<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 20, 1996
REGISTRATION STATEMENT NO. 333-14519
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------
AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------
HEALTHDESK CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
California 7372 94-3165144
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
2560 Ninth Street, Suite 220
Berkeley, California 94710
(510) 883-2160
(Address, including Zip Code and telephone number, including
Area Code, of Registrant's principal executive offices)
PETER O'DONNELL
President and Chief
Executive Officer
HealthDesk Corporation
2560 Ninth Street, Suite 220
Berkeley, California 94710
(510) 883-2160
(Name, address, including Zip Code and telephone number,
including Area Code, of agent for service)
------
Copies to:
PETER M. ASTIZ, ESQ. ROBERT J. MITTMAN, ESQ.
GRAY CARY WARE & FREIDENRICH, TENZER GREENBLATT LLP
A Professional Corporation The Chrysler Building
400 Hamilton Avenue 405 Lexington Avenue
Palo Alto, California 94301 New York, New York 10174
Tel: (415) 328-6561 Tel: (212) 885-5000
Fax: (415) 327-3699 Fax: (212) 885-5001
------
Approximate date of proposed sale to the public: As promptly as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=====================================================================================
Title of Each Class Proposed Maximum Proposed Maximum Amount of
of Securities to be Amount to be Offering Price Aggregate Registration
Registered Registered (1) per Share (2) Offering Price (2) Fee
- -------------------------------------------------------------------------------------
Common Stock ...... 2,470,000 $5.00 $12,350,000 $3,742.42
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Warrants .......... 2,070,000 $.10 $207,000 $62.73
- -------------------------------------------------------------------------------------
Common Stock(3) ... 2,070,000 $5.00 $10,350,000 $3,136.36
- -------------------------------------------------------------------------------------
Total ............................................................... $6,941.51(4)
=====================================================================================
</TABLE>
(1) Assumes the Underwriters option to purchase up to 270,000 additional
shares and/or 270,000 additional Warrants is exercised in full.
(2) Estimated solely for the purposes of calculating the amount of the
registration fee pursuant to Rule 457(a).
(3) Issuable upon exercise of the Warrants to be sold to the public
hereunder, together with, pursuant to Rule 416, such indeterminent number
of shares of Common Stock as may be issuable pursuant to anti-dilution
provisions contained therein.
(4) $4,090.91 of such amount has been previously paid. Registration fee of
$2,850.60 is being paid hereunder.
- ----------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
=============================================================================
<PAGE>
HEALTHDESK CORPORATION
CROSS-REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM SB-2
<TABLE>
<CAPTION>
Form SB-2 Registration Statement Item and Heading Heading in Prospectus
-------------------------------------------------------- ---------------------
<S> <C>
1. Front of Registration Statement and Outside Front
Cover Page of Prospectus ........................... Outside Front Cover Page of Prospectus; Additional Information
2. Inside Front and Outside Back Cover Pages of
Prospectus ......................................... Inside Front Cover Page
3. Summary Information and Risk Factors ............... Prospectus Summary; Risk Factors; The Company
4. Use of Proceeds .................................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price .................... Outside Front Cover Page; Underwriting
6. Dilution ........................................... Dilution
7. Selling Security Holders ........................... Principal Shareholders
8. Plan of Distribution ............................... Outside Front Cover Page; Underwriting
9. Legal Proceedings .................................. Not Applicable
10. Directors, Executive Officers, Promoters and
Control Persons .................................... Management
11. Security Ownership of Certain Beneficial Owners and
Management ......................................... Principal Shareholders
12. Description of Securities .......................... Outside Front Cover Page; Prospectus Summary; Capitalization;
Description of Securities
13. Interest of Named Experts and Counsel .............. Not Applicable
14. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities ..................... Limitation of Liability and Indemnification Matters
15. Organization Within Last Five Years ................ Certain Transactions
16. Description of Business ............................ Front Cover Page; Prospectus Summary; The Company; Risk Factors;
Use of Proceeds; Dividend Policy; Capitalization; Dilution;
Selected Financial Data; Management's Discussion and Analysis
of Financial Condition and Results of Operations; Business;
Management; Certain Transactions; Principal Shareholders;
Description of Securities; Shares Eligible for Future Sale;
Legal Matters; Experts; Financial Statements
17. Management's Discussion and Analysis or Plan of
Operation .......................................... Management's Discussion and Analysis of Financial Condition
and Results of Operations
18. Description of Property ............................ Business
19. Certain Relationships and Related Transactions ..... Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters ................................ Outside Front Cover Page; Risk Factors; Dividend Policy;
Description of Securities; Shares Eligible for Future Sale
21. Executive Compensation ............................. Management
22. Financial Statements ............................... Financial Statements
23. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure ................ Not Applicable
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
PRELIMINARY PROPECTUS DATED DECEMBER 20, 1996
SUBJECT TO COMPLETION
HEALTHDESK CORPORATION
1,800,000 SHARES OF COMMON STOCK AND REDEEMABLE WARRANTS TO PURCHASE
1,800,000 SHARES OF COMMON STOCK
------
The Company is offering hereby 1,800,000 shares of Common Stock and
redeemeable warrants to purchase 1,800,000 shares of Common Stock (the
"Warrants"). The shares of Common Stock and Warrants may be purchased
separately and will be separately transferable immediately upon issuance.
Each Warrant entitles the registered holder thereof to purchase one share of
Common Stock at a price of $5.00, subject to adjustment in certain
circumstances, at any time commencing , 1998 through and including
, 2002. The Warrants are redeemable by the Company, upon the consent of
the Underwriter, at any time commencing , 1998, upon notice of not less
than 30 days, at a price of $.10 per Warrant, provided that the closing bid
quotation of the Common Stock on all 30 of the trading days ending on the
third day prior to the day on which the Company gives notice has been at
least 150% (currently $7.50, subject to adjustment) of the then effective
exercise price of the Warrants. See "Description of Securities."
Prior to this offering, there has been no public market for the Common
Stock or the Warrants and there can be no assurance that any such market will
develop. The Common Stock and Warrants will be quoted on the Nasdaq Small Cap
Market under the symbols "HDSK" and "HDSKW," respectively. The offering
prices of the Common Stock and the Warrants, and the exercise price of the
Warrants, were determined pursuant to negotiations between the Company and
the Underwriter and do not necessarily relate to the Company's book value or
other established criteria of value. For a discussion of factors considered
in determining the initial public offering prices, see "Underwriting."
This Prospectus also relates to the offer and sale by certain shareholders
of the Company (the "Selling Shareholders") of 400,000 shares of Common Stock
issued pursuant to a bridge financing (the "Bridge Financing") in October
1996, which shares are not part of the underwritten public offering. The
shares offered by the Selling Shareholders may not be sold prior to twelve
months from the date of this Prospectus and, without the consent of the
Underwriter, may not be sold prior to eighteen months from the date of this
Prospectus. See "Selling Shareholders and Plan of Distribution."
------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND IMMEDIATE AND SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY
INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE
"RISK FACTORS" COMMENCING ON PAGE 7 AND "DILUTION."
------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
================================================================================
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
- --------------------------------------------------------------------------------
Per Share .................. $5.00 $.50 $4.50
- --------------------------------------------------------------------------------
Per Warrant ............... $.10 $.01 $.09
- --------------------------------------------------------------------------------
Total (3) ................. $9,180,000 $918,000 $8,262,000
================================================================================
(1) In addition, the Company has agreed to pay to the Underwriter a 3%
nonaccountable expense allowance and to sell to the Underwriter warrants
(the "Underwriter's Warrants") to purchase 180,000 shares of Common Stock
and/or 180,000 Warrants. The Company has also agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $650,000 payable by the Company,
including the nonaccountable expense allowance of $275,400 ($316,710 if
the Underwriter's over-allotment option is exercised in full).
(3) The Company has granted the Underwriter a 45-day option to purchase up to
270,000 additional shares of Common Stock and/or 270,000 additional
Warrants, solely to cover over-allotments, if any. If such option is
exercised in full, the total price to public, underwriting discounts and
proceeds to Company will be $10,557,000, $1,055,700 and $9,501,300,
respectively. See "Underwriting."
------
The shares of Common Stock and Warrants are being offered, subject to
prior sale, when, as and if delivered to and accepted by the Underwriter and
subject to approval of certain legal matters by counsel and to certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify
the offering and to reject any order in whole or in part. It is expected that
delivery of certificates representing the shares of Common Stock and Warrants
offered hereby will be made against payment therefor at the offices of the
Underwriter, 650 Fifth Avenue, New York, New York 10019, on or about ,
1997.
WHALE SECURITIES CO., L.P.
The date of this Prospectus is , 1997.
<PAGE>
As of the date of this Prospectus, the Company will become subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith, will file reports, proxy
and information statements and other information with the Securities and
Exchange Commission (the "Commission"). The Company intends to furnish its
shareholders with annual reports containing financial statements and such
other periodic reports as the Company deems appropriate or as may be required
by law.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety. The statements which are not historical facts
contained in this Prospectus are forward looking statements that involve
risks and uncertainties, including those described under "Risk Factors."
Unless otherwise indicated, all information contained in this Prospectus
gives retroactive effect to (i) a 1.2-for-1 stock split effected in September
1996, (ii) the automatic conversion of all outstanding shares of the
Company's Series A Preferred Stock into Common Stock upon the consummation of
this offering, and (iii) the conversion of $500,000 principal amount of
promissory notes into 100,000 shares of Common Stock on the date of this
Prospectus, and assumes no exercise of the Underwriter's over-allotment to
purchase an additional 270,000 shares of Common Stock and/or 270,000
additional warrants.
THE COMPANY
HealthDesk Corporation (the "Company"), a development stage company, is
engaged in designing, developing and marketing HealthDesk(R) OnLine, a
healthcare management and information system which enables consumers to take
a more active role in their personal and family health. HealthDesk OnLine
features easy-to-use Windows-based software designed to develop personal
medical records and health management programs and access educational, health
related information from the Company's private Website and over the Internet.
The Company's proposed system is intended to lower the cost and improve the
quality and accessibility of healthcare by promoting preventive maintenance
and patient compliance and permitting electronic mail communications between
consumers and healthcare providers and payers. HealthDesk OnLine is being
developed in response to perceived market opportunities arising from
increasing efforts of industry participants to stem the escalating cost of
healthcare.
In July 1996, the Company commenced preliminary market testing of
HealthDesk OnLine pursuant to a license agreement with Blue Cross/Blue Shield
of Massachusetts ("BCMA"). The Company has modified HealthDesk OnLine to
satisfy BCMA's requirements and BCMA is currently testing such product. In
the event of successful initial acceptance testing, the proposed market test
contemplates that BCMA will distribute HealthDesk OnLine to up to 50 of its
employees and thereafter BCMA will have an opportunity to determine whether
to distribute HealthDesk OnLine to up to 500 of its members. The market test
is intended to provide information on the product's usability and acceptance
by consumers and to test the technical aspects and functionality of the
Company's software system. The Company also recently entered into an
agreement with Blue Cross/Blue Shield of Iowa ("BCI") to conduct similar
market testing activities. There can be no assurance that such market testing
will be conducted on a timely basis or that such testing will be successful.
The Company's primary marketing strategy is to license HealthDesk OnLine
to sponsoring organizations (including pharmaceutical companies, managed care
organizations, disease management companies, employers and affinity groups)
with access to significant numbers of potential subscribers. The Company
intends to focus its efforts on healthcare organizations primarily
responsible for bearing the financial risk of patients with chronic diseases.
The Company recently entered into a letter of intent with Medical Inter-
Insurance Exchange ("MIIX"), a medical malpractice insurance carrier, which
contemplates that the Company will design, develop and test a software module
for diabetic patients. The Company is currently evaluating various other
commercialization strategies, including the license of HealthDesk OnLine to
manufacturers of medical devices, pursuant to arrangements by which such
manufacturers would bundle such product with the products of such
manufacturers. The Company is also seeking to establish strategic
relationships with third parties relating to product development and
marketing.
The Company currently offers HealthDesk OnLine with no license fee to
potential sponsoring organizations willing to participate in market testing
activities. In the event of successful completion of market testing
activities, the Company anticipates that its principal sources of revenues
will be derived from license fees from sponsoring organizations and
subscription and online content and usage fees from con-
3
<PAGE>
sumers. The Company will seek to expand its sources of revenues to include
development fees for specific disease management software modules or
features. In addition, the Company may seek revenues by including advertising
in the system. The Company believes that the broad range of capabilities
combined in HealthDesk OnLine, including the system's desktop and online
functionality, and the system's ability to link consumers with healthcare
payers and providers, differentiate HealthDesk OnLine from competitive
products and make it attractive to potential sponsoring organizations seeking
to contain healthcare costs.
The Company intends to use a portion of the proceeds of this offering to
refine and enhance the capabilities of HealthDesk OnLine and expand system
capacity. In addition to the proposed development and commercialization of
specific disease management modules designed to monitor chronic conditions,
the Company will seek to license or develop the following: personalized
electronic newsletters designed to automatically search content databases and
websites by topic on a periodic basis; an online "chat" capability; and
software enhancements designed to assist users in both health risk assessment
and symptom triage. The Company may also seek to develop features which will
facilitate the input of data from medical devices, such as blood pressure
cuffs, blood glucose monitors and peak flow meters, directly into HealthDesk
OnLine which data may be monitored by healthcare providers.
Since its inception, the Company has engaged primarily in research and
development and has generated limited revenues. The Company expects to incur
significant up-front expenses in connection with product development and
commercialization (including the payment of salaries for management,
technical, marketing and other personnel), which will result in significant
losses for the foreseeable future. There can be no assurance that the
Company's product development efforts will be successfully completed or that
HealthDesk OnLine will prove to be commercially viable. See "Risk Factors."
The Company was incorporated under the laws of the State of California in
August 1992. The Company's executive offices are located at 2560 Ninth
Street, Suite 220, Berkeley, California 94710, and its telephone number is
(510) 883-2160. The Company's home page is located on the World Wide Web at
http://www.healthdesk.com.
BACKGROUND
The Company introduced its initial product, HealthDesk, in early 1993.
HealthDesk, which is marketed directly to consumers pursuant to agreements
with independent sales representatives, contains certain of the medical
records and healthcare management and information features of HealthDesk
OnLine without online capabilities. The Company currently markets HealthDesk
on a limited basis and does not expect future revenues derived from such
product to be meaningful. See "Business -- Potential Markets and Marketing."
In October 1993, the Company entered into an agreement with Kaiser
Foundation Health Plan of the Mid-Atlantic States of Washington, D.C.
("Kaiser") pursuant to which the Company engaged in product development
activities and Kaiser conducted limited consumer acceptance testing of the
Company's initial product in consideration of $145,000. In February 1994, the
Company entered into an agreement with Quantum Health Resources ("Quantum"),
a company engaged in disease management services, pursuant to which the
Company developed a software module for hemophilia patients and commenced
development of a software module for cystic fibrosis patients in
consideration of approximately $390,000. In 1994, Quantum conducted limited
consumer acceptance testing of such hemophilia module. While the Company
believes that the results of such testing were positive, the Company does not
have any further arrangements with either Kaiser or Quantum to test such
products. See "Business -- Market Testing."
RECENT FINANCINGS
In February 1996, the Company completed a private placement of 1,059,600
shares of Series A Convertible Preferred Stock (the "Series A Preferred
Stock") at a price of $2.08 per share and received net proceeds of
approximately $2,183,000. Each share of Series A Preferred Stock
automatically converts into one share of Common Stock upon the consummation
of this offering. See "Description of Securities."
4
<PAGE>
In July and August 1996, the Company issued an aggregate of $500,000
principal amount of promissory notes to John Pappajohn, a director and
principal shareholder of the Company, and Edgewater Private Equity Fund II,
L.P. ("Edgewater"), a principal shareholder of the Company. James Gordon, a
director of the Company, is president of the General Partner of Edgewater.
Such notes will automatically convert into 100,000 shares of Common Stock at
the initial public offering price per share on the earlier of the date of
this Prospectus or March 31, 1997. See "Certain Transactions."
In October 1996, the Company consummated a financing (the "Bridge
Financing") pursuant to which it issued an aggregate of (i) $2,000,000
principal amount of promissory notes (the "Bridge Notes") which bear interest
at the rate of 9% per annum and are due on the earlier of the consummation of
this offering or October 11, 1997 and (ii) 400,000 shares of Common Stock.
The Company will record the Bridge Notes at a discount of $900,000, which
will be allocated to the 400,000 shares of Common Stock issued in connection
with the Bridge Financing at an attributed price of $2.25 per share.
Additionally, $154,000 of debt issuance costs will be recorded in connection
with the Bridge Financing. The effective interest rate of the Bridge Notes is
279%. The Underwriter acted as placement agent in connection with the Bridge
Financing. The Company intends to use a portion of the proceeds of this
offering to repay the entire principal amount of and accrued interest on the
Bridge Notes. See "Use of Proceeds" and "Selling Shareholders and Plan of
Distribution."
THE OFFERING
Securities offered ............ 1,800,000 shares of Common Stock and
Warrants to purchase 1,800,000 shares of
Common Stock.
Common Stock to be outstanding
after the offering .......... 5,489,720 shares (1)
Warrants
Number to be outstanding
after the offering........... 1,800,000 Warrants.
Exercise terms................ Exercisable commencing , 1998, each to
purchase one share of Common Stock at a
price of $5.00, subject to adjustment in
certain circumstances. See "Description of
Securities -- Redeemable Warrants."
Expiration date............... , 2002.
Redemption.................... Redeemable by the Company, upon the consent
of the Underwriter, at any time commencing
, 1998, upon notice of not less than 30
days, at a price of $.10 per Warrant,
provided that the closing bid quotation of
the Common Stock on all 30 trading days
ending on the third day prior to the day on
which the Company gives notice has been at
least 150% (currently $7.50, subject to
adjustment) of the then effective exercise
price of the Warrants. The Warrants will be
exercisable until the close of business on
the date fixed for redemption. See
"Description of Securities -- Redeemable
Warrants."
Use of Proceeds ............... The Company intends to use the net proceeds
of this offering for sales and marketing;
repayment of indebtedness; product
development; expansion of system capacity;
and the balance for working capital and
general corporate purposes. See "Use of
Proceeds."
Risk Factors .................. The securities offered hereby are
speculative and involve a high degree of
risk and immediate substantial dilution and
should not be purchased by investors who
cannot afford the loss of their entire
investment. See "Risk Factors" and
"Dilution."
Nasdaq Symbols ................ Common Stock -- HDSK
Warrants -- HDSKW
5
<PAGE>
- ------
(1) Does not include (i) 1,800,000 shares of Common Stock reserved for
issuance upon exercise of the Warrants; (ii) an aggregate of 360,000
shares reserved for issuance upon exercise of the Underwriter's Warrants
and the Warrants included therein; (iii) 768,050 shares of Common Stock
reserved for issuance upon exercise of options granted under the
Company's 1994 Founder's Stock Option Plan (the "Stock Option Plan");
(iv) 79,830 shares reserved for issuance upon exercise of options
available for future grant under the Stock Option Plan; and (v) up to a
maximum of 100,000 shares of Common Stock reserved for issuance in the
event the Company fails to maintain an effective registration statement
with respect to the shares held by the Selling Shareholders. See
"Management--1994 Stock Option Plan," "Principal Shareholders,"
"Description of Securities" and "Underwriting."
Notice to California Investors. Each purchaser of Common Stock or Warrants
in California must be an "accredited investor," as that term is defined in
Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), or satisfy one of the following suitability
standards: (i) minimum annual gross income of $65,000 and a net worth
(exclusive of home, home furnishings and automobiles) of $250,000; or (ii)
minimum net worth (exclusive of home, home furnishings and automobiles) of
$500,000.
SUMMARY FINANCIAL DATA
The summary financial information set forth below is derived from and
should be read in conjunction with the financial statements of the Company,
including the notes thereto, appearing elsewhere in this Prospectus.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months Ended September 30,
---------------------------- ----------------------------
1994 1995 1995 1996
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Total revenues .................. $ 397,240 $ 224,011 $ 223,432 $ 6,170
Net loss ........................ (237,022) (1,436,473) (781,594) (2,597,791)
Net loss per share .............. (.08) (.45) (.26) (.67)
Weighted average number of shares
outstanding .................... 2,964,581 3,181,929 2,986,878 3,854,742
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
At September 30, 1996
-----------------------------------------------
As Adjusted
Actual Pro Forma(1) (1)(2)
-------------- ------------ --------------
<S> <C> <C> <C>
Working capital (deficit) .... $(1,636,871) $ (362,871) $ 6,195,129
Total assets ................. 790,600 2,083,517 7,541,517
Total liabilities ............ 1,940,988 1,959,905 859,905
Shareholders' equity (deficit) (1,150,388) 123,612 6,681,612(3)
</TABLE>
- ------
(1) Gives effect to (i) the conversion of all outstanding shares of Series A
Preferred Stock into 1,059,600 shares of Common Stock upon the
consummation of this offering; (ii) the consummation of the Bridge
Financing in October 1996 and the application of the net proceeds
therefrom, including the repayment of $583,000 of indebtedness to
Quantum; and (iii) the issuance of 100,000 shares of Common Stock upon
conversion of outstanding indebtedness on the date of this Prospectus.
The foregoing adjustments are collectively referred to herein as the
"Proforma Adjustments."
(2) Gives effect to the sale of the shares of Common Stock and Warrants
offered hereby and application of the estimated net proceeds therefrom,
including repayment of the Bridge Notes. See "Use of Proceeds."
(3) Gives effect to a non-recurring charge of $900,000 representing the
unamortized loan discount and $154,000 of unamortized deferred financing
costs associated with the Bridge Financing which will be recorded when
the Bridge Notes are repaid with the proceeds of this offering. See Note
12 to Notes to Financial Statements.
6
<PAGE>
RISK FACTORS
The securities offered hereby are speculative and involve a high degree of
risk. Each prospective investor should carefully consider the following risk
factors before making an investment decision.
1. Development Stage Company. The Company was organized in August 1992 and
is still in the development stage. Since its inception, the Company has been
engaged primarily in product development activities. The Company's initial
product was introduced in early 1993 and has not yet proven to be
commercially viable. As a result, the Company has no relevant operating
history upon which an evaluation of its performance and prospects can be
made. The Company will be subject to all of the risks, uncertainties,
expenses, delays, problems and difficulties typically encountered in the
establishment of a new business and the development and commercialization of
new products. The Company has limited experience in developing and
commercializing new products based on innovative technologies and there is
limited information available concerning the potential performance of the
Company's software or market acceptance of the Company's proposed products.
There can be no assurance that unanticipated expenses, problems or technical
difficulties will not occur which would result in material delays in product
commercialization or that the Company's efforts will result in successful
product commercialization. See "Business."
2. Limited Revenues; Significant and Continuing Losses; Qualified Report
of Independent Auditors. The Company has not yet generated any meaningful
revenues, and will not generate any meaningful revenues until after the
Company successfully completes development and market testing of HealthDesk
OnLine and attracts and retains a significant number of subscribers. For the
period August 28, 1992 (inception) to September 30, 1996, the Company
incurred a cumulative net loss of approximately $4,555,000. Since September
30, 1996, the Company has continued to incur increasing and significant
losses, and the Company anticipates that it will continue to incur
significant losses until, at the earliest, it generates sufficient revenues
to offset the substantial up-front expenditures and operating costs
associated with developing and commercializing its proposed products. The
Company will also incur non-recurring charges relating to the Bridge
Financing of approximately $1,054,000 upon the consummation of this offering.
There can be no assurance that the Company will be able to attract and retain
a sufficient number of subscribers to generate meaningful revenues or achieve
profitable operations or that HealthDesk OnLine will prove to be commercially
viable. The Company's independent auditors have included an explanatory
paragraph in their report stating that recurring losses during the
development stage raise substantial doubt about the Company's ability to
continue as a going concern. See Financial Statements.
3. Dependence on Offering Proceeds; Working Capital Deficit; Negative Cash
Flow; Possible Need for Additional Financing. The Company's capital
requirements relating to the development and commercialization of HealthDesk
OnLine have been and will continue to be significant. The Company is
dependent on the proceeds of this offering or other financing in order to
continue in business and develop and commercialize its proposed products. The
Company's capital requirements have exceeded its cash resources and, at
September 30, 1996, the Company had a working capital deficit of $1,636,876
and had a negative cash flow of $1,547,256 during the nine months ended
September 30, 1996. Based on currently proposed plans and assumptions
relating to its operations (including the timetable of, and costs associated
with, product development and commercialization), the Company believes that
the proceeds of this offering will be sufficient to satisfy its contemplated
cash requirements for at least twelve months following the consummation of
this offering. In the event that the Company's plans change, its assumptions
change or prove to be inaccurate or if the proceeds of this offering prove to
be insufficient to fund operations (due to unanticipated expenses, technical
difficulties, problems or otherwise), the Company would be required to seek
additional financing sooner than currently anticipated. There can be no
assurance that the proceeds of this offering will be sufficient to permit the
Company to successfully develop and commercialize HealthDesk OnLine or that
any assumptions relating to the Company's operations will prove to be
accurate. To the extent that the proceeds of this offering are not sufficient
to enable the Company to generate meaningful revenues or achieve profitable
operations, the inability to obtain additional financing will have a material
adverse effect on the Company, including possibly requiring the Company to
significantly curtail or cease its operations. In addition, any
implementation of the Company's business plans subsequent to the twelve month
period following this offering may require proceeds greater than the proceeds
of this offering or otherwise currently available to the Company. There can
be no assurance that any additional financing will be available to the
Company on commercially reasonable terms, or at all. Any additional financing
involving the issuance of equity securities could result in substantial
dilution to the interests of the Company's shareholders. See "Use of
Proceeds."
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4. Uncertainty of Product Development. Although the Company believes that
the development efforts relating to the technological aspects of the basic
HealthDesk OnLine platform are substantially completed, the Company has not
yet completed third-party testing of the basic platform or the development or
testing of any system enhancements or specific disease management modules.
The Company will be required to commit considerable time, effort and
resources to finalize such development and adapt its software to satisfy
specific requirements of potential customers. Continued system refinement,
enhancement and development efforts are subject to all of the risks inherent
in the development of new products and technologies, including unanticipated
delays, expenses, technical problems or difficulties, as well as the possible
insufficiency of funds to satisfactorily complete development, which could
result in abandonment or substantial change in product commercialization.
There can be no assurance that product development efforts will be
successfully completed on a timely basis, or at all, that the Company will be
able to successfully adapt its software to satisfy specific requirements of
potential customers, or that unanticipated events will not occur which would
result in increased costs or material delays in product development or
commercialization. In addition, while the Company believes that its software
performs the principal functions for which it has been designed, the Company
has only conducted limited tests of its software in connection with
preliminary market testing activities. Consequently, there can be no
assurance that such software will perform all of the functions for which it
has been designed or prove to be sufficiently reliable in widespread
commercial use. Technologies as complex as those incorporated into the
Company's software may contain errors which become apparent subsequent to
commercial use. Remedying such errors could delay the Company's plans and
cause it to incur substantial additional costs. See "Business -- Product
Development."
5. New Concept; Uncertainty of Market Acceptance and Commercialization
Strategy. HealthDesk OnLine represents a new business concept. As is typical
in the case of a new business concept, demand and market acceptance for
HealthDesk OnLine as a newly introduced product is subject to a high level of
uncertainty. Achieving market acceptance for HealthDesk OnLine will require
significant efforts and expenditures by the Company to create awareness and
demand by healthcare payers, providers and consumers. The Company's prospects
will be significantly affected by its ability to successfully develop and
maintain relationships with sponsoring organizations, which will promote
their services using HealthDesk OnLine and, at the same time, attract
significant numbers of subscribers. Because demand by payers, providers and
consumers are substantially interrelated, any lack or lessening of demand by
any of these would have an adverse effect on market acceptance for HealthDesk
OnLine. The Company has not yet commenced significant marketing activities
and has limited experience and limited financial, technical, personnel and
other resources to independently undertake extensive marketing activities.
Although the Company is currently evaluating a number of possible product
marketing and distribution strategies, the Company initially intends to offer
HealthDesk OnLine with no license fee to potential sponsoring organizations
willing to participate in market testing in order to closely monitor
performance and provide support for the users of such product. Such
activities are expected to allow the Company to adjust and revise its
proposed products in light of market needs and user feedback, to develop
pricing strategies relative to cost structure, to test new products and to
correct software or product defects which may arise. Thereafter, although the
Company will seek to develop and commercialize specific disease management
modules, the Company's primary marketing strategy is to license and sell
HealthDesk OnLine to sponsoring organizations with access to significant
numbers of potential subscribers. The Company's marketing strategy and
preliminary and future marketing plans may be unsuccessful and are subject to
change as a result of a number of factors, including progress or delays in
the Company's marketing efforts, changes in market conditions (including the
emergence of potentially significant related market segments for applications
of the Company's technology), the nature of possible license and distribution
arrangements which may become available to it in the future and economic,
political, regulatory and competitive factors. To the extent that the Company
is able to enter into satisfactory third-party marketing and distribution
arrangements in the future, it will be largely dependent on the efforts of
such third parties and on the marketability and sales of their products.
There can be no assurance that the Company's strategy will result in
successful product commercialization or that the Company's efforts will
result in initial or continued market acceptance for the Company's proposed
products. See "Business -- Potential Markets and Marketing."
6. Uncertainty of Market Testing Results. The Company currently proposes
to conduct market testing of HealthDesk OnLine with BCMA and BCI and other
potential sponsoring organizations. The Company's success may be highly
dependent upon the results of these tests and there can be no assurance that
such tests will be
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successful. If such tests are not successful, the Company will be required to
attempt to enhance or modify HealthDesk OnLine so that it will meet with
sponsoring organization and consumer acceptance. There can be no assurance
that the Company will be able to modify HealthDesk OnLine so that positive
test results can be demonstrated. Even if test results are positive, there
can be no assurance that sponsoring organizations will be sufficiently
encouraged by the results to commit to use HealthDesk OnLine on a non-market
test basis. They may elect to utilize other products, services or
technologies which they believe to be more efficient or have other cost
advantages over the Company's system. In addition, there can be no assurance
that positive test results will translate into consumer acceptance over a
longer period of time or that sponsoring organizations or consumers will be
satisfied with operational results or that the results of market testing will
be indicative of the ultimate success of product commercialization,
particularly if installed in geographic areas with demographic
characteristics different from those of test markets. See "Business -- Market
Testing."
7. Competition; Technological Obsolescence. The markets that the Company
intends to enter are characterized by intense competition and an increasing
number of new market entrants who have developed or are developing
potentially competitive products. The Company will face competition from
numerous sources, including prospective customers which may develop and
market their own competitive products and services, health information system
vendors, software companies, online and Internet service providers and others
with the technical capabilities and expertise which would encourage them to
develop and commercialize competitive products or services. Several
companies, including Healtheon Corp. ("Healtheon"), IBM Global Health
Village, Med Access Corporation, CareSoft, Inc., Access Health, Inc. and
America's Housecalls Network, have announced plans to develop and
commercialize competitive product and service offerings. Certain of such
competitors have substantially greater financial, technical, marketing,
distribution, personnel and other resources than the Company, permitting such
companies to implement extensive marketing campaigns, both generally and in
response to efforts by additional competitors to enter into new markets and
market new products and services. Healtheon has announced that it has entered
into an agreement with BCMA relating primarily to the electronic exchange of
health plan benefit information between consumers and health plans. There can
be no assurance that Healtheon's relationship with BCMA will not adversely
affect the Company's ability to successfully market HealthDesk OnLine to
BCMA. In addition, the markets for the Company's proposed products are
characterized by rapidly changing technology and evolving industry standards
which could result in product obsolescence or short product life cycles.
Accordingly, the ability of the Company to compete will be dependent upon the
Company's ability to complete development and introduce HealthDesk OnLine
into the marketplace in a timely manner, to continually enhance and improve
its software and to successfully develop and market new products. There can
be no assurance that the Company will be able to compete successfully, that
competitors will not develop technologies or products that render the
Company's products obsolete or less marketable or that the Company will be
able to successfully enhance its products or develop new products. See
"Business -- Competition."
8. Capacity Constraints; System Failure and Security Risks. The Company's
operations will depend upon the capacity, reliability and security of its
system infrastructure. The Company currently has limited system capacity and
will be required to continually expand its system infrastructure to
accommodate significant numbers of users and increasing amounts of healthcare
information they may wish to access. Expansion of the Company's system
infrastructure will require substantial financial, operational and management
resources. The Company intends to use a portion of the proceeds of this
offering to purchase computer equipment to expand system capacity. There can
be no assurance that the Company will be able to expand its system
infrastructure to meet potential demand on a timely basis, at a commercially
reasonable cost, or at all. Failure by the Company to expand its system
infrastructure on a timely basis would have a material adverse effect on the
Company. In addition, the Company will be dependent upon Web browsers and
third-party Internet and online service providers for access to the Company's
services, hardware suppliers for prompt delivery, installation and service of
computer equipment used to deliver the Company's services and on content
providers to provide current healthcare information for use by consumers.
The Company's operations will also be dependent on the Company's ability
to protect its computer equipment against damage from fire, earthquakes,
power loss, telecommunications failures and similar events. The Company does
not have earthquake insurance or redundant, multiple site capacity in the
event of any such occurrence. The Company does maintain fire insurance with
an aggregate limitation of $1 million and business interruption insurance
with an aggregate limitation of $4 million. The Company's system
infrastructure will be
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also vulnerable to computer viruses, break-ins and similar disruptions from
unauthorized tampering with the Company's computer systems. Computer viruses
or problems caused by third parties could lead to material interruptions,
delays or cessation in service to consumers. Inappropriate use of the
Internet by third parties could also potentially jeopardize the security of
confidential information stored in the computer systems of consumers.
Security and privacy concerns of consumers may limit the Company's ability to
develop a significant subscriber base. See "Use of Proceeds" and "Business --
Infrastructure, Operations and Technology."
9. Potential Liability and Insurance. In recent years, participants in the
healthcare industry have been subject to an increasing number of lawsuits
alleging malpractice, product liability and related legal theories, many of
which involve large claims and significant defense costs. Due to the nature
of its business, the Company could become involved in litigation regarding
the healthcare information transmitted over its system with the risk of
adverse publicity, significant defense costs and substantial damage awards.
The Company has adopted policies and procedures intended to reduce the risk
of claims, which include the provision of disclaimers in connection with its
services. The Company does not currently maintain malpractice liability
insurance. In addition, because healthcare information and materials may be
downloaded and may be subsequently distributed to others, there is a
potential that claims will be made against the Company for defamation,
negligence, copyright or trademark infringement or other theories based on
the nature and content of such materials. The Company also could be exposed
to liability in connection with the selection of materials that may be
accessible over its system. Claims could be made against the Company if
material deemed inappropriate for viewing by children could be accessed. The
Company carries an umbrella insurance policy with a limit of $4 million in
the aggregate, general liability insurance with a limitation of $2 million in
the aggregate and $1 million per occurrence and errors and omissions
insurance with a limitation of $1 million. Nevertheless, the Company's
insurance may not cover potential claims of this type or may not be adequate
to cover liability that may be imposed or related defense costs. There can be
no assurance that the Company will not face claims resulting in substantial
liability for which the Company is partially or completely uninsured. Any
partially or completely uninsured claim against the Company, if successful
and of sufficient magnitude, would have a material adverse effect on the
Company. See "Business -- Potential Liability and Insurance."
10. Government Regulation. The healthcare industry is subject to
extensive, stringent and frequently changing federal and state regulation
which is interpreted and enforced by regulatory authorities with broad
discretion. Among other things, these regulations govern the provision of
healthcare services and the marketing of medical devices. These regulations
generally predate the development of products and services such as those
offered and proposed to be offered by the Company and the application and
enforcement of such regulations to the Company and its products and services
is uncertain. However, certain of the statutes governing the provision of
healthcare services could be construed by regulatory authorities to apply to
the Company's proposed business activities. There can be no assurance that
regulatory authorities do not or will not deem the Company's business
activities to constitute the unlicensed practice of medicine. Furthermore, in
the event the Company develops features which facilitate the input of data
from medical devices directly into HealthDesk OnLine, it is possible that the
United States Food and Drug Administration would require the Company and/or
an equipment manufacturer to obtain pre-marketing clearance with respect to
any such product. The process of obtaining and maintaining required
regulatory approvals can be lengthy, expensive and uncertain. Even if
regulatory approvals are obtained, a marketed product and its manufacturer
are subject to continuing regulatory review, and discovery of previously
unknown problems could result in restrictions on such product or
manufacturer, including withdrawal of the product from the market. Amendments
to or interpretation and enforcement of existing statutes or regulations, the
adoption of new statutes or regulations or the development of new
enhancements and features to HealthDesk OnLine could subject the Company to
increased regulation and require the Company to alter methods of operation at
costs which could be substantial. Failure to comply with applicable laws and
regulations could subject the Company to civil remedies, including
substantial fines, penalties and injunctions, as well as possible criminal
sanctions.
Although there are currently few laws or regulations directly applicable
to access to or commerce on the Internet, due to the increasing popularity
and use of the Internet, it is possible that laws and regulations may be
adopted with respect to the Internet, covering issues such as user privacy,
pricing and characteristics and quality of products and services. The
Telecommunications Reform Act of 1996, which was recently enacted, imposes
criminal penalties on anyone who distributes obscene, lascivious or indecent
communications on the Internet.
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While the enforcement of such statute has been enjoined and is currently
subject to challenge in the courts, the adoption of any such laws or
regulations may limit the growth of the Internet, which could in turn
decrease the demand for the Company's proposed products and services and
increase the Company's cost of doing business. Inasmuch as the applicability
to the Internet of the existing laws governing issues such as property
ownership, libel and personal privacy is uncertain, any such new legislation
or regulation or the application of existing laws and regulations to the
Internet could have an adverse effect on the Company's business and
prospects. See "Business -- Government Regulation."
11. Dependence on Third-Party Licenses. Substantially all of the
information content currently included in HealthDesk OnLine has been licensed
by the Company from unaffiliated third parties. The licenses granted to the
Company are subject to termination on relatively short notice. Although the
Company believes that similar healthcare information is available from
multiple sources, in the event of any termination of such licenses, the
Company may be required to independently develop information content or
license such information content from other providers. There can be no
assurance that the Company would be able to do so in a timely manner, upon
acceptable terms and conditions, or at all. The failure to obtain current
healthcare information for use by consumers on a timely and competitive basis
could have a material adverse effect on the Company. See "Business --
Infrastructure, Operations and Technology."
12. Dependence on Limited Customer Base. To date, the Company's revenues
have been derived from a limited number of customers. Two customers accounted
for approximately 76% and 5%, respectively, of revenues in 1994 and 40% and
56%, respectively, in 1995. Additionally, one customer accounted for
approximately 96% and 92%, respectively, of revenues for the nine months
ended September 30, 1995 and 1996. Although the Company is not currently
generating meaningful revenues, in the event that the Company is able to
successfully commercialize HealthDesk OnLine or obtain third party funding of
the costs of developing new software modules, there can be no assurance that
the Company will not continue to be dependent on a limited customer base for
all or a substantial portion of its revenues. The Company's letter of intent
with MIIX contemplates that the Company would grant to MIIX a right of first
refusal to fund the development of additional software modules. See "Business
- -- Potential Markets and Marketing."
13. Industry Factors; Lengthy Sales Cycle. The healthcare industry has
experienced significant changes in recent years, primarily due to rising
healthcare costs. Healthcare payers are increasingly challenging the price of
medical services and products, which have had and could continue to have a
significant effect on the procurement practices of healthcare providers,
generally causing them to be more selective in the purchase of new
technologies. Several proposals have been made by federal and state
government officials that may lead to substantial healthcare reform,
including the implementation of government-directed national healthcare
system and stringent healthcare cost containment measures. Adoption of such
proposed measures could result in reduction or deferral of capital
expenditures by potential customers. Also, there has been substantial
consolidation in the healthcare industry in recent years, which could make it
more difficult for the Company to achieve market acceptance by larger
potential customers. Moreover, a sponsoring organization's decision to
purchase new products and technology is often lengthy and requires the
approval of a significant number of administrators. The period in which a
sponsoring organization distributes the Company's software to its members may
also be lengthy, depending upon the level of acceptance and usage by its
members, which could delay the Company's plans in particular markets. See
"Business."
14. Proprietary Information. Although the Company intends to evaluate the
feasibility of obtaining patent protection for certain aspects of HealthDesk
OnLine, the Company does not hold any patents or registered copyrights. The
Company regards certain computer software it has developed for HealthDesk
OnLine as proprietary and attempts to protect it with copyrights, trade
secret laws, proprietary rights agreements and internal nondisclosure
agreements and safeguards. However, such methods may not afford complete
protection and there can be no assurance that others will not independently
develop know-how or obtain access to the Company's know-how or software
codes, concepts, ideas and documentation. Furthermore, there can be no
assurance that nondisclosure agreements with the Company's employees will
adequately protect the Company's trade secrets. Although the Company believes
that its proposed products do not and will not infringe patents or violate
proprietary rights of others, it is possible that infringement of existing or
future patents or proprietary rights of others have occurred or may occur. In
the event the Company's proposed products infringe patents or proprietary
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<PAGE>
rights of others, the Company may be required to modify the design of its
proposed products or obtain a license. There can be no assurance that the
Company will be able to do so in a timely manner, upon acceptable terms and
conditions or at all. The failure to do any of the foregoing could have a
material adverse effect upon the Company. In addition, there can be no
assurance that the Company will have the financial or other resources
necessary to enforce or defend a patent infringement action and the Company
could, under certain circumstances, become liable for damages, which also
could have a material adverse effect on the Company. See "Business --
Proprietary Information and Trademarks."
15. Dependence on Key Personnel. The success of the Company will be
dependent on the personal efforts of Peter O'Donnell, its President and Chief
Executive Officer, Dr. Molly Coye, its Executive Vice President, Timothy S.
Yamauchi, its Chief Financial Officer, and other key personnel. The loss of
the services of such individuals could have a material adverse effect on the
Company's business and prospects. The Company has obtained "key-person"
insurance on the life of each of Mr. O'Donnell, Dr. Coye and Mr. Yamauchi in
the amounts of $2 million, $2 million and $1 million, respectively. The
success of the Company is also dependent upon its ability to hire and retain
additional qualified management, marketing, technical, financial and other
personnel. Competition for qualified personnel is intense and there can be no
assurance that the Company will be able to hire or retain qualified
personnel. Any inability to attract and retain qualified management and other
personnel could have a material adverse effect on the Company. See
"Management."
16. Control by Management. Upon consummation of this offering, the
officers and directors of the Company will beneficially own, in the
aggregate, approximately 44.0% of the outstanding shares of Common Stock
(assuming no exercise of the Warrants). Accordingly, such persons, acting
together, will be in a position to exercise significant influence over the
Company's affairs. See "Management" and "Principal Shareholders."
17. Potential Conflicts of Interest. The Company has entered into various
transactions with certain of its directors and principal shareholders and
their affiliates, which could result in potential conflicts of interest. Mr.
John Pappajohn and Edgewater, principal shareholders of the Company, have
from time to time made loans to the Company, and the Company has entered into
a marketing agreement with an entity of which Mr. Pappajohn is a director and
principal shareholder. The Company believes that all of such transactions and
arrangements were fair and reasonable to the Company and were on terms no
less favorable than could have been obtained from unaffiliated third parties.
There can be no assurance, however, that future transactions or arrangements
between the Company and its affiliates will continue to be advantageous to
the Company, that conflicts of interest will not arise with respect thereto,
or that if conflicts do arise, they will be resolved in a manner favorable to
the Company. Any such future transactions will be on terms no less favorable
to the Company than could be obtained from unaffiliated parties and will be
approved by a majority of the independent and disinterested members of the
Board of Directors, outside the presence of any interested directors and, to
the extent deemed appropriate by the Board of Directors, the Company will
obtain shareholder approval or fairness opinions in connection with any such
transaction. See "Certain Transactions."
18. Benefits to Related Parties. The Company intends to use a portion of
the proceeds to repay the entire principal amount of and accrued interest on
the Bridge Notes. John Pappajohn, a director and principal shareholder of the
Company, and Edgewater, a principal shareholder of the Company which is
affiliated with James Gordon, a director of the Company, each purchased
$100,000 principal amount of Bridge Notes pursuant to the Bridge Financing.
The Company intends to use approximately 2.6% of the net proceeds to repay
such Bridge Notes on the consummation of this offering. In addition, the
Company may use a portion of the proceeds of this offering allocated to
working capital to pay compensation of its executive officers (which is
expected to be approximately $580,000, or approximately 7.6% of the net
proceeds, during the twelve months following this offering). See "Use of
Proceeds" and "Certain Transactions."
19. Immediate and Substantial Dilution. Investors in this offering will
incur immediate and substantial dilution of $3.79 (76%) per share between the
adjusted net tangible book value per share after this offering and the
initial public offering price of $5.00 per share. The current shareholders of
the Company acquired their Common Stock at an average price of $1.27 per
share, substantially below the initial public offering price. Accordingly, to
the extent the Company continues to incur losses, investors in this offering
will bear a disproportionate risk of such losses. See "Dilution" and
"Underwriting."
20. Outstanding Options. As of the date of this Prospectus, the Company
had outstanding options to purchase an aggregate of 768,050 shares of Common
Stock at exercise prices ranging from $1.04 to $5.00. Exer-
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cise of any of the foregoing options will have a dilutive effect on the
Company's shareholders. Furthermore, the terms upon which the Company may be
able to obtain additional equity financing may be adversely affected, since
the holders of the options can be expected to exercise them, if at all, at a
time when the Company would, in all likelihood, be able to obtain any needed
capital on terms more favorable to the Company than those provided in the
options. See "Management -- 1994 Stock Option Plan."
21. No Dividends. To date, the Company has not paid any cash dividends on
its Common or Preferred Stock and does not expect to declare or pay dividends
on the Common Stock in the foreseeable future. See "Dividend Policy."
22. Authorized Preferred Stock. The Company's Restated Articles of
Incorporation authorizes the Company's Board of Directors to issue 1,800,000
shares of "blank check" Preferred Stock and to fix the rights, preferences,
privileges and restrictions, including voting rights, of these shares,
without further shareholder approval. The rights of the holders of Common
Stock will be subject to and may be adversely affected by the rights of
holders of any Preferred Stock that may be issued in the future. The ability
to issue Preferred Stock without shareholder approval could have the effect
of making it more difficult for a third party to acquire a majority of the
voting stock of the Company thereby delaying, deferring or preventing a
change in control of the Company. The Company's Series A Preferred Stock will
convert into Common Stock upon the consummation of this offering. See
"Description of Securities."
23. Shares Eligible for Future Sale, Registration Rights. Upon
consummation of this offering, the Company will have 5,489,720 shares of
Common Stock outstanding, of which 2,200,000 shares, consisting of 1,800,000
shares offered hereby and, subject to certain contractual restrictions
described below, the 400,000 shares being offered by the Selling
Shareholders, will be freely tradable without restriction or further
registration under the Securities Act. All of the remaining 3,289,720 shares
of Common Stock outstanding are "restricted securities," as that term is
defined in Rule 144 promulgated under the Securities Act, and in the future
may be sold only pursuant to an effective registration statement under the
Securities Act, in compliance with the exemption provisions of Rule 144 or
pursuant to another exemption under the Securities Act. Of the 3,289,720
restricted shares, an aggregate of 237,000 shares will be eligible for sale,
without registration, under Rule 144 (subject to the contractual restrictions
described below), on the date of this Prospectus, and 417,000 shares will be
eligible (subject to certain volume limitations and the contractual
restrictions described below) commencing 90 days from the date of this
Prospectus. All of the Company's officers, directors and security holders
(except for the holders of 42,000 shares of Common Stock) have agreed not to
sell or dispose of any of their securities of the Company for a period of
eighteen months from the date of this Prospectus without the Underwriter's
prior written consent. The Company has also granted certain demand and
"piggyback" registration rights to the holders of an aggregate of 1,741,600
shares of Common Stock (including 400,000 shares issued in connection with
the Bridge Financing). The Company has obtained a waiver of registration
rights to the extent such rights would have been applicable to this offering.
No prediction can be made as to the effect, if any, that sales of such
securities or the availability of such securities for sale will have on the
market prices prevailing from time to time. However, even the possibility
that a substantial number of the Company's securities may be sold in the
public market may adversely affect prevailing market prices for the Common
Stock and Warrants and could impair the Company's ability to raise capital
through the sale of its equity securities. See "Description of Securities,"
"Shares Eligible for Future Sale," "Underwriting" and "Selling Shareholders
and Plan of Distribution."
24. Absence of Public Market; Possible Volatility of Market Price of
Common Stock and Warrants. Prior to this offering, there has been no public
trading market for the Common Stock or Warrants. Consequently, the initial
public offering price has been determined by negotiation between the Company
and the Underwriter and is not necessarily related to the Company's asset
value, net worth or other criteria of value. There can be no assurance that a
regular trading market for the Common Stock or Warrants will develop after
this offering or that, if developed, it will be sustained. The market price
of the Common Stock and Warrants following this offering may be highly
volatile as has been the case with securities of other small capitalization
companies. Factors such as the Company's operating results, announcements of
developments related to the Company's business and the introduction of new
products or product enhancements by the Company or its competitors may have a
significant impact in the market price of the Common Stock and Warrants. In
addition, in recent years the stock market in general, and the market for
shares of small capitalization stocks in particular, have experienced wide
price fluctuations which have often been unrelated to the operating
performance of such companies. See "Underwriting."
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25. Possible Delisting of Securities from NASDAQ System; Disclosure
Relating to Low-Priced Stocks. The Common Stock and Warrants will be quoted
on NASDAQ SmallCap Market ("NASDAQ") upon the consummation of this offering.
However, in order to continue to be included in NASDAQ, a company must
maintain $2,000,000 in total assets, a $200,000 market value of the public
float and $1,000,000 in total capital and surplus. In addition, continued
inclusion requires two market makers and a minimum bid price of $1.00 per
share; provided, however, that if a company falls below such minimum bid
price, it will remain eligible for continued inclusion in NASDAQ if the
market value of the public float is at least $1,000,000 and the Company has
$2,000,000 in capital and surplus. NASDAQ has recently proposed new
maintenance criteria which, if implemented, would eliminate the exception to
the $1.00 per share minimum bid price and require, among other things,
$2,000,000 in net tangible assets, $1,000,000 market value of the public
float and adherence to certain corporate governance provisions. Failure to
meet these maintenance criteria in the future may result in the delisting of
the Company's securities from NASDAQ and trading, if any, in the Company's
securities would thereafter be conducted in the non-NASDAQ over-the-counter
market. As a result of such delisting, an investor may find it more difficult
to dispose of, or to obtain accurate quotations as to the market value of,
the Company's securities. In addition, if the Common Stock were delisted from
trading on NASDAQ and the trading price of the Common Stock was less than
$5.00 per share, trading in the Common Stock would also be subject to certain
rules promulgated under the Exchange Act, which require additional disclosure
by broker-dealers in connection with any trades involving a stock defined as
a penny stock (generally, any non-NASDAQ equity security that has a market
price of less than $5.00 per share, subject to certain exceptions). Such
rules require the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks
associated therewith, and impose various sales practice requirements on
broker-dealers who sell penny stock to persons other than established
customers and accredited investors (generally institutions). For these types
of transactions, the broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transactions prior to sale. The additional burdens imposed
upon broker-dealers by such requirements may discourage broker-dealers from
effecting transactions in the Common Stock, which could severely limit the
market liquidity of the Common Stock and the ability of purchasers in this
offering to sell the Common Stock in the secondary market.
26. Forward Looking Statements. The statements which are not historical
facts contained in this Prospectus are forward looking statements that
involve risks and uncertainties, including the risks discussed above. The
Company's actual results may differ materially from the results discussed in
such forward looking statements.
27. Potential Adverse Effect of Warrant Redemption. The Warrants are
subject to redemption by the Company, upon the consent of the Underwriter, at
any time commencing on , 1998, upon notice of not less than 30 days,
at a price of $.10 per Warrant, provided that the closing bid quotation of
the Common Stock on all 30 trading days ending on the third day prior to the
day on which the Company gives notice has been at least 150% (currently
$7.50, subject to adjustment) of the then effective exercise price of the
Warrants. Redemption of the Warrants could force the holders to exercise the
Warrants and pay the exercise price at a time when it may be disadvantageous
for the holders to do so, to sell the Warrants at the then current market
price when they might otherwise wish to hold the Warrants, or to accept the
redemption price, which is likely to be substantially less than the market
value of the Warrants at the time of redemption. See "Description of
Securities -- Redeemable Warrants."
28. Possible Inability to Exercise Warrants. The Company intends to
qualify the sale of the Common Stock and the Warrants in a limited number of
states. Although certain exemptions in the securities laws of certain states
might permit the Warrants to be transferred to purchasers in states other
than those in which the Warrants were initially qualified, the Company will
be prevented from issuing Common Stock in such states upon the exercise of
the Warrants unless an exemption from qualification is available or unless
the issuance of Common Stock upon exercise of the Warrants is qualified. The
Company may decide not to seek or may not be able to obtain qualification of
the issuance of such Common Stock in all of the states in which the ultimate
purchasers of the Warrants reside. In such a case, the Warrants held by
purchasers will expire and have no value if such Warrants cannot be sold.
Accordingly, the market for the Warrants may be limited because of these
restrictions. Further, a current prospectus covering the Common Stock
issuable upon exercise of the Warrants must be in effect before the Company
may accept Warrant exercises. There can be no assurance the Company will be
able to have a prospectus in effect when this Prospectus is no longer
current, notwithstanding the Company's commitment to use its best efforts to
do so. See "Description of Securities -- Redeemable Warrants."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common
Stock and Warrants offered hereby are estimated to be $7,612,000 ($8,753,800
if the Underwriter's over-allotment option is exercised in full). The Company
expects to use the net proceeds during the twelve months following this
offering approximately as follows:
<TABLE>
<CAPTION>
Approximate
Approximate Percentage
Dollar of Net
Application of Proceeds Amount Proceeds
----------------------- ------------- -------------
<S> <C> <C>
Sales and marketing (1) .......................... $2,100,000 27.6%
Repayment of indebtedness(2) ..................... 2,030,000 26.7
Product development(3) ........................... 1,800,000 23.6
Expansion of system capacity(4) .................. 900,000 11.8
Working capital and general corporate purposes(5) 782,000 10.3
------------- -------------
$7,612,000 100.0%
============= =============
</TABLE>
- ------
(1) Includes anticipated costs and expenses associated with marketing
activities, including compensation and sales incentives for three
existing and up to seven additional sales and marketing personnel, and
preparation of sales documents and brochures. See "Business -- Potential
Markets and Marketing."
(2) Represents amounts to be used for the repayment of the entire $2,000,000
principal amount of the Bridge Notes and estimated accrued interest
thereon. The Bridge Notes bear interest at the rate of 9% per annum and
are repayable on the earlier of the consummation of this offering or
October 11, 1997. The Company used the proceeds of the Bridge Financing
principally in connection with the repayment of approximately $583,000 of
indebtedness to Quantum and expenses associated with product development
and sales and marketing. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity."
(3) Represents anticipated costs associated with system refinement and
enhancement, the cost of hardware and estimated salaries of eleven
existing and up to seven additional technical personnel, including
consultants. See "Business -- Product Development."
(4) Represents anticipated costs associated with the purchase of computer
hardware for servers and related telecommunications equipment used to
support the Company's system infrastructure. See "Business --
Infrastructure, Operations and Technology."
(5) Working capital will be used, among other things, to pay compensation to
executive officers (which is anticipated to be approximately $580,000
during the twelve months following this offering) rent, trade payables,
license fees for content and software, professional fees and other
operating expenses. See "Management."
If the Underwriter exercises its over-allotment option in full, the
Company will realize additional net proceeds of $1,341,800 which will be
added to working capital.
Based on currently proposed plans and assumptions relating to its
operations (including the timetable of, and costs associated with, product
development and commercialization), the Company believes that the proceeds of
this offering will be sufficient to satisfy the Company's contemplated cash
requirements for at least twelve months following the consummation of this
offering. In the event the Company's plans change or its assumptions change
or prove to be inaccurate or the proceeds of this offering prove to be
insufficient to fund operations (due to unanticipated expenses, delays,
problems or otherwise), the Company may find it necessary or desirable to
reallocate a portion of the proceeds within the above described categories,
use proceeds for other purposes, seek additional financing or curtail its
operations. There can be no assurance that additional financing will be
available to the Company on commercially reasonable terms, or at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Proceeds not immediately required for the purposes described above will be
invested principally in United States government securities, short-term
certificates of deposit, money market funds or other short-term interest-
bearing investments.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) on an
actual basis; (ii) on a pro forma basis to give effect to the Pro Forma
Adjustments; and (iii) as adjusted to give effect to the sale of the shares
of Common Stock and Warrants offered hereby and the application of the
estimated net proceeds therefrom:
<TABLE>
<CAPTION>
September 30, 1996
--------------------------------------------------
Actual Proforma As Adjusted
-------------- --------------- --------------
<S> <C> <C> <C>
Short term notes payable ................................. $ 1,088,042 $1,100,000(1) $ --
============== =============== ==============
Shareholders' equity (deficit):
Preferred Stock, no par value; 3,000,000 shares
authorized:
Series A Convertible Preferred Stock; 1,200,000 shares
designated, 1,059,600 shares issued and outstanding,
actual, no shares issued and outstanding, proforma
and as adjusted ..................................... $ 2,183,036 $ -- $ --
Common Stock, no par value; 17,000,000 shares authorized;
2,130,120 shares issued and outstanding, actual;
3,689,720 shares issued and outstanding, pro forma;
5,489,720 shares issued and outstanding, as adjusted (2) 1,221,355 4,678,391 12,290,391
Accumulated deficit ...................................... (4,554,779) (4,554,779) (5,608,779)(3)
-------------- --------------- --------------
Total shareholders' equity (deficit) ................ (1,150,388) 123,612 6,681,612
-------------- --------------- --------------
Total capitalization ........................... $(1,150,388) $ 123,612 $ 6,681,612
============== =============== ==============
</TABLE>
- ------
(1) Net of $900,000 loan discount.
(2) Does not include: (i) 1,800,000 shares of Common Stock reserved for
issuance upon the exercise of the Warrants, (ii) an aggregate of 360,000
shares reserved for issuance upon exercise of the Underwriter's Warrants
and the Warrants included therein, (iii) 768,050 shares reserved for
issuance upon the exercise of outstanding stock options; (iv) 79,830
shares reserved for future grant under the Stock Option Plan; and (v)
100,000 shares of Common Stock reserved for issuance in the event the
Company fails to maintain an effective registration statement with
respect to the shares held by the Selling Shareholders. See "Description
of Securities."
(3) Gives effect to a non-recurring charge of $900,000 representing
unamortized loan discount and $154,000 of unamortized deferred financing
costs associated with the Bridge Financing which will be recorded when
the Bridge Notes are repaid with the proceeds of this offering. See Note
12 to Notes to Financial Statements.
DIVIDEND POLICY
The Company has paid no cash dividends on its Common Stock since its
incorporation. The Company intends to retain any earnings for use in its
business and therefore does not anticipate paying any cash dividends in the
foreseeable future.
16
<PAGE>
DILUTION
The difference between the initial public offering price per share of
Common Stock and the adjusted net tangible book value per share after this
offering constitutes the dilution to investors in this offering. Net tangible
book value per share of Common Stock is determined by dividing the net
tangible book value of the Company (total tangible assets less total
liabilities) on such date, by the number of shares of Common Stock.
At September 30, 1996, the Company had a negative net tangible book value
of ($1,153,582) or ($.54) per share. After giving retroactive effect to the
Pro Forma Adjustments, pro forma net tangible book value of the Company at
September 30, 1996 would have been $120,418, or $.03 per share. After giving
effect to the sale of the shares of Common Stock and Warrants offered by the
Company hereby and the receipt of the estimated net proceeds therefrom (less
underwriting discounts and commissions and estimated expenses of this
offering), the adjusted net tangible book value of the Company as of
September 30, 1996 would have been approximately $6,678,418 or $1.21 per
share. This represents an immediate increase in net tangible book value of
$1.18 per share to existing shareholders and an immediate dilution of $3.79
per share to new investors. The following table illustrates this dilution to
new investors on a per share basis:
<TABLE>
<CAPTION>
<S> <C> <C>
Initial public offering price .......................... $5.00
Net tangible book value before Pro Forma
Adjustments ..................................... $(.54)
Increase attributable to Pro Forma Adjustments .... .57
--------
Pro forma net tangible book value before offering . $ .03
Increase attributable to new investors ............ 1.18
--------
Adjusted pro forma net tangible book value after the
offering ............................................. 1.21
-------
Dilution to new investors .............................. $3.79
=======
</TABLE>
The following table sets forth on a pro forma basis as of September 30,
1996 with respect to existing shareholders and new investors in this
offering, a comparison of the number of shares of Common Stock, acquired from
the Company, the percentage of ownership of such shares, the total cash
consideration paid, the percentage of total cash consideration paid and the
average price per share:
<TABLE>
<CAPTION>
Shares Purchased Total Cash Consideration
------------------------ --------------------------
Average Price
Number Percent Amount Percent Per Share
----------- --------- ------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Existing shareholders 3,689,720 67.2% $ 4,678,391 34.2% $1.27
New investors ........ 1,800,000 32.8 9,000,000 65.8 5.00
----------- --------- ------------- --------- ---------------
Total ................ 5,489,720 100.0% $13,678,391 100.0%
=========== ========= ============= =========
</TABLE>
- ------
The above table assumes no exercise of the Underwriter's over-allotment
option or outstanding options. If the Underwriter's over-allotment option is
exercised in full, the new investors will have paid $10,350,000 for 2,070,000
shares of Common Stock, representing approximately 68.9% of the total
consideration for 35.9% of the total number of shares of Common Stock
outstanding. In addition, the above table also assumes no exercise of
outstanding stock options or the Warrants. As of the date of this Prospectus,
there are outstanding stock options to purchase an aggregate of 768,050
shares of Common Stock at exercise prices ranging from $1.04 to $5.00. To the
extent that stock options are exercised at prices below the public offering
price there will be further dilution to new investors. See "Management--1994
Stock Option Plan" and "Underwriting."
17
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data as of December 31, 1992, 1993, 1994
and 1995 and September 30, 1996 and for the years ended December 31, 1992,
1993, 1994 and 1995, and for the nine months ended September 30, 1995 and
1996 should be read in conjunction with the financial statements, including
notes thereto appearing elsewhere in this Prospectus. The balance sheet data
as of December 31, 1994 and 1995 and the statements of operations data for
the years ended December 31, 1994 and 1995, are derived from audited
financial statements included in this Prospectus. The statement of operations
data for the year ended December 31, 1993 and the balance sheet data as of
December 31, 1993 are derived from audited financial statements not included
in this Prospectus. The statement of operations data for the period from
August 28, 1992 to December 31, 1992 and the balance sheet data as of
December 31, 1992 are derived from unaudited financial statements not
included in this Prospectus. The selected financial data as of September 30,
1996 and for the nine months ended September 30, 1995 and 1996 is derived
from unaudited financial statements that have been prepared on the same basis
as the audited financial statements. In the opinion of management, the
unaudited financial statements include all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the information
included therein. Results of operations for the nine months ended September
30, 1996 are not necessarily indicative of the results that may be expected
for the full year or any future period.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Year Ended December 31, Nine months ended September 30,
-------------------------------------------------------------- -------------------------------
1992(1) 1993 1994 1995 1995 1996
------------ ------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues ........... $ -- $ 80,221 $ 397,240 $ 224,011 $ 223,432 $ 6,170
Operating expenses:
Product development .... 45,789 118,467 231,243 680,886 386,409 1,194,038
Sales and marketing .... 10,231 120,907 220,243 349,133 199,757 836,291
General and
administrative ...... 35,924 30,796 170,598 581,043 395,853 562,986
------------ ------------- ------------- -------------- ------------- --------------
Total operating
expenses .......... 91,944 270,170 622,084 1,611,062 982,019 2,593,315
Loss from operations ..... (91,944) (189,949) (224,844) (1,387,051) (758,587) (2,587,145)
Other (income) expense, net -- -- 11,378 48,622 22,407 10,046
------------ ------------- ------------- -------------- ------------- --------------
Loss before income taxes . (91,944) (189,949) (236,222) (1,435,673) (780,994) (2,597,191)
Provision for income taxes . 800 800 800 800 600 600
------------ ------------- ------------- -------------- ------------- --------------
Net loss ................. $ (92,744) $ (190,749) $ (237,022) $(1,436,473) $ (781,594) $(2,597,791)
============ ============= ============= ============== ============= ==============
Net loss per share ....... $ (0.05) $ (0.07) $ (0.08) $ (0.45) $ (0.26) $ (0.67)
============ ============= ============= ============== ============= ==============
Weighted average number of
shares outstanding ..... 1,889,550 2,614,523 2,964,581 3,181,929 2,986,878 3,854,742
============ ============= ============= ============== ============= ==============
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
December 31, September 30, 1996
-------------------------------------------------------- ------------------
1992 1993 1994 1995
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Working capital (deficit) ........... $ (91,364) $ (47,969) $ 239,822 $ 870,436 $ (1,636,871)
Total assets ........................ 2,893 19,880 451,739 2,003,356 790,600
Total liabilities ................... 91,364 50,893 657,274 803,307 1,940,988
Long-term obligations ............... -- -- 519,834 -- --
Total shareholders' equity (deficit) . (90,264) (31,013) (205,535) 1,200,049 (1,150,388)
</TABLE>
- ------
(1) Inception of the Company was August 28, 1992.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was organized in August 1992 and is still in the development
stage. Since its inception, the Company has been engaged primarily in product
development activities. The Company's initial product was introduced in early
1993 and has not yet proven to be commercially viable.
The Company has not yet generated any meaningful revenues, and will not
generate any meaningful revenues until after the Company successfully
completes development and market testing of HealthDesk OnLine and attracts
and retains a significant number of subscribers. For the period August 28,
1992 (inception) to September 30, 1996, the Company incurred a cumulative net
loss of approximately $4,555,000. Since September 30, 1996, the Company has
continued to incur increasing and significant losses and anticipates that it
will continue to incur significant losses until, at the earliest, the Company
generates sufficient revenues to offset the substantial up-front expenditures
and operating costs associated with developing and commercializing its
proposed products. The Company will also incur non-recurring charges related
to the Bridge Financing of approximately $1,054,000 upon the consummation of
this offering. There can be no assurance that the Company will be able to
attract and retain a sufficient number of subscribers to generate meaningful
revenues or achieve profitable operations or that HealthDesk OnLine will
prove to be commercially viable.
The Company's independent accountants have included an explanatory
paragraph in their report on the Company's financial statements as to the
ability of the Company to continue as a going concern. This offering is an
integral part of the Company's plan to continue as a going concern. See Note
1 to Notes to Financial Statements.
Software development costs (consisting primarily of salaries and related
expenses) incurred prior to establishing technological feasibility are
expensed in accordance with Financial Accounting Standards Board (FASB)
Statement No. 86. In accordance with FASB 86, the Company will capitalize
software development costs at such time as the technological feasibility of
the product has been established.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1995 Compared to Nine Months Ended
September 30, 1996.
Revenue decreased by 97.2% from $223,432 for the nine months ended
September 30, 1995 to $6,170 for the nine months ended September 30, 1996.
The decrease in revenues was principally due to the lack of development fees
during the period, which reflects the Company's shift in focus from the
development of specific disease software modules to the development of
HealthDesk OnLine.
Product development costs increased by 209.0% from $386,409 for the nine
months ended September 30, 1995 to $1,194,038 for the nine months ended
September 30, 1996. This increase was primarily attributable to increased
additional programming and development personnel, including consultants
engaged in developing HealthDesk OnLine.
Sales and marketing costs increased 318.7% from $199,757 for the nine
months ended September 30, 1995 to $836,291 for the nine months ended
September 30, 1996. This increase was primarily attributable to costs
associated with additional sales and marketing personnel engaged in marketing
HealthDesk OnLine commencing in the fourth quarter of 1995 and related
marketing expenses.
General and administrative costs increased by 42.2% from $395,853 for the
nine months ended September 30, 1995 to $562,986 for the nine months ended
September 30, 1996. This increase was primarily attributable to salaries of
new management personnel. Costs also increased as a result of a non-recurring
write-off of deferred offering costs accrued during the period and expenses
associated with the Company's relocation to larger facilities.
Other (income) expense, net decreased by 55.2% from $22,407 for the nine
months ended September 30, 1995 to $10,046 for the nine months ended
September 30, 1996. This decrease was attributable to increased interest
income as a result of the receipt of the proceeds from the sale of Series A
Preferred Stock in December 1995.
As a result of the foregoing, the Company incurred a net loss of
$2,597,791 for the nine months ended September 30, 1996, as compared to a net
loss of $781,594 for the prior comparable period.
19
<PAGE>
Year Ended December 31, 1994 Compared with Year Ended December 31, 1995.
Revenue decreased by 43.6% from $397,240 for the year ended December 31,
1994 to $224,011 for the year ended December 31, 1995. This decrease was
primarily attributable to a decrease in development fee revenues. During
1995, the Company focused its efforts on the development of HealthDesk OnLine
and reduced its marketing and sales efforts relating to its HealthDesk
product.
Product development costs increased by 194.4% from $231,243 for the year
ended December 31, 1994 to $680,886 for the year ended December 31, 1995. The
increase in expenditures was principally related to the expansion of the
programming staff and associated costs related to the development of
HealthDesk OnLine.
Sales and marketing costs increased by 58.5% from $220,243 for the year
ended December 31, 1994 to $349,133 for the year ended December 31, 1995.
This increase resulted primarily from the hiring of additional marketing
personnel and associated sales and marketing efforts in connection with
HealthDesk OnLine during the fourth quarter of 1995.
General and administrative costs increased by 240.6% from $170,598 for the
year ended December 31, 1994 to $581,043 for the year ended December 31,
1995. This increase was primarily attributable to the hiring of new
management personnel and severance costs relating to prior management and, to
a lesser extent, increased professional fees.
Other (income) expense, net increased by 327.3% from $11,378 for the year
ended December 31, 1994 to $48,622 for the year ended December 31, 1995. This
increase was primarily attributable to increased interest expense as a result
of higher levels of borrowings.
As a result of the foregoing, the Company incurred a net loss of
$1,436,473 for the year ended December 31, 1995, as compared to a net loss of
$237,022 for the prior comparable year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements will be to fund the development
and commercialization of HealthDesk OnLine. The Company has historically
financed its operations through the issuance of debt and equity securities.
Prior to the issuance of 400,000 shares of Common Stock in the Bridge
Financing, the Company had issued an aggregate of 2,130,120 shares of Common
Stock resulting in net proceeds of $1,221,355. The foregoing excludes an
aggregate of (i) 100,000 shares of Common Stock issuable upon conversion of
$500,000 principal amount of indebtedness on the date of this Prospectus and
(ii) 1,059,600 shares of Series A Preferred Stock, each of which will convert
into one share of Common Stock upon the consummation of this offering.
In May 1994, the Company borrowed an aggregate of $500,000 from Quantum,
evidenced by a promissory note bearing interest at the rate of 7% per annum.
The Company repaid such note from proceeds of the Bridge Financing.
During the period from June through September 1995, the Company issued 6%
convertible promissory notes in the aggregate principal amount of $800,000 to
John Pappajohn and Edgewater, principal shareholders of the Company. The
notes were converted into an aggregate of 768,000 shares of Common Stock in
September 1995. See "Certain Transactions."
In December 1995, Mr. Pappajohn exercised an option to purchase 96,000
shares of Common Stock for an aggregate exercise price of $100,000. See
"Certain Transactions."
In December 1995 and February 1996, the Company completed a private
placement of an aggregate of 1,059,600 shares of Series A Preferred Stock and
received net proceeds of approximately $2,183,000. Each share of Series A
Preferred Stock automatically converts into one share of Common Stock upon
consummation of this offering.
In July and August 1996, the Company issued an aggregate of $500,000
principal amount 8% promissory notes to Mr. Pappajohn and Edgewater. Such
notes will automatically convert into 100,000 shares of Common Stock on the
date of this Prospectus. See "Certain Transactions."
In October 1996, the Company consummated the Bridge Financing pursuant to
which it issued $2,000,000 principal amount of Bridge Notes and 400,000
shares of Common Stock. The Company intends to use a portion of the proceeds
of this offering to repay the entire principal amount of and accrued interest
on the Bridge Notes.
20
<PAGE>
Since its inception, the Company has engaged primarily in research and
development and has generated limited revenues. The Company expects to incur
significant up-front expenses in connection with product development and
commercialization (including the payment of salaries for management,
technical, marketing and other personnel), which will result in significant
losses for the foreseeable future.
The Company's capital requirements relating to the development and
commercialization of HealthDesk OnLine have been and will continue to be
significant. Other than as described in this Prospectus, the Company has no
material commitments for capital expenditures. For the period August 28, 1992
(inception) to September 30, 1996, the Company had capital expenditures of
approximately $660,000 relating primarily to computer equipment. The Company
has committed to pay license fees for content and software aggregating
approximately $190,000 prior to December 31, 1996.
The Company is dependent on the proceeds of this offering or other
financing in order to continue in business and develop and commercialize its
proposed products. Based on currently proposed plans and assumptions relating
to its operations (including the timetable of, and costs associated with,
product development and commercialization), the Company believes that the
proceeds of this offering will be sufficient to satisfy its contemplated cash
requirements for at least twelve months following the consummation of this
offering. In the event that the Company's plans change, its assumptions
change or prove to be inaccurate or if the proceeds of this offering prove to
be insufficient to fund operations (due to unanticipated expenses, technical
difficulties, problems or otherwise), the Company would be required to seek
additional financing sooner than currently anticipated. There can be no
assurance that the proceeds of this offering will be sufficient to permit the
Company to successfully develop and commercialize HealthDesk OnLine or that
any assumptions relating to the Company's operations will prove to be
accurate. To the extent that the proceeds of this offering are not sufficient
to enable the Company to generate meaningful revenues or achieve profitable
operations, the inability to obtain additional financing will have a material
adverse effect on the Company, including possibly requiring the Company to
significantly curtail or cease its operations.
In addition, any implementation of the Company's business plans subsequent
to the twelve month period following this offering may require proceeds
greater than the proceeds of this offering or otherwise currently available
to the Company. The Company may determine, depending upon the opportunities
available to it, to seek additional debt or equity financing to fund
operations. To the extent that the Company finances operations through the
issuance of additional equity securities, any such issuance would result in
dilution to the interests of the Company's shareholders. Additionally, to the
extent that the Company incurs indebtedness or issues debt securities in
connection with funding operations, the Company will be subject to all of the
risks associated with incurring substantial indebtedness, including the risks
that interest rates may fluctuate and cash flow may be insufficient to pay
principal and interest on any such indebtedness. There can be no assurance
that any additional financing will be available to the Company on
commercially reasonable terms, or at all.
21
<PAGE>
BUSINESS
BACKGROUND
The Company, a development stage company, is engaged in designing,
developing and marketing HealthDesk OnLine, a healthcare management and
information system which enables consumers to take a more active role in
their personal and family health. HealthDesk OnLine features easy-to-use
Windows-based software designed to develop personal medical records and
health management programs and access educational, health related information
from the Company's private Website and over the Internet. The Company's
proposed system is intended to lower the cost and improve the quality and
accessibility of healthcare by promoting preventive maintenance and patient
compliance and permitting electronic mail communications between consumers
and healthcare providers and payers. HealthDesk OnLine is being developed in
response to perceived market opportunities arising from increasing efforts of
industry participants to stem the escalating cost of healthcare.
MARKET TRENDS
According to the Congressional Budget Office, annual healthcare
expenditures in the United States have grown from approximately $470 billion
in 1982 to more than $1 trillion in 1995, representing more than 14% of the
gross national product. It is estimated that more than $270 billion is spent
on the treatment and related costs of chronic diseases such as diabetes,
HIV/AIDS, cancer, cardio-vascular disease, obstructive pulmonary disease and
asthma. In response to escalating healthcare costs, federal and state
government authorities have increasingly emphasized stringent cost
containment measures, and healthcare payers and providers have focused on
programs which reduce the costs of providing medical products and services
and managing chronic diseases. Inasmuch as the Company is a development stage
company seeking to develop and commercialize a new product, aggregate
expenditures on healthcare in general and chronic diseases in particular, may
not be directly relevant to the Company's current prospects.
The Company believes that the broad range of capabilities combined in
HealthDesk OnLine, including the system's desktop and online functionality,
and the system's ability to link consumers with healthcare payers and
providers, differentiate HealthDesk OnLine from competitive products and make
it attractive to potential sponsoring organizations seeking to contain
healthcare costs. The Company believes that the following key trends will
contribute favorably to expected demand for HealthDesk OnLine:
o Proliferation of Managed Care and Competitive Pressures: The healthcare
industry has undergone significant transformation in recent years. With
the proliferation of managed care, employers, consumers and other
purchasers of healthcare have greater access to an increasing number of
managed care organizations which are experiencing competitive pressures
to differentiate their healthcare product and service offerings to
attract and retain members.
o Continuing Penetration of Computers and Modems in the Home: An
increasing percentage of computer owners also own modems, which are
being pre-installed in a growing number of new computers. The Software
Publishers Association estimates that approximately 33.9 million or 34%
of households in the United States owned a personal computer as of 1995,
of which approximately 70% also owned a modem. The Company believes that
this growth is accompanied by increasing use of computers for
communications such as facsimile transmissions and electronic mail.
o Growth of the Informational and Commercial Applications and Resources of
the Internet: Use of the Internet has grown rapidly since its
commercialization in the early 1990s. An increasing number of servers
and Websites are being connected to the Internet, making available
educational and healthcare text, graphics and audio and video
information which may be accessed by consumers. Traditional and emerging
Internet applications, including electronic mail and the World Wide Web,
are also increasing in popularity. Internet use is also being promoted
by the development of user-friendly navigation and search tools designed
to simplify consumer access to the Internet's resources.
o Rapidly Changing Consumer Demands: The Company believes that demand for
healthcare information and services is increasing as the "baby boomer"
generation reaches its peak healthcare consuming years. Consumers are
assuming greater responsibility for their healthcare decisions, seeking
as much informa-
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tion as possible when choosing a health plan, doctor or treatment.
According to the New York Times, the number of health related sites on
the World Wide Web has grown significantly, reflecting the growing
demand from consumers for information to help them make more informed
choices about their own care.
HEALTHDESK ONLINE
HealthDesk OnLine software contains several modules for recording
information (Health History and Records) and several modules which also
monitor the state of the user's lifestyle and efforts at preventive
maintenance (Health Diaries). These modules allow users to create an
extensive database that can be appended, searched, reviewed and printed at
any time. The Company's software also contains modules which provide access
to healthcare information from the Company's private Website and over the
Internet (Gateways and Services).
Health History and Records
Background. The background module is designed to store basic information,
such as name, age, sex, address, phone number, social security number,
insurance carrier and blood type of a user.
Personal Conditions. The personal conditions module is designed to track
doctor and hospital visits and other important health events, including
medications, vaccinations, charges, out-of-pocket expenses and insurance
reimbursements.
Family Health. The family health module is designed to track health
information relating to family members that could affect the health profile
of a user.
Medication History. The medication history module is designed to track
medication usage, including information relating to dosage, frequency, cost
and prescribing physician.
Supplies. The supplies module is designed to track health-related
supplies, such as bandages or syringes used on a regular basis, inventory and
costs.
Finances. The finances module is designed to collect and store information
from other health records modules to enable a user to organize and track
comprehensive medical costs.
Health Diaries
Exercise. The exercise module is designed to track exercise activities,
including aerobics, running, walking, weight lifting, swimming and bicycling.
Heart Health. The heart health module is designed to track serum
cholesterol levels, blood pressure and pulse.
Weight. The weight module is designed to track body fat, calorie intake,
calories burned and weight.
Vital Signs. The vital signs module is designed to track blood pressure,
weight, height, pulse and basal temperature.
Medications. The medications module is designed to track the date and time
medication is taken by the user.
Nutrition. The nutrition module is designed to track caloric intake and
calories burned, as well as fat, protein and carbohydrate consumption.
Each module includes a series of illustrated diagrams, which demonstrate
important features relating to a healthcare topic. HealthDesk OnLine software
permits a user to add other categories and variables not listed on a module.
Readings can be edited, summarized and graphed on-screen for detecting trends
and patterns in daily health activities.
Gateways and Services
Library. The HealthDesk OnLine library module contains an extensive
database of healthcare information, consisting primarily of licensed content.
Healthcare information currently includes pamphlets addressing specific
diseases and medical issues; a medical encyclopedia; a pharmacy reference;
information relating to self-help
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groups; and numerous articles from prominent healthcare periodicals such as
New England Journal of Medicine and Journal of the American Medical
Association. Healthcare information is stored in the Company's private
Website and is accessed through the use of a web browser incorporated into
the Company's software.
Internet Gateway. The Internet gateway module permits access to the World
Wide Web for additional healthcare information through the use of a web
browser. Access is limited to websites which the Company believes provide the
most relevant healthcare information.
Feedback. The feedback module allows users to access user surveys and
technical support forms.
Electronic Mail
HealthDesk OnLine is designed to permit secure electronic messaging
between consumers and healthcare payers and providers. Anticipated
communications between consumers, payers and providers relate to enrollment;
physician selection; test results and patient information; appointment
scheduling; reminders; provider directories; surveys; home treatment; and
explanation of benefits. The Company intends to employ RSA Data Security
encryption software on both the desktop and database server.
HealthDesk OnLine has been designed to operate on IBM compatible desktop
computers with a minimum requirement of a 80486DX central processing unit and
eight megabytes of random access memory. The system runs under Windows 95 and
Windows 3.1. Consumers may access the electronic mail system, the Company's
private Website and the Internet by dialing a local access number provided by
CompuServe. The minimum technical requirement to access the electronic
communications features is a 9600 Baud modem.
PRODUCT DEVELOPMENT
The Company's principal efforts to date have been devoted to the design
and development of HealthDesk OnLine. For the fiscal years ended December 31,
1994 and 1995 and the nine months ended September 30, 1996, the Company
expended approximately $231,000, $681,000 and $1,194,000, respectively, on
product development. Product development expenses are expected to increase
through 1997 in connection with market testing activities. As of the date of
this Prospectus, eleven of the Company's twenty-four employees were engaged
in product development.
Although the Company believes that its development efforts relating to the
technological aspects of the basic HealthDesk OnLine platform are
substantially completed, the Company is continually seeking to refine and
enhance the capabilities of its products. The Company intends to use a
portion of the proceeds of this offering in connection with refining,
enhancing and developing system capabilities and features, including the
following:
Electronic Newsletter. The Company has recently incorporated into its
software an electronic newsletter function which includes a search engine
technology obtained from Verity, Inc. pursuant to a three year non-exclusive
license. Such technology is designed to automatically search content
databases and websites by topic of interest on a periodic basis. The Company
intends to use this capability to create reports in the form of personalized
newsletters which may be updated on a regular basis by the Company. The
Company believes that such newsletter also presents a significant opportunity
for advertising and promotional "tie-ins" with corporate sponsors.
"Chat" Capabilities. The Company will seek to develop and incorporate
online "chat" capabilities and sponsored healthcare forums into HealthDesk
OnLine. The Company anticipates that these features will provide consumers
with an opportunity to discuss healthcare issues with other consumers and
healthcare experts.
Health Risk Assessment. The Company will seek to incorporate into its
software, content and algorithms designed to assist in health risk assessment
by providing feedback with respect to the likelihood of risk of certain
diseases based on health information input by the user. The Company is
seeking to enter into a third-party license agreement in connection with such
enhancement.
Symptom Triage. The Company has recently incorporated into its products
software obtained from Healthwise, Inc. pursuant to a non-exclusive license.
Such software is designed to provide specific responses for treatment based
on information relating to symptoms input by the user.
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Medical Device Integration. The Company may also seek to develop features
which will facilitate the input of data from medical devices, such as blood
pressure cuffs, blood glucose monitors and peak flow meters, directly into
HealthDesk OnLine which data may be monitored by healthcare providers. Any
such feature may require the Company and/or the medical device manufacturer
to obtain pre-marketing regulatory approvals. See "Government Regulation."
Call Center. In the future, the Company may evaluate the feasibility of
offering call center services which would allow consumers to speak with a
nurse or other medical practitioner by phone. The Company believes that a
call center capability would enhance patient compliance with disease
management programs. In the event that the Company seeks to develop such
capability, it will become subject to increased government regulation. See
"Government Regulation."
In addition, the Company intends to develop specific disease management
modules designed to monitor chronic conditions. The Company believes that
disease management modules may increase compliance with treatment programs
designed to address the lifestyle of chronically-ill patients. In August
1996, the Company and MIIX entered into a letter of intent, as amended, which
contemplates that the Company will design, develop and test a software module
for diabetes patients. The letter of intent provides for MIIX to fund up to
$500,000 of the cost of developing such module, subject to mutually agreed
milestones, including target dates and acceptance criteria. The letter of
intent also contemplates that the Company would grant to MIIX a right of
first refusal to fund the development of other modules. There can be no
assurance that the Company will be able to enter into a definitive agreement
with MIIX or otherwise successfully develop or commercialize such software
module. See "Potential Markets and Marketing."
The markets for the Company's products are characterized by rapidly
changing technology and evolving industry standards, often resulting in
product obsolescence or short product life cycles. Accordingly, the ability
of the Company to compete will be dependent on the Company's ability to
complete development and introduce HealthDesk OnLine into the marketplace in
a timely manner, to continually enhance and improve its software and to
successfully develop and market new products. There can be no assurance that
competitors will not develop technologies or products that render the
Company's products obsolete or less marketable or that the Company will be
able to successfully enhance its products or develop new products.
MARKET TESTING
In July 1996, the Company commenced preliminary market testing of
HealthDesk OnLine pursuant to a license agreement with BCMA. The Company
agreed to grant to BCMA a limited, non-exclusive, non-transferable license
to use the HealthDesk trademark and to distribute HealthDesk OnLine to its
members, subscribers and insureds. The Company also agreed that until the end
of 1997 it will not grant a license to any health maintenance organization
which includes rights to distribute HealthDesk OnLine to members in
Massachusetts.
The Company has modified HealthDesk OnLine to satisfy BCMA's requirements
and BCMA is currently testing such product. In the event of successful
initial acceptance testing, the proposed market test contemplates that BCMA
will distribute HealthDesk OnLine to up to 50 of its employees during a
period of ninety days commencing November 1, 1996 and thereafter BCMA will
have an additional thirty days to determine whether to distribute HealthDesk
OnLine to up to 500 of its members. The Company currently anticipates that
BCMA will commence distributing HealthDesk OnLine to its employees in January
1997. The market test is intended to provide information on the product's
usability and acceptance by consumers and to test the technical aspects of
the Company's software. The Company also recently entered into a license
agreement with BCI to conduct similar market testing to up to 150 of BCI
employee households. BCI has commenced distributing HealthDesk OnLine to its
employees. There can be no assurance that such market testing will be
conducted on a timely basis or that such testing will be successful.
The agreements with BCMA and BCI require each to pay development fees in
the event they require modifications to HealthDesk OnLine. The agreements
also provide for the payment of member maintenance fees; installation fees;
transaction fees; and online service fees. The Company has waived payment of
a master license fee in connection with each agreement. The Company's
agreement with BCMA terminates on April 1, 1997, unless otherwise extended,
provided that for a period of six months following termination the Company
may not grant a license to any health maintenance organization which includes
rights to distribute HealthDesk OnLine to members in Massachusetts. The
Company's agreement with BCI terminates in February 1997.
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The Company currently proposes to conduct market testing of HealthDesk
OnLine with BCMA and BCI and other potential sponsoring organizations. The
Company's success may be highly dependent upon the results of market testing
and there can be no assurance that such tests will be successful. If such
tests are not successful, the Company will be required to attempt to enhance
or modify HealthDesk OnLine so that it will meet with sponsoring organization
and consumer acceptance. There can be no assurance that the Company will be
able to modify HealthDesk OnLine so that positive test results can be
demonstrated. Even if test results are positive, there can be no assurance
that sponsoring organizations will be sufficiently encouraged by the results
to commit to use HealthDesk OnLine on a non-market test basis. They may elect
to utilize other products, services or technologies which they believe to be
more efficient or have other cost advantages over the Company's system. In
addition, there can be no assurance that positive test results will translate
into consumer acceptance over a longer period of time or that sponsoring
organizations or consumers will be satisfied with operational results. In
1994, Kaiser and Quantum conducted limited consumer acceptance testing
activities with respect to the Company's initial product and a specific
disease software module. While the Company believes that the results of such
testing were positive, the Company does not have any further arrangements
with either Kaiser or Quantum to test such products.
POTENTIAL MARKETS AND MARKETING
The Company initially intends to offer HealthDesk OnLine with no license
fee to potential sponsoring organizations willing to participate in market
testing in order to closely monitor performance and provide support for the
users of such product. Such activities are expected to allow the Company to
adapt and revise its proposed products in light of market needs and user
feedback, to develop pricing strategies relative to cost structure, to test
new products and features and to correct software or product defects which
may arise. Thereafter, although the Company will seek to develop and
commercialize specific disease management modules, the Company's primary
marketing strategy is to license HealthDesk OnLine to sponsoring
organizations (including pharmaceutical companies, managed care
organizations, disease management companies, employers and affinity groups)
with access to significant numbers of potential subscribers. The Company
believes that the addition of HealthDesk OnLine to the products and services
of sponsoring organizations could enhance the competitive position of such
organizations by differentiating such organizations' products and services
from those of competitors.
The Company intends to focus its efforts on healthcare organizations
primarily responsible for bearing the financial risk of patients with chronic
diseases. The Company's letter of intent with MIIX contemplates that the
Company would pay royalties to MIIX ranging from 3% to 10% of revenues
derived from the sale or license of a software module designed for diabetes
patients. There can be no assurance that the Company will be able to enter
into a definitive marketing agreement or that any marketing efforts
undertaken by MIIX will be successful.
The Company is currently evaluating various other commercialization
strategies, including the license of HealthDesk OnLine to manufacturers of
medical devices, pursuant to arrangements by which such manufacturers would
bundle such product with the products of such manufacturers. The Company does
not have any specific plans or arrangements with respect to such products and
any such arrangements could require the Company and/or a medical device
manufacturer to obtain pre-marketing regulatory approvals. See "Government
Regulation."
The Company may also seek to establish strategic relationships with third
parties relating to product development and marketing. In May 1996, the
Company entered into cross-license agreements with Patient Infosystems Inc.
("PII"), formerly known as Disease State Management, Inc., a company engaged
in providing healthcare information systems designed to improve patient
compliance. Pursuant to such agreements, the Company granted to PII a
non-exclusive right to market HealthDesk OnLine and PII granted to the
Company a non- exclusive right to market PII's advanced voice recognition
telephone system capabilities. The Company believes that such arrangement
will permit the Company to offer its services to patients who do not have
access to personal computers.
Under the agreements, each party agreed to seek cost estimates (which
would be based on direct costs incurred) in developing modifications
necessary to deliver specific services requested by potential customers.
Operational fees would be based on certain assumptions contained in the
agreements (subject to the parties' standard terms and conditions). The
agreements have an initial term of six months and are automatically renew-
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able for successive terms unless either party gives 30 days' written notice
prior to the termination of any renewal term. The agreements provide for each
party to pay an initial license fee of $25,000 and $25,000 for each renewal
term. John Pappajohn, a director and principal shareholder of the Company, is
a principal shareholder and director of PII. Edgewater, a principal
shareholder of the Company, is also a principal shareholder of PII. PII may
be a competitor of the Company. See "Certain Transactions."
The Company's prospects will be substantially affected by its ability to
successfully develop and maintain relationships with key sponsoring
organizations, which will promote their services using HealthDesk OnLine and,
at the same time attract significant numbers of subscribers. The Company's
revenues from third-party marketing arrangements are generally expected to be
lower than if the Company sold its products directly to end-users, although
the Company would not incur the expense of creating a distribution network
and would anticipate a greater volume of end-user sales. To the extent that
the Company is ultimately able to enter into satisfactory third-party
marketing arrangements, the Company will be largely dependent on the efforts
of such third parties. In the case of any such arrangements, the Company's
products will require adaptation for specific customers, which could delay
product commercialization. In addition, the Company will be dependent on the
marketing efforts of third parties and on the marketability and sales of
their products. There can be no assurance that the Company will be able to
enter into third-party marketing arrangements, that it will be able to adapt
its products for specific customers on a timely basis, or at all, or that the
Company will realize substantial revenues from any such arrangements.
The Company's executive officers and marketing staff of three persons are
currently responsible for substantially all of the Company's marketing
efforts. Because of the nature of the Company's business, the Company's
executive officers are expected to continue to devote significant time to
develop personal relationships with senior contacts at sponsoring
organizations. The Company's ability to market HealthDesk OnLine may be
limited by the number of marketing personnel and will be largely dependent
upon the efforts of such individuals. HealthDesk, the Company's initial
product, is currently marketed directly to consumers pursuant to agreements
with two independent sales representatives. The Company does not expect
future revenues derived from such product to be meaningful.
The Company's marketing strategy and preliminary and future marketing
plans may be unsuccessful and are subject to change as a result of a number
of factors, including progress or delays in the Company's marketing efforts,
changes in market conditions (including the emergence of potentially
significant related market segments for applications of the Company's
technology), the nature of possible license and distribution arrangements
which may become available to it in the future and economic, political,
regulatory and competitive factors. There can be no assurance that the
Company's strategy will result in successful product commercialization.
COMPETITION
The markets that the Company intends to enter are characterized by intense
competition and an increasing number of new market entrants who have
developed or are developing competitive products. The Company will face
competition from numerous sources, including prospective customers which may
develop and market their own competitive products and services, health
information system vendors, software companies and online and Internet
service providers. The Company believes that competition will be based
primarily on ease of use, features (including communications capabilities and
content) and price. The Company believes that the combination of desktop and
online functionality of HealthDesk OnLine may provide the Company with a
competitive advantage.
In addition, certain companies have developed or may be expected to
develop technologies or products in related market segments which could
compete with certain technologies or products being developed by the Company.
The Company expects that companies which have developed or are developing
such technologies or products, as well as other companies (including
established and newly formed companies) may attempt to develop products
directly competitive with HealthDesk OnLine. In particular, several
companies, including Healtheon, IBM Global Health Village, MedAccess
Corporation, CareSoft, Inc., Access Health, Inc. and America's Housecalls
Network, have announced plans to develop and commercialize competitive
product and service offerings. Among other things, these products and
services include the use of the Internet for electronic communication between
health plans and consumers regarding plan matters, World Wide Web sites with
information
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regarding healthcare related matters and other Internet based products which
are to offer health related information. Certain of such competitors have
substantially greater financial, technical, marketing, distribution personnel
and other resources than the Company, permitting such companies to implement
extensive marketing campaigns, both generally and in response to efforts by
additional competitors to enter into new markets and market new products and
services.
Healtheon has announced that it has entered into an agreement with BCMA
relating primarily to the electronic exchange of health plan benefit
information between consumers and health plans. There can be no assurance
that Healtheon's relationship with BCMA will not adversely affect the
Company's ability to successfully market HealthDesk OnLine to BCMA or that
the Company will be able to compete successfully.
INFRASTRUCTURE, OPERATIONS AND TECHNOLOGY
The Company intends to make HealthDesk OnLine available to users through a
set of network servers housed in Berkeley, California. The Company
anticipates that access to the Internet will be provided on a 24 hour a day,
seven days a week basis through various communications line providers.
The Company's operations will depend upon the capacity, reliability and
security of its system infrastructure. The Company currently has limited
system capacity and will be required to continually expand its system
infrastructure to accommodate significant numbers of users and increasing
amounts of information they may wish to access. Expansion of the Company's
system infrastructure will require substantial financial, operational and
management resources. The Company intends to use a portion of the proceeds of
this offering to purchase computer equipment to expand system capacity. There
can be no assurance that the Company will be able to expand its system
infrastructure to meet potential demand on a timely basis, at a commercially
reasonable cost, or at all. Failure by the Company to expand its network
infrastructure on a timely basis could have a material adverse effect on the
Company. In addition, the Company will be dependent upon Web browsers and
third-party Internet and online service providers for access to the Company's
services, hardware suppliers for prompt delivery, installation and service of
computer equipment used to deliver the Company's services and on content
providers to provide current healthcare information for use by consumers.
The Company has entered into an Online Vendor License Agreement with
Information Access Company ("IAC") for online access to an electronic
database of proprietary content. The IAC database is currently the principal
source of content available on the Company's private Website and includes a
wide range of consumer-oriented health publications, medical journals,
articles, pamphlets and reference books. The non-exclusive, worldwide,
royalty-bearing license requires the Company to include IAC's standard terms
and conditions in the Company's standard subscriber terms and conditions, and
display certain IAC legends and copyright notices. Either party may terminate
the agreement with ninety days' notice after completion of a nine-month beta
test period, which expires in May 1997. Thereafter, the agreement continues
for a three-year period and may be terminated by either party at the end of
each year with ninety days' notice.
The Company has entered into a Content License Agreement with Healthwise,
Inc. ("Healthwise"), a publisher of self care health information for
consumers. The agreement provides a non-exclusive, worldwide, license to the
Company for the use of certain content published by Healthwise, including the
Healthwise Handbook and Pathways. The agreement continues indefinitely and is
terminable for cause upon two weeks' notice and without cause upon six
months' notice. In addition, the Company has entered into a Software License
Agreement with Healthwise for the use of Healthwise's Knowledgebase Symptom
Manager and Health and Disease Manager software in the Company's products.
Such software is designed to allow the Company's customers to triage their
symptoms and locate information on specific disease states. The agreement
provides for a non-exclusive, worldwide, royalty-bearing license. The
agreement has renewable one-year terms, unless terminated by either party
upon ninety-days' notice prior to expiration of the then current term.
The Company has entered into a Subscription License Agreement with Verity,
Inc. ("Verity") for the use in the Company's on-line products of certain
information indexing and retrieval software. The search engine feature is
used to locate content on the IAC database through the Company's development
of search queries. The agreement provides for a non-exclusive, worldwide,
royalty-bearing license. The agreement expires in May 1997.
The Company has entered into a license agreement with Netscape, Inc. to
license Netscape's browser technology for integration into the Company's
product. The license is a royalty bearing non-exclusive license for an
initial one year period expiring in September 1997.
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The Company has entered into an OEM Master License Agreement with RSA Data
Security, Inc. ("RSA") for the use of certain encryption software to secure
the Company's messaging system. The Company intends to use the RSA encryption
software on both the desktop as well as the Company's private website to
ensure that all communications are secure. Through the use of a public key
system of encryption, the Company is able to encode patient communications,
which may only be decrypted by the designated receiver. The agreement
provides for a non-exclusive, royalty-bearing license.
The Company believes that if any of such licenses are terminated, that
there are multiple other sources from which the Company will be able to
license appropriate content or similar technology.
POTENTIAL LIABILITY AND INSURANCE
In recent years, participants in the healthcare industry have been subject
to an increasing number of lawsuits alleging malpractice, product liability
and related legal theories, many of which involve large claims and
significant defense costs. Due to the nature of its business, the Company
could become involved in litigation regarding the healthcare information
transmitted over its system with the risk of adverse publicity, significant
defense costs and substantial damage awards. The Company has adopted policies
and procedures intended to reduce the risk of claims, which include the
provision of disclaimers in connection with its services. The Company does
not maintain malpractice liability insurance.
In addition, because healthcare information and materials may be
downloaded and may be subsequently distributed to others, there is a
potential that claims will be made against the Company for defamation,
negligence, copyright or trademark infringement or other theories based on
the nature and content of such materials. The Company also could be exposed
to liability in connection with the selection of materials that may be
accessible over its system. Claims could be made against the Company if
material deemed inappropriate for viewing by children could be accessed. The
Company carries an umbrella insurance policy with a limit of $4 million in
the aggregate, general liability insurance with a limitation of $2 million in
aggregate and $1 million per occurrence and errors and omissions insurance
with a limitation of $1 million in the aggregate. Nevertheless, the Company's
insurance may not cover potential claims of this type or may not be adequate
to cover liability that may be imposed or related defense costs. There can be
no assurance that the Company will not face claims resulting in substantial
liability for which the Company is partially or completely uninsured. Any
partially or completely uninsured claim against the Company, if successful
and of sufficient magnitude, would have a material adverse effect on the
Company.
GOVERNMENT REGULATION
The healthcare industry is subject to extensive, stringent and frequently
changing federal and state regulation which is interpreted and enforced by
regulatory authorities with broad discretion. Among other things, these
regulations govern the provision of healthcare services and the marketing of
medical devices. These regulations generally predate the development of
products and services such as those offered by the Company and the
application and enforcement of such regulations to the Company and its
products and services is uncertain. However, certain of the statutes
governing the provision of healthcare services could be construed by
regulatory authorities to apply to the Company's proposed business
activities. There can be no assurance that regulatory authorities do not or
will not deem the Company's business activities to constitute the unlicensed
practice of medicine.
Furthermore, in the event the Company develops features which facilitate
the input of data from medical devices directly into HealthDesk OnLine, it is
possible that the Federal Food and Drug Administration could require the
Company and/or an equipment manufacturer to obtain pre-marketing clearance
with respect to any such product. The process of obtaining and maintaining
required regulatory approval can be lengthy, expensive and uncertain. Even if
regulatory approvals are obtained, a marketed product and its manufacturer
are subject to continuing regulatory review, and discovery of previously
unknown problems could result in restrictions on such product or
manufacturer, including withdrawal of the product from the market. Amendments
to or interpretation and enforcement of existing statutes or regulations, the
adoption of new statutes or regulations or the development of new
enhancements and features to HealthDesk OnLine could subject the Company to
increased regulation and require the Company to alter methods of operation at
costs which could be substantial. Failure to comply with applicable laws and
regulations could subject the Company to civil remedies, including
substantial fines, penalties and injunctions, as well as possible criminal
sanctions.
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Although there are currently few laws or regulations directly applicable
to access to or commerce on the Internet, due to the increasing popularity
and use of the Internet, it is possible that laws and regulations may be
adopted with respect to the Internet, covering issues such as user privacy,
pricing and characteristics and quality of products and services. The
Telecommunications Reform Act of 1996, which was recently enacted, imposes
criminal penalties on anyone who distributes obscene, lascivious or indecent
communications on the Internet. Although the enforcement of such statute has
been enjoined and is currently subject to challenge in the courts, the
adoption of any such laws or regulations may limit the growth of the
Internet, which could in turn decrease the demand for the Company's products
and services and increase the Company's cost of doing business. Inasmuch as
the applicability to the Internet of the existing laws governing issues such
as property ownership, libel and personal privacy is uncertain, any such new
legislation or regulation or the application of existing laws and regulations
to the Internet could have an adverse effect on the Company's proposed
business and prospects.
PROPRIETARY INFORMATION AND TRADEMARKS
The Company does not hold any patents or registered copyrights. The
Company regards certain computer software it has developed for HealthDesk
OnLine as proprietary and attempts to protect it with copyrights, trade
secret laws, proprietary rights agreements and internal nondisclosure
agreements and safeguards. However, such methods may not afford complete
protection and there can be no assurance that others will not independently
develop know-how or obtain access to the Company's know-how or software
codes, concepts, ideas and documentation. Furthermore, there can be no
assurance that nondisclosure agreements with the Company's employees will
adequately protect the Company's trade secrets. Although the Company believes
that its proposed products do not and will not infringe patents or violate
proprietary rights of others, it is possible that infringement of existing or
future patents or proprietary rights of others have occurred or may occur. In
the event the Company's proposed products infringe patents or proprietary
rights of others, the Company may be required to modify the design of its
proposed products or obtain a license. There can be no assurance that the
Company will be able to do so in a timely manner, upon acceptable terms and
conditions or at all. The failure to do any of the foregoing could have a
material adverse effect upon the Company. In addition, there can be no
assurance that the Company will have the financial or other resources
necessary to enforce or defend a patent infringement action and the Company
could, under certain circumstances, become liable for damages, which also
could have a material adverse effect on the Company.
The Company currently holds a United States trademark registration for the
"HealthDesk" name and related logo. The Company is not aware of any claims or
infringement or other challenges to the Company's rights to use this mark.
EMPLOYEES
As of November 30, 1996, the Company had 24 full time employees, of which
four were executive officers, eleven were engaged in product development,
three were engaged in marketing and six were engaged in administrative
activities. The Company's employees are not represented by a collective
bargaining unit. The Company believes that its relations with its employees
are good.
FACILITIES
The Company's facilities are located in 5,701 square feet of leased office
space in Berkeley, California. The lease expires in January 1999 and provides
for an annual rental of $108,564.
The Company's operations will be dependent on the Company's ability to
protect its computer equipment against damage from fire, earthquakes, power
loss, telecommunications failures and similar events. The Company does not
presently have redundant, multiple site capacity in the event of any such
occurrence. Notwithstanding the implementation of system security measures by
the Company, its servers will also be vulnerable to computer viruses,
break-ins and similar disruptions from unauthorized tampering with the
Company's computer systems. Computer viruses or problems caused by third
parties could lead to material interruptions, delays or cessation in service
to consumers.
LEGAL PROCEEDINGS
The Company is subject to two complaints filed by former employees with
the California Department of Fair Employment & Housing. One claim alleges
wrongful termination as a result of alleged denial of reasonable
30
<PAGE>
accommodation for a wrist and neck injury. The second complaint alleges that
the former employee was subject to sexual harassment by a former officer of
the Company. The Company intends to defend these matters vigorously. There
can be no assurance, however, that such matters will be resolved in a manner
favorable to the Company.
31
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- ----- ---------
<S> <C> <C>
Peter O'Donnell ....... 47 President, Chief Executive Officer and Chairman of the Board
Dr. Molly J. Coye ..... 49 Executive Vice President for Strategic Development
Gerald W. Zieg ........ 46 Senior Vice President of Sales
Timothy S. Yamauchi ... 35 Chief Financial Officer, Secretary and Treasurer
John Pappajohn ........ 68 Director
James A. Gordon ....... 46 Director
Dr. Joseph Rudick, Jr. 39 Director
David Sengpiel ........ 44 Director
Dr. Edward C. Geehr ... 47 Director
</TABLE>
Peter O'Donnell has been President, Chief Executive Officer and Chairman
of the Board of the Company since September 1995. From May 1995 to August
1995 Mr. O'Donnell was a consultant to the Company. From February 1993 to
April 1995, Mr. O'Donnell was Executive Vice President of Sales and Marketing
at The Partnership Group, a company which provides consulting services to
employees regarding child and elder care matters. From October 1991 to
February 1993, Mr. O'Donnell was Executive Vice President of Sales and
Marketing for Wellmark Inc., a healthcare company offering electronic data
interchange services that allow hospitals and other healthcare providers to
transmit files electronically to payers. Mr. O'Donnell received an M.A.
degree in government in 1972 from Rutgers University and a B.A. degree in
psychology in 1971 from Pennsylvania State University.
Dr. Molly J. Coye has been Executive Vice President for Strategic
Development of the Company since June 1996. Dr. Coye served as Senior Vice
President of the Good Samaritan Health System, a non-profit, integrated
health care system from September 1993 to January 1996. From June 1991 to
September 1993, Dr. Coye served as Director of the California Department of
Health Services. From 1986 to 1990 Dr. Coye was the Commissioner of Health
for the State of New Jersey. Dr. Coye received a B.S. degree in political
science from the University of California at Berkeley in 1968, an M.A. degree
in Asian history from Stanford University in 1972, and an M.D. and an M.P.H.
from Johns Hopkins University in 1977. Dr. Coye completed an internship in
Family Medicine at San Francisco General Hospital and a residency in
Preventative Medicine at the Robert Wood Johnson Foundation Clinical Scholars
Program at the University of California at San Francisco.
Gerald W. Zieg has been Senior Vice President of Sales of the Company
since December 1996. Mr. Zieg was Senior Vice President of Business
Development of Ambulatory Pharmaceutical Services of America, Inc., a home
health care company, from April 1996 to November 1996. From 1991 until April
1996, Mr. Zieg was Director of Marketing, Infusion/Chronic Homecare Program
for Apria Healthcare Incorporated, a medical services company. Mr. Zieg
received a B.S. in Pharmacy from the University of Michigan in 1973 and a
M.S. in Pharmacy from Wayne State University in 1979.
Timothy S. Yamauchi has been Chief Financial Officer, Secretary and
Treasurer of the Company since September 1995. From May 1994 to June 1995,
Mr. Yamauchi served as Chief Financial Officer of Innofusion Corporation, a
private home healthcare company. From May 1991 to May 1994, Mr. Yamauchi was
employed by Total Pharmaceutical Care Inc., a public healthcare service
company, as Treasurer and Director of Planning and Analysis. Mr. Yamauchi
received a B.S. degree in accounting from California State University, Los
Angeles in 1983, an M.B.A. from Harvard Graduate School of Business
Administration in 1991 and is a Certified Public Accountant.
John Pappajohn has been a director of the Company since 1993. Mr.
Pappajohn also serves as a director of the following companies: CareGroup,
Inc.; Core, Inc.; Drug Screening Systems, Inc.; Fuisz Technologies Ltd.;
GalaGen, Inc.; OncorMed Inc.; PACE Health Management Systems, Inc.; and,
Patient Infosystems, Inc. Mr. Pappajohn has been the sole owner of Pappajohn
Capital Resources, a venture capital firm, and has served as President of
Equity Dynamics, Inc., a financial consulting firm, since 1969. Mr. Pappajohn
received a B.S.C. degree from the University of Iowa in 1952.
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<PAGE>
James A. Gordon has been director of the Company since September 1996. Mr.
Gordon is the President of the General Partner of Edgewater II Management,
L.P., a venture capital management firm. Mr. Gordon is also the General
Partner of Edgewater Private Equity Fund II, L.P., a venture capital firm.
Mr. Gordon also serves as a director of the following companies: IMNET
Systems, Inc.; Advanced Photonix, Inc.; SoftNet Systems, Inc.; Pac Vision;
Pride Industries; Microware Systems; Pangea, Inc.; Bankers Trust Co. of Iowa;
and Cellular World Corp. Mr. Gordon has been President of Gordon Management,
an investment management company, since February 1992. Mr. Gordon received a
B.A. degree summa cum laude from Northwestern University.
Dr. Joseph Rudick, Jr., a founder of the Company, has been a director of
the Company since August 1992. Dr. Rudick has been employed as a physician
with Associate Ophthalmologists, P.C. since 1988. Dr. Rudick has also served
as Vice President of Castle Group/Paramount Capital, a venture capital firm,
since 1993. Dr. Rudick currently serves as a director of Headland
Technologies, Optex Ophthalmics and Channel Pharmaceuticals. Dr. Rudick
received a B.A. from Williams College in 1978 and an M.D. from University of
Pennsylvania in 1983.
David Sengpiel has been a director of the Company since September 1995.
Mr. Sengpiel also serves as a director of both Image Guided Technologies and
CVE, Inc, and as a Vice President of Equity Dynamics, a venture capital firm
since March 1995. From January 1993 to March 1995, Mr. Sengpiel was employed
as an Alternative Investment Manager with Farm Bureau Insurance, a life
insurance company. From August 1990 to January 1993, Mr. Sengpiel served as
President of Vantage Cable International, a telecommunications company.
Edward C. Geehr, M.D. has been a director of the Company since November
1996. Dr. Geehr has been Senior Vice President, Strategic Development for
UniHealth, a hospital, insurance and medical services company since January
1996. From February 1995 to November 1996, Dr. Geehr was President of the
Health Care Delivery System Division of UniHealth and from 1990 to January
1995, Senior Vice President and Chief Medical Officer. Dr. Geehr received a
B.A. degree from Yale University in 1971, a B.M.S. degree from Dartmouth
Medical School in 1974 and a M.D. degree from Duke University School of
Medicine in 1976.
Each officer serves at the discretion of the Board of Directors. There are
no family relationships among any of the directors or officers of the
Company.
The Company has established a Compensation Committee of the Board of
Directors which is currently comprised of Messrs. Pappajohn, Sengpiel and
Geehr. The Compensation Committee makes recommendations to the Board
concerning salaries and incentive compensation for the Company's executive
officers and key personnel and administers the Company's Stock Option Plan.
The Company has also established an Audit Committee of the Board of Directors
which is currently comprised of Messrs. Pappajohn and Gordon.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation paid by the Company
during the fiscal year ended December 31, 1995 to its President and Chief
Executive Officer. No other officer of the Company received compensation in
excess of $100,000 for the fiscal year ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
---------------------------------------- ----------------------------
Other Annual Options All Other
Name and Principal Position Year Salary Bonus Compensation(1) Granted(#) Compensation
--------------------------- ------ --------- --------- --------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Peter O'Donnell
President & Chief Executive
Officer .................. 1995 $53,033 $13,333 $79,699 180,000 --
</TABLE>
- ------
(1) Represents consulting fees of $63,699 from May to September 1995 and
relocation costs.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of Peter
O'Donnell, Molly J. Coye and Timothy S. Yamauchi which expire in December
1997 and are automatically renewable for additional one-year terms. The
agreements provide for base compensation payable to Mr. O'Donnell, Dr. Coye
and Mr. Yamauchi
33
<PAGE>
of $163,200, $140,000 and $110,000, respectively, and bonuses to be
determined based on annual pre-tax earnings, if any, of the Company. Dr.
Coye, who will be entitled to receive base compensation commencing in 1997,
is entitled to receive a bonus of $80,000 in February 1997. The agreements
also provide for employment on a full-time basis and contain a provision that
the employee will not compete or engage in a business competitive with the
Company for a period of one year after termination. In the event of
termination of the employee's employment by the Company other than for cause
(including non-renewal of the agreement) or by reason of death or disability,
the Company is obligated to make payments equal to one-half of the then
applicable annual base salary plus a pro rata portion of the bonus payable
for such year.
The Company has also entered into a letter agreement with Gerald Zieg
pursuant to which Mr. Zieg is entitled to receive an annual salary of $90,000
plus commissions equal to 1% of net revenues, subject to certain exclusions.
In the event that Mr. Zieg's employment is terminated by the Company during
the first twelve months of employment, he will be entitled to severance pay
equal to three months salary.
1994 STOCK OPTION PLAN
The Company's 1994 Founder's Stock Option Plan (the "Option Plan") became
effective in June 1994 and was amended most recently in March 1996. The
purpose of the Option Plan is to attract and retain qualified personnel, to
provide additional incentives to employees, officers and consultants of the
Company and to promote the success of the Company's business. A reserve of
950,000 shares of the Company's Common Stock has been established for
issuance under the Option Plan. The Option Plan is administered by the
Compensation Committee of the Board of Directors (the "Committee"). Subject
to the Option Plan, the Committee has complete discretion to determine which
eligible individuals are to receive option grants, the number of shares
subject to each such grant, the status of any granted option as either an
incentive stock option or a non-statutory option, the vesting schedule to be
in effect for the option grant and the maximum term for which any granted
option is to remain outstanding.
Each option granted under the Option Plan has a maximum term of ten years,
subject to earlier termination following the optionee's cessation of service
with the Company. Options are generally immediately exercisable subject to a
right of repurchase in favor of the Company at the original exercise price
which expires over a four-year vesting period. The exercise price of
incentive stock options and non-statutory stock options granted under the
Option Plan must be at least 100% and 85% of the fair market value of the
stock subject to the option on the date of grant, respectively or 110% with
respect to holders of more than 10% of the voting power of the Company's
outstanding stock. The Committee determines the fair market value of the
stock. The purchase price is payable immediately upon the exercise of the
option. Such payment may be made in cash, or at the discretion of the
Committee, in outstanding shares of Common Stock held by the participant,
through a full recourse promissory note payable in installments over a period
of years or any combination of the foregoing.
The Board of Directors may amend or modify the Option Plan at any time,
provided that no such amendment or modification may adversely affect the
rights and obligations of the participants with respect to their outstanding
options or unvested shares without their consent. In addition, no amendment
of the Option Plan may, without the approval of the Company's shareholders,
(i) materially modify the class of individuals eligible for participation,
(ii) increase the number of shares available for issuance, except in the
event of certain changes to the Company's capital structure, (iii) materially
increase the benefits accruing to Optionees under the Option Plan, or (iv)
extend the term of the Option Plan. The Option Plan will terminate in June
2004, unless terminated earlier by the Board.
As of the date of this Prospectus, there are options to purchase an
aggregate of 768,050 shares outstanding under the Plan with an average
exercise price of $2.95. Peter O'Donnell holds 180,000 outstanding options,
135,324 of which were granted at an exercise price of $1.04 per share and
44,676 of which were granted at an exercise price of $2.08 per share. Joseph
Rudick holds 24,000 options, 12,000 of which were granted at an exercise
price of $1.04 per share, and 12,000 of which were granted at an exercise
price of $1.67 per share. Molly Coye holds 132,000 outstanding options,
96,000 of which were granted at an exercise price of $3.33 per share and
36,000 of which were granted at $5.00 per share. Timothy Yamauchi holds
60,000 outstanding options, 45,210 of which were granted at an exercise price
of $1.04 per share, and 14,790 of which were granted at an exercise price of
$2.08 per share. Gerald Zieg holds 50,000 outstanding options which were
granted at an exercise price of $5.00 per share.
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<PAGE>
All options are immediately exercisable subject to repurchase rights in
favor of the Company based upon the following vesting schedule: the optionee
shall acquire a vested interest in, and the Company's repurchase rights will
accordingly lapse with respect to, (i) twenty-five percent (25%) of the
option shares upon completion of one year of service (as a director or
employee, as the case may be) measured from the respective vesting
commencement date, and (ii) the balance of the option shares in equal
successive monthly installments upon completion of each of the next
thirty-six (36) months of service measured from and after the first
anniversary of such vesting commencement date.
OTHER BENEFIT PLANS
The Company maintains a 401(k) savings plan and a Section 125 medical and
dental savings plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Articles of Incorporation (the "Articles") limit the
liability of directors to the maximum extent permitted by California law. The
Articles authorize the Company to indemnify agents of the Company in excess
of the indemnification otherwise permitted by Section 317 of the California
General Corporation Law, subject only to applicable limits set forth in
Section 204 of the California General Corporation Law with respect to actions
for breach of duty to the corporation and its shareholders.
The Company's Bylaws provide that the Company shall indemnify its
directors, officers, employees and other agents to the fullest extent
permitted by law. The Company believes that indemnification under its Bylaws
covers at least negligence and gross negligence on the part of indemnified
parties. The Company's Bylaws also permit it to secure insurance on behalf of
any officer, director, employee or other agent for any liability arising out
of his or her actions in such capacity, regardless of whether the Bylaws
would permit indemnification.
The Company has entered into agreements to indemnify its directors and
executive officers. These agreements, among other things, indemnify the
Company's directors and executive officers for certain expenses (including
attorneys' fees), judgments, fines and settlement amounts incurred by any
such person in any action or proceeding, including any action by or in the
right of the Company, arising out of such person's services as a director or
executive officer of the Company or any other company or enterprise to which
the person provides services at the request of the Company. The Company
believes that these provisions and agreements are necessary to attract and
retain qualified persons as directors and executive officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification
will be required or permitted. The Company is not aware of any threatened
litigation or proceeding that might result in a claim for such
indemnification.
35
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of November 30, 1996,
and as adjusted to reflect the sale of the 1,800,000 shares of Common Stock
offered hereby, by: (i) each person or group of affiliated persons who is
known by the Company to own beneficially 5% or more of the Company's Common
Stock, (ii) each of the Company's directors, (iii) the Chief Executive
Officer, and (iv) all directors and executive officers as a group. Except as
otherwise noted, the persons or entities in this table have sole voting and
investment power with respect to all the shares of Common Stock beneficially
owned by them.
<TABLE>
<CAPTION>
Percentage of Total
------------------------
Name and Address of Amount and Nature of Before After
Beneficial Owner (1) Beneficial Ownership (2) Offering Offering
- -------------------- ------------------------ -------- ----------
<S> <C> <C> <C>
Peter S. O'Donnell (3) ................... 180,000 4.7% 3.3%
John Pappajohn(4) ........................ 1,055,000 28.5 19.2
Edgewater Private Equity Fund II, L.P.
666 Grand Avenue, Suite 200
Des Moines, Iowa 50309 ................... 901,000 24.4 16.4
James Gordon (5) ......................... 901,000 24.4 16.4
Dr. Joseph Rudick
150 Broadway
New York, New York 10038(6) .............. 219,000 5.9 4.0
David Sengpiel(7) ........................ 15,000 .4 .3
Dr. Edward C. Geehr(8) ................... 20,000 .5 .4
All officers and directors as a group
(nine persons) (9) ..................... 2,632,000 62.9% 44.0%
</TABLE>
- ------
(1) Except as otherwise indicated, the address for each beneficial owner
identified is c/o HealthDesk Corporation, 2560 Ninth Street, Suite 220,
Berkeley, California 94710.
(2) Unless otherwise indicated, the Company believes that all persons and
entities named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them. A
person is deemed to be the beneficial owner of shares of Common Stock
that can be acquired by such person within 60 days from the date of this
Prospectus upon the exercise of options or convertible securities. Each
beneficial owner's percentage ownership is determined by assuming that
convertible securities and options that are held by such person (but not
those held by any other person) and which are exercisable within such
period have been exercised.
(3) Represents immediately exercisable options to purchase 180,000 shares.
(4) Includes immediately exercisable options to purchase 10,000 shares.
Excludes 10,000 shares owned by Ann Pappajohn, Mr. Pappajohn's daughter.
Mr. Pappajohn disclaims beneficial ownership of such shares.
(5) Includes 901,000 shares of Common Stock held by Edgewater Private Equity
Fund II, L.P. Mr. Gordon may be deemed to be the beneficial owner of such
shares. Excludes 30,000 shares of Common Stock held by Laura Gordon 1985
Trust over which Mr. Gordon has voting power but no pecuniary interest.
Mr. Gordon disclaims beneficial ownership of such 30,000 shares.
(6) Includes immediately exercisable options to purchase 24,000 shares.
(7) Includes immediately exercisable options to purchase 15,000 shares.
(8) Includes immediately exercisable options to purchase 20,000 shares.
(9) Includes immediately exercisable options to purchase 491,000 shares.
CERTAIN TRANSACTIONS
In May 1993, the Company issued 120,000 shares of Common Stock to John
Pappajohn, a director and principal shareholder of the Company, for an
aggregate consideration of $125,000. In May 1994, the Company issued 30,000
shares of Common Stock to Mr. Pappajohn for an aggregate consideration of
$31,250 (or $1.04 per share). The Company has granted registration rights to
Mr. Pappajohn with respect to all of such shares.
In August 1995, Mr. Pappajohn and Edgewater Private Equity Fund II, L.P.
("Edgewater") purchased an aggregate of 636,000 shares of Common Stock from
David Hehman, the former Chief Executive Officer of the
36
<PAGE>
Company, and certain of his family members, for an aggregate consideration of
$662,500. James Gordon, a director of the Company, is president of the
General Partner of Edgewater. In connection with such transaction, Mr. Hehman
and such family members entered into a severance agreement with the Company
which provided for their respective resignations as officers, directors and
employees of the Company, their agreement not to compete for one year with
the Company and the termination of options to purchase an aggregate of
198,000 shares of Common Stock. Pursuant to such severance agreement, the
Company paid such individuals an aggregate of $50,000. In addition, in
consideration of $5,000, Spartina Corporation, a company controlled by Mr.
Hehman, assigned to the Company all of its right, title and interest in and
to certain software development tools previously licensed by the Company from
Spartina Corporation pursuant to a non-exclusive license agreement entered
into in April 1993. In connection with such transaction, Mr. Pappajohn and
Edgewater were granted registration rights with respect to all of such
shares.
In August 1995, the Company granted to Mr. Pappajohn options to purchase
96,000 shares of Common Stock at an exercise price of $1.04 per share. Such
options were exercised in December 1995. In September 1996, the Company
granted Mr. Pappajohn and Mr. Sengpiel, a director of the Company, options to
purchase 10,000 and 15,000 shares of Common Stock, respectively, at an
exercise price of $5.00 per share.
During the period from June through September 1995, the Company borrowed
an aggregate of $800,000 from Mr. Pappajohn and Edgewater, evidenced by
convertible promissory notes bearing interest at the rate of 6% per annum.
The principal of the notes were converted into an aggregate of 768,000 shares
of Common Stock in September 1995.
In December 1995, Mr. Pappajohn and Edgewater, purchased 69,000 and
129,000 shares of the Company's Series A Preferred Stock for an aggregate
purchase price of approximately $144,000 and $268,000, respectively.
In May 1996, the Company and PII entered into cross-license agreements in
connection with possible product development and marketing arrangements.
Pursuant to such agreements, each party paid the other an initial license fee
of $25,000. Similar fees are payable upon any renewal of such agreements. Mr.
Pappajohn is a principal shareholder and a director of PII. Edgewater is also
a principal shareholder of PII.
In July and August 1996, the Company borrowed an aggregate of $500,000
from Mr. Pappajohn and Edgewater. Such indebtedness bears interest at the
rate of 8% per annum. The principal of such notes will automatically convert
into approximately 100,000 shares of Common Stock on the date of this
Prospectus.
Mr. Pappajohn and Edgewater each purchased $100,000 of Units consisting of
20,000 shares of Common Stock at an attributed price of $2.25 per share and a
9% non-negotiable promissory note in the principal amount of $100,000 in
connection with the Bridge Financing.
The Company believes that all of the foregoing transactions and
arrangements were fair and reasonable to the Company and were on terms no
less favorable than could have been obtained from unaffiliated third parties.
There can be no assurance, however, that future transactions or arrangements
between the Company and its affiliates will continue to be advantageous to
the Company, that conflicts of interest will not arise with respect thereto,
or that if conflicts do arise, they will be resolved in a manner favorable to
the Company. Any such future transactions will be on terms no less favorable
to the Company than could be obtained from unaffiliated parties and will be
approved by a majority of the independent and disinterested members of the
Board of Directors, outside the presence of any interested directors and, to
the extent deemed appropriate by the Board of Directors, the Company will
obtain shareholder approval or fairness opinions in connection with any such
transaction.
37
<PAGE>
DESCRIPTION OF SECURITIES
Upon completion of this offering, the authorized capital stock of the
Company will consist of 17,000,000 shares of Common Stock, 5,489,720 of which
will be outstanding, and 3,000,000 shares of Preferred Stock, none of which
will be outstanding. The following description of the capital stock of the
Company and certain provisions of the Company's Restated Articles of
Incorporation and Bylaws is a summary and is qualified in its entirety by the
provisions of the Restated Articles of Incorporation and Bylaws, copies of
which have been filed as exhibits to the Registration Statement of which this
Prospectus is a part.
Common Stock
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of the shareholders, including the election of
directors, and, subject to preferences that may be applicable to any
Preferred Stock outstanding at the time, are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." In
the event of liquidation or dissolution of the Company, the holders of Common
Stock are entitled to receive all assets available for distribution to the
shareholders, subject to any preferential rights of any preferred stock then
outstanding. The holders of Common Stock have no preemptive or other
subscription rights, and there are no conversion rights or redemption or
sinking fund provisions with respect to the Common Stock. All outstanding
shares of Common Stock are, and the shares offered hereby upon issuance and
sale will be, fully paid and nonassessable. The rights, preferences and
privileges of the holders of Common Stock are subject to, and may be
adversely affected by, the rights of the holders of any shares of preferred
stock which the Company may designate and issue in the future.
The Company's shareholders currently may cumulate their votes for the
election of directors so long as at least one shareholder has given notice at
the meeting of shareholders prior to the voting of that shareholder's desire
to cumulate his or her votes. Cumulative voting may be eliminated by
amendment to the Articles or the Company's Bylaws if (i) the Company's shares
of Common Stock are listed on the Nasdaq National Market and the Company has
at least 800 holders of its equity securities as of the record date of the
Company's most recent annual meeting of shareholders or (ii) the Company's
shares of Common Stock are listed on the New York Stock Exchange or the
American Stock Exchange.
Preferred Stock
The Company is authorized to issue 3,000,000 shares of preferred stock. Of
such shares, 1,200,000 represent Series A Preferred Stock of which the
1,059,600 outstanding shares will automatically convert upon the consummation
of this offering. The remaining 1,800,000 shares may be issued from time to
time in one or more series upon authorization by the Company's Board of
Directors. The Board of Directors, without further approval of the
shareholders, is authorized to fix the dividend rights and terms, conversion
rights, voting rights, redemption rights and terms, liquidation preferences,
and any other rights, preferences, privileges and restrictions applicable to
each series of preferred stock. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes could, among other things, adversely affect the voting
power of the holders of Common Stock and, under certain circumstances, make
it more difficult for a third party to gain control of the Company,
discourage bids for the Company's Common Stock at a premium or otherwise
adversely affect the market price of the Common Stock. The Company has no
current plans to issue any preferred stock.
REDEEMABLE WARRANTS
Each Warrant entitles the registered holder thereof to purchase one share
of Common Stock, at a price of $5.00, subject to adjustment in certain
circumstances, at any time after , 1998 until , 2002.
The Warrants are redeemable by the Company, upon the consent of the
Underwriter, at any time after , 1998, upon notice of not less than 30
days, at a price of $.10 per Warrant, provided that the clos-
38
<PAGE>
ing bid price of the Common Stock on all 30 of the trading days ending on the
third day prior to the day on which the Company gives notice has been at
least 150% (currently $7.50, subject to adjustment) of the then effective
exercise price of the Warrants. All warrantholders have exercise rights until
the close of business on the date fixed for redemption.
The Warrants will be issued in registered form under a Warrant Agreement
between the Company and American Stock Transfer & Trust Company as Warrant
Agent. Reference is made to said Warrant Agreement for a complete description
of the terms and conditions therein (the description herein contained being
qualified in its entirety by reference thereto).
The exercise price and number of shares of Common Stock or other
securities issuable on exercise of the Warrants are subject to adjustments in
certain circumstances, including in the event of a stock dividend,
recapitalization, reorganization, merger or consolidation of the Company.
However, such Warrants are not subject to adjustment for issuances of Common
Stock at a price below the exercise price of the Warrants, including the
issuance of shares of Common Stock pursuant to the Option Plan.
The Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the expiration date at the offices of the Warrant Agent, with the
exercise form on the reverse side of the certificate completed and executed
as indicated, accompanied by full payment of the exercise price (by certified
check payable to the Company) to the Warrant Agent for the number of Warrants
being exercised. The warrantholders do not have the rights or privileges of
holders of Common Stock.
No Warrant will be exercisable unless at the time of exercise the Company
has filed a current registration statement with the Commission covering the
shares of Common Stock issuable upon exercise of such Warrant and such shares
have been registered or qualified or deemed to be exempt under the securities
laws of the state of residence of the holder of such Warrant. The Company
will use its best efforts to have all such shares so registered or qualified
on or before the exercise date and to maintain a current prospectus relating
thereto until the expiration of the Warrants, subject to the terms of the
Warrant Agreement. While it is the Company's intention to do so, there is no
assurance that it will be able to do so.
No fractional shares will be issued upon exercise of the Warrants.
However, if a warrantholder exercises all Warrants then owned of record by
him, the Company will pay such warrantholder, in lieu of the issuance of any
fractional shares which is otherwise issuable, an amount in cash based on the
market value of the Common Stock on the last trading day prior to the
exercise date.
Registration Rights
In connection with this offering, in addition to the registration
obligations with respect to the shares of Common Stock issuable upon exercise
of the Warrants, the Company has agreed to grant to the Underwriter certain
demand and piggyback registration rights in connection with the 360,000
shares of Common Stock issuable upon exercise of the Underwriter's Warrants
and the warrants included therein. See "Underwriting."
Pursuant to the terms of the Bridge Financing, the Company has included
the shares issued in the Bridge Financing in the Registration Statement of
which this Prospectus forms a part. The Company has agreed to use its best
efforts to keep the Registration Statement effective until the earlier of (i)
the date that all of the shares included in the Registration Statement have
been sold pursuant thereto and (ii) the date the Selling Shareholders receive
an opinion of counsel that the full amount of their shares may be freely sold
by such holders. All registration expenses related to such shares will be
paid by the Company. If the Company defaults in its obligations to maintain
the Registration Statement effective or otherwise fails to comply with
certain other registration rights obligations of the Bridge Financing, the
Company may be obligated to issue up to an additional 100,000 shares of
Common Stock to the investors which participated in the Bridge Financing.
The shares offered by the Selling Shareholders may not be sold prior to
twelve months from the date of this Prospectus and, without the prior written
consent of the Underwriter, may not be sold prior to eighteen months after
the date of this Prospectus.
In addition to the rights described above, the holders ("Holders") of an
aggregate of approximately 1,341,600 shares of Common Stock are entitled to
certain rights with respect to the registration of such shares for offer and
sale to the public under the Securities Act. Under these provisions, the
Holders may request that
39
<PAGE>
the Company file up to one registration statement under the Securities Act
with respect to at least 50% of such Common Stock. Upon receipt of such a
request, the Company is required to notify all other Holders and to effect as
soon as practicable such registration, subject to certain conditions,
including that the request must be received one year or more after the
effective date of this offering, and no later than December 31, 2000.
Further, whenever the Company proposes to register any of its securities
under the Securities Act for its own account or for the account of other
security holders, the Company is required to promptly notify each Holder of
the proposed registration and include all Common Stock which such Holder may
request to be included in such registration, subject to certain limitations.
The Company has obtained a waiver of these rights to the extent they would
have applied to this offering.
Transfer and Warrant Agent
The transfer and warrant agent for the Common Stock and Warrants is
American Stock Transfer and Trust Company, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this offering, the Company will have 5,489,720 shares
of Common Stock outstanding (assuming no exercise of the Warrants), of which
2,200,000 shares, consisting of 1,800,000 shares offered hereby and, subject
to certain contractual restrictions described below, the 400,000 shares being
offered by the Selling Shareholders, will be freely tradable without
restriction or further registration under the Securities Act. All of the
remaining 3,289,720 shares of Common Stock outstanding are "restricted
securities," as that term is defined in Rule 144 promulgated under the
Securities Act, and in the future may be sold only pursuant to an effective
registration statement under the Securities Act, in compliance with the
exemption provisions of Rule 144 or pursuant to another exemption under the
Securities Act. Of the 3,289,720 restricted shares, an aggregate of 237,000
shares will be eligible for sale, without registration, under Rule 144
(subject to the contractual restrictions described below), on the date of
this Prospectus, and 417,000 shares will be eligible (subject to certain
volume limitations and the contractual restrictions described below)
commencing 90 days from the date of this Prospectus.
In general, under Rule 144 as currently in effect, if two years have
elapsed since the later of the date of the acquisition of restricted shares
of Common Stock from either the Company or any affiliate of the Company, the
acquirer or subsequent holder thereof may sell, within any three-month period
commencing 90 days after the date of this Prospectus, a number of shares that
does not exceed the greater of 1% of the then outstanding shares of Common
Stock, or the average weekly trading volume of the Common Stock on the Nasdaq
SmallCap Market during the four calendar weeks preceding the date on which
notice of the proposed sale is sent to the Commission. Sales under Rule 144
are also subject to certain manner of sale provisions, notice requirements
and the availability of current public information about the Company. If
three years have elapsed since the later of the date of the acquisition of
restricted shares of Common Stock from the Company or any affiliate of the
Company, a person who is not deemed to have been an affiliate of the Company
at any time for 90 days preceding a sale would be entitled to sell such
shares under Rule 144 without regard to the volume limitations, manner of
sale provisions or notice requirements.
The Company's officers, directors and security holders (excluding the
holders of 42,000 shares of Common Stock) have agreed not to sell or dispose
of any of their securities of the Company for a period of eighteen months
from the date of this Prospectus without the Underwriter's prior written
consent.
Prior to this offering, there has been no market for the Common Stock and
no prediction can be made as to the effect, if any, that public sales of
shares of Common Stock or the availability of such shares for sale will have
on the market prices of the Common Stock and Warrants prevailing from time to
time. However, the possibility that a substantial amount of Common Stock may
be sold in the public market may adversely affect prevailing market prices
for the Common Stock and could impair the Company's ability to raise capital
through the sale of its equity securities.
UNDERWRITING
Whale Securities Co., L.P. (the "Underwriter") has agreed, subject to the
terms and conditions contained in the Underwriting Agreement, to purchase
1,800,000 shares of Common Stock and 1,800,000 Warrants from the
40
<PAGE>
Company. The Underwriter is committed to purchase and pay for all of the
Common Stock and Warrants offered hereby if any of such securities are
purchased. The Common Stock and Warrants are being offered by the
Underwriter, subject to prior sale, when, as and if delivered to and accepted
by the Underwriter and subject to approval of certain legal matters by
counsel and to certain other conditions.
The Underwriter has advised the Company that it proposes to offer the
Common Stock and Warrants to the public at the public offering prices set
forth on the cover page of this Prospectus. The Underwriter may allow to
certain dealers who are members of the National Association of Securities
Dealer, Inc. (the "NASD") concessions, not in excess of $ per share of
Common Stock and $ per Warrant, of which not in excess of $ per share
of Common Stock and $ per Warrant may be reallowed to other dealers who
are members of the NASD.
The Company has granted to the Underwriter an option, exercisable for 45
days from the date of this Prospectus, to purchase up to 270,000 additional
shares of Common Stock and/or 270,000 additional Warrants at the public
offering prices set forth on the cover page of this Prospectus, less the
underwriting discounts and commissions. The Underwriter may exercise this
option in whole or, from time to time, in part, solely for the purpose of
covering over-allotments, if any, made in connection with the sale of the
shares of Common Stock and/or Warrants offered hereby.
The Company has agreed to pay to the Underwriter a non-accountable expense
allowance of 3% of the gross proceeds of this offering, of which $50,000 has
been paid as of the date of this Prospectus. The Company has also agreed to
pay all expenses in connection with qualifying the shares of Common Stock and
Warrants offered hereby for sale under the laws of such states as the
Underwriter may designate, including expenses of counsel retained for such
purpose by the Underwriter.
The Company has agreed to grant to the Underwriter and its designees
warrants (the "Underwriter's Warrants") to purchase up to 180,000 shares of
Common Stock at a purchase price of $6.60 per share and/or up to 180,000
Warrants (each to purchase one share of Common Stock at $8.25 per share) at
an exercise price of $.132 per Warrant. The Underwriter's Warrants may not be
sold, transferred, assigned or hypothecated for one year from the date of
this Prospectus, except to the officers and partners of the Underwriter and
members of the selling group, and are exercisable during the five-year period
commencing on the date of this Prospectus (the "Warrant Exercise Term").
During the Warrant Exercise Term, the holders of the Underwriter's Warrants
can be expected to exercise them at a time when the Company would, in all
likelihood, be able to obtain any needed capital on terms more favorable to
the Company than those provided in the Underwriter's Warrants. Any profit
realized by the Underwriter on the sale of the Underwriter's Warrants or the
underlying securities may be deemed additional underwriting compensation.
Subject to certain limitations and exclusions, the Company has agreed, at the
request of the holders of a majority of the Underwriter's Warrants, at the
Company's expense, to register the securities issuable upon exercise of the
Underwriter's Warrants under the Securities Act on one occasion during the
Warrant Exercise Term and to include such underlying securities in any
appropriate Registration Statement which is filed by the Company during the
seven years following the date of this Prospectus.
The Company has agreed, in connection with the exercise of the Warrants
pursuant to solicitation (commencing one year from the date of this
Prospectus), to pay to the Underwriter for bona fide services provided a fee
of 5% of the exercise price for each Warrant exercised; provided, however,
that the Underwriter will not be entitled to receive such compensation in
Warrant exercise transactions in which (i) the market price of shares at the
time of exercise is lower than the exercise price of the Warrants; (ii) the
Warrants are held in any discretionary account; (iii) disclosure of
compensation arrangements is not made, in addition to the disclosure provided
in this Prospectus, in documents provided to holders of the Warrants at the
time of exercise; (iv) the holder of the Warrants has not confirmed in
writing that the Underwriter solicited such exercise; or (v) the solicitation
of exercise of the Warrants was in violation of Rule 10b-6 promulgated under
the Exchange Act. In addition to soliciting, either orally or in writing, the
exercise of the Warrants, such bona fide services may also include
disseminating information, either orally or in writing, to the holders of the
Warrants about the Company or the market for the Company's securities, and
assisting in the processing of the exercise of Warrants.
The Underwriter acted as placement agent in connection with the Bridge
Financing and received $200,000 (representing 10% of the purchase price of
the units) and a non-accountable expense allowance of $35,000.
41
<PAGE>
All of the officers and directors and shareholders of the Company holding
an aggregate of 3,569,720 shares of the Common Stock (excluding the holders
of 42,000 shares of Common Stock) have agreed that they will not sell any
shares of Common Stock of the Company for a period of eighteen months after
the date of this Prospectus without prior written consent of the Underwriter.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act.
The Underwriter has informed the Company that it does not expect sales
made to discretionary accounts to exceed 1% of the securities offered hereby.
Prior to this offering, there has been no public trading market for the
Common Stock or the Warrants. Consequently, the initial public offering
prices of the Common Stock and the Warrants has been determined by
negotiations between the Company and the Underwriter. Among the factors
considered in determining the offering price were the Company's financial
condition and prospects, market prices of similar securities of comparable
publicly-traded companies, certain financial and operating information of
companies engaged in activities similar to those of the Company and the
general condition of the securities market.
42
<PAGE>
SELLING SHAREHOLDERS AND PLAN OF DISTRIBUTION
An aggregate of up to 400,000 shares may be offered and sold pursuant to
this Prospectus by the Selling Shareholders. The Company has agreed to
register the public offering of such shares under the Securities Act
concurrently with this offering and to pay all expenses in connection
therewith. The shares have been included in the Registration Statement of
which this Prospectus forms a part. None of the such shares may be sold by
the Selling Shareholders prior to twelve months after the date of this
Prospectus and, without the prior written consent of the Underwriter, may not
be sold prior to eighteen months from the date of this Prospectus. None of
the Selling Shareholders has ever held any position or office with the
Company or had any other material relationship with the Company except that
John Pappajohn is a director and principal shareholder of the Company and
Edgewater is a principal shareholder of the Company. James Gordon, a director
of the Company is president of the General Partner of Edgewater. The Company
will not receive any of the proceeds from the sale of the shares by the
Selling Shareholders. The following table sets forth certain information with
respect to the Selling Shareholders.
<TABLE>
<CAPTION>
Beneficial Percentage
Beneficial Amount of Ownership of of Beneficial
Ownership Common Common Stock Ownership of
of Common Stock Stock After Common Stock
Selling Shareholders Prior to Sale Offered Offering After Offering
--------------------------------------- --------------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Wilensky, Allan S. .................... 45,000 45,000 -- --
Worthington, John R. .................. 30,000 30,000 -- --
Pappajohn, John ....................... 1,055,000 20,000 1,035,000 18.8%
Edgewater Private Equity Fund II, L.P. 901,000 20,000 881,000 16.0%
Brown, Michael & Brown, Alana (JT) .... 20,000 20,000 -- --
Chafoulias, Gus ....................... 53,600 20,000 33,600 .6%
Chastek, Chester ...................... 20,000 20,000 -- --
Toboroff, Leonard ..................... 20,000 20,000 -- --
Shaykin, Leonard ...................... 15,000 15,000 -- --
Atlas Capital Partners, L.P. .......... 10,000 10,000 -- --
Catalyst Partners, L.P. ............... 10,000 10,000 -- --
David, Todd & Loewenberg, Tiffany (JT) 10,000 10,000 -- --
Egge, R.D. ............................ 10,000 10,000 -- --
FGR Akel .............................. 10,000 10,000 -- --
Gottlieb, Scott C. .................... 10,000 10,000 -- --
IASD Health Services Corp. ............ 106,000 10,000 96,000 1.7%
JIBS Equities, L.P. ................... 34,000 10,000 24,000 .4%
Marino, Robert R. ..................... 10,000 10,000 -- --
Natale, Steve ......................... 10,000 10,000 -- --
Pappajohn, Ann ........................ 10,000 10,000 -- --
Penn Footwear Retirement Invest. ...... 34,000 10,000 24,000 .4%
Goldberg, Jay N. ...................... 6,000 6,000 -- --
Howard, Lawrence ...................... 6,000 6,000 -- --
Kier, Isaac ........................... 6,000 6,000 -- --
Segal, Gordon ......................... 17,000 5,000 12,000 .2%
Cantor, Michael ....................... 5,000 5,000 -- --
Lyons, Allan R. ....................... 5,000 5,000 -- --
McGowan Corporation ................... 5,000 5,000 -- --
Merenstein, Lewis IRA ................. 5,000 5,000 -- --
Miot, Sanford B. ...................... 5,000 5,000 -- --
Newman, Gary .......................... 5,000 5,000 -- --
Nocciolino, Albert .................... 5,000 5,000 -- --
Nusbaum, Lawrence G. .................. 5,000 5,000 -- --
Odenthal, William ..................... 5,000 5,000 -- --
Christos, Peter N. .................... 2,000 2,000 -- --
</TABLE>
43
<PAGE>
The shares may be offered and sold from time to time as market conditions
permit in the over-the-counter market, or otherwise, at prices and terms then
prevailing or at prices related to the then-current market price, or in
negotiated transactions. The shares may be sold by one or more of the
following methods, without limitation: (a) a block trade in which a broker or
dealer so engaged will attempt to sell the shares as agent but may position
and resell a portion of the block as principal to facilitate the transaction;
(b) purchases by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus; (c) ordinary brokerage
transactions and transactions in which the broker solicits purchases; and (d)
face-to-face transactions between sellers and purchasers without a
broker/dealer. In effecting sales, brokers or dealers engaged by the Selling
Shareholders may arrange for other brokers or dealers to participate. Such
brokers or dealers may receive commissions or discounts from Selling
Shareholders in amounts to be negotiated. Such broker and dealers and any
other participating brokers or dealers may be deemed to be "underwriters"
within the meaning of the Securities Act, in connection with such sales.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Gray Cary Ware & Freidenrich, a Professional Corporation, Palo
Alto, California. Certain legal matters in connection with this offering will
be passed upon for the Underwriter by Tenzer Greenblatt LLP, New York, New
York.
EXPERTS
The balance sheets as of December 31, 1994 and 1995 and the statements of
operations, shareholders' equity and cash flows for the years ended December
31, 1994 and 1995 and for the period from August 28, 1992 (inception) to
December 31, 1995, included in this Prospectus, have been included herein in
reliance on the report, which includes an explanatory paragraph regarding the
ability of the Company to continue as a going concern, of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as
experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form SB-2, including
amendments thereto, under the Securities Act with respect to the securities
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules filed
therewith. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to such Registration Statement,
exhibits and schedules. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance, reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement
of which this Prospectus forms a part, each such statement being qualified in
all respects by such reference. The Registration Statement, and the exhibits
and schedules thereto, may be inspected without charge at the public
reference facilities maintained by the Securities and Exchange Commission in
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following regional offices of the Commission: 13th Floor, Seven World Trade
Center, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
can be obtained from the Public Reference Section of the Commission,
Washington, D.C. at prescribed rates. The Commission also maintains a Web
site at www.sec.gov. that contains reports, proxy and information statements.
Such reports and other information may also be inspected at NASDAQ, 1735 K
Street, N.W. Washington, D.C. 20006.
44
<PAGE>
HEALTHDESK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Accountant's Report ..................................... F-2
Balance Sheets as of December 31, 1994 and 1995 and September 30,
1996 ............................................................... F-3
Statements of Operations for the years ended December 31, 1994 and
1995, nine months ended September 30, 1995 and 1996 and period from
inception to September 30, 1996 .................................... F-4
Statements of Shareholders' Equity (Deficit) for the years ended
December 31, 1992, 1993, 1994 and 1995 and nine months ended
September 30, 1996 ................................................. F-5
Statements of Cash Flows for the years ended December 1994 and 1995,
nine months ended September 30, 1995 and 1996 and period from
inception to September 30, 1996 .................................... F-6
Notes to Financial Statements ....................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
HealthDesk Corporation:
We have audited the accompanying balance sheets of HealthDesk Corporation
(a development stage company) as of December 31, 1994 and 1995, and the
related statements of operations, shareholders' equity (deficit), and cash
flows for the years then ended, and for the period from August 28, 1992
(inception) to December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of HealthDesk Corporation as
of December 31, 1994 and 1995, and the results of its operations and its cash
flows for the years then ended, and for the period from August 28, 1992
(inception) to December 31, 1995 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company is still in the development stage and,
therefore, has incurred losses from operations and negative cash flows from
operating activities since inception. These conditions raise substantial
doubt about the ability of the Company to continue as a going concern.
Management's plans in regard to these matters are also discussed in Note 1.
The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
COOPERS & LYBRAND L.L.P.
San Francisco, California
July 30, 1996, except for Note 12 as to
which the date is December 2, 1996
F-2
<PAGE>
HEALTHDESK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30, 1996
---------------------------- September 30, Pro Forma
1994 1995 1996 (Note 13)
----------- ------------- --------------- ------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................. $ 376,334 $ 1,554,034 $ 6,778 $ 1,145,695
Receivable from shareholder ................ -- 100,000 -- --
Prepaid expenses and other ................. 928 19,709 137,444 137,444
Deferred offering costs .................... -- -- 159,895 313,895
----------- ------------- --------------- ------------------
Total current assets .................. 377,262 1,673,743 304,117 1,597,034
Property and equipment, net .................. 70,490 234,963 468,549 468,549
Other assets ................................. 3,987 94,650 17,934 17,934
----------- ------------- --------------- ------------------
Total assets .......................... $ 451,739 $ 2,003,356 $ 790,600 $ 2,083,517
=========== ============= =============== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ........................... $ 14,710 $ 104,759 $ 399,615 $ 399,615
Accrued liabilities ........................ 78,626 143,715 453,331 453,331
Due to related parties ..................... 22,939 -- -- --
Deferred compensation ...................... 21,165 -- -- --
Convertible notes payable and accrued
interest ................................ -- 554,833 1,088,042 6,959
Notes payable .............................. -- -- -- 1,100,000
----------- ------------- --------------- ------------------
Total current liabilities ............. 137,440 803,307 1,940,988 1,959,905
Convertible notes payable and accrued interest 519,834 -- -- --
----------- ------------- --------------- ------------------
Total liabilities ..................... 657,274 803,307 1,940,988 1,959,905
----------- ------------- --------------- ------------------
Commitments and contingencies (Note 7)
Shareholders' equity (deficit):
Convertible preferred stock, no par value;
authorized 3,000,000 shares; issued and
outstanding 939,600 and 1,059,600 shares
at December 31, 1995 and September 30,
1996, respectively (liquidation
preference $2,207,500 at September 30,
1996); none outstanding, pro forma ...... -- 1,935,807 2,183,036 --
Common stock, no par value; authorized
17,000,000 shares; issued and outstanding
1,260,000, 2,130,000, 2,130,120 and
3,689,720 at December 31, 1994, 1995 and
September 30, 1996 and pro forma,
respectively ............................ 314,980 1,221,230 1,221,355 4,678,391
Deficit accumulated during the development
stage ................................... (520,515) (1,956,988) (4,554,779) (4,554,779)
----------- ------------- --------------- ------------------
Total shareholders' equity (deficit) .. (205,535) 1,200,049 (1,150,388) 123,612
----------- ------------- --------------- ------------------
Total liabilities and shareholders'
equity (deficit) ................. $ 451,739 $ 2,003,356 $ 790,600 $ 2,083,517
=========== ============= =============== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
HEALTHDESK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
August 28, August 28,
Year Ended December 31, 1992 Nine-Months Ended September 30, 1992
------------------------------- (Inception) to -------------------------------- (inception) to
1994 1995 December 31, 1995 1995 1996 September 30, 1996
------------- -------------- ----------------- ------------- --------------- ------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Software
development and
licensing ..... $ 387,740 $ 224,011 $ 691,314 $ 223,432 $ 6,170 $ 697,484
Other ............ 9,500 -- 10,158 -- -- 10,158
------------- -------------- ----------------- ------------- --------------- ------------------
Total revenues 397,240 224,011 701,472 223,432 6,170 707,642
------------- -------------- ----------------- ------------- --------------- ------------------
Costs and expenses:
Product development 231,243 680,886 1,087,516 386,409 1,194,038 2,281,554
Sales and marketing 220,243 349,133 704,307 199,757 836,291 1,540,598
General and
administrative . 170,598 581,043 803,437 395,853 562,986 1,366,423
------------- -------------- ----------------- ------------- --------------- ------------------
Total costs and
expenses . 622,084 1,611,062 2,595,260 982,019 2,593,315 5,188,575
------------- -------------- ----------------- ------------- --------------- ------------------
Loss from
operations (224,844) (1,387,051) (1,893,788) (758,587) (2,587,145) (4,480,933)
Interest
expense .. (11,378) (40,300) (51,678) (31,256) (33,707) (85,385)
Interest
income ... -- 6,000 6,000 8,849 23,661 29,661
Other expense . -- (14,322) (14,322) -- -- (14,322)
------------- -------------- ----------------- ------------- --------------- ------------------
Loss before
income
taxes .... (236,222) (1,435,673) (1,953,788) (780,994) (2,597,191) (4,550,979)
Provision for income
taxes ............ 800 800 3,200 600 600 3,800
------------- -------------- ----------------- ------------- --------------- ------------------
Net loss .... $ (237,022) $(1,436,473) $(1,956,988) $ (781,594) $(2,597,791) $ (4,554,779)
============= ============== ================= ============= =============== ==================
Net loss per share . $ (0.08) $ (0.45) $ (0.26) $ (0.67)
============= ============== ============= ===============
Weighted average
number of shares of
common stock ..... 2,964,581 3,181,929 2,986,878 3,854,742
============= ============== ============= ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
HEALTHDESK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Deficit
Accumulated Total
Preferred Stock Common Stock During the Shareholders'
--------------------------- --------------------------- Development Equity
Shares Amount Shares Amount Stage (Deficit)
----------- ------------ ----------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balances at August 28, 1992
(inception) .............. -- -- -- -- -- --
Common stock issued for cash
on October 1, 1992 at
$0.003 per share ......... -- -- 960,000 $ 2,480 -- $ 2,480
Net loss .................. -- -- $ (92,744) (92,744)
----------- ------------ ----------- ------------ -------------- --------------
Balances at December 31, 1992 -- -- 960,000 2,480 (92,744) (90,264)
Common stock issued for cash
in April and May 1993 at
$1.04 per share .......... -- -- 240,000 250,000 -- 250,000
Net loss .................. -- -- -- -- (190,749) (190,749)
----------- ------------ ----------- ------------ -------------- --------------
Balances at December 31, 1993 -- -- 1,200,000 252,480 (283,493) (31,013)
Common stock issued for cash
on May 2, 1994 at $1.04
per share ................ -- -- 60,000 62,500 -- 62,500
Net loss .................. -- -- -- -- (237,022) (237,022)
----------- ------------ ----------- ------------ -------------- --------------
Balances at December 31, 1994 -- -- 1,260,000 314,980 (520,515) (205,535)
Common stock issued in
exchange for convertible
debt on September 29, 1995
at $1.04 per share ....... -- -- 768,000 800,000 -- 800,000
Common stock issued upon
exercise of options in
June and December 1995 at
$1.04 per share .......... -- -- 102,000 106,250 -- 106,250
Preferred stock issued for
cash in November and December
1995 at $2.08 per share,
net of issuance costs of
$21,693 .................. 939,600 $1,935,807 -- -- -- 1,935,807
Net loss .................. -- -- -- -- (1,436,473) (1,436,473)
----------- ------------ ----------- ------------ -------------- --------------
Balances at December 31, 1995 939,600 1,935,807 2,130,000 1,221,230 (1,956,988) 1,200,049
Common stock issued upon
exercise of options on
February 1, 1996 at $1.04
per share (unaudited) .... -- -- 120 125 -- 125
Preferred stock issued for
cash in February 1996 at $2.08
per share, net of issuance
costs of $2,771 (unaudited) 120,000 247,229 -- -- -- 247,229
Net loss (unaudited) ...... -- -- -- -- (2,597,791) (2,597,791)
----------- ------------ ----------- ------------ -------------- --------------
Balances at September 30, 1996
(unaudited) .............. 1,059,600 $2,183,036 2,130,120 $1,221,355 $(4,554,779) $(1,150,388)
=========== ============ =========== ============ ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
HEALTHDESK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
August 28, August 28,
Year Ended December 31, 1992 Nine-Months Ended September 30, 1992
------------------------------- (Inception) to -------------------------------- (inception) to
1994 1995 December 31, 1995 1995 1996 September 30, 1996
------------- -------------- ----------------- ------------- --------------- ------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss .................. $(237,022) $(1,436,473) $(1,956,988) $(781,594) $(2,597,791) $(4,554,779)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization ......... 10,908 50,384 91,301 33,910 159,871 251,172
Other .................... -- 11,556 11,556 (9,382) 17,254 28,810
Changes in assets and
liabilities:
Increase in prepaid
expenses and deferred
offering costs ........... (928) (9,643) (19,709) (9,391) (277,630) (297,339)
(Increase) decrease in
other assets ............. (3,987) (50,802) 19,655 (68,025) (37,589) (17,934)
Increase in accounts
payable .................. 14,710 90,049 104,759 41,429 294,856 399,615
Increase (decrease) in
accrued liabilities
and deferred compensation 114,468 43,924 98,506 34,075 354,825 453,331
------------ -------------- ----------------- ------------ -------------- ------------
Net cash used in
operating activities .... (101,851) (1,301,005) (1,650,920) (758,978) (2,086,204) (3,737,124)
------------ -------------- ----------------- ------------ -------------- ------------
Cash flows from investing
activities:
Additions to property, plant
and equipment ............ (64,442) (252,425) (364,095) (122,494) (296,394) (660,489)
------------ -------------- ----------------- ------------ -------------- -----------
Net cash used in investing
activities .............. (64,442) (252,425) (364,095) (122,494) (296,394) (660,489)
------------- -------------- ----------------- ------------ -------------- ------------
Cash flows from financing
activities:
Proceeds from issuance of
convertible notes payable 500,000 800,000 1,300,000 800,000 500,000 1,800,000
Proceeds from issuance of
common stock ............. 62,500 -- 314,980 -- -- 314,980
Net proceeds from issuance of
preferred stock .......... -- 1,947,819 1,947,819 -- 235,217 2,183,036
Proceeds from shareholders'
loans .................... 2,203 -- 118,164 -- -- 118,164
Repayment of loans from
shareholders ............. (25,000) (22,939) (118,164) (10,939) -- (118,164)
Proceeds from the exercise of
stock options ............ -- 6,250 6,250 6,250 100,125 106,375
------------ -------------- ----------------- ------------ -------------- ------------
Net cash provided by
financing activities .... 539,703 2,731,130 3,569,049 795,311 835,342 4,404,391
------------ -------------- ----------------- ------------ -------------- ------------
Net increase (decrease) in
cash and cash equivalents 373,410 1,177,700 1,554,034 (86,161) (1,547,256) 6,778
Cash and cash equivalents at
beginning of period ........ 2,924 376,334 -- 376,334 1,554,034 --
------------ -------------- ----------------- ------------ -------------- -----------
Cash and cash equivalents at end
of period .................. $ 376,334 $ 1,554,034 $ 1,554,034 $ 290,173 $ 6,778 $ 6,778
============ ============== ================= ============ ============== ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest ................... -- $ 2,208 $ 2,208 $ -- $ 2,797 $ 5,005
============ ============== ================= ============ ============== =============
Income taxes ............... $ 800 $ 800 $ 2,400 $ 800 $ 800 $ 3,200
============ ============== ================= ============ ============== =============
</TABLE>
Noncash Financing Activities (Note 9)
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
HEALTHDESK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
HealthDesk Corporation (the Company), a development stage company, is
engaged in designing, developing and marketing HealthDesk(R) Online, a
healthcare management and information system which enables consumers to take
a more active role in their personal and family health. HealthDesk Online
features easy-to-use Windows-based software designed to develop personal
medical records and health management programs and access educational, health
related information from the Company's private website and over the Internet.
The Company's financial statements have been prepared assuming the Company
will continue as a going concern. The Company is still in the development
stage and substantially all of its revenues were derived from certain
development contracts relating to specific disease management modules in its
initial product. Since inception, the Company has devoted a substantial
effort to developing new products and has therefore incurred losses from
operations and negative cash flows from operating activities since inception.
These conditions raise substantial doubt about the ability of the Company to
continue as a going concern. The Company is striving to achieve profitable
operations by commercializing its products and obtaining contracts with
potential sponsoring organizations. The Company is also actively seeking to
raise additional capital through the offering of debt and common stock.
However, there can be no assurance that the Company's efforts to achieve
profitable operations or raise additional capital will be successful. The
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
UNAUDITED INTERIM FINANCIAL INFORMATION:
The financial statements as of and for the nine month periods ended
September 30, 1995 and 1996 are unaudited but, in the opinion of management,
include all adjustments, consisting only of normal recurring accruals,
necessary for a fair presentation of the results for such periods. The
results of operations for the nine months ended September 30, 1996 are not
necessarily indicative of results to be expected for the full year.
REVENUE RECOGNITION:
During 1994 and 1995, the Company's revenues were generated primarily from
two software development contracts. These revenues were recognized when the
Company achieved designated milestones and received customer acceptance as
specified in the related contracts.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents include all cash balances, money market
instruments, and other highly liquid investments with insignificant interest
rate risk and original maturities of three months or less.
SOFTWARE DEVELOPMENT COSTS:
Statement of Financial Accounting Standards No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed (SFAS
86), requires that software development costs be capitalized once the
technological feasibility of the software product has been established. To
date, such amounts eligible for capitalization have been insignificant and
have been charged to product development expense in the period incurred.
PROPERTY AND EQUIPMENT:
Property and equipment is stated at cost. Depreciation is calculated using
the straight-line method over the estimated useful lives of three years for
computer hardware and purchased computer software and five years for
furniture and fixtures, and over the remaining term of the facility lease for
leasehold improvements.
F-7
<PAGE>
HEALTHDESK CORPORATION
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies: - (Continued)
When assets are sold or retired, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
included in operations. Maintenance and repairs are charged to operations as
incurred.
INCOME TAXES:
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS No. 109).
Under SFAS No. 109, deferred income tax liabilities and assets are determined
based on the difference between the financial reporting amounts and tax bases
of assets and liabilities that will result in taxable or deductible amounts
in the future based on enacted tax laws and rates in effect for the years in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to
the amounts expected to be realized. Income tax expense is the tax payable
for the period and the change during the period in deferred tax assets and
liabilities.
COMPUTATION OF NET LOSS PER SHARE:
Net loss per share is computed using the weighted average number of common
shares outstanding during each period. Common equivalent shares, consisting
of stock options and convertible preferred stock are excluded from the
computation, except as required by Securities and Exchange Commission Staff
Accounting Bulletin No. 83 (SAB 83), because they would have an anti-dilutive
impact. Pursuant to SAB 83, common shares and convertible preferred shares
issued by the Company during the twelve months immediately preceding an
offering date, plus the number of common equivalent shares which became
issuable during the same period pursuant to the grant of stock options (using
the treasury stock method and the proposed public offering price) have been
included in the calculation of common and common equivalent shares as if they
were outstanding for all periods presented.
SHAREHOLDERS' EQUITY:
On September 19, 1996, the Company's Board of Directors approved a 1.2
for 1 stock split of the Company's common and preferred stock. All share and
per share amounts included in these financial statements have been restated to
retroactively reflect the stock split.
On September 19, 1996, the Company also amended its Articles of
Incorporation to increase its authorized shares of common stock and preferred
stock to 17,000,000 and 3,000,000, respectively, and to increase the number
of shares of preferred stock designated as Series A to 1,200,000.
ACCOUNTING FOR STOCK-BASED COMPENSATION:
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (FAS 123) was issued and is
effective for the Company's 1996 year. The Company intends to continue to
account for employee stock options in accordance with APB Opinion No. 25 and,
accordingly, will comply with the pro forma disclosures required by FAS 123.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-8
<PAGE>
HEALTHDESK CORPORATION
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies: - (Continued)
RECLASSIFICATIONS:
Certain prior year balances have been reclassified to conform to the
current year's presentation. Such reclassifications had no impact on net loss
or shareholders' deficit as previously reported.
3. CONCENTRATIONS OF CREDIT RISK:
The Company places its temporary cash investments with one financial
institution. The Company performs ongoing credit evaluations of its customers
and generally does not require collateral. Two customers accounted for
approximately 76% and 5%, respectively, of revenues in 1994 and 40% and 56%,
respectively, in 1995. Additionally, one customer accounted for approximately
96% and 92%, respectively, of revenues for the nine-month periods ended
September 30, 1995 and 1996.
4. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1994 and 1995 and September 30,
1996, consisted of the following:
<TABLE>
<CAPTION>
September 30,
1994 1995 1996
--------- ---------- ---------------
(unaudited)
<S> <C> <C> <C>
Computer equipment and software ............... $76,930 $ 27,527 $525,414
Furniture and fixtures ........................ 8,188 11,297 101,406
Leasehold improvements ........................ 1,000 1,000 7,301
--------- ---------- ---------------
86,118 284,824 634,121
Less accumulated depreciation and amortization 15,628 49,861 165,572
--------- ---------- ---------------
Total property and equipment, net ........ $70,490 $234,963 $468,549
========= ========== ===============
</TABLE>
5. INCOME TAXES:
The provision for income taxes for the years ended December 31, 1994 and
1995, relates to current state income tax. The estimated tax effect of
significant temporary differences and carryforwards that gave rise to
deferred income tax assets as of December 31, 1994 and 1995, is as follows:
<TABLE>
<CAPTION>
1994 1995
------------------------- -------------------------
Federal State Federal State
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 106,000 $ 14,000 $ 578,000 $ 52,500
Research and experimentation
credit carryforwards and other 68,000 22,000 42,000 25,000
----------- ---------- ----------- ----------
174,000 36,000 620,000 77,500
Valuation allowance ............. (174,000) (36,000) (620,000) (77,500)
----------- ---------- ----------- ----------
Net deferred tax assets ......... $ -- $ -- $ -- $ --
========== ========== =========== ==========
</TABLE>
Due to the uncertainty of realization, a valuation allowance has been
provided to eliminate the net deferred tax assets at both December 31, 1994
and 1995. The increase in the valuation allowance was $122,000 and $487,500
during the years ended December 31, 1994 and 1995, respectively.
As of December 31, 1995, the Company had net operating loss carryforwards
of approximately $1,700,000 and $860,000 for federal income tax and
California state franchise tax purposes, respectively. The federal
carryforwards expire through 2010 (through 2000 for state carryforwards). As
of December 31, 1995, the Company also has research and experimentation tax
credit carryforwards of $35,000 and $24,000 for federal and state tax
purposes, respectively. These carryforwards expire in the years ending 2007
through 2009.
F-9
<PAGE>
HEALTHDESK CORPORATION
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
5. Income Taxes: - (Continued)
Pursuant to the provisions of the Tax Reform Act of 1986, utilization of
these net operating loss and tax credit carryforwards will be subject to an
annual limitation due to the occurrence of a greater than 50% change in the
ownership of the Company during fiscal 1995 as it applies to net operating
losses which occurred prior to the change in ownership.
6. NOTES PAYABLE:
On May 23, 1994, the Company entered into a $500,000 convertible
promissory note agreement with simple interest at the rate of 7% per annum.
The agreement provided the holder with the option of converting the principal
amount plus the accrued interest into shares of the Company's common stock at
a conversion price of $3.33 per share prior to the due date. Both principal
and accrued interest thereof were due and payable two years from the
agreement date. Subsequent to May 23, 1996, the Company and the note holder
reached an agreement on a revised due date (see Note 12). At December 31,
1994 and 1995 and September 30, 1996, accrued interest relating to this note
was $19,834, $54,833 and $81,083, respectively. The Company believes that the
carrying amount of this note approximates fair value.
In July and August 1996, the Company issued two term notes (the Notes) to
two existing shareholders and directors for $500,000. The Notes bear interest
at 8% per annum and will convert into 100,000 shares of the Company's common
stock on the earlier of the closing date of an initial public offering or
March 31, 1997.
7. COMMITMENTS AND CONTINGENCIES:
LEASES:
The Company entered into a noncancellable lease for its office in January
1996 which expires in early 1999. Additionally, the Company has other
noncancelable operating leases expiring through November 2000. Total rent
expense for 1994 and 1995 aggreated $17,438 and $32,688, respectively.
Minimum future rentals under these operating leases as of December 31, 1995,
are as follows:
<TABLE>
<CAPTION>
Years ending December 31:
-------------------------
<S> <C>
1996 .................... $115,994
1997 .................... 114,060
1998 .................... 114,060
1999 .................... 17,956
2000 .................... 8,219
----------
$370,289
==========
</TABLE>
AGREEMENTS:
In May 1996, the Company entered into a cross-licensing agreement with
another company. Pursuant to this agreement, the two companies granted each
other a non-exclusive right to market the other party's principal product in
exchange for a semiannual licensing fee of $25,000.
The Company has also entered into various agreements granting it a
non-exclusive right to use products of third parties in exchange for
royalties based on usage levels. The Company has incurred $16,667 in royalty
expenses under these agreements as of September 30, 1996.
The Company has entered into various software and content agreements
pursuant to which it is committed to pay, as of September 30, 1996,
non-refundable minimum royalties of approximately $190,000.
F-10
<PAGE>
HEALTHDESK CORPORATION
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
7. Commitments and Contingencies: - (Continued)
LEGAL PROCEEDINGS:
The Company is subject to two complaints filed by former employees with
the California Department of Fair Employment and Housing. Management intends
to defend them vigorously. Since the financial impact of the ultimate outcome
of these matters is neither probable nor estimable, no amounts have been
accrued in these financial statements.
8. EMPLOYEE BENEFIT PLANS:
On February 28, 1996, the Company adopted a 401(k) plan for employees. All
employees who meet certain service requirements are eligible to participate.
Matching contributions are at the discretion of the Company. As of September
30, 1996, the Company had not elected to make any discretionary
contributions.
On August 1, 1994, the Company commenced the deferral of the payment of a
portion of all future compensation of the Company's president. During 1995,
all amounts due were paid to the Company's president as part of an agreement
to terminate his employment as discussed in Note 9.
9. RELATED PARTY TRANSACTIONS:
At December 31, 1994 and 1995, loans payable to related parties consisted
of the following:
<TABLE>
<CAPTION>
President Shareholders Total
----------- -------------- -----------
<S> <C> <C> <C>
Balance of loans payable at December 31, 1993 $ 20,970 $ 24,766 $ 45,736
Proceeds from loans received ................. 2,203 -- 2,203
Repayment of loans ........................... (15,000) (10,000) (25,000)
----------- -------------- -----------
Balance of loans payable at December 31, 1994 8,173 14,766 22,939
Repayment of loans ........................... (8,173) (12,000) (20,173)
Balance of loan forgiven ..................... -- (2,766) (2,766)
Proceeds from convertible debt received ...... -- 800,000 800,000
Convertible debt exchanged for common stock .. -- (800,000) (800,000)
----------- -------------- -----------
Balance of loans payable at December 31, 1995 $ -- $ -- $ --
=========== ============== ===========
</TABLE>
On April 8, 1993, the Company and a related entity (Spartina Corporation),
which was wholly owned by the Company's president and director, entered into
an agreement under which the related entity granted the Company a
non-exclusive, royalty free license to use the source code of a certain
software engine and tools in connection with the development of the Company's
software products in the fields of health and medical management. The Company
currently does not use any of this technology in the current product.
On August 31, 1995, the Company's president signed an agreement to
terminate his employment with the Company. Under the agreement, the president
received a cash payment in consideration for an agreement not to compete with
the Company and the termination of options to purchase an aggregate of
198,000 shares of the Company's common stock. In addition, Spartina
Corporation assigned to the Company all of its right, title and interest in
and to certain technology previously licensed by the Company from Spartina
Corporation pursuant to the agreement discussed above.
During the period from June 7, 1995 through September 28, 1995, the
Company issued two convertible promissory notes (the Notes) to two existing
shareholders for $800,000. The Notes bore interest at 6% per annum. Interest
expense relating to these Notes amounted to $5,005 during 1995. On September
29, 1995, the principal of the Notes was converted at a rate of $1.04 per
share into 768,000 shares of common stock of the Company.
F-11
<PAGE>
HEALTHDESK CORPORATION
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
9. Related Party Transactions: - (Continued)
On August 15, 1995, the Company granted an option to acquire 96,000 shares
of common stock at $1.04 per share to a board member and existing
shareholder. The option was exercised on December 29, 1995 and the proceeds
of $100,000 were received by the Company on January 8, 1996.
In December 1995, two principal shareholders and related Board members
purchased 69,000 and 129,000 shares of the Company's Series A preferred stock
for an aggregate purchase price of approximately $144,000 and $268,000,
respectively, in connection with the Company's Series A financing.
As discussed in Note 6. in July and August 1996, the Company issued two
term notes to two existing shareholders and related Board members.
10. PREFERRED STOCK:
At December 31, 1995, the Company was authorized to issue 2,000,000 shares
of preferred stock. Of the authorized preferred stock, 1,200,000 shares are
designated as Series A. As of December 31, 1995, the Company had issued
939,600 shares of Series A preferred stock for gross proceeds of $1,957,500.
In February 1996, an additional 120,000 shares of Series A preferred stock
were issued for gross proceeds of $250,000.
The preferred stock is convertible at the option of the holder, into the
Company's common stock at a rate of one share of common stock for one share
of preferred stock. The conversion rate for the preferred stock is subject to
future adjustments. The preferred stock will automatically convert
immediately upon the closing of an initial public offering of the Company's
common stock with gross proceeds exceeding $5 million or upon the approval of
the holders of at least two thirds of the outstanding shares of preferred
stock.
Each share of preferred stock issued and outstanding has the number of
votes equal to the number of shares of common stock into which such shares of
preferred stock is convertible. The Series A preferred stock may receive
noncumulative dividends in preference to holders of common stock, if and
when, declared by the Board of Directors.
In the event of any liquidation or dissolution, the holders of preferred
stock shall be entitled to receive $2.08 per share in preference to any
distribution to holders of common stock. After payment has been made to the
holders of the preferred stock, any remaining assets shall be distributed
ratably among the holders of the preferred and common stock based on the
number of common shares held or, in the case of preferred stock, the number
of shares of common stock on an as if converted basis. If the Company's
assets are insufficient to provide for the full preference amount for the
preferred stock outstanding, then such assets shall be distributed ratably
among the holders of the preferred stock in proportion to the preferential
amount each such holder would have been entitled to receive.
11. STOCK OPTIONS:
In June 1994, the Company adopted the 1994 Stock Option Plan (the Plan)
under which eligible employees, directors, and consultants can receive
options to purchase shares of the Company's common stock at a price generally
not less than 100% and 85% of the fair value of the common stock on the date
of the grant for incentive stock options and nonstatutory stock options,
respectively. However, the Company never granted options at below fair value
as determined by the Board of Directors. The Plan, as amended, allows for the
issuance of a maximum of 840,000 shares of the Company's common stock. This
number of shares of common stock has been reserved for issuance under the
Plan. The options granted under the Plan are exercisable over a maximum term
of ten years from the date of grant and vest immediately. Shares purchased
under the Plan are subject to a right of repurchase by the Company at the
original exercise price. This repurchase right lapses with respect to 25% of
the shares upon completion of one year of service and the balance in equal
successive monthly installments upon completion of each of the next 36 months
of service. With respect to certain of the options issued, the repurchase
right is eliminated in the event there is a change in control of the Company.
F-12
<PAGE>
HEALTHDESK CORPORATION
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
11. Stock Options: - (Continued)
A summary of the activity under the Plan is set forth below:
<TABLE>
<CAPTION>
Options Outstanding
-----------------------------
Number
of Shares Exercise Price
----------- --------------
<S> <C> <C>
Balance at January 1, 1994 ................... -- --
Granted ...................................... 352,800 $1.04
----------- --------------
Balance at December 31, 1994 ................. 352,800 1.04
Granted ...................................... 771,300 1.04 to 2.08
Exercised .................................... (102,000) 1.04
Forfeited .................................... (475,900) 1.04 to 1.67
----------- --------------
Balance at December 31, 1995 ................. 546,200 1.04 to 2.08
Granted (unaudited) .......................... 345,000 2.08 to 5.00
Exercised (unaudited) ........................ (120) 1.04
Forfeited (unaudited) ........................ (175,780) 2.08 to 5.00
----------- --------------
Balance at September 30, 1996 (unaudited) .... 715,300 $1.04 to $5.00
=========== ==============
Exercisable at September 30, 1996 (unaudited) 715,300 $1.04 to $5.00
=========== ==============
</TABLE>
At September 30, 1996, 575,778 of the exercisable options are subject to
the Company's repurchase provision.
12. SUBSEQUENT EVENTS:
Subsequent to September 30, 1996 and through December 2, 1996, the Company
granted 140,000 additional options to purchase shares of common stock at an
exercise price of $5.00 per share. As of December 2, 1996, there were 768,050
options outstanding under the Plan.
On December 2, 1996, the shareholders authorized the issuance of options
to purchase up to a maximum of 950,000 shares of common stock under the Plan.
On October 11, 1996, the Company consummated a Bridge Financing pursuant
to which it issued an aggregate of (i) $2,000,000 principal amount of
promissory notes which bear interest at the rate of 9% per annum and are due
on the earlier of the consummation of the Company's proposed initial public
offering or October 11, 1997, and (ii) 400,000 shares of the Company's common
stock. The effective interest rate for the Bridge Financing notes, assuming a
one-year term, is 54% and, assuming a 60-day term is 279%. The Company will
record the notes at a discount of $900,000, which discount will be allocated
to the 400,000 shares of common stock issued. Additionally, $154,000 of debt
issuance costs will be recorded in connection with the Bridge Financing.
On October 16, 1996, the Company used approximately $583,000 of the net
proceeds from the Bridge Financing to repay the promissory note, including
accrued interest (Note 6).
13. PRO FORMA INFORMATION (UNAUDITED):
The pro forma information as of September 30, 1996, reflected in the
accompanying balance sheet, gives effect to (i) the conversion of all
outstanding shares of convertible preferred stock into 1,059,600 shares of
common stock (Note 10); (ii) the consummation of the Bridge Financing (Note
12) in October 1996 and the application of a portion of the proceeds to repay
a note payable plus accrued interest (Note 6); and (iii) the issuance of
100,000 shares of common stock upon conversion of $500,000 of convertible
notes payable (Note 6).
F-13
<PAGE>
=============================================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations not contained in this Prospectus
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company or the Underwriter. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any security other than the securities offered by this Prospectus, or
an offer to buy any security by any person in any jurisdiction in which such
offer or solicitation is unlawful. Neither the delivery of this Prospectus
nor any sale made hereunder shall, under any circumstances, imply that the
information in this Prospectus is correct as of any time subsequent to the
date of this Prospectus.
------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Prospectus Summary .............................. 3
Risk Factors .................................... 7
Use of Proceeds ................................. 15
Capitalization .................................. 16
Dividend Policy ................................. 16
Dilution ........................................ 17
Selected Financial Data ......................... 18
Management's Discussion and Analysis of Financial
Condition and Results of Operations ............ 19
Business ........................................ 22
Management ...................................... 32
Principal Shareholders .......................... 36
Certain Transactions ............................ 36
Description of Securities ....................... 38
Shares Eligible for Future Sale ................. 40
Underwriting .................................... 40
Selling Shareholders and Plan of Distribution ... 43
Legal Matters ................................... 44
Experts ......................................... 44
Additional Information .......................... 44
Index to Financial Statements ................... F-1
</TABLE>
Until , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
=============================================================================
<PAGE>
=============================================================================
HEALTHDESK CORPORATION
1,800,000 SHARES OF COMMON STOCK
AND
REDEEMABLE WARRANTS TO PURCHASE
1,800,000 SHARES OF COMMON STOCK
------
PROSPECTUS
------
WHALE SECURITIES CO., L.P.
, 1997
=============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The California Corporations Code provides for the indemnification of
directors, officers, employees and agents of the Corporation under certain
circumstances set forth in section 317. Section 317 permits a corporation to
indemnify its agents, typically directors and officers, for expenses incurred
or settlements or judgments paid in connection with certain legal
proceedings. Only those legal proceedings arising out of such persons'
actions as agents of the corporation may be grounds for indemnification.
Whether or not indemnification may be paid in a particular case depends
upon whether the agent wins, loses or settles the suit and upon whether a
third party or the Corporation itself is the plaintiff. The section provides
for mandatory indemnification, no matter who the plaintiff is, when an agent
is successful on the merits of a suit. In all other cases, indemnification is
permissive.
If the agent loses or settles a suit brought by a third party, he or she
may be indemnified for expenses incurred and settlements or judgments paid.
Such indemnification may be authorized upon finding that the agent acted in
good faith and in a manner he or she reasonably believed to be in the best
interests of the corporation.
If the agent loses or settles a suit brought by or on behalf of the
corporation, his or her right to indemnification is more limited. If he or
she is adjudged to be liable to the Corporation, the court in which such
proceeding was held must determine whether it would be fair and reasonable to
indemnify him or her for expenses which such court shall determine. If the
agent settles such a suit with court approval, he or she may be indemnified
for expenses incurred upon a finding that the agent acted in good faith and
in a manner he or she reasonably believed to be in the best interest of the
Corporation and, in addition, that he or she acted with the care, including
reasonable inquiry of an ordinarily prudent person.
The indemnification discussed above may be authorized by a majority vote
of the disinterested directors or shareholders (the person to be indemnified
is excluded from voting his or her shares) or the court in which the
proceeding was brought. The Corporation's Board of Directors makes all
decisions regarding the indemnification of its officers and directors on a
case-by-case basis.
Any provision in the Corporation's Articles of Incorporation or Bylaws
contained in a shareholder or director resolution that indemnifies its
officers or directors must be consistent with section 317. Moreover, such a
provision may prohibit permissive, but not mandatory, indemnification as
described above. Last, a corporation has the power to purchase indemnity
insurance for its agents even if it would not have the power to indemnify
them.
The Corporation's Articles authorize the Board of Directors to provide
indemnification of its agents through bylaw provisions or indemnification
agreements, or both, in excess of the indemnification otherwise permitted by
section 317, subject to the limits on such excess indemnification set forth
in section 204 of the California Corporations Code.
Insofar as indemnification for liabilities under the Securities Act of
1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the act and is
therefore unenforceable.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, in connection with the sale of Common
Stock being registered. All amounts are estimated except the registration fee
and the NASD filing fee and the Nasdaq listing fee.
<TABLE>
<CAPTION>
Amount
to Be Paid
Item by Registrant
- ---- ---------------
<S> <C>
SEC Registration Fee .......................... $ 6,942
NASD Filing Fee ............................... 2,791
Nasdaq Listing Fee ............................ 7,700
Printing and Engraving Expenses ............... 55,000
Legal Fees and Expenses ....................... 170,000
Blue Sky Fees and Expenses .................... 25,000
Accounting Fees and Expenses .................. 50,000
Transfer Agent and Registrar Fees ............. 3,500
Underwriter's non-accountable expense allowance 275,400
Miscellaneous ................................. 53,667
---------------
Total ..................................... $650,000
===============
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Since its incorporation in September 1992, the Registrant has issued
securities without registration under the Securities Act of 1933, as amended
(the "Act") in the following transactions (in each case giving retroactive
effect to all subsequent stock splits):
The Registrant issued an aggregate of 165,600 shares of Common Stock in
September 1992 to its 4 founders at $0.008 per share. In April 1993 the
Registrant issued an additional 132,000 shares at $0.008 per share to 7
investors including officers, employees and directors. From May 1993 to April
1994, the Registrant issued an aggregate of 300,000 shares to 4 investors at
$1.04 per share, including one director. In September 1995, the Registrant
issued an aggregate of 768,000 shares of Common Stock to 2 investors,
including one director, pursuant to their exercise of Convertible Notes at
$1.04 per share. From December 1995 through February 1996, the Registrant
issued an aggregate of 1,059,600 shares of Series A Preferred Stock to 27
investors, including an individual who was then a director of the Company, at
a purchase price of $2.08 per share (which will automatically convert into
the same number of shares of Common Stock upon the consummation of this
offering). During the current fiscal year, the Registrant issued 102,120
shares of Common Stock to three individuals all of whom were employees or
directors of the Registrant, upon the exercise of stock options previously
issued under the Registrant's 1994 Founder's Stock Option Plan at an exercise
price of $1.04 per share. In October 1996, the Registrant issued 40 Units,
with each Unit consisting of 10,000 shares of Common Stock and a promissory
note in the principal amount of $50,000. The Units were purchased by 35
accredited investors in a private placement.
The sales and issuances of the Preferred Stock and Common Stock described
above were deemed to be exempt from registration under the Securities Act in
reliance upon Section 4(2) thereof as transactions not involving a public
offering. The purchasers in such private offerings represented their
intention to acquire the securities for investment only and not with a view
to the distribution thereof and appropriate legends were affixed to the stock
certificates issued in such transactions. All purchasers had adequate access,
through their employment or other relationships, to sufficient information
about the Registrant to make an informed investment decision. No underwriter
was employed with respect to any such sales.
II-2
<PAGE>
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
Exhibits
---------
<S> <C>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Articles of Incorporation of the Company
3.2 Bylaws of the Company
4.1 Form of Stock Certificate
4.2* Form of Warrant Agreement
5.1* Opinion of and Consent of Gray Cary Ware & Freidenrich, a Professional Corporation, as to legality of
securities being registered
10.1 1994 Founder's Stock Option Plan, as amended
10.2 Form of Indemnification Agreement
10.3 Registration Rights Agreement dated March 1993 by and among the Registrant and the Investors named therein
10.4 Form of Registration Rights Agreement between the Registrant and Purchasers of the Registrant's Series
A Preferred Stock.
10.5 Employment Agreement dated as of September 19, 1996 between the Registrant and Peter O'Donnell
10.6 Employment Agreement dated as of September 19, 1996 between the Registrant and Molly Coye
10.7 Employment Agreement dated as of September 19, 1996 between the Registrant and Timothy Yamauchi
10.8* Form of Warrant Agreement to be granted to Underwriter
10.9 Form of Bridge Financing Registration Rights Agreement dated October 11, 1996
23.1* Consent of Independent Accountants
23.2* Consent of Counsel contained in Exhibit 5.1
24.1 Powers of Attorney
27* Financial Data Schedule
</TABLE>
- ------
* Filed herewith.
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant undertakes that: 1) for purposes of determining
any liability under the Act, the information omitted from the form of
prospectus filed as part of this Registration Statement in reliance upon Rule
430A and contained in the form of prospectus filed by the Registrant pursuant
to Rule 421(b)(1) or (4) or 497(b) under the Act shall be deemed to be part
of the Registration Statement as of the time it was declared
II-3
<PAGE>
effective and 2) for the purpose of determining any liability under the Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the
Underwriters at the Closing, as specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required
by the Underwriters to permit prompt delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused Amendment No. 3 to
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Berkeley, State of California, on
December 19, 1996.
HEALTHDESK CORPORATION
By /s/ Peter O'Donnell
--------------------------------
Peter O'Donnell, President
Pursuant to the requirements of the Securities Act, Amendment No. 3 to
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Peter O'Donnell President, Chief Executive Officer and Chairman December 19, 1996
- ------------------------ of the Board (Principal Executive Officer)
Peter O'Donnell
* Chief Financial Officer, Secretary and December 19, 1996
- ------------------------ Treasurer (Principal Financial and Accounting
Timothy S. Yamauchi Officer)
* Director December 19, 1996
- ------------------------
John Pappajohn
* Director December 19, 1996
- ------------------------
James A. Gordon
* Director December 19, 1996
- ------------------------
Dr. Joseph Rudick
* Director December 19, 1996
- ------------------------
David Sengpiel
Director December , 1996
- ------------------------
Dr. Edward C. Geehr
*By: /s/ Peter O'Donnell
- -------------------------------
Peter O'Donnell,as
Attorney-in-Fact
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Description Page No.
------------ ------------
<S> <C> <C>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Articles of Incorporation of the Company
3.2 Bylaws of the Company
4.1 Form of Stock Certificate
4.2* Form of Warrant Agreement
5.1* Opinion and Consent of Gray Cary Ware & Freidenrich, a Professional Corporation, as to legality
of securities being registered
10.1 1994 Founder's Stock Option Plan, as amended
10.2 Form of Indemnification Agreement
10.3 Registration Rights Agreement dated March 1993 by and among the Registrant and the Investors
named therein
10.4 Form of Registration Rights Agreement between the Registrant and Purchasers of the Registrant's
Series A Preferred Stock.
10.5 Employment Agreement dated as of September 19, 1996 between the Registrant and Peter O'Donnell
10.6 Employment Agreement dated as of September 19, 1996 between the Registrant and Molly Coye
10.7 Employment Agreement dated as of September 19, 1996 between the Registrant and Timothy Yamauchi
10.8* Form of Warrant Agreement to be granted to Underwriter
10.9 Form of Bridge Financing Registration Rights Agreement dated October 11, 1996
23.1* Consent of Independent Accountants
23.2* Consent of Counsel contained in Exhibit 5.1
24.1 Powers of Attorney
27* Financial Data Schedule
</TABLE>
- ------
* Filed herewith.
<PAGE>
Exhibit 1.1
HEALTHDESK CORPORATION
2,000,000 Shares of Common Stock
(No Par Value)
UNDERWRITING AGREEMENT
Whale Securities Co., L.P. New York, New York
650 Fifth Avenue ______________, 1996
New York, New York 10019
Ladies and Gentlemen:
HealthDesk Corporation, a California corporation (the
"Company"), proposes to issue and sell to Whale Securities Co., L.P. (the
"Underwriter") 2,000,000 shares of common stock, no par value (the "Offered
Shares"), which Offered Shares are presently authorized but unissued shares of
the common stock, no par value (individually, a "Common Share" and collectively
the "Common Shares"), of the Company. In addition, the Underwriter, in order to
cover over-allotments in the sale of the Offered Shares, may purchase up to an
aggregate of 300,000 Common Shares (the "Optional Shares"; the Offered Shares
and the Optional Shares are hereinafter sometimes collectively referred to as
the "Shares").
The Shares are described in the Registration Statement, as defined below. The
Company also proposes to issue and sell to the Underwriter for its own account
and the accounts of its designees, warrants to purchase an aggregate of 200,000
Common Shares at an exercise price of $_____ per share (the "Underwriter's
Warrants"), which sale will be consummated in accordance with the terms and
conditions of the form of Underwriter's Warrant filed as an exhibit to the
Registration Statement (as hereinafter defined).
The Company hereby confirms its agreement with the Underwriter
as follows:
1. Purchase and Sale of Offered Shares. On the basis of the
representations and warranties herein contained, but subject to the terms and
conditions herein set forth, the Company hereby agrees to sell the Offered
Shares to the Underwriter, and the Underwriter agrees to purchase the Offered
Shares from the Company, at a purchase price of $____ per share. The Underwriter
plans to offer the Shares to the public at a public offering price of $5.00 per
Offered Share.
<PAGE>
2. Payment and Delivery.
(a) Payment for the Offered Shares will be made to
the Company by wire transfer or certified or official bank check or checks
payable to its order in New York Clearing House funds, at the offices of the
Underwriter, Whale Securities Co., L.P., 650 Fifth Avenue, New York, New York
10019, against delivery of the Offered Shares to the Underwriter. Such payment
and delivery will be made at ________, New York City time, on the third business
day following the Effective Date (the fourth business day following the
Effective Date in the event that trading of the Offered Shares commences on the
day following the Effective Date), the date and time of such payment and
delivery being herein called the "Closing Date." The certificates representing
the Offered Shares to be delivered will be in such denominations and registered
in such names as the Underwriter may request not less than two full business
days prior to the Closing Date, and will be made available to the Underwriter
for inspection, checking and packaging at the office of the Company's transfer
agent or correspondent in New York City, _________________________,
_____________________ not less than one full business day prior to the Closing
Date.
(b) On the Closing Date, the Company will sell the
Underwriter's Warrants to the Underwriter or to the designees of the Underwriter
limited to officers and partners of the Underwriter, members of the selling
group and/or their officers, directors or partners (collectively, the
"Underwriter's Designees"). The Underwriter's Warrants will be in the form of,
and in accordance with, the provisions of the Underwriter's Warrant attached as
an exhibit to the Registration Statement. The aggregate purchase price for the
Underwriter's Warrants is $200.00. The Underwriter's Warrants will be restricted
from sale, transfer, assignment or hypothecation for a period of one year from
the Effective Date, except to the Underwriter's Designees. Payment for the
Underwriter's Warrant Agreement will be made to the Company by check or checks
payable to its order on the Closing Date against delivery of the certificates
representing the Underwriter's Warrants. The certificates representing the
Underwriter's Warrants will be in such denominations and such names as the
Underwriter may request prior to the Closing Date.
3. Option to Purchase Optional Shares.
(a) For the purposes of covering any over-allotments
in connection with the distribution and sale of the Offered Shares as
contemplated by the Prospectus, the Underwriter is hereby granted an option to
purchase all or any part of the Optional Shares from the Company. The purchase
price to be paid for the Optional Shares will be the same price per Optional
Share as the price per Offered Share set forth in Section 1 hereof. The option
granted hereby may be exercised by the Underwriter as
-2-
<PAGE>
to all or any part of the Optional Shares at any time within 45 days after the
Effective Date. The Underwriter will not be under any obligation to purchase any
Optional Shares prior to the exercise of such option.
(b) The option granted hereby may be exercised by the
Underwriter by giving oral notice to the Company, which must be confirmed by a
letter, telex or telegraph setting forth the number of Optional Shares to be
purchased, the date and time for delivery of and payment for the Optional Shares
to be purchased and stating that the Optional Shares referred to therein are to
be used for the purpose of covering over-allotments in connection with the
distribution and sale of the Offered Shares. If such notice is given prior to
the Closing Date, the date set forth therein for such delivery and payment will
not be earlier than either two full business days thereafter or the Closing
Date, whichever occurs later. If such notice is given on or after the Closing
Date, the date set forth therein for such delivery and payment will not be
earlier than two full business days thereafter. In either event, the date so set
forth will not be more than 15 full business days after the date of such notice.
The date and time set forth in such notice is herein called the "Option Closing
Date." Upon exercise of such option, the Company will become obligated to convey
to the Underwriter, and, subject to the terms and conditions set forth in
Section 3(d) hereof, the Underwriter will become obligated to purchase, the
number of Optional Shares specified in such notice.
(c) Payment for any Optional Shares purchased will be
made to the Company by wire transfer or certified or official bank check or
checks pay-able to its order in New York Clearing House funds, at the office of
the Underwriter, against delivery of the Optional Shares purchased to the
Underwriter. The certificates representing the Optional Shares to be delivered
will be in such denominations and registered in such names as the Underwriter
requests not less than two full business days prior to the Option Closing Date,
and will be made available to the Underwriter for inspection, checking and
packaging at the aforesaid office of the Company's transfer agent or
correspondent not less than one full business day prior to the Option Closing
Date.
(d) The obligation of the Underwriter to purchase and
pay for any of the Optional Shares is subject to the accuracy and completeness
(as of the date hereof and as of the Option Closing Date) of and compliance in
all material respects with the representations and warranties of the Company
herein, to the accuracy and completeness of the statements of the Company or its
officers made in any certificate or other document to be delivered by the
Company pursuant to this Agreement, to the performance in all material respects
by the Company of its obligations hereunder, to the satisfaction by the Company
of the conditions,
-3-
<PAGE>
as of the date hereof and as of the Option Closing Date, set forth in Section
3(b) hereof, and to the delivery to the Underwriter of opinions, certificates
and letters dated the Option Closing Date substantially similar in scope to
those specified in Section 5, 6(b), (c), (d) and (e) hereof, but with each
reference to "Offered Shares" and "Closing Date" to be, respectively, to the
Optional Shares and the Option Closing Date.
4. Representations and Warranties of the Company. The
Company represents and warrants to, and agrees with, the Underwriter that:
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of California,
with full power and authority, corporate and other, to own or lease and operate,
as the case may be, its properties, whether tangible or intangible, and to
conduct its business as described in the Registration Statement and to execute,
deliver and perform this Agreement and the Underwriter's Warrant Agreement and
to consummate the transactions contemplated hereby and thereby. The Company is
duly qualified to do business as a foreign corporation and is in good standing
in all jurisdictions wherein such qualification is necessary and failure so to
qualify could have a material adverse effect on the financial condition, results
of operations, business or properties of the Company. The Company has no
subsidiaries.
(b) This Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding obligation of the
Company, and the Underwriter's Warrant Agreement, when executed and delivered by
the Company on the Closing Date, will be the valid and binding obligations of
the Company, enforceable against the Company in accordance with their respective
terms. The execution, delivery and performance of this Agreement and the
Underwriter's Warrant Agreement by the Company, the consummation by the Company
of the transactions herein and therein contemplated and the compliance by the
Company with the terms of this Agreement and the Underwriter's Warrant Agreement
have been duly authorized by all necessary corporate action and do not and will
not, with or without the giving of notice or the lapse of time, or both, (i)
result in any violation of the Articles of Incorporation or By-Laws, each as
amended, of the Company; (ii) result in a breach of or conflict with any of the
terms or provisions of, or constitute a default under, or result in the
modification or termination of, or result in the creation or imposition of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company pursuant to any indenture, mortgage, note, contract,
commitment or other agreement or instrument to which the Company is a party or
by which the Company or any of its properties or assets is or may be bound or
affected; (iii) violate any existing applicable law, rule, regulation, judgment,
order or decree of any govern-
-4-
<PAGE>
mental agency or court, domestic or foreign, having jurisdiction over the
Company or any of its properties or business; or (iv) have any effect on any
permit, certification, registration, approval, consent order, license, franchise
or other authorization (collectively, the "Permits") necessary for the Company
to own or lease and operate its properties and to conduct its business or the
ability of the Company to make use thereof.
(c) No Permits of any court or governmental agency or
body, other than under the Securities Act of 1933, as amended (the "Act"), the
Regulations (as hereinafter defined) and applicable state securities or Blue Sky
laws, are required (i) for the valid authorization, issuance, sale and delivery
of the Shares to the Underwriter, and (ii) the consummation by the Company of
the transactions contemplated by this Agreement or the Underwriter's Warrant
Agreement.
(d) The conditions for use of a registration
statement on Form SB-2 set forth in the General Instructions to Form SB-2 have
been satisfied with respect to the Company, the transactions contemplated herein
and in the Registration Statement. The Company has prepared in conformity with
the requirements of the Act and the rules and regulations (the "Regulations") of
the Securities and Exchange Commission (the "Commission") and filed with the
Commission a registration statement (File No. 333-_______ ) on Form SB-2 and has
filed one or more amendments thereto, covering the registration of the Shares
and the Warrant Shares under the Act, including the related preliminary
prospectus or preliminary prospectuses (each thereof being herein called a
"Preliminary Prospectus") and a proposed final prospectus. Each Preliminary
Prospectus was endorsed with the legend required by Item 501(a)(5) of Regulation
S-B of the Regulations and, if applicable, Rule 430A of the Regulations. Such
registration statement including any documents incorporated by reference therein
and all financial schedules and exhibits thereto, as amended at the time it
becomes effective, and the final prospectus included therein are herein,
respectively, called the "Registration Statement" and the "Prospectus," except
that, (i) if the prospectus filed by the Company pursuant to Rule 424(b) of the
Regulations differs from the Prospectus, the term "Prospectus" will also include
the prospectus filed pursuant to Rule 424(b), and (ii) if the Registration
Statement is amended or such Prospectus is supplemented after the date the
Registration Statement is declared effective by the Commission (the "Effective
Date") and prior to the Option Closing Date, the terms "Registration Statement"
and "Prospectus" shall include the Registration Statement as amended or
supplemented.
(e) Neither the Commission nor, to the best of the
Company's knowledge, any state regulatory authority has issued any order
preventing or suspending the use of any Preliminary Prospectus or has instituted
or, to the best of the Company's knowledge, threatened to institute any
proceedings with respect to such an order.
-5-
<PAGE>
(f) The Registration Statement when it becomes
effective, the Prospectus (and any amendment or supplement thereto) when it is
filed with the Commission pursuant to Rule 424(b), and both documents as of the
Closing Date and the Option Closing Date, referred to below, will contain all
statements which are required to be stated therein in accordance with the Act
and the Regulations and will in all material respects conform to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, on such
dates, will contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that this representation and warranty does not apply to
statements or omissions made in reliance upon and in conformity with information
furnished in writing to the Company in connection with the Registration
Statement or Prospectus or any amendment or supplement thereto by the Under-
writer expressly for use therein.
(g) The Company had at the date or dates indicated
in the Prospectus a duly authorized and outstanding capitalization as set forth
in the Registration Statement and the Prospectus. Based on the assumptions
stated in the Registration Statement and the Prospectus, the Company will have
on the Closing Date the adjusted stock capitalization set forth therein. Except
as set forth in the Registration Statement or the Prospectus, on the Effective
Date and on the Closing Date, there will be no options to purchase, warrants or
other rights to subscribe for, or any securities or obligations convertible
into, or any contracts or commitments to issue or sell shares of the Company's
capital stock or any such warrants, convertible securities or obligations.
Except as set forth in the Prospectus, no holders of any of the Company's
securities has any rights, "demand," "piggyback" or otherwise, to have such
securities registered under the Act.
(h) The descriptions in the Registration Statement
and the Prospectus of contracts and other documents are accurate and present
fairly the information required to be disclosed, and there are no contracts or
other documents required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement under the
Act or the Regulations which have not been so described or filed as required.
-6-
<PAGE>
(i) Coopers & Lybrand LLP, the accountants who have
certified certain of the financial statements filed and to be filed with the
Commission as part of the Registration Statement and the Prospectus, are
independent public accountants within the meaning of the Act and Regulations.
The financial statements and schedules and the notes thereto filed as part of
the Registration Statement and included in the Prospectus are complete, correct
and present fairly the financial position of the Company as of the dates
thereof, and the results of operations and changes in financial position of the
Company for the periods indicated therein, all in conformity with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved except as otherwise stated in the Registration Statement and
the Prospectus. The selected financial data set forth in the Registration
Statement and the Prospectus present fairly the information shown therein and
have been compiled on a basis consistent with that of the audited and unaudited
financial statements included in the Registration Statement and the Prospectus.
(j) The Company has filed with the appropriate
federal, state and local governmental agencies, and all appropriate foreign
countries and political subdivisions thereof, all tax returns, including
franchise tax returns, which are required to be filed or has duly obtained
extensions of time for the filing thereof and has paid all taxes shown on such
returns and all assessments received by it to the extent that the same have
become due; and the provisions for income taxes payable, if any, shown on the
financial statements filed with or as part of the Registration Statement are
sufficient for all accrued and unpaid foreign and domestic taxes, whether or not
disputed, and for all periods to and including the dates of such financial
statements. Except as disclosed in writing to the Underwriter, the Company has
not executed or filed with any taxing authority, foreign or domestic, any
agreement extending the period for assessment or collection of any income taxes
and is not a party to any pending action or proceeding by any foreign or
domestic governmental agency for assessment or collection of taxes; and no
claims for assessment or collection of taxes have been asserted against the
Company.
-7-
<PAGE>
(k) The outstanding Common Shares and shares of
preferred stock (the "Preferred Shares") and outstanding options and warrants to
purchase Common Shares have been duly authorized and validly issued. The
outstanding Common Shares and Preferred Shares are fully paid and nonassessable.
The outstanding options and warrants to purchase Common Shares constitute the
valid and binding obligations of the Company, enforceable in accordance with
their terms. None of the outstanding Common Shares or Preferred Shares or
options or warrants to purchase Common Shares has been issued in violation of
the preemptive rights of any shareholder of the Company. None of the holders of
the outstanding Common Shares or Preferred Shares is subject to personal
liability solely by reason of being such a holder. The offers and sales of the
outstanding Common Shares and Preferred Shares and outstanding options and
warrants to purchase Common Shares were at all relevant times either registered
under the Act and the applicable state securities or Blue Sky laws or exempt
from such registration requirements. The authorized Common Shares and Preferred
Shares and outstanding options and warrants to purchase Common Shares conform to
the descriptions thereof contained in the Registration Statement and Prospectus.
Except as set forth in the Registration Statement and the Prospectus, on the
Effective Date and the Closing Date, there will be no outstanding options or
warrants for the purchase of, or other outstanding rights to purchase, Common
Shares or securities convertible into Common Shares.
(l) No securities of the Company have been sold by
the Company or by or on behalf of, or for the benefit of, any person or persons
controlling, controlled by, or under common control with the Company within the
three years prior to the date hereof, except as disclosed in the Registration
Statement.
(m) The issuance and sale of the Shares have been
duly authorized and, when the Shares have been issued and duly delivered against
payment therefor as contemplated by this Agreement, the Shares will be validly
issued, fully paid and nonassessable, and the holders thereof will not be
subject to personal liability solely by reason of being such holders. The Shares
will not be subject to preemptive rights of any shareholder of the Company.
(n) The issuance and sale of the Common Shares
issuable upon exercise of the Underwriter's Warrants have been duly authorized
and, when such Common Shares have been duly delivered against payment therefor,
as contemplated by the Underwriter's Warrant Agreement, such Common Shares will
be validly issued, fully paid and nonassessable. Holders of Common Shares
issuable upon the exercise of the Underwriter's Warrants will not be subject to
personal liability solely by reason of being such holders. Neither the
Underwriter's Warrants nor the Common Shares issuable upon exercise thereof will
be subject to preemptive rights of any shareholder of the Company. The Common
Shares issuable upon exercise of the Underwriter's Warrants have been duly
reserved for issuance upon exercise of the Underwriter's Warrants in accordance
with the provisions of the Underwriter's Warrant Agreement. The Underwriter's
Warrants conform to the descriptions thereof contained in the Registration
Statement and the Prospectus.
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(o) The Company is not in violation of, or in default
under, (i) any term or provision of its Articles of Incorporation or By-Laws,
each as amended; (ii) any material term or provision or any financial covenants
of any indenture, mortgage, contract, commitment or other agreement or
instrument to which it is a party or by which it or any of its property or
business is or may be bound or affected; or (iii) any existing applicable law,
rule, regulation, judgment, order or decree of any governmental agency or court,
domestic or foreign, having jurisdiction over the Company or any of the
Company's properties or business. The Company owns, possesses or has obtained
all governmental and other (including those obtainable from third parties)
Permits, necessary to own or lease, as the case may be, and to operate its
properties, whether tangible or intangible, and to conduct the business and
operations of the Company as presently conducted and all such Permits are
outstanding and in good standing, and there are no proceedings pending or, to
the best of the Company's knowledge, threatened, or any basis therefor, seeking
to cancel, terminate or limit such Permits.
(p) Except as set forth in the Prospectus, there are
no claims, actions, suits, proceedings, arbitrations, invesigations or
inquiries before any governmental agency, court or tribunal, domestic or
foreign, or before any private arbitration tribunal, pending, or, to the best of
the Company's knowledge, threatened against the Company or involving the
Company's properties or business which, if determined adversely to the Company,
would, individually or in the aggregate, result in any material adverse change
in the financial position, shareholders' equity, results of operations,
properties, business, management or affairs or business prospects of the Company
or which question the validity of the capital stock of the Company or this
Agreement or of any action taken or to be taken by the Company pursuant to, or
in connection with, this Agreement; nor, to the best of the Company's knowledge,
is there any basis for any such claim, action, suit, proceeding, arbitration,
investigation or inquiry. There are no outstanding orders, judgments or decrees
of any court, governmental agency or other tribunal naming the Company and
enjoining the Company from taking, or requiring the Company to take, any action,
or to which the Company, or the Company's properties or business is bound or
subject.
(q) Neither the Company nor any of its affiliates has
incurred any liability for any finder's fees or similar payments in connection
with the transactions herein contemplated.
(r) The Company owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks, service
marks, copyrights, rights, trade secrets, confidential information, processes
and formulations used or proposed to be used in the conduct of its business as
described in the Prospectus (collectively the "Intangibles"); to the best of the
Company's knowledge, the Company has not infringed and is not infringing upon
the rights of others with respect to the Intangibles; and the Company has not
received any notice of conflict with the asserted rights of others with respect
to the Intangibles which could, singly or in the aggregate, materially adversely
affect its business as presently conducted or the prospects, financial condition
or results of operations of the Company, and the Company knows of no basis
therefor; and, to the best of the Company's knowledge, no others have infringed
upon the Intangibles of the Company.
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<PAGE>
(s) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus and the
Company's latest financial statements, the Company has not incurred any material
liability or obligation, direct or contingent, or entered into any material
transaction, whether or not incurred in the ordinary course of business, and has
not sustained any material loss or interference with its business from fire,
storm, explosion, flood or other casualty, whether or not covered by insurance,
or from any labor dispute or court or governmental action, order or decree; and
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, there have not been, and prior to the Closing Date
referred to below there will not be, any changes in the capital stock or any
material increases in the long-term debt of the Company or any material adverse
change in or affecting the general affairs, management, financial condition,
shareholders' equity, results of operations or prospects of the Company,
otherwise than as set forth or contemplated in the Prospectus.
(t) The Company does not own any real property. The
Company has good title to all personal property (tangible and intangible) owned
by it, free and clear of all security interests, charges, mortgages, liens,
encumbrances and defects, except such as are described in the Registration
Statement and Prospectus or such as do not materially affect the value or
transferability of such property and do not interfere with the use of such
property made, or proposed to be made, by the Company. The leases, licenses or
other contracts or instruments under which the Company leases, holds or is
entitled to use any property, real or personal, are valid, subsisting and
enforceable only with such exceptions as are not material and do not interfere
with the use of such property made, or proposed to be made, by the Company, and
all rentals, royalties or other payments accruing thereunder which became due
prior to the date of this Agreement have been duly paid, and neither the
Company, nor, to the best of the Company's knowledge, any other party is in
default thereunder and, to the best of the Company's knowledge, no event has
occurred which, with the passage of time or the giving of notice, or both, would
constitute a default thereunder. The Company has not received notice of any
violation of any applicable law, ordinance, regulation, order or requirement
relating to its owned or leased properties. The Company has adequately insured
its properties against loss or damage by fire or other casualty and maintains,
in adequate amounts, such other insurance as is usually maintained by companies
engaged in the same or similar businesses located in its geographic area.
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(u) Each contract or other instrument (however
characterized or described) to which the Company is a party or by which its
property or business is or may be bound or affected and to which reference is
made in the Prospectus has been duly and validly executed, is in full force and
effect in all material respects and is enforceable against the parties thereto
in accordance with its terms, and none of such contracts or instruments has
been assigned by the Company, and neither the Company, nor, to the best of the
Company's knowledge, any other party, is in default thereunder and, to the best
of the Company's knowledge, no event has occurred which, with the lapse of time
or the giving of notice, or both, would constitute a default thereunder.
None of the material provisions of such contracts
or instruments violates any existing applicable law, rule, regulation, judgment,
order or decree of any governmental agency or court having jurisdiction over the
Company or any of its assets or businesses.
(v) The employment, consulting, confidentiality and
non-competition agreements between the Company and its officers, employees and
consultants, described in the Registration Statement, are binding and
enforceable obligations upon the respective parties thereto in accordance with
their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium or other similar laws or
arrangements affecting creditors' rights generally and subject to principles of
equity.
(w) Except as set forth in the Prospectus, the
Company has no employee benefit plans (including, without limitation, profit
sharing and welfare benefit plans) or deferred compensation arrangements that
are subject to the provisions of the Employee Retirement Income Security Act of
1974.
(x) Except as set forth in the Prospectus, the
Company does not manufacture, fabricate or market any product or perform any
service which is subject to regulation by the Federal Food and Drug
Administration (the "FDA"), or to any provision of the Food, Drug and Cosmetic
Act, as amended (the "FD&C Act"), or any rule or regulation promulgated
thereunder or any regulatory authority relating to the practice of medicine.
(y) To the best of the Company's knowledge, no labor
problem exists with any of the Company's employees or is imminent which could
adversely affect the Company.
(z) The Company has not, directly or indirectly, at
any time (i) made any contributions to any candidate for political office, or
failed to disclose fully any such contribution in violation of law or (ii) made
any payment to any state, federal or foreign governmental officer or official,
or other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law. The Company's
internal accounting controls and procedures are sufficient to cause the Company
to comply in all material respects with the Foreign Corrupt Practices Act of
1977, as amended.
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(aa) Shares have been approved for listing on the
Nasdaq SmallCap Market.
(ab) The Company has provided to Tenzer Greenblatt
LLP, counsel to the Underwriter ("Underwriter's Counsel"), all agreements,
certificates, correspondence and other items, documents and information
requested by such counsel's Corporate Review Memorandum dated ____________,
199__.
Any certificate signed by an officer of the
Company and delivered to the Underwriter or to Underwriter's Counsel shall be
deemed to be a representation and warranty by the Company to the Underwriter as
to the matters covered thereby.
5. Certain Covenants of the Company. The Company covenants
with the Underwriter as follows:
(a) The Company will not at any time, whether before
the Effective Date or thereafter during such period as the Prospectus is
required by law to be delivered in connection with the sales of the Shares by
the Underwriter or a dealer, file or publish any amendment or supplement to the
Registration Statement or Prospectus of which the Underwriter has not been
previously advised and furnished a copy, or to which the Underwriter shall
object in writing.
(b) The Company will use its best efforts to cause
the Registration Statement to become effective and will advise the Underwriter
immediately, and, if requested by the Underwriter, confirm such advice in
writing, (i) when the Registration Statement, or any post-effective amendment
to the Registration Statement or any supplemented Prospectus is filed with the
Commission; (ii) of the receipt of any comments from the Commission; (iii) of
any request of the Commission for amendment or supplementation of the
Registration Statement or Prospectus or for additional information; and (iv) of
the issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement or of any order preventing or suspending the use
of any Preliminary Prospectus, or of the suspension of the qualification of the
Shares for offering or sale in any jurisdiction, or of the initiation of any
proceedings for any of such purposes. The Company will use its best efforts to
prevent the issuance of any such stop order or of any order preventing or
suspending such use and to obtain as soon as possible the lifting thereof, if
any such order is issued.
-12-
<PAGE>
(c) The Company will deliver to the Underwriter,
without charge, from time to time until the Effective Date, as many copies of
each Preliminary Prospectus as the Underwriter may reasonably request, and the
Company hereby consents to the use of such copies for purposes permitted by the
Act. The Company will deliver to the Underwriter, without charge, as soon as the
Registration Statement becomes effective, and thereafter from time to time as
requested, such number of copies of the Prospectus (as supplemented, if the
Company makes any supplements to the Prospectus) as the Underwriter may
reasonably request. The Company has furnished or will furnish to the Underwriter
two signed copies of the Registration Statement as originally filed and of all
amendments thereto, whether filed before or after the Registration Statement
becomes effective, two copies of all exhibits filed therewith and two signed
copies of all consents and certificates of experts.
(d) The Company will comply with the Act, the
Regulations, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations thereunder so as to permit the continuance
of sales of and dealings in the Offered Shares and in any Optional Shares which
may be issued and sold. If, at any time when a prospectus relating to the Shares
is required to be delivered under the Act, any event occurs as a result of which
the Registration Statement and Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or if it shall be necessary to amend or
supplement the Registration Statement and Prospectus to comply with the Act or
the regulations thereunder, the Company will promptly file with the Commission,
subject to Section 5(a) hereof, an amendment or supplement which will correct
such statement or omission or which will effect such compliance.
(e) The Company will furnish such proper information
as may be required and otherwise cooperate in qualifying the Shares for offering
and sale under the securities or Blue Sky laws relating to the offering in such
jurisdictions as the Underwriter may reasonably designate, provided that no such
qualification will be required in any jurisdiction where, solely as a result
thereof, the Company would be subject to service of general process or to
taxation or qualification as a foreign corporation doing business in such
jurisdiction.
(f) The Company will make generally available to its
security holders, in the manner specified in Rule 158(b) under the Act, and
deliver to the Underwriter and Underwriter's Counsel as soon as practicable and
in any event not later than 45 days after the end of its fiscal quarter in which
the first anniversary date of the effective date of the Registration Statement
occurs, an earning statement meeting the requirements of Rule 158(a) under the
Act covering a period of at least 12 consecutive months beginning after the
effective date of the Registration Statement.
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<PAGE>
(g) For a period of five years from the Effective
Date, the Company will deliver to the Underwriter and to Underwriter's Counsel
on a timely basis (i) a copy of each report or document, including, without
limitation, reports on Forms 8-K, 10-C, 10-K (or 10-K SB), 10-Q (or 10-Q SB) and
10-C and exhibits thereto, filed or furnished to the Commission, any securities
exchange or the National Association of Securities Dealers, Inc. (the "NASD") on
the date each such report or document is so filed or furnished; (ii) as soon as
practicable, copies of any reports or communications (financial or other) of the
Company mailed to its security holders; (iii) as soon as practicable, a copy of
any Schedule 13D, 13G, 14D-1 or 13E-3 received or prepared by the Company from
time to time; (iv) monthly statements setting forth such information regarding
the Company's results of operations and financial position (including balance
sheet, profit and loss statements and data regarding outstanding purchase
orders) as is regularly prepared by management of the Company; and (v) such
additional information concerning the business and financial condition of the
Company as the Underwriter may from time to time reasonably request and which
can be prepared or obtained by the Company without unreasonable effort or
expense. The Company will furnish to its shareholders annual reports containing
audited financial statements and such other periodic reports as it may determine
to be appropriate or as may be required by law.
(h) Neither the Company nor any person that
controls, is controlled by or is under common control with the Company will take
any action designed to or which might be reasonably expected to cause or result
in the stabilization or manipulation of the price of the Common Shares.
(i) If the transactions contemplated by this
Agreement are consummated, the Underwriter shall retain the $50,000 previously
paid to it, and the Company will pay or cause to be paid the following: all
costs and expenses incident to the performance of the obligations of the Company
under this Agreement, including, but not limited to, the fees and expenses of
accountants and counsel for the Company; the preparation, printing, mailing and
filing of the Registration Statement (including financial statements and
exhibits), Preliminary Prospectuses and the Prospectus, and any amendments or
supplements thereto; the printing and mailing of the Selected Dealer Agreement,
the issuance and delivery of the Shares to the Underwriter; all taxes, if any,
on the issuance of the Shares; the fees, expenses and other costs of qualifying
the Shares for sale under the Blue Sky or securities laws of those states in
which the Shares are to be offered or sold, including fees and disbursements of
counsel in connection therewith, and including those of such local counsel as
may have been retained for such purpose; the filing fees incident to securing
any required review by the NASD [and either the Boston Stock Exchange or Pacific
Stock Exchange]; the cost of printing and mailing the "Blue Sky Survey"the cost
of furnishing to the Underwriter copies of the Registration Statement,
Preliminary Prospectuses and the Prospectus as herein provided; the costs of
placing "tombstone advertisements" in any publications which may be selected by
the Underwriter; and all other costs and expenses incident to the performance of
the Company's obligations hereunder which are not otherwise specifically
provided for in this Section 5(i).
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<PAGE>
In addition, at the Closing Date or the Option
Closing Date, as the case may be, the Underwriter will deduct from the payment
for the Offered Shares or any Optional Shares three percent (3%) of the gross
proceeds of the offering (less the sum of $50,000 previously paid to the
Underwriter), as payment for the Underwriter's nonaccountable expense allowance
relating to the transactions contemplated hereby, which amount will include the
fees and expenses of Underwriter's Counsel (other than the fees and expenses of
Underwriter's Counsel relating to Blue Sky qualifications and registrations,
which, as provided for above, shall be in addition to the three percent (3%)
nonaccountable expense allowance and shall be payable directly by the Company to
Underwriter's Counsel on or prior to the Closing Date).
(j) If the transactions contemplated by this
Agreement or related hereto because the Company or Underwriter decides not to
proceed with the offering for any reason, then the Company will be obligated to
reimburse the Underwriter for its accountable out-of-pocket expenses up to the
sum of $50,000, inclusive of $50,000 previously paid to the Underwriter by the
Company. In no event, however, will the Underwriter, in the event the offering
is terminated, be entitled to retain or receive more than an amount equal to its
actual accountable out-of-pocket expenses.
(k) The Company intends to apply the net proceeds
from the sale of the Shares for the purposes set forth in the Prospectus. No
portion of the net proceeds from the sale of the Shares will be used to repay
any indebtedness, except for the repayment of the Bridge Notes (as defined in
the Prospectus). The Company will file with the Commission all required reports
on Form S-R in accordance with the provisions of Rule 463 promulgated under the
Act and will provide a copy of each such report to the Underwriter and its
counsel.
(l) During the period of eighteen (18) months from
the date hereof, none of the Company's officers, directors or securityholders
will offer for sale or sell or otherwise dispose of, directly or indirectly, any
securities of the Company, in any manner whatsoever, whether pursuant to Rule
144 of the Regulations or otherwise, and no holder of registration rights
relating to buy securities of the Company will exercise any such registration
rights, in either case, without the prior written consent of the Underwriter.
-15-
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(m) The Company will not file any registration
statement relating to the offer or sale of any of the Company's securities,
including any registration statement on Form S-8, during the eighteen (18)
months from the Effective Date, without the Underwriter's prior written consent.
(n) The Company maintains and will continue to
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that: (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary in order to permit preparation of financial statements in
accordance with generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(o) The Company will use its best efforts to maintain
the listing of the Shares on NASDAQ for so long as qualified, list the Shares on
the NASDAQ National Market System and maintain such listing for so long as
qualified.
(p) The Company will, concurrently with the Effective
Date, register the class of equity securities of which the Shares are a part
under Section 12(g) of the Exchange Act and the Company will maintain such
registration for a minimum of five (5) years from the Effective Date.
(q) Subject to the sale of the Offered Shares, the
Underwriter and its successors will have the right to designate a nominee for
election, at its or their option, either as a member of or a non-voting advisor
to the Board of Directors of the Company, and the Company will use its best
efforts to cause such nominee to be elected and continued in office as a
director of the Company or as such advisor until the expiration of five (5)
years from the Effective Date. Each of the Company's current officers, directors
and shareholders agrees to vote all of the Common Shares owned by such person or
entity so as to elect and continue in office such nominee of the Underwriter.
Following the election of such nominee as a director or advisor, such person
shall receive no more or less compensation than is paid to other non-officer
directors of the Company for attendance at meetings of the Board of Directors of
the Company and shall be entitled to receive reimbursement for all reasonable
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<PAGE>
costs incurred in attending such meetings including, but not limited to, food,
lodging and transportation. The Company agrees to indemnify and hold such
director or advisor harmless, to the maximum extent permitted by law, against
any and all claims, actions, awards and judgments arising out of his service as
a director or advisor and, in the event the Company maintains a liability
insurance policy affording coverage for the acts of its officers and directors,
to include such director or advisor as an insured under such policy. The rights
and benefits of such indemnification and the benefits of such insurance shall,
to the extent possible, extend to the Underwriter insofar as it may be or may be
alleged to be responsible for such director or advisor.
If the Underwriter does not exercise its
option to designate a member of or advisor to the Company's Board of Directors,
the Underwriter shall nonetheless have the right to send a representative (who
need not be the same individual from meeting to meeting) to observe each meeting
of the Board of Directors. The Company agrees to give the Underwriter notice of
each such meeting and to provide the Underwriter with an agenda and minutes of
the meeting no later than it gives such notice and provides such items to the
directors.
(r) The Company shall retain a transfer agent for the
Common Shares, reasonably acceptable to the Underwriter, for a period of five
(5) years from the Effective Date. In addition, for a period of five (5) years
from the Effective Date, the Company, at its own expense, shall cause such
transfer agent to provide the Underwriter, if so requested in writing, with
copies of the Company's daily transfer sheets, and, when requested by the
Underwriter, a current list of the Company's securityholders, including a list
of the beneficial owners of securities held by a depository trust company and
other nominees.
(s) The Company hereby agrees, at its sole cost and
expense, to supply and deliver to the Underwriter and Underwriter's Counsel,
within a reasonable period from the date hereof, four bound volumes, including
the Registration Statement, as amended or supplemented, all exhibits to the
Registration Statement, the Prospectus and all other underwriting documents.
(t) The Company shall, as of the date hereof, have
applied for listing in Standard & Poor's Corporation Records Service (including
annual report information) or Moody's Industrial Manual (Moody's OTC Industrial
Manual not being sufficient for these purposes) and shall use its best efforts
to have the Company listed in such manual and shall maintain such listing for a
period of five years from the Effective Date.
(u) For a period of five (5) years from the Effective
Date, the Company shall provide the Underwriter, on a not less than annual
basis, with internal forecasts setting forth projected results of operations for
each quarterly and annual period in the two (2) fiscal years following the
respective dates of such forecasts. Such forecasts shall be provided to the
Underwriter more frequently than annually if prepared more frequently by
management, and revised forecasts shall be prepared and provided to the
Underwriter when required to reflect more current information, revised
assumptions or actual results that differ materially from those set forth in the
forecasts.
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<PAGE>
(v) For a period of five (5) years from the Effective
Date, or until such earlier time as the Common Shares are listed on the New York
Stock Exchange or the American Stock Exchange, the Company shall cause its legal
counsel to provide the Underwriter with a list, to be updated at least annually,
of those states in which the Common Shares may be traded in non-issuer
transactions under the Blue Sky laws of the 50 states.
(w) For a period of five (5) years from the Effective
Date, the Company shall continue to retain Cooper & Lybrand LLP (or such other
nationally recognized accounting firm acceptable to the Underwriter) as the
Company's independent public accountants.
(x) For a period of five (5) years from the Effective
Date, the Company, at its expense, shall cause its then independent certified
public accountants, as described in Section 5(w) above, to review (but not
audit) the Company's financial statements for each of the first three fiscal
quarters prior to the announcement of quarterly financial information, the
filing of the Company's 10-Q (or 10-QSB) quarterly report (or other equivalent
report) and the mailing of quarterly financial information to shareholders.
(y) For a period of twenty-five (25) days from the
Effective Date, the Company will not issue press releases or engage in any other
publicity without the Underwriter's prior written consent, other than normal and
customary releases issued in the ordinary course of the Company's business or
those releases required by law.
(z) For a period of three (3) years from the
Effective Date, the Company will promptly submit to the Underwriter copies of
accountant's management reports and similar correspondence between the Company's
accountants and the Company.
(aa) For a period of three (3) years from the
Effective Date, the Company will not offer or sell any of its securities
pursuant to Regulation S promulgated under the Act without the prior written
consent of the Underwriter.
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(ab) For a period of five (5) years from the
Effective Date, the Company will provide to the Underwriter ten day's written
notice prior to any issuance by the Company or its subsidiaries of any equity
securities or securities exchangeable for or convertible into equity securities
of the Company, except for (i) shares of Common Stock issuable upon exercise of
currently outstanding options and warrants or conversion of currently
outstanding convertible securities and (ii) options available for future grant
pursuant to any stock option plan in effect on the Effective Date and the
issuance of shares of Common Stock upon the exercise of such options.
(ac) Prior to the Effective Date and for a period of
three (3) years thereafter, the Company will retain a financial public relations
firm reasonably acceptable to the Underwriter.
(ad) For a period of three (3) years from the
Effective Date, the Company will cause its Board of Directors to meet, either in
person or telephonically, a minimum of four (4) times per year and will hold a
shareholder's meeting at least once per annum.
6. Conditions of the Underwriter's Obligation to Purchase
Shares from the Company. The obligation of the Underwriter to purchase and pay
for the Offered Shares which it has agreed to purchase from the Company is
subject (as of the date hereof and the Closing Date) to the accuracy of and
compliance in all material respects with the representations and warranties of
the Company herein, to the accuracy of the statements of the Company or its
officers made pursuant hereto, to the performance in all material respects by
the Company of its obligations hereunder, and to the following additional
conditions:
(a) The Registration Statement will have become effective not
later than .M., New York City time, on the day following the date of this
Agreement, or at such later time or on such later date as the Underwriter may
agree to in writing; prior to the Closing Date, no stop order suspending the
effectiveness of the Registration Statement will have been issued and no
proceedings for that purpose will have been initiated or will be pending or, to
the best of the Underwriter's or the Company's knowledge, will be contemplated
by the Commission; and any request on the part of the Commission for additional
information will have been complied with to the satisfaction of Underwriter's
Counsel.
(b) At the time that this Agreement is executed and at the
Closing Date, there will have been delivered to the Underwriter a signed opinion
of _______________, counsel for the Company ("Company Counsel"), dated as of the
date hereof or the Closing Date, as the case may be (and any other opinions of
counsel referred to in such opinion of Company Counsel or relied upon by Company
Counsel in rendering their opinion), reasonably satisfactory to Underwriter's
Counsel, to the effect that:
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(i) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of California,
with full power and authority, corporate and other, and with all Permits
necessary to own or lease, as the case may be, and operate its properties,
whether tangible or intangible, and to conduct its business as described in the
Registration Statement. The Company is duly qualified to do business as a
foreign corporation and is in good standing in all jurisdictions wherein such
qualification is necessary and failure so to qualify could have a material
adverse effect on the financial condition, results of operations, business or
properties of the Company. To the best of Company Counsel's knowledge, the
Company has no subsidiaries.
(ii) The Company has full power and authority,
corporate and other, to execute, deliver and perform this Agreement and the
Underwriter's Warrant Agreement and to consummate the transactions contemplated
hereby and thereby. The execution, delivery and performance of this Agreement
and the Underwriter's Warrant Agreement by the Company, the consummation by the
Company of the transactions herein and therein contemplated and the compliance
by the Company with the terms of this Agreement and the Underwriter's Warrant
Agreement have been duly authorized by all necessary corporate action, and this
Agreement [for Closing Date opinion: the Underwriter's Warrant Agreement] has
been duly executed and delivered by the Company. This Agreement is (assuming for
the purposes of this opinion that it is valid and binding upon the other party
thereto) and, when executed and delivered by the Company on the Closing Date,
the Underwriter's Warrant Agreement will be, valid and binding obligations of
the Company, enforceable in accordance with their respective terms, subject, as
to enforcement of remedies, to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the rights of creditors
generally and the discretion of courts in granting equitable remedies and except
that enforceability of the indemnification provisions set forth in Section 7
hereof and the contribution provisions set forth in Section 8 hereof may be
limited by the federal securities laws or public policy underlying such laws.
(iii) The execution, delivery and performance of
this Agreement and the Underwriter's Warrant Agreement by the Company, the
consummation by the Company of the transactions herein and therein contemplated
and the compliance by the Company with the terms of this Agreement and the
Underwriter's Warrant Agreement do not, and will not, with or without the giving
of notice or the lapse of time, or both, (A) result in a violation of the
Articles of Incorporation or By-Laws, each as amended, of the Company, (B)
result
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in a breach of or conflict with any terms or provisions of, or constitute a
default under, or result in the modification or termination of, or result in the
creation or imposition of any lien, security interest, charge or encumbrance
upon any of the properties or assets of the Company pursuant to any indenture,
mortgage, note, contract, commitment or other material agreement or instrument
to which the Company is a party or by which the Company or any of the Company's
properties or assets are or may be bound or affected; (C) violate any existing
applicable law, rule, regulation, judgment, order or decree of any governmental
agency or court, domestic or foreign, having jurisdiction over the Company or
any of the Company's properties or business; or (D) have any effect on any
Permit necessary for the Company to own or lease and operate its properties or
conduct its business or the ability of the Company to make use thereof.
(iv) To the best of Company Counsel's knowledge, no
Permits of any court or governmental agency or body (other than under the Act,
the Regulations and applicable state securities or Blue Sky laws) are required
for the valid authorization, issuance, sale and delivery of the Shares or the
Underwriter's Warrants to the Underwriter, and the consummation by the Company
of the transactions contemplated by this Agreement or the Underwriter's Warrant
Agreement.
(v) The Registration Statement has become effective
under the Act; to the best of Company Counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been issued, and
no proceedings for that purpose have been instituted or are pending, threatened
or contemplated under the Act or applicable state securities laws.
(vi) The Registration Statement and the Prospectus,
as of the Effective Date, and each amendment or supplement thereto as of its
effective or issue date (except for the financial statements and other financial
data included therein or omitted therefrom, as to which Company Counsel need not
express an opinion) comply as to form in all material respects with the
requirements of the Act and Regulations and the conditions for use of a
registration statement on Form SB-2 have been satisfied by the Company.
(vii) The descriptions in the Registration Statement
and the Prospectus of statutes, regulations, government classifications,
contracts and other documents (including opinions of such counsel); and the
response to Item 13 of Form SB-2 have been reviewed by Company Counsel, and,
based upon such review, are accurate in all material respects and present fairly
the information required to be disclosed, and there are no material statutes,
regulations or government classifications, or, to the best of Company Counsel's
knowledge, material contracts or documents, of a character required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration State ment, which are not so described or filed as
required.
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None of the material provisions of the
contracts or instruments described above violates any existing applicable law,
rule, regulation, judgment, order or decree of any governmental agency or court
having jurisdiction over the Company or any of its assets or business.
(viii) The outstanding Common Shares and Preferred
Shares and outstanding options and warrants to purchase Common Shares have been
duly authorized and validly issued. The outstanding Common Shares and Preferred
Shares are fully paid and nonassessable. The outstanding options and warrants to
purchase Common Shares constitute the valid and binding obligations of the
Company, enforceable in accordance with their terms. None of the outstanding
Common Shares or Preferred Shares or options or warrants to purchase Common
Shares has been issued in violation of the preemptive rights of any shareholder
of the Company. None of the holders of the outstanding Common Shares or
Preferred Shares is subject to personal liability solely by reason of being such
a holder. The offers and sales of the outstanding Common Shares and Preferred
Shares and outstanding options and warrants to purchase Common Shares were at
all relevant times either registered under the Act and the applicable state
securities or Blue Sky laws or exempt from such registration requirements. The
authorized Common Shares and Preferred Shares and outstanding options and
warrants to purchase Common Shares conform to the descriptions thereof contained
in the Registration Statement and Prospectus. To the best of Company Counsel's
knowledge, except as set forth in the Prospectus, no holders of any of the
Company's securities has any rights, "demand", "piggyback" or otherwise, to have
such securities registered under the Act.
(ix) The issuance and sale of the Shares have been
duly authorized and, when the Shares have been issued and duly delivered against
payment therefor as contemplated by this Agreement, the Shares will be validly
issued, fully paid and nonassessable, and the holders thereof will not be
subject to personal liability solely by reason of being such holders. The Shares
are not subject to preemptive rights of any shareholder of the Company. The
certificates representing the Shares are in proper legal form.
(x) The issuance and sale of the Common Shares
issuable upon exercise of the Underwriter's Warrants have been duly authorized
and, when such Common Shares have been duly delivered against payment therefor,
as contemplated by the Underwriter's Warrant Agreement, such Common Shares will
be validly issued, fully paid and nonassessable. Holders of Common Shares
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issuable upon exercise of the Underwriter's Warrants will not be subject to
personal liability solely by reason of being such holders. Neither the
Underwriter's Warrants nor the Common Shares issuable upon exercise thereof will
be subject to preemptive rights of any shareholder of the Company. The Warrant
Shares issuable upon exercise of the Underwriter's Warrants have been duly
reserved for issuance upon exercise of the Underwriter's Warrants in accordance
with the provisions of the Underwriter's Warrant Agreement. The Underwriter's
Warrants conform to the descriptions thereof in the Registration Statement and
Prospectus.
(xi) Upon delivery of the Offered Shares to the
Underwriter against payment therefor as provided in this Agreement, the
Underwriter (assuming it is a bona fide purchaser within the meaning of the
Uniform Commercial Code) will acquire good title to the Offered Shares, free and
clear of all liens, encumbrances, equities, security interests and claims.
(xii) Assuming that the Underwriter exer cises the
over-allotment option to purchase any of the Optional Shares and makes payment
therefor in accordance with the terms of this Agreement, upon delivery of the
Optional Shares to the Underwriter hereunder, the Underwriter (assuming it is a
bona fide purchaser within the meaning of the Uniform Commercial Code) will
acquire good title to such Optional Shares, free and clear of any liens,
encumbrances, equities, security interests and claims.
(xiii) To the best of Company Counsel's knowledge,
there are no claims, actions, suits, proceedings, arbitrations, investigations
or inquiries before any governmental agency, court or tribunal, foreign or
domestic, or before any private arbitration tribunal, pending or threatened
against the Company, or involving the Company's properties or business, other
than as described in the Prospectus, such description being accurate, and other
than litigation incident to the kind of business conducted by the Company which,
individually and in the aggregate, is not material.
(xiv) The Company owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks, service
marks, copyrights, rights, trade secrets, confidential information, processes
and formulations used or proposed to be used in the conduct of its business as
described in the Prospectus (collectively the "Intan gibles"); to the best of
Company Counsel's knowledge, the Company has not infringed and is not infringing
with the rights of others with respect to the Intangibles; and, to the best of
Company Counsel's knowledge, the Company has not received any notice that
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it has or may have infringed, is infringing upon or is conflicting with the
asserted rights of others with respect to the Intangibles which might, singly or
in the aggregate, materially adversely affect its business, results of
operations or financial condition and such counsel is not aware of any licenses
with respect to the Intangibles which are required to be obtained by the
Company. The opinions described in this Section 6(b)(xiv) may be given by
Company Counsel in reliance on the opinion of an attorney, reasonably acceptable
to Underwriter's Counsel, practicing in the patent area.
(xv) Company Counsel has participated in reviews and
discussions in connection with the preparation of the Registration Statement and
the Prospectus, and in the course of such reviews and discussions and such other
investigation as Company Counsel deemed necessary, no facts came to its
attention which lead it to believe that (A) the Registration Statement (except
as to the financial statements and other financial data contained therein, as to
which Company Counsel need not express an opinion), on the Effective Date,
contained any untrue statement of a material fact required to be stated therein
or omitted to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, or that (B) the Prospectus (except as to the
financial statements and other financial data contained therein, as to which
Company Counsel need not express an opinion) contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
In rendering its opinion pursuant to this
Section 6(b), Company Counsel may rely upon the certificates of government
officials and officers of the Company as to matters of fact, provided that
Company Counsel shall state that they have no reason to believe, and do not
believe, that they are not justified in relying upon such opinions or such
certificates of government officials and officers of the Company as to matters
of fact, as the case may be.
The opinion letter delivered pursuant to
this Section 6(b) shall state that any opinion given therein qualified by the
phrase "to the best of our knowledge" is being given by Company Counsel after
due investigation of the matters therein discussed.
(c) At the Closing Date, there will have been delivered to the
Underwriter a signed opinion of Underwriter's Counsel, dated as of the Closing
Date, to the effect that the opinions delivered pursuant to Section 6(b) hereof
appear on their face to be appropriately responsive to the requirements of this
Agreement, except to the extent waived by the Underwriter, specifying the same,
and with respect to such related matters as the Underwriter may require.
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(d) At the Closing Date (i) the Registration Statement and the
Prospectus and any amendments or supplements thereto will contain all material
statements which are required to be stated therein in accordance with the Act
and the Regulations and will conform in all material respects to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; (ii)
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, there will not have been any material adverse
change in the financial condition, results of operations or general affairs of
the Company from that set forth or contemplated in the Registration Statement
and the Prospectus, except changes which the Registration Statement and the
Prospectus indicate might occur after the Effective Date; (iii) since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, there shall have been no material transaction, contract or
agreement entered into by the Company, other than in the ordinary course of
business, which would be required to be set forth in the Registration Statement
and the Prospectus, other than as set forth therein; and (iv) no action, suit or
proceeding at law or in equity will be pending or, to the best of the Company's
knowledge, threatened against the Company which is required to be set forth in
the Registration Statement and the Prospectus, other than as set forth therein,
and no proceedings will be pending or, to the best of the Company's knowledge,
threatened against the Company before or by any federal, state or other
commission, board or administrative agency wherein an unfavorable decision,
ruling or finding would materially adversely affect the business, property,
financial condition or results of operations of the Company, other than as set
forth in the Registration Statement and the Prospectus. At the Closing Date,
there will be delivered to the Underwriter a certificate signed by the Chairman
of the Board or the President or a Vice President of the Company, dated the
Closing Date, evidencing compliance with the provisions of this Section 6(d) and
stating that the representations and warranties of the Company set forth in
Section 4 hereof were accurate and complete in all material respects when made
on the date hereof and are accurate and complete in all material respects on the
Closing Date as if then made; that the Company has performed all covenants and
complied with all conditions required by this Agreement to be performed or
complied with by the Company prior to or as of the Closing Date; and that, as of
the Closing Date, no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
initiated or, to the best of his knowledge, are contemplated or threatened. In
addition, the Underwriter will have received such other and further certificates
of officers of the Company as the Underwriter or Underwriter's Counsel may
reasonably request.
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(e) At the time that this Agreement is executed and at the
Closing Date, the Underwriter will have received a signed letter from Cooper &
Lybrand LLP, dated the date such letter is to be received by the Underwriter and
addressed to it, confirming that it is a firm of independent public accountants
within the meaning of the Act and Regulations and stating that: (i) insofar as
reported on by them, in their opinion, the financial statements of the Company
included in the Prospectus comply as to form in all material respects with the
applicable accounting requirements of the Act and the applicable Regulations;
(ii) on the basis of procedures and inquiries (not constituting an examination
in accordance with generally accepted auditing standards) consisting of a
reading of the unaudited interim financial statements of the Company, if any,
appearing in the Registration Statement and the Prospectus and the latest
available unaudited interim financial statements of the Company, if more recent
than that appearing in the Registration Statement and Prospectus, inquiries of
officers of the Company responsible for financial and accounting matters as to
the transactions and events subsequent to the date of the latest audited
financial statements of the Company, and a reading of the minutes of meetings
of the shareholders, the Board of Directors of the Company and any committees of
the Board of Directors, as set forth in the minute books of the Company, nothing
has come to their attention which, in their judgment, would indicate that (A)
during the period from the date of the latest financial statements of the
Company appearing in the Registration Statement and Prospectus to a specified
date not more than three business days prior to the date of such letter, there
have been any decreases in net current assets or net assets as compared with
amounts shown in such financial statements or decreases in net sales or
decreases [increases] in total or per share net income [loss] compared with the
corresponding period in the preceding year or any change in the capitalization
or long-term debt of the Company, except in all cases as set forth in or
contemplated by the Registration Statement and the Prospectus, and (B) the
unaudited interim financial statements of the Company, if any, appearing in the
Registration Statement and the Prospectus, do not comply as to form in all
material respects with the applicable accounting requirements of the Act and the
Regulations or are not fairly presented in conformity with generally accepted
accounting principles and practices on a basis substantially consistent with the
audited financial statements included in the Registration Statement or the
Prospectus; and (iii) they have compared specific dollar amounts, numbers of
shares, numerical data, percentages of revenues and earnings, and other
financial information pertaining to the Company set forth in the Prospectus
(with respect to all dollar amounts, numbers of shares, percentages and other
financial information contained in the Prospectus, to the extent that such
amounts, numbers, percentages and information may be derived from the general
accounting records of the Company, and excluding any questions requiring an
interpretation by legal counsel) with the results obtained from the application
of specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter, and found them to be in
agreement.
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(f) There shall have been duly tendered to the Underwriter
certificates representing the Offered Shares to be sold on the Closing Date.
(g) The NASD shall have indicated that it has no objection to
the underwriting arrangements pertaining to the sale of the Shares by the
Underwriter.
(h) No action shall have been taken by the Commission or the
NASD the effect of which would make it improper, at any time prior to the
Closing Date or the Option Closing Date, as the case may be, for any member firm
of the NASD to execute transactions (as principal or as agent) in the Shares,
and no proceedings for the purpose of taking such action shall have been
instituted or shall be pending, or, to the best of the Underwriter's or the
Company's knowledge, shall be contemplated by the Commission or the NASD. The
Company represents at the date hereof, and shall represent as of the Closing
Date or Option Closing Date, as the case may be, that it has no knowledge that
any such action is in fact contemplated by the Commission or the NASD.
(i) The Company meets the current and any existing and
proposed criteria for inclusion of the Shares in Nasdaq.
(j) All proceedings taken at or prior to the Closing Date or
the Option Closing Date, as the case may be, in connection with the
authorization, issuance and sale of the Shares shall be reasonably satisfactory
in form and substance to the Underwriter and to Underwriter's Counsel, and such
counsel shall have been furnished with all such documents, certificates and
opinions as they may request for the purpose of enabling them to pass upon the
matters referred to in Section 6(c) hereof and in order to evidence the accuracy
and completeness of any of the representations, warranties or statements of the
Company, the performance of any covenants of the Company, or the compliance by
the Company with any of the conditions herein contained.
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(k) As of the date hereof, the Company will have delivered to
the Underwriter the written undertakings of its officers, directors,
securityholders and/or registration rights holders, as the case may be, to the
effect of the matters set forth in Sections 5(l) and (q).
If any of the conditions specified in this Section 6 have not
been fulfilled, this Agreement may be terminated by the Underwriter on notice to
the Company.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Underwriter, each officer, director, partner, employee and agent of the
Underwriter, and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from and
against any and all losses, claims, damages, expenses or liabilities, joint or
several (and actions in respect thereof), to which they or any of them may
become subject under the Act or under any other statute or at common law or
otherwise, and, except as hereinafter provided, will reimburse the Underwriter
and each such person, if any, for any legal or other expenses reasonably
incurred by them or any of them in connection with investigating or defending
any actions, whether or not resulting in any liability, insofar as such losses,
claims, damages, expenses, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained
(i) in the Registration Statement, in any Preliminary Prospectus or in the
Prospectus (or the Registration Statement or Prospectus as from time to time
amended or supplemented) or (ii) in any application or other document executed
by the Company, or based upon written information furnished by or on behalf of
the Company, filed in any jurisdiction in order to qualify the Shares under the
securities laws thereof (hereinafter "application"), or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, in light of the circumstances under which they were
made, unless such untrue statement or omission was made in such Registration
Statement, Preliminary Prospectus, Prospectus or application in reliance upon
and in conformity with information furnished in writing to the Company in
connection therewith by the Underwriter or any such person through the
Underwriter expressly for use therein; provided, however, that the indemnity
agreement contained in this Section 7(a) with respect to any Preliminary
Prospectus will not inure to the benefit of the Underwriter (or to the benefit
of any other person that may be indemnified pursuant to this Section 7(a)) if
(A) the person asserting any such losses, claims, damages, expenses or
liabilities purchased the Shares which are the subject thereof from the
Underwriter or other indemnified person; (B) the Underwriter or other
indemnified person failed to send or give a copy of the Prospectus to such
person at or prior to the written confirmation of the sale of such Shares to
such person; and (C) the Prospectus did not contain any untrue statement or
alleged untrue statement or omission or alleged omission giving rise to such
cause, claim, damage, expense or liability.
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(b) The Underwriter agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from
and against any and all losses, claims, damages, expenses or liabilities, joint
or several (and actions in respect thereof), to which they or any of them may
become subject under the Act or under any other statute or at common law or
otherwise, and, except as hereinafter provided, will reimburse the Company and
each such director, officer or controlling person for any legal or other
expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions, whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained (i) in the Registration Statement, in any
Preliminary Prospectus or in the Prospectus (or the Registration Statement or
Prospectus as from time to time amended or supplemented) or (ii) in any
application (including any application for registration of the Shares under
state securities or Blue Sky laws), or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading, in light of the circumstances under which they were made, but only
insofar as any such statement or omission was made in reliance upon and in
conformity with information furnished in writing to the Company in connection
therewith by the Underwriter expressly for use therein.
(c) Promptly after receipt of notice of the commencement of
any action in respect of which indemnity may be sought against any indemnifying
party under this Section 7, the indemnified party will notify the indemnifying
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party in writing of the commencement thereof, and the indemnifying party will,
subject to the provisions hereinafter stated, assume the defense of such action
(including the employment of counsel satisfactory to the indemnified party and
the payment of expenses) insofar as such action relates to an alleged liability
in respect of which indemnity may be sought against the indemnifying party.
After notice from the indemnifying party of its election to assume the defense
of such claim or action, the indemnifying party shall no longer be liable to the
indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
if, in the reasonable judgment of the indemnified party or parties, it is
advisable for the indemnified party or parties to be represented by separate
counsel, the indemnified party or parties shall have the right to employ a
single counsel to represent the indemnified parties who may be subject to
liability arising out of any claim in respect of which indemnity may be sought
by the indemnified parties thereof against the indemnifying party, in which
event the fees and expenses of such separate counsel shall be borne by the
indemnifying party. Any party against whom indemnification may be sought under
this Section 7 shall not be liable to indemnify any person that might otherwise
be indemnified pursuant hereto for any settlement of any action effected without
such indemnifying party's consent, which consent shall not be unreasonably
withheld.
8. Contribution. To provide for just and equitable contribution, if (i)
an indemnified party makes a claim for indemnification pursuant to Section 7
hereof (subject to the limitations thereof) and it is finally determined, by a
judgment, order or decree not subject to further appeal, that such claim for
indemnification may not be enforced, even though this Agreement expressly
provides for indemnification in such case; or (ii) any indemnified or
indemnifying party seeks contribution under the Act, the Exchange Act, or
otherwise, then the Company (including, for this purpose, any contribution made
by or on behalf of any director of the Company, any officer of the Company who
signed the Registration Statement and any controlling person of the Company) as
one entity and the Underwriter (including, for this purpose, any contribution by
or on behalf of each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and each
officer, director, partner, employee and agent of the Underwriter) as a second
entity, shall contribute to the losses, liabilities, claims, damages and
expenses whatsoever to which any of them may be subject, so that the Underwriter
is responsible for the proportion thereof equal to the percentage which the
underwriting discount per Share set forth on the cover page of the Prospectus
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represents of the initial public offering price per Share set forth on the cover
page of the Prospectus and the Company is responsible for the remaining portion;
provided, how ever, that if applicable law does not permit such allocation,
then, if applicable law permits, other relevant equitable considerations such
as the relative fault of the Company and the Underwriter in connection with the
facts which resulted in such losses, liabilities, claims, damages and expenses
shall also be considered. The relative fault, in the case of an untrue
statement, alleged untrue statement, omission or alleged omission, shall be
determined by, among other things, whether such state ment, alleged statement,
omission or alleged omission relates to information supplied by the Company or
by the Underwriter, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement, alleged
statement, omission or alleged omission. The Company and the Underwriter agree
that it would be unjust and inequitable if the respective obligations of the
Company and the Underwriter for contribution were determined by pro rata or per
capita allocation of the aggregate losses, liabilities, claims, damages and
expenses or by any other method of allocation that does not reflect the
equitable considerations referred to in this Section 8. No person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
will be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person, if
any, who controls the Underwriter within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act and each officer, director, partner, employee
and agent of the Underwriter will have the same rights to contribution as the
Underwriter, and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who has signed the Registration Statement and each
director of the Company will have the same rights to contribution as the
Company, subject in each case to the provisions of this Section 8. Anything in
this Section 8 to the contrary notwithstanding, no party will be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 8 is intended to supersede, to the
extent permitted by law, any right to contribution under the Act or the Exchange
Act or otherwise available.
9. Survival of Indemnities, Contribution, Warranties and
Representations. The respective indemnity and contribution agreements of the
Company and the Underwriter contained in Sections 7 and 8 hereof, and the
representations and warranties of the Company contained herein shall remain
operative and in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on behalf of the
Underwriter, the Company or any of its directors and officers, or any
controlling person referred to in said Sections, and shall survive the delivery
of, and payment for, the Shares.
10. Termination of Agreement.
(a) The Company, by written or telegraphic notice to the
Underwriter, or the Underwriter, by written or telegraphic notice to the
Company, may terminate this Agreement prior to the earlier of (i) 11:00 A.M.,
New York City time, on the first full business day after the Effective Date; or
(ii) the time when the Underwriter, after the Registration Statement becomes
effective, releases the Offered Shares for public offering. The time when the
Underwriter "releases the Offered Shares for public offering" for the purposes
of this Section 10 means the time when the Underwriter releases for publication
the first newspaper advertisement, which is subsequently published, relating to
the Offered Shares, or the time when the Underwriter releases for delivery to
members of a selling group copies of the Prospectus and an offering letter or an
offering telegram relating to the Offered Shares, whichever will first occur.
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(b) This Agreement, including without limitation, the
obligation to purchase the Shares and the obligation to purchase the Optional
Shares after exercise of the option referred to in Section 3 hereof, are subject
to termination in the absolute discretion of the Underwriter, by notice given to
the Company prior to delivery of and payment for all the Offered Shares or such
Optional Shares, as the case may be, if, prior to such time, any of the
following shall have occurred: (i) the Company withdraws the Registration
Statement from the Commission or the Company does not or cannot expeditiously
proceed with the public offering; (ii) the representations and warranties in
Section 4 hereof are not materially correct or cannot be complied with; (iii)
trading in securities generally on the New York Stock Exchange or the American
Stock Exchange will have been suspended; (iv) limited or minimum prices will
have been established on either such Exchange; (v) a banking moratorium will
have been declared either by federal or New York State authorities; (vi) any
other restrictions on transactions in securities materially affecting the free
market for securities or the payment for such securities, including the Offered
Shares or the Optional Shares, will be established by either of such Exchanges,
by the Commission, by any other federal or state agency, by action of the
Congress or by Executive Order; (vii) trading in any securities of the Company
shall have been suspended or halted by any national securities exchange, the
NASD or the Commission; (viii) there has been a materially adverse change in the
condition (financial or otherwise), prospects or obligations of the Company;
(ix) the Company will have sustained a material loss, whether or not insured, by
reason of fire, flood, accident or other calamity; (x) any action has been taken
by the government of the United States or any department or agency thereof
which, in the judgment of the Underwriter, has had a material adverse effect
upon the market or potential market for securities in general; or (xi) the
market for securities in general or political, financial or economic conditions
will have so materially adversely changed that, in the judgment of the
Underwriter, it will be impracticable to offer for sale, or to enforce contracts
made by the Underwriter for the resale of, the Offered Shares or the Optional
Shares, as the case may be.
(c) If this Agreement is terminated pursuant to Section 6
hereof or this Section 10 or if the purchases provided for herein are not
consummated because any condition of the Underwriter's obligations hereunder is
not satisfied or because of any refusal, inability or failure on the part of the
Company to comply with any of the terms or to fulfill any of the conditions of
this Agreement, or if for any reason the Company shall be unable to or does not
perform all of its obligations under this Agreement, the Company will not be
liable to the Underwriter for damages on account of loss of anticipated profits
arising out of the transactions covered by this Agreement, but the Company will
remain liable to the extent provided in Sections 5(j), 7, 8 and 9 of this
Agreement.
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<PAGE>
11. Information Furnished by the Underwriter to the Company. It is
hereby acknowledged and agreed by the parties hereto that for the purposes of
this Agreement, including, without limitation, Sections 4(f), 7(a), 7(b) and 8
hereof, the only information given by the Underwriter to the Company for use in
the Prospectus are the statements set forth in the last sentence of the last
paragraph on the cover page, the statement appearing in the last paragraph on
page __ with respect to stabilizing the market price of Shares, the information
in the __ paragraph on page __ with respect to concessions and reallowances, and
the information in the ___ paragraph on page ___ with respect to the
determination of the public offering price, as such information appears in any
Preliminary Prospectus and in the Prospectus.
12. Notices and Governing Law. All communications hereunder will be in
writing and, except as otherwise provided, will be delivered at, or mailed by
certified mail, return receipt requested, or telegraphed to, the following
addresses: if to the Underwriter, to Whale Securities Co., L.P., 650 Fifth
Avenue, New York, New York 10019 with a copy to Tenzer Greenblatt LLP,
Attention: Robert J. Mittman, Esq., 405 Lexington Avenue, New York, New York
10174; if to the Company, addressed to it at 2560 Ninth Street, Suite 220,
Berkeley, California 94710, with a copy to _____________________,
__________________.
This Agreement shall be deemed to have been made
and delivered in New York City and shall be governed as to validity,
interpretation, construction, effect and in all other respects by the internal
laws of the State of New York. The Company (1) agrees that any legal suit,
action or proceeding arising out of or relating to this Agreement shall be
instituted exclusively in New York State Supreme Court, County of New York, or
in the United States District Court for the Southern District of New York, (2)
waives any objection which the Company may have now or hereafter to the venue of
any such suit, action or proceeding, and (3) irrevocably consents to the
jurisdiction of the New York State Supreme Court, County of New York, and the
United States District Court for the Southern District of New York in any such
suit, action or proceeding. The Company further agrees to accept and acknowledge
service of any and all process which may be served in any such suit, action or
proceeding in the New York State Supreme Court, County of New York, or in the
United States District Court for the Southern District of New York and agrees
that service of process upon the Company mailed by certified mail to the
Company's address shall be deemed in every respect effective service of process
upon the Company, in any such suit, action or proceeding.
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<PAGE>
13. Parties in Interest. This Agreement is made solely for the benefit
of the Underwriter, the Company and, to the extent expressed, any person
controlling the Company or the Underwriter, each officer, director, partner,
employee and agent of the Underwriter, the directors of the Company, its
officers who have signed the Registration Statement, and their respective
executors, administrators, successors and assigns, and, no other person will
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" will not include any purchaser of the Shares from the
Underwriter, as such purchaser.
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<PAGE>
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement between the Company and the
Underwriter in accordance with its terms.
Very truly yours,
HEALTHDESK CORPORATION
By_______________________
Name:
Title:
Confirmed and accepted in
New York, N.Y., as of the
date first above written:
WHALE SECURITIES CO., L.P.
By: Whale Securities Corp.,
General Partner
By: _________________________
Name:
Title:
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<PAGE>
HEALTHDESK CORPORATION
A California Corporation
and
AMERICAN STOCK TRANSFER AND TRUST COMPANY
Warrant Agent
and
WHALE SECURITIES CO., L.P.
Underwriter
WARRANT AGREEMENT
<PAGE>
Table of Contents
------------------
Section Page
- ------- ----
1 Appointment of Warrant Agent ................... 1
2 Form of Warrant ............................... 2
3 Countersignature and Registration .............. 3
4 Transfers and Exchanges ........................ 3
5 Exercise of Warrants; Payment of Warrant
Solicitation Fee ............................ 4
6 Payment of Taxes ............................... 8
7 Mutilated or Missing Warrants .................. 9
8 Reservation of Common Stock .................... 9
9 Warrant Price; Adjustments ..................... 11
10 Fractional Interest ............................ 18
11 Notices to Warrantholders ...................... 18
12 Disposition of Proceeds on Exercise of
Warrants ....................................... 20
13 Redemption of Warrants ......................... 21
14 Merger or Consolidation or Change of Name
of Warrant Agent ............................... 21
15 Duties of Warrant Agent ........................ 22
16 Change of Warrant Agent ........................ 26
17 Identity of Transfer Agent ..................... 27
18 Notices ........................................ 27
19 Supplements and Amendments ..................... 29
20 New York Contract .............................. 29
21 Benefits of this Agreement ..................... 30
22 Successors ..................................... 30
Exhibit A - Form of Warrant ....................
<PAGE>
WARRANT AGREEMENT dated as of __________, 1997, by and among
HealthDesk Corporation, a Washington corporation (the "Company"), Whale
Securities, Co., L.P. (the "Underwriter") and American Stock Transfer and Trust
Company, as warrant agent (hereinafter called the "Warrant Agent").
WHEREAS, the Company proposes to issue and sell to the public
up to 1,800,000 shares of the common stock of the Company, no par value
(hereinafter, together with the stock of any other class to which such shares
may hereafter have been changed, called "Common Stock"), and up to 1,800,000
Common Stock Purchase Warrants (the "Warrants");
WHEREAS, each Warrant will entitle the holder to pur-
chase one share of Common Stock;
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing to so act, in connection
with the issuance, registration, transfer, exchange and exercise of the
Warrants;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereto agree as follows:
Section 1. Appointment of Warrant Agent. The Company hereby
appoints the Warrant Agent to act as Warrant Agent for the Company in accordance
with the instructions hereinafter set forth in this Agreement, and the Warrant
Agent hereby accepts such appointment.
<PAGE>
Section 2. Form of Warrant. The text of the Warrants and of
the form of election to purchase Common Stock to be printed on the reverse
thereof shall be substantially as set forth in Exhibit A attached hereto. Each
Warrant shall entitle the registered holder thereof to purchase one share of
Common Stock at a purchase price of five Dollars ($5.00), at any time from
___________, 1998 until 5:00 p.m. Eastern time, on __________, 2002 (the
"Warrant Exercise Period"). The warrant price and the number of shares of Common
Stock issuable upon exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, all as hereinafter provided. The Warrants shall be
executed on behalf of the Company by the manual or facsimile signature of the
present or any future Chief Executive Officer, President or Vice President of
the Company, attested to by the manual or facsimile signature of the present or
any future Secretary or Assistant Secretary of the Company.
Warrants shall be dated as of the issuance by the Warrant
Agent either upon initial issuance or upon transfer or exchange.
In the event the aforesaid expiration dates of the Warrants
fall on a Saturday or Sunday, or on a legal holiday on which the New York Stock
Exchange is closed, then the Warrants shall expire at 5:00 p.m. Eastern time on
the next succeeding business day.
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<PAGE>
Section 3. Countersignature and Registration. The Warrant
Agent shall maintain books for the transfer and registration of the Warrants.
Upon the initial issuance of the Warrants, the Warrant Agent shall issue and
register the Warrants in the names of the respective holders thereof. The
Warrants shall be countersigned manually or by facsimile by the Warrant Agent
(or by any successor to the Warrant Agent then acting as warrant agent under
this Agreement) and shall not be valid for any purpose unless so countersigned.
Warrants may, however, be so countersigned by the Warrant Agent (or by its
successor as 6 Warrant Agent) and be delivered by the Warrant Agent,
notwithstanding that the persons whose manual or facsimile signatures appear
thereon as proper officers of the Company shall have ceased to be such officers
at the time of such countersignature or delivery.
Section 4. Transfers and Exchanges. The Warrant Agent shall
transfer, from time to time, any outstanding Warrants upon the books to be
maintained by the Warrant Agent for that purpose, upon surrender thereof for
transfer properly endorsed or accompanied by appropriate instructions for
transfer. Upon any such transfer, a new Warrant shall be issued to the
transferee and the surrendered Warrant shall be cancelled by the Warrant Agent.
Warrants so cancelled shall be delivered by the Warrant Agent to the Company
from time to time upon request. Warrants may be exchanged at the option of the
holder thereof, when surrendered at the office of the Warrant Agent, for another
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<PAGE>
Warrant, or other Warrants of different denominations of like tenor and
representing in the aggregate the right to purchase a like number of shares of
Common Stock.
Section 5. Exercise of Warrants; Payment of Warrant
Solicitation Fee.
(a) Subject to the provisions of this
Agreement, each registered holder of Warrants shall have the right, which may be
exercised commencing at the opening of business on the first day of the Warrant
Exercise Period, to purchase from the Company (and the Company shall issue and
sell to such registered holder of Warrants) the number of fully paid and
non-assessable shares of Common Stock specified in such Warrants upon surrender
of such Warrants to the Company at the office of the Warrant Agent, with the
form of election to purchase on the reverse thereof duly filled in and signed,
and upon payment to the Company of the warrant price, determined in accordance
with the provisions of Sections 9 and 10 of this Agreement, for the number of
shares of Common Stock in respect of which such Warrants are then exercised.
Payment of such warrant price shall be made in cash or by certified check or
bank draft to the order of the Company. Subject to Section 6, upon such
surrender of Warrants and payment of the warrant price, the Company shall issue
and cause to be delivered with all reasonable dispatch to or upon the written
order of the registered holder of such Warrants and in such name or names as
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<PAGE>
such registered holder may designate, a certificate or certificates for the
number of full shares of Common Stock so purchased upon the exercise of such
Warrants. Such certificate or certificates shall be deemed to have been issued,
and any person so designated to be named therein shall be deemed to have become
a holder of record of such shares of Common Stock, as of the date of the
surrender of such Warrants and payment of the warrant price as aforesaid. The
rights of purchase represented by the Warrants shall be exercisable, at the
election of the registered holders thereof, either as an entirety or from time
to time for a portion of the shares specified therein and, in the event that any
Warrant is exercised in respect of less than all of the shares of Common Stock
specified therein at any time prior to the date of expiration of the Warrants, a
new Warrant or Warrants will be issued to the registered holder for the
remaining number of shares of Common Stock specified in the Warrant so
surrendered, and the Warrant Agent is hereby irrevocably authorized to
countersign and to deliver the required new Warrants pursuant to the provisions
of this Section and of Section 3 of this Agreement and the Company, whenever
requested by the Warrant Agent, will supply the Warrant Agent with Warrants duly
executed on behalf of the Company for such purpose. Anything in the foregoing to
the contrary notwithstanding, no Warrant will be exercisable unless at the time
of exercise the Company has filed with the Securities and Exchange Commission a
-5-
<PAGE>
registration statement under the Securities Act of 1933, as amended (the "Act"),
covering the shares of Common Stock issuable upon exercise of such Warrant and
such shares have been so registered or qualified or deemed to be exempt under
the securities laws of the state of residence of the holder of such Warrant. The
Company shall use its best efforts to have all shares so registered or qualified
on or before the date on which the Warrants become exercisable.
(b) If at the time of exercise of any Warrant after (i)
________, 1998 (i) the market price of the Company's Common Stock is equal to or
greater than the then purchase price of the Warrant, (ii) the exercise of the
Warrant is solicited by the Underwriter at such time while the Underwriter is a
member of the National Association of Securities Dealers, Inc. ("NASD"), (iii)
the Warrant is not held in a discretionary account, (iv) disclosure of the
compensation arrangement is made in documents provided to the holders of the
Warrants; and (v) the solicitation of the exercise of the Warrant is not in
violation of Rule 10b-6 (as such rule or any successor rule may be in effect as
of such time of exercise) promulgated under the Securities Exchange Act of 1934,
then the Underwriter shall be entitled to receive from the Company upon exercise
of each of the Warrant(s) so exercised a fee of five percent (5%) of the
aggregate price of the Warrants so exercised (the "Exercise Fee"). The
procedures for payment of the warrant solicitation fee are set forth in Section
5(c) below.
-6-
<PAGE>
(c) (1) Within five (5) days of the last day of each month
commencing with _______, 1998 the Warrant Agent will notify the Underwriter of
each Warrant Certificate which has been properly completed for exercise by
holders of Warrants during the last month. The Company and Warrant Agent shall
determine, in their sole and absolute discretion, whether a Warrant Certificate
has been properly completed. The Warrant Agent will provide the Underwriter with
such information, in connection with the exercise of each Warrant, as the
Underwriter shall reasonably request.
(2) The Company hereby authorizes and
instructs the Warrant Agent to deliver to the Underwriter the Exercise Fee
promptly after receipt by the Warrant Agent from the Company of a check payable
to the order of the Underwriter in the amount of the Exercise Fee. The Warrant
Agent shall not issue the shares of Common Stock issuable upon exercise of the
Warrants until receipt and forwarding of such check to the Underwriter. In the
event that an Exercise Fee is paid to the Underwriter with respect to a Warrant
which the Company or the Warrant agent determines is not properly completed for
exercise or in respect of which the Underwriter is not entitled to an Exercise
Fee, the Underwriter will promptly return such Exercise Fee to the Warrant Agent
which shall forthwith return such fee to the Company.
-7-
<PAGE>
The Underwriter and the Company may at any time, after
____________, 1998, and during business hours, examine the records of the
Warrant Agent, including its ledger of original Warrant certificates returned to
the Warrant Agent upon exercise of Warrants. Notwithstanding any provision to
the contrary, the provisions of paragraphs 5(b) and 5(c) may not be modified,
amended or deleted without the prior written consent of the Underwriter.
Section 6. Payment of Taxes. The Company will pay any
documentary stamp taxes attributable to the initial issuance of Common Stock
issuable upon the exercise of Warrants; provided, however, that the Company
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issue or delivery of any certificates of shares of
Common Stock in a name other than that of the registered holder of Warrants in
respect of which such shares are issued, and in such case neither the Company
nor the Warrant Agent shall be required to issue or deliver any certificate for
shares of Common Stock or any Warrant until the person requesting the same has
paid to the Company the amount of such tax or has established to the Company's
satisfaction that such tax has been paid.
Section 7. Mutilated or Missing Warrants. In case any of the
Warrants shall be mutilated, lost, stolen or destroyed, the Company may, in
its discretion, issue and the Warrant Agent shall countersign and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant,
or in lieu of and in substitution for the Warrant lost, stolen or destroyed, a
new Warrant of like tenor and representing an equivalent right or interest, but
only upon receipt of evidence satisfactory to the Company and the Warrant Agent
-8-
<PAGE>
of such loss, theft or destruction and, in case of a lost, stolen or destroyed
Warrant, indemnity, if requested, also satisfactory to them. Applicants for such
substitute Warrants shall also comply with such other reasonable regulations and
pay such reasonable charges as the Company or the Warrant Agent may prescribe.
Section 8. Reservation of Common Stock. There have been
reserved, and the Company shall at all times keep reserved, out of the
authorized and unissued shares of Common Stock, a number of shares of Common
Stock sufficient to provide for the exercise of the rights of purchase
represented by the Warrants, and the transfer agent for the shares of Common
Stock and every subsequent transfer agent for any shares of the Company's Common
Stock issuable upon the exercise of any of the rights of purchase aforesaid are
irrevocably authorized and directed at all times to reserve such number of
authorized and unissued shares of Common Stock as shall be required for such
purpose. The Company agrees that all shares of Common Stock issued upon exercise
of the Warrants shall be, at the time of delivery of the certificates of such
shares, validly issued and outstanding, fully paid and non-assessable and listed
on any national securities exchange upon which the other shares of Common Stock
are then listed. So long as any unexpired Warrants remain outstanding, the
Company will file such post-effective amendments to the registration statement
(Form SB-2, Registration No. 333-14519) (the "Registration Statement") filed
pursuant to the Act with respect to the Warrants (or other appropriate
registration statements or post-effective amendment or supplements) as may be
necessary to permit it to deliver to each person exercising a Warrant, a
prospectus meeting the requirements of Section 10(a)(3) of the Act and otherwise
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<PAGE>
complying therewith, and will deliver such a prospectus to each such person. To
the extent that during any period it is not reasonably likely that the Warrants
will be exercised, due to market price or otherwise, the Company need not file
such a post-effective amendment during such period. The Company will keep a copy
of this Agreement on file with the transfer agent for the shares of Common Stock
and with every subsequent transfer agent for any shares of the Company's Common
Stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Warrant Agent is irrevocably authorized to requisition from time
to time from such transfer agent stock certificates required to honor
outstanding Warrants. The Company will supply such transfer agent with duly
executed stock certificates for that purpose. All Warrants surrendered in the
exercise of the rights thereby evidenced shall be cancelled by the Warrant Agent
and shall thereafter be delivered to the Company, and such cancelled Warrants
-10-
<PAGE>
shall constitute sufficient evidence of the number of shares of Common Stock
which have been issued upon the exercise of such Warrants. Promptly after the
date of expiration of the Warrants, the Warrant Agent shall certify to the
Company the total aggregate amount of Warrants then outstanding, and thereafter
no shares of Common Stock shall be subject to reservation in respect of such
Warrants which shall have expired.
Section 9. Warrant Price; Adjustments.
(a) The warrant price at which Common Stock shall
be purchasable upon the exercise of the Warrants shall be $5.00 per share or
after adjustment, as provided in this Section, shall be such price as so
adjusted (the "Warrant Price").
(b) The Warrant Price shall be subject to adjustment
from time to time as follows:
(i) In case the Company shall at any time
after the date hereof pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock, then upon such dividend or distribution
the Warrant Price in effect immediately prior to such dividend or distribution
shall forthwith be reduced to a price determined by dividing:
(A) an amount equal to the total
number of shares of Common Stock outstanding immediately prior to such dividend
or distribution multiplied by the Warrant Price in effect immediately prior to
such dividend or distribution, by
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<PAGE>
(B) the total number of shares of
Common Stock outstanding immediately after such issuance or sale.
For the purposes of any computation to be
made in accordance with the provisions of this Section 9(b)(i), the following
provisions shall be applicable: Common Stock issuable by way of dividend or
other distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the date following the date
fixed for the determination of stockholders entitled to receive such dividend or
other distribution.
(ii) In case the Company shall at any time
subdivide or combine the outstanding Common Stock, the Warrant Price shall
forthwith be proportionately decreased in the case of subdivision or increased
in the case of combination to the nearest one cent. Any such adjustment shall
become effective at the time such subdivision or combination shall become
effective.
(iii) Within a reasonable time after the
close of each quarterly fiscal period of the Company during which the Warrant
Price has been adjusted as herein provided, the Company shall:
(A) file with the Warrant Agent a
certificate signed by the Chief Executive Officer, President or Vice President
of the Company and by the Treasurer or Assistant Treasurer or the Secretary or
an Assistant Secretary of the Company, showing in detail the facts requiring
all such adjustments occurring during such period and the Warrant Price
after each such adjustment; and
-12-
<PAGE>
(B) the Warrant Agent shall have no
duty with respect to any such certificate filed with it except to keep the same
on file and available for inspection by holders of Warrants during reasonable
business hours, and the Warrant Agent may conclusively rely upon the latest
certificate furnished to it hereunder. The Warrant Agent shall not at any time
be under any duty or responsibility to any holder of a Warrant to determine
whether any facts exist which may require any adjustment of the Warrant Price,
or with respect to the nature or extent of any adjustment of the Warrant Price
when made, or with respect to the method employed in making any such adjustment,
or with respect to the nature or extent of the property or securities
deliverable hereunder. In the absence of a certificate having been furnished,
the Warrant Agent may conclusively rely upon the provisions of the Warrants with
respect to the Common Stock deliverable upon the exercise of the Warrants and
the applicable Warrant Price thereof.
(iv) Notwithstanding anything
contained herein to the contrary, no adjustment of the Warrant Price shall be
made if the amount of such adjustment shall be less than $.05, but in such case
any adjustment that would otherwise be required then to be made shall be carried
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<PAGE>
forward and shall be made at the time and together with the next subsequent
adjustment which, together with any adjustment so carried forward, shall amount
to not less than $.02.
(v) In the event that the number of outstanding
shares of Common Stock is increased by a stock dividend payable in Common Stock
or by a subdivision of the outstanding Common Stock, then, from and after the
time at which the adjusted Warrant Price becomes effective pursuant to
Subsection (b) of this Section by reason of such dividend or subdivision, the
number of shares of Common Stock issuable upon the exercise of each Warrant
shall be increased in proportion to such increase in outstanding shares. In the
event that the number of shares of Common Stock outstanding is decreased by a
combination of the outstanding Common Stock, then, from and after the time at
which the adjusted Warrant Price becomes effective pursuant to this Section 9(b)
by reason of such combination, the number of shares of Common Stock issuable
upon the exercise of each Warrant shall be decreased in proportion to such
decrease in the outstanding shares of Common Stock.
(vi) In case of any reorganization or
reclassification of the outstanding Common Stock (other than a change in par
value, or from par value to no par value, or as a result of a subdivision or
combination), or in case of any consolidation of the Company with, or merger of
the Company into, another corporation (other than a consolidation or merger in
which the Company is the continuing corporation and which does not result in any
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<PAGE>
reclassification of the outstanding Common Stock), or in case of any sale or
conveyance to another corporation of the property of the Company as an entirety
or substantially as an entirety, the holder of each Warrant then outstanding
shall thereafter have the right to purchase the kind and amount of shares of
Common Stock and other securities and property receivable upon such
reorganization, reclassification, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock which the holder of such Warrant
shall then be entitled to purchase; such adjustments shall apply with respect to
all such changes occurring between the date of this Warrant Agreement and the
date of exercise of such Warrant.
(vii) Subject to the provisions of this Section 9, in
case the Company shall, at any time prior to the exercise of the Warrants, make
any distribution of its assets to holders of its Common Stock as a liquidating
or a partial liquidating dividend, then the holder of Warrants who exercises its
Warrants after the record date for the determination of those holders of Common
Stock entitled to such distribution of assets as a liquidating or partial
liquidating dividend shall be entitled to receive for the Warrant Price per
Warrant, in addition to each share of Common Stock, the amount of such
distribution (or, at the option of the Company, a sum equal to the value of any
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<PAGE>
such assets at the time of such distribution as determined by the Board of
Directors of the Company in good faith), which would have been payable to such
holder had he been the holder of record of the Common Stock receivable upon
exercise of its Warrant on the record date for the determination of those
entitled to such distribution.
(viii) In case of the dissolution, liquidation or
winding up of the Company, all rights under the Warrants shall terminate on a
date fixed by the Company, such date to be no earlier than ten (10) days prior
to the effectiveness of such dissolution, liquidation or winding up and not
later than five (5) days prior to such effectiveness. Notice of such termination
of purchase rights shall be given to the last registered holder of the Warrants,
as the same shall appear on the books of the Company maintained by the Warrant
Agent, by registered mail at least thirty (30) days prior to such termination
date.
(ix) In case the Company shall, at any time prior to
the expiration of the Warrants and prior to the exercise thereof, offer to the
holders of its Common Stock any rights to subscribe for additional shares of any
class of the Company, then the Company shall give written notice thereof to the
last registered holder thereof not less than thirty (30) days prior to the date
on which the books of the Company are closed or a record date is fixed for the
determination of the stockholders entitled to such subscription rights. Such
notice shall specify the date as to which the books shall be closed or record
-16-
<PAGE>
date fixed with respect to such offer of subscription and the right of the
holder thereof to participate in such offer of subscription shall terminate if
the Warrant shall not be exercised on or before the date of such closing of the
books or such record date.
(x) Any adjustment pursuant to the aforesaid
provisions of this Section 9 shall be made on the basis of the number of shares
of Common Stock which the holder thereof would have been entitled to acquire by
the exercise of the Warrant immediately prior to the event giving rise to such
adjustment.
(xi) Irrespective of any adjustments in the
Warrant Price or the number or kind of shares purchasable upon exercise of the
Warrants, Warrants previously or thereafter issued may continue to express the
same price and number and kind of shares as are stated in the similar Warrants
initially issuable pursuant to this Warrant Agreement.
(xii) The Company may retain a firm of
independent public accountants (who may be any such firm regularly employed by
the Company) to make any computation required under this Section 9, and any
certificate setting forth such computation signed by such firm shall be
conclusive evidence of the correctness of any computation made under this
Section 9.
(xiii) If at any time, as a result of an
adjustment made pursuant to Section 9(b)(vi) above, the holders of a Warrant or
Warrants shall become entitled to purchase any securities other than shares of
Common Stock, thereafter the number of such securities so purchasable upon
exercise of each Warrant and the Warrant Price for such shares shall be subject
-17-
<PAGE>
to adjustment from time to time in a manner and on terms as nearly equivalent
as practicable to the provisions with respect to the Common Stock contained in
Sections 9(b)(ii) through (v).
Section 10. Fractional Interest. The Warrants may only be
exercised to purchase full shares of Common Stock and the Company shall not be
required to issue fractions of shares of Common Stock on the exercise of
Warrants. However, if a Warrant holder exercises all Warrants then owned of
record by it and such exercise would result in the issuance of a fractional
share, the Company will pay to such Warrant holder, in lieu of the issuance of
any fractional share otherwise issuable, an amount of cash based on the market
value of the Common Stock of the Company on the last trading day prior to the
exercise date.
Section 11. Notices to Warrantholders.
(a) Upon any adjustment of the Warrant Price and the
number of shares of Common Stock issuable upon exercise of a Warrant, then and
in each such case the Company shall give written notice thereof to the Warrant
Agent, which notice shall state the Warrant Price resulting from such adjustment
and the increase or decrease, if any, in the number of shares purchasable at
such price upon the exercise of a Warrant, setting forth in reasonable detail
the method of calculation and the facts upon which such calculation is based.
The Company shall also mail such notice to the holders of the Warrants at their
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addresses appearing in the Warrant register. Failure to give or mail such
notice, or any defect therein, shall not affect the validity of the adjustments.
(b) In case at any time:
(i) the Company shall pay dividends payable
in stock upon its Common Stock or make any distribution (other than regular cash
dividends) to the holders of its Common Stock; or
(ii) the Company shall offer for subscrip-
tion pro rata to the holders of its Common Stock any additional
shares of stock of any class or other rights; or
(iii) there shall be any capital reorgani-
zation or reclassification of the capital stock of the Company, or consolidation
or merger of the Company with, or sale or substantially all of its assets to,
another corporation; or
(iv) there shall be a voluntary or involun-
tary dissolution, liquidation or winding up of the Company; then in any one or
more of such cases, the Company shall give written notice in the manner set
forth in Section 11(a) of the date on which (A) a record shall be taken for such
dividend, distribution or subscription rights, or (B) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up shall take place, as the case may be. Such notice shall also specify
the date as of which the holders of Common Stock of record shall participate in
such dividend, distribution or subscription rights, or shall be entitled to
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exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up as the case may be. Such notice shall be given at
least thirty (30) days prior to the action in question and not less than thirty
(30) days prior to the record date in respect thereof. Failure to give such
notice, or any defect therein, shall not affect the legality or validity of any
of the matters set forth in this Section 11(b).
(c) The Company shall cause copies of all financial
statements and reports, proxy statements and other documents that are sent to
its stockholders to be sent by first-class mail, postage prepaid, on the date of
mailing to such stockholders, to each registered holder of Warrants at his
address appearing in the warrant register as of the record date for the
determination of the stockholders entitled to such documents.
Section 12. Disposition of Proceeds on Exercise of
Warrants.
(i) The Warrant Agent shall promptly forward to
the Company all monies received by the Warrant Agent for the purchase of shares
of Common Stock through the exercise of such Warrants.
(ii) The Warrant Agent shall keep copies of this
Agreement available for inspection by holders of Warrants during normal business
hours.
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Section 13. Redemption of Warrants. The Warrants are
redeemable by the Company upon the consent of the Underwriter, in whole or in
part, on not less than thirty (30) days' prior written notice at a redemption
price of $.10 per Warrant at any time commencing _________, 1998; provided that
(i) the closing sale price of the Common Stock on all thirty (30) trading days
ending on the third day prior to the day on which the Company gives notice of
redemption has been at least 150% of the then effective exercise price of the
Warrants (the "Target Redemption Price") and ii) the Warrants are currently
exercisable]. The redemption notice shall be mailed to the holders of the
Warrants at their addresses appearing in the Warrant register. Holders of the
Warrants will have exercise rights until the close of business on the date fixed
for redemption.
Section 14. Merger or Consolidation or Change of Name of
Warrant Agent. Any corporation or company which may succeed to the corporate
trust business of the Warrant Agent by any merger or consolidation or otherwise
shall be the successor to the Warrant Agent hereunder without the execution or
filing of any paper or any further act on the part of any of the parties hereto,
provided that such corporation would be eligible to serve as a successor Warrant
Agent under the provisions of Section 16 of this Agreement. In case at the time
such successor to the Warrant Agent shall succeed to the agency created by this
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Agreement, any of the Warrants shall have been countersigned but not delivered,
any such successor to the Warrant Agent may adopt the countersignature of the
original Warrant Agent and deliver such Warrants so countersigned.
In case at any time the name of the Warrant Agent shall be
changed and at such time any of the Warrants shall have been countersigned but
not delivered, the Warrant Agent may adopt the countersignature under its prior
name and deliver Warrants so countersigned. In all such cases such Warrants
shall have the full force provided in the Warrants and in the Agreement.
Section 15. Duties of Warrant Agent. The Warrant Agent
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the holders of
Warrants, by their acceptance thereof, shall be bound:
(a) The statements of fact and recitals contained
herein and in the Warrants shall be taken as statements of the Company, and the
Warrant Agent assumes no responsibility for the correctness of any of the same
except such as describe the Warrant Agent or action taken or to be taken by it.
The Warrant Agent assumes no responsibility with respect to the distribution of
the Warrants except as herein expressly provided.
(b) The Warrant Agent shall not be responsible for any failure
of the Company to comply with any of the covenants in this Agreement or in the
Warrants to be complied with by the Company.
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(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant Agent
shall incur no liability or responsibility to the Company or to any holder of
any Warrant in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with the opinion or the advice of such counsel.
(d) The Warrant Agent shall incur no liability or
responsibility to the Company or to any holder of any Warrant for any action
taken in reliance on any notice, resolution, waiver, consent, order, certificate
or other instrument believed by it to be genuine and to have been signed, sent
or presented by the proper party or parties.
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the execution of
this Agreement, to reimburse the Warrant Agent for all expenses, taxes and
governmental charges and other charges incurred by the Warrant Agent in the
execution of this Agreement and to indemnify the Warrant Agent and save it
harmless against any and all liabilities, including judgments, costs and
reasonable counsel fees, for anything done or omitted by the Warrant Agent in
the execution of this Agreement except as a result of the Warrant Agent's
negligence, willful misconduct or bad faith.
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(f) The Warrant Agent shall be under no obligation to
institute any action, suit or legal proceeding or to take any other action
likely to involve expenses unless the Company or one or more registered holders
of Warrants shall furnish the Warrant Agent with reasonable security and
indemnity for any costs and expenses which may be incurred, but this provision
shall not affect the power of the Warrant Agent to take such action as the
Warrant Agent may consider proper, whether with or without any such security or
indemnity. All rights of action under this Agreement or under any of the
Warrants may be enforced by the Warrant Agent without the possession of any of
the Warrants or the production thereof at any trial or other proceeding, and any
such action, suit or proceeding instituted by the Warrant Agent shall be brought
in its name as Warrant Agent, and any recovery of judgment shall be for the
ratable benefit of the registered holders of the Warrants, as their respective
rights and interests may appear.
(g) The Warrant Agent and any stockholder, director, officer,
partner or employee of the Warrant Agent may buy, sell or deal in any of the
Warrants or other securities of the Company or become pecuniarily interested in
any transaction in which the Company may be interested, or contract with or lend
money to or otherwise act as fully and freely as though it were not the Warrant
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<PAGE>
Agent under this Agreement. Nothing herein shall preclude the Warrant Agent from
acting in any other capacity for the Company or for any other legal entity.
(h) The Warrant Agent shall act hereunder solely as agent and
its duties shall be determined solely by the provisions hereof.
(i) The Warrant Agent may execute and exercise any of the rights
or powers hereby vested in it or perform any duty hereunder either itself or by
or through its attorneys, agents or employees, and the Warrant Agent shall not
be answerable or accountable for any such attorneys, agents or employees or for
any loss to the Company resulting from such neglect or misconduct, provided
reasonable care had been exercised in the selection and continued employment
thereof.
(j) Any request, direction, election, order or demand of the
Company shall be sufficiently evidenced by an instrument signed in the name of
the Company by its Chief Executive Officer, President or a Vice President or its
Secretary or an Assistant Secretary or its Treasurer or an Assistant Treasurer
(unless other evidence in respect thereof be herein specifically prescribed);
and any resolution of the Board of Directors may be evidenced to the Warrant
Agent by a copy thereof certified by the Secretary or an Assistant Secretary of
the Company.
Section 16. Change of Warrant Agent. The Warrant
Agent may resign and be discharged from its duties under this Agreement by
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giving to the Company notice in writing, and to the holders of the Warrants
notice by mailing such notice to the holders at their addresses appearing on the
Warrant register, of such resignation, specifying a date when such resignation
shall take effect. The Warrant Agent may be removed by like notice to the
Warrant Agent from the Company and the like mailing of notice to the holders of
the Warrants. If the Warrant Agent shall resign or be removed or shall otherwise
become incapable of acting, the Company shall appoint a successor to the Warrant
Agent. If the Company shall fail to make such appointment within a period of
thirty (30) days after such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Warrant Agent
or after the Company has received such notice from a registered holder of a
Warrant (who shall, with such notice, submit his Warrant for inspection by the
Company), then the registered holder of any Warrant may apply to any court of
competent jurisdiction for the appointment of a successor to the Warrant Agent.
Any successor Warrant Agent, whether appointed by the Company or by such a
court, shall be a bank or trust company, in good standing, incorporated under
New York or federal law. After appointment, the successor Warrant Agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Warrant Agent without further act or deed and the
former Warrant Agent shall deliver and transfer to the successor Warrant Agent
all cancelled Warrants, records and property at the time held by it hereunder,
and execute and deliver any further assurance or conveyance necessary for the
purpose. Failure to file or mail any notice provided for in this Section,
however, or any defect therein, shall not affect the validity of the resignation
or removal of the Warrant Agent or the appointment of the successor Warrant
Agent, as the case may be.
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<PAGE>
Section 17. Identity of Transfer Agent. Forthwith upon the
appointment of any transfer agent for the shares of Common Stock or of any
subsequent transfer agent for the shares of Common Stock or other shares of the
Company's Common Stock issuable upon the exercise of the rights of purchase
represented by the Warrants, the Company will file with the Warrant Agent a
statement setting forth the name and address of such transfer agent.
Section 18. Notices. Any notice pursuant to this Agreement to
be given by the Warrant Agent, or by the registered holder of any Warrant to the
Company, shall be sufficiently given if sent by first-class mail, postage
prepaid, addressed (until another is filed in writing by the Company with the
Warrant Agent) as follows:
HealthDesk Corporation
2560 Ninth Street, Suite 220
Berkeley, California 94710
Attention: Peter O'Donnell
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<PAGE>
and a copy thereof to:
Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, California 94301
Attention: Peter Astiz
Any notice pursuant to this Agreement to be given by the
Company or by the registered holder of any Warrant to the Warrant Agent shall be
sufficiently given if sent by first-class mail, postage prepaid, addressed
(until another address is filed in writing by the Warrant Agent with the
Company) as follows:
American Stock Transfer and Trust Company
40 Wall Street
New York, New York 10005
Attention: George Karfunkel
Any notice pursuant to this Agreement to be given by the
Warrant Agent or by the Company to the Underwriter shall be sufficiently given
if sent by first-class mail, postage prepaid, addressed (until another address
if filed in writing with the Warrant agent) as follows:
Whale Securities Co., L.P.
650 Fifth Avenue
New York, New York 10019
Attention: William G. Walters
and a copy thereof to:
Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attention: Robert J. Mittman, Esq.
Section 19. Supplements and Amendments. The Company and the
Warrant Agent may from time to time supplement or amend this Agreement in order
to cure any ambiguity or to correct or supplement any provision contained herein
which may be defective or inconsistent with any other provision herein, or to
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<PAGE>
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Warrant Agent may deem necessary or desirable and
which shall not be inconsistent with the provisions of the Warrants and which
shall not adversely affect the interest of the holders of Warrants.
Section 20. New York Contract. This Agreement and each Warrant
issued hereunder shall be deemed to be a contract made under the laws of the
State of New York and shall be construed in accordance with the laws of New York
applicable to agreements to be performed wholly within New York.
Section 21. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation other than the
Company, the Warrant Agent and the registered holders of the Warrants any legal
or equitable right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Company, the Warrant Agent
and the registered holders of the Warrants.
Section 22. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company, the Warrant Agent or the
Underwriter shall bind and inure to the benefit of their respective successors
and assigns hereunder.
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<PAGE>
IN WITNESS WHEREOF, the parties have entered into this
Agreement on the date first above written.
HEALTHDESK CORPORATION
By:
-------------------------------------
AMERICAN STOCK TRANSFER
AND TRUST COMPANY
By:
-------------------------------------
WHALE SECURITIES CO., L.P.
By: Whale Securities Corp.,
General Partner
By:
-------------------------------------
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<PAGE>
EXHIBIT 5.1
December 19, 1996
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: HealthDesk Corporation, Registration Statement on Form SB-2
Ladies and Gentlemen:
As counsel to HealthDesk Corporation (the "Company"), we are rendering
this opinion in connection with a proposed sale of those certain shares of
the Company's newly-issued Common Stock and those certain warrants
exercisable for shares of the Company's newly-issued Common Stock as set
forth in the Registration Statement on Form SB-2 to which this opinion is
being filed as Exhibit 5.1 (collectively, the "Shares"). We have examined all
instruments, documents and records which we deemed relevant and necessary for
the basis of our opinion hereinafter expressed. In such examination, we have
assumed the genuineness of all signatures and the authenticity of all
documents submitted to us as originals and the conformity to the originals of
all documents submitted to us as copies.
We express no opinion with respect to (i) the availability of equitable
remedies, including specific performance, or (ii) the effect of bankruptcy,
insolvency, reorganization, moratorium or equitable principles relating to or
limiting creditors' rights generally.
Based on such examination, we are of the opinion that the Shares
identified in the above-referenced Registration Statement will be, upon
effectiveness of the Registration Statement and receipt by the Company of
payment therefor, validly authorized, legally issued, fully paid, and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
above-referenced Registration Statement and to the use of our name wherever
it appears in said Registration Statement, including the Prospectus
constituting a part thereof, as originally filed or as subsequently amended.
Respectfully submitted,
GRAY CARY WARE & FREIDENRICH
A Professional Corporation
<PAGE>
WARRANT AGREEMENT dated as of __________, 1997 between HealthDesk
Corporation, a California corporation (the "Company"), and Whale Securities Co.,
L.P. (hereinafter referred to as the "Underwriter").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Underwriter warrants (the
"Warrants") to purchase up to 180,000 (as such number may be adjusted from time
to time pursuant to Article 8 of this Warrant Agreement) shares (the "Shares")
of Common Stock, no par value (the "Common Stock"), of the Company, and up to
180,000 (as such number may be adjusted from time to time pursuant to Article 8
of this Warrant Agreement) Common Stock purchase warrants (the "Underlying
Warrants"); and
WHEREAS, the Underwriter has agreed, pursuant to the underwriting
agreement (the "Underwriting Agreement") dated _____________, 1997 between the
Underwriter and the Company, to act as the underwriter in connection with the
Company's proposed public offering (the "Public Offering") of 1,800,000 shares
of Common Stock (the "Public Shares") at an initial public offering price of
$5.00 per Public Share and 1,800,000 warrants (the "Public Warrants") at an
initial public offering price of $.10 per Public Warrant; and
WHEREAS, the Warrants issued pursuant to this Agreement are being
issued by the Company to the Underwriter or to its designees who are directors,
officers and partners of the Underwriter or to members of the selling group
participating in the distribution of the Public Shares and Public Warrants to
the public in the Public Offering and/or their respective directors, officers or
partners (collectively, the "Designees"), in consideration for, and as part of
the Underwriter's compensation in connection with, the Underwriter acting as the
Underwriter pursuant to the Underwriting Agreement;
<PAGE>
NOW, THEREFORE, in consideration of the premises, the payment by the
Underwriter or its designees to the Company of ONE HUNDRED NINETY EIGHT DOLLARS
($198), the agreements herein set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Grant.
The Underwriter and/or the Designees are hereby granted the right to purchase,
at any time from _____________, 1997 until 5:00 P.M., New York time, on
_________, 2002 (the "Warrant Exercise Term"), up to 180,000 fully-paid and
non-assessable Shares at an initial exercise price (subject to adjustment as
provided in Article 6 hereof) of $6.60 per Share and up to 180,000 Underlying
Warrants at an initial exercise price (subject to adjustment as provided in
Article 6 hereof) of $.132 per Underlying Warrant. The Underlying Warrants are
each exercisable to purchase are fully-paid and non-assessable share of Common
Stock at a price of $8.25 per share (the "Underlying Warrant Shares"). The
Underlying Warrants are exercisable at any time until 5:00 P.M., New York
City time on ________, 2002. The Holder may purchase, upon exercise of this
Warrant, either the Shares or the Underlying Warrants or both. Except as
provided in Article 13 hereof, the Shares and the Underlying Warrants are in all
respects identical to the Public Shares and Public Warrants being sold to the
public pursuant to the terms and provisions of the Underwriting Agreement.
2. Warrant Certificates.
The warrant certificates delivered and to be delivered pursuant to this
Agreement (the "Warrant Certificates") shall be, for the Warrants exercisable
for the purchase of Underlying Shares, in the form set forth in Exhibit A
attached hereto and made a part hereof, and, for the Warrants exercisable for
the purchase of Underlying Warrants, in the form of Exhibit B attached hereto
and made a part hereof, each with such appropriate insertions, omissions,
substitutions and other variations as required or permitted by this Agreement.
3. Exercise of Warrant.
3.1. Cash Exercise. The Warrants initially are exercisable at a price
of $6.60 per Share purchased and $.132 per Underlying Warrant purchased, payable
in cash, wire transfer, or by check to the order of the Company, or any
combination thereof, subject to adjustment as provided in Article 8 hereof. Upon
surrender of the Warrant Certificate(s) with the annexed Form of Election to
Purchase duly executed, together with payment of the Exercise Price (as
hereinafter defined) for the Shares and Underlying Warrants purchased, at the
Company's principal offices in California (currently located at 2560 Ninth
Street, Suite 220, Berkeley, California 94710) the registered holder of a
Warrant Certificate ("Holder" or "Holders") shall be entitled to receive a
certificate or certificates for the Shares so purchased and/or a certificate or
certificates for the Underlying Warrants so purchased. The purchase rights
represented by each Warrant Certificate are exercisable at the option of the
Holder hereof, in whole or in part (but not as to fractional Shares or
fractional Underlying Warrants). In the case of the purchase of less than all
Shares or Underlying Warrants purchasable under any Warrant Certificate, the
Company shall cancel said Warrant Certificate upon the surrender thereof and
shall execute and deliver a new Warrant Certificate of like tenor for the
balance of the Shares or Underlying Warrants purchasable thereunder.
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<PAGE>
3.2. Cashless Exercise. At any time during the Warrant Exercise Term,
the Holder may, at the Holder's option, exchange, in whole or in part, the
Warrants represented by such Holder's Warrant Certificate which are exercisable
for the purchase of Shares (a "Warrant Exchange"), into the number of Shares and
Underlying Warrants determined in accordance with this Section 3.2, by
surrendering such Warrant Certificate at the principal office of the Company or
at the office of its transfer agent, accompanied by a notice stating such
Holder's intent to effect such exchange, the number of Warrants to be so
exchanged and the date on which the Holder requests that such Warrant Exchange
occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
Shares issuable upon such Warrant Exchange and, if applicable, a new Warrant
Certificate of like tenor representing the Warrants which were subject to the
surrendered Warrant Certificate and not included in the Warrant Exchange, shall
be issued as of the Exchange Date and delivered to the Holder within three (3)
business days following the Exchange Date. In connection with any Warrant
Exchange, the Holder shall be entitled to subscribe for and acquire (i) the
number of Shares (rounded to the next highest integer) which would, but for such
Warrant Exchange, than be issuable pursuant to the provisions of Section 3.1
above upon the exercise of the Warrants specified by the Holder in its Notice of
Exchange (the "Total Share Number") less (ii) the number of Shares equal to the
quotient obtained by dividing (a) the product of the Total Share Number and the
existing Exercise Price per Share (as hereinafter defined) by (b) the Fair
Market Price (as hereinafter defined) of a Public Share on the day preceding the
Warrant Exchange. "Fair Market Price" at any date shall be deemed to be the last
reported sale price, or, in case no such reported sales takes place on such day,
the average of the last reported sale prices for the last five (5) trading days,
in either case as officially reported by the principal securities exchange on
which the Common Stock is listed or admitted to trading or as reported in the
NASDAQ National Market System, or, if the Common Stock is not listed or admitted
to trading on any national securities exchange or quoted on the NASDAQ National
Market System, the average of the last reported closing bid price as furnished
by (i) the National Association of Securities Dealers, Inc. through NASDAQ or
(ii) a similar organization if NASDAQ is no longer reporting such information in
either case averaged over the five (5) trading days preceding the Warrant
Exchange.
4. Issuance of Certificates.
Upon the exercise of the Warrants, the issuance of certificates for
the Shares purchased and certificates for the Underlying Warrants purchased, and
upon the exercise of the Underlying Warrants, the issuance of certificates for
the Underlying Warrant Shares purchased, shall be made forthwith (and in any
event within three (3) business days thereafter) without charge to the Holder
thereof including, without limitation, any tax which may be payable in respect
of the issuance thereof, and such certificates shall (subject to the provisions
of Article 5 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Holder and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
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<PAGE>
The Warrant Certificates and the certificates representing the Shares
and the Underlying Warrants shall be executed on behalf of the Company by the
manual or facsimile signature of the present or any future Chairman or Vice
Chairman of the Board of Directors or Chief Executive Officer , President or
Vice President of the Company under its corporate seal reproduced thereon,
attested to by the manual or facsimile signature of the present or any future
Secretary or Assistant Secretary of the Company. Warrant Certificates and
certificates representing the Underlying Warrants shall be dated the date of
execution by the Company upon initial issuance, division, exchange, substitution
or transfer.
Upon exercise, in part or in whole, of the Warrants, certificates
representing the Shares and the Underlying Warrants purchased, and upon
exercise, in whole or in part, of the Underlying Warrants, certificates
representing the Underlying Warrant Shares purchased (collectively, the "Warrant
Securities"), shall bear a legend substantially similar to the following:
"The securities represented by this certificate and the other
securities issuable upon exercise thereof have not been registered
for purposes of public distribution under the Securities Act of 1933,
as amended (the "Act"), and may not be offered or sold except (i)
pursuant to an effective registration statement under the Act, (ii)
to the extent applicable, pursuant to Rule 144 under the Act (or any
similar rule under such Act relating to the disposition of
securities), or (iii) upon the delivery by the holder to the Company
of an opinion of counsel, reasonably satisfactory to counsel to the
Company, stating that an exemption from registration under such Act
is available."
5. Restriction on Transfer of Warrants.
The Holder, by the Holder's acceptance thereof, covenants and agrees
that the Warrants are being acquired as an investment and not with a view to the
distribution thereof, and that the Warrants may not be sold, transferred,
assigned, hypothecated or otherwise disposed of, in whole or in part, for a
period of one (1) year from the date hereof, except to the Underwriter or to the
Designees. Any such transfer, assignment, hypothecation or other disposition
shall be in a manner which complies with applicable state and federal securities
laws and regulations.
6. Price.
6.1. Initial and Adjusted Exercise Price. The initial exercise
price of each Warrant shall be $6.60 per Share and $.132 per Underlying Warrant.
The adjusted exercise price per Share and the adjusted exercise price per
Underlying Warrant shall be the prices which shall result from time to time from
any and all adjustments of the initial exercise price per Share or per
Underlying Warrant, as the case may be, in accordance with the provisions of
Article 8 hereof.
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<PAGE>
6.2. Exercise Price. The term "Exercise Price" herein shall mean
the initial exercise price or the adjusted exercise price, depending upon the
context.
7. Registration Rights.
7.1. Registration Under the Securities Act of 1933. None of the
Warrants, the Shares, the Underlying Warrants, or the Underlying Warrant Shares
have been registered for purposes of public distribution under the Securities
Act of 1933, as amended (the "Act").
7.2. Registrable Securities. As used herein the term "Registrable
Security" means each of the Warrants, the Shares, the Underlying Warrants, the
Underlying Warrant Shares and any shares of Common Stock issued upon any stock
split or stock dividend in respect of such Shares or Underlying Warrant Shares;
provided, however, that with respect to any particular Registrable Security,
such security shall cease to be a Registrable Security when, as of the date of
determination, (i) it has been effectively registered under the Act and disposed
of pursuant thereto, (ii) registration under the Act is no longer required for
subsequent public distribution of such security, or (iii) it has ceased to be
outstanding. The term "Registrable Securities" means any and/or all of the
securities falling within the foregoing definition of a "Registrable Security."
In the event of any merger, reorganization, consolidation, recapitalization or
other change in corporate structure affecting the Common Stock, such adjustment
shall be made in the definition of "Registrable Security" as is appropriate in
order to prevent any dilution or enlargement of the rights granted pursuant to
this Article 7.
7.3. Piggyback Registration. If (but without any obligation of the
Company to do so), at any time during the seven years following the effective
date of the Public Offering, the Company proposes to prepare and file one or
more post-effective amendments to the registration statement filed in connection
with the Public Offering or any new registration statement or post-effective
amendments thereto covering equity or debt securities of the Company, or any
such securities of the Company held by its shareholders (in any such case, other
than in connection with a registration relating solely to a transaction pursuant
to Rule 145 or a registration relating to employee benefit plans on Form S-8 or
successor form) (for purposes of this Article 7, collectively, the "Registration
Statement"), it will give written notice of its intention to do so by registered
mail ("Notice"), at least thirty (30) days prior to the filing of each such
Registration Statement, to all holders of the Registrable Securities. Upon the
written request of such a holder (a "Requesting Holder"), made within twenty
(20) days after receipt of the Notice, that the Company include any of the
Requesting Holder's Registrable Securities in the proposed Registration
Statement, the Company shall, as to each such Requesting Holder, use its best
efforts to effect the registration under the Act of the Registrable Securities
which it has been so requested to register ("Piggyback Registration"), at the
Company's sole cost and expense and at no cost or expense to the Requesting
Holders (except as provided in Section 7.5(b) hereof). Notwithstanding the
provisions of this Section 7.3, the Company shall have the right at any time
after it shall have given written notice pursuant to this Section 7.3
(irrespective of whether any written request for inclusion of Registrable
Securities shall have already been made by a Requesting Holder or received by
the Company) to elect not to file any such proposed Registration Statement, or
to withdraw the same after the filing but prior to the effective date thereof.
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7.4. Demand Registration.
(a) At any time during the Warrant Exercise Term, any
"Majority Holder" (as such term is defined in Section 7.4(d) below) of the
Registrable Securities shall have the right (which right is in addition to the
piggyback registration rights provided for under Section 7.3 hereof),
exercisable by written notice to the Company (the "Demand Registration
Request"), to have the Company prepare and file with the Commission on one
occasion, at the sole expense of the Company (except as provided in Section
7.5(b) hereof), a Registration Statement and such other documents, including a
prospectus, as may be necessary (in the opinion of both counsel for the Company
and counsel for such Majority Holder) in order to comply with the provisions of
the Act, so as to permit a public offering and sale of the Registrable
Securities by the holders thereof; provided that the Company shall not be
obligated to effect any such registration if the Company shall furnish to the
Majority Holder a certificate signed by the President of the Company stating
that in the good faith judgment of the Board of Directors of the Company, it is
currently entering into a transaction for which a Form 8-K, including financial
statements, will need to be filed with the Commission, in which event the
Company shall have the right to defer the filing of the registrations statement
for a period of not more than ninety (90) days after receipt of the request of
the Majority Holder under this Section 7.4(a). The Company shall use its best
efforts to cause the Registration Statement to become effective under the Act,
so as to permit a public offering and sale of the Registrable Securities by the
holders thereof. Once effective, the Company will use its best efforts to
maintain the effectiveness of the Registration Statement until the earlier of
(i) the date that all of the Registrable Securities have been sold or (ii) the
date the holders thereof receive an opinion of counsel to the Company that all
of the Registrable Securities may be freely traded without registration under
the Act, under Rule 144(k) promulgated under the Act or otherwise.
(b) The Company covenants and agrees to give written notice
of any Demand Registration Request to all holders of the Registrable Securities
within ten (10) days from the date of the Company's receipt of any such Demand
Registration Request. After receiving notice from the Company as provided in
this Section 7.4(b), holders of Registrable Securities may request the Company
to include their Registrable Securities in the Registration Statement to be
filed pursuant to Section 7.4(a) hereof by notifying the Company of their
decision to have such securities included within ten (10) days of their receipt
of the Company's notice.
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(c) The term "Majority Holder" as used in Section 7.4 hereof
shall mean any holder or any combination of holders of Registrable Securities,
if included in such holders' Registrable Securities are that aggregate number of
shares of Common Stock (including Shares already issued, Shares issuable
pursuant to the exercise of outstanding Warrants, Underlying Warrant Shares
already issued and Underlying Warrant Shares issuable pursuant to the exercise
of outstanding Underlying Warrants) as would constitute a majority of the
aggregate number of shares of Common Stock (including Shares already issued,
Shares issuable pursuant to the exercise of outstanding Warrants, Underlying
Warrant Shares already issued and Underlying Warrant Shares issuable pursuant to
the exercise of outstanding Underlying Warrants) included in all the Registrable
Securities.
7.5. Covenants of the Company With Respect to Registration. The
Company covenants and agrees as follows:
(a) In connection with any registration under Section 7.4
hereof, the Company shall file the Registration Statement as expeditiously as
possible, but in any event no later than thirty (30) days following receipt of
any demand therefor, shall use its best efforts to have any such Registration
Statement declared effective at the earliest possible time, and shall furnish
each Holder such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs, fees and expenses (other
than underwriting fees, discounts and nonaccountable expense allowance
applicable to the Registrable Securities and fees and expenses of counsel
retained by the Holders) in connection with all Registration Statements filed
pursuant to Sections 7.3 and 7.4(a) hereof including, without limitation, the
Company's legal and accounting fees, printing expenses, and blue sky fees and
expenses.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Registrable Securities included in the
Registration Statement, for offering and sale under the securities or blue sky
laws of such states as are reasonably requested by the holders of such
securities.
(d) The Company shall indemnify any holder of the Registrable
Securities to be sold pursuant to any Registration Statement and any underwriter
or person deemed to be an underwriter under the Act and each person, if any, who
controls such Holder or underwriter or person deemed to be an underwriter within
the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange
Act of 1934, as amended ("Exchange Act"), against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Act, the Exchange Act or otherwise, arising
from such Registration Statement to the same extent and with the same effect as
the provisions pursuant to which the Company has agreed to indemnify the
Underwriter as set forth in Section 7 of the Underwriting Agreement and to
provide for just and equitable contribution as set forth in Section 8 of the
Underwriting Agreement.
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(e) Any Holder of Registrable Securities to be sold pursuant
to a Registration Statement, and such Holder's successors and assigns, shall
severally, and not jointly, indemnify, the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage or expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such Holder, or such Holder's
successors or assigns, for inclusion in such Registration Statement to the same
extent and with the same effect as the provisions pursuant to which the
Underwriter has agreed to indemnify the Company as set forth in Section 7 of the
Underwriting Agreement and to provide for just and equitable contribution as set
forth in Section 8 of the Underwriting Agreement.
(f) Nothing contained in this Agreement shall be construed as
requiring any holder to exercise the Warrants or the Underlying Warrants held by
such Holder prior to the initial filing of any registration statement or the
effectiveness thereof.
(g) The Company shall not permit the inclusion of any
securities other than the Registrable Securities to be included in any
Registration Statement filed pursuant to Section 7.4 hereof, without the prior
written consent of the Majority Holders, which consent shall not be unreasonably
withheld.
(h) The Company shall promptly deliver copies of all
correspondence between the Commission and the Company, its counsel or auditors
and all memoranda relating to discussions with the Commission or its staff with
respect to the Registration Statement to each Holder of Registrable Securities
included for such registration in such Registration Statement pursuant to
Section 7.3 or Section 7.4 hereof that requests such correspondence and
memoranda and to the managing underwriter, if any, of the offering in connection
with which such Holder's Registrable Securities are being registered and shall
permit each Holder of Registrable Securities and such underwriter to do such
reasonable investigation, upon reasonable advance notice, with respect to
information contained in or omitted from the Registration Statement as it deems
reasonably necessary to comply with applicable securities laws or rules of the
National Association of Securities Dealers, Inc. Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times as any such Holder or underwriter
shall reasonably request.
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8. Adjustments of Exercise Price and Number of Securities. The
following adjustments apply to the Exercise Price of the Warrants with respect
to the Shares and the number of Shares purchasable upon exercise of the
Warrants. In the event the Exercise Price per Share and/or the number of Shares
so purchasable is adjusted, then the Exercise Price of the Warrants relating to
the Underlying Warrants and the number of underlying Warrants purchasable
hereunder shall be adjusted in the same proportion.
8.1. Computation of Adjusted Price. In case the Company shall at
any time after the date hereof pay a dividend in shares of Common Stock or make
a distribution in shares of Common Stock, then upon such dividend or
distribution, the Exercise Price in effect immediately prior to such dividend or
distribution shall forthwith be reduced to a price determined by dividing:
(a) an amount equal to the total number of shares of Common
Stock outstanding immediately prior to such dividend or distribution multiplied
by the Exercise Price in effect immediately prior to such dividend or
distribution, by
(b) the total number of shares of Common Stock outstanding
immediately after such issuance or sale.
For the purposes of any computation to be made in accordance
with the provisions of this Section 8.1, the Common Stock issuable by way of
dividend or other distribution on any stock of the Company shall be deemed to
have been issued immediately after the opening of business on the date following
the date fixed for the determination of shareholders entitled to receive such
dividend or other distribution.
8.2. Subdivision and Combination. In case the Company shall at any
time subdivide or combine the outstanding shares of Common Stock, the Exercise
Price shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
8.3. Adjustment in Number of Securities. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Article 8, the number of
Shares issuable upon the exercise of each Warrant shall be adjusted to the
nearest full number by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of Shares issuable
upon exercise of the Warrants immediately prior to such adjustment and dividing
the product so obtained by the Exercise Price, adjusted as provided for in
Sections 8.1 and 8.2 hereof, provided, however, that if an event occurs that
results in an adjustment of the number and/or price of the shares of Common
Stock issuable upon exercise of the Public Warrants pursuant to Section 9 of the
Warrant Agreement by and among the Company, the Underwriter and American Stock
Transfer and Trust Company dated as of ___________, 1997 ("Public Warrant
Agreement"), resulting in automatic adjustment in the number and/or price of the
Underlying Warrant Shares issuable upon exercise of the Underlying Warrants
pursuant to Section 8.5 hereof, then the adjustment provided for in this Section
8.3 shall not, in such instance, result in any further adjustment in the
aggregate number of shares of Common Stock ultimately issuable upon exercise of
the Underlying Warrants.
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8.4. Reclassification, Consolidation, Merger, etc. In case of any
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no par value, or from no par value to par value, or as
a result of a subdivision or combination), or in the case of any consolidation
of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger in which the Company is the surviving corporation
and which does not result in any reclassification or change of the outstanding
shares of Common Stock, except a change as a result of a subdivision or
combination of such shares or a change in par value, as aforesaid), or in the
case of a sale or conveyance to another corporation of the property of the
Company as an entirety, the Holders shall thereafter have the right to purchase
the kind and number of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance as if the Holders were the owners of both the Shares and the
Underlying Warrant Shares immediately prior to any such events, at a price equal
to the product of (x) the number of shares of Common Stock issuable upon
exercise of the Holders' Warrants and the Underlying Warrants and (y) the
exercise prices for the Warrants and the Underlying Warrants in effect
immediately prior to the record date for such reclassification, change,
consolidation, merger, sale or conveyance as if such Holders had exercised the
Warrants and the Underlying Warrants.
8.5. Determination of Outstanding Common Shares. The number of
Common Shares at any one time outstanding shall include the aggregate number of
shares issued and the aggregate number of shares issuable upon the exercise of
options, rights, warrants and upon the conversion or exchange of convertible or
exchangeable securities.
8.6. Adjustment of Underlying Warrants' Exercise Price and
Securities Issuable Upon Exercise of Underlying Warrants. With respect to any of
the Underlying Warrants, whether or not the Warrants have been exercised and
whether or not the Warrants are issued and outstanding, the exercise price for,
and the number of, Underlying Warrant Shares issuable upon exercise of the
Underlying Warrants shall be automatically adjusted in accordance with Section 9
of the Public Warrant Agreement, upon the occurrence of any of the events
described therein. Thereafter, until the next such adjustment or until otherwise
adjusted in accordance with this Section 8, the Underlying Warrants shall be
exercisable at such adjusted exercise price and for such adjusted number of
Underlying Warrant Shares.
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8.7. Dividends and Other Distributions with Respect to Outstanding
Securities. In the event that the Company shall at any time prior to the
exercise of all Warrants make any distribution of its assets to holders of its
Common Stock as a liquidating or a partial liquidating dividend, then the holder
of Warrants who exercises its Warrants after the record date for the
determination of those holders of Common Stock entitled to such distribution of
assets as a liquidating or partial liquidating dividend shall be entitled to
receive for the Exercise Price per Warrant, in addition to each share of Common
Stock, the amount of such distribution (or, at the option of the Company, a sum
equal to the value of any such assets at the time of such distribution as
determined by the Board of Directors of the Company in good faith) which would
have been payable to such holder had he been the holder of record of the Common
Stock receivable upon exercise of his Warrant on the record date for the
determination of those entitled to such distribution. At the time of any such
dividend or distribution, the Company shall make appropriate reserves to ensure
the timely performance of the provisions of this Subsection 8.7.
8.8. Subscription Rights for Shares of Common Stock or Other
Securities. In the case that the Company or an affiliate of the Company shall at
any time after the date hereof and prior to the exercise of all the Warrants
issue any rights, warrants or options to subscribe for shares of Common Stock or
any other securities of the Company or of such affiliate to all the shareholders
of the Company, the Holders of unexercised Warrants on the record date set by
the Company or such affiliate in connection with such issuance of rights,
warrants or options shall be entitled, in addition to the shares of Common Stock
or other securities receivable upon the exercise of the Warrants, to receive
such rights, warrants or options shall be entitled, in addition to the shares of
Common Stock or other securities receivable upon the exercise of the Warrants,
to receive such rights at the time such rights, warrants or options that such
Holders would have been entitled to receive had they been, on such record date,
the holders of record of the number of whole shares of Common Stock then
issuable upon exercise of their outstanding Warrants (assuming for purposes of
this Section 8.8), that the exercise of the Warrants is permissible immediately
upon issuance).
9. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon the
surrender thereof by the Holder at the principal executive office of the
Company, for a new Warrant Certificate of like tenor and date representing in
the aggregate the right to purchase the same number of securities in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrant
Certificate, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
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10. Elimination of Fractional Interests.
The Company shall not be required to issue certificates representing
fractions of Shares or fractions of Underlying Warrants upon the exercise of the
Warrants, nor shall it be required to issue scrip or pay cash in lieu of
fractional interests, it being the intent of the parties that all fractional
interests shall be eliminated by rounding any fraction up to the nearest whole
number of Shares and Underlying Warrants.
11. Reservation and Listing of Securities.
The Company shall, during the period the Warrants are exercisable,
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Warrants and the Underlying
Warrants, such number of shares of Common Stock as shall be issuable upon the
exercise thereof. The Company covenants and agrees that, upon exercise of the
Warrants and assuming receipt of the payment of the Exercise Price therefor, all
Shares issuable upon such exercise shall be duly and validly issued, fully paid,
non-assessable and not subject to the preemptive rights of any shareholder. The
Company further covenants and agrees that upon exercise of the Underlying
Warrants and payment of the respective Underlying Warrant exercise price
therefor, all Underlying Warrant Shares issuable upon such exercise shall be
duly and validly issued, fully paid, non-assessable and not subject to the
preemptive rights of any shareholder. As long as the Warrants shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Warrants and the Underlying
Warrants and all Underlying Warrants to be listed on or quoted by NASDAQ or
listed on such national securities exchange, in the event the Common Stock is
listed on a national securities exchange.
12. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as conferring
upon the Holder or Holders the right to vote or to consent or to receive notice
as a shareholder in respect of any meetings of shareholders for the election of
directors or any other matter, or as having any rights whatsoever as a
shareholder of the Company. If, however, at any time prior to the expiration of
the Warrants and their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its shares
of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
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(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital
stock of the Company, or any option, right or warrant to subscribe
therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale
of all or substantially all of its property, assets and business as
an entirety shall be proposed; or
(d) reclassification or change of the outstanding shares of
Common Stock (other than a change in par value to no par value, or
from no par value to par value, or as a result of a subdivision or
combination), consolidation of the Company with, or merger of the
Company into, another corporation (other than a consolidation or
merger in which the Company is the surviving corporation and which
does not result in any reclassification or change of the outstanding
shares of Common Stock, except a change as a result of a subdivision
or combination of such shares or a change in par value, as
aforesaid), or a sale or conveyance to another corporation of the
property of the Company as an entirety is proposed; or
(e) The Company or an affiliate of the Company shall propose to
issue any rights to subscribe for shares of Common Stock or any other
securities of the Company or of such affiliate to all the
shareholders of the Company;
then, in any one or more of said events, the Company shall give written notice
to the Holder or Holders of such event at least fifteen (15) days prior to the
date fixed as a record date or the date of closing the transfer books for the
determination of the shareholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights, options or
warrants, or entitled to vote on such proposed dissolution, liquidation, winding
up or sale. Such notice shall specify such record date or the date of closing
the transfer books, as the case may be. Failure to give such notice or any
defect therein shall not affect the validity of any action taken in connection
with the declaration or payment of any such dividend or distribution, or the
issuance of any convertible or exchangeable securities or subscription rights,
options or warrants, or any proposed dissolution, liquidation, winding up or
sale.
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13. Underlying Warrants.
The form of the certificates representing the Underlying Warrants
(and the form of election to purchase shares of Common Stock upon the exercise
of the Underlying Warrants and the form of assignment printed on the reverse
thereof) shall be substantially as set forth in Exhibit "A" to the Public
Warrant Agreement; provided, however, (i) each Underlying Warrant issuable upon
exercise of the Warrants shall evidence the right to initially purchase 180,000
fully paid and non-assessable share(s) of Common Stock in respect of the
Underlying Warrant at an initial purchase price of $8.25 per share until
__________, 2002 and (ii) the Target Redemption Price (as defined in the Public
Warrant Agreement) of the Underlying Warrants is 150% of the then effective
exercise price of the Underlying Warrants. As set forth in Section 8.5 of this
Agreement, the exercise price of the Underlying Warrants and the number of
shares of Common Stock issuable upon the exercise of the Underlying Warrants are
subject to adjustment, whether or not the Warrants have been exercised and the
Underlying Warrants have been issued, in the manner and upon the occurrence of
the events set forth in Section 9 of the Public Warrant Agreement, which is
hereby incorporated herein by reference and made a part hereof as if set forth
in its entirety herein. Subject to the provisions of this Agreement and upon
issuance of the Underlying Warrants, each registered holder of such Underlying
Warrants shall have the right to purchase from the Company (and the Company
shall issue to such registered holders) up to the number of fully paid and
non-assessable Underlying Warrant Shares (subject to adjustment as provided
herein and in the Public Warrant Agreement), free and clear of all preemptive
rights of shareholders, provided that such registered holder complies, in
connection with the exercise of such holders' Underlying Warrants, with the
terms governing exercise of the Public Warrants set forth in the Public Warrant
Agreement, and pays the applicable exercise price, determined in accordance with
the terms of the Public Warrant Agreement. Upon exercise of the Underlying
Warrants, the Company shall forthwith issue to the registered holder of any such
Underlying Warrants, in such holder's name or in such name as may be directed by
such holder, certificates for the number of Underlying Warrant Shares so
purchased. The Underlying Warrants shall be transferable in the manner provided
in the Public Warrant Agreement, and upon any such transfer, a new Underlying
Warrant shall be issued promptly to the transferee. The Company covenants to,
and agrees with, each Holder that without the prior written consent of all the
Holders, the Public Warrant Agreement will not be modified, amended, cancelled,
altered or superseded, and that the Company will send to each Holder,
irrespective of whether or not the Warrants have been exercised, any and all
notices required by the Public Warrant Agreement to be sent to holders of the
Public Warrants.
14. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to a Holder, to the address of such Holder as shown on
the books of the Company; or
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(b) If to the Company, to the address set forth in Section 3 of
this Agreement or to such other address as the Company may designate
by notice to the Holders.
15. Supplements and Amendments.
The Company and the Underwriter may from time to time
supplement or amend this Agreement without the approval of any Holders of the
Warrants and/or Warrant Securities in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or inconsistent
with any provisions herein, or to make any other provisions in regard to matters
or questions arising hereunder which the Company and the Underwriter may deem
necessary or desirable and which the Company and the Underwriter deem not to
adversely affect the interests of the Holders of Warrant Certificates.
16. Successors.
All the covenants and provisions of this Agreement by or for
the benefit of the Company and the Holders inure to the benefit of their
respective successors and assigns hereunder.
17. Termination.
This Agreement shall terminate at the close of business on
_________, 2005. Notwithstanding the foregoing, this Agreement will terminate on
any earlier date when all Warrants and Underlying Warrants have been exercised
and all Warrant Securities have been resold to the public; provided, however,
that the provisions of Section 7 shall survive any termination pursuant to this
Section 17 until the close of business on __________, 2008.
18. Governing Law.
This Agreement and each Warrant Certificate issued hereunder
shall be deemed to be a contract made under the laws of the State of New York
and for all purposes shall be construed in accordance with the laws of said
State.
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19. Benefits of This Agreement.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Underwriter and any other Holder or
Holders any legal or equitable right, remedy or claim under this Agreement; and
this Agreement shall be for the sole and exclusive benefit of the Company and
the Underwriter and any other Holder or Holders.
20. Counterparts.
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and
such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
[SEAL] HEALTHDESK CORPORATION
By:
--------------------------------
Name:
Title:
Attest:
- -------------------------
WHALE SECURITIES CO., L.P.
By: Whale Securities Corp.
General Partner
By:
--------------------------------
Name:
Title:
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EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE 5:00 P.M., NEW YORK TIME, _______, 2002
No. W- _______ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that ________
_____________________________ or registered assigns, is the registered holder of
__________ Warrants to purchase, at any time until 5:00 P.M. New York City time
on _______, 2002 ("Expiration Date"), up to _______ fully-paid and
non-assessable shares (the "Shares") of the common stock, no par value (the
"Common Stock"), of HealthDesk Corporation, a California corporation (the
"Company"), at an initial exercise price, subject to adjustment in certain
events (the "Exercise Price"), of $____ per Share, upon surrender of this
Warrant Certificate and payment of the Exercise Price at an office or agency of
the Company, but subject to the conditions set forth herein and in the warrant
agreement dated as of _______, 199__ between the Company and Whale Securities
Co., L.P. (the "Warrant Agreement"). Payment of the Exercise Price may be made
in cash, or by certified or official bank check in New York Clearing House funds
payable to the order of the Company, or any combination thereof.
No Warrant may be exercised after 5:00 P.M., New York City time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
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The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to in a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events, the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax, or other governmental charge
imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated: _______, 199__ HEALTHDESK CORPORATION
[SEAL] By:__________________________
Name:
Title:
Attest:
- ----------------------
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _________ Shares of Common
Stock and herewith tenders in payment for such securities, cash or a certified
or official bank check payable in New York Clearing House Funds to the order of
____________________________ in the amount of $ , all in accordance with the
terms hereof. The undersigned requests that a certificate for such securities be
registered in the name of , whose address is , and that such Certificate be
delivered to ___________________________, whose address is _____________.
Dated: Signature:____________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
--------------------------------
--------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED____________________________________________________
hereby sells, assigns and transfers unto
_______________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _______________, Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature:____________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate)
- -------------------------------
- -------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)
<PAGE>
EXHIBIT B
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, _______, 2002
No. W- _________ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that _____________
____________________, or registered assigns, is the registered holder of
___________________________ (_______) Warrants to purchase, at any time until
5:00 P.M. New York City time on _______, 2002 ("Expiration Date"), an aggregate
of up to ___________________________ (_______) common stock purchase warrants,
each common stock purchase warrant entitling the holder thereof to purchase
[one] share of common stock, no par value (collectively, the "Underlying
Warrants"), of HealthDesk Corporation, a California corporation (the "Company"),
at an initial exercise price, subject to adjustment in certain events (the
"Exercise Price"), of $____ per Underlying Warrant, upon surrender of this
Warrant Certificate and payment of the Exercise Price at an office or agency of
the Company, but subject to the conditions set forth herein and in the warrant
agreement dated as of _______, 199__ between the Company and Whale Securities
Co., L.P. (the "Warrant Agreement"). Payment of the Exercise Price may be made
in cash, or by certified or official bank check in New York Clearing House funds
payable to the order of the Company, or any combination thereof.
The Underlying Warrants issuable upon exercise of the Warrants will
be exercisable at any time until 5:00 P.M. Eastern Time _______, 2002 each
Underlying Warrant entitling the holder thereof to purchase one fully-paid and
non-assessable share of common stock of the Company, at an initial exercise
price, subject to adjustment in certain events, of $____ per share. The
Underlying Warrants are issuable pursuant to the terms and provisions of a
certain agreement dated as of _______, 1997 by and among the Company, Whale
Securities Co., L.P. and American Stock Transfer and Trust Company (the "Public
Warrant Agreement"). The Public Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to
(except as otherwise provided in the Warrant Agreement) for a description of the
rights, limitations of rights, manner of exercise, anti-dilution provisions and
other provisions with respect to the Underlying Warrants.
<PAGE>
No Warrant may be exercised after 5:00 P.M., New York City time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to in a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that, upon the occurrence of certain
events, the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed under its corporate seal.
Dated: _______, 1997 HEALTHDESK CORPORATION
[SEAL] By:__________________________
Name:
Title:
Attest:
- ----------------------
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _________ Underlying
Warrants and herewith tenders, in payment for such securities, cash or a
certified or official bank check payable in New York Clearing House Funds to the
order of _______________________ in the amount of $ , all in accordance with the
terms hereof. The undersigned requests that a certificate for such securities be
registered in the name of , whose address is , and that such Certificate be
delivered to , whose address is _____________.
Dated: Signature:_____________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
--------------------------------
--------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED___________________________________________
hereby sells, assigns and transfers unto
_______________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _______________, Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature:_____________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate)
- --------------------------------
- --------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2 of our
report dated July 30, 1996, except for Note 12 as to which the date is December
2, 1996, on our audits of the financial statements of HealthDesk Corporation.
We also consent to the reference to our firm under the caption "Experts".
/s/ COOPERS & LYBRAND LLP
------------------------------
COOPERS & LYBRAND LLP
San Francisco, California
December 19, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,778
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 304,117
<PP&E> 694,121
<DEPRECIATION> 165,572
<TOTAL-ASSETS> 790,600
<CURRENT-LIABILITIES> 1,940,988
<BONDS> 0
0
2,183,036
<COMMON> 1,221,355
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 790,600
<SALES> 6,170
<TOTAL-REVENUES> 6,170
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,593,315
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,707
<INCOME-PRETAX> (2,997,192)
<INCOME-TAX> 600
<INCOME-CONTINUING> (2,397,797)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,597,797)
<EPS-PRIMARY> (.67)
<EPS-DILUTED> 0
</TABLE>
