<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 2000
REGISTRATION NO. 333-88939
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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HEALTHSTREAM, INC.
(Exact name of registrant as specified in its charter)
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TENNESSEE 8299 62-1443555
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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HEALTHSTREAM, INC. ROBERT A. FRIST, JR.
209 10th Avenue South, Suite 450 209 10th Avenue South, Suite 450
Nashville, Tennessee 37203 Nashville, Tennessee 37203
(615) 301-3100 (615) 301-3100
(Address, including zip code, (Name, address, including zip
and code, and
telephone number, including area telephone number, including area
code, of code,
registrant's principal executive of agent for service)
offices)
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Copies to:
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<S> <C> <C>
J. PAGE DAVIDSON, ESQ. KRIS F. HEINZELMAN, ESQ.
Bass, Berry & Sims PLC Cravath, Swaine & Moore
2700 First American Center Worldwide Plaza
Nashville, Tennessee 37238 825 Eighth Avenue
(615) 742-6200 New York, New York 10019
(212) 474-1000
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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. [ ]
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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,
please check the following box. [ ]
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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.
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<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with an underwritten public offering in the United States and
Canada of common stock (the "U.S. Prospectus"), and one to be used in a
concurrent underwritten public offering outside the United States and Canada of
common stock (the "International Prospectus"). The two prospectuses are
identical except for the front cover page and the section entitled
"Underwriting". Those sections or pages that will appear only in the U.S.
Prospectus are labeled "[U.S.]," and those that will appear only in the
International Prospectus are labeled "[I]." Unless so indicated with a [U.S.] or
[I], the language herein will appear in both Prospectuses. Final forms of each
Prospectus will be filed with the Securities and Exchange Commission under Rule
424(b) under the Securities Act of 1933.
An electronic version U.S. Prospectus will also be made available on
E*OFFERING CORP's Web site, located at www.eoffering.com. E*OFFERING is acting
as an underwriter in connection with the offering of securities registered under
this Registration Statement.
<PAGE> 3
[U.S.]
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 SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY
THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 30, 2000
(HEALTHSTREAM LOGO)
5,000,000 SHARES
COMMON STOCK
We are offering 5,000,000 shares of our common stock. This is our initial
public offering and no public market currently exists for our shares. Our common
stock has been approved for listing on the Nasdaq National Market under the
symbol "HSTM." We anticipate that the initial public offering price will be
between $11.00 and $13.00 per share.
------------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
------------------------------
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PER SHARE TOTAL
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Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to HealthStream, Inc............................... $ $
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THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
We have granted the underwriters a 30-day option to purchase up to an
additional 750,000 shares of common stock to cover over-allotments.
------------------------------
ROBERTSON STEPHENS
CIBC WORLD MARKETS
J.C. BRADFORD & CO.
E*OFFERING
THE DATE OF THIS PROSPECTUS IS , 2000.
<PAGE> 4
[On the top left corner appears the "HealthStream" logo. Below the logo in the
center of the page appears the text "Becoming a leader in online healthcare
training and education by". About one inch below the above text appears the
number "1" with text to its right which reads "amassing one of the largest
libraries of online training and education courses,." About one inch below this
text appears the number "2" with text to its right which reads "managing them in
a Web-based administration system, and" About one inch below this text appears
the number "3" with text to its right which reads "distributing them through
healthcare organizations and our Web-based network of strategic partners."]
[Inside Front Cover]
<PAGE> 5
[On the left side of the page from the top of the page to the bottom are the
following: "Amass.," "Content partners.," a computer screen shot of an
interactive continuing education course with the caption along the bottom of
"This is one of many internal medicine courses from The Cleveland Clinic
Foundation offered exclusively through our distribution network.," "The
Cleveland Clinic Foundation," "Vanderbilt University Medical Center," "Duke
University Medical Center," "Scripps Clinic," "American Health Consultants," "GE
Medical Systems," "Content Statistics." and under that "3,000 Course hours owned
and under license," "1,300 Course hours currently online," and "2,500 Live
seminars listed on our online catalog, cmesearch.com"]
[On the middle of the page from the top of the page to the bottom are the
following: "Manage.", "HealthStream's Web-based systems:," and under that
"enables healthcare organizations to administer training," "attracts recurring
customers with mandated courses," "distributes high quality content to a world
wide audience," "collects and aggregates performance data", screen shot of
online CME programs offered by CMecourses.com, logo for HealthStream.]
[On the right hand of the page from the top of the page to the bottom:
"Distribute.", "Through Healthcare Organizations.", Under that "800 hospitals
are implementing our products to manage education for their employees.", copy of
the m3 logo to the left of "450 hospitals currently use m3 electronic learning
systems. Through our merger, these hospitals are primary candidates for our
online learning services.", copy of the de'MEDICI logo to the left of "150
hospitals utilize the de'MEDICI learning system, a Lippincott Williams and
Wilkins product based on our technology.", copy of the Columbia/HCA logo to the
left of "200 hospital provider network agrees to use our online learning
services."
In the middle of the page "Through Our Web Distribution Network.", screen shot
of Healtheon/WebMD Practice Web page and caption under the graphic of
"HealthStream is the exclusive provider of online education and training
services for all Web sites owned and operated by WebMD." At the bottom of a page
is a list in 3 columns, from top to bottom, left to right "ChannelHealth (IDX)",
"GE Medical Systems," "MedicaLogic," "Medsite," "PointShare," "and over 30
others..."]
[Color Foldout]
<PAGE> 6
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF 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 , 2000, ALL DEALERS THAT BUY, SELL OR TRADE OUR COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENT OR SUBSCRIPTIONS.
------------------------------
TABLE OF CONTENTS
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PAGE
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Summary..................................................... 1
Risk Factors................................................ 5
Special Note Regarding Forward-Looking Statements........... 14
Use of Proceeds............................................. 15
Dividend Policy............................................. 15
Capitalization.............................................. 16
Dilution.................................................... 18
Selected Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 28
Management.................................................. 44
Transactions with Executive Officers, Directors and More
than Five Percent Shareholders............................ 52
Principal Shareholders...................................... 56
Description of Capital Stock................................ 58
Shares Eligible for Future Sale............................. 62
United States Tax Consequences to Non-U.S. Holders.......... 64
Underwriting................................................ 66
Legal Matters............................................... 69
Experts..................................................... 69
Where You Can Find More Information......................... 69
Index to Financial Statements............................... F-1
Appendix: "Meet the Management" Presentation................ A-1
Iclick here for "Meet the Management" Presentation;
maintained at www.eoffering.comJ
</TABLE>
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"HEALTHSTREAM," "TRAINING NAVIGATOR" AND "T.NAV" ARE OUR REGISTERED
TRADEMARKS. ALL OTHER TRADEMARKS AND SERVICE MARKS USED IN THIS PROSPECTUS ARE
THE PROPERTY OF THEIR RESPECTIVE OWNERS.
i
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SUMMARY
You should read the following summary together with the more detailed
information in this prospectus, including risk factors, regarding our company
and the common stock being sold in this offering. The terms "we," "us," "our"
and "our company" refer to HealthStream, Inc. and its subsidiaries as a combined
entity, except where the context requires otherwise.
OUR BUSINESS
We are pioneering a Web-based solution to meet the training and education
needs of the healthcare industry utilizing our proprietary system. Through
strategic relationships with medical institutions and commercial organizations,
including Vanderbilt University Medical Center, Duke University Medical Center,
The Cleveland Clinic Foundation, Scripps Clinic and American Health Consultants,
we have amassed over 3,000 hours of training and education courses. We currently
distribute over 1,300 hours of these courses online to allied healthcare
professionals, nurses, doctors and other healthcare workers. We will expand
distribution of our courses and services to include two methods. The first
method provides access to our courses and education management software on a
transactional basis over the Internet on an application service provider, or
ASP, basis. We have entered into a four-year agreement with Columbia/HCA
Healthcare Corporation, a provider network with over 200 hospitals, to provide
our courses and education management software using this ASP method. Under the
second method, we deliver our courses through strategic distribution partners,
which we refer to as our Web distribution network. This network currently
consists of over 30 distribution partners including Healtheon/WebMD,
MedicaLogic, GE Medical Systems, Pointshare, Medsite.com, HealthGate and
ChannelHealth (an IDX company). We have entered into a five-year agreement with
Healtheon/WebMD to be the exclusive provider of education and training for
healthcare organizations, healthcare professionals and healthcare workers on Web
sites owned and operated by Healtheon/WebMD.
THE MARKET OPPORTUNITY
We estimate that the healthcare industry spends approximately $6.0 billion
annually on training and education for over an estimated 10 million healthcare
workers and professionals. According to a recent study, a greater percentage of
healthcare workers receive training than workers in any other industry.
Approximately 88% of all healthcare workers receive some kind of formal
work-related training, safety training or continuing education every year.
Training includes safety training mandated by both the Occupational Safety and
Health Administration, or OSHA, and the Joint Commission on Accreditation of
Healthcare Organizations, or JCAHO, for all healthcare workers. Continuing
education includes continuing education units, or CEU, for nurses and continuing
medical education, or CME, for doctors.
The training and education market in the healthcare industry is highly
fragmented, with over 1,000 providers offering a limited selection of programs
on specific topics. Historically healthcare workers and professionals have
received training and education through offline publications such as medical
journals and CD-ROMs and by attending conferences and seminars. Although these
existing approaches satisfy ongoing training and continuing education
requirements, they may be limited in their breadth of offerings, inconvenient
and costly to purchase or attend and result in lost productivity. In addition,
healthcare organization administrators find it difficult to review and assess
results, track employee compliance with certification requirements and respond
to the effectiveness of education and training programs. We believe that these
inefficiencies, combined with the time constraints and increased cost pressures
in the healthcare industry, have prompted healthcare organizations and
professionals to seek alternative training methodologies. The emergence of the
Internet enables the delivery of a greater breadth and depth of training and
continuing education programs to healthcare professionals and other healthcare
workers more cost effectively and conveniently than by historical methods.
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<PAGE> 8
OUR SERVICES
We believe that the combination of our high quality training and education
content, coupled with the reach through our ASP method and our distribution
partners, positions us to be a leading provider of Web-based solutions to meet
the needs of healthcare organizations and professionals. Healthcare
organizations must provide both government mandated and internally required
training to their employees. Most healthcare professionals are individually
responsible for meeting their ongoing training and continuing education
requirements. We believe our Web-based training and education solution allows us
to meet these needs by offering:
- healthcare organizations the ability to administer, assess and track
government and institution-mandated training and education for their
potentially large and geographically dispersed employee populations on a
cost-effective basis;
- healthcare professionals and other healthcare workers a cost-effective,
convenient, efficient and easy to use one-stop shop for meeting their
training and continuing education needs;
- our distribution partners one of the largest online libraries of training
and education courses from premier healthcare organizations and a
predictable source of online traffic due to the recurring nature of
regulated training and continuing education requirements in the
healthcare industry; and
- our content partners one of the largest online distribution channels
targeted to the healthcare industry as well as our experience in
producing interactive educational materials for the healthcare industry.
OUR GROWTH STRATEGY
Our objective is to be the leading provider of Web-based training and
education solutions for the healthcare industry. The following are the key
elements of our growth strategy:
- provide healthcare organizations with Web-based access to our courses and
education management software on an ASP basis;
- expand and enhance our online training and education library;
- increase the number of partners in our Web distribution network;
- expand our sales and marketing efforts that target healthcare
organizations, healthcare professionals and potential content and
distribution partners; and
- generate additional revenue opportunities by aggregating the performance
data collected by our system and offering sponsorship products based on
the attractive demographics of our end users.
We intend to implement our strategy through internal growth, expansion of
strategic relationships with content and distribution partners and the
acquisition of businesses that have complementary content, technology and/or end
users.
OUR HISTORY
We launched our online training and continuing education services in March
1999. We were incorporated in 1990 and in 1996 we began deploying our education
management system as a network and stand-alone product. Our revenues in 1999
increased 49.6% to $2.6 million from $1.7 million in 1998. In 1999, we had a pro
forma as adjusted net loss of $9.8 million on pro forma as adjusted revenues of
$7.2 million and an accumulated deficit on a pro forma as adjusted basis through
December 31, 1999 of $8.9 million. We expect to continue to incur net losses and
negative cash flow for the foreseeable future as we continue to implement our
Web-based solutions.
Our principal executive office is located at 209 10th Avenue South, Suite
450, Nashville, Tennessee 37203, our telephone number is (615) 301-3100, and our
Web address is www.healthstream.com. The contents of our Web site are not part
of this prospectus.
2
<PAGE> 9
THE OFFERING
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Common stock offered......................... 5,000,000 shares
Common stock to be outstanding after this
offering................................... 18,999,052 shares, including an estimated
833,334 shares which Healtheon/WebMD has
agreed to purchase directly from us in a
separate private sale that will close
concurrently with this offering, or
19,749,052 shares if the underwriters
exercise their over-allotment option in full.
This amount does not include 5,722,568 shares
subject to warrants and outstanding options
issued under our stock option plans or
6,325,130 shares reserved for issuance
pursuant to options we may issue under our
stock option and stock purchase plans.
Use of proceeds.............................. The net proceeds from this offering (without
exercise of the over-allotment option) and
the concurrent private sale are estimated to
be approximately $65.3 million and will be
used for general corporate purposes,
including working capital, sales and
marketing expenses, payments to content and
distribution partners and possible
acquisitions. See "Use of Proceeds."
Risk factors................................. See "Risk Factors" and other information
included in this prospectus for a discussion
of factors you should carefully consider
before deciding to invest in our common
stock.
Nasdaq National Market symbol................ HSTM
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The number of shares of common stock to be outstanding after the offering
is estimated based on the number of shares outstanding as of March 7, 2000.
Except as otherwise indicated, all information in this prospectus:
- reflects the conversion of a $1,293,000 promissory note payable to Robert
A. Frist, Jr., our chief executive officer and chairman, into 553,712
shares of our common stock upon completion of this offering;
- reflects the conversion of our outstanding shares of series A, B and C
preferred stock into 7,131,153 shares of our common stock upon completion
of this offering;
- assumes no exercise of the underwriters' over-allotment option;
- reflects a 1.85 for 1 common stock split to be effected immediately prior
to the effective date of the registration statement of which this
prospectus is a part; and
- assumes the issuance of an estimated 833,334 shares of our common stock
to Healtheon/WebMD in a private sale that will close concurrently with
this offering based on an assumed initial public offering price of $12.00
per share (the midpoint of the range set forth on the cover of this
prospectus). This number will be subject to adjustment based on the
actual initial public offering price.
3
<PAGE> 10
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table is a summary of the financial data for our company. We
derived the historical statement of operations data for the three years ended
December 31, 1999 and the historical balance sheet data as of December 31, 1999
from our audited financial statements and related notes, which are included
elsewhere in this prospectus. You should read this information together with the
financial statements and the related notes appearing at the end of this
prospectus, the information under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the other financial
information contained elsewhere in this prospectus.
The pro forma as adjusted condensed statement of operations data assumes:
- the acquisition of SilverPlatter Education, Inc., Multimedia Marketing,
Inc. d/b/a m3 the Healthcare Learning Company, Emergency Medicine
Internetwork, Inc., or EMInet, Quick Study, Inc. and KnowledgeReview,
LLC;
- the conversion of our series A, B and C preferred stock into our common
stock;
- the conversion of notes payable-related party into our common stock;
- the issuance of our common stock in this offering as described in "Use of
Proceeds;" and
- the sale by us of an estimated 833,334 shares of our common stock to
Healtheon/WebMD in a private sale that will close concurrently with this
offering.
as if each of such transactions had occurred as of January 1, 1999.
The pro forma as adjusted balance sheet data assumes:
- the acquisition of m3 the Healthcare Learning Company, EMInet, Quick
Study and KnowledgeReview;
- the conversion of our series A, B and C preferred stock into our common
stock;
- the issuance of our common stock in this offering as described in "Use of
Proceeds;" and
- the sale by us of an estimated 833,334 shares of our common stock to
Healtheon/WebMD in a private sale that will close concurrently with this
offering.
as if each of such transactions had occurred as of December 31, 1999.
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YEAR ENDED DECEMBER 31,
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PRO FORMA
AS ADJUSTED
1997 1998 1999 1999
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STATEMENT OF OPERATIONS DATA:
Revenues................................................ $1,268 $ 1,716 $ 2,568 $ 7,235
Loss from operations.................................... (771) (1,261) (4,560) (9,839)
Net loss................................................ (960) (1,590) (4,456) (9,781)
Basic and diluted loss per share........................ (0.29) (0.49) (1.19) (0.54)
Weighted average shares used in the calculation of basic
and diluted net loss per share........................ 3,256 3,256 3,757 18,234
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AS OF DECEMBER 31,
1999
---------------------
PRO FORMA
ACTUAL AS ADJUSTED
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $13,632 $ 76,480
Working capital............................................. 11,465 74,484
Total assets................................................ 17,455 94,644
Long-term debt and capital leases, net of current portion... 186 186
Shareholders' equity........................................ 14,190 90,573
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RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus before
you decide to invest in shares of our common stock. The risks described below
are intended to highlight risks that are specific to us, but are not the only
ones we face. Additional risks and uncertainties, including those generally
affecting the industry in which we operate, risks that we currently deem
immaterial or risks to companies that have recently undertaken initial public
offerings, may also impair our business or the value of your investment.
RISKS RELATED TO OUR BUSINESS MODEL
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT.
Although we were incorporated in 1990, we did not initiate our online
operations until March 1999. As a result, we have only a limited operating
history on which you can base an evaluation of our business and prospects. Our
prospects must be considered in light of the risks, uncertainties, expenses and
difficulties frequently encountered by companies in their early stages of
development, particularly companies in new and rapidly evolving markets like
ours. Our failure to successfully address these risks and uncertainties could
have a material adverse effect on our financial condition. Some of these risks
and uncertainties relate to our ability to:
- attract and maintain a large base of end users;
- develop our infrastructure, including additional hardware and software,
customer support, personnel and facilities, to support our business;
- develop and introduce desirable services and compelling content;
- establish and maintain strategic relationships with content and
distribution partners;
- establish and maintain relationships with sponsors and advertisers; and
- respond effectively to competitive and technological developments.
WE ARE COMPETING IN A NEW MARKET WHICH MAY NOT DEVELOP OR IN WHICH WE MAY FAIL
TO GAIN MARKET ACCEPTANCE.
The market for online training and continuing education in the healthcare
industry is new and rapidly evolving. As a result, uncertainty as to the level
of demand and market acceptance exposes us to a high degree of risk. For
example, our agreement with Healtheon/WebMD requires us to pay Healtheon/WebMD
$6.0 million per year for five years to be the exclusive provider of education
and training for healthcare organizations, healthcare professionals and
healthcare workers on Web sites owned and operated by Healtheon/WebMD,
regardless of the level of demand for online training and continuing education
by subscribers on their Web sites. We expect these payments to total $4.5
million in 2000, $6.0 million in each of 2001 through 2004 and $1.5 million in
2005. We cannot assure you that the healthcare community will accept online
training and continuing education as a replacement for, or alternative to,
traditional sources of training and continuing education. Market acceptance of
online training and continuing education depends upon continued growth in the
use of the Internet generally and, in particular, as a source of continuing
education services. If the market for online training and continuing education
fails to develop, develops more slowly than expected or becomes saturated with
competitors, or if our services do not achieve or sustain market acceptance, our
business will suffer.
FAILURE TO EFFECTIVELY MANAGE GROWTH OF OUR OPERATIONS AND INFRASTRUCTURE COULD
DISRUPT OUR OPERATIONS AND PREVENT US FROM GENERATING THE REVENUES WE EXPECT.
We currently are experiencing a period of expansion in our end user
traffic, personnel, facilities and infrastructure. Our number of employees more
than doubled between December 31, 1998 and December 31, 1999. In addition, we
anticipate a rapid expansion in end user traffic on our Web site and the
co-branded Web sites we operate with our distribution partners. To manage our
growth, we must successfully implement, constantly improve and effectively
utilize our operational and financial systems
5
<PAGE> 12
while aggressively expanding our workforce. We must also maintain and strengthen
the breadth and depth of our current strategic relationships while rapidly
developing new relationships. Our existing or planned operational and financial
systems may not be sufficient to support our growth, and our management may not
be able to effectively identify, manage and exploit existing and emerging market
opportunities. If we do not adequately manage our potential growth, our business
will suffer.
WE MAY BE UNABLE TO MAINTAIN OUR EXISTING RELATIONSHIPS WITH OUR CONTENT
PROVIDERS OR TO BUILD NEW RELATIONSHIPS WITH OTHER CONTENT PROVIDERS.
Our success depends significantly on our ability to maintain our existing
relationships with the third parties who provide training and continuing
education content for our library and our ability to build new relationships
with other content partners. Most of our agreements with content providers are
for initial terms of one to three years. The content partners may choose not to
renew their agreements with us or may terminate the agreements early if we do
not fulfill our contractual obligations. We have received notice from Challenger
Corporation, from whom we acquired approximately 500 hours of the training and
education courses we distribute, that it does not intend to renew our agreement
on its present terms upon its expiration in December 2000. If a significant
number of our content providers terminate or fail to renew their agreements with
us on acceptable terms, it could result in a reduction in the number of courses
we are able to distribute and decreased revenues. Most of our agreements with
our content partners are also non-exclusive, and our competitors offer, or could
offer, training and continuing education content that is similar to or the same
as ours. If publishers and authors, including our current content partners,
offer information to users or our competitors on more favorable terms than those
offered to us or increase our license fees, our competitive position and our
profit margins and prospects could be harmed. In addition, the failure by our
content partners to deliver high-quality content and to continuously upgrade
their content in response to user demand and evolving healthcare advances and
trends could result in user dissatisfaction and inhibit our ability to attract
users.
WE MAY BE UNABLE TO MAINTAIN OUR EXISTING RELATIONSHIPS WITH OUR DISTRIBUTION
PARTNERS OR TO BUILD NEW RELATIONSHIPS WITH OTHER DISTRIBUTION PARTNERS.
If we are not successful in developing and enhancing our relationships with
distribution partners, we could become less competitive and our revenues could
decline. We formed our existing relationships recently, and our distribution
partners may not view their relationships with us as significant to the success
of their business. As a result, they may reassess their commitment to us or
decide to compete directly with us in the future. We generally do not have
agreements that prohibit our distribution partners from competing against us
directly or from contracting with our competitors. Arrangements with our
distribution partners generally do not establish minimum performance
requirements, but instead rely on the voluntary efforts of our distribution
partners. As a result, these relationships may not be successful.
Certain agreements with distribution partners may require guaranteed
royalty payments. Under our agreement with Healtheon/WebMD, we have agreed to
pay Healtheon/WebMD minimum royalties of $6.0 million per year for five years.
Healtheon/WebMD has not guaranteed a minimum amount of revenues we will receive
from the sale of our courses and services on Web sites owned or operated by
Healtheon/WebMD. We cannot assure you that we will be able to generate
sufficient revenues to recoup the minimum payments that we are obligated to pay
to Healtheon/WebMD or to other distribution partners. The failure to do so would
have a material adverse effect on our results of operations.
WE MAY BE UNABLE TO IMPLEMENT OUR ACQUISITION GROWTH STRATEGY, WHICH COULD HAVE
AN ADVERSE EFFECT ON OUR BUSINESS AND COMPETITIVE POSITION IN THE INDUSTRY.
Our business strategy includes increasing our market share and presence
through strategic acquisitions that complement or enhance our business and we
have recently consummated a number of acquisitions involving multiple remote
offices. We do not have substantial experience in completing and integrating
large acquisitions or multiple simultaneous acquisitions. In addition, we do not
have experience operating multiple remote offices. We may have difficulty
integrating the operations and realizing the results of these
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recently completed acquisitions. We may not be able to identify, complete,
integrate the operations or realize the anticipated results of future
acquisitions. Some of the risks that we may encounter in implementing our
acquisition growth strategy include:
- expenses associated with and difficulties in identifying potential
targets and the costs associated with acquisitions that are not
completed;
- expenses, delays and difficulties of integrating the acquired company
into our existing organization;
- diversion of management's attention from other business matters;
- expenses of amortizing the acquired company's intangible assets;
- adverse impact on our financial condition due to the timing of the
acquisition; and
- expenses of any undisclosed or potential liabilities of the acquired
company.
If any of these risks are realized, our business could suffer.
OUR FUTURE SUCCESS DEPENDS, IN PART, ON REVENUES FROM SPONSORSHIPS AND, TO A
LESSER EXTENT, ADVERTISING, AND THE ACCEPTANCE AND EFFECTIVENESS OF INTERNET
SPONSORSHIP AND ADVERTISING IS UNCERTAIN.
We plan to derive significant revenues from sponsorships and, to a lesser
extent, the sale of advertisements, in conjunction with our online training and
continuing education services. The market for corporate sponsorship and
advertising on the Internet is new and rapidly evolving. Many sponsors and
advertisers have limited experience with Internet sponsorship and advertising,
and may ultimately conclude that Internet sponsorship and advertising are not
effective relative to traditional sponsorship and advertising opportunities. As
a result, the market for sponsorship or advertising on the Internet may not
continue to emerge or become sustainable. This makes it difficult to project our
future sponsorship and advertising revenues and rates. If the market for
Internet sponsorship or advertising fails to develop or develops more slowly
than we expect, our business will suffer.
WITHOUT THE CONTINUED DEVELOPMENT AND MAINTENANCE OF THE INTERNET AND THE
AVAILABILITY OF INCREASED BANDWIDTH TO CONSUMERS, OUR BUSINESS MAY NOT SUCCEED.
Given the online nature of our business, without the continued development
and maintenance of the Internet infrastructure, we could fail to meet our
overall strategic objectives and ultimately fail to generate the user traffic
and revenues we expect. This continued development of the Internet includes
maintenance of a reliable network with the necessary speed, data capacity and
security, as well as timely development of complementary products for providing
reliable Internet access and services. Because commerce on the Internet and the
online exchange of information is new and evolving, we cannot predict whether
the Internet will prove to be a viable commercial marketplace in the long term.
The success of our business will rely on the continued improvement of the
Internet as a convenient and efficient means of information and content
distribution. Our business will depend on the ability of our end users to access
and use our courseware, as well as to conduct commercial transactions with us,
without significant delays or aggravation that may be associated with decreased
availability of Internet bandwidth and access to our Web sites. Our penetration
of a broader consumer market will depend, in part, on continued proliferation of
high speed Internet access.
The Internet has experienced, and is likely to continue to experience,
significant growth in the numbers of users and amount of traffic. As the
Internet continues to experience increased numbers of users, increased frequency
of use and increased bandwidth requirements, the Internet infrastructure may be
unable to support the demands placed on it. In addition, increased users or
bandwidth requirements may impair the performance of the Internet. The Internet
has experienced a variety of outages and other delays as a result of damage to
portions of its infrastructure, and it could face outages and delays in the
future. These outages and delays could reduce the level of Internet usage as
well as the level of traffic, and could result in the Internet becoming an
inconvenient or uneconomical source of continuing education and training. The
infrastructure and complementary products or services necessary to make the
Internet a
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viable educational media and commercial marketplace for the long term may not be
developed successfully or in a timely manner. Even if these products or services
are developed, the Internet may not become a viable educational medium and
commercial marketplace for the services that we offer.
FINANCIAL RISKS
WE MAY NOT BE ABLE TO FORECAST OUR REVENUES ACCURATELY BECAUSE WE HAVE A LIMITED
OPERATING HISTORY.
As a result of our limited operating history, we do not have historical
financial data for a significant number of periods upon which to forecast
quarterly revenues and results of operations. We believe that period-to-period
comparisons of our operating results are not meaningful and should not be relied
upon as indicators of future performance. In addition, our operating results may
vary substantially. The actual effect of these factors on the price of our
stock, however, will be difficult to assess due to our limited operating
history. In one or more future quarters, our results of operations may fall
below the expectations of securities analysts and investors, and the trading
price of our common stock may decline.
WE EXPECT NET LOSSES IN THE FUTURE AND MAY NEVER ACHIEVE PROFITABILITY, WHICH
MAY CAUSE OUR STOCK PRICE TO FALL.
In 1999, we had a pro forma as adjusted net loss of approximately $9.8
million. At December 31, 1999, our accumulated deficit on a pro forma as
adjusted basis was $8.9 million. We expect substantial net losses and negative
cash flow for the foreseeable future and significant increases in our operating
expenses over the next several years. With increased expenses, we will need to
generate significant additional revenues in order to achieve profitability. As a
result, we may never achieve or sustain profitability and, if we do achieve
profitability in any period, we may not be able to sustain or increase
profitability on a quarterly or annual basis.
WE MAY NOT BE ABLE TO MEET OUR STRATEGIC BUSINESS OBJECTIVES UNLESS WE OBTAIN
ADDITIONAL FINANCING, WHICH MAY NOT BE AVAILABLE TO US ON FAVORABLE TERMS OR AT
ALL.
The net proceeds of this offering and the concurrent private sale of our
common stock to Healtheon/WebMD, together with our current cash reserves, are
expected to be sufficient to meet our cash requirements for at least 12 months.
However, we may need to raise additional funds in order to:
- acquire complementary businesses, technologies, content or products;
- finance working capital requirements;
- develop or enhance existing services or products;
- respond to competitive pressures;
- sustain content, distribution and development partner relationships; or
- maintain required infrastructure to support our business.
At December 31, 1999, we had approximately $13.6 million in cash and cash
equivalents, or $76.5 million on a pro forma as adjusted basis. In addition, we
have fixed commitments of $475,000 in 2000 and $187,500 in 2001 and other
variable payments will be due based on revenues and certain milestones related
to agreements with content, distribution and development partners. These
commitments may increase over time as a result of competitive pressures. We
expect to incur approximately $3.0 to $5.0 million of capital expenditures
during 2000 to support our business. In addition, in February 2000 we entered
into a five-year agreement with Healtheon/WebMD. Under the terms of this
agreement, we are required to make minimum royalty payments to Healtheon/WebMD
in the amount of $4.5 million in 2000, $6.0 million in each of the years 2001
through 2004 and $1.5 million in 2005. We expect operating losses and negative
cash flows to continue for the foreseeable future as we plan to significantly
increase our operating expenses to help expand our business.
We cannot assure you that additional financing will be available on terms
favorable to us, or at all. If adequate funds are not available or are not
available on acceptable terms, our ability to fund our
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expansion, take advantage of available opportunities, develop or enhance
services or products or otherwise respond to competitive pressures would be
significantly limited. If we raise additional funds by issuing equity or
convertible debt securities, the percentage ownership of our shareholders will
be reduced, and these securities may have rights, preferences or privileges
senior to those of our shareholders.
RISKS RELATED TO SALES, MARKETING AND COMPETITION
WE EXPECT COMPETITION TO INCREASE SIGNIFICANTLY IN THE FUTURE WHICH COULD REDUCE
OUR REVENUES, POTENTIAL PROFITS AND OVERALL MARKET SHARE.
The market for traditional and online training and continuing education
services is competitive. Barriers to entry on the Internet are relatively low,
and we expect competition to increase significantly in the future. We face
competitive pressures from numerous actual and potential competitors, both
online and offline, many of which have longer operating histories, greater brand
name recognition, larger consumer bases and significantly greater financial,
technical and marketing resources than we do. We cannot assure you that online
training and continuing education services maintained by our existing and
potential competitors will not be perceived by the healthcare community as being
superior to ours.
IF WE FAIL TO COLLECT ACCURATE AND USEFUL DATA ABOUT OUR END USERS, POTENTIAL
SPONSORS AND ADVERTISERS MAY NOT SUPPORT OUR SERVICES, WHICH MAY RESULT IN
REDUCED SPONSORSHIP AND ADVERTISING REVENUES.
We plan to use data about our end users to expand, refine and target our
marketing and sales efforts. We collect most of our data from end users who
report information to us as they register for courses on our Web site, or our
distribution partners' Web sites. If a large proportion of users impedes our
ability to collect data or if they falsify data, our marketing and sales efforts
would be less effective since sponsors and advertisers generally require
detailed demographic data on their target audiences. In addition, laws relating
to privacy and the use of the Internet to collect personal information could
limit our ability to collect data and utilize our database. Failure to collect
accurate and useful data could result in a substantial reduction in sponsorship
and advertising revenues.
RISKS RELATED TO OPERATIONS
WE MAY BE UNABLE TO ADEQUATELY DEVELOP OUR SYSTEMS, PROCESSES AND SUPPORT IN A
MANNER THAT WILL ENABLE US TO MEET THE DEMAND FOR OUR SERVICES.
We have just recently initiated our online operations and are developing
our ability to provide our courses and education management systems on a
transactional basis over the Internet on an ASP basis. Our future success will
depend on our ability to develop effectively the infrastructure, including
additional hardware and software, and implement the services, including customer
support, necessary to meet the demand for our services. In the event we are not
successful in developing the necessary systems and implementing the necessary
services on a timely basis, our revenues could be adversely affected, which
would have a material adverse effect on our financial condition. In addition, we
have entered into a four-year agreement with Columbia/HCA Healthcare Corporation
to provide our ASP services. Columbia/HCA currently represents the majority of
our ASP business. Columbia/HCA has the right to terminate this agreement if we
fail to deliver the required services under this agreement on a timely basis. A
termination of our agreement with Columbia/HCA would have a material adverse
effect on our business as well as our ability to secure other large customers
for these services.
OUR BUSINESS OPERATIONS COULD BE SIGNIFICANTLY DISRUPTED IF WE LOSE MEMBERS OF,
OR FAIL TO INTEGRATE, OUR MANAGEMENT TEAM.
Our future performance will be substantially dependent on the continued
services of our management team and our ability to retain and motivate them. The
loss of the services of any of our officers or senior managers could harm our
business, as we may not be able to find suitable replacements. We do not have
employment agreements with any of our key personnel, other than our chief
executive officer, and we do not maintain any "key person" life insurance
policies, except on our chief executive officer.
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WE MAY NOT BE ABLE TO HIRE AND RETAIN A SUFFICIENT NUMBER OF QUALIFIED EMPLOYEES
AND, AS A RESULT, WE MAY NOT BE ABLE TO GROW AS WE EXPECT OR MAINTAIN THE
QUALITY OF OUR SERVICES.
Our future success will depend on our ability to attract, train, retain and
motivate other highly skilled technical, managerial, marketing and customer
support personnel. Competition for these personnel is intense, especially for
engineers, Web designers and advertising sales personnel, and we may be unable
to successfully attract sufficiently qualified personnel. We have experienced
difficulty in the past hiring qualified personnel in a timely manner for these
positions. The pool of qualified technical personnel, in particular, is limited
in Nashville, Tennessee, which is where our headquarters are located. We will
need to increase the size of our staff to support our anticipated growth,
without compromising the quality of our offerings or customer service. Our
inability to locate, hire, integrate and retain qualified personnel in
sufficient numbers may reduce the quality of our services.
WE MUST CONTINUE TO UPGRADE OUR TECHNOLOGY INFRASTRUCTURE, OR WE WILL BE UNABLE
TO EFFECTIVELY MEET DEMAND FOR OUR SERVICES.
We must continue to add hardware and enhance software to accommodate the
increased content in our library and increased use of our and our distribution
partners' Web sites. In order to make timely decisions about hardware and
software enhancements, we must be able to accurately forecast the growth in
demand for our services. This growth in demand for our services could be
difficult to forecast and the potential audience for our services is large. If
we are unable to increase the data storage and processing capacity of our
systems at least as fast as the growth in demand, our systems may become
unstable and may fail to operate for unknown periods of time. Unscheduled
downtime could harm our business and also could discourage current and potential
end users and reduce future revenues.
OUR DATA AND WEB SERVER SYSTEMS MAY STOP WORKING OR WORK IMPROPERLY DUE TO
NATURAL DISASTERS, FAILURE OF THIRD-PARTY SERVICES AND OTHER UNEXPECTED
PROBLEMS.
An unexpected event like a power or telecommunications failure, fire, flood
or earthquake at our on-site data facility or at our Internet service providers'
facilities could cause the loss of critical data and prevent us from offering
our services. Our business interruption insurance may not adequately compensate
us for losses that may occur. In addition, we rely on third parties to securely
store our archived data, house our Web server and network systems and connect us
to the Internet. The failure by any of these third parties to provide these
services satisfactorily and our inability to find suitable replacements would
impair our ability to access archives and operate our systems.
WE MAY LOSE USERS AND LOSE REVENUES IF OUR ONLINE SECURITY MEASURES FAIL.
If the security measures that we use to protect personal information are
ineffective, we may lose users of our services, which could reduce our revenues.
We rely on security and authentication technology licensed from third parties.
With this technology, we perform real-time credit card authorization and
verification. We cannot predict whether these security measures could be
circumvented by new technological developments. In addition, our software,
databases and servers may be vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions. We may need to spend significant
resources to protect against security breaches or to alleviate problems caused
by any breaches. We cannot assure you that we can prevent all security breaches.
THE YEAR 2000 PROBLEM MAY ADVERSELY AFFECT OUR BUSINESS.
The risks posed by the Year 2000 problem could adversely affect our
business in a number of significant ways. We rely on third parties to provide
much of our software, hardware and Internet access. We have limited or no
control over the actions of these third-party suppliers. While we did not
experience significant disruptions to our business on or following the
changeover to the Year 2000 and while we obtained assurances from our suppliers
that the products and services they supply to us and their internal systems are
Year 2000 compliant, we cannot assure you that our third-party suppliers will
resolve all Year 2000 problems with their products, services and systems before
the occurrence of a material disruption to our business. As a result of our Year
2000 review, we discovered that the customer data acquired in the acquisition of
SilverPlatter Education and used by our Boston office to manage subscriptions,
billing and
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order fulfillment is not Year 2000 compliant. While we have put our contingency
plan into effect with respect to this data and have implemented a short-term
solution, we cannot guarantee that we will successfully implement a long-term
solution or that this implementation will not divert resources and management
attention.
In addition, many of our distribution partners maintain their operations on
systems that could be impacted by Year 2000 problems, which could harm our
business particularly if demand for our products and services declines while our
distribution partners redirect their resources to upgrade their computer
systems. Disruptions in the Internet infrastructure arising from Year 2000
problems could also harm our business, financial condition and results of
operations. We cannot guarantee that we will not experience disruptions in our
service or other disruptions due to Year 2000 problems. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000" for a further discussion of the potential effects of the Year 2000 problem
on our business.
RISKS RELATED TO GOVERNMENT REGULATION, CONTENT AND INTELLECTUAL PROPERTY
GOVERNMENT REGULATION MAY REQUIRE US TO CHANGE THE WAY WE DO BUSINESS.
The laws and regulations that govern our business change rapidly. The
United States government and the governments of states and foreign countries
have attempted to regulate activities on the Internet. Evolving areas of law
that are relevant to our business include privacy law, proposed encryption laws,
content regulation and sales and use tax laws and regulations. Because of this
rapidly evolving and uncertain regulatory environment, we cannot predict how
these laws and regulations might affect our business. In addition, these
uncertainties make it difficult to ensure compliance with the laws and
regulations governing the Internet. These laws and regulations could harm us by
subjecting us to liability or forcing us to change how we do business. See
"Business -- Government Regulation of the Internet and the Healthcare Industry"
for a more complete discussion of these laws and regulations.
WE MAY BE LIABLE TO THIRD PARTIES FOR CONTENT THAT IS AVAILABLE FROM OUR ONLINE
LIBRARY.
We may be liable to third parties for the content in our online library if
the text, graphics, software or other content in our library violates copyright,
trademark, or other intellectual property rights, our content partners violate
their contractual obligations to others by providing content to our library or
the content does not conform to accepted standards of care in the healthcare
profession. We may also be liable for anything that is accessible from our Web
site or our distribution partners' Web sites through links to other Web sites.
We attempt to minimize these types of liabilities by requiring representations
and warranties relating to our content partners' ownership of, the rights to
distribute as well as the accuracy of their content. We also take necessary
measures to review this content ourselves. Although our agreements with our
content partners contain provisions providing for indemnification by the content
providers in the event of inaccurate content, we cannot assure you that our
content partners will have the financial resources to meet this obligation.
Alleged liability could harm our business by damaging our reputation, requiring
us to incur legal costs in defense, exposing us to awards of damages and costs
and diverting management's attention away from our business. See
"Business -- Intellectual Property and Other Proprietary Rights" for a more
complete discussion of the potential effects of this liability on our business.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, AND WE MAY BE LIABLE FOR
INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
Our business could be harmed if unauthorized parties infringe upon or
misappropriate our proprietary systems, content, services or other information.
Our efforts to protect our intellectual property through copyright, trademarks
and other controls may not be adequate. In the future, litigation may be
necessary to enforce our intellectual property rights or to determine the
validity and scope of the proprietary rights of others, which could be time
consuming and costly. Intellectual property infringement claims could be made
against us as the number of our competitors grows. These claims, even if not
meritorious, could be expensive and divert our attention from operating our
company. In addition, if we become liable to third
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parties for infringing their intellectual property rights, we could be required
to pay a substantial damage award and develop comparable non-infringing
intellectual property, to obtain a license or to cease providing the content or
services that contain the infringing intellectual property. We may be unable to
develop non-infringing intellectual property or obtain a license on commercially
reasonable terms, or at all.
ANY REDUCTION IN THE REGULATION OF CONTINUING EDUCATION AND TRAINING IN THE
HEALTHCARE INDUSTRY MAY ADVERSELY AFFECT OUR BUSINESS.
Our business model is dependent in part on required training and continuing
education for healthcare professionals and other healthcare workers resulting
from regulations of state and Federal agencies, state licensing boards and
professional organizations. Any change in these regulations which reduce the
requirements for continuing education and training for the healthcare industry
could harm our business.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE MAY BE PARTICULARLY VOLATILE BECAUSE OF OUR INDUSTRY.
Prior to this offering, our common stock has not been sold in a public
market. After this offering, an active trading market in our common stock may
not develop. If an active trading market develops, it may not continue.
Moreover, if an active market develops, the trading price of our common stock
may fluctuate widely as a result of a number of factors, many of which are
outside our control. In addition, the stock market has recently experienced
extreme price and volume fluctuations that have affected the market prices of
securities of technology companies, particularly Internet-related companies, and
which have often been unrelated to or disproportionate to the operating
performance of these companies. Regardless of our performance, this volatility
could adversely affect the market price of our common stock.
WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS, AND HOW WE INVEST THESE
PROCEEDS MAY NOT YIELD A FAVORABLE RETURN.
We have not allocated most of the net proceeds of this offering for
specific uses. Our management has broad discretion to spend the proceeds from
this offering in ways with which our shareholders may not agree. The failure of
our management to apply these funds effectively could result in unfavorable
returns, which could significantly harm our financial condition and could cause
the price of our common stock to decline.
OUR EXECUTIVE OFFICERS, DIRECTORS AND MAJOR SHAREHOLDERS WILL CONTROL 51.3% OF
OUR COMMON STOCK AFTER THIS OFFERING.
After this offering and our concurrent private sale of common stock to
Healtheon/WebMD, executive officers, directors and holders of five percent or
more of our outstanding common stock will, in the aggregate, beneficially own
51.3% of our outstanding common stock. These shareholders will be able to
significantly influence all matters requiring approval by our shareholders,
including the election of directors and the approval of significant corporate
transactions. This concentration of ownership may also have the effect of
delaying, deterring or preventing a change in control of our company and may
make some transactions more difficult or impossible to complete without the
support of these shareholders.
IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE OUR COMPANY, AND THIS COULD
DEPRESS OUR STOCK PRICE.
Tennessee corporate law and our charter and bylaws contain provisions that
could delay, defer or prevent a change in control of our company or our
management. These provisions could also discourage proxy contests and make it
more difficult for you and other shareholders to elect directors and take other
corporate actions. As a result, these provisions could limit the price that
investors are willing to pay in the future for shares of our common stock. These
provisions:
- authorize us to issue "blank check" preferred stock, which is preferred
stock that can be created and issued by the board of directors, without
prior shareholder approval, with rights senior to those of common stock;
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- provide for a staggered board of directors, so that no more than three
directors could be replaced each year and it would take three successive
annual meetings to replace all directors;
- prohibit shareholder action by written consent; and
- establish advance notice requirements for submitting nominations for
election to the board of directors and for proposing matters that can be
acted upon by shareholders at a meeting.
THE PRICE OF OUR COMMON STOCK AFTER THIS OFFERING MAY BE LOWER THAN THE PRICE
YOU PAY.
If you purchase shares of our common stock in this offering, you will pay a
price that was not established in a competitive market. Rather, you will pay a
price that we negotiated with the representatives of the underwriters. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The price of our common stock that will
prevail in the market after this offering may be higher or lower than the price
you pay.
THE BOOK VALUE OF THE SHARES YOU PURCHASE WILL BE SUBSTANTIALLY LESS THAN THE
PRICE YOU PAY FOR THE SHARES.
The assumed initial public offering price is substantially higher than the
net tangible book value of each outstanding share of common stock. As a result,
purchasers of common stock in this offering will suffer immediate and
substantial dilution. This dilution will reduce the net tangible book value of
their shares, since these investments will be at a substantially higher per
share price than they were for our existing shareholders. The dilution will be
$7.97 per share in the pro forma net tangible book value of the common stock
from the assumed initial public offering price, assuming consummation of the
concurrent private sale of an estimated 833,334 shares of our common stock to
Healtheon/WebMD at the assumed initial public offering price per share. If
additional shares are sold by the underwriters following exercise of their
over-allotment option, or if outstanding options or warrants to purchase shares
of common stock are exercised, there will be further dilution. As a result of
this dilution, common shareholders purchasing stock in this offering may receive
significantly less than the full purchase price that they paid for the shares
purchased in this offering in the event of a liquidation.
APPROXIMATELY 13,165,718, OR 69.3%, OF OUR TOTAL OUTSTANDING SHARES ARE
RESTRICTED FROM IMMEDIATE RESALE BUT MAY BE SOLD INTO THE MARKET IN THE NEAR
FUTURE, WHICH COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DROP
SIGNIFICANTLY.
Sales of a substantial number of shares of our common stock in the public
market following this offering could cause the market price of our common stock
to decline. Upon consummation of this offering and the concurrent private sale,
we will have outstanding 18,999,052 shares of common stock. The 5,000,000 shares
offered for sale through the underwriters will be freely tradable unless
purchased by our affiliates or covered by a separate lock-up agreement with the
underwriters. Pursuant to our agreement with Healtheon/WebMD, one-half of the
estimated 833,334 shares to be purchased by Healtheon/WebMD in the private sale
that will close concurrently with this offering will be eligible for sale one
year after the date of this prospectus, and the other half will be eligible for
sale two years after the date of this prospectus. Of the remaining 13,165,718
shares of common stock outstanding after this offering, 10,826,526 shares will
be eligible for sale in the public market beginning 181 days after the date of
this prospectus. The remaining 2,339,192 shares will become available at various
times after the 181 days upon the expiration of one-year holding periods. J.C.
Bradford & Co., one of the underwriters in this offering, has agreed to sign a
one-year lock-up agreement regarding 64,236 of its shares of our common stock.
For a more complete discussion regarding when shares of our common stock will
become eligible for sale, see "Shares Eligible for Future Sale." We also plan to
register up to 9,000,000 shares of our common stock after this offering for
issuance under our stock option plans and up to 1,000,000 additional shares of
our common stock after this offering for issuance under our employee stock
purchase plan.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements in "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and elsewhere. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential" or "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors, including the risks outlined
under "Risk Factors," that may cause our or our industry's actual results,
levels of activity, performance or achievements to be materially different from
any future results, levels of activity, performance or achievements expressed or
implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus to conform these statements to actual results.
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USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 5,000,000 shares of
common stock in this offering will be approximately $55.3 million, assuming an
initial public offering price of $12.00 per share (the midpoint of the range set
forth on the cover of this prospectus) and after deducting the underwriting
discounts and commissions and estimated offering costs. If the underwriters'
over-allotment option is exercised in full, we estimate that the net proceeds
from this offering will be approximately $63.7 million. In addition, we will
receive net proceeds from the concurrent private sale of an estimated 833,334
shares of common stock to Healtheon/WebMD at the initial public offering price
of $10.0 million.
We plan to use the net proceeds of this offering and the concurrent private
sale for general corporate purposes, including for working capital, sales and
marketing initiatives and payments to content and distribution partners,
including Healtheon/WebMD. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview." We will also repay
approximately $1.3 million worth of debt assumed in connection with recent
acquisitions. Approximately $1.2 million of this debt bears interest at 13.0%
and is payable in full on April 30, 2002. Of the remaining debt, $62,000 bears
interest at 7.0% and principal and accrued interest are due on July 1, 2000 and
$50,000 bears interest at a variable rate, which was 8.75% at December 31, 1999,
and principal and accrued interest are due on demand. We may use a portion of
the net proceeds to acquire or invest in complementary businesses, technologies,
services, content and distribution relationships or products. We currently have
no agreement or understanding with respect to any such acquisition and we cannot
assure you that future acquisitions will be consummated. As of the date of this
prospectus and other than as described above, we cannot specify with certainty
the particular uses for the net proceeds to be received upon the completion of
the offering. Accordingly, our management will have broad discretion in applying
the net proceeds.
Pending such uses of the net proceeds as discussed above, we plan to invest
the net proceeds of this offering in short-term, interest-bearing, investment
grade securities, certificates of deposit or direct or guaranteed obligations of
the United States.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently plan to retain future earnings, if any, to finance the growth and
development of our business and do not anticipate paying any cash dividends in
the foreseeable future. We may incur indebtedness in the future which may
prohibit or effectively restrict the payment of dividends, although we have no
current plans to do so. Any future determination to pay cash dividends will be
at the discretion of our board of directors.
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CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis;
- on a pro forma basis to give effect to:
-- the issuance of 818,036 shares of our common stock, the payment of
$600,000 in cash and the assumption of $1.2 million of long-term debt
in connection with the acquisition of m3 the Healthcare Learning
Company;
-- the issuance of 269,902 shares of our common stock and the payment of
$640,000 in cash in connection with the acquisition of EMInet;
-- the issuance of 61,397 shares of our common stock, the payment of
$59,000 in cash and the assumption of $112,000 of long-term debt in
connection with the acquisition of Quick Study; and
-- the issuance of 17,343 shares of our common stock and the payment of
$310,000 in cash in connection with the acquisition of
KnowledgeReview; and
- on a pro forma as adjusted basis to give further effect to:
-- the increase in authorized common shares to 75,000,000 and the
increase in authorized preferred shares to 10,000,000;
-- the conversion of $1,293,000 of notes payable-related party into
129,300 shares of our series B preferred stock and subsequent
conversion into 553,712 shares of our common stock upon completion of
this offering;
-- the conversion of all of our outstanding shares of preferred stock
into 7,131,153 shares of our common stock upon completion of this
offering;
-- the sale of 5,000,000 shares of our common stock in this offering at
an assumed initial public offering price of $12.00 per share (the
midpoint of the range set forth on the cover of this prospectus) and
the application of the net proceeds after deducting underwriting
discounts and commissions and estimated offering costs;
-- the concurrent sale of an estimated 833,334 shares of our common
stock that Healtheon/WebMD has agreed to purchase directly from us in
a separate private sale; and
-- the repayment of $1.3 million in debt assumed in connection with the
acquisitions of m3 the Healthcare Learning Company and Quick Study.
16
<PAGE> 23
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents................................... $13,632 $12,461 $ 76,480
======= ======= =========
Notes payable, note payable-related party, long-term
debt-related party and capital lease obligations.......... $ 1,582 $ 2,874 $ 304
------- ------- ---------
Shareholders' equity:
Common stock, no par value; authorized 20,000,000 shares,
actual 75,000,000 shares pro forma as adjusted; issued
and outstanding: 4,165,461 shares actual, 5,332,142
shares pro forma and 18,850,338 shares pro forma as
adjusted................................................ 4,009 14,099 99,564
Preferred stock, no par value; authorized 5,000,000
shares, actual 10,000,000 shares pro forma as
adjusted................................................ -- -- --
Series A convertible preferred stock, issued and
outstanding: 76,000 shares actual, 76,000 shares pro
forma and no shares pro forma as adjusted............. 760 760 --
Series B convertible preferred stock, issued and
outstanding: 1,228,801 shares actual, 1,228,801 shares
pro forma and no shares pro forma as adjusted......... 12,138 12,138 --
Series C convertible preferred stock, issued and
outstanding: 627,406 shares actual, 627,406 shares pro
forma and no shares pro forma as adjusted............. 6,274 6,274 --
Accumulated other comprehensive loss........................ (42) (42) (42)
Accumulated deficit......................................... (8,949) (8,949) (8,949)
------- ------- ---------
Total shareholders' equity................................ 14,190 24,280 90,573
------- ------- ---------
Total capitalization...................................... $15,772 $27,154 $ 90,877
======= ======= =========
</TABLE>
This table excludes the following shares, as of March 7, 2000:
- 3,294,967 shares of common stock issuable upon the exercise of
outstanding stock options with a weighted average exercise price of $5.01
per share;
- 6,325,130 additional shares reserved for issuance under our stock option
and stock purchase plans;
- 245,032 shares of common stock issuable upon the exercise of a warrant
issued to GE Medical Systems; and
- 2,182,568 shares of common stock issuable upon the exercise of a warrant
issued to Columbia Information Systems.
17
<PAGE> 24
DILUTION
Purchasers of the common stock offered by this prospectus will suffer an
immediate and substantial dilution in the net tangible book value per share.
Dilution is the amount by which the initial public offering price paid by the
purchasers of the shares of common stock will exceed the net tangible book value
per share of common stock after the offering. As of December 31, 1999, our pro
forma net tangible book value after giving effect to the acquisitions of m3 the
Healthcare Learning Company, EMInet, Quick Study and KnowledgeReview was
approximately $9.7 million, or $1.81 per share. Pro forma net tangible book
value per share represents the amount of our pro forma total tangible assets
less pro forma total liabilities, divided by the pro forma shares of common
stock outstanding as of December 31, 1999. After giving effect to the conversion
of notes payable-related party into series B preferred stock, the conversion of
all of the shares of our preferred stock into our common stock, the sale of the
5,000,000 shares of common stock offered in this offering, the concurrent
private sale by us of an estimated 833,334 shares of common stock to
Healtheon/WebMD, the repayment of debt as described under "Use of Proceeds" and
after deducting the underwriting discounts and commissions and estimated
offering expenses payable, our pro forma net tangible book value as of December
31, 1999 would have been $76.0 million, or $4.03 per share. This represents an
immediate increase in pro forma net tangible book value to existing shareholders
of $2.22 per share and an immediate dilution of $7.97 per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Pro forma net tangible book value per share as of December
31, 1999............................................... $1.81
Increase per share attributable to new investors.......... 2.22
-----
Pro forma net tangible book value per share after this
offering.................................................. 4.03
------
Dilution per share to new investors......................... $ 7.97
======
</TABLE>
The following table summarizes, on a pro forma as adjusted basis as of
December 31, 1999:
- the number of shares of common stock purchased from us;
- the estimated value of the total consideration paid for or attributed
to such common stock; and
- the average price per share paid by or attributable to:
-- existing shareholders;
-- acquisitions funded through issuances of our common stock;
-- shareholders converting the series A, B and C preferred stock into
common stock;
-- new investors purchasing shares in this offering at an assumed
initial public offering price of $12.00 per share (the midpoint of
the range set forth on the cover of this prospectus), and before
deducting underwriting discounts and commissions and estimated
offering expenses payable by us; and
-- Healtheon/WebMD purchasing shares of our common stock in a
concurrent private sale.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK PURCHASED
OR CONVERTED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders..................... 4,165,461 22.1% $ 4,008,991 3.8% $ 0.96
Converting preferred shareholders......... 7,684,865 40.8 20,465,060 19.6 2.66
Shares issued in connection with
acquisitions............................ 1,166,678 6.2 10,090,200 9.6 8.65
New investors............................. 5,000,000 26.5 60,000,000 57.4 12.00
Healtheon/WebMD in a concurrent private
sale.................................... 833,334 4.4 $ 10,000,000 9.6 12.00
---------- ---- ------------ ----
Total................................ 18,850,338 100% $104,564,251 100%
========== ==== ============ ====
</TABLE>
The foregoing table assumes no exercise of the underwriters' over-allotment
option or shares underlying outstanding options or warrants. As of March 7,
2000, there were options and warrants outstanding to purchase 5,722,568 shares
of common stock at a weighted average exercise price of $5.79 per share. If any
of these options or warrants are exercised, there may be further dilution to new
investors.
18
<PAGE> 25
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes included
elsewhere in this prospectus. The selected statement of operations data
presented below for the three-year period ended December 31, 1999 and the
balance sheet data at December 31, 1998 and 1999 are derived from our audited
financial statements that are included elsewhere in this prospectus. The
selected statement of operations data presented below for the two-year period
ended December 31, 1996 and the balance sheet data at December 31, 1995 and 1996
are derived from unaudited financial statements that are not included in this
prospectus. The balance sheet data at December 31, 1997 is derived from our
audited balance sheet that is not included in this prospectus. In July 1999, we
acquired SilverPlatter Education. In January 2000, we acquired m3 the Healthcare
Learning Company, EMInet, Quick Study and KnowledgeReview. Please refer to the
pro forma financial statements and the audited financial statements of
SilverPlatter Education and m3 the Healthcare Learning Company included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1995 1996 1997 1998 1999
------ ------ ------ ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................................... $ 91 $ 556 $1,268 $ 1,716 $ 2,568
Operating costs and expenses:
Cost of revenues............................. 204 475 870 1,057 2,119
Product development.......................... 144 142 294 443 2,037
Selling, general and administrative
expenses.................................. 510 675 875 1,477 2,972
------ ------ ------ ------- -------
Total operating costs and
expenses........................... 858 1,292 2,039 2,977 7,128
------ ------ ------ ------- -------
Loss from operations........................... (767) (736) (771) (1,261) (4,560)
Other income (expense)......................... (44) (43) (189) (329) 104
------ ------ ------ ------- -------
Net loss....................................... $ (811) $ (779) $ (960) $(1,590) $(4,456)
====== ====== ====== ======= =======
Net loss per share -- basic and diluted........ $(0.53) $(0.25) $(0.29) $ (0.49) $ (1.19)
====== ====== ====== ======= =======
Weighted average shares of common stock
outstanding -- basic and diluted............. 1,519 3,069 3,256 3,256 3,757
====== ====== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------
1995 1996 1997 1998 1999
----- ----- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................... $ 17 $ 29 $ 84 $ 51 $13,632
Working capital (deficit)........................... (165) (604) (1,708) (2,854) 11,465
Total assets........................................ 418 540 948 1,153 17,455
Long-term debt and capital leases, net of current
portion........................................... 76 57 36 32 186
Shareholders' equity (deficit)...................... 103 (276) (1,236) (2,285) 14,190
</TABLE>
19
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and the related notes included elsewhere in this prospectus. This
discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those anticipated
in these forward-looking statements as a result of many factors, including but
not limited to, those described under "Risk Factors" and elsewhere in this
prospectus.
OVERVIEW
Historically, we have generated our revenues primarily from licensing our
client server training and administrative software, Training Navigator, which we
refer to as T.NAV, to healthcare organizations and from the performance of
custom multimedia development services. We have established relationships with
major healthcare institutions that license our software or contract with us to
develop custom multimedia products in a CD-ROM or Web-based format. Clients who
license our software pay a one-time license fee for the software and may
purchase training content modules for an additional fee. We also provide
upgrades, maintenance and technical support for an annual fee. The one-time
license fee typically ranges from $20,000 to $100,000 based on the number of
users. Services such as upgrades, training, maintenance and technical support
are provided either based on a fixed fee, estimated usage or actual time
incurred. Online services are provided based on a fee ranging from $5 to $25 per
underlying credit hour. Most courses provide one to three credit hours. Late in
1999, we entered into sponsorship agreements which provide for sponsorship of
online courseware. For the year ended December 31, 1999, our online revenues
approximated $216,000. We expect our future online revenues to significantly
exceed 1999 levels.
Revenues from T.NAV software license fees are recognized when the software
is delivered. Upgrade, maintenance and technical support revenues are accrued
over the term of the service period. We recognize multimedia development
revenues based on the percentage of a project that is completed. Revenues from
the delivery of our content over the Internet are recognized when goods or
services are purchased, typically on a transaction fee basis. Sponsorship
revenue is recognized ratably over the term unless usage exceeds the ratable
portion.
Historically, we have marketed T.NAV directly or licensed it to resellers
to re-brand and distribute under their private label. Our primary reseller
relationship is with Lippincott Williams & Wilkins, a leading medical sciences
publisher. They combine their de'MEDICI line of OSHA and JCAHO training content
with T.NAV and their sales force sells the resulting solution directly into
healthcare organizations. There are currently over 150 healthcare organizations
utilizing this system. We receive 17% of the net revenues recognized from the
sales of these systems.
We plan to generate revenues by marketing our Web-based services to
healthcare workers through healthcare organizations. The services will be
provided via our application service provider, or ASP, agreements. Specifically,
we will seek to generate revenues from healthcare workers by marketing to their
employers or sponsoring organizations. The transaction fees for courseware
resulting from this marketing may either be paid by the employer or sponsoring
organization or, in the case of healthcare professionals, may be billed directly
to the individual. Our ASP model will allow us to host our system in a central
data center, therefore eliminating the need for costly onsite installations of
our software. Under the ASP model, revenues will be generated by charging for
use of our courseware on a per transaction basis, based on usage by the end
user. In addition, the ASP model will allow us to generate revenues from
healthcare organizations by entering into agreements for administration and
hosting services. We will recognize administration and hosting fees ratably over
the terms of these agreements.
Currently, revenues from the delivery of our content through our Web-based
distribution network are generated on a transaction fee basis. Healthcare
professionals pay us with a credit card when they elect to receive credit for
viewing our content, or content licensed from a third party, through our web
site or the web site of one of our distribution partners. Healthcare
professionals pay for receiving this credit with a credit card. The costs of
these sales are in the form of royalties we pay to third-party content owners
and
20
<PAGE> 27
distributors and costs we incur to develop content or convert content from
traditional media to a Web format.
In July 1999, we acquired selected assets, assumed certain liabilities and
hired all of the employees of SilverPlatter Education, which owned a series of
multimedia continuing medical education, or CME, titles and operated Web sites
which marketed these products and provided other information to physicians. The
consideration paid was $800,000 in cash and 49,202 shares of our common stock.
The SilverPlatter Education business generates one time sales, subscription
revenues and training service revenues. Revenues from sales and services are
recognized when goods are shipped or services are delivered. Revenues from
subscriptions are deferred and recognized ratably over the term of the
subscription.
We acquired the following companies in January 2000:
- KnowledgeReview, which operates a search engine, cmesearch.com, allowing
physicians to locate seminars and purchase educational CD-ROMs and online
courseware, for $310,000 in cash and 17,343 shares of our common stock;
- Quick Study, which owns over 60 web-based hours of nursing and OSHA
content, primarily dialysis-related, for $59,000 in cash, the assumption
of $112,000 in long-term debt and 61,397 shares of our common stock;
- m3 the Healthcare Learning Company, which provides computer-based
training to over 450 hospitals and healthcare facilities, primarily in
the areas of OSHA and regulatory training, for $600,000 in cash, the
assumption of $1.2 million in long-term debt and 818,036 shares of our
common stock; and
- EMInet, which provides Web-based educational content for emergency
medical services personnel, for $640,000 in cash and 269,902 shares of
our common stock.
As we transition m3 the Healthcare Learning Company customers from existing
platforms to the ASP model, we expect that revenues will remain comparable for
the annual maintenance fees with increases related to sales of online
courseware.
In February 2000, we entered into a four year agreement with Columbia/HCA
pursuant to which we will provide online training and education, courseware
development and administrative management and consulting services to
Columbia/HCA and its affiliated and managed healthcare providers. Columbia/HCA
will pay us minimum revenues of $12.0 million over the term of this agreement
for these services.
In February 2000, we entered into an agreement with Healtheon/WebMD
pursuant to which we will be the exclusive provider of education, continuing
education and training services for healthcare organizations, healthcare
professionals and healthcare workers on Web sites owned or operated by
Healtheon/WebMD. Pursuant to this agreement, we will pay Healtheon/WebMD $6.0
million per year for five years on a quarterly basis as guaranteed minimum
royalties. In the first year, $2.0 million of the $6.0 million payment will be
applied toward mutually agreed upon branding and promotion services. We will
receive 100% of any revenues from the sale of our products and services until we
recover all of the payments to Healtheon/WebMD, and after that we will receive
75% and Healtheon/WebMD will receive 25% of any revenues. In connection with the
agreement, Healtheon/WebMD has agreed to purchase $10.0 million of our common
stock at the initial public offering price per share in a concurrent private
sale.
To date, we have incurred substantial costs to develop our technologies,
create, license and acquire our content, build brand awareness, develop our
infrastructure and expand our business, and have yet to achieve significant
revenues. As a result, we have incurred operating losses in each fiscal quarter
since 1994. We expect operating losses and negative cash flow to continue for
the foreseeable future as we plan to significantly increase our operating
expenses to help expand our business. These costs could have a material adverse
effect on our future financial condition or operating results. We believe that
period-to-period comparisons of our financial results are not necessarily
meaningful, and you should not rely upon them as an indication of our future
performance.
21
<PAGE> 28
RESULTS OF OPERATIONS
REVENUES AND EXPENSE COMPONENTS
The following descriptions of the components of revenues and expenses apply
to the comparison of results of operations.
Revenues. Revenues currently consist primarily of sales of multimedia
development services for training modules and promotional materials for the
healthcare industry. Revenues also include licensing fees and royalties from
product sales of proprietary training software to healthcare companies as well
as transaction fees from sales of continuing education credit from content
delivered over the Internet. We expect that revenues in future periods will be
increasingly derived from online services to healthcare organizations and
healthcare professionals. During 1999, the Company revised its focus from
development services to online products and services. While this transition has
only translated into approximately $216,000 of online revenues, we expect these
revenues to grow significantly in the future, in part, due to the Columbia/HCA
agreement. This change in focus has contributed to not only a change in revenue
components, but also a change in expense components as we expect to increase our
production capacity to support planned growth.
Cost of Revenues. Cost of revenues consists primarily of salaries and
employee benefits, materials, and depreciation associated with the development
of interactive media projects as well as royalties paid to content providers.
Product Development. Product development expenses consist primarily of
salaries and employee benefits, depreciation, third-party content acquisition
costs, costs associated with the development of content and expenditures
associated with maintaining and enhancing our Web site and training delivery and
administration platform.
Selling, General and Administrative. General and administrative expenses
consist primarily of salaries and employee benefits, facility costs,
depreciation, amortization of intangibles, and fees for professional services.
Sales and marketing expenses consist primarily of salaries and employee
benefits, bonuses, advertising, promotions and related marketing costs.
Other Income/Expense. The primary component of other expense is interest
expense related to loans from related parties and capital leases. The primary
component of other income is interest income related to interest earned on cash
and cash equivalents.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Revenues. Revenues increased $852,000, or 49.6%, from approximately $1.7
million for the year ended December 31, 1998 to approximately $2.6 million for
the year ended December 31, 1999. The increase in revenues was due to increased
sales and marketing of our T.NAV product and multimedia development services as
well as increased development and content production services. During 1999,
48.9% of revenues related to development services, 24.8% related to T.NAV
licensing fees and related services, 26.3% related to other transactions and
product sales. In 1998, 76.1% of revenues related to development services and
23.9% related to T.NAV licensing fees and related services.
Cost of Revenues. Cost of revenues increased approximately $1.0 million,
or 100.4%, from approximately $1.0 million for the year ended December 31, 1998
to approximately $2.1 million for the year ended December 31, 1999. The increase
was primarily attributable to increased volume of business, including
approximately $800,000 of increases in salaries, labor and related benefits. As
a percentage of revenues, cost of revenues increased from 61.6% for the year
ended December 31, 1998 to 82.5% for the year ended December 31, 1999. This
increase as a percentage of revenues resulted from an increase of approximately
30 service and production personnel during the year, 11 of which were added in
connection with the acquisition of SilverPlatter Education.
Product Development. Product development expenses increased approximately
$1.6 million, or 359.5%, from $443,000 for the year ended December 31, 1998 to
approximately $2.0 million for the year ended December 31, 1999. This increase
in product development expenses was due to approximately
22
<PAGE> 29
$748,000 in distribution expenses related to a warrant granted to GE Medical
Systems in connection with a continuing education and training content
distribution agreement, an increase of approximately $530,000 related to
salaries, labor and related benefits for an increase in our production staff and
approximately $195,000 of royalty expense under contracts with content and
distribution partners. As a percentage of revenues, product development expenses
increased from 25.8% for the year ended December 31, 1998 to 79.3% for the year
ended December 31, 1999. The increase as a percentage of revenues was due to
significant upfront product development expenses incurred to implement our
online services, including salaries and employee benefits associated with
increased content conversion and development and royalties due to content and
distribution partners. We anticipate significant additional product development
expenses in future periods due to salaries and employee benefits associated with
increased content conversion.
Selling, General and Administrative. Selling, general and administrative
expenses increased approximately $1.5 million, or 101.2%, from approximately
$1.5 million for the year ended December 31, 1998 to approximately $3.0 million
for the year ended December 31, 1999. As a percentage of revenues, selling,
general and administrative expenses increased from 86.0% for the year ended
December 31, 1998 to 115.7% for the year ended December 31, 1999. The increase
was primarily due to increased personnel and related benefits costs of
approximately $500,000 associated with new employees, an increase of
approximately $228,000 in advertising, promotional and marketing expenditures,
an increase of approximately $131,000 in professional service fees, an increase
of $213,000 related to amortization of intangible assets, an increase of
approximately $168,000 in travel expenses, and facility and depreciation
expenses of approximately $96,000. We expect to incur significant selling,
general and administrative expenses as we hire additional personnel and increase
our advertising and marketing expenses to support our planned growth. In
addition, our selling, general and administrative expenses will increase
significantly as a result of our required minimum royalty payments under our
agreement with Healtheon/WebMD of $4.5 million in 2000, $6.0 million in each of
2001 through 2004 and $1.5 million in 2005.
Other Income/Expense. Other expense decreased $122,000, or 36.9%, from
$331,000 for the year ended December 31, 1998 to $209,000 for the year ended
December 31, 1999. The decrease was primarily due to a conversion by a related
party of approximately $1.6 million of indebtedness into shares of common stock
and series B preferred stock, which was partially offset by an increase in
interest expense on capital leases. In addition, interest and other income
increased from $3,000 for the year ended December 31, 1998 to $312,000 for the
year ended December 31, 1999, due to a higher average net cash and cash
equivalents balance as a result of our issuance of preferred stock.
Net Loss. Net loss increased approximately $2.9 million, or 180.4%, from
approximately $1.6 million for the year ended December 31, 1998 to approximately
$4.5 million for the year ended December 31, 1999 due to the factors described
above.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenues. Revenues increased $448,000, or 35.3%, from approximately $1.3
million in 1997 to approximately $1.7 million in 1998. The increase in revenues
was related to increases in both development services and revenues realized from
the distribution of our T.NAV software. During 1998, 76.1% of revenues related
to development services and 23.9% related to T.NAV licensing fees, related
services and other transactions. During 1997, 87.1% of revenues related to
development services and 12.9% related to T.NAV licensing fees, related services
and other transactions.
Cost of Revenues. Cost of revenues increased $187,000, or 21.5%, from
$870,000 in 1997 to approximately $1.0 million in 1998. The increase was
primarily attributable to increased volume of business, including approximately
$258,000 of salaries, labor and related benefits, which was offset by an $80,000
decrease in materials cost since more development work was performed in-house.
As a percentage of revenues, cost of revenues decreased from 68.6% in 1997 to
61.6% in 1998. The decrease as a percentage of revenues was primarily
attributable to an increase in the proportion of development work performed
in-house and an increase in efficiencies in our development process.
23
<PAGE> 30
Product Development. Product development expenses increased $149,000, or
50.9%, from $294,000 in 1997 to $443,000 in 1998. As a percentage of revenues,
product development increased from 23.2% in 1997 to 25.8% in 1998. The increase
was primarily due to increased product development costs associated with the
addition of production and technology personnel, which resulted in an increase
of $135,000 in salaries, labor and related benefits.
Selling, General and Administrative. Selling, general and administrative
expenses increased $602,000, or 68.7%, from $875,000 in 1997 to approximately
$1.5 million in 1998. As a percentage of revenues, selling, general and
administrative expenses increased from 69.0% in 1997 to 86.0% in 1998. The
increase was primarily due to an expansion of our sales force, client services
staff and senior management, which resulted in an increase of approximately
$440,000 in salaries, labor and related benefits. The remainder of the increase
is primarily related to a $33,000 increase in promotional materials and
advertising expense related to increased marketing and a branding campaign.
Other Income/Expense. Other expense increased 74.1% from $189,000 in 1997
to $329,000 in 1998. The increase was primarily attributable to an increase of
$146,000 in interest expense due to additional related party loans incurred to
fund operations.
Net Loss. Net loss increased $630,000, or 65.6%, from $960,000 in 1997 to
approximately $1.6 million in 1998 due to the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations largely through the
private placement of equity securities, loans from related parties and, to a
lesser extent, from revenues generated from custom development fees and product
sales.
Net cash used in operating activities was $872,000 in 1997, $1.2 million in
1998 and $3.3 million in 1999. Cash used in operating activities from January 1,
1997 through December 31, 1999 was attributable to funding net operating losses
and increases in accounts receivable, prepaid expenses and other assets, which
were partially offset by increases in deferred revenues, accrued liabilities,
accounts payable and depreciation, amortization and other non-cash expenses.
Net cash used in investing activities was $240,000 in 1997, $209,000 in
1998 and $1.5 million in 1999. Cash used in investing activities was primarily
for the purchase of property and equipment and the acquisition of SilverPlatter
Education.
Cash provided by financing activities was $1.2 million in 1997, $1.4
million in 1998 and $18.4 million in 1999. Cash provided by financing activities
during 1999 was primarily attributable to the issuance of $18.2 million of
preferred stock. As of December 31, 1999, our primary source of liquidity was
$13.6 million of cash and cash equivalents. We have no bank credit facility.
As of December 31, 1999, we had approximately $13.6 million in cash. As of
January 31, 2000, we had cash of approximately $11.2 million, which reflected
the closing of the acquisitions of m3 the Healthcare Learning Company, EMInet,
Quick Study and KnowledgeReview.
Our indebtedness consists of a promissory note in the principal amount of
$1,293,000 payable to Robert A. Frist, Jr., our chief executive officer and
chairman of the board of directors. Interest is charged at the lesser of a
designated brokerage account rate or 10.5%. This note is payable in full and
will be converted into 553,712 shares of our common stock upon completion of
this offering.
In connection with our Columbia/HCA agreement, Columbia/HCA will pay us
minimum revenues of $12.0 million over the four year term of the agreement. We
also expect to incur significantly higher costs, particularly content creation
costs and sales and marketing costs, to grow our business. As a result of the
anticipated growth in personnel, development and online transactions, we expect
that our capital expenses will be approximately $3.0 to $5.0 million in 2000.
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Our strategic alliances have typically provided for payments to
distribution, content and development partners based on revenues, and we expect
to continue similar arrangements in the future. As a result, no significant
fixed payments other than approximately $475,000 in 2000 and $187,500 in 2001,
of which approximately 79% and 100% are nonrefundable, in 2000 and 2001,
respectively. We also have variable commitments of approximately $400,000
related to an agreement under which another company has agreed to provide
content development services for us.
In connection with the Healtheon/WebMD agreement, we will receive $10.0
million in proceeds from Healtheon/WebMD in a private sale that will close
concurrently with this offering. We are obligated to pay Healtheon/WebMD $6.0
million in each of the five years of the agreement. We expect these payments to
total $4.5 million in 2000, $6.0 million in each of 2001 through 2004 and $1.5
million in 2005. In addition, we will receive 100% of any revenues from the sale
of our product and services until we recover all of our payments to
Healtheon/WebMD, and then we will receive 75% and Healtheon/WebMD will receive
25% of any revenues from the sale of our products and services.
We believe that the net proceeds from this offering and proceeds from the
concurrent private sale of shares to Healtheon/WebMD, together with current cash
and cash equivalents, will be sufficient to meet anticipated cash needs for
working capital, capital expenditures and acquisitions for at least the 12
months following this offering. Our growth strategy also includes acquiring
companies that complement our products and services. We anticipate that these
acquisitions, if any, will be effected through a combination of stock and cash
consideration. Failure to generate sufficient cash flow from operations or raise
additional capital when required during or following that period in sufficient
amounts and on terms acceptable to us could harm our business, results of
operations and financial condition.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, or SFAS, No. 130, Reporting
Comprehensive Income, which is effective for fiscal years beginning after
December 15, 1997. This statement establishes standards for the reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. The new rule requires that we classify items of
other comprehensive income by their nature in a financial statement and display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in-capital in the equity section of the balance
sheet. The adoption of SFAS No. 130 resulted in recognition of other
comprehensive loss of $41,690 in our December 31, 1999 financial statements
contained in this prospectus.
In 1998, we adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. SFAS No. 131 requires companies to report
selected segment information when certain tests are met. We have determined that
we operate in only one reportable segment meeting the applicable tests.
As of January 1, 1998, we adopted Statement of Position, or SOP, 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use. SOP 98-1 establishes standards for reporting and presenting in a full set
of general purpose financial statements the costs incurred in the development of
internal-use computer software. Internal-use software is acquired, internally
developed, or modified solely to meet a company's internal needs without the
intent to market externally. The adoption of SOP 98-1 had no effect on our
financial statements contained in this prospectus.
As of January 1, 1998, we adopted SOP 98-5, Reporting on the Costs of
Start-Up Activities. SOP 98-5 establishes standards for reporting and presenting
start-up costs in a full set of general purpose financial statements. Start-up
costs, including organizational costs, are expensed as incurred under this SOP.
The adoption of SOP 98-5 had no effect on our financial statements contained in
this prospectus.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures
About Pensions and Other Postretirement Benefits -- an amendment of FASB
Statement Nos. 87, 88 and 106, which is effective for fiscal years beginning
after December 15, 1997. This statement revises employers' disclosures about
pension and other postretirement benefit plans. It does not change the
measurement or recognition of those
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plans. The adoption of SFAS No. 132 had no effect on our financial statements
contained in this prospectus.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is effective as amended for fiscal
quarters of fiscal years beginning after June 15, 2000. This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. We do not expect the adoption of SFAS No. 133
to have a material effect on our financial statements.
In December 1998, the American Institute of Certified Public Accountants,
or AICPA, issued SOP 98-9, Modification of SOP 97-2, Software Revenue
Recognition, with Respect to Certain Transactions. SOP 98-9 requires recognition
of revenue using the "residual method" in a multiple-element software
arrangement when fair value does not exist for one or more of the delivered
elements in the arrangement. Under the "residual method," the total fair value
of the undelivered elements is deferred and recognized in accordance with SOP
97-2. We are required to implement SOP 98-9 for the year ending December 31,
2000. We do not expect adoption of SOP 98-9 to have a material effect on our
financial statements.
YEAR 2000
We have conducted a comprehensive review of both information technology and
non-information systems to ensure that they are Year 2000 compliant. Significant
information technology systems include our production system, composed of the
servers, networks and software that comprise the underlying technical
infrastructure that runs our business, and various internal office systems. Our
significant non-information technology systems include our telephone systems,
air conditioning and security system. Our Year 2000 review project included the
following phases:
- conducting a comprehensive inventory of our internal systems and the
systems acquired or to be acquired by us;
- assessing and prioritizing any required remediation;
- remediating any problems by repairing or, if appropriate, replacing the
non-compliant systems; and
- testing all remediated systems for Year 2000 compliance.
Based upon the results of our review and experience to date, it appears
that there are no significant Year 2000 issues within our systems that would
have a negative effect on our ability to conduct business. In addition to
assessing the readiness of our systems, we have gathered information from, and
have directly communicated through written correspondence, telephone calls and
in face-to-face meetings with, our third-party systems and software vendors, as
well as other suppliers, to identify and, to the extent possible, resolve issues
involving the Year 2000 problem. Based on representations made to us by
applicable suppliers, we believe that the third-party software and systems that
are material to our business are Year 2000 compliant. However, we have limited
or no control over the actions of our third-party suppliers. Thus, while we
expect that we will be able to resolve any significant Year 2000 problems with
our systems, we cannot assure you that our third-party suppliers will resolve
all Year 2000 problems with their systems that may subsequently occur before the
occurrence of a material disruption to our business. Any failure of material
third-party suppliers to resolve Year 2000 problems with their systems in a
timely manner would have a negative effect on our ability to conduct business.
As of December 31, 1999, we have spent approximately $126,800 on Year 2000
compliance issues and expect to incur approximately an additional $86,000 in
connection with evaluating and addressing these issues. We expect to pay for
these expenses from our working capital. Most of our expenses have related to
operating costs associated with the time spent by employees and consultants in
the evaluation process and Year 2000 compliance matters generally. These
expenses, if higher than anticipated, could have a negative effect on our
financial condition.
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We completed an acquisition during 1999 and are finalizing the integration
of the systems of the acquired business into our operations. Those systems were
included in our Year 2000 review. The customer data acquired in the acquisition
of SilverPlatter Education and used by our Boston office to manage
subscriptions, billing and order fulfillment is not Year 2000 compliant.
Furthermore, it is not possible to update the database in its existing format to
be Year 2000 compliant because the database structure is not standard and has no
documentation. The database contains approximately 2,500 subscriber records,
active and non-active, and represents less than 5% of our pro forma revenues for
1999. We determined that it was necessary to transfer the tables, relationships
and data from the non-compliant database to a similar customer/order management
database program that relies on a compliant database. Since the full migration
was not accomplished by November 15, our contingency plan was put into effect.
The non-compliant database was last used on December 15, 1999. On December 15th,
we moved the entire non-compliant database into a compliant database product.
This provides a short-term solution that allows us to continue customer service,
billing and order fulfillment functions into the first quarter of 2000 while
removing the Year 2000 risk presented through continued use of the current
customer database system. We intend to implement a broader and more permanent
solution by the end of the second quarter of 2000. We are currently evaluating
various vendor applications to identify the best package to meet our existing
and future customer service, management and accounting needs. Once a solution
has been identified, the customer data in the temporary database format will
then be migrated to a new full service system, which will be consolidated as one
solution based in our headquarters.
We believe we have identified all Year 2000 problems that could harm our
business, financial condition or operating results. We have not experienced any
significant problems with regard to Year 2000 issues other than as described
above.
MARKET RISK
We are exposed to market risk from changes in interest rates. We do not
believe that we have any foreign currency exchange rate risk or commodity price
risk.
As of December 31, 1999, we had both fixed and variable rate debt. Debt
instruments with both fixed and variable interest rates carry a degree of
interest rate risk. Fixed rate debt may have its fair value affected if interest
rates change, and variable rate debt may incur a higher cost if interest rates
rise.
At December 31, 1999, the fair value of our total fixed rate debt was
estimated to be $13,000 based on our current incremental borrowing rate for
similar types of borrowing arrangements. At this borrowing level, a hypothetical
10% decrease in interest rates on the fixed rate debt would increase the fair
value of the debt by approximately $156. The amount was determined by
considering the effect of the hypothetical interest rate decrease on our
borrowing cost at December 31, 1999 borrowing levels.
The Company's weighted average debt outstanding for the years ended
December 31, 1998 and 1999 was $2,423,499 and $2,000,261, respectively. The
effective weighted average interest rate on such debt was 12.5% and 10.1%,
respectively.
At December 31, 1999, we had $13.6 million of cash and cash equivalents,
which we have invested on a short-term basis. At this investment level a
hypothetical 10% decrease in the interest rate would decrease interest income
and increase net loss by approximately $82,000.
The above market risk discussion and the estimated amounts presented are
forward-looking statements of market risk assuming the occurrence of certain
adverse market conditions. Actual results in the future may differ materially
from those projected as a result of actual developments in the market.
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BUSINESS
OVERVIEW
We are pioneering a Web-based solution to meet the training and education
needs of the healthcare industry utilizing our proprietary system. Through
strategic relationships with medical institutions and commercial organizations,
including Vanderbilt University Medical Center, Duke University Medical Center,
The Cleveland Clinic Foundation, Scripps Clinic and American Health Consultants,
we have amassed over 3,000 hours of training and education courses. We currently
distribute over 1,300 hours of these courses to allied health professionals,
nurses, doctors and other healthcare workers. We will expand distribution of our
courses and services to include two methods. The first method provides access to
our courses and education management software. Under the second method, we
deliver our courses through strategic distribution partners, which we refer to
as our Web distribution network. This network currently consists of over 30
distribution partners including Healtheon/WebMD, MedicaLogic, GE Medical
Systems, Pointshare, Medsite.com, HealthGate and ChannelHealth (an IDX company).
We launched our online training and continuing education service in March
1999. We were incorporated in 1990 as NewOrder Media, Inc. and began developing
multimedia presentations and interactive presentation systems for a variety of
businesses, with the majority of our customer base in the healthcare industry.
In 1993, we began development of our client server training and administrative
software that serves as the application for our online training and continuing
education service, and in 1996 we began deploying this application as a network
and stand-alone product. We are currently focusing on providing
transaction-based services delivered over the Internet rather than providing
installed software.
We believe that our combination of high quality online training and
continuing education content and the reach of our distribution partnerships
positions us to be a leading provider of Web-based solutions to the online
training and continuing education needs of the healthcare community.
INDUSTRY BACKGROUND
Continuing Education in the Healthcare Industry
The increase in the number of healthcare professionals, new therapeutic
treatments and procedures, and innovations in medical technology have all led to
greater demand for information exchange. Government regulations and accrediting
bodies require employers to provide healthcare professionals and other
healthcare workers with training on an increasing number and variety of topics.
In addition, to keep abreast of the latest developments and to meet licensing
and certification requirements, healthcare professionals must obtain continuing
education. This training includes safety training mandated by both the
Occupational Safety and Health Administration, or OSHA, and the Joint Commission
on Accreditation of Healthcare Organizations, or JCAHO, for all healthcare
workers. Continuing education includes continuing education units, or CEU, for
nurses and continuing medical education, or CME, for doctors. Simultaneously,
the healthcare industry has come under intense pressure to reduce costs as a
result of reductions in government reimbursement and increased participation of
patients in managed care programs. We believe these pressures in the industry
have led to an increased demand for high quality, low cost continuing education
and training solutions.
Healthcare services in the U.S. are delivered by over an estimated 5.0
million allied healthcare professionals, 2.6 million registered nurses, 2.4
million non-clinical healthcare workers and 600,000 active physicians. We
estimate that the healthcare industry spends approximately $6.0 billion annually
on ongoing training and continuing education, including over $3.0 billion on
continuing education for allied healthcare professionals and for nurses and CME
for physicians. According to the 1999 American Society for Training and
Development State of the Industry Report, a greater percentage of healthcare
workers receive training than workers in any other industry, with approximately
88% of all healthcare workers receiving some kind of continuing education or
formal work-related or safety training every year.
Regulations administered by various state and Federal agencies require
ongoing training and continuing education for healthcare professionals and other
healthcare workers. Ongoing training and
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continuing education typically consists of educational programs that bring
healthcare workers up to date in a particular area of knowledge or skills. State
licensing boards, professional organizations and employers require selected
healthcare professionals and physicians to fulfill ongoing training and
continuing education requirements and to certify annually that they have
accumulated a minimum number of continuing education hours to maintain their
licenses. For example physician and nursing licensing boards require up to 20
hours of continuing education per year. In addition, many specialty boards,
including the American Board of Family Practice and the American Board of
Surgery, require doctors to obtain CME hours that are accredited by these
organizations to maintain their specialty certification. Other agencies,
including OSHA, the Healthcare Financing Administration, or HCFA, and JCAHO
require hospitals and other healthcare providers to provide employees with
various types of workplace safety training.
The ongoing training and continuing education market in the healthcare
industry is highly fragmented, with over 1,000 providers offering a limited
selection of programs on specific topics. For example, there are over 600
providers of CME accredited by the Accreditation Council for Continuing Medical
Education, or ACCME. The sheer volume of healthcare information available to
satisfy continuing education needs, rapid advances in medical developments and
the time constraints that healthcare professionals face make it difficult to
stay current and to quickly and efficiently access the continuing education
content most relevant to their practice or profession. Historically, healthcare
professionals have received continuing education and training through offline
publications, such as medical journals and CD-ROMs, and by attending conferences
and seminars. In addition, other healthcare workers and pharmaceutical and
medical equipment manufacturers' sales and internal regulatory personnel usually
fulfill their education and training needs through instructor-led programs from
external vendors or internal training departments. Although these existing
approaches satisfy ongoing training and continuing education requirements, they
are limited in the following ways:
- seminars and instructor-led training may be inconvenient and costly to
attend and may result in lost productivity;
- ongoing training and continuing education courses offered locally may be
limited in terms of breadth of offering and timeliness and may be costly
to produce on a per user basis; and
- administrators find it difficult to review and assess results, track
employee compliance with certification requirements and respond to the
effectiveness of education and training programs.
The inefficiencies inherent in traditional methods of providing ongoing training
and continuing education, combined with the time constraints and the increased
cost pressures in the healthcare industry, have prompted healthcare
professionals and organizations to improve information exchange and consider
alternative training methodologies.
Growth of the Internet
The Internet has emerged as a mass communications and commerce medium that
enables millions of people worldwide to share information, communicate and
conduct business. International Data Corporation, or IDC, estimates that the
number of worldwide Internet users will increase from approximately 256.4
million in 2000 to approximately 502.4 million by the end of 2003. In addition,
the Internet is being used increasingly for electronic commerce between
businesses. IDC estimates that the volume of electronic commerce among
businesses over the Web throughout the World will increase from $217.8 billion
in 2000 to more than $1.3 trillion in 2003.
The Internet allows content delivery in a manner not possible through
traditional broadcast and print media. Although these traditional media can
reach large audiences, they generally are limited to a specific geographic area,
can deliver only limited content and are not effective for quickly distributing
customized content. The Internet, on the other hand, offers immediate access to
a greater breadth of content as well as dynamic and interactive content, enables
the content to be customized toward a specific audience of users and provides
instantaneous and targeted feedback. As a result, the Internet has become an
important alternative to traditional broadcast and print media, enabling content
providers to aggregate vast amounts of information and to organize and deliver
that information in a personalized, easy-to-use and cost-effective
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manner. As bandwidth availability continues to increase, the delivery of
full-motion video will become more widespread, allowing for richer content.
These characteristics, combined with the rapid growth of the Internet, have
created a new channel to distribute and access timely and dynamic content.
The Internet is also enabling businesses to eliminate the burden of buying
and running expensive and high maintenance computer systems and software
packages by outsourcing these services to a centralized provider. An increasing
number of businesses are accessing applications over the Internet rather than
through dedicated private networks. New classes of software companies, including
ASPs, are providing a growing array of traditionally packaged software
applications over the Internet on a per transaction or subscription basis. ASPs
are attractive as they allow companies to focus on their core business by
eliminating the need to maintain and update large-scale software applications
and reducing the capital expenditures required to keep up with leading
technologies. We believe that as more companies have integrated the Internet
into their daily work flow, the demand for outsourced packaged software has
significantly increased.
Convergence of the Internet and Online Healthcare Education Services
Participants in the healthcare industry are increasingly relying on the
Internet for communication and the delivery of information. There are currently
over 10,000 Web sites providing healthcare and healthcare-related information.
Many of these Web sites cater to the needs of healthcare professionals and are
seeking to become an integral part of the delivery of healthcare services.
Recently, an increasing number of traditional offline services in the healthcare
industry have begun to migrate online, including insurance enrollment
verification, prescription writing, supply purchases, storage and accessing of
medical records and claims filing and processing. In addition, physicians are
using the Internet as a valuable tool to access the latest medical information.
According to a June 1998 PERQ/HCI report, over 45% of physicians accessed
medical information online. In addition, we believe healthcare professionals and
other healthcare workers are increasingly able to access the Internet from work.
We believe the healthcare ongoing training and continuing education market
is particularly well-suited for business-to-business e-commerce and online
services because of the high degree of fragmentation among the healthcare
community, the industry's dependence on a high volume of information exchange
and the inefficiencies inherent in the existing methods of information exchange.
The emergence of the Internet enables the delivery of a greater breadth and
depth of training and continuing education for healthcare professionals and
other healthcare workers more cost effectively and conveniently than traditional
methods. The Internet allows for the aggregation and delivery of large amounts
of varied and highly specific content. Web-based delivery allows healthcare
professionals and other healthcare workers a significant degree of scheduling
and geographic flexibility in meeting their continuing education and training
requirements, saving them and their employers travel expenses and limiting
productivity losses.
THE HEALTHSTREAM SOLUTION
We are pioneering a Web solution to meet the ongoing training and
continuing education needs of the healthcare community utilizing our proprietary
technology. We bring authors and publishers of training and continuing education
content, including both commercial publishers and educational institutions,
together with end users, which include healthcare professionals, other
healthcare workers and healthcare organizations, through our Web-based
distribution network, including health Web sites, healthcare equipment vendors
and healthcare providers. We are also developing online administrative and
management tools, based on our existing installed software products, which we
will host on an ASP basis. These tools will enable healthcare administrators to
configure training to meet the precise needs of different groups of employees,
modify training materials and monitor the results of training. We believe our
services will provide an online training and continuing education solution for
healthcare organizations, end users, distribution partners and content partners.
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Value to Healthcare Organizations
We offer healthcare organizations the ability to provide access to high
quality content on a cost-effective basis for the ongoing training and
continuing education needs of their employees. Currently, these organizations
often pay for the cost of meeting ongoing training and continuing education
requirements. Our services allow these organizations to contribute to and
enhance the content provided through our services and to configure training to
meet the specific needs of different groups of employees. In addition, we
provide administrators of these organizations the ability to track compliance
with certification requirements and measure the effectiveness and results of
training.
Value to End Users
Comprehensive Training and Continuing Education Offerings. We offer
healthcare professionals and other healthcare workers a centralized location to
satisfy their ongoing training and continuing education needs. We believe we
provide one of the largest online libraries of ongoing training and continuing
education content covering a range of medical specialties. We organize and list
our course offerings according to profession and specialty. In addition, our
course listings can be targeted to specific audiences and interests. Our content
comes from a broad range of leading medical education institutions, commercial
providers and professional groups such as Vanderbilt University Medical Center,
Duke University Medical Center, The Cleveland Clinic Foundation, Scripps Clinic,
KnowledgeLinc and American Health Consultants.
Cost-Effective Training and Continuing Education. We believe our online
solution will reduce the cost of meeting ongoing training and continuing
education requirements to the healthcare community. By eliminating the need for
travel and expensive in-house programs, we estimate that we can significantly
reduce the cost of ongoing training and continuing education. Our end users pay
for our services on a per transaction and/or subscription basis.
Convenient Access and Compelling User Experience. We offer healthcare
professionals and other healthcare workers a convenient, efficient and easy to
use system. Our online services allow our end users the freedom to utilize our
services when it is convenient for them. Users of our services have immediate
access to a broad selection of ongoing training and continuing education
programs and instantaneous and targeted feedback from anywhere there is an
Internet connection. We provide course selection and registration interfaces
that make it simple for healthcare professionals to find, enroll in and purchase
the educational programs they are seeking. Our online search engine at
cmesearch.com enables physicians to locate and register for traditional
educational seminars as well as purchase training CD-ROMs and online courseware.
In addition, upon completion of each of our online courses we enable users to
print certificates of completion to submit to regulatory authorities. In the
event a user has a question, they can either call one of our customer service
representatives or communicate with a representative through an online live chat
technical support service.
Value to Network Distribution Partners
Comprehensive Training and Continuing Education Solution. We offer our
network distribution partners an online training and continuing education
solution that includes one of the largest libraries of courseware. Most of our
network distribution partners provide online access to continuing education as
an ancillary service to their core businesses. To drive traffic to their Web
sites, our network distribution partners want to provide their online users with
a compelling ongoing training and continuing education experience. Our solution
delivers these services to our network distribution partners without the need to
purchase or create content, maintain customer service for ongoing training and
continuing education, or purchase, install or develop specialized delivery
software. We also create customized programs to meet our partners' specific
needs.
Premier Continuing Education Healthcare Content. We offer our network
distribution partners access to content from premier healthcare organizations
through our established relationships with medical education and professional
institutions and commercial publishers. Our relationships with these
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organizations will allow our distribution partners to distinguish themselves
from their competitors by providing high quality continuing education and
training content.
Recurring Traffic Opportunity. We believe we will offer our network
distribution partners a predictable source of online traffic due to the
recurring nature of regulated training and continuing education requirements.
Allied healthcare professionals and other healthcare workers may also be
required by their employers or regulatory agencies to complete relevant training
and continuing education annually. Nurses and physicians are required to
complete a certain amount of continuing medical education every year. We believe
these users will visit Web sites that provide a convenient and compelling
experience to meet their ongoing training and continuing education requirements.
Our system enables healthcare professionals to store, track and generate reports
about this completed coursework. We believe this capability creates a compelling
relationship between our Web distribution partners and the healthcare
professional. In addition, we believe visits by online users accessing our
service through one of our distribution partners' Web sites should be
substantially longer than a typical online experience due to the nature of our
product offering. This recurring and "sticky" base of traffic will complement
the other services provided by our distribution partners.
Value to Content Partners
Compelling Web Distribution Network. We believe we currently offer our
content partners one of the largest Web networks for the distribution of
training and education for the healthcare community. Through our Web
distribution network, our content partners can realize new product sales by
targeting a broader audience than they could on their own.
Comprehensive Outsourcing Solution. By providing comprehensive conversion
and distribution services, we enable our content partners to focus on their core
competency of producing and authoring content and to reallocate resources they
may have used to develop their own delivery systems and distribution
partnerships. In addition, our online solution will provide content partners
access to valuable comparative data about customer use, demographic
characteristics and response to their content offerings. The data will also
allow our content partners to assess how users perform on their content
offerings, which will allow them to refine their materials.
Significant Expertise in Content Conversion. We offer publishers and
authors of training and continuing education content our experience in producing
online materials for the healthcare industry. We provide customers with a
complete set of proprietary tools which enables them to quickly and
inexpensively develop online courseware. Our template-driven development process
allows courseware to be produced at a lower cost. For example, we have developed
several successful new electronic products, including hybrid CD-online textbooks
developed for leading traditional medical publishers.
GROWTH STRATEGY
Our objective is to be the leading provider of Web training and continuing
education solutions for the healthcare community. We plan to achieve this
objective by pursuing the following strategies.
Provide Healthcare Organizations with Web Access to our Administrative
Services and Content Library. Our solution will enable organizations to provide
access to our training and continuing education services over the Internet.
Under this ASP model, our training software is hosted in a central data center
that allows end users Web access to our continuing education and training
services, eliminating the need for onsite installations of software. Our ASP
model also includes a set of administrative and management tools which enable
administrators to configure and modify training materials, track performance and
monitor training expenses. We plan to leverage the existing capabilities of our
training software that is installed at more than 700 hospitals and clinic
locations, including facilities owned and operated by Gambro Healthcare,
Columbia/HCA Healthcare Corporation and The Cleveland Clinic Foundation. In
addition, we have existing preferred vendor arrangements with several hospital
group purchasing organizations, or GPOs, including Premier, Inc. and Voluntary
Hospital Association, or VHA. We believe these arrangements offer us the
opportunity to provide our services to the member hospitals represented by
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these GPOs with our ASP model. We plan to transition those organizations to our
ASP model, under which they will begin to pay for these services on a per
transaction or subscription basis, eliminating the need for upfront capital
expenditures. By reducing capital outlays, we believe that selling our training
and continuing education solution as a service will accelerate customer purchase
decisions and increase adoption among new customers.
Expand and Enhance Our Training and Continuing Education Library. We plan
to expand our training and continuing education library through proprietary
development and licensing arrangements. We also plan to grow our library through
acquisitions, such as our acquisition of SilverPlatter Education, a provider of
CD-ROM and online continuing medical education for physicians, and our recently
completed acquisitions of Quick Study, a provider of OSHA and nursing training
to hospitals and clinics, m3 the Healthcare Learning Company, a provider of OSHA
and JCAHO training to hospitals, and EMInet, a provider of continuing education
training to emergency medical services personnel. We plan to use our existing
relationships with premier healthcare institutions and quality content providers
to strengthen our position as a leading aggregator of continuing education and
training content for the healthcare industry. Our strategy is to acquire a large
collection of courses across multiple clinical education and training topics and
then to supplement those acquired courses with courses licensed from other
content providers. We believe this strategy is the most cost-effective and
efficient way to create a substantial barrier to entry for other prospective
providers of online training and continuing education content.
Increase the Number of Partners in Our Web Distribution Network. We
currently have strategic relationships with a network of over 30 distribution
partners. We plan to increase our distribution reach and market share by
developing additional strategic distribution relationships. We believe that
potential distribution partners will be attracted to the recurring nature of
training and continuing education requirements and the time a typical user of
our service spends on our Web site or one of our distribution partners' Web
sites. We are primarily pursuing distribution relationships with Web sites that
target healthcare providers, healthcare professionals, and pharmaceutical and
equipment manufacturers.
Expand our Sales and Marketing Efforts. We plan to develop HealthStream as
the leading brand for online training and continuing education solutions in the
healthcare community. To achieve this objective, we will market our HealthStream
brand to end users, leading authors and publishers of continuing healthcare
education content and leading health Web sites, healthcare equipment vendors and
healthcare providers. We will not attempt to achieve widespread consumer
recognition outside of the healthcare community. Instead, we will seek to
establish our brand among our targeted group of end users and potential content
and distribution partners in the healthcare community to drive not only sales to
these end users, but increased adoption by content and distribution partners. In
marketing directly to these potential partners, we will focus on our ability to
provide our content partners with compelling distribution channels and to
provide our distribution partners with premier content from a broad range of
sources. In addition, we will continue to focus on generating additional brand
equity by operating sites in partnerships that carry both our brand and our
distribution partners' brands.
Generate Additional Revenue Opportunities. We plan to leverage the
recurring nature of our end user visits by providing additional products and
services. We believe the demographics of our audience and our high-quality
content offerings provide significant opportunities to develop multiple sources
of revenue. In addition to our transaction-based courseware sales, we plan to
generate e-commerce revenues from direct and indirect sales of related ongoing
training and continuing education products. Through our recent acquisition of
KnowledgeReview, we acquired a search engine, cmesearch.com, which allows us to
sell education and training CD-ROMs and which will allow us to charge
registration fees for the enrollment for traditional CME seminars. We are also
developing products that capitalize on our ability to gather data regarding
users of our service, and we plan to expand our ability to capture advertising
and sponsorship revenue from pharmaceutical and medical equipment companies as
well as healthcare providers.
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HEALTHSTREAM SERVICES
We provide our Web-based ongoing training and continuing education services
to healthcare organizations through our ASP model and individual healthcare
professionals through our Web distribution network.
SERVICES DISTRIBUTED THROUGH ASP MODEL
Healthcare organizations are responsible for providing both government
mandated and internally required training to their employees. We are developing
our ASP model to enable these healthcare organizations to provide, assess and
manage this training process. Under our ASP model, our online systems are hosted
in a central data center that provides administrative access to our customers
through Web-based reporting and management tools, rather than through software
that is installed and maintained at the customer's site. We will bill our
customers on a per transaction and/or subscription fee basis, enabling them to
treat their investment in online continuing education and training as an
operating expense rather than a capital expense. We anticipate that eliminating
the need for a capital outlay may shorten the sales cycle to these customers. In
addition, our hosted ASP service is scalable to enable healthcare organizations
to monitor and administer the continuing education and training needs of large
and geographically dispersed employee bases. Our services for healthcare
organizations include:
Administrative and Management Tools. Our administrative and management
tools will be used by human resources, training and management personnel to
manage curricula and training performance data for the employee population. The
administrator software will be used to configure ongoing training and continuing
education requirements, enter or modify training materials (lessons, quizzes,
exams, etc.), define groups of users and the criteria that users must meet to be
included in groups and print reports about the resulting ongoing training and
continuing education. Our administrative and management tools will allow
administrators to organize and customize our library of courseware to suit the
precise needs of different groups of employees within the organization. In a
hospital, for example, doctors, nurses, technicians and housekeeping staff would
each automatically be assigned appropriate curricula based on their job
profiles. In addition, our system will provide tools for administrative
personnel using our system to manage their employees' training performance data.
Online Courseware. The courseware we provide under our ASP model will
primarily focus on mandated training content. In addition, employers may make
some continuing education content from our library available to their
professional employees. Most end users accessing the ASP courseware will be
employees seeking to fulfill training requirements established by outside
agencies or their employers. We are developing and converting this training
content in partnership with authors and publishers. Employees will select
courses from among a list determined by their employer.
Content Conversion and Development. Many healthcare organizations provide
their employees with organization-specific training. We have full-service
capabilities to convert existing course materials to a Web-enabled format or
develop custom courseware for these healthcare organizations. Our development
group includes instructional designers, scriptwriters, multimedia designers,
graphic artists, audio and video engineers, programmers and project managers.
Our ability to market courseware developed for one healthcare organization to
our broad base of end users provides these healthcare organizations the
opportunity to offset their development costs through courseware sales
royalties.
SERVICES PROVIDED THROUGH WEB DISTRIBUTION NETWORK
Most healthcare professionals are responsible for meeting their own
continuing education requirements. We enable these healthcare professionals to
meet their continuing education requirements by obtaining credit through use of
our online courseware. We deliver our online courseware to healthcare
professionals through multiple, co-marketed Web sites offered in partnership
with health Web sites, academic and medical institutions, pharmaceutical and
equipment manufacturers and healthcare providers. Healthcare professionals and
other healthcare workers can sign up to become registered users of our service
after accessing our log-in screen at our or any one of our distribution
partners' Web sites. Each of
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these Web sites is based upon our standard template but is customized to match
the look and feel of the Web site of the referring distribution partner. Our
services for healthcare professionals include:
Online Courseware. The online courseware available through our network of
co-branded Web sites and our Web site is targeted to healthcare professionals
and includes primarily accredited continuing education content. We organize our
offerings on these Web sites by profession and specialty. The content available
from our library can be targeted to the specific interests of a distribution
partner's audience. Users access our catalog of courseware and may select those
offerings they wish to view. Users are guided through the courses, usually in
the form of a series of lessons and quizzes. Upon successful completion of a
course, the user is given the option of receiving continuing education credit.
If the user elects to receive credit, a printable certificate will be issued. We
acquire, license and develop our course content from and in partnership with a
broad range of commercial publishers and educational institutions. To augment
our library of courseware, we work with healthcare organizations, publishers and
authors of healthcare content to convert their continuing education courses and
materials from traditional media to a Web-enabled format. In some cases, we
retain partial ownership and resellers' rights to this courseware.
Webcast Events. We offer both live and pre-recorded Webcasts of medical
procedures, the viewing of which may be credited toward continuing education
requirements. These Webcast events generally consist of the presentation of an
edited streaming video of a medical procedure followed by a live discussion that
includes the physician who performed the procedure and other leading physicians
in the field. In addition, our Webcast events may be followed by a related
program in the form of interactive courseware which may be completed for
continuing education credit. The Webcast event may be co-branded with the
sponsors' name and the sponsor can underwrite the fee for a certain number of
users to participate online.
Search Engine. Through our acquisition of KnowledgeReview, we acquired a
search engine and several associated domain names through which we offer a
method for physicians and other healthcare professionals to search for both
online and traditional continuing education products. This Web site is currently
located at cmesearch.com. Physicians access the Web site to locate seminars by
specialty and location as well as purchase educational CD-ROMs and online
courseware. In addition, we plan to offer products and services that complement
our online continuing education and training courses and link sales of our
courseware to related books, videotapes, audio tapes and other educational and
reference products produced by our content partners.
STRATEGIC RELATIONSHIPS AND ACQUISITIONS
RELATIONSHIPS AND ACQUISITIONS RELATING TO SERVICES DISTRIBUTED THROUGH OUR
ASP MODEL
m3 the Healthcare Learning Company. In January 2000, we acquired the stock
of m3 the Healthcare Learning Company which provides computer-based training to
hospitals and healthcare facilities primarily in the areas of OSHA and
regulatory training. m3 the Healthcare Learning Company provides us with an
established client base of over 450 hospitals and the opportunity to convert
these hospitals to our ASP model. This acquisition also adds experienced
management personnel that will oversee the hospital market for our ASP model as
well as eight additional sales people to serve this market in regional offices
across the country. The purchase price for m3 the Healthcare Learning Company
consisted of $600,000 in cash, the assumption of $1.2 million of long-term debt
and 818,036 shares of our common stock.
EMInet. In January 2000, we acquired the assets of EMInet, a provider of
online continuing education to emergency medical services personnel. EMInet has
sold over 350,000 courses online since 1996. This acquisition expands the
content offering of our online library and the customer base for our services as
well as adds management knowledgable about the emergency medicine market. The
purchase price for EMInet consisted of $640,000 in cash and 269,902 shares of
our common stock.
Quick Study. In January 2000, we acquired the stock of Quick Study, a
provider of over 60 hours of nursing and OSHA content which we have added to our
online library and will deliver to healthcare
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organizations through our ASP model. This courseware is currently distributed
through over 35 systems installed by Quick Study. The purchase price for Quick
Study consisted of $59,000 in cash, the assumption of $112,000 in long-term debt
and 61,397 shares of our common stock.
Columbia/HCA Healthcare Corporation. In February 2000, we entered into a
four-year Online Education Services Provider Agreement with Columbia Information
Systems, Inc., an affiliate of Columbia/HCA Healthcare Corporation with a
network of over 200 hospitals. Pursuant to the terms of the agreement, we will
provide Columbia/HCA with online training and education services and courseware
for its doctors, nurses and staff on an ASP basis as well as consulting and
support services. Columbia/HCA will pay us minimum revenues of $12.0 million
over the term of this agreement for these services.
RELATIONSHIPS AND ACQUISITIONS RELATING TO SERVICES PROVIDED THROUGH OUR WEB
DISTRIBUTION NETWORK
We have entered into strategic relationships with several content partners
and over 30 distribution partners and continue to aggressively pursue additional
strategic relationships. We believe that these strategic relationships and the
acquisition of complementary businesses will enable us to increase our course
offerings, expand our product distribution and increase our brand awareness. In
addition, our recent acquisitions have expanded our course offerings and
provided us with experienced sales personnel. Selected content and distribution
partners include:
Content
SilverPlatter Education. In July 1999, we acquired the assets of
SilverPlatter Education, a provider of over 100 hours of continuing medical
education programs to physicians on CD-ROM and via the Internet under the names
"SilverPlatter Education," "Physicians' Home Page" and "Core Curriculum," for
total consideration of $800,000 in cash and 49,202 shares of our common stock.
SilverPlatter Education is certified to provide accreditation for CME courses
which allows us to internally develop and certify our own courseware.
Scripps Clinic. In November 1999, we entered into a three-year agreement
with Scripps Clinic, a large multi-specialty medical clinic, to deliver its CME
content for physicians online.
Duke University Medical Center. In October 1999, we entered into a
three-year agreement with Duke University Medical Center to design, create and
distribute interactive, Web-enabled CME courses for physicians in several
specialties. We are in the process of developing these courses and we will
distribute them through our online continuing education and training service.
American Health Consultants. In September 1999 we entered into a two-year
agreement, and in January 2000 we entered into a one-year agreement with
American Health Consultants, a leading publisher for healthcare professionals,
to deliver over 400 hours of continuing education for nurses and over 800 hours
of continuing medical education for physicians online.
Vanderbilt University Medical Center. In July 1999, we entered into an
agreement with Vanderbilt University Medical Center to design, create and
distribute online continuing education courses authored by Vanderbilt's
physicians and nurses. Under the terms of the agreement, we will serve as an
Internet distributor and marketer for courses developed with Vanderbilt's
Schools of Medicine and Nursing for a term of four years. Vanderbilt may also
provide us accreditation certification for additional courses we develop with
their assistance.
The Cleveland Clinic Foundation. In June 1999, we entered into a
three-year agreement with The Cleveland Clinic Foundation, a leading research
and medical institution, to license its Intensive Review of Internal Medicine
Course for online publication. This course includes CME content and provides
physicians a complete board preparation review through lectures from some of the
country's leading internists.
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Challenger Corporation. In December 1998, we signed an agreement to
convert Challenger's library of accredited CME materials from a CD-ROM to a
Web-enabled format. This agreement also gives us the exclusive right during the
term of the agreement to resell their content on the Internet. Our agreement
with Challenger terminates in December 2000. See "Risk Factors -- We may be
unable to maintain our existing relationships with our content providers or to
build new relationships with other content providers."
e-Vitro. In January 2000, we entered into a one-year agreement with
e-Vitro, a developer of custom interactive content for healthcare providers.
Under the terms of the agreement, e-Vitro will provide content development
services to us. This relationship will create additional capacity for us to
augment our internal content development resources. In connection with this
development agreement, we acquired a warrant to purchase 223,834 shares of
e-Vitro Class B non-voting common stock at an exercise price of $4.47 per share.
Distribution
cmesearch.com. In January 2000, we acquired the assets of KnowledgeReview
which operates cmesearch.com, a healthcare education search engine which allows
physicians and other healthcare professionals to search for online and
traditional continuing education, such as locating seminars and purchasing
educational CD-ROMs and online courseware. cmesearch.com currently provides
listings and information on over 2,000 courses and seminars. We plan to provide
linking between this search engine and our 30 Web distribution partners. The
purchase price for KnowledgeReview consisted of $310,000 in cash and 17,343
shares of our common stock.
Healtheon/WebMD. In February 2000, we entered into a five-year agreement
with Healtheon/WebMD, a leading provider of online services to professionals and
consumers in the healthcare industry. Under the terms of the agreement, we will
be the exclusive provider of education, continuing education and training
services for healthcare organizations, healthcare professionals and healthcare
workers on Web sites owned or operated by Healtheon/WebMD.
MedicaLogic. In February 2000, we entered into a one-year agreement with
MedicaLogic, a leading provider of electronic medical records and related
technology, to distribute our online courseware to their customers.
State Medical Associations. In November 1999, we entered into an agreement
with the Mississippi State Medical Association to distribute CME to its member
physicians. In December 1999, we entered into a similar agreement with the
Medical Association of Georgia to distribute CME to its 6,000 member physicians.
HealthGate. In September 1999, we entered into two two-year agreements
with HealthGate Data Corp. through which we will provide our online continuing
education and training services to hospital and health system Web sites and
intranets that use HealthGate's suite of healthcare content products.
ChannelHealth (an IDX Company). In September 1999, we entered into an
agreement with IDX to be the provider of continuing education on ChannelHealth's
Physician Homebase for a term of three years. ChannelHealth will deliver
comprehensive Internet-based knowledge management services for physicians,
healthcare workers and patients. ChannelHealth's parent company, IDX Systems
Corporation, is a provider of healthcare information solutions at more than
1,650 customer sites, serving 118,000 physicians nationwide.
Pointshare. In July 1999, we entered into a one-year agreement with
Pointshare, a provider of online services and medical intranets for physicians,
hospitals, managed care groups, insurers and laboratories, to offer our online
courseware to Pointshare's customers and sell course sponsorships.
GE Medical Systems. In June 1999, we entered into a two-year agreement
with GE Medical Systems, one of the world's leading manufacturers of diagnostic
imaging equipment, under which we will provide our online continuing education
and training service for GE Medical Systems Web sites. In
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addition to our content development and online application development services,
we will assist GE Medical Systems in content conversion and will act as a
reseller of their content through our Web distribution partners. GE Medical
Systems, through its broadcast Training-in-Partnership, or TiP-TV, service,
provides satellite broadcast training services into over 1,600 hospitals.
Medsite.com. In May 1999, we entered into a three-year agreement with
Medsite.com, a leading provider of medical books on the Internet, to be the
provider of continuing education for Medsite.com's MedUniversity.com. Our
courseware will be strategically linked to Medsite.com's catalog of medical
books. In addition, we will have access to Medsite.com's database of over
300,000 physicians and other health professionals.
SALES AND MARKETING
We have a sales force of 16 individuals with an average of over 12 years of
healthcare sales experience. Our sales team continues to focus on selling our
training and continuing education service to hospitals and healthcare networks,
and we are in the process of transitioning these customers to our online
service. Our sales team also targets pharmaceutical and medical equipment
vendors for sponsorship opportunities and courseware development. We plan to
increase our sales and marketing team to focus on marketing our ASP model to new
and existing customers.
Although our historical marketing efforts have been limited by our
financial resources, we plan to launch a branding and advertising campaign
focused on building awareness of our products and services to all of our market
segments. We have hired Cohn & Wolfe, an Atlanta-based public relations firm, to
assist our seven person marketing team in building brand awareness, especially
via concept advertisements aimed at larger healthcare organizations. The
campaign will consist of advertising in trade journals and industry
publications, Web advertising, direct mail, trade show attendance and new
marketing materials. In keeping with our existing strategy, we will focus on
leveraging our marketing efforts through co-branding arrangements with our
distribution partners.
PARTNER RELATIONS
We have four individuals who work exclusively on the implementation and
development of the relationships with our current content and distribution
partners. These personnel coordinate all of our internal departments including
systems, content development, sales and marketing and business development and
act as the central liaison to the partner. This department works to maximize the
effectiveness of these relationships.
CUSTOMER SERVICE, TRAINING AND SUPPORT
We believe our ability to establish and maintain long-term customer
relationships and high adoption and recurrence rates in part depends upon the
strength of our customer service and operations team. Our customer service team
consists of five customer service managers located in our headquarters. We
provide customer support to end users through our toll-free phone line. In
addition, we provide live chat support to end users through a third-party online
technical support and sales service. A representative of this outsourced service
is available 24 hours a day to provide technical support to end users who are
registering for or taking online continuing education courses. By providing live
chat support we reach those customers who, while connected to the Internet,
cannot place a support call on their one phone line. These representatives are
trained to understand our philosophy and corporate culture and our specific
sales, marketing and support issues.
TECHNOLOGY INFRASTRUCTURE
Our technology infrastructure is based on an open architecture designed to
be secure, reliable and expandable. Our software is a combination of proprietary
applications, third party database software and operating systems that supports
acquisition and conversion of content, management of that content, publication
of our Web sites, downloads of courseware, registration and tracking of users
and reporting of
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information for both internal and external use. We have designed this
infrastructure to allow each component to be independently scaled, usually by
purchasing additional readily-available hardware and software components.
Educational Management System
Our client-server training and administrative software, T.NAV, has become
the application and foundation for our online training and continuing education
solution. This learning system is a scalable computer managed instruction system
that delivers interactive courses. Users and administrators may obtain detailed
reports on information ranging from user training history to content
effectiveness. By automating knowledge delivery and tracking training for every
user, the system both improves knowledge distribution and reduces training
overhead.
Data Center and Hosting Facilities
Our network infrastructure, Web site and servers delivering our service are
hosted by PSINet. PSINet maintains suitable environmental conditions and
multiple back up power sources and network connections. PSINet provides its
hosting and connectivity services on high-quality Hewlett-Packard servers and
Cisco routers. PSINet's hosting center is connected to the Internet through
high-speed fiber optic circuits. Monitoring of all servers, networks and systems
is performed on a continuous basis. Through PSINet, we employ numerous levels of
firewall systems to protect our databases, customer information and content
library. Backups of all databases, data and content files are performed on a
daily basis. Data back-up tapes are archived at a remote location on a weekly
basis.
COMPETITION
The market for the provision of online training and continuing education to
the healthcare industry is new and rapidly evolving. We face competitive
pressures from numerous actual and potential competitors, including:
- other online training and continuing education providers;
- Web sites targeting medical professionals that currently offer or may
develop their own continuing education content in the future;
- traditional medical publishers and continuing education providers;
- academic medical centers;
- software developers that bundle their training systems with industry
training content;
- professional membership organizations;
- companies that market general-purpose computer-managed instruction
systems into the healthcare industry; and
- interactive media development companies focused on the healthcare
industry.
Many of these companies have greater financial, technical, product
development, marketing and other resources than we have. These companies may be
better known and have longer operating histories than we have. We believe that
our ability to compete depends on many factors both within and beyond our
control, including the following:
- the timing and market acceptance of new solutions and enhancements to
existing solutions developed by us or our competitors;
- customer service and support efforts;
- sales and marketing efforts; and
- the ease of use, performance, price and reliability of solutions
developed either by us or our competitors.
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GOVERNMENT REGULATION OF THE INTERNET AND THE HEALTHCARE INDUSTRY
The Internet
The laws and regulations that govern our business change rapidly. The
United States government and the governments of some states and foreign
countries have attempted to regulate activities on the Internet. The following
are some of the evolving areas of law that are relevant to our business:
- Privacy Law. Current and proposed federal, state and foreign privacy
regulations and other laws restricting the collection, use and disclosure
of personal information could limit our ability to use the information in
our databases to generate revenues.
- Encryption Laws. Many copyright owner associations have lobbied the
federal government for laws requiring copyrighted materials transmitted
over the Internet to be digitally encrypted in order to track rights and
prevent unauthorized use of copyrighted materials. If these laws are
adopted, we may need to incur substantial costs to comply with these
requirements or change the way we do business.
- Content Regulation. Both foreign and domestic governments have adopted
and proposed laws governing the content of material transmitted over the
Internet. These include laws relating to obscenity, indecency, libel and
defamation. We could be liable if content delivered by us violates these
regulations.
- Sales and Use Tax. Through December 31, 1999, we did not collect sales,
use or other taxes on the sale of continuing education courses on our Web
sites other than on sales in Tennessee and Massachusetts. However, states
or foreign jurisdictions may seek to impose tax collection obligations on
companies like us that engage in online commerce. If they do, these
obligations could limit the growth of electronic commerce in general and
limit our ability to profit from the sale of our services over the
Internet.
The enactment of any additional laws or regulations may impede the growth
of the Internet, which could decrease our potential revenues or otherwise harm
our business, financial condition and operating results.
Laws and regulations directly applicable to e-commerce and Internet
communications are becoming more prevalent. The most recent session of Congress
enacted Internet laws regarding online copyright infringement. Although not yet
enacted, Congress is considering laws regarding Internet taxation. These are
recent enactments, and there is uncertainty regarding their marketplace impact.
Any new legislation or regulation regarding the Internet, or the
application of existing laws and regulations to the Internet, could negatively
affect us. If we were alleged to violate federal, state or foreign, civil or
criminal law, even if we could successfully defend such claims, it could
negatively affect us.
Regulation of Continuing Education for Healthcare Professionals
Allied Disciplines. Various allied health professionals are required to
obtain continuing education to maintain their licenses. For example, emergency
medical services personnel must acquire up to 20 continuing education hours per
year. These requirements vary by state and depend on the classification of the
employee.
Occupational Safety and Health Administration. OSHA regulations require
employers to provide training to employees to minimize the risk of injury from
various potential workplace hazards. Employers in the healthcare industry are
required to provide such training with respect to various topics including
bloodborne pathogens exposure control, laboratory safety and tuberculosis
infection control. OSHA regulations require employers to keep records of their
employees' completion of training with respect to these workplace hazards.
Joint Commission on Accreditation of Healthcare Organizations. The JCAHO
imposes continuing education requirements on physicians that relate to each
physician's specific staff appointments. In
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addition, the JCAHO mandates that employers in the healthcare industry provide
certain workplace safety and patient interaction training to employees. JCAHO
required training may include programs on infection control, patient bill of
rights, radiation safety and incident reporting. Healthcare organizations are
required to provide and document training on these topics to receive JCAHO
accreditation.
CEU. The states' nurse practice laws are usually the source of authority
for establishing the state board of nursing, which then establishes the state's
CEU requirements for professional nurses. The continuing education units
programs are accredited by the American Nurses Credentialing Center Commission
on Accreditation and/or the state board of nursing. CEU requirements vary widely
from state to state. Twenty nine states require some form of CEU in order to
renew a nurse's license. In some states, the CEU requirement only applies to
re-licensure of advance practice nurses or additional CEU's required of this
category of nurses. On average, twelve to fifteen CEU's are required annually,
with reporting generally on a bi-annual basis.
CME. State licensing boards, professional organizations and employers
require physicians to certify that they have accumulated a minimum number of
continuing medical education hours to maintain their licenses. Generally, each
state's medical practice laws authorize the state's board of medicine to
establish and track CME requirements. Thirty four state medical licensing boards
currently have CME requirements. The number of CME hours required by each state
ranges up to fifty hours per year. Other sources of CME requirements are state
medical societies and practice speciality boards. The failure to obtain the
requisite amount and type of CME will result in non-renewal of the physician's
license to practice medicine and/or membership in a medical or practice
specialty society.
The American Medical Association's, or AMA's, Physician Recognition Award,
or PRA, is the most widely recognized certificate for recognizing physician
completion of a CME course. The AMA classifies continuing education activities
as either category 1, which includes formal CME programs, or category 2, which
includes most informal activities. Sponsors want to designate CME activities for
AMA PRA category 1 because this has become the benchmark for quality in formally
organized educational programs. Almost all agencies nationwide that require CME
participation specify AMA PRA category 1 credit. Only institutions and
organizations accredited to provide CME can designate an activity for AMA PRA
category 1 credit or AMA PRA category 2 credit.
The ACCME is responsible for the accreditation of medical schools, state
medical societies, and other institutions and organizations that provide CME
activities for a national or regional audience of physicians. Only institutions
and organizations are accredited. The ACCME and state medical societies do not
accredit or approve individual activities. State medical societies, operating
under the aegis of ACCME, accredit institutions and organizations that provide
CME activities primarily for physicians within the state or bordering states.
The U.S. Food and Drug Administration and the Federal Trade Commission
Current FDA and FTC rules and enforcement actions and regulatory policies
or those that the FDA or the FTC may develop in the future could have a material
adverse effect on our ability to provide existing or future applications or
services to our end users or obtain the necessary corporate sponsorship to do
so. The FDA and the FTC regulate the form, content and dissemination of
labeling, advertising and promotional materials, including direct-to-consumer
prescription drug and medical device advertising, prepared by, or for,
pharmaceutical, biotechnology or medical device companies. The FTC regulates
over-the-counter drug advertising and, in some cases, medical device
advertising. Generally, regulated companies must limit their advertising and
promotional materials to discussions of the FDA-approved claims and, in limited
circumstances, to a limited number of claims not approved by the FDA. Therefore,
any information that promotes the use of pharmaceutical or medical device
products that is presented with our service is subject to the full array of the
FDA and FTC requirements and enforcement actions. We believe that banner
advertisements, sponsorship links, and any educational programs that lack
independent editorial control that we may present with our service could be
subject to FDA or FTC regulation. While the FDA and the FTC place the principal
burden of compliance with advertising and promotional
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regulations on the advertiser, if the FDA or FTC finds that any regulated
information presented with our service violates FDA or FTC regulations, they may
take regulatory action against us or the advertiser or sponsor of that
information.
In 1996, the FDA announced it would develop a guidance document expressing
a broad set of policies dealing with the promotion of pharmaceutical,
biotechnology, and medical device products on the Internet. Although the FDA has
yet to issue that guidance document, agency officials continue to predict its
eventual release. The FDA guidance document may reflect new regulatory policies
that more tightly regulate the format and content of promotional information on
the Internet.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
We obtain the majority of our content under license agreements with
publishers or authors, through assignments or work for hire arrangements with
third parties and from internal staff development. Generally, our license
agreements are for a period of one to three years and we consider the materials
obtained through these agreements to be important to the continued enhancement
of the content in our library. We may be liable to third parties for the content
in our library and distributed through our distribution partners if the text,
graphics, software or other content in our library violates their copyright,
trademark or other intellectual property rights or if our content partners
violate their contractual obligations to others by providing content in our
library.
We may also be liable for anything that is accessible from our Web site
through links to other Web sites. We attempt to minimize these types of
liability by requiring representations and warranties relating to our content
partners' ownership of and rights to distribute and submit their content and by
taking related measures to review content in our library. For example, we
require our content partners to represent and warrant that their content does
not infringe on any third-party copyrights and that they have the right to
provide their content and have obtained all third-party consents necessary to do
so. Some of our content partners also agree to indemnify us against liability we
might sustain due to the content they provide.
Proprietary rights are important to our success and our competitive
position. To protect our proprietary rights, we rely generally on copyright,
trademark and trade secret laws, confidentiality agreements with employees and
third parties and license agreements with consultants, vendors and customers. We
own the federal trademark registrations for the marks "HEALTHSTREAM," "TRAINING
NAVIGATOR" and "T.NAV." Despite such protections, a third party could, without
authorization, copy or otherwise appropriate our content or other information
from our database. Our agreements with employees, consultants and others who
participate in development activities could be breached. We may not have
adequate remedies for any breach, and our trade secrets may otherwise become
known or independently developed by competitors. In addition, the laws of some
foreign countries do not protect our proprietary rights to the same extent as
the laws of the United States, and effective copyright, trademark and trade
secret protection may not be available in those jurisdictions.
We currently hold several domain names. The legal status of intellectual
property on the Internet is currently subject to various uncertainties. The
current system for registering, allocating and managing domain names has been
the subject of litigation and proposed regulatory reform. Additionally,
legislative proposals have been made by the federal government that would afford
broad protection to owners of databases of information, such as stock quotes.
This protection of databases already exists in the European Union.
There have been substantial amounts of litigation in the computer and
online industries regarding intellectual property assets. Third parties may
claim infringement by us with respect to current and future products, trademarks
or other proprietary rights, and we may counterclaim against such parties in
such actions. Any such claims or counterclaims could be time-consuming, result
in costly litigation, divert management's attention, cause product release
delays, require us to redesign our products or require us to enter into royalty
or licensing agreements, any of which could have a material adverse effect upon
our
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<PAGE> 49
business, financial condition and operating results. Such royalty and licensing
agreements, if required, may not be available on terms acceptable to us, if at
all.
EMPLOYEES
As of March 1, 2000, we employed approximately 170 persons. We are not
subject to any collective bargaining agreements, and we believe that our
relationship with our employees is satisfactory.
FACILITIES
Our principal executive offices are located in Nashville, Tennessee. Our
lease for approximately 13,400 square feet at this location expires in 2005. The
lease provides for two five-year renewal options. Rent at this location is
$12,296 per month until April 30, 2000; $11,569 per month from May 1, 2000 to
February 28, 2001; $11,737 per month from March 1, 2001 to February 28, 2004;
and $10,340 per month from March 1, 2004 to April 30, 2005. We are currently
negotiating terms for additional contiguous space at our Nashville headquarters
that will increase our total square footage to approximately 20,000.
As a result of our acquisition of SilverPlatter Education, we are leasing
approximately 2,600 square feet of office space in Boston, Massachusetts until
December 31, 2000. Rent for this space is $6,067 per month. Storage space is
leased on a month-to-month basis at the rate of $687 per month. As a result of
our acquisition of KnowledgeReview, we are leasing approximately 2,000 square
feet of office space in Cherry Hill, New Jersey until March 31, 2000, or at our
option, until March 31, 2001. Rent for this space is $5,000 per month. As a
result of our acquisition of EMInet, we are leasing approximately 2,180 square
feet of office space in Houston, Texas until September 30, 2000, or at our
option, until September 30, 2002. Rent for this space is $2,180 per month. As a
result of our acquisition of m3 the Healthcare Learning Company, we are leasing
three suites of office space in Austin, Texas and approximately 2,300 square
feet of office space in Dallas, Texas. The Austin lease expires on September 1,
2000 and has a monthly rent of $1,386. The Dallas lease expires on September 1,
2002 and has a monthly rent of $2,324.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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<PAGE> 50
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table presents information about our executive officers and
directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Robert A. Frist, Jr....................... 32 Chief Executive Officer and Chairman of the Board of
Directors
Jeffrey L. McLaren........................ 33 President, Chief Product Officer and Director
Arthur E. Newman.......................... 51 Chief Financial Officer and Senior Vice President
Michael Pote.............................. 38 Senior Vice President
Scott Portis.............................. 33 Vice President of Technology
Stephen Clemens........................... 35 Vice President of Online Content
Robert H. Laird, Jr....................... 32 Vice President, General Counsel and Secretary
Susan A. Brownie.......................... 35 Vice President of Finance and Corporate Controller
Charles N. Martin, Jr..................... 58 Director
Thompson S. Dent.......................... 48 Director
M. Fazle Husain........................... 35 Director
John H. Dayani, Sr., Ph.D................. 53 Director
James F. Daniell, M.D..................... 57 Director
William W. Stead, M.D..................... 51 Director
</TABLE>
Robert A. Frist, Jr., one of our co-founders, has served as our chief
executive officer and chairman of the board of directors since 1990. Mr. Frist
serves on the board of directors of Passport Health Communications, an online
health insurance verification provider and Harkey & Associates, a healthcare
publisher. He graduated with a Bachelor of Science in business with
concentrations in finance, economics and marketing from Trinity University. Mr.
Frist is the brother-in-law of Scott Portis, our vice president of technology.
Jeffrey L. McLaren, one of our co-founders, has served as our president and
as one of our directors since 1990 and as our chief product officer since 1999.
Mr. McLaren is a founding director of the Nashville Technology Council. He
graduated from Trinity University with a Bachelor of Arts in both business and
philosophy.
Arthur E. Newman has served as our chief financial officer and senior vice
president since January 2000. From April 1990 to August 1999, Mr. Newman served
as executive vice president overseeing finance, human resources, information
systems and customer service and fulfillment for Lippincott, Williams and
Wilkins, formerly Waverly, Inc., a publicly traded medical sciences publisher.
In May 1998, Waverly was acquired by Wolters Kluwer and merged with Wolters
Kluwer's existing U.S. based medical publisher, Lippincott-Raven Publishers.
From August 1999 to January 2000, Mr. Newman served as the chief technology
officer for Wolters Kluwer's scientific, technical and medical companies
consisting of five separate units. Mr. Newman holds a Bachelor of Science in
chemistry from the University of Miami and a Masters of Business Administration
from Rutgers University.
Michael Pote has served as our senior vice president since August 1997.
From January 1996 to August 1997, Mr. Pote served as vice president of Columbia
Health Care Network, a managed care contractor. From August 1994 to June 1996,
Mr. Pote served as vice president and administrator for Centennial Medical
Center. Mr. Pote received a Bachelor of Science and a Masters of Science from
Syracuse University.
Scott Portis has served as our vice president of technology since 1994. Mr.
Portis worked for Electronic Data Systems, a provider of systems integration
services, as an engineering systems engineer in
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<PAGE> 51
the expert systems and artificial intelligence divisions, from 1990 to 1994. He
has a Bachelor of Science in computer engineering from Auburn University. Mr.
Portis is the brother-in-law of Robert A. Frist, Jr., our chief executive
officer and chairman of the board of directors.
Stephen Clemens has served as our vice president of interactive development
since October 1997. From July 1994 to May 1997, Mr. Clemens served as president
of Copernican Systems, Inc., a software and consulting firm. He holds a Bachelor
of Science in finance from the University of Tennessee and a Masters of Business
Administration from the Owen School of Management at Vanderbilt University.
Robert H. Laird, Jr. has served as our vice president and general counsel
since March 1997 and secretary since October 1999. Mr. Laird also served as our
director of finance from March 1997 until November 1999. He holds a Bachelor of
Arts in English from Tulane University, a J.D. from the University of Tennessee
College of Law and a Masters of Business Administration from the University of
Tennessee. Prior to attending graduate school from 1993 to 1996, Mr. Laird was
employed by CIGNA employee benefits, an insurance organization, in contracts
administration from 1991 to 1993.
Susan A. Brownie has served as our vice president of finance and corporate
controller since November 1999. From August 1986 until 1999, she worked for KPMG
LLP, a public accounting and consulting firm, most recently as a senior manager.
She holds a Bachelor of Business Administration from the College of William and
Mary.
Charles N. Martin, Jr. has served as one of our directors since April 1999.
Mr. Martin currently serves as chairman of the board of directors, president and
chief executive officer of Vanguard Health Systems, a healthcare company. From
January 1992 to January 1997, Mr. Martin served as chairman of the board of
directors, president and chief executive officer of OrNda HealthCorp, an
investor-owned hospital company, except during the period from April 1994 to
August 1995 when Mr. Martin served as chairman and chief executive officer. He
holds a Bachelor of Science degree from Southern University in Collegedale,
Tennessee.
Thompson S. Dent has served as one of our directors since March 1995. Mr.
Dent is a founder of PhyCor, Inc. He currently serves as its president and
served as its chief operating officer from October 1997 to October 1998. Mr.
Dent served as executive vice president, corporate services, from the inception
of PhyCor until October 1997 and served as secretary of PhyCor from 1991 to
October 1998. Mr. Dent is a director of PhyCor and Healthcare Realty Trust
Incorporated, a real estate investment trust. He holds a Masters in Healthcare
Administration from George Washington University.
M. Fazle Husain has served as one of our directors since April 1999 as the
designee of Morgan Stanley Venture Partners III, L.P., under a purchase
agreement for our preferred stock dated April 21, 1999. Mr. Husain is a general
partner of Morgan Stanley Dean Witter Venture Partners. Mr. Husain joined Morgan
Stanley Dean Witter in 1987 in its corporate finance department, and joined
Venture Partners in 1988. He received a ScB. degree in chemical engineering from
Brown University in 1987 and a Masters of Business Administration from Harvard
in 1991. Mr. Husain serves as a director of IntegraMed America, a physician
practice management company, AllScripts, Inc., a provider of point-of-care
physician solutions, and Cardiac Pathways Corp., a manufacturer of minimally
invasive cardiac systems.
John H. Dayani, Sr., Ph.D. has served as one of our directors since August
1998. Dr. Dayani served as president and chief executive officer of Network
Health Services, Inc. from its inception in May 1996 until he became its
executive chairman in 1999. Dr. Dayani was the founder, president and chief
executive officer of Medifax, Inc. from 1993 to 1995 and served as its
consultant from 1995 to June 1998. He also founded American Nursing Resources,
Inc., American Nursing Resources Home Health Agency, Inc., American Nursing
Resources Home Infusion, Inc., Nurse America and Quality Managed Care. Dr.
Dayani earned a Bachelor of Science and Ph.D. in engineering from Vanderbilt
University.
James F. Daniell, M.D. has served as one of our directors since March 1995.
Dr. Daniell has maintained a private medical practice at Centennial Medical
Center in Nashville since 1984. A founding member of the Society for
Reproductive Surgeons, he served as past president of the International Society
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<PAGE> 52
of Gynecologic Endoscopy and the Nashville OB/GYN Society. He holds a Bachelor
of Science from David Lipscomb University and an M.D. from the University of
Tennessee.
William W. Stead, M.D. has served as one of our directors since May 1998.
Dr. Stead has served as the associate vice chancellor of Vanderbilt University
Medical Center since 1991. Dr. Stead is also the chief technology officer of
WebEBM, a healthcare information company. He is the editor-in-chief of the
Journal of American Medical Informatics Association and a founding fellow of the
American College of Medical Informatics and the American Institute for
Engineering in Biology and Medicine. A past president of the American
Association for Medical Systems and Informatics, he is the president elect of
the American College of Medical Informatics. Dr. Stead earned a Bachelor of Arts
in chemistry and an M.D. from Duke University.
ADVISORY BOARDS
We have a Medical Advisory Board chaired by Dr. Daniell, one of our
directors. This board consists of nine physicians across several medical
specialties who assist us in assessing content and content partners as well as
advise us on recent developments in the healthcare market and accreditation
issues for CME.
We have a Nursing Advisory Board chaired by Colleen Conway Welch, the dean
of nursing at Vanderbilt University. This board consists of 10 individuals who
advise us on nursing issues as they relate to continuing education and
accreditation issues.
During 1999, our Medical Advisory Board and Nursing Advisory Board members
received options to purchase 51,800 shares of our common stock at exercise
prices ranging from $2.34 to $6.49 per share. We recorded expense of
approximately $12,000 in connection with these grants.
LEGAL PROCEEDINGS
Mr. Dent, serving in his capacity as an officer and a director of PhyCor,
has been named as a defendant, along with PhyCor and some of its other current
and former officers and directors, in securities fraud class action lawsuits
filed in state and federal courts. These lawsuits allege that the defendants
issued false and misleading statements which materially misrepresented the
earnings and financial condition of PhyCor and failed to disclose other matters
in order to conceal the alleged failure of PhyCor's business model. The lawsuits
further assert that the alleged misrepresentations caused PhyCor's securities to
trade at inflated levels while the individual defendants sold shares.
Mr. Dent, serving in his capacity as an officer and director of PhyCor, has
also been named as a defendant, along with PhyCor and some of its other current
and former officers and directors, in an action brought by Prem Reddy, M.D., the
former majority shareholder of Prime Care International, Inc., a medical network
management company acquired by PhyCor in May 1998. The complaint asserts
fraudulent inducement relating to the Prime Care transaction and that the
defendants issued false and misleading statements which materially
misrepresented the earnings and financial condition of PhyCor and failed to
disclose other matters in order to conceal the alleged failure of PhyCor's
business model.
Mr. Dent and PhyCor believe that they have meritorious defenses to all of
these claims and intend to defend vigorously against these actions.
CLASSES OF DIRECTORS
Under the terms of our charter, the board of directors will be divided into
three classes: Class I, Class II and Class III. Directors of each class hold
office for staggered three-year terms. At each annual meeting of shareholders,
the shareholders will either re-elect the directors or elect the successors to
the directors whose terms expire at the meeting to serve from the time of their
election and qualification until the third annual meeting of shareholders
following their election or until a successor has been duly elected and
qualified. Messrs. Daniell, Dent and Stead will be Class I directors whose terms
will expire at the annual meeting of shareholders in 2001. Messrs. Dayani and
McLaren will be Class II directors whose
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<PAGE> 53
terms will expire at the annual meeting of shareholders in 2002. Messrs. Frist,
Husain and Martin will be Class III directors whose terms will expire at the
annual meeting of shareholders in 2003.
BOARD COMMITTEES
The board of directors has an audit committee and a compensation committee.
The audit committee will review accounting practices and procedures and the
scope of the audit and will recommend the appointment of the independent
auditors. The members of the audit committee are Messrs. Daniell, Dayani and
Husain. The compensation committee evaluates and approves the compensation
policies for the executive officers and will administer our employee benefit
plans. The members of the compensation committee are Messrs. Dayani, Dent and
Martin.
DIRECTOR COMPENSATION
We do not currently pay cash fees to directors for attendance at meetings.
We do reimburse our directors for out-of-pocket expenses related to attending
meetings of the board of directors. Non-employee directors are eligible to
receive stock option grants under our 1994 Stock Option Plan and our 2000 Stock
Incentive Plan. During 1998, our non-employee directors each received a grant of
options to purchase 3,700 shares of our common stock at an exercise price of
$2.30 per share. During 1999, each of our non-employee directors received a
grant of options to purchase 14,800 shares of our common stock at an exercise
price of $4.06 per share. Under our 2000 Stock Incentive Plan, upon
effectiveness of the registration statement relating to this offering, each of
our non-employee directors will be granted options to purchase 10,000 shares of
our common stock at the initial public offering price. These options vest
immediately upon grant. Additionally, upon the election of any new member of the
board of directors following the effectiveness of the registration statement
relating to this offering, but prior to the date of the first annual meeting of
the shareholders, that member will be granted an option to purchase 15,000
shares of common stock at the fair market value at the date of grant. These
options will vest in five equal annual installments beginning on the first
anniversary of the date of grant. Each year, immediately following the date of
our annual meeting, assuming enough shares are available under the 2000 plan,
each non-employee director will automatically be granted options to purchase
5,000 shares of our common stock. The exercise price will be equal to the fair
market value on the date of grant, and these options will vest immediately upon
grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Before April 1999, we did not have a compensation committee, and
compensation decisions were made by the full board of directors. Since that
time, the compensation committee has made all compensation decisions. No
interlocking relationship exists between the board of directors or compensation
committee and the board of directors or compensation committee of any other
company, nor has any interlocking relationship existed in the past.
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<PAGE> 54
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning the
compensation we paid for services rendered to us during 1997, 1998 and 1999, by
our chief executive officer and the only executive officer whose aggregate cash
compensation exceeded $100,000 during the year ended December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS COMPENSATION($) OPTIONS(#)
- --------------------------- ----------- -------- ------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Robert A. Frist, Jr................... 1999 $ 79,167 $ 9,665 -- 83,250
Chief Executive Officer 1998 66,027 2,296 -- 47,915
1997 62,113 6,690 -- --
Michael Pote.......................... 1999 $107,561 $14,692 -- 83,250
Senior Vice President 1998 98,058 7,296 -- 47,915
1997 34,042 5,728 -- --
</TABLE>
STOCK OPTIONS GRANTED DURING FISCAL YEAR 1999
The following table presents all individual grants of stock options during
the year ended December 31, 1999 to each of the executive officers named in the
Summary Compensation Table above. These options were granted with an exercise
price equal to the fair market value of our common stock on the date of grant as
determined by our board of directors. The 5% and 10% assumed annual rates of
compound stock price appreciation are prescribed by the rules and regulations of
the Securities and Exchange Commission and do not represent our estimate or
projection of the future trading prices of our common stock. We cannot assure
you that the actual stock price appreciation over the ten-year option term will
be at the assumed 5% and 10% levels or at any other defined level. Actual gains,
if any, on stock option exercises are dependent on numerous factors, including
our future performance, overall market conditions and the option holder's
continued employment with us throughout the entire vesting period and option
term, none of which are reflected in this table. The potential realizable value
is calculated by multiplying the fair market value per share of the common stock
on the date of grant as determined by the board of directors, which is equal to
the exercise price per share, by the stated annual appreciation rate compounded
annually for the option term, subtracting the exercise price per share from the
product, and multiplying the remainder by the number of shares underlying the
option granted.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF AT ASSUMED ANNUAL RATES
SECURITIES TOTAL OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERMS
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ----------------------------
NAME GRANTED(#) FISCAL YEAR(%) SHARE($) DATE 5%($) 10%($)
- ---- ----------- -------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Frist,
Jr................. 83,250 6.0 4.06 9/2/07 138,077 161,571
Michael Pote......... 83,250 6.0 4.06 9/2/07 138,077 161,571
</TABLE>
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<PAGE> 55
YEAR-END OPTION VALUES
The following table sets forth information about the number and year-end
value of exercisable and unexercisable options held by our executive officers
named in the Summary Compensation Table for the year ended December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1999(#) AT DECEMBER 31, 1999(1)
--------------------------- ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE($) UNEXERCISABLE($)
---- ----------- ------------- -------------- ----------------
<S> <C> <C> <C> <C>
Robert A. Frist, Jr........................ 314,500 131,165 3,595,250 1,125,505
Michael Pote............................... 27,657 107,208 274,603 893,053
</TABLE>
- ---------------
(1) Based on an assumed initial public offering price of $12.00 per share (the
midpoint of the range set forth on the cover of this prospectus), minus the
exercise price, multiplied by the number of shares underlying the option.
416,250 options were exercised during 1999 by our chief executive officer,
and 3,170 options were exercised during 1999 by our president.
STOCK PLANS
1994 Stock Option Plan. We adopted the 1994 Stock Option Plan in April
1994. The purpose of the plan is to attract, retain and reward our directors,
officers, key employees and consultants by offering performance-based equity
interests in our company. The plan provides for grants of incentive stock
options, within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, and non-qualified stock options. Our board of directors and
shareholders authorized a total of 4,000,000 shares of common stock for issuance
under this plan. Upon completion of this offering, no further awards of stock
options will be granted under the 1994 plan.
As of December 31, 1999, we had options under this plan for the purchase of
2,470,229 shares of common stock outstanding to employees, consultants,
directors and other persons having a business relationship with us. In January
2000, options to purchase 432,245 shares of common stock at prices ranging from
$6.49 to $8.65 per share were granted. In February 2000, we granted options to
purchase 350,575 shares of our common stock at an exercise price of $10.00 per
share. In March 2000, we granted options to purchase 234,830 shares of our
common stock at an exercise price of $11.89 per share.
2000 Stock Incentive Plan. The 2000 Stock Incentive Plan was adopted by
our board of directors in February 2000, and approved by our shareholders in
March 2000. The purpose of the plan is to attract, retain and reward key
employees, consultants and non-employee directors. This plan allows flexibility
in the award of stock-based incentive compensation to these people. The plan
provides for grants of incentive stock options, non-qualified stock options,
stock appreciation rights, restricted stock and other stock-based awards.
The plan authorizes the issuance of up to 5,000,000 shares of common stock.
However, no individual may receive options to purchase more than 200,000 shares
of common stock in any fiscal year. Whenever a share of common stock underlying
a stock option is no longer subject to that option, that share of common stock
shall again be available for distribution under the plan.
This plan will be administered by the compensation committee of the board
of directors. The compensation committee will have the authority to:
- select the individuals who may receive the grant for the options;
- determine the number of shares to be covered by each option or other
awards to be granted; and
- determine the terms and conditions of the option, including the exercise
price, vesting schedule and any restrictions or limitations on the
options.
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<PAGE> 56
Grants under the plan may consist of options intended to qualify as
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, non-qualified stock options that are not
intended to so qualify, stock appreciation rights, restricted stock or other
stock-based awards. Grants can be made to any key employee, consultant and
non-employee director. Incentive stock options may only be granted to our
employees.
The option price for each share of common stock underlying an incentive
stock option shall be at least 100% of the fair market value of the stock at the
date of grant. The option price for non-qualified stock options shall be at
least 50% of the fair market value of the underlying stock at the date of grant.
No incentive stock option shall be exercisable after 10 years from the date of
grant. Options are not transferrable except to members of the optionee's
immediate family or by will or the laws of descent and distribution.
If an optionee's employment terminates because of death, any option held by
the optionee may be exercised to the extent the option was exercisable at the
time of death. This exercise must occur within one year from the date of death
or until the term of the option expires, whichever is shorter. If an optionee's
employment is terminated because of disability, any option held by the optionee
may be exercised to the extent the option was exercisable at the time of the
disability, unless accelerated by the committee. This exercise must occur within
three years from the date of the disability or until the term of the option
expires for non-qualified options and one year from the date of disability or
until the term of the option expires for incentive stock options, whichever is
shorter. If an optionee's employment terminates because of retirement, any
option held by the optionee may be exercised to the extent the option was
exercisable at the time of the retirement, unless accelerated by the committee.
This exercise must occur within three years from the date of the retirement or
until the term of the option expires for non-qualified options and three months
from the date of the retirement or until the term of the option expires for
incentive stock options, whichever is shorter. If an optionee voluntarily
terminates employment, the option shall thereupon terminate; however, the board
of directors may extend the exercise period for three months or until the term
of the option expires, whichever is shorter.
Stock appreciation rights can be granted in connection with all or part of
any stock option granted. They will terminate and no longer be exercisable when
the related stock option terminates. They are only exercisable at the time and
to the extent that the stock options to which they relate are exercisable.
Shares of restricted stock can be issued alone, in addition to or with other
awards granted under the plan. The committee can place limitations on the sale
or transfer of the restricted stock. Other stock-based awards can be granted by
the committee in its discretion. For a description of awards to non-employee
directors, please see "Management -- Director Compensation."
The compensation committee can adjust the number of shares reserved for
issuance under the plan if there is a merger, reorganization, consolidation,
recapitalization, extraordinary cash dividend, stock dividend, stock split or
other change in corporate structure. If there is a change in control, any
awarded option shall become fully exercisable and vested. This change of control
can occur if any person or entity acquires more than 50% of the voting power of
our capital stock or if our existing shareholders hold less than fifty percent
of our outstanding securities after a cash tender or exchange offer, merger or
other business combination, sale of assets or contested election of directors.
Employee Stock Purchase Plan. Our Employee Stock Purchase Plan was adopted
by our board of directors in February 2000, and approved by our shareholders in
March 2000. A total of 1,000,000 shares of common stock has been reserved for
issuance under the purchase plan. As of the date of this prospectus, no shares
have been issued under the purchase plan.
The purchase plan, which is intended to qualify under Section 423 of the
Internal Revenue Code, contains consecutive offer periods that are generally
twelve months in duration. The offer periods start and end on April 1st and
March 31st of each year, except for the first offer period, which will commence
on the date immediately preceding the first date on which a share of common
stock is quoted on the Nasdaq National Market or a successor quotation system
and will end on March 31, 2001.
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Employees are eligible to participate if they are customarily employed by
us or any participating subsidiary for at least 20 hours per week. However, no
employees may be granted a right to purchase shares of our common stock under
the purchase plan (1) to the extent that, immediately after the grant of the
right to purchase shares of our common stock, the employee would own, or be
treated as owning, stock possessing 5% or more of the total combined voting
power or value of all classes of our capital stock or (2) to the extent that his
or her rights to purchase shares of our common stock under all of our employee
stock purchase plans accrues at a rate which exceed $25,000 worth of shares of
our common stock for each calendar year. The purchase plan permits participants
to purchase common stock through payroll deductions of up to 15% of the
participant's base compensation. Base compensation is defined as the
participant's gross base compensation, excluding overtime payments, sales
commissions, incentive compensation, bonuses, expense reimbursements, fringe
benefits and other special payments. The maximum number of shares a participant
may purchase with respect to a single offer period is 2,500 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each offer period. The price of stock
purchased under the purchase plan is 85% of the lesser of the fair market value
of our common stock on (1) the first day of the offer period or (2) the last day
of the offer period. Participants may end their participation at any time other
than during the last 15 days of the offer period, and they will be paid their
payroll deductions to date. Participation ends automatically upon termination of
employment with us.
Rights to purchase stock granted under the purchase plan are not
transferable by a participant other than by will, the law of descent and
distribution, or as otherwise provided under the purchase plan. The purchase
plan provides that, in the event of a merger of us with or into another
corporation or a sale of substantially all of our assets, each outstanding right
to purchase shares of our common stock may be assumed or substituted for by the
successor corporation.
Our board of directors has the authority to amend or terminate the purchase
plan. However, no such action by our board may adversely affect any outstanding
rights to purchase stock under the purchase plan, except that our board may
terminate an offer period on any exercise date if the board of directors
determines that the termination of the purchase plan is in our best interests
and our shareholders' best interests.
EMPLOYMENT AGREEMENT WITH ROBERT A. FRIST, JR.
Under an employment agreement dated April 21, 1999, Robert A. Frist, Jr. is
employed as our chief executive officer for a two-year period at an initial base
salary of $85,000. He is also entitled to participate in our 1994 Stock Option
Plan and our 2000 Stock Incentive Plan. Under this employment agreement, Mr.
Frist has agreed not to compete with us and not to solicit our customers or
employees for one year after his employment is terminated, with limited
exceptions.
Mr. Frist is entitled to severance benefits if he is terminated by us
without cause. He is also entitled to severance benefits if he resigns for good
reason after a change in control, if he resigns upon the occurrence of a
material change in the terms of his employment or if he resigns upon the
occurrence of a material breach of the agreement. If termination occurs during
the initial two year term of the agreement, the severance benefit shall be the
sum of $290,000, less the cumulative amount of base salary actually paid to Mr.
Frist during the two year period through the effective date of termination, and
$145,000. If termination occurs during any extended one year term of the
agreement, the severance benefit shall be the sum of $145,000, less the
cumulative amount of base salary actually paid to Mr. Frist during the one year
period through the effective date of termination, and $145,000. In addition, if
Mr. Frist terminates his employment for good reason after the occurrence of a
change in control, all options, shares and other benefits will fully vest
immediately.
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<PAGE> 58
TRANSACTIONS WITH EXECUTIVE OFFICERS, DIRECTORS
AND MORE THAN FIVE PERCENT SHAREHOLDERS
In April 1999, we issued 428,239 shares of our common stock upon the
conversion of $1.0 million of debt at $2.34 per share to Robert A. Frist, Jr.,
our chief executive officer and chairman.
In July and August 1999, we issued an aggregate of 416,250 shares of our
common stock upon the exercise of options at $0.54 a share to Robert A. Frist,
Jr., our chief executive officer and chairman.
In December 1999, we issued 3,170 shares of our common stock upon the
exercise of options at $0.61 per share to Jeffrey L. McLaren, our president,
chief product officer and one of our directors. Also, in February 2000, we
issued 148,714 shares of our common stock upon the exercise of options at $0.61
per share to Mr. McLaren.
On November 16, 1998 and February 11, 1999, we issued shares of our series
A convertible preferred stock in private placements at $10.00 per share to the
following shareholders:
- 25,000 shares to Carol Frist, mother of Robert A. Frist, Jr., our chief
executive officer and chairman;
- 25,000 shares to Dr. Robert Frist, father of Robert A. Frist, Jr., our
chief executive officer and chairman; and
- 5,000 shares to James and Cassandra Daniell. James Daniell is one of our
directors.
In 1999, we issued shares of our series B convertible preferred stock in
private placement transactions at $10.00 per share to the following
shareholders:
- 20,000 shares to Scott and Carol Len Portis. Scott Portis is our vice
president of technology and brother-in-law of Robert Frist, Jr., our
chief executive officer and chairman, and Carol Len Portis is the sister
of Robert Frist, Jr., our chief executive officer and chairman;
- 150,000 shares to Martin Investment Partnership III, one of our more than
five percent shareholders. Charles N. Martin, Jr., its Managing Partner,
is one of our directors;
- 50,000 shares to Robert A. Frist, Jr., our chief executive officer and
chairman upon conversion of $500,000 worth of debt;
- 15,000 shares to John H. Dayani, Sr., Ph.D., one of our directors;
- 10,000 shares to The Seven Partnership. Thompson S. Dent, one of its
partners, is one of our directors;
- 20,000 shares to James Frist, brother of Robert A. Frist, Jr., our chief
executive officer and chairman;
- 100,000 shares to GE Capital Equity Investments, Inc., one of our more
than five percent shareholders;
- 5,000 shares to Dr. Scott Portis, father of Scott Portis, our vice
president of technology; and
- 175,477 shares to Morgan Stanley Venture Partners III, L.P., 16,848
shares to Morgan Stanley Venture Investors III, L.P. and 7,676 shares to
The Morgan Stanley Venture Partners Entrepreneur Fund, L.P., each of
which are affiliates of Morgan Stanley, one of our more than five percent
shareholders.
In 1999, we issued shares of our series B convertible preferred stock upon
the exercise of warrants at $10.00 per share to the following shareholders:
- 30,000 shares to Martin Investment Partnership III, one of our more than
five percent shareholders. Charles N. Martin, Jr., its Managing Partner,
is one of our directors;
- 5,000 shares to Carol Frist, mother of Robert A. Frist, Jr., our chief
executive officer and chairman;
- 5,000 shares to Frist Family Internet Partners, an entity managed by Dr.
Robert Frist, father of Robert A. Frist, Jr., our chief executive officer
and chairman;
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- 4,000 shares to Scott and Carol Len Portis. Scott Portis is our vice
president of technology and brother-in-law of Robert Frist, Jr., our
chief executive officer and chairman, and Carol Len Portis is the sister
of Robert Frist, Jr., our chief executive officer and chairman;
- 4,000 shares to James Frist, brother of Robert A. Frist, Jr., or chief
executive officer and chairman;
- 10,000 shares to Robert A. Frist, Jr., our chief executive officer and
chairman;
- 3,000 shares to John H. Dayani, Sr, Ph.D., one of our directors;
- 2,000 shares to The Seven Partnership. Thompson S. Dent, one of its
partners, is one of our directors;
- 1,000 shares to Dr. Scott Portis, father of Scott Portis, our vice
president of technology;
- 1,000 shares to James and Cassandra Daniell. James Daniell is one of our
directors; and
- 35,095 shares to Morgan Stanley Venture Partners III, L.P., 3,370 shares
to Morgan Stanley Venture Investors III, L.P. and 1,535 shares to The
Morgan Stanley Venture Partners Entrepreneur Fund, L.P., each of which
are affiliates of Morgan Stanley, one of our more than five percent
shareholders.
On August 18, 1999, we issued 300,000 shares of our series C convertible
preferred stock at $10.00 per share to HealthStream Partners, one of our more
than five percent shareholders.
On September 15, 1999, we issued the following number of shares of our
series C convertible preferred stock at $10.00 per share to the following
shareholders:
- 3,000 shares to Jeffrey L. and Carrie McLaren. Jeffrey L. McLaren is our
president, chief product officer and one of our directors;
- 4,520 shares to James Frist, brother of Robert A. Frist, Jr., our chief
executive officer and chairman;
- 4,519 shares to Scott and Carol Len Portis. Scott Portis is our vice
president of technology and brother-in-law of Robert Frist, Jr., our
chief executive officer and chairman, and Carol Len Portis is the sister
of Robert Frist, Jr., our chief executive officer and chairman;
- 33,891 shares to Martin Investment Partnership III, one of our more than
five percent shareholders. Charles N. Martin, Jr., its Managing Partner,
is one of our directors;
- 11,297 shares to Robert A. Frist, Jr., our chief executive officer and
chairman;
- 3,389 shares to John H. Dayani, Sr., Ph.D., one of our directors;
- 1,130 shares to Dr. Scott Portis, father of Scott Portis, our vice
president of technology;
- 39,647 shares to Morgan Stanley Venture Partners III, L.P., 3,807 shares
to Morgan Stanley Venture Investors III, L.P. and 1,734 shares to The
Morgan Stanley Venture Partners Entrepreneur Fund, L.P., each of which
are affiliates of Morgan Stanley, one of our more than five percent
shareholders;
- 7,000 shares to Dan McLaren, father of Jeffrey L. McLaren, our president,
chief product officer and one of our directors;
- 5,648 shares to Carol Frist, mother of Robert A. Frist, Jr., our chief
executive officer and chairman;
- 1,130 shares to James and Cassandra Daniell. James Daniell is one of our
directors;
- 2,500 shares to Robert Merriman, father-in-law of Robert A. Frist, Jr.,
our chief executive officer and chairman;
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- 5,648 shares to Frist Family Internet Partners, an entity managed by Dr.
Robert Frist, father of Robert A. Frist, Jr., our chief executive officer
and chairman; and
- 24,648 shares to Borneo Partners, of which Michael Pote, our senior vice
president, is administrator.
Each share of series A and series B preferred stock will be converted into
4.28238 shares of common stock upon consummation of this offering. Each share of
series C preferred stock will be converted into 2.46013 shares of common stock
upon consummation of this offering.
In 1998, 1999 and 2000, we granted the following number of options to
purchase shares of our common stock at $2.30, $2.34, $4.06, $6.49 and $10.00 per
share, respectively, to the following directors, executive officers and
shareholders who beneficially own five percent or more of our stock:
- 47,915, 0, 83,250, 0 and 0 to Robert A. Frist, Jr., our chief executive
officer and chairman;
- 47,915, 0, 83,250, 0 and 0 to Jeffrey L. McLaren, our president, chief
product officer and one of our directors;
- 0, 0, 0, 129,500 and 0 to Arthur E. Newman, our senior vice president and
chief financial officer;
- 47,915, 0, 83,250, 0 and 0 to Michael Pote, our senior vice president;
- 47,915, 0, 74,000, 0 and 0 to Scott M. Portis, our vice president of
technology and brother-in-law of Robert Frist, Jr., our chief executive
officer and chairman;
- 23,957, 11,978, 74,000, 0 and 0 to Robert H. Laird, Jr., our vice
president, general counsel and secretary;
- 23,957, 11,978, 74,000, 0 and 0 to Stephen Clemens, our vice president of
interactive development;
- 0, 0, 0, 26,825, and 46,250 to Susan A. Brownie, our vice president of
finance and corporate controller;
- 11,978, 0, 7,400, 0 and 0 to John Dayani, Jr., one of our employees and
son of one of our directors;
- 3,700, 0, 14,800, 0 and 0 to Thompson S. Dent, one of our directors;
- 3,700, 2,775, 14,800, 0 and 0 to James F. Daniell, M.D., one of our
directors;
- 3,700, 0, 14,800, 0 and 0 to John H. Dayani, Sr., Ph.D., one of our
directors;
- 3,700, 0, 14,800, 0 and 0 to William Stead, M.D., one of our directors;
- 0, 0, 14,800, 0 and 0 to M. Fazle Husain, one of our directors; and
- 0, 0, 14,800, 0 and 0 to Charles N. Martin, Jr., one of our directors.
On April 21, 1999 we executed a promissory note in the principal amount of
$1,543,000 payable to Robert A. Frist, Jr., our chief executive officer and
chairman of the board of directors. Interest is charged at the lesser of a
designated brokerage account rate or 10.5%. On August 23, 1999, the principal
amount of the note was reduced to $1,293,000 to reflect the conversion of
$250,000 of the debt into series B preferred stock. This note is payable in full
or can be converted into 129,300 shares of our series B preferred stock, at Mr.
Frist's option, upon consummation of this offering. This note replaces and
supersedes notes dated January 18, 1994, February 23, 1994, March 30, 1994, July
11, 1997, December 31, 1997 and April 21, 1999. We also have an unsecured
long-term promissory note payable to Mr. Frist. The balance of this note was
$12,892 at December 31, 1999. The note requires monthly installments of
principal and interest of $2,224 through May 23, 2000. The note accrues interest
at 12% per annum.
We had a partially secured $60,000 demand note payable to Scott M. Portis,
our vice president of technology at December 31, 1998. The note accrued interest
at 12% and was payable monthly. On August 23, 1999, the note was converted into
6,000 shares of our series B preferred stock. Interest expense
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on the loans to Robert A. Frist, Jr. and Scott M. Portis for the years ended
December 31, 1997, 1998 and 1999 totaled $182,708, $328,412 and $193,059,
respectively.
On June 14, 1999, we granted a warrant to purchase 245,032 shares of our
common stock to GE Medical Systems, an affiliate of one of our more than five
percent shareholders.
We believe that all of these transactions were made on terms as favorable
to us as we would have received from unaffiliated third parties. Any future
transactions between us and our officers, directors and principal shareholders
and their affiliates will be approved by a majority of the board of directors,
including a majority of the independent and non-interested directors.
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<PAGE> 62
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of March 7, 2000 and as adjusted to reflect the
sale of the shares of common stock offered in this offering and the concurrent
private sale to Healtheon/WebMD by: (1) each shareholder who owns beneficially
more than five percent of our common stock, (2) each of our executive officers
and directors and (3) all of our executive officers and directors as a group.
The address of all the beneficial owners, unless otherwise stated, is 209 10th
Avenue South, Suite 450, Nashville, Tennessee 37203.
The ownership percentage in the table below is based on 13,165,718 shares
outstanding on March 7, 2000, on an as if converted basis, and 18,999,052 shares
outstanding after this offering and the concurrent private sale to
Healtheon/WebMD. Shares of common stock subject to options that are currently
exercisable or that will become exercisable within 60 days after March 7, 2000
are deemed outstanding in computing the percentage ownership of the person
holding the options but not for purposes of computing percentage ownership of
any other person. Unless otherwise indicated below, the persons and entities
named in the table have sole voting and investment power with respect to all
shares beneficially owned.
The percentage of shares outstanding assumes the underwriters'
over-allotment option is not exercised.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
BENEFICIALLY OWNED AS SHARES
NUMBER OF A RESULT OF OPTIONS OUTSTANDING
SHARES EXERCISABLE WITHIN 60 -------------------
BENEFICIALLY DAYS OF THE DATE OF BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED THIS PROSPECTUS OFFERING OFFERING
- ------------------------ ------------ --------------------- -------- --------
<S> <C> <C> <C> <C>
Robert A. Frist, Jr............................ 5,075,349(1) 314,500 38.6% 26.7%
Entities Associated with Morgan Stanley........ 1,138,943(2) -- 8.7 6.0
1221 Avenue of the Americas
New York, New York 10020
Martin Investment Partnership III(3)........... 854,204 -- 6.5 4.5
20 Burton Hills Boulevard
Suite 100
Nashville, Tennessee 37215
HealthStream Partners(4)....................... 738,039 -- 5.6 3.9
900-A, 3319 West End Avenue
Nashville, Tennessee 37203
GE Capital Equity Investments, Inc............. 673,270(5) 245,032 5.1 3.5
120 Long Ridge Rd.
Stamford, CT 06927
Jeffrey L. McLaren............................. 367,776(6) -- 2.8 1.9
Arthur E. Newman............................... -- -- -- --
Michael Pote................................... 88,294(7) 27,657 * *
Scott Portis................................... 489,321(8) 105,242 3.7 2.6
Stephen Clemens................................ 11,978 11,978 * *
Robert H. Laird, Jr............................ 23,957 23,957 * *
Susan A. Brownie............................... -- -- -- --
Charles N. Martin, Jr.......................... 869,004(9) 14,800 6.6 4.6
Thompson S. Dent............................... 73,589(10) 22,200 * *
M. Fazle Husain................................ 1,153,743(11) 14,800 8.8 6.1
John H. Dayani, Sr., Ph.D...................... 103,920 18,500 * *
James F. Daniell, M.D.......................... 53,448 24,975 * *
William Stead, M.D............................. 18,500 18,500 * *
All executive officers and directors as a group
(14 persons)................................. 8,328,879 597,109 63.3 43.9
</TABLE>
- ---------------
* Less than one percent
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(1) 142,366 of these shares are held by Carol Frist, mother of Robert A. Frist,
Jr., 107,059 of these shares are held by Dr. Robert Frist, father of Robert
A. Frist, Jr. and 35,307 of these shares are held by a family partnership
known as Frist Family Internet Partners.
(2) 999,286 of these shares are held by Morgan Stanley Venture Partners III,
L.P., 95,946 are held by MS Venture Investors III, L.P. and 43,709 of these
shares are held by The Morgan Stanley Venture Partners Entrepreneur Fund,
L.P.
(3) The voting and investment power with respect to shares owned by Martin
Investment Partnership III is exercised by Charles N. Martin, Jr.
(4) The voting and investment power with respect to shares owned by
HealthStream Partners is exercised by Thomas Frist III.
(5) Beneficial ownership of 336,635 of these shares is shared with its parent,
GE Capital Corporation, and GE Medical Systems, a unit of the General
Electric Company. Beneficial ownership of 61,258 of these shares is shared
with GE Medical Systems under a warrant agreement dated June 29, 1999.
(6) 17,221 of these shares are held by Dan McLaren, father of Jeffrey McLaren.
(7) 60,637 of these shares are owned by Borneo Partners, of which Mr. Pote is
administrator. Mr. Pote disclaims beneficial ownership of these shares
except to the extent of his pecuniary interest in those shares.
(8) 28,473 of these shares are held by Dr. Scott Portis, father of Scott
Portis.
(9) 854,204 of these shares are owned by Martin Investment Partnership III, of
which Mr. Martin is managing partner. Mr. Martin disclaims beneficial
ownership of 464,118 of these shares except to the extent of his pecuniary
interest in those shares.
(10) 51,389 of these shares are held by The Seven Partnership of which Mr. Dent
is one of the partners. Mr. Dent disclaims beneficial ownership of 25,695
of these shares except to the extent of his pecuniary interest in those
shares.
(11) 1,138,943 of these shares are owned by entities associated with Morgan
Stanley of which Mr. Husain is a general partner. Mr. Husain disclaims
beneficial ownership of these shares except to the extent of his pecuniary
interest in those shares.
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DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock and provisions of our
charter and bylaws are only summaries and are qualified by reference to our
charter and bylaws filed as exhibits to the registration statement of which this
prospectus is a part. As of March 7, 2000 our authorized capital stock consisted
of 20,000,000 shares of common stock, no par value per share, and 5,000,000
shares of preferred stock, no par value per share. As of March 7, 2000, there
were 5,480,852 shares of common stock outstanding held of record by 37
shareholders, 76,000 shares of series A preferred stock outstanding held of
record by five shareholders, 1,228,801 shares of series B preferred stock
outstanding held of record by 32 shareholders and 627,406 shares of series C
preferred stock outstanding held of record by 39 shareholders. All of the shares
of preferred stock outstanding prior to this offering will automatically convert
into shares of common stock upon consummation of this offering.
COMMON STOCK
Holders of our common stock are entitled to receive, as, when and if
declared by our board of directors, dividends and other distributions in cash,
stock or property from our assets or funds legally available for those purposes
subject to any dividend preferences that may be attributable to preferred stock.
Holders of common stock are entitled to one vote for each share held of record
on all matters on which shareholders may vote. Holders of common stock are not
entitled to cumulative voting for the election of directors. There are no
preemptive, conversion, redemption or sinking fund provisions applicable to our
common stock. All outstanding shares of common stock are fully paid and
non-assessable. In the event of our liquidation, dissolution or winding up,
holders of common stock are entitled to share ratably in the assets available
for distribution.
PREFERRED STOCK
Our board of directors, without further action by the shareholders, is
authorized to issue an aggregate of 5,000,000 shares of preferred stock, as of
March 7, 2000. Prior to consummation of this offering, there were 76,000 shares
of series A preferred stock, 1,228,801 shares of series B preferred stock and
627,406 shares of series C preferred stock outstanding. All of these shares will
be converted into shares of common stock upon consummation of this offering.
Currently, we have no plans to issue a new series of preferred stock. Our board
of directors may, without shareholder approval, issue preferred stock with
dividend rates, redemption prices, preferences on liquidation or dissolution,
conversion rights, voting rights and any other preferences, which rights and
preferences could adversely affect the voting power of the holders of common
stock. Issuances of preferred stock could make it harder for a third party to
acquire, or could discourage or delay a third party from acquiring, a majority
of our outstanding common stock.
REGISTRATION RIGHTS
After the consummation of the offering and the concurrent private sale of
an estimated 833,334 shares of our common stock to Healtheon/WebMD, the holders
of 7,684,864 shares of common stock issuable upon conversion of the preferred
stock, 2,672,632 shares of our common stock issuable upon the exercise of
warrants and an estimated 833,334 shares of our common stock issued in the
concurrent private sale to Healtheon/WebMD will have registration rights with
respect to those securities. These rights are described in an investors rights
agreement between us and the holders of those securities. The agreement
provides, in some instances, for registration rights upon the demand of the
holders of at least 30% of the shares of common stock then outstanding that were
issuable upon the conversion of the preferred stock. In addition, pursuant to
that agreement, subject to certain limitations, the holders have rights,
referred to as piggyback registration rights, to require us to include their
securities in future registration statements we file under the Securities Act of
1933. The holders of those securities also are entitled, subject to some
limitations, to require us to register their securities on a registration
statement on Form S-3 once we are eligible to use a registration statement on
Form S-3 in connection with registrations. However, holders of these shares will
be restricted from exercising these rights until 180 days after the date of this
prospectus. Registration of shares of common stock by the exercise of these
demand registration rights, piggyback registration rights
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or S-3 registration rights under the Securities Act of 1933 would result in
these shares becoming freely tradable without restriction under the Securities
Act of 1933 immediately upon the effectiveness of such registration. See "Risk
Factors -- Approximately 13,165,718, or 69.3%, of our total outstanding shares
are restricted from immediate resale but may be sold into the market in the near
future, which could cause the market price of our common stock to drop
significantly" and "Shares Eligible for Future Sale."
CLASSIFIED BOARD OF DIRECTORS
Our board of directors will be divided into three classes of directors
serving staggered three-year terms. As a result, approximately one-third of the
board of directors will be elected each year. This provision, along with the
provision authorizing the board of directors to fill vacant directorships or
increase the size of the board of directors, may deter a shareholder from
removing incumbent directors and gaining control of the board of directors by
filling vacancies created by the removal with its own nominees.
SHAREHOLDER ACTION; SPECIAL MEETING OF SHAREHOLDERS
Our charter states that shareholders may not take action by written
consent, but only at duly called annual or special meetings of shareholders. The
charter also provides that special meetings of shareholders may be called only
by the chairman of the board of directors or a majority of the board of
directors.
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
Our bylaws provide that shareholders who want to bring business before an
annual meeting of shareholders, or to nominate candidates for election as
directors at an annual meeting of shareholders, must provide timely notice in
writing. To be timely, a shareholders's notice must be delivered to or mailed
and received at our principal executive offices at least 120 days before the
first anniversary of the date the previous year's annual meeting notice was
provided. If no annual meeting of shareholders was held in the previous year or
the date of the annual meeting of shareholders has been changed to be more than
30 calendar days earlier than or 60 calendar days after that anniversary, notice
by the shareholder, to be timely, must be received by:
- at least 60 days but no more than 90 days prior to the annual meeting of
shareholders or
- the close of business on the 10th day following the date on which notice
of the date of the meeting is given to shareholders or made public,
whichever first occurs.
Our bylaws also specify requirements as to the form and content of a
shareholder's notice. These provisions may keep shareholders from bringing
matters before an annual meeting of shareholders or from making nominations for
directors at an annual meeting of shareholders.
AUTHORIZED BUT UNISSUED SHARES
The authorized but unissued shares of common stock and preferred stock are
available for future issuance without shareholder approval. These additional
shares may be used for a variety of corporate purposes, including future public
offerings to raise additional capital, corporate acquisitions and employee
benefit plans. The existence of authorized but unissued shares of common stock
and preferred stock could make it harder or discourage an attempt to obtain
control of us by a proxy contest, tender offer, merger or otherwise.
TENNESSEE ANTI-TAKEOVER LAW AND CHARTER AND BYLAW PROVISIONS THAT MAY HAVE AN
ANTI-TAKEOVER EFFECT
Provisions in our charter, bylaws and Tennessee law could make it harder
for someone to acquire us through a tender offer, proxy contest or otherwise.
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The Tennessee Business Combination Act provides that a party owning 10% or
more of the stock in a "resident domestic corporation" is an "interested
shareholder." An interested shareholder cannot engage in a business combination
with the resident domestic corporation unless the combination:
- takes place at least five years after the interested shareholder first
acquired 10% or more of the resident domestic corporation; and
- either is approved by at least two-thirds of the non-interested voting
shares of the resident domestic corporation or satisfies fairness
conditions specified in the Combination Act.
These provisions apply unless one of two events occurs:
- a business combination with an entity can proceed without delay when
approved by the target corporation's board of directors before that
entity becomes an interested shareholder, or
- the resident corporation may enact a charter amendment or bylaw to remove
itself entirely from the Combination Act. This charter or bylaw amendment
must be approved by a majority of the shareholders who have held shares
for more than one year before the vote. In addition, the charter
amendment or bylaw cannot become operative until two years after the
vote.
An interested shareholder, for purposes of the Combination Act, is any
person who is an affiliate or associate of the corporation, or the beneficial
owner, directly or indirectly, of 10% or more of the outstanding voting shares
of the corporation.
The Tennessee Greenmail Act prohibits us from purchasing or agreeing to
purchase any of our securities, at a price higher than fair market value, from a
holder of 3% or more of any class of our securities who has beneficially owned
the securities for less than two years. We can make this purchase if the
majority of the outstanding shares of each class of voting stock issued by us
approves the purchase or we make an offer of at least equal value per share to
all holders of shares of that class.
The effect of the above may make a change of control of us harder by
delaying, deferring or preventing a tender offer or takeover attempt that you
might consider to be in your best interest, including those attempts that might
result in the payment of a premium over the market price for your shares. They
may also promote the continuity of our management by making it harder for you to
remove or change the incumbent members of the board of directors.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our charter provides that, to the fullest extent permitted by the Tennessee
Business Corporation Act, a director will not be liable to us or our
shareholders for monetary damages resulting from a breach of his or her
fiduciary duty as a director. Under the TBCA, directors have a fiduciary duty
which is not eliminated by this provision in our charter. In some circumstances,
equitable remedies such as injunctive or other forms of nonmonetary relief will
remain available. In addition, each director will continue to be subject to
liability under the TBCA for breach of the director's duty of loyalty, for acts
or omissions which are found by a court of competent jurisdiction to be not in
good faith or knowing violations of law, for actions leading to improper
personal benefit to the director and for payment of dividends that are
prohibited by the TBCA. This provision does not affect the directors'
responsibilities under any other laws, such as the Federal securities laws or
state or Federal environmental laws.
The TBCA provides that a corporation may indemnify any director or officer
against liability incurred in connection with a proceeding if the director or
officer acted in good faith or reasonably believed, in the case of conduct in
his or her official capacity with the corporation, that the conduct was in the
corporation's best interest. In all other civil cases, a corporation may
indemnify a director or officer who reasonably believed that his or her conduct
was not opposed to the best interest of the corporation. In connection with any
criminal proceeding, a corporation may indemnify any director or officer who had
no reasonable cause to believe that his or her conduct was unlawful.
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In actions brought by or in the right of the corporation, however, the TBCA
does not allow indemnification if the director or officer is adjudged to be
liable to the corporation. Similarly, the TBCA prohibits indemnification in
connection with any proceeding charging improper personal benefit to a director
or officer if the director or officer is adjudged liable because a personal
benefit was improperly received.
In cases when the director or officer is wholly successful, on the merits
or otherwise, in the defense of any proceeding instigated because of his or her
status as a director or officer of a corporation, the TBCA mandates that the
corporation indemnify the director or officer against reasonable expenses
incurred in the proceeding. Notwithstanding the foregoing, the TBCA provides
that a court may order a corporation to indemnify a director or officer for
reasonable expense if, in consideration of all relevant circumstances, the court
determines that the individual is fairly and reasonably entitled to
indemnification, whether or not the standard of conduct set forth above was met.
Our bylaws provide that we shall indemnify and advance expenses to our
directors and officers to the fullest extent permitted by the TBCA. We also
maintain insurance to protect any director or officer against any liability and
will enter into indemnification agreements to indemnify our directors in
addition to the indemnification provided in our charter and bylaws. These
agreements, among other things, indemnify our directors for some expenses,
including attorneys' fees and associated legal expenses, judgments and fines and
amounts paid in settlement, actually and reasonably incurred by any of these
persons in any action, suit or proceeding arising out of the person's services
as our director. We believe that these provisions and agreements are necessary
to attract and retain qualified directors and officers.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is SunTrust Bank,
Atlanta. Its address is P.O. Box 4625, Atlanta, Georgia 30302, and its telephone
number at this location is (414) 588-7622.
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market after
the offering could adversely affect the market price of our common stock and our
ability to raise equity capital in the future on terms favorable to us.
Upon consummation of this offering and the concurrent private sale,
18,999,052 shares of our common stock will be outstanding, assuming that the
underwriters do not exercise their over-allotment option. Of these shares, all
of the 5,000,000 shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, unless these
shares are purchased by "affiliates" as that term is defined in Rule 144 under
the Securities Act. An estimated 833,334 shares of common stock to be purchased
by Healtheon/WebMD in a private sale to occur concurrently with this offering
are subject to contractual restrictions as described below under "Lock-Up
Agreements." The remaining shares of common stock held by existing shareholders
and the estimated 833,334 shares to be purchased by Healtheon/WebMD in a
concurrent private sale are "restricted securities" as that term is defined in
Rule 144 under the Securities Act. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rules 144 or 701 under the Securities Act, which rules are
summarized below.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person, or persons whose shares of common stock
are aggregated, including persons who may be deemed our affiliates, who has
beneficially owned shares of our common stock for at least one year is entitled
to sell, within any three-month period, a number of shares that is not more than
the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately 190,000 shares immediately after this offering and
the concurrent private sale of an estimated 833,334 shares of our common
stock to Healtheon/WebMD; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks before a notice of the
sale on Form 144 is filed with the Securities and Exchange Commission.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days before a sale, and who has
beneficially owned the restricted shares for at least two years, is entitled to
sell the shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
any of our employees, consultants, directors or advisors who purchase shares
from us under a stock option plan or other written agreement can resell those
shares 90 days after the effective date of this offering in reliance on Rule
144, but without complying with certain restrictions, including the holding
period, contained in Rule 144.
LOCK-UP AGREEMENTS
All of our executive officers, directors and more than one percent
shareholders will sign lock-up agreements under which they will agree not to
transfer or dispose of, directly or indirectly, any shares of common stock or
any securities convertible into or exercisable or exchangeable for shares of
common
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<PAGE> 69
stock, for a period of 180 days after the date of this prospectus. Transfers or
dispositions can be made sooner with the prior written consent of FleetBoston
Robertson Stephens Inc.
J.C. Bradford & Co., one of the underwriters in this offering, will sign a
lock-up agreement under which it agrees not to transfer or dispose of, directly
or indirectly, any of the 64,236 shares of our common stock received as
compensation for its acting as an investment advisor in connection with the
issuance of our series B preferred stock in April, May and August 1999 for one
year from the date of this prospectus.
Healtheon/WebMD will sign a lock-up agreement with us under which it agrees
not to transfer or dispose of, directly or indirectly, one-half of the shares of
our common stock purchased by it in the concurrent private sale for one year
from the date of this prospectus and the other one-half of the shares for two
years from the date of this prospectus.
REGISTRATION RIGHTS
Upon completion of this offering and the concurrent private sale, the
holders of 7,684,864 shares of our common stock issuable upon conversion of our
preferred stock, 2,672,632 shares of our common stock issuable upon the exercise
of warrants and an estimated 833,334 shares issued to Healtheon/WebMD in the
concurrent private sale will be entitled to rights with respect to the
registration of their shares under the Securities Act. See "Description of
Capital Stock -- Registration Rights" for a description of these registration
rights. After the registration, these shares will become freely tradable without
restriction under the Securities Act. Any sales of securities by these
shareholders could have a material adverse effect on the trading price of our
common stock.
STOCK OPTIONS
Immediately after this offering we plan to file a registration statement
under the Securities Act covering up to 9,000,000 shares of common stock
reserved for issuance under our stock option plans and 1,000,000 shares reserved
for issuance under our employee stock purchase plan. As of March 7, 2000,
options to purchase 3,294,967 shares of common stock were issued and
outstanding. When the lock-up agreements described above expire, at least
1,230,245 shares of common stock will be subject to vested options (based on
options outstanding as of March 7, 2000). This registration statement is
expected to be filed and become effective as soon as practicable after the
effective date of the registration statement for this offering. Accordingly,
shares registered under that registration statement will, subject to vesting
provisions and Rule 144 volume limitations applicable to our affiliates, be
available for sale in the open market immediately after the 180 day lock-up
agreements expire.
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<PAGE> 70
UNITED STATES TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a general discussion of the material U.S. federal income
tax consequences of the ownership and disposition of our common stock to a
non-U.S. Holder. For the purpose of this discussion, a non-U.S. Holder is any
holder that for U.S. federal income tax purposes is not a U.S. person. For
purposes of this discussion, the term U.S. person means:
- a citizen or resident of the U.S.;
- a corporation or other entity taxable as a corporation and created or
organized in the U.S. or under the laws of the U.S. or any political
subdivision thereof;
- an estate whose income is included in gross income for U.S. federal
income tax purposes regardless of its source; or
- a trust whose administration is subject to the primary supervision of a
U.S. court and which has one or more U.S. persons who have the authority
to control all substantial decisions of the trust.
This discussion does not address all aspects of U.S. federal income
taxation that may be relevant in light of a non-U.S. Holder's particular facts
and circumstances, such as being a U.S. expatriate, and does not address any tax
consequences arising under the laws of any state, local or non-U.S. taxing
jurisdiction. Furthermore, the following discussion is based on current
provisions of the Internal Revenue Code of 1986, as amended, and administrative
and judicial interpretations thereof, all as in effect on the date hereof, and
all of which are subject to change, possibly with retroactive effect.
Accordingly, each non-U.S. Holder should consult a tax advisor regarding the
specific U.S. federal, state, local and non-U.S. income and other tax
consequences to the non-U.S. Holder as a result of their individual
circumstances related to acquiring, holding and disposing of shares of our
common stock.
DIVIDENDS
We have never paid dividends on our capital stock and do not anticipate
paying any cash dividends in the foreseeable future. In the event, however, that
we do pay dividends on our common stock, any dividend paid to a non-U.S Holder
of common stock generally will be subject to U.S. withholding tax either at a
rate of 30% of the gross amount of the dividend or such lower rate as may be
specified by an applicable tax treaty. Dividends received by a non-U.S. Holder
that are effectively connected with a U.S. trade or business conducted by the
non-U.S. Holder are exempt from such withholding tax. However, those effectively
connected dividends, net of certain deductions and credits, are taxed at the
same graduated rates applicable to U.S. persons.
In addition to the graduated tax described above, dividends received by a
corporate non-U.S. Holder that are effectively connected with a U.S. trade or
business of the corporate non-U.S. Holder may also be subject to a branch
profits tax at a rate of 30% or such lower rate as may be specified by an
applicable tax treaty.
A non-U.S. Holder of common stock that is eligible for a reduced rate of
withholding tax pursuant to a tax treaty may obtain a refund of any excess
amounts currently withheld by filing an appropriate claim for refund with the
Internal Revenue Service.
GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. Holder generally will not be subject to U.S. federal income tax
on any gain realized upon the sale or other disposition of our common stock
unless:
- the gain is effectively connected with a U.S. trade or business of the
non-U.S. Holder, which gain, in the case of a corporate non-U.S. Holder,
must also be taken into account for branch profits tax purposes;
- the non-U.S. Holder is an individual who holds his or her common stock as
a capital asset, generally, an asset held for investment purposes, and
who is present in the U.S. for a period or
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<PAGE> 71
periods aggregating 183 days or more during the calendar year in which
the sale or disposition occurs and certain other conditions are met; or
- we are or have been a "United States real property holding corporation"
for U.S. federal income tax purposes at any time within the shorter of
the five-year period preceding the disposition or the holder's holding
period for our common stock. We have determined that we are not and do
not believe that we will become a "United States real property holding
corporation" for U.S. federal income tax purposes.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Generally, we must report annually to the IRS the amount of dividends paid,
the name and address of the recipient, and the amount, if any, of tax withheld.
A similar report is sent to the holder. Under tax treaties or other agreements,
the IRS may make its reports available to tax authorities in the recipient's
country of residence.
Dividends paid to a non-U.S. Holder at an address within the U.S. may be
subject to backup withholding at a rate of 31% if the non-U.S. Holder fails to
establish that is entitled to an exemption or to provide a correct taxpayer
identification number and other information to the payer. Backup withholding
generally will not apply to dividends paid to non-U.S. Holders at an address
outside the U.S. on or prior to December 31, 2000 unless the payer has knowledge
that the payee is a U.S. person. Under recently finalized Treasury Regulations
regarding withholding and information reporting, payment of dividends to
non-U.S. Holders at an address outside the U.S. after December 31, 2000 may be
subject to backup withholding at a rate of 31% unless such non-U.S. Holder
satisfies various certification requirements.
Under current Treasury Regulations, the payment of the proceeds of the
disposition of common stock to or through the U.S. office of a broker is subject
to information reporting and backup withholding at a rate of 31% unless the
holder certifies its non-U.S. status under penalties of perjury or otherwise
establishes an exemption. Generally, the payment of the proceeds of the
disposition by a non-U.S. Holder of common stock outside the U.S. to or through
a foreign office of a broker will not be subject to backup withholding but will
be subject to information reporting requirements if the broker is:
- a U.S. person;
- a "controlled foreign corporation" for U.S. federal income tax purposes;
or
- a foreign person 50% or more of whose gross income for certain periods is
from the conduct of a U.S. trade or business
unless the broker has documentary evidence in its files of the holder's non-U.S.
status and certain other conditions are met, or the holder otherwise establishes
an exemption. Neither backup withholding nor information reporting generally
will apply to a payment of the proceeds of a disposition of common stock by or
through a foreign office of a foreign broker not subject to the preceding
sentence.
In general, the recently promulgated final Treasury Regulations, described
above, do not significantly alter the substantive withholding and information
reporting requirements but would alter the procedures for claiming benefits of
an income tax treaty and change the certifications procedures relating to the
receipt by intermediaries of payments on behalf of the beneficial owner of
shares of common stock. Non-U.S. Holders should consult their tax advisors
regarding the effect, if any, of those final Treasury Regulations on an
investment in our common stock. Those final Treasury Regulations generally are
effective for payments made after December 31, 2000.
Backup withholding is not an additional tax. Rather, the U.S. income tax
liability of persons subject to backup withholding will be reduced by the amount
of tax withheld. If withholding results in an overpayment of taxes, a refund may
obtained, provided that the required information is furnished to the IRS.
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<PAGE> 72
[U.S.]
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., CIBC World Markets Corp., J.C. Bradford &
Co. and E*OFFERING Corp., have severally agreed with us, subject to the terms
and conditions of the underwriting agreement, to purchase from us the number of
shares of common stock set forth below opposite their respective names. The
underwriters are committed to purchase and pay for all shares if any are
purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------ ---------
<S> <C>
FleetBoston Robertson Stephens Inc..........................
CIBC World Markets Corp.....................................
J.C. Bradford & Co..........................................
E*OFFERING Corp.............................................
---------
Total........................................ 5,000,000
=========
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the public offering price set forth
on the cover page of this prospectus and to certain dealers at that price less a
concession not in excess of $ per share, of which $ may be
reallowed to other dealers. After this offering, the public offering price,
concession and reallowance to dealers may be reduced by the representatives. No
such reduction shall change the amount of the proceeds to be received by us as
set forth on the cover page of this prospectus. The common stock is offered by
the underwriters as stated in this document, subject to receipt and acceptance
by them and subject to their right to reject any order in whole or in part.
Prior to this offering, there has been no public market for the common
stock. Consequently, the public offering price for the common stock offered by
this prospectus will be determined through negotiations among the
representatives and us. Among the factors considered in those negotiations will
be prevailing market conditions, certain of our financial information, market
valuations of other companies that we and the representatives believe to be
comparable to us, estimates of our business potential, the present state of our
development and other factors deemed relevant.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
OVER-ALLOTMENT OPTION
We have granted to the underwriters an option, exercisable during the
30-day period after the date of this prospectus, to purchase up to 750,000
additional shares of common stock to cover over-allotments, if any, at the
public offering price less the underwriting discount set forth on the cover page
of this prospectus. If the underwriters exercise their over-allotment option to
purchase any of the additional 750,000 shares of common stock, the underwriters
have severally agreed, subject to certain conditions, to purchase approximately
the same percentage as the number of shares to be purchased by each of them
bears to the total number of shares of common stock offered in this offering. If
purchased, these additional shares will be sold by the underwriters on the same
terms as those on which the shares offered in this offering are being sold. We
will be obligated, by the over-allotment option, to sell shares to the
underwriters to the extent the over-allotment option is exercised. The
underwriters may exercise the over-allotment option only to cover
over-allotments made in connection with the sale of the shares of common stock
offered in this offering.
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<PAGE> 73
The following table summarizes the compensation to be paid by us:
<TABLE>
<CAPTION>
TOTAL
-------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions paid by us......... $ $ $
Expenses payable by us.................................... $ $ $
</TABLE>
INDEMNITY
The underwriting agreement contains covenants of indemnity among the
underwriters and us against civil liabilities, including liabilities under the
Securities Act, and liabilities arising from breaches of representations and
warranties contained in the underwriting agreement.
LOCK-UP AGREEMENTS
Each of our executive officers, directors and our more than one-percent
shareholders will agree, for 180 days after the date of this prospectus, subject
to specified exceptions, not to offer to sell, contract to sell, or otherwise
sell, dispose of, loan, pledge or grant any rights with respect to any shares of
common stock owned as of the date of this prospectus or acquired after the date
of this prospectus directly by those holders or with respect to which they have
the power of disposition, without the prior written consent of FleetBoston
Robertson Stephens Inc. These lock-up agreements will also cover any options or
warrants to purchase any shares of common stock, or any securities convertible
into or exchangeable for shares of common stock owned by those holders. However,
FleetBoston Robertson Stephens Inc. may, in its sole discretion and at any time
or from time to time, without notice, release all or any portion of the
securities subject to lock-up agreements. There are no existing agreements
between the representatives and any of our shareholders who will execute a
lock-up agreement providing consent to the sale of shares prior to the
expiration of the lock-up period.
In addition, we will agree that during the lock-up period we will not,
without the prior written consent of FleetBoston Robertson Stephens Inc.,
subject to some exceptions, consent to the disposition of any shares held by
shareholders subject to lock-up agreements prior to the expiration of the
lock-up period, or issue, sell, contract to sell, or otherwise dispose of, any
shares of common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or exchangeable for
shares of common stock other than our sale of shares in this offering, the
issuance of our common stock upon the exercise of outstanding options or
warrants, and the issuance of options under existing stock option and incentive
plans provided that those options do not vest prior to the expiration of the
lock-up period. See "Shares Eligible for Future Sale."
LISTING
Our common stock has been approved for listing on the Nasdaq National
Market under the symbol "HSTM."
STABILIZATION
The representatives have advised us that, pursuant to Regulation M under
the Securities Act of 1933, some persons participating in the offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, that may have the effect of
stabilizing or maintaining the market price of the shares of common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of shares of common stock on
behalf of the underwriters for the purpose of fixing or maintaining the price of
the common stock. A "syndicate covering transaction" is the bid for or purchase
of common stock on behalf of the underwriters to reduce a short position
incurred by the underwriters in connection with the offering. A "penalty bid" is
an arrangement permitting the representatives to reclaim the selling concession
otherwise accruing to an
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<PAGE> 74
underwriter or syndicate member in connection with the offering if the common
stock originally sold by that underwriter or syndicate member is purchased by
the representatives in a syndicate covering transaction and has therefore not
been effectively placed by the underwriter or syndicate member. The
representatives have advised us that these transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
E*OFFERING Corp. is the exclusive Internet underwriter for this offering.
E*OFFERING Corp. has agreed to allocate a portion of the shares that it
purchases to E*TRADE Securities, Inc. E*OFFERING Corp. and E*TRADE Securities
Inc. will allocate shares to their respective customers in accordance with usual
and customary industry practices. A prospectus in electronic format, from which
you can link to a "Meet the Management" Presentation through an embedded
hyperlink, (click here for "Meet the Management" Presentation), is being made
available on the Web site maintained by E*OFFERING Corp., www.eoffering.com. The
"Meet the Management" presentation, including the accompanying slides included
in the appendix, is part of this prospectus.
Healtheon/WebMD has agreed to purchase directly from us an estimated
833,334 shares of our common stock in a separate private sale that will close
concurrently with this offering. The price of these shares will be equal to the
initial public offering price per share in this offering.
We have requested that the underwriters reserve up to 250,000 shares of
common stock to be offered at the initial public offering price to our
employees, friends and family of employees and others. The number of shares of
common stock available for sale to the general public will be reduced to the
extent these individuals purchase the reserved shares. Any reserved shares which
are not purchased will be offered by the underwriters to the general public on
the same basis as the other shares offered by this prospectus.
J.C. Bradford & Co., one of the underwriters, acted as our financial
advisor in connection with the issuance of our series B preferred stock in
April, May and August 1999. J.C. Bradford & Co. received customary fees and
expenses in connection with these private placements paid in the form of our
series B preferred stock. The shares of common stock into which these shares of
series B preferred stock are convertible will be subject to a lock-up agreement
for one year from the date of this prospectus. Including the shares received by
J.C. Bradford & Co. as payment for its acting as our financial advisor, J.C.
Bradford & Co. and affiliates of J.C. Bradford & Co. collectively own shares of
our preferred stock representing 435,641 shares of our common stock on an as
converted basis. J.C. Bradford & Co. and certain of the other underwriters may
act as an underwriter, placement agent or financial advisor in our future
financing activities.
Neither members of the National Association of Securities Dealers, Inc.
that are acting as underwriters in connection with this offering, nor associated
or affiliated persons of such NASD members, will receive 10% or more of the net
proceeds of this offering in the aggregate.
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<PAGE> 75
LEGAL MATTERS
The validity of the shares of common stock offered in this prospectus will
be passed upon for us by Bass, Berry & Sims PLC, Nashville, Tennessee. Members
of Bass, Berry & Sims PLC beneficially own 56,946 shares of our common stock.
The underwriters have been represented by Cravath, Swaine & Moore, New York, New
York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited (1) our financial
statements at December 31, 1998 and 1999, and for each of the three years in the
period ended December 31, 1999, and (2) the financial statements of
SilverPlatter Education, Inc. at December 31, 1997 and 1998, and for each of the
two years in the period ended December 31, 1998, as set forth in their reports.
We have included these financial statements in the prospectus and elsewhere in
the registration statement in reliance on Ernst & Young LLP's reports, given on
their authority as experts in accounting and auditing.
Lane, Gorman Trubitt L.L.P., independent auditors, have audited the
financial statements of MultiMedia Marketing, Inc. d/b/a m3 the Healthcare
Learning Company at December 31, 1998 and 1999, and for each of the three years
in the period ended December 31, 1999, as set forth in their report. We have
included these financial statements in the prospectus and elsewhere in the
registration statement in reliance on Lane, Gorman Trubitt L.L.P.'s report,
given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act of 1933 that registers the shares
of common stock being offered. This prospectus does not contain all of the
information described in the registration statement and the related exhibits.
For more information about us and the common stock being offered, you should
review the registration statement and the related exhibits. Statements contained
in this prospectus regarding the contents of any contract or any other document
to which reference is made are not necessarily complete, and, in each instance,
you should review the copy of the contract or other document filed as an exhibit
to the registration statement. A copy of the registration statement and the
related exhibits may be inspected without charge and copied upon payment of
prescribed fees at the following location of the Securities and Exchange
Commission:
Public Reference Room
450 Fifth Street, N.W.
Washington, D.C. 20549
You may also obtain copies of all or any part of the registration statement from
that office at prescribed rates. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the operation of the
public reference room. The Securities and Exchange Commission maintains a World
Wide Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Securities
and Exchange Commission. The address of the site is http://www.sec.gov.
We plan to provide our shareholders with written annual reports containing
audited financial statements certified by an independent public accounting firm.
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<PAGE> 76
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS OF
HEALTHSTREAM, INC.
Unaudited Pro Forma Condensed Balance Sheet as of December
31, 1999.................................................. F-3
Notes to Unaudited Pro Forma Condensed Balance Sheet........ F-4
Unaudited Pro Forma Condensed Statement of Operations for
the Year ended December 31, 1999.......................... F-7
Notes to Unaudited Pro Forma Condensed Statement of
Operations................................................ F-8
AUDITED FINANCIAL STATEMENTS OF HEALTHSTREAM, INC.
Years ended December 31, 1997, 1998 and 1999
Report of Independent Auditors.............................. F-11
Balance Sheets.............................................. F-12
Statements of Operations.................................... F-13
Statements of Shareholders' Equity (Deficit)................ F-14
Statements of Cash Flows.................................... F-15
Notes to Financial Statements............................... F-16
AUDITED FINANCIAL STATEMENTS OF SILVERPLATTER EDUCATION,
INC.
Years ended December 31, 1997 and 1998 and the Six Months
ended June 30, 1999 (unaudited)
Report of Independent Auditors.............................. F-29
Balance Sheets.............................................. F-30
Statements of Operations.................................... F-31
Statements of Stockholders' Deficit......................... F-32
Statements of Cash Flows.................................... F-33
Notes to Financial Statements............................... F-34
AUDITED FINANCIAL STATEMENTS OF MULTIMEDIA MARKETING, INC.
D/B/A M3 THE HEALTHCARE LEARNING COMPANY
Years ended December 31, 1997, 1998 and 1999
Report of Independent Certified Public Accountants.......... F-40
Balance Sheets.............................................. F-41
Statements of Operations.................................... F-42
Statements of Stockholders' Deficit......................... F-43
Statements of Cash Flows.................................... F-44
Notes to Financial Statements............................... F-45
</TABLE>
F-1
<PAGE> 77
PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
On July 23, 1999, we acquired substantially all assets and assumed certain
liabilities of SilverPlatter Education, Inc. from SilverPlatter Information,
Inc. for a combination of cash and shares of our common stock. On January 28,
2000, we acquired all of the assets and liabilities of Multimedia Marketing,
Inc. d/b/a m3 the Healthcare Learning Company for a combination of cash and
shares of our common stock. On January 28, 2000, we acquired substantially all
of the assets of EMInet, Inc. for a combination of cash and shares of our common
stock. On January 11, 2000, we acquired substantially all of the assets and
liabilities of Quick Study, Inc. for a combination of cash and shares of our
common stock. On January 3, 2000, we acquired substantially all of the assets of
KnowledgeReview, LLC for a combination of cash and shares of our common stock.
The acquisitions were accounted for as purchases.
The unaudited pro forma balance sheet gives effect to: (i) the acquisition
of Multimedia Marketing, Inc. d/b/a m3 the Healthcare Learning Company; (ii) the
acquisition of EMInet, Inc.; (iii) the acquisition of Quick Study, Inc.; (iv)
the acquisition of KnowledgeReview, LLC; (v) the conversion of series A, B and C
preferred stock into our common stock; (vi) the conversion of $1,293,000 of
notes payable-related party to series B preferred stock and conversion to our
common stock; (vii) the issuance of our common stock in this offering and the
sale of an estimated 833,334 shares of our common stock in a concurrent private
sale to Healtheon/WebMD at an assumed initial offering price of $12.00 per share
(the midpoint of the range on the cover of this prospectus) as described in "Use
of Proceeds", net of offering costs of approximately $5.0 million, of which
$295,000 have already been paid; and (viii) the repayment of $1,276,708 of debt
in connection with the acquisition of m3 the Healthcare Learning Company and
Quick Study as if the offering and each of the other transactions had been
completed as of December 31, 1999.
The unaudited pro forma condensed statements of operations give effect to:
(i) the acquisition of SilverPlatter Education, Inc.; (ii) the acquisition of
Multimedia Marketing, Inc. d/b/a m3 the Healthcare Learning Company; (ii) the
acquisition of EMInet, Inc.; (iii) the acquisition of Quick Study, Inc.; (iv)
the acquisition of KnowledgeReview, LLC; (v) the conversion of series A, B and C
preferred stock into our common stock; (vi) the conversion of $1,293,000 of
notes payable-related party to series B preferred stock and conversion to our
common stock; and (vii) the issuance of our common stock in this offering and
the sale of an estimated 833,334 shares of our common stock in a concurrent
private sale at an assumed initial offering price of $12.00 per share as
described in "Use of Proceeds," net of offering costs of approximately $5.0
million of which $295,000 have already been paid as if the offerings and each of
the other transactions had been completed as of January 1, 1999.
The pro forma condensed financial information presented herein does not
purport to represent what our results of operations or financial position would
have been had such transactions in fact occurred at the beginning of the periods
presented or to project our results of operations in any future period. The pro
forma results of operations do not take into account certain operational changes
we instituted or will institute as a result of these acquisitions. The unaudited
pro forma condensed financial statements should be read in conjunction with the
audited financial statements, including the related notes thereto, that appear
elsewhere in this prospectus.
F-2
<PAGE> 78
HEALTHSTREAM, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
ACQUISITION PRE-OFFERING OFFERING
ACQUIRED PRO FORMA PRO FORMA PRO FORMA PRO FORMA
HEALTHSTREAM COMPANIES(1) ADJUSTMENTS(2) CONSOLIDATED ADJUSTMENTS(3) CONSOLIDATED
------------ ------------ -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and
short term investments....... $13,632,144 $ 438,156 $(1,609,000) $12,461,300 $ 64,018,292 $76,479,592
Accounts receivable, less
allowance for doubtful
accounts..................... 544,042 973,139 -- 1,517,181 -- 1,517,181
Accounts
receivable -- unbilled....... 18,877 -- -- 18,877 -- 18,877
Investments.................... 86,063 -- -- 86,063 -- 86,063
Prepaid and other assets....... 263,517 4,424 -- 267,941 -- 267,941
----------- ----------- ----------- ----------- ------------ -----------
Total current assets..... 14,544,643 1,415,719 (1,609,000) 14,351,362 64,018,292 78,369,654
Property and equipment, net..... 1,333,901 115,905 -- 1,449,806 -- 1,449,806
Intangible assets, net.......... 1,134,673 -- 13,475,030 14,609,703 -- 14,609,703
Other assets.................... 441,488 68,190 -- 509,678 (295,000) 214,678
----------- ----------- ----------- ----------- ------------ -----------
Total assets............. $17,454,705 $ 1,599,814 $11,866,030 $30,920,549 $ 63,723,292 $94,643,841
=========== =========== =========== =========== ============ ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable............... $ 443,455 $ 151,491 $ -- $ 594,946 $ -- $ 594,946
Accrued liabilities............ 448,727 281,846 -- 730,573 -- 730,573
Deferred revenue............... 791,424 1,650,187 -- 2,441,611 -- 2,441,611
Current portion of notes
payable...................... -- 50,000 -- 50,000 (50,000) --
Notes payable -- related
party........................ 1,293,000 2,194,218 (2,178,806) 1,308,412 (1,293,000) 15,412
Current portion of long-term
debt-related party........... 12,892 62,000 -- 74,892 (62,000) 12,892
Current portion of capital
lease obligation............. 89,881 -- -- 89,881 -- 89,881
----------- ----------- ----------- ----------- ------------ -----------
Total current
liabilities............ 3,079,379 4,389,742 (2,178,806) 5,290,315 (1,405,000) 3,885,315
Capital lease obligation, less
current portion................ 185,801 -- -- 185,801 -- 185,801
Long-term notes payable, less
current portion................ -- 1,164,708 -- 1,164,708 (1,164,708) --
Shareholders' equity (deficit):
Common stock................... 4,008,991 429,096 10,090,200 14,099,191 20,465,060 99,564,251
(429,096) (295,000)
65,295,000
Additional paid-in capital..... -- 1,959,985 (1,959,985) -- -- --
Preferred stock................ 19,172,060 -- -- 19,172,060 (20,465,060) --
1,293,000
Accumulated other comprehensive
loss......................... (41,690) -- -- (41,690) -- (41,690)
Accumulated deficit............ (8,949,836) (6,343,717) 6,343,717 (8,949,836) -- (8,949,836)
----------- ----------- ----------- ----------- ------------ -----------
Total shareholders' equity
(deficit)...................... 14,189,525 (3,954,636) 14,044,836 24,279,725 66,293,000 90,572,725
----------- ----------- ----------- ----------- ------------ -----------
$17,454,705 $ 1,599,814 $11,866,030 $30,920,549 $ 63,723,292 $94,643,841
=========== =========== =========== =========== ============ ===========
</TABLE>
See accompanying notes to unaudited pro forma condensed balance sheet.
F-3
<PAGE> 79
HEALTHSTREAM, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
(1) Reflects the acquisition of Multimedia Marketing, Inc. d/b/a m3 the
Healthcare Learning Company, EMInet, Inc., Quick Study, Inc. and
KnowledgeReview LLC as if such acquisitions occurred on December 31, 1999 as
summarized below:
<TABLE>
<CAPTION>
M3 THE HEALTHCARE QUICK STUDY, KNOWLEDGE ACQUIRED
LEARNING COMPANY EMINET, INC. INC. REVIEW LLC COMPANIES
----------------- ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and short term
investments...................................... $ 404,298 $ 25,264 $ 8,594 $ -- $ 438,156
Accounts receivable, less allowance for doubtful
accounts......................................... 911,765 32,289 28,635 450 973,139
Accounts receivable - unbilled..................... -- -- -- -- --
Prepaid and other assets........................... 4,318 -- 106 -- 4,424
----------- --------- ----------- ------- -----------
Total current assets......................... 1,320,381 57,553 37,335 450 1,415,719
Property and equipment, net......................... 45,544 50,335 20,026 -- 115,905
Intangible assets................................... -- -- -- -- --
Other assets........................................ 62,786 -- 5,404 -- 68,190
----------- --------- ----------- ------- -----------
Total assets................................. $ 1,428,711 $ 107,888 $ 62,765 $ 450 $ 1,599,814
=========== ========= =========== ======= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................... $ 60,162 $ 34,714 $ 56,615 $ -- $ 151,491
Accrued liabilities................................ 273,222 -- 8,624 -- 281,846
Deferred revenue................................... 1,276,505 368,072 5,610 -- 1,650,187
Current portion of notes payable................... -- -- 50,000 -- 50,000
Notes payable - related party...................... -- 11,069 2,178,806 4,343 2,194,218
Current portion of long-term debt - related
party............................................ -- -- 62,000 -- 62,000
Current portion of capital lease obligation........ -- -- -- -- --
----------- --------- ----------- ------- -----------
Total current liabilities.................... 1,609,889 413,855 2,361,655 4,343 4,389,742
Capital lease obligation, less current portion...... -- -- -- -- --
Long-term notes payable, less current portion....... 1,164,708 -- -- -- 1,164,708
Shareholders' equity (deficit):
Common Stock....................................... 52,637 302,559 73,900 -- 429,096
Additional paid-in capital......................... 1,959,985 -- -- -- 1,959,985
Preferred stock.................................... -- -- -- -- --
Accumulated deficit................................ (3,358,508) (608,526) (2,372,790) (3,893) (6,343,717)
----------- --------- ----------- ------- -----------
Total shareholders' equity (deficit)......... (1,345,886) (305,967) (2,298,890) (3,893) (3,954,636)
----------- --------- ----------- ------- -----------
$ 1,428,711 $ 107,888 $ 62,765 $ 450 $ 1,599,814
=========== ========= =========== ======= ===========
</TABLE>
F-4
<PAGE> 80
HEALTHSTREAM, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED BALANCE SHEET -- (CONTINUED)
(2) Reflects the adjustments to effect the acquisitions of Multimedia Marketing,
Inc. d/b/a m3 the Healthcare Learning Company, EMInet, Inc., Quick Study,
Inc. and KnowledgeReview LLC as if such acquisitions occurred on December
31, 1999 as summarized below:
<TABLE>
<CAPTION>
KNOWLEDGE ACQUISITION
M3 THE HEALTHCARE QUICK STUDY, REVIEW PRO FORMA
LEARNING COMPANY(A) EMINET, INC.(B) INC(C) LLC(D) ADJUSTMENTS
------------------- --------------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and short term
investments.............................. $ (600,000) $ (640,000) $ (59,000) $(310,000) $(1,609,000)
Accounts receivable, less allowance for
doubtful accounts........................ -- -- -- -- --
Accounts receivable - unbilled............. -- -- -- -- --
Prepaid and other assets................... -- -- -- -- --
----------- ----------- ----------- --------- -----------
Total current assets................. (600,000) (640,000) (59,000) (310,000) (1,609,000)
----------- ----------- ----------- --------- -----------
Property and equipment, net................. -- -- -- -- --
Intangible assets........................... 9,020,798 3,280,255 710,084 463,893 13,475,030
Other assets................................ -- -- -- -- --
----------- ----------- ----------- --------- -----------
Total assets......................... $ 8,420,798 $ 2,640,255 $ 651,084 $ 153,893 $11,866,030
=========== =========== =========== ========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable........................... $ -- $ -- $ -- $ -- $ --
Accrued liabilities........................ -- -- -- -- --
Deferred revenue........................... -- -- -- -- --
Notes payable - related party.............. -- -- (2,178,806) -- (2,178,806)
Current portion of long-term debt - related
party.................................... -- -- -- -- --
Current portion of capital lease
obligation............................... -- -- -- -- --
----------- ----------- ----------- --------- -----------
Total current liabilities............ -- -- (2,178,806) -- (2,178,806)
Capital lease obligation, less current
portion.................................... -- -- -- -- --
Long-term notes payable, less current
portion.................................... -- -- -- -- --
Shareholders' equity (deficit):
Common stock............................... 7,074,912 2,334,288 531,000 150,000 10,090,200
(52,637) (302,559) (73,900) -- (429,096)
Additional paid-in capital................. (1,959,985) -- -- -- (1,959,985)
Preferred stock............................ -- -- -- -- --
Accumulated deficit........................ 3,358,508 608,526 2,372,790 3,893 6,343,717
----------- ----------- ----------- --------- -----------
Total shareholders' equity
(deficit).......................... 8,420,798 2,640,255 2,829,890 153,893 14,044,836
----------- ----------- ----------- --------- -----------
$ 8,420,798 $ 2,640,255 $ 651,084 $ 153,893 $11,866,030
=========== =========== =========== ========= ===========
</TABLE>
- ---------------
(a) Reflects the elimination of common stock, additional paid-in capital,
accumulated deficit, the payment of $600,000 of cash and issuance of
818,036 shares of our common stock at an assigned value of $7,074,912,
as well as recording of the intangible assets in connection with our
acquisition of m3 the Healthcare Learning Company.
(b) Reflects the elimination of common stock, additional paid-in capital,
accumulated deficit, the payment of $640,000 of cash and issuance of
269,902 shares of our common stock at an assigned value of $2,334,288
as well as recording of the intangible assets in connection with our
acquisition of EMInet, Inc.
(c) Reflects the elimination of liabilities not assumed, common stock,
additional paid-in capital, accumulated deficit, and the payment of
$59,000 in cash and issuance of 61,397 shares of our common stock at an
assigned value of $531,000, as well as recording of the intangible
assets in connection with our acquisition of Quick Study, Inc.
(d) Reflects the payment of $310,000 of cash and issuance of 17,343 shares
of our common stock at an assigned value of $150,000, the elimination
of accumulated deficit, as well as recording of the intangible assets
in connection with our acquisition of KnowledgeReview LLC.
F-5
<PAGE> 81
HEALTHSTREAM, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED BALANCE SHEET -- (CONTINUED)
(3) Reflects the conversion, upon completion of this offering, of 76,000 shares
of Series A Convertible Preferred Stock into 325,461 shares of Common Stock,
1,358,101 shares of Series B Convertible Preferred Stock into 5,815,904
shares of our Common Stock and 627,406 shares of Series C Convertible
Preferred Stock into 1,543,499 shares of our Common Stock. Also reflects the
effects of the sale of 5,000,000 shares of common stock at an assumed
initial public offering price of $12.00 per share (the midpoint of the range
on the cover of this prospectus) and the application of the estimated net
proceeds of $65,295,000 (including the concurrent private sale of an
estimated 833,334 shares of common stock and the application of the
estimated proceeds of $10,000,000), the repayment of $1,276,708 of debt
assumed in connection with the acquisition of m3 the Healthcare Learning
Company and Quick Study, and the conversion of $1,293,000 of notes
payable-related party to Series B Convertible Preferred Stock, which are
included in the conversion of the Series B Preferred Stock into Common Stock
above. Recording of proceeds also includes reclassification of offering
costs of $295,000 out of other assets.
F-6
<PAGE> 82
HEALTHSTREAM, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
ACQUISITION PRE-OFFERING OFFERING
ACQUIRED PRO FORMA PRO FORMA PRO FORMA PRO FORMA
HEALTHSTREAM COMPANIES(A) ADJUSTMENTS(B) CONSOLIDATED ADJUSTMENTS CONSOLIDATED
------------ ------------ -------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................... $ 2,567,868 $4,667,234 $ -- $ 7,235,102 $ -- $ 7,235,102
Operating costs and
expenses:
Cost of revenues.......... 2,119,127 1,941,462 -- 4,060,589 -- 4,060,589
Product development....... 2,037,272 1,277 -- 2,038,549 -- 2,038,549
Selling, general and
administrative
expenses................ 2,971,408 3,450,673 4,553,042 10,975,123 -- 10,975,123
----------- ---------- ----------- ------------ ---------- ------------
Total operating
costs and
expenses.......... 7,127,807 5,393,412 4,553,042 17,074,261 -- 17,074,261
----------- ---------- ----------- ------------ ---------- ------------
Loss from operations........ (4,559,939) (726,178) (4,553,042) (9,839,159) -- (9,839,159)
Other income (expense),
net....................... 103,535 (237,939) -- (134,404) 193,059(d) 58,655
----------- ---------- ----------- ------------ ---------- ------------
Net loss.................... $(4,456,404) $ (964,117) $(4,553,042) $ (9,973,563) $ 193,059 $ (9,780,504)
=========== ========== =========== ============ ========== ============
Net loss per share:
Basic..................... $ (1.19) $ (0.54)
=========== ============
Diluted................... $ (1.19) $ (0.54)
=========== ============
Weighted average number of
common shares:
Basic..................... 3,756,556 959,499(c) 13,518,198(e) 18,234,253
=========== =========== ========== ============
Diluted................... 3,756,556 959,499(c) 13,518,198(e) 18,234,253
=========== =========== ========== ============
</TABLE>
See accompanying notes to unaudited pro forma condensed statement of operations.
F-7
<PAGE> 83
HEALTHSTREAM, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999.
(a) Reflects the historical results of SilverPlatter Education for the six
months ended June 30, 1999 and the results of Multimedia Marketing, Inc.
d/b/a m3 the Healthcare Learning Company, KnowledgeReview, EMInet and Quick
Study for the year ended December 31, 1999 summarized as follows:
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
SILVERPLATTER M3 THE HEALTHCARE QUICK STUDY, KNOWLEDGE ACQUIRED
EDUCATION LEARNING COMPANY EMINET, INC. INC. REVIEW LLC COMPANIES
------------- ----------------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues......................... $835,847 $3,330,408 $308,453 $ 192,076 $ 450 $4,667,234
Operating costs and expenses:
Cost of revenues............. 350,988 1,332,163 181,347 76,964 -- 1,941,462
Product development.......... -- -- -- -- 1,277 1,277
Selling, general and
administrative expenses.... 504,796 2,331,427 143,179 468,205 3,066 3,450,673
-------- ---------- -------- --------- ------- ----------
Total operating costs and
expenses............... 855,784 3,663,590 324,526 545,169 4,343 5,393,412
-------- ---------- -------- --------- ------- ----------
Loss from operations............. (19,937) (333,182) (16,073) (353,093) (3,893) (726,178)
Other income (expense), net...... -- (113,716) -- (124,223) -- (237,939)
-------- ---------- -------- --------- ------- ----------
Net loss......................... $(19,937) $ (446,898) $(16,073) $(477,316) $(3,893) $ (964,117)
======== ========== ======== ========= ======= ==========
</TABLE>
Certain reclassifications have been made to the acquired companies'
historical statements of operations to conform to our presentation.
F-8
<PAGE> 84
HEALTHSTREAM, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS -- (CONTINUED)
(b) Reflects the elimination of historical depreciation and recognition of
depreciation of property and equipment and amortization of acquired
technology and other intangible assets as summarized below:
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
ACQUISITION
SILVERPLATTER M3 THE HEALTHCARE QUICK STUDY, KNOWLEDGE PRO FORMA
EDUCATION LEARNING COMPANY EMINET, INC. INC. REVIEW LLC ADJUSTMENTS
------------- ----------------- ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................... $ -- $ -- $ -- $ -- $ -- $ --
Operating costs and
expenses:
Cost of revenues........ -- -- -- -- -- --
Product development..... -- -- -- -- -- --
Selling, general and (64,574)(1) (117,244)(1) (2,541)(1) (24,523)(1)
administrative
expenses............ 247,067(2) 3,016,041(3) 1,103,485(4) 240,700(5) 154,631(6) 4,553,042
--------- ----------- ----------- --------- --------- -----------
Total operating
costs and
expenses.......... 182,493 2,898,797 1,100,944 216,177 154,631 4,553,042
--------- ----------- ----------- --------- --------- -----------
Loss from operations........ (182,493) (2,898,797) (1,100,944) (216,177) (154,631) (4,553,042)
Other income (expense),
net....................... -- -- -- -- -- --
--------- ----------- ----------- --------- --------- -----------
Net loss.................... $(182,493) $(2,898,797) $(1,100,944) $(216,177) $(154,631) $(4,553,042)
========= =========== =========== ========= ========= ===========
</TABLE>
- ---------------
(1) Reflects the elimination of historical depreciation and amortization for
each entity.
(2) SilverPlatter Education pro forma entries reflect amortization of goodwill
of $1.0 million over a three year life for a half a year, plus amortization
of customer list and noncompete agreement ($300,000) over a two year life
for half a year, and depreciation of fair value of fixed assets of $54,000
over an average five year life.
(3) m3 the Healthcare Learning Company pro forma entries reflect amortization of
goodwill of $9,020,798 over a three year life for a full year and
depreciation of fair value of fixed assets of $45,544 over an average five
year life.
(4) EMInet pro forma entries reflect amortization of goodwill of $3,280,255 over
a three year life for a full year and depreciation of fair value of fixed
assets of $50,335 over an average five year life.
(5) Quick Study pro forma entries reflect amortization of goodwill of $710,084
over a three year life for a full year and depreciation of fair value of
fixed assets of $20,026 over an average five year life.
(6) KnowledgeReview pro forma entries reflect amortization of goodwill of
$463,893 over a three year life for a full year.
F-9
<PAGE> 85
HEALTHSTREAM, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS -- (CONTINUED)
(c) Reflects the issuance of 49,202 (results in an additional 24,601 shares
for weighted average shares outstanding) shares of our common stock to
acquire SilverPlatter Education, Inc., the issuance of 818,036 shares
of our common stock to acquire Multimedia Marketing, Inc. d/b/a m3 the
Healthcare Learning Company, the issuance of 61,397 shares of our
common stock to acquire Quick Study, Inc., the issuance of 17,343
shares of our common stock to acquire KnowledgeReview LLC, and the
issuance of 269,902 shares of our common stock to acquire EMInet, Inc.
The number of shares issued have been reduced by 231,780 shares related
to shares placed in escrow in connection with the acquisitions.
(d) Reflects the elimination of the historical interest expense on
related-party debt converted to series B preferred stock upon
completion of this offering (see note (3) of Notes to Unaudited Pro
Forma Condensed Balance Sheet) and on debt assumed in the acquisitions
of m3 the Healthcare Learning Company and Quick Study, which will be
repaid upon completion of this offering.
(e) Reflects (i) the conversion of series A, B and C preferred stock into
7,684,864 shares of our common stock; (ii) the sale of 5,000,000 shares
of our common stock in this offering; and (iii) the concurrent private
sale of an estimated 833,334 shares of our common stock.
F-10
<PAGE> 86
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
HealthStream, Inc.
We have audited the accompanying balance sheets of HealthStream, Inc. at
December 31, 1998 and 1999, and the related statements of operations,
shareholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1999. 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 in accordance with auditing standards generally
accepted in the United States. Those standards 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. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of HealthStream, Inc. at
December 31, 1998 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.
Ernst & Young LLP
Nashville, Tennessee
January 22, 2000, except for
Note 12, as to which the date
is March , 2000
The foregoing report is in the form that will be signed upon the completion
of the stock split and the increase in the number of shares of common stock and
preferred stock authorized described in Note 12 to the financial statements.
/s/ Ernst & Young LLP
Nashville, Tennessee
March 7, 2000
F-11
<PAGE> 87
HEALTHSTREAM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 50,823 $13,632,144
Accounts receivable, net of allowance for doubtful
accounts of $36,500 in 1998 and $37,000 in 1999......... 481,316 544,042
Accounts receivable -- unbilled........................... 10,821 18,877
Investments............................................... -- 86,063
Prepaid expenses and other assets......................... 8,358 263,517
----------- -----------
Total current assets............................... 551,318 14,544,643
Property and equipment:
Furniture and fixtures.................................... 114,186 445,172
Equipment................................................. 671,072 1,109,015
Leasehold improvements.................................... 196,405 369,346
----------- -----------
981,663 1,923,533
Less accumulated depreciation and amortization............ (380,134) (589,632)
----------- -----------
601,529 1,333,901
Intangible assets, net of accumulated amortization of $0 in
1998 and $213,031 in 1999................................. -- 1,134,673
Other assets................................................ -- 441,488
----------- -----------
Total assets....................................... $ 1,152,847 $17,454,705
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
Current liabilities:
Accounts payable.......................................... $ 119,102 $ 443,455
Accrued liabilities....................................... 94,827 448,727
Deferred revenue.......................................... 322,760 791,424
Notes payable -- related parties.......................... 2,835,000 1,293,000
Current portion of long-term debt -- related party........ 23,585 12,892
Current portion of capital lease obligations.............. 10,539 89,881
----------- -----------
Total current liabilities.......................... 3,405,813 3,079,379
Long-term debt -- related party............................. 12,892 --
Capital lease obligations, less current portion............. 19,076 185,801
Commitments and contingencies
Shareholders' equity (deficit):
Common stock, no par value; 20,000,000 shares authorized;
3,256,307 and 4,165,461 shares issued and outstanding at
December 31, 1998 and 1999, respectively................ 1,798,498 4,008,991
Preferred Stock, no par value; 1,000,000 and 5,000,000
shares authorized at December 31, 1998 and 1999,
respectively............................................ -- --
Series A Convertible Preferred Stock; 41,000 and 76,000
shares issued and outstanding at December 31, 1998 and
1999, respectively..................................... 410,000 760,000
Series B Convertible Preferred Stock; no shares and
1,228,801 issued and outstanding at December 31, 1998
and 1999, respectively................................. -- 12,138,000
Series C Convertible Preferred Stock; no shares and
627,406 shares issued and outstanding at December 31,
1998 and 1999, respectively............................ -- 6,274,060
Accumulated other comprehensive loss...................... -- (41,690)
Accumulated deficit....................................... (4,493,432) (8,949,836)
----------- -----------
Total shareholders' equity (deficit)............... (2,284,934) 14,189,525
----------- -----------
Total liabilities and shareholders' equity
(deficit)........................................ $ 1,152,847 $17,454,705
=========== ===========
</TABLE>
See accompanying notes.
F-12
<PAGE> 88
HEALTHSTREAM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
Revenues................................................. $1,268,352 $ 1,716,094 $ 2,567,868
Operating costs and expenses:
Cost of revenues....................................... 870,061 1,057,453 2,119,127
Product development.................................... 293,706 443,336 2,037,272
Selling, general and administrative expenses........... 875,416 1,476,639 2,971,408
---------- ----------- -----------
Total operating costs and expenses............. 2,039,183 2,977,428 7,127,807
---------- ----------- -----------
Loss from operations..................................... (770,831) (1,261,334) (4,559,939)
Other income (expense):
Interest and other income.............................. 2,226 2,634 312,324
Interest expense -- related parties.................... (182,708) (328,412) (193,059)
Interest expense....................................... -- (2,070) (12,041)
Other expense.......................................... (8,792) (318) (3,689)
---------- ----------- -----------
(189,274) (328,166) 103,535
---------- ----------- -----------
Net loss................................................. $ (960,105) $(1,589,500) $(4,456,404)
========== =========== ===========
Net loss per share:
Basic.................................................. $ (0.29) $ (0.49) $ (1.19)
========== =========== ===========
Diluted................................................ $ (0.29) $ (0.49) $ (1.19)
========== =========== ===========
Weighted average shares of common stock outstanding:
Basic............................................... 3,256,307 3,256,307 3,756,556
========== =========== ===========
Diluted............................................. 3,256,307 3,256,307 3,756,556
========== =========== ===========
</TABLE>
See accompanying notes.
F-13
<PAGE> 89
HEALTHSTREAM, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
CONVERTIBLE CONVERTIBLE CONVERTIBLE
COMMON STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
----------------------- ----------------- ----------------------- -------------------- ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT DEFICIT
---------- ---------- ------ -------- --------- ----------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1996............ 3,256,307 $1,668,166 -- $ -- -- $ -- -- $ -- $(1,943,827)
Net loss............ -- -- -- -- -- -- -- -- (960,105)
---------- ---------- ------ -------- --------- ----------- ------- ---------- -----------
Balance at December
31, 1997............ 3,256,307 1,668,166 -- -- -- -- -- -- (2,903,932)
Net loss............ -- -- -- -- -- -- -- -- (1,589,500)
Issuance of
preferred stock... -- -- 41,000 410,000 -- -- -- -- --
Stock options
granted........... -- 130,332 -- -- -- -- -- -- --
---------- ---------- ------ -------- --------- ----------- ------- ---------- -----------
Balance at December
31, 1998............ 3,256,307 1,798,498 41,000 410,000 -- -- -- -- (4,493,432)
Net loss............ -- -- -- -- -- -- -- -- (4,456,404)
Unrealized loss on
investment, net of
tax............... -- -- -- -- -- -- -- -- --
Comprehensive
loss.............. -- -- -- -- -- -- -- -- --
Issuance of
preferred stock... -- -- 35,000 350,000 1,228,801 12,138,000 627,406 6,274,060 --
Issuance of common
stock............. 855,327 1,231,590 -- -- -- -- -- -- --
Issuance of common
stock in
acquisition....... 49,202 200,000 -- -- -- -- -- -- --
Issuance of stock
options to
advisory boards... -- 11,760 -- -- -- -- -- -- --
Issuance of common
stock for
services.......... 4,625 18,800 -- -- -- -- -- -- --
Issuance of
warrant........... -- 748,343 -- -- -- -- -- -- --
---------- ---------- ------ -------- --------- ----------- ------- ---------- -----------
Balance at December
31, 1999............ 4,165,461 $4,008,991 76,000 $760,000 1,228,801 $12,138,000 627,406 $6,274,060 $(8,949,836)
========== ========== ====== ======== ========= =========== ======= ========== ===========
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE SHAREHOLDERS'
LOSS EQUITY (DEFICIT)
------------- ----------------
<S> <C> <C>
Balance at December
31, 1996............ $ -- $ (275,661)
Net loss............ -- (960,105)
-------- -----------
Balance at December
31, 1997............ -- (1,235,766)
Net loss............ -- (1,589,500)
Issuance of
preferred stock... -- 410,000
Stock options
granted........... -- 130,332
-------- -----------
Balance at December
31, 1998............ -- (2,284,934)
Net loss............ -- (4,456,404)
Unrealized loss on
investment, net of
tax............... (41,690) (41,690)
-------- -----------
Comprehensive
loss.............. -- (4,498,094)
-----------
Issuance of
preferred stock... -- 18,762,060
Issuance of common
stock............. -- 1,231,590
Issuance of common
stock in
acquisition....... -- 200,000
Issuance of stock
options to
advisory boards... -- 11,760
Issuance of common
stock for
services.......... -- 18,800
Issuance of
warrant........... -- 748,343
-------- -----------
Balance at December
31, 1999............ $(41,690) $14,189,525
======== ===========
</TABLE>
See accompanying notes.
F-14
<PAGE> 90
HEALTHSTREAM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
--------- ----------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................... $(960,105) $(1,589,500) $ (4,456,404)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.............................................. 100,739 132,267 239,248
Amortization.............................................. 7,775 14,648 213,032
Provision for loss on doubtful accounts................... -- 36,500 500
Loss on disposal of assets................................ 7,624 3,727 3,689
Noncash legal expense..................................... -- 2,100 --
Noncash compensation expense.............................. -- 128,232 30,560
Noncash product development............................... -- -- 748,343
Changes in operating assets and liabilities, excluding
effects of acquisition:
Accounts receivable..................................... (165,126) (232,593) (51,239)
Accounts receivable -- unbilled......................... (63,696) 54,150 (8,056)
Prepaid expenses and other assets....................... (502) (4,409) (225,442)
Other assets............................................ -- -- (440,011)
Accounts payable........................................ (4,936) 71,942 324,353
Accrued liabilities..................................... 29,425 46,676 236,561
Deferred revenue........................................ 177,241 87,005 126,714
--------- ----------- ------------
Net cash used in operating activities................. (871,561) (1,249,255) (3,258,152)
INVESTING ACTIVITIES:
Acquisition of company, net of cash acquired................ -- -- (780,206)
Purchase of property and equipment.......................... (239,939) (208,577) (639,724)
Purchase of investments..................................... -- -- (127,753)
--------- ----------- ------------
Net cash used in investing activities....................... (239,939) (208,577) (1,547,683)
FINANCING ACTIVITIES:
Proceeds from notes payable -- related parties.............. 1,185,000 1,040,000 18,000
Proceeds from issuance of preferred stock................... -- 410,000 18,202,060
Proceeds from exercise of stock options..................... -- -- 231,590
Payments on notes payable -- related parties................ (18,575) (20,931) (23,585)
Payments on capital lease obligations....................... -- (4,779) (40,909)
--------- ----------- ------------
Net cash provided by financing activities................... 1,166,425 1,424,290 18,387,156
--------- ----------- ------------
Net increase (decrease) in cash and cash equivalents........ 54,925 (33,542) 13,581,321
Cash and cash equivalents at beginning of period............ 29,440 84,365 50,823
--------- ----------- ------------
Cash and cash equivalents at end of period.................. $ 84,365 $ 50,823 $ 13,632,144
========= =========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................... $ 176,708 $ 320,320 $ 225,074
========= =========== ============
Capital lease obligations incurred.......................... $ -- $ 34,394 $ 286,976
========= =========== ============
Conversion of notes payable -- related parties to common
stock..................................................... $ -- $ -- $ 1,000,000
========= =========== ============
Conversion of notes payable -- related parties to Series B
Preferred Stock........................................... $ -- $ -- $ 560,000
========= =========== ============
Issuance of common stock in connection with acquisition of
company................................................... $ -- $ -- $ 200,000
========= =========== ============
Issuance of common stock in exchange for professional
services.................................................. $ -- $ -- $ 18,800
========= =========== ============
Issuance of stock options to advisory boards................ $ -- $ -- $ 11,760
========= =========== ============
</TABLE>
See accompanying notes.
F-15
<PAGE> 91
HEALTHSTREAM, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REPORTING ENTITY
HealthStream, Inc. ("the Company") was incorporated in 1990 and is based in
Nashville, Tennessee. The Company is pioneering a Web-based solution to meet the
ongoing training and continuing education needs of the healthcare community. The
Company changed its name to HealthStream, Inc. from NewOrder Media, Inc. on
September 1, 1998. The Company provides an interactive training solution for
delivering and tracking computer based education primarily for the healthcare
industry in the United States, utilizing the Training Navigator(R) (T.NAV(R))
software suite developed by the Company. The Company also provides custom
content development through the organization and translation of content into an
interactive experience, and assists in the development of websites.
RECOGNITION OF REVENUE
The Company recognizes revenue in accordance with Statement of Position
97-2, "Software Revenue Recognition."
Revenues are derived from the license of the Company's T.NAV(R) software,
maintenance and support services, custom content development, website
development, subscriptions, professional and technical consulting services,
implementation and training services. Revenues derived from the sale of products
requiring significant modification or customization are recorded based on the
percentage of completion method using labor hours. Revenues from subscriptions
are deferred and recognized ratably over the term of the subscription. Software
support and maintenance revenues are recognized ratably over the term of the
related agreement. All other service revenues are recognized as the related
services are performed. The Company also receives a percentage of its resellers'
revenue from the sale of T.NAV(R) software. The Company recognizes a percentage
of revenue from resellers upon notification from the reseller that a sale has
occurred. In March 1999, the Company began providing educational training
services via the Internet. Through December 31, 1999 revenues from these
services have been approximately $216,000.
The Company does not recognize barter transactions unless the value of the
transaction is readily determinable and measurable. Through December 31, 1999,
the Company had not been party to any significant barter transactions and has
not recognized the value of any such transactions in the financial statements.
The Company has recently entered into sponsorship agreements which involve
integration with services and provide for varied sources of revenue to the
Company over the terms of the agreements. In some cases revenues derived from
electronic commerce transactions are shared between the other entity and the
Company, in accordance with the term of the arrangement, as realized. Revenues
from such transactions have been recognized in accordance with SEC Staff
Accounting Bulletin ("SAB") No. 101 "Revenue Recognition."
NET LOSS PER SHARE
The Company computes net loss per share following Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share" and SAB No. 98.
Under the provisions of SFAS No. 128, basic net loss per share is computed by
dividing the net loss available to common shareholders for the period by the
weighted average number of common shares outstanding during the period. Diluted
net loss per share is computed by dividing the net loss for the period by the
weighted average number of common and common equivalent shares outstanding
during the period. Common equivalent shares, composed of incremental common
shares issuable upon the exercise of stock options and warrants, and common
shares issuable on assumed conversion of Series A, B and C Convertible Preferred
Stock, are included in diluted net loss per share to the extent these shares are
dilutive. Common equivalent shares are not included in
F-16
<PAGE> 92
HEALTHSTREAM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the computation of diluted net loss per share for the years ended December 31,
1997, 1998 and 1999 because the effect would be anti-dilutive.
Under the provisions of SAB 98, common shares issued for nominal
consideration, if any, would be included in the per share calculations as if
they were outstanding for all periods presented. No common shares have been
issued for nominal consideration.
CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
The Company places its temporary excess cash investments in high quality
short-term money market instruments. At times, such investments may be in excess
of the FDIC insurance limits.
The Company sells its systems and services to various companies in the
healthcare industry. The Company performs ongoing credit evaluations of its
customers' financial condition and generally requires no collateral from its
customers. During 1997, the Company derived approximately $203,000 of its
revenues from one customer (Mosby, Inc.) During 1998, the Company derived
approximately $560,000 of its revenues from Lippincott, Williams and Wilkins,
formerly Waverly, Inc. and approximately $260,000 of its revenues from Mosby,
Inc. During 1999, the Company derived approximately $380,000 of its revenues
from ActivHealth International, Inc. and approximately $240,000 of its revenues
from Lippincott, Williams and Wilkins, formerly Waverly, Inc. The total amounts
receivable from Lippincott, Williams and Wilkins, formerly Waverly, Inc. and
ActivHealth International, Inc. at December 31, 1999 were approximately
$118,000. The total amounts receivable from Lippincott, Williams and Wilkins,
formerly Waverly, Inc. and Mosby, Inc. at December 31, 1998 were approximately
$126,000.
CASH AND CASH EQUIVALENTS
The Company considers unrestricted, highly liquid investments with initial
maturities of less than three months to be cash equivalents.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Changes in the allowance for doubtful accounts and the amounts charged to
bad debt expense were as follows:
<TABLE>
<CAPTION>
ALLOWANCE
BALANCE AT CHARGED TO CHARGED TO ALLOWANCE
BEGINNING OF COSTS AND OTHER BALANCE AT
PERIOD EXPENSES ACCOUNTS WRITE-OFFS END OF PERIOD
------------ ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31:
1997........................... $ -- $ -- $ -- $ -- $ --
1998........................... -- 36,500 -- -- 36,500
1999........................... 36,500 6,250 -- 5,750 37,000
</TABLE>
INVESTMENTS
Investments are accounted for in accordance with SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," and are classified as
available-for-sale. Available for sale securities are carried at fair value,
which is based on quoted prices, with the unrealized gains and losses excluded
from earnings and reported, net of tax, as a separate component of shareholders'
equity. Realized gains and losses and declines in value judged to be
other-than-temporary, are included in other income.
F-17
<PAGE> 93
HEALTHSTREAM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated on the basis of cost. Depreciation and
amortization are provided on the straight-line method over the following
estimated useful lives, except for assets under capital leases which are
amortized over the shorter of the estimated useful life or the lease term.
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Furniture and fixtures...................................... 5-10
Equipment................................................... 3-5
Leasehold improvements...................................... 15
</TABLE>
INTANGIBLE ASSETS
Intangible assets, which represents the excess of purchase price over fair
value of net tangible assets acquired, customer lists, and non-compete
agreements, are amortized on a straight-line basis over the expected periods to
be benefited, generally three, two and two years, respectively. These intangible
assets relate to the acquisition of certain assets from SilverPlatter Education,
Inc. ("SilverPlatter"). See Note 2.
OTHER ASSETS
Other assets are comprised of licensing fees, offering costs and other long
term items. Licensing fees are amortized based on the lives of the related
agreements, generally 2 years.
LONG-LIVED ASSETS
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" requires that companies consider whether
events or changes in facts and circumstances, both internally and externally,
may indicate that an impairment of long-lived assets held for use are present.
Management periodically evaluates the carrying value of long-lived assets,
including property and equipment and intangible assets and has determined that
there were no indications of impairment as of December 31, 1997, 1998 and 1999.
Should there be an impairment in the future, the Company will recognize the
amount of the impairment based on expected future cash flows from the impaired
assets. The cash flow estimates that will be used will be based on management's
best estimates, using appropriate and customary assumptions and projections at
the time.
ACCOUNTS RECEIVABLE-UNBILLED AND DEFERRED REVENUE
Accounts receivable-unbilled represents revenue earned for contracts
accounted for on the percentage of completion basis for which invoices have not
been generated. Deferred revenue represents the portion of revenue for which the
revenue recognition process is incomplete.
ADVERTISING
The Company expenses the costs of advertising as incurred. Advertising
expense for the years ended December 31, 1997, 1998 and 1999, was approximately
$8,200, $2,900 and $121,800, respectively.
PRODUCT DEVELOPMENT COSTS
Product development costs incurred to establish the technological
feasibility of computer software products are charged to expense as incurred.
The Company capitalizes costs incurred between the point of establishing
technological feasibility and general release when such costs are material. As
of December 31, 1998 and 1999, the Company has no capitalized computer software
development costs.
F-18
<PAGE> 94
HEALTHSTREAM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STOCK OPTION PLAN
The Company applies the intrinsic value method of accounting prescribed by
Accounting Principles Board Opinion No. 25 ("APB No. 25") "Accounting for Stock
Issued to Employees", and related interpretations in accounting for its options.
As such, compensation expense would generally be recorded on the date of grant
only if the then current market price of the underlying stock exceeded the
exercise price.
USE OF ESTIMATES
The preparation of the Company's 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
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates and such differences could be material
to the financial statements.
INCOME TAXES
Prior to October 1, 1998, the Company, with the consent of its
shareholders, elected Subchapter S status under the provisions of the Internal
Revenue Code. The shareholders of an S Corporation are taxed on their
proportionate share of the Company's taxable income in lieu of a corporate
income tax. Accordingly, no provision, benefit, or liability for federal income
taxes has been included in the financial statements for periods prior to October
1, 1998. The Subchapter S election was not available for Tennessee corporate
income tax. On October 1, 1998, the Company terminated the Subchapter S
election. Effective October 1, 1998, the Company began providing for federal
income taxes. Such taxes have been provided in accordance with the provisions of
SFAS No. 109, "Accounting for Income Taxes."
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts approximate the fair
value because of the short maturity of such instruments.
Accounts receivable, accounts receivable-unbilled, accounts payable,
accrued liabilities and deferred revenue: The carrying amounts approximate
the fair value because of the short-term nature of such instruments.
Short and long-term debt: The carrying amounts approximate the fair
value based on current financing for similar loans available to the
Company.
Investments: The carrying amounts approximate the fair value based on
quoted prices.
NEWLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," which is effective for fiscal years
beginning after December 15, 1997. This statement establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The new rule requires that the Company
(a) classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in-capital in the equity
section of the balance sheet. As a result of adopting SFAS 130, the Company
F-19
<PAGE> 95
HEALTHSTREAM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
has recognized other comprehensive loss of $41,690 for the year ended December
31, 1999 which represents an unrealized loss on an investment.
In 1998, the Company adopted SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS No. 131 requires companies to
report selected segment information when certain tests are met. Management has
determined that the Company operates in only one reportable segment meeting the
applicable tests.
As of January 1, 1998, the Company early adopted Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP 98-1 establishes standards for reporting and
presenting in a full set of general purpose financial statements the costs
incurred in the development of internal-use computer software. Internal-use
software is acquired, internally developed, or modified solely to meet the
Company's internal needs without the intent to market externally. The adoption
of SOP 98-1 had no effect on the Company's financial statements.
As of January 1, 1998, the Company early adopted SOP 98-5, "Reporting on
the Costs of Start-Up Activities." SOP 98-5 establishes standards for reporting
and presenting start-up costs in a full set of general purpose financial
statements. Start-up costs, including organizational costs, are expensed as
incurred under this SOP. The adoption of SOP 98-5 had no effect on the Company's
financial statements.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits -- an amendment of FASB
Statements No. 87, 88 and 106" which is effective for fiscal years beginning
after December 15, 1997. This statement revises employers' disclosures about
pension and other postretirement benefit plans. It does not change the
measurement or recognition of those plans. The adoption of SFAS No. 132 had no
effect on the Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective as amended for fiscal
quarters of fiscal years beginning after June 15, 2000. This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. Management of the Company does not expect the
adoption of SFAS No. 133 to have a material effect on the Company's financial
statements.
In December 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions." SOP 98-9
requires recognition of revenue using the "residual method" in a
multiple-element software arrangement when fair value does not exist for one or
more of the delivered elements in the arrangement. Under the "residual method,"
the total fair value of the undelivered elements is deferred and recognized in
accordance with SOP 97-2. The Company is required to implement SOP 98-9 for the
year ending December 31, 2000. Adoption of SOP 98-9 is not expected to have a
material effect on the Company's financial statements.
2. ACQUISITION OF SILVERPLATTER
On July 23, 1999, the Company acquired substantially all of the assets of
SilverPlatter, a Boston-based company which provided CD-ROM and Internet-based
continuing medical education programs to physicians, for $1.0 million, including
$800,000 in cash and 49,202 shares of common stock. The results of operations
are included in the Company's financial statements from July 23, 1999. The
acquisition was accounted for as a purchase. The excess of purchase price over
fair value of net assets acquired of $1.0 million is being amortized on a
straight-line basis over three years.
F-20
<PAGE> 96
HEALTHSTREAM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following unaudited pro forma condensed results give effect to the
acquisition of SilverPlatter as if such transaction had occurred at the
beginning of each year presented:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Total revenues............................................ $ 4,059,529 $ 3,403,715
Net loss.................................................. (2,156,838) (4,658,834)
Basic net loss per share.................................. $ (0.65) $ (1.23)
Diluted net loss per share................................ $ (0.65) $ (1.23)
</TABLE>
3. NOTES PAYABLE AND LONG-TERM DEBT -- RELATED PARTIES
Notes payable and long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Notes payable-related parties............................. $ 2,835,000 $ 1,293,000
=========== ===========
Long-term debt-related party.............................. $ 36,477 $ 12,892
Less current portion...................................... (23,585) (12,892)
----------- -----------
$ 12,892 $ --
=========== ===========
</TABLE>
The Company had a partially secured demand note payable to a vice president
and stockholder of the Company, totaling $60,000 at December 31, 1998 and $0 at
December 31, 1999. The note accrued interest at 12% and was converted into
Series B Convertible Preferred Stock on August 23, 1999.
The Company has notes payable to the Chief Executive Officer ("CEO") and
principal stockholder totaling $2,775,000 at December 31, 1998, and $1,293,000
at December 31, 1999. On April 21, 1999, $1,250,000 of the notes payable were
converted into Common Stock and Series B Convertible Preferred Stock. The
remaining $1,525,000 was converted into a promissory note ("April note") along
with $18,000 of additional indebtedness loaned to the Company by the CEO during
1999. On August 23, 1999, the CEO converted an additional $250,000 of notes
payable into Series B Convertible Preferred Stock. The remaining $1,293,000 was
converted into a new promissory note ("August note") which has identical terms
as the April note. The August note is unsecured and accrues interest at a
variable rate equal to the lesser of the margin rate of interest at a designated
brokerage account or 10.5% and interest is payable monthly. The August note
matures on October 23, 2006 or the earliest of: (i) the date determined by the
Company's Board of Directors; (ii) the closing of an Initial Public Offering
("IPO") of at least $30 million; (iii) the sale of the Company; or (iv) the
bankruptcy of the Company. The August note is convertible into Series B
Convertible Preferred Stock at the option of the CEO, upon the occurrence of:
(i) the termination by the Company of the CEO; (ii) any liquidation,
dissolution, winding up, consolidation, sale or merger of the Company; or (iii)
an IPO.
The Company has an unsecured long-term promissory note payable to the CEO,
totaling $36,477 at December 31, 1998, and $12,892 at December 31, 1999. The
note requires monthly installments of principal and interest of $2,224 through
May 23, 2000. The note accrues interest at 12%.
The Company's weighted average debt outstanding for the years ended
December 31, 1998 and 1999 was $2,423,499 and $2,000,261, respectively. The
effective interest rate on such debt was 12.5% and 10.1% for the years ended
December 31, 1998 and 1999, respectively.
F-21
<PAGE> 97
HEALTHSTREAM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. INVESTMENTS
At December 31, 1999, the Company held 229,500 shares of ARC
Communications, Inc. with a cost of $127,753 and a fair value of $86,063.
5. INCOME TAXES
As described in Note 1, the Company terminated its Subchapter S election on
October 1, 1998 and became subject to federal income taxes. As a result of the
termination of the S election, the Company was required to provide deferred
federal income taxes under SFAS 109, "Accounting for Income Taxes." The 1998
provision for income taxes includes the effect of recording a net deferred tax
asset and corresponding valuation allowance of $57,287 as a result of the
termination of the S election.
Income tax benefit differs from the amounts computed by applying the
federal statutory rate of 34% to the loss before income taxes as follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
Tax benefit at the statutory rate.................. $(326,436) $(540,430) $(1,515,177)
State income tax benefit, net of federal benefit... (57,606) (63,335) (177,741)
Other.............................................. 619 2,086 4,382
Tax benefit of losses attributable to shareholders
due to S corporation status prior to October 1,
1998............................................. 326,436 336,301 --
Deferred taxes recorded upon termination of S
corporation status............................... -- 57,287 --
Increase in valuation allowance.................... 56,987 208,091 1,688,536
--------- --------- -----------
$ -- $ -- $ --
========= ========= ===========
</TABLE>
Pro forma income taxes as if the Company had been a C Corporation for all
periods presented have not been reflected in the financial statements because a
100% valuation allowance would have been provided and accordingly there would
not have been a tax benefit.
Deferred federal and state income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999
--------- -----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $ 13,870 $ 13,914
Differences related to business combinations.............. -- 66,726
Accrued liabilities....................................... 5,604 18,841
Deferred revenue.......................................... 122,649 303,351
Difference related to warrants............................ -- 284,370
Net operating loss carryforwards.......................... 271,332 1,418,589
--------- -----------
Total deferred tax assets......................... 413,455 2,105,791
Less: Valuation allowance................................... (380,481) (2,069,017)
--------- -----------
32,974 36,774
Deferred tax liability:
Depreciation.............................................. (32,974) (36,774)
--------- -----------
Net deferred tax asset............................ $ -- $ --
========= ===========
</TABLE>
F-22
<PAGE> 98
HEALTHSTREAM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1999, the Company has federal and state net operating
loss carryforwards of $3,326,625 and $7,188,395, respectively, expiring in years
2012 through 2019.
The Company has established a valuation allowance for deferred tax assets
at December 31, 1998 and 1999 due to the uncertainty of realizing these assets
in the future. The valuation allowance increased $56,987 during 1997, $208,091
during 1998 and $1,688,536 during 1999. No federal or state income tax payments
were made during the years ended December 31, 1997, 1998, and 1999.
6. STOCK OPTION PLAN
The Company's 1994 Employee Stock Option Plan (the "Plan") authorizes the
grant of options to employees, officers and directors for up to 4,000,000 shares
of common stock. Options granted under the Plan have terms of no more than ten
years with certain restrictions. The Plan allows the Board of Directors to
determine the vesting period of each grant. The vesting period of the options
granted ranges from immediate vesting to four years.
The Company accounts for its stock incentive plans in accordance with APB
25. If the alternative method of accounting for stock incentive plans prescribed
by SFAS No. 123 had been followed, the Company's net loss and net loss per share
would have been:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1998 1999
--------- ----------- -----------
<S> <C> <C> <C>
Net loss as reported.................................... $(960,105) $(1,589,500) $(4,456,404)
Pro forma compensation expense.......................... -- 80,849 289,426
--------- ----------- -----------
Pro forma net loss...................................... $(960,105) $(1,670,349) $(4,745,830)
========= =========== ===========
Pro forma basic and diluted net loss per share.......... $ (0.29) $ (0.51) $ (1.26)
========= =========== ===========
</TABLE>
The resulting pro forma disclosures may not be representative of that to be
expected in future years. The weighted average fair value of options granted was
determined using the minimum value option pricing model with the indicated
assumptions:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
ASSUMPTIONS (WEIGHTED AVERAGE)
Risk-free interest rate..................................... 5.70% 5.70% 6.00%
Expected dividend yield..................................... 0.0% 0.0% 0.0%
Expected life (in years).................................... 5 5 5
</TABLE>
A progression of activity and various other information relative to stock
options is presented in the table below.
<TABLE>
<CAPTION>
1997 1998 1999
--------------------- --------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
COMMON EXERCISE COMMON EXERCISE COMMON EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding -- beginning of
period.......................... 1,170,639 $0.57 1,170,639 $0.57 1,650,784 $1.07
Granted........................... -- -- 496,332 2.30 1,383,892 4.29
Exercised......................... -- -- -- -- (427,085) 0.54
Forfeited......................... -- -- (16,187) 2.30 (137,362) 3.26
--------- --------- ---------
Outstanding -- end of period...... 1,170,639 0.57 1,650,784 1.07 2,470,229 2.84
========= ========= =========
Exercisable at end of period...... 1,170,639 0.57 1,196,539 0.61 892,477 1.08
========= ========= =========
</TABLE>
F-23
<PAGE> 99
HEALTHSTREAM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In July and August 1999, the CEO exercised options granted in 1995 and
purchased 416,250 shares of the Company's Common Stock at an exercise price of
$0.54 per share. In December 1999, the president exercised options granted in
1994 and purchased 3,170 shares of the Company's common stock at an exercise
price of $0.608 per share.
During 1998, the Company modified the terms of an option grant to an
employee leaving the employment of the Company by extending the exercise date of
the options. At the time of the modification, the Company recognized
compensation expense totaling $128,232 for the difference between the fair
market value and the exercise price of the options. During 1999, the Company
issued 51,800 stock options to its medical and nursing advisory boards at
exercise prices ranging from $2.34 to $6.49 with vesting periods ranging from
immediate to four years. The Company recognized $11,760 of expense in connection
with these grants.
Shares of Common Stock available for future grants of options totaled
2,349,216 and 1,102,685 at December 31, 1998 and 1999, respectively. Exercise
prices per share and various other information for options outstanding at
December 31, 1999 are segregated into ranges as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- --------------------------
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE
NUMBER AVERAGE EXERCISE REMAINING NUMBER EXERCISE PRICE
EXERCISE PRICE PER SHARE OF SHARES PRICE PER SHARE CONTRACTUAL LIFE OF SHARES PER SHARE
------------------------ --------- ---------------- ---------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$0.54 -- $0.61............ 743,552 $0.59 5.10 743,552 $0.59
$2.34................ 461,277 2.34 5.57 45,325 2.34
$4.06................ 1,109,075 4.06 7.67 103,600 4.06
$6.49................ 156,325 6.48 7.92 -- 6.48
--------- -------
2,470,229 2.84 6.52 892,477 1.08
========= =======
</TABLE>
During January 2000, options to purchase 432,245 shares of common stock at
exercise prices ranging from $6.49 to $8.65 were granted.
7. LEASE COMMITMENTS
The Company leases its office facilities in Nashville, TN and Boston, MA
under agreements that expire before or during May 2005. The Nashville, TN lease
provides for two five-year renewal options. The Company also leases certain
office equipment. Total lease expense under all operating leases was $59,184,
$51,756 and $210,234 for the years ended December 31, 1997, 1998 and 1999,
respectively. The Company also leases certain computer and office equipment and
office furnishings from various third parties accounted for as capital leases.
Future rental payment commitments at December 31, 1999 under the capital and
operating leases, having an initial term of one year or more, are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
2000........................................................ $109,303 $234,341
2001........................................................ 88,135 140,512
2002........................................................ 47,638 140,848
2003........................................................ 47,638 140,848
2004........................................................ 28,475 126,873
Thereafter.................................................. -- 41,359
-------- --------
Total minimum lease payments...................... 321,189 $824,781
========
Less amounts representing interest.......................... (45,507)
--------
Present value of net minimum lease payments (including
$89,881 classified as current)............................ $275,682
========
</TABLE>
F-24
<PAGE> 100
HEALTHSTREAM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The carrying value of assets under capital leases, which are included with
owned assets in the accompanying balance sheets is $0, $29,140 and $275,596 at
December 31, 1997, 1998 and 1999, respectively. Amortization of the assets under
the capital leases is included in depreciation expense.
8. LOSS PER SHARE
The following table sets forth the computation of basic and diluted net
loss per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1997 1998 1999
--------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net loss....................................... $(960,105) $(1,589,500) $(4,456,404)
========= =========== ===========
Denominator:
Weighted-average shares outstanding............ 3,256,307 3,256,307 3,756,556
========= =========== ===========
Net loss per share, basic and diluted............ $ (0.29) $ (0.49) $ (1.19)
========= =========== ===========
</TABLE>
For the years ended December 31, 1997, 1998 and 1999, the calculation of
weighted average shares excluded options, warrants and convertible preferred
stock because such items were anti-dilutive. The equivalent common shares
related to such options, warrants and preferred stock were 1,170,639 in 1997,
1,826,362 in 1998 and 9,846,414 in 1999.
9. EMPLOYEE BENEFIT PLAN
The Company has a defined-contribution employee benefit plan incorporating
provisions of Section 401(k) of the Internal Revenue Code. Employees of the
Company must have attained the age of 21 and have completed six months of
service to be eligible to participate in the plan. Under the plan's provisions,
a plan member may make contributions, on a tax deferred basis, not to exceed 15%
of compensation subject to IRS limitations. The Company does not provide
matching contributions.
10. PREFERRED STOCK
The Company is authorized to issue shares of Preferred Stock in one or more
series, having the relative voting powers, designations, preferences, rights and
qualifications, limitations or restrictions, and other terms as the Board of
Directors may fix in providing for the issuance of such series, without any vote
or action of the shareholders.
The Company has authorized the issuance of 76,000 shares of Preferred Stock
designated as Series A Convertible Preferred Stock, 1,436,961 shares designated
as Series B Convertible Preferred Stock. On April 21, 1999, the Company amended
its charter increasing the authorized shares of Preferred Stock to 5 million. On
August 18, 1999, the Company further amended its charter designating 650,000
shares of Preferred Stock as Series C Convertible Preferred Stock.
Each holder of Preferred Stock is entitled to notice of any shareholders'
meeting and shall vote with the holders of Common Stock, except for those
matters required by law to be voted upon separately among the holders of Common
Stock and Preferred Stock. In all cases where the holders of Preferred Stock and
holders of Common Stock are to vote together, the holder of each share of
Preferred Stock is entitled to the number of votes equal to the number of shares
of Common Stock into which each share of Preferred Stock is convertible. Except
as otherwise required by law, the holders of the Preferred Stock have voting
rights and powers equal to the voting rights and powers of the Common Stock.
Each share of Series A and B Convertible Preferred Stock is currently
convertible into the Company's Common Stock at the conversion rate of 4.28238
shares of Common Stock per share of Series A and B Convertible Preferred Stock.
Each share of Series C Convertible Preferred Stock is currently convertible into
the Company's Common Stock at the conversion rate of 2.46013 shares of Common
Stock per share of Series C Convertible Preferred Stock. These rates are subject
to an antidilution adjustment if the
F-25
<PAGE> 101
HEALTHSTREAM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company issues or sells shares of Common Stock at a per share price less than
$2.34 for Series A and B Convertible Preferred Stock and at a per share price
less than $4.06 for Series C Convertible Preferred Stock. An adjustment to the
conversion rate of the Preferred Stock would increase the voting power of the
holders thereof.
Each share of Series A, B and C Convertible Preferred Stock may, at the
option of the holder, be converted at any time into fully paid and
non-assessable shares of Common Stock. Each share of Preferred Stock shall
automatically and immediately be converted into shares of Common Stock at its
then effective conversion rate upon the earlier of (i) the closing of an initial
public offering of Common Stock pursuant to an effective registration statement
under the Securities Act of 1933 raising gross proceeds of at least $30 million
and an offering price per share greater than or equal to $4.86, or (ii) the date
specified by written agreement of the holders of 66 2/3% of the then outstanding
shares of Preferred Stock.
In the event the Company declares a dividend, the holders of Preferred
Stock shall be entitled to a proportionate share of such dividends as though the
holders of the Preferred Stock were the holders of a number of shares of Common
Stock into which their respective shares of Preferred Stock are convertible as
of the record date fixed for the determination of the holders of Common Stock
entitled to receive such dividend.
In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary (a "Liquidation"), the holders of the Preferred
Stock will be entitled to receive, prior and in preference to any distribution
of any of the assets or surplus funds of the Company to the holders of the
Common Stock, an amount in cash equal to two (2.00) times the Liquidation
Preference Payment. The Liquidation Preference Payment is equal to $10.00 per
share of Preferred Stock plus an amount equal to all dividends declared but
unpaid.
In January and February 1999 the Company issued 35,000 shares of Series A
Convertible Preferred Stock for $350,000. In April and May 1999 the Company
received commitments to purchase 1,030,501 shares of Series B Convertible
Preferred Stock at $10 per share. On April 21, 1999 and May 10, 1999, the
Company issued 527,750 shares of the Series B Convertible Preferred Stock in a
private placement to a group of institutional and individual investors in
exchange for $4,877,500 in cash, the conversion of $250,000 of notes payable to
the Company's CEO and the contribution of $150,000 in professional services. The
Company issued 502,750 shares of Series B Convertible Preferred Stock at $10 per
share in August 1999 in exchange for $4,717,500 in cash and the conversion of
$250,000 of notes payable to the Company's CEO and the conversion of $60,000 of
notes payables to a vice president and stockholder. Also, each holder of Series
A and Series B Convertible Preferred Stock had an option to purchase up to an
additional 20% of the number of shares purchased in April, May and August 1999,
at $10 per share. Each investor could exercise their option any time prior to
April 21, 2000 or upon a subsequent equity financing of at least $5 million.
This financing occurred on September 15, 1999 and therefore these options
expired on October 15, 1999. Through December 31, 1999, investors have exercised
options and purchased 198,300 shares of Series B Convertible Preferred Stock for
cash at $10 per share.
In August and September 1999, the Company issued 627,406 shares of the
Series C Convertible Preferred Stock to a group of institutional and individual
investors at $10 per share.
The Company is required at all times to reserve out of its authorized but
unissued shares of Common Stock, a number of its authorized shares of Common
Stock sufficient to effect the conversion into Common Stock of the Series A, B
and C Convertible Preferred Stock shares from time to time. At December 31, 1998
and 1999, the Company reserved and kept available 175,577 and 7,684,866 shares,
respectively, of Common Stock to effect the conversion of the Series A, B and C
Convertible Preferred Stock.
F-26
<PAGE> 102
HEALTHSTREAM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. STRATEGIC ALLIANCES
The Company periodically enters into strategic alliances with distribution
partners, content partners and development partners. Typically, these
arrangements provide for payments to these partners based on a percentage of
revenues or based on hours of courseware developed. In connection with such
arrangements, the Company has entered into agreements with three entities which
provide for up front payments of approximately $475,000 in 2000 and $187,500 in
2001. Of these amounts, approximately 79% and 100% in 2000 and 2001,
respectively, are nonrefundable. The remaining payments are subject to refund if
certain milestones are not reached. Additional payments may be required upon
delivery of courses or occurrence of certain events.
The Company also entered into a distribution agreement with an investor
during 1999. In connection with the distribution agreement, the investor was
provided with warrants to purchase 245,032 shares of the Company's common stock
at $4.06 per share. The warrants expire in June 2009. The issuance of the
warrants resulted in recognition of $748,343 of expense. No warrants have been
exercised as of December 31, 1999.
The Company also entered into a development agreement in January 2000 with
an entity under which the Company paid $95,000 and committed to pay the entity
at least another $400,000 during 2000 as courses are developed. The fixed
commitments related to this contract are included above. In connection with this
agreement, the Company received a warrant to purchase 223,834 shares of the
entity's common stock at an exercise price of $4.47 per share.
12. SUBSEQUENT EVENTS
Effective January 3, 2000, the Company acquired substantially all of the
assets and liabilities of KnowledgeReview LLC (d/b/a "CMECourses.com") for
$460,000 consisting of $150,000 (17,343 shares) of the Company's Common Stock
and the payment of $310,000 in cash. All of the Common Stock will be placed in
an escrow account for a one year period, subject to any claims. KnowledgeReview
LLC owns and operates an Internet web page which provides a search engine that
helps physicians locate continuing medical education by specialty and
facilitates online registration for such courses. The acquisition will be
accounted for as a purchase.
On January 11, 2000, the Company acquired substantially all of the assets
and liabilities of Quick Study, Inc. for $590,000, consisting of $531,000
(61,397 shares) of the Company's Common Stock and the payment of $59,000 in
cash. In addition, upon achievement of certain future customer revenue levels,
the Company may issue up to 34,687 additional shares of Common Stock. A portion
of the Common Stock will be placed in an escrow account for a one year period,
subject to any claims. In connection with the acquisition, the Company assumed
$112,000 of long-term debt. Quick Study, Inc. is a publisher of CD-ROM and
network-based products in the healthcare industry. The acquisition will be
accounted for as a purchase.
On January 28, 2000, the Company acquired substantially all of the assets
and liabilities of Multimedia Marketing, Inc. d/b/a m3 the Healthcare Learning
Company ("m3") for $7.7 million consisting of $7.1 million (818,036 shares) of
the Company's Common Stock and the payment of $600,000 in cash. m3 provides
interactive, multimedia education and training solutions to hospitals and other
healthcare organizations. A portion of the Common Stock will be placed in an
escrow account for a one year period, subject to any claims. In connection with
the acquisition, the Company assumed $1.2 million of long-term debt. The
acquisition will be accounted for as a purchase.
On January 28, 2000, the Company acquired substantially all of the assets
of EMInet, Inc. for $2.9 million consisting of $2.3 million (269,902 shares) of
the Company's Common Stock and the payment of $640,000 in cash. A portion of the
Common Stock will be placed in an escrow account for a one year period, subject
to any claims. In addition, upon the achievement of short-term revenue targets,
the Company may issue up to 26,097 additional shares of common stock. EMInet,
Inc. sells continuing
F-27
<PAGE> 103
HEALTHSTREAM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
medical education to emergency medical technicians, primarily via online
transactions. The acquisition will be accounted for as a purchase.
The following unaudited pro forma results of operations give effect to the
operations of SilverPlatter Education, which was acquired during 1999, and the
following acquisitions which have been consummated in 2000: m3; EMInet, Inc;
Quick Study, Inc. and KnowledgeReview LLC as if the acquisitions had occurred as
of the first day of 1999. The pro forma results of operations do not purport to
represent what the Company's results of operations would have been had such
transactions in fact occurred at the beginning of the periods presented or to
project the Company's results of operations in any future period.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------
<S> <C>
Revenue..................................................... $ 7,235,102
Net loss.................................................... (9,973,563)
Net loss per share:
Basic..................................................... $ (2.11)
Diluted................................................... $ (2.11)
</TABLE>
The Company has filed a Form S-1 for an initial public offering of its
common stock with the Securities and Exchange Commission. There can be no
assurances that the IPO will be consummated. In connection with the IPO, related
party debt of $1,293,000 (see Note 3) is expected to be converted to series B
convertible preferred stock, and outstanding preferred stock is to be converted
into common stock.
In February 2000, the Company entered into a four-year Online Education
Services Provider Agreement with Columbia Information Systems, Inc., an
affiliate of Columbia/HCA Healthcare Corporation "Columbia." In connection with
the agreement, the Company issued a warrant to Columbia for 2,182,568 shares at
an exercise price of $7.18.
In February 2000, the Company entered into a five year agreement with
Healtheon/WebMD. Under this agreement, the Company will be the exclusive
provider of education, continuing education and training services for all
healthcare organizations, healthcare professionals and healthcare workers on all
Web sites owned or operated by Healtheon/WebMD for five years. The Company will
pay Healtheon/WebMD a guaranteed minimum royalty of $6.0 million per year. We
will receive 100% of any revenues from the sale of our products and services
until we recover all of our payments to Healtheon/WebMD, and after that we will
receive 75% and Healtheon/WebMD will receive 25% of any revenues. If the
Company's revenues from this agreement are less than $30.0 million during the
initial five year term the Company can extend the term of the agreement for a
nominal payment. Healtheon/WebMD has committed to purchase $10.0 million of the
Company's common stock in a private sale which will be contemporaneous with the
IPO. Healtheon/WebMD has also agreed to provide certain marketing and
co-branding services to the Company under this agreement.
In February 2000, the Company granted options to purchase 348,725 shares at
$10.00 per share. In February 2000, the Company adopted the HealthStream, Inc.
2000 Stock Incentive Plan. In connection with this plan, 5,000,000 shares have
been reserved for issuance. The terms of the plan are substantially similar to
the 1994 Employee Stock Option Plan. In February 2000, the Company adopted the
Employee Stock Purchase Plan. In connection with this plan, 1,000,000 shares
have been reserved for issuance.
On March 7, 2000 the Compensation Committee approved the grant of options
to purchase 234,830 shares at $11.89 per share.
On March , 2000, the Board declared a 1.85 for one common stock split.
All share information, option, share and warrant prices and earnings per share
have been restated to reflect the stock split. Also, on March , 2000 the
Company increased the authorized shares outstanding to 75 million common shares
and 10 million preferred shares.
F-28
<PAGE> 104
REPORT OF INDEPENDENT AUDITORS
To the Stockholders of SilverPlatter Education, Inc.,
a subsidiary of SilverPlatter Information, Inc.
We have audited the accompanying balance sheets of SilverPlatter Education,
Inc., a subsidiary of SilverPlatter Information, Inc., as of December 31, 1997
and 1998, and the related statements of operations, stockholders' deficit and
cash flows for the years then ended. 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 in accordance with auditing standards generally
accepted in the United States. Those standards 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. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SilverPlatter Education,
Inc. at December 31, 1997 and 1998, and the results of its operations and its
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Nashville, Tennessee
September 17, 1999
F-29
<PAGE> 105
SILVERPLATTER EDUCATION, INC., A SUBSIDIARY OF
SILVERPLATTER INFORMATION, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30
1997 1998 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................. $ 150,151 $ 9,567 $ 347,287
Accounts receivable................................... 260,903 56,020 23,520
Deferred license fees................................. 70,393 34,547 22,444
Prepaid expenses...................................... 66,849 46,858 34,475
----------- ----------- -----------
Total current assets.......................... 548,296 146,992 427,726
Property and equipment:
Furniture and fixtures................................ 41,788 44,174 44,174
Equipment............................................. 325,164 296,618 296,618
Leasehold improvements................................ 3,131 3,131 3,131
----------- ----------- -----------
370,083 343,923 343,923
Less accumulated depreciation and amortization........ 225,225 267,462 290,364
----------- ----------- -----------
144,858 76,461 53,559
Intangible assets, net................................ 166,691 83,344 41,672
Other assets.......................................... 5,040 5,040 --
----------- ----------- -----------
Total assets.................................. $ 864,885 $ 311,837 $ 522,957
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable...................................... $ 153,914 $ 80,607 $ 149,703
Accrued liabilities................................... 94,599 51,908 62,011
Due to parent company................................. 3,826,679 4,170,574 4,376,565
Deferred revenue...................................... 1,054,490 490,734 436,601
----------- ----------- -----------
Total current liabilities..................... 5,129,682 4,793,823 5,024,880
Stockholders' deficit:
Common stock, $.01 par value; 200,000 shares
authorized; 1,000 shares issued and outstanding at
December 31, 1997 and 1998 and June 30, 1999
(unaudited)........................................ 10 10 10
Additional paid-in capital............................ 990 990 990
Accumulated deficit................................... (4,265,797) (4,482,986) (4,502,923)
----------- ----------- -----------
Total stockholders' deficit................... (4,264,797) (4,481,986) (4,501,923)
----------- ----------- -----------
Total liabilities and stockholders' deficit... $ 864,885 $ 311,837 $ 522,957
=========== =========== ===========
</TABLE>
See accompanying notes.
F-30
<PAGE> 106
SILVERPLATTER EDUCATION, INC., A SUBSIDIARY OF
SILVERPLATTER INFORMATION, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------ -------------------------
1997 1998 1998 1999
----------- ---------- ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues..................................... $ 2,175,894 $2,343,435 $1,291,761 $835,847
Operating costs and expenses:
Cost of revenue............................ 1,057,538 923,254 524,504 350,988
Selling, general and administrative
expenses................................ 2,315,524 1,637,370 880,097 504,796
----------- ---------- ---------- --------
Total operating costs and
expenses......................... 3,373,062 2,560,624 1,404,601 855,784
----------- ---------- ---------- --------
Net loss........................... $(1,197,168) $ (217,189) $ (112,840) $(19,937)
=========== ========== ========== ========
</TABLE>
See accompanying notes.
F-31
<PAGE> 107
SILVERPLATTER EDUCATION, INC., A SUBSIDIARY OF
SILVERPLATTER INFORMATION, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1997 AND 1998
AND THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997................... 1,000 $10 $990 $(3,068,629) $(3,067,629)
Net loss................................... -- -- -- (1,197,168) (1,197,168)
----- --- ---- ----------- -----------
Balance at December 31, 1997................. 1,000 10 990 (4,265,797) (4,264,797)
Net loss................................... -- -- -- (217,189) (217,189)
----- --- ---- ----------- -----------
Balance at December 31, 1998................. 1,000 10 990 (4,482,986) (4,481,986)
Net loss................................... -- -- -- (19,937) (19,937)
----- --- ---- ----------- -----------
Balance at June 30, 1999 (unaudited)......... 1,000 $10 $990 $(4,502,923) $(4,501,923)
===== === ==== =========== ===========
</TABLE>
See accompanying notes.
F-32
<PAGE> 108
SILVERPLATTER EDUCATION, INC., A SUBSIDIARY OF
SILVERPLATTER INFORMATION, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------- -------------------------
1997 1998 1998 1999
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss........................................ $(1,197,168) $(217,189) $(112,840) $ (19,937)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization................. 136,501 143,984 71,591 64,574
Changes in operating assets and liabilities:
Accounts receivable........................ (211,828) 204,883 67,331 32,500
Deferred license fees...................... 25,352 35,846 19,302 12,103
Prepaid expenses and other assets.......... (11,821) 19,991 26,372 12,383
Other assets............................... -- -- -- 5,040
Accounts payable........................... (118,305) (73,307) (19,263) 69,096
Accrued liabilities........................ 12,509 (42,691) 11,115 10,103
Due to parent company...................... 877,603 359,056 147,887 205,991
Deferred revenue........................... 280,289 (563,756) (267,463) (54,133)
----------- --------- --------- ---------
Net cash (used in) provided by
operating activities................ (206,868) (133,183) (55,968) 337,720
INVESTING ACTIVITIES:
Purchase of property and equipment.............. (115,684) (7,401) (5,015) --
----------- --------- --------- ---------
Net cash used in investing activities........... (115,684) (7,401) (5,015) --
----------- --------- --------- ---------
Net increase (decrease) in cash................. (322,552) (140,584) (60,983) 337,720
Cash at beginning of period..................... 472,703 150,151 150,151 9,567
----------- --------- --------- ---------
Cash at end of period........................... $ 150,151 $ 9,567 $ 89,168 $ 347,287
=========== ========= ========= =========
NON-CASH TRANSACTIONS:
Assets transferred to (from) Parent Company, at
net book value................................ $ (250,035) $ 15,161 $ 15,161 $ --
=========== ========= ========= =========
</TABLE>
See accompanying notes.
F-33
<PAGE> 109
SILVERPLATTER EDUCATION, INC., A SUBSIDIARY OF
SILVERPLATTER INFORMATION, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REPORTING ENTITY
SilverPlatter Education, Inc. (the "Company") was incorporated on December
29, 1992 and is a publisher of CD-ROM and Internet products in the healthcare
industry. The Company is based in Norwood, Massachusetts and is a wholly-owned
subsidiary of SilverPlatter Information, Inc. (the "Parent"). The Company
primarily focuses on the use of multimedia for continuing medical education and
also produces specialty-oriented bibliographic databases on CD-ROM for
literature searching and clinical reference. The Company's products are offered
globally. SilverPlatter Education is accredited by the Accreditation Council for
Continuing Medical Education.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited balance sheet as of June 30, 1999 and the related unaudited
statements of operations, stockholders' deficit, and cash flows for the six
months ended June 30, 1998 and 1999, (interim financial statements) have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Article 10 of Regulation S-X.
Accordingly, they do not include all the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, the interim financial statements include all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of the interim results.
The interim financial statements should be read in conjunction with the
audited financial statements appearing herein. The results of the six months
ended 1999 may not be indicative of operating results for the full year.
RECOGNITION OF REVENUE
Subscription revenue is deferred and recognized ratably over the
subscription period which is generally 12 months. Revenues derived from the sale
of products requiring significant modification or customization are recorded
based on the percentage of completion using labor hours. All other service
revenues are recognized as the related services are performed.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and accounts
receivable. At times, cash balances in the Company's accounts may exceed FDIC
insurance limits.
The Company sells its systems and services to various companies in the
healthcare industry. The Company performs ongoing credit evaluations of its
customers' financial condition and generally requires no collateral from its
customers.
The carrying amounts reported in the balance sheets for cash, accounts
receivable, accounts payable and accrued liabilities approximate their fair
value because of the short maturity of such instruments.
The Company is dependent upon various information providers to provide
content for use on the Company's products.
F-34
<PAGE> 110
SILVERPLATTER EDUCATION, INC., A SUBSIDIARY OF
SILVERPLATTER INFORMATION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated on the basis of cost. Depreciation and
amortization are provided on the straight-line method over the following
estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Furniture and fixtures...................................... 7
Equipment................................................... 3
Leasehold improvements...................................... 3
</TABLE>
INTANGIBLE ASSETS
Intangible assets consist primarily of acquired subscription lists and are
recorded at cost. Amortization is provided using the straight-line method over
three years. Accumulated amortization totaled approximately $83,300 and $166,700
at December 31, 1997 and 1998, respectively.
LONG-LIVED ASSETS
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
requires that companies consider whether indicators of impairment of long-lived
assets held for use are present. If such indicators are present, companies
determine whether the sum of the estimated undiscounted future cash flows
attributable to such assets is less than their carrying amount, and if so,
companies recognize an impairment loss based on the excess of the carrying
amount of the assets over their fair value. Management periodically evaluates
the ongoing value of property, equipment and intangibles and has determined that
there were no indications of impairment for the years ended December 31, 1997
and 1998.
DEFERRED REVENUE
Deferred revenue represents the portion of revenue received where the
revenue recognition process is incomplete.
DEFERRED LICENSE FEES
Deferred license fees represent amounts paid in advance to information
providers. Such fees are deferred and expensed ratably over the terms of the
subscription periods to match the recognition of the related revenue.
ADVERTISING
The Company expenses the costs of advertising as incurred. During 1997 and
1998, advertising expense was approximately $38,400 and $1,100, respectively.
USE OF ESTIMATES
The preparation of the Company's 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
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates and such differences could be material
to the financial statements.
F-35
<PAGE> 111
SILVERPLATTER EDUCATION, INC., A SUBSIDIARY OF
SILVERPLATTER INFORMATION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
Income taxes have been provided in accordance with the provisions of SFAS
No. 109, "Accounting for Income Taxes."
NEWLY ISSUED ACCOUNTING STANDARDS
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 establishes
standards for reporting and presenting in a full set of general purpose
financial statements the costs incurred in the development of internal-use
computer software. Internal-use software is acquired, internally developed, or
modified solely to meet the Company's internal needs without the intent to
market externally. The Company adopted SOP 98-1 on January 1, 1999. The adoption
of SOP 98-1 had no effect on the Company's financial condition or results of
operations.
In December 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions." SOP 98-9
requires recognition of revenue using the "residual method" in a
multiple-element software arrangement when fair value does not exist for one or
more of the delivered elements in the arrangement. Under the "residual method,"
the total fair value of the undelivered elements is deferred and recognized in
accordance with SOP 97-2. The Company is required to implement SOP 98-9 for the
year ending December 31, 2000. SOP 98-9 also extends the deferral of the
application of SOP 97-2 to certain other multiple-element software arrangements
through the year ending December 31, 1999. Management does not expect the
adoption of SOP 98-9 to have a significant effect on the Company's financial
condition or results of operations.
ALLOCATION OF CERTAIN EXPENSES
The Parent provides various administrative services to the Company
including legal assistance, accounting, marketing and advertising services. The
Parent allocated these expenses to the Company. The allocation policy applied by
the Company is as follows: first on the basis of direct usage when identifiable,
with the remainder allocated among the Parent's subsidiaries on the basis of
their respective annual sales. In the opinion of management, this method of
allocation is reasonable and is consistent with Securities and Exchange
Commission Staff Accounting Bulletin No. 55, "Allocation of Expenses and Related
Disclosure in Financial Statements of Subsidiaries, Divisions or Lesser Business
Components of Another Entity". However, the allocation methodology utilized in
preparing the financial statements of the Company may not necessarily reflect
the results of operations, cash flows, or financial position of the Company in
the future, or what the results of operations, cash flows or financial position
would have been had the Company been a separate stand-alone entity. Management
is unable to estimate what the administrative expenses would have been if the
Company had been on a stand alone basis.
Due to parent company included in the balance sheets represents a net
balance as the result of various transactions between the Company and the
Parent. There are no terms of settlement or interest charges associated with the
account balance. The balance is primarily the result of the Parent funding
payroll, other operating, selling, general and administrative expenses of the
Company and allocated expenses incurred by the Parent on behalf of the Company.
F-36
<PAGE> 112
SILVERPLATTER EDUCATION, INC., A SUBSIDIARY OF
SILVERPLATTER INFORMATION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
An analysis of transactions in the Due to Parent Company account are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Balance at beginning of year................................ $2,699,041 $3,826,679
Net cash remitted from Parent............................... 876,244 161,584
Allocated expenses from the Parent.......................... 251,394 182,311
---------- ----------
Balance at end of year...................................... $3,826,679 $4,170,574
========== ==========
Average balance during the year............................. $3,251,330 $3,896,040
========== ==========
</TABLE>
2. INCOME TAXES
For the tax periods presented, the Company filed income tax returns as part
of a consolidated group. As a result, the current and deferred income tax
amounts were allocated by applying SFAS No. 109 on a separate return basis.
Income tax benefit differs from the amount computed by applying the federal
statutory rate of 34% to loss before income taxes as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- --------
<S> <C> <C>
Tax benefit at the statutory rate........................... $(398,537) $(73,844)
State income taxes, net of federal benefit.................. (46,903) (8,722)
Change in valuation allowance............................... 445,440 82,566
--------- --------
Total............................................. $ -- $ --
========= ========
</TABLE>
Deferred federal and state income taxes reflect the net effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1998
---------- -----------
<S> <C> <C>
Deferred tax assets:
Depreciation.............................................. $ 18,670 $ 17,357
Amortization.............................................. 27,857 50,674
Allowance for doubtful accounts........................... 3,302 1,921
Net operating loss carryforwards.......................... 950,264 1,014,245
---------- -----------
Total deferred tax assets......................... 1,000,093 1,084,197
Less: Valuation allowance................................... (999,946) (1,082,512)
---------- -----------
147 1,685
Deferred tax liability:
Prepaid assets............................................ (147) (1,685)
---------- -----------
Net deferred tax asset............................ $ -- $ --
========== ===========
</TABLE>
As of December 31, 1998 the Company had net operating loss carryforwards of
$2,699,065 expiring in years 2008 to 2019.
F-37
<PAGE> 113
SILVERPLATTER EDUCATION, INC., A SUBSIDIARY OF
SILVERPLATTER INFORMATION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company has established a valuation allowance for deferred tax assets
at December 31, 1997 and 1998 due to the uncertainty of realizing these assets
in the future. The valuation allowance increased $82,566 during 1998.
3. LEASE COMMITMENTS
The Company leased office facilities under an operating lease that expired
in February 1999. Subsequent to February 1999, the Company leases its office
facilities on a month-to-month basis.
Total rent expense under all operating leases was approximately $62,125 and
$64,466 for 1997 and 1998, respectively.
4. EMPLOYEE BENEFIT PLAN
Employees of the Company participate in the Parent's employee benefit plan.
The Parent has a defined-contribution employee benefit plan incorporating
provisions of Section 401(k) of the Internal Revenue Code. Under the plan's
provisions, a plan member may make contributions, on a tax deferred basis, not
to exceed 15% of compensation. It is the Company's policy to match employer
contributions at a rate of 25% of the first 4% contributed by the employee. The
Company incurred expense on behalf of its participants which totaled
approximately $7,400 and $8,200 in 1997 and 1998, respectively.
5. COMMITMENTS AND CONTINGENT LIABILITIES
The Company, along with three other SilverPlatter International, N.V.
(Parent Company of SilverPlatter Information, Inc.) subsidiaries, has guaranteed
repayment of indebtedness under promissory notes given by the Parent. The amount
outstanding at December 31, 1998 under these promissory notes was $1,704,928.
The guarantee is to remain in full force and effect until the promissory notes
are paid in full. The final payment of the promissory notes is for $558,900 and
is due on September 30, 1999.
The Company is a defendant in a legal proceeding in connection with
copyright infringements with one of the Company's vendors. The parties are in
settlement discussions and the plaintiffs are demanding $38,000 to settle the
case. In the opinion of management, the resolution of this proceeding will not
have a material adverse effect on the Company's financial position or results of
operations.
6. IMPACT OF YEAR 2000 (UNAUDITED)
Many computer systems in use today were designed and developed using two
digits, rather than four, to specify the year. As a result, such systems will
recognize the Year 2000 as "00" and may assume that the year is 1900 rather than
2000. This could cause many computer applications to fail completely or to
create erroneous results unless corrective measures are taken. The Company
recognizes the need to minimize the risk that its operations will be adversely
affected by Year 2000 software failures and is in the process of preparing for
the Year 2000.
The Parent has evaluated its Year 2000 risk in three separate categories:
information technology systems ("IT"), non-IT Systems ("Non-IT") and material
third party relationships. The Parent has developed a plan in which the risks in
each of these categories are being reviewed and addressed by the appropriate
level of management as follows:
IT. IT systems have been divided into three classification: database
products, ERL and SPIRS products and internal systems. To date, 169 of the
Parent and Company's database products will be ready by the end of 1999.
The Parent has performed an analysis and made programming changes to
F-38
<PAGE> 114
SILVERPLATTER EDUCATION, INC., A SUBSIDIARY OF
SILVERPLATTER INFORMATION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ensure Year 2000 compliance. All of the significant functionality of the
Parent and Company's ERL and SPIRS products technology are Year 2000
compliant with the exception of minor or cosmetic problems which will be
addressed in subsequent releases. Internal systems are currently 90% Year
2000 ready. The Company has internally-developed sales, accounts receivable
and cash receipts software programs which are not Year 2000 compliant. The
Company is in the process of modifying these programs to ensure Year 2000
compliance and expects that this process will be completed by October 31,
1999.
Non-IT. Non-IT systems involve embedded technologies, such as
microcontrollers or microprocessors. Management believes the Company's
Non-IT risks are minimal. Most of the costs of addressing Non-IT risks are
included in normal upgrade and replacement expenditures which were planned
outside of the Company's Year 2000 review.
Third Party Risk. To help the Company assess the level of Year 2000
exposure and the need for equipment replacement or upgrades, the Parent has
contacted the manufacturers and/or installers of the various software
products and systems used. The Parent and Company believe that with
modifications to existing software, conversions to new software, and
replacement or upgrade of equipment, the Year 2000 issue will not pose
significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed timely,
the Year 2000 issue could have a material impact on the operations of the
Company.
The Parent and Company obtained written verification from each of its
significant vendors in 1998 and 1999 and performed Year 2000 compliance testing
on products distributed to each of its significant customers.
The Company and Parent believe that the Year 2000 issue is being
appropriately addressed by its material vendors and does not expect the Year
2000 issue to have a material adverse effect on the financial position, results
of operations or cash flows of the Company in future periods. The Parent's and
Company's statements regarding Year 2000 issues are dependent on many factors,
including the ability of the Company's vendors to achieve Year 2000 compliance
and the proper functioning of the IT and non-IT systems and development of
software, some of which are beyond the Company's control.
Given that no significant issues have arisen based on the assessments to
date, the Company has not developed a contingency plan to address the failure of
the Company's IT or non-IT systems or the systems of material third parties to
be Year 2000 compliant. The Parent and the Company will continue to assess the
Year 2000 compliance issue on an on-going basis in an effort to resolve any Year
2000 issue in a timely manner.
The Company has expensed less than $10,000 of costs related to Year 2000
compliance and expects to incur less than $10,000 of additional costs. These
costs have been financed through the Parent.
As discussed in Note 7, on July 23, 1999, HealthStream, Inc. acquired
selected assets of the Company. In connection with this transaction, the Company
entered into a services agreement with the Parent to continue to provide certain
accounting and information systems support until October 31, 1999. Currently,
the Company is transitioning its accounting and information systems support to
HealthStream, Inc.'s own Year 2000 compliant accounting software. This
transition is expected to be complete before December 31, 1999.
7. SUBSEQUENT EVENT
On July 23, 1999, HealthStream, Inc. acquired certain assets and assumed
certain liabilities of the Company for $1 million.
F-39
<PAGE> 115
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
m3 The Healthcare Learning Company
We have audited the accompanying balance sheets of MultiMedia Marketing,
Inc. d/b/a m3 The Healthcare Learning Company as of December 31, 1998 and 1999
and the related statements of operations, stockholders' deficit, and cash flows
for each of the three years in the period ended December 31, 1999. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of m3 The Healthcare Learning
Company as of December 31, 1998 and 1999 and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with generally accepted accounting principles.
/s/ Lane Gorman Trubitt, L.L.P.
Dallas, Texas
January 14, 2000
F-40
<PAGE> 116
M3 THE HEALTHCARE LEARNING COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 182,333 $ 208,450
Certificates of deposit................................... 198,627 195,848
Accounts receivable -- less allowance for doubtful
accounts of $0 in 1998 and $14,000 in 1999............. 1,911,751 911,765
Prepaid expenses.......................................... 29,180 4,318
----------- -----------
Total current assets.............................. 2,321,891 1,320,381
Property and equipment -- at cost
Computer equipment........................................ 144,480 147,400
Furniture and fixtures.................................... 22,801 22,802
Capitalized software...................................... 9,245 9,245
----------- -----------
176,526 179,447
Less accumulated depreciation and amortization.............. (107,765) (133,903)
----------- -----------
68,761 45,544
Other assets
Software development costs, net of accumulated
amortization........................................... 127,585 48,339
Debt issue costs and other intangible assets, net of
accumulated amortization of $6,471 in 1998 and $11,303
in 1999................................................ 12,004 14,447
----------- -----------
139,589 62,786
----------- -----------
$ 2,530,241 $ 1,428,711
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable.......................................... $ 35,694 $ 60,162
Accrued expenses.......................................... 363,469 273,222
Deferred revenue.......................................... 2,377,034 1,276,505
----------- -----------
Total current liabilities......................... 2,776,197 1,609,889
Note payable -- long-term................................... 727,904 1,164,708
Stockholders' deficit
Common stock, $.01 par value; 10,000,000 shares
authorized; issued and outstanding 5,029,176 shares in
1998 and 5,263,740 shares in 1999...................... 50,292 52,637
Additional paid-in capital................................ 1,853,458 1,923,735
Additional paid-in capital -- warrants.................... 34,000 36,250
Accumulated deficit....................................... (2,911,610) (3,358,508)
----------- -----------
(973,860) (1,345,886)
----------- -----------
$ 2,530,241 $ 1,428,711
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-41
<PAGE> 117
M3 THE HEALTHCARE LEARNING COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1998 1999
----------- ---------- ----------
<S> <C> <C> <C>
Net revenues.............................................. $ 899,015 $2,565,875 $3,330,408
Costs and expenses
Cost of revenues........................................ 101,896 439,061 237,620
General and administrative expenses..................... 2,023,371 3,042,808 3,425,970
----------- ---------- ----------
Total operating costs and expenses.............. 2,125,267 3,481,869 3,663,590
----------- ---------- ----------
Loss from operations.................................... (1,226,252) (915,994) (333,182)
Other income (expense)
Interest expense.......................................... (76,915) (104,304) (128,703)
Interest income......................................... 20,857 53,168 14,987
----------- ---------- ----------
(56,058) (51,136) (113,716)
----------- ---------- ----------
Net loss.................................................. $(1,282,310) $ (967,130) $ (446,898)
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-42
<PAGE> 118
M3 THE HEALTHCARE LEARNING COMPANY
STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL PAID-IN CAPITAL
------------------- --------------------------- ACCUMULATED
SHARES AMOUNT COMMON STOCK WARRANTS DEFICIT TOTAL
--------- ------- -------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1997...................... 4,562,509 $45,625 $1,208,125 $ -- $ (662,170) $ 591,580
Sale of common stock........ 66,667 667 149,333 -- -- 150,000
Issuance of warrants to
purchase common stock in
connection with note
payable agreement......... -- -- -- 34,000 -- 34,000
Net loss.................... -- -- -- -- (1,282,310) (1,282,310)
--------- ------- ---------- ------- ----------- -----------
Balance at December 31,
1997...................... 4,629,176 46,292 1,357,458 34,000 (1,944,480) (506,730)
Sale of common stock........ 400,000 4,000 496,000 -- -- 500,000
Net loss.................... -- -- -- -- (967,130) (967,130)
--------- ------- ---------- ------- ----------- -----------
Balance at December 31,
1998...................... 5,029,176 50,292 1,853,458 34,000 (2,911,610) (973,860)
Exercise of stock options... 150,000 1,500 13,500 -- -- 15,000
Exercise of stock options... 84,564 845 -- -- -- 845
Issuance of warrants to
purchase common stock in
connection with note
payable agreement......... -- -- -- 2,250 -- 2,250
Stock option compensation... -- -- 56,777 -- -- 56,777
Net loss.................... -- -- -- -- (446,898) (446,898)
--------- ------- ---------- ------- ----------- -----------
Balance at December 31,
1999...................... 5,263,740 $52,637 $1,923,735 $36,250 $(3,358,508) $(1,345,886)
========= ======= ========== ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-43
<PAGE> 119
M3 THE HEALTHCARE LEARNING COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss.............................................. $(1,282,310) $ (967,130) $ (446,898)
Adjustments to reconcile net loss to net cash used in
operating activities
Stock option compensation.......................... -- -- 56,777
Issuance of stock warrants......................... -- -- 2,250
Depreciation....................................... 32,257 27,937 26,138
Amortization....................................... 60,892 87,119 91,107
Provision for losses on accounts receivable........ 43,798 111,627 51,001
Changes in assets and liabilities, net:
Accounts receivable.............................. (327,690) (1,193,888) 948,985
Prepaid expenses................................. (51,615) 30,369 24,862
Accounts payable................................. 65,330 (46,646) 24,468
Accrued expenses................................. (181,383) 191,099 (90,247)
Deferred revenue................................. 1,167,523 1,027,968 (1,100,529)
----------- ----------- -----------
Net cash used in operating activities......... (473,198) (731,545) (412,086)
----------- ----------- -----------
Cash flows from investing activities
Purchase of certificates of deposit................... -- (198,627) (291,221)
Maturity of certificates of deposit................... -- -- 294,000
Software development costs and capitalized software... (120,003) (43,081) --
Purchase of equipment................................. (12,414) (28,318) (2,921)
----------- ----------- -----------
Net cash used in investing activities......... (132,417) (270,026) (142)
----------- ----------- -----------
Cash flows from financing activities
Issuance of note payable.............................. 750,000 -- 430,000
Debt issue costs...................................... (18,500) -- (7,500)
Sale of common stock.................................. 150,000 500,000 15,845
----------- ----------- -----------
Net cash provided by financing activities..... 881,500 500,000 438,345
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents.... 275,885 (501,571) 26,117
Cash and cash equivalents at beginning of year.......... 408,019 683,904 182,333
----------- ----------- -----------
Cash and cash equivalents at end of year................ $ 683,904 $ 182,333 $ 208,450
=========== =========== ===========
Supplemental disclosures of cash flow information
Cash paid during the year for interest................ $ 65,000 $ 97,500 $ 116,155
</TABLE>
The accompanying notes are an integral part of these statements.
F-44
<PAGE> 120
M3 THE HEALTHCARE LEARNING COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
BUSINESS ACTIVITY
m3 The Healthcare Learning Company (the "Company") provides interactive,
multimedia education and training solutions to the healthcare industry. The
Company serves clients across the entire healthcare continuum, including
hospitals of all sizes, physician clinics, surgical centers, post-acute care
facilities, MSOs, long-term care centers and public health departments. A
summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The Company
maintains its cash balances at a financial institution located in Dallas, Texas,
which at times may exceed insured limits. Cash in excess of operating
requirements is invested in an income producing money market mutual fund, which
is not insured. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk.
CERTIFICATES OF DEPOSIT
The Company has two certificates of deposit with a financial institution
with original maturities ranging from over three months to less than one year.
These investments are stated at cost, as it is the intent of the Company to hold
these securities until maturity.
ACCOUNTS RECEIVABLE
Accounts receivable consist of uncollateralized receivables from customers
primarily in the healthcare industry. The Company routinely assesses the
financial strength of its customers and believes it is not exposed to any
significant credit risk.
PROPERTY AND EQUIPMENT
Depreciation and amortization is provided in amounts sufficient to relate
the cost of assets to operations over their estimated service lives. Capitalized
software consists of costs to purchase and develop software. Major additions and
betterments are capitalized while replacements and maintenance and repairs that
do not improve or extend the life of the respective assets are expensed. When
property is retired or otherwise disposed of, the related costs and accumulated
depreciation are removed from the accounts and any gain or loss is reflected in
operations.
Depreciation and amortization is provided using the double declining
balance method over five to seven years. Depreciation and amortization expense
charged to operations was $32,257, $27,937 and $26,138 for the years ended
December 31, 1997, 1998 and 1999, respectively.
DEBT ISSUE COSTS
Debt issue costs represent amounts incurred by the Company to enable it to
enter into the loan agreement described in Note 3. Such amounts are amortized,
on a straight-line basis, over 5 years, which is the term of the note.
Amortization expense charged to operations was $2,775, $3,696 and $4,832 for the
years ended December 31, 1997, 1998 and 1999, respectively. Amortizing debt
issue costs using the effective interest method would not result in a material
difference in annual amortization.
F-45
<PAGE> 121
M3 THE HEALTHCARE LEARNING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SOFTWARE DEVELOPMENT COSTS
Certain software development costs are capitalized upon the establishment
of technological feasibility for each product or process and capitalization
ceases when the product is available for general release to customers or is put
into service. The establishment of technological feasibility and the ongoing
assessment of recoverability of capitalized software development costs require
considerable judgment by management with respect to certain external factors,
including, but not limited to, anticipated future revenues, estimated economic
life and changes in software and hardware technology. Research and development
costs related to software development that has not reached technological
feasibility are expensed as incurred and totaled $34,838, $250,723 and $197,219
for the years ended December 31, 1997, 1998 and 1999, respectively. Software
development costs are amortized utilizing the straight-line method over the
estimated economic lives of the related products not to exceed three years.
Amortization of capitalized software costs charged to operations totaled
$53,017, $76,067 and $79,247 for the years ended December 31, 1997, 1998 and
1999, respectively. Capitalized software development costs were $127,585 and
$48,339 at December 31, 1998 and 1999, respectively, and net of accumulated
amortization of $296,604 and $375,851 at December 31, 1998 and 1999,
respectively.
REVENUE RECOGNITION
The Company recognizes revenue for the sale of software in accordance with
Statement of Position (SOP) 97-2 "Software Revenue Recognition".
The Company records gross revenue for all sales to VHA organizations under
an exclusive product agreement. Fees paid to VHA under this agreement are
recorded as marketing expense.
DEFERRED REVENUE
Deferred revenue represents the portion of revenue for which the revenue
recognition process is incomplete.
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.
ADVERTISING COSTS
Advertising costs are charged to operations when incurred. Advertising
expense totaled $24,245, $44,318 and $5,301 for the years ended December 31,
1997, 1998 and 1999, respectively.
LONG-LIVED ASSETS
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", requires that companies consider whether events or changes in circumstances
may indicate that an impairment of long-lived assets held for use are present.
If such indications are present, companies determine whether the sum of the
estimated undiscounted future cash flows attributable to such assets is less
than their carrying amount, and if so, companies recognize an impairment loss
based on the excess of the carrying amount of the assets over their fair value.
Management periodically evaluates the carrying value of its property and
equipment and has determined that there were no indications of impairment as of
December 31, 1998 and 1999.
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<PAGE> 122
M3 THE HEALTHCARE LEARNING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NEWLY ISSUED ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued SOP 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use". SOP 98-1 establishes standards for
reporting and presenting in a full set of general purpose financial statements
the costs incurred in the development of internal-use computer software.
Internal-use software is acquired, internally developed, or modified solely to
meet the Company's internal needs without the intent to market externally. The
adoption of SOP 98-1 had no material effect on the Company's financial condition
or results of operations.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities", which
is effective as amended for fiscal quarters of fiscal years beginning after June
15, 2000. This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. Management of the Company does not expect the
adoption of SFAS No. 133 to have a material effect on the Company's financial
statements.
In December 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2
Software Revenue Recognition, with Respect to Certain Transactions". SOP 98-9
requires recognition of revenue using the "residual method" in a
multiple-element software arrangement when fair value does not exist for one or
more of the delivered elements in the arrangement. Under the "residual method",
the total fair value of the undelivered elements is deferred and recognized in
accordance with SOP 97-2. The Company is required to implement SOP 98-9 for the
year ending December 31, 2000. Adoption of SOP 98-9 is not expected to have a
material effect on the Company's financial statements.
2. INCOME TAXES
Deferred tax assets and liabilities are determined based on the difference
between financial statement and tax bases of assets and liabilities as measured
by the currently enacted tax rates. Deferred tax expense or benefit is the
result of the changes in deferred tax assets and liabilities.
Current deferred income taxes result from the differences between financial
statement and tax return recognition of accrued expenses. Noncurrent deferred
income tax results from the use of accelerated methods of depreciation for
income tax purposes, and a net operating loss carryforward. If it is likely that
some portion or all of a deferred tax asset will not be realized, a valuation
allowance is recognized.
The components of deferred taxes in the accompanying balance sheets are
summarized below:
<TABLE>
<CAPTION>
1998 1999
--------- -----------
<S> <C> <C>
Deferred tax assets:
Current................................................... $ 12,582 $ 10,557
Noncurrent................................................ 847,374 1,084,090
--------- -----------
859,956 1,094,647
Valuation allowance....................................... (851,481) (1,084,721)
--------- -----------
Net deferred tax assets................................ 8,475 9,926
--------- -----------
Deferred tax liabilities:
Current................................................... -- --
Noncurrent................................................ 8,475 9,926
--------- -----------
8,475 9,926
--------- -----------
$ -- $ --
========= ===========
</TABLE>
F-47
<PAGE> 123
M3 THE HEALTHCARE LEARNING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The net increase in the valuation allowance was $ 421,570, $ 268,005 and
$233,240 for the years ended December 31, 1997, 1998 and 1999, respectively. The
Company has a net operating loss carryforward of approximately $3,188,500 at
December 31, 1999 of which $379,400 will expire in 2010 and $17,400 in 2011, and
$2,791,700 in 2019.
3. NOTE PAYABLE
On April 3, 1997, the Company issued a note payable to a finance company in
the amount of $750,000. On August 4, 1999, the note payable was amended to the
amount of $1,180,000. The note bears interest at 13%, and is collateralized by
substantially all of the Company's assets. Monthly interest payments of $12,783
are payable until April 30, 2002, at which time the outstanding principal
balance, with all accrued interest is due. In connection with this transaction,
the Company issued detachable stock warrants to the finance company and a
portion of the proceeds has been allocated to these detachable stock warrants.
See Note 10 for further discussion of these warrants.
The loan agreement contains various provisions and restrictions including
payment of cash dividends; purchase of insurance coverages; payment of taxes and
assessments; limitations on indebtedness, guarantees and transactions with
affiliates; issuance of stock below fair value; and financial reporting
covenants. In 1998, the Company obtained a waiver for the financial reporting
covenant. In 1999, the Company obtained a waiver for the exercise of stock
options at an exercise price below the current fair value of the common stock.
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Compensation................................................ $ 54,922 $ 54,787
Marketing fees.............................................. 131,478 --
Sales tax................................................... 106,628 146,952
Customer advances........................................... 30,730 30,730
Interest.................................................... 6,815 10,309
Consulting fees............................................. 22,000 22,000
Other....................................................... 10,896 8,444
-------- --------
$363,469 $273,222
======== ========
</TABLE>
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<PAGE> 124
M3 THE HEALTHCARE LEARNING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. STOCK OPTIONS
The Company has a restricted stock option agreement and a performance-based
agreement. Under the restricted stock option agreement, the exercise price of
each option is greater than or equal to the fair market value of the Company's
stock on the date of the grant and vest over a period of three years. Under the
performance-based agreement, vesting is determined annually, contingent upon
each year's revenue growth, earnings and employee performance, over the three
year period. Vesting for the performance-based agreement is not cumulative.
The following schedule summarizes the changes:
<TABLE>
<CAPTION>
RESTRICTED
PERFORMANCE-BASED STOCK OPTION
-------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding, January 1, 1997............................. -- $ -- 275,000 $0.28
Granted................................................ 250,000 0.01 -- --
Exercised.............................................. -- -- -- --
Expired/forfeit........................................ -- -- -- --
------- --------
Outstanding, December 31, 1997........................... 250,000 0.01 275,000 0.28
Granted................................................ -- -- 294,000 2.50
Exercised.............................................. -- -- -- --
Expired/forfeit........................................ -- -- -- --
------- --------
Outstanding, December 31, 1998........................... 250,000 0.01 569,000 1.43
Granted................................................ -- -- 17,000 2.50
Exercised.............................................. (84,564) 0.01 (150,000) 0.10
Expired/forfeit........................................ -- -- (113,000) 2.06
------- --------
Outstanding, December 31, 1999........................... 165,436 $0.01 323,000 $1.88
======= ========
</TABLE>
Options exercisable at December 31, 1997, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
RESTRICTED
PERFORMANCE- STOCK
YEAR ENDING BASED OPTION
- ----------- ------------ ----------
<S> <C> <C>
December 31, 1997........................................... -- 41,667
December 31, 1998........................................... 13,814 83,333
December 31, 1999........................................... -- 171,665
</TABLE>
Following is a summary of the status of options:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE FOR
REMAINING LIFE IN YEARS VALUE OF OPTIONS GRANTED
------------------------- -------------------------
RESTRICTED RESTRICTED
PERFORMANCE- STOCK PERFORMANCE- STOCK
YEAR ENDING BASED OPTION BASED OPTION
- ----------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
December 31, 1997.......................... 2.25 2.00 $0.81 $0.81
December 31, 1998.......................... 1.25 2.80 0.81 0.81
December 31, 1999.......................... 0.25 2.45 0.81 0.81
</TABLE>
100,000 of the Restricted Stock Options are exercisable at $0.50 per share;
the remaining 223,000 are exercisable at $2.50 per share.
In connection with the performance based stock options, $56,777 of
compensation expense was recognized during the year ended December 31, 1999.
F-49
<PAGE> 125
M3 THE HEALTHCARE LEARNING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company recognizes and measures compensation costs related to stock
options utilizing the intrinsic value-based method. Had compensation expense
been determined on the fair value of awards granted, net loss would have been as
follows:
<TABLE>
<CAPTION>
1997 1998 1999
----------- --------- ---------
<S> <C> <C> <C>
Net loss as reported............................... $(1,282,310) $(967,130) $(446,898)
Pro forma compensation expense, net of taxes (net
of recorded compensation expense in 1999 of
$56,777)......................................... (6,441) (11,100) (40)
----------- --------- ---------
Pro forma net loss................................. $(1,288,751) $(978,230) $(446,938)
=========== ========= =========
</TABLE>
The fair value of each option is estimated with the following assumptions
used for grants: risk free interest rate 5.00%; expected life 3 years; divided
yield 0%. The fair values may not be indicative of the future benefit, if any,
that may be received by the option holder.
6. OPERATING LEASES
The Company conducts its operations from various leased facilities under
long-term lease agreements, classified as operating leases, which expire at
various dates through March 2003. In the normal course of business, operating
leases are generally renewed or replaced by other leases. The Company also
leases certain equipment under operating leases.
The following is a schedule of future minimum lease payments required by
noncancellable operating leases with initial or remaining terms in excess of one
year at December 31, 1999:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, TOTAL
- ------------------------ -------
<S> <C>
2000........................................................ $38,840
2001........................................................ 3,192
2002........................................................ 3,192
2003........................................................ 665
Thereafter.................................................. --
-------
$45,889
=======
</TABLE>
Rent expense totaled $35,461, $110,275 and $206,925 which consists of $-0-,
$66,408 and $145,195 paid to a related party and $35,461, $43,867 and $61,730 of
minimum rentals paid to non related parties for the years ended December 31,
1997, 1998 and 1999, respectively. Related party leases are for a term of one
year or less.
7. EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) plan to which both the Company and eligible
employees may contribute. Company contributions are voluntary and at the
discretion of the board of directors. Company contributions totaled $20,013 for
1999. There were no Company contributions for 1997 and 1998.
8. PRODUCT AGREEMENT
In April 1997, the Company entered into an exclusive product agreement with
VHA, Inc. ("VHA") whereby the Company has been selected by VHA to provide
technology-delivered learning to VHA organizations. Under the terms of the
agreement, the Company pays marketing fees to VHA of 20% of certain defined
revenues, subject to certain exceptions and limitations. Marketing expense under
this agreement totaled $26,496, $245,363 and $44,135 for the years ended
December 31, 1997, 1998 and 1999, respectively.
F-50
<PAGE> 126
M3 THE HEALTHCARE LEARNING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. MAJOR CUSTOMERS
A substantial portion of the Company's revenue is derived from three or
fewer clients. During 1997, 1998 and 1999 revenues from these clients aggregated
$441,159, $486,936 and $402,846, respectively. At December 31, 1998 and 1999,
amounts due from those clients included in accounts receivable were $545,361 and
$223,892, respectively.
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Fountain View............................................... $ 93,794 $ -- $ --
Integris Health............................................. 131,450 -- --
Marriot..................................................... 215,915 264,250 --
Texas Eng Extension Service................................. -- 222,686 402,846
-------- -------- --------
$441,159 $486,936 $402,846
======== ======== ========
Marriot..................................................... $225,500 $ --
Texas Eng Extension Service................................. 319,861 223,892
-------- --------
$545,361 $223,892
======== ========
</TABLE>
10. WARRANT
In connection with the issuance of the note payable agreement described in
Note 3, $34,000 of the proceeds has been allocated to the detachable stock
warrants. Upon surrender of a warrant, the holder is entitled to purchase one
share of the Company's common stock for $.01 per share. The Company grants to
the holder the right to purchase 138,300 shares of the Company's common stock
(the "Base Amount"), provided that in the event that any portion of the
indebtedness evidenced by the note is outstanding, the Base Amount is increased
13,830 shares per annum, which amount may be accrued on a monthly basis
beginning May 1, 1999 and ending on the date the note is paid in full but in any
event no later than April 30, 2002. The warrant is exercisable at any time until
April 20, 2002.
11. SUBSEQUENT EVENT (UNAUDITED)
In January 2000, the Company was acquired by HealthStream, Inc. for $7.7
million.
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<PAGE> 127
"MEET THE MANAGEMENT" PRESENTATION FOR
HEALTHSTREAM
Prospective investors will be able to log on to a website maintained by
E*OFFERING Corp. at www.eoffering.com, where a prospectus is available for
review. Within designated sections of the prospectus, including the table of
contents and the Underwriting Section of the prospectus, an embedded hyperlink
(click here for "Meet the Management" Presentation) will provide exclusive
access to the "Meet the Management" Presentation. This presentation highlights
selected information contained elsewhere in the prospectus. This presentation
does not contain all of the information that you should consider before
investing in our common stock. You should read the entire prospectus carefully,
including the "Risk Factors" and our financial statements and notes to those
financial statements, before making an investment decision.
VISUAL 1: DISCLAIMER
Imagery: Company logo.
Visual Text: The "Meet the Management" Presentation is part of our
prospectus. This presentation highlights selected information contained
elsewhere in this prospectus. This presentation does not contain all of the
information that you should consider before investing in our common stock. You
should read the entire prospectus carefully, including the "Risk Factors" and
our financial statements and notes to those financial statements, before making
an investment decision.
Script: (Robert Frist) The "Meet the Management" Presentation is part of
our prospectus. This presentation highlights selected information contained
elsewhere in this prospectus. This presentation does not contain all of the
information that you should consider before investing in our common stock. You
should read the entire prospectus carefully, including the "Risk Factors" and
our financial statements and notes to those financial statements, before making
an investment decision.
VISUAL 2: INTRODUCTION
Imagery: Border and Company logo. See description of artwork on the page
titled Inside Front Cover of the Registration Statement for a description of the
image located on the inside front cover of the prospectus.
Script: (Robert Frist) Welcome to the "Meet the Management" Presentation
for HealthStream. I'm Robert Frist, Chairman and CEO. I would like to introduce
Jeff McLaren, our President and Chief Product Officer, and Arthur Newman, our
Chief Financial Officer. We would like to talk to you about HealthStream, a
Web-based solution to meet the training and education needs of the healthcare
industry.
VISUAL 3: MARKET OPPORTUNITY
Imagery: Border and Company logo. There is an arrow connecting the number
of participants in the medical industry to the text highlighting the total
amount of money spent annually on training and continuing education.
Visual Text: Title: Market Opportunity. Table: Allied healthcare
professionals -- 5,000,000; Registered nurses -- 2,600,000; Non-clinical
healthcare workers -- 2,400,000; Active physicians -- 600,000. Arrow points to a
summary box containing the following text: Estimated over $6.0 billion spent
annually on ongoing training and continuing education.
Script: (Robert Frist) (see "Business -- Industry Background -- Continuing
Education in the Healthcare Industry"): Healthcare services in the U.S. are
delivered by over an estimated 5.0 million allied healthcare professionals, 2.6
million registered nurses, 2.4 million non-clinical healthcare workers and
600,000 active physicians. Regulations administered by various state and Federal
agencies require ongoing training and continuing education for healthcare
professionals and other healthcare workers. For example, physician and nursing
licensing boards require up to 20 hours of continuing education per year. Other
agencies, including the Occupational and Safety Health Administration, or OSHA,
the Healthcare
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<PAGE> 128
Financing Administration, or HFCA, and the Joint Commission on Accreditation of
Healthcare Organizations, or JCAHO require hospitals and other healthcare
providers to provide employees with various types of workplace safety training.
We estimate that the healthcare industry spends over $6.0 billion annually on
ongoing training and continuing education, including over $3.0 billion on
continuing education for allied healthcare professionals and for nurses and
continuing medical education, or CME, for physicians.
VISUAL 4: MARKET CHARACTERISTICS AND ISSUES
Imagery: Border and Company logo. Three arrows on the left of the page
pointing to the right.
Visual Text: Title: Market Characteristics and Issues. Subheading:
"Limitations of existing healthcare training programs." To the right of the
first arrow will appear the caption, "Inconvenient and costly to attend and may
result in lost productivity." To the right of the second arrow will appear the
caption, "Limited in terms of breadth of offering and timeliness and may be
costly to produce on a per user basis." To the right of the third arrow will
appear the caption, "Difficult to review and assess results, track employee
compliance and respond to the effectiveness of programs."
Script: (Robert Frist) (see "Business -- Industry Background -- Continuing
Education in the Healthcare Industry"): Historically, healthcare professionals
have received continuing education and training through offline publications,
such as medical journals and CD-ROMs, and by attending conferences and seminars.
Although these existing approaches satisfy ongoing training and continuing
education requirements, they are limited in the following ways: seminars and
instructor-led training may be inconvenient and costly to attend and may result
in lost productivity. In addition, ongoing training and continuing education
courses offered locally may be limited in terms of breadth of offering and
timeliness and may be costly to produce on a per user basis. Furthermore,
administrators find it difficult to review and assess results, track employee
compliance with certification requirements and respond to the effectiveness of
education and training programs. The inefficiencies inherent in traditional
methods of providing ongoing training and continuing education, combined with
the time constraints and the increased cost pressures in the healthcare
industry, have prompted healthcare professionals and organizations to improve
information exchange and consider alternative training methodologies.
VISUAL 5: HEALTHSTREAM SOLUTION
Imagery: Border and Company logo. See description of artwork on the page
titled Color Foldout of the Registration Statement for a description of the
image located on the inside front cover of the prospectus.
Script: (Robert Frist) (see "Summary," "Business -- Industry Background --
Convergence of the Internet and Online Healthcare Education Services" and "--
The HealthStream Solution"): We believe the healthcare ongoing training and
continuing education market is particularly well-suited for business-to-business
e-commerce and online services. We bring authors and publishers of training and
continuing education content together with end users through our Web-based
distribution network. We will expand our distribution of courses and services to
include two methods. The first method provides Internet access to our courses
and education management software on a transactional basis over the Internet on
an application services provider, or ASP, basis. Under the second method, we
deliver our courses through strategic distribution partners, which we refer to
as our Web distribution network. This network currently consists of over 30
distribution partners, including Healtheon/WebMD, MedicaLogic, GE Medical
Systems, Pointshare, Medsite.com, HealthGate and ChannelHealth (an IDX company).
VISUAL 6: HEALTHSTREAM SOLUTION
Imagery: Border and Company logo. See description of artwork on the page
titled Color Foldout of the Registration Statement for a description of the
image located on the inside front cover of the prospectus.
Visual Text: Title: HealthStream Solution. Subheading: "Distribution
through ASP Model."
A-2
<PAGE> 129
Script: (Robert Frist) (see "Business -- HealthStream Services -- Services
Distributed Through ASP Model"): Healthcare organizations are responsible for
providing both government mandated and internally required training to their
employees. We are developing our ASP model to enable these healthcare
organizations to provide, assess and manage this training process. Under our ASP
model, our online systems are hosted in a central data center that provides
administrative access to our customers through Web-based reporting and
management tools, rather than through software that is installed and maintained
at the customer's site. We will bill our customers on a per transaction and/or
subscription fee basis, enabling them to treat their investment in online
continuing education and training as an operating expense rather than a capital
expense. We anticipate that eliminating the need for a capital outlay may
shorten the sales cycle to these customers. In addition, our hosted ASP service
is scalable to enable healthcare organizations to monitor and administer the
continuing education and training needs of large and geographically dispersed
employee bases.
VISUAL 7: HEALTHSTREAM SOLUTION
Imagery: Border and Company logo. See description of artwork on the
page titled Color Foldout of the Registration Statement for a description of
the image located on the inside front cover of the prospectus.
Visual Text: Title: HealthStream Solution. Subheading: "Distribution
through Web Network."
Script: (Robert Frist) (see "Business -- HealthStream Services -- Services
Provided through Web Distribution Network" and "-- The HealthStream Solution"):
Most healthcare professionals are responsible for meeting their own continuing
education requirements. We enable these healthcare professionals to meet their
continuing education requirements by obtaining credit through use of our online
courseware. We deliver our online courseware to healthcare professionals through
multiple, co-marketed Web sites offered in partnerships with health Web sites,
academic and medical institutions, pharmaceutical and equipment manufacturers
and healthcare providers. For instance, we have entered into a five-year
agreement with Healtheon/WebMD to be the exclusive provider of education and
training for healthcare organizations, healthcare professionals and healthcare
workers on Web sites owned and operated by Healtheon/WebMD. Healthcare
professionals and other healthcare workers can sign up to become registered
users of our service after accessing our log-in screen at our or any one of our
distribution partners' Web sites. Each of these Web sites is based upon our
standard template but is customized to match the look and feel of the Web site
of the referring distribution partner. We believe our services will provide an
online training and continuing education solution for healthcare organizations,
end users, distribution partners and content partners.
VISUAL 8: HEALTHSTREAM VALUE PROPOSITION
Imagery: Border and Company logo. Three arrows on the left of the page
pointing to the right.
Visual Text: Title: HealthStream Value Proposition. Subheading: "Value to
Healthcare Organizations." To the right of the first arrow will appear the
caption, "Access to high quality content on a cost-effective basis." To the
right of the second arrow will appear the caption, "Allows organizations to
contribute to and enhance the content provided." To the right of the third arrow
will appear the caption, "Provides the ability to track compliance and measure
the effectiveness and results of training."
Script: (Robert Frist) (see "Business -- The HealthStream
Solution -- Value to Healthcare Organizations"): We offer healthcare
organizations the ability to provide access to high quality content on a
cost-effective basis for the ongoing training and continuing education needs of
their employees. Our services allow these organizations to contribute to and
enhance the content provided through our services and to configure training to
meet the specific needs of different groups of employees. In addition, we
provide administrators of these organizations the ability to track compliance
with certification requirements and measure the effectiveness and results of
training.
VISUAL 9: HEALTHSTREAM VALUE PROPOSITION
Imagery: Border and Company logo. Three arrows on the left of the page
pointing to the right.
Visual Text: Title: HealthStream Solution. Subheading: "Value to End
Users." To the right of the first arrow will appear the caption, "Comprehensive
training and continuing education offerings." To the
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<PAGE> 130
right of the second arrow will appear the caption, "Cost-effective training and
continuing education." To the right of the third arrow will appear the caption,
"Convenient access and compelling user experience."
Script: (Robert Frist) (see "Summary -- Our Business" and
"Business -- Overview" and "Business -- The HealthStream Solution -- Value to
End Users"): We believe we provide one of the largest online libraries of
ongoing training and continuing education content covering a range of medical
specialties. Through strategic relationships with medical institutions and
commercial organizations, we have amassed over 3,000 hours of training and
education courses and currently distribute over 1,300 hours of these courses
online. Our content comes from a broad range of leading medical education
institutions, commercial providers and professional groups such as Vanderbilt
University Medical Center, Duke University Medical Center, The Cleveland Clinic
Foundation, Scripps Clinic, KnowledgeLinc and American Health Consultants.
Moreover, by eliminating the need for travel and expensive in-house programs, we
estimate that we can significantly reduce the cost of ongoing training and
continuing education. Our end users pay for our services on a per transaction
and/or subscription basis, eliminating the need for substantial up-front
expenditures. Our online services also allow our end users the freedom to
utilize our services when it is convenient for them.
VISUAL 10: HEALTHSTREAM VALUE PROPOSITION
Imagery: Border and Company logo. Three arrows on the left of the page
pointing to the right.
Visual Text: Title: HealthStream Value Proposition. Subheading: "Value to
Network Distribution Partners." To the right of the first arrow will appear the
caption, "Comprehensive training and continuing education solution." To the
right of the second arrow will appear the caption, "Premier continuing education
healthcare content." To the right of the third arrow will appear the caption,
"Recurring traffic opportunity."
Script: (Robert Frist) (see "Business -- Overview" and "Business -- The
HealthStream Solution -- Value to Network Distribution Partners"): We offer our
network distribution partners an online training and continuing education
solution that includes one of the largest libraries of courseware. Most of our
distribution partners provide online access to continuing education as an
ancillary service to their core businesses. To drive traffic to their Web sites,
our network distribution partners want to provide their online users with a
compelling ongoing training and continuing education experience. Our solution
delivers these services to our network distribution partners. Additionally, we
offer our network distribution partners access to content from premier
healthcare organizations through our established relationships with medical
education and professional institutions and commercial publishers. We believe we
will also offer our network distribution partners a predictable source of online
traffic due to the recurring nature of regulated training and continuing
education requirements. In addition, we believe visits by online users accessing
our service through one of our distribution partners' Web sites should be
substantially longer than a typical online experience due to the nature of our
product offering. This recurring and "sticky" base of traffic will complement
the other services provided by our distribution partners.
VISUAL 11: HEALTHSTREAM VALUE PROPOSITION
Imagery: Border and Company logo. Three arrows on the left of the page
pointing to the right.
Visual Text: Title: HealthStream Solution. Subheading: "Value to Content
Partners." To the right of the first arrow will appear the caption, "Compelling
Web distribution network." To the right of the second arrow will appear the
caption, "Comprehensive outsourcing solution." To the right of the third arrow
will appear the caption, "Significant expertise in content conversion."
Script: (Robert Frist) (see "Business -- The HealthStream
Solution -- Value to Content Partners"): We believe we currently offer our
content partners one of the largest Web networks for the distribution of
training and education for the healthcare community. Through our Web
distribution network, our content partners can realize new product sales by
targeting a broader audience than they could on their own. We enable our content
partners to focus on their core competency of producing and authoring content
and to
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reallocate resources that may have used to develop their own delivery systems
and distribution partnerships. We also offer publishers and authors of training
and continuing education content our experience in producing online materials
for the healthcare industry. We provide customers with a complete set of
proprietary tools which enables them to quickly and inexpensively develop online
courseware.
VISUAL 12: HEALTHSTREAM STRATEGY
Imagery: Border and Company logo. HealthStream logo in center of page with
five circles filled with text headings connected to the logo as spokes.
Visual Text: Title: HealthStream Strategy. The following text would be
inserted into the surrounding five circles:
- Provide healthcare organizations with Web-based access to our courses and
education management software on an ASP basis
- Expand and enhance our online training and education library
- Increase the number of partners in our Web distribution network
- Expand our sales and marketing efforts
- Generate additional revenue opportunities
Script: (Robert Frist) (see "Summary -- Our Growth Strategy"): Our
objective is to be the leading provider of Web-based training and education
solutions for the healthcare industry. The following are the key elements of our
growth strategy: First, provide healthcare organizations with Web-based access
to our courses and education management software on an ASP basis. Second, expand
and enhance our online training and education library. Third, increase the
number of partners in our Web distribution network. Fourth, expand our sales and
marketing efforts that target healthcare organizations, healthcare professionals
and potential content and distribution partners. And lastly, generate additional
revenue opportunities by aggregating the performance data collected by our
system and offering sponsorship products based on the attractive demographics of
our end users.
Now I would like to turn it over to Jeff McLaren, our President and Chief
Product Officer, to talk about our products and services.
VISUAL 13: SERVICES
Imagery: Border and Company logo. Company logo with two rectangular boxes
below labeled with the headings, "Services Distributed through ASP Model" and
"Services Provided through Web Distribution Network"
Visual Text: Title: Services. Each rectangle will include captions listing
the following services:
<TABLE>
<CAPTION>
SERVICES DISTRIBUTED THROUGH ASP MODEL SERVICES PROVIDED THROUGH WEB DISTRIBUTION NETWORK
<S> <C>
- - Administrative and management tools - Online courseware
- - Online courseware - Webcast events
- - Content conversion and development - Search engine
</TABLE>
Script: (Jeff McLaren) (see "Business -- HealthStream Services"): Thanks,
Robert. We provide our Web-based ongoing training and continuing education
services to healthcare organizations through our ASP model and individual
healthcare professionals through our Web distribution network. Our services for
healthcare organizations include: administrative and management tools, online
courseware and content conversion and development. Our administrative and
management tools will be used by human resources, training and management
personnel to manage curriculum and employee population training performance
data. The courseware we provide under our ASP model will primarily focus on
mandated training content.
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<PAGE> 132
Many healthcare organizations provide their employees with organization-specific
training. We have full-service capabilities to convert existing course materials
to a Web-enabled format or develop custom courseware for these healthcare
organizations.
Our services for healthcare professionals include: online courseware,
Webcast events, and a search engine. The online courseware available through our
network of co-branded web sites and our web site is targeted to healthcare
professionals and includes primarily accredited continuing education content. We
also offer both live and pre-recorded Webcasts of medical procedures, the
viewing of which may be credited toward continuing education requirements.
Additionally, through our acquisition of KnowledgeReview we acquired a search
engine and several associated domain names through which we offer a method for
physicians and other healthcare professionals to search for both online and
traditional continuing education products. In addition, we plan to offer
products and services that complement our online continuing education and
training courses and link sales of our courseware to related books, videotapes,
audio tapes, and other educational and reference products produced by our
content partners. Back to you Robert.
VISUAL 14: STRATEGIC RELATIONSHIPS AND ACQUISITIONS
Imagery: Border and Company logo. Four arrows on the left of the page
pointing to the right.
Visual Text: Title: Strategic Relationships and Acquisitions. Subheading:
"Services Distributed through ASP Model." To the right of the first arrow will
appear the caption, "m3 the Healthcare Learning Company." To the right of the
second arrow will appear the caption, "EMInet." To the right of the third arrow
will appear the caption, "Quick Study." To the right of the fourth arrow will
appear the caption, "Columbia/HCA Healthcare Corporation."
Script: (Robert Frist) (see "Business--Strategic Relationships and
Acquisitions -- Services Distributed through ASP Model"): Thanks, Jeff. In
January 2000, we acquired m3 the Healthcare Learning Company which provides us
with an established client base of over 450 hospitals and the opportunity to
convert these hospitals to our ASP model. In January 2000, we also acquired
EMInet, a provider of online continuing education to emergency medical services
personnel. This acquisition expands the content offering of our online library
and customer base for our services. Additionally, in January 2000, we acquired
Quick Study, a provider of over 60 hours of nursing and OSHA content, which we
have added to our online library and will deliver to healthcare organizations
through our ASP model. In February 2000, we entered into a four-year Online
Education Services Provider Agreement pursuant to which we will provide
Columbia/HCA with online training and education services and courseware for its
doctors, nurses and staff on an ASP basis.
VISUAL 15: STRATEGIC RELATIONSHIPS AND ACQUISITIONS
Imagery: Border and Company logo. Two vertical rectangles with the titles
"Content" and "Distribution."
Visual Text: Title: Strategic Relationships and Acquisitions. Subhead:
Services Provided Through Web Distribution Network. Each rectangle will include
captions listing the following names of the Company's strategic relationships
and acquisitions:
<TABLE>
<CAPTION>
CONTENT DISTRIBUTION
- ----------------------------------------- -----------------------------------------
<S> <C>
- - SilverPlatter Education - cmesearch.com
- - Scripps Clinic - Healtheon/WebMD
- - Duke University Medical Center - MedicaLogic
- - American Health Consultants - State Medical Associations
- - Vanderbilt University Medical Center - HealthGate
- - The Cleveland Clinic Foundation - ChannelHealth (an IDX Company)
- - Challenger Corporation - Pointshare
- - e-Vitro - GE Medical Systems
- Medsite.com
</TABLE>
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<PAGE> 133
Script: (Robert Frist) (see "Business -- Strategic Relationships"): We
have entered into strategic relationships with several content partners and 30
distribution partners and continue to aggressively pursue additional strategic
relationships. We believe that these strategic relationships along with the
acquisition of complementary businesses will enable us to increase our course
offerings, expand our product distribution and expand our brand awareness. In
addition, our recent acquisitions have expanded our course offerings and
provided us with experienced sales personnel. In July 1999, we acquired
SilverPlatter Education, a provider of over 100 hours of continuing medical
education programs to physicians on CD-ROM and via the Internet. In January
2000, we acquired KnowledgeReview which operates cmesearch.com, a healthcare
education search engine which allows physicians and other healthcare
professionals to search for online and traditional continuing education.
cmesearch.com currently provides listings and information on over 2,000 courses
and seminars. Selected content partners include: SilverPlatter Education,
Scripps Clinic, Duke University Medical Center, American Health Consultants,
Vanderbilt University Medical Center, The Cleveland Clinic Foundation,
Challenger Corporation and e-Vitro. Selected distribution partners include:
cmesearch.com., Healtheon/WebMD, MedicaLogic, State Medical Associations,
HealthGate, ChannelHealth (an IDX Company), Pointshare, GE Medical Systems and
Medsite.com.
VISUAL 16: COMPETITION
Imagery: Border and Company logo. Eight arrows on the left of the page
pointing to the right.
Visual Text: Title: Competition. Subheading "Potential competitors fall
into the following categories:" To the right of the first arrow will appear the
caption, "Other online training and continuing education providers." To the
right of the second arrow will appear the caption, "Web sites targeting medical
professionals." To the right of the third arrow will appear the caption,
"Traditional medical publishers and continuing education providers." To the
right of the fourth arrow will appear the caption, "Academic medical centers."
To the right of the fifth arrow will appear the caption, "Software developers
that bundle their training systems." To the right of the sixth arrow will appear
the caption, "Professional membership organizations." To the right of the
seventh arrow will appear the caption, "Companies that market general-purpose
computer-managed instruction systems." To the right of the eighth arrow will
appear the caption, "Interactive media development companies."
Script: (Robert Frist) (see "Business -- Competition"): The market for the
provision of online training and continuing education to the healthcare industry
is new and rapidly evolving. We face competitive pressures from numerous actual
and potential competitors, including: Other online training and continuing
education providers, Web sites targeting medical professionals that currently
offer or may develop their own continuing education content in the future;
traditional medical publishers and continuing education providers; academic
medical centers; software developers that bundle their training systems with
industry training content; professional membership organizations; companies that
market general-purpose computer-managed instruction systems into the healthcare
industry; and, interactive media development companies focused on the healthcare
industry.
And with that, I will turn it over to Arthur Newman for an overview of our
financial results. Arthur . . .
VISUAL 17: FINANCIAL SUMMARY
Imagery: Border and Company logo. Selected Financial Data.
Visual Text: Title: Financial Summary. "Selected Financial Data" table.
Script: (Arthur Newman) (See "Management's Discussion and Analysis of
Financial Condition -- Overview," "-- Results of Operations" and "-- Year Ended
December 31, 1998 Compared to Year Ended December 31, 1999"): Thanks, Robert.
Revenues currently consist primarily of sales of multimedia development services
for training modules and promotional materials for the healthcare industry.
Revenues also including licensing fees and royalties from product sales of
proprietary training software to healthcare companies as well as transaction
fees from sales of continuing education credit from content delivered over
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<PAGE> 134
the Internet. We expect that revenues in future periods will be increasingly
derived from online services to healthcare organizations and healthcare
professionals.
Revenues increased $852,000 or 49.6% from approximately $1.7 million for
the year ended December 31, 1998 to approximately $2.6 million for the year
ended December 31, 1999. The increase in revenues was due to increased sales and
marketing of our T.NAV product and multimedia development services as well as
increased development and content production services.
Cost of revenues increased approximately $1.0 million or 100.4% from
approximately $1.0 million for the year ended December 31, 1998 to approximately
$2.1 million for the year ended December 31, 1999. The increase was primarily
attributable to increased volume of business, including approximately $800,000
of increases in salaries, labor and related benefits.
Product development expenses increased approximately $1.6 million, or
359.5%, from $443,000 for the year ended December 31, 1998 to approximately $2.0
million for the year ended December 31, 1999. As a percentage of revenues,
product development expenses increased from 25.8% for the year ended December
31, 1998 to 79.3% for the year ended December 31, 1999. The increase as a
percentage of revenues was due to significant upfront product development
expenses incurred to implement our online services, including salaries and
employee benefits associated with increased content conversion and development
and royalties due to content and distribution partners. We anticipate
significant additional product development expenses in future periods due to
salaries and employee benefits associated with increased content conversion.
Selling, general and administrative expenses increased approximately $1.5
million, or 101.2%, from approximately $1.5 million for the year ended December
31, 1998 to approximately $3.0 million for the year ended December 31, 1999. The
increase was primarily due to increased personnel and related benefits costs of
approximately $500,000 associated with new employees, an increase of
approximately $228,000 in advertising, promotional and marketing expenditures,
an increase of approximately $131,000 in professional service fees, an increase
of $213,000 related to amortization of intangible assets, an increase of
approximately $168,000 in travel expenses and facility and depreciation expenses
of approximately $96,000.
Other expense decreased $122,000 or 36.9% from $331,000 for the year ended
December 31, 1998 to $209,000 for the year ended December 31, 1999.
Net loss increased approximately $2.9 million, or 180.4%, from
approximately $1.6 million for the year ended December 31, 1998 to approximately
$4.5 million for the year ended December 31, 1999 due to the factors described
above.
Robert . . .
VISUAL 18: END OF PRESENTATION
Imagery: Border and company logo. See description of artwork on the page
titled Inside Front Cover of the Registration Statement for a description of the
image located on the inside front cover of the prospectus.
Script: (Robert Frist): We hope that this presentation was helpful in
understanding the business model of HealthStream and the strategy that our
management team intends to execute. We encourage you to refer back to the
prospectus for additional support and disclosure as well as to take a look at
the "Risk Factors" in detail. Again, thank you for your interest in
HealthStream.
A-8
<PAGE> 135
(HEALTHSTREAM LOGO)
<PAGE> 136
[I]
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 SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY
THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 30, 2000
(HEALTHSTREAM LOGO)
5,000,000 SHARES
COMMON STOCK
We are offering 5,000,000 shares of our common stock. This is our initial
public offering and no public market currently exists for our shares. Our common
stock has been approved for listing on the Nasdaq National Market under the
symbol "HSTM." We anticipate that the initial public offering price will be
between $11.00 and $13.00 per share.
------------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
------------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
---------- ----------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to HealthStream, Inc............................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
We have granted the underwriters a 30-day option to purchase up to an
additional 750,000 shares of common stock to cover over-allotments.
------------------------------
ROBERTSON STEPHENS INTERNATIONAL
CIBC WORLD MARKETS
J.C. BRADFORD & CO.
THE DATE OF THIS PROSPECTUS IS , 2000.
<PAGE> 137
[I]
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., CIBC World Markets Corp., J.C. Bradford &
Co. and E*OFFERING Corp., have severally agreed with us, subject to the terms
and conditions of the underwriting agreement, to purchase from us the number of
shares of common stock set forth below opposite their respective names. The
underwriters are committed to purchase and pay for all shares if any are
purchased.
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITERS OF SHARES
- ----------------- ---------
<S> <C>
FleetBoston Robertson Stephens Inc..........................
CIBC World Markets Corp.....................................
J.C. Bradford & Co..........................................
E*OFFERING Corp.............................................
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL UNDERWRITERS
- --------------------------
<S> <C>
FleetBoston Robertson Stephens International Limited........
CIBC World Markets Inc......................................
J.C. Bradford & Co..........................................
---------
Total........................................ 5,000,000
=========
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the public offering price set forth
on the cover page of this prospectus and to certain dealers at that price less a
concession not in excess of $ per share, of which $ may be
reallowed to other dealers. After this offering, the public offering price,
concession and reallowance to dealers may be reduced by the representatives. No
such reduction shall change the amount of the proceeds to be received by us as
set forth on the cover page of this prospectus. The common stock is offered by
the underwriters as stated in this document, subject to receipt and acceptance
by them and subject to their right to reject any order in whole or in part.
Prior to this offering, there has been no public market for the common
stock. Consequently, the public offering price for the common stock offered by
this prospectus will be determined through negotiations among the
representatives and us. Among the factors considered in those negotiations will
be prevailing market conditions, certain of our financial information, market
valuations of other companies that we and the representatives believe to be
comparable to us, estimates of our business potential, the present state of our
development and other factors deemed relevant.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
OVER-ALLOTMENT OPTION
We have granted to the underwriters an option, exercisable during the
30-day period after the date of this prospectus, to purchase up to 750,000
additional shares of common stock to cover over-allotments, if any, at the
public offering price less the underwriting discount set forth on the cover page
of this prospectus. If the underwriters exercise their over-allotment option to
purchase any of the additional 750,000 shares of common stock, the underwriters
have severally agreed, subject to certain conditions, to purchase approximately
the same percentage as the number of shares to be purchased by each of them
bears to the total number of shares of common stock offered in this offering. If
purchased, these additional shares will be sold by the underwriters on the same
terms as those on which the shares offered in this offering are being sold. We
will be obligated, by the over-allotment option, to sell shares to the
underwriters to the extent the over-allotment option is exercised. The
underwriters may exercise the over-allotment option only to cover
over-allotments made in connection with the sale of the shares of common stock
offered in this offering.
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<PAGE> 138
The following table summarizes the compensation to be paid by us:
<TABLE>
<CAPTION>
TOTAL
-------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions paid by us......... $ $ $
Expenses payable by us.................................... $ $ $
</TABLE>
INDEMNITY
The underwriting agreement contains covenants of indemnity among the
underwriters and us against civil liabilities, including liabilities under the
Securities Act, and liabilities arising from breaches of representations and
warranties contained in the underwriting agreement.
LOCK-UP AGREEMENTS
Each of our executive officers, directors and our more than one-percent
shareholders will agree, for 180 days after the date of this prospectus, subject
to specified exceptions, not to offer to sell, contract to sell, or otherwise
sell, dispose of, loan, pledge or grant any rights with respect to any shares of
common stock owned as of the date of this prospectus or acquired after the date
of this prospectus directly by those holders or with respect to which they have
the power of disposition, without the prior written consent of FleetBoston
Robertson Stephens Inc. These lock-up agreements will also cover any options or
warrants to purchase any shares of common stock, or any securities convertible
into or exchangeable for shares of common stock owned by those holders. However,
FleetBoston Robertson Stephens Inc. may, in its sole discretion and at any time
or from time to time, without notice, release all or any portion of the
securities subject to lock-up agreements. There are no existing agreements
between the representatives and any of our shareholders who will execute a
lock-up agreement providing consent to the sale of shares prior to the
expiration of the lock-up period.
In addition, we will agree that during the lock-up period we will not,
without the prior written consent of FleetBoston Robertson Stephens Inc.,
subject to some exceptions, consent to the disposition of any shares held by
shareholders subject to lock-up agreements prior to the expiration of the
lock-up period, or issue, sell, contract to sell, or otherwise dispose of, any
shares of common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or exchangeable for
shares of common stock other than our sale of shares in this offering, the
issuance of our common stock upon the exercise of outstanding options or
warrants, and the issuance of options under existing stock option and incentive
plans provided that those options do not vest prior to the expiration of the
lock-up period. See "Shares Eligible for Future Sale."
LISTING
Our common stock has been approved for listing on the Nasdaq National
Market under the symbol "HSTM."
STABILIZATION
The representatives have advised us that, pursuant to Regulation M under
the Securities Act of 1933, some persons participating in the offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, that may have the effect of
stabilizing or maintaining the market price of the shares of common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of shares of common stock on
behalf of the underwriters for the purpose of fixing or maintaining the price of
the common stock. A "syndicate covering transaction" is the bid for or purchase
of common stock on behalf of the underwriters to reduce a short position
incurred by the underwriters in connection with the offering. A "penalty bid" is
an arrangement permitting the representatives to reclaim the selling concession
otherwise accruing to an
67
<PAGE> 139
underwriter or syndicate member in connection with the offering if the common
stock originally sold by that underwriter or syndicate member is purchased by
the representatives in a syndicate covering transaction and has therefore not
been effectively placed by the underwriter or syndicate member. The
representatives have advised us that these transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
E*OFFERING Corp. is the exclusive Internet underwriter for this offering.
E*OFFERING Corp. has agreed to allocate a portion of the shares that it
purchases to E*TRADE Securities, Inc. E*OFFERING Corp. and E*TRADE Securities
Inc. will allocate shares to their respective customers in accordance with usual
and customary industry practices. A prospectus in electronic format, from which
you can link to a "Meet the Management" Presentation through an embedded
hyperlink, (click here for "Meet the Management" Presentation), is being made
available on the Web site maintained by E*OFFERING Corp., www.eoffering.com. The
"Meet the Management" presentation, including the accompanying slides included
in the appendix, is part of this prospectus.
Healtheon/WebMD has agreed to purchase directly from us an estimated
833,334 shares of our common stock in a separate private sale that will close
concurrently with this offering. The price of these shares will be equal to the
initial public offering price per share in this offering.
We have requested that the underwriters reserve up to 250,000 shares of
common stock to be offered at the initial public offering price to our
employees, friends and family of employees and others. The number of shares of
common stock available for sale to the general public will be reduced to the
extent these individuals purchase the reserved shares. Any reserved shares which
are not purchased will be offered by the underwriters to the general public on
the same basis as the other shares offered by this prospectus.
J.C. Bradford & Co., one of the underwriters, acted as our financial
advisor in connection with the issuance of our series B preferred stock in
April, May and August 1999. J.C. Bradford & Co. received customary fees and
expenses in connection with these private placements paid in the form of our
series B preferred stock. The shares of common stock into which these shares of
series B preferred stock are convertible will be subject to a lock-up agreement
for one year from the date of this prospectus. Including the shares received by
J.C. Bradford & Co. as payment for its acting as our financial advisor, J.C.
Bradford & Co. and affiliates of J.C. Bradford & Co. collectively own shares of
our preferred stock representing 435,641 shares of our common stock on an as
converted basis. J.C. Bradford & Co. and certain of the other underwriters may
act as an underwriter, placement agent or financial advisor in our future
financing activities.
Neither members of the National Association of Securities Dealers, Inc.
that are acting as underwriters in connection with this offering, nor associated
or affiliated persons of such NASD members, will receive 10% or more of the net
proceeds of this offering in the aggregate.
68
<PAGE> 140
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discount payable by us in connection with the sale of the common
stock being registered. All amounts are estimates except the SEC registration
fee and the NASD filing fee. Of these estimated expenses, approximately $295,000
were paid prior to the offering.
<TABLE>
<CAPTION>
AMOUNT
TO BE
PAID
--------
<S> <C>
SEC registration fee........................................ $ 20,539
NASD filing fee............................................. 7,975
Nasdaq National Market listing fee.......................... 5,000
Printing and engraving fees and expenses.................... 200,000
Legal fees and expenses..................................... 275,000
Accounting fees and expenses................................ 250,000
Blue sky fees and expenses (including legal fees)........... 5,000
Transfer agent fees......................................... 5,000
Miscellaneous............................................... 31,486
--------
Total............................................. $800,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the Tennessee Business Corporation Act, there is no specific
provision either expressly permitting or prohibiting a corporation from limiting
the liability of its directors for monetary damages. Our charter provides that,
to the fullest extent permitted by the TBCA, a director will not be liable to
the corporation or its shareholders for monetary damages for breach of his or
her fiduciary duty as a director.
The TBCA provides that a corporation may indemnify any director or officer
against liability incurred in connection with a proceeding if the director or
officer acted in good faith or reasonably believed, in the case of conduct in
his or her official capacity with the corporation, that the conduct was in the
corporation's best interest. In all other civil cases, a corporation may
indemnify a director or officer who reasonably believed that his or her conduct
was not opposed to the best interest of the corporation. In connection with any
criminal proceeding, a corporation may indemnify any director or officer who had
no reasonable cause to believe that his or her conduct was unlawful.
In actions brought by or in the right of the corporation, however, the TBCA
does not allow indemnification if the director or officer is adjudged to be
liable to the corporation. Similarly, the TBCA prohibits indemnification in
connection with any proceeding charging improper personal benefit to a director
or officer if the director or officer is adjudged liable because a personal
benefit was improperly received.
In cases when the director or officer is wholly successful, on the merits
or otherwise, in the defense of any proceeding instigated because of his or her
status as a director or officer of a corporation, the TBCA mandates that the
corporation indemnify the director or officer against reasonable expenses
incurred in the proceeding. Notwithstanding the foregoing, the TBCA provides
that a court may order a corporation to indemnify a director or officer for
reasonable expense if, in consideration of all relevant circumstances, the court
determines that the individual is fairly and reasonably entitled to
indemnification, whether or not the standard of conduct set forth above was met.
Our bylaws provide that we will indemnify and advance expenses to our
directors and officers to the fullest extent permitted by the TBCA. We also
maintain insurance to protect any director or officer against any liability and
will enter into indemnification agreements with each of our directors.
II-1
<PAGE> 141
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under our charter. We are not aware of any threatened
litigation or proceeding that may result in a claim for indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has sold and issued the following unregistered securities
since January 1, 1997:
- In October and November 1998 and January and February 1999, an aggregate
of 76,000 shares of our series A preferred stock were issued to raise
capital, only to accredited investors in private placements under Rule
506 of the Securities Act at $10.00 per share for total consideration of
$760,000;
- On April 21, 1999, 428,239 shares of our common stock were issued to
Robert A. Frist, Jr. upon conversion of $1 million in debt under Section
3(a)(9) of the Securities Act at $2.34 per share for total consideration
of $1,000,000;
- On July 23, 1999, 49,202 shares of our common stock were issued to
SilverPlatter Information, Inc. for an acquisition of the assets of
SilverPlatter Education, Inc. for an aggregate of $200,000 under Section
4(2) of the Securities Act, in which no public solicitations were made;
- In July and August 1999, Robert A. Frist, Jr. exercised options received
under our written 1994 stock option plan for 416,250 shares of our common
stock under Rule 701 of the Securities Act at $0.54 per share for total
consideration of $225,000;
- On August 9, 1999, 4,625 shares of our common stock were issued to
Richard Schapiro, for $18,800 worth of consulting services, in a private
placement under Section 4(2) of the Securities Act, in which no public
solicitations were made;
- In 1999, an aggregate of 1,157,801 shares of our series B preferred stock
were issued to raise capital, only to accredited investors in private
placements under Rule 506 of the Securities Act at $10.00 per share for
total consideration of $11,578,010;
- In April 1999, 15,000 shares of our series B preferred stock were issued
to J.C. Bradford & Company under Rule 506 of the Securities Act at $10.00
per share for total consideration of $150,000;
- In April and August 1999, 50,000 shares of our series B preferred stock
were issued to Robert A. Frist, Jr. upon conversion of $500,000 in debt
under Section 3(a)(9) of the Securities Act at $10.00 per share;
- In August 1999, 6,000 shares of our series B preferred stock were issued
to Scott Portis upon conversion of $60,000 in debt under Section 3(a)(9)
of the Securities Act at $10.00 per share;
- In August and September 1999, an aggregate of 627,406 shares of our
series C preferred stock were issued to raise capital, only to accredited
investors in private placements under Rule 506 of the Securities Act at
$10.00 per share for total consideration of $6,274,060;
- In December 1999, Jeffrey L. McLaren exercised options received under our
1994 stock option plan for 3,170 shares of our common stock under Rule
701 of the Securities Act at $0.61 per share for total consideration of
$1,928;
- In December 1999, Kelly Stewart exercised options received under our 1994
stock option plan for 7,666 shares of our common stock under Rule 701 of
the Securities Act at $0.61 per share for total consideration of $4,662.
- In January 2000, 17,343 shares of our common stock were issued to the
members of KnowledgeReview, LLC for an acquisition of the assets of
KnowledgeReview, LLC, for an aggregate of $150,000 under Rule 506 of the
Securities Act, in which no public solicitations were made;
II-2
<PAGE> 142
- In January 2000, 61,397 shares of our common stock were issued to the
shareholders of Quick Study, Inc. in connection with the merger of Quick
Study into one of our wholly-owned subsidiaries for an aggregate of
$531,008 under Section 4(2) of the Securities Act, in which no public
solicitations were made;
- In January 2000, 818,036 shares of our common stock were issued to the
shareholders of Multimedia Marketing, Inc. in connection with the merger
of Multimedia into one of our wholly-owned subsidiaries for an aggregate
of $7,074,912 under Rule 506 and Section 4(2) of the Securities Act, in
which no public solicitations were made; and
- In January 2000, 269,902 shares of our common stock were issued to
Emergency Medicine Internetwork, Inc. for an acquisition of the assets of
EMInet for an aggregate of $2,334,288 under Section 4(2) of the
Securities Act, in which no public solicitations were made.
- In February 2000, Jeffrey L. McLaren exercised options received under our
1994 stock option plan for 148,714 shares of our common stock under Rule
701 of the Securities Act at $0.61 per share for total consideration of
$90,434.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <C> <S>
**1.1 -- Form of the underwriting agreement among HealthStream, Inc.
and the underwriters
**2.1 -- Asset Purchase Agreement, dated July 23, 1999, among
SilverPlatter Education, Inc., SilverPlatter Information,
Inc. and HealthStream, Inc.
**2.2 -- Agreement and Plan of Merger, dated January 5, 2000, among
HealthStream, Inc., HealthStream Acquisition I, Inc., Quick
Study, Inc. and each shareholder of Quick Study, Inc.
**2.3 -- Asset Purchase Agreement, dated December 16, 1999, among
KnowledgeReview, LLC, Louis Bucelli and Maksim Repik, and
HealthStream, Inc.
**2.4 -- Agreement and Plan of Merger, dated January 25, 2000 among
HealthStream, Inc., HealthStream Acquisition II, Inc.,
Multimedia Marketing, Inc., and the stockholders of
Multimedia Marketing, Inc.
**2.5 -- Asset Purchase Agreement, dated January 27, 2000, between
Emergency Medicine Internetwork, Inc. and HealthStream, Inc.
**3.1 -- Form of Fourth Amended and Restated Charter of HealthStream,
Inc.
**3.2 -- Form of Amended and Restated Bylaws of HealthStream, Inc.
*4.1 -- Form of certificate representing the common stock, no par
value per share, of HealthStream, Inc.
4.2 -- Article 7 of the Fourth Amended and Restated
Charter -- included in Exhibit 3.1
4.3 -- Article II of the Amended and Restated Bylaws -- included in
Exhibit 3.2
*4.4 -- Amended and Restated Investors' Rights Agreement, dated
March 14, 2000, between HealthStream, Inc. and some of its
shareholders
**4.5 -- Promissory note, dated August 23, 1999, between
HealthStream, Inc., as maker, and Robert A. Frist, Jr., as
lender
**4.6 -- Warrant to purchase common stock of HealthStream, Inc.,
dated June 14, 1999, held by GE Medical Systems.
**4.7 -- Warrant to purchase common stock of HealthStream, Inc.,
dated February 11, 2000, held by Columbia Information
Systems.
*4.8 -- Common Stock Purchase Agreement between HealthStream, Inc.
and Healtheon/WebMD Corporation
**5.1 -- Opinion of Bass, Berry & Sims PLC as to the legality of the
common stock being offered
**10.1 -- Series A Convertible Preferred Stock Purchase Agreement
**10.2 -- Series B Convertible Preferred Stock Purchase Agreement
**10.3 -- Series C Convertible Preferred Stock Purchase Agreement
**10.4 -- 1994 Employee Stock Option Plan, effective as of April 15,
1994
**10.5 -- Form of 2000 Stock Incentive Plan
</TABLE>
II-3
<PAGE> 143
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <C> <S>
**10.6 -- Form of Indemnification Agreement
**10.7 -- Executive Employment Agreement, dated April 21, 1999,
between HealthStream, Inc. and Robert A. Frist, Jr.
**10.8 -- Lease dated March 27, 1995, as amended June 6, 1995 and
September 22, 1998, between Cummins Station LLC, as
landlord, and NewOrder Media, Inc., as tenant
*+10.9 -- Continuing Education Agreement between HealthStream, Inc.
and Vanderbilt University
*+10.10 -- Interactive Content Development and Licensing Agreement
between HealthStream, Inc. and Duke University Medical
Center
*+10.11 -- Joint Marketing and Licensing Agreement between
HealthStream, Inc. and The Cleveland Clinic Center for
Continuing Education
*+10.12 -- Strategic Alliance Agreement between HealthStream, Inc. and
Challenger Corporation
*+10.13 -- Development and Distribution Agreement between HealthStream,
Inc. and GE Medical Systems
*+10.14 -- Agreement between HealthStream, Inc. and Medsite.Com, Inc.
*+10.15 -- Web Site Linking Agreement between HealthStream, Inc. and
IDX Systems Corporation
*+10.16 -- Agreement between HealthStream, Inc. and Phycor, Inc.
*+10.17 -- Marketing Services Agreement between HealthStream, Inc. and
HealthGate Data Corp.
*+10.18 -- Continuing Education Services Agreement between
HealthStream, Inc. and HealthGate Data Corp.
**10.19 -- Courseware Development Agreement between HealthStream, Inc.
and e-Vitro, Inc.
*+10.20 -- Software Licensing and Distribution Agreement between
HealthStream, Inc. and Pointshare.
*+10.21 -- Content Licensing Agreement between HealthStream, Inc. and
American Health Consultants dated September 20, 1999.
*+10.22 -- Content Licensing Agreement between HealthStream, Inc. and
American Health Consultants dated January 6, 2000.
*+10.23 -- Continuing Education Distribution Agreement between
HealthStream, Inc. and the Mississippi State Medical
Association.
*+10.24 -- Joint Marketing and Distribution Agreement between
HealthStream, Inc. and the Medical Association of Georgia.
*+10.25 -- Online Services Agreement between HealthStream, Inc. and
Columbia Information Systems.
*+10.26 -- Software Licensing and Distribution Agreement between
HealthStream, Inc. and MedicaLogic, Inc.
*+10.27 -- Joint Marketing and Licensing Agreement between
HealthStream, Inc. and Scripps Clinic
*+10.28 -- Joint Marketing and Licensing Agreement between
HealthStream, Inc. and KnowledgeLinc, Inc.
**10.29 -- Letter of Agreement between HealthStream, Inc. and
Healtheon/WebMD Corporation.
*10.30 -- Form of Employee Stock Purchase Plan
**21.1 -- Subsidiaries of HealthStream, Inc.
*23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Bass, Berry & Sims PLC (included in opinion filed
as Exhibit 5.1)
*23.3 -- Consent of Lane Gorman Trubitt, L.L.P
**24.1 -- Power of Attorney (included on page II-5)
**27.1 -- Financial Data Schedule (for SEC use only)
**27.2 -- Financial Data Schedule (for SEC use only)
</TABLE>
(b) Financial Statement Schedules.
All schedules have been omitted because they are inapplicable or the
information is provided in the Company's financial statements, including the
notes thereto.
- ------------------
* Filed herewith
** Filed previously
+ Confidential treatment has been requested with respect to certain
portions of this exhibit. Omitted portions are included in the
confidential treatment request filed separately with the Commission.
II-4
<PAGE> 144
ITEM 17. UNDERTAKINGS
(1) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
(2) 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 in Item 14, 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 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.
(3) The undersigned registrant hereby undertakes that: (i) 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; (ii) 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.
II-5
<PAGE> 145
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment number 3 to the registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Nashville, State of Tennessee, on March 30, 2000.
HEALTHSTREAM, INC.
By: /s/ ROBERT A. FRIST, JR.
------------------------------------
Robert A. Frist, Jr.
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
number 3 to the registration statement has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<C> <S> <C>
* Chief Executive Officer and March 30, 2000
- --------------------------------------------------- Chairman (principal
Robert A. Frist, Jr. executive officer)
* President and Director March 30, 2000
- ---------------------------------------------------
Jeffrey L. McLaren
* Chief Financial Officer and March 30, 2000
- --------------------------------------------------- Senior Vice President
Arthur E. Newman (principal financial and
accounting officer)
* Director March 30, 2000
- ---------------------------------------------------
Charles N. Martin, Jr.
* Director March 30, 2000
- ---------------------------------------------------
Thompson S. Dent
* Director March 30, 2000
- ---------------------------------------------------
M. Fazle Husain
* Director March 30, 2000
- ---------------------------------------------------
John H. Dayani, Sr., Ph.D
* Director March 30, 2000
- ---------------------------------------------------
James F. Daniell, M.D.
* Director March 30, 2000
- ---------------------------------------------------
William Stead, M.D.
*By: /s/ ROBERT A. FRIST, JR. March 30, 2000
-----------------------------------------------
Robert A. Frist, Jr.
Attorney-in-fact
</TABLE>
II-6
<PAGE> 146
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <C> <S>
**1.1 -- Form of the underwriting agreement among HealthStream, Inc.
and the underwriters
**2.1 -- Asset Purchase Agreement, dated July 23, 1999, among
SilverPlatter Education, Inc., SilverPlatter Information,
Inc. and HealthStream, Inc.
**2.2 -- Agreement and Plan of Merger, dated January 5, 2000, among
HealthStream, Inc., HealthStream Acquisition I, Inc., Quick
Study, Inc. and each shareholder of Quick Study, Inc.
**2.3 -- Asset Purchase Agreement, dated December 16, 1999, among
KnowledgeReview, LLC, Louis Bucelli and Maksim Repik, and
HealthStream, Inc.
**2.4 -- Agreement and Plan of Merger, dated January 25, 2000 among
HealthStream, Inc., HealthStream Acquisition II, Inc.,
Multimedia Marketing, Inc., and the stockholders of
Multimedia Marketing, Inc.
**2.5 -- Asset Purchase Agreement, dated January 27, 2000, between
Emergency Medicine Internetwork, Inc. and HealthStream, Inc.
**3.1 -- Form of Fourth Amended and Restated Charter of HealthStream,
Inc.
**3.2 -- Form of Amended and Restated Bylaws of HealthStream, Inc.
*4.1 -- Form of certificate representing the common stock, no par
value per share, of HealthStream, Inc.
4.2 -- Article 7 of the Fourth Amended and Restated
Charter -- included in Exhibit 3.1
4.3 -- Article II of the Amended and Restated Bylaws -- included in
Exhibit 3.2
*4.4 -- Amended and Restated Investors' Rights Agreement, dated
March 14, 2000, between HealthStream, Inc. and some of its
shareholders
**4.5 -- Promissory note, dated August 23, 1999, between
HealthStream, Inc., as maker, and Robert A. Frist, Jr., as
lender
**4.6 -- Warrant to purchase common stock of HealthStream, Inc.,
dated June 14, 1999, held by GE Medical Systems.
**4.7 -- Warrant to purchase common stock of HealthStream, Inc.,
dated February 11, 2000, held by Columbia Information
Systems.
*4.8 -- Common Stock Purchase Agreement between HealthStream, Inc.
and Healtheon/WebMD Corporation
**5.1 -- Opinion of Bass, Berry & Sims PLC as to the legality of the
common stock being offered
**10.1 -- Series A Convertible Preferred Stock Purchase Agreement
**10.2 -- Series B Convertible Preferred Stock Purchase Agreement
**10.3 -- Series C Convertible Preferred Stock Purchase Agreement
**10.4 -- 1994 Employee Stock Option Plan, effective as of April 15,
1994
**10.5 -- Form of 2000 Stock Incentive Plan
**10.6 -- Form of Indemnification Agreement
**10.7 -- Executive Employment Agreement, dated April 21, 1999,
between HealthStream, Inc. and Robert A. Frist, Jr.
**10.8 -- Lease dated March 27, 1995, as amended June 6, 1995 and
September 22, 1998, between Cummins Station LLC, as
landlord, and NewOrder Media, Inc., as tenant
*+10.9 -- Continuing Education Agreement between HealthStream, Inc.
and Vanderbilt University
*+10.10 -- Interactive Content Development and Licensing Agreement
between HealthStream, Inc. and Duke University Medical
Center
*+10.11 -- Joint Marketing and Licensing Agreement between
HealthStream, Inc. and The Cleveland Clinic Center for
Continuing Education
*+10.12 -- Strategic Alliance Agreement between HealthStream, Inc. and
Challenger Corporation
</TABLE>
<PAGE> 147
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <C> <S>
*+10.13 -- Development and Distribution Agreement between HealthStream,
Inc. and GE Medical Systems
*+10.14 -- Agreement between HealthStream, Inc. and Medsite.Com, Inc.
*+10.15 -- Web Site Linking Agreement between HealthStream, Inc. and
IDX Systems Corporation
*+10.16 -- Agreement between HealthStream, Inc. and Phycor, Inc.
*+10.17 -- Marketing Services Agreement between HealthStream, Inc. and
HealthGate Data Corp.
*+10.18 -- Continuing Education Services Agreement between
HealthStream, Inc. and HealthGate Data Corp.
**10.19 -- Courseware Development Agreement between HealthStream, Inc.
and e-Vitro, Inc.
*+10.20 -- Software Licensing and Distribution Agreement between
HealthStream, Inc. and Pointshare.
*+10.21 -- Content Licensing Agreement between HealthStream, Inc. and
American Health Consultants dated September 20, 1999.
*+10.22 -- Content Licensing Agreement between HealthStream, Inc. and
American Health Consultants dated January 6, 2000.
*+10.23 -- Continuing Education Distribution Agreement between
HealthStream, Inc. and the Mississippi State Medical
Association.
*+10.24 -- Joint Marketing and Distribution Agreement between
HealthStream, Inc. and the Medical Association of Georgia.
*+10.25 -- Online Services Agreement between HealthStream, Inc. and
Columbia Information Systems.
*+10.26 -- Software Licensing and Distribution Agreement between
HealthStream, Inc. and MedicaLogic, Inc.
*+10.27 -- Joint Marketing and Licensing Agreement between
HealthStream, Inc. and Scripps Clinic
*+10.28 -- Joint Marketing and Licensing Agreement between
HealthStream, Inc. and KnowledgeLinc, Inc.
**10.29 -- Letter of Agreement between HealthStream, Inc. and
Healtheon/WebMD Corporation.
*10.30 -- Form of Employee Stock Purchase Plan
**21.1 -- Subsidiaries of HealthStream, Inc.
*23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Bass, Berry & Sims PLC (included in opinion filed
as Exhibit 5.1)
*23.3 -- Consent of Lane Gorman Trubitt, L.L.P
**24.1 -- Power of Attorney (included on page II-5)
**27.1 -- Financial Data Schedule (for SEC use only)
**27.2 -- Financial Data Schedule (for SEC use only)
</TABLE>
(b) Financial Statement Schedules.
All schedules have been omitted because they are inapplicable or the
information is provided in the Company's financial statements, including the
notes thereto.
- ------------------
* Filed herewith
** Filed previously
+ Confidential treatment has been requested with respect to certain
portions of this exhibit. Omitted portions are included in the
confidential treatment request filed separately with the Commission.
<PAGE> 1
EXHIBIT 4.1
<TABLE>
<S> <C> <C>
NUMBER SHARES
COMMON STOCK COMMON STOCK
HEALTHSTREAM
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF TENNESSEE CERTAIN DEFINITIONS
CUSIP 42222N 10 3
FULLY-PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, NO PAR VALUE PER SHARE, OF
HealthStream, Inc. transferable on the books of the Corporation in person or by duly authorized attorney upon surrender of
this Certificate properly endorsed. This Certificate is not valid until countersigned and registered by the Transfer Agent
and Registrar.
IN WITNESS WHEREOF, the Corporation has caused the fascimile signatures of its duly authorized officers to be affixed
hereto.
Dated:
/s/ /s/
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
SUNTRUST BANK
TRANSFER AGENT AND REGISTRAR,
BY
AUTHORIZED SIGNATURE
</TABLE>
<PAGE> 2
HEALTHSTREAM, INC.
The Corporation will furnish the shareholder information regarding the
designations, relative rights, preferences, and limitations applicable to each
class and the variations in rights, preferences and limitations determined for
each series of stock issued by the Corporation (and the authority of the board
of directors to determine variations for future series) upon request in writing
and without charge.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _____________ Custodian ___________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act __________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, __________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS
INCLUDING POSTAL ZIP CODE OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ___________________________________________,
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated ________________
_______________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-16.
<PAGE> 1
EXHIBIT 4.4
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT is made as of the
14th day of March, 2000 by and between HealthStream, Inc., a Tennessee
corporation (the "Company") and the shareholders who purchased the Company's
Series A, Series B or Series C Convertible Preferred Stock ("Preferred
Stockholders"); GE Medical Systems, a division of the General Electric Company
("GEMS"); CIS Holdings, Inc., an affiliate of Columbia/HCA Healthcare
Corporation ("Columbia"); and Healtheon/WebMD Corporation ("Healtheon/WebMD"),
each of which is herein referred to as an "Investor" and collectively as the
"Investors."
RECITALS
WHEREAS, the Company, the Preferred Shareholders and GEMS are parties
to the Investor's Rights Agreement , dated April 21, 1999, as amended on August
11, 1999 (the "Original Agreement");
WHEREAS, the Company entered an Online Services Provider Agreement with
Columbia Information Systems, Inc., an affiliate of Columbia ("Services
Agreement") and a warrant agreement with CIS Holdings, Inc. ("Columbia Warrant
Agreement") both dated February 10, 2000;
WHEREAS, the Company entered a Letter of Agreement with Healtheon/WebMD
("Letter Agreement"), dated February 29, 2000;
WHEREAS, it is a condition to the transactions contemplated by the
Services Agreement and the Letter Agreement that CIS Holdings, Inc. and
Healtheon/WebMD, respectively, be added as parties to the Original Agreement;
and
WHEREAS, to reflect the rights and obligations of all of the parties
hereto, the Original Agreement is being amended and restated in its entirety in
this Amended and Restated Investors' Rights Agreement.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.12 hereof.
(c) The term "1934 Act" shall mean the Securities Exchange Act
of 1934, as amended.
(d) The term "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the
declaration or ordering of effectiveness of such registration
statement or document.
<PAGE> 2
(e) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Series A, Series B or
Series C Convertible Preferred Stock; (ii) any Common Stock of the
Company issued or to be issued upon conversion or exercise of the
Warrant Agreement dated June 14, 1999 between the Company and GEMS
(the "GEMS Warrant Agreement") (or upon conversion of any securities
issued upon conversion or exercise of the GEMS Warrant Agreement);
(iii) any Common Stock of the Company issued or to be issued upon
conversion or exercise of the Columbia Warrant Agreement (or upon
conversion of any securities issued upon conversion or exercise of
the Columbia Warrant Agreement); (iv) any Common Stock issued to
Healtheon/WebMD pursuant to the Letter Agreement; and (v) any Common
Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as)
a dividend or other distribution with respect to, or in exchange for
or in replacement of the shares referenced in (i)-(iv) above,
excluding in all cases, however, any Registrable Securities sold by
a person in a transaction in which his rights under this Section 1
are not assigned.
(f) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common
Stock outstanding which are Registrable Securities, and the number
of shares of Common Stock issuable pursuant to then exercisable or
convertible securities which are Registrable Securities.
(g) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 Demand Registration.
(a) At any time after the Company shall have consummated a firm
commitment underwritten public offering of the Common Stock of the
Company under the Act, the holders of Registrable Securities (i)
constituting at least 30% of the total shares of Registrable
Securities then outstanding and (ii) having a minimum anticipated
offering price of $5,000,000 may request the Company to register
under the Act all or any portion of the shares of Registrable
Securities held by such requesting Holder or Holders for sale on
Form S-1 in the manner specified in such notice. Notwithstanding
anything to the contrary contained herein, the Company shall not be
obligated to effect, or to take any action to effect, any such
registration pursuant to this Section 1.2:
(i) during the period starting with the date sixty (60) days
prior to the Company's good faith estimate of the date of filing
of, and ending on a date one hundred eighty (180) days after the
effective date of, a Company-initiated registration (but in any
event no greater than three hundred sixty (360) days after a
request is made under this Section 1.2); provided that the
Company is actively employing in good faith all reasonable
efforts to cause such registration statement to become
effective;
(ii) if the requesting Holders do not request that such
offering be firmly underwritten by underwriters reasonably
acceptable to the Company;
2
<PAGE> 3
(iii) if the Company and the requesting Holders are unable
to obtain the commitment of the underwriter described in clause
(ii) above to firmly underwrite the offering; or
(iv) if in the good faith judgment of the Board of Directors
of the Company, such registration would be seriously detrimental
to the Company and the Board of Directors of the Company
concludes, as a result, that it is essential to defer the filing
of such registration statement at such time, in which case the
Company shall furnish to such Holders a certificate signed by
the President of the Company stating that in the good faith
judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company for such registration
statement to be filed in the near future and that it is,
therefore, essential to defer the filing of such registration
statement, then the Company shall have the right to defer such
filing for a period of not more than 180 days after receipt of
the request of the requesting holders, and, provided further,
that the Company shall not defer its obligation in this manner
more than once in any eighteen-month period.
(b) Following receipt of any notice under this Section 1.2, the
Company shall immediately notify all holders of Registrable
Securities from whom notice has not been received and shall use its
best efforts to register under the Act, for public sale in
accordance with the method of disposition specified in such notice
from requesting holders, the number of shares of Registrable
Securities specified in such notice (and in all notices received by
the Company from other holders within 15 days after the giving of
such notice by the Company). If such method of disposition shall be
an underwritten public offering, the holders of a majority of the
shares of Registrable Securities to be sold in such offering may
designate the managing underwriter of such offering, subject to the
approval of the Company which approval shall not be unreasonably
withheld or delayed. The Company shall be obligated to register
Registrable Securities pursuant to this Section 1.2 on two occasions
only; provided, however, that such obligation shall be deemed
satisfied only when a registration statement covering all shares of
Registrable Securities specified in notices received and not
rescinded as aforesaid, for sale in accordance with the method of
disposition specified by the requesting Holders, shall have become
effective and, if such method of disposition is a firm commitment
underwritten public offering, all such shares shall have been sold
pursuant thereto.
(c) The Company and any other holders of Common Stock which the
Company shall permit to participate shall be entitled to include in
any registration statement referred to in this Section 1.2, for sale
in accordance with the method of disposition specified by the
requesting Holders, provided the Company and any such holder accept
the terms of any underwriting agreed by the initiating Holders,
shares of Common Stock to be sold by the Company or such other
holders for their own account, except as and to the extent that, in
the sole discretion of the managing underwriter (if such method of
disposition shall be an underwritten public offering), such
inclusion would adversely affect the success of the offering of the
Registrable Securities to be sold. Except for registration
statements on Form S-4, S-8 or any successor thereto, the Company
will not file with the SEC any other registration statement with
respect to its Common Stock, whether for its own account or that of
other stockholders, from the date of receipt of a
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notice from requesting holders pursuant to this Section 1.2, until
the completion of the period of distribution of the registration
contemplated thereby.
1.3 Company Registration. If (but without any obligation to do so)
the Company proposes to register (including for this purpose a
registration effected by the Company for shareholders other than the
Holders) any of its stock or other equity securities under the Act in
connection with the public offering of such securities solely for cash
(other than a registration relating solely to the sale of securities to
participants in a Company stock plan, a registration on Form S-4 or any
other form which does not include substantially the same information as
would be required to be included in a registration statement covering
the sale of the Registrable Securities or a registration in which the
only Common Stock being registered is Common Stock issuable upon
conversion of debt securities which are also being registered), the
Company shall, at such time, promptly give each Holder written notice
of such registration. Upon the written request of each Holder given
within twenty (20) days after mailing of such notice by the Company in
accordance with Section 3.5, the Company shall, subject to the
provisions of Section 1.7, cause to be registered under the Act all of
the Registrable Securities that each such Holder has requested to be
registered.
1.4 Obligations of the Company. Whenever required under this Section
1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all reasonable
efforts to cause such registration statement to become effective,
and upon the request of the Holders of a majority of the Registrable
Securities, keep such registration statement effective for a period
of up to sixty (60) days or, if earlier, until the Holder of Holders
have completed the distribution related thereto.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used
in connection with such registration statement as may be necessary
to comply with the provisions of the Act and as may be necessary to
keep such registration statement effective for a period of up to 60
days.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with
the requirements of the Act, and such other documents as they may
reasonably request in order to facilitate the disposition of
Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities
or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in
usual and customary form, with the managing underwriter of such
offering. Each Holder participating in such underwriting shall also
enter into and perform its obligations under such an agreement.
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(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating
thereto is required to be delivered under the Act of the happening
of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then
existing.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all
such Registrable Securities in each case not later than the
effective date of such registration.
(i) Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such
securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that
the registration statement with respect to such securities becomes
effective, (i) an opinion, dated as of such date, of the counsel
representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an
underwritten public offering and reasonably satisfactory to a
majority in interest of the Holders requesting registration,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated as of
such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an
underwritten public offering and reasonably satisfactory to a
majority in interest of the Holders requesting registration,
addressed to the underwriters, if any, and if permitted by
applicable accounting standards, to the Holders requesting
registration of Registrable Securities.
1.5 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section
1 with respect to the Registrable Securities of any selling Holder that
such Holder shall furnish to the Company such information regarding
itself, the Registrable Securities held by it, and the intended method
of disposition of such securities as shall be required to effect the
registration of such Holder's Registrable Securities.
1.6 Expenses of Company Registration. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the
registrations pursuant to Sections 1.2, 1.3 or 1.11 for each Holder
(which right may be assigned as provided in Section 1.12), including
(without limitation) all registration, filing, and qualification fees,
printers and accounting fees relating or apportionable thereto and the
fees and disbursements of counsel for the Company and the reasonable
fees and disbursements of one counsel for the selling Holders selected
by them, but excluding underwriting discounts and selling commissions
relating to Registrable Securities.
1.7 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the
Company shall not be required under Section 1.3 to include any of the
Holders' securities in such underwriting unless they accept the
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<PAGE> 6
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it (or by other persons entitled to select the
underwriters), and then only in such quantity as the underwriters
determine in their sole discretion will not jeopardize the success of
the offering by the Company. If the total amount of securities,
including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities sold other
than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the
Company shall be required to include in the offering only that number
of such securities, including Registrable Securities, which the
underwriters determine in their sole discretion will not jeopardize the
success of the offering (the securities so included to be apportioned
pro rata among the selling shareholders according to the total amount
of securities entitled to be included therein owned by each selling
shareholder or in such other proportions as shall mutually be agreed to
by such selling shareholders) but in no event shall the amount of
securities of the selling Holders included in the offering be reduced
below thirty percent (30%) of the total amount of securities included
in such offering, unless such offering is the initial public offering
of the Company's securities in which case the selling shareholders may
be excluded if the underwriters make the determination described above
and no other shareholder's securities are included. For purposes of the
preceding parenthetical concerning apportionment, for any selling
shareholder which is a holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners and
shareholders of such holder, or the estates and family members of any
such partners and retired partners and any trusts for the benefit of
any of the foregoing persons shall be deemed to be a single "selling
shareholder", and any pro-rata reduction with respect to such "selling
shareholder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals
included in such "selling shareholder," as defined in this sentence.
1.8 Delay of Registration. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with
respect to the interpretation or implementation of this Section 1.
1.9 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the
Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Act or the 1934 Act,
against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Act, the 1934
Act, or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of
or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or
alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or
final prospectus contained therein or any amendments or supplements
thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make
the statements therein not misleading, or (iii) any violation or
alleged violation by the Company of the Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Act,
the 1934 Act or any state securities law; and the Company will pay
to each such Holder, underwriter or controlling person, as incurred,
any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 1.9(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage,
liability, or
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action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss,
claim, damage, liability, or action to the extent that it arises out
of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in
connection with such registration by any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each
of its officers who has signed the registration statement, each
person, if any, who controls the Company within the meaning of the
Act, any underwriter, any other Holder selling securities in such
registration statement and any controlling person of any such
underwriter or other Holder, against any losses, claims, damages, or
liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, or the 1934 Act, or other federal
or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are
based upon any Violation, in each case to the extent (and only to
the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder under
an instrument duly executed by such Holder and stated to be
specifically for use in connection with such registration; and each
such Holder will pay, as incurred, any legal or other expenses
reasonably incurred by any person intended to be indemnified
pursuant to this subsection 1.9(b), in connection with investigating
or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this
subsection 1.9(b) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability or action if such settlement
is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided, that, in no event shall any
indemnity under this subsection 1.9(b) exceed the proceeds from the
offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.9 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under
this Section 1.9, deliver to the indemnifying party a written notice
of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying
party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an
indemnified party (together with all other indemnified parties which
may be represented without conflict by one counsel) shall have the
right to retain one separate counsel, with the fees and expenses to
be paid by the indemnifying party, 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 such indemnified party and any other party
represented by such counsel in such proceeding. The failure to
deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action, if materially
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under
this Section 1.9, but the omission so to deliver written notice to
the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section
1.9.
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(d) If the indemnification provided for in this Section 1.9 is
held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim,
damage, or expense referred to therein, then the indemnifying party,
in lieu of indemnifying such indemnified party hereunder, shall
contribute to the amount paid or payable by such indemnified party
as a result of such loss, liability, claim, damage, or expense in
such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party
on the other in connection with the statements or omissions that
resulted in such loss, liability, claim, damage, or expense as well
as any other relevant equitable considerations. The relative fault
of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission to
state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission provided that in no
event shall any contribution by a Holder hereunder exceed the
proceeds from the offering received by such Holder.
(e) The obligations of the Company and Holders under this
Section 1.9 shall survive the completion of any offering of
Registrable Securities in a registration statement under this
Section 1, and otherwise. 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 which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified
party of a release from all liability in respect to such claim or
litigation.
1.10 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated
under the Act and any other rule or regulation of the SEC that may at
any time permit a Holder to sell securities of the Company to the
public without registration, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after
ninety (90) days after the effective date of the first registration
statement filed by the Company for the offering of its securities to
the general public;
(b) take such action, including the voluntary registration of
its Common Stock under Section 12 of the 1934 Act, as is necessary
to enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as
practicable after the end of the fiscal year in which the first
registration statement filed by the Company for the offering of its
securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act;
and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written
statement by the Company that it has complied with the reporting
requirements of SEC Rule 144 (at any time after ninety (90) days
after the effective date of the first registration statement filed
by the Company), the Act and the 1934 Act (at any time after it has
become subject to such reporting
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<PAGE> 9
requirements), or that it qualifies as a registrant whose securities
may be resold pursuant to Form S-3 (at any time after it so
qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed
by the Company, and (iii) such other information as may be
reasonably requested in availing any Holder of any rule or
regulation of the SEC which permits the selling of any such
securities without registration or pursuant to such form.
1.11 Form S-3 Registration. In case the Company shall receive from
any Holder or Holders a written request or requests that the Company
effect a registration on Form S-3 and any related qualification or
compliance with respect to all or a part of the Registrable Securities
owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders;
and
(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as
would permit or facilitate the sale and distribution of all or such
portion of such Holder's or Holders' Registrable Securities as are
specified in such request, together with all or such portion of the
Registrable Securities of any other Holder or Holders joining in
such request as are specified in a written request given within 15
days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect
any such registration, qualification or compliance, pursuant to this
section 1.11: (1) if Form S-3 is not available for such offering by
the Holders; (2) if the Holders, together with the holders of any
other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $1,000,000; (3)
if the Company shall furnish to the Holders a certificate signed by
the President of the Company stating that in the good faith judgment
of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such Form S-3
Registration to be effected at such time, in which event the Company
shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 60 days after
receipt of the request of the Holder or Holders under this Section
1.11; provided, however, that the Company shall not utilize this
right more than once in any twelve month period; (4) if the Company
has within the twelve (12) month period preceding the date of such
request, already effected two registrations on Form S-3 for the
Holders pursuant to this Section 1.11; or (5) in any particular
jurisdiction in which the Company would be required to qualify to do
business or to execute a general consent to service of process in
effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable
after receipt of the request or requests of the Holders. All
expenses incurred in connection with a registration requested
pursuant to Section 1.11, including (without limitation) all
registration, filing, qualification, printer's and accounting fees
and the reasonable fees and disbursements of counsel for the selling
Holder or Holders and counsel for the Company, but excluding any
underwriters' discounts or commissions associated with Registrable
Securities, shall be borne pro rata by the Holder or Holders
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participating in the Form S-3 Registration. Registrations effected
pursuant to this Section 1.11 shall not be counted as registrations
effected pursuant to Section 1.3.
1.12 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1
may be assigned (but only with all related obligations) by a Holder to
a transferee or assignee of such securities, provided: (a) the Company
is, within a reasonable time after such transfer, furnished with
written notice of the name and address of such transferee or assignee
and the securities with respect to which such registration rights are
being assigned; (b) such transferee or assignee agrees in writing to be
bound by and subject to the terms and conditions of this Agreement,
including without limitation the provisions of Section 1.13 below; and
(c) such assignment shall be effective only if immediately following
such transfer the further disposition of such securities by the
transferee or assignee is restricted under the Act.
1.13 "Market Stand-Off" Agreement. Each Investor hereby agrees that,
during the period of duration specified by the Company and an
underwriter of common stock or other securities of the Company,
following the date of the first sale to the public pursuant to a
registration statement of the Company filed under the Act, it shall
not, to the extent requested by the Company and such underwriter,
directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to
purchase or otherwise transfer or dispose of (other than to donees who
agree to be similarly bound) any securities of the Company held by it
at any time during such period except common stock included in such
registration; provided, however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers common stock (or
other securities) to be sold on its behalf to the public in an
underwritten offering;
(b) all officers and directors of the Company and all other
persons with registration rights (whether or not pursuant to this
Agreement) enter into similar agreements; and
(c) such market stand-off time period shall not exceed (180)
days.
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable
Securities of each Investor (and the shares or securities of every
other person subject to the foregoing restriction) until the end of
such period.
Notwithstanding the foregoing, the obligations described in this
Section 1.13 shall not apply to a registration relating solely to
employee benefit plans on Form S-8 or similar forms which may be
promulgated in the future, or a registration relating solely to an SEC
Rule 145 transaction on Form S-4 or similar form which may be
promulgated in the future.
1.14 Limitation on Subsequent Registration Rights. After the date of
this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the Registrable Securities,
enter into any agreement with any holder or prospective holder of any
securities of the Company that would grant such holder registration
rights senior to those granted to the Holders hereunder.
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1.15 Termination of Registration Rights.
(a) No Holder shall be entitled to exercise any right provided
for in this Section 1 after five (5) years following the
consummation of the sale of securities pursuant to a registration
statement filed by the Company under the Act in connection with the
initial firm commitment underwritten offering of its securities to
the general public (the "Special Termination Date") provided the
Special Termination Date shall be extended as to any Holder or
Holders who have, prior to the Special Termination Date, filed a
request pursuant to Section 1.2(a) or Section 1.11(b) and such
request is being deferred by the Company pursuant to the provisions
of Section 1.2(a)(i), Section 1.2(a)(iv) or Section 1.11(b)(3).
(b) In addition, the right of any Holder to request registration
or inclusion in any registration pursuant to this Section 1 shall
terminate on such date after the closing of the first
Company-initiated registered public offering of Common Stock of the
Company as all shares of Registrable Securities held or entitled to
be held upon conversion by such Holder may immediately be sold under
Rule 144 during any 90-day period.
2. COVENANTS OF THE COMPANY.
2.1 Delivery of Financial Statements. The Company shall deliver to
each Investor:
(a) as soon as practicable, but in any event within one hundred
and twenty (120) days after the end of each fiscal year of the
Company, commencing with the fiscal year ended December 31, 1999
(provided fiscal 1999 financial statements may be delivered
subsequent to April 30, 2000 but shall be delivered no later than
June 30, 2000), an income statement for such fiscal year, a balance
sheet of the Company and statement of shareholder's equity as of the
end of such year, and a schedule as to the sources and applications
of funds for such year, such year-end financial reports to be in
reasonable detail, prepared in accordance with generally accepted
accounting principles consistently applied ("GAAP"), and audited and
certified by independent public accountants of nationally recognized
standing selected by the Company's Board of Directors;
(b) as soon as practicable, but in any event within forty-five
(45) days after the end of each of the first three (3) quarters of
each fiscal year of the Company, an unaudited profit or loss
statement, schedule as to the sources and application of funds for
such fiscal quarter and a statement showing the number of shares of
each class and series of capital stock and securities convertible
into or exercisable for shares of capital stock outstanding at the
end of the period, the number of common shares issuable upon
conversion or exercise of any outstanding securities convertible or
exercisable for common shares and the exchange ratio or exercise
price applicable thereto, all in sufficient detail as to permit the
Investor to calculate its percentage equity ownership in the
Company;
(c) as soon as practicable, but in any event thirty (30) days
prior to the end of each fiscal year, a budget and business plan for
the next fiscal year, prepared on a monthly basis, including balance
sheets and sources and applications of funds statements for such
months and, as soon as prepared, any other budgets or revised
budgets prepared by the Company;
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(d) with respect to the financial statements called for in
subsections (b) of this Section 2.1, an instrument executed by the
Chief Financial Officer or President of the Company and certifying
that such financials were prepared in accordance with GAAP
consistently applied with prior practice for earlier periods (with
the exception of footnotes that may be required by GAAP) and fairly
present the financial condition of the Company and its results of
operation for the period specified, subject to year-end audit
adjustment; and
(e) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as the
Investor or any assignee of the Investor may from time to time
request, provided, however, that the Company shall not be obligated
under this subsection (e) or any other subsection of Section 2.1 to
provide information which it deems in good faith to be a trade
secret or similar confidential information.
2.2 Inspection. The Company shall permit each Investor, at such
Investor's expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's
affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by' the Investor; provided,
however, that the Company shall not be obligated pursuant to this
Section 2.2 to provide access to any information which it reasonably
considers to be a trade secret or similar confidential information.
2.3 Proprietary Information Agreement. The Company shall require all
new employees of the Company to continue to execute and deliver a
proprietary information agreement.
2.4 Frist Note. The Company shall not fail to make any monthly
payments of interest due Robert A. Frist, Jr. as lender under that
certain Promissory Note dated August 23, 1999, in the principal amount
of $1,293,000.00.
2.5 Termination of Covenants. The covenants set forth in Sections
2.1, 2.2 and Section 2.7 shall terminate and be of no further force or
effect when the sale of securities pursuant to a registration statement
filed by the Company under the Act in connection with the firm
commitment underwritten offering of its securities to the general
public is consummated in which the gross proceeds are at least $30
million and the per share price is at least $9.00.
2.6 IRC Section 305. So long as any shares of Series B Convertible
Preferred Stock remain outstanding, the Company will not, without
approval of holders of a majority of the Series B Convertible Preferred
Stock then outstanding, do any act or thing which would result in
taxation of the holders of shares of the Series B Convertible Preferred
Stock under Section 305 of the Internal Revenue Code of 1986, as
amended (or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended).
2.7 C Corporation Status. The Company shall remain a C corporation.
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3. MISCELLANEOUS.
3.1 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the
parties (including transferees of any shares of Registrable
Securities). Nothing in this Agreement, express or implied, is intended
to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly
provided in this Agreement.
3.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Tennessee applicable to contracts made
and to be performed wholly within such state.
3.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
3.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be
deemed effectively given upon personal delivery to the party to be
notified or upon deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed to the
party to be notified at the address indicated for such party on the
signature page hereof, or at such other address as such party may
designate by ten (10) days' advance written notice to the other
parties.
3.6 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party
shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may
be entitled.
3.7 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively
or prospectively), only with the written consent of the Company and the
holders of at least 66 2/3% of the Registrable Securities then
outstanding. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any Registrable
Securities then outstanding, each future holder of all such Registrable
Securities, and the Company.
3.8 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be
enforceable in accordance with its terms.
3.9 Aggregation of Stock. All shares of Registrable Securities held
or acquired by affiliated entities or persons shall be aggregated
together for the purpose of determining the availability of any rights
under this Agreement.
13
<PAGE> 14
3.10 Entire Agreement. This Agreement (including the Exhibits
hereto, if any) constitutes the full and entire understanding and
agreement between the parties with regard to the subjects hereof and
thereof.
[Rest of Page Intentionally Left Blank]
14
<PAGE> 15
IN WITNESS WHEREOF the parties have executed this Agreement as of the
date first above written.
HEALTHSTREAM, INC.
By:
-----------------------------------------
President
INVESTORS:
MARTIN INVESTMENT PARTNERSHIP III
By: THE MARTIN COMPANIES, INC.
Managing Partner
By:
-----------------------------------------
Charles N. Martin, President
COLEMAN SWENSON HOFFMAN BOOTH IV L.P.
By Its General Partner
CSHB Ventures IV L.P.
By Its General Partner
-----------------------------------
Jay Hoffman
DAUPHIN CAPITAL PARTNERS I, L.P.
By:
-----------------------------------------
James Hoover, Principal
JCB HEALTHSTREAM INVESTORS, L.L.C
By:
-----------------------------------------
James Graves, Chief Manager
NELSON CAPITAL PARTNERS III, L.P.
By:
-----------------------------------------
John K. Harrington
15
<PAGE> 16
J.C. BRADFORD & CO., L.L.C
By:
-----------------------------------------
James Graves, Managing Director
FCA VENTURE PARTNERS II, L.P.
By:
-----------------------------------------
Stuart McWhorter
THE JOEL COMPANY
By:
-----------------------------------------
Robert Gordon
CUMBERLAND EQUITY PARTNERS
By:
-----------------------------------------
Fleming Wilt
SAVVY INVESTMENT PARTNERS
By:
-----------------------------------------
Thompson B. Patterson, Jr.
CHANCERY LANE INVESTMENTS, L.P.
By:
-----------------------------------------
H. Lee Barfield, General Partner
By:
-----------------------------------------
Mary F. Barfield, General Partner
THE SEVEN PARTNERSHIP
By:
-----------------------------------------
Thompson Dent
16
<PAGE> 17
JCB VENTURE PARTNERSHIP IV
By:
-----------------------------------------
Robert Doolittle, Chief Manager
MELKUS PARTNERS, LTD.
By:
-----------------------------------------
Ken Melkus
--------------------------------------
Robert A Frist, Jr.
--------------------------------------
William Frist
--------------------------------------
Darren Liff
--------------------------------------
Scott and Carol Len Portis
--------------------------------------
James Frist
--------------------------------------
Robert S. Doolittle
--------------------------------------
David Beard
---------------------------------------
John Dayani
17
<PAGE> 18
--------------------------------------
S. Douglas Smith
--------------------------------------
Dr. Scott Portis
--------------------------------------
Barbara Sampson
MORGAN STANLEY VENTURE PARTNERS III, L.P.
by: Morgan Stanley Venture
Partners III, L.L.C
its General Partner
by: Morgan Stanley Venture Capital III, Inc.
its Institutional Managing Member
By:
-----------------------------------------
MORGAN STANLEY VENTURE INVESTORS III, L.P.
by: Morgan Stanley Venture
Partners III, L.L.C
its General Partner
by: Morgan Stanley Venture Capital III, Inc.
its Institutional Managing Member
By:
-----------------------------------------
THE MORGAN STANLEY VENTURE PARTNERS
ENTREPRENUER FUND, L.P.
by: Morgan Stanley Venture Partners, L.L.C
its General Partner
by: Morgan Stanley Venture Capital
Fund III, Inc.
its Institutional Managing Member
By:
-----------------------------------------
GE CAPITAL EQUITY INVESTMENTS, INC.
By:
-----------------------------------------
Name and Title
CARSON/PAUL ASSOCIATES LLC
By:
-----------------------------------------
Russell L. Carson
18
<PAGE> 19
FRIST FAMILY INTERNET PARTNERS
By:
-----------------------------------------
Dr. Robert Frist
--------------------------------------
Carol Frist
JCBCF HEALTHSTREAM PARTNERS LLC
By:
-----------------------------------------
--------------------------------------
James and Sandra Daniell
VANDERBILT UNIVERSITY
By:
-----------------------------------------
HEALTHSTREAM PARTNERS
By:
-----------------------------------------
--------------------------------------
Stephen and Linda Rogers
--------------------------------------
Robert Merriman
--------------------------------------
Jeff and Carrie McLaren
--------------------------------------
Dan McLaren
BORNEO PARTNERS
By:
-----------------------------------------
19
<PAGE> 20
--------------------------------------
Virgina Duncombe
--------------------------------------
Dr. Scott Portis
SC FUND II, L.P.
By:
-----------------------------------------
CIS HOLDINGS, INC.
By:
-----------------------------------------
HEALTHEON/WEBMD CORPORATION
By:
-----------------------------------------
20
<PAGE> 1
EXHIBIT 4.8
HEALTHSTREAM, INC.
COMMON STOCK
PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is made as of
the __ day of March 2000, by and between HealthStream, Inc., a Tennessee
corporation (the "Company"), and Healtheon/WebMD Corporation, a Delaware
corporation ("Investor").
WHEREAS, Investor wishes to make an investment in the Company and the
Company wishes to sell shares of its common stock, no par value per share (the
"Common Stock"), to the Investor;
WHEREAS, the Company has filed a registration statement with the
Securities and Exchange Commission with respect to the planned initial public
offering ("IPO") of shares of its Common Stock (the "Registration Statement");
and
WHEREAS, the Purchaser is an "accredited investor" and wishes to
purchase from the Company shares of its Common Stock in a transaction exempt
from registration under the Securities Act of 1933, as amended, such purchase to
close subject to and simultaneously with the closing of the IPO.
NOW, THEREFORE, the parties hereto agree as follows:
1. PURCHASE AND SALE OF SHARES
1.1 SALE OF SHARES.
Subject to the terms and conditions hereof, at the Closing (as
hereinafter defined) the Company hereby agrees to issue and sell to Investor and
Investor agrees to purchase from the Company, for the aggregate amount of
$10,000,000, shares of the Company's Common Stock (the "Shares") at a price per
share equal to the lowest price at which the Company's Common Stock is sold to
the public in the IPO (the "Per Share Purchase Price").
1.2 CLOSING DATE.
The closing of the purchase and sale of the Shares (the "Closing")
shall be contingent upon and shall occur simultaneously with the closing of the
IPO. The Company will give Investor two (2) business days' written notice of the
date of the closing (the "Closing Date"). The Company will notify Investor of
the IPO price promptly after it is determined by the pricing committee of the
Company's Board of Directors.
1.3 DELIVERY.
At the Closing (i) Investor will deliver to the Company a check or wire
transfer funds in the amount of $10,000,000 (the "Aggregate Purchase Price") and
(ii) the Company shall deliver a certificate representing the number of shares
equal to the amount of $10,000,000 divided by the Per Share Purchase Price,
registered in the name of Investor. In the event that the Aggregate Purchase
Price would result in the issuance of a fractional share, then the Aggregate
Purchase Price shall be increased to reflect the issuance of one additional
share at the Per Share Purchase Price.
<PAGE> 2
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to Investor that as of the
date of this Agreement:
2.1 ORGANIZATION; GOOD STANDING, QUALIFICATION.
The Company is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Tennessee, has all requisite
corporate power and authority to own and operate its properties and assets and
to carry on its business as now conducted and as presently proposed to be
conducted, to execute and deliver this Agreement and any other agreement to
which the Company is a party the execution and delivery of which is contemplated
hereby (the "Ancillary Agreements"), to issue and sell the Common Stock and to
carry out the provisions of this Agreement and any Ancillary Agreement. The
Company is duly qualified and is authorized to transact business and is in good
standing as a foreign corporation in each jurisdiction in which the failure so
to qualify would have material adverse effect on its business, properties,
prospects, or financial condition.
2.2 AUTHORIZATION.
All action on the part of the Company, its officers, directors and
stockholders necessary for the authorization, execution and delivery of this
Agreement and any Ancillary Agreement, the performance of all obligations of the
Company hereunder and thereunder at the Closing and the authorization, issuance
(or reservation for issuance), sale, and delivery of the Common Stock being sold
hereunder has been taken or will be taken prior to the Closing, and this
Agreement, and any Ancillary Agreement, when executed and delivered, will
constitute valid and legally binding obligations of the Company, enforceable in
accordance with their respective terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies.
2.3 VALID ISSUANCE OF COMMON STOCK.
The Common Stock that is being purchased by the Investors hereunder,
when issued, sold, and delivered in accordance with the terms of this Agreement
for the consideration expressed herein, will be duly and validly issued, fully
paid, and nonassessable, free and clear of all liens and encumbrances, issued in
compliance with all federal and state securities laws, and will be free of
restrictions on transfer other than restrictions on transfer under this
Agreement, any Ancillary Agreement and under applicable state and federal
securities laws. There are no outstanding rights of first refusal or preemptive
rights applicable to the Common Stock being sold hereunder.
2.4 GOVERNMENTAL CONSENTS.
No consent, approval, qualification, order or authorization of, or
filing with, any local, state, or federal governmental authority is required on
the part of the Company in connection with the Company's valid execution,
delivery, or performance of this Agreement, the offer, sale or issuance of the
Common Stock by the Company, except such filings as have been made prior to the
Closing, except any notices of sale required to be filed with the Securities and
Exchange Commission under Regulation D of the Securities Act of 1933, as amended
(the "Securities Act"), or such post-closing filings as may be required under
applicable state securities laws, which will be timely filed within the
applicable periods therefor.
2
<PAGE> 3
2.5 OFFERING.
Subject in part to the truth and accuracy of Investor's representations
set forth in this Agreement, the offer, sale and issuance of the Common Stock as
contemplated by this Agreement are exempt from the registration requirements of
the Securities Act, and neither the Company nor any authorized agent acting on
its behalf will take any action hereafter that would cause the loss of such
exemption.
2.6 MATERIAL INFORMATION.
None of (i) the Registration Statement and prospectus related thereto
filed by the Company with the Securities and Exchange Commission on March 8,
2000 (the "March 8 Registration Statement"); (ii) any representation or warranty
made herein by the Company; or (iii) any statement contained in any certificate
or other instrument furnished or to be furnished by the Company to the Investor
in connection with the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements therein not misleading in light of the circumstances under which
they were made. The Company shall deliver to the Investor copies of all
amendments to the March 8 Registration Statement within two business days after
their filing with the Securities and Exchange Commission.
3. REPRESENTATIONS AND WARRANTIES OF INVESTOR.
Investor hereby represent and warrant to the Company that as of the
date of this Agreement:
3.1 AUTHORIZATION.
Investor has full power and authority to enter into this Agreement, and
that this Agreement, when executed and delivered, will constitute a valid and
legally binding obligation of Investor enforceable in accordance with its terms
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, and other laws of general application affecting enforcement of
creditors' rights generally, and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief, or other equitable
remedies.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT.
This Agreement is made with Investor in reliance upon such Investor's
representation to the Company, which by such Investor's execution of his
Agreement such Investor hereby confirms, that the Common Stock to be purchased
by such Investor will be acquired for investment for such Investor's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that such Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, Investor further represents that such
Investor does not have any contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant participations to such person or to any
third person, with respect to any of the Common Stock.
3.3 RELIANCE UPON INVESTOR'S REPRESENTATIONS.
Investor understands that the Common Stock is not registered under the
Securities Act on the ground that the sale provided for in this Agreement and
the issuance of securities hereunder is exempt from registration under the
Securities Act pursuant to Section 4(2) thereof, and that the Company's reliance
on such exemption is predicated on the Investors' representations set forth
herein.
3
<PAGE> 4
3.4 RECEIPT OF INFORMATION.
Investor believes such Investor has received all the information such
Investor considers necessary or appropriate for deciding whether to purchase the
Common Stock. Investor further represents that such Investor has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Common Stock and the business,
properties, prospects, and financial condition of the Company and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to such Investor or to which such Investor
had access.
3.5 INVESTMENT EXPERIENCE.
Investor represents that such Investor is experienced in evaluating and
investing in private placement transactions of securities of companies in a
similar stage of development and acknowledges that such Investor is able to fend
for himself, herself or itself, can bear the economic risk of such Investor's
investment, and has such knowledge and experience in financial and business
matters that such Investor is capable of evaluating the merits and risks of the
investment in the Common Stock.
3.6 ACCREDITED INVESTOR.
Investor is an "accredited investor" as such term is defined in Rule
501 under the Securities Act.
3.7 RESTRICTED SECURITIES.
Investor understands that the Common Stock may not be sold,
transferred, or otherwise disposed of without registration under the Securities
Act or an exemption therefrom, and that in the absence of an effective
registration statement covering the Common Stock or an available exemption from
registration under the Securities Act, the Common Stock must be held
indefinitely. In particular, Investor is aware that the Common Stock may not be
sold pursuant to Rule 144 promulgated under the Securities Act unless all of the
conditions of that Rule are met. Among the conditions for use of Rule 144 may be
the availability of current information to the public about the Company. Such
information is not now available and the Company has no present plans to make
such information available other than following the IPO.
3.8 LEGENDS.
To the extent applicable, each certificate or other document evidencing
any of the Common Stock shall be endorsed with the legends substantially in the
form set forth below: (a) The following legend under the Securities Act:
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL OR OTHER EVIDENCE, SATISFACTORY TO THE COMPANY AND
ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."
(b) Any legend imposed or required by applicable state securities laws.
4
<PAGE> 5
3.9 NON-LIMITATION.
The foregoing representations and warranties do not in any way limit or
modify the representations, warranties and covenants of the Company contained in
this Agreement or the rights of Investor to rely thereon. The representations,
warranties and covenants of the Company contained in this Agreement shall not be
affected by Investor or its agents: (i) investigating, verifying or examining
any matters with respect to the Company or the transactions contemplated hereby;
(ii) having the opportunity to investigate, verify or examine any matters
related to the Company or the transactions contemplated hereby; or (iii) failing
to determine or discover any facts which were determinable or discoverable by
any such party.
4. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING.
The obligations of Investor under this Agreement are subject to the
fulfillment on or before the closing of each of the following conditions:
4.1 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company contained in Section
2 shall be true on and as of the date of Closing with the same effect as though
such representations and warranties had been made on and as of the date of the
Closing provided that the representation and warranty contained in Section 2.6
herein will be made in respect to the prospectus provided to investors in the
IPO.
4.2 PERFORMANCE.
The Company shall have 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.
4.3 COMPLIANCE CERTIFICATE.
The President of the Company shall deliver to the Investor at the
Closing a certificate stating that the conditions specified in Sections 4.1 and
4.2 have been fulfilled.
4.4 QUALIFICATIONS.
All authorizations, approvals, or permits, if any, of any governmental
authority or regulatory body of the United States or of any state that are
required in connection with the lawful issuance and sale of the Common Stock
pursuant to this Agreement shall be duly obtained and effective as of the
Closing.
4.5 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 Investor, which shall have
received all such counterpart original and certified or other copies of such
documents as it may reasonably request.
5
<PAGE> 6
4.6 INVESTORS' RIGHTS AGREEMENT.
The Amended and Restated Investors' Rights Agreement in substantially
the form attached hereto as Exhibit B shall have been executed and delivered by
the Company, the Investor and all other holders of Registrable Securities (as
defined in the Amended and Restated Investors' Rights Agreement).
4.7 CLOSING OF IPO.
The Company shall have consummated the IPO.
4.8 REGISTRATION STATEMENT.
There shall have been no information disclosed in any amendment to the
March 8 Registration Statement (i) that Investor reasonably deems to be
materially adverse to the business, financial condition, results of operations
or prospects of the Company, its properties or assets or (ii) that would cause
the representation and warranty contained in Section 2.6 of this Agreement to be
untrue.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSINGS.
The obligations of the Company to Investor under this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions with respect to such Investor.
5.1 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of Investor contained in Section 3
shall be true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of the
Closing.
5.2 QUALIFICATIONS.
All authorizations, approvals, or permits, if any, of any governmental
authority or regulatory body of the United States or of any state that are
required in connection with the lawful issuance and sale of the Stock pursuant
to this Agreement shall be duly obtained and effective as of each of the
Closings.
5.3 LOCK UP AGREEMENTS.
Investor shall have executed the Lock up Agreements in the form
attached hereto as Exhibit A.
6. GENERAL PROVISIONS.
6.1 ENTIRE AGREEMENT.
This Agreement and the documents referred to herein constitute the
entire agreement among the parties and no party shall be liable or bound to any
other party in any manner by any warranties, representations, or covenants
except as specifically set forth herein or therein.
6.2 SURVIVAL OF WARRANTIES.
The warranties, representations, and covenants of the Company and
Investor contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing.
6
<PAGE> 7
6.3 SUCCESSORS AND ASSIGNS.
Except as otherwise provided herein, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties (including permitted transferees of any
shares of Common Stock sold hereunder). Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
6.4 GOVERNING LAW.
This Agreement shall be governed by and construed under the laws of the
State of Tennessee as applied to agreements among Tennessee residents entered
into and to be performed entirely within Tennessee.
6.5 COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
6.6 TITLES AND SUBTITLES.
The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
6.7 NOTICES.
Unless otherwise provided, all notices and other communications
required or permitted under this Agreement shall be in writing and shall be
mailed by United States first class mail, postage prepaid, sent by facsimile or
delivered personally by hand or by a nationally recognized courier addressed to
the party to be notified at the address or facsimile number indicated for such
person on the signature page hereof, or at such other address or facsimile
number as such party may designate by ten (10) days' advance written notice to
the other parties hereto. All such notices and other written communications
shall be effective on the date of mailing, confirmed facsimile transfer or
delivery.
6.8 FINDER'S FEES.
Each party represents that it neither is nor will be obligated for any
finder's fee or commission in connection with the purchase by Investor of the
Common Stock.
Investor agrees to indemnify and to hold harmless the Company from any
liability for any commission or compensation in the nature of a finder's fee
(and the cost and expenses of defending against such liability or asserted
liability) for which the Investor or any of its officers, partners, employees,
or representatives is responsible.
The Company agrees to indemnify and hold harmless Investor from any
liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees, or
representatives is responsible.
7
<PAGE> 8
6.9 ATTORNEYS' FEES.
If any action at law or in equity is necessary to enforce or interpret
the terms of this Agreement or any Ancillary Agreement, the prevailing party
shall be entitled to reasonable and actually incurred attorneys' fees, costs,
and disbursements in addition to any other relief to which such party may be
entitled.
6.10 AMENDMENTS AND WAIVERS.
Any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and Investor.
6.11 SEVERABILITY.
If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
6.12 TENNESSEE SECURITIES LAW.
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS
NOT BEEN QUALIFIED WITH THE SECURITIES DIVISION OF THE TENNESSEE DEPARTMENT OF
COMMERCE AND INSURANCE OF THE STATE OF TENNESSEE AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH
SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES
IS EXEMPT FROM QUALIFICATION BY TENNESSEE LAW. THE RIGHTS OF ALL PARTIES TO THIS
AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED,
UNLESS THE SALE IS SO EXEMPT.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
HEALTHSTREAM, INC.
By /s/ W. Michael Heekin
-------------------------------------
Chief Executive Officer
209 10th Ave. South
Suite 450
Nashville, TN 37203
INVESTOR:
HEALTHEON/WEBMD
400 The Lenox Building
3399 Peachtree Road, NE
Atlanta, GA 30326
By /s/ Robert A. Frist, Jr.
-------------------------------------
Its CEO
-------------------------------------
9
<PAGE> 10
EXHIBIT A
LOCK UP AGREEMENTS
March ___, 2000
HealthStream, Inc.
209 10th Ave. South
Suite 450
Nashville, TN 37203
Ladies and Gentlemen:
The undersigned hereby irrevocably agrees that it will not, directly or
indirectly, sell, offer, contract to sell, transfer the economic risk of
ownership in, make any short sale, pledge or otherwise dispose of any of the
shares of Common Stock of HealthStream, Inc. (the "Company") purchased pursuant
to the Common Stock Purchase Agreement of even date herewith ("Common Stock"),
without the prior written consent of the Company, for the following periods:
(i) fifty percent of the shares of Common Stock for one (1) year from
the date hereof; and
(ii) the remaining fifty percent of the shares of Common Stock for two
(2) years from the date hereof.
Notwithstanding the foregoing, the undersigned may transfer any or all
of the Common Stock (i) to any affiliate of the undersigned; (ii) in connection
with the sale of a business unit or the business of the undersigned; or (iii) in
a transaction exempt from registration under the Securities Act of 1933,
provided that, in each case, the transferee of shares of the Common Stock agrees
as a condition to such transfer to be bound by the terms of this letter.
The undersigned understands that the agreements of the undersigned are
irrevocable and shall be binding upon the undersigned's legal representatives,
successors and assigns. The undersigned agrees and consents to the entry of stop
transfer instructions with the Company's transfer agent against the transfer of
Common Stock held by the undersigned except in compliance with this agreement.
HEALTHEON/WEBMD
400 The Lenox Building
3399 Peachtree Road, NE
Atlanta, GA 30326
By
----------------------------------
Its
---------------------------------
<PAGE> 11
FleetBoston Robertson Stephens Inc.
CIBC World Markets Corp.
J.C. Bradford & Co.
E* OFFERING Corp.
As Representatives of the Several Underwriters
c/o FleetBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, California 94104
RE: HealthStream, Inc. (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain
shares of Common Stock of the Company ("Common Stock") or securities convertible
into or exchangeable or exercisable for Common Stock. The Company proposes to
carry out a public offering of Common Stock (the "Offering") for which you will
act as the representatives (the "Representatives") of the underwriters. The
undersigned recognizes that the Offering will be of benefit to the undersigned
and will benefit the Company by, among other things, raising additional capital
for its operations. The undersigned acknowledges that you and the other
underwriters are relying on the representations and agreements of the
undersigned contained in this letter in carrying out the Offering and in
entering into underwriting arrangements with the Company with respect to the
Offering.
In consideration of the foregoing, the undersigned hereby agrees that
the undersigned will not offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to (collectively, a
"Disposition") any shares of Common Stock, any options or warrants to purchase
any shares of Common Stock or any securities convertible into or exchangeable
for shares of Common Stock (collectively, "Securities") now owned or hereafter
acquired directly by such person or with respect to which such person has or
hereafter acquires the power of disposition, otherwise than (i) as a bona fide
gift or gifts, provided the donee or donees thereof agree in writing to be bound
by this restriction, (ii) as a distribution to partners or shareholders of such
person, provided that the distributees thereof agree in writing to be bound by
the terms of this restriction, (iii) with respect to sales or purchases of
Common Stock acquired on the open market, (iv) with respect to shares received
in the Directed Share Program or (v) with the prior written consent of
FleetBoston Robertson Stephens Inc. The foregoing restrictions will terminate
after the close of trading of the Common Stock on the 180th day of (and
including) the day the Common Stock commenced trading on the Nasdaq National
Market (the "Lock-Up" Period). The foregoing restriction has been expressly
agreed to preclude the holder of the Securities from engaging in any hedging or
other transaction which is designed to or reasonably expected to lead to or
result in a Disposition of Securities during the Lock-up Period, even if such
Securities would be disposed of by someone other than such holder. Such
prohibited hedging or other transactions would include, without limitation, any
short sale (whether or not against the box) or any purchase, sale or grant of
any right (including, without limitation, any put or call option) with respect
to any Securities or with respect to any security (other than a broad-based
market basket or index) that included, relates to or derives any significant
part of its value from Securities. The undersigned also agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent and
registrar against the transfer of shares of Common Stock or Securities held by
the undersigned except in compliance with the foregoing restrictions.
<PAGE> 12
This agreement is irrevocable and will be binding on the undersigned
and the respective successors, heirs, personal representatives, and assigns of
the undersigned. In the event the Offering has not occurred on or before April
15, 2000 this Lock-Up Agreement shall be of no further force or effect.
Dated
-------------------------
--------------------------------------
Printed Name of Holder
By:
-----------------------------------
Signature
--------------------------------------
Printed Name of Person Signing
(and indicate capacity of person
signing if signing as custodian,
trustee, or on behalf of an entity)
<PAGE> 13
EXHIBIT B
INVESTORS' RIGHTS AGREEMENT
<PAGE> 1
EXHIBIT 10.9
We have omitted certain portions of this document and filed them separately
with the commission. These portions are marked with an asterisk (*).
CONTINUING EDUCATION AGREEMENT
BETWEEN
HEALTH STREAM
AND
VANDERBILT UNIVERSITY
This Continuing Education Agreement ("Agreement") is entered into as of July 22,
1999 ("Effective Date") by and between HealthStream, Inc., a Tennessee
corporation with its principal place of business at 209 10th Avenue South, Suite
450, Nashville, TN 37203 ("HealthStream") and Vanderbilt University, a Tennessee
not-for-profit organization with its principal place of business at 201 Light
Hall, Vanderbilt University, Nashville, TN 37240, by and through its School of
Medicine and School of Nursing ("Vanderbilt").
WHEREAS, HealthStream is a provider of computer and Web-based education
and training services to hospitals and other healthcare organizations;
WHEREAS, HealthStream is a provider of Continuing Education Units for
healthcare professionals ("CEU") and Continuing Medical Education for physicians
("CME") courseware and courseware management tools delivered via the Internet,
corporate intranets and networks ("HealthStream Sites");
WHEREAS, HealthStream has an array of distribution partners for CEU and
CME courses and other online educational courseware;
WHEREAS, current HealthStream distribution partners include AHN.COM and
Phycor, with other relationships pending;
WHEREAS, HealthStream has an online course library with several hundred
hours of potential CEU and existing CME courseware available for purchase
("HealthStream Courseware");
WHEREAS, Vanderbilt is recognized internationally as a provider of high
quality education programs;
WHEREAS, Vanderbilt provides CUE and CME courses in conventional
lecture format that might also be made available for access over the Web;
WHEREAS, Vanderbilt has the skills, clinical expertise and knowledge
required to create educational Web-based courses for the medical community; and
WHEREAS, HealthStream and Vanderbilt desire to enter into this
Agreement.
THEREFORE, HEALTHSTREAM AND VANDERBILT HEREBY AGREE AS FOLLOWS:
1 DEFINITIONS
1.1 "CEU Courses" - Those educational courses that have been reviewed for
continuing education units by an institution recognized by an
accredited professional organization.
Page 1 of 9
<PAGE> 2
Those completing the courses may receive credit toward continuing
education requirements.
1.2 "CME Courses" - Those educational courses that have been reviewed for
continuing medical education by an Accreditation Council for Continuing
Medical Education ("ACCME") accredited institution. Those completing
the courses may receive credit toward continuing education
requirements.
1.3 "Net Revenue" - Gross revenue derived by HealthStream from sales of
Vanderbilt Courseware less discounts and credits to customers.
1.4 "T.NAV(R)" - A registered trademark of HealthStream and is a computer
based training product that delivers and monitors World Wide Web based
content.
1.5 "Collaborative Course" - Those courses developed into a Web-based
format course of study by HealthStream in collaboration with Vanderbilt
from source materials originating with Vanderbilt or third party
personnel.
1.6 "Vanderbilt Course" - Medical and nursing courseware and educational
materials provided by Vanderbilt to HealthStream that have been
converted to an HTML or other HealthStream recommended Web-based
Formats that are substantially ready and able to be deployed for the
purpose of providing Web-based CME or CEU courses through
HealthStream's T.NAV system on the Internet.
1.7 "Vanderbilt Courseware" - The combined body of Vanderbilt Courses and
Collaborative Courses submitted to HealthStream under this agreement.
1.8 "Vanderbilt Materials" - Medical and nursing courseware and educational
materials provided by Vanderbilt to HealthStream, that is substantially
not in a format that can be transmitted over the Internet for the
purpose of creating Web-based CME or CEU courses and that may be in
some or all of the following formats, including, but not limited to:
paper, film or Microsoft PowerPoint slides, text materials, Microsoft
Word or Corel Word Perfect-based, handouts, overheads and other
presentation materials.
1.9 "Third Party Materials" - Those non-Web-based format materials
delivered to HealthStream from various third party sources that form
the basis for a course of study.
1.10 "Vanderbilt Pervasive Materials" - Those Vanderbilt Materials whose
depiction in Collaborative Courses is substantially identical to their
depiction independent of the Collaborative Course.
1.11 "Third Party Pervasive Materials" - Those Third Party Materials whose
depiction in Collaborative Courses is substantially identical to their
depiction independent of the Collaborative Course.
1.12 "HealthStream Packaging" - Those graphic, navigation and computer coded
elements added to Vanderbilt Materials and/or Third Party Materials to
comprise a Collaborative Course. HealthStream Packaging is not said to
include Vanderbilt Pervasive Materials or Third Party Pervasive
Materials, as these materials are organized and packaged for display
without substantial modification.
Page 2 of 9
<PAGE> 3
1.13 "Vanderbilt Certification" - Certification of courses for CEU or CME
credit by Vanderbilt and branded as Vanderbilt certified courses under
the auspices of Vanderbilt's arrangements with the ACCME and other
professional educational quality assurance organizations.
2 TERMS AND CONDITIONS
2.1 Courseware Development. Vanderbilt shall, at its option, develop and
provide to HealthStream Vanderbilt Courses and/or Vanderbilt Materials,
which HealthStream will sell to a variety of medical professionals
(e.g., physicians, nurses, Allied Health professionals) for educational
credits via online usage at Web sites hosted and/ or managed by
HealthStream.
2.1.1. HealthStream will develop, at its option, the Vanderbilt
Materials into Web ready courses.
2.1.2 All Vanderbilt Courseware will be subject to Vanderbilt
editorial board approval prior to distribution by
HealthStream. Vanderbilt editorial board approval shall not be
unreasonably denied.
2.1.3 It is the intent of the parties to identify and develop at
least ten (10) courses in each year during the term of this
agreement.
2.1.4 HealthStream acknowledges that Vanderbilt anticipates
providing CEU and CME in novel ways that use information
technology to support various learning styles and distribution
of learning across the education-work continuum. This
Agreement is intended to apply making conventional CEU and CME
material available via the Web, not to those novel education
strategies and programs.
2.2 Compensation. HealthStream will pay to Vanderbilt the following
royalties:
2.2.1 Collaborative Courses. For Collaborative Courses, HealthStream
shall pay to Vanderbilt * of Net Revenue derived from the
sales of Collaborative Courses.
2.2.2 Vanderbilt Courses. For Vanderbilt Courses, HealthStream shall
pay to Vanderbilt * of Net Revenue derived from the sales of
Vanderbilt Courses. Nothing herein shall require Vanderbilt to
produce or deliver to HealthStream, medical courseware.
2.2.3 Payment Schedule. Royalty payments shall be made by
HealthStream to Vanderbilt thirty (30) days after the end of
the month of the initial course purchase.
2.3 Access to Courses by Vanderbilt Personnel. HealthStream will allow
Vanderbilt faculty, fellows, residents, students and staff access to
its Vanderbilt Courseware free of charge. All other HealthStream
courseware shall be available for purchase by Vanderbilt faculty,
fellows, residents and staff. HealthStream will compensate Vanderbilt
for courseware purchased by Vanderbilt faculty, fellows, residents,
students and/or staff by means of either one of the following methods,
at Vanderbilt's option: (i) pay Vanderbilt *
Page 3 of 9
<PAGE> 4
* of all Net Revenue for HealthStream Courseware purchased by
Vanderbilt faculty, fellows, residents, and staff; or (ii) provide
Vanderbilt faculty, fellows, residents, and staff with a * discount on
the cost of HealthStream Courseware.
2.4 Reporting. HealthStream will provide Vanderbilt, at no cost to
Vanderbilt, with monthly reports of all Net Revenue generated from
Vanderbilt Courseware and all Net Revenue generated from HealthStream
Courseware purchased by Vanderbilt faculty, staff, fellows, students
and residents.
2.5 Vanderbilt Consulting. Vanderbilt faculty may elect to develop content
architecture for HealthStream for the development of online educational
courses. Should HealthStream elect to utilize this content
architecture, HealthStream will compensate Vanderbilt for such
Vanderbilt developed content architecture on a fee-for-service basis,
to be negotiated on a case-by-case basis. At its sole discretion,
HealthStream may elect not to utilize Vanderbilt developed content
architectures.
2.6 Vanderbilt Staff Restrictions. Under no circumstances shall Vanderbilt
faculty, fellows, residents, students and/or staff author conventional
CEU and CME courseware with HealthStream personnel or any of
HealthStream's subsidiaries, outside of this Agreement. HealthStream
will not be prohibited from contracting with those Vanderbilt
affiliates who are not closely aligned with Vanderbilt.
2.7 Advertising and Sponsorship Revenues. From time to time, HealthStream
may generate revenue through the sale of advertising on HealthStream
Sites.
2.7.1 Vanderbilt Contracted Advertisements and Sponsorships.
HealthStream shall compensate Vanderbilt * of all Net Revenue
generated from advertisements sold and contracted by
Vanderbilt for Vanderbilt Courseware on HealthStream Sites.
Vanderbilt contracted advertising and sponsorship sales will
conform to parameters established by HealthStream.
2.7.2 HealthStream Contracted Advertisements and Sponsorships.
HealthStream shall compensate Vanderbilt * of all Net Revenue
generated from advertisements sold and contracted by
HealthStream for Vanderbilt Courseware.
2.7.3 Vanderbilt Review. Vanderbilt shall have the right to review
and refuse all such advertising associated with Vanderbilt
Courseware that is placed on HealthStream Sites.
2.8 Third Party Content. At HealthStream's option, Vanderbilt may review
and make recommendations to online content originating from other
sources and Vanderbilt may elect to review said content for accuracy,
provide recommendations for changes, and provide Vanderbilt
Certification. HealthStream will compensate Vanderbilt for these
reviews on a fee-for-service basis negotiated on a case-by-case basis.
2.9 Payment. Royalty payments made by checks shall be made payable to
Vanderbilt University and sent to Mr. Stephen Todd, Assistant Director,
Financial Management, P.O. Box 30195, Nashville, TN. 37241-0195. All
reports required under this Agreement shall be sent to: Mr. Stephen
Todd, Assistant Director, Financial Management, CC-2102C Medical Center
North, Nashville, TN.37232-2220.
Page 4 of 9
<PAGE> 5
2.10 Distribution Partner Approval. HealthStream will remove Vanderbilt
Courseware from a HealthStream Site upon notification by Vanderbilt.
Objection to a HealthStream Site by Vanderbilt will be limited to those
objections based on a reasonable determination that said distribution
partner is unsuitable to carry the Vanderbilt brand.
3 LICENSE
3.1 In consideration for the above, Vanderbilt grants HealthStream
worldwide, exclusive Internet rights as the host and marketing agent
for Collaborative Courses developed with HealthStream during the term
of this agreement. Vanderbilt grants HealthStream worldwide,
non-exclusive Internet rights as the host and marketing agent for
Vanderbilt Courses during the term of this agreement.
3.2 Course Ownership and Copyright. Vanderbilt shall retain all ownership
and copyright interest for all Vanderbilt Courses. HealthStream and
Vanderbilt shall have equal ownership and copyright interest for all
Collaborative Courses. Ownership and copyright interest in Vanderbilt
Materials components of Collaborative Courses shall rest exclusively
with Vanderbilt. All copyrights assigned herein shall survive the term
of this agreement.
4 OTHER CONDITIONS
4.1 Term and Termination.
4.1.1 The term of this Agreement shall be four (4) years and shall
commence on July 22, 1999 and terminate on July 21, 2003.
This Agreement may be extended for additional one year terms
by mutual written assent signed by the parties hereto.
4.1.2 If, for any reason, either party fails to satisfactorily
fulfill in a timely or proper manner its obligations under
this Agreement or breaches any of the promises, terms or
conditions of this Agreement, and having been given reasonable
notice of and opportunity to cure any such default and not
having taken satisfactory corrective action within the time
specified by the non-breaching party, the non-breaching party
shall have the right to terminate this Agreement by giving
written notice to the breaching party of such termination at
least fourteen (14) calendar days before the effective date of
such termination. Further, either party to this Agreement
shall have the right to terminate this Agreement without cause
by giving written notice to the other party of such
termination at least thirty (30) calendar days before the
effective date of such termination. For termination of any
type, any other provision to the contrary notwithstanding, the
breaching party shall not be relieved of liability to the
non-breaching party for damages sustained because of any
breach of this Agreement. Fees due under Section 2 and
copyright and intellectual property provisions of Section 3
survive termination.
4.1.3 The parties warrant they are duly licensed under the relevant
laws of their States and agree to abide by all applicable
state and/or federal laws and regulations governing the
licensure of its operations. The parties further agree to give
Page 5 of 9
<PAGE> 6
prompt notice in writing to the other party in the event of
institution of proceedings for suspension or revocation of its
license, and to notify the other party in the event of any
suspension or revocation of its license within twenty-four
(24) hours of its occurrence. This Agreement will immediately
terminate upon the revocation or suspension of licensure of
either party. Further, either party, at its sole discretion,
may terminate this Agreement in the event the other party is
given official notice of the institution of proceedings to
suspend or revoke its licensure.
4.1.4 In the event that either party shall become insolvent or make
a general assignment for the benefit of creditors, then, at
the option of either party, this Agreement may be terminated
immediately by either party and be of no further force and
effect upon notice of such termination.
4.1.5 In the event that either party sells all or substantially all
of its assets, there is a sale of a majority ownership of
either party, or there occurs a material change in the
management or ownership of either party, this Agreement shall
terminate or continue at the mutual written consent of the
remaining parties.
4.2 Indemnification
4.2.1 HealthStream warrants that 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
Vanderbilt based on a claim that the HealthStream Packaging
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 for Vanderbilt the right to
continue using the Vanderbilt Courseware containing said
HealthStream Packaging free of any claim of infringement or
modify such HealthStream Packaging so that affected Vanderbilt
Courseware is not subject to a claim of infringement.
4.2.2 Vanderbilt warrants that 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. Vanderbilt will, at its own
expense, defend any suit or proceeding brought against
HealthStream based on a claim that the Vanderbilt Materials
infringe upon any copyright, patent, trademark, trade secret,
or other intellectual property right, provided that Vanderbilt
is notified promptly in writing and given full and complete
authority, information and assistance for the defense of such
suit or proceeding. Vanderbilt may, at its option and expense,
either obtain for HealthStream
Page 6 of 9
<PAGE> 7
the right to continue offering Vanderbilt Courseware
containing said Vanderbilt Materials free of any claim of
infringement or modify such Vanderbilt Materials so that
affected Vanderbilt Courseware is not subject to a claim of
infringement.
4.3 Insurance
4.3.1 Both parties shall maintain for the term of this Agreement
comprehensive general liability insurance, including broad
form contractual in a minimum amount of $1,000,000/$3,000,000.
The coverage shall bear an endorsement precluding cancellation
or reduction of coverage.
4.3.2 Both parties shall procure and maintain for the term of this
Agreement professional liability insurance, in a minimum
amount of $1,000,000/$3,000,000 in coverage for all of its
personnel who may participate in this Agreement. Such coverage
shall be for a minimum of five (5) years following expiration
or termination of this Agreement and shall provide for a
retroactive date no later than the inception date of this
Agreement.
4.3.3 Each party shall provide the other party with Certificates of
Insurance evidencing the above coverage. The coverage shall
bear an endorsement precluding cancellation or reduction of
coverage.
4.4 Notices. All notices or other communication provided for in this
Agreement shall be given to the parties addressed as follows:
HealthStream: Mr. Jeff McLaren
President
HealthStream, Inc.
209 10th Ave S, Suite 450
Nashville, TN 37203
with a copy to: Mr. Robert Laird
Vice President and General Counsel
HealthStream, Inc.
209 10th Ave S, Suite 450
Nashville, TN 37203
Vanderbilt: Mr. Winfred Cox
Director of Finance and Administration
School of Medicine
Vanderbilt University
CCC-3315 Medical Center North
Nashville, TN 37232-2104
with a copy to: Contracts Administration
Medical Center Office
Vanderbilt University
605 Oxford House
1313 21st Avenue South
Nashville, TN 37232-4205
Page 7 of 9
<PAGE> 8
4.5 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.
4.6 Assignment and Binding Effect. Neither party shall assign, subcontract,
or transfer any of its rights or obligations under this Agreement to a
third party without the prior written consent of the other party. If an
assignment, subcontract, or transfer of rights does occur in accordance
with this Agreement, this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors or
assigns.
4.7 Independent Contractor. Each party shall be considered to be an
independent contractor and shall not be construed to be an agent or
representative of the other party, and therefore, shall have no
liability for the acts or omissions of the other party. In addition,
neither party, nor any of its employees, agents, or subcontractors,
shall be deemed to be employees or agents of the other party.
Therefore, neither party nor any of its employees, agents or
subcontractors, shall be entitled to salary, workers compensation, or
employee benefits of the other party by virtue of this Agreement.
4.8 Written Amendments and Waiver. This Agreement cannot be amended,
modified, supplemented or rescinded except in writing signed by the
parties hereto.
4.9 Governing Law and Jurisdiction. This Agreement shall be governed in all
respects by, and be construed in accordance with, the laws of the State
of Tennessee. Each party hereby consents to the jurisdiction of all
state and federal courts situated in Davidson County, Tennessee, agrees
that venue for any such action shall lie exclusively in such courts,
and agrees that such courts shall be the exclusive forum for any legal
actions brought in connection with this Agreement or the relationships
among the parties hereto.
4.10 Year 2000 Compliance. HealthStream certifies that it has a
comprehensive plan designed to achieve Year 2000 Compliance of its
systems ("Compliance Plan"). To the extent the Compliance Plan provides
or anticipates that any systems of HealthStream will not be made Year
2000 Compliant, such non-compliance will have no material adverse
effect upon the timely provision of the services. For purposes of this
section, "Year 2000 Compliance" and "Year 2000 Compliant" shall mean
that HealthStream systems, when used in accordance with its associated
documentation, will be capable of accurately processing, providing
and/or receiving electronic data that contain date representation from,
into, and between the years 1999 and 2000 and leap year calculations.
To the best of HealthStream's knowledge at the time of signing this
Agreement, there shall be no material adverse effect upon its timely
provision of services under this Agreement which is attributable to its
failure to achieve Year 2000 Compliance for all of its systems.
4.11 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter herein
and supersedes any other agreements, restrictions, representations, or
warranties, if any, between the parties hereto with regard to the
subject matter herein.
Page 8 of 9
<PAGE> 9
restrictions, representations, or warranties, if any, between the
parties hereto with regard to the subject matter herein.
4.12 Severability. 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).
4.13 No Waiver. 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.
4.14 Headings. The Article headings used in this Agreement and the attached
Exhibits are is intended for convenience only and shall not be deemed
to supersede or modify any provisions.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives and thereby become effective on the
date specified above.
FOR HEALTHSTREAM
/s/ Jeff McLaren 7/22/99
- --------------------------------------------- -------------------
Jeff McLaren, President Date
HealthStream, Inc.
FOR VANDERBILT UNIVERSITY
/s/ Winfred L. Cox 7/19/99
- --------------------------------------------- -------------------
Winfred L. Cox Date
Director of Finance & Administration
/s/ Norman B. Urmy 7/19/99
- --------------------------------------------- -------------------
Norman B. Urmy Date
Executive Vice President for Clinical Affairs
Page 9 of 9
<PAGE> 1
EXHIBIT 10.10
(HEALTHSTREAM LOGO)
We have omitted certain portions of this document and filed them separately with
the Commission. These portions are marked with an asterisk (*).
SUMMARY TERM SHEET FOR
DUKE UNIVERSITY MEDICAL CENTER
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Executive Summary Duke University Medical Center ("DUMC") and
HealthStream seek to enter into a global
partnership arrangement to accomplish a broad base
of business opportunities. To accomplish this, a
contract will be written identifying broad rules
and parameters for this partnership that faculty
can work within. Modifications needed on a project
by project basis may be made through work plan
addenda specific to individual projects.
Otherwise, faculty and HealthStream will work
within the parameters laid out in this document.
- --------------------------------------------------------------------------------
Fee for Service Projects From time to time, Faculty and staff at DUMC have
need for work-for-hire and fee for service
A) Best Pricing multimedia projects including but not limited to
Web sites, CD ROM creation, data base applications
B) Guarantees and development of online training courses.
HealthStream seeks to the preferred vendor to the
C) Publicizing DUMC Faculty and staff for these projects.
vendor status
In consideration of this designation, HealthStream
will provide DUMC with hourly pricing
significantly below HealthStream's normal fees
(see attached). Pricing assumes a significant
increase in projects in the next 12 months.
Preferred vendor status does not guarantee
HealthStream the work. Faculty members may utilize
other vendors to achieve lower cost pricing or for
work out of scope of HealthStream capabilities.
DUMC will be responsible for publicizing this
designation of HealthStream through general press
releases, newsletters, and other formal publicity
means of reaching DUMC faculty. HealthStream
provides regular visits to the DUMC campus to meet
with faculty interested in this opportunity.
- --------------------------------------------------------------------------------
Marketing HealthStream will provide up to $* in internal
marketing on the DUMC campus to publicize
HealthStream's products and services to DUMC
physicians, faculty and staff.
HealthStream will provide up to $* in external
marketing of this new partnership.
</TABLE>
- --------------------------------------------------------------------------------
Confidential HealthStream/Duke University Medical Center 03/22/00
<PAGE> 2
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Proprietary CME As part of this global partnership, DUMC will
Gateway/Distribution utilize HealthStream's CME delivery system and
courses as its' online CME platform. Links to
HealthStream's site will be provided at
http://www2.mc.duke.edu/depts/som/docme/welcomeframe.html.
A unique, personalized gateway page will be
created for DUMC by HealthStream at no charge to
ensure visitors recognize this effort as a DUMC
product.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Content Development To assist in this transition, HealthStream will
provide the technology and development services to
A) Live Lecture to capture 30 live lectures, like those delineated at
Online Courses http://www2.mc.duke.edu/depts/som/docme/welcomeframe.html
(Duke CME Offerings) at no cost to DUMC. Examples
B) Didactic Courses of how live lectures can be captured and put into
an online format can be seen at
http://cme.silverplatter.com/. SilverPlatter
Education was acquired by HealthStream in July
'99. Those products and services are provided out
of HealthStream's Boston office. These products
are provided free of charge to the physician
community and are underwritten by pharmaceutical
and medical device companies. Therefore royalty
payments will be based upon advertising revenues
received.
HealthStream is also interested in the development
of didactic courses with DUMC faculty. All courses
developed shall be sold through the HealthStream
partner web sites and royalties applied as
indicated below.
- --------------------------------------------------------------------------------
Site Advertising Advertising and course sponsorship is available
within the training site. DUMC and HealthStream
A) Revenue Sharing shall share in all advertising revenues through
the DUMC proprietary site in accordance with the
royalty fee schedule. DUMC may offer this
advertising opportunity to their vendors and
partners. HealthStream will provide the business
package and contracting around the execution of
these advertising arrangements.
</TABLE>
- --------------------------------------------------------------------------------
Confidential HealthStream/Duke University Medical Center 03/22/00
<PAGE> 3
<TABLE>
<S> <C>
Ownership DUMC shall retain ownership of the DUMC CME
Courses licensed and created under this agreement.
HealthStream retains ownership of the Training
Navigator(R) system.
- --------------------------------------------------------------------------------
Distribution HealthStream will provide distribution of the DUMC
CME Courses through HealthStream's current and
future Internet and intranet distribution
channels.
DUMC will provide distribution of DUMC and
HealthStream's CME Courses through DUMC's web site
(see above).
- --------------------------------------------------------------------------------
Exclusivity For all content authored by DUMC, HealthStream
retains the exclusive rights to distribute this
content on the Web for the duration of this
Agreement.
- --------------------------------------------------------------------------------
Pricing HealthStream courses range in price, but currently
average approximately $10 per credit hour. DUMC
Faculty and HealthStream will work together to
determine appropriate pricing for each new course
developed.
- --------------------------------------------------------------------------------
Distribution Fees As a distribution partner, DUMC shall receive *%
of all CME course purchases through the DUMC
gateway site.
- --------------------------------------------------------------------------------
Revenue Sharing Projects HealthStream seeks to create, and DUMC seeks to
utilize HealthStream to build, projects and
A) CME Courses & products with long term revenue potential. These
Projects with projects can be designated as one of two types:
advanced fees
B) CME Courses & A) Projects with advanced fees: In certain cases,
Projects with DUMC will pay to HealthStream development fees as
no advanced fees part of a revenue sharing project. These fees will
cover some or all of HealthStream's development
costs. When HealthStream's development fees are
covered, HealthStream will provide royalties back
to DUMC of *% of net revenues for sale of the
products.
B) Projects with no advanced fees: In certain
cases, HealthStream will receive no fees in
advance for project development. HealthStream will
provide its' development as part of an equity
stake in the product. In these situations,
HealthStream will provide royalties back to DUMC
of *% of net revenues for sale of the product.
Royalties will increase to *% after HealthStream
has recovered its' development fees. Development
fees will be identified at the start of the
project.
</TABLE>
- --------------------------------------------------------------------------------
Confidential HealthStream/Duke University Medical Center 03/22/00
<PAGE> 4
<TABLE>
<S> <C>
HealthStream As part of this Agreement, HealthStream agrees to
Sponsored Faculty sponsor a faculty position to provide leadership
to the online education efforts between DUMC and
HealthStream. HealthStream agrees to provide a
maximum of $* for one year towards this
effort. A job description will be provided by
HealthStream at a later date. This position may be
renewed for subsequent years by HealthStream after
an evaluation of its' success at the end of the
first year.
Agreement Term Thirty-six (36) months from signing;
automatically renewed for one-year periods unless
notification by either party provided forty-five
(45) days in advance.
</TABLE>
Fee for Service Development Fees
<TABLE>
<CAPTION>
Function Usual and Customary Fees/Hour DUMC
Fees
<S> <C> <C>
Programming * *
Development * *
Quality Assurance * *
</TABLE>
Agreed to by: Agreed to by:
/s/ Robert Taber /s/ Robert A. Frist, Jr.
- ----------------------------------- ---------------------------------------
Robert Taber, Ph.D. Robert Frist
Duke University Medical Center HealthStream
- -----------------------------------
Gordon Williams
Duke University Medical Center
10/25/99 10/26/99
- ----------------------------------- ---------------------------------------
Date Date
- --------------------------------------------------------------------------------
Confidential HealthStream/Duke University Medical Center 03/22/00
<PAGE> 1
EXHIBIT 10.11
We have omitted certain portions of this document and filed them separately
with the commission. These portions are marked with an asterisk (*).
JOINT MARKETING AND LICENSING AGREEMENT
This Joint Marketing and Licensing Agreement ("Agreement") is made 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 The Cleveland Clinic Center for Continuing Education
("CFCE"), a component of the Cleveland Clinic Educational Foundation, an Ohio
Not-for-Profit corporation having its principal place of business at 9500 Euclid
Avenue, Cleveland, Ohio 44195.
BACKGROUND
WHEREAS, CFCE has developed and marketed and continues to develop and
market a line of products known as the 1998 Cleveland Clinic Intensive Review of
Internal Medicine, a CD-ROM based course providing continuing education to
physicians;
WHEREAS, HealthStream has developed and marketed and continues to
develop and market a computer-based education system known as the Training
Navigator(TM) ("T.NAV(R)") that delivers and monitors World Wide Web based
content;
WHEREAS, CFCE and HealthStream wish to enter into a cooperative effort
to deploy CFCE's educational offerings utilizing HealthStream's T.NAV technology
on the World Wide Web;
WHEREAS, HealthStream wishes to acquire a license and CFCE has agreed
to grant a license to HealthStream for the delivery of the 1998 Cleveland Clinic
Intensive Review of Internal Medicine product, whether now existing or developed
by CFCE during the term of this Agreement, by HealthStream's T.NAV;
WHEREAS, CFCE and HealthStream wish to provide appropriate
consideration for those efforts that each party has agreed to undertake;
WHEREAS, CFCE and HealthStream each acknowledge the sufficiency and
adequacy of the value, concessions, and recitations set forth herein;
NOW THEREFORE, CFCE and HealthStream agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the terms below shall have the following
meanings:
1.1. "CFCE" means The Cleveland Clinic's Center for Continuing Education, a
component of the Cleveland Clinic Educational Foundation. For the
purposes of this agreement, components of that Center include the
Continuing Medical Education Department, The Media Services Department,
and UNITECH Communications.
1.2. "Educational Content" means the information contained in the entire
library of the CD-ROM version of the 1998 Cleveland Clinic Intensive
Review of Internal Medicine product and its incorporated modules
including, but not limited to, text and images that are the proprietary
property of CFCE that consist of continuing medical education ("CME")
in the modules listed in Exhibit A hereto.
1.3. "Educational Activity" means a single module of the Education Product,
specifically, a self-contained lesson consisting of Educational
Content, learning objectives, a post test, and an evaluation. Each
individual Educational Activity, when properly completed, is eligible
for CME credit.
1.4. "Educational Product" means the adaptation of the Educational Content
into Educational Activities contained in the 1998 Cleveland Clinic
Intensive Review of Internal Medicine CD-ROM, including but not limited
to conversion to a format appropriate for delivery over the World Wide
Web,
Page 1 of 12
<PAGE> 2
definition of education objective, a post test and an evaluation form
for each segment in accordance with CFCE policies and the Accreditation
Council for Continuing Medical Education's ("ACCME") Essentials and
Guidelines for Accreditation of Sponsors of Continuing Medical
Education and Standards for Commercial Support and Enduring Materials
attached as Exhibit B hereto.
1.5. "Effective Date" means _____________, 1999, the date on which both
parties to this Agreement have executed same.
1.6. "HealthStream" means HealthStream, Inc. and any Subsidiary of
HealthStream, Inc.
1.7. "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.
1.8. "Net Revenue" means gross revenue derived by HealthStream from
Transactions Fees.
1.9. "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.
1.10. "T.NAV" is a branded trademark of HealthStream and is a computer based
training product that delivers and monitors World Wide Web based
Content.
1.11. "T.NAV Commerce" means HealthStream's proprietary computer based
training product that is a derivative product of T.NAV with additional
features added by HealthStream in its sole discretion and designated by
HealthStream in its sole discretion as "T.NAV v.x.x.c."
ARTICLE 2
LICENSE GRANTS
2.1 Subject to the payment of the consideration set forth in Article 3,
CFCE grants to HealthStream an exclusive worldwide license to deliver
the Educational Product on the World Wide Web.
2.2 Upon notice from CFCE that an Educational Activity is no longer
appropriate for use because, for example, it contains erroneous or
outdated information, or in other ways is no longer appropriate for the
awarding of CME credit, HealthStream shall cease to represent that the
Educational Activity being so delivered is CME accredited. During the
term of this agreement, CFCE shall restructure the CFCE Educational
Activity for CME accreditation at its own expense or shall provide an
equivalent number of CME hours of content at no expense to
HealthStream. After this Agreement terminates, HealthStream may, at its
option and expense, seek to have CFCE update the Educational Activity.
HealthStream may also seek permission from CFCE to continue to
broadcast the Educational Activity without CME credit.
2.3 CFCE shall retain the ownership to all Educational Content, including
but not limited to, text, images, and audio that have been copyrighted
by the CFCE under permissions and releases granted by the authors.
2.4 HealthStream shall retain the copyright to the Educational Activities
it produces under this agreement.
2.5 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.
Page 2 of 12
<PAGE> 3
ARTICLE 3
CFCE RESPONSIBILITIES TO HEALTHSTREAM
3.1 CFCE will designate a project manager with sufficient experience and
training to resolve issues related to the production, review and
credentialling issues required by this project.
3.2 CFCE agrees to accredit each Educational Activity produced under this
Agreement if, in its sole judgment, CFCE policies and the ACCME's
Essentials and Guidelines for Accreditation of Sponsors Of Continuing
Medical Education And Standards For Commercial Support and Enduring
Materials as set forth in Exhibit B hereto have been complied with in
all material aspects.
3.3 CFCE agrees to provide initial accreditation for each Educational
Activity for two (2) years, with one (1) year extensions possible as
long as, in CFCE's judgment, the material is still current. At its sole
discretion, in accordance with its responsibilities to the ACCME's
Essentials and Guidelines for Accreditation of Sponsors Of Continuing
Medical Education And Standards For Commercial Support and Enduring
Materials as set forth in Exhibit B hereto, CFCE may determine at any
time that one or more Educational Activity is no longer appropriate for
CME accreditation. In the event the Center for Continuing Education
finds one or more Educational Activities of this Educational Product no
longer appropriate for CME accreditation, HealthStream agrees to
withdraw the Educational Activities, in accordance with Article 2.2.
3.4 For each Educational Activity, CFCE shall provide a title, objectives,
post test, and an evaluation form in a timely fashion. These components
for the first ten (10) Educational Activities shall be provided no
later than July 15, 1999; the second ten (10) components shall be
provided no later than September 15, 1999, and the remaining components
shall be provided no later than October 15, 1999.
ARTICLE 4
HEALTHSTREAM RESPONSIBILITIES TO CFCE
4.1 HealthStream will designate a project manager with sufficient
experience and training to resolve issues related to the production,
review and credentialling issues required by this project.
4.2 HealthStream will submit to CFCE a draft paper based version of each
Educational Activity it has converted to the Web for review and
approval by CFCE. CFCE will have twenty (20) working days to conduct
its reviews. Any approvals shall not be unreasonably withheld by CFCE.
4.3 HealthStream agrees to make all changes requested by CFCE in a timely
manner.
4.4 HealthStream will incorporate into each Educational Activity:
4.4.1 an accreditation statement to be provided by CFCE;
4.4.2 objectives to be created and provided by CFCE;
4.4.3 faculty disclosure information about actual or potential
conflicts of interest to be provided by CFCE;
4.4.4 Educational Activity evaluation to be provided by CFCE; and
4.4.5 a post test to be provided by CFCE.
4.5 HealthStream shall be responsible for issuing to qualified physicians a
document recognizing the attainment of CME credit. HealthStream shall
develop a system to bar issuance of such documentation unless the
participating physician has answered seventy-five percent (75%) of the
post test questions correctly.
4.6 HealthStream shall maintain a database of all users of the Educational
Activity and shall provide the following information quarterly to CFCE:
Page 3 of 12
<PAGE> 4
4.6.1 number of users of each Educational Activity;
4.6.2 demographic information;
4.6.3 names of physicians who were issued letters of CME
accreditation for each Educational Activity; and
4.6.4 results of evaluations.
4.7 HealthStream shall submit for CFCE approval the format and content of
advertising, if any, so that CFCE can assure the requirements of ACCME
Standards For Commercial Support are met. CFCE will have ten (10)
working days to review and approve the format and content of such
advertising.
4.8 HealthStream shall submit for CFCE approval all promotional activities
related to this project. CFCE will have ten (10) working days to review
and approve such promotional activities.
4.9 HealthStream agrees to allow CFCE to acknowledge within each
Educational Activity the unrestricted educational grant provided by
Novartis Pharmaceutical.
ARTICLE 5
PRICE AND PAYMENT
5.1. During the term of this Agreement, HealthStream shall pay to CFCE (Tax
ID #: 34 - 0714553):
5.1.1. * in Licensing Fees according to the following terms;
5.1.2. * upon execution of this Agreement;
5.1.3. * on August 15, 1999; and
5.1.4. * on the earlier of September 15, 1999 or within thirty (30)
days after the delivery by CFCE of the final milestone.
5.2. HealthStream will pay a penalty of one percent (1%) per month for any
payment more than thirty (30) days past due. Failure of payment more
than ninety (90) days past due will be grounds for CFCE to withdraw the
license granted in Article 2 herein; in this event, CFCE will retain
all paid fees to that date.
5.3. Failure by CFCE to deliver the milestones in Section 3.4 herein within
ninety (90) days of the specified date will be grounds for HealthStream
to rescind this Agreement and CFCE refund the fees paid by HealthStream
for any undelivered milestones.
Page 4 of 12
<PAGE> 5
ARTICLE 6
WARRANTIES AND INDEMNITIES
6.1. CFCE represents and warrants that:
6.1.1 Educational Content meets ACCME accreditation standards;
6.1.2. To the best of its knowledge Educational Content does not
infringe any copyright or patent enforceable under the laws of
any country;
6.1.3. To the best of its knowledge Educational Content does not
violate the trade secret rights of any third party; and
6.1.4. To the best of its knowledge Educational Content represents
the then existing reasonable standards of care.
6.2. Each party agrees to indemnify, hold harmless, and defend the other
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 4.1 provided, the
charged party is notified promptly in writing of a claim and has sole
control over its defense or settlement, and the party not charged
provides reasonable assistance in the defense of the same.
6.3. CFCE shall have no liability for any claim based on HealthStream's:
6.3.1. use or distribution of Educational Content after CFCE's
written notice that HealthStream should cease use or
distribution of Educational Content due to a claim, or
6.3.2. combination of Educational Content with a non-CFCE program or
data if such claim would have been avoided by the exclusive
use of Educational Content.
6.4. For all claims arising under Section 4.3, HealthStream agrees to
indemnify and defend CFCE from and against all damages, costs, and
expenses, including reasonable attorneys' fees. In the event CFCE
notifies HealthStream that it should cease distribution of Educational
Content due to a claim, HealthStream may terminate this Agreement.
ARTICLE 7
INTELLECTUAL PROPERTY PROVISIONS
7.1. HealthStream will cause to appear on all marketing or promotional
materials concerning the Educational Content, CFCE's copyright,
trademark, or patent notices.
7.2. 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.
7.3. To the extent that source code is written by either party title shall
vest in the party who has written such code.
7.4. 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 or Content.
7.5. Both parties acknowledge that, except as otherwise provided herein,
each party owns and retains all right, title and interest in and to its
own Content provided to the other party.
7.6. HealthStream acknowledges that CFCE owns and retains all right, title
and interest in and to Educational Content and all CFCE's products and
services arising from the performance of this Agreement.
7.7. CFCE acknowledges that HealthStream owns and retains all right, title
and interest in and to
Page 5 of 12
<PAGE> 6
T.NAV Commerce, the T.NAV Commerce source code, the T.NAV Commerce
object code, any derivatives of T.NAV Commerce and the interface
templates designed by HealthStream used to present and deliver the
Educational Content.
ARTICLE 8
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 6) 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. CFCE may , at its sole discretion,
enter into an agreement with any vendor, including UNITECH Communications, to
fulfill the terms of this agreement. The costs, if any, of such agreements will
be borne by CFCE.
ARTICLE 9
TERM OF AGREEMENT
Provided this Agreement has been properly executed by an authorized
representative of CFCE and by an officer of HealthStream, the term of this
Agreement ("Term") shall run from the Effective Date until three (3) year(s)
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. Nothing in this article prohibits
CFCE from exercising its responsibilities under the terms of its
responsibilities to the ACCME which calls for timely review for accuracy and
relevance of all educational activities and for termination of granting CME
credit for those activities. (See Section 3.3 herein).
ARTICLE 10
DEFAULT AND TERMINATION
10.1 The non-defaulting party may terminate this Agreement in its entirety
if any of the following events of default occur:
10.1.1 if the defaulting party materially fails to perform or comply
with this Agreement or any provision hereof;
10.1.2 if the defaulting party fails to strictly comply with the
provisions of Article 11, or makes an assignment in violation
of Article 6;
10.1.3 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;
10.1.4 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
10.1.5 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.
Page 6 of 12
<PAGE> 7
10.2 Termination due to a breach of Articles 6 or 11 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 11
OBLIGATIONS UPON TERMINATION
11.1. From and after termination or expiration of this Agreement,
HealthStream shall not employ Educational Content or portions thereof
which is owned by CFCE, as part or portion of any product that
HealthStream may use, sell, assign, lease, license, or transfer to
third parties. Both parties shall 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.
11.2. Articles 4, 5, 9, 10, 11, 12, 13, Section 14.1, and Article 15 shall
survive termination or expiration of this Agreement.
ARTICLE 12
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 13
NONDISCLOSURE AGREEMENT
13.1. HealthStream expressly undertakes to retain in confidence all
information and know-how transmitted to HealthStream by CFCE that CFCE
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 CFCE's prior written consent.
HealthStream agrees to use the same degree of care to protect CFCE
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:
13.1.1. it received rightfully from another party prior to its receipt
from CFCE;
13.1.2. CFCE has disclosed to a third party without any obligation to
maintain such information in confidence; or
13.1.3. has been or is independently developed by HealthStream.
Page 7 of 12
<PAGE> 8
13.2. Further, HealthStream may disclose confidential information as required
by governmental or judicial order, provided HealthStream gives CFCE
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 CFCE's unannounced products to
HealthStream's employees or any third party.
13.3. CFCE shall have the same obligations in Sections 11.1 and 11.2 above
with respect to HealthStream's information and know-how.
13.4. Both parties shall prepare a mutually acceptable press release, if any,
to announce this Agreement.
ARTICLE 14
NOTICES AND REQUESTS
All notices, authorizations, and requests in connection with this Agreement
shall be deemed given three (3)days after 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:
CFCE: The Cleveland Clinic Center for Continuing Education
William D. Carey, MD, Director
TT-31
9500 Euclid Avenue
Cleveland, Ohio 44195
With a copy to:
Office of General Counsel
9500 Euclid Avenue, Mail Code H-18
Cleveland, OH 44195
HEALTHSTREAM: HealthStream, Inc.
Robert H. Laird, Jr.
General Counsel
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.
Page 8 of 12
<PAGE> 9
ARTICLE 15
CONTROLLING LAW
14.1. This Agreement shall be construed and controlled by the laws of the
State of Ohio.
14.2. 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 3 of this
Agreement shall be construed as a royalty fee for the rights granted in
Article 2 of this Agreement, and not as a franchise fee.
ARTICLE 16
ATTORNEYS' FEES
If either HealthStream or CFCE 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 17
GENERAL
17.1. 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
including the Letter of Intent signed by the parties March 28, 1999. It
shall not be modified except by a written agreement signed on behalf of
CFCE 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.
17.2. 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).
17.3. 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.
17.4. 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.
17.5. Change in Law and Compliance.
17.5.1. Change in Law. By entering into this Agreement, the parties
specifically intend to comply with all applicable laws, rules
and regulations, including (I) the federal anti-kickback
statute (42 U.S.C. 1320a-7(b)) and the related safe harbor
regulations; and (ii) the Limitation on Certain Physician
Referrals, also referred to as the "Stark Law" (42 U.S.C.
Page 9 of 12
<PAGE> 10
1395nn). Accordingly, no part of any consideration paid
hereunder is a prohibited payment for the recommending or
arranging for the referral of business or the ordering of
items or services; nor are the payments intended to induce
illegal referrals of business. In the event that any part of
this Agreement is determined to violate federal, state, or
local laws, rules, or regulations, the parties agree to
negotiate in good faith revisions to the provision or
provisions which are in violation. In the event the parties
are unable to agree to new or modified terms as required to
bring the entire Agreement into compliance, either party may
terminate this Agreement on sixty (60) days written notice to
the other party.
17.5.2. Compliance. By executing this Agreement, to the extent
applicable, HealthStream agrees that Cleveland Clinic shall
have the right to automatically terminate this Agreement in
the event that HealthStream is debarred, excluded, suspended
or otherwise determined to be ineligible to participate in
federal health care programs (collectively, "Debarred" or
"Debarment"). Accordingly, HealthStream shall provide
Cleveland Clinic with immediate notice if HealthStream (i)
receives notice of action or threat of action with respect to
its Debarment during the term of this Agreement; or (ii)
becomes Debarred. Upon receipt of such notice from
HealthStream, this Agreement shall automatically terminate
without further action or notice.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth in Section 1.5 above. All signed copies of this Agreement shall
be deemed originals.
/S/ William D. Carey /S/ Robert Frist, Jr.
--------------------------------- -------------------------------
The Cleveland Clinic Foundation HealthStream, Inc
William D. Carey, MD Robert Frist
Vice Chair, Division of Education Chief Executive Officer.
APPROVED AS TO FORM
OFFICE OF
GENERAL COUNSEL
By /s/ CCF Office of General Counsel
------------------------------------
Date 6/8/99
----------------------------------
Page 10 of 12
<PAGE> 11
EXHIBIT A
INFORMATION BASE FOR THE EDUCATIONAL PRODUCT
The 1998 Cleveland Clinic Intensive Review of Internal Medicine on CD-ROM
Page 11 of 12
<PAGE> 12
EXHIBIT B
ACCREDITATION COUNCIL FOR CONTINUING MEDICAL EDUCATION ESSENTIALS AND
GUIDELINES FOR ACCREDITATION OF SPONSORS OF CONTINUING MEDICAL
EDUCATION AND STANDARDS FOR COMMERCIAL SUPPORT AND ENDURING MATERIALS
Page 12 of 12
<PAGE> 1
EXHIBIT 10.12
We have omitted certain portions of this document and filed them separately
with the Commission. These portions are marked with an asterisk(*).
December 31, 1998 [CHALLENGER CORPORATION logo]
Bob Sweeney
Challenger Corporation
5530 Summer Avenue
Memphis, Tennessee 38134
RE: Terms for Strategic Alliance
Dear Bob:
HealthStream, Inc. ("HealthStream") and Challenger Corporation ("Challenger")
desire to enter into a Strategic Alliance ("Agreement") whereby the parties
will:
1) enter into good faith negotiations to merge or otherwise consolidate the
corporations between now and April 30, 1999; and
2) enter into a distribution and marketing arrangement whereby Challenger
grants HealthStream an exclusive worldwide license to all Challenger
products for deployment through HealthStream's Web based (Internet or
Intranet) distribution channels.
In accordance with the exclusive worldwide license granted by Challenger to
HealthStream, Challenger will provide HealthStream with all of its existing
products and any new products developed or marketed by Challenger during the
license term, including but not limited to:
- - Med-Challenger EM for Emergency Physicians (7 modules; 200 CME hours)
- - Med-Challenger FP for Family Physicians (7 modules; 192 CME hours)
- - Med-Challenger Peds for Pediatricians (6 modules; 159 CME hours)
- - Med-Challenger IM for Internists (5 modules; 143 CME hours)
- - ECG-Challenger (31.25 CME hours)
- - Derm-Challenger (25.5 CME hours)
- - Rad-Challenger (10.25 CME hours)
In consideration for the exclusive worldwide license granted by Challenger to
HealthStream, HealthStream shall pay to Challenger * in 3 installments. The
first installment of * shall be due and payable to Challenger on January 4,
1999. The second installment of * shall be due and payable to Challenger on
February 5, 1999. The third installment of * shall be due and payable to
Challenger on March 5, 1999. These amounts shall be non-refundable advances to
Challenger on the royalties outlined below. In the event that the terms of a
merger or other consolidation between the parties are definitively determined by
April 30, 1999, this amount shall be credited toward the purchase price in the
event of an acquisition of Challenger by HealthStream or any amounts payable by
HealthStream to Challenger in the event of a merger.
Challenger and HealthStream will share the revenue ("Revenue") from this
strategic alliance according to the following royalty rates:
- - Individual Transactions - HealthStream shall pay Challenger * of the net
Revenue received for each individual transaction paid for by the end user.
In any case, the royalty paid shall be
<PAGE> 2
at least * of Challenger's most favored per unit pricing structure on
the effective date of this Agreement for its products regardless of the
prices HealthStream charges for these products;
- - Sponsorships - HealthStream shall pay Challenger * of the net Revenue
received from transactions paid for by a third party and purchased in
bulk. In any case, the royalty paid shall be at least * of Challenger's
most favored per unit pricing structure on the effective date of this
Agreement for its products regardless of the prices HealthStream
charges for these products; and
- - Notwithstanding the above, HealthStream may allow users to view
portions of any Challenger products* through January 31, 1999. No
continuing medical education (CME) credits, however, will be given * .
In the event that a merger or other consolidation between the firms is not
consummated by April 30, 1999, the term of this exclusive worldwide license
shall be two (2) years with a second-year licensing fee of * paid in twelve (12)
equal monthly installments. The first installment of * shall be due and payable
to Challenger on January 4, 2000, with subsequent payments due upon the fourth
of each month thereafter. Any amounts paid to Challenger under the second year
license shall be a non-refundable advance to Challenger on the royalties as
outlined above. If the accrued royalties due to Challenger are less than *
through November 15, 1999, then HealthStream shall have the unilateral right to
cancel the second year license by providing a written notice of intent not to
renew prior to December 1, 1999.
This Agreement shall supercede and replace the Joint Marketing Agreement signed
between the parties dated October 16, 1998.
Notwithstanding this Agreement, nothing shall interfere with Challenger's
agreement with Medical Directions of Tucson, Arizona for Med-Challenger for
Internists. Challenger, however, shall not extend this agreement beyond its
initial term or otherwise expand the rights granted under this agreement.
If the terms and conditions of this letter are acceptable, please sign and
return a copy of this letter so that we can move forward with our discussions.
Sincerely,
HEALTHSTREAM, INC.
By: /s/ Robert A. Frist
-------------------------
Title: Chief Executive
Acknowledged and agreed to this 31st day of December, 1998.
CHALLENGER CORPORATION
/s/ Robert Sweeney
- ------------------
Robert Sweeney
Contracts Officer
Secretary to the Board of Directors
Chief Operating Officer and Executive Vice-President
2
<PAGE> 1
EXHIBIT 10.13
We have omitted certain portions of this document and filed them separately
with the commission. These portions are marked with an asterisk (*).
DEVELOPMENT AND DISTRIBUTION AGREEMENT
This Agreement, effective as of June 14th, 1999, is between GE Medical
Systems, a division of General Electric Company, a corporation organized and
existing under the laws of the state of New York ("GEMS"), and HealthStream,
Inc., a corporation organized and existing under the laws of the state of
Tennessee ("HealthStream").
RECITALS
A. GEMS or its affiliates have purchased 100,000 shares of
HealthStream Series B Convertible Preferred Stock pursuant to a Stock Purchase
Agreement dated May 10, 1999, in consideration of, in part, the arrangement set
forth in this Agreement.
B. HealthStream owns or has rights to certain computer software
and Internet web site content for healthcare professionals' education and
training and has developed and markets a computer-based education system called
"Training Navigator" ("T.NAV") that delivers and monitors content on the World
Wide Web.
C. GEMS owns or has rights to certain content, satellite
broadcast programming and branding and related goods and services which are used
in health, medicine, training and education, and which may be used to distribute
information about and to promote its other goods and services.
D. The parties intend to convert or adapt certain GEMS content
and programming that is in existence or to be developed for use through T.NAV.
GEMS and HealthStream are allowed certain rights hereunder to distribute the
HealthStream content and the converted or adapted GEMS content using T.NAV, and
the parties are to share Revenue (as defined herein) in connection therewith.
E. Simultaneous with this Agreement, the parties are entering
into a Warrant Purchase Agreement (the "Warrant Agreement") of even date
herewith, under which GEMS acquires a warrant to purchase certain stock of
HealthStream as set forth therein.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual promises and covenants set forth below, the parties agree as follows:
ARTICLE I
DEFINITIONS
Capitalized terms herein shall have the following meanings for purposes
of this Agreement:
1.1 "Confidential Information" means any information received by a
party that is marked "Confidential" or "Proprietary" or, in the case of
information that is disclosed orally, is reduced to writing and such writing is
delivered to the receiving party confirming the oral disclosure and identifying
the oral disclosure as "Confidential." Confidential Information shall
<PAGE> 2
not include any information that the receiving party can demonstrate, by a
preponderance of the evidence, was already in its possession of the receiving
party at the time of disclosure, is in the public domain other than as
consequence of breach by it of its obligation hereunder not to disclose the
information, is received from another without an obligation of confidentiality,
or is thereafter independently developed by it without the use of any such
information.
1.2 "Enhancements" means all GEMS content (including works of
authorship, source and object code, and databases) that is converted or adapted
for use on T.NAV and approved by GEMS.
1.3 "GEMS Web Site" means the primary web site designated by GEMS
or its affiliates, or other GEMS distributors authorized under Section 4.1
below, for distribution by GEMS of HealthStream Content.
1.4 "HealthStream Content" means all interactive courses that
HealthStream owns or has the right to distribute (but not including
Enhancements).
1.5 "HealthStream Web sites" means the primary web sites
designated by HealthStream, and/or HealthStream distributors listed in Exhibit B
attached hereto, for distribution by HealthStream of Enhancements.
1.6 "Revenue" means all monetary consideration and the fair market
value of all non-monetary consideration charged, not including any sales or
value-added taxes, and less any returns or refunds. In the case of Revenue in a
currency other than United States dollars, such Revenue shall be converted to
United States dollars using the exchange rate in effect on the last day of the
calendar quarter during which such Revenue is received.
1.7 "TiP-TV" means the live interactive satellite broadcasts of
that name to GEMS-authorized customer sites, also known as
"Training-in-Partnership Television."
1.8 "T.NAV" means all present and all future releases, versions
and embodiments of the HealthStream products and services currently known as
"Training Navigator" or "T.NAV" which delivers and monitors World Wide Web based
content.
1.9 "Individual Course Transactions" means purchases of Products
other than Non-Individual Course Transactions.
1.10 "Non-Individual Course Transactions" means purchases of
Products in a single transaction entailing multiple courses or courses that are
in combination with other goods or services.
1.11 "Products" means HealthStream Content and Enhancements singly
and jointly.
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<PAGE> 3
ARTICLE II
DEVELOPMENT
2.1 Development of Enhancements. The parties will collaborate in
the development of Enhancements identified and approved by GEMS, integrating
such Enhancements into T.NAV, and deploying two similar, but separately branded
in accordance with Section 5.5 below, sets of Products. The Enhancements will be
directed toward specific areas of expertise of GEMS, including, but not limited
to, radiology, cardiology and women's health, and related educational materials,
and GEMS e-commerce applications. The development, implementation and
integration of Enhancements will occur in three phrases:
(i) the development of on-line continuing education and
continuing medical education examinations after TiP-TV broadcasts on
such schedule as the parties may mutually agree;
(ii) the conversion and repurposing into T.NAV of * of
existing TiP-TV programming of GEMS identified by the agreement of the
parties within thirty (30) days after the effective date of this
Agreement, such conversion and repurposing to be accomplished within
three months after the effective date of this Agreement; and
(iii) the development of new content as mutually agreed
upon by the parties for desired market segments and healthcare
professional occupations and specialties, provided that HealthStream
shall be under no obligation to incur the costs of developing any
content beyond the first *.
2.2 Content Integration. HealthStream, at its expense, will
provide all necessary services and support for the conversion of content and
features provided by GEMS into Enhancements and the integration of Enhancements
into T.NAV, including adding GEMS content, enabling linkage to other GEMS web
sites and the customizations listed on Exhibit A hereto.
2.3 Technical Support. HealthStream, at its expense, will provide
all necessary technical support and maintenance to the Products, including
hosting web sites containing Products. HealthStream shall promptly deliver to
GEMS upon its request all reasonably available usage, tracking and similar
information related to each such web site.
ARTICLE III
OWNERSHIP
3.1 Ownership of Enhancements. GEMS will own, and HealthStream
hereby assigns to GEMS, all Enhancements including all copyrights, trade secret
rights and other intellectual property rights thereto, with the unrestricted
right to reproduce, use, perform, display, prepare derivative works and
distribute such Enhancements, subject to the distribution and other rights of
HealthStream under Article IV below.
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<PAGE> 4
3.2 Ownership of T.NAV and HealthStream Content. HealthStream
shall own, and GEMS hereby assigns to HealthStream, all of T.NAV and
HealthStream Content, including all copyrights, trade secret rights and other
intellectual property rights thereto, with the unrestricted right to reproduce,
use, perform, display, prepare derivative works and distribute T.NAV and
HealthStream Content, subject to the distribution and other rights of GEMS under
Article IV below.
3.3 Assignments. Each party agrees to take such action as may be
reasonably required to effectuate the ownership provisions of this Article III,
including without limitation the execution and delivery of instruments of
assignment, recordation or registration, and the giving of truthful testimony.
3.4 Enforcement. Each party shall promptly notify the other of any
infringement or other violation of which it becomes aware by any third party of
any patent, copyright, trade secret, trademark or other intellectual property
right related to Products. The party owning such right may enforce such right
against such third party, and the other party shall reasonably cooperate with
such enforcement at the enforcing party's expense. Any damages or other monetary
recovery in the enforcement action shall be retained by the enforcing party.
ARTICLE IV
DISTRIBUTION RIGHTS
4.1 Grant by HealthStream. Subject to all the terms and conditions
of this Agreement, HealthStream hereby grants to GEMS and its affiliates a
worldwide right and license to distribute HealthStream Content through the GEMS
Web Site. Any distribution of HealthStream Content by GEMS other than through
the GEMS Web Site or by any subdistributors will require the prior written
approval of HealthStream.
4.2 Grant by GEMS. Subject to all the terms and conditions of this
Agreement, GEMS hereby grants to HealthStream a worldwide right and license to
distribute Enhancements through the HealthStream Web sites. Any distribution of
Enhancements by HealthStream other than through the HealthStream Web sites will
require the prior written approval of GEMS.
ARTICLE V
MARKETING
5.1 Product Marketing. Each party will work independently to
market the Products, with input from the other party and in accordance with this
Article V.
5.2 Cooperation by HealthStream. HealthStream will provide to GEMS
all relevant technical, marketing and other information regarding the Products
and will provide appropriate artwork for marketing communications regarding the
HealthStream Content.
5.3 Cooperation by GEMS. The Products may be included as a part of
industry trade shows and exhibitions in which GEMS participates, at GEMS
discretion. The Products may be included as a part of GEMS public advertising
strategy, at GEMS discretion.
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<PAGE> 5
5.4 TiP-TV Programming Advertising. During the term of this
Agreement, GEMS will promote HealthStream on the GEMS branded offering of the
Products in the TiP-TV Broadcast Guide magazine by including a one-quarter page
advertisement therefor in each magazine issue. Such advertisement will contain
the "Powered by HealthStream, Powered by T.NAV" logo or other HealthStream logo
acceptable to GEMS, and shall be at * HealthStream. HealthStream may choose to
sponsor Tip-TV programming, subject to program availability. Pricing for such
sponsorship will be set at the then current sponsorship market price, less at
least a * discount. In exchange for the discounted sponsorship fee,
HealthStream will be named as such program's sponsor.
5.5 Branding. Each party reserves all rights to any name, marks
and logos ("Marks") it may have. GEMS will have the right, but not the
obligation, to include its Marks in the Enhancements, and in any HealthStream
Content that GEMS distributes. GEMS may prohibit the use in any Enhancements,
and in any HealthStream Content that GEMS distributes, of any Marks of any
company in competition with GEMS in any goods or services distributed by GEMS.
The Products will also include the name of HealthStream, consistent with
applicable General Electric Company corporate guidelines including, without
limitation, guidelines to avoid confusion of customers, sales forces and others
and to produce and maintain market identity. Each use by HealthStream of any
Marks of GEMS in any manner, including in all Products and web pages shall be
subject to the prior written approval of GEMS. Neither party shall by this
Agreement obtain any right, title, or interest in or to any Marks of the other
party or its affiliates. Accordingly, neither party shall use any Marks
confusingly similar to or likely to cause confusion with the Marks of the other
or of any other person or entity. This Section 5.5 shall survive termination of
this Agreement. Violation of this Section 5.5 shall entitle the owner of the
Mark to seek any legal or equitable remedy it has, whether arising under this
Agreement or otherwise.
5.6 Direct Marketing. The parties shall each ensure that all
communications (including, without limitation, email acknowledgments,
transaction invoicing, direct mail campaigns, customer feed back surveys and
other electronic and written communications) with individuals, groups, companies
or other entities conducting transactions through the GEMS Web site shall have
the appropriate GEMS Marks consistent with General Electric Company corporate
guidelines.
5.7 GEMS Web site Infrastructure. HealthStream shall operate and
maintain the HealthStream Content and T.NAV in support of the GEMS Web site,
including processing user transactions on the GEMS Web site (including
invoicing, billing and processing credit card transactions) and tracking user
course history.
5.8 Web Partners. GEMS in its sole discretion may introduce
HealthStream to its current or potential Web partners for the purpose of
creating strategic partnerships and alliances and deploying HealthStream Content
using T.NAV into other channels.
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<PAGE> 6
ARTICLE VI
REVENUE SHARING
6.1 Individual Course Transactions. During the term of this
Agreement, Revenue from Individual Course Transactions shall be shared on a
quarterly basis, based upon content and distribution channel, per the following:
<TABLE>
<CAPTION>
CHANNEL COLUMN A COLUMN B
CONTENT GEMS WEB SITE HEALTHSTREAM WEB SITES
<S> <C> <C>
Enhancement GEMS * GEMS *
HealthStream * HealthStream *
HealthStream Content GEMS * GEMS *
HealthStream * HealthStream *
</TABLE>
6.2 Accelerated Royalty. During the first nine month period
following the release by either party of the initial Individual Course
Transactions in Enhancements for deployment in T.NAV, HealthStream shall retain
an additional * of Revenues related to such Enhancements, regardless of
channel.
6.3 Non-Individual Course Transactions. Revenue from
Non-Individual Course Transactions which may be developed as part of future GEMS
or HealthStream on-line offerings, shall be shared * to GEMS and * to
HealthStream; except that during the first nine months following the release by
either party of the initial Non-Individual Course Transactions in Enhancements
for development in T.NAV, HealthStream shall retain an additional * of Revenue
related to such Enhancements, regardless of channel.
6.4 Advertising Revenue. All Revenues collected by HealthStream
for advertisements or other promotional material in page views that include any
portion of the Enhancements shall be divided * to HealthStream and * to GEMS.
All Revenues collected by GEMS for advertisements and other promotional material
in page views that include any portion of T.NAV shall be divided * to GEMS and *
to HealthStream.
6.5 Pricing. GEMS reserves the right, with advice from
HealthStream, to set the * price for HealthStream's distribution of Individual
Course Transactions in the Enhancements. HealthStream reserves the right, with
advice from GEMS, to set the * price for GEMS' distribution of Individual Course
Transactions in the HealthStream Content. In no instance shall pricing for
Non-Incidental Course Transactions by either party be less than * of the pricing
for Individual Course Transactions, except with the consent of the other party.
ARTICLE VII
ACCOUNTING
7.1 Accounting. Reconciliation of accounts in accordance with the
Revenue sharing arrangements set forth in Article VI above shall be made within
thirty (30) days after each calendar quarter with respect to Revenues received
during such calendar quarter, by each party
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<PAGE> 7
delivering to the other party a check for the amount due without offset for any
amount due from the other party together with the report described in Section
7.2 below.
7.2 Records. Each party shall keep complete and accurate records
showing its Revenues hereunder, for the term of this Agreement and a period of
one (1) year thereafter. Each party shall deliver to the other party a written
report accompanying each of the payments described in Section 7.1 above setting
forth the share of Revenues due to the other party and the calculation thereof.
ARTICLE VIII
WARRANTIES AND INDEMNITIES
8.1 Representations and Warranties of HealthStream. HealthStream
represents and warrants to GEMS as follows:
(i) that HealthStream is a validly existing corporation
in good standing under the laws of the State of Tennessee;
(ii) that HealthStream has full corporate power and
authority to execute and deliver this Agreement and to perform its
obligations hereunder;
(iii) that HealthStream has full right, power and authority
to enter into and perform its obligations under this Agreement, and
that HealthStream has the right to grant to and vest in GEMS all rights
and licenses set forth in this Agreement, free and clear of any and all
claims, rights and obligations whatsoever;
(iv) that except for any portion of the Products that may
be created by GEMS, to the best of HealthStream's knowledge, no part of
T.NAV or the Products is or shall be an imitation or copy of, or shall
infringe upon, any other materials, or shall violate or infringe upon
any common law or statutory rights of any person or entity, including
without limitation rights relating to defamation, contract, trademark,
patent, copyright, trade secret, privacy or publicity;
(v) that HealthStream has not sold, assigned, leased,
licensed, or in any other way disposed of or encumbered any of the
rights or licenses granted to GEMS in this Agreement nor shall
HealthStream sell, assign, lease, license or in any other way dispose
of or encumber such rights; and
(vi) to the best of HealthStream's knowledge, all versions
of T.NAV and the Products delivered to GEMS under this Agreement shall
be free from any specification non-conformities, significant
programming errors or defects in workmanship or materials and shall
operate and run in a reasonable and efficient business manner
(including being free of any Year 2000 defects or non-conformities due
to the passage of the year 1999). In the event of any breach of this
Section 8.1 (vi), HealthStream shall, at its sole expense, immediately
correct the nonconformity or other defect.
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<PAGE> 8
8.2 Representations and Warranties of GEMS. GEMS represents and
warrants to HealthStream as follows:
(i) that GEMS is a validly existing corporation in good
standing under the laws of the State of New York;
(ii) that it has full corporate power and authority to
execute and deliver this Agreement and to perform the transactions
contemplated hereunder;
(iii) that GEMS has full right, power and authority to
enter into and perform its obligations under this Agreement, and that
GEMS has the right to grant to and vest in HealthStream all rights and
licenses set forth in this Agreement, free and clear of any and all
claims, rights and obligations whatsoever; and
(iv) that to the best of GEMS' knowledge, no part of GEMS
content shall infringe upon, any other materials, or shall violate or
infringe upon any common law or statutory rights of any person or
entity, including without limitation rights relating to defamation,
contract, trademark, patent, copyright, trade secret, privacy or
publicity.
8.3 Indemnity. Each party will indemnify and hold harmless the
other from and against any liability, costs or expenses (including attorney
fees) based upon any action, claim or assertion inconsistent with the warranties
and representations of Section 8.1 or 8.2 above. The indemnified party shall
promptly notify the indemnifying party of any such action or assertion and shall
cooperate in the defense thereof.
8.4 Insurance. HealthStream will maintain insurance coverage for
product liabilities and other claims arising from the Products in the policy
amount of $5 million combined single limit per occurrence and $5 million in the
aggregate (with a self-insured retention of $10,000 per occurrence and $50,000
aggregate). During the term of the Agreement, HealthStream covenants to maintain
such insurance policy and to take such steps, as necessary, to name GEMS as an
additional insured under such insurance policy. Evidence of the existence and
amount of the insurance policy shall be provided by HealthStream to GEMS.
8.5 NO OTHER WARRANTIES. THE WARRANTIES EXPRESSED IN THIS ARTICLE
VIII ARE IN LIEU OF ALL OTHER WARRANTIES, WHETHER EXPRESSED OR IMPLIED OR
ARISING BY PERFORMANCE, CUSTOM OR USAGE IN THE TRADE, AND THE PARTIES HEREBY
DISCLAIM ALL OTHER WARRANTIES, INCLUDING WITHOUT LIMITATION THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
8.6 No Consequential Damages. Except as expressly set forth
herein, in no event shall either party be liable under, or in connection with,
this Agreement for any indirect, special, incidental, punitive or consequential
losses, expenses or damages whatsoever, including, but not limited to, loss of
revenue or profits or increased costs as a result of inability to operate,
inability to fulfill contracts with third parties, or similar matters or events.
The limitations, exclusions and disclaimers in this Agreement shall apply
irrespective of the nature of the cause of the action or
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<PAGE> 9
demand, including but not limited to breach of contract, negligence, tort or any
other legal theory and shall survive any breach or breaches and/or failure of
the essential purpose of this Agreement, or any remedy contained in this
Agreement.
ARTICLE IX
CONFIDENTIALITY
9.1 Obligation. Each party agrees that any Confidential
Information furnished or disclosed to it by the other party shall be treated as
confidential by it and used by it only as expressly authorized herein, that no
such Confidential Information shall be disclosed to others by it or its
employees without the prior written consent of the disclosing party, and that it
shall take all measures to protect the confidentiality of such Confidential
Information that it takes to protect its own similar proprietary or confidential
information, which shall in no event be less than those required by law to
protect the confidentiality and proprietary nature of such information except
insofar as:
(i) expressly provided otherwise herein or in any other
written agreement with the disclosing party;
(ii) such Confidential Information is necessarily
disclosed by its use in products manufactured and sold or otherwise
disposed of by the disclosing party; or
(iii) such Confidential Information is necessarily
disclosed to bona fide subcontractors of such party provided that such
subcontractors agree to maintain such Confidential Information in
confidence and to protect such Confidential Information from disclosure
to others to the extent of the foregoing requirements of this Section
and to limit their use of such Confidential Information to fulfilling
their obligations as a subcontractor or supplier.
9.2 Cooperative Development. Without limiting the generality of
Section 9.1 above, should any joint development effort be undertaken by the
parties involving software owned by GEMS, then GEMS may in its sole discretion
make source code for such software available to HealthStream to the extent
reasonably necessary for HealthStream to perform the development or maintenance
obligations agreed upon by the parties or provided hereunder. HealthStream shall
not use such source code or software except in performing such obligations and
shall not disclose it to anyone other than its employees who both (i) require
access thereto in order to allow HealthStream to perform such obligations and
(ii) have agreed in writing to refrain from using or disclosing it other than as
permitted hereunder.
9.3 Other Confidentiality Agreement. Except to the extent modified
hereunder, all the obligations of the Confidentiality Agreement made as of March
22, 1999 between General Electric Company and HealthStream remain in full force
and effect as provided thereunder.
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<PAGE> 10
ARTICLE X
TERM AND TERMINATION
10.1 Term. This Agreement shall be for an initial term of two
years, automatically renewed for successive one-year periods unless either party
delivers written notice of non-renewal at least forty five (45) days prior to
the end of the initial term or any renewal term.
10.2 Early Termination. If either party commits a material breach
of this Agreement or the Warrant Agreement, then the other party may deliver
written notice of such breach to the breaching party. If the breaching party
fails to remedy such breach within thirty (30) days after such notice, then the
other party may terminate this Agreement by written notice of termination. A
material breach shall be deemed to include without limitation any failure to
remit in a timely manner amounts due under Article VI above, any violation of
the distribution rights under Article IV above, any breach of any of the
representations or warranties of Article VIII, any violation of any of the
Confidentiality Obligations of Article IX, and any dissolution, insolvency,
bankruptcy, appointment of a receiver or trustee, making of an assignment for
the benefit of creditors, the commencement of any proceeding (state or federal)
relating to the administration of creditors rights generally, or the failure
generally to pay debts as they become due.
10.3 Remedies. Upon any termination of this Agreement pursuant to
this Article X, each party shall have all rights and remedies available to it
hereunder and at law or in equity, it being understood that the exercise of any
one remedy is not meant to be exclusive of any other remedy and that all
remedies hereunder are intended to be cumulative. Following termination, the
terminating party may suspend any and all performance hereunder except as
provided under Section 10.4 below.
10.4 Survival and Post-Termination Rights. The provisions of
Sections 3.1, 3.2, 3.3, 5.5, 9.1 (to the extent provided in each such Section)
and 9.3 shall survive any termination or expiration of this Agreement. No
termination or expiration shall in any way terminate or otherwise affect the
right of any user, distributor, reseller, or other sublicensee or customer of
GEMS' rights with respect to any Enhancements.
ARTICLE XI
MISCELLANEOUS
11.1 Entire Agreement. This Agreement together with the Warrant
Agreement constitute the entire agreement and understanding of the parties with
regard to the subject matter hereof. This Agreement shall not be modified or
supplemented except by a written instrument signed by both parties.
11.2 Notices. Any notice required or permitted under this Agreement
shall be deposited in First Class Mail addressed as follows:
If to GEMS:
GE Medical Systems
3000 N. Grandview Blvd., W502
Waukesha, WI 53188
Attention: Jack Albertson
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<PAGE> 11
If to HealthStream:
HealthStream, Inc.
209 10th Avenue South
Suite 450
Nashville, TN 37203
Attention: Robert Laird, Vice President and General Counsel
11.3 No Assignment. Except as set forth in this Section 11.3,
neither this Agreement nor any rights or obligations hereunder may be assigned
or transferred by either party without the written consent of the other party.
GEMS may freely assign this Agreement to affiliates of GEMS, may assign this
Agreement to non-affiliates of GEMS in connection with a reorganization or sale
of the business to which this Agreement pertains, and may assign this Agreement
to other non-affiliates of GEMS with the consent of HealthStream which consent
shall not be unreasonably withheld. GEMS shall notify HealthStream of any
assignment of this Agreement or any rights or obligations hereunder, and the
assignee shall agree in writing to assume all obligations of GEMS. Any
transaction or series of related transactions pursuant to which any entity or
person (including without limitation any of their respective affiliates) first
acquires after the effective date of this Agreement, directly or indirectly, an
aggregate amount of fifty percent (50%) or more voting control or fifty percent
(50%) or more of the equity securities ("Control") of HealthStream (or of any
entity directly or indirectly having Control of HealthStream) or by contract or
otherwise obtains the right to appoint at least fifty percent (50%) of the Board
of Directors of HealthStream (or any entity directly or indirectly having
Control of HealthStream), shall be deemed an assignment of rights under this
Agreement for purposes of this Section 11.3. Further, any sale, assignment,
pledge, hypothecation, or exclusive license of any of the copyrights, patents,
trade secret rights or other intellectual property rights in or relating to any
of the Products shall be deemed an assignment of this Agreement for purposes of
this Section 11.3. Any purported assignment or other transaction in violation of
this Section 11.3 shall be null and void and of no force or effect.
11.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York without
reference to any conflict of law principles.
11.5 Arbitration. Any dispute under this Agreement shall initially
be mediated in New York, New York pursuant to the Center for Public Resources
Model Procedure for Mediation of Business Disputes. Any disputes not so resolved
shall be finally resolved by arbitration by a panel of three arbitrators (or
such other number as the parties may agree to) in New York, New York, in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. The arbitrators may award attorney fees to the prevailing party to
the extent they may deem appropriate. The parties hereto waive all rights to
trial by jury in any action, suit or proceeding brought to enforce or defend any
rights or remedies arising under or in connection with this Agreement, whether
grounded in tort, contract or otherwise.
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11.6 Confidentiality. No public announcements may be made of the
existence or contents of the Agreement except as mutually agreed in writing.
11.7 Relationships of the Parties. Each party is an independent
contractor under this Agreement. No party shall have any express or implied
right or authority to assume or create any obligations on behalf of or in the
name of the other party or to bind the other party to any contract, agreement or
undertaking with any third party.
11.8 Interpretation. When a reference is made in this Agreement to
a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. Captions and headings to sections are included solely for
convenience and are not intended to affect the interpretation of any provision
of this Agreement. Whenever the words "included", "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation." References to a person are also to its successors and
assigns, and references to any statute are also to all rules, regulations and
orders promulgated thereunder. No rule of construction shall be applied to the
disadvantage of a party by reason of that party having been responsible for the
preparation of this Agreement or any part hereof.
11.9 Force Majeure. In the event an act of the government, war
conditions, fire, flood, or other act of God prevents either party from
performing in accordance with the provisions of this Agreement, such
nonperformance shall be excused and shall not be considered a breach or default
for so long as the said conditions prevail.
11.10 Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the dates set forth below.
GE Medical Systems, a division of General Electric
Company
By: /s/ MAF
----------------------------------------
Title: GM, Business Development
----------------------------------------
Date: 6/15/99
----------------------------------------
HEALTHSTREAM, Inc.
By: /s/ Robert A. Frist, Jr.
----------------------------------------
Title: Chief Executive
----------------------------------------
Date: June 14, 1999
----------------------------------------
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<PAGE> 13
EXHIBIT A
ENHANCEMENT CUSTOMIZATIONS
1. Left navigation bar light color
2. Left navigation bar dark color
3. The color that is the background of the main logo in the upper left
4. The color for the ad banner section
5. The light color for the catalog listing
6. The dark color for the catalog listing
7. The light color for the Your Menu listing
8. The dark for the Your Menu listing
9. The logo to display in the upper left
10. The name to display in the site (i.e. "[email protected]")
11. The phone number of technical support
12. The email for tech support
13. The address for tech support
14. The first custom link to display
15. The second custom link to display
16. The third custom link to display
17. The fourth custom link to display
18. The fifth custom link to display
19. The people support link to display
20. Code to pre-populate the discount field with (NOT USED yet)
21. Text to display on page for custom link 1
22. Text to display for custom link 2
23. Text to display for custom link 3
24. Text to display for custom link 4
25. Text to display for custom link 5
26. Text to display for the people support link
27. Default background color
28. The path and file to call when doing an auto-logoff
29. The background color for the title bar
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<PAGE> 14
EXHIBIT B
HEALTHSTREAM DISTRIBUTORS
AHN.COM (www.ahn.com)
Medsite.com (www.medsite.com, www.medbookstore.com, www.meduniversity.com)
PhyCor, Inc. (PhyCor Online, the corporation's intranet)
Medeon Corporation (www.medeon.com)
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<PAGE> 1
EXHIBIT 10.14
We have omitted certain portions of this document and filed them separately with
the Commission. These portions are marked with an asterisk (*).
AGREEMENT
This Agreement ("Agreement") is made 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
Medsite.com, Inc. having its principal place of business at 60 East 13th Street,
5th Floor, New York, NY 10003 ("Medsite").
WHEREAS, Medsite delivers Internet healthcare services over the World
Wide Web targeted at the healthcare community and consumers among others;
WHEREAS, HealthStream has developed and marketed and continues to
develop and market a computer-based education system known as the Training
Navigator(TM) ("T.NAV(R)") that delivers and monitors World Wide Web based
content;
WHEREAS, Medsite and HealthStream wish to enter into a cooperative
effort to 1) deploy HealthStream Courses and Medsite Courses utilizing T.NAV(R)
technology through Medsite and HealthStream distribution channels; 2) market the
goods and services incorporated therein; and 3) sell the ad space inventory
available therein;
WHEREAS, Medsite wishes to acquire a license for T.NAV(R) Commerce and
HealthStream wishes to acquire a distribution license for Medsite Courses;
WHEREAS, Medsite and HealthStream wish to provide appropriate
consideration for those efforts that each party has agreed to undertake;
WHEREAS, Medsite and HealthStream each acknowledge the sufficiency and
adequacy of the value, concessions, and recitations set forth herein;
NOW THEREFORE, Medsite and HealthStream agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the terms below shall have the following
meanings:
1.1. "Available Ad Inventory" means any ad inventory unsold from the monthly
available at the beginning of the month. Medsite reserves the first
rights to Available Ad Inventory.
1.2. "Course" means healthcare related Internet based curricula designed to
be delivered by T.NAV.
1.3. "Education Channel" means the distinct portion on any Medsite managed
Web site or service that is dedicated to education, including the
MedUniversity.com web site.
1.4. "Effective Date" means May 18, 1999, the date on which both parties to
this Agreement have executed same.
1.5. "HealthStream" means HealthStream, Inc. and any Subsidiary of
HealthStream, Inc.
1.6. "HealthStream Ad Inventory" means advertising space on any of the pages
of HealthStream Courses or Medsite Courses delivered using T.NAV or
other content procured by HealthStream.
1.7. "HealthStream Courses" means interactive courses using T.NAV Commerce
that are the proprietary property of HealthStream (which may include
licensed training and education content) including, but not limited to
OSHA and JCAHO mandated training, continuing medical education, and
office training.
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.
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.
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<PAGE> 2
1.10. "Medsite" means Medsite.com, Inc. and any affiliated entity of Medsite.
1.11. "Medsite Ad Inventory" means advertising space on any of the pages of
Medsite's World Wide Web site excluding the HealthStream Ad Inventory.
1.12. "Medsite Courses" means interactive courses using T.NAV Commerce that
are the proprietary property of Medsite (which may include licensed
training and education content) including, but not limited to OSHA and
JCAHO mandated training, Continuing Medical Education ("CME"), other
professional Continuing Education ("CE"), and office training.
1.13. "Net Revenue" means gross revenue derived by Medsite or HealthStream
from Transactions Fees, sales of Medsite Ad Inventory and sales of
HealthStream Ad Inventory less discounts and credits to customers.
1.14. "Retailers" means third parties that may or may not be an affiliated
partner of Medsite and whose business is the sale of the Courses to
end-users who are eligible to receive the accredited CE credits or
similar recognition at the retail price or organizations in the
healthcare industry including but not limited to integrated delivery
networks, hospitals, long term care facilities, and clinics.
1.15. "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.
1.16. "Third Party Content" means interactive content that is the proprietary
property of a third party to this Agreement.
1.17. "T.NAV(R)" is a registered trademark of HealthStream and is a computer
based training product that delivers and monitors World Wide Web based
Content.
1.18. "T.NAV(R) Commerce" means HealthStream's proprietary computer based
training product that is a derivative product of T.NAV(R) with
additional features added by HealthStream in its sole discretion and
designated by HealthStream in its sole discretion as "T.NAV(R)
v.x.x.c."
1.19. "Transaction Fees" means fees received by Medsite for healthcare
related training courses delivered over the Internet via the T.NAV(R).
1.20. "Wholesalers" means third parties whose business is the sale of the
Courses over the Internet to retailers at a price less than retail.
ARTICLE 2
STRATEGIC ALLIANCE
2.1. During the term of this Agreement, Medsite shall include on the home
page of Medsite's Education Channel a logo of the HealthStream
trademark and a hyperlink to the HealthStream section of Medsite's
World Wide Web site.
2.2. The parties will work on a best effort basis to formulate an exchange
of equity between the two companies within ninety (90) days of the
Effective Date.
ARTICLE 3
LICENSE GRANTS
3.1. Subject to the payment of the consideration set forth in Article 4,
HealthStream grants Medsite the following licenses:
3.1.1. Non-exclusive worldwide rights to be a Wholesaler and Retailer
of HealthStream Courses and MedSite Courses to end users,
using the T.NAV Commerce technology, under the royalty
structure defined in Article 4.
3.2. Subject to the payment of the consideration set forth in Article 4,
Medsite grants HealthStream the following licenses:
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<PAGE> 3
3.2.1. Non-exclusive worldwide rights to provide education services
to deliver Courses using T.NAV(R) Commerce, including but not
limited to CME and CE, for the Medsite network of Web sites.
3.2.2. Exclusive right to manage content development and management
relationships for the parties for Courses delivered using
T.NAV(R) Commerce on the Education Channel, unless otherwise
agreed to by both parties. Provided however, that managing the
content development does not necessarily convey proprietary or
ownership rights in the Courses created from this management.
3.2.3. Non-exclusive worldwide rights to distribute Medsite Courses
to Retailers using the T.NAV Commerce technology; provided
however that MedSite maintains the right of first refusal on
the sale to any retail channel.
3.2.4. Non-exclusive worldwide rights to provide other education
services on the Education Channel, as agreed by Medsite and
HealthStream.
3.3. The parties shall mutually agree on ownership of a Course. In the event
both parties claim ownership, those factors which shall be
determinative include:
3.3.1. which party was responsible for identifying the third party
content; and
3.3.2. which party provided the introduction and contact for securing
access to the content.
3.4. Medsite reserves the right to add any content, whether their own or
licensed from a third party, to their Internet site or the Internet
site of a Medsite affiliate that may or may not be a part of the
HealthStream Course material regardless of the course.
3.5. 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. Medsite and HealthStream will meet quarterly 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.
4.2. During the term of this Agreement, HealthStream shall pay to Medsite:
4.2.1. * of all Net Revenue derived from HealthStream * sold by
HealthStream.
4.2.2. * of all Net Revenue generated by Healthstream from the sale
of Medsite Courses, pursuant to the license granted in
Sec. 3.2.3. .
4.2.3. In the event that HealthStream requests, during the
development of the Courses, the use of Medsite's assistance,
then HealthStream shall pay * per hour for the conversion of
content or * per hour for the programming of Courses.
4.3. During the term of this Agreement, Medsite shall pay to HealthStream:
4.3.1. * of all Net Revenue derived from HealthStream * sold by
Medsite.
4.3.2. * of all Net Revenue derived from Transaction Fees from
HealthStream Courses or MedSite Courses sold by Medsite.
4.4. Medsite agrees to spend at least * marketing and promoting the
Education Channel in the twelve-month period following the Effective
Date.
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<PAGE> 4
4.5. Medsite and HealthStream agree to deliver monthly sales statements that
detail Net Revenue and payment according to the percentages outlined in
this Article 4 to each other 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. 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.
4.6. Medsite shall be responsible for any costs associated with the
licensing of third party applications such as database licenses which
are required for the proper functioning of T.NAV Commerce, hosting and
Internet access services necessary for distribution including, but not
limited to, the hardware infrastructure to meet additional demand.
HealthStream, however, shall be responsible for all taxes based upon
its personal property ownership and gross or net income.
ARTICLE 5
INDEMNIFICATION FOR INFRINGEMENT
5.1. HealthStream represents and warrants that to the best of its knowledge:
5.1.1. T.NAV Commerce does not infringe any copyright or patent
enforceable under the laws of any country; and
5.1.2. T.NAV Commerce does not violate the trade secret rights of any
third party; and
5.2. HealthStream agrees to indemnify, hold harmless, and defend Medsite
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 Medsite provides reasonable assistance in the defense
of the same.
5.3. HealthStream shall have no liability for any Infringement Judgment
based on Medsite's:
5.3.1. use or distribution of T.NAV Commerce after HealthStream's
written notice that Medsite should cease use or distribution
of T.NAV Commerce due to an Infringement Judgment, or
5.3.2. combination of T.NAV Commerce with a non-HealthStream program
or data if such Infringement Judgment would have been avoided
by the exclusive use of T.NAV Commerce.
5.4. For all Infringement Judgments arising under Section 5.3, Medsite
agrees to indemnify and defend HealthStream from and against all
damages, costs, and expenses, including reasonable attorneys' fees. In
the event HealthStream notifies Medsite that it should cease
distribution of T.NAV Commerce due to an Infringement Judgment, Medsite
may terminate this Agreement.
ARTICLE 6
INTELLECTUAL PROPERTY PROVISIONS
6.1. Both parties will cause to appear on all marketing or promotional
materials concerning the healthcare related training courses, 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.
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<PAGE> 5
6.3. To the extent that source code is written by either party title shall
vest in the party who has written such code.
6.4. 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 or Content.
6.5. Both parties acknowledge that, except as otherwise provided herein,
each party owns and retains all right, title and interest in and to its
own Content provided to the other party.
6.6. HealthStream acknowledges that Medsite owns and retains all right,
title and interest in and to Medsite's World Wide Web site and all
Medsite's products, services and derivatives thereof arising from the
performance of this Agreement.
6.7. Medsite acknowledges that, except for the license granted to Medsite in
Section 3.1 herein, HealthStream owns and retains all right, title and
interest in and to T.NAV Commerce, the T.NAV Commerce source code, and
the T.NAV Commerce object code.
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 Medsite and
by an officer of HealthStream, the term of this Agreement ("Term") shall run
from the Effective Date until three (3) year(s) 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;
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.
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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, Medsite
shall not employ T.NAV Commerce or portion thereof which is owned by
HealthStream, as part or portion of any product that Medsite may use,
sell, assign, lease, license, or transfer to third parties. Provided
however, Courses which have been paid for by a customer shall be able
to be delivered and fulfilled by MedSite. Both parties shall 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 15.1, and Article 16 shall
survive termination or expiration of this Agreement.
ARTICLE 11
WARRANTIES, LIMITATION OF LIABILITY AND REMEDIES
HealthStream represents and warrants that T.NAV shall operate and perform
according to specifications attached hereto as Exhibit A. 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.
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ARTICLE 12
NONDISCLOSURE AGREEMENT
12.1. HealthStream expressly undertakes to retain in confidence all
information and know-how transmitted to HealthStream by Medsite that
Medsite 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 Medsite's prior
written consent. HealthStream agrees to use the same degree of care to
protect Medsite 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. it received rightfully from another party prior to its receipt
from Medsite; or
12.1.2. Medsite has disclosed to a third party without any obligation
to maintain such information in confidence.
12.2. Further, HealthStream may disclose confidential information as required
by governmental or judicial order, provided HealthStream gives Medsite
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 Medsite's unannounced products to
HealthStream's employees or any third party.
12.3. Medsite shall have the same obligations in Sections 12.1 and 12.2 above
with respect to HealthStream's information and know-how. In addition,
Medsite shall treat all T.NAV Commerce materials (including source
code) 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 each T.NAV Commerce licensed consistent with
generally accepted accounting principles.
13.2. HealthStream may cause an audit to be made of the applicable Medsite
records that pertain to this Agreement for the sole purpose of
verifying royalty reports issued by Medsite 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
Medsite's offices and in such a manner as not to interfere with
Medsite'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, Medsite agrees to pay
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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. Medsite 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 Medsite, 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 Medsite
(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 Medsite 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 Medsite 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 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:
MEDSITE: Medsite.com, Inc
Attn: Sanjay Pingle
60 E 13th st. 5th floor
New York, NY 10003
HEALTHSTREAM: HealthStream, Inc.
Attn: Robert H. Laird, Jr.
General Counsel
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.
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ARTICLE 15
CONTROLLING LAW
15.1. This Agreement shall be construed and controlled by the laws of the
State of Tennessee.
15.2. 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 franchise fee.
ARTICLE 16
ATTORNEYS' FEES
If either HealthStream or Medsite 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 17
GENERAL
17.1. 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
Medsite 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.
17.2. 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).
17.3. 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.
17.4. 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.
17.5. This Agreement sets forth the entire agreement and understanding
between the parties as to the subject matter of this Agreement and
merges all prior discussions and correspondence between them, and
neither of the parties shall be bound by any modification of this
Agreement, or by any conditions, definitions, warranties, or
representations with respect to the subject matter of this Agreement,
other than as expressly provided in this Agreement or as duly set forth
on or subsequent to the date hereof in writing and signed by a duly
authorized representative of the party to be bound thereby.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth in Section 1.5 above. All signed copies of this Agreement shall
be deemed originals.
Medsite.com, Inc. HealthStream, Inc.
By: /s/ By: /s/ Robert A. First, Jr.
-------------------------- --------------------------
Title: Exec. Vice President Title: Chief Executive
------------------------ -----------------------
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EXHIBIT A
T.NAV COMMERCE SPECIFICATIONS
The Training Navigator(TM) Commerce system manages and delivers web-based course
content as defined in 1.5 of this Software Licensing Agreement. The system
requires the following hardware and software at a minimum:
<TABLE>
<CAPTION>
HARDWARD OS SOFTWARE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STUDENT PC
MINIMUM 100Mhz Pentium or Windows 3.1, 95/98, NT; Netscape Navigator 3.x or
greater, 32MB RAM, Mac 7.5 or greater greater, Microsoft Internet
Windows Compatible Sound Explorer 3.x or greater,
Card, Network card or
56K Modem; Macintosh
PowerPC 66Mhz or
greater, 32MB RAM
- ------------------------------------------------------------------------------------------------------------
RECOMMENDED 233Mhz Pentium or Win 95/98 or NT 4.x (or Netscape Navigator 4.x,
greater, 32MB RAM, greater) Microsoft IE 4.x
Windows Compatible
Sound Card, Network
card or 56K Modem
- ------------------------------------------------------------------------------------------------------------
DATABASE
MINIMUM Pentium 200, 32 MB RAM, Win 95/98 DATABASE: Sybase SQLAnywhere
1GB HD, 4X CD, Win 95 5.5 Pro
- ------------------------------------------------------------------------------------------------------------
RECOMMENDED Dual or Quad Pentium II Win NT Server 4.x DATABASE: Microsoft SQLServer
400, 256 MB RAM, 8X CD, 6.5
16GB HD
- ------------------------------------------------------------------------------------------------------------
WEB & CONTENT SERVER
MINIMUM Pentium 200, 32 MB RAM, Win 95/98 WEB SERVER: O'Rielly Website
1GB HD, 4X CD, Win 95 1.1 or Microsoft IIS 4.x
MIDDLEWARE: Allaire Cold Fusion
3.x
- ------------------------------------------------------------------------------------------------------------
RECOMMENDED Dual or Quad Pentium II Win NT Server 4.x WEB SERVER: Microsoft IIS 4.0
400, 256 MB RAM, 8X CD, MIDDLEWARE: Allaire Cold Fusion
4GB HD 3.1
- ------------------------------------------------------------------------------------------------------------
</TABLE>
11 of 11
<PAGE> 1
EXHIBIT 10.15
We have omitted certain portions of this document and filed them separately
with the Commission. These portions are marked with an asterisk (*).
WEB SITE LINKING AGREEMENT
This Web Site Linking Agreement is made as of this 2nd day of
September, 1999, by and between IDX Systems Corporation, a Vermont corporation
with its principal place of business at 1400 Shelburne Road, South Burlington,
Vermont, and its present and future parents, subsidiaries and affiliates
("IDX") and HealthStream, Inc., a Tennessee corporation with its principal
place of business at 209 10th Avenue South, Suite 450, Nashville, Tennessee
("HealthStream").
PRELIMINARY STATEMENT
WHEREAS, IDX is a healthcare information systems company that develops
and markets information systems and related services to physicians, hospitals,
integrated delivery networks, management services organizations and other
healthcare providers. Through its division known as IDX.com, IDX is developing
and will sell internet-based content, e-commerce, patient communication,
practice management services and clinical tools, among other things, to
physicians, including, without limitation, a web-based product currently known
as the "Physician Homebase."
WHEREAS, HealthStream develops and markets computer-based continuing
medical education courses and materials via the internet.
WHEREAS, IDX and HealthStream desire to enter into this agreement to
provide for the joint marketing of their products and services to their
respective customers and to authorize IDX to provide a link from the IDX.com
Products to access HealthStream's products.
NOW, THEREFORE, IDX and HealthStream agree as follows:
1. WEB SITES AND CONTENT
1.1 IDX.com. IDX is the owner of the IDX.com Physician Homebase,
a web-based information service containing content and tools
for health care providers. IDX is the owner or licensee of
the content and tools (the "IDX Content") contained in the
Physician Homebase. Except as explicitly granted in this
Agreement, HealthStream obtains no right or license to the
Physician Homebase or any of the IDX Content associated with
the Physician Homebase.
1.2 HealthStream. HealthStream is the owner of the Training
Navigator(TM) ("T.NAV(R)") and T.NAV(R) iCommerce, web-based
training software programs that deliver training and
educational courses, including, without limitation, OSHA and
JCAHO mandated training, continuing medical education and
office training, now existing or developed in the future
(collectively, "Courses"), via the internet. HealthStream is
the owner or licensee of the Courses. Except as explicitly
granted in this Agreement,
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<PAGE> 2
IDX obtains no right or license to T.NAV(R),
T.NAV(R)iCommerce, the Courses or any other content
associated the HealthStream Web Site (as defined below).
2. LINK DEVELOPMENT AND LICENSE
2.1 Link License. IDX is hereby granted the right to create and
maintain one or more links (the "Links") on the Physician
Homebase and any similar product developed or sold by IDX in
the future (the "IDX.com Products"). The Links shall allow
the user to view Courses and other content ("HealthStream
Content") available on HealthStream's web site currently
located at www.healthstream.com, or any successor web site
(the "HealthStream Web Site"), in a format mutually
acceptable to the parties. This license includes the
non-exclusive, worldwide right to use, display and perform
the T.NAV(R), T.NAV(R)iCommerce software products and the
Courses or HealthStream Content, and to authorize users of
the IDX.com Products to copy, download and/or print Courses
or HealthStream Content, or portions thereof, for their
medical practice use, in any media now existing or developed
in the future, except as specifically prohibited by notice
contained in the Courses or HealthStream Content. The Links
shall consist of one or more of HealthStream's Marks (as
defined below).
2.2 Development of Links. HealthStream shall cooperate with and
provide all necessary assistance to IDX in the development
and maintenance of the Links and the necessary integration
allowing users of the IDX.com Products to view and use
Courses on the IDX.com Products, including without
limitation, the development of an automated log-on process by
which users of the IDX.com Products may access Courses
without manually entering a password and registration
information collected at the IDX.com Products is passed
automatically to HealthStream. Each party shall bear its own
costs associated with the development of the Links and any
necessary integration tools. HealthStream shall provide a
sufficient number of user identifications and passwords as
requested by IDX from time to time.
2.3 Ownership of Developed Products. Any software interface or
other product developed by either of the parties in
accordance with Section 2.2 shall be and remain the sole and
exclusive property of the developing party. The
non-developing party hereby disclaims any right, title or
interest in or to such product and shall execute any
registration form or instrument that the developing party
reasonably deems necessary to confer all right, title and
ownership in and to such product to the developing party.
2
<PAGE> 3
2.4 Personalization. In accordance with IDX's requests,
HealthStream shall personalize the standard portions of the
HealthStream Web Site and T.NAV(R) iCommerce system that
appear on the IDX.com Products via the Links and that consist
of HealthStream's standard personalized features to reflect
the IDX.com Products user interface and brand image. Any
non-standard personalization requested by IDX shall be
performed in accordance with terms and conditions mutually
acceptable to the parties. HealthStream's personalization
shall not, however, confer on HealthStream any right, title
or interest in the IDX Marks (as defined below), associated
IDX trade dress or IDX Content.
2.5 Support. Each party shall provide web-based or telephone help
desk support for its respective products and services from
8:00 a.m. to 8:00 p.m. eastern time.
3. MARKETING EFFORTS
3.1 Joint Promotion Plan. Upon execution of this Agreement, the
parties shall issue a joint press release approved by both
parties announcing their business relationship. IDX shall
also promote the parties' business relationship in an
appropriate location on IDX's web site and shall send an
announcement of the business relationship in IDX's customer
newsletter. Within ninety (90) days of the Effective Date,
the parties shall agree to a joint promotion plan including
the promotion by HealthStream of the IDX.com Products and by
IDX of the HealthStream T.NAV(R)iCommerce product and the
Courses as a part of trade shows in which they participate
and as a part of HealthStream's and IDX.com's advertising
strategies.
3.2 Link to IDX.com Home Page. HealthStream shall install and
maintain a hypertext link at a mutually agreeable location on
the HealthStream Web Site to the IDX.com home page on the
World Wide Web.
3.3 IDX Marks. IDX hereby grants to HealthStream a non-exclusive
license during the term of this Agreement to use its
trademarks and service marks (the "IDX Marks") in connection
with HealthStream's marketing and linking obligations under
this Agreement. HealthStream's use of the IDX Marks shall not
confer on HealthStream any right, title or interest in and to
the IDX Marks, except for the limited license granted herein,
and HealthStream shall not use the IDX Marks in any way that
could harm IDX or the goodwill associated with its business
and the IDX Marks.
3.4 HealthStream Marks. HealthStream hereby grants to IDX a
non-exclusive license during the term of this Agreement to
use its trademarks and service marks (the "HealthStream
Marks") in connection with IDX's marketing and linking rights
and obligations under this Agreement. IDX's use of the
HealthStream Marks shall not confer on IDX any right, title
or interest in
3
<PAGE> 4
and to the HealthStream Marks, except for the limited license
granted herein, and IDX shall not use the HealthStream Marks
in any way that could harm HealthStream or the goodwill
associated with its business and the HealthStream Marks.
3.5 Demonstration Accounts. HealthStream shall provide IDX with a
reasonable number of demonstration accounts so that IDX may
demonstrate the T.NAV(R) iCommerce system to prospective
customers.
3.6 No Copying or Use. Except as explicitly authorized under this
Agreement, neither party shall copy or make any use of the
trademarks, service marks or web-site content of the other
party.
4. COURSE DEVELOPMENT
4.1 Referral by IDX. IDX may refer certain health care providers
or other organizations that have developed continuing medical
education or similar training course materials in print,
lecture or video format to HealthStream for HealthStream to
convert such materials into a web-based format for use as
Courses.
4.2 Academic Medical Education (AME) Program. IDX.com and
HealthStream agree to form a Development Consortium to
promote the online aggregation of academic continuing
healthcare education course work. To build this consortium,
IDX.com will contribute its existing relationships in the
Academic Medical Center market, and HealthStream will
contribute its expertise in managing online educational
content. As part of the agreement, IDX.com will work with
customers to move their continuing education curricula
online. HealthStream will create a central repository to
facilitate the distribution of continuing education credit to
physicians and other healthcare professionals across the
United States.
5. PROFILING INFORMATION
HealthStream shall provide IDX with monthly profiling reports
describing the Courses and HealthStream Content viewed or accessed by
IDX customers accessing the Courses and HealthStream Content via the
IDX.com Products and any other information collected by HealthStream
as to their use of the HealthStream Web Site. Such profiling reports
shall be presented in a format acceptable to both parties.
6. FEES
6.1 IDX Rebate. HealthStream shall pay to IDX * of all Net Revenue
charged by HealthStream for Courses or other products or
services sold by HealthStream to customers accessing the
HealthStream
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<PAGE> 5
Web Site via the Links (the "IDX Rebate"). For purposes of
this Agreement, "Net Revenues" shall mean gross revenue less
discounts, rebates and/or refunds.
6.2 Payment Terms. HealthStream shall deliver to IDX monthly
sales statements detailing Net Revenues and fees paid to
HealthStream pursuant to Section 6.1 herein and shall pay the
IDX Rebate and the IDX Referral Fees within forty-five (45)
days after the end of each calendar month. A monthly finance
charge of 1% per month shall be assessed on all amounts that
are paid later than forty-five (45) days after the end of the
applicable month.
6.3 *. HealthStream warrants to IDX, as of the Effective Date and
throughout the term of this Agreement, that the fees paid to
IDX under this Agreement are and shall be * the fees paid by
HealthStream to * and that the list prices presented by
HealthStream to customers that access the HealthStream Web
Site via the Links are and shall be * the list prices
presented to other HealthStream customers. HealthStream shall
promptly notify IDX if another * customer is given a * fee or
list price and shall * the fee paid to IDX or price charged to
an IDX customer retroactive to the effective date of such *
list price for the other distributor or customer, subject to
IDX's obligation to comply with any financial or other
condition or obligation imposed on such * to obtain *. Upon
each anniversary of the execution of this Agreement,
HealthStream and IDX shall make a good faith determination
whether any other companies * in a similar manner as the then
current * and any such companies shall then be included in the
term * applicable in this Section 6.3.
6.4 Audits. During the term of this Agreement, IDX may cause an
audit to be made of the relevant books and records of
HealthStream no more than once per year for the sole purpose
of verifying royalty reports issued by HealthStream to IDX
and prompt adjustment shall be made to compensate for any
errors or omissions disclosed by such audit. Any such audit
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. IDX
shall pay for any such audit unless a discrepancy of more
than Five Thousand Dollars ($5,000) or five percent (5%) of
the amount that should have been reported is disclosed (a
"Material Discrepancy"). If a Material Discrepancy is
disclosed, HealthStream shall pay to IDX the costs associated
with the audit not to exceed Five Thousand Dollars ($5,000).
The auditor shall only disclose the correct data and amounts
as called for on the monthly sales statements. If IDX makes a
claim with
5
<PAGE> 6
respect to an audit, upon HealthStream's written request, DX
shall make available to HealthStream the records and reports
pertaining to such audit.
7. WARRANTIES
7.1 Warranties of IDX. IDX represents and warrants to
HealthStream that:
(a) it is a corporation duly organized, validly existing
and in good standing under the laws of the State of
Vermont and has full power and authority to enter
into and consummate the transactions contemplated in
this Agreement;
(b) the execution, delivery and performance of this
Agreement does not violate the terms of any security
agreement, license or any other contract or written
instrument to which IDX is bound; and
(c) to the best of its knowledge, the Physician Homebase
and the IDX Content do not, and shall not, infringe
any patent, trademark, copyright or misappropriate
any trade secret of a third party.
7.2 Warranties of HealthStream. HealthStream represents and
warrants to IDX that:
(a) it is a corporation duly organized, validly existing
and in good standing under the laws of the State of
Tennessee and has full power and authority to enter
into and consummate the transactions contemplated in
this Agreement;
(b) the execution, delivery and performance of this
Agreement does not violate the terms of any security
agreement, license or any other contract or written
instrument to which HealthStream is bound;
(c) to the best of its knowledge, the HealthStream Web
Site, T.NAV(R), T.NAV(R) iCommerce and the Courses
do not infringe any patent, trademark, copyright or
misappropriate any trade secret of a third party;
(d) the HealthStream Web Site, T.NAV(R) and T.NAV(R)
iCommerce shall have the functions and features and
perform in accordance with any documentation
delivered by HealthStream to IDX, HealthStream
customers;
(e) to the best of its knowledge, the information
contained in the HealthStream Web Site and the
Courses is accurate and complete,
6
<PAGE> 7
is not misleading and is in accordance with
applicable professional standards;
(f) HealthStream shall maintain appropriate bandwidth,
storage space and access speed to permit timely
access to the HealthStream Web Site and Courses by
all customers; and
(g) the occurrence in or use by the HealthStream Web
Site, T.NAV(R)and T.NAV(R) iCommerce of dates on or
after January 1, 2000 (the "Millennial Dates") will
not have a material adverse effect on the
performance of the HealthStream Web Site,
T.NAV(R)and T.NAV(R)iCommerce with respect to
date-dependent data, computations, output or other
functions (including, without limitation,
calculating, computing or sequencing), and the
HealthStream Web Site, T.NAV(R)and T.NAV(R)iCommerce
will create, store and generate output data related
to or including the Millennial Dates without errors
or omissions to the extent that other information
technology and operating systems, used in
combination with the HealthStream Web Site,
T.NAV(R)and T.NAV(R) iCommerce, properly exchanges
date/time data with it.
8. INDEMNITY
8.1 Indemnification by IDX. IDX shall indemnify, defend and hold
HealthStream harmless from any and all damages or claims
(including reasonable attorneys' fees) arising from a claim
that the Physician Homebase or IDX Content infringes a
copyright, patent, trademark or misappropriates a trade
secret or from a breach of any of IDX's obligations or
warranties under this Agreement; provided that IDX is
notified promptly in writing of any such claim or breach and
has sole control over its defense or settlement, and
HealthStream provides reasonable assistance in the defense of
the same.
8.2 Indemnification by HealthStream. HealthStream shall
indemnify, defend and hold IDX harmless from any and all
damages or claims (including reasonable attorneys' fees)
arising from a claim that the HealthStream Web Site,
T.NAV(R), T.NAV(R) iCommerce or Courses infringe a copyright,
patent, trademark or misappropriates a trade secret or from a
breach of any of HealthStream's obligations or warranties
under this Agreement or that the information contained in the
HealthStream Web Site and the Courses is accurate and
complete, is not misleading and is in accordance with
applicable professional standards; provided that HealthStream
is notified promptly in writing of any such claim or breach
and has sole control over its defense or settlement, and IDX
provides reasonable assistance in the defense of the same.
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<PAGE> 8
9. DISCLAIMER OF WARRANTIES AND LIMITATION OF LIABILITY
EXCEPT AS EXPLICITLY PROVIDED IN SECTION 7 OF THIS AGREEMENT, NEITHER
PARTY MAKES ANY EXPRESS WARRANTY AND BOTH PARTIES DISCLAIM ALL IMPLIED
WARRANTIES INCLUDING, WITHOUT LIMITATION, WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 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.
10. TERM AND TERMINATION
10.1 Term. The term of this Agreement shall run from the Effective
Date until three (3) years after the Effective Date and shall
automatically renew for successive one (1) year terms unless
either party provides at least ninety (90) days written
notice to the other party.
10.2 Termination. At any time during the term of this Agreement, a
party may terminate the Agreement as follows:
(a) upon thirty (30) days written notice if the other
party is in material breach of the Agreement and
such breach is not cured within the thirty (30) day
notice period;
(b) if a petition for bankruptcy or appointment of a
receiver, or similar instrument, is filed by the
other party or a third party files such a petition
and such petition is not dismissed within ninety
(90) days;
(c) upon the parties' failure to reach mutual agreement
as to the format for presentation of Courses and
HealthStream Content on the IDX.com Products in
accordance with Section 2.1.
10.3 Survival of Certain Provisions. Sections 1, 6.4, 8, 9, 11,
12.5 and 12.7 shall survive the termination of this
Agreement.
11. CONFIDENTIALITY
Each party shall preserve and maintain the other party's proprietary
interest and the confidentiality of all sales and marketing material
and information and other data, documents, intellectual property and
materials of the other marked as confidential, known or that should
reasonably be known to be confidential, and received by the party,
except public domain information, information developed independently
by the party, or information acquired from a third party legally
8
<PAGE> 9
without a confidentiality restriction, and shall not use or divulge the
same except as approved by the other party in connection with the
party's performance under this Agreement.
12. MISCELLANEOUS
12.1 Independent Contractor. None of the provisions of this
Agreement is intended to create, nor shall any provision in
this Agreement be deemed or construed to create, any
relationship between HealthStream and IDX other than that of
independent entities contracting with each other under this
Agreement solely for the purpose of effecting the provisions
of this Agreement. Neither of the parties, nor any of their
employees, shall be construed to be the agent, the employer
or representative of the other.
12.2 Waiver. The failure of either party to enforce at any time
any of the provisions hereof shall not be construed to be a
waiver of such provisions or of the right of such party
thereafter to enforce any such provisions.
12.3 Assignment. Neither party shall assign, or transfer any
rights or obligations, under this Agreement either in whole
or in part, without the prior written consent of the other
party, which shall not be unreasonably withheld; provided
that either party may, without prior written consent, assign
this Agreement to any parent, subsidiary or affiliate in
connection with a business reorganization or to another
entity in connection with a merger, sale of all or
substantially all of its assets, so long as such entity is
not a competitor of the other party.
12.4 Force Majeure. Neither party shall be liable for any loss or
damage sustained by the other party because of any delay in
performance or noncompliance with any provision of this
Agreement that results from an act, event, omission, or cause
beyond its reasonable control and without its fault or
negligence, including but not limited to failure of
suppliers, shortage of raw materials, or other industrial
disturbances, civil commotion, riots, wars, fires,
explosions, floods earthquakes, volcanic eruptions,
embargoes, or acts of civil or military authority.
12.5 Notices. All notices in this Agreement shall be in writing
and shall be deemed to have been given when delivered
personally, or at the time received if sent by registered or
certified United States mail, return receipt requested,
postage prepaid, by Federal Express or similar delivery
service for overnight delivery, and addressed to the other
party as follows or at such address as such party from time
to time may indicate by written notice to the other party:
If to IDX: IDX Systems Corporation
1400 Shelburne Road
P.O. Box 1070
9
<PAGE> 10
Burlington, VT 05402-1070
Attn.: General Manager, IDX.com
With a copy to: General Counsel
If to HealthStream: HealthStream, Inc.
209 10th Avenue South
Suite 450
Nashville, TN 37203
Attn.: Robert H. Laird, Jr., General Counsel
12.6 Entire Agreement. This Agreement is the complete agreement
regarding this distribution relationship and replaces any
prior oral or written communications between the parties.
12.7 Governing Law. This Agreement shall be construed and
controlled by the laws of the State of Vermont.
12.8 Severability. If any provision of this Agreement is held by a
court of competent jurisdiction to be contrary to law, the
remaining provisions of this Agreement will remain in full
force and effect. Without limiting the generality of the
preceding sentence, if any remedy set forth in this Agreement
is determined to have failed of its essential purpose, then
all other provisions of this Agreement, including the
limitation of liability and exclusion of damages shall remain
in full force and effect.
<TABLE>
<CAPTION>
IDX SYSTEMS CORPORATION HEALTHSTREAM, INC.
<S> <C>
By:/s/ Pamela Pure By: /s/ Robert A. Frist, Jr.
---------------------------------- --------------------------------------
Printed Name: Pamela Pure Printed Name: /s/ Robert A. Frist, Jr.
------------------------ ----------------------------
Title: Vice President of Marketing Title: CEO
------------------------------ -----------------------------------
Date: 9/2/99 Date: 9/2/99
------------------------------- ------------------------------------
</TABLE>
10
<PAGE> 1
We have omitted certain portions of this document EXHIBIT 10.16
and filed them separately with the Commission. These
portions are marked with an asterisk(*).
[HealthStream Logo]
March 8, 1999
Ron Loeppke, MD, MPH
Vice-President and Chief Medical Officer
Phycor, Inc.
30 Burron Hills Boulevard - Suite 500
Nashville, TN 37215
Dear Dr. Loeppke:
Per our recent conversations, we would like to pursue the "link" strategy to
launch a formal relationship between HealthStream and PhyCor. Under this
arrangement, HealthStream will provide PhyCor with access to HealthStream's
continuing medical education Web site, through a link from within PhyCor
Online. In accordance with this non-exclusive worldwide license granted by
HealthStream to PhyCor, HealthStream will provide this service at no charge to
PhyCor.
HealthStream shall provide access to its current content library of over 760
hours of continuing medical education. HealthStream will update this library as
it acquires new content. HealthStream will offer PhyCor's physicians CME at its
list prices and will investigate the technical requirements for providing
discounts to PhyCor physicians through this link. HealthStream's current CME
library includes:
- - Med-Challenger EM for Emergency Physicians (7 modules; 200 CME hours)
- - Med-Challenger FP for Family Physicians (7 modules; 192 CME hours)
- - Med-Challenger Peds for Pediatricians (6 modules; 159 CME hours)
- - Med-Challenger IM for Internists (5 modules; 143 CME hours)
- - ECG-Challenger (31.25 CME hours)
- - Derm-Challenger (25.5 CME hours)
- - Rad-Challenger (10.25 CME hours)
Since the current plan to link the two resources involves a third party
distributor, AHN.COM, and limits our ability to distinguish PhyCor physicians
from the general population, revenue opportunities for PhyCor are limited in
scope. Under this arrangement, we can offer PhyCor a * earn back and a *
discount for PhyCor physicians on each transaction completed by PhyCor
physicians. We will calculate and report participation and revenues quarterly.
In consideration of this earn back, HealthStream will retain the right to
represent itself as the premier provider of Continuing Medical Education (CME)
on PhyCor Online.
The term of this Agreement shall be three (3) years from the date of this
agreement 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.
<PAGE> 2
If the terms and conditions of this letter are acceptable, please sign and
return a copy of this letter so that we may move forward with this project.
Sincerely,
HEALTHSTREAM, INC.
By: /s/ Robert A. Frist, Jr.
---------------------------------
Title: Chief Executive
Acknowledged and agreed to this 8th day of March, 1999.
PHYCOR
/s/ Ron Loeppke, MD
- -------------------------------
Ron Loeppke, MD, MPH
Vice-President and Chief Medical Officer
<PAGE> 1
EXHIBIT 10.17
We have omitted certain portions of this document and filed them separately with
the Commission. These portions are marked with an asterisk (*).
MARKETING SERVICES AGREEMENT
BETWEEN HEALTHSTREAM & HEALTHGATE DATA CORP.
This Software Licensing 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.
1.9. "Intranet" means an internal network protected from unauthorized users
by a firewall and
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<PAGE> 2
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. * marketing expenditures of * per * specifically promoting the
Joint Site's products and services. In addition, HealthGate
will * payments to HealthStream of * per * 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
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
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<PAGE> 3
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
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.
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<PAGE> 4
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 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
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<PAGE> 5
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:
<TABLE>
<S> <C>
HEALTHGATE: HealthGate Data Corp.
Attn: Rick Lawson
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
</TABLE>
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).
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.
Page 5 of 6
<PAGE> 6
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> 1
EXHIBIT 10.18
We have omitted certain portions of this document and filed them separately with
the Commission. These portions are marked with an asterisk (*).
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 HealthStream Sites.
Page 1 of 11
<PAGE> 2
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, 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.
Page 2 of 11
<PAGE> 3
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 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
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<PAGE> 4
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 * pricing.
4.2. During the term of this Agreement, HealthGate shall pay to
HealthStream * of all Net Revenue derived from * 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 * of the Net Revenue derived from
content development services described in Section 2.1.3;
4.3.2. * of all Net Revenue derived from Transaction Fees from
HealthStream Courses and Third Party Courses procured by
HealthStream;
4.3.3. * of all Net Revenue derived from Transaction Fees from
HealthGate Courses and Third Party Courses procured by
HealthGate;
4.3.4. * of all Net Revenue derived from Ad Inventory sold by
HealthStream.
4.4. HealthStream shall * to HealthGate * payments of * per *, payable in
* equal installments, for the purposes of sponsoring the HealthGate
Sites, during the term of this Agreement.
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
Page 4 of 11
<PAGE> 5
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 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.
Page 5 of 11
<PAGE> 6
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;
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
Page 6 of 11
<PAGE> 7
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 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
Page 7 of 11
<PAGE> 8
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 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.
Page 8 of 11
<PAGE> 9
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:
<TABLE>
<S> <C>
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
</TABLE>
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 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
Page 9 of 11
<PAGE> 10
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. First, Jr.
- ------------------------------
HealthStream, Inc.
Robert A. Frist, Jr.
Chief Executive Officer
/s/ Mary B. Miller
- ------------------------------
HealthGate Data Corp.
Mary B. Miller
Chief Financial Officer
Page 10 of 11
<PAGE> 11
EXHIBIT
PERSONALIZATION ITEMS
HealthStream's online education Web site and T.NAV iCommerce systems
can be personalized to reflect Distributor's brand image. The
following items are standard elements of that Personalization:
1. Left navigation bar light color
2. Left navigation bar dark color
3. The color that is the background of the main logo in the upper left
4. The color for the ad banner section
5. The light color for the catalog listing
6. The dark color for the catalog listing
7. The light color for the Your Menu listing
8. The dark for the Your Menu listing
9. The logo to display in the upper left
10. The name to display in the site (i.e. "[email protected]")
11. The phone number of technical support
12. The email for tech support
13. The address for tech support
14. The first custom link to display
15. The second custom link to display
16. The third custom link to display
17. The fourth custom link to display
18. The fifth custom link to display
19. The people support link to display
20. Code to pre-populate the discount field
21. Text to display on page for custom link 1
22. Text to display for custom link 2
23. Text to display for custom link 3
24. Text to display for custom link 4
25. Text to display for custom link 5
26. Text to display for the people support link
27. Default background color
28. The path and file to call when doing an auto-logoff
29. The background color for the title bar
Page 11 of 11
<PAGE> 1
EXHIBIT 10.20
We have omitted certain portions of this document and filed them separately
with the Commission. These portions are marked with an asterisk (*).
SOFTWARE LICENSING AND DISTRIBUTION AGREEMENT
This Software Licensing and Distribution Agreement ("Agreement") is
made 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 Pointshare having its principal place of
business at 1300 114th Ave. SE, Suite 100, Bellevue, WA 98004 ("Distributor").
BACKGROUND
WHEREAS, Distributor delivers Internet healthcare services targeted at
the healthcare community and consumers among others;
WHEREAS, HealthStream has developed and marketed and continues to
develop and market a computer-based education system known as the Training
Navigator(TM) ("T.NAV(R)") that delivers and monitors World Wide Web based
content;
WHEREAS, Distributor and HealthStream wish to enter into a cooperative
effort to 1) deploy HealthStream branded educational offerings utilizing
T.NAV(R) technology and Distributor's distribution channels; 2) market the goods
and services incorporated therein; and 3) sell course sponsorships;
WHEREAS, Distributor wishes to acquire a license and HealthStream has
agreed to grant a license to Distributor for the utilization of T.NAV(R)
iCommerce with Distributor's Internet healthcare services;
WHEREAS, Distributor and HealthStream wish to provide appropriate
consideration for those efforts that each party has agreed to undertake;
WHEREAS, Distributor and HealthStream each acknowledge the sufficiency
and adequacy of the value, concessions, and recitations set forth herein;
NOW THEREFORE, Distributor and HealthStream agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the terms below shall have the following
meanings:
1.1. "Distributor" means Pointshare and any affiliated entity of
Distributor.
1.2. "Course" means healthcare related Internet based curricula designed to
be delivered by T.NAV(R).
1.3. "Effective Date" means July 12, 1999, the date on which both parties to
this Agreement have executed same.
1.4. "Sponsorship Revenue" means payments by third party organizations to
provide courses free to Pointshare users.
1.5. "HealthStream Courses" means interactive courses that 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.
1.6. "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.
1.7. "Intranet" means an internal network protected from unauthorized users
by a firewall and accessible only by individuals within the
organization serving the network.
1.8. "HealthStream" means HealthStream, Inc. and any Subsidiary of
HealthStream, Inc.
1.9. "Net Revenue" means gross revenue derived by Distributor or
HealthStream from Transactions Fees less discounts, rebates, and/or
refunds.
Distributor and HealthStream Media
Page 1 of 9
<PAGE> 2
1.10. "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.
1.11. "Third Party Content" means interactive content that is the proprietary
property of a third party to this Agreement.
1.12. "T.NAV(R)" is a branded trademark of HealthStream and is a computer
based training product that delivers and monitors World Wide Web based
Content.
1.13. "T.NAV(R) iCommerce" means HealthStream's proprietary computer based
training product that is a derivative product of T.NAV(R) with
additional features added by HealthStream in its sole discretion and
designated by HealthStream in its sole discretion as "T.NAV(R)v.x.x.c."
1.14. "Transaction Fees" means fees received by HealthStream for healthcare
related training courses delivered over the Internet via the T.NAV(R)
on Distributor's World Wide Web Site.
ARTICLE 2
STRATEGIC RIGHTS GRANTS
2.1 During the term of this Agreement, Distributor shall:
2.1.1 Include on the home page of Distributor's World Wide Web site
a logo of the HealthStream trademark and a hyperlink to the
HealthStream section of Distributor's World Wide Web site; and
2.1.2 Promote the HealthStream service as a part of industry trade
shows and exhibitions in which Distributor participates and as
a part of Distributor's public advertising strategy.
Distributor will provide HealthStream with a specific
promotion plan within ninety (90) days of the Effective Date
that will include a minimum of one (1) event per quarter.
2.2 During the term of this Agreement, HealthStream shall:
2.2.1 Include on the partners page of its World Wide Web site a logo
of the Distributor trademark and a hyperlink to the
Distributor's World Wide Web site; and
2.2.2 Provide standard Personalization for Distributor, as defined
in Exhibit A; and
2.2.3 Enable Distributor to participate in co-marketing campaigns,
at HealthStream's discretion.
ARTICLE 3
LICENSE GRANTS
3.1 Subject to the payment of the consideration set forth in Article 4,
HealthStream grants the Distributor non-exclusive worldwide license
rights for T.NAV(R) iCommerce to deliver healthcare related training
courses over the Internet.
3.2. 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. During the term of this Agreement, HealthStream shall pay to
Distributor:
Distributor and HealthStream Media
Page 2 of 9
<PAGE> 3
4.1.1 * of all Net Revenue derived from
Transaction Fees;
4.1.2. * of all Net Revenue derived from
Sponsorship Revenue sold by Distributor.
4.1.3. * of all Net Revenue derived from
Sponsorship Revenue sold by HealthStream.
4.2 Distributor and HealthStream agree to deliver monthly sales statements
that detail Net Revenue and payment according to the percentages
outlined in this Article 4 to each other within forty five (45) days
after the end of each calendar month. These monthly reports shall
indicate the total number of Transactions and Sponsorships for which
either party derives revenue. 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.
4.3. In the event that Distributor hosts T.NAV(R) on its own server,
Distributor shall be responsible for any costs associated with the
licensing of third party applications such as database licenses which
are required for the proper functioning of T.NAV(R) Commerce, hosting
and Internet access services necessary for distribution including, but
not limited to, the hardware infrastructure to meet additional demand.
HealthStream, however, shall be responsible for all taxes based upon
its personal property ownership and gross or net income.
4.4. Distributor and HealthStream will meet as necessary to review pricing,
discounting policy and the rationale behind any discounts granted for
Courses and Intranet products and services.
ARTICLE 5
INDEMNIFICATION FOR INFRINGEMENT
5.1. HealthStream represents and warrants that to the best of its knowledge:
5.1.1. T.NAV(R) iCommerce does not infringe any copyright or patent
enforceable under the laws of any country; and
5.1.2. T.NAV(R) iCommerce does not violate the trade secret rights of
any third party; and
5.2. HealthStream agrees to indemnify, hold harmless, and defend Distributor
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 Distributor provides reasonable assistance in the
defense of the same.
5.3. HealthStream shall have no liability for any Infringement Judgment
based on Distributor's:
5.3.1. use or distribution of T.NAV(R) iCommerce after HealthStream's
written notice that Distributor should cease use or
distribution of T.NAV(R) iCommerce due to an Infringement
Judgment, or
5.3.2. combination of T.NAV(R) iCommerce with a non-HealthStream
program or data if such Infringement Judgment would have been
avoided by the exclusive use of T.NAV(R) iCommerce.
5.4. For all Infringement Judgments arising under Section 5.3, Distributor
agrees to indemnify and defend HealthStream from and against all
damages, costs, and expenses, including reasonable attorneys' fees. In
the event HealthStream notifies Distributor that it should cease
distribution of T.NAV(R) iCommerce due to an Infringement Judgment,
Distributor may terminate this Agreement.
Distributor and HealthStream Media
Page 3 of 9
<PAGE> 4
ARTICLE 6
INTELLECTUAL PROPERTY PROVISIONS
6.1. Both parties will cause to appear on all marketing or promotional
materials concerning the healthcare related training courses, 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. To the extent that source code is written by either party title shall
vest in the party who has written such code.
6.4. 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 or Content.
6.5. Both parties acknowledge that, except as otherwise provided herein,
each party owns and retains all right, title and interest in and to its
own Content provided to the other party.
6.6. HealthStream acknowledges that Distributor owns and retains all right,
title and interest in and to Distributor's World Wide Web site and all
Distributor's products, services and derivatives thereof arising from
the performance of this Agreement.
6.7. Distributor acknowledges that, except for the license granted to
Distributor in Section 3.1 herein, HealthStream owns and retains all
right, title and interest in and to T.NAV(R) iCommerce, the T.NAV(R)
iCommerce source code, and the T.NAV(R) iCommerce object code.
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 Distributor
and by an officer of HealthStream, the term of this Agreement ("Term") shall run
from the Effective Date until one (1) year 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;
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;
Distributor and HealthStream Media
Page 4 of 9
<PAGE> 5
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, Distributor
shall not employ T.NAV(R) iCommerce or portion thereof which is owned
by HealthStream, as part or portion of any product that Distributor may
use, sell, assign, lease, license, or transfer to third parties. Both
parties shall 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 15.1, and Article 16 shall
survive termination or expiration of this Agreement.
ARTICLE 11
WARRANTIES, LIMITATION OF LIABILITY AND REMEDIES
HealthStream represents and warrants that T.NAV(R) shall operate and perform
according to specifications attached hereto as Exhibit A. 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 Distributor
that Distributor 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
Distributor's prior written consent. HealthStream agrees to use the
same degree of care to protect Distributor 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:
Distributor and HealthStream Media
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<PAGE> 6
12.1.1. it received rightfully from another party prior to its receipt
from Distributor;
12.1.2. Distributor has disclosed to a third party without any
obligation to maintain such information in 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
Distributor 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 Distributor's unannounced
products to HealthStream's employees or any third party.
12.3. Distributor shall have the same obligations in Sections 12.1 and 12.2
above with respect to HealthStream's information and know-how. In
addition, Distributor shall treat all T.NAV(R) iCommerce materials
(including source code) 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 each T.NAV(R) iCommerce licensed consistent with
generally accepted accounting principles.
13.2. HealthStream may cause an audit to be made of the applicable
Distributor records that pertain to this Agreement for the sole purpose
of verifying royalty reports issued by Distributor 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
Distributor's offices and in such a manner as not to interfere with
Distributor'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, Distributor 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. Distributor 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 Distributor, 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 Distributor (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
Distributor and HealthStream Media
Page 6 of 9
<PAGE> 7
to interfere with HealthStream's normal business activities. Any such
audit shall be paid for by Distributor 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 Distributor 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 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:
DISTRIBUTOR: Pointshare
Attn: Timothy J. Kilgallon
President & CEO
1300 114th Ave. SE
Suite 450
Bellevue, WA 98004
HEALTHSTREAM: HealthStream, Inc.
Attn: Robert H. Laird, Jr.
General Counsel
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
CONTROLLING LAW
15.1. This Agreement shall be construed and controlled by the laws of the
State of Tennessee.
15.2. 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
Distributor and HealthStream Media
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be construed as a royalty fee for the rights granted in Article 3 of
this Agreement, and not as a franchise fee.
ARTICLE 16
ATTORNEYS' FEES
If either HealthStream or Distributor 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 17
GENERAL
17.1. 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
Distributor 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.
17.2. 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).
17.3. 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.
17.4. 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 1.5 above. All signed copies of this Agreement shall
be deemed originals.
Pointshare HealthStream, Inc.
By: /s/ Tim Kilgallon By: /s/ Robert A. Frist, Jr.
---------------------------- ---------------------------------
Name: Tim Kilgallon
------------------------- Title: Chief Executive
Title: President & CEO ------------------------------
-------------------------
Distributor and HealthStream Media
Page 8 of 9
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EXHIBIT A
PERSONALIZATION ITEMS
HealthStream's online education Web site and T.NAV iCommerce systems can be
personalized to reflect Distributor's brand image. The following items are
standard elements of that Personalization:
1. Left navigation bar light color
2. Left navigation bar dark color
3. The color that is the background of the main logo in the upper left
4. The color for the ad banner section
5. The light color for the catalog listing
6. The dark color for the catalog listing
7. The light color for the Your Menu listing
8. The dark for the Your Menu listing
9. The logo to display in the upper left
10. The name to display in the site (i.e. "[email protected]")
11. The phone number of technical support
12. The email for tech support
13. The address for tech support
14. The first custom link to display
15. The second custom link to display
16. The third custom link to display
17. The fourth custom link to display
18. The fifth custom link to display
19. The people support link to display
20. Code to pre-populate the discount field
21. Text to display on page for custom link 1
22. Text to display for custom link 2
23. Text to display for custom link 3
24. Text to display for custom link 4
25. Text to display for custom link 5
26. Text to display for the people support link
27. Default background color
28. The path and file to call when doing an auto-logoff
29. The background color for the title bar
Distributor and HealthStream Media
Page 9 of 9
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EXHIBIT 10.21
We have omitted certain portions of this document and filed them separately with
the Commission. These portions are marked with an asterisk (*).
NON-EXCLUSIVE CONTENT
LICENSE AGREEMENT
THIS AGREEMENT ("Agreement"), made and entered into as of this 20th day
of September 1999, ("Effective Date") by and between HEALTHSTREAM, INC. a
Tennessee corporation with its principal place of business at 209 10TH AVENUE
SOUTH, SUITE 450, NASHVILLE, TENNESSEE 37203, ("HealthStream") or ("Party") and
AMERICAN HEALTH CONSULTANTS, a corporation with its principal place of business
at 3525 PIEDMONT ROAD, BUILDING SIX, SUITE 400, ATLANTA, GA 30305, ("Publisher")
or ("Party").
WHEREAS, Publisher possesses or has the authority to license all
necessary rights, including the trademark and/or copyright, as applicable in and
to certain Continuing Education Materials ("CE Materials");
WHEREAS, HealthStream distributes information services;
WHEREAS, HealthStream desires to incorporate the CE Materials into
those information services; and
WHEREAS, Publisher desires to grant HealthStream the full right to
incorporate, use and distribute the CE Materials or portions thereof within
HealthStream's information services;
NOW, THEREFORE, in consideration of the mutual promises and in
accordance with the terms and conditions hereinafter set forth, the Parties
agree as follows:
1. CERTAIN DEFINITIONS
1.1 "Intellectual Property Rights" shall mean any and all
rights existing from time to time under patent law, copyright law, moral rights
law, trade-secret law, trademark law, unfair competition law, publicity rights,
privacy rights and any and all other similar proprietary rights, and any and all
renewals, extensions and restorations thereof now or hereafter in force and
effect in the United States and throughout the Universe.
1.2 "CE Materials" shall mean the items listed in Exhibit A
(said items being hereinafter referred to as "CE Materials"), as amended from
time to time by the parties, and subsequent issues of CE Materials published
during the Term (as defined in Section 7.1 herein). Exhibit A is incorporated
herein by this reference.
1.3 "Services" shall mean the information services, which
HealthStream distributes, transmits, reproduces, performs, displays or otherwise
disseminates throughout the universe to Users (i) online, via the Internet,
America Online, Compuserve, Prodigy, @Home, other digital and analog
subscription or non-subscription communication networks, and any other means of
transmission or distribution by wire or carrier wave now known or hereafter
devised ("Online Services"); (ii) by means of computer-generated copies on paper
or microform ordered by Users via the Online Services; and (iii) by means of
copies reproduced on magnetic or optical storage media and intended for use only
in conjunction with stand-alone computers, local area computer networks, or
other single-enterprise computer networks, which copies are intended to
replicate, supplement or enhance the Online Services; provided, however, that
HealthStream may not include any CE Materials or substantial portion thereof as
part of any product on tangible storage media, including, but not limited to
CD-ROM, other than a product used solely to enhance performance of the Online
Services.
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1.4 "Users" shall mean persons and/or entities that pay
HealthStream for access to Services. Users may include but are not limited to
physicians, nurses, clinical care providers, managed care organizations,
hospitals, health care institutions, and other health care providers.
2. GRANT OF LICENSE AND DISTRIBUTION RIGHTS
Publisher hereby grants HealthStream the non-exclusive license, for the
Term of this Agreement, throughout the universe, for the purpose of providing
access to and disseminating the CE Materials or portions thereof through
HealthStream's Services, to do and authorize any of the following:
(i) to market, advertise, promote (including with third party
promotional partners authorized by HealthStream), distribute,
sell, use, reproduce, perform, display, or offer to the public
the CE Materials or portions thereof by means of the Services
and to use Publishers' Intellectual Property Rights
("Properties") subsisting in the CE Materials in connection
therewith; HealthStream bearing any and all costs and expenses
related thereto; and
(ii) to recast, transform, or adapt the CE Materials or
portions thereof only as necessary for the purpose of
utilizing the CE Materials or portions thereof within the
Services and as necessary for the purpose of exercising
HealthStream's rights as set forth above in this Section 2.
All rights not specifically granted and licensed to HealthStream herein
are reserved to the Publisher.
3. FEES AND CHARGES
HealthStream shall compensate Publisher as set forth in Exhibit B which
is attached hereto and incorporated herein by this reference.
4. REPRESENTATIONS AND WARRANTIES
4.1 Publisher hereby represents and warrants that: (i)
Publisher has all authority and rights necessary to enter into and to fulfill
the terms of this Agreement and to grant the rights and to consummate the
obligations described herein; (ii) except for third party Intellectual Property
Rights identified in the CE Materials by means of, among other things, copyright
notices, acknowledgments and credit lines, and except for other third party
Intellectual Property Rights expressly identified to HealthStream in writing by
Publisher (collectively "Third Party Intellectual Property Rights"), Publisher
owns or has the right to license all Intellectual Property Rights subsisting in
the CE Materials and necessary to enable HealthStream to exercise the rights
granted hereunder, and Publisher has the right to enter into this Agreement with
HealthStream and to license the CE Materials or portions thereof to HealthStream
as set forth in this Agreement; and (iii) the use of the CE Materials or
portions thereof by HealthStream in accordance with the terms of this Agreement
shall not constitute a libel or slander against any person or entity.
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4.2 Publisher hereby represents and warrants that (i) with
respect to each and every right herein granted to HealthStream there is no legal
obstacle to the granting of such rights; (ii) there is no outstanding claim of
any kind whatsoever against any right, title or interest in or to the CE
Materials or portions thereof which could adversely affect the rights granted to
HealthStream hereunder; (iii) the CE Materials or portions thereof do not
infringe the Intellectual Property Rights of any third parties; and (iv) there
are no pending, or, to the best of Publisher's knowledge, threatened claims from
a third party claiming any right, title or interest in the CE Materials or
portions thereof which could adversely affect the rights granted to HealthStream
hereunder or alleging that the CE Materials or portions thereof infringes the
Intellectual Property Rights of any such third party. If any claim is asserted
against the Publisher alleging that the CE Materials or portions thereof
infringes upon a third party's Intellectual Property Rights, then the Publisher
shall promptly notify HealthStream of such infringement claim.
4.3 Publisher shall indemnify, defend and hold harmless
HealthStream from and against any liability arising out of (i) any breach of
this Section 4 by Publisher; and (ii) any injury or damages caused to any third
party due to reliance upon the editorial content of the CE Materials or portions
thereof. Publisher shall have sole control over the defense of any third party
claims asserting a liability covered by this section 4.3.
4.4 HealthStream hereby represents and warrants that it has
full power and authority to enter into this Agreement and to consummate the
obligations contemplated herein; and that HealthStream's entering this Agreement
does not conflict with or constitute a breach of any Agreement to which
HealthStream is subject.
4.5 HealthStream hereby agrees to indemnify, defend and hold
harmless Publisher, its officers, directors, employees, agents, successors and
assigns, authors, editors and licensors from and against all loss, liability,
damage, cost and expense arising solely and directly out of (i) HealthStream's
transcription, digitization, or other processing or transmission of the CE
Materials or portions thereof within the Services; (ii) the operation of the
Services (other than claims covered under Section 4.2 above); and (iii) the
content of the Services other than the editorial content of any Properties
licensed hereunder or portions thereof.
5. OBLIGATIONS OF PUBLISHER
5.1 Publisher agrees to deliver the CE Materials in html
format to HealthStream within thirty (30) days of the execution of this
Agreement.
5.2 Publisher shall inform HealthStream of significant changes
in the format of the CE Materials or portions thereof, including content,
scheduling, and other factors which will be useful to HealthStream in selling,
marketing and providing customer service to its Users.
5.3 Publisher shall provide to HealthStream customer service
necessary to respond to inquiries by HealthStream made via telephone, fax or
written correspondence regarding HealthStream's subscribers' questions in regard
to CE credit provided by the Publisher.
6. OBLIGATIONS OF HEALTHSTREAM
6.1 HealthStream shall insert on each screen that contains CE
Materials, and in close proximity to the CE Materials the following notice:
"Copyright (insert year) American Health Consultants.
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All Rights Reserved." HealthStream shall also insert a hyperlink from the
copyright notice to the American Health Consultants Informational Page residing
on HealthStream's Internet Site ("American Health Consultants Informational
Page"), which will contain the following language "Republication or
redistribution of American Health Consultants' content is expressly prohibited
without the prior written consent of American Health Consultants." HealthStream
shall also include in the American Health Consultants Informational Page, as
displayed on the Services, any disclaimers or such other notice as may be
requested in writing by Publisher from time to time during the Term.
6.2 HealthStream shall be responsible for providing customer
and technical support to Users, via telephone or electronic message
consultations. Such customer support shall include but not be limited to account
management, consultation, technical assistance and handling of User inquiries.
Publisher shall have no responsibility to communicate directly with Users
regarding operation of the Services.
6.3 HealthStream shall use its good faith efforts to convert,
digitize, reformat and/or otherwise manipulate the CE Materials in accordance
with the specifications set forth in this Agreement, and to reproduce the text
accurately in the implementation.
6.5 HealthStream shall correct any errors or inaccuracies in
the content of the CE Materials introduced or caused by HealthStream or its
agents or contractors promptly after learning of the existence of such errors or
inaccuracies. HealthStream shall promptly make corrections and changes to the
editorial content requested by Publisher for the purpose of (i) correcting
material errors, omissions or inaccuracies or (ii) complying with any judicial,
governmental or administrative decision, rule or order or settlement agreement
by which Publisher is bound or (iii) avoiding potential liability from continued
distribution of such materials.
6.6 HealthStream shall process CE Materials submitted for
credit by Users within twenty-four (24) hours and shall provide a certificate of
completion of CME Material directly to Users via email, with an email copy sent
to Publisher.
6.7 The right of HealthStream to use any trade names or
trademarks of Publisher included in the Intellectual Property Rights of
Publisher licensed hereunder is limited to the display of such trademarks on the
CE Materials as displayed in the Services and in promotional materials for the
Services. All such use of Publisher's trademarks shall accrue to the benefit of
Publisher. HealthStream will not use Publisher's trade names or trademarks in
any other manner without the prior consent of Publisher. HealthStream will not
use the name of any author of any CE Materials or of any professional
association or society under whose auspices CE Materials are published in any
manner other than to state the authorship or sponsorship of that specific CE
Material.
6.9 HealthStream represents and warrants that it will not,
without Publisher's prior written permission, provide CE Materials to persons or
entities in such a fashion that no Fees (as defined in Exhibit B) are generated.
6.10 HealthStream shall generate a monthly statement of CE
Materials used in the Services by Users to report to Publisher the Fees owed to
Publisher as set forth in Exhibit B.
7. TERM AND TERMINATION
7.1 This Agreement shall commence upon the Effective Date and
shall continue in force for a term which shall consist of an initial Term of two
(2) years ("Initial Term") and shall be renewed
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for one (1) year terms ("Renewal Term" and collectively the "Term"),
automatically unless one Party shall give written notice of termination to the
other Party no later than one hundred and eighty (180) days prior to the
expiration of the Initial Term or the then current Renewal Term, as applicable.
Each Renewal Term shall commence simultaneously upon the expiration of the
immediately preceding Initial Term or Renewal Term. The inclusion of a
subsequent edition CE Materials pursuant to Section 1.2 shall not extend or
otherwise affect the Term of this Agreement with respect to such CE Materials or
otherwise.
7.2 In the event that either Party commits a breach ("Breach")
of this Agreement, upon written notice ("Breach Notice") from the non-defaulting
Party, the defaulting Party shall use its best efforts to cure such breach
within thirty (30) days after the receipt of the Breach Notice. If such default
or breach is not cured within thirty (30) days of receipt of the Breach Notice,
the non-defaulting Party may give written notice ("Termination Notice") to the
defaulting Party of the non-defaulting Party's selection to terminate this
Agreement on a date specified in the Termination Notice. If the defaulting Party
is making diligent efforts to cure a breach that is not reasonably susceptible
to cure within thirty (30) days, the defaulting Party shall be provided a
reasonable time period up to forty-five (45) days from Breach Notice to complete
the cure of the breach. If such breach is not cured within such thirty (30) or
forty-five (45) day period, as applicable, the Agreement shall terminate on the
date specified in the Termination Notice. Such right of termination shall not be
exclusive of any other remedies or means of redress to which the non-defaulting
Party may be lawfully entitled. Notwithstanding the foregoing, a Party's default
on any provision of this Agreement shall not be considered a Breach to the
extent that this Agreement contains a remedy for such Breach.
7.3 If Publisher or HealthStream: (i) makes an assignment for
the benefit of creditors; (ii) becomes insolvent; (iii) files a voluntary
petition for bankruptcy; (iv) acquiesces to an involuntary bankruptcy petition;
(iv) is adjudicated as bankrupt; or (v) ceases to do business, the other Party,
at its option, may immediately terminate this Agreement upon giving written
notice thereof.
7.4 In addition to those rights specified herein and subject
to Section 7.7 hereof, the following rights and obligations survive any
expiration or termination of this Agreement to the degree necessary to permit
their complete fulfillment or discharge: (i) the rights and obligations of the
Parties with respect to Publisher's Intellectual Property Rights and
HealthStream's Intellectual Property Rights; (ii) the rights and obligations of
the Parties with respect to the Services that have been sold or distributed,
including obligations of HealthStream to make all applicable payments under this
Agreement; (iii) any cause of action or claim of either Party, accrued or to
accrue, because of any breach or default by other parties; and (iv) the rights
and obligations of either Party with respect to confidentiality,
indemnification, warranties and representations.
7.5 If this Agreement is lawfully terminated by HealthStream
as a result of a breach of its terms or conditions by Publisher, HealthStream
may, for a period of two (2) years following the date of such termination of
this Agreement, sell, or continue to sell through the Services the CE Materials
or portions thereof as they exist at the time of HealthStream's termination for
Publisher's breach. The reporting and payment obligations of HealthStream shall
apply to the sales and distribution of the CE Materials or portions thereof
accruing after termination.
7.6 Without limiting the generality of the foregoing, the
provisions of termination of this Agreement for Sections 1, 4, 6.6, 7.5, 8, and
9.13 shall survive the expiration or early termination of this Agreement for any
reason.
7.7 In the event of termination or expiration of this
Agreement for any reason, HealthStream shall immediately (or at such later date
as is set forth in Section 7.5 in the event of a
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<PAGE> 6
termination under that Section) cease further distribution of the CE Materials
through the Services. In addition, HealthStream shall destroy all versions and
copies of the Properties in whatever form or medium in HealthStream's custody or
under HealthStream's control. An officer of HealthStream shall certify such
action in writing to Publisher.
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8. OWNERSHIP OF THE PROPERTIES
8.1 Publisher acknowledges HealthStream's right, title and
interest to HealthStream's Intellectual Property Rights (including, without
limitation, all Intellectual Property Rights subsisting in the implementation
and all elements of HealthStream's computer graphic user interfaces, machine
interfaces and other computer programs and other audiovisual and literary
works), and will not at any time do or cause to be done any act or thing
contesting or in any way impairing or tending to impair any part of such right,
title and interest thereto. In connection with the use of HealthStream's
Intellectual Property Rights, Publisher shall not in any manner represent that
it has any ownership therein, and Publisher acknowledges that any use pursuant
to this Agreement (if any) of HealthStream's Intellectual Property Rights shall
not create any right, title or interest therein in Publisher's favor.
8.2 HealthStream acknowledges Publisher's right, title and
interest in and to Publisher's Intellectual Property Rights, and will not at any
time do or cause to be done any act or thing contesting or in any way impairing
or tending to impair any part of such right, title and interest thereto. In
connection with the use of Publisher's Intellectual Property Rights,
HealthStream shall not in any manner represent that it has any ownership therein
and HealthStream acknowledges that its use of Publisher's Intellectual Property
Rights shall not create any right, title and interest therein in HealthStream's
favor. HealthStream further agrees not to copy, reproduce, sell, license,
subscribe, lease or distribute the CE Materials or portions thereof other than
as expressly permitted herein.
8.3 HealthStream will place in writing in an agreement with
each User a warranty disclaimer and liability limitation clauses. HealthStream
shall make commercially reasonable efforts to ensure that any User provided with
access to CE Materials or portions thereof by or through Services expressly
agrees (i) to use the CE Materials or portions thereof exclusively as an
internal management, reference or informational tool for that User's use only;
and (ii) not to reproduce or distribute the CE Materials or portions thereof for
any commercial purpose. The sole obligation of HealthStream with respect to the
requirements identified in this Section 8.3 applicable to each User shall be to
include appropriate terms in written contracts with each such User, as required
by this Agreement and to take commercially reasonable steps to terminate Users
who intentionally breach the terms of such User Agreements. Publisher shall look
to each such User, and not HealthStream, to redress any damages imposed on
Publisher due to any actions taken by, or breach of the obligations of, such
User.
8.4 HealthStream shall promptly notify Publisher of any
unauthorized use or infringement of the CE Materials or portions thereof by
Users or others of which HealthStream becomes aware. Publisher shall have the
right, at its expense, to bring an action on account of such unauthorized uses
or infringements provided that Publisher will not bring an action against any
User without first consulting with HealthStream. HealthStream shall cooperate
with Publisher in such action in such manner as the Publisher may reasonably
request at Publisher's cost and expense.
9. MISCELLANEOUS
9.1 Recitals. The recitals herein constitute an integral part
of the Agreement reached by the Parties and are to be considered as such.
9.2 No Waiver. The waiver by either Party of a breach or
default of any provision of this Agreement by the other Party shall not
constitute a waiver by such Party of any succeeding breach of the same or other
provision; nor shall any delay or omission on the part of either Party to
exercise or avail
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itself of any right, power or privilege that it has or may have hereunder
operate as a waiver of any such right, power or privilege by such Party.
9.3 Force Majeure. Neither HealthStream nor Publisher shall be
liable for any breach of this Agreement occasioned by any cause beyond the
reasonable control of such party, which for purposes of this Agreement shall
mean governmental action, war, riot, or civil commotion, fire, floods, labor
disputes, restraints affecting shipping or credit, delay of carrier, black-outs,
brown-outs, computer generated worms, viruses, and other self-destructing code,
a substantial change to the commercial structure of the Internet or any other
causes which could not with reasonable diligence be controlled or prevented by
the parties.
9.4 Headings. The headings of the Sections of this Agreement
are for convenience only and will not be of any effect in construing the
meanings of the Sections and subsections.
9.5 Counterparts; Facsimile. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. Any signed copy of
this Agreement delivered by facsimile transmission shall for all purposes be
treated as if it were delivered containing an original signature of the party
whose signature appears in the facsimile.
9.6 No Assignment. Neither Party shall assign this Agreement
or any of its rights hereunder or delegate any of its obligations hereunder
except with the prior written consent of the other Party; provided, however,
that either Party may assign in conjunction with its mergers, reorganization or
the sale of substantially all assets to which this Agreement pertains, provided
that the surviving company continues in the same or substantially similar
business.
9.7 Invalidity. If any covenant or other provision of this
Agreement is invalid, illegal, or incapable of being enforced by reason of any
rule of law, administrative order, judicial decision or public policy, all other
conditions and provisions of this Agreement shall, nevertheless, remain in full
force and effect. The Parties shall make changes to this Agreement as are
necessary to cure the invalidity, consistent with the original objectives of the
Parties.
9.8 Relationship of the Parties. Nothing in this Agreement nor
the relations between the Parties of this Agreement shall be construed to
constitute a partnership or joint venture between or among the Parties of this
Agreement. Neither Party shall have the right or authority to bind or obligate
the other Party in any manner whatsoever and shall not expressly or impliedly
incur any liability or obligation on behalf of the other Party.
9.9 Reasonable Approval. Whenever any provision of this
Agreement requires the consent or approval of a Party, such consent or approval
shall be given in writing, and shall not be unreasonably withheld or delayed.
9.10 Notices. All notices or other communications that shall
or may be given pursuant to this Agreement, shall be in writing, in English, and
shall be sent by certified or registered air mail with postage prepaid, return
receipt requested, by facsimile, telex or cable communication, or by hand
delivery. Such communications shall be deemed given and received upon dispatch,
if sent by facsimile, telex, or cable communication; or upon delivery if hand
delivered; or within five (5) days of mailing, if sent by certified or
registered mail, and shall be addressed to the parties as set forth below or to
such other addresses as the parties may designate in writing from time to time.
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If to Publisher: American Health Consultants
3525 Piedmont Road
Building 6, Suite 400
Atlanta, Georgia 30305
Fax: (404) 262-5510
Attn: Marcus Underwood
Director, Special Projects
If to HealthStream: 209 10th Avenue South
Suite 450
Nashville, TN 37203
Fax: (615) 301-3200
Attn: Robert H. Laird
Vice President and General Counsel
9.11 Governing Law. This Agreement shall be governed by the
laws of the State of Georgia, notwithstanding that state's choice of law rules.
9.12 Entire Agreement. This Agreement, including the exhibits
attached hereto, state the entire Agreement between the Parties relating to the
subject matter of this Agreement and supersedes any and all prior Agreements and
communications, written or oral. No amendment or modification of this Agreement
may be made except by an instrument in writing signed by both Parties.
9.13 Non-Disclosure. The terms and provisions of this
Agreement, any amounts paid to Publisher hereunder, and any and all other
business information disclosed by either party (the "Disclosing Party") to the
other (the "Receiving Party") in the course of its performance of this
Agreement, which information is designated by the Disclosing Party as
confidential or proprietary or which the Receiving Party should recognize from
the facts and circumstances surrounding the disclosure of such information is
confidential or proprietary to the Disclosing Party, shall constitute
confidential information ("Confidential Information") of the Disclosing Party.
The Receiving Party shall hold the Confidential Information of the Disclosing
Party in confidence and will use such Confidential Information only for the
purposes of fulfilling its obligations under this Agreement. Nothing in this
Agreement will be interpreted to confer upon the Receiving Party any implied or
express license to use the Confidential Information of the Disclosing Party for
any other purpose. The Receiving Party will not disclose, provide, disseminate
or otherwise make available any Confidential Information of the Disclosing Party
or any part thereof in any form whatsoever to any third party without the
express written permission of the Disclosing Party. The obligations in this
Section 5.4 shall not apply to any (a) information that is now or later becomes
publicly available through no fault of the Receiving Party; (b) information that
is obtained by the Receiving Party from a third party (other than in connection
with this Agreement) who is not under any obligation of secrecy or
confidentiality to the Disclosing Party with respect to such information; (c)
information that is independently developed by the Receiving Party (e.g.,
without reference to any Confidential Information); (d) any disclosure required
by applicable law, provided that the Receiving Party shall use reasonable
efforts to give advance notice to and cooperate with the Disclosing Party in
connection with any such disclosure; and (e) any disclosure with the consent of
the Disclosing Party. The parties acknowledge that the covenants contained in
this Section 5.4 are reasonable and necessary to protect their legitimate
interests, that the parties would not have entered into this Agreement in the
absence of such covenants, that any breach or threatened breach of such
covenants
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will result in irreparable injury to the Disclosing Party, and that the remedy
at law for such breach or threatened breach would be inadequate. Accordingly,
the Parties agree that the Disclosing Party shall, in addition to any other
rights or remedies which it may have, be entitled to seek such equitable and
injunctive relief without the posting of any bond or security as may be
available from any court of competent jurisdiction to restrain the Receiving
Party from any breach or threatened breach of such covenants.
IN WITNESS WHEREOF, each of the Parties has caused a duly authorized
officer or agent to execute the Agreement as of the dates set forth below.
On Behalf of HealthStream: On Behalf of Publisher:
By: /s/ Robert A. Frist, Jr. By: /s/ Jeff MacDonald
------------------------------ ---------------------------------
Name: Robert A. Frist, Jr. Name: Jeff MacDonald
--------------------------- -------------------------------
Title: CEO Title: President & CEO
--------------------------- -------------------------------
Date: 9/30/99 Date: 9/30/99
--------------------------- -------------------------------
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EXHIBIT A: PROPERTY
Description of "CE Materials"
CE Materials consist of all material currently available on Publisher's ceweb
Internet site (listed below and hereafter referred to as "Modules"), any Modules
that become available on Publisher's ceweb Internet site during the Term, and
updates to the Modules within 30 days of the modules going live on the AHC's
ceweb site.
Continuing Education Materials
1. Hospital Peer Review
2. Hospital Case Management
3. Case Management Advisor
4. Hospital Employee Health
5. Hospital Infection Control
6. Contraceptive Technology Update
7. Home Infusion Therapy Management
8. Homecare Education Management
9. Homecare Quality Management
10. Hospital Home Health
11. Private Duty Homecare
12. Same-Day Surgery
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EXHIBIT B: COMPENSATION PROVISIONS
B1. "Fees" shall mean amounts billed to and actually received by
HealthStream for access to CE Materials from Users, distributors, or
agents less discounts to distributors, credits or refunds actually paid
by HealthStream.
B2. HealthStream will collect from Users a Fee which shall not be less than
* for each Module of Publisher's CE Materials a User accesses on the
Service prior to permitting the User to access each Module. A User may
access the Module(s) one or more times after the User has paid the Fees
for access to the Module(s). Publisher's credit toward the yearly
minimum as described in B3 shall in no instance be less than * per
Module, provided Publisher's list price remains * or greater per
Module. In the event Publisher's list price falls below * per module,
Publisher's credit toward the yearly minimum as described in B3 shall
be * of Publisher's list price.
B3. Subject to the remaining provisions of this section B3, HealthStream
shall pay Publisher * per month for the duration of the Term.
HealthStream shall compute within forty five (45) days after each 12
month anniversary of the Effective Date within the Initial Term or the
then current Renewal Term (as applicable) the Fees collected during the
previous 12 months of the Initial or Renewal Term, and shall furnish
Publisher with a statement in sufficient detail to verify such total
Fees (the "Compensation Statement"). HealthStream shall remit to
Publisher along with the Compensation Statement an amount equal to * of
any Fees collected during the previous 12 months of the Initial or
Renewal Term that are in excess of *. In the event that the total
number of credit hours available from the CE Materials listed in
Exhibit A falls below four hundred (400) Healthstream shall have the
right to terminate the contract immediately, and must remove all of
Publisher's content per article 7.7 of this agreement.
B4. HealthStream shall, upon thirty (30) days written notice by Publisher,
make all of its records related to Fees calculations available to
Publisher or its designees at HealthStream's principal place of
business during normal business hours ("Audit"). All information
obtained from such records shall remain strictly confidential and shall
not be disclosed by Publisher or its designee to third Parties or used
for any purpose other than calculating Fees due and verifying the
accuracy of the computation of the Fees and other compliance with this
Agreement. Notwithstanding the foregoing, Publisher may not (i) request
an Audit more than once every twelve (12) months; or (ii) claim any
Fees more than two (2) years following the Compensation Date by which
such Fees were accrued. Publisher shall bear the expense of such Audit
unless the Audit shows an error amounting to a deficiency to Publisher
in excess of five percent (5%) of the actual Fees payable to Publisher
for the applicable period, in which event, HealthStream shall bear the
reasonable expense of the Audit. HealthStream shall pay Publisher the
amount of any deficiency discovered by Publisher within thirty (30)
days after receipt of notice thereof from Publisher.
B5. HealthStream is under no obligation to sell and distribute a minimum
quantity of the CE Materials or portions thereof.
Integrated Agreement
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<PAGE> 1
EXHIBIT 10.22
We have omitted certain portions of this document and filed them separately with
the Commission. These portions are marked with an asterisk (*).
NON-EXCLUSIVE CONTENT
LICENSE AGREEMENT
THIS AGREEMENT ("Agreement"), made and entered into as of this 6th day
of January 2000, ("Effective Date") by and between HEALTHSTREAM, INC. a
Tennessee corporation with its principal place of business at 209 10TH AVENUE
SOUTH, SUITE 450, NASHVILLE, TENNESSEE 37203, ("HealthStream") or ("Party") and
AMERICAN HEALTH CONSULTANTS, a corporation with its principal place of business
at 3525 PIEDMONT ROAD, BUILDING SIX, SUITE 400, ATLANTA, GA 30305, ("Publisher")
or ("Party").
WHEREAS, Publisher possesses or has the authority to license all
necessary rights, including the trademark and/or copyright, as applicable in and
to certain Continuing Medical Education Materials ("CME Materials");
WHEREAS, HealthStream distributes information services;
WHEREAS, HealthStream desires to incorporate the CME Materials into
those information services; and
WHEREAS, Publisher desires to grant HealthStream the full right to
incorporate, use and distribute the CME Materials or portions thereof within
HealthStream's information services;
NOW, THEREFORE, in consideration of the mutual promises and in
accordance with the terms and conditions hereinafter set forth, the Parties
agree as follows:
1. CERTAIN DEFINITIONS
1.1 "Intellectual Property Rights" shall mean any and all
rights existing from time to time under patent law, copyright law, moral rights
law, trade-secret law, trademark law, unfair competition law, publicity rights,
privacy rights and any and all other similar proprietary rights, and any and all
renewals, extensions and restorations thereof now or hereafter in force and
effect in the United States and throughout the Universe.
1.2 "CME Materials" shall mean the items listed in Exhibit A
(said items being hereinafter referred to as "CME Materials"), as amended from
time to time by the parties, and subsequent issues of CME Materials published
during the Term (as defined in Section 7.1 herein). Exhibit A is incorporated
herein by this reference.
1.3 "Launch Date" means the earlier of the date on which the
CME Materials become available to the public on the Web via T.NAV(R), or May 1,
2000.
1.4 "Services" shall mean the information services, which
HealthStream distributes, transmits, reproduces, performs, displays or otherwise
disseminates throughout the universe to Users (i) online, via the Internet,
America Online, Compuserve, Prodigy, @Home, other digital and analog
subscription or non-subscription communication networks, and any other means of
transmission or distribution by wire or carrier wave now known or hereafter
devised ("Online Services"); (ii) by means of computer-generated copies on paper
or microform ordered by Users via the Online Services; and (iii) by means of
copies reproduced on magnetic or optical storage media and intended for use only
in conjunction with stand-alone computers, local area computer networks, or
other single-enterprise computer networks, which copies are intended to
replicate, supplement or enhance the Online Services; provided, however, that
HealthStream may not include any CME Materials or substantial portion thereof as
part of any product on
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<PAGE> 2
tangible storage media, including, but not limited to CD-ROM, other than a
product used solely to enhance performance of the Online Services.
1.5 "Users" shall mean persons and/or entities that pay
HealthStream for access to Services. Users may include but are not limited to
physicians, nurses, clinical care providers, managed care organizations,
hospitals, health care institutions, and other health care providers.
2. GRANT OF LICENSE AND DISTRIBUTION RIGHTS
2.1 Publisher hereby grants HealthStream the non-exclusive
license, for the Term of this Agreement, throughout the
universe, for the purpose of providing access to and
disseminating the CME Materials or portions thereof through
HealthStream's Services, to do and authorize any of the
following:
(i) to market, advertise, promote (including with third party
promotional partners authorized by HealthStream), distribute,
sell, use, reproduce, perform, display, or offer to the public
the CME Materials or portions thereof by means of the Services
and to use Publishers' Intellectual Property Rights
("Properties") subsisting in the CME Materials in connection
therewith; HealthStream bearing any and all costs and expenses
related thereto; and
(ii) to recast, transform, or adapt the CME Materials or
portions thereof only as necessary for the purpose of
utilizing the CME Materials or portions thereof within the
Services and as necessary for the purpose of exercising
HealthStream's rights as set forth above in this Section 2.
2.2 HealthStream may not offer the CME Materials in any format
to licensing partners of Publisher ("Partners") without
Publisher's approval. These Partners are identified in Exhibit
C attached hereto. Publisher reserves the right to add
Partners to Exhibit C in the future if Publisher executes
written agreements with additional entities. Publisher shall
send written notice to HealthStream of its intent to add a
Partner to Exhibit C. If a proposed Partner is an entity with
whom HealthStream already has an established relationship, the
proposed Partner shall not be added to Exhibit C or subject to
the limitations of this Section. Established relationship
shall mean that the entity is one with whom HealthStream has
entered into negotiations to enter a business relationship.
All rights not specifically granted and licensed to HealthStream herein
are reserved to the Publisher.
3. FEES AND CHARGES
HealthStream shall compensate Publisher as set forth in Exhibit B which
is attached hereto and incorporated herein by this reference.
Integrated Agreement
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<PAGE> 3
4. REPRESENTATIONS AND WARRANTIES
4.1 Publisher hereby represents and warrants that: (i)
Publisher has all authority and rights necessary to enter into and to fulfill
the terms of this Agreement and to grant the rights and to consummate the
obligations described herein; (ii) except for third party Intellectual Property
Rights identified in the CME Materials by means of, among other things,
copyright notices, acknowledgments and credit lines, and except for other third
party Intellectual Property Rights expressly identified to HealthStream in
writing by Publisher (collectively "Third Party Intellectual Property Rights"),
Publisher owns or has the right to license all Intellectual Property Rights
subsisting in the CME Materials and necessary to enable HealthStream to exercise
the rights granted hereunder, and Publisher has the right to enter into this
Agreement with HealthStream and to license the CME Materials or portions thereof
to HealthStream as set forth in this Agreement; and (iii) the use of the CME
Materials or portions thereof by HealthStream in accordance with the terms of
this Agreement shall not constitute a libel or slander against any person or
entity.
4.2 Publisher hereby represents and warrants that (i) with
respect to each and every right herein granted to HealthStream there is no legal
obstacle to the granting of such rights; (ii) there is no outstanding claim of
any kind whatsoever against any right, title or interest in or to the CME
Materials or portions thereof which could adversely affect the rights granted to
HealthStream hereunder; (iii) the CME Materials or portions thereof do not
infringe the Intellectual Property Rights of any third parties; and (iv) there
are no pending, or, to the best of Publisher's knowledge, threatened claims from
a third party claiming any right, title or interest in the CME Materials or
portions thereof which could adversely affect the rights granted to HealthStream
hereunder or alleging that the CME Materials or portions thereof infringes the
Intellectual Property Rights of any such third party. If any claim is asserted
against the Publisher alleging that the CME Materials or portions thereof
infringes upon a third party's Intellectual Property Rights, then the Publisher
shall promptly notify HealthStream of such infringement claim.
4.3 Publisher shall indemnify, defend and hold harmless
HealthStream from and against any liability arising out of (i) any breach of
this Section 4 by Publisher; and (ii) any injury or damages caused to any third
party due to reliance upon the editorial content of the CME Materials or
portions thereof. Publisher shall have sole control over the defense of any
third party claims asserting a liability covered by this section 4.3.
4.4 HealthStream hereby represents and warrants that it has
full power and authority to enter into this Agreement and to consummate the
obligations contemplated herein; and that HealthStream's entering this Agreement
does not conflict with or constitute a breach of any Agreement to which
HealthStream is subject.
4.5 HealthStream hereby agrees to indemnify, defend and hold
harmless Publisher, its officers, directors, employees, agents, successors and
assigns, authors, editors and licensors from and against all loss, liability,
damage, cost and expense arising solely and directly out of (i) HealthStream's
transcription, digitization, or other processing or transmission of the CME
Materials or portions thereof within the Services; (ii) the operation of the
Services (other than claims covered under Section 4.2 above); and (iii) the
content of the Services other than the editorial content of any Properties
licensed hereunder or portions thereof.
Integrated Agreement
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<PAGE> 4
5. OBLIGATIONS OF PUBLISHER
5.1 Publisher agrees to deliver the CME Materials in html
format to HealthStream within thirty (30) days of the execution of this
Agreement.
5.2 Publisher shall inform HealthStream of significant changes
in the format of the CME Materials or portions thereof, including content,
scheduling, and other factors which will be useful to HealthStream in selling,
marketing and providing customer service to its Users.
5.3 Publisher shall provide to HealthStream customer service
necessary to respond to inquiries by HealthStream made via telephone, fax or
written correspondence regarding HealthStream's subscribers' questions in regard
to CME credit provided by the Publisher.
6. OBLIGATIONS OF HEALTHSTREAM
6.1 HealthStream shall insert on each screen that contains CME
Materials, and in close proximity to the CME Materials the following notice:
"Copyright (insert year) American Health Consultants. All Rights Reserved."
HealthStream shall also insert a hyperlink from the copyright notice to the
American Health Consultants Informational Page residing on HealthStream's
Internet Site ("American Health Consultants Informational Page"), which will
contain the following language "Republication or redistribution of American
Health Consultants' content is expressly prohibited without the prior written
consent of American Health Consultants." HealthStream shall also include in the
American Health Consultants Informational Page, as displayed on the Services,
any disclaimers or such other notice as may be requested in writing by Publisher
from time to time during the Term.
6.2 HealthStream shall be responsible for providing customer
and technical support to Users, via telephone or electronic message
consultations. Such customer support shall include but not be limited to account
management, consultation, technical assistance and handling of User inquiries.
Publisher shall have no responsibility to communicate directly with Users
regarding operation of the Services.
6.3 HealthStream shall use its good faith efforts to convert,
digitize, reformat and/or otherwise manipulate the CME Materials in accordance
with the specifications set forth in this Agreement, and to reproduce the text
accurately in the implementation.
6.4 HealthStream shall correct any errors or inaccuracies in
the content of the CME Materials introduced or caused by HealthStream or its
agents or contractors promptly after learning of the existence of such errors or
inaccuracies. HealthStream shall promptly make corrections and changes to the
editorial content requested by Publisher for the purpose of (i) correcting
material errors, omissions or inaccuracies or (ii) complying with any judicial,
governmental or administrative decision, rule or order or settlement agreement
by which Publisher is bound or (iii) avoiding potential liability from continued
distribution of such materials.
6.5 HealthStream shall process CME Materials submitted for
credit by Users within twenty-four (24) hours and shall provide a certificate of
completion of CME Materials directly to Users via email, with an email copy sent
to Publisher.
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6.6 The right of HealthStream to use any trade names or
trademarks of Publisher included in the Intellectual Property Rights of
Publisher licensed hereunder is limited to the display of such trademarks on the
CME Materials as displayed in the Services and in promotional materials for the
Services. All such use of Publisher's trademarks shall accrue to the benefit of
Publisher. HealthStream will not use Publisher's trade names or trademarks in
any other manner without the prior consent of Publisher. HealthStream will not
use the name of any author of any CME Materials or of any professional
association or society under whose auspices CME Materials are published in any
manner other than to state the authorship or sponsorship of that specific CME
Materials.
6.7 HealthStream represents and warrants that it will not,
without Publisher's prior written permission, provide CME Materials to persons
or entities in such a fashion that no Fees (as defined in Exhibit B) are
generated.
6.8 HealthStream shall generate a monthly statement of CME
Materials used in the Services by Users to report to Publisher the Fees owed to
Publisher as set forth in Exhibit B.
7. TERM AND TERMINATION
7.1 This Agreement shall commence upon the Effective Date and
shall continue in force for one (1) year from the Launch Date ("Initial Term")
and shall be renewed for one (1) year terms ("Renewal Term" and collectively the
"Term"), automatically unless one Party shall give written notice of termination
to the other Party no later than one hundred and eighty (180) days prior to the
expiration of the Initial Term or the then current Renewal Term, as applicable.
Each Renewal Term shall commence simultaneously upon the expiration of the
immediately preceding Initial Term or Renewal Term. The inclusion of a
subsequent edition CME Materials pursuant to Section 1.2 shall not extend or
otherwise affect the Term of this Agreement with respect to such CME Materials
or otherwise.
7.2 In the event that either Party commits a breach ("Breach")
of this Agreement, upon written notice ("Breach Notice") from the non-defaulting
Party, the defaulting Party shall use its best efforts to cure such breach
within thirty (30) days after the receipt of the Breach Notice. If such default
or breach is not cured within thirty (30) days of receipt of the Breach Notice,
the non-defaulting Party may give written notice ("Termination Notice") to the
defaulting Party of the non-defaulting Party's selection to terminate this
Agreement on a date specified in the Termination Notice. If the defaulting Party
is making diligent efforts to cure a breach that is not reasonably susceptible
to cure within thirty (30) days, the defaulting Party shall be provided a
reasonable time period up to forty-five (45) days from Breach Notice to complete
the cure of the breach. If such breach is not cured within such thirty (30) or
forty-five (45) day period, as applicable, the Agreement shall terminate on the
date specified in the Termination Notice. Such right of termination shall not be
exclusive of any other remedies or means of redress to which the non-defaulting
Party may be lawfully entitled. Notwithstanding the foregoing, a Party's default
on any provision of this Agreement shall not be considered a Breach to the
extent that this Agreement contains a remedy for such Breach.
7.3 If Publisher or HealthStream: (i) makes an assignment for
the benefit of creditors; (ii) becomes insolvent; (iii) files a voluntary
petition for bankruptcy; (iv) acquiesces to an involuntary bankruptcy petition;
(iv) is adjudicated as bankrupt; or (v) ceases to do business, the other Party,
at its option, may immediately terminate this Agreement upon giving written
notice thereof.
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7.4 In addition to those rights specified herein and subject
to Section 7.7 hereof, the following rights and obligations survive any
expiration or termination of this Agreement to the degree necessary to permit
their complete fulfillment or discharge: (i) the rights and obligations of the
Parties with respect to Publisher's Intellectual Property Rights and
HealthStream's Intellectual Property Rights; (ii) the rights and obligations of
the Parties with respect to the Services that have been sold or distributed,
including obligations of HealthStream to make all applicable payments under this
Agreement; (iii) any cause of action or claim of either Party, accrued or to
accrue, because of any breach or default by other parties; and (iv) the rights
and obligations of either Party with respect to confidentiality,
indemnification, warranties and representations.
7.5 If this Agreement is lawfully terminated by HealthStream
as a result of a breach of its terms or conditions by Publisher, HealthStream
may, for a period of one (1) year following the date of such termination of this
Agreement, sell, or continue to sell through the Services the CME Materials or
portions thereof as they exist at the time of HealthStream's termination for
Publisher's breach. The reporting and payment obligations of HealthStream shall
apply to the sales and distribution of the CME Materials or portions thereof
accruing after termination.
7.6 Without limiting the generality of the foregoing, the
provisions of termination of this Agreement for Sections 1, 4, 6.6, 7.5, 8, and
9.13 shall survive the expiration or early termination of this Agreement for any
reason.
7.7 In the event of termination or expiration of this
Agreement for any reason, HealthStream shall immediately (or at such later date
as is set forth in Section 7.5 in the event of a termination under that Section)
cease further distribution of the CME Materials through the Services. In
addition, HealthStream shall destroy all versions and copies of the Properties
in whatever form or medium in HealthStream's custody or under HealthStream's
control. An officer of HealthStream shall certify such action in writing to
Publisher.
8. OWNERSHIP OF THE PROPERTIES
8.1 Publisher acknowledges HealthStream's right, title and
interest to HealthStream's Intellectual Property Rights (including, without
limitation, all Intellectual Property Rights subsisting in the implementation
and all elements of HealthStream's computer graphic user interfaces, machine
interfaces and other computer programs and other audiovisual and literary
works), and will not at any time do or cause to be done any act or thing
contesting or in any way impairing or tending to impair any part of such right,
title and interest thereto. In connection with the use of HealthStream's
Intellectual Property Rights, Publisher shall not in any manner represent that
it has any ownership therein, and Publisher acknowledges that any use pursuant
to this Agreement (if any) of HealthStream's Intellectual Property Rights shall
not create any right, title or interest therein in Publisher's favor.
8.2 HealthStream acknowledges Publisher's right, title and
interest in and to Publisher's Intellectual Property Rights, and will not at any
time do or cause to be done any act or thing contesting or in any way impairing
or tending to impair any part of such right, title and interest thereto. In
connection with the use of Publisher's Intellectual Property Rights,
HealthStream shall not in any manner represent that it has any ownership therein
and HealthStream acknowledges that its use of Publisher's Intellectual Property
Rights shall not create any right, title and interest therein in HealthStream's
favor. HealthStream further agrees not to copy, reproduce, sell, license,
subscribe, lease or distribute the CME Materials or portions thereof other than
as expressly permitted herein.
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<PAGE> 7
8.3 HealthStream will place in writing in an agreement with
each User a warranty disclaimer and liability limitation clauses. HealthStream
shall make commercially reasonable efforts to ensure that any User provided with
access to CME Materials or portions thereof by or through Services expressly
agrees (i) to use the CME Materials or portions thereof exclusively as an
internal management, reference or informational tool for that User's use only;
and (ii) not to reproduce or distribute the CME Materials or portions thereof
for any commercial purpose. The sole obligation of HealthStream with respect to
the requirements identified in this Section 8.3 applicable to each User shall be
to include appropriate terms in written contracts with each such User, as
required by this Agreement and to take commercially reasonable steps to
terminate Users who intentionally breach the terms of such User Agreements.
Publisher shall look to each such User, and not HealthStream, to redress any
damages imposed on Publisher due to any actions taken by, or breach of the
obligations of, such User.
8.4 HealthStream shall promptly notify Publisher of any
unauthorized use or infringement of the CME Materials or portions thereof by
Users or others of which HealthStream becomes aware. Publisher shall have the
right, at its expense, to bring an action on account of such unauthorized uses
or infringements provided that Publisher will not bring an action against any
User without first consulting with HealthStream. HealthStream shall cooperate
with Publisher in such action in such manner as the Publisher may reasonably
request at Publisher's cost and expense.
9. MISCELLANEOUS
9.1 Recitals. The recitals herein constitute an integral part
of the Agreement reached by the Parties and are to be considered as such.
9.2 No Waiver. The waiver by either Party of a breach or
default of any provision of this Agreement by the other Party shall not
constitute a waiver by such Party of any succeeding breach of the same or other
provision; nor shall any delay or omission on the part of either Party to
exercise or avail itself of any right, power or privilege that it has or may
have hereunder operate as a waiver of any such right, power or privilege by such
Party.
9.3 Force Majeure. Neither HealthStream nor Publisher shall be
liable for any breach of this Agreement occasioned by any cause beyond the
reasonable control of such party, which for purposes of this Agreement shall
mean governmental action, war, riot, or civil commotion, fire, floods, labor
disputes, restraints affecting shipping or credit, delay of carrier, black-outs,
brown-outs, computer generated worms, viruses, and other self-destructing code,
a substantial change to the commercial structure of the Internet or any other
causes which could not with reasonable diligence be controlled or prevented by
the parties.
9.4 Headings. The headings of the Sections of this Agreement
are for convenience only and will not be of any effect in construing the
meanings of the Sections and subsections.
9.5 Counterparts; Facsimile. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. Any signed copy of
this Agreement delivered by facsimile transmission shall for all purposes be
treated as if it were delivered containing an original signature of the party
whose signature appears in the facsimile.
9.6 No Assignment. Neither Party shall assign this Agreement
or any of its rights hereunder or delegate any of its obligations hereunder
except with the prior written consent of the other
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<PAGE> 8
Party; provided, however, that either Party may assign in conjunction with its
mergers, reorganization or the sale of substantially all assets to which this
Agreement pertains, provided that the surviving company continues in the same or
substantially similar business.
9.7 Invalidity. If any covenant or other provision of this
Agreement is invalid, illegal, or incapable of being enforced by reason of any
rule of law, administrative order, judicial decision or public policy, all other
conditions and provisions of this Agreement shall, nevertheless, remain in full
force and effect. The Parties shall make changes to this Agreement as are
necessary to cure the invalidity, consistent with the original objectives of the
Parties.
9.8 Relationship of the Parties. Nothing in this Agreement nor
the relations between the Parties of this Agreement shall be construed to
constitute a partnership or joint venture between or among the Parties of this
Agreement. Neither Party shall have the right or authority to bind or obligate
the other Party in any manner whatsoever and shall not expressly or impliedly
incur any liability or obligation on behalf of the other Party.
9.9 Reasonable Approval. Whenever any provision of this
Agreement requires the consent or approval of a Party, such consent or approval
shall be given in writing, and shall not be unreasonably withheld or delayed.
9.10 Notices. All notices or other communications that shall
or may be given pursuant to this Agreement, shall be in writing, in English, and
shall be sent by certified or registered air mail with postage prepaid, return
receipt requested, by facsimile, telex or cable communication, or by hand
delivery. Such communications shall be deemed given and received upon dispatch,
if sent by facsimile, telex, or cable communication; or upon delivery if hand
delivered; or within five (5) days of mailing, if sent by certified or
registered mail, and shall be addressed to the parties as set forth below or to
such other addresses as the parties may designate in writing from time to time.
If to Publisher: American Health Consultants
3525 Piedmont Road
Building 6, Suite 400
Atlanta, Georgia 30305
Fax: (404) 262-5510
Attn: Marcus Underwood
Director, Special Projects
If to HealthStream: 209 10th Avenue South
Suite 450
Nashville, TN 37203
Fax: (615) 301-3200
Attn: Robert H. Laird
Vice President and General Counsel
9.11 Governing Law. This Agreement shall be governed by the
laws of the State of Georgia, notwithstanding that state's choice of law rules.
Integrated Agreement
8
<PAGE> 9
9.12 Entire Agreement. This Agreement, including the exhibits
attached hereto, state the entire Agreement between the Parties relating to the
subject matter of this Agreement and supersedes any and all prior Agreements and
communications, written or oral. No amendment or modification of this Agreement
may be made except by an instrument in writing signed by both Parties.
9.13 Non-Disclosure. The terms and provisions of this
Agreement, any amounts paid to Publisher hereunder, and any and all other
business information disclosed by either party (the "Disclosing Party") to the
other (the "Receiving Party") in the course of its performance of this
Agreement, which information is designated by the Disclosing Party as
confidential or proprietary or which the Receiving Party should recognize from
the facts and circumstances surrounding the disclosure of such information is
confidential or proprietary to the Disclosing Party, shall constitute
confidential information ("Confidential Information") of the Disclosing Party.
The Receiving Party shall hold the Confidential Information of the Disclosing
Party in confidence and will use such Confidential Information only for the
purposes of fulfilling its obligations under this Agreement. Nothing in this
Agreement will be interpreted to confer upon the Receiving Party any implied or
express license to use the Confidential Information of the Disclosing Party for
any other purpose. The Receiving Party will not disclose, provide, disseminate
or otherwise make available any Confidential Information of the Disclosing Party
or any part thereof in any form whatsoever to any third party without the
express written permission of the Disclosing Party. The obligations in this
Section 5.4 shall not apply to any (a) information that is now or later becomes
publicly available through no fault of the Receiving Party; (b) information that
is obtained by the Receiving Party from a third party (other than in connection
with this Agreement) who is not under any obligation of secrecy or
confidentiality to the Disclosing Party with respect to such information; (c)
information that is independently developed by the Receiving Party (e.g.,
without reference to any Confidential Information); (d) any disclosure required
by applicable law, provided that the Receiving Party shall use reasonable
efforts to give advance notice to and cooperate with the Disclosing Party in
connection with any such disclosure; and (e) any disclosure with the consent of
the Disclosing Party. The parties acknowledge that the covenants contained in
this Section 5.4 are reasonable and necessary to protect their legitimate
interests, that the parties would not have entered into this Agreement in the
absence of such covenants, that any breach or threatened breach of such
covenants will result in irreparable injury to the Disclosing Party, and that
the remedy at law for such breach or threatened breach would be inadequate.
Accordingly, the Parties agree that the Disclosing Party shall, in addition to
any other rights or remedies which it may have, be entitled to seek such
equitable and injunctive relief without the posting of any bond or security as
may be available from any court of competent jurisdiction to restrain the
Receiving Party from any breach or threatened breach of such covenants.
IN WITNESS WHEREOF, each of the Parties has caused a duly authorized
officer or agent to execute the Agreement as of the dates set forth below.
On Behalf of HealthStream: On Behalf of Publisher:
By: /s/ Robert A. Frist, Jr. By: /s/ Jeff MacDonald
------------------------------ ---------------------------------
Name: Robert A. Frist, Jr. Name: Jeff MacDonald
--------------------------- -------------------------------
Title: CEO Title: President & CEO
--------------------------- -------------------------------
Date: January 27, 2000 Date: January 31, 2000
--------------------------- -------------------------------
Integrated Agreement
9
<PAGE> 10
EXHIBIT A: PROPERTY
Description of "CME Materials"
CME Materials consist of all material currently available on Publisher's cmeweb
Internet site (listed below and hereafter referred to as "Modules"), any Modules
that become available on Publisher's cmeweb Internet site during the Term, and
updates to the Modules within 30 days of the modules going live on the cmeweb
site.
Continuing Medical Education Materials
1. Clinical Cardiology Alert
2. Clinical Oncology Alert
3. Critical Care Alert
4. Emergency Department Legal Letter
5. Emergency Medicine Reports
6. Infectious Disease Alerts
7. Pediatric Emergency Medicine Reports
8. Primary Care Reports
9. Travel Medicine Advisor
10. Neurology Alert
11. Primary Care Reports
12. Pediatric and Adolescent Medicine Reports
13. OB/GYN Alert
14. Emergency Medicine Alert
15. Alternative Medicine Alert
Integrated Agreement
10
<PAGE> 11
EXHIBIT B: COMPENSATION PROVISIONS
B1. "Fees" shall mean amounts billed to and actually received by
HealthStream for access to CME Materials from Users, distributors, or
agents less discounts to distributors, credits or refunds actually paid
by HealthStream.
B2. HealthStream will collect from Users a Fee which shall not be less than
* for each Module of Publisher's CME Materials a User accesses on the
Service prior to permitting the User to access each Module. A User may
access the Module(s) one or more times after the User has paid the Fees
for access to the Module(s). Publisher's credit toward the yearly
minimum as described in B3 shall in no instance be less than * per
Module, provided Publisher's list price remains * or greater per
Module. In the event Publisher's list price falls below * per module,
Publisher's credit toward the yearly minimum as described in B3 shall
be * of Publisher's list price.
B3. Subject to the remaining provisions of this section B3, HealthStream
shall pay Publisher * per month for the duration of the Term, due the
first day of each month. In addition to the * each month, HealthStream
shall compute within forty five (45) days after each 12 month
anniversary of the Launch Date within the Initial Term or the then
current Renewal Term (as applicable), the Fees collected during the
previous 12 months of the Initial or Renewal Term, and shall furnish
Publisher with a statement in sufficient detail to verify such total
Fees (the "Compensation Statement"). HealthStream shall remit to
Publisher along with the Compensation Statement an amount equal to * of
any Fees collected during previous 12 months of the Initial or Renewal
Term that are in excess of *. In the event that the total number of
credit hours available from the CME Materials listed in Exhibit A falls
below eight hundred (800), and stays below this level for more than 30
consecutive days, the monthly licensing fee of * shall be prorated to
reflect the reduced number of hours until the number of credit hours
available exceeds eight hundred (800). The prorated fee shall be based
on the number of credit hours available on the date when the available
credit hours fall below eight hundred (800). The prorated fee will be
recalculated at the regular monthly reporting intervals for the
duration of the period during which the available credit hours remain
below eight hundred (800).
B4. HealthStream shall, upon thirty (30) days written notice by Publisher,
make all of its records related to Fees calculations available to
Publisher or its designees at HealthStream's principal place of
business during normal business hours ("Audit"). All information
obtained from such records shall remain strictly confidential and shall
not be disclosed by Publisher or its designee to third Parties or used
for any purpose other than calculating Fees due and verifying the
accuracy of the computation of the Fees and other compliance with this
Agreement. Notwithstanding the foregoing, Publisher may not (i) request
an Audit more than once every twelve (12) months; or (ii) claim any
Fees more than two (2) years following the Compensation Date by which
such Fees were accrued. Publisher shall bear the expense of such Audit
unless the Audit shows an error amounting to a deficiency to Publisher
in excess of five percent (5%) of the actual Fees payable to Publisher
for the applicable period, in which event, HealthStream shall bear the
reasonable expense of the Audit. HealthStream shall pay Publisher the
amount of any deficiency discovered by Publisher within thirty (30)
days after receipt of notice thereof from Publisher.
B5 HealthStream is under no obligation to sell and distribute a minimum
quantity of the CME Materials or portions thereof.
Integrated Agreement
11
<PAGE> 12
EXHIBIT C: EXISTING PARTNERS
Below is a listing of Publisher's existing CME content licensing partners.
Publisher reserves the right to add to this list if it signs on new partners
during the term of this agreement.
1. Healtheon/WebMD
2. MDConsult
3. Summa Health Systems
Integrated Agreement
12
<PAGE> 1
EXHIBIT 10.23
We have omitted certain portions of this document and filed them separately
with the Commission. These portions are marked with an asterisk (*)
August 13, 1999
Ms. Linda McMullen
Mississippi State Medical Association [HealthStream (LOGO)]
P.O. Box 5229
Jackson, MS 39296-5229
Re: Letter of Agreement
Dear Ms. McMullen,
This letter is intended to set forth an agreement by and between HealthStream,
Inc., ("HealthStream"), a Tennessee corporation, and the Mississippi State
Medical Association ("MSMA"), a Mississippi, non-profit corporation.
1) Overall Structure. This letter of agreement establishes a joint marketing
agreement to cooperatively distribute continuing medical education (CME)
for physicians.
2) Purpose. The purpose of this venture is to jointly market and distribute
online CME using the combined resources of MSMA and HealthStream.
Specifically the parties intend to:
a) Market the availability of online CME courses to MSMA's members
using marketing means consistent with current means of reaching
MSMA physicians (i.e. newsletters, education catalog, Grand
Round announcements, direct mail, etc.).
b) Distribute HealthStream's CME Web Courses through a link on
MSMA's web page(s)
3) Price and Payment. The pricing and payment for the online CME courses
shall be on the following terms:
a) Due to the relationship between HealthStream and MSMA,
HealthStream shall provide those physicians identifying
themselves as MSMA physicians using either a) an event code
provided by HealthStream unique to MSMA, or b) upon registering
for a course by completing a demographic field indicating MSMA
as their sponsoring organization, with a * discount off of the
retail prices listed for the online courses on the HealthStream
Web site (www.healthstream.com (Get CME!)).
b) Physicians shall bear the total cost for their CME courses less
any discounts extended to them by HealthStream as a result of
this agreement. MSMA shall not be obligated to pay for any
online CME course or part of any online CME for their physicians
at any time.
c) MSMA shall be responsible for the link provided on their Web
site(s) for the CME courses at their cost. HealthStream will
provide link graphics at no charge to MSMA at their request.
4) Exclusivity. There is no overt or implied exclusivity by either party in
this agreement.
5) Confidentiality of Negotiations. The parties shall use reasonable efforts
to maintain at all times as confidential information the terms of this
letter and the content of any negotiations between us except that both
parties may (i) inform advisors, counsel and employees with a need to know
as each party deems necessary, and (ii) make appropriate disclosures if
required by applicable securities laws. The parties will work together to
determine the timing and content of releases of information to the press
and other media entries.
6) Governing Law. This letter shall be governed by the substantive laws of
the State of Tennessee.
7) Entirety. This letter constitutes the entire understanding and agreement
between the parties hereto and their affiliates with respect to its
subject matter and supercedes all prior and contemporaneous agreements,
representations, warranties, and understandings of such parties (Whether
oral or written). No promise, inducement, representation or agreement,
other than as expressly set forth
HealthStream, Inc./Mississippi State Medical Association
Letter of Agreement
1
<PAGE> 2
herein, has been made to or by the parties hereto. This letter may be
amended only by written agreement, signed by the parties to be bound by the
amendment.
8) Construction. This letter shall be construed according to its fair meaning
and not strictly for or against either party. This letter does not, and is
not intended to, impose any binding obligations on the parties.
If the terms and condition of this letter are acceptable, please sign and
return to us a copy of this letter so that we can proceed with the effort.
Accepted and Agreed:
HealthStream, Inc.
Signed: /s/ Robert A. Frist, Jr.
------------------------------------
By: Robert A. Frist
---------------------------------------
Title: CEO
-------------------------------------
Date: 11/29/99
-------------------------------------
Accepted and Agreed:
Mississippi State Medical Association
Signed: /s/ Linda McMullen
------------------------------------
By: Linda McMullen
------------------------------------
Title: General Counsel
-----------------------------------
Date: November 23, 1999
-----------------------------------
HealthStream, Inc./Mississippi State Medical Association
Letter of Agreement
2
<PAGE> 1
EXHIBIT 10.24
We have omitted certain portions of this
document and filed them separately with
the Commission. These portions are marked
with an asterisk (*).
June 26, 1999
Dr. Robert L. Addleton Ed.D.
Medical Association of Georgia [HEALTHSTREAM LOGO]
1330 W. Peachtree Street N.W., #500
Atlanta, GA 38309-2904
Re: LETTER OF AGREEMENT
Dear Dr. Addleton,
This letter is intended to set forth an agreement by and between HealthStream,
Inc. ("HealthStream"), a Tennessee corporation, and the Medical Association of
Georgia ("MAG"), a Georgia, not-for-profit corporation.
1) Overall Structure. This letter of agreement establishes a joint marketing
agreement to cooperatively distribute continuing medical education (CME)
for physicians.
2) Purpose. The purpose of this venture is to jointly market and distribute
online CME using the combined resources of MAG and HealthStream.
Specifically the parties intend to:
a) Market the availability of online CME courses to MAG's medical
staff using marketing means consistent with current means of
reaching MAG physicians (i.e. newsletters, education catalog,
Grand Round announcements, direct mail, etc.).
b) Distribute HealthStream's CME Web Courses through a link to MAG's
web page(s)
3) Price and Payment. The pricing and payment for the online CME courses shall
be on the following terms:
a) Due to the relationship between HealthStream and MAG, HealthStream
shall provide those physicians identifying themselves as MAG
physicians using either a) an event code provided by HealthStream
unique to MAG, or b) upon registering for a course by completing a
demographic field indicating MAG as their sponsoring organization,
with a * discount off of the retail prices listed for the online
courses on the HealthStream Web site (www.healthstream.com)
b) Physicians shall bear the total cost for their CME courses less
any discounts extended to them by HealthStream as a result of this
agreement. MAG shall not be obligated to pay for any online CME
course or part of any online CME for their physicians at any time.
c) MAG shall be responsible for the link provided on their Web
site(s) for the CME course at their cost. HealthStream will
provide link graphics at no charge to MAG at their request.
4) Exclusivity. There is no overt or implied exclusivity by either party in
this agreement.
5) Confidentiality of Negotiations. The parties shall use reasonable efforts
to maintain at all times as confidential information the terms of this
letter and the content of any negotiations between us except that both
parties may (i) inform advisors, counsel and employees with a need to know
as each party deems necessary, and (ii) make appropriate disclosures if
required by applicable securities laws. The parties will work together to
determine the timing and content of releases of information to the press
and other media entities.
6) Governing Law. This letter shall be governed by the substantive laws of the
State of Tennessee.
7) Entirety. This letter constitutes the entire understanding and agreement
between the parties hereto and their affiliates with respect to its subject
matter and supercedes all prior and contemporaneous agreements,
representations, warranties, and understandings of such parties (whether
oral or written). No promise, inducement, representation or agreement,
other than as expressly set forth herein, has
HealthStream, Inc./Medical Association of Georgia 1
Letter of Agreement
<PAGE> 2
been made to or by the parties hereto. This letter may be amended only by
written agreement, signed by the parties to be bound by the amendment.
8) Construction. This letter shall be construed according to its fair meaning
and not strictly for or against either party. This letter does not, and is
not intended to, impose any binding obligations on the parties.
If the terms and conditions of this letter are acceptable, please sign and
return to us a copy of this letter so that we can proceed with this effort.
Accepted and Agreed:
HealthStream, Inc.
Signed: Robert A. Frist, Jr.
----------------------------------
By: /s/ Robert A. Frist
--------------------------------------
Title: Chief Executive
Date: 12/14/99
Accepted and Agreed:
Medical Association of Georgia
Signed: Robert L. Addleton
----------------------------------
By: /s/ Robert L. Addleton
--------------------------------------
Title: Director of Education
Date: 10/21/99
HealthStream, Inc./Medical Association of Georgia 2
Letter of Agreement
<PAGE> 1
EXHIBIT 10.25
We have omitted certain portions of this document and filed them separately with
the Commission. These portions are marked with an asterisk (*).
ONLINE EDUCATION SERVICES PROVIDER AGREEMENT
This Online Education Services Provider Agreement ("Agreement"), is
entered into as of February 10, 2000 ("Effective Date") between HealthStream,
Inc., a Tennessee corporation with its principal place of business at 209 10th
Avenue South, Suite 450, Nashville, Tennessee 37203 ("HealthStream") and
Columbia Information Systems, Inc. a Tennessee Corporation with its principal
place of business at 2555 Park Plaza, Nashville, Tennessee 37203 ("Client").
WHEREAS, HealthStream has developed and marketed and continues to
develop and market web-based applications that provide training and education
services for healthcare organizations;
WHEREAS, Client and its affiliates own and operate healthcare provider
organizations and have affiliations with other owners and operators of
healthcare provider organizations;
WHEREAS, Client wishes to access and utilize HealthStream's training
and education services and to make such services available to its affiliated
entities, and HealthStream has agreed to provide such training and education
services to Client;
WHEREAS, Client and HealthStream wish to provide for appropriate
consideration for the services obtained under this Agreement and each
acknowledge the sufficiency and adequacy of the value, concessions, and
recitations set forth herein;
NOW THEREFORE, Client and HealthStream agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall have
the meanings assigned below:
1.1. "Affiliated Providers" shall mean C/HCA Providers, HPG Providers,
LifePoint Providers, Triad Providers, or CIS Providers.
1.1.1. "C/HCA Providers" shall mean those Providers owned, controlled
or operated by any entity owned or controlled by Columbia/HCA
Healthcare Corporation.
1.1.2. "HPG Providers" shall mean HealthTrust Purchasing Group, L.P.
and Providers which are or become members of HealthTrust
Purchasing Group, LP and which are not C/HCA Providers,
LifePoint Providers or Triad Providers.
1.1.3. "LifePoint Providers" shall mean those Providers owned,
controlled, or operated by any entity owned or controlled by
LifePoint Hospitals, Inc.
1.1.4. "Triad Providers" shall mean those Providers owned,
controlled, or operated by any entity owned or controlled by
Triad Hospitals, Inc.
1.1.5. "CIS Providers" shall mean those Providers which receive
information systems services from Client.
1.2. "Authorized Users" shall mean (i) Client, (ii) Affiliated Providers to
which Client provides the Services under this Agreement, and (iii)
persons who access portions of the Services that may require user
registration and authentication in compliance with terms of
HealthStream's Services.
1.3. "Client Courseware" shall mean those courses based upon Client or
Affiliated Provider materials and information that have been conformed
for Web use by HealthStream or those Courses provided by Client or
Affiliated Providers to HealthStream in web-ready format. Client
Courseware will be provided to Authorized Users by HealthStream
pursuant to the terms of this Agreement.
1.4. "Confidential Information" shall mean the User Data, individual
performance records of Authorized Users, the identity and individual
performance records of Providers, financial and
Page 1 of 22
<PAGE> 2
tax information, 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.
1.5. "Content" shall mean all the information, excluding User Data,
disseminated by HealthStream in providing the Services. Content
includes HealthStream Courseware, promotional information, messages and
communication to Authorized Users, software (in object code format),
scripting, photos, text, video, graphics, sounds, images and other
material and services provided hereunder by HealthStream through the
Gateways, including the Gateways.
1.6. "Content Partners" shall mean those third parties that have licensed
HealthStream certain information or Courses included in the Content.
1.7. "Content Partner Courseware" shall mean Courses licensed by
HealthStream from Content Partners.
1.8. "Contracted Client" shall mean those Providers who have contracted with
Client for the Services.
1.9. "Course" shall mean any individual unit of instruction provided through
HealthStream's web-based applications. HealthStream Courseware and
Client Courseware are comprised of multiple Courses.
1.10. "Courseware" shall mean collectively the HealthStream Courseware and
Client Courseware.
1.11. "Expiration Date" shall mean four years from the Effective Date.
1.12. "Gateways" shall mean the online websites enabled by HealthStream
web-based applications that allow Authorized Users access to the
Services offered pursuant to the terms of this Agreement. Gateways are
designed to be Client or Contracted Client specific in branding and
identification pursuant to Section 2.
1.13. "HealthStream Courseware" shall mean Content Partner Courseware and
those Courses that are the proprietary property of HealthStream
provided to Authorized Users though the Gateways pursuant to the terms
of this Agreement. The library of HealthStream Courseware will expand
over time; new Course offerings will add to the breadth of the library
and replace those Courses that become outdated.
1.14. "HHS" shall mean the Department of Health and Human Services.
1.15. "Personal Information" shall mean information submitted by the
Authorized Users of the Services for personal identification, profiling
and report generation. Such Personal Information may include the name,
employer, department, social security number, profession, address, and
past educational activities for Authorized Users.
1.16. "Provider" shall mean healthcare provider facilities whose employees
require training to comply with legal requirements and continuing
education to maintain clinical or non-clinical licensure.
1.17. "Service Fees" shall mean the Courseware Fees, Administrative Fees,
Support Fees, Gateway Customization Fees, Report Creation Fees and
Courseware Development Fees due monthly for the Services.
1.18. "Services" shall mean the Learning Services, Administrative Services,
Support Services, Gateway Initialization Services, Report Creation
Services, Courseware Development Services, and other services as
provided by HealthStream to Client pursuant to the terms of this
Agreement.
1.19. "User Data" shall mean the Personal Information and other data
submitted and generated by Authorized Users of the Services under this
Agreement. Both parties shall have access to User Data subject to
Sections 4.4, 4.5 and 4.6 herein.
2. SERVICES. For the Fees specified in Article 3 herein, HealthStream
hereby agrees to perform the Services for the Client and its Authorized
Users based upon the terms of this Agreement.
Page 2 of 22
<PAGE> 3
2.1 Learning Services. HealthStream hereby agrees to maintain, at its cost,
Gateways on the World Wide Web so that Authorized Users may access,
register for and take Courseware (the "Learning Services") through the
use of a password on the Gateway. The Learning Services provided
hereunder will enable each Authorized User to:
A. Register on the Gateway, subject to restrictions;
B. Search, select, enroll and take Courseware, subject to
restrictions;
C. Take exams and have exams graded and scored; and
D. Access a personalized educational transcript that documents
each Authorized User's completed Courseware, completion dates
and test scores (the "Educational Transcript").
2.2. Administrative Services. The Services provided pursuant to this Section
2.2 shall be known as the "Administrative Services."
2.2.1. Authorized User Control. HealthStream will provide control
services to allow specified Client and Contracted Client
personnel to identify Authorized Users and assign Courseware
to Authorized Users.
2.2.2. Reporting. HealthStream hereby agrees to store and provide
access to reports to Client (and Affiliated Providers for
which custom reports are created pursuant to Section 2.5
hereof) documenting the completion of Courses by Authorized
Users on the Gateways.
2.3. Support Services. The Phone Support Services and Email Support Services
provided pursuant to this Section 2.3 shall be known as the "Support
Services."
2.3.1. Phone Support Services. HealthStream hereby agrees to provide
to Client and Authorized Users access to HealthStream's
support personnel via telephone to obtain answers to questions
regarding the routine provision of Learning Services and
Administrative Services. Phone Support Services shall be
available to the Client or any Authorized User during normal
business hours, Central Standard Time. Each Authorized User
instance of access of the Phone Support Services shall be
known as a "Phone Support Session."
2.3.2. Email Support Services. HealthStream hereby agrees to provide
to Client and Authorized Users access to HealthStream's
support personnel via electronic mail to obtain answers to
questions regarding the routine provision of Learning Services
and Administrative Services. Electronic mail will be answered
during normal business hours, Central Standard Time. Each
Authorized User instance of access of the Email Support
Services shall be known as a "Email Support Session."
2.3.3. Error Correction Services. If Client or an Authorized User
suspects that an error is preventing provision of any of the
Administrative Services or the Learning Services, Client or an
Authorized User shall notify HealthStream of the suspected
error and HealthStream shall use commercially reasonable
efforts to confirm such suspected error. If the existence of
an error is confirmed by HealthStream, HealthStream shall
correct it as part of Support Services, but only to the extent
that the obligation to correct such error shall be in
conformity with Sections 6 (Warranty) and 12.6 (Force Majeure)
of this Agreement; However, provided that, HealthStream is
obligated to correct any defects addressed in items (a)
through (e) of Section 6.1.6 regardless of whether
HealthStream had knowledge of such defects. If the existence
of a suspected error cannot be confirmed by HealthStream or
should HealthStream ultimately determine that an error exists
because of any condition not attributable to HealthStream,
Client agrees to pay HealthStream for its error confirmation
and remedial services at HealthStream's prevailing hourly rate
for HealthStream's personnel time, plus reimbursement for
reasonable travel and living expenses incurred
Page 3 of 22
<PAGE> 4
by HealthStream personnel in connection with such service. Any
invoice for such expenses shall be supported by receipts.
HealthStream will not initiate any remedial services for which
Client is obligated to pay HealthStream until Client agrees to
the scope and cost such of services.
2.3.4 Additional Services. In the event the Client or any Authorized
User requests any support or services other than those
included under the terms of this Agreement, HealthStream
shall, depending upon the availability of its personnel,
furnish such support or support services subject to additional
fees, terms and conditions, if any, as mutually agreed.
2.4. Gateway Initialization Services. HealthStream hereby agrees to set up
each Gateway for operation for each Contracted Client according to the
specifications described in Exhibit A attached hereto (the "Gateway
Initialization Services"). Upon delivery of the Gateway Initialization
Services, Contracted Client shall have fifteen (15) business days to
examine the Gateway Initialization Services and inform HealthStream of
a failure to conform to the specifications contained in Exhibit A
attached hereto. If no such failure is communicated by Contracted
Client to HealthStream within this time period, the Gateway
Initialization Services shall be deemed accepted. Such acceptance shall
not relieve HealthStream of its obligation to meet the specifications.
If at any time the Gateway Initialization Services fail to conform to
the specifications, HealthStream shall correct, modify or improve the
Gateway Initialization Services to meet the specifications. -
2.5. Report Creation Services. HealthStream will develop custom reports for
Client and Affiliated Providers as needed ("the Report Creation
Services"). HealthStream and Client or Affiliated Provider will agree
in writing as to the scope of the Report Creation Services on a per
project basis.
2.6. Courseware Development Services. HealthStream will develop Client
Courseware or customize certain HealthStream Courseware for Client and
Affiliated Providers as needed ("the Courseware Development Services").
HealthStream and Client or Affiliated Provider will agree in writing as
to the scope of the Courseware Development Services on a per project
basis.
2.7. Delivery. The delivery of the Services shall be provided according to
the delivery schedule outlined in Exhibit B attached hereto.
3. SERVICE PLACEMENT AND FEES.
3.1. Services Placement. HealthStream Grants Client the non-exclusive,
non-transferable right to contract the delivery of the Services to
Affiliated Providers. Each Provider that contracts with Client for the
Services will become a Contracted Client and will have access to the
Services.
3.1.1 Any Affiliated Provider facility which is sold to an
independent third party may continue to utilize the Services
provided Client is providing data processing services to such
divested entity. If Client is not continuing to provide data
processing services to such divested entity, then such entity
shall have the right to continue to use the Services for the
remainder of the current calendar year, or ninety (90) days,
whichever is longer. After such time, the entity will have to
obtain its own license.
3.1.2 HealthStream, acting as an agent on behalf of the applicable
Affiliated Provider shall have the right to license use of
Client Courseware through its own Web sites in a manner that
shall be mutually agreed upon in writing by the parties.
3.2 Service Fees. In consideration of the Services provided hereunder,
Client shall pay to HealthStream:
3.2.1. Courseware Fee for Learning Services. Fees outlined in this
Section 3.2.1 shall be the "Courseware Fee." A list of
available courseware is described in Exhibit C attached
hereto.
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<PAGE> 5
3.2.1.1. Regulatory Courseware. A fee equal to * per course on OSHA and
JCAHO mandated topics (the "Regulatory Courseware").
3.2.1.2. Content Partner Courseware. A fee equal to * for Content
Partner Courseware.
3.2.1.3. HealthStream Owned Courseware. A fee equal to * per course for
all HealthStream Courseware that is not Regulatory Courseware
or Content Partner Courseware.
3.2.1.4. Client Courseware. Fees for Client Courseware provided through
the Gateways will be negotiated on a case by case basis.
3.2.2. Administrative Fee for Administrative Services. A fee equal to
the sum of * per year, per Authorized User, billed at * per
month per Authorized User (the "Administrative Fee");
3.2.3. Support Fee for Support Services. One identified staff member
from each Contract Client Provider will be given un-metered
access to the Support Services.
3.2.3.1. A fee equal to the sum of * per Phone Support
Session, billed monthly.
3.2.3.2. A fee equal to the sum of * per Email Support Session
for each Email Support Session in excess of twenty
five (25) per Contract Client Provider per month,
billed monthly.
3.2.3.3. The fees due for Phone Support Sessions, 24/7 Online
Support Sessions and Email Support Sessions as
provided herein shall be known as the "Support Fees".
3.2.4. Gateway Initialization Fee for Gateway Initialization
Services. A one-time per Gateway fee equal to * for each
Gateway, billed monthly for each Gateway made operational and
accepted under Section 2.4 during the prior month (the
"Gateway Customization Fee");
3.2.5. Report Creation Fee for Report Creation Services. Customized
reports will be created by HealthStream for Client and
Affiliated Providers at its then hourly rate less * (the
"Report Creation Fee");
3.2.6. Courseware Development Fee for Courseware Development
Services. Fees for Courseware Development Services will be
mutually agreed upon by both parties when the scope of each
courseware development project is identified.
3.3 Payment. The Service Fees are due each month upon receipt of an invoice
from HealthStream, subject to Section 3.5 herein, and payable within
thirty (30) days after receipt. HealthStream will provide invoices
detailing all Service Fees. All invoices shall be submitted
electronically in (*.txt) Text Only format in form and content as
specified in Exhibit B, or as mutually agreed between the parties from
time to time.
3.4 Annual Commitment. Client makes a commitment to purchase * of Services
in each year of the Agreement (the "Annual Commitment") for a total
commitment to purchase * of Services over the initial Term of this
Agreement (the "Total Commitment"). Up to * of Annual Commitment from
the first year of this Agreement (the "First Year") may be shifted pro
rata to years two, three and four of this Agreement (the "Later
Years") at Client option provided the Total Commitment is achieved by
the Expiration Date. Payments by Authorized Users for Learning
Services accessed through the Gateways shall be credited to the Annual
Commitment.
3.5 Annual Reconciliation. Pursuant to the Annual Commitment, Client agrees
to pay HealthStream the difference between the Annual Commitment and
any Services Fees billed
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<PAGE> 6
during each of year of the Agreement within thirty (30) days of the end
of each year of this Agreement.
3.6 Adjustment in Fees. The Fees due hereunder and set forth in Section 3.2
herein may be subject to an annual adjustment prior to the Expiration
Date. Fee increases shall not exceed five percent (5%) per annum. If
HealthStream provides substantially similar Services to another party
at prices less than the prices being paid by Client, HealthStream and
Client 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 party.
3.7 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 Section
3.2 herein, any modification to the Services, which are requested by
Client, may be accompanied by additional fees as determined by
HealthStream, and approved in writing by Client prior to initiation of
such modification. If HealthStream initiates a modification on its own
initiative without a request by Client, then there will be no
additional costs or fees for such modification prior to the Expiration
Date.
3.8 All undisputed amounts due hereunder must be paid within thirty (30)
days after the date of receipt of an invoice (the "Due Date"). Any
payment not received within fifteen (15) days of its Due Date shall
accrue at the rate of one percent (1%) per month; provided, however, if
such rate is not then lawful, any such payment shall accrue at the
highest lawful rate then available.
4. INTELLECTUAL PROPERTY.
4.1. Content. Content may be accessed by Client and any Authorized User, but
only for the purposes described herein.
4.2. Prohibited Use of Content. The Content is protected in the U.S. and
internationally by a variety of laws, including without limitation,
copyright laws, trademark laws and other proprietary rights laws.
Client and any Authorized User are granted permission to access the
Content from HealthStream, but only for purposes of viewing, browsing
or ordering products and services from HealthStream. HealthStream is
not granting Client or any Authorized User permission to use the
Content other than as expressly stated in this Agreement. Except as
stated herein and in Section 5 hereof, none of the Content may be
copied, reproduced, distributed, republished, downloaded, displayed,
posted or transmitted, in any form or by any means, including without
limitation, electronic, mechanical, photocopying, or recording, without
the prior written permission of HealthStream.
4.3. Trademarks. The trademarks, service marks, and logos (collectively, the
"Trademarks") used and displayed on the Content are registered and
unregistered trademarks of HealthStream, Client, Authorized Users and
others. Nothing in this Agreement, the Gateway or on any HealthStream
Web site should be construed as granting, by implication, estoppel, or
otherwise, any license or right to use any Trademark displayed on the
Gateway or on any HealthStream Web site, without the express written
permission of the Trademark owner. Client, Authorized Users and
HealthStream will refrain from issuing each other's name or logo as a
link to any network site unless establishment of such a link is
approved in advance and in writing by the owner of the name or logo.
4.4. Confidential and Proprietary Information. With respect to the
development services provided in Section 2 herein, HealthStream
acknowledges that Confidential Information provided by Client or
Authorized Users is protected by law. HealthStream will neither
disclose such information, directly or indirectly, nor use such
information for any purpose except to perform the services described in
this Agreement, except as provided below, or outlined in Sections 4.5
and 4.6 herein. All documents or records of a disclosing party which
may be used or received by HealthStream shall remain exclusive property
of the disclosing party. Client, on behalf of itself and the Affiliated
Providers, acknowledges that Confidential Information provided by
HealthStream is also protected by law. Client and the Affiliated
Providers will neither disclose such information, directly or
indirectly, nor use such information for any purpose except to
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<PAGE> 7
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 shall exercise at least
the same degree of care to safeguard the confidentiality of the other
party's Confidential Information as it does to safeguard its own
proprietary confidential information of equal importance, but not less
than a reasonable degree of care. 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 publicly known prior to the disclosure or
which becomes publicly known through no wrongful act of the receiving
party; (b) Confidential Information that was in lawful possession of
the recipient prior to the disclosure, without any confidentiality
obligation; (c) Confidential Information that was independently
developed by the recipient outside the scope of this Agreement and
without access to information received from the other party pursuant to
this Agreement; (d) Confidential Information that was disclosed to the
recipient by an unrelated third party in lawful possession of the
information and not in breach of any confidentiality obligation with
respect to such information; or (e) Confidential Information required
to be disclosed pursuant to regulatory action or court order, provided
adequate prior written notice of any such request to product is given
to the discloser of the information. Upon the termination of this
Agreement, either party shall: (i) immediately cease to use the
Confidential Information; (ii) 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; or
(iii) upon request, certify in writing to the other party that it has
complied with its obligations set forth in (i) and (ii) above. 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 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
4.5. Aggregated Data. HealthStream agrees not to distribute directly any
User Data which may be collected or received by HealthStream. Client
grants HealthStream an unrestricted, royalty-free, irrevocable license
to maintain and distribute aggregated compilations of User Data
("Aggregated Data") such that Personal Information and the identity of
Client and Contract Client Providers is not included. Aggregated Data
will be used for measurement of performance norms for all HealthStream
clients and will likewise include performance information generated by
other HealthStream clients. The process of collecting and generating
Aggregated Data assists HealthStream clients maximize the effectiveness
of the Services for their employees. HealthStream will adhere to all
HHS or United States governmental regulations regarding privacy of User
Data. The right to maintain and distribute Aggregated Data shall
survive this Agreement. HealthStream will provide Client with
Aggregated Data upon request.
4.6. Licensing Organization Distribution. In the regular course of
performing the Services, HealthStream may distribute certain User Data
to licensing organizations for the benefit of Authorized Users. The
release of such information is consistent with the current practice
used by Authorized Users themselves when reporting educational activity
for credit toward professional licensure. HealthStream will release
only the minimum information required by these organizations to
adequately credit Authorized Users for educational activities
completed. The provisions of this Section 4 shall survive any
termination of this Agreement.
4.7. Title. Title to Client Courseware (including Web versions thereof
subject to this Section 4.7) remains in name of Client or Affiliated
Providers, as applicable, and HealthStream shall not use Client
Courseware except as expressly allowed under this Agreement. Subject to
this
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<PAGE> 8
Section 4.7, nothing in this Agreement, either express or implied,
shall give HealthStream any right, title or ownership in and unto
Client Courseware. This Agreement does not grant HealthStream a license
to use or distribute the Client Courseware other than as set forth
herein. Title to HealthStream Courseware remains in name of
HealthStream or Content Partners, as applicable, and Client and
Affiliated Providers shall not use HealthStream Courseware except as
expressly allowed under this Agreement. HealthStream shall retain title
to any software code it uses to conform Client Courseware into a Web
based format; provided that, HealthStream grants Client and Affiliated
Providers a transferable, non-terminable, worldwide, royalty free
license to use such software code to the extent necessary to make
Client Courseware available to Affiliated Providers as provided under
this Agreement.
5. CLIENT AND AUTHORIZED USER CONDUCT.
5.1. Permitted and Prohibited Conduct. Client and any Authorized User may
access, download, or copy Content located on the Gateways, only for
non-commercial use within Client's organization, provided that Client
retains all copyright, trademark and other proprietary notices
contained in such Content in all printed and other copies. Client and
any Authorized User may not de-compile, reverse engineer, modify, copy,
distribute, transmit, display, perform, reproduce, publish, license,
create derivative works from, transfer, or sell any information,
software, products, or services obtained from the Gateways.
5.2. Prohibited Distribution. In no event may Client and any Authorized
User, directly or indirectly, sell or offer for sale any Content
located on the Gateways or upload, distribute, or otherwise publish
Content in any other form or medium.
5.3. Prohibited Infringement. Neither Client nor any Authorized User shall
knowingly upload to, or distribute or otherwise publish through the
Gateways any content that violates or infringes the rights of any
persons, including but not limited to, rights in copyrights, patents,
trademarks, trade secrets, and other proprietary rights.
5.4. Prohibited Information. Client nor any Authorized User shall knowingly
upload to, or distribute or otherwise publish through the Gateways any
content that (1) is libelous, threatening, defamatory, obscene,
indecent, pornographic, abusive, or could give rise to any civil or
criminal liability under U.S. or international law, or (2) includes any
bugs, viruses, worms, trojan horses, or other harmful properties.
Client and any Authorized User will not use the Gateways for, or to
further, any illegal purposes.
5.5. Prohibited Solicitation. Neither Client nor any Authorized User shall
upload to, or distribute or otherwise publish through the Gateways any
content containing any solicitations of funds, advertising, or
solicitations for goods or services.
6. WARRANTIES AND REPRESENTATIONS.
6.1. HealthStream warrants and represents that:
6.1.1. all of the Services HealthStream performs under this Agreement
will be performed in a professional and workmanlike manner,
consistent with generally accepted industry standards, using
properly trained personnel and in conformance with standards
and specifications expressly stated herein;
6.1.2. HealthStream has all requisite power, authority and legal
right to execute, deliver and perform its obligations under
this Agreement and all of such actions have been duly and
validly authorized by all necessary proceedings on the part of
HealthStream;
6.1.3. no authorization, consent, approval, license, permit,
exemption or other action by, and no registration,
qualification, designation, declaration or filing with any
governmental authority is or will be necessary in connection
with the execution of this Agreement and HealthStream will
comply with all applicable laws and regulations in the
performance of its obligations under this Agreement;
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<PAGE> 9
6.1.4. the execution and delivery of this Agreement by HealthStream
does not and will not (a) violate any applicable law; or (b)
conflict with or result in a material breach of or default
under any agreement or instrument to which HealthStream is a
party or by which any of its properties is bound;
6.1.5. there is no pending action, suit or threatened proceeding by
or before any governmental authority against HealthStream that
in any way affects HealthStream's ability to enter into this
Agreement or perform any of HealthStream's obligations
hereunder;
6.1.6. to the best of HealthStream's knowledge, HealthStream's
performance of this Agreement shall not (a) impair or infringe
on the intellectual property rights of any third party or any
rights of publicity or privacy; (b) violate any law, including
without limitation, the laws and regulations governing export
control, unfair competition, anti-discrimination or false
advertising; (c) be defamatory, trade libelous, or unlawfully
harassing; (d) be obscene, child pornographic or indecent; (e)
contain any viruses, Trojan horses, trap doors, Easter eggs,
worms, time bombs, or other computer programming routines
intended to damage, interfere with, intercept, or expropriate
any hardware, software, data or peripheral equipment system;
and
6.1.7. any Content that has been represented as being accredited by
an accrediting body shall be so accredited.
6.2. Client warrants and represents that:
6.2.1. Client has all requisite power, authority and legal right to
execute, deliver and perform its obligations under this
Agreement and all of such actions have been duly and validly
authorized by all necessary proceedings on the part of Client;
6.2.2. the execution and delivery of this Agreement by Client does
not and will not (a) materially violate any applicable law; or
(b) conflict with or result in a material breach of or default
under any agreement or instrument to which Client is a party
or by which any of its properties is bound;
6.2.3. Client shall not allow any other entity or third party to
purchase, license or sublicense the Services, except those
Affiliated Providers as provided herein;
6.2.4. Client shall be responsible for any and all taxes, other than
HealthStream income tax, applicable to or in connection with
the services rendered by HealthStream pursuant to the terms of
this Agreement; and
6.2.5. the content submitted to HealthStream for the Gateway
Customization Services shall not knowingly infringe any
patents, copyrights, trade secrets, or other proprietary
rights of any third parties, and Client will have no reason to
believe that any such infringement or claims thereof could be
made by third parties.
7. DISCLAIMER OF WARRANTIES.
7.1. THE WARRANTIES EXPRESSED IN SECTION 6 HEREIN REPRESENT THE ENTIRE
WARRANTY OF HEALTHSTREAM WITH RESPECT TO THIS AGREEMENT, AND ARE IN
LIEU OF ANY AND ALL OTHER WARRANTIES, WRITTEN OR ORAL, EXPRESS OR
IMPLIED.
7.2. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, THE GATEWAYS AND THE
SERVICES AND ALL OTHER OBLIGATIONS PROVIDED BY HEALTHSTREAM PURSUANT TO
THE TERMS OF THIS AGREEMENT ARE PROVIDED "AS-IS" WITHOUT ANY WARRANTIES
OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO
THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE.
7.3. DUE TO THE NUMBER OF SOURCES FROM WHICH CONTENT DELIVERED VIA THE
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<PAGE> 10
SERVICES IS OR WILL BE OBTAINED, AND THE INHERENT HAZARDS OF ELECTRONIC
DISTRIBUTION, THERE MAY BE DELAYS, OMISSIONS OR INACCURACIES IN SUCH
CONTENT AND THE SERVICES. THE SERVICES COULD INCLUDE TECHNICAL OR OTHER
INACCURACIES OR TYPOGRAPHICAL ERRORS. PERIODICALLY, CHANGES MAY BE MADE
IN THE CONTENT PROVIDED IN THE SERVICES. HEALTHSTREAM WARRANTS THAT IT
WILL EXERCISE COMMERCIALLY REASONABLE EFFORTS TO ENSURE THE ACCURACY,
COMPLETENESS, CURRENTNESS OF THE CONTENT AVAILABLE THROUGH THE
SERVICES, OR THE SERVICES THEMSELVES, OR ANY OTHER CONTENT WHICH IS
REFERENCED BY OR LINKED TO THE SERVICES. HEALTHSTREAM DOES NOT CLAIM
COMPREHENSIVENESS OR THE ABSENCE OF ERRORS. HEALTHSTREAM ASSUMES NO
INDIRECT RESPONSIBILITY FOR THE USE OF THE SERVICES BY THE CLIENT OR
AUTHORIZED USERS. NEITHER PARTY, AUTHORIZED USERS NOR THEIR CONTENT
PARTNERS SHALL BE LIABLE FOR LOSS OF PROFITS, LOSS OF USE, OR
INCIDENTAL, CONSEQUENTIAL, OR EXEMPLARY DAMAGES AS A RESULT OF USE OF
THE SERVICES OR THE CONTENT, EVEN IF EXPRESSLY MADE AWARE OF THE
POSSIBILITY THEREOF.
7.4. EXCEPT HEALTHSTREAM'S BREACH OF THE WARRANTY MADE IN SECTION 6.1.6
HEREOF, ANY MATERIAL AND/OR DATA DOWNLOADED OR OTHERWISE OBTAINED
THROUGH THE USE OF THE GATEWAYS IS AT CLIENT AND AUTHORIZED USER'S OWN
DISCRETION AND RISK AND CLIENT IS SOLELY RESPONSIBLE AND LIABLE FOR ANY
DAMAGE TO CLIENT OR AUTHORIZED USER'S COMPUTER SYSTEM OR FOR LOSS OF
DATA THAT RESULTS FROM THE DOWNLOAD OF SUCH MATERIAL AND/OR DATA.
HEALTHSTREAM ASSUMES NO RESPONSIBILITY FOR THE USE OF THE GATEWAYS BY
CLIENT OR ANY AUTHORIZED USER.
7.5. NEITHER PARTY SHALL BE LIABLE FOR LOST PROFITS, LOST OPPORTUNITIES, OR
INCIDENTAL OR CONSEQUENTIAL DAMAGES UNDER ANY CIRCUMSTANCES. IN NO CASE
SHALL THE AMOUNT OF DAMAGES PAYABLE TO CLIENT FROM ANY AND ALL PARTIES
FOR ANY CLAIM ARISING FROM THE PROGRAM OR THIS AGREEMENT (INCLUDING,
WITHOUT LIMITATION, ITS WARRANTY PROVISIONS) EXCEED THE AMOUNTS PAID BY
CLIENT TO HEALTHSTREAM UNDER THIS AGREEMENT.
7.6. EXCEPT FOR ANY CLAIM FOR INDEMNITY UNDER SECTION 10, IN NO EVENT MAY
ANY ACTION BE BROUGHT AGAINST HEALTHSTREAM, OR AN INFORMATION PARTNER
ARISING OUT OF THIS AGREEMENT MORE THAN ONE YEAR AFTER THE CLAIM OR
CAUSE OF ACTION ARISES, OR ONE YEAR AFTER THE CLIENT OR AUTHORIZED USER
SHALL HAVE LEARNED OF THE ALLEGED DEFECT, INJURY, OR LOSS, WHICHEVER IS
LATER. THE PROVISIONS OF THIS SECTION 7 SHALL SURVIVE ANY TERMINATION
OF THIS AGREEMENT.
8. LINKS TO OTHER WEB SITES
HEALTHSTREAM MAKES NO REPRESENTATIONS WHATSOEVER ABOUT ANY OTHER WEB SITE THAT
CLIENT OR ANY AUTHORIZED USER MAY ACCESS THROUGH HEALTHSTREAM'S WEB SITE OR THE
GATEWAYS. WHEN CLIENT OR ANY AUTHORIZED USER ACCESSES A NON-HEALTHSTREAM WEB
SITE, IT IS INDEPENDENT FROM HEALTHSTREAM, AND THAT HEALTHSTREAM HAS NO CONTROL
OVER THE CONTENT ON THAT WEB SITE. IN ADDITION, A LINK TO A NON-HEALTHSTREAM WEB
SITE DOES NOT MEAN THAT HEALTHSTREAM ENDORSES OR ACCEPTS ANY RESPONSIBILITY FOR
THE CONTENT, OR THE USE, OF SUCH WEB SITE. IT IS UP TO CLIENT OR ANY AUTHORIZED
USER TO TAKE PRECAUTIONS TO ENSURE THAT WHATEVER CLIENT OR ANY AUTHORIZED USER
SELECTS FOR CLIENT OR ANY AUTHORIZED USER'S USE IS FREE OF SUCH ITEMS AS
VIRUSES, WORMS, TROJAN HORSES AND OTHER ITEMS OF A DESTRUCTIVE NATURE.
HEALTHSTREAM MAKES NO REPRESENTATION OR WARRANTY AS TO ANY THIRD PARTY PRODUCTS
OR SERVICES.
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<PAGE> 11
9. LIMITATION OF LIABILITY
IN NO EVENT SHALL EITHER PARTY, AUTHORIZED USERS OR THEIR PARENT COMPANIES AND
AFFILIATES, OR ANY OF ITS OR THEIR OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
REPRESENTATIVES, CONTENT PARTNERS, OR LICENSORS BE LIABLE FOR ANY INDIRECT,
INCIDENTAL, SPECIAL, CONSEQUENTIAL, PUNITIVE, OR OTHER DAMAGES RESULTING FROM
USE OF THE GATEWAYS, ITS CONTENT OR LINKS, INCLUDING, BUT NOT LIMITED TO DAMAGES
FOR LOSS OF PROFITS, USE, DATA OR OTHER INTANGIBLES, EVEN IF A PARTY OR
AUTHORIZED USER HAD BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
10. INDEMNITY
10.1. Indemnity by HealthStream. HealthStream shall defend, indemnify and
hold Client and Authorized Users, their officers, directors, employees,
consultants and agents harmless from any loss, liability, damage, cost,
or expense (including reasonable counsel fees and litigation costs),
arising out of any claims or suits that may be made or brought against
Client by reason of the breach or alleged breach by HealthStream of the
warranties or representations contained herein, or by reason of any
infringement or alleged infringement of any patent, trademark,
copyright or trade secret right resulting from the Services provided
herein. HealthStream shall have the sole right to conduct the defense
of any such claim or action and all negotiations for its settlement or
compromise, unless otherwise mutually agreed upon in writing, or unless
HealthStream fails to assume its obligation to defend and Client is
required to do so to protect its interests.
10.2. Indemnity by Client. Client agrees to indemnify, defend and hold
harmless HealthStream, its officers, directors, employees, consultants
and agents from any and all third party claims, liability, damages
and/or costs (including but not limited to attorney's fees) arising
from Client or any Authorized User's violation of the terms and
conditions hereunder, arising out of any claims or suits that may be
made or brought against HealthStream by reason of the breach or alleged
breach by Client of the warranties or representations contained herein,
or by reason that the content in the Client Courseware infringes any
patent, trademark, copyright or trade secret right. Client shall have
the sole right to conduct the defense of any such claim or action and
all negotiations for its settlement or compromise, unless otherwise
mutually agreed upon in writing, or unless Client fails to assume its
obligation to defend and HealthStream is required to do so to protect
its interests.
10.3 This Article 10 shall survive the termination, cancellation or
expiration of these terms and conditions.
11. TERM AND TERMINATION.
11.1. Term. This Agreement shall be in effect until the Expiration Date (the
"Term") and shall be automatically renewed for additional one (1) year
periods unless notification by either party is provided forty-five (45)
days in advance of the Expiration Date. During any renewal term, either
party may terminate this Agreement upon forty-five (45) days notice to
the other party.
11.2. Termination or Cancellation. This Agreement may be terminated or
canceled upon the occurrence of one or more of the following events:
11.2.1. by either party if the other party seeks protection under the
bankruptcy laws (other than as a creditor) or any assignment
is made for the benefit of creditors or a trustee is appointed
for all or any portion of such party's assets;
11.2.2. by either party 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 written notice ("Termination Notice") via
overnight courier to the other party setting forth the facts
and circumstances constituting the
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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 (6) 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.
11.3 Post Termination Obligations. In the event of termination of this
Agreement by HealthStream due to a default by Client, all fees
previously due or owing by Client and Authorized Users as of the date
of termination will be immediately due and payable in full. In the
event of termination of this Agreement by Client due to a default by
HealthStream, HealthStream shall reimburse Client for any amounts paid
by Client or Authorized Users for Services not provided prior to
termination. This is in addition to any other remedies available to the
parties at law.
12. MISCELLANEOUS
12.1 STATUTE OF LIMITATIONS. EXCEPT FOR ANY CLAIM FOR INDEMINTY UNDER
SECTION 10, ANY ACTION OR CLAIM AGAINST HEALTHSTREAM FOR ANY DAMAGES
ARISING OUT OF, OR RELATING TO THE TERMS OF THIS AGREEMENT OR
HEALTHSTREAM'S OBLIGATIONS HEREUNDER MUST BE COMMENCED WITHIN ONE YEAR
AFTER COMPLETION OF SERVICES THAT ARE THE SUBJECT MATTER OF THE CLAIM.
12.2 Attorneys' Fees. In the event of breach by either party of any
provision contained in this Agreement, the prevailing party shall be
entitled to recover its reasonable attorneys' fees and costs incurred
in enforcement of the provisions of this Agreement against the
defaulting or breaching party.
12.3 Headings. Captions and headings to sections are included solely for
convenience and are not intended to affect the interpretation of any
provision of this Agreement.
12.4 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.
12.5 Third Party Rights. Except for Authorized Users, this Agreement is not
intended and shall not be construed to create any rights for any third
party.
12.6 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 non-affected party may
terminate subject to the requirements of Section 11.2 herein above by
providing a Termination Notice to the affected party.
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12.7 Independent Contractors. Each party to this Agreement is an independent
contractor and this Agreement shall not be construed as creating a
joint venture, partnership, agency or employment relationship between
the parties hereto nor shall either party have the right, power or
authority to create any obligation or duty, express or implied, on
behalf of the other.
12.8 Insurance. HealthStream shall maintain liability coverage for errors
and omissions with coverage of at least $1,000,000 per incident and
$2,000,000 in the aggregate. Client shall be provided a copy of the
certificate of insurance upon signing of this Agreement. Client 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 12.8.
12.9 Governing Law. This Agreement shall be governed by the laws of the
State of Tennessee without regard to its choice of law provisions.
12.10 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 Client or Affiliated Provider purchase order will be subject to the
terms of this Agreement and that any acceptance of a purchase order by
HealthStream will be for acknowledgment purposes only and none of the
terms set forth in the purchase order will be binding upon
HealthStream.
12.11 Notice. 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 HealthStream: Robert Laird, Esq.
Vice President and General Counsel
HealthStream, Inc.
209 10th Avenue South, Suite 450
Nashville, TN 37203
To Client: Director, I/S Contracts
Columbia Information Systems, Inc.
2555 Park Plaza
Nashville, TN 37202-0550
and to: General Counsel
Columbia/HCA Healthcare Corporation
One Park Plaza
Nashville, Tennessee 37203
12.12 Publicity. HealthStream and Client agree not to advertise or to use the
other party's name in any advertising, except as contemplated by this
Agreement or as may be required by law, without first obtaining written
consent from the other party, which consent shall not be unreasonably
withheld.
12.13 Assignment, Subsidiaries, and Successors. It is understood and agreed
that the parties are entering into this Agreement not only for their
own benefit but also and equally for the direct benefit of their
subsidiaries and affiliates, present and future, and that each and
every right, benefit, remedy, and warranty accruing to the parties
hereunder likewise accrue to the subsidiaries and affiliates of the
parties, including but not limited to the right to enforce this
Page 13 of 22
<PAGE> 14
Agreement in their respective names. This Agreement shall inure to the
benefit of and be binding on any respective successors and permitted
assigns of the parties.
12.14 Books and Records. Pursuant to the requirements of 42 CFR 420.300 et
seq., HealthStream agrees to make available to the Secretary of HHS,
the Comptroller General of the Government Accounting Office ("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, HealthStream 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. HealthStream agrees
to comply at all times with the regulations issued by HHS, published at
42 CFR 1001, and which relate to HealthStream's obligation to report
and disclose discounts, rebates and other reductions to Client for
products purchased by Client under this Agreement. If HealthStream
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 Client, the Secretary, the United States Comptroller General
and their representatives to the related organization's books and
records. Client rights under this Section shall survive for a period of
four (4) years after termination or expiration of this Agreement.
HealthStream 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).
12.15 Audit and Reporting. Client shall have the right, during normal
business hours and with reasonable advance notice, to review and
photocopy HealthStream's books and records that pertain directly to the
accounts of Client, Affiliated Providers, or Authorized Users. The
audit may be conducted by Client's employees or by an external auditing
firm selected by Client. The cost of audit, including the cost of the
auditors and reasonable cost of copies of books and records shall be
paid by Client. Client shall have no obligation to pay the cost
incurred by employees and agents of HealthStream in cooperating with
Client in such audit. Client does not have the right to review the
books and records that pertain to the accounts of other HealthStream
customers or business partners. Client may not conduct more than one
such audit per year. Any personnel of Client shall sign a mutually
agreeable confidentiality agreement before such audit is done.
12.16 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which
together shall constitute one and the same instrument.
Page 14 of 22
<PAGE> 15
IN WITNESS WHEREOF, and intending to be legally bound hereby, each
party hereto warrants and represents that this Agreement has been duly
authorized by all necessary corporate action and that this agreement has been
duly executed by and constitutes a valid and binding agreement of that party.
All signed copies of this Agreement shall be deemed originals.
HealthStream, Inc.
By: /s/ JEFF MCLAREN
-----------------------------
Name: Jeff McLaren
Title: President
Client
By: /s/ NOEL WILLIAMS
-----------------------------
Name: Noel Williams
Title: President
Page 15 of 22
<PAGE> 16
EXHIBIT A
GATEWAY INITIALIZATION SERVICES
HealthStream's Gateway Initialization Services will consist of the following
processes required to make each Gateway operational. The processes below are not
chronologically organized; selected processes below may be managed concurrently.
Additional processes may be required to ensure each Gateway is made operational
rapidly and efficiently.
1. Gateway Customization - HealthStream will modify each Provider Gateway
such that the name and or logo appear at the top of each page (except
pages used to display Courseware). In addition, Provider Specific
Information will be used in textual format as applicable in the
Gateway.
Deliverables from Contract Client to complete Gateway Customization:
- Provide Provider logo (or name) for display on Gateway.
- Provide Provider name, parent company name, address, division,
region, phone number, etc. (the "Provider Specific
Information") for use as needed in Gateway.
- Approve Provider logo and Provider Specific Information in
Gateway.
2. User Import - HealthStream will import Provider Personal Information
into the database so that each Authorized User is recognized by the
Gateway.
Deliverables from Contract Client to complete User Import:
- Provide Personal Information for each Authorized User (per
separate specification).
- Approve integrity of Personal Information imported into the
database.
3. Administrative Orientation - HealthStream will provide an overview of
Gateway operation and administrative procedures to select Provider
personnel. HealthStream will provide Administrative Orientation
sessions periodically to ensure Contract Clients complete
Deliverables from Contract Client to complete Administrative
Orientation:
- Ensure key Contract Client personnel from each Contract Client
attend a HealthStream Administrative Orientation sessions.
4. Gateway Pilot - HealthStream will facilitate a brief pilot of the
Gateway prior to use by the complete population of Authorized Users for
a given Contract Client. This pilot will ensure that Contract Client
specific data is operating as expected within the Gateway.
Deliverables from Contract Client to complete Gateway Pilot:
- Ensure computer hardware with appropriate software and
internet connection (per separate specification) is
operational at Contract Client location.
- Ensure Contract Client administrative personnel test Gateway
performance (in conjunction with HealthStream personnel and
pilot processes).
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<PAGE> 17
EXHIBIT B
INVOICE DETAIL REPORT FORMAT
The format below will be used by HealthStream in submitting invoice detail
reports on Services Fees. Each monthly invoice detail report will be comprised
of a multiple transaction records. Each transaction record shall be a line of
text that is 110 continuous characters in length and will correspond to each
Services transaction that triggered a corresponding Service Fee. The character
by character standard for transaction records is outlined below.
Services Fees paid by Authorized Users directly pursuant to Section 3.4 will not
be included in the invoice detail report, but will be detailed in a separate
monthly report.
<TABLE>
<CAPTION>
Character Item Length
Item Description Columbia Code Fixed Value Locations in Characters
---------------- ------------- ----------- --------- -------------
<S> <C> <C> <C> <C>
1. Unit Number Pic X(05) 01- 05 5
2. Type Pic X(01) 2 06 1
3. Incurred Month Pic 9(02) 07-08 2
4. Incurred Day Pic 9(02) 09-10 2
5. End Date (ccyymCMEd) Pic X(08) 11-18 8
6. Description Pic X(35) 19-53 35
7. Action Pic X(01) A 54 1
8. Charge Amount Pic $9(09)(cent)9(02) 55-65 2
9. Indicator Pic X(01) S 66 1
10. Cost Center Pic 9(04) 8888 67-70 4
11. Project Code Pic 9(03) 180 71-73 3
12. Display Pic 9(10) 0000000000 74-83 10
13. GL Account Number Pic 9(06) 701831 84-89 6
14. Revenue Code Pic 9(03) 026 90-92 3
15. Filler Pic X(18) 000000000000000000 93-110 18
</TABLE>
Notes:
A. Where a specific fixed value is listed, the exact number and/or letter
listed above must appear in the designated character locations for that
item. If no fixed value is provided, HealthStream shall insert the
appropriate information using the entire number of characters permitted
B. For Item 6 above, any unused characters are to be filled with "space"
characters so that Item 6 is 35 characters in length.
C. For Item 8 above, the first nine characters apply to the dollar amount
and the last two characters shall be the cents. There is no decimal
point. Zeros are to be used where no number is available for the
character, e.g., a charge of $101.59 will be recorded as "00000010159".
Page 17 of 22
<PAGE> 18
EXHIBIT C
CURRENT ONLINE COURSEWARE
REGULATORY COURSEWARE
The following 18 regulatory courses will be initially available for Authorized
Users. The number of Regulatory Courses and specific Regulatory Courseware
topics made available through the Gateways will change from time to time as new
courses are added and obsolete courses removed.
Abuse Identification (1 Contact Hours)
The physical, psychological, and behavioral indicators of possible abuse,
neglect, or exploitation.
Abuse Reporting (1 Contact Hours)
Interviewing techniques for victims of abuse and policies and procedures
for reporting of suspected abuse cases.
Bloodborne Pathogens (1 Contact Hours)
Types of bloodborne pathogens and the use of universal precautions and body
substance isolation (BSI) to prevent transmission.
Cardiopulmonary Resuscitation (0 Contact Hours)
Recognition and immediate treatment of a myocardial infarction, including
one-person and two-person CPR.
Child CPR (0 Contact Hours)
Recognition and immediate treatment of a myocardial infarction in infants
and children, including appropriate CPR techniques.
Cytotoxin Use (1 Contact Hours)
The potential hazards of exposure to cytotoxic substances and procedures to
prevent and monitor exposure.
Elderly Care (1 Contact Hours)
Interventions to help alleviate common physical complaints of the elderly.
Electrical Safety (0 Contact Hours)
Recognition of electrical hazards and prevention and immediate treatment of
injuries related to electrical shock.
Ergonomics (1 Contact Hours)
Purpose and correct use of body mechanics, strategies to help prevent back
injury, and home treatment for back pain.
Fire Safety (0 Contact Hours)
Fire rescue, alarm, containment and evacuation procedures for ambulatory
patients.
Hazardous Materials (1 Contact Hours)
The purpose and content of MSDS, proper labeling of hazardous chemical
containers and procedures for handling chemical spills.
Obstructed Airway (0 Contact Hours)
Recognition and immediate treatment of an obstructed airway in a conscious
or unconscious adult or infant.
Patient Evacuation (1 Contact Hours)
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<PAGE> 19
General evacuation procedures, including one and two person techniques for
evacuation of a bed-bound patient.
Restraint Use (1 Contact Hours)
Purposes, procedures, alternatives and documentation for use of patient
restraints.
Standard Precautions (1 Contact Hours)
The infection transmission process, including associated risk factors, and
the major components of a Standard Precautions Program.
Transmission-based Precautions (1 Contact Hours)
The five types of transmission-based precautions, including the appropriate
actions for each type of precaution and the diseases for which each type of
transmission-based precaution is required.
Tuberculosis Control (1 Contact Hours)
Identification, prevention, and treatment of tuberculosis, including
recognition of risk factors.
Tuberculosis Testing (1 Contact Hours)
The purpose of tuberculin testing and techniques for testing.
HEALTHSTREAM OWNED COURSEWARE
The following list of 67 hours of HealthStream Owned Courseware topics are
currently available for use through HealthStream's online educational service.
The number of HealthStream Owned Courses and specific HealthStream Owned
Courseware topics made available through the Gateways will change from time to
time as new courses are added and obsolete courses removed. For each topic area,
the number of hours available within that topic is listed, not the individual
course name or subject areas.
Core Curriculum in Primary Care (50 hrs.)
Cardiovascular Medicine (4.00 - CME)
Dermatology (4.00 - CME)
Endocrinology (3.00 - CME)
Gastroenterology (4.00 - CME)
Hematology (2.00 - CME)
Infectious Disease (4.00 - CME)
Laboratory Testing (2.00 - CME)
Nephrology (1.00 - CME)
Neurology (5.00 - CME)
Obstetrics and Gynecology (4.00 - CME)
Office Surgery (1.00 - CME)
Oncology (1.00 - CME)
Orthopedics and Sports Medicine (8.00 - CME)
Psychiatry (4.00 - CME)
Radiology (1.00 - CME)
Risk Management (2.00 - CME)
Obstetrics/Gynecology (5.00 hrs.)
General (5.00 - CME)
Nursing (12 Contact Hours)
Adolescent Care (1 Contact Hours)
Antibiotic Resistant Microbes (1 Contact Hours)
Conscious Sedation (1 Contact Hours)
Elderly Physical Changes (1 Contact Hours)
Elderly Sensory Changes (1 Contact Hours)
Page 19 of 22
<PAGE> 20
Fecal Testing (1 Contact Hours)
Glucose Testing (1 Contact Hours)
Infant Care (1 Contact Hours) School-age Care (1 Contact Hours)
Toddler Care (1 Contact Hours)
Urine Testing (1 Contact Hours)
Ventilation (1 Contact Hours)
CONTENT PARTNER COURSEWARE
The following list of 782 hours of Content Partner Courseware topics are
currently available for use through HealthStream's online educational service.
The number of Content Partner Courses and specific Content Partner Courseware
topics made available through the Gateways will change from time to time as new
courses are added and obsolete courses removed. For each topic area, the number
of hours available within that topic is listed, not the individual course name
or subject areas.
Cleveland Clinic Foundation - Educational Program (60 hrs.) Cardiology Series
(6.00 - CME) Endocrinology Series (6.00 - CME)
Gastroenterology Series (7.00 - CME)
Hematology and Medical Oncology Series (6.00 - CME)
Infectious Disease Series (6.00 - CME)
Multidisciplinary Skills for the Internist Series (15.00 - CME)
Nephrology and Hypertension Series (5.00 - CME)
Pulmonary and Critical Care Medicine Series (5.00 - CME)
Rheumatology Series (4.00 - CME)
Diagnostic Imaging (19.5 hrs.)
Computed Tomography (9.00 - CE)
Magnetic Resonance (3.00 - CE)
Nuclear Medicine (4.50 - CE)
X-Ray (1.50 - CE)
X-Ray Mammography (1.50 - CE)
Emergency Medicine (203 hrs.)
Allergy, Rheumatology, and Dermatology (4.50 - CME)
Cardiovascular Disorders (15.50 - CME)
Endocrinology (7.50 - CME)
Environmental Injuries (9.50 - CME)
Eye, Ear, Nose and Throat (6.50 - CME)
Gastroenterology (13.00 - CME)
Gynecology and Obstetrics (6.50 - CME)
Hematology and Oncology (5.00 - CME)
Infectious Diseases (5.50 - CME)
Law and Ethics (3.00 - CME)
Life-Threatening Signs and Symptoms (9.50 - CME)
Musculo-skeletal Disorders (5.00 - CME)
Nephrology and Urology (5.00 - CME)
Neurology (9.50 - CME)
Pediatrics (14.50 - CME)
Psychiatric and Behavioral Disorders (5.00 - CME)
Pulmonary Disorders (8.50 - CME)
Resuscitation: Arrhythmias (8.50 - CME)
Resuscitation: CPR and Ventilation (6.00 - CME)
Resuscitation: Fluids/Electrolytes (11.00 - CME)
Page 20 of 22
<PAGE> 21
Resuscitation: Pediatrics (6.00 - CME)
Toxicology (12.00 - CME)
Trauma: Extremity and Orthopedic (7.50 - CME)
Trauma: Stabilization, Head and Neck (7.50 - CME)
Trauma: Trunk (7.00 -
CME) Wound Management (4.00 - CME)
Family Practice (194.5 hrs.)
Allergy, Rheumatology, and Dermatology (4.50 - CME)
Cardiovascular Disorders (15.00 - CME)
Endocrinology (7.50 - CME)
Environmental Injuries (9.50 - CME)
Eye, Ear, Nose and Throat (5.00 - CME)
Gastroenterology (13.00 - CME)
Gynecology and Obstetrics (7.00 - CME)
Hematology and Oncology (5.00 - CME)
Infectious Diseases (5.00 - CME)
Law and Ethics (2.00 - CME)
Life-Threatening Signs and Symptoms (9.00 - CME)
Musculo-skeletal Disorders (5.00 - CME)
Nephrology and Urology (5.00 - CME)
Neurology (9.50 - CME)
Pediatrics (14.00 - CME)
Psychiatric and Behavioral Disorders (5.00 - CME)
Pulmonary Disorders (8.50 - CME)
Resuscitation: Arrhythmias (8.00 - CME)
Resuscitation: CPR and Ventilation (5.50 - CME)
Resuscitation: Fluids/Electrolytes (11.00 - CME)
Resuscitation: Pediatrics (6.00 - CME)
Toxicology (12.00 - CME)
Trauma: Extremity and Orthopedic (7.50 - CME)
Trauma: Stabilization, Head and Neck (7.50 - CME)
Page 21 of 22
<PAGE> 22
Trauma: Trunk (4.00 - CME) Wound Management (3.50 - CME)
Internal Medicine (143.5 hrs.)
Allergy, Rheumatology, and Dermatology (4.50 - CME)
Cardiovascular Disorders (13.50 - CME)
Endocrinology (6.50 - CME)
Environmental Injuries (7.50 - CME)
Eye, Ear, Nose and Throat (1.50 - CME)
Gastroenterology (15.50 - CME)
Infectious Diseases (5.00 - CME)
Law and Ethics (2.00 - CME)
Life-Threatening Signs and Symptoms (6.50 - CME)
Musculo-skeletal Disorders (4.00 - CME)
Nephrology and Urology (4.50 - CME)
Neurology (9.50 - CME)
Pediatrics (16.00 - CME)
Resuscitation: Arrhythmias (8.00 - CME)
Resuscitation: CPR and Ventilation (3.50 - CME)
Resuscitation: Fluids/Electrolytes (10.50 - CME)
Resuscitation: Pediatrics (.50 - CME)
Toxicology (11.50 - CME)
Trauma: Extremity and Orthopedic (7.00 - CME)
Trauma: Stabilization, Head and Neck (1.50 - CME)
Trauma: Trunk (2.00 - CME) Wound Management (2.50 - CME)
Pediatrics (161.5 hrs.)
Allergy, Immunology & Dermatology (3.50 - CME)
Cardiac and Vascular Disorders (7.50 - CME)
Endocrine, Metabolic & Nutritional Disorders (6.50 - CME)
Environmental Injuries (8.00 - CME)
Eye, Ear, Nose & Throat (7.50 - CME)
Gastroenterology (11.50 - CME)
Gynecology & Obstetrics (5.50 - CME)
Hematology & Oncology (5.50 - CME)
Infectious Diseases (8.00 - CME)
Law & Ethics (2.50 - CME)
Life-Threatening Signs & Symptoms (7.00 - CME)
Musculoskeletal Disorders (2.50 - CME)
Nephrology & Urology (4.00 - CME)
Neurology (7.00 - CME)
Psychosocial Problems (3.00 - CME)
Pulmonary Disorders (8.50 - CME)
Resuscitation: Arrhythmias (5.50 - CME)
Resuscitation: CPR & Ventilation (7.50 - CME)
Resuscitation: Fluids & Electrolytes (12.50 - CME)
Toxicology (10.50 - CME)
Trauma: Chest, Abdomen & Pelvis (7.00 - CME)
Trauma: Extremity & Orthopedic (9.00 - CME)
Trauma: Stabilization, Head & Neck (8.00 - CME)
Wound Management (3.50 - CME)
The term CME, CE and Contact Hours used above indicate the accreditation status
of a Course for continuing education credit. Continuing education credit is
periodically required for various healthcare professional groups (physicians,
nursing, radiologic technicians, emergency medicine technicians, etc.) to
maintain licensure with specific professional organizations and regulatory
boards. Typically, the continuing education accreditation of a Course for one
healthcare profession does not imply accreditation for other healthcare
professions.
Page 22 of 22
<PAGE> 1
EXHIBIT 10.26
We have omitted certain portions of this document and filed them separately
with the Commission. These portions are marked with an asterisk (*).
SOFTWARE LICENSING AND DISTRIBUTION AGREEMENT
This Software Licensing and Distribution Agreement ("Agreement") is
made 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 MedicaLogic, Inc., having its principal
place of business at 20500 N.W. Evergreen Parkway, Hillsboro, OR 97124
("Distributor").
BACKGROUND
WHEREAS, Distributor delivers Internet healthcare services targeted at
the healthcare community and consumers among others;
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, Distributor and HealthStream wish to enter into a cooperative
effort to 1) deploy HealthStream branded educational offerings utilizing
T.NAV(R) technology and Distributor's distribution channels and 2) market the
goods and services incorporated therein;
WHEREAS, Distributor wishes to acquire a license and HealthStream has
agreed to grant a license to Distributor for the utilization of T.NAV(R) with
Distributor's Internet healthcare services;
WHEREAS, Distributor and HealthStream wish to provide appropriate
consideration for those efforts that each party has agreed to undertake;
WHEREAS, Distributor and HealthStream each acknowledge the sufficiency
and adequacy of the value, concessions, and recitations set forth herein;
NOW THEREFORE, Distributor and HealthStream agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the terms below shall have the following
meanings:
1.1. "Course" means healthcare related Internet based curricula designed to
be delivered by T.NAV(R).
1.2. "Distributor" means MedicaLogic, Inc. and any affiliated entity of
Distributor.
1.3. "Distributor Courses" means interactive courses that are the
proprietary property of Distributor including training and education
content including, but not limited to OSHA and JCAHO mandated training,
continuing medical education, and office training.
1.4. "Effective Date" means the later of the dates on which the parties sign
this Agreement.
1.5. "HealthStream" means HealthStream, Inc. and any Subsidiary of
HealthStream, Inc.
1.6. "HealthStream Courses" means interactive courses that are the
proprietary property of HealthStream or Third Party Content including
training and educational content including, but not limited to OSHA and
JCAHO mandated training, continuing medical education, and office
training.
1.7. "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.
1.8. "Intranet" means an internal network protected from unauthorized users
by a firewall and accessible only by individuals within the
organization serving the network.
1.9. "Launch Date" means the date on which the co-branded site becomes
available to users via www.medicalogic.com, or its successor website.
1.10. "Net Revenue" means gross revenue derived by Distributor or
HealthStream from Transactions Fees less discounts, rebates, and
refunds.
Distributor and HealthStream
Page 1 of 13
<PAGE> 2
1.11. "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.
1.12. "Third Party Content" means interactive content that is the proprietary
property of a third party to this Agreement.
1.13. "T.NAV(R)" is a registered trademark of HealthStream and is a computer
based training product that delivers and monitors World Wide Web based
content.
1.14. "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(R), a
registered trademark of HealthStream.
1.15. "Transaction Fees" means fees received by HealthStream for HealthStream
Courses or Distributor Courses delivered over the Internet via the
T.NAV(R) on Distributor's World Wide Web site.
ARTICLE 2
STRATEGIC RIGHTS GRANTS
2.1. During the term of this Agreement, Distributor shall:
2.1.1. include on Distributor's World Wide Web site a logo of the
HealthStream trademark and a hyperlink to the HealthStream
section of Distributor's World Wide Web site; and
2.1.2. work closely with HealthStream to develop a specific promotion
plan within ninety (90) days of the Effective Date, which will
include a minimum of one (1) marketing initiative per quarter.
Marketing initiatives may include, but are not limited to,
industry trade shows and exhibitions, seminars, direct
mailings, advertising in third-party publications, online
banner advertisement placements, and press releases. The
parties will work together in good faith to prepare a mutually
acceptable press release to announce this Agreement within
five (5) days of the Effective Date. Distributor will include
HealthStream in the marketing campaign for MedicaLogic.com's
member services launch. Distributor will include the
HealthStream name and, in its sole discretion and where it
deems appropriate, will include the use of the HealthStream
trademark logo on all Distributor marketing materials that
reference the Courses and education services being provided by
HealthStream.
2.2. During the term of this Agreement, HealthStream shall:
2.2.1. include on the partners page of its World Wide Web site a logo
of the Distributor trademark and a hyperlink to the
Distributor's World Wide Web site;
2.2.2. not include hyperlinks on the co-branded Web site to third
parties that directly compete with Distributor;
2.2.3. provide standard Personalization for Distributor, as defined
in Exhibit A;
2.2.4. work with Distributor to provide a mutually agreeable login
procedure for Distributor's users to access T.NAV, taking into
consideration Distributor's security and privacy needs,
HealthStream's new user registration needs and provision of an
overall good user experience, among other things; and
Distributor and HealthStream
Page 2 of 13
<PAGE> 3
2.2.5. work closely with Distributor to develop the specific
promotion plan described in Section 2.1.2 herein within ninety
(90) days of the Effective Date, which will include a minimum
of one (1) marketing initiative per quarter. Marketing
initiatives may include, but are not limited to, industry
trade shows and exhibitions, seminars, direct mailings,
advertising in third party publications, online banner
advertisement placements, and press releases. The parties will
work together in good faith to prepare a mutually acceptable
press release to announce this Agreement within five (5) days
of the Effective Date.
ARTICLE 3
LICENSE GRANTS
3.1. HealthStream grants the Distributor non-exclusive, royalty-free,
worldwide rights for T.NAV(R) to deliver HealthStream Courses over the
Internet.
3.2. Subject to the payment of the consideration set forth in Article 4,
Distributor grants HealthStream non-exclusive worldwide rights to
provide and host HealthStream Courses and Third Party Content and
education services on the co-branded portion of Distributor's World
Wide Web site, as determined by Distributor.
3.3. 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. During the term of this Agreement, HealthStream shall pay to
Distributor * of all Net Revenue derived from Transaction Fees. If the
number of Distributor-referred HealthStream new users exceeds * by the
first anniversary of the Launch Date, then HealthStream will pay
Distributor * of all Net Revenue derived from the Transaction Fees for
the * new user and each additional new user.
4.2. HealthStream agrees to deliver monthly sales statements that detail Net
Revenue and payment according to the percentages outlined in this
Article 4 to Distributor within forty five (45) days after the end of
each calendar month. These monthly reports shall indicate the total
number of Transactions for which either party derives revenue.
HealthStream 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.
4.3. Distributor and HealthStream will meet as necessary to review pricing,
discounting policy and the rationale behind any discounts granted for
HealthStream Courses and HealthStream Intranet products and services.
ARTICLE 5
INDEMNIFICATION
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; and
5.1.2. T.NAV(R) does not violate the trade secret rights of any third
party; and
5.1.3. HealthStream is the sole proprietor of the HealthStream
Courses and owns the copyright or otherwise has secured the
appropriate rights by license or otherwise to publish the
HealthStream Courses and Third-Party Content; and
Distributor and HealthStream
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<PAGE> 4
5.1.4. HealthStream has full power and authority, free of any rights
of any nature by any other person, to enter into this
Agreement and to grant the rights that are granted to
Distributor in this Agreement.
5.2. HealthStream agrees to indemnify, hold harmless, and defend Distributor
from any and all damages, costs, and expenses, including reasonable
attorneys' fees, incurred in connection with a claim that constitutes a
breach of the warranties set forth in Section 5.1 (hereinafter claims
under Subsections 5.1.1 through 5.1.4 shall collectively be referred to
as "Infringement Claims"); provided, HealthStream is notified promptly
in writing of an Infringement Claim and has sole control over its
defense or settlement, and Distributor provides reasonable assistance,
at HealthStream's expense, in the defense of the same.
5.3. HealthStream shall have no liability for any Infringement Claim based
on Distributor's:
5.3.1. use or distribution of T.NAV(R) after HealthStream's written
notice that Distributor should cease use or distribution of
T.NAV(R) due to an Infringement Claim, or
5.3.2. combination of T.NAV(R) with a non-HealthStream program or
data if such Infringement Claim would have been avoided by the
exclusive use of T.NAV(R).
5.4. For all Infringement Claims arising under Section 5.3, Distributor
agrees to indemnify and defend HealthStream from and against all
damages, costs, and expenses, including reasonable attorneys' fees but
only to the extent such continued use or combination by Distributor is
the cause of such Infringement Claim or additional damages. In the
event HealthStream notifies Distributor that it should cease
distribution of T.NAV(R) due to an Infringement Claim, Distributor may
terminate this Agreement.
5.5. Except to the extent that Distributor is responsible under Section 5.6
herein, HealthStream shall also indemnify, hold harmless and defend
Distributor from and against any and all claims, liabilities, losses,
damages, expenses and costs (including reasonable attorneys' fees and
costs) arising out of or relating to: (a) a breach of HealthStream's
representations or warranties under this Agreement; (b) the use and
functionality of the HealthStream Courses and Third Party Content as it
interfaces with the co-branded portion of Distributor's World Wide Web
site; (c) other information supplied or managed by HealthStream for the
co-branded portion of Distributor's World Wide Web site; (d) any
services or products available under HealthStream's World Wide Web site
not provided by Distributor under this Agreement and (e) the negligence
or intentional wrongdoing of HealthStream. HealthStream will pay
resulting costs, damages and legal fees finally awarded in such action
in a court or in a settlement which are attributable to such claim
provided that: (i) Distributor promptly notifies HealthStream in
writing of any such claim; (ii) HealthStream has sole control of the
defense and all related settlement negotiations, and (iii) Distributor
cooperates with HealthStream, at HealthStream's expense, in defending
or settling such claim.
5.6. Except to the extent that HealthStream is responsible under Section 5.5
herein, Distributor shall indemnify, hold harmless and defend
HealthStream from and against any and all claims, liabilities, losses,
damages, expenses and costs (including reasonable attorneys' fees and
costs) arising out of or relating to: (a) a breach of Distributor's
representations or warranties under this Agreement; (b) any content
provided by Distributor to HealthStream for use in the co-branded
portion of the Distributor's World Wide Web site in accordance with
this Agreement; (c) any services or products available under
Distributor's World Wide Web site not provided by HealthStream under
this Agreement; and (d) the negligence or intentional wrongdoing of
Distributor. Distributor will pay resulting costs, damages and legal
fees finally awarded in such action in a court or in a settlement that
are attributable to such claim provided that: (i) HealthStream promptly
notifies Distributor in writing of any such claim; (ii) Distributor has
sole control of the defense and all related settlement negotiations,
and (iii) HealthStream cooperates with Distributor, at Distributor 's
expense, in defending or settling such claim.
Distributor and HealthStream
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ARTICLE 6
INTELLECTUAL PROPERTY PROVISIONS
6.1. Both parties will cause to appear on all marketing or promotional
materials concerning the healthcare related training courses, the other
party's copyright, trademark, or patent notices, as appropriate,
subject to such parties trademark usage guidelines, if any.
6.2. The parties agree that ownership of any invention conceived or
developed during the course of this Agreement shall vest in accordance
with the patent rules governing inventorship.
6.3. To the extent that source code is written by either party, title shall
vest in the party who has written such code.
6.4. 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 or content.
6.5. Both parties acknowledge that, except as otherwise provided herein,
each party owns and retains all right, title and interest in and to its
own content provided to the other party.
6.6. HealthStream acknowledges that Distributor owns and retains all right,
title and interest in and to Distributor's World Wide Web site and all
Distributor's products, services and derivatives thereof arising from
the performance of this Agreement.
6.7. Distributor acknowledges that, except for the license granted to
Distributor in Section 3.1 herein, HealthStream owns and retains all
right, title and interest in and to T.NAV(R), the T.NAV(R) source code,
and the T.NAV(R) object code.
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 Distributor
and by an officer of HealthStream, the term of this Agreement ("Term") shall run
from the Effective Date until one (1) year after the Launch Date, and thereafter
be automatically extended for additional one (1) year periods unless either
party provides thirty (30) days written notice of termination 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;
9.1.2. if the defaulting party fails to strictly comply with the
provisions of Article 12, 17.1, or makes an assignment in
violation of Article 7;
Distributor and HealthStream
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<PAGE> 6
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 or 17.1, 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. Unless otherwise stated in this Agreement, 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, Distributor
shall not employ T.NAV(R) or any portion thereof that is owned by
HealthStream, as part or portion of any product that Distributor may
use, sell, assign, lease, license, or transfer to third parties. Both
parties shall cease and desist from all use of the other party's names
and associated trademarks and, upon request, deliver to the other party
or its authorized representatives or destroy all material upon which
those names and the associated trademarks appear.
10.2. Articles 5, 6, 10, 11, 13, 14, Section 15.1, and Article 17 shall
survive termination or expiration of this Agreement.
ARTICLE 11
WARRANTIES, LIMITATION OF LIABILITY AND REMEDIES
HealthStream represents and warrants that T.NAV(R) shall operate and perform
according to specifications included herein. 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. EXCEPT FOR BREACH OF THE CONFIDENTIALITY AND THE INDEMNITY
PROVISIONS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY'S LIABILITY TO
THE OTHER PARTY FOR DAMAGES ARISING FROM PERFORMANCE OR NONPERFORMANCE UNDER
THIS AGREEMENT SHALL EXCEED IN THE AGGREGATE THE TOTAL AMOUNTS PAID TO
DISTRIBUTOR BY HEALTHSTREAM DURING THE 12 MONTH PERIOD PRIOR TO SUCH CLAIM.
ARTICLE 12
SECURITY AND PRIVACY
12.1. The parties acknowledge that Distributor must at all times provide a
private and secure web site and linking environment for users of
Distributor's services including the co-branded site and links.
HealthStream may gather information from users of Distributor's
services in accordance with HealthStream's privacy statement located on
HealthStream's Web site and attached hereto as
Distributor and HealthStream
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<PAGE> 7
Exhibit C and incorporated herein by this reference. Other than as set
forth in Exhibit C hereto, security measures used in association with
the co-branded site shall be consistent with the guidelines stated in
Distributor's security white paper attached hereto as Exhibit B and
incorporated herein by this reference. At a minimum, the parties agree
to implement security measures consisting of digital certificates and
SSL encryption or both, as applicable. Where third-party links outside
the secure co-branded site exist, Distributor will have the option to
have those links removed with HealthStream's mutual consent. Due to
security and privacy risks posed by the inclusion of third-party links
outside the secure co-branded site, Distributor reserves the right to
implement a warning screen or other form of alert to be presented to
Distributor's users as they move from the Distributor's site to the
co-branded site and HealthStream agrees to cooperate and assist
Distributor with such implementation, if reasonably required.
Distributor, in consultation with HealthStream, shall have sole
discretion over the content and form of such warning. The parties also
agree as follows:
12.1.1. Other than for the limited business purposes outlined in
Exhibit C attached hereto, HealthStream shall in no way
attempt to ascertain, store, or collect any information
relating to the identity of Distributor's users and the
Distributor's applications being run by these users.
Prohibited actions, other than as outlined in Exhibit C
attached hereto, include, but shall not be limited to:
(i) any investigation of the Distributor user's IP
address including, but not limited to, reverse DNS,
traceroute, and whois information;
(ii) requesting from the Distributor's users, or retrieval
(i.e. through system processes), of personal
information including, but not limited to, the
Distributor's user's e-mail address, mailing address,
telephone number, and social security number;
(iii) requesting from the Distributor's user, or retrieval
(i.e. through system processes) of any
Distributor-specific authentication information
including, but not limited to, user identifications
and passwords, and digital certificates; and
(iv) requesting or retrieval (i.e. through system
processes) of any Distributor cookies or other system
process information including, but not limited to,
Java scripts and parent frame content.
12.2. Distributor, or a third-party entity retained by Distributor, shall be
entitled to audit the security measures implemented for the co-branded
site by HealthStream to determine compliance with the provisions of
this Article 12. If it is determined by audit or otherwise, that
HealthStream is not in compliance with the provisions of this section,
Distributor may terminate this Agreement immediately.
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 each T.NAV(R) licensed consistent with generally
accepted accounting principles.
13.2. HealthStream may cause an audit to be made of the applicable
Distributor records that pertain to this Agreement for the sole purpose
of verifying royalty reports issued by Distributor 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
Distributor and HealthStream
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<PAGE> 8
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 Distributor's offices and in
such a manner as not to interfere with Distributor'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,
Distributor 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. The auditor shall be bound by a signed nondisclosure
agreement in substantial form as the Mutual Confidential Disclosure
Agreement entered into by the parties to this Agreement on July 28th,
1999 and the auditor shall treat all information disclosed during the
course of the audit as confidential information as defined in such
nondisclosure agreement.
13.3. Distributor 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 Distributor, 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 Distributor (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 Distributor 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
Distributor 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 as called for on the royalty reports. The
auditor shall be bound by a signed nondisclosure agreement in
substantial form as the Mutual Confidential Disclosure Agreement
entered into by the parties to this Agreement on July 28, 1999 and the
auditor shall treat all information disclosed during the course of the
audit as confidential information as defined in such nondisclosure
agreement.
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:
DISTRIBUTOR: MedicaLogic, Inc.
Attn: Jeffrey R. Sang
Business Development Manager
cc: General Counsel
101 Green Street
San Francisco, CA 94111
Distributor and HealthStream
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<PAGE> 9
HEALTHSTREAM: HealthStream, Inc.
Attn: Robert H. Laird, Jr.
General Counsel
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
CONTROLLING LAW
15.1. This Agreement shall be construed and controlled by the laws of the
State of California.
15.2. 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 not be construed as a franchise fee.
ARTICLE 16
ATTORNEYS' FEES
If either HealthStream or Distributor 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 17
GENERAL
17.1. All disclosures of proprietary and confidential information in
connection with this Agreement as well as the contents of this
Agreement shall be governed by the terms of the Mutual Confidential
Disclosure Agreement entered into between HealthStream and Distributor
on July 28, 1999.
17.2. 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
Distributor 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.
17.3. 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).
17.4. 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
Distributor and HealthStream
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<PAGE> 10
be effective unless made in writing and signed by an authorized
representative of the waiving party.
17.5. 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
last date set forth below. All signed copies of this Agreement shall be deemed
originals.
MedicaLogic, Inc. HealthStream, Inc.
By: /s/ By: /s/ Robert A. Frist, Jr.
------------------------------ ---------------------------------
Title: COO Title: CEO
--------------------------- -------------------------------
Date: 2/8/00 Date: 2/8/00
--------------------------- -------------------------------
Distributor and HealthStream
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<PAGE> 11
EXHIBIT A
PERSONALIZATION ITEMS
HealthStream's online education Web site and T.NAV systems can be personalized
to reflect Distributor's brand image. The following items are standard elements
of that Personalization:
1. Left navigation bar light color
2. Left navigation bar dark color
3. The color that is the background of the main logo in the upper left
4. The color for the ad banner section
5. The light color for the catalog listing
6. The dark color for the catalog listing
7. The light color for the Your Menu listing
8. The dark for the Your Menu listing
9. The logo to display in the upper left
10. The name to display in the site (i.e. "[email protected]")
11. The phone number of technical support
12. The email for tech support
13. The address for tech support
14. The first custom link to display
15. The second custom link to display
16. The third custom link to display
17. The fourth custom link to display
18. The fifth custom link to display
19. The people support link to display
20. Code to pre-populate the discount field
21. Text to display on page for custom link 1
22. Text to display for custom link 2
23. Text to display for custom link 3
24. Text to display for custom link 4
25. Text to display for custom link 5
26. Text to display for the people support link
27. Default background color
28. The path and file to call when doing an auto-logoff
29. The background color for the title bar
Distributor and HealthStream
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EXHIBIT B
MEDICALOGIC SECURITY WHITE PAPER
[INSERT DOCUMENT]
Distributor and HealthStream
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<PAGE> 13
EXHIBIT C
HEALTHSTREAM PRIVACY STATEMENT
HealthStream University may ask you to register and provide information that
personally identifies you ("Personal Information"), including when you register
for online courses. We use your Personal Information for two primary purposes:
- - To target specific education to you on HealthStream University.
- - To track and manage your continuing education credits.
Although HealthStream University does not provide your e-mail address, phone
number, or other personal information to third parties, we may aggregate
information from all of the HealthStream University users and create reports for
third parties.
To ensure Personal Information you provided to HealthStream University is
correct and current, you may review and update this information at any time at
the Personal Information section of your references. There, you can view and
edit Personal Information you already have given us.
HealthStream University uses cookies to authenticate users. We use cookies to
make sure our users are who they say they are.
A cookie is a small data file that certain Web sites write to your hard drive
when you visit them. A cookie file can contain information such as a user ID
that the site uses to track the pages you've visited. But the only personal
information a cookie can contain is information you supply yourself. A cookie
can't read data off your hard disk or read cookie files created by other sites.
If you've set your browser to warn you before accepting cookies, you will
receive the warning message with each cookie. Your browser needs to accept these
cookies for the HealthStream University site to function properly.
If for some reason you believe HealthStream University has not adhered to these
principles, please notify us by e-mail at [email protected] and we will
use commercially reasonable efforts to promptly determine and correct the
problem.
Distributor and HealthStream
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<PAGE> 1
EXHIBIT 10.27
We have omitted certain portions of this document and filed them separately with
the Commission. These portions are marked with an asterisk (*).
JOINT MARKETING AND LICENSING AGREEMENT
BETWEEN HEALTHSTREAM & SCRIPPS CLINIC
This Joint Marketing and Licensing Agreement ("Agreement") is entered
as of November 22, 1999 ("Effective Date") 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") Scripps Clinic,
having its principal place of business 10666 North Torrey Pines Road, LaJolla,
California 92037, ("Licensor").
BACKGROUND
WHEREAS, Licensor is a large multi-specialty medical clinic which has
developed and continues to develop Continuing Medical Education ("CME") content
for Physicians;
WHEREAS, Licensor conducts an annual Dermatology conference, the next
of which is titled Melanoma 2000: 10th Annual Cutaneous Malignancy Update
("Melanoma 2000 Conference") and will take place in January of 2000;
WHEREAS, HealthStream has developed and marketed and continues to
develop and market a computer-based education system known as the Training
Navigator ("T.NAV(R)") that delivers and monitors World Wide Web based content;
WHEREAS, Licensor and HealthStream wish to enter into a cooperative
effort to deploy Licensor's educational offerings utilizing HealthStream's
T.NAV(R) technology on the World Wide Web;
WHEREAS, HealthStream wishes to acquire a license and Licensor has
agreed to grant a license to HealthStream for the delivery of Scripps' Melanoma
2000 Conference, by HealthStream's T.NAV(R);
WHEREAS, Licensor and HealthStream wish to provide appropriate
consideration for those efforts that each party has agreed to undertake;
WHEREAS, Licensor and HealthStream each acknowledge the sufficiency and
adequacy of the value, concessions, and recitations set forth herein;
NOW THEREFORE, Licensor 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. "CME Courses" means those educational courses that have been reviewed
for continuing education units by an ACCME accredited professional
organization. Those individuals completing the courses may receive
credit toward continuing education requirements.
1.3. "Course" means healthcare related Internet based curricula designed to
be delivered by T.NAV(R) through HealthStream Sites.
1.4. "Educational Activity" means a single module of the Education Product,
specifically, a self-contained lesson consisting of Licensor Content,
learning objectives, a posttest, and an evaluation. Each individual
Educational Activity, when properly completed is eligible for CME
credit.
1.5 "Educational Product" means the adaptation of the Licensor Content into
Educational Activities contained in the Melanoma 2000 Conference,
including but not limited to conversion to a format appropriate for
delivery over the World Wide Web, definition of education objective, a
post test
Scripps and HealthStream
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<PAGE> 2
and an evaluation form for each segment in accordance with CFCE
policies and the ACCME Essentials and Guidelines for Accreditation of
Sponsors of Continuing Medical Education and Standards for Commercial
Support and Enduring Materials attached as Exhibit B hereto.
1.6 "HealthStream" means HealthStream, Inc. and any Subsidiary of
HealthStream, Inc.
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.
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 "Launch Date" means the date on which the Educational Product becomes
available to the public on the Internet, not to exceed ninety (90) days
beyond January 20, 2000, the Melanoma 2000 Conference date.
1.11 "Licensor Content" means the information contained in Scripps' Melanoma
2000 Conference including, but not limited to text and images that are
the proprietary property of Licensor that consist of CME in the modules
listed in Exhibit A or in modules that Licensor develops during the
Term as defined in Article 9 herein.
1.12 "Net Revenue" means gross revenue derived by HealthStream from
Transactions Fees less discounts, refunds, and payments to distribution
partners.
1.13 "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.
1.14 "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(R), a
trademark of HealthStream.
1.15 "Transactions" means those purchases of Educational Activities by
customers on HealthStream Sites.
1.16 "Transaction Fees" means fees received by HealthStream for
Transactions.
ARTICLE 2
LICENSE GRANTS
2.1 Subject to the payment of the consideration set forth in Article 3,
Licensor grants to HealthStream worldwide license to deliver the
Educational Product on the World Wide Web.
2.2 Upon notice from Licensor that an Educational Activity is no longer
appropriate for use because, for example, it contains erroneous or
outdated information, or in other ways is no longer appropriate for the
awarding of CME credit, HealthStream shall cease to represent that the
Educational Activity being so delivered is CME accredited. During the
term of this agreement, Licensor shall restructure the Licensor
Educational Activity for CME accreditation at its own expense or shall
provide an equivalent number of CME hours of content at no expense to
HealthStream. After this Agreement terminates, HealthStream may, at its
option and expense,
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seek to have Licensor update the Educational Activity. HealthStream may
also seek permission from Licensor to continue to broadcast the
Educational Activity without CME credit.
2.3 Licensor shall retain the ownership to all Educational Content,
including but not limited to, text, images, and audio that have been
copyrighted by Licensor under permissions and releases granted by the
authors.
2.4 HealthStream shall retain the copyright to the Educational Activities
it produces under this agreement.
2.5 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 3
PRICE AND PAYMENT
3.1 During the Term as defined in Article 9 herein, HealthStream shall pay
to Licensor * of all Net Revenue derived from Transaction Fees.
3.2 HealthStream agrees to deliver quarterly sales statements that detail
Net Revenue and payment according to the percentages outlined in this
Article 3 to Licensor within thirty (30) days after the end of each
calendar quarter. These quarterly reports shall indicate the total
number of Transactions for which Licensor derives revenue. HealthStream
shall submit quarterly reports even if no royalties or other amounts
are due for such quarter. A monthly finance charge based on an annual
rate of prime plus 2% will be assessed on all amounts that are paid
later than thirty (30) days after the end of the last quarter.
ARTICLE 4
HEALTHSTREAM RESPONSIBILITIES TO LICENSOR
4.1 HealthStream will designate a project manager with sufficient
experience and training to resolve issues related to the production,
review and credentialling issues required by this project.
4.2 HealthStream will fund the costs to develop the Educational Product.
4.3 HealthStream will submit to Licensor a draft version of each
Educational Activity it has converted to the Web for review and
approval by Licensor. Licensor will have twenty (20) working days to
conduct its reviews. Any approvals shall not be unreasonably withheld
by Licensor.
4.4 HealthStream agrees to make all changes requested by Licensor in a
timely manner.
4.5 HealthStream will incorporate into each Educational Activity:
4.5.1 an accreditation statement to be provided by Licensor;
4.5.2 objectives to be created and provided by Licensor;
4.5.3 faculty disclosure information about actual or potential
conflicts of interest to be provided by Licensor;
4.5.4 Educational Activity evaluation to be provided by Licensor;
and
4.5.5 a post test to be provided by Licensor.
4.6 HealthStream shall be responsible for issuing to qualified physicians a
document recognizing the attainment of CME credit. HealthStream shall
develop a system to bar issuance of such documentation unless the
participating physician has answered eighty percent (80%) of the post
test questions correctly.
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4.7 HealthStream shall maintain a database of all users of the Educational
Activity and shall provide the following information quarterly to
Licensor:
4.7.1 number of users of each Educational Activity;
4.7.2 demographic information;
4.7.3 names of physicians who were issued letters of CME
accreditation for each Educational Activity; and
4.7.4 results of evaluations.
4.8 HealthStream shall submit for Licensor approval the format and content
of advertising, if any, so that Licensor can assure the requirements of
ACCME Standards For Commercial Support are met. Licensor will have ten
(10) working days to review and approve the format and content of such
advertising.
4.9 HealthStream shall submit for Licensor approval all promotional
activities related to this project. Licensor will have ten (10) working
days to review and approve such promotional activities.
ARTICLE 5
LICENSOR RESPONSIBILITIES TO HEALTHSTREAM
5.1 Licensor will designate a project manager with sufficient experience
and training to resolve issues related to the production, review and
credentialling issues required by this project.
5.2 Licensor agrees to accredit each Educational Activity produced under
this Agreement if, in its sole judgment, Licensor policies and the
ACCME's Essentials and Guidelines for Accreditation of Sponsors Of
Continuing Medical Education And Standards For Commercial Support and
Enduring Materials substantially in the form as in Exhibit B hereto
have been complied with in all material aspects.
5.3 Licensor agrees to provide initial accreditation for each Educational
Activity for two (2) years, with one (1) year extensions possible as
long as, in Licensor's judgment, the material is still current. At its
sole discretion, in accordance with its responsibilities to the ACCME's
Essentials and Guidelines for Accreditation of Sponsors Of Continuing
Medical Education And Standards For Commercial Support and Enduring
Materials as set forth in Exhibit B hereto, Licensor may determine at
any time that one or more Educational Activity is no longer appropriate
for CME accreditation. In the event the Center for Continuing Education
finds one or more Educational Activities of this Educational Product no
longer appropriate for CME accreditation, HealthStream agrees to
withdraw the Educational Activities, in accordance with Article 2.2.
5.4 For each Educational Activity, Licensor shall provide a title,
objectives, post test, and an evaluation form in a timely fashion.
ARTICLE 6
WARRANTIES AND INDEMNITIES
6.1. Licensor represents and warrants that:
6.1.1. Licensor Content does not infringe any copyright or patent
enforceable under the laws of any country;
6.1.2. Licensor Content does not violate the trade secret rights of
any third party; and
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6.1.3. Licensor Content represents the then existing reasonable
standards of care.
6.2. Each party agrees to indemnify, hold harmless, and defend the other
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 6.1 provided, the
charged party is notified promptly in writing of a claim and has sole
control over its defense or settlement, and the party not charged
provides reasonable assistance in the defense of the same.
6.3. Licensor shall have no liability for any claim based on HealthStream's:
6.3.1. use or distribution of Licensor Content after Licensor's
written notice that HealthStream should cease use or
distribution of Licensor Content due to a claim, or
6.3.2. combination of Licensor Content with a non-Licensor program or
data if such claim would have been avoided by the exclusive
use of Licensor Content.
6.4. For all claims arising under Section 6.3, HealthStream agrees to
indemnify and defend Licensor from and against all damages, costs, and
expenses, including reasonable attorneys' fees. In the event Licensor
notifies HealthStream that it should cease distribution of Licensor
Content due to a claim, HealthStream may terminate this Agreement.
ARTICLE 7
INTELLECTUAL PROPERTY PROVISIONS
7.1. HealthStream will cause to appear on all marketing or promotional
materials concerning the Licensor Content, Licensor's copyright,
trademark, or patent notices.
7.2. 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.
7.3. To the extent that source code is written by either party title shall
vest in the party who has written such code.
7.4. 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 or Content.
7.5. Both parties acknowledge that, except as otherwise provided herein,
each party owns and retains all right, title and interest in and to its
own Content provided to the other party.
7.6. HealthStream acknowledges that Licensor owns and retains all right,
title and interest in and to Licensor Content and all Licensor's
products and services arising from the performance of this Agreement.
7.7. Licensor acknowledges that HealthStream owns and retains all right,
title and interest in and to T.NAV(R) Commerce, the T.NAV(R) Commerce
source code, the T.NAV(R) Commerce object code, any derivatives of
T.NAV(R) Commerce and the interface templates designed by HealthStream
used to present and deliver the Licensor Content.
ARTICLE 8
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 6) 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
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the benefit of and be binding upon successors or purchasers of substantially
all of either party's assets.
ARTICLE 9
TERM OF AGREEMENT
Provided this Agreement has been properly executed by an officer of Licensor and
by an officer of HealthStream, the term of this Agreement shall run from the
Launch Date until three (3) years after the Launch Date ("Term"), 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 10
DEFAULT AND TERMINATION
10.1. The non-defaulting party may terminate this Agreement in its entirety
if any of the following events of default occur:
10.1.1. if the defaulting party materially fails to perform or comply
with this Agreement or any provision hereof;
10.1.2. if the defaulting party fails to strictly comply with the
provisions of Article 11, or makes an assignment in violation
of Article 6;
10.1.3. 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;
10.1.4. 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
10.1.5. 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.
10.2. Termination due to a breach of Articles 8 or 13 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 11
OBLIGATIONS UPON TERMINATION
11.1. From and after termination or expiration of this Agreement,
HealthStream shall not employ Licensor Content or portions thereof
which is owned by Licensor, as part or portion of any product that
HealthStream may use, sell, assign, lease, license, or transfer to
third parties. Both parties shall 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.
11.2. Articles 6, 7, 11, 12, 13, 14, 15, and Sections 16.2 through 16.6 shall
survive termination or expiration of this Agreement.
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ARTICLE 12
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 13
NONDISCLOSURE AGREEMENT
13.1. HealthStream expressly undertakes to retain in confidence all
information and know-how transmitted to HealthStream by Licensor that
Licensor 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 Licensor's prior
written consent. HealthStream agrees to use the same degree of care to
protect Licensor 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:
13.1.1. it received rightfully from another party prior to its receipt
from Licensor;
13.1.2. Licensor has disclosed to a third party without any obligation
to maintain such information in confidence; or
13.1.3. has been or is independently developed by HealthStream.
13.2. Further, HealthStream may disclose confidential information as required
by governmental or judicial order, provided HealthStream gives Licensor
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 Licensor's unannounced products to
HealthStream's employees or any third party.
13.3. Licensor shall have the same obligations in Sections 11.1 and 11.2
above with respect to HealthStream's information and know-how.
13.4. Both parties shall prepare a mutually acceptable press release, if any,
to announce this Agreement.
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ARTICLE 14
AUDITS
14.1. 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 Licensor Content licensed consistent with generally
accepted accounting principles.
14.2. Licensor may cause an audit to be made of the applicable HealthStream
records that pertain to this Agreement for the sole purpose of
verifying royalty reports issued by HealthStream to Licensor 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
HealthStream's offices and in such a manner as not to interfere with
HealthStream'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. Licensor 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, HealthStream agrees to pay Licensor 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.
14.3. 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.
14.4. 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 15
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:
LICENSOR: Scripps Clinic
Roger Cornell, MD
Vice President of Academic Affairs
Drop GEN2
Department of Academic Affairs
10666 North Torrey Pines Rd.
LaJolla, California 92037
HEALTHSTREAM: HealthStream, Inc.
Robert H. Laird, Jr.
General Counsel
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.
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ARTICLE 16
GENERAL
16.1. 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
Partner 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.
16.2. If either HealthStream or Partner 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.
16.3. This Agreement, and the rights of the parties hereto, shall be governed
by and construed in accordance with the laws of the State of Tennessee,
without regard to such state's conflict of laws provisions.
16.4. 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 franchise fee.
16.5. 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).
16.6. 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.
16.7. 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.
16.8. This Agreement may be executed in one or more counterparts, each of
which will be deemed an original but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date. All signed copies of this Agreement shall be deemed originals.
/s/ R. Cornell /s/ Robert A. Frist, Jr.
-------------------------------------- --------------------------
Scripps Clinic HealthStream, Inc.
Roger Cornell, MD Robert A. Frist, Jr.
Director of Academic Affairs Chief Executive Officer
/s/ RCC
--------------------------------------
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EXHIBIT A
EXISTING LICENSOR CONTENT
Melanoma 2000: 10th Annual Cutaneous Malignancy Update
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EXHIBIT B
THE ACCME'S ESSENTIALS AND GUIDELINES
FOR ACCREDITATION OF SPONSORS OF CONTINUING MEDICAL EDUCATION
AND STANDARDS FOR COMMERCIAL SUPPORT AND ENDURING MATERIALS
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EXHIBIT 10.28
We have omitted certain portions of this document and filed them separately
with the Commission. These portions are marked with an asterisk (*).
JOINT MARKETING AND LICENSING AGREEMENT
This Joint Marketing and Licensing Agreement ("Agreement") is made 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 KnowledgeLinc, Inc. having its principal place of
business at 1358 West 31st Street, Erie, Pennsylvania 16508-1416 ("Licensor").
BACKGROUND
WHEREAS, Licensor has developed and continues to develop a product
known as KnowledgeLinc Content, Educational Courses providing continuing
education credits to healthcare professionals;
WHEREAS, HealthStream has developed and marketed and continues to
develop and market a computer-based education system known as the Training
Navigator(TM) ("T.NAV(R)") that delivers and monitors World Wide Web based
content;
WHEREAS, Licensor and HealthStream wish to enter into a cooperative
effort to deploy Licensor's educational offerings utilizing HealthStream's T.NAV
technology on the World Wide Web;
WHEREAS, HealthStream wishes to acquire a license and Licensor has
agreed to grant a license to HealthStream for the delivery of the Continuing
Education product, whether now existing or developed by Licensor during the term
of this Agreement, by HealthStream's T.NAV;
WHEREAS, Licensor and HealthStream wish to provide appropriate
consideration for those efforts that each party has agreed to undertake;
WHEREAS, Licensor and HealthStream each acknowledge the sufficiency and
adequacy of the value, concessions, and recitations set forth herein;
NOW THEREFORE, Licensor and HealthStream agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the terms below shall have the following
meanings:
1.1. "Educational Product" means a self-contained lesson consisting of
Licensor Courses, learning objectives, a posttest, and an evaluation.
Each individual Course, when properly completed is eligible for CE
credit.
1.2. "Effective Date" means September 13, 1999, the date on which both
parties to this Agreement have executed same.
1.3. "HealthStream" means HealthStream, Inc. and any Subsidiary of
HealthStream, Inc.
1.4. "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.
1.5. "KnowledgeLinc Courses" means Licensor Courses that are the proprietary
property of Licensor.
1.6. "Licensing Fee" means a non-refundable advance on royalties paid by
HealthStream to Licensor.
1.7. "Licensor" means KnowledgeLinc, Inc. and any affiliated entity of
Licensor.
1.8. "Licensor Courses" means the information contained in healthcare
library of KnowledgeLinc Content and its incorporated modules
including, but not limited to text and images that are the proprietary
property of Licensor in the modules listed in Exhibit A. Licensor
Courses includes both KnowledgeLinc Courses and Third Party Courses.
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1.9. "Net Revenue" means gross revenue derived by HealthStream from
Transactions Fees less any discounts, refunds, or rebates to customers
and any payments to distribution partners.
1.10. "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.
1.11. "T.NAV(R)" is a branded trademark of HealthStream and is a computer
based training product that delivers and monitors World Wide Web based
Content.
1.12. "T.NAV(R) Commerce" means HealthStream's proprietary computer based
training product that is a derivative product of T.NAV(R) with
additional features added by HealthStream in its sole discretion and
designated by HealthStream in its sole discretion as "T.NAV(R)v.x.x.c."
1.13. "Third Party Courses" means Licensor Courses that are the proprietary
property of a third party to this agreement, including but not limited
to professional trade associations from which Licensor has licensed.
1.14. "Transaction Fees" means fees received by HealthStream for healthcare
related training courses based on Licensor Courses delivered over the
Internet via the T.NAV(R).
ARTICLE 2
LICENSE GRANTS
2.1 Subject to the payment of the consideration set forth in Article 3,
Licensor grants to HealthStream a non-exclusive worldwide license to
deliver the Educational Product on the World Wide Web.
2.2 Upon notice from Licensor that Educational Product is no longer
appropriate for use because, for example, it contains erroneous or
outdated information, or in other ways is no longer appropriate for the
awarding of CE credit, HealthStream shall cease to represent that the
Educational Product being so delivered is CE accredited. During the
term of this agreement, Licensor shall restructure the Educational
Product for CE accreditation at its own expense or shall provide an
equivalent number of CE hours of content at no expense to HealthStream.
After this Agreement terminates, HealthStream may, at its option and
expense, seek to have Licensor update the Educational Product.
HealthStream may also seek permission from Licensor to continue to
broadcast the Educational Product without CE credit.
2.3 Licensor shall retain the ownership to all Educational Product,
including but not limited to, text, images, and audio that have been
copyrighted by Licensor under permissions and releases granted by the
authors.
2.4 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 3
PRICE AND PAYMENT
3.1. During the term of this Agreement, HealthStream shall pay to Licensor:
3.1.1. An * advance on royalties for each credit hour of Licensor
Courses it licenses under this agreement, to be paid in three
installments: one third (1/3) upon execution of the Agreement,
one third (1/3) upon launch of the KnowledgeLinc courses, and
one third (1/3) thirty (30) days after the launch. The total
advance for current KnowledgeLinc courses is * provided
HealthStream licenses all two hundred and fifty nine (259)
hours which KnowledgeLinc has published on the Internet.
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3.1.2. A royalty of * of all Net Revenue derived from Transaction
Fees on Third-Party Courses; and
3.1.3. A royalty of * of all Net Revenue derived
from Transaction Fees on KnowledgeLinc Courses.
3.2. HealthStream agrees to deliver monthly sales statements that detail Net
Revenue and payment according to the percentages outlined in this
Article 3 to Licensor within thirty (30) days after the end of each
calendar quarter. These quarterly reports shall indicate the total
number of Transactions for which Licensor derives revenue. HealthStream
shall submit quarterly 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 thirty (30) days after the end of the last quarter.
ARTICLE 4
HEALTHSTREAM RESPONSIBILITIES TO LICENSOR
4.1 HealthStream will designate a project manager with sufficient
experience and training to resolve issues related to the production,
review and credentialling issues required by this project.
4.2 HealthStream will submit to Licensor a draft paper based version of
each Educational Product it has converted to the Web for review and
approval by Licensor. Licensor will have twenty (20) working days to
conduct its reviews. Any approvals shall not be unreasonably withheld
by Licensor.
4.3 HealthStream agrees to make all changes requested by Licensor in a
timely manner.
4.4 HealthStream will incorporate into each Educational Product:
4.4.1 identifying logo or brand identifying KnowledgeLinc as the
content provider;
4.4.2 an accreditation statement to be provided by Licensor;
4.4.3 objectives to be created and provided by Licensor;
4.4.4 faculty disclosure information about actual or potential
conflicts of interest to be provided by Licensor;
4.4.5 Educational Product evaluation to be provided by Licensor; and
4.4.6 a post test to be provided by Licensor.
4.5 HealthStream shall be responsible for issuing to qualified
professionals a document recognizing the attainment of CE credit,
except as required by the professional associations from whom Licensor
derives Licensor Courses. HealthStream shall develop a system to bar
issuance of such documentation unless the participating professional
has answered seventy-five percent (75%) of the post test questions
correctly. In the event any of these professional associations bars
issuance of such documentation from HealthStream, Licensor and
HealthStream shall devise a process by which HealthStream will
communicate with the professional association so that it may provide
written documentation from its offices to HealthStream users.
4.6 HealthStream shall maintain a database of all users of the Educational
Product and shall provide the following information quarterly to
Licensor:
4.6.1 number of users of each Educational Product;
4.6.2 demographic information;
4.6.3 names of professionals who were issued letters of CE
accreditation for each Educational Product; and
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4.6.4 results of evaluations.
4.7 HealthStream shall submit for Licensor approval the format and content
of advertising, if any, so that Licensor can assure the requirements of
accrediting body guidelines are met. Licensor will have ten (10)
working days to review and approve the format and content of such
advertising.
ARTICLE 5
LICENSOR RESPONSIBILITIES TO HEALTHSTREAM
5.1 Licensor will designate a project manager with sufficient experience
and training to resolve issues related to the production, review and
credentialling issues required by this project.
5.2 Licensor agrees to accredit each Educational Product produced under
this Agreement if, to the extent within its power and in its sole
judgment, Licensor policies and the accrediting body guidelines have
been complied with in all material aspects.
5.3 Licensor agrees to provide initial accreditation for each Educational
Product for two (2) years, with one (1) year extensions possible as
long as, in Licensor's judgment, the material is still current. At its
sole discretion, in accordance with its responsibilities to the
accrediting body guidelines, Licensor may determine at any time that
one or more Educational Product is no longer appropriate for CE
accreditation. In the event the Licensor finds one or more Educational
Product no longer appropriate for CE accreditation, HealthStream agrees
to withdraw the Educational Product, in accordance with Article 2.2.
5.4 For each Educational Product, Licensor shall provide a title,
objectives, post test, and an evaluation form in a timely fashion.
ARTICLE 6
WARRANTIES AND INDEMNITIES
6.1. Licensor represents and warrants that to the best of its knowledge:
6.1.1. Licensor Courses does not infringe any copyright or patent
enforceable under the laws of any country;
6.1.2. Licensor Courses does not violate the trade secret rights of
any third party; and
6.1.3. Licensor Courses represents the then existing reasonable
standards of care.
6.2. Each party agrees to indemnify, hold harmless, and defend the other
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 6.1 provided, the
charged party is notified promptly in writing of a claim and has sole
control over its defense or settlement, and the party not charged
provides reasonable assistance in the defense of the same.
6.3. Licensor shall have no liability for any claim based on HealthStream's:
6.3.1. use or distribution of Licensor Courses after Licensor's
written notice that HealthStream should cease use or
distribution of Licensor Courses due to a claim, or
6.3.2. combination of Licensor Courses with a non-Licensor program or
data if such claim would have been avoided by the exclusive
use of Licensor Courses.
6.4. For all claims arising under Section 6.3, HealthStream agrees to
indemnify and defend Licensor
KnowledgeLinc and HealthStream
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from and against all damages, costs, and expenses, including reasonable
attorneys' fees. In the event Licensor notifies HealthStream that it
should cease distribution of Licensor Courses due to a claim,
HealthStream may terminate this Agreement.
ARTICLE 7
INTELLECTUAL PROPERTY PROVISIONS
7.1. HealthStream will cause to appear on all marketing or promotional
materials concerning the Licensor Courses, Licensor's copyright,
trademark, or patent notices.
7.2. 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.
7.3. To the extent that source code is written by either party title shall
vest in the party who has written such code.
7.4. 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 or Content.
7.5. Both parties acknowledge that, except as otherwise provided herein,
each party owns and retains all right, title and interest in and to its
own Content provided to the other party.
7.6. HealthStream acknowledges that Licensor owns and retains all right,
title and interest in and to Licensor Courses and all Licensor's
products and services arising from the performance of this Agreement.
7.7. Licensor acknowledges that HealthStream owns and retains all right,
title and interest in and to T.NAV Commerce, the T.NAV Commerce source
code, the T.NAV Commerce object code, any derivatives of T.NAV Commerce
and the interface templates designed by HealthStream used to present
and deliver the Licensor Courses.
ARTICLE 8
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 8 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 9
TERM OF AGREEMENT
Provided this Agreement has been properly executed by an officer of Licensor and
by an officer of HealthStream, the term of this Agreement ("Term") shall run
from the Effective Date until two (2) year(s) 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.
KnowledgeLinc and HealthStream
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ARTICLE 10
DEFAULT AND TERMINATION
10.1. The non-defaulting party may terminate this Agreement in its entirety
if any of the following events of default occur:
10.1.1. if the defaulting party materially fails to perform or comply
with this Agreement or any provision hereof;
10.1.2. if the defaulting party fails to strictly comply with the
provisions of Article 13, or makes an assignment in violation
of Article 8;
10.1.3. 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;
10.1.4. 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
10.1.5. 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.
10.2. Termination due to a breach of Articles 8 or 13 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 11
OBLIGATIONS UPON TERMINATION
11.1. From and after termination or expiration of this Agreement,
HealthStream shall not employ Licensor Courses or portions thereof
which is owned by Licensor, as part or portion of any product that
HealthStream may use, sell, assign, lease, license, or transfer to
third parties. Both parties shall 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.
11.2. Articles 6, 7, 11, 12, 13, 14, 15, Section 16.1, and Article 17 shall
survive termination or expiration of this Agreement.
ARTICLE 12
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.),
KnowledgeLinc and HealthStream
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INCIDENTAL, INDIRECT, ECONOMIC, OR PUNITIVE DAMAGES EVEN IF THE OTHER PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
ARTICLE 13
NONDISCLOSURE AGREEMENT
13.1. HealthStream expressly undertakes to retain in confidence all
information and know-how transmitted to HealthStream by Licensor that
Licensor 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 Licensor's prior
written consent. HealthStream agrees to use the same degree of care to
protect Licensor 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:
13.1.1. it received rightfully from another party prior to its receipt
from Licensor;
13.1.2. Licensor has disclosed to a third party without any obligation
to maintain such information in confidence; or
13.1.3. has been or is independently developed by HealthStream.
13.2. Further, HealthStream may disclose confidential information as required
by governmental or judicial order, provided HealthStream gives Licensor
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 13 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 Licensor's unannounced products to
HealthStream's employees or any third party.
13.3. Licensor shall have the same obligations in Sections 13.1 and 13.2
above with respect to HealthStream's information and know-how.
13.4. Both parties shall prepare a mutually acceptable press release, if any,
to announce this Agreement.
ARTICLE 14
AUDITS
14.1. 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 Licensor Courses licensed consistent with generally
accepted accounting principles.
14.2. Licensor may cause an audit to be made of the applicable HealthStream
records that pertain to this Agreement for the sole purpose of
verifying royalty reports issued by HealthStream to
KnowledgeLinc and HealthStream
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Licensor 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 Licensor (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 occur no more than once per calendar year and within six
(6) months of the end of the calendar year. Licensor 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, HealthStream agrees to pay Licensor 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.
14.3. 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.
14.4. 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 15
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:
LICENSOR: KnowledgeLinc, Inc.
Daniel Dubowski
1358 West 31st Street
Erie, Pennsylvania 16508-1416
HEALTHSTREAM: HealthStream, Inc.
Robert H. Laird, Jr.
General Counsel
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.
KnowledgeLinc and HealthStream
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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 3 of this
Agreement shall be construed as a royalty fee for the rights granted in
Article 2 of this Agreement, and not as a franchise fee.
ARTICLE 17
ATTORNEYS' FEES
If either HealthStream or Licensor 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. It shall not be
modified except by a written agreement signed on behalf of Licensor 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 1.5 above. All signed copies of this Agreement shall
be deemed originals.
/s/ Daniel Dubowski /s/ Robert A. Frist, Jr.
------------------------------- ---------------------------
KnowledgeLinc, Inc. HealthStream, Inc.
Dan Dubowski Robert Frist
President Chief Executive Officer
KnowledgeLinc and HealthStream
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EXHIBIT A
LICENSOR COURSES
KnowledgeLinc and HealthStream
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EXHIBIT 10.30
HEALTHSTREAM, INC.
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
INTRODUCTION
1.1 Establishment of Plan. HealthStream, Inc., a Tennessee corporation
("HealthStream") with its principal offices located in Nashville, Tennessee,
adopts the following employee stock purchase plan for its eligible employees.
This Plan shall be known as the HealthStream, Inc. Employee Stock Purchase Plan.
1.2 Purpose. The purpose of this Plan is to provide an opportunity for
eligible employees of the Employer to become stockholders of HealthStream. It is
believed that broad-based employee participation in the ownership of the
business will help to achieve the unity of purpose conducive to the continued
growth of the Employer and to the mutual benefit of its employees and
shareholders.
1.3 Qualification. This Plan is intended to be an employee stock
purchase plan which qualifies for favorable Federal income tax treatment under
Section 423 of the Code and is intended to comply with the provisions thereof,
including the requirement of Section 423(b)(5) of the Code that all Employees
granted options to purchase Stock under the Plan have the same rights and
privileges with respect to such options.
1.4 Rule 16b-3 Compliance. This Plan is intended to comply with Rule
16b-3 under the Securities Exchange Act of 1934, and should be interpreted in
accordance therewith.
ARTICLE II
DEFINITIONS
As used herein, the following words and phrases shall have the meanings
specified below:
2.1 Board of Directors. The Board of Directors of HealthStream.
2.2 Closing Market Price. The closing price of the Stock as reported in
the NASDAQ National Market System on the date specified; or if no sales occurred
on such day, at the mean between the closing "bid" and "asked" prices on such
day; but if there should be any material alteration in the present system of
reporting sales prices of such Stock, or if such Stock should no longer be
listed on NASDAQ's National Market System, the market value of the Stock as of a
particular date shall be determined in such a method as shall be specified by
the Plan Administrator.
2.3 Code. The Internal Revenue Code of 1986, as amended from time to
time.
2.4 Commencement Date. The first day of each Option Period. The first
Commencement Date shall be March 30, 2000.
2.5 Contribution Account. As set forth in Article V, the account
established on behalf of a Participant to which shall be credited the amount of
the Participant's contribution.
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2.6 Effective Date. March 14, 2000.
2.7 Employee. Each employee of an Employer except:
(a) any employee whose customary employment is twenty (20) hours
per week or less, or
(b) any employee whose customary employment is for not more than
five months in any calendar year.
2.8 Employer. HealthStream and any United States corporation which is a
Subsidiary of HealthStream (except for a Subsidiary which by resolution of the
Board of Directors is expressly not authorized to become a participating
Employer). The term "Employer" shall include any corporation into which an
Employer may be merged or consolidated or to which all or substantially all of
its assets may be transferred, provided that the surviving or transferee
corporation would qualify as a Subsidiary under Section 2.19 and such
corporation does not affirmatively disavow this Plan.
2.9 Exercise Date. The last trading date of each Option Period on the
NASDAQ National Market System.
2.10 Exercise Price. The price per share of the Stock to be charged to
Participants at the Exercise Date, as determined in Section 6.3.
2.11 Five-Percent Shareholder. An Employee who, immediately after an
option is granted to purchase Stock under this Plan, owns five percent (5%) or
more of the total combined voting power or value of all classes of stock of an
Employer. In determining this five percent test, shares of stock which the
Employee may purchase under outstanding options, warrants or other convertible
securities, as well as stock attributed to the Employee from members of his
family or otherwise under Section 424(d) of the Code, shall be treated as stock
owned by the Employee in the numerator, but treasury shares and shares of stock
which may be issued under options, warrants or other convertible securities
shall not be counted in the total of outstanding shares in the denominator.
2.12 Grant Date. The first trading date of each Option Period on the
NASDAQ National Market System.
2.13 Option Period. Successive periods of twelve (12) months commencing
on the first Commencement Date and on April 1 in each succeeding year.
2.14 Participant. Any Employee of an Employer who has met the
conditions for eligibility as provided in Article IV and who has elected to
participate in the Plan.
2.15 Plan. HealthStream, Inc. Employee Stock Purchase Plan.
2.16 Plan Administrator. The committee composed of one or more
individuals to whom authority is delegated by the Board of Directors to
administer the Plan.
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2.17 Stock. Those shares of common stock of HealthStream which are
reserved pursuant to Section 6.1 for issuance upon the exercise of options
granted under this Plan.
2.18 Subsidiary. Any United States corporation (other than
HealthStream) in an unbroken chain of corporations beginning with HealthStream
if, at the time of the granting of the option, each of the corporations other
than the last corporation in the unbroken chain owns stock possessing fifty-one
percent (51%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
ARTICLE III
SHAREHOLDER APPROVAL
3.1 Shareholder Approval Required. This Plan must be approved by the
shareholders of HealthStream within the period beginning twelve (12) months
before and ending twelve (12) months after its adoption by the Board of
Directors.
3.2 Shareholder Approval for Certain Amendments. Without the approval
of the shareholders of HealthStream, no amendment to this Plan shall increase
the number of shares reserved under the Plan, other than as provided in Section
10.3. Approval by shareholders must comply with applicable provisions of the
corporate charter and bylaws of HealthStream and with Tennessee law prescribing
the method and degree of shareholder approval required for issuance of corporate
stock or options.
ARTICLE IV
ELIGIBILITY AND PARTICIPATION
4.1 Conditions. Each Employee shall become eligible to become a
Participant for each Option Period on its Commencement Date if such Employee has
been employed by the Employer for a continuous period (as determined in
accordance with Section 1.421-7(h)(2) of the Treasury Regulations as in effect
on the Effective Date) at least thirty (30) days prior to the Commencement Date.
No Employee who is a Five-Percent Shareholder shall be eligible to participate
in the Plan. Notwithstanding anything to the contrary contained herein, no
individual who is not an Employee shall be granted an option to purchase Stock
under the Plan.
4.2 Application for Participation. Each Employee who becomes eligible
to participate shall be furnished a summary of the Plan and an enrollment form.
If such Employee elects to participate hereunder, Employee shall complete such
form and file it with Employer no later than thirty (30) days prior to the next
Commencement Date or, in the case of the first Commencement Date, no later than
March 28, 2000. The completed enrollment form shall indicate the amount of
Employee contribution authorized by the Employee. If no new enrollment form is
filed by a Participant in advance of any Option Period after the initial Option
Period, that Participant shall be deemed to have elected to continue to
participate with the same contribution previously elected (subject to the limit
of fifteen percent (15%) of base pay specified in Section 5.1). If any Employee
does not elect to participate in any given Option Period, such Employee may
elect to participate on any future Commencement Date so long as such Employee
continues to meet the eligibility requirements.
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4.3 Date of Participation. All Employees who elect to participate shall
be enrolled in the Plan commencing with the first day of the Option Period
following their submission of the enrollment form. Upon becoming a Participant,
the Participant shall be bound by the terms of this Plan, including any
amendments whenever made.
4.4 Acquisition or Creation of Subsidiary. If the stock of a
corporation is acquired by HealthStream or another Employer so that the acquired
corporation becomes a Subsidiary, or if a Subsidiary is created, the Subsidiary
in either case shall automatically become an Employer and its Employees shall
become eligible to participate in the Plan on the first Commencement Date after
the acquisition or creation of the Subsidiary, as the case may be. In the case
of an acquisition, credit shall be given to Employees of the acquired Subsidiary
for service with such corporation prior to the acquisition for purposes of
satisfying the requirement of Section 4.1 of thirty (30) days continuous
employment. Notwithstanding the foregoing, the Board of Directors may by
appropriate resolutions (i) provide that the acquired or newly created
Subsidiary shall not be a participating Employer, (ii) specify that the acquired
or newly created Subsidiary will become a participating Employer on a
Commencement Date other than the first Commencement Date after the acquisition
or creation, or (iii) attach any condition whatsoever (including denial of
credit for prior service) to eligibility of the employees of the acquired or
newly created Subsidiary, except to the extent such condition would not comply
with Section 423 of the Code.
ARTICLE V
CONTRIBUTION ACCOUNT
5.1 Employee Contributions. The enrollment form signed by each
Participant shall authorize the Employer to deduct from the Participant's
compensation an after-tax amount during each monthly payroll period not less
than fifty dollars ($50.00), nor more than an amount which is fifteen percent
(15%) of the Participant's base pay on the Commencement Date. Base pay includes
the Participant's wages and salary, but does not include overtime payments,
sales commissions, incentive compensation, bonuses, expense reimbursements,
fringe benefits and other special payments. Base pay is not reduced by the
Participant's elective deferrals to a qualified plan under Section 401(k) of the
Code, salary reduction contributions to a cafeteria plan under Section 125 of
the Code, or elective deferrals to a nonqualified deferred compensation plan.
The dollar amount deducted each payday shall be credited to the Participant's
Contribution Account. Participant contributions will not be permitted to
commence at any time during the Option Period other than on a Commencement Date.
No interest will accrue on any contributions or on the balance in a
Participant's Contribution Account.
5.2 Modification of Contribution Rate. No change shall be permitted in
a Participant's amount of withholding except upon a Commencement Date, and then
only if the Participant files a new enrollment form with the Employer at least
thirty (30) days in advance of the Commencement Date designating the desired
withholding rate. Notwithstanding the foregoing, a Participant may notify the
Employer at any time that the Participant wishes to discontinue the
Participant's contributions (except during the last fifteen (15) days of the
Option Period). This notice shall be in writing and on such forms as provided by
the Employer and shall become effective as of a date provided on the form not
more than five (5) days following its receipt by the Employer. The Participant
shall become eligible to recommence contributions on the next Commencement Date.
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5.3 Withdrawal of Contributions. A Participant may elect to withdraw
the balance of his Contribution Account at any time during the Option Period
prior to the Exercise Date (except during the last fifteen (15) days of the
Option Period). The option granted to a Participant shall be canceled upon his
withdrawal of the balance in his Contribution Account. This election to withdraw
must be in writing on such forms as may be provided by the Employer. If
contributions are withdrawn in this manner, further contributions during that
Option Period will be discontinued in the same manner as provided in Section
5.2, and the Participant shall become eligible to recommence contributions on
the next Commencement Date.
5.4 Lump Sum Contributions. Subject to the limitations described in
Section 5.5, a Participant who has not discontinued his contributions pursuant
to Section 5.2 or elected to withdraw his contributions pursuant to Section 5.3
may make no more than one (1) lump sum contribution during each Option Period.
These lump sum contributions shall be paid by check by the Participant,
delivered at least fifteen (15) days prior to the Exercise Date, and shall be
credited to the Participant's Contribution Account.
5.5 Limitations on Contributions. During each Option Period, the total
contributions by a Participant to his Contribution Account (including both
contributions by payroll deduction pursuant to Section 5.1 and lump sum
contributions pursuant to Section 5.4) shall not exceed fifteen percent (15%) of
the Participant's base pay for the Option Period. If a Participant's total
contributions should exceed this limit, the excess shall be returned to the
Participant after the end of the Option Period, without interest.
ARTICLE VI
ISSUANCE AND EXERCISE OF OPTIONS
6.1 Reserved Shares of Stock. HealthStream shall reserve one million
(1,000,000) shares of Stock for issuance upon exercise of the options granted
under this Plan.
6.2 Issuance of Options. On the Grant Date each Participant shall be
granted an option to purchase Stock with the number of shares and Exercise Price
determined as provided in this Article VI, subject to the maximum limit
specified in Section 6.6(a) and (b). All such options shall be automatically
exercised on the following Exercise Date, except for options which are canceled
when a Participant withdraws the balance of his Contribution Account or which
are otherwise terminated under the provisions of this Plan.
6.3 Determination of Exercise Price. The Exercise Price of the options
granted under this Plan for any Option Period shall be the lesser of:
(a) eighty-five percent (85%) of the Closing Market Price of the
Stock on the Exercise Date;
(b) eighty-five percent (85%) of the Closing Market Price of the
Stock on the Grant Date.
6.4 Purchase of Stock. On an Exercise Date, all options shall be
automatically exercised, except that the options of a Participant who has
terminated employment pursuant to Section 7.1 or who has withdrawn all his
contribution shall expire. The Contribution Account of each Participant shall be
used to
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purchase the maximum number of whole shares of Stock determined by dividing the
Exercise Price into the balance of the Participant's Contribution Account. Any
money remaining in a Participant's Contribution Account representing a
fractional share shall remain in his Contribution Account to be used in the next
Option Period along with new contributions in the next Option Period; provided,
however, that if the Participant does not enroll for the next Option Period, the
balance remaining shall be returned to such Participant in cash.
6.5 Terms of Options. Options granted under this Plan shall be subject
to such amendment or modification as the Employer shall deem necessary to comply
with any applicable law or regulation, including but not limited to Section 423
of the Code, and shall contain such other provisions as the Employer shall from
time to time approve and deem necessary; provided, however, that any such
provisions shall comply with Section 423 of the Code.
6.6 Limitations on Options. The options granted hereunder are subject
to the following limitations:
(a) The maximum number of shares of Stock which may be purchased by
any Participant on an Exercise Date shall be 2,500 shares. This
maximum number of shares shall be adjusted upon the occurrence
of an event described in Section 10.3.
(b) No Participant shall be permitted to accrue the right to
purchase during any calendar year Stock under this Plan (and
any other plan of the Employer or Subsidiary which is qualified
under Section 423 of the Code) having a market value in excess
of $25,000 (as determined on the Grant Date for the Option
Period during which each such share of Stock is purchased) as
provided in Section 423(b)(8) of the Code.
(c) No option may be granted to a Participant if the Participant
immediately after the option is granted would be a Five-Percent
Shareholder.
(d) No Participant may assign, transfer or otherwise alienate any
options granted to him under this Plan, otherwise than by will
or the laws of descent and distribution, and such options may
be exercised during the Participant's lifetime only by the
Participant.
6.7 Pro-Rata Reduction of Optioned Stock. If the total number of shares
of Stock to be purchased under option by all Participants on an Exercise Date
exceeds the number of shares of Stock remaining authorized for issuance under
Section 6.1, a pro-rata allocation of the shares of Stock available for issuance
will be made among Participants in proportion to their respective Contribution
Account balances on the Exercise Date, and any money remaining in the
Contribution Accounts shall be returned to the Participants.
6.8 State Securities Laws. Notwithstanding anything to the contrary
contained herein, HealthStream shall not be obligated to issue shares of Stock
to any Participant if to do so would violate any State securities law applicable
to the sale of Stock to such Participant. In the event that HealthStream
refrains from issuing shares of Stock to any Participant in reliance on this
Section, HealthStream shall return to such Participant the amount in such
Participant's Contribution Account that would otherwise have been applied to the
purchase of Stock.
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ARTICLE VII
TERMINATION OF PARTICIPATION
7.1 Termination of Employment. Any Employee whose employment with the
Employer is terminated during the Option Period prior to the Exercise Date for
any reason except death, disability or retirement at or after age 65 shall cease
being a Participant immediately. The balance of that Participant's Contribution
Account shall be paid to such Participant as soon as practical after his
termination. The option granted to such Participant shall be null and void.
7.2 Death. If a Participant should die while employed by the Employer,
no further contributions on behalf of the deceased Participant shall be made.
The legal representative of the deceased Participant may elect to withdraw the
balance in said Participant's Contribution Account by notifying the Employer in
writing prior to the Exercise Date in the Option Period during which the
Participant died. In the event no election to withdraw is made prior to the
Exercise Date, the balance accumulated in the deceased Participant's
Contribution Account shall be used to purchase shares of Stock in accordance
with Section 6.4. Any money remaining which is insufficient to purchase a whole
share shall be paid to the legal representative.
7.3 Retirement. If a Participant shall retire from the employment of
the Employer at or after attaining age 65, no further contributions on behalf of
the retired Participant shall be made. The Participant may elect to withdraw the
balance in his Contribution Account by notifying the Employer in writing prior
to the Exercise Date in the Option Period during which the Participant retired.
In the event no election to withdraw is made prior to the Exercise Date, the
balance accumulated in the retired Participant's Contribution Account shall be
used to purchase shares of Stock in accordance with Section 6.4. Any money
remaining which is insufficient to purchase a whole share shall be paid to the
retired Participant.
7.4 Disability. If a Participant should terminate employment with the
Employer on account of disability, as determined by reference to the definition
of "disability" in the Employer's long-term disability plan, no further
contributions on behalf of the disabled Participant shall be made. The
Participant may elect to withdraw the balance in his Contribution Account by
notifying the Employer in writing prior to the Exercise Date in the Option
Period during which the Participant became disabled. In the event no election to
withdraw is made prior to the Exercise Date, the balance accumulated in the
disabled Participant's Contribution Account shall be used to purchase shares of
Stock in accordance with Section 6.4. Any money remaining which is insufficient
to purchase a whole share shall be paid to the disabled Participant.
ARTICLE VIII
OWNERSHIP OF STOCK
8.1 Stock Certificates. Certificates for Stock purchased through the
exercise of the options granted hereunder shall be issued as soon as practical
after the Exercise Date. Certificates may be issued at the request of the
Participant (i) in the name of the Participant, (ii) jointly in the name of the
Participant and a member of the Participant's family, (iii) in trust to a
trustee, (iv) to the Participant as custodian for the Participant's child under
the Gift to Minors Act, or (v) to the legal representative of a deceased
Participant.
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8.2 Premature Sale of Stock. If a Participant (or former Participant)
sells or otherwise disposes of any shares of Stock obtained under this Plan
(a) prior to two (2) years after the Grant Date of the option under
which such shares were obtained; or
(b) prior to one (1) year after the Exercise Date on which such
shares were obtained,
that Participant (or former Participant) must notify the Employer immediately in
writing concerning such disposition.
8.3 Restrictions on Sale. The Plan Administrator may, in its sole
discretion, place restrictions on the sale or transfer of shares of Stock
purchased under the Plan during any Option Period by notice to all Participants
of the nature of such restrictions given in advance of the Commencement Date of
such Option Period. The restrictions may prevent the sale, transfer or other
disposition of any shares of Stock purchased during the Option Period for a
period of up to two years from the Grant Date, subject to such exceptions as the
Plan Administrator may determine (e.g., termination of employment with the
Employer). Certificates issued pursuant to Section 8.1 for restricted shares
shall contain an appropriate legend disclosing the nature and duration of the
restriction. Any such restrictions determined by the Plan Administrator shall be
applicable equally to all shares of Stock purchased during the Option Period for
which the restrictions are first applicable and to all shares of Stock purchased
during subsequent Option Periods unless otherwise determined by the Plan
Administrator. If the Plan Administrator should change or eliminate the
restrictions for a subsequent Option Period, notice of such action shall be
given to all Participants.
8.4 Transfer of Ownership. A Participant who purchases shares of Stock
under this Plan shall be transferred at such time substantially all of the
rights of ownership of such shares of Stock in accordance with Section
1.421-1(f) of the Treasury Regulations as in effect on the Effective Date. Such
rights of ownership shall include the right to vote, the right to receive
declared dividends, the right to share in the assets of the Employer in the
event of liquidation, the right to inspect the Employer's books and the right to
pledge or sell such Stock subject to the restrictions in the Plan.
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ARTICLE IX
ADMINISTRATION AND AMENDMENT
9.1 Administration. The Plan Administrator shall (i) administer the
Plan, (ii) keep records of the Contribution Account balance of each Participant,
(iii) interpret the Plan, (iv) determine all questions arising as to eligibility
to participate, amount of contributions permitted, determination of the Exercise
Price, and all other matters of administration, and (v) determine whether to
place restrictions on the sale and transfer of Stock and the nature of such
restrictions, as provided in Section 8.3. The Plan Administrator shall have such
duties, powers and discretionary authority as may be necessary to discharge the
foregoing duties, and may delegate any or all of the foregoing duties to any
individual or individuals (including officers or other Employees who are
Participants). The Board of Directors shall have the right at any time and
without notice to remove or replace any individual or committee of individuals
serving as Plan Administrator. All determinations by the Plan Administrator
shall be conclusive and binding on all persons. Any rules, regulations, or
procedures that may be necessary for the proper administration or functioning of
this Plan that are not covered in this Plan document shall be promulgated and
adopted by the Plan Administrator.
9.2 Amendment. The Board of Directors may at any time amend the Plan in
any respect, including termination of the Plan, without notice to Participants.
If the Plan is terminated, all options outstanding at the time of termination
shall become null and void and the balance in each Participant's Contribution
Account shall be paid to that Participant. Notwithstanding the foregoing, no
amendment of the Plan as described in Section 3.2 shall become effective until
and unless such amendment is approved by the shareholders of HealthStream.
ARTICLE X
MISCELLANEOUS
10.1 Expenses. The Employer will pay all expenses of administering this
Plan that may arise in connection with the Plan.
10.2 No Contract of Employment. Nothing in this Plan shall be construed
to constitute a contract of employment between an Employer and any Employee or
to be an inducement for the employment of any Employee. Nothing contained in
this Plan shall be deemed to give any Employee the right to be retained in the
service of an Employer or to interfere with the right of an Employer to
discharge any Employee at any time, with or without cause, regardless of the
effect which such discharge may have upon him as a Participant of the Plan.
10.3 Adjustment Upon Changes in Stock. The aggregate number of shares
of Stock reserved for purchase under the Plan as provided in Section 6.1, and
the calculation of the Exercise Price as provided in Section 6.3, shall be
adjusted by the Plan Administrator (subject to direction by the Board of
Directors) in an equitable manner to reflect changes in the capitalization of
HealthStream, including, but not limited to, such changes as result from merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, combination of shares, exchange of shares
and change in corporate structure. If any adjustment under this Section 10.3
would create a fractional share of Stock or a right to acquire a fractional
share of Stock, such fractional share shall be disregarded and the number of
shares
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available under the Plan and the number of shares covered under any options
granted pursuant to the Plan shall be the next lower number of shares, rounding
all fractions downward.
10.4 Employer's Rights. The rights and powers of any Employer shall not
be affected in any way by its participation in this Plan, including but not
limited to the right or power of any Employer to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell, or
transfer all or any part of its business or assets.
10.5 Limit on Liability. No liability whatever shall attach to or be
incurred by any past, present or future shareholders, officers or directors, as
such, of HealthStream or any Employer, under or by reason of any of the terms,
conditions or agreements contained in this Plan or implied therefore, and any
and all liabilities of any and all rights and claims against HealthStream, an
Employer, or any shareholder, officer or director as such, whether arising at
common law or in equity or created by statute or constitution or otherwise,
pertaining to this Plan, are hereby expressly waived and released by every
Participant as a part of the consideration for any benefits under this plan;
provided, however, no waiver shall occur, solely by reason of this Section 10.5,
of any right which is not susceptible to advance waiver under applicable law.
10.6 Gender and Number. For the purposes of the Plan, unless the
contrary is clearly indicated, the use of the masculine gender shall include the
feminine, and the singular number shall include the plural and vice versa.
10.7 Governing Law. The validity, construction, interpretation,
administration and effect of this Plan, and any rules or regulations promulgated
hereunder, including all rights or privileges of any Participants hereunder,
shall be governed exclusively by and in accordance with the laws of the State of
Tennessee, except that the Plan shall be construed to the maximum extent
possible to comply with Section 423 of the Code and the Treasury regulations
promulgated thereunder.
10.8 Severability. If any provision of this Plan is held by a court to
be unenforceable or is deemed invalid for any reason, then such provision shall
be deemed inapplicable and omitted, but all other provisions of this Plan shall
be deemed valid and enforceable to the full extent possible under applicable
law.
IN WITNESS WHEREOF, the Employer has adopted this Plan effective March
14, 2000.
Date: March 16, 2000 HEALTHSTREAM, INC.
Vice President and Corporate Secretary
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EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of (1) our report dated January 22, 2000, except for Note 12, as to which
the date is March ___, 2000, with respect to the financial statements of
HealthStream, Inc., and (2) our report dated September 17, 1999, with respect to
the financial statements of SilverPlatter Education, Inc., in Amendment No. 3 to
the Registration Statement (Form S-1 No. 333-88939) and related Prospectus of
HealthStream, Inc. for the registration of 5.75 million shares of its common
stock.
ERNST & YOUNG LLP
Nashville, Tennessee
March ___, 2000
The foregoing consent is in the form that will be signed upon the completion of
the stock split and the increase in the number of shares of common stock and
preferred stock authorized described in Note 12 to the financial statements.
/s/ ERNST & YOUNG LLP
Nashville, Tennessee
March 27, 2000
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EXHIBIT 23.3
CONSENT OF LANE GORMAN TRUBITT, L.L.P.
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 14, 2000, with respect to the financial
statements of MultiMedia Marketing, Inc. d/b/a m3 The Healthcare Learning
Company included in the Registration Statement (Form S-1 No. 333-8839) of
HealthStream, Inc. for the registration of its common stock.
/s/ Lane Gorman Trubitt, L.L.P.
Dallas, Texas
March 27, 2000
