As filed with the Securities & Exchange Commission on February 26,1997
Registration No. 333-21929
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM S-3/A-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
HEALTHWATCH, INC.
(Exact name of issuer as specified in its charter)
Minnesota 84-0916792
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2445 CADES WAY
VISTA, CALIFORNIA 92083
(619) 598-4333
(Address and telephone number of principal executive offices)
-------------------------
Lindley S. Branson
HealthWatch, Inc.
2445 Cades Way
Vista, California 92083
(619) 598-4333
(Name, address and telephone number of agent for service)
-------------------------
Approximate date of commencement of proposed sale to the public:As soon as
practicable after the effective date of this registration statement.
If the only securities being registered on this form are being offered pursuant
to dividend or reinvestment plans, please check the following box. |_|
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Title of Amount Proposed maximum Proposed maximum Amount of
securities to to be offering price aggregate offering registration
be registered registered per share (1) price (1) fee (1)
<S> <C> <C> <C> <C>
Common Stock, 500,000 $2.3125 $1,156,250 $350.38
$.07 par value Shares
</TABLE>
- -------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) and (h) of Regulation C as of the close of the
market on February 11, 1997.
-------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Subject to Completion, dated February 26, 1997
HEALTHWATCH, INC.
The shares offered hereby are 500,000 shares (the "Shares") of Common
Stock, $.07 par value ("Common Stock"), of HealthWatch, Inc. ("HealthWatch" or
the "Company"), issued upon conversion of an aggregate of 166,666 2/3 shares of
the Company's Series B Convertible Preferred Stock ("Series B Stock"), which may
be sold from time to time by various selling shareholders (the "Selling
Shareholders") for their own accounts. The Company has been advised that the
Selling Shareholders may from time to time sell the Shares to or through brokers
or dealers in one or more transactions, on the Nasdaq Small Cap Market or
otherwise, at market prices prevailing at the time of sale, at prices relating
to such prevailing market prices, or at negotiated prices.
The Company's Common Stock is listed on the Nasdaq Small Cap Market
under the symbol HEAL. On February 11, 1997, the last reported sale price of
Common Stock, as reported on the Nasdaq Small Cap Market, was $2.3125 per share.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SHOULD
BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT.
SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION NOR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Since the Common Stock registered hereunder is being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Act"), the Company cannot include herein information
about the price to the public of the Common Stock or the proceeds to the Selling
Shareholders. The Company will receive no proceeds from any sales of Common
Stock by the Selling Shareholders, and the Company is obligated to pay the
expenses of this offering, which are estimated at $4,000. The Selling
Shareholders will pay their own expenses in connection with sales of the Common
Stock. The Selling Shareholders and any brokers or dealers executing selling
orders on their behalf may be deemed "underwriters" within the meaning of the
Act, in which event the usual and customary selling commissions which may be
paid to the brokers or dealers may be deemed to be underwriting commissions
under the Act. There can be no assurance that any or all of the Shares
registered hereunder will be sold. See "PLAN OF DISTRIBUTION."
The date of this Prospectus is February 27, 1997.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company with the Commission may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street N.W., Washington, D.C. 20549, and inspected at the
Commission's regional offices at Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can also be obtained from the Public
Reference Section of the Commission, 450 Fifth Street N.W., Washington, D.C.
20549, at prescribed rates. In additon, the Commission maintains a web site
(address http://www.sec.gov) on the Internet that contains reports, proxy
statements and other information for companies like HealthWatch which file
electronically.
The Company has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act of 1933, as amended (the "Act"), with respect
to the securities offered hereby. This Prospectus omits certain information
included in such Registration Statement. For further information about the
Company and its securities, reference is made to such Registration Statement and
to the exhibits filed as part thereof or otherwise incorporated therein. Each
summary in this Prospectus of information included in the Registration Statement
or any exhibit thereto is qualified in its entirety by this reference to such
information or exhibit.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and, in accordance
therewith, files reports and other information with the Commission. The
following documents, which have been filed by the Company with the Commission
pursuant to the Exchange Act (File No. 0-11476), are incorporated by reference
in this registration statement:
(a) The Company's Annual Report on Form 10-KSB for the year
ended June 30, 1996.
(b) The Company's Quarterly Reports for the quarters ended
September 30, 1996 and December 31, 1996.
(c) The description of the Company's Common Stock contained in
the Company's Registration Statement on Form 8-A filed under the
Exchange Act.
All documents subsequently filed by the Company with the Commission
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to
the filing of a post-effective amendment that indicates that all securities
offered have been sold or that deregisters all securities then remaining unsold,
shall be deemed to be incorporated by reference herein and to be a part hereof
from the date of filing such documents.
Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein, or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein, modifies or supersedes such
document. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company undertakes to provide without charge to each person,
including any beneficial owner, to whom a Prospectus is delivered, upon written
or oral request of such person, a copy of any and all of the information that
has been incorporated by reference in this Prospectus. Requests may be directed
to Lindley S. Branson, President, HealthWatch, Inc., 2445 Cades Way, Vista,
California 92083, (619) 598-4333.
THE COMPANY AND RECENT DEVELOPMENTS
HealthWatch develops, manufactures and markets medical products,
including the PACER, a new infusion therapy ("IV") device, Cambridge
electrocardiograph stress test systems and Life Sciences vascular diagnostic
systems. The Company's primary focus since 1993 has been on the development of
the PACER. The PACER, which is less expensive, smaller and lighter and easier to
use than most competing infusion therapy devices, was introduced to the
marketplace during fiscal 1996.
Prior to the introduction late in the 1980's of diagnostic-related
groups ("DRGs"), health-care providers were generally compensated for their
services on a cost-plus basis. In this environment, product features and
technology drove product purchase decisions, even if the benefits derived from
the added features and higher technology did not justify the higher cost. With
the advent of DRGs and managed care, third-party payors shifted their payment
policies toward fixed fees for services rendered or capitated payment
arrangements whereby providers were reimbursed a fixed amount for patients
serviced by their organizations. In today's health-care environment, providers
are required to focus on cost, to carefully match patient benefits with the cost
of the services provided.
HealthWatch's strategy is to develop and market medical products
designed to improve the cost-effective delivery of high-quality health care. The
PACER, the Company's first infusion therapy product, enables hospitals,
long-term care facilities, home-care agencies and others to maintain the quality
of the IV therapy they provide while also reducing significantly the cost of
such services. These cost savings are achieved both due to the PACER'S
substantially lower price than the price of most competing IV systems and
because the PACER can be used with generic IV tubing which usually is
substantially less expensive than proprietary dedicated IV tubing required to be
used with most competing systems.
Markets for the Company's Cambridge and Life Services diagnostic
products have been adversely affected by efforts to contain health-care costs as
well as by the efforts of many hospitals and other health-care institutions to
reduce their costs by consolidating operations with the operations of other
institutions. This consolidation has resulted in fewer customers for these
diagnostic products and for delays in obtaining purchase orders from
institutions which are evaluating possible consolidations. In contrast, the
Company believes that its IV products will benefit from the health-care
industry's focus on reducing costs, as these products are less expensive and
easier to use than most competing products.
On November 14, 1996, the Company agreed to issue 200,000 Units of its
securities, for a purchase price of $2.25 per Unit ($450,000 in the aggregate).
Each Unit consisted of one share of Series B Convertible Preferred Stock and
three Warrants, each Warrant representing the right to acquire one share of the
Company's Common Stock at $2.00 per share. Each share of Preferred Stock is
convertible into three shares of the Company's Common Stock. The agreement for
the issuance of the Units contemplates that 300,000 additional Units ($675,000
aggregate purchase price) will be purchased on the same terms as those
subscribed for effective November 14, 1996, before March 15, 1997. As of
February 13, 1997, 366,666 2/3 of the 500,000 units had been purchased, and all
of the Series B Preferred Stock issued in connection with such purchases have
been or are in the process of being converted into 1,100,000 shares of Common
Stock.
References herein to "HealthWatch" or the "Company" include HealthWatch
and its consolidated subsidiaries and their predecessors unless the context
indicates otherwise. HealthWatch was incorporated in the state of Minnesota in
1983. Except as otherwise noted, all information in this report has been
adjusted to reflect a seven-for-one reverse split of the Company's Common Stock
effective as of May 13, 1996.
HealthWatch's executive offices are located at 2445 Cades Way, Vista,
California 92083, telephone number (619) 598-4333.
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should carefully consider the following risk factors in
evaluating the Company and its business before purchasing the Shares of Common
Stock offered hereby.
DECLINE IN REVENUES; RECENT OPERATING LOSSES. The Company's product
sales have declined in each of the past three fiscal years, compared to the
prior fiscal year, primarily due, the Company believes, to the uncertainty in
the medical community regarding the effects of various proposals for health-care
reforms, consolidations and mergers of health-care institutions, continued
increased price competition and the Company's lack of sufficient working capital
to adequately fund marketing and product enhancement efforts. In view of the
Company's belief that there is substantially more potential for its IV products
than for its diagnostic products, HealthWatch intends to concentrate its efforts
on the marketing of the PACER, its first IV product. While marketing of the
PACER has begun, the Company does not expect to be able to produce and ship
significant quantities of the PACER until the first six months of calendar 1997.
The Company's sales may, therefore, continue to decrease for the next six or
more months.
The Company has incurred losses from operations in each of its last
three fiscal years. The Company expects to continue to incur losses from
operations until it is able to generate significant sales of the PACER. The
PACER is in the initial marketing stage and there can be no assurance that the
Company will be able to realize significant revenues from the sale of the PACER.
There can be no assurance that the Company will be able to operate at a profit
in the future.
NEED FOR ADDITIONAL FINANCING. The Company will need additional debt or
equity capital to sustain its operations during the next twelve months. In the
event that the Company is unable to raise additional capital, it will be
required to defer producing IV or other products, to sell certain assets or
enter into joint ventures with or grant licenses to other companies with respect
to one or more of its products and/or further reduce its operations in order to
sustain operations. There can be no assurance that the Company could, if it were
required to do so to sustain operations, sell any such assets or enter into any
such joint venture or grant any such license, if at all, on terms acceptable to
the Company.
NEW BUSINESS VENTURE; UNPROVEN PRODUCTS. In September 1993, the Company
completed the acquisition of Metamed, Inc., a development-stage company. The
Metamed acquisition represented a significant new business venture for
HealthWatch, and the Company's ability to successfully develop this business is
subject to all of the risks inherent in the establishment of a new business.
HealthWatch had not previously been engaged in the infusion therapy business and
Metamed had only a limited history of operations and had not generated any
revenues.
HealthWatch believes that the Metamed acquisition is of strategic
importance because it offers the Company the opportunity to expand its product
offerings to include medical products which it believes will be less sensitive
than its existing diagnostic products to current market pressures and
uncertainties, as the Company's infusion therapy products are expected to be not
only easier to use but also less costly than existing competing products. While
the first IV product, the PACER, an IV controller, has recently been introduced,
there can be no assurance that it will achieve wide acceptance in the
marketplace. Efforts to obtain required governmental approvals for additional
products based on the proprietary technology may be costly and require
significant time and additional effort on behalf of the Company which could
further deplete the Company's limited resources and delay the introduction of
additional IV products. There can be no assurance that the Company will be able
to obtain necessary governmental approvals for additional IV products or that
any products based on the proprietary technology can be successfully introduced
to the marketplace.
DEPENDENCE ON SUPPLIERS; WORKING CAPITAL REQUIREMENTS. Certain raw
materials for the Company's products, particularly its new IV product, are
available from only one or a limited number of suppliers, require that orders be
placed 60 days or more in advance of the desired delivery date and may be
available to the Company only if it places significant orders which represent
several months or more of the Company's projected needs for such materials. The
need to purchase significant quantities of these materials in advance of their
use substantially increases the Company's working capital requirements.
There can be no assurance that the Company's current suppliers for
these products will continue to supply them to the Company. While alternative
sources for such items are generally available, the Company could be required to
redesign its products in order to be able to use the alternative materials
provided by these additional suppliers. Any such redesign of the Company's
products could be expensive and time consuming and could require six or more
months to complete.
DEPENDENCE ON NEW OR IMPROVED PRODUCTS; TECHNOLOGICAL CHANGES. In
general, the medical products industry is subject to rapid and significant
technological changes and frequent introduction of new competitive products. To
respond to these expected changes and to improve or sustain the marketability of
its products, the Company will be required to commit substantial investments in
product improvement and development in order to periodically enhance its
existing products and successfully introduce new products. There can be no
assurance that the Company will either have the resources required to make such
investments or, assuming it has the required resources, be able to respond
adequately to changes in technology or changes in the markets for its products.
The development of new products or technologies by other firms could have a
material adverse effect on the Company's business. In addition, to the extent
that the Company seeks to develop new products, there can be no assurance that
such products will be successfully developed or, if developed, that such
products will be successfully introduced to the marketplace.
LENGTH OF SALES CYCLE; LIMITED SALES AND MARKETING EXPERIENCE. The
decision to purchase IV equipment is often an enterprise-wide decision by
prospective hospitals or other health-care customers and may require the Company
to engage in a lengthy evaluation/purchase-sales cycle. The sales cycle for IV
instruments can range from three to nine months or more. The sales cycle may
also be subject to a prospective customer's budgetary constraints and internal
acceptance reviews, over which the Company has little or no control.
Consequently, if sales forecasted from a specific customer for a particular
quarter are not realized in that quarter, the Company is unlikely to be able to
generate revenue from alternate sources in time to compensate for the shortfall.
If a larger order is delayed or lost to a competitor, the Company's revenues for
that quarter could be materially diminished.
The Company has limited experience in the areas of sales, marketing and
distribution. The Company's sales and marketing staff will require additional
personnel in the future. There can be no assurance that the Company will be able
to build an adequate sales and marketing staff, that establishing such a sales
and marketing staff will be cost-effective, or that the Company's sales and
marketing efforts will be successful.
LIMITED AVAILABILITY OF PROPRIETARY PROTECTION. The Company
historically has relied upon a combination of copyright, trade secret and
nondisclosure and other contractual provisions to protect its proprietary
rights. While the Company's licensed IV technology includes a U.S. patent, this
patent may not provide significant protection with respect to the development of
a competing product with capabilities similar to the Company's initial IV
product. Notwithstanding the Company's efforts to protect its proprietary
rights, it may be possible for competitors of the Company to imitate the
Company's products or develop independently competing products.
Disputes regarding the Company's intellectual property could force the
Company into expensive and protracted litigation or costly agreements with third
parties. An adverse determination in a judicial or administrative proceeding or
failure to reach an agreement with a third party regarding intellectual property
rights could prevent the Company from manufacturing and selling certain of its
products, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
COMPETITION. There are many companies that produce equipment which
competes with the Company's products, particularly its cardiology and current
and proposed infusion therapy products. Most of the Company's competitors have
substantially greater financial and marketing resources than the Company. Three
companies account for a substantial portion of the market for ECG products
similar to those sold by HealthWatch, and a few companies account for over 80%
of the U.S. market for infusion therapy systems. All of such companies are
substantially larger than HealthWatch. The Company expects that these
competitors will continue to compete aggressively with tactics such as offering
volume discounts based on "bundled" purchases of a broader-range of medical
equipment and supplies, a tactic that the Company is unable to pursue except on
a joint venture basis. There can be no assurance that such competition will not
adversely affect the Company's results of operations or its ability to maintain
or increase sales and market share. Competition could require that the Company
commit significantly greater resources to the introduction of its IV products
than would otherwise be required.
The market for infusion therapy products is affected by continuing
improvements and enhancements in technology. There can be no assurance that the
Company's competitors or potential competitors will not succeed in developing or
marketing products that provide more desirable characteristics, or are more
effective or less expensive than those developed or marketed by the Company. In
addition, technological advances in drug delivery systems, the development of
therapies that can be administered by methods other than infusion therapy, and
the development of new medical treatments that cure certain complex diseases or
reduce the need for infusion therapy could adversely impact the Company's
business.
LIMITED ASSEMBLY EXPERIENCE. The Company's products are currently
assembled by the Company at its facility. To be successful, the Company must
assemble its products in compliance with regulatory requirements, in sufficient
quantities and on a timely basis, while maintaining product quality and
acceptable assembly costs. The Company has limited experience assembling its
products in large commercial quantities. There can be no assurance that the
Company will be able to assemble products in large commercial quantities on a
timely basis and at an acceptable cost. If the Company becomes unable to
assemble the PACER at its facility in a timely and efficient manner, the
Company's ability to supply product to its customers may be adversely affected
until such time as the Company is able to establish alternative assembly
arrangements.
DEPENDENCE ON THIRD-PARTY REIMBURSEMENT. The Company's products are
generally purchased by health-care providers, which then seek reimbursement from
various public and private third-party payors, such as Medicare, Medicaid and
indemnity insurers, for health-care services provided to patients. Government
and private third-party payors are increasingly attempting to contain health
care costs by limiting both the extent of coverage and the reimbursement rate
for new diagnostic and therapeutic products and services. The Health Care
Financing Administration of the United States Department of Health and Human
Services ("HCFA"), which administers Medicare, and most private insurance
companies do not provide reimbursement for services that they determine to be
experimental in nature or that are not considered "reasonable and necessary" for
diagnosis or treatment. Many private insurers are influenced by HCFA actions in
making their own coverage decisions on new products or services. There can be no
assurance that third-party reimbursement for the services provided using the
Company's products will continue to be available to its customers or that any
such reimbursement will be adequate. Disapproval of, or limitations in, coverage
by HCFA or other third-party payors could materially and adversely affect market
acceptance of the Company's products which could, in turn, have a material
adverse affect on the Company's business, financial condition and results of
operations.
GOVERNMENT REGULATION. The medical devices manufactured and marketed by
the Company are subject to regulation by the FDA and, in some instances, by
state and foreign authorities. Pursuant to the Federal Food, Drug, and Cosmetic
Act (the "FFDCA") and the regulations promulgated thereunder, the FDA regulates
the clinical testing, manufacture, packaging, labeling, distribution and
promotion of medical devices.
Pursuant to the FFDCA, medical devices intended for human use are
classified into three categories, Classes I, II and III, on the basis of the
controls deemed necessary by the FDA to reasonably assure their safety and
effectiveness. Class I devices are subject to general controls (for example,
labeling, premarket notification and adherence to good manufacturing practice
("GMP") regulations) and Class II devices are subject to general and special
controls (for example, performance standards, postmarket surveillance, patient
registries, and FDA guidelines). Generally, Class III devices are those which
must receive premarket approval ("PMA") from the FDA to ensure their safety and
effectiveness (for example, life-sustaining, life-supporting and implantable
devices, or new devices which have not been found substantially equivalent to
legally marketed devices). Electronic infusion devices are classified by the FDA
as Class II medical devices.
If a new Class II medical device is substantially equivalent in terms
of safety and effectiveness to a medical device already legally marketed in the
United States, the FDA requirements may be satisfied through a procedure known
as a "510(k) Submission," in which the applicant provides product information
supporting its claim of substantial equivalency.
The Company received 510(k) clearance to begin marketing the PACER in
the United States in April 1994.
The FFDCA requires the filing of a new 510(k) Submission when, among
other things, there is a major change or modification in the intended use of the
device or a change or modification, including product enhancements, to a legally
marketed device that could significantly affect its safety or effectiveness. A
device manufacturer is responsible for making the initial determination as to
whether a proposed change to a cleared device or to its intended use
necessitates the filing of a new 510(k) Submission. The Company does not believe
that changes made to the PACER since the original 510(k) Submission require a
new 510(k) Submission for the Pacer. However, there can be no assurance that the
FDA would agree with the Company's determination.
The Company has recently filed a new 510(k) Submission for the PACER in
order to incorporate two new features, an automatic flow stop and an increased
rate range for infusions. Additional product modifications, including new
software features, that the Company may develop in the future will likely
require 510(k) clearance if the modifications could affect the safety or
efficacy of the Company's products. There can be no assurance that the Company
will obtain 510(k) clearance on a timely basis, if at all, for any device
modification for which it files a future 510(k) Submission. If 510(k) clearance
is granted, there can be no assurance that it will not contain significant
limitations in the form of warnings, precautions or contraindications with
respect to conditions of use.
Any products manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
the FDA. Device manufacturers are required to register their establishments and
list their devices with the FDA, and are subject to periodic inspections by the
FDA and certain state agencies. The FFDCA requires devices to be manufactured in
accordance with GMP regulations which impose certain process, procedure and
documentation requirements upon the Company with respect to manufacturing and
quality assurance activities. The FDA has proposed changes to the GMP
regulations which, if finalized, would likely increase the cost of complying
with GMP requirements. The Company believes that its manufacturing and quality
control procedures substantially conform to the requirements of FDA regulations.
In addition, the Medical Device Reporting ("MDR") regulation obligates
the Company to inform the FDA whenever there is reasonable evidence to suggest
that one of its devices may have caused or contributed to death or serious
injury, or where one of its devices malfunctions and, if the malfunction were to
recur, the device would be likely to cause or contribute to a death or serious
injury.
Labeling and promotion activities are also subject to scrutiny by the
FDA and, in certain instances, by the Federal Trade Commission. The FDA actively
enforces regulations prohibiting marketing of products for unapproved uses.
If, as a result of FDA inspections, MDR reports or information derived
from any other source, the FDA believes the Company is not in compliance with
the law, the FDA can refuse to clear pending 510(k) Submissions; withdraw
previously cleared 510(k) Submissions; require notification to users regarding
newly found unreasonable risks; request repair, refund or replacement of faulty
devices; request corrective advertisements, formal recalls or temporary
marketing suspension; impose civil penalties; or institute legal proceedings to
detain or seize products, enjoin future violations, or seek criminal penalties
against the Company, its officers or employees. Civil penalties for FFDCA
violations may be assessed by the FDA in lieu of or in addition to instituting
legal action. Civil penalties may range up to $15,000 per violation for
violations of the FFDCA, and a maximum of $1,000,000 per proceeding. Civil
penalties may not be imposed for GMP violations, unless the violations involve a
significant or knowing departure from the requirements of the FFDCA or a risk to
public health. The FDA provides manufacturers with an opportunity to be heard
prior to the assessment of civil penalties. If civil penalties are assessed,
judicial review is available.
The Company intends to export, its products to Europe, Japan and other
foreign countries. Exports of products that have market clearance from the FDA
in the United States do not require FDA authorization for export. However,
foreign countries often require, among other things, an FDA certificate for
products for export (a "CPE"). To obtain a CPE the device manufacturer must
certify to the FDA that the product has been granted clearance in the United
States and that the manufacturing facilities appeared to be in compliance with
GMPs at the time of the last FDA inspection. The FDA will refuse to issue a CPE
if significant outstanding GMP violations exist.
International sales of medical devices are subject to the regulatory
requirements of each country. The regulatory review process varies from country
to country. Many countries also impose product standards, packaging and labeling
requirements, and import restrictions on devices. In addition, each country has
its own tariff regulations, duties and tax requirements. The Company plans to
use distributors to assist in obtaining any necessary foreign governmental and
regulatory approvals. The Company does not currently have its products
registered or approved in any countries requiring an extensive registration or
approval process and has, therefore, not sold any products in such countries.
The Company has recently received Underwriters Laboratory, Inc. product
recognition under UL 544, Standard for Medical and Dental Equipment for the
PACER. To maintain "UL" status, the Company will be subject to quarterly
inspections by Underwriters Laboratory, Inc.
The Company and its products are also subject to a variety of state and
local laws and regulations in those states or localities where its products are
or will be marketed. Use of the Company's products is subject to inspection,
quality control, quality assurance, proficiency testing, documentation and
safety reporting standards promulgated by JCAHO. Various states and
municipalities may also have similar regulations.
Manufacturers are also subject to numerous federal, state and local
laws relating to such matters as safe working conditions, manufacturing
practices, environmental protection, fire hazard control and disposal of
hazardous or potentially hazardous substances. There can be no assurance that
the Company will not be required to incur significant costs to comply with such
laws and regulations.
PRODUCT LIABILITY EXPOSURE. Manufacturers of medical devices face the
possibility of substantial liability for damages in the event that the use of
their products is alleged to have resulted in adverse effects to a patient. The
Company maintains product liability insurance with coverage limits of $1.0
million per occurrence with an annual aggregate policy limit of $1.0 million.
The Company's product liability insurance provides coverage only for products
currently manufactured and distributed. There can be no assurance that liability
claims will not exceed the limits of such coverage or that such insurance will
continue to be available on commercially reasonable terms or at all.
Furthermore, the Company does not maintain insurance that would provide coverage
for any costs or losses resulting from any required recall of its products due
to alleged defects, whether instituted by the Company or a regulatory agency.
CHANGES IN HEALTH-CARE INDUSTRY. The health-care industry is
experiencing significant pressure to reduce costs. While the Company cannot
predict what effect any proposals to contain health-care costs may have on its
business, such proposals, if enacted, could have a material adverse effect on
portions of its business, particularly its diagnostic instruments business. In
order to reduce costs and to improve utilization of facilities, many health-care
organizations have consolidated or merged or are considering consolidating or
merging their operations or portions of their operations with the operations of
other health-care organizations. The consolidation and merging of health-care
organizations has reduced and can be expected to continue to reduce the number
of potential purchasers for the Company's products, particularly its diagnostic
instruments.
LIMITATIONS ON BROKER-DEALER SALES OF COMPANY COMMON STOCK;
APPLICABILITY OF "PENNY STOCK RULES". Federal regulations under the Securities
and Exchange Act of 1934, as amended, (the "Exchange Act") regulate the trading
of so-called "penny stocks" (the "Penny Stock Rules"), which are generally
defined as any security not listed on a national securities exchange or Nasdaq,
priced at less than $5.00 per share and offered by an issuer with limited net
tangible assets and revenues. In addition, equity securities listed on Nasdaq
which are priced at less than $5.00 are deemed penny stocks for the limited
purpose of Section 15(b)(6) of the Exchange Act. Therefore, during the time in
which the Common Stock is quoted on the Nasdaq SmallCap Market and is priced
below $5.00 per share, trading of the Common Stock is subject to the provisions
of Section 15(b)(6) of the Exchange Act which make it unlawful for any
broker-dealer to participate in a distribution of any penny stock without the
consent of the Securities and Exchange Commission if, in the exercise of
reasonable care, the broker-dealer is aware of or should have been aware of the
participation of a previously sanctioned person. In such event, it may be more
difficult for broker-dealers to sell the Company's Common Stock and purchasers
of the shares of Common Stock may have difficulty in selling their shares in the
future in the secondary trading market.
In the event that the Company's Common Stock is delisted from the
Nasdaq SmallCap Market and the Company fails other relevant criteria, trading of
the Common Stock would be subject to the full range of the Penny Stock Rules.
Under these rules, broker-dealers must take certain steps prior to selling a
"penny stock," which steps include: (i) obtaining financial and investment
information from the investor; (ii) obtaining a written suitability
questionnaire and purchase agreement signed by the investor; and (iii) providing
the investor a written identification of the shares being offered and in what
quantity. If the Penny Stock Rules are not followed by the broker-dealer, the
investor has no obligation to purchase the shares. Accordingly, delisting from
the Nasdaq SmallCap Market and the application of the comprehensive Penny Stock
Rules may make it more difficult for broker-dealers to sell the Company's Common
Stock and purchasers of the shares of Common Stock may have difficulty in
selling their shares in the future in the secondary trading market.
POSSIBLE DILUTIVE EFFECT OF OUTSTANDING OPTIONS, WARRANTS AND
CONVERTIBLE DEBENTURES. As of February 10, 1997, there were 2,911,144 shares of
Common Stock reserved for issuance upon the exercise of stock purchase warrants
or options or the conversion of Debentures. To the extent the trading price of
the Company's Common Stock at the time of exercise or conversion of any such
warrants, options or Debentures exceeds the exercise or conversion prices, any
such exercise or conversion will have a dilutive effect on the Company's
shareholders.
SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
offering and the ownership of Common Stock by the Selling Shareholders as of
February 13, 1997.
<TABLE>
<CAPTION>
Percentage of
Shares of Common Shares of Common Common Stock
Stock Owned Stock Owned Owned Beneficially
Name of Selling Beneficially Shares Beneficially After ---------------------
Shareholder Before Offering(1) Offered Hereby Offering(1) Before Offering After Offering
----------- ------------------ -------------- ----------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Michael Friess 100,000 100,000 0 3.3% 0%
Galaxy Investments, 100,000 100,000 0 3.3% 0%
Inc.
Roseann Wexler 100,000 100,000 0 3.3% 0%
Republic National Trading, 100,000 100,000 0 3.3% 0%
Inc.
RTM Investment Group 100,000 100,000 0 3.3% 0%
</TABLE>
PLAN OF DISTRIBUTION
The Company has been advised that the Shares may be sold from time to
time by the Selling Shareholders or by pledgees, donees, transferees, or other
successors in interest. Such sales may be made in the over-the-counter market or
otherwise at prices and at terms then prevailing or at prices related to the
then current market price or in negotiated transactions. The Shares may be sold
by one or more of the following: (a) a block trade in which the broker or dealer
so engaged will attempt to sell Shares as agent but may position and resell a
portion of the block as principal to facilitate the transaction; (b) purchases
by a broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (d) in privately
negotiated transactions not involving a broker or dealer. In effecting sales,
brokers or dealers engaged to sell Shares may arrange for other brokers or
dealers to participate. Brokers or dealers engaged to sell Shares will receive
compensation in the form of commissions or discounts in amounts to be negotiated
immediately prior to each sale. Such brokers or dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, as amended, in connection with such
sales. The Company will receive no proceeds from any sales of Common Stock by
the Selling Shareholders, and it is anticipated that the brokers or dealers, if
any, participating in the sales of such securities will receive the usual and
customary selling commissions.
LEGAL MATTERS
The legality of the Common Stock will be passed upon for the Company by
the firm of Gray, Plant, Mooty, Mooty & Bennett, P.A. A member of such firm owns
58,571 shares of Common Stock and warrants and stock options representing the
right to acquire an aggregate of 368,571 shares of Common Stock.
EXPERTS
The audited financial statements of the Company for the years June 30,
1996 and 1995, which are incorporated by reference herein have been examined and
reported on by Silverman Olson Thorvilson & Kaufmann, Ltd., as indicated in
their reports with respect thereto, and are incorporated by reference, in
reliance upon the authority of said firm as experts in accounting and auditing.
PART II
INFORMATION NOT REQUIRED TO BE IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses of the Company in
connection with the sale and distribution of the Common Stock being registered.
All of the amounts shown are estimates, except for the Securities and Exchange
Commission registration fee.
Securities and Exchange Commission fee $ 350.38
Accounting fees and expenses 500.00
Legal fees and expenses 500.00
Transfer Agent fees 500.00
Miscellaneous 2,149.62
--------
TOTAL $4,000.00
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Minnesota Statutes Section 302A.521 provides that a Minnesota business
corporation shall indemnify any director, officer or employee of the corporation
made or threatened to be made a party to a proceeding, by reason of the former
or present official capacity (as defined) of the person, against judgments,
penalties, fines, settlements and reasonable expenses incurred by the person in
connection with the proceeding if certain statutory standards are met.
"Proceeding" means a threatened, pending or completed civil, criminal,
administrative, arbitration or investigative proceeding, including one by or in
the right of the corporation. Section 302A.521 contains detailed terms regarding
such right of indemnification and reference is made thereto for a complete
statement of such indemnification rights. The Company's Articles and Bylaws
provide for indemnification of the Company's officers, directors, employees and
agents to the fullest extent permitted by law.
In addition, the Company's Articles of Incorporation eliminate certain
personal liability of the directors of the Company for monetary damages for
certain breaches of directors' fiduciary duties as permitted by Minnesota
Statutes Section 302A.251.
ITEM 16. EXHIBITS
<TABLE>
<S> <C>
4.1 Specimen form of the Company's Common Stock certificate (1).
4.2 HealthWatch, Inc. Stock Option Plan of 1989 (2).
4.3 Form of Incentive Stock Option Agreement (2).
4.4 Form of Nonstatutory Stock Option Agreement (2).
4.5 HealthWatch, Inc. Stock Option Plan of 1993 (3).
4.6 HealthWatch, Inc. Stock Option Plan of 1995 (4).
4.7 HealthWatch, Inc. 1995 Stock Bonus and Salary Deferral Plan (4).
4.8 Subscription and Purchase Agreement dated as of the 14th day of August 1992
between the Company and the Purchasers of the Company's 10%
convertible senior debentures due 1997 (including as an
appendix thereto the form of the debenture certificate)
(5).
4.9 Warrant Agreement dated May 19, 1995 between the Company and Corporate Stock
Transfer, Inc. (6).
4.10 Form of Loan and Standby Purchase Agreement (6).
4.11 Exchange Agreement for Preferred Stock and Stock Purchase Warrant (6).
4.12 Form of Subscription and Purchase Agreement, including form of Warrant (7)
4.13 Form of Preferred Stock Subscription and Purchase Agreement dated November
13, 1996, including exhibits thereto - filed herewith.
5.1 Opinion of Gray, Plant, Mooty, Mooty & Bennett, P.A. - filed herewith.
23.1 Consent of Gray, Plant, Mooty, Mooty & Bennett, P.A. (see Exhibit 5.1).
23.2 Consent of Silverman Olson Thorvilson & Kaufmann, Ltd.--filed herewith.
- ----------------
</TABLE>
(1) Incorporated herein by reference to Registration Statement, Form S-18
(File No. 2-85688D).
(2) Incorporated herein by reference to Registration Statement, Form S-2
(File No. 33-42831).
(3) Incorporated herein by reference to Registration Statement, Form
10-KSB, for the year ended June 30, 1994 (File No. 0-11476).
(4) Incorporated herein by reference to Registration Statement, Form
10-KSB, for the year ended June 30, 1996 (File No. 0-11476).
(5) Incorporated herein by reference to Registration Statement, Form SB-2
(File No. 33-73462).
(6) Incorporated herein by reference to Registration Statement, Form SB-2
(File No. 33-88126).
(7) Incorporated herein by reference to Registration Statement, Form SB-2
(File No. 333-09107).
(8) Incorporated herein by reference to Quarterly Report, Form 10-QSB, for
the quarter ended September 30, 1996 (File No. 0-11476).
ITEM 17. UNDERTAKINGS
A. The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered that remain unsold at the termination of
the offering.
B. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and controlling
persons of the registrant as discussed above, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Vista, State of California, on
February 26, 1997.
HEALTHWATCH, INC.
By /s/ Lindley S. Branson
Lindley S. Branson
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below on the 26th day of
February, 1997, by the following persons in the capacities indicated:
/s/ Lindley S. Branson President, Chief Executive Officer and Chief
Lindley S. Branson Financial Officer (Principal Executive and
Financial Officer)
/s/ Annette D. Agner Controller (Principal Accounting Officer)
Annette D. Agner
/s/ Sanford L. Schwartz* Director
Sanford L. Schwartz
/s/ Kenneth A. Selzer, M.D.* Director
Kenneth A. Selzer, M.D.
*By Lindley S. Branson, attorney in fact
<TABLE>
<CAPTION>
HEALTHWATCH, INC.
FORM S-3
INDEX TO EXHIBITS
Page No.
<S> <C> <C>
4.1 Specimen form of the Company's Common Stock certificate (1). --
4.2 HealthWatch, Inc. Stock Option Plan of 1989 (2). --
4.3 Form of Incentive Stock Option Agreement (2). --
4.4 Form of Nonstatutory Stock Option Agreement (2). --
4.5 HealthWatch, Inc. Stock Option Plan of 1993 (3). --
4.6 HealthWatch, Inc. Stock Option Plan of 1995 (4). --
4.7 HealthWatch, Inc. 1995 Stock Bonus and Salary Deferral Plan (4). --
4.8 Subscription and Purchase Agreement dated as of the 14th day of --
August 1992 between the Company and the Purchasers of the
Company's 10% convertible senior debentures due 1997 (including
as an appendix thereto the form of the debenture certificate) (5).
4.9 Warrant Agreement dated May 19, 1995 between the Company and --
Corporate Stock Transfer, Inc. (6).
4.10 Form of Loan and Standby Purchase Agreement (6). --
4.11 Exchange Agreement for Preferred Stock and Stock Purchase Warrant --
(6).
4.12 Form of Subscription and Purchase Agreement, including form of --
Warrant (7).
4.13 Form of Preferred Stock Subscription and Purchase Agreement dated --
November 6, 1996, including exhibits thereto - filed herewith.
5.1 Opinion of Gray, Plant, Mooty, Mooty & Bennett, P.A.-filed
with original registration statement.
23.1 Consent of Gray, Plant, Mooty, Mooty & Bennett, P.A. (see Exhibit
5.1).
23.2 Consent of Silverman Olson Thorvilson & Kaufman, Ltd.-filed
herewith.
- --------------------
(1) Incorporated herein by reference to Registration Statement, Form S-18
(File No. 285688D).
(2) Incorporated herein by reference to Registration Statement, Form S-2
(File No. 33-42831).
(3) Incorporated herein by reference to Registration Statement, Form
10-KSB, for the year ended June 30, 1994 (File No. 0-11476).
(4) Incorporated herein by reference to Registration Statement, Form
10-KSB, for the year ended June 30, 1996 (File No. 0-11476).
(5) Incorporated herein by reference to Registration Statement, Form SB-2
(File No. 33-73462).
(6) Incorporated herein by reference to Registration Statement, Form SB-2
(File No. 33-88126).
(7) Incorporated herein by reference to Registration Statement, Form SB-2
(File No. 333-09107).
(8) Incorporated herein by reference to Quarterly Report, Form 10-QSB for
the quarter ended September 30, 1996.
</TABLE>
SUBSCRIPTION AND PURCHASE AGREEMENT
THIS SUBSCRIPTION AND PURCHASE AGREEMENT (the "Agreement") by and
between HEALTHWATCH, INC., a Minnesota corporation (the "Company"), and
____________________________________ (the "Investor"). Investor and other
investors purchasing Units (as defined herein) pursuant to similar Subscription
and Purchase Agreements are herein referred to collectively as "Investors."
In consideration of the mutual promises, representations, warranties,
covenants and conditions set forth in this Agreement, the Company and the
Investor mutually agree as follows:
ARTICLE 1
DESCRIPTION OF FINANCING
1.1 AUTHORIZATION OF THE UNITS. The Company has authorized the issuance
and sale of 500,000 Units (the "Units"), each Unit consisting of one share of
Series B Convertible Preferred Stock which has the rights, preferences and
obligations as set forth in the Certificate of Designation of Series B
Convertible Preferred Stock attached hereto as Exhibit A (the "Series B Stock"),
and three common stock purchase warrants (the "Warrants") which are in
substantially the form of Exhibit B. The Series B Stock, Warrants and shares of
the Company's common stock issuable upon conversion of the Series B Stock and
the exercise of the Warrants (the "Common Stock") are sometimes referred to
herein as the "Securities."
1.2 PURCHASE AND SALE OF THE UNITS. Subject to the terms and conditions
of this Agreement and in reliance upon the representations and warranties
contained herein, the Company agrees to sell to Investor, and Investor agrees to
purchase the Units subscribed for in Section 10.1.
1.3 CLOSINGS. Closings of the purchase and sale of the Units shall take
place by mail or facsimile on or about November 14, 1996, January 15, 1997 and
March 15, 1997. At the Closings, the Company shall deliver to Investors the
shares of Series B Stock and the Warrants representing the Units being purchased
by each Investor registered in the name of the Investor, against delivery to the
Company by the Investor of a certified or cashier's check or other form of
payment acceptable to the Company in the amount of the purchase price of the
Units subscribed for in Section 10.1 below. At the first Closing, 200,000 Units
shall be purchased, and at each of the second and third Closings, 150,000 Units
shall be purchased.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Investors that:
2.1 MISLEADING STATEMENTS; BALANCE SHEET AND CAPITALIZATION. No
representation or warranty by the Company in this Agreement or in any written
statement or certificate furnished or to be furnished to the Investor pursuant
to this Agreement or in connection with the transactions contemplated by this
Agreement, when taken together, contains or will contain any untrue statement of
a material fact or omits or will omit to state a material fact necessary to make
the statements therein made not misleading. Copie of the Company's Annual Report
(Form 10-KSB) for the fiscal year ended June 30, 1996, and Quarterly Report
(Form 10-QSB) for the quarter ended September 30, 1996, have previously been
provided to Investors.
2.2 DISCLOSURE. The Company has fully provided Investors with all the
information which Investors have requested for deciding whether to purchase the
Units, and all information which the Company reasonably believes is necessary to
enable the Investors to make an informed decision.
2.3 BINDING OBLIGATION. This Agreement and each additional agreement
expressly contemplated by this Agreement, constitute a valid and legally binding
obligation of the Company.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF INVESTORS
Investor represents and warrants that:
3.1 HIGH RISK INVESTMENT. The Investor is aware that investment in the
Units and the Common Stock involves substantial risks. The Investor represents
that Investor understands that an investment in this Offering should be
considered only by a person able to withstand a total loss of such investment.
3.2 BINDING OBLIGATION. This Agreement and each additional agreement
expressly contemplated by this Agreement, constitute a valid and legally binding
obligation of the Investor.
3.3 NASD MATTERS. Neither the Investor nor any corporation or
organization of which Investor is an officer or partner, any corporation or
organization of which Investor, directly or indirectly, is the beneficial owner
of 10% or more of any class of equity securities, any trust or other estate in
which Investor has a substantial beneficial interest or as to which Investor
serves as trustee or in a similar fiduciary capacity or, Investor's spouse, or
any relative of Investor, or any relative of Investor's spouse, who has the same
home as Investor is a member of the National Association of Securities Dealers,
Inc. ("NASD"), is affiliated with a member of the NASD or is a person associated
with a member of the NASD, it being understood that affiliation or association
includes ownership of 5% or more of the equity securities of any such member,
except as indicated on Exhibit C hereto.
ARTICLE 4
FEDERAL AND OTHER SECURITIES LAWS
4.1 INVESTMENT REPRESENTATIONS AND WARRANTIES. Investor further
represents and warrants that:
(a) Investment Experience. The Investor represents that
Investor is an "accredited investor" as defined in Regulation D
promulgated by the Securities and Exchange Commission and is
experienced in evaluating and extending financing to companies such as
the Company, has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of
the investment, and has the ability to bear the economic risks of the
investment and to make an informed investment decision with respect
thereto. The Investor further represents that Investor has had, during
the course of the transaction and prior to the purchase of the Units,
the opportunity to ask questions of and receive answers from, the
Company concerning the terms and conditions of the Offering and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy of any information furnished to or to
which Investor had access.
(b) Acquisition for Investment for Investor's Own Account.
This Agreement is made with the Investor in reliance upon Investor's
representation to the Company, which by its acceptance hereof the
Investor hereby confirms and which by acceptance of any of the
Securities, the Holder thereof shall also confirm, that the Units are
being and the Common Stock will be, unless such securities have been
registered pursuant to the Securities Act of 1933, as amended (the
"1933 Act"), and applicable state blue sky laws, acquired for
investment for Investor's own account, not as a nominee or agent and
not with a view to the sale or distribution of any part thereof. Any
resales of the Securities will be in conformity with applicable law. By
executing this Agreement, Investor further represents that Investor
does not have any contract, undertaking, agreement, or arrangement with
any person in violation of any federal or state law to sell, transfer,
or grant participations to such person, or to any third person, with
respect to the Securities. Investor realizes that the basis for the
exemption from the registration requirements of the 1933 Act relied
upon by the Company in connection with the Offering, may not be present
if, notwithstanding such representation, the Investor has in mind
merely acquiring the Securities for a fixed or determinable period and
selling them in the future, and Investor hereby confirms the absence of
any such intention.
(c) Transfer or Disposition of Securities. The Investor
understands that the Securities may not be sold, transferred, or
otherwise disposed of without registration under the 1933 Act, and that
in the absence of an effective registration statement, such securities
must be held indefinitely. The Investor represents that, in the absence
of an effective registration statement, it will sell, transfer, or
otherwise dispose of such securities only in a manner consistent with
the representations set forth herein and in accordance with the
provisions of this Agreement.
4.2 CERTIFICATE LEGENDS. The Investor agrees that all certificates
evidencing the Securities shall bear a legend in substantially the following
form, and by which the Investor agrees to be bound:
THE SECURITY DESCRIBED HEREIN HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR UNDER THE
SECURITIES LAWS OF ANY STATE. NO SALE OR DISTRIBUTION OF THIS SECURITY
MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE 1933 ACT AND
APPLICABLE STATE BLUE SKY LAWS.
4.3 STOP TRANSFER INSTRUCTION. The Company shall make a notation
regarding the restrictions on transfer of the Securities in its stock books, and
the Company shall not be required to transfer on its books any of such
securities that have been sold or transferred in violation of any of the
provisions of this Agreement, or to treat as the owner of such securities any
transferee to whom such securities have been so transferred.
ARTICLE 5
CONDITIONS TO INVESTOR'S OBLIGATIONS AT THE CLOSING
The obligations of the Investor under Section 1.2 of this Agreement and
Investors pursuant to other similar agreements, are subject to the fulfillment
on or before the Closing of each of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES TRUE ON THE CLOSING DATE. The
representations and warranties of the Company contained in Article 2 shall be
true on and as of the Closing with the same force and effect as if they had been
made at the Closing.
5.2 PERFORMANCE. The Company shall have conformed and complied with all
agreements and conditions contained in this Agreement required to be performed
or complied with by it on or before the Closing.
5.3 QUALIFICATIONS. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of any state, that are required
in connection with the lawful issuance and sale of the Securities pursuant to
this Agreement shall have been duly obtained and shall be effective on and as of
the Closing.
5.4 DELIVERY OF CERTIFICATES. The Investor shall have received one or
more Series B Stock and Warrant certificates representing the Units which the
Investor is purchasing at the Closing.
ARTICLE 6
CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING
The obligations of the Company under Section 1.2 of this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions as to the Investor:
6.1 REPRESENTATIONS AND WARRANTIES TRUE ON THE CLOSING. The
representations and warranties of Investors contained in Articles 3 and 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.
6.2 QUALIFICATIONS. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of any state that are required
in connection with the lawful issuance and sale of the Securities pursuant to
this Agreement shall have been duly obtained and shall be effective on and as of
the Closing.
6.3 PAYMENT OF PURCHASE PRICE. Investors shall have delivered to the
Company the total consideration for the Securities which the Investors are
purchasing at the Closing.
ARTICLE 7
SECURITIES
7.1 REGISTRATION AND TRANSFER OF SECURITIES.
(a) The Company shall, at all times while any Securities are
outstanding, act as the registrar of the Series B Stock and Warrants
and shall cause to be kept at its principal office in California, or in
such other place or places and by such other registrar or registrars,
if any, as the Company may designate, a register in which shall be
entered the names and addresses of the holders of the Securities
("Holders") and particulars of the Securities held by them respectively
and of all transfers of Securities. The name of the Holder shall be
noted on the certificates for the Securities by the Company or other
registrar.
(b) No transfer of Securities shall be valid unless made by
the Holder or his executors or administrators or other legal
representatives or his or their attorney duly appointed by an
instrument in writing in form and execution satisfactory to the
Company, upon compliance with the provisions of this Agreement and the
Series B Stock and Warrants, as the case may be, and such other
requirements as the Company and/or other registrar may reasonably
prescribe, and unless such transfer shall have been duly entered on the
appropriate register and/or noted on such Warrant by the Company or
other registrar. The person in whose name a Warrant is registered shall
be deemed to be the owner thereof.
7.2 EXCHANGES OF SECURITIES. Certificates for Series B Stock or
Warrants of any authorized denomination may be exchanged for certificates of any
other authorized denomination or denominations, any such exchange to be for
certificates of an equal amount, as requested by the Holders. Any exchange of
certificates may be made at the offices of the Company or at the offices of any
registrar where a register is maintained for the Securities pursuant to the
provisions of Section 7.1. Any Securities tendered for exchange together with a
sum sufficient to cover any tax or other governmental charge payable in
connection with the transfer shall be surrendered to the Company or appropriate
registrar and shall be canceled.
ARTICLE 8
REGISTRATION RIGHTS
8.1 REGISTRATION. The Company will promptly, upon request of Investors
holding 100,000 of the Units offered hereby, take all necessary steps to
register, or quality, under the 1993 Act and the securities laws of such states
as the Investors may reasonably request, the shares of Common Stock issuable
upon conversion of the Series B Stock and exercise of the Warrants, provided,
however, in each case, that the Company shall not for any purpose be required to
execute a general consent to service of process or to quality to do business as
a foreign corporation in any jurisdiction wherein it is not so qualified. The
Company shall be obligated to prepare, file and cause to become effective only
three registration statements pursuant to this Section 8.1 and to pay all costs
and expenses associated with such registration statements as provided in Section
8.2. The Company shall keep effective and maintain any registration,
qualification, notification or approval specified in this Section 8.1 for a
period of up to one hundred eighty (180) days.
8.2 EXPENSES. With respect to the inclusion of securities in a
registration statement pursuant to Section 8.1, the Company shall bear the
following fees, costs and expenses: all registration, filing and NASD fees,
printing expenses, fees and disbursements of counsel and accountants for the
Company, and legal fees and disbursements and other expenses of complying with
state securities laws of any jurisdictions in which the securities to be offered
are to be registered or qualified. Fees and disbursements of special counsel and
accountants for the Investors, underwriting discounts and commissions, and
transfer taxes for Investor and any other expenses relating to the sale of
securities by the Investors not expressly included above shall be borne by the
Investors.
8.3 INDEMNIFICATION. The Company hereby indemnifies the Investors and
the officers and directors, if any, who control any Investor, within the meaning
of Section 15 of the 1933 Act, against all losses, claims, damages, and
liabilities caused by (1) any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement or Prospectus (and as
amended or supplemented if the Company shall have furnished any amendments
thereof or supplements thereto), any Preliminary Prospectus or any state
securities law filings; (2) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading except insofar as such losses, claims, damages, or
liabilities are caused by any untrue statement or omission contained in
information furnished in writing to the Company by Investors expressly for use
therein; and each Investor by Investor's acceptance hereof severally agrees that
it will indemnity and hold harmless the Company, each of its officers who signs
such Registration Statement, and each person, if any, who controls the Company,
within the meaning of Section 15 of the 1933 Act, with respect to losses,
claims, damages, or liabilities which are caused by any untrue statement or
alleged untrue statement, omission or alleged omission contained in information
furnished in writing to the Company by such Holder expressly for use therein.
ARTICLE 9
MISCELLANEOUS
9.1 SURVIVAL OF WARRANTIES. The warranties, representations and
covenants contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing and shall in no way be
affected by any investigation of the subject matter thereof made by or on behalf
of the Company or the Investors, as the case may be.
9.2 ENTIRE AGREEMENT. This Agreement and the Exhibits hereto constitute
the entire agreement between the parties, and no party shall be liable or bound
to another party in any manner by any warranties, representations or covenants
except as specifically set forth herein or therein. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any third party any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
9.3 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
9.4 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.
9.5 NOTICES. Any notice required or permitted under this Agreement
shall be given in writing and shall be deemed effectively given upon personal
delivery or seven (7) days after deposit with the United States Post Office, by
registered or certified mail, postage prepaid, addressed to the Company at 2445
Cades Way, Vista, California 92083, and to the Investor at the address specified
below or at such other address as a party may designate by ten (10) days'
advance written notice to the other parties.
9.6 EXPENSES. The Company shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
the offering, and each Investor shall pay all costs and expenses that it incurs
with respect to the negotiation, execution, delivery and performance of this
Agreement.
9.7 SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provisions shall be excluded from
this Agreement, and the balance of this Agreement shall be interpreted as if
such provisions were so excluded and shall be enforceable in accordance with its
terms.
9.8 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.
ARTICLE 10
SUBSCRIPTION
10.1 SUBSCRIPTION AMOUNT. The undersigned hereby subscribes for the
number of Units set forth opposite undersigned's name (500,000 Units in the
aggregate for all Investors) and shall tender at the Closing on November 15,
1996 or January 15 or March 15, 1997, a certified check or bank draft in the
aggregate amount of $______________ ($2.25 per Unit) payable to the Company in
full payment for such subscription.
10.2 RESALE COMPLIANCE. The undersigned agrees to comply with the 1933
Act and the rules and regulations promulgated thereunder, and any other relevant
securities legislation and policies governing the purchase, holding and resale
of the Units subscribed for, including, without limitation, applicable state
Blue Sky laws.
Entered into this ____ day of ____________, 199_.
__________________________________
(Name) (Please Print)
__________________________________
(Signature)
__________________________________
(Mailing Address)
__________________________________
(Registration Instructions)
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY ON THE __ DAY OF
_______________199_.
HEALTHWATCH, INC.
By: __________________________________
Its _____________________________
EXHIBIT A
CERTIFICATE OF THE DESIGNATION,
PREFERENCES, RIGHTS AND LIMITATIONS OF THE
SERIES B CONVERTIBLE PREFERRED STOCK OF
HEALTHWATCH, INC.
HealthWatch, Inc., hereinafter called the "Corporation", a corporation
organized and existing under the Minnesota Business Corporation Act does hereby
certify that, pursuant to authority conferred upon the Board of Directors by the
Articles of Incorporation, as amended, of the Corporation, said Board of
Directors at a meeting duly called and held on November __, 1996, and at which a
quorum was at all times present, duly adopted a Resolution providing for the
issuance of a series of 500,000 shares of Series B Convertible Preferred Stock,
which Resolution is as follows:
"RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of this Corporation in accordance with the
provisions of its Articles of Incorporation, as amended, a series of Preferred
Stock of the Corporation be and it hereby is given the distinctive designation
of "Series B Convertible Preferred Stock" (hereinafter referred to as the
"Series B Stock"), said Series to consist of Five Hundred Thousand (500,000)
shares of the stated value of Two Dollars and Twenty-Five Cents ($2.25) per
share. The preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof shall be as
follows:
1. Dividends
(a) The holders of shares of Series B Stock shall be entitled to
receive dividends at the rate of $0.225 per share (as adjusted
for any stock dividends, combinations or splits with respect
to such shares) per annum, payable out of funds legally
available therefor. Such dividends shall commence upon
issuance and shall be payable when, as and if declared by the
Board of Directors, in preference to any dividend to any other
shares of Preferred Stock or Common Stock, and shall be
cumulative. Dividends shall be paid quarterly on June 30,
September 30, December 31 and March 31, commencing June 30,
1997, to holders of record as of the close of business five
business days before the dividend payment date.
(b) No dividends (other than those payable solely in the Common
Stock of the Corporation) shall be paid on any other shares of
Preferred Stock or Common Stock of the Corporation during any
fiscal year of the Corporation until dividends, combinations
or splits with respect to such shares) on the Series B Stock
shall have been paid or declared and set apart during that
fiscal year and any prior year in which dividends accumulated
but remain unpaid. Following any such payment or declaration,
the holders of any other shares of Preferred Stock and Common
Stock shall be entitled to receive dividends, payable out of
funds legally available therefor, when, as and if declared by
the Board of Directors.
(c) No right shall accrue to holders of shares of Series B Stock
by reason of the fact that dividends on said shares are not
declared in any prior year, nor shall any undeclared or unpaid
dividend bear or accrue any interest.
In the event the Corporation shall declare a distribution payable in
securities of other persons, evidences of indebtedness issued by the Corporation
or other persons, assets (excluding cash dividends) or options or rights to
purchase any such securities or evidences of indebtedness, then, in each such
case the holders of the Series B Stock shall be entitled to a proportionate
share of any such distribution as though the holders of the Series B Stock were
the holders of the number of shares of Common Stock of the Corporation into
which their shares of Series B Stock are convertible as of the record date fixed
for the determination of the holders of Common Stock of the Corporation entitled
to receive such distribution.
2. Liquidation Preference
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders
of the Series B Stock shall be entitled to receive, prior and
in preference to any distribution of any of the assets or
surplus funds of the Corporation to the holders of any other
shares of Preferred Stock and Common Stock by reason of their
ownership thereof, the amount of $2.25 per share (as adjusted
for any stock dividends, combinations or splits with respect
to such shares), plus all accrued or declared but unpaid
dividends on such share for each shares of Series B Stock then
held by them. If upon the occurrence of such event, the assets
and funds thus distributed among the holders of the Series B
Preferred Stock shall be insufficient to permit the payment to
such holders of the full aforesaid preferential amount, then
the entire assets and funds of the Corporation legally
available for distribution shall be distributed ratably among
the holders of the Series B Stock in proportion to the
preferential amount each such holder is otherwise entitled to
receive.
(b) After payment to the holders of the Series B Stock of the
amounts set forth in Section 2(a) above, and the payment to
the holders of any other series of Preferred Stock which may
hereafter be established by the Board of Directors of any
liquidation preferences for such additional series of
Preferred Stock, the entire remaining assets and funds of the
Corporation legally available for distribution, if any, shall
be distributed among the holders of the Common Stock and the
Series B Stock and any other series of Preferred Stock which
may hereafter be established by the Board of Directors in
proportion to the shares of Common Stock then held by them and
the shares of Common Stock which they then have the right to
acquire upon conversion of the shares of Series B Stock and
any other series of Preferred Stock which may hereafter be
established by the Board of Directors then held by them.
(c) Whenever the distribution provided for in this Section 2 shall
be payable in securities or property other than cash, the
value of such distribution shall be the fair market value of
such securities or other property as determined in good faith
by the Board of Directors.
3. Voting Rights
Unless and except to the extent otherwise required by law, the holders
of the Series B Stock shall have no voting power; provided that if any dividends
on the Series B Stock declared by the Board of Directors in accordance with
Section 1 hereof have not been paid for a period of one year or more, the
holders of Series B Stock shall, until such dividends have been paid, be
entitled, with the holders of the Common Stock, voting as a class, to vote or
act by written consent for the election of directors, with the number of votes
per share of Series B Stock in such election to be equal to the number of shares
of Common Stock then issuable upon conversion of such Series B Stock. Unless and
except to the extent otherwise required by law, the holders of the Series B
Stock shall have no right to vote as a class with respect to any matter. Should
the Series B Stock be entitled to vote on any matter pursuant to a requirement
of law, each holder of such stock shall be entitled to one vote in respect to
each share of such stock held of record in respect to such matter, unless some
other vote is required by law.
4. Conversion of Series B Stock into Common Stock
(a) Subject to the provisions of this Section 4, the holder of
record of any share or shares of Series B Stock shall have the
right, at his option, at any time after issuance, to convert
each said share or shares of Series B Stock into three (3)
fully-paid and non-assessable shares of Common Stock, $.07 par
value (hereinafter referred to as "Common Stock), of the
Corporation. The Corporation shall not be required to issue
fractional shares in connection with the conversion of any of
the Series B Stock and shall, in lieu thereof, pay to the
holder requesting conversion, an amount equal to the value
(determined in accordance with the foregoing) of such
fractional share.
(b) Any holder of a share or shares of Series B Stock desiring to
convert such Series B Stock into Common Stock, shall surrender
the certificate or certificates representing the share or
shares of Series B Stock so to be converted, duly endorsed (if
required by the Corporation) to the Corporation or in blank,
at the office of any Transfer Agent for the Series B Stock (or
such other place as may be designated by the Corporation), and
shall give written notice to the Corporation at said office
that he elects to convert the same as provided above, and
setting forth the name or names (with the address or
addresses) in which the shares of Common Stock are to be
issued.
(c) Conversion of Series B Stock shall be subject to the following
additional terms and provisions:
(1) As promptly as practicable after the surrender for
conversion of any Series B Stock, the Corporation
shall deliver or cause to be delivered at the
principal office of the Transfer Agent for the Series
B Stock (or such other place as may be designated by
the Corporation), to or upon the written order of the
holder of such Series B Stock, certificates
representing the shares of Common Stock issuable upon
such conversion issued in such name or names as such
holder may direct. Shares of the Series B Stock shall
be deemed to have been converted as of the close of
business on the date of the surrender of the Series B
Stock for conversion, as provided above, and the
rights of the holders of such Series B Stock shall
cease at such time, and the person or persons in
whose name or names the certificates for such shares
are to be issued shall be treated for all purposes as
having become the record holder or holders of such
Common Stock at such time; provided, however, that
any such surrender on any date when the stock
transfer books of the Corporation shall be closed
shall constitute the person or persons in whose name
or names the certificate for such shares are to be
issued as the record holder or holders thereof for
all purposes at the close of business on the next
succeeding day on which such stock transfer books are
open.
(2) The Corporation shall make no payment or adjustment
on account of any dividends accrued on the shares of
Series B Stock surrendered for conversion.
(3) The Corporation shall at all times reserve and keep
available solely for the purpose of issuance upon
conversion of Series B Stock, as herein provided,
such number of shares of Common Stock as shall be
issuable upon the conversion of all outstanding
Series B Stock.
(d) The issuance of certificates for shares of Common Stock upon
conversion of the Series B Stock shall be made without charge
for any tax in respect of such issuance. However, if any
certificate is to be issued in a name other than that of the
holder of record of the Series B Stock so converted, the
person or persons requesting the issuance thereof shall pay to
the Corporation the amount of any tax which may be payable in
respect of any transfer involved in such issuance, or shall
establish to the satisfaction of the Corporation that such tax
has been paid or is not due and payable.
5. General
(a) Conversion adjustment. In the event that the Corporation shall
at any time prior to conversion either (a) subdivide the
outstanding shares of Common Stock into a greater number of
shares, (b) combine the outstanding shares of Common Stock
into a smaller number of shares, (c) change the outstanding
shares of Common Stock into the same or a given number of
shares of any other class or classes of stock, (d) declare on
or in respect of the Common Stock a dividend payable in shares
or other securities of the Corporation, then the holders of
the Series B Stock shall be entitled to receive the same
number of shares or other securities of the Corporation, or
shall be entitled to subscribe for and purchase at the same
price that the shares or securities are offered to holders of
Common Stock, the number of such shares or the amount of such
securities as will represent the same proportion of the
outstanding Common Stock prior to such increase or decrease as
they would have been entitled to receive or subscribe for, as
the case may be, had they been holders of the number of shares
of Common Stock into which their shares of Series B Stock were
convertible on the record date for any such dividend or
subscription. The Board of Directors shall determine what
adjustments shall be made in the Stated Value and in the
market prices for the Corporation's Common Stock in order to
appropriately reflect and account for any such change.
(b) Merger. In the event the Corporation at any time while any of
the shares of Series B Stock are outstanding shall be
consolidated with or merged into any other corporation or
corporations, or shall sell or lease all or substantially all
of its property and business as an entirety, lawful provision
shall be made as part of the terms of such consolidation,
merger, sale, or lease so that the holder of any shares of
Series B Stock may thereafter receive in lieu of such shares
of Common Stock otherwise issuable to him upon conversion of
his shares of Series B Stock, but at the conversion rate which
would otherwise be in effect at the time of conversion as
hereinbefore provided, the same kind and amount of securities
or assets as may be issuable, distributable, or payable upon
such consolidation, merger, sale, or lease, with respect to
shares of Common Stock of the Corporation. The Board of
Directors shall determine what adjustments shall be made in
the Stated Value and in the market prices for the
Corporation's Common Stock in order to appropriately reflect
and account for any such change.
(c) Nothing herein shall be deemed to require the Corporation in
the event of any such subdivision, combination,
reclassification, recapitalization, consolidation, merger or
sale of assets, or liquidation, dissolution or winding up, to
issue or distribute fractional interests in shares of capital
stock or any other security of the Corporation or another
issuer, and the Corporation may make such arrangements as the
Board of Directors of the Corporation shall approve with
respect to any such event for settlement in lieu of issuance
of a fractional interest in a share of capital stock or other
security of the Corporation or another issuer to any holder of
the Series B Stock.
(d) The shares of Series B Stock shall not be subject to the
operation of a purchase, retirement or sinking fund.
(e) The issuance of additional shares of Series B Stock shall not
be subject to any restrictions as to issuance, nor shall the
holders of the Series B Stock be entitled to any restriction
with respect to the issuance of shares of any other series of
the Corporation's Common Stock or Preferred Stock, or as to
the powers, preferences or rights of any such other series;
provided that no series of additional shares of Preferred
Stock shall have any liquidation or other similar rights in
preference to the Series B Stock."
IN WITNESS WHEREOF, I have hereunto subscribed my hand this _____ day
of November 1996.
HealthWatch, Inc.
By
Lindley S. Branson
EXHIBIT B
SEE PARAGRAPH 8 FOR RESTRICTIONS ON THE TRANSFER OF THIS WARRANT
No. VW-___
Warrant
to Purchase _______ Shares
WARRANT TO PURCHASE SECURITIES OF
HEALTHWATCH, INC.
THIS CERTIFIES THAT for value received ____________ is entitled,
subject to the terms and conditions hereinafter set forth, to purchase from
HEALTHWATCH, INC., a Minnesota corporation (the "Company"), _____________ fully
paid and non-assessable shares of Common Stock of the Company (herein called the
"Common Stock"), upon presentation and surrender of this Warrant with the
Subscription Form duly executed, at the principal office of the Company or at
such other office as shall have theretofore been designated by the Company by
notice pursuant hereto and upon payment therefor of the Purchase Price, in
lawful money of the United States of America, determined as set forth below. The
term of this Warrant shall commence on the date hereof, and terminate, if not
exercised prior thereto, at 5:00 p.m. California Time, on November 14, 1998.
This Warrant is subject to the following terms and conditions:
1. The purchase rights represented by this Warrant are exercisable at
the option of the Holder, in whole at any time after June 30, 1997, or in part
from time to time (but not as to a fractional share of stock). In the case of
the purchase of less than all the securities purchasable under this Warrant, the
Company shall cancel this Warrant upon the surrender hereof and shall execute
and deliver a new Warrant of like tenor for the balance of the securities
purchasable hereunder.
2. The purchase price for each security purchasable pursuant to the
exercise of this Warrant shall be Two Dollars ($2.00) per share to be acquired,
such price being sometimes hereinafter referred to as the "Base Purchase Price".
The Base Purchase Price and, from time to time, the number of securities subject
to purchase hereunder are subject to adjustment in certain circumstances
provided for below, and the Base Purchase Price, as it may be adjusted from time
to time, is hereinafter referred to as the "Purchase Price".
(a) In case the Company shall (i) pay a dividend in shares of
its capital stock (other than an issuance of shares of capital stock to
holders of Common Stock who have elected to receive a dividend in
shares in lieu of cash), (ii) subdivide its outstanding shares of
Common Stock, (iii) reduce, consolidate or combine its outstanding
shares of Common Stock into a smaller number of shares, or (iv) issue
by reclassification of its shares of Common Stock any shares of the
Company, the Purchase Price in effect immediately prior thereto shall
be adjusted to that amount determined by multiplying the Purchase Price
in effect immediately prior to such date by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding on
such date before giving effect to such division, subdivision,
reduction, combination or consolidation or stock dividend and of which
the denominator shall be the number of shares of Common Stock after
giving effect thereto. Such adjustment shall be made successively
whenever any such effective date or record date shall occur. An
adjustment made pursuant to this subsection (a) shall become effective
retroactively, immediately after the record date in the case of a
dividend and shall become effective immediately after the effective
date in the case of a subdivision, reduction, consolidation,
combination or reclassification.
(b) If the Capital Stock of the Company shall be changed into
the same or a different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend
provided for above, or a reorganization, merger, consolidation or sale
of substantially all of the Company's assets), then, and in each such
event, the Holder of this Warrant shall have the right thereafter to
purchase the kind and amount of shares of stock and other securities
and property receivable upon such reorganization, reclassification, or
other change which could have been purchased pursuant to the exercise
of this Warrant, as reasonably determined by the Company's board of
directors, immediately prior to such reorganization, reclassification,
or change, all subject to further adjustment as provided herein.
(c) If at any time or from time to time there shall be a
capital reorganization of the stock of the Company (other than a
subdivision, combination, reclassification or exchange of shares
provided for elsewhere herein) or a merger or consolidation of the
Company with or into another corporation, or the sale of all or
substantially all of the Company's properties and assets to any other
person, then, as a part of such reorganization, merger, consolidation
or sale, provision shall be made as reasonably determined by the
Company's board of directors so that the Holder of this Warrant shall
thereafter be entitled to receive upon exercise of this Warrant, the
number of shares of stock or other securities or property of the
Company or of the successor corporation resulting from such merger or
consolidation or sale, to which a Holder of stock deliverable upon
exercise of this Warrant would have been entitled on such capital
reorganization, merger, consolidation or sale.
(d) If and whenever the Company shall issue or sell any shares
of its Common Stock for a consideration per share less than the
Purchase Price in effect immediately prior to the time of such issue or
sale, then forthwith upon such issue or sale, the Purchase Price shall
be reduced to a price (calculated to the nearest cent) determined by
dividing (A) an amount equal to (y) the total number of shares of
Common Stock outstanding immediately prior to such issuance, multiplied
by the Purchase Price in effect immediately prior to such issuance,
plus (y) the consideration, if any, received by the Company upon such
issuance, by (B) the total number of shares of Common Stock outstanding
immediately after the issuance of such additional shares. For the
purpose of this paragraph (d), the following provisions (i through vi,
inclusive) shall also be applicable:
(i) In case at any time the Company shall grant
(whether directly or by assumption in a merger or otherwise)
any rights to subscribe for or to purchase, or any options for
the purchase of, (a) Common Stock, or (b) any obligations or
any shares of stock of the Company which are convertible into,
or exchangeable for, Common Stock (any of such obligations or
shares of stock being hereinafter called "Convertible
Securities"), whether or not such rights or options or the
right to convert any such Convertible Securities are
immediately exercisable, and the price per share for which
Common Stock is issuable upon the exercise of such rights or
options or upon conversion of such Convertible Securities
(determined by dividing (a) the total amount, if any, received
or receivable by the Company as consideration for the granting
of such rights or options, plus the minimum aggregate amount
of additional consideration payable to the Company, upon the
exercise of such rights or options, plus, in the case of such
Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue of
such Convertible Securities and upon the conversion thereof,
by (b) the total maximum number of shares of Common Stock
issuable upon the exercise of such rights or options or upon
the conversion of all such Convertible Securities issuable
upon the exercise of such rights or options) shall be less
than the Purchase Price in effect immediately prior to the
time of the granting of such rights or options, then the
shares of Common Stock issuable upon the exercise of such
rights or options or upon conversion of such Convertible
Securities shall be deemed to have been issued for such price
per share. Except as provided in subparagraph (e) below, no
further adjustments of the Purchase Price shall be made upon
the actual issue of such Common Stock or of such Convertible
Securities upon exercise of such rights or options or upon the
actual issue of such Common Stock upon conversion of such
Convertible Securities.
(ii) In case the Company shall issue or sell (whether
directly or by assumption in a merger or otherwise) any
Convertible Securities, whether or not the rights to convert
thereunder are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion
(determined by dividing (a) the total amount received or
receivable by the Company as consideration for the issue or
sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable
to the Company upon the conversion or exchange thereof, by (b)
the total maximum number of shares of Common Stock issuable
upon the conversion of all such Convertible Securities) shall
be less than the Purchase Price in effect immediately prior to
the time of such issue or sale, then the shares of Common
Stock issuable upon conversion of such Convertible Securities
shall (as of the date of the issue or sale of such Convertible
Securities) be deemed to have been issued for such price per
share, provided that (aa) except as provided in subparagraph
(e) below, no further adjustments of the Purchase Price shall
be made upon the actual issue of such Common Stock upon
conversion of such Convertible Securities, and (bb) if any
such issue or sale of such Convertible Securities is made upon
exercise of any rights to subscribe for or to purchase or any
option to purchase any such Convertible Securities for which
adjustments of the Purchase Price have been or are to be made
pursuant to other provisions of this subparagraph (d), no
further adjustment of the Purchase Price shall be made by
reason of such issue or sale.
(iii) In case the Company shall declare a dividend or
make any other distribution upon any stock of the Company
payable in Common Stock or Convertible Securities, or in any
rights or options to purchase any Common Stock or Convertible
Securities, such Common Stock or Convertible Securities or any
such rights or options, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to
have been issued or sold without consideration.
(iv) In case any shares of Common Stock or
Convertible Securities or any rights or options to purchase
any such Common Stock or Convertible Securities shall be
issued or sold for cash, the consideration received therefor
shall be deemed to be the amount received by the Company
therefor, after deducting therefrom any expenses incurred or
any underwriting commissions or concessions paid or allowed by
the Company in connection therewith. In case any shares of
Common Stock or Convertible Securities or any rights or
options to purchase any such Common Stock or Convertible
Securities shall be issued or sold for a consideration other
than cash, the amount of the consideration other than cash
received by the Company shall be deemed to be the fair value
of such consideration as determined by the Board of Directors
of the Company, after deducting therefrom any expenses
incurred or any underwriting commissions or concessions paid
or allowed by the Company in connection therewith. In case any
shares of Common Stock or Convertible Securities or any rights
or options to purchase such Common Stock or Convertible
Securities shall be issued in connection with any merger or
consolidation in which the Company is the surviving
corporation, the amount of consideration therefor shall be
deemed to be the fair value as determined by the Board of
Directors of the Company of such portion of the assets and
business of the non-surviving corporation or corporations as
such Board shall determine to be attributable to such Common
Stock, Convertible Securities, rights or options, as the case
may be. In the event of any consolidation or merger of the
Company in which the Company is not the surviving corporation
or in the event of any sale of all or substantially all of the
assets of the Company for stock or other securities of any
corporation, the Company shall be deemed to have issued a
number of shares of its Common Stock for stock or securities
of the other corporation computed on the basis of the actual
exchange ratio on which the transaction was predicated and for
a consideration equal to the fair market value on the date of
such transaction of such stock or securities of the other
corporation.
(v) In case the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them
(a) to receive a dividend or other distribution payable in
Common Stock or in Convertible Securities, or in any rights or
options to purchase any Common Stock or Convertible
Securities, or (b) to subscribe for or purchase Common Stock
or Convertible Securities, then such record date shall be
deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such rights of
subscription or purchase, as the case may be.
(vi) The disposition of any Common Stock owned or
held by or for the account of the Company shall be considered
an issue or sale of Common Stock for the purpose of this
subparagraph (d).
(vii) No adjustment of the Purchase Price shall be
made as a result of or in connection with the issuance of
shares of Common Stock pursuant to (a) the conversion of the
Company's Series B Convertible Preferred Stock ("Series B
Stock") or exercise or conversion of any other securities of
the Company outstanding on the date this Warrant is originally
issued by the Company or (b) the exercise of this Warrant and
any similar warrants issued in connection with the issuance of
the Series B Stock (the "Series B Warrants") or any similar
warrant issued, directly or indirectly, as a consequence of
the transfer or exchange of the original warrants from which
this Warrant and the original Series B Warrants were, directly
or indirectly derived.
(e) The adjustments provided for herein are cumulative and
shall apply to successive divisions, subdivisions, reductions,
combinations, consolidations, issues, distributions or other events
contemplated herein resulting in any adjustment under the provisions of
this section, provided that, notwithstanding any other provision of
this section, no adjustment of the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at
least 1% in the Purchase Price then in effect; provided, however, that
any adjustments which by reason of this subsection (d) are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment.
(f) Upon each adjustment of the Purchase Price, the Company
shall give prompt written notice thereof addressed to the registered
Holder of this Warrant at the address of such Holders as shown on the
records of the Company, which notice shall state the Purchase Price
resulting from such adjustment and the increase or decrease, if any, in
the number of shares issuable upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
3. In case at any time:
(a) The Company shall declare any cash dividend on its Common
Stock at a rate in excess of the rate of the last cash dividend
theretofore paid;
(b) The Company shall pay any dividend payable in stock upon
its Common Stock or make any distribution (other than regular cash
dividends) to the holders of its Common Stock;
(c) The Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class
or other rights;
(d) There shall be any capital reorganization, or
reclassification of the capital stock of the Company or consolidation
or merger of the Company with, or sales of all or substantially all of
its assets to, another corporation; or
(e) There shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give written notice,
by first class mail, postage prepaid, addressed to the Holder at the address of
such holder as shown on the books of the Company, of the date on which (1) the
books of the Company shall close or a record shall be taken for such dividend,
distribution or subscription rights, or (2) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up shall take place, as the case may be. Such notice shall also specify
the date as of which the holders of Common Stock of record shall participate in
such dividend, distribution or subscription rights, or shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding up, as the case may be. Such written notice shall be
given at least 20 days prior to the action in question and not less than 20 days
prior to the record date or the date on which the Company's transfer books are
closed in respect thereto.
4. If any event occurs as to which, in the sole opinion of the Board of
Directors of the Company, the other provisions of this Warrant are not strictly
applicable or if strictly applicable would not fairly protect the rights of the
Holder in accordance with the essential intent and principles of such
provisions, then the Board of Directors shall make such adjustment in the
application of such provisions as may be necessary, in the sole judgment of such
Board, in accordance with such essential intent and principles, to protect such
rights as aforesaid.
5. Exercise of this Warrant shall be made by the surrender hereof by
the Holder to the Company at its principal office together with (i) the attached
Subscription Form designating the number of shares of Common Stock being
purchased, (ii) a certified check or cash in payment for such shares and (iii) a
letter of transmittal setting forth the computation of the amount of said
payment. The Company shall thereafter promptly (in any event within seven (7)
business days after such exercise) issue certificates for securities of the
Company purchased at the Purchase Price in effect at the time of such exercise.
The Holder shall be deemed to be the record owner of such securities as of the
close of business on the date of such exercise. The Holder shall not be entitled
to receive a fractional share, but in lieu thereof the Company shall pay in cash
an amount equal to the market value of such fractional share if stock has a
market value, or if not, the book value of such fractional share. The Company
shall thereupon cancel this Warrant; and in the event that less than the entire
number of shares purchasable are purchased, shall issue a new Warrant for the
number not so purchased.
6. This Warrant shall be redeemable, in whole or in part, at the option
of the Company by resolution of its Board of Directors, at any time and from
time to time on or after November 14, 1996, and prior to any exercise thereof at
a redemption price in cash equal to $.50 per Warrant to be redeemed (the
"Redemption Price"). Not less than 30 nor more than 60 days prior to the date
fixed for redemption, a notice (the "Redemption Notice") specifying the time and
place thereof and the Redemption Price per Warrant to be redeemed shall be given
by mail to the holders of record of the Warrants selected for redemption at
their respective addresses as the same shall appear on the books of the Company.
The holders of the Warrants to be redeemed shall have the right to exercise such
Warrants at any time prior to any such redemption (including a redemption that
occurs prior to June 30, 1997). Upon tender of the Redemption Price in
accordance with the Redemption Notice, the Warrants to be redeemed as indicated
in the Redemption Notice shall no longer be deemed to be outstanding and the
holders thereof shall have no claim against the Company, except the right to
receive the Redemption Price payable upon such redemption, without interest,
upon surrender (and endorsement, if required by the Company) of the Warrant
certificates.
7. The Company covenants and agrees that all shares which may be issued
upon the exercise of this Warrant will, upon issuance, be duly and validly
authorized and issued, fully paid and nonassessable, and free from all taxes,
liens and charges with respect to the issue thereof. The Company further
covenants and agrees that during the period within which this Warrant may be
exercised, the Company will at all times have authorized and reserved for the
purpose of the issue upon exercise of this Warrant a sufficient number of shares
of its securities to provide for such exercise.
8. (a) The Holder represents that he is acquiring this Warrant and, in
the absence of an effective registration statement under the Securities Act of
1933 (the "1933 Act") for the securities issuable hereunder, such securities for
the purpose of investment and not with a view to or for sale in connection with
any distribution thereof. The Holder and the holder of any securities issued
upon exercise hereof, by his acceptance hereof, agrees that he/she/it will
notify the Company in writing before selling or otherwise disposing of this
Warrant or any securities issued to him/her/it upon exercise hereof, describing
briefly the nature of any such sale or other disposition, and no such sale or
other disposition shall be made unless and until (i) the Company has received an
opinion of counsel reasonably acceptable to it that no registration (or
perfection of an exemption) under the 1933 Act is required with respect to such
sale or disposition (which opinion may be conditioned upon the transferee's
assuming the Holder's obligation under this paragraph 8) or (ii) an appropriate
registration statement with respect to such Warrant or such Common Stock, or
both, has been filed with the Securities and Exchange Commission (the
"Commission") and declared effective by the Commission. The Company may require
that this Warrant and certificates representing the securities issued upon
exercise hereof be stamped or imprinted with an appropriate legend reflecting
the foregoing restrictions. For the purposes of this paragraph 8, the term
"Securities" shall include this Warrant and the securities issued or issuable
upon the exercise hereof.
(b) The restrictions imposed by this paragraph 8 on the transfer of the
Securities shall terminate as to any portion of the Securities when:
(i) Such portion of the Securities shall have been effectively
registered under the 1933 Act and sold by the holder thereof in
accordance with such registration or exemption; or
(ii) Written opinions to the effect that such a registration
is no longer required or necessary under any Federal or State law or
regulation of governmental authority shall have been received from
legal counsel for the Company and counsel for the holder of such
portion of the Securities; or, if a favorable opinion is obtained from
holder's counsel, and counsel for the Company declines to render such
an opinion, upon the holder's undertaking to indemnify the Company, on
terms satisfactory to the Company, against all liability or loss the
Company may sustain in connection with such transfer; or
Whenever the restrictions imposed by this paragraph 8 shall terminate,
as provided above, any holder of the Securities as to which such restrictions
shall have terminated shall be entitled to receive promptly from the Company,
without expense to him, a new certificate, not bearing the restrictive legend
referred to in clause (a) hereof.
9. The original Holder of this Warrant has certain registration rights
with respect to the Securities, as set forth in Article 8 of the Subscription
and Purchase Agreement between such Holder and the Company.
10. This Warrant is exchangeable, upon the surrender hereof by the
Holder at the principal office of the Company, for new warrants of like tenor
and date representing in the aggregate the right to purchase the number of
shares purchasable hereunder, each of such new Warrants to represent the right
to purchase such number of shares as shall be designated by said Holder at the
time of such surrender. Subject to paragraph 8 hereof, this Warrant and all
rights hereunder are transferable in whole or in part by the Holder, in person
or by duly authorized attorney, upon surrender of this Warrant duly endorsed, at
the principal office of the Company.
11. Upon the receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will make and deliver a new Warrant of like tenor, in
lieu of this Warrant.
12. All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been made when delivered or
mailed first-class postage prepaid or delivered to a telegraph office for
transmission:
(a) If to the Holder, at such address as may have been
furnished by such holder to the Company in writing; and
(b) If to the Company, at such address as may have been
furnished by the Company to the Holder of this Warrant in writing.
13. This Warrant shall be binding upon any successors or assigns of the
Company.
14. This Warrant shall be construed in accordance with and governed by
the laws of the State of California.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and delivered as of the date set forth below by one of its officers
thereunto duly authorized.
Dated: _______________, 199_.
HEALTHWATCH, INC.
By _________________________________
Lindley S. Branson, President
SUBSCRIPTION FORM
To be signed only upon exercise of Warrant
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for and to
purchase thereunder, __________ of the shares of Common Stock of HEALTHWATCH,
INC. to which such Warrant relates, and herewith makes payment of $ therefor, in
cash or by certified check, and requests that the certificates for such shares
be issued in the name of, and be delivered to, , the address for which is set
forth below the signature of the undersigned.
Dated: __________________________________
__________________________________
(Signature)
__________________________________
__________________________________
__________________________________
(Address)
__________________________________
To be signed only upon transfer of Warrant
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto __________________________________ the right to purchase _________ shares
of Common Stock of HEALTHWATCH, INC. to which the within Warrant relates and
appoints ________________, attorney, to transfer said right on the books of
HEALTHWATCH, INC. with full power of substitution in the premises.
Dated: __________________________________
__________________________________
(Signature)
__________________________________
__________________________________
(Address)
__________________________________
EXHIBIT C
NASD Affiliations
[INDICATE THAT THE INVESTOR HAS NO NASD AFFILIATIONS OR
DESCRIBE SUCH AFFILIATIONS IN DETAIL.]
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the incorporation by reference of our report dated August
16, 1996, accompanying the consolidated financial statements of HealthWatch,
Inc. as of June 30, 1996 and 1995, included in the Company's Annual Report on
Form 10-KSB and to the reference made to our firm under the caption "Experts" in
Pre-Effective Amendment No. 1 to the Registration Statement on Form S-3 to be
filed by HealthWatch on or about February 26, 1997.
SILVERMAN OLSON THORVILSON & KAUFMANN LTD.
CERTIFIED PUBLIC ACCOUNTANTS
Minneapolis, Minnesota
February 26, 1997
