<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 1996
REGISTRATION STATEMENT NO. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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HEALTHDESK CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
California 7372 94-3165144
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of incorporation or Classification Code Number) Identification No.)
organization)
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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)
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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
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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. [ ]
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CALCULATION OF REGISTRATION FEE
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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
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Common Stock 2,700,000 $5.00 $13,500,000 $4,090.91
=====================================================================================================
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(1) Includes 300,000 shares subject to an over-allotment option granted to
the Underwriter by the Company.
(2) Estimated solely for the purposes of calculating the amount of the
registration fee pursuant to Rule 457(a).
- ------
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
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Form SB-2 Registration Statement Item and Heading Heading in Prospectus
-------------------------------------------------------- ---------------------
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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 and Selling Shareholders
12. Description of Securities .......................... Outside Front Cover Page; Prospectus Summary;
Capitalization; Description of Capital Stock
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 and Selling
Shareholders; Description of Capital Stock; 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 Capital Stock; 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 PROSPECTUS DATED OCTOBER 21, 1996
SUBJECT TO COMPLETION
2,000,000 SHARES
HEALTHDESK CORPORATION
COMMON STOCK
------
Prior to this offering, there has been no public market for the Common
Stock and there can be no assurance that any such market will develop. It is
anticipated that the Common Stock will be quoted on the Nasdaq Small Cap
Market under the symbol "HDOL." The offering price of the Common Stock was
determined pursuant to negotiations between the Company and the Underwriter
and does 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 price, 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. The shares offered by the Selling Shareholders are not part of the
underwritten public offering and may not be sold prior to eighteen months
from the date of this Prospectus without the consent of the Underwriter. 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."
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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.
================================================================================
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
Per Share .. $5.00 $.50 $4.50
- -----------------------------------------------------------------------------
Total (3) .. $10,000,000 $1,000,000 $9,000,000
================================================================================
(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 200,000 shares of Common
Stock. 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 $300,000 ($345,000 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
300,000 additional shares of Common Stock, 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
$11,500,000, $1,150,000 and $10,350,000, respectively. See
"Underwriting."
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The shares of Common Stock 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 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 , 1996.
WHALE SECURITIES CO., L.P.
The date of this Prospectus is , 1996.
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Description of graphical materials for inside front cover
Screen shot of the HealthDesk OnLine "Home Screen" which shows the HealthDesk
OnLine Logo and screen buttons with the following labels: OnLine Service
(Internet Gateway, Feedback, Library, Healthwise Symptom Manager, Personal
Health Newsletter, and Mail); Health History and Records; and Diaries (Exercise,
Heart Health, Weight, Vital Signs, Medications and Nutrition). Screen shot also
shows various buttons to invoke other functions.
Text below the screen shot: "HealthDesk OnLine features easy-to-use,
Windows-based software designed to develop personal medical records and health
management programs and to access educational, health related information from
the Company's private Website and over the Internet.
Description of graphical materials for left side of gateway foldout:
Text: "HealthDesk OnLine offers a variety of desktop and online functionality,
including the ability to link consumers to healthcare payors and providers. The
screens on the following two pages illustrate some of the functionality of the
HealthDesk OnLine system."
Screen shot of "Exercise Diary" showing sample information regarding time spent
walking, running and cycling in numeric and graphic form (bar graphs) as well as
various buttons to invoke other functions.
Caption next to the screen shot:
"Secure health records and diaries for in-home and disease management
- enhances patient involvement
- simplifies access to information"
Screen shot of "Personal Health Newsletter" showing a sample newsletter with
information regarding Diabetes from the HealthDesk OnLine private Website as
well as various buttons to invoke other functions.
Caption next to the screen shot:
"Tailored, personalized health information on-demand
- increases consumer satisfaction
- enhances patient involvement
- strengthens relationships with sponsoring organizations
Description of graphical materials for right side of gateway foldout:
Screen shot of "HealthDesk OnLine Library" showing buttons for invoking options
for use of the library database with the following descriptions: "Search the
entire Library", "Look in the Medical Dictionary", "Look in the Home Medical
Guide," and "Look in the Drug Reference." Screen shot also shows various buttons
to invoke other functions.
Caption next to the screen shot:
"Virtual health library and guided search
- increases consumer satisfaction
- enhances patient involvement"
Screen shot of "Medications Diary" showing a sampel report of dosages of
medication by day and time with sample comments as well as various buttons to
invoke other functions.
Caption next to the screen shot:
"Maintains medication inventory for compliance reminders
- enhances patient involvement
- simplifies access to information"
Description of graphical materials for inside back cover
Text: "The Company's primary marketing strategy is to license HealthDesk OnLine
to sponsoring organization with access to significant numbers of potential
subscribers. Illustrated below are some sponsoring organizations along with the
anticipated benefits to be derived from the HealthDesk OnLine system."
The following captions are placed around, and with arrows pointing to, a copy of
the HealthDesk OnLine logo:
"Managed Care Organizations
- Reduces member turnover
- Enhances member education
- Increases member satisfaction
- Strengthens disease management
- Reduces administrative costs
Employers
- Improves employee communication
- Enhances wellness programs
- Reduces administrative costs
<PAGE>
Pharmaceutical Companies
- Increases compliance
- Enhances patient involvement
- Strengthens relationships with managed care organizations
- improves data collection
Affinity Groups
- Increases member satisfaction
- Enhances consumer feedback
Disease Management Companies
- Increases compliance
- Enhances patient involvement
- Improves data collection
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
OF THE COMPANY 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 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 300,000 shares of Common Stock.
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 is currently modifying HealthDesk
OnLine to satisfy BCMA's requirements. 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 ninety day
period 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 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 a letter of intent with Blue
Cross/Blue Shield of Iowa to conduct similar market testing activities.
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 "Preferred Stock") and
received net proceeds of approximately $2,183,000. Each share of Preferred
Stock automatically converts into one share of Common Stock upon the
consummation of this offering. See "Description of Securities."
4
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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 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 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
Distriution."
THE OFFERING
Securities offered ............ 2,000,000 shares
Common Stock to be outstanding
after the offering .......... 5,689,720 shares (1)
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 shares 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."
Proposed Nasdaq Symbol ........ "HDOL"
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(1) Does not include (i) 200,000 shares reserved for issuance upon exercise
of the Underwriter's Warrants; (ii) 715,300 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");
(iii) 124,700 shares reserved for issuance upon exercise of options
available for future grant under the Stock Option Plan; and (iv) 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--Stock Option Plan," "Principal Shareholders," "Description
of Securities" and "Underwriting."
5
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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:
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Year Ended December 31, Six Months Ended June 30,
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1994 1995 1995 1996
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Total revenues .................. $397,240 $224,011 $95,040 $6,016
Net loss ........................ (237,022) (1,436,473) (495,815) (1,725,054)
Net loss per share .............. (.08) (.45) (.17) (.45)
Weighted average number of shares
outstanding .................... 2,964,581 3,181,929 2,984,967 3,854,735
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BALANCE SHEET DATA:
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At June 30, 1996
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As Adjusted
Actual Pro Forma(1) (1)(2)
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Working capital (deficit) .... $ (765,337) $ 8,663 $ 7,304,663
Total assets ................. 792,993 2,594,660 8,790,660
Total liabilities ............ 1,070,644 1,598,311 498,311
Shareholders' equity (deficit) (277,651) 996,349 8,292,349(3)
</TABLE>
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(1) Gives effect to (i) the conversion of all outstanding shares of 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 2,000,000 shares of Common Stock 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
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RISK FACTORS
The shares 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; Going Concern. 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 June 30, 1996, the Company incurred a cumulative net loss of
approximately $3,682,000. Since June 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; 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. 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."
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
7
<PAGE>
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 other 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
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
8
<PAGE>
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 redundant, multiple site capacity in the event of any such
occurrence. The Company's system infrastructure will be 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
9
<PAGE>
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. 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
10
<PAGE>
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. 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."
12. Proprietary Information. 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. See "Business --
Proprietary Information and Trademarks."
13. 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 intends to obtain "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, prior to
the consummation of this offering. 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."
14. Control by Management. Upon consummation of this offering, the
officers and directors of the Company will beneficially own, in the
aggregate, approximately 41.9% of the outstanding shares of Common Stock.
Accordingly, such persons, acting together, will be in a position to exercise
significant influence over the Company's affairs. See "Management" and
"Principal Shareholders."
15. 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. The
11
<PAGE>
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."
16. 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.
Such Bridge Notes will be repaid 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 $500,000 during the twelve months
following this offering). See "Use of Proceeds" and "Certain Transactions."
17. Outstanding Options. As of the date of this Prospectus, the Company
had outstanding options to purchase an aggregate of 715,300 shares of Common
Stock at exercise prices ranging from $1.04 to $5.00. Exercise 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 -- Stock Option Plan."
18. 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."
19. Authorized Preferred Stock. The Company's Restated Articles of
Incorporation authorizes the Company's Board of Directors to issue 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. See "Description of Securities."
20. Shares Eligible for Future Sale, Registration Rights. Upon
consummation of this offering, the Company will have 5,689,720 shares of
Common Stock outstanding, of which 2,400,000 shares, consisting of 2,000,000
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 120,000 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
12
<PAGE>
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 could impair the Company's ability to raise capital through the
sale of its equity securities. See "Description of Securities," "Share
Eligible for Future Sale," "Underwriting" and "Selling Shareholders and Plan
of Distribution."
21. Absence of Public Market; Possible Volatility of Stock Price. Prior to
this offering, there has been no public trading market for the Common Stock,
and there can be no assurance that a regular trading market for the Common
Stock will develop after this offering or that, if developed, it will be
sustained. The market prices of the Common Stock 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. 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.
22. Possible Delisting of Securities from NASDAQ System; Disclosure
Relating to Low-Priced Stocks. The Company anticipates that its Common Stock
will be quoted on 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 $2,000,000 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. 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.
23. Dilution. Investors in this offering will incur immediate and
substantial dilution of $3.54 (71%) 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. See "Dilution" and "Underwriting."
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered hereby are estimated to be $8,350,000 ($9,700,000 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 25.1%
Repayment of indebtedness(2) ..................... 2,030,000 24.3
Product development(3) ........................... 2,000,000 24.0
Expansion of system capacity(4) .................. 900,000 10.8
Working capital and general corporate purposes(5) 1,320,000 15.8
------------- -------------
$8,350,000 100.0%
============= =============
</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 thirteen
existing and up to five 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 $500,000
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 $1,350,000 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.
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<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 2,000,000
shares of Common Stock offered hereby and the application of the estimated
net proceeds therefrom:
<TABLE>
<CAPTION>
June 30, 1996
-------------------------------------------------
Actual Proforma As Adjusted
------------- --------------- --------------
<S> <C> <C> <C>
Short term notes payable ................................. $ 572,333 $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;
5,689,720 shares issued and outstanding, as adjusted (2) 1,221,355 4,678,391 13,028,391
Accumulated deficit ...................................... (3,682,042) (3,682,042) (4,736,042)(3)
------------- --------------- --------------
Total shareholders' equity (deficit) ................ (277,651) 996,349 8,292,349
------------- --------------- --------------
Total capitalization ........................... $ (277,651) $ 996,349 $ 8,292,349
============= =============== ==============
</TABLE>
- ------
(1) Net of $900,000 loan discount.
(2) Does not include: (i) 715,300 shares reserved for issuance upon the
exercise of outstanding stock options; (ii) 124,700 shares reserved for
future grant under the Stock Option Plan; (iii) an indeterminate number
of Default Shares reserved for issuance in the event of certain payment
defaults by the Company with respect to the Bridge Notes; and (iv)
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.
15
<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 June 30, 1996, the Company had a negative net tangible book value of
($289,595) or ($.14) per share. After giving retroactive effect to the Pro
Forma Adjustments, pro forma net tangible book value of the Company at June
30, 1996 would have been $984,405, or $.27 per share. After giving effect to
the sale of 2,000,000 shares of Common Stock 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 June 30, 1996 would
have been approximately $8,280,405 or $1.46 per share. This represents an
immediate increase in net tangible book value of $1.19 per share to existing
shareholders and an immediate dilution of $3.54 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 ..................................... $(.14)
Increase attributable to Pro Forma Adjustments .... .41
--------
Pro forma net tangible book value before offering . $ .27
Increase attributable to new investors ............ 1.19
--------
Adjusted pro forma net tangible book value after the
offering ............................................. 1.46
-------
Dilution to new investors .............................. $3.54
=======
</TABLE>
The following table sets forth on a pro forma basis as of June 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 64.8% $ 4,678,391 31.9% $1.27
New investors ........ 2,000,000 35.2 10,000,000 68.1 5.00
----------- --------- ------------- ---------
Total ................ 5,689,720 100.0% $14,678,391 100.0%
=========== ========= ============= =========
</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 $11,500,000 for 2,300,000
shares of Common Stock, representing approximately 71.1% of the total
consideration for 38.4% of the total number of shares of Common Stock
outstanding. As of the date of this Prospectus, there are outstanding stock
options to purchase an aggregate of 715,300 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."
16
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data as of December 31, 1992, 1993, 1994
and 1995 and June 30, 1996 and for the years ended December 31, 1992, 1993,
1994 and 1995, and for the six months ended June 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 June 30, 1996 and for the six
months ended June 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 six months ended June 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, Six months ended June 30,
-------------------------------------------------------------- -------------------------------
1992(1) 1993 1994 1995 1995 1996
------------ ------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues ............. $ -- $ 80,221 $ 397,240 $ 224,011 $ 95,040 $ 6,016
Operating expenses:
Product development ...... 45,789 118,467 231,243 680,886 218,859 795,215
Sales and marketing ...... 10,231 120,907 220,243 349,133 107,378 494,866
General and administrative . 35,924 30,796 170,598 581,043 252,426 443,743
------------ ------------- ------------- -------------- ------------- --------------
Total operating expenses 91,944 270,170 622,084 1,611,062 578,663 1,733,824
Loss from operations ....... (91,944) (189,949) (224,844) (1,387,051) (483,623) (1,727,808)
Other (income) expense, net . -- -- 11,378 48,622 11,792 (3,154)
------------ ------------- ------------- -------------- ------------- --------------
Loss before income taxes ... (91,944) (189,949) (236,222) (1,435,673) (495,415) (1,724,654)
Provision for income taxes . 800 800 800 800 400 400
------------ ------------- ------------- -------------- ------------- --------------
Net loss ................... $ (92,744) $ (190,749) $ (237,022) $ (1,436,473) $ (495,815) $ (1,725,054)
============ ============= ============= ============== ============= ==============
Net loss per share ......... $ (0.05) $ (0.07) $ (0.08) $ (0.45) $ (0.17) $ (0.45)
============ ============= ============= ============== ============= ==============
Weighted average number of
shares outstanding ....... 1,889,550 2,614,523 2,964,581 3,181,929 2,984,967 3,854,735
============ ============= ============= ============== ============= ==============
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
Six months ended
June 30,
Year Ended December 31, 1996
-------------------------------------------------------- ----------------
1992 1993 1994 1995
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Working capital (deficit) .......... $ (91,364) $ (47,969) $ 239,822 $ 870,436 $ (765,337)
Total assets ....................... 2,893 19,880 451,739 2,003,356 792,993
Total liabilities .................. 91,364 50,893 657,274 803,307 1,070,644
Long-term obligations .............. -- -- 519,834 -- --
Total shareholders' equity (deficit) . (90,264) (31,013) (205,535) 1,200,049 (277,651)
</TABLE>
- ------
(1) Inception of the Company was August 28, 1992.
17
<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 June 30, 1996, the Company incurred a cumulative net loss
of approximately $3,682,000. Since June 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
Six Months Ended June 30, 1995 Compared to Six Months Ended June 30, 1996.
Revenue decreased by 93.7% from $95,040 for the six months ended June 30,
1995 to $6,016 for the six months ended June 30, 1996. The decrease in
revenues was principally due to the lack of development fees during the
period.
Product development costs increased by 263.3% from $218,859 for the six
months ended June 30, 1995 to $795,215 for the six months ended June 30,
1996. This increase is primarily attributable to increased additional
programming and development personnel, including consultants engaged in
developing HealthDesk OnLine.
Sales and marketing costs increased 360.9% from $107,378 for the six
months ended June 30, 1995 to $494,866 for the six months ended June 30,
1996. This increase reflects selling, design and marketing expenses for
HealthDesk OnLine.
General and administrative costs increased by 75.8% from $252,426 for the
six months ended June 30, 1995 to $443,743 for the six months ended June 30,
1996. This increase was attributable to several factors, including the
addition of new management personnel, new office facilities, increased
professional fees and the write-off of deferred offering costs accrued during
the period.
Other (income) expense, net decreased by 126.7% from $11,792 for the six
months ended June 30, 1995 to ($3,154) for the six months ended June 30,
1996. This decrease was attributable to increased interest income as a result
of the receipt of the proceeds from the sale of Preferred Stock in December
1995.
As a result of the foregoing, the Company incurred a net loss of
$1,725,054 for the six months ended June 30, 1996, as compared to a net loss
of $495,815 for the prior comparable period.
18
<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 from the hiring of additional marketing personnel and
the active 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 attributable to the hiring of new management
personnel, professional fees and severance costs relating to prior
management.
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.
Since its inception, the Company has issued an aggregate of 2,130,120
shares of Common Stock resulting in net proceeds of approximately $1,221,355.
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 Preferred Stock and received
net proceeds of approximately $2,183,000. Each share of 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.
19
<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 June 30, 1996, the Company had capital expenditures of
approximately $624,000 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's 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.
20
<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.
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-
21
<PAGE>
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 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 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
22
<PAGE>
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 six months ended June 30, 1996, the Company expended
approximately $231,000, $681,000 and $795,000, respectively, on product
development. Product development expenses are expected to increase through
December 1996 in connection with market testing activities. As of the date of
this Prospectus, thirteen 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 is seeking to incorporate into its
software 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 design 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 is seeking to incorporate into its products
software obtained from Healthwise, Inc. pursuant to a non-exclusive license.
Such software is being designed to provide specific responses for treatment
based on information relating to symptoms input by the user.
23
<PAGE>
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."
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 entered into a letter of intent with MIIX which
contemplates that the Company will design, develop and test a software module
for diabetes patients. 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 is currently modifying HealthDesk OnLine to satisfy BCMA's
requirements. 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 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 agreement provides for BCMA to pay development fees in the event
HealthDesk OnLine requires modifications and for BCMA to purchase the
Company's software. The agreement also provides 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 the 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 also recently entered into a letter of intent with Blue
Cross/Blue Shield of Iowa to conduct similar market testing to up to 100
employees and thereafter to up to 1,000 members. The proposed market testing
is subject to the negotiation of a definitive license agreement.
The Company currently proposes to conduct market testing of HealthDesk
OnLine with BCMA and other 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
24
<PAGE>
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 will grant to MIIX a license to market a software module designed for
diabetes patients which would include mutually agreed provisions for the
exclusive use by MIIX as part of a joint marketing arrangement. The letter of
intent also contemplates that MIIX would pay to the Company a license fee of
between $400,000 and $600,000 and for the Company and MIIX to share equally
in profits directly associated with licensing of the system and recurring
fees from patients using the system as part of a disease management program.
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 renewable
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."
25
<PAGE>
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 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.
26
<PAGE>
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
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.
27
<PAGE>
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 at the
Company 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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<PAGE>
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 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 September 30, 1996, the Company had 24 full time employees, of which
three were executive officers, thirteen were engaged in product development,
three were engaged in marketing and five 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 approximately 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
29
<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.
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<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
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
</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.
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.
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.
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.
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Dr. Joseph Rudick, Jr. 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.
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.
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 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.
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
840,000 shares of the Company's Common Stock has been established for
issuance under the Option Plan. The Option Plan is administered by the Board
of Directors (the "Committee"). Subject to the Option Plan, the Committee has
complete discretion to determine which eligible
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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 715,300 shares outstanding under the Plan with an average
exercise price of $2.51. 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. 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.
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 right 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
33
<PAGE>
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.
34
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of September 30, 1996,
and as adjusted to reflect the sale of the 2,000,000 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
------------------------
Amount and Nature of
Name and Address of Beneficial Ownership Before After
Beneficial Owner (1) (2) Offering Offering
------------------- ---------------------- ---------- ----------
<S> <C> <C> <C>
Peter S. O'Donnell (3) .............. 180,000 4.7% 3.1%
John Pappajohn(4) ................... 1,055,000 28.5 18.5
Edgewater Private Equity Fund II,
L.P.
666 Grand Avenue, Suite 200
Des Moines, Iowa 50309 .............. 901,000 24.4 15.8
James Gordon (5) .................... 901,000 24.4 15.8
Dr. Joseph Rudick
150 Broadway
New York, New York 10038(6) ......... 219,000 5.9 3.8
David Sengpiel(7) ................... 15,000 .4 .3
All officers and directors as a group
(seven persons) (8) ............... 2,562,000 62.3% 41.9%
</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 831,000 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 421,000 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
35
<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. In addition, 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. 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. 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 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.
36
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, the authorized capital stock of the
Company will consist of 17,000,000 shares of Common Stock, 5,689,720 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 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.
Registration Rights
In connection with this offering, the Company has agreed to grant to the
Underwriter certain demand and piggyback registration rights in connection
with the 200,000 shares of Common Stock issuable upon exercise of the
Underwriter's Warrants. 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
37
<PAGE>
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 Selling Shareholders have agreed that they will not, directly or
indirectly, offer to sell, sell or otherwise dispose of any shares of Common
Stock without the prior written consent of the Underwriter for a period of
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 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 of 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 Agent and Registrar
The transfer agent and registrar for the Common Stock 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 5,689,720 shares
of Common Stock outstanding, of which 2,400,000 shares, consisting of
2,000,000 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 describe 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 share
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 120,000 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.
38
<PAGE>
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 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
2,000,000 shares of Common Stock from the Company. The Underwriter is
committed to purchase and pay for all of the Common Stock offered hereby if
any of such securities are purchased. The Common Stock 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 to the public at the public offering price 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, of
which not in excess of $ per share of Common Stock 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 300,000 additional
shares of Common Stock at the public offering price 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 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
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 200,000 shares of
Common Stock at a purchase price of $5.50 per share. 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 shares of
Common Stock issuable upon exercise of the 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 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.
All of the officers and directors and shareholders of the Company holding
an aggregate of 3,569,720 shares of the Common Stock have (excluding the
holders of 120,000 shares of Common Stock) 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.
39
<PAGE>
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. Consequently, the initial public offering price of the Common
Stock 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.
40
<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 eighteen months after the date of this
Prospectus, without the prior written consent of the Underwriter. 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 18.2%
Edgewater Private Equity Fund II, L.P. 901,000 20,000 881,000 15.5%
Brown, Michael & Brown, Alan (JT) ..... 20,000 20,000 -- --
Chafoulias, Gus ....................... 53,600 20,000 33,600 .6%
Chaster, 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 & Lowenberg, 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>
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<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 transaction 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
Shareholder 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 Common Stock 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, included in this Prospectus, have been included herein in
reliance on the report 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 Common Stock
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.
42
<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 June 30, 1996 ... F-3
Statements of Operations for the years ended December 31, 1994 and
1995, six months ended June 30, 1995 and 1996 and period from
inception to June 30, 1996 ......................................... F-4
Statements of Shareholders' Equity (Deficit) for the years ended
December 31, 1992, 1993, 1994 and 1995 and six months ended June 30,
1996 ............................................................... F-5
Statements of Cash Flows for the years ended December 1994 and 1995,
six months ended June 30, 1995 and 1996 and period from inception to
June 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. 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 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 October 16, 1996
F-2
<PAGE>
HEALTHDESK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1996
Pro Forma
Liabilities and
December 31, Shareholders'
---------------------------- June 30, Equity
1994 1995 1996 (Note 13)
----------- ------------- ------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................. $ 376,334 $ 1,554,034 $ 232,766
Receivable from shareholder ................ -- 100,000 --
Prepaid expenses and other ................. 928 19,709 72,541
----------- ------------- -------------
Total current assets .................. 377,262 1,673,743 305,307
Property and equipment, net .................. 70,490 234,963 469,336
Other assets ................................. 3,987 94,650 18,350
----------- ------------- -------------
Total assets .......................... $ 451,739 $ 2,003,356 $ 792,993
=========== ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ........................... $ 14,710 $ 104,759 $ 196,694 $ 196,694
Accrued liabilities ........................ 78,626 143,715 301,617 301,617
Due to related parties ..................... 22,939 -- -- --
Deferred compensation ...................... 21,165 -- -- --
Convertible note payable and accrued
interest ................................ -- 554,833 572,333 1,100,000
----------- ------------- ------------- ---------------
Total current liabilities ............. 137,440 803,307 1,070,644 1,598,311
Convertible note payable and accrued interest 519,834 -- -- --
----------- ------------- ------------- ---------------
Total liabilities ..................... 657,274 803,307 1,070,644 1,598,311
----------- ------------- ------------- ---------------
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 June 30, 1996,
respectively (liquidation preference
$2,207,500 at June 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
June 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) (3,682,042) (3,682,042)
----------- ------------- ------------- ---------------
Total shareholders' equity (deficit) .. (205,535) 1,200,049 (277,651) 996,349
----------- ------------- ------------- ---------------
Total liabilities and shareholders'
equity (deficit) ................. $ 451,739 $ 2,003,356 $ 792,993 $ 2,594,660
=========== ============= ============= ===============
</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,
Year Ended December 31, Six-Months Ended June 30, 1992
---------------------------- ---------------------------- (inception) to
1994 1995 1995 1996 June 30, 1996
----------- ------------- ----------- ------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Software development and
licensing ........... $ 387,740 $ 224,011 $ 95,040 $ 6,016 $ 697,330
Other .................. 9,500 -- -- -- 10,158
----------- ----------- ----------- ----------- ----------
Total revenues .... 397,240 224,011 95,040 6,016 707,488
----------- ----------- ----------- ----------- ----------
Costs and expenses:
Product development .... 231,243 680,886 218,859 795,215 1,882,731
Sales and marketing .... 220,243 349,133 107,378 494,866 1,199,173
General and
administrative ...... 170,598 581,043 252,426 443,743 1,247,180
----------- ----------- ----------- ----------- ----------
Total costs and
expenses ....... 622,084 1,611,062 578,663 1,733,824 4,329,084
----------- ----------- ----------- ----------- ----------
Loss from
operations ..... 224,844 1,387,051 483,623 1,727,808 3,621,596
Interest expense .. 11,378 40,300 17,500 17,998 69,676
Interest income ... -- (6,000) (5,708) (21,152) (27,152)
Other expense ..... -- 14,322 -- -- 14,322
----------- ----------- ----------- ----------- ----------
Loss before income
taxes .......... 236,222 1,435,673 495,415 1,724,654 3,678,442
Provision for income taxes 800 800 400 400 3,600
----------- ----------- ----------- ----------- ----------
Net loss .......... $ 237,022 $1,436,473 $ 495,815 $1,725,054 $3,682,042
=========== =========== =========== =========== ==========
Net loss per share ....... $ (0.08) $ (0.45) $ (0.17) $ (0.45)
=========== =========== =========== ===========
Weighted average number of
shares of common stock . 2,964,581 3,181,929 2,984,967 3,854,735
=========== =========== =========== ===========
</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
Preferred Stock Common Stock Accumulated Total
--------------------------- --------------------------- 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
pershare .................... -- -- 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) ......... -- -- -- -- (1,725,054) (1,725,054)
----------- ------------ ----------- ------------ -------------- --------------
Balances at June 30, 1996
(unaudited) ................. 1,059,600 $2,183,036 2,130,120 $1,221,355 $(3,682,042) $ (277,651)
=========== ============ =========== ============ ============== ==============
</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,
Year Ended December 31, Six Months Ended June 30, 1992
------------------------------ ------------------------------ (inception) to
1994 1995 1995 1996 June 30, 1996
------------ -------------- ------------ -------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss .................................. $(237,022) $(1,436,473) $(495,815) $(1,725,054) $(3,682,042)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization .......... 10,908 50,384 17,334 99,398 190,699
Gain on forgiveness of loan ............ -- (2,766) -- -- (2,766)
Other .................................. -- 14,322 (307) (7,501) 29,599
Changes in assets and liabilities:
Increase in prepaid expenses and other (928) (9,643) (3,566) (52,832) (72,541)
(Increase) decrease in other assets .. (3,987) (90,663) -- 76,300 (18,350)
Increase in accounts payable ......... 14,710 90,049 80,975 91,935 196,694
Increase (decrease) in accrued
liabilities and deferred
compensation ...................... 114,468 43,924 (43,924) 157,902 301,617
------------ -------------- ------------ -------------- ---------------
Net cash used in operating
activities ....................... (101,851) (1,340,866) (445,303) (1,359,852) (3,057,090)
------------ -------------- ------------ -------------- ---------------
Cash flows from investing activities:
Additions to property, plant and equipment . (64,442) (212,564) (47,039) (308,770) (624,067)
------------ -------------- ------------ -------------- ---------------
Net cash used in investing activities (64,442) (212,564) (47,039) (308,770) (624,067)
------------ -------------- ------------ -------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of convertible notes
payable ................................ 500,000 800,000 117,500 -- 1,300,000
Proceeds from issuance of common stock .... 62,500 -- -- -- 312,500
Proceeds from issuance of preferred stock . -- 1,957,500 -- 250,000 2,207,500
Preferred stock issuance costs ............ -- (9,681) -- (2,771) (12,452)
Proceeds from shareholders' loans ......... 2,203 -- -- -- 118,164
Repayment of loans from shareholders ...... (25,000) (22,939) -- -- (118,164)
Proceeds from the exercise of stock
options ................................. -- 6,250 6,250 100,125 106,375
------------ -------------- ------------ -------------- ---------------
Net cash provided by financing
activities ...................... 539,703 2,731,130 123,750 347,354 3,913,923
------------ -------------- ------------ -------------- ---------------
Net increase (decrease) in cash and
cash equivalents ................ 373,410 1,177,700 (368,592) (1,321,268) 232,766
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 $ 7,742 $ 232,766 $ 232,766
============ ============== ============ ============== ===============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest .................................. -- $ 2,208 $ -- $ 2,797 $ 5,005
============ ============== ============ ============== ===============
Income taxes .............................. $ 800 $ 800 $ 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 six month periods ended June
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 six months ended June 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 - (Continued)
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.
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.
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
83% and 92%, respectively, of revenues for the six-month periods ended June
30, 1995 and 1996.
F-8
<PAGE>
HEALTHDESK CORPORATION
(a development stage Company)
NOTES TO FINANCIAL STATEMENTS - (Continued)
4. PROPERTY AND EQUIPMENT:
Property and equipment for December 31, 1994 and 1995 and the six-month
period ended June 30, 1996, consisted of the following:
<TABLE>
<CAPTION>
June 30,
1994 1995 1996
--------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
Computer equipment and software ............... $76,930 $ 27,527 $474,479
Furniture and fixtures ........................ 8,188 11,297 101,406
Leasehold improvements ........................ 1,000 1,000 7,301
--------- ---------- -----------
86,118 284,824 583,186
Less accumulated depreciation and amortization 15,628 49,861 113,850
--------- ---------- -----------
Total property and equipment, net ........ $70,490 $234,963 $469,336
========= ========== ===========
</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.
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. NOTE 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
F-9
<PAGE>
HEALTHDESK CORPORATION
(a development stage Company)
NOTES TO FINANCIAL STATEMENTS - (Continued)
6. Note Payable: - (Continued)
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 June 30, 1996, accrued interest relating to
this note was $19,834, $54,833 and $72,333, respectively. The Company
believes that the carrying amount of this note approximates fair value.
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:
Years ending December 31:
-------------------------
1996 .................... $115,994
1997 .................... 114,060
1998 .................... 114,060
1999 .................... 17,956
2000 .................... 8,219
----------
$370,289
==========
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 not incurred any royalty
expenses under these agreements as of June 30, 1996.
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. DEFERRED COMPENSATION:
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.
F-10
<PAGE>
HEALTHDESK CORPORATION
(a development stage Company)
NOTES TO FINANCIAL STATEMENTS - (Continued)
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.
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 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.
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
F-11
<PAGE>
HEALTHDESK CORPORATION
(a development stage Company)
NOTES TO FINANCIAL STATEMENTS - (Continued)
10. Preferred Stock: - (Continued)
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.
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 ............................... (475,901) 1.04 to 1.67
----------- --------------
Balance at December 31, 1995 ............ 546,199 1.04 to 2.08
Granted (unaudited) ..................... 177,600 2.08 to 3.33
Exercised (unaudited) ................... (120) 1.04
Forfeited (unaudited) ................... (157,780) 2.08 to 3.33
----------- --------------
Balance at June 30, 1996 (unaudited) .... 565,899 $1.04 to 3.33
=========== ==============
Exercisable at June 30, 1996 (unaudited) 565,899 $1.04 to $3.33
=========== ==============
</TABLE>
F-12
<PAGE>
HEALTHDESK CORPORATION
(a development stage Company)
NOTES TO FINANCIAL STATEMENTS - (Continued)
11. Stock Options: - (Continued)
At June 30, 1996, 444,868 of the exercisable options are subject to the
Company's repurchase provision.
12. SUBSEQUENT EVENTS:
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 June 30,
1996, the Company had not elected to make any discretionary contributions.
Subsequent to June 30, 1996 and through September 18, 1996, the Company
granted 149,400 additional options to purchase shares of common stock at an
exercise price of $5.00 per share.
Subsequent to June 30, 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.
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.
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 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).
The Company has committed to pay nonrefundable minimum royalties of
approximately $190,000 under various software and content agreements entered
into subsequent to June 30, 1996.
13. PRO FORMA LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED):
The pro forma liabilities and shareholders' equity as of June 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 indebtedness incurred subsequent to June 30, 1996 (Note 12).
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
Page
--------
Prospectus Summary ........................ 3
Risk Factors .............................. 7
Use of Proceeds ........................... 14
Capitalization ............................ 15
Dividend Policy ........................... 15
Dilution .................................. 16
Selected Financial Data ................... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................... 18
Business .................................. 21
Management ................................ 31
Principal Shareholders .................... 35
Certain Transactions ...................... 35
Description of Capital Stock .............. 37
Shares Eligible for Future Sale ........... 38
Underwriting .............................. 39
Legal Matters ............................. 42
Experts ................................... 42
Additional Information .................... 42
Index to Financial Statements ............. F-1
Until , 1996 (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
2,000,000 SHARES
COMMON STOCK
------
PROSPECTUS
------
WHALE SECURITIES CO., L.P.
, 1996
=============================================================================
<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.
Amount
to Be Paid
Item by Registrant
- ---- ---------------
SEC Registration Fee .......................... $ 4,091
NASD Filing Fee ............................... 1,850
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 300,000
Miscellaneous ................................. 32,859
--------
Total ..................................... $650,000
========
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
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 - Included on Page II-4
</TABLE>
- ------
* To be filed by Amendment.
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 this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Berkeley, State of California, on October 16,
1996.
HEALTHDESK CORPORATION
By /s/ Peter O'Donnell
--------------------------------
Peter O'Donnell, President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Peter O'Donnell, and Timothy S.
Yamauchi, and each of them acting individually, as his or her
attorney-in-fact, each with full power of substitution, for him or her in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorney to any and all amendments to said Registration Statement.
Pursuant to the requirements of the Securities Act, 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 October 16, 1996
- ---------------------------- of the Board (Principal Executive Officer)
Peter O'Donnell
/s/ Timothy S. Yamauchi Chief Financial Officer, Secretary and October 16, 1996
- ---------------------------- Treasurer (Principal Financial and Accounting
Timothy S. Yamauchi Officer)
/s/ John Pappajohn Director October 21, 1996
- ----------------------------
John Pappajohn
/s/ James A. Gordon Director October 16, 1996
- ----------------------------
James A. Gordon
/s/ Joseph Rudick Director October 21, 1996
- ----------------------------
Dr. Joseph Rudick
/s/ David Sengpiel Director October 21, 1996
- ----------------------------
David Sengpiel
</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
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 - Included on Page II-4
</TABLE>
- ------
* To be filed by Amendment.
<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,
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<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-
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<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.
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<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.
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<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.
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<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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<PAGE>
(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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<PAGE>
(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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<PAGE>
(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.
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<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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(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.
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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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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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(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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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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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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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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Exhibit 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
HEALTHDESK CORPORATION
Peter O'Donnell and Timothy S. Yamauchi hereby certify that:
ONE: They are the duly elected and acting President and Secretary,
respectively, of HealthDesk Corporation, a California corporation (the
"Company").
TWO: The Articles of Incorporation of the Company are hereby amended
and restated to read in their entirety as follows:
"I.
The name of the Company is HealthDesk Corporation.
II.
The purpose of the Company is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III.
A. The Company is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the Company is authorized to issue is twenty million
(20,000,000) shares, seventeen million (17,000,000) shares of which shall be
Common Stock (the "Common Stock") and three million (3,000,000) shares of which
shall be Preferred Stock (the "Preferred Stock"). Upon the filing of these
Restated Articles of Incorporation, each share of Common Stock and Preferred
stock shall be split up and converted into 1.2 shares of Common Stock and the
same class of Preferred Stock, respectively.
B. The Preferred Stock may be issued from time to time in one or more
series. Subject to shareholder approval rights set forth in subsection 2(b) of
this Article III, the Board of Directors is hereby authorized to fix or alter
the rights, privileges, preferences and restrictions granted to or imposed upon
any series of Preferred Stock, including, but not limited to, dividend rights,
dividend rate, conversion rights, voting rights, rights and terms of redemption
(including sinking fund provisions), the redemption price or prices, the
liquidation preferences of any wholly unissued series of Preferred Stock, and
the number of shares constituting any such series and the designation thereof,
or any of them; and to increase or decrease the number of shares of any series
subsequent to the issue of shares of that series, but not below the number of
shares of such series then outstanding. In case the number of shares of any
series shall be so decreased, the shares constituting such decrease shall resume
the status which they had prior to the adoption of the resolution originally
fixing the number of shares of such series.
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C. One million two hundred thousand (1,200,000) of the authorized
shares of Preferred Stock are hereby designated "Series A Preferred Stock" (the
"Series A Preferred").
D. The rights, preferences, privileges, restrictions and other matters
relating to the Series A Preferred are as follows:
1. Dividend Rights.
If the Company shall at any time declare a cash dividend
payable with respect to the Common Stock or any series of Preferred Stock
ranking pari passu or junior to the Series A Preferred of the Company with
respect to payment of dividends ("Other Stock"), the holders of Series A
Preferred shall be entitled to receive a cash dividend per outstanding share of
Series A Preferred in an amount not less than the dividend paid per share of
Other Stock (determined on an as-if-converted to Common Stock basis), any such
dividend to be payable out of funds legally available therefor.
2. Voting Rights.
(a) Except as otherwise provided herein or as required by law,
the Series A Preferred shall be voted equally with the shares of the Common
Stock of the Company and not as a separate class, at any annual or special
meeting of shareholders of the Company, and may act by written consent in the
same manner as the Common Stock, in either case, for voting on all matters,
including but not limited to the election of the members of the Company's Board
of Directors, upon the following basis: each holder of shares of Series A
Preferred shall be entitled to such number of votes as shall be equal to the
whole number of shares of Common Stock into which such holder's aggregate number
of shares of Series A Preferred are convertible (pursuant to Section 4 hereof)
immediately after the close of business on the record date fixed for such
meeting or the effective date of such written consent.
(b) In addition to any other vote or consent required herein
or by law, the vote or written consent of the holders of at least two-thirds of
the outstanding Series A Preferred shall be necessary for approving the
following actions:
(i) Any amendment, alteration, or repeal of any
provision of the Amended and Restated Articles of Incorporation or the Bylaws of
the Company that affects adversely the voting powers, preferences, or other
special rights or privileges, qualifications, limitations, or restrictions of
the Series A Preferred;
(ii) Any increase in the authorized number of shares
of Preferred Stock; or
(iii) Any authorization, whether by reclassification
or otherwise, of equity securities of the Company ranking senior to the Series A
Preferred in liquidation preference or dividends.
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3. Liquidation Rights.
(a) Upon any liquidation, dissolution, or winding up of the
Company, whether voluntary or involuntary, before any distribution or payment
shall be made to the holders of the Common Stock or Preferred Stock ranking
junior to the Series A Preferred, the holders of Series A Preferred shall be
entitled to be paid out of the assets of the Company an amount per share of
Series A Preferred equal to the Original Issue Price, plus any accrued and
unpaid dividends, only, when, as and if such dividends were declared by the
Company's Board of Directors pursuant to Section 1 above. The Original Issue
Price shall be two dollars and eight cents ($2.08). If, upon the occurrence of a
liquidation event, the assets and funds thus distributed among the holders of
the Series A Preferred and the holders of all Preferred Stock that ranks pari
passu with the Series A Preferred as to liquidation preference shall be
insufficient to permit the payment to such holders of the full preferential
amount, then such holders shall share ratably in any distribution of the assets
of the Company in proportion to the amounts that would have been payable with
respect to their shares if all amounts payable with respect to such shares were
paid in full.
(b) After the payment of the full liquidation preference of
the Series A Preferred as set forth in Section 3(a) above, the assets of the
Company legally available for distribution, if any, shall be distributed ratably
to the holders of the Common Stock and Series A Preferred.
4. Conversion Rights.
The holders of the Series A Preferred shall have the following
rights with respect to the conversion of the Series A Preferred into shares of
Common Stock:
(a) Optional Conversion. Subject to and in compliance with the
provisions of this Section 4, any shares of Series A Preferred may, at the
option of the holder, be converted at any time into fully-paid and nonassessable
shares of Common Stock. The number of shares of Common Stock to which a holder
of Series A Preferred shall be entitled upon conversion shall be the product
obtained by multiplying the "Series A Conversion Rate" then in effect
(determined as provided in Section 4(b)) by the number of shares of Series A
Preferred being converted.
(b) Series A Conversion Rate. The conversion rate in effect at
any time for conversion of the Series A Preferred (the "Series A Conversion
Rate") shall be the quotient obtained by dividing the Original Issue Price of
the Series A Preferred by the "Series A Conversion Price," calculated as
provided in Section 4(c).
(c) Conversion Price. The conversion price for the Series A
Preferred shall initially be the Original Issue Price of the Series A Preferred
(the "Series A Conversion Price"). Such initial Series A Conversion Price shall
be adjusted from time to time in accordance with this Section 4. All references
to the Series A Conversion Price herein shall mean the Series A Conversion Price
as so adjusted.
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(d) Mechanics of Optional Conversion. Each holder of Series A
Preferred who desires to convert the same into shares of Common Stock pursuant
to this Section 4 shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Company or any transfer agent for the Series A
Preferred, and shall give written notice to the Company at such office that such
holder elects to convert the same. Such notice shall state the number of shares
of Series A Preferred being converted. Thereupon, the Company shall promptly
issue and deliver at such office to such holder a certificate or certificates
for the number of shares of Common Stock to which such holder is entitled and
shall promptly pay in cash or, to the extent sufficient funds are not then
legally available therefor, in Common Stock (at the Common Stock's fair market
value determined by the Board of Directors as of the date of such conversion),
any declared and unpaid dividends on the shares of Series A Preferred being
converted. Such conversion shall be deemed to have been made at the close of
business on the date of such surrender of the certificates representing the
shares of Series A Preferred to be converted, and the person entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder of such shares of Common Stock on such date.
(e) Adjustment for Stock Splits and Combinations. If the
Company shall at any time or from time to time after the date these Restated
Articles of Incorporation are filed with the Secretary of State of the State of
California (the "Original Issue Date") effect a subdivision of the outstanding
Common Stock, the Series A Conversion Price in effect immediately before that
subdivision shall be proportionately decreased. Conversely, if the Company shall
at any time or from time to time after the Original Issue Date combine the
outstanding shares of Common Stock into a smaller number of shares, the Series A
Conversion Price in effect immediately before the combination shall be
proportionately increased. Any adjustment under this Section 4(e) shall become
effective at the close of business on the date the subdivision or combination
becomes effective. For the avoidance of doubt, the stock split effected by the
filing of these Restated Articles of Incorporation is expressly excluded from
the application of this paragraph.
(f) Adjustment for Common Stock Dividends and Distributions.
If the Company at any time or from time to time after the Original Issue Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, in each such event the Series A Conversion Price that is
then in effect shall be decreased as of the time of such issuance or, in the
event such record date is fixed, as of the close of business on such record
date, by multiplying the Series A Conversion Price then in effect by a fraction
(1) the numerator of which is the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date, and (2) the denominator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Series A Conversion Price shall be recomputed accordingly as
of the close of business on such record date and thereafter the Series A
Conversion Price shall be adjusted pursuant to this Section 4(f) to reflect the
actual payment of such dividend or distribution.
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(g) Adjustments for Other Dividends and Distributions. If the
Company at any time or from time to time after the Original Issue Date makes, or
fixes a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the Company
other than shares of Common Stock, in each such event provision shall be made so
that the holders of the Series A Preferred shall receive upon conversion
thereof, in addition to the number of shares of Common Stock receivable
thereupon, the amount of other securities of the Company which they would have
received had their Series A Preferred been converted into Common Stock on the
date of such event and had they thereafter, during the period from the date of
such event to and including the conversion date, retained such securities
receivable by them as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 4 with respect to
the rights of the holders of the Series A Preferred or with respect to such
other securities by their terms.
(h) Adjustment for Reclassification, Exchange and
Substitution. If at any time or from time to time after the Original Issue Date,
the Common Stock issuable upon the conversion of the Series A Preferred is
changed into the same or a different number of shares of any class or classes of
stock, whether by recapitalization, reclassification or otherwise other than a
subdivision or combination of shares or stock dividend or a reorganization,
merger, consolidation or sale of assets provided for elsewhere in this Section
4), in any such event each holder of Series A Preferred shall have the right
thereafter to convert such stock into the kind and amount of stock and other
securities and property receivable upon such recapitalization, reclassification
or other change by holders of the maximum number of shares of Common Stock into
which such shares of Series A Preferred could have been converted immediately
prior to such recapitalization, reclassification or change, all subject to
further adjustment as provided herein or with respect to such other securities
or property by the terms thereof.
(i) Adjustment for Certain Stock Issuances. The Series A
Conversion Price shall be subject to adjustment from time to time as follows:
(A) If the Company shall, at any time or from time to
time after the date of the first issuance of shares of Series A Preferred (the
"Purchase Date") issue any Additional Stock (as defined below) without
consideration or for a consideration per share less than the Series A Conversion
Price in effect immediately prior to the issuance of such Additional Stock, the
Series A Conversion Price in effect immediately prior to each such issuance
shall forthwith be adjusted to a price determined by dividing (i) an amount
equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issuance multiplied by the then existing Series A
Conversion Price, and (B) the consideration, if any, received by the Company
upon such issuance, by (ii) the total number of shares of Common Stock
outstanding immediately prior to such issuance plus the number of such shares of
Additional Stock so issued, provided that for the purposes of this subparagraph,
all shares of Common Stock issuable upon conversion of outstanding Series A
Preferred, shall be deemed to be outstanding, and immediately after any
Additional Stock is deemed issued, such Additional Stock shall be deemed to be
outstanding.
(B) No adjustment of the Series A Conversion Price
for the Series A Preferred shall be made in an amount less than one cent per
share, provided that any adjustments which are not required to be made by reason
of this sentence shall be carried forward and shall be either taken into account
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in any subsequent adjustment made prior to 3 years from the date of the event
giving rise to the adjustment being carried forward, or shall be made at the end
of 3 years from the date of the event giving rise to the adjustment being
carried forward. Except to the limited extent provided for in subparagraphs
(E)(3) and (E)(4), no adjustment of such Series A Conversion Price pursuant to
this Section 4(i) shall have the effect of increasing the Series A Conversion
Price above the Series A Conversion Price in effect immediately prior to such
adjustment.
(C) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any discounts, commissions or other expenses allowed, paid or
incurred by the Company for any underwriting or otherwise in connection with the
issuance and sale thereof.
(D) In the case of the issuance of the Common Stock
for a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance (whether before, on
or after the Purchase Date) of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable for
Common Stock, or options to purchase or rights to subscribe for such convertible
or exchangeable securities, the following provisions shall apply for all
purposes of this Section 4(i).
1. The aggregate maximum number of shares of
Common Stock deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the consideration
(determined in the manner provided in Sections 4(i)(C) and 4(i)(D), if any,
received by the Company upon the issuance of such options or rights plus the
then applicable purchase price provided in such options or rights for the Common
Stock covered thereby.
2. The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities or upon the exercise of options to
purchase or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof shall be deemed to have been
issued at the time such securities were issued or such options or rights were
issued and for a consideration equal to the consideration, if any, received by
the Company for any such securities and related options or rights (excluding any
cash received on account of accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by the Company upon the
conversion or exchange of such securities or the exercise of any related options
or rights (the consideration in each case to be determined in the manner
provided in Sections 4(i)(C) and 4(i)(D).
3. In the event of any change in the number
of shares of Common Stock deliverable or any increase in the consideration
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payable to the Company upon exercise of such options or rights or upon
conversion of or in exchange for such convertible or exchangeable securities,
including, but not limited to, a change resulting from the antidilution
provisions thereof, the Series A Conversion Price, to the extent in any way
affected by or computed based upon such options, rights or securities, shall be
recomputed to reflect such change, but no further adjustment shall be made for
the actual issuance of Common Stock or any payment of such consideration upon
the exercise of arty such options or rights or the conversion or exchange of
such securities.
4. Upon the expiration of any such options
or rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Series A Conversion Price, to the extent in any way affected by
or computed based upon such options, rights or securities or options or rights
related to such securities, shall be recomputed to reflect the issuance of only
the number of shares of Common stock (and convertible or exchangeable securities
which remain convertible or exchangeable) actually issued upon the exercise of
such options or rights, upon the conversion or exchange of such securities or
upon the exercise of the options or rights related to such securities.
5. The number of shares of Common Stock
deemed issued and the consideration deemed paid therefor pursuant to Section
4(i)(E)(1) shall be appropriately adjusted to reflect any change, termination or
expiration of the type described in either Section 4(i)(E)(3) or (4).
(F) "Additional Stock" shall mean any shares of
Common Stock issued (or deemed to have been issued pursuant to Section 4(i)(E))
by the Company after the Purchase Date other than
1. shares of Common Stock issued pursuant to
a transaction described in Section 4(e), (f) or (g) hereof,
2. Common Stock issuable or issued to
employees, officers, directors or consultants of the Company directly (or
pursuant to stock purchase or option plans), or
3. shares of Common Stock issued or issuable
upon the conversion of the Series A Preferred.
(j) Reorganizations, Mergers, Consolidations or Sales of
Assets. If at any time or from time to time after the Original Issue Date, there
is a capital reorganization of the Common Stock (other than recapitalization,
subdivision, combination, reclassification, exchange or substitution of shares
provided for elsewhere in this Section 4), as a part of such capital
reorganization, provision shall be made so that the holders of the Series A
Preferred shall thereafter be entitled to receive upon conversion of the Series
A Preferred the number of shares of stock or other securities or property of the
Company to which a holder of the number of shares of Common Stock deliverable
upon conversion would have been entitled on such capital reorganization, subject
7
<PAGE>
to adjustment in respect of such stock or securities by the terms thereof. In
any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4 with respect to the rights of the holders of Series
A Preferred after the capital reorganization to the end that the provisions of
this Section 4 (including adjustment of the Series A Conversion Price then in
effect and the number of shares issuable upon conversion of the Series A
Preferred) shall be applicable after that event and be as nearly equivalent as
practicable.
(k) Certificate of Adjustment. In each case of an adjustment
or readjustment of the Series A Series A Conversion Price for the number of
shares of Common Stock or other securities issuable upon conversion of the
Series A Preferred, if the Series A Preferred is then convertible pursuant to
this Section 4, the Company, at its expense, shall compute such adjustment or
readjustment in accordance with the provisions hereof and prepare a certificate
showing such adjustment or readjustment, and shall mail such certificate, by
first class mail, postage prepaid, to each registered holder of Series A
Preferred at the holder's address as shown in the Company's books. The
certificate shall set forth such adjustment or readjustment, showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (1) the Series A Conversion Price at the time in effect, and (2)
the type and amount, if any, of other property which at the time would be
received upon conversion of the Series A Preferred.
(l) Notices of Record Date. Upon (i) any taking by the Company
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any acquisition or other capital reorganization of
the Company, any reclassification or recapitalization of the capital stock of
the Company, any merger or consolidation of the Company with or into any other
corporation, or any sale of all or substantially all of the assets of the
Company, or any voluntary or involuntary dissolution, liquidation or winding up
of the Company, the Company shall mail to each holder of Series A Preferred at
least twenty (20) days prior to the record date specified therein a notice
specifying (1) the date on which any such record is to be taken for the purpose
of such dividend or distribution and a description of such dividend or
distribution, (2) the date on which any such acquisition, reorganization,
reclassification, recapitalization, consolidation, merger, asset sale,
dissolution, liquidation or winding up is expected to become effective, and (3)
the date, if any, that is to be fixed as to when the holders of record of Common
Stock (or other securities) shall be entitled to exchange their shares of Common
Stock (or other securities) for securities or other property deliverable upon
such acquisition, reorganization, reclassification, recapitalization,
consolidation, merger, asset sale, dissolution, liquidation or winding up.
(m) Automatic Conversion.
(1) Each share of Series A Preferred shall
automatically be converted into shares of Common Stock, based on the
then-effective Series A Conversion Price, at any time upon the affirmative vote
of the holders of at least two-thirds of the outstanding shares of the Series A
Preferred, or immediately upon the closing of a firmly underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock for the
account of the Company in which the gross cash proceeds to the Company (before
underwriting discounts, commissions and fees) are at least $5,000,000. Upon such
automatic conversion, any declared and unpaid dividends shall be paid in
accordance with the provisions of Section 4(d).
8
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(2) Upon the occurrence of the event specified in
paragraph (1) above, the outstanding shares of Series A Preferred shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Company or its transfer agent; provided, however, that the Company shall not
be obligated to issue certificates evidencing the shares of Common Stock
issuable upon such conversion unless the certificates evidencing such shares of
Series A Preferred are either delivered to the Company or its transfer agent as
provided below, or the holder notifies the Company or its transfer agent that
such certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection with such certificates. Upon the occurrence of such automatic
conversion of the Series A Preferred, the holders of Series A Preferred shall
surrender the certificates representing such shares at the office of the Company
or any transfer agent for the Series A Preferred. Thereupon, there shall be
issued and delivered to such holder promptly at such office and in its name as
shown on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which the shares of
Series A Preferred surrendered were convertible on the date on which such
automatic conversion occurred, and the Company shall promptly pay any declared
and unpaid dividends in accordance with the provisions of Section 4(d).
(n) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of Series A Preferred. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of Series A Preferred by a holder thereof shall be aggregated for purposes
of determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of any fractional share, the Company shall, in lieu of
issuing any fractional share, pay cash equal to the product of such fraction
multiplied by the Common Stock's fair market value (as determined by the Board)
on the date of conversion.
(o) Reservation of Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Preferred, such number of its shares of Common Stock
as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series A Preferred, the
Company will take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
(p) Notices. Any notice required by the provisions of this
Section 4 shall be in writing and shall be deemed effectively given: (i) upon
personal delivery to the party to be notified, (ii) when sent by confirmed telex
or facsimile if sent during normal business hours of the recipient; if not, then
on the next business day, (iii) five (5) days after having been sent by
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registered or certified mail, return receipt requested, postage prepaid, or (iv)
one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All notices
shall be addressed to each holder of record at the address of such holder
appearing on the books of the Company.
(q) Payment of Taxes. The Company will pay all taxes (other
than taxes based upon income) and other governmental charges that may be imposed
with respect to the issue or delivery of shares of Common Stock upon conversion
of shares of Series A Preferred, excluding any tax or other charge imposed in
connection with any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which the shares of Series A Preferred
so converted were registered.
(r) No Dilution or Impairment. Without the consent of a
majority of the Series A Preferred, the Company shall not take any voluntary
action, for the purpose of avoiding or seeking to avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
Company, but shall at all times in good faith assist in carrying out all such
action as may be reasonably necessary or appropriate in order to protect the
conversion rights of the holders of the Series A Preferred against dilution or
other impairment.
5. No Reissuance of Series A Preferred. Any and all shares of Series A
Preferred acquired by the Company by reason of redemption, purchase, conversion
or otherwise shall be canceled and shall not be reissued.
6. No Preemptive Rights. Shareholders shall have no preemptive rights
except as granted by the Company pursuant to written agreements.
IV.
A. The liability of the directors of the Company for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
B. The Company is authorized to indemnify the directors and
officers of the Company to the fullest extent permissible under California law.
C. Any repeal or modification of this Article shall only be
prospective and shall not effect the rights under this Article in effect at the
time of the alleged occurrence of any action or omission to act giving rise to
liability."
THREE: The foregoing amendment and restatement of the Articles of
Incorporation has been duly approved by the Board of Directors of the Company.
FOUR: The foregoing amendment and restatement of the articles of
incorporation has been duly approved by the required vote of shareholders in
accordance with Section 902 of the California Corporations Code. The Company two
classes of stock outstanding, each of which is entitled to vote with respect to
10
<PAGE>
the amendment herein set forth. The total number of outstanding shares of Common
Stock and Series A Preferred Stock of the Company is 1,775,100 and 883,000,
respectively. The number of shares voting in favor of the amendment equaled or
exceeded the vote required. The percentage vote required was more than fifty
percent (50%) of the outstanding Common Stock and sixty-six and two-thirds
percent (66 2/3%) of the Series A Preferred Stock, each voting as a class.
11
<PAGE>
I further declare under penalty of perjury that the matters set forth
in the foregoing certificate are true and correct of our own knowledge.
Executed at Berkeley, California, on September __, 1996.
________________________________
Peter O'Donnell, President
_______________________________
Timothy S. Yamauchi, Secretary
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Exhibit 3.2
BYLAWS OF
HEALTHDESK CORPORATION
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I - Offices .......................................................... 1
Section 1. Principal Office................................................. 1
Section 2. Other Offices ................................................... 1
ARTICLE II - Meetings of Shareholders ........................................ 1
Section 3. Place of Meeting................................................. 1
Section 4. Annual Meeting .................................................. 1
Section 5. Special Meeting.................................................. 1
Section 6. Notice of Shareholders' Meeting.................................. 2
Section 7. Quorum .......................................................... 3
Section 8. Adjourned Meeting ............................................... 3
Section 9. Waiver or Consent by Shareholders ............................... 3
Section 10. Action Without Meeting........................................... 4
Section 11. Voting Rights; Cumulative Voting................................. 4
Section 12. Proxies.......................................................... 5
Section 13. Inspectors of Election........................................... 5
ARTICLE III - Directors; Management........................................... 6
Section 14. Powers .......................................................... 6
Section 15. Number and Qualification of Directors ........................... 6
Section 16. Election and Term of Office...................................... 6
Section 17. Removal of Directors ............................................ 7
Section 18. Vacancies ....................................................... 7
Section 19. Place of Meeting ................................................ 8
Section 20. Organizational Meetings ......................................... 8
Section 21. Special Meeting ................................................. 8
Section 22. Quorum .......................................................... 8
Section 23. Contents of Notice and Waiver of Notice ......................... 9
Section 24. Adjournment ..................................................... 9
Section 25. Notice of Adjournment ........................................... 9
Section 26. Telephone Participation.......................................... 9
Section 27. Action without Meeting .......................................... 9
Section 28. Fees and Compensation ........................................... 9
ARTICLE IV - Officers ........................................................ 9
Section 29. Officers ........................................................ 9
Section 30. Election ........................................................10
Section 31. Subordinate Officers ............................................10
Section 32. Removal and Resignation .........................................10
Section 33. Vacancies .......................................................10
Section 34. Chairman of the Board............................................10
Section 35. President .......................................................10
Section 36. Vice Presidents .................................................11
Section 37. Secretary .......................................................11
Section 38. Chief Financial Officer .........................................11
ARTICLE V - General Corporate Matters.........................................12
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Section 39. Record Date and Closing of Stockbooks ..........................12
Section 40. Corporate Records and Inspection by Shareholders and Directors .12
Section 41. Checks, Drafts, Evidences of Indebtedness.......................13
Section 42. Corporate Contracts and Instruments; How Executed ..............13
Section 43. Stock Certificates .............................................13
Section 44. Lost Certificates ..............................................14
Section 45. Reports to Shareholders.........................................14
Section 46. Indemnity of Officers and Directors ............................15
ARTICLE VI - Amendments.......................................................19
Section 47. Amendments by Shareholders .....................................19
Section 48. Amendments by Directors ........................................19
ARTICLE VII - Committees of the Board.........................................20
Section 49. Committees of the Board ........................................20
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ARTICLE I
Offices
Section 1. Principal Office. The principal executive office in the
State of California for the transaction of the business of the corporation
(called the principal office) shall be fixed from time to time by resolution of
the Board of Directors.
Section 2. Other Offices. One or more branches or other subordinate
offices may at any time be fixed and located by the Board of Directors at such
place or places within or without the State of California as the Board deems
appropriate.
ARTICLE II
Meetings of Shareholders
Section 3. Place of Meeting. Meetings of the shareholders shall be
held at any place within or outside the State of California that may be
designated either by the Board of Directors in accordance with these Bylaws, or
by the written consent of all persons entitled to vote at the meeting, given
either before or after the meeting and filed with the Secretary of the
corporation. If no such designation is made, the meetings shall be held at the
principal office of the corporation designated in accordance with Section 1 of
these Bylaws.
Section 4. Annual Meeting.
(a) The annual meeting of the shareholders shall be held on the
first Tuesday of April of each year at the principal office, if not a legal
holiday, and if a legal holiday, then on the next succeeding business day, at
which time the shareholders shall elect a Board of Directors, consider reports
of the affairs of the corporation, and transact such other business as may
properly be brought before the meeting.
(b) If the annual meeting of shareholders shall not be held on the
date above specified, the Board of Directors shall cause such a meeting to be
held as soon thereafter as convenient, and any business transacted or election
held at such meeting shall be as valid as if transacted or held at an annual
meeting on the date above specified.
Section 5. Special Meeting. Special meetings of the shareholders,
for any purpose or purposes whatsoever, may be called at any time by the Board
of Directors, the Chairman of the Board, the President, or by holders of shares
entitled to cast not less than ten percent (10%) of the votes at the meeting. At
such meetings, no business may be transacted other than as is generally
specified in the notice provided to the shareholders pursuant to Section 6 of
these Bylaws.
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Section 6. Notice of Shareholders' Meeting.
(a) Whenever shareholders are required or permitted to take any
action at a meeting, a written notice of the meeting shall be given not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each shareholder entitled to vote thereat. Such notice shall state the place,
date and hour of the meeting and (1) in the case of a special meeting, the
general nature of the business to be transacted, or (2) in the case of the
annual meeting, those matters which the Board, at the time of the mailing of the
notice, intends to present for action by the shareholders, but subject to the
provisions of Section 601(f) of the California Corporations Code (the "Code"),
any proper matter may be presented at the meeting for such action. The notice of
any meeting at which directors are to be elected shall include the names of
nominees intended at the time of the notice to be presented by management for
election.
(b) Notice of a shareholders' meeting shall be given either
personally or by first class mail or other means of written communication,
addressed to the shareholder at the address of such shareholder appearing on the
books of the corporation or given by the shareholder to the corporation for the
purpose of notice; or if no such address appears or is given, at the place where
the principal office of the corporation is located. The notice shall be deemed
to have been given at the time when delivered personally or deposited in the
mail or sent by other means of written communication.
(c) Notwithstanding the foregoing, whenever the corporation has
outstanding shares held of record by five hundred (500) or more persons, notice
may be given by third class mail as provided in Sections 601(a) and 601(b) of
the Code.
(d) If any notice addressed to the shareholder at the address of
such shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at such address, all future notices shall be deemed to have been duly given
without further mailing if the same shall be available for the shareholder upon
written demand of the shareholder at the principal office of the corporation for
a period of one year from the date of the giving of the notice to all other
shareholders.
(e) Upon request in writing to the Chairman of the Board,
President, Vice President or Secretary by any person entitled to call a special
meeting of shareholders, the officer forthwith shall cause notice to be given to
the shareholders entitled to vote that a meeting will be held at a time
requested by the person or persons calling the meeting, not less than
thirty-five nor more than sixty days after the receipt of the request.
Section 7. Quorum. The presence at any meeting, in person or by
proxy, of the persons entitled to vote a majority of the voting shares of the
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corporation shall constitute a quorum for the transaction of business.
Shareholders present at a valid meeting at which a quorum is initially present
may continue to do business until adjournment notwithstanding the withdrawal of
enough shareholder to leave less than a quorum, if any action taken (other than
adjournment) is approved by persons voting more than twenty-five percent (25%)
of the shares entitled to vote.
Section 8. Adjourned Meeting.
(a) Any annual or special shareholders' meeting may be adjourned
from time to time, even though a quorum is not present, by vote of the holders
of a majority of the voting shares present at the meeting either in person or by
proxy, provided that in the absence of a quorum, no other business may be
transacted at the meeting except as provided in Section 7.
(b) Notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting, any business may be transacted which might
have been transacted at the original meeting. If the adjournment is for more
than forty-five (45) days or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each shareholder of record entitled to vote at the meeting.
Section 9. Waiver or Consent by Shareholders.
(a) The transactions of any meeting of shareholders, however
called and noticed, and wherever held, are as valid as though had at a meeting
duly held after regular call and notice, if a quorum is present either in person
or by proxy, and if, either before or after the meeting, one or more of the
holders of each of the shares entitled to vote, not present in person or by
proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. All such waivers, consents and
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
(b) Attendance of a person at a meeting shall constitute a waiver
of notice of and presence at such meeting, except when the person objects, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened and except that attendance at a
meeting is not a waiver of any right to object to the consideration of matters
required by Section 6 of these Bylaws or Section 601(f) of the Code to be
included in the notice but not so included, if such objection is expressly made
at the meeting. Neither the business to be transacted at nor the purpose of any
regular or special meeting of shareholders need be specified in any written
waiver of notice, consent to the holding of the meeting or approval of the
minutes thereof, except as provided in Section 601(f) of the Code.
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Section 10. Action Without Meeting.
(a) Any action which may be taken at any annual or special meeting
of shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted, except that
unanimous written consent shall be required for election of directors to
non-vacant positions.
(b) Unless the consents of all shareholders entitled to vote have
been solicited or received in writing, notice shall be given to non-consenting
shareholders to the extent required by Section 603(b) of the Code.
(c) Any shareholder giving a written consent, or the shareholder's
proxyholders, or a transferee of the shares or a personal representative of the
shareholder or their respective proxyholders, may revoke the consent by a
writing received by the corporation prior to the time that written consents of
the number of shares required to authorize the proposed action have been filed
with the Secretary of the corporation, but may not do so thereafter. Such
revocation is effective upon its receipt by the Secretary of the corporation.
Section 11. Voting Rights; Cumulative Voting.
(a) Only persons in whose names shares entitled to vote stand on
the stock records of the corporation at the close of business on the record date
fixed by the Board of Directors as provided in Section 39 hereof for the
determination of shareholders of record shall be entitled to notice of and to
vote at such meeting of shareholders. If no record date is fixed, the record
date for determining shareholders entitled to notice of or to vote at a meeting
of shareholders shall be at the close of business on the business day next
preceding the day on which notice is given or, if notice is waived, at the close
of business on the business day next preceding the day on which the meeting is
held; the record date for determining shareholders entitled to give consent to
corporate action in writing without a meeting, when no prior action by the Board
has been taken, shall be the day on which the first written consent is given:
and the record date for determining shareholders for any other purpose shall be
at the close of business on the day on which the Board adopts the resolution
relating thereto, or the sixtieth (60th) day prior to the date of such other
action, whichever is later.
(b) Except as provided in the next following sentence and except
as may be otherwise provided in the Articles of Incorporation, each shareholder
entitled to vote shall be entitled to one vote for each share held on each
matter submitted to a vote of shareholders. In the election of directors, each
such shareholder complying with the following paragraph may cumulate such
shareholder's votes and give one candidate a number of votes equal to the number
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of directors to be elected multiplied by the number of votes to which the
shareholder's shares are normally entitled, or distribute the shareholder's
votes on the same principle among as many candidates as the shareholder thinks
fit.
(c) No shareholder shall be entitled to cumulate votes in favor of
any candidate or candidates unless such candidate's or candidates' names have
been placed in nomination prior to the voting and the shareholder has given
notice at the meeting prior to the voting of the shareholder's intention to
cumulate the shareholder's votes. If any one shareholder has given such notice,
such fact shall be announced to all shareholders and proxies present, who may
then cumulate their votes for candidates in nomination.
(d) In any election of directors, the candidates receiving the
highest number of votes of the shares entitled to be voted for them, up to the
number of directors to be elected by such shares, are elected.
(e) Voting may be by voice or ballot, provided that any election
of directors must be by ballot upon the demand of any shareholder made at the
meeting and before the voting begins.
Section 12. Proxies. Every person entitled to vote shares may
authorize another person or persons to act by proxy with respect to such shares.
All proxies must be in writing and must be signed by the shareholder confirming
the proxy or his attorney-in-fact. No proxy shall be valid after the expiration
of eleven (11) months from the date thereof unless otherwise provided in the
proxy. Every proxy continues in full force and effect until revoked by the
person executing it prior to the vote pursuant thereto, except as otherwise
provided in Section 705 of the Code. Such revocation may be effected by a
writing delivered to the corporation stating that the proxy is revoked or by a
subsequent proxy executed by the person executing the prior proxy and presented
to the meeting, or as to any meeting, by attendance at such meeting and voting
in person by the person executing the proxy. The dates contained on the forms
of proxy presumptively determine the order of execution, regardless of the
postmark dates on the envelopes in which they are mailed.
Section 13. Inspectors of Election.
(a) In advance of any meeting of shareholders the Board may
appoint inspectors of election to act at the meeting and any adjournment
thereof. If inspectors of election are not so appointed, or if any persons so
appointed fail to appear or refuse to act, the chairman of any meeting of
shareholders may, and on the request of any shareholder or a shareholder's proxy
shall, appoint inspectors of election for persons to replace those who so fail
or refuse at the meeting. The number of inspectors shall be either one or three.
If appointed at a meeting on the request of one or more shareholders or proxies,
the majority of shares represented in person or by proxy shall determine whether
one or three inspectors are to be appointed If there are three inspectors of
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election, the decision, act or certificate of a majority is effective in all
respects as the decision, act or certificate of all.
(b) The inspectors of election shall determine the number of
shares outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum and the authenticity, validity and effect of
proxies, receive votes, ballots or consents, hear and determine all challenges
and questions in any way arising in connection with the right to vote, count and
tabulate all votes or consents, determine when the polls shall close, determine
the result and do such acts as may be proper to conduct the election or vote
with fairness to all shareholders.
ARTICLE III
Directors; Management
Section 14. Powers. Subject to any provisions of the Articles of
Incorporation, of the Bylaws and of law limiting the powers of the Board of
Directors or reserving powers to the shareholders, the Board of Directors shall,
directly or by delegation, manage the business and affairs of the corporation
and exercise all corporate powers permitted by law.
Section 15. Number and Qualification of Directors. The authorized
number of directors shall not, unless and until changed by an amendment to this
Section 15 adopted by the shareholders pursuant to Section 48, be less than four
nor more than seven provided, however, that so long as the corporation has only
one shareholder, the authorized number of directors may be one or two, and so
long as the corporation has only two shareholders the number of directors may be
two. The exact number of directors within said range shall be fixed by a
resolution adopted by the Board of Directors; and unless and until so fixed, the
exact number of directors is hereby fixed at five. A reduction in the authorized
number of directors shall not remove any director prior to the expiration of
such director's term of office. Directors need not be shareholders of the
corporation.
Section 16. Election and Term of Office. The directors shall be
elected annually by the shareholders at the annual meeting of the shareholders;
provided, however, that if for any reason said annual meeting or an adjournment
thereof is not held or the directors are not elected thereat, then the directors
may be elected at any special meeting of the shareholders called and held for
that purpose. The term of office of the directors shall, except as provided in
Section 17, begin immediately after their election and shall continue until
their respective successors are elected and qualified.
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Section 17. Removal of Directors.
(a) A director may be removed from office by the Board of
Directors if he or she is declared of unsound mind by the order of a court or
convicted of a felony. Any or all of the directors may be removed from office
without cause by a vote of shareholders holding a majority of the outstanding
shares entitled to vote at an election of directors, however, unless the entire
Board is removed, an individual director shall not be removed if the votes cast
against removal, or not consenting in writing to such removal, would be
sufficient to elect such director if voted cumulatively at an election at which
the same total number of votes were cast, or, if such action is taken by written
consent, all shares entitled to vote were voted, and the entire number of
directors authorized at the time of the director's most recent election were
then being elected. A director may also be removed from office by the Superior
Court of the county in which the principal office is located, at the suit of
shareholders holding at least ten percent (10%) of the number of outstanding
shares of any class, in case of fraudulent or dishonest acts or gross abuse of
authority or discretion with reference to the corporation, in the manner
provided by law.
(b) No reduction of the authorized number of directors shall have
the effect of removing any director before his term of office expires.
Section 18. Vacancies.
(a) A vacancy or vacancies on the Board of Directors shall exist
when any authorized position of director is not then filled by a duly elected
director, whether caused by death, resignation, removal, change in the
authorized number (by the Board or the shareholders) or otherwise.
(b) Except for a vacancy created by the removal of a director,
vacancies on the Board of Directors may be filled by a majority of the remaining
directors although less than a quorum, or by a sole remaining director, and each
director elected in this manner shall hold office until his successor is elected
at an annual or special shareholders' meeting.
(c) The shareholders may elect a director at any time to fill any
vacancy not filled by the directors. Any such election by written consent other
than to fill a vacancy created by removal requires the consent of a majority of
the outstanding shares entitled to vote.
(d) Any director may resign effective upon giving written notice
to the Chairman of the Board, the President, the Secretary or the Board of
Directors of the corporation, unless the notice specifies a later time for the
effectiveness of such resignation. If the resignation is effective at a future
time, a successor may be elected to take office when the resignation becomes
effective.
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Section 19. Place of Meeting. Regular and special meetings of the
Board of Directors shall be held at any place within or outside the State of
California that is designated by resolution of the Board or, either before or
after the meeting, consented to in writing by all the Board members. If the
place of a regular or special meeting is not fixed by resolution or written
consents of the Board, it shall be held at the corporation's principal office.
Section 20. Organizational Meetings. Immediately following each
annual shareholders' meeting, the Board of Directors shall hold an
organizational meeting to organize, elect officers, and transact other business.
Notice of this meeting shall not be required.
Section 21. Special Meeting.
(a) Special meetings of the Board of Directors for any purpose may
be called at any time by the Chairman of the Board, the President, any Vice
President, the Secretary, or any two directors.
(b) Special meetings of the Board shall be held upon four days'
notice by mail or forty-eight (48) hours' notice delivered personally or by
telephone or telegraph. If notice is by telephone, it shall be complete when the
person calling the meeting believes in good faith that the notified person has
heard and acknowledged the notice. If the notice is by mail or telegraph, it
shall be complete when deposited in the United States mail or delivered to the
telegraph office at the place where the corporation's principal office is
located, charges prepaid and addressed to the notified person at such person's
address appearing on the corporate records or, if it is not on these records or
is not readily ascertainable, at the place where the regular Board meeting is
held.
Section 22. Quorum. A majority of the authorized number of directors
(unless the authorized number of directors is one) shall constitute a quorum for
the transaction of business, except to adjourn a meeting under Section 24. Every
act done or decision made by a majority of the directors present at a meeting at
which a quorum is present shall be regarded as the act of the Board of
Directors, unless the vote of a greater number is required by law, the Articles
of Incorporation, or these Bylaws. meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
directors, if any action taken is approved by a majority of the required quorum
for such meeting.
Section 23. Contents of Notice and Waiver of Notice. Neither the
business to be transacted at, nor the purpose of, any regular or special Board
meeting need be specified in the notice or waiver of notice of the meeting.
Notice of a meeting need not be given to any director who signs a waiver of
notice or a consent to holding the meeting or an approval of the minutes
thereof, either before or after the meeting, or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to said
director. All such waivers, consents, and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
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Section 24. Adjournment. A majority of the directors present,
whether or not a quorum is present, may adjourn any meeting to another time and
place.
Section 25. Notice of Adjournment. Notice of the time and place of
holding an adjourned meeting need not be given to absent directors if the time
and place are fixed at the meeting being adjourned, except that if the meeting
is adjourned for more than twenty-four (24) hours such notice shall be given
prior to the adjourned meeting to the directors who were not present at the time
of the adjournment.
Section 26. Telephone Participation. Members of the Board may
participate in a meeting through use of conference telephone or similar
communications equipment, so long as all members participating in such meetings
can hear one another. Such participation constitutes presence in person at such
meeting.
Section 27. Action without Meeting. The Board of Directors may take
any action without a meeting that may be required or permitted to be taken by
the Board at a meeting, if all members of the Board individually or collectively
consent in writing to the action. The written consent or consents shall be filed
in the minutes of the proceedings of the Board. Such action by written consent
shall have the same effect as a unanimous vote of directors.
Section 28. Fees and Compensation. Directors and members of
committees shall receive neither compensation for their services nor
reimbursement for their expenses unless these payments are fixed by resolution
of the Board.
ARTICLE IV
Officers
Section 29. Officers. The officers of the corporation shall be a
President, a Secretary, and a Chief Financial Officer. The corporation may also
have, at the discretion of the Board of Directors, a Chairman of the Board, one
or more Vice Presidents, one or more Assistant Secretaries, one or more
Assistant Financial Officers, and any other officers who may be appointed under
Section 31 of these Bylaws.
Section 30. Election. The officers of the corporation, except those
appointed under Section 31 of these Bylaws, shall be chosen annually by the
Board of Directors, and each shall hold his office until he or she resigns or is
removed or otherwise disqualified to serve, or his or her successor is elected
and qualified.
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Section 31. Subordinate Officers. The Board of Directors may
appoint, and may authorize the President to appoint, any other officers that the
business of the corporation may require, each of whom shall hold office for the
period, have the authority, and perform the duties specified in the Bylaws or
by the Board of Directors.
Section 32. Removal and Resignation.
(a) Any officer may be removed with or without cause either by the
Board of Directors at any regular or special directors' meeting or, except for
an officer chosen by the Board, by any officer on whom the power of removal may
be conferred by the Board.
(b) Any officer may resign at any time by giving written notice to
the Board of Directors, the President or the Secretary of the corporation. An
officer's resignation shall take effect when it is received or at any later time
specified in the resignation. Unless the resignation specifies otherwise, its
acceptance by the corporation shall not be necessary to make it effective.
Section 33. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or any other cause shall be filled in
the manner prescribed in the Bylaws for regular appointments to the office.
Section 34. Chairman of the Board. The Chairman of the Board, if
such office is created and filled by the Board of Directors, shall preside at
all meetings of the directors and shareholders at which he or she is present,
shall be ex-officio a member of all the standing committees created by the
Board, and shall exercise and perform any other powers and duties assigned to
him or her by the Board or prescribed by the Bylaws.
Section 35. President. Subject to any supervisory powers that may be
given by the Board of Directors or the Bylaws to the Chairman of the Board or
any other officer who may be designated the Chief Executive Officer, the
President shall be the corporation's chief executive officer, subject to the
control of the Board of Directors, and shall have general supervision,
direction, and control over the corporation's business and officers He or she
shall preside as chairman at all meetings of the shareholders and directors not
presided over by the Chairman of the Board, shall be ex-officio a member of all
the standing committees, shall have the general powers and duties that are
prescribed by the Board of Directors or the Bylaws, and shall be primarily
responsible for carrying out all orders and resolutions of the Board of
Directors.
Section 36. Vice Presidents. If the President is absent or is unable
or refuses to act, the Vice Presidents, if such offices are created and filled,
in order of their rank as fixed by the Board of Directors, or, if not ranked,
the Vice President designated by the Board of Directors, shall perform all the
duties of the President, and when so acting shall have all the powers of, and be
subject to all the restrictions on, the President. Each Vice President shall
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have any other powers and perform any other duties that are prescribed for him
or her by the Board of Directors or their Bylaws.
Section 37. Secretary.
(a) The Secretary shall keep or cause to be kept, and be available
at the principal office and any other place that the Board of Directors
specifies, a book of minutes of all directors' and shareholders' meetings. The
minutes of each meeting shall state the time and place that it was held, whether
it was regular or special, if a special meeting, how it was authorized, the
notice given the names of those present or represented at shareholders'
meetings, and the proceedings of the meetings. A similar minute book shall be
kept for any committees, if required by the Board.
(b) The Secretary shall keep, or cause to be kept, at the
principal office or at the office of the corporation's transfer agent, a share
register, or duplicate share register, showing the shareholders' names and
addresses, the number and classes of shares held by each, the number and date of
each certificate issued for these shares, and the number and date of
cancellation of each certificate surrendered for cancellation.
(c) The Secretary shall give, or cause to be given, notice of all
directors' and shareholders' meetings required to be given under these Bylaws or
by law, shall keep the corporate seal in safe custody, and shall have any other
powers and perform any other duties that are prescribed by the Board of
Directors or the Bylaws.
Section 38. Chief Financial Officer.
(a) The Chief Financial Officer shall keep and maintain, or cause
to be kept and maintained, adequate and correct accounts of the corporation's
properties and business transactions, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings,
and shares. The books of account shall at all reasonable times be open to
inspection by any director.
(b) The Chief Financial Officer shall deposit all money and other
valuables in the name and to the credit of the corporation with the depositories
designated by the Board of Directors. He or she shall disburse the corporation's
funds as ordered by the Board of Directors; shall render to the President and
directors, whenever they request it, an account of all his or her transactions
as Chief Financial Officer and of the corporation's financial condition; and
shall have any other powers and perform any other duties that are prescribed by
the Board of Directors or Bylaws.
(c) If required by the Board of Directors, the Chief Financial
Officer shall give the corporation a bond in the amount and with the surety or
sureties specified by the Board for faithful performance of the duties of his or
her office and for restoration to the corporation of all its books, papers,
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vouchers, money, and other property of every kind in his or her possession or
under his or her control on his or her death, resignation, retirement, or
removal from office.
ARTICLE V
General Corporate Matters
Section 39. Record Date and Closing of Stockbooks.
(a) The Board of Directors may fix a time in the future as a
record date for determining shareholders entitled to notice of and to vote at
any shareholders' meeting: to receive any dividend, distribution, or allotment
of rights: or to exercise rights in respect of any other lawful action,
including change, conversion, or exchange of shares. The record date shall not,
however, be more than sixty (60) nor less than ten (10) days prior to the date
of such meeting nor more than sixty (60) days prior to any other action. If a
record date is fixed for a particular meeting or event, only shareholders of
record on that date are entitled to notice and to vote and to receive the
dividend, distribution, or allotment of rights or to exercise the rights, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date.
(b) A determination of shareholders of record entitled to notice
of or to vote at a meeting of shareholders shall apply to any adjournment of the
meeting unless the Board fixes a new record date for the adjourned meeting, but
the Board shall fix a new record date if the meeting is adjourned for more than
forty-five (45) days.
Section 40. Corporate Records and Inspection by Shareholders and
Directors.
(a) Books and records of account and minutes of the proceedings of
the shareholders, Board, and committees of the Board shall be kept available for
inspection at the principal office. A record of the shareholders, giving the
names and addresses of all shareholders and the number and class of shares held
by each, shall be kept available for inspection at the principal office or at
the office of the corporation's transfer agent or registrar.
(b) A shareholder or shareholders holding at least five percent in
the aggregate of the outstanding voting shares of the corporation shall have an
absolute right to do either or both of the following: (1) inspect and copy the
record of shareholders' names and addresses and shareholdings during the usual
business hours upon five business days' prior written demand upon the
corporation; or (2) obtain from the transfer agent for the corporation, upon
five business days' prior written demand and upon the tender of its usual
charges for such a list (the amount of which charges shall be stated to the
shareholder by the transfer agent upon request), a list of the shareholders'
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names and addresses, who are entitled to vote for the election of directors, and
their shareholdings, as of the most recent record date for which it has been
compiled or as of a date specified by the shareholder subsequent to the date of
demand. The record of shareholders shall also be open to inspection and copying
by any shareholder or holder of a voting trust certificate at any time during
usual business hours upon written demand on the corporation, for a purpose
reasonably related to such holder's interests as a shareholder or holder of a
voting trust certificate. Inspection and copying may be made in person or by
agent or attorney.
(c) Every director shall have the absolute right at any reasonable
time to inspect and copy all books, records and documents of every kind and to
inspect the physical properties of the corporation and its subsidiary
corporations, domestic or foreign. Such inspection by a director may be made in
person or by agent or attorney and includes the right to copy and make extracts.
Section 41. Checks, Drafts, Evidences of Indebtedness. All checks,
drafts, or other orders for payment of money, notes, and all mortgages, or other
evidences of indebtedness, issued in the name of or payable to the corporation,
and all assignments and endorsements of the foregoing, shall be signed or
endorsed by the person or persons and in the manner specified by the Board of
Directors.
Section 42. Corporate Contracts and Instruments; How Executed.
Except as otherwise provided in the Bylaws, officers, agents, or employees must
be authorized by the Board of Directors to enter into any contract or execute
any instrument in the corporation's name and on its behalf. This authority may
be general or confined to specific instances.
Section 43. Stock Certificates. One or more certificates for shares
of the corporation's capital stock shall be issued to each shareholder for any
of his shares that are fully paid up. The corporate seal or its facsimile may be
fixed on certificates. All certificates shall be signed by (a) either the
Chairman of the Board, the President, or a Vice President and (b) either the
Secretary, the Chief Financial Officer, or an Assistant Secretary. Any or all of
the signatures on the certificate may be facsimile signatures.
Section 44. Lost Certificates. No new share certificate that
replaces an old one shall be issued unless the old one is surrendered and
canceled at the same time, provided, however, that if any share certificate is
lost, stolen, mutilated, or destroyed, the Board of Directors may authorize
issuance of a new certificate replacing the old one on any terms and conditions,
including a reasonable arrangement for indemnification of the corporation, that
the Board may specify.
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Section 45. Reports to Shareholders.
(a) The requirement for the annual report to shareholders referred
to in Section 1501(a) of the Code is hereby expressly waived so long as there
are less than 100 holders of records of the corporation's shares. The Board of
Directors shall cause to be sent to the shareholders such annual or other
periodic reports as they consider appropriate or as otherwise required by law.
In the event the corporation has 100 or more holders of its shares, an annual
report complying with Section 1501(a) and, when applicable, Section 1501(b) of
the Code shall be sent to the shareholders not later than 120 days after the
close of the fiscal year and at least fifteen (15) days prior to the annual
meeting of shareholders to be held during the next fiscal year.
(b) If no annual report for the last fiscal year has been sent to
shareholders, the corporation shall, upon the written request of any shareholder
made more than 120 days after the close of such fiscal year, deliver or mail to
the person making the request within thirty (30) days thereafter the financial
statements referred to in Section 1501(a) of the Code for such year.
(c) A shareholder or shareholders holding at least five percent
(5%) of the outstanding shares of any class of a corporation may make a written
request to the corporation for an income statement of the corporation for the
three-month, six-month, or nine-month period of the current fiscal year ended
more than thirty (30) days prior to the date of the request and a balance sheet
of the corporation as of the end of such period and, in addition, if no annual
report for the last fiscal year has been sent to shareholders, the statements
referred to in Section 1501(a) of the Code for the last fiscal year. The
statement shall be delivered or mailed to the person making the request within
thirty (30) days thereafter, copy of the statements shall be kept on file in the
principal office of the corporation for twelve (12) months and they shall be
exhibited at all reasonable times to any shareholder demanding an examination of
them or a copy shall be mailed to such shareholder. The income statements and
balance sheets referred to shall be accompanied by the report thereon, if any,
of any independent accountants engaged by the corporation or the certificate of
an authorized officer of the corporation that such financial statements were
prepared without audit from the books and records of the corporation.
Section 46. Indemnity of Officers and Directors.
(a) Action, Etc., Other Than by Right of the Corporation. The
corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any proceeding (other than an action by or in the right of
the corporation to procure a judgment in its favor) by reason of the fact that
such person is or was an Agent (as that term is defined in paragraph of this
Section 46, below) of the corporation, against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with such proceedings if such person acted in good faith and in a manner such
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person reasonably believed to be in the best interests of the corporation and,
in the case of a criminal proceeding, has no reasonable cause to believe the
conduct of such person was unlawful. The termination of any proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which the person reasonably believed to be in
the best interests of the corporation or that the person had reasonable cause to
believe that the person's conduct was unlawful.
(b) Action, Etc., by or in the Right of the Corporation. The
corporation shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action by or in the
right of the corporation to procure a judgment in its favor by reason of the
fact that such person is or was an Agent of the corporation, against expenses
actually and reasonably incurred by such person in connection with the defense
or settlement of such action if such person acted in good faith, in a manner
such person believed to be in the best interests of the corporation and its
shareholders, except that no indemnification shall be made under this
paragraph (b) of Section 46 for any of the following:
(1) In respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation in the
performance of such person's duty to the corporation and its
shareholders, unless and only to the extent that the court in which
such proceeding is or was pending shall determine upon application
that, in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for expenses and then only
to the extent that the court shall determine;
(2) Of amounts paid in settling or otherwise disposing of a
pending action without court approval: or
(3) Of expenses incurred in defending a threatened or pending
action which is settled or otherwise disposed of without court
approval.
(c) Determination of Right of Indemnification. Any indemnification
under paragraphs (a) or (b) of Section 46, above, shall be made by the
corporation only if authorized in the specific case, upon a determination that
indemnification of the Agent is proper in the circumstances because the Agent
has met the applicable standard of conduct by any of the following:
(1) A majority vote of a quorum consisting of directors who are
not parties to such proceedings;
(2) If such a quorum of directors is not obtainable, by
independent legal counsel in a written opinions;
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(3) Approval of the shareholders by the affirmative vote of a
majority of the shares entitled to vote represented at a duly held
meeting at which a quorum is present or by the written consent of
shareholders as provided in Section 10, with the shares owned by the
person to be indemnified not being entitled to vote thereon; or
(4) The court in which such proceeding is or was pending, upon
application made by the corporation, or the Agent, the attorney, or
another person rendering services in connection with the defense,
whether or not such application by the Agent, the attorney, or such
other person is opposed by the corporation.
(d) Advances of Expenses. Expenses (including attorneys' fees),
costs, and charges incurred in defending any proceeding shall be advanced by the
corporation prior to the final disposition of such proceeding upon receipt of an
undertaking by or on behalf of the Agent to repay such amount unless it shall be
determined ultimately that the Agent is entitled to be indemnified as authorized
in this Section 46.
(e) Indemnification Against Expenses of Successful Party.
Notwithstanding the other provisions of this Section 46, to the extent that an
Agent has been successful on the merits in a defense of any proceeding, claim,
issue or matter referred to in paragraphs (a) and (b), above, such Agent shall
be indemnified against all expenses actually and reasonably incurred by the
Agent in connection therewith.
(f) Right of Agent to Indemnification Upon Applications
Procedure Upon Application. Any indemnification provided for in paragraphs (a),
(b) or (c) of Section 46 shall be made no later than ninety (90) days after the
corporation is given notice of a request by Agent, provided that such request is
made after final adjudication, dismissal or settlement unless an appeal is
filed, in which case the request is made after the appeal is resolved (hereafter
referred to as "Final Disposition"). Upon such notice, if a quorum of directors
who were not parties to the action, suit or proceeding giving rise to
indemnification is obtainable, the corporation shall within two (2) weeks call a
Board of Directors meeting to be held within four (4) weeks of such notice, to
make a determination as to whether the Agent has met the applicable standard of
conduct. Otherwise, if a quorum consisting of directors who were not parties in
the relevant action, suit or proceeding is not obtainable, the corporation shall
retain (at the corporation's expense) independent legal counsel chosen either
jointly by the corporation and Agent or else by corporation counsel within two
(2) weeks to make such determination. If (1) at such directors meeting, such a
quorum is not obtained or, if obtained, refuses to make such determination, or
(2) if such legal counsel is not so retained or, if retained, does not make such
determination within four (4) weeks, then the Board of Directors shall cause a
shareholders meeting to be held within four (4) weeks to make such a
determination.
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If notice of a request for payment of a claim under these Bylaws,
under any statute, under any provision of any agreement with the corporation, or
under the corporation's Articles of Incorporation providing for indemnification
or advance or expenses has been given to the corporation by Agent, and such
claim is not paid in full by the corporation within ninety (90) days of the
later occurring of the giving of such notice and Final Disposition in the case
of indemnification and twenty (20) days of the giving of such notice in the case
of advance of expenses, Agent may, but need not, at any time thereafter bring an
action against the corporation to receive the unpaid amount of the claim or the
expense advance and, if successful, Agent shall also be paid for the expenses
(including attorneys' fees) of bringing such action. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in connection with any action, suit or proceeding in advance of its
Final Disposition) that Agent has not met the standards of conduct which make it
permissible under applicable law for the corporation to indemnify Agent for the
amount claimed, and Agent shall be entitled to receive interim payment of
expenses pursuant to paragraph (d) of Section 46 unless and until such defense
may be finally adjudicated by court order or judgment from which no further
right of appeal exists. Neither the failure of the corporation (including its
Board of Directors, independent legal counsel or its shareholders) that Agent
has not met such applicable standard of conduct, shall create a presumption that
the Agent has or has not met the applicable standard of conduct.
(g) Other Rights and Remedies. The indemnification provided by
this Section 46 shall not be deemed exclusive of, and shall not affect, any
other rights to which an Agent seeking indemnification may be entitled under any
law, other provision of these Bylaws, the corporation's Articles of
Incorporation, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be an Agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
(h) Insurance. The corporation may purchase and maintain insurance
on behalf of any person who is or was an Agent against any liability asserted
against such person and incurred by him or her in any such capacity, or arising
out of his or her status as such, whether or not the corporation would have the
power to indemnify such person against such liability under the provisions of
this Section 46.
(i) Optional Means of Assuring Payment. Upon request by an Agent
certifying that the Agent has reasonable grounds to believe the Agent may be
made a party to a proceeding for which the Agent may be entitled to be
indemnified under this Section 46, the corporation may but is not required to
create a trust fund, grant a security interest or use other means (including,
without limitation, a letter of credit) to ensure the payment of such sums as
may become necessary to effect indemnification as provided herein.
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(j) Savings Clause. If this Section 46 or any portion thereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the corporation shall nevertheless indemnify each Agent as to expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
with respect to any action, suit, proceeding or investigation, whether civil,
criminal or administrative, and whether internal or external, including a grand
jury proceeding and an action or suit brought by or in the right of the
corporation, to the full extent permitted by any applicable portion of this
Section that shall not have been invalidated, or by any other applicable law.
(k) Definition of Agent. For the purposes of this Section 46,
"Agent" means any person who is or was a director, officer, employee or other
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise, or was a
director, officer, employee or agent of a foreign or domestic corporation which
was a predecessor corporation of the corporation or of another enterprises at
the request of such predecessor corporation, "proceeding" means any threatened,
pending or completed action or proceeding, whether civil, criminal,
administrative or investigative; and "expenses" includes without limitation
attorneys' fees and any expenses of establishing a right to indemnification.
(l) Indemnification under Section 204(a)(11) of the California
Corporations Code. Subject to the provisions of California Corporations Code
Section 204(a)(11) and any other applicable law, notwithstanding any other
provisions of these Bylaws, the following shall apply to the indemnification of
Agents under these Bylaws:
(1) The corporation shall indemnify a person pursuant to this
paragraph (1) if the corporation would be required to indemnify such
person pursuant to paragraphs (a) and (b) of Section 46, if in
paragraphs (a) and (b) the phrase "in a manner such person reasonably
believed to be in the best interests of the corporation" is replaced
with the phrase "in a manner such person did not believe to be contrary
to the best interests of the corporation." If pursuant to paragraphs
(c) and (f) of Section 46, the person making the paragraphs (a) and/or
(b), above, conduct standard determination determines that such
standard has not been satisfied, such person shall also determine
whether this subsection (1) of paragraph (1) conduct standard has been
satisfied;
(2) There shall be a presumption that the Agent met the
applicable standard of conduct required to be met in paragraph (c) of
Section 46 for indemnification of the Agent, rebuttable by clear and
convincing evidence to the contrary;
(3) The corporation shall have the burden of proving that the
Agent did not meet the applicable standard of conduct in paragraph (c)
of Section 46;
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(4) In addition to the methods provided for in paragraph (c)
of Section 46, a determination that indemnification is proper in the
circumstances because that Agent met the applicable standard of conduct
may also be made by the arbitrator in any arbitration proceeding in
which such matter is or was pending;
(5) Unless otherwise agreed to in writing between an Agent and
the corporation in any specific case, indemnification may be made under
paragraph (b) of Section 46 for amounts paid in settling or otherwise
disposing of a pending action without court approval.
ARTICLE VI
Amendments
Section 47. Amendments by Shareholders. Bylaws may be adopted,
amended or repealed by the affirmative vote or written consent of a majority of
the outstanding shares entitled to vote; provided, however, that an amendment to
Section 15 reducing the number of directors on a fixed-number board or the
minimum number of directors on a variable-number board to a number less than
five (5) cannot be adopted if the votes cast against its adoption at a meeting
or the shares not consenting, in the case of action by written consent, are
equal to more than sixteen and two-thirds percent (16-2/3%) of the outstanding
shares entitled to vote.
Section 48. Amendments by Directors. Subject to the right of
shareholders under the preceding Section 47, Bylaws may be adopted, amended, or
repealed by the Board of Directors, except that only the shareholders can adopt
a Bylaw or amendment thereto which specifies or changes the number of directors
on a fixed-number Board, or the minimum or maximum number of directors on a
variable-number Board, or which changes from a fixed-number Board to a
variable-number Board or vice versa, or amends this Section 48.
ARTICLE VII
Committees of the Board
Section 49. Committees of the Board.
(a) The Board of Directors may, by resolution adopted by a
majority of the authorized number of directors, designate one or more
committees, each consisting of two or more directors, to serve at the pleasure
of the Board and with such authority and organization as the Board may from time
to time determine. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent member at any meeting of
the committee. The appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of directors. Any such
committee, to the extent provided in the resolution of the Board, shall have all
the authority of the Board except with respect to:
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(1) The approval of any action for which shareholder approval
is also required;
(2) The filling of vacancies on the Board or in any committee;
(3) The fixing of compensation of the directors for serving on
the Board or on any committee;
(4) The amendment or repeal of Bylaws or the adoption of new
Bylaws;
(5) The amendment or repeal of any resolution of the Board
which by its express terms is not so amendable or repealable;
(6) Distribution to the shareholders of the corporation as
defined in Section 166 of the Code, except at a rate or in a periodic
amount or within a price range determined by the Board; and
(7) The appointment of other committees of the Board or the
members thereof.
(b) The Board shall designate a chairman for each committee who
shall have the sole power to call any committee meeting other than a meeting set
by the Board. Except as otherwise established by the Board, Article III of these
Bylaws shall apply to committees of the Board and action by such committees,
mutatis mutandis.
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CERTIFICATE OF SECRETARY
I, the undersigned, certify that:
1. I am the duly elected and acting Secretary of HealthDesk
Corporation, a California corporation: and
2. The foregoing Bylaws, consisting of 20 pages, is a true and correct
copy of the Bylaws as duly adopted for the corporation by the Sole Incorporator
on September 25, 1992, and approved by the Board of Directors of the corporation
on September 27, 1992.
IN WITNESS WHEREOF, I have subscribed my name as of the 27th day of
September, 1992.
/s/ Dr. A. Joseph Rudick,
------------------------------------------
Dr. A. Joseph Rudick,
Secretary
<PAGE>
Exhibit 10.1
HEALTHDESK CORPORATION
1994 FOUNDERS' STOCK OPTION PLAN
I. PURPOSES OF THE FOUNDERS' PLAN
This 1994 Founders' Stock Option Plan (the "Founders' Plan")
is intended to promote the interests of HealthDesk Corporation, a California
corporation, by providing a method whereby eligible individuals who provide
valuable services to the Corporation (or any Parent or Subsidiary) may be
offered incentives and rewards which will encourage them to acquire a
proprietary interest, or otherwise increase their proprietary interest, in the
Corporation and continue to render valuable services to the Corporation (or any
Parent or Subsidiary).
II. DEFINITIONS
For the purposes of this Founders' Plan, the following
definitions shall be in effect:
A. Board shall mean the Board of Directors of the Corporation.
B. Code shall mean the Internal Revenue Code of 1986, as
amended.
C. Committee shall mean a committee of two (2) or more Board
members appointed by the Board to exercise one or more administrative functions
under the Founders' Plan.
D. Common Stock shall mean the common stock of the
Corporation.
E. Corporate Transaction shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to
a person or persons different from the persons holding those
securities immediately prior to such transaction; or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation or any Parent or Subsidiary.
F. Corporation shall mean HealthDesk Corporation, a California
corporation.
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G. Employee shall mean an individual who is in the employ of
the Corporation, or any Parent or Subsidiary, and who is subject to the control
and direction of the employer entity as to both the work to be performed and the
manner and method of performance.
H. Exchange Act shall mean the Securities Exchange Act of
1934, as amended.
I. Exercise Date shall mean the date on which the Corporation
shall have received written notice of the exercise of the option.
J. Fair Market Value per share of Common Stock on any relevant
date under the Founders' Plan shall be the value determined in accordance with
the following provisions:
(i) If the Common Stock is at the time neither
listed nor admitted to trading on any Stock Exchange nor
traded on the NASDAQ National Market System, then such Fair
Market Value shall be determined by the Founders' Plan
Administrator after taking into account such factors as the
Founders' Plan Administrator shall deem appropriate;
(ii) If the Common Stock is not at the time
listed or admitted to trading on any Stock Exchange but is
traded on the NASDAQ National Market System, the Fair Market
Value shall be the closing selling price per share of Common
Stock on the date in question, as such price is reported by
the National Association of Securities Dealers through the
NASDAQ National Market System or any successor system. If
there is no closing selling price for the Common Stock on the
date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which
such quotation exists; or
(iii) If the Common Stock is at the time listed
or admitted to trading on any Stock Exchange, then the Fair
Market Value shall be the closing selling price per share of
Common Stock on the date in question on the Stock Exchange
determined by the Founders' Plan Administrator to be the
primary market for the Common Stock, as such price is
officially quoted in the composite tape of transactions on
such exchange. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding
date for which such quotation exists.
K. Founders' Plan Administrator shall mean either the Board or
the Committee, to the extent the Committee is at the time responsible for the
administration of the Founders' Plan in accordance with Article III below.
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L. Incentive Option shall mean a stock option which satisfies
the requirements of Code Section 422.
M. Non-Statutory Option shall mean a stock option not intended
to meet the requirements of Code Section 422.
N. Parent shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations ending with the Corporation,
provided each corporation in the unbroken chain (other than the Corporation)
owns, at the time of the determination, stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
O. Permanent Disability shall have the meaning assigned to
such term in Code Section 22(e)(3).
P. Service shall mean the provision of services to the
Corporation, or any Parent or Subsidiary, by an individual in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent contractor.
Q. Stock Exchange shall mean either the American Stock
Exchange or the New York Stock Exchange.
R. Subsidiary shall mean each corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each such corporation (other than the last corporation) in
the unbroken chain owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
S. 10% Shareholder shall mean the owner of stock (as
determined under Code Section 424(d)) possessing ten percent (10%) or more of
the total combined voting power of all classes of stock of the Corporation or
any Parent or Subsidiary.
III. ADMINISTRATION OF THE FOUNDERS' PLAN
A. The Founders' Plan shall be administered by the Board.
However, any or all administrative functions otherwise exercisable by the Board
may be delegated by the Board to the Committee. Members of the Committee shall
serve for such period of time as the Board may determine and shall be subject to
removal by the Board at any time. The Board may also at any time terminate the
functions of the Committee and reassume all powers and authority previously
delegated to the Committee.
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B. The Founders' Plan Administrator shall have full power and
authority (subject to the provisions of the Founders' Plan) to establish such
rules and regulations as it may deem appropriate for proper administration of
the Founders' Plan and to make such determinations under, and issue such
interpretations of, the Founders' Plan and any outstanding options as it may
deem necessary or advisable. Decisions of the Founders' Plan Administrator shall
be final and binding on all parties who have an interest in the Founders' Plan
or any outstanding option.
IV. ELIGIBILITY FOR OPTION GRANTS
A. The persons eligible to receive option grants under the
Founders' Plan are as follows:
(i) Employees;
(ii) non-employee members of the Board or the
non-employee members of the board of directors of any Parent or
Subsidiary; and
(iii) consultants and other independent contractors who
provide valuable services to the Corporation (or any Parent or
Subsidiary), as determined by the Founders' Plan Administrator.
B. The Founders' Plan Administrator shall have full authority
to determine which eligible individuals are to receive option grants under the
Founders' Plan, the number of shares to be covered by each such grant, the
status of the granted option as either an Incentive Option or a Non-Statutory
Option, the time or times at which each option is to become exercisable, the
vesting schedule (if any) applicable to the option shares and the maximum term
for which the option is to remain outstanding.
V. STOCK SUBJECT TO THE FOUNDERS' PLAN
A. The stock issuable under the Founders' Plan shall be shares
of the Corporation's authorized but unissued or reacquired Common Stock. The
maximum number of shares which may be issued over the term of the Founders' Plan
shall not exceed Three Hundred Sixty Thousand (360,000) shares, subject to
adjustment from time to time in accordance with the provisions of this Article
V. In no event may any one officer of the Corporation acquire shares of Common
Stock under the Founders' Plan in excess of twenty-five percent (25%) of the
total share reserve available for issuance under the Founders' Plan.
B. Shares subject to outstanding options shall be available
for subsequent option grants under the Founders' Plan to the extent (i) the
options expire or terminate for any reason prior to exercise in full or (ii) the
options are cancelled in accordance with the cancellation and regrant provisions
of Article IX below. All shares issued under the Founders' Plan, whether or not
those shares are subsequently repurchased by the Corporation pursuant to its
repurchase rights under the Founders' Plan, shall reduce on a share-for-share
basis the number of shares of Common Stock available for subsequent option
grants.
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C. In the event any change is made to the Common Stock
issuable under the Founders' Plan by reason of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration, appropriate adjustments shall be made to (i) the
maximum number and/or class of securities issuable under the Founders' Plan and
(ii) the number and/or class of securities and the exercise price per share in
effect under each outstanding option in order to prevent the dilution or
enlargement of benefits thereunder. The adjustments determined by the Founders'
Plan Administrator shall be final, binding and conclusive.
VI. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Founders' Plan shall be
authorized by action of the Founders' Plan Administrator and may, at the
Founders' Plan Administrator's discretion, be either Incentive Options or
Non-Statutory Options. Each granted option shall be evidenced by one or more
instruments in the form approved by the Founders' Plan Administrator, provided,
however, that each such instrument shall comply with the terms and conditions
specified below. Each instrument evidencing an Incentive Option shall, in
addition, be subject to the applicable provisions of Article VII below.
A. Exercise Price.
1. The exercise price per share shall be fixed by the
Founders' Plan Administrator. In no event, however, shall the exercise price per
share be less than eighty-five percent (85%) of the Fair Market Value per share
of Common Stock on the date of the option grant.
2. If the individual to whom the option is granted is
a 10% Shareholder, then the exercise price per share shall not be less than one
hundred ten percent (110%) of the Fair Market Value per share of Common Stock on
the grant date.
3. The exercise price shall become immediately due
upon exercise of the option and shall, subject to the provisions of Article X
below and the agreement evidencing the grant of the option, be payable in cash
or check made payable to the Corporation. Should the Corporation's outstanding
Common Stock be registered under Section 12(g) of the Exchange Act at the time
the option is exercised, then the exercise price may also be paid as follows:
(i) in shares of Common Stock held by the optionee for
the requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date; or
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(ii) through a special sale and remittance procedure
pursuant to which the optionee shall concurrently provide irrevocable
written instructions (a) to a brokerage firm designated by the
Corporation to effect the immediate sale of the purchased shares and
remit to the Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate exercise
price payable for the purchased shares plus all applicable Federal,
state and local income and employment taxes required to be withheld
by the Corporation by reason of such purchase and (b) to the
Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to effect the sale
transaction.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
B. Term and Exercise of Options. Each option granted under the
Founders' Plan shall be exercisable at such time or times, during such period
and for such number of shares as shall be determined by the Founders' Plan
Administrator and set forth in a stock option agreement. However, no option
shall have a term in excess of ten (10) years measured from the grant date. The
option shall be exercisable during the optionee's lifetime only by the optionee
and shall not be assignable or transferable other than by will or by the laws of
descent and distribution following the optionee's death.
C. Effect of Termination of Service.
1. Except to the extent otherwise provided pursuant to
subsection C.2 below, the following provisions shall govern the exercise period
applicable to any options held by the optionee at the time of cessation of
Service or death:
(i) Should the optionee cease to remain in Service for
any reason other than death or Permanent Disability, then the period
during which each outstanding option held by such optionee is to
remain exercisable shall be limited to the three (3) month period
following the date of such cessation of Service;
(ii) Should such Service terminate by reason of Permanent
Disability, then the period during which each outstanding option held
by the optionee is to remain exercisable shall be limited to the
twelve (12) month period following the date of such cessation of
Service;
(iii) Should the optionee die while holding one or more
outstanding options, then the period during which each such option is
to remain exercisable shall be limited to the twelve (12) month
period following the date of the optionee's death. During such
limited period, the option may be exercised by the personal
representative of the optionee's estate or by the person or persons
to whom the option is transferred pursuant to the optionee's will or
in accordance with the laws of descent and distribution;
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(iv) Under no circumstances, however, shall any such
option be exercisable after the specified expiration date of the
option term; and
(v) During the applicable post-Service exercise period
set forth in this subsection C.1, the option may not be exercised in
the aggregate for more than the number of vested shares for which the
option is exercisable on the date of the optionee's cessation of
Service. Upon the expiration of the applicable exercise period or (if
earlier) upon the expiration of the option term, the option shall
terminate and cease to be exercisable for any vested shares for which
the option has not been exercised. However, the option shall,
immediately upon the optionee's cessation of Service, terminate and
cease to be outstanding with respect to any option shares for which
the option is not at that time exercisable or in which the optionee
is not otherwise at that time vested.
2. The Founders' Plan Administrator shall have full
power and authority to extend the period of time for which the option is to
remain exercisable following the optionee's cessation of Service or death from
the limited period in effect under subsection C.1 of this Article VI to such
greater period of time as the Founders' Plan Administrator shall deem
appropriate; provided, that in no event shall such option be exercisable after
the specified expiration date of the option term.
D. Shareholder Rights. An optionee shall have no shareholder
rights with respect to the shares subject to the option until such individual
shall have exercised the option and paid the exercise price.
E. Unvested Shares. The Founders' Plan Administrator shall
have the discretion to authorize the issuance of unvested shares of Common Stock
under the Founders' Plan. Should the optionee cease Service while holding such
unvested shares, the Corporation shall have the right to repurchase, at the
exercise price paid per share, all or (at the discretion of the Corporation and
with the consent of the optionee) any of those unvested shares. The terms and
conditions upon which such repurchase right shall be exercisable (including the
period and procedure for exercise and the appropriate vesting schedule for the
purchased shares) shall be established by the Founders' Plan Administrator and
set forth in the agreement evidencing such repurchase right. In no event,
however, may the Founders' Plan Administrator impose a vesting schedule upon any
option granted under the Founders' Plan or any shares of Common Stock subject to
the option which is more restrictive than twenty percent (20%) per year vesting,
beginning one (1) year after the grant date. All outstanding repurchase rights
under the Founders' Plan shall terminate automatically upon the occurrence of
any Corporate Transaction, except to the extent the repurchase rights are
expressly assigned to the successor corporation (or parent thereof) in
connection with the Corporate Transaction.
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F. First Refusal Rights. Until such time as the Corporation's
outstanding shares of Common Stock are first registered under Section 12(g) of
the Exchange Act, the Corporation shall have the right of first refusal with
respect to any proposed sale or other disposition by the optionee (or any
successor in interest by reason of purchase, gift or other transfer) of any
shares of Common Stock issued under the Founders' Plan. Such right of first
refusal shall be exercisable in accordance with the terms and conditions
established by the Founders' Plan Administrator and set forth in the agreement
evidencing such right.
VII. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable
to all Incentive Options granted under the Founders' Plan. Except as modified by
the provisions of this Article VII, all the provisions of the Founders' Plan
shall be applicable to Incentive Options. Incentive Options may only be granted
to individuals who are Employees. Options which are specifically designated as
Non-Statutory shall not be subject to such terms and conditions.
A. Exercise Price. The exercise price per share of the Common
Stock subject to an Incentive Option shall in no event be less than one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the date of
grant.
B. Dollar Limitation. The aggregate Fair Market Value of the
Common Stock (determined as of the respective date or dates of grant) for which
one (1) or more options granted to any Employee under this Founders' Plan (or
any other option plan of the Corporation or any Parent or Subsidiary) may for
the first time become exercisable as Incentive Options during any one (1)
calendar year shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds two (2) or more such options which
become exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted. Should the
applicable One Hundred Thousand Dollar ($100,000) limitation in fact be exceeded
in any calendar year, then the option shall nevertheless become exercisable for
the excess number of shares in such calendar year as a Non-Statutory Option.
C. 10% Shareholder. If any individual to whom an Incentive
Option is granted is a 10% Shareholder, then the option term shall not exceed
five (5) years measured from the grant date.
VIII. CORPORATE TRANSACTION
A. Upon the occurrence of a Corporate Transaction, each option
at the time outstanding under the Founders' Plan shall terminate and cease to be
exercisable, except to the extent assumed by the successor corporation or parent
thereof.
B. Each outstanding option which is assumed in connection with
a Corporate Transaction or is otherwise to remain outstanding shall be
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appropriately adjusted, immediately after such Corporate Transaction, to apply
and pertain to the number and class of securities which would have been issuable
to the optionee in the consummation of such Corporate Transaction, had the
option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the class and number of
securities available for issuance under the Founders' Plan following the
consummation of such Corporate Transaction and (ii) the exercise price payable
per share, provided the aggregate exercise price payable for such securities
shall remain the same.
C. The grant of options under this Founders' Plan shall in no
way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
IX. CANCELLATION AND REGRANT OF OPTIONS
The Founders' Plan Administrator shall have the authority to
effect, at any time and from time to time, with the consent of the affected
option holders, the cancellation of any or all outstanding options under the
Founders' Plan and to grant in substitution therefor new options under the
Founders' Plan covering the same or different numbers of shares of Common Stock
but with an exercise price per share not less than (i) one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the new grant date
in the case of a grant of an Incentive Option, (ii) one hundred ten percent
(110%) of such Fair Market Value in the case of an option grant to a 10%
Shareholder or (iii) eighty-five percent (85%) of such Fair Market Value in the
case of all other grants.
X. LOANS
A. The Founders' Plan Administrator may assist any optionee in
the exercise of one or more options granted to the optionee by:
(i) authorizing the extension of a loan from the
Corporation to the optionee; or
(ii) permitting the optionee to pay the exercise
price in installments over a period of years.
B. The terms of any loan or installment method of payment
(including the interest rate and terms of repayment) shall be established by the
Founders' Plan Administrator in its sole discretion. Loans or installment
payments may be authorized with or without security or collateral. However, any
loan made to a consultant or other non-employee advisor must be secured by
property other than the purchased shares of Common Stock. In all events, the
maximum credit available to each optionee may not exceed the sum of (i) the
aggregate exercise price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the optionee in
connection with such exercise.
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C. The Founders' Plan Administrator may, in its absolute
discretion, determine that one or more loans extended under this Article X shall
be subject to forgiveness by the Corporation in whole or in part upon such terms
and conditions as the Founders' Plan Administrator may in its discretion deem
appropriate.
XI. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Founders' Plan shall confer upon the optionee
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary) or of the optionee, which rights are hereby
expressly reserved by each, to terminate the optionee's Service at any time for
any reason, with or without cause.
XII. AMENDMENT OF THE FOUNDERS' PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Founders' Plan in any or all respects
whatsoever. However, no such amendment or modification shall, without the
consent of the holders, adversely affect their rights and obligations under
their outstanding options. In addition, the Board shall not, without the
approval of the Corporation's shareholders, (i) increase the maximum number of
shares issuable under the Founders' Plan, except for permissible adjustments
under Article V, (ii) materially modify the eligibility requirements for option
grants or (iii) otherwise materially increase the benefits accruing to option
holders.
B. Options may be granted under this Founders' Plan to
purchase shares of Common Stock in excess of the number of shares then available
for issuance under the Founders' Plan, provided an amendment sufficiently
increasing the number of shares of Common Stock available for issuance under the
Founders' Plan is approved by the Corporation's shareholders within twelve (12)
months after the date the excess grants are first made.
XIII. EFFECTIVE DATE AND TERM OF FOUNDERS' PLAN
A. The Founders' Plan shall become effective when adopted by
the Board, but no option granted under the Founders' Plan shall become
exercisable unless and until the Founders' Plan shall have been approved by the
shareholders of the Corporation. If such shareholder approval is not obtained
within twelve (12) months after the date of the Board's adoption of the
Founders' Plan, then all options previously granted under the Founders' Plan
shall terminate and no further options shall be granted. Subject to such
limitation, the Founders' Plan Administrator may grant options under the
Founders' Plan at any time after the effective date and before the date fixed
herein for termination of the Founders' Plan.
B. The Founders' Plan shall terminate upon the earliest of (i)
the expiration of the ten (10) year period measured from the date the Founders'
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Plan is adopted by the Board, (ii) the date on which all shares available for
issuance under the Founders' Plan shall have been issued or (iii) the
termination of all outstanding options under Article VIII. Upon such plan
termination, each option and unvested share issuance outstanding under the
Founders' Plan shall continue to have full force and effect in accordance with
the provisions of the agreements evidencing that option or share issuance.
XIV. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares pursuant to options granted under the Founders' Plan shall be used for
general corporate purposes.
XV. WITHHOLDING
The Corporation's obligation to deliver shares upon the
exercise of any options granted under the Founders' Plan shall be subject to the
satisfaction by the optionee of all applicable Federal, state and local income
and employment tax withholding requirements.
XVI. REGULATORY APPROVALS
The implementation of the Founders' Plan, the granting of any
option hereunder and the issuance of Common Stock upon the exercise of any
option shall be subject to the Corporation's procurement of all approvals and
permits required by regulatory authorities having jurisdiction over the
Founders' Plan, the options granted under it and the Common Stock issued
pursuant to it.
XVII. FINANCIAL REPORTS
The Corporation shall deliver at least annually to each
individual holding an outstanding option under the Founders' Plan the same
financial information furnished to holders of the Common Stock, unless the
optionee is a key employee whose duties in connection with the Corporation
assure such individual access to equivalent information.
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Exhibit 10.2
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of September,
1996 between HEALTHDESK CORPORATION, a California corporation ("Corporation"),
and ________ ("Indemnitee") with reference the following:
1. Indemnitee is an officer and/or director of Corporation who
performs a valuable service for Corporation.
2. The Restated Articles of Incorporation of Corporation
authorize and permit contracts between Corporation and agents
of the Corporation with respect to indemnification of such
agents.
3. Pursuant to the California General Corporation Law, as amended
("Code"), Corporation may obtain Directors and Officers
Liability Insurance ("D & O Insurance"), covering certain
liabilities which may be incurred by its directors and
officers.
4. As a result of recent developments affecting the terms, scope
and availability of D & O Insurance, the extent of protection
afforded officers and directors by such D & O Insurance and by
statutory and bylaw indemnification provisions is uncertain.
5. In order to induce Indemnitee to continue to serve as an
officer and/or director of Corporation, Corporation has
determined and agreed to enter into this agreement with
Indemnitee.
The parties agree as follows:
1. Indemnity. Corporation hereby agrees to hold harmless and
indemnify Indemnitee to the fullest extent authorized by the provisions of the
Code, as it may be amended from time to time.
2. Additional Indemnity. Subject only to the limitations set
forth in Section 3 hereof, Corporation hereby further agrees to hold harmless
and indemnify Indemnitee:
(a) against any and all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by Indemnitee in connection with any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including an action by or in the right of Corporation) to which Indemnitee is,
was or at any time becomes a party, or is threatened to be made a party, by
reason of the fact that Indemnitee is, was or at any time becomes a director,
officer employee or agent of Corporation, or is or was serving or at any time
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serves at the request of Corporation as director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise; and
(b) otherwise to the fullest extent as may be provided to
Indemnitee by Corporation under the non-exclusivity provision of the Articles of
Incorporation of Corporation and the Code.
3. Limitations on Additional Indemnity.
(a) No indemnity pursuant to Section 2 hereof shall be paid
by Corporation:
(i) except to the extent the aggregate of losses to be
indemnified under Section 2 exceeds the sum of such losses for which the
Indemnitee is indemnified pursuant to Section 1 or pursuant to any D & O
Insurance purchased and maintained by Corporation;
(ii) in respect to remuneration paid to Indemnitee if
it shall be determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(iii) on account of any suit in which judgment is
rendered against Indemnitee for an accounting of profits made from the purchase
or sale by Indemnitee of Securities of Corporation pursuant to the provisions of
Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or
similar provisions of any federal, state or local statutory law;
(iv) on account of Indemnitee's acts or omissions that
involve intentional misconduct or a knowing and culpable violation of law;
(v) on account of any proceeding (other than a
proceeding referred to in Section 8(b) hereof) initiated by the Indemnitee
unless such proceeding was authorized by the directors of the Corporation;
(vi) if a final decision by a Court having jurisdiction
in the matter shall determine that such indemnification is not lawful; or
(vii) on account of any action, suit or proceeding
commenced by the Indemnitee against the Corporation or against any officer,
director or shareholder of the Corporation unless authorized in the specific
case by action of the Board of Directors;
(b) In addition to those limitations set forth above in
paragraph (a) of this Section 3, no indemnity pursuant to Section 2 hereof in an
action by or in the right of Corporation shall be paid by Corporation:
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(i) on account of acts or omissions that Indemnitee
believes to be contrary to the best interests of the Corporation or its
shareholders or that involve the absence of good faith on the part of the
Indemnitee;
(ii) with respect to any transaction from which
Indemnitee derived an improper personal benefit;
(iii) on account of acts or omissions that show a
reckless disregard for Indemnitee's duty to Corporation or its shareholders in
circumstances in which Indemnitee was aware, or should have been aware, in the
ordinary course of performing an officer's duties, of a risk of serious injury
to Corporation or its shareholders;
(iv) on account of acts or omissions that constitute
an unexcused pattern of inattention and that amount to an abdication of
Indemnitee's duty to Corporation or its shareholders;
(v) to the extent prohibited by Section 310 of the
Code;
(vi) to the extent prohibited by Section 316 of the
California Corporations Code;
(vii) in respect of any claim, issue or matter as to
which Indemnitee shall have been adjudged by a court of competent jurisdiction
to be liable to Corporation in the performance of Indemnitee's duty to
Corporation and its shareholders, unless and only to the extent that the court
in which such proceeding is or was pending shall determine upon application
that, in view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for expenses and then only to the extent that
the court shall determine;
(viii) with respect to amounts paid in settling or
otherwise disposing of a pending action without court approval; or
(ix) with respect to expenses incurred in defending a
pending action which is settled or otherwise disposed of without court approval.
4. Contribution. If the indemnification provided in Sections 1
and 2 is unavailable and may not be paid to Indemnitee for any reason other
than those set forth in Section 3 (excluding subsections 3(b)(viii) and (ix)),
then in respect of any threatened, pending or completed action, suit or
proceeding in which Corporation is jointly liable with Indemnitee (or would be
if joined in such action, suit or proceeding), Corporation shall contribute to
the amount of expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred and paid or payable by
Indemnitee in such proportion as is appropriate to reflect (i) the relative
benefits received by Corporation on the one hand and Indemnitee on the other
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hand from the transaction from which such action, suit or proceeding arose, and
(ii) the relative fault of Corporation on the one hand and of Indemnitee on the
other in connection with the events which resulted in such expenses, judgments,
fines or settlement amounts, as well as any other relevant equitable
considerations. The relative fault of Corporation on the one hand and of
Indemnitee on the other shall be determined by reference to, among other things,
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent the circumstances resulting in such expenses, judgments,
fines or settlement amounts. Corporation agrees that it would not be just and
equitable if contribution pursuant to this Section 4 were determined by pro rata
allocation or any other method of allocation which does not take account of the
foregoing equitable considerations.
5. Continuation of Obligations. All agreements and obligations of
Corporation contained herein shall continue during the period Indemnitee is a
director, officer, employee or agent of Corporation (or is or was serving at the
request of Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise) and shall
continue thereafter so long as Indemnitee shall be subject to any possible claim
or threatened, pending or completed action, suit or proceeding, whether civil,
criminal or investigative, by reason of the fact that Indemnitee was an officer
of Corporation or serving in any other capacity referred to herein.
6. Notification and Defense of Claim. Promptly after receipt by
Indemnitee of notice of the commencement of any action, suit or proceeding,
Indemnitee will, if a claim in respect thereof is to be made against Corporation
under this Agreement, notify Corporation of the commencement thereof; but the
omission so to notify Corporation will not relieve it from any liability which
it may have to Indemnitee otherwise than under this Agreement. With respect to
any such action, suit or proceeding as to which Indemnitee notifies Corporation
of the commencement thereof:
(a) Corporation will be entitled to participate therein at
its own expense;
(b) except as otherwise provided below, to the extent that
it may wish, Corporation jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to Indemnitee. After notice from Corporation to Indemnitee of its
election so as to assume the defense thereof, Corporation will not be liable to
Indemnitee under this Agreement for any legal or other expenses subsequently
incurred by Indemnitee in connection with the defense thereof other than
reasonable costs of investigation or as otherwise provided below. Indemnitee
shall have the right to employ its counsel in such action, suit or proceeding
but the fees and expenses of such counsel incurred after notice from Corporation
of its assumption of the defense thereof shall be at the expense of Indemnitee
unless (i) the employment of counsel by Indemnitee has been authorized by
Corporation, (ii) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between Corporation and Indemnitee in the conduct of the
defense of such action, in each of which cases the fees and expenses of counsel
shall be at the expense of Corporation. Corporation shall not be entitled to
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assume the defense of any action, suit or proceeding brought by or on behalf of
Corporation or as to which Indemnitee shall have made the conclusion provided
for in (ii) above; and
(c) Corporation shall not be liable to indemnify Indemnitee
under this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. Corporation shall not settle any action or
claim in any manner which would impose any penalty or limitation on Indemnitee
without Indemnitee's written consent. Neither Corporation nor Indemnitee will
unreasonably withhold its consent to any proposed settlement.
7. Advancement and Repayment of Expenses.
(a) In the event that Indemnitee employs his own counsel
pursuant to Section 6(b)(i) through (iii) above, Corporation shall advance to
Indemnitee, prior to any final disposition of any threatened or pending action,
suit or proceeding, whether civil, criminal, administrative or investigative,
any and all reasonable expenses (including legal fees and expenses) incurred in
investigating or defending any such action, suit or proceeding within ten (10)
days after receiving copies of invoices presented to Indemnitee for such
expenses; and
(b) Indemnitee agrees that Indemnitee will reimburse
Corporation for all reasonable expenses paid by Corporation in defending any
civil or criminal action, suit or proceeding against Indemnitee in the event and
only to the extent it shall be ultimately determined by a final judicial
decision (from which there is no right of appeal) that Indemnitee is not
entitled, under applicable law, the Corporation's Bylaws, this Agreement or
otherwise, to be indemnified by Corporation for such expenses.
(c) Notwithstanding the foregoing, Corporation shall not be
required to advance such expenses to Indemnitee if Indemnitee (i) commences any
action, suit or proceeding as a plaintiff unless such advance is specifically
approved by a majority of the Board of Directors or (ii) is a party to an
action, suit or proceeding brought by Corporation and approved by a majority of
the Board which alleges willful misappropriation of Corporation assets by
Indemnitee, disclosure of confidential information in violation of Indemnitee's
fiduciary or contractual obligations to Corporation, or any other willful and
deliberate in bad faith of Indemnitee's duty to Corporation or its shareholders.
8. Enforcement.
(a) Corporation expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on Corporation
hereby in order to induce Indemnitee to continue as an officer and/or director
of Corporation, and acknowledges that Indemnitee is relying upon this Agreement
in continuing in such capacity.
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(b) In the event Indemnitee is required to bring any action
to enforce rights or to collect moneys due under this Agreement and is
successful in such action, Corporation shall reimburse Indemnitee for all of
Indemnitee's reasonable fees and expenses in bringing and pursuing such action.
9. Severability. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof.
10. Governing Law. This Agreement shall be interpreted and
enforced in accordance with the laws of the State of California.
11. Binding Effect. This Agreement shall be binding upon
Indemnitee and upon Corporation, its successors and assigns, and shall inure to
the benefit of Indemnitee, his heirs, personal representatives and assigns and
to the benefit of Corporation, its successors and assigns.
12. Amendment and Termination. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
HEALTHDESK CORPORATION
By: _____________________________________
INDEMNITEE:
_________________________________________
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HEALTHDESK CORPORATION
REGISTRATION RIGHTS AGREEMENT
----------------------------------
March ___, 1993
<PAGE>
HEALTHDESK CORPORATION
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of the ____ day of March,
1993, by and between HealthDesk Corporation, a California corporation (the
"Company"), and John Pappajohn, Lindsay Rosenwald and VentureTek, L.P.
(collectively, the "Investors" and individually an "Investor").
RECITALS
WHEREAS, the Company and the Investors have entered into a Common Stock
Purchase Agreement of even date herewith (the "Purchase Agreement"); and
WHEREAS, the Company and the Investors desire to provide for certain
arrangements with respect to the registration of shares of capital stock of the
Company under the Securities Act of 1933:
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "register", "registered", and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act, as amended
(the "Act"), and the declaration or ordering of effectiveness of such
registration statement or document;
(b) The term "Registrable Securities" means (1) the shares of
Common Stock issued or issuable pursuant to the Purchase Agreement, and (2) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
such Common Stock, excluding in all cases, however, any Registrable Securities
sold by a person in a transaction in which his rights under this Section 1 are
not assigned;
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to the then exercisable or convertible securities which are,
Registrable Securities.
(d) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.13 hereof; and
<PAGE>
(e) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the Securities and Exchange Commission ("SEC") which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
1.2 Request for Registration.
(a) If the Company shall receive at any time one year or more
after the effective date of the Company's first underwritten public offering of
shares of Common Stock pursuant to a registration statement, a written request
from the Holders of more than fifty percent (50%) of the Registrable Securities
then outstanding that the Company file a registration statement under the
Securities Act covering the registration of at least fifty percent (50%) of the
Registrable Securities then outstanding (or a lesser percent if the anticipate
aggregate offering price, net of underwriting discounts and commissions, would
exceed $2,000,000), then the Company shall, within ten (10) days of the receipt
thereof, give written notice of such request to all Holders and shall, subject
to the limitations of subsection 1.2 (b), effect as soon as practicable, the
registration under the Act of all Registrable Securities which the Holders
request to be registered within twenty (20) days of the mailing of such notice
by the Company in accordance with Section 3.5.
(b) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise the
Company as a part of their request made pursuant to this Section 1.2 and the
Company shall include such information in the written notice referred to in
subsection 1.2(a). The underwriter will be selected by a majority in interest of
the Initiating Holders and approved by the Company, which approval shall not
unreasonably be withheld. In such event, the right of any Holder to include his
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in subsection
1.4(e)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holder shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included shall be
allocated among all such Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities of
the Company owned by each Holder; provided, however, that the number of shares
of Registrable Securities to be included in such underwriting shall not be
reduced unless all other securities are first entirely excluded from the
underwriting.
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(c) The Company is obligated to effect only one (1) such
registration pursuant to this Section 1.2.
1.3 Company Registration.
(a) If (but without any obligation to do so) the Company
proposes to register (including for this purpose a registration effected by the
Company for shareholders other than the Holders) any of its stock or other
securities under the Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock plan, or a registration on
any form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities), the Company shall, at such time, promptly give each
Holder written notice of such registration. Upon the written request of each
Holder given within twenty (20) days after mailing of such notice by the Company
in accordance with Section 2.5, the Company shall, subject to the provisions of
Section 1.8, cause to be registered under the Securities Act all of the
Registrable Securities that each such Holder has requested to be registered.
1.4 Obligations of the Company. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to one hundred twenty (120) days
for the purpose of selling all stock or securities registered with the SEC.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
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(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter or such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this Section 1, on the date
that such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Section 1, if such securities
are being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
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1.5 Furnish Information.
(a) It shall be a condition precedent to the obligations of
the Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.12 if, due to the
operation of subsection 1.5(a), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in subsection 1.2(a) or subsection
1.12(b)(2), whichever is applicable.
1.6 Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings, or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company; provided, however, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 1.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered (in which case all Participating Holders shall bear such expenses);
provided further, however, that if at the time of such withdrawal, the Holders
have learned of a material adverse change in the condition, business, or
prospects of the Company from that known to the Holders at the time of their
request and have withdrawn the request with reasonable promptness following
disclosure by the Company of such material adverse change, then the Holders
shall not be required to pay any of such expenses and shall retain their rights
pursuant to Section 1.2.
1.7 Expenses of Company Registration. The Company shall bear
and pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to all registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as provided
in Section 1.13), including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of one counsel for the selling Holders
selected by them, but excluding underwriting discounts and commissions relating
to Registrable Securities.
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1.8 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not,
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling shareholders according to
the total amount of securities entitled to be included therein owned by each
selling shareholder or in such other proportions as shall mutually be agreed to
by such selling shareholders) but in no event shall (i) the amount of
securities, including Registrable Securities and all other securities the
holders of which have similar rights, of the selling shareholders included in
the offering be reduced below thirty percent (30%) of the total amount of
securities, included in such offering, unless it is the initial public offering
by the Company or required in order to comply with (ii) below or (ii)
notwithstanding (i) above, any shares being sold by a shareholder exercising a
demand registration right similar to that granted in Section 1.2 be excluded
from such offering. For purposes of the preceding parenthetical concerning
apportionment, for any selling shareholder which is a holder of Registrable
Securities and which is a partnership or corporation, the partners, retired
partners and shareholders of such holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "selling shareholder", and
any pro-rata reduction with respect to such "selling shareholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling shareholder", as defined in
this sentence.
1.9 Delay of Registration. No Holder shall have any right to
obtain or seek any injunction restraining or otherwise delaying any such
registration as a result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
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1.10 Indemnification. In the event any Registrable Securities
are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the Securities and Exchange Act of 1934, as amended
(the "1934 Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Act, or the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the Act, or the 1934 Act or any state securities
law; and the Company will pay to each such Holder, underwriter or controlling
person, as incurred, any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.10(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability, or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability, or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, or the 1934 Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder expressly
for use in connection with such registration; and each such Holder will pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this subsection 1.10(b), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
1.10(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided, that,
in no event shall any indemnity under this subsection 1.10(b) exceed the gross
proceeds from the offering received by such Holder.
7
<PAGE>
(c) Promptly after receipt by an indemnified party under this
Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, assume the defense thereof with counsel mutually satisfactory
to the parties; provided, however, that an indemnified party (together with all
other indemnified parties which may be represented without conflict by one
counsel) shall have the right to retain one separate counsel, with the fees and
expenses to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if prejudicial
to its ability to defend such action, shall relieve such indemnifying party of
any liability to the indemnified party under this Section 1.10, but the omission
so to deliver written notice to the indemnifying party will not relieve it of
any liability that it may have to any indemnified party otherwise than under
this Section 1.10.
(d) If the indemnification provided for in this Section 1.10
is held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expenses referred
to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
8
<PAGE>
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With a
view to making available to the Holders the benefits of Rule 144 promulgated
under the Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the Initial Public Offering filed by the Company for
the offering of its securities to the general public;
(b) take such action as is necessary to enable the Holders to
utilize Form S-3 for the sale of their Registrable Securities;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
9
<PAGE>
1.12 Form S-3 Registration. In case the Company shall receive
from any Holder or Holders a written request or requests that the Company effect
a registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within 15 days after receipt of such written notice from the Company; provided,
however, that the Company shall not be obligated to effect any such
registration, qualification, or compliance, pursuant to this Section 1.12: (1)
if Form S-3 is not available for such offering by the Holders; (2) if the
Holders, together with the holders of any other securities of the Company
entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) at an aggregate price to the
public (net of any underwriters' discounts or commissions) of less than
$250,000; (3) if the Company shall furnish to the Holders a certificate signed
by the President of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its shareholders for such Form S-3 registration to be effected at
such time, in which event the Company shall have the right to defer the filing
of the Form S-3 registration statement for a period of not more than 60 days
after receipt of the request of the Holder or Holders under this Section 1.12;
provided, however, that the Company shall not utilize this right more than once
in any twelve month period; (4) if the Company has, within the twelve (12) month
period preceding the date of such request, already effected a registration on
Form S-3 for the Holders pursuant to this Section 1.12; (5) in any particular
jurisdiction in which the Company would be required to qualify to do business or
to execute a general consent to service of process in effecting such
registration, qualification, or compliance.
10
<PAGE>
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All expenses incurred in connection with a
registration requested pursuant to this Section 1.12, including (without
limitation) all registration, filing, qualification, printer and accounting fees
and the reasonable fees and disbursements of counsel for the selling Holder or
Holders and counsel for the Company, but excluding any underwriters' discounts
or commissions associated with Registrable Securities, shall be borne pro rata
by the Holders or Holders participating in the Form S-3 Registration.
Registrations effected pursuant to this Section 1.12 shall not be counted as
demands for registration or registrations effected pursuant to Section 1.2 or
Section 1.3, respectively.
1.13 Assignment of Registration Rights. The rights to cause
the Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities, provided the Company is, within a reasonable time
after such transfer, furnished with written notice of the name and address of
such transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Act.
1.14 Limitation on Subsequent Registration Rights. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration filed under Section
1.2 hereof, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of his securities will not reduce the amount of the
Registrable Securities of the Holders which is included or (b) to make a demand
registration which could result in such registration statement being declared
effective prior to the earlier of either of the dates set forth in subsection
1.2(a).
11
<PAGE>
1.15 Termination of Registration Rights. No Holder shall be
entitled to exercise any right provided for in Sections 1.2 or 1.3 after five
(5) years after the effective ate of the Company's first underwritten public
offering of shares of Common Stock pursuant to a registration statement.
2. Miscellaneous.
2.1 Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
2.2 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of New York.
2.3 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
2.4 Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
2.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereto, or at such other address
as such party may designate by ten (10) days advance written notice to the other
parties.
2.6 Expenses. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
2.7 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Investor.
12
<PAGE>
2.8 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
13
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
HEALTHDESK CORPORATION
By: /s/
--------------------------------
, President
Address: 1801 Fifth Street
Berkeley, CA 94710
INVESTORS:
By: /s/ John Pappajohn
--------------------------------
John Pappajohn
Address: Equity Dynamics, Inc.
2116 Financial Center
Des Moines, Iowa 50309
By: /s/ Lindsay Rosenwald
--------------------------------
Lindsay Rosenwald
Address: c/o The Castle Group, Ltd.
375 Park Avenue, Suite 1501
New York, N.Y. 10152
VENTURETEK, L.P.
By: /s/ David C. Salingut
--------------------------------
David C. Salingut
Address: c/o C. David Salingut
39 Broadway
New York, N.Y. 10003
14
<PAGE>
Exhibit 10.4
HEALTHDESK CORPORATION
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of the ____ day of _________,
1995, by and between HealthDesk Corporation, a California corporation (the
"Company"), and each other person or entity executing this Agreement.
RECITALS
WHEREAS, certain investors (the "Investors") have purchased Series A Convertible
Preferred Stock of the Company (the "Series A Preferred Stock") in connection
with the sale by the Company and the purchase by the Investors of shares of
Series A Preferred Stock in a private placement thereof by the Company (the
"Private Placement");
WHEREAS, the Company and the Investors desire to provide for certain
arrangements with respect to the registration of shares of Common Stock of the
Company, issued upon conversion of the Series A Preferred Stock, under the
Securities Act of 1933, as amended (the "Securities Act"), held by the Investors
as provided in this Agreement:
NOW, THEREFORE, in consideration of the mutual promises and agreements contained
herein and for other good and valuable consideration the receipt and sufficiency
of which are hereby acknowledged, the Company and the Investors hereby agree as
follows:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Paragraph 1:
(a) The term "register", and "registered", and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act and the
declaration or ordering of effectiveness of such registration statement
or document;
(b) The term "Registrable Securities" means (1) the shares of Common
Stock issued or issuable upon conversion of the shares of Series A
Preferred Stock and (2) any Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with
respect to, or in exchange for or in replacement of, such Series A
Preferred Stock or Common Stock, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which his
rights under this Section 1 are not assigned or pursuant to an effective
registration statement or to the public pursuant to an exemption from
registration requirements under the Securities Act;
(c) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock outstanding
which are Registrable Securities, and the number of shares of Common
Stock issuable pursuant to conversion of all outstanding shares of Series
A Preferred Stock.
(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 1.13 hereof; and
(e) The term "Form S-3" means such form under the Securities Act as in
effect on the date hereof or any registration form under the Securities
Act subsequently adopted by the Securities and Exchange Commission
("SEC") which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the
SEC.
<PAGE>
1.2 Request for Registration.
(a) If the Company shall receive at any time one year or more after the
effective date of the Company's first underwritten public offering of
shares of Common Stock pursuant to a registration statement in which the
aggregate gross proceeds to the Company equal or exceeds $5,000,000 (the
"Initial Public Offering") and prior to December 31, 2000, a written
request from the Holders of more than fifty percent (50%) of the
Registrable Securities then outstanding that the Company file a
registration statement under the Securities Act covering the registration
of at least fifty percent (50%) of the Registrable Securities then
outstanding, then the Company shall promptly give written notice of such
request to all Holders and shall, subject to the limitations of
subsection 1.2 (b), effect as soon as practicable the registration under
the Securities Act of all Registrable Securities which the Holders
request to be registered within thirty (30) days of the mailing of such
notice by the Company in accordance with Section 2.5.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this
Section 1.2 and the Company shall include such information in the written
notice referred to in subsection 1.2(a). The underwriter will be selected
by a majority in interest of the Initiating Holders and approved by the
Company, which approval shall not unreasonably be withheld. In such
event, the right of any Holder to include his Registrable Securities in
such registration shall be conditioned upon such Holder's participation
in such underwriting (unless otherwise mutually agreed by a majority in
interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company as provided in
subsection 1.4(e)) enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting by a
majority in interest of the Initiating Holders. Notwithstanding any other
provision of this Section 1.2, if the underwriter advises the Initiating
Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the Initiating Holder shall so
advise all Holders of Registrable Securities that may be included in the
underwriting that such number of Registrable Securities to be included
shall be allocated among all such Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the
amount of Registrable Securities of the Company owned by each Holder;
provided, however, that the number of shares of Registrable Securities to
be included in such underwriting shall not be reduced unless all other
securities are first entirely excluded from the underwriting.
(c) The Company is obligated to effect only one (1) such registration
pursuant to this Section 1.2.
(d) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 1.2
a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company it would be
seriously detrimental to the Company and its shareholders for such
registration statement to be filed and it is therefore essential to defer
the filing of such registration statement, the Company shall have the
right to defer taking action with respect to such filing for a period of
not more than 60 days after receipt of the request of the Initiating
Holders; provided, however, that the Company may not utilize this right
more than once in any twelve month period.
<PAGE>
1.3 Company Registration.
(a) If (but without any obligation to do so) at any time one year or more
after the Initial Public Offering and prior to December 31, 2000, the
Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of
its stock or other securities under the Securities Act in connection with
the public offering of such securities solely for cash (other than a
registration relating solely to the sale of securities to participants in
a Company stock plan, or a registration on any form which does not
include substantially the same information as would be required to be
included in a registration statement covering the sale of the Registrable
Securities), the Company shall, at such time, promptly give each Holder
written notice of such registration. Upon the written request of each
Holder given within thirty (30) days after mailing of such notice by the
Company in accordance with Section 2.5, the Company shall, subject to the
provisions of Section 1.8, cause to be registered under the Securities
Act all of the Registrable Securities that each such Holder has requested
to be registered.
(b) The Company is obligated to effect only two (2) such registrations
pursuant to this Section 1.3.
1.4 Obligations of the Company. Whenever required under this Paragraph 1 to
effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect
to such Registrable Securities and use its best efforts to cause such
registration statement to become effective and, upon the request of the
Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to one
hundred twenty (120) days for the purpose of selling all stock or
securities registered with the SEC.
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions
of the Securities Act with respect to the disposition of all securities
covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements
of the Securities Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities
owned by them.
(d) Use its best efforts to register and qualify the securities covered
by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file
a general consent to service of process in any such states or
jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter or such offering. Each
Holder participating in such underwriting shall also enter into and
perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
<PAGE>
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of
the circumstances then existing.
(g) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Paragraph 1, on the date that
such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Paragraph 1 if such
securities are being sold through underwriters, or, if such securities
are not being sold through underwriters on the date that the registration
statement with respect to such securities becomes effective, (i) an
opinion dated such date of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily
given to underwriters in an underwritten public offering, addressed to
the underwriters, if any, and to the Holders requesting registration of
Registrable Securities and (ii) a "cold comfort" letter dated such date
from the independent certified public accountants of the Company, in form
and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration
of Registrable Securities.
1.5 Furnish Information.
(a) It shall be a condition precedent to the obligations of the Company
to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such
securities as shall be required to effect the registration of such
Holder's Registrable Securities.
(b) The Company shall have no obligation with respect to any registration
requested pursuant to Section 1.2 or Section 1.12 if, due to the
operation of subsection 1.5(a), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in
the registration does not equal or exceed the number of shares or the
anticipated aggregate offering price required to originally trigger the
Company's obligation to initiate such registration as specified in
subsection 1.2(a) or subsection 1.12(b)(2), whichever is applicable.
1.6 Expenses of Demand Registration. All expenses other than underwriting
discounts and commissions incurred in connection with registrations, filings,
or qualifications pursuant to Section 1.2, including without limitation all
registration, filing and qualification fees, printers' and accounting fees,
fees and disbursements of counsel for the Company, and the reasonable fees
and disbursements of one counsel for the selling Holders shall be borne by
the Company; provided, however, that the Company shall not be required to pay
for any expenses of any registration proceeding begun pursuant to Section 1.2
if the registration request is subsequently withdrawn at the request of the
Holders of a majority of the Registrable Securities to be registered (in
which case all Participating Holders shall bear such expenses), unless the
Holders of a majority of the Registrable Securities agree to forfeit their
right to demand registration pursuant to Section 1.2; provided further,
however, that if at the time of such withdrawal, the Holders have learned of
a material adverse change in the condition, business, or prospects of the
Company from that known to the Holders at the time of their request and have
withdrawn the request with reasonable promptness following disclosure by the
Company of such material adverse change, then the Holders shall not be
required to pay any of such expenses and shall retain their rights pursuant
to Section 1.2. Fees and disbursements of counsel and accountants for the
selling Holders and any other expenses incurred by the selling Holders not
expressly included above shall be borne by the selling Holders.
1.7 Expenses of Company Registration. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to all registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as
<PAGE>
provided in Section 1.13), including without limitation all registration,
filing, and qualification fees, printers and accounting fees relating or
apportionable thereto and the fees and disbursements of one counsel for the
selling Holders selected by them, but excluding underwriting discounts and
commissions relating to Registrable Securities.
1.8 Underwriting Requirements. In connection with any offering involving an
underwriting of shares of the Company's capital stock, the Company shall not
be required under Section 1.3 to include any of the Holders' securities in
such underwriting unless they accept the terms of the underwriting as agreed
upon between the Company and the underwriters selected by it (or by other
persons entitled to select the underwriters), and then only in such quantity
as the underwriters determine in their sole discretion will not jeopardize
the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be
required to include in the offering only that number of such securities,
including Registrable Securities, which the underwriters determine in their
sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling
shareholders according to the total amount of securities entitled to be
included therein owned by each selling shareholder or in such other
proportions as shall mutually be agreed to by such selling shareholders) but
in no event shall (i) the amount of securities, including Registrable
Securities and all other securities the holders of which have similar rights,
of the selling shareholders included in the offering be reduced below thirty
percent (30%) of the total amount of securities included in such offering,
unless it is the Initial Public Offering by the Company, or (ii)
notwithstanding (i) above, any shares being sold by a shareholder exercising
a demand registration right similar to that granted in Section 1.2 be
excluded from such offering. For purposes of the preceding parenthetical
concerning apportionment of any selling shareholder which is a holder of
Registrable Securities and which is a partnership or corporation, the
partners, retired partners and shareholders of such holder, or the estates
and family members of any such partners and retired partners and any trusts
for the benefit of any of the foregoing persons shall be deemed to be a
single "selling shareholder", and any pro-rata reduction with respect to such
"selling shareholder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals included
in such "selling shareholder", as defined in this sentence.
1.9 Delay of Registration. No Holder shall have any right to obtain or seek
any injunction restraining or otherwise delaying any such registration as a
result of any controversy that might arise with respect to the interpretation
or implementation of this Paragraph 1.
1.10 Indemnification. In the event any Registrable Securities are included in
a registration statement under this Paragraph 1:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, any underwriter (as defined in the Securities Act)
for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or the Securities
and Exchange Act of 1934, as amended (the "1934 Act"), against any
losses, claims, damages, or liabilities (joint or several) to which they
may become subject under the Securities Act, or the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations
(collectively a "Violation:): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Securities
<PAGE>
Act, the 1934 Act, any state securities law or any rule or regulation
promulgated under the Securities Act, or the 1934 Act or any state
securities law; and the Company will pay to each such Holder, underwriter
or controlling person, as incurred, any legal or other expenses
reasonably incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection 1.10(a) shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability, or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss, claim,
damage, liability, or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with
such registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any,
who controls the Company within the meaning of the Securities Act, any
underwriter, any other Holder selling securities in such registration
statement and any controlling person of any such underwriter or other
Holder, against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under
the Securities Act, or the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in
respect thereto) arise out of or are based upon and in conformity with
written information furnished by such Holder expressly for use in
connection with such registration; and each such Holder will pay, as
incurred, any legal or other expenses reasonably incurred by any person
intended to be indemnified pursuant to this subsection 1.10(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement
contained in this subsection 1.10(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; provided that in no event shall any
indemnity under this subsection 1.10(b) exceed the gross proceeds from
the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section
1.10, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, assume the
defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party (together with all other
indemnified parties which may be represented without conflict by one
counsel) shall have the right to retain one separate counsel, with the
fees and expenses to be paid by the indemnifying party, if representation
of such indemnified party by the counsel retained by the indemnifying
party would be inappropriate due to actual or potential differing
interests between such indemnified proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 1.10, but the omission to
deliver written notice to the indemnifying party will not relieve it of
any liability that it may have to any indemnified party otherwise than
under this Section 1.10.
(d) If the indemnification provided for in this Section 1.10 is held by a
court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expenses referred
<PAGE>
to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or
payable by such indemnified party as a result of such loss, liability,
claim, damage, or expense in such proportion as it appropriate to reflect
the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or
omissions that resulted in such loss, liability, claim, damage, or
expense as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party
shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to
state a material fact relates to information supplied by the indemnifying
party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent
such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in
conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.
(f) The obligations of the Company and Holders under this Section 1.10
shall survive the completion of any offering of Registrable Securities in
a registration statement under this Paragraph 1, and otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the Act
and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration
or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90)
days after the effective date of the Initial Public Offering filed by the
Company for the offering of its securities to the general public;
(b) take such action as is necessary to enable the Holders to utilize
Form S-3 for the sale of their Registrable Securities;
(c) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company
that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days following the effective date of the
Initial Public Offering), the Securities Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that
it qualifies as a registrant who securities may be resold pursuant to
Form S-3 (at any time after it so qualifies), (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information
as may be reasonably requested in availing any Holder of any rule or
regulation of the SEC which permits the selling of any such securities
without registration or pursuant to such form.
1.12 Form S-3 Registration. In case the Company shall receive from any Holder
or Holders a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder
or Holders, the Company will:
<PAGE>
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities
of any other Holder or Holders joining in such request as are specified
in a written request given within 15 days after receipt of such written
notice from the Company; provided, however, that the Company shall not be
obligated to effect any such registration, qualification, or compliance,
pursuant to this Section 1.12: (1) if Form S-3 is not available for such
offering by the Holders; (2) if the Holders, together with the holders of
any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $250,000; (3) if the
Company shall furnish to the Holders a certificate signed by the
President of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to
the Company and its shareholders for such Form S-3 registration to be
effected at such time, in which event the Company shall have the right to
defer the filing of the Form S-3 registration statement for a period of
not more than 60 days after receipt of the request of the Holder or
Holders under this Section 1.12; provided, however, that the Company
shall not utilize this right more than once in any twelve month period;
(4) if the Company has, within the twelve (12) month period preceding the
date of such request, already effected a registration on Form S-3 for the
Holders pursuant to this Section 1.12; (5) in any particular jurisdiction
in which the Company would be required to qualify to do business or to
execute a general consent to service of process in effecting such
registration, qualification, or compliance; (6) if the Company has
previously effected two (2) such registrations; or (7) if it is to be
effected after December 31, 2000.
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so
requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All expenses incurred in connection
with a registration requested pursuant to this Section 1.12, including
(without limitation) all registration, filing, qualification, printing
and accounting fees and the reasonable fees and disbursements of counsel
of the Company shall be borne by the Company. Registrations effected
pursuant to this Section 1.12 shall not be counted as demands for
registration or registrations effected pursuant to Section 1.2 or Section
1.3, respectively.
1.13 Assignment of Registration Rights. The rights to cause the Company to
register Registrable Securities pursuant to this Paragraph 1 may be assigned
(but only with all related obligations) by a Holder to a transferee or
assignee of such securities provided the Company is within a reasonable time
after such transfer furnished with written notice of the name and address of
such transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Securities Act.
1.14 Limitation on Subsequent Registration Rights. From and after the date of
this Agreement, the Company shall not, without the prior written consent of
the Holders of a majority of the outstanding Registrable Securities, enter
into any agreement with any holder or prospective holder of any securities of
the Company which would allow such holder or prospective holder (a) to
include such securities in any registration filed under Section 1.2 hereof,
unless under the terms of such agreement, such holder or prospective holder
may include such securities in any such registration only to the extent that
the inclusion of his securities will
<PAGE>
not reduce the amount of the Registrable Securities of the Holders which is
included or (b) to make a demand registration which could result in such
registration statement being declared effective prior to the first
anniversary of the effective date of the Initial Public Offering.
1.15 "Market Stand-Off" Agreement. Each Investor hereby agrees that, during
the period of duration specified by the Company and an underwriter of common
stock or other securities of the Company, following the effective date of a
registration statement of the Company filed under the Securities Act, it
shall not, to the extent requested by the Company and such underwriter,
directly or indirectly sell, offer to sell, contract to sell (including,
without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be
similarly bound) any securities of the Company held by it at any time during
such period except common stock included in such registration; provided
however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers common stock (or other
securities) to be sold on its behalf to the public in an underwritten
offering; and
(b) all officers and directors of the Company and all other persons with
registration rights (whether or not pursuant to this Agreement) enter
into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of
each Investor (and the shares or securities of every other person subject
to the foregoing restriction) until the end of such period.
1.16 Termination of Registration Rights. No Holder shall be entitled to
exercise any right provided for in this Section 1 after December 31, 2000.
2. Miscellaneous.
2.1 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and
be binding upon the respective successors and assigns of the parties
(including transferees of the Series A Preferred Stock or the Registrable
Securities). Nothing in this Agreement, express or implied, is intended
to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly
provided in this Agreement.
2.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California without giving effect to
principles of conflicts of laws.
2.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
2.4 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing
or interpreting this Agreement.
2.5 Notices. Unless otherwise provided, any noticed required or permitted
under this Agreement shall be given in writing and shall be deemed
effectively given upon person delivery to the party to be notified or
upon deposit with the United States Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be notified
<PAGE>
at the address indicated for such party on the signature page hereto, or
at such other address as such party may designate by ten (10) days
advance written notice to the other parties.
2.6 Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the
holders of a majority of the Registrable Securities then outstanding,
except that this Agreement may be amended to include as parties hereto
all holders of Common Stock of the Company on the date hereof (the
"Common Holders") by a written instrument executed by the Company and
each Common Holder electing to be included as a party hereto. Any
amendment or waiver effected in accordance with this Section 2.7 shall be
binding upon each holder of any Registrable Securities then outstanding,
each future holder of all such Registrable Securities, and the Company.
2.7 Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted
as if such provision were so excluded and shall be enforceable in
accordance with its terms.
2.8 Aggregation of Stock. All shares of Registrable Securities held or
acquired by affiliated entities or persons shall be aggregated together
for the purpose of determining the availability of any rights under this
Agreement.
2.9 Entire Agreement:. This Agreement (including the Exhibits hereto, if
any) constitutes the full and entire understanding and agreement between
the parties with regard to the subjects hereof and thereof.
IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first above written.
HealthDesk Corporation
By: ______________________
Peter S. O'Donnell
Chairman and Chief Executive Officer
Address: 1521 Fifth Street
Suite B
Berkeley, CA 94710
INVESTOR:
__________________________________
[Type or Print Name]
By:_______________________________
Print Title:______________________
Address __________________________
__________________________
<PAGE>
Exhibit 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of September
19, 1996 between HealthDesk Corporation, a California corporation (the
"Company"), and Peter S. O'Donnell.
In consideration of the mutual covenants and conditions set forth
herein, the parties hereby agree as follows:
1. Employment. The Company hereby employs Peter S. O'Donnell in the capacity of
President, Chief Executive Officer and Chairman of the Board. Peter S. O'Donnell
accepts such employment and agrees to perform such services as are customary to
such office and as shall from time to time be assigned to him by the Board of
Directors of the Company.
2. Term. The initial term shall be for a period of 15 months, commencing on
September 19, 1996 (the "Commencement Date") and shall be automatically extended
for each successive one year term, unless earlier terminated as provided in
Section 5. Peter S. O'Donnell's employment will be on a full-time basis
requiring the devotion of such amount of his productive time as is necessary for
the efficient operation of the business of the Company.
3. Compensation and Benefits.
3.1 Salary. For the performance of Peter S. O'Donnell's duties
hereunder, the Company shall pay Peter S. O'Donnell an annual salary of $163,200
payable (less required withholdings) no less frequently than twice monthly.
3.2 Bonus. The Company shall also pay Peter S. O'Donnell an annual cash
bonus for each employment year. Which bonus shall be payable within 30 days
following the end of the employment period for which it is earned. Commencing in
calendar year, 1997 Peter S. O'Donnell will be eligible to participate in a
Short Term Incentive Plan. Ninety (90) days prior to the commencement of the
employment year, the Board of Directors and Peter S. O'Donnell will establish a
mutually acceptable bonus plan, which plan will provide Peter S. O'Donnell with
appropriate incentives and opportunity to earn bonus amounts comparable to those
available to top executives officers of similar companies and will base the
incentive award on the full year pre-tax earnings of the company and will be
paid by the end of the first quarter of the following year, subsequent to the
completion of the annual audit.
3.3 Benefits. Peter S. O'Donnell shall be entitled to such medical,
disability and life insurance coverage and such vacation, sick leave and holiday
benefits, if any, as are made available to the Company's executive personnel,
all in accordance with the Company's benefits program in effect from time to
time.
3.4 Reimbursement of Expenses. Peter S. O'Donnell shall be entitled to
be reimbursed for all reasonable expenses, including but not limited to expenses
for travel, meals and entertainment, incurred by Peter S. O'Donnell in
connection with and reasonably related to the furtherance of the Company's
business.
<PAGE>
3.5 Annual Review. On each successive annual term of the Commencement
Date, the Board of Directors will review Peter S. O'Donnell's performance and
compensation hereunder (including salary, bonus and stock options and/or other
equity incentives) and will consider whether to increase such compensation, but
will not have authority, as the result of such review to decrease any portion of
such compensation with out the written consent of Peter S. O'Donnell
4. Change of Control. In the event of a Change of Control of the Company (as
defined below), all options then granted to Peter S. O'Donnell which are
unvested at the date of the Change of Control will be immediately vested. In
addition, notwithstanding the provisions of Section 5.2(b), in the event of a
termination of Peter S. O'Donnell's employment hereunder for any reason
following a Change of Control, the Company will promptly pay Peter S. O'Donnell,
in addition to the amounts required under Section 5.2(a), a lump sum severance
amount, payable immediately upon such termination of employment, equal to six
months of salary, plus at a minimum, a pro-rata portion of the maximum amount of
bonus payable for the employment year during which the termination occurs and
will be paid by the end of the first quarter of the following year, subsequent
to the completion of the annual audit.
As used herein, a "Change of Control" of the Company shall be deemed to
have occurred:
(a) Upon the consummation, in one transaction or a series of
transactions, of the sale or other transfer of voting power (including voting
power exercisable on a contingent or deferred basis as well as immediately
exercisable voting power) representing effective control of the Company to a
person or group of related persons who, on the date of this Agreement, does not
have effective voting control of the Company, whether such sale or transfer
results from a tender offer or otherwise; or
(b) Upon the consummation of a merger or consolidation in which the
Company is a constituent corporation and in which the Company's shareholders
immediately prior thereto will beneficially own, immediately thereafter,
securities of the Company or any surviving or new corporation resulting
therefrom having less than a majority of the voting power of the company or any
such surviving or new corporation; or
(c) Upon the consummation of a sale, lease, exchange or other transfer
or disposition by the "Company of all or substantially all its assets to any
person or group or related persons; or
(d) Upon an election or appointment of one or more directors as the
result of which those persons serving as directors of the Company on the date of
this Agreement (the "Current Directors") and/or their Successors (as defined
below) will not constitute a majority of the Board of Directors of the Company.
As used herein, a "Successor" means a director whose election by the company's
shareholders or whose appointment by the directors then serving the Company has
been approved by a vote of the directors then serving the Company in which at
least two-thirds of those directors who are Original Directors and previously
qualified Successors voted for approval.
5. Termination.
5.1 Termination Events. The employment hereunder will terminate upon
the occurrence of any of the following events:
<PAGE>
(a) Peter S. O'Donnell dies;
(b) the Company, by written notice to Peter S. O'Donnell or
his personal representative, discharges Peter S. O'Donnell due to the inability
to perform the duties assigned to him hereunder for a continuous period
exceeding 120 days by reason of injury, physical or mental illness or other
disability, which condition has been certified by a physician; provided,
however, that prior to discharging Peter S. O'Donnell due to such disability,
the Company shall give a written statement of findings to Peter S. O'Donnell or
his personal representative setting forth specifically the nature of the
disability and the resulting performance failures, and Peter S. O'Donnell shall
have a period of ten (10) days thereafter to respond in writing to the Board of
Directors' findings;
(c) Peter S. O'Donnell is discharged by the Board of Directors
of the Company for cause. As used in this Agreement, the term "cause" means
exclusively Peter S. O'Donnell's conviction of (or pleading guilty or nolo
contendre to) a felony or any misdemeanor involving dishonesty or moral
turpitude; provided, however, that prior to discharging Peter S. O'Donnell for
cause, the Company shall give a written statement of findings to Peter S.
O'Donnell setting forth specifically the grounds on which cause is based, and
Peter S. O'Donnell shall have a period of ten (10) days thereafter to respond in
writing to the Board of Directors' findings;
(d) Peter S. O'Donnell is discharged by the Board of Directors
of the Company without cause, which the Company may do at any time, with at
least 30 days advance notice, or if Peter S. O'Donnell's employment agreement is
not renewed;
(e) Peter S. O'Donnell voluntarily terminates his employment
due to either (i) a default by the Company in the performance of any of its
obligations hereunder, or (ii) an Adverse Change in Duties (as defined below),
which default or Adverse Change in Duties remains unremedied by the Company for
a period of ten days following its receipt of written notice thereof from Peter
S. O'Donnell; or
(f) Peter S. O'Donnell voluntarily terminates his employment
for any reason other than the Company's default or an Adverse Change in Duties,
which Peter S. O'Donnell may do at any time with at least 30 days advance
notice.
As used herein, "Adverse Change in Duties" means an action or series of
actions taken by the Company, without Peter S. O'Donnell's prior written
consent, which results in:
(1) A change in Peter S. O'Donnell's reporting responsibilities,
titles, job responsibilities or offices which, in Peter S. O'Donnell's
reasonable judgment, results in a diminution of his status, control, or
authority; or
(2) The assignment to Peter S. O'Donnell of any positions, duties or
responsibilities which, in Peter S. O'Donnell's reasonable judgment, are
inconsistent with Peter S. O'Donnell's positions, duties and responsibilities or
status with the Company or which require Peter S. O'Donnell to travel more than
previously required; or
(3) A requirement by the Company that to Peter S. O'Donnell be based or
perform his duties anywhere other than (i) at the Company's corporate office
location on the date of this Agreement, or (ii) if the Company's corporate
<PAGE>
office location is moved after the date of this Agreement, at a new location
that is no more than 30 miles from such prior location; or
(4) A failure by the Company (i) to continue in effect any benefit,
whether or not qualified, or other compensation, bonus or incentive plan in
effect on the date of this Agreement or subsequently adopted or (ii) to continue
Peter S. O'Donnell's participation in such benefits or plans at the same level
or to the same extent as on the Commencement Date or, with respect to
subsequently adopted benefits or plans, on the date of initial implementation
thereof, or (iii) to provide for Peter S. O'Donnell's participation in any newly
adopted benefits or plans at a level or to an extent commensurate, in Peter S.
O'Donnell's judgment, with that of other executives of the Company.
5.2 Effects of Termination.
(a) Upon termination of Peter S. O'Donnell's employment hereunder for
any reason, the Company will, within 3 days, pay Peter S. O'Donnell (i) all
compensation owed to Peter S. O'Donnell and unpaid through the date of
termination (including, without limitation, salary and employee expenses
reimbursements and accrued P.T.O), plus, at a minimum, a pro rata portion of the
maximum amount of bonus payable for the employment year during which the
termination occurs, based on the percentage of the year during which Peter S.
O'Donnell was employed before such termination and will be paid by the end of
the first quarter of the following year, subsequent to the completion of the
annual audit.
(b) In addition, if the employment is terminated under Sections 5.1
(a), (b), (d), or (e), the Company shall also pay Peter S. O'Donnell immediately
upon such termination of employment, a lump sum severance amount equal to
one-half of the then applicable annual salary, plus a pro-rata, portion of the
incentive and will be paid by the end of the first quarter of the following
year, subsequent to the completion of the annual audit.
(c) Upon termination of Peter S. O'Donnell's employment for any reason,
Peter S. O'Donnell agrees that for the one (1) year period following the
Termination Event:
(i) Peter S. O'Donnell will not directly or indirectly
encourage or solicit, or attempt to encourage or solicit, any individual to
leave the Company's employ for any reason or interfere in any other manner with
the employment relationships at the time existing between the Company and its
current or prospective employees;
(ii) Peter S. O'Donnell will not induce or attempt to induce
any customer, supplier, distributor, licensee or other business relation of the
Company to cease doing business with the Company or in any way interfere with
the existing business relationship between any such customer, supplier,
distributor, licensee or other business relation and the Company.
(iii) Peter S. O'Donnell will not directly or indirectly,
whether for his own account or as an individual, employee, director, consultant
or advisor, or in any other capacity whatsoever, provide services to any person,
firm corporation or other business enterprise which is involved in the design,
development or marketing of software for the healthcare consumer and/or
providers or manufactures, markets or sells any product or service that directly
or indirectly relates to medical and health related material, specifically
software that enables an end-user to track medical records and health related
activities, learn about health topics and more freely exchange health and
<PAGE>
medical information and which is located geographically in an area where the
Company maintains its business activities, unless you obtain the prior written
consent of the Board of Directors.
Peter S. O'Donnell acknowledges that monetary damages may not be
sufficient to compensate the Company for any economic loss which may be incurred
by reason of breach of the foregoing restrictive covenants. Accordingly, in the
event of any such breach , the Company shall, in addition to any remedies
available to the Company at law, be entitled to obtain equitable relief in the
form of an injunction precluding Peter S.
O'Donnell from continuing to engage in such breach.
If any restriction set forth in this paragraph is held to be
unreasonable, then Peter S. O'Donnell and the Company agree, and hereby submit,
to the reduction and limitation of such prohibition to such area or period as
shall be deemed reasonable.
6. General Provisions.
6.1 Assignment. Neither party may assign or delegate any of his rights
or obligations under this Agreement without the prior written consent of the
other party, except laws of succession in item (A).
6.2 Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes any
and all prior agreements between the parties relating to such subject matter.
6.3 Modifications. This Agreement may be changed or modified only by an
agreement in writing signed by both parties hereto.
6.4 Successors and Assigns. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Company and its successors and
assigns and Peter S. O'Donnell and Peter S. O'Donnell's legal representatives,
heirs, legatees, distributees, assigns and transferees by operation of law,
whether or not any such person shall have become a party to this Agreement and
have agreed in writing to join and be bound by the terms and conditions hereof.
6.5 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California as such laws are applied
to agreements among California residents entered into and performed entirely
within California.
6.6 Severability. If any provision of the Agreement is held by a court
of competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect.
6.7 Further Assurances. The parties will execute such further
instruments and take such further actions as may be reasonably necessary to
carry out the intent of this Agreement.
6.8 Notices. Any notices or other communications required or permitted
hereunder shall be in writing and shall be deemed received by the recipient when
delivered personally or, if mailed, five (5) days after the date of deposit in
the United States mail, certified or registered, postage prepaid and addressed,
<PAGE>
in the case of the Company, to 2560 Ninth Street, Suite 220, Berkeley,
California 94710, and in case of Peter S. O'Donnell, to the address shown for
Peter S. O'Donnell on the signature page hereof, or to such other address as
either party may later specify by at least ten (10) days advance written notice
delivered to the other party in accordance herewith.
6.9 Indemnification. The company will indemnify Peter S. O'Donnell in
his capacity as an executive officer, to the maximum amount permitted by law.
6.10 No Waiver. The failure of either party to enforce any provision of
this Agreement shall not be construed as a waiver of that provision, nor prevent
that party thereafter from enforcing that provision of any other provision of
this Agreement.
6.11 Enforcement. If any action at law or in equity or any arbitration
is brought to enforce or interpret the terms of this Agreement or to protect the
rights obtained hereunder, the prevailing party shall be entitled to recover its
reasonable attorneys' fees, costs and other expenses in addition to any other
relief to which it may be entitled.
6.12 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
6.13 Reimbursement of Counsel Costs. Immediately upon commencement of
employment hereunder, the Company will reimburse Peter S. O'Donnell for the
reasonable amount of all attorney's fees incurred by Peter S. O'Donnell in
connection with the negotiation and preparation of this Agreement, up to a
maximum amount of $1,500.
IN WITNESS WHEREOF, the Company and Peter S. O'Donnell have executed this
Agreement effective as of the day and year first above written.
COMPANY PETER S. O'DONNELL
HealthDesk Corporation, ________________________________
a California corporation Peter S. O'Donnell
By: Address:
Name: 6363 Christie Avenue #2904
Title: Emeryville, CA 94608
_________________________
_________________________
_________________________
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of September
19, 1996 between HealthDesk Corporation, a California corporation (the
"Company"), and Molly Joel Coye, MD.
In consideration of the mutual covenants and conditions set forth
herein, the parties hereby agree as follows:
1. Employment. The Company has employed Molly Joel Coye, MD in the capacity of
Executive Vice President, Strategic Development since June 17, 1996. Molly Joel
Coye, MD accepts such employment and agrees to perform such services as are
customary to such office and as shall from time to time be assigned to her by
the President and Chief Executive Officer.
2. Term. The initial term of this agreement shall be for a period of 15 months,
commencing on September 19, 1996 (the "Commencement Date") and shall be
automatically extended for each successive one year term, unless earlier
terminated as provided in Section 5. Molly Joel Coye, MD's employment will be on
a full-time basis requiring the devotion of such amount of her productive time
as is necessary for the efficient operation of the business of the Company.
3. Compensation and Benefits.
3.1 Salary. For the performance of Molly Joel Coye, MD's duties
hereunder, the Company shall pay Molly Joel Coye, MD an annual salary of
$140,000 payable (less required withholdings) no less frequently than twice
monthly commencing January 1, 1997.
3.2 Bonus. The Company shall also pay Molly Joel Coye, MD a cash bonus
of $80, 000 which bonus shall be payable on February 1, 1997. Commencing in
calendar year, 1997 Molly Joel Coye, MD will be eligible to participate in a
Short Term Incentive Plan. Ninety (90) days prior to the commencement of the
employment year, the Board of Directors and Molly Joel Coye, MD will establish a
mutually acceptable bonus plan, which plan will provide Molly Joel Coye, MD with
appropriate incentives and opportunity to earn bonus amounts comparable to those
available to top executives officers of similar companies and may base the
incentive award on the full year pre-tax earnings of the company.
3.3 Benefits. Molly Joel Coye, MD shall be entitled to such medical,
disability and life insurance coverage and such vacation, sick leave and holiday
benefits, if any, as are made available to the Company's executive personnel,
all in accordance with the Company's benefits program in effect from time to
time.
3.4 Reimbursement of Expenses. Molly Joel Coye, MD shall be entitled to
be reimbursed for all reasonable expenses, including but not limited to expenses
for travel, meals and entertainment, incurred by Molly Joel Coye, MD in
connection with and reasonably related to the furtherance of the Company's
business.
3.5 Annual Review. On each successive annual term of the Commencement
Date, the Chief Executive Officer will review Molly Joel Coye, MD's performance
and compensation hereunder (including salary, bonus and stock options and/or
other equity incentives) and will consider whether to increase such
compensation, but will not have authority, as the result of such review to
decrease any portion of such compensation without the written consent of Molly
Joel Coye, MD.
4. Change of Control. In the event of a Change of Control of the Company (as
defined below), all options then granted to Molly Joel Coye, MD which are
unvested at the date of the Change of Control will be immediately vested. In
addition, in the event of a termination of Molly Joel Coye, MD's employment
hereunder for any reason following a Change of Control, the Company will
promptly pay Molly Joel Coye, MD, in addition to the amounts required under
Section 5.2(a), a lump sum severance amount equal to one-half of the then
applicable annual salary, plus a pro-rata, (or if not calculable based on prior
year) portion of the incentive. This shall be in lieu of any amounts payable
under 5.2(b). For calendar year 1997, such a calculation will be based upon an
annual bonus of $40,000 since no bonus was paid in 1996.
<PAGE>
As used herein, a "Change of Control" of the Company shall be deemed to
have occurred:
(a) Upon the consummation, in one transaction or a series of
transactions, of the sale or other transfer of voting power (including voting
power exercisable on a contingent or deferred basis as well as immediately
exercisable voting power) representing effective control of the Company to a
person or group of related persons who, on the date of this Agreement, does not
have effective voting control of the Company, whether such sale or transfer
results from a tender offer or otherwise; or
(b) Upon the consummation of a merger or consolidation in which the
Company is a constituent corporation and in which the Company's shareholders
immediately prior thereto will beneficially own, immediately thereafter,
securities of the Company or any surviving or new corporation resulting
therefrom having less than a majority of the voting power of the company or any
such surviving or new corporation; or
(c) Upon the consummation of a sale, lease, exchange or other transfer
or disposition by the Company of all or substantially all its assets to any
person or group or related persons; or
(d) Upon an election or appointment of one or more directors as the
result of which those persons serving as directors of the Company on the date of
this Agreement (the "Current Directors") and/or their Successors (as defined
below) will not constitute a majority of the Board of Directors of the Company.
As used herein, a "Successor" means a director whose election by the company's
shareholders or whose appointment by the directors then serving the Company has
been approved by a vote of the directors then serving the Company in which at
least two-thirds of those directors who are current Directors and previously
qualified Successors voted for approval.
5. Termination.
5.1 Termination Events. The employment hereunder will terminate upon
the occurrence of any of the following events:
(a) Molly Joel Coye, MD dies;
(b) The Company, by written notice to Molly Joel Coye, MD or
her personal representative, discharges Molly Joel Coye, MD due to the inability
to perform the duties assigned to her hereunder for a continuous period
exceeding 120 days by reason of injury, physical or mental illness or other
disability, which condition has been certified by a mutually agreed upon
physician; provided, however, that prior to discharging Molly Joel Coye, MD due
to such disability, the Company shall give a written statement of findings to
Molly Joel Coye, MD or her personal representative setting forth specifically
the nature of the disability and the resulting performance failures, and Molly
Joel Coye, MD shall have a period of ten (10) days thereafter to respond in
writing to the Board of Directors' findings;
(c) Molly Joel Coye, MD is discharged by the Board of
Directors of the Company for cause. As used in this Agreement, the term "cause"
means exclusively Molly Joel Coye, MD's conviction of (or pleading guilty or
nolo contendre to) a felony or any misdemeanor involving dishonesty or moral
turpitude; provided, however, that prior to discharging Molly Joel Coye, MD for
cause, the Company shall give a written statement of findings to Molly Joel
Coye, MD setting forth specifically the grounds on which cause is based, and
Molly Joel Coye, MD shall have a period of ten (10) days thereafter to respond
in writing to the Board of Directors' findings;
<PAGE>
(d) Molly Joel Coye, MD is discharged by the Board of
Directors of the Company without cause, which the Company may do at any time,
with at least 30 days advance written notice, or if Molly Joel Coye, MD's
employment agreement is not renewed;
(e) Molly Joel Coye, MD voluntarily terminates her employment
due to either (i) a default by the Company in the performance of any of its
obligations hereunder, or (ii) an Adverse Change in Duties (as defined below),
which default or Adverse Change in Duties remains unremedied by the Company for
a period of ten days following its receipt of written notice thereof from Molly
Joel Coye, MD; or
(f) Molly Joel Coye, MD voluntarily terminates her employment
for any reason other than the Company's default or an Adverse Change in Duties,
which Molly Joel Coye, MD may do at any time with at least 30 days advance
notice.
As used herein, "Adverse Change in Duties" means an action or series of
actions taken by the Company, without Molly Joel Coye, MD's prior written
consent, which results in:
(1) A change in Molly Joel Coye, MD's reporting responsibilities,
titles, job responsibilities or offices which, in Molly Joel Coye, MD's
reasonable judgment, results in a diminution of her status, control, or
authority; or
(2) The assignment to Molly Joel Coye, MD of any positions, duties or
responsibilities which, in Molly Joel Coye, MD's reasonable judgment, are
inconsistent with Molly Joel Coye, MD's positions, duties and responsibilities
or status with the Company or which require Molly Joel Coye, MD to travel more
than previously required; or
(3) A requirement by the Company that to Molly Joel Coye, MD be based
or perform her duties anywhere other than (i) at the Company's corporate office
location on the date of this Agreement, or (ii) if the Company's corporate
office location is moved after the date of this Agreement, at a new location
that is no more than 30 miles from such prior location; or
(4) A failure by the Company (i) to continue in effect any benefit,
whether or not qualified, or other compensation, bonus or incentive plan in
effect on the date of this Agreement or subsequently adopted or (ii) to continue
Molly Joel Coye, MD's participation in such benefits or plans at the same level
or to the same extent as on the Commencement Date or, with respect to
subsequently adopted benefits or plans, on the date of initial implementation
thereof, or (iii) to provide for Molly Joel Coye, MD's participation in any
newly adopted benefits or plans at a level or to an extent commensurate, in
Molly Joel Coye, MD's judgment, with that of other executives of the Company.
5.2 Effects of Termination.
(a) Upon termination of Molly Joel Coye, MD's employment hereunder for
any reason, the Company will, within 3 days, pay Molly Joel Coye, MD (i) all
compensation owed to Molly Joel Coye, MD and unpaid through the date of
termination (including, without limitation, salary and employee expenses
reimbursements and accrued P.T.O), plus, at a minimum, a pro rata portion of the
maximum amount of bonus payable for the employment year during which the
termination occurs, based on the percentage of the year during which Molly Joel
Coye, MD was employed before such termination, if not a full year, based on the
prior year's bonus payment. For calendar year 1997, such a pro rata calculation
will be based upon an annual bonus of $40,000 since no bonus was paid in 1996.
<PAGE>
(b) In addition, if the employment is terminated under Sections 5.1
(a), (b), (d), or (e), the Company shall also pay Molly Joel Coye, MD
immediately upon such termination of employment, a lump sum severance amount
equal to one-half of the then applicable annual salary, plus a pro-rata, (or if
not calculable based on prior year) portion of the incentive. For calendar year
1997, such a calculation will be based upon an annual bonus of $40,000 since no
bonus was paid in 1996..
(c) Upon termination of Molly Joel Coye, MD's employment for any
reason, Molly Joel Coye, MD agrees that for the one (1) year period following
the Termination Event:
(i) Molly Joel Coye, MD will not directly or indirectly
encourage or solicit, or attempt to encourage or solicit, any individual to
leave the Company's employ for any reason or interfere in any other manner with
the employment relationships at the time existing between the Company and its
current or prospective employees;
(ii) Molly Joel Coye, MD will not induce or attempt to induce
any customer, supplier, distributor, licensee or other business relation of the
Company to cease doing business with the Company or in any way interfere with
the existing business relationship between any such customer, supplier,
distributor, licensee or other business relation and the Company.
(d) Molly Joel Coye, MD agrees that for six (6) months following the
Termination Event she:
(i) Molly Joel Coye, MD will not directly or indirectly,
whether for her own account or as an individual, employee, director, consultant
or advisor, provide services to any person, firm corporation or other business
enterprise which is involved primarily in the design, development or marketing
of software for the healthcare consumer and/or providers, specifically software
that enables an end-user to track medical records and health related activities,
learn about health topics and more freely exchange health and medical
information and which is located geographically in an area where the Company
maintains its business activities, unless you obtain the prior written consent
of the Board of Directors.
Molly Joel Coye, MD acknowledges that monetary damages may not be
sufficient to compensate the Company for any economic loss which may be incurred
by reason of breach of the foregoing restrictive covenants. Accordingly, in the
event of any such breach , the Company shall, in addition to any remedies
available to the Company at law, be entitled to obtain equitable relief in the
form of an injunction precluding Molly Joel Coye, MD from continuing to engage
in such breach.
If any restriction set forth in this paragraph is held to be
unreasonable, then Molly Joel Coye, MD and the Company agree, and hereby submit,
to the reduction and limitation of such prohibition to such area or period as
shall be deemed reasonable.
6. General Provisions.
6.1 Assignment. Neither party may assign or delegate any of her or its
rights or obligations under this Agreement without the prior written consent of
the other party, except laws of succession in item (A).
6.2 Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes any
and all prior agreements between the parties relating to such subject matter.
6.3 Modifications. This Agreement may be changed or modified only by an
agreement in writing signed by both parties hereto.
<PAGE>
6.4 Successors and Assigns. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Company and its successors and
assigns and Molly Joel Coye, MD and Molly Joel Coye, MD's legal representatives,
heirs, legatees, distributees, assigns and transferees by operation of law,
whether or not any such person shall have become a party to this Agreement and
have agreed in writing to join and be bound by the terms and conditions hereof.
6.5 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California as such laws are applied
to agreements among California residents entered into and performed entirely
within California.
6.6 Severability. If any provision of the Agreement is held by a court
of competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect.
6.7 Further Assurances. The parties will execute such further
instruments and take such further actions as may be reasonably necessary to
carry out the intent of this Agreement.
6.8 Notices. Any notices or other communications required or permitted
hereunder shall be in writing and shall be deemed received by the recipient when
delivered personally or, if mailed, five (5) days after the date of deposit in
the United States mail, certified or registered, postage prepaid and addressed,
in the case of the Company, to 2560 Ninth Street, Suite 220, Berkeley,
California 94710, and in case of Molly Joel Coye, MD, to the address shown for
Molly Joel Coye, MD on the signature page hereof, or to such other address as
either party may later specify by at least ten (10) days advance written notice
delivered to the other party in accordance herewith.
6.9 Indemnification. The company will indemnify Molly Joel Coye, MD in
her capacity as an executive officer, to the maximum amount permitted by law.
6.10 No Waiver. The failure of either party to enforce any provision of
this Agreement shall not be construed as a waiver of that provision, nor prevent
that party thereafter from enforcing that provision or any other provision of
this Agreement.
6.11 Enforcement. If any action at law or in equity or any arbitration
is brought to enforce or interpret the terms of this Agreement or to protect the
rights obtained hereunder, the prevailing party shall be entitled to recover its
reasonable attorneys' fees, costs and other expenses in addition to any other
relief to which it may be entitled.
6.12 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
6.13 Reimbursement of Counsel Costs. Immediately upon commencement of
employment hereunder, the Company will reimburse Molly Joel Coye, MD for all
reasonable attorney's fees incurred by Molly Joel Coye, MD in connection with
the negotiation and preparation of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company and Molly Joel Coye, MD have executed this
Agreement effective as of the day and year first above written.
COMPANY MOLLY JOEL COYE, MD
HealthDesk Corporation, -----------------------------
a California corporation Molly Joel Coye, MD
By: Address
Name: 2140 Harvard Street
Title: Palo Alto, CA 94306
- --------------------------------
- --------------------------------
- --------------------------------
<PAGE>
Exhibit 10.7
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of September
19, 1996 between HealthDesk Corporation, a California corporation (the
"Company"), and Timothy S. Yamauchi.
In consideration of the mutual covenants and conditions set forth
herein, the parties hereby agree as follows:
1. Employment. The Company hereby employs Timothy S. Yamauchi in the
capacity of Chief Financial Officer, Treasurer and Secretary. Timothy S.
Yamauchi accepts such employment and agrees to perform such services as are
customary to such office and as shall from time to time be assigned to him by
the President and Chief Executive Officer and/or The Board of Directors.
2. Term. The initial term shall be for a period of 15 months,
commencing on September 19, 1996 (the "Commencement Date") and shall be
automatically extended for each successive one year term, unless earlier
terminated as provided in Section 5. Timothy S. Yamauchi's employment will be on
a full-time basis requiring the devotion of such amount of his productive time
as is necessary for the efficient operation of the business of the Company.
3. Compensation and Benefits.
3.1 Salary. For the performance of Timothy S. Yamauchi's duties
hereunder, the Company shall pay Timothy S. Yamauchi an annual salary of
$110,000 payable (less required withholdings) no less frequently than twice
monthly.
3.2 Bonus. The Company shall also pay Timothy S. Yamauchi an annual
cash bonus for each employment year. Which bonus shall be payable within 30 days
following the end of the employment period for which it is earned. Commencing in
calendar year, 1997, Timothy S. Yamauchi will be eligible to participate in a
Short Term Incentive Plan. Ninety (90) days prior to the commencement of the
employment year, the Board of Directors and Timothy S. Yamauchi will establish a
mutually acceptable bonus plan, which plan will provide Timothy S. Yamauchi with
appropriate incentives and opportunity to earn bonus amounts comparable to those
available to top executives officers of similar companies and will base the
incentive award on the full year pre-tax earnings of the company and will be
paid by the end of the first quarter of the following year, subsequent to the
completion of the annual audit.
3.3 Benefits. Timothy S. Yamauchi shall be entitled to such medical,
disability and life insurance coverage and such vacation, sick leave and holiday
benefits, if any, as are made available to the Company's executive personnel,
all in accordance with the Company's benefits program in effect from time to
time.
3.4 Reimbursement of Expenses. Timothy S. Yamauchi shall be entitled
to be reimbursed for all reasonable expenses, including but not limited to
expenses for travel, meals and entertainment, incurred by Timothy S. Yamauchi in
connection with and reasonably related to the furtherance of the Company's
business.
<PAGE>
3.5 Annual Review. On each successive annual term of the
Commencement Date, the Chief Executive Officer, with the Board of Directors
review and approval, will review Timothy S. Yamauchi's performance and
compensation hereunder (including salary, bonus and stock options and/or other
equity incentives) and will consider whether to increase such compensation, but
will not have authority, as the result of such review to decrease any portion
of such compensation without the written consent of Timothy S. Yamauchi.
4. Change of Control. In the event of a Change of Control of the
Company (as defined below), all options then granted to Timothy S. Yamauchi
which are unvested at the date of the Change of Control will be immediately
vested. In addition, notwithstanding the provisions of Section 5.2(b), in the
event of a termination of Timothy S. Yamauchi's employment hereunder for any
reason following a Change of Control, the Company will promptly pay Timothy S.
Yamauchi, in addition to the amounts required under Section 5.2(a), a lump sum
severance amount, payable immediately upon such termination of employment, equal
to six months of salary, plus at a minimum, a pro-rata portion of the maximum
amount of bonus payable for the employment year during which the termination
occurs and will be paid by the end of the first quarter of the following year,
subsequent to the completion of the annual audit.
As used herein, a "Change of Control" of the Company shall be deemed to
have occurred:
(a) Upon the consummation, in one transaction or a series of
transactions, of the sale or other transfer of voting power (including voting
power exercisable on a contingent or deferred basis as well as immediately
exercisable voting power) representing effective control of the Company to a
person or group of related persons who, on the date of this Agreement, does not
have effective voting control of the Company, whether such sale or transfer
results from a tender offer or otherwise; or
(b) Upon the consummation of a merger or consolidation in which the
Company is a constituent corporation and in which the Company's shareholders
immediately prior thereto will beneficially own, immediately thereafter,
securities of the Company or any surviving or new corporation resulting
therefrom having less than a majority of the voting power of the company or any
such surviving or new corporation; or
(c) Upon the consummation of a sale, lease, exchange or other
transfer or disposition by the "Company of all or substantially all its assets
to any person or group or related persons; or
(d) Upon an election or appointment of one or more directors as the
result of which those persons serving as directors of the Company on the date of
this Agreement (the "Current Directors") and/or their Successors (as defined
below) will not constitute a majority of the Board of Directors of the Company.
As used herein, a "Successor" means a director whose election by the company's
shareholders or whose appointment by the directors then serving the Company has
been approved by a vote of the directors then serving the Company in which at
least two-thirds of those directors who are Original Directors and previously
qualified Successors voted for approval.
5. Termination.
5.1 Termination Events. The employment hereunder will terminate upon
the occurrence of any of the following events:
<PAGE>
(a) Timothy S. Yamauchi dies;
(b) the Company, by written notice to Timothy S. Yamauchi or
his personal representative, discharges Timothy S. Yamauchi due to the inability
to perform the duties assigned to him hereunder for a continuous period
exceeding 120 days by reason of injury, physical or mental illness or other
disability, which condition has been certified by a physician; provided,
however, that prior to discharging Timothy S. Yamauchi due to such disability,
the Company shall give a written statement of findings to Timothy S. Yamauchi or
his personal representative setting forth specifically the nature of the
disability and the resulting performance failures, and Timothy S. Yamauchi shall
have a period of ten (10) days thereafter to respond in writing to the Board of
Directors' findings;
(c) Timothy S. Yamauchi is discharged by the Board of
Directors of the Company for cause. As used in this Agreement, the term "cause"
means exclusively Timothy S. Yamauchi's conviction of (or pleading guilty or
nolo contendre to) a felony or any misdemeanor involving dishonesty or moral
turpitude; provided, however, that prior to discharging Timothy S. Yamauchi for
cause, the Company shall give a written statement of findings to Timothy S.
Yamauchi setting forth specifically the grounds on which cause is based, and
Timothy S. Yamauchi shall have a period of ten (10) days thereafter to respond
in writing to the Board of Directors' findings;
(d) Timothy S. Yamauchi is discharged by the Board of
Directors of the Company without cause, which the Company may do at any time,
with at least 30 days advance notice, or if Timothy S. Yamauchi's employment
agreement is not renewed;
(e) Timothy S. Yamauchi voluntarily terminates his employment
due to either (i) a default by the Company in the performance of any of its
obligations hereunder, or (ii) an Adverse Change in Duties (as defined below),
which default or Adverse Change in Duties remains unremedied by the Company for
a period of ten days following its receipt of written notice thereof from
Timothy S. Yamauchi; or
(f) Timothy S. Yamauchi voluntarily terminates his employment
for any reason other than the Company's default or an Adverse Change in Duties,
which Timothy S. Yamauchi may do at any time with at least 30 days advance
notice.
As used herein, "Adverse Change in Duties" means an action or series of
actions taken by the Company, without Timothy S. Yamauchi's prior written
consent, which results in:
(1) A change in Timothy S. Yamauchi's reporting responsibilities,
titles, job responsibilities or offices which, in Timothy S. Yamauchi's
reasonable judgment, results in a diminution of his status, control, or
authority; or
(2) The assignment to Timothy S. Yamauchi of any positions, duties
or responsibilities which, in Timothy S. Yamauchi's reasonable judgment, are
inconsistent with Timothy S. Yamauchi's positions, duties and responsibilities
or status with the Company or which require Timothy S. Yamauchi to travel more
than previously required; or
<PAGE>
(3) A requirement by the Company that to Timothy S. Yamauchi be based
or perform his duties anywhere other than (i) at the Company's corporate office
location on the date of this Agreement, or (ii) if the Company's corporate
office location is moved after the date of this Agreement, at a new location
that is no more than 30 miles from such prior location; or
(4) A failure by the Company (i) to continue in effect any benefit,
whether or not qualified, or other compensation, bonus or incentive plan in
effect on the date of this Agreement or subsequently adopted or (ii) to continue
Timothy S. Yamauchi's participation in such benefits or plans at the same level
or to the same extent as on the Commencement Date or, with respect to
subsequently adopted benefits or plans, on the date of initial implementation
thereof, or (iii) to provide for Timothy S. Yamauchi's participation in any
newly adopted benefits or plans at a level or to an extent commensurate, in
Timothy S. Yamauchi's judgment, with that of other executives of the Company.
5.2 Effects of Termination.
(a) Upon termination of Timothy S. Yamauchi's employment hereunder
for any reason, the Company will, within 3 days, pay Timothy S. Yamauchi (i) all
compensation owed to Timothy S. Yamauchi and unpaid through the date of
termination (including, without limitation, salary and employee expenses
reimbursements and accrued P.T.O), plus, at a minimum, a pro rata portion of the
maximum amount of bonus payable for the employment year during which the
termination occurs, based on the percentage of the year during which Timothy S.
Yamauchi was employed before such termination and will be paid by the end of the
first quarter of the following year, subsequent to the completion of the annual
audit.
(b) In addition, if the employment is terminated under Sections 5.1
(a), (b), (d), or (e), the Company shall also pay Timothy S. Yamauchi
immediately upon such termination of employment, a lump sum severance amount
equal to one-half of the then applicable annual salary, plus a pro-rata, portion
of the incentive and will be paid by the end of the first quarter of the
following year, subsequent to the completion of the annual audit.
(c) Upon termination of Timothy S. Yamauchi's employment for any
reason, Timothy S. Yamauchi agrees that for the one (1) year period following
the Termination Event:
(i) Timothy S. Yamauchi will not directly or indirectly
encourage or solicit, or attempt to encourage or solicit, any individual to
leave the Company's employ for any reason or interfere in any other manner with
the employment relationships at the time existing between the Company and its
current or prospective employees;
(ii) Timothy S. Yamauchi will not induce or attempt to induce
any customer, supplier, distributor, licensee or other business relation of the
Company to cease doing business with the Company or in any way interfere with
the existing business relationship between any such customer, supplier,
distributor, licensee or other business relation and the Company.
(iii) Timothy S. Yamauchi will not directly or indirectly,
whether for his own account or as an individual, employee, director, consultant
or advisor, or in any other capacity whatsoever, provide services to any person,
firm corporation or other business enterprise which is involved in the design,
development or marketing of software for the healthcare consumer and/or
providers or manufactures, markets or sells any product or service that directly
or indirectly relates to medical and health related material, specifically
<PAGE>
software that enables an end-user to track medical records and health related
activities, learn about health topics and more freely exchange health and
medical information and which is located geographically in an area where the
Company maintains its business activities, unless you obtain the prior written
consent of the Board of Directors.
Timothy S. Yamauchi acknowledges that monetary damages may not be
sufficient to compensate the Company for any economic loss which may be incurred
by reason of breach of the foregoing restrictive covenants. Accordingly, in the
event of any such breach , the Company shall, in addition to any remedies
available to the Company at law, be entitled to obtain equitable relief in the
form of an injunction precluding Timothy S. Yamauchi from continuing to engage
in such breach.
If any restriction set forth in this paragraph is held to be
unreasonable, then Timothy S. Yamauchi and the Company agree, and hereby submit,
to the reduction and limitation of such prohibition to such area or period as
shall be deemed reasonable.
6. General Provisions.
6.1 Assignment. Neither party may assign or delegate any of her rights
or obligations under this Agreement without the prior written consent of the
other party, except laws of succession in item (A).
6.2 Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes any
and all prior agreements between the parties relating to such subject matter.
6.3 Modifications. This Agreement may be changed or modified only by
an agreement in writing signed by both parties hereto.
6.4 Successors and Assigns. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Company and its successors and
assigns and Timothy S. Yamauchi and Timothy S. Yamauchi's legal representatives,
heirs, legatees, distributees, assigns and transferees by operation of law,
whether or not any such person shall have become a party to this Agreement and
have agreed in writing to join and be bound by the terms and conditions hereof.
6.5 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California as such laws are applied
to agreements among California residents entered into and performed entirely
within California.
6.6 Severability. If any provision of the Agreement is held by a court
of competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect.
6.7 Further Assurances. The parties will execute such further
instruments and take such further actions as may be reasonably necessary to
carry out the intent of this Agreement.
<PAGE>
6.8 Notices. Any notices or other communications required or permitted
hereunder shall be in writing and shall be deemed received by the recipient when
delivered personally or, if mailed, five (5) days after the date of deposit in
the United States mail, certified or registered, postage prepaid and addressed,
in the case of the Company, to 2560 Ninth Street, Suite 220, Berkeley,
California 94710, and in case of Timothy S. Yamauchi, to the address shown for
Timothy S. Yamauchi on the signature page hereof, or to such other address as
either party may later specify by at least ten (10) days advance written notice
delivered to the other party in accordance herewith.
6.9 Indemnification. The company will indemnify Timothy S. Yamauchi
in his capacity as an executive officer, to the maximum amount permitted by law.
6.10 No Waiver. The failure of either party to enforce any provision
of this Agreement shall not be construed as a waiver of that provision, nor
prevent that party thereafter from enforcing that provision of any other
provision of this Agreement.
6.11 Enforcement. If any action at law or in equity or any arbitration
is brought to enforce or interpret the terms of this Agreement or to protect the
rights obtained hereunder, the prevailing party shall be entitled to recover its
reasonable attorneys' fees, costs and other expenses in addition to any other
relief to which it may be entitled.
6.12 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
6.13 Reimbursement of Counsel Costs. Immediately upon commencement of
employment hereunder, the Company will reimburse Timothy S. Yamauchi for the
reasonable amount of all attorney's fees incurred by Timothy S. Yamauchi in
connection with the negotiation and preparation of this Agreement, up to a
maximum amount of $1,500.
IN WITNESS WHEREOF, the Company and Timothy S. Yamauchi have executed this
Agreement effective as of the day and year first above written.
COMPANY TIMOTHY S. YAMAUCHI
HealthDesk Corporation, _________________________________
a California corporation Timothy S. Yamauchi
By: Address:
Name: 161 Stetson Avenue
Title: Corte Madera, CA 94925
_____________________________
_____________________________
_____________________________
<PAGE>
WARRANT AGREEMENT dated as of ______, 1996 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 200,000 (as such number may be
adjusted from time to time pursuant to Article 8 of this Agreement) shares (the
"Shares") of common stock, no par value (the "Common Stock"), of the Company;
and
WHEREAS, the Underwriter has agreed, pursuant to the
underwriting agreement (the "Underwriting Agreement") dated ____________, 1996
between the Underwriter and the Company, to act as the underwriter in connection
with the Company's proposed public offering (the "Public Offering") of 2,000,000
shares of Common Stock (the "Public Shares") at an initial public offering price
of 5.00 per Public Share; and
WHEREAS, the Warrants issued pursuant to this Agreement are
being issued by the Company to the Underwriter or to its designees who are
officers and partners of the Underwriter or to members of the selling group
participating in the distribution of the Public Shares 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
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Underwriter's compensation in connection with, the Underwriter
acting as the Underwriter pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment
by the Underwriter to the Company of TWO HUNDRED DOLLARS ($200.00), 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 [One year after
the Effective Date] until 5:00 P.M., New York time, on _______, 2001 (the
"Warrant Exercise Term"), up to 200,000 fully-paid and non-assessable Shares at
an initial exercise price (subject to adjustment as provided in Article 8
hereof) of $_____ per Share.
2. Warrant Certificates.
The warrant certificates delivered and to be delivered
pursuant to this Agreement (the "Warrant Certificates") shall be in the form set
forth in Exhibit A attached hereto and made a part hereof, 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 $_____ per Share, payable in cash or by check to the
order of the Company, or any combination thereof, subject to adjustment as
provided in Article 8 hereof. Upon
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surrender of the Warrant Certificate with the annexed Form of Election to
Purchase duly executed, together with payment of the Exercise Price (as
hereinafter defined) for the Shares 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. 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). In the case of the purchase
of less than all the Shares 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 purchasable thereunder.
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
(a "Warrant Exchange"), into the number of Shares determined in accordance with
this Section 3.2, by surrendering such Warrant 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
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<PAGE>
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) 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 the Warrant Exchange, then be issuable pursuant to the provision of Sections
3.1 above upon the exercise of the Warrants specified by the Holder in its
Notice of Exchange (the "Total Number") less (ii) the number of Shares equal to
the quotient obtained by dividing (a) the product of the Total Number and the
existing Exercise Price (as hereinafter defined) by (b) the Market Price (as
hereinafter defined) of a Public Share on the day preceding the Warrant
Exchange. "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 three (3) 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 closing bid price as furnished by (i) the National
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<PAGE>
Association of Securities Dealers, Inc. through NASDAQ or (ii) a
similar organization if NASDAQ is no longer reporting such
information.
4. Issuance of Certificates.
Upon the exercise of the Warrants, the issuance of
certificates for the 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.
The Warrant Certificates and the certificates representing the
Shares 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, Chief Executive Officer or 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
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<PAGE>
Secretary or Assistant Secretary of the Company. Warrant Certificates 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 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 of a Warrant Certificate, 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 [Effective Date], except to the Designees.
6. Price.
6.1. Initial and Adjusted Exercise Price. The
initial exercise price of each Warrant shall be $_______ per Share. The adjusted
exercise price per Share shall be the price which shall result from time to time
from any and all adjustments
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<PAGE>
of the initial exercise price per Share in accordance with the provisions of
Article 8 hereof.
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 or 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 and any
shares of Common Stock issued upon any stock split or stock dividend in respect
of such 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 the 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
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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, 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 merger,
acquisition or pursuant to 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) business 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) business 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(d) hereof. Notwithstanding the provisions of this Section 7.3,
the Company shall have the
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<PAGE>
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) 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.
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 Securities and Exchange
Commission (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. 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
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<PAGE>
(i) the date 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) business 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.
(c) In addition to the registration rights
provided for under Section 7.3 hereof and subsection (a) of this Section 7.4, at
any time during the Warrant Exercise Term, any Majority Holder (as defined below
in Section 7.4(d)) of Registrable Securities shall have the right, exercisable
by written request to the Company, to have the Company prepare and file with the
Commission, on one occasion in respect of all holders of Registrable Securities,
a Registration Statement so as to permit a public offering and sale of such
Registrable Securities for nine (9) consecutive months, provided, however, that
all costs incident thereto shall be at the expense of the holders of the
Registrable Securities included in such Registration Statement. If a Majority
Holder shall give notice
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<PAGE>
to the Company at any time of its or their desire to exercise the registration
right granted pursuant to this Section 7.4(c), then within ten (10) days after
the Company's receipt of such notice, the Company shall give notice to the other
holders of Registrable Securities, advising them that the Company is proceeding
with such registration and offering to include therein the Registrable
Securities of such holders, provided they furnish the Company with such
appropriate information in connection therewith as the Company shall reasonably
request in writing.
(d) 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
and Shares issuable pursuant to the exercise of outstanding Warrants) as would
constitute a majority of the aggregate number of Shares (including Shares
already issued and Shares issuable pursuant to the exercise of outstanding
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 twenty (20) 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
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<PAGE>
shall furnish each holder of Registrable Securities 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 the fees and expenses of
counsel retained by the holders of Registrable Securities) 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
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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.
(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 specific 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
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Warrants held by such Holder prior to the initial filing of any registration
statement or the effectiveness thereof.
(g) If the Company shall fail to comply with
the provisions of this Article 7, the Company shall, in addition to any other
equitable or other relief available to the holders of Registrable Securities, be
liable for any or all incidental, special and consequential damages sustained by
the holders of Registrable Securities, requesting registration of their
Registrable Securities.
(h) 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.
(i) 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 hereof or Section 7.4 hereof requesting 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
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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 and as often as any such holder of Registrable Securities or
underwriter shall reasonably request.
8. Adjustments of Exercise Price and Number of Shares.
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
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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.
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 Shares. 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 adjusted Exercise Price.
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
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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 the shares of Common Stock underlying the Warrants
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 Holder's Warrants
and (y) the Exercise Price 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.
8.5. Determination of Outstanding Shares of Common
Stock. The number of shares of Common Stock at any one time outstanding shall
include the aggregate number of shares of Common Stock issued and the aggregate
number of shares of Common Stock issuable upon the exercise of options, rights,
warrants and upon the conversion or exchange of convertible or exchangeable
securities.
8.6. 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
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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 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 8.6.
8.7. 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
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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 8.7), 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 registered 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.
10. Elimination of Fractional Interests.
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The Company shall not be required to issue certificates
representing fractions of Shares, 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.
11. Reservation and Listing of Securities.
The Company shall at all times reserve and keep avail-
able out of its authorized shares of Common Stock, solely for the purpose of
issuance upon the exercise of the 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 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. 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 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
-20-
<PAGE>
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
(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
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<PAGE>
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
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<PAGE>
securities or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
13. 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 registered Holder of the
Warrants, to the address of such Holder as shown on the books
of the Company; or
(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.
14. 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
Warrant Certificates 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.
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<PAGE>
15. 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.
16. Termination.
This Agreement shall terminate at the close of business on
__________, 2004. Notwithstanding the foregoing, this Agreement will terminate
on any earlier date when all Warrants have been exercised and all the Shares
issuable upon exercise of the Warrants have been resold to the public; provided,
however, that the provisions of Section 7 shall survive any termination pursuant
to this Section 16 until the close of business on _________, 2007.
17. 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.
18. 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 registered holder or holders of the Warrant Certificates, Warrants or the
Shares 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 of the Warrant Certificates,
Warrants or the Shares.
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<PAGE>
19. 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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<PAGE>
EXHIBIT A
THE WARRANTS 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 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 AGREE-
MENT REFERRED TO HEREIN.
EXERCISABLE AT ANY TIME COMMENCING _________, 1997 UNTIL
5:00 P.M., NEW YORK TIME, _________, 2001
No. W- _______ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that _______________
____________ or registered assigns, is the registered holder of _______ Warrants
to purchase, at any time from _______, 1997 until 5:00 P.M. New York City time
on ________, 2001 ("Expiration Date"), up to _____ fully-paid and non-assessable
shares ("Shares") of common stock, no par value (the "Common Stock"), of
________________, a __________ corporation (the "Company"), at the 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
____________, 1996 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.
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
<PAGE>
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: ___________, 1996 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 HealthDesk Corporation 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>
REGISTRATION RIGHTS AGREEMENT
AGREEMENT, dated as of the 11th day of October, 1996, between
the person whose name and address appear on the signature page attached hereto
(individually a "Holder" or collectively with the holders of the Units issued in
the Offering, each as defined below, the "Holders") and HealthDesk Corporation,
a company incorporated under the laws of the State of California, having its
principal place of business at 2560 Ninth Street, Suite 220, Berkeley, CA 94710
(the "Company").
W I T N E S S E T H:
WHEREAS, simultaneously with the execution and delivery of
this Agreement, the Holders are purchasing from the Company an aggregate of up
to 40 units (the "Units"), each Unit consisting of (i) 10,000 shares (the
"Bridge Shares") of the common stock, par value $.01 per share, of the Company
(the "Common Stock") and (ii) a promissory note of the Company in the principal
amount of $50,000, due and payable upon the earlier to occur of (a) October 11,
1997 (b) the consummation of the initial public offering of the Company's
securities (the "Maturity Date") through Whale Securities Co., L.P. (the
"Placement Agent"), and bearing interest at the initial rate of 9% per annum,
payable semi-annually, in arrears (each, a "Bridge Note"), upon the terms set
forth in the Confidential Private Offering Memorandum of the Company dated
September 24, 1996 (the "Bridge Financing"); and
WHEREAS, each Bridge Note is convertible at the option of the
Holder, in the event it is not paid on or prior to the Maturity Date (or such
earlier date on which the unpaid principal balance of the Bridge Notes are
declared to be or become due and payable), into 20,000, subject to adjustment in
accordance with the terms of the Bridge Note, shares of Common Stock (the
"Conversion Shares"); and
WHEREAS, pursuant to the terms of the Bridge Note, the Company
must issue to the Holder an additional 5,000, subject to adjustment in
accordance with the terms of the Bridge Note, shares of Common Stock on the day
following the Maturity Date (or such earlier date on which the unpaid principal
balance of the Bridge Notes are declared to be or become due and payable) and on
the last day of each successive six-month period after the Maturity Date (or
after such earlier date on which the unpaid principal balance of the Bridge
Notes are declared to be or become due and payable) during which the Bridge Note
is not repaid in full or converted pursuant to the terms thereof (all such
additional shares of Common Stock collectively referred to herein as the
"Additional Shares"); and
WHEREAS, the Company desires to grant to the Holder the
<PAGE>
registration rights set forth herein with respect to the Bridge Shares, the
Conversion Shares and the Additional Shares;
NOW, THEREFORE, the parties hereto mutually agree as follows:
1. Mandatory Registration of the Bridge Shares.
(a) The Company will include the Bridge Shares in
either, at the Placement Agent's option: (i) each registration statement filed
by the Company with the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Act") relating to the initial public
offering of the Company's securities (the "IPO") until such a registration
statement is declared effective by the SEC (the "IPO Effective Date") and the
Bridge Shares are publicly tradeable pursuant thereto (all such registration
statements referred to herein as the "IPO Registration Statement"), or (ii) a
registration statement which the Company will prepare and file with the SEC
under the Act within nine months following the IPO Effective Date and which the
Company will use its best efforts to have declared effective by the SEC within
twelve months following the IPO Effective Date so as to permit the public
trading of the Bridge Shares commencing twelve months following the IPO
Effective Date (the "Post-IPO Registration Statement").
(b) The Holders of the Bridge Shares agree that
they will not sell or otherwise transfer any of their Bridge Shares pursuant to
the Proposed IPO Registration Statement, the Post-IPO Registration Statement or
otherwise, without the prior written consent of the Placement Agent, for a
period of eighteen months following the effective date of the Proposed IPO
Registration Statement or such shorter period as the Placement Agent may, in its
sole discretion, determine.
(c) Once a registration statement (either the IPO
Registration Statement or the Post-IPO Registration Statement, depending on
which of the two registration options outlined in paragraph (a) above is chosen
by the Placement Agent) covering to the Bridge Shares pursuant to the provisions
of this Section 1 (the "Mandatory Registration Statement") is declared
effective, the Company will use its best efforts to maintain the effectiveness
of such registration statement until the earlier date to occur (the "Release
Date") of (i) the date that all of the Bridge Shares have been sold pursuant to
the Mandatory Registration Statement, and (ii) the date that the holders of the
Bridge Shares receive an opinion of counsel to the Company that all of the
Bridge Shares, other than securities held by "affiliates" of the Company, as
such term is defined in Rule 144 of the Act, may be freely traded (without
limitation or restriction as to quantity or timing and
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<PAGE>
without registration under the Act) pursuant to Rule 144 of the Act or
otherwise. If the Company fails to keep the Mandatory Registration Statement
continuously effective during such period, then the Company shall, promptly upon
the request of the Holders of at least 51% of the unsold Bridge Shares included
therein, use its best efforts to update the Mandatory Registration Statement or
file a new registration statement covering the unsold Bridge Shares, subject to
the terms and provisions hereof, and, in the event the Company fails to do so
within 90 days after receipt of such request, the Company shall issue to the
Holder, on one occasion only, such number of additional shares of Common Stock
as is equal to one-quarter of the number of shares comprising the unsold Bridge
Shares held by such Holder (subject to adjustment for stock splits, stock
dividends or recapitalizations), without further consideration, and the Company
shall be obligated to cause such additional shares, as well as the Bridge Shares
remaining unsold, to be registered promptly under the Act, subject to the terms
and provisions hereof.
2. Registration of the Conversion Shares and the Additional
Shares. Without limiting the provisions of paragraph 1 above, in the event the
Company fails to pay the Bridge Notes in full on or prior to the Maturity Date
(or such earlier date on which the unpaid principal balance of the Bridge Notes
are declared to be or become due and payable), the Company will include in each
registration statement filed with the SEC under the Act after the Maturity Date
(or such earlier date on which the unpaid principal balance of the Bridge Notes
are declared to be or become due and payable) (including any Registration
Statement filed pursuant to paragraph 1 above after the Maturity Date) covering
equity or debt securities of the Company, or any such securities of the Company
held by its shareholders, including any post-effective amendments to any such
registration statements (all such registrations statements and post-effective
amendments referred to herein as the "Post Maturity Date Registration
Statement"), the Conversion Shares and the Additional Shares issued and/or
issuable at the time such Post Maturity Date Registration Statement is filed
(collectively the "Default Shares"), until such date as a Post Maturity Date
Registration Statement covering the Default Shares is declared effective by the
SEC. Once effective, the Company will use its best efforts to maintain the
effectiveness of the Post Maturity Date Registration Statement until the earlier
of (i) the date that all of the Default Shares have been sold, or (ii) the date
that the holders thereof receive an opinion of counsel to the Company that all
of the Default Shares may be freely traded without registration under the Act,
under Rule 144 of the Act or otherwise.
3. Piggyback Registration. If at any time following the first
anniversary of the IPO Effective Date and prior to the Release Date, the Company
proposes to prepare and file a registration statement under the Act with the
SEC, covering equity or debt securities of the Company, or any such securities
of the Company held by its shareholders, it will give written notice of
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<PAGE>
its intention to do so by registered mail ("Notice"), at least thirty (30)
business days prior to the filing of each such registration statement, to the
Holders. Upon the written request of a Holder (a "Requesting Holder"), made
within twenty (20) business days after the date of the Notice, that the Company
include any of the Requesting Holder's Bridge Shares and/or Default Shares, as
the case may be, in such proposed registration statement, the Company shall use
its best efforts to cause such registration statement (a "Piggyback Registration
Statement") to be declared effective under the Act by the SEC so as to permit
the public sale of the Requesting Holder's Bridge Shares and/or Default Shares,
as the case may be, pursuant thereto, at the Company's sole cost and expense and
at no cost or expense to the Requesting Holders. Notwithstanding the provisions
of this Section 2 the Company shall have the right, at any time after it shall
have given Notice pursuant to this Section 2 (irrespective of whether any
written request for inclusion of Bridge Shares and/or Default Shares, as the
case may be, shall have already been made), to elect not to file any Piggyback
Registration Statement or to withdraw the same after the filing but prior to the
effective date thereof.
4. Additional Terms.
(a) If any stop order shall be issued by the SEC in
connection with a Mandatory Registration Statement or, following its
effectiveness, a Piggyback Registration Statement (collectively referred to
herein as the "Bridge Registration Statement") the Company will use its best
efforts to obtain the removal of such order. Following the effective date of the
Bridge Registration Statement, the Company shall, upon the request of the
Holder, forthwith supply such reasonable number of copies of the Bridge
Registration Statement, preliminary prospectus and prospectus meeting the
requirements of the Act, and other documents necessary or incidental to the
registration and public offering of the Bridge Shares and/or Default Shares, as
the case may be, as shall be reasonably requested by the Holder to permit the
Holder to make a public distribution of the Holder's Bridge Shares and/or
Default Shares, as the case may be. The Company will use its reasonable efforts
to qualify the Bridge Shares and/or Default Shares, as the case may be, for sale
in such states as the Holders of such securities shall reasonably request,
provided that no such qualification will be required in any jurisdiction where,
solely as a result thereof, the Company would be subject to general service of
process or to taxation or qualification as a foreign corporation doing business
in such jurisdiction. The obligations of the Company hereunder with respect to
the Holder's Bridge Shares and/or Default Shares, as the case may be, are
expressly conditioned on the Holder's furnishing to the Company such appropriate
information concerning the Holder, the Holder's Bridge Shares and/or Default
Shares, as the case may be, and the terms of the Holder's offering of such
securities, as the Company may reasonably request.
(b) The Company shall bear the entire cost and
expense of each registration of the Bridge Shares and/or Default Shares, as the
case may be, provided for herein; provided, however, that the Holder shall be
solely responsible for the fees of any counsel retained by the Holder in
connection with such registration and any transfer taxes or underwriting
discounts, commissions or fees applicable to the Bridge Shares and/or Default
Shares, as the case may be, sold by the Holder pursuant thereto.
-4-
<PAGE>
(c) The Company shall indemnify and hold harmless
the Holder and each underwriter, within the meaning of the Act, who may purchase
from or sell for the Holder, any Bridge Shares and/or Default Shares, as the
case may be, from and against any and all losses, claims, damages and
liabilities caused by any untrue statement of a material fact contained in the
Bridge Registration Statement, any other registration statement filed by the
Company under the Act, any post-effective amendment to such registration
statements, or any prospectus included therein required to be filed or furnished
by reason of this Agreement or caused by any omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission based upon
information furnished or required to be furnished in writing to the Company by
the Holder or underwriter expressly for use therein, which indemnification shall
include each person, if any, who controls either the Holder or underwriter
within the meaning of the Act and each officer, director, employee and agent of
the Holder and underwriter; provided, however, that the indemnification in this
paragraph (c) with respect to any prospectus shall not inure to the benefit of
the Holder or underwriter (or to the benefit of any person controlling the
Holder or underwriter) on account of any such loss, claim, damage or liability
arising from the sale of Bridge Shares and/or Default Shares, as the case may
be, by the Holder or the underwriter, if a copy of a subsequent prospectus
correcting the untrue statement or omission in such earlier prospectus was
provided to the Holder or underwriter by the Company prior to the subject sale
and the subsequent Prospectus was not delivered or sent by the Holder or
underwriter to the purchaser prior to such sale.
(d) The Holder or underwriter or other person, as
the case may be, shall indemnify the Company, its directors, each officer
signing the Bridge Registration Statement and each person, if any, who controls
the Company within the meaning of the Act, from and against any and all losses,
claims, damages and liabilities caused by any untrue statement of a material
fact contained in the Bridge Registration Statement, any registration statement
or any prospectus required to be filed or furnished by reason of this Agreement
or caused by any omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, insofar as
such losses, claims, damages or liabilities are caused by any untrue statement
or omission based upon information furnished in writing to the Company by the
Holder or underwriter expressly for use therein.
(e) If for any reason the indemnification provided
for in the preceding subparagraph is held by a court of competent jurisdiction
to be unavailable to an indemnified party with respect to any loss, claim,
damage, liability or expense referred to therein, then the indemnifying party,
in lieu of indemnifying such indemnified party thereunder, shall contribute to
the amount paid or payable by the indemnified party as a result of such loss,
-5-
<PAGE>
claim, damage or liability in such proportion as is appropriate to reflect not
only the relative benefits received by the indemnified party and the
indemnifying party, but also the relative fault of the indemnified party and the
indemnifying party, as well as any other relevant equitable considerations.
(f) Neither the filing of a Bridge Registration
Statement by the Company pursuant to this Agreement nor the making of any
request for prospectuses by the Holder shall impose upon the Holder any
obligation to sell the Holder's Bridge Shares and/or Default Shares, as the case
may be.
(g) The Holder, upon receipt of notice from the
Company that an event has occurred which requires a post-effective amendment to
the Bridge Registration Statement or a supplement to the prospectus included
therein, shall promptly discontinue the sale of Bridge Shares and/or Default
Shares, as the case may be, pursuant to such registration statement until the
Holder receives a copy of the amended Bridge Registration Statement or
supplemented prospectus from the Company, which the Company shall provide as
soon as practicable after such notice.
5. Governing Law.
(a) The Bridge Shares and/or Default Shares, as the
case may be, are being, and will be, delivered in New York. This Agreement shall
be deemed to have been made and delivered in the State of New York 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.
(b) The Company and the Holder each (i) agrees that
any legal suit, action or proceeding arising out of or relating to this
Agreement, or any other agreement entered into between the Company and the
Holder pursuant to the Bridge Financing or the Bridge Registration Statement
shall be instituted exclusively 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, (ii) waives any objection which the Company or such Holder may have
now or hereafter to the venue of any such suit, action or proceeding, and (iii)
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 and the
Holder each 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
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<PAGE>
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 or the Holder mailed by certified mail to the Company at the
address set forth above, in the case of the Company, and to the Holder's
address, in the case of the Holder, shall be deemed in every respect effective
service of process upon the Company or the Holder, as the case may be, in any
suit, action or proceeding.
6. Amendment. This Agreement may only be amended by a
written instrument executed by the Company and the Holder.
7. Entire Agreement. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject
matter hereof, and supersedes all prior agreements and
understandings of the parties, oral and written, with respect to
the subject matter hereof.
8. Execution in Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the
same document.
9. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed duly given when
delivered by hand or five days after such notice is mailed by registered or
certified mail, postage prepaid, return receipt requested, as follows:
If to the Holder, to his or her address set forth on the
signature page of this Agreement.
If to the Company, to the address set forth on the first page
of this Agreement.
10. Binding Effect; Benefits. The Holder may not assign his or
her rights hereunder. This Agreement shall inure to the benefit of, and be
binding upon, the parties hereto and their respective heirs, legal
representatives and successors. Nothing herein contained, express or implied, is
intended to confer upon any person other than the parties hereto and their
respective heirs, legal representatives and successors, any rights or remedies
under or by reason of this Agreement.
11. Headings. The headings contained herein are for the
sole purpose of convenience of reference, and shall not in any way
limit or affect the meaning or interpretation of any of the terms
or provisions of this Agreement.
12. Severability. Any provision of this Agreement which
is held by a court of competent jurisdiction to be prohibited or unenforceable
-7-
<PAGE>
in any jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
IN WITNESS WHEREOF, this Agreement has been executed
and delivered by the parties hereto as of the date first above
written.
HEALTHDESK CORPORATION
By:________________________________
Name:
Title:
HOLDER:
__________________________________
Signature
__________________________________
Print Name
Address of Holder:
__________________________________
__________________________________
__________________________________
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<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 October
16, 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
October 17, 1996
