGate over
guaranteed advertising and sponsorship commissions, if any, is recognized as
revenue ratably over the term of the underlying agreement. For those
arrangements in which HealthGate guarantees advertising and sponsorship
commissions in excess of the fees paid by the customer, the excess is recorded
as expense upon signing the agreement. For arrangements in which HealthGate
sells through a reseller, HealthGate does not recognize any revenue until an
agreement has been finalized between HealthGate, its customer and its authorized
reseller and Web site has been delivered.
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. During the six
months ended June 30, 1998 and 1999, revenue from barter transactions was
$232,553 (unaudited) and $66,591, 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.
F-8
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, and
at June 30, 1999.
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. At June 30, 1999,
one customer accounted for 40% of gross accounts receivable, and a related party
accounted for 30% 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. For the six months ended June 30, 1998, one
customer accounted for 19% of total revenue and a related party accounted for
42% of total revenue (unaudited). For the six months ended June 30, 1999, one
customer accounted for 13% of total revenue and a related party accounted for
38% 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
if material to HealthGate's financial position or results of operations. Costs
eligible for capitalization have been insignificant to date and, accordingly, no
amounts have been capitalized.
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
F-9
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, $456,000, $246,000 (unaudited), and
$120,000 in the years ended December 31, 1996, 1997 and 1998 and six months
ended June 30, 1998 and 1999, respectively, of which approximately $115,000,
$617,000, $418,000, $233,000 (unaudited) and $67,000, respectively, related to
barter transactions.
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 7,530,556 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 for the six months ended June 30, 1998 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.
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 and sponsorship commissions 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
F-10
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
statements have 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
------------------
(UNAUDITED)
<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..................................... $ (.39)
Pro forma basic and diluted net loss per share............ $ (.18)
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..................................... $ (.41)
Pro forma basic and diluted net loss per share............ $ (.18)
</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
and the six months ended June 30, 1998 and 1999, HealthGate had no items
qualifying as other comprehensive income; accordingly, the adoption of SFAS No.
130 had no impact on HealthGate's financial statements.
F-11
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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 became 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, 2000. HealthGate does
not expect SFAS No. 133 to have a material effect on its financial position or
results of operations.
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>
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 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 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 at June 30, 1999.
F-12
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 341,076
shares of its common stock at an exercise price per share of $.00005. Further,
on December 31, 1998, HealthGate issued warrants to purchase an additional
114,816 shares at an exercise price of $.00005 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 178,470 shares, 184,221 shares and 190,170 shares at an exercise
price of $.00005 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 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.
F-13
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 A SERIES B SERIES C SERIES D
------------------- --------------------- --------------------- ---------------------
CARRYING CARRYING CARRYING CARRYING
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE
-------- -------- -------- ---------- -------- ---------- -------- ----------
<S> <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.......................
Accrual of cumulative dividends and
accretion to redemption value.... 35,132 81,818 52,200 128,264
----- -------- ----- ---------- ----- ---------- ----- ----------
Balance at June 30, 1999............. 1,000 $700,231 1,000 $2,136,968 1,000 $1,282,496 1,667 $3,067,150
===== ======== ===== ========== ===== ========== ===== ==========
<CAPTION>
SERIES E
--------------------- TOTAL
CARRYING CARRYING
SHARES VALUE VALUE
-------- ---------- -----------
<S> <C> <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....................... 720,757 -- --
Accrual of cumulative dividends and
accretion to redemption value.... 7,751,810 8,049,224
------- ---------- -----------
Balance at June 30, 1999............. 720,757 $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 1,209.15 for 1, 1,584.02 for 1, 549.89 for 1 and 797.24 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 4,672,029 common shares. The conversion rates are to be adjusted for
certain dilutive and anti-dilutive events. HealthGate has reserved approximately
1,209,200, 1,584,100, 549,900 and 1,329,000 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.
F-14
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
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, D and E 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 June 30,
1999, 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
Thereafter.................................................. 8,250,000
-----------
$13,850,500
===========
</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, Inc.,
an affiliate of General Electric Company (Note 5), 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 placement agent, paid other issue costs of
$111,426, and issued the placement agent a warrant to purchase up to 21,654
shares of HealthGate common stock at an exercise price of $2.89 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
F-15
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
(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
$2.89. The conversion price is to be adjusted for certain dilutive events.
When issued, each share of Series E preferred stock was convertible into
3.966 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 2,577,900 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.
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 29,745 and 9,915 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
F-16
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. COMMON STOCK AND OTHER STOCKHOLDERS' DEFICIT (CONTINUED)
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>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -----------
1996 1997 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss
As reported.............................. $(2,726,185) $(2,541,158) $(2,877,529) $(4,950,100)
Pro forma................................ (2,749,727) (2,580,033) (2,904,547) (5,050,131)
Basic and diluted net loss per share
attributable
to common stockholders
As reported.............................. $ (.66) $ (.68) $ (.76) $ (2.85)
Pro forma................................ (.66) (.69) (.77) (2.88)
</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 following periods:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- ----------
1996 1997 1998 1999
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Expected option term (years)...................... 4 4 4 4
Risk-free interest rate........................... 5.70% 6.16% 5.29% 5.29%
Expected volatility............................... 0.0% 0.0% 0.0% 0.0%
Dividend yield.................................... 0.0% 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 the six months ended June 30, 1999 and changes during the
periods then ended are presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
1996 1997 1998
-------------------------- -------------------------- --------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- -------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of
period............. 593,313 $ .23 921,500 $ .58 1,310,564 $ .45
Granted.............. 525,495 1.16 611,755 .47 826,911 1.46
Exercised............ (198) .70 -- -- (5,056) .70
Canceled............. (197,110) 1.08 (222,691) 1.02 (418,314) .31
--------- ------ --------- ----- --------- -----
Outstanding at end of
period............. 921,500 $ .58 1,310,564 $ .45 1,714,105 $ .97
========= ====== ========= ===== ========= =====
Options available for
grant at end of
period............. 488,611 496,147 87,550
========= ========= =========
Options granted at
fair value:
Weighted average
exercise price... $ 1.16 $ .47 $ 1.46
========= ========= =========
Weighted average
fair value....... $ .23 $ .10 $ .05
========= ========= =========
Options granted below
fair value:
Weighted average
exercise price...
Weighted average
fair value.......
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
---------------------------
1999
---------------------------
WEIGHTED-
AVERAGE
SHARES EXERCISE PRICE
---------- --------------
<S> <C> <C>
Outstanding at
beginning of
period............. 1,714,105 $ .97
Granted.............. 448,903 5.35
Exercised............ (19,909) .47
Canceled............. (81,303) .88
---------- -----
Outstanding at end of
period............. 2,061,796 $1.94
========== =====
Options available for
grant at end of
period............. 711,449
==========
Options granted at
fair value:
Weighted average
exercise price... $ 1.32
==========
Weighted average
fair value....... $ .25
==========
Options granted below
fair value:
Weighted average
exercise price... $ 5.62
Weighted average
fair value....... $ 5.87
</TABLE>
The following table summarizes information about stock options outstanding
at June 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------- ------------------------------
WEIGHTED-AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
under $.25................. 220,509 2.4 $.03 220,509 $ .03
$.25--$.50................. 503,682 2.7 .48 312,720 .47
$.71--$.88................. 385,019 3.8 .80 130,461 .78
$1.16...................... 194,334 3.2 1.16 189,575 1.16
$1.88...................... 535,410 3.6 1.88 204,844 1.88
$9.49--$11.35.............. 222,842 4.6 9.88 19,830 11.35
--------- ---------
2,061,796 1,077,939
========= =========
</TABLE>
DEFERRED COMPENSATION
During the six months ended June 30, 1999, HealthGate granted stock options
to purchase 295,908 shares of its common stock with exercise prices ranging from
$.89 to $11.35 per share. HealthGate recorded compensation expense and deferred
compensation relating to these options totaling
F-18
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. COMMON STOCK AND OTHER STOCKHOLDERS' DEFICIT (CONTINUED)
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.
ISSUANCE OF WARRANT TO RELATED PARTY
On June 11, 1999, HealthGate entered into a development and distribution
agreement with GE Medical Systems ("GEMS"), an operating division of General
Electric Company and an affiliate of a Series E preferred stock investor
(Note 4). HealthGate believes that this agreement will benefit it through the
association of the GE Medical Systems name with HealthGate in general, and its
CHOICE product in particular, and through the efforts of GE Medical Systems to
distribute both its standard CHOICE product and the GE Medical Systems enhanced
versions of its CHOICE product. Therefore, in connection with this agreement,
HealthGate issued to General Electric Company a warrant to purchase up to
1,189,800 shares of HealthGate's common stock at an exercise price per share of
$9.49 (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, based
on the following assumptions: 100% volatility, a term of 5 years, and an
interest rate of 5.6%. This value 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>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------- --------------
1997 1998 1999
---------- ---------- --------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... $2,303,707 $3,506,205 $ 5,123,454
Deferred compensation................................. -- -- 132,756
Marketing and distribution rights..................... -- -- 151,112
Other................................................. 247,946 259,980 403,848
---------- ---------- -----------
Deferred tax assets..................................... 2,551,653 3,766,185 5,811,170
---------- ---------- -----------
Deferred tax asset valuation allowance.................. (2,551,653) (3,766,185) (5,811,170)
---------- ---------- -----------
$ -- $ -- $ --
========== ========== ===========
</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.
F-19
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
Income taxes computed using the federal statutory income tax rate differs
from HealthGate's effective tax primarily due to the following:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
----------------------------------- -----------
1996 1997 1998 1999
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Income tax benefit at U.S. federal statutory
tax rate.................................... $(954,165) $(889,405) $(1,007,135) $(1,732,535)
State taxes, net of federal tax impact........ (166,591) (152,211) (170,165) (305,187)
Other......................................... (5,688) (32,083) (37,232) (7,262)
Change in valuation allowance................. 1,126,444 1,073,699 1,214,532 2,044,984
--------- --------- ----------- -----------
Provision for income taxes.................. $ -- $ -- $ -- $ --
========= ========= =========== ===========
</TABLE>
At June 30, 1999, HealthGate has net operating loss carryforwards and
research and development tax credit carryforwards of approximately $12,420,000
and $92,000, respectively, available 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 2019.
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 or during the
six months ended June 30, 1998 or 1999.
8. OTHER RELATED PARTY TRANSACTIONS
Through December 1998, a stockholder of HealthGate was a partial owner of
the building in which HealthGate leased 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.
F-20
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. OTHER RELATED PARTY TRANSACTIONS (CONTINUED)
In May 1998, HealthGate purchased certain fixed assets from an employee in
connection with total consideration of $70,000.
In addition, during the six months ended June 30, 1999, HealthGate paid a
referral fee of $68,000 to a related party in connection with the addition of
certain content sources.
9. COMMITMENTS AND CONTINGENCIES
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, respectively.
The future minimum lease commitments under all noncancelable leases at June 30,
1999 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- --------
<S> <C> <C>
1999.................................................... $331,441 $175,145
2000.................................................... 302,375 306,294
2001.................................................... 29,699 45,213
2002.................................................... 23,166 --
2003.................................................... 8,402 --
-------- --------
Total future payments................................... $695,083 526,652
========
Less--amount representing interest...................... (78,838)
--------
Present value of minimum lease payments................. $447,814
========
</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 June 30, 1999 totaled approximately $1,665,000.
In June 1999, HealthGate entered into a content development and distribution
agreement requiring HealthGate to make annual payments of $500,000 for two
years.
On July 27, 1999, HealthGate received a letter alleging that HealthGate's
Web site induces users to infringe a patent held by a company (the "Holder"). In
lieu of pursuing a patent infringement claim against HealthGate, the Holder
offered to provide HealthGate with a license for unlimited use of the patent for
a one-time payment of between $50,000 and $150,000. HealthGate is currently
investigating this matter. At this time, HealthGate is unable to predict its
outcome.
F-21
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------- ----------
1996 1997 1998 1999
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
United States................... $408,244 $1,259,886 $1,665,718 $ 613,408
Europe.......................... -- 24,750 768,406 438,689
-------- ---------- ---------- ----------
Total........................... $408,244 $1,284,636 $2,434,124 $1,052,097
======== ========== ========== ==========
</TABLE>
Substantially all of HealthGate's long-lived assets were located in the
United States for all periods presented.
11. SUBSEQUENT EVENTS
In November 1999, HealthGate entered a marketing and reseller agreement with
Columbia Information Systems. HealthGate believes that this agreement will
benefit it through the general association of the Columbia Information Systems
and Columbia/HCA names with HealthGate, through the right to make a first offer
to provide services for adding additional content to the Columbia Information
Systems health portal site and any Web sites owned or operated by Columbia/HCA
or their controlled affiliates, and, among other things, through the efforts of
Columbia Information Systems to distribute HealthGate products. In connection
with this agreement, HealthGate issued a warrant to CIS Holdings, Inc., a
related party, for the purchase of up to 1,941,035 shares of HealthGate's common
stock. CIS Holdings, Inc. is an indirect, wholly-owned subsidiary Columbia/HCA
Healthcare Corporation and an affiliate of Columbia Information Systems. The
warrant has a term of three years, an exercise price of $9.49 per share (subject
to adjustment if HealthGate's initial public offering price is not $9.49) and
will be exercisable on the earlier to occur of the consummation of HealthGate's
initial public offering, a qualifying earlier private placement of securities or
sale of HealthGate, or March 31, 2000. If an initial public offering is not
completed by March 31, 2000, the exercise price per share will be the common
equivalent price per share received by HealthGate in its next qualifying private
placement, as defined in the warrant agreement. If neither an initial public
offering nor a qualifying private placement occur before March 31, 2000, the
exercise price per share will be adjusted to $3.46 on March 31, 2000. If a sale
of HealthGate occurs prior to the consummation of its initial public offering or
a qualifying private placement, the exercise price will be adjusted to $3.46 per
share, effective with such sale. The value of this warrant will be recorded as
marketing and distribution rights, and will be amortized as a sales and
marketing expense on a straight-line basis over the three year contractual term
of the related marketing and reseller agreement.
In October 1999, HealthGate entered into a three-year strategic alliance
agreement with Snap! LLC and Xoom.com, Inc. Under this agreement, Snap will
provide various services to promote HealthGate's name, its www.healthgate.com
Web site, its co-branded CHOICE Web sites and the products and services
HealthGate offers. In exchange for the services provided to HealthGate by Snap
during the first year of the agreement, HealthGate has agreed to pay Snap a
minimum fee of $10,000,000 in cash and 500,000 shares of HealthGate common
stock, plus a $250,000 production and
F-22
<PAGE>
HEALTHGATE DATA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SUBSEQUENT EVENTS (CONTINUED)
content integration fee. HealthGate has agreed to pay Snap minimum fees of
$15,000,000 in cash in each of the second and third years of the agreement for
the services provided to HealthGate by Snap in those years. HealthGate has also
agreed to pay Snap up to an additional $5,000,000 in the first year, $10,000,000
in the second year and $15,000,000 in the third year of the agreement if Snap
delivers more than certain minimum click-throughs to the co-branded
Snap/HealthGate Web site in the respective years. Either Snap or HealthGate may
terminate this agreement if the other party commits a material breach. If Snap
terminates the agreement based on certain material breaches caused by
HealthGate, HealthGate has agreed to continue to pay Snap 55% of all fees
payable by HealthGate under the agreement for the remaining term of the
agreement. If Snap terminates the agreement because HealthGate's registration
statement filed with the Securities and Exchange Commission in connection with
its contemplated initial public offering is not effective on or before February
28, 2000 or because HealthGate fails to issue to Snap the shares of common stock
as provided in the agreement, HealthGate has agreed to enter into an agreement
with Snap to purchase $450,000 of advertising impressions from Snap. If Snap and
Xoom have not combined with certain assets of NBC to form NBC Internet on or
before March 31, 2000, HealthGate may terminate the agreement and Snap must
return to HealthGate all payments, including the common stock HealthGate has
issued to them as partial payment for the first year minimum fee, made prior to
the termination. National Broadcasting Company, Inc., a subsidiary of General
Electric, owns a majority interest in Snap.
F-23
<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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,750,000 Shares
[LOGO]
Common Stock
------------------------
PROSPECTUS
------------------
SG COWEN
VOLPE BROWN WHELAN & COMPANY
WARBURG DILLON READ LLC
, 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............................. 450,000
Legal fees and expenses..................................... 900,000
Auditors' accounting fees and expenses...................... 600,000
Transfer Agent and Registrar fees........................... 10,000
Miscellaneous expenses...................................... 304,852
----------
Total................................................... $2,387,500
</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 reasonable 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 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.
II-3
<PAGE>
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 an initial 341,076 shares
of our common stock to Petra Capital, LLC as additional consideration for
Petra's $2,000,000 loan to us. Pursuant to the terms of this warrant, on
December 31, 1998, an additional 114,816 shares of our common stock became
issuable thereunder.
On July 14, 1998, we issued and sold 198 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 4,858 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 79 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 21,654 shares of our common stock for
$2.89 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 19,830 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 1,189,800 shares of our
common stock to General Electric Company in connection with a development and
distribution agreement we entered into with GE Medical Systems.
On October 27, 1999, we issued and sold 96,504 shares of our common stock
for an aggregate consideration of $81,565.50 in cash to a director who exercised
outstanding stock options.
On November 2, 1999 we issued a warrant to purchase 1,941,035 shares of our
common stock to CIS Holdings, Inc. in connection with a marketing and reseller
agreement we entered into with Columbia Information Systems, an affiliate of CIS
Holdings, Inc.
On November 3, 1999, we issued and sold 500,000 shares of our common stock
to Snap! LLC in exchange for services to be performed by Snap under a strategic
alliance agreement.
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, which supersedes and replaces Exhibit Number 3.2
filed with the Registrant's Amendment No. 2 to Registration
Statement on Form S-1 filed on June 14, 1999.
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.
4.11 Registration Rights Agreement dated November 2, 1999 by and
between the Registrant and CIS Holdings, Inc.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
4.12 Registration Rights Agreement dated November 3, 1999 by and
between the Registrant and Snap! LLC.
5.1 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.
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.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
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).
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.
10.32 Master Lease of Terms and Conditions for Lease dated as of
August 3, 1999 between TLP Leasing Programs, Inc. and
Registrant.
10.33 activePress Journal Hosting and Delivery Agreement effective
as of January 1, 2000 by and between Registrant, Blackwell
Science Limited and Munksgaard International Publishers
Limited (excluding Schedules).
10.34 Continuing Education Services Agreement effective
September 15, 1999 by and between Registrant and
HealthStream, Inc. (excluding Exhibit).
10.35 Marketing Services Agreement effective September 29, 1999 by
and between Registrant and HealthStream, Inc.
10.36 Co-branded CHOICE Web Site Agreement dated as of
November 2, 1999 by and between the Registrant and Columbia
Information Systems, Inc. (excluding Schedules).
10.37 Marketing and Reseller Agreement dated as of November 2,
1999 by and between the Registrant and Columbia Information
Systems, Inc.
10.38 Warrant to purchase Common Stock of the Registrant dated
November 2, 1999 issued to CIS Holdings, Inc.
10.39 Strategic Alliance Agreement dated as of October 29, 1999 by
and between Snap! LLC, Xoom.com, Inc. and the Registrant.
10.40 Common Stock Purchase Agreement dated November 3, 1999 by
and between the Registrant and Snap! LLC (excluding
Exhibits).
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)
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
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.
**** Previously filed with the Registrant's Amendment No. 3 to Registration
Statement on Form S-1 filed on July 16, 1999.
***** Previously filed with the Registrant's Amendment No. 4 to Registration
Statement on Form S-1 filed on August 4, 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
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 9th day of November, 1999.
<TABLE>
<S> <C> <C>
HEALTHGATE DATA CORP.
By: /s/ WILLIAM S. REECE
--------------------------------------------
William S. Reece
CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER
</TABLE>
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chairman of the Board of
/s/ WILLIAM S. REECE Directors, Chief Executive
---------------------------------------- Officer and President November 9, 1999
William S. Reece (Principal executive
officer)
Chief Financial Officer and
/s/ MARY B. MILLER Treasurer (Principal
---------------------------------------- financial and accounting November 9, 1999
Mary B. Miller officer)
* /s/ TINA M. H. BLAIR Director
---------------------------------------- November 9, 1999
Tina M. H. Blair, M.D.
* /s/ JONATHAN J. G. CONIBEAR Director
---------------------------------------- November 9, 1999
Jonathan J. G. Conibear
* /s/ EDSON D. DE CASTRO Director
---------------------------------------- November 9, 1999
Edson D. de Castro
* /s/ DAVID FRIEND Director
---------------------------------------- November 9, 1999
David Friend
* /s/ CHRIS H. HORGEN Director
---------------------------------------- November 9, 1999
Chris H. Horgen
</TABLE>
<TABLE>
<S> <C> <C>
/s/ WILLIAM S. REECE
----------------------------------------
William S. Reece
*By ATTORNEY-IN-FACT
</TABLE>
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, which supersedes and replaces Exhibit Number 3.2
filed with the Registrant's Amendment No. 2 to Registration
Statement on Form S-1 filed on June 14, 1999.
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.
4.11 Registration Rights Agreement dated November 2, 1999 by and
between the Registrant and CIS Holdings, Inc.
4.12 Registration Rights Agreement dated November 3, 1999 by and
between the Registrant and Snap! LLC.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
5.1 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.
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
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).
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.
10.32 Master Lease of Terms and Conditions for Lease dated as of
August 3, 1999 between TLP Leasing Programs, Inc. and
Registrant.
10.33 activePress Journal Hosting and Delivery Agreement effective
as of January 1, 2000 by and between Registrant, Blackwell
Science Limited and Munksgaard International Publishers
Limited (excluding Schedules).
10.34 Continuing Education Services Agreement effective
September 15, 1999 by and between Registrant and
HealthStream, Inc. (excluding Exhibit).
10.35 Marketing Services Agreement effective September 29, 1999 by
and between Registrant and HealthStream, Inc.
10.36 Co-branded CHOICE Web Site Agreement dated as of
November 2, 1999 by and between the Registrant and Columbia
Information Systems, Inc. (excluding Schedules).
10.37 Marketing and Reseller Agreement dated as of November 2,
1999 by and between the Registrant and Columbia Information
Systems, Inc.
10.38 Warrant to purchase Common Stock of the Registrant dated
November 2, 1999 issued to CIS Holdings, Inc.
10.39 Strategic Alliance Agreement dated as of October 29, 1999 by
and between Snap! LLC, Xoom.com, Inc. and the Registrant.
10.40 Common Stock Purchase Agreement dated November 3, 1999 by
and between the Registrant and Snap! LLC (excluding
Exhibits).
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.
<PAGE>
** 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.
**** Previously filed with the Registrant's Amendment No. 3 to Registration
Statement on Form S-1 filed on July 16, 1999.
***** Previously filed with the Registrant's Amendment No. 4 to Registration
Statement on Form S-1 filed on August 4, 1999.
<PAGE>
Exhibit 3.2
CERTIFICATE OF AMENDMENT OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
HEALTHGATE DATA CORP.
HealthGate Data Corp., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation has duly adopted
a resolution, pursuant to Sections 141 and 242 of the General Corporation Law of
the State of Delaware, setting forth an amendment to the Corporation's Amended
and Restated Certificate of Incorporation and declaring said amendment to be
advisable.
SECOND: That the stockholders of the Corporation have duly approved
said amendment by the required vote of such stockholders, adopted by the written
consent of a majority in interest of each class of stockholders in accordance
with Sections 228 and 242 of the General Corporation Law of the State of
Delaware. Prompt written notice of the adoption of the amendment herein
certified has been given to those stockholders who have not consented in writing
thereto, as provided in Section 228 of the General Corporation Law of the State
of Delaware.
THIRD: That the Amended and Restated Certificate of Incorporation of
the Corporation, as previously amended, is hereby further amended as follows:
(A) by deleting the first paragraph of Article Fourth
(said paragraph begins "The total number..." and ends
".... to $208,346.29"), and inserting therefor the
following two paragraphs:
"FOURTH. The total number of shares of capital stock of all
classes which the Corporation shall have authority to issue is 100,834,629
shares, consisting of 100,000,000 shares of Common Stock, $.01 par value per
share, and 834,629 shares of Preferred Stock, $.01 par value per share,
amounting in the aggregate to $1,008,346.29.
On the close of business on the day this amendment shall be
accepted for filing by the office of the Secretary of State of the State of
Delaware, each share of the Corporation's Common Stock, par value $0.01 per
share, issued and outstanding immediately prior thereto (the "Old Stock") shall,
IPSO FACTO, and without any action on the part of the holders of shares of Old
Stock, be changed, converted and reclassified into 3.966 shares of Common Stock
(the "New Stock"); provided, however, if any fractional interest in a share of
New Stock would, except for the provisions of this paragraph, be deliverable
upon any such change, conversion and reclassification of Old Stock, the
Corporation, in lieu of delivering the fractional share therefor, shall pay an
amount to the holder thereof equal to the Market Price of such fractional
interest as of the date of
<PAGE>
conversion. In accordance with the terms of the Amended and Restated Certificate
of Incorporation, as amended, upon the change, conversion and reclassification
of the Old Stock to the New Stock, as provided above, the Conversion Price
applicable to the Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred and Series E Preferred, and all other prices and share
numbers required to be adjusted in the event of a stock split, shall be adjusted
to reflect the stock split effected by this amendment."
(B) by adding definitions of Market Price and Public
Offering to the end of Part A to Article Fourth as
follows:
"MARKET PRICE," as used in this Part A, means the average of
the closing prices of sales of the Corporation's Common Stock on all securities
exchanges on which the Common Stock may at the time be listed, or, if there have
been no sales on any such exchange on any day, the average of the highest bid
and lowest asked prices on all such exchanges at the end of such day, or, if on
any day the Common Stock is not so listed, the average of the representative bid
and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or,
if on any day the Common Stock is not quoted in the NASDAQ System, the average
of the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over a period of 21 days consisting of the day as of which "Market Price" is
being determined and the 20 consecutive business days prior to such day. If at
any time the Common Stock is not listed on any securities exchange or quoted in
the NASDAQ System or the over-the-counter market, the "Market Price" will be the
fair value thereof determined in good faith by the Board of Directors of the
Corporation. Notwithstanding the foregoing, in the event Market Price" is being
determined as a result of a stock split or dividend effected in connection with
a firm commitment underwritten initial Public Offering, "Market Price" shall
mean the price negotiated and agreed to by the Corporation and the underwriters
of such Public Offering as the initial public offering price of the
Corporation's Common Stock, to the extent that such price has been determined
prior to or on the date on which this Amendment is accepted for filing by the
office of the Secretary of State of the State of Delaware."
"PUBLIC OFFERING," as used in this Part A, means any offering
by the Corporation of its Common Stock to the public pursuant to an effective
registration statement under the Securities Act of 1933, as then in effect, or
any comparable statement under any similar federal statute then in force;
provided that a "Public Offering" will not include an offering made in
connection with a business acquisition or an employee benefit plan."
(C) by adding a second paragraph to the definition of
"Market Price" as it appears in paragraph 10 of Parts
C, D, E, F and G to Article Fourth as follows:
"Notwithstanding the foregoing, in the event of a mandatory
conversion of shares of Preferred Stock into Common Stock in connection with a
firm commitment underwritten initial
2
<PAGE>
Public Offering, "Market Price" shall mean the price negotiated and agreed to by
the Corporation and the underwriters of such Public Offering as the initial
public offering price of the Corporation's Common Stock."
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
3
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its President
and attested by its Assistant Secretary this __ day of ________, 1999.
HEALTHGATE DATA CORP.
[CORPORATE SEAL]
By:
---------------------------------
William S. Reece, President
ATTEST:
By:
--------------------------
Stephen M. Kane
Assistant Secretary
4
<PAGE>
EXHIBIT 4.11
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is entered into as of November 2,
1999 by and among HealthGate Data Corp, a Delaware corporation (the "Company")
and CIS Holdings, Inc., a Nevada corporation (the "Holder").
WHEREAS, the Company and the Holder wish to provide certain
arrangements with respect to the registration of shares of capital stock of the
Company under the Securities Act;
NOW, THEREFORE, in consideration of the mutual promises and obligations
contained herein, the parties agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall
have the following respective meanings:
"AFFILIATE" shall be defined herein as such term is defined in Rule
13e-3 of the Exchange Act.
"COMMISSION" means the Securities and Exchange Commission, or any other
Federal agency at the time administering the Securities Act.
"COMMON STOCK" means the Common Stock, $.01 par value of the Company.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"REGISTRATION EXPENSES" means the expenses described in Section 5.
"REGISTRABLE SHARES" means (a) the shares of Common Stock issued or
issuable to the Holder upon exercise of a warrant to purchase Common Stock of
even date herewith, and (b) any other shares of Common Stock issued in respect
of such shares (because of stock splits, stock dividends, reclassifications,
recapitalization, or similar events).
"REGISTRATION STATEMENT" means a registration statement filed by the
Company with the Commission for a public offering and sale of securities of the
Company (other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
-1-
<PAGE>
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission issued
under such Act, as they each may, from time to time, be in effect.
"SHARES" means shares of the Common Stock issuable upon exercise of the
Warrant.
2. REQUIRED REGISTRATIONS.
2.1. DEMAND REGISTRATIONS. At any time following one year after the
closing of the Company's initial public offering of Common Stock under the
Securities Act, the Holder may request, in writing, that the Company effect the
registration of all or any portion of the Registrable Shares, provided that such
Registrable Shares have an anticipated net aggregate offering price in excess of
two million dollars ($2,000,000). The Holder shall not have the right to
distribute the Registrable Shares for which a demand right is requested in a
firm commitment underwritten offering under this Section 2.1. The Company shall,
as expeditiously as possible, use reasonable efforts to effect the registration
of all Registrable Shares that the Company has been requested to so register.
2.2. LIMITATIONS. The Company shall not be required to effect more
than two registrations pursuant to Section 2.1 above.
2.3. DELAY FOR GOOD CAUSE. If at the time of any request to register
Registrable Shares pursuant to this Section 2, the Company is engaged or has
firm plans to engage within 90 days of the time of the request in a registered
public offering as to which the Holder may include Registrable Shares pursuant
to Section 3 or 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 may at its option direct that such request be delayed for a period not
in excess of 90 days from the effective date of such offering or 120 days from
the date of commencement of such other material activity, as the case may be,
such right to delay a request to be exercised by the Company not more than once
in any twelve month period.
2.4. PRIOR REGISTRATIONS. The Company shall not be required to file a
Registration Statement in response to a demand under this Section 2 within 90
days after the effectiveness of any other registration statement it has filed
under the Securities Act registering shares of equity securities (other than a
registration statement on Form S-8, S-4 or successor to such forms).
3. INCIDENTAL REGISTRATION.
3.1. COMPANY REGISTRATION. Whenever the Company proposes to file a
Registration Statement (other than in connection with the Company's initial
public offering), it shall give written notice to the Holder of its right to
participate in the offering at least 20 days prior to
-2-
<PAGE>
the anticipated date of effectiveness of the Registration Statement. Upon the
written request of the Holder given within 7 days after the Company provides
such notice, the Company shall use reasonable efforts to cause all Registrable
Shares which the Company has been requested to register to be registered under
the Securities Act to the extent necessary to permit their sale or other
disposition in accordance with the intended methods of distribution. The Company
shall have the right to postpone or withdraw any registration effected pursuant
to this Section 3.1 without obligation to the Holder.
3.2. LIMITATIONS. In connection with any offering under this Section 3
involving an underwriting, the Company shall not be required to include any
Registrable Shares in such underwriting unless the Holder accepts the terms of
the underwriting as agreed upon between the Company and the underwriters
selected by it. The right of the Holder to include Registrable Shares in a
Registration Statement under this Section 3 shall be subject to the limitations
set forth in the Registration Agreement dated April 7, 1999 between the Company
and holders of Series E Preferred Stock and the Registration Agreement dated
June 17, 1999 between the Company and General Electric Company as follows. The
Holder shall be entitled to participate in a demand registration under such
agreements to the same extent as the parties to the registration agreements
described in clauses (i) through (iv) of Section 1(d) of each such agreement.
The Holder shall be entitled to participate in piggyback registrations under
such agreements to the same extent as the holders covered by clause (iii) of
Section 2(d) of each such agreement.
4. REGISTRATION PROCEDURES. If and whenever the Company is required by the
provisions of this Agreement to use reasonable efforts to effect the
registration of any of the Registrable Shares under the Securities Act, the
Company shall:
4.1. FILING. File with the Commission a Registration Statement with
respect to such Registrable Shares and use reasonable efforts to cause that
Registration Statement to become and remain effective;
4.2. AMENDMENTS AND SUPPLEMENTS. As expeditiously as possible
prepare and file with the Commission any amendments and supplements to the
Registration Statement and the prospectus included in the Registration
Statement as may be necessary to keep any Registration Statement filed
pursuant to Section 2 effective for a period of not less than 90 days from
the effective date;
4.3. COPIES OF PROSPECTUS. As expeditiously as possible furnish to the
Holder such reasonable numbers of copies of the prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as the Holder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Shares;
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4.4. BLUE SKY QUALIFICATION. As expeditiously as possible use
reasonable efforts to register or qualify the Registrable Shares covered by the
Registration Statement under the securities or Blue Sky laws of such states as
the Holder shall reasonably request, and do any and all other acts and things
that may be necessary to enable Holder to consummate the public sale or other
disposition in such jurisdictions of the Registrable Shares, as the case may be;
PROVIDED, HOWEVER, that the Company shall not thereby be required to qualify as
a foreign corporation or execute a general consent to service of process in any
jurisdiction;
4.5. UNDERWRITTEN OFFERING. In the event that Registrable Shares are
sold pursuant to a Registration Statement in an underwritten offering, enter
into an underwriting agreement containing customary representations and
warranties with respect to the business and operations of an issuer of the
securities being registered and customary covenants and agreements to be
performed by such issuer, including without limitation customary provisions with
respect to indemnification by the Company of the underwriters of such offering.
4.6. EARNINGS STATEMENT. Use reasonable efforts to comply with all
applicable rules and regulations of the Commission and make available to it
security holders, as soon as reasonably practicable, an earnings statement of
the Company (in form complying with the provisions of Rule 158 promulgated under
the Securities Act) covering the period of at least 12 months beginning with the
first month following the effective date of the Registration Statement;
4.7. LISTING. Either list the Registrable Shares on a national
securities exchange or have them designated as national market securities by
the National Association of Securities Dealers, Inc. ("NASD").
4.8 INSPECTION. Make available for inspection by any seller of such
Registrable Shares, 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 Registration under Sections 2 and 3 hereof, the holders
of Registrable Shares 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.
If the Company has delivered preliminary or final prospectuses to the Holder and
after having done so the prospectus is amended to comply with the requirements
of the Securities Act, the Company shall promptly notify the Holder and, if
requested, the Holder shall immediately
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cease making offers of Registrable Shares and shall return all prospectuses to
the Company. The Company shall promptly provide the Holder with revised
prospectuses and, following receipt of the revised prospectuses, the Holder
shall be free to resume making offers of the Registrable Shares.
The Holder shall furnish to the Company such information about the Holder and
the distribution proposed by the Holder as the Company may request in writing
and as shall be required in connection with any registration, qualification or
compliance referred to in this Section 4.
5. ALLOCATION OF EXPENSES. The Company shall pay the Registration Expenses for
the two registrations requested by the Holder pursuant to Section 2.1 and of all
registrations pursuant to Section 3. If a registration requested by the Holder
pursuant to Section 2.1 2.2 is withdrawn at the request of the Holder requesting
it (other than as a result of information concerning the business or financial
condition of the Company that is made known to the Holder after the date on
which such registration was requested) and if the Holder elects not to have such
registration counted as a registration requested under that Section, the Holder
shall pay the Registration Expenses of such registration. For purposes of this
Section, the term "Registration Expenses" shall mean all expenses incurred by
the Company in complying with this Sections 2 and 3, including, without
limitation, all registration and filing fees, exchange or national market
listing fees, all fees and expenses of complying with securities or blue sky
laws, all fees and expenses associated with filings with the NASD, all printing
expenses, fees and disbursements of counsel for the Company and its independent
public accountants, fees and disbursements of one counsel for the selling
Stockholders retained by Stockholders holding a majority of the Registrable
Shares included in a registration and the expense of any special audits incident
to or required by any such registration, but excluding underwriting discounts
and selling commissions and fees of more than one counsel for the selling
Stockholders. Such underwriting discounts and selling commissions shall be borne
pro rata by the selling Stockholders in accordance with the number of their
Registrable Shares taken in the aggregate included in such registration.
6. INDEMNIFICATION.
6.1. COMPANY INDEMNIFICATION. In the event of any registration of any
of the Registrable Shares under the Securities Act pursuant to this Agreement,
the Company shall indemnify and hold harmless the seller of such Registrable
Shares, its partners, directors, officers and employees and any fund manager or
fiduciary (which persons shall be deemed to be included in the term seller in
this Section 6.1), each underwriter of such Registrable Shares and each other
person, if any, who controls such seller or underwriter within the meaning of
the Securities Act or the Exchange Act against any losses, claims, damages or
liabilities, joint or several, to which such seller, underwriter or controlling
person may become subject under the Securities Act, the Exchange Act, state
securities laws or otherwise, insofar as such losses,
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claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any Registration Statement under which such Registrable Shares
were registered under the Securities Act, any preliminary prospectus or final
prospectus contained in the Registration Statement, or any amendment or
supplement to such Registration Statement, or arise out of or are based upon the
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and the
Company shall reimburse such seller, underwriter and each such controlling
person for any legal or any other expenses reasonably incurred by such seller,
underwriter or controlling person in connection with investigating or defending
any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that the
Company shall not be liable to any such seller, underwriter or controlling in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or omission made in such
Registration Statement, preliminary prospectus or prospectus, or any such
amendment or supplement, in reliance upon and in conformity with information
furnished to the Company, in writing, by or on behalf of such seller,
underwriter or controlling person specifically for use in the preparation
thereof.
6.2. SELLER INDEMNIFICATION. In the event of any registration of any of
the Registrable Shares under the Securities Act pursuant to this Agreement, each
seller of Registrable Shares severally and not jointly, shall indemnify and hold
harmless the Company, each of its directors and officers and each underwriter
(if any) and each person, if any, who controls the Company or any such
underwriter within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages or liabilities, joint or several, to which
the Company, such directors and officers, underwriter or controlling person may
become subject under the Securities Act, Exchange Act, state securities laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if the statement or omission was made in reliance upon
and in conformity with information furnished in writing to the Company by or on
behalf of such seller, specifically for use in connection with the preparation
of such Registration Statement, prospectus, amendment or supplement; PROVIDED,
HOWEVER, that the obligations of such Stockholder hereunder shall be limited to
an amount equal to the proceeds to such Stockholder of Registrable Shares sold
as contemplated herein.
6.3. NOTICE OF CLAIMS, ETC. Each party entitled to indemnification
under this Section 6 (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom; PROVIDED, that counsel for
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the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall not
be unreasonably withheld); and, PROVIDED, FURTHER, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 6. The Indemnified
Party may participate in such defense at such party's expense; PROVIDED,
HOWEVER, that the Indemnifying Party shall pay such expense if representation of
such Indemnified Party by the counsel retained by the Indemnifying Party would
be inappropriate due to actual or potential differing interests between the
Indemnified Party and any other party represented by such counsel in such
proceeding. No Indemnifying Party, in the defense of any such claim or
litigation shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement that does not include as a
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a general release from all liability in respect of such claim or litigation,
and no Indemnified Party shall consent to entry of any judgment or settle such
claim or litigation without the prior written consent of the Indemnifying Party.
6.4. CONTRIBUTION. If for any reason the foregoing indemnification is
not available, or is insufficient to hold harmless an Indemnified Party, other
than by reason of the exceptions provided herein, then the Indemnifying Party
shall contribute to the amount paid or payable by the Indemnified Party as a
result of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative fault of the holder of Registrable Shares
and the Company as well as any other equitable considerations including the
parties' relative knowledge and access to information concerning the matter with
respect to which any claim is asserted and the opportunity to correct and
prevent any such statement or omission leading to such loss, claim, damage or
liability (or actions in respect thereof), but not including the relative
benefits received by the holders of Registrable Shares on the one hand and the
Company on the other; PROVIDED, HOWEVER, that in any such case (i) no holder of
Registrable Shares will be required to contribute except to the extent and under
such circumstances as such holder would be required to provide indemnification
hereunder and then only in an amount not in excess of the net proceeds to it of
all Registrable Shares sold in the registration, and (ii) no person guilty of
fraudulent misrepresentation , within the meaning of Section 11(f) of the
Securities Act, shall be entitled to contribution from any person who is not so
guilty.
7. MISCELLANEOUS.
7.1. "STAND-OFF" AGREEMENT. In connection with any underwritten public
offering, if requested by the Company and the managing underwriter, the Holder
hereby agrees not to effect any public sale or distribution of any Registrable
Shares, nor engage in any transaction that would result in a public sale or
distribution of securities of the same class as the Registrable Shares for a
specified period of time not to exceed 180 days following the effective date of
a Registration Statement; PROVIDED, THAT, this provision shall apply to the
Holder in connection with any Registration Statement other than the Company's
initial public offering only if Registrable Shares are included in such
offering. The Holder agrees to execute any lock-up agreement reasonably
requested by the managing underwriter to confirm this
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agreement. The Company may impose stop-transfer instructions with respect to the
Registrable Shares or other securities subject to the foregoing restriction
until the end of the stand-off period.
7.2. RULE 144 REQUIREMENTS. With a view to making available to the
Holder the benefits of Rule 144 promulgated under the Securities Act and any
other rule or regulation of the Commission that may at any time permit such
stockholder to sell securities of the Company to the public without
registration, the Company agrees to use reasonable efforts to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act (at any time
after it has become subject to the reporting requirements of the Exchange Act);
(b) file with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) furnish to the Holder upon request a written statement by
the Company as to its compliance with the reporting requirements of said Rule
144 (at any time after 90 days after the closing of the first sale of securities
by the Company pursuant to a Registration Statement), and of the Securities Act
and the Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company as such holder may
reasonably request to avail itself of any similar rule or regulation of the
Commission allowing it to sell any such securities without registration.
7.3. TRANSFER OF RIGHTS. This Agreement, and the rights and obligations
of the Holder hereunder, may not be assigned by the Holder without the prior
written consent of the Company; PROVIDED, HOWEVER, the Holder may assign its
rights under this Agreement in the event of a transfer of all, but not less than
all, of the Registrable Shares to an Affiliate.
7.4. GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the Commonwealth of Massachusetts without giving effect to the
conflict of laws principles.
7.5. ENTIRE AGREEMENT; AMENDMENT AND WAIVER. This Agreement constitutes
the full and entire understanding and agreement between the parties with regard
to the subject matter hereof. Neither this Agreement nor any term may be
amended, waived, discharged or terminated, except by a written instrument signed
by the Company and the Holder.
7.6. NOTICES. All notices and other communications required or
permitted under this Agreement shall be in writing and shall be deemed
effectively given upon personal delivery or five days after deposit with the
United States Post Office, by registered or certified mail, postage prepaid,
addressed to the Company at its principal office and to a Holder at its address
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on the records maintained by the Company or at such other address as any party
may designate by ten days' prior written notice to the other party.
7.7. TITLES. The titles of the Sections of this Agreement are for
convenience of reference only and are not to be considered in construing this
Agreement.
7.8. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement under seal
as of the date first above written.
HEALTHGATE DATA CORP.
By: /s/ William S. Reece
------------------------
Name: William S. Reece
Title: Chief Executive Officer
CIS HOLDINGS, INC.
By: /s/ Noel Williams
------------------------
Name: Noel Williams
Title: President
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EXHIBIT 4.12
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is entered into as of November 3,
1999 by and among HealthGate Data Corp, a Delaware corporation (the "Company")
and Snap! LLC, a Delaware limited liability company (the "Holder").
WHEREAS, the Company and the Holder have entered into a Stock Purchase
Agreement of even date herewith (the "Purchase Agreement"); and
WHEREAS, the Company and the Holder wish to provide certain
arrangements with respect to the registration of shares of capital stock of the
Company under the Securities Act (as defined below);
NOW, THEREFORE, in consideration of the mutual promises and obligations
contained herein, the parties agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall
have the following respective meanings:
"COMMISSION" means the Securities and Exchange Commission, or any other
Federal agency at the time administering the Securities Act.
"COMMON STOCK" means the Common Stock, $.01 par value, of the Company.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"REGISTRATION EXPENSES" means the expenses described in Section 4.
"REGISTRABLE SHARES" means (a) the shares of Common Stock issued or
issuable to the Holder pursuant to the Purchase Agreement, and (b) any other
shares of Common Stock issued in respect of such shares (because of stock
splits, stock dividends, reclassifications, recapitalization, or similar
events).
"REGISTRATION STATEMENT" means a registration statement filed by the
Company with the Commission for a public offering and sale of securities of the
Company, whether by the Company or any other holder of Common Stock or other
capital stock of the Company, (other than a registration statement on Form S-8
or Form S-4, or their successors, or any other form
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for a limited purpose, or any registration statement covering only securities
proposed to be issued in exchange for securities or assets of another
corporation).
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission issued
under such Act, as they each may, from time to time, be in effect.
"SHARES" means shares of the Common Stock issued or issuable pursuant
to the Purchase Agreement.
2. REGISTRATION.
2.1. COMPANY REGISTRATION. Whenever the Company proposes to file a
Registration Statement (other than in connection with the Company's initial
public offering), it shall give prompt written notice to the Holder of its right
to participate in the offering (and in no event less than 20 days prior to the
anticipated date of effectiveness of the Registration Statement). Upon the
written request of the Holder given within 15 days after the Company provides
such notice, the Company shall use reasonable efforts to cause all Registrable
Shares which the Holder has requested to register to be registered under the
Securities Act pursuant to such Registration Statement. The Company shall have
the right to postpone or withdraw any registration effected pursuant to this
Section 2.1 without obligation to the Holder.
2.2. LIMITATIONS. In connection with any offering under this Section 2
involving an underwriting, the Company shall not be required to include any
Registrable Shares in such underwriting unless the Holder accepts the terms of
the underwriting as agreed upon between the Company and the underwriters
selected by it. The right of the Holder to include Registrable Shares in a
Registration Statement under this Section 2 shall be subject to the limitations,
including limitations on priority, set forth in the Company's registration
rights agreements existing as of the date hereof (each of which either has been
filed with the Commission as an exhibit to the Company's registration statement
or provided to Holder).
3. REGISTRATION PROCEDURES. Whenever the Company is required by the provisions
of this Agreement to effect the registration of any of the Registrable Shares
under the Securities Act, the Company shall, as expeditiously as possible:
3.1. FILING. Prepare and file with the Commission a Registration
Statement with respect to such Registrable Shares and use reasonable efforts to
cause that Registration Statement to become and remain effective;
3.2. AMENDMENTS AND SUPPLEMENTS Prepare and file with the Commission
any amendments and supplements to the Registration Statement and the prospectus
included in the Registration Statement as may be necessary to keep any
Registration Statement effective for a period of not less than 90 days from the
effective date;
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3.3. COPIES OF PROSPECTUS. Furnish to the Holder such reasonable
numbers of copies of the Registration Statement, each amendment and supplement
thereto, the prospectus included in such Registration Statement, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as the Holder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Shares;
3.4. BLUE SKY QUALIFICATION. Use its best efforts to register or
qualify the Registrable Shares covered by the Registration Statement under the
securities or Blue Sky laws of such jurisdictions as the Holder shall reasonably
request, and do any and all other acts and things that may be necessary or
advisable to enable Holder to consummate the public sale or other disposition in
such jurisdictions of the Registrable Shares; PROVIDED, HOWEVER, that the
Company shall not thereby be required to qualify as a foreign corporation or
execute a general consent to service of process in any jurisdiction;
3.5. NOTICE OF EVENTS. Notify Holder, at any time when a prospectus
relating to Registrable Shares is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in the 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 Holder, the Company will prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the purchasers of such
Registrable Shares, 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;
3.6. UNDERWRITTEN OFFERING. In the event that Registrable Shares are
sold pursuant to a Registration Statement in an underwritten offering, enter
into an underwriting agreement containing customary representations and
warranties with respect to the business and operations of the Company and
customary covenants and agreements to be performed by the Company, including
without limitation customary provisions with respect to indemnification by the
Company of the underwriters of such offering;
3.7. EARNINGS STATEMENT. Use reasonable efforts to comply with all
applicable rules and regulations of the Commission and make available to its
security holders, as soon as reasonably practicable, an earnings statement of
the Company (in form complying with the provisions of Rule 158 promulgated under
the Securities Act) covering the period of at least 12 months beginning with the
first month following the effective date of the Registration Statement;
3.8. LISTING. Either list the Registrable Shares on a national
securities exchange or have them designated as national market securities by the
National Association of Securities Dealers, Inc.
("NASD");
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3.9. TRANSFER AGENT AND REGISTRAR. Provide a transfer agent and
registrar for all such Registrable Shares not later than the effective date of
such Registration Statement;
3.10. INSPECTION. Make available for inspection by Holder, any
underwriter participating in any disposition pursuant to this Agreement, and any
attorney, accountant or other agent retained by any such 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 Holder, or such underwriter, attorney,
accountant or agent in connection with such Registration Statement.
In connection with any Registration under Section 2 hereof, the Holder 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.
If the Company has delivered preliminary or final prospectuses to the Holder and
after having done so the prospectus is amended to comply with the requirements
of the Securities Act, the Company shall promptly notify the Holder and, if
requested, the Holder shall immediately cease making offers of Registrable
Shares and shall return all prospectuses to the Company. The Company shall
promptly provide the Holder with revised prospectuses and, following receipt of
the revised prospectuses, the Holder shall be free to resume making offers of
the Registrable Shares.
The Holder shall furnish to the Company such information about the Holder and
the distribution proposed by the Holder as the Company may reasonably request in
writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 3.
4. ALLOCATION OF EXPENSES. The Company shall pay the Registration Expenses for
all registrations pursuant to Section 2. For purposes of this Section, the term
"Registration Expenses" shall mean all expenses incurred by the Company in
complying with Section 2, including, without limitation, all registration and
filing fees, exchange or national market listing fees, all fees and expenses of
complying with securities or blue sky laws, all fees and expenses associated
with filings with the NASD, all printing expenses, fees and disbursements of
counsel for the Company and its independent public accountants, fees and
disbursements of one counsel for the selling Stockholders retained by
Stockholders holding a majority of the Registrable Shares included in a
registration and the expense of any special audits incident to or required by
any such registration, but excluding underwriting discounts and selling
commissions, fees of more than one counsel for the selling Stockholders and
other expenses incurred by the selling Stockholders that are not "Registration
Expenses" as defined in this Section. Such underwriting discounts, selling
commissions and other expenses shall be borne
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pro rata by the selling Stockholders in accordance with the number of their
Registrable Shares taken in the aggregate included in such registration.
5. INDEMNIFICATION.
5.1. COMPANY INDEMNIFICATION. In the event of any registration of any
of the Registrable Shares under the Securities Act pursuant to this Agreement,
the Company shall indemnify and hold harmless the Holder, its partners,
directors, officers and employees (which persons shall be deemed to be included
in the term seller in this Section 5.1), each underwriter of such Registrable
Shares and each other person, if any, who controls such seller or underwriter
within the meaning of the Securities Act or the Exchange Act against any losses,
claims, damages or liabilities, joint or several, to which such seller,
underwriter or controlling person may become subject under the Securities Act,
the Exchange Act, state securities laws or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any Registration Statement under which such Registrable Shares
were registered under the Securities Act, any preliminary prospectus or final
prospectus contained in the Registration Statement, or any amendment or
supplement to such Registration Statement, or arise out of or are based upon the
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and the
Company shall reimburse such seller, underwriter and each such controlling
person for any legal or any other expenses reasonably incurred by such seller,
underwriter or controlling person in connection with investigating or defending
any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that the
Company shall not be liable to any such seller, underwriter or controlling in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or omission made in such
Registration Statement, preliminary prospectus or prospectus, or any such
amendment or supplement, in reliance upon and in conformity with information
furnished to the Company, in writing, by or on behalf of such seller,
underwriter or controlling person specifically for use in the preparation
thereof.
5.2. SELLER INDEMNIFICATION. In the event of any registration of any of
the Registrable Shares under the Securities Act pursuant to this Agreement, the
Holder shall indemnify and hold harmless the Company, each of its directors and
officers and each underwriter (if any) and each person, if any, who controls the
Company or any such underwriter within the meaning of the Securities Act or the
Exchange Act, against any losses, claims, damages or liabilities, joint or
several, to which the Company, such directors and officers, underwriter or
controlling person may become subject under the Securities Act, Exchange Act,
state securities laws or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement under which such Registrable Shares were registered under
the Securities Act, any preliminary prospectus or final prospectus contained in
the Registration Statement, or any amendment or supplement to the Registration
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Statement, or arise out of or are based upon any omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, if the statement or omission was made in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of Holder, specifically for use in connection with the
preparation of such Registration Statement, prospectus, amendment or supplement;
PROVIDED, HOWEVER, that the obligations of Holder hereunder shall be limited to
an amount equal to the proceeds to the Holder of Registrable Shares sold as
contemplated herein.
5.3. NOTICE OF CLAIMS, ETC. Each party entitled to indemnification
under this Section 5 (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom; PROVIDED, that counsel for
the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall not
be unreasonably withheld); and, PROVIDED, FURTHER, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 5. The Indemnified
Party may participate in such defense at such party's expense; PROVIDED,
HOWEVER, that the Indemnifying Party shall pay such expense if representation of
such Indemnified Party by the counsel retained by the Indemnifying Party would
be inappropriate due to actual or potential differing interests between the
Indemnified Party and any other party represented by such counsel in such
proceeding. No Indemnifying Party, in the defense of any such claim or
litigation shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement that does not include as a
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a general release from all liability in respect of such claim or litigation,
and no Indemnified Party shall consent to entry of any judgment or settle such
claim or litigation without the prior written consent of the Indemnifying Party.
5.4. CONTRIBUTION. If for any reason the foregoing indemnification is
not available, or is insufficient to hold harmless an Indemnified Party, other
than by reason of the exceptions provided herein, then the Indemnifying Party
shall contribute to the amount paid or payable by the Indemnified Party as a
result of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative fault of the Holder and the Company as well
as any other equitable considerations including the parties' relative knowledge
and access to information concerning the matter with respect to which any claim
is asserted and the opportunity to correct and prevent any such statement or
omission leading to such loss, claim, damage or liability (or actions in respect
thereof), but not including the relative benefits received by the Holder on the
one hand and the Company on the other; PROVIDED, HOWEVER, that in any such case
(i) the Holder of Registrable Shares will not be required to contribute except
to the extent and under such circumstances as the Holder would be required to
provide indemnification hereunder and then only in an amount not in excess of
the net proceeds to it of all Registrable Shares sold in the registration, and
(ii) no person guilty of fraudulent
-6-
<PAGE>
misrepresentation, within the meaning of Section 11(f) of the Securities Act,
shall be entitled to contribution from any person who is not so guilty.
5.5. No Investigation; Survival. The indemnification provided for under
this Agreement shall 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 the Registrable Shares.
6. MISCELLANEOUS.
6.1. "STAND-OFF" AGREEMENT. In connection with any underwritten public
offering, if requested by the Company and the managing underwriter, the Holder
hereby agrees not to effect any public sale or distribution of any Registrable
Shares, nor engage in any transaction that would result in a public sale or
distribution of securities of the same class as the Registrable Shares for a
specified period of time not to exceed 180 days following the effective date of
a Registration Statement; PROVIDED, THAT this provision shall apply to the
Holder in connection with any Registration Statement other than the Company's
initial public offering only if Registrable Shares are included in such
offering. The Holder agrees to execute any lock-up agreement reasonably
requested by the managing underwriter to confirm this agreement. The Company may
impose stop-transfer instructions with respect to the Registrable Shares or
other securities subject to the foregoing restriction until the end of the
stand-off period.
6.2. RULE 144 REQUIREMENTS. With a view to making available to the
Holder the benefits of Rule 144 promulgated under the Securities Act and any
other rule or regulation of the Commission that may at any time permit such
stockholder to sell securities of the Company to the public without
registration, the Company agrees to use reasonable efforts to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act (at any time
after it has become subject to the reporting requirements of the Exchange Act);
(b) file with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) furnish to the Holder upon request a written statement by
the Company as to its compliance with the reporting requirements of said Rule
144 (at any time after 90 days after the closing of the first sale of securities
by the Company pursuant to a Registration Statement), and of the Securities Act
and the Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company as such holder may
reasonably request
-7-
<PAGE>
to avail itself of any similar rule or regulation of the Commission allowing it
to sell any such securities without registration.
6.3. TRANSFER OF RIGHTS. This Agreement, and the rights and obligations
of the Holder hereunder, may not be assigned by the Holder without the prior
written consent of the Company.
6.4. GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of The Commonwealth of Massachusetts without giving effect to the
conflict of laws principles.
6.5. ENTIRE AGREEMENT; AMENDMENT AND WAIVER. This Agreement constitutes
the full and entire understanding and agreement between the parties with regard
to the subject matter hereof. Neither this Agreement nor any term may be
amended, waived, discharged or terminated, except by a written instrument signed
by the Company and the Holder.
6.6. NOTICES. All notices and other communications required or
permitted under this Agreement shall be in writing and shall be deemed
effectively given upon personal delivery or five days after deposit with the
United States Post Office, by registered or certified mail, postage prepaid,
addressed to the Company at its principal office and to a Holder at its address
on the records maintained by the Company or at such other address as any party
may designate by ten days' prior written notice to the other party.
6.7. TITLES. The titles of the Sections of this Agreement are for
convenience of reference only and are not to be considered in construing this
Agreement.
6.8. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one Agreement.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement under seal
as of the date first above written.
HEALTHGATE DATA CORP.
By: /s/ William S. Reece
--------------------
Name: William S. Reece
Title: Chief Executive Officer
SNAP! LLC
By: /s/ Edmond Sanctis
------------------
Name: Edmond Sanctis
Title: Chief Operating Officer
-9-
<PAGE>
EXHIBIT 5.1
Rich, May, Bilodeau & Flaherty, P.C.
176 Federal Street
Boston, MA 02110
(617) 482-1360
November 9, 1999
HealthGate Data Corp.
25 Corporate Drive
Burlington, MA 01803
Gentlemen and Ladies:
We have acted as counsel to HealthGate Data Corp., a Delaware
corporation (the "Company"), in connection with (a) the preparation of the
Company's Registration Statement on Form S-1, File No. 333-76899 (the
"Registration Statement"), initially filed on April 23, 1999 with the Securities
and Exchange Commission under the Securities Act of 1933, for the registration
of an aggregate of 5,290,000 shares of the Company's common stock, par value
$.01 per share (the "Shares"), and (b) the Underwriting Agreement (the
"Agreement"), to be entered into between the Company and SG Cowen Securities
Corporation, Banc of America Securities LLC and Volpe Brown Whelan & Company,
LLC, as Representatives of the Underwriters, the form of which is attached as
Exhibit 1.1 to the Registration Statement.
Of the 5,290,000 Shares included in the Registration Statement,
4,600,000 Shares (the "Firm Shares") will be issued and sold by the Company to
the several Underwriters to be named in Schedule A to the Agreement (the
"Underwriters"); and, solely for the purpose of covering over-allotments, the
Company proposes to sell to the Underwriters up to an additional 690,000 shares
(the "Additional Shares").
We have examined the originals, or certified, conformed or reproduction
copies, of all such records, agreements, instruments and documents as we have
deemed relevant or necessary as the basis for the opinions hereinafter
expressed. In all such examinations, we have assumed the genuineness of all
signatures on original or certified copies and the conformity to original or
certified copies of all copies submitted to us as conformed or reproduction
copies. As to various questions of fact relevant to our opinion, we have relied
upon statements or certificates of public officials, officers or representatives
of the Company and others.
Based upon the foregoing, we are of the opinion that the Firm Shares
and the Additional Shares to be sold by the Company to the Underwriters, when
issued, delivered and paid for in accordance with the terms of the Agreement,
will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
/s/ Rich, May, Bilodeau & Flaherty, P.C.
Rich, May, Bilodeau & Flaherty, P.C.
<PAGE>
Exhibit 10.32
Master Lease No. 701
MASTER LEASE OF TERMS AND CONDITIONS FOR LEASE
MASTER LEASE OF TERMS AND CONDITIONS FOR LEASE MADE AS OF AUGUST 3, 1999,
BETWEEN TLP LEASING PROGRAMS, INC., HAVING ITS CHIEF EXECUTIVE OFFICES
AT ONE FINANCIAL CENTER, 21ST FLOOR, BOSTON, MA 02111 ("LESSOR")
AND HEALTHGATE DATA CORP., A MASSACHUSETTS CORPORATION, HAVING
ITS CHIEF EXECUTIVE OFFICES AT 25 CORPORATE DRIVE, SUITE 310,
BURLINGTON, MA 01803 ("LESSEE") ("MASTER LEASE")
1. LEASE
On the terms and conditions of its Master Lease, Lessor shall lease to
Lessee, and Lessee shall hire from Lessor, the units of personal property
which shall include software (collectively the "Equipment" and individually a
"Unit" or "Item") described in the Schedule(s) which shall incorporate this
Master Lease. Each Schedule shall constitute a separate, and independent
lease and contractual obligation of Lessee. The term "Lease" shall refer to
an individual Schedule which incorporates this Master Lease of Terms and
Conditions for Lease. In the event of any inconsistency or conflict between
the terms and provisions of this Master Lease and the terms and provisions of
the Equipment Schedule, the terms and provisions of the Equipment Schedule
shall prevail. Until a Lease is duly executed by Lessor, a Lease signed by
Lessee constitutes an irrevocable offer by Lessee to lease from Lessor.
2. TERM
a. The term of the Lease shall be comprised of an Installation Term and a
Base Term. The Installation Term shall commence on the date of installation
("Installation Date") and terminate on the first day of the month following
the Installation Date. The first day of the month following the Installation
Date shall be known as the Base Term Commencement Date. The Base Term of the
Lease shall begin on the Base Term Commencement Date, and may, as provided in
Subsection 2(b), terminate on the last day of the last month of the Base
Term. The Installation Date for any Item shall be the earlier of either (i)
the date on which the entity responsible for installing such Item certifies
that the Item is installed and placed in good working order, or (ii) if
Lessee has caused a delay in the installation of an Item, seven days from the
date the Item is delivered to the equipment location specified in the
Schedule.
b. A Lease may be terminated as of the last day of the last month of the Base
Term or later, by written notice given by either Lessor or Lessee not less
than six months prior to the date of termination designated in such notice,
which date shall be the last day of a calendar month. If the Lease is not so
terminated at the end of the Base Term and other rental amounts are not
specified in the Schedule or mutually agreed in writing, the Base Monthly
Rental shall continue to be due and payable by Lessee. Any notice of
termination may not be revoked without the written consent of the other
party. Lessor shall have the opportunity to submit or match the last proposal
for the financing of any equipment which is replacing Equipment leased
pursuant to a Lease.
3. RENTAL
a. The rental amount payable to Lessor by Lessee for each Item will be on
the Schedule. As rent for Equipment, Lessee shall pay Lessor in immediately
available funds and in advance (i) on the Base Term Commencement Date and on
the first day of each month during the Base Term of the Lease the Basic Rent,
per month, and (ii) on the Installation Date an amount equal to 1/30th of the
Basic Rent for each Item times the number of days which will elapse from the
Installation Date of such Item to the Base Term Commencement Date of the
Lease. Each remittance from Lessee to Lessor shall contain information as to
the Lease for which payment is made.
b. Any payment due under a Lease which is past due for more than five (5)
days shall be immediately payable with interest computed from the day payment
was due at the rate of 2.0% per month, or if such rate shall exceed the
maximum rate of interest allowed by law, then at such maximum rate.
4. TAXES
The Lessee agrees (i) to pay any and all taxes, assessments and other
governmental charges of whatever kind or character and by whomever payable on
or relating to each Item of Equipment and on the sale, ownership, use,
shipment, transportation, delivery or operation thereof or the exercise of
any option, election or performance of an obligation by the Lessee or Lessor
under a Lease, including any penalties or interest thereon, which are levied,
assessed or imposed during the Base Term, (ii) to pay all taxes, assessments
and charges of the kind above referred to, including any penalties or
interest thereon, which remain unpaid as of the date of delivery of such Item
of Equipment to the Lessee irrespective of when the same may have been
levied, assessed or imposed and (iii) to pay all taxes or like charges
levied, assessed or imposed on or measured by the rents or other sums
payable under such Lease, including any penalties or interest thereon,
whether such taxes are payable by the Lessor or the Lessee. The foregoing
obligations of Lessee shall include preparation and submission of all
required Personal Property Tax filings to the applicable taxing authorities
for any assessment date falling within the term of this Lease, or extension
thereof, whether such Personal Property Tax Filings shall be, under
applicable law, the obligation of the Lessor or Lessee, and Lessor hereby
appoints Lessee its agent and attorney-in-fact for the purpose of making such
filings on behalf of Lessor. Lessor agrees to cooperate fully with Lessee by
executing any documents prepared by Lessee for filing (where the taxing
authority will not accept Lessee's appointment as agent for Lessor) and
forwarding promptly to Lessee any assessments, tax bills or other
correspondence received in connection therewith.
This Section 4 shall not be deemed to obligate the Lessee to pay (i) any
taxes, fees, assessments and charges which may have been included in the cost
of each Item of Equipment as set forth in the Schedule, or (ii) any taxes,
fees or other charges based on or measured by net income incurred as the
result (whether solely or in part) of business or transactions unrelated to
the applicable Lease, or (iii) any income, franchise and like
taxes against the Lessor on or measured by the net income from the rents;
provided, however, that the Lessee agrees to pay any such taxes on or
measured by rents payable hereunder or the net income therefrom which are in
substitution for or relieve the Lessee from any tax which the Lessee would
otherwise be obligated to pay under the terms of this Section.
The Lessee shall not be obligated to pay any amount under this Section 4 so
long as it shall, in good faith and by appropriate proceedings, be contesting
the validity or the amount thereof unless such contest would adversely affect
the title of the Lessor to an Item of Equipment or would subject it to
forfeiture or sale. The Lessee agrees to indemnify and defend the Lessor
against any loss, claim, demand or expense including any reasonable legal
expense resulting from such non-payment or contest.
The obligations and liabilities of the Lessee under this Section 4 which
arise during the Base Term shall continue in full force and effect
notwithstanding the termination of the Lease or the termination of the term
thereof whether by expiration of time, by operation of law or otherwise
unless and until expressly released by the Lessor.
<PAGE>
Master Lease No. 701
5. NET LEASE
The Lease is a net lease, it being the intention of the parties that all
costs, expenses and liabilities associated with the Equipment or its lease or
purchase shall be borne by Lessee unless expressly agreed to the contrary in
the Lease. Lessee's agreement to pay all obligations under the Lease,
including but not limited to rent, is absolute and unconditional and such
agreement is for the benefit of Lessor its successors and assigns. Lessee's
obligations shall not be subject to any abatement, deferment, reduction,
setoff, defense, counterclaim or recoupment for any reason whatsoever. Except
as may be otherwise expressly provided in the Lease, it shall not terminate,
nor shall the obligations of Lessee be affected, by reason of any defect in
or damage to, or any loss or destruction of, or obsolescence of, the
Equipment or any Unit from any cause whatsoever, or the interference with the
use by any private person, corporation or governmental authority, or as a
result of any war, riot, insurrection or Act of God. It is the express
intention of Lessor and Lessee that all rent and other sums payable by Lessee
under the Lease shall be, and continue to be, payable in all events
throughout the term of the Lease. The Lease shall be binding upon the Lessee,
its successors and assigns and shall inure to the benefit of Lessor, its
successors and assignees. All references to Lessor shall include the Lessor's
successors and assigns.
6. INSTALLATION, RETURN, AND USE OF EQUIPMENT
a. Upon delivery of the Equipment to Lessee, Lessee shall pay all
transportation, installation, rigging, packing and insurance charges with
respect to the Equipment. In the case of a sale and leaseback transaction,
Lessee shall, upon the request of Lessor, certify the date the Equipment was
first put into use. Lessee will provide the required electric current and a
suitable place of installation for the Equipment with all appropriate
facilities as specified by the manufacturer. No cards, tapes, disks, data
cells or other input/output and storage media may be used by Lessee to
operate any Unit unless it meets the specifications of the manufacturer.
b. Lessee shall, at all times during the term of the Lease, be entitled to
unlimited use of the Equipment. Lessee will at all times keep the Equipment
in its sole possession and control. The Equipment shall not be moved from the
location stated in the Schedule without the prior written consent of Lessor
and in no event shall the Equipment be moved outside the United States. Any
time during the term of the Lease and upon the written request of Lessor,
Lessee shall at Lessee's expense certify to Lessor (i) the location of the
Equipment, (ii) the serial numbers, features, additions to or other
characteristics of the Equipment and (iii) the eligibility of the Equipment
for the manufacturer of the Equipment's standard maintenance contract. Lessee
will comply with all laws, regulations, and ordinances, and all applicable
requirements of the manufacturer of the Equipment which apply to the physical
possession, use, operation, condition, and maintenance of the Equipment.
Lessee agrees to obtain all permits and licenses necessary for the operation
of the Equipment.
c. Except such improvements as may be readily removed without causing
material damage to the Equipment and without in any way affecting or
impairing the originally intended function, value or use of the Equipment,
Lessee shall not, without the prior written consent of Lessor, affix or
install any accessory, feature, equipment or device to the Equipment or make
any improvement, upgrade, modification, alteration or addition to the
Equipment (any such accessory, feature, equipment, device or improvement,
upgrade, modification, alteration or addition affixed or installed is an
"Improvement"). Title to all Improvements shall, without further act, upon
the making, affixing or installing of such Improvement, vest in Lessor.
Removal of the Improvement shall be performed by the manufacturer, at the
sole expense of Lessee. Provided the Equipment is returned to Lessor in the
condition required by the Lease, including, but not limited to, coverage
under the manufacturer's standard maintenance contract, title to the
Improvement shall vest in the Lessee upon removal. Any Improvement not
removed from the Equipment prior to return shall remain the property of
Lessor and shall be certified for maintenance by the manufacturer, at
Lessee's expense.
During the Lease term and any renewal term, Lessee shall cause all
Improvements to be maintained, at Lessee's expense, in accordance with the
requirements of Section 7. Unless otherwise agreed to by Lessor, upon the
expiration or earlier termination of the Lease term, any Improvement shall be
de-installed and removed from the Equipment, at Lessee's expense. If the
Improvement is removed, the Equipment shall be restored to its unmodified
condition and shall be certified for maintenance by the manufacturer, at
Lessee's expense.
In the event an Improvement is provided to Lessee by a party other than
Lessor, Lessee shall cause such party to execute and deliver to Lessor such
documents as shall be reasonably required by Lessor to protect the interests
of Lessor and any Assignee in the Equipment, this Master Lease and any
Schedule.
d. Lessee shall, at the termination of the Lease, at its expense,
de-install, pack and return the Equipment to Lessor at such location within
the continental United States as shall be designated by Lessor in the same
operating order, repair, condition and appearance as of the Installation
Date, reasonable wear and tear excepted, with all current engineering changes
prescribed by the manufacturer of the Equipment or a maintenance contractor
approved by Lessor (the "Maintenance Organization") incorporated in the
Equipment. Until the return of the Equipment to Lessor, Lessee shall be
obligated to pay the Base Monthly Rental and all other sums due under the
Lease. Upon redelivery to Lessor, Lessee shall arrange and pay for such
repairs (if any) as are necessary for the manufacturer of the Equipment or
Maintenance Organization to accept the Equipment under a maintenance contract
at its then standard rates.
7. MAINTENANCE AND REPAIRS
Lessee shall, during the term of the Lease, maintain in full force and effect
a contract with the manufacturer of the Equipment or Maintenance Organization
covering maintenance of the Equipment. Lessee upon request shall furnish
Lessor with a copy of such maintenance contract as amended or supplemented.
During the term of the Lease, Lessee shall, at its expense, keep the
Equipment in good working order, repair, appearance and condition and make
all necessary adjustments, repairs and replacements, all of which shall
become the property of Lessor. Lessee shall not use or permit the use of the
Equipment for any purpose for which, in the opinion of the manufacturer of
the Equipment or Maintenance Organization, the Equipment is not designed or
intended.
8. OWNERSHIP, LIENS AND INSPECTIONS
a. Lessee shall keep the Equipment free from any marking or labeling which
might be interpreted as a claim of ownership by Lessee or any party other
than Lessor, its successors and assigns and shall affix and maintain tags,
decals or plates furnished by Lessor to the Equipment indicating ownership
and title to the Equipment in Lessor (or its successors or assigns). Upon
reasonable notice to Lessee, Lessor or its agents shall have access to the
Equipment and Lessee's books and records with respect to the Lease and the
Equipment at reasonable times for the purpose of inspection and for any other
purposes contemplated by the Lease, subject to the reasonable security
requirements of Lessee.
b. Lessee shall execute and deliver such instruments, including Uniform
Commercial Code financing statements, as are required to be filed to evidence
the interest of Lessor, its successors and assigns in the Equipment or the
Lease. Lessee has no interest in the Equipment
<PAGE>
Master Lease No. 701
except as expressly set forth in the Lease, and that interest is a lease-hold
interest. Lessor and Lessee agree, and Lessee represents for the benefit of
Lessor, its successors and assigns, that the Lease is intended to be a
"finance lease" and not a "lease intended as security" as those terms are
used in the Uniform Commercial Code, and that the Lease is intended to be a
"true lease" as the term is commonly used under the Internal Revenue Code of
1986, as amended.
c. LESSEE SHALL KEEP THE LEASE, THE EQUIPMENT AND ANY IMPROVEMENTS PROVIDED
BY LESSOR FREE AND CLEAR OF ALL LIENS AND ENCUMBRANCES AND LESSEE SHALL NOT
ASSIGN THE LEASE OR ANY OF ITS RIGHTS UNDER THE LEASE OR SUBLEASE ANY OF THE
EQUIPMENT OR GRANT ANY RIGHTS TO THE EQUIPMENT WITHOUT THE PRIOR WRITTEN
CONSENT OF LESSOR. No permitted assignment or sublease shall relieve Lessee
of any of its obligations under the Lease and Lessee agrees to pay all costs
and expenses Lessor may incur in connection with such sublease or assignment.
Except as contemplated above, Lessee grants to Lessor the right of first
refusal on any sublease or grant of Lessee's rights to the Equipment.
9. DISCLAIMER OF WARRANTIES
a. LESSOR LEASES THE EQUIPMENT "AS IS", AND BEING NEITHER THE MANUFACTURER
OF THE EQUIPMENT NOR THE AGENT OF EITHER THE MANUFACTURER OR SELLER, LESSOR
DISCLAIMS ANY REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED,
WITH RESPECT TO THE CONDITION OR PERFORMANCE OF THE EQUIPMENT, ITS
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR WITH RESPECT TO PATENT
INFRINGEMENTS OR THE LIKE. LESSOR SHALL HAVE NO LIABILITY TO LESSEE FOR ANY
CLAIM, LOSS OR DAMAGE OF ANY KIND OR NATURE WHATSOEVER INCLUDING THE ACTIVE
OR PASSIVE NEGLIGENCE OR STRICT LIABILITY OF LESSOR, NOR SHALL THERE BE ANY
ABATEMENT OF RENTAL FOR ANY REASON INCLUDING CLAIMS ARISING OUT OF OR IN
CONNECTION WITH (i) THE DEFICIENCY OR INADEQUACY OF THE EQUIPMENT FOR ANY
PURPOSE, WHETHER OR NOT KNOWN OR DISCLOSED TO LESSOR, (ii) ANY DEFICIENCY OR
DEFECT IN THE EQUIPMENT, (iii) THE USE OR PERFORMANCE OF THE EQUIPMENT, OR
(iv) ANY LOSS OF BUSINESS OR OTHER CONSEQUENTIAL LOSS OR DAMAGE, WHETHER OR
NOT RESULTING FROM ANY OF THE FOREGOING.
b. For the term of the Lease, Lessor assigns to Lessee (to the extent
possible), and Lessee may have the benefit of, any and all manufacturer's
warranties, service agreements and patent indemnities, if any, with respect
to the Equipment, provided, however, that Lessee's sole remedy for the breach
of any such warranty, indemnification or service agreement shall be against
the manufacturer of the Equipment and not against Lessor, nor shall any such
breach have any effect whatsoever on the rights and obligations of Lessor or
Lessee with respect to the Lease.
10. ASSIGNMENT
a. Lessee acknowledges and understands that Lessor may assign to a
successor, lender or purchaser (the "Assignee"), all or any part of the
Lessor's right, title and interest in and to the Lease and the Equipment and
Lessee consents to such assignment. In the event Lessor transfers or assigns,
or retransfers or reassigns, to an Assignee all or part of Lessor's interest
in the Lease, the Equipment or any sums payable under the Lease, whether as
collateral security for loans or advances made or to be made to Lessor by
such Assignee or otherwise, Lessee covenants that, upon receipt of notice of
any such transfer or assignment and instructions from Lessor, (i) Lessee
shall, if so instructed, pay and perform its obligations under the Lease to
the Assignee (or to any other party designated by Assignee), and shall not
assign the Lease or any of its rights under the Lease or permit the Lease to
be amended, modified or terminated without the prior written consent of
Assignee, (ii) Lessee's obligations under the Lease with respect to Assignee
shall be absolute and unconditional and not be subject to any abatement,
reduction, recoupment, defense, offset or counterclaim for any reason,
alleged or proven, including, but not limited to, defect in the Equipment,
the condition, design, operation or fitness for use of the Equipment or any
loss or destruction or obsolescence of the Equipment or any part, the
prohibition of or other restrictions against Lessee's use of the Equipment,
the interference with such use by any person or entity, any failure by Lessor
to perform any of its obligations contained in the Lease, any insolvency or
bankruptcy of Lessor, or for any other cause, (iii) Lessee shall, upon
request of Lessor, submit such documents and certificates as may be
reasonably required by Assignee to secure and complete such transfer or
assignment, including but not limited to the documents set forth in
Section 15(c) of this Master Lease, (iv) Lessee shall deliver to Assignee
copies of any notices which are required under the Lease to be sent to Lessor,
and (v) Lessee shall, if requested, restate to Assignee the representations,
warranties and covenants contained in the Lease (upon which Lessee
acknowledges Assignee may rely) and shall make such other representations,
warranties and covenants to Assignee as may be reasonably required to give
effect to the assignment.
b. Lessor shall not make an assignment or transfer to any Assignee who shall
not agree that, so long as Lessee is not in default under the Lease,
including but not limited to a default in the payment of rent to Assignee
pursuant to a notice of assignment, such Assignee shall take no action to
interfere with Lessee's quiet enjoyment and use of the Equipment in
accordance with the terms of the Lease. No such assignment or conveyance
shall relieve Lessor of its obligations under the Lease and Lessee agrees it
shall not look to any Assignee to perform any of Lessor's obligations under
the Lease.
11. QUIET ENJOYMENT
Lessor covenants that so long as Lessee is not in default under a Lease
Lessee will quietly possess the Equipment subject to and in accordance with
the provisions of the Lease.
12. INDEMNIFICATION
Lessee shall and does agree to indemnify, protect, save and keep harmless
Lessor, its agents, successors and assigns, from and against any and all
liabilities, obligations, losses, damages, penalties, claims, actions, suits,
costs, or expenses (including legal fees and expenses) of any kind and nature
whatsoever which may be imposed upon, incurred by or asserted against Lessor
or its respective agents, successors, or assigns, in any way relating to or
arising out of the Lease, and, while the Equipment is in the possession or
control of Lessee, the manufacture, purchase, acceptance, rejection, return,
ownership, lease, disposition, installation, delivery, possession, use,
condition, operation, or accident in connection with the Equipment
(including, without limitation, those claims based on latent and other
defects, whether or not discoverable, or claims based on strict liability, or
any claim for patent, trademark or copyright infringement). Lessor's rights
arising from this Section shall survive the expiration or other termination
of the Lease.
13. RISK OF LOSS
a. Unless otherwise provided for in the Schedule, Lessee assumes and shall
bear the entire risk of loss and damage, whether or not insured against, of
the Equipment from any and every cause whatsoever from the date the Equipment
is delivered to Lessee to the date the Equipment is returned to Lessor in
accordance with the terms hereof.
b. In the event of loss or damage of any kind to any Item during the time
period set forth in Section 13(a), Lessee shall use all reasonable
<PAGE>
Master Lease No. 701
efforts to place the Item in good repair, condition and working order to the
reasonable satisfaction of Lessor within 90 days of such loss or damage,
unless the manufacturer of the Equipment determines that such Item has been
irreparably damaged, in which case Lessee shall, within 10 days of the
manufacturer's determination of irreparable loss, make its election to either
pay Lessor the Stipulated Loss Value (as set forth in Attachment A to this
Master Lease) for the irreparably damaged Item or replace the irreparably
damaged Item, all as provided in this Section. To the extent that the Item
is damaged but not irreparably damaged and if Lessee's entitled, pursuant to
the insurance coverage, to obtain proceeds from such insurance for the repair
of the Item, Lessee may arrange for the disbursement of such proceeds to pay
the cost of repair.
c. In the event that Lessee elects to pay Lessor the Stipulated Loss Value
for the irreparably damaged Item, Lessee shall (i) pay such amount (computed
as of the first day of the month following the determination of the
irreparable damage by the manufacturer) to Lessor on the first day of the
month following the election by Lessee as provided in (b) above, (ii) pay all
Base Monthly Rental for the Equipment up to date that the Stipulated Loss
Value is paid to Lessor; and (iii) arrange, with the consent of Lessor, for
the disposition of the irreparably damaged Item with the insurance company
paying the Lessee or Lessor the proceeds relating to the irreparably damaged
Item. If not all the Equipment is irreparably damaged, the original list
price of the irreparably damaged Item shall be multiplied by the applicable
percentage set forth in Annex A to compute the Stipulated Loss Value for such
irreparably damaged Item, and the Base Monthly Rental for the undamaged
Equipment remaining due (after payment of the Stipulated Loss Value for the
irreparably damaged Item) shall be that amount resulting from multiplying the
original Base Monthly Rental by the ratio of the original list price of the
undamaged Equipment divided by the original list price for all the Equipment
prior to the damage.
d. If Lessee elects to replace the irreparably damaged Item, Lessee shall
continue all payments under the Lease without interruption, as if no such
damage, loss or destruction had occurred, and shall replace such irreparably
damaged Item, paying all such costs associated with the replacement. Lessee
shall within 20 days following the date of determination of irreparable
damage by the manufacturer, effect the replacement by replacing the
irreparably damaged Item with replacement equipment so that Lessor has good
and valid title to such replacement equipment. The "Replacement Item" or
"Replacement Equipment" shall have a fair market value at the time of such
replacement equal to the then fair market value of the Equipment or Items
thereof for which replacement is made, and anticipated to have a fair market
value at the expiration of the Base Term equal to the fair market value which
the Equipment or Items for which replacement is made would have had at the
end of the Base Term, and (i) be the same type and of at least equal capacity
to the Equipment for which the replacement is being made. Upon delivery,
such Replacement Equipment shall become subject to all of the terms and
conditions of the Lease. Lessee shall execute all such documents necessary to
effect the foregoing.
e. For the purpose of the Lease, the term "fair market value" shall mean
the price that would be obtained in an arm's-length transaction between an
informed and willing buyer-user under no compulsion to buy or lease and an
informed and willing seller-lessor under no compulsion to sell or lease. If
Lessor and Lessee are unable to agree upon fair market value, such value
shall be determined, at Lessee's expense, in accordance with the foregoing
definition, by three independent appraisers, one to be appointed by Lessee,
one to be appointed by Lessor and the third to be appointed by the first two.
14. INSURANCE
During the term of the Lease, Lessee, at its own expense, shall maintain in
regard to the Equipment all risk and comprehensive public liability insurance
in amounts and with carriers reasonably satisfactory to Lessor. Any such
insurance shall name Lessor and the Assignee as additional insureds and, as
for the all risk insurance, loss payees as their interest may appear. All
such insurance shall provide that it may not be terminated, cancelled or
altered without at least 30 days' prior written notice to Lessor and its
successors and assigns. Coverage afforded to Lessor shall not be rescinded,
impaired or invalidated by any act or neglect of Lessee. Lessee agrees to
supply to Lessor, upon request, evidence of such insurance.
15. REPRESENTATIONS AND WARRANTIES OF LESSEE, FINANCIAL STATEMENTS
a. Lessee represents and warrants to Lessor and its successors and assigns
(i) that the execution, delivery and performance of this Master Lease and the
Lease was duly authorized and that upon execution of this Master Lease and
the Lease by Lessee and Lessor, the Master Lease and the Lease will be in
full force and effect and constitute a valid legal and binding obligation of
Lessee, and enforceable against Lessee in accordance with their respective
terms; (ii) the Equipment subject to the Lease is accurately described in the
Lease and all documents of Lessee relating to the Lease; (iii) that Lessee is
in good standing in the jurisdiction of its incorporation and in any
jurisdiction in which any of the Equipment is located; (iv) that no consent
or approval of, giving of notice to, registration with, or taking of any
other action in respect of, any state, federal or other government authority
or agency is required with respect to the execution, delivery and performance
by the Lessee of this Master Lease or the Lease or, if any such approval,
notice, registration or action is required, it has been obtained; (v) that
the entering into and performance of this Master Lease and the Lease will not
violate any judgment, order, law or regulation applicable to Lessee or any
provision of Lessee's Articles of Incorporation or By-Laws or result in any
breach of, or constitute a default under, or result in the creation of any
lien, charge, security interest or other encumbrance upon any assets of
Lessee or upon the Equipment pursuant to any instrument to which Lessee is a
party or by which it or its property may be bound; (vi) there are no actions,
suits or proceedings pending, or to the knowledge of Lessee, threatened,
before any court or administrative agency; arbitrator or governmental body
which will, if determined adversely to Lessee, materially adversely affect
its ability to perform its obligations under the Lease or any related
agreement to which it is a party; (vii) that aside from the Master Lease and
the Lease there are no additional agreements between Lessee and Lessor
relating to the Equipment; and (viii) that any and all financial statements
and other information with respect to Lessee supplied to Lessor at the time
of execution of the Lease and any amendments are true and complete. The
foregoing representations and warranties shall survive the execution and
delivery of the Lease and any amendments hereto shall upon the written
request of Lessor, be made to Lessor's successors and assigns.
b. Prior to and during the term of the Lease, Lessee will furnish Lessor,
when reasonably available, with Lessee's audited financial statements, which
will be considered confidential information and handled by Lessor in the same
manner as Lessor handles its own confidential information. If Lessee is a
subsidiary of another company, Lessee shall supply such company's financial
statements and guarantees as are reasonably acceptable to Lessor. For income
tax purposes, Lessor and Lessee agree to treat the Schedule(s) as finance
leases. Lessee shall also provide Lessor with such other statements
concerning the Lease and condition of the Equipment as Lessor may from time
to time request.
c. Upon Lessor's request, Lessee shall, with respect to the Master Lease,
deliver to Lessor (i) a certificate of a secretarial officer of Lessee
<PAGE>
Master Lease No. 701
certifying the by-law, resolution (specific or general) or corporate action
authorizing the transactions contemplated in the Lease; (ii) an incumbency
certificate certifying that the person signing this Master Lease and the Lease
holds the office the person purports to hold and has authority to sign on behalf
of Lessee; and (iii) an opinion of Lessee's counsel with respect to the
representations in Section 15(a). Upon Lessor's request, Lessee shall, with
respect to each Lease, deliver to Lessor (i) an agreement with Lessor's Assignee
with regard to any assignment as referred to in Section 10; (ii) the purchase
documents if Lessee has sold or assigned its interest in the Equipment to
Lessor, (iii) an insurance certificate evidencing any insurance provided by
Lessee pursuant to Section 14; and (iv) an acceptance certificate in a form
reasonably acceptable to Lessor and duly executed by Lessee. Failure by Lessee
to deliver any of these documents when due shall operate, at Lessor's option, to
continue the Installation Term for the Lease, thus delaying the Base Term
Commencement Date, or to increase the Base Monthly Rental to recover costs
incurred by Lessor consequent to the delay, or to terminate the Lease as
provided in Section 16.
16. DEFAULT REMEDIES
a. The following shall be deemed "Events of Default" under the Lease; (i)
Lessee fails to pay any installment of rent or other charge within 5 days of
the date such payment is due; or (ii) Except as expressly permitted in the
Lease, Lessee attempts to remove, sell, encumber, assign or sublease or fails
to insure any of the Equipment, or fails to deliver any documents required of
Lessee under the Lease; or (iii) Any representation or warranty made by
Lessee or Lessee's guarantor in the Lease or any document supplied in
connection with the Lease or any financial statement is misleading or
materially inaccurate; or (iv) Lessee fails to observe or perform any of the
other obligations required to be observed or performed by Lessee under the
Lease within 30 days of Lessee's first knowledge of such failure; or, if more
than 30 days are reasonably required to cure such failure, Lessee fails to
commence and to continue to diligently perform such obligations within such
30 days; or (v) Lessee or Lessee's guarantor ceases doing business as a going
concern; makes an assignment for the benefit of creditors; admits in writing
its inability to pay its debts as they become due; files a voluntary petition
in bankruptcy; is adjudicated a bankrupt or an insolvent; files a petition
seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar arrangement under any
present or future statute, law or regulation or files an answer admitting or
fails to deny the material allegations of a petition filed against it in any
such proceeding; consents to or acquiesces in the appointment of a trustee,
receiver, or liquidator for it or of all or any substantial part of its
assets or properties, or if it or its trustee, receiver, liquidator or
shareholders shall take any action to effect its dissolution or liquidation;
or (vi) if within 30 days after the commencement of any proceedings against
Lessee or Lessee's guarantor seeking reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under
any present or future statute, law or regulation, such proceedings shall not
have been dismissed, or if within 30 days after the appointment (with or
without Lessee's or Lessee's guarantor's consent) of any trustee, receiver or
liquidator of it or of all or any substantial part of its respective assets
and properties, such appointment shall not be vacated.
b. Upon the happening of any Event of Default, Lessor may declare the Lessee
in default. Lessee authorizes Lessor at any time thereafter to enter any
premises where the Equipment may be and take possession of the Equipment.
Lessee shall, without further demand, immediately pay Lessor an amount which
is equal to (i) any unpaid amount due on or before Lessor declared the Lease
to be in default, plus (ii) as liquidated damages for loss of a bargain and
not as a penalty, an amount equal to the Stipulated Loss Value for the
Equipment computed as of the date Lessor declares the Lease in default,
together with interest as provided herein, plus (iii) all attorney and court
costs incurred by Lessor relating to the enforcement of its rights under the
Lease. In the Event of Default, at the request of Lessor and to the extent
requested by Lessor, Lessee shall immediately comply with the provisions of
Section 6(d). Lessor may sell the Equipment at private or public sale, in
bulk or in parcels, with or without notice, without having the Equipment
present at the place of sale; or Lessor may lease, otherwise dispose of, or
keep idle all or part of the Equipment, subject, however, to its obligation
to mitigate damages; and Lessor may use Lessee's premises for any or all of
the foregoing. The proceeds of sale, lease or other disposition, if any, of
the Equipment shall be applied (1) to all Lessor's costs, charges and
expenses incurred in taking, removing, holding, repairing and selling,
leasing or otherwise disposing of the Equipment including attorney fees; then
(2) to the extent not previously paid by Lessee, to pay Lessor the Stipulated
Loss Value for the Equipment and all other sums owed by Lessee under the
Lease, including any unpaid rent and indemnities then remaining unpaid under
the Lease; then (3) to reimburse to Lessee any such sums previously paid by
Lessee as liquidated damages; (4) any surplus shall be retained by Lessor.
Lessee shall pay any deficiency in (1) and (2) immediately. The exercise of
any of the foregoing remedies by Lessor shall not constitute a termination of
the Lease unless Lessor so notifies Lessee in writing. Lessor may also
proceed by appropriate court action, either at law or in equity to enforce
performance by Lessee of the applicable covenants of the Lease or to recover
damages for the breach of the Lease.
c. The waiver by Lessor of any breach of any obligation of Lessee shall not be
deemed a waiver of any future breach of the same or any other obligation. The
subsequent acceptance of rental payments under the Lease by Lessor shall not be
deemed a waiver of any such prior existing breach at the time of acceptance of
such rental payments. The rights afforded Lessor under Section 16 shall be
cumulative and concurrent and shall be in addition to every other right or
remedy provided for in the Lease or now or later existing in law (including as
appropriate all the rights of a secured party or lessor under the Uniform
Commercial Code) or in equity and Lessor's exercise or attempted exercise of
such rights or remedies shall not preclude the simultaneous or later exercise of
any or all other rights or remedies.
d. In the event Lessee shall fail to perform any of its obligations under the
Lease, then Lessor, in addition to all of its rights and remedies under the
Lease, may perform the same, but shall not be obligated to do so, at the cost
and expense of Lessee. In any such event, Lessee shall promptly reimburse Lessor
for any such costs and expenses incurred by Lessor.
17. GENERAL
a. The Lease shall be deemed to have been made and delivered in the Commonwealth
of Massachusetts and shall be governed in all respects by the laws of such
state.
b. The Master Lease and the Lease constitute the entire and only agreement
between Lessee and Lessor with respect to the Equipment. The covenants,
conditions, terms and provisions may not be waived or modified orally and shall
supersede all previous proposals, both oral and written, negotiations,
representations, commitments, writings or agreements or any other communication
between the parties. The Lease may not be amended or discharged except by a
subsequent written agreement entered into by duly authorized representatives of
Lessor and Lessee.
c. All notices, covenants or requests desired or required to be given under the
Lease shall be in writing and shall be delivered in person or sent by certified
mail, return receipt requested, or by courier service to the address of the
other party set forth in the introduction of the Master Lease or to such other
address as such party shall have designated by proper notice.
<PAGE>
Master Lease No. 701
d. Each Lease may be executed in one or more counterparts each of which shall
be deemed an original, but there shall be a single executed original of each
Lease which shall be marked "Counterpart No. 1" (the "Original"); all
other counterparts shall be marked "Counterpart No. 2 and Counterpart No. 3".
To the extent, if any, that a Lease constitutes chattel paper (as such term
is defined in the Uniform Commercial Code) no security interest in the Lease
may be created through the transfer or possession of any counterpart other
than the Original.
e. Section headings are for convenience only and shall not be construed as
part of the Lease.
f. It is expressly understood that all of the Equipment shall be and remain
personal property, notwithstanding the manner in which the same may be
attached or affixed to realty, and Lessee shall do all acts and enter into
all agreements necessary to assure Lessor that the Equipment remains personal
property and that the respective interests of Lessor and its assignees are
protected and represented. Lessor may upon written notice to Lessee inform
Lessee that certain items supplied to Lessee are leased to Lessor and are
supplied to Lessee under the Lease as a sublease. Lessee agrees to execute
and deliver such acknowledgments and assignments in connection with such a
Lease as are reasonably required.
g. The obligations of Lessor hereunder shall be suspended to the extent that
it is hindered or prevented from complying therewith because of labor
disturbances, including strikes and lockouts, acts of God, fires, storms,
accidents, govern-mental regulations or interferences or any cause whatsoever
not within control of Lessor.
h. Any provision of the Master Lease or any Schedule prohibited by or
unlawful or unenforceable under any applicable law or any jurisdiction shall,
at the sole option of the Lessor, be ineffective as to such jurisdiction
without invalidating the remaining provisions of the Master Lease and such
Schedule.
i. Lessee agrees not to discriminate against any employee or applicant for
employment because of race, color, religion, sex, national origin, handicap,
or status as disabled or Vietnam veteran.
The parties have executed this Master Lease of Terms and Conditions for
Lease as of the date written below.
LESSOR: TLP LEASING PROGRAMS, INC. LESSEE: HEALTHGATE DATA CORP.
/s/ Arthur P. Beecher /s/ Mary B. Miller
- ----------------------------------- ----------------------------------
Name: Arthur P. Beecher Name: Mary B. Miller
---------------------------- -----------------------------
Title: President Title: Chief Financial Officer
----------------------------- ----------------------------
Date: August 27, 1999 Date: August 27, 1999
------------------------------ -----------------------------
DULY AUTHORIZED SIGNATORY
Please note that the Master Lease of Terms and Conditions for Lease is
Exhibit A to the Lease and is not chattel paper by itself.
If there are no Additional Provisions to this Master Lease of Terms and
Conditons for Lease check here /
---
<PAGE>
Master Lease No. 701
ATTACHMENT A TO
MASTER LEASE OF TERMS AND CONDITIONS FOR LEASE NO. 701
DATED AS OF AUGUST 3, 1999
BETWEEN TLP LEASING PROGRAMS, INC. ("LESSOR")
AND
HEALTHGATE DATA CORP. ("LESSEE")
STIPULATED LOSS VALUES
The following Stipulated Loss Values are expressed as a percent of the equipment
cost set forth in the Schedule.
<TABLE>
<CAPTION>
Prior To Stipulated Prior to Stipulated Prior to Stipulated
Payment Loss Payment Loss Payment Loss
Number Value Number Value Number Value
- -------- ---------- -------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
1...... 108.16% 13...... 81.36% 25...... 54.56%
2...... 105.23% 14...... 79.13% 26...... 52.33%
3...... 103.59% 15...... 76.990% 27...... 50.10%
4...... 101.16% 16...... 74.66% 28...... 47.87%
5...... 99.43% 17...... 72.43% 29...... 45.63%
6...... 96.99% 18...... 70.20% 30...... 43.40%
7...... 94.96% 19...... 67.96% 31...... 41.17%
8...... 92.53% 20...... 65.73% 32...... 38.93%
9...... 90.29% 21...... 63.50% 33...... 36.70%
10...... 88.06% 22...... 61.26% 34...... 34.47%
11...... 85.83% 23...... 59.03% 35...... 32.23%
12...... 83.60% 24...... 56.80% 36 &.... 30.00%
AFTER
</TABLE>
LESSEE: HEALTHGATE DATA CORP.
/s/ Mary B. Miller
------------------------------------
Name: Mary B. Miller
------------------------------
Title: Chief Financial Officer
------------------------------
Date: August 27, 1999
------------------------------
<PAGE>
Confidential Information
ACTIVEPRESS JOURNAL HOSTING AND DELIVERY AGREEMENT
THIS AGREEMENT is effective as of 1st January 2000, by and between HealthGate
Data Corp., a Delaware corporation ("HealthGate"), having an address at 25
Corporate Drive, Suite 310, Burlington, Massachusetts 01803 and Blackwell
Science Limited, having an address at Osney Mead, Oxford OX2 0EL, United Kingdom
and Munksgaard International Publishers Limited of 35 Norre Sogade, Copenhagen
DK 1016 Denmark (collectively the "Publisher").
WHEREAS, the Publisher is the owner and publisher of journals and the Publisher
desires to retain HealthGate to maintain, develop and host an on-line World Wide
Web ("Web") site for Content (as defined in SCHEDULE A attached hereto) relating
to its journals;
WHEREAS, HealthGate, among other business activities, hosts and distributes
health, biomedical and scientific Content for publishers through the Internet
using its activePress service;
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. SITE.
HealthGate shall design, develop, and mount the Content on servers and
host the Content on a Web site with the address of
http://www.blackwell-synergy.com (the "Site"). In establishing the
Site, HealthGate shall (i) mount the Content on its Hardware (as
defined in Section 7), (ii) make the Content and portions thereof
accessible in an online interactive mode for searching, access, review,
displaying in a Web browser or on computer terminals, downloading, and
printing on users' Web-enabled computer equipment.
2. SITE SERVICE PLAN.
The Site Service Plan set forth in SCHEDULE B attached hereto contains
service and support specifications, including agreed communication
procedures for the notification and rectification of service errors.
3. CONTENT MAINTENANCE PLAN.
The Content Maintenance Plan set forth in SCHEDULE C attached hereto
contains details, procedures and specifications for posting Content to
the Site, including agreed processing objectives and communication
policies for handling error reports.
4. SOFTWARE MAINTENANCE AND DEVELOPMENT PLAN.
HealthGate has developed, licensed or otherwise acquired software to
operate the Site (collectively the "Software"). The Software
Maintenance Plan attached hereto contains details and descriptions of
the Software's functions and features and procedures for making minor
enhancements to the Software. HealthGate agrees to have Section 3 of
Schedule D implemented and approved by the Publisher by the effective
date of the agreement. The other sections of Schedule D shall be
implemented by HealthGate by the dates set out in the relevant sections
of Schedule D. Notwithstanding the foregoing, the Publisher may elect
to request the development of additional functions or features not
described in the Software Maintenance Plan. The fee for such
development described in Section 11 (e) is based upon the amount of
labor time (measured in hours) required by HealthGate to evaluate,
create and test each request.
5. PROJECT MANAGERS.
<PAGE>
Both parties agree to name two Project Managers, who shall be
responsible for arranging all meetings, visits, and consultations
between the parties, for the transmission and receipt of technical
information between the parties, and for coordinating any agreed
implementations.
HealthGate: Paul Harman, Roberta Pokigo
Publisher: Ian Bannerman, Alan Bacon
All contact between HealthGate and the Publisher regarding the Site,
Content, Software and implementation and maintenance shall be
coordinated between the Project Managers. Either party may substitute
other individuals as Project Manager from time to time upon written
notice to the other party.
6. CONTENT AND SOFTWARE BACK-UP.
The Publisher shall provide all Content, including text and graphics,
for the Site. The Publisher, at its expense, shall deliver the Content
in electronic format to HealthGate as specified in the Content
Maintenance Plan. As set forth in Section 20 below, the Publisher
retains all ownership and copyrights of the Content. HealthGate will
not make or permit any changes to the Content without the written
consent of the Publisher. HealthGate shall make and maintain back-up
copies of all Content and Software pursuant to a schedule set forth in
the Site Service Plan. HealthGate shall store said back-up materials in
a commercially reasonable safe and secure environment and not located
at the same location as the Hardware.
7. SERVER HARDWARE AND EQUIPMENT.
HealthGate shall maintain the Site on HealthGate's Web server and/or
other servers through the Term of this Agreement. HealthGate shall
acquire and maintain all necessary equipment and hardware (collectively
the "Hardware") for the Site. The Hardware shall be capable of storing
the Content. HealthGate shall replace and upgrade, as needed, the
Hardware so that users of the Site may access the Site approximately 24
hours per day and receive information from the Site at speeds and
response times substantially equivalent to HealthGate's own Web site,
located at www.healthgate.com, from the United Kingdom.
8. SALES OF INFORMATION.
The Site will include functions to facilitate the sale of information,
such as articles, issues and subscriptions, to users of the Site via a
secure server to non-subscribers of the Content. The Publisher shall
establish all fees ("Information Fees") and other terms and conditions
for such sales. HealthGate shall collect the Information Fees
established by the Publisher. Within 60 days of the end of each
calendar month, HealthGate shall forward to the Publisher the net
Information Fees actually collected, which shall be equal to the
Information Fees less a Processing Fee for each sale which shall be
retained by HealthGate. The Processing Fee is further described in
Section 11 (f).
9. ACTIVITY REPORTS.
During the time that HealthGate hosts the Site, HealthGate shall
provide to the Publisher activity reports detailing performance, access
and usage of the Site. The Activity Reporting Plan is described
SCHEDULE E attached hereto. HealthGate agrees to have Schedule E
implemented and approved by the Publisher by the effective date of the
agreement.
<PAGE>
10. ADVERTISING.
The Site shall be designed to include space for advertising. All
specifications concerning advertising space shall be determined by
mutual agreement of the Publisher and HealthGate. HealthGate shall use
the activePress advertising module to host, update, and administer
advertising banners on the site. The parties shall share the right to
sell advertising banners on the Site, but all advertising is subject to
prior review and approval by the Publisher, which approval shall not be
unreasonably withheld. Revenues from advertisers shall be allocated
between both parties as described in Section 11 (g) below.
11. SCHEDULE OF FEES.
(a) SITE MAINTENANCE. The Publisher shall remit to HealthGate
$145,000 annually for Site maintenance services outlined in
the Site Service Plan.
(b) CONTENT CONVERSION. The Publisher shall remit to HealthGate an
annual fee of $346,500 for converting for release via the Site
the Content which shall comprise up to 210 individual journal
titles. This fee shall apply whether or not the Publisher
supplies HealthGate with Content for 210 individual journal
titles. If the Publisher supplies HealthGate with Content from
more than 210 individual titles the Publisher shall remit to
HealthGate an annual fee of $1650 for each additional
individual journal title of the Content converted for release
via the Site. If content for a particular additional title is
not loaded in the first half of the year (i.e. it is not
loaded in the period January through June) and, instead, is
introduced for the first time and loaded in the second half of
the year (i.e. it is loaded in the period July through
December) the annual fee in the year it is first loaded shall
be $1000. Further, if the Publisher chooses to supply Content
from journal titles in excess of the initial 210 and these
additional titles shall be in the form of bibliographic
headers and PDF files only, then the annual conversion fee
shall be $1450.
Content Conversion fees will be reviewed by mutual agreement
each quarter to take account of potential savings as a result
of changes in working methods. For example, the content
conversion fees could be reduced if the publisher supplies
full-text content in XML.
(c) CONTENT STORAGE. The Publisher shall remit to HealthGate an
annual fee of $123,000 for 200 gigabytes of storage of the
Content on the Hardware. After one year the Publisher and
HealthGate will meet and review the requirement for additional
storage. The annual fee that the Publisher will pay HealthGate
for additional storage shall be no greater than $600 for each
additional gigabyte of storage of the Content on the Hardware
in excess of 200 gigabytes of storage.
(d) SOFTWARE MAINTENANCE. The Publisher shall remit to HealthGate
an annual license fee of $191,000 fee for maintaining the
Software as described in the Software Maintenance Plan. This
fee includes an allowance of 48 working days (equivalent to
384 hours) of development labor time per year for HealthGate
to make minor changes to the Software as requested by the
Publisher and agreed to by HealthGate, whose agreement shall
not be unreasonably withheld.
(e) SOFTWARE DEVELOPMENT. The Publisher shall remit to HealthGate
a fee of $1,200 for each 8 hours of labor time used for the
development of additional functions or features not described
in the Software Maintenance Plan.
(f) PROCESSING FEE. The Publisher shall remit a Processing Fee, as
described in Section 8 above, equal to 25% of each Information
Fee relating to the on-line sale of an individual journal
article processed by HealthGate. The minimum Processing Fee
shall be equal to $4.00 per sales transaction processed by
HealthGate. Information Fees relating to the sale of a Journal
subscription are not subject to a processing fee.
<PAGE>
(g) ADVERTISING. Each party shall receive 30% of the gross
advertising revenue for advertising sales on the Site (as
described in Section 10) originated by the other party.
Advertising can be sold either on the basis of a per thousand
impressions rate or on the basis of a time-limited period,
subject to minimum fees of $10 per thousand impressions and
$100 per page per month.
(h) RE-SUPPLY AND RE-WORK OF CONTENT. The Publisher may re-supply
SGML Content and request HealthGate to convert it again for
release via the Site. The Publisher will use its best efforts
to re-supply less than 25 issues per month. The Publisher
shall remit to HealthGate a fee of $100 for each re-supplied
issue of a journal title per month in excess of 25 issues per
month for which the Publisher requests HealthGate to convert
again for release via the Site, subject to a maximum of $5,000
per financial quarter. The Publisher can re-supply for
conversion a particular issue to HealthGate up to a maximum of
two times. If an issue is re-supplied more than two times, the
Publisher shall remit to HealthGate a fee of $100 for each
additional re-supply of the issue. The Project Managers of
both parties can meet and agree to waive or adjust the
re-supply fee in exceptional circumstances, such as one where
the Publisher may request a systematic change to Content.
(i) ACTIVITY REPORTS. All payments and fees described in Section
11 (f) shall be based upon the relevant activity reports
described in the Activity Reporting Plan, as described in
Schedule E.
(j) ESCROW ACCOUNT. The Publisher shall pay all fees associated
with the escrow account described in Section 24 (b).
(k) PAYMENT. All payments in respect of the fee schedule shall be
in made within 30 days of receipt of an invoice. All late
payments shall bear interest at a rate equal to 1% per month
until paid in full.
12. PUBLISHER PAYMENT SCHEDULE.
Subject to HealthGate performing its obligations within the terms and conditions
of this Agreement, HealthGate shall invoice the Publisher for payment according
to the following annual schedule:
(a) (i) On 1 January of each year of the Agreement:
SOFTWARE MAINTENANCE - 50% of the annual software
maintenance fee.
CONTENT CONVERSION - 25% of the annual content conversion
fee of $346,500, plus 25% of the applicable fees for any
journal added to the Site beyond the 210 titles described in
Section 11 (b).
SITE MAINTENANCE - 25% of the annual site maintenance fee.
CONTENT STORAGE - 25% of the annual content storage fee.
(ii) On 1 April of each year of the Agreement:
SOFTWARE MAINTENANCE - 25% of the annual software
maintenance fee.
CONTENT CONVERSION - 25% of the annual content conversion fee
of $346,500, plus 25% of the applicable fees for any journal
added to the Site beyond the 210 titles described in Section
11 (b).
SITE MAINTENANCE - 25% of the annual site maintenance fee.
CONTENT STORAGE - 25% of the annual content storage fee.
<PAGE>
(iii) On July 1 of each year of the Agreement:
SOFTWARE MAINTENANCE - 25% of the annual software maintenance
fee.
SITE MAINTENANCE - 25% of the annual site maintenance fee.
CONTENT CONVERSION - 25% of the annual content conversion fee
of $346,500, plus 25% of the applicable fees for any journal
added to the Site beyond the 210 titles described in Section
11 (b).
CONTENT STORAGE - 25% of the annual content storage fee.
(iv) On 1 October of each year of the Agreement
CONTENT CONVERSION - 25% of the annual content conversion fee
of $346,500, plus 25% of the applicable fees for any journal
added to the Site beyond the 210 titles described in Section
11 (b).
SITE MAINTENANCE - 25% of the annual site maintenance fee.
CONTENT STORAGE - 25% of the annual content storage fee.
(b) SOFTWARE DEVELOPMENT - Software development fees will be
invoiced on completion of the implementation of the functions
or features to which they relate, subject to the written
approval of the publisher that they perform according to the
Publisher's original specification of requirements. Extension
of the development time as a result of modifications by the
Publisher to the original specification will not be grounds
for delaying payment.
(c) OTHER FEES - All other fees shall be invoiced on a monthly
basis.
13. MILESTONES AND DELIVERABLES.
Any failure by HealthGate in meeting the throughput processing
objective time of 3 working days, as described in Schedule C, will
constitute a breach of this agreement and be subject to the procedure
for termination as defined in Section 17 (b). Further, if HealthGate
fails to process the Content of any journal issue within the processing
objective time of 3 working days, as described in Schedule C,
HealthGate, recognizing the loss caused to the Publisher, will on
demand pay to the Publisher an amount of money equivalent to the sum of
$2,000 per issue, subject to a maximum of $50,000 per financial
quarter, for all issues processed in each financial quarter.
Such sums of money will be paid by HealthGate to the Publisher not as a
penalty, but as and for the ascertained and liquidated damages owing
and payable by HealthGate to the Publisher by reason of such failure to
meet the processing objectives.
14. DISTRIBUTION RIGHTS.
The Publisher grants to HealthGate the right to sell individual
articles and subscriptions to the Content through HealthGate's own Web
sites, subject to mutually agreeable terms negotiated between the
parties for this activity.
15. INITIAL TERM.
The Initial Term of this Agreement shall commence on the date first
noted above and, unless terminated earlier as set forth herein, shall
continue for a period of two (2) years after such date (the "Initial
Term").
16. RENEWAL.
After the Initial Term, this Agreement shall renew for additional
consecutive periods of one (1) year subject to termination in
accordance with Section 17. Both parties agree to negotiate, in
<PAGE>
good faith, any changes in payment terms for the subsequent term
beginning 120 days before the end of the Initial Term and for each
subsequent annual term.
17. TERMINATION.
(a) END OF TERM. Either party may terminate this Agreement upon
the last date of the Initial Term or any subsequent renewal
term by giving written notice of termination 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.
(b) BREACH. Either party may terminate this Agreement by giving
written notice of termination to the other party if that party
is in breach of any term, condition or provision of this
Agreement and fails to remedy such breach within thirty (30)
days of receipt of such notice.
(c) CHANGE OF CONTROL OF HEALTHGATE. The Publisher may terminate
this Agreement by giving written notice of termination to
HealthGate if there is a change in control of HealthGate. For
the purpose of this section, a person shall have "Control" of
HealthGate if he holds, directly or indirectly, shares which
together with shares held by any persons acting in concert
with him carry 50% or more of the voting rights of HealthGate
and is a direct competitor of the Publisher. For the purpose
of this section, a "direct competitor" shall be defined as a
company that derives more than 50% of its sales revenues from
the activity of publishing scientific, technical and medical
journals.
(d) BANKRUPTCY. Either party may terminate this agreement if the
other party shall commit any act of bankruptcy, shall have a
receiving order made against it, shall make or negotiate for
any composition or arrangement with or assignment for the
benefit of its creditors or if the other party, being a body
corporate, shall present a petition or have a petition
presented by a creditor for its winding up or shall enter into
any liquidation (other than for the purposes of reconstruction
or amalgamation), shall call any meeting of its creditors,
shall have a receiver of all or any of its undertakings or
assets appointed, shall be deemed by virtue of the relevant
statutory provisions under the applicable law to be unable to
pay its debts, or shall cease to carry on business.
Upon the termination of this Agreement, HealthGate or its personal
representative as the case may be, shall immediately deliver up to the
Publisher all correspondence, reports, documents, specifications,
papers, information (on whatever media) and property belonging to the
Publisher which may be in his possession or under his control together
with all confidential information or copyright works belonging to the
Publisher. HealthGate shall erase the Content from its servers and
otherwise discontinue any use of the content within ten (10) working
days of the date of the termination.
18. TERMINATION SUPPORT
In the event of termination of this Agreement by the Publisher pursuant
to Section 17, the Publisher will have the following rights and
obligations:
HealthGate will comply with the Publisher's reasonable directions, and
will provide the Publisher any and all termination assistance
reasonably requested by the Publisher to allow the Services to continue
and to facilitate the orderly transfer of responsibility for the Site
to the Publisher or a successor provider of the Site designated by the
Publisher. The Publisher agrees to pay HealthGate fees for services
associated with the transition. The rate and amount of such payment
shall be determined by both parties agreeing to meet and use their best
endeavors to develop a Post Termination Support plan.
<PAGE>
The Termination assistance to be provided to the Publisher by
HealthGate may include the following:
(a) HealthGate will liaise with the Publisher, making available
for such purpose such HealthGate liaison staff as the
Publisher may reasonably require, and acting in all good
faith, to ensure a mutually satisfactory license of the
Software to the Publisher or, at the Publisher's option, to a
replacement contractor. The period of liaison will commence as
soon as notice has been given of termination of this
Agreement, and will continue for a maximum period of 3 months
after termination;
(b) HealthGate agrees that at the time of termination of this
Agreement, it will render all assistance, provide all
documentation and undertake all actions to the extent
necessary to effect an orderly assumption of the Site by the
Publisher or, at the Publisher's option, by a replacement
contractor;
(c) If the Publisher so require, HealthGate will use its best
endeavours to procure the transfer at the Publisher's expense,
to the Publisher or to a third party nominated by the
Publisher at the Publisher's sole discretion, of any Third
Party Software licenses HealthGate may have obtained in its
own name in order to run the Site and used for that purpose
exclusively;
(d) HealthGate will develop, together with the Publisher, a plan
for the orderly transition of services ("Transition Plan")
then being performed by HealthGate from HealthGate to the
Publisher or such successor provider.
(e) HealthGate will provide reasonable training for personnel of
the Publisher in the performance of the services then being
transitioned to the Publisher or such successor provider of
Services
19. POST TERMINATION SUPPORT IN THE EVENT OF BANKRUPTCY
In the event of termination of this Agreement by the Publisher as a
result of HealthGate committing an act of bankruptcy as set forth in
17(d) and for a period of six (6) months thereafter, HealthGate will
provide the Termination Support set forth in Section 18 herein. In
addition, HealthGate will continue to perform, for a reasonable period
(as determined by the Publisher) of up to six (6) months following the
termination date, any or all of the services then being performed by
HealthGate.
In the event of HealthGate committing an act of bankruptcy as set
forth in 17(d), the Publisher agrees to pay HealthGate fees for
services associated with the transition. The rate and amount of such
payment shall be determined by both parties agreeing to meet and use
their best endeavors to develop a Post Termination Support Plan. This
plan would be subject to the relevant statutory provisions under the
applicable law.
20. INTELLECTUAL PROPERTY RIGHTS.
(a) HEALTHGATE PROPERTY. HealthGate or its licensors shall own and
retain all right, title and interest in (i) the Software and
(ii) any patents, copyrights, database rights or other
proprietary rights in the Software; and (iii) computer code
written by HealthGate for the format, appearance and
presentation of the Software and Site (collectively, the
"HealthGate Properties").
(b) PUBLISHER'S PROPERTY. The Publisher shall own and retain all
right, title and interest in the Content and any derivative
work based upon the Content; the Publisher's trade names,
trademarks and service marks; any other information of the
Publisher provided to HealthGate hereunder and the format,
appearance and presentation of the Site (collectively,
"Publisher's Property").
<PAGE>
(c) HEALTHGATE CONFIDENTIAL INFORMATION. The Publisher understands
and acknowledges that the HealthGate Properties are subject to
protection as patented or copyrighted works of authorship of
HealthGate or HealthGate's suppliers under United States law,
and represent valuable confidential or proprietary information
of HealthGate. Further, the Publisher 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 Publisher (collectively, "HealthGate Confidential
Information"), represent valuable confidential information of
HealthGate entitled to protection as trade secrets. The
Publisher shall keep 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 Publisher 's use thereof as permitted by this
Agreement. The Publisher 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
Publisher to protect its own trade secrets. The Publisher
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 Publisher shall notify
HealthGate of such fact and the surrounding circumstances. The
obligations of this Section 20(c) shall survive any
termination of this Agreement. The obligations of this Section
20(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 Publisher of its obligations
hereunder, (b) was known to the Publisher prior to its
disclosure by HealthGate, or (c) is learned by the Publisher
from a third party who is not in breach of an obligation of
confidentiality in making such disclosure.
(d) PUBLISHER'S CONFIDENTIAL INFORMATION. HealthGate understands
and acknowledges that any Publisher's Property contained in
the Site, are subject to protection as copyrighted works of
authorship of the Publisher, and represent valuable or
proprietary confidential information of the Publisher.
Further, HealthGate understands and acknowledges that the
Publisher information pertaining, INTER ALIA, to the
Publisher's subscribers, customers, finances, internal
operations, sales practices, procedures and methods of
compiling, manipulating, presenting and disseminating
information which is disclosed to HealthGate (collectively,
"Publisher's Confidential Information"), represent valuable
confidential information of the Publisher entitled to
protection as trade secrets. HealthGate shall keep
confidential, and shall protect from unauthorized disclosure
by its employees and agents, the Publisher's Confidential
Information and all copies or physical embodiments thereof in
its possession, and shall limit access to such Publisher'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
Publisher's Confidential Information and any and all copies
and other physical embodiments thereof in its possession in a
manner consistent with the maintenance of the Publisher '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 Publisher'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
Publisher's Confidential Information other than as authorized
by this Agreement, HealthGate shall notify the Publisher of
such fact and the surrounding circumstances. The
<PAGE>
obligations of this Section 20 (d) shall survive any
termination of this Agreement. The obligations of this Section
20 (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 Publisher, 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 20 shall not apply where
disclosure is required, directed or ordered by statute,
regulation or a public authority, in legal or administrative
proceedings, including without limitation in connection with
the filing of statements to the Securities Exchange Commission
("SEC") regarding the sale of securities 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.
21. 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 right, title and interest in and to the
Software, except for items that are in the public domain or
that are obtained under valid licenses, (ii) it has and will
have throughout the term of this Agreement the right to grant
the license granted herein, and (iii) the HealthGate Property
licensed hereunder does not and will not infringe any trade
name, trademark or copyright.
(c) THE PUBLISHER. The Publisher 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 Publisher 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, and (iii) the Publisher Content and Property do not
and will not infringe any trade name, trademark or copyright.
(d) MILLENNIUM COMPLIANCE. HealthGate warrants that (i) the
occurrence or use of dates on or after January 1, 2000
("Millennial Dates") will not adversely affect its performance
at any level with respect to date-dependent data, computation,
output or other functions; and (ii) the site will create,
store, receive, process and output information related to or
including Millennial Dates without error or omissions.
22. INDEMNIFICATION.
(a) THE PUBLISHER'S INDEMNIFICATION. The Publisher 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 21 (a)
and 21 (c) above, and (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 Publisher's Content or Properties.
(b) HEALTHGATE'S INDEMNIFICATION. HealthGate shall indemnify,
defend and hold harmless each Publisher 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 any matter covered by the
representations and warranties set forth in Sections 21 (a)
and 21 (b) above.
<PAGE>
(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 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.
23. 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 SHALL EITHER PARTY'S LIABILITY
UNDER THIS AGREEMENT EXCEED THE AMOUNT OF PAYMENTS MADE BY THE
PUBLISHER TO HEALTHGATE PURSUANT TO THIS AGREEMENT.
24. MISCELLANEOUS.
(a) LICENSE OF SOFTWARE. Notwithstanding any other term or
provision of this Agreement or the Content Maintenance Plan,
HealthGate retains all right, title and interest to the
Software (as defined in Section 4 hereof), computer code
written by HealthGate for the design, format, appearance and
presentation of the Site, the Software, the Software
Maintenance Plan and other HealthGate Properties (as defined
in Section 20 (a) hereof). The Agreement grants to the
Publisher a non-exclusive, non-transferable license to utilize
the Software with respect to the Site during the Term of this
Agreement as provided in and subject to the terms of this
Agreement. Without limiting the generality of the foregoing,
HealthGate may utilize and/or license the Software and other
HealthGate Properties for itself or for others without any
compensation or liability to the Publisher, provided however
that upon expiration or termination of this Agreement, the
Publisher may, without any obligation to HealthGate utilize
the design, format, appearance and presentation of the Site in
any manner which the Publisher deems appropriate.
(b) SOFTWARE ESCROW. HealthGate agrees to place into escrow, at a
location to be mutually agreed upon by the parties, all
applicable source code used to provide the services outlined
in this Agreement. The Publisher shall pay all fees associated
with the escrow account. The Publisher may not access the
escrow account except in the case of HealthGate's bankruptcy.
(c) 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.
(d) 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.).
(e) 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
<PAGE>
intention of the parties.
(f) 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.
(g) 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.
(h) 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.
(i) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of England and Wales.
(j) VENUE. Any and all disputes between the parties arising under
or in connection with this Agreement which cannot be resolved
amicably by the parties shall be resolved in the courts
located in London, England, except with respect to any action
brought by the Publisher against HealthGate, in which case
jurisdiction and venue shall be the Commonwealth of
Massachusetts, USA.
(k) ARBITRATION. Any question, dispute, disagreement, or
difference of any kind whatsoever which may arise between the
Publisher 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.
(l) 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.
(m) 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.
(n) 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).
(o) EMPLOYEES. Neither HealthGate nor the Publisher 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 twelve (12) months
<PAGE>
after the termination of this Agreement.
(P) NO ASSIGNMENT. Neither party may sell, transfer, assign, or
subcontract, any right or obligation set forth in this
Agreement without the express advance written consent of the
other party, such consent shall not be unreasonably withheld.
(Q) 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.
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/ William S. Reece
-----------------------------------
William S. Reece
Chief Executive Officer
Blackwell Science Limited and and Munksgaard International Publishers Limited
By: /s/ Robert M. Campbell
-----------------------------------
Name: Robert M. Campbell
---------------------------------
Title: Managing Director
--------------------------------
<PAGE>
CONTINUING EDUCATION SERVICES AGREEMENT
BETWEEN HEALTHSTREAM & HEALTHGATE DATA CORP.
This Continuing Education Services Agreement ("Agreement") is entered
into by and between HealthStream, Inc., a Tennessee corporation having its
principal place of business at 209 10th Avenue South, Suite 450, Nashville,
Tennessee 37203 ("HealthStream") and HealthGate Data Corp., a Delaware
corporation having its principal place of business at 25 Corporate Drive, Suite
310, Burlington, Massachusetts 01803 ("HealthGate").
WHEREAS, HealthStream is a provider of computer and Web-based education
and training services organizations and individuals within the healthcare
industry;
WHEREAS, HealthStream is a provider of healthcare and education
courseware and courseware management tools delivered via the Internet, corporate
intranets and networks;
WHEREAS, HealthStream has developed and marketed and continues to
develop and market a computer-based education system known as the Training
Navigator(R) ("T.NAV(R)") that delivers and monitors World Wide Web based
content;
WHEREAS, HealthGate enables hospitals and health systems to provide
their users with access to healthcare content for professionals, patients, and
consumers under its CHOICE(TM) brand name for their Web sites On the Internet
and on their corporate intranets;
WHEREAS, HealthGate and HealthStream wish to enter into a cooperative
effort to provide HealthStream branded, hosted and managed educational offerings
via HealthGate's distribution channels; market said educational offerings, and
sell the ad space inventory available within said educational offerings;
WHEREAS, HealthGate and HealthStream wish to provide appropriate
consideration for those efforts that each party has agreed to undertake;
WHEREAS, HealthGate and HealthStream each acknowledge the sufficiency
and adequacy of the value, concessions, and recitations set forth herein;
NOW THEREFORE, HealthGate and HealthStream agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the terms below shall have the following
meanings:
1.1. "ACCME" means the Accreditation Council for Continuing Medical
Education.
1.2. "Ad Inventory" means the advertising space on any of the pages in
the Joint Site.
1.3. "Available Ad Inventory" means any Ad Inventory unsold from the monthly
available at the beginning of the month.
1.4. "CEU Courses" means those educational courses that have been reviewed
for continuing education units by an institution recognized by an
accredited professional organization. Those individuals completing the
courses may receive credit toward continuing education requirements.
1.5. "CHOICE(TM)" means HealthGate's suite of products that provide
healthcare content to hospitals and health systems for use on their Web
sites and intranets. CHOICE(TM) is a trademark of HealthGate.
1.6. "CME Courses" means those educational courses that have been reviewed
for continuing medical education by an ACCME accredited institution.
Those individuals completing the courses may receive credit toward
continuing education requirements.
1.7. "Course" means healthcare related Internet based curricula designed to
be delivered by T.NAV(R) through
<PAGE>
HealthStream Sites.
1.8. "Effective Date" means September 15, 1999, the date on which both
parties to this Agreement have executed same.
1.9. "HealthGate" means HealthGate Data Corp. and any affiliated entity of
HealthGate. HealthGate is said to be a HealthStream Site Partner via
the execution of this Agreement.
1.10. "HealthGate Courses" means Courses that are licensed to HealthGate or
are the proprietary property of HealthGate including training and
education content including, but not limited to OSHA and JCAHO mandated
training, continuing medical education, and office training.
1.11. "HealthGate Sites" means the various branded Internet sites licensing
products and services from HealthGate, including its CHOICE(TM)
product.
1.12. "HealthStream" means HealthStream, Inc. and any Subsidiary of
HealthStream, Inc.
1.13. "HealthStream Courses" means Courses that are licensed to HealthStream
or are the proprietary property of HealthStream including training and
education content including, but not limited to OSHA and JCAHO mandated
training, continuing medical education, and office training.
1.14. "HealthStream Server Facility" means those facilities either maintained
by HealthStream, whether by subcontract with HealthStream Service
Associates or via independent means, where HealthStream Sites are
hosted and connected to the World Wide Web and other private networks.
A HealthStream Server Facility will be comprised of software, server
computers and connectivity hardware required to deliver HealthStream
Sites.
1.15. "HealthStream Service Associates" means those companies that assist
HealthStream in delivering HealthStream Services. HealthStream Service
Associates include, but are not limited to, customer support companies,
credit card collections companies and Internet service provider
companies.
1.16. "HealthStream Services" means HealthStream branded, hosted and managed
healthcare educational offerings delivered via HealthStream Sites.
1.17. "HealthStream Sites" means those HealthStream managed and hosted
Internet sites that deliver educational and other content via the
T.NAV(R). HealthStream Sites may be available via the World Wide Web or
through a private Intranet.
1.18. "HealthStream Site Partners" means those entities managing
healthcare-related World Wide Web sites that partner with HealthStream
in delivering a HealthStream Site for the use of HealthStream Site
Partner clients.
1.19. "Internet" means the international network of computers and computer
networks accessible by the public at large of which the World Wide Web
is a subset.
1.20. "Intranet" means an internal network protected from unauthorized users
by a firewall and accessible only by individuals within the
organization serving the network.
1.21. "Joint Site" means one or more Internet sites available from HealthGate
Sites containing HealthStream Services. The Joint Sites are also said
to be a subset of HealthStream Sites. Joint Sites will contain branding
from both HealthStream and HealthGate.
1.22. "Linked Site" means the World Wide Web site operated by HealthStream
Site Partners that links to a HealthStream Site. HealthStream attempts
to provide each Linked Site with a distinct Personalization.
1.23. "Marketing Initiatives" means those significant HealthGate marketing
activities that prominently include mention and promotion of
HealthStream and the Joint Site services. Marketing Initiatives include
but are not limited to the following: trade shows and exhibitions,
seminars, direct mailing campaigns, third party publication
advertisement campaigns, online banner advertisement campaigns.
HealthGate and HealthStream will jointly determine the scope, total
cost and cost allocation of Marketing Initiatives funded by both
parties. Notwithstanding other considerations,
<PAGE>
HealthStream financial participation in each Marketing Initiative will
be determined in part by the extent of Joint Site and HealthStream
promotion in said Marketing Initiative.
1.24. "Net Revenue" means gross revenue derived by HealthGate or HealthStream
from Transactions Fees and sales of Ad Inventory less any discounts,
refunds, rebates, or returns.
1.25. "Personalization" means the unique graphic features of a HealthStream
Site, as distinguished from other HealthStream Sites. Personalization
is enabled via features of the T.NAV(R) that are designed to best match
each HealthStream Site's appearance to its corresponding Linked Site.
The scope and specification of T.NAV(R)'s Personalization capability
will change over time as T.NAV(R) is advanced to best meet the needs of
HealthStream Site Partners. Exhibit A outlines the scope of T.NAV(R)'s
present Personalization capabilities.
1.26. "Subsidiary" means a company in which, on a class-by-class basis, more
than fifty percent (50%) of the stock entitled to vote for the election
of directors is owned or controlled by another company, but only so
long as such ownership or control exists.
1.27. "Third Party Courses" means interactive content that is licensed to a
third party to this Agreement or is the proprietary property of a third
party to this Agreement
1.28. "T.NAV(R)" means HealthStream's computer based training product that
delivers and monitors World Wide Web based Content. T.NAV(R) is
available in multiple configurations, each containing common core
functionalitY with unique features applicable for a given application's
distribution and access requirements, e.g. Internet eCommerce,
Intranet, local area networks, etc. T.NAV(R) is a registered trademark
of HealthStream. T.NAV(R) is also branded as Training Navigator(TM), a
trademark of HealthStream.
1.29. "Transaction" means those purchases of HealthStream Courses, HealthGate
Courses, or Third Party Courses by customers of the Joint Site.
1.30. "Transaction Fees" means fees received by HealthStream for
Transactions.
ARTICLE 2
RESPONSIBILITIES AND STRATEGIC RIGHTS GRANTS
2.1. During the term of this Agreement, HealthGate shall:
2.1.1. Include on the home page(s) of those HealthGate Sites through
which the HealthStream Courses are available a logo of the
HealthStream trademark and a hyperlink to the Joint Site.
2.1.2. Promote the Joint Site as a part of HealthGate's public
advertising strategy. HealthGate and HealthStream will jointly
develop a specific promotion plan within ninety (90) days of
the Effective Date that will include a minimum of one (1)
Marketing Initiative per month. HealthGate will include the
use of the HealthStream trademark logo on all HealthGate
marketing materials that reference the services provided by
the Joint Site. All such Marketing Initiatives will be jointly
approved by HealthStream and HealthGate.
2.1.3. Have HealthStream's content development services made
available to HealthGate's clients on a commercially reasonable
best efforts basis, upon mutually agreeable terms. A referral
fee outlined in Section 4.3.1 shall be paid to HealthGate by
HealthStream for these services.
2.2. During the term of this Agreement, HealthStream shall:
2.2.1. Host and maintain the Joint Site on its World Wide Web
servers. The Joint Site will be a subset of HealthStream Sites
residing at a HealthStream Server Facility. The Joint Site
will be operational on or before one month following the
Effective Date.
2.2.2. Provide customer support and customer account collections
services for the Joint Site, either independently or via
HealthStream Service Associates.
2.2.3. Assign a partner manager to the HealthGate account who will be
responsible for maintaining
<PAGE>
communication with HealthGate personnel regarding site
functionality, marketing, and other business issues.
2.2.4. Include on the home page of the Joint Site a logo of the
HealthGate trademark and a hyperlink to the HealthGate Sites.
2.2.5. Provide one (1) distinct Personalization for each HealthGate
Site. The scope of each personalization is defined in Exhibit
A. Each distinct Personalization will become a Joint Site.
2.2.6. Have a right of first refusal to provide development services
to Third Party Course providers with whom HealthGate contracts
to place content within the Joint Sites, upon mutually
agreeable terms.
2.2.7. Refrain from communicating via e-mail with individual members
of the Joint Sites without prior approval from HealthGate.
ARTICLE 3
LICENSE GRANTS
3.1. Subject to the agreement of the providers of the HealthGate Courses,
HealthGate grants HealthStream worldwide, non-exclusive Internet rights
as the host and marketing agent for HealthGate Courses during the term
of this agreement.
3.2. Subject to the payment of the consideration set forth in Article 4,
HealthStream grants HealthGate the right to sell Ad Inventory in the
Joint Site. HealthStream will have the first right to Available Ad
Inventory.
3.3. Both parties to this Agreement shall have equal rights to the
client-specific data associated with the Joint Site. Rights to said
data will be subject to privacy provisions guaranteed by HealthStream
to Joint Site customers.
3.4. Any and all rights not expressly granted by either of the parties to
the other are reserved by the respective party claiming reservation of
that right.
ARTICLE 4
PRICE AND PAYMENT
4.1. HealthGate and HealthStream will meet as necessary to review pricing,
discounting policy and the rationale behind any discounts granted from
the previous quarter for healthcare related training courses, ad space
inventory, and Intranet products and services. HealthStream has
discretion over Course and Ad Inventory pricing.
4.2. During the term of this Agreement, HealthGate shall pay to HealthStream
fifteen percent (15%) of all Net Revenue derived from Ad Inventory sold
and collected by HealthGate.
4.3. During the term of this Agreement, HealthStream shall pay to
HealthGate:
4.3.1. A referral fee equal to five percent (5%) of the Net Revenue
derived from content development services described in Section
2.1.3;
4.3.2. Seventeen and one-half percent (17.5%) of all Net Revenue
derived from Transaction Fees from HealthStream Courses and
Third Party Courses procured by HealthStream;
4.3.3. Seventy-five percent (75%) of all Net Revenue derived from
Transaction Fees from HealthGate Courses and Third Party
Courses procured by HealthGate;
4.3.4. Fifteen percent (15%) of all Net Revenue derived from Ad
Inventory sold by HealthStream.
4.4. HealthStream shall guarantee to HealthGate minimum payments of two
hundred fifty thousand dollars (US$250,000) per annum, payable in
twelve equal installments, for the purposes of sponsoring the
HealthGate Sites, during the term of this Agreement.
<PAGE>
4.5. HealthGate and HealthStream agree to deliver monthly statements
detailing Joint Site Net Revenue collected by each party and all
payments due according to the percentages outlined in this Article 4
within forty-five (45) days after the end of each calendar month. These
monthly reports shall indicate the total number of Transactions and Ad
Inventory for which either party derives revenue, the details of said
reports are outlined in Exhibit B. Each party shall submit monthly
reports even if no royalties or other amounts are due for such month. A
monthly finance charge based on an annual rate of prime plus 2% will be
assessed on all amounts that are paid later than forty five (45) days
after the end of the last month.
ARTICLE 5
INDEMNIFICATION FOR INFRINGEMENT
5.1. HealthStream represents and warrants that to the best of its knowledge:
5.1.1. T.NAV(R) does not infringe any copyright or patent enforceable
under the laws of any country.
5.1.2. T.NAV(R) does not violate the trade secret rights of any third
party.
5.2. HealthStream agrees to indemnify, hold harmless, and defend HealthGate
from any and all damages, costs, and expenses, including reasonable
attorneys' fees, incurred in connection with a claim which constitutes
a breach of the warranties set forth in Section 5.1 and where judgment
has been rendered (hereinafter claims under Subsections 5.1.1 and 5.1.2
shall collectively be referred to as "Infringement Judgments");
provided, HealthStream is notified promptly in writing of an
Infringement Judgment and has sole control over its defense or
settlement, and HealthGate provides reasonable assistance in the
defense of the same.
5.3. HealthStream warrants that to the best of its knowledge its performance
of this Agreement will not violate or infringe upon the rights of third
parties, including but not limited to property, contractual,
employment, trade secret, proprietary information and non-disclosure
rights, or any United States trademark, copyright or patent right.
HealthStream will, at its own expense, defend any suit or proceeding
brought against HealthGate based on a claim that the HealthStream
Courses infringe upon any copyright, patent, trademark, trade secret,
or other intellectual property right, provided that HealthStream is
notified promptly in writing and given full and complete authority,
information and assistance for the defense of such suit or proceeding.
HealthStream may, at its option and expense, either obtain the right to
continue usage of affected HealthStream Courses free of any claim of
infringement, modify such HealthStream Courses so that affected
HealthStream Courses is not subject to a claim of infringement, or
remove the affected HealthStream Courses from the Joint Site.
5.4. HealthGate represents and warrants that to the best of its knowledge:
5.4.1. CHOICE(TM) does not infringe any copyright or patent
enforceable under the laws of any country.
5.4.2. CHOICE(TM) does not violate the trade secret rights of any
third party.
5.5. HealthGate agrees to indemnify, hold harmless, and defend HealthStream
from any and all damages, costs, and expenses, including reasonable
attorneys' fees, incurred in connection with a claim which constitutes
a breach of the warranties set forth in Section 3.3 and where judgment
has been rendered (hereinafter claims under Subsections 3.3.1 and 3.3.2
shall collectively be referred to as "Infringement Judgments");
provided, HealthGate is notified promptly in writing of an Infringement
Judgment and has sole control over its defense or settlement, and
HealthStream provides reasonable assistance in the defense of the same.
5.6. HealthGate warrants that to the best of its knowledge its performance
of this agreement will not violate or infringe upon the rights of third
parties, including but not limited to property, contractual,
employment, trade secret, proprietary information and non-disclosure
rights, or any United States trademark, copyright or patent right.
HealthGate will, at its own expense, defend any suit or proceeding
brought against HealthStream based on a claim that the HealthGate
Courses infringe upon any copyright, patent, trademark, trade secret,
or other intellectual property right, provided
<PAGE>
that HealthGate is notified promptly in writing and given full and
complete authority, information and assistance for the defense of such
suit or proceeding. HealthGate may, at its option and expense, either
obtain the right to continue usage of affected HealthGate Courses free
of any claim of infringement, modify such HealthGate Courses so that
affected HealthGate Courses is not subject to a claim of infringement,
or remove the affected HealthGate Courses from the Joint Site.
ARTICLE 6
INTELLECTUAL PROPERTY PROVISIONS
6.1. Both parties will cause to appear on all marketing or promotional
materials concerning the Joint Site, the other party's copyright,
trademark, or patent notices.
6.2. The parties agree that ownership for any invention conceived or
developed during the course of this Agreement shall vest in accordance
with the patent rules governing inventorship.
6.3. Each party is responsible for protecting, documenting, and maintaining
its own intellectual property. Except as expressly set forth herein,
this Agreement does not grant either party any proprietary rights of
any type in the other party's materials, services, software code or
Content.
6.4. Both parties acknowledge that, except as otherwise provided herein,
each party owns and retains all right, title and interest in and to its
own Courses provided each party for use on the Joint Site.
6.5. HealthStream acknowledges that HealthGate owns and retains all right,
title and interest in and to the HealthGate Sites and all HealthGate's
products, services and derivatives thereof arising from the performance
of this Agreement.
6.6. HealthGate acknowledges that, subject to the license granted to
HealthGate in Section 3.1 herein, HealthStream owns and retains all
right, title and interest in and to T.NAV(R) and HealthStream Sites.
ARTICLE 7
PROHIBITION AGAINST ASSIGNMENT AND SUBLICENSE
This Agreement, and any rights or obligations hereunder, shall not be assigned
or sublicensed (except as permitted in this Article 7) by either party.
Notwithstanding the foregoing, this Agreement may be assigned to a successor in
interest to all of a party's assets or substantially all of a party's assets and
shall inure to the benefit of and be binding upon successors or purchasers of
substantially all of either party's assets.
ARTICLE 8
TERM OF AGREEMENT
Provided this Agreement has been properly executed by an officer of HealthGate
and by an officer of HealthStream, the term of this Agreement ("Term") shall run
from the Effective Date until two (2) years after the Effective Date, and
thereafter be automatically extended for additional one (1) year periods unless
either party provides thirty (30) days written notice to the non-terminating
party.
ARTICLE 9
DEFAULT AND TERMINATION
9.1. The non-defaulting party may terminate this Agreement in its entirety
if any of the following events of default occur:
9.1.1. If the defaulting party materially fails to perform or comply
with this Agreement or any provision hereof;
<PAGE>
9.1.2. If the defaulting party fails to strictly comply with the
provisions of Article 12, or makes an assignment in violation
of Article 7;
9.1.3. If a party becomes insolvent or admits in writing its
inability to pay its debts as they mature, or makes an
assignment for the benefit of creditors;
9.1.4. If a petition under any foreign, state, or United States
bankruptcy act, receivership statute, or the like, as they now
exist, or as they may be amended, is filed by a party; or
9.1.5. If such a petition is filed by any third party, or an
application for a receiver of a party is made by anyone and
such petition or application is not resolved favorably or
discharged to such party within ninety (90) days.
9.2. Termination due to a breach of Articles 7 or 12 shall be effective upon
notice. In all other cases termination shall be effective sixty (60)
days after notice of termination to the defaulting party if the
defaults have not been cured within such sixty (60) day period. The
rights and remedies of the parties provided herein shall not be
exclusive and are in addition to any other rights and remedies provided
by law or this Agreement.
ARTICLE 10
OBLIGATIONS UPON TERMINATION
10.1. From and after termination or expiration of this Agreement, both
parties shall discontinue the operation of the Joint Site, cease and
desist from all use of the other party's name(s) and associated
trademark(s), and, upon request, deliver to the other party or its
authorized representatives or destroy all material upon which those
name(s) and the associated trademarks appear.
10.2. Articles 5, 6, 10, 11, 12, 13, 14, Section 16.1, and Article 17 shall
survive termination or expiration of this Agreement.
ARTICLE 11
WARRANTIES, LIMITATION OF LIABILITY AND REMEDIES
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY OTHER
WARRANTIES. ANY AND ALL OTHER IMPLIED WARRANTIES OF ANY KIND WHATSOEVER,
INCLUDING THOSE FOR MERCHANTABILITY AND/OR FITNESS FOR A PARTICULAR PURPOSE, ARE
EXPRESSLY EXCLUDED. NEITHER PARTY SHALL BE LIABLE FOR ANY CONSEQUENTIAL
(INCLUDING WITHOUT LIMITATION LOST PROFITS, UNLIQUIDATED INVENTORY, ETC.),
INCIDENTAL, INDIRECT, ECONOMIC, OR PUNITIVE DAMAGES EVEN IF THE OTHER PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
ARTICLE 12
NONDISCLOSURE AGREEMENT
12.1. HealthStream expressly undertakes to retain in confidence all
information and know-how transmitted to HealthStream by HealthGate that
HealthGate has identified as being proprietary and/or confidential or
that, by the nature of the circumstances surrounding the disclosure,
ought in good faith to be treated as proprietary and/or confidential,
and will make no use of such information and know-how except under the
terms and during the existence of this Agreement. HealthStream shall
not disclose, disseminate or distribute any such confidential
information or know how to any third party without HealthGate's prior
written consent. HealthStream agrees to use the same degree of care to
protect HealthGate confidential information as HealthStream takes to
protect its own confidential information of like importance. However,
HealthStream shall have no obligation to maintain the confidentiality
of information that:
12.1.1. Is received rightfully from another party prior to its receipt
from HealthGate;
12.1.2. HealthGate has disclosed to a third party without any
obligation to maintain such information in
<PAGE>
confidence; or
12.1.3. Has been or is independently developed by HealthStream.
12.2. Further, HealthStream may disclose confidential information as required
by governmental or judicial order, provided HealthStream gives
HealthGate prompt notice of such order and complies with any
confidentiality or protective order (or equivalent) imposed on such
disclosure. HealthStream shall treat the terms and conditions of this
Agreement as confidential; however, HealthStream may disclose such
information in confidence to its immediate legal and financial
consultants as required in the ordinary course of HealthStream's
business. HealthStream's obligation under this Article 12 shall extend
to the earlier of such time as the information protected hereby is in
the public domain through no fault of HealthStream or five (5) years
following termination or expiration of this Agreement. HealthStream
shall not disclose any information on HealthGate's unannounced products
to HealthStream's employees or any third party.
12.3. HealthGate shall have the same obligations in Sections 12.1 and 12.2
above with respect to HealthStream's information and know-how. In
addition, HealthGate shall treat all T.NAV(R) materials (including
source code if obtained) as confidential information and shall not
disclose, disseminate, or distribute such materials to any third party
without HealthStream's prior written permission.
12.4. Both parties shall prepare a mutually acceptable press release, if any,
to announce this Agreement.
ARTICLE 13
AUDITS
13.1. During the term of this Agreement, the parties hereto agree to keep all
usual and proper records and books of account and all usual and proper
entries relating to Transactions and sales of Ad Inventory consistent
with generally accepted accounting principles.
13.2. HealthStream may cause an audit to be made of the applicable HealthGate
records that pertain to this Agreement for the sole purpose of
verifying royalty reports issued by HealthGate to HealthStream and
prompt adjustment shall be made to compensate for any errors or
omissions disclosed by such audit. Any such audit shall be conducted by
an independent certified public accountant of national stature (E.G.,
Deloitte) selected by HealthStream (other than on a contingent fee
basis) and shall be conducted during regular business hours at
HealthGate's offices and in such a manner as not to interfere with
HealthGate's normal business activities. Any such audit shall occur no
more than once per calendar year and within six (6) months of the end
of the calendar year. HealthStream shall pay for any such audit unless
Material discrepancies are disclosed. "Material" shall mean the lesser
of Five Thousand Dollars (US$5,000.00) or five percent (5%) of the
amount that should have been reported. If Material discrepancies are
disclosed, HealthGate agrees to pay HealthStream the costs associated
with the audit not to exceed Five Thousand Dollars (US$5,000.00). The
auditor shall only disclose the correct data and amounts as called for
on the royalty reports.
13.3. HealthGate may cause an audit to be made of the applicable HealthStream
records and facilities for the sole purpose of verifying any reports
issued by HealthStream to HealthGate, and prompt adjustment shall be
made to compensate for any errors or omissions disclosed by such audit.
Any such audit shall be conducted by an independent certified public
accountant of national stature (E.G., Deloitte) selected by HealthGate
(other than on a contingent fee basis) and shall be conducted during
regular business hours at HealthStream's offices and in such a manner
as not to interfere with HealthStream's normal business activities. Any
such audit shall be paid for by HealthGate unless Material
discrepancies are disclosed. "Material" shall mean the lesser of Five
Thousand Dollars (US$5,000.00) or five percent (5%) of the amount that
should have been reported. If Material discrepancies are disclosed,
HealthStream agrees to pay HealthGate for the costs associated with the
audit not to exceed Five Thousand Dollars (US$5,000.00). In no event
shall audits be made more frequently than annually unless the
immediately preceding audit
<PAGE>
disclosed a Material discrepancy. The auditor shall only disclose the
correct data and amounts as called for on the royalty reports.
13.4. Any statement shall affect neither the right to examine and audit nor
the right to receive an adjustment to the contrary, appearing on checks
or otherwise, unless expressly agreed to in writing by the party having
such right.
13.5. In the event that either party makes any claim with respect to an
audit, upon the audited party's written request the party who has
requested such audit will make available to the audited party the
records and reports pertaining to such audit prepared by the
independent auditor who performed such audit.
ARTICLE 14
NOTICES AND REQUESTS
All notices, authorizations, and requests in connection with this Agreement
shall be deemed given on the day they are deposited in the U.S. mails, postage
prepaid, certified or registered, return receipt requested, or sent by air
express courier, charges prepaid; and addressed as follows:
HealthGate: HealthGate, Inc.
Attn: Rick Lawson
Vice President
25 Corporate Drive, Suite 310
Burlington, Massachusetts 01803
HEALTHSTREAM: HealthStream, Inc.
Attn: Robert H. Laird
209 10th Avenue South
Suite 450
Nashville, Tennessee 37203
or to such other address as the party to receive the notice or request so
designates by written notice to the other.
ARTICLE 15
MEDIA
Each party agrees it will not use the other party's name, marks, or logos in any
advertising, promotional material, press release, publication, public
announcement, or through other media, written or oral, whether to the press, to
holders of publicly owned stock without the prior written consent of the other
party. Such consent shall not be unreasonably withheld or delayed. Accurate
statements made by either party as to the basic terms of this Agreement are said
to have the consent of the other party
ARTICLE 16
CONTROLLING LAW
16.1 This Agreement shall be construed and controlled by the laws of the
State of Tennessee.
16.2 Neither this Agreement, nor any terms and conditions contained herein,
shall be construed as creating a partnership, joint venture or agency
relationship or as granting a franchise as defined in 16 CFR Section
436.2(a). The price and payment described in Article 4 of this
Agreement shall be construed as a royalty fee for the rights granted in
Article 3 of this Agreement, and not as a
<PAGE>
franchise fee.
ARTICLE 17
ATTORNEYS' FEES
If either HealthStream or HealthGate employs attorneys to enforce any rights
arising out of or relating to this Agreement, the prevailing party in any
proceeding shall be entitled to recover its reasonable attorneys' fees, costs
and other expenses.
ARTICLE 18
GENERAL
18.1 This Agreement does not constitute an offer by HealthStream and it
shall not be effective until signed by both parties. Upon execution by
both parties, this Agreement shall constitute the entire agreement
between the parties with respect to the subject matter hereof and
replaces and supplants all prior and contemporaneous communications. It
shall not be modified except by a written agreement signed on behalf of
HealthGate and HealthStream by their respective duly authorized
representatives. Unless agreed to in a separate writing signed by both
parties, any statement appearing as a restrictive endorsement on a
check or other document which purports to modify a right, obligation or
liability of either party shall be of no force and effect.
18.2 If any provision of this Agreement shall be held by a court of
competent jurisdiction to be illegal, invalid, or unenforceable, the
remaining provisions shall remain in full force and effect. If this
Agreement as it relates to any product(s) licensed hereunder shall be
held by a court of competent jurisdiction to be invalid, illegal, or
unenforceable or if this Agreement is terminated as to particular
product(s), this Agreement shall remain in full force and effect as to
the remaining product(s).
18.3 No waiver of any breach of any provision of this Agreement shall
constitute a waiver of any prior, concurrent or subsequent breach of
the same or any other provisions hereof, and no waiver shall be
effective unless made in writing and signed by an authorized
representative of the waiving party.
18.4 The Article headings used in this Agreement and the attached Exhibits
are intended for convenience only and shall not be deemed to supersede
or modify any provisions.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth in Section 1.8 above. All signed copies of this Agreement shall
be deemed originals.
/s/ Robert A. Frist, Jr.
- ------------------------------
HealthStream, Inc.
Robert A. Frist, Jr.
Chief Executive Officer
/s/ Mary B. Miller
- ------------------------------
HealthGate Data Corp.
Mary B. Miller
Chief Financial Officer
<PAGE>
MARKETING SERVICES AGREEMENT
BETWEEN HEALTHSTREAM & HEALTHGATE DATA CORP.
This Marketing Services Agreement ("Agreement") is entered into by and
between HealthStream, Inc., a Tennessee corporation having its principal place
of business at 209 10th Avenue South, Suite 450, Nashville, Tennessee 37203
("HealthStream") and HealthGate Data Corp., a Delaware corporation having its
principal place of business at 25 Corporate Drive, Suite 310, Burlington,
Massachusetts 01803 ("HealthGate").
WHEREAS, HealthStream is a provider of computer and Web-based education
and training services organizations and individuals within the healthcare
industry;
WHEREAS, HealthStream is a provider of healthcare and education
courseware and courseware management tools delivered via the Internet, corporate
intranets and networks;
WHEREAS, HealthGate enables hospitals and health systems to provide
their users with access to healthcare content for professionals, patients, and
consumers under its CHIOCE(TM) brand name for their Web sites On the Internet
and on their corporate intranets;
WHEREAS, HealthGate and HealthStream have entered into a cooperative
effort to provide HealthStream branded, hosted and managed educational offerings
via HealthGate's distribution channels; market said educational offerings; and
sell the ad space inventory available within said educational offerings;
WHEREAS, HealthGate and HealthStream wish to provide appropriate
consideration for those efforts that each party has agreed to undertake;
WHEREAS, HealthGate and HealthStream each acknowledge the sufficiency
and adequacy of the value, concessions, and recitations set forth herein;
NOW THEREFORE, HealthGate and HealthStream agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the terms below shall have the following
meanings:
1.1. "CHOICE(TM)" means HealthGate's suite of products that provide
healthcare content to hospitals and health systems for use on their Web
sites and intranets. CHOICE(TM) is a trademark of HealthGate.
1.2. "Effective Date" means September 29, 1999, the date on which both
parties to this Agreement have executed same.
1.3. "HealthGate" means HealthGate Data Corp. and any affiliated entity of
HealthGate. HealthGate is said to be a HealthStream Site via the
execution of this Agreement.
1.4. "HealthGate Sites" means the various branded Internet sites licensing
products and services from HealthGate, including its CHOICE(TM)
product.
1.5. "HealthStream" means HealthStream, Inc. and any Subsidiary of
HealthStream, Inc.
1.6. "HealthStream Services" means HealthStream branded, hosted and managed
healthcare educational offerings delivered via HealthStream Sites.
1.7. "HealthStream Sites" means those HealthStream managed and hosted
Internet sites that deliver educational and other content via the
T.NAV(R). HealthStream Sites may be available via the World Wide Web or
through a private Intranet.
1.8. "Internet" means the international network of computers and computer
networks accessible by the public at large of which the World Wide Web
is a subset.
<PAGE>
1.9. "Intranet" means an internal network protected from unauthorized users
by a firewall and accessible only by individuals within the
organization serving the network.
1.10. "Joint Site" means one or more Internet sites available from HealthGate
Sites containing HealthStream Services. The Joint Sites are also said
to be a subset of HealthStream Sites. Joint Sites will contain branding
from both HealthStream and HealthGate.
1.11. "Marketing Initiatives" means those significant HealthGate marketing
activities that prominently include mention and promotion of
HealthStream and the Joint Site services. Marketing Initiatives include
but are not limited to the following: trade shows and exhibitions,
seminars, direct mailing campaigns, third party publication
advertisement campaigns, online banner advertisement campaigns.
HealthGate and HealthStream will jointly determine the scope, total
cost and cost allocation of Marketing Initiatives funded by both
parties. Notwithstanding other considerations, HealthStream financial
participation in each Marketing Initiative will be determined in part
by the extent of Joint Site and HealthStream promotion in said
Marketing Initiative.
1.12. "Subsidiary" means a company in which, on a class-by-class basis, more
than fifty percent (50%) of the stock entitled to vote for the election
of directors is owned or controlled by another company, but only so
long as such ownership or control exists.
1.13. "T.NAV(R)" means HealthStream's computer based training product that
delivers and monitors World Wide WeB based Content. T.NAV(R) is
available in multiple configurations, each containing common core
functionalitY with unique features applicable for a given application's
distribution and access requirements, e.g. Internet eCommerce,
Intranet, local area networks, etc. T.NAV(R) is a registered trademark
of HealthStream. T.NAV(R) is also branded as Training Navigator(TM), a
trademark of HealthStream.
ARTICLE 2
RESPONSIBILITIES AND STRATEGIC RIGHTS GRANTS
2.1. During the term of this Agreement, HealthGate shall:
2.1.1. Promote the Joint Site as a part of HealthGate's public
advertising strategy. HealthGate and HealthStream will jointly
develop a specific promotion plan within ninety (90) days of
the Effective Date that will include a minimum of one (1)
Marketing Initiative per month. HealthGate will include the
use of the HealthStream trademark logo on all HealthGate
marketing materials that reference the services provided by
the Joint Site. All such Marketing Initiatives will be jointly
approved by HealthStream and HealthGate.
2.1.2. Guarantee minimum marketing expenditures of one hundred
thousand dollars (US$100,000) per annum specifically promoting
the Joint Site's products and services. In addition,
HealthGate will guarantee payments to HealthStream of one
hundred fifty thousand dollars (US$150,000) per annum to
underwrite the delivery of continuing education credits to
healthcare professionals, which credits will be provided at no
cost to those healthcare professionals, during the term of
this Agreement.
2.2. During the term of this Agreement, HealthStream shall:
2.2.1. Assign a partner manager to the HealthGate account who will be
responsible for maintaining communication with HealthGate
personnel regarding site functionality, marketing, and other
business issues.
2.2.2. Financially participate in at least one Marketing Initiative
per quarter.
ARTICLE 4
INTELLECTUAL PROPERTY PROVISIONS
<PAGE>
4.1. Both parties will cause to appear on all marketing or promotional
materials concerning the Joint Site, the other party's copyright,
trademark, or patent notices.
4.2. The parties agree that ownership for any invention conceived or
developed during the course of this Agreement shall vest in accordance
with the patent rules governing inventorship.
4.3. Each party is responsible for protecting, documenting, and maintaining
its own intellectual property. Except as expressly set forth herein,
this Agreement does not grant either party any proprietary rights of
any type in the other party's materials, services, software code or
content.
ARTICLE 5
PROHIBITION AGAINST ASSIGNMENT AND SUBLICENSE
This Agreement, and any rights or obligations hereunder, shall not be assigned
or sublicensed (except as permitted in this Article 5) by either party.
Notwithstanding the foregoing, this Agreement may be assigned to a successor in
interest to all of a party's assets or substantially all of a party's assets and
shall inure to the benefit of and be binding upon successors or purchasers of
substantially all of either party's assets.
ARTICLE 6
TERM OF AGREEMENT
Provided this Agreement has been properly executed by an officer of HealthGate
and by an officer of HealthStream, the term of this Agreement ("Term") shall run
from the Effective Date until two (2) years after the Effective Date, and
thereafter be automatically extended for additional one (1) year periods unless
either party provides thirty (30) days written notice to the non-terminating
party.
ARTICLE 7
DEFAULT AND TERMINATION
7.1. The non-defaulting party may terminate this Agreement in its entirety
if any of the following events of default occur:
7.1.1. If the defaulting party materially fails to perform or comply
with this Agreement or any provision hereof;
7.1.2. If the defaulting party makes an assignment in violation of
Article 5;
7.1.3. If a party becomes insolvent or admits in writing its
inability to pay its debts as they mature, or makes an
assignment for the benefit of creditors;
7.1.4. If a petition under any foreign, state, or United States
bankruptcy act, receivership statute, or the like, as they now
exist, or as they may be amended, is filed by a party; or
7.1.5. If such a petition is filed by any third party, or an
application for a receiver of a party is made by anyone and
such petition or application is not resolved favorably or
discharged to such party within ninety (90) days.
7.2. Termination due to a breach of Articles 5 shall be effective upon
notice. In all other cases termination shall be effective sixty (60)
days after notice of termination to the defaulting party if the
defaults have not been cured within such sixty (60) day period. The
rights and remedies of the parties provided herein shall not be
exclusive and are in addition to any other rights and remedies provided
by law or this Agreement.
ARTICLE 8
OBLIGATIONS UPON TERMINATION
<PAGE>
8.1. From and after termination or expiration of this Agreement, both
parties shall discontinue the operation of the Joint Site, cease and
desist from all use of the other party's name(s) and associated
trademark(s), and, upon request, deliver to the other party or its
authorized representatives or destroy all material upon which those
name(s) and the associated trademarks appear.
8.2. Articles 3, 4, 8, 9, 10, 11, Section 13.1, and Article 14 shall survive
termination or expiration of this Agreement.
ARTICLE 9
WARRANTIES, LIMITATION OF LIABILITY AND REMEDIES
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY OTHER
WARRANTIES. ANY AND ALL OTHER IMPLIED WARRANTIES OF ANY KIND WHATSOEVER,
INCLUDING THOSE FOR MERCHANTABILITY AND/OR FITNESS FOR A PARTICULAR PURPOSE, ARE
EXPRESSLY EXCLUDED. NEITHER PARTY SHALL BE LIABLE FOR ANY CONSEQUENTIAL
(INCLUDING WITHOUT LIMITATION LOST PROFITS, UNLIQUIDATED INVENTORY, ETC.),
INCIDENTAL, INDIRECT, ECONOMIC, OR PUNITIVE DAMAGES EVEN IF THE OTHER PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
ARTICLE 10
AUDITS
10.1. During the term of this Agreement, the parties hereto agree to keep all
usual and proper records and books of account and all usual and proper
entries relating to Marketing Initiatives consistent with generally
accepted accounting principles.
10.2. HealthStream may cause an audit to be made of the applicable HealthGate
records that pertain to this Agreement for the sole purpose of
verifying Marketing Initiative reports issued by HealthGate to
HealthStream and prompt adjustment shall be made to compensate for any
errors or omissions disclosed by such audit. Any such audit shall be
conducted by an independent certified public accountant of national
stature (E.G., Deloitte) selected by HealthStream (other than on a
contingent fee basis) and shall be conducted during regular business
hours at HealthGate's offices and in such a manner as not to interfere
with HealthGate's normal business activities. Any such audit shall
occur no more than once per calendar year and within six (6) months of
the end of the calendar year. HealthStream shall pay for any such audit
unless Material discrepancies are disclosed. "Material" shall mean the
lesser of Five Thousand Dollars (US$5,000.00) or five percent (5%) of
the amount that should have been reported. If Material discrepancies
are disclosed, HealthGate agrees to pay HealthStream the costs
associated with the audit not to exceed Five Thousand Dollars
(US$5,000.00). The auditor shall only disclose the correct data and
amounts as called for on the royalty reports.
10.3. HealthGate may cause an audit to be made of the applicable
HealthStream records and facilities for the sole purpose of verifying
any Marketing Initiative reports issued by HealthStream to HealthGate,
and prompt adjustment shall be made to compensate for any errors or
omissions disclosed by such audit. Any such audit shall be conducted by
an independent certified public accountant of national stature (E.G.,
Deloitte) selected by HealthGate (other than on a contingent fee basis)
and shall be conducted during regular business hours at HealthStream's
offices and in such a manner as not to interfere with HealthStream's
normal business activities. Any such audit shall be paid for by
HealthGate unless Material discrepancies are disclosed. "Material"
shall mean the lesser of Five Thousand Dollars (US$5,000.00) or five
percent (5%) of the amount that should have been reported. If Material
discrepancies are disclosed, HealthStream agrees to pay HealthGate for
the costs associated with the audit not to exceed Five Thousand Dollars
(US$5,000.00). In no event shall audits be made more frequently than
annually unless the immediately preceding audit disclosed a Material
discrepancy. The auditor shall only disclose the correct data and
amounts
<PAGE>
as called for on the royalty reports.
10.4. Any statement shall affect neither the right to examine and audit nor
the right to receive an adjustment to the contrary, appearing on checks
or otherwise, unless expressly agreed to in writing by the party having
such right.
10.5. In the event that either party makes any claim with respect to an
audit, upon the audited party's written request the party who has
requested such audit will make available to the audited party the
records and reports pertaining to such audit prepared by the
independent auditor who performed such audit.
ARTICLE 11
NOTICES AND REQUESTS
All notices, authorizations, and requests in connection with this Agreement
shall be deemed given on the day they are deposited in the U.S. mails, postage
prepaid, certified or registered, return receipt requested, or sent by air
express courier, charges prepaid; and addressed as follows:
HEALTHGATE: HealthGate Data Corp.
Attn: Rick Lawson
Vice President
25 Corporate Drive, Suite 310
Burlington, Massachusetts 01803
HEALTHSTREAM: HealthStream, Inc.
Attn: Robert H. Laird
209 10th Avenue South
Suite 450
Nashville, Tennessee 37203
or to such other address as the party to receive the notice or request so
designates by written notice to the other.
ARTICLE 12
MEDIA
Each party agrees it will not use the other party's name, marks, or logos in any
advertising, promotional material, press release, publication, public
announcement, or through other media, written or oral, whether to the press, to
holders of publicly owned stock without the prior written consent of the other
party. Such consent shall not be unreasonably withheld or delayed. Accurate
statements made by either party as to the basic terms of this Agreement are said
to have the consent of the other party
ARTICLE 13
CONTROLLING LAW
13.1. This Agreement shall be construed and controlled by the laws of the
State of Tennessee.
13.2. Neither this Agreement, nor any terms and conditions contained herein,
shall be construed as creating a partnership, joint venture or agency
relationship or as granting a franchise as defined in 16 CFR Section
436.2(a).
<PAGE>
ARTICLE 14
ATTORNEYS' FEES
If either HealthStream or HealthGate employs attorneys to enforce any rights
arising out of or relating to this Agreement, the prevailing party in any
proceeding shall be entitled to recover its reasonable attorneys' fees, costs
and other expenses.
ARTICLE 15
GENERAL
15.1. This Agreement does not constitute an offer by HealthStream and
it shall not be effective until signed by both parties. Upon execution
by both parties, this Agreement shall constitute the entire agreement
between the parties with respect to the subject matter hereof and
replaces and supplants all prior and contemporaneous communications. It
shall not be modified except by a written agreement signed on behalf of
HealthGate and HealthStream by their respective duly authorized
representatives. Unless agreed to in a separate writing signed by both
parties, any statement appearing as a restrictive endorsement on a
check or other document which purports to modify a right, obligation or
liability of either party shall be of no force and effect.
15.2. If any provision of this Agreement shall be held by a court of
competent jurisdiction to be illegal, invalid, or unenforceable, the
remaining provisions shall remain in full force and effect. If this
Agreement as it relates to any product(s) licensed hereunder shall be
held by a court of competent jurisdiction to be invalid, illegal, or
unenforceable or if this Agreement is terminated as to particular
product(s), this Agreement shall remain in full force and effect as to
the remaining product(s).
15.3. No waiver of any breach of any provision of this Agreement shall
constitute a waiver of any prior, concurrent or subsequent breach of
the same or any other provisions hereof, and no waiver shall be
effective unless made in writing and signed by an authorized
representative of the waiving party.
15.4. The Article headings used in this Agreement and the attached Exhibits
are intended for convenience only and shall not be deemed to supersede
or modify any provisions.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth in Section 1.2 above. All signed copies of this Agreement shall
be deemed originals.
/s/ Robert A. Frist, Jr.
- ------------------------------
HealthStream, Inc.
Robert A. Frist, Jr.
Chief Executive Officer
/s/ Mary B. Miller
- ------------------------------
HealthGate Data Corp.
Mary B. Miller
Chief Financial Officer
<PAGE>
EXHIBIT 10.36
[GRAPHIC] CO-BRANDED CHOICE-TM- WEB SITE AGREEMENT
THIS CO-BRANDED CHOICE WEB SITE AGREEMENT ("Agreement") dated as of November
2, 1999, entered into by and between Columbia Information Systems, Inc.
("Licensee"), a Tennessee corporation with a notice address of 2555 Park
Plaza, Nashville, TN 37203, and HealthGate Data Corp. ("HealthGate"), a
Delaware corporation with a notice address of 25 Corporate Drive, Suite 310,
Burlington Massachusetts 01803.
WHEREAS, HealthGate provides access to information products and services
through the Internet using its proprietary CHOICE platform;
WHEREAS, HealthGate and Licensee wish to enter into an agreement providing
for the licensing of certain of HealthGate's products and services through a
health portal site and the CHOICE Web Sites.
NOW, THEREFORE, in consideration of the mutual promises set forth herein and
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. The following terms shall have the following meanings:
1.1. "Affiliated Providers" shall mean C/HCA Providers, Triad Providers, or
LifePoint Providers.
1.2. "Authorized Users" shall mean (i) Licensee, (ii) Affiliated Providers and
HPG Members to which Licensee provides the HealthGate Products under this
Agreement, (iii) persons who access portions of the HealthGate Products
that may require user registration and authentication in compliance with
HealthGate's software licenses, and (iv) persons who access portions of
the HealthGate Products that may not require user registration and
passwords.
1.3. "C/HCA Providers" shall mean those healthcare providers owned, controlled
or operated by any entity owned or controlled by Columbia/HCA Healthcare
Corporation.
1.4. "CHOICE Web Sites" shall mean the eight (8) co-branded template web sites
designed, developed, and maintained for Licensee in accordance with this
Agreement.
1.5. "Confidential Information" shall mean the identity of patients, the
content of medical records, financial and tax information, information
regarding Medicare and Medicaid claims submission and reimbursements,
the object and source codes and documentation for proprietary software,
and such other information that is confidential or proprietary business
information and delivered or disclosed pursuant to this Agreement.
1.6. "Expiration Date" shall mean November 1, 2002.
1.7. "GAO" shall mean the Government Accounting Office.
1.8. "HealthGate Products" shall mean the Portal, the CHOICE Web Sites, and
any customized CHOICE Web Site provided under this Agreement for an
Affiliated Provider or HPG Member as described in SCHEDULES A, B, AND C.
1.9. "HHS" shall mean the Department of Health and Human Services.
1.10. "HealthGate Trademarks" shall mean HealthGate's name, logos, trademarks,
servicemarks, and trade dress created or used by HealthGate.
1.11. "HPG Members" shall mean HealthTrust Purchasing Group, L.P. and
healthcare providers which are or become members of HealthTrust
Purchasing Group, LP.
1.12. "Information" shall mean that content and services provided by or through
HealthGate under this Agreement as set forth on SCHEDULE C.
<PAGE>
1.13. "Information Partners" shall mean those entities that have licensed
HealthGate certain information or content included in the Information.
1.14. "Licensee Trademarks" shall mean Licensee's name, logos, trademarks,
servicemarks, and trade dress created or used by Licensee.
1.15. "LifePoint Providers" shall mean those healthcare providers owned,
controlled, or operated by any entity owned or controlled by LifePoint
Hospitals, Inc.
1.16. "Net Advertising Revenues" shall mean all advertising and sponsorship
monies received for advertising or sponsorship placements on the
HealthGate Products less the cost of preparing such displays or
placements, agency discounts, frequency discounts, sales commissions,
any other third party obligations or revenue sharing commitments, and any
sales or use taxes, if applicable, related to such advertising and
sponsorship placements.
1.17. "Net E-Commerce Revenues" shall mean the revenue for all products sold
through a customized CHOICE Web Site provided under this Agreement for
an Affiliated Provider or HPG Member less the cost of such product,
including the manufacturing, shipping, and storage of such product,
agency discounts, frequency discounts, sales commissions, any other third
party obligations or revenue sharing commitments, and any sales or use
taxes, if applicable, related to such product revenue.
1.18. "Portal" shall mean the co-branded health portal site designed,
developed, and maintained for Licensee in accordance with this Agreement.
1.19. "Provider Content" shall mean content developed, owned, or licensed by an
Affiliated Member of HPG Member and provided by the applicable Affiliated
Member or HPG Member to HealthGate.
1.20. "Related Materials" shall mean the software and content and materials
associated with the HealthGate Products, used to provide the Information.
1.21. "Termination Notice" shall mean a written notice of termination.
1.22. "Triad Providers" shall mean those healthcare providers owned,
controlled, or operated by any entity owned or controlled by Triad
Hospitals, Inc.
2. HEALTH PORTAL SITE; CO-BRANDED CHOICE WEB SITE; AUTHORIZED USERS; LICENSE;
PROHIBITED ACTIONS
2.1. HEALTH PORTAL SITE. HealthGate shall design, develop, and maintain the
Portal on the World Wide Web that can be accessed by Authorized Users for
Licensee in accordance with the functional requirements listed in SCHEDULE
A. The Portal shall be co-branded with both the Licensee's Trademarks and
HealthGate's Trademarks, in a manner acceptable to both parties.
2.2. CO-BRANDED CHOICE WEB SITE. HealthGate shall design, develop, and maintain
the CHOICE Web Sites for Licensee that can be accessed by Authorized Users
in accordance with the functional requirements listed in SCHEDULE B. The
CHOICE Web Sites shall be co-branded with both the Licensee's Trademarks
and HealthGate's Trademarks, in a manner acceptable to both parties.
2.3 CONTENT AND SERVICE. HealthGate shall provide to the Portal and/or for the
CHOICE Web Sites the content and services outlined in SCHEDULE C. Licensee
may use up to two thousand and eighty (2080) hours of HealthGate
development time (averaging forty (40) hours per week over fifty-two (52)
weeks) in the aggregate for developing the Portal and the CHOICE Web Sites.
2.4 LICENSE.
(a) HealthGate grants to Licensee a non-exclusive, non-transferable
license to provide access to the Information through the HealthGate
Products to Authorized Users. The rights granted by HealthGate shall
be for Licensee to use the HealthGate Products for itself, C/HCA
Providers, LifePoint Providers,
<PAGE>
Triad Providers, and HPG Members. The maximum number of healthcare
providers to which Licensee can provide the HealthGate Products
shall be limited to a total of two hundred and eighty (280)
Affiliated Providers; provided, however, if Licensee provides any
HealthGate Products to any HPG Member, the total number of
healthcare providers to which Licensee can provide Healthcare
Products shall be limited to two hundred and fifty (250) healthcare
providers among Affiliated Providers and HPG Members.
(b) The Information and the Related Materials are the property of
HealthGate or an Information Partner and is protected by applicable
laws. Licensee shall abide by and shall use commercially reasonable
efforts to cause Authorized Users to abide by all copyright notices,
information, or restrictions contained in any Information accessed
through the HealthGate Products.
(c) Any rights not expressly granted in this Agreement with regard to
the HealthGate Products, the Information, and the Related Materials
are reserved to HealthGate and its Information Partners.
2.5 PERMITTED USES. During the term of this Agreement, Licensee and its
Authorized Users may:
(a) make searches of and access the Information;
(b) make a very limited number of hard copies of any search output that
does not contain a significant segment of a database, which copies
may be used only internally but may not be sold, provided that all
copyright and other notices contained in such Information are
maintained.
(c) make one copy of any search output in electronic form (i.e. diskette,
hard disk, or tape) to be used for editing or temporary storage only,
provided that all copyright and other notices contained in such
Information are maintained.
With respect to subsection 2.5(b), provided that Licensee, Affiliated
Providers, and HPG Members, and their respective physicians, employees,
agents, contractors, and subcontractors, (collectively, "Affiliated Users")
shall use commercially reasonable efforts to ensure that Authorized Users
who are not Affiliated Users abide by this provision and shall promptly
report to HealthGate any suspected or actual violations of subsection
2.5(b), Licensee and its Affiliated Users shall not be liable for any
breach of subsection 2.5(b) by Authorized Users who are not Affiliated
Users.
2.6 PROHIBITED ACTIONS. Licensee agrees that it is prohibited from and shall
not:
(a) de-compile or reverse engineer the HealthGate Products, the
Information, or any of the Related Materials;
(b) sell, re-license, distribute or commercially exploit the Information
or any of the Related Materials except as set forth in Sections 3.2
and 3.3 below.
(c) except as specifically permitted herein, make the Information
available through any means or media other than the HealthGate
Products;
(d) except as specifically permitted herein, modify, publish, transmit,
participate in the license, transfer or sale of, reproduce, create
derivative works from, distribute, perform, display, or in anyway
exploit the HealthGate Products, the Information or any of the Related
Materials, in whole or in part, without the prior written consent of
HealthGate.
DEVELOPMENT AND DELIVERY OF THE HEALTHGATE PRODUCTS
3.1 Delivery dates for the HealthGate Products are set forth on SCHEDULE D.
3.2 The HealthGate Products shall be designed to provide advertising and
sponsorship messages from commercial vendors to Authorized Users. Both
parties shall cooperate on obtaining advertising and sponsor messages and
on providing e-commerce opportunities on the Portal or a customized CHOICE
Web Site provided under this Agreement for an Affiliated Provider or HPG
Member. HealthGate shall have the exclusive right to sell and serve
advertising, sponsorship and e-commerce opportunities on the HealthGate
Products. Licensee shall have the right to approve all advertising,
sponsorship, and e-commerce opportunities on the Portal or customized
CHOICE Web Site provided under this Agreement for an Affiliated Provider
or HPG Member, including the method for displaying or causing the
advertising to be displayed, which approval shall not be unreasonably
withheld. HealthGate shall provide notice at least five (5) business days
before release of such messages by HealthGate and Licensee must approve
such messages within three (3) days of receipt of such notice otherwise
Licensee will be deemed to have approved any such message.
<PAGE>
3.3 The HealthGate Products shall be designed to provide Licensee the
opportunity to serve promotional messages to Authorized Users. All such
messages shall be administered by HealthGate on behalf of Licensee.
HealthGate shall have the right to approve such promotional messages,
which approval shall not be unreasonably withheld. HealthGate shall
provide notice at least five (5) business days before release of such
messages by HealthGate and Licensee must approve such messages within
three (3) days of receipt of such notice otherwise Licensee will be deemed
to have approved any such message.
4. MARKETING AND RE-SELLING SITES
4.1 Licensee shall have the right to market and provide HealthGate Products
and services covered under this Agreement to Affiliated Providers and HPG
Members. HealthGate shall not market HealthGate Products and services
directly to the Affiliated Providers.
4.2 Any Affiliated Provider or HPG Member facility which is sold to an
independent third party may continue to utilize the HealthGate Products
provided Licensee is providing data processing services to such divested
entity. If Licensee is not continuing to provide data processing services
to such divested entity, then such entity shall have the right to continue
to use the HealthGate Products for the remainder of the current year, or
ninety (90) days, whichever is longer. After such time, the entity will
have to obtain its own license.
5. ACTIVEPRESS LIGHT WEB PUBLISHING SERVICES
5.1 HealthGate shall provide, at no additional charge, the following
activePress Light modules for the purpose of hosting and providing access
to Provider Content for up to fifty (50) Affiliated Providers and HPG
Members: content normalization, "linkMEDLINE" (links to the MEDLINE
database from article bibliographies), content review, content release, and
content access and control.
5.2 HealthGate shall provide all redundant hardware and software required for
activePress Light at the HealthGate facilities.
5.3 HealthGate shall provide, maintain, and upgrade as necessary all system
administration tools, Internet connections, and applicable bandwidth
required for activePress Light.
5.4 HealthGate shall make the Provider Content available through the Portal or
applicable customized CHOICE Web Site provided under this Agreement for an
Affiliated Provider or HPG Member utilizing activePress Light.
5.5 HealthGate shall provide a secure connection for uploading the Provider
Content to activePress Light on a monthly basis. HealthGate shall integrate
the Provider Content into activePress Light and then release the Provider
Content on the Web at a day and time to be determined by the applicable
Affiliated Provider or HPG Member. The applicable Affiliated Provider or
HPG Member shall provide each issue of the Provider Content in a
pre-defined tagged format, which shall be mutually agreed upon by Licensee
and HealthGate, at least five (5) business days prior to the designated Web
release date. The applicable Affiliated Provider or HPG Member shall be
responsible for all quality assurance for the actual content within the
five (5) business days.
5.6 HealthGate will create space for advertising banners on each page of the
Provider Content. Both parties shall cooperate on obtaining advertising
messages for the banners. HealthGate shall have the exclusive right to sell
and serve advertising on the banners. The applicable Affiliated Provider or
HPG Member shall have the right to approve all advertising on the banners,
including the method for displaying or causing the advertising to be
displayed, which approval shall not be unreasonably withheld. HealthGate
shall provide notice at least five (5) business days before release of such
messages by HealthGate and Licensee must approve such messages within three
(3) days of receipt of such notice otherwise Licensee will be deemed to
have approved any such message.
5.7 HealthGate, acting as an agent on behalf of the applicable Affiliated
Provider or HPG Member, shall have the right to sell individual articles
and subscriptions to the Provider Content through its own Web sites in a
<PAGE>
manner that shall be mutually agreed upon by the parties.
6. FEES
6.1 LICENSE FEES. Annual fees payable by Licensee to HealthGate are set forth
in SCHEDULE E.
6.2 ADVERTISING AND SPONSORSHIP. As set forth in SCHEDULE E, Licensee shall
receive a commission based on Net Advertising Revenues and Net E-Commerce
Revenues.
6.3 ADJUSTMENTS IN FEES. The annual license fee due hereunder and set forth in
SCHEDULE E may be subject to an adjustment prior to the Expiration Date.
6.3.1 MOST FAVORED NATION PRICING TERMS. If HealthGate provides the same
HealthGate Product to another licensee at prices less than the prices
being paid by Licensee for all Affiliated Providers and HPG Members,
HealthGate and Licensee shall mutually agree to an appropriate
reduction in the price; provided, however the reduced price shall not
be less than the price paid by the other licensee.
6.3.2 DECREASE IN NUMBER OF CHOICE WEB SITES. If after full implementation
of this Agreement, the aggregate number of customized CHOICE Web
Sites provided under this Agreement for the Affiliated Providers
(including divested facilities where Licensee continues to provide
data processing services) falls below or is below two hundred (200)
facilities, the annual license fee will be reduced by $145,000 per
each reduction of ten (10) providers until the annual license fee is
$2,500,000; provided, however, that if the total number of Affiliate
Providers increases and exceeds two hundred and eighty (280)
providers, the annual fee will be increased by $145,000 per each
increase of ten (10) providers.
6.4 FEES RELATED TO ADDITIONAL PRODUCTS AND SERVICES. Notwithstanding anything
to the contrary contained in the fee adjustment procedures described in
this Agreement or the fee schedule set forth in SCHEDULE B, any
modification to the Information and/or the HealthGate Products, which are
requested by Licensee, may be accompanied by additional fees as determined
by HealthGate, and approved in writing by Licensee prior to initiation of
such modification. If HealthGate initiates a modification on its own
initiative without a request by Licensee, then there will be no additional
costs or fees for such modification prior to the Expiration Date.
6.5 LATE FEES. Any payment not received within ten (10) days of its due date
shall accrue interest at the rate of one and a half (1.5) percent per
month; provided, however, if such rate is not then lawful, any such payment
shall accrue interest at the highest lawful rate then available.
7. TERM AND TERMINATION
7.1 TERM. This Agreement shall be effective from the date first set forth above
until the Expiration Date, unless otherwise terminated as provided
hereunder.
7.2 TERMINATION WITHOUT CAUSE. Licensee shall have the right to terminate this
Agreement without cause on June 1, 2001; provided, however, that no
such termination shall be effective unless (i) Licensee provides a
Termination Notice via overnight courier to HealthGate and (ii) Licensee
remits $1,000,000 to HealthGate.
7.3 TERMINATION FOR BREACH. Either party shall have the right to terminate this
Agreement in the event that the other party hereto has materially breached
this Agreement; provided, however, that no such termination shall be
effective unless (i) the terminating party provides the Termination Notice
via overnight courier to the other party setting forth the facts and
circumstances constituting the breach, and (ii) the party alleged to be in
default does not cure such default within ten (10) business days following
receipt of the Termination Notice. In the event that the nature of the
default specified in the Termination Notice cannot be reasonably cured
within ten (10) business days following receipt of the Termination Notice,
a party shall not be deemed to be in default if such party shall, within
such ten (10) day period, present a schedule to cure the default, commences
curing such default and thereafter diligently executes the same to
completion within six months.
<PAGE>
If the breach specified in the Termination Notice is timely cured or cure
is commenced and diligently pursued, as provided above, the Termination
Notice shall be deemed rescinded and this Agreement shall continue in full
force and effect. Notwithstanding the foregoing, all Termination Notices
for non-payment must be cured with thirty (30) days of receipt. In the
event the default specified in the Termination Notice cannot be reasonably
cured at all, a party shall be deemed to be in default.
7.4 POST TERMINATION OBLIGATIONS. In the event of termination of this Agreement
by any party, all fees previously due or owing by any party as of the date
of termination will be immediately due and payable in full.
8. HEALTHGATE TRADEMARKS AND TRADEMARKS OF OTHERS
8.1 HEALTHGATE TRADEMARKS. Notwithstanding the limited right to use the
HealthGate Trademarks on the HealthGate Products, Licensee recognizes and
acknowledges HealthGate is the sole owner of the HealthGate Trademarks; and
all rights therein and the goodwill pertaining thereto belong exclusively
to HealthGate. Accordingly, any use by Licensee of the HealthGate Products,
or of any HealthGate Trademarks pursuant to this Agreement, shall be
subject to HealthGate's approval, which HealthGate may deny or revoke at
any time if in HealthGate's sole judgment such use is not consistent with
the goodwill otherwise associated with the HealthGate Trademarks. Neither
this Agreement nor any rights granted hereunder will operate as a transfer
to Licensee or the HealthGate Products of any rights in or to any
HealthGate Trademark, except for the limited rights expressly granted under
this Agreement.
8.2 LICENSEE TRADEMARKS. Notwithstanding the limited right to use the Licensee
Trademarks on the HealthGate Products, HealthGate recognizes and
acknowledges Licensee is the sole owner of the Licensee Trademarks; and all
rights therein and the goodwill pertaining thereto belong exclusively to
Licensee. Accordingly, any use by HealthGate of the Licensee Trademarks
pursuant to this Agreement, shall be subject to Licensee's approval, which
Licensee may deny or revoke at any time if in Licensee's sole judgment such
use is not consistent with the goodwill otherwise associated with the
Licensee Trademarks. Neither this Agreement nor any rights granted
hereunder will operate as a transfer to HealthGate of any rights in or to
any Licensee Trademark, except for the limited rights expressly granted
under this Agreement.
8.3 THIRD PARTIES' TRADEMARKS. In entering into this license to Licensee,
HealthGate is also acting on behalf of its Information Partners.
9. WARRANTY, INDEMNIFICATION AND LIMITATION OF WARRANTIES AND LIABILITY
9.1 WARRANTY.
9.1.1 HealthGate warrants to Licensee that it has the full legal right to
grant the license granted under this Agreement. HealthGate warrants
to Licensee that the HealthGate Products, in the forms delivered to
Licensee by HealthGate and when properly used for the purpose and in
the manner specifically authorized by this Agreement do not infringe
upon any patent, copyright, or trademark and do not misappropriate a
trade secret or other proprietary right of any person. To the extent
HealthGate has received a warranty of title from a Licensor with
respect to any specific intellectual property, HealthGate hereby
warrants to Licensee that it or its licensor has title to such
intellectual property only.
9.1.2 HealthGate warrants to Licensee that for a period of ninety (90) days
from the date of delivery of the HealthGate Products or an upgrade
thereto to Licensee that the HealthGate Products shall substantially
perform in accordance with Licensee's specifications; provided,
however, that any ninety (90) day warranty period for an update shall
only apply to that update and not to the HealthGate Product otherwise
existing as of the date of the upgrade. Licensee's sole and exclusive
remedy for breach of this warranty shall be for HealthGate to modify
or correct the HealthGate Products. This warranty shall not apply to
any HealthGate Product which has been modified by Licensee or by any
other party other than HealthGate, or which has been used in any
other manner other than as authorized under this Agreement.
9.1.3 With respect to the development services provided in Section 2.3,
HealthGate warrants to Licensee
<PAGE>
that any software products delivered to Licensee are not capable of
permitting any of the following: (1) unauthorized access to or
intrusion upon; (2) disabling of; (3) erasure of; or (4) interference
with any hardware, software, data or peripheral equipment; provided,
however, this warranty shall not apply to e-mails, electronic
transfers, or other database sharing.
9.1.4 HealthGate expressly warrants that HealthGate Products are currently
Year 2000 complaint. "Year 2000 compliant is defined to mean
HealthGate Products accurately and unambiguously process (including,
but not limited to, compare, calculate, manipulate, sequence,
display, and exchange data with other systems) data containing time
and/or dates prior to, at, and after the year 2000 without error or
interruption, and the products operate properly and in conformance
with applicable specifications, continuously, before, at, and after
the year 2000."
9.1.5 With respect to the development services provided in Section 2.3,
each of HealthGate's employees, agents or representatives assigned
to perform services hereunder shall have the proper skill, training
and background so as to be able to perform in a competent and
professional manner and all work will be so performed.
9.2 HEALTHGATE INDEMNITY. HealthGate shall defend or settle, at its own
expense, any cause of action or proceeding brought against Licensee which
is based on a claim that the use of the Information as provided hereunder
infringes any patent, copyright, trade secret or other proprietary right.
HealthGate shall indemnify and hold Licensee harmless against all damages,
judgments, and attorneys' fees arising out of the foregoing, provided that
Licensee gives HealthGate prompt written notice of such claim. If a claim
is made that the use of the Information as provided hereunder infringes any
patent, copyright, trade secret or other proprietary right, HealthGate
shall either procure for Licensee the right to continue using the
Information, modify it to make it non-infringing but continue to meet the
specifications therefor, or replace it with a similar non-infringing
content as determined by the sole discretion of HealthGate.
9.3 LICENSEE'S INDEMNIFICATION OBLIGATIONS. Excluding claims arising out of or
relating to the violation by HealthGate or an Information Partner of any
third party copyright, trade secrets, or trademark, Licensee, to the extent
permitted by applicable law, agrees to indemnify HealthGate and its
Information Partners and hold them harmless from and against any and all
claims of Licensee, Authorized Users or other third parties arising out of
or related to the use of the HealthGate Products, the Information or other
licensed materials, regardless of whether such claims were foreseeable by
HealthGate or the Information Partner. The provisions of this Section 9.3
will survive any termination.
9.4 DISCLAIMER OF WARRANTIES, LIMITATION TO WARRANTIES AND LIABILITIES.
THE WARRANTIES EXPRESSED IN SECTION 9.1 ABOVE REPRESENT THE ENTIRE
WARRANTY OF HEALTHGATE WITH RESPECT TO THIS AGREEMENT, AND ARE IN LIEU OF
ANY AND ALL OTHER WARRANTIES, WRITTEN OR ORAL, EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY OR WARRANTIES
OF FITNESS FOR A PARTICULAR PURPOSE, ALL OF WHICH HEALTHGATE DISCLAIMS.
DUE TO THE NUMBER OF SOURCES FROM WHICH INFORMATION ON THE HEALTHGATE
PRODUCTS IS OR WILL BE OBTAINED, AND THE INHERENT HAZARDS OF ELECTRONIC
DISTRIBUTION, THERE MAY BE DELAYS, OMISSIONS OR INACCURACIES IN SUCH
INFORMATION AND THE HEALTHGATE PRODUCTS. THE HEALTHGATE PRODUCTS COULD
INCLUDE TECHNICAL OR OTHER INACCURACIES OR TYPOGRAPHICAL ERRORS.
PERIODICALLY, CHANGES MAY BE MADE IN THE INFORMATION PROVIDED IN THE
HEALTHGATE PRODUCTS. HEALTHGATE AND ITS AFFILIATES, AGENTS AND ITS
INFORMATION PARTNERS CANNOT AND DO NOT WARRANT THE ACCURACY,
COMPLETENESS, CURRENTNESS, MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OF THE INFORMATION AND CONTENT AVAILABLE THROUGH THE HEALTHGATE
PRODUCTS, OR THE HEALTHGATE PRODUCTS THEMSELVES, OR ANY OTHER INFORMATION
WHICH IS REFERENCED BY OR LINKED TO THE HEALTHGATE PRODUCTS. THE PRESENCE
IN OR ABSENCE FROM THE INFORMATION, RELATED MATERIALS, DATA, EVENTS,
RESEARCH OR DEVELOPMENTS DOES NOT IMPLY THE SPECIFIC EXISTENCE OR THE
NON-EXISTENCE THEREOF, NOR DOES HEALTHGATE CLAIM COMPREHENSIVENESS OR THE
ABSENCE OF ERRORS. HEALTHGATE ASSUMES NO RESPONSIBILITY FOR THE USE OF
<PAGE>
THE HEALTHGATE PRODUCTS BY THE LICENSEE OR AUTHORIZED USERS. HEALTHGATE
AND ITS INFORMATION PARTNERS SHALL NOT BE LIABLE FOR LOSS OF PROFITS,
LOSS OF USE, OR INCIDENTAL, CONSEQUENTIAL, OR EXEMPLARY DAMAGES AS A
RESULT OF USE OF THE HEALTHGATE PRODUCTS OR THE INFORMATION, EVEN IF
EXPRESSLY MADE AWARE OF THE POSSIBILITY THEREOF. EXCEPT FOR ANY CLAIM FOR
INDEMNITY UNDER SECTION 9.2, IN NO EVENT MAY ANY ACTION BE BROUGHT
AGAINST HEALTHGATE, OR AN INFORMATION PARTNER ARISING OUT OF THIS
AGREEMENT MORE THAN ONE YEAR AFTER THE CLAIM OR CAUSE OF ACTION ARISES,
DETERMINED WITHOUT REGARD TO WHEN THE LICENSEE OR AUTHORIZED USER SHALL
HAVE LEARNED OF THE ALLEGED DEFECT, INJURY, OR LOSS. IN NO EVENT SHALL
HEALTHGATE'S LIABILITY UNDER THIS AGREEMENT EXCEED THE AGGREGATE AMOUNT
OF LICENSE FEES PAID BY LICENSEE PURSUANT TO THIS AGREEMENT (WHETHER SUCH
LIABILITY ARISES FROM BREACH OF WARRANTY, BREACH OF THIS CONTRACT OR
OTHERWISE, AND WHETHER IN CONTRACT OR IN TORT, INCLUDING NEGLIGENCE AND
STRICT LIABILITY). THE PROVISIONS OF THIS SECTION 9.4 SHALL SURVIVE ANY
TERMINATION OF THIS AGREEMENT.
10. MISCELLANEOUS
10.1 With respect to the development services provided in Section 2.3,
HealthGate acknowledges that Confidential Information provided by
Licensee may also be protected by law. HealthGate will neither disclose
such information, directly or indirectly, nor use such information for
any purpose except to perform the services described in this Agreement.
Patient medical and financial files and all documents or records of
Licensee which may be used or received by HealthGate shall remain
exclusive property of Licensee.
Licensee, on behalf of itself and the Affiliated Providers and HPG
Members, acknowledges that Confidential Information provided by
HealthGate may also be protected by law. Licensee, the Affiliated
Providers and HPG Members will neither disclose such information,
directly or indirectly, nor use such information for any purpose except
to perform the services described in this Agreement.
Either party shall take appropriate action, by instruction to or
agreement with its employees, agents and subcontractors, to maintain the
confidentiality of the Confidential Information. Either party agrees to
execute written Confidentiality Agreements with its employees, agents,
and subcontractors addressing either party's obligations set forth in
this section. Either party shall promptly notify the other party in the
event that it learns of any unauthorized release of Confidential
Information.
Either party shall have no obligation with respect to:
(a) Confidential Information made available to the general public
without restriction by the other party or by an authorized third
party;
(b) Confidential Information rightfully known to either party
independently of disclosures by the other party under this
Agreement;
(c) Confidential Information independently developed by either party;
(d) Confidential Information that either party may be required to
disclosure pursuant to subpoena or other lawful process;
provided, however, that the party notifies the other party in a
timely manner to allow the other party to appear and protect its
interests; or
(e) Any information regarding any Authorized User of the HealthGate
Products obtained from or through their use of those products.
Upon the termination of this Agreement, either party shall:
(a) Immediately cease to use the Confidential Information.
(b) Return to the other party, Confidential Information and all
copies thereof within thirty (30) days of the termination or
destroy the Confidential Information in accordance with the other
party's policy and all-applicable state and federal laws.
(c) Upon request, certify in writing to the other party that it has
complied with its obligations set forth in this Section.
<PAGE>
The parties acknowledge that monetary remedies may be inadequate to
protect their rights with respect to Confidential Information and that,
in addition to legal remedies otherwise available to either party,
injunctive relief is an appropriate judicial remedy to protect either
party's rights in Confidential Information.
Either party hereby agrees to indemnity and hold harmless the other
party from and against any and all liability, loss, damage, claims or
causes of action and expenses associated therewith (including attorney's
fees) caused directly or indirectly by the party's breach of its
obligations under this Section 10.1. Either party may enforce the other
party's obligations hereunder by seeking equitable relief which remedy
shall be nonexclusive. Either party agrees to provide reasonable
assistance and cooperation upon the request of the other party in
connection with any litigation against third parties to protect
Confidential Information.
10.2 INDEPENDENT CONTRACTOR. HealthGate and Licensee are and shall remain
independent contractors with respect to all matters pursuant to the
Agreement.
10.3 ASSIGNMENT. Licensee may sell, transfer, assign, or subcontract, any right,
license or obligation set forth in this Agreement without the express
advance written consent of HealthGate; provided, however, Licensee may not
sell, transfer, assign, or subcontract, any right, license or obligation
set forth in this Agreement to Medscape, WebMD, Healtheon, and Dr. Koop or
any of their successors or assigns.
10.4 AMENDMENTS IN WRITING. No amendment, modification, or waiver of any
provision of this Agreement shall be effective unless it is set forth in a
writing that refers to this Agreement and is executed by an authorized
representative of each party hereto. No failure or delay by any party in
exercising any right, power, or remedy will operate as a waiver of any such
right, power, or remedy.
10.5 NOTICES. All notices required hereunder (except invoice or purchase orders
as provided herein) shall be in writing and shall be deemed to have been
duly given upon receipt, and shall be either delivered in person, by
registered or certified mail, postage prepaid, return receipt requested, or
by overnight delivery service with proof of delivery, and addressed as
follows:
To HealthGate: Rick Lawson
HealthGate Data Corp.
25 Corporate Drive
Suite 310
Burlington, Massachusetts 01803
with a copy to:
Keith Higgins, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts, 02110
To Licensee: Attn: Director, I/S Contracts
Columbia Information Systems, Inc.
2555 Park Plaza
Nashville, Tennessee 37203
with a copy to any person listed herein or in an Exhibit, and to:
General Counsel
Columbia/HCA Healthcare Corporation
One Park Plaza
Nashville, Tennessee 37203
10.4 PUBLICITY. HealthGate and Licensee agree not to advertise or to use the
other party's name in any advertising, except as contemplated by this
Agreement, without first obtaining written consent from the other party,
which
<PAGE>
consent shall not be unreasonably withheld.
10.5 BOOKS AND RECORDS. Pursuant to the requirements of 42 CFR 420.300 et seq.,
HealthGate agrees to make available to the Secretary of HHS, the
Comptroller General of GAO or their authorized representatives, all
contracts, books, documents and records necessary to verify the nature and
extent of the costs of the services provided hereunder for a period of four
(4) years after the furnishing of services hereunder for any and all
services furnished under this Agreement. In addition, HealthGate hereby
agrees to require by contract that each subcontractor makes available to
the HHS and GAO, or their authorized representative, all contracts, books,
documents and records necessary to verify the nature and extent of the
costs of the services provided thereunder for a period of four (4) years
after the furnishing of services thereunder.
HealthGate agrees to comply at all times with the regulations issued by
HHS, published at 42 CFR 1001, and which relate to HealthGate's obligation
to report and disclose discounts, rebates and other reductions to Licensee
for products purchased by Licensee under this Agreement.
If HealthGate carries out the duties of this Agreement through a
subcontract worth $10,000 or more over a twelve month period with a related
organization, the subcontract will also contain a clause substantially
identical to those contained in the foregoing sections of this Agreement to
permit access by Licensee, the Secretary, the United States Comptroller
General and their representatives to the related organization's books and
records.
Licensee rights under this Section shall survive for a period of four (4)
years after termination or expiration of this Agreement.
HealthGate represents and warrants that it has not been excluded from
participation in any Federal healthcare program as defined in 42 U.S.C.
Section 1320a-7b(f).
10.6 AUDIT/REPORTING. Licensee shall have the right, during normal business
hours and with reasonable advance notice, to review and photocopy
HealthGate's books and records that pertain directly to the accounts of
Licensee, HPG Members, or Authorized Users. The audit may be conducted by
Licensee's employees or by an external auditing firm selected by Licensee.
The cost of audit, including the cost of the auditors and reasonable cost
of copies of books and records shall be paid by Licensee. Licensee shall
have no obligation to pay the cost incurred by employees and agents of
HealthGate in cooperating with Licensee in such audit. Licensee does not
have the right to review the books and records that pertain to the accounts
of other HealthGate customers or business partners. Licensee may not
conduct more than one such audit per year. Any personnel of Licensee shall
sign a mutually agreeable confidentiality agreement before such audit is
done.
10.7 THIRD PARTY RIGHTS. This Agreement is not intended and shall not be
construed to create any rights for any third party.
10.8 FORCE MAJEURE. Neither party shall be liable nor deemed to be in default of
its obligations hereunder for any delay or failure in performance under
this Agreement or other interruption of service resulting, directly or
indirectly, from acts of God, civil or military authority, act of war,
accidents, natural disasters or catastrophes, strikes, or other work
stoppages or any other cause beyond the reasonable control of the party
affected thereby. However, each party shall utilize it best good faith
efforts to perform such obligations to the extent of its ability to do so
in the event of any such occurrence or circumstances. If a single force
majeure condition causes a delay or failure in performance under this
Agreement or other interruption of service exceeding ninety (90) days, the
nonaffected party may terminate subject to the requirements of Section 7.5
above by providing a Termination Notice to the affected party.
<PAGE>
10.9 INSURANCE. HealthGate shall maintain liability coverage for errors and
omissions with coverage of at least $1,000,000 per incident and
$3,000,000 in the aggregate. Licensee shall be provided a copy of the
certificate of insurance upon signing of this Agreement. Licensee shall
be promptly notified at least thirty (30) days prior to any cancellation
of policy or reduction in coverage below the required amounts specified
in this Section 10.9.
10.10 LEGAL FEES. In the event of any litigation between the parties concerning
this Agreement, the prevailing party shall be awarded reasonable
attorney's fees and other costs and expenses incurred in connection with
such action.
10.11 GOVERNING LAW. The validity, interpretation, and performance of this
Agreement shall be governed by and construed in accordance with the laws
of the State of Tennessee.
10.12 ENTIRE AGREEMENT; SEVERABILITY. This Agreement, together with the
schedules and other attachments referenced herein, contains a full and
complete expression of the rights and obligations of the parties hereto.
If any provision of this Agreement conflicts with any schedule or
attachment to this Agreement, this Agreement shall control with respect
to the subject matter of such attachment. This Agreement supersedes any
and all other previous agreements, written or oral, made by the parties
concerning the subject matter hereof. If any provision of this Agreement
is finally held by a court or arbitration panel of competent jurisdiction
to be unlawful, the remaining provisions of this Agreement shall remain in
full force and effect to the extent that the parties' intent can be
lawfully enforced. Without limiting the generality of the foregoing, it
is expressly agreed that the terms of any Licensee purchase order will be
subject to the terms of this Agreement and that any acceptance of a
purchase order by HealthGate will be for acknowledgment purposes only and
none of the terms set forth in the purchase order will be binding upon
HealthGate.
<PAGE>
IN WITNESS WHEREOF, duly authorized representatives of the parties have executed
this Agreement under seal as of and effective the date first written above:
HEALTHGATE DATA CORP. LICENSEE
By: /s/ William S. Reece By: /s/ Noel Williams
-------------------------- ------------------------------
Name: William S. Reece Name: Noel Williams
------------------------ ----------------------------
Title: Chief Executive Officer Title: President
----------------------- ---------------------------
<PAGE>
EXHIBIT 10.37
[LOGO] MARKETING AND RESELLER AGREEMENT
THIS MARKETING AND RESELLER AGREEMENT ("Agreement") dated as of November 2,
1999, entered into by and between Columbia Information Systems, Inc.
("Columbia"), a Tennessee corporation with a notice address of 2555 Park Plaza,
Nashville, TN 37203, and HealthGate Data Corp. ("HealthGate"), a Delaware
corporation with a notice address of 25 Corporate Drive, Suite 310, Burlington
Massachusetts 01803.
WHEREAS, HealthGate and Columbia wish to enter into an agreement providing
HealthGate with certain rights and Columbia with certain services and marketing
and sales rights;
NOW, THEREFORE, in consideration of HealthGate's agreement to issue to Columbia
a warrant to purchase shares of common stock of HealthGate (the "Warrant"), the
form of which is attached to this Agreement, the parties hereto agree as
follows:
1. DEFINITIONS. The following terms shall have the following meanings:
1.1. "Affiliated Providers" shall mean C/HCA Providers, Triad Providers, and
Lifepoint Providers.
1.2. "Authorized Users" shall mean (i) Licensee, (ii) Affiliated Providers and
HPG Members to which Licensee provides the HealthGate Products under this
Agreement, (iii) persons who access portions of the HealthGate Products
that may require user registration and authentication in compliance with
HealthGate's software licenses, and (iv) persons who access portions of
the HealthGate Products that may not require user registration and
passwords.
1.3. "C/HCA Providers" shall mean those healthcare providers owned, controlled,
or operated by any entity owned or controlled by Columbia/HCA Healthcare
Corporation.
1.4. "Columbia Trademarks" shall mean Columbia's name, logos, trademarks,
servicemarks, and trade dress created or used by Columbia.
1.5. "Confidential Information" shall mean any and all information of either
party and its affiliates that is generally not known by others with whom
they compete or do business, or with whom they plan to compete or do
business and any and all information which, if disclosed by either party
or its affiliates would assist in competition against them. Confidential
Information includes without limitation such information relating to (i)
the development, research, testing, manufacturing, production,
distribution, advertising, marketing, and financial activities of either
party and its affiliates and (ii) the costs, sources of supply, financial
performance and strategic plans of either party and its affiliates.
Confidential Information also includes comparable information that either
party or any of its affiliates have received belonging to others or which
was received by either party or any of its affiliates with any
understanding that it would not be disclosed.
1.6. "Expiration Date" shall mean November 1, 2002.
1.7. "HealthGate Products" shall mean the Portal, the CHOICE Web Sites, and any
customized CHOICE Web Site provided under the Web Site Agreement for an
Affiliated Provider or HPG Member as described in SCHEDULES A, B, AND C
attached to the Web Site Agreement.
1.8. "HealthGate Trademarks" shall mean HealthGate's name, logos, trademarks,
servicemarks, and trade dress created or used by HealthGate.
1.9. "HPG Members" shall mean those healthcare providers that are members of
HealthTrust Purchasing Group, LP.
1.10. "Information" shall mean that content and services provided by or through
HealthGate under this Agreement
1.11. "Information Partners" shall mean those entities that have licensed
HealthGate certain information or content included in the Information.
<PAGE>
1.12. "Provider Content" shall mean content developed, owned, or licensed by an
Affiliated Provider or HPG Member and provided by the applicable
Affiliated Provider or HPG Member to HealthGate.
1.13. "LifePoint Providers" shall mean those healthcare providers owned,
controlled, or operated by any entity owned or controlled by Lifepoint
Hospitals, Inc.
1.14. "Net Advertising Revenues" shall mean all advertising and sponsorship
monies received for advertising or sponsorship placements on the
HealthGate Products less the cost of preparing such displays or
placements, agency discounts, frequency discounts, sales commissions, any
other third party obligations or revenue sharing commitments, and any
sales or use taxes, if applicable, related to such advertising and
sponsorship placements.
1.15. "Net E-Commerce Revenues" shall mean the revenue for all products sold
through a customized CHOICE Web Site provided under this Agreement to
facilities other than Affiliated Providers or HPG Members less the cost of
such product, including the manufacturing, shipping, and storage of such
product, agency discounts, frequency discounts, sales commissions, any
other third party obligations or revenue sharing commitments, and any
sales or use taxes, if applicable, related to such product revenue.
1.16. "Portal" shall mean a health portal site designed, developed, and
maintained for Columbia in accordance with the Web Site Agreement.
1.17. "Triad Providers" shall mean those healthcare providers owned, controlled,
or operated by any entity owned or controlled by Triad Hospitals, Inc.
1.18. "Web Site Agreement" shall mean the Co-Branded CHOICE Web Site Agreement
dated November 2, 1999 between Columbia and HealthGate.
2. DEVELOPMENT OF HEALTHGATE PRODUCTS; MARKETING AND RESELLING; TERM
2.1 HealthGate shall have the right to make a first offer to provide services
for adding additional content to the Portal, or to any website owned or
operated by Columbia or C/HCA Providers. Columbia and C/HCA Providers
shall have the right to obtain content for their websites internally or
from other third parties, in their sole discretion, subject to the
requirements of this Section 2.1. All revenues generated from portions of
their websites containing self-generated or third party-generated content
shall belong to Columbia and/or the applicable C/HCA Provider.
2.2 Columbia shall endorse HealthGate as the preferred provider of patient and
consumer oriented health content for Affiliated Providers' websites.
HealthGate shall be allowed to use this endorsement in their advertising
and other promotional materials, subject to Columbia's reasonable
approval.
2.3 Columbia shall have the right, with the prior approval of HealthGate, to
provide and/or resell any HealthGate Products and services provided under
the Web Site Agreement to facilities other than Affiliated Providers.
Columbia shall not have the right to provide and/or resell any HealthGate
Products to any provider which already has an agreement with HealthGate
for any HealthGate products or services, or has an agreement with a
reseller of HealthGate for any HealthGate products or services.
2.4 During the term of this Agreement, Columbia shall receive, as a commission
for each HealthGate product or services it sells to facilities other than
Affiliated Providers, 30% of the then current published list price of the
product sold and 10% of the Net Advertising Revenue and Net E-Commerce
Revenue for non-pharmaceutical e-commerce of non-Medicare reimbursed
products and services. Commissions shall be paid quarterly, within 45 days
after the close of the quarter regardless if HealthGate collects payment
from advertisers or sponsors.
2.5 HealthGate shall have the exclusive rights to host Provider Content on the
Internet through its activePress Light web publishing services during the
term of this Agreement.
2.6 Columbia and HealthGate agree to meet periodically to discuss new business
opportunities. Such
<PAGE>
opportunities shall include, but shall not be limited to, web site
hosting, personal health records, web site creation utility, job postings,
WebBabies, senior health, and HIS interfaces.
3. STOCKHOLDERS AGREEMENT
3.1 HealthGate 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 Columbia to such agreement.
4. COLUMBIA'S INVESTMENT AND OTHER REPRESENTATIONS. Columbia hereby
represents and warrant as follows:
4.1 Columbia is acquiring the Warrant and will acquire the common stock
received upon exercise 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. Columbia 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 Columbia and subsequent holders of
restricted securities from transferring such securities.
4.2 Columbia has full power and authority to enter into and to perform this
Agreement in accordance with its terms. Columbia has not been organized,
reorganized or recapitalized specifically for the purpose of investing in
HealthGate.
4.3 Columbia is an accredited investor within the definitions set forth in
Securities Act Rule 501(a).
4.4 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 (1) 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."
4.5 Columbia is a corporation duly organized, validly existing and in good
standing under the laws of Tennessee. Columbia has all requisite corporate
power and authority to carry out the transactions contemplated by this
Agreement.
4.6 The execution, delivery and performance of this Agreement and all other
agreements and the transactions contemplated hereby have been duly
authorized by Columbia. This Agreement and all other agreements
contemplated hereby each constitutes a valid and binding obligation of
Columbia, 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 Columbia 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
Columbia, 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 Columbia, or any law, statute, rule
or regulation to which Columbia is subject, or any agreement, instrument,
order, judgment or decree to which Columbia is subject.
4.7 No permit, consent, approval or authorization of, or declaration to or
filing with, any government authority is required in connection with the
execution, delivery and performance by Columbia of this
<PAGE>
Agreement or the other agreements contemplated thereby, or the
consummation by Columbia of any other transactions contemplated hereby or
thereby.
5. HEALTHGATE'S REPRESENTATIONS. HealthGate hereby represents and warrant as
follows:
5.1 HealthGate is a corporation duly organized, validly existing and in good
standing under the laws of Delaware. HealthGate has all requisite
corporate power and authority to carry out the transactions contemplated
by this Agreement.
5.2 The execution, delivery and performance of this Agreement and all other
agreements and the transactions contemplated hereby have been duly
authorized by HealthGate. This Agreement and all other agreements
contemplated hereby each constitutes a valid and binding obligation of
HealthGate, 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 HealthGate 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 HealthGate, 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 HealthGate, or any law, statute,
rule or regulation to which HealthGate is subject, or any agreement,
instrument, order, judgment or decree to which HealthGate is subject.
5.3 No permit, consent, approval or authorization of, or declaration to or
filing with, any government authority is required in connection with the
execution, delivery and performance by HealthGate of this Agreement or the
other agreements contemplated thereby, or the consummation by HealthGate
of any other transactions contemplated hereby or thereby.
6.0 DISCLAIMER OF WARRANTIES, LIMITATION TO WARRANTIES AND LIABILITIES.
THE WARRANTIES EXPRESSED IN SECTION 5 ABOVE REPRESENT THE ENTIRE WARRANTY
OF HEALTHGATE WITH RESPECT TO THIS AGREEMENT, AND ARE IN LIEU OF ANY AND
ALL OTHER WARRANTIES, WRITTEN OR ORAL, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY OR WARRANTIES OF FITNESS
FOR A PARTICULAR PURPOSE, ALL OF WHICH HEALTHGATE DISCLAIMS. DUE TO THE
NUMBER OF SOURCES FROM WHICH INFORMATION ON THE HEALTHGATE PRODUCTS IS OR
WILL BE OBTAINED, AND THE INHERENT HAZARDS OF ELECTRONIC DISTRIBUTION,
THERE MAY BE DELAYS, OMISSIONS OR INACCURACIES IN SUCH INFORMATION AND THE
HEALTHGATE PRODUCTS. THE HEALTHGATE PRODUCTS COULD INCLUDE TECHNICAL OR
OTHER INACCURACIES OR TYPOGRAPHICAL ERRORS. PERIODICALLY, CHANGES MAY BE
MADE IN THE INFORMATION PROVIDED IN THE HEALTHGATE PRODUCTS. HEALTHGATE
AND ITS AFFILIATES, AGENTS AND ITS INFORMATION PARTNERS CANNOT AND DO NOT
WARRANT THE ACCURACY, COMPLETENESS, CURRENTNESS, MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OF THE INFORMATION AND CONTENT AVAILABLE
THROUGH THE HEALTHGATE PRODUCTS, OR THE HEALTHGATE PRODUCTS THEMSELVES, OR
ANY OTHER INFORMATION WHICH IS REFERENCED BY OR LINKED TO THE HEALTHGATE
PRODUCTS. THE PRESENCE IN OR ABSENCE FROM THE INFORMATION, RELATED
MATERIALS, DATA, EVENTS, RESEARCH OR DEVELOPMENTS DOES NOT IMPLY THE
SPECIFIC EXISTENCE OR THE NON-EXISTENCE THEREOF, NOR DOES HEALTHGATE CLAIM
COMPREHENSIVENESS OR THE ABSENCE OF ERRORS. HEALTHGATE ASSUMES NO
RESPONSIBILITY FOR THE USE OF THE HEALTHGATE PRODUCTS BY THE COLUMBIA OR
AUTHORIZED USERS. HEALTHGATE AND ITS INFORMATION PARTNERS SHALL NOT BE
LIABLE FOR LOSS OF PROFITS, LOSS OF USE, OR INCIDENTAL, CONSEQUENTIAL, OR
EXEMPLARY DAMAGES AS A RESULT OF USE OF THE HEALTHGATE PRODUCTS OR THE
INFORMATION, EVEN IF EXPRESSLY MADE AWARE OF THE POSSIBILITY THEREOF. IN
NO EVENT MAY ANY ACTION BE BROUGHT AGAINST HEALTHGATE, OR AN INFORMATION
PARTNER ARISING OUT OF THIS AGREEMENT MORE THAN ONE YEAR AFTER THE CLAIM
OR CAUSE OF ACTION ARISES, DETERMINED WITHOUT
<PAGE>
REGARD TO WHEN THE COLUMBIA OR AUTHORIZED USER SHALL HAVE LEARNED OF THE
ALLEGED DEFECT, INJURY, OR LOSS. IN NO EVENT SHALL HEALTHGATE'S LIABILITY
UNDER THIS AGREEMENT EXCEED THE AGGREGATE AMOUNT OF LICENSE FEES PAID BY
COLUMBIA PURSUANT TO THIS AGREEMENT (WHETHER SUCH LIABILITY ARISES FROM
BREACH OF WARRANTY, BREACH OF THIS CONTRACT OR OTHERWISE, AND WHETHER IN
CONTRACT OR IN TORT, INCLUDING NEGLIGENCE AND STRICT LIABILITY). THE
PROVISIONS OF THIS SECTION 6 SHALL SURVIVE ANY TERMINATION OF THIS
AGREEMENT.
7.0 EFFECTIVENESS OF AGREEMENT
7.1 This Agreement shall become effective when HealthGate shall have received
the necessary approvals from its stockholders for the issuance of the
Warrant.
7.2 HealthGate shall use reasonable efforts to obtain the approvals.
8.0 TERMINATION
8.1 Either party shall have the right to terminate this Agreement in the event
that the other party hereto has materially breached this Agreement;
provided, however, that no such termination shall be effective unless (i)
the terminating party provides the Termination Notice via overnight
courier to the other party setting forth the facts and circumstances
constituting the breach, and (ii) the party alleged to be in default does
not cure such default within ten (10) business days following receipt of
the Termination Notice. In the event that the nature of the default
specified in the Termination Notice cannot be reasonably cured within ten
(10) business days following receipt of the Termination Notice, a party
shall not be deemed to be in default if such party shall, within such ten
(10) day period, present a schedule to cure the default, commences curing
such default and thereafter diligently executes the same to completion
within six months. If the breach specified in the Termination Notice is
timely cured or cure is commenced and diligently pursued, as provided
above, the Termination Notice shall be deemed rescinded and this Agreement
shall continue in full force and effect. Notwithstanding the foregoing,
all Termination Notices for non-payment must be cured with thirty (30)
days of receipt. In the event the default specified in the Termination
Notice cannot be reasonably cured at all, a party shall be deemed to be in
default.
8.2 This Agreement will automatically terminate upon termination of the Web
Site Agreement.
8.3 In the event of termination of this Agreement by any party, all fees
previously due or owing by any party as of the date of termination will be
immediately due and payable in full.
9.0 HEALTHGATE TRADEMARKS AND TRADEMARKS OF OTHER
9.1 Notwithstanding the limited right to use the HealthGate Trademarks on the
HealthGate Products, Columbia recognizes and acknowledges HealthGate is
the sole owner of the HealthGate Trademarks; and all rights therein and
the goodwill pertaining thereto belong exclusively to HealthGate.
Accordingly, any use by Columbia of the HealthGate Products, or of any
HealthGate Trademarks pursuant to this Agreement, shall be subject to
HealthGate's approval, which HealthGate may deny or revoke at any time if
in HealthGate's sole judgment such use in not consistent with the goodwill
otherwise associated with the HealthGate Trademarks. Neither this
Agreement nor any rights granted hereunder will operate as a transfer to
Columbia or the HealthGate Products of any rights in or to any HealthGate
Trademark, except for the limited rights expressly granted under this
Agreement.
9.2 Notwithstanding the limited right to use the Columbia Trademarks on the
HealthGate Products, HealthGate recognizes and acknowledges Columbia is
the sole owner of the Columbia Trademarks; and all rights therein and the
goodwill pertaining thereto belong exclusively to Columbia. Accordingly,
any use by HealthGate of the Columbia Trademarks pursuant to this
Agreement, shall be subject to Columbia's approval, which Columbia may
deny or revoke at any time if in Columbia's sole judgment such use in not
consistent with the goodwill otherwise associated with the Columbia
Trademarks. Neither this Agreement nor any rights
<PAGE>
granted hereunder will operate as a transfer to HealthGate of any rights
in or to any Columbia Trademark, except for the limited rights expressly
granted under this Agreement.
10.0 MISCELLANEOUS
10.1 Columbia may sell, transfer, assign or subcontract, any right, license or
obligation set forth in this Agreement without the express advance written
consent of HealthGate; provided, however, Columbia may not sell, transfer,
assign or subcontract, any right, license or obligation set forth in this
Agreement to Medscape, WebMD, Healtheon, and Dr. Koop or any of their
successors or assigns.
10.2 HealthGate acknowledges that Confidential Information provided by Columbia
may also be protected by law. HealthGate will neither disclose such
information, directly or indirectly, nor use such information for any
purpose except to perform the services described in this Agreement.
Columbia, on behalf of itself and the Affiliated Providers and HPG
Members, acknowledges that Confidential Information provided by HealthGate
may also be protected by law. Columbia, the Affiliated Providers and HPG
Members will neither disclose such information, directly or indirectly,
nor use such information for any purpose except to perform the services
described in this Agreement.
Either party shall take appropriate action, by instruction to or agreement
with its employees, agents and subcontractors, to maintain the
confidentiality of the Confidential Information. Either party agrees to
execute written Confidentiality Agreements with its employees, agents, and
subcontractors addressing either party's obligations set forth in this
section. Either party shall promptly notify the other party in the event
that it learns of any unauthorized release of Confidential Information.
Either party shall have no obligation with respect to:
(a) Confidential Information made available to the general public
without restriction by the other party or by an authorized third
party;
(b) Confidential Information rightfully known to either party
independently of disclosures by the other party under this
Agreement;
(c) Confidential Information independently developed by either party;
(d) Confidential Information that either party may be required to
disclosure pursuant to subpoena or other lawful process; provided,
however, that the party notifies the other party in a timely manner
to allow the other party to appear and protect its interests; or
(e) Any information regarding any Authorized User of the HealthGate
Products obtained from or through their use of those products.
Upon the termination of this Agreement, either party shall:
(a) Immediately cease to use the Confidential Information.
(b) Return to the other party, Confidential Information and all copies
thereof within thirty (30) days of the termination or destroy the
Confidential Information in accordance with the other party's policy
and all-applicable state and federal laws.
(c) Upon request, certify in writing to the other party that it has
complied with its obligations set forth in this Section.
<PAGE>
The parties acknowledge that monetary remedies may be inadequate to
protect their rights with respect to Confidential Information and that, in
addition to legal remedies otherwise available to either party, injunctive
relief is an appropriate judicial remedy to protect either party's rights
in Confidential Information.
Either party hereby agrees to indemnity and hold harmless the other party
from and against any and all liability, loss, damage, claims or causes of
action and expenses associated therewith (including attorney's fees)
caused directly or indirectly by the party's breach of its obligations
under this Section 10.1. Either party may enforce the other party's
obligations hereunder by seeking equitable relief which remedy shall be
nonexclusive. Either party agrees to provide reasonable assistance and
cooperation upon the request of the other party in connection with any
litigation against third parties to protect Confidential Information.
10.3 HealthGate and Columbia are and shall remain independent contractors with
respect to all matters pursuant to the Agreement.
10.4 All notices required hereunder (except invoice or purchase orders as
provided herein) shall be in writing and shall be deemed to have been duly
given upon receipt, and shall be either delivered in person, by registered
or certified mail, postage prepaid, return receipt requested, or by
overnight delivery service with proof of delivery, and addressed as
follows:
To HealthGate: Rick Lawson
HealthGate Data Corp.
25 Corporate Drive
Suite 310
Burlington, Massachusetts 01803
with a copy to:
Keith Higgins, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts, 02110
To Columbia: Attn: Director, I/S Contracts
Columbia Information Systems, Inc.
2555 Park Plaza
Nashville, Tennessee 37203
with a copy to:
General Counsel
Columbia/HCA Healthcare Corporation
One Park Plaza
Nashville, Tennessee 37203
10.5 Neither party shall be liable nor deemed to be in default of its
obligations hereunder for any delay or failure in performance under this
Agreement or other interruption of service resulting, directly or
indirectly, from acts of God, civil or military authority, act of war,
accidents, natural disasters or catastrophes, strikes, or other work
stoppages or any other cause beyond the reasonable control of the party
affected thereby. However, each party shall utilize it best good faith
efforts to perform such obligations to the extent of its ability to do so
in the event of any such occurrence or circumstances. If a single force
majeure condition causes a delay or failure in performance under this
Agreement or other interruption of service exceeding ninety (90) days, the
nonaffected party may terminate subject to the requirements of Section 8.2
above by providing a Termination Notice to the affected party.
10.6 In the event of any litigation between the parties concerning this
Agreement, the prevailing party shall be awarded reasonable attorney's
fees and other costs and expenses incurred in connection with such action.
<PAGE>
10.7 The validity, interpretation, and performance of this Agreement shall be
governed by and construed in accordance with the laws of the State of
Tennessee.
10.8 This Agreement, together with the attachments referenced herein, contains
a full and complete expression of the rights and obligations of the
parties hereto. If any provision of this Agreement conflicts with any
attachment to this Agreement, this Agreement shall control with respect to
the subject matter of such attachment. This Agreement supersedes any and
all other previous agreements, written or oral, made by the parties
concerning the subject matter hereof. If any provision of this Agreement
is finally held by a court or arbitration panel of competent jurisdiction
to be unlawful, the remaining provisions of this Agreement shall remain in
full force and effect to the extent that the parties' intent can be
lawfully enforced.
<PAGE>
IN WITNESS WHEREOF, duly authorized representatives of the parties have executed
this Agreement under seal as of and effective the date first written above:
HEALTHGATE DATA CORP. COLUMBIA INFORMATION SYSTEMS, INC.
By: /s/ William S. Reece By: /s/ Noel Williams
---------------------------- ---------------------------
Name: William S. Reece Name: Noel Williams
--------------------------- -------------------------
Title: Chief Executive Officer Title: President
------------------------- ------------------------
<PAGE>
EXHIBIT 10.38
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.
THIS CERTIFIES THAT, for value received, CIS Holdings, Inc., a Nevada
corporation, or its permitted registered assigns ("HOLDER"), is entitled,
subject to the terms and conditions of this Warrant, at any time or from time to
time after November 2, 1999 (the "EFFECTIVE DATE"), and before 5:00 p.m.
Eastern Daylight Time on November 1, 2002 (the "EXPIRATION DATE"), to purchase
from HealthGate Data Corp., a Delaware corporation (the "Company") 489,419
shares of Common Stock of the Company (which number shall be automatically
increased to 1,941,035 upon the effectiveness of a proposed 3.966 for 1 stock
split as described in Note 1 of the Company's consolidated financial
statements), and shall be further adjusted in accordance with Section 4. The
initial exercise price per share (the "Initial Warrant Price") is $37.653 per
share (which number shall be automatically decreased to $9.49 per share upon the
effectiveness of a proposed 3.966 for 1 stock split as described in Note 1 of
the Company's consolidated financial statements), and shall be adjusted in
accordance with Section 4. This Warrant shall not be exercisable prior to March
31, 2000 except in the event of the completion of the Company's initial public
offering, a Private Placement, or immediately prior to consummation of a Company
Sale.
1. CERTAIN DEFINITIONS. 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
<PAGE>
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).
"COMMON STOCK DEEMED OUTSTANDING" shall mean, at any given time, the
number of shares of Common Stock actually outstanding at such time, plus the
number of shares of Common Stock issuable at such time upon convertible
securities then outstanding, plus the number of shares of Common Stock issuable
at any time upon exercise of all then outstanding options, warrants or similar
rights.
"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.
"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.
-2-
<PAGE>
"INITIAL WARRANT PRICE" is defined in the introduction to this Warrant.
"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" shall mean a private placement of equity securities
with aggregate proceeds of greater than $10.0 million.
"PURCHASE PRICE" shall mean the Initial Warrant Price, as adjusted
pursuant to Section 4.
"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.
"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
-3-
<PAGE>
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:
Where X = Y(A-B)
-----
A
X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock purchasable under 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. 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.
2.4. 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.
2.5. 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
-4-
<PAGE>
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.
2.6. 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 be
the shorter of the lockup period applicable to executive officers, directors and
greater than 5% beneficial owners of the Company's Common Stock (other than
investment companies that purchased their shares at or after the Company's
initial public offering) and 180 days.
2.7. 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 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:
-5-
<PAGE>
4.1. ADJUSTMENT OF PURCHASE PRICE. Before the Company's initial public
offering of Common Stock, the following provisions in Sections 4.1 and 4.2 shall
apply:
(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 exercisable 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 that were outstanding on
the Effective Date or that may subsequently be issued under employee
benefit plans approved by the Company's Board of Directors.
(b) If and whenever after the Effective Date the Company
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 Company 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 exercisable 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
exercisable 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:
(a) ISSUANCE OF RIGHTS OR OPTIONS. If the Company 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
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Convertible Security issuable upon the exercise of such Option will
be deemed to be outstanding and to have been issued and sold by the
Company 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 Company as consideration for the granting of such
Options, plus the minimum aggregate amount of additional consideration
payable to the Company 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 Company 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 Company 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 Company 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 Company as consideration for the
issue or sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the
Company 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.
(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
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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 Company 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 Company will be the fair
value (as defined below) of such consideration, except where such
consideration consists of securities, in which case the amount of
consideration received by the Company 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 Company 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 Company 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 Company
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 Company,
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 Company or any Subsidiary, and the
disposition of any shares so owned or held will be considered an issue
or sale of Common Stock.
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(h) RECORD DATE. If the Company 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 Company 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 Company 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 exercisable 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 Company 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 Company 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 Company, 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 Company will not
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effect any such consolidation, merger or sale, unless prior to the consummation
thereof, the successor corporation (if other than the Company) 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.
4.5. ADJUSTMENT FOR DIVIDENDS OR DISTRIBUTIONS OF STOCK OR OTHER
SECURITIES OR PROPERTY. In case the Company shall make or issue, or shall fix a
record date for the determination of eligible holders entitled to receive, a
dividend or other distribution with respect to the Common Stock (or any shares
of stock or other securities at the time issuable upon exercise of the Warrant)
payable in (a) securities of the Company or (b) assets (excluding cash dividends
paid or payable solely out of retained earnings), then, in each such case, the
Holder of this Warrant on exercise hereof at any time after the consummation,
effective date or record date of such dividend or other distribution, shall
receive, in addition to the shares of Common Stock (or such other stock or
securities) issuable on such exercise prior to such date, and without the
payment of additional consideration therefor, the securities or such other
assets of the Company to which such Holder would have been entitled upon such
date if such Holder had exercised this Warrant on the date hereof and had
thereafter, during the period from the date hereof to and including the date of
such exercise, retained such shares and/or all other additional stock available
by it as aforesaid during such period giving effect to all adjustments called
for by this Article 4.
4.6. 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 Company'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.
4.7. NOTICES.
(a) Within five Business Days of any adjustment of the
Purchase Price, the number or type of shares issuable upon exercise of
this Warrant or otherwise pursuant to Article 4 hereof, the Company
will give written notice thereof to the holder of the Warrant setting
forth such adjustment and showing in detail the facts upon which such
adjustment is based; 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.
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(b) The Company will give written notice to the holder of the
Warrant at least 20 days prior to the date on which the Company 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 Company 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.
4.8. SPECIAL ADJUSTMENT. If the Company has completed its initial
public offering of Common Stock and there has not at that time been a Private
Placement or a Company Sale, the Initial Warrant Price shall be adjusted to
equal the per share price to the public in the Company's initial public offering
of Common Stock. If the Company completes a Private Placement prior to the
completion of its initial public offering of Common Stock, the Initial Warrant
Price will be adjusted to equal the common equivalent price per share the
Company receives in the Private Placement. If (i) the Company has not completed
its initial public offering of Common Stock or a Private Placement prior to
March 31, 2000 or (ii) if a Company Sale occurs prior to the completion of the
Company's initial public offering or a Private Placement, the Initial Warrant
Price shall be adjusted to equal $3.46 per share. Each of the foregoing
provisions assumes that the Company's proposed 3.966 for 1 stock split has
become effective prior to such pricing event. In the event that there has been
no stock split, or a stock split for a different number of shares, then the
Purchase Price shall be appropriately adjusted.
5. PURCHASE RIGHTS. If at any time the Company 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 Company
(an affidavit of the registered holder will be satisfactory) of the ownership
and the loss, theft,
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destruction or mutilation of the Warrant, and in the case of any such loss,
theft or destruction, upon receipt of indemnity satisfactory to the Company
(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 Company 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 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
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(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 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
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Holder hereof shall cause such Holder hereof to be a stockholder of the Company
for any purpose.
12. REPRESENTATIONS. The Company hereby represents and warrants as follows:
12.1. The Company has full power and authority to enter into and to
perform this Warrant in accordance with its terms.
12.2. AUTHORIZED STOCK. On the Effective Date, the Company's authorized
capital stock of the Company consists of 20,000,000 shares of Common Stock par
value $0.01 per share and 834,629 shares of preferred stock par value $0.01 per
share. Upon filing of the Company's amended and restated charter which the
Company plans to file with the Secretary of State of the State of Delaware in
connection with the Company's proposed initial public offering the authorized
capital stock of the Company is expected to consist of 100,000,000 shares of
Common Stock, par value $0.01 per share and 10,000,000 shares of preferred
stock, par value $0.01 per share.
12.3. OUTSTANDING STOCK. On the Effective Date, the Company's issued
and outstanding stock consists of 1,151,895 shares of Common Stock (which
1,151,895 shares will be automatically converted into 4,568,412 shares of Common
Stock effective with the Company's proposed 3.966 for 1 stock split) and 725,424
shares of preferred stock convertible into 1,898,764 shares of Common Stock
(which 1,898,764 shares of Common Stock will be automatically converted into
7,530,556 shares of Common Stock effective with the Company's proposed 3.966 for
1 stock split). Additionally, the Company has issued options and warrants for
the purchase of 897,978 shares of Common Stock (which 897,978 shares will be
automatically converted into 3,561,378 shares of Common Stock effective with the
Company's proposed 3.966 for 1 stock split).
13. NOTICES. All notices required hereunder shall be in writing and shall be
deemed to have been duly given upon receipt, and shall be either delivered in
person, by registered or certified mail, postage prepaid, return receipt
requested, or by overnight delivery service with proof of delivery, and
addressed as follows:
To the Company: Rick Lawson
HealthGate Data Corp.
25 Corporate Drive
Suite 310
Burlington, Massachusetts 01803
with a copy to: Keith Higgins, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts, 02110
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To the Holder: Attn: President
CIS Holdings, Inc.
2555 Park Plaza
Nashville, Tennessee 37203
with a copy to: General Counsel
Columbia/HCA Healthcare Corporation
One Park Plaza
Nashville, Tennessee 37203
J. Page Davidson, Esq.
Bass, Berry & Sims, PLC
2700 First American Center
Nashville, Tennessee 37238
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 Commonwealth of Massachusetts.
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 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 and the parties will attempt in
good faith to make such alternative arrangements as may be legally permissible
and which carry out as nearly as practicable the terms of this Warrant.
18. 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
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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.
19. 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.
20. OBTAINING STOCK EXCHANGE LISTINGS. The Company will from time to time take
all commercially reasonable actions following its initial public offering which
may be necessary so that the shares of Common Stock issuable upon exercise of
the Warrant will be listed on the principal securities exchanges or markets on
which other shares of Common Stock are then listed.
IN WITNESS WHEREOF, the Company has executed this Warrant as of the
Effective Date.
HEALTHGATE DATA CORP.
By: /s/ William S. Reece
-----------------------
Title: Chief Executive Officer
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EXHIBIT 10.39
SNAP STRATEGIC ALLIANCE AGREEMENT
HEALTHGATE DATA CORP.
This Strategic Alliance Agreement (the "Agreement") is made and entered into as
of October 29, 1999 (the "Effective Date") between Snap! LLC, a Delaware limited
liability company, with its principal place of business at One Beach Street, San
Francisco, California 94133 ("Snap"), Xoom.com, Inc., a Delaware corporation
with its principal place of business at 300 Montgomery Street, Suite 300, San
Francisco, California 94104 ("Xoom"), and HealthGate Data Corp., a Delaware
corporation, with its principal place of business at 25 Corporate Drive, Suite
310, Burlington, Massachusetts 01803 (the "Company"). Pursuant to this
Agreement, Snap will provide various services to the Company to assist the
Company in promoting its Internet site and the products and services offered
through its Internet site. Accordingly, the parties hereby agree as follows:
1. BACKGROUND.
1.1. The Company operates an Internet site located at
http://www.healthgate.com,which is designed to provide
Internet-based personal health and medical information,
products and services to online consumers.
1.2. Snap operates a search and aggregation "portal" site on the
Web.
1.3. Xoom operates a direct marketing site on the Web.
1.4. Snap has entered into an Agreement and Plan of Contribution
and Merger, dated as of May 9, 1999 with Xoom and others, and
the Second Amended and Restated Agreement and Plan of
Contribution, Investment and Merger dated as of July 8, 1999
with National Broadcasting Company, Inc. ("NBC") and others
(collectively, as such agreements may be amended, the "Merger
Agreements") pursuant to which the existing businesses of
Xoom, Snap and other assets of NBC will be combined to form
NBC Internet, Inc. ("NBCi"). The closing of the transactions
contemplated by the Merger Agreements is expected to occur
prior to December 31, 1999 (the "NBCi Closing"). Following the
NBCi Closing, Xoom and Snap may assign their rights and
obligations hereunder to NBCi. If the NBCi Closing does not
occur, Snap and Xoom shall remain as separate parties under
this Agreement, unless this Agreement is terminated by one of
the parties as provided herein.
2. CERTAIN DEFINITIONS. As used in this Agreement, the terms set forth
below shall have the following meanings:
2.1. "Above the Fold" means that a particular item on a Web page is
viewable on a computer screen at an 800 x 600 pixels
resolution when the User first accesses such Web page, without
scrolling down to view more of the Web page.
2.2. "Anchor Tenant" means a preferred Web content provider whose
position is greater in size and prominence than that of any
non-affiliated third party within the relevant Snap Site page
or area of a page.
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2.3. "Best of Breed" means (i) those personal health and/or medical
content and shopping services available on the Internet with
the most advanced and commercially successful, functionality,
performance, content, and features, whether utilitarian or
aesthetic, and (ii) the ability of the Company Site and the
Co-Branded Site to scale easily with only additional hardware
and to accommodate, at a minimum, the peak traffic volume of
the third most visited Internet personal health and/or medical
site.
2.4. "Business Day" shall mean any day on which banks in both New
York City and Los Angeles and the New York Stock Exchange are
open for the conduct of regular business.
2.5. "Click Thrus" means any type of link from the Snap Sites or
Wires that a User (as tagged by Snap pursuant to SECTION 11.2)
depresses or "clicks-on" and that delivers the User to the
Company Site or the Co-Branded Site.
2.6. "Co-Branded Site" means the co-branded version of the Company
Site, and successors to the foregoing, that is created
pursuant to SECTION 5.
2.7. "Commerce Offering" means any text, content, links or
promotions providing a direct or indirect opportunity for
Users on the Snap Sites or the Co-Branded Site to engage in a
commerce, purchase, trade, exchange, or purchase transaction,
whether paid or unpaid, or any registration or membership
opportunity for Users to provide User Profile Data, including,
without limitation, content purchase opportunities,
registration or membership sign-up opportunities, for-fee or
subscription-based content or services, other purchase
opportunities for products or services offered by the Company
directly or indirectly, links to any such opportunities
presented to Users on the Snap Sites or the Co-Branded Site,
or other content areas of the Snap Sites or Co-Branded Site.
2.8. "Company Content" means the Company's and its licensors' text
links, logos, graphic links, and other materials, tools,
content, or text that are delivered by the Company to Snap
hereunder.
2.9. "Company Database" means User Profile Data and any other
information relating to Users of the Company Site or other
customers of the Company or purchasers of Company Products who
have had information about them collected or otherwise
obtained by the Company, or for the Company's use or benefit,
for the purpose of direct marketing or other communication
activities, and all updates or additional information that may
be added to such database during the Term.
2.10. "Company Marks" means the Company's and its licensors'
trademarks, trade names, service marks and logos that may be
delivered by the Company to Snap hereunder.
2.11. "Company Products" means all personal health and medical
products and related services offered through the Company Site
or the Co-Branded Site.
2.12. "Company Site" means the Internet site operated by the Company
at http://www.healthgate.com, together with any mirror sites,
and successors to any of the foregoing.
2.13. "Competitor" means a Web site or person providing products or
services that compete with products or services provided by
Snap, as Snap shall determine from time to time.
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2.14. "Contract Year" shall mean Year One, Year Two or Year Three,
as applicable.
2.15. "Front Door Highlight Link" means a text link on the front
door of the Snap Site, including any one of the three front
doors of the Snap Site: Home, Local, and My Snap, and any
other front door created by Snap in the future for the Snap
Site. Snap, in its sole discretion, may cease use of the Front
Door Highlight Link at any time for any reason. In such an
event, the parties shall mutually agree on a specific
Promotion of substantially equivalent value to replace the
Front Door Highlight Link and such specific Promotion shall
for all purposes of this Agreement be deemed a Front Door
Highlight Link.
2.16. "Front Door Window" means the promotional box on the front
door of the Snap Site, including any one of the three front
doors of the Snap Site: Home, Local, and My Snap, and any
other front door created by Snap in the future for the Snap
Site. Snap, in its sole discretion, may cease use of the Front
Door Window at any time for any reason. In such an event, the
parties shall mutually agree on a specific Promotion of
substantially equivalent value to replace the Front Door
Window and such specific Promotion shall for all purposes of
this Agreement be deemed a Front Door Window
2.17. "Health Channel" means the Health Channel on the Snap Sites.
2.18. "Health Content Portal(s)" means the specific aggregations of
linked content within areas of the Health Channel organized
around the Company Content, and relating to personal health
and medical information, products and services.
2.19. "Impression" means the display of any Promotion on any Snap
Site.
2.20. "Initial Registration Date" means the effective date of the
Registration Statement.
2.21. "Keyword Promotions" means any Promotion tied to one of the
keywords selected pursuant to Exhibit A attached hereto.
2.22. "Launch Date" means the date during the period set forth in
SECTION 5.4 on which the Co-Branded Site functions properly
and is made accessible to Users.
2.23. "Look and Feel" means the look and feel, User interface and
flow of User experience of an Internet site.
2.24. "Promotions" means (i) banners, buttons, windows, portals,
Keyword Promotions, Front Door Windows, text links, and other
promotions that are offered by Snap now or in the future and
link directly to the Company Site and/or the Co-Branded Site
from the Snap Sites; (ii) text links within email newsletters
distributed by Snap (including, without limitation, Wires) and
other promotions that are offered by Snap now or in the future
and link directly to the Company Site and/or the Co-Branded
Site; and/or (iii) a Front Door Highlight Link that links to
the Health Channel.
2.25. "Registration Statement" means the first registration
statement for a public offering of securities of the Company
on Form S-1, pursuant to and in accordance with the
requirements of the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder, in which the
gross proceeds to the Company of such offering exceed
$20,000,000.
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2.26. "Snap Marks" means any trademarks, trade names, service marks
and logos that may be delivered by Snap to the Company
hereunder.
2.27. "Snap Member" means a User who has registered to become a
member of one of Snap's registration-based services including,
without limitation, the Snap Sites and the free email service
available at http://www.email.com.
2.28. "Snap Product Manager" means a Snap employee or independent
contractor holding editorial authority and responsibility for
a portal, site, collection, area, center or page on the Snap
Sites.
2.29. "Snap Sites" means: (i) subject to the "Distributor" (as
defined in SECTION 6.1 below) exclusion in SECTION 6.1, any
and all search and aggregation "portal," direct marketing and
Web commerce sites, whether operated by Snap or a third party
under the "Snap" brand, including, without limitation, the Web
site located at http://www.snap.com and, if the NBCi Closing
occurs, http://www.xoom.com, http://www.nbc.com and
http://www.videoseeker.com, together with any mirror sites,
any co-branded editions of such site that have been or may be
developed for Distributors, and successors to the foregoing;
(ii) if Snap so elects within its sole discretion, the
Enhanced Site and/or the International Editions, subject to
SECTION 6.2 and (iii) if Snap so elects within its sole
discretion, the Web site located at http://www.nbcin.com and
successors thereto, and NBC's network of affiliate Web
stations' Web sites, as updated from time to time by Snap in
its sole discretion.
2.30. "Snap Wire" means Snap's weekly email newsletter sent by Snap
to Snap Members.
2.31. "User" means any end-user of the Web.
2.32. "User Profile Data" means data regarding a User provided by
the User on the Snap Sites or the Co-Branded Site or otherwise
to Snap or the Company, including without limitation the
User's name, e-mail address, telephone number and other
information about the User.
2.33. "Web" means the World Wide Web part of the Internet.
2.34. "Wires" means, collectively, Snap Wires and Xoom Wires.
2.35. "Xoom Marks" means any trademarks, trade names, service marks
and logos delivered by Xoom to the Company hereunder.
2.36. "Xoom Wire" means Xoom's email newsletter sent by Xoom to
Users who have registered to become a member of the Web site
located at HTTP://WWW.XOOM.COM.
2.37. "Year One" means the thirteen month period beginning on the
Effective Date and ending upon the day before the thirteen
month anniversary of the Effective Date.
2.38. "Year Two" means the twelve month period beginning on the
thirteen month anniversary of the Effective Date and ending
upon the day before the twenty-five month anniversary of the
Effective Date.
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2.39. "Year Three" means the twelve month period beginning on the
twenty-five month anniversary of the Effective Date and ending
upon the day before the thirty-seven month anniversary of the
Effective Date.
3. PROMOTIONS; CONTENT; PERFORMANCE; AND ACCOUNT MANAGEMENT.
3.1. PROMOTION DESIGN. The Company will design any graphics and
other materials required for the Promotions and will supply
digital copies of such materials to Snap on the Launch Date.
Such materials will be designed and delivered in accordance
with Snap's reasonable technical and editorial guidelines, as
updated from time to time, including those set forth at
http://www.snap.com/media or any successor URL designated by
Snap. If the Company delivers such materials to Snap after the
Launch Date, then for each day thereafter, a pro-rata number
of the Impressions and Click Thrus required to be delivered
pursuant to this Agreement will be deemed to have been
delivered by Snap.
3.2. COMPANY CONTENT. Company agrees to provide Snap with the
Company Content as soon as practicable after the Effective
Date, and no later than ten days after the Effective Date,
except for Company Content which the Company is prohibited by
written contract to deliver and which the Company has
identified as such in a written notice to Snap at or prior to
the time of delivery of Company Content; provided, however,
that the Company will use its best efforts during the sixty
days from and after the Effective Date to obtain the
consent(s) of the other parties to such contracts to deliver
and use Company Content as contemplated by this Agreement.
During such sixty day period from and after the Effective
Date, so long as the Company is using its best efforts to
obtain such consents, Snap will not use on the Snap Sites
content, such as content not provided by the Company, that
Snap would otherwise have the right to use on the Snap Sites
pursuant to SECTION 4.1. Unless and until the Company obtains
the required consents of the relevant counterparties, Snap
will not use on the Snap Sites any content for which use on
the Snap Sites is prohibited by the terms of a written
contract to which the Company is a party and which the Company
has identified as such in a written notice to Snap at or prior
to the time of delivery of Company Content. In the event that
the Company fails to obtain the consents of relevant
counterparties to deliver all Company Content as contemplated
by this Agreement during the sixty days from and after the
Effective Date, then the Company shall continue to use its
best efforts to obtain all of such consents. The Company shall
ensure that the Company Content remains at all times current
by continually providing Snap with timely updates to the
Company Content. Furthermore, under no circumstances shall
Company Content include any content of a Competitor.
3.3. IMPRESSION AND CLICK THRU DELIVERIES.
3.3.1. IMPRESSIONS. Beginning on the Launch Date, Snap will
use commercially reasonable efforts to deliver a
total number of Impressions in the aggregate dollar
amounts of $7,500,000 during Year One, $7,500,000
during Year Two and $7,500,000 during Year Three.
Delivery of the Impressions hereunder will be based
on a schedule and placement guidelines selected by
Snap in its reasonable discretion, taking into
consideration the reasonable requests of the Company,
and at a 30% discount from the rates set forth in the
applicable Snap's standard rate card attached hereto
as EXHIBIT B; provided, however, that if all of the
rates set forth in Snap's then current standard rate
card decrease during the Term by more than 15%
relative to all of the rates set forth in EXHIBIT B,
then the number of Impressions to be reasonably
calculated by Snap and to be delivered by Snap
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hereunder shall increase in proportion to the amount
of decrease in rates in excess of the aforementioned
15%, with the number such additional Impressions to
be reasonably calculated by Snap and to be delivered
by Snap at such time and in such manner as Snap in
its sole discretion shall decide during the remainder
of the Term. Any Impression not listed in the
applicable Snap standard rate card shall be assigned
the value of a comparable Impression on such rate
card by Snap.
3.3.2. UNDERDELIVERY. If Snap fails to deliver the required
number of Impressions during the Term, the Company
agrees that Snap shall have an additional six months
to deliver such Impressions on any Web site operated
by Snap, Xoom or NBC, at Snap's discretion, taking
into consideration the reasonable requests of the
Company. If Snap underdelivers on the required number
of Impressions during such additional six months,
Snap will refund to the Company the pro rata amount
of the media fees set forth in SECTION 9.3 for such
undelivered Impressions. Snap shall not underdeliver
the required number of Impressions during any year of
the Term by greater than 15% of the number of
Impressions required to be delivered by Snap pursuant
to SECTION 3.3.1 during such year.
3.3.3. OVERDELIVERY. In the event that Snap delivers in
excess of the number of Impressions required to be
delivered pursuant to this SECTION 3.3 during any of
Year One, Year Two or Year Three, then such
over-delivery of Impressions, which shall not exceed
10% of the total number of Impressions required to be
delivered by SECTION 3.3.1 for such year, shall be
credited towards satisfaction of the next year's
obligations for Snap to deliver Impressions until all
obligations through the end of the Term have been
fulfilled, after which the Company will pay for any
additional Keyword Promotions delivered, with payment
to be at Snap's then applicable rate card charges for
Keyword Promotions.
3.3.4. CLICK THRU DELIVERY. During the Term, Snap will use
reasonable efforts to deliver Click Thrus to the
Co-Branded Site or the Company Site.
3.4. LINKS; PERFORMANCE STANDARDS. The Company will be responsible
for ensuring that each link embedded within a Promotion takes
the User to the appropriate area within the Company Site or
the Co-Branded Site (other than links to the Health Channel
for which Snap will be responsible), and that such sites
function with reasonable reliability and in a commercially
reasonable manner throughout the Term. In particular, the
Company agrees that the Company Site and the Co-Branded Site
will comply with the performance standards set forth in
EXHIBIT C attached hereto throughout the Term. Any failure by
the Company to comply with this Section will be deemed to be a
material breach of this Agreement. In the event of such
breach, Snap shall be deemed to have delivered Impressions and
Click Thrus required to be delivered pursuant to this
Agreement on a daily, straight-line, pro-rata basis for the
duration of such breach.
3.5. BEST OF BREED. During the Term, in the event that Snap, in its
reasonable discretion, determines that the Company has failed
to maintain the Company Site, Company Content, or the
Co-Branded Site as Best of Breed in any material respect, Snap
shall have the right to terminate this Agreement in accordance
with SECTION 10.2 and shall have the right to remove any
deficient Company Content from the Snap Sites and the
Co-Branded Site until the Company has corrected such failure.
Snap acknowledges that all Company Content and the Company
Site are Best of Breed as of the Effective Date.
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3.6. ACCOUNT MANAGEMENT.
3.6.1. ACCOUNT AND CONTACT MANAGERS. For the purposes of
this Agreement, Rita Han shall be Snap's account
manager for the Company and Rick Lawson shall be the
Company's contact manager for Snap (collectively, the
"Managers"). Subject to SECTION 17.12, the Managers
shall be the primary points of contact for inquiries
and requests, and each Manager shall provide the
other with such information and assistance as may be
reasonably requested by the other from time to time.
Either party to this Agreement may change its
designated Manager by giving the other party written
notice of such change.
3.6.2. QUARTERLY MEETINGS. At least once each quarter, the
Managers shall discuss the Company's Promotions for
the next quarter, the effectiveness of the last
quarter's Promotions, the reports provided under
SECTION 11, and any other items under this Agreement
either Manager wishes to bring to the attention of
the other Manager.
4. ANCHOR TENANCY.
4.1. ANCHOR TENANT OF CERTAIN HEALTH CHANNEL CONTENT AREAS. After
the Launch Date and during the Term, Snap will feature the
Company as the Anchor Tenant within seven of the following
nine major content areas within the Health Channel:
Alternative Medicine, Drugs & Medications, Diseases &
Conditions, Nutrition, Women's Health, Sexual Health, Men's
Health, Child & Youth Health and Public Health. The Company
shall specify in writing its preference for the seven major
content areas in which it wishes to be featured as Anchor
Tenant at least thirty days prior to the Launch Date. Snap
Product Managers shall determine the major content areas in
which the Company shall be featured as the Anchor Tenant.
Subject to this SECTION 4, Snap may, in the exercise of its
reasonable discretion, make changes to the design and
functionality of the Health Channel including, without
limitation, the names of major content areas; provided,
however, that major content areas similar to, or addressing
the general categories listed above shall exist within the
Health Channel during the Term. As the Anchor Tenant of seven
major content areas of the Health Channel, the Company will
receive the most prominent positioning within each of such
major content areas. During the Term, there shall be no other
Anchor Tenant of any of the seven major content areas of the
Health Channel in which the Company is then the Anchor Tenant;
provided, however, that other major content areas, content not
provided by the Company, subject to the terms of SECTION 3.2,
and/or links to other, non-Company sites may exist on the same
Web page and elsewhere within the Health Channel. The Company
acknowledges that Snap may feature Anchor Tenants other than
the Company on any major content area within the Health
Channel that is not one of the seven major content areas of
the Health Channel in which the Company is the Anchor Tenant.
Snap and the Company shall negotiate in good faith to
incorporate additional health-related Company content, so long
as such content is Best of Breed, within the content areas of
the Health Channel in which the Company is not the Anchor
Tenant, provided; however, Snap shall not be obligated to
negotiate with respect to such Company content if an agreement
with Company regarding such Company content would be
interpreted or operate to cause Snap to breach any existing
contract or agreement between Snap and any other party, or
impair the rights of any such contract party pursuant to an
existing contract or agreement with Snap. In the event that
Snap elects to add new content areas on the Health Channel or
elsewhere on the Snap Sites, Snap will in good faith first
discuss with the Company obtaining
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additional health-related Company content, so long as such
content is Best of Breed, for such additional new content
areas. Snap will not enter into an agreement to add or create
new health-related content areas on the Health Channel with
another party pursuant to an agreement which is comparable in
number of content areas or total consideration to those of
this Agreement. On the Health Channel, the Company will have
the right to program up to five Health Content Portals, each
measuring no larger than approximately 150 x 400 pixels, with
relevant content and links to the Company Site. Snap shall
have the right, in its sole discretion, to add additional
content portals on the Health Channel; provided, however, the
Company shall have the right to program one additional Health
Content Portal, with the specifications set forth in the
foregoing sentence, for each health content portal on the
Health Channel greater than three that Snap elects to add in
addition to the five Health Content Portals. Company will
provide the appropriate Company Content, subject to the
reasonable discretion of a Snap Product Manager, for the
Health Content Portals. The Snap Product Manager may provide
the Company with reasonable assistance to enable the Company
to effectively design the Health Content Portals. Subject to
this SECTION 4.1, the Snap Product Manager will determine the
size and location, and the Look and Feel, of the Health
Content Portals; provided, however, that the Health Content
Portals will begin Above the Fold within five of the seven
major content areas of the Health Channel in which the Company
is the Anchor Tenant.
4.2. HARVESTING. The Company shall provide Company Content as
required herein pursuant to Snap's technical specification
policies for harvesting set forth in EXHIBIT D attached hereto
(unless otherwise mutually agreed to by the parties), as
updated from time to time in Snap's sole discretion. Snap
shall have the right, in its sole discretion, to harvest such
Company Content in a manner requiring a User of the Snap Sites
to "click through" as many as two Web pages within the Snap
Sites before the User is transferred to the Company Site or
the Co-Branded Site. Harvested Company Content will maintain
the Snap Sites' Look and Feel and will include branding for
the Company using Company Marks, in such form and placement as
a Snap Product Manager shall determine in his or her sole
discretion. Harvested Company Content shall not include any
Commerce Offering, except at Snap's sole discretion.
4.3. INTERNAL PROMOTIONS. Subject to the discretion of a Snap
Product Manager, during the Term, Snap shall promote and link
the Health Channel within and throughout the Snap Sites.
Subject to the discretion of a Snap Product Manager, the
Company may receive internal promotional links within relevant
sub-areas of the Snap Sites that link to the Co-Branded Site.
Such relevant sub-areas may include, without limitation, the
following: Shopping, Local, Education, Kids and Family. =
Snap, in its sole discretion, has the right to create,
maintain or discontinue any of the foregoing sub-areas on the
Snap Sites. In addition, Snap may include a link to the Health
Channel and/or the Co-Branded Site within issues of Snap Wire,
as determined by Snap in its sole discretion.
4.4. HOSTING. Snap will host the Health Channel, the Health Content
Portals and any Company Content harvested pursuant to SECTION
4.2 on its servers (or on servers within its control) and will
provide all computer hardware, software and personnel
necessary to operate and maintain the Health Channel, the
Health Content Portals and any harvested Company Content as
functional pages accessible to Users.
4.5. ADVERTISING. Snap shall own and have the right to use or sell
all of the advertising inventory on the Health Channel and on
the Company Content it may harvest. The Company acknowledges
that any advertising for and/or links to other sites similar
to or in
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competition with the Company may exist in the Health Channel.
Notwithstanding anything in this Agreement to the contrary,
any third party content or links may exist on any area of the
Health Channel. Moreover, other than as expressly set forth
herein, Snap shall have the right to display any third party
links, media, banner advertisements, other promotions, and/or
paid or unpaid editorial content anywhere on the Snap Sites.
5. CO-BRANDED SITE.
5.1. CO-BRANDED SITE DESCRIBED. The Company will develop the
Co-Branded Site in accordance with this SECTION 5 and Snap
will provide reasonable assistance in connection therewith.
The Co-Branded Site will provide all of the features and
functionality provided by, and will perform in a manner
substantially identical to, the Company Site, as the Company
Site may be updated and enhanced from time to time.
5.2. CHANGES. Snap acknowledges that the Company may change the
design and functionality of the Company Site from time to
time, in which case the design and functionality of the
Co-Branded Site will be changed in a similar fashion.
Notwithstanding the foregoing, the Company will ensure that
the Co-Branded Site at all times maintains the Snap Sites'
Look and Feel and will make all changes reasonably suggested
by a Snap Product Manager for editorial consistency. Snap
agrees that all such changes shall refer to the Look and Feel
of the Co-Branded Site and not to Company Content on the
Co-Branded Site. Snap shall provide reasonable written notice
to the Company prior to modifying the Look and Feel of the
Snap Sites.
5.3. CO-BRANDING FEATURES. Each page on the Co-Branded Site will
include branding for Snap and the Company so that the Snap
Marks and Company Marks are both Above the Fold and are of
substantially equivalent value and prominence to each other.
Each page of the Co-Branded Site will also comply with Snap's
co-branding technical specifications, as updated in Snap's
sole discretion from time to time, including those set forth
at http://partnermarketing.snap.com/cobrand/cobranded_specs.
html or any other successor URL designated by Snap, and
include appropriate navigation features, such as an embedded
link on each Snap logo to the front door of the Snap Sites,
drop down menus, breadcrumb trails linking the User to the
page of the Snap Sites from which the User originated,
navigation bars and a Snap search box, that will include links
to the Snap Sites. Snap Marks and links to the Snap Sites will
have placement on the Co-Branded Site that is at least as
prominent as any promotions or links to other portal or search
engine companies that may be promoted on the Co-Branded Site.
5.4. LAUNCH DATE. The Company will use its best efforts to achieve
a Launch Date for the Co-Branded Site not sooner than the date
on which the Company has paid Snap pursuant to SECTION 9.1 and
paid Snap the initial fees pursuant to SECTIONS 9.2 AND 9.3
("Initial Payment Date") and not later than seven days after
such Initial Payment Date; provided, however, that if the
Launch Date occurs later than seven days after the Initial
Payment Date or does not occur due to the fault of the
Company, then such failure will be deemed a material breach of
this Agreement by Company. Snap shall provide the Company with
reasonable assistance to launch the Co-Branded Site.
Notwithstanding the Launch Date, Snap shall have the right to
begin displaying Impressions immediately upon the Effective
Date. If the Launch Date of the Co-Branded Site does not occur
by seven days after the Initial Payment Date, due to the fault
of the Company, Snap shall be deemed to have delivered
Impressions and Click Thrus required to be delivered pursuant
to this Agreement on a daily, straight-line, pro-rata basis
for each day thereafter.
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5.5. HOSTING. The Company will host the Co-Branded Site on its
servers (or on servers within its control) and will provide
all computer hardware, software and personnel necessary to
operate and maintain the Co-Branded Site as a functional site
accessible to Users.
5.6. ADVERTISEMENTS. The Company shall own and have the right to
use or sell all of the advertising inventory on the Co-Branded
Site. The Company will display advertising on the Co-Branded
Site consistent with the number, type, and placement of
advertising displayed on the Company Site; provided, however,
that all advertisements on the Co-Branded Site must also
comply with Snap's reasonable editorial guidelines in effect
from time to time. The Company will not display advertisements
of Competitors on the Co-Branded Site. Further, if any
advertisement on the Co-Branded Site is reasonably deemed
inappropriate by Snap, the Company shall upon notice from Snap
immediately remove the advertisement from the Co-Branded Site.
For example, pornography would reasonably be deemed
inappropriate by Snap, but advertisements for the Healthy
Sexuality magazine of the Company would not reasonably be
deemed inappropriate.
5.7. DNS MAPPING. Using Domain Name System mapping, the URL for the
Co-Branded Site will begin with http://healthgate.snap.com.
The Company agrees that Snap will be entitled to count all
page views of the Co-Branded Site towards Snap's traffic as
measured by Media Metrix and other Internet traffic-auditing
firms.
5.8. MOST FAVORED CUSTOMER PRICING. The Company shall offer on the
Co-Branded Site and the Company Site to Users from the Snap
Sites the Company's most favored customer pricing, which means
pricing and terms substantially similar to the lowest pricing
and most favorable terms offered by the Company to any other
Users of the Company Site. The Company shall maintain
competitive pricing for the products and services it offers.
6. CO-BRANDED, ENHANCED, AND INTERNATIONAL EDITIONS.
6.1. CO-BRANDED EDITIONS. Company acknowledges that Snap produces
co-branded editions of the Snap Sites for various resellers,
distributors, other licensees and/or joint venture partners
(collectively the "Distributors"). In some cases, such
Distributors are entitled to replace Snap's default content
with other content within their own co-branded editions of any
Snap Site. Notwithstanding any other provisions of this
Agreement, if any such Distributor has exercised its right to
replace Company Content with other content, then Snap will not
be required to display the Promotions or Company Content
within such Distributor's co-branded edition of the Snap
Sites. If Snap does display the Promotions or Company Content
within a co-branded edition of any Snap Site, such display
will be governed by this Agreement.
6.2. ENHANCED AND INTERNATIONAL EDITIONS. Snap has created an
enhanced, high-speed version of the Snap Sites focused on rich
media content (together with any successor service(s) or
site(s) thereof and any co-branded editions of such service
that have been or may be developed for Snap's third party
distribution partners and licensees, the "Enhanced Sites") and
may desire to include appropriate rich media Company Content
within the Enhanced Sites. Snap is currently considering
creating one or more international editions of the Snap Sites
to reflect appropriate localized and local partner content
("International Editions") and may desire to include localized
Company Content within the International Site. At Snap's sole
discretion, but subject to SECTION 3.2, all terms and
conditions contained in the Agreement related to the "Snap
Sites" may also apply to the Enhanced Site and International
Editions, and any Impressions and Click Thrus required under
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the Agreement may be delivered on the Enhanced Sites,
International Editions, and/or the existing Snap Sites.
Subject to SECTION 3.2, the Company hereby acknowledges that,
Snap, in its sole discretion, may use appropriate content,
promotions and other material provided by Company within the
Enhanced Sites and the International Editions, and all
licenses set forth in this Agreement are hereby expanded to
include the Enhanced Sites and International Editions. In the
event that the Company does not have the legal right to
deliver to Snap any Company Content for use as contemplated by
this Agreement in certain geographical markets, then the
Company will use its best efforts to obtain the consent(s) of
the other parties to such contracts to deliver and use all
Company Content as contemplated by this Agreement in such
geographical markets. So long as the Company is using its best
efforts to obtain such consents, Snap will not, unless and
until such consent is obtained, use on any International
Edition such content for which delivery to or use on the
International Edition in a certain geographical location is
prohibited by the terms of a written contract to which the
Company is a party. The Company acknowledges that the Look and
Feel of the Enhanced Site will be designed for a
high-bandwidth audience and therefore may substantially differ
from the Look and Feel of the primary Snap Sites. The Company
further acknowledges that the Look and Feel of the
International Editions will be localized for the relevant
target audience (e.g., in terms of language, culture, and
ethnicity) and therefore may substantially differ from the
Look and Feel of the primary Snap Sites.
7. NBC ON-AIR PROMOTION. During the Term, Snap will create and run a
series (i.e., no less than two) of dedicated thirty-second Snap
television advertisements which air during morning or daytime programs
appearing on the NBC Television Network, local television stations or
cable services for health, wellness and/or medicine related content
areas on the Snap Sites (the "Spots"). Snap agrees that the Company
will be featured in the Spots, in Snap's discretion, through either (i)
a promotional tag (meaning a text or graphic promoting the Company's
brands or services) of at least four seconds appearing at the end of
such Spots, or (ii) an integrated sales message within the body of such
Spots which at a minimum will consist of a voice over of at least four
seconds in length regarding the Company's brand or service. Snap shall
have sole discretion regarding the form and content of such
advertisements but will consult with the Company regarding how the
Company's brand or services will be featured in the Spots. Beginning no
less than thirty days following the Effective Date and continuing
throughout the rest of the Term, the Spots will run an average of four
times per month. The Company acknowledges that all placement of brands
or services within the Spots, as well as the Spots themselves, will be
subject to the NBC Advertising Standard Terms and Conditions as well as
the Advertising Standards set by NBC Broadcast Standards and Practices,
and Snap will have no right or power to cause NBC to make any exception
thereto for the Company or the Spots. The Company acknowledges that
neither Snap nor NBC makes any guarantee regarding what the actual
rating for any particular Spot will be and, therefore, will not be
obligated to provide any make-goods hereunder.
8. USER PROFILE DATA, COMMERCE OFFERINGS, AND DIRECT MARKETING.
8.1. DATA OWNERSHIP. The Company will be the sole owner of any
information that the Company collects from Users through the
Company Site, Snap will be the sole owner of any information
that Snap collects from Users through the Snap Sites, and the
Company and Snap shall jointly own any information that either
the Company or Snap collects from Users through the Co-Branded
Site. Further, if a User whose User Profile Data is contained
in the Company Database receives an email from Xoom pursuant
to SECTION 8.4 and purchases products offered in such email
through Xoom or an affiliated Web site,
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then the User Profile Data for such User shall be owned
jointly by Xoom and the Company from and after the time of
such purchase.
8.2. USE OF INFORMATION AND CONFIDENTIALITY. The Company and Snap
shall exchange User Profile Data and other information
relating to Users of the Co-Branded Site at times and in a
manner as reasonably requested by either party and mutually
agreed between the parties, but in any event at least once per
month. Each party will have the right to use any information
provided by the other party pursuant to SECTION 11 subject to
the confidentiality restrictions set forth in SECTION 17.6.
Unless otherwise clearly disclosed to Users on the respective
site, all data collected from Users through the Co-Branded
Site will be kept confidential and not disclosed to third
parties in accordance with the published privacy policy of
Snap and Xoom.
8.3. SNAP MEMBER REGISTRATION. If any Company Content accessed
through links appearing on the Snap Sites or the Co-Branded
Site contains any Commerce Offering that requires the User to
register or submit any User Profile Data, then Snap has the
right in its sole discretion to cause any of the following:
(i) the Web page that requests the User Profile Data, (ii) any
other page relating to the Commerce Offering, or (iii) a
separate Snap Member registration page, to present the User
with an opportunity to register to become a Snap Member.
8.4. DIRECT MARKETING. During the Term, Xoom and, following the
NBCi Closing, NBCi, shall have the right to use, with the
prior approval of the Company which approval shall not be
unreasonably withheld, the information contained in the
Company Database for direct marketing purposes as set forth in
this Section. Xoom shall have a right to execute, or cause to
be executed, at least one promotional email offer per month
approved by the Company, which approval shall not be
unreasonably withheld, to all or some of the Users described
in the Company Database. Such email offers shall be drafted by
Xoom, approved by Company (and such approval shall not be
unreasonably withheld) and will appear to come from
"HealthGate and Xoom". Such email messages may have links to
the Snap Sites or the Co-Branded Site, as Xoom shall decide in
its sole discretion. Products offered in such emails may
include Xoom's products or services or third party products
and/or services that Xoom has the right to offer, and Xoom
shall select all of such products to be offered in its sole
discretion. Xoom shall also have the option to create and host
"sell" pages for any marketing campaign, arrange for purchase
orders to be processed and fulfilled, and for customer service
and inventory matters to be coordinated in relation to the
products offered in emails distributed pursuant to this
Section, as Xoom shall determine in its sole discretion. Xoom
shall send a copy of the email offer to the Company at least
forty-eight hours prior to the time at which the email
messages are to be sent. The Company may reject, but not
unreasonably, promotional email offers proposed by Xoom.
8.5. COMPANY OFFERS. Xoom shall, if the Company requests, make up
to one promotional email offer per month containing a Company
Product offer to Users described in the Company Database,
provided that such email messages will be sent by Xoom in
consultation with the Company. Xoom may reject promotional
email offers proposed by the Company that include products or
services which compete with products or services then offered
to Users of the Snap Sites (other than Company Products
offered through the Co-Branded Site or harvested Company
Content), or if such offer otherwise conflicts with a Snap
and/or Xoom contractual agreement or Snap's and/or Xoom's
privacy or merchandising philosophy.
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9. PAYMENTS AND CREDITS.
9.1. PRODUCTION FEE. On the day which is thirty days after the
Initial Registration Date, the Company will pay Snap a
$250,000 production and content integration fee, which shall
be non-refundable except as provided in SECTION 10.6.
9.2. ANCHOR TENANCY FEES. The Company will pay Snap a $7,500,000
fee for the Anchor Tenant positions on the Health Channel
during Year One (the "Year One AT Fee"). $2,500,000 of the
Year One AT Fee shall be payable in Common Stock of the
Company as further provided in SECTION 9.8. The balance of the
Year One AT Fee shall be payable in cash on the day which is
thirty days after the Initial Registration Date. Payments of
the Year One AT Fee shall be non-refundable except as provided
in SECTION 10.6. For the Anchor Tenant positions on the Health
Channel during Year Two, the Company will make four payments
to Snap, each in the amount of $1,875,000, the first payment
being due on the first day of the tenth month of Year One, the
second payment due on the first day of Year Two, the third
payment due on the first day of the fourth month of Year Two,
and the fourth payment due on the first day of the seventh
month of Year Two. For the Anchor Tenant positions on the
Health Channel during Year Three, the Company will make four
payments to Snap, each in the amount of $1,875,000, the first
payment being due on the first day of the tenth month of Year
Two, the second payment due on the first day of Year Three,
the third payment due on the first day of the fourth month of
Year Three, and the fourth payment due on the first day of the
seventh month of Year Three.
9.3. MEDIA FEES. The Company will also pay Snap a $7,500,000 fee
for all Impressions Snap delivers during Year One pursuant to
SECTION 3.3 (the "Year One Media Fees"). $2,500,000 of the
Year One Media Fees shall be payable in Common Stock of the
Company as further provided in SECTION 9.8. The balance of the
Year One Media Fees shall be payable in cash on the day which
is thirty days after the Initial Registration Date. Payments
of the Year One Media Fees shall be non-refundable except as
provided in SECTION 10.6. For Impressions delivered during
Year Two, the Company will pay Snap a total fee of $7,500,000,
to be paid monthly in twelve equal monthly installments of
$625,000 payable on the first day of each month beginning on
the first day of the tenth month of Year One. For Impressions
delivered during Year Three, the Company will pay Snap a total
fee of $7,500,000, to be paid monthly in twelve equal monthly
installments of $625,000 payable on the first day of each
month beginning on the first day of the tenth month of Year
Two.
9.4. PURCHASER IDENTIFICATION FEES. If a User whose User Profile
Data is contained in the Company Database receives an email
from Xoom pursuant to SECTION 8.4 and purchases products
offered in such email through Xoom or an affiliated Web site,
then Xoom shall pay to the Company a $5 fee for the
identification of such purchasing User within thirty days
after the end of the calendar month in which Xoom receives
from the Company an invoice for such fee; provided, however,
that no more than one such $5 fee shall be billed or paid for
each unique User pursuant to this SECTION 9.4.
9.5. PERFORMANCE FEE. The Company shall pay Snap $0.50 per Click
Thru for each Click Thru delivered during Year One in excess
of 8,333,000 Click Thrus, up to a maximum payment of
$5,000,000. The Company shall pay Snap $0.55 per Click Thru
for each Click Thru delivered during Year Two in excess of
9,375,000 Click Thrus up to a maximum payment of $10,000,000.
The Company shall pay Snap $0.60 per Click Thru for each Click
Thru delivered during Year Three in excess of 10,714,000 Click
Thrus up
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to a maximum payment of $15,000,000. Such payments shall be
made by the Company within thirty days after receipt by Snap
of the monthly report described in SECTION 11.2.
9.6. PAYMENT. All payments required to be made hereunder by Snap or
Xoom will be made to the Company by wire transfer of
immediately available funds. Except as otherwise provided
herein, all payments required to be made hereunder by the
Company will be made to Snap by wire transfer of immediately
available funds, and to Xoom by wire transfer or check for
immediately available funds. If the Company should fail to
make any payment due under this Agreement by the date such
payment is due, the overdue payment will bear interest at the
rate of one and one-half percent simple interest per month or
the maximum interest permitted by law, whichever is less. Any
payment (including the issuance of stock pursuant to SECTION
9.8) which is due on a day which is not a Business Day shall
be payable on the next succeeding day that is a Business Day.
9.7. INVOICE PROCEDURE. Snap shall send the Company all invoices
hereunder to the attention of Mary B. Miller, whose title is
Chief Financial Officer, and who has the authority to
authorize the payment of such invoices.
9.8. EQUITY. As provided in SECTION 9.2 and SECTION 9.3, $2,500,000
of the Year One AT Fee and $2,500,000 of the Year One Media
Fees shall all be payable to Snap in shares of the Company's
Common Stock (the "Shares"), valued at $10.00 per Share, on
November 3, 1999, or such later date as Snap and the Company
shall mutually agree (the "Equity Closing Date"). On or prior
to the Equity Closing Date, the Company and Snap shall
negotiate in good faith and execute a Stock Transfer Agreement
governing the transfer of the Shares, which agreement shall
contain standard representations, warranties, covenants and
other terms and conditions reasonably satisfactory to both
Snap and the Company. On the Equity Closing Date, the Company
agrees to execute and deliver to Snap a registration rights
agreement reasonably acceptable to Snap that provides Snap
with piggyback registration rights that are subject to the
limitations on priority of registration permitted under the
Company's existing registration agreements. At Snap's
direction, the Shares shall be issued to an escrow agent (the
"Escrow Agent") pursuant to an Escrow Agreement to be executed
by the Company, Snap and the Escrow Agent named therein (the
"Escrow Agreement") and, 45 days following the Effective Date,
released to Snap.
10. TERM; TERMINATION.
10.1. TERM. The term of this Agreement will begin on the Effective
Date and end on the last day of the thirty-seventh month after
the Effective Date, unless otherwise terminated or extended as
set forth in this Agreement (the "Term").
10.2. TERMINATION FOR CAUSE. Either Snap or the Company may
terminate this Agreement at any time by giving written notice
of termination to the other parties if any other party commits
a material breach of its obligations hereunder that is not
cured within thirty days after notice thereof from a
non-breaching party; provided, however, that if the Company
fails to make a payment as required hereunder, Snap or Xoom,
as the case may be, may terminate this Agreement fifteen days
following the date of notice of such non-payment if any such
payment is not made within fifteen days after the Company's
receipt of such notice. Snap or Xoom may terminate this
Agreement immediately, and shall have no further obligation
under this Agreement, if the Company becomes insolvent; makes
an assignment for the benefit of creditors; makes or sends
notice of a bulk transfer; calls a meeting of its creditors
with respect to its inability to pay its obligations owed to
such
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creditors on customary terms; defaults under any agreement,
document or instrument relating to the Company's indebtedness
for borrowed money; ceases to do business as a going concern;
a petition is filed by or against the Company under any
bankruptcy or insolvency laws; or the Company experiences a
change in its ownership, such that a person, corporation or
other legal entity with a direct competitive interest (i.e.,
owns or operates a search and aggregation portal site on the
Web) holds an equity interest in the Company, without Snap's
prior, written consent to such ownership.
10.3. TERMINATION REGARDING COMPANY CONTENT. Snap may terminate this
Agreement at any time by giving written notice of termination
to the Company if the Company fails to timely deliver,
pursuant to SECTION 3.2, any material part of the Company
Content, including updates, and such failure is not cured
within ten days after the Company's receipt of notice thereof
from Snap.
10.4. TERMINATION REGARDING INITIAL REGISTRATION DATE. In the event
that the Initial Registration Date has occurred on or before
February 28, 2000, Snap may, in its sole discretion, terminate
this Agreement. If Snap elects to terminate this Agreement
under this SECTION 10.4, then the Company shall be required to
enter into an agreement within five days of such termination
to purchase Impressions from Snap having a value of $450,000
calculated at a 30% discount from the rates set forth in the
applicable Snap's standard rate card attached hereto as
EXHIBIT B and otherwise on Snap's standard terms and
conditions. The parties acknowledge and agree that the amount
of liquidated damages described above is a reasonable estimate
of the actual damages that Snap would suffer and incur as a
result of the failure of the Initial Registration Date to
occur by such date.
10.5. TERMINATION REGARDING PAYMENT OF EQUITY. Snap shall have a
right to terminate this Agreement, in its sole discretion, in
the event that the Company defaults in the performance of its
obligations pursuant to SECTION 9.8 or its obligations
pursuant to any agreement entered into between the Company and
Snap pursuant to SECTION 9.8. If Snap elects to terminate this
Agreement under this SECTION 10.5, then the Company shall be
required to enter into an agreement within five days of such
termination to purchase Impressions from Snap having a value
of $450,000 calculated at a 30% discount from the rates set
forth in the applicable Snap's standard rate card attached
hereto as EXHIBIT B and otherwise on Snap's standard terms and
conditions.
10.6. TERMINATION REGARDING FAILURE OF THE NBCI CLOSING. In the
event that the NBCi Closing does not occur on or before March
31, 2000, the Company shall have the option to terminate this
Agreement by giving written notice of termination to each of
Snap and Xoom. Upon the Company's exercise of this right of
termination, Snap shall return to the Company, within five
days of such termination, all consideration received by Snap
from the Company under this Agreement, and the parties hereto
shall have no further obligations or liabilities hereunder
except for such obligations and liabilities which are
expressly intended to survive the termination of this
Agreement.
10.7. CONSEQUENCES OF TERMINATION. Termination by Snap shall not
affect the rights and obligations of Xoom under this
Agreement, and termination by Xoom shall not affect the rights
and obligations of Snap under this Agreement. Upon the
termination or expiration of this Agreement, all licenses
granted hereunder shall immediately terminate; each party
shall return or destroy, all Confidential Information of the
other party in its possession. In addition, in the event this
Agreement is terminated pursuant to SECTION 10.2 and/or 10.3,
then all monies paid by the Company to Snap hereunder prior to
the termination
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shall be deemed non-refundable except as expressly stated
otherwise in this Agreement. Finally, in the event this
Agreement is terminated by Snap only pursuant to SECTION 10.2
and/or SECTION 10.3 (excluding termination for Company's
failure to maintain the Company Site, Company Content or the
Co-Branded Site as Best of Breed pursuant to SECTION 3.5),
then the Company shall continue to pay 55% of all fees payable
by the Company to Snap during the remainder of the Term as
liquidated damages. Such payments shall be due and payable on
the dates they would have been due and payable if the
termination had not occurred. The parties acknowledge and
agree that it would be impractical to estimate the amount of
any damages that could arise out of any material breach of
this Agreement or termination pursuant to SECTION 10.2 and/or
SECTION 10.3, and agree that the amount of liquidated damages
described above is a reasonable estimate of the actual damages
that Snap would suffer and incur as a result of such breach or
termination of this Agreement. No party shall be liable to the
others for damages of any sort resulting solely from
terminating this Agreement in accordance with its terms.
11. REPORTS, RECORDS, AND ACCOUNTS.
11.1. SNAP AND XOOM REPORTS. Within 15 days after the end of each
month during the Term, Snap and Xoom will provide to the
Company their standard advertising reports for User traffic
generated from the Promotions for such month.
11.2. COMPANY REPORTS. Within 15 days after the end of each month
during the Term, the Company will provide to Snap a complete
and detailed report that includes, at a minimum, for such
month: (i) the total page views on the Co-Branded Site, (ii)
the total number of Click Thrus delivered for such month and
the aggregate number of Click Thrus delivered since the
beginning of the Contract Year containing such month, (iii)
the total payment due Snap from the Company, if any, pursuant
to SECTION 9.5, (iv) the number of unique Users to the
Co-Branded Site from the Health Channel, (v) the number of
Users and User Profile Data for Users who click through from
the Snap Sites to the Company Site and/or the Co-Branded Site,
(vi) the number of Users and User Profile Data for Users who
click through from the Snap Sites to the Company Site and/or
the Co-Branded Site and order Company Products and (vii) the
aggregate statistical and demographic characteristics of Users
in (iv), (v) and (vi). Snap will tag each User of the
Co-Branded Site originating from the Snap Sites using a cookie
or other similar technology to assist the Company in obtaining
the foregoing data.
11.3. RECORDS AND ACCOUNTS. The Company agrees to keep, on a
continuing basis, full and accurate records and accounts,
including, without limitation all logs and reports, sufficient
to permit Snap and Xoom to verify the accuracy of all reports
submitted by the Company as hereinabove required. Snap and
Xoom shall have the right, at their sole expense, to examine
such books and records, whether in electronic format or
otherwise, to the extent that such examination is necessary
and pertinent to the foregoing verification, during reasonable
business hours, using its employees or principals, or through
outside, authorized representatives. In the event such an
examination reveals that any of the reports submitted or
payments made by the Company to Snap, as hereinabove required,
understated the monies owed by five percent (5%) or more, then
the Company shall, in addition to the payment of the
additional monies owed fees determined by such examination,
promptly pay to Snap the reasonable cost of such examination.
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12. Licenses.
12.1. COMPANY MARKS AND CONTENT. The Company hereby grants to Snap
and Xoom a non-exclusive, non-transferable, royalty-free
license, effective throughout the Term, to use, display and
publish the Company Marks and Company Content solely as
permitted hereunder; provided, however, that this license
shall not apply to any Company Mark that is licensed by the
Company from any third party to the extent that the grant of
this license to Snap and Xoom is prohibited by a contractual
obligation to such third party which is disclosed in writing
to Snap prior to the Effective Date. In the event the Enhanced
Sites and/or the International Editions are deemed included
within this Agreement pursuant to SECTION 6.2, the Company
hereby further grants to Snap and Xoom a non-exclusive,
non-transferable, royalty-free license, effective throughout
the Term, to modify and create derivative works of the Company
Content solely as permitted hereunder. In the event the
International Editions are deemed included within this
Agreement pursuant to SECTION 6.2, the Company shall in good
faith modify the Company Marks to incorporate changes
reasonably suggested by Snap for the relevant target audience
(e.g., complying with local laws or avoiding the use of
offensive terms in the local language). Any use of the Company
Marks or the Company Content by Snap or Xoom must comply with
any reasonable usage guidelines communicated by the Company to
Snap and Xoom from time to time. Nothing contained in this
Agreement will give Snap or Xoom any right, title or interest
in or to the Company Content, the Company Marks or the
goodwill associated therewith, except for the limited usage
rights expressly provided above. Snap and Xoom acknowledge and
agree that, as between the Company and Snap and Xoom, the
Company is the sole owner of all rights in and to the Company
Marks and the Company Content.
12.2. SNAP MARKS. Snap hereby grants to the Company a non-exclusive,
non-transferable, royalty free license, effective throughout
the Term, to use, display and publish the Snap Marks solely
within the Co-Branded Site as permitted hereunder. Any use of
the Snap Marks by the Company must comply with any reasonable
usage guidelines communicated to the Company by Snap from time
to time. Nothing contained in this Agreement will give the
Company any right, title or interest in or to the Snap Marks
or the goodwill associated therewith, except for the limited
usage rights expressly provided above. The Company
acknowledges and agrees that, as between the Company and Snap,
Snap is the sole owner of all rights in and to the Snap Marks.
12.3. XOOM MARKS. Xoom hereby grants to the Company a non-exclusive,
non-transferable, royalty free license, effective throughout
the Term, to use, display and publish the Xoom Marks solely
within the Co-Branded Site as permitted hereunder. Any use of
the Xoom Marks by the Company must comply with any reasonable
usage guidelines communicated to the Company by Xoom from time
to time. Nothing contained in this Agreement will give the
Company any right, title or interest in or to the Xoom Marks
or the goodwill associated therewith, except for the limited
usage rights expressly provided above. The Company
acknowledges and agrees that, as between the Company and Xoom,
Xoom is the sole owner of all rights in and to the Xoom Marks.
13. RESPONSIBILITY FOR THE SITES AND PRODUCTS. The Company acknowledges and
agrees that, as between the Company and Snap and Xoom, the Company will
be solely responsible for any claims or other losses associated with or
resulting from the marketing or operation of the Company Site or the
Co-Branded Site or the offer or sale of any Company Products by the
Company or through the Company Site or the Co-Branded Site, or through
emails delivered by
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Xoom. Snap and Xoom are not authorized to make, and agree not to make,
any representations or warranties concerning the Company Products,
except to the extent (if any) contained within Promotions delivered to
Snap or Xoom by the Company.
14. LIMITATION OF DAMAGES. NO PARTY WILL BE LIABLE FOR ANY SPECIAL,
INDIRECT, CONSEQUENTIAL OR INCIDENTAL DAMAGES ARISING OUT OF OR RELATED
TO THIS AGREEMENT, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY
(INCLUDING NEGLIGENCE), AND EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. EXCEPT IN THE EVENT OF A CLAIM UNDER
SECTION 16 OR SECTION 17.5, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO
THE OTHER PARTY IN AN AMOUNT GREATER THAN THE AMOUNTS PAYABLE TO SNAP
BY THE COMPANY HEREUNDER.
15. NO WARRANTIES. THE IMPRESSIONS, HEALTH CHANNEL, HEALTH CONTENT PORTALS
AND COMPANY CONTENT ARE PROVIDED "AS IS" AND THE INFORMATION CONTAINED
THEREIN IS NOT WARRANTED TO BE FREE FROM ERROR. SNAP, XOOM AND THE
COMPANY DISCLAIM ALL WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING
BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE WITH RESPECT TO THE IMPRESSIONS, HEALTH
CHANNEL, HEALTH CONTENT PORTALS AND COMPANY CONTENT.
16. MUTUAL INDEMNIFICATION.
16.1. INDEMNIFICATION BY SNAP. Snap shall indemnify, defend and hold
the Company harmless from and against any costs, losses,
liabilities and expenses, including all court costs,
reasonable expenses and reasonable attorney's fees
(collectively, "Losses") that the Company may suffer, incur or
be subjected to by reason of any legal action, proceeding,
arbitration or other claim by a third party, whether commenced
or threatened, arising out of or as a result of the operation
of the Snap Sites (except in cases where the Company is
required to indemnify Snap under SECTION 16.3).
16.2. INDEMNIFICATION BY XOOM. Xoom shall indemnify, defend and hold
the Company harmless from and against any Losses that the
Company may suffer, incur or be subjected to by reason of any
legal action, proceeding, arbitration or other claim by a
third party, whether commenced or threatened, arising out of
or as a result of the emails sent by Xoom or a third party
pursuant to SECTION 8.4 and the use of the unauthorized or
illegal use of the Company Database (except in cases where the
Company is required to indemnify Xoom under SECTION 16.3).
16.3. INDEMNIFICATION BY THE COMPANY. The Company shall indemnify,
defend and hold each of Snap and Xoom harmless from and
against any Losses that Snap or Xoom may suffer, incur or be
subjected to by reason of any legal action, proceeding,
arbitration or other claim by a third party, whether commenced
or threatened, arising out of or as a result of (i) the use of
Company Content by Snap in accordance with this Agreement;
(ii) the operation of the Company Site or the Co-Branded Site;
(iii) the use of any word as a Keyword to trigger a Keyword
Promotion; (iv) the offer or sale of Company Products by the
Company on or through the Company Site, or the Co-Branded Site
or any emails sent by Xoom or a third party pursuant to
SECTION 8.4, or (v) the authorized and legal use of the
Company Database.
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16.4. INDEMNIFICATION PROCEDURES. If any party entitled to
indemnification under this Section (an "Indemnified Party")
makes an indemnification request to the other, the Indemnified
Party shall permit the other party (the "Indemnifying Party")
to control the defense, disposition or settlement of the
matter at its own expense; provided that the Indemnifying
Party shall not, without the consent of the Indemnified Party
enter into any settlement or agree to any disposition that
imposes an obligation on the Indemnified Party that is not
wholly discharged or dischargeable by the Indemnifying Party,
or imposes any conditions or obligations on the Indemnified
Party other than the payment of monies that are readily
measurable for purposes of determining the monetary
indemnification or reimbursement obligations of Indemnifying
Party. The Indemnified Party shall notify the Indemnifying
Party promptly of any claim for which Indemnifying Party is
responsible and shall cooperate with the Indemnifying Party in
every commercially reasonable way to facilitate defense of any
such claim; provided that the Indemnified Party's failure to
notify Indemnifying Party shall not diminish Indemnifying
Party's obligations under this Section except to the extent
that Indemnifying Party is materially prejudiced as a result
of such failure. An Indemnified Party shall at all times have
the option to participate in any matter or litigation through
counsel of its own selection and at its own expense.
17. MISCELLANEOUS.
17.1. PROMOTION OF SNAP SITES. The Company may accept advertising
from other portals or search engines. If the Company accepts
advertising from other portals or search engines, and the
Company promotes such portals or search engines within a
"partner" area of the Company Site, then the Company shall
display the Snap Marks on such area of the Company Site at
least as prominently as such portal or search engine entity.
The Company shall ensure that the Snap Marks on the Company
Site link to the Co-Branded Site or the Health Channel.
17.2. ASSIGNMENT. Snap shall have the right to assign all of its
rights and liabilities hereunder to an affiliate or to any
person or entity that (i) acquires all or substantially all of
Snap's operating assets (whether by asset sale, stock sale,
merger or otherwise) or (ii) results from a merger or
reorganization of Snap pursuant to any plan of merger or
reorganization. Xoom shall have the right to assign all of its
rights and liabilities hereunder to an affiliate or to any
person or entity that (i) acquires all or substantially all of
Xoom's operating assets (whether by asset sale, stock sale,
merger or otherwise) or (ii) results from a merger or
reorganization of Xoom pursuant to any plan of merger or
reorganization. Without limiting the generality of the
foregoing, the Company expressly acknowledges that Snap and
Xoom will each have the right to freely assign this Agreement
or the operative rights and obligations hereof to any entity
resulting from the merger or other similar combination of Snap
and Xoom. The Company may assign all of its rights and
liabilities to another person, if such person or entity
accepts in writing all of the Company's rights, obligations
and liabilities hereunder, such person or entity is not a
Competitor, and the Company provides prior written notice to
Snap of such assignment.
17.3. RELATIONSHIP OF PARTIES. This Agreement will not be construed
to create a joint venture, partnership or the relationship of
principal and agent between the parties hereto, nor to impose
upon either party any obligations for any losses, debts or
other obligations incurred by the other party except as
expressly set forth herein. In no event will Snap or Xoom be
liable for the actions, omissions, duties or obligations of
the other under this Agreement.
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17.4. APPLICABLE LAW. This Agreement will be construed in accordance
with and governed by the laws of the State of California,
without regard to principles of conflicts of law. Litigation
of disputes under this Agreement shall be conducted in courts
located in the City of San Francisco, California. The parties
hereto consent to the jurisdiction of any local, state or
federal court in which an action is commenced and located in
accordance with the terms of this Section and that is located
in San Francisco, California. The parties further agree not to
disturb such choice of forum, and if not resident in such
state, waive the personal service of any and all process upon
them, and consent that such service of process may be made by
certified or registered mail, return receipt requested,
addressed to the parties as set forth herein.
17.5. CONFIDENTIALITY. In connection with the activities
contemplated by this Agreement, each party may have access to
confidential or proprietary technical or business information
of any other party, including without limitation (i)
proposals, ideas or research related to possible new products
or services; (ii) financial statements and other financial
information; (iii) any reporting information in SECTION 11;
and (iv) the material terms of this Agreement and the
relationship between the parties; provided, however, that such
information will be considered confidential only if it is
conspicuously designated as "Confidential," or if provided
orally, identified at the time of disclosure as confidential
(collectively, "Confidential Information"). Each party will
take reasonable precautions to protect the confidentiality of
the other party's Confidential Information, which precautions
will be at least equivalent to those taken by such party to
protect its own Confidential Information. Except as required
by law or as necessary to perform under this Agreement, no
party will knowingly disclose the Confidential Information of
any other party or use such Confidential Information for its
own benefit or for the benefit of any third party. Each
party's obligations in this Section with respect to any
portion of the other party's Confidential Information shall
terminate when the party seeking to avoid its obligation under
such Section can document that: (i) it was in the public
domain at or subsequent to the time it was communicated to the
receiving party ("Recipient") by the disclosing party
("Discloser") through no fault of Recipient; (ii) it was
rightfully in Recipient's possession free of any obligation of
confidence at or subsequent to the time it was communicated to
Recipient by Discloser; (iii) it was developed by employees or
agents of Recipient independently of and without reference to
any information communicated to Recipient by Discloser; (iv)
it was communicated by the Discloser to an unaffiliated third
party free of any obligation of confidence; or (v) the
communication was in response to a valid order by a court or
other governmental body, was otherwise required by law or was
necessary to establish the rights of either party under this
Agreement.
17.6. PRESS RELEASE. No party will make any public statement or
other announcement (including without limitation, issuing a
press release or pre-briefing any member of the press or other
third party) relating to the terms or existence of this
Agreement without the prior written approval of the other
parties. Notwithstanding the foregoing and SECTION 17.5, the
parties may issue an initial joint press release, the timing
and wording of which will be subject to each party's
reasonable approval, regarding the relationship between the
parties.
17.7. INJUNCTIVE RELIEF. Each party agrees that in the event of a
breach or alleged breach of SECTIONS 17.5 or 17.6 that the
other parties shall not have an adequate remedy at law,
including monetary damages, and that the other parties shall
consequently be entitled to seek a temporary restraining
order, injunction, or other form of equitable relief against
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the continuance of such breach, in addition to any and all
remedies to which any other party shall be entitled.
17.8. CAPTIONS AND SECTION HEADINGS. Captions and section headings
used in this Agreement are for convenience only and are not a
part of this Agreement and shall not be used in construing it.
Except as otherwise specifically provided, any reference in
this Agreement to a section or exhibit shall be deemed to be a
reference to such section or exhibit of this Agreement.
17.9. SURVIVAL. Termination or expiration of this Agreement for any
reason shall not release any party from any liabilities or
obligations set forth in this Agreement which (i) the parties
have expressly agreed shall survive any such termination or
expiration, or (ii) remain to be performed or by their nature
would be intended to be applicable following any such
termination or expiration.
17.10. TAXES. For all fees or charges payable hereunder by the
Company to Snap, the Company will pay or reimburse Snap for
50% of any taxes or fees (including all federal, state, or
local taxes) associated with Snap's provision of the services
hereunder to Company, except that Company will have no
liability for any taxes based on Snap's net assets or net
income, or for which Company has an appropriate resale or
other exemption.
17.11. FORCE MAJEURE. If any party shall be delayed in its
performance of any obligation hereunder or be prevented
entirely from performing any such obligation due to causes or
events beyond its reasonable control, including without
limitation any act of God, fire, strike or other labor
problem, such delay or non-performance shall be excused and
the time for performance shall be extended to include the
period of such delay or non-performance.
17.12. DISPUTE RESOLUTION. In the event that any dispute arises
hereunder, the parties agree that prior to commencing
litigation, arbitration, or any other legal proceeding, each
party shall send an officer of such party to negotiate a
resolution of the dispute in good faith at a time and place as
may be mutually agreed. Each officer shall have the power to
bind its respective party in all material respects related to
the dispute. If the parties cannot agree on a time or place,
upon written notice from either party to the other, the
negotiations shall be held at the principal executive offices
of Snap 21 days following such notice (or on the next
succeeding Business Day, if the 21st day is not a Business
Day).
17.13. NOTICES. All notices or other communications that shall or may
be given pursuant to this Agreement, shall be in writing, in
English, shall be sent by certified or registered air mail
with postage prepaid, return receipt requested, by facsimile,
overnight express mail, or by hand delivery. Such
communications shall be deemed given and received upon
confirmation of receipt, if sent by facsimile; the day after
delivery if by overnight express mail; or upon delivery if
hand delivered; or upon receipt of mailing, if sent by
certified or registered mail; and shall be addressed to the
parties as set forth above on the first page of this Agreement
and to the attention of Rick Lawson, if to the Company, to the
attention of Mark Markunas, Contracts Administrator, if to
Snap, and to the attention of Janine Popick, if to Xoom; or to
such other addresses or persons as the parties may designate
in writing from time to time.
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17.14. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed a duplicate
original and all of which, when taken together, shall
constitute one and the same document.
17.15. ENTIRE AGREEMENT. This Agreement constitutes and contains the
entire agreement between the parties with respect to the
subject matter hereof and supersedes any prior oral or written
agreements. This Agreement may not be amended except in
writing signed by both parties. Each party acknowledges and
agrees that the other has not made any representations,
warranties or agreements of any kind, except as expressly set
forth herein. All exhibits attached to this Agreement are
incorporated hereby and shall be treated as if set forth
herein.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives on the dates indicated below.
SNAP! LLC HEALTHGATE DATA CORP.
By: /s/ Edmond Sanctis By: /s/ William S. Reece
------------------------------ ----------------------------
(Signature) (Signature)
Name: Edmond Sanctis Name: William S. Reece
---------------------------- --------------------------
(Please print) (Please print)
Title: Chief Operating Officer Title: Chief Executive Officer
--------------------------- --------------------------
Date: 11/2/99 Date: 10/29/99
---------------------------- ---------------------------
XOOM.COM, INC.
By: /s/ Chris Kitze
-----------------------------
(Signature)
Name: Chris Kitze
---------------------------
(Please print)
Title: Chairman
--------------------------
Date: 11/2/99
---------------------------
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EXHIBIT 10.40
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HEALTHGATE DATA CORP.
----------------------------------
COMMON STOCK PURCHASE AGREEMENT
----------------------------------
DATED AS OF NOVEMBER 3, 1999
<PAGE>
HEALTHGATE DATA CORP.
COMMON STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is made this 3rd day of
November, 1999 by and among HealthGate Data Corp., a Delaware corporation (the
"Company"), and Snap! LLC, a Delaware limited liability company (the
"Investor").
THE PARTIES HERETO AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1. AUTHORIZATION OF SHARES. The Company has authorized the issue and
sale of 126,072 shares of Common Stock, $.01 par value (the "Common Stock"), of
the Company to be issued under this Agreement (which following the Company's
proposed 3.966 for 1 stock split will be automatically adjusted to 500,000
post-split shares).
1.2. PURCHASE AND SALE OF THE COMMON STOCK. Pursuant to the Snap
Strategic Alliance Agreement dated October 29, 1999 between the Investor, the
Company, and Xoom.com, Inc., and subject to the terms and conditions of this
Agreement and on the basis of the representations and warranties set forth
herein, the Company agrees to issue and sell to the Investor and the Investor
agrees to purchase from the Company 126,072 shares of Common Stock (the
"Shares") at a purchase price of $39.66 for each share of Common Stock (which
following the Company's proposed 3.966 for 1 stock split will be adjusted to
$10.00 per post-split share).
1.3. THE CLOSING. Subject to the other terms and conditions of this
Agreement, the purchase and sale of the Shares (the "Closing") will take place
on November 3, 1999, at 2:00 p.m. Boston time, at the offices of Ropes & Gray,
or at such other time or such other place as the parties shall mutually agree.
At the Closing, the Company will deliver to the Investor a certificate or
certificates, registered in the Investor's name, representing the Shares to be
acquired by the Investor at such Closing against payment of the purchase price
thereof in lawful money of the United States of America by wire transfer payable
to the Company.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY REGARDING THE COMPANY AND THE
SHARES.
In order to induce the Investor to enter into this Agreement and to
acquire the Shares hereunder, the Company hereby represents and warrants to the
Investor that:
2.1. ORGANIZATION AND AUTHORITY. The Company is a corporation duly
organized and validly existing under the laws of the State of Delaware and has
full corporate power, right and authority to own or lease its property or
assets, to carry on its business as presently
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conducted and to enter into and carry out the transactions contemplated by this
Agreement. The Company is duly qualified to transact business as a foreign
corporation and is in good standing in each of the other jurisdictions in which
the ownership or leasing of its properties or the conduct of its business
requires such qualification. The Company does not own or hold any equity
securities, or the right to acquire any equity securities, of any corporation or
other entity except HealthGate Acquisition Corp., a Delaware corporation, and
HealthGate Europe Limited, a corporation organized under the laws of the United
Kingdom.
2.2. AUTHORIZATION. The Company has full legal right, power, capacity
and authority to execute and deliver this Agreement and each of the other
agreements contemplated hereby, to consummate the transactions contemplated
hereby and thereby and to comply with the terms, conditions and provisions
hereof and thereof. This Agreement and each of the other agreements contemplated
hereby have been duly authorized, executed and delivered by the Company and are
the legal, valid and, assuming due execution and delivery by the other parties
thereto, binding obligations of the Company, enforceable in accordance with
their terms. The execution, delivery and performance of this Agreement and each
of the other agreements contemplated hereby have been duly authorized and
approved by all necessary corporate action of the Company and does not require
any further authorization or consent of the Company or any other Person.
2.3. VALIDITY OF SHARES. The Shares, when issued and the consideration
therefor received by the Company, will be validly issued, fully paid and
non-assessable. The Company has the full corporate power, right and authority,
to issue and sell to the Investor at the Closing, the Shares, as contemplated
herein, and upon consummation of the transactions contemplated by this Agreement
the Investor will have acquired good and marketable title to the Shares free and
clear of any claims, liens, restrictions on transfer or voting or encumbrances
other than those arising under the federal and state securities laws of the
United States of America.
2.4. CAPITALIZATION. (a) The authorized capital stock of the Company
consists of (i) 20,000,000 shares of Common Stock, (ii) 1,000 shares of Series A
Convertible Preferred Stock, (iii) 1,000 shares of Series B Convertible
Preferred Stock, (iv) 1,000 shares of Series C Convertible Preferred Stock, (v)
1,667 shares of Series D Convertible Preferred Stock and (vi) 829,962 shares of
Series E Convertible Preferred Stock.
(b) Outstanding Stock. The Company's issued and outstanding
stock consists of 1,176,228 shares of Common Stock (which 1,176,228 shares will
be automatically converted into 4,664,916 shares of Common Stock effective with
the Company's proposed 3.966 for 1 stock split) and 725,424 shares of preferred
stock convertible into 1,898,764 shares of Common Stock (which 1,898,764 shares
of Common Stock will be automatically converted into 7,350,556 shares of Common
Stock effective with the Company's proposed 3.966 for 1 stock split).
Additionally, the Company has issued options and warrants for the purchase of
871,978 shares of Common Stock (which 871,978 shares will be automatically
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converted into 3,458,261 shares of Common Stock effective with the Company's
proposed 3.966 for 1 stock split). Additionally, the Company plans to issue CIS
Holdings, Inc., a Nevada corporation, a warrant for 489,419 shares of Common
Stock of the Company (which 489,419 shares will be automatically converted into
1,941,035 shares of Common Stock effective with the Company's proposed 3.966 for
1 stock split).
2.5. FINANCIAL STATEMENTS. Schedule 2.5 sets forth: (i) an unaudited
balance sheet of the Company as of June 30, 1999 and the related unaudited
statements of income and cash flows for the six months then ended, and (ii) an
audited balance sheet of the Company as of December 31, 1998 and the related
audited statements of income and cash flows for the twelve months then ended, in
each case audited by PriceWaterhouseCoopers, LLP independent certified public
accountants, (the balance sheet of the Company as at December 31, 1998 is
hereinafter referred to as the "Balance Sheet" and the balance sheet of the
Company as at June 30, 1999 is hereinafter referred to as the "Closing Balance
Sheet"). Such financial statements, except as indicated therein, have been
prepared in accordance with United States generally accepted accounting
principles ("GAAP") consistently applied throughout the period indicated. The
Balance Sheet and the Closing Balance Sheet fairly present the financial
condition of the Company at the dates thereof and, except as indicated therein,
reflect all claims against and all debts and liabilities of the Company, fixed
or contingent, as at the dates thereof, required to be shown thereon under GAAP,
and the related statements of income and retained earnings fairly present the
results of operations of the Company for the period indicated.
2.6. CHANGES IN CONDITION. Since June 30, 1999 (the "Balance Sheet
Date"), there have occurred no event or events that, individually or in the
aggregate, have caused a Material Adverse Effect. Without limiting the
foregoing, the Company has not (a) declared any dividend or other distribution
on any shares of its capital stock, (b) made any payment (other than
compensation to its directors, officers and employees at rates in effect prior
to the Balance Sheet Date or for bonuses accrued in accordance with normal
practice prior to the Balance Sheet Date) to any of its affiliates, (c)
increased the compensation, including bonuses, payable or to be payable to any
of its directors, officers, employees or affiliates, or (d) entered into any
material contractual obligation, or entered into or performed any other
transaction, not in the ordinary and usual course of business and consistent
with past practice, other than as disclosed in the Disclosure Statement dated
November 3, 1999 delivered to the Investor (the "Disclosure Statement") or
disclosed directly to the Investor.
2.7. CONFORMITY WITH LEGAL REQUIREMENTS. The operations of the Company
as now conducted are not in violation of, nor is the Company in default under,
any legal requirements presently in effect, except for such violations and
defaults as do not and will not, in the aggregate, have a Material Adverse
Effect. The Company (i) has all franchises, licenses, permits or other authority
reasonably necessary for the conduct of its business as now conducted, and (ii)
is not in violation of any such authorizations except, in each case, to the
extent that the failure to have such authorizations or such violations is
reasonably likely to cause a Material Adverse Effect.
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<PAGE>
2.8. NO DEFAULTS. The Company is not in default, and the Company's
properties or assets or the business of the Company, as presently conducted or
proposed to be conducted, are not in default (a) under its charter documents or
its By-Laws or any material note, indenture, mortgage, lease, agreement,
contract, purchase order or other instrument, document or agreement to which it
is a party or by which it or any of its property is bound or affected or (b)
with respect to any order, writ, injunction or decree of any court or any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign. There exists no
condition, event or act which after notice, lapse of time, or both, is
reasonably likely to constitute a default by the Company which would have a
Material Adverse Effect. To the Company's knowledge, no third party is in
default under any agreement, contract or other instrument, document, or
agreement to which the Company or any subsidiary is a party or by which any of
them or any of their property is affected.
2.9. EFFECT OF TRANSACTIONS. The execution, delivery and performance of
this Agreement, and any other agreements, instruments, or documents contemplated
hereby, the issuance, sale and delivery of the Shares and compliance with the
provisions hereof and thereof by the Company, do not and will not, with or
without the passage of time or the giving of notice or both (a) violate any
provision of law, statute, rule or regulation or any ruling, writ, injunction,
order, judgment or decree of any court, administrative agency or other
governmental body, or (b) conflict with or result in any breach of any of the
terms, conditions or provisions of, or constitute a default (or give rise to any
right of termination, cancellation or acceleration) under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company under its charter or bylaws or under any
note, indenture, mortgage, lease, license agreement, contract, purchase order or
other instrument, document or agreement to which the Company is a party or by
which it or any of its property is bound or affected which would have a Material
Adverse Effect.
2.10. LITIGATION. There is no action, suit, proceeding or investigation
at law or equity or before or by any governmental commission, board or other
administrative agency pending or, to the knowledge of the Company, threatened
against or affecting the Company which questions the validity of this Agreement,
any other agreements, instruments or documents entered into by the Company
pursuant to this Agreement, the right of the Company to enter into them or to
consummate the transactions contemplated hereby or thereby, or which might
result, either individually or in the aggregate, have a Material Adverse Effect,
or any change in the current equity ownership of the Company. There is no
action, suit or proceeding pending against, or to the knowledge of the Company,
threatened against or affecting, the Company or any of its properties before any
court or arbitrator or any governmental body, agency or official which in any
manner challenges or seeks to prevent, enjoin, alter or materially delay any of
the transactions contemplated hereby. There is no material litigation other than
as described in the Disclosure Statement.
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2.11. TAXES. The Company has filed all federal, state, local and other
tax returns required by law to be filed by it, and all taxes shown to be due and
all additional assessments, fees, governmental charges, interest and penalties
have been paid. The federal income tax liabilities of the Company for the
fiscal year 1998, and for all prior years, have been determined or accepted by
the Internal Revenue Service and paid. No objection to any return or claim for
additional taxes is currently being asserted against the Company and the Company
does not know of any proposed additional tax assessment against the Company. The
Company believes all filed returns were prepared in accordance with applicable
statutes and generally accepted principles applicable to taxation.
2.12. LIMITATIONS. There are no limitations in the Company's By-laws or
in any indenture, deed of trust or other agreement or instrument to which the
Company is a party with respect to the issuance and sale of the Shares, or with
respect to the payment or accumulation of dividends on the Shares, except in
each such case those contained in the Company's Certificate of Incorporation.
2.13. PERFORMANCE. The Company has performed and complied with all
agreements, obligations, and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
2.14. DISCLOSURES. Neither this Agreement, the Disclosure Statement,
any other agreement contemplated hereby, any exhibit hereto or thereto, nor any
report, certificate or instrument furnished to the Investor in connection with
the transactions contemplated in this Agreement contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading. The Company knows of no
information or fact that has or would have a Material Adverse Effect that has
not been disclosed to the Investor either in this Agreement, in the Disclosure
Statement or any other agreement contemplated hereby, any exhibit hereto or
thereto, or any report, certificate or instrument furnished to the Investor.
3. REPRESENTATIONS AND WARRANTIES AND OTHER AGREEMENTS OF THE INVESTOR.
3.1. REPRESENTATIONS AND WARRANTIES. The Investor hereby represents and
warrants to the Company that:
(a) AUTHORIZATION. The Investor has full power and authority
to execute, deliver and perform this Agreement and to acquire the
Shares, as contemplated herein; this Agreement constitutes the valid
and legally binding obligation of the Investor, enforceable against the
Investor in accordance with its terms.
(b) PURCHASE ENTIRELY FOR OWN ACCOUNT. The Shares to be
received by the Investor as contemplated by this Agreement will be
acquired for investment for the Investor for its own account, not as a
nominee or agent and not with a view to the
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distribution of any part thereof. The Investor has no present
intention of selling, granting any participation in, or otherwise
distributing the same. The Investor does not have any contract,
undertaking, agreement or arrangement with any Person to sell,
transfer, or grant participation to such Person or to any third
Person, with respect to the Shares.
(c) RESTRICTED SECURITIES. The Investor understands that the
Shares may not be sold, transferred, or otherwise disposed of without
registration under the U.S. Securities Act of 1933, as amended (the
"1933 Act"), or an exemption therefrom, and that, in the absence of an
effective registration statement covering the Shares or an available
exemption from registration under the 1933 Act, the Shares must be held
indefinitely. In the absence of an effective registration statement
covering the Shares, the Investor will sell, transfer, or otherwise
dispose of the Shares only in a manner consistent with its
representations and agreements set forth herein.
(d) SUITABILITY. The Investor is an "accredited investor" as
such term is defined in Rule 501(a) promulgated pursuant to the 1933
Act.
(e) FINANCIAL CONDITION. The Investor's financial condition
is such that it is able to bear the risk of holding the Shares for an
indefinite period of time and can bear the loss of its entire
investment in the Shares.
(f) EXPERIENCE. The Investor has such knowledge and
experience in financial and business matters and in making high risk
investments of this type that it is capable of evaluating the merits
and risks of the purchase of the Shares.
(g) RISK AND DUE DILIGENCE. The Investor understands that
the operation of the Company's business is subject to numerous risks
and that the Shares are a speculative investment that involves a high
degree of risk of loss of the entire investment therein. The Investor
is cognizant of and understands such risks, including those set forth
in the Disclosure Statement. The Investor has been allowed, upon
request, to examine any document or agreement listed herein, 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.
3.2. LEGENDS. It is understood that the certificates evidencing
the Shares will bear substantially the following legend:
"The shares represented by this certificate have been
acquired for investment, have not been registered under the Securities
Act of 1933, as amended (the "Act") or any applicable state security
laws and may not be offered, sold or otherwise transferred in the
absence of a registration statement in effect with respect to the
securities under
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such Act, or an opinion of counsel satisfactory to the Corporation
that such registration is not required under the Act or any applicable
state securities laws."
4. CONDITIONS TO THE INVESTOR'S OBLIGATIONS AT CLOSING.
The obligations of the Investor under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions unless
waived by the Investor in accordance with Section 8.5 hereof:
4.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in Section 2 shall be true and correct on and as of the
date of the Closing.
4.2 DELIVERY OF SHARES. The Company shall have delivered to Harris
Trust Company of California, as escrow agent named in that certain Escrow
Agreement of even date by and among the Company, the Investor and Harris Trust
Company of California, a certificate representing the Shares, registered in the
name of the Investor.
4.3 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
Investor and the Investor's counsel, and they shall have received all such
counterpart original and certified or other copies of such documents as they may
reasonably request.
5. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING.
The obligations of the Company under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions unless
waived by the Company in accordance with Section 8.5 hereof:
5.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Investor contained in Section 3 shall be true and correct on and as of
the date of the Closing.
5.2. PAYMENT OF PURCHASE PRICE. The Investor shall have delivered
payment of the aggregate purchase price of the Stock to be purchased by it at
the Closing as set forth in Section 1.2.
5.3. STOCKHOLDERS AGREEMENT. The Investor shall become a party to the
Stockholders Agreement attached hereto as Exhibit A.
5.4. REGISTRATION RIGHTS AGREEMENT. The Company and the Investor shall
enter into a Registration Rights Agreement substantially in the form attached
hereto as Exhibit B.
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5.5. LOCK-UP AGREEMENT. SG Cowen Securities Corporation and the
Investor shall enter into a Lock-up Agreement substantially in the form attached
hereto as Exhibit C.
5.6. PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
Company and Company's counsel, and they shall have received all such counterpart
original and certified or other copies of such documents as they may reasonably
request.
6. TERMINATION.
6.1. EVENTS OF TERMINATION. This Agreement may be terminated as
follows:
(a) By mutual written consent of Company and the Investor;
(b) By either Company or the Investor if the Closing does
not occur on or before December 1, 1999.
7. MISCELLANEOUS.
7.1. CERTAIN DEFINED TERMs. As used in this Agreement:
"PERSON" shall mean an individual, corporation, trust, partnership,
joint venture, unincorporated organization, government agency or any agency or
political subdivision thereof, or other entity.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect upon the
business, assets, financial condition, income or prospects of the Company.
7.2. ASSIGNMENT. This Agreement may not be assigned by the Investor
without the prior written consent of the Company. Notwithstanding the foregoing,
the Investor shall have the right to assign, without the consent of the Company,
all of its rights and obligations hereunder to an affiliate or to any person or
entity that (i) acquires all or substantially all of the Investor's operating
assets (whether by asset sale, stock sale, merger or otherwise) or (ii) results
from a merger or reorganization of the Investor pursuant to any plan of merger
or reorganization. Without limiting the generality of the foregoing, the Company
expressly acknowledges that the Investor will have the right to assign this
Agreement or the operative rights and obligations hereof to any entity resulting
from the merger or other similar combination of the Investor with Xoom.com, Inc.
7.3. INCORPORATION BY REFERENCE. All exhibits and schedules appended to
this Agreement are herein incorporated by reference and made a part hereof.
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7.4. PARTIES IN INTEREST. All covenants, agreements, representations,
warranties and undertakings in this Agreement made by and on behalf of any of
the parties hereto shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto whether so expressed or not.
7.5. AMENDMENTS AND WAIVERS. Except as set forth in this Agreement,
changes in or additions to this Agreement may be made, or compliance with any
term, covenant, agreement, condition or provision set forth herein may be
omitted or waived (either generally or in a particular instance and either
retroactively or prospectively), upon the written consent of the Company and the
Investor.
7.6. GOVERNING LAW. This Agreement shall be deemed a contract made
under the laws of The Commonwealth of Massachusetts and, together with the
rights of obligations of the parties hereunder, shall be construed under and
governed by the internal laws of The Commonwealth of Massachusetts.
7.7. NOTICES. All notices, requests, consents and demands shall be in
writing and shall be personally delivered, mailed, postage prepaid, telecopied
or telegraphed, to the Company at:
HealthGate Data Corp.
25 Corporate Drive
Suite 310
Burlington, MA 01803
Attn: Rick Lawson
with a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attn: Keith Higgins, Esq.
or to the Investor at:
Snap! LLC
One Beach Street
San Francisco, CA 94133
Attn: Mark Makunas
- 9 -
<PAGE>
with a copy to:
Hughes & Luce, L.L.P.
111 Congress Avenue, Suite 900
Austin, Texas 78701
Attn: J. William Wilson
or such other address as may be furnished in writing to the other party hereto.
All such notices, requests, demands and other communication shall, when mailed
(registered or certified mail, return receipt requested, postage prepaid),
personally delivered, or telegraphed, be effective three business days after
deposit in the mails, when personally delivered, or when delivered to the
telegraph company, respectively, addressed as aforesaid, unless otherwise
provided herein and, when telecopied, shall be effective upon actual receipt.
7.8. EFFECT OF HEADINGS. The section and paragraph headings herein are
for convenience only and shall not affect the construction hereof.
7.9. ENTIRE AGREEMENT. This Agreement, and all other agreements
contemplated herein, constitutes the entire agreement among the Company and the
Investor with respect to the subject matter hereof. This Agreement supersedes
all prior agreements between the parties with respect to the Shares purchased
hereunder and the subject matter hereof.
7.10. SEVERABILITY. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
7.11. COUNTERPARTS. This Agreement may be executed in counterparts,
all of which together shall constitute one and the same instrument.
7.12. EXPENSES. Each of the parties hereto shall bear and pay its own
expenses incurred in connection with the negotiation, preparation and execution
of, and the consummation of the transactions contemplated by this Agreement.
- 10 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
HEALTHGATE DATA CORP.
By /s/ William S. Reece
---------------------------------
Title: Chief Executive Officer
SNAP! LLC
By: /s/ Edmond Sanctis
---------------------------------
Name: Edmond Sanctis
Title: Chief Operating Officer
- 11 -
<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 August 2, 1999 (except
as to Note 11, which is as of November 9, 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
November 9, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMENDMENT
NO. 4 TO FORM S-1 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<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 3,653,357
<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> 45,485 45,684
<OTHER-SE> 9,783,779 (4,316,450)
<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> (0.76) (2.85)
<EPS-DILUTED> (0.76) (2.85)
</TABLE>
