FORM 10 - Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark one)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
Commission file Number: 0-22212
IVI PUBLISHING, INC.
(Exact Name of Registrant as
specified in its charter)
Minnesota 41-1686038
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
7500 Flying Cloud Drive
Minneapolis, Minnesota 55344-3739
(Address of principal executive offices)
(Zip Code)
612-996-6000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of November 5, 1997
Common Stock 10,105,475 shares
Par Value $.01 Per Share
<PAGE>
IVI PUBLISHING, INC.
Securities and Exchange Commission Form 10-Q
for the Third Quarter Ended September 30, 1997
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Statements of Operations (Unaudited) Three months ended
September 30, 1997 and September 30, 1996; Nine months ended
September 30, 1997 and September 30, 1996
Condensed Balance Sheets September 30, 1997
(Unaudited) and December 31, 1996
Condensed Statements of Cash Flows (Unaudited) Nine months ended
September 30, 1997 and September 30, 1996
Notes to Condensed Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IVI Publishing, Inc.
Condensed Statements of Operations (Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenues $ 488 $ 2,249 $ 2,731 $ 7,003
Cost of revenues 311 1,090 1,347 3,525
------- ------- ------- -------
Gross margin 177 1,159 1,384 3,478
Costs and expenses:
Product development 378 1,574 2,779 4,610
Sales and marketing 333 679 976 2,078
General and administrative 2,096 2,834 5,702 5,052
------- ------- ------- -------
Loss from operations (2,630) (3,928) (8,073) (8,262)
Other income 2,704 2,704
Interest (expense) income (68) 28 (184) 177
------- ------- ------- -------
Net income (loss) $ 6 ($3,900) ($5,553) ($8,085)
======= ======= ======= =======
Preferred stock dividends ($ 30) ($ 30) ($ 90) ($ 90)
Preferred stock accretion (13) (13) (39) (39)
------- ------- ------- -------
Net loss applicable to common stock ($ 37) ($3,943) ($5,682) ($8,214)
======= ======= ======= =======
Net loss per common share ($ 0.00) ($ 0.52) ($ 0.74) ($ 1.08)
======= ======= ======= =======
Weighted average number of common
shares outstanding 7,618 7,608 7,636 7,580
======= ======= ======= =======
</TABLE>
See notes to condensed financial statements.
<PAGE>
IVI Publishing, Inc.
Condensed Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
September 30 December 31
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,788 $ 3,462
Accounts receivable, net 437 4,134
Inventory 301 155
Other current assets 417 585
-------- --------
Total current assets 3,943 8,336
Furniture and equipment 6,663 6,812
Less allowances for depreciation (4,399) (3,622)
-------- --------
2,264 3,190
Other non-current assets 738 1,885
======== ========
Total assets $ 6,945 $ 13,411
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 3,443 $ 3,635
Other accrued expenses 333 1,471
-------- --------
Total current liabilities 3,776 5,106
Convertible subordinated debentures 3,500 3,500
Convertible redeemable preferred stock 1,944 1,905
Shareholders' equity:
Common Stock, $.01 par value:
Issued and outstanding shares-
7,348 at September 30, 1997
and 7,612 at December 31, 1996 73 76
Paid-in capital 70,834 70,453
Accumulated deficit (73,182) (67,629)
-------- --------
Total shareholders' (deficit) equity (2,275) 2,900
-------- --------
Total liabilities and shareholders' (deficit) equity $ 6,945 $ 13,411
======== ========
</TABLE>
See notes to condensed financial statements.
<PAGE>
IVI Publishing, Inc.
Condensed Statements of Cash Flows (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
1997 1996
------- -------
Operating activities
<S> <C> <C>
Net loss ($5,553) ($8,085)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 984 1,059
Stock issued for litigation settlement 433
Changes in assets and liabilities:
Decrease (increase) in net accounts receivable 3,697 (394)
(Increase) decrease in inventories (146) 400
Decrease (increase) in other current assets 168 (18)
Decrease (increase) in other long-term assets 1,103 (641)
(Decrease) increase in accounts payable and
accrued liabilities (1,420) 634
------- -------
Net cash used in operating activities (734) (7,045)
Investing activities
Net furniture and equipment (additions) disposals (14) 342
------- -------
Net cash (used) provided by investing activities (14) 342
Financing activities
Proceeds from exercised stock options 74 347
------- -------
Net cash provided by financing activities 74 347
Net decrease in cash and cash equivalents (674) (6,356)
Cash and cash equivalents at beginning of period 3,462 7,759
------- -------
Cash and cash equivalents at end of period $ 2,788 $ 1,403
======= =======
</TABLE>
See notes to condensed financial statements.
<PAGE>
IVI Publishing, Inc.
Notes to the Condensed Financial Statements (Unaudited)
September 30, 1997
Note A -- Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine month period ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1996.
Note B -- Product Development Costs
Product development costs consist principally of compensation to Company
employees, interactive design costs paid to outside consultants, travel and
supplies. All costs are expensed as incurred.
Costs related to research, design and development of products are charged to
product development expenses as incurred. Under Statement of Financial
Accounting Standards No. 86 (SFAS No. 86), software development costs are
capitalized beginning when a product's technological feasibility has been
established and ending when a product is available for general release to
customers. The Company has not capitalized any software development costs since
such costs meeting the requirements of SFAS No. 86 have not been significant.
Note C -- Net Loss Per Share
Net loss per share is computed using the weighted average number of shares of
common stock outstanding. Common equivalent shares from stock options and
warrants are excluded from the computation as their effect is anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share." This statement establishes standards for computing
and presenting basic and diluted earnings per share (EPS) for financial
statements issued for periods ending after December 15, 1997. The adoption of
this statement will not have a material effect on the Company's reported EPS.
<PAGE>
Note D -- Revenue Recognition
The Company's revenues consist of product sales and licensing revenue, contract
development revenue, fees relating to the licensing of its content for use on
cable television, and fees for online services.
Product sales and licensing revenues are made up of retail distribution sales,
direct mail sales, and product sales and royalties on licenses to original
equipment manufacturers. These revenues are recognized upon shipment of the
product or when the Company's obligations under the licensing agreements are
complete. Allowances for returns are recorded at the time revenue is recognized.
Contract development revenue is generated through the use of the Company's
personnel and facilities for the creation of custom multimedia products. This
revenue is recognized by contract on a percentage-of-completion basis or at a
specific hourly rate, depending on the terms of the contract.
Revenues are generated through the licensing of the Company's health and medical
content for use on cable television channels. The Company recognizes revenue
under its cable agreement ratably over the life of the contract.
Revenues are generated through the sale of sponsorships and advertising on the
Company's web site. These revenues are recognized as they are earned. Revenues
were also generated through the Company's online agreement with AT&T in 1996.
Note E -- Litigation Settlements
During the third quarter, the Company settled a lawsuit with Viridis, Inc. for
$350,000 cash and 175,000 shares of the Company's stock. The stock will not be
registered and is restricted under Rule 144 of the Securities Act of 1933. The
shares were expensed at their estimated value at the settlement date, $433,125.
In November 1997, a jury verdict was rendered in a case brought against the
Company by T. Randal Productions, Inc. in February 1996. The jury award was for
$480,000. The Company recorded this amount as an expense in September 1997.
Note F -- Mayo Agreement
In August 1997, the Company entered into an agreement with Mayo Foundation
("Mayo") which includes a full transfer of ownership of IVI's O@sis web site to
Mayo and a new arrangement for revenues and cost sharing concerning O@sis. Under
the terms of the agreement, IVI received a $2,700,000 cash payment, an
additional $300,000 cash payment for hosting the web site for a transition
period, 490,000 shares of IVI stock and the Company will receive a royalty from
Mayo on certain revenues generated by the Mayo Health O@sis site and certain
other non-O@sis Internet projects through the year 2001. In addition, Mayo was
released from the Company's "right of first offer" on Mayo health products
produced for electronic media, and Mayo assumed all operating expenses for the
web site retroactive to January 1, 1997. The Company recorded the $2,700,000
payment as other income, reversed previously recorded product development
expenses, and recorded most of the $300,000 payment as deferred income, which
will be recognized over the fourth quarter as the transition period expires.
Note G -- Subsequent Event
In October 1997, the Convertible Subordinated Debentures and the Convertible
Redeemable Preferred Stock were converted to common stock at a rate of $2.00 per
share, resulting in the issuance of 2,750,000 shares of common stock.
<PAGE>
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Overview
The Company's strategy for the rest of 1997 and beyond continues to be the
establishment of the Company as the leading provider of health information to
consumers and businesses via multiple media channels including online, CD-ROM,
and cable television. The OnHealth web site is an integral part of this
strategy. During the third quarter of 1997, the Company expanded its presence in
the online market by signing multiple sponsorship and advertising agreements for
the OnHealth site. These contracts began generating revenue for the Company
during the second half of the third quarter. In the future, in addition to
increasing sponsorship and advertising revenues, the Company expects to earn
commissions on products sold over the web site.
During the third quarter, the Company also finalized a new agreement with Mayo
Clinic and as a result has a very limited role in the future production of the
Mayo Health O@sis web site. The Company received $2.7 million as compensation
for a full transfer of ownership of the O@sis web site to Mayo and for releasing
Mayo of its obligation to give the Company the "right of first offer" on Mayo
products published in electronic media. The Company also received $300,000 as
compensation for continuing to host the Mayo O@sis web site during a transition
period. In addition, the Company has the right to receive a royalty from Mayo on
certain revenues generated by the Mayo Health O@sis site and certain other
non-O@sis Internet projects through the year 2001. The new agreement allows the
Company to focus the majority of its sales, marketing and development efforts on
its OnHealth web site and the Company intends to use the cash received from Mayo
to fund this strategy.
The Company has continued to focus its CD-ROM efforts on its family health
reference CD-ROM titles. During September, the Company launched the second
version of its flagship CD-ROM product, Mayo Clinic Ultimate Medical Guide II,
which consists of the updated versions of the Mayo Clinic Family Health Book and
the Mayo Clinic Family Pharmacist discs packaged as a single unit. Although the
Company's strategy calls for more of a focus on the online market, the Company
will continue to publish its family health reference CD-ROM titles.
The Company has continued to generate revenue through contract development work,
and plans to do so in the future. Part of the Company's strategy calls for
aligning the Company with strategic partners who desire contract development
work for health information content that the Company can use to enhance its own
web site.
<PAGE>
Results Of Operations
Net income for the third quarter of 1997 totaled $6,000, compared to a net loss
of $3,900,000 for the third quarter of 1996. Third quarter income was partially
due to the $2,700,000 of other income that was recognized when the Company
transferred its ownership and control of the Mayo Health O@sis web site to Mayo
Foundation.
Net revenues were $488,000 for the third quarter of 1997, compared to $2,249,000
for the same period of 1996. The revenues were comprised as follows:
Third Quarter Third Quarter
1997 1996
---------- ----------
---------- ----------
CD-ROM Retail $ 193,000 $ 387,000
CD-ROM OEM and License 58,000 938,000
Contract Development 191,000 370,000
Online Revenue 37,000
Amortization of Cable Royalty 493,000
Other Revenue 9,000 61,000
---------- ----------
---------- ----------
Total Net Revenues $ 488,000 $2,249,000
========== ==========
The decrease in revenues resulted in part from the Company's inability to
recognize any cable royalty revenues. This is due to America's Health Network's
("AHN") failure to obtain financing and honor its contract obligations with the
Company by the end of the third quarter; however, AHN is still diligently
seeking financing which would allow it to honor its obligations to the Company.
Additionally, CD-ROM retail and OEM revenues decreased due to the Company's
decision to shift its focus to its online efforts.
Gross margins as a percentage of net revenues for the third quarter and nine
months ended September 30, 1997 were 36% and 51%, respectively, compared to 52%
and 50% for the comparable periods of 1996. A significant decrease in margins
earned on contract development work during the third quarter contributed to
reduced margins; however, the gross margins earned on revenues to date are
comparable to the prior year.
Product development expenses were $378,000 and $2,779,000 for the third quarter
and nine months ended September 30, 1997, respectively, compared to $1,574,000
and $4,610,000 for the comparable periods in 1996. The decrease resulted in part
from the Company's new arrangement with Mayo Foundation. Under the new
agreement, Mayo assumed all operating expenses for the Mayo Health O@sis web
site, retroactive to January 1, 1997. The operating costs, which the Company
recorded during the first half of the year, were reversed during the third
quarter, after the agreement was signed. Also, the Company realized additional
cost savings by concentrating its development efforts on its OnHealth web site,
which incurs fewer development costs than CD-ROMs.
Sales and marketing expenses for the third quarter and nine months ended
September 30, 1997 were $333,000 and $976,000 compared to $679,000 and
$2,078,000 for the comparable periods of 1996. The decrease was due to fewer
consulting and promotional expenses paid on CD-ROM sales. The Company intends to
focus its sales and marketing force on online opportunities, while continuing to
maintain its CD-ROM sales.
<PAGE>
General and administrative expenses decreased in the third quarter of 1997 to
$2,096,000 compared to $2,834,000 for the third quarter of 1996. However, these
expenses increased for the nine months ended September 30, to $5,702,000 in
1997, as compared to $5,052,000 in 1996. The overall increase is due to
extensive legal fees incurred throughout 1997 for lawsuits with Viridis, Inc.
and T. Randal Productions, Inc. The former was settled during the third quarter,
and the latter went to trial with a verdict being entered by a jury in November
1997 (See Note E). General and administrative expenses for the third quarter
1996 included several one time charges including a loss recorded on the sublease
of office space and employee severance charges totaling $978,000. In addition,
there was a write-off of a $836,000 receivable to bad debt expense.
Net interest expense was $68,000 and $184,000 for the third quarter and nine
months ended September 30, 1997, compared to net interest income of $28,000 and
$177,000 for the same periods in 1996. The decrease resulted from having less
cash available for investing purposes combined with interest expense payments
made on the Company's convertible subordinated debentures, which were issued in
November 1996.
Financial Condition, Liquidity and Capital Resources
Capital asset expenditures for the nine month period ended September 30, 1997
totaled $65,000 and consisted principally of computer equipment. Capital asset
disposals totaled $51,000.
At September 30, 1997, the Company had cash and cash equivalents totaling
$2,788,000. Total cash used during the nine months ended September 30, 1997 was
$674,000. The Company believes that its current working capital and anticipated
operating cash flows will be sufficient to fund its operations for the
foreseeable future. These assumptions are based on the Company maintaining costs
and significantly increasing revenues. The increase in revenues is expected to
come from the sale of site sponsorships, advertising, and commissions from
product sales on the Company's web site. Any material reduction in the projected
revenues would likely require the Company to seek additional equity or debt
financing. There is no assurance that such financing will be available or, if
available, whether the financial terms would be reasonable.
In October 1997, the Convertible Subordinated Debentures and the Convertible
Redeemable Preferred Stock were converted to common stock, resulting in the
issuance of 2,750,000 shares of common stock.
The Company has an asset of $675,000 that represents the remaining portion of
the costs paid, net of royalties received and write-offs, to Time Life, Inc. for
the development of the print version of Taking Control of Your Health. The
Company will continue to amortize this asset as royalties on sales of the print
version are received from Time Life, Inc. There are certain risks and
uncertainties in assuming that the sales volume of the print version will be
sufficient to fully amortize this asset; however, based on the most recent
review of this asset, management believes the remaining balance will be
realizable. Management will continue to review this asset's valuation for
impairment.
This report contains forward-looking statements that are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those projected. Specifically, statements relating to expected increases in
revenues from web site sponsorship, advertisement and commissions on products
sold over the web site; royalties on revenues generated by the Mayo Health O@sis
site, revenues arising from contract development work, and sufficiency of
working capital depend, among other things, on successful negotiations with
third parties, and consumer demand for the information that the Company's
OnHealth web site provides.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for this filing.
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1996, the Company commenced an action seeking replevin of certain
computer equipment leased to a former contractor, Viridis. In May 1996, Viridis
expanded the scope of the action by filing a cross-complaint against the Company
alleging that the Company breached contractual obligations and committed various
torts by ending its business relationship with Viridis and seeking $10 million.
In October 1997, the Company and Viridis entered into a settlement agreement
resolving all disputes between them. IVI made an initial payment of $225,000 and
is paying $125,000 in 15 monthly installments ending in December 1988, and
issued 175,000 shares of restricted IVI common stock to Viridis' designee at an
estimated value of $433,125. An additional $25,000 is due if IVI's AHN payments
resume.
In February 1996, an action in the District Court of Hennepin County (Minnesota)
was brought by T. Randal Productions et al. against the Company and one current
and two former employees. The plaintiffs made various allegations, including
misappropriation of corporate opportunities and trade secrets by the Company and
its employees and sought award of monetary damages, exemplary damages and
royalties substantially in excess of $10.0 million. In October 1997, a jury
found that there was no joint venture between T. Randal and the Company and/or
any of its employees but awarded T. Randal $480,000 for damages sustained to its
business. The jury verdict is subject to motions for a new trial, amended
findings and for judgment notwithstanding the verdict and to appeal to the Court
of Appeals.
In 1996, Berkshire Multimedia Group, Inc. ("Berkshire") initiated mediation
regarding a dispute with the Company. Shortly after an unsuccessful mediation
conference was held in September 1996, Berkshire filed a demand for arbitration
alleging that the Company breached its obligations under a contract. An
arbitration hearing was completed in January 1997, and in February 1997 the
arbitration panel awarded Berkshire $300,000. Hennepin County (Minnesota)
District Court vacated that award on May 29, 1997, and Berkshire has appealed
the case. The appeal was recently heard by the court of Appeals but no decision
has yet been rendered.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
In October 1997, the Convertible Subordinated Debentures and the Convertible
Redeemable Preferred Stock were converted to common stock at a rate of $2.00 per
share, resulting in the issuance of 2,750,000 shares of common stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
(10.1) Settlement Agreement and Mutual Release dated September 12,
1997 between the Company and Mayo Foundation for Medical
Education and Research.
(10.2) Sublicense Agreement dated September 12, 1997 between the
Company and Mayo Foundation for Medical Education and
Research.
(11) Computation of per share loss.
(27) Financial Data Schedule (included only in electronic version).
(b) No reports on Form 8-K were filed by the Company during the quarter ended
September 30, 1997
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
IVI PUBLISHING, INC.
By /s/ Charles A. Nickoloff
Charles A. Nickoloff
Vice President and
Acting Chief Financial Officer
Date: November 7, 1997
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
This Settlement Agreement and Mutual Release ("Agreement") is entered
into as of September 12, 1997 ("Agreement Date") between IVI PUBLISHING, INC., a
Minnesota corporation, for itself and its subsidiaries, affiliates and related
entities, and all successors and assigns and their respective officers,
directors, shareholders, employees and agents (collectively, "IVI"), and the
MAYO FOUNDATION FOR MEDICAL EDUCATION AND RESEARCH, a Minnesota non-profit
foundation, for itself and its subsidiaries, affiliates and related entities,
including, without limitation, Mayo Medical Ventures ("MMV"), and all successors
and assigns and their respective officers, directors, employees and agents
(collectively, "Mayo").
RECITALS
A. IVI and Mayo are parties to the Electronic Publishing License,
Development and Marketing Agreement dated April 28, 1993 ("1993 Agreement") and
the 1994 License, Development and Marketing Agreement dated September 27, 1994
("1994 Agreement").
B. Various disagreements have arisen between IVI and Mayo, particularly
regarding their respective rights and duties under the 1994 Agreement with
respect to the O@sis website ("O@sis Site," as more fully defined below) that
has been jointly developed by IVI and Mayo.
C. The parties have had extensive settlement discussions over several
months in which each of Mayo and IVI has been represented by independent legal
counsel. As a result of those discussions, the parties have concluded it is in
their respective best interests to settle and compromise all known and unknown
claims related to or arising out of such disagreements, as set forth in this
Agreement.
D. Subject to the terms hereof, it is the intention of the parties that
IVI deliver to Mayo (by license, sublicense or transfer of ownership) all of its
rights in the O@sis Site (other than with respect to the Third Party Software)
such that Mayo will be able to operate the O@sis Site in the same manner as it
is operated by IVI as of the Agreement Date, provided, however, that IVI shall
continue to own and be free to exploit all IVI Copyrights, IVI Technology and
Source Code and any other intellectual property rights of IVI to the extent that
title to such rights has not been completely transferred and assigned to Mayo
hereunder.
E. All capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the 1994 Agreement.
<PAGE>
AGREEMENTS
1. DEFINITIONS.
As used herein, the following terms shall have the meanings set forth
below:
(a) "Audiovisual Rights" means the IVI Copyrights for the data, images,
sounds, text, graphics, audiovisuals, animations, music, photographs,
motion pictures, files, data or materials of the O@sis Site as
perceived, seen or heard by an end user of such website, but excluding
the IVI Copyrights for the underlying software within the IVI
Technology that produces such data, images, sounds, text, graphics,
audiovisuals, animations, music, photographs, motion pictures, files,
data or materials.
(b) "Net Revenues" means all revenues arising out of or resulting from
the O@sis Site or any non-O@sis Internet-related project, as the case
may be, that are actually received by Mayo from third parties between
the Agreement Date and December 31, 2001, net of Mayo's sales
commissions, discounts or refunds actually paid or given, taxes or
duties of any kind (exclusive of income or similar taxes), insurance
and/or freight, to the extent each of the foregoing is reasonable and
documented and is actually paid or granted to an unaffiliated third
party; provided, however, that if Mayo holds an equity position in an
unaffiliated third party at the time a payment affecting Net Revenues
is made to such third party, for purposes of calculating Net Revenues
Mayo shall only be permitted to deduct the amount of such payment less
the percentage of Mayo's equity ownership in such third party (e.g., if
Mayo has a deduction to Net Revenues by virtue of a payment to an
unaffiliated third party of $100,000, by virtue of the fact that Mayo
owns a 5% equity share in such third party, Mayo will only be able to
deduct 95% of $100,000, or $95,000, when calculating Net Revenues). Net
Revenues shall also exclude any revenues from Mayo products sales or
medical services but shall include any revenues derived from content
accessible on or through the O@sis Site or non-O@sis Internet related
project, as the case may be.
(c) "O@sis Content" means all New Materials included in or developed
for the O@sis Site (which includes, without limitation, all medical
knowledge and know-how provided by Mayo medical personnel), images,
sounds and interfaces that an end user sees, hears and/or uses when
accessing and using the O@sis Site, including, without limitation, any
data, images, sounds, text, graphics, audiovisuals, animations, music,
photographs, motion pictures, files, data, materials, object or source
codes (including any HTML codes), user interfaces and graphical user
interfaces, and all other information reasonably related to the access,
operation and/or use of the O@sis Site, such as its server access logs
and archive logs, but excluding the USP Content, all as of the
Agreement Date.
<PAGE>
(d) "O@sis Licensed Rights" means all of IVI's intellectual property
rights in and to the O@sis Technology (including, without limitation,
CGI scripts, javascripts and configuration files for Third Party
Software), other than the Audiovisual Rights, as of the Agreement Date.
(e) "O@sis Purchased Rights" means the Audiovisual Rights and all of
IVI's other intellectual property rights in and to the O@sis Content,
but excluding all of the O@sis Licensed Rights and Third Party
Software, as of the Agreement Date.
(f) "O@sis Site" means the O@sis website jointly developed by IVI and
Mayo under the 1994 Agreement and operated by IVI and Mayo as of the
Agreement Date, including any modification thereof or successor site on
the Internet which may thereafter be developed or operated by or for
Mayo.
(g) "O@sis Technology" means the IVI Technology (which, for purposes of
this Agreement, includes, without limitation, javascripts, CGI scripts
and configuration files for Third Party Software), IVI Copyrights
(except for the Audiovisual Rights therein), Source Code and all
underlying software, digitizations, algorithms, program logic,
interactive program structures and like technology that is used to make
the O@sis Content and USP Content available to end users of the O@sis
Site as of the Agreement Date.
(h) "Third Party Software" means the third-party software licensed to
IVI as of the Agreement Date and listed on Exhibit A attached hereto.
(i) "USP Content" means the pharmaceutical database available on the
O@sis Site as of the Agreement Date that is licensed by IVI from The
United States Pharmacopeial Convention, Inc. ("USP").
2. CONVEYANCE AND ASSIGNMENT OF RIGHTS.
Subject to the terms and conditions of this Agreement, IVI hereby
sells, and Mayo hereby purchases, the following right, title and interest in and
to the O@sis Site as follows:
(a) IVI hereby grants to Mayo a limited, non-exclusive,
non-transferable (except as expressly provided below in this Section
2), perpetual, irrevocable, paid-up and worldwide license to the O@sis
Licensed Rights, solely for Mayo, its agents or its third party vendors
to create, deliver, edit, manipulate, configure, test and publish the
O@sis Content or modifications thereof for Mayo on the O@sis Site and
or any other Internet site which is majority owned or controlled by
Mayo;
(b) IVI hereby assigns and transfers to Mayo all the O@sis Purchased
Rights; and
<PAGE>
(c) pursuant to the terms of Section 6(g) below, IVI hereby grants to
Mayo the limited sublicense to the USP Content, as more fully set forth
in Exhibit G attached hereto.
A partial and illustrative listing of the files, libraries, directories,
components and rights that constitute the O@sis Content is attached as Exhibit B
hereto. Mayo may, in its sole discretion, upon at least thirty (30) days prior
written notice to IVI, assign the license to the O@sis Licensed Rights granted
hereunder solely in connection with the transfer, sale and/or assignment of the
O@sis Site in its entirety, provided, that Mayo continues to be primarily
obligated with respect to, and shall pay to IVI all O@sis Royalties and
Non-O@sis Royalties required hereunder with respect to such O@sis Site and other
non-O@sis Internet-related projects, as such terms are defined below. Further,
such assignment shall not terminate or affect in any way Mayo's (i) license
granted hereunder to the O@sis Licensed Rights with respect to any Internet site
(other than the O@sis Site) which is majority owned or controlled by Mayo, or
(ii) obligations to IVI hereunder or under any other agreement then in effect
between IVI and Mayo.
3. SETTLEMENT CONSIDERATION.
In exchange for the transfer, license and sublicense of IVI's rights in
and to the O@sis Site pursuant to Section 2 above, Mayo shall pay or provide to
IVI the following consideration:
(a) Cash. Mayo shall pay IVI Two Million Seven Hundred Thousand Dollars
($2,700,000) by wire transfer of immediately available funds
simultaneously with the full execution of this Agreement, less an
offset of Forty-Three Thousand Sixty-Three Dollars ($43,063) that is
attributable to currently due and payable reimbursements for Mayo's
expenses for EP Versions under the 1994 Agreement (for which Mayo has
previously submitted its standard form invoices to IVI).
(b) Prepayment of Transition Services Fee. Mayo shall pay IVI an
additional Three Hundred Thousand Dollars ($300,000) by wire transfer
of immediately available funds simultaneously with the full execution
of this Agreement to prepay the service fee for the Transition
Services, which service fee shall be non-refundable.
(c) Waiver of Reimbursement and Other Payments. Mayo hereby waives and
releases IVI's obligation to (i) reimburse Mayo's expenses associated
with the provision of content and support for the O@sis Site for the
period of January 1, 1997 through the end of the 1994 Agreement term,
and (ii) make any other payments to Mayo under or in respect of the
1994 Agreement other than (A) in connection with EP Versions that Mayo
and IVI have jointly developed or may in the future jointly develop
under the 1994 Agreement, or (B) as required by that certain letter
agreement dated May 25, 1995 (the "AHN Letter") between IVI and Mayo
regarding the Agreement dated May 25, 1995 (the "AHN Agreement")
between IVI and America's Health Network, Inc., or (C) as IVI and Mayo
may otherwise hereafter agree in writing.
<PAGE>
(d) Future Services. Mayo shall invite IVI to bid on a contract or
contracts for calendar years 1998 and/or 1999 (if, in fact, such
support contracts are sought by Mayo) to be the external support and
service provider for the O@sis Site, at whatever service level, rate or
compensation is deemed by Mayo, in its discretion, to be most
beneficial to Mayo. If IVI decides to submit a bid, Mayo may reject
such bid for any or no reason, and IVI shall have no implied right to
supply future services to Mayo or to challenge any decision Mayo makes
as to such future services to the extent such services are to be
provided by or on behalf of any third party vendor. The foregoing
notwithstanding, Mayo's evaluation of any bid made by IVI shall be
consistent with and governed by any bidding and bid evaluation process
established or implemented by Mayo for all bidders with respect to a
given contract.
(e) O@sis Royalties. Mayo shall pay IVI twelve percent (12%) royalties
on all Net Revenues arising out of or resulting from the O@sis Site
("O@sis Royalties"). Mayo and IVI further agree as follows with respect
to O@sis Royalties:
(i) for the avoidance of doubt, proceeds from the following,
without limitation, shall be included in Net Revenues which
give rise to O@sis Royalties: sponsorships of the O@sis Site,
advertising on the O@sis Site, and/or subscription revenues or
licensing fees received for access to the O@sis Site, for
content included on or accessed through the O@sis Site, for
publications or premium content delivered on-line through the
O@sis Site, for downloading of content from the O@sis Site, or
for access to and use of chat rooms or bulletin boards on the
O@sis Site;
(ii)for the avoidance of doubt, proceeds from the following,
without limitation, shall not be included in Net Revenues
which give rise to O@sis Royalties: retail or wholesale sales
of tangible items such as a printed or CD ROM edition of the
Mayo Family Healthbook; subscriptions to Mayo-sponsored or
endorsed publications that are delivered in printed form, CD
ROMs or any other format except on-line through the O@sis
Site; clothing or souvenirs bearing O@sis or other Mayo logos;
and any tangible healthcare products or medical services; and
(iii) that Mayo may, in its sole discretion, discontinue the
publication or availability of the O@sis Site, in whole or in
part, at any time, and that Mayo does not guarantee the
amount, if any, of O@sis Royalties to be paid to IVI
hereunder.
<PAGE>
(f) Non-O@sis Royalties. Mayo shall pay IVI ten percent (10%) royalties
on all Net Revenues arising out of or resulting from any non-O@sis
Internet-related projects commenced (as evidenced by an executed
agreement) between the Agreement Date and December 31, 1999 ("Non-O@sis
Royalties"). Mayo non-O@sis Internet-related projects commenced after
December 31, 1999 shall not be subject to any IVI royalties. For
purposes of this Agreement, a "non-O@sis Internet-related project"
shall be any Internet website or other application accessible through
the Internet, other than the O@sis Site, which Mayo creates, allows or
causes to be created, or to which Mayo licenses to publish or otherwise
grants access to, Mayo or third party content. Mayo and IVI further
agree as follows with respect to Non-O@sis Royalties:
(i) for the avoidance of doubt, the following type of
proprietary networks, without limitation, shall be deemed a
"non-O@sis Internet-related project":
(A) a corporate intranet that is established by or in
cooperation with Mayo and is generally only
accessible to employees and agents of a corporation
or other entity (but excluding all internal Mayo
intranets); and
(B) an extranet between two or more corporations or
entities that permits an electronic exchange of
information between such corporations and/or
entities, such as by electronic data interchange (but
excluding all extranets of the types generally
described in the next sentence where Mayo itself is
the customer or healthcare provider of the other
party). An example where Mayo itself is a customer
would be Mayo's electronic purchasing and ordering of
hospital or medical supplies from a vendor, and an
example of where Mayo itself is a provider would be
Mayo's electronic processing of insurance
reimbursement claims with a self-insured employer
which uses Mayo as a provider of healthcare services
for its insured employees.
(ii) for the avoidance of doubt, Mayo's delivery of continuing
medical education ("CME") programs to medical professionals
via the Internet shall be deemed a "non-O@sis Internet-related
project," provided, however, in calculating the Net Revenues
from such CME programs, in addition to the terms of Section
1(b) above, Mayo shall include, without limitation, any
sponsorship revenues for such program and may also deduct its
actual direct costs of such programs, all as demonstrated by
Mayo's books and records kept in accordance with generally
accepted accounting practices consistently applied. For the
avoidance of doubt, the following type of costs included on
Mayo's books and records, without limitation, shall be deemed
actual direct costs of a CME program to the extent consistent
with Mayo's general accounting practices: wages, benefits and
general administrative costs allocated to a particular doctor
or employee during the time period such doctor prepares,
presents, supports or administers a CME program; materials
used in the preparation of, or distributed as part of a CME
program; expenses of presenting and/or preparing a CME course
for presentation in any media as a non-O@sis Internet-related
project.
(iii) for avoidance of doubt, the following shall not be
deemed a "non-O@sis Internet-related project": any Mayo
operated or supervised database or record of actual private
patient medical information that is accessible only by
authorized users (e.g., healthcare providers and third party
payors), and related patient educational information that is
primarily accessible and used by authorized health care
providers, via the Internet.
(iv) that Mayo may, in its sole discretion, pursue or
consummate non-O@sis Internet-related projects, but Mayo is
not obligated in any way to do so, and that Mayo does not
guarantee the amount, if any, of Non-O@sis Royalties to be
paid to IVI hereunder.
<PAGE>
(g) Pre-Paid Royalties. Due to the exclusion of certain hardware and
the Third Party Software from the assets related to the O@sis Site
being sold, licensed or otherwise transferred to Mayo hereunder, the
parties agree that Mayo shall credit an aggregate of Ninety-Six
Thousand Dollars ($96,000) against any O@sis Royalties and Non-O@sis
Royalties otherwise due to IVI. Accordingly, Mayo shall not be required
to begin paying any O@sis Royalties or Non-O@sis Royalties otherwise
due to IVI hereunder unless and until the aggregate amount of such
royalties otherwise due exceeds Ninety-Six Thousand Dollars ($96,000).
(h) IVI Stock. Mayo shall assign over and transfer back to IVI, free
and clear of all liens and other encumbrances, good and valid title to
Four Hundred Ninety Thousand (490,000) shares of IVI common stock (some
of which is currently restricted and some of which is not restricted)
that was previously issued to Mayo as part of the consideration for the
1993 Agreement and 1994 Agreement. Mayo shall deliver the stock
certificates evidencing all such shares to IVI, properly endorsed or
accompanied by a duly executed instrument of transfer, on the Agreement
Date. Mayo and IVI hereby agree that, upon such assignment and
transfer, the Stock Purchase Agreements dated as of April 28, 1993 and
September 27, 1994, respectively, between Mayo and IVI are hereby
terminated in all respects and are of no further force and effect.
(i) Waiver of Minimum Royalties on EP Versions. Mayo hereby waives and
releases the minimum guaranteed royalties (but not actual running
royalties) on the EP Versions, as that term is defined in the 1993
Agreement, published by IVI under the 1993 Agreement.
4. TRANSITION SERVICES
IVI shall provide to Mayo the transition and technical support
services ("Transition Services") for the O@sis Site for a period of three (3)
months from the Agreement Date, subject to the following terms and conditions:
(a) At its sole discretion, Mayo may have third party vendors providing
support and services with respect to the O@sis Site during the time IVI
is also providing Transition Services to Mayo, as long as such third
party vendors do not interfere with or unreasonably burden IVI's
reasonable performance of such Transition Services and subject to such
vendors' execution of appropriate non-disclosure agreements (in form
and substance reasonably satisfactory to IVI as provided below) with
Mayo to the extent such vendors may require access to any IVI
proprietary information, whether or not included within the O@sis
Licensed Rights. Mayo shall provide IVI with such non-disclosure
agreement(s) for review and approval, which approval shall not be
unreasonably withheld. If IVI fails to notify Mayo of any required
changes to such non-disclosure agreement within five (5) business days
after its receipt by IVI and its counsel listed herein, then it shall
be deemed approved by IVI. In such non-disclosure agreements, Mayo
shall use reasonable best efforts to make IVI an express third party
beneficiary thereof to the extent that such vendors will have access to
IVI's proprietary information.
(b) Such Transition Services shall be performed in the same
professional, diligent and timely manner and, absent written agreement
of the parties to the contrary, shall consist of the same level and
manner of technical support, administrative services, development
efforts (including, without limitation, development of the O@sis Site
in accordance with the specifications of Microsoft Explorer 4.0) and
resources (including personnel, server hardware, Third Party Software
and other software) that IVI has provided during the six (6) months
immediately prior to the Agreement Date to develop, support, publish,
update and make available the O@sis Site to users via the Internet.
<PAGE>
(c) After the Agreement Date, once per week during the period that IVI
is providing Transition Services to Mayo, IVI shall deliver to Mayo a
complete and accurate object code and source code copy of all updates
to the O@sis Site made by or for IVI during the prior week, as such
updates exist, less the Third Party Software. The parties shall
mutually arrange for the delivery of each such copy to Mayo, with Mayo
paying all shipping costs associated with such deliveries.
(d) In addition, as part of such Transition Services, IVI shall provide
to Mayo, its agents and any external third party vendors for the O@sis
Site, if any, all reasonable technical assistance, support and
cooperation needed in order for Mayo, its agents and/or such third
party vendors to operate, maintain and update the O@sis Site
independent of IVI, including, without limitation, reasonable
assistance in obtaining any licenses needed for Third Party Software;
provided, however, that all such Transition Services must be consistent
with IVI's in-house capabilities and resources as of the Agreement Date
and shall not require IVI to incur any additional or incremental
out-of-pocket costs with respect thereto or to provide access to or
transfer any IVI know-how or trade secrets to any such third party
vendor beyond that included within the O@sis Purchased Rights or the
O@sis Licensed Rights and only to the extent such third party vendor
has executed an IVI-approved non-disclosure agreement as provided in
Section 4(a) above.
(e) IVI hereby commits to provide, upon Mayo's written request, up to
another three (3) months of such Transition Services, which may be
purchased by Mayo at its option at the rate of One Hundred Thousand
Dollars ($100,000) per month, payable month by month in advance;
provided, that IVI may but shall not be required to provide any such
Transition Services following the 180th day after the Agreement Date.
(f) In its sole discretion, Mayo may discontinue the Transition
Services at any time upon seven (7) days prior written notice thereof
to IVI, provided, there shall be no refund of the prepaid service fee
for such Transition Services. Upon the effective date of such notice,
IVI shall cease publication of the O@sis Site and Mayo or its agent
shall thereafter be solely responsible for publication of the O@sis
Site upon its own server. IVI and Mayo shall render reasonable
cooperation to each other to ensure a smooth transition of the O@sis
Site.
(g) As part of the Transition Services, IVI shall provide to Mayo the
same level and type of service (including, without limitation, the same
method of access to the USP Content by end users who access the O@sis
Site via the Internet) with respect to the USP Content on the O@sis
Site as of the Agreement Date, provided that IVI's license to the USP
Content from USP remains in full force and effect.
<PAGE>
5. AMENDMENT OF 1993 AND 1994 AGREEMENTS.
(a) Conforming Amendments to 1993 Agreement. The 1993 Agreement is
hereby amended as set forth in Exhibit C attached hereto. Except as so
amended, the 1993 Agreement shall otherwise remain in full force and
effect.
(b) Parties' Continued Performance Under the 1993 Agreement. As of the
Agreement Date, Mayo shall have no further obligation to provide IVI
with any more Source Material for publication under the 1993 Agreement,
and neither party shall have any liability whatsoever to the other
party for any failure of the parties to jointly develop and publish any
of the ten (10) titles described in Exhibit A-1 to A-10 of the 1993
Agreement or any other title proposed by either party pursuant to the
terms thereof; provided, however, that the parties agree to publish one
or more of the ten (10) titles described in Exhibit A-1 to A-10 of the
1993 Agreement, when and if IVI provides Mayo with written notice of
IVI's intention to publish such title or titles and reasonable evidence
of IVI's financial ability and commitment to do so (including, without
limitation, delivery to Mayo of a business plan for such title(s)), all
within the term of the 1993 Agreement. In addition, IVI acknowledges
that the license to the Mayo Trademarks granted to IVI pursuant to
Section 4.1 of the 1993 Agreement shall only apply to EP Versions of
Source Material already produced under the 1993 Agreement as of the
Agreement Date and any other EP Versions produced thereunder, and, with
respect to each such EP Version, IVI's license to use the Mayo
Trademarks shall terminate upon expiration of the applicable Sell-Off
Period for each such existing EP Version. In no event shall IVI use the
Mayo Trademarks in any other manner. Unless otherwise specifically
defined in this Agreement, all capitalized terms used in this Section
5(b) are as defined in the 1993 Agreement.
(c) Conforming Amendments to 1994 Agreement. The 1994 Agreement is
hereby amended as set forth in Exhibit D attached hereto. Except as so
amended, the 1994 Agreement shall otherwise remain in full force and
effect.
(d) Termination of Certain Rights under 1994 Agreement. As of the
Agreement Date, all licenses granted by Mayo to IVI for the Source
Material and New Materials (other than Short Clips included therein
which exist as of the Agreement Date) under the 1994 Agreement that
constitute part of the O@sis Purchased Rights are hereby terminated,
provided that IVI shall continue to have such licenses granted under
the 1994 Agreement only to the extent reasonably necessary for IVI to
continue to publish and distribute any EP Version jointly developed by
the parties under the 1994 Agreement as of the Agreement Date hereof
and to perform the Transition Services hereunder until such services
are terminated. Furthermore, all licenses granted by either party to
the other party under the 1994 Agreement to use the Mayo Trademarks or
the IVI Trademarks, as may be the case, are hereby terminated except as
expressly permitted by the licenses granted in Section 4.1 or Section
4.2 of the 1994 Agreement, as applicable, in connection with each such
EP Version published and/or distributed by IVI.
<PAGE>
(e) Parties' Continued Performance Under the 1994 Agreement. All EP
Versions published prior to the Agreement Date, but pursuant to the
terms of the 1994 Agreement, shall be governed by the amended terms of
the 1994 Agreement as stated herein. As of the Agreement Date, Mayo
shall have no further obligation to provide IVI with any more Source
Material for publication of any additional EP Versions under the 1994
Agreement, except as required for the Short Clips described in Section
6(a) below or as the parties may otherwise agree, and neither party
shall have any liability whatsoever to the other party for any failure
of the parties to jointly develop and publish any of the five (5)
titles described in Exhibit D of the 1994 Agreement or any other Title
proposed by either party pursuant to the terms thereof; provided,
however, that the parties agree to publish one or more of the five (5)
Titles described in Exhibit D of the 1994 Agreement, when and if IVI
provides Mayo with written notice of IVI's intention to publish such
title or titles and reasonable evidence of IVI's financial ability and
commitment to do so (including, without limitation, delivery to Mayo of
a business plan for such title(s)), all within the term of the 1994
Agreement.
6. OTHER OBLIGATIONS OF THE PARTIES.
The parties shall also fulfill the following obligations, as
applicable:
(a) AHN Letter; Short Clips. From and after the Agreement Date, IVI
shall remain obligated to reimburse Mayo, pursuant to the terms of the
1994 Agreement, for Mayo's expenses incurred as a result of the AHN
Letter, and Mayo shall continue to provide Source Material to IVI to
produce Short Clips pursuant to the terms of the AHN Letter and as
otherwise agreed by the parties. All Short Clips shall be governed by
the terms of the 1994 Agreement as amended herein, provided, however,
notwithstanding the exclusive license for electronic publication of
such Short Clips granted to IVI under such 1994 Agreement prior to its
amendment hereunder, Mayo may, at its discretion, from and after the
Agreement Date, also use and publish all such Short Clips, in whole or
in part, as content on the O@sis Site or any other non-O@sis
Internet-related project for which Non-O@sis Royalties would be payable
to IVI, subject to the restrictions on distribution of the Licensor
Materials (as defined therein) imposed by that certain letter agreement
dated June 8, 1995 between Mayo and AHN. IVI shall provide copies of
all Short Clips to Mayo within fifteen (15) business days after IVI
receipt of Mayo's written reasonable request therefor.
<PAGE>
(b) Other Existing Agreements. Notwithstanding Section 3(e) or (f)
above, (i) Mayo shall not be required to pay any O@sis Royalties,
Non-O@sis Royalties or any other amounts whatsoever to IVI as a result
of the letter agreement between Mayo and American Home Products
Corporation dated April 3, 1996, and the Website License Agreement
between Mayo and AHP dated January 1, 1997 (collectively, "AHP
Agreements"); (ii) any amounts received by Mayo as a result of the
Content License Agreement between Mayo and Disney Online dated August
22, 1997 shall be treated as Non-O@sis Royalties hereunder ("Disney
Agreement"); (iii) the License Agreement dated April 24, 1991, as
amended (the "1991 Agreement"), by and among William Morrow Company,
Mayo and IVI shall remain in full force and effect in accordance with
its terms; and (iv) as of the Agreement Date, Mayo shall assume all
obligations to make any and all payments due or past due under that
certain agreement dated December 2, 1996, by and among Mayo, IVI and
Infomed Services Ltd.
(c) Escrow Requirements. Within thirty (30) days after the Agreement
Date, the parties shall execute an escrow agreement, similar in form
and substance to the escrow agreement executed in conjunction with the
1993 Agreement and 1994 Agreement and with the same escrow agent, so
that all materials related to the Mayo Clinic Family Healthbook CD ROM,
and all future versions thereof published by IVI, will be deposited in
escrow by IVI on a regular basis. Mayo shall pay all expenses of the
escrow agent related to the establishment and maintenance of such
escrow.
(d) Prohibited Uses of Names, URLs and Trademarks. From and after the
Agreement Date, IVI shall not use, nor cause or permit any third party
to use in any manner, whether directly or indirectly, the name "O@sis"
or any similar name, the URL "www.mayo.ivi.com" and all extensions
thereof (i.e., "www.mayo.ivi.com/mayo/common/htm/index. htm"), all of
which are hereby released and assigned by IVI to Mayo. Mayo shall not
use, nor cause or permit any third party to use in any manner, whether
directly or indirectly, the name "OnHealth" or any similar name, the
name "Healthnet" or any similar name, or the URLs
"www.healthnet.ivi.com", "onhealth.com" and "www.onhealth.com" and all
extensions of the foregoing, all of which are hereby released and
assigned by Mayo to IVI. The foregoing prohibition, assignment and
release includes, without limitation, using or registering for use any
tradename, trademark, service mark, domain name, product name, service
name or moniker, anywhere in the world. Mayo acknowledges and agrees
that IVI owns the "ivi.com" domain name, subject to Mayo's right to use
the URL "www.mayo.ivi.com".
<PAGE>
(e) Redirected Access. Upon Mayo's written request and, if no such
request is made, upon the effective date of the termination notice for
the Transition Services, IVI shall promptly redirect, or cause to be
redirected, regardless of whether IVI is providing Transition Services
(or is Mayo's designated support and service provider as referenced in
Section 3(d) above) for the O@sis Site, all requests for the O@sis Site
that use the URL address "www.mayo.ivi.com" or "healthnet.ivi.com", or
any extensions thereof, to the URL(s) that Mayo designates in writing
to IVI, but only to the extent such designated URL is the new address
for the O@sis Site, for a minimum of two (2) years after any such
request or effective date of termination by Mayo of the Transition
Services. In addition, upon such a request from Mayo, IVI shall
promptly cause all products thereafter produced pursuant to any
agreement between the parties (e.g., EP Versions of the Source Material
produced under the 1993 Agreement or the 1994 Agreement) to link to the
new URL designated by Mayo in writing, instead of the URL
"www.mayo.ivi.com", but only to the extent such URL is the new address
for the O@sis Site.
(f) Support of Healthwatch. Mayo shall continue to support the
Healthwatch feature of the O@sis Site, solely in connection with Mayo
products and services such as the publications and/or EP Versions, as
applicable, jointly developed by the parties pursuant to the 1991
Agreement, the 1993 Agreement and/or the 1994 Agreement, in a manner
and at a level consistent with the support provided by IVI during the
six (6) month period immediately prior to the Agreement Date; provided,
that Mayo may discontinue its support of Healthwatch after the earlier
of (i) the date when Mayo no longer owns or operates the O@sis Site, or
(ii) all of IVI's license rights under each of the 1991 Agreement, the
1993 Agreement and the 1994 Agreement terminate or expire.
(g) USP Content License Terms. As provided in the Sublicense Agreement
attached hereto as Exhibit G, Mayo shall pay IVI a sublicense fee of
One Thousand Dollars ($1,000) per month for the sublicense of the USP
Content granted by IVI to Mayo thereunder.
(h) IVI's Use of O@sis Purchased Rights. For any portion of the O@sis
Content (including, without limitation, the interface and presentation
of the USP Content) in use by IVI on a website (excluding the O@sis
Site) as of the Agreement Date, IVI shall discontinue all use thereof
within sixty (60) days of the Agreement Date.
7. REPRESENTATIONS AND WARRANTIES OF IVI.
In connection with its execution and delivery of this Agreement, IVI
hereby represents and warrants to Mayo as follows:
(a) Authorization. IVI has the corporate power and authority to execute
and consummate this Agreement and the transactions contemplated hereby
and such execution, consummation and transaction have been duly
authorized by all requisite corporate actions on the part of IVI;
<PAGE>
(b) No Liens or Encumbrances. The O@sis Purchased Rights, O@sis License
Rights and USP Content being conveyed or licensed to Mayo hereunder are
free and clear of any liens and encumbrances, including specifically
the security interest of IVI's secured convertible debenture holders;
(c) No Conflicts. The execution and delivery of this Agreement and
consummation of the transactions contemplated hereby will not violate
any term or condition of any material agreement to which IVI is a party
or by which IVI is bound, provided that no such representation or
warranty is made by IVI with respect to (i) the 1991 Agreement, (ii)
the 1993 Agreement, (iii) the 1994 Agreement, (iv) the Anchor Brand
Content Provider Agreement dated as of October 30, 1995 between IVI and
AT&T Corp. (the "AT&T Agreement"), (v) the Active Desktop Marketing &
Promotion Agreement, Gold ICP - Channel Guide dated as of June 3, 1997,
by and among Mayo, IVI and Microsoft Corporation (the "Microsoft
Agreement"), and (vi) the letter agreement dated November 21, 1996
between IVI and CompuServe Incorporated (the "CompuServe Agreement");
(d) Government and Third Party Approvals. All governmental or third
party approvals, if required for the execution and consummation of this
Agreement and the transactions contemplated hereby, have been duly
obtained, including, without limitation, any third party software or
other intellectual property rights included in the O@sis Purchased
Rights, O@sis Licensed Rights and USP Content, provided that no such
representation and warranty is made by IVI with respect to (i) the 1991
Agreement, (ii) the 1993 Agreement, (iii) the 1994 Agreement, (iv) the
AT&T Agreement, (v) the Microsoft Agreement, and (vi) the CompuServe
Agreement.
(e) Ownership; No Third Party Claims. IVI owns all right, title and
interest in, or has the right to transfer or license, as applicable,
the O@sis Purchased Rights, the O@sis Licensed Rights and the USP
Content, and their transfer, assignment, license or sublicense to Mayo
hereunder, to IVI's knowledge, does not and will not violate any third
party's rights, provided that no such representation and warranty is
made by IVI with respect to (i) the 1991 Agreement, (ii) the 1993
Agreement, (iii) the 1994 Agreement, (iv) the AT&T Agreement, (v) the
Microsoft Agreement, and (vi) the CompuServe Agreement. To IVI's
knowledge, (i) there are no third party claims challenging IVI's
ownership of, or right to license or sublicense, the O@sis Purchased
Rights, the O@sis Licensed Rights and the USP Content being
transferred, assigned, licensed or sublicensed hereunder or IVI's right
to execute and consummate this Agreement and the transactions
contemplated hereby, and (ii) the use of the O@sis Purchased Rights and
the O@sis Licensed Rights as contemplated hereby will not infringe upon
the patent, copyrights, trade secrets, trademarks or other rights of
any third party; and
<PAGE>
(f) No Bankruptcy Proceedings or Plans. To IVI's knowledge, after due
investigation, IVI is not named as a debtor in any voluntary or
involuntary bankruptcy case and has no present plan to commence a
voluntary bankruptcy case within ninety (90) days after the Agreement
Date.
(g) O@sis Software and Data. IVI warrants to Mayo that the copy of the
O@sis Site on electronic media delivered to Mayo, in object and source
code form as described in Section 9(e) below, and in object code and
source code form as described in Section 4(c) above: (i) is a complete
and accurate copy of the O@sis Site, less the Third Party Software, as
of the date and time such copy is made, (ii) includes all software,
content (including, without limitation, all graphics, text, audio,
javascript, HTML and CGI scripts), data, materials, files, directories
and functionality available to users who access the O@sis Site via the
Internet as of the date and time such copy is created, less the Third
Party Software, and (iii) does not contain any code that is intended to
disable or shut down surreptitiously, in whole or in part, the O@sis
Site or the equipment on which it is installed and accessed.
(h) Entitlement to Royalties. IVI is not entitled to, nor has it
received, any income arising out of or resulting from the O@sis Site
prior to the Agreement Date.
8. REPRESENTATIONS AND WARRANTIES OF MAYO.
In connection with its execution and delivery of this Agreement, Mayo
hereby represents and warrants to IVI as follows:
(a) Authorization. Mayo has the corporate power and authority to
execute and consummate this Agreement and the transactions contemplated
hereby and such execution, consummation and transaction have been duly
authorized by all requisite corporate actions on the part of Mayo.
(b) No Conflicts. The execution and delivery of this Agreement and
consummation of the transactions contemplated hereby will not violate
any term or condition of any material agreement to which Mayo is a
party or by which Mayo is bound, provided that no such representation
or warranty is made by Mayo with respect to (i) the 1991 Agreement,
(ii) the 1993 Agreement, (iii) the 1994 Agreement, and (iv) the
Microsoft Agreement.
(c) Government and Third Party Approvals. All governmental or third
party approvals, if required for the execution and consummation of this
Agreement and the transactions contemplated hereby, have been duly
obtained, provided that no such representation and warranty is made by
Mayo with respect to (i) the 1991 Agreement, (ii) the 1993 Agreement,
(iii) the 1994 Agreement, and (iv) the Microsoft Agreement.
<PAGE>
(d) Entitlement to Royalties. Mayo is not entitled to, nor has it
received, any income (other than the revenues Mayo has received or will
receive pursuant to the AHP Agreements and Disney Agreement) arising
out of or resulting from the O@sis Site and/or any non-O@sis
Internet-related projects, prior to the Agreement Date.
(e) IVI Stock. (i) Mayo has good and valid title to the 490,000 shares
of IVI common stock being transferred to IVI pursuant to Section 3(h)
(the "IVI Stock") free and clear of any liens or other encumbrances,
other than the restrictions imposed by the respective Stock Purchase
Agreements by which such shares were originally issued by IVI to Mayo;
(ii) the IVI Stock constitutes all of the capital stock of IVI owned by
Mayo; and (iii) Mayo has no right to acquire any capital stock or other
equity interest or participation in the revenues or profits of IVI,
except for payment of royalties and other amounts as expressly provided
in the various agreements between the parties which remain in force and
effect after the Agreement Date.
9. CONDITIONS TO CLOSING OF SETTLEMENT.
This Agreement, including, without limitation, Mayo's obligation to pay
the consideration described in Section 3 above, is subject to the satisfaction
of the following conditions set forth in items (a) through (f) of this Section
9, which satisfaction shall be evidence by Mayo's execution and delivery of this
Agreement:
(a) Mayo's receipt of duly certified officers' certificates from IVI,
indicating that IVI has obtained the requisite board approvals for the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, in form and substance reasonably
acceptable to Mayo's counsel.
(b) Mayo's receipt of (i) the duly executed consent of Fredrikson &
Byron, P.A., as Agent for the holders of IVI's Convertible Secured
Debentures under that certain Inter-Creditor Agreement dated November
22, 1996, and that certain Security Agreement dated November 22, 1996
to release the O@sis Purchased Rights from the security interest and
"Collateral" rights referenced in the foregoing documents to the extent
necessary to permit the consummation of the transactions contemplated
hereby, (ii) copies of the duly executed consents of such holders,
which show that the requisite percentage (at least 51%) of such holders
duly executed the applicable consent, and (iii) copies of all UCC-3
Release filings necessary in order for the O@sis Purchased Rights and
O@sis Licensed Rights to be released from the security interest and
"Collateral" rights referenced in the documents listed in item (i)
above.
<PAGE>
(c) Mayo's receipt of a legal opinion from the law firm of Fredrikson &
Byron, P.A., substantially in the form attached as Exhibit E hereto.
(d) Mayo's reasonable testing, for the period ending at 1:00 p.m.,
Central Daylight Time, Friday, September 12, 1997, of a copy of the
O@sis Site at a location in Rochester, Minnesota to be specified by
Mayo, and Mayo's good faith determination that such copy is a complete
and accurate version of the O@sis Site as of the date such copy was
made, less Third Party Software.
(e) Delivery, free and clear of any liens or encumbrances, of the hard
drive containing the above referenced test copy in source and object
code to Mayo's possession and control.
(f) Mayo's receipt of a true and accurate copy of a letter from IVI to
Microsoft Corporation stating that IVI wishes to assign its rights and
delegate its duties under the Microsoft Agreement to Mayo.
(g) IVI's receipt by wire transfer of the $2,957,937 payment described
in Section 3(a) above.
10. ROYALTY PAYMENTS.
(a) Royalties. All O@sis Royalties and Non-O@sis Royalties shall be
payable to IVI on a quarterly basis within sixty (60) days of the end
of each calendar quarter for the periods indicated in Section 3(e) and
3(f), respectively. Each such payment shall be accompanied by a
reasonably detailed statement setting forth the basis for Mayo's
calculations of such royalties for the quarterly period. All payments
shall be in U.S. dollars and made by check.
(b) Audit Rights. To confirm proper calculation and payment of the
O@sis Royalties and/or Non-O@sis Royalties, as the case may be, IVI
shall have the following audit rights:
(i) IVI and its auditor shall have access to inspect Mayo's
books and records with respect to such royalties for up to the
previous three (3) years during Mayo's normal business hours,
at a mutually convenient time and upon reasonable prior
notice;
(ii) IVI may not have more than one (1) audit per year and may
not audit the same royalty period more than once;
(iii) any audit shall be at IVI's own expense unless the audit
reveals an underpayment of royalties of at least ten percent
(10%) of the sum owed or twenty thousand dollars ($20,000),
whichever is greater, in which case Mayo shall reimburse IVI's
reasonable costs incurred in the audit;
<PAGE>
(iv) any auditor selected by IVI shall be subject to Mayo's
reasonable approval and shall execute a confidentiality
agreement as a condition to such access, restricting the use
of such Mayo data to assuring IVI's proper calculation and
payment of such royalties;
(v) Mayo's own auditors may witness any IVI audit; and
(vi) these IVI audit rights shall terminate on December 31,
2002.
11. CONFIDENTIALITY OF SETTLEMENT TERMS.
(a) The terms of this Agreement are and shall remain confidential.
(b) Any breach of the confidentiality provisions of this Agreement by
either party to this Agreement or its agents or attorneys shall be
considered a material breach of the Agreement.
(c) The parties agree upon a statement that they will respond to any
questions from third parties concerning the relationship of the parties
and conclusion of the disagreements with respect to the O@sis Site
solely in a manner consistent with the disclosure in the joint press
release described in Section 11(d)(iv) below.
(d) Notwithstanding the foregoing, each party is and shall be entitled:
(i) to disclose and discuss the terms and conditions of this
Agreement with its legal counsel and with its accountants or
tax advisors, provided such persons have agreed to keep all
such information confidential and not disclose such
information to any other person or entity;
(ii) to make such disclosures as are necessary for any
governmental taxing authority or as required by law, subpoena
or any court order;
(iii) to comply with the rules of any stock exchange or the
rules and regulations of the Securities and Exchange
Commission (or any equivalent state regulatory body) in
respect of legally required disclosures of material facts and
circumstances; and
(iv) to issue the joint press release for distribution to the
media and interested third parties, a copy of which is
attached hereto as Exhibit F.
<PAGE>
(e) The parties agree to inform each other or the other's legal counsel
promptly and in writing in the event any subpoena or other process is
served upon any of them attempting to obtain any of the information
protected from disclosure by this Agreement.
12. MUTUAL NON-DISPARAGEMENT.
Neither party shall, at any time, disparage, demean or criticize the
technology, products or management of the other party and its subsidiaries,
affiliates and related entities, or do or say anything to cause injury to the
reputation of the other party and its subsidiaries, affiliates and related
entities or their respective officers, directors, shareholders, employees, or
products. Notwithstanding the foregoing, neither party shall be prohibited from
publicly correcting through any media (in a non-disparaging manner) any factual
errors made by the other party with respect to the parties' dealings, this
Agreement or any other agreements or dealings between the parties.
13. INDEMNIFICATION.
(a) IVI hereby indemnifies and holds Mayo, its officers, directors,
employees and agents harmless from all liability, demands, damages,
expenses, losses, fees (including reasonable attorney's fees) and
settlements for any breach of the representations and warranties made
by IVI herein.
(b) Mayo hereby indemnifies and holds IVI, its officers, directors,
employees and agents harmless from all liability, demands, damages,
expenses, losses, fees (including reasonable attorney's fees) and
settlements for any breach of the representations and warranties made
by Mayo herein.
14. MUTUAL RELEASE.
Except for any claims (including, without limitation, claims for
failure to pay royalties or required reimbursement of expenses or payment of
fees) related to the EP Versions produced by IVI for Mayo under the terms of any
agreement between the parties, including, without limitation, the 1993 Agreement
and the 1994 Agreement, the parties agree as follows:
(a) IVI does hereby release, acquit and forever discharge Mayo from any
and all manner of action or actions, suits, arbitrations, claims,
damages, levies, and executions, whether known or unknown, liquidated
or unliquidated, fixed or contingent, direct or indirect, permanent or
progressive, which it ever had, has or ever can, shall or may have or
claim to have against Mayo, or any of them, for or by reason of any
cause, matter or thing whatsoever prior to the date of this Agreement,
including but not limited to claims arising out of or related to the
1994 Agreement.
<PAGE>
(b) Mayo, and each of them, do hereby release, acquit and forever
discharge IVI from any and all manner of action or actions, suits,
arbitrations, claims, damages, levies, and executions, whether known or
unknown, liquidated or unliquidated, fixed or contingent, direct or
indirect, permanent or progressive, which they or any of them ever had,
has or ever can, shall or may have or claim to have against IVI for or
by reason of any cause, matter or thing whatsoever prior to the date of
this Agreement, including but not limited to claims arising out of or
related to the 1994 Agreement.
(c) Each of Mayo and IVI covenants not to sue or bring any other
proceeding against the other or any party released herein on account of
any claim released hereby.
15. NO ADMISSION OF LIABILITY BY EITHER PARTY.
It is specifically understood and agreed that the execution of this
Agreement is part of a settlement and compromise of potential claims between the
parties and, accordingly, this Agreement and the consummation of the
transactions contemplated hereby are not to be construed as an admission of any
liability or fault whatsoever by either IVI or Mayo.
16. ADVICE OF INDEPENDENT OUTSIDE LEGAL COUNSEL.
The undersigned parties, by execution hereof, specifically acknowledge
that they are, and have been, represented by their own independent legal counsel
in connection with the negotiation, drafting and signing of this Agreement and
the matters referred to above, that the undersigned parties understand and fully
agree to each, all and every provision of this Agreement, and that they have
received a copy of this Agreement. If there is any dispute between the parties
as to the meaning of any provision of this Agreement, the interpretation thereof
shall be without regard to which party may have drafted such provision.
17. ENTIRE AGREEMENT.
This Agreement and the Exhibits attached hereto (which are incorporated
herein by this reference) constitute the entire agreement of the parties
relating to the subject matter hereof and specifically supersedes and cancels
the letter agreement between IVI and Mayo dated August 20, 1997, and there are
no agreements or understandings (oral or written) among the parties with respect
to the subject matter hereof other than those set forth or referred to herein or
therein. The Recitals set forth in the opening of this Agreement are also
incorporated herein and constitute an important part of this Agreement.
<PAGE>
18. GOOD FAITH COOPERATION.
The parties shall execute any and all additional documents that may be
required to carry out the purposes of this Agreement, including, without
limitation, any other documents reasonably requested by Mayo or its legal
counsel to perfect Mayo's right, title and interest in and to the O@sis
Purchased Rights or any portion thereof, the license of the O@sis Licensed
Rights and/or the sublicense of the USP Content.
19. WAIVER OR AMENDMENT.
The terms of this Agreement may be modified, amended, or any provisions
hereof waived only by mutual consent of the parties hereto as reflected in a
writing executed fully by all signatories hereto.
20. BINDING EFFECT.
This Agreement shall be binding upon the parties and their respective
heirs, successors and assigns only after its execution by both parties.
21. NOTICES.
Any notice or request required or permitted under or related to this
Agreement shall be in writing and provided in one of the following methods to
the persons and address noted below, or to such other persons or addresses as
either party may hereafter furnish in writing to the other party:
(a) Delivered personally, which notice or request is effective upon
receipt;
(b) Sent by certified or registered U.S. mail, postage prepaid, which
notice or request is effective upon written confirmation of receipt;
(c) Sent by overnight courier, which notice or request is effective
upon confirmation of receipt; or
(d) By facsimile, which notice or request is effective upon
confirmation of receipt by the receiving party.
<PAGE>
To IVI: IVI Publishing, Inc.
7500 Flying Cloud Drive
Minneapolis, MN 55344-3739
Attention: President
Facsimile: 612/996-6001
With a copy to: Neal, Gerber & Eisenberg
Two North LaSalle, Suite 2100
Chicago, IL 60602
Attention: Michael A. Pucker
Facsimile: 312/269-1747
To Mayo: Mayo Medical Ventures
200 Southwest First Street
Rochester, MN 55905
Attention: Director
Facsimile: 507/284-5410
With a copy to: Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402
Attention: Nelson G. Dong
Facsimile: 612/340-8827
22. VENUE; LAW; MATERIAL BREACH; ATTORNEY FEES.
Either party may seek damages or injunctive relief, as the case may be,
in the United States District Court for the District of Minnesota, if federal
jurisdiction is available, or in any District Court for the State of Minnesota,
for any material breach of this Agreement if the breaching party has not cured
such breach within thirty (30) days of written notice thereof from the
non-breaching party; provided, however, that Mayo shall not bring any proceeding
related to, or pursuant to, this Agreement in any court sitting in Olmsted
County, Minnesota. The prevailing party in any such legal proceeding shall be
entitled to its reasonable costs and attorney fees in addition to any other
relief which may be granted by such court.
23. SEVERABILITY.
To the extent that any provision of this Agreement shall be determined
to be invalid or unenforceable, the invalid or unenforceable portion of such
provision shall be deleted from this Agreement, and the validity and
enforceability of the remainder of such provision and of this Agreement shall be
unaffected.
24. COUNTERPARTS.
This Agreement may be executed in counterparts, each of which shall be
deemed an original and all of which, taken together, shall constitute one
agreement. The parties agree that telefaxed copies of signatures will be
sufficient to exchange at the closing meeting, with original signature pages to
be supplied and exchanged at a later date.
<PAGE>
25. CLOSING AND DATE OF CLOSING.
A closing meeting for the execution, delivery and/or exchange of the
documents, payments, and other consideration required by this Agreement, not yet
executed and delivered by the parties prior to the Agreement Date shall be held
at the offices of Dorsey & Whitney LLP. The closing shall be at a date and time
to be agreed upon by counsel for the parties, but in no event later than 4:00
p.m., Central Daylight Time, Friday, September 12, 1997.
26. EXPENSES.
All costs and expenses incurred by either party in connection with the
negotiation, drafting, execution and delivery of this Agreement, including the
attorney's fees of such party, shall be paid by the party incurring such costs
and expenses.
27. NO THIRD PARTY BENEFICIARIES.
Nothing in this Agreement is intended, nor shall it be construed, to
confer any rights or benefits upon any person or entity other than Mayo and IVI,
and no other person or entity shall have any rights or remedies hereunder.
[REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
IVI PUBLISHING, INC. MAYO FOUNDATION FOR
MEDICAL EDUCATION AND RESEARCH
/s/ Joy Solomon /s/ Rick F. Colvin
Signature Signature
Joy Solomon Rick F. Colvin
Name Name
CEO & PRESIDENT
Title Title
SUBLICENSE AGREEMENT
This Agreement is entered into to be effective as of September 12, 1997
by and between IVI Publishing, Inc., a Minnesota corporation, 7500 Flying Cloud
Drive, Eden Prairie, Minnesota 55344 ("IVI") and Mayo Foundation for Medical
Education and Research, a Minnesota non-profit corporation, 200 Southwest First
Street, Rochester, Minnesota 55905 ("Mayo").
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Grant of Sublicense. Subject to the terms and conditions of this
Agreement, IVI grants and Mayo accepts a limited, personal, nontransferable,
nonexclusive sublicense of IVI's license to use the Databases, as that term is
defined in the License Agreement by and between the United States Pharmacopeial
Convention, Inc. ("Licensor") and IVI dated July 1, 1996, as amended by the
Renewal and Amendment dated July 1, 1997, and as further amended by the
Amendment and Acknowledgment executed by USP as of September ___, 1997 (the "USP
License Agreement"), solely for use on Mayo's health information website known
as the "Oasis" (the "Health Site"). Mayo is prohibited from sublicensing any of
it rights hereunder to any party other than its employees, end-user customers.
Mayo agrees to abide by all of the terms and conditions relating to the use of
the Databases contained in the USP License Agreement, which are incorporated
herein by reference. During the term of this Agreement, Mayo shall allow the
Licensor to have unlimited access to the Health Site, without charge.
2. Limitations. Mayo agrees that it will permit its customers to access
and use the Databases only in accordance with the terms and provisions of the
USP License Agreement. Mayo shall not and agrees not to authorize others to copy
(except for non-professional personal use), modify, alter, revise, paraphrase,
omit, change, display, store, time-share, rent, lease, sublicense, publish,
distribute, transmit, transfer, assign, sell, incorporate in other products or
services or the products or services of any other entity, or commercially
exploit in any manner whatsoever the Databases or any portion thereof. Mayo
further agrees to take all reasonable steps to protect the Databases from
unauthorized access.
3. Royalties. In exchange for the sublicense granted pursuant to this
Agreement, Mayo agrees to pay IVI royalties of $1,000.00 per month. Monthly
royalty payments are due in advance on the first business day of each month. The
monthly royalty payment shall be pro rated for any partial calendar month during
the term of this Agreement.
4. Advertising Restrictions. Mayo agrees that it shall at no time take
any action or make any statement that could discredit or harm in any manner the
good reputation of Licensor or its products or services. This includes, but is
not limited to, creating hyper-text links from the Health Site to other sites on
the Internet, as well as juxtaposing advertising or other materials that
constitute "labeling" or any other illegal act, that are likely to create or are
intended to create the impression that Licensor endorses the goods or services
of other individuals, companies or organizations, or that other individuals,
companies or organizations endorse the goods or services of Licensor. Floating
advertisement "banners" at the top or bottom of an Internet screen are
permissible only if all of the following conditions are met: (a) Licensor's
information is clearly separated from the Information in the banner; (b) the
advertisement is clearly not advertising Licensor's goods or services; (c)
juxtaposition of the banner does not imply an endorsement of the subject matter
of the advertisement; and (d) the juxtaposition does not constitute "labeling"
or any other illegal act.
<PAGE>
5. Proprietary Rights. Mayo acknowledges and agrees that the Databases,
all copies thereof and all methods for structuring, organizing, sequencing and
indexing it constitute valuable trade secrets of Licensor and are proprietary to
and confidential information of Licensor (as used in this paragraph, "Licensor"
shall mean Licensor and/or its vendors, suppliers or contractors). Title to the
Databases and all applicable copyrights, trade secrets, patents and other
intellectual and property rights in it are and remain with Licensor. All other
aspects of the Databases, including, without limitation, data, methods of
processing, specific design and structure, the interaction of documents
contained therein and unique design techniques employed therein as well as
document storage and quality assurance methodologies, shall remain the sole and
exclusive property of Licensor and shall not be sold, used, revealed, disclosed
or otherwise communicated, directly or indirectly, by Mayo to any person,
company or institution whatsoever. No title to or ownership of the Databases, or
any part thereof, or any aspect related to or trade secret involved with the
Databases is hereby transferred to Mayo.
6. Software Security. Mayo shall implement appropriate security
software acceptable to Licensor to ensure protection of the Databases. Mayo
shall maintain such accepted security software during the full term of this
Agreement. If Mayo fails to implement or maintain such appropriate security
software, IVI shall terminate this Agreement if after providing written notice
to Mayo, Mayo fails to cure such failure within seventy-two (72) hours after
delivery of such notice.
Mayo agrees that violation of any provision of this Section may result in
irreparable injury to IVI and Licensor for which there may not be any adequate
remedy at law. As a result, Mayo agrees that in addition to any other remedies
available to it, IVI and/or Licensor may bring an action or actions for
injunctive relief, including a temporary restraining order, preliminary
injunction or permanent injunction and reasonable attorney's fees and costs.
7. Corrections. In the event IVI or Licensor discovers a critical or a
medically significant error or omission in any of the Licensor information
provided under this Agreement to Mayo, IVI shall notify Mayo by telephone or
facsimile message immediately after the error or omission has been discovered.
Mayo agrees to promptly correct the error on the Health Site.
8. Disclaimers/Notices. Mayo shall include the following language in
the general disclaimer which provides users access to the Health Site:
"The information in this leaflet has been selectively abstracted from
USP DI(R) for use as an educational aid and does not offer all possible
uses, actions, precautions, side effects, or interactions of this
medicine. It is not intended as medical advice for individual problems.
<PAGE>
The information about drugs contained in this database is general in
nature and is intended for use as an educational aid. It does not cover
all possible uses, actions, precautions, side effects, or interactions
of these medicines, nor is the information intended as medical advice
for individual problems or for making an evaluation as to the risks and
benefits of taking a particular drug."
"NOTICE: The information contained herein has been devised without
reference to cultural, dietary, societal, language, prescribing or
dispensing conditions (including those imposed by law), other than
those of the Untied States, which might affect the information
provided."
"The text that a user may be viewing at any one time, or may print, may
contain only a portion of the full Leaflet or USP monograph. The entire
USP DI(R) should be consulted for complete information."
"Information is for personal use any may not be sold or redistributed."
Mayo also agrees to include on the Health Site the appropriate copyright and
trademark notices as required by Licensor under Sections 10 and 11 of the USP
License Agreement.
9. Limited Warranty: Exclusion of Damages. Mayo acknowledges, and shall
require each person given access to the Health Site to acknowledge, that any
collection or any compilation of data entails the likelihood of some human and
machine errors, omissions, delays, interruptions, and losses, including
inadvertent loss of data or damage to media, that may give rise to loss or
damage. Accordingly, Mayo agrees THAT THE DATABASES ARE PROVIDED "AS IS";
NEITHER LICENSOR NOR IVI MAKES ANY REPRESENTATION OR WARRANTY WITH RESPECT TO
ITS ACCURACY, COMPLETENESS, OR CURRENTNESS; AND LICENSOR AND IVI SPECIFICALLY
DISCLAIM ANY OTHER WARRANTY, EXPRESS, IMPLIED, OR STATUTORY, INCLUDING BUT NOT
LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. THE ENTIRE RISK AS TO THE QUALITY AND PERFORMANCE OF MAYO'S
PROGRAM IS WITH MAYO. NEITHER LICENSOR NOR IVI WARRANTS THAT THE INFORMATION
CONTAINED IN THE DATABASES WILL MEET MAYO'S REQUIREMENTS OR THAT THE OPERATION
OF THE DATABASES WILL BE ERROR-FREE. LICENSOR SOLELY WARRANTS THE ELECTRONIC
MEDIA ON WHICH THE DATABASES ARE FURNISHED TO BE FREE FROM DEFECTS IN MATERIALS
AND WORKMANSHIP UNDER NORMAL USE FOR A PERIOD OF THIRTY (30) DAYS FROM THE DATE
OF DELIVERY TO MAYO. NEITHER LICENSOR NOR IVI SHALL NOT BE LIABLE ON ACCOUNT OF
ANY SUCH ERRORS, OMISSIONS, DELAYS, OR LOSSES. MAYO AGREES THAT IN NO EVENT WILL
LICENSOR OR IVI BE LIABLE FOR THE RESULTS OF MAYO'S USE OF THE DATABASES, OR ITS
INABILITY OR FAILURE TO CONDUCT ITS BUSINESS, OR FOR DIRECT, INDIRECT, SPECIAL
OR CONSEQUENTIAL DAMAGES. MAYO FURTHER AGREES THAT IN NO EVENT WILL THE TOTAL
AGGREGATE LIABILITY OF LICENSOR AND IVI FOR ANY CLAIMS, LOSSES, OR DAMAGES
ARISING UNDER THIS AGREEMENT AND SERVICES PERFORMED HEREUNDER, WHETHER IN
CONTRACT OR TORT, INCLUDING NEGLIGENCE, EXCEED THE TOTAL AMOUNT PAID BY MAYO TO
IVI DURING THE PRECEDING TWELVE-MONTH PERIOD, EVEN IF LICENSOR AND/OR IVI HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH POTENTIAL CLAIM, LOSS, OR DAMAGE. THE
FOREGOING LIMITATION OF LIABILITY AND EXCLUSION OF CERTAIN DAMAGES SHALL APPLY
REGARDLESS OF THE SUCCESS OR EFFECTIVENESS OF OTHER REMEDIES.
<PAGE>
If the foregoing limitations are held to be unenforceable, Licensor's and IVI's
liability for damages under this Sublicense Agreement to Mayo shall in any event
not exceed the total amount of royalties paid by Mayo hereunder.
10. Remedies. Licensor's and IVI's entire liability and Mayo's
exclusive remedy if a Database fails to meet the Limited Warranty set forth in
Section 9 above shall be:
a) the replacement of any diskette not meeting USP's "Limited
Warranty," or
b) if IVI is unable to deliver a diskette which is free of
defects in materials or workmanship, IVI may terminate this
Agreement by returning the Databases.
11. Indemnification. Mayo agrees to indemnify and hold IVI harmless
from any and all liability that IVI may have to USP under the indemnification
provision set forth in Section 16(a) of the USP License Agreement which result
Mayo's use of the Databases under the terms of this Sublicense Agreement and/or
resulting from any third party claim relating to the material contained on the
Health Site.
12. Term and Termination.
a) Term. This Agreement shall commence as of the effective date
set forth on the first page of this Agreement and shall
automatically expire upon the termination or expiration of the
USP License Agreement, unless earlier terminated pursuant to
the provisions of subparagraph b) or c) below, or Section 6
herein.
<PAGE>
b) Termination by Mayo. Mayo shall have the right to terminate
this Agreement, with or without cause, upon delivery of thirty
(30) days prior written notice to IVI.
c) Termination for Breach. If Mayo fails to perform or breaches
any term or provision of this Agreement, IVI may terminate
this Agreement effective twenty (20) days after delivery of
written notice to Mayo describing the breach and the proposed
cure; provided, however, this Agreement shall not terminate if
such breach is cured within such twenty (20) day period.
d) Effect of Termination. Upon expiration or termination of this
Agreement, Mayo agrees to immediately return to IVI all
materials originally delivered by IVI to Mayo relating to the
Databases.
13. Relationship of Parties. Nothing in this Agreement shall be
construed to constitute or appoint either party as the agent, partner, or
representative of the other party for any purpose whatsoever, or to grant to
either party any rights or authority to assume or create any obligation or
responsibility, express or implied, for or on behalf of or in the name of the
other, or to bind the other in any way or manner whatsoever.
14. General Provisions.
a) Entire Agreement and Amendments. This Agreement constitutes
the entire Agreement between the parties relating to the
Databases. This Agreement shall not be amended or modified
except by a written document signed by both parties.
b) Waiver. No purported waiver of any provision of this Agreement
shall be binding unless set forth in a written document signed
by the party to be charged thereby. Any waiver shall be
limited to the circumstance or event specifically referenced
in the written waiver document and shall not be deemed to be a
waiver of any other term of this Agreement or of the same
circumstance or event upon any recurrence thereof.
c) Severability. If any part of this Agreement is held to be
unenforceable, the remainder of this Agreement shall
nevertheless remain in full force and effect.
<PAGE>
d) Notices. All notices required under this Agreement shall not
be valid unless set forth in writing and shall be deemed to
have been duly given: (i) when received if delivered in
person; (ii) the next business day if delivered by facsimile
transmission (with receipt confirmed) or if delivered by
reputable overnight delivery service for next business day
delivery; or (iii) on the fifth (5th) business day after
depositing in the U.S. mail for delivery by air mail, return
receipt requested, postage prepaid and addressed to the
appropriate party at the addresses set forth on the first page
hereof. If either party should change its address or facsimile
number, such party shall give written notice to the other
party of the new address and/or new facsimile number in the
manner set forth above, but any such notice shall not be
effective until actually received by the addressee.
e) Assignment. This Agreement may not be assigned by Mayo by
operation of law or otherwise to any other person, persons,
firms or corporations without the express written approval of
IVI and Licensor.
f) Governing Law. This Agreement shall be interpreted and
construed in accordance with the laws of the State of
Minnesota.
The parties hereto have executed this Agreement in a manner appropriate
to each to be effective as of the date set forth above.
{Remainder of this page intentionally left blank}
<PAGE>
IVI PUBLISHING, INC. MAYO FOUNDATION FOR
MEDICAL EDUCATION AND
RESEARCH
/s/ Joy Solomon /s/ Rick F. Colvin
Signature Signature
Joy Solomon Rick F. Colvin
Name Name
CEO & President (blank)
Title Title
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE LOSS (Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Average common shares outstanding 7,618 7,608 7,636 7,580
Net income (loss) $ 6 ($3,900) ($5,553) ($8,085)
Preferred stock dividends (30) (30) (90) (90)
Preferred stock accretion (13) (13) (39) (39)
------- ------- ------- -------
Net loss applicable
to common stock ($ 37) ($3,943) ($5,682) ($8,214)
======= ======= ======= =======
Net loss per common share ($ 0.00) ($ 0.52) ($ 0.74) ($ 1.08)
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 2,788
<SECURITIES> 0
<RECEIVABLES> 437
<ALLOWANCES> 0
<INVENTORY> 301
<CURRENT-ASSETS> 3,943
<PP&E> 6,663
<DEPRECIATION> 4,399
<TOTAL-ASSETS> 6,945
<CURRENT-LIABILITIES> 3,776
<BONDS> 3,500
0
0
<COMMON> 73
<OTHER-SE> (2,348)
<TOTAL-LIABILITY-AND-EQUITY> 6,945
<SALES> 488
<TOTAL-REVENUES> 488
<CGS> 311
<TOTAL-COSTS> 311
<OTHER-EXPENSES> 2,807
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68
<INCOME-PRETAX> 6
<INCOME-TAX> 0
<INCOME-CONTINUING> 6
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
