<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ X ] Ammendment No. 1 to the Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss.240.14a-12
HealthDesk Corporation
--------------------------------------------------
(Name of Registrant as Specified In Its Charter)
HealthDesk Corporation
2116 Financial Center
Des Moines, Iowa 50309
--------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ X ] Fee paid previously with preliminary materials.
[ X ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
------------------------------------------------------------
1) Amount Previously Paid:
------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------
<PAGE>
HEALTHDESK CORPORATION
Notice of Special Meeting of Shareholders
to be Held on __________, 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of
HealthDesk Corporation (the "Company") will be held on ____________day,
____________________, 1998 at _______.m., Central Time, at 2116 Financial
Center, Des Moines, Iowa 50309 for the following purposes:
1. To approve the sale of the Company's assets, including the Company's
HealthDesk Online operations as well as substantially all of the
Company's intellectual property rights and inventories, and certain
office equipment and packaged software (the "Sale of Assets") to Patient
Infosystems, Inc. ("PATI") for approximately $635,000 pursuant to the
terms of the Asset Purchase Agreement dated September 24, 1998 (the
"Asset Agreement");
2. To consider and vote upon a proposal (i) to approve and adopt an
Agreement and Plan of Reorganization, dated as of August 18, 1998 (the
"Merger Agreement"), by and among the Company, MC Acquisition
Corporation, a California corporation and a wholly-owned subsidiary of
the Company ("Sub"), and MC Informatics, Inc., a California corporation
("MCIF"), pursuant to which, among other things, Sub will be merged with
and into MCIF, with MCIF to be the surviving corporation, and MCIF will
become a wholly-owned subsidiary of the Company (the "Merger"); (ii) to
approve the issuance of approximately 5,600,000 shares of the Company's
Common Stock, no par value ("Common Stock") for all of the outstanding
shares of MCIF common stock (or approximately 5.6 shares of the
Company's Common Stock for each outstanding share of MCIF common stock),
as a result of which upon consummation of the Merger, the shareholders
of MCIF will own not less than 40% of the outstanding Common Stock of
the Company; and (iii) to change the Company's name from HealthDesk
Corporation to MC Informatics, Inc.;
3. To consider and vote upon a proposal to approve the Amended and Restated
Articles of Incorporation of the Company (the "Charter Amendment")
which, among other things, increases the authorized number of shares of
Common Stock from seventeen million (17,000,000) to forty million
(40,000,000) shares;
4. To approve amendments to the Company's 1994 Stock Option Plan (the
"Option Plan") to (i) increase the number of shares reserved for
issuance under the Option Plan from 844,755 to 3,000,000; and (ii) limit
to 500,000 the maximum number of shares for which options may be granted
to any employee in any fiscal year (collectively, the "Option
Amendments"); and
5. To consider and act upon such other business as may properly come before
the Special Meeting or any adjournments thereof.
Shareholders of record at the close of business on December
____, 1998, are entitled to notice of, and to vote at, this meeting and any
adjournments thereof. For ten days prior to the meeting, a complete list of the
shareholders entitled to vote at the meeting will be available for examination
by any shareholder for any purpose relating to the special meeting during
ordinary business hours at the principal office of HealthDesk Corporation.
By Order of the Board of Directors
------------------------------------------
Secretary
Des Moines, Iowa
December ____, 1998
- --------------------------------------------------------------------------------
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. HOWEVER,
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON, PLEASE READ THE
ENCLOSED PROXY STATEMENT AND SIGN AND RETURN THE ENCLOSED PROXY CARD AS SOON AS
POSSIBLE IN THE ENCLOSED ENVELOPE. ANY SHAREHOLDER ATTENDING THE MEETING MAY
VOTE IN PERSON EVEN IF HE OR SHE HAS RETURNED A PROXY CARD.
- --------------------------------------------------------------------------------
<PAGE>
HEALTHDESK CORPORATION
2116 Financial Center
Des Moines, Iowa 50309
Proxy Statement for Special Meeting of Shareholders
___________, 1998
The accompanying proxy is solicited by the Board of Directors of
HealthDesk Corporation, a California corporation (the "Company"), for use at a
Special Meeting of Shareholders to be held _______________, 1998, or any
adjournment thereof, for the purposes set forth in the accompanying Notice of
Annual Meeting. The date of this Proxy Statement is December ___, 1998, the
approximate date on which this Proxy Statement and the accompanying form of
proxy were first sent or given to shareholders.
GENERAL INFORMATION
Voting Securities. Only shareholders of record as of the close of
business on December __, 1998 will be entitled to vote at the meeting
and any adjournment thereof. As of that date, there were 5,792,845 shares of
Common Stock of the Company, no par value, and 632 shares of Series B Preferred
Stock, no par value, issued and outstanding. Shareholders may vote in person or
by proxy. Each holder of shares of Common Stock is entitled to one vote for each
share of Common Stock held on the proposals presented in this Proxy Statement.
Each holder of shares of Series B Preferred Stock is entitled to 4,000 votes for
each share of Series B Preferred Stock held on the proposals presented in this
Proxy Statement. The Company's bylaws provide that a majority of all of the
shares of the stock entitled to vote, whether present in person or represented
by proxy, shall constitute a quorum for the transaction of business at the
meeting.
Solicitation of Proxies. The cost of soliciting proxies will be borne
by the Company. In addition to soliciting shareholders by mail through its
regular employees, the Company may request banks and brokers, and other
custodians, nominees and fiduciaries, to solicit their customers who have stock
of the Company registered in the names of such persons and will reimburse them
for their reasonable, out-of-pocket costs. The Company may use the services of
its officers, directors, and others to solicit proxies, personally or by
telephone, without additional compensation.
Voting of Proxies. All valid proxies received prior to the meeting will
be voted. All shares represented by a proxy will be voted, and where a
shareholder specifies by means of the proxy a choice with respect to any matter
to be acted upon, the shares will be voted in accordance with the specification
so made. If no choice is indicated on the proxy, the shares will be voted in
favor of the proposal. A shareholder giving a proxy has the power to revoke his
or her proxy, at any time prior to the time it is voted, by delivery to the
Secretary of the Company of a written instrument revoking the proxy or a duly
executed proxy with a later date, or by attending the meeting and voting in
person.
1
<PAGE>
SUMMARY
Purposes of the Special Meeting. The approval and adoption of the Asset
Agreement, the Merger Agreement, the Charter Amendment and the Option Amendments
will each require the affirmative vote of the holders of a majority of the
outstanding shares of the Company's Common Stock and Series B Preferred Stock
entitled to vote at the Special Meeting. The approval of the issuance of the
Company's Common Stock in the Merger will require the affirmative vote of a
majority of the shares of the Company's Series B Preferred Stock and Common
Stock voted at the Special Meeting.
Recommendations of the Company's Board of Directors. The Company's
Board of Directors has unanimously approved the Sale of Assets and believes that
the terms of the Asset Agreement are fair to, and that the Sale of Assets is in
the best interests of the Company and its shareholders and unanimously
recommends that the shareholders of the Company vote FOR approval and adoption
of the Asset Agreement. In addition, the Company's Board of Directors has
unanimously approved the Merger Agreement, the issuance of the Company's Common
Stock in the Merger and the change of the Company's name to MC Informatics,
Inc., and believes that the terms of the Merger Agreement are fair to, and that
the Merger is in the best interests of, the Company and its shareholders and
unanimously recommends that the shareholders of the Company vote FOR the
approval and adoption of the Merger Agreement. The Company's Board of Directors
has also unanimously approved the Charter Amendment and the Option Amendments
and believes that each is in the best interests of the Company and its
shareholders and unanimously recommends that the shareholders of the Company
vote FOR approval and adoption of the Charter Amendment and the Option Amendment
and the transactions contemplated therein. See "Proposal No. 1 - Sale of
Assets;" "Proposal No. 2 -The Merger;" "Proposal No. 3 - The Charter Amendment;"
and "Proposal No. 4 - The Option Amendments."
Background
Since inception, the Company has sought to develop a consumer focused
healthcare management and information system product. Although the Company
continues to believe that there is a significant opportunity for such product
and that the Company's HealthDesk Online product addresses the needs of such
market, the development of such market has been much slower than expected by the
Company. Moreover it has become clear to the Company that the resources needed
to continue to develop and market such a product are substantially greater than
are available to the Company. The Company sought to address this resource
limitation in part by entering into a joint marketing agreement with HBO &
Company, one of the largest healthcare information system companies. However,
although the Company has devoted a significant portion of its resources to
support such arrangement, the Company has not yet been able to generate any
revenues from such relationship and cannot determine when or if meaningful
revenues will be realized.
In light of the Board's view that very substantial additional resources
would be required to continue to pursue the HealthDesk Online opportunity, the
Company has sought additional funding from various sources, including
institutional investors and strategic partners. However, the Company has not
been able to raise the funding necessary to continue to pursue the opportunity.
Faced with such situation, in May 1998, the Board of Directors determined that
it was in the best interests of the shareholders that the Company pursue other
strategic alternatives.
After investigation, the Board determined that it was in the best
interests of the shareholders of the Company for the Company to use the
remaining assets of the Company to pursue a different business as represented by
the opportunity to acquire MCIF. At the same time, given that the business
opportunity
2
<PAGE>
represented by MCIF was substantially different than the opportunity
represented by HealthDesk Online, the Board directed that the Company seek an
acquirer of the technology assets of HealthDesk. A list of prospective acquirers
was developed and such parties were contacted. Following this process, the
Company negotiated and entered into the Asset Agreement pursuant to which it is
proposed that the Company sell such assets to PATI.
The Sale of Assets
Terms of the Sale of Assets.
Upon consummation of the Sale of Assets, substantially all of the
Company's assets, including substantially all of the Company's intellectual
property rights and inventories, and certain office equipment and packaged
software, will be sold to PATI. In exchange, PATI will deliver to the Company at
the closing (i) Five Hundred Thousand Dollars ($500,000) representing payment
for the Company's HealthDesk Online operations as well as substantially all of
its intellectual property rights and inventories, (ii) One Hundred Fifteen
Thousand and Forty Dollars ($115,040) representing payment for certain office
equipment, and (iii) Eleven Thousand Two Hundred Thirty-Eight Dollars ($11,238)
representing payment for certain packaged software programs. In addition, PATI
agrees to indemnify the Company against certain liabilities and obligations of
the Company under certain contracts and agreements, but only to the extent such
liabilities and obligations accrue after the closing of the transaction.
It is anticipated that the Sale of Assets will become effective as
promptly as practicable after the requisite shareholder approvals have been
obtained and all other conditions to the Sale of Assets have been satisfied or
waived. If the Sale of Assets is not consummated on or before
January 31, 1999, the Company and PATI each has the right to terminate the
Asset Agreement. See "The Asset Agreement Termination."
Reasons for the Sale of Assets.
The Company's Board of Directors believes that the Sale of Assets is in
the best interest of the Company and its shareholders. The Board's support for
the Merger is based on its belief that the Company does not have the financial
and other resources necessary to pursue the further development and marketing of
the HealthDesk Online product and that the terms of the Merger Agreement
represent the best terms available to the Company to dispose of such product and
related operations.
The terms and conditions of the Sale of Assets were determined in
arms-length negotiations between the management of the Company and the
management of PATI. Among the factors considered were the asset values and
earnings potential of HealthDesk Online and the costs and risks associated with
further development of the market for such product.
Opinion of The Company's Financial Advisor.
George Arneson & Company issued an opinion on September 17, 1998
regarding the fairness of the terms of the Sale of Assets. A copy of the opinion
is attached hereto as Annex I.
3
<PAGE>
The Merger
Terms of the Merger.
Upon consummation of the Merger, pursuant to the Merger Agreement, Sub
will be merged with and into MCIF, with MCIF to be the surviving corporation,
and MCIF will become a wholly-owned subsidiary of the Company. The Company will
issue approximately 5,600,000 shares of the Company's Common Stock for all of
the outstanding shares of MCIF common stock (or 5.6 shares of the Company's
Common Stock for each share of MCIF common stock) as a result of which upon
consummation of the Merger, the shareholders of MCIF will own not less than 40%
of the outstanding Common Stock of the Company. See "The Merger -- Background of
the Merger" and "-- The Merger Agreement -- General."
The Merger Agreement provides that following the Merger, the Company's
Board of Directors will consist of John Pappajohn, Joseph R. Dunham II, Bill
Childs, David Joiner and Bruce Ryan. See "The Merger - Management Following the
Merger."
It is anticipated that the Merger will become effective as promptly as
practicable after the requisite shareholder approvals have been obtained and all
other conditions to the Merger have been satisfied or waived. If the Merger is
not consummated on or before January 31, 1999, the Company and MCIF each has the
right to terminate the Merger Agreement. See "The Merger Agreement - Termination
of the Merger Agreement."
Reasons For The Merger.
The Company's Board of Directors believes that the Merger is in the
best interest of the Company and its shareholders. The Board's support for the
Merger is based on its belief that the Merger will increase the potential growth
of the Company's business through the combination of the financial, management
and marketing resources of the Company and MCIF.
The exchange provisions with respect to the Company's Common Stock and
the other terms of the Merger were determined in arms-length negotiations
between the management of the Company and the management of MCIF. Among the
factors considered were the asset values and earnings potential of MCIF and the
prospects for the continued growth of that business, as well as MCIF's
management team and other resources.
Opinion of The Company's Financial Advisor.
Whale Securities Co., L.P. issued an opinion on September 29, 1998
regarding the fairness of the terms of the Merger. A copy of the opinion is
attached hereto as Annex III.
The Charter Amendment
The Company is submitting to its shareholders a proposal to approve and
adopt an amendment to the Company's Articles of Incorporation to increase the
number of shares of Common Stock which the Company is authorized to issue from
17,000,000 to 40,000,000. As of December ___, 1998, 5,792,845 shares
of the Company's Common Stock were issued and outstanding, 406,396 unissued
shares of Common Stock were reserved for issuance under the Company's stock
option plans, 2,525,000 unissued shares of Common Stock were reserved for
issuance upon conversion of outstanding Series B Preferred
4
<PAGE>
Stock, a total of 1,955,000 shares of Common Stock were reserved for issuance
upon exercise of outstanding publicly traded convertible warrants and a total of
340,000 shares of Common Stock were reserved which may be issuable upon exercise
of warrants for the purchase of 340,000 shares of the Company's Common Stock,
leaving less than 5,640,759 shares of Common Stock unissued and unreserved.
To ensure sufficient shares of Common Stock will be available for
issuance by the Company, the Board of Directors unanimously approved subject to
shareholder approval, the Charter Amendment to increase the number of shares of
such Common Stock authorized for issuance from 17,000,000 to 40,000,000. For
further discussion on this matter, see "Proposal No. 3 - Charter Amendment."
The Option Amendments
The Company is submitting to its shareholders a proposal to approve and
adopt amendments to the Company's 1994 Stock Option Plan (the "Option Plan") to
(i) increase the number of shares reserved for issuance under the Option Plan
from 844,755 to 3,000,000 and (ii) limit to 500,000 the maximum number of shares
for which options may be granted to any employee in any fiscal year. As of
_____________, 1998, only 438,359 shares remained available for future option
grants under the Option Plan, which amount the Board of Directors believes to be
insufficient to satisfy the Company's anticipated equity incentive objectives.
Accordingly, the Board of Directors approved, subject to shareholder approval,
the reservation of an additional 2,155,245 shares for issuance under the Option
Plan. In addition, to enable the Company to continue to deduct in full all
amounts of ordinary income recognized by its executive officers in connection
with options granted under the Option Plan, the Board of Directors has amended
the Option Plan, subject to shareholder approval, to limit to 500,000 the
maximum number of shares for which options may be granted to any employee in any
fiscal year. For a further discussion of this matter, see "Proposal No. 4 -
Option Amendments."
5
<PAGE>
Selected Historical Financial Data for the Company and MCIF
HealthDesk
Statement of Operations Data:
<TABLE>
<CAPTION>
Nine Months
Ended
Years Ended December 31, September 30,
----------------------------------- -----------
1996 1997 1998
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Total revenue ............................. $ 52,225 $ 382,362 $ 56,458
Operating expenses:
Product development .................. 1,622,601 2,248,018 1,119,503
Sales and marketing .................. 1,222,183 1,422,111 675,668
General and administrative ........... 681,993 506,132 208,265
----------- ----------- -----------
Loss from operations ...................... (3,474,552) (3,793,899) (1,946,978)
Interest incomne/(expense), net ........... (31,875) 122,475 49,563
Amortization of discount and issuance
costs associated with bridge financing (884,227) (145,023) -
Non-recurring restructuring costs ......... - - (220,697)
----------- ----------- -----------
Loss before income taxes .................. (4,390,654) (3,816,447) (2,118,112)
Provision for income taxes ................ 800 800 600
----------- ----------- -----------
Net income (loss) ......................... $(4,391,454) $(3,817,247) $(2,118,712)
=========== =========== ===========
Basic net loss per share .................. $ (1.12) $ (0.73) $ (0.37)
=========== =========== ===========
Diluted net loss per share ................ $ (1.12) $ (0.73) $ (0.37)
=========== =========== ===========
Weighted average number of shares
of common stock, basic and diluted ... 3,913,433 5,212,060 5,717,570
=========== =========== ===========
Balance Sheet Data: ------------------------------- ------------
December 31, September 30,
------------------------------- ------------
1996 1997 1998
---- ---- ----
(unaudited)
Cash and cash equivalents ................. $ 198,277 $ 1,405,430 $ 715,264
Working capital/(deficit) ................. (2,804,411) 999,092 1,024,086
Total Assets .............................. 1,448,237 1,972,565 1,600,519
Total liabilities ......................... 3,667,091 485,062 183,055
Shareholders' equity:
Convertible preferred stock 2,183,036 - 1,248,673
Common stock ......................... 1,946,552 11,457,505 12,257,505
Warrants ............................. - 195,687 195,687
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Accumulated deficit................... (6,348,442) (10,165,689) (12,284,401)
Total shareholders' equity/(deficit) (2,218,854) 1,487,503 1,417,464
MCIF
Statement of Operations Data: Year Ended Nine Months
December 31, 1997 Ended
----------------- September 30,
1998
---------------
Total revenues............................. $ 681,332 $ 2,306,099
Net income (loss) (1)...................... (162,389) (34,136)
Balance Sheet Data:
Working capital (deficit).................. $ (73,287) $ (148,453)
Total assets............................... 139,174 690,738
Total liabilities.......................... 233,563 817,263
Equity (deficit)........................... (92,389) (126,525)
</TABLE>
Since inception, April 14, 1997, through June 1998, MCIF was a
California limited liability company. Since MCIF was a limited liability
company, it was treated as a partnership for income tax purposes, and as such,
as not subject to income tax. In July 1998, MCIF converted to a California
corporation.
Market Price Information
The Company's Common Stock and warrants to purchase Common Stock (the
"Warrants") are listed on the Nasdaq SmallCap Market under the symbols "HDSK"
and "HDSKW," respectively. On August 20, 1998, the last trading day prior to the
public announcement of the Merger, the last reported bid quotation of the Common
Stock and Warrants were $1.38 and $0.56, respectively. On ______, 1998, the last
trading day prior to the date of this Proxy Statement, the last reported bid
quotation of the Common Stock and Warrants were $______ and $_______,
respectively.
7
<PAGE>
The following table sets forth the range of the high and low bid
information (as provided by Nasdaq) of the Common Stock and Warrants for the
fiscal periods indicated:
<TABLE>
<CAPTION>
Common Stock Warrants
------------ --------
Period Low Bid High Bid Low Bid High Bid
------ ------- -------- ------- --------
<S> <C> <C> <C> <C>
1/17/97 to 3/31/97 3 3/4 5 1/2 3/4 1 7/8
4/1/97 to 6/30/97 3 4 1/4 5/8 1 1/8
7/1/97 to 9/30/97 3 1/4 4 1/4 7/8 1 1/2
10/1/97 to 12/31/97 3 1/4 4 3/4 13/16 1 3/8
1/1/98 to 3/31/98 2 5/8 3 1/2 13/16 1 1/4
4/1/98 to 6/30/98 1 3 1/8 9/16 7/8
7/1/98 to 9/30/98 3/4 1 15/16 9/16 3/4
10/1/98 to 11/30/98 1 1 11/16 9/16 5/8
</TABLE>
As of December ___, 1998, there were approximately __ holders of record
of the Common Stock and __ holders of record of the Warrants.
Following the Merger, the Company's Common Stock and Warrants will be
traded on the Nasdaq SmallCap Market under the symbols "MCIF" and "MCIFW,"
respectively.
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.
8
<PAGE>
RISK FACTORS
The following risk factors should be considered by the Company's
shareholders in evaluating whether to approve and adopt the Asset Agreement and
the Merger Agreement. These factors should be considered in conjunction with the
other information included in this Proxy Statement.
Risks to the Company Relating to and Upon Consummation of the Sale of Assets and
the Merger.
Conflict of Interests. John Pappajohn, a director of the Company since
1993 and a holder of approximately 27.7% of the Company's outstanding stock, is
the sole owner of Equity Dynamics, Inc., the firm that assisted the Company in
conducting the search for possible acquirers of the Company's assets. Mr.
Pappajohn is also a member of the Board of Directors of PATI and holds, in the
aggregate, approximately 19% of PATI's outstanding stock. Mr. Pappajohn joined
PATI's Board of Directors in 1995. PATI's stock trades on the Nasdaq Stock
Market under the symbol "PATI". Joseph Dunham, a director of the Company, is
Senior Vice President of Equity Dynamics. Edgewater Private Equity Fund II L.P.
("Edgewater"), the holder of approximately 25.0% of the Company's outstanding
stock, is also the holder of approximately 12% of PATI's outstanding stock. Mr.
James Gordon, a director of the Company, may be deemed to be the beneficial
owner of the shares owned by Edgewater. As a result of the foregoing
relationships, there exits a potential conflict between the interests of the
Company and the interests of certain of the Company's directors. Despite this
conflict, the Company believes that the terms of the Sale of Assets are fair and
that the transaction is in the best interests of the Company and its
shareholders. See "Proposal No. 1 - Sale of Assets."
Assumption of Operations. The success of the Merger depends in
substantial part on the ability of the Company to assume the operations of MCIF
in an efficient and effective manner. To enhance the likelihood of success of
the Merger, the Company's Board of Directors, following the Merger, will consist
of John Pappajohn, Joseph R. Dunham II, Bill Childs, David Joiner and Bruce
Ryan. See "The Merger - Management Following the Merger." Nevertheless, the
assumption of a new business will require the dedication of management resources
which may temporarily distract attention from the day-to-day operations of the
Company. There can be no assurance that the Company will be able to assume the
business operation of MCIF smoothly or successfully. The inability of the
Company to successfully assume MCIF's operations could have a material adverse
effect on the business, results of operations and financial condition of the
Company.
Retention of MCIF Customers. There can be no assurance that the current
customers of MCIF will continue to seek the services of the Company once the
Merger is consummated. If a substantial number of customers elect not to seek
the services of the Company upon completion of the Merger, the Company's
business, results of operations and financial condition may be materially
adversely affected.
Retention and Recruitment of Professional Staff. Upon consummation of
the Sale of Assets and Merger, the Company's business will involve the delivery
of professional services and is labor-intensive. The Company's success depends
in large part upon its ability to attract, develop, motivate and retain highly
skilled consultants. There is significant competition for employees with the
skills required to perform the services offered by the Company from other
consulting firms, healthcare providers and other healthcare industry
participants, health information systems vendors, clients, systems integrators
and many other enterprises. There can be no assurance that the Company will be
able to attract and retain a sufficient number of highly skilled employees in
the future or that it will continue to be successful in training, retaining and
motivating employees. The loss of a significant number of consultants and/or the
Company's
9
<PAGE>
inability to hire a sufficient number of qualified consultants would adversely
affect the Company's ability to secure, service and complete client engagements
and could have a material adverse effect on the Company's business, operating
results and financial condition.
Transition and Restructing Charges. The Company expects to incur cash
and non-cash charges to operations currently estimated to be $600,000 in the
quarter in which the Sale of Assets and Merger are consummated, to reflect costs
associated with selling the Company's current assets and assuming the operations
of MCIF, transaction fees and other costs incident to the Sale of Assets and
Merger. This estimate includes direct transaction costs associated with the Sale
of Assets and Merger estimated to be approximately $175,000, consisting of fees
for investment banking, legal, accounting, financial printing, proxy
solicitation and other related charges, and restructuring expenses to be
incurred by the Company estimated to be approximately $60,000. These amounts are
preliminary estimates and are therefore subject to change. Additional
unanticipated expenses may be incurred relating to the Company's assumption of
MCIF's business.
Client Concentration. If the Sale of Assets and Merger are consummated,
the Company will derive a significant portion of its revenues from a relatively
limited number of clients. For example, during 1997 and the first nine months of
1998, MCIF's five largest clients accounted for approximately 76% and 63%,
respectively, of MCIF's revenues. Clients will typically engage the Company on
an assignment-by-assignment basis, and a client will be able to generally
terminate an assignment at any time without penalty. In addition, the level of
the Company's consulting services required by any individual client can diminish
over the life of its relationship with the Company, and there can be no
assurance that the Company will be successful in establishing relationships with
new clients as this occurs. Moreover, there can be no assurance that MCIF's
existing clients will continue to engage the Company for additional projects or
do so at the same revenue levels. The loss of any significant client could have
a material adverse effect on the Company's business, financial condition and
results of operations.
Project Risks; Limited Outsourcing Experience. Many of MCIF's
engagements involve projects which are critical to the operations of its
clients' business and which provide benefits that may be difficult to quantify.
The Company expects this will continue to be true upon completion of the Merger.
The Company's failure to meet a client's expectations in the performance of its
services could damage the Company's reputation and adversely affect its ability
to attract new business. In addition, the Company could incur substantial costs
and expend significant resources correcting errors in its work, and could
possibly become liable for damages caused by such errors. For example, the
healthcare industry faces potential difficulties with its information systems
and business operations arising out of potential Year 2000 problems. MCIF has
assisted and the Company expects to continue to assist clients in selecting and
implementing software applications for the clients' use in their business. While
the Company is not aware of any existing or potential claims, the occurrence of
Year 2000 related systems failures in the information systems or other systems
of clients of the Company could involve the Company in disputes and negatively
impact client relationships, which in turn could have a material adverse effect
on the Company's business, financial condition and results of operations,
whether or not the Company bears any responsibility, legal or otherwise, for the
occurrence of those problems.
MCIF has had limited experience to date as an outsourcing provider, and
there can be no assurance that the Company will be able to assess accurately the
investment required and negotiate and perform in a profitable manner any of its
outsourcing contracts. If the Company is successful in implementing its
outsourcing strategy, the Company anticipates that competitors may increase
their focus on this market which could adversely affect the Company's ability to
obtain new outsourcing contracts as well as the profitability of any such
contracts. In addition, any failure by the Company to perform adequately under
10
<PAGE>
its outsourcing agreements may adversely effect its ability to obtain future
consulting engagements from these or other clients. The Company's failure to
obtain future consulting engagements could have a material adverse affect on the
Company's business, financial condition and results of operations.
Competition. If the Sale of Assets and Merger are consummated, the
market for the Company's services will be highly fragmented, highly competitive
and subject to rapid change. The Company believes that it will compete
principally with systems integration firms, national consulting firms, including
the consulting divisions of large accounting firms, information system vendors,
service groups of computer equipment companies, facilities management companies,
general management consulting firms and regional and specialty consulting firms.
Many of these competitors have significantly greater financial, technical and
marketing resources than the Company, generate greater revenues and have greater
name recognition than the Company. Moreover, those competitors that sell or
license their own software may in the future attempt to limit or eliminate the
use of third party consultants, such as the Company, to implement and/or
customize such software. In addition, vendors whose systems may enjoy wide
market acceptance and large market share could enter into exclusive or
restrictive agreements with other consulting firms which could eliminate or
substantially reduce the Company's implementation work for those systems. There
are relatively low barriers to entry into the Company's markets, and MCIF faces
and the Company after the Merger expects to face additional competition from new
entrants into the healthcare consulting industry. In addition, combinations and
consolidations in the consulting industry will give rise to larger competitors
whose relative strengths are impossible to predict. The Company also competes
with its clients' internal resources, particularly where these resources
represent a fixed cost to the client. This internal client competition may
heighten as consolidation of healthcare providers creates organizations large
enough to support more sophisticated internal information management
capabilities. There can be no assurance that the Company will be able to compete
effectively with current and future competitors or that competitive pressures
(including wage pressures as the consultant labor market tightens) faced by the
Company will not cause the Company's revenue or operating margins to decline or
otherwise materially adversely affect its business, financial condition and
results of operations.
General Risks Relating to the Company
Limited Revenues; Significant and Continuing Losses. The Company has
not yet generated any meaningful revenues, and will not generate any meaningful
revenues until after the Company successfully completes development and market
testing of HealthDesk Online and attracts and retains a significant number of
subscribers. For the period August 28, 1992 (inception) to September 30, 1998,
the Company incurred a cumulative net loss of approximately $12,300,000. Since
September 30, 1998, the Company has continued to incur increasing and
significant losses, and the Company anticipates that it will continue to incur
significant losses for the foreseeable future. There can be no assurance that
the Company will be able to restructure the Company or that if the restructuring
occurs, the Company will be able to generate meaningful revenues or achieve
profitable operations.
Working Capital Deficit; Negative Cash Flow; Need for Additional
Financing. The Company's capital requirements relating to the development and
commercialization of HealthDesk Online have been and, if the Sale of Assets is
not approved, will continue to be significant. In February 1998, the Company
received an aggregate of $800,000 in equity financing from two existing
shareholders. In addition, between March and September 1998, the Company sold an
aggregate of 632 shares of Series B Preferred Stock for an aggregate
consideration of $1,262,500. See "Managment's Discussion and Analysis of
Financial Condition and Results of Operations Liquidity." Based on currently
proposed plans and assumptions relating to its operations, and assuming the
consummation of the Sale of Assets and the Merger, the Company believes that its
current working capital position is sufficient to address its
11
<PAGE>
contemplated cash requirements for operations over the next twelve (12) months.
The Company is currently seeking additional financing. However, there can be no
assurance that the Company will be able to secure additional financing or that
the proceeds of any financing 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 any financing 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, if the Sale of Assets is not consummated, the
implementation of the Company's business plans will require proceeds greater
than the proceeds 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.
Possible Delisting of Securities from NASDAQ System; Disclosure
Relating to Low-Priced Stocks. The Common Stock and Warrants are currently
quoted on NASDAQ SmallCap Market ("NASDAQ"). On August 28, 1998, the
Company received a letter from NASDAQ advising the Company that it had to submit
a proposal for coming into compliance with the maintenance criteria on or before
September 11, 1998. On September 10, 1998, the Company submitted its proposal,
which assumed the consummation of the Merger and Sale of Assets. As of September
30, 1998, the Company did not meet the maintenance criteria for continued
listing on NASDAQ because its total assets are below $2,000,000. On November 20,
1998, the Company received a subsequent letter from NASDAQ advising the Company
that it had to submit the information and documentation requested by NASDAQ by
November 30, 1998. On November 30, 1998, the Company provided NASDAQ with the
requested information and documentation. Because of its failure to meet NASDAQ's
maintenance criteria, the Company's securities may be delisted from NASDAQ in
which case trading, if any, in the Company's securities would thereafter be
conducted in the non-NASDAQ over-the-counter market.
If NASDAQ delists the Company's securities, 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 the offering to sell the Common Stock in the secondary
market.
12
<PAGE>
Control by Management. As of October 31, 1998, the officers and
directors of the Company beneficially owned, in the aggregate, approximately
65.6% of the outstanding shares of Common Stock (assuming no exercise of
outstanding warrants to purchase common stock). Accordingly, such persons,
acting together, are in a position to exercise significant influence over the
Company's affairs.
Potential Conflicts of Interest. The Company has entered into various
transactions with certain of its directors and principal shareholders and their
affiliates, which could result in potential conflicts of interest. Mr. John
Pappajohn and Mr. James Gordon, a director of the Company and a general managing
partner of Edgewater Private Equity Fund II, L.P. ("Edgewater"), are principal
shareholders of the Company and have from time to time made loans to the
Company, and the Company has entered into a marketing agreement with an entity
of which Mr. Pappajohn is a director and principal shareholder. In addition, Mr.
Pappajohn is a director and principal shareholder of PATI. See "Proposed No. 1 -
Sale of Assets - Interests of Certain Persons in the Sale of Assets." In
February 1998, the Company completed a private placement of 400,000 shares of
Common Stock for $800,000 from Mr. Pappajohn and Edgewater. In addition, between
March and June 1998, the Company sold an aggregate of 400 shares of Series B
Preferred Stock to Mr. Pappajohn and Edgewater for an aggregate consideration of
$800,000. Furthermore, Mr. Rudick, a director of the Company, purchased an
aggregate of 57 shares of Series B Preferred Stock for an aggregate
consideration of $112,500 between June and September 1998. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity." The Company believes that all of such transactions or 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 transactions.
Outstanding Options. As of December 1, 1998, the Company had
outstanding options to purchase an aggregate of 419,500 shares of Common Stock
at exercise prices ranging from $1.00 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.
No Dividends. To date, the Company has not paid any cash dividends and
does not expect to declare or pay dividends on the Common Stock in the
foreseeable future.
Authorized Preferred Stock. The Company's Restated Articles of
Incorporation authorizes the Company's Board of Directors to issue 1,800,000
shares of "blank check" Preferred Stock and to fix the rights, and restrictions,
including voting rights, of these shares, without further shareholder approval.
The rights of the holders of the Company's 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. To date, the Company has issued an aggregate of 632
shares of Series B Preferred Stock. 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
13
<PAGE>
of the voting stock of the Company thereby delaying, deferring or preventing a
change in control of the Company.
Volatility of Stock and Warrants Prices. The Company's Common Stock and
warrants to purchase Common Stock have experienced substantial price
fluctuations since the Company's initial public offering. In addition, the stock
market has experienced significant price and volume fluctuations that have
especially affected the market prices of equity securities of many high
technology companies, particularly Internet-related companies, and that often
have been unrelated to the operating performance of such companies. These broad
market fluctuations may adversely affect the market price of the Company's
Common Stock and warrants. In the past, following periods of volatility in the
market price of a company's securities, securities class action litigation has
often been instituted against such a company. Such litigation could result in
substantial costs and a diversion of management's attention and resources, which
would have a material adverse effect on the Company's business, operating
results and financial condition.
Risks Relating to the Company if the Sale of Assets and Merger Are Not
Consummated.
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 is 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.
Uncertainty of Product Development. Although the Company believes that
the development efforts relating to the technological aspects of the basic
HealthDesk Online platform are substantially completed, the Company has not yet
completed third-party testing of the basic platform or the development or
testing of any system enhancements, or specific disease management modules or
CareTeam Connect. 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
14
<PAGE>
subsequent to commercial use. Remedying such errors could delay the Company's
plans and cause it to incur substantial additional costs.
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
inter-related, any lack or lessening of demand by any of these parties 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 a
reduced 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.
Dependence on Key Personnel. The success of the Company will be
dependent on the personal efforts of Joseph R. Dunham II, Director, Gerald Zieg,
Senior Vice President of Sales & Marketing, Terry Brandt, Chief Technology
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 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
assure 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.
Need to Increase Managerial Personnel. In the event the Sale of Assets
and Merger are not consummated, the Company will be required to hire additional
personnel, including a Chief Financial Officer. Competition for such personnel
is intense, and there can be no assurance that the Company can attract or retain
such personnel. If the Company is unable to hire a Chief Financial Officer on a
timely
15
<PAGE>
basis, the Company's business, results of operation and financial condition
could be materially adversely affected.
Dependence upon HBOC Agreement. In September 1997, the Company entered
into a three (3) year marketing agreement with HBOC. Subsequent to entering into
this agreement, the Company has devoted a substantial portion of its sales and
marketing efforts to support HBOC's sales of HealthDesk Online. Subject to HBOC
meeting certain cumulative revenue requirements, during the term of the
agreement the Company may not grant distribution rights to other health
information technology companies whose primary markets are integrated health
systems, managed care organizations and certain other specified HBOC
competitors. There can be no assurance that the marketing agreement with HBOC
will result in the successful commercialization of HealthDesk Online. In the
near term, the Company anticipates that its principal sources of revenue will be
derived from license fees and subscription revenues from sponsoring
organizations developed as part of its agreement with HBOC. Because of the
nature of the exclusive distribution rights granted pursuant to the HBOC
agreement and given the focus of the Company on supporting such relationship, if
the marketing agreement with HBOC is not successful, the Company's business,
financial condition and results of operations would be materially adversely
affected.
Uncertainty of Market Testing Results. The Company currently proposes
to conduct market testing of HealthDesk Online with potential sponsoring
organizations. The Company's success may be highly dependent upon the results of
these market 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 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 commercial 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.
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., America's Housecalls Network,
Softwatch, Cerner and SMS 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. 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
16
<PAGE>
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.
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. 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 consumer 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 failure and similar events. The Company does not
have earthquake insurance or redundant, multiple site capacity in the event of
any such occurrence. The Company does maintain fire insurance with an aggregate
limitation of $1 million and business interruption insurance with an aggregate
limitation of $4 million. The Company's system infrastructure will be also
vulnerable to computer viruses, break-ins and similar disruptions from
unauthorized tampering with the Company's computer systems. Computer viruses or
problems caused by third parties could lead to material interruptions, delays or
cessation in service to consumers. Inappropriate use of the Internet by third
parties could also potentially jeopardize the security of confidential
information stored in the computer systems of consumers. Security and privacy
concerns of consumers may limit the Company's ability to develop a significant
subscriber base.
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 the 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 limitation 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 insubstantial
17
<PAGE>
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 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. While the
enforcement of such statutes has been enjoined and is currently subject to
challenge in the courts, the adoption of any such laws or regulations may limit
the growth of the Internet, which could in turn decrease the demand for the
Company's proposed products and services and increase the Company's cost of
doing business. Inasmuch as the applicability to the Internet of the existing
laws governing issues such as property ownership, libel and personal privacy is
uncertain, any such new legislation or regulation or the application of existing
laws and regulations to the Internet could have an adverse effect on the
Company's business and prospects.
Dependence on Third-Party Licenses. Substantially all of the
information content currently included in HealthDesk Online has been licensed by
the Company from unaffiliated third parties. The licenses granted to the Company
are subject to termination on relatively short notice. Although the Company
believes that similar healthcare information is available from multiple sources,
in the event of any termination of such licenses, the Company may be required to
independently develop information content or license such information content
from other providers. There can be no assurance that the Company would be able
to do so in a timely manner, upon acceptable terms and conditions, or at all.
The failure to obtain current healthcare information for use by consumers on a
timely and competitive basis could have a material adverse effect on the
Company.
18
<PAGE>
Dependence on Limited Customer Base. To date, the Company's revenues
have been derived from a limited number of customers. One customer accounted for
approximately 96% and 92% of revenues in 1996 and 1997, respectively, and two
customers accounted for 98% of revenues in the first nine months of 1998.
Although the Company is not currently generating meaningful revenues, in the
event that the Company is able to successfully commercialize HealthDesk Online
or obtain third party funding of the costs of developing new software modules,
there can be no assurance that the Company will not continue to be dependent on
a limited customer base for all or a substantial portion of its revenues. The
Company's agreement with Medical Inter-Insurance Exchange ("MIIX") requires that
the Company grant to MIIX a right of first offer to fund the development of
additional software modules. In December 1997, the Company and MIIX mutually
agreed to discontinue further development and investment in the Diabetes module
and jointly pursue the commercialization of the current product.
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 a
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.
Proprietary Information. Although the Company intends to evaluate the
feasibility to obtaining patent protection for certain aspects of HealthDesk
Online, the Company does not hold any patents or registered copyrights. The
Company regards certain computer software it has developed for HealthDesk Online
as proprietary and attempts to protect it with copyrights, trade secret laws,
proprietary rights agreements and internal nondisclosure agreements and
safeguards. However, such methods may not afford complete protection and there
can be no assurance that others will not independently develop know-how or
obtain access to the Company's know-how or software codes, concepts, ideas and
documentation. Furthermore, there can be no assurance that nondisclosure
agreements with the Company's employees will adequately protect the Company's
trade secrets. Although the Company believes that its proposed products do not
and will not infringe patents or violate proprietary rights of others, it is
possible that infringement of existing or future patents or proprietary rights
of others have occurred or may occur. In the event the Company's proposed
products infringe patents or proprietary 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.
19
<PAGE>
PROPOSAL NO. 1 - THE SALE OF ASSETS
Background and Reasons for the Sale of Assets.
Since inception, the Company has sought to develop a consumer focused
healthcare management and information system product. Although the Company
continues to believe that there is a significant opportunity for such product
and that the Company's HealthDesk Online product addresses the needs of such
market, the development of such market has been much slower than expected by the
Company. Moreover it has become clear to the Company that the resources needed
to continue to develop and market such a product are substantially greater than
are available to the Company. Commencing in February 1998, the Company sought to
raise the additional financing which it thought would be necessary for the
Company to continue its strategy. A number of potential investment sources were
contacted and the Company held more detailed discussions with six potential
investors. However, the Company was unable to raise additional financing. The
only way the Company was able to continue to meet the NASDAQ SmallCap listing
requirements was as a result of additional funding contributed by existing
shareholders.
The Company also sought to address its resource limitations by entering
into a joint marketing agreement with HBO & Company, one of the largest
healthcare information system companies. However, although the Company has
devoted a significant portion of its resources to support such arrangements, the
Company has not yet been able to generate any revenues from such relationship
and cannot determine when or if meaningful revenues will be realized.
Faced with the inability to raise the additional capital necessary to
fund the Company's operations, the Board of Directors determined that it was in
best interests of the Company's shareholders to re-deploy the Company's
remaining assets in support of a different business opportunity. On May 5, 1998,
the Board of Directors determined that it was in the best interests of the
shareholders of the Company for management to seek an acquiror of the Company's
assets and for the Company to pursue other strategic alternatives. See "Proposal
No. 2 - The Merger." The processes of seeking an acquiror of the Company's
assets and exploring other strategic alternatives were pursued in parallel.
Initially, the Board requested that Equity Dynamics, Inc. ("Equity
Dynamics"), a company owned by John Pappajohn, a director of the Company and a
holder of approximately 27.7% of the Company's outstanding stock, attempt to
retain an investment banker to assist the Company in its efforts to sell the
Company's assets. On behalf of the Company, Equity Dynamics contacted several
investment bankers. However, because of the relatively small size of the
proposed transaction, none of the investment bankers indicated an interest to be
engaged by the Company. Accordingly, in late May 1998, the Company decided to
seek a purchaser of the Company's assets itself. The Company contacted ten
potential purchasers based upon the Company's belief that such parties might be
interested.
20
<PAGE>
Only two companies expressed interest in performing due diligence and of the
two, only Patient InfoSystems ("PATI") chose to proceed.
On May 20, 1998, the Company identified the opportunity presented by
the potential merger with MCIF. Given that the business opportunity represented
by MCIF was substantially different than the opportunity represented by
HealthDesk Online, and the need to reduce or eliminate the drain on the
Company's limited assets resulting from the continued losses associated with the
HealthDesk Online operations, it became more important for the Company to find
an acquiror for the HealthDesk Online assets. If unable to do so, the Company
would have been forced to discontinue such operations and face potentially
greater costs associated with such discontinued operations.
The Company engaged in negotiations with PATI over a several month
period commencing in June 1998. The negotiations involved issues regarding
purchase price, terms of assumption of existing Company obligations, employee
transitions and other matters. Ultimately, the Company and PATI entered into
definitive agreements relating to the Sale of Assets in September 1998. PATI's
principal offices are located at 46 Prince Street, Rochester, New York 14607.
Opinion of The Company's Financial Advisor.
The Company retained George Arneson & Company ("Arneson") to render an
opinion as to the fairness of the Sale of Assets to the Company. No limitations
were imposed by the Company on Arneson with respect to the investigations made
or followed by it in furnishing its opinion. The terms and conditions of the
Asset Sale were determined through negotiations between the mangements of the
Company and PATI. Arneson did not participate in such negotiations and did not
suggest the amount of consideration to be paid in the Sale of Assets.
The full text of the Arneson Opinion is attached hereto as Annex I and
is incorporated herein by reference. Shareholders of the Company are urged to
read the opinion in its entirety. The summary of the Arneson Opinion set forth
in this Proxy Statement is qualified in its entirety by reference to the full
text of the Arneson Opinion.
In connection with the preparation of its opinion, Arneson, among other
things, (i) reviewed historical financial information relating to the Company
and PATI, (ii) reviewed other publicly available information concerning the
Company and PATI, (iii) reviewed the Company's internal forecasts and plans (iv)
reviewed drafts of the definitive agreements relating to the Sale of Assets,
(iv) held discussions with the management of the Company concerning the future
prospects of the Company and (v) made such other studies and inquiries, and
reviewed such other data, as it deemed relevant. Arneson was also aware of, and
took into account, the potential conflicts of interest discussed elsewhere
herein. See "Interests of Certain Persons in the Sale of Assets."
In conducting its review and arriving at its opinion, Arneson assumed
and relied upon, without independent verification, the accuracy, completeness
and fairness of the information furnished to or otherwise reviewed by or
discussed with it for purposes of rendering its opinion.
Because of the size and state of development of the Company, financial
analyses typically employed in determining valuations of businesses were not
applicable. The Arneson Opinion was
21
<PAGE>
principally based upon an assessment of the viability of the Company as a stand
alone entity and whether the sales process employed by the Company was likely to
result in a fair price to the Company's shareholders. Arneson determined that
given the Company's inability to raise additional financing, the continuation of
the HealthDesk Online business was not viable. Arneson also concluded that the
process employed to seek a buyer of the assets was reasonably designed, and was
carried out consistently, with the objective of obtaining a fair price to the
Company. Notwithstanding the foregoing, the conclusions reached by Arneson are
based on all analyses and factors taken as a whole and also on application of
Arneson's own experience and judgment. Such conclusions may involve significant
elements of subjective judgment and qualitative analysis.
The Company agreed to pay Arneson a fee of $11,000 upon delivery of its
opinion to the Company. The payment of such fee was not dependent upon the
conclusions of the opinion or the completion of the transaction. Arneson was
retained based on Arneson's experience as a management consultant and financial
advisor in connection with small business transactions and valuations generally.
Arneson has had no prior interest or transactions with the Company or PATI and
no future transactions are currently contemplated.
Interests of Certain Persons in the Sale of Assets.
John Pappajohn, a director of the Company since 1993 and a holder of
approximately 27.7% of the Company's outstanding stock, is the sole owner of
Equity Dynamics, Inc., the firm that assisted the Company's management in
conducting the search for possible acquirers of the Company's assets. Mr.
Pappajohn is also a member of the Board of Directors of PATI and holds, in the
aggregate, approximately 19% of PATI's outstanding stock. Mr. Pappajohn joined
PATI's Board of Directors in 1995. PATI's stock trades on the Nasdaq Stock
Market under the symbol "PATI". Mr. Joseph R. Dunham, a director of the Company,
is a Senior Vice President of Equity Dynamics.
Edgewater, the holder of approximately 25.0% of the Company's
outstanding stock, is also the holder of approximately 12% of PATI's stock. Mr.
James Gordon, a director of the Company, may be deemed to be the beneficial
owner of the shares owned by Edgewater.
In May, 1996, the Company entered into a Co-Marketing Agreement
pursuant to which the Company may sell certain of PATI's products and PATI may
sell certain of the Company's products. In exchange for these rights, the
Company pays PATI $25,000 every six (6) months and PATI pays the Company $25,000
every six (6) month. The Co-Marketing Agreement is automatically renewable for
successive six (6) month terms unless either party gives thirty (30) days
written notice prior to the termination of any renewal term.
Other than as described above and the Sale of Assets Transaction, there
have been no other relationships between the Company and PATI.
22
<PAGE>
The Asset Agreement.
The following is a summary of the terms and conditions of the Asset
Agreement. All references to the Asset Agreement set forth below or included
elsewhere herein are qualified in their entirety by reference to the Asset
Agreement (attached hereto as Annex II) which is incorporated herein by
reference. Shareholders are strongly advised to read the Asset Agreement in its
entirety prior to voting.
General.
The Asset Agreement provides that following the satisfaction or waiver
of the conditions described below under "-- Conditions to the Asset Sale," the
Company will sell substantially all of the assets located in its Berkeley,
California facility, including its HealthDesk Online operations as well as
substantially all of the Company's intellectual property rights and inventories,
and certain office equipment and packaged software to PATI. In connection with
the Asset Sale at the Closing, the Company will receive (i) Five Hundred
Thousand Dollars ($500,000) representing payment for the Company's HealthDesk
Online operations and substantially all of its other intellectual property
rights and inventories, (ii) One Hundred Fifteen Thousand and Forty Dollars
($115,040) representing payment for certain packaged software. In addition, PATI
agrees to indemnify the Company against certain liabilities and obligations of
the Company under certain contracts and agreements, but only to the extent such
liabilities and obligations accrue after the closing.
In assessing the fairness of the terms of the Sale of Assets, the Board
of Directors of the Company principally assessed the matters discussed above
under the heading "Background for the Sale of Assets". The Board of Directors
was also aware of the potential conflicts of interest described under the
heading "Interests of Certain Persons in the Sale of Assets.
23
<PAGE>
Closing Date of the Asset Sale.
The closing of the Asset Sale will occur at such time as all waivers
have been obtained and all of the conditions specified in the Asset Agreement
have been satisfied; provided, however, that the closing may not occur later
than January 31, 1999.
Representations and Warranties.
The Asset Agreement contains various customary representations and
warranties. In Article 6 of the Asset Agreement, the Company has made certain
representations and warranties to PATI with respect to, among other things, the
Company's organization and qualification to do business, financial statements,
tax matters, inventories, proprietary rights, assets, customers, employment and
other contracts, insurance policies, authority to enter into the Asset
Agreement, litigation and environmental matters, and employee benefit plans. In
Article 7 of the Asset Agreement, PATI has made certain representations and
warranties to the Company with respect to, among other things, the organization
of PATI and the authority of PATI to enter into the Asset Agreement.
Covenants.
The Asset Agreement contains certain covenants by each of the parties
in respect of matters to occur on or prior to the Closing. The Company has
agreed to, among other things, (i) to provide access to PATI and its
representatives to the Company's properties, books, accounts, records and
contracts relating to the assets to be acquired by PATI; (ii) carry on its
business and activities diligently and in substantially the same manner as they
have previously been carried on; (iii) use its best efforts, without making and
commitments on behalf of PATI, to preserve its business organization intact and
to keep available to the Company its present officers and employees and to
preserve the Company's relationships with suppliers, customers and others having
a business relationship with it; (iv) continue to carry its existing insurance,
subject to variations in amounts required by the ordinary operations of its
business in the healthcare, wellness and disease manangement industries; (v)
allow certain of its employees to be employed by PATI prior to the closing; (vi)
not (A) enter into any contract, commitment or transaction not in the usual and
ordinary course of its business; (B) enter into any contract, commitment or
transaction in the usual and ordinary course of business involving an amount
exceeding $25,000 individually or $50,000 in the aggregate; (C) make any capital
expenditures in excess of $25,000 for any single item or $50,000 in the
aggregate, or enter into any leases of capital equipment or property under which
the annual lease charge is in excess of $25,000; or (D) sell or dispose of any
capital assets with a net book value in excess of $25,000 individually or
$50,000 in the aggregate; (vii) not (A) pay any obligation or liability, fixed
or contingent other than current liabilities, (B) waive or compromise any right
or claim; or (C) cancel, without full payment, any note, loan or other
obligation owing to the Company; (viii) not modify, cancel or terminate any of
its existing agreements or contracts, or agree to do any of those acts; (ix)
obtain written consents from certain specified third parties; (x) use its best
efforts to assure that all representations and warranties made by the Company in
the Asset Agreement are true and correct as of the date of closing as if made on
that date and that all conditions precedent to closing have been met; (xi)
furnish PATI a clearance certificate from the appropriate governmental agency
and any related certificates that PATI may reasonably request as evidence that
all sales and use and other tax liabilities of the Company (other than income
tax liabilities) accruing before the date of closing have been fully satisfied
or provided for; (xii) prepare and file all information and documents necessary
or desirable under any statutes or governmental rules or regulations pertaining
to the transactions contemplated by the Asset Agreement; (xiii) negotiate with
HBO & Company of Georgia and Intel to evaluate the current state of their
respective agreements,
24
<PAGE>
contracts and relationships; (xiv) enter into a license agreement with PATI
pursuant to which the Company grants to PATI an exclusive license to use the
packaged software to be acquired by PATI from the date of the Asset Agreement
until the date of closing; and (xv) enter into a sublease pursuant to which PATI
shall sublease from the Company the premises located at 2560 Ninth Street, Suite
220, Berkeley, California from the date of the Asset Agreement until the date of
closing.
Conditions to the Asset Sale.
Conditions Precedent to PATI's Performance. The obligations of PATI to
purchase the Assets pursuant to the Asset Agreement are subject to the
satisfaction, at or before the closing, of all the following conditions, any or
all of which may be waived by PATI , but only in a writing signed by PATI:
(i) all representations and warranties by the Company in the Asset
Agreement or in any written statement that shall be delivered to PATI by the
Company under the Asset Agreement shall be true on and as of the date of closing
as though made at that time;
(ii) at or prior to the closing, PATI shall have received a UCC search
report dated as soon as practicable prior to the date of closing issued by the
appropriate governmental authorities indicating that there are no filings under
the Uniform Commercial Code on file with such governmental authority which name
the Company as debtor or otherwise indicating any lien on the Company's
HealthDesk Online operations and the other assets to be acquired by PATI, except
for liens otherwise disclosed in the Schedules to the Asset Agreement;
(iii) the Company shall have performed, satisfied and complied with all
covenants, agreements and conditions required by the Asset Agreement to be
performed or complied with by the Company on or before the date of closing;
(iv) PATI shall have received a certificate, dated the date of closing,
signed by the Company's president or vice president and its chief financial
officer, certifying, in such detail as PATI and its counsel may reasonably
request, that all representations and warranties of the Company made in Article
6 of the Asset Agreement are true and correct as of the date of closing and that
the conditions specified in (i) and (iii) above have been fulfilled;
(v) PATI and the Company shall have entered into assignment and
assumption agreements for the license agreements set forth in the Asset
Agreement and any other agreements of the Company to be assumed by PATI, in form
and substance reasonably satisfactory to PATI's counsel;
(vi) the Company shall have executed a bill of sale with respect to the
assets to be acquired by PATI, in form and substance reasonably satisfactory to
PATI's counsel;
(vii) PATI shall have received from Gray Cary Ware & Freidenrich, LLP,
counsel for the Company, an opinion dated the date of closing;
(viii) no action, suit or proceeding before any court or any
governmental body or authority, pertaining to the transaction contemplated by
the Asset Agreement or to its consummation, shall have been instituted or
threatened on or before the date of closing;
25
<PAGE>
(ix) the execution and delivery of the Asset Agreement by the Company,
and the performance of its covenants and obligations under it, shall have been
duly authorized by all necessary corporate action, and PATI shall have received
copies of all resolutions of directors and stockholders pertaining to that
authorization, certified by the Company's secretary;
(x) PATI shall have received a good standing certificate for the
Company dated as soon as practicable prior to the date of closing, issued by the
appropriate governmental authorities;
(xi) all necessary agreements and consents of any parties to the
consummation of the transaction contemplated by the Asset Agreement, or
otherwise pertaining to the matters covered by it, shall have been obtained by
the Company and delivered to PATI;
(xii) the form and substance of all certificates, instruments, opinions
and other documents delivered to PATI under the Asset Agreement shall be
satisfactory in all reasonable respects to PATI and its counsel;
(xiii) PATI shall have entered into employment arrangements with each
of Jan Maisler, Jessica Radocy, Gerald Zieg, James Martin, Brian Cronin, Mark
Fossen, Vicky Hilton and Tim Wheeler;
(xiv) Division 6 of the California Uniform Commercial Code shall have
been complied with;
(xv) the Company shall have changed its corporate name to a name not
using "HealthDesk" or any similar name;
(xvi) the assets to be acquired by PATI shall not have been materially
or adversely affected in any way as a result of any fire, accident, storm or
other casualty or labor or civil disturbance or act of God or the public enemy;
and
(xvii) PATI shall have entered into a royalty agreement with MIIX
Healthcare Group, Inc.
Conditions Precedent to the Company's Performance. The obligations of
the Company to sell and transfer the assets to be acquired by PATI
pursuant to the Asset Agreement are subject to the satisfaction, at or before
the closing, of all the following conditions:
(i) all representations and warranties by PATI in the Asset Agreement
or in any written statement that shall be delivered by PATI under the Asset
Agreement shall be true on and as of the date of closing as though such
representations and warranties were made on and as of that date;
(ii) before or at the closing, PATI shall have performed and complied
with all covenants and agreements, and satisfied all conditions required by the
Asset Agreement to be performed, complied with or satisfied; and
(iii) PATI shall have delivered to the Company against delivery of the
items specified in Article 9 of the Asset Agreement a certified or bank
cashier's check, or a wire transfer of immediately avialable funds, in the
amount of $626,278, payable to the Company.
The Company's and PATI's Obligations After the Closing.
Following the closing, the Company has agreed to restrict its
activities so that PATI's reasonable expectations with respect to the goodwill,
business reputation, employee relations and prospects
26
<PAGE>
connected with the assets to be acquired by PATI will not be materially
impaired. In furtherance of this obligation, the Company agrees that, for three
(3) years following the date of closing, or as long as PATI or its heirs,
assigns or successors in interest carry on a like business in the counties or
areas specified, whichever is shorter, (i) the Company will not engage in any
business or activity which is substantially the same as, or represents an
outgrowth of, any business or activity presently conducted by the Company if
such business or activity extends to any of the geographic areas in which the
Company has heretofore engaged in business or otherwise established its
goodwill, business reputation or any customer relations and (ii) the Company
will not disclose to any person, for use for its own benefit, any price lists,
pricing data, customer lists or similar matters possessed by them relating to
the assets or the business transferred to PATI unless it first clearly
demonstrates to PATI that such matters are, at the time of the proposed
disclosure or use, of common knowledge within the trade.
In addition, the Company agrees that after the date of
closing, it shall not use or employ in any manner, directly or indirectly, the
name "HealthDesk", or any variation thereof, and that it will take and cause to
be taken all necessary action by the Company's Board of Directors, stockholders
and any other persons in order to make this chance in the Company's name
effective on or before the Closing Date.
From and after the closing, the Company shall allow PATI, and
its counsel, accountants and other representatives, such access to records which
after the closing are in the custody or control of the Company as PATI
reasonably requires in order to comply with its obligations under the law or
under contracts assumed by PATI pursuant to the Asset Agreement. The Company
shall not, prior to the third anniversary of the closing, solicit and
employee of PATI or of any direct or indirect subsidiary of PATI to leave such
employment if such employee was at any time between the date hereof and the
closing an employee of PATI.
Each of the Company and PATI shall also, at any time after the date of
closing, execute, acknowledge and deliver any further deeds, assignments,
conveyances and other assurances, documents and instruments of transfer,
reasonably requested by the other party, and shall take any other action
consistent with the terms of the Asset Agreement that may reasonably be
requested by such other party in furtherance of the transactions contemplated by
the Asset Agreement.
PATI agrees to pay to Information Access Company ("IAC"), or about
November 15, 1998, the sum of $65,000 in connection with the termination of that
certain Online Vendor License Agreement dated August 12, 1996 between IAC and
the Company, as amended; provided, however, that IAC agrees to continue its
obligation under such agreement and PATI shall be entitled to all of the
Company's rights under this agreement until February 28, 1999.
Indemnification.
The Company has agreed to defend, indemnify and hold harmless PATI and
each of PATI's employees, successors and assigns and shall reimburse each of
them for, from and against each and every demand, claim, loss, liability,
judgment, damage, cost and expense imposed on or incurred by any of them,
directly or indirectly, relating to, resulting from or arising out of (i) any
inaccuracy in any representation or warranty, or any breach or nonfulfillment of
any covenant, agreement or other obligation of the Company under the Asset
Agreement and (ii) any obligation of the Company relating to the assets to be
acquired by PATI and any other matter arising out of or related to the operation
of the Business arising prior to or on the date of closing.
27
<PAGE>
PATI has agreed to defend, indemnify and hold harmless the Company, its
successors and assigns, and shall reimburse each of them for, from and against
each and every demand, claim, loss, liability, judgment, damage, cost and
expense imposed on or incurred by any of them, directly or indirectly, relating
to, resulting from or arising out of (i) any inaccuracy in any representation or
warranty, or any breach or nonfulfillment of any covenant, agreement or other
obligation of PATI under the Asset Agreement and (ii) any obligation of PATI
relating to the license agreements set forth in the Asset Agreement or any other
matter arising out of or related to the operation of the business arising prior
to or on the date of closing.
Fees and Expenses.
Each of the Company and PATI agrees to pay all costs and expenses,
including but not limited to attorneys' fees, incurred or to be incurred by it
in negotiating and preparing the Asset Agreement and in closing and carrying out
the transactions contemplated by the Asset Agreement.
Termination.
Notwithstanding approval of the Asset Agreement and the transactions
contemplated thereby by the shareholders of the Company, the Asset Agreement may
be terminated, and the Sale of Assets abandoned:
(i) at any time prior to the date of closing by the mutual written
consent of the Company and PATI; or
(ii) by either the Company or PATI if (A) the closing has not occurred
on or before January 31, 1999, unless the party seeking to invoke this provision
is then in material breach of its obligations under the Asset Agreement; (B) if
a court of competent jurisdiction or any governmental authority shall have
issued an order, decree or ruling or taken any other action, in each case
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by the Asset Agreement, and such order, decree, ruling or other
action shall have become final and nonappealable, or (C) if the other party
shall have breached or failed to comply in all material respects with its
representations, warranties, covenants, and agreements contained in the Asset
Agreement; provided, however, that if such breach or failure is reasonably
capable of being cured on or before January 31, 1999 and such other party
commences such cure as soon as practicable and diligently prosecutes (subject to
any other limitations on the Asset Agreement) such cure, such party shall be
entitled to postpone the date of closing for a period reasonably sufficient to
effect such cure to the reasonably satisfaction of the party asserting such
breach or failure, but in no event beyond January 31, 1999.
Interm License Agreement.
In connection with the Asset Agreement, the Company and PATI also
entered into a license agreement pursuant to which the Company grants PATI an
exclusive license to use the packaged software to be acquired by PATI
from the date of the Asset Agreement until the date of closing.
Vote Required and Board of Directors' Recommendation.
The affirmative vote of a majority of the outstanding shares of Common
Stock and the affirmative vote of a majority of the outstanding shares of Series
B Preferred Stock are required for approval of this
28
<PAGE>
proposal. Abstentions and broker non-votes will each be counted as present for
purposes of determining the presence of a quorum at the Special Meeting of
Shareholders. Abstentions and broker non-votes will have the same effect as a
negative vote on this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE
THE SALE OF ASSETS.
29
<PAGE>
PROPOSAL NO. 2 - THE MERGER
Background of the Merger.
Since inception, the Company has sought to develop a consumer focused
healthcare management and information system product. Although the Company
continues to believe that there is a significant opportunity for such product
and that the Company's HealthDesk Online product addresses the needs of such
market, the development of such market has been much slower than expected by the
Company. Moreover it has become clear to the Company that the resources needed
to continue to develop and market such a product are substantially greater than
are available to the Company. The Company sought to address its resources
limitations in part by entering into a joint marketing agreement with HBO &
Company, one of the largest healthcare information system companies. However,
although the Company has devoted a significant portion of its resources to
support such arrangements, the Company has not yet been able to generate any
revenues from such relationship and cannot determine when or if meaningful
revenues will be realized.
In light of the Board's view that very substantial additional resources
would be required to continue to pursue the HealthDesk Online opportunity, the
Company has sought additional funding from various sources, including
institutional investors and strategic partners. However, the Company has not
been able to raise the funding necessary to continue to pursue the opportunity.
Faced with such situation, in May 1998, the Board of Directors determined that
it was in the best interests of the shareholders that the Company pursue other
strategic alternatives.
After investigation, the Board determined that it was in the best
interests of the shareholders of the Company for the Company to use the
remaining assets of the Company to pursue a different business as represented by
the opportunity to acquire MCIF. The Company's Board of Directors believes that
the Merger is in the best interests of the Company and its shareholders. The
Board's support for the Merger is based on its belief that the Merger will
increase the potential growth of the Company's business through the combination
of the financial, management and marketing resources of the Company and MCIF.
The exchange provisions with respect to the Company's Common Stock,
including the provision to exchange 5.6 shares of the Company's Common Stock for
each outstanding share of MCIF common stock, and the other terms of the Merger
were determined in arms-length negotiations between the management of the
Company and the management of MCIF. Among the factors considered were the asset
values and earnings potential of MCIF and the prospects for the continued growth
of their business, as well as MCIF's management team and resources.
Except as contemplated by the Merger, there have been no prior
affiliations or transactions by or among MCIF or the Company or their respective
affiliates.
Opinion of The Company's Financial Advisor.
The Company retained Whale Securities Co., L.P. issued ("Whale") as to
the fairness of the Merger of the Company. No limitations were imposed by the
Company on Whale with respect to the investigation made or followed by it in
furnishing its opinion. The terms and conditions of the Merger were determined
through negotiations between the managements of the
30
<PAGE>
Company and MCIF. Whale did not participate in such negotiations and did not
suggest the exchange ratio for the Merger.
The full text of the Whale Opinion is attached hereto as Annex III and
is incorporated herein by reference. Shareholders of the Company are urged to
read the Whale Opinion in its entirety. The summary of the Whale Opinion set
forth in this Proxy Statement is qualified in its entirety by reference to the
full text of the Whale Opinion.
In connection with the preparation of its opinion, Whale, among other
things, (i) reviewed the Merger Agreement, (ii) reviewed historical financial
information relating to the Company and MCIF and other publicly available
information concerning the Company, (iii) reviewed the pro forma projected
financial statements and underlying assumptions prepared by the Company's and
MCIF's managements, (iv) reviewed MCIF's current outstanding agreements and
backlog of existing business, (v) reviewed the current financial and market
position and results of operations of the Company and MCIF; (vi) considered the
general conditions of the securities markets and (vii) reviewed such other data
as it deemed relevant. In rendering its opinion, Whale assumed and relied upon
the accuracy, completeness and fairness of all financial and other information
that was made available to it for purposes of rendering its opinion. In
addition, Whale conducted several meetings with the managements of the Company
and MCIF to discuss the historical and prospective industry environments and
operating results for the Company and MCIF. Based upon all of the foregoing,
Whale concluded that as of the date of its Opinion, the exchange ratio for the
Merger is fair, from a financial point of view, to the shareholders of the
Company.
The Company agreed to pay Whale a fee of $50,000 upon delivery of its
opinion to the Company, and agreed to indemnify Whale against certain
liabilities for services rendered in preparing its Opinion. The payment of such
fee was not dependent upon the conclusions of the opinion or the completion of
the transaction. The Company retained Whale based on Whale's experience in the
valuation of businesses and securities in connection with merger, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate or other purposes. Whale
was the lead manager of the Company's initial public offering which was
consummated in January 1997 and currently Whale makes a market in the Company's
publicly traded securities.
Management Following the Merger.
Pursuant to the Merger Agreement, upon the consummation of the Merger,
the Company's Board of Directors will consist of John Pappajohn, Joseph R.
Dunham II, Bill Childs, David Joiner and Bruce Ryan.
Accounting Treatment.
The Merger will be accounted for as a purchase of MCIF by the Company
in accordance with generally accepted accounting principles, whereby the
purchase price will be allocated based upon the fair values of the assets
acquired and the liabilities assumed by the Company.
Nasdaq SmallCap Market.
It is a condition to the Merger that the shares of the Company's Common
Stock to be issued pursuant to the Merger Agreement and required to be reserved
for issuance in connection with the Merger
31
<PAGE>
be approved for listing on the Nasdaq SmallCap Market. An application has been
filed for listing the shares of the Company's Common Stock on the Nasdaq
SmallCap Market.
The Merger Agreement.
The following is a summary of the terms and conditions of the Merger
Agreement. All references to the Merger Agreement set forth below or included
elsewhere herein are qualified in their entirety by reference to the Merger
Agreement (attached hereto as Annex IV) which is incorporated herein by
reference. Shareholders are strongly advised to read the Merger Agreement in its
entirety prior to voting.
Loans from the Company to MCIF.
Between August and November, 1998, the Company has loaned MCIF an
aggregate of $500,000. The Company expects to loan an additional $150,000 to
MCIF prior to the consummation of the Merger. Upon consummation of the Merger,
all outstanding loans will be deemed to be repaid.
General.
The Merger Agreement provides that following the satisfaction or waiver
of the conditions described below under "-- Conditions to the Merger," Sub will
be merged with and into MCIF, and the name of the surviving corporation shall be
MC Informatics, Inc. In connection with the Merger, each outstanding share of
common stock of MCIF (other than shares of MCIF common stock held by
shareholders who perfect their appraisal rights under California law) will be
exchanged for the right to receive 5.6 shares of the Company's Common Stock. In
addition, in the event the Company is required to sell additional securities
prior to December 31, 1998 in order to maintain working capital of at least $1
million, the Merger Agreement provides that the Company shall, simultaneously
with the sale of such additional securities, issue a number of shares of the
Company's Common Stock equal to two-thirds of the total additional securities
sold by the Company. See "-- Covenants." Accordingly, it is the Company's intent
that the MCIF shareholders will own not less than 40% of the Company's
outstanding shares upon consummation of the Merger.
Effective Time Of The Merger.
The effective time of the Merger will be such time as the Agreement of
Merger shall be filed in the office of the Secretary of State of the State of
California. The Agreement of Merger shall be filed with the Secretary of State
of the State of California on the date of closing. The date of closing shall
occur either (i) three (3) days following the satisfaction of all conditions to
the closing of the Merger set forth in the Merger Agreement or (ii) such other
date as the Company and MCIF may mutually select.
Exchange Of Certificates.
The Merger Agreement provides that following the date of closing, the
Company shall mail to each holder of record of certificate(s) or other documents
which represent shares of MCIF common stock (the "Certificates") (i) a letter of
transmittal (which shall specify that, with respect to the Certificates,
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only
32
<PAGE>
upon delivery of the Certificates to the Company and shall be in such
form and have such other provisions as the Company shall reasonably require) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for shares of the Company's Common Stock. Upon surrender of a
Certificate for cancellation to the Company, together with such letter of
transmittal, duly executed, the holder of such Certificates shall be entitled to
receive, in exchange therefor his pro rata allocation of the Company's Common
Stock as to which such holder is entitled. Until surrender of a Certificate,
such Certificate shall be deemed at any time after the effective time to
represent solely the right to receive upon such surrender that number of shares
of the Company's Common Stock (without interest and subject to applicable
withholding, escheat and other laws) to which such holder is entitled.
In the event of a transfer of ownership of shares of MCIF common stock
which is not registered on the transfer records of MCIF, the appropriate number
of shares of the Company's Common Stock may be delivered to a transferee if the
Certificate representing such transferred security is presented to the Company
and accompanied by all documents required to evidence and effect such transfer
and to evidence that any applicable stock transfer taxes have been paid.
The shares of the Company's Common Stock issued in accordance with the
terms of the Merger Agreement shall be deemed to be in full satisfaction of all
rights pertaining to such shares of MCIF common stock, and there shall be no
further registration of transfers on the records of the surviving corporation of
shares of MCIF common stock. If, after the effective time of the Merger,
Certificates are presented to the surviving corporation for any reason, they
shall be canceled and exchanged as provided for in the Merger Agreement.
Representations And Warranties.
The Merger Agreement contains various customary representations and
warranties. In Section 4 of the Merger Agreement, the Company and Sub have made
certain representations and warranties to MCIF and the MCIF Shareholders with
respect to, among other things, the organization of the Company and Sub, the
authority of the Company and Sub to enter into the Merger Agreement and to carry
out their obligations thereunder, the capitalization of the Company and the
availability of the documents the Company has filed with the SEC and the
Company's financial statements. In Section 3 of the Merger Agreement, MCIF has
made certain representations and warranties to the Company and Sub with respect
to, among other things, MCIF's organization, capitalization, financial
statements, tax matters, contracts and commitments, proprietary rights, employee
benefit plans, labor difficulties, insurance, litigation and environmental
matters.
Covenants.
The Merger Agreement contains certain covenants by each of the parties
in respect of matters to occur on or prior to the date of closing. The Company
and Sub have agreed to, among other things, (i) advise MCIF of any event
occurring subsequent to the date of the Merger Agreement which would render any
representation or warranty of the Company or Sub untrue or inaccurate in any
material respect, (ii) execute and file, or join in the execution and filing of,
any application or other document which may be necessary in order to obtain the
authorization, approval or consent of any governmental body or agency, federal,
state or local, which may be reasonably required, or which MCIF may reasonably
request, in connection with the consummation of the transactions contemplated by
the Merger Agreement; (iii) use their best efforts to satisfy or cause to be
satisfied all conditions precedent
33
<PAGE>
which are set forth in Section 10 of the Merger Agreement, and the Company will
use its best efforts to cause the transactions contemplated by the Merger
Agreement to be consummated; (iv) file with the Nasdaq Stock Market a
Notification Form for Listing of Additional Shares with respect to the shares of
the Company's Common Stock issued in the Merger; (v) repay the outstanding note
obligations of MCIF to the principal shareholders of MCIF in an aggregate amount
not to exceed $150,000, or in lieu of such repayment, the principal shareholders
of MCIF shall have the right to convert such indebtedness as of the closing into
the Company's Common Stock based on a conversion price of $0.50 per share or
agree to not have such obligations paid at that time and continue as a note
payable on such terms as may be agreed between the principal shareholders of
MCIF and the Company; (vi) use reasonable commercial efforts to negotiate a sale
of the Company's operating assets relating to its HealthDesk Online product, and
the proceeds from such sale shall first be applied to satisfy liabilities and
shall otherwise be retained by the Company to satisfy the minimum working
capital and cash requirements set forth in the Merger Agreement (if the Company
is unable to effect such sale or is otherwise unable to meet the working capital
and cash requirements which are a condition to closing (see below), the Company
shall seek to raise additional equity capital; provided, however, that in such
event, the number of shares issuable to the MCIF shareholders shall be
proportionately increased such that such shareholders hold not less than forty
percent (40%) of the total outstanding shares of the Company as of the closing);
(vii) if during the period following the closing and before December 31, 1998,
the net working capital of the Company is reduced below $1 million because of
underreserved liabilities, then the Company shall raise such additional equity
capital as shall be necessary to maintain a minimum net worth of working
capital; provided that the Company shall be obligated to raise no more than the
amount of the undereserved liabilities; and (viii) if, as of the closing, there
is a shortfall in the HealthDesk Closing Balance Sheet ("Shortfall"), the
Company covenants to use its best efforts to sell to either or both of John
Pappajohn and Edgewater Private Equities, or their related entities, the shares
of the Company's capital stock (the "Shortfall Shares") such that the proceeds
to the Company from the sale of such securities equals the shortfall; provided,
however, that in the event the Company signs an agreement regarding the sale of
the Company's business, the amounts to be paid to the Company pursuant to such
agreement shall be credited to the Company and used to offset any Shortfall
prior to the sale of any Shortfall Shares.
MCIF has agreed to, among other things, (i) advise the Company of any
event occurring subsequent to the date of the Merger Agreement which would
render any representation or warranty of MCIF untrue or inaccurate in any
material respect and of any material adverse change in MCIF's business, taken as
a whole; (ii) conduct its business and maintain its business relationships in
the ordinary and usual course, and will not take certain actions without the
Company's prior written consent; (iii) bear all risk of loss, damage or
destruction to MCIF's assets until the closing, and in case of any such loss,
damage or destruction, the Merger terms shall be revised as the parties agree or
the Merger Agreement shall be terminated; (iv) provide the Company and its
representatives free access upon reasonable notice and during normal working
hours to its files, books, records, and offices, including, without limitation,
any and all information relating to taxes, commitments, contracts, leases,
licenses, and personal property and financial condition, and until the closing,
cause its accountants to cooperate with the Company and its representatives in
making available all financial information requested, including without
limitation the right to examine all working papers pertaining to all financial
statements prepared or audited by such accountants; (v) execute and file, or
join in the execution and filing of, any application or other document which may
be necessary in order to obtain the authorization, approval or consent of any
governmental body or agency, federal,
34
<PAGE>
state or local, which may be reasonably required, or which the Company may
reasonably request, in connection with the consummation of the transactions
contemplated by the Merger Agreement; (vi) use its best efforts to satisfy or
cause to be satisfied all conditions precedent which are set forth in Section 9
of the Merger Agreement, and to obtain all consents and authorizations of third
parties and make all filings with, and give all notices to, third parties which
may be necessary or reasonably required on its part in order to effect the
transactions contemplated thereby; (vii) with respect to any obligation of MCIF
to issue stock, warrants or options which have been offered or promised to the
employees of MCIF, prior to the closing MCIF shall have fulfilled or terminated
such obligation to the satisfaction of the Company; (viii) prior to the closing,
submit the Merger Agreement, the Agreement of Merger and related matters to its
shareholders for consideration and approval, and MCIF's Board of Directors will
recommend such approval to the MCIF shareholders, and each of the principal
shareholders of MCIF agrees to vote all shares of MCIF capital stock in respect
of which each such shareholder is entitled to vote and any meeting, in favor of
the Merger and the transactions contemplated by the Merger Agreement; and (ix)
prior to the closing, MCIF shall not take any action, including the granting of
employee stock options, that could cause the number of MCIF shareholders who are
not "accredited investors" pursuant to Regulation D promulgated under the
Securities Act to increase to more than 35 prior to the closing and MCIF shall
arrange for the appointment of an investor representative meeting the
requirements of Regulation D under the Securities Act.
In addition, each of MCIF and the Company agrees to, among other
things, (i) keep in confidence any confidential information each may receive
from the other; (ii) cooperate fully with the other parties and to execute
further instruments, documents and agreements and to give such further written
assurances as may be reasonably requested by any other party to better evidence
and reflect the transactions described in the Merger Agreement and contemplated
thereby and to carry into effect the intents and purposes of the Merger
Agreement; and (iii) to use its best efforts to cause the Merger to be treated
as a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended.
MCIF also agrees that until the earlier of the date of closing and July
20, 1998, MCIF will not (and that it will use best efforts to assure that its
employees, agents and affiliates do not on its behalf) discuss or enter into any
agreement concerning the sale or acquisition of MCIF, its stock (including by
means of any public offering thereof, but excluding issuance of stock and
options to employees in the ordinary course of business consistent with past
practices) or a substantial part of its assets with any party other than the
Company, and that any such discussions presently in progress will be terminated
or suspended during that period. MCIF represents and warrants that it has the
legal right to terminate or suspend any such pending negotiations and agrees to
indemnify the Company, its representatives and agents from and against any
claims by any party to such negotiations based upon or arising out of the
discussion or any consummation of the Merger.
Conditions To The Merger.
Conditions to the Obligations of the Company and Sub. The obligations
of the Company and Sub under the Merger Agreement are subject to the fulfillment
or satisfaction on and as of the Closing, of each of the following conditions
(any one or more of which may be waived by the Company, but only in a writing
signed by the Company):
(i) the accuracy of the representations and warranties of MCIF and the
principal shareholders of MCIF in the Merger Agreement and the satisfaction of
the
35
<PAGE>
conditions to the Company's and Sub's obligations set forth under Sections
11.1, 11.2, 11.3 and 11.4 of the Merger Agreement;
(ii) the performance and compliance by MCIF with all of its covenants
set forth in the Merger Agreement on or before the closing;
(iii) the absence of any threatened or pending litigation or proceeding
against MCIF for the purpose or with the probable effect of enjoining or
preventing the consummation of any of the transactions contemplated by the
Merger Agreement, or which would have a material adverse effect on the business,
liabilities, income, property, operations or prospects of MCIF subsequent to the
closing;
(iv) evidence that the execution, delivery and performance of the
Merger Agreement and the Agreement of Merger have been duly and validly approved
and authorized by the Board of Directors of MCIF and that all of MCIF's
shareholders have approved the Merger Agreement, the Merger and the transactions
contemplated thereby;
(v) (a) no order, decree, or ruling by any court or governmental body
or agency or threat thereof or any other fact or circumstance, which might
prohibit or render illegal or have a material adverse effect on the business,
prospects, liabilities, income, property, assets or operations of MCIF
subsequent to the closing; (b) MCIF shall not have sustained a loss, whether or
not insured, by reason of physical damage caused by fire, flood or earthquake,
accident or other calamity which materially affects the MCIF balance sheet or
MCIF's ability to carry on its business as proposed to be conducted, and which,
in the judgment of the Company, renders it inadvisable to proceed with the
closing; and (c) the occurrence of no other event which, in the reasonable
judgment of the Company, has a material and adverse effect on MCIF's assets,
business, liabilities, income, property, assets, prospects or operations
subsequent to the closing;
(vi) receipt by the Company of all written consents, assignments,
waivers, authorizations or other certificates from parties with whom MCIF has
contracted which the Company's legal counsel reasonably deems necessary to
provide for the continuation in full force and effect of any and all contracts
and leases of MCIF;
(vii) receipt by the Company of an opinion from counsel to MCIF;
(viii) receipt at or prior to the date of closing of such permits or
authorizations and there shall have been taken such other action, as may be
required by any regulatory authority having jurisdiction over the parties and
the subject matter and the actions herein proposed to be taken, including, but
not limited to, compliance with applicable state and federal securities laws;
(ix) the satisfactory completion prior to the date of closing of a
review by the Company and its representatives of MCIF's business, financial,
technical and legal affairs;
(x) each of MCIF's shareholders shall have confirmed in writing his or
her suitability to receive shares of the Company's Common Stock by means of an
Investor Representation Letter;
(xi) the MCIF shareholders shall have entered into non-compete and
employment agreements with the Company and all other employees and consultants
of MCIF as of the
36
<PAGE>
closing shall have accepted employment (or consultant positions, as appropriate)
with the Company or MCIF on terms satisfactory to the Company, and such
employees and consultants shall have entered into confidentiality and inventions
agreements in the Company's standard form;
(xii) MCIF shall have delivered to the Company its financial statements
as of May 31, 1998 and such financial statements shall not reveal any fact which
shall be a breach of any of the representations or warranties of MCIF or the
shareholders of MCIF in the Merger Agreement;
(xiii) the Company's shareholders shall have approved the transactions
contemplated by the Merger Agreement;
(xiv) MCIF, the shareholders of MCIF and the Company shall have entered
into an agreement which amends the terms of the Company's Series B Preferred
Stock such that the Conversion Price, as defined in the Certificate of
Determination for the Series B Preferred Stock, shall be fixed at $0.50 per
share and such shares shall automatically convert into the Company's Common
Stock upon the closing;
(xv) the shareholders of MCIF and the Company shall have entered into a
registration rights agreement with respect to the shares of the Company's Common
Stock issued to the shareholders of MCIF; and
(xvi) the MCIF shareholders shall have signed a lock-up agreement
pursuant to which each agrees not to sell or otherwise dispose of the Company's
Common Stock for a period of a year following the closing unless otherwise
approved by a majority of the disinterested members of the Company's Board of
Directors.
Conditions to the Obligations of MCIF. The obligations of MCIF under
the Merger Agreement are subject to the fulfillment or satisfaction on and as of
the closing, of each of the following conditions (any one or more of which may
be waived by MCIF, but only in a writing signed by MCIF):
(i) the accuracy of the representations and warranties of the Company
and Sub in the Merger Agreement and the satisfaction of the conditions to MCIF's
obligations set forth under Sections 10.1, 10.2, 10.3 and 10.4 of the Merger
Agreement;
(ii) the Company and Sub shall have performed and complied with all of
their covenants contained in the Merger Agreement to be performed on or before
the closing;
(iii) the absence of any threatened or pending litigation or proceeding
against the Company or Sub for the purpose or with the probable effect of
enjoining or preventing the consummation of any of the transactions contemplated
by the Merger Agreement;
(iv) evidence that the execution, delivery and performance of the
Merger Agreement and the Agreement of Merger have been duly and validly approved
and authorized by Board of Directors of the Company and Sub, respectively, and
that the shareholder of Sub has approved the Merger Agreement, the Merger and
the transactions contemplated thereby;
(v) receipt at or prior to the date of closing of such permits or
authorizations and there shall have been taken such other action, as may be
required by any regulatory authority having
37
<PAGE>
jurisdiction over the parties and the subject matter and the actions herein
proposed to be taken, including, but not limited to, compliance with applicable
state and federal securities laws;
(vi) receipt by MCIF of an opinion from counsel to the Company an
opinion;
(vii) the MCIF shareholders shall have entered into non-compete and
employment agreements with the Company, and Bill Childs shall be named Chairman
of the Board and CEO of the Company effective as of the closing;
(viii) The Company shall have raised not less than $300,000 through the
issuance of additional Series B Preferred Stock or Common Stock;
(ix) MCIF, the MCIF shareholders and the Company shall have entered
into an agreement which amends the terms of the Company's Series B Preferred
Stock such that the Conversion Price as defined in the Certificate of
Determination for the Series B Preferred Stock shall be fixed at $0.50 per share
and such shares shall automatically convert into the Company's Common Stock upon
the closing;
(x) The Company's Board of Directors shall have approved an increase in
the number of shares authorized for issuance under the Company's 1994 Stock
Option Plan to 3,000,000 shares;
(xi) Effective as of the closing, the Company's Board of Directors
shall be composed of John Pappajohn, Joseph R. Dunham II, Bill Childs, David
Joiner and Bruce Ryan;
(xii) As of the closing, the Company shall have net working capital of
not less than $1 million, including not less than $1 million in cash;
(xiii) John Pappajohn and Edgewater Private Equities shall have signed
a lock-up agreement pursuant to which each agrees not to sell or otherwise
dispose of the Company's Common Stock for a period of a year following the
closing unless otherwise approved by a majority of the disinterested members of
the Company's Board of Directors; and
(xiv) The shareholders of MCIF and the Company shall have entered into
a registration rights agreement with respect to the shares of Common Stock of
the Company issued to the MCIF shareholders.
Termination Of The Merger Agreement.
Notwithstanding approval of the Merger Agreement and the transactions
contemplated thereby by the shareholders of the Company, the Merger Agreement
may be terminated, and the Merger abandoned:
(i) at any time prior to the closing by the mutual written consent of
the parties to the Merger Agreement; or
(ii) by either the Company or MCIF if the Merger has not been
consummated by December 31, 1998 (provided that the right to terminate the
Merger Agreement shall not be available to any party whose failure to fulfill
any obligation under the Merger Agreement has been the cause of or resulted in
the failure of the Merger to occur on or before such date).
38
<PAGE>
Any termination of the Merger Agreement shall be without further
obligation or liability upon any party in favor of any other party thereto.
Fees And Expenses.
Except as provided to the contrary in the Merger Agreement, each party
shall pay all of its own costs and expenses incurred with respect to the
negotiation, execution and delivery of the Merger Agreement and the exhibits
thereto. In the event the Merger is consummated, all legal and accounting fees
incurred by MCIF and the shareholders of MCIF in connection with the Merger up
to $25,000 shall be payable by the Company upon presentation of an adequate and
appropriate bill. Any expenses in excess of such amount shall be deemed to be
expenses of the shareholders of MCIF, shall be borne by the MCIF shareholders
and shall not become obligations of MCIF, the Company or the surviving
corporation. The MCIF shareholders shall make arrangements satisfactory to the
Company at or prior to the closing for the satisfaction of such amounts.
Employment Agreements.
In connection with the Merger, the Company will enter into employment
agreements with Bill W. Childs and Garfield E. Thompson. A form of the
employment agreement is attached as Exhibit D to the Merger Agreement, attached
hereto as Annex IV.
Registration Rights.
In connection with the Merger, the Company has agreed to grant the MCIF
shareholders certain rights with respect to the registration of the shares of
the Company's Common Stock issued in the Merger. Under these provisions, the
MCIF shareholders may request that the Company file up to one registration
statement under the Securities Act of 1933, as amended (the "Securities Act")
with respect to at least fifty percent (50%) of the shares of the Company's
Common Stock issued in the Merger. Upon receipt of such request, the Company is
required to notify all other MCIF shareholders and to effect as soon as possible
such registration, subject to certain conditions, including that the request
must be received prior to the one year anniversary of the closing. Further,
whenever the Company proposes to register any of its securities under the
Securities Act for its own account or the account of other security holders, the
Company is required to promptly notify the MCIF shareholders of the proposed
registration and include all shares of the Company's Common Stock which such
MCIF shareholders may request be included in such registration, subject to
certain limitations.
Vote Required And Board Of Directors' Recommendation.
The affirmative vote of a majority of the outstanding shares of Common
Stock and the affirmative vote of a majority of the outstanding shares of Series
B Preferred Stock are required for approval of this proposal. Abstentions and
broker non-votes will each be counted as present for purposes of determining the
presence of a quorum at the Special Meeting of Shareholders. Abstentions and
broker non-votes will have the same effect as a negative vote on this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE
THE MERGER.
39
<PAGE>
INFORMATION CONCERNING THE COMPANY
Background
The following summary describes the Company's current business. As set
forth in this Proxy Statement, the Company proposes to sell substantially all of
its assets (See "Proposal No. 1 - Sale of Assets") and merge with MCIF (See
"Proposal No. 2 - The Merger"). In the event Proposal No. 1 and No. 2 are
approved by the Company's shareholders, the Company's business will be the
business of MCIF. See "Proposal No. 2 - The Merger Information Concerning MCIF"
and "Information Concerning MCIF." and the Company will no longer be engaged in
the business described below.
Since inception, HealthDesk Corporation (the "Company"), has been
engaged in designing, developing and marketing HealthDesk Online (TM), a
consumer-focused healthcare management and information system. When installed on
a personal computer with Internet access, the software enables all members of a
household to develop password protected individual health records and take a
more active role in their personal and family health decision making. The
Company's products were designed to lower the cost and improve the quality of
healthcare by promoting preventive care, patient compliance and more informed
decision making.
HealthDesk Online
HealthDesk Online software contains several modules for recording
information (Administrative and Health History) and several modules for planning
and tracking nutrition and fitness activities (Meal Planner and Meal Tracker;
Fitness Planner and Fitness Tracker). These modules allow users to create an
extensive database that can be appended, reviewed and printed at any time. The
Company's software also contains modules that provide access to healthcare
information from the Company's private website and over the Internet.
HealthDesk Online has been designed to operate on IBM compatible
desktop computers with a minimum requirement of a 80486DX central processing
unit and sixteen megabytes of random access memory. The system runs under
Windows 95. Consumers may access the electronic mail system, the Company's
private website and the Internet via an Internet service provider. The Company
currently offers AT&T Worldnet service for its customers at standard Internet
service provider market rates. The minimum technical requirement to access the
electronic communications features is a 9600 Baud modem.
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 groups; and numerous articles from prominent healthcare
periodicals such as the New England Journal of Medicine and the 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.
HealthDesk Online offers 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.
The Company has incorporated 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
40
<PAGE>
input by the user. The Company has licensed the LifeView(R) system from Windom
Health Enterprises and integrated it into the resources section of the product
on the private website. The Company has also incorporated into its products
software obtained from Healthwise, Inc. pursuant to a non-exclusive license.
Such software is designed to provide specific responses for treatment based on
information relating to symptoms input by the user.
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 encryption software on
both the desktop and database server.
HealthDesk Online for Diabetes
In July 1997, the Company completed the first version release of the
product for HealthDesk Online for Diabetes. This disease management application
tracks and monitors diabetes specific care indicators and offers diabetes
specific content including the American Diabetes Association's handbook and
related content in electronic format. The program is designed to accept
downloaded glucose readings which automatically update the tracking facility.
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,
1995, 1996, 1997 and the first nine months of 1998, the Company expended
approximately $681,000, $1,623,000, $2,248,000 and $1,120,000,
respectively, on product development and disease module development products.
Product development expenses are expected to increase through the remainder of
1998 in connection with commercialization activities and disease and lifestage
module development products. Five of the Company's eleven employees were engaged
in product development as of August 31, 1998.
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.
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
41
<PAGE>
be no assurance that regulatory authorities do not or will not deem the
Company's business activities to constitute the unlicensed practice of medicine.
Sales and Marketing
The Company's primary marketing strategy is to distribute its core
health product, existing and future disease and lifestage modules, and the
clinical CareTeam Connect management product, through sponsoring organizations
which have a large number of potential users and which are at risk for the cost
of care and member turnover. These include integrated health systems, managed
care organizations, disease management companies, and employers. The Company is
also pursuing a secondary strategy of distributing its products directly to
consumers through marketing distribution agreements with consumer health,
pharmaceutical, medical device and other health related companies.
In September 1997, the Company entered into a three (3) year marketing
agreement with HBO & Company ("HBOC"), one of the leading suppliers of
healthcare related information systems and services. The purpose of the
agreement was to use the HBOC sales force to accelerate the visibility and
penetration of the Company's products with potential sponsoring organizations.
Subsequent to entering into this agreement, the Company has devoted a
substantial portion of its sales and marketing efforts to support HBOC's sales
of HealthDesk Online. Under this agreement, the Company has completed its first
contract with Scottsdale Memorial Health Systems. The Company contemplates that
the HealthDesk Online product will be integrated into HBOC's Community Health
Management Strategy. The Community Health Management Strategy is focused on
linking the consumer and community with the integrated delivery networks via the
use of a call center and computer/on-line technology. The Company anticipates
that the HealthDesk Online product will be distributed via HBOC's sales force
into both new and existing customers. HBOC has a current customer base of 8,100
healthcare organizations including approximately 2,500 hospitals, 5,000
physicians practices and 600 home healthcare organizations. Subject to HBOC
meeting certain minimum royalty requirements, during the term of the agreement
the Company may not grant distribution rights to other health information
technology companies whose primary markets are integrated health systems,
managed care organizations and certain other specified HBOC competitors. There
can be no assurance that the marketing agreement with HBOC will result in the
successful commercialization of HealthDesk Online.
In the near term, the Company anticipates that its principal sources of
revenue will be derived from license fees and subscription revenues from
sponsoring organizations developed as part of its agreement with HBOC. Because
of the nature of the exclusive distribution rights granted pursuant to the HBOC
agreement and given the focus of the Company on supporting such relationship, if
the marketing agreement with HBOC is not successful, the Company's business,
financial condition and results of operations would be materially adversely
affected. See "Risks Relating to the Company if the Sale of Assets is Not
Consummated - Dependence upon HBOC Agreement."
In January 1997, the Company entered into a development contract with
the Medical Inter-Insurance Exchange ("MIIX"), a medical malpractice insurance
carrier, to develop and market the HealthDesk Online for Diabetes module. The
Company's agreement with MIIX requires that the Company pay royalties to MIIX
ranging from 3% to 10% of revenues derived from the sale or license of the
HealthDesk Online for Diabetes module. In December 1997, the Company and MIIX
agreed to discontinue further development and investment in the diabetes module,
and jointly pursue the commercialization of the current diabetes product.
42
<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 seeks to develop advertising relationships with targeted
companies who will benefit from the focused HealthDesk user base. The commercial
viability of the advertising program is contingent on HealthDesk first
developing a critical mass of subscribers. There can be no assurance that either
will occur.
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.
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 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 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
43
<PAGE>
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 HealthVillage, Med Access Corporation, CareSoft, Inc., Access Health,
Inc., America's Housecalls Network, Softwatch, Cerner and SMS 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. See "Risk Relating to the
Company if the Sale of Assets and Merger Are Not Consummated - Competition;
Technological Obsolescence."
Infrastructure, Operations and Technology
The Company intends to make HealthDesk Online available to users
through a set of network servers housed in Berkeley, California. Access to the
service is 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. 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 online content providers to
provide current healthcare information for use by consumers.
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 the 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
44
<PAGE>
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 of 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.
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. Although the
enforcement of such statute has been enjoined and is currently subject to
challenge in the courts, the adoption of any such laws or regulations may limit
the growth of the Internet, which could in turn decrease the demand for the
Company's products and services and increase the Company's cost of doing
business. Inasmuch as the applicability to the Internet of the existing laws
governing issues such as property ownership, libel and personal privacy is
uncertain, any such new legislation or regulation or the application of existing
laws and regulations to the Internet could have an adverse effect on the
Company's proposed business and prospects.
Proprietary Information and Trademarks
The Company does not hold any patents or registered copyrights. The
Company regards certain computer software it has developed for HealthDesk Online
as proprietary and attempts to protect it with copyrights, trade secret laws,
proprietary rights agreements and internal nondisclosure agreements and
safeguards. However, such methods may not afford complete protection and there
can be no assurance that others will not independently develop know-how or
obtain access to the Company's know-how or software
45
<PAGE>
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 August 31, 1998, the Company had eleven (11) full time employees,
of which two (2) were executive officers, five (5) were engaged in product
development, three (3) were engaged in marketing and one (1) was engaged in
administration. 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 operational facilities are located in 5,701 square feet
of leased office space in Berkeley, California. The lease expires in January
1999 and provides for an annual rental of $112,875. As a reslult of the
resignations of Messrs. O'Donnell and Yamauchi, the Company's executive offices
are now located at 2116 Financial Center, Des Moines, Iowa 50309.
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 a complaint filed by a former employee with
the California Department of Fair Employment & Housing. This claim alleges
wrongful determination as a result of alleged denial of reasonable accommodation
for a wrist and neck injury. The Company intends to defend these matters
vigorously. There can be no assurance, however, that such matter will be
resolved in a manner favorable to the Company.
46
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The Company has not yet generated any meaningful revenues, and will not
generate any meaningful revenues until after the Company successfully completes
market testing and subsequent commercialization of CareTeam Connect and
HealthDesk Online for Diabetes and the commercialization of HealthDesk Online,
and then attracts and retains a significant number of subscribers for such
products. For the period August 28, 1992 (inception) to December 31, 1997, the
Company incurred a cumulative net loss of approximately $10,166,000. Since
December 31, 1997, 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 products. For the period August 28, 1992 (inception) to
September 30, 1998, the Company incurred a cumulative net loss of
approximately $12,284,401. 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.
In May 1998, as a result of ongoing difficulties in marketing its
HealthDesk Online products, the Company announced a major restructing of its
operations. As a result of its restructuring, the Company's Chief Executive
Officer, Peter O'Donnell, and its Chief Financial Officer, Timothy Yamauchi,
resigned from the Company in May 1998. In addition, the Company eliminated seven
other positions. During the restructuring process, the Company has established
an Operating Committee, consisting of Messrs. Dunham, Brandt and Zieg, to manage
the Company's operations.
The statements below regarding the Company's future cash requirements
are forward looking statements that are subject to risks and uncertainties,
which could result in, the Company's inability to meet its funding requirements
for the time period indicated.
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.
In June 1998, Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income" and Statement of Financial Accounting Standards
No. 131 "Disclosures About Segments of An Enterprise and Related Information"
were issued and are also effective for the year ending December 31, 1998. The
Company believes the adoption of these pronouncements will not have a material
effect on its financial statements.
In October 1997, the Accounting Standards Executive Committee issued
Statement of Position 97-2 (SOP 97-2), Software Revenue Recognition, which
delineates the accounting for software product and maintenance revenue. SOP 97-2
supersedes the Accounting Standards Executive Committee Statement of Position
91-1, Software Revenue Recognition, and is effective for transactions entered
into in fiscal years beginning after December 15, 1997. The Company anticipates
that SOP 97-2 will not have a material impact on its financial statements.
Results of Operations
Revenue, which consists primarily of software development and licensing
fees, decreased from $376,090 for the nine months ended September 30, 1997 to
$56,458 for
47
<PAGE>
the nine months ended September 30, 1998. The nine-month decrease was primarily
attributable to a decrease in development fee revenue associated with the
development of HealthDesk Online for Diabetes. Revenue increased by 632.1% from
$52,225 for the year ended December 31, 1996 to $382,362 for the year ended
December 31, 1997. In 1997, the increase was primarily attributable to an
increase in development fee revenue associated with a progress payment for a
delivery of a version of HealthDesk Online for Diabetes. During 1996, the
Company focused its efforts on the original development of HealthDesk Online and
reduced its marketing and sales efforts relating to its original HealthDesk
product.
Product development costs decreased by 37.3% from $1,785,408 for the
nine months ended September 30, 1997 to $1,119,503 for the nine months ended
September 30, 1998. The decrease in product development costs was principally
related to the hiring of full-time programming staff instead of using higher
cost contractors. The decrease in product development costs was also due to the
Company's re-negotiation of an existing content license agreement which resulted
in reduced royalty costs of approximately $95,000 and the elimination of certain
engineering and programmer positions as a result of the Company's restructuring
that was announced in May 1998.
Product development costs increased by 38.5% from $1,622,601 for the
year ended December 31, 1996 to $2,248,018 for the year ended December 31, 1997.
The increase in expenditures was principally related to the expansion of the
programming staff and associated costs related to the development of HealthDesk
Online version 2.0 and HealthDesk Online for Diabetes. To date, all product
development costs have been expensed as incurred. The Company believes that
significant investments in product development will be incurred to enhance the
functionality of HealthDesk Online and increase the product line with new
disease and lifestage modules.
Sales and marketing costs decreased by 41.5% from $1,154,531 for the
nine months ended September 30, 1997 to $675,668 for the nine months ended
September 30, 1998. This decrease in sales and marketing costs resulted
primarily from the reduction in headcount in connection with the Company's
restructuring that was announced in May 1998.
Sales and marketing costs increased by 16.4% from $1,222,183 for the
year ended December 31, 1996 to $1,422,111 for the year ended December 31, 1997.
This increase resulted primarily from the hiring of additional marketing
personnel, associated collateral, travel and entertainment expenses in
connection with the marketing of HealthDesk Online for Diabetes during the year
ended December 31, 1997. The Company anticipates that sales and marketing costs
will increase in future periods as the Company expands its marketing efforts.
General and administrative costs decreased by 49.5% from $412,683 for
the nine months ended September 30, 1997 to $208,265 for the nine months ended
September 30, 1998. The decrease in general and administrative costs was
primarily attributable to the reversal of certain professional fees over
accruals and the reduction in personnel as a result of the Company's
restructuring that was announced in May 1998
General and administrative costs decreased by 25.8% from $681,993 for
the year ended December 31, 1996 to $506,132 for the year ended December 31,
1997. This decrease was primarily attributable to a change in the allocation of
resources to marketing and development activities in 1997 and the write-off of
deferred offering costs of $118,113 in 1996 related to the Company's initial
public offering.
48
<PAGE>
Other income (expense), net (including interest expense, interest
income, amortization of discount and issuance costs and non-recurring
restructuring costs) changed from expense of ($47,580) for the nine months ended
September 30, 1997 to expense of ($171,134) for the nine months ended September
30, 1998. The increase in other expenses was primarily attributable to the fact
that during the first nine months of 1998, the Company recorded non-recurring
costs, which consisted principally of employee termination severance packages,
of $220,697 associated with the Company's restructuring of its operations in May
1998.
Other expense, net (including interest expense, interest income and
amortization of discount and issuance cost) decreased by 97.5% from $916,102 for
the year ended December 31, 1996 to $22,548 for the year ended December 31,
1997. This decrease was primarily attributable to amortization of the
non-recurring bridge discount and deferred debt issuance costs of $884,227 in
1996 and $145,023 in 1997, and higher interest expense incurred in 1996 ($60,654
in 1996 as compared to $14,900 in 1997), offset primarily by higher interest
income earned in 1997.
As a result of the foregoing, the Company incurred a net loss of
$2,118,712 for the nine months ended September 30, 1998 as compared to a net
loss of $3,024,712 for the comparable period in 1997. The Company incurred a net
loss of $3,817,247 for the year ended December 31, 1997, as compared to a net
loss of $4,391,454 for the prior comparable year.
Liquidity and Capital Resources
At September 30, 1998, the Company had cash and cash equivalents of
$715,264, as compared to $1,405,430 at December 31, 1997. During the first nine
months of 1998, $2,363,872 of cash was used in operating activities, principally
as a result of the $2,118,712 loss incurred in the first nine months of 1998.
The decrease in accounts payable and accrued liabilities was attributable to the
lower volume as a result of the Company's May 1998 restructuring. During the
first nine months of 1997, $2,844,536 of cash was used in operating activities,
principally as a result of the $3,024,712 loss incurred in the first nine months
of 1997. The decrease in accounts payable and accrued liabilities, offset by the
non-cash discount associated with the Company's bridge financing in October 1996
and prepaid expenses and deferred costs, was attributable to the non-recurring
costs associated with the Company's initial public offering in January 1997.
Working capital at September 30, 1998 was $1,024,086, as compared to $1,777,926
at Septmber 30, 1997.
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.
On February 25, 1998, the Company completed an $800,000 private
placement. The placement consisted of the sale of 400,000 shares of Common
Stock, at a price of $2.00 per share to two of the Company's existing
shareholders.
On April 13, 1998, the Company announced that with respect to its
outstanding publicly traded warrants, it was reducing (i) the exercise price
from $5.00 per share to $2.50 per share, and (ii) the call price for the
warrants from $7.50 to $3.75.
As of September 30, 1998, the Company had a total of 632
shares of Series B Preferred Stock issued and outstanding as a result of the
following private placements. On March 31,
49
<PAGE>
1998, two existing shareholders agreed to purchase 250 shares of the Company's
Series B Preferred Stock for proceeds of $500,000. On May 13, 1998, the Company
received the $500,000 proceeds. On June 30, 1998, three existing shareholders
purchased 175 shares of the Company's Series B Preferred Stock for total
proceeds of $350,000, of which $300,000 was received on June 30, 1998 and
$50,000 was received on July 8, 1998. On August 14 and September 3, 17 and 25,
1998, the Company received aggregate proceeds of $412,500 in connection with the
private placement of additional shares of Series B Preferred Stock to one
existing shareholder and one new investor of the Company. The outstanding shares
of Series B Preferred Stock are convertible, at any time, at the option of the
holders into an aggregate of 2,525,000 shares of the Company's Common Stock. The
shares of Series B Preferred Stock are subject to automatic conversion upon the
closing of the contemplated Merger with MCIF or five years from the date of
their issuance at a conversion price of $0.50 per share.
In the event the Company is unable to sell its assets relating to its
HealthDesk Online products, the Company expects to incur significant expenses in
connection with its operations, including expenses associated with marketing and
sales personnel and the research and development of product lines. However, the
Company believes that it has working capital sufficient to meet its projected
cash requirements through the end of 1998. The Company is actively seeking
additional equity financing. There can be no assurance that the Company will be
able to obtain public or private third-party sources of financing or, if
obtained, that favorable terms for such financing would be obtained. In
addition, given the trading history of the Company's Common Stock and Warrants
since the initial public offering, there can be no assurance that the Company
will be able to raise additional cash through public or private offerings of its
Common Stock. There also can be no assurance that the Company's funding
requirements will not increase significantly as a result of unforeseen
circumstances or that the Company's cash used for operating activities will not
increase. In the event the Company completes the proposed Merger with MCIF, the
Company anticipates that its current operations will cease and it will assume
the operations of MCIF.
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 Proxy Statement, the Company has no
material commitments for capital expenditures. For the period from August 28,
1992 (inception) to September 30, 1998, the Company had capital
expenditures of approximately $1,116,121 relating primarily to
purchases of servers, PCs and telecommunications equipment.
Year 2000
The Company is working to resolve the potential impact of the Year 2000
on the ability of the Company's computerized information systems to accurately
process information that may be date-sensitive. Any of the Company's programs
that recognize a date using "00" as the Year 1900 rather than the Year 2000
could result in errors or system failures. The Company utilizes a number of
computer programs across its entire operation. The Company has not completed its
assessment, but currently believes that costs of addressing this issue will not
have a material adverse impact on the Company's financial position. However, if
the Company and third parties upon which it relies are unable to address this
issue in a timely manner, it could result in a material financial risk to the
Company. The Company currently expects that its internal-use software
application will be Year 2000 compliant by no later than January 1999. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and loss of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
50
<PAGE>
Change in the Company's Accountants.
PricewaterhouseCoopers LLP resigned as auditors of the Company as of
August 12, 1998. In connection with the audit of the past two fiscal years ended
December 31, 1996 and December 31, 1997, respectively, and through the date of
dismissal, there were no disagreements with PricewaterhouseCoopers LLP on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope and procedures which, if not resolved to the satisfaction of
PricewaterhouseCoopers LLP, would have caused them to make reference to the
matter in their report. The report of PricewaterhouseCoopers LLP on the
financial statements of the Company for the years ended December 31, 1996 and
December 31, 1997 did not contain an adverse opinion or disclaimer of opinion
and was not qualified or modified as to uncertainty, scope, or accounting
principle.
Description of the Company's Capital Stock.
If the Charter Amendment is effected, the authorized capital stock the
Company immediately prior to the Effective Time of the Merger will consist of
40,000,000 shares of Common Stock, and 3,000,000 shares of Preferred Stock. The
current authorized capital stock of the Company consists of 17,000,000 shares of
Common Stock and 3,000,000 shares of Preferred Stock.
Common Stock. As of _______, 1998, there were approximately ____ shares
of the Company's Common Stock outstanding held by approximately ___
shareholders.
Subject to preferences that may be applicable to any outstanding
Preferred Stock, holders of the Company's Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor. Each holder of the Company's Common Stock is
entitled to one vote for each share held of record by him or her and may not
cumulate votes for the election of directors. In the event of a 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 the
Company's 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 to be issued in connection with the Merger 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 has designated and
issued and may designate and issue in the future.
Preferred Stock. The Company is authorized to issue 3,000,000 shares of
Preferred Stock. Of such shares, 750 shares have been designated Series B
Preferred Stock, of which 632 shares were outstanding as of December
___, 1998. Such shares will automatically convert into shares of Common Stock
upon the closing of the Merger. The remaining 2,999,250 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, 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.
51
<PAGE>
Warrants. The Company has issued Warrants to purchase an aggregate of
1,955,000 shares of Common Stock (the "Public Warrants"). Each Public Warrant
entitles the registered holder thereof to purchase one share of Common Stock at
a price of $2.50, subject to adjustment in certain circumstances, at any time
through and including January 16, 2002. The Public Warrants are redeemable by
the Company, upon the consent of Whale Securities, the Company's underwriter
(the "Underwriter"), upon notice of not less than thirty (30) days, at a price
of $0.10 per Public Warrant, provided that the closing bid price of the Common
Stock on all thirty (30) of the trading days ending on the third day prior to
the day on which the Company gives notice has been at least one hundred fifty
percent (150%) of the then effective exercise price of the Public Warrants. All
holders of Public Warrants have exercise rights until the close of business on
the date fixed for redemption.
The exercise price and number of shares of Common Stock or other
securities issuable on exercise of the Public Warrants are subject to
adjustments in certain circumstances, including in the event of a stock
dividend, recapitalization, reorganization, merger or consolidation of the
Company. However, such Public Warrants are not subject to adjustment for
issuances of Common Stock at a price below the exercise price of the Warrants.
No fractional shares will be issued upon exercise of the Public
Warrants. However, if a holder of Public Warrants exercises all such warrants
then owned of record by him or her, the Company will pay such warrantholder, in
lieu of the issuance of any fractional shares which are otherwise issuable, an
amount of cash based on the market value of the Common Stock on the last trading
day prior to the exercise date.
In connection with its initial public offering, the Company agreed to
grant to the Underwriter and its designees warrants (the "Underwriter's
Warrants") to purchase up to 170,000 shares of Common Stock at a purchase price
of $6.00 per share and/or up to 170,000 warrants (each to purchase one share of
Common Stock at an exercise price of $8.25 per share) at a purchase price of
$0.12 per share. The Underwriter's Warrants are exercisable during the five-year
period commencing on January 16, 1997 (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.
Registration Rights. In addition to the Company's registration
obligations with respect to the Common Stock issued by the Company in connection
with the Merger, the Company has agreed to use its best efforts to have filed a
registration statement covering all of the shares of Common Stock issuable upon
exercise of the Public Warrants on or before the exercise date and to maintain a
current prospectus relating thereto until the expiration of the Warrants. The
Company has failed to maintain a current prospectus relating to the Public
Warrants but believes such Public Warrants may be traded in accordance with Rule
144 of the Securities Act.
Subject to certain limitations and exclusions, the Company has agreed,
at the request of the holders of a majority of the Underwriter's Warrants, at
the Company's expense, to register the securities issuable upon exercise of the
Underwriter's Warrants under the Securities Act of 1933, as amended (the
"Securities Act") on one (1) 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 (7) year period following January
16, 1997.
Pursuant to the terms of a private placement in October 1996 (the
"Bridge Financing"), the Company has agreed to use its best efforts to keep a
registration statement effective with respect to the shares issued in connection
with the Bridge Financing until the earlier of (i) the date that all of the
shares
52
<PAGE>
included in such registration statement have been sold pursuant thereto and (ii)
the date holders of such shares receive an opinion of counsel that the full
amount of their shares may be freely sold by such holders. All registration
expenses related to such shares will be paid by the Company. If the Company
defaults in its obligations to maintain a 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 who participated in the Bridge
Financing. The Company has failed to maintain a current prospectus relating to
the shares issued in connection with the Bridge Financing but believes such
shares may be traded in accordance with Rule 144 of the Securities Act.
In connection with the Merger, the Company has agreed to grant the MCIF
Shareholders certain rights with respect to the registration of the HealthDesk
Shares. Under these provisions, the MCIF Shareholders may request that the
Company file up to one registration statement under the Securities Act with
respect to at least fifty percent (50%) of the HealthDesk Shares. Upon receipt
of such request, the Company is required to notify all other MCIF Shareholders
and to effect as soon as possible such registration, such to certain conditions,
including that the request must be received prior to the one year anniversary of
the Closing of the Merger. Further, whenever the Company proposes to register
any of its securities under the Securities Act for its own account or the
account of other security holders, the Company is required to promptly notify
the MCIF Shareholders of the proposed registration and include all HealthDesk
Shares which such MCIF Shareholder may request be included in such registration,
subject to certain limitations.
In addition to the rights described above, certain holders (the
"Holders") 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 (1) registration statement under the Securities Act with respect
to at least fifty percent (50%) of such Common Stock. Upon receipt of such
request, the Company is required to notify all other Holders and to effect as
soon as practicable such registration, such to certain conditions, including
that the request must be received no later than December 31, 2000. Further,
whenever the Company proposes to register any of its securities under the
Securities Act for its own account or for the account of other security holders,
the Company is required to promptly notify each holder of the proposed
registration and include all Common Stock which such Holder may request be
included in such registration, subject to certain limitations.
53
<PAGE>
INFORMATION CONCERNING MCIF
MCIF's Business.
MCIF is a healthcare consulting firm that provides a wide range of
information technology ("IT") consulting and strategic and operations management
consulting services to a broad cross-section of healthcare industry participants
and healthcare information system vendors. MCIF uses its in-depth institutional
knowledge and nationally deployed group of experienced consultants to help
clients plan and execute business strategies.
MCIF serves clients across a broad cross-section of the healthcare
industry. From its founding in April 1997, through September 30, 1998,
MCIF provided services to over 31 healthcare clients on over 35 engagements.
MCIF provides three principal types of services: (i) management services, which
includes outsourcing, facility management and project management, (ii) technical
services, which includes the development of applications, system maintenance and
implementation and (iii) operations report cards which give CEO/CIO/CFO/CMO and
other department heads a critical review of their systems in relation to
marketplace norms and standards. This review covers costs, systems functions,
performance, scope and user satisfaction. The report card also highlights
strengths and weaknesses of systems, spending, compliance and staffing. MCIF
believes that its long-term relationships, in-depth knowledge of its clients'
needs and its broad range of services provide it with significant advantages
over its competitors in marketing additional services and winning new
engagements. MCIF's goal is to be the preferred, if not sole, provider of a
broad range of services for each of its clients.
MCIF was initially formed as a California limited liability company in
April 1997 and was reorganized as a California corporation in July 1998.
Industry Background.
General
The United States healthcare industry is undergoing rapid, profound
change. In recent years, healthcare expenditures have increased at approximately
twice the rate of inflation and are expected to have exceeded $1.2 trillion in
1997, according to a Healthcare Financing Administration report on the
healthcare industry. MCIF believes that the consolidation of healthcare systems
and the aging of the U.S. population should result in continued dramatic change
in the healthcare industry. Healthcare providers today face external and
internal pressures to meet the competitive demands of the marketplace, comply
with increasing government regulations and cope with the advent of managed care.
These challenges, combined with increased demands on capital resources, are
forcing healthcare providers to seek new ways to structure and manage their
organizations and deliver services. In the past, the financial risk of
healthcare delivery was absorbed principally by third-party payors, and
providers did not focus on cost containment. Today, through managed care
arrangements and provider capitation (under which providers are paid an annual
fixed fee per individual to deliver all healthcare services required by that
individual), the economic risk of healthcare delivery is shifting from payors to
providers. In order to manage this risk, providers must enhance their
understanding of treatment costs, variability of costs and cost control and must
restructure their processes and organizations to enhance efficiency and
accountability. Providers must achieve each of these objectives, while at the
same time continuing to demonstrate increasing quality and consistency in
healthcare delivery.
54
<PAGE>
The shifting of risk from payor to provider has also encouraged and
accelerated consolidation among healthcare providers. In order to achieve
economies of scale, operating efficiencies, and enhanced contracting
capabilities, healthcare organizations such as hospitals, primary care and
multi-specialty physician groups, laboratories, pharmacies, home health services
and nursing homes are integrating horizontally and vertically to create
integrated delivery networks ("IDNs"). The goal of IDNs is to deliver
comprehensive healthcare in a cost-effective manner and accordingly, their
success is dependent in part on effectively managing and delivering information
to the caregivers. As industry consolidation and IDN formations create larger
and increasingly far-reaching healthcare organizations, and as the demand for
information services is increasingly required to cross multiple points of care,
IDNs must place greater focus on information management and business process
solutions to control costs, demonstrate quality, measure performance, predict
outcomes and increase efficiency.
Information Technology
The increased demand for tools to collect, analyze and interpret
clinical, operational and financial information rapidly, flexibly and in a
technological framework that supports today's diverse healthcare environment is
intensifying the reliance of the healthcare industry on IT solutions. As a
result, the healthcare industry is rapidly increasing its spending for IT.
Healthcare IT spending is being driven not only by the heightened need for
better management information systems, but also continued price-performance
improvements in hardware and software, the ability to develop increasingly
user-friendly software applications and the emergence of better application
development tools.
The healthcare IT environment has grown increasingly complex, costly
and burdensome as a result of the challenges of deploying new technology,
maintaining older systems and meeting staffing requirements in a market with an
insufficient pool of qualified IT professionals. At the same time, external
economic factors have forced organizations to focus on core competencies and
trim work forces. The Company believes that healthcare participants will
continue to turn to outside consultants, external management of internal
information systems and full outsourcing as a means of coping with the financial
and technical demands of information systems management. MCIF believes this
dynamic is also occurring across other industries as organizations look to
external management and outsourcing of their information systems in order to
remain focused on their core businesses.
Consulting
The changing business environment has also produced an evolving range
of strategic and operating options for healthcare entities, many of which are
unfamiliar to an industry that had long operated under a non-aligned, third
party payor environment. In response, healthcare participants are formulating
and implementing new strategies and tactics, including redesigning business
processes and workflows, acquiring better technology and adopting or remodeling
customer service and marketing programs. MCIF believes that healthcare
participants will continue to turn to outside consultants to assist in this
process for several reasons: the pace of change is eclipsing their own internal
resources and capacity to identify, evaluate and implement the full range of
options; consultants enable them to develop better solutions in shorter time
frames; and purchasing consulting expertise can be more cost effective. By
employing outside expertise, healthcare providers can often improve their
ability to compete by more rapidly deploying new processes.
The healthcare consulting industry is highly fragmented and consists
primarily of: (i) larger systems integration firms, including the consulting
divisions of the national accounting firms, which offer healthcare as one of
their specialty areas; (ii) healthcare information systems vendors which focus
on
55
<PAGE>
services relating to the software solutions they offer; (iii) healthcare
consulting firms, many of whom focus on selected specialty areas, such as
strategic planning or vendor-specific implementation; and (iv) large general
management consulting firms that do not specialize in healthcare consulting
and/or offer systems implementation. Increasingly, the competitive advantage in
healthcare consulting will be gained by those consulting firms which (i) are
able to marshal the necessary expertise and resources to offer comprehensive
skill sets to clients; (ii) have the strength and consistency of advice along
the entire service continuum (from strategy to selection to implementation);
(iii) offer the flexibility to meet the challenges of the rapidly changing
healthcare and IT industries; and (iv) have the ability to recruit, educate and
deploy a diverse set of personnel.
MCIF's Solution.
MCIF uses its in-depth institutional knowledge of healthcare delivery
systems and nationally deployed group of experienced consultants to help clients
plan and execute business strategies. MCIF offers its clients a continuum of
solutions, ranging from strategic planning and operations management consulting,
to information system planning, implementation and integration, to interim
management and outsourcing. For each client and engagement MCIF structures a
project team that understands the complexities of the healthcare environment for
that particular client and can concurrently address the management and technical
ramifications of change and improvement. In structuring an engagement, MCIF does
not impose any preordained program on its clients. Rather, utilizing the
professional judgment derived from their years of experience, MCIF's consultants
work in concert with each client to develop custom-tailored solutions. As each
client relationship evolves, MCIF's professionals add their experiences to its
knowledge and client resource databases and to collaboration with colleagues.
This unified team approach helps to ensure high quality, consistent and
geographically seamless client service.
MCIF's services integrate many diverse facets and constituencies of the
healthcare industry. Through its strategic consulting, MCIF brings together the
healthcare and business relationships required to establish and maintain
efficient and collaborative healthcare delivery networks. Through its operations
management consulting, MCIF links the needs and optimizes the contributions of
clinical, information and management personnel. MCIF's staff has in-depth
knowledge and experience in clinical and physician-use systems. This experience
dates back to 1968 and includes several systems. Through its value-added
information systems implementation and integration consulting, MCIF forges a
link between healthcare information systems vendors and their customers by
helping each group maximize the potential of existing technology. MCIF also
provides a bridge between existing and emerging technologies by supplying
vendors with needed knowledge to develop innovations focused on the changing
needs of the marketplace and by assisting healthcare industry participants to
assess the relative merits and risks of selecting and implementing new
technologies. This enables MCIF to help its clients take advantage of the
opportunities presented by emerging technologies such as the internet and
intranet, local and wide area communication networks, telemedicine and document
imaging solutions.
In addition, MCIF offers a flexible program of outsourcing services
ranging from interim management to personnel acquisition and facilities
management to total outsourcing. MCIF's outsourcing program enables healthcare
providers to simplify their management agenda, improve their return on
information systems investment and strengthen their technology management by
ensuring client access to MCIF's skilled technical labor pool.
To assist its clients in achieving the optimal strategic, operational
and/or IT solution for their business needs, MCIF implements solutions that are
unbiased toward specific organizations including hardware and software vendors.
MCIF offers an objective assessment of the advantages and disadvantages
56
<PAGE>
of each particular strategic, operational and/or IT solution, including packaged
software applications, platforms and operating systems. Through its unbiased
solutions, MCIF can take a flexible approach to its clients' business problems
and provide them with the best solution.
MCIF's Strategy.
MCIF's goal is to become a leading outsourcing company that provides
services to a cross section of healthcare market participants and healthcare
information systems vendors. MCIF's strategy for achieving that goal includes
the following key elements:
Recruit Experienced Personnel. MCIF's objective is to continue to
recruit experienced, highly skilled healthcare technology experts who are
experienced in virtually all major healthcare software and hardware
confirgurations in acute care, managed care, clinical and physician settings.
Leverage Strategic Relationships. MCIF's founders, Bill W. Childs, and
Garfield E. Thompson, each have extensive, long-term healthcare contacts in the
industry. Bill Childs has been in the business of designing and building
healthcare information systems for professional use since 1968. On September 21,
1998, David Koeller joined MCIF as its Chief Operating Officer. Mr. Koeller was
formerly a Vice President with HBOC, a leading provider of systems to the
healthcare industry and prior to that, was the President of CyCare, a leading
provider of ambulatory and physician systems to the healthcare industry. MCIF
seeks to leverage their experience to establish strategic relationships with
various healthcare market participants. For example, MCIF recently began
providing project management and technical services to Kaiser Permanente to
develop interfaces between Kaiser's healthcare information systems and various
laboratory equipment operating at Kaiser Laboratories throughout Southern
California. MCIF has also contracted with two hospitals in Hawaii for
implementation of multiple systems and outsources several hospital data
processing departments in Southern California.
Services.
MCIF offers its clients comprehensive healthcare consulting services,
from visioning, to strategy, to selection of appropriate solutions, to
implementation, on-going management and outsourcing. MCIF offers custom-tailored
solutions based on an assessment of each client's needs. MCIF offers services in
the following broadly defined categories:
Information Technology Consulting. MCIF provides high quality services
in developing long term IT strategy through selection of technology and
products, systems implementation, integration and management, and contract
negotiation. While MCIF's consultants have a wide variety of skills, the
majority have concentrated capabilities in the IT area. This expertise is
derived from a combination of work for MCIF clients as well as experience gained
prior to joining MCIF and includes evaluation, implementation, operational or
other experience with one or more established and emerging healthcare
information systems or technologies offered by over 100 information system
vendors.
Management Consulting. MCIF's management consulting services include
focus areas such as strategic planning, analysis of current industry and
competitive conditions, integration services, formation of physician-hospital
alliances, mergers and affiliations, multi-specialty group practice formation,
facility planning, practice valuations and acquisitions, IDN formation,
financial advice and establishment of managed care organizations.
57
<PAGE>
Information Technology Outsourcing. MCIF enables healthcare providers
to simplify their management agenda, improve their return on information systems
investment and strengthen their technology management by ensuring client access
to MCIF's skilled labor pool. MCIF's outsourcing program offers the client an
array of services, functions and economic elements which can be tailored to the
specific client program/agenda, including IT management, IT planning and
budgeting, applications support, applications implementation, IT operations,
network and financial management and risk sharing.
Operations Consulting. MCIF provides business process workflows and
operations improvement as methods to help clients eliminate organizational
redundancy, reduce cost and implement changes in the areas of patient care,
post-acute care, administrative services, clinical resource allocation, quality
management, finance, physician support and nursing. MCIF can provide executive
and staff education, interim management and operational assistance.
Set forth below is a list of the healthcare consulting services and
skills offered by MCIF:
<TABLE>
<CAPTION>
<S> <C>
CATEGORY DESCRIPTION OF SERVICES
-------- -----------------------
INFORMATION TECHNOLOGY CONSULTING Strategic information system planning, budgeting,
development and implementation
Systems and departmental audits
and assessments Interim
management and facilities
management Legacy system
maximization System
implementation and integration,
including products of SMS,
Cerner, HBOC, MEDITECH and others
Network and client-server
planning and design
STRATEGIC AND OPERATIONS Strategic and tactical planning
MANAGEMENT CONSULTING Re-engineering and
business process improvement and
redesign Project management
Decision Support and Executive
Information Systems (DSS/EIS)
OUTSOURCING IT planning, budgeting and management
Operations and management staffing and resources
Project management
Applications implementation
FINANCIAL CONSULTING Revenue enhancement
Business office review
CLINICAL CONSULTING Clinical systems implementation
Clinical workflow analysis and
re-engineering Information
systems selection and
implementation Interim management
Departmental operations analysis
AMBULATORY PRACTICE Ambulatory care strategic planning
MANAGEMENT CONSULTING Operations assessment and re-engineering
Systems selection and implementation
Practice revenue analysis
Facilities management
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Integration strategies
PHYSICIAN SERVICES Primary care network development
Multi-specialty group practice formation
Financial modeling, budgeting and financial
performance improvement
Managed care and market research
</TABLE>
Employees.
MCIF believes that one of its key strengths lies in its ability to
attract, develop, motivate and retain a talented, creative and highly skilled
work force of senior-level professionals who are specialists in one or more
areas of healthcare and/or information technology. MCIF's consultants are highly
experienced, many of whom have established their credentials as healthcare
executives and senior management of healthcare entities, business office
managers, medical records administrators, nurse administrators, nurses,
laboratory technicians, physician assistants, medical technologists, physicians,
hospital admissions directors, and information management and information
systems technical personnel. As of August 31, 1998, MCIF employed over 38
employees, over 32 of whom were consultants. In addition, MCIF has employed 15
independent contractors.
Sales and Marketing.
MCIF's business development efforts are based upon a highly organized,
company-wide, consistent approach. All personnel are trained and reinforced in
MCIF's marketing methods and philosophy, and are encouraged to identify, develop
and pursue client service opportunities. MCIF's marketing efforts are directed
by senior management. The strategic service group leaders focus on client
development strategies, geographic market penetration and cross-selling clients.
Business development is an integral part of the formal responsibilities at all
levels of MCIF's management and MCIF sets business development goals on both a
departmental and individual basis.
MCIF's business development efforts focus primarily on identifying key
decision makers in the healthcare industry, determining the value to be provided
to each potential client and then managing the sales process to completion. At
any given time, numerous MCIF professionals are active in the development of
business from either a new or existing client, and the client resource database
enables all MCIF personnel to access up-to-date information on MCIF's efforts
with respect to a client or client prospect, identifies other MCIF contacts with
that client, and highlights the particular needs expressed by the client to
date.
In addition, MCIF relies upon its reputation in the marketplace, the
personal contacts and networking of MCIF's professionals, direct industry
marketing programs, trade shows, and the industry presence maintained by MCIF
professionals to enhance its business development efforts. MCIF's marketing
efforts are enhanced by its presence within the healthcare industry by virtue of
its employees' speaking engagements and publications on topics affecting
healthcare. MCIF's views on a wide range of healthcare and IT topics are
frequently solicited and quoted for articles in major industry journals and
books. MCIF's healthcare consultants have been published extensively on current
and emerging topics in healthcare information and management and have
participated in external speaking engagements and presentations to industry
associations and client audiences across the nation.
59
<PAGE>
MCIF provides a compensation system designed to foster an active focus
at all levels within the organization on growth and business development from a
company-wide perspective. Managers and other middle management earn incentive
compensation based on group and company-wide performance goals. Senior
management earns incentive-based compensation based on company-wide performance
goals.
Competition.
The market for MCIF's services is highly fragmented, highly competitive
and is subject to rapid change. MCIF believes that it currently competes
principally with systems integration firms, national consulting firms, including
the consulting divisions of the national accounting firms, information system
vendors, service groups of computer equipment companies, facilities management
companies, general management consulting firms and regional and specialty
consulting firms. Many of MCIF's competitors have significantly greater
financial, technical and marketing resources than MCIF, generate greater
revenues and have greater name recognition than MCIF. Moreover, those
competitors that sell or license their own software may in the future attempt to
limit or eliminate the use of third party consultants, such as MCIF, to
implement and/or customize such software. In addition, vendors whose systems may
enjoy wide market acceptance and large market share could enter into exclusive
or restrictive agreements with other consulting firms which could eliminate or
substantially reduce MCIF's implementation work for those systems. There are
relatively low barriers to entry into MCIF's markets, and MCIF has faced and
expects to continue to face additional competition from new entrants into its
markets. In addition, combinations and consolidations in the consulting industry
will give rise to larger competitors, whose relative strengths are impossible to
predict. MCIF also competes with its clients' internal resources, particularly
where these resources represent a fixed cost to the client. This internal client
competition may heighten as consolidation of healthcare providers creates
organizations large enough to support internal information management
capabilities.
MCIF believes that the principal competitive factors in its market
include reputation, highly experienced workforce, industry expertise, full array
of offerings, project management expertise, vendor neutrality, price, quality of
service, responsiveness and speed of implementation and delivery. There can be
no assurance that MCIF will be able to compete effectively on pricing or other
requirements with current and future competitors or that competitive pressures
faced by MCIF will not cause MCIF's revenue or operating margins to decline or
otherwise materially adversely affect its business, financial condition and
results of operations.
Intellectual Property and other Proprietary Rights.
MCIF's success is in part dependent upon its proprietary internal
information and communications systems, databases, tools and the methods and
procedures that it has developed specifically to serve its clients. MCIF has no
patents; consequently, it relies on a combination of non-disclosure and other
contractual arrangements and copyright, trademark and trade secret laws to
protect its proprietary systems, information, and procedures. There can be no
assurance that the steps taken by MCIF to protect its proprietary rights will be
adequate to prevent misappropriation of such rights or that MCIF will be able to
detect unauthorized use and take appropriate steps to enforce its proprietary
rights. MCIF believes that its systems and procedures and other proprietary
rights do not infringe upon the proprietary rights of third parties. There can
be no assurance, however, that third parties will not assert infringement claims
against MCIF in the future or that any such claims will not require MCIF to
enter into materially adverse license arrangements or result in protracted and
costly litigation, regardless of the merits.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
60
<PAGE>
MCIF was formed as a limited liability company in April 1997. The
members originally capitalized MCIF with aggregate contributions of $70,000. In
June 1998, MCIF was converted into a California corporation and the members'
initial contributions were converted to shares of common stock of MCIF. For
1997, results of operations include the period from April 14, 1997 (inception)
through December 31, 1997 (the "1997 Period"). Results of operations for 1998
are for the nine month period ended September 30, 1998. Since these two periods
are approximately of the same length of time, they are the most comparable
periods of time. For the period from April 14, 1997 (inception) to December 31,
1997, MCIF incurred a loss of $162,389. For the nine month period ended
September 30, 1998, MCIF incurred a loss of $34,136.
Results of Operations
Revenue, which consists primarily of information system consulting and
outsourcing to the healthcare industry, increased from $681,332 for the 1997
Period to $2,306,099 for the nine months ended September 30, 1998. The increase
was primarily attributable to an increase in new contracts and expanded services
pursuant to existing contracts.
Direct expenses increased from $261,618 for the 1997 Period to
$1,486,578 for the nine month period ended September 30, 1998. The increase was
primarily a result of the increase in new business and expanded services
pursuant to existing contracts. Direct expenses consists primarily of salaries
and wages and subcontractor fees (consultants). The number of consultants
engaged by MCIF increased from 14 at December 31, 1997 to 44_at September 30,
1998.
Operating expenses increased from $580,506 for the 1997 Period to
$849,857 for the nine months ended September 30, 1998. The increase was
primarily attributable to the increase in MCIF's revenues during the same period
and the need to hire additional corporate officers to manage a larger and
potentially public organization. The corporate staff increased from 4 at
December 31, 1997 to 8 at September 30, 1998 and includes the hiring of a new
President/Chief Operating Officer and a Senior Vice President/Chief Financial
Officer.
Liquidity and Capital Resources
At September 30, 1998, MCIF had cash and cash equivalents of $24,511 as
compared to $0 at December 31, 1997. During 1998, approximately $212,000 was
used in operating activities, principally as a result of the expanding business
base and hiring of additional personnel. Increases in accounts receivables and
payables were a result of an increased number of business contracts for MCIF.
From August 1998 through November 1998, MCIF has borrowed an aggregate
of $500,000 from the Company. In addition, MCIF expects to borrow an additional
$150,000 from the Company prior to the consummation of the Merger. Upon
conusmmation of the merger, these loans will be deemed to be repaid.
MCIF's capital requirements depend on numerous factors, including the
completion of the Merger. MCIF has experienced or will experience a substantial
increase in capital expenditures, primarily for computer equipment and office
furniture, since its inception consistent with the growth in MCIF's operations
and staffing, and anticipates that this will continue in the near future. In
addition, MCIF expects to evaluate acquisitions of and investments in businesses
providing related
61
<PAGE>
services to the healthcare industry. Assuming consummation of the Merger, MCIF
currently anticipates that its available funds will be sufficient to meet its
anticipated needs for working capital through March 31, 1999.
MCIF is in the process of working with its software vendors to ensure
that its systems are prepared for the year 2000. In addition, MCIF is working
with its external suppliers and service providers to ensure that they and their
systems will be able to support the Company's needs in preparation for the year
2000. Management for MCIF does not anticipate that MCIF will incur significant
operating expenses or be required to invest heavily in computer systems
improvements to be year 2000 compliant. However, significant uncertainty exists
concerning the potential costs and effects associated with any year 2000
compliance. Any year 2000 compliance problems of either MCIF, its vendors or
customers could have a material adverse effect on MCIF's business, results of
operations and financial condition.
Unaudited Pro Forma Combined Financial Statements.
The accompanying pro forma condensed financial statements illustrate
the effect to the Asset Sale to PATI and the Merger with MCIF on the Company's
financial position and results of operations. The pro forma condensed balance
sheet as of September 30, 1998 is based on the historical balance sheet of the
Company and MCIF as of that date. The pro forma condensed statements of
operations for the year ended December 31, 1997 and the nine months ended
September 30, 1998 are based on the historical statements of operations of the
Company for those periods and the historical statements of operations of MCIF
for the period from April 1, 1997 (inception) to December 31, 1997 and the nine
months ended September 30, 1998. The pro forma condensed statements of
operations assume the Asset Sale and the Merger took place on January 1, 1997
and 1998.
The pro forma condensed financial statements are not intended to be
indicative of the financial position or results of operations which actually
would have been realized had the Asset Sale and Merger occurred at the times
assumed, nor of the future results of operations of the combined entities. The
accompanying pro forma condensed financial statements should be read in
conjunction with the historical financial statements and notes of the Company
and MCIF.
62
<PAGE>
Pro Forma Condensed Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
September 30, 1998
------------------------------------------------------------------
Pro Forma Pro Forma
The Company MCIF Adjustments Combined
------------- ------------ -------------- ------------
Assets
<S> <C> <C> <C> <C>
Cash and cash equivalents ........ $ 715,264 $ 24,511 654,920(1) $ 1,394,695
Accounts receivable .............. 642,575 642,575
Other current assets ............. 491,877 1,724 (353,010)(3) 34,647
(105,944)(1)
------------ ------------ ------------
Total current assets ........... 1,207,141 668,810 2,071,917
Property and equipment, net ...... 284,129 3,621 (112,845)(1) 174,905
Goodwill ......................... -- -- 3,069,406(2) 3,069,406
Other assets ..................... 109,249 18,307 (90,266)(2) 18,307
(18,983)(1)
------------ ------------ ------------
Total assets ................... $ 1,600,519 $ 690,738 $ 5,334,535
============ ============ ============
Liabilities and Shareholders' Equity/
(Deficit)
Accounts payable and accrued
liabilities .................... $ 183,055 $ 117,719 (3,010)(3) $ 319,364
30,000(2)
(25,000)(1)
16,600(1)
Loans Payable .................... -- 452,000 (350,000)(3) 102,000
Other current liabilities ........ -- 247,544 247,544
------------ ------------ ------------
Total liabilities .............. 183,055 817,263 668,908
------------ ------------ ------------
Shareholders' equity/(deficit)
Convertible preferred stock ...... 1,248,673 -- (1,248,673)(4) --
Common stock ..................... 12,257,505 70,000 (70,000)(2) 16,403,793
75,000(1)
2,822,615(2)
1,248,673(4)
Warrants ......................... 195,687 -- 195,687
Accumulated deficit .............. (12,284,401) (196,525) 350,548(1) (11,933,853)
196,525(2)
------------ ------------ ------------
Total shareholders' equity/(deficit) 1,417,464 (126,525) 4,665,627
------------ ------------ ------------
Total liabilities and
shareholders' equity (deficit) $ 1,600,519 $ 690,738 $ 5,334,535
============ ============ ============
</TABLE>
63
<PAGE>
Pro Forma Condensed Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1997
------------------------------------------------------------------------
Pro Forma Pro Forma
The Company MCIF Adjustments Combined
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Total revenue....................... $ 382,362 $ 681,332 $ (382,362)(6) $ 681,332
Direct Expenses..................... -- 261,618 261,618
------------- ------------- -------------
Gross Profit........................ 382,362 419,714 419,714
Operating expenses:
Product development.............. 2,248,018 -- (2,248,018)(6) --
Sales and marketing.............. 1,422,111 -- (1,422,111)(6) --
General and administrative....... 506,132 580,506 1,086,638
Amortization of goodwill......... -- -- 328,865(5) 328,865
------------- ------------- -------------
Loss from operations................ (3,793,899) (160,792) (995,789)
Interest income.................. 137,375 -- 137,375
Interest expense................. (14,900) (1,597) (16,497)
Amortization of discount and
issuance costs associated with
bridge financing............... (145,023) -- (145,023)
------------- ------------- -------------
Loss from continuing operations before
income taxes .................... (3,816,447) (162,389) (1,019,934)
Provision for income taxes 800 -- 800
------------- ------------- -------------
Loss from continuing operations..... $ (3,817,247) $ (162,389) $ (1,020,734)
============= ============= =============
Loss per share information (7) $ (0.73) $ (0.09)
============= =============
Basic and diluted loss per
share from continuing operations.
Weighted average number of shares of
common stock, basic and diluted.. 5,212,060 11,292,370
============= =============
</TABLE>
64
<PAGE>
Pro Forma Condensed Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1998
-------------------------------------------------------------------------
Pro Forma Pro Forma
The Company MCIF Adjustments Combined
------------- ------------- -------------
<S> <C> <C> <C> <C>
Total revenue....................... $ 56,458 $ 2,306,099 $ (56,458)(6) $ 2,306,099
Direct Expenses..................... -- 1,486,578 1,486,578
------------- ------------- -------------
Gross Profit........................ 56,458 819,521 819,521
Operating expenses:
Product development.............. 1,119,503 -- (1,119,503)(6) --
Sales and marketing.............. 675,668 -- (675,668)(6) --
General and administrative....... 208,265 849,857 1,058,122
Amortization of goodwill......... -- -- 328,865(5) 328,865
Non-recurring restructuring costs 220,697 -- 220,697
------------- ------------- -------------
Income/(loss) from operations....... (2,167,675) (30,336) (788,163)
Interest income.................. 49,563 -- 49,563
------------- ------------- -------------
Income/(loss) from continuing
operations before income taxes .. (2,118,112) (30,336) (738,600)
Provision for income taxes.......... 600 3,800 4,400
------------- ------------- -------------
Income/(loss) from continuing
operations....................... $ (2,118,712) $ (34,136) $ (743,000)
============= ============= =============
Loss per share information (7):
Basic and diluted loss per share from
continuing operations............ $ (0.37) $ (0.05)
============= =============
Weighted average number of shares of
common stock, basic and diluted.. 5,717,570 14,007,523
============= =============
(1) Gives effect to:
Sale to Patient Infosystems of:
Cash received from the sale of assets and equipment $ 654,920
Prepaid and other current assets (105,944)
Other assets (18,983)
Net book value of the equipment, software and furniture sale (112,845)
Accrued liabilities paid by the Company (16,600)
Reversal of Patient Info Systems licensing fee 25,000
Issuance of 150,000 shares of Common Stock to MIIX as part of the asset sale (75,000)
Gain on sale to Patient Infosystems $ 350,548
(2) Gives effect to:
Issuance of 5,645,230 shares of Common Stock at $0.50 per share to MCIF as
a result of the merger $ 2,822,615
Accrual of merger related expenses 30,000
Elimination of MCIF equity (70,000)
MCIF deficit 196,525
Deferred merger costs 90,266
Goodwill $ 3,069,406
The historical cost of MCIF's assets and liabilities are approximately the
same as their fair value.
</TABLE>
65
<PAGE>
(3) The elimination of inter-company loans and related interest.
(4) Gives effect to the conversion of all outstanding shares of Series B
Preferred Stock into 2,525,000 shares of Common Stock upon the consummation
of the merger.
(5) Goodwill is estimated to have a useful life of seven years and is amortized
using the straight-line method. This Pro Forma Condensed Statement of
Operations for the year ended December 31, 1997 and the nine months ended
September 30, 1998 reflects nine-month amortization for those periods 1997
and 1998 respectively.
(6) Gives effect to the capitalized asset sale as if it had taken place January
1, 1997 and 1998, which the Company's current operation is assumed to be
discontinued. The reduction in depreciation expense as a result of the
asset sold is immaterial.
(7) Pro forma loss per share from continuing operations is based on the
weighted average number of shares of Common Stock outstanding during the
periods after giving pro forma effect to the conversion of the Company's
outstanding Series B Preferred Stock to Common Stock and the issuance of
Common Stock to MCIF and MIIX in connection with the merger as of April 1,
1997 and January 1, 1998. Options and warrants to purchase common stock
were excluded in the calculation of the pro forma loss per share, as their
effect would be antidilutive.
66
<PAGE>
PROPOSAL NO. 3 - CHARTER AMENDMENT
Under California law, the Company may only issue shares of Common Stock
to the extent such shares have been authorized for issuance under the Company's
Articles of Incorporation. The Articles of Incorporation currently authorize the
issuance by the Company of up to 17,000,000 shares of Common Stock, no par
value, and 3,000,000 shares of Preferred Stock. As of December ___,
1998, 5,792,845 shares of the Company's Common Stock were issued and
outstanding, 406,396 unissued shares of Common Stock were reserved for issuance
under the Company's stock option plans, 2,525,000 unissued shares of Common
Stock were reserved for issuance upon conversion of outstanding Series B
Preferred Stock, a total of 1,955,000 shares of Common Stock were reserved for
issuance upon exercise of outstanding publicly traded convertible warrants and a
total of 340,000 shares of Common Stock were reserved which may be issuable upon
exercise of warrants for the purchase of 340,000 shares of the Company's Common
Stock, leaving less than 5,640,759 shares of Common Stock unissued and
unreserved. To ensure sufficient shares of Common Stock will be available for
issuance by the Company, the Board of Directors, effective July 29, 1998,
unanimously approved, subject to shareholder approval, the Charter Amendment to
increase the number of shares of such Common Stock authorized for issuance from
17,000,000 to 40,000,000. In addition, by adopting the Charter Amendment, the
Company intends to incorporate the rights, preferences, privileges and
restrictions of the Company's Series B Preferred Stock, currently set forth in
the Certificate of Determination of Rights, Preferences, Privileges and
Restrictions of Series B Preferred Stock of the Company, filed with the
Secretary of State of the State of California on May 13, 1998, and as amended by
the Certificate of Amendment of the Certificate of Determination of Rights,
Preferences, Privileges and Restrictions of Series B Preferred Stock of the
Company, filed with the Secretary of State of the State of California on July 7,
1998. Attached hereto as Annex V is a copy of the Charter Amendment.
Purpose and Effect of the Charter Amendment.
The principal purpose of the Charter Amendment is to authorize
additional shares of Common Stock which will be available in the event the Board
of Directors determines that it is necessary or appropriate to issue additional
shares to raise additional capital, to acquire another company or its business
or assets, to establish strategic relationships with corporate partners, to
permit future stock dividends or stock splits, or to provide equity incentives
to employees and officers. In particular, the Company currently believes that it
may be required to issue Common Stock or securities convertible into or
exercisable for Common Stock in order to raise additional capital to finance
operations and transactions during the next several months. However, there can
be no assurance that the Company will be successful at raising additional
capital. Nevertheless, the Company's Board of Directors believes it is prudent
to increase the number of authorized shares of Common Stock at this time in
order to avoid the expense and delay in seeking shareholder approval at another
special shareholders' meeting held at a later date (except as may be required by
applicable law or regulatory authorities or by the rules of any stock exchange
on which the Company's securities may then be listed) and to provide flexibility
with respect to the above-mentioned matters.
The increase in authorized Common Stock will not have any immediate
effect on the rights of existing shareholders. However, the Board will have the
authority to issue authorized Common Stock without requiring future shareholder
approval of such issuances, except as may be required by applicable law. To the
extent that additional authorized shares are issued in the future, they may
decrease the existing shareholders' percentage equity ownership and, depending
on the price at which they are issued, could be dilutive to the existing
shareholders. The current holders of Common Stock have no preemptive rights.
67
<PAGE>
The increase in the authorized number of shares of Common Stock, and
the subsequent issuance of such shares, could have the effect of delaying or
preventing a change in control of the Company without further action by the
shareholders. Shares of authorized and unissued Common Stock could (within the
limits imposed by applicable law) be issued in one or more transactions which
would make a change in control of the Company more difficult, and therefore less
likely. Currently, the rules of the Nasdaq SmallCap Market, on which the
Company's Common Stock is listed, prohibit the Company from issuing shares of
its Common Stock without shareholder approval for such issuance, if the
issuance, among other things, (i) would result in a change of control of the
Company, (ii) in connection with an acquisition of the stock or assets of
another company, would result in the newly issued stock having voting power
equal to or in excess of 20% of the voting power outstanding before the issuance
or (iii) in connection with a transaction other than a public offering, is at a
price less than the greater of book or market value and equals 20% or more of
the voting power outstanding before the issuance. Any such issuance of
additional stock could have the effect of diluting the earnings per share and
book value per share of outstanding shares of Common Stock and Preferred Stock
and such additional shares could be used to dilute the stock ownership or voting
rights of a person seeking to obtain control of the Company.
The additional shares of Common Stock to be authorized pursuant to the
proposed amendment and restatement will have no par value per share and be of
the same class of Common Stock as is currently authorized under the Articles of
Incorporation. There are no outstanding preemptive rights relating to such
additional shares of Common Stock and the Board of Directors has no plans to
grant such rights with respect to any such shares.
The Board of Directors is not currently aware of any attempt to take
over or acquire the Company. While it may be deemed to have potential
anti-takeover effects, the proposed amendment to increase the authorized Common
Stock is not prompted by any specific effort or takeover threat currently
perceived by management.
Vote Required and Board of Directors' Recommendation.
The affirmative vote of a majority of the outstanding shares of Common
Stock and the affirmative vote of a majority of the outstanding shares of Series
B Preferred Stock are required for approval of this proposal. Abstentions and
broker non-votes will each be counted as present for purposes of determining the
presence of a quorum at the Special Meeting of Shareholders. Abstentions and
broker non-votes will have the same effect as a negative vote on this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL AND
ADOPTION OF THE CHARTER AMENDMENT.
68
<PAGE>
PROPOSAL NO. 4 - OPTION AMENDMENTS
As of _____________, 1998, only 438,359 shares remained available for
future option grants under the Company's 1994 Stock Option Plan (the "Option
Plan"), which amount the Board of Directors believes to be insufficient to
satisfy the Company's anticipated equity incentive objectives. Accordingly, in
July 1998, the Board of Directors approved, subject to shareholder approval, the
reservation of an additional 2,155,245 shares for issuance under the Option
Plan.
The Internal Revenue Code of 1986, as amended (the "Code") limits the
amount of compensation paid to a corporation's chief executive officer and four
other most highly compensated officers which may be deductible as an expense for
federal income tax purposes. To enable the Company to continue to deduct in full
all amounts of ordinary income recognized by its executive officers in
connection with options granted under the Option Plan, the Board of Directors
has amended the Option Plan, subject to shareholder approval, to limit to
500,000 the maximum number of shares for which options may be granted to any
employee in any fiscal year (the "Grant Limit").
The shareholders are now being asked to approve the increase from
844,755 to 3,000,000 in the maximum aggregate number of shares that may be
issued under the Option Plan and the establishment of the Grant Limit. The Board
of Directors believes that approval of the Option Amendments is in the best
interests of the Company and its shareholders because the availability of an
adequate stock option program is an important factor in attracting, motivating
and retaining qualified officers, employees and consultants essential to the
success of the Company and in aligning their long-term interests with those of
the shareholders.
Description of the Option Plan
The following summary of the Option Plan, as amended, is qualified in
its entirety by the specific language of the Option Plan, a copy of which is
attached hereto as Annex VI.
General. The Option Plan provides for the grant of incentive stock
options within the meaning of section 422 of the Code and nonstatutory stock
options. As of ___________, 1998, options to purchase 105,245 shares of Common
Stock granted pursuant to the Option Plan had been exercised, options to
purchase an aggregate of 406,396 shares were outstanding, and 2,488,359 shares
of Common Stock remained available for future grants under the Option Plan,
provided that the shareholders approve the increase in the number of shares
authorized under the Option Plan approved by the Board of Directors in July
1998.
Shares Subject to Plan. The Board has amended the Option Plan, subject
to shareholder approval, to increase by 2,155,245 the maximum number of
authorized but unissued or reacquired shares of the Company's Common Stock
issuable thereunder to an aggregate of 3,000,000. In the event of any stock
dividend, stock split, recapitalization, combination, or similar change in the
capital structure of the Company, appropriate adjustments will be made to the
shares subject to the Option Plan, to the Grant Limit and to outstanding
options. To the extent any outstanding option under the Option Plan expires or
terminates prior to exercise in full, the shares of Common Stock for which such
option is not exercised are returned to the Option Plan and become available for
future grant.
Administration. The Option Plan is administered by the Board of
Directors or a duly appointed committee of the Board (hereinafter referred to as
the "Board"). Subject to the provisions of the Option Plan, the Board determines
the persons to whom options are to be granted, the number of shares to be
69
<PAGE>
covered by each option, whether an option is to be an incentive stock option or
a nonstatutory stock option, the terms of exercisability of each option and the
vesting of the shares acquired, the maximum term of each option, and all other
terms and conditions of the options. The Board will interpret the Option Plan
and options granted thereunder, and all determinations of the Board will be
final and binding on all persons having an interest in the Option Plan or any
option.
Eligibility. All employees (including directors who are employees),
non-employee directors and consultants of the Company or of any present or
future parent or subsidiary corporations of the Company are eligible to
participate in the Option Plan. As of September 30, 1998, the Company had three
employees, including 1 executive officer and 5 directors. Any person eligible
under the Option Plan may be granted a nonstatutory option. However, only
employees may be granted incentive stock options, and any officer of the Company
may not acquire shares of Common Stock under the Option Plan in excess of 25% of
the total share reserve available for issuance under the Option Plan. In
addition, subject to shareholder approval, no employee may be granted, in any
fiscal year, options under the Option Plan for more shares than the Grant Limit.
Terms and Conditions of Options. Each option granted under the Option
Plan is evidenced by a written agreement between the Company and the optionee
specifying the number of shares subject to the option and the other terms and
conditions of the option, consistent with the requirements of the Option Plan.
The exercise price per share must equal at least the fair market value of a
share of the Company's Common Stock on the date of grant of an incentive stock
option and at least 85% of the fair market value of a share of the Common Stock
on the date of grant of a nonstatutory stock option. The exercise price of any
option granted to a person who at the time of grant owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or any parent or subsidiary corporation of the Company (a "Ten Percent
Shareholder") must be at least 110% of the fair market value of a share of the
Company's Common Stock on the date of grant. On December __, 1998, the
closing price of a share of the Company's Common Stock was $________, as
reported on the Nasdaq SmallCap Market.
The exercise price may be paid in cash, by check, or in cash
equivalent, by tender of shares of the Company's Common Stock owned by the
optionee having a fair market value not less than the exercise price, by the
assignment of the proceeds of a sale with respect to some or all of the shares
of Common Stock being acquired upon the exercise of the option, by means of a
promissory note (to the extent permitted by the Board), or by any combination of
these.
Options granted under the Option Plan will become exercisable and
vested at such times and subject to such conditions as specified by the Board.
Generally, options granted under the Option Plan are exercisable on and after
the date of grant, subject to the Company's right to reacquire at the optionee's
exercise price any unvested shares held by the optionee upon termination of
employment or service with the Company or if the optionee attempts to transfer
any unvested shares. Shares subject to options generally vest in installments
subject to the optionee's continued employment or service. The maximum term of
an option granted under the Option Plan is ten years, except that an incentive
stock option granted to a Ten Percent Shareholder may not have a term longer
than five years.
Stock options are nontransferable by the optionee other than by will or
by the laws of descent and distribution, and are exercisable during the
optionee's lifetime only by the optionee.
Corporate Transaction. The Option Plan provides that in the event of
(i) a merger or consolidation to which the Company is a party, or (ii) the sale,
exchange or transfer of all or substantially all of the assets of the Company,
wherein the shareholders of the Company immediately before any such
70
<PAGE>
event do not retain direct or indirect beneficial ownership of more than 50% of
the total combined voting power of the voting stock of the Company, its
successor, or the corporation to which the assets of the Company were
transferred, the successor corporation or parent corporation thereof may assume
the options outstanding under the Option Plan. To the extent that the options
outstanding under the Option Plan are not assumed or exercised prior to such
event, they will terminate.
Amendment or Modification. The Option Plan currently provides that,
unless sooner terminated, no stock options may be granted under the Option Plan
after June 2004. The Board may amend or modify the Option Plan at any time, but,
without shareholder approval, the Board may not (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. No amendment
or modification of the Option Plan may adversely affect an outstanding option
without the consent of the optionee.
Summary of Federal Income Tax Consequences of the Option Plan.
The following summary is intended only as a general guide as to the
United States federal income tax consequences under current law of participation
in the Option Plan and does not attempt to describe all possible federal or
other tax consequences of such participation or tax consequences based on
particular circumstances.
Incentive Stock Options. An optionee recognizes no taxable income for
regular income tax purposes as the result of the grant or exercise of an
incentive stock option qualifying under section 422 of the Code. Optionees who
do not dispose of their shares for two years following the date the option was
granted nor within one year following the exercise of the option will normally
recognize a mid-term or long-term capital gain or loss equal to the difference,
if any, between the sale price and the purchase price of the shares. If an
optionee satisfies such holding periods upon a sale of the shares, the Company
will not be entitled to any deduction for federal income tax purposes. If an
optionee disposes of shares within two years after the date of grant or within
one year from the date of exercise (a "disqualifying disposition"), the
difference between the fair market value of the shares on the exercise date and
the option exercise price (not to exceed the gain realized on the sale if the
disposition is a transaction with respect to which a loss, if sustained, would
be recognized) will be taxed as ordinary income at the time of disposition. Any
gain in excess of that amount will be a capital gain. If a loss is recognized,
there will be no ordinary income, and such loss will be a capital loss. A
capital gain or loss will be mid-term or long-term if the optionee's holding
period is more than 12 months. Any ordinary income recognized by the optionee
upon the disqualifying disposition of the shares generally should be deductible
by the Company for federal income tax purposes, except to the extent such
deduction is limited by applicable provisions of the Code or the regulations
thereunder.
The difference between the option exercise price and the fair market
value of the shares on the exercise date of an incentive stock option is an
adjustment in computing the optionee's alternative minimum taxable income and
may be subject to an alternative minimum tax which is paid if such tax exceeds
the regular tax for the year. Special rules may apply with respect to certain
subsequent sales of the shares in a disqualifying disposition, certain basis
adjustments for purposes of computing the alternative minimum taxable income on
a subsequent sale of the shares and certain tax credits which may arise with
respect to optionees subject to the alternative minimum tax.
71
<PAGE>
Nonstatutory Stock Options. Options not designated or qualifying as
incentive stock options will be nonstatutory stock options. Nonstatutory stock
options have no special tax status. An optionee generally recognizes no taxable
income as the result of the grant of such an option. Upon exercise of a
nonstatutory stock option, the optionee normally recognizes ordinary income in
the amount of the difference between the option exercise price and the fair
market value of the shares on the exercise date. If the optionee is an employee,
such ordinary income generally is subject to withholding of income and
employment taxes. Upon the sale of stock acquired by the exercise of a
nonstatutory stock option, any gain or loss, based on the difference between the
sale price and the fair market value on the exercise date, will be taxed as
capital gain or loss. A capital gain or loss will be mid-term or long-term if
the optionee's holding period is more than 12 months. No tax deduction is
available to the Company with respect to the grant of a nonstatutory option or
the sale of the stock acquired pursuant to such grant. The Company generally
should be entitled to a deduction equal to the amount of ordinary income
recognized by the optionee as a result of the exercise of a nonstatutory option,
except to the extent such deduction is limited by applicable provisions of the
Code or the regulations thereunder.
New Plan Benefits and Additional Information.
The future grant of options under the Option Plan will be made at the
discretion of the Board, and, accordingly, are not yet determinable. In
addition, benefits under the Option Plan will depend on a number of factors,
including the fair market value of the Company's Common Stock on future dates
and the exercise decisions made by the optionees. Consequently, it is not
possible to determine the benefits that might be received by optionees receiving
discretionary grants under the Option Plan. The numbers of shares of Common
Stock subject to options granted under the Option Plan to certain persons during
the year ended December 31, 1997 are as follows: Messrs. Brandt and Zieg were
granted options to purchase 50,000 shares and 60,000 shares, respectively; all
current executive officers as a group were granted options to purchase an
aggregate of 110,000 shares; and all current employees, including officers who
are not executive officers, as a group were granted options to purchase an
aggregate of 100,350 shares. During such fiscal year, no options were granted
under the Option Plan to (i) any current directors who are not executive
officers, or (ii) any associates of any current directors who are not executive
officers or of any executive officers, and no person other than those
individuals set forth above was granted five percent or more of the total amount
of options granted under the Option Plan during that period.
Vote Required and Board of Directors' Recommendation.
The affirmative vote of a majority of the votes cast on the proposal at
the Special Meeting of Shareholders, at which a quorum representing a majority
of all outstanding shares entitled to vote, either in person or by proxy, is
required for approval of this proposal. Votes for and against, abstentions and
broker non-votes will each be counted as present for purposes of determining the
presence of a quorum. Abstentions and broker non-votes will have no effect on
the outcome of this vote.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF
THE OPTION AMENDMENTS.
72
<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of October 31,
1998, with respect to the beneficial ownership of the Company's Common Stock by
(i) each person known by the Company to own more than 5% of the Company's Common
Stock, (ii) each director and director-nominee of the Company, (iii) the
individual who served as the Chief Executive Officer of the Company in 1997, and
the other three highest compensated executive officers of the Company whose
salary and bonus for the year ended December 31, 1997 exceeded $100,000 (the
"Named Executive Officers"), and (iv) all directors and executive officers of
the Company as a group.
<TABLE>
<CAPTION>
Shares Owned (2)
------------------------------------------
Name and Address of
Beneficial Owner (1) Number of Shares Percentage of Class
- --------------------------------------------------------------- ---------------- -------------------
<S> <C> <C>
Joseph R. Dunham II (3)..................................... 60,000 *
Terry M. Brandt (4)......................................... 50,000 *
Gerald W. Zieg (5).......................................... 60,000 *
John Pappajohn (6).......................................... 2,260,000 27.7%
Edgewater Private Equity Fund II, L.P.
666 Grand Avenue, Suite 200
Des Moines, Iowa 50309 .................................... 2,036,000 25.0%
James A. Gordon (7)......................................... 2,036,000 25.0%
Dr. Joseph Rudick, Jr.
150 Broadway
New York, New York 10038 (8)............................... 319,000 3.9%
Molly C. Coye, MD (9)....................................... 77,400 *
Timothy S. Yamauchi (10).................................... 40,326 *
David Koeller (11).......................................... 700,000 8.0%
All officers and directors as a group
(ten persons) (12).......................................... 5,727,726 65.6%
</TABLE>
- ---------------------
* Represents less than 1%.
(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 October
31, 1998, upon the exercise of options or convertible securities. Each
beneficial owner's percentage ownership is based on 5,792,845 shares of
Common Stock outstanding as of October 31, 1998 and 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) Mr. Dunham was nominated by the Board as a director of the Company on
April 21, 1998. Includes immediately exercisable options to purchase
50,000 shares.
73
<PAGE>
(4) Represents immediately exercisable options to purchase 50,000 shares.
(5) Represents immediately exercisable options to purchase 60,000 shares, of
which, 50,000 shares were granted on May 21, 1997, replacing an option to
purchase 50,000 shares that was granted on December 2, 1996. Option to
purchase 50,000 shares was canceled in connection with the repricing.
(6) Includes immediately exercisable options to purchase 10,000 shares.
Includes 200 shares of Series B Preferred Stock convertible into 800,000
shares of Common Stock.
(7) Includes 1,236,000 shares of Common Stock held by Edgewater Private
Equity Fund II, L.P. and 200 shares of Series B Preferred Stock
convertible into 800,000 shares of Common Stock. 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.
(8) Includes immediately exercisable options to purchase 24,000 shares and 25
shares of Series B Preferred Stock convertible into 100,000 shares of
Common Stock.
(9) Includes immediately exercisable options to purchase 77,400 shares.
(10) Represents immediately exercisable options to purchase 40,326 shares. Mr.
Yamauchi resigned from the Company on June 1, 1998.
(11) Represents 175 shares of Series B Preferred Stock convertible into
700,000 shares of Common Stock.
(12) Includes immediately exercisable options to purchase 311,726 shares.
74
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information concerning the total
compensation of the Named Executive Officers for the years ended December 31,
1997, 1996 and 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Other Annual Securities
Name and Principal Position Year Salary Bonus Compensation Underlying Option
- --------------------------------- ----- --------- -------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
Joseph R. Dunham II (1)Director 1998 -- -- -- 50,000
Terry M. Brandt (2)
Chief Technology Officer ....... 1997 $ 98,958 -- -- 50,000
Gerald W. Zieg (3)
Senior Vice President of 1997 $ 90,000 -- $25,000 (4) 10,000
Sales and Marketing ............ 1996 $ 7,500 -- $ 2,083 (5) 50,000
Peter S. O'Donnell (6)Former
President, Chief Executive 1997 $163,200 $20,000 (7) -- --
Officer and Chairman of the 1996 $161,067 $26,667 -- --
Board .......................... 1995 $ 53,033 $13,333 $79,699 (8) 100,000
Timothy S. Yamauchi (9) 1997 $110,000 -- -- --
Former Chief Financial Officer, 1996 $101,141 $20,000 -- --
Secretary and Treasurer ........ 1995 $ 26,258 -- -- 60,000
</TABLE>
- --------------------------
(1) Mr. Dunham joined the Company in April 1998.
(2) Mr. Brandt joined the Company in March 1997.
(3) Mr. Zieg joined the Company in December 1996.
(4) Represents annual commission of $25,000.
(5) Represents commission of $2,083 for the month of December 1996.
(6) Mr. O'Donnell joined the Company in September 1995. Mr. O'Donnell
resigned from the Company on May 22, 1998.
(7) Represents payment of deferred 1996 year end bonus.
(8) Represents consulting fees of $63,699 from May to September 1995 and
relocation costs.
(9) Mr. Yamauchi joined the Company in September 1995. Mr. Yamauchi
resigned from the Company on June 1, 1998.
75
<PAGE>
OPTIONS GRANTED IN 1997
During the year ended December 31, 1997, the Company granted options to
purchase the Company's Common Stock to the Named Executive Officers as set forth
below:
Individual Grants in Fiscal 1997
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Percent of Total Annual Rates of Stock
Options Granted Price Appreciation for
Options to Employees in Exercise Expiration Date Option Term
Name Granted Fiscal Year Price Date (Year) 5% 10%
- --------------------------- -------- ----------------- ------------- --------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Joseph R. Dunham II (1).... -- -- -- -- -- --
Terry M. Brandt (2)........ 50,000 13.8% $3.28 - $3.38 2007 $103,768 $262,958
Gerald W. Zieg (3) ........ 60,000 16.6% $3.13 - $3.28 2006 & 2007 $119,050 $301,695
Peter S. O'Donnell (4)..... -- -- -- -- -- --
Timothy S. Yamauchi (5) ... -- -- -- -- -- --
</TABLE>
- ---------------------------
(1) On May 26, 1998, Mr. Dunham was granted an option for 50,00 shares of
Common Stock at an option exercise price of $1.00 per share.
(2) These options were regranted in May 1998 in connection with a repricing
of such options. The exercise price of the regranted options is $1.00 per
share.
(3) Includes 50,000 options that were repriced in May 1997, replacing options
granted in December 1996. All of these options were regranted and
repriced in May 1998, replacing options granted in May 1997 and December
1996. The current exercise price of these options is $1.00 per share.
(4) Mr. O'Donnell resigned from the Company on May 22, 1998. (5) Mr. Yamauchi
resigned from the Company on June 1, 1998.
76
<PAGE>
The following table provides the specified information concerning
exercises of options to purchase the Company's Common Stock in 1997, and
unexercised options held as of December 31, 1997, by the Named
ExecutiveOfficers:
AGGREGATE OPTION EXERCISES IN 1997
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Unexercised Options Value of Unexercised
Shares at 12/31/97 (1) In-the-Money Options at 12/31/97 (2)
Acquired ---------------------------- -----------------------------------
on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- --------------------------- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joseph R. Dunham II (3).... -- -- -- -- -- --
Terry M. Brandt ........... -- -- 50,000 -- -- --
Gerald W. Zieg ............ -- -- 60,000 -- $ 5,700 --
Peter S. O'Donnell ........ -- -- 180,000 -- $351,337 --
Timothy S. Yamauchi ....... -- -- 60,000 -- $117,218 --
</TABLE>
- ---------------
(1) Options granted under the Company's 1994 Stock Option Plan are generally
immediately exercisable subject to a repurchase right in favor of the
Company which lapses as the option vests over a four-year period.
(2) Valuation based on the difference between the option exercise price and
the fair market value of the Company's Common Stock on December 31, 1997
(which was $3.25 per share, as reported by the Nasdaq SmallCap Market at
the close of business on December 31, 1997).
(3) Mr. Dunham joined the Company in April 1998, and was granted options for
50,000 shares of Common Stock.
77
<PAGE>
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
Number of Market Price
Securities of Stock per Exercise Price
Underlying Share at time per share at
Options of Repricing Time of New Exercise
Repriced or or Repricing or Price Per
Name and Position Date Amendment Amendment Amendment Share
- --------------------------------- ------- ----------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Gerald W. Zieg, SVP.............. 5/26/97 50,000 $3.13 $5.00 $3.13
Terry M. Brandt, CTO............. 4/23/98 50,000 $1.00 $3.28-$3.38 $1.00
Gerald W. Zieg, SVP.............. 4/23/98 60,000 $1.00 $3.13-$3.28 $1.00
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON REPRICING OF OPTIONS
In May 21, 1997, the Compensation Committee, comprised of John
Pappajohn and David Sengpiel, considered the options held by the Company's
employees, including executive officers, and the fact that a broad decline in
the price of the Common Stock of the Company had resulted in a substantial
number of stock options granted pursuant to the 1994 Stock Option Plan having
exercise prices above the recent trading prices of the Company's Common Stock
(the "Underwater Options").
The Compensation Committee reviewed a study prepared by the finance
department of the Company demonstrating that a substantial number of the options
held by employees at that point in time were Underwater Options. The
Compensation Committee reviewed the impact of the decline in the market price of
the Company's Common Stock on the incentive afforded by the Underwater Options
and determined that such options were significantly less likely to serve their
purposes of retaining and motivating employees whose contributions are important
to the Company's future success. The Compensation Committee also determined that
unless adjustment was made, longer term employees holding Underwater Options
would perceive a substantial inequity in comparison to more recently hired
employees granted options with exercise prices set at the then lower market
price of the Company's Common Stock, and the morale of such longer term
employees would suffer as a consequence. The Compensation Committee believed
that the future success of the Company would depend in large part on its ability
to retain and motivate its highly skilled employees for whom competition in the
marketplace is intense, and the loss of such employees could have a significant
adverse impact on the Company's business. The Compensation Committee believed
that providing equity incentives to employees of the Company to further increase
the Company's performance and the value of the Company for its shareholders was
both important and cost effective. The Compensation Committee considered other
alternatives, such as granting new options selectively to then employed key
employees, but determined that the size of the additional options that would be
required to offset the decline in the market price of the Company's Common Stock
would result in significant dilution to the shareholders.
Considering these factors, the Compensation Committee determined that
it was in the best interests of the Company and its shareholders to restore the
incentives for employees and executive officers holding Underwater Options to
remain with the Company by adopting a stock option exchange program whereby
employees holding Underwater Options may elect to receive new options pursuant
to the 1994 Stock Option Plan having an exercise price comparable to the trading
price at that time in exchange for the cancellation of the Underwater Options.
The offer to exchange options was completed on May 28, 1997; options for a total
of 142,400 shares with exercise price of $5.00 per share were exchanged for
options for
78
<PAGE>
an equal number of shares at an exercise price of $3.13 per share, the closing
sale price per share of the Company's Common Stock on the May 28, 1997 as quoted
on the Nasdaq SmallCap Market.
On April 23, 1998, as a result of the continued decline in the price of
the Company's Common Stock, the Compensation Committee, consisting of John
Pappajohn and Joseph R. Dunham II, reviewed the options held by the Company's
executive officers and employees and the fact that a substantial number of stock
options granted pursuant to the 1994 Stock Option Plan, including those repriced
in May 1997, had exercise prices well above the recent historical trading prices
of the Common Stock. The Committee was advised by management that management
believed that it would be difficult to retain highly skilled employees who held
options with exercise prices significantly higher than the then current trading
price of the Company's Common Stock.
The Committee again considered all of the factors it had considered in
connection with the repricing in May 1997, as well as the need to retain and
motivate its employees during this period. The Committee determined it to be in
the best interests of the Company and its shareholders to restore the incentives
for employees and executive officers to remain as employees of the Company and
to exert their maximum efforts on behalf of the Company by granting replacement
stock options under the 1994 Stock Option Plan at the optionee's election, with
exercise prices equal to current market value. In light of the repricing of
stock options in May 1997, the Committee decided that vesting on the exchanged
options should continue in accordance with the vesting schedule of the
Underwrater Options.
Accordingly, in April 1998, the Committee approved an offer to all
employees of the Company, including executive officers, to exchange outstanding
options with exercise prices above the then current trading price for options
with an exercise price equal to the current trading price, with vesting
continuing in accordance with the vesting schedule of the forfeited option. All
exchanged options will terminate no later than ten (10) years from the date of
the exchange. Optionees who participated in the exchange received a lower
exercise price on their exchanged options, subject to a restriction on the
exercise of such options. The offer to exchange options was completed in May
1998; options for 250,850 shares with exercise prices ranging from $3.75 to
$3.13 were exchanged for options for an equal number of shares at an exercise
price of $1.00, the fair market value of the Company's Common Stock on May 26,
1998, the date of the Committee's approval of the repricing. See EXECUTIVE
COMPENSATION AND OTHER MATTERS - "Ten-Year Option Repricings" table for further
information concerning the repricing.
COMPENSATION COMMITTEE
79
<PAGE>
Employment Contracts and Termination and Change of Control Arrangements
- -----------------------------------------------------------------------
The Company entered into employment agreements with each of Peter S.
O'Donnell and Timothy S. Yamauchi which expired in December 1997 and
automatically renewed, pursuant to the terms of the agreements, for additional
one-year terms. The agreements provided for base compensation payable to Mr.
O'Donnell and Mr. Yamauchi of $163,200 and $110,000, respectively, and bonuses
to be determined based on annual pre-tax earnings, if any, of the Company. The
agreements also provided 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. Mr. O'Donnell and Mr. Yamauchi resigned from the Company on May 22,
1998 and June 1, 1998, respectively. Mr. O'Donnell and Mr. Yamauchi were paid
$95,200 and $55,000, respectively, in accordance with the termination clause of
their employment agreements.
The Company has also entered into a letter agreement with Gerald W.
Zieg pursuant to which Mr. Zieg is entitled to receive an annual salary of
$90,000 plus commissions equal to 1% of net revenues, subject to certain
exclusions.
Certain options granted under the Company's 1994 Stock Option Plan
contain provisions pursuant to which the unvested portions of outstanding
options become immediately exercisable and fully vested upon a merger of the
Company in which the Company's shareholders do not retain, directly or
indirectly, at least a majority of the beneficial interest in the voting stock
of the Company or its successor, if the successor corporation fails to assume
the outstanding options or substitute options for the successor corporation's
stock to replace the outstanding options. The outstanding options will terminate
to the extent they are not exercised as of consummation of the merger, or
assumed or substituted for by the successor corporation.
Director Compensation
- ---------------------
For each meeting of the Board of Directors which they attend, directors
are reimbursed for reasonable travel expenses incurred.
80
<PAGE>
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business which the Board
of Directors intends to present or knows that others will present at the meeting
is as set forth above. If any other matter or matters are properly brought
before the Special Meeting, or any adjournment thereof, it is the intention of
the persons named in the accompanying form of proxy to vote the proxy on such
matters in accordance with their best judgment.
By Order of the Board of Directors
------------------------------
Secretary
December _____, 1998
81
<PAGE>
ANNEX I - OPINION OF GEORGE ARNESON & COMPANY
<PAGE>
September 17, 1998
Board of Directors
HealthDesk Corporation
2650 Ninth Street, Suite 220
Berkeley, California 94710
Re: Fairness Opinion on Sale of Substantially all Assets of
HealthDesk Corporation to Patient InfoSystems, Inc.
Gentlemen:
Arneson & Company was engaged to review, analyze and opine on fairness to the
shareholders of HealthDesk Corporation (the "Company") of a proposed sale of
substantially all of the assets ("Sale of Assets") of the Company to Patient
InfoSystems, Inc. ("PATI") pursuant to terms of an Asset Purchase Agreement
currently proposed to be signed on or about September 21, 1998 ("Asset
Agreement").
This letter of opinion does not constitute an evaluation or opinion on
fairness of any other business or proposal to be considered at a
Special Meeting of the shareholders of the Company currently planned to
be held in October 1998. Such additional matters were not included in
the scope of this assignment.
Possible Conflict of Interests:
Mr. John Pappajohn is a director and major shareholder in both the Company and
PATI and is sole owner of Equity Dynamics Inc. Mr. Joseph R. Dunham, a director
of the Company, is Senior Vice President of Equity Dynamics Inc. Equity Dynamics
Inc. conducted the search for possible acquirers of Company's assets.
Based upon representations made to us by the above named individuals as well as
officers of the Company and PATI, the Boards of Directors of both companies were
fully informed and aware of the possible conflict of interest. Based upon the
representations, the search, selection of PATI and negotiations in developing
the Asset Agreement were conducted in a fair and impartial manner and to the
best interests of the Company's shareholders.
The analyses which are the basis of this report were conducted and conclusions
arrived at in an impartial, professional, and unbiased manner by George S.
Arneson, who has neither past, present, nor contemplated future interest in any
of the companies mentioned herein.
<PAGE>
Summary Analysis:
After reviewing and analyzing documents, statements, and other relevant sources
and calling upon the independent knowledge and experience of the person signing
this report, the conclusions are as follows:
1. After nearly six years of operations, the Company has generated only
minimal revenue from its software.
2. The Company's software remains subject to ongoing testing and
development. Until this is completed, there can be no assurance that the basic
concepts, which the software was designed to accomplish, have been achieved.
3. Market acceptance of the concept of the Company's software has yet
to be proven. Potential customers may decide to use or develop their own
programs.
4. The Company is subject to potential intense competition from
well-established and well-financed organizations.
5. The equity financing obtained by the Company earlier this year may
be sufficient to fund additional development and refinement of the software
during 1998, but is insufficient to achieve 1998 business plan objectives of
expanded testing and marketing. In addition, additional funding will be required
for future periods.
6. HealthDesk's revenue currently is almost totally dependent upon
success of the three-year agreement between the Company and HBO & Company. As of
this date and after ten months since signing the agreement, no significant
revenues have been generated from the HBOC agreement. As a result, no reasonable
projection can be made as to when revenue might be sufficient to fund operating
expenses.
7. Until the February 1998 sale of equity to two major shareholders,
the Company was not in compliance with NASDAQ's new requirements. The Company
was again out of compliance as of June 30, 1998. In order to fund ongoing
operations and to maintain its NASDAQ listing, the Company will have to secure
additional equity. In addition, at December 31, 1997, there was an accumulated
deficit of over ten million dollars and shareholder equity of slightly less than
one and one-half million dollars. At June 30, 1998 (from unaudited statements),
the deficit had increased to $11,767,066 and the shareholder equity was a
deficit of $2,022,298. Given the Company's recent performance and prospects, it
most likely would be difficult if not impossible to obtain an equity investment
sufficient to sustain planned operations for several years into the future.
Moreover, even if obtainable, the terms of any such financing are likely to be
highly dilutive to current shareholders of the Company.
<PAGE>
8. During the past eighteen months, both the Common Stock and Warrants
have lost substantial market value, further complicating any plan to secure
additional equity capital.
9. During the second quarter of this year, the Company sharply reduced
its staff. The Company's ability to retain or recruit personnel in the current
environment is substantially in question.
10. Lack of a well tested and market accepted product made it difficult
to find interested buyers. Once the Company's Board of Directors determined that
it was best to seek a purchaser of the Company, a number of companies were
contacted in the search effort with no interested prospects. One organization
was sufficiently interested to undertake a due diligence investigation but
declined to make an offer. After a diligent effort to find a buyer, only PATI
showed interest.
11. The price to be paid to the Company under the Asset Agreement is
well below what might have been implied based upon the market price of the
Company's Common Stock. However, the price obtained appears to be the best price
which can be obtained under the circumstances.
Conclusions
Based upon an independent analysis and review, the proposed Sale of Assets to
PATI pursuant to terms of the Asset Agreement appears to be a fair and
reasonable transaction for the Company's shareholders. The foregoing is based
upon information and representations made to, developed by, or otherwise
available to us as of September 17, 1998.
<PAGE>
ANNEX II - ASSET AGREEMENT
<PAGE>
ASSET PURCHASE AGREEMENT
DATED AS OF
SEPTEMBER 29, 1998
AMONG
PATIENT INFOSYSTEMS ACQUISITION CORP.,
PATIENT INFOSYSTEMS, INC.
AND
HEALTHDESK CORPORATION
<PAGE>
TABLE OF CONTENTS
ARTICLE 1. TRANSFER OF ASSETS...............................................1
1.1 Intellectual Property.....................................1
1.2 Inventories...............................................2
1.3 Equipment and Packaged Software...........................2
1.4 Books and Records.........................................2
1.5 Prepaid Expenses..........................................2
1.6 Permits, etc..............................................2
1.7 All Property Not Elsewhere Described......................2
1.8 Excluded Assets...........................................2
ARTICLE 2. PURCHASE PRICE...................................................3
2.1 Payment of Purchase Price.................................3
2.2 Allocation of Purchase Price..............................3
ARTICLE 3. THE CLOSING......................................................4
ARTICLE 4. ASSUMPTION OF LIABILITIES........................................4
ARTICLE 5. EXCISE AND PROPERTY TAXES........................................4
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF SELLER.........................4
6.1 Organization, Good Standing and Qualification.............5
6.2 Financial Statements......................................5
6.3 Absence of Specified Changes..............................5
6.4 Taxes.....................................................7
6.5 Real Property.............................................7
6.6 Inventories...............................................7
6.7 Intellectual Property.....................................8
6.8 Trade Secrets.............................................8
6.9 Title to Assets...........................................8
6.10 Customers and Sales.......................................8
6.11 Existing Employment Contracts.............................9
6.12 Insurance Policies........................................9
6.13 Other Contracts...........................................9
6.14 Compliance with Laws......................................9
6.15 Litigation...............................................10
6.16 Assets Sufficient for Conduct of Business................10
6.17 Agreement Will Not Cause Breach or Violation.............10
6.18 Authority and Consents...................................10
6.19 Interest in Customers, Suppliers and Competitors.........10
6.20 Employee Identification and Compensation.................11
6.21 No Subsidiaries..........................................11
i
<PAGE>
6.22 Environmental Matters....................................11
6.23 Employee Benefit Plans...................................12
6.24 Product Warranties.......................................13
6.25 Software.................................................13
6.26 Documents Delivered......................................14
6.27 Full Disclosure..........................................14
ARTICLE 7. REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT..............14
7.1 Organization.............................................14
7.2 Authority and Consents...................................14
7.3 Agreement Will Not Cause Breach Or Violation.............14
ARTICLE 8. OBLIGATIONS OF THE PARTIES BEFORE CLOSING.......................15
8.1 Buyer's Access to Premises and Information...............15
8.2 Conduct of Business in Normal Course.....................15
8.3 Preservation of Business and Relationships...............15
8.4 Maintenance of Insurance.................................15
8.5 Employees and Compensation...............................16
8.6 New Transactions.........................................16
8.7 Payment of Liabilities and Waiver of Claims..............16
8.8 Existing Agreements......................................16
8.9 Consent of Others........................................16
8.10 Representations and Warranties True at Closing...........17
8.11 Sales and Use Tax on Prior Sales.........................17
8.12 Statutory Filings........................................17
8.13 Negotiations with Certain Customers......................17
8.14 License Agreement........................................17
8.15 Sublease.................................................17
ARTICLE 9. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE.....................17
9.1 Accuracies of Seller's Representations and Warranties...18
9.2 Absence of Liens.........................................18
9.3 Seller's Performance.....................................18
9.4 Certification by Seller..................................18
9.5 Assignment and Assumption Agreements.....................18
9.6 Bill of Sale.............................................18
9.7 Opinion of Seller's Counsel..............................18
9.8 Absence of Litigation....................................18
9.9 Corporate Approval.......................................19
9.10 Good Standing Certificate................................19
9.11 Consents.................................................19
9.12 Approval of Documentation................................19
9.13 Employment Arrangements..................................19
9.14 Bulk Transfer Notice.....................................19
9.15 Change of Corporate Name.................................19
ii
<PAGE>
9.16 Condition of Assets......................................19
9.17 MIIX Agreement...........................................19
9.18 HBOC Agreement...........................................19
ARTICLE 10. CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE...................19
10.1 Accuracy of Buyer's Representations and Warranties.......20
10.2 Buyer's and Parent's Performance.........................20
10.3 Payment of Purchase Price................................20
ARTICLE 11. OBLIGATIONS OF THE PARTIES AFTER THE CLOSING...................20
11.1 Preservation of Goodwill.................................20
11.2 Change of Name...........................................21
11.3 Access to Records........................................21
11.4 Nonsolicitation of Employees.............................21
11.5 Further Assurances.......................................21
11.6 Termination of IAC Contract..............................21
ARTICLE 12. INDEMNIFICATION............................................21
12.1. Indemnification by Seller................................21
12.2. Indemnification by Buyer.................................22
12.3. Notice and Defense of Third Party Claims.................22
ARTICLE 13. COSTS.........................................................23
13.1 Finder's or Broker's Fees................................23
13.2 Expenses.................................................23
ARTICLE 14. FORM OF AGREEMENT............................................23
14.1 Headings.................................................23
14.2 Entire Agreement; Modification; Waiver...................23
14.3 Counterparts.............................................23
ARTICLE 15. PARTIES......................................................23
15.1 Parties in Interest......................................23
15.2 Assignment...............................................24
ARTICLE 16. TERMINATION..................................................24
16.1. Termination by Mutual Consent............................24
16.2. Termination by Buyer or Seller...........................24
16.3. Effect of Termination....................................24
ARTICLE 17. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES..........25
ARTICLE 18. NOTICES......................................................25
ARTICLE 19. GOVERNING LAW................................................26
iii
<PAGE>
ARTICLE 20. MISCELLANEOUS................................................26
20.1 Recovery of Litigation Costs.............................26
20.2 Announcements............................................26
20.3 References...............................................26
iv
<PAGE>
This Asset Purchase Agreement (the "Agreement"), dated as of September
29, 1998 among PATIENT INFOSYSTEMS ACQUISITION CORP., a Delaware corporation
("Buyer"), PATIENT INFOSYSTEMS, INC., a Delaware corporation ("Parent"), and
HEALTHDESK CORPORATION, a California corporation ("Seller").
WITNESSETH:
WHEREAS, Seller owns certain assets which it uses in the operation of
its business being generally the design, development and marketing of the
HealthDesk Online software, the CareTeam Connect software and software related
products for use in the healthcare, wellness and disease management industries
(such business currently operated by Seller being referred to herein as the
"Business").
WHEREAS, Buyer desires to purchase from Seller and Seller desires to
sell to Buyer, on the terms and subject to the conditions of this Agreement,
substantially all of the assets and properties used in the Business, other than
certain excluded assets described below.
THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained in this Agreement, the parties agree as
follows:
ARTICLE 1. TRANSFER OF ASSETS
Subject to the terms and conditions set forth in this Agreement, Seller
agrees to sell, convey, transfer, assign and deliver to Buyer, and Buyer agrees
to purchase from Seller at the Closing described in Article 3 hereof, all the
assets, properties and business of Seller of every kind, character and
description, whether tangible, intangible, real, personal or mixed, and wherever
located (but excluding any assets specifically excluded in the following
Sections of this Article 1), all of which are sometimes collectively referred to
in this Agreement as the "Assets," including, but not limited to, the following:
1.1 Intellectual Property. All trade names (including, but not limited
to, the name "HealthDesk"), trademarks, service marks, copyrights, patents,
patent rights, inventions, licenses, computer programs (regardless of state of
completion and including all work product), brand names, trade secrets,
technical know-how, goodwill and other intangibles (including without limitation
(i) tort or insurance proceeds arising out of any damage or destruction of any
of the Assets between the date of this Agreement and the Closing Date (as
hereinafter defined), (ii) all right, title and interest of Seller in the
license and service agreements identified on Schedule 1.1(the "License
Agreements"), (iii) the intellectual property identified on Schedule 6.7, and
(iv) the software identified on Schedule 6.25 and all programs, designs and
documentation for such software used by Seller in (or owned by Seller and useful
in) the operation of the Business) (the assets described in this Section 1.1,
collectively, the "Intellectual Property");
1
<PAGE>
1.2 Inventories. All of Seller's finished goods and raw materials
(whether expensed or not), including work in process, shrink wraps, CD roms,
spare parts and repair materials that are actually on hand with Seller as of the
Closing Date, an approximate summary of which items currently on hand is
attached hereto as Schedule 1.2 (hereinafter referred to collectively as the
"Inventories");
1.3 Equipment and Packaged Software. Seller's office equipment and
computer hardware specifically set forth on Schedule 1.3 (the "Equipment") and
the Packaged Software listed on Schedule 1.3a (the "Packaged Software");
1.4 Books and Records. All papers, computerized databases, files and
records in Seller's care, custody or control relating to any or all of the above
described Assets and the operation thereof, including, but not limited to, all
blueprints and specifications, product designs, marketing materials,
demonstration packages and product materials, environmental control records,
sales records, marketing materials, maintenance and production records, and
plans and designs of buildings, structures, fixtures and equipment, but
excluding personnel and labor relations records and accounting and financial
records;
1.5 Prepaid Expenses. All prepaid expenses and other prepaid items
relating to any of the Assets and the operation of the Business;
1.6 Permits, etc. All permits, licenses, franchises, consents or
authorizations issued by, and all registrations and filings with, any
governmental agency in connection with the Business, whenever issued or filed,
excepting only those which by law or by their terms are non-transferable and
those which have expired; and
1.7 All Property Not Elsewhere Described. All other properties of
Seller of every kind, character or description owned, used or held for use
(whether or not exclusively) in connection with the Business, wherever located
and whether or not similar to the things set forth elsewhere in this Article 1,
but excluding any assets specifically excluded in this Article 1.
1.8 Excluded Assets. The following assets are specifically excluded
from the assets being purchased by Buyer pursuant to this Agreement
(collectively, the "Excluded Assets"):
(a) all furniture, PCs, laptops and office equipment not specifically
set forth on Schedule 1.3;
2
<PAGE>
(b) all cash, bank balances, money in possession of banks and other
depositories, including security deposits with landlords and equipment lessors,
and similar cash items held by or for the account of Seller;
(c) all of Seller's accounts receivable;
(d) Seller's franchise as a corporation, its articles of incorporation,
corporate seal, minute books and stock books, stock transfer records and similar
records relating to Seller's organization, existence or capitalization, and the
capital stock of Seller and all other records which Seller is required by law to
keep in its possession;
(e) Seller's federal, state and local tax returns and rights to
refunds, if any; and
(f) Seller's rights relating to its proposed acquisition of
MCInformatics ("MCI") and any assets acquired in connection with such
acquisition. The term "Business" as used herein expressly excludes any matter
relating to MCI.
ARTICLE 2. PURCHASE PRICE
2.1 Payment of Purchase Price. In consideration for the transfer and
assignment by Seller of the Assets and in consideration of the representations,
warranties and covenants of Seller set forth herein, Buyer shall, subject to the
conditions set forth herein,
(a) deliver to Seller at the Closing (as hereinafter
defined) the sum of (i) $500,000, representing
payment for the Assets other than the Equipment; (ii)
$115,040, representing payment for the Equipment
(such sums collectively referred to as the "Purchase
Price"); and (iii) $11,238, representing payment for
the Packaged Software, payable in cash as more fully
described in Section 10.3 hereof; and
(b) assume and discharge, and shall indemnify Seller
against, liabilities and obligations of Seller under
the leases, contracts or other agreements, if any,
specified on Schedule 1.1. and Schedule 4 but only to
the extent that such liabilities or obligations
accrue on or after the Closing Date.
2.2 Allocation of Purchase Price. The parties shall determine and agree
upon the allocation of the Purchase Price at, or prior to, the Closing and such
allocation will be used by the parties in reporting the transaction contemplated
by this Agreement for federal and state tax purposes.
3
<PAGE>
ARTICLE 3. THE CLOSING.
The closing of the purchase and sale of the Assets by Seller to Buyer
(the "Closing") shall take place at the offices of Gibbons, Del Deo, Dolan,
Griffinger & Vecchione, One Riverfront Plaza, Newark, New Jersey 07102-5497, at
10:00 a.m. local time, within five days of satisfying the conditions to closing
set forth herein, or at such other place and/or time as the parties may agree in
writing (the "Closing Date"). If on the original or any postponed Closing Date
Seller shall have been unable to obtain all waivers and consents of private
parties and governmental agencies required by this Agreement, then Buyer, on
written notice, may postpone the Closing to a time not later than November 30,
1998.
ARTICLE 4. ASSUMPTION OF LIABILITIES
Buyer is not assuming any debt, liability or obligation of Seller,
whether known or unknown, fixed or contingent (including without limitation the
litigation set forth on Schedule 6.15), except as herein specifically otherwise
provided. Seller agrees to indemnify and hold Buyer harmless against all debts,
claims, liabilities and obligations of Seller not expressly assumed by Buyer
hereunder, and to pay any and all attorneys' fees and legal costs reasonably
incurred by Buyer, its successors and assigns in connection therewith. Buyer
shall have the benefit of and shall perform and assume the License Agreements
and all leases, contracts and agreements, if any, specifically listed on
Schedule 4, in accordance with the terms and conditions thereof, except to the
extent modifications are specifically set forth on such Schedule 4 and except to
the extent set forth in the assignments or assignment and assumption agreements
for such leases, contracts and agreements.
ARTICLE 5. EXCISE AND PROPERTY TAXES
Buyer shall pay all sales, use and transfer taxes arising out of the
transfer of the Assets and shall pay its portion, prorated as of the Closing
Date, of state and local real and personal property taxes of the Business. Buyer
shall not be responsible for any business, occupation, withholding or similar
tax, or for any taxes of any kind related to any period before the Closing Date.
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF SELLER.
Except as set forth in the Schedules delivered by Seller concurrently
with the execution of this Agreement and incorporated herein, Seller hereby
represents and warrants to Buyer and Parent that the following facts and
circumstances are and, except as contemplated hereby, at all times up to the
Closing Date, will be true and correct, and hereby acknowledge that such facts
and circumstances constitute the basis upon which Buyer and Parent are induced
to enter into and perform this Agreement. Each warranty set forth in this
Article 6 shall survive the Closing and any investigation made by or on behalf
of Buyer and Parent.
4
<PAGE>
6.1 Organization, Good Standing and Qualification. Seller is a
corporation duly organized, validly existing, and in good standing under the
laws of California, has all necessary corporate powers to own its properties and
to carry on its business as now owned and operated by it, and is duly qualified
to transact intrastate business and is in good standing in all jurisdictions in
which the nature of its business or of its properties makes such qualification
necessary.
6.2 Financial Statements.
(a) Seller has timely filed with the Securities and Exchange
Commission (i) the balance sheet of Seller as of December 31,
1997, and the related statement of income and retained
earnings for the year then ending, certified by Coopers &
Lybrand L.L.P. (now known as PricewaterhouseCoopers LLP),
Seller's independent certified public accountants, and (ii)
the unaudited balance sheet of Seller as of June 30, 1998,
together with related unaudited statement of income and
retained earnings for the three month period then ending,
[certified by the chief financial officer of Seller.] Such
financial statements are referred to as the "Financial
Statements."
(b) The Financial Statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") consistently
followed by Seller throughout the periods indicated, and
fairly present the financial position of Seller as of the
respective dates of the balance sheets included in the
Financial Statements, and the results of its operations for
the respective periods indicated. Seller has no liabilities or
obligations of any nature (known or unknown, absolute,
accrued, contingent or otherwise) of the type required to be
reflected or disclosed in a balance sheet (or the notes
thereto) prepared in accordance with GAAP that were not fully
reflected or reserved against in the Financial Statements.
6.3 Absence of Specified Changes. Since June 30, 1998, except as set
forth on Schedule 6.3, there has not been any:
(a) Transaction by Seller except in the ordinary course of
business as conducted on that date;
(b) Capital expenditure by Seller exceeding $25,000;
(c) Adverse change in the financial condition, liabilities,
assets, business or prospects of Seller;
5
<PAGE>
(d) Destruction, damage to, or loss of any assets of Seller
(whether or not covered by insurance) that adversely
affects the financial condition, business or prospects
of Seller;
(e) Labor trouble or other event or condition of any
character adversely affecting the financial condition,
business, assets or prospects of Seller;
(f) Change in accounting methods or practices (including,
without limitation, any change in depreciation or
amortization policies or rates) by Seller;
(g) Revaluation by Seller of any of its assets;
(h) Increase in the salary or other compensation payable or
to become payable by Seller to any of its officers,
directors or employees, or the declaration, payment or
commitment or obligation of any kind for the payment by
Seller of a bonus or other additional salary or
compensation to any such person;
(i) Sale or transfer of any asset of Seller, except in the
ordinary course of business;
(j) Execution, creation, amendment or termination of any
contract, agreement or license to which Seller is a
party and which is proposed to be assigned hereunder,
except in the ordinary course of business;
(k) Loan by Seller to any person or entity, or guaranty by
Seller of any loan;
(l) Waiver or release of any right or claim of Seller,
except in the ordinary course of business;
(m) Mortgage, pledge or other encumbrance of any asset of
Seller;
(n) Other event or condition of any character that has or
might reasonably have an adverse effect on the financial
condition, business, assets or prospects of Seller; or
6
<PAGE>
(o) Agreement by Seller to do any of the things described in
the preceding clauses (a) through (n).
6.4 Taxes. Seller has filed or caused to be filed all federal, state
and local tax returns and reports that are or were required to be filed by or
with respect to Seller, pursuant to applicable law. All such returns were
correct and complete in all respects. Seller has paid, or has provided for the
payment of, all taxes that have or may have become due pursuant to those tax
returns or otherwise, or pursuant to any assessment received by Seller, except
such taxes, if any, as are listed in Schedule 6.4 and are being contested in
good faith and as to which adequate reserves (determined in accordance with
GAAP) have been provided in the Financial Statements. Except as set forth in
Schedule 6.4, no audit of any tax return of Seller is in progress or, to
Seller's knowledge, threatened; no director, officer or employee of Seller
responsible for tax matters expects any governmental authority to assess any
additional taxes for any period for which tax returns have been filed; and no
waiver or agreement by Seller is in force for the extension of time for the
assessment or payment of any tax. To Seller's knowledge, no claim has ever been
made by any governmental authority in a jurisdiction where Seller does not file
tax returns that it is or may be subject to taxation by that jurisdiction.
Seller has withheld and paid or collected and remitted all
taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, supplier, vendor, creditor,
stockholder or other third party. There is no dispute or claim concerning any
tax liability of Seller, (i) claimed or raised by any governmental authority in
writing or (ii) as to which Seller or the directors and officers of Seller has
knowledge. As of the date hereof, there have been no, and Seller has no
knowledge of any, threatened or intended reappraisals by any governmental
authority with respect to the value of the Assets.
6.5 Real Property. Seller does not own any real property.
6.6 Inventories. The Inventories consist of items of a quality and
quantity useable, salable or rentable in the ordinary course of business by
Seller, except for obsolete and slow-moving items and items below standard
quality, all of which have been written down on the books of Seller to net
realizable market value or have been provided for by adequate reserves. All
items included in the Inventories are the property of Seller, except for sales
made in the ordinary course of business; for each of these sales either the
purchaser has made full payment or the purchaser's liability to make payment is
reflected in the books of Seller. No items included in the Inventories have been
pledged as collateral or are held by Seller on consignment from the others. All
the Inventories are free of defects and, to the extent that they consist of
finished or semi-finished goods, also comply with the specifications submitted
by the purchasers thereof.
7
<PAGE>
6.7 Intellectual Property. Schedule 6.7 lists all of the Intellectual
Property owned or used by Seller in connection with the Business (other than
shrink wrap software generally available to the public). No person (other than
Seller) owns any Intellectual Property, the use of which is necessary or
contemplated in connection with the performance of any contract to which Seller
is a party, except manufacturer's trademarks and trade names on goods sold in
Seller's Business. Except as set forth in Schedule 6.7 or 6.15, there have not
been any administrative, judicial arbitration, or other adversary proceedings
concerning the Intellectual Property. Seller does not violate or infringe on any
intellectual property or personal right of any person, firm or corporation, and
Seller has not infringed and is not now infringing on any intellectual property
or other right belonging to any person, firm or corporation. Except as set forth
in Schedule 6.7 or Schedule 1.1, Seller is not a party to any license, agreement
or arrangement, whether as licensee, licensor or otherwise, with respect to any
Intellectual Property.
6.8 Trade Secrets. Seller has taken all reasonable security measures to
protect the secrecy, confidentiality and value of all trade secrets used by
Seller (or owned by Seller and useful in) the operation of the Business. Any of
its employees and any other persons who, either alone or in concert with others,
developed, invented, discovered, derived, programmed or designed these secrets,
or who have knowledge of or access to information relating to them, have been
put on notice and have entered into appropriate agreements that these secrets
are proprietary to Seller and are not to be divulged or misused. All these trade
secrets are presently valid and protectible, and are not part of the public
knowledge or literature, nor to Seller's knowledge have they been used, divulged
or appropriated for the benefit of any past or present employees or other
persons, or to the detriment of Seller.
6.9 Title to Assets. Seller has good and marketable title to all the
Assets and its interests in the Assets, whether real, personal, mixed, tangible
or intangible, which constitute all the Assets and interests in Assets that are
used in the Business. All the Assets are free and clear of mortgages, liens,
pledges, charges, encumbrances, equities, claims, easements, rights of way,
covenants, conditions or restrictions, except for (i) those disclosed in
Schedule 6.9; (ii) the lien of current taxes not yet due and payable; and (iii)
possible minor matters that, in the aggregate, are not substantial in amount and
do not materially detract from or interfere with the present or intended use of
any of these assets, nor materially impair business operations. All the Assets
are in good operating condition and repair, ordinary wear and tear excepted.
Seller is in possession of all premises leased to it from others. Neither any
officer, director or employee of Seller, nor any spouse, child or other relative
of any of these persons, owns, or has any interest, directly or indirectly, in
any of the real or personal property owned by or leased to Seller or any
Intellectual Property or trade secrets licensed by Seller.
6.10 Customers and Sales. Schedule 6.10 to this Agreement is a correct
and current list of all customers of Seller. Except as indicated in Schedule
6.10, Seller has no information and is not aware of any facts indicating that
any of these customers intend to cease doing business with Seller or materially
alter the amount of the business that they are presently doing with Seller.
8
<PAGE>
6.11 Existing Employment Contracts. Schedule 6.11 to this Agreement is
a list of all employment contracts and collective bargaining agreements, and all
pension, bonus, profit-sharing, stock option or other agreements or arrangements
providing for employee remuneration or benefits to which Seller is a party or by
which Seller is bound. All of these contracts and arrangements are in full force
and effect, and neither Seller nor any other party is in default under them.
There have been no claims of defaults and, to Seller's knowledge, there are no
facts or conditions which if continued, or on notice, will result in a default
under these contracts or arrangements. There is no pending or, to Seller's
knowledge, threatened labor dispute, strike or work stoppage affecting the
Business.
6.12 Insurance Policies. Seller has maintained and now maintains (i)
insurance on all the Assets of a type customarily insured, covering property
damage and loss of income by fire or other casualty, and (ii) adequate insurance
protection against all liabilities, claims and risks against which it is
customary to insure, including without limitation earthquakes as to properties
located in California.
6.13 Other Contracts. Except as set forth in Schedule 1.1 or Schedule
4, Seller is not a party to, nor are the Assets bound by, any license or service
agreement, any output or requirements agreement, any agreement not entered into
in the ordinary course of business, any indenture, mortgage, deed of trust,
lease or any other agreement that is unusual in nature, duration or amount
(including without limitation any agreement requiring the performance by Seller
of any obligation for a period of time extending beyond one year from the
Closing Date or calling for consideration of more than $25,000 or requiring
purchases at prices in excess of, or sales at prices lower than, prevailing
market prices). All contracts which will be assigned to or assumed by Buyer
under this Agreement are valid and binding upon the parties thereto. There is no
default or event that, with notice or lapse of time or both, would constitute a
default by any party to any of the agreements listed in Schedule 1.1 or Schedule
4. Seller has not received notice that any party to any of the agreements listed
in Schedule 1.1 or Schedule 4 intends to cancel or terminate any of these
agreements or to exercise or not exercise any options under any of these
agreements.
6.14 Compliance with Laws. Seller has complied with, and is not in
violation of, applicable federal, state or local statutes, laws and regulations
(including without limitation any applicable environmental, health, building,
zoning or other law, ordinance or regulation) affecting its properties or the
operation of the Business. Seller is in possession of all permits, licenses,
franchises, consents or authorizations issued by and in compliance with all
registrations and filings required by any governmental authority in connection
with the Business or the Assets. All of such permits, licenses, franchises and
authorizations are valid and in full force and effect.
9
<PAGE>
6.15 Litigation. Except as set forth in Schedule 6.15, there is no
suit, action, arbitration or legal, administrative or other proceeding, or
governmental investigation, pending or, to Seller's knowledge, threatened
against or affecting Seller, or any of its business, assets or financial
condition. The matters set forth in Schedule 6.15, if decided adversely to
Seller, will not result in a material adverse change in the business, assets or
financial condition of Seller. Seller has furnished or made available to Buyer
copies of all relevant court papers and other documents relating to the matters
set forth in Schedule 6.15. Seller is not in default with respect to any order,
writ, injunction or decree of any federal, state, local or foreign court,
department, agency or instrumentality. Except as set forth in Schedule 6.15,
Seller is not presently engaged in any legal action to recover moneys due to it
or damages sustained by it.
6.16 Assets Sufficient for Conduct of Business. The Assets, together
with the Excluded Assets, constitute all of the assets required for Buyer to
conduct the Business as it is presently conducted.
6.17 Agreement Will Not Cause Breach or Violation. Neither the entry
into this Agreement nor the consummation of the transactions contemplated hereby
will result in or constitute any of the following: (i) a breach of any term or
provision of this Agreement; (ii) a default or an event that, with notice or
lapse of time or both, would be a default, breach or violation of the
certificate of incorporation or bylaws of Seller or of any lease, license,
promissory note, conditional sales contract, commitment, indenture, mortgage,
deed of trust or other agreement, instrument or arrangement to which Seller is a
party or by which Seller or the Assets are bound; (iii) an event that would
permit any party to terminate any agreement or to accelerate the maturity of any
indebtedness or other obligation; (iv) the creation or imposition of any lien,
charge or encumbrance on any of the Assets; or (v) the violation of any law,
regulation, ordinance, judgment, order or decree applicable to or affecting
Seller or the Assets.
6.18 Authority and Consents. Seller has the right, power, legal
capacity and authority to enter into, and perform its obligations under, this
Agreement, and, except as set forth on Schedule 6.18, no approvals or consents
of any persons other than the stockholders of Seller are necessary in connection
with it. The execution and delivery of this Agreement and the consummation of
this transaction by Seller have been, or prior to the Closing will have been,
duly authorized by all necessary corporate action of Seller (including any
necessary action by Seller's stockholders). This Agreement constitutes a legal,
valid and binding obligation of Seller enforceable in accordance with its terms
except as limited by bankruptcy and insolvency laws and by other laws affecting
the rights of creditors generally.
6.19 Interest in Customers, Suppliers and Competitors. Except as set
forth in Schedule 6.19, neither Seller nor any officer or director of Seller,
nor, to Seller's knowledge, any spouse or child of any of them, has any direct
or indirect interest in any competitor, supplier or customer of Seller or in any
person with whom Seller is doing business (excluding ownership of less than 10%
of any corporation or other entity traded publicly).
10
<PAGE>
6.20 Employee Identification and Compensation. Schedule 6.20 contains a
list of the names of all current officers, directors, employees and
manufacturer's representatives of Seller, stating the rates of compensation
payable to each and setting forth all vacation time, sick leave and other paid
time off accrued for each of them through the Closing Date. No other person,
except accountants, auditors and attorneys, regularly performs compensable
services for Seller.
6.21 No Subsidiaries. Seller has no subsidiaries.
6.22 Environmental Matters.
(a) Except as set forth in Schedule 6.22, to Seller's
knowledge, there have not been any activities on or at the real property leased
by the Seller at 2560 9th Street, Suite 220, Berkeley, California or any other
real property by Seller (the "Real Property") or at any time during which such
property was owned or leased by Seller or at any time prior thereto involving
the use, generation, treatment, storage, or Disposal of any Hazardous Substances
or Petroleum Products in violation of applicable Environmental Laws (as defined
below).
(b) Except as set forth in Schedule 6.22, to Seller's
knowledge, there have not been any Releases or threatened Releases of any
Hazardous Substances or Petroleum Products at or from the Real Property at any
time during which such property was occupied by Seller or at any time prior
thereto that (i) would be in violation of applicable Environmental Laws; or (ii)
could give rise to an action to compel an investigation and/or cleanup or to pay
material civil administrative fines, penalties or other damages.
(c) Except as set forth in Schedule 6.22, to Seller's
knowledge, there have not been any Hazardous Substances or Petroleum Products
located in or on the Real Property at any time during which such property was
leased by Seller or at any time prior thereto that (i) would be in violation of
applicable Environmental Laws; or (ii) could reasonably be expected to give rise
to an action to compel a investigation and/or cleanup or to pay civil
administrative fines, penalties or other damages;
(d) Except as set forth in Schedule 6.22, (i) Seller is
now and has been at all times in compliance with all Environmental Laws; (ii)
there are no pending environmental litigation, enforcement actions,
administrative orders or notices of violation brought under any Environmental
Law and Seller does not know of any threats of such litigation, enforcement
actions, administrative orders or notices of violation; (iii) Seller has not
received any request for information, notice of claim, demand or other
notification that it may be potentially responsible for any threatened or actual
Release of Hazardous Substance or Petroleum Products; and (iv) Seller has all
material permits, licenses, orders, approvals, authorizations, concessions or
franchises or every governmental authority having jurisdiction under an
Environmental Law required to conduct the Business substantially as it is
currently being conducted. All such permits, licenses, orders, approvals,
authorizations, concessions and franchises are listed on Schedule 6.22 and are
in full force and effect, and, to Seller's knowledge, there is no state of facts
or event which could reasonably be expected to form the basis for any
revocation, non-renewal or any such permit or authorization.
11
<PAGE>
(e) Capitalized terms used in this Section 6.22 shall
have the following meanings:
"Environmental Laws" means any federal, state or local law, regulation,
ordinance or order pertaining to the protection of natural resources, the
environment and the health and safety of the public, including, but not limited
to, the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), 42 U.S.C. ss.ss.9601 et seq., the Resource Conservation and Recovery
Act ("RCRA"), as amended, 42 U.S.C. ss.ss.6901 et seq., the Hazardous Material
Transportation Act, as amended, 49 U.S.C. ss.ss.1801 et seq., the Occupational
Safety and Health Act, as amended, 29 U.S.C. ss.ss. 651 et seq., California
Health & Safety Code ss.ss.19015 and ss.ss.25300 et seq., California Civil Code
ss.ss.1102 et seq., and ss.2079, California Civil Procedure Code ss.726 and
California Business and Professional Code ss.7180 et seq.
"Hazardous Substances" means any oil, flammable substances, explosives,
hazardous wastes or substances (including polychlorinated biphenyls), toxic
wastes or substances or any other wastes.
"Hazardous Wastes" means hazardous wastes as defined by RCRA and the
regulations thereunder.
"Disposal" means disposal as defined by RCRA and the regulations
thereunder.
"Petroleum Products" means petroleum, gasoline, oil, fuel oil, diesel
fuel and petroleum solvents.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, placing, discharging, injecting, escaping, dumping or disposing into
the environment, whether intentional or unintentional.
6.23 Employee Benefit Plans
(a) Schedule 6.23 sets forth a true and complete list of
all written and oral Employee Benefit Plans (as defined below) and other
programs, commitments or funding arrangements maintained by Seller or to which
Seller is a party, in respect of, or which otherwise cover or benefit, any
Subject Employees (as defined below) or their beneficiaries.
12
<PAGE>
(b) Except for the Employee Benefit Plans identified in
Schedule 6.23, there is no "employee pension benefit plan", "employee welfare
benefit plan" or "employee benefit plan" within the meaning of Sections 3(1),
3(2) and 3(3) of the ERISA. No Employee Benefit Plan to which Seller or any
ERISA Affiliate (as hereinafter defined) has maintained or contributed to is
subject to Title IV of ERISA or Section 412 of the Internal Revenue Code of
1986, as amended (the "Code").
(c) Capitalized terms used in this Section 6.23 shall
have the following meanings:
"Employee Plan" includes all pension, retirement, disability,
medical, dental or other health insurance plans, life insurance or other death
benefit plans, profit sharing, deferred compensation, stock option, bonus or
other incentive plans, vacation benefit plans, severance plans or other employee
benefit plans or arrangements, including, without limitation, any pension plan
as defined in Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") and any welfare plan as defined in Section 3(1) of
ERISA, whether or not funded, covering any Subject Employee or to which Seller
is a party or bound or makes or has made any contribution or by which Seller may
have any liability to any Subject Employee (including any such plan formerly
maintained by or in connection with which Seller may have any liability to any
Subject Employee, and any such plan which is a multiemployer plan as defined in
Section 3(37) (A) of ERISA).
"ERISA Affiliate" means a trade or business (whether or not
incorporated) which is under common control with Seller within the meaning of
Sections 414(b) and 414(c) of the Code or the regulations promulgated
thereunder.
"Subject Employee" includes all current or former officers,
directors, employees or consultants who are or were employed or otherwise
compensated in connection with activities involving the Assets being purchased.
6.24 Product Warranties. To Seller's knowledge, no person has asserted
any claim or has any reasonable basis for any claim relating to warranties or
guaranties with respect to any product, service or contract for Software (as
defined in Section 6.25) sold or provided by Seller.
6.25 Software. Seller owns or is licensed to use all computer software
(including databases and related documentation ("Software")) which is material
to the conduct of the Business, a list of which is included on Schedule 6.25.
Except for non-customized software readily available from multiple sources,
Seller is not subject to any commitment to pay royalties or other fees for the
use of the Software. To Seller's knowledge, no person or entity is materially
interfering with or infringing upon, and no person or entity has misappropriated
any of, the Software or source-code owned by Seller ("Owned Software"). To
Seller's knowledge, none of such Owned Software infringes upon, is a
misappropriation of, or otherwise conflicts with, any patent, copyright, trade
secret or other proprietary right of any person.
13
<PAGE>
6.26 Documents Delivered. Each copy or original of any agreement,
contract or other instrument which is identified in any exhibit delivered by
Seller or its counsel to Buyer (or its counsel or representatives), whether
before or after the execution of this Agreement, is in fact what it is purported
to be by Seller and has not been amended, canceled or otherwise modified.
6.27 Full Disclosure. None of the representations and warranties made
by Seller or made in any letter, certificate or memorandum furnished or to be
furnished by Seller, or on its behalf, contains or will contain any untrue
statement of a material fact, or omits any material fact the omission of which
would make the statements made misleading. There is no fact known to Seller
which materially adversely affects, or in the future may (so far as Seller can
now reasonably foresee) materially adversely affect, the condition, Assets,
liabilities, business, operations or prospects of Seller that has not been set
forth herein or heretofore communicated to Buyer in writing pursuant hereto.
ARTICLE 7. REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT
Buyer and Parent hereby represent and warrant to Seller that the
following facts and circumstances are true and correct, and hereby acknowledge
that such facts and circumstances constitute the basis upon which Seller is
induced to enter into and perform this Agreement. Each warranty set forth in
this Article 7 shall survive the Closing, as set forth in Article 17.
7.1 Organization. Each of Buyer and Parent is a corporation duly
organized, existing and in good standing under the laws of Delaware.
7.2 Authority and Consents. Each of Buyer and Parent has the right,
power, legal capacity and authority to enter into, and perform its obligations
under, this Agreement, and no approvals or consents of any persons other than
Buyer and Parent, as applicable, are necessary in connection with it. The
execution and delivery of this Agreement and the consummation of this
transaction by Buyer or Parent, as the case may be, has been duly authorized by
all necessary corporate action of Buyer or Parent, as the case may be. The
execution and delivery of this Agreement and the consummation of this
transaction by Buyer and Parent have been duly authorized by all necessary
corporate action of Buyer or Parent, as the case may be. This Agreement
constitutes a legal, valid and binding obligation of each of Buyer and Parent
enforceable in accordance with its terms, except as limited by bankruptcy and
insolvency laws and by other laws affecting the rights of creditors generally.
7.3 Agreement Will Not Cause Breach Or Violation. Neither the execution
of this Agreement, nor the consummation of the transactions contemplated hereby,
will result in or constitute any of the following: (i) a default or an event
that, with notice or lapse of time or both, would be a default, breach or
violation of the articles of incorporation or bylaws of Buyer or Parent or of
any lease, license, promissory note, conditional sales contract, commitment,
indenture, mortgage, deed of trust or other agreement, instrument or arrangement
to which Buyer or Parent is a party or by which Buyer or Parent is bound; (ii)
an event that would permit any party to terminate any agreement or to accelerate
the maturity of any indebtedness or other obligation; or (iii) the violation of
any law, regulation, ordinance, judgment, order or decree applicable to or
affecting Buyer or Parent, other than violations, conflicts, breaches,
terminations, accelerations and defaults which could not reasonably be expected
to have a material adverse effect on Buyer's or Parent's ability to perform
their respective obligations under this Agreement.
14
<PAGE>
ARTICLE 8. OBLIGATIONS OF THE PARTIES BEFORE CLOSING.
The parties covenant and agree that, except as otherwise agreed in
writing by the parties, from the date of this Agreement until the Closing:
8.1 Buyer's Access to Premises and Information. Buyer, Parent and their
counsel, accountants and other representatives shall be entitled to have full
access during normal business hours to all of Seller's properties, books,
accounts, records, contracts and documents of or relating to the Assets. Seller
shall furnish or cause to be furnished to Buyer, Parent and their
representatives all data and information concerning the Business, and the
finances and properties of Seller that may reasonably be requested.
8.2 Conduct of Business in Normal Course. Seller shall carry on its
business and activities diligently and in substantially the same manner as they
previously have been carried on, and shall not make or institute any unusual or
novel methods of manufacture, purchase, sale, lease, management, accounting or
operation that will vary materially from the methods used by Seller as of the
date of this Agreement.
8.3 Preservation of Business and Relationships. Seller shall use its
best efforts, without making any commitments on behalf of Buyer, to preserve its
business organization intact, to keep available to Seller its present officers
and employees, and to preserve its present relationships with suppliers,
customers and others having business relationships with it.
8.4 Maintenance of Insurance. Seller shall continue to carry its
existing insurance, subject to variations in amounts required by the ordinary
operations of the Business. At the request of Buyer and at Buyer's sole expense,
the amount of insurance against fire and other casualties which, at the date of
this Agreement, Seller carries on any of the Assets or in respect of its
operations shall be increased by such amount or amounts as Buyer shall specify.
15
<PAGE>
8.5 Employees and Compensation. The parties acknowledge and agree that
certain employees of Seller listed in Section 9.11 shall be terminated by Seller
and offered employment by Buyer prior to the Closing. Seller shall permit Buyer
to contact Seller's employees at all reasonable times for the purpose of
discussing with such employees prospective employment by Buyer on or after the
Closing Date, and Seller shall use its best efforts to encourage all employees
of Seller to accept any employment offered by Buyer.
8.6 New Transactions. Except for transactions contemplated by Seller's
proposed acquisition of MCI, Seller shall not do or agree to do any of the
following acts:
(a) Enter into any contract, commitment or transaction
not in the usual and ordinary course of the Business;
or
(b) Enter into any contract, commitment or transaction in
the usual and ordinary course of business involving
an amount exceeding $25,000, individually, or $50,000
in the aggregate; or
(c) Make any capital expenditures in excess of $25,000
for any single item or $50,000 in the aggregate, or
enter into any leases of capital equipment or
property under which the annual lease charge is in
excess of $25,000; or
(d) Sell or dispose of any capital assets with a net book
value in excess of $25,000 individually, or $50,000
in the aggregate.
8.7 Payment of Liabilities and Waiver of Claims. Seller shall not do,
or agree to do, any of the following acts: (i) pay any obligation or liability,
fixed or contingent, other than current liabilities; (ii) waive or compromise
any right or claim; or (iii) cancel, without full payment, any note, loan or
other obligation owing to Seller.
8.8 Existing Agreements. Seller shall not modify, amend, cancel or
terminate any of the contracts or agreements to be assigned to Buyer pursuant to
this Agreement, or agree to do any of those acts.
8.9 Consent of Others. As soon as reasonably practical after the
execution and delivery of this Agreement, and in any event on or before the
Closing Date, Seller shall obtain the written consent of the persons described
in Schedule 6.18 to this Agreement in form and substance satisfactory to Buyer
and shall furnish to Buyer executed copies of those consents.
16
<PAGE>
8.10 Representations and Warranties True at Closing. Seller shall use
its best efforts to assure that all representations and warranties of Seller set
forth in this Agreement and in any written statements delivered to Buyer by
Seller under this Agreement will also be true and correct as of the Closing Date
as if made on that date and that all conditions precedent to Closing shall have
been met. Seller shall promptly disclose to Buyer any information contained in
the Schedules to this Agreement which, because of an event occurring after the
date hereof, is incomplete or is no longer correct as of all times after the
date hereof until the Closing Date; provided, however, that none of such
disclosures shall be deemed to modify, amend or supplement the representations
and warranties of Seller or the Schedules hereto for the purposes of Article 12
hereof, unless Buyer shall have consented thereto in writing.
8.11 Sales and Use Tax on Prior Sales. Seller agrees to use its best
efforts to furnish to Buyer a clearance certificate from the appropriate
governmental agency and any related certificates that Buyer may reasonably
request as evidence that all sales and use and other tax liabilities of Seller
(other than income tax liabilities) accruing before the Closing Date have been
fully satisfied or provided for.
8.12 Statutory Filings. Seller shall file, and shall cooperate fully
with Buyer in preparing and filing, all information and documents necessary or
desirable under any statutes or governmental rules or regulations pertaining to
the transactions contemplated by this Agreement.
8.13 Negotiations with Certain Customers. Seller agrees to negotiate
with HBO & Company of Georgia ("HBOC") and Intel to evaluate the current state
of their respective agreements, contracts and relationships.
8.14 License Agreement. Seller and Buyer shall enter into a license
agreement in substantially the form of Exhibit A attached hereto (the "Interim
License Agreement"), pursuant to which Seller grants to Buyer an exclusive
license to use the Software from the date of this Agreement until the Closing
Date.
8.15 Sublease. Seller and Buyer shall enter into a Sublease in
substantially the form of Exhibit B attached hereto (the "Sublease"), pursuant
to which Buyer shall sublease from Seller the premises located at 2560 Ninth
Street, Suite 220, Berkeley, California from the date of this Agreement until
the Closing Date.
ARTICLE 9. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE
The obligations of Buyer to purchase the Assets under this Agreement
are subject to the satisfaction, at or before the Closing, of all the conditions
set forth in this Article 9. Buyer may waive any or all of these conditions in
accordance with Section 15.2 hereof; provided, however, that no such waiver of a
condition shall constitute a waiver by Buyer of any of its other rights or
remedies, at law or in equity, if Seller shall be in default of any of its
representations, warranties or covenants under this Agreement.
17
<PAGE>
9.1 Accuracies of Seller's Representations and Warranties. All
representations and warranties by Seller in this Agreement or in any written
statement that shall be delivered to Buyer by Seller under this Agreement shall
be true in all material respects on and as of the Closing Date as though made at
that time.
9.2 Absence of Liens. At or prior to the Closing, Buyer shall have
received a UCC search report dated as soon as practicable prior to the Closing
Date issued by the appropriate governmental authorities indicating that there
are no filings under the Uniform Commercial Code on file with such governmental
authority which name Seller as debtor or otherwise indicating any lien on the
Assets, except for the liens otherwise disclosed in the Schedules hereto.
9.3 Seller's Performance. Seller shall have performed, satisfied and
complied with all covenants, agreements and conditions required by this
Agreement to be performed or complied with by Seller on or before the Closing
Date.
9.4 Certification by Seller. Buyer shall have received a certificate,
dated the Closing Date, signed by Seller's president or vice president or its
chief financial officer, certifying, in such detail as Buyer and its counsel may
reasonably request, that all representations and warranties of Seller made in
Article 6 are true and correct as of the Closing Date and that the conditions
specified in Sections 9.1 and 9.3 have been fulfilled.
9.5 Assignment and Assumption Agreements. Seller and Buyer shall have
entered into assignment and assumption agreements for the License Agreements and
any other agreements of Seller to be assumed pursuant to Article 4, in form and
substance reasonably satisfactory to Buyer's counsel.
9.6 Bill of Sale. Seller shall have executed a bill of sale in
substantially the form of Exhibit C attached hereto, with respect to the Assets.
9.7 Opinion of Seller's Counsel. Buyer shall have received from Gray
Cary Ware & Freidenrich, LLP, counsel for Seller, an opinion dated the Closing
Date, in form reasonably satisfactory to Buyer's counsel .
9.8 Absence of Litigation. No action, suit or proceeding before any
court or any governmental body or authority, pertaining to the transaction
contemplated by this Agreement or to its consummation, shall have been
instituted or threatened on or before the Closing Date.
18
<PAGE>
9.9 Corporate Approval. The execution and delivery of this Agreement by
Seller, and the performance of its covenants and obligations under it, shall
have been duly authorized by all necessary corporate action, and Buyer shall
have received copies of all resolutions of directors and stockholders pertaining
to that authorization, certified by the secretary of Seller.
9.10 Good Standing Certificate. Buyer shall have received a good
standing certificate for Seller dated as soon as practicable prior to the
Closing Date, issued by the appropriate governmental authorities.
9.11 Consents. All agreements and consents of any parties to the
consummation of the transaction set forth on Schedule 6.18 shall have been
obtained by Seller and delivered to Buyer.
9.12 Approval of Documentation. The form and substance of all
certificates, instruments, opinions and other documents delivered to Buyer under
this Agreement shall be satisfactory in all reasonable respects to Buyer and its
counsel.
9.13 Employment Arrangements.. Buyer shall have entered into employment
arrangements with each of Gerald Zieg, James Martin, Brian Cronin, Mark Fossen,
Vicky Hilton, Jessica Radocy, Jan Maisler and Tim Wheeler.
9.14 Bulk Transfer Notice. Division 6 of the California Uniform
Commercial Code shall have been complied with or waived.
9.15 Change of Corporate Name. Seller shall have changed its corporate
name to a name not using "HealthDesk" or any similar name.
9.16 Condition of Assets. The Assets shall not have been materially or
adversely affected in any way as a result of any fire, accident, storm or other
casualty or labor or civil disturbance or act of God or the public enemy.
9.17 MIIX Agreement. Buyer shall have entered into a royalty agreement
with MIIX Healthcare Group, Inc.
9.18 HBOC Agreement. HBOC shall amend its existing agreement with
Seller, which shall be assigned to Buyer pursuant thereto, or Buyer shall have
entered into a revised marketing agreement with HBOC.
ARTICLE 10. CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE
The obligations of Seller to sell and transfer the Assets under this
Agreement are subject to the satisfaction, at or before the Closing, of all the
following conditions:
19
<PAGE>
10.1 Accuracy of Buyer's and Parent's Representations and Warranties.
All representations and warranties by Buyer and Parent contained in this
Agreement or in any written statement delivered by Buyer or Parent under this
Agreement shall be true on and as of the Closing Date as though such
representations and warranties were made on and as of that date.
10.2 Buyer's and Parent's Performance. Before or at the Closing, Buyer
and Parent shall have performed and complied with all covenants and agreements,
and satisfied all conditions required by this Agreement to be performed,
complied with, or satisfied.
10.3 Payment of Purchase Price. Buyer shall deliver to Seller against
delivery of the items specified in Article 9 hereof a certified or bank
cashier's check, or a wire transfer of immediately available funds, in the
amount of $626,278, payable to Seller.
ARTICLE 11. OBLIGATIONS OF THE PARTIES AFTER THE CLOSING
11.1 Preservation of Goodwill. Following the Closing, Seller will
restrict its activities so that Buyer's reasonable expectations with respect to
the goodwill, business reputation, employee relations and prospects connected
with the Assets will not be materially impaired. In furtherance but not in
limitation of this general obligation, Seller agrees that, for a period of three
years following the Closing Date, or as long as Buyer or its heirs, assigns or
successors in interest carry on a like business in the counties or areas
specified, whichever is shorter:
(a) Seller will not engage in any business or activity which is
substantially the same as, or represents an outgrowth of, any
business or activity presently conducted by Seller if such
business or activity extends to any of the geographic areas
set forth in Schedule 11.1 in which Seller has heretofore
engaged in business or otherwise established its goodwill,
business reputation, or any customer relations.
The parties intend that the covenant contained in the
preceding portion of this Section 11.1(a) shall be construed
as a series of separate covenants, one for each geographic
area specified in Schedule 11.1. Except for geographic
coverage, each separate covenant shall be deemed identical in
terms to the covenant contained in the preceding paragraph.
If, in any judicial proceeding, a court shall refuse to
enforce any of the separate covenants deemed included in this
Section, then this unenforceable covenant shall be deemed
eliminated from these provisions for the purpose of those
proceedings to the extent necessary to permit the remaining
separate covenants to be enforced.
(b) Seller will not disclose to any person, or use for its own
benefit, any price lists, pricing data, customer lists or
similar matters possessed by them relating to the Assets or
the Business transferred to Buyer unless it first clearly
demonstrates to Buyer that such matters are, at the time of
the proposed disclosure or use, of common knowledge within the
trade.
20
<PAGE>
11.2 Change of Name. Seller agrees that after the Closing Date it shall
not use or employ in any manner, directly or indirectly, the name "HealthDesk",
or any variation thereof, and that it will take and cause to be taken all
necessary action by Seller's board of directors, stockholders and any other
persons in order to make this change in Seller's name effective on or before the
Closing Date.
11.3 Access to Records. From and after the Closing, Seller shall allow
Buyer, and its counsel, accountants and other representatives, such access to
records which after the Closing are in the custody or control of Seller as Buyer
reasonably requires in order to comply with its obligations under the law or
under contracts assumed by Buyer pursuant to this Agreement.
11.4 Nonsolicitation of Employees. Seller shall not, prior to the third
anniversary of the Closing, solicit any employee of Buyer or Parent or of any
direct or indirect subsidiary of Buyer or Parent to leave such employment if
such employee was at any time between the date hereof and the Closing an
employee of Seller.
11.5 Further Assurances. At any time after the Closing Date, each of
Seller, Buyer and Parent shall execute, acknowledge and deliver any further
deeds, assignments, conveyances and other assurances, documents and instruments
of transfer, reasonably requested by any other party, and shall take any other
action consistent with the terms of this Agreement that may reasonably be
requested by such other party in furtherance of the transactions contemplated by
this Agreement.
11.6 Termination of IAC Contract. Buyer agrees to pay to Information
Access Company ("IAC"), on or about November 15, 1998 or the Closing Date,
whichever is later, the sum of $65,000 in connection with the termination of
that certain Online Vendor License Agreement, dated August 12, 1996, between IAC
and Seller, as amended (the "IAC Agreement"); provided, however, that IAC agrees
to continue its obligations under the IAC Agreement, and Buyer shall be entitled
to all of Seller's rights under the IAC Agreement, until February 28, 1999.
ARTICLE 12 INDEMNIFICATION
12.1. Indemnification by Seller. Seller shall defend, indemnify and
hold harmless each of Buyer, Parent and their respective employees, successors
and assigns (Buyer, Parent and such persons, collectively, "Buyer's Indemnified
Persons"), and shall reimburse Buyer's Indemnified Persons, for, from and
against each and every demand, claim, loss (which shall include any diminution
in value), liability, judgment, damage, cost and expense (including, without
limitation, interest, penalties, costs of preparation and investigation, and the
reasonable fees, disbursements and expenses of attorneys, accountants and other
professional advisors) (collectively, "Losses") imposed on or incurred by
Buyer's Indemnified Persons, directly or indirectly, relating to, resulting from
or arising out of: (a) any inaccuracy in any representation or warranty, or any
breach or nonfulfillment of any covenant, agreement or other obligation of the
Seller under this Agreement, the schedules hereto or any certificate or other
document delivered or to be delivered pursuant hereto; and (b) any obligation of
Seller relating to the Assets and any other matter arising out of or related to
the operation of the Business arising prior to or on the Closing Date. The
maximum liability of Seller under this Section 12.1 shall be limited to the
Purchase Price.
21
<PAGE>
12.2. Indemnification by Buyer and Parent. Buyer and Parent shall
defend, indemnify and hold harmless the Seller, its successors and assigns
(Seller and such persons, collectively, "Seller's Indemnified Persons"), and
shall reimburse Seller's Indemnified Persons, for, from and against all Losses
imposed on or incurred by Seller's Indemnified Persons, directly or indirectly,
relating to, resulting from or arising out of: (a) any inaccuracy in any
representation or warranty, or any breach or non-fulfillment of any covenant,
agreement or other obligation of Buyer or Parent under this Agreement or any
certificate or other document delivered or to be delivered pursuant hereto; and
(b) any obligation of Buyer relating to the License Agreements or any other
matter arising out of or related to the operation of the Business arising after
the Closing Date.
12.3. Notice and Defense of Third Party Claims. If any action, claim or
proceeding shall be brought or asserted under this Article 12 against an
indemnified party or any successor thereto (the "Indemnified Person") in respect
of which indemnity may be sought under this Article 12 from an indemnifying
person or any successor thereto (the "Indemnifying Person"), the Indemnified
Person shall give prompt written notice of such action or claim to the
Indemnifying Person who shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Person and the
payment of all expenses; except that any delay or failure to so notify the
Indemnifying Person shall relieve the Indemnifying Person of its obligations
hereunder only to the extent, if at all, that it is prejudiced by reason of such
delay or failure. The Indemnified Person shall have the right to employ separate
counsel in any of the foregoing actions, claims or proceedings and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the Indemnified Person unless both the Indemnified
Person and the Indemnifying Person are named as parties and the Indemnified
Person shall in good faith determine that representation by the same counsel is
inappropriate due to material conflicts of interest. In the event that the
Indemnifying Person, within ten days after notice of any such action or claim,
fails to assume the defense thereof, the Indemnified Person shall have the right
to undertake the defense, compromise or settlement of such action, claim or
proceeding for the account of the Indemnifying Person, subject to the right of
the Indemnifying Person to assume to the defense of such action, claim or
proceeding with counsel reasonably satisfactory to the Indemnified Person at any
time prior to the settlement, compromise or final determination thereof.
Anything in this Article 12 to the contrary notwithstanding, the Indemnifying
Person shall not, without the Indemnified Person's prior written consent, settle
or compromise any action or claim or proceeding or consent to entry of any
judgment with respect to any such action or claim that requires solely the
payment of money damages by the Indemnifying Person and that includes as an
unconditional term thereof the release by the claimant or the plaintiff of the
Indemnified Person from all liability in respect of such action, claim or
proceeding.
22
<PAGE>
ARTICLE 13. COSTS.
13.1 Finder's or Broker's Fees. Each of the parties represents and
warrants that it has not dealt with any broker or finder in connection with any
of the transactions contemplated by this Agreement, and, insofar as it knows, no
broker or other person is entitled to any commission or finder's fee in
connection with any of these transactions.
13.2 Expenses. Each of the parties shall pay all costs and expenses,
including but not limited to attorneys' fees, incurred or to be incurred by it
in negotiating and preparing this Agreement and in closing and carrying out the
transactions contemplated by this Agreement.
ARTICLE 14 FORM OF AGREEMENT.
14.1 Headings. The subject headings of the Articles and Sections of
this Agreement are included for purposes of convenience only, and shall not
affect the construction or interpretation of any of its provisions.
14.2 Entire Agreement; Modification; Waiver. This Agreement, together
with the License Agreement and the Voting Agreement, constitutes the entire
agreement between the parties pertaining to the subject matter contained in it
and supersedes all prior and contemporaneous agreements, representations and
understandings of the parties. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by all the parties. No
waiver of any of the provisions of this Agreement shall be deemed, or shall
constitute, a waiver of any other provision, whether or not similar, nor shall
any waiver constitute a continuing waiver. No waiver shall be binding unless
executed in writing by the party making the waiver.
14.3 Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
ARTICLE 15 PARTIES
15.1 Parties in Interest. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties hereto and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third persons to any party to this
Agreement, nor shall any provision give any third persons any right of
subrogation or action over against any party hereto.
23
<PAGE>
15.2 Assignment. This Agreement shall be binding on and shall inure to
the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns.
ARTICLE 16 TERMINATION
16.1. Termination by Mutual Consent. This Agreement may be terminated
at any time prior to the Closing Date by the mutual written consent of Buyer and
Seller.
16.2. Termination by Buyer or Seller. This Agreement may be terminated
at any time prior to the Closing Date by Buyer or Seller (i) if the Closing has
not occurred on or before November 30, 1998, unless the party seeking to invoke
this subclause (i) is then in material breach of any of its obligations
hereunder; (ii) if a court of competent jurisdiction or any governmental
authority shall have issued an order, decree or ruling or taken any other
action, in each case permanently restraining, enjoining or otherwise prohibiting
the transactions contemplated by this Agreement, and such order, decree, ruling
or other action shall have become final and nonappealable, or (iii) if the other
party shall have breached or failed to comply in all material respects with its
representations, warranties, covenants and agreements contained in this
Agreement; provided, however, that if such breach or failure is reasonably
capable of being cured on or before November 30, 1998 and such party commences
such cure as soon as practicable and diligently prosecutes (subject to any other
limitations of this Agreement) such cure, such party shall be entitled to
postpone the Closing Date for a period reasonably sufficient to effect such cure
to the reasonable satisfaction of the party asserting such breach or failure,
but in no event beyond November 30, 1998.
16.3. Effect of Termination. In the event of termination of this
Agreement pursuant to this Article 16, no party hereto (or, in the case of
Buyer, any of its directors or officers) shall have any liability or further
obligation to any other party to this Agreement, provided that, if this
Agreement is so terminated by a party because one or more of the conditions to
such party's obligations hereunder is not satisfied as a result of the other
party's willful failure to comply with its obligations under this Agreement, the
terminating party's right to pursue all legal remedies for breach of contract or
otherwise, including, without limitation, damages relating thereto, shall also
survive such termination unimpaired.
24
<PAGE>
ARTICLE 17. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All representations, warranties, covenants and agreements of the
parties contained in this Agreement, or in any instrument, certificate, opinion
or other writing provided for hereunder, shall survive the Closing for a period
of one year.
ARTICLE 18 NOTICES.
All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given on the
date of service if served personally on the party to whom notice is to be given,
or on the third day after mailing if mailed to the party to whom notice is to be
given, by first class mail registered or certified, postage prepaid, and
properly addressed as follows:
Buyer and Parent: Patient InfoSystems, Inc.
Patient InfoSystems Acquisition Corp.
46 Prince Street
Rochester, New York 14607
Attn: Donald A. Carlberg
with copy to: Gibbons, Del Deo, Dolan,
Griffinger & Vecchione
A Professional Corporation
One Riverfront Plaza
Newark, New Jersey 07102-5497
Attn: Jeffrey A. Baumel, Esq.
Seller: HealthDesk Corporation
c/o Equity Dynamics
2116 Financial Center
Des Moines, Iowa 50309
Attn: Joseph Dunham
with copy to: Gray Cary Ware & Freidenrich, LLP
400 Hamilton Avenue
Palo Alto, California 94301-1825
Attn: Peter M. Astiz, Esq.
Any party may change its address for purposes of this Article by giving
the other parties written notice of the new address in the manner set forth
above.
25
<PAGE>
ARTICLE 19 GOVERNING LAW
This Agreement shall be construed in accordance with, and governed by,
the laws of the State of New York, without giving effect to conflicts of laws
principles.
ARTICLE 2 MISCELLANEOUS
20.1 Recovery of Litigation Costs. If any legal action or any
arbitration or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party or parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be entitled.
20.2 Announcements. Seller shall not make any announcements to the
public or to employees of Seller concerning this Agreement or the transactions
contemplated hereby without the prior approval of Buyer, which will not be
unreasonably withheld. Notwithstanding any failure of Buyer to approve it,
Seller may make an announcement of substantially the same information as
theretofore announced to the public by Buyer, or any announcement required by
applicable law, but Seller shall in either case notify Buyer of the contents
thereof reasonably promptly in advance of its issuance.
20.3 References. Unless otherwise specified, references to Sections or
Articles are to Sections or Articles in this Agreement.
26
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it
as of the day and year first above-written.
BUYER: PATIENT INFOSYSTEMS
ACQUISITION CORP.
By:
------------------------
Name: Donald A. Carlberg
Title: President
PARENT: PATIENT INFOSYSTEMS, INC.
By:
------------------------
Name: Donald A. Carlberg
Title: President
SELLER: HEALTHDESK CORPORATION
By:
------------------------
Name: Terry Brandt
Title: Chief Technical Officer
27
<PAGE>
EXHIBIT A
License Agreement
<PAGE>
SOFTWARE LICENSE AGREEMENT
This SOFTWARE LICENSE AGREEMENT (the "Agreement"), dated as of
September 29, 1998 by and between HEALTHDESK CORPORATION, a California
corporation ("Licensor"), and PATIENT INFOSYSTEMS ACQUISITION CORP., a Delaware
corporation ("Licensee").
RECITALS:
WHEREAS, the parties hereto, together with Patient InfoSystems, Inc.
have entered into a certain Asset Purchase Agreement, of even date herewith (the
"Asset Purchase Agreement"), pursuant to which Licensor has agreed to sell to
Licensee, substantially all of Licensor's assets used in the Business (as
defined in the Asset Purchase Agreement); and
WHEREAS, Licensee desired to license the right to use the Licensed
Product until the closing of the transactions contemplated by the Asset Purchase
Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the following
definitions shall apply:
(a) "Asset Purchase Agreement" shall have the meaning set
forth in the recitals hereto.
(b) "Licensed Product" shall mean collectively the Licensed
Software and Licensed Documentation (as hereinafter defined).
(c) "Licensed Software" shall mean the HealthDesk Online
software, CareTeam Connect software and software related products for use in the
healthcare, wellness and disease management industries.
(d) "Licensed Documentation" shall mean all specifications and
other supporting documentation for or related to the Licensed Software as may be
provided to Licensee by Licensor.
2. LICENSE. (a) Licensor hereby grants Licensee and Licensee hereby
accepts, for a period commencing on the date hereof and terminating on the
Closing Date (as defined under the Asset Purchase Agreement) or unless sooner
terminated pursuant to Section 9 herein, solely for Licensee's use and solely in
connection with the Business, and without the right to alienate, assign,
sub-license, or otherwise transfer all or any part of the rights so granted, an
exclusive, non-transferable, royalty-free, worldwide license to use the Licensed
Product in accordance with the terms, conditions and provisions of this
Agreement. Licensor shall provide such additional support services as shall be
reasonably requested by Licensee.
1
<PAGE>
(b) Licensee acknowledges and agrees that, until the Closing
Date, the Licensed Product is and shall remain the sole and exclusive property
of Licensor.
3. USE OF LICENSED PRODUCT.
(a) Licensee agrees not to reverse engineer, reverse compile,
decompile, or disassemble the Licensed Product in any manner or form and will
not either itself or permit others to create or attempt to create by reverse
engineering, reverse compiling, de-compiling, disassembling or otherwise, the
source programs or any part thereof from information made available by Licensor
under this Agreement or otherwise (whether oral or written, tangible or
intangible). Licensee will not attempt to modify or alter the Licensed Product
in any manner or form without the prior written consent of Licensor, which
consent shall not be unreasonably withheld.
(b) Licensee shall not copy, reproduce or duplicate the
Licensed Product, and/or any tangible media containing the Licensed Product, in
any manner or form, in whole or in part, without the prior written consent of
Licensor, which consent shall not be unreasonably withheld, and the payment of
an acceptable additional license fee, if so required. Licensee shall use its
best efforts to prevent and not permit any third parties, persons or entities
from copying, reproducing, duplicating, examining, inspecting, studying, and/or
reviewing the Licensed Product.
(c) All copies of the computer programs which constitute
all or a portion of the Licensed Product, whether in printed or machine readable
form, and whether on storage media or otherwise, and all legends, trademarks,
service marks, and copyright notices contained on or in the Licensed Product as
delivered to Licensee by Licensor shall be considered part of the Licensed
Product subject to this Agreement. Licensee shall not remove from, alter, modify
or deface any copyright notice, trademark, service mark, logo, name, decal or
imprint affixed to or on the Licensed Product, but not limited to, those which
identify Licensor or any other party as the source of origin of such goods,
products, or Licensed Product. Licensee shall not attempt to register any
copyrights, register any trademarks or service marks, or apply for any patent or
other intellectual property protection for the Licensed Product, any segments or
portions thereof, or any marks, logos, names, decals or imprints associated
therewith.
(d) During the term of this Agreement, Licensor shall,
upon Licensee's reasonable request, consult and provide expert assistance to
Licensee in developing the Licensed Product.
4. CONFIDENTIALITY/PROPRIETARY INFORMATION.
(a) Licensee acknowledges that the Licensed Product and
all materials, information, specifications, programs, source or object codes,
documentation, flow charts and other materials of any type whatsoever (tangible
or intangible, machine or human readable), and the ideas, techniques, know-how
and procedures contained or revealed in any of the foregoing supplied to
Licensee by Licensor under this Agreement ("Confidential Information"), and any
part or portion of any of the foregoing, are confidential and contain trade
secrets of Licensor, disclosed to Licensee on a confidential basis to be used
only as permitted by this Agreement. Licensee acknowledges that the Confidential
Information is the exclusive property and the commercially valuable proprietary
right of Licensor.
2
<PAGE>
(b) Licensee agrees not to disclose or otherwise make the
Confidential Information or information pertaining thereto, whether written or
oral, available to any person other than employees, officers and directors of
Licensee required to have such knowledge for the purposes contemplated by this
Agreement. Licensee agrees that it shall not disclose, use, sell, assign, lease,
sub-license, commercially exploit or otherwise market in any way or manner the
Confidential Information.
(c) The terms and provisions of this Section 4 shall
survive the termination, cancellation or expiration of this Agreement for any
reason.
5. NO WARRANTIES. THE LICENSED PRODUCT IS PROVIDED ON AN "AS-IS" BASIS,
AND LICENSOR MAKES NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED
TO, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH
RESPECT TO THE LICENSED PRODUCT.
6. LIMITATION OF LIABILITY. IN NO EVENT AND UNDER NO CIRCUMSTANCES
SHALL EITHER PARTY BE RESPONSIBLE OR LIABLE TO THE OTHER PARTY HERETO FOR ANY
SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OR LOST
PROFITS, INCLUDING, BUT NOT LIMITED TO, FOR LOSS OF DATA, LOSS OF USE, INVASION
OF PRIVACY, OR THE LIKE ARISING OUT OF OR RELATED TO THIS AGREEMENT, EVEN IF
ADVISED OF THE POSSIBILITY THEREOF. The terms and provisions of this Section 6
shall survive the termination, cancellation or expiration of this Agreement for
any reason.
7. INDEMNIFICATION. Licensee agrees to defend, indemnify, and hold
harmless Licensor and its principals, directors, officers, employees, and agents
from and against any and all direct liabilities, penalties, claims, demands,
suits, and causes of actions of any nature whatsoever, and any and all damages,
costs, and expenses sustained or incurred (including cost of defense,
settlement, and reasonable attorneys' fees), asserted by or on behalf of any
person or entity relating to, arising out of, or concerning any breach of this
Agreement. The indemnities and remedies set forth in this Section 7 shall
survive the termination, cancellation or expiration of this Agreement.
8. NATURE OF RELATIONSHIP. Both Licensor and Licensee shall be
independent contractors under this Agreement. Neither party shall be considered
or deemed to be an affiliate, agent, partner or joint venturer of the other
party and neither party has the right or power, express or implied, to do any
act or thing that would bind the other, except as specifically provided in this
Agreement. Neither of the parties has the right or authority to, and shall not,
incur any obligation or liability on behalf of the other.
3
<PAGE>
9. TERMINATION. (a) Subject to any other terms or provisions in this
Agreement, Licensor may, by written notice to Licensee, terminate this Agreement
and any license granted to Licensee hereunder if:
(1) the Asset Purchase Agreement is terminated in
accordance with the terms thereof, or the transactions contemplated thereby have
closed;
(2) Licensee commits a material breach of any provision
of this Agreement and such breach is not cured within ten (10) days after
Licensor gives Licensee written notice thereof; or
(3) Licensee becomes or is declared insolvent or
bankrupt, whether voluntarily or involuntarily, is the subject of any
proceedings relating to its liquidation, insolvency or for the appointment of a
receiver or similar officer for it, makes an assignment for the benefit of all
or substantially all of its creditors, or enters into an agreement for the
composition, extension, or readjustment of all or substantially all of its
obligations.
(b) Upon the termination, cancellation or expiration of
this Agreement, Licensee shall immediately return to Licensor the Licensed
Product, any and all Confidential Information provided by Licensor to Licensee
under this Agreement and any and all copies of the foregoing.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter contained herein and
supersedes all prior and contemporaneous agreements, representations and
understandings of the parties.
11. COUNTERPARTS. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
12. ASSIGNMENT. This Agreement shall be binding on and shall inure to
the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns. Licensee shall not sub-license, assign,
transfer or otherwise convey the Licensed Product or any of the rights granted
hereunder without Licensor's prior written consent, which consent shall not be
unreasonably withheld.
13. GOVERNING LAW. This Agreement shall be construed in accordance
with, and governed by, the laws of the State of California, without giving
effect to conflicts of laws principles thereof.
14. CAPITALIZED TERMS. Capitalized terms referred to herein and not
otherwise defined shall have the respective meanings ascribed to such terms in
the Asset Purchase Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it
as of the day and year first above-written.
LICENSOR: HEALTHDESK CORPORATION
By:
-----------------------
Name:
Title:
LICENSEE: PATIENT INFOSYSTEMS
ACQUISITION CORP.
By:
-----------------------
Name:
Title:
5
<PAGE>
EXHIBIT B
Sublease
<PAGE>
SUBLEASE
THIS SUBLEASE (the "Sublease") is made as of the 29 day of September,
1998, between HEALTHDESK CORPORATION, a California corporation, having its
principal place of business at 2560 Ninth Street, Suite 220, Berkeley,
California 94710 ("Sublandlord") and PATIENT INFOSYSTEMS ACQUISITION CORP., a
Delaware corporation, having its principal place of business at 46 Prince
Street, Rochester, New York 14607 ("Subtenant").
RECITALS:
A. Sublandlord is tenant under an Office Lease (the "Prime Lease," a
complete copy of which is annexed hereto as Schedule A) dated September 11, 1995
with Parker Associates, a California limited partnership (the "Prime Lessor"),
relating to property identified as Suite 220 in Parker Plaza, 2560 Ninth Street,
Berkeley, California, more particularly described in the Prime Lease, and
referred to herein as the "Premises."
B. Sublandlord desires to sublet to Subtenant, and Subtenant desires to
sublet from Sublandlord, all of the Premises.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereby agree:
1. Sublease. Sublandlord hereby subleases the Premises to Subtenant,
and Subtenant hereby subleases the Premises from Sublandlord, on the terms and
conditions hereinafter set forth.
2. Term of Sublease. The Sublease shall commence on the date hereof
(the "Commencement Date") and shall be a month-to-month tenancy terminable upon
10 business days advance written notice by either party.
3. Rent. Subtenant shall pay Sublandlord the Rent at the office of
Sublandlord first above appearing, or at such other place as Sublandlord may
designate in writing. Rent shall be payable in equal monthly installments in
advance on the first day of each calendar month during the Term.
4. Occupancy. Subject to the terms and provisions hereinafter set
forth, Subtenant shall be permitted to enter into occupancy of the Premises on
the Commencement Date.
5. Prime Lease; Inapplicable Provisions. This Sublease is subject to
and subordinate to the Prime Lease, and all defined terms used herein, unless
otherwise indicated, shall have the meanings given to them in the Prime Lease.
The term "Landlord" as used in the Prime Lease shall refer to Sublandlord
hereunder, "Tenant" as used in the Prime Lease shall refer to Subtenant
hereunder, "Commencement Date" shall refer to the Commencement Date of this
Sublease and "Term" shall refer to the Term of this Sublease, except as
otherwise expressly provided in this Sublease. The obligations of Sublandlord in
the Prime Lease shall be the obligations of Subtenant hereunder, and Subtenant
assumes and shall perform all of the terms of the Prime Lease to be performed by
Sublandlord as tenant thereunder with respect to the Premises for the term of
this Sublease, except to the extent the provisions of the Prime Lease are
inconsistent with or are superseded or supplemented by specific terms and
provisions of this Sublease. The following provisions of the Prime Lease shall
not apply to this Sublease:
(a) The Term (paragraph 3(a));
(b) Security Deposit (paragraph 15);
(c) Rental Adjustment (paragraph 29);
(d) Taxes Payable by Tenant (paragraph 30); and
(e) Basic Operating Costs (Paragraph 38).
<PAGE>
6. Prime Lease Indemnity. Subtenant shall neither do nor permit
anything to be done which would cause the Prime Lease to be terminated or
forfeited by reason of any right of termination or forfeiture reserved or vested
in the Prime Lessor under the Prime Lease, and Subtenant shall indemnify and
hold Sublandlord harmless from and against all claims of any kind whatsoever by
reason of any breach or default on the part of Subtenant by reason of which the
Prime Lease may be terminated or forfeited.
7. "As Is" Condition. Subtenant has inspected the Premises and accepts
the same from Sublandlord in its present condition "as is." Subtenant
acknowledges and agrees with Sublandlord that neither Sublandlord, nor any
employee of Sublandlord, nor other party claiming to act on Sublandlord's behalf
has made any representation, warranty, estimation, or promise of any kind or
nature whatsoever relating to the physical condition of the Premises.
8. Prime Lessor Consent. The Sublease shall be of no force and effect,
and the parties shall have no rights or liabilities hereunder, until the terms
hereof are approved in writing by Prime Lessor. Either party can terminate this
Sublease if the contingency in the prior sentence has not been satisfied or
waived by September 30, 1998.
9. Miscellaneous.
(a) Each party warrants that it is authorized to enter into
the Sublease, that the person signing on its behalf is duly authorized to
execute the Sublease, and that no other signatures are necessary.
(b) All prior understandings and agreements between the
parties with respect to the subject matter hereof are merged within this
Sublease, which alone fully and completely sets forth the understanding of the
parties. This Sublease shall not be modified, altered or amended in any way
except by agreement in writing, signed by the parties hereto.
(c) The terms, covenants and conditions contained in this
Sublease shall be binding on and inure to the benefit of the parties hereto and
their respective permitted successors and permitted assigns.
(d) If any provision of the Sublease is invalid or
unenforceable to any extent, then that provision and the remainder of this
Sublease shall continue in effect and be enforceable to the fullest extent
permitted by law.
(e) The parties chose this Sublease document because it is
fair to both parties. Therefore, the parties agree that it shall be construed as
if both parties were equally responsible for drafting the Sublease and the rule
of construction of construing against the drafter shall not apply.
(f) This Sublease shall be governed by the laws of the State
of California.
(g) This Sublease shall not be binding unless signed by both
parties and an originally signed counterpart is delivered to Subtenant.
(h) Subtenant warrants and represents to Sublandlord that this
Sublease and the transaction contemplated hereby is legally binding on, and
enforceable against Subtenant in accordance with its terms.
(i) Notices shall be sent and deemed to have been given as
provided in Paragraph 28 of the Prime Lease, to Sublandlord and Subtenant at
their addresses in the first paragraph of this Sublease.
<PAGE>
INTENDING TO BE LEGALLY BOUND, this instrument has been executed as of
the day and year first appearing.
SUBLANDLORD:
HEALTHDESK CORPORATION
By:
---------------------------------
Name:
Title:
SUBTENANT:
PATIENT INFOSYSTEMS
ACQUISITION CORP.
By:
---------------------------------
Name:
Title:
<PAGE>
EXHIBIT C
Bill of Sale
<PAGE>
ANNEX III - OPINION OF WHALE SECURITIES
<PAGE>
WHALE SECURITES CO., L.P.
investment bankers
650 FIFTH AVENUE
NEW YORK, N.Y. 10019
(212) 484-2000
September 29, 1998
The Board of Directors
HealthDesk Corporation
2560 Ninth Street
Suite 220
Berkeley, CA 94710
Members of the Board:
You have engaged us pursuant to the engagement letter, dated August 13,
1998, between HealthDesk Corporation ("HealthDesk" or the "Company") and Whale
Securities Co., L.P. ("Whale Securities"). Specifically, you have requested our
opinion regarding the fairness, from a financial point of view, to the Company's
common shareholders, of the exchange ratio reflected in the proposal under
consideration to merge the Company and MC Informatics, Inc. ("MCI") on the basis
of an exchange of common stock (the "Exchange Ratio"), pursuant to the draft
merger agreement dated June 24, 1998 (the "Merger Agreement").
In connection with rendering this opinion, we have reviewed such
information as we have deemed necessary or appropriate for the purpose of
stating the opinion expressed herein, including but not limited to the
following:
(i) the Merger Agreement;
(ii) the Annual Report on Form 10-K for HealthDesk for the fiscal year ended
December 31, 1997;
(iii) the Quarterly Reports on Form 10-Q for HealthDesk for the periods ended
March 31, 1998 and June 30, 1998;
(iv) the proforma projected financial statements and underlying assumptions,
prepared by MCI's and HealthDesk's management, reflecting the completion
of the merger of HealthDesk and MCI, for the years ending December 31,
1998 through December 31, 2000;
(v) the audited historical financial statements for MCI for the period April
14, 1997 through December 31, 1997;
(vi) the unaudited historical financial statements for MCI for the period
January 1, 1998 through June 30, 1998;
(vii) MCI's current consulting agreements and backlog of existing business;
(viii) information regarding financial performance and market valuations of
publicly traded companies in the industries in which HealthDesk and MCI
operate. In addition, we conducted several meetings with members of
senior management of HealthDesk and MCI to discuss the historical and
prospective industry environments and operating results for HealthDesk
and MCI, respectively.
<PAGE>
The Board of Directors
HealthDesk Corporation
September 29, 1998
Page 2 of 2
In rendering our opinion, we have, with your approval, assumed and
relied upon the accuracy, completeness and fairness, without assuming any
responsibility for the independent verification of all financial and other
information that was available to us from public sources, that was provided to
us by HealthDesk or MCI, or that was otherwise reviewed by us. With respect to
financial projections supplied to us, we assume that they have been reasonably
prepared based on both HealthDesk's and MCI's then current estimate of future
results, and we have relied upon such projections and made no independent
verification of the bases, assumptions, calculations or other information
contained therein. We have not made or been provided with an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of HealthDesk or MCI, and we do not assume any responsibility for verifying any
of the information reviewed by us. Our opinion is necessarily based upon
information available to us, and financial, stock market and other conditions
and circumstances existing and disclosed to us, as of the date hereof.
In conducting our investigation and analyses and in arriving at our
opinion expressed herein, we have taken into account such accepted financial and
investment banking procedures and considerations as we have deemed relevant,
including the review and evaluation of: (i) historical revenues, operating
earnings, net income and capitalization of HealthDesk and MCI and certain
publicly and privately held companies in businesses we believe to be comparable
to HealthDesk and MCI; (ii) the current financial and market position and
results of operations of HealthDesk and MCI; and (iii) the general condition of
the securities markets.
Whale Securities, as part of its investment banking services, is
regularly engaged in the valuation of businesses and securities in connection
with mergers, acquisitions, underwritings, sales and distributions of listed and
unlisted securities, private placements and valuations for estate, corporate or
other purposes. Whale Securities has been retained by the Board of Directors of
HealthDesk to provide this opinion and has received fees and indemnification
against certain liabilities for the services rendered pursuant to this
engagement.
In the ordinary course of business, we actively trade securities for
our own account and for the accounts of our customers and, accordingly, may at
any time hold a long or short position in the equity securities of HealthDesk.
On January 16, 1997, Whale Securities completed an initial public offering for
HealthDesk. In addition, Whale Securities currently makes a market in the
publicly traded securities of HealthDesk.
The opinion expressed herein is as of the date hereof and we make no
undertaking to update, supplement or amend such opinion as facts and
circumstances come to our attention which could affect such opinion.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Exchange Ratio is fair, from
a financial point of view, to the shareholders of HealthDesk.
Very truly yours,
WHALE SECURITIES CO., L.P.
<PAGE>
ANNEX IV - MERGER AGREEMENT
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
among HEALTHDESK CORPORATION,
MC ACQUISITION CORPORATION,
MC INFORMATICS, INC. and
certain SHAREHOLDERS of MC INFORMATICS, INC.
August 18, 1998
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is entered
into this 18th day of August 1998, by and among HealthDesk Corporation, a
California corporation ("HealthDesk"), MC Acquisition Corporation, a California
corporation and wholly-owned subsidiary of HealthDesk ("Sub"), MC Informatics,
Inc., a California Corporation ("MCI") and the shareholders of MCI specified on
the execution page hereof (the "Principal Shareholders").
RECITALS
A. The parties intend that, subject to the terms and conditions
hereinafter set forth, Sub shall be merged with and into MCI, with MCI the
surviving corporation (the "Merger"), pursuant to Agreement of Merger
substantially in the form attached hereto as Exhibit A (the "Agreement of
Merger") and the applicable provisions of the laws of the State of California.
Upon the Merger, the shareholders of MCI (the "MCI Shareholders") shall be
entitled to receive shares of HealthDesk common stock, no par value, at the
exchange ratio set forth herein.
B. For federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended.
C. It is the intention of the parties that following the consummation
of the Merger that the MCI Shareholders shall own not less than 40% of the
outstanding shares of HealthDesk.
AGREEMENT
NOW, THEREFORE, in reliance on the foregoing recitals and in and for
the consideration and mutual covenants set forth herein, the parties agree as
follows:
1. Definitions.
1.1 "Affiliate" shall have the meaning set forth in the rules
and regulations promulgated by the Commission pursuant to the Securities Act.
1.2 "Closing" and "Closing Date" shall have the meanings set
forth in Section 2.4.
1.3 "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.4 "Commission" shall mean the Securities and Exchange
Commission.
1.5 "MCI Common Stock" shall mean shares of MCI common stock,
no par value, issued and outstanding at the Effective Time.
1.6 "MCI Shares" shall mean the shares of MCI common stock
issued and outstanding at the Effective Time.
1
<PAGE>
1.7 "Confidential Information" shall mean that information of
a party ("Disclosing Party") which is disclosed to another party ("Receiving
Party") pursuant to this Agreement, in written form and marked "Confidential."
If Confidential Information is initially disclosed orally, the Disclosing Party
shall send a written summary of such information to the Receiving Party within
fifteen (15) days of disclosure and mark such summary "Confidential."
Confidential Information shall include, but not be limited to, trade secrets,
know-how, inventions, techniques, processes, algorithms, software programs,
schematics, designs, contracts, customer lists, financial information, sales and
marketing plans and business information.
1.8 "Contaminant" shall mean, without limitation, any
pollutants, residues, infectious materials, flammable, dangerous, toxic or
hazardous substances, hazardous materials or waste of any description
whatsoever, except for non-hazardous waste of the kind generated in the normal
course of operations, including any of the foregoing as defined in or regulated
under any Environmental Law, including but not limited to polychlorinated
biphenyls, asbestos or asbestos containing materials, petroleum and petroleum
containing materials.
1.9 "Damages" shall include any loss, damage, injury, decline
in value, lost opportunity, liability, claim, demand, settlement, judgment,
award, fine, penalty, tax, fee (including reasonable attorneys' fees), charge,
cost (including costs of investigation) or expense of any nature.
1.10 "Dissenting Shares" shall mean any MCI Shares held by
persons who have not voted such shares for approval of the Merger and with
respect to which such persons have become entitled to exercise dissenter's
rights in accordance with Chapter 13 of the California Corporations Code.
1.11 "Effective Time" shall mean the time the Merger becomes
effective as defined in Section 2.5.
1.12 "Entity" shall mean corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
1.13 "Environmental Activity" shall mean, without limitation,
any activity, event or circumstance in respect of a Contaminant, including,
without limitation, its storage, use, holding, collection, purchase,
accumulation, assessment, generation, manufacture, construction, processing,
treatment, recycling, stabilization, disposition, handling or transportation or
its affirmative or accidental release into the natural environment including
movement through or in the air, soil, subsoil, surface water or groundwater or
any other activity, event or circumstance which is subject to any of the
Environmental Laws including but not limited to noise, vibration, odor or
similar nuisance.
1.14 "Exchange Ratio" shall mean that for each outstanding
share of MCI Common Stock, such share will be converted into the right to
receive 4.9 shares of HealthDesk Common Stock.
2
<PAGE>
1.15 "Environmental Laws" shall mean laws relating to the
environment or any Environmental Activity.
1.16 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, or any similar federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
1.17 "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body, or Entity and any court or
other tribunal).
1.18 "Legal Proceeding" shall mean any action, suit,
litigation, arbitration proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving any court or other Governmental Body or any
arbitrator or arbitration panel.
1.19 "Material" when capitalized and used in reference to the
business, products or financial situation of MCI shall be construed, except as
specifically provided, to qualify the matter referred to herein to matters with
a value in excess of $10,000. For example, a "Material adverse effect" would be
an adverse effect resulting in costs or expenses in excess of $10,000. When the
word "material" is not capitalized it shall mean material with respect to the
matter referenced. For example, a reference to a material breach of a particular
agreement would mean a breach that is material with respect to the particular
contract (and not necessarily with respect to the overall business of MCI or
HealthDesk).
1.20 "HealthDesk Shares" shall mean the aggregate number of
shares of HealthDesk common stock, no par value, issued in accordance with
Section 2.2.
1.21 "Merger" shall mean the merger of Sub with and into MCI,
on the terms and conditions described herein.
1.22 "Person" shall mean any individual, Entity or
Governmental Body.
1.23 "Proprietary Asset" shall mean: (a) any patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, computer program, invention, design, blueprint, engineering drawing,
proprietary product, technology, proprietary right or other intellectual
property right or intangible asset; and (b) any right to use or exploit any of
the foregoing including rights granted by third parties under license
agreements.
3
<PAGE>
1.24 "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants and advisors.
1.25 "Securities Act" shall mean the Securities Act of 1933,
as amended, or any similar federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
1.26 "Tax" or "Taxes" shall mean all U.S. federal,
territorial, state, municipal, local or other taxes, including without
limitation income capital, sales and use taxes, value added and goods and
services taxes, excise taxes, transfer and stamp taxes, custom duties and
franchise taxes, real and personal property taxes and payroll taxes (including
tax withholdings, employer health taxes, workers' compensation assessments and
ERISA plans and unemployment insurance premiums, contributions and remittances
and the U.S. equivalents thereof), and penalties, interest and surcharges in
respect of any of the foregoing and all words derived from or including the word
"Tax," such as "Taxing" and "Taxation" shall bear a corresponding meaning.
1.27 "Transaction Documents" shall mean all documents or
agreements required to be delivered by any party hereunder including the
Agreement of Merger.
2. Plan of Reorganization.
2.1 The Merger. Subject to the terms and conditions of this
Agreement, Sub shall be merged with and into MCI in accordance with the
applicable provisions of the laws of the State of California and with the terms
and conditions of this Agreement so that:
(a) At the Effective Time, Sub shall be merged with
and into MCI. As a result of the Merger, the separate corporate existence of Sub
shall cease and MCI shall continue as the surviving corporation (sometimes
referred to herein as the "Surviving Corporation") and shall succeed to and
assume all of the rights and obligations of Sub in accordance with the laws of
the State of California.
(b) The Articles of Incorporation and the Bylaws of
Sub in effect immediately prior to the Effective Time shall be the articles of
incorporation and bylaws, respectively, of the Surviving Corporation after the
Effective Time unless and until further amended as provided by law.
(c) The directors and officers of Sub immediately
prior to the Effective Time shall be the directors and officers of the Surviving
Corporation after the Effective Time. Such directors and officers shall hold
their position until the election and qualification of their respective
successors or until their tenure is otherwise terminated in accordance with the
Bylaws of Surviving Corporation.
4
<PAGE>
2.2 Cancellation of Shares and Delivery of Consideration.
(a) At the Effective Time, each share of MCI capital
stock, if any, that is owned directly or indirectly by MCI shall be canceled and
no cash or other consideration shall be delivered in exchange therefor.
(b) At the Effective Time, each MCI Share (other than
shares owned directly or indirectly by MCI) shall, by virtue of the Merger, and
without further action on the part of any holder thereof, be converted and
exchanged in accordance with the Exchange Ratio.
(c) At the Effective Time, each share of capital
stock of Sub outstanding immediately prior to the Merger shall, by virtue of the
Merger, and without further action on the part of any holder thereof, continue
to be issued and shall be converted into one share of MCI common stock
outstanding after the Merger.
(d) The Exchange Ratio shall be adjusted to reflect
the effect of any stock split, reverse split, stock dividend (including any
dividend or distribution of securities convertible into HealthDesk Common Stock
or MCI Common Stock), reorganization, recapitalization or other like change with
respect to HealthDesk Common Stock or MCI Common Stock occurring after the date
hereof and prior to the Effective Time.
(e) No fraction of a share of HealthDesk Common Stock
shall be issued, but in lieu thereof each holder of MCI Shares who would
otherwise be entitled to a fraction of a share of HealthDesk Common Stock (after
aggregating all fractional shares of HealthDesk Common Stock to be received by
such holder) shall receive from HealthDesk an amount of cash (rounded to the
nearest whole cent) equal to the product of (i) such fraction, multiplied by
(ii) the average closing price of a share of HealthDesk Common Stock for the
five most recent days that HealthDesk Common Stock has traded ending on the
trading day immediately prior to the Effective Time, as reported on the Nasdaq
SmallCap Market.
(f) Any Dissenting Shares shall not be converted into
HealthDesk Common Stock but shall instead be converted into the right to
Dissenting Shares pursuant to the California Corporations Code. MCI agrees that,
except with the prior written consent of HealthDesk, or as required under the
California Corporations Code, it will not voluntarily make any payment with
respect to, or settle or offer to settle, any such purchase demand. Each holder
of Dissenting Shares (a "Dissenting Shareholder") who, pursuant to the
provisions of the California Corporations Code, becomes entitled to payment for
MCI Shares shall receive payment therefor (but only after the value therefor
shall have been agreed upon or finally determined pursuant to such provisions).
If, after the Effective Time, any Dissenting Shares shall lose their status as
Dissenting Shares, HealthDesk shall issue and deliver, upon surrender by such
shareholder of certificate or certificates representing MCI Shares, the number
of shares of HealthDesk Common Stock to which such shareholder would otherwise
be entitled under this Section 2.2 less the number of shares of HealthDesk
Common Stock allocable to such shareholder that have been deposited in the
Indemnity Escrow.
5
<PAGE>
2.3 Exchange Procedures.
(a) Following the Closing Date, HealthDesk shall mail
to each holder of record of certificate(s) or other documents which represent
MCI Shares (the "Certificates"), to be exchanged pursuant to Section 2.2 hereof
(i) a letter of transmittal (which shall specify that, with respect to the
Certificates, delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to HealthDesk
and shall be in such form and have such other provisions as HealthDesk shall
reasonably require) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for HealthDesk Shares. Upon surrender of a
Certificate for cancellation to HealthDesk, together with such letter of
transmittal, duly executed, the holder of such Certificates shall be entitled to
receive in exchange therefor his pro rata allocation of the HealthDesk Shares as
to which such holder is entitled pursuant to Section 2.2 hereof. Certificates so
surrendered pursuant to this Section 2.3 shall forthwith be canceled (if not
otherwise canceled or terminated in accordance with their terms). In the event
of a transfer of ownership of MCI Shares which is not registered on the transfer
records of MCI, the appropriate number of HealthDesk Shares may be delivered to
a transferee if the Certificate representing such transferred security is
presented to HealthDesk and accompanied by all documents required to evidence
and effect such transfer and to evidence that any applicable stock transfer
taxes have been paid. Until surrendered as contemplated by this Section 2.3,
each Certificate shall be deemed at any time after the Effective Time to
represent solely the right to receive upon such surrender that number of
HealthDesk Shares (without interest and subject to applicable withholding,
escheat and other laws) to which such holder is entitled.
(b) Notwithstanding anything to the contrary in this
Section 2.3, none of HealthDesk, the Surviving Corporation or any party hereto
shall be liable to a holder of MCI Shares for any amount properly paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(c) The HealthDesk Shares paid in accordance with the
terms hereof shall be deemed to be in full satisfaction of all rights pertaining
to such MCI Shares, and there shall be no further registration of transfers on
the records of the Surviving Corporation of MCI Shares. If, after the Effective
Time, Certificates are presented to the surviving Corporation for any reason,
they shall be canceled and exchanged as provided in Section 2.2.
(d) In the event any Certificates evidencing MCI
Shares shall have been lost, stolen or destroyed, HealthDesk shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such holders pro rata allocation
of HealthDesk Shares, as may be required pursuant to Section 2.2; provided,
however, that HealthDesk may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
Certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against HealthDesk with respect to
the Certificates alleged to have been lost, stolen or destroyed.
6
<PAGE>
2.4 The Closing. Subject to termination of this Agreement as
provided in Section 12 below, the closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Gray Cary Ware
& Freidenrich LLP at 10:00 a.m. local time on the date three (3) days following
the satisfaction of all conditions to closing set forth herein, or such other
place, time and date as HealthDesk and MCI may mutually select (the "Closing
Date").
2.5 Effective Time. Simultaneously with the Closing, the
Agreement of Merger shall be filed in the office of the Secretary of State of
the State of California. The Merger shall become effective immediately upon the
filing of the Agreement of Merger with such office (the "Effective Time").
3. Representations and Warranties of MCI. Except as otherwise set forth
in the "MCI Disclosure Schedule," referencing the appropriate section and
paragraph numbers, to be provided to HealthDesk prior to the Closing Date, MCI
and the Principal Shareholders represent and warrant to HealthDesk as set forth
below. No fact or circumstance disclosed to HealthDesk by MCI shall constitute
an exception to these representations and warranties unless such fact or
circumstance is set forth in the MCI Disclosure Schedule. References herein to
the "LLC" refer to MC Informatics LLC, a California limited liability company.
Unless otherwise specified herein or the context otherwise requires, the
representations apply to both MCI and the LLC.
3.1 Organization. MCI is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has corporate power and authority to carry on its business as
it is now being conducted and as it is proposed to be conducted. MCI is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or properties makes such
qualification or licensing necessary. The MCI Disclosure Schedule contains a
true and complete listing of the locations of all sales offices, manufacturing
facilities, and any other offices or facilities of MCI and a true and complete
list of all jurisdictions in which MCI maintains any employees. The MCI
Disclosure Schedule contains a true and complete list of all jurisdictions in
which MCI is duly qualified to transact business as a foreign corporation. True
and complete copies of MCI's charter documents as in effect on the date hereof
and as to be in effect immediately prior to the Closing, have been provided to
HealthDesk or its Representatives.
3.2 Capitalization.
(a) The authorized capital stock of MCI as of the
date of this Agreement consists of One Million (1,000,000) shares of MCI common
stock; and, as of the date of this Agreement, one million (1,000,000) shares of
MCI common stock are issued and outstanding and held of record by MCI
Shareholders as set forth and identified in Section 3.2(a) of the MCI Disclosure
Schedule.
(b) Except as set forth in Section 3.2((b)) of the
MCI Disclosure Schedule, there are no outstanding options, warrants, rights,
commitments, conversion rights, rights of exchange, plans or other agreements of
any character providing for the purchase, issuance or sale of any shares of the
capital stock of MCI other than as contemplated by this Agreement. There are no
voting trust, buy-sell or other similar agreements in place among the MCI
Shareholders and MCI.
7
<PAGE>
(c) All of the outstanding securities of MCI have
been duly authorized and are validly issued, fully paid and nonassessable. All
securities of MCI were issued in compliance with applicable securities laws.
None of MCI's outstanding securities were issued in consideration in whole or in
part for any contribution, transfer, assignment or any proprietary rights.
3.3 Power, Authority and Validity. MCI has the corporate power
and authority to enter into this Agreement and the other Transaction Documents
to which it is a party and to carry out its obligations hereunder and
thereunder. The execution and delivery of this Agreement and the Transaction
Documents to which it is a party and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by the board of
directors of MCI, and no other corporate proceedings are necessary to authorize
this Agreement or the other Transaction Documents. MCI is not subject to or
obligated under any charter, bylaw or contract provision or any license,
franchise or permit, or subject to any order or decree, which would be breached
or violated by or in conflict with its executing and carrying out this Agreement
and the transactions contemplated hereunder and under the Transaction Documents.
This Agreement is, and each of the other Transaction Documents to which MCI will
be a party, when executed and delivered by MCI shall be, the valid and binding
obligation of MCI enforceable in accordance with their respective terms, subject
to (i) laws of general application relating to bankruptcy, insolvency, and the
relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
3.4 Financial Statements.
(a) Schedule 3.4(a) of the MCI Disclosure Schedule
sets forth the following: (i) the balance sheet and consolidated statements of
income and changes in financial condition for the fiscal years ended December
31, 1996 and 1997 and for the five month period ended May 31, 1998 for the LLC
and (ii) MCI's consolidated unaudited balance sheet dated as of May 31, 1998
(the "MCI Balance Sheet") (the financial statements described in clauses (i) and
(ii) collectively, the "MCI Financial Statements").
(b) The MCI Financial Statements are complete and in
accordance with the books and records of MCI and present fairly in all respects
the financial position of MCI as of their historical dates. Except and to the
extent reflected or reserved against in the MCI Balance Sheet, MCI does not
have, as of the date of such balance sheet, any liabilities or obligations
(absolute or contingent) of a nature required or customarily reflected in a
balance sheet (or the notes thereto). The aggregate reserves, if any, reflected
on the MCI Financial Statements are adequate in light of the contingencies with
respect to which they are made.
(c) MCI does not have any debt, liability, or
obligation of any nature, whether accrued, absolute or contingent that is not
reflected or reserved against in the MCI Financial Statements, except that MCI
has not established any reserves with respect to the costs and fees associated
with this Agreement and the transactions contemplated hereby. All debts,
liabilities, and obligations incurred after the date of the MCI Financial
Statements, whether absolute or contingent, were incurred in the ordinary course
of business and are usual and normal in amount both individually and in the
aggregate.
8
<PAGE>
3.5 Tax Matters.
(a) MCI has fully and timely, properly and accurately
filed all Tax returns and reports required to be filed by it (the "MCI
Returns"), including all federal, foreign, state and local returns and reports
for all years and periods for which any such returns or reports were due. The
MCI Returns and all other Tax returns and reports filed by MCI were prepared in
the manner required by applicable law. Except for any goods and services income
Tax due upon the filing of the MCI Returns, all income, sales, use, occupation,
property or other Taxes or assessments due from MCI has been paid, and there are
no pending assessments, asserted deficiencies or claims for additional Taxes
that have not been paid. The reserves for Taxes, if any, reflected on the MCI
Financial Statements are adequate and there are no Tax liens on any property or
assets of MCI. There have been no audits or examinations of any Tax returns or
reports by any applicable governmental agency. No state of facts exists or has
existed which would constitute grounds for the assessment of any penalty or of
any further Tax liability beyond that shown on the respective Tax reports or
returns. There are no outstanding agreements or waivers extending the statutory
period of limitation applicable to any federal, state or local income Tax return
or report for any period.
(b) All Taxes which MCI has been required to collect
or withhold have been duly withheld or collected and, to the extent required,
have been paid to the proper taxing authority.
(c) MCI is not a party to any tax-sharing agreement
or similar arrangement with any other party.
(d) At no time has MCI been included in the federal
consolidated income Tax return of any affiliated group of corporations.
(e) No payment which MCI is obliged to pay to any
director, officer, employee or independent contractor pursuant to the terms of
an employment agreement, severance agreement or otherwise will constitute an
excess parachute payment as defined in Section 280G of the Code.
(f) MCI will not be required to include any
adjustment in taxable income for any Tax period (or portion thereof) ending
after the Closing Date pursuant to Section 481(c) of the Code or any provision
of the Tax laws of any jurisdiction requiring Tax adjustments as a result of a
change in method of accounting implemented by MCI prior to the Closing Date for
any Tax period (or portion thereof) ending on or before the Closing Date or
pursuant to the provisions of any agreement entered into by MCI prior to the
Closing Date with any taxing authority with regard to the Tax liability of MCI
for any Tax period (or portion thereof) ending on or before the Closing Date.
9
<PAGE>
(g) MCI is not currently under any contractual
obligation to pay to any Governmental Body any Tax obligations of, or with
respect to any transaction relating to, any other person or to indemnify any
other person with respect to any Tax.
3.6 Absence of Certain Changes or Events. Except as set forth
in Section 3.6 of the MCI Disclosure Schedule, from May 31, 1998, to the date of
this Agreement, MCI has not:
(a) suffered any Material adverse change in its
financial condition or in the operations of its business, nor any Material
Adverse Change in its balance sheet, including but not limited to cash
distributions or decreases in the net assets of MCI;
(b) suffered any physical damage, destruction or
loss, whether or not covered by insurance, in an aggregate amount in excess of
Ten Thousand Dollars ($10,000);
(c) granted or agreed to make any increase in the
compensation payable or to become payable by MCI to its officers or employees,
except those occurring in the ordinary course of business;
(d) declared, set aside or paid any dividend or made
any other distribution on or in respect of the shares of the capital stock of
MCI or declared any direct or indirect redemption, retirement, purchase or other
acquisition by MCI of such shares;
(e) issued any shares of capital stock of MCI or any
warrants, rights, options or entered into any commitment relating to the shares
of MCI;
(f) made any change in the accounting methods or
practices it followed, whether for general financial or Tax purposes, or any
change in depreciation or amortization policies or rates adopted therein;
(g) sold, leased, abandoned or otherwise disposed of
any real property or any machinery, equipment or other operating property other
than in the ordinary course of business;
(h) sold, assigned, transferred, licensed or
otherwise disposed of any patent, trademark, trade name, brand name, copyright
(or pending application for any patent, trademark or copyright), invention, work
of authorship, process, know-how, formula or trade secret or interest thereunder
or other intangible asset except for equipment sales in the ordinary course of
their business;
(i) suffered any dispute involving any employee that
could have a Material adverse effect on MCI;
(j) engaged in any activity or entered into any
commitment or transaction (including without limitation any borrowing or capital
expenditure), in either case, other than in the ordinary course of business;
10
<PAGE>
(k) incurred any liabilities, absolute or contingent
except for (i) liabilities identified as such in the "liabilities" column of the
MCI Financial Statements; (ii) accounts payable or accrued salaries that have
been incurred by MCI since December 31, 1997, in the ordinary course of business
and consistent with MCI's past practices; and (iii) liabilities in Section
3.6((k)) of the MCI Disclosure Schedule;
(l) permitted or allowed any of its property or
assets to be subjected to any mortgage, deed of trust, pledge, lien, security
interest or other encumbrance of any kind, other than any purchase money
security interests incurred in the ordinary course of business;
(m) made any capital expenditure or commitment for
additions to property, plant or equipment, in the aggregate, in excess of Ten
Thousand Dollars ($10,000);
(n) paid, loaned or advanced any amount to, or sold,
transferred or leased any properties or assets to, or entered into any agreement
or arrangement with any of its Affiliates, officers, directors or shareholders
or any Affiliate or associate of any of the foregoing;
(o) made any amendment to or terminated any agreement
which, if not so amended or terminated, would be required to be disclosed in the
MCI Disclosure Schedule;
(p) agreed to take any action described in this
Section 3.6 or outside of its ordinary course of business or which would
constitute a breach of any of the representations contained in this Agreement.
3.7 Title and Related Matters. MCI has good and marketable
title to all the properties, interests in properties and assets, real and
personal, reflected in the MCI Financial Statements or acquired after the date
of the MCI Financial Statements (except properties, interests in properties and
assets sold or otherwise disposed of since the date of the MCI Financial
Statements in the ordinary course of business), free and clear of all mortgages,
liens, pledges, charges or encumbrances of any kind or character, except the
lien of current Taxes not yet due and payable and except for liens which in the
aggregate do not secure more than Ten Thousand Dollars ($10,000) in liabilities.
All of the tangible and intangible rights of the LLC have been duly and validly
transferred to MCI. Except as noted in Section 3.7 of the MCI Disclosure
Schedule, the equipment of MCI used in the operation of its business is in good
operating condition and repair, normal wear and tear excepted. All real or
personal property leases to which MCI is a party are valid, binding, enforceable
and effective in accordance with their respective terms, subject to (i) laws of
general application relating to bankruptcy, insolvency, and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies. There is not under any of such leases any existing
default by MCI or, any other event of default or event which, with notice or
lapse of time or both, would constitute a default by any other party to such
leases. Section 3.7 of the MCI Disclosure Schedule contains a description of all
real and personal property leased or owned by MCI, describing its interest in
said property and with respect to real property a description of each parcel and
a summary description of the buildings, structures and improvements thereon.
True and correct copies of MCI's leases have been provided to HealthDesk or its
Representatives.
11
<PAGE>
3.8 Proprietary Rights and Warranty Claims.
(a) Section 3.8(a)(i) of the Disclosure Schedule sets
forth, with respect to each Proprietary Asset owned or used by MCI (each a "MCI
Proprietary Asset" and collectively, the "MCI Proprietary Assets") registered
with any Governmental Body or for which an application has been filed with any
Governmental Body, (i) a brief description of such MCI Proprietary Asset, and
(ii) the names of the jurisdictions covered by the applicable registration or
application. Section 3.8(a)(ii) of the MCI Disclosure Schedule identifies and
provides a brief description of all other MCI Proprietary Assets. Section
3.8(a)(iii) of the MCI Disclosure Schedule identifies and provides a brief
description of each Proprietary Asset licensed to MCI by any Person (except for
any Proprietary Asset that is licensed to MCI under any third party software
license generally available to the public at a cost of less than One Thousand
Dollars ($1,000)), and identifies the license agreement under which such
Proprietary Asset is being licensed to MCI. Except as set forth in Section
3.8(a)(iv) of the MCI Disclosure Schedule, MCI has good, valid and marketable
title to all MCI Proprietary Assets identified in Sections 3.8(a)(i) and
3.8(a)(ii) of the MCI Disclosure Schedule, free and clear of all liens and other
encumbrances and of all third party licensed technology, and has a valid right
to use all Proprietary Assets identified in Section 3.8(a)(iii) of the MCI
Disclosure Schedule. Except as set forth in Section 3.8(a)(v) of the MCI
Disclosure Schedule, MCI is not obligated to make any payment to any Person for
the use of any Proprietary Asset. Except as set forth in Section 3.8(a)(vi) of
the MCI Disclosure Schedule, MCI has not developed jointly with any other Person
any Proprietary Asset with respect to which such other Person has any rights.
(b) Except as set forth in Section 3.8(b) of the MCI
Disclosure Schedule, MCI has taken reasonable and customary measures and
precautions necessary to protect and maintain the confidentiality and secrecy of
all MCI Proprietary Assets (except MCI Proprietary Assets whose value would be
unimpaired by public disclosure) and otherwise to maintain and protect the value
of all MCI Proprietary Assets. Except as set forth in the MCI Disclosure
Schedule, MCI has not disclosed or delivered to any Person, or permitted the
disclosure or delivery to any Person of any of the MCI Proprietary Assets used
in or necessary for the conduct of business by MCI as currently conducted by
MCI.
(c) MCI is not infringing, misappropriating or making
any unlawful use of, and MCI has not at any time infringed, misappropriated or
made any unlawful use of, or received any notice or other communication (in
writing or otherwise) of any actual, alleged, possible or potential
infringement, misappropriation or unlawful use of, any Proprietary Asset owned
or used by any other person ("Third Party Proprietary Asset"). No other person
is infringing, misappropriating or making any unlawful use of, and no Third
Party Proprietary Asset owned or used by any other person infringes or conflicts
with, any MCI Proprietary Asset.
(d) Except as set forth in Section 3.8(d) of the MCI
Disclosure Schedule: (i) each MCI Proprietary Asset conforms with any
specification, documentation, performance standard, representation or statement
made or provided with respect thereto by or on behalf of MCI; and (ii) there has
not been any claim made against MCI by any customer or other person alleging
that any MCI Proprietary Asset (including each version thereof that has ever
been licensed or otherwise made available by MCI to any person) does not conform
with any specification, documentation, performance standard, representation or
statement made or provided by or on behalf of MCI, and there is no basis for any
such claim.
12
<PAGE>
(e) MCI's Proprietary Assets constitute all the
proprietary assets necessary to enable MCI to conduct its business in the manner
in which such business has been and is being conducted. Except as set forth in
Section 3.8(e) of the MCI Disclosure Schedule, (i) MCI has not licensed any of
the MCI Proprietary Assets to any person on an exclusive basis, and (ii) MCI has
not entered into any covenant not to compete or contract limiting its ability to
exploit fully any of the MCI Proprietary Assets or to transact business in any
market or geographical area or with any person.
3.9 Employee Benefit Plans. MCI does not maintain, or is
obligated to contribute to, any defined benefit pension plan or any employee
benefit plan that is subject to either Title IV of the Employee Retirement
Income Security Act of 1974 ("ERISA") or the minimum funding standards of ERISA
or the Code. Each bonus, incentive, deferred compensation, pension,
profit-sharing, retirement, vacation, severance pay, stock purchase, stock
option, group insurance and other employee benefit or fringe benefit plans,
whether formal or informal (whether written or not), maintained by MCI conforms
to all applicable requirements, if any, of ERISA. Section 3.9 of the MCI
Disclosure Schedule lists and describes all such plans.
3.10 Bank Accounts and Receivables. Section 3.10 of the MCI
Disclosure Schedule sets forth the names and locations of all banks, trusts,
companies, savings and loan associations, and other financial institutions at
which MCI maintains accounts of any nature and the names of all persons
authorized to draw thereon or make withdrawals therefrom. Section 3.10 of the
MCI Disclosure Schedule sets forth an accurate and complete breakdown and aging
of all accounts receivable, notes receivable, and other receivables of MCI as of
the date of the Balance Sheet. Except as set forth on the MCI Disclosure
Schedule all existing accounts receivable of MCI (including those accounts
receivable reflected on the MCI Financial Statements that have not yet been
collected and those accounts receivable that have arisen since May 31, 1998 and
have not yet been collected) (i) represent valid obligations of customers of MCI
arising from bona fide transactions entered into in the ordinary course of
business, (ii) are current and will be collected in full when due, without any
counterclaim or setoff (net of an allowance for doubtful accounts not to exceed
Ten Thousand Dollars ($10,000) in the aggregate).
3.11 Contracts.
(a) Section 3.11(a) the MCI Disclosure Schedule
identifies each document or instrument to which MCI is a party and that relates
to the acquisition, transfer, use, development, sharing or licensing of any
technology or MCI Proprietary Asset.
(b) Except as set forth in Section 3.11(b) the MCI
Disclosure Schedule,
13
<PAGE>
(i) MCI has no agreements, contracts or
commitments that call for fixed and/or contingent payments or expenditures by or
to MCI of more than Ten Thousand Dollars ($10,000) over the life of any such
agreement, contract or commitment.
(ii) MCI has no purchase agreement, contract
or commitment that calls for fixed and/or contingent payments by MCI that are in
excess of the normal, ordinary and usual requirements of MCI's business.
(iii) There is no outstanding sales
contract, commitment or proposal (including, without limitation, development
projects) of MCI that MCI currently expects (or reasonably should expect) to
result in any loss to MCI upon completion or performance thereof.
(iv) MCI has no outstanding agreements,
contracts or commitments with officers, employees, agents, consultants,
advisors, salesmen, sales representatives, distributors or dealers that are not
cancelable by it on notice of not longer than thirty (30) days and without
liability, penalty or premium.
(v) MCI has no outstanding agreements,
contracts or commitments with sales representatives, OEM's, distributors or
dealers.
(vi) MCI is not restricted by agreement from
competing with any person or from carrying on its business anywhere in the
world.
(vii) MCI has not guaranteed any obligations
of other persons, including each other, or made any agreements to acquire or
guarantee any obligations of other persons, including each other.
(viii) MCI does not have any outstanding
loan or advance to any person; nor is it party to any line of credit, standby
financing, revolving credit or other similar financing arrangement of any sort
which would permit the borrowing by MCI of any sum not reflected in the MCI
Financial Statements.
(ix) All Material contracts, agreements and
instruments listed in the MCI Disclosure Schedule pursuant to Section 3.11 (a)
and (b) (the "MCI Material Contracts") are valid, binding, in full force and
effect, and enforceable by MCI in accordance with their respective terms,
subject to (i) laws of general application relating to bankruptcy, insolvency
and the relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies. No party to any MCI Material
Contract intends to cancel, withdraw, modify or amend such contract.
(c) MCI has delivered to HealthDesk accurate and
complete copies of all written MCI Material Contracts, including all amendments
thereto and any correspondence regarding any dispute with respect thereto. MCI
has not entered into any Material oral contracts.
14
<PAGE>
(d) Except as set forth in Section 3.11(d) of the MCI
Disclosure Schedule:
(i) MCI has not violated or breached, or
committed any default under, any MCI Material Contract, and no other person has
violated or breached, or committed any default under, any MCI Material Contract;
(ii) No event has occurred, and no
circumstance or condition exists, that (with or without notice or lapse of time)
will, or could reasonably be expected to, (A) result in a violation or breach of
any of the provisions of any MCI Material Contract, (B) give any person the
right to declare default or exercise any remedy under any MCI Material Contract,
(C) give any person the right to accelerate the maturity or performance of any
MCI Material Contract; or (D) give any person the right to cancel, terminate or
modify any MCI Material Contract;
(iii) There are no unresolved claims between
MCI and any of its principal licensors, vendors, suppliers, distributors,
representatives or customers and none of such persons has advised MCI of its
intention to cease doing business with MCI, or with HealthDesk following the
Closing Date, whether as a result of the transactions contemplated hereunder.
3.12 Compliance With Law. MCI is in compliance in all material
respects with all applicable laws and regulations. All licenses, franchises,
permits and other governmental authorizations held by MCI and which are required
for its business are valid and sufficient in all respects for the businesses
presently carried on by MCI and as set forth in the MCI Disclosure Schedule.
3.13 Labor Difficulties; No Discrimination.
(a) MCI is not engaged in any unfair labor practice
or in violation of any applicable laws respecting employment and employment
practices, health and safety, human rights, terms and conditions of employment,
and wages and hours.
(b) There is no unfair labor practice complaint
against MCI actually pending or threatened before a labor relations board.
(c) There is and has not been any claim made against
MCI based on actual or alleged wrongful termination or on actual or alleged
race, age, sex, disability or other harassment or discrimination, or similar
tortious conduct, nor is there any basis for any such claim.
(d) MCI is not aware of any MCI employee who intends
to terminate his or her employment with MCI as a result of the Merger or
otherwise.
15
<PAGE>
3.14 Insider Transactions. No Affiliate of MCI has any
interest in (i) any equipment or other property, real or personal, tangible or
intangible, including, without limitation, any MCI Proprietary Asset, used in
connection with or pertaining to the businesses of MCI, or (ii) any creditor,
supplier, customer, manufacturer, agent, representative, or distributor of
products of MCI; provided, however, that no such Affiliate or other person shall
be deemed to have such an interest solely by virtue of the ownership of less
than one percent (1%) of the outstanding stock or debt securities of any
publicly-held company whose stock or debt securities are traded on a recognized
U.S. stock exchange or quoted on the National Association of Securities Dealers
Automated Quotation System.
3.15 Employees, Independent Contractors and Consultants.
Section 3.15 of the MCI Disclosure Schedule lists and describes all currently
effective written and oral consulting, independent contractor and/or employment
agreements and other agreements concluded with individual employees, independent
contractors or consultants to which MCI is a party. True and correct copies of
all such written agreements have been provided to HealthDesk or its
Representatives. All salaries and wages paid by MCI are in compliance in all
respects with applicable federal, state and local laws. Section 3.15 of the MCI
Disclosure Schedule lists the names of all persons currently employed by MCI as
well as the salaries and other compensation arrangements (bonus, deferred
compensation, etc.) and the accrued vacation time for each such person.
3.16 Insurance. Section 3.16 of the MCI Disclosure Schedule
contains a list of the principal policies of fire, liability and other forms of
insurance held by MCI. MCI has done nothing, either by way of action or
inaction, that might invalidate such insurance policies in whole or in part.
3.17 Litigation. Except as set forth in Section 3.17 of the
MCI Disclosure Schedule, there is no suit, action or proceeding which has been
served upon or threatened against MCI (nor is there any reasonable basis
therefor), in each case other than immaterial matters, or which questions or
challenges the validity of this Agreement or the Transaction Documents. Except
as set forth in Section 3.17 of the MCI Disclosure Schedule, there is no
judgment, decree, injunction, or order of any court, governmental department,
commission, agency, instrumentality or arbitrator outstanding against MCI.
3.18 Subsidiaries. Except as set forth in Section 3.18 of the
MCI Disclosure Schedule, MCI has no subsidiaries. Except as set forth in Section
3.18 of the MCI Disclosure Schedule, MCI does not own or control (directly or
indirectly) any capital stock, bonds or other securities of, and does not have
any proprietary interest in, any other corporation, general or limited
partnership, joint venture, firm, association or business organization, entity
or enterprise, and MCI does not control (directly or indirectly) the management
or policies of any other corporation, partnership, firm, association or business
organization, entity or enterprise.
16
<PAGE>
3.19 Compliance with Environmental Requirements. MCI has
obtained all permits, licenses and other authorizations which are required under
federal, state and local laws applicable to MCI and relating to pollution or
protection of the environment, including laws or provisions relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, or hazardous or toxic materials, substances, or wastes into air,
surface water, groundwater, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants or hazardous or toxic materials,
substances, or wastes. Except as set forth in Section 3.19 of the MCI Disclosure
Schedule, MCI is in compliance with all terms and conditions of the required
permits, licenses and authorizations. Except as set forth in Section 3.19 of the
MCI Disclosure Schedule, MCI is not aware of, nor has MCI received written
notice of, any conditions, circumstances, activities, practices, incidents, or
actions which may form the basis of any claim, action, suit, proceeding,
hearing, or investigation of, by, against or relating to MCI, based on or
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutant, contaminant, or
hazardous or toxic substance, material or waste.
Except as disclosed in Section 3.19 of the MCI Disclosure Schedule,
(a) No Environmental Activity has occurred in the
business of MCI or on or in relation to any premises currently or formerly used
by MCI which may cause MCI to incur expenses or costs for the elimination,
neutralization or amelioration of the results of the Environmental Activity or
become liable for compensation to any third party.
(b) MCI has held its assets, occupied its respective
premises, operated its respective businesses and conducted all other activities
in compliance with all Environmental Laws. MCI has not received any notice of
non-compliance with Environmental Laws from any person or governmental authority
and MCI does not know of any facts which could give rise to any such notice.
(c) There are no underground storage tanks or surface
impoundments at, on, or under premises formerly or currently used by MCI.
(d) MCI has maintained all environmental and
operating documents and records substantially in the manner and for the time
periods required by any Environmental Laws. Section 3.19 of the MCI Disclosure
Schedule lists each environmental permit and each Environmental Audit conducted
with respect to MCI or its premises while occupied by either of them. An
"Environmental Audit" shall mean any evaluation, inspection, assessment, study
or test performed at the request of or on behalf of a governmental authority,
including but not limited to, a public liaison committee, as well as a
self-evaluation, whether or not required by Environmental Law.
3.20 Corporate Documents. MCI has furnished to HealthDesk for
its examination: (i) copies of its charter documents; (ii) its minute book
containing all records required to be set forth of all proceedings, consents,
actions, and meetings of the shareholders, the board of directors and any
committees thereof; (iii) all permits, orders, and consents issued by any
regulatory agency with respect to MCI, or any securities of MCI, and all
applications for such permits, orders, and consents; and (iv) the stock transfer
books of MCI setting forth all transfers of any capital stock. The corporate
minute books, stock certificate books, stock registers and other corporate
records of MCI are complete and, and the signatures appearing on all documents
contained therein are the true signatures of the persons purporting to have
signed the same. All actions reflected in such books and records were duly and
validly taken in compliance with the laws of the applicable jurisdiction.
17
<PAGE>
3.21 Accuracy of Information In Information or Proxy
Statement. The information furnished by MCI to the MCI Shareholders in
connection with the solicitation of shareholder consent or proxies for the
approval and adoption of this Agreement and the approval and adoption of the
Merger shall not, on the date the Information or Proxy Statement is first mailed
to the HealthDesk shareholders, on any date subsequent thereto and prior to the
Effective Time or at the Effective Time, contain any untrue statement of a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
false or misleading, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
consent or proxies which has become false or misleading.
3.22 No Brokers. Neither MCI nor any shareholder, officer or
director of MCI is obligated for the payment of fees or expenses of any broker
or finder in connection with the origin, negotiation or execution of this
Agreement or in connection with any transaction contemplated hereby.
3.23 Accuracy of Documents and Information. The copies of all
instruments, agreements, other documents and written information set forth as,
or referenced in, the schedules or exhibits to this Agreement or specifically
required to be furnished pursuant to this Agreement to HealthDesk by MCI are
complete and correct. No representations or warranties made by MCI in this
Agreement, nor any document, written information, statement, financial
statement, certificate, schedule or exhibit furnished directly to HealthDesk
pursuant to this Agreement contains any untrue statement of a material fact, or
omits to state a material fact necessary to make the statements or facts
contained herein not misleading. There is no fact which materially and adversely
affects MCI known to MCI which has not been expressly and fully set forth in
this Agreement or the schedules and exhibits hereto.
4. Representations and Warranties of HealthDesk and Sub. HealthDesk
represents and warrants to MCI as set forth below.
4.1 Organization. HealthDesk and Sub are corporations duly
organized, validly existing and in good standing under the laws of their
jurisdictions and have corporate power and authority to carry on their
businesses as they are now being conducted and as they are proposed to be
conducted.
18
<PAGE>
4.2 Power, Authority and Validity. HealthDesk and Sub have the
corporate power and authority to enter into this Agreement and other Transaction
Documents to which they are a party and to carry out their obligations hereunder
and thereunder. The execution and delivery of this Agreement and the Transaction
Documents to which they are a party and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by the board of
directors of HealthDesk and Sub, and no other corporate proceedings are
necessary to authorize this Agreement or the other Transaction Documents.
HealthDesk and Sub are not subject to or obligated under any charter, bylaw or
contract provision or any license, franchise or permit or subject to any order
or decree, which would be breached or violated in a material manner by or in
material conflict with its executing and carrying out this Agreement and the
transactions contemplated hereunder and under the Transaction Documents. This
Agreement is, and the other Transaction Documents to which HealthDesk and Sub
are a party, when executed and delivered by HealthDesk and Sub shall be, the
valid and binding obligations of HealthDesk and Sub, enforceable in accordance
with their terms, subject to (i) laws of general application relating to
bankruptcy, insolvency, and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
4.3 Capitalization.
(a) The authorized capital stock of HealthDesk as of
the date of this Agreement consists of: (i) seventeen million (17,000,000)
shares of common stock, of which 5,792,845 shares are issued and outstanding and
(ii) three million (3,000,000) shares of preferred stock, one million
(1,000,000) of which shares of preferred stock have been designated as Series A
Preferred Stock, none of which are issued or outstanding and seven hundred fifty
(750) of which shares have been designated as Series B Preferred Stock, four
hundred twenty five (425) of which are issued and outstanding. The Company has
reserved one million seven hundred thousand (1,700,000) shares of common stock
for issuance upon conversion of the outstanding Series B Preferred Stock.
HealthDesk has reserved 844,755 shares of common stock for issuance to
employees, directors and consultants, upon exercise of stock options, including
outstanding options for 652,923 shares of common stock. HealthDesk has also
reserved 1,955,000 shares of Common Stock for issuance upon exercise of its
outstanding publicly traded convertible warrants and 340,000 shares of Common
Stock which may be issuable upon exercise of a warrant for the purchase of (i)
170,000 shares of Common Stock and (ii) a warrant for the purchase of 170,000
shares of Common Stock which were granted to the underwriter in connection with
the Company's initial public offering.
(b) All of the outstanding securities of HealthDesk
have been duly authorized and are validly issued, fully paid and nonassessable.
All securities of HealthDesk were issued in compliance with applicable
securities laws. Except as otherwise set forth in the HealthDesk Disclosure
Schedule or in the HealthDesk Commission Documents (as defined in Section 4.4
below), HealthDesk does not have any other shares of its capital stock issued or
outstanding and does not have any other outstanding subscriptions, options,
warrants, rights or other agreements or commitments obligating HealthDesk to
issue shares of its capital stock or other securities.
19
<PAGE>
4.4 Commission Documents; Financial Statements. HealthDesk has
made available to MCI a true and complete copy of each statement, report,
registration statement, definitive proxy statement and other filings filed with
the Commission by HealthDesk since January 1, 1998; and, prior to the Effective
Time, HealthDesk will have made available to MCI any additional documents filed
with the Commission by HealthDesk prior to the Effective Time (collectively, the
"HealthDesk Commission Documents"). In addition, HealthDesk has made available
to MCI all exhibits to the HealthDesk Commission Documents filed prior to the
date hereof, and will promptly make available to MCI all exhibits to any
additional HealthDesk Commission Documents filed prior to the Effective Time.
All documents required to be filed as exhibits to the HealthDesk Commission
Documents have been so filed, and all material contracts so filed as exhibits
are in full force and effect, except those which have expired in accordance with
their terms, and neither HealthDesk nor any of its subsidiaries is in default
thereunder. As of their respective filing dates, the HealthDesk Commission
Documents compiled in all material respects with the requirements of the
Exchange Act and the Securities Act, and none of the HealthDesk Commission
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading, except to the extent corrected by a subsequently filed
HealthDesk Commission Document prior to the date hereof. The financial
statements of HealthDesk, including the notes thereto, included in the
HealthDesk Commission Documents (the "HealthDesk Financial Statements") were
complete and correct in all material respects as of their respective dates,
complied as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the Commission with
respect thereto as of their respective dates, and have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent throughout the periods indicated and consistent with each other
(except as may be indicated in the notes thereto or, in the case of unaudited
statements included in Quarterly Reports on Form 10-Qs, as permitted by Form
10-Q of the Commission). The HealthDesk Financial statements fairly present the
consolidated financial condition and operating results of HealthDesk and its
subsidiaries at the dates and during the periods indicated therein (subject, in
the case of unaudited statements, to normal, recurring year-end adjustments).
There has been no change in HealthDesk accounting policies except as described
in the notes to the HealthDesk Financial Statements. HealthDesk has filed in a
timely manner all reports required to be filed with the Securities and Exchange
Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act during the
12 calendar months prior to the date hereof.
4.5 Accuracy of Documents and Information. No representations
or warranties made by HealthDesk or Sub in this Agreement, nor any document,
written information, statement, financial statement, certificate, schedule or
exhibit furnished directly to MCI pursuant to this Agreement, taken as a whole,
contains any untrue statement of a material fact, or omits to state a material
fact necessary to make the statements or facts contained herein not misleading.
4.6 No Brokers. HealthDesk is not obligated to pay fees or
expenses to any broker or finder in connection with the origin, negotiation or
execution of this Agreement or in connection with any transaction contemplated
hereby.
20
<PAGE>
5. Representations and Warranties of Principal Shareholders.
Each Principal Shareholder as to itself, himself or herself
represents and warrants to HealthDesk as follows:
5.1 No person or entity not a signatory of this Agreement has
a beneficial interest in or a right to acquire or vote the MCI Shares held of
record by such Principal Shareholder or any portion thereof (except, with
respect to shareholders which are partnerships, partners of such shareholders).
The MCI Shares are and will be, at all times until the Closing, free and clear
of any liens, claims, options, charges or other encumbrances. Principal
Shareholder's principal place of residence or place of business is set forth on
the signature page hereto.
5.2 Principal Shareholder will not transfer (except as may be
specifically required by court order or by operation of law), sell, exchange,
pledge or otherwise dispose of or encumber the MCI Shares or any New Securities
(as defined below), or make any offer or agreement relating thereto, at any time
prior to the Closing.
5.3 Principal Shareholder agrees that any shares in the
capital stock of MCI that Principal Shareholder purchases or with respect to
which Principal Shareholder otherwise acquired beneficial ownership after the
date of this Agreement and prior to the Closing (the "New Securities") shall be
subject to the terms and conditions of this Agreement to the same extent as if
they constituted MCI Shares.
6. Covenants of MCI.
6.1 Advice of Changes. MCI will promptly advise HealthDesk in
writing (i) of any event occurring subsequent to the date of this Agreement
which would render any representation or warranty of MCI contained in this
Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect and (ii) of any material adverse
change in MCI's business, taken as a whole.
6.2 Conduct of Business. Until the Closing, MCI will continue
to conduct its business and maintain its business relationships in the ordinary
and usual course and will not, without the prior written consent of HealthDesk:
(a) borrow any money which borrowings exceed in the
aggregate Ten Thousand Dollars ($10,000);
(b) incur any liability other than in the ordinary
and usual course of business or in connection with the performance or
consummation of this Agreement;
(c) encumber or permit to be encumbered any of its
assets except in the ordinary course of its business;
21
<PAGE>
(d) dispose of any of its assets, except inventory in
the regular and ordinary course of business;
(e) enter into any lease or contract for the purchase
or sale of any property, real or personal except for inventory purchased in the
ordinary course of business or other leases or contracts for less than $25,000;
(f) fail to maintain its equipment and other assets
in good working condition and repair according to the standards it has
maintained up to the date of this Agreement, subject only to ordinary wear and
tear;
(g) pay or authorize any bonus, increased salary, or
special remuneration to any officer or employee, including any amounts for
accrued but unpaid salary or bonuses;
(h) adopt or change any accounting methods;
(i) declare, set aside or pay any cash or stock
dividend or other distribution in respect of capital, or redeem or otherwise
acquire any of its capital stock;
(j) amend or terminate any contract, agreement or
license to which it is a party except non-Material agreements in the ordinary
course of business or other agreements with an annual value of less than
$100,000;
(k) enter into any Material contract;
(l) loan any Material amount to any person or entity,
or guaranty or act as a surety for any obligation;
(m) waive or release any Material right or claim,
except in the ordinary course of business;
(n) issue or sell any shares of its capital stock of
any class or any other of its securities, or issue or create any warrants,
obligations, subscriptions, options, convertible securities, or other
commitments to issue shares of capital stock or amend the terms of any agreement
regarding the foregoing;
(o) split or combine the outstanding shares of its
capital stock of any class or enter into any recapitalization affecting the
number of outstanding shares of its capital stock of any class or affecting any
other of its securities;
(p) merge, consolidate or reorganize with any entity;
(q) amend its Articles of Incorporation or Bylaws;
22
<PAGE>
(r) make or change any election, change any annual
accounting period, file any tax return or amended tax return, enter into any
closing agreement, settle any tax claim or assessment relating to MCI, surrender
any right to claim refund of taxes, consent to any extension or waiver of the
limitation period applicable to any tax claim or assessment relating to MCI, or
take any other action or omit to take any action, if any such election,
adoption, change, amendment, agreement, settlement, surrender, consent or other
action or omission would have the effect of increasing the tax liability of MCI
or HealthDesk; or
(s) agree to do any of the things described in the
preceding clauses of this Section 6.2.
6.3 Risk of Loss. Until the Closing and subject to the
confidentiality and nonuse provisions hereof, all risk of loss, damage or
destruction to MCI's assets shall be borne by MCI, and the Merger terms
described in Section 2 shall, in case of any such loss, damage or destruction,
be revised as the parties may agree, or this Agreement shall be terminated in
accordance with Section 12.
6.4 Access to Information. Until the Closing and subject to
the confidentiality and nonuse provisions hereof, MCI shall allow HealthDesk and
its Representatives free access upon reasonable notice and during normal working
hours to its files, books, records, and offices, including, without limitation,
any and all information relating to taxes, commitments, contracts, leases,
licenses, and personal property and financial condition. Until the Closing, MCI
shall cause its accountants to cooperate with HealthDesk and its Representatives
in making available all financial information requested, including without
limitation the right to examine all working papers pertaining to all financial
statements prepared or audited by such accountants.
6.5 Regulatory Approvals. Prior to the Closing, MCI shall
execute and file, or join in the execution and filing, of any application or
other document which may be necessary in order to obtain the authorization,
approval or consent of any Governmental Body, federal, state or local, which may
be reasonably required, or which HealthDesk may reasonably request, in
connection with the consummation of the transactions contemplated by this
Agreement MCI shall use its best efforts to obtain all such authorizations,
approvals and consents.
6.6 Satisfaction of Conditions Precedent. MCI will use its
best efforts to satisfy or cause to be satisfied all the conditions precedent
which are set forth in Section 9, and, without limiting the generality of the
foregoing, to obtain all consents and authorizations of third parties and to
make all filings with, and give all notices to, third parties which may be
necessary or reasonably required on its part in order to effect the transactions
contemplated hereby.
6.7 Equity Compensation Arrangements. Prior to the Closing,
any obligation of MCI to issue stock, warrants or options which have been
offered or promised to the employees of MCI shall have been fulfilled or been
terminated to the satisfaction of HealthDesk.
23
<PAGE>
6.8 Shareholder Consent. Prior to the Closing, whether by
special meeting or written consent of its shareholders, MCI will submit this
Agreement, the Agreement of Merger and related matters to its shareholders for
consideration and approval, and the Board of Directors of MCI will recommend
such approval to the MCI Shareholders. Each of the Principal Shareholders agrees
to vote all shares of MCI capital stock in respect of which each such
shareholder is entitled to vote at any meeting, in favor of the Merger, the
approval of the transactions contemplated by this Agreement.
6.9 Nonaccredited Investors. Prior to the Closing, (i) MCI
shall not take any action, including the granting of employee stock options,
that could cause the number of MCI Shareholders who are not "accredited
investors" pursuant to Regulation D promulgated under the Securities Act to
increase to more than 35 prior to the Closing; and (ii) MCI shall arrange for
the appointment of an investor representative meeting the requirements of
Regulation D under the Securities Act.
7. Covenants of HealthDesk and Sub.
7.1 Advice of Changes. HealthDesk and Sub will promptly advise
MCI in writing of any event occurring subsequent to the date of this Agreement
which would render any representation or warranty of HealthDesk or Sub contained
in this Agreement, if made on or as of the date of such event or the Closing
Date, untrue or inaccurate in any material respect.
7.2 Regulatory Approvals. Prior to the Closing, HealthDesk and
Sub shall execute and file, or join in the execution and filing, of any
application or other document which may be necessary in order to obtain the
authorization, approval or consent of any Governmental Body, federal, state or
local, which may be reasonably required, or which MCI may reasonably request, in
connection with the consummation of the transactions contemplated by this
Agreement. Such persons and entities shall use their best efforts to obtain all
such authorizations, approvals and consents.
7.3 Satisfaction of Conditions Precedent. HealthDesk will use
its best efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Section 10, and HealthDesk will use its best
efforts to cause the transactions contemplated by this Agreement to be
consummated, and, without limiting the generality of the foregoing, to obtain
all consents and authorizations of third parties and to make all filings with,
and give all notices to, third parties which may be necessary or reasonably
required on its part in order to effect the transactions contemplated hereby.
7.4 Listing of Additional Shares. HealthDesk shall file with
the Nasdaq Stock Market a Notification Form for Listing of Additional Shares
with respect to the HealthDesk Shares.
7.5 Shareholder Notes. Promptly following the Closing,
HealthDesk shall repay the outstanding note obligations of MCI to the Principal
Shareholders in an aggregate amount not to exceed $150,000. Without limiting the
generality of the foregoing, in lieu of such repayment, the Shareholders shall
have the right, which right must be elected, if at all, in writing prior to the
Closing, to (i) convert such indebtedness as of the Closing into HealthDesk
Common Stock based upon a conversion price of $0.50 per share or (ii) agree to
not have such obligations paid at that time and continue as a note payable on
such terms as may be agreed between the Principal Shareholders and HealthDesk.
24
<PAGE>
7.6 Sale of HealthDesk Assets. The parties acknowledge that it
is the intention of HealthDesk to seek a buyer for its current operating assets
relating to its HealthDesk Online product (the "Historical HealthDesk
Business"). HealthDesk will use reasonable commercial efforts to negotiate a
sale of such assets as soon as reasonably practicable. Any proceeds of such sale
shall first be applied to satisfy liabilities and shall otherwise be retained by
HealthDesk to satisfy the minimum working capital and cash requirements set
forth herein. If HealthDesk is unable to effect such a sale or is otherwise
unable to meet the working capital and cash requirements which are a condition
to Closing, HealthDesk shall seek to raise additional equity capital; provided
however, that in such event, the number of shares issuable to the MCI
Shareholders shall be proportionately increased such that such shareholders hold
not less than forty percent (40%) of the total outstanding shares of HealthDesk
as of the Closing.
7.7 Maintenance of Minimum Working Capital.
(a) For the purposes of this Section, "Underreserved
Liabilities" shall mean (i) any specific liabilities of the Historical
HealthDesk Business which were recorded in the company's financial statements
immediately prior to the Closing ("HealthDesk Closing Balance Sheet") for which
based upon developments after the Closing it is determined were underreported in
such financial statements or (ii) the costs of satisfying third party
contractual commitments relating to the Historical HealthDesk Business in
existence at the time of the Closing which exceed the amount reserved therefor
on the HealthDesk Closing Balance Sheet; provided however, that Underreserved
Liabilities shall be offset by the amount, if any, that HealthDesk realizes from
the disposition of the Historical HealthDesk Business in excess of the amount
recorded therefor in the HealthDesk Closing Balance Sheet. If during the period
following the Closing and before December 31, 1998 Underreserved Liabilities are
discovered, which had such Underreserved Liabilities been fully reserved in the
HealthDesk Closing Balance Sheet would have resulted in HealthDesk having less
than $1 million of working capital as of immediately prior to the Closing, then
HealthDesk shall raise such additional equity capital as shall be necessary such
that if such capital had been raised prior to the Closing, HealthDesk would have
had not less than $1 million in working capital as of the Closing; provided that
HealthDesk shall be obligated to raise no more than the amount of the
Underreserved Liabilities. If HealthDesk is required to issue additional equity
securities in order to satisfy its obligations hereunder ("Additional Equity
Shares"), HealthDesk shall simultaneously issue to the MCI Shareholders, in
proportion to the number of MCI Shares held by each, a number of shares of
HealthDesk capital stock equal to two-thirds (2/3) of the number of Additional
Equity Shares.
(b) If, as of the Closing, the HealthDesk Closing
Balance Sheet indicates that HealthDesk's working capital is less than $1
million (the "Shortfall"), HealthDesk covenants to use its best efforts to sell
to either or both of John Pappajohn and Edgewater Private Equities, or their
related entities, a number of shares of Common Stock of HealthDesk, at a price
equal to $0.50 per share (the "Shortfall Shares"), such that the proceeds to
HealthDesk from the sale of such securities equals the Shortfall.
Notwithstanding the foregoing, in the event HealthDesk signs an agreement
regarding the sale of the Historical HealthDesk Business, the amounts to be paid
to HealthDesk pursuant to such agreement shall be credited to HealthDesk and
used to offset any Shortfall prior to the sale of any Shortfall Shares.
25
<PAGE>
8. Mutual Covenants.
8.1 Confidentiality. Each party acknowledges that in the
course of the performance of this Agreement, it may obtain the Confidential
Information of the other party. The Receiving Party shall, at all times, both
during the term of this Agreement and thereafter, keep in confidence and trust
all of the Disclosing Party's Confidential Information received by it. The
Receiving Party shall not use the Confidential Information of the Disclosing
Party other than as expressly permitted under the terms of this Agreement or by
a separate written agreement. The Receiving Party shall take all reasonable
steps to prevent unauthorized disclosure or use of the Disclosing Party's
Confidential Information and to prevent it from falling into the public domain
or into the possession of unauthorized persons. The Receiving Party shall not
disclose Confidential Information of the Disclosing Party to any person or
entity other than its officers, employees, consultants and permitted
sublicensees who need access to such Confidential Information in order to effect
the intent of this Agreement and who have entered into confidentiality
agreements with such person's employer which protects the Confidential
Information of the Disclosing Party. The Receiving Party shall promptly give
notice to the Disclosing Party of any unauthorized use or disclosure of
Disclosing Party's Confidential Information. The Receiving Party agrees to
assist the Disclosing Party to remedy such unauthorized use or disclosure of its
Confidential Information, which remedies shall include injunctive relief without
the necessity of posting a bond or proving damages. These obligations shall not
apply to the extent that Confidential Information includes information which:
(a) is already known to the Receiving Party at the
time of disclosure, which knowledge the Receiving Party shall have the burden of
proving;
(b) is, or, through no act or failure to act of the
Receiving Party, becomes publicly known;
(c) is received by the Receiving Party from a third
party without restriction on disclosure;
(d) is independently developed by the Receiving Party
without reference to the Confidential Information of the Disclosing Party, which
independent development the Receiving Party will have the burden of proving;
(e) is approved for release by written authorization
of the Disclosing Party; or
26
<PAGE>
(f) is required to be disclosed by a government
agency to further the objectives of this Agreement or by a proper order of a
court of competent jurisdiction; provided, however that the Receiving Party will
use its best efforts to minimize such disclosure and will consult with and
assist the Disclosing Party in obtaining a protective order prior to such
disclosure.
8.2 Exclusivity. Until the earlier of the Closing Date and
July 20, 1998, MCI agrees that it will not (and that it will use best efforts to
assure that its employees, agents and affiliates do not on its behalf) discuss
or enter into any agreement concerning the sale or acquisition of MCI, its stock
(including by means of any public offering thereof, but excluding issuance of
stock and options to employees in the ordinary course of business consistent
with past practices) or a substantial part of its assets with any party other
than HealthDesk, and that any such discussions presently in progress will be
terminated or suspended during that period. MCI represents and warrants that it
has the legal right to terminate or suspend any such pending negotiations and
agrees to indemnify HealthDesk, its representatives and agents from and against
any claims by any party to such negotiations based upon or arising out of the
discussion or any consummation of the Merger.
8.3 Further Assurances. Each party agrees to cooperate fully
with the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances, as may be reasonably
requested by any other party to better evidence and reflect the transactions
described herein and contemplated hereby and to carry into effect the intents
and purposes of this Agreement.
8.4 Tax-Free Organization. Each party shall each use its best
efforts to cause the Merger to be treated as a reorganization within the meaning
of Section 368(a) of the Code.
9. The Closing.
9.1 Merger. On the date of the Closing, but not prior to the
Closing, the Agreement of Merger shall be filed with the office of the Secretary
of State of the State of California and the merger of Sub with and into MCI
shall be consummated.
9.2 Additional Documents.
(a) At any time and from time to time at or after the
Closing, the parties shall at the request of the other party execute and deliver
or cause to be executed and delivered all such assignments, consents and other
documents and take or cause to be taken all such other actions as either party
may reasonably deem necessary or desirable, in order to more fully and
effectively carry out the intents and purposes of this Agreement.
(b) MCI shall execute and deliver to HealthDesk a
statement meeting the requirements of Treasury Regulation Section 1.897-2(h)(2)
stating that interests in MCI are not United States real property interests.
27
<PAGE>
10. Conditions to MCI's Obligations.
MCI's obligations hereunder are subject to the fulfillment or
satisfaction on and as of the Closing, of each of the following conditions (any
one or more of which may be waived by MCI, but only in a writing signed by MCI):
10.1 Accuracy of Representations and Warranties. The
representations and warranties of HealthDesk and Sub set forth in Section 4
shall be true on and as of the Closing with the same force and effect as if they
had been made at the Closing and the conditions to MCI's obligations set forth
under Sections 10.1, 10.2, 10.3 and 10.4 shall have been satisfied. MCI shall
receive a certificate to such effect from an executive officer of HealthDesk.
10.2 Covenants. HealthDesk and Sub shall have performed and
complied with all of their covenants contained in Sections 7 and 8 to be
performed on or before the Closing, and HealthDesk shall deliver to MCI a
certificate executed by an executive officer of HealthDesk at Closing stating
that such condition has been satisfied.
10.3 No Litigation. No litigation or proceeding shall be
threatened or pending against HealthDesk or Sub with the purpose or with the
probable effect of enjoining or preventing the consummation of any of the
transactions contemplated by this Agreement, and MCI shall receive a certificate
to such effect signed by an executive officer of HealthDesk.
10.4 Authorizations. MCI shall have received from HealthDesk
and Sub written evidence that the execution, delivery and performance of
HealthDesk and Sub's obligations under this Agreement and the Agreement of
Merger have been duly and validly approved and authorized by the Board of
Directors of HealthDesk and Sub, respectively, and the shareholder of Sub.
10.5 Government Consents. There shall have been obtained at or
prior to the date of Closing such permits or authorizations, and there shall
have been taken such other action, as may be required by any regulatory
authority having jurisdiction over the parties and the subject matter and the
actions herein proposed to be taken, including, but not limited to, compliance
with applicable state and federal securities laws.
10.6 Opinion of HealthDesk's Counsel. MCI shall have received
from counsel to HealthDesk an opinion in substantially the form attached hereto
as Exhibit B.
10.7 Employment Offers and Other Agreements. The Shareholders
shall have entered into non-compete agreements with HealthDesk in substantially
the same form as attached hereto as Exhibit C, and employment agreements in
substantially the form as attached hereto as Exhibit D. Without limiting the
generality of the foregoing, Bill Childs shall be named Chairman of the Board
and CEO of HealthDesk effective as of the Closing.
10.8 Series B Financing. HealthDesk shall have raised not less
than $300,000 through the issuance of additional Series B Preferred Stock or
Common Stock.
28
<PAGE>
10.9 Amendment of Series B Terms. MCI, the Shareholders and
HealthDesk shall have entered into an agreement, substantially in the form
attached hereto as Exhibit E, which amends the terms of the Series B Preferred
Stock such that the Conversion Price as defined in the Certificate of
Determination for the Series B Preferred Stock shall be fixed at $0.50 per share
and such shares shall automatically convert into HealthDesk Common Stock upon
the Closing.
10.10 Option Reserve. The Board of Directors of HealthDesk
shall have approved an increase in the number of shares authorized for issuance
under the Company's 1995 Stock Option Plan to 3,000,000 shares.
10.11 Board of HealthDesk. Effective as of the Closing, the
Board of Directors of HealthDesk shall be composed of John Pappajohn, Joseph R.
Dunham, Bill Childs and two additional persons to be mutually agreed by MCI and
HealthDesk.
10.12 Working Capital. As of the Closing, HealthDesk shall
have net working capital of not less than $1 million, including not less than $1
million in cash.
10.13 Lock-up. John Pappajohn and Edgewater Private Equities
shall have signed an lock-up agreement, in the form attached hereto as Exhibit
F, pursuant to which each agrees not to sell or otherwise dispose of HealthDesk
Common Stock for a period of a year following the Closing unless otherwise
approved by a majority of the disinterested members of HealthDesk's Board of
Directors.
10.14 Registration Rights Agreement. The Shareholders and
HealthDesk shall have entered into a registration rights agreement,
substantially in the form attached hereto as Exhibit G, with respect to the
HealthDesk Shares issued to the Shareholders.
11. Conditions to HealthDesk and Sub's Obligations.
HealthDesk's and Sub's obligations hereunder are subject to
the fulfillment or satisfaction on and as of the Closing, of each of the
following conditions (any one or more of which may be waived by HealthDesk, but
only in a writing signed by HealthDesk):
11.1 Accuracy of Representations and Warranties. The
representations and warranties of MCI contained in Section 3 and the Principal
Shareholders in Section 5 shall be true on and as of the Closing with the same
force and effect as if they had been made at the Closing and the conditions to
HealthDesk's and Sub's obligations set forth under Sections 11.1, 11.2, 11.3 and
11.4 shall have been satisfied. HealthDesk shall receive a certificate to such
effect from an executive officer of MCI.
11.2 Covenants. MCI shall have performed and complied with all
of its covenants set forth in this Agreement on or before the Closing.
29
<PAGE>
11.3 No Litigation. On and as of the Closing, no litigation or
proceeding shall be threatened or pending against MCI for the purpose or with
the probable effect of enjoining or preventing the consummation of any of the
transactions contemplated by this Agreement, or which would have a material
adverse effect on the business, liabilities, income, property, operations or
prospects of MCI subsequent to the Closing.
11.4 Authorizations. HealthDesk shall have received from MCI
written evidence that (i) the execution, delivery and performance of this
Agreement and the Agreement of Merger have been duly and validly approved and
authorized by its Board of Directors and (ii) all of the MCI Shareholders have
approved this Agreement, the Merger and the transactions contemplated hereby and
thereby.
11.5 No Adverse Development. There shall be no order, decree,
or ruling by any court or Governmental Body or threat thereof or any other fact
or circumstance, which might prohibit or render illegal or have a Material
adverse effect on the business, prospects, liabilities, income, property, assets
or operations of MCI subsequent to the Closing. MCI shall not have sustained a
loss, whether or not insured, by reason of physical damage caused by fire, flood
or earthquake, accident or other calamity which materially affects the MCI
Balance Sheet or its ability to carry on its business as proposed to be
conducted, and which, in the judgment of HealthDesk, renders it inadvisable to
proceed with the Closing. There shall have been no other event which, in the
reasonable judgment of HealthDesk, has a material and adverse effect on MCI's
assets, business, liabilities, income, property, assets, prospects or operations
subsequent to the Closing.
11.6 Required Consents. HealthDesk shall have received all
written consents, assignments, waivers, authorizations or other certificates
reasonably deemed necessary by HealthDesk's legal counsel to provide for the
continuation in full force and effect of any and all contracts and leases of
MCI.
11.7 Opinion of MCI's Counsel. HealthDesk shall have received
from counsel to MCI, an opinion substantially in the form attached hereto as
Exhibit B.
11.8 Government Consents. There shall have been obtained at or
prior to the Closing Date such permits or authorizations and there shall have
been taken such other action, as may be required by any regulatory authority
having jurisdiction over the parties and the subject matter and the actions
herein proposed to be taken, including, but not limited to, compliance with
applicable state and federal securities laws.
11.9 Due Diligence. There shall have been prior to the Closing
Date satisfactory completion of a review by HealthDesk and its Representatives
of MCI's business, financial, technical and legal affairs.
11.10 Suitability of MCI Shareholders. Each of the MCI
Shareholders shall have confirmed in writing his or her suitability to receive
the HealthDesk Shares by means of an Investor Representation Letter in the form
attached hereto as Exhibit I.
11.11 Employment Offers and Other Agreements. The Shareholders
shall have entered into non-compete and employment agreements with HealthDesk in
substantially the same form as attached hereto as Exhibits C and D; all other
employees and consultants of MCI as of the Closing shall have accepted
employment (or consultant positions, as appropriate) with HealthDesk or MCI on
terms satisfactory to HealthDesk; such employees and consultants shall have
entered into confidentiality and inventions agreements in HealthDesk's standard
form.
30
<PAGE>
11.12 Audited Financial Statements. MCI shall have delivered
to HealthDesk its financial statements as of December 31, 1998 and for the
period then ended accompanied by an unqualified auditor's opinion thereon and
such financial statements shall not reveal any fact which shall be a breach of
any of the representations or warranties of MCI or the Shareholders herein.
11.13 Shareholder Approval. The shareholders of HealthDesk
shall have approved the transactions contemplated hereby.
11.14 Amendment of Series B Terms. MCI, the Shareholders and
HealthDesk shall have entered into an agreement, substantially in the form
attached hereto as Exhibit E, which amends the terms of the Series B Preferred
Stock such that the Conversion Price as defined in the Certificate of
Determination for the Series B Preferred Stock shall be fixed at $0.50 per share
and such shares shall automatically convert into HealthDesk Common Stock upon
the Closing.
11.15 Registration Rights Agreement. The Shareholders and
HealthDesk shall have entered into a registration rights agreement,
substantially in the form attached hereto as Exhibit G, with respect to the
HealthDesk Shares issued to the Shareholders.
11.16 Lock-up. The Shareholders shall have signed an lock-up
agreement, in the form attached hereto as Exhibit F, pursuant to which each
agrees not to sell or otherwise dispose of HealthDesk Common Stock for a period
of a year following the Closing unless otherwise approved by a majority of the
disinterested members of HealthDesk's Board of Directors.
12. Termination of Agreement.
12.1 Mutual Agreement. This Agreement may be terminated at any
time prior to the Closing by the mutual written consent of each of the parties
hereto.
12.2 Failure to Fulfill Conditions. Either HealthDesk or MCI
may terminate this Agreement if the Merger has not been consummated by December
31, 1998 (provided that the right to terminate this Agreement under this Section
11.2 shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of or resulted in the failure of the
Merger to occur on or before such date). Any termination of this Agreement under
this Section 11.2 shall be effective by the delivery of notice of the
terminating party to the other parties hereto.
31
<PAGE>
12.3 No Liability. Any termination of this Agreement pursuant
to this Section 12 shall be without further obligation or liability upon any
party in favor of any other party hereto.
12.4 Effect of Termination. The termination of the Agreement
pursuant to this Section 12 shall terminate all sections hereof other than
Section 8.1.
13. Miscellaneous.
13.1 Governing Laws. It is the intention of the parties hereto
that the internal laws of the State of California (irrespective of its choice of
law principles) shall govern the validity of this Agreement, the construction of
its terms, and the interpretation and enforcement of the rights and duties of
the parties hereto.
13.2 Binding upon Successors and Assigns. Subject to, and
unless otherwise provided in, this Agreement, each and all of the covenants,
terms, provisions, and agreements contained herein shall be binding upon, and
inure to the benefit of, the permitted successors, executors, heirs,
representatives, administrators and assigns of the parties hereto.
13.3 Severability. If any provision of this Agreement, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances shall be interpreted so as best to reasonably
effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision which will achieve, to the extent possible, the economic,
business and other purposes of the void or unenforceable provision.
13.4 Entire Agreement. This Agreement, the exhibits and
schedules hereto, the documents referenced herein, and the exhibits and
schedules thereto, constitute the entire understanding and agreement of the
parties hereto with respect to the subject matter hereof and thereof and
supersede all prior and contemporaneous agreements or understandings,
inducements or conditions, express or implied, written or oral, between the
parties with respect hereto and thereto. The express terms hereof control and
supersede any course of performance or usage of the trade inconsistent with any
of the terms hereof.
13.5 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original as against any party
whose signature appears thereon and all of which together shall constitute one
and the same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the parties reflected hereon as signatories.
13.6 Expenses. Except as provided to the contrary herein, each
party shall pay all of its own costs and expenses incurred with respect to the
negotiation, execution and delivery of this Agreement and the exhibits hereto.
In the event the Merger is consummated, all legal and accounting fees incurred
by MCI and the MCI Shareholders in connection with the Merger up to $25,000
shall be payable by HealthDesk upon presentation of an adequate and appropriate
bill. Any expenses in excess of such amount shall be deemed to be expenses of
the MCI Shareholders, shall be borne by the MCI Shareholders and shall not
become obligations of MCI, HealthDesk or the Surviving Corporation. The MCI
Shareholders shall make arrangements satisfactory to HealthDesk at or prior to
the Closing for the satisfaction of such amounts.
32
<PAGE>
13.7 Other Remedies. Except as otherwise provided herein, any
and all remedies herein expressly conferred upon a party shall be deemed
cumulative with and not exclusive of any other remedy conferred hereby or by law
on such party, and the exercise of any one remedy shall not preclude the
exercise of any other.
13.8 Amendment and Waivers. Any term or provision 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 by a writing signed by the party to be bound thereby. The
waiver by a party of any breach hereof for default in payment of any amount due
hereunder or default in the performance hereof shall not be deemed to constitute
a waiver of any other default or any succeeding breach or default.
13.9 Survival of Agreements. All covenants, agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby notwithstanding any investigation of the parties hereto.
13.10 No Waiver. The failure of any party to enforce any of
the provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
13.11 Attorneys' Fees. Should suit be brought to enforce or
interpret any part of this Agreement, the prevailing party shall be entitled to
recover, as an element of the costs of suit and not as damages, reasonable
attorneys' fees to be fixed by the court (including without limitation, costs,
expenses and fees on any appeal). The prevailing party shall be the party
entitled to recover its costs of suit, regardless of whether such suit proceeds
to final judgment. A party not entitled to recover its costs shall not be
entitled to recover attorneys' fees. No sum for attorneys' fees shall be counted
in calculating the amount of a judgment for purposes of determining if a party
is entitled to recover costs or attorneys' fees.
13.12 Notices. Any notice provided for or permitted under this
Agreement will be treated as having been received (a) when delivered personally,
(b) when sent by confirmed telex or telecopy, (c) one (1) day following when
sent by commercial overnight courier with written verification of receipt, or
(d) three (3) days following when mailed postage prepaid by certified or
registered mail, return receipt requested, to the party to be notified, at the
address set forth below, or at such other place of which the other party has
been notified in accordance with the provisions of this Section 13.12.
33
<PAGE>
MCI: Bill Childs, President
MC Informatics, LLC
6299 Lone Peak Drive
Evergreen Colorado 80439
With copy to: Bob Johnson, Esq.
Madden, Jones, Cole & Johnson
111 W. Ocean Blvd., Suite 1300
Long Beach, California 90802-2210
HealthDesk or Sub: HealthDesk Corporation
c/o Joseph Dunham
Equity Dynamics Inc.
116 Financial Center
Des Moines, IA 50309
With copy to: Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, CA 94301
Facsimile: (650) 327-3699
Attention: Peter M. Astiz, Esq.
13.13 Time. Time is of the essence of this Agreement.
13.14 Construction of Agreement. This Agreement has been
negotiated by the respective parties hereto and their attorneys and the language
hereof shall not be construed for or against any party. The titles and headings
herein are for reference purposes only and shall not in any manner limit the
construction of this Agreement which shall be considered as a whole.
13.15 No Joint Venture. Nothing contained in this Agreement
shall be deemed or construed as creating a joint venture or partnership between
any of the parties hereto. No party is by virtue of this Agreement authorized as
an agent, employee or legal representative of any other party. No party shall
have the power to control the activities and operations of any other and their
status is, and at all times, will continue to be, that of independent
contractors with respect to each other. No party shall have any power or
authority to bind or commit any other. No party shall hold itself out as having
any authority or relationship in contravention of this Section 13.15.
13.16 Pronouns. All pronouns and any variations thereof shall
be deemed to refer to the masculine, feminine or neuter, singular or plural, as
the identity of the person, persons, entity or entities may require.
34
<PAGE>
13.17 Further Assurances. Each party agrees to cooperate fully
with the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances, as may be reasonably
requested by any other party to better evidence and reflect the transactions
described herein and contemplated hereby and to carry into effect the intents
and purposes of this Agreement.
13.18 Absence of Third Party Beneficiary Rights. No provisions
of this Agreement are intended, nor shall be interpreted, to provide or create
any third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, shareholder, partner of any party hereto or any
other person or entity unless specifically provided otherwise herein, and,
except as so provided, all provisions hereof shall be personal solely between
the parties to this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
35
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
HEALTHDESK CORPORATION MC INFORMATICS, INC.
By:_________________________ By:___________________________
Title:______________________ Title:________________________
MC ACQUISITION CORPORATION PRINCIPAL SHAREHOLDERS:
By:_________________________ ______________________________
Bill Childs
Title:______________________ ______________________________
Garfield Thompson
[SIGNATURE PAGE FOR AGREEMENT AND PLAN OF REORGANIZATION]
36
<PAGE>
EXHIBIT A
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER, dated as of _________, 1998 (the "Merger
Agreement"), is made and entered into by and among MC Acquisition Corporation, a
California corporation ("Sub"), MC Informatics, Inc., a California corporation
("MCI" or "Surviving Corporation"), and HealthDesk Corporation, a California
corporation ("HealthDesk"). MCI and Sub are collectively referred to as the
"Constituent Corporations."
RECITALS
A. HealthDesk is the beneficial and record owner of all of the
outstanding shares of the capital stock of Sub.
B. Prior to the execution of this Merger Agreement, the Constituent
Corporations, HealthDesk and certain shareholders of MCI have entered into an
Agreement and Plan of Reorganization dated as of July ___, 1998 (the
"Reorganization Agreement"), providing for certain representations, warranties
and agreements in connection with the transactions contemplated.
C. The Boards of Directors of the Constituent Corporations deem it
advisable and in the best interests of the Constituent Corporations and in the
best interests of the shareholders of the Constituent Corporations that MCI be
acquired by HealthDesk through a merger of Sub with and into MCI (the "Merger").
NOW, THEREFORE, the Constituent Corporations hereby agree as follows:
ARTICLE 1
THE CONSTITUENT CORPORATIONS
Section 1.1
a. MCI was incorporated under the laws of the State of California on
June 19, 1998.
b. The authorized capital of MCI consists of 1,000,000 shares of Common
Stock (the "MCI Common Stock").
c. On the business day immediately preceding the date hereof, 1,000,000
shares of MCI Common Stock were issued and outstanding.
<PAGE>
Section 1.2
a. Sub was incorporated under the laws of the State of California on
July 24, 1998.
b. Sub is authorized to issue an aggregate of 1,000 shares of common
stock, $0.01 par value ("Sub Stock").
c. On the date hereof, an aggregate of 1,000 shares of Sub Stock were
issued and outstanding.
<PAGE>
ARTICLE 2
THE MERGER
Section 2.1
a. The Merger shall become effective on the date and time ("Effective
Time") that this Agreement of Merger and officers' certificates of each
Constituent Corporation are filed with the Secretary of State of California
pursuant to Section 1103 of the California General Corporation Law ("CGCL").
b. At the Effective Time, Sub shall be merged with and into MCI and the
separate corporate existence of Sub shall thereupon cease. MCI shall be the
Surviving Corporation in the Merger and the separate corporate existence of MCI,
with all its purposes, objects, rights, privileges, powers, immunities and
franchises, shall continue unaffected and unimpaired by the Merger.
Section 2.2 The Merger shall have the effects set forth in this
Agreement of Merger and in the CGCL. Without limiting the generality of the
foregoing, from and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises of a public as well as
of a private nature, and be subject to all the restrictions, disabilities and
duties of each of the Constituent Corporations; and all singular rights,
privileges, powers and franchises of each of the Constituent Corporations, and
all property, real, personal and mixed, and all debts due to either of the
Constituent Corporations on whatever account, as well as for stock subscriptions
and all other things in action or belonging to each of the Constituent
Corporations, shall be vested in the Surviving Corporation, and all property,
rights, privileges, powers and franchises, and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the Constituent Corporations, and the title to any real estate
vested by deed or otherwise, in either of the Constituent Corporations, shall
not revert or be in any way impaired; but all rights of creditors and all liens
upon any property of either of the Constituent Corporations shall be preserved
unimpaired, and all debts, liabilities and duties of the Constituent
Corporations shall thereafter attach to the Surviving Corporation, and may be
enforced against it to the same extent as if such debts and liabilities had been
incurred by it.
ARTICLE 3
ARTICLES OF INCORPORATION, BYLAWS
OF
THE SURVIVING CORPORATION
Section 3.1 The Articles of Incorporation of Sub in effect immediately
prior to the Effective Time shall be the Articles of Incorporation of the
Surviving Corporation unless and until amended as provided by law and such
Articles of Incorporation.
Section 3.2 The Bylaws of Sub in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation unless and until
amended or repealed as provided by law, the Articles of Incorporation of the
Surviving Corporation and such Bylaws.
<PAGE>
ARTICLE 4
MANNER AND BASIS OF CONVERTING SHARES
OF THE CONSTITUENT CORPORATIONS
Section 4 As of the Effective Time, by virtue of the Merger and without
any action on the part of the holder of any shares of MCI Common Stock:
a. [Each share of Sub Stock which is outstanding immediately prior to
the Effective Time shall be converted into one share of the capital stock of the
Surviving Corporation.]
b. All outstanding shares of MCI Common Stock shall be converted into
an aggregate of ______________ shares (the "Exchange Ratio") of HealthDesk
common stock, no par value ("HealthDesk Common Stock"). Each holder of MCI
Common Stock exchanged pursuant to the Merger who would otherwise be entitled to
receive a fraction of a share of HealthDesk Common Stock (after taking into
account all of the certificates representing MCI Common Stock delivered by such
holder) shall receive in lieu thereof, cash (without interest) in an amount
equal to such fractional part of a share of HealthDesk Common Stock multiplied
by the average closing price of a share of HealthDesk Common Stock reported on
the Nasdaq SmallCap Market for the five (5) most recent trading days ending on
the trading day immediately prior to the Effective Time.
ARTICLE 5
TERMINATION AND AMENDMENT
Section 5.1 Notwithstanding the approval of this Agreement of Merger by
the shareholders of MCI and Sub, this Agreement of Merger may be terminated at
any time prior to the Effective Time by mutual agreement of the Boards of
Directors of MCI and Sub.
Section 5.2 Notwithstanding the approval of this Agreement of Merger by
the shareholders of MCI and Sub, this Agreement of Merger shall terminate
forthwith in the event that the Reorganization Agreement shall be terminated as
therein provided at any time prior to the Effective Time.
Section 5.3 In the event of the termination of this Agreement of Merger
as provided above, this Agreement of Merger shall forthwith become void and
there shall be no liability on the part of MCI or Sub or their respective
officers or directors, except as otherwise provided in the Reorganization
Agreement.
Section 5.4 This Agreement of Merger may be amended by the parties
hereto at any time before or after approval hereof by the shareholders of either
MCI or Sub but, after any such approval, no amendment shall be made which by law
requires the further approval of the shareholders of either MCI or Sub without
obtaining such further approval. This Agreement of Merger may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
(SIGNATURES SET FORTH ON NEXT PAGE)
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement of
Merger as of the date first written above.
MC ACQUISITION CORPORATION HEALTHDESK CORPORATION
(a California corporation) (a California corporation)
By:__________________________________ By:________________________________
Name:________________________________ Name:______________________________
Title: Title:
MC INFORMATICS, INC.
(a California corporation)
By:______________________________
Name:____________________________
Title:
<PAGE>
EXHIBIT B
FORM OF OPINION OF COUNSEL TO HEALTHDESK CORPORATION
1. HealthDesk is a corporation duly organized, validly existing and in
good standing under the laws of the State of California and has the corporate
power and authority to carry on its business as it is now being conducted and is
proposed to be conducted.
2. All of the HealthDesk Shares will be, when issued in accordance with
the terms of Merger Agreement, validly issued, fully paid, nonassessable and
free of all preemptive rights.
3. HealthDesk has the corporate power and authority to enter into the
Merger Agreement, the Agreement of Merger and the other Transaction Documents to
which it is a party and to carry out its obligations thereunder. The execution
and delivery of the Merger Agreement, the Agreement of Merger and the other
Transaction Documents to which HealthDesk is a party, and the consummation of
the transactions contemplated thereby have been duly authorized by the board of
directors of HealthDesk, and no other corporate proceedings are necessary to
authorize the Merger Agreement, the Agreement of Merger or the other Transaction
Documents.
4. The Merger Agreement, the Agreement of Merger and the other
Transaction Documents to which HealthDesk constitute valid and binding
obligations of HealthDesk, enforceable against HealthDesk in accordance with
their respective terms except as such enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to creditors' rights generally, and general principles of equity.
5. There is no consent, approval, authorization, order, registration,
qualification or filing of or with any court or any regulatory authority or
other governmental body required by HealthDesk or with respect to its assets or
properties or otherwise for the consummation of the transactions contemplated by
the Merger Agreement and the Agreement of Merger that has not been obtained,
except for acceptance for filing of the Agreement of Merger by the Secretary of
State for the State of California.
<PAGE>
EXHIBIT C
NON-COMPETITION AND NON-SOLICITATION AGREEMENT
This Agreement is made as of the Effective Date (as defined below) by
and among HealthDesk Corporation, a California corporation ("HDC"), MC
Informatics, Inc., a California corporation ("MCI"), and _____________________
____________________________, an individual (the "Employee").
RECITALS
A. WHEREAS, HDC, MC Acquisition Corporation, a California corporation
and wholly-owned subsidiary of HDC ("Sub"), MCI and certain shareholders
("Shareholders") of MCI entered into an Agreement and Plan of Reorganization as
of July ___, 1998 (the "Merger Agreement"), which provides that Sub merge with
and into MCI, with MCI the surviving corporation (the "Merger"), and HDC will
acquire all of the issued and outstanding shares of capital stock of MCI
together with all of the goodwill of MCI related to the business being conducted
by MCI, as more specifically defined in Appendix I to this Agreement (the
"Business").
B. WHEREAS, the Employee is a Shareholder and a key employee of MCI,
has been actively involved in the management of MCI and is receiving significant
consideration pursuant to the terms of the Merger Agreement, including a
significant number of shares of HDC capital stock, in exchange for all of the
Employee's shares of MCI.
C. WHEREAS, in order to preserve the value of the shares of capital
stock being acquired by HDC, the Merger Agreement contemplates, among other
things, that the Employee enter into this Agreement and that the effective date
of this Agreement (the "Effective Date") shall be the Closing Date (as defined
in the Merger Agreement).
NOW, THEREFORE, in consideration of the mutual promises and
representations made in this Agreement, HDC, MCI and the Employee agree as
follows:
1. Non-competition.
(a) Until the earlier of (i) the termination by MCI
or HDC of the Employee's employment with MCI or HDC for any reason other than
for Cause (as defined below) or (ii) the third anniversary of the Effective Date
(the "Restricted Period"), the Employee will not directly or indirectly, as an
owner, partner, stockholder, joint venturer, corporate officer, director,
employee, consultant, principal, trustee or licenser, or in any other similar
capacity whatsoever of or for any person, firm, partnership, company or
corporation: (a) own, manage, operate, sell, control or participate in the
ownership, management, operation, sales or control of, be involved with the
development efforts of, serve as a technical advisor to or supply product to any
business that competes with the Business or (b) solicit, divert or take away, or
attempt to solicit, divert or take away, the business or patronage of any of the
clients, customers or suppliers of MCI or HDC which were contacted, solicited or
served by the Employee while an employee of MCI or HDC. Notwithstanding the
foregoing, the Employee is permitted to own, individually, as a passive investor
up to a one percent (1%) interest in any publicly traded entity. The
restrictions set forth in this Section 1 shall be effective within all cities
and counties of California, all cities, counties and states of the United States
and all other countries in the world.
1
<PAGE>
(b) If the Employee intentionally or with reckless
disregard of his obligations hereunder violates the provisions of Section 1(a),
the Employee shall continue to be bound by the restrictions set forth in Section
1(a) from the time such violating activity ceases until a period of three (3)
years has expired without any violation of such provisions.
2. Non-Solicitation.
(a) While the Employee is employed by MCI or HDC and
for a period of two (2) years after the termination or cessation of such
employment for any reason, the Employee will not directly or indirectly recruit,
solicit or hire any employee, sales representative or consultant of MCI or HDC,
or induce or attempt to induce such person to terminate his relationship with,
or otherwise cease his relationship with MCI or HDC, as the case may be.
(b) If the Employee intentionally or with reckless
disregard of his obligations hereunder violates the provisions of Section 2(a),
the Employee shall continue to be bound by the restrictions set forth in Section
2(a) from the time such violating activity ceases until a period of three (3)
years has expired without any violation of such provisions.
3. Confidentiality Agreement. Employee shall be subject to the
terms of HDC's standard form of employee confidentiality agreement, a copy of
which is attached hereto as Appendix II.
4. Cause. For the purposes of this Agreement, "Cause" shall
mean any material misconduct by the Employee (including, without limitation,
disparagement that adversely affects the reputation of MCI or HDC, conviction of
a crime involving moral turpitude, substance abuse, misappropriation of funds of
MCI, HDC, or any of their affiliates, or dishonesty related to his employment by
MCI or HDC) or material failure to perform the Employee's responsibilities in
the best interests of MCI or HDC, including, without limitation, breach by the
Employee of any material provision of any employment, nondisclosure,
non-competition or other similar agreement between the Employee and MCI and/or
HDC or failure of the Employee to perform any reasonably assigned duties after
written notice from MCI and/or HDC of, and a reasonable opportunity to cure,
such failure.
5. Condition of Merger; Consideration. The Employee agrees
that the covenants provided for in Sections 1 and 2 including the term of the
Restricted Period and the geographical area encompassed in such covenants, are
necessary and reasonable in order to protect HDC and MCI in the conduct of the
Business and the utilization of MCI's assets, tangible and intangible, including
goodwill, and to preserve and protect the tangible and intangible assets of MCI,
including MCI's goodwill, and the customers and trade secrets of which the
Employee has and will have knowledge, and in consideration for HDC entering into
and performing under the Merger Agreement. All parties agree that the execution,
delivery and performance of this Agreement is in consideration of and a
condition to the consummation of the Merger and the parties do not ascribe and
cannot ascribe a separate consideration or value to the covenants provided in
this Agreement.
2
<PAGE>
6. Dispute Resolution. In the event of any dispute or claim
relating to or arising out of the Employee's employment with MCI or HDC pursuant
to this Agreement (including, but not limited to, any claims of breach of
contract, wrongful termination or age, sex, race or other discrimination), the
Employee, MCI and HDC agree that all such disputes shall be fully and finally
resolved by binding arbitration conducted by the American Arbitration
Association in San Francisco, California. The Employee acknowledges that by
accepting this arbitration provision he is waiving any right to a jury trial in
the event of such dispute, provided, however, that this arbitration provision
shall not apply to any disputes or claims relating to or arising out of the
misuse or misappropriation of MCI's or HDC's trade secrets or proprietary
information.
7. Attorneys' Fees. The prevailing party shall be entitled to
recover from losing party its attorneys' fees and costs incurred in action
brought to enforce any right arising out of this Agreement.
8. Miscellaneous.
(a) No Conflict. The Employee represents that the
execution and performance by him of this Agreement does not and will not
conflict with or breach the terms of any other agreement by which the Employee
is bound.
(b) Not Employment Contract. The Employee
acknowledges that this Agreement does not constitute a contract of employment
and does not imply that MCI or HDC will continue his employment for any period
of time.
(c) Interpretation. The covenants contained in the
preceding paragraphs shall be construed as a series of separate covenants, one
for each of the counties in each of the states of the United States of America,
one for each province of Canada, and one for any other geographic area where the
Business is currently carried on by MCI or HDC. Except for geographic coverage,
each such separate covenant shall be identical in terms to the covenant
contained in the preceding paragraphs. If, in any judicial proceeding, a court
refuses to enforce any of such separate covenants (or any part thereof), then
such unenforceable covenant (or such part) shall be eliminated from this
Agreement to the extent necessary to permit the remaining separate covenants (or
portions thereof) to be enforced. In the event that the provisions of Sections 1
or 2 are deemed to exceed the time, geographic or scope limitations permitted by
applicable law, then such provisions shall be reformed to the maximum time,
geographic or scope limitations, as the case may be, permitted by applicable
laws.
(d) Severability. The invalidity or unenforceability
of any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
3
<PAGE>
(e) Waiver of Rights. No delay or omission by MCI or
HDC in exercising any right under this Agreement will operate as a waiver of
that or any other right. A waiver or consent given by MCI or HDC on any one
occasion is effective only in that instance and will not be construed as a bar
to or waiver of any right on any other occasion.
(f) Equitable Remedies. The restrictions contained in
this Agreement are necessary for the protection of the business and goodwill of
MCI and HDC and are considered by the Employee to be reasonable for such
purpose. The Employee acknowledges that his services are needed by virtue of the
Merger. The Employee agrees that any breach of this Agreement is likely to cause
MCI and HDC substantial and irreparable damage and therefore, in the event of
any such breach, the Employee agrees that MCI and HDC, in addition to such other
remedies which may be available, shall be entitled to specific performance and
other injunctive relief.
(g) Assignability. HDC and MCI may assign this
Agreement to any other corporation or entity which acquires (whether by
purchase, merger, consolidation or otherwise) all or substantially all of the
business and/or assets of MCI and/or HDC. Neither this Agreement nor any of the
rights or obligations of the Employee arising under this Agreement may be
assigned or transferred without HDC's or MCI's prior written consent.
(h) Notices. Any notice provided for or permitted
under this Agreement will be treated as having been given (a) when delivered
personally, (b) when sent by confirmed telex or telecopy, (c) on the next
business day when sent by commercial overnight courier with written verification
of receipt, or (d) five days (5) after being mailed postage prepaid by certified
or registered mail, return receipt requested, to the party to be notified, at
the address set forth below, or at such other place of which the other party has
been notified in accordance with the provisions of this Section.
If to HDC: Copy to:
HealthDesk Corporation Gray Cary Ware & Freidenrich LLP
c/o Joseph Dunham 400 Hamilton Avenue
Equity Dynamics Inc. Palo Alto, CA 94301
116 Financial Center Attn: Peter M. Astiz, Esq.
Des Moines, IA 50309
If to the Employee
The address set forth on the
signature page to this Agreement
(i) Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of California, without
regard to conflict of law principles. Any action, suit, or other legal
proceeding which is commenced to resolve any matter arising under or relating to
any provision of this Agreement shall be commenced only in a court of the State
of California (or, if appropriate, a federal court located within California),
and each party consents to the jurisdiction of such a court.
4
<PAGE>
(j) Entire Agreement. No agreements, representations
or understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
any party with respect to the subject matter hereof.
(k) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but both of which
together will constitute one and the same instrument.
5
<PAGE>
THE EMPLOYEE ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS AGREEMENT AND
UNDERSTANDS AND AGREES TO ALL OF THE PROVISIONS IN THIS AGREEMENT.
HEALTHDESK CORPORATION
Date: ____________________________ By:____________________________
_______________________________
(print name and title)
MC INFORMATICS, INC.
Date:_____________________________ By:____________________________
_______________________________
(print name and title)
EMPLOYEE
Date:_____________________________ _______________________________
_______________________________
(print name)
Address:
________________________________
________________________________
________________________________
6
<PAGE>
APPENDIX I
Definition of the "Business"
The "Business" means the designing, developing, marketing, consulting, staffing
and selling of management information systems services and support (including
hardware and software consulting/advising) to the healthcare industry, within
the geographic scope of where MCI does business.
7
<PAGE>
APPENDIX II
Form Of Confidentiality Agreement
<PAGE>
EXHIBIT D
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of ________,
1998 between _______________, a California corporation (the "Company"), and
___________________, an individual ("Employee").
In consideration of the mutual covenants and conditions set forth
herein the parties hereby agree as follows:
1 Employment. The Company hereby employs Employee in the
capacity of [Chief Executive Officer,] reporting directly to the Board of
Directors. Employee 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.
2 Term. The employment hereunder shall be for a period of 1
year, commencing on ___________,1998 (the "Commencement Date") and shall be
automatically renewed for successive one year periods unless earlier terminated
as provided in Section 5. Employee'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 Employee's duties
hereunder, the Company shall pay Employee an annual pay an annual salary of
_________, payable (less required withholdings) no less frequently than twice
monthly.
3.2 Bonus. During the first employment year, the Board of
Directors and Employee will establish a mutually acceptable bonus plan for the
second and subsequent employment years, which will become effective upon the
closing of the merger with HealthDesk Corporation pursuant to the terms of the
Agreement and Plan of Reorganization by and among _________, dated July __,
1998, and (i) will provide Employee with appropriate incentives and the
opportunity to earn bonus amounts comparable to those available to top
executives officers of similar companies, and (ii) may base the bonus awards on
the amount of earnings per share for the Company, as defined by generally
accepted accounting principles ("GAAP").
3.3 Stock Options. Upon commencement of Employee's employment
hereunder, the Company shall grant to Employee options under the Company's Stock
Option Plan to purchase __________ shares of the Company's common stock at an
exercise price of $________ per share. The options will vest in accordance with
the Company's Stock Option Plan. Option shares will not vest after Termination,
as set forth in Section 5 of this Agreement. Employee shall be considered for
participation in plans under which additional options or stock awards may be
granted to top executive personnel.
1
<PAGE>
3.4 Benefits. Employee shall be entitled to such medical,
disability and life insurance coverage and such vacation, sick leave and holiday
benefits, if any, and any other benefits as are made available to the Company's
top executive personnel, all in accordance with the Company's benefits program
in effect from time to time.
3.5 Reimbursement of Expenses. Employee shall be entitled to
be reimbursed for all reasonable expenses incurred by Employee in connection
with and reasonably related to the furtherance of the Company's business,
including, but not limited to, expenses for travel, meals and entertainment.
3.6 Annual Review. On each anniversary of the Commencement
Date, the Board of Directors will review Employee'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 Employee.
4 Change of Control. In the event of a Change of Control of the
Company (as defined below), all options or warrants then granted to Employee
which are unvested at the date of the Change of Control will be vested
immediately prior to the Change of Control event. In addition, notwithstanding
the provisions of Section 5.2(b), in the event of a termination of Employee's
employment without cause hereunder by the Company following a Change of Control,
the Company will promptly pay Employee, 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 one (1) year of salary at the then current
rate, excluding bonus.
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 related 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 more than fifty percent (50%)
of the voting 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 fifty percent (50%) 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.
2
<PAGE>
5 Termination.
5.1 Termination Events. The employment hereunder will
terminate upon the occurrence of any of the following events:
(a) Employee dies;
(b) the Company, by written notice to Employee or his
personal representative, discharges Employee due to the inability to perform the
duties assigned to him hereunder for a continuous period exceeding ninety (90)
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 Employee due to such disability, the Company shall give a written
statement of findings to Employee or his personal representative setting forth
specifically the nature of the disability and the resulting performance
failures, and Employee shall have a period of ten (10) days thereafter to
respond in writing to the Board of Directors' findings;
(c) Employee is discharged by the Board of Directors
of the Company for cause. As used in this Agreement, the term "cause" shall
mean:
(i) Employee's conviction of (or pleading
guilty or nolo contenders to) a felony or any misdemeanor involving dishonesty
or moral turpitude; provided, however, that prior to discharging Employee for
cause, the Company shall give a written statement of findings to Employee
setting forth specifically the grounds on which cause is based, and Employee
shall have a period of ten (10) days thereafter to respond in writing to the
Board of Directors' findings;
(ii) the willful and continued failure of
Employee to substantially perform his duties with the Company (other than any
such failure resulting from illness or disability) after a written demand for
substantial performance is requested by the Company's Board of Directors, which
specifically identifies the manner in which it is claimed Employee has not
substantially performed his duties, or (b) Employee is willfully engaged in
misconduct which has, or can reasonably be expected to have, a direct and
material adverse monetary effect on the Company. For purposes of this Section no
act or failure to act on Employee's part shall be considered "willful" if done,
or omitted to be done, by Employee in good faith and with reasonable belief that
Employee's action or omission was in the best interest of the Company.
No termination shall be effected for cause unless Employee has been provided
with specific information as to the acts or omissions which form the basis of
the allegation of cause, and Employee has had an opportunity to be heard, with
counsel if he so desired, before the Board of Directors and such Board
determines, by majority vote, in good faith that Employee was guilty of conduct
constituting "cause" as herein defined, specifying the particulars thereof in
detail.
(d) Employee is discharged by the Board of Directors
of the Company without cause, which the Company may do at any time, with at
least ten (10) days advance written notice;
3
<PAGE>
(e) Employee 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 (10) days following its receipt of written notice thereof from
Employee; or
(f) Employee voluntarily terminates his employment
for any reason other than the Company's default or an Adverse Change in Duties,
which Employee may do at any time with at least thirty (30) days advance notice.
As used herein, "Adverse Change in Duties" means an action or series of
actions taken by the Company, without Employee's prior written consent, which
results in:
(1) A change in Employee's reporting responsibilities, titles, job
responsibilities or offices which results in a material diminution of his
status, control or authority; or
(2) The assignment to Employee of any positions, duties or
responsibilities which are materially inconsistent with Employee's positions,
duties and responsibilities or status with the Company; or
(3) A requirement by the Company that Employee 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
sixty (60) miles from such prior location; or
(4) A failure by the Company to provide for Employee's participation in
any current or future benefits or plans at a level or to an extent commensurate
with (i.e., at a value of at least seventy percent (70%)) that of other top
executives (i.e., vice presidents or above) of the Company.
5.2 Effects of Termination.
(a) Upon termination of Employee's employment
hereunder for any reason, the Company will promptly pay Employee all
compensation owed to Employee and unpaid through the date of termination
(including, without limitation, salary and employee expenses reimbursements).
(b) In addition, if the employment is terminated
under Sections 5.1(b), (d) or (e), the Company shall also pay Employee a
severance amount equal to one-half of the then applicable annual salary,
excluding bonus, equally divided over a six month period.
(c) Upon termination of Employee's employment, the
Employee will return all warrants granted to Employee.
4
<PAGE>
Employee 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 Employee from continuing to engage in such breach.
If any restriction set forth in this paragraph is held to be
unreasonable, then Employee and the Company agree, and hereby submit, to the
reduction and limitation of such prohibition to such area or period as shall be
reasonable.
6 General Provisions.
6.1 Assignment. Neither party may assign or delegate any of
his or its rights or obligations under this Agreement without the prior written
consent of the other party.
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 permitted assigns and Employee and Employee'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, without
regard to conflict of law principles.
6.6 Severability. If any provision of this 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 __________________________, and in
the case of Employee, to the address shown for Employee 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.
5
<PAGE>
6.9 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.
6.10 Legal Fees and Expenses. In the event of any disputes
under this Agreement, each party shall be responsible for their own legal fees
and expenses which it may incur in resolving such dispute, unless otherwise
prohibited by applicable law or a court of competent jurisdiction.
6.11 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.
IN WITNESS WHEREOF, the Company and Employee have executed this
Agreement, effective as of the day and year first above written.
COMPANY EMPLOYEE
____________________________ _____________________________
a California corporation
By:_________________________
6
<PAGE>
EXHIBIT E
SHAREHOLDERS AGREEMENT
THIS AGREEMENT is entered into this __ day of _______, 1998, by and among
HealthDesk Corporation, a California corporation (the "Company"), and the
holders of the Company's Series B Preferred Stock (the "Series B Stock") as set
forth on Schedule I attached hereto (individually a "Shareholder" and
collectively, the "Shareholders").
RECITALS
WHEREAS, the Company has issued an aggregate of ____ shares of Series B Stock to
the Shareholders, which shares of Series B Stock have the rights, preferences,
privileges and restrictions as set forth in the Company's Certificate of
Determination of Rights, Preferences, Privileges and Restriction of Series B
Stock, filed with the California Secretary of State on May 13, 1998 (the
"Certificate");
WHEREAS, the Company has entered into an Agreement and Plan of Reorganization
(the "Merger Agreement") dated August 18, 1998, with MC Informatics, Inc., a
California corporation ("MCI"), pursuant to which the Company will acquire all
of the outstanding capital stock of MCI in exchange for shares of the Company's
Common Stock (the "Acquisition"); and
WHEREAS, it is a condition to closing the Acquisition that the Shareholders
agree to amend certain rights, preferences and privileges of the Series B Stock,
including the price at which the Series B Stock will convert into shares of
Common Stock, and the events which upon which the Series B stock will convert
automatically into Common Stock.
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in this Agreement, the parties
mutually agree as follows:
AGREEMENT
1 Mandatory Conversion. Notwithstanding anything to the contrary
set forth in Section 4(b) of the Certificate, the Series B Stock shall be
automatically and without further action into fully paid and nonassessable
shares of Common Stock immediately upon the closing of the Acquisition.
2 Conversion Price. Notwithstanding anything to the contrary set
forth in Section 4(d) of the Certificate, the Conversion Price of Series B Stock
shall be Fifty Cents ($0.50) per share.
3 Miscellaneous.
3.1 Governing Laws. It is the intention of the parties hereto
that the internal laws of the State of California (irrespective of its choice of
law principles) shall govern the validity of this Agreement, the construction of
its terms, and the interpretation and enforcement of the rights and duties of
the parties hereto.
1
<PAGE>
3.2 Binding upon Successors and Assigns. Subject to, and
unless otherwise provided in, this Agreement, each and all of the covenants,
terms, provisions, and agreements contained herein shall be binding upon, and
inure to the benefit of, the permitted successors, executors, heirs,
representatives, administrators and assigns of the parties hereto provided that
no party hereto shall assign this Agreement to any such entity without the prior
written consent of the other parties, which consent shall not be unreasonably
withheld.
3.3 Severability. If any provision of this Agreement, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances shall be interpreted so as best to reasonably
effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision which will achieve, to the extent possible, the economic,
business and other purposes of the void or unenforceable provision.
3.4 Entire Agreement. This Agreement, the exhibits hereto, the
documents referenced herein, and the exhibits thereto, constitute the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and thereof and supersede all prior and contemporaneous agreements
or understandings, inducements or conditions, express or implied, written or
oral, between the parties with respect hereto and thereto.
3.5 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the parties reflected hereon as signatories.
3.6 Expenses. Except as provided to the contrary herein, each
party shall pay all of its own costs and expenses incurred with respect to the
negotiation, execution and delivery of this Agreement and the exhibits hereto.
In the event the transactions contemplated by this Agreement are consummated,
all legal, accounting, investment banking, broker's and finder's fees incurred
by the Shareholders in connection with these transactions shall be deemed to be
expenses of the Shareholders and shall be paid by the Shareholders.
3.7 Amendment and Waivers. Any term or provision 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 by a writing signed by the party to be bound thereby. The
waiver by a party of any breach hereof for default in payment of any amount due
hereunder or default in the performance hereof shall not be deemed to constitute
a waiver of any other default or any succeeding breach or default.
2
<PAGE>
3.8 No Waiver. The failure of any party to enforce any of the
provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
3.9 Attorneys' Fees. Should suit or arbitration proceeding be
brought to enforce or interpret any part of this Agreement, the prevailing party
shall be entitled to recover, as an element of the costs of suit and not as
damages, reasonable attorneys' fees to be fixed by the court (including, without
limitation, costs, expenses and fees on any appeal). The prevailing party shall
be the party entitled to recover its costs of suit, regardless of whether such
suit proceeds to final judgment. A party not entitled to recover its costs shall
not be entitled to recover attorneys' fees. No sum for attorneys' fees shall be
counted in calculating the amount of a judgment for purposes of determining if a
party is entitled to recover costs or attorneys' fees.
3.10 Notices. Any notice provided for or permitted under this
Agreement will be treated as having been given (a) when delivered personally,
(b) when sent by confirmed telex or telecopy, (c) on the next business day when
sent by commercial overnight courier with written verification of receipt, or
(d) five days after being mailed postage prepaid by certified or registered
mail, return receipt requested, to the party to be notified, at the address set
forth below, or at such other place of which the other party has been notified
in accordance with the provisions of this Section.
The Company:
HealthDesk Corporation
c/o Joseph Dunham
Equity Dynamics Inc.
2116 Financial Center
Des Moines, IA 50309
With copy to:
Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: Peter M. Astiz, Esq.
Shareholders: c/o
--------------------------
With copy to:
--------------------------
Attention:
--------------------------
3
<PAGE>
3.11 Construction of Agreement. This Agreement has been
negotiated by the respective parties hereto and their attorneys and the language
hereof shall not be construed for or against any party. The titles and headings
herein are for reference purposes only and shall not in any manner limit the
construction of this Agreement which shall be considered as a whole.
3.12 No Joint Venture. Nothing contained in this Agreement
shall be deemed or construed as creating a joint venture or partnership between
any of the parties hereto. No party is by virtue of this Agreement authorized as
an agent, employee or legal representative of any other party. No party shall
have the power to control the activities and operations of any other and their
status is, and at all times, will continue to be, that of independent
contractors with respect to each other. No party shall have any power or
authority to bind or commit any other. No party shall hold itself out as having
any authority or relationship in contravention of this Section.
3.13 Pronouns. All pronouns and any variations thereof shall
be deemed to refer to the masculine, feminine or neuter, singular or plural, as
the identity of the person, persons, entity or entities may require.
3.14 Further Assurances. Each party agrees to cooperate fully
with the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances, as may be reasonably
requested by any other party to better evidence and reflect the transactions
described herein and contemplated hereby and to carry into effect the intents
and purposes of this Agreement.
3.15 Absence of Third Party Beneficiary Rights. No provisions
of this Agreement are intended, nor shall be interpreted, to provide or create
any third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, shareholder, partner of any party hereto or any
other person or entity unless specifically provided otherwise herein, and,
except as so provided, all provisions hereof shall be personal solely between
the parties to this Agreement.
3.16 Jurisdiction. Any controversy or claim arising out of, or
relating to, this Agreement or any alleged breach thereof, shall be adjudicated
in a state or federal court located in Alameda County, California. Each of the
parties hereto consents to personal jurisdiction before such courts.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first set forth above.
HEALTHDESK CORPORATION SHAREHOLDER
By: By:
---------------------------- -------------------------------
5
<PAGE>
SCHEDULE I
Holders of Series B Preferred Stock of HealthDesk Corporation
6
<PAGE>
EXHIBIT F
LOCK-UP AGREEMENT
____________, 1998
HealthDesk Corporation
2560 Ninth Street, Suite 220
Berkeley, CA 94710
Ladies and Gentlemen:
The undersigned understands that pursuant to an Agreement and Plan of
Reorganization (the "Merger Agreement") dated July ___, 1998, by and among
HealthDesk Corporation, a California corporation ("HDC"), MC Acquisition
Corporation, a California corporation and a wholly-owned subsidiary of HDC
("Sub"), MC Informatics, Inc., a California corporation ("MCI") and certain
shareholders of MCI, Sub shall be merged with and into MCI, with MCI the
surviving corporation (the "Merger").
Pursuant to the Merger Agreement, and in consideration of the terms of the
Merger and other good and valuable consideration, receipt of which is hereby
acknowledged, the undersigned hereby agrees, from the date hereof until and
including twelve (12) months after the date of the closing of the Merger, not to
offer to sell, contract to sell or otherwise sell, dispose of, loan, pledge or
grant any rights with respect to (collectively, a "Disposition") any shares of
capital stock of HDC (the "HDC Capital Stock"), any options or warrants to
purchase any shares of HDC Capital Stock or any securities convertible into or
exchangeable for shares of HDC Capital Stock (collectively, "Securities"), now
owned or hereafter acquired directly by the undersigned or with respect to which
the undersigned has or hereafter acquires the power of disposition, otherwise
than (i) as a bona fide gift or gifts, provided the donee or donees thereof
agree to be bound by this Lock-Up Agreement, or (ii) with the prior written
consent of HDC. The foregoing restriction is expressly agreed to preclude the
holder of the Securities from engaging in any hedging or other transaction which
is designed to or reasonably expected to lead to or result in a Disposition of
Securities during the Lock-Up Period even if such Securities would be disposed
of by someone other than the undersigned. Such prohibited hedging or other
transactions would include, without limitation, any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including without
limitation any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from the
Securities.
1
<PAGE>
Furthermore, the undersigned hereby agrees and consents to the entry of stop
transfer instructions with HDC's transfer agent against the transfer of the
Securities held by the undersigned except in compliance with this Lock-Up
Agreement.
Very truly yours,
By:
-------------------------------
Print Name:
-------------------------------
Its:
-------------------------------
Accepted as of the date first set forth above:
HEALTHDESK CORPORATION
By:
-------------------------------
Print Name:
-------------------------------
Its:
-------------------------------
2
<PAGE>
EXHIBIT G
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of the ____ day of
_______, 1998, by and between HealthDesk Corporation, a California corporation
(the "Company"), and each other person or entity executing this Agreement.
RECITALS
WHEREAS, the Company has issued shares of its common stock, no par
value (the "Common Stock") to certain investors (the "Investors") pursuant to
the terms of the Agreement and Plan of Reorganization by and among the Company,
MC Acquisition Corporation, a California corporation and a wholly-owned
subsidiary of the Company, MC Informatics, Inc., a California corporation
("MCI") and certain shareholders of MCI (the "Merger");
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 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:
AGREEMENT
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 to the Investors in connection with the Merger 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 or pursuant to an effective registration
statement or to the public pursuant to an exemption from registration
requirements under the Securities Act;
1
<PAGE>
(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
(d) The term "Holder" means any person owning or
having the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.12 hereof.
1.2 Request for Registration.
(a) If the Company shall receive at any time after
the date of this Agreement and prior to the one year anniversary of this
Agreement, 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 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.
2
<PAGE>
(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 sixty (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.
1.3 Company Registration.
(a) If (but without any obligation to do so) at any
time after _______, 1999, and prior to _______, 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.
3
<PAGE>
(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 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.
4
<PAGE>
(b) The Company shall have no obligation with respect
to any registration requested pursuant to Section 1.2 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).
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 provided
in Section 1.12), including, without limitation, all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of one counsel for the selling Holders
selected by them, but excluding underwriting discounts and commissions relating
to Registrable Securities.
5
<PAGE>
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, 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 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.
6
<PAGE>
(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 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 parties. 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.
7
<PAGE>
(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 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 Securities Act and any other rule or regulation of the SEC that may at
any time permit a Holder to sell securities of the Company to the public without
registration, the Company agrees to:
(a) make and keep public information available, as
those terms are understood and defined in SEC Rule 144, at all times;
(b) 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
(c) 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, the Securities Act and the 1934 Act, (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.
1.12 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.
8
<PAGE>
1.13 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 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.
1.14 Termination of Registration Rights. No Holder shall be
entitled to exercise any right provided for in this Section 1 after __________,
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 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 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.
9
<PAGE>
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. Any amendment or
waiver effected in accordance with this Section 2.6 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.
Remainder of Page Intentionally Left Blank
10
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
HealthDesk Corporation
By:
--------------------------------------------------
Joseph Dunham
Chairman and Chief Executive Officer
Address: 2560 Ninth Street
Suite 220
Berkeley, CA 94710
INVESTOR:
- -----------------------------------------------------
[Type or Print Name]
By:
--------------------------------------------------
Print Title:
-----------------------------------------
Address:
-----------------------------------------
11
<PAGE>
EXHIBIT H
FORM OF OPINION OF COUNSEL TO
MC INFORMATICS AND THE SHAREHOLDERS
Capitalized terms used herein and not otherwise defined shall have the same
defined meanings given under the Merger Agreement.
MCI is a corporation duly organized, validly existing and in good
standing under the laws of the State of California and has the corporate power
and authority to carry on its business as it is now being conducted and is
proposed to be conducted. MCI is duly qualified or licensed to do business and
is in good standing in each jurisdiction in which the nature of its business or
properties makes such qualification or licensing necessary.
The authorized capital stock of MCI consists of one million (1,000,000)
shares of MCI Common Stock; and, as of the close of business on _________ ___,
1998, ________(_________) shares of MCI Common Stock were issued and outstanding
and held of record by MCI Shareholders as set forth and identified in the MCI
Disclosure Schedule. The MCI Disclosure Schedule sets forth a complete and
accurate list of all shareholders of the Company, indicating the exact number of
MCI Shares held by each Shareholder.
To such counsel's knowledge, except as disclosed in the MCI Disclosure
Schedule, there are no outstanding options, warrants, rights, commitments,
conversion rights, rights of exchange, plans or other agreements of any
character providing for the purchase, issuance or sale of any shares of the
capital stock of MCI other than as contemplated by the Merger Agreement. To the
knowledge of such counsel, after due inquiry and except as set forth in the MCI
Disclosure Schedule, there are no agreements, voting trusts, proxies or
understandings with respect to the voting, or registration under the Securities
Act of any of the MCI Shares. To the knowledge of such counsel, there are no
outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to MCI.
All of the outstanding securities of MCI have been duly authorized and
are validly issued, fully paid and nonassessable. All securities of MCI were
issued in compliance with applicable securities laws. None of MCI's outstanding
securities was issued in consideration in whole or in part for any contribution,
transfer, assignment or any proprietary rights.
The Merger Agreement and the Agreement of Merger have been approved by
the Shareholders of MCI. MCI has the corporate power and authority to enter into
the Merger Agreement, the Agreement of Merger and the other Transaction
Documents to which it is a party and to carry out its obligations thereunder.
The execution and delivery of the Merger Agreement, the Agreement of Merger and
the other Transaction Documents to which MCI is a party and the consummation of
the transactions contemplated thereby have been duly authorized by the board of
directors of MCI, and no other corporate proceedings are necessary to authorize
the Merger Agreement, the Agreement of Merger or the other Transaction
Documents.
12
<PAGE>
The Merger Agreement, the Agreement of Merger and each of the other
Transaction Documents to which MCI is a party constitute valid and binding
obligations of MCI, enforceable in accordance with their respective terms,
except as such enforceability may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to creditors' rights
generally, and general principles of equity.
The execution and delivery by MCI of the Merger Agreement, the
Agreement of Merger and the other Transaction Documents to which MCI is a party,
and/or the consummation by MCI of the transactions contemplated by the Merger
Agreement, the Agreement of Merger and the Transaction Documents, will not (a)
conflict with or violate any provision of the charter or bylaws of MCI or (b)
conflict with, result in a breach of, constitute (with or without due notice or
lapse of time or both) a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify or cancel, or require any
notice, consent or waiver under, any agreement, instrument, commitment or other
obligation to which MCI is a party or by which MCI is bound.
Except as set forth in the MCI Disclosure Schedule to the Merger
Agreement, to such counsel's knowledge, no legal or governmental proceedings are
pending to which MCI is a party, and no such proceedings have been threatened
against MCI.
There is no consent, approval, authorization, order, registration,
qualification or filing of or with any court or any regulatory authority or
other governmental body required by MCI or the MCI shareholders or with respect
to MCI's assets or properties or otherwise for the consummation of the
transactions contemplated by the Merger Agreement and the Agreement of Merger
that has not been obtained, except for acceptance for filing of the Agreement of
Merger by the Secretary of State for the State of California.
Each Shareholder has all requisite power and authority or the capacity
to execute and deliver the Merger Agreement and the other Transaction Documents
to which the Shareholder is a party, to perform the Shareholder's obligations
thereunder and to sell, transfer and deliver the shares of MCI Common Stock
owned by him to be exchanged with HealthDesk free and clear of all liens,
agreements, voting trusts, proxies and other arrangements or restrictions of any
kind whatsoever. The Merger Agreement and the Transaction Documents have been
duly and validly executed and delivered by each Shareholder. The Merger
Agreement and each of the Transaction Documents to which each Shareholder is a
party, when executed and delivered by the Shareholder, constitute valid and
binding obligations of each Shareholder, enforceable against the Shareholder in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to creditors' rights generally, and general principles of equity.
13
<PAGE>
EXHIBIT I
INVESTOR REPRESENTATION LETTER
Date: ________, 1998
HealthDesk Corporation
2560 Ninth Street, Suite 200
Berkeley, CA 94710
Ladies and Gentlemen:
Reference is made to that certain Agreement and Plan of Reorganization (the
"Agreement") dated August 18, 1998, by and among HealthDesk Corporation ("HDC"),
MC Acquisition Corporation ("Sub") and MC Informatics, Inc. ("MCIF") and certain
shareholders of MCIF). This Investor Representation Letter, receipt of which is
a condition to HDC's obligation to issue securities under the Agreement, is
rendered to you pursuant to Section 11.10 of the Agreement. All terms used
herein have the meaning defined for them in the Agreement unless otherwise
defined herein. The undersigned hereby represents to HDC as follows:
Shareholder's Own Account. The shares of HDC common stock issued under
the terms of the Agreement (the "HDC Shares") are being acquired for my own
account for investment purposes only and not with a view to, or for resale in
connection with any distribution or public offering thereof within the meaning
of the Securities Act of 1933, as amended (the "Securities Act").
No Registration; Economic Risk. I understand that the HDC Shares have
not been registered under the Securities Act, or any other securities law or
regulation, that the HDC Shares must be held by me indefinitely, and that I must
therefore bear the economic risk of such investment indefinitely, unless a
subsequent disposition thereof is registered under the Securities Act or is
exempt from such registration thereunder. I further understand that the HDC
Shares have not been qualified under the General Corporation Law of the State of
California (the "California Law") by reason of their issuance in a transaction
exempt from the qualification requirements of the California Law.
Access to HDC Records During the negotiation of the transactions
contemplated herein, I or my investor representative have been afforded full
access to records, documents, and other information concerning HDC and I or my
investor representative have been afforded an opportunity to ask such questions
of HDC's officers and representatives concerning HDC's business, operations,
financial condition, assets, liabilities and other relevant matters as they have
deemed necessary or desirable, and have been given all such information as has
been requested, in order to evaluate the merits and risks of the prospective
investment contemplated herein.
Knowledge and Experience Either by myself or with the help of my
investor representative, I have such knowledge and experience in financial and
business matters that I am capable of evaluating the merits and risks of the HDC
Shares pursuant to the terms of the Agreement.
14
<PAGE>
Legend. I understand that each certificate representing the HDC Shares
to be issued in accordance with the terms of the Agreement shall be endorsed
with the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED
UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH
SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE
COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF SUCH SECURITIES
REASONABLY SATISFACTORY TO THE COMPANY STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH ACT."
Very truly yours,
15
<PAGE>
ANNEX V - CHARTER AMENDMENT
<PAGE>
Amended and restated articles of INCORPORATION of
HEALTHDESK CORPORATION
_________ and _________ 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 MC Informatics, Inc.
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.
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 forty three million
(43,000,000) shares, forty million (40,000,000) 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").
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 restriction 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.
1
<PAGE>
C. Five Hundred (500) of the authorized shares of Preferred Stock are
hereby designated "Series B Preferred Stock" (the "Series B Preferred").
D. The rights, preferences, privileges, restriction and other matters
relating to the Series B Preferred are as follows:
Section 1. Voting. The holders of the Series B Preferred Stock shall
have such voting rights as are set forth below except as otherwise required by
law from time to time.
The affirmative approval (by vote or written consent as permitted by
applicable law) of the holders of at least a majority of the outstanding shares
of the Series B Preferred Stock, voting separately as a class, will be required
for (i) any amendment, alteration or repeal of the Corporation's Articles of
Incorporation, as amended from time to time, (including any Certificate of
Determination) if such amendment, alteration or repeal adversely affects the
powers, preferences or rights of the Series B Preferred Stock (including,
without limitation, by creating any class or series of equity securities having
a preference over the Series B Preferred Stock with respect to dividends,
redemption, distribution upon liquidation or in any other respect), or (ii) any
amendment to or waiver of the terms of the Series B Convertible Preferred Stock
or this Certificate.
Except as provided in the preceding paragraph, to the extent that under
applicable law or under the Corporation's Articles of Incorporation or Bylaws,
each as amended from time to time, the approval of the holders of the Series B
Preferred Stock, voting separately as a class, is required to authorize a given
action of the Corporation, the affirmative approval (by vote or written consent
as permitted by applicable law) of the holders of a majority of the outstanding
shares of the Series B Preferred Stock shall constitute the approval of such
action by the class. Except as otherwise provided under applicable law or under
the Corporation's Articles of Incorporation or Bylaws, each as amended from time
to time, the holders of the Series B Preferred Stock shall vote on all matters
with holders of the Common Stock, voting together as one class, and each share
of Series B Preferred Stock shall be entitled to that number of votes as shall
be equal to the number of shares of the Corporation's Stock (the "Common Stock")
into which each share of Series B Preferred Stock is convertible on the record
date for any meeting of stockholders or on the date of any written consent of
stockholders, as applicable. Holders of the Series B Preferred Stock shall be
entitled to notice of all shareholder meetings or written consents (whether or
not they are entitled to vote there at), which notice will be provided pursuant
to the Corporation's Bylaws, as amended from time to time, and applicable
statutes.
Section 2. Dividends. No dividends shall be paid on any Common Stock
unless a dividend is paid with respect to all outstanding shares of Series B
Preferred Stock, in an amount for each such share of Series B Preferred Stock,
that is equal to the aggregate amount of such dividends for all Common Stock
into which each such share of Series B Preferred Stock could then be converted.
2
<PAGE>
Section 3. Liquidation Preference.
(a) Preference. In the event of any liquidation, dissolution
or winding up of the affairs of the Corporation, voluntarily or involuntarily,
the holders of each share of Series B Preferred Stock shall be entitled to be
paid pro rata out of the assets of the Corporation available for distribution to
its stockholders, whether such assets are capital, surplus, or earnings, before
any payment or declaration and setting apart for payment of any amount shall be
made in respect of any shares of the Corporation's Common Stock or shares of any
other capital stock of the Corporation ranking junior to the Series B Preferred
Stock (collectively, "Junior Stock"), a preferential amount equal to Two
Thousand Dollars ($2,000) per share of Series B Preferred Stock held by them
(such preferential amount, as adjusted to reflect any stock split, stock
dividend, combination, recapitalization or reorganization, being hereinafter
referred to as the "Series B Preferred Stock Liquidation Preference"). Except as
otherwise provided herein, upon payment of the Series B Preferred Stock
Liquidation Preference upon each share of Series B Preferred Stock, the
Corporation shall have no further obligation to make any other payments or
distributions out of the assets of the Corporation on any shares of Series B
Preferred Stock in connection with such liquidation, dissolution or winding up
of the Corporation. If upon such liquidation, dissolution or winding up, the
assets of the Corporation are insufficient (after payment of the liquidation
preference of any class of preferred stock ranking senior on liquidation to the
Series B Preferred Stock) to provide for the payment in full of the Series B
Preferred Stock Liquidation Preference for each share of Series B Preferred
Stock outstanding, such assets as are available shall be paid out pro rata
(determined in accordance with the liquidation preferences of the relevant
series of preferred stock) to the outstanding shares of Series B Preferred
Stock.
(b) Remaining Assets. After the payment or distribution to the
holders of the Series B Preferred Stock of the full Series B Preferred Stock
Liquidation Preference, the holders of the Junior Stock then outstanding shall
be entitled to receive all remaining assets of the Corporation to be
distributed.
Section 4. Conversion.
The holders of the Series B Preferred Stock shall have conversion
rights in accordance with the following provisions:
(a) Voluntary Conversion. Each holder of one or more shares of
Series B Preferred Stock shall be entitled, at any time and from time to time
and at such holder's option, to convert into fully paid and nonassessable shares
of Common Stock (as such shares of Common Stock may be constituted on the
conversion date) the number of shares of Series B Preferred Stock then held by
such holder.
(b) Mandatory Conversion. On the fifth anniversary of the date
shares of Series B Convertible Preferred Shares are first issued (the "Original
Issuance Date"), each outstanding share of Series B Preferred Stock shall be
converted automatically and without further action into fully paid and
nonassessable shares of Common Stock (as such shares of Common Stock may be
constituted on the conversion date) at the rate specified in Section 4(d)
hereof, subject to adjustment in accordance with Section 5 hereof, and a
conversion notice shall be deemed to have been given by the holder of each such
outstanding share of Series B Preferred Stock on such date.
3
<PAGE>
(c) Conversion Rate. The number of shares of Common Stock into
which each share of Series B Preferred Stock may be converted pursuant to this
Section 4(d), as such may be adjusted from time to time in accordance with
Section 5 hereof, is hereinafter referred to as the "Conversion Rate." The
number of shares of Common Stock to be received upon conversion of Series B
Preferred Stock will be determined by dividing the Conversion Amount by the
Conversion Price (as defined in Section 4(e)) subject to adjustment in
accordance with Section 5 hereof. The "Conversion Amount" will be $2,000 per
share of Series B Preferred Stock being converted.
(d) Conversion Price. The "Conversion Price" shall be $0.50
per share.
(e) Mechanics of Conversion. Unless conversion is mandatory in
accordance with Section 4(c) hereof any or all shares of Series B Preferred
Stock may be converted by the holder thereof by giving written notice (the
"Conversion Notice") by facsimile by 5:00 p.m. Eastern Standard Time, together
with the holder's calculation of the Conversion Rate to the Corporation, that
the holder elects to convert the number of shares specified therein, which
notice and election shall be irrevocable by the holder; and by delivering the
certificate or certificates representing the Series B Preferred Stock to be
converted, duly endorsed, by either overnight courier or two-day courier, to the
principal office of the Corporation or of any transfer agent for the Series B
Preferred Stock, provided, however, in the event that such certificate or
certificates have been lost, stolen or destroyed, in lieu of delivering such
certificate or certificates the holder may notify the Corporation of such loss,
theft or destruction and deliver to the Corporation an instrument reasonably
satisfactory to the Corporation indemnifying the Corporation from any loss
incurred by it in connection with such lost, stolen or destroyed certificate or
certificates.
The Corporation shall, as soon as possible and in any event within
three business days, verify the holder's calculation of the Conversion Rate as
calculated by the holder, or if the Corporation disagrees with the holder's
calculation of the Conversion Rate, deliver to the holder the Corporation's
calculation of the Conversion Rate. The Corporation shall use its best efforts
to issue and deliver as soon as possible, and in any event within five business
days after delivery to the Corporation of a Conversion Notice, to the holder of
Series B Preferred Stock requesting conversion of shares thereunder, or to its
designee, one or more certificates representing that number of shares of Common
Stock to which such holder shall be entitled, together with one or more
certificates representing any shares of Series B Preferred Stock represented by
the certificate or certificates delivered by such holder but not submitted for
conversion. The Corporation shall be deemed to have received the Conversion
Notice on the date of dispatch by the holder to the Corporation (the "Holder
Conversion Date") and the person or persons entitled to receive the shares of
Common Stock issuable upon the conversion specified therein shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
such date, provided that the certificate or certificates representing the shares
of Series B Preferred Stock to be converted (or a notice of loss, theft or
destruction and an indemnification instrument in lieu thereof), are received by
the Corporation or any transfer agent for the Series B Preferred Stock within
five (5) business days thereafter. If such certificate or certificates (or such
notice and indemnification instrument) are not received by the Corporation or
any transfer agent for the Series B Preferred Stock within five (5) business
days after the Holder Conversion Date, the Conversion Notice shall, at the
election of the Corporation by written notice to the holder requesting such
conversion, become null and void unless the holder delivers such certificate or
certificates (or such notice and instrument of indemnification) within three (3)
business days after receipt by the holder of such election by the Corporation.
4
<PAGE>
Section 5. Adjustments; Reorganizations.
(a) Adjustment for Stock Splits and Combinations. If, at any
time or times after the Original Issuance Date, the Corporation effects a
subdivision (by any stock split, stock dividend, recapitalization or otherwise)
of the Common Stock into a greater number of shares or combination (by reverse
stock split or otherwise), of the outstanding Common Stock into a smaller number
of shares, the Conversion Rate in effect immediately before such subdivision
shall be proportionately increased or decreased, as appropriate.
(b) Adjustment for Certain Dividends and Distributions. If the
Corporation at any time or from time to time after the Original Issuance 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 or in other securities of the Corporation, then and in
each such event provision shall be made so that the holders of Series B
Preferred Stock shall receive that number of shares of Common Stock or other
securities of the Corporation, as the case may be, to which such holders would
be entitled to receive had such holders converted each share of Series B
Preferred Stock then outstanding into Common Stock immediately prior to the
record date for the determination of holders of Common Stock entitled to receive
such dividend or other distribution (without regard to any restrictions on
conversion).
(c) Adjustment for Other Dividends and Distributions. In the
event that the Corporation, at any time or from time to time after the Original
Issuance Date, makes or fixes a record date for the determination of holders of
Common Stock entitled to receive a dividend or other distribution payable other
than in securities of the Corporation, then and in each such event provision
shall be made so that the holders of Series B Preferred Stock shall receive the
amount of such dividend or other distribution, payable in the form in which such
dividend or other distribution is to be paid to holders of Common Stock, to
which such holders would be entitled to receive had such holders converted each
share of Series B Preferred Stock then outstanding into Common Stock immediately
prior to the record date for the determination of holders of Common Stock
entitled to receive such dividend or other distribution (and without regard to
any restrictions on conversion).
(d) Adjustment for Reclassification, Exchange and
Substitution. In the event that at any time or from time to time after the
Original Issuance Date, the Common Stock issuable upon the conversion of the
Series B Preferred Stock 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 reorganization provided for elsewhere in this Section 5),
then and in each such event each holder of shares of Series B Preferred Stock
shall have the right thereafter to convert such stock into the kind of stock
receivable upon such recapitalization, reclassification or other change by
holders of shares of Common Stock, all subject to further adjustment as provided
herein. In such event, the formula set forth herein for conversion shall be
equitably adjusted to reflect such change in number of shares or, if shares of a
new class of stock are issued, to reflect the market price of the class or
classes of stock issued in connection with the above described transaction.
5
<PAGE>
(e) Reorganization. If at any time or from time to time after
the Original Issuance Date there is a capital reorganization of the Common Stock
(other than a recapitalization, subdivision, combination, reclassification, or
exchange of shares provided for elsewhere in this Section 5), then as a part of
such reorganization, provision shall be made so that the holders of the Series B
Preferred Stock shall thereafter be entitled to receive upon conversion of
shares of Series B Preferred Stock the number of shares of stock or other
securities or property to which a holder of the number of shares of Common Stock
deliverable upon conversion would have been entitled on such capital
reorganization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 5 with respect to the rights of
the holders of the Series B Preferred Stock after the reorganization to the end
that the provisions of this Section 5 (including adjustment of the Conversion
Rate then in effect and the number of shares issuable upon conversion of shares
of the Series B Preferred Stock) shall be applicable after that event and be as
nearly equivalent as may be practicable, including, by way of illustration and
not limitation, by equitably adjusting the formula set forth herein for
conversion to reflect the market price of the securities or property issued in
connection with the above described transaction.
(f) Acquisition. In the event of (i) a sale or other
disposition of all or substantially all of the assets of the Corporation or (ii)
any merger, consolidation or other corporate reorganization or transaction or
series of related transactions in which in excess of 50% of the Corporation's
voting power is transferred, the holders of the Series B Preferred Stock shall
vote with respect to the approval of such transaction as a separate class. The
holders of the Series B Preferred Stock shall be entitled to receive on
consummation of any such transaction the consideration which they would have
received had all Series B Preferred Stock been converted to Common Stock
immediately prior to the consummation of such transaction (without regard to any
then applicable restrictions on conversion).
Section 6. Fractional Shares. No fractional shares of Common Stock or
scrip representing fractional shares of Common Stock shall be issuable
hereunder. The number of shares of Common Stock that are issuable upon any
conversion of one or more shares of Series B Preferred Stock shall be rounded up
or down to the nearest whole share.
Section 7. Reservation of Stock Issuable Upon Conversion.
(a) Reservation Requirement. The Corporation has reserved and
the Corporation shall continue to reserve and keep available at all times, free
of preemptive rights, shares of Common Stock for the purpose of enabling the
Corporation to satisfy any obligation to issue shares of its Common Stock upon
conversion of the authorized shares of Series B Preferred Stock. The number of
shares so reserved may be reduced by the number of shares actually delivered
pursuant to conversion of shares of Series B Preferred Stock; provided that in
no event shall the number of shares so reserved be less than 125% of the maximum
number required to satisfy remaining conversion rights on the unconverted shares
of Series B Preferred Stock (and without regard to any restrictions on
conversion hereunder) and the number of shares so reserved shall be increased to
reflect stock splits and stock dividends and distributions.
6
<PAGE>
(b) Default. If the Corporation does not have a sufficient
number of shares of Common Stock available to satisfy the Corporation's
obligations to a holder of one or more shares of Series B Preferred Stock upon
receipt of a Conversion Notice, or if the Corporation is otherwise prohibited by
applicable law, regulation, or stock exchange or trading market rule from
issuing shares of Common Stock upon receipt of a Conversion Notice (each, a
"Conversion Default"), or if the Corporation fails for any other reason (other
than due to the failure of any holder of Series B Preferred Stock to timely
deliver the stock certificate for the shares of Series B Preferred Stock to be
converted or reasonably satisfactory indemnification instruments) to issue
shares of Common Stock upon receipt of any Conversion Notice for a period of 30
days, the holder of one or more shares of Series B Preferred Stock requesting
conversion shall have the right, upon notice to the Corporation, to require the
Corporation to redeem such shares of Series B Preferred Stock, as soon as
possible and in any event within 30 days of such notice, at a price per share
which shall be the product of the Conversion Rate and the closing trading price
of the Common Stock on the applicable Conversion Date, such redemption amount to
be payable in cash, in readily marketable securities (the marketability and
value of which shall be mutually agreed upon by the Corporation and the holder
or shall be determined by a nationally recognized investment banking firm), or
in a combination thereof.
Section 8. No Reissuance of Shares of Series B Preferred Stock. No
share or shares of Series B Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be reissued as
Series B Preferred Stock, and all such shares shall be retired and shall return
to the status of authorized, unissued and retired and undesignated shares of
preferred stock of the Corporation. Except as provided in the Subscription
Agreements entered into by the Corporation and the initial holders of shares of
Series B Preferred Stock on or about the Original Issuance Date, no additional
shares of Series B Preferred Stock shall be authorized or issued without the
consent of at least a majority in interest of the holders of shares of Series B
Preferred Stock outstanding immediately prior thereto.
Section 9. No Impairment. The Corporation shall not intentionally take
any action which would impair the rights and privileges of the shares of Series
B Preferred Stock set forth herein.
Section 10. Notice of Adjustment. Upon the occurrence of any of the
events specified in Section 5, then and in each such case, the Corporation shall
give written notice to each holder of such shares subject to conversion under
Section 4 hereof, which notice shall describe in reasonable detail such event
and the resulting adjustment and shall set forth in reasonable detail the method
by which such adjustment was determined.
7
<PAGE>
Section 11. Other Notices. In case at any time:
(i) the Corporation shall declare any
dividend upon its Common Stock payable in cash, stock or convertible securities
or make any other distribution to the holders of its Common Stock;
(ii) the Corporation shall offer for
subscription pro rata to the holders of its Common Stock any additional shares
of stock of any class, any convertible securities, or other rights;
(iii) there shall be any capital
reorganization or reclassification of the capital stock of the Corporation, or a
consolidation or merger of the Corporation with or into, or a sale of all or
substantially all its assets to, another entity or entities; or
(iv) there shall be a voluntary or
involuntary dissolution, liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give to each
holder of any shares of Series B Preferred Stock (a) at least ten (10) days'
prior written notice of the date on which the books of the Corporation shall
close or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date when the same shall take
place. Such notice in accordance with the foregoing clause (a) shall also
specify, in the case of any such dividend, distribution or subscription rights,
the date on which the holders of Common Stock shall be entitled thereto and such
notice in accordance with the foregoing clause (b) shall also specify the date
on which the holders of Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be. The Corporation shall simultaneously make public
disclosure of all such information delivered to the holders of Series B
Preferred Stock.
Section 12. Notice Requirements. Unless otherwise provided herein,
notices and other deliveries to be made hereunder shall be made by hand or
registered or certified mail, postage and charges prepaid, or by express
overnight delivery, or by telecopy or telex (in which cases, the original notice
shall be sent by means reasonably intended to result in delivery of the original
notice to the recipient thereof on the next business day). Such notices and
other deliveries shall be addressed, in the case of the Corporation, to the
Corporation at its principal place of business, and in the case of any holder of
one or more shares of Series B Preferred Stock, to such holder at the address of
such holder appearing on the books of the Corporation or given by such holder to
the Corporation for the purpose of notice, or, if no such address appears or is
so given, at the last known address of such holder. Notices are deemed delivered
upon receipt in accordance with any of the foregoing methods.
8
<PAGE>
Section 13. No Reissuance of Series B Preferred. Any and all shares of
Series B Preferred acquired by the Company by reason of redemption, purchase,
conversion or otherwise shall be canceled and shall not be reissued.
Section 14. No Preemptive Rights. Shareholders shall have no
preemptive rights except as granted by the Company pursuant to written
agreements.
III.
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."
<PAGE>
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 has
two classes of stock outstanding, each of which is entitled to vote with respect
to the amendment herein set forth. The total number of outstanding shares of
Common Stock and Series B Preferred Stock of the Company is ________ and
________, 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 fifty percent (50%)
of the Series B Preferred Stock, each voting as a class.
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 ___________________, 1998.
----------------------------------
, President
----------------------
----------------------------------
, Secretary
----------------------
9
<PAGE>
ANNEX VI - OPTION PLAN
<PAGE>
HEALTHDESK CORPORATION
1994 STOCK OPTION PLAN
(As Amended by the Board Through July 29, 1998)
I. PURPOSES OF THE PLAN
This 1994 Stock Option Plan (the "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 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 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.
<PAGE>
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 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 Plan
Administrator after taking into account such factors as the 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 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. 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 Plan in accordance with Article III below.
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.
2
<PAGE>
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 PLAN
A. The 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.
B. The Plan Administrator shall have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Plan and to make
such determinations under, and issue such interpretations of, the Plan and any
outstanding options as it may deem necessary or advisable. Decisions of the Plan
Administrator shall be final and binding on all parties who have an interest in
the Plan or any outstanding option.
IV. ELIGIBILITY FOR OPTION GRANTS
A. The persons eligible to receive option grants under
the Plan are as follows:
3
<PAGE>
(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 Plan Administrator.
B. The Plan Administrator shall have full authority to
determine which eligible individuals are to receive option grants under the
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 PLAN
A. The stock issuable under the 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 Plan shall not exceed
Three Million (3,000,000) 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 Plan in
excess of twenty-five percent (25%) of the total share reserve available for
issuance under the Plan. At any such time as the Corporation (or any Parent or
Subsidiary) is a "publicly-held corporation" within the meaning of Section
162(m) of the Code, no Employee shall be granted one or more options under the
Plan within any fiscal year of the Corporation which in the aggregate are for
the purchase of more than five hundred thousand (500,000) shares of Common
Stock.
B. Shares subject to outstanding options shall be available
for subsequent option grants under the Plan to the extent (i) the options expire
or terminate for any reason prior to exercise in full or (ii) the options are
canceled in accordance with the cancellation and regrant provisions of Article
IX below. All shares issued under the Plan, whether or not those shares are
subsequently repurchased by the Corporation pursuant to its repurchase rights
under the Plan Administrator shall reduce on a share-for-share basis the number
of shares of Common Stock available for subsequent option grants.
C. In the event any change is made to the Common Stock
issuable under the 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 Plan, (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, and (iii) the grant limit discussed in Section A of this
Article V. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
4
<PAGE>
VI. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan shall be authorized by
action of the Plan Administrator and may, at the 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
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
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
(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
Plan shall be exercisable at such time or times, during such period and for such
number of shares as shall be determined by the 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.
5
<PAGE>
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;
(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 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 Plan Administrator shall deem appropriate; provided, that
in no event shall such option be exercisable after the specified expiration date
of the option term.
6
<PAGE>
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 Plan Administrator shall have the
discretion to authorize the issuance of unvested shares of Common Stock under
the 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 Plan Administrator and set forth in the agreement
evidencing such repurchase right. In no event, however, may the Plan
Administrator impose a vesting schedule upon any option granted under the 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 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.
F. First Refusal Right. 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 Plan. Such right of first refusal shall
be exercisable in accordance with the terms and conditions established by the
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 Plan. Except as modified by the
provisions of this Article VII, all the provisions of the 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 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 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
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 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.
7
<PAGE>
C. The grant of options under this 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 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 Plan and to grant
in substitution therefor new options under the 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 Plan Administrator may assist any optionee in the
exercise of one or more options granted to the optionee by:
8
<PAGE>
(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
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.
C. The 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 Plan Administrator may in its discretion deem appropriate.
XI. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the 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 PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the 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 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 Plan to purchase shares
of Common Stock in excess of the number of shares then available for issuance
under the Plan, provided an amendment sufficiently increasing the number of
shares of Common Stock available for issuance under the Plan is approved by the
Corporation's shareholders within twelve (12) months after the date the excess
grants are first made.
9
<PAGE>
XIII. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective when adopted by the Board,
but no option granted under the Plan shall become exercisable unless and until
the 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 Plan, then all options previously granted
under the Plan shall terminate and no further options shall be granted. Subject
to such limitation, the Plan Administrator may grant options under the Plan at
any time after the effective date and before the date fixed herein for
termination of the Plan.
B. The Plan shall terminate upon the earliest of (i) the
expiration of the ten (10) year period measured from the date the Plan is
adopted by the Board, (ii) the date on which all shares available for issuance
under the 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 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 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 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 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 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 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.
10
<PAGE>
HEALTHDESK CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ______DAY, ________ ___, 1998
The undersigned hereby appoints Joseph R. Dunham II and Ledia Ouyang, or either
of them, each with full power of substitution, as the proxyholder(s) of the
undersigned to represent the undersigned and vote all shares of the Common Stock
of HealthDesk Corporation (the "Company") which the undersigned would be
entitled to vote if personally present at the special meeting of shareholders of
the Company on _______day, ________ __, 1998, and at any adjournments or
postponements of such meeting, as follows:
1. To approve the Sale of Assets to Patient Infosystems, Inc. pursuant to
the terms of the Asset Agreement:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To approve the Merger Agreement pursuant to which MC Acquisition
Corporation, a wholly-owned subsidiary of the Company, will be merged
into MCIF and MCIF will become a wholly-owned subsidiary of the
Company; to approve the issuance of the Company's Common Stock in the
Merger; and to change the Company's name to MC Informatics, Inc.:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve the Amended and Restated Articles of Incorporation of the
Company, which, among other things, increases the authorized number of
shares of Common Stock from 17,000,000 to 40,000,000:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To approve amendments to the Company's Option Plan to increase the
number of shares reserved for issuance under the Option Plan to
3,000,000 and to limit to 500,000 the maximum number of shares for
which options may be granted to any employee in any fiscal year:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board recommends that you vote FOR each of the above proposals. This proxy,
when properly executed, will be voted in the manner directed above. WHEN NO
CHOICE IS INDICATED, THIS PROXY WILL BE VOTED FOR THE ABOVE PROPOSAL. This proxy
may be revoked by the undersigned at any time, prior to the time it is voted by
any of the means described in the accompanying proxy statement.
Date and sign exactly as name(s)
appear(s) on this proxy. If
signing for estates, trusts,
corporations or other entities,
title or capacity should be
stated. If shares are held
jointly, each holder should sign.
----------------------------------
(Signature(s) of Shareholder(s))
----------------------------------
(Signature(s) of Shareholder(s))
Date: , 1998.
PLEASE COMPLETE, DATE AND SIGN
THIS PROXY AND RETURN IT PROMPTLY
IN THE ENCLOSED ENVELOPE.
