As filed with the Securities and Exchange Commission on June 2, 1997
Registration Statement No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------
HEALTHCORE MEDICAL SOLUTIONS, INC.
(Exact name of Small Business Issuer as specified in its charter)
----------
Delaware 7299 43-1771999
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of incorporation) classification code number) identification number)
----------
11904 Blue Ridge Boulevard
Grandview, Missouri 64030
(816) 763-4900
(Address and telephone number of principal executive offices
and principal place of business)
----------
Neal J. Polan
Chairman of the Board
and Chief Executive Officer
1325 Avenue of the Americas, Suite 1200
New York, New York 10019
(Name, address and telephone number of agent for service)
----------
Copies to:
MARC S. GOLDFARB, ESQ. BARRY A. BROOKS, ESQ.
Bachner, Tally, Polevoy & Misher LLP Paul, Hastings, Janofsky & Walker LLP
380 Madison Avenue 399 Park Avenue, 31st Floor
New York, New York 10017 New York, New York 10022
(212) 687-7000 (212) 318-6000
----------
Approximate date of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective.
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, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [X]
(continued on following page)
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================
Proposed
Maximum
Aggregate Amount of
Title of Each Class of Offering Registration
Securities to be Registered Price (1) Fee
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Units, each consisting of one share of Class A Common
Stock, $.01 par value, and one Class A Warrant (2)............ $10,120,000 $3,067
- -------------------------------------------------------------------------------------------------
Units, each consisting of one share of Class A Common
Stock, $.01 par value (2)(3).................................. 13,156,000 3,987
- -------------------------------------------------------------------------------------------------
Unit Purchase Option (4)...................................... 176 --
- -------------------------------------------------------------------------------------------------
Units, each consisting of one share of Class A Common
Stock, $.01 par value, and one Class A Warrant (5)............ 1,056,000 320
- -------------------------------------------------------------------------------------------------
Units, each consisting of one share of Class A Common
Stock, $.01 par value (5)..................................... 1,144,000 347
- -------------------------------------------------------------------------------------------------
Total..................................................... $25,476,176 $7,721
=================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 264,000 Units subject to the Underwriter's over-allotment option.
(3) Issuable upon exercise of the Class A Warrants.
(4) To be issued to the Underwriter.
(5) Issuable upon exercise of the Unit Purchase Option and/or the Class A
Warrants issuable thereunder.
Pursuant to Rule 416 under the Securities Act of 1933, as amended, there
are also being registered such additional shares of Common Stock as may become
issuable pursuant to anti-dilution provisions upon exercise of the Warrants and
the Unit Purchase Option.
----------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
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 JUNE 2, 1997
PROSPECTUS
HEALTHCORE MEDICAL SOLUTIONS, INC.
1,760,000 Units
Consisting of 1,760,000 Shares of Class A Common Stock
and 1,760,000 Redeemable Class A Warrants
Each unit ("Unit") offered by HealthCore Medical Solutions, Inc. (the
"Company") consists of one share of class A common stock, $.01 par value ("Class
A Common Stock") and one redeemable class A warrant ("Class A Warrants" or
"Warrants"). The components of the Units will be separately transferable
immediately upon issuance. Each Class A Warrant entitles the holder to purchase
one share of Class A Common Stock at an exercise price of $6.50, subject to
adjustment, at any time through the fifth anniversary of the date of this
Prospectus. Commencing one year from the date hereof, the Class A Warrants are
subject to redemption by the Company at a redemption price of $.05 per Warrant
on 30 days'written notice, provided the closing bid price of the Class A Common
Stock averages in excess of $9.10 per share for any 30 consecutive trading days
ending within 15 days of the notice of redemption. See "Description of
Securities."
As of the date hereof, 360,000 shares of Class B Common Stock, $.01 par
value ("Class B Common Stock") of the Company are outstanding. The Class A
Common Stock and the Class B Common Stock are substantially identical on a
share-for-share basis, except that the holders of Class B Common Stock have five
votes per share on each matter considered by stockholders and the holders of
Class A Common Stock have one vote per share on each matter considered by
stockholders, and except that the holders of each class will vote as a separate
class with respect to any matter requiring class voting by the General
Corporation Law of the State of Delaware.
Prior to this offering (the "Offering"), there has been no public market
for the Units, Class A Common Stock or Class A Warrants and there can be no
assurance that such a market will develop. The Company has applied for quotation
of the Units, Class A Common Stock and Class A Warrants on The Nasdaq SmallCap
Market ("Nasdaq") under the symbols HMSIU, HMSI and HMSIW, respectively. It is
anticipated that the initial public offering price will be $5.00 per Unit. See
"Underwriting" for a discussion of factors considered in determining the initial
public offering price. For information concerning a Securities and Exchange
Commission investigation relating to the Underwriter, see "Risk Factors" and
"Underwriting."
----------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE 7 AND "DILUTION."
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
Underwriting Discounts and Proceeds to
Price to Public Commissions (1) Company (2)
- --------------------------------------------------------------------------------
Per Unit........ $ $ $
- --------------------------------------------------------------------------------
Total (3)....... $ $ $
================================================================================
(1) Does not include additional compensation to be received by the Underwriter
in the form of (i) a non-accountable expense allowance of $______, or
$______ per Unit ($______ if the Underwriter's over-allotment option is
exercised in full) and (ii) an option, exercisable over a period of two
years commencing three years from the date of this Prospectus, to purchase
up to 176,000 Units at $______ per Unit (the "Unit Purchase Option"). The
Company has also agreed to indemnify the Underwriter against certain
liabilities under the Securities Act of 1933. See "Underwriting."
(2) Before deducting estimated expenses of $______ payable by the Company,
including the Underwriter's non-accountable expense allowance.
(3) The Company has granted to the Underwriter a 45-day option to purchase up
to 264,000 additional Units on the same terms and conditions as set forth
above, solely to cover over-allotments, if any. If the over-allotment
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $______, $______
and $______, respectively. See "Underwriting."
----------
The Units are being offered on a "firm commitment" basis by the Underwriter
when, as and if delivered to and accepted by the Underwriter, subject to its
right to reject orders in whole or in part and subject to certain other
conditions. It is expected that the delivery of the certificates representing
the Units will be made against payment at the offices of D.H. Blair Investment
Banking Corp., 44 Wall Street, New York, New York on or about ___________, 1997.
D.H. BLAIR INVESTMENT BANKING CORP.
The date of this Prospectus is __________, 1997
<PAGE>
The Company intends to furnish its stockholders and holders of Class A
Warrants with annual reports containing financial statements audited by its
independent auditors.
----------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE UNITS,
CLASS A COMMON STOCK AND/OR THE CLASS A WARRANTS. SUCH TRANSACTIONS MAY INCLUDE
THE PURCHASE OF UNITS, CLASS A COMMON STOCK AND CLASS A WARRANTS FOLLOWING THE
PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE UNITS, THE
CLASS A COMMON STOCK AND THE CLASS A WARRANTS OR FOR THE PURPOSE OF MAINTAINING
THE PRICE OF THE UNITS, THE CLASS A COMMON STOCK AND THE CLASS A WARRANTS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements (including the notes thereto) appearing elsewhere in this Prospectus.
Except as otherwise noted, all information in this Prospectus (a) gives effect
to (i) the incorporation of the Company in Delaware and the merger of the
Company's predecessor entity, a Missouri limited liability company, into the
Company in February 1997; and (ii) the conversion, on the closing of the
Offering, of certain outstanding warrants issued by the Company in a private
placement completed in February and March 1997 (the "Bridge Financing") into
Class A Warrants (the "Bridge Warrants") substantially identical to the Class A
Warrants offered hereby; and (b) assumes no exercise of (i) the Underwriter's
over-allotment option; (ii) the Class A Warrants; (iii) the Bridge Warrants;
(iv) the Unit Purchase Option; and (v) options granted or available for grant
under the Company's 1997 Stock Option Plan. See "Capitalization," and
"Management -- Stock Options" and "Description of Securities."
The Company
The Company is a development stage enterprise organized to develop, market
and administer a health care benefit services program which is designed to
enable participants ("Members") to obtain discounts on purchases of ancillary
health care products and services through certain networks (the "Networks") of
health care providers (the "Providers"). The Networks with which the Company
currently maintains contracts comprise an aggregate of approximately 57,000
participating Providers of eye care, dental, hearing, pharmacy and chiropractic
benefits throughout the United States, and Members will be able to access the
Networks through the use of a discount membership card (the "HealthCare
Solutions Card"). The HealthCare Solutions Card is expected to be marketed,
directly and through independent brokers, agents and consumer marketing
organizations, to individuals and to employers and business and other
associations ("Sponsors") who may either purchase the HealthCare Solutions Card
for, or offer it to, their employees or members.
The Company believes that the HealthCare Solutions Card addresses two
significant concerns in the healthcare industry: cost containment and the rising
number of people who are underinsured. In recent years, the cost of
health-related products and services has increased at a rate significantly
greater than the general rate of inflation. Such increasing costs have led to
limitations on reimbursement from insurance companies, health maintenance
organizations ("HMOs") and government sources and have generated demand for
products and services designed to control health care costs. Many employers have
responded to the increased cost of providing insurance to their employees by
reducing or eliminating available insurance coverage and by requiring employees
to contribute heavily to premiums, especially for family members. As a result,
it is estimated that in 1995, 40.3 million Americans, or 17.4% of the population
under the age of 65, had no health insurance, and most Americans lacked
insurance coverage for one or more ancillary health care services. In addition,
it is estimated that in 1995, $150 billion was spent on ancillary health care
services, including eye care, dental, hearing, pharmaceutical and chiropractic
services, and that only $50 billion of such amount was covered by health care
insurance. Moreover, as a result of the "baby boom" generation, the group of
persons over the age of 50 is currently the fastest growing segment of the
United States population. As the population ages, a greater percentage of the
total population is likely to need vision, dental, pharmaceutical, chiropractic
and hearing care products and services, many of which are not covered by
Medicare.
The Company believes that the HealthCare Solutions Card will provide a
low-cost, non-insurance alternative to individuals who are seeking to reduce
their out-of-pocket health care costs not covered by insurance or who are unable
to obtain health care insurance due to their medical history, age or occupation.
For an annual fee expected to range from approximately $60 to $80, Members will
be able to obtain discounts of 5% to 60% off the retail or usual and customary
prices from participating Providers. Acceptance in the Company's program is
unrestricted, and the HealthCare Solutions Card can be used to cover any member
of the cardholder's immediate family. The Company's revenues are initially
expected to be derived principally from the receipt of annual or monthly
enrollment fees paid by or on behalf of Members for the right to obtain
discounts at the point of purchase from providers in the Networks.
The Company's strategy is to focus principally on (i) expanding the range
of ancillary and other health care services and products included in the
Networks, (ii) expanding the Networks to include additional Providers throughout
the United States and (iii) the possible development of a physician and hospital
network.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
Since its inception, the Company's activities have consisted of (i)
designing and developing a network administration and utilization management
system which the Company believes will facilitate data processing and enhance
its customer service capabilities (the "Network Administration System"), (ii)
negotiating with Providers to participate in the Networks, (iii) organizing an
initial marketing force to market the HealthCare Solutions Card and (iv) test
marketing. To date, only minimal sales of the HealthCare Solutions Card have
taken place and there can be no assurance that the Company will successfully
maintain or expand the Networks and/or market the HealthCare Solutions Card.
There can also be no assurance that sales of the HealthCare Solutions Card will
ever result in the Company achieving profitable operations.
The Company was established in October 1995 as MegaVision L.C., a Missouri
limited liability company ("MegaVision"). In February 1997, MegaVision merged
into HealthCore Medical Solutions, Inc. Except as otherwise required by the
context, all references to the Company and its operations include MegaVision and
its operations. The Company's executive offices are located at 11904 Blue Ridge
Boulevard, Grandview, Missouri 64030, and its telephone number is (816)
763-4900.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
The Offering
Securities Offered........... 1,760,000 Units, each Unit consisting of one
share of Class A Common Stock and one Class A
Warrant. Each Class A Warrant entitles the
holder to purchase one share of Class A Common
Stock at an exercise price of $6.50, subject
to adjustment, at any time through the fifth
anniversary of the date of this Prospectus.
The Class A Warrants are subject to redemption
in certain circumstances. See "Description of
Securities."
Common Stock Outstanding
Before Offering (1):
Class A Common Stock... 840,000 shares (2)(3)
Class B Common Stock... 360,000 shares (3)
---------
Total.......... 1,200,000 shares (2)(3)
=========
Common Stock Outstanding
After Offering (1):
Class A Common Stock... 2,600,000 shares (2)(3)(4)
Class B Common Stock... 360,000 shares (3)
---------
Total.......... 2,960,000 shares (2)(3)(4)
=========
Use of Proceeds . ........... To repay $2,300,000 principal amount of 10%
subordinated notes (the "Bridge Notes") issued
in the Bridge Financing; for marketing and
sales, acquisition of computer equipment and
for working capital. See "Use of Proceeds."
Proposed Nasdaq Symbols (5)
Units.................. HMSIU
Class A Common Stock... HMSI
Class A Warrants....... HMSIW
Risk Factors................. The Offering involves a high degree of risk and
immediate substantial dilution. See "Risk
Factors" and "Dilution."
- ----------
(1) For a description of the Class A Common Stock and Class B Common Stock
(collectively, the "Common Stock"), see "Description of Securities --
Common Stock."
(2) Excludes (i) an aggregate of 1,150,000 shares of Common Stock reserved for
issuance upon exercise of the Bridge Warrants; and (ii) 200,000 shares of
Common Stock reserved for issuance under the Company's 1997 Stock Option
Plan (the "Plan"), under which, as of the date of this Prospectus, options
to purchase 30,000 shares of Class A Common Stock are outstanding at an
exercise price of $5.00. See "Management -- Stock Options."
(3) Includes 900,000 shares of Common Stock (the "Escrow Shares") which have
been deposited into escrow by the holders thereof on a pro rata basis. The
Escrow Shares are subject to cancellation and will be contributed to the
capital of the Company if the Company does not attain certain earnings
levels or the market price of the Company's Class A Common Stock does not
achieve certain levels during the next three years. If such earnings or
market price levels are met, the Company will record a substantial non-cash
charge to earnings, for financial reporting purposes, as compensation
expense relating to the value of the Escrow Shares released to Company
officers and employees. See "Risk Factors -- Charge to Income in the Event
of Release of Escrowed Shares," "Capitalization" and "Principal
Stockholders."
(4) Excludes (i) up to 528,000 shares of Class A Common Stock issuable upon
exercise of the Underwriter's over-allotment option (and the Warrants
included therein); (ii) 1,760,000 shares of Common Stock issuable upon
exercise of the Class A Warrants which are components of the Units offered
hereby; and (iii) an aggregate of 352,000 shares of Class A Common Stock
issuable upon exercise of the Unit Purchase Option and the Class A Warrants
included therein. See "Underwriting."
(5) Notwithstanding quotation on the Nasdaq SmallCap Market, there can be no
assurance that an active trading market for the Company's securities will
develop or, if developed, that it will be sustained.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
Summary Financial Information
<TABLE>
<CAPTION>
June 1, 1995
(Inception) Six Months Ended June 1, 1995
Through Year Ended March 31, (Inception)
September 30, September 30, ------------------------ Through
1995 1996 1996 1997 March 31, 1997
--------- ---------- --------- --------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
General and administrative
expenses........................... $ 78,105 $ 900,177 $ 524,633 $ 791,557 $ 1,769,839
Selling and marketing expenses....... 34,158 277,845 59,624 69,425 381,428
Interest expense..................... -- 36,071 332 154,333 190,404
--------- ----------- --------- ----------- -----------
Net loss............................. $(112,263) $(1,214,093) $(584,589) $(1,015,315) $(2,341,671)
========= =========== ========= =========== ===========
Net loss per share(1)................ $ (0.53) $ (4.83) $ (2.39) $ (3.47)
========= =========== ========= ===========
Weighted average number of
shares outstanding................. 211,183 251,525 244,482 292,345
========= =========== ========= ===========
</TABLE>
At March 31, 1997
---------------------------
Actual As Adjusted(2)
----------- --------------
(Unaudited)
Balance Sheet Data:
Working capital (deficit).......................... $(766,589) $5,871,631
Total assets....................................... 1,531,515 6,312,515
Total liabilities.................................. 2,163,127 377,105
Deficit accumulated during the development stage... (2,341,671) (2,855,649)
Total stockholders' equity (capital deficiency).... (631,612) 5,935,410
- ----------
(1) The Escrow Shares are excluded from the computation of net loss per share.
See Notes A(4) and D of Notes to Financial Statements.
(2) Adjusted to give effect to the sale of the 1,760,000 Units offered hereby
at an assumed initial public offering price of $5.00 per Unit and the use
of a portion of the net proceeds to repay the Bridge Notes (plus accrued
interest thereon through March 31, 1997) and the corresponding additional
charge to operations of approximately $514,000. See "Risk Factors --
Potential Charges to Earnings," "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
- --------------------------------------------------------------------------------
6
<PAGE>
RISK FACTORS
The securities offered hereby are speculative in nature and an investment
in the Units offered hereby involves a high degree of risk. Prospective
investors are cautioned that the statements in this term sheet that are not
descriptions of historical facts may be forward-looking statements that are
subject to risks and uncertainties. Actual results could differ materially from
those currently anticipated due to a number of factors. In addition to the other
information contained in this Prospectus, prospective investors should carefully
consider the following risk factors in analyzing this offering.
History of Operating Losses; Anticipated Future Losses. The Company has
experienced significant operating losses since its inception in June 1995. As of
March 31, 1997, the Company had an accumulated deficit of approximately $2.3
million and significant losses and increases in working capital deficit have
occurred since such date and are expected to continue for the foreseeable
future. Such losses have been and are expected to be principally the result of
the various costs associated with the Company's development and marketing
activities. There can be no assurance that the Company will ever achieve or
sustain commercial sales or profitability. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Development Stage Company; No History of Operations. The Company was
organized in June 1995 and is currently in the development stage. The Company
has only recently contracted with its provider Networks and has achieved only
minimal sales of the HealthCare Solutions Card. The Company's success depends
upon several factors, including the quality and quantity of Providers in the
Networks, the acceptance of the HealthCare Solutions Card by employers, business
associations, providers of medical benefits and Members, the ability of the
Company to incentivize independent sales representatives to sell the Company's
products and managing the technical aspects of its operations. Investors should
be aware of the difficulties normally encountered by a new enterprise and the
high rate of failure of such enterprises. There is no history upon which to base
any assumption as to the likelihood that the Company will prove successful, and
there can be no assurance that the Company will become a viable or profitable
business. While the Company has conducted limited development and sales and
marketing activities and anticipates that it may begin to generate sales in the
third calendar quarter of 1997, it has not generated any significant revenues
and may experience many of the problems, delays, expenses and difficulties
commonly encountered by early stage companies, many of which are beyond the
Company's control. These include, but are not limited to, unanticipated
problems, delays or expenses relating to product development and marketing,
uncertain market acceptance, lack of sufficient capital, competition, customer
service and regulatory compliance, as well as additional costs and expenses that
may exceed current estimates. There can be no assurance that the Company will
successfully develop a viable cardholder base, that it will be able to enter
into and maintain agreements with a sufficient number of Providers that are
accessible and acceptable to potential Members, or that the Company will
generate any revenues or ever achieve profitable operations. Additionally, the
Company has never operated a Network of the size that will be required to be
profitable and cannot predict all of the technical difficulties, including
issues relating to management information systems and customer service, that may
arise. See "Business."
Use of Proceeds to Repay Indebtedness; Need for Significant Additional
Funds. The Company has a working capital deficit and requires the proceeds of
this Offering to pursue its business plan. Approximately $2,360,000, or
approximately 33%, of the net proceeds of this Offering will be used for the
repayment of the Bridge Notes issued in the Bridge Financing and will not be
available for any other purpose. The remaining proceeds of this Offering are
only expected to be sufficient to fund the Company's operations for
approximately 18 months and the Company will likely require significant
additional funds to continue its operations after such period. Moreover, the
Company's cash requirements may vary materially from those currently anticipated
due to product development and marketing programs, changes in the forms and
direction of the Company's activities, the timing of receipt of revenues, if
any, and other factors. The Company has no commitments for any future funding
and there can be no assurance that the Company will be able to obtain additional
financing in the future from either debt or equity financings, bank loans,
collaborative arrangements or other sources on terms acceptable to the Company,
or at all. If the Company is unable to obtain the necessary financing, it will
be required to significantly curtail its activities or cease operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Unproven Commercial Viability; Need for Market Acceptance. The Company's
success is dependent on commercial acceptance of the HealthCare Solutions Card
and other potential medical benefits related products the Company may offer,
which will require the Company to secure marketing and Network provider
alliances within the highly competitive medical benefits industry. The
commercial viability of the Company will be determined in large part by
7
<PAGE>
the acceptance of the HealthCare Solutions Card by employers, business
associations, providers of medical benefits and Members. To date, the Company
has achieved only minimal sales of the HealthCare Solutions Card. There can be
no assurance that the Company will be able to successfully demonstrate that the
benefits associated with the HealthCare Solutions Card justify the costs
associated with the card or that such benefits outweigh those associated with
competing medical benefits programs or traditional insurance programs. If the
Company is unable to achieve commercial acceptance of the HealthCare Solutions
Card, the Company may be forced to cease operations.
Limited Marketing Capabilities; Dependence on Third Parties for Marketing
Activities. The Company's operating results will depend to a large extent on its
ability to successfully market the HealthCare Solutions Card and any other
potential products to Sponsors and Members. The Company currently has limited
marketing capabilities and believes it will have to significantly expand its
sales and marketing capabilities, as well as concentrate its limited resources
on defined segments of its target market. In addition, the Company anticipates
that it will depend, to a significant extent, on independent brokers and
selected marketing organizations to market the Company's products. Although such
parties will receive a commission for their services, the success of any such
relationship will depend in part upon such parties' own competitive, marketing
and strategic considerations, including the relative advantages of alternative
products being marketed by such persons, and there can be no assurance that such
parties will have the interest or ability to successfully market the Company's
products. To the extent that the Company utilizes third parties to market its
products, the Company's control over sales and marketing will be reduced. There
can be no assurance that the Company will be able to hire experienced marketing
personnel or establish arrangements with independent brokers or that any future
marketing efforts undertaken by or on behalf of the Company will be successful
or will result in any significant sales of the Company's products. See "Business
- -- Sales and Marketing."
Dependence Upon Providers; Possible Termination of Provider Agreements. The
success of the Company's operations will depend in part on the ability of the
Company to enter into and maintain service agreements with providers of health
care products and services under discount and other pricing terms that make the
HealthCare Solutions Card attractive to Members and Sponsors. To date, the
Company has entered into non-exclusive service agreements with several provider
Networks. The agreements generally expire after approximately one to three
years, but are subject to earlier termination upon the occurrence of certain
events, including, in certain cases, notice by the other party. There can be no
assurance that (i) such service providers will actually provide services to the
Members, (ii) any such agreements will be renewed upon their respective
expiration dates or (iii) any such agreement will not be terminated earlier. The
exercise of cancellation rights by any provider Network could have a material
adverse effect on the Company. Further, there can be no assurance that the
Company will be successful in securing agreements with additional providers or
provider Networks or that any providers that agree to join the Network will
provide services or cost savings that will be desirable to Members. The
inability of the Company to retain its current service providers or to obtain
alternate or additional service providers will likely detract from the real or
perceived value of the HealthCare Solutions Card and may cause the Company to
curtail or alter its activities or cease operations. See "Business -- The
HealthCare Solutions Card" and "-- Competition."
Risks Related to Possible Entry into Physician and Hospital Network
Business. The Company previously entered into a letter of intent with a view to
acquiring certain assets associated with an ongoing medical benefits business
that is developing a network of physician and hospital providers. The letter of
intent expired by its terms and the parties have terminated their discussions.
The Company expects to continue to explore the possibility of developing or
acquiring a physician and hospital network business, although there can be no
assurance that the Company will do so. The development by the Company of a
physician and hospital network business is subject to numerous risks, including
(i) risks similar to those identified elsewhere in this Prospectus in connection
with the Company's proposed development of an ancillary benefits network, (ii)
significant barriers to entry, (iii) intense competition with well-capitalized
insurance companies and (iv) the possible incurrence of significant additional
sales and marketing costs to develop a distribution system different from the
one being developed by the Company for its ancillary health care network. In
addition, the Company will continue to be subject to certain confidentiality and
non-solicitation provisions entered into with the other party to the letter of
intent, which provisions will impose limitations on the Company's flexibility
within the physician and hospital network business and may expose the Company to
the risk of litigation should it enter such business. See "Business --
Strategy."
Possible Exposure to Liability. Physicians and other medical entities have
become increasingly vulnerable to lawsuits alleging medical malpractice. While
the Company does not intend to practice medicine or control any affiliated
Provider's practice of medicine, there can be no assurance that the Company will
not become a party to
8
<PAGE>
malpractice litigation in the future. The Company also may be exposed to claims
for personal injuries as a result of the incorrect preparation or packaging of
prescriptions or from the pilferage of or tampering with the prescription drugs
supplied by pharmacy benefits providers. The Company will attempt to take
precautions to protect itself from such claims, including seeking
indemnification from such providers, but no assurance can be given that such
precautions will be implemented or will prove adequate. Because the Company is
not itself permitted to render medical services, it cannot obtain malpractice
insurance. There can be no assurance that the Company will not be sued for
malpractice as the result of the activities of providers or that any such suit
will not result in a recovery against the Company in excess of any applicable
general liability insurance coverage and thus materially and adversely affect
the Company's financial viability.
Health Care Reform. In recent years there have been numerous proposals to
change the health care system in the United States. The Company is unable to
predict the effect on the Company of potential reforms in the health care
industry, either by legislative mandate or through self policing mechanisms,
particularly those affecting physicians, health care payors and affiliated
health systems. Such changes could have a material adverse effect on the
Company.
Government Regulation. The delivery of health care products and services is
subject to extensive federal, state and local regulation, including but not
limited to the prohibition of business corporations from providing medical care,
fraud and abuse provisions of the Medicare and Medicaid statutes, state laws
that prohibit physicians from splitting fees with non-physicians and certain
insurance regulations. The utilization fees received by the Company in
connection with the pharmacy benefits program may contravene the literal
provisions of these statutes and regulations in a number of states in which the
Company intends to operate. Moreover, legislation in these areas continues to
evolve. The Company has not obtained any rulings from any governmental
authorities or an opinion of counsel with regard to any of these matters.
Although the Company believes that it is presently in compliance with such laws
and regulations, there can be no assurance that the Company will remain in
compliance or that future legislation will not adversely affect the Company's
business or require changes in its corporate structure. A determination that the
Company is in violation of any such regulations could have a material adverse
effect on the Company.
Certain Sponsors may also require approval of state insurance and other
regulatory agencies before participating in the Networks. Such a requirement may
result in the delay or denial of such Sponsor's participation in the Networks.
To the extent that the foregoing or other laws and regulations are applicable to
the operations of the Company or to the Providers participating in the Company
programs, the Company's business could be materially and adversely affected. See
"Business -- Government Regulation."
Competition. The Company believes that a critical element of its business
is the competition for a portion of the benefit dollars allocated by various
organizations for employee benefit programs. The Company competes for a portion
of those dollars with various other cost-containment marketing organizations,
pharmacy indemnity programs, retail pharmacies, mail order prescription
companies, preferred provider organizations, HMOs, health care membership
programs and other ancillary health care insurance programs. Most of these
competitors have had longer operating histories and have significantly greater
financial, marketing and administrative resources than the Company. There can be
no assurance that the Company will develop products that achieve greater market
acceptance than competitive products or that the Company's competitors will not
succeed in developing products that would render the Company's products less
competitive or obsolete. See "Business -- Competition."
Proprietary Rights; Management Information Systems. The Company's Network
Administration System is a critical component of the Company's ability to
provide customer service and process other data. The Company relies on trade
secrets to establish and protect its proprietary rights to its Network
Administration System. However, trade secrets are difficult to protect and there
can be no assurance that others will not independently develop substantially
equivalent proprietary technology or otherwise gain access to the Company's
trade secrets or disclose such technology, or that the Company can meaningfully
protect its rights to unpatented trade secrets.
The Company intends to apply for rights to the tradenames "HEALTHCARE
SOLUTIONS," "THE SOLUTIONS CARD," "HealthCare Savings. Guaranteed," and
"HEALTHCORE MEDICAL SOLUTIONS, INC." and the service marks for "HEALTHCARE
SOLUTIONS" and "HEALTHCORE MEDICAL SOLUTIONS, INC." from the United States
Patent and Trademark Office, but there can be no assurance that such rights will
be granted. If the Company is not able effectively to protect itself against use
of similar trade names or service marks, or if the Company's use of its trade
names or service marks are found to infringe upon the proprietary rights of
third parties, the Company's business could be adversely affected. See "Business
- -- Proprietary Rights."
9
<PAGE>
Reliance Upon Data Processing. Certain aspects of the Company's business,
including its customer service capabilities, are dependent upon its ability to
store, retrieve, process and manage data and to maintain and upgrade its data
processing capabilities. Although the Company believes it has established or
will establish appropriate safeguard mechanisms, interruption of data processing
capabilities for any extended period of time, loss of stored data, programming
errors or other computer problems could have a material adverse effect on the
Company. There can be no assurance the Company will not experience problems,
delays or unanticipated costs in the use of its current system. Any difficulties
in reviewing providers in a timely manner may adversely affect the Company's
customer service efforts and its ability to attract and retain customers. In
addition, the Company intends to utilize its data processing system to
facilitate the payment of commissions to brokers and the payment of fees to
certain Providers. Any difficulties in the payment of such commissions and fees
could adversely affect the Company's ability to attract and retain brokers and
Providers.
Money Back Guarantee. The Company intends to offer a full money back
guarantee to Members who, after the first full year of enrollment, are not
satisfied with the HealthCare Solutions Card. The Company intends to recognize
revenue from the sale of the HealthCare Solutions Card upon receipt of the
annual or monthly fee by the Company from Members and, therefore, if refunds
exceed the reserves established by the Company, the Company's operating results,
cash flows and financial condition could be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Dependence on Key Personnel; Need for Additional Personnel. The Company is
dependent upon Neal J. Polan, the Company's Chairman and Chief Executive
Officer, as well as principal members of its management team. Mr. Polan expects
to devote approximately 50% of his business time to activities on behalf of the
Company. The Company intends to obtain "key-man" life insurance coverage in the
face amount of $2,000,000 on Mr. Polan. The Company currently has only twelve
employees. The Company's success will be dependent, in part, upon its ability to
attract and retain additional skilled personnel to manage the Company's
operations. The inability to do so, or the loss of services of certain of its
executive officers and directors or other executive officers or key employees
that may be hired in the future, may have a material adverse effect on the
Company.
Control by Management and Principal Stockholders; Potential Anti-Takeover
Effect of Shares Having Disproportionate Voting Rights. Upon completion of this
Offering, the executive officers and directors of the Company will own, in the
aggregate, shares of Common Stock representing approximately 40.9% of the total
voting power of the Company. All of the outstanding Class B Common Stock is
currently owned by Neal J. Polan, the Chairman of the Board of the Company, and
Theodore W. White, Jr., an employee of the Company. Moreover, pursuant to a
voting proxy expected to be granted from Mr. White to Mr. Polan, Mr. Polan will
have the power to vote all of such shares. As a result, Mr. Polan will have the
ability to influence significantly or control the outcome of substantially all
matters submitted to a vote of the stockholders. Furthermore, the
disproportionate vote afforded the Class B Common Stock could also serve to
impede or prevent a change of control of the Company. As a result, potential
acquirors may be discouraged from seeking to acquire control of the Company
through the purchase of Class A Common Stock, which could have a depressive
effect on the price of the Company's securities. See "Principal Stockholders"
and "Description of Securities."
Immediate Dilution. The purchasers of the Units in the Offering will incur
immediate dilution of approximately $1.90 or 38.0% in the pro forma per share
net tangible book value of their Class A Common Stock ($1.76 or 35.2% if the
Underwriter's over-allotment option is exercised in full). Additional dilution
to public investors, if any, may result to the extent that the Class A Warrants,
the Underwriter's Unit Purchase Option or other outstanding options or warrants
are exercised at a time when the net tangible book value per share of Common
Stock exceeds the exercise price of any such securities. See "Dilution."
Potential Charges to Earnings. The Securities and Exchange Commission (the
"Commission") has taken the position with respect to escrow arrangements such as
that entered into by the Company and its stockholders that in the event any
shares are released from escrow to the holders who are officers, directors,
employees or consultants of the Company, a compensation expense will be recorded
for financial reporting purposes. Accordingly, in the event of the release of
the Escrow Shares, the Company will recognize during the period in which the
earnings thresholds are probable of being met or such stock levels achieved, a
substantial noncash charge to earnings equal to the fair market value of such
shares on the date of their release, which would have the effect of
significantly increasing the Company's loss or reducing or eliminating earnings,
if any, at such time. The recognition of such compensation expense may have a
depressive effect on the market price of the Company's securities.
Notwithstanding the foregoing discussion, there can be no assurance that the
Company will attain the targets which would enable the Escrow Shares to be
released from escrow.
10
<PAGE>
The Company incurred a non-cash charge to operations of approximately
$128,000 during the quarter ended March 31, 1997 and expects to incur additional
non-cash charges to operations aggregating approximately $514,000 through the
closing of the Offering relating to the unamortized debt discount and debt
issuance costs incurred in connection with the Bridge Financing. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Principal Stockholders" and "Description of Securities."
Potential Adverse Effects of Preferred Stock. The Company's By-laws
authorize the issuance of shares of "blank check" preferred stock, which will
have such designations, rights and preferences as may be determined from time to
time by the Board of Directors. Accordingly, the Board of Directors will be
empowered, without stockholder approval (but subject to applicable government
regulatory restrictions), to issue preferred stock with dividend, liquidation,
conversion, voting or other rights which could adversely affect the voting power
or other rights of the holders of the Common Stock. In the event of such
issuance, the preferred stock could be utilized, under certain circumstances, as
a method of discouraging, delaying or preventing a change in control of the
Company. Although the Company has no present intention to issue any shares of
preferred stock, there can be no assurance that the Company will not do so in
the future. See "Description of Securities -- Preferred Stock."
No Dividends. The Company has not paid any cash dividends on its Class A
Common Stock and does not expect to declare or pay any cash or other dividends
in the foreseeable future. See "Dividend Policy."
No Public Market for Securities; Possible Volatility of Market Price;
Arbitrary Determination of Offering Price. Prior to the Offering, there has not
been any market for any of the Company's securities, and there can be no
assurance that an active trading market will develop or be sustained after the
Offering. The initial public offering price of the Units and the exercise price
and other terms of the Class A Warrants have been determined by negotiation
between the Company and the Underwriter and are not necessarily related to the
Company's asset value, net worth, results of operations or any other criteria of
value and may not be indicative of the prices that may prevail in the public
market. The market prices of the Units, Class A Common Stock and Class A
Warrants could also be subject to significant fluctuations in response to
variations in the Company's development efforts, intellectual property position,
government regulations, general trends in the industry and other factors,
including extreme price and volume fluctuations which have been experienced by
the securities markets from time to time. See "Underwriting."
Shares Eligible for Future Sale. Future sales of Common Stock by existing
stockholders pursuant to Rule 144 under the Securities Act or otherwise could
have an adverse effect on the price of the Company's securities. The 1,200,000
shares of Common Stock outstanding before the Offering are eligible for resale
in the public market, subject to compliance with Rule 144 under the Securities
Act. In addition, 13,000 shares of Class A Common Stock issuable upon the
exercise of stock options will be eligible for resale pursuant to Rule 144 and
Rule 701 under the Securities Act in August 1997 and a portion of the remaining
17,000 outstanding options will vest and be eligible for resale pursuant to Rule
144 and Rule 701 under the Securities Act beginning in May 1998. However,
holders of all of the outstanding shares of Common Stock and outstanding options
prior to the Offering have agreed not to sell any shares of Common Stock for a
period of 13 months from the date of this Prospectus without the prior written
consent of the Underwriter. Sales of Common Stock, or the possibility of such
sales, in the public market may adversely affect the market price of the
securities offered hereby. In addition, the holders of the Unit Purchase Option
have certain demand and "piggy-back" registration rights with respect to their
securities. Exercise of such rights could involve substantial expense to the
Company. The Company has agreed to register for resale the 1,150,000 Bridge
Warrants and the underlying Class A Common Stock one year from the closing of
the Offering. See "Description of Securities," "Shares Eligible for Future Sale"
and "Underwriting."
Outstanding Warrants and Options; Exercise of Registration Rights. Upon
completion of the Offering, the Company will have outstanding (i) 1,760,000
Class A Warrants to purchase an aggregate of 1,760,000 shares of Class A Common
Stock; (ii) the Bridge Warrants to purchase 1,150,000 shares of Class A Common
Stock; and (iii) the Unit Purchase Option to purchase an aggregate of 352,000
shares of Class A Common Stock, assuming exercise of the underlying Class A
Warrants. The Company also has 200,000 shares of Class A Common Stock reserved
for issuance upon exercise of options under its 1997 Stock Option Plan, of which
30,000 have been granted. Holders of such warrants and options are likely to
exercise them when, in all likelihood, the Company could obtain additional
capital on terms more favorable than those provided by warrants and options.
Further, while these Warrants and options are outstanding, the Company's ability
to obtain additional financing on favorable terms may be adversely affected. The
holders of the Unit Purchase Option have certain demand and "piggy-back"
registration rights with respect to their securities. Exercise of such rights
could involve substantial expense to the Company. In addition, the
11
<PAGE>
Company has agreed to register for resale the 1,150,000 Bridge Warrants and the
underlying Class A Common Stock within one year from the closing of the
Offering. See "Management -- Stock Options," "Description of Securities" and
"Underwriting."
Potential Adverse Effect of Redemption of Warrants. Commencing one year
from the date of this Prospectus, the Class A Warrants may be redeemed by the
Company at a redemption price of $.05 per Warrant upon not less than 30 days'
prior written notice if the closing bid price of the Class A Common Stock shall
have averaged in excess of $9.10 per share for 30 consecutive trading days
ending within 15 days of the notice. Redemption of the Class A Warrants could
force the holders (i) to exercise the Warrants and pay the exercise price
therefor at a time when it may be disadvantageous for the holders to do so, (ii)
to sell the Warrants at the then current market price when they might otherwise
wish to hold the Warrants, or (iii) to accept the nominal redemption price
which, at the time the Warrants are called for redemption, is likely to be
substantially less than the market value of the Warrants. See "Description of
Securities -- Redeemable Class A Warrants."
Current Prospectus and State Registration to Exercise Warrants. Holders of
Class A Warrants will be able to exercise the Warrants only if (i) a current
prospectus under the Securities Act relating to the securities underlying the
Warrants is then in effect and (ii) such securities are qualified for sale or
exempt from qualification under the applicable securities laws of the states in
which the various holders of Warrants reside. Although the Company has
undertaken and intends to use its best efforts to maintain a current prospectus
covering the securities underlying the Warrants following completion of the
Offering to the extent required by Federal securities laws, there can be no
assurance that the Company will be able to do so. The value of the Class A
Warrants may be greatly reduced if a prospectus covering the securities issuable
upon the exercise of the Warrants is not kept current or if the securities are
not qualified, or exempt from qualification, in the states in which the holders
of Warrants reside. Persons holding Class A Warrants who reside in jurisdictions
in which such securities are not qualified and in which there is no exemption
will be unable to exercise their Warrants and would either have to sell their
Warrants in the open market or allow them to expire unexercised. If and when the
Class A Warrants become redeemable by the terms thereof, the Company may
exercise its redemption right even if it is unable to qualify the underlying
securities for sale under all applicable state securities laws. See "Description
of Securities -- Redeemable Class A Warrants."
Possible Adverse Effect on Liquidity of the Company's Securities Due to the
Investigation of the Underwriter by the Securities and Exchange Commission. The
Commission is conducting an investigation concerning various business activities
of the Underwriter. The investigation appears to be broad in scope, involving
numerous aspects of the Underwriter's compliance with the Federal securities
laws and compliance with the Federal securities laws by issuers whose securities
were underwritten by the Underwriter, or in which the Underwriter made
over-the-counter markets, persons associated with the Underwriter, such issuers
and other persons. The Company has been advised by the Underwriter that the
investigation has been ongoing since at least 1989 and that it is cooperating
with the investigation. The Underwriter cannot predict whether this
investigation will ever result in any type of formal enforcement action against
the Underwriter or, if so, whether any such action might have an adverse effect
on the Underwriter or the securities offered hereby. See "Underwriting."
Possible Delisting of Securities from The Nasdaq Stock Market. While the
Company's Units, Class A Common Stock and Class A Warrants meet the current
Nasdaq listing requirements and are expected to be initially included on the
Nasdaq SmallCap Market, there can be no assurance that the Company will meet the
criteria for continued listing. Continued inclusion on Nasdaq generally requires
that (i) the Company maintain at least $2,000,000 in total assets and $1,000,000
in capital and surplus, (ii) the minimum bid price of the Class A Common Stock
be $1.00 per share, (iii) there be at least 100,000 shares in the public float
valued at $200,000 or more, (iv) the Class A Common Stock have at least two
active market makers, and (v) the Class A Common Stock be held by at least 300
holders. Nasdaq has recently proposed certain modifications to the listing
requirements that would make them more stringent. Pursuant to such proposed
modifications, continued inclusion on Nasdaq would require that (i) the Company
maintain (A) net tangible assets (defined as total assets less total liabilities
and goodwill) of at least $2,000,000, (B) net income of $500,000 in two of the
last three years, or (C) market capitalization of at least $35,000,000, (ii) the
minimum bid price of the Class A Common Stock be $1.00 per share, (iii) there be
at least 500,000 shares in the public float valued at $1,000,000 or more, (iv)
the Class A Common stock have at least two active market markers and (v) the
Class A Common Stock be held by at least 300 holders.
12
<PAGE>
If the Company is unable to satisfy Nasdaq's maintenance requirements, its
securities may be delisted from Nasdaq. In such event, trading, if any, in the
Units, Class A Common Stock and Class A Warrants would thereafter be conducted
in the over-the-counter market in the so-called "pink sheets" or the NASD's
"Electronic Bulletin Board." Consequently, the liquidity of the Company's
securities could be impaired, not only in the number of securities which could
be bought and sold, but also through delays in the timing of transactions,
reduction in security analysts' and the news media's coverage of the Company and
lower prices for the Company's securities than might otherwise be attained.
Risks of Low-Priced Stock. If the Company's securities were delisted from
Nasdaq (See "-- Possible Delisting of Securities from The Nasdaq Stock Market,
Inc."), they could become subject to Rule 15g-9 under the Exchange Act, which
imposes additional sales practice requirements on broker-dealers which sell such
securities except in transactions exempted by such Rule, including transactions
meeting the requirements of Rule 505 or 506 of Regulation D under the Securities
Act and transactions in which the purchaser is an institutional accredited
investor (as defined) or an established customer (as defined) of the broker or
dealer. For transactions covered by this rule, a broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. Consequently, such
rule may adversely affect the ability of broker-dealers to sell the Company's
securities and may adversely affect the ability of purchasers in the Offering to
sell in the secondary market any of the securities acquired hereby.
Commission regulations define a "penny stock" to be any non-Nasdaq equity
security that has a market price (as therein defined) of less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require delivery, prior to any transaction in a penny stock, of a
disclosure schedule prepared by the Commission relating to the penny stock
market. Disclosure is also required to be made about commissions payable to both
the broker-dealer and the registered representative and current quotations for
the securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stocks.
The foregoing required penny stock restrictions will not apply to the
Company's securities if such securities are listed on Nasdaq and have certain
price and volume information provided on a current and continuing basis or meet
certain minimum net tangible assets or average revenue criteria. There can be no
assurance that the Company's securities will qualify for exemption from these
restrictions. In any event, even if the Company's securities were exempt from
such restrictions, it would remain subject to Section 15(b)(6) of the Exchange
Act, which gives the Commission the authority to prohibit any person that is
engaged in unlawful conduct while participating in a distribution of a penny
stock from associating with a broker-dealer or participating in a distribution
of a penny stock, if the Commission finds that such a restriction would be in
the public interest. If the Company's securities were subject to the rules on
penny stocks, the market liquidity for the Company's securities could be
severely adversely affected.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,760,000 Units
offered hereby, after deducting underwriting discounts and commissions and other
expenses of the Offering, are estimated to be approximately $7,081,000
($8,229,400 if the Underwriter's over-allotment option is exercised in full).
The Company expects the net proceeds to be utilized approximately as follows:
Approximate Amount Percentage of
Application of Net Proceeds Net Proceeds
----------- ------------------ ------------
Repayment of Bridge Notes (1).............. $2,360,000 33.3%
Marketing and Sales (2).................... 2,000,000 28.3
Working Capital (3)(4)..................... 2,721,000 38.4
---------- -----
Total.............................. $7,081,000 100.0%
========== =====
- ----------------
(1) Represents the principal amount and accrued interest at the rate of 10% per
annum (estimated at approximately $60,000 through May 31, 1997) of Bridge
Notes issued in the Bridge Financing in February and March 1997. The
proceeds of the Bridge Financing were and are being used primarily for the
repayment of certain indebtedness and for working capital purposes. See
"Capitalization -- Bridge Financing" and "Certain Transactions."
(2) Includes the design and production of marketing materials, salaries of
in-house sales personnel and other related marketing expenditures. See
"Business -- Sales and Marketing."
(3) Includes computer hardware and telephone switching systems, as well as
software development costs, required to implement the Network
Administration System. See "Business -- The Network Administration System."
(4) Includes (i) approximately $210,000 payable under cetain equipment leases
and (ii) general and administrative expenses, including approximately
$705,000 for salaries of current executive officers and significant
employees for the 18-month period following the date of this Prospectus.
The foregoing represents the Company's best estimate of its allocation of
the net proceeds of the Offering during the next 18 months. This estimate is
based on certain assumptions relating to the Company's sales and marketing
activities, market acceptance of the Company's products, competition and other
factors. Future events, as well as changes in economic, regulatory or
competitive conditions or the Company's business and the results of the
Company's sales and marketing activities, may make shifts in the allocation of
funds necessary or desirable. In addition, the Company may seek to utilize a
portion of the funds allocated to working capital for acquisitions of new
products or other complementary businesses. The Company does not currently have
any agreements, commitments or arrangements with respect to any proposed
acquisitions and there can be no assurance that any acquisitions will be
consummated.
The Company currently estimates that the net proceeds of the Offering will
be sufficient to fund its planned operations for approximately eighteen months.
However, the Company may require additional funds during such period in the
event of delays in sales and marketing or product development, cost overruns or
other unanticipated expenses commonly associated with a company in an early
stage of development. In addition, the Company will likely need substantial
additional financing following such eighteen-month period. There can be no
assurance that additional funding will be available to the Company on acceptable
terms, if at all. In the event such financing is not obtained, the Company may
be materially adversely affected and may have to cease or substantially reduce
operations.
Any additional proceeds received upon exercise of the Class A Warrants will
be added to working capital. Pending utilization, the net proceeds of the
Offering will be invested in short-term, interest-bearing investments.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. The Company
currently intends to retain all earnings, if any, for use in the expansion of
the Company's business. The declaration and payment of future dividends, if any,
will be at the sole discretion of the Board of Directors and will depend upon
the Company's profitability, financial condition, cash requirements, future
prospects and other factors deemed relevant by the Board of Directors.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1997, giving retroactive effect to the merger of the Company's
predecessor, MegaVision L.C., into the Company in February 1997, and as adjusted
to reflect the sale of the Units offered hereby and the application of the net
proceeds therefrom to repay the Bridge Notes. This table should be read in
conjunction with the Financial Statements and the Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
March 31, 1997
-----------------------------
Actual As Adjusted
------ -----------
<S> <C> <C>
Bridge Notes, net of discount(1)......................................... $1,786,022 --
Stockholders' Equity:
Preferred Stock, $.01 par value; 5,000,000 shares authorized; no
shares issued and outstanding actual and as adjusted.................. -- --
Class A Common Stock, $.01 par value, 19,640,000 shares authorized;
840,000 shares issued and outstanding actual; and 2,600,000 shares,
issued and outstanding as adjusted (2)(3)............................. 8,400 26,000
Class B Common Stock, $.01 par value, 360,000 shares authorized,
issued and outstanding actual and as adjusted (3)..................... 3,600 3,600
Additional paid-in capital............................................ 1,698,059 8,761,459
Deficit accumulated during the development stage...................... (2,341,671) (2,855,649)(4)
---------- ----------
Total stockholders' equity (capital deficiency)................... (631,612) 5,935,410
---------- ----------
Total capitalization.............................................. $1,154,410 $5,935,410
========== ==========
</TABLE>
- ----------------
(1) The Bridge Notes are payable on the earlier of February 27, 1998 or the
completion of the Offering. See "Use of Proceeds."
(2) Excludes (i) up to 528,000 shares issuable upon exercise of the
Underwriter's over-allotment option and the underlying Warrants; (ii)
1,760,000 shares issuable upon exercise of the Class A Warrants included in
the Units offered hereby; (iii) 1,150,000 shares issuable upon exercise of
the Bridge Warrants; (iv) 352,000 shares issuable upon exercise of the Unit
Purchase Option and the Class A Warrants included in such option; and (v)
200,000 shares reserved for issuance under the Company's 1997 Stock Option
Plan, of which options to purchase 30,000 shares are outstanding. See
"Management -- Stock Option Plan," "Certain Transactions" and "Description
of Securities."
(3) Includes the Escrow Shares. See "Principal Stockholders -- Escrow Shares."
(4) Gives effect to recognition, upon the closing of the Offering, of
approximately $514,000 of unamortized discount relating to the Bridge
Notes. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Bridge Financing
In February and March 1997, the Company completed the Bridge Financing of
an aggregate of $2,300,000 principal amount of Bridge Notes and 1,150,000
warrants. The Company paid the placement agent a commission of $230,000 and a
non-accountable expense allowance of $69,000 in connection with the Bridge
Financing. The Bridge Notes issued in the Bridge Financing are payable, together
with accrued interest at the rate of 10% per annum, on the earlier of February
27, 1998 or the closing of the Offering. See "Use of Proceeds."
The warrants issued in the Bridge Financing entitle the holders thereof to
purchase one share of Class A Common Stock commencing on February 27, 1998 but
will be converted automatically on the closing of the Offering into the Bridge
Warrants, each of which will be identical to the Class A Warrants included in
the Units offered hereby. The Company has agreed to register for resale the
Bridge Warrants and the underlying Class A Common Stock one year from the
closing of the Offering.
15
<PAGE>
DILUTION
The following discussion and tables allocate no value to the Class A
Warrants included in the Units.
At March 31, 1997, the Company had a negative net tangible book value of
$(702,810) or $(2.34) per share, based upon 300,000 shares outstanding
(excluding the 900,000 Escrow Shares). Net tangible book value per share
represents the amount of the Company's total assets minus the amount of its
intangible assets and liabilities, divided by the number of shares of Common
Stock outstanding. Dilution represents the difference between the initial public
offering price paid by the purchasers in the Offering and the net tangible book
value per share immediately after completion of the Offering. After giving
effect to the sale of 1,760,000 Units offered hereby at an assumed initial
public offering price of $5.00 per Unit and the receipt of the net proceeds
therefrom, the net tangible book value of the Company, as adjusted at March 31,
1997 would have been $6,378,190 or $3.10 per share. This represents an immediate
increase in net tangible book value of $5.44 per share to existing stockholders
and an immediate dilution of $1.90 per share to persons purchasing shares at the
initial public offering price ("New Investors"). The following table illustrates
this per share dilution:
Assumed initial public offering price per share....... $ 5.00
Negative net tangible book value per share
before Offering................................... $(2.34)
Increase per share attributable to New Investors...... $ 5.44
------
Net tangible book value per share after Offering...... $ 3.10
------
Dilution per share to New Investors................... $ 1.90
======
If the over-allotment option is exercised in full, the net tangible book
value after the Offering would be approximately $3.24 per share, resulting in
dilution to New Investors in the Offering of $1.76 per share.
The following table summarizes the differences between existing
stockholders and New Investors with respect to the number of shares of Common
Stock purchased from the Company, the total consideration paid to the Company
and the average price per share paid by existing stockholders and by New
Investors:
<TABLE>
<CAPTION>
Total
Shares Purchased Consideration Paid Average
-------------------- ---------------------- Price Per
Number Percent Amount Percent Share
--------- ------- ---------- ------- ------
<S> <C> <C> <C> <C> <C>
Existing Stockholders....................... 1,200,000(1) 40.50% $ 1,329,018 13.12% $1.11
New Investors............................... 1,760,000 59.50 8,800,000 86.88 5.00
--------- ------ ----------- ------
Total................................... 2,960,000 100.00% $10,129,018 100.00%
========= ====== =========== ======
</TABLE>
- ----------------
(1) Includes the Escrow Shares.
The foregoing tables do not give effect to exercise of any outstanding
options or warrants. To the extent such options or warrants are exercised there
will be further dilution to New Investors. See "Capitalization -- Bridge
Financing," "Management -- Stock Options" and "Description of Securities."
16
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below has been derived from the
financial statements of the Company. The financial statements of the Company as
at September 30, 1996 and for the year ended September 30, 1996 and the periods
from June 1, 1995 (inception) through September 30, 1995 and from June 1, 1995
(inception) through September 30, 1996, together with the notes thereto and the
report of Richard A. Eisner & Company, LLP, independent auditors, are included
elsewhere in this Prospectus. The selected financial data as at and for the six
month period ended March 31, 1996 and March 31, 1997 and the period June 1, 1995
to March 31, 1997 are derived from the Company's unaudited financial statements.
The unaudited financial statements include all adjustments, consisting of only
normal recurring accruals, which the Company considers necessary for a fair
presentation of the financial position and the results of operation for these
periods. Operating results for the six months ended March 31, 1997 are not
necessarily indicative of the results that may be expected for any other period.
The selected financial data set forth below should be read in conjunction with
the financial statements and notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
June 1, 1995
(Inception) Six Months Ended June 1, 1995
Through Year Ended March 31, (Inception)
September 30, September 30, ---------------------- Through
1995 1996 1996 1997 March 31, 1997
---------- ---------- -------- ------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
General and administrative
expenses $ 78,105 $ 900,177 $ 524,633 $ 791,557 $ 1,769,839
Selling and marketing expenses 34,158 277,845 59,624 69,425 381,428
Interest expense -- 36,071 332 154,333 190,404
----------- ----------- ----------- ----------- -----------
Net loss $ (112,263) $(1,214,093) $ (584,589) $(1,015,315) $(2,341,671)
=========== =========== =========== =========== ===========
Net loss per share(1) $ (0.53) $ (4.83) $ (2.39) $ (3.47)
=========== ============ =========== ===========
Weighted average number of
shares outstanding 211,183 251,525 244,482 292,345
=========== ============ =========== ===========
</TABLE>
At September At March 31,
30, 1996 1997
----------- -------------
(Unaudited)
Balance Sheet Data:
Working capital (deficit)........................... $ (233,206) $ (766,589)
Total assets........................................ 160,200 1,531,515
Total liabilities................................... 235,278 2,163,127
Deficit accumulated during the development stage.... (1,326,356) (2,341,671)
Total capital deficiency............................ (75,078) (631,612)
- ----------------
(1) The Escrow Shares are excluded from the computation of net loss per share.
See Note D of Notes to Financial Statements.
(2) Adjusted to give effect to the sale of the 1,760,000 Units offered hereby
at an assumed initial public offering price of $5.00 per Unit, the receipt
of the net proceeds therefrom and the use of a portion of the net proceeds
to repay the Bridge Notes (plus accrued interest thereon through March 31,
1997) and the corresponding charge to operations of approximately $514,000.
See "Risk Factors -- Potential Charges to Earnings," "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company is a development stage enterprise organized to develop, market
and administer a health care benefit services program which is designed to
enable Members to obtain discounts on purchases of ancillary health care
products and services through Networks of health care providers with which the
Company has executed provider agreements. The Company's revenues are initially
expected to be derived principally from the receipt of annual or monthly
enrollment fees paid by or on behalf of Members for the right to obtain
discounts at the point of purchase from providers in the Networks. The Company
currently anticipates that a significant portion of its revenue will be received
in the form of monthly bank drafts and monthly payroll deductions made by
employers on behalf of their employees. Accordingly, all monthly payment sales
and their corresponding expenses, including sales commissions and provider fees,
will be recognized in the monthly periods for which they are billed. However,
since the initial cost of delivering the cards to the Company's customers will
be incurred and expensed in the first month, the gross profit associated with
each new individual card issued will be lower in the month of issuance than in
the remaining eleven months prior to the card's expiration date. In addition,
since all renewal cards will be subject to the same costs of issuance, this
twelve month pattern of lower gross profits in the first month will likely
continue for any renewal periods.
In those instances when a sale of the Company's HealthCare Solutions Card
is collected as a single annual fee, the Company intends to recognize all of its
single payment sales in the period in which the card is delivered, since all of
the expenses resulting from the purchase of an annual card, including the costs
of issuance, sales commissions, provider fees and a provision for loss from
potential guarantee-related refunds, will be incurred by the Company at the time
of sale. The Company will incur only nominal additional direct costs associated
with each cardholder in the following eleven months due to the fact that under
all of its provider network contracts, each provider is obligated to continue to
provide discounts to all cardholders until the annual card expires, even if the
provider network contract has been terminated. The Company also intends to offer
a full money back guarantee to Members who, after the first full year of
enrollment, are not satisfied with the HealthCare Solutions Card and the Company
intends to establish reserves therefor.
Since its inception, the Company's primary activities have consisted of (i)
designing and developing the Network Administration System, which the Company
believes will facilitate data processing and enhance its customer service
capabilities, (ii) negotiating with Providers to participate in the Networks,
(iii) organizing a marketing force to market the HealthCare Solutions Card and
(iv) test marketing. To date, only minimal sales of the HealthCare Solutions
Card have taken place and the Company believes that these customers were
primarily evaluating the commercial potential of the HealthCare Solutions Card.
There can be no assurance that the Company will successfully maintain or
expand the Networks and/or market the HealthCare Solutions Card.
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto appearing elsewhere in this
Prospectus.
Results of Operations
Six Months Ended March 31, 1996 and 1997. No revenues were generated during
either the six month period ended March 31, 1997 (the "1997 Six Months") or the
six month period ended March 31, 1996 (the "1996 Six Months").
Selling, general and administrative expenses increased by 47% from
approximately $584,000 in the 1996 Six Months to approximately $861,000 in the
1997 Six Months primarily as a result of (i) an increase in the number of
employees at the Company, (ii) an increase in professional fees and certain
other expenses, primarily marketing, incurred in connection with the development
of the HealthCare Solutions Card, (iii) non-cash charges of approximately
$64,000 and $31,000 relating to the fair market value adjustment of certain
shares of capital stock issued to two principal stockholders of the Company, and
(iv) approximately $60,000 paid in cancellation of an outstanding consulting
agreement.
Interest expense increased from $332 in the 1996 Six Months to $154,333 in
the 1997 Six Months primarily as a result of (i) accrued interest of
approximately $17,000 recorded on the Bridge Notes, (ii) accretion of the
discount related to the Bridge Financing of approximately $128,000, and (iii)
approximately $10,000 related to various other borrowings by the Company.
Interest income increased by approximately $6,000 as a direct result of the
short term investment of the balance of proceeds received by the Company from
the Bridge Financing.
18
<PAGE>
Net loss increased by 74% from approximately $585,000 in the 1996 Six
Months to approximately $1,015,000 in the 1997 Six Months as a result of the
foregoing factors.
Fiscal Years Ended September 30, 1995 and 1996. No revenues were generated
during the fiscal years ended September 30, 1995 (the "1995 Fiscal Year") or
September 30, 1996 (the "1996 Fiscal Year").
Selling, general and administrative expenses increased by approximately
952% from approximately $112,000 in the 1995 Fiscal Year to approximately
$1,178,000 in the 1996 Fiscal Year primarily as a result of (i) a full year of
operations in the 1996 Fiscal Year as compared to only four months in the prior
fiscal year, (ii) an increase in the number of employees at the Company and
(iii) an increase in the amount of professional fees and certain other expenses,
primarily marketing, incurred in connection with the development of the
HealthCare Solutions Card.
Interest expense increased by approximately $36,000 in the 1996 Fiscal Year
compared to no interest expense in the 1995 Fiscal Year primarily as a result of
various borrowings by the Company from banks, stockholders and others.
Net loss increased by approximately 984% from approximately $112,000 in the
1995 Fiscal Year to approximately $1,214,000 in the 1996 Fiscal Year as a result
of the foregoing factors.
Liquidity and Capital Resources
The Company has funded its activities to date primarily through loans and
capital contributions from principal stockholders and private placements of debt
and equity securities. As of March 31, 1997, the Company had a working capital
deficit of $766,589. Since its inception, the Company has received working
capital loans from its principal stockholders. In September 1996, such
stockholders agreed to contribute to the capital of the Company an aggregate of
approximately $466,000 of such indebtedness. At May 30, 1997, the amount of
outstanding indebtedness to such stockholders was approximately $21,000, all of
which will be repaid by July 31, 1997. See "Certain Transactions."
In February and March 1997, the Company completed the Bridge Financing
which consisted of $2,300,000 principal amount of Bridge Notes bearing interest
at an annual rate of 10% and warrants to purchase an aggregate of 1,150,000
shares of Class A Common Stock. The proceeds of the Bridge Financing, which were
approximately $1,964,000 (net of $230,000 in commissions and a $69,000 expense
allowance paid to the Underwriter for acting as placement agent and other
expenses of the private placement) have been utilized by the Company for the
repayment of certain indebtedness and for working capital purposes, including
general and administrative expenses and expenses of the Offering. The Company
intends to repay the principal and accrued interest on the Bridge Notes issued
in the Bridge Financing with a portion of the proceeds of the Offering. See "Use
of Proceeds," "Capitalization -- Bridge Financing" and "Certain Transactions."
The Company requires the proceeds of the Offering to implement its business
plan, which includes the refinement, sales and marketing of the HealthCare
Solutions Card and the possible development of a physician and hospital network.
In April and May 1997, the Company entered into certain equipment leases
relating to computer hardware and telecommunications systems requiring it to pay
approximately $140,000 per year through April 2000. In addition, during the
12-month period following the Offering, the Company has agreed to pay
approximately $470,000 in compensation to its current executive officers and
significant employees and approximately $49,000 in real estate lease payments.
See "Business -- Properties" and "Management -- Employment Agreements."
The Company expects to continue to incur substantial costs in the near term
in connection with sales and marketing activities and the purchase or lease of
additional computer equipment required for the Network Administration System.
The Company also expects that general and administrative costs necessary to
support the establishment of a sales and marketing organization and other
infrastructure will increase in the future. Unless the Company is able to
generate significant commercial sales of the HealthCare Solutions Card, the
Company will continue to incur increasing operating losses. There can be no
assurance that the Company will ever achieve profitable operations.
In the event of the release of the Escrow Shares, the Company will
recognize during the period in which the earnings thresholds are met or the per
share stock price thresholds are achieved, a substantial non-cash charge to
earnings equal to the fair market value of such shares on the date of their
release, which would have the effect of significantly increasing the Company's
loss or reducing or eliminating earnings, if any, at such time. There can be no
assurance that the Company will attain the targets which would enable the Escrow
Shares to be released from escrow. See " -- Release of Escrow Shares."
19
<PAGE>
The Company incurred non-cash charges to operations of approximately
$128,000 during the quarter ending March 31, 1997 and expects to incur
additional non-cash charges to operations aggregating approximately $514,000
through the closing of the Offering relating to the Bridge Financing and the
repayment of the Bridge Notes.
The recognition of the potential charges to income described above may have
a depressive effect on the market price of the Company's securities.
The Company believes that the proceeds of the Offering, together with
available cash, will provide the necessary liquidity and capital resources to
sustain its planned operations for approximately 18 months following the
Offering. In the event that the Company's internal estimates relating to its
planned expenditures prove materially inaccurate, the Company may be required to
reallocate funds among its planned activities and curtail certain planned
expenditures. In any event, the Company anticipates that it will likely require
substantial additional financing after such time. There can be no assurance as
to the availability or terms of any required additional financing, when and if
needed. In the event that the Company fails to raise any funds it requires, it
may be necessary for the Company to significantly curtail its activities or
cease operations. See "Use of Proceeds."
Release of Escrow Shares
In connection with the Offering, the current stockholders of the Company
are placing, on a pro rata basis, a portion of their shares into escrow pending
the Company's attainment of certain earnings thresholds or per share stock price
thresholds. See "Principal Stockholders -- Escrow Shares." The Commission has
taken the position with respect to the release of securities from escrow that in
the event the Escrow Shares are released from escrow to directors, officers,
employees or consultants of the Company, the release will be treated, for
financial reporting purposes, as compensation expense to the Company.
Accordingly, in the event of the release of the Escrow Shares, the Company will
recognize during the period in which the earnings or market price targets are
met or become probable of being met, a substantial non-cash charge which would
substantially increase the Company's loss or reduce or eliminate earnings, if
any, at such time. The amount of compensation expense recognized by the Company
will not affect the Company's total stockholders' equity.
20
<PAGE>
BUSINESS
General
The Company is a development stage enterprise organized to develop, market
and administer a health care benefit services program which is designed to
enable participants ("Members") to obtain discounts on purchases of ancillary
health care products and services through certain networks (the "Networks") of
health care providers (the "Providers"). The Networks with which the Company
currently maintains contracts comprise an aggregate of approximately 57,000
participating Providers of eye care, dental, hearing, pharmacy and chiropractic
benefits throughout the United States, and Members will be able to access the
Networks through the use of a discount membership card (the "HealthCare
Solutions Card"). The HealthCare Solutions Card is expected to be marketed,
directly and through independent brokers, agents and consumer marketing
organizations, to individuals and to employers and business and other
associations ("Sponsors") who may either purchase the HealthCare Solutions Card
for, or offer it to, their employees or members.
The Company believes that the HealthCare Solutions Card addresses two
significant concerns in the healthcare industry: cost containment and the rising
number of people who are underinsured. The Company also believes that the
HealthCare Solutions Card will provide a low-cost, non-insurance alternative to
individuals who are seeking to reduce their out-of-pocket health care costs not
covered by insurance or who are unable to obtain health care insurance due to
their medical history, age or occupation. For an annual fee expected to range
from approximately $60 to $80, Members will be able to obtain discounts of 5% to
60% off the retail or usual and customary prices from participating providers.
Acceptance in the Company's program is unrestricted, and the HealthCare
Solutions Card can be used to cover any member of the cardholder's immediate
family. The Company's revenues are initially expected to be derived principally
from the receipt of annual or monthly enrollment fees paid by or on behalf of
Members for the right to obtain discounts at the point of purchase from
providers in the Networks with whom the Company has contracted.
Since its inception, the Company's activities have consisted of (i)
designing and developing a network administration and utilization management
system which the Company believes will facilitate data processing and enhance
its customer service capabilities (the "Network Administration System"), (ii)
negotiating with Providers to participate in the Networks, (iii) organizing a
marketing force to market the HealthCare Solutions Card and (iv) test marketing.
To date, only minimal sales of the HealthCare Solutions Card have taken place
and there can be no assurance that the Company will successfully maintain or
complete the Networks and/or market the HealthCare Solutions Card. There can
also be no assurance that sales of the HealthCare Solutions Card will ever
result in the Company achieving profitable operations.
Strategy
The Company's strategy is to focus principally on (i) expanding the range
of ancillary and other health care services and products included in the
Networks, (ii) expanding the Networks to include additional Providers throughout
the United States and (iii) the possible development of a physician and hospital
network. The principal elements of the Company's strategy are as follows:
Expand the Range of Services and Products Provided. The Company will seek
to enter into agreements with providers of ancillary and other health care
services and products not currently offered under the Company's program. The
Company intends to monitor the market and the needs of Members and Sponsors for
additional services that might be available. The Company also intends to monitor
the market for new medical benefits products that might be incorporated into, or
marketed in conjunction with, the HealthCare Solutions Card.
Expand Provider Networks. In addition to seeking agreements with providers
of services and products not currently included in the HealthCare Solutions Card
program, the Company also intends to enter into agreements with additional
providers of ancillary services already offered by the Company. For example,
while most of the Networks currently under contract are nationwide, the Company
may choose to supplement its existing coverage in certain geographic areas by
offering access to additional providers. Where necessary, the Company intends to
contract with additional providers to participate in the Company's programs
simultaneously with the development of a membership base in a particular
geographical area. The Company believes that a greater number of participating
providers will increase the convenience, and therefore the attractiveness, of
the HealthCare Solutions Card.
21
<PAGE>
Develop Physician and Hospital Network. The Company is currently exploring
the possibility of developing a product that will offer a network of physicians
and hospitals. The Company has not yet determined the feasibility of developing
such a product, and there can be no assurance that the Company will proceed with
such development. However, the Company believes that the large number of
uninsured and underinsured individuals, coupled with the rising costs incurred
by businesses, particularly small businesses who employ approximately 40% of the
country's workforce, and the advent of tax-preferred Medical Savings Accounts,
may present an opportunity to develop a core health care product. In the event
that the Company determines to develop a physician and hospital network product,
the Company believes that it would be marketed principally through insurance
brokers, rather than through consumer marketing organizations or other
independent sales representatives. See "Risk Factors -- Risks Related to
Possible Entry into Physician and Hospital Network Business."
Industry Overview
In recent years, the cost of health-related products and services has
increased at a rate significantly greater than the general rate of inflation.
Such increasing costs have led to limitations on reimbursement from insurance
companies, health maintenance organizations ("HMOs") and government sources and
have generated demand for products and services designed to control health care
costs. Many employers have responded to the increased cost of providing
insurance to their employees by reducing or eliminating available insurance
coverage and by requiring employees to contribute heavily to premiums,
especially for family members. As a result, it is estimated that in 1995, 40.3
million Americans, or 17.4% of the population under the age of 65, had no health
insurance, and most Americans lacked insurance coverage for one or more
ancillary health care services. In addition, it is estimated that in 1995, $150
billion was spent on ancillary health care services, including eye care, dental,
pharmaceutical, chiropractic and hearing services, and that only $50 billion of
such amount was covered by health care insurance.
Moreover, as a result of the "baby boom" generation, the group of persons
over the age of 50 is currently the fastest growing segment of the United States
population. As the population ages, a greater percentage of the total population
is likely to need vision, pharmacy, dental and hearing care products and
services, many of which are not covered by Medicare.
The HealthCare Solutions Card
General. The HealthCare Solutions Card will enable Members to obtain
discounts of approximately 5% to 60% on purchases of ancillary health care
products and services through Company-organized Networks of providers. Members
may select any participating Provider, and will automatically receive a discount
at the point-of-purchase upon presentment of the HealthCare Solutions Card. To
date, the Company has entered into non-exclusive agreements with six national
networks of eye care service providers, a national network of dental service
providers, a discount pharmacy provider network, a national provider of hearing
products and services, and a national network of chiropractic service providers
to participate in the Network so that Members will be entitled to the benefits
received by participants in their respective provider networks.
The Company's agreements with Providers are generally for a term of one to
three years and provide for termination by either party in the event of a
default or, at any time after a stipulated period of time following the
execution of the agreement (generally ranging from six months to two years),
upon 60 to 90 days prior written notice. The agreements also provide that upon
termination of an agreement for any reason, the Company and the respective
Provider will continue to provide services to individuals, for the term of their
enrollment, if they purchased the HealthCare Solutions Card for access to such
Provider's network prior to such termination. In addition, certain of these
agreements provide for the payment of a stipulated access fee per card per year
from the Company to the respective Provider to provide Members with access to
their network of Providers. In the case of the Company's agreement with its mail
order pharmacy Provider, the Company will also receive from such Provider a
stipulated commission for each prescription ordered by a Member.
The Company is currently test marketing the HealthCare Solutions Card in
the Kansas City, Missouri area and has distributed approximately 12,000 cards
for such purpose. The Company will be required to purchase certain additional
hardware and software necessary to implement on a commercial scale the Network
Administration System.
22
<PAGE>
Eye Care Services. The Company's Networks include eye care services and
products designed to provide savings to Members by reducing the cost of eye
examinations, contact lenses and eyeglass frames and lenses (the "Eye Care
Plan"). Pursuant to non-exclusive agreements with Association for Eye Care
Centers, Inc., Cohen Fashion Optical, ECCA Managed Vision Care, National Vision
Associates, Ltd., Sterling Vision, Inc. and Wal*Mart, each a national network of
eye care providers (the "Eye Care Providers"), the Eye Care Plan will initially
be comprised of an aggregate of approximately 7,000 opticians, optometrists and
ophthalmologists located throughout the United States. Under the Eye Care Plan,
Members will be entitled to receive eye care services and products, including
eye examinations, contact lens fittings and eye wear purchases at a
pre-determined discount off the usual and customary amounts charged by the Eye
Care Providers. Members will also be eligible to receive a discount on RK
surgical procedures, a surgical procedure which is typically not covered by
traditional health insurance.
Based on industry data, the Company believes that approximately 60% of all
Americans (and approximately 70% of working-age Americans) wear corrective
eyewear. Industry data also indicates that approximately one out of every five
people, whether or not wearing corrective eyewear, is in need of additional
vision correction. As the population in the United States ages, there is
expected to be a greater need for corrective eyewear. In addition, the increase
in the number of persons working at video display terminals has led to increased
eye care needs among employees and calls for legislation which may require
employers to provide certain eye care benefits.
Pursuant to the Company's eye care provider contracts, the Eye Care
Providers have agreed to provide eye care services and products to Members in
the Company's Eye Care Plan at discounts ranging from 5% to 30% off retail
prices. Such services and products will be provided by opticians, optometrists
and ophthalmologists working at vision care centers managed and administered by
the Eye Care Providers. The Eye Care Providers are expected to solicit and
contract with additional Providers to participate in the eye care segment of the
Company's Networks and have agreed to continue to manage and provide
administrative services to Providers at their respective vision care centers.
Dental Services. The Company's Networks include dental services and
products designed to provide savings to Members by reducing the cost of dental
examinations and products (the "Dental Plan"). Pursuant to a non-exclusive
agreement with CAREINGTON international ("Careington"), a national network of
dental service providers, the Dental Plan will initially be comprised of an
aggregate of approximately 26,000 dentists located throughout the United States.
Under the Dental Plan, Members will be entitled to receive dental services and
products, including routine check-ups and cleanings at a pre-determined discount
off the usual and customary amount charged by the Providers.
Although many large employers offer dental benefit coverage to their
employees, according to the 1993 Foster Higgins Survey of Employee Sponsored
Health Plans, only 37% of employers with less than 200 employees offer dental
benefits. Moreover, according to the American Dental Association (1992), dental
care is the leading neglected health need in the United States.
Pursuant to the Company's contract with Careington, Careington has agreed
to provide dental services and products to Members in the Company's Dental Plan
at discounts of 10% to 60% off usual and customary prices. Members in the Dental
Plan will have access to Careington's network of dentists throughout the United
States, and as the Company expands the Dental Plan, Careington has agreed to
solicit and contract with additional dental Providers to participate in the
Networks. Careington has agreed to continue to manage and provide administrative
services to Providers included in its dental network.
Pharmaceutical Plans. The Company's Networks include a retail
pharmaceutical plan (the "Retail Pharmaceutical Plan") and a mail-order
pharmaceutical plan (the "Mail-Order Pharmaceutical Plan"). Pursuant to a
non-exclusive agreement with The Inteq Group, Inc., a network of national
pharmacy chains, the Retail Pharmaceutical Plan will initially be comprised of
approximately 20,000 national pharmacies throughout the United States. Members
enrolling in the Retail Pharmaceutical Plan will be able to obtain minimum
discounts of 12% for brand name drugs and 20% for generic drugs off the average
wholesale price at the point of purchase at participating national pharmacy
chains.
Pursuant to a non-exclusive agreement with Prescription Care, Inc. ("PCI"),
an operator of a mail-order pharmacy system, Members enrolling in the Mail-Order
Pharmaceutical Plan will be able to obtain minimum discounts of 14% for brand
name drugs and 40% for generic drugs off the average wholesale price, plus
certain dispensing and shipping and handling fees. The Company will also receive
a commission from PCI for each prescription order filled by PCI through the
Mail-Order Pharmaceutical Plan.
23
<PAGE>
Although Members may continue to purchase acute prescription drugs at
retail pharmacies, Network Pharmacies and other retail outlets, the Company
believes that the Mail-Order Pharmaceutical Plan will find acceptance among many
Members due to the economy and convenience that such program offers. The Company
also believes that the added personal convenience of receiving as much as a 90
day supply of prescription maintenance drugs instead of the shorter supply
(typically 30 to 34 days) generally provided by other prescription drug programs
which utilize participating retail pharmacies will be attractive to Members. The
purchase of prescription maintenance drugs through the Mail-Order Pharmaceutical
Plan may also result in substantial savings to Members. By using professional
staff only for the purpose of dispensing prescription maintenance drugs rather
than for the many nonprofessional tasks associated with the operation of retail
drug stores, the Company believes that mail service pharmacies generally incur
lower operating costs than current retail pharmacy-based delivery systems and
will therefore be able to pass along substantial savings to Members.
Hearing Services. The Company's Networks include hearing services and
products designed to provide savings to Members by reducing the cost of hearing
examinations and products (the "Hearing Plan"). Pursuant to an agreement with
Miracle Ear, a national network of hearing products and service providers, the
Hearing Plan will initially be comprised of an aggregate of approximately 1,000
retail locations throughout the United States. Under the Hearing Plan, Members
will be entitled to receive hearing services and products, including routine
check-ups and hearing aid products and accessory purchases at a pre-determined
discount off the usual and customary amount charged by the Providers.
Pursuant to the Company's contract with Miracle Ear, participating Miracle
Ear franchises have agreed to provide hearing examinations and certain other
services at no cost to Members in the Company's Hearing Plan and hearing aid
products at discounts of 15% to 20% off retail prices. Members in the Hearing
Plan will have access to participating Miracle Ear franchises throughout the
United States, and as the Company expands the Hearing Plan, Miracle Ear has
agreed to market the Company's plan and will encourage additional Miracle Ear
franchises to participate in the Networks. Miracle Ear has agreed to continue to
manage and provide administrative services to its franchisees.
Chiropractic Services. The Company's Networks include chiropractic services
designed to provide savings to Members by reducing the cost of chiropractic
examinations and related services (the "Chiropractic Plan"). Pursuant to an
agreement with ChiroSource Inc. ("ChiroSource"), a national network of
chiropractic service providers, the Chiropractic Plan will initially be
comprised of an aggregate of approximately 3,000 providers throughout the United
States. Under the Chiropractic Plan, Members will be entitled to receive
chiropractic services, including chiropractic examinations and related services
at a pre-determined discount off the usual and customary amount charged by the
Providers.
Based upon the National Board of Chiropractic Examiners, approximately 18
million people in the United States used chiropractic services in 1995. The
Company believes that many of these services were not covered by traditional
health care insurance.
Pursuant to the Company's contract with ChiroSource, participating
chiropractors have agreed to provide chiropractic examinations and related
services at discounts of 20% off usual and customary prices. Members in the
Chiropractic Plan will have access to participating chiropractors throughout the
United States. ChiroSource has agreed to solicit additional Providers to
participate in the chiropractic segment of the Company's Networks and has agreed
to continue to manage and provide administrative services to the chiropractors
participating in ChiroSource's network.
Advantages of the HealthCare Solutions Card
Advantages to Members. In addition to providing access to ancillary health
care products and services on a discounted fee-for-service basis at the point of
purchase, the Company believes the HealthCare Solutions Card will be attractive
to Members because of its flexibility and ease of use. Membership in the
HealthCare Solutions Card program will be unrestricted, thereby providing
potential benefits to individuals who, because of their medical history, age or
occupation, are otherwise unable to obtain such benefits. The HealthCare
Solutions Card will cover each person in the Member's immediate family and can
be used as often as each participant wishes. In addition, unlike many
traditional indemnity or managed care programs, Members will have no paperwork
or claims to prepare, no waiting periods, and no prior authorizations will be
required. Moreover, in certain cases, membership in the
24
<PAGE>
Company's programs will entitle Members to benefits that would otherwise be
unavailable or difficult to obtain. For example, the Company's Mail-Order
Pharmaceutical Plan provides access to mail order pharmacies that will enable
Members to obtain longer supplies of drugs and home delivery. In addition, even
where a Member may already have insurance for a particular ancillary product,
the HealthCare Solutions Card will entitle Members to various products and
services that would typically be excluded from traditional health care
insurance, including certain pharmaceuticals, vitamins, growth hormones, oral
contraceptives, smoking deterrents and fertility drugs, and certain elective
procedures and services.
Advantages to Providers and Networks. The Company believes that health care
providers will be attracted to the Company's program because the Networks will
supplement the practices of Providers by enabling them to obtain additional
patients who are Members while allowing Providers to retain their existing
practices. Although Members generally pay fees and charges less than those of
non-Members, the incremental business from Members can be an important source of
revenue to the Providers, with little or no increase in their overhead costs.
However, there can be no assurance that Providers will continue to participate
in the Networks even if their participation results in such an increase in
revenues since the Member portion of their business may be relatively less
profitable. In addition, the Company believes that its program will be
attractive to provider networks because it may increase the likelihood that
Providers will affiliate with provider networks in order to have access to
Members, and accordingly, provider networks may realize increased revenues from
such affiliations.
Advantages to Sponsors. The Company believes that the HealthCare Solutions
Card will assist Sponsors in their efforts to attract and retain employees by
enabling them to offer a more complete health care benefits package. In
addition, due to the low cost of the HealthCare Solutions Card, Sponsors may
even choose to offer it to part-time employees, who often are not eligible for
health care benefits offered to full-time employees. Moreover, because the
HealthCare Solutions Card is a discount card and not an insurance product,
Sponsors can offer discounts to their employees or members without bearing any
economic risk over the annual cost of the card.
Sales and Marketing
The Company intends to rely primarily upon the services of independent
sales representatives, including brokers, agents, consumer marketing
organizations and associations, to market the HealthCare Solutions Card. The
Company anticipates that such arrangements will generally provide for a
commission based upon a percentage of sales of the HealthCare Solutions Card.
The Company believes that there are a large number of independent brokers and
other agents nationwide with whom the Company may establish relationships. To
date, the Company has entered into several agreements with individuals and
entities who are expected to serve as independent brokers and intends to
continue to contract with additional independent brokers in the future. In
addition, the Company maintains an in-house sales force that currently consists
of two persons, and the Company intends to hire additional salespersons as
needed in the near term.
The Company intends to market the HealthCare Solutions Card principally to
potential Sponsors, including insurance carriers, third party administrators,
corporations, HMOs, preferred provider organizations, Blue Cross and Blue Shield
organizations and unions, which have, or have access to, a large number of
potential Members. The Company believes that its use of independent brokers and
third party administrators will not only provide immediate access to specific
organizations with potential Members, but will also enable the Company to
establish relationships with these individuals and entities who may be
gatekeepers to even greater numbers of potential Members through their extensive
contacts in their respective industries.
The Company anticipates that Sponsors will either fund the HealthCare
Solutions Card program on behalf of their members or employees so that every
eligible individual in the organization becomes a Member or they will offer the
HealthCare Solutions Card to their members or employees as an option where each
individual will be responsible for purchasing the HealthCare Solutions Card and
paying the annual fee (either directly or through a payroll deduction plan). The
Company also expects to market the HealthCare Solutions Card directly to
potential Members, particularly in cases where a Sponsor offers the HealthCare
Solutions Card as an unpaid option to its members or employees.
The Company intends to market the HealthCare Solutions Card as an
"affinity" card to selected large Sponsors, including large corporations and
consumer marketing organizations. Pursuant to such affinity card arrangements,
the Sponsor would be able to custom design, and place its own name on, the
HealthCare Solutions Card. In certain
25
<PAGE>
cases, the Company's name may not appear on the card, although the Company would
provide access to its Networks, as well as all required fulfillment services.
The Company believes that affinity cards will be attractive to certain Sponsors
because they will enable the Sponsor to more closely identify itself with the
benefit provided to the Member. Moreover, the Company believes that the
preexisting relationship, or affinity, between the Sponsor and its employees or
members may enhance the likelihood that a potential Member will purchase the
card.
The Company's ability to demonstrate its customer service capabilities will
be a key element in the Company's marketing efforts, particularly those efforts
targeting large Sponsors. The Company believes that the Network Administration
System, once fully operational, will enable the Company to quickly and
efficiently respond to requests of Members and Sponsors. See "-- The Network
Administration System."
The Company anticipates that its marketing efforts, and the expenses
associated therewith, will be heavily concentrated in the first few years of its
operation. The Company's marketing efforts will emphasize substantial potential
discounts to Members through their use of the HealthCare Solutions Card, as well
as the broad array of ancillary health care services and products which are
included in the Company's Networks.
The Network Administration System
The Company has substantially completed the initial design and development
of the Network Administration System, a management information system which the
Company believes will (i) facilitate its ability to process Member applications
and access Member and Provider data, (ii) enhance the Company's customer service
capabilities and (iii) facilitate its ability to process and pay commissions to
brokers and fees to certain providers. See "-- Sales and Marketing." The Network
Administration System database will contain information relating to Members,
such as eligibility in the respective plan, services and products available to
Members, the discounts available to the Member for services and products,
locations of Providers and utilization data provided to the Company on a
quarterly basis by each of the Providers in the Networks. The Company believes
that the Network Administration System will enable it to enroll Members
electronically, quickly respond to information requests from Members, Sponsors
and Providers, assist Members in locating the nearest Provider and facilitate
billing and data processing.
The Company is also developing an internet web site which will be
accessible by existing and potential Providers, Sponsors, Members and
independent sales representatives. Individuals accessing the web site will be
able to review the ancillary health care benefit plans offered by the Company, a
list of Providers in the Networks and their locations, the products and services
provided by the Providers, the discounts available to Members for services and
products and any special promotions. Individuals accessing the Company's
internet web site will also be able to immediately apply for a HealthCare
Solutions Card by filling out an application online.
Competition
The Company believes that a critical element of its business is the
competition for a portion of the benefit dollars allocated by various
organizations for employee benefit programs. The Company competes for a portion
of those dollars with various other cost-containment marketing organizations,
pharmacy indemnity programs, retail pharmacies, mail order prescription
companies, preferred provider organizations, HMOs, health care membership
programs and other ancillary health care insurance programs for Members and
Providers. With respect to its vision, hearing, dental, pharmaceutical and
chiropractic businesses, the Company will compete for potential Sponsors,
Members and Providers, depending on the geographic area or market, with various
entities that have developed discount membership cards which provide national
coverage, including AT&T, CUC International, Inc. and J.C. Penney & Co., Inc.,
and entities that have developed discount membership cards which provide
regional coverage only. The Company will also compete with various organizations
which provide services and products in specific areas of ancillary healthcare.
With respect to eye care services, the Company will compete with various
provider organizations, including Avesis, Cole Vision, Eye Care Plan of America
and Spectrum Vision Systems. With respect to its pharmaceutical services, the
Company will compete with cost containment marketing organizations for mail
order prescription drugs, such as Medco Containment Services, Inc., America's
Pharmacy (a division of Caremark, Inc.), Health Care Services, Inc. and Thrift
Drug (a division of J.C. Penney & Co., Inc.); the pharmacy division of the
non-profit American Association of Retired Persons; service delivered pharmacy
indemnity programs; independent and chain-operated retail pharmacy outlets,
retail medical/surgical supply companies and other mail order prescription
companies; HMOs and health care membership programs. Most of these competitors
have had longer operating
26
<PAGE>
histories and have significantly greater financial, marketing and administrative
resources than the Company. There can be no assurance that the Company will
develop products that achieve greater market acceptance than competitive
products or that the Company's competitors will not succeed in developing
products that would render the Company's products less competitive or obsolete.
The Company believes that the broad range of choices of ancillary health
care benefit packages, its customer service capabilities resulting from the
Network Administration System and its competitive pricing will differentiate it
from its competitors and enable it to offer a more comprehensive and cost
effective solution to its customers' needs.
See "-- Sales and Marketing."
Government Regulation
The delivery of health care products and services is subject to extensive
federal, state and local regulation, including but not limited to the
prohibition of business corporations from providing medical care, fraud and
abuse provisions of the Medicare and Medicaid statutes, state laws that prohibit
physicians from splitting fees with non-physicians and certain insurance
regulations. The utilization fees received by the Company in connection with the
Mail-Order Pharmaceutical Plan may contravene the literal provisions of these
statutes and regulations in a number of states in which the Company intends to
operate. Moreover, legislation in these areas continues to evolve. The Company
has not obtained any rulings from any governmental authorities or an opinion of
counsel with regard to any of these matters. Although the Company believes that
it is presently in compliance with such laws and regulations, there can be no
assurance that the Company will remain in compliance or that future legislation
will not adversely affect the Company's business or require changes in its
corporate structure. A determination that the Company is in violation of any
such regulations could have a material adverse effect on the Company.
Certain Sponsors may also require approval of state insurance and other
regulatory agencies before participating in the Networks. Such a requirement may
result in the delay or denial of such Sponsor's participation in the Networks.
To the extent that the foregoing or other laws and regulations are applicable to
the operations of the Company or to the Providers participating in the Company
programs, the Company's business could be materially and adversely affected.
Proprietary Rights
The Company's Network Administration System is a critical component of the
Company's ability to provide customer service and process other data. The
Company relies on trade secrets to establish and protect its proprietary rights
to its Network Administration System. However, trade secrets are difficult to
protect and there can be no assurance that others will not independently develop
substantially equivalent proprietary technology or otherwise gain access to the
Company's trade secrets or disclose such technology, or that the Company can
meaningfully protect its rights to unpatented trade secrets.
The Company intends to apply for rights to the tradenames "HEALTHCARE
SOLUTIONS," "THE SOLUTIONS CARD," "HealthCare Savings. Guaranteed," and
"HEALTHCORE MEDICAL SOLUTIONS, INC." and the service marks for "HEALTHCARE
SOLUTIONS" AND "HEALTHCORE MEDICAL SOLUTIONS, INC." from the United States
Patent and Trademark Office, but there can be no assurance that such rights will
be granted. If the Company is not able effectively to protect itself against use
of similar trade names or service marks, or if the Company's use of its trade
names or service marks are found to infringe upon the proprietary rights of
third parties, the Company's business could be adversely affected.
Employees
The Company currently has 12 full-time employees. The Company intends to
hire additional sales, management and administrative personnel. The Company's
future success depends in significant part upon the continued service of its
executive officers and key personnel and its ability to attract and retain
highly qualified sales and marketing and managerial personnel. Competition for
such personnel is intense and there can be no assurance that key employees can
be retained or that it can attract, assimilate or retain other highly qualified
sales and marketing and managerial personnel can be retained in the future. None
of the Company's employees is represented by a labor union. The Company has not
experienced any work stoppages and considers its relations with its employees to
be good.
27
<PAGE>
Facilities
The Company currently leases approximately 4,000 square feet of office
space in Grandview, Missouri for its executive offices pursuant to a lease
agreement that provides for monthly rent of approximately $2,100 and expires in
October 1997 and approximately 1,000 square feet of office space in Springfield,
Missouri for the development of the Network Administration System pursuant to
lease agreements that provide for monthly rent of approximately $1,000 in the
aggregate and expire in October 1997. The Company also reimburses an entity
affiliated with the Company's Chairman and Chief Executive Officer approximately
$1,000 per month for the use of certain office space in New York, New York. The
Company believes that such office space will be suitable for the current and
anticipated needs of the Company.
Legal Proceedings
The Company is not involved in any material legal proceedings.
28
<PAGE>
MANAGEMENT
Executive Officers, Directors and Significant Employees
The following table sets forth the names, ages and positions of the
executive officers, directors and significant employees of the Company.
Name Age Position
---- --- --------
Executive Officers and Directors
Neal J. Polan................... 46 Chairman of the Board and Chief
Executive Officer
James H. Steinheider............ 48 Chief Financial Officer, Chief
Operating Officer and Director
Significant Employees
Theodore W. White, Jr. ......... 35 Vice President -- Sales
Ben E. Randall.................. 52 Vice President -- Information Systems
Ronald F. Torchia............... 59 Vice President and Secretary
Douglas B. Hopkins.............. 30 Director of Customer Service and
Human Resources
NEAL J. POLAN joined the Company as its Chairman of the Board in January
1997 and was elected as Chief Executive Officer in April 1997. Mr. Polan expects
to devote approximately 50% of his business time to activities on behalf of the
Company. Mr. Polan has served as the Managing Director of National Financial
Co., a middle market merchant bank since April 1996. From March 1992 to
September 1994, Mr. Polan served as the President and a director of Sterling
Vision, Inc., one of the largest optical retailers in the United States and a
publicly traded company.
JAMES H. STEINHEIDER has been the Chief Financial Officer, Chief Operating
Officer and a director of the Company since March 1997. From December 1994 to
February 1997, Mr. Steinheider served as the founder and President of the CFO
Group, Inc., a consulting company that provided chief financial officer services
to small and mid-sized companies. From September 1995 to February 1, 1997, Mr.
Steinheider served as the Chief Financial Officer of Earth Partners, Inc., a
manufacturer of recycling equipment for the automotive industry. From October
1992 to October 1993, Mr. Steinheider served as the Senior Vice President and
Chief Financial Officer of Medifax, Inc., a provider of medical transcription
services for physicians and hospitals. Mr. Steinheider is a Certified Public
Accountant.
THEODORE W. WHITE, JR. is a co-founder of the Company and has been the Vice
President -- Sales since February 1997. From October 1995 to February 1997, Mr.
White served as President and acted in the capacity of Chief Executive Officer
of MegaVision, the predecessor of the Company. From March 1994 to October 1995,
Mr. White worked as an insurance agent for Bankers Life and Casualty Co. of
Chicago, Illinois. From September 1991 to December 1994, Mr. White attended
Cleveland Chiropractic College.
BEN E. RANDALL has been a Vice President -- Information Systems of the
Company since February 1997. From January 1996 to February 1997, Mr. Randall
served as a Managing Member of MegaVision. From November 1989 to January 1996,
Mr. Randall was the owner and President of R&R Computer Services, a computer
software developer for the real estate insurance and appraisal industries.
RONALD F. TORCHIA is a co-founder of the Company and has been a Vice
President and Secretary since February 1997. From October 1995 to February 1997,
Mr. Torchia served as a Managing Member of MegaVision. From October 1991 to
October 1995, Mr. Torchia managed A&R Contracting, Inc., a company engaged in
the business of preparing property loss bids for insurance companies.
DOUGLAS B. HOPKINS has been the Director of Customer Service and Human
Resources of the Company since April 1997. From February 1996 to September 1996,
Mr. Hopkins served as the Customer Service Supervisor of Lam Research
Corporation, a manufacturer of machines used in the production of
semi-conductors. From August 1993 through November 1995, Mr. Hopkins served as
the Director of Human Resources of Capital Christian Center, an educational
facility. From February 1991 to August 1993, Mr. Hopkins served as an Insurance
Policy Service Representative of United Services Automobile Association.
29
<PAGE>
Directors serve until the next annual meeting or until their successors are
elected and qualified. Officers serve at the discretion of the Board of
Directors, subject to rights, if any, under contracts of employment.
The Company has agreed, if requested by the Underwriter, to nominate a
designee of the Underwriter to the Company's Board of Directors for a period of
five years from the date of this Prospectus. See "Underwriting."
The Board of Directors intends to establish a Compensation Committee and an
Audit Committee. The Compensation Committee is expected to make recommendations
to the Board concerning salaries and incentive compensation for officers and
employees of the Company and may administer the Company's 1997 Stock Option
Plan. The Audit Committee is expected to review, with the Company's independent
accountants, the scope, timing and results of audit services and any other
services that the accountants are asked to perform, their report on the
Company's financial statements following completion of their audit and the
Company's policies and procedures with respect to internal accounting and
financial controls. In addition, the Audit Committee is expected to make annual
recommendations to the Board of Directors for the appointment of independent
public accountants for the ensuing year.
Executive Compensation
The following Summary Compensation Table sets forth the compensation paid
or accrued by the Company for services rendered by Theodore W. White, Jr., the
former acting Chief Executive Officer of MegaVision, the predecessor of the
Company, for the fiscal year ended September 30, 1996 (the "named executive
officers"):
Summary Compensation Table
Annual Compensation
Compensation ---------------------- Long-Term
Name and Present Other Annual Awards
Principal Position Year Salary Bonus Compensation Options
------------------ ---- ------ ----- ------------ -------
Theodore W. White, Jr. (1).. 1996 125,000 -- -- --
- ----------------
(1) For a portion of 1996, Mr. White acted in the capacity of the Chief
Executive Officer for MegaVision, the predecessor of the Company.
Director Compensation
After completion of the Offering, non-employee directors will receive $500
for each Board and committee meeting attended and will be reimbursed for their
expenses in attending such meetings. Directors are not precluded from serving
the Company in any other capacity and receiving compensation therefor. In
addition, directors may also receive stock option grants under the Company's
1997 Stock Option Plan. See "-- Stock Options."
Stock Options
In February 1997, the Board of Directors adopted and the Company's
stockholders approved, the 1997 Stock Option Plan (the "Plan"), which provides
for the grant by the Company of options to purchase up to an aggregate of
200,000 shares of the Company's authorized but unissued Common Stock. Pursuant
to the Plan, employees, officers and directors of, and consultants or advisers
to, the Company and any subsidiary corporations are eligible to receive
incentive stock options ("incentive options") within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code") and/or options
that do not qualify as incentive options ("non-qualified options"). The Plan,
which expires in February 2007, will be administered by the Board of Directors
or a committee of the Board of Directors. The purposes of the Plan are to ensure
the retention of existing executive personnel, key employees, directors,
consultants and advisors who are expected to contribute to the Company's future
growth and success and to provide additional incentive by permitting such
individuals to participation the ownership of the Company, and the criteria to
be utilized by the Board of Directors or the committee in granting options
pursuant to the Plan will be consistent with these purposes. The Plan provides
for automatic grants of options to certain directors in the manner set forth
below.
Options granted under the Plan may be either incentive options or
non-qualified options. Incentive options granted under the Plan are exercisable
for a period of up to 10 years from the date of grant at an exercise price which
is not less than the fair market value of the Common Stock on the date of the
grant, except that the term of an incentive option granted under the Plan to a
stockholder owning more than 10% of the outstanding voting power
30
<PAGE>
may not exceed five years and its exercise price may not be less than 110% of
the fair market value of the Common Stock on the date of the grant. To the
extent that the aggregate fair market value, as of the date of grant, of the
shares for which incentive options become exercisable for the first time by an
optionee during the calendar year exceeds $100,000, the portion of such option
which is in excess of the $100,000 limitation will be treated as a non-qualified
option. Options granted under the Plan to officers, directors or employees of
the Company may be exercised only while the optionee is employed or retained by
the Company or within 90 days of the date of termination of the employment
relationship or directorship. However, options which are exercisable at the time
of termination by reason of death or permanent disability of the optionee may be
exercised within 12 months of the date of termination of the employment
relationship or directorship. Upon the exercise of an option, payment may be
made by cash or by any other means that the Board of Directors or the committee
determines. No option may be granted under the Plan after February 2007.
Options may be granted only to such employees, officers and directors of,
and consultants and advisors to, the Company or any subsidiary of the Company as
the Board of Directors or the committee shall select from time to time in its
sole discretion, provided that only employees of the Company or a subsidiary of
the Company shall be eligible to receive incentive options. As of March 31,
1997, the number of employees, officers and directors of the Company eligible to
receive grants under the Plan was 12 persons. The number of consultants and
advisors to the Company eligible to receive grants under the Plan is not
determinable. An optionee may be granted more than one option under the Plan.
The Board of Directors or the committee will, in its discretion, determine
(subject to the terms of the Plan) who will be granted options, the time or
times at which options shall be granted, and the number of shares subject to
each option, whether the options are incentive options or non-qualified options,
and the manner in which options may be exercised. In making such determination,
consideration may be given to the value of the services rendered by the
respective individuals, their present and potential contributions to the success
of the Company and its subsidiaries and such other factors deemed relevant in
accomplishing the purpose of the Plan.
Under the Plan, the optionee has none of the rights of a stockholder with
respect to the shares issuable upon the exercise of the option until such shares
shall be issued upon such exercise. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to the date of
exercise, except as provided in the Plan. During the lifetime of the optionee,
an option shall be exercisable only by the optionee. No incentive option may be
sold, pledged, assigned, hypothecated, transferred or disposed of in any manner
other than by will or by the laws of decent and distribution. The Board of
Directors or the committee may authorize non-qualified options to be
transferable to immediate family members, trusts for the benefit of immediate
family members, partnerships of immediate family members and non-profit
charitable organizations.
The Board of Directors may amend or terminate the Plan except that
stockholder approval is required to effect a change so as to increase the
aggregate number of shares that may be issued under the Plan (unless adjusted to
reflect such changes as a result of a stock dividend, stock split,
recapitalization, merger or consolidation of the Company), to modify the
requirements as to eligibility to receive options, to increase materially the
benefits accruing to participants or as otherwise may be required by Rule 16b-3
or Section 422 of the Code. No action taken by the Board may materially and
adversely affect any outstanding option grant without the consent of the
optionee.
Under current tax law, there are no Federal income tax consequences to
either the employee or the Company on the grant of non-qualified options if
granted under the terms set forth in the Plan. Upon exercise of a non-qualified
option, the excess of the fair market value of the shares subject to the option
over the option price (the "Spread") at the date of exercise is taxable as
ordinary income to the optionee in the year it is exercised and is deductible by
the Company as compensation for Federal income tax purposes, if Federal income
tax is withheld on the Spread. However, if the shares are subject to vesting
restrictions conditioned on future employment or the holder is subject to the
short-swing profits liability restrictions of Section 16(b) of the Exchange Act
of (i.e., is an executive officer, director or 10% stockholder of the Company)
then taxation and measurement of the Spread is deferred until such restrictions
lapse, unless a special election is made under Section 83(b) of the Code to
report such income currently without regard to such restrictions. The optionee's
basis in the shares will be equal to the fair market value on the date taxation
is imposed and the holding period commences on such date.
Incentive option holders incur no regular Federal income tax liability at
the time of grant or upon exercise of such option, assuming that the optionee
was an employee of the Company from the date the option was granted until 90
days before such exercise. However, upon exercise, the Spread must be added to
regular Federal taxable income in computing the optionee's "alternative minimum
tax" liability. An optionee's basis in the shares received on
31
<PAGE>
exercise of an incentive stock option will be the option price of such shares
for regular income tax purposes. No deduction is allowable to the Company for
Federal income tax purposes in connection with the grant or exercise of such
option.
If the holder of shares acquired through exercise of an incentive option
sells such shares within two years of the date of grant of such option or within
one year from the date of exercise of such option (a "Disqualifying
Disposition"), the optionee will realize income taxable at ordinary rates.
Ordinary income is reportable during the year of such sale equal to the
difference between the option price and the fair market value of the shares at
the date the option is exercised, but the amount includable as ordinary income
shall not exceed the excess, if any, of the proceeds of such sale over the
option price. In addition to ordinary income, a Disqualifying Disposition may
result in taxable income subject to capital gains treatment if the sales
proceeds exceed the optionee's basis in the shares (i.e., the option price plus
the amount includable as ordinary income). The amount of the optionee's taxable
ordinary income will be deductible by the Company in the year of the
Disqualifying Disposition.
At the time of sale of shares received upon exercise of an option (other
than a Disqualifying Disposition of shares received upon the exercise of an
incentive option), any gain or loss is long-term or short-term capital gain or
loss, depending upon the holding period. The holding period for long-term
capital gain or loss treatment is more than one year.
The foregoing is not intended to be an exhaustive analysis of the tax
consequences relating to stock options issued under the Plan. For instance, the
treatment of options under state and local tax laws, which is not described
above, may differ from the treatment for Federal income tax purposes.
To date, options to purchase 30,000 shares of Common Stock at an exercise
price of $5.00 per share have been granted under the Plan. All of such options
were granted in May 1997.
Limitation of Liability and Indemnification Matters
The Company's Certificate of Incorporation eliminates in certain
circumstances the liability of directors of the Company for monetary damages for
breach of their fiduciary duty as directors. This provision does not eliminate
the liability of a director (i) for breach of the director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions by the director not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for willful or negligent declaration of an unlawful dividend, stock
purchase or redemption, or (iv) for transactions from which the director derived
an improper personal benefit. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission.
The Company believes that it is the position of the Commission that insofar
as the foregoing provision may be invoked to disclaim liability for damages
arising under the Securities Act, the provision is against public policy as
expressed in the Securities Act and is therefore unenforceable. Such limitation
of liability also does not affect the availability of equitable remedies such as
injunctive relief of recession.
The Company intends to enter into indemnification agreements
("Indemnification Agreement(s)") with each of its directors and officers after
the Offering. Each such Indemnification Agreement will provide that the Company
will indemnify the indemnitee against expenses, including reasonable attorneys'
fees, judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with any civil or criminal action or
administrative proceeding arising out of his performance of his duties as a
director or officer, other than an action instituted by the director or officer.
Such indemnification will be available if the indemnitee acted in good faith and
in a matter he reasonably believed to be in or not opposed to the best interests
of the Company, and, with respect to any criminal action, had no reasonable
cause to believe his conduct was unlawful. The Indemnification Agreements will
also require that the Company indemnify the director or other party thereto in
all cases to the fullest extent permitted by applicable law. Each
Indemnification Agreement will permit the director or officer that is party
thereto to bring suit to seek recovery or amounts due under the Indemnification
Agreement and to recover the expenses of such a suit if he is successful.
The Company's By-laws provide that the Company shall indemnify its
directors, officers, employees or agents to the full extent permitted by the
Delaware General Corporation Law, and the Company shall have the right to
purchase and maintain insurance on behalf of any such person whether or not the
Company would have the power to indemnify such person against the liability. The
Company has not currently purchased any such insurance policy on behalf on any
of its directors, officers, employees or agents.
32
<PAGE>
CERTAIN TRANSACTIONS
In September 1996, Robert E. Hunter, Michael J. Reichert and Donald Umbach,
agreed to contribute to the capital of the Company's predecessor, MegaVision,
L.C., $125,000, $100,000 and $100,000, respectively, of indebtedness owed to
such individuals in exchange for 130, 110 and 70 units, respectively, of limited
liability company interest (which were converted into 78,000, 66,000 and 42,000
shares of Class A Common Stock in connection with the Merger).
In November 1996, MegaVision sold 360 units of limited liability company
interest (which were converted into 216,000 shares of Class B Common Stock in
connection with the Merger) to Neal J. Polan, the Company's Chairman of the
Board and Chief Executive Officer, for $6,300 in cash and for certain consulting
services rendered by Mr. Polan.
Mr. Polan and Theodore White, Jr., an employee of the Company, are expected
to enter into a voting agreement pursuant to which Mr. Polan will be entitled to
vote all of the shares of Class B Common Stock held by Mr. White. The voting
proxy is expected to expire upon the earlier of (i) ________, 2002; (ii) the
death of Mr. Polan; (iii) Mr. Polan's termination of employment with the Company
for any reason; or (iv) if, for the fiscal year ending June 30, 1999, the
Minimum Pretax Income is less than $1,000,000 or if, for any subsequent fiscal
year through the fiscal year ending June 30, 2002, the Company's Minimum Pretax
Income does not equal or exceed an amount equal to the Minimum Pretax Income for
the prior fiscal year plus ten percent (10%). As a result, Mr. Polan will
control 40.9% of the voting power of the Company after completion of the
Offering and will have the ability to influence significantly the election of
directors, outcome of corporate transactions or other matters submitted for
stockholder approval.
Between January and February 1997, Neal J. Polan loaned an aggregate of
approximately $67,000 to the Company for working capital purposes. Such loans
were repaid together with interest at 10% per annum in March 1997 with a portion
of the proceeds of the Bridge Financing.
Neal J. Polan and his wife, jointly, invested $50,000 in the Bridge
Financing in March 1997 (on the same terms as non-affiliated investors) and,
accordingly, received a Bridge Note in such amount, which will be repaid from
the proceeds of the Offering, and 25,000 warrants, which will be exchanged for
25,000 Bridge Warrants upon the completion of the Offering. See "Use of
Proceeds."
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. The Company has adopted a policy that all future
transactions between the Company and its officers, directors, principal
stockholders and their affiliates will be approved by a majority of the Board of
Directors, including a majority of the independent and disinterested outside
directors on the Board of Directors, and will continue to be on terms no less
favorable to the Company than could be obtained from unaffiliated third parties.
33
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the ownership
of Common Stock by (i) each person known by the Company to own beneficially more
than 5% of the outstanding Common Stock, (ii) each director and named executive
officer of the Company and (iii) all executive officers and directors of the
Company as a group, (a) prior to the Offering and (b) as adjusted to give effect
to the sale of the 1,760,000 Units offered hereby:
<TABLE>
<CAPTION>
Percent of Shares
Beneficially Owned
Shares ------------------- Percent of
Beneficially Before After Voting Power
Name and Address of Beneficial Owner(1) Owned(2) Offering Offering After Offering (3)
- --------------------------------------- --------- -------- -------- ------------------
<S> <C> <C> <C> <C>
Neal J. Polan.................................... 216,000 (4)(5) 18.0% 7.3% 40.9%
James H. Steinheider............................. -- (6) * * *
Ronald F. Torchia................................ 114,000 9.5 3.9 2.6
Ben E. Randall................................... 114,000 9.5 3.9 2.6
Theodore W. White, Jr. .......................... 144,000 (5) 12.0 4.9 *
Robert Hunter (7)................................ 132,000 11.0 4.5 3.0
Annette Lebor (8)................................ 132,000 11.0 4.5 3.0
Michael J. Reichert Revocable Trust (9).......... 132,000 11.0 4.5 3.0
Donald E. Umbach Revocable Trust (10)............ 66,000 5.5 2.2 1.5
Patricia L. Umbach Revocable Trust (11).......... 66,000 5.5 2.2 1.5
All executive officers and directors
as a group (2 persons) ........................ 216,000 (12) 18.0% 7.3% 40.9%
</TABLE>
- ----------------
* Less than 1%
(1) Unless otherwise indicated, the address of such individual is c/o
HealthCore Medical Solutions, Inc., 11904 Blue Ridge Boulevard, Grandview,
Missouri 64030.
(2) Includes such individuals' Escrow Shares.
(3) For purposes of this calculation, the shares of Class A Common Stock and
shares of Class B Common Stock are treated as a single class. The shares of
Class B Common Stock are entitled to five votes per share, whereas the
shares of Class A Common Stock are entitled to one vote per share. See
"Description of Securities."
(4) Includes 48,000 shares of Class B Common Stock held by Mr. Polan as
custodian for his child. Mr. Polan is the beneficial owner of such shares
by virtue of his authority to vote and/or dispose of such shares.
(5) All of such shares are Class B Common Stock. See "Description of
Securities." Mr. Polan and Mr. White own 60.0% and 40.0%, respectively, of
the issued and outstanding shares of Class B Common Stock. Pursuant to a
voting proxy expected to be granted from Mr. White to Mr. Polan, Mr. Polan
will have the power to vote all of the issued and outstanding shares of
Class B Common Stock.
(6) Does not include 10,000 shares of Class A Common Stock issuable upon
exercise of options that are not exercisable within 60 days.
(7) The address of Mr. Hunter is 6301 Trust Avenue, Kansas City, Missouri
64131.
(8) The address of Ms. Lebor is 114 East 32nd Street, New York, New York 10037.
(9) The trustees under the Michael J. Reichert Revocable Trust are Michael J.
Reichert and Jean A. Reichert. Mr. Reichert and Mrs. Reichert are the
beneficial owners of such shares by virtue of their authority to vote
and/or dispose of such shares. The address of the Mr. Reichert and Mrs.
Reichert is P.O. Box 1198, Liberty, Missouri 64069.
(10) The trustee under the Donald E. Umbach Revocable Trust is Donald E. Umbach.
Mr. Umbach is the beneficial owner of such shares by virtue of his
authority to vote and/or dispose of such shares. Mr. Umbach may also be
considered a beneficial owner of the 66,000 shares of Class A Common Stock
held by the Patricia L. Umbach Revocable Trust, under which Mr. Umbach's
wife, Patricia L. Umbach is the trustee. The address of Mr. Umbach is 6905
Blue Ridge Boulevard, Raytown, Missouri 64133.
34
<PAGE>
(11) The trustees under the Patricia L. Umbach Revocable Trust is Patricia L.
Umbach. Mrs. Umbach is the beneficial owner of such shares by virtue of her
authority to vote and/or dispose of such shares. In addition, Mrs. Umbach
may be considered a beneficial owner of the 66,000 shares of Class A Common
Stock held by the Donald E. Umbach Revocable Trust, under which Mrs.
Umbach's husband, Donald E. Umbach is the trustee. The address of Mrs.
Umbach is 6905 Blue Ridge Boulevard, Raytown, Missouri 64133.
(12) Does not include 10,000 shares of Class A Common Stock issuable upon
exercise of options that are not exercisable within 60 days.
Escrow Shares
In connection with the Offering, the current holders of the Company's Class
A and Class B Common Stock have agreed to place, on a pro rata basis, 900,000
shares, or three-quarters of the outstanding shares of Common Stock of the
Company before the Offering, into escrow pursuant to an amended and restated
escrow agreement (the "Escrow Agreement") with American Stock Transfer & Trust
Company, as escrow agent. The Escrow Shares are not transferable or assignable,
but may be voted by the beneficial holders thereof.
400,000 of the Escrow Shares will be released from escrow if, and only if,
one or more of the following conditions is/are met:
(a) the Company's net income before provision for income taxes and
exclusive of any extraordinary earnings (all as audited by the
Company's independent public accountants in accordance with U. S.
generally accepted accounting principles) (the "Minimum Pretax
Income") amounts to at least $3,800,000 for the fiscal year ending
June 30, 1998;
(b) the Minimum Pretax Income amounts to at least $5,500,000 for the
fiscal year ending June 30, 1999;
(c) the Minimum Pretax Income amounts to at least $7,500,000 for the
fiscal year ending June 30, 2000;
(d) the Closing Price (as defined in the Escrow Agreement) of the Common
Stock averages in excess of $12.50 per share for 30 consecutive
business days during the 18-month period commencing on the date of
this Prospectus;
(e) the Closing Price of the Common Stock averages in excess of $16.50 per
share for 30 consecutive business days during the 18-month period
commencing with the nineteenth month from the date of this Prospectus.
The remaining 500,000 Escrow Shares will be released from escrow if, and
only if, one or more of the following conditions is/are met:
(a) the Minimum Pretax Income amounts to at least $4,600,000 for the
fiscal year ending June 30, 1998;
(b) the Minimum Pretax Income amounts to at least $6,600,000 for the
fiscal year ending June 30, 1999;
(c) the Minimum Pretax Income amounts to at least $9,000,000 for the
fiscal year ending June 30, 2000;
(d) the Closing Price (as defined in the Escrow Agreement) of the Common
Stock averages in excess of $15.00 per share for 30 consecutive
business days during the 18-month period commencing on the date of
this Prospectus;
(e) the Closing Price of the Common Stock averages in excess of $18.00 per
share for 30 consecutive business days during the 18-month period
commencing with the nineteenth month from the date of this Prospectus.
The Minimum Pretax Income amount set forth above shall (i) be calculated
exclusively of any extraordinary earnings, including any charge to income
resulting from release of the Escrow Shares and (ii) be increased
proportionately, with certain limitations, in the event additional shares of
Class A Common Stock or securities convertible into, exchangeable for or
exercisable into Class A Common Stock are issued after completion of the
Offering. The Closing Price amounts set forth above are subject to adjustment in
the event of any stock splits, reverse stock splits or other similar events. The
Escrow Agreement can be amended by a two-thirds vote of the outstanding shares
of Common Stock of the Company, other than any shares held by the stockholders
whose shares are held in escrow.
35
<PAGE>
Any money, securities, rights or property distributed in respect of the
Escrow Shares, including any property distributed as dividends or pursuant to
any stock split, merger, recapitalization, dissolution, or total or partial
liquidation of the Company, shall be held in escrow until release of the Escrow
Shares. If none of the applicable Minimum Pretax Income or Closing Price levels
set forth above have been met by September 30, 2000, the Escrow Shares, as well
as any dividends or other distributions made with respect thereto, will be
cancelled and contributed to the capital of the Company. The Company expects
that the release of the Escrow Shares to officers, directors, employees and
consultants of the Company will be deemed compensatory and, accordingly, will
result in a substantial charge to reportable earnings, which would equal the
fair market value of such shares and options on the date of release. Such charge
could substantially increase the loss or reduce or eliminate the Company's net
income, if any, for financial reporting purposes for the period during which
such shares and options are, or become probable of being, released from escrow.
Although the amount of compensation expense recognized by the Company will not
affect the Company's total stockholders' equity, it may have a negative effect
on the market price of the Company's securities. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Note D of
Notes to Financial Statements.
The Minimum Pretax Income and Closing Price levels set forth above were
determined by negotiation between the Company and the Underwriter and should not
be construed to imply or predict any future earnings by the Company or any
increase in the market price of its securities.
36
<PAGE>
DESCRIPTION OF SECURITIES
The following description of the Company's securities does not purport to
be complete and is subject in all respects to applicable Delaware law and to the
provisions of the Company's Certificate of Incorporation and By-laws, the
Warrant Agreement among the Company, the Underwriter and American Stock Transfer
& Trust Company, as warrant agent, pursuant to which the Warrants will be
issued, and the Underwriting Agreement between the Company and the Underwriter,
copies of all of which have been filed with the Commission as exhibits to the
Registration Statement of which this Prospectus is a part.
The Company's authorized capital stock currently consists of 19,640,000
shares of Class A Common Stock, par value $.01 per share, 360,000 shares of
Class B Common Stock, par value $.01 per share, and 5,000,000 shares of
Preferred Stock, par value $.01 per share.
Units
Each Unit consists of one share of Class A Common Stock and one redeemable
Class A Warrant. Each Class A Warrant entitles the holder to purchase one share
of Class A Common Stock. The Class A Common Stock and Class A Warrants
comprising the Units are separately transferable immediately upon issuance.
Common Stock
Class A Common Stock
Immediately prior to the date hereof there were 840,000 shares of Class A
Common Stock outstanding held by 10 stockholders of record. Holders of Class A
Common Stock have the right to cast one vote for each share held of record on
all matters submitted to a vote of holders of Class A Common Stock. The Class A
Common Stock and Class B Common Stock vote together as a single class on all
matters on which stockholders may vote, except as required by law.
Holders of Class A Common Stock are entitled to dividends, together with
the holders of Class B Common Stock, pro rata based on the number of shares
held, when, as and if declared by the Board of Directors, from funds legally
available therefor subject to the rights of holders of any outstanding preferred
stock. In the case of dividends or other distributions payable in stock of the
Company, including distributions pursuant to stock splits or division of stock
of the Company, only shares of Class A Common Stock will be distributed with
respect to Class A Common Stock. In the event of liquidation, dissolution or
winding up of the affairs of the Company, all assets and funds of the Company
remaining after the payment to creditors and to holders of preferred stock shall
be distributed, pro rata, among the holders of the Class A Common Stock and the
Class B Common Stock. Holders of Class A Common Stock are not entitled to
preemptive, subscription, cumulative voting or conversion rights, and there are
no redemption or sinking fund provisions applicable to the Class A Common Stock.
All shares of Class A Common Stock are, and the shares of Class A Common Stock
offered hereby will be when issued, fully paid and non-assessable.
Class B Common Stock
Immediately prior to the date hereof there were 360,000 shares of Class B
Common Stock outstanding held by three stockholders of record. Each share of
Class B Common Stock is entitled to five votes on all matters on which
stockholders may vote, including the election of directors. The Class A Common
Stock and Class B Common Stock vote together as a single class on all matters on
which stockholders may vote, except as required by law.
Holders of Class B Common Stock are entitled to participate together with
the holders of Class A Common Stock, pro rata based on the number of shares
held, in the payment of cash dividends and in the liquidation, dissolution and
winding up of the Company subject to the rights of holders of any outstanding
preferred stock. In the case of dividends, or other distributions payable in
stock of the Company, including distributions pursuant to stock splits or
divisions of stock of the Company, only shares of Class A Common Stock shall be
distributed with respect to Class B Common Stock.
Each share of Class B Common Stock is automatically converted into one
share of Class A Common Stock upon (i) its sale, gift or transfer, (ii) the
death of the original holder thereof, (iii) the holder's termination of
employment with the Company for any reason or (iv) if, for the fiscal year ended
June 30, 1999, the Minimum Pretax Income is
37
<PAGE>
less than $1,000,000 or if, for any subsequent fiscal year through the fiscal
year ended June 30, 2002, the Company's Minimum Pretax Income does not equal or
exceed an amount equal to the Minimum Pretax Income for the prior fiscal year
plus ten percent (10%).
The difference in voting rights increases the voting power of the holders
of Class B Common Stock and accordingly has an anti-takeover effect. The
existence of the Class B Common Stock may make the Company a less attractive
target for a hostile takeover bid or render more difficult or discourage a
merger proposal, an unfriendly tender offer, a proxy contest, or the removal of
incumbent management, even if such transactions were favored by the stockholders
of the Company other than the holders of Class B Common Stock. Thus, the
stockholders may be deprived of an opportunity to sell their shares at a premium
over prevailing market prices in the event of a hostile takeover bid. Those
seeking to acquire the Company through a business combination will be compelled
to consult first with the holders of Class B Common Stock in order to negotiate
the terms of such business combination. Any such proposed business combination
will have to be approved by the Board of Directors, which may be under the
control of the holders of Class B Common Stock, and if stockholder approval were
required, the approval of the holders of Class B Common Stock will be necessary
before any such business combination can be consummated.
Redeemable Class A Warrants
Each Class A Warrant entitles the registered holder to purchase one share
of Class A Common Stock at an exercise price of $6.50 at any time until 5:00
P.M., New York City time, on _____________, 2002. Commencing one year from the
date of this Prospectus, the Class A Warrants are redeemable by the Company on
30 days' written notice at a redemption price of $.05 per Class A Warrant if the
"closing price" of the Company's Class A Common Stock for any 30 consecutive
trading days ending within 15 days of the notice of redemption averages in
excess of $9.10 per share. "Closing price" shall mean the closing bid price if
listed in the over-the-counter market on Nasdaq or otherwise or the closing sale
price if listed on the Nasdaq National Market or a national securities exchange.
All Class A Warrants must be redeemed if any are redeemed.
The Class A Warrants will be issued pursuant to a warrant agreement (the
"Warrant Agreement") among the Company, the Underwriter and American Stock
Transfer & Trust Company, New York, New York, as warrant agent (the "Warrant
Agent"), and will be evidenced by warrant certificates in registered form. The
Class A Warrants provide for adjustment of the exercise price and for a change
in the number of shares issuable upon exercise to protect holders against
dilution in the event of a stock dividend, stock split, combination or
reclassification of the Common Stock or upon issuance of shares of Common Stock
at prices lower than the market price of the Common Stock, with certain
exceptions.
The exercise price of the Class A Warrants was determined by negotiation
between the Company and the Underwriter and should not be construed to be
predictive of or to imply that any price increases in the Company's securities
will occur.
The Company has reserved from its authorized but unissued shares a
sufficient number of shares of Class A Common Stock for issuance upon the
exercise of the Class A Warrants. A Class A Warrant may be exercised upon
surrender of the Warrant certificate on or prior to its expiration date (or
earlier redemption date) at the offices of the Warrant Agent, with the form of
"Election to Purchase" on the reverse side of the Warrant certificate completed
and executed as indicated, accompanied by payment of the full exercise price (by
certified or bank check payable to the order of the Company) for the number of
shares with respect to which the Warrant is being exercised. Shares issued upon
exercise of Class A Warrants and payment in accordance with the terms of the
Warrants will be fully paid and non-assessable.
For the life of the Class A Warrants, the holders thereof have the
opportunity to profit from a rise in the market value of the Class A Common
Stock, with a resulting dilution in the interest of all other stockholders. So
long as the Class A Warrants are outstanding, the terms on which the Company
could obtain additional capital may be adversely affected. The holders of the
Class A Warrants might be expected to exercise them at a time when the Company
would, in all likelihood, be able to obtain any needed capital by a new offering
of securities on terms more favorable than those provided for by the Warrants.
The Class A Warrants do not confer upon the Warrantholder any voting or
other rights of a stockholder of the Company. Upon notice to the Warrantholders,
the Company has the right to reduce the exercise price or extend the expiration
date of the Class A Warrants.
38
<PAGE>
Preferred Stock
The Company is authorized to issue up to 5,000,000 shares of "blank-check"
preferred stock (the "Preferred Stock"). The Board of Directors will have the
authority to issue this Preferred Stock in one or more series and to fix the
number of shares and the relative rights, conversion rights, voting rights and
terms of redemption (including sinking fund provisions) and liquidation
preferences, without further vote or action by the stockholders. If shares of
Preferred Stock with voting rights are issued, such issuance could affect the
voting rights of the holders of the Company's Common Stock by increasing the
number of outstanding shares having voting rights, and by the creation of class
or series voting rights. If the Board of Directors authorizes the issuance of
shares of Preferred Stock with conversion rights, the number of shares of Common
Stock outstanding could potentially be increased by up to the authorized amount.
Issuance of Preferred Stock could, under certain circumstances, have the effect
of delaying or preventing a change in control of the Company and may adversely
affect the rights of holders of Common Stock. Also, Preferred Stock could have
preferences over the Common Stock (and other series of preferred stock) with
respect to dividend and liquidation rights. The Company currently has no plans
to issue any Preferred Stock.
Unit Purchase Option
The Company has agreed to grant to the Underwriter, upon the closing of the
Offering, the Unit Purchase Option to purchase up to 176,000 Units. These Units
will be identical to the Units offered hereby except that the Warrants included
in the Unit Purchase Option will only be subject to redemption by the Company
after the Unit Purchase Option has been exercised and the underlying Warrants
are outstanding. The Unit Purchase Option cannot be transferred, sold, assigned
or hypothecated for three years, except to any officer of the Underwriter or
members of the selling group or their respective officers. The Unit Purchase
Option exercisable during the two-year period commencing three years from the
date of this Prospectus at an exercise price of $____ per Unit (____ of the
initial public offering price) subject to adjustment in certain events to
protect against dilution. The holders of the Unit Purchase Option have certain
demand and piggyback registration rights. See "Underwriting."
Registration Rights
The holders of the Unit Purchase Option will have demand and piggy-back
registration rights relating to such options and the underlying securities. See
"Underwriting." In addition, the Company has agreed to register for resale the
1,150,000 Bridge Warrants and the underlying Class A Common Stock within one
year from the closing of the Offering.
Business Combination Protections
The voting provisions of the Class A Common Stock and Class B Common Stock
and the broad discretion conferred upon the Board of Directors with respect to
the issuance of series of Preferred Stock (including with respect to voting
rights) could substantially impede the ability of one or more stockholders
(acting in concert) to acquire sufficient influence over the election of
directors and other matters to effect a change in control or management of the
Company, and the Board of Directors' ability to issue Preferred Stock could also
be utilized to change the economic and control structure of the Company. As a
result, such provisions, together with certain other provisions summarized in
the succeeding paragraph, may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider in such stockholder's best interest, including attempts that
might result in a premium over the market price for the Common Stock hold by
stockholders.
The Company is subject to a Delaware statute regulating "business
combinations," defined to include a broad range of transactions, between
Delaware corporations and "interested stockholders," defined as persons who have
acquired at least 15% of a corporation's stock. Under such statute a corporation
may not engage in any business combination with any interested stockholder for a
period of three years after the date such person became an interested
stockholder unless certain conditions are satisfied. The statute contains
provisions enabling a corporation to avoid the statute's restrictions.
The Company has not sought to "elect out" of the statute, and, therefore,
upon closing of the Offering and the registration of its shares of Class A
Common Stock under the Exchange Act, the restrictions imposed by such statute
will apply to the Company.
Transfer Agent
American Stock Transfer & Trust Company, New York, New York, serves as
Transfer Agent for the shares of Common Stock and Warrant Agent for the
Warrants.
39
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
2,960,000 shares of Common Stock. Of these shares, the 1,760,000 shares of Class
A Common Stock offered hereby will be freely transferable without restriction or
further registration under the Securities Act, unless purchased by affiliates of
the Company as that term is defined in Rule 144 under the Securities Act ("Rule
144") described below. The 1,200,000 shares of Common Stock currently
outstanding are "restricted securities" or owned by affiliates within the
meaning of Rule 144 and may not be sold publicly unless they are registered
under the Securities Act or are sold pursuant to Rule 144 or another exemption
from registration. However, holders of all of the outstanding shares have agreed
not to sell or otherwise dispose of any shares of Common Stock without the
Underwriter's prior written consent for a period of 13 months after the date of
this Prospectus. In addition, 900,000 of such shares are Escrow Shares and are
subject to the restrictions on transfer set forth in the Escrow Agreement. See
"Principal Stockholders -- Escrow Shares" and "Underwriting."
In general, under Rule 144, a person (or persons whose shares are
aggregated), including persons who may be deemed to be "affiliates" of the
Company as that term is defined under the Securities Act, is entitled to sell
within any three-month period a number of restricted shares beneficially owned
for at least one year that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock or (ii) an amount equal to the average weekly
trading volume in the Common Stock during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain requirements as to the
manner of sale, notice and the availability of current public information about
the Company. However, a person who is not deemed an affiliate and has
beneficially owned such shares for at least two years is entitled to sell such
shares under Rule 144(k) without regard to the volume or other resale
requirements.
Under Rule 701 of the Securities Act, persons who purchase shares upon
exercise of options granted prior to the date of this Prospectus are entitled to
sell such shares after the 90th day following the date of this Prospectus in
reliance on Rule 144, without having to comply with the holding period
requirements of Rule 144 and, in the case of non-affiliates, without having to
comply with the public information, volume limitation or notice provisions of
Rule 144. Affiliates are subject to all Rule 144 restrictions after this 90-day
period, but without a holding period. 13,000 shares of Class A Common Stock
issuable upon the exercise of stock options will be eligible for resale pursuant
to Rule 144 and Rule 701 under the Securities Act in August 1997 and a portion
of the remaining 17,000 outstanding options will vest and be eligible for resale
pursuant to Rule 144 and Rule 701 under the Securities Act beginning in May
1998. However, holders of all of the outstanding options prior to the Offering
have agreed not to sell any shares of Common Stock for a period of 13 months
from the date of this Prospectus without the prior written consent of the
Underwriter.
Pursuant to registration rights acquired in the Bridge Financing, the
Company has agreed to register for resale on behalf of the investors in the
Bridge Financing the 1,150,000 Bridge Warrants held by such investors and the
underlying Class A Common Stock one year from the closing of the Offering.
The Underwriter also has demand and piggyback registration rights with
respect to the securities underlying the Unit Purchase Option. See
"Underwriting."
Prior to the Offering, there has been no market for any securities of the
Company, and no predictions can be made of the effect, if any, that sales of
Common Stock or the availability of Common Stock for sale will have on the
market price of such securities prevailing from time to time. Nevertheless,
sales of substantial amounts of Common Stock in the public market could
adversely affect prevailing market prices and the ability of the Company to
raise equity capital in the future.
40
<PAGE>
UNDERWRITING
D.H. Blair Investment Banking Corp., the Underwriter, has agreed, subject
to the terms and conditions of the Underwriting Agreement, to purchase from the
Company the 1,760,000 Units offered hereby on a "firm commitment" basis, if any
are purchased.
The Underwriter has advised the Company that it proposes to offer the Units
to the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers who are members of the NASD, at such prices
less concessions of not in excess of $__ per Unit, of which a sum not in excess
of $__ per Unit may in turn be reallowed to other dealers who are members of the
NASD. After the commencement of the offering, the public offering price, the
concession and the reallowance may be changed by the Underwriter.
The Company has granted to the Underwriter an option, exercisable during
the 45-day period commencing on the date of this Prospectus, to purchase from
the Company at the public offering price, less underwriting discounts, up to
264,000 additional Units for the purpose of covering over-allotments, if any.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay to the Underwriter a non-accountable expense allowance equal
to 3% of the gross proceeds derived from the sale of Units offered hereby,
including any Units purchased pursuant to the Underwriter's overallotment
option, $40,000 of which has been paid to date.
All of the Company's current stockholders, officers and directors have
agreed not to sell, assign, transfer or otherwise dispose of any of their shares
of Common Stock for a period of 13 months from the date of this Prospectus
without the prior written consent of the Underwriter.
The Underwriter has the right to designate one individual for nomination to
the Company's Board of Directors for a period of five years after the completion
of the Offering, although it has not yet selected any such designee. Such
designee may be a director, officer, partner, employee or affiliate of the
Underwriter.
During the five-year period from the date of this Prospectus, in the event
the Underwriter originates a financing or a merger, acquisition or transaction
to which the Company is a party, the Underwriter will be entitled to receive a
finder's fee in consideration for origination of such transaction. The fee is
based on a percentage of the consideration paid in the transaction ranging from
7% of the first $1,000,000 to 2% of any consideration in excess of $9,000,000.
The Company has agreed not to solicit Warrant exercises other than through
the Underwriter, unless the Underwriter declines to make such solicitation. Upon
any exercise of the Warrants after the first anniversary of the date of this
Prospectus, the Company will pay the Underwriter a fee of 5% of the aggregate
exercise price of the Warrants, if (i) the market price of the Company's Class A
Common Stock on the date the Warrants are exercised is greater than the then
exercise price of the Warrants; (ii) the exercise of the Warrants was solicited
by a member of the NASD; (iii) the warrantholder designates in writing that the
exercise of the Warrant was solicited by a member of the NASD and designates in
writing the broker-dealer to receive compensation for such exercise; (iv) the
Warrants are not held in a discretionary account; (v) disclosure of compensation
arrangements was made both at the time of the Offering and at the time of
exercise of the Warrants; and (vi) the solicitation of exercise of the Warrant
was not in violation of Regulation M, which was recently adopted to replace Rule
10b-6 and certain other rules promulgated under the Exchange Act.
The Company has agreed to sell to the Underwriter and its designees, for
nominal consideration, the Unit Purchase Option to purchase up to 176,000 Units,
substantially identical to the Units being offered hereby, except that the Class
A Warrants included therein are subject to redemption by the Company at any time
after the Unit Purchase Option has been exercised and the underlying warrants
are outstanding. The Unit Purchase Option will be exercisable during the
two-year period commencing three years from the date of this Prospectus at an
exercise price of $____ per Unit, subject to adjustment in certain events to
protect against dilution, and is not transferable for a period of three years
from the date of this Prospectus except to officers of the Underwriter or
members of the selling group or their respective officers. The Company has
agreed to register during the three-year period commencing two years from the
date of this Prospectus, on two separate occasions, the securities issuable upon
exercise thereof under the Securities Act, the initial such registration to be
at the Company's expense and the second at the expense of the holders. The
Company has also granted certain "piggy-back" registration rights to holders of
the Unit Purchase Option.
41
<PAGE>
Prior to the Offering, there has been no public market for any of the
securities offered hereby. Accordingly, the public offering price of the Units
offered hereby and the terms of the Warrants have been determined by negotiation
between the Company and the Underwriter and are not necessarily related to the
Company's asset value, net worth or other established criteria of value. Factors
considered in determining such prices and terms, in addition to prevailing
market conditions, include the history of and the prospects for the industry in
which the Company competes, the present state of the Company's development and
its future prospects, an assessment of the Company's management, the Company's
capital structure, demand for similar securities of comparable companies and
such other factors as were deemed relevant.
The Underwriter has informed the Company that it does not expect to make
sales of the Units offered hereby to discretionary accounts.
The Underwriter acted as Placement Agent for the Bridge Financing in
February and March 1997 for which it received a fee of $230,000 and a
non-accountable expense allowance of $69,000.
The Commission is conducting an investigation concerning various business
activities of the Underwriter. The investigation appears to be broad in scope,
involving numerous aspects of the Underwriter's compliance with the Federal
securities laws and compliance with the Federal securities laws by issuers who
securities were underwritten by the Underwriter, or in which the Underwriter
made over-the-counter markets, persons associated with the Underwriter, such
issuers and other persons. The Company has been advised by the Underwriter that
the investigation has been ongoing since at least 1989 and that it is
cooperating with the investigation. The Underwriter cannot predict whether this
investigation will ever result in any type of formal enforcement action against
the Underwriter or, if so, whether any such action might have an adverse effect
on the Underwriter or the securities offered hereby.
Until the distribution of the Units is completed, rules of the Securities
and Exchange Commission may limit the ability of the Underwriter and certain
selling group members to bid for and purchase the Units, the Class A Common
Stock and the Class A Warrants. As an exception to these rules, the Underwriter
is permitted to engage in certain transactions that stabilize the price of the
Units, the Class A Common Stock and the Class A Warrants. Such transactions may
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Units, the Class A Common Stock and the Class A Warrants.
If the Underwriter creates a short position in the Units in connection with
the Offering, (i.e., if it sells more Units than are set forth on the cover page
of this Prospectus), the Underwriter may reduce that short position by
purchasing the Units, the Class A Common Stock and the Class A Warrants in the
open market. The Underwriter also may elect to reduce any short position by
exercising all or any portion of the over-allotment option described herein.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases.
Neither the Company nor the Underwriter may make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Units, the Class A Common Stock and
the Class A Warrants. In addition, neither the Company nor the Underwriter makes
any representation that the Underwriter will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
42
<PAGE>
LEGAL MATTERS
The validity of the securities offered hereby has been passed upon for the
Company by Bachner, Tally, Polevoy & Misher LLP, New York, New York. Certain
legal matters will be passed upon for the Underwriter by Paul, Hastings,
Janofsky & Walker LLP, New York, New York. Bachner, Tally, Polevoy & Misher LLP
represents the Underwriter in other matters.
EXPERTS
The financial statements of HealthCore Medical Solutions, Inc., as of
September 30, 1996 and for the fiscal year ended September 30, 1996 and the
periods from June 1, 1995 (inception) through September 30, 1995 and from June
1, 1995 (inception) through September 30, 1996 appearing in this Prospectus and
Registration Statement have been audited by Richard A. Eisner & Company, LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company is not a reporting company under the Exchange Act. The Company
has filed a Registration Statement on Form SB-2 under the Securities Act with
the Commission in Washington, D.C. with respect to the Units offered hereby.
This Prospectus, which is part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement and the exhibits
thereto. For further information with respect to the Company and the Units
offered hereby, reference is hereby made to the Registration Statement and such
exhibits, which may be inspected without charge at the office of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the Commission located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and at 500 West Madison (Suite 1400), Chicago, Illinois 60661. Copies
of such material may also be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission maintains a web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission. The address of such site is
http://www.sec.gov. Statements contained in this Prospectus as to the contents
of any contract or other document referred to are not necessarily complete and
in each instance reference is made to the copy of such contract or document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
Following the Offering, the Company will be subject to the reporting and
other requirements of the Exchange Act and intends to furnish to its
stockholders annual reports containing audited financial statements and may
furnish interim reports as it deems appropriate.
43
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
------
REPORT OF INDEPENDENT AUDITORS.......................................... F-2
BALANCE SHEETS AS OF SEPTEMBER 30, 1996 AND MARCH 31, 1997
(UNAUDITED).......................................................... F-3
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1996
AND THE PERIODS FROM JUNE 1, 1995 (INCEPTION) THROUGH
SEPTEMBER 30, 1995, JUNE 1, 1995 (INCEPTION) THROUGH
SEPTEMBER 30, 1996 AND FOR THE SIX MONTH PERIODS ENDED MARCH
31, 1997 AND 1996 (UNAUDITED) AND THE PERIOD FROM JUNE 1,
1995 (INCEPTION) THROUGH MARCH 31, 1997 (UNAUDITED).................. F-4
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL
DEFICIENCY) FOR THE PERIOD FROM JUNE 1, 1995 (INCEPTION)
THROUGH SEPTEMBER 30, 1996 AND FOR THE SIX MONTH PERIOD
ENDED MARCH 31, 1997 (UNAUDITED)..................................... F-5
STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30, 1996
AND THE PERIODS FROM JUNE 1, 1995 (INCEPTION) THROUGH
SEPTEMBER 30, 1995, JUNE 1 1995 (INCEPTION) THROUGH
SEPTEMBER 30, 1996 AND FOR THE SIX MONTH PERIODS ENDED MARCH
31, 1997 AND 1996 (UNAUDITED) AND THE PERIOD FROM JUNE 1,
1995 (INCEPTION) THROUGH MARCH 31, 1997 (UNAUDITED).................. F-6
NOTES TO FINANCIAL STATEMENTS........................................... F-7
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders
HealthCore Medical Solutions, Inc.
Grandview, Missouri
We have audited the accompanying balance sheet of HealthCore Medical
Solutions, Inc., (a development stage company and the business successor to
MegaVision, L.C.) as at September 30, 1996 and the related statements of
operations, changes in stockholders' equity (capital deficiency) and cash flows
for the year ended September 30, 1996 and the periods from June 1, 1995
(inception) through September 30, 1995 and from June 1, 1995 (inception) through
September 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly,
in all material respects, the financial position of HealthCore Medical
Solutions, Inc. as of September 30, 1996 and the results of its operations and
its cash flows for the year ended September 30, 1996 and the periods from June
1, 1995 (inception) through September 30, 1995 and from June 1, 1995 (inception)
through September 30, 1996, in conformity with generally accepted accounting
principles.
As described more fully in Note A to the financial statements, the
business of the Company was conducted by MegaVision, L.C. prior to the merger in
February 1997.
Richard A. Eisner & Company, LLP
New York, New York
October 31, 1996
With respect to Notes A, G, H and I
March 13, 1997
F-2
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
Successor to MegaVision, L.C.
(a development stage company)
BALANCE SHEETS
(Note A)
<TABLE>
<CAPTION>
September March 31,
1996 1997
----------- -----------
(Unaudited)
A S S E T S
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................. $ 1,394,319
Prepaid expenses and other current assets ............. $ 2,072 2,219
----------- -----------
Total current assets .............................. 2,072 1,396,538
----------- -----------
Property and equipment, net ............................. 73,985 58,558
Deferred offering costs ................................. 40,000 71,198
Other assets ............................................ 44,143 5,221
----------- -----------
158,128 134,977
----------- -----------
T O T A L ......................................... $ 160,200 $ 1,531,515
=========== ===========
I A B I L I T I E S
Current liabilities:
Bank overdraft ........................................ $ 9,914
Accounts payable and accrued expenses ................. 106,077 $ 221,051
Notes payable - bank .................................. 56,300 103,600
Notes payable - bridge units .......................... 1,786,022
Notes payable - others ................................ 54,494
Notes payable - related parties ....................... 47,500
Other liabilities ..................................... 8,493 4,954
----------- -----------
Total current liabilities ......................... 235,278 2,163,127
----------- -----------
Commitments, contingency and other matters
C A P I T A L D E F I C I E N C Y
Preferred stock, $.01 par value, authorized, 5,000,000
shares Common stock, $.01 par value:
Class A, authorized, 19,640,000 shares; issued and
outstanding, 684,000 shares at September 30, 1996
and 840,000 shares at March 31, 1997 .............. 6,840 8,400
Class B, authorized, 360,000 shares; issued and
outstanding, 144,000 shares at September 30, 1996
and 360,000 shares at March 31, 1997 ............. 1,440 3,600
Additional paid-in capital .............................. 1,242,998 1,698,059
Deficit accumulated during the development stage ........ (1,326,356) (2,341,671)
----------- -----------
Total capital deficiency .......................... (75,078) (631,612)
----------- -----------
T O T A L ......................................... $ 160,200 $ 1,531,515
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
Successor to MegaVision, L.C.
(a development stage company)
STATEMENTS OF OPERATIONS
(Note A)
<TABLE>
<CAPTION>
June 1, 1995 June 1, 1995 June 1, 1995
(Inception) Six Months Ended (Inception) (Inception)
Through Year Ended March 31, Through Through
September 30, September 30, -------------------- September 30, March 31,
1995 1996 1996 1997 1996 1997
---- ---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Operating expenses:
General and administrative ..... $ 78,105 $ 900,177 $ 524,633 $ 791,557 $ 978,282 $ 1,769,839
Selling and marketing .......... 34,158 277,845 59,624 69,425 312,003 381,428
Interest ....................... 36,071 332 154,333 36,071 190,404
--------- ----------- --------- ----------- ----------- -----------
NET LOSS ......................... $(112,263) $(1,214,093) $(584,589) $(1,015,315) $(1,326,356) $(2,341,671)
========= =========== ========= =========== =========== ===========
Net loss per share ............... $ (0.53) $ (4.83) $ (2.39) $ (3.47)
========= =========== ========= ===========
Weighted average number of shares
outstanding .................. 211,183 251,525 244,482 292,345
========= =========== ========= ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
Successor to MegaVision, L.C.
(a development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
(Note A)
<TABLE>
<CAPTION>
Common Stock Deficit
--------------------------------------------- Accumulated
Class A Class B Additional During
-------------------- ----------------- Paid-in Development
Shares Amount Shares Amount Capital Stage Total
------- -------- -------- -------- ---------- ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock issued at inception 204,000 $ 2,040 102,000 $ 1,020 $ (3,060) $ - 0 -
Common stock issued in private
placement, net of offering
costs of $5,832. ............ 123,000 1,230 297,938 299,168
Net loss ....................... $ (112,263) (112,263)
----------- ----------- --------- -------- ----------- ----------- -----------
Balance - September 30, 1995 ... 327,000 3,270 102,000 1,020 294,878 (112,263) 186,905
Common stock issued in private
placement, net of offering
costs of $13,533 ............ 123,000 1,230 430,237 431,467
Compensatory common stock issued 24,000 240 54,760 55,000
Conversion of debt into common
stock ....................... 210,000 2,100 42,000 420 463,123 465,643
Net loss ....................... (1,214,093) (1,214,093)
----------- ----------- --------- -------- ----------- ----------- -----------
Balance - September 30, 1996 ... 684,000 6,840 144,000 1,440 1,242,998 (1,326,356) (75,078)
Common stock issued ............ 132,000 1,320 216,000 2,160 101,399 104,879
Conversion of debt to common
stock ....................... 24,000 240 47,985 48,225
Warrants issued in connection
with the bridge units, net
of costs .................... 305,677 305,677
Net loss ....................... (1,015,315) (1,015,315)
----------- ----------- --------- -------- ----------- ----------- -----------
BALANCE - MARCH 31, 1997
(Unaudited) ................. 840,000 $ 8,400 360,000 $ 3,600 $ 1,698,059 $(2,341,671) $ (631,612)
=========== =========== ========= ======== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
Successor to MegaVision, L.C.
(a development stage company)
STATEMENTS OF CASH FLOWS
(Note A)
<TABLE>
<CAPTION>
June 1, 1995 June 1, 1995 June 1, 1995
(Inception) Six Months Ended (Inception) (Inception)
Through Year Ended March 31, Through Through
September 30, September 30, -------------------- September 30, March 31,
1995 1996 1996 1997 1996 1997
---- ---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss .................................... $ (112,263) $(1,214,093) $ (584,589) $(1,015,315) $(1,326,356) $(2,341,671)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization .............. 33,206 20,626 20,503 33,206 53,709
Amortization of discount on note
payable - bridge units ................ 127,545 127,545
Noncash compensation charge ................ 55,000 94,729 55,000 149,729
Changes in assets and liabilities:
(Increase) decrease in prepaid
expenses and other assets .............. (18,627) 9,258 1,450 (3,147) (9,369) (12,516)
Increase in accounts payable and
accrued expenses ....................... 8,402 147,592 77,654 114,974 155,994 270,968
Increase in due to related party ......... 29,000 29,000 29,000
Increase (decrease) in other liabilities . 8,493 (3,539) 8,493 4,954
----------- --------- ----------- ----------- ---------- -----------
Net cash used in operating
activities ........................... (122,488) (931,544) (484,859) (664,250) (1,054,032) (1,718,282)
----------- --------- ----------- ----------- ---------- -----------
Cash flows from investing activities:
Acquisition of property and equipment ....... (88,499) (18,692) (12,244) (107,191) (107,191)
----------- --------- ----------- ---------- -----------
Cash flows from financing activities:
Increase (decrease) in bank overdraft ....... 9,914 (9,914) 9,914
Issuance of notes payable - bridge units .... 1,695,323 1,695,323
Net change in notes payable - bank and other 103,100 41,031 103,100 144,131
Net change in notes payable to related
parties ................................... 31,152 363,268 10,348 47,500 394,420 441,920
Net proceeds from issuance of common
stock ..................................... 299,168 431,467 400,000 10,150 730,635 740,785
Proceeds from issuance of warrants .......... 305,677 305,677
Deferred bridge unit costs .................. (36,846) (36,846) (36,846)
Deferred offering costs ..................... (40,000) (31,198) (40,000) (71,198)
----------- --------- ----------- ----------- ---------- -----------
Net cash provided by financing
activities ........................... 330,320 830,903 410,348 2,058,569 1,161,223 3,219,792
----------- --------- ----------- ----------- ---------- -----------
NET INCREASE (DECREASE) IN CASH ............... 119,333 (119,333) (86,755) 1,394,319 - 0 - 1,394,319
Cash - beginning of period .................... 119,333 119,333
----------- --------- ----------- ----------- ---------- -----------
CASH - END OF PERIOD .......................... $ 119,333 $ - 0 - $ 32,578 $ 1,394,319 $ - 0 - $ 1,394,319
=========== ========= =========== =========== ========== ===========
Supplemental information:
Interest paid during the period ............. $ 1,114 $ 10,835 $ 1,114 $ 12,049
Supplemental schedule of noncash financing
activity:
Conversion of debt to common stock .......... 465,643 48,225 465,643 513,868
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
Successor to MegaVision, L.C.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to March 31, 1997
and the six-month periods ended March 31, 1997
and March 31, 1996 is unaudited)
(NOTE A)--The Company and Basis of Presentation:
HealthCore Medical Solutions, Inc. ("HealthCore" or the "Company") was
organized as a Delaware corporation in February 1997. The Company is in the
development stage and intends to market and administer vision, hearing, drug and
dental discount programs (the "HealthCare Solutions Card") which are designed to
enable participants (members), who are enrolled through various organizations
such as insurance carriers, corporations, and unions to realize savings on
purchases of products and services. These savings will be obtained through a
company-organized network of providers, such as opticians, chiropractors,
optometrists, hearing specialists, pharmacists and dentists. The Company is the
business successor to MegaVision, L.C. Through September 30, 1996, the Company
has not sold any "HealthCare Solutions Cards".
In February 1997, MegaVision, L.C. ("MegaVision" or the "Predecessor"), a
Missouri limited liability company in the development stage, merged into
HealthCore. In conjunction with the merger, 1,100 member units of MegaVision
were exchanged for 708,000 shares of Class A common stock of HealthCore and 600
member units of MegaVision were exchanged for 360,000 shares of Class B common
stock of HealthCore. The business of the Company was conducted by MegaVision
from June 1, 1995 to February 19, 1997. The merger described above has been
accounted for in a manner similar to a pooling of interests and, except as
otherwise indicated or where the context otherwise requires, the information set
forth in these financial statements has been adjusted to give retroactive effect
to the reorganization.
The Company and Predecessor have been principally devoted to
organizational activities, raising capital, marketing and negotiating provider
agreements.
As further described in Note H, in February and March 1997, the Company
received net proceeds of $1,964,000 from the sale of a private placement of
subordinated notes and warrants ("Bridge Units"). The Company anticipates that
the proceeds from the Bridge Units will be sufficient to fund its operations
through September 30, 1997. The Company will require substantial additional
funds to complete its current planned activities.
(NOTE B)--Summary of Significant Accounting Policies:
[1] Cash and cash equivalents:
Cash and cash equivalents include cash on hand, demand deposits and all
highly liquid investments with a maturity of three months or less at the time of
purchase.
[2] Property and equipment:
Property and equipment are recorded at cost. Depreciation and amortization
is being provided on the straight-line method over the estimated useful lives of
the assets. Equipment is depreciated over periods ranging from five to seven
years. Leasehold improvements are amortized over the shorter of the lease term
or their estimated useful life.
[3] Management estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
(continued)
F-7
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
Successor to MegaVision, L.C.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to March 31, 1997
and the six-month periods ended March 31, 1997
and March 31, 1996 is unaudited)
(NOTE B)--Summary of Significant Accounting Policies: (continued)
[4] Net loss per share:
Net loss per share was computed based upon the weighted average number of
shares of common stock outstanding during the period excluding shares which are
expected to be placed in escrow (see Note D). Those escrowed shares are common
stock equivalents for purposes of calculating earnings per share. Since in 1996
and 1997, certain shares of common stock were issued at less than the
anticipated offering price of the proposed initial public offering, all such
shares of common stock have been included in the calculation of the weighted
average shares outstanding for all periods presented using the treasury stock
method based on the estimated initial public offering price, pursuant to the
requirements of the Securities and Exchange Commission.
The Company anticipates repaying the bridge notes with proceeds of the
proposed initial public offering. Had the bridge notes not been initiated in
1997 and had the Company issued common stock instead, the net loss per share for
the six months ended March 31, 1997 would have been $(2.29) based upon an
additional weighted average number of shares outstanding for the six months
ended March 31, 1997 of 86,026.
[5] Interim financial statements:
The accompanying interim financial statements at March 31, 1997 and for
each of the six month periods ended March 31, 1997 and March 31, 1996 are
unaudited. However, in the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) necessary to be in conformity with
generally accepted accounting principles have been made. The results of
operations for the interim periods presented are not necessarily indicative of
the results to be expected for the entire year.
[6] Stock-based compensation:
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123") allows companies to either expense
the estimated fair value of employee stock options or to continue to follow the
intrinsic value method set forth in Accounting Principles Board Opinion 25,
"Accounting for Stock Issued to Employees" ("APB 25") but disclose the pro forma
effects on net loss had the fair value of the options been expensed. The Company
has elected to apply APB 25 in accounting for its employee stock options
incentive plans.
[7] Recently issued accounting standards:
In February 1997, the Financial Standards Accounting Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("FAS
128") which is effective for periods ending after December 15, 1997. Management
believes that "basic earnings per share," as defined, for each of the periods
included in these financial statements would be substantially the same as the
net loss per share amounts included on the statements of operations.
Additionally, the "diluted earnings per share," as defined, would be
anti-dilutive.
The Company has not elected to adopt, early, the provisions of a recently
issued accounting standard regarding impairments of long-lived assets ("SFAS No.
121"). SFAS No. 121 requires entities to review long-lived assets and certain
identifiable intangibles to be held and used, for impairment whenever changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The adoption of this standard did not have a significant impact on
financial position or results of operations as at and for the period ended March
31, 1997.
(continued)
F-8
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
Successor to MegaVision, L.C.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to March 31, 1997
and the six-month periods ended March 31, 1997
and March 31, 1996 is unaudited)
(NOTE C)--Property and Equipment:
At September 30, 1996 and March 31, 1997, property and equipment (at cost)
consists of:
September 30, March 31,
1996 1997
------------ ---------
Equipment ............................... $ 60,800 $ 60,800
Leasehold improvements .................. 46,391 46,391
--------- --------
107,191 107,191
Less accumulated depreciation
and amortization ...................... 33,206 48,633
--------- --------
Total ............................. $ 73,985 $ 58,558
========= ========
(NOTE D)--Deferred Offering Costs:
The Company has incurred deferred offering costs of $40,000 in connection
with a proposed initial public offering ("IPO") through September 30, 1996 and
$71,198 through March 31, 1997. The deferred costs will either be charged
against the gross proceeds of the IPO, or if not consummated, they will be
charged to expense. Additionally, the Company will incur substantial additional
offering costs and the current stockholders will be expected to place 900,000
shares of their Class A and Class B common stock into an escrow account. Some or
all of these shares will be released upon the Company meeting certain
performance goals or the stock price exceeding certain targets. If these goals
are not met the shares will be canceled. However, should the goals be met, the
release of the shares will result in the Company recognizing an additional
expense equal to the market value of the shares released. A total of 400,000
shares of common stock held in escrow will be released if either (a) the
Company's minimum pretax income, as defined, equals or exceeds $3,800,000 for
the year ending June 30, 1998, $5,500,000 for the year ending June 30, 1999 or
$7,500,000 for the year ending June 30, 2000 or (b) the average closing price of
the common stock equals or exceeds $12.50 per share for a 30 trading day period
in the 18-month period beginning with the consummation of the IPO or $16.50 per
share for 30 trading days in the period beginning after 18 months after the
consummation of the IPO to 36 months after the IPO. All shares of common stock
held in escrow will be released if either (a) the Company's minimum pretax
income, as defined, equals or exceeds $4,600,000 for the year ending June 30,
1998, $6,600,000 for the year ending June 30, 1999 or $9,000,000 for the year
ending June 30, 2000 or (b) the average closing price of the common stock equals
or exceeds $15.00 per share for a 30 trading day period in the 18-month period
beginning with the consummation of the IPO or $18.00 per share for 30 trading
days in the period beginning after 18 months after the consummation of the IPO
to 36 months after the IPO.
(NOTE E)--Related Party Transactions:
During the year ended September 30, 1996, the Company entered into an
agreement to purchase certain software. The purchase price was $37,500 plus the
issuance of 107,000 shares of the Company's Class A common stock. The cost of
the acquired software was immediately expensed based on the Company's intention
to distribute to providers certain software at no charge in conjunction with its
discount programs. An employment agreement was executed with the software
developer which was subsequently cancelled. At September 30, 1996 the Company's
remaining liability under the purchase agreement was $29,000 which was converted
into additional Class A common stock.
(continued)
F-9
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
Successor to MegaVision, L.C.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to March 31, 1997
and the six-month periods ended March 31, 1997
and March 31, 1996 is unaudited)
(NOTE E)--Related Party Transactions: (continued)
During January and February 1997, the chairman of the board of directors
loaned the Company $67,000 which was repaid in March 1997 together with
interest, at 10% per annum, of $692. Additionally, beginning in November 1997,
the Company rents office space for $1,000 per month from an affiliate of the
chairman.
(NOTE F)--Notes Payable--Bank:
At September 30, 1996, the Company has three loans outstanding bearing
interest between 7% and 10.75%. The loans are collateralized by a life insurance
policy or certificates of deposits of stockholders of the Company. During the
three months ended December 31, 1996, the maturity dates on these loans were
extended to between March 19, 1997 and May 30, 1997. Additionally, the Company
borrowed an additional $61,674 under the same terms.
(NOTE G)--Notes Payable--Others:
[1] The Company had entered into a financing arrangement with DHF
International, Inc. ("DHF") which represented two short-term notes secured by
computer equipment owned by the Company and the proceeds of other loans from
third parties was to be used to pay this debt. The notes were due September 24,
1996 and February 28, 1997 but have been restructured as of October 30, 1996.
Under the restructuring agreement the collateral remained the same, however, the
Company was obligated to pay DHF $50,000. The payment terms were $20,000 on
December 1, 1996, and $10,000 on each of January 1, 1997, February 1, 1997 and
March 1, 1997. However, subsequently DHF cancelled the Company's obligation to
pay and transferred all rights, title and interest in the computer equipment to
the Company, in exchange for 24,000 shares of the Company's Class A common stock
and a right of first refusal with respect to the leasing of equipment to the
Company.
[2] A demand loan payable in the amount of $7,500 was repaid subsequent to
September 30, 1996.
(NOTE H)--Notes Payable--Bridge Units:
In February and March 1997, the Company sold 46 Bridge Units, each
consisting of a $50,000, 10% subordinated note and warrants to purchase 25,000
shares of Class A common stock. The notes are due the earlier of the closing of
the IPO or February 1998. If warrants exercisable into Class A common stock are
issued in connection with the IPO, these warrants will convert into the IPO
warrants. If the IPO is not completed or warrants are not offered in the IPO,
the warrants become exercisable into Class A common stock at $4.00 per share in
February 1998 and expire in February 2000. The Company received $1,964,154, net
of offering costs. One of the Bridge Units was purchased by the chairman of the
board and his wife, on the same terms as the other Bridge Units.
The Company valued the warrants at $310,500. Accordingly, additional
paid-in capital has been credited with $305,677 which represents the value of
the warrants less the allocable portion of the offering costs. The short-term
note has been discounted by the value of the warrants and the offering costs.
The discount is being amortized as additional interest expense from the date of
issuance to July 31, 1997, the anticipated maturity date.
(continued)
F-10
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
Successor to MegaVision, L.C.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to March 31, 1997
and the six-month periods ended March 31, 1997
and March 31, 1996 is unaudited)
(NOTE I)--Capital Deficiency:
[1] Contributed capital:
In accordance with the unanimous written consent of the stockholders and
managers of the Company, certain stockholders' loans and other amounts owed by
the Company totalling $465,643 were converted into Class A and Class B common
stock effective as of September 30, 1996 at an exchange rate of $1.85 per share.
Such exchange did not affect the results of operations.
[2] Issuance of Class A common stock:
In February 1997, the Company issued an assignee of M.K.D. Capital Corp.
("M.K.D.") 132,000 shares of Class A common stock for total consideration of
$34,749. The shares were valued at their fair value at the date of issuance.
M.K.D. paid $3,850 in cash, the remaining $30,899 has been charged to operations
for services rendered.
[3] Issuance of Class B common stock:
In November 1996, the Company entered into an agreement to issue 216,000
shares of Class B common stock for $6,300 to the chairman of the board of
directors. The Company valued these shares at $70,130, their estimated fair
value at the date of issuance and charged $63,830 for operations in the three
months ended December 31, 1996.
[4] Stock option plan:
In 1997, the Company adopted a stock option plan under which 200,000
shares of Class A common stock are reserved for issuance upon exercise of either
incentive or nonincentive stock options which may be granted from time to time
by the board of directors to employees and others.
[5] Shares reserved for issuance:
The Company has reserved 1,350,000 shares of its Class A common stock for
issuance upon exercise of the outstanding warrants and options.
[6] Common and preferred stock:
The shares authorized aggregate 19,640,000 shares of Class A common stock,
360,000 shares of Class B common stock and 5,000,000 shares of preferred stock
all with $.01 par value. The Class A and Class B shares of common stock are
substantially identical except that the Class A common stockholders have the
right to cast one vote per share and the Class B common stockholders have the
right to cast five votes per share. Upon the occurrence of certain events, the
Class B shares automatically convert into Class A shares.
(NOTE J)--Income Taxes:
The Company, prior to March 1997, was a limited liability company and was
not subject to income taxes, however the Company's income or loss is required to
be recognized by the members and taxed on their individual income tax returns.
Accordingly, the losses incurred through February 1997 will not be available to
offset the Company's future taxable income, if any.
The Company's deferred tax asset at March 31, 1997 represents a benefit
from net operating loss carryforward of $141,000 which is reduced by a valuation
allowance of $141,000 since the likelihood of realization of such tax benefit is
not presently determinable. The Company's provision for income taxes for the six
months ended March 31, 1997 are comprised of the deferred tax items.
(continued)
F-11
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
Successor to MegaVision, L.C.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to March 31, 1997
and the six-month periods ended March 31, 1997
and March 31, 1996 is unaudited)
(NOTE J)--Income Taxes: (continued)
The difference between the statutory federal income tax rate on the
Company's net loss and the Company's effective income tax rate for the six month
period ended March 31, 1997 is summarized as follows:
Statutory federal income tax rate ............... 34.0%
Loss available to members ....................... (22.2)
Increase in valuation allowance ................. (11.8)
-----
Effective income tax rate ....................... 0.0 %
=====
(NOTE K)--Fair Value of Financial Instruments:
The estimated fair value of financial instruments has been determined
based on available market information and appropriate valuation methodologies.
The carrying amounts of accounts payable, loans payable to bank and others
approximate fair value at September 30, 1996 and March 31, 1997 because of the
short maturity of these financial instruments. The fair value estimates were
based on information available to management as of September 30, 1996 and March
31, 1997.
(NOTE L)--Commitments, Contingency and Other Matters:
[1] Operating leases:
The Company leases office space under an operating lease with an initial
or remaining term in excess of one year. The Company is responsible for property
taxes, maintenance, insurance, etc. under the lease. Future minimum lease
payments required under these obligations which expire through October 1997 are
$21,931.
Rent expense inclusive of taxes, maintenance, insurance, etc. aggregated
$43,312 for the year ended September 30, 1996, $29,798 for the six months ended
March 31, 1997 and $21,599 for the six months ended March 31, 1996.
Deferred rent payable represents the excess of rent expense charged to
operations determined on a straight-line basis over the amounts paid.
[2] Advisory agreement:
In October 1996, the Company entered into a Long-Term Advisory Agreement
with M.K.D. which was modified January 16, 1997 that provides for M.K.D. to
introduce the Company's management to certain businesses. In the event the
introductions lead to the purchase of the Company's products, M.K.D. will
receive a fee equal to 3% of gross payments. Gross payments shall mean payments
collected by or on behalf of any business contact for any of the Company's
products, less any direct manufacturing costs incurred by the Company in the
production of such products and any broker's commissions payable. In addition,
the Company issued 132,000 shares of Class A common stock to M.K.D.'s assignee
for $3,850 (see Note I[2]).
[3] Self-insurance:
The Company had been self-insured for its workers' compensation insurance
benefits. In March 1997, the Company obtained workers' compensation coverage
from a commercial insurance carrier.
[4] Equipment under capital leases:
In April 1997, the Company acquired approximately $400,000 of equipment
subject to three year capital leases.
F-12
<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or by the Underwriter.
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, any securities offered hereby by anyone in any jurisdiction in
which such offer or solicitation is not authorized or in which the person making
such offer or solicitation is not qualified to do so or to anyone to whom it is
unlawful to make such offer, or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information herein contained is correct as of any time
subsequent to the date of this Prospectus.
------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary .............................................. 3
Risk Factors .................................................... 7
Use of Proceeds ................................................. 14
Dividend Policy ................................................. 14
Capitalization .................................................. 15
Dilution ........................................................ 16
Selected Financial Data ......................................... 17
Management's Discussion and Analysis of
Financial Condition and Results of Operations .................. 18
Business ........................................................ 21
Management ...................................................... 29
Certain Transactions ............................................ 33
Principal Stockholders .......................................... 34
Description of Securities ....................................... 37
Shares Eligible for Future Sale ................................. 40
Underwriting .................................................... 41
Legal Matters ................................................... 43
Experts ......................................................... 43
Additional Information .......................................... 43
Index to Financial Statements ................................... F-1
------------------
Until __________, 1997, all dealers effecting transactions in the
registered securities, whether or not participating in this distribution, may be
required to deliver a Prospectus. This is in addition to the obligation of
dealers to deliver a Prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
================================================================================
================================================================================
1,760,000 Units
HEALTHCORE
MEDICAL
SOLUTIONS, INC.
Consisting of 1,760,000 shares
of Class A Common Stock and
1,760,000 Redeemable Class A Warrants
------------------------
PROSPECTUS
-------------------------
D.H. BLAIR INVESTMENT
BANKING CORP.
_____________, 1997
================================================================================
<PAGE>
PART II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution
The estimated expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered (other than
underwriting discounts and commissions) are as follows:
Amount
------
SEC Registration Fee......................................... $7,721
NASD Filing Fees............................................. 3,048
Nasdaq Filing Fees........................................... *
Printing and Engraving Expenses.............................. *
Accounting Fees and Expenses................................. *
Legal Fees and Expenses...................................... *
Blue Sky Fees and Expenses................................... *
Transfer Agent's Fees and Expenses........................... *
Miscellaneous Expenses....................................... *
------
Total................................................ $ *
======
- ---------------
* To be completed by amendment.
Item 14. Indemnification of Directors and Officers
The Registrant also intends to enter into indemnification agreements with
each of its officers and directors, the form of which is filed as Exhibit 10.4
and reference is hereby made to such form.
Reference is made to Section 6 of the Underwriting Agreement (Exhibit 1.1)
which provides for indemnification by the Underwriter of the Registrant, its
officers and directors.
Item 15. Recent Sales of Unregistered Securities
During the last three years, the Registrant has sold and issued the
following unregistered securities:
In February 1997, in connection with the merger of MegaVision L.C. into the
Registrant, the Registrant issued an aggregate of 684,000 shares of Class A
Common Stock and 360,000 shares of Class B Common Stock to the former members of
MegaVision L.C.
In February 1997, the Registrant sold 132,000 and 24,000 shares of Class A
Common Stock to DHF International, Inc. and MKD Capital Corp., respectively, at
a purchase price of approximately $.03 and $2.08, respectively, per share.
The above transactions were private transactions not involving a public
offering and were exempt from the registration provisions of the Securities Act
of 1933, as amended, pursuant to Section 4(2) thereof. The sale of securities
was without the use of an underwriter, and the certificates evidencing the
shares bear a restrictive legend permitting the transfer thereof only upon
registration of the shares or an exemption under the Securities Act of 1933, as
amended.
In February and March 1997, the Company issued an aggregate of 46 units,
each unit consisting of a subordinated note in the principal amount of $50,000
bearing interest at 10% per annum and warrants to purchase 25,000 shares of
Class A Common Stock at an exercise price of $4.00 per share (assuming the
offering contemplated by this Registration Statement is not consummated) to 64
accredited investors for an aggregate purchase price of $2,300,000. The units
were issued pursuant to an exemption from registration provided by Regulation D
promulgated under Section 4(2) of the Securities Act. The Underwriter acted as
the Registrant's placement agent in connection with these private placements. In
connection therewith, the Registrant paid sales commissions in the aggregate
amount of $230,000 and a non-accountable expense allowance in the aggregate
amount of $69,000.
II-1
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
1.1 -- Form of Underwriting Agreement
3.1 -- Certificate of Incorporation of the Registrant
3.2 -- By-laws of the Registrant
4.1 -- Form of Bridge Note
4.2 -- Bridge Warrant Agreement
4.3 -- Form of Warrant Agreement
4.4 -- Form of Underwriter's Unit Purchase Option
5.1* -- Opinion of Bachner, Tally, Polevoy & Misher LLP
10.1 -- 1997 Stock Option Plan
10.2 -- Amended and Restated Escrow Agreement dated
April 30, 1997 by and between the Registrant, American
Stock Transfer & Trust Company and certain stockholders
of the Registrant
10.3 -- Form of Network Provider Agreement
10.4 -- Form of Indemnification Agreement
10.5 -- Lease Agreement for office space in Grandview,
Missouri between the Registrant and
J.C. Nichols Company
10.6* -- Form of Voting Agreement by and between Theodore W. White,
Jr. and Neal J. Polan
23.1* -- Consent of Bachner, Tally, Polevoy & Misher LLP --
Included in Exhibit 5.1
23.2 -- Consent of Richard A. Eisner & Company, LLP -- Included on
Page II-6
24.1 -- Power of Attorney -- Included on Page II-5
27.1 -- Financial Data Schedule
- -----------
* To be filed by amendment.
Item 17. Undertakings
(1) The undersigned Registrant hereby undertakes that it will:
(a) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act,
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement, and
(iii) Include any additional or changed material information on
the plan of distribution.
(b) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(c) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of this offering.
(2) The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser.
(3) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
II-2
<PAGE>
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 Securities Act and will be governed by the final
adjudication of such issue.
(4) The undersigned Registrant hereby undertakes that it will:
(a) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act as part of this registration statement as
of the time it was declared effective.
(b) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and the offering of such securities at that time as the initial
bona fide offering of those securities.
II-3
<PAGE>
CONSENT OF COUNSEL
The consent of Bachner, Tally, Polevoy & Misher LLP will be contained in
its opinion to be filed as Exhibit 5.1 to the Registration Statement.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this Registration
Statement or Amendment thereto to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Grandview, State of Missouri on the
29th day of May, 1997.
HEALTHCORE MEDICAL SOLUTIONS, INC.
By: /s/ NEAL J. POLAN
-------------------------------
Neal J. Polan
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below under the heading "Signature" constitutes and appoints Neal J. Polan, his
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any or all amendments (including post effective amendments)
to this registration statement and any related registration statement filed
under Rule 462(b), and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement or Amendment thereto has been signed by the following
persons in the capacities and on the dates stated.
Signature Title Date
--------- ----- ----
/s/ NEAL J. POLAN Chairman of the Board May 29, 1997
- --------------------------- and Chief Executive Officer
Neal J. Polan (principal executive officer)
/s/ JAMES H. STEINHEIDER Chief Operating Officer May 29, 1997
- ---------------------------
James H. Steinheider Chief Financial Officer and
Director (principal financial
and accounting officer)
II-5
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this registration statement on Form SB-2 of
our report dated October 31, 1996 (with respect to Notes A, G, H and I March 13,
1997), on the financial statements of HealthCore Medical Solutions, Inc. as at
September 30, 1996 and for the year then ended and the periods from June 1, 1995
(inception) through September 30, 1995 and June 1, 1995 (inception) through
September 30, 1996. We also consent to the reference to our firm under the
captions "Selected Financial Data" and "Experts."
Richard A. Eisner & Company, LLP
New York, New York
May 30, 1997
II-6
1,760,000 Units
(each Unit consisting of (i) one share of
Common Stock, par value $.01 per share and (ii) one redeemable
Class A Warrant to purchase one share of Common Stock
HEALTHCORE MEDICAL SOLUTIONS, INC.
UNDERWRITING AGREEMENT
____________, 1997
D.H. Blair Investment Banking Corp.
44 Wall Street
2nd Floor
New York, New York 10005
HEALTHCORE MEDICAL SOLUTIONS, INC., a Delaware corporation (the "Company"),
proposes to issue and sell to D.H. Blair Investment Banking Corp. (the
"Underwriter") pursuant to this Underwriting Agreement (the "Agreement") an
aggregate of 1,760,000 Units, each unit being hereinafter referred to as a
"Unit" and consisting of (i) one share of Common Stock, par value $.01 per
share, ("Shares") and (ii) one redeemable Class A warrant ("Class A Warrants or
"Warrants") to purchase one share of Common Stock at a price of $6.50 from
_______, 1997 to _______, 2002. The Warrants are subject to redemption, in
certain instances commencing one year from the date of this Agreement. In
addition, the Company proposes to grant to the Underwriter the option referred
to in Section 2(b) to purchase all or any part of an aggregate of 264,000
additional Units. Unless the context otherwise indicates, the term "Units" shall
include the 264,000 additional Units referred to above.
The aggregate of 1,760,000 Units to be sold by the Company, together with
all or any part of the 264,000 Units which the Underwriter has the option to
purchase, and the Shares and the Warrants comprising such Units, are herein
called the "Units." The Common Stock of the Company to be outstanding after
giving effect to the sale of the Shares is herein called the "Common Stock." The
Shares and Warrants included in the Units (including the Units which the
Underwriter has the option to purchase) are herein collectively called the
"Securities."
<PAGE>
You have advised the Company that you desire to purchase the Units. The
Company confirms the agreements made by it with respect to the purchase of the
Units by you as follows:
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the Underwriter that:
(a) A registration statement (File No. 333-_______) on Form SB-2 relating
to the public offering of the Units, including a form of prospectus subject to
completion, copies of which have heretofore been delivered to you, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the rules and regulations (the "Rules
and Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder, and has been filed with the Commission under the Act and one or more
amendments to such registration statement may have been so filed. After the
execution of this Agreement, the Company will file with the Commission either
(i) if such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, either (A) if the
Company relies on Rule 434 under the Act, a Term Sheet (as hereinafter defined)
relating to the Units that shall identify the Preliminary Prospectus (as
hereinafter defined) that it supplements containing such information as is
required or permitted by Rules 434, 430A and 424(b) under the Act or (B) if the
Company does not rely on Rule 434 under the Act a prospectus in the form most
recently included in an amendment to such registration statement (or, if no such
amendment shall have been filed, in such registration statement), with such
changes or insertions as are required by Rule 430A under the Act or permitted by
Rule 424(b) under the Act and in the case of either clause (i)(A) or (i)(B) of
this sentence, as have been provided to and approved by the Underwriter prior to
the execution of this Agreement, or (ii) if such registration statement, as it
may have been amended, has not been declared by the Commission to be effective
under the Act, an amendment to such registration statement, including a form of
prospectus, a copy of which amendment has been furnished to and approved by the
Underwriter prior to the execution of this Agreement.
As used in this Agreement, the term "Registration Statement" means such
registration statement, as amended at the time when it was or is declared
effective, including all financial schedules and exhibits thereto and including
any information omitted therefrom pursuant to Rule 430A under the Act and
included in the Prospectus (as hereinafter defined); the term "Preliminary
Prospectus" means each prospectus subject to completion filed with such
registration statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration Statement or any
amendment thereto at the time it was or is declared effective); the term
"Prospectus" means (A) if the Company relies on Rule 434 under the Act, the Term
Sheet relating to the Units that is first filed pursuant to Rule 424(b)(7) under
the Act, together with the Preliminary Prospectus identified therein that such
Term Sheet supplements; (B) if the Company does not rely on Rule 434 under the
Act, the prospectus first filed with the Commission pursuant to Rule 424(b)
under the Act or (C) if the Company does not rely on Rule 434 under the Act and
if no prospectus is required to be filed pursuant to said Rule 424(b), such term
means the prospectus included in the Registration Statement; except that if such
registration statement or prospectus is amended or such prospectus is
supplemented, after the effective date of such registration statement and
-2-
<PAGE>
prior to the Option Closing Date (as hereinafter defined), the terms
"Registration Statement" and "Prospectus" shall include such registration
statement and prospectus as so amended, and the term "Prospectus" shall include
the prospectus as so supplemented, or both, as the case may be; and the term
"Term Sheet" means any term sheet that satisfies the requirements of Rule 434
under the Act. Any reference to the "date" of a Prospectus that includes a Term
Sheet shall mean the date of such Term Sheet.
(b) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus. At the time the Registration Statement
becomes effective and at all times subsequent thereto up to and on the Closing
Date (as hereinafter defined) or the Option Closing Date, as the case may be,
(i) the Registration Statement and Prospectus will in all respects conform to
the requirements of the Act and the Rules and Regulations; and (ii) neither the
Registration Statement nor the Prospectus will include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make statements therein not misleading; provided, however, that
the Company makes no representations, warranties or agreements as to information
contained in or omitted from the Registration Statement or Prospectus in
reliance upon, and in conformity with, written information furnished to the
Company by or on behalf of the Underwriter specifically for use in the
preparation thereof. It is understood that the statements set forth in the
Prospectus on page [__] with respect to stabilization, under the heading
"Underwriting" and the identity of counsel to the Underwriter under the heading
"Legal Matters" constitute the only information furnished in writing by or on
behalf of the Underwriter for inclusion in the Registration Statement and
Prospectus, as the case may be.
(c) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with full power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus and is duly
qualified to do business as a foreign corporation and is in good standing in all
other jurisdictions in which the nature of its business or the character or
location of its properties requires such qualification, except where failure to
so qualify will not materially affect the Company's business, properties or
financial condition.
(d) The authorized, issued and outstanding capital stock of the Company as
of March 31, 1997 is as set forth in the Prospectus under "Capitalization"; the
shares of issued and outstanding capital stock of the Company set forth
thereunder have been duly authorized, validly issued and are fully paid and
non-assessable; except as set forth in the Prospectus, no options, warrants, or
other rights to purchase, agreements or other obligations to issue, or
agreements or other rights to convert any obligation into, any shares of capital
stock of the Company have been granted or entered into by the Company; and the
capital stock conforms to all statements relating thereto contained in the
Registration Statement and Prospectus.
(e) The Units and the Shares are duly authorized, and when issued and
delivered pursuant to this Agreement, will be duly authorized, validly issued,
fully paid and nonassessable and free of preemptive rights of any security
holder of the Company.
-3-
<PAGE>
The Warrants have been duly authorized and, when issued and delivered
pursuant to this Agreement, will have been duly executed, issued and delivered
and will constitute valid and legally binding obligations of the Company
enforceable in accordance with their terms and entitled to the benefits provided
by the warrant agreement pursuant to which such Warrants are to be issued (the
"Warrant Agreement"), which will be substantially in the form filed as an
exhibit to the Registration Statement. The shares of Common Stock issuable upon
exercise of the Warrants have been reserved for issuance upon the exercise of
the Warrants and when issued in accordance with the terms of the Warrants and
Warrant Agreement, will be duly and validly authorized, validly issued, fully
paid and non-assessable and free of preemptive rights and no personal liability
will attach to the ownership thereof. The Warrant Agreement has been duly
authorized and, when executed and delivered pursuant to this Agreement, will
have been duly executed and delivered and will constitute the valid and legally
binding obligation of the Company enforceable in accordance with its terms. The
Warrants and the Warrant Agreement conform to the respective descriptions
thereof in the Registration Statement and Prospectus.
The Shares and the Warrants contained in the Unit Purchase Option have been
duly authorized and, when duly issued and delivered, such Warrants will
constitute valid and legally binding obligations of the Company enforceable in
accordance with their terms and entitled to the benefits provided by the Unit
Purchase Option. The Shares included in the Unit Purchase Option (and the shares
of Common Stock issuable upon exercise of such Warrants) when issued and sold,
will be duly authorized, validly issued, fully paid and non-assessable and free
of preemptive rights and no personal liability will attach to the ownership
thereof.
(f) This Agreement, the Unit Purchase Option, the M/A Agreement, the
Consulting Agreement and the Escrow Agreement have been duly and validly
authorized, executed and delivered by the Company. The Company has full power
and lawful authority to authorize, issue and sell the Units to be sold by it
hereunder on the terms and conditions set forth herein, and no consent,
approval, authorization or other order of any governmental authority is required
in connection with such authorization, execution and delivery or with the
authorization, issue and sale of the Units or the Unit Purchase Option, except
such as may be required under the Act or state securities laws.
(g) Except as described in the Prospectus, the Company is not in violation,
breach or default of or under, and consummation of the transactions herein
contemplated and the fulfillment of the terms of this Agreement will not
conflict with, or result in a breach or violation of, any of the terms or
provisions of, or constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any of the property or assets
of the Company pursuant to the terms of any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company is a party
or by which the Company may be bound or to which any of the property or assets
of the Company is subject, nor will such action result in any violation of the
provisions of the articles of incorporation or the by-laws of the Company, as
amended, or any statute or any order, rule or regulation applicable to the
Company of any court or of any regulatory authority or other governmental body
having jurisdiction over the Company.
-4-
<PAGE>
(h) Subject to the qualifications stated in the Prospectus, the Company has
good and marketable title to all properties and assets described in the
Prospectus as owned by it, free and clear of all liens, charges, encumbrances or
restrictions, except such as are not materially significant or important in
relation to its business; all of the material leases and subleases under which
the Company is the lessor or sublessor of properties or assets or under which
the Company holds properties or assets as lessee or sublessee as described in
the Prospectus are in full force and effect, and, except as described in the
Prospectus, the Company is not in default in any material respect with respect
to any of the terms or provisions of any of such leases or subleases, and no
claim has been asserted by anyone adverse to rights of the Company as lessor,
sublessor, lessee or sublessee under any of the leases or subleases mentioned
above, or affecting or questioning the right of the Company to continued
possession of the leased or subleased premises or assets under any such lease or
sublease except as described or referred to in the Prospectus; and the Company
owns or leases all such properties described in the Prospectus as are necessary
to its operations as now conducted and, except as otherwise stated in the
Prospectus, as proposed to be conducted as set forth in the Prospectus.
(i) Richard A. Eisner & Company, LLP, who have given their reports on
certain financial statements filed and to be filed with the Commission as a part
of the Registration Statement, which are incorporated in the Prospectus, are
with respect to the Company, independent public accountants as required by the
Act and the Rules and Regulations.
(j) The financial statements, and Schedules together with related notes,
set forth in the Prospectus (or if the Prospectus is not in existence, the most
recent Preliminary Prospectus) or the Registration Statement present fairly the
financial position and results of operations and changes in cash flow position
of the Company on the basis stated in the Registration Statement, at the
respective dates and for the respective periods to which they apply. Said
statements and Schedules and related notes have been prepared in accordance with
generally accepted accounting principles applied on a basis which is consistent
during the periods involved. The information set forth under the captions
"Dilution," "Capitalization," and "Selected Financial Data" in the Prospectus
fairly present, on the basis stated in the Prospectus, the information included
therein. The pro forma financial information filed as part of the Registration
Statement or included in the Prospectus (or such preliminary prospectus) has
been prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements, and includes all adjustments
necessary to present fairly the pro forma financial condition and results of
operations at the respective dates and for the respective periods indicated and
all assumptions used in preparing such pro forma financial statements are
reasonable.
(k) Subsequent to the respective dates as of which information is given in
the Registration Statement and Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), the Company has not incurred
any liabilities or obligations, direct or contingent, not in the ordinary course
of business, or entered into any transaction not in the ordinary course of
business, which is material to the business of the Company, and there has not
been any change in the capital stock of, or any incurrence of short-term or
long-term debt by, the Company or any issuance of options, warrants or other
-5-
<PAGE>
rights to purchase the capital stock of the Company or any adverse change or any
development involving, so far as the Company can now reasonably foresee a
prospective adverse change in the condition (financial or other), net worth,
results of operations, business, key personnel or properties of it which would
be material to the business or financial condition of the Company and the
Company has not become a party to, and neither the business nor the property of
the Company has become the subject of, any material litigation whether or not in
the ordinary course of business.
(l) Except as set forth in the Prospectus, there is not now pending or, to
the knowledge of the Company, threatened, any action, suit or proceeding to
which the Company is a party before or by any court or governmental agency or
body, which might result in any material adverse change in the condition
(financial or other), business prospects, net worth, or properties of the
Company, nor are there any actions, suits or proceedings related to
environmental matters or related to discrimination on the basis of age, sex,
religion or race; and no labor disputes involving the employees of the Company
exist or are imminent which might be expected to adversely affect the conduct of
the business, property or operations or the financial condition or results of
operations of the Company.
(m) Except as disclosed in the Prospectus, the Company has filed all
necessary federal, state and foreign income and franchise tax returns and has
paid all taxes shown as due thereon; and there is no tax deficiency which has
been or to the knowledge of the Company might be asserted against the Company.
(n) The Company has all licenses, permits and other governmental
authorizations currently required for the conduct of its business or the
ownership of its properties as described in the Prospectus and is in all
material respects complying therewith and owns or possesses adequate rights to
use all material patents, patent applications, trademarks, copyrights, service
marks, trade-names, trademark registrations, service mark registrations,
copyrights and licenses necessary for the conduct of such business and had not
received any notice of conflict with the asserted rights of others in respect
thereof. To the best knowledge of the Company, none of the activities or
business of the Company are in violation of, or cause the Company to violate,
any law, rule, regulation or order of the United States, any state, county or
locality, or of any agency or body of the United States or of any state, county
or locality, the violation of which would have a material adverse impact upon
the condition (financial or otherwise), business, property, prospective results
of operations, or net worth of the Company.
(o) The Company has not, directly or indirectly, at any time (i) made any
contributions to any candidate for political office, or failed to disclose fully
any such contribution in violation of law or (ii) made any payment to any state,
federal or foreign governmental officer or official, or other person charged
with similar public or quasi-public duties, other than payments or contributions
required or allowed by applicable law. The Company's internal accounting
controls and procedures are sufficient to cause the Company to comply in all
material respects with the Foreign Corrupt Practices Act of 1977, as amended.
-6-
<PAGE>
(p) On the Closing Dates (hereinafter defined) all transfer or other taxes,
(including franchise, capital stock or other tax, other than income taxes,
imposed by any jurisdiction) if any, which are required to be paid in connection
with the sale and transfer of the Units to the Underwriter hereunder will have
been fully paid or provided for by the Company and all laws imposing such taxes
will have been fully complied with.
(q) All contracts and other documents of the Company which are, under the
Rules and Regulations, required to be filed as exhibits to the Registration
Statement have been so filed.
(r) The Company has not taken and will not take, directly or indirectly,
any action designed to cause or result in, or which has constituted or which
might reasonably be expected to constitute, the stabilization or manipulation of
the price of the shares of Common Stock to facilitate the sale or resale of the
Units hereby.
(s) The Company has no subsidiaries.
(t) The Company has not entered into any agreement pursuant to which any
person is entitled either directly or indirectly to compensation from the
Company for services as a finder in connection with the proposed public
offering.
(u) Except as previously disclosed in writing by the Company to the
Underwriter, no officer, director or stockholder of the Company has any
affiliation or association with any member of the National Association of
Securities Dealers Inc. ("NASD").
(v) The Company is not, and upon receipt of the proceeds from the sale of
the Units will not be, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, and the rules and regulations
thereunder.
(w) The Company has not distributed and will not distribute prior to the
First Closing Date any offering material in connection with the offering and
sale of the Units other than the Preliminary Prospectus, Prospectus, the
Registration Statement or the other materials permitted by the Act, if any.
(x) The conditions for use of Form SB-2, as set forth in the General
Instructions thereto, have been satisfied.
(y) There are no business relationships or related-party transactions of
the nature described in Item 404 of Regulation S-B involving the Company and any
person described in such Item that are required to be disclosed in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and that have not been so disclosed.
(z) The Company has complied with all provisions of Section 517.075 Florida
Statutes relating to doing business with the government of Cuba or with any
person or affiliate located in Cuba.
-7-
<PAGE>
2. Purchase, Delivery and Sale of the Units.
(a) Subject to the terms and conditions of this Agreement, and upon the
basis of the representations, warranties, and agreements herein contained, the
Company agrees to issue and sell to the Underwriter, and the Underwriter agrees
to buy from the Company at $[_______] per Unit, at the place and time
hereinafter specified, the number of Units set forth in Schedule A attached
hereto (the "First Units"). The First Units shall consist of 1,760,000 Units to
be purchased from the Company.
Delivery of the First Units against payment therefor shall take place at
the offices of D.H. Blair Investment Banking Corp., 44 Wall Street, 2nd Floor,
New York, New York 10005 (or at such other place as may be designated by
agreement between you and the Company) at 10:00 a.m., New York time, on
[__________], 1997, or at such later time and date as you may designate, such
time and date of payment and delivery for the First Units being herein called
the "First Closing Date."
(b) In addition, subject to the terms and conditions of this Agreement, and
upon the basis of the representations, warranties and agreements herein
contained, the Company hereby grants an option to the Underwriter to purchase
all or any part of an aggregate of an additional 264,000 Units at the same price
per Unit as the Underwriter shall pay for the First Units being sold pursuant to
the provisions of subsection (a) of this Section 2 (such additional Units being
referred to herein as the "Option Units"). This option may be exercised within
45 days after the effective date of the Registration Statement upon notice by
the Underwriter to the Company advising as to the amount of Option Units as to
which the option is being exercised, the names and denominations in which the
certificates for such Option Units are to be registered and the time and date
when such certificates are to be delivered. Such time and date shall be
determined by the Underwriter but shall not be earlier than four nor later than
ten full business days after the exercise of said option, nor in any event prior
to the First Closing Date, and such time and date is referred to herein as the
"Option Closing Date." Delivery of the Option Units against payment therefor
shall take place at the offices of D.H. Blair Investment Banking Corp., 44 Wall
Street, 2nd Floor, New York, New York 10005. The Option granted hereunder may be
exercised only to cover over-allotments in the sale by the Underwriter of First
Units referred to in subsection (a) above. In the event the Company declares or
pays a dividend or distribution on its Common Stock, whether in the form of
cash, shares of Common Stock or any other consideration, prior to the Option
Closing Date, such dividend or distribution shall also be paid on the Option
Units on the Option Closing Date.
(c) The Company will make the certificates for the securities comprising
the Units to be purchased by the Underwriter hereunder available to you for
checking at least two full business days prior to the First Closing Date or the
Option Closing Date (which are collectively referred to herein as the "Closing
Dates"). The certificates shall be in such names and denominations as you may
request, at least two full business days prior to the Closing Dates. Time shall
be of the essence and delivery at the time and place specified in this Agreement
is a further condition to the obligations of the Underwriter.
-8-
<PAGE>
Definitive certificates in negotiable form for the Units to be purchased by
the Underwriter hereunder will be delivered by the Company to you for the
accounts of the Underwriter against payment of the respective purchase prices by
the Underwriter, by certified or bank cashier's checks in New York Clearing
House funds, payable to the order of the Company.
In addition, in the event the Underwriter exercises the option to purchase
from the Company all or any portion of the Option Units pursuant to the
provisions of subsection (b) above, payment for such Units shall be made to or
upon the order of the Company by certified or bank cashier's checks payable in
New York Clearing House funds at the offices of D.H. Blair Investment Banking
Corp., 44 Wall Street, 2nd Floor, New York, New York 10005, at the time and date
of delivery of such Units as required by the provisions of subsection (b) above,
against receipt of the certificates for such Units by the Underwriter registered
in such names and in such denominations as the Underwriter may request.
It is understood that you propose to offer the Units to be purchased
hereunder to the public upon the terms and conditions set forth in the
Registration Statement, after the Registration Statement becomes effective.
3. Covenants of the Company. The Company covenants and agrees with the
Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective as promptly as possible. If required, the Company
will file the Prospectus or any Term Sheet that constitutes a part thereof and
any amendment or supplement thereto with the Commission in the manner and within
the time period required by Rules 434 and 424(b) under the Act. Upon
notification from the Commission that the Registration Statement has become
effective, the Company will so advise you and will not at any time, whether
before or after the effective date, file the Prospectus, Term Sheet or any
amendment to the Registration Statement or supplement to the Prospectus of which
you shall not previously have been advised and furnished with a copy or to which
you or your counsel shall have objected in writing or which is not in compliance
with the Act and the Rules and Regulations. At any time prior to the later of
(A) the completion by all of the Underwriter of the distribution of the Units
contemplated hereby (but in no event more than nine months after the date on
which the Registration Statement shall have become or been declared effective)
and (B) 25 days after the date on which the Registration Statement shall have
become or been declared effective, the Company will prepare and file with the
Commission, promptly upon your request, any amendments or supplements to the
Registration Statement or Prospectus which, in your opinion, may be necessary or
advisable in connection with the distribution of the Units.
As soon as the Company is advised thereof, the Company will advise you, and
confirm the advice in writing, of the receipt of any comments of the Commission,
of the effectiveness of any post-effective amendment to the Registration
Statement, of the filing of any supplement to the Prospectus or any amended
Prospectus, of any request made by the Commission for amendment of the
Registration Statement or for supplementing of the Prospectus or for additional
information with respect thereto, of the issuance by the
-9-
<PAGE>
Commission or any state or regulatory body of any stop order or other order or
threat thereof suspending the effectiveness of the Registration Statement or any
order preventing or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Units for offering in any jurisdiction,
or of the institution of any proceedings for any of such purposes, and will use
its best efforts to prevent the issuance of any such order, and, if issued, to
obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each Preliminary
Prospectus, and the Company has consented and hereby consents to the use of such
copies for the purposes permitted by the Act. The Company authorizes the
Underwriter and dealers to use the Prospectus in connection with the sale of the
Units for such period as in the opinion of counsel to the Underwriter the use
thereof is required to comply with the applicable provisions of the Act and the
Rules and Regulations. In case of the happening, at any time within such period
as a Prospectus is required under the Act to be delivered in connection with
sales by an underwriter or dealer of any event of which the Company has
knowledge and which materially affects the Company or the securities of the
Company, or which in the opinion of counsel for the Company or counsel for the
Underwriter should be set forth in an amendment of the Registration Statement or
a supplement to the Prospectus in order to make the statements therein not then
misleading, in light of the circumstances existing at the time the Prospectus is
required to be delivered to a purchaser of the Units or in case it shall be
necessary to amend or supplement the Prospectus to comply with law or with the
Rules and Regulations, the Company will notify you promptly and forthwith
prepare and furnish to you copies of such amended Prospectus or of such
supplement to be attached to the Prospectus, in such quantities as you may
reasonably request, in order that the Prospectus, as so amended or supplemented,
will not contain any untrue statement of a material fact or omit to state any
material facts necessary in order to make the statements in the Prospectus, in
the light of the circumstances under which they are made, not misleading. The
preparation and furnishing of any such amendment or supplement to the
Registration Statement or amended Prospectus or supplement to be attached to the
Prospectus shall be without expense to the Underwriter, except that in case any
Underwriter is required, in connection with the sale of the Units to deliver a
Prospectus nine months or more after the effective date of the Registration
Statement, the Company will upon request of and at the expense of the
Underwriter, amend or supplement the Registration Statement and Prospectus and
furnish the Underwriter with reasonable quantities of prospectuses complying
with Section 10(a)(3) of the Act.
The Company will comply with the Act, the Rules and Regulations and the
Securities Exchange Act of 1934 and the rules and regulations thereunder in
connection with the offering and issuance of the Units.
(b) The Company will use its best efforts to qualify to register the Units
for sale under the securities or "blue sky" laws of such jurisdictions as the
Underwriter may designate and will make such applications and furnish such
information as may be required for that purpose and to comply with such laws,
provided the Company shall not be required to qualify as a foreign corporation
or a dealer in securities or to execute a general consent of service of process
in any jurisdiction in any action other than one arising out of the offering or
sale of the Units. The Company will, from time to time, prepare and file such
statements
-10-
<PAGE>
and reports as are or may be required to continue such qualification
in effect for so long a period as the Underwriter may reasonably request.
(c) If the sale of the Units provided for herein is not consummated for any
reason caused by the Company, the Company shall pay all costs and expenses
incident to the performance of the Company's obligations hereunder, including
but not limited to, all of the expenses itemized in Section 8, including the
accountable expenses of the Underwriter.
(d) The Company will use its best efforts to (i) cause a registration
statement under the Securities Exchange Act of 1934 to be declared effective
concurrently with the completion of this offering and will notify the
Underwriter in writing immediately upon the effectiveness of such registration
statement, and (ii) if requested by the Underwriter, to obtain a listing on the
Nasdaq Small Cap Market and to obtain and keep current a listing in the Standard
& Poors or Moody's Industrial OTC Manual.
(e) For so long as the Company is a reporting company under either Section
12(g) or 15(d) of the Securities Exchange Act of 1934, the Company, at its
expense, will furnish to its stockholders an annual report (including financial
statements audited by independent public accountants), in reasonable detail and
at its expense, will furnish to you during the period ending five (5) years from
the date hereof, (i) as soon as practicable after the end of each fiscal year, a
balance sheet of the Company and any of its subsidiaries as at the end of such
fiscal year, together with statements of income, surplus and cash flow of the
Company and any subsidiaries for such fiscal year, all in reasonable detail and
accompanied by a copy of the certificate or report thereon of independent
accountants; (ii) as soon as practicable after the end of each of the first
three fiscal quarters of each fiscal year, consolidated summary financial
information of the Company for such quarter in reasonable detail; (iii) as soon
as they are available, a copy of all reports (financial or other) mailed to
security holders; (iv) as soon as they are available, a copy of all
non-confidential reports and financial statements furnished to or filed with the
Commission or any securities exchange or automated quotation system on which any
class of securities of the Company is listed; and (v) such other information as
you may from time to time reasonably request.
(f) In the event the Company has an active subsidiary or subsidiaries, such
financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its subsidiary
or subsidiaries are consolidated in reports furnished to its stockholders
generally.
(g) The Company will deliver to you at or before the First Closing Date two
signed copies of the Registration Statement including all financial statements
and exhibits filed therewith, and of all amendments thereto, and will deliver to
the Underwriter such number of conformed copies of the Registration Statement,
including such financial statements but without exhibits, and of all amendments
thereto, as the Underwriter may reasonably request. The Company will deliver to
or upon the order of the Underwriter, from time to time until the effective date
of the Registration Statement, as many copies of any Preliminary Prospectus
filed with the Commission prior to the effective date of the Registration
Statement as the Underwriter may reasonably request. The Company will deliver to
the Underwriter on the effective date of the Registration Statement and
thereafter
-11-
<PAGE>
for so long as a Prospectus is required to be delivered under the Act, from time
to time, as many copies of the Prospectus, in final form, or as thereafter
amended or supplemented, as the Underwriter may from time to time reasonably
request. The Company, not later than (i) 5:00 p.m., New York City time, on the
date of determination of the public offering price, if such determination
occurred at or prior to 12:00 noon, New York City time, on such date or (ii)
6:00 p.m., New York City time, on the business day following the date of
determination of the public offering price, if such determination occurred after
12:00 noon, New York City time, on such date, will deliver to the Underwriter,
without charge, as many copies of the Prospectus and any amendment or supplement
thereto as the Underwriter may reasonably request for purposes of confirming
orders that are expected to settle on the First Closing Date.
(h) The Company will make generally available to its security holders and
to the registered holders of its Warrants and deliver to you as soon as it is
practicable to do so but in no event later than 90 days after the end of twelve
months after its current fiscal quarter, an earnings statement (which need not
be audited) covering a period of at least 12 consecutive months beginning after
the effective date of the Registration Statement, which shall satisfy the
requirements of Section 11(a) of the Act.
(i) The Company will apply the net proceeds from the sale of the Units for
the purposes set forth under "Use of Proceeds" in the Prospectus, and will file
such reports with the Commission with respect to the sale of the Units and the
application of the proceeds therefrom as may be required pursuant to Rule 463
under the Act.
(j) The Company will, promptly upon your request, prepare and file with the
Commission any amendments or supplements to the Registration Statement,
Preliminary Prospectus or Prospectus and take any other action, which in the
reasonable opinion of Paul, Hastings, Janofsky & Walker LLP, counsel to the
Underwriter, may be reasonably necessary or advisable in connection with the
distribution of the Units, and will use its best efforts to cause the same to
become effective as promptly as possible.
(k) The Company will reserve and keep available that maximum number of its
authorized but unissued securities which are issuable upon exercise of the Unit
Purchase Option outstanding from time to time.
(l) For a period of 13 months from the First Closing Date, no officer,
director or stockholder of the Company will directly or indirectly, offer, sell
(including any short sale), grant any option for the sale of, acquire any option
to dispose of, or otherwise dispose of any shares of Common Stock without the
prior written consent of the Underwriter.
(m) During the five year period from the date of this Agreement, you shall
have the right of first refusal (the "Right of First Refusal") to purchase for
your own account or to act as underwriter or agent for any and all public or
private offerings of the securities of the Company, or any successor to or
subsidiary of the Company or other entity in which the Company has an equity
interest, (collectively referred to herein as the "Company") by the Company (the
"Subsequent Company Offering") or any secondary offering of the Company's
securities by the Principal Stockholders (the "Secondary Offering").
Accordingly, if during
-12-
<PAGE>
such period the Company intends to make a Subsequent Company Offering or the
Company receives notification from any of such Principal Stockholders of its
securities of such holder's intention to make a Secondary Offering, the Company
shall notify you in writing of such intention and of the proposed terms of the
offering. The Company shall thereafter promptly furnish you with such
information concerning the business, condition and prospects of the Company as
you may reasonably request. If within thirty (30) business days of the receipt
of such notice of intention and statement of terms you do not accept in writing
such offer to act as underwriter or agent with respect to such offering upon the
terms proposed, the Company and each of the Principal Stockholders shall be free
to negotiate terms with other underwriters with respect to such offering and to
effect such offering on such proposed terms within six months after the end of
such 30 business days. Before the Company and/or any of the Principal
Stockholders shall accept any modified proposal from such underwriter, your
preferential right shall be reinstated and the same procedure with respect to
such modified proposal as provided above shall be adopted. The failure by you to
exercise your Right of First Refusal in any particular instance shall not affect
in any way such right with respect to any other Subsequent Company Offering or
Secondary Offering. By execution of this Agreement, each of the Principal
Stockholders agrees to be bound by the terms of this Section 3(m) concerning any
proposed Secondary Offering of the Company's securities.
(n) Prior to completion of this offering, the Company will make all filings
required, including registration under the Securities Exchange Act of 1934, to
obtain the listing of the Units, Common Stock, and Warrants on the Nasdaq Small
Cap Market (or a listing on such other market or exchange as the Underwriter
consent to), and will effect and maintain such listing for at least five years
from the date of this Agreement.
(o) The Company and each of the Principal Stockholders represents that it
or he has not taken and agree that it or he will not take, directly or
indirectly, any action designed to or which has constituted or which might
reasonably be expected to cause or result in the stabilization or manipulation
of the price of the Units, Shares or the Warrants or to facilitate the sale or
resale of the Securities.
(p) On the Closing Date and simultaneously with the delivery of the Units,
the Company shall execute and deliver to you the Unit Purchase Option. The Unit
Purchase Option will be substantially in the form of the Unit Purchase Option
filed as an Exhibit to the Registration Statement.
(q) Without the prior written consent of the Underwriter, (i) during the 18
month period commencing on the date of this Agreement, the Company will not
grant options to purchase shares of Common Stock at an exercise price less than
the greater of (x) the initial public offering price of the Units (without
allocating any value to the Warrants) or (y) the fair market value of the Common
Stock on the date of grant; (ii) during the six month period commencing on the
date of this Agreement, grant options to any current officer of the Company;
(iii) during the three year period commencing on the date of this Agreement,
offer or sell any of its securities pursuant to Regulation S under the Act; (iv)
grant registration rights to any person which are exercisable sooner than 13
months from the First Closing Date; (v) issue any securities which have per
share voting rights greater than the voting rights of the Shares (or take any
corporate action which would have this effect)
-13-
<PAGE>
or (vi) during the 18 month period commencing on the date of this Agreement,
enter into any agreement or arrangement with any investment banking firm other
than the Underwriter relating to investment banking, corporate finance, merger
and acquisition or other similar advisory or consulting services.
(r) Neal J. Polan shall be Chairman and Chief Executive Officer of the
Company on the Closing Dates. The Company has obtained key person life insurance
on the life of Neal J. Polan in an amount of not less than $2 million and will
use its best efforts to maintain such insurance during the five year period
commencing with the First Closing Date unless his employment with the Company is
earlier terminated. In such event, the Company will obtain a comparable policy
on the life of his successor for the balance of the five year period. For a
period of thirteen months from the First Closing Date, the compensation of the
executive officers of the Company shall not be increased from the compensation
levels disclosed in the Prospectus.
(s) On the Closing Date and simultaneously with the delivery of the Units
the Company shall execute and deliver to you an agreement with you regarding
mergers, acquisitions, joint ventures and certain other forms of transactions,
in the form previously delivered to the Company by you (the "M/A Agreement").
(t) On the Closing Date and simultaneously with the delivery of the Units,
the Company shall execute and deliver to you, and pay the first annual payment
under, a two year consulting agreement in the form previously delivered to the
Company by you (the "Consulting Agreement").
(u) So long as any Warrants are outstanding, the Company shall use its best
efforts to cause post-effective amendments to the Registration Statement to
become effective in compliance with the Act and without any lapse of time
between the effectiveness of any such post-effective amendments and cause a copy
of each Prospectus, as then amended, to be delivered to each holder of record of
a Warrant and to furnish to each Underwriter and dealer as many copies of each
such Prospectus as such Underwriter or dealer may reasonably request. The
Company shall not call for redemption any of the Warrants unless a registration
statement covering the securities underlying the Warrants has been declared
effective by the Commission and remains current at least until the date fixed
for redemption. In addition, for so long as any Warrant is outstanding, the
Company will promptly notify the Underwriter of any material change in the
business, financial condition or prospects of the Company.
(v) Upon the exercise of any Warrant or Warrants after _______, 1998, the
Company will pay the Underwriter a fee of 5% of the aggregate exercise price of
the Warrants, of which a portion may be reallowed to the dealer who solicited
the exercise (which may also be the Underwriter) if (i) the market price of the
Company's Common Stock is greater than the exercise price of the Warrants on the
date of exercise; (ii) the exercise of the Warrant was solicited by a member of
the National Association of Securities Dealers, Inc., (iii) the Warrant Holder
designates in writing that the exercise of the Warrant was solicited by a member
of the NASD and designates in writing the broker-dealer to receive compensation
for such exercise; (iv) the Warrant is not held in a discretionary account;
-14-
<PAGE>
(v) the disclosure of compensation arrangements has been made in documents
provided to customers, both as part of the original offering and at the time of
exercise, and (vi) the solicitation of exercise of the Warrant was not in
violation of Regulation M promulgated under the Securities Exchange Act of 1934,
as amended. The Company agrees not to solicit the exercise of any Warrants other
than through the Underwriter and will not authorize any other dealer to engage
in such solicitation without the prior written consent of the Underwriter.
(w) For a period of five (5) years from the Effective Date the Company (i)
at its expense, shall cause its regularly engaged independent certified public
accountants to review (but not audit) the Company's financial statements for
each of the first three (3) fiscal quarters prior to the announcement of
quarterly financial information, the filing of the Company's 10-Q quarterly
report and the mailing of quarterly financial information to stockholders and
(ii) shall not change its accounting firm without the prior written consent of
the Chairman or the President of the Underwriter.
(x) As promptly as practicable after the Closing Date, the Company will
prepare, at its own expense, hard cover "bound volumes" relating to the
offering, and will distribute at least four of such volumes to the individuals
designated by the Underwriter or counsel to the Underwriter.
(y) For a period of five years from the First Closing Date (i) the
Underwriter shall have the right, but not the obligation, to designate one
director of the Board of Directors of the Company and (ii) the Company shall
engage a public relations firm acceptable to the Underwriter.
(z) The Company shall, for a period of six years after date of this
Agreement, submit which reports to the Secretary of the Treasury and to
stockholders, as the Secretary may require, pursuant to Section 1202 of the
Internal Revenue Code, as amended, or regulations promulgated thereunder, in
order for the Company to qualify as a "small business" so that stockholders may
realize special tax treatment with respect to their investment in the Company.
4. Conditions of Underwriter Obligation. The obligations of the Underwriter
to purchase and pay for the Units which it has agreed to purchase hereunder, are
subject to the accuracy (as of the date hereof, and as of the Closing Dates) of
and compliance with the representations and warranties of the Company herein, to
the performance by the Company of its obligations hereunder, and to the
following conditions:
(a) The Registration Statement shall have become effective and you shall
have received notice thereof not later than 10:00 A.M., New York time, on the
date on which the amendment to the registration statement originally filed with
respect to the Units or to the Registration Statement, as the case may be,
containing information regarding the initial public offering price of the Units
has been filed with the Commission, or such later time and date as shall have
been agreed to by the Underwriter; if required, the Prospectus or any Term Sheet
that constitutes a part thereof and any amendment or supplement thereto shall
have been filed with the Commission in the manner and within the time period
required by
-15-
<PAGE>
Rule 434 and 424(b) under the Act; on or prior to the Closing Dates no stop
order suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that or a similar purpose shall have been
instituted or shall be pending or, to your knowledge or to the knowledge of the
Company, shall be contemplated by the Commission; any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Paul, Hastings, Janofsky & Walker LLP, counsel to the
Underwriter ("PHJ&W");
(b) At the First Closing Date, you shall have received the opinion,
together with copies of such opinion for the Underwriter, dated as of the First
Closing Date, of Bachner, Tally, Polevoy & Misher LLP, counsel for the Company,
in form and substance satisfactory to counsel for the Underwriter, to the effect
that:
(i) the Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware, with
full corporate power and authority to own its properties and conduct its
business as described in the Registration Statement and Prospectus and is duly
qualified or licensed to do business as a foreign corporation and is in good
standing in Missouri and in each other jurisdiction in which the ownership or
leasing of its properties or conduct of its business requires such
qualification;
(ii) to the best knowledge of such counsel, (a) the Company has
obtained all licenses, permits and other governmental authorizations necessary
to the conduct of its business as described in the Prospectus, (b) such
licenses, permits and other governmental authorizations obtained are in full
force and effect, and (c) the Company is in all material respects complying
therewith;
(iii) the authorized capitalization of the Company as of March 31,
1997 is as set forth under "Capitalization" in the Prospectus; all shares of the
Company's outstanding stock requiring authorization for issuance by the
Company's board of directors have been duly authorized, validly issued, are
fully paid and non-assessable and conform to the description thereof contained
in the Prospectus; the outstanding shares of Common Stock of the Company have
not been issued in violation of the preemptive rights of any shareholder and the
shareholders of the Company do not have any preemptive rights or other rights to
subscribe for or to purchase, nor are there any restrictions upon the voting or
transfer of any of the Stock; the Common Stock, the Warrants, the Unit Purchase
Option and the Warrant Agreement conform to the respective descriptions thereof
contained in the Prospectus; the Shares have been, and the shares of Common
Stock to be issued upon exercise of the Warrants and the Unit Purchase Option,
upon issuance in accordance with the terms of such Warrants, the Warrant
Agreement and Unit Purchase Option have been duly authorized and, when issued
and delivered, will be duly and validly issued, fully paid, non-assessable, free
of preemptive rights and no personal liability will attach to the ownership
thereof; all prior sales by the Company of the Company's securities have been
made in compliance with or under an exemption from registration under the Act
and applicable state securities laws and no shareholders of the Company have any
rescission rights with respect to Company securities; a sufficient number of
shares of Common Stock has been reserved for issuance upon exercise of the
Warrants and Unit Purchase Option and to the best of such counsel's
-16-
<PAGE>
knowledge, neither the filing of the Registration Statement nor the offering or
sale of the Units as contemplated by this Agreement gives rise to any
registration rights or other rights, other than those which have been waived or
satisfied for or relating to the registration of any shares of Common Stock;
(iv) this Agreement, the Unit Purchase Option, the Warrant Agreement,
the M/A Agreement and the Consulting Agreement have been duly and validly
authorized, executed and delivered by the Company and, assuming due execution by
each other party hereto or thereto, each constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
respective terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and the
application of equitable principles in any action, legal or equitable, and
except as rights to indemnity or contribution may be limited by applicable law;
(v) the certificates evidencing the shares of Common Stock are in
valid and proper legal form; the Warrants will be exercisable for shares of
Common Stock of the Company in accordance with the terms of the Warrants and at
the prices therein provided for; at all times during the term of the Warrants
the shares of Common Stock of the Company issuable upon exercise of the Warrants
have been duly authorized and reserved for issuance upon such exercise and such
shares, when issued upon such exercise in accordance with the terms of the
Warrants and at the price provided for, will be duly and validly issued, fully
paid and non-assessable;
(vi) such counsel knows of no pending or threatened legal or
governmental proceedings to which the Company is a party which could materially
adversely affect the business, property, financial condition or operations of
the Company; or which question the validity of the Securities, this Agreement,
the Warrant Agreement, the Unit Purchase Option, the M/A Agreement or the
Consulting Agreement, or of any action taken or to be taken by the Company
pursuant to this Agreement, the Warrant Agreement, the Unit Purchase Option, the
M/A Agreement or the Consulting Agreement; and no such proceedings are known to
such counsel to be contemplated against the Company; there are no governmental
proceedings or regulations required to be described or referred to in the
Registration Statement which are not so described or referred to;
(vii) the Company is not in violation of or default under, nor will
the execution and delivery of this Agreement, the Unit Purchase Option, the
Warrant Agreement, the M/A Agreement or the Consulting Agreement, and the
incurrence of the obligations herein and therein set forth and the consummation
of the transactions herein or therein contemplated, result in a breach or
violation of, or constitute a default under the certificate of incorporation or
by-laws, in the performance or observance of any material obligations,
agreement, covenant or condition contained in any bond, debenture, note or other
-17-
<PAGE>
evidence of indebtedness or in any contract, indenture, mortgage, loan
agreement, lease, joint venture or other agreement or instrument to which the
Company is a party or by which it or any of its properties may be bound or in
violation of any material order, rule, regulation, writ, injunction, or decree
of any government, governmental instrumentality or court, domestic or foreign;
(viii) the Registration Statement has become effective under the Act,
and to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement is in effect, and no proceedings for
that purpose have been instituted or are pending before, or threatened by, the
Commission; the Registration Statement and the Prospectus (except for the
financial statements and other financial data contained therein, or omitted
therefrom, as to which such counsel need express no opinion) comply as to form
in all material respects with the applicable requirements of the Act and the
Rules and Regulations;
(ix) such counsel has participated in the preparation of the
Registration Statement and the Prospectus and nothing has come to the attention
of such counsel to cause such counsel to have reason to believe that the
Registration Statement or any amendment thereto at the time it became effective
or as of the Closing Dates contained any untrue statement of a material fact
required to be stated therein or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading or
that the Prospectus or any supplement thereto contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make
statements therein, in light of the circumstances under which they were made,
not misleading (except, in the case of both the Registration Statement and any
amendment thereto and the Prospectus and any supplement thereto, for the
financial statements, notes thereto and other financial information and
schedules contained therein, as to which such counsel need express no opinion);
(x) all descriptions in the Registration Statement and the Prospectus,
and any amendment or supplement thereto, of contracts and other documents are
accurate and fairly present the information required to be shown, and such
counsel is familiar with all contracts and other documents referred to in the
Registration Statement and the Prospectus and any such amendment or supplement
or filed as exhibits to the Registration Statement, and such counsel does not
know of any contracts or documents of a character required to be summarized or
described therein or to be filed as exhibits thereto which are not so
summarized, described or filed;
(xi) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in connection with
the authorization, issuance, transfer, sale or delivery of the Units by the
Company, in connection with the execution, delivery and performance of this
Agreement by the Company or in connection with the taking of any action
contemplated herein, or the issuance of the Unit Purchase Option or the
Securities underlying the Unit Purchase Option, other than registrations or
qualifications of the Units under applicable state or foreign securities or Blue
Sky laws and registration under the Act;
-18-
<PAGE>
(xii) the statements in the Registration Statement under the captions
"Business," "Use of Proceeds," "Management," Shares Eligible for Future Sale,"
"Certain Transactions," and "Description of Securities" have been reviewed by
such counsel and insofar as they refer to descriptions of agreements, statements
of law, descriptions of statutes, licenses, rules or regulations or legal
conclusions, are correct in all material respects;
(xiii) the Units, the Common Stock and the Warrants have been duly
authorized for quotation on the Nasdaq Small Cap Market; and
(xiv) to such counsel's knowledge, there are no business relationships
or related-party transactions of the nature described in Item 404 of Regulation
S-B involving the Company, any Subsidiary and any person described in such Item
that are required to be disclosed in the Prospectus and which have not been so
disclosed.
Such opinion shall also cover such matters incident to the transactions
contemplated hereby as the Underwriter or counsel for the Underwriter shall
reasonably request. In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact; and may rely as to all matters of law other than the law of the United
States or of the State of New York upon opinions of counsel satisfactory to you,
in which case the opinion shall state that they have no reason to believe that
you and they are not entitled to so rely.
(c) All corporate proceedings and other legal matters relating to this
Agreement, the Registration Statement, the Prospectus and other related matters
shall be satisfactory to or approved by PHJ&W, counsel to the Underwriter, and
you shall have received from such counsel a signed opinion, dated as of the
First Closing Date, together with copies thereof for each of the other
Underwriter, with respect to the validity of the issuance of the Units, the form
of the Registration Statement and Prospectus (other than the financial
statements and other financial data contained therein), the execution of this
Agreement and other related matters as you may reasonably require. The Company
shall have furnished to counsel for the Underwriter such documents as they may
reasonably request for the purpose of enabling them to render such opinion.
(d) You shall have received a letter prior to the effective date of the
Registration Statement and again on and as of the First Closing Date from
Richard A. Eisner & Company, LLP, independent public accountants for the
Company, substantially in the form approved by you, and including estimates of
the Company's revenues and results of operations for the period ending at the
end of the month immediately preceding the effective date and results of the
comparable period during the prior fiscal year.
(e) At the Closing Dates, (i) the representations and warranties of the
Company contained in this Agreement shall be true and correct with the same
effect as if made on and as of the Closing Dates and the Company shall have
performed all of its obligations hereunder and satisfied all the conditions on
its part to be satisfied at or prior to such Closing Date; (ii) the Registration
Statement and the Prospectus and any amendments or supplements thereto shall
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and shall in all material respects
-19-
<PAGE>
conform to the requirements thereof, and neither the Registration Statement nor
the Prospectus nor any amendment or supplement thereto shall contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading; (iii)
there shall have been, since the respective dates as of which information is
given, no material adverse change, or any development involving a prospective
material adverse change, in the business, properties, condition (financial or
otherwise), results of operations, capital stock, long-term or short-term debt
or general affairs of the Company from that set forth in the Registration
Statement and the Prospectus, except changes which the Registration Statement
and Prospectus indicate might occur after the effective date of the Registration
Statement, and the Company shall not have incurred any material liabilities or
entered into any agreement not in the ordinary course of business other than as
referred to in the Registration Statement and Prospectus; and (iv) except as set
forth in the Prospectus, no action, suit or proceeding at law or in equity shall
be pending or threatened against the Company which would be required to be set
forth in the Registration Statement, and no proceedings shall be pending or
threatened against the Company before or by any commission, board or
administrative agency in the United States or elsewhere, wherein an unfavorable
decision, ruling or finding would materially and adversely affect the business,
property, condition (financial or otherwise), results of operations or general
affairs of the Company, and (v) you shall have received, at the First Closing
Date, a certificate signed by each of the Chairman of the Board or the President
and the principal financial or accounting officer of the Company, dated as of
the First Closing Date, evidencing compliance with the provisions of this
subsection (e).
(f) Upon exercise of the option provided for in Section 2(b) hereof, the
obligations of the Underwriter to purchase and pay for the Option Units referred
to therein will be subject (as of the date hereof and as of the Option Closing
Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at the Option
Closing Date, and no stop order suspending the effectiveness thereof shall have
been issued and no proceedings for that purpose shall have been instituted or
shall be pending, or, to your knowledge or the knowledge of the Company, shall
be contemplated by the Commission, and any reasonable request on the part of the
Commission for additional information shall have been complied with to the
satisfaction of PHJ&W, counsel to the Underwriter.
(ii) At the Option Closing Date there shall have been delivered to you
the signed opinion of Bachner, Tally, Polevoy & Misher LLP, counsel for the
Company, dated as of the Option Closing Date, in form and substance satisfactory
to PHJ&W, counsel to the Underwriter, together with copies of such opinion for
the Underwriter, which opinion shall be substantially the same in scope and
substance as the opinion furnished to you at the First Closing Date pursuant to
Section 4(b) hereof, except that such opinion, where appropriate, shall cover
the Option Units.
(iii) At the Option Closing Date there shall have been delivered to
you a certificate of the Chairman of the Board or the President and the
principal financial or accounting officer of the Company, dated the Option
Closing Date, in form and substance
-20-
<PAGE>
satisfactory to PHJ&W, counsel to the Underwriter, substantially the same in
scope and substance as the certificate furnished to you at the First Closing
Date pursuant to Section 4(e) hereof.
(iv) At the Option Closing Date there shall have been delivered to you
a letter in form and substance satisfactory to you from Richard A. Eisner &
Company, LLP, dated the Option Closing Date and addressed to the Underwriter
confirming the information in their letter referred to in Section 4(d) hereof
and stating that nothing has come to their attention during the period from the
ending date of their review referred to in said letter to a date not more than
three business days prior to the Option Closing Date, which would require any
change in said letter if it were required to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing Date in
connection with the sale and issuance of the Option Units shall be satisfactory
in form and substance to you and PHJ&W, counsel to the Underwriter, shall have
been furnished with all such documents, certificates, and opinions as you may
request in connection with this transaction in order to evidence the accuracy
and completeness of any of the representations, warranties or statements of the
Company or its compliance with any of the covenants or conditions contained
herein.
(g) No action shall have been taken by the Commission or the NASD the
effect of which would make it improper, at any time prior to the Closing Date,
for members of the NASD to execute transactions (as principal or agent) in the
Units, Common Stock or the Warrants and no proceedings for the taking of such
action shall have been instituted or shall be pending, or, to the knowledge of
the Underwriter or the Company, shall be contemplated by the Commission or the
NASD. The Company represents that at the date hereof it has no knowledge that
any such action is in fact contemplated by the Commission or the NASD. The
Company shall have advised the Underwriter of any NASD affiliation of any of its
officers, directors, stockholders or their affiliates.
(h) The estimated revenues and earnings of the Company for the _______
ending _______ 1997 will be greater than those of the _______ ended ___________,
1996.
(i) If any of the conditions herein provided for in this Section shall not
have been fulfilled as of the date indicated, this Agreement and all obligations
of the Underwriter under this Agreement may be canceled at, or at any time prior
to, each Closing Date by the Underwriter. Any such cancellation shall be without
liability of the Underwriter to the Company.
5. Conditions of the Obligations of the Company. The obligation of the
Company to sell and deliver the Units is subject to the condition that at the
Closing Dates, no stop orders suspending the effectiveness of the Registration
Statement shall have been issued under the Act or any proceedings therefor
initiated or threatened by the Commission. If the condition to the obligations
of the Company provided for in this Section have been fulfilled on the First
Closing Date but are not fulfilled after the First Closing Date and prior
-21-
<PAGE>
to the Option Closing Date, then only the obligation of the Company to sell and
deliver the Units on exercise of the option provided for in Section 2(b) hereof
shall be affected.
6. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Underwriter and
each person, if any, who controls the Underwriter within the meaning of the Act
against any losses, claims, damages or liabilities, joint or several (which
shall, for all purposes of this Agreement, include, but not be limited to, all
reasonable costs of defense and investigation and all attorneys' fees), to which
the Underwriter or such controlling person may become subject, under the Act or
otherwise, and will reimburse, as incurred, the Underwriter and such controlling
persons for any legal or other expenses reasonably incurred in connection with
investigating, defending against or appearing as a third party witness in
connection with any losses, claims, damages or liabilities, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, (B) any blue
sky application or other document executed by the Company specifically for that
purpose or based upon written information furnished by the Company filed in any
state or other jurisdiction in order to qualify any or all of the Units under
the securities laws thereof (any such application, document or information being
hereinafter called a "Blue Sky Application"), or arise out of or are based upon
the omission or alleged omission to state in the Registration Statement, any
Preliminary Prospectus, Prospectus, or any amendment or supplement thereto, or
in any Blue Sky Application, a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company will not be liable in any such case to the extent, but only to the
extent, that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with written information
furnished to the Company by or on behalf of the Underwriter specifically for use
in the preparation of the Registration Statement or any such amendment or
supplement thereof or any such Blue Sky Application or any such preliminary
Prospectus or the Prospectus or any such amendment or supplement thereto. This
indemnity will be in addition to any liability which the Company may otherwise
have.
(b) The Underwriter will indemnify and hold harmless the Company, each of
its directors, each nominee (if any) for director named in the Prospectus, each
of its officers who have signed the Registration Statement, and each person, if
any, who controls the Company within the meaning of the Act, against any losses,
claims, damages or liabilities (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company or any such director, nominee, officer or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent,
-22-
<PAGE>
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto (i) in reliance upon and in
conformity with written information furnished to the Company by the Underwriter
specifically for use in the preparation thereof and (ii) relates to the
transactions effected by the Underwriter in connection with the offer and sale
of the Units contemplated hereby. This indemnity agreement will be in addition
to any liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify in writing the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is the Underwriter
or a person who controls the Underwriter within the meaning of the Act, the fees
and expenses of such counsel shall be at the expense of the indemnifying party
if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both the Underwriter or such
controlling person and the indemnifying party and in the judgment of the
Underwriter, it is advisable for the Underwriter or controlling persons to be
represented by separate counsel (in which case the indemnifying party shall not
have the right to assume the defense of such action on behalf of the Underwriter
or such controlling person, it being understood, however, that the indemnifying
party shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of more than one separate firm of attorneys for the Underwriter and
controlling persons, which firm shall be designated in writing by the
Underwriter). No settlement of any action against an indemnified party shall be
made without the consent of the indemnifying party, which shall not be
unreasonably withheld in light of all factors of importance to such indemnifying
party.
7. Contribution.
-23-
<PAGE>
In order to provide for just and equitable contribution under the Act in
any case in which (i) the Underwriter makes claim for indemnification pursuant
to Section 6 hereof but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case, notwithstanding the fact that
the express provisions of Section 6 provide for indemnification in such case, or
(ii) contribution under the Act may be required on the part of the Underwriter,
then the Company and each person who controls the Company, in the aggregate, and
the Underwriter shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees) in either such case (after
contribution from others) in such proportions that the Underwriter is only
responsible for that portion of such losses, claims, damages or liabilities
represented by the percentage that the underwriting discount per Unit appearing
on the cover page of the Prospectus bears to the public offering price appearing
thereon, and the Company shall be responsible for the remaining portion,
provided, however, that (a) if such allocation is not permitted by applicable
law then the relative fault of the Company and the Underwriter and controlling
persons, in the aggregate, in connection with the statements or omissions which
resulted in such damages and other relevant equitable considerations shall also
be considered. The relative fault shall be determined by reference to, among
other things, whether in the case of an untrue statement of a material fact or
the omission to state a material fact, such statement or omission relates to
information supplied by the Company or the Underwriter and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The Company and the Underwriter agree that it
would not be just and equitable if the respective obligations of the Company and
the Underwriter to contribute pursuant to this Section 7 were to be determined
by pro rata or per capita allocation of the aggregate damages or by any other
method of allocation that does not take account of the equitable considerations
referred to in the first sentence of this Section 7 and (b) that the
contribution of the Underwriter shall not be in excess of its proportionate
share of the portion of such losses, claims, damages or liabilities for which
the Underwriter is responsible. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. As used in this paragraph, the word "Company" includes any
officer, director, or person who controls the Company within the meaning of
Section 15 of the Act. If the full amount of the contribution specified in this
paragraph is not permitted by law, then the Underwriter and each person who
controls the Underwriter shall be entitled to contribution from the Company, its
officers, directors and controlling persons to the full extent permitted by law.
The foregoing contribution agreement shall in no way affect the contribution
liabilities of any persons having liability under Section 11 of the Act other
than the Company and the Underwriter. No contribution shall be requested with
regard to the settlement of any matter from any party who did not consent to the
settlement; provided, however, that such consent shall not be unreasonably
withheld in light of all factors of importance to such party.
8. Costs and Expenses.
-24-
<PAGE>
(a) Whether or not this Agreement becomes effective or the sale of the
Units to the Underwriter is consummated, the Company will pay all costs and
expenses incident to the performance of this Agreement by the Company including,
but not limited to, the fees and expenses of counsel to the Company (which fees
shall not exceed [$_________]) and of the Company's accountants; the costs and
expenses incident to the preparation, printing, filing and distribution under
the Act of the Registration Statement (including the financial statements
therein and all amendments and exhibits thereto), Preliminary Prospectus and the
Prospectus, as amended or supplemented, or the Term Sheet, the fee of the NASD
in connection with the filing required by the NASD relating to the offering of
the Units contemplated hereby; all expenses, including reasonable fees and
disbursements of counsel to the Underwriter, in connection with the
qualification of the Units under the state securities or blue sky laws which the
Underwriter shall designate; the cost of printing and furnishing to the
Underwriter copies of the Registration Statement, each Preliminary Prospectus,
the Prospectus, this Agreement, Selling Agreement, Underwriter' Questionnaire,
Underwriter' Power of Attorney and the Blue Sky Memorandum, any fees relating to
the listing of the Units, Common Stock and Warrants on the Nasdaq Small Cap
Market or any other securities exchange, the cost of printing the certificates
representing the securities comprising the Units, the fees of the transfer agent
and warrant agent the cost of publication of at least three "tombstones" of the
offering (at least one of which shall be in national business newspaper and one
of which shall be in a major New York newspaper) and the cost of preparing at
least four hard cover "bound volumes" relating to the offering, in accordance
with the Underwriter' request. The Company shall pay any and all taxes
(including any transfer, franchise, capital stock or other tax imposed by any
jurisdiction) on sales to the Underwriter hereunder. The Company will also pay
all costs and expenses incident to the furnishing of any amended Prospectus or
of any supplement to be attached to the Prospectus as called for in Section 3(a)
of this Agreement except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses the Company shall at the First
Closing Date pay to the Underwriter, a non-accountable expense allowance of
[$_______] of which [$_______] has been paid. In the event the over-allotment
option is exercised, the Company shall pay to the Underwriter at the Option
Closing Date an additional amount equal to 3% of the gross proceeds received
upon exercise of the over-allotment option. In the event the transactions
contemplated hereby are not consummated by reason of any action by the
Underwriter (except if such prevention is based upon a breach by the Company of
any covenant, representation or warranty contained herein or because any other
condition to the Underwriter' obligations hereunder required to be fulfilled by
the Company is not fulfilled) the Company shall be liable for the accountable
expenses of the Underwriter, including legal fees up to a maximum of [$_______].
In the event the transactions contemplated hereby are not consummated by reason
of any action of the Company or because of a breach by the Company of any
covenant, representation or warranty herein, the Company shall be liable for the
accountable expenses of the Underwriter, including legal fees, up to a maximum
of [$_______].
(c) No person is entitled either directly or indirectly to compensation
from the Company, from the Underwriter or from any other person for services as
a finder in connection with the proposed offering, and the Company agrees to
indemnify and hold
-25-
<PAGE>
harmless the Underwriter and the other Underwriter, against any losses, claims,
damages or liabilities, joint or several (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees), to which the Underwriter or person may
become subject insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon the claim of any
person (other than an employee of the party claiming indemnity) or entity that
he or it is entitled to a finder's fee in connection with the proposed offering
by reason of such person's or entity's influence or prior contact with the
indemnifying party.
9. Substitution of Underwriter. [INTENTIONALLY OMITTED]
10. Effective Date.
The Agreement shall become effective upon its execution except that you
may, at your option, delay its effectiveness until 11:00 A.M., New York time on
the first full business day following the effective date of the Registration
Statement, or at such earlier time after the effective date of the Registration
Statement as you in your discretion shall first commence the initial public
offering by the Underwriter of any of the Units. The time of the initial public
offering shall mean the time of release by you of the first newspaper
advertisement with respect to the Units, or the time when the Units are first
generally offered by you to dealers by letter or telegram, whichever shall first
occur. This Agreement may be terminated by you at any time before it becomes
effective as provided above, except that Sections 3(c), 6, 7, 8, 13, 14, 15 and
16 shall remain in effect notwithstanding such termination.
11. Termination.
(a) This Agreement, except for Sections 3(c), 6, 7, 8, 13, 14, 15 and 16
hereof, may be terminated at any time prior to the First Closing Date, and the
option referred to in Section 2(b) hereof, if exercised, may be canceled at any
time prior to the Option Closing Date, by you if in your judgment it is
impracticable to offer for sale or to enforce contracts made by the Underwriter
for the resale of the Units agreed to be purchased hereunder by reason of (i)
the Company having sustained a material loss, whether or not insured, by reason
of fire, earthquake, flood, accident or other calamity, or from any labor
dispute or court or government action, order or decree; (ii) trading in
securities on the New York Stock Exchange, the American Stock Exchange, the
Nasdaq SmallCap Market or the Nasdaq National Market having been suspended or
limited; (iii) material governmental restrictions having been imposed on trading
in securities generally (not in force and effect on the date hereof); (iv) a
banking moratorium having been declared by federal or New York state
authorities; (v) an outbreak of international hostilities or other national or
international calamity or crisis or change in economic or political conditions
having occurred; (vi) a pending or threatened legal or governmental proceeding
or action relating generally to the Company's business, or a notification having
been received by the Company of the threat of any such proceeding or action,
which could materially adversely affect the Company; (vii) except as
contemplated by the Prospectus, the Company is merged or consolidated into or
acquired by another company or group or there exists a binding legal commitment
for the foregoing or any other material change of ownership or control occurs;
(viii) the passage by
-26-
<PAGE>
the Congress of the United States or by any state legislative body or federal or
state agency or other authority of any act, rule or regulation, measure, or the
adoption of any orders, rules or regulations by any governmental body or any
authoritative accounting institute or board, or any governmental executive,
which is reasonably believed likely by the Underwriter to have a material impact
on the business, financial condition or financial statements of the Company or
the market for the securities offered pursuant to the Prospectus; (ix) any
adverse change in the financial or securities markets beyond normal market
fluctuations having occurred since the date of this Agreement, or (x) any
material adverse change having occurred, since the respective dates of which
information is given in the Registration Statement and Prospectus, in the
earnings, business prospects or general condition of the Company, financial or
otherwise, whether or not arising in the ordinary course of business.
(b) If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11 or in Section 10, the
Company shall be promptly notified by you, by telephone or telegram, confirmed
by letter.
12. Unit Purchase Option.
At or before the First Closing Date, the Company will sell to the
Underwriter, or its designees for a consideration of $176, and upon the terms
and conditions set forth in the form of Unit Purchase Option annexed as an
exhibit to the Registration Statement, a Unit Purchase Option to purchase an
aggregate of 176,000 Units. In the event of conflict in the terms of this
Agreement and the Unit Purchase Option, the language of the Unit Purchase Option
shall control.
13. Representations, Warranties and Agreements to Survive Delivery.
The respective indemnities, agreements, representations, warranties and
other statements of the Company or its Principal Stockholders, where
appropriate, and the undertakings set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of the Underwriter, the Company or any of its officers or
directors or any controlling person and will survive delivery of and payment of
the Units and the termination of this Agreement.
14. Notice.
Any communications specifically required hereunder to be in writing, if
sent to the Underwriter, will be mailed, delivered and confirmed to it at D.H.
Blair Investment Banking Corp., 44 Wall Street, 2nd Floor, New York, New York
10005, with a copy sent to Paul, Hastings, Janofsky & Walker LLP, 399 Park
Avenue, New York, New York 10022, or if sent to the Company, will be mailed,
delivered and confirmed to it at Bachner, Tally, Polevoy & Misher LLP, 380
Madison Avenue, New York, New York 10017.
15. Parties in Interest.
The Agreement herein set forth is made solely for the benefit of the
Underwriter, the Company and, to the extent expressed, the Principal
Stockholders, any
-27-
<PAGE>
person controlling the Company or the Underwriter, and directors of the Company,
nominees for directors (if any) named in the Prospectus, its officers who have
signed the Registration Statement, and their respective executors,
administrators, successors, assigns and no other person shall acquire or have
any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include any purchaser, as such purchaser, from the
Underwriter of the Units.
16. Applicable Law.
This Agreement will be governed by, and construed in accordance with, the
laws of the State of New York applicable to agreements made and to be entirely
performed within New York.
-28-
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return this agreement, whereupon it will become a binding
agreement between the Company and the Underwriter in accordance with its terms.
Very truly yours,
HEALTHCORE MEDICAL SOLUTIONS, INC.
By:__________________________
Name:
Title:
The foregoing Underwriting Agreement is hereby confirmed and accepted as of
the date first above written.
D.H. BLAIR INVESTMENT BANKING CORP.
By:__________________________
Name:
Title:
We hereby agree to be bound by the provisions of Sections 3(l), (m), and
(o) and 13 hereof.
______________________________
______________________________
______________________________
-29-
<PAGE>
SCHEDULE A
================================================================================
Underwriter Number of First Units Number of Option Units
to be Purchased to be Purchased
================================================================================
D.H. Blair Investment [_________] [_______]
Banking Corp.
================================================================================
CERTIFICATE OF INCORPORATION
OF
HEALTHCORE MEDICAL SOLUTIONS, INC.
-------------------------
The undersigned, being over the age of eighteen (18), in order to form a
corporation for the purposes hereinafter stated, under and pursuant to the
provisions of the General Corporation Law of the State of Delaware, does hereby
certify as follows:
FIRST: The name of the corporation is HEALTHCORE MEDICAL SOLUTIONS, INC.
(the "Corporation").
SECOND: The address of the Corporation's registered office in the State of
Delaware is located at 1013 Centre Road, Wilmington, County of New Castle. The
name of its registered agent at such address is Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
FOURTH: The aggregate number of shares which the Corporation shall have
authority to issue is Twenty-Five Million (25,000,000) shares, consisting of (i)
Nineteen Million Six Hundred Forty Thousand (19,640,000) shares of Class A
Common Stock, $.01 par value per share (the "Class A Common Stock"); (ii) Three
Hundred Sixty Thousand (360,000) shares of Class B Common Stock, $.01 par value
per share (the "Class B Common Stock"); and (ii) Five Million (5,000,000) shares
of Preferred Stock, $.01 par value per share (the "Preferred Stock").
A. Common Stock
(1) General. The designations, preferences, limitations and relative rights
of the Class A Common Stock and the Class B Common Stock shall be in all respect
identical, except as stated in this Certificate of Incorporation or as otherwise
required by law.
<PAGE>
(2) Voting Rights.
(a) At each meeting of stockholders of the Corporation and upon each
proposal presented at such meeting, every holder of Class A Common Stock shall
be entitled to one vote in person or by proxy for each share of Class A Common
Stock standing in his or her name on the stock transfer records of the
Corporation and every holder of Class B Common Stock shall be entitled to five
votes in person or by proxy for each share of Class B Common Stock standing in
his or her name on the stock transfer records of the Corporation.
(b) Except as provided in this Paragraph (2) or as may be otherwise
required by law, the holders of Class A Common Stock and Class B Common Stock
shall vote together as a single class with respect to all matters.
(c) Except as may be otherwise required by law or stated in any
Preferred Stock Designation (as defined in Section B of this ARTICLE FOURTH),
the holders of Class A Common Stock and Class B Common Stock shall have the
exclusive right to vote for the election of directors and for all other
purposes, each holder of the Class A Common Stock and Class B Common Stock being
entitled to vote as provided in this Paragraph (2).
(3) Dividends and Distributions. Subject to the rights of the holders of
Preferred Stock, and subject to any other provisions of this Certificate of
Incorporation, as it may be amended from time to time, holders of Class A Common
Stock and Class B Common Stock shall be entitled to receive such dividends and
other distributions in cash, in property or in shares of the Corporation as may
be declared thereon by the Board of Directors from time to time out of assets or
funds of the Corporation legally available therefor; provided, however, that no
cash, property or share dividend or distribution may be declared or paid on the
outstanding shares of either the Class A Common Stock or Class B Common Stock
unless an identical per share dividend or distribution is simultaneously
declared and paid on the outstanding shares of the other such class of stock;
provided further, however, that a dividend of shares may be declared and paid in
Class A Common Stock to holders of Class A Common Stock and Class B Common Stock
if the number of shares paid per share to holders of Class A Common Stock and to
holders of Class B Common Stock shall be the same. If the Corporation shall in
any manner subdivide, combine or reclassify the outstanding shares of Class A
Common Stock or Class B Common Stock, the outstanding shares of the other such
class shall be subdivided, combined or reclassified proportionally in the same
manner and on the same basis as the outstanding shares of Class A Common Stock
or Class B Common Stock, as the case may be, have been subdivided, combined or
reclassified. A dividend in shares of Class A Common Stock may be paid to the
holders of shares of any other class of the Corporation.
(4) Common Stock Subject to Priorities of Preferred Stock. The Class A
Common Stock and Class B Common Stock are subject to all the powers, rights,
2
<PAGE>
privileges, preferences and priorities of the Preferred Stock as may be stated
in this Certificate of Incorporation and in any Preferred Stock Designation.
(5) Liquidation Rights. Upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, and after the holders, if any, of
the Preferred Stock of each series shall have been paid in full the amounts to
which they respectively shall be entitled, or a sum sufficient for such payment
in full shall have been set aside, the remaining net assets of the Corporation
shall be distributed pro rata on a share for share basis to the holders of the
Class A Common Stock and Class B Common Stock, subject to any Preferred Stock
Designation.
(6) No Conversion of Class A Common Stock. The shares of Class A Common
Stock are not convertible into or exchangeable for shares of Class B Common
Stock or any other shares or securities of the Corporation.
(7) Conversion of Class B Common Stock.
(a) Optional Conversion. Each record holder of Class B Common Stock is
entitled, at any time or from time to time, to convert any or all of the shares
of such holder's Class B Common Stock into fully paid and non-assessable shares
of Class A Common Stock for no additional consideration, at the ratio of one
share of Class A Common Stock for each share of Class B Common Stock.
(b) Optional Conversion Procedures.
(i) Each conversion of shares pursuant to Paragraph (7)(a) hereof
shall be effected by the surrender of the certificate or certificates
representing the shares to be converted at the principal office of the
Corporation at any time during normal business hours, together with a written
notice by the holder stating the number of shares that such holder desires to
convert. Such conversion shall be deemed to have been effected as of the close
of business on the date on which such certificate or certificates have been
surrendered, and at such time, the rights of any such holder with respect to the
converted shares of such holder will cease and the person or persons in whose
name or names the certificate or certificates for shares are to be issued upon
such conversion will be deemed to have become the holder or holders of record of
such shares represented thereby.
(ii) Promptly after such surrender, the Corporation will issue
and deliver in accordance with the surrendering holder's instructions the
certificate or certificates for the Class A Common Stock issuable upon such
conversion and a conversion and a certificate representing any Class B Common
Stock which was represented by the certificate or certificates delivered to the
Corporation in connection with such conversion, but which was not converted.
3
<PAGE>
(c) Automatic Conversion. Each share of Class B Common Stock shall
(subject to receipt of any and all necessary approvals) convert automatically
into one fully paid and non-assessable share of Class A Common Stock (i) upon
its sale, gift or transfer, (ii) upon the death of the original holder thereof,
(iii) upon the holder's termination of employment with the Corporation for any
reason, or (iv) if, for the fiscal year ended December 31, 1998, the Corporation
does not report net income before provision for income taxes and exclusive of
any extraordinary earnings (all as audited by the Corporation's independent
public accounts) of at least $1.0 million (the "Target Pretax Income Amount") or
if, for any subsequent fiscal year through the fiscal year ended December 31,
2001, the Corporation's Target Pretax Income Amount does not equal or exceed an
amount equal to the Target Pretax Income Amount for the prior fiscal year plus
ten percent (10%).
(d) Issuance Costs. The issuance of certificates upon conversion of
shares pursuant hereto will be made without charge to the holder or holders of
such shares for any issuance tax (except stock transfer tax) in respect thereof
or other costs incurred by the Corporation in connection therewith.
(e) Reservation of Shares. Solely for the purpose of issuance upon
conversion of such shares as herein provided, the Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of Class A
Common Stock such number of shares of Class A Common Stock as are then issuable
upon the conversion of all outstanding shares of Class B Common Stock. The
Corporation covenants that all shares of Class A Common Stock so issuable shall,
when so issued, be duly and validly issued, fully paid and non-assessable, and
free from liens and charges with respect to such issue. The Corporation will
take all such action as may be necessary to assure that all such shares of Class
A Common Stock may be so issued without violation of any applicable law or
regulation, or of any requirements of any national securities exchange upon
which the Class A Common Stock may be listed. The Corporation will not take any
action that results in any adjustment of the conversion ratio if the total
number of shares of Class A Common Stock issued and issuable after such action
upon conversion of the Class B Common Stock would exceed the total number of
Class A Common Stock then authorized by the Certificate of Incorporation.
(8) Reissuance of Shares. Any shares of Class B Common Stock that are
converted into shares of Class A Common Stock as provided herein shall be
retired and cancelled and shall not be reissued.
B. Preferred Stock
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors of the Corporation is hereby expressly authorized to
provide, by resolution or resolutions duly adopted by it prior to issuance, for
the creation of each such series and to fix the designation and the powers,
preferences, rights, qualifications,
4
<PAGE>
limitations and restrictions relating to the shares of each such series (the
"Preferred Stock Designation"). The authority of the Board of Directors with
respect to each series of Preferred Stock shall include, but not be limited to,
determining the following:
(1) the designation of such series, the number of shares to constitute such
series and the stated value if different from the par value thereof;
(2) whether the shares of such series shall have voting rights, in addition
to any voting rights provided by law, and, if so, the terms of such voting
rights, which may be general or limited;
(3) the dividends, if any, payable on such series, whether any such
dividends shall be cumulative, and, if so, from what dates, the conditions and
dates upon which such dividends shall be payable, and the preference or relation
which such dividends shall bear to the dividends payable on any shares of stock
of any other class or any other series of Preferred Stock;
(4) whether the shares of such series shall be subject to redemption by the
Corporation, and, if so, the times, prices and other conditions of such
redemption;
(5) the amount or amounts payable upon shares of such series upon, and the
rights of the holders of such series in, the voluntary or involuntary
liquidation, dissolution or winding up, or upon any distribution of the assets,
of the Corporation;
(6) whether the shares of such series shall be subject to the operation of
a retirement or sinking fund and, if so, the extent to and the manner in which
any such retirement or sinking fund shall be applied to the purchase or
redemption of the shares of such series for retirement or other corporate
purposes and the terms and provisions relating to the operation thereof;
(7) whether the shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or any other series of
Preferred Stock or any other securities and, if so, the price or prices or the
rate or rates of conversion or exchange and the method, if any, of adjusting the
same, and any other terms and conditions of conversion or exchange;
(8) the limitations and restrictions, if any, to be effective while any
shares of such series are outstanding upon the payment of dividends or the
making of other distributions on, and upon the purchase, redemption or other
acquisition by the Corporation of, the Common Stock or shares of stock of any
other class or any other series of Preferred Stock;
(9) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such series or of any other series of Preferred
Stock or of any other class; and
5
<PAGE>
(10) any other powers, preferences and relative, participating, optional
and other special rights, and any qualifications, limitations and restrictions,
thereof.
The powers, preferences and relative, participating, optional and other
special rights of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding. All shares of any one series of
Preferred Stock shall be identical in all respects with all other shares of such
series, except that shares of any one series issued at different times may
differ as to the dates from which dividends thereof shall be cumulative.
FIFTH: The name and address of the incorporator is Steven M. Skolnick,
Esq. and his mailing address is c/o Bachner, Tally, Polevoy & Misher LLP, 380
Madison Avenue, New York, New York 10017.
SIXTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(1) The election of directors need not be by written ballot, unless
the by-laws so provide.
(2) The Board of Directors shall have power without the assent or vote
of the stockholders to make, alter, amend, change, add to or repeal the By-Laws
of the Corporation.
SEVENTH: The Corporation shall indemnify and advance expenses to the
fullest extent permitted by Section 145 of the General Corporation Law of
Delaware, as amended from time to time, each person who is or was a director or
officer of the Corporation and the heirs, executors and administrators of such a
person.
EIGHTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware, may, on application in a summary way
of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or a class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or
6
<PAGE>
arrangement and to any reorganization of this Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.
NINTH: The personal liability of directors of the Corporation is
hereby eliminated to the full extent permitted by Section 102(b)(7) of the
General Corporation Law of the State of Delaware as the same may be amended and
supplemented.
TENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders, directors and officers are subject to this reserved
power.
IN WITNESS THEREOF, I have hereunto signed my name and affirm that the
statements made herein are true under the penalties of perjury, this 11th day of
February, 1997.
/s/ Steven M. Skolnick
---------------------------------
Steven M. Skolnick, Esq.
Incorporator
7
BY-LAWS OF
HEALTHCORE MEDICAL SOLUTIONS, INC.
(A Delaware Corporation)
-------------------------
ARTICLE 1
Meetings of Stockholders
Section 1. Annual Meeting. The annual meeting of the stockholders of HealthCore
Medical Solutions, Inc. (hereinafter called the "Corporation") for the election
of directors and for the transaction of such other business as may come before
the meeting shall be held at such date and time as shall be designated by the
Board or Chairman of the Board or the President, or at such other date and time
as the Board shall designate.
Section 2. Special Meeting. Special meetings of the stockholders, unless
otherwise prescribed by statute, may be called at any time by the Board or the
Chairman of the Board or the President. The Board of Directors shall call a
special meeting of the stockholders when requested in writing by stockholders
holding not less than 20% of the outstanding stock of the corporation; such
written request shall state the object of the meeting proposed to be held.
Section 3. Notice of Meetings. Notice of the place, date and time of the holding
of each annual and special meeting of the stockholders and, in the case of a
special meeting, the purpose or purposes thereof shall be given personally or by
mail in a postage prepaid envelope to each stockholder entitled to vote at such
meeting, not less than ten (10) nor more than sixty (60) days
<PAGE>
before the date of such meeting, and, if mailed, it shall be directed to such
stockholder at his address as it appears on the records of the Corporation,
unless he shall have filed with the Secretary of the Corporation a written
request that notices to him be mailed to some other address, in which case it
shall be directed to him at some other address. If mailed, such notice shall be
deemed to be delivered when deposited in United States mail so addressed with
postage thereon prepaid. Notice of any meeting of stockholders shall not be
required to be given to any stockholder who shall attend such meeting in person
or by proxy and shall not, at the beginning of such meeting, object to the
transaction of any business because the meeting is not lawfully called or
convened, or who shall, either before or after the meeting, submit a signed
waiver of notice, in person or by proxy. Unless the Board shall fix after the
adjournment a new record date for an adjourned meeting, notice of such adjourned
meeting need not be given if the time and place to which the meeting shall be
adjourned were announced at the meeting at which the adjournment is taken. At
the adjourned meeting the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 4. Place of Meetings. Meetings of the stockholders may be held at such
place, within or without the State of Delaware, as the Board or other officer
calling the same shall specify in the notice of such meeting, or in a duly
executed waiver of notice thereof.
Section 5. Quorum. At all meetings of the stockholders the holders of a majority
of the votes of the shares of stock of the Corporation issued and outstanding
and entitled to vote shall
-2-
<PAGE>
be present in person or by proxy to constitute a quorum for the transaction of
any business, except when stockholders are required to vote by class, in which
event a majority of the issued and outstanding shares of the appropriate class
shall be present in person or by proxy, or except as otherwise provided by
statute or in the Certificate of Incorporation. In the absence of a quorum, the
holders of a majority of the votes of the shares of stock present in person or
by proxy and entitled to vote, or if no stockholder entitled to vote is present,
then any officer of the Corporation may adjourn the meeting from time to time.
At any such adjourned meeting at which a quorum may be present any business may
be transacted which might have been transacted at the meeting as originally
called.
Section 6. Organization. At each meeting of the stockholders the Chairman of the
Board, or in his absence or inability to act, the President, or in the absence
or inability to act of the Chairman of the Board and the President, a Vice
President, or in the absence of all the foregoing, any person chosen by a
majority of those stockholders present, shall act as chairman of the meeting.
The Secretary, or, in his absence or inability to act, the Assistant Secretary
or any person appointed by the chairman of the meeting, shall act as secretary
of the meeting and keep the minutes thereof.
Section 7. Order of Business. The order of business at all meetings of the
stockholders shall be as determined by the chairman of the meeting.
Section 8. Voting. Except as otherwise provided by statute, the Certificate of
Incorporation, or any certificate duly filed in the office of the Department of
State of Delaware, each holder of record of shares of stock of the Corporation
having voting power shall be entitled at each meeting of the stockholders to one
vote for every share of such stock standing in his name on the
-3-
<PAGE>
record of stockholders of the Corporation on the date fixed by the Board as the
record date for the determination of the stockholders who shall be entitled to
notice of and to vote at such meeting; or if such record date shall not have
been so fixed, then at the close of business on the day next preceding the day
on which the meeting is held; or each stockholder entitled to vote at any
meeting of stockholders may authorize another person or persons to act for him
by a proxy signed by such stockholder or his attorney-in-fact. Any such proxy
shall be delivered to the secretary of such meeting at or prior to the time
designated in the order of business for so delivering such proxies. No proxy
shall be valid after the expiration of three years from the date thereof, unless
otherwise provided in the proxy. Every proxy shall be revocable at the pleasure
of the stockholder executing it, except in those cases where an irrevocable
proxy is permitted by law. Except as otherwise provided by statute, these
By-Laws, or the Certificate of Incorporation, any corporate action to be taken
by vote of the stockholders shall be authorized by a majority of the total
votes, or when stockholders are required to vote by class by a majority of the
votes of the appropriate class, cast at a meeting of stockholders by the holders
of shares present in person or represented by proxy and entitled to vote on such
action. Unless required by statute, or determined by the chairman of the meeting
to be advisable, the vote on any question need not be by written ballot. On a
vote by written ballot, each ballot shall be signed by the stockholder voting,
or by his proxy, if there be such proxy, and shall state the number of shares
voted.
Section 9. List of Stockholders. The officer who has charge of the stock ledger
of the Corporation, or the transfer agent of the Corporation's stock, if there
be one then acting, shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the
-4-
<PAGE>
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, at the place where the meeting is to be
held, or at the office of the transfer agent. The list shall also be produced
and kept at the time and place of the meeting during the whole time thereof, and
may be inspected by any stockholder who is present.
Section 10. Inspectors. The Board may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may, and on the
request of any stockholder entitled to vote thereat shall, appoint inspectors.
Each inspector, before entering upon the discharge of his duties, shall take and
sign an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares outstanding and the voting power of each,
the number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting or any
stockholder entitled to vote thereat, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and shall execute
a certificate of any fact
-5-
<PAGE>
found by them. No director or candidate for the office of director shall act as
inspector of an election of directors. Inspectors need not be stockholders.
Section 11. Consent of Stockholders in Lieu of Meeting.
Unless otherwise provided in the Certificate of Incorporation, any
action required by Subchapter VII of the General Corporation Law, to be taken at
any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and shall be delivered to the
corporation by delivery to its registered office in this State, its principal
place of business, or an officer or agent of the corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. Delivery
made to a corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
ARTICLE II
Board of Directors
Section 1. General Powers. The business and affairs of the Corporation shall be
managed by the Board. The Board may exercise all such authority and powers of
the Corporation and do all such lawful acts and things as are not by statute or
the Certificate of Incorporation or by these By-Laws directed or required to be
exercised or done by the stockholders.
-6-
<PAGE>
Section 2. Number, Qualifications, Election and Term of Office. The number of
directors of the Corporation shall be fixed from time to time by the vote of a
majority of the entire Board then in office and the number thereof may
thereafter by like vote be increased or decreased to such greater or lesser
number (not less than three) as may be so provided, subject to the provisions of
Section 11 of this Article II. All of the directors shall be of full age and
need not be stockholders. Except as otherwise provided by statute or these
By-Laws, the directors shall be elected at the annual meeting of the
stockholders for the election of directors at which a quorum is present, and the
persons receiving a plurality of the votes cast at such meeting shall be
elected. Each director shall hold office until the next annual meeting of the
stockholders and until his successor shall have been duly elected and qualified,
or until his death, or until he shall have resigned, or have been removed, as
hereinafter provided in these By-Laws, or as otherwise provided by statute or
the Certificate of Incorporation.
Section 3. Place of Meetings. Meetings of the Board may be held at such place,
within or without the State of Delaware, as the Board may from time to time
determine or as shall be specified in the notice or waiver of notice of such
meeting.
Section 4. Annual Meeting. The Board shall meet for the purpose of organization,
the election of officers and the transaction of other business, as soon as
practicable after each annual meeting of the stockholders, on the same day and
at the same place where such annual meeting shall be held. Notice of such
meeting need not be given. Such meeting may be held at any other time or place
(within or without the State of Delaware) which shall be specified in a notice
thereof given as hereinafter provided in Section 7 of this Article II.
-7-
<PAGE>
Section 5. Regular Meetings. Regular meetings of the Board shall be held at such
time and place as the Board may from time to time determine. If any day fixed
for a regular meeting shall be a legal holiday at the place where the meeting is
to be held, then the meeting which would otherwise be held on that day shall be
held at the same hour on the next succeeding business day. Notice of regular
meetings of the Board need not be given except as otherwise required by statute
or these By-Laws.
Section 6. Special Meetings. Special meetings of the Board may be called by two
or more directors of the Corporation or by the Chairman of the Board or the
President.
Section 7. Notice of Meetings. Notice of each special meeting of the Board (and
of each regular meeting for which notice shall be required) shall be given by
the Secretary as hereinafter provided in this Section 7, in which notice shall
be stated the time and place (within or without the State of Delaware) of the
meeting. Notice of each such meeting shall be delivered to each director either
personally or by telephone, telegraph, cable or wireless, at least twenty-four
hours before the time at which such meeting is to be held or by first-class
mail, postage prepaid, addressed to him at his residence, or usual place of
business, at least three days before the day on which such meeting is to be
held. If mailed, such notice shall be deemed to be delivered when deposited in
the United States mail. Notice of any such meeting need not be given to any
director who shall, either before or after the meeting, submit a signed waiver
of notice or who shall attend such meeting without protesting, prior to or at
its commencement, the lack of notice to him. Except as otherwise specifically
required by these By-Laws, a notice or waiver of notice of any regular or
special meeting need not state the purposes of such meeting.
-8-
<PAGE>
Section 8. Quorum and Manner of Acting. A majority of the entire Board shall be
present in person at any meeting of the Board in order to constitute a quorum
for the transaction of business at such meeting, and, except as otherwise
expressly required by statute or the Certificate of Incorporation, the act of a
majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board. Any one or more members of the Board or any
committee thereof may participate in a meeting of the Board or such committee by
means of a conference telephone or similar communications equipment allowing all
participants in the meeting to hear each other at the same time and
participation by such means shall constitute presence in person at a meeting. In
the absence of a quorum at any meeting of the Board, a majority of the directors
present thereat, or if no director be present, the Secretary, may adjourn such
meeting to another time and place, or such meeting, unless it be the annual
meeting of the Board, need not be held. At any adjourned meeting at which a
quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called. Except as provided in Article
III of these By-Laws, the directors shall act only as a Board and the individual
directors shall have no power as such.
Section 9. Organization. At each meeting of the Board, the Chairman of the Board
(or, in his absence or inability to act, the President, or, in his absence or
inability to act, another director chosen by a majority of the directors
present) shall act as chairman of the meeting and preside thereat. The Secretary
(or, in his absence or inability to act, any person appointed by the chairman)
shall act as secretary of the meeting and keep the minutes thereof.
Section 10. Resignations. Any director of the Corporation may resign at any time
by giving written notice of his resignation to the Board or Chairman of the
Board or the President or the
-9-
<PAGE>
Secretary. Any such resignation shall take effect at the time specified therein
or, if the time when it shall become effective shall not be specified therein,
immediately upon its receipt; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 11. Vacancies. Vacancies, including newly created directorships, may be
filled by a majority of the directors then in office, including those who have
so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in this
Section for the filling of other vacancies.
Section 12. Removal of Directors. Except as otherwise provided in the
Certificate of Incorporation or in these By-Laws, any director may be removed,
either with or without cause, at any time, by the affirmative vote of a majority
of the votes of the issued and outstanding shares of stock entitled to vote for
the election of the stockholders called and held for that purpose, or by a
majority vote of the Board of Directors at a meeting called for such purpose,
and the vacancy in the Board caused by any such removal may be filled by such
stockholders or directors, as the case may be, at such meeting, and if the
stockholders shall fail to fill such vacancy, such vacancy shall be filled in
the manner as provided by these By-Laws.
Section 13. Compensation. The Board shall have authority to fix the
compensation, including fees and reimbursement of expenses, of directors for
services to the Corporation in any capacity, provided no such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
-10-
<PAGE>
Section 14. Action by the Board. To the extent permitted under the laws of the
State of Delaware, any action required or permitted to be taken at any meeting
of the Board or of any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board or committee.
ARTICLE III
Executive and Other Committees
Section 1. Executive and Other Committees. The Board may, by resolution passed
by a majority of the whole Board, designate one or more committees, each
committee to consist of two or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
Committee. Any such committee, to the extent provided in the resolution, shall
have and may exercise the powers of the Board in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it; provided, however, that in the
absence or disqualification of any member of such committee or committees, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board to act at the meeting in the place of any such
absent or disqualified member. Each committee shall keep minutes of its
proceedings and shall report such minutes to the Board when required. All such
proceedings shall be subject to
-11-
<PAGE>
revision or alteration by the Board, provided, however, that third parties shall
not be prejudiced by such revision or alteration.
Section 2. General. A majority of any committee may determine its action and fix
the time and place of its meetings, unless the Board shall otherwise provide.
Notice of such meetings shall be given to each member of the committee in the
manner provided for in Article II, Section 7. The Board shall have the power at
any time to fill vacancies in, to change the membership of, or to dissolve any
such committee. Nothing herein shall be deemed to prevent the Board from
appointing one or more committees consisting in whole or in part of persons who
are directors of the Corporation; provided, however, that no such committee
shall have or may exercise any authority of the Board.
ARTICLE IV
Officers
Section 1. Number and Qualifications. The officers of the Corporation shall
include the Chairman of the Board, the President, one or more Vice Presidents
(one or more of whom may be designated Executive Vice President or Senior Vice
President), the Treasurer, and the Secretary. Any two or more offices may be
held by the same person. Such officers shall be elected from time to time by the
Board, each to hold office until the meeting of the Board following the next
annual meeting of the stockholders, or until his successor shall have been duly
elected and shall have qualified, or until his death, or until he shall have
resigned, or have been removed, as hereinafter provided in these By-Laws. The
Board may from time to time elect a Vice Chairman of the Board, and the Board
may from time to time elect, or the Chairman of the
-12-
<PAGE>
Board, or the President may appoint, such other officers (including one or more
Assistant Vice Presidents, Assistant Secretaries, and Assistant Treasurers), as
may be necessary or desirable for the business of the Corporation. Such other
officers and agents shall have such duties and shall hold their offices for such
terms as may be prescribed by the Board or by the appointing authority.
Section 2. Resignation. Any officer of the Corporation may resign at any time by
giving written notice of his resignation to the Board, the Chairman of the
Board, the President or the Secretary. Any such resignation shall take effect at
the time specified therein or, if the time when it shall become effective shall
not be specified therein, immediately upon its receipt; and unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 3. Removal. Any officer or agent of the Corporation may be removed,
either with or without cause, at any time, by the vote of the majority of the
entire Board at any meeting of the Board or, except in the case of an officer or
agent elected or appointed by the Board, by the Chairman of the Board or the
President. Such removal shall be without prejudice to the contractual rights, if
any, of the person so removed.
Section 4. Vacancies. A vacancy in any office, whether arising from death,
resignation, removal or any other cause, may be filled for the unexpired portion
of the term of the office which shall be vacant, in the manner prescribed in
these By-Laws for the regular election or appointment to such office.
Section 5. a. The Chairman of the Board. The Chairman of the Board, if one be
elected, shall, if present, preside at each meeting of the stockholders and of
the Board and shall
-13-
<PAGE>
be an ex officio member of all committees of the Board. He shall perform all
duties incident to the office of Chairman of the Board and such other duties as
may from time to time be assigned to him by the Board.
b. The Vice Chairman of the Board. The Vice Chairman of the Board, if
one be elected, shall have such powers and perform all such duties as from time
to time may be assigned to him by the Board or the Chairman of the Board and,
unless otherwise provided by the Board, shall in the case of the absence or
inability to act of the Chairman of the Board, perform the duties of the
Chairman of the Board and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the Chairman of the Board.
Section 6. The President. The President shall be the chief operating and
executive officer of the Corporation and shall have general and active
supervision and direction over the business and affairs of the Corporation and
over its several officers, subject, however, to the direction of the Chairman of
the Board and the control of the Board. If no Chairman of the Board is elected,
or at the request of the Chairman of the Board, or in the case of his absence or
inability to act, unless there be a Vice Chairman of the Board so designated to
act, the President shall perform the duties of the Chairman of the Board and
when so acting shall have all the powers of, and be subject to all the
restrictions upon, the Chairman of the Board. He shall perform all duties
incident to the office of President and such other duties as from time to time
may be assigned to him by the Board or the Chairman of the Board.
Section 7. Vice Presidents. Each Executive Vice President, each Senior Vice
President and each Vice President shall have such powers and perform all such
duties as from time to time may be assigned to him by the Board, the Chairman of
the Board, or the President. They shall, in the
-14-
<PAGE>
order of their seniority, have the power and may perform the duties of the
Chairman of the Board and the President.
Section 8. The Treasurer. The Treasurer shall be the chief financial officer of
the Corporation and shall exercise general supervision over the receipt, custody
and disbursement of Corporate funds. He shall have such further powers and
duties as may be conferred upon him from time to time by the President or the
Board of Directors. He shall perform the duties of controller if no one is
elected to that office.
Section 9. The Secretary. The Secretary shall
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the committees of the
Board and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation
(unless the seal be a facsimile, as hereinafter provided) and affix and
attest the seal to all other documents to be executed on behalf of the
Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly
kept and filed, and
-15-
<PAGE>
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him
by the Board, the Chairman of the Board, or the President.
Section 10. Officer's Bonds or Other Security. If required by the Board, any
officer of the Corporation shall give a bond or other security for the faithful
performance of his duties, in such amount and with such surety or sureties as
the Board may require.
Section 11. Compensation. The compensation of the officers of the Corporation
for their services as such officers shall be fixed from time to time by the
Board, provided, however, that the Board may delegate to the Chairman of the
Board or the President the power to fix the compensation of officers and agents
appointed by the Chairman of the Board or the President, as the case may be. An
officer of the Corporation shall not be prevented from receiving compensation by
reason of the fact that he is also a director of the Corporation, but any such
officer who shall also be a director shall not have any vote in the
determination of the amount of compensation paid to him.
ARTICLE V
Indemnification
The Corporation shall, to the fullest extent permitted by the laws of
the state of incorporation, indemnify any and all persons whom it shall have
power to indemnify against any and all of the costs, expenses, liabilities or
other matters incurred by them by reason of having been officers or directors of
the Corporation, any subsidiary of the Corporation or of any other corporation
for which he acted as officer or director at the request of the Corporation.
-16-
<PAGE>
ARTICLE VI
Contracts, Checks, Drafts, Bank Account, etc.
Section 1. Execution of Contracts. Except as otherwise required by statute, the
Certificate of Incorporation or these By-Laws, any contracts or other
instruments may be executed and delivered in the name and on behalf of the
Corporation by such officer or officers (including any assistant officer) of the
Corporation as the Board may from time to time direct. Such authority may be
general or confined to specific instances as the Board may determine. Unless
authorized by the Board or expressly permitted by these By-Laws, an officer or
agent or employee shall not have any power or authority to bind the Corporation
by any contract or engagement or to pledge its credit or to render it
pecuniarily liable for any purpose or to any amount.
Section 2. Loans. Unless the Board shall otherwise determine, either (a) the
Chairman of the Board, the Vice Chairman of the Board or the President, singly,
or (b) a Vice President, together with the Treasurer, may effect loans and
advances at any time for the Corporation or guarantee any loans and advances to
any subsidiary of the Corporation, from any bank, trust company or other
institution, or from any firm, corporation or individual, and for such loans and
advances may make, execute and deliver promissory notes, bonds or other
certificates or evidences of indebtedness of the Corporation, or guarantee of
indebtedness of subsidiaries of the Corporation, but no officer or officers
shall mortgage, pledge, hypothecate or transfer any securities or other property
of the Corporation, except when authorized by the Board.
Section 3. Check, Drafts, etc. All checks, drafts, bills of exchange or other
orders for the payment of money out of the funds of the Corporation, and all
notes or other evidences of
-17-
<PAGE>
indebtedness of the Corporation, shall be signed in the name and on behalf of
the Corporation by such persons and in such manner as shall from time to time be
authorized by the Board.
Section 4. Deposits. All funds of the Corporation not otherwise employed shall
be deposited from time to time to the credit of the Corporation in such banks,
trust companies or other depositories as the Board may from time to time
designate or as may be designated by any officer or officers of the Corporation
to whom such power of designation may from time to time be delegated by the
Board. For the purpose of deposit and for the purpose of collection for the
account of the Corporation, checks, drafts and other orders for the payment of
money which are payable to the order of the Corporation may be endorsed,
assigned and delivered by any officer or agent of the Corporation, or in such
manner as the Board may determine by resolution.
Section 5. General and Special Bank Accounts. The Board may from time to time
authorize the opening and keeping of general and special bank accounts with such
banks, trust companies or other depositories as the Board may designate or as
may be designated by any officer or officers of the Corporation to whom such
power of designation may from time to time be delegated by the Board. The Board
may make such special rules and regulations with respect to such bank accounts,
not inconsistent with the provisions of these By-Laws, as it may deem expedient.
Section 6. Proxies in Respect of Securities of Other Corporations. Unless
otherwise provided by resolution adopted by the Board of Directors, the Chairman
of the Board, the President, or a Vice President may from time to time appoint
an attorney or attorneys or agent or agents, of the Corporation, in the name and
on behalf of the Corporation to cast the votes which the Corporation may be
entitled to cast as the holder of stock or other securities in any other
-18-
<PAGE>
corporation, any of whose stock or other securities may be held by the
Corporation, at meetings of the holders of the stock or other securities of such
other corporation, or to consent in writing, in the name of the Corporation as
such holder, to any action by such other corporation, and may instruct the
person or persons so appointed as to the manner of casting such votes or giving
such consent, and may execute or cause to be executed in the name and on behalf
of the Corporation and under its corporate seal, or otherwise, all such written
proxies or other instruments as he may deem necessary or proper in the premises.
ARTICLE VII
Shares, Etc.
Section 1. Stock Certificates. Each holder of shares of stock of the Corporation
shall be entitled to have a certificate, in such form as shall be approved by
the Board, certifying the number of shares of the Corporation owned by him. The
certificates representing shares of stock shall be signed in the name of the
Corporation by the Chairman of the Board or the President or a Vice President
and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer and sealed with the seal of the Corporation (which seal may be a
facsimile, engraved or printed); provided, however, that where any such
certificate is countersigned by a transfer agent other than the Corporation or
its employee, or is registered by a registrar other than the Corporation or one
of its employees, the signature of the officers of the Corporation upon such
certificates may be facsimiles, engraved or printed. In case any officer who
shall have signed or whose facsimile signature has been placed upon such
certificates shall have ceased to be such
-19-
<PAGE>
officer before such certificates shall be issued, they may nevertheless be
issued by the Corporation with the same effect as if such officer were still in
office at the date of their issue.
Section 2. Books of Account and Record of Shareholders. The books and records of
the Corporation may be kept at such places within or without the state of
incorporation as the Board of Directors may from time to time determine. The
stock record books and the blank stock certificate books shall be kept by the
Secretary or by any other officer or agent designated by the Board of Directors.
Section 3. Transfer of Shares. Transfers of shares of stock of the Corporation
shall be made on the stock records of the Corporation only upon authorization by
the registered holder thereof, or by his attorney thereunto authorized by power
of attorney duly executed and filed with the Secretary or with a transfer agent
or transfer clerk, and on surrender of the certificate or certificates for such
shares properly endorsed or accompanied by a duly executed stock transfer power
and the payment of all taxes thereon. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of stockholders as the owner
of such share or shares for all purposes, including, without limitation, the
rights to receive dividends or other distributions, and to vote as such owner,
and the Corporation may hold any such stockholder of record liable for calls and
assessments and the Corporation shall not be bound to recognize any equitable or
legal claim to or interest in any such share or shares on the part of any other
person whether or not it shall have express or other notice thereof. Whenever
any transfers of shares shall be made for collateral security and not
absolutely, and both the transferor and transferee request the Corporation to do
so, such fact shall be stated in the entry of the transfer.
-20-
<PAGE>
Section 4. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and one
or more registrars and may require all certificates for shares of stock to bear
the signature or signatures of any of them.
Section 5. Lost, Destroyed or Mutilated Certificates. The holder of any
certificate representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it which the owner thereof shall
allege to have been lost, stolen, or destroyed or which shall have been
mutilated, and the Board may, in its discretion, require such owner or his legal
representative to give the Corporation a bond in such sum, limited or unlimited,
and in such form and with such surety or sureties as the Board in its absolute
discretion shall determine, to indemnify the Corporation against any claim that
may be made against it on account of the alleged loss, theft, or destruction of
any such certificate, or the issuance of a new certificate. Anything herein to
the contrary notwithstanding, the Board, in its absolute discretion, may refuse
to issue any such new certificate, except pursuant to legal proceedings under
the laws of the State of Delaware.
Section 6. Fixing of Record Date. In order that the Corporation may determine
the stockholders entitled to notice of, or to vote at, any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
-21-
<PAGE>
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board may fix, in advance, a
record date, which shall not be more than sixty nor less than ten days before
the date of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of, or to vote at, a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board may fix a new record date for the adjourned meeting.
ARTICLE VIII
Offices
Section 1. Principal or Registered Office. The principal registered office of
the Corporation shall be at such place as may be specified in the Certificate of
Incorporation of the Corporation or other certificate filed pursuant to law, or
if none be so specified, at such place as may from time to time be fixed by the
Board.
Section 2. Other Offices. The Corporation also may have an office or offices
other than said principal or registered office, at such place or places either
within or without the State of Delaware.
ARTICLE IX
Fiscal Year
The fiscal year of the Corporation shall be determined by the Board.
-22-
<PAGE>
ARTICLE X
Seal
The Board shall provide a corporate seal which shall contain the name
of the Corporation, the words "Corporate Seal" and the year and State of
Delaware.
ARTICLE XI
Amendments
Section 1. Shareholders. These By-Laws may be amended or repealed, or new
By-Laws may be adopted, at any annual or special meeting of the stockholders, by
a majority of the total votes of the stockholders or when stockholders are
required to vote by class by a majority of the appropriate class, in person or
represented by proxy and entitled to vote on such action; provided, however,
that the notice of such meeting shall have been given as provided in these
By-Laws, which notice shall mention that amendment or repeal of these By-Laws,
or the adoption of new By-Laws, is one of the purposes of such meeting.
Section 2. Board of Directors. These By-Laws may also be amended or repealed or
new By-Laws may be adopted, by the Board at any meeting thereof; provided,
however, that notice of such meeting shall have been given as provided in these
By-Laws, which notice shall mention that amendment or repeal of the By-Laws, or
the adoption of new By-Laws, is one of the purposes of such meetings. By-Laws
adopted by the Board may be amended or repealed by the stockholders as provided
in Section 1 of this Article XI.
-23-
<PAGE>
ARTICLE XII
Miscellaneous
Section 1. Interested Directors. No contract or other transaction between the
Corporation and any other corporation shall be affected and invalidated by the
fact that any one or more of the Directors of the Corporation is or are
interested in or is a Director or officer or are Directors or officers of such
other corporation, and any Director or Directors, individually or jointly, may
be a party or parties to or may be interested in any contract or transaction of
the Corporation or in which the Corporation is interested; and no contract, act
or transaction of the Corporation with any person or persons, firm or
corporation shall be affected or invalidated by the fact that any Director or
Directors of the Corporation is a party or are parties to or interested in such
contract, act or transaction, or in any way connected with such person or
persons, firms or associations, and each and every person who may become a
Director of the Corporation is hereby relieved from any liability that might
otherwise exist from contracting with the Corporation for the benefit of
himself, any firm, association or corporation in which he may be in any way
interested.
Section 2. Ratification. Any transaction questioned in any stockholders'
derivative suit on the grounds of lack of authority, defective or irregular
execution, adverse interest of director, officer or stockholder, nondisclosure,
miscomputation, or the application of improper principles or practices of
accounting, may be ratified before or after judgment, by the Board of Directors
or by the stockholders in case less than a quorum of Directors are qualified,
and, if so ratified, shall have the same force and effect as if the questioned
transaction had been originally duly authorized, and said ratification shall be
binding upon the Corporation and its stockholders, and
-24-
<PAGE>
shall constitute a bar to any claim or execution of any judgment in respect of
such questioned transaction.
-25-
THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE
TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT") SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR (ii)
RECEIPT BY THE ISSUER OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN
CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS SUCH TRANSFER IN VIOLATION OF ANY
APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY NOTE
ISSUED IN EXCHANGE FOR THIS NOTE.
HEALTHCORE MEDICAL SOLUTIONS, INC.
No.________ $____________
PROMISSORY NOTE
HealthCore Medical Solutions, Inc., a Delaware corporation (the "Company"),
for value received, hereby promises to pay to __________ or registered assigns
(the "Payee") on the earlier of (i) the closing date of the public offering of
securities by the Company contemplated in the Confidential Term Sheet dated
January 24, 1997 or (ii) February 27, 1998 (the "Maturity Date") at the offices
of the Company, 11904 Blue Ridge Boulevard, Grandview, Missouri 64030, the
principal amount of ___________ ($____), including interest at the rate of ten
percent (10%) per annum accrued through the Maturity Date, in such coin or
currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts.
This Note is issued pursuant to a Subscription Agreement dated as of
February 27, 1997, between the Company and the Payee (the "Subscription
Agreement"), a copy of which agreement is available for inspection at the
Company's principal office. Notwithstanding any provision to the contrary
contained herein, this Note is subject and entitled to certain terms,
conditions, covenants and agreements contained in the Subscription Agreement.
Any transferee or transferees of the Note, by their acceptance hereof, assume
the obligations of the Payee in the Subscription Agreement with respect to the
conditions and procedures for transfer of the Note. Reference to the
Subscription Agreement shall in no way impair the absolute and unconditional
obligation of the Company to pay both principal and interest hereon as provided
herein.
1. Prepayment
A. The principal amount of this Note may be prepaid by the Company, in
whole or in part, without penalty, at any time.
<PAGE>
2. Covenants of Company
A. The Company covenants and agrees that, so long as this Note shall
be outstanding, it will:
(i) Promptly pay and discharge all lawful taxes, assessments, and
governmental charges or levies imposed upon the Company or upon its income and
profits, or upon any of its property, before the same shall become in default,
as well as all lawful claims for labor, materials and supplies which, if unpaid,
might become a lien or charge upon such properties or any part thereof;
provided, however, that the Company shall not be required to pay and discharge
any such tax, assessment, charge, levy or claim so long as the validity thereof
shall be contested in good faith by appropriate proceedings and the Company
shall set aside on its books adequate reserves with respect to any such tax,
assessment, charge, levy or claim so contested;
(ii) Do or cause to be done all things reasonably necessary to
preserve and keep in full force and effect its corporate existence, rights and
franchises and comply with all laws applicable to the Company, except where the
failure to comply would not have a material adverse effect on the Company;
(iii) At all times reasonably maintain, preserve, protect and
keep its property used or useful in the conduct of its business in good repair,
working order and condition, and from time to time make all needful and proper
repairs, renewals, replacements, betterments and improvements thereto as shall
be reasonably required in the conduct of its business;
(iv) To the extent necessary for the operation of its business,
keep adequately insured by all financially sound reputable insurers, all
property of a character usually insured by similar corporations and carry such
other insurance as is usually carried by similar corporations; and
(v) At all times keep true and correct books, records and
accounts.
(vi) Except for the incurrence of any indebtedness (including
without limitation, the incurrence of any guarantee or contingent payment
obligation with respect thereto) secured by a lien, mortgage or guarantee on the
property (whether real or personal) or equipment of the Company and any
refinancings or replacements thereto or trade debt incurred in the ordinary
course of business, not incur any indebtedness whatsoever which indebtedness
does not expressly provide that it is wholly subordinated in right of payment to
the indebtedness evidenced by this Note and any identical Notes issued pursuant
to the Term Sheet.
-2-
<PAGE>
3. Events of Default
A. This Note shall become and be due and payable upon written demand
made by the holder hereof if one or more of the following events, herein called
events of default, shall happen and be continuing:
(i) Default in the payment of the principal and accrued interest
on any of the Notes issued pursuant to the Term Sheet when and as the same shall
become due and payable, whether by acceleration or otherwise;
(ii) Default in the due observance or performance of any material
covenant, condition or agreement on the part of the Company to be observed or
performed pursuant to the terms hereof and such default shall continue uncured
for thirty (30) days after written notice thereof, specifying such default,
shall have been given to the Company by the holder of the Note;
(iii) Default in the payment of any outstanding indebtedness in
excess of $25,000 principal amount or in the due observance or performance of
any material covenant, condition or agreement on the part of the Company with
respect to any outstanding indebtedness with the result that such outstanding
indebtedness shall become due and payable prior to the due date otherwise
specified therefor and such default shall continue uncured or such acceleration
shall not be rescinded or annulled within thirty (30) days after written notice
thereof to the Company from the holder of this Note;
(iv) Application for, or consent to, the appointment of a
receiver, trustee or liquidator of the Company or of its property;
(v) Admission in writing of the Company's inability to pay its
debts as they mature;
(vi) General assignment by the Company for the benefit of
creditors;
(vii) Filing by the Company of a voluntary petition in bankruptcy
or a petition or an answer seeking reorganization, or an arrangement with
creditors;
(viii) Entering against the Company of a court order approving a
petition filed against it under the Federal bankruptcy laws, which order shall
not have been vacated or set aside or otherwise terminated within sixty (60)
days;
(ix) The sale by the Company of substantially all of its assets;
-3-
<PAGE>
(x) The merger by the Company with or into another corporation,
other than for purposes of changing domicile, where the Company is not the
surviving corporation; or
(xi) A material breach of the Company's representations contained
in the Subscription Agreement.
B. The Company agrees that notice of the occurrence of any event of
default will be promptly given to the holder at his or her registered address by
certified mail.
C. Subject to the provisions of 4(B) hereof, in case any one or more
of the events of default specified above shall happen and be continuing, the
holder of this Note may proceed to protect and enforce his rights by suit in the
specific performance of any covenant or agreement contained in this Note or in
aid of the exercise of any power granted in this Note or may proceed to enforce
the payment of this Note or to enforce any other legal or equitable rights as
such holder.
4. Amendments and Waivers
A. Subject to the provisions of 4(C) and (D) hereof, the covenants set
forth in 2(A) hereof may be waived by the written consent of the holders of a
majority in outstanding principal amount of the Notes issued pursuant to the
Term Sheet.
B. Subject to the provisions of 4(C) and (D) hereof, the events of
default set forth in clauses (i), (ii), (iii) and (xi) of 3(A) hereof may be
waived by the written consent of the holders of a majority in outstanding
principal amount of the Notes issued pursuant to the Term Sheet.
C. The Company may amend or supplement this Note with the written
consent of the holders of a majority in outstanding principal amount of the
Notes issued pursuant to the Term Sheet; provided, however, that without the
consent of each Noteholder, no amendment, supplement or waiver may:
1. reduce the principal amount of Notes whose holders must
consent to any amendment, supplement or waiver;
2. reduce the rate of interest or principal of the Note;
3. extend the maturity date of the Note or the time for payment
of interest by more than one year from the respective date(s) set
forth herein.
-4-
<PAGE>
D. After any waiver, amendment or supplement under this section
becomes effective, the Company shall mail to the holders of the Notes a notice
briefly describing such waiver, amendment or supplement.
5. Miscellaneous
A. The Company may consider and treat the person in whose name this
Note shall be registered as the absolute owner thereof for all purposes
whatsoever (whether or not this Note shall be overdue) and the Company shall not
be affected by any notice to the contrary. The registered owner of this Note
shall have the right to transfer it by assignment (subject to the limitations on
transfer contained in the Subscription Agreement) and the transferee thereof
shall, upon his registration as owner of this Note, become vested with all the
powers and rights of the transferor. Registration of any new owner shall take
place upon presentation of this Note to the Company at its offices, 11904 Blue
Ridge Boulevard, Grandview, Missouri 64030, together with a duly authenticated
assignment. In case of transfer by operation of law, the transferee agrees to
notify the Company of such transfer and of his address, and to submit
appropriate evidence regarding the transfer so that this Note may be registered
in the name of the transferee. This Note is transferable only on the books of
the Company by the holder hereof, in person or by attorney, on the surrender
hereof, duly endorsed. Communications sent to any registered owner shall be
effective as against all holders or transferees of the Note not registered at
the time of sending the communication.
B. Payments of interest shall be made as specified above to the
registered owner of this Note. Payment of principal and interest shall be made
to the registered owner of this Note upon presentation of this Note upon or
after maturity.
C. This Note shall be construed and enforced in accordance with the
laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused this Note to be signed in its
name by its duly authorized officer.
HEALTHCORE MEDICAL SOLUTIONS, INC.
By:_____________________________________
Neal J. Polan, Chairman of the Board
-5-
WARRANT AGREEMENT
AGREEMENT, dated as of this 27th day of February, 1997, by and among
HEALTHCORE MEDICAL SOLUTIONS, INC., a Delaware corporation (the "Company"),
AMERICAN STOCK TRANSFER & TRUST COMPANY, as warrant agent (the "Warrant Agent"),
and D.H. BLAIR INVESTMENT BANKING CORP., a New York corporation ("Blair").
W I T N E S S E T H
WHEREAS, in connection with a private placement (the "Private Placement")
of a minimum of twenty (20) and a maximum of forty six (46) units ("Units") each
Unit consisting of $50,000 principal amount of 10% Promissory Notes ("Notes"),
and 25,000 common stock purchase warrants ("Warrants"), each Warrant exercisable
to purchase one share of the Company's Class A Common Stock, $.01 par value,
pursuant to an agency agreement (the "Agency Agreement") dated as of January 24,
1997 between the Company and Blair and the issuance to Blair or its designees of
Warrants equal to an aggregate of 10% of the Warrants sold in the Private
Placement, the Company will issue up to 1,265,000 Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the certificates representing the Warrants and the
respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean stock of the Company of any class, whether
now or hereafter authorized, which has the right to participate in the
distributions of earnings and assets of the Company without limit as to amount
or percentage, which at the date hereof consists of 19,640,000 authorized shares
of Class A Common Stock, $.01 par value, and 360,000 authorized shares of Class
B Common Stock, $.01 par value.
(b) "Corporate Office" shall mean the office of the Warrant Agent (or its
successor) at which at any particular time its principal business shall be
administered, which office is located at the date hereof at 40 Wall Street, New
York, New York.
<PAGE>
(c) "Exercise Date" shall mean, as to any Warrant, the date on which the
Warrant Agent shall have received both (a) the Warrant Certificate representing
such Warrant, with the exercise form thereon duly executed by the Registered
Holder thereof or his attorney duly authorized in writing, and (b) payment in
cash, or by official bank or certified check made payable to the Company, of an
amount in lawful money of the United States of America equal to the applicable
Purchase Price.
(d) "Initial Warrant Exercise Date" shall mean February 27, 1998.
(e) "Purchase Price" shall mean the purchase price to be paid upon exercise
of each Warrant in accordance with the terms hereof, which price shall be $4.00
per share subject to (i) adjustment from time to time pursuant to the provisions
of Section 8 hereof or (ii) conversion of the Warrants pursuant to the
provisions of Section 9 hereof, and subject to the Company's right to reduce the
Purchase Price upon notice to all warrantholders.
(f) "Registered Holder" shall mean the person in whose name any certificate
representing Warrants shall be registered on the books maintained by the Warrant
Agent pursuant to Section 6.
(g) "Transfer Agent" shall mean American Stock Transfer & Trust Company, as
the Company's transfer agent, or its authorized successor, as such.
(h) "Warrant Expiration Date" shall mean 5:00 P.M. (New York time) on
February 26, 1999; provided that if such date shall in the State of New York be
a holiday or a day on which banks are authorized to close, then 5:00 P.M. (New
York time) on the next following day which in the State of New York is not a
holiday or a day on which banks are authorized to close. Upon notice to all
warrantholders the Company shall have the right to extend the Warrant Expiration
Date.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) A Warrant shall initially entitle the Registered Holder of the Warrant
Certificate representing such Warrant to purchase one share of Common Stock upon
the exercise thereof, in accordance with the terms hereof, subject to
modification and adjustment as provided in Section 8.
(b) From time to time, up to the Warrant Expiration Date, the Transfer
Agent shall execute and deliver stock certificates in required whole number
denominations representing up to an aggregate of 1,265,000 shares of Class A
Common Stock, subject to adjustment as described herein, upon the exercise of
Warrants in accordance with this Agreement.
(c) From time to time, up to the Warrant Expiration Date, the Warrant Agent
shall execute and deliver Warrant Certificates in required whole number
denominations to the persons entitled thereto in connection with any transfer or
exchange permitted under this
-2-
<PAGE>
Agreement; provided that no Warrant Certificates shall be issued except (i)
those initially issued hereunder, (ii) those issued on or after the Initial
Warrant Exercise Date, upon the exercise of fewer than all Warrants represented
by any Warrant Certificate, to evidence any unexercised Warrants held by the
exercising Registered Holder, (iii) those issued upon any transfer or exchange
pursuant to Section 6; (iv) those issued in replacement of lost, stolen,
destroyed or mutilated Warrant Certificates pursuant to Section 7; and (v) at
the option of the Company, in such form as may be approved by the its Board of
Directors, to reflect (a) any adjustment or change in the Purchase Price or the
number of shares of Common Stock purchasable upon exercise of the Warrants, made
pursuant to Section 8 hereof and (b) other modifications approved by
Warrantholders in accordance with Section 16 hereof.
(d) In the event of an initial public offering of the Company's securities,
the provisions of Section 9 hereof will govern in certain circumstances
described therein.
SECTION 3. Form and Execution of Warrant Certificates. (a) The Warrant
Certificates shall be substantially in the form annexed hereto as Exhibit A (the
provisions of which are hereby incorporated herein) and may have such letters,
numbers or other marks of identification or designation and such legends,
summaries or endorsements printed, lithographed, engraved or typed thereon as
the Company may deem appropriate and as are not inconsistent with the provisions
of this Agreement, or as may be required to comply with any law or with any rule
or regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Warrants may be listed, or to conform to usage. The
Warrant Certificates shall be dated the date of issuance thereof (whether upon
initial issuance, transfer, exchange or in lieu of mutilated, lost, stolen, or
destroyed Warrant Certificates) and issued in registered form. Warrants shall be
numbered serially with the letter W.
(b) Warrant Certificates shall be executed on behalf of the Company by its
Chairman of the Board, President or any Vice President and by its Secretary or
an Assistant Secretary, by manual signatures or by facsimile signatures printed
thereon, and shall have imprinted thereon a facsimile of the Company's seal. In
case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be such officer of the Company before the date of
issuance of the Warrant Certificates and issue and delivery thereof, such
Warrant Certificates may nevertheless be issued and delivered with the same
force and effect as though the person who signed such Warrant Certificates had
not ceased to be such officer of the Company. After execution by the Company,
Warrant Certificates shall be delivered by the Warrant Agent to the Registered
Holder.
SECTION 4. Exercise.
(a) Each Warrant may be exercised by the Registered Holder thereof at any
time on or after the Initial Exercise Date, but not after the Warrant Expiration
Date, upon the terms and subject to the conditions set forth herein and in the
applicable Warrant Certificate. A Warrant shall be deemed to have been exercised
immediately prior to the close of business on the Exercise Date and the person
entitled to receive the securities deliverable upon such exercise
-3-
<PAGE>
shall be treated for all purposes as the holder upon exercise thereof as of the
close of business on the Exercise Date. As soon as practicable on or after the
Exercise Date the Warrant Agent shall deposit the proceeds received from the
exercise of a Warrant, and promptly after clearance of checks received in
payment of the Purchase Price pursuant to such Warrants, cause to be issued and
delivered by the Transfer Agent, to the person or persons entitled to receive
the same, a certificate or certificates for the securities deliverable upon such
exercise, (plus a certificate for any remaining unexercised Warrants of the
Registered Holder). Notwithstanding the foregoing, in the case of payment made
in the form of a check drawn on an account of Blair or such other investment
banks and brokerage houses as the Company shall approve, certificates shall
immediately be issued without any delay. Upon the exercise of any Warrant and
clearance of the funds received, the Warrant Agent shall promptly remit the
payment received for the Warrant to the Company or as the Company may direct in
writing.
(b) If on the Exercise Date in respect of the exercise of any Warrant, (i)
the market price of the Company's Common Stock is greater than the then Purchase
Price of the Warrant, (ii) the exercise of the Warrant was solicited by a member
of the National Association of Securities Dealers, Inc. ("NASD"), (iii) the
Warrant was not held in a discretionary account, (iv) disclosure of compensation
arrangements was made both at the time of the original offering and at the time
of exercise; and (v) the solicitation of the exercise of the Warrant was not in
violation of Rule 10b-6 (as such rule or any successor rule may be in effect as
of such time of exercise) promulgated under the Securities Exchange Act of 1934,
then the Warrant Agent, simultaneously with the receipt of the proceeds upon
exercise of the Warrant(s) so exercised shall pay from the proceeds received
upon exercise of the Warrant(s), a fee of 5% of the Purchase Price to Blair (of
which a portion may be reallowed to the dealer who solicited the exercise).
Within five days after exercise the Warrant Agent shall send Blair a copy of the
reverse side of each Warrant exercised. Blair shall reimburse the Warrant Agent,
upon request, for its reasonable expenses relating to compliance with this
Section 4(b). In addition, Blair may at any time during business hours, examine
the records of the Warrant Agent, including its ledger of original Warrant
Certificates returned to the Warrant Agent upon exercise of Warrants. The
provisions of this paragraph may not be modified, amended or deleted without the
prior written consent of Blair. Market price shall be determined in accordance
with the provisions of Section 10.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc. (a) The
Company covenants that it will at all times reserve and keep available out of
its authorized Common Stock, solely for the purpose of issue upon exercise of
Warrants, such number of shares of Common Stock as shall then be issuable upon
the exercise of all outstanding Warrants. The Company covenants that all shares
of Common Stock which shall be issuable upon exercise of the Warrants and
payment of the Purchase Price shall, at the time of delivery, be duly and
validly issued, fully paid, nonassessable and free from all taxes, liens and
charges with respect to the issue thereof (other than those which the Company
shall promptly pay or discharge).
(b) The Company will use reasonable efforts to obtain appropriate approvals
or registrations under state "blue sky" securities laws with respect to the
exercise of the
-4-
<PAGE>
Warrants; provided, however, that the Company shall not be obligated to file any
general consent to service of process or qualify as a foreign corporation in any
jurisdiction. With respect to any such securities laws, however, Warrants may
not be exercised by, or shares of Common Stock issued to, any Registered Holder
in any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and other
governmental charges that may be imposed with respect to the issuance of
Warrants, or the issuance, or delivery of any shares upon exercise of the
Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requesting the same has paid to the Warrant
Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to requisition the
Company's Transfer Agent from time to time for certificates representing shares
of Common Stock required upon exercise of the Warrants, and the Company will
authorize the Transfer Agent to comply with all such proper requisitions.
SECTION 6. Exchange and Registration of Transfer.
Subject to the restrictions on transfer contained in the Warrant
Certificates and the Subscription Agreements between the Company and the
purchasers of Units:
(a) Warrant Certificates may be exchanged for other Warrant Certificates
representing an equal aggregate number of Warrants of the same class or may be
transferred in whole or in part. Warrant Certificates to be exchanged shall be
surrendered to the Warrant Agent at its Corporate Office, and upon satisfaction
of the terms and provisions hereof, the Company shall execute, and the Warrant
Agent shall countersign, issue and deliver in exchange therefor the Warrant
Certificate or Certificates which the Registered Holder making the exchange
shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which, subject to
such reasonable regulations as it may prescribe, it shall register Warrant
Certificates and the transfer thereof in accordance with its regular practice.
Upon due presentment for registration of transfer of any Warrant Certificate at
its office, the Company shall execute and the Warrant Agent shall issue and
deliver to the transferee or transferees a new Warrant Certificate or
Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for registration of
transfer, or for exchange or exercise, the subscription form on the reverse
thereof shall be duly endorsed, or be accompanied by a written instrument or
instruments of transfer and subscription, in form satisfactory to the Company,
duly executed by the Registered Holder or his attorney-in-fact duly authorized
in writing.
-5-
<PAGE>
(d) The Company may require payment by such holder of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange in
case of mutilated Warrant Certificates shall be promptly cancelled by the
Warrant Agent and thereafter retained by the Warrant Agent until termination of
this Agreement or resignation of the Warrant Agent, or, with the prior written
consent of Blair, disposed of or destroyed, at the direction of the Company.
(f) Prior to due presentment for registration of transfer thereof, the
Company and the Warrant Agent may deem and treat the Registered Holder of any
Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the Warrant
Agent of evidence satisfactory to them of the ownership of and loss, theft,
destruction or mutilation of any Warrant Certificate and (in case of loss, theft
or destruction) of indemnity satisfactory to them, and (in the case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall (in the absence of notice to the Company and/or
Warrant Agent that the Warrant Certificate has been acquired by a bonafide
purchaser) countersign and deliver to the Registered Holder in lieu thereof a
new Warrant Certificate of like tenor representing an equal aggregate number of
Warrants. Applicants for a substitute Warrant Certificate shall comply with such
other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
SECTION 8. Adjustment of Exercise Price and Number of Shares of Class A
Common Stock or Warrants.
(a) Subject to the exceptions referred to in Section 8(g) below, in the
event the Company shall, at any time or from time to time after the date hereof,
sell any shares of Common Stock for a consideration per share less than the
current fair market value per share of the Common Stock on the date of the sale
or issue any shares of Common Stock as a stock dividend to the holders of Common
Stock, or subdivide or combine the outstanding shares of Common Stock into a
greater or lesser number of shares (any such sale, issuance, subdivision or
combination being herein called a "Change of Shares"), then, and thereafter upon
each further Change of Shares, the Purchase Price in effect immediately prior to
such Change of Shares shall be changed to a price (including any applicable
fraction of a cent) determined by multiplying the Purchase Price in effect
immediately prior thereto by a fraction, the numerator of which shall be the sum
of the number of shares of Common Stock outstanding immediately prior to the
issuance of such additional shares and the number of shares of Common Stock
which the aggregate consideration received (determined as provided in subsection
8(f)(F) below), if any, for the issuance of such additional shares would
purchase at such current market price per share of
-6-
<PAGE>
Common Stock, and the denominator of which shall be the sum of the number of
shares of Common Stock outstanding immediately after the issuance of such
additional shares. Such adjustment shall be made successively whenever such an
issuance is made.
Upon each adjustment of the Purchase Price pursuant to this Section 8,
the total number of shares of Common Stock purchasable upon the exercise of each
Warrant shall (subject to the provisions contained in Section 8(b) hereof) be
such number of shares (calculated to the nearest tenth) purchasable at the
Purchase Price immediately prior to such adjustment multiplied by a fraction,
the numerator of which shall be the Purchase Price in effect immediately prior
to such adjustment and the denominator of which shall be the Purchase Price in
effect immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the Purchase Price
hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Warrant outstanding after
such adjustment shall represent the right to purchase one share of Common Stock.
Each Warrant held of record prior to such adjustment of the number of Warrants
shall become that number of Warrants (calculated to the nearest tenth)
determined by multiplying the number one by a fraction, the numerator of which
shall be the Purchase Price in effect immediately prior to such adjustment and
the denominator of which shall be the Purchase Price in effect immediately after
such adjustment. Upon each adjustment of the number of Warrants pursuant to this
Section 8, the Company shall, as promptly as practicable, cause to be
distributed to each Registered Holder of Warrant Certificates on the date of
such adjustment Warrant Certificates evidencing, subject to Section 10 hereof,
the number of additional Warrants to which such Holder shall be entitled as a
result of such adjustment or, at the option of the Company, cause to be
distributed to such Holder in substitution and replacement for the Warrant
Certificates held by him prior to the date of adjustment (and upon surrender
thereof, if required by the Company) new Warrant Certificates evidencing the
number of Warrants to which such Holder shall be entitled after such adjustment.
(c) In case of any reclassification, capital reorganization or other change
of outstanding shares of Common Stock, or in case of any consolidation or merger
of the Company with or into another corporation (other than a consolidation or
merger in which the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock), or in case of any sale or conveyance to
another corporation of the property of the Company as, or substantially as, an
entirety (other than a sale/leaseback, mortgage or other financing transaction),
the Company shall cause effective provision to be made so that each holder of a
Warrant then outstanding shall have the right thereafter, by exercising such
Warrant, to purchase the kind and number of shares of stock or other securities
or property (including cash) receivable upon such reclassification, capital
reorganization or other change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock that might have been purchased
upon exercise of such Warrant immediately prior to such reclassification,
capital reorganization or other change, consolidation, merger, sale or
conveyance. Any such provision shall include provision for
-7-
<PAGE>
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 8. The foregoing provisions shall
similarly apply to successive reclassifications, capital reorganizations and
other changes of outstanding shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase Price or the
number of shares of Common Stock purchasable upon exercise of the Warrants, the
Warrant Certificates theretofore and thereafter issued shall, unless the Company
shall exercise its option to issue new Warrant Certificates pursuant to Section
2(c) hereof, continue to express the Purchase Price per share and the number of
shares purchasable thereunder as the Purchase Price per share, and the number of
shares purchasable were expressed in the Warrant Certificates when the same were
originally issued.
(e) After each adjustment of the Purchase Price pursuant to this Section 8,
the Company will promptly prepare a certificate signed by the Chairman or
President, and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, of the Company setting forth: (i) the Purchase Price as so
adjusted, (ii) the number of shares of Common Stock purchasable upon exercise of
each Warrant after such adjustment, and, if the Company shall have elected to
adjust the number of Warrants, the number of Warrants to which the registered
holder of each Warrant shall then be entitled, and the adjustment in Redemption
Price resulting therefrom, and (iii) a brief statement of the facts accounting
for such adjustment. The Company will promptly file such certificate with the
Warrant Agent and cause a brief summary thereof to be sent by ordinary first
class mail to Blair and to each registered holder of Warrants at his last
address as it shall appear on the registry books of the Warrant Agent. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity thereof except as to the holder to whom the Company
failed to mail such notice, or except as to the holder whose notice was
defective. The affidavit of an officer of the Warrant Agent or the Secretary or
an Assistant Secretary of the Company that such notice has been mailed shall, in
the absence of fraud, be prima facie evidence of the facts stated therein.
(f) For purposes of Section 8(a) and 8(b) hereof, the following provisions
(A) to (F) shall also be applicable:
(A) The number of shares of Common Stock outstanding at any given
time shall include shares of Common Stock owned or held by or for the
account of the Company and the sale or issuance of such treasury
shares or the distribution of any such treasury shares shall not be
considered a Change of Shares for purposes of said sections.
(B) No adjustment of the Purchase Price shall be made unless such
adjustment would require an increase or decrease of at least $.10 in
such price; provided that any adjustments which by reason of this
clause (B) are not required to be made shall be carried forward and
shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment(s) so
-8-
<PAGE>
carried forward, shall require an increase or decrease of at least
$.10 in the Purchase Price then in effect hereunder.
(C) In case of (1) the sale by the Company for cash of any rights
or warrants to subscribe for or purchase, or any options for the
purchase of, Common Stock or any securities convertible into or
exchangeable for Common Stock without the payment of any further
consideration other than cash, if any (such convertible or
exchangeable securities being herein called "Convertible Securities"),
or (2) the issuance by the Company, without the receipt by the Company
of any consideration therefor, of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or
Convertible Securities, in each case, if (and only if) the
consideration payable to the Company upon the exercise of such rights,
warrants or options shall consist of cash, whether or not such rights,
warrants or options, or the right to convert or exchange such
Convertible Securities, are immediately exercisable, and the price per
share for which Common Stock is issuable upon the exercise of such
rights, warrants or options or upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the minimum
aggregate consideration payable to the Company upon the exercise of
such rights, warrants or options, plus the consideration received by
the Company for the issuance or sale of such rights, warrants or
options, plus, in the case of such Convertible Securities, the minimum
aggregate amount of additional consideration, if any, other than such
Convertible Securities, payable upon the conversion or exchange
thereof, by (y) the total maximum number of shares of Common Stock
issuable upon the exercise of such rights, warrants or options or upon
the conversion or exchange of such Convertible Securities issuable
upon the exercise of such rights, warrants or options) is less than
the Market Price of the Common Stock on the date of the issuance or
sale of such rights, warrants or options, then the total maximum
number of shares of Common Stock issuable upon the exercise of such
rights, warrants or options or upon the conversion or exchange of such
Convertible Securities (as of the date of the issuance or sale of such
rights, warrants or options) shall be deemed to be outstanding shares
of Common Stock for purposes of Sections 8(a) and 8(b) hereof and
shall be deemed to have been sold for cash in an amount equal to such
price per share.
(D) In case of the sale by the Company for cash of any
Convertible Securities, whether or not the right of conversion or
exchange thereunder is immediately exercisable, and the price per
share for which Common Stock is issuable upon the conversion or
exchange of such Convertible Securities (determined by dividing (x)
the total amount of consideration received by the Company for the sale
of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by (y)
the total maximum number of shares of Common Stock issuable upon the
conversion or exchange of
-9-
<PAGE>
such convertible Securities) is less than the Market Price of the
Common Stock on the date of the sale of such Convertible Securities,
then the total maximum number of shares of Common Stock issuable upon
the conversion or exchange of such Convertible Securities (as of the
date of the sale of such Convertible Securities) shall be deemed to be
outstanding shares of Common Stock for purposes of Sections 8(a) and
8(b) hereof and shall be deemed to have been sold for cash in an
amount equal to such price per share.
(E) If the exercise or purchase price provided for in any right,
warrant or option referred to in (C) above, or the rate at which any
Convertible Securities referred to in (C) or (D) above are convertible
into or exchangeable for Common Stock, shall change at any time (other
than under or by reason of provisions designed to protect against
dilution), the Purchase Price then in effect hereunder shall forthwith
be readjusted to such Purchase Price as would have obtained (1) had
the adjustments made upon the issuance or sale of such rights,
warrants, options or Convertible Securities been made upon the basis
of the issuance of only the number of shares of Common Stock
theretofore actually delivered (and the total consideration received
therefor) upon the exercise of such rights, warrants or options or
upon the conversion or exchange of such Convertible Securities, (2)
had adjustments been made on the basis of the Purchase Price as
adjusted under clause (1) for all transactions (which would have
affected such adjusted Purchase Price) made after the issuance or sale
of such rights, warrants, options or Convertible Securities, and (3)
had any such rights, warrants, options or Convertible Securities then
still outstanding been originally issued or sold at the time of such
change. On the expiration of any such right, warrant or option or the
termination of any such right to convert or exchange any such
Convertible Securities, the Purchase Price then in effect hereunder
shall forthwith be readjusted to such Purchase Price as would have
obtained (a) had the adjustments made upon the issuance or sale of
such rights, warrants, options or Convertible Securities been made
upon the basis of the issuance of only the number of shares of Common
Stock theretofore actually delivered (and the total consideration
received therefor) upon the exercise of such rights, warrants or
options or upon the conversion or exchange of such Convertible
Securities and (b) had adjustments been made on the basis of the
Purchase Price as adjusted under clause (a) for all transactions
(which would have affected such adjusted Purchase Price) made after
the issuance or sale of such rights, warrants, options or Convertible
Securities.
(F) In case of the sale for cash of any shares of Common Stock,
any Convertible Securities, any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or
Convertible Securities, the consideration received by the Company
therefore shall be deemed to be the gross sales price therefor without
deducting therefrom any expense paid or incurred by
-10-
<PAGE>
the Company or any underwriting discounts or commissions or
concessions paid or allowed by the Company in connection therewith.
(g) No adjustment to the Purchase Price of the Warrants or to the number of
shares of Common Stock purchasable upon the exercise of each Warrant will be
made, however,
(i) upon the exercise of any of the options presently outstanding
under the Company's Stock Option Plan (the "Plan") for officers,
directors and certain other key personnel of the Company; or
(ii) upon the grant or exercise of any other options which may
hereafter be granted or exercised under the Plan or under any other
employee benefit plan of the Company; or
(iii) upon the sale or exercise of the Warrants or any other
Warrants issued by the Company; or
(iv) upon the issuance of any shares of Common Stock or warrants
sold to the public or the underwriter in the Company's initial public
offering, or upon exercise of warrants comprising or underlying any
Units sold in the Company's initial public offering, including any
shares or warrants underlying the underwriter's warrants or unit
purchase option; or
(v) upon the issuance or sale of Common Stock or Convertible
Securities upon the exercise of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or
Convertible Securities, whether or not such rights, warrants or
options were outstanding on the date of the original sale of the
Warrants or were thereafter issued or sold; or
(vi) upon the issuance or sale of Common Stock upon conversion or
exchange of any Convertible Securities, whether or not any adjustment
in the Purchase Price was made or required to be made upon the
issuance or sale of such Convertible Securities and whether or not
such Convertible Securities were outstanding on the date of the
original sale of the Warrants or were thereafter issued or sold; or
(vii) upon any amendment to or change in the terms of any rights
or warrants to subscribe for or purchase, or options for the purchase
of, Common Stock or Convertible Securities or in the terms of any
Convertible Securities, including, but not limited to, any extension
of any expiration date of any such right, warrant or option, any
change in any exercise or purchase price provided for in any such
right, warrant or option, any extension of any date through which any
Convertible Securities are convertible into or exchangeable for Common
Stock or any change in the rate at which any Convertible Securities
are
-11-
<PAGE>
convertible into or exchangeable for Common Stock (other than rights,
warrants, options or Convertible Securities issued or sold after the
close of business on the date of the original issuance of the Warrants
(i) for which an adjustment in the Purchase Price then in effect was
theretofore made or required to be made, upon the issuance or sale
thereof, or (ii) for which such an adjustment would have been required
had the exercise or purchase price of such rights, warrants or options
at the time of the issuance or sale thereof or the rate of conversion
or exchange of such Convertible Securities, at the time of the sale of
such Convertible Securities, or the issuance or sale of rights or
warrants to subscribe for or purchase, or options for the purchase of,
such Convertible Securities, been the price or rate as changed, in
which case the provisions of Section 8(f)(E) hereof shall be
applicable if, but only if, the exercise or purchase price thereof, as
changed, or the rate of conversion or exchange thereof, as changed,
consists of cash or requires the payment of additional consideration,
if any, consisting of cash and the Company did not receive any
consideration other than cash, if any, in connection with such
change).
(h) As used in this Section 8, the term "Common Stock" shall mean and
include the Company's Common Stock authorized on the date of the original issue
of the Units and shall also include any capital stock of any class of the
Company thereafter authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to participate in
dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include only shares of such class
designated in the Company's Certificate of Incorporation as Common Stock on the
date of the original issue of the Units or (i), in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 8(c) hereof, the stock, securities or property
provided for in such section or (ii), in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or consisting of a change
in par value, or from par value to no par value, or from no par value to par
value, such shares of Common Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment in the Purchase Price in
effect hereunder is required pursuant to Section 8, or as to the amount of any
such adjustment, if required, shall be binding upon the holders of the Warrants
and the Company if made in good faith by the Board of Directors of the Company.
(j) If and whenever the Company shall declare any dividends or
distributions or grant to the holders of Common Stock, as such, rights or
warrants to subscribe for or to purchase, or any options for the purchase of,
Common Stock or securities convertible into or exchangeable for or carrying a
right, warrant or option to purchase Common Stock, the Company shall notify each
of the then Registered Holders of the Warrants of such event prior to its
occurrence to enable such Registered Holders to exercise their Warrants and
participate as holders of Common Stock in such event.
-12-
<PAGE>
SECTION 9. Conversion of Warrants and Registration Under The Securities Act
of 1933.
(a) In the event the Company consummates an initial public offering of its
securities ("IPO") through the Placement Agent, and the securities offered in
the IPO include warrants which are exercisable to purchase common stock ("Class
A Warrants"), the Warrants will be automatically converted on the closing date
of the IPO with no action needed on the part of the holder into Class A Warrants
with the identical terms as the Class A Warrants offered to the public, which
may be redeemed by the Company under certain conditions. On such closing date,
this Warrant Agreement shall terminate and the Class A Warrants into which the
Warrants convert will be governed by the warrant agreement covering the Class A
Warrants sold in the IPO.
(b) The Company agrees to register for resale (i) the Class A Warrants into
which the Warrants are exchangeable, (ii) the warrants issuable upon exercise
thereof, if any, (the "Class B Warrants") and the shares of Common Stock issued
or issuable upon exercise of the Class A and Class B Warrants under the
Securities Act of 1933, as amended (the "Act") contemporaneously with its
initial public offering as more fully set forth in Section IV of the
Subscription Agreement between the Company and each of the investors in the
Private Placement, subject to certain contractual restrictions applicable to the
Holder.
SECTION 10. Fractional Warrants and Fractional Shares.
(a) If the number of shares of Common Stock purchasable upon the exercise
of each Warrant is adjusted pursuant to Section 8 hereof, the Company shall
nevertheless not be required to issue fractions of shares, upon exercise of the
Warrants or otherwise, or to distribute certificates that evidence fractional
shares. With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Holder an amount in cash equal to such
fraction multiplied by the current market value of such fractional share,
determined as follows:
(1) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the Nasdaq National Market System ("NMS"),
the current market value shall be the last reported sale price of the
Common Stock on such exchange on the last business day prior to the
date of exercise of this Warrant or if no such sale is made on such
day or no closing sale price is quoted, the average of the closing bid
and asked prices for such day on such exchange or system; or
(2) If the Common Stock is listed in the over-the-counter market
(other than on NMS) or admitted to unlisted trading privileges, the
current market value shall be the mean of the last reported bid and
asked prices reported by the National Quotation Bureau, Inc. on the
last business day prior to the date of the exercise of this Warrant;
or
-13-
<PAGE>
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the
current market value shall be an amount determined in such reasonable
manner as may be prescribed by the Board of Directors of the Company.
SECTION 11. Warrant Holders Not Deemed Stockholders. No holder of Warrants
shall, as such, be entitled to vote or to receive dividends or be deemed the
holder of Common Stock that may at any time be issuable upon exercise of such
Warrants for any purpose whatsoever, nor shall anything contained herein be
construed to confer upon the holder of Warrants, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any recapitalization,
issue or reclassification of stock, change of par value or change of stock to no
par value, consolidation, merger or conveyance or otherwise), or to receive
notice of meetings, or to receive dividends or subscription rights, until such
Holder shall have exercised such Warrants and been issued shares of Common Stock
in accordance with the provisions hereof.
SECTION 12. Rights of Action. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, on his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of shares of Common Stock in the manner provided in the Warrant Certificate and
this Agreement.
SECTION 13. Agreement of Warrant Holders. Every holder of a Warrant, by his
acceptance thereof, consents and agrees with the Company, the Warrant Agent and
every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books of the Warrant
Agent by the Registered Holder thereof in person or by his attorney duly
authorized in writing and only if the Warrant Certificates representing such
Warrants are surrendered at the office of the Warrant Agent, duly endorsed or
accompanied by a proper instrument of transfer satisfactory to the Warrant Agent
and the Company in their sole discretion, together with payment of any
applicable transfer taxes; and
(b) The Company may deem and treat the person in whose name the Warrant
Certificate is registered as the holder and as the absolute, true and lawful
owner of the Warrants represented thereby for all purposes, and the Company
shall not be affected by any notice or knowledge to the contrary, except as
otherwise expressly provided in Section 7 hereof.
SECTION 14. Cancellation of Warrant Certificates. If the Company shall
purchase or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be cancelled by it and retired.
The Warrant Agent shall also
-14-
<PAGE>
cancel Common Stock following exercise of any or all of the Warrants represented
thereby or delivered to it for transfer, splitup, combination or exchange.
SECTION 15. Concerning the Warrant Agent. The Warrant Agent acts hereunder
as agent and in a ministerial capacity for the Company, and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall not, by
issuing and delivering Warrant Certificates or by any other act hereunder be
deemed to make any representations as to the validity, value or authorization of
the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any stock issued upon exercise of any Warrant is fully paid and nonassessable.
The Warrant Agent shall account promptly to the Company with respect to
Warrants exercised and concurrently pay the Company, as provided in Section 4,
all moneys received by the Warrant Agent upon the exercise of such Warrants. The
Warrant Agent shall, upon request of the Company from time to time, deliver to
the Company such complete reports of registered ownership of the Warrants and
such complete records of transactions with respect to the Warrants and the
shares of Common Stock as the Company may request. The Warrant Agent shall also
make available to the Company and Blair for inspection by their agents or
employees, from time to time as either of them may request, such original books
of accounts and record (including original Warrant Certificates surrendered to
the Warrant Agent upon exercise of Warrants) as may be maintained by the Warrant
Agent in connection with the issuance and exercise of Warrants hereunder, such
inspections to occur at the Warrant Agent's office as specified in Section 17,
during normal business hours.
The Warrant Agent shall not at any time be under any duty or responsibility
to any holder of Warrant Certificates to make or cause to be made any adjustment
of the Purchase Price provided in this Agreement, or to determine whether any
fact exists which may require any such adjustments, or with respect to the
nature or extent of any such adjustment, when made, or with respect to the
method employed in making the same. It shall not (i) be liable for any recital
or statement of facts contained herein or for any action taken, suffered or
omitted by it in reliance on any Warrant Certificate or other document or
instrument believed by it in good faith to be genuine and to have been signed or
presented by the proper party or parties, (ii) be responsible for any failure on
the part of the Company to comply with any of its covenants and obligations
contained in this Agreement or in any Warrant Certificate, or (iii) be liable
for any act or omission in connection with this Agreement except for its own
negligence or wilful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to it
(who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order or demand of
the Company shall be sufficiently evidenced by an instrument signed by the
Chairman of the Board,
-15-
<PAGE>
President, any Vice President, its Secretary, or Assistant Secretary, (unless
other evidence in respect thereof is herein specifically prescribed). The
Warrant Agent shall not be liable for any action taken, suffered or omitted by
it in accordance with such notice, statement, instruction, request, direction,
order or demand believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation for its
services hereunder and to reimburse it for its reasonable expenses hereunder; it
further agrees to indemnify the Warrant Agent and save it harmless against any
and all losses, expenses and liabilities, including judgments, costs and counsel
fees, for anything done or omitted by the Warrant Agent in the execution of its
duties and powers hereunder except losses, expenses and liabilities arising as a
result of the Warrant Agent's negligence or wilful misconduct.
The Warrant Agent may resign its duties and be discharged from all further
duties and liabilities hereunder (except liabilities arising as a result of the
Warrant Agent's own negligence or wilful misconduct), after giving 30 days'
prior written notice to the Company. At least 15 days prior to the date such
resignation is to become effective, the Warrant Agent shall cause a copy of such
notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability of
the Warrant Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such appointment
within a period of 15 days after it has been notified in writing of such
resignation by the resigning Warrant Agent, then the Registered Holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment the Company
shall file notice thereof with the resigning Warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant agent may
be converted or merged or any corporation resulting from any consolidation to
which the Warrant Agent or any new warrant agent shall be a party or any
corporation succeeding to the trust business of the Warrant Agent shall be a
successor warrant agent under this Agreement without any further act, provided
that such corporation is eligible for appointment as successor to the Warrant
Agent under the provisions of the preceding paragraph. Any such successor
warrant agent shall promptly cause notice of its succession as warrant agent to
be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
-16-
<PAGE>
The Warrant Agent, its subsidiaries and affiliates, and any of its or their
officers or directors, may buy and hold or sell Warrants or other securities of
the Company and otherwise deal with the Company in the same manner and to the
same extent and with like effects as though it were not Warrant Agent. Nothing
herein shall preclude the Warrant Agent from acting in any other capacity for
the Company or for any other legal entity.
SECTION 16. Modification of Agreement. Subject to the provisions of Section
4(b), the parties hereto may by supplemental agreement make any changes or
corrections in this Agreement (i) that it shall deem appropriate to cure any
ambiguity or to correct any defective or inconsistent provision or manifest
mistake or error herein contained; (ii) to reflect an increase in the number of
Warrants which are to be governed by this Agreement resulting from an increase
in the size of the Private Placement; or (iii) that it may deem necessary or
desirable and which shall not adversely affect the interests of the holders of
Warrant Certificates; provided, however, that this Agreement shall not otherwise
be modified, supplemented or altered in any respect except with the consent in
writing of the Registered Holders of Warrant Certificates representing not less
than 50% of the Warrants then outstanding; and provided, further, that no change
in the number or nature of the securities purchasable upon the exercise of any
Warrant, or the Purchase Price therefor, or the acceleration of the Warrant
Expiration Date, shall be made without the consent in writing of the Registered
Holder of the Warrant Certificate representing such Warrant, other than such
changes as are specifically prescribed by this Agreement as originally executed.
SECTION 17. Notices. 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 registered or certified mail, postage
prepaid as follows: if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company, at 11904 Blue Ridge Boulevard, Grandview, Missouri
64030 Attention: Neal J. Polan; if to the Warrant Agent, at its Corporate Office
and if to Blair, at D.H. Blair Investment Banking Corp., 44 Wall Street, New
York, New York 10005, Attention: Martin A. Bell, Esq.
SECTION 18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws.
SECTION 19. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the Company and the Warrant Agent (and their respective
successors and assigns) and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
SECTION 20. Termination. This Agreement shall terminate on the earlier to
occur of (i) the close of business on the Expiration Date of all the Warrants;
(ii) the closing date
-17-
<PAGE>
of an IPO which results in the conversion of the Warrants; or (iii) the date
upon which all Warrants have been exercised.
SECTION 21. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
HEALTHCORE MEDICAL SOLUTIONS, INC.
By:_____________________________________
Neal J. Polan, Chairman of the Board
D.H. BLAIR INVESTMENT BANKING CORP.
By:_____________________________________
Martin A. Bell, Vice Chairman and
General Counsel
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:_____________________________________
Authorized Officer
-18-
<PAGE>
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED
UNTIL (1) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (THE "ACT")
SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO, OR (2) RECEIPT BY THE ISSUER
OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT
THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER NOR IS SUCH TRANSFER IN VIOLATION OF ANY APPLICABLE STATE SECURITIES
LAWS.
No. Warrants
VOID AFTER FEBRUARY 26, 1999
WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK
HEALTHCORE MEDICAL SOLUTIONS, INC.
This certifies that FOR VALUE RECEIVED ________________________ or
registered assigns (the "Registered Holder") is the owner of the number of
Warrants ("Warrants") specified above. Each Warrant initially entitles the
Registered Holder to purchase, subject to the terms and conditions set forth in
this Certificate and the Warrant Agreement (as hereinafter defined), one fully
paid and nonassessable share of Class A Common Stock, $.01 par value ("Common
Stock") of HealthCore Medical Solutions, Inc., a Delaware corporation (the
"Company") at any time commencing February 27, 1998 and prior to the Expiration
Date (as hereinafter defined), upon the presentation and surrender of this
Warrant Certificate with the Subscription Form on the reverse hereof duly
executed, at the corporate office of American Stock Transfer & Trust Company, as
Warrant Agent, or its successor (the "Warrant Agent"), accompanied by payment of
an amount equal to $4.00 for each Warrant (the "Purchase Price") in lawful money
of the United States of America in cash or by official bank or certified check
made payable to HealthCore Medical Solutions, Inc. The Company may, at its
election, reduce the Purchase Price.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated February 27,
1997 by and among the Company, the Warrant Agent and D.H. Blair Investment
Banking Corp.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
A-1
<PAGE>
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or arrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York time) on February
26, 1999. If such date shall in the State of New York be a holiday or a day on
which the banks are authorized to close, then the Expiration Date shall mean
5:00 P.M. (New York time) the next following day which in the State of New York
is not a holiday or a day on which banks are authorized to close. The Company
may, at its election, extend the Expiration Date.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any tax or other governmental
charge imposed in connection therewith, for registration of transfer of this
Warrant Certificate at such office, a new Warrant Certificate or Warrant
Certificates representing an equal aggregate number of Warrants will be issued
to the transferee in exchange therefor, subject to the limitations provided in
the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Prior to due presentment for registration of transfer hereof, the Company
may deem and treat the Registered Holder as the absolute owner hereof and of
each Warrant represented hereby (notwithstanding any notations of ownership or
writing hereon made by anyone other than a duly authorized officer of the
Company) for all purposes and shall not be affected by any notice to the
contrary.
The Company has agreed to pay a fee of 5% of the Purchase Price upon
certain conditions as specified in the Warrant Agreement upon the exercise of
this Warrant.
A-2
<PAGE>
This Warrant will automatically convert into a like number of new warrants
under certain circumstances in the event the Company completes an initial public
offering of its securities having the terms and conditions specified in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
HEALTHCORE MEDICAL SOLUTIONS, INC.
Dated: February 27, 1997
By _____________________________________
Neal J. Polan, Chairman of the Board
By ____________________________
Ronald F. Torchia, Secretary
[seal]
AMERICAN STOCK TRANSFER & TRUST COMPANY
By _____________________________________
Authorized Officer
A-3
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
Warrants represented by this Warrant Certificate, and to purchase the securities
issuable upon the exercise of such Warrants, and requests that certificates for
such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
______________________________
______________________________
______________________________
______________________________
[please print or type name and address]
and be delivered to
______________________________
______________________________
______________________________
______________________________
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
The undersigned represents that the exercise of the within Warrant was
solicited by a member of the National Association of Securities Dealers, Inc. If
not solicited by an NASD member, please write "unsolicited" in the space below.
Unless otherwise indicated by listing the name of another NASD member firm, it
will be assumed that the exercise was solicited by D.H. Blair Investment Banking
Corp.
_____________________________________
(Name of NASD Member if other
than D.H. Blair Investment
Banking Corp.)
A-4
<PAGE>
Dated:______________________
X______________________
______________________
______________________
Address
______________________
Taxpayer Identification Number
_____________________________
Signature Guaranteed
_____________________________
A-5
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, __________________ hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
______________________________
______________________________
______________________________
______________________________
[please print or type name and address]
_________________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints ____________
_______________________________________________________ Attorney to transfer
this Warrant Certificate on the books of the Company, with full power of
substitution in the premises.
Dated:______________________
X______________________
Signature Guaranteed
_____________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
A-6
WARRANT AGREEMENT
AGREEMENT, dated as of this ____ day of ___________, 1997, by and among
HEALTHCORE MEDICAL SOLUTIONS, INC., a Delaware corporation (the "Company"),
AMERICAN STOCK TRANSFER & TRUST COMPANY, as Warrant Agent (the "Warrant Agent"),
and D.H. BLAIR INVESTMENT BANKING CORP., a New York corporation (the
"Underwriter").
W I T N E S S E T H
WHEREAS, in connection with (i) a public offering of up to 1,760,000 units
("Units"), each unit consisting of one (1) share of the Company's Class A Common
Stock, $.01 par value (the "Class A Common Stock") and one (1) redeemable Class
A Warrant ("Class A Warrants" or the "Warrants") pursuant to an underwriting
agreement (the "Underwriting Agreement") dated _______________, 1997 between the
Company and the Underwriter, (ii) the issuance to the Underwriter or its
designees of Unit Purchase Options to purchase an aggregate of 176,000
additional Units, to be dated as of __________, 1997 (the "Unit Purchase
Options") and (iii) the issuance of 1,150,000 Class A Warrants to certain
securityholders of the Company upon the conversion of warrants acquired by them
in a private placement in February and March 1997, the Company may issue up to
3,086,000 Class A Warrants; and
WHEREAS, each Class A Warrant initially entitles the Registered Holder
thereof to purchase one (1) share of Class A Common Stock; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the Registered Holders thereof;
NOW THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the certificates representing the Warrants and the
respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
(a) "Aggregate Per Share Price" shall mean the Purchase Price per share
multiplied by the number of shares of Common Stock purchasable upon the exercise
of a Warrant.
<PAGE>
(b) "Class A Aggregate Per Share Price" shall mean $6.50.
(c) "Common Stock" shall mean stock of the Company of any class, whether
now or hereafter authorized, which has the right to participate in the
distribution of earnings and assets of the Company without limit as to amount or
percentage, which at the date hereof consists of (i) 19,640,000 shares of Class
A Common Stock, $.01 par value, (ii) 360,000 shares of Class B Common Stock,
$.01 par value; and
(d) "Corporate Office" shall mean the office of the Warrant Agent (or its
successor) at which at any particular time its principal business shall be
administered, which office is located at the date hereof at 40 Wall Street, New
York, New York 10005.
(e) "Exercise Date" shall mean, as to any Warrant, the date on which the
Warrant Agent shall have received both (a) the Warrant Certificate representing
such Warrant, with the exercise form thereon duly executed by the Registered
Holder thereof or his attorney duly authorized in writing, and (b) payment in
cash, or by official bank or certified check made payable to the Company, of an
amount in lawful money of the United States of America equal to the applicable
Purchase Price.
(f) "Initial Warrant Exercise Date" shall mean as to each Class A Warrant
__________, 1997.
(g) "Market Price" shall mean shall mean (i) the average closing bid price
of the Common Stock, for thirty (30) consecutive business days ending on the
Calculation Date as reported by Nasdaq, if the Common Stock is traded on the
Nasdaq SmallCap Market, or (ii) the average last reported sale price of the
Common Stock, for thirty (30) consecutive business days ending on the
Calculation Date, as reported by the primary exchange on which the Common Stock
is traded, if the Common Stock is traded on a national securities exchange, or
by Nasdaq, if the Common Stock is traded on the Nasdaq National Market.
(h) "Purchase Price" shall mean the purchase price to be paid upon exercise
of each Class A Warrant in accordance with the terms hereof, which price shall
be $6.50 as to the Class A Warrants subject to adjustment from time to time
pursuant to the provisions of Section 9 hereof, and subject to the Company's
right to reduce the Purchase Price upon notice to all Registered Holders of
Warrants.
(i) "Redemption Price" shall mean the price at which the Company may, at
its option in accordance with the terms hereof, redeem the Class A Warrants
which price shall be $0.05 per Warrant.
(j) "Registered Holder" shall mean as to any Warrant and as of any
particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.
(k) "Transfer Agent" shall mean AMERICAN STOCK TRANSFER & TRUST COMPANY, as
the Company's transfer agent, or its authorized successor, as such.
-2-
<PAGE>
(l) "Warrant Expiration Date" shall mean 5:00 P.M. (New York time) on
_________, 2002 (subject to extension as provided herein and in Section 9(e) or,
with respect to Warrants which are outstanding as of the applicable Redemption
Date (as defined in Section 8) and specifically excluding Warrants issuable upon
exercise of Unit Purchase Options if the Unit Purchase Options have not been
exercised, the Redemption Date, whichever is earlier; provided that if such date
shall in the State of New York be a holiday or a day on which banks are
authorized or required to close, then 5:00 P.M. (New York time) on the next
following day which in the State of New York is not a holiday or a day on which
banks are authorized or required to close. Upon notice to all Registered
Holders, the Company shall have the right to extend the Warrant Expiration Date.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) A Class A Warrant initially shall entitle the Registered Holder of the
Warrant Certificate representing such Warrant to purchase one share of Class A
Common Stock upon the exercise thereof, in accordance with the terms hereof,
subject to modification and adjustment as provided in Section 9.
(b) The Class A Warrants included in the offering of Units will be
detachable and separately transferable immediately from the shares of Common
Stock constituting part of such Units.
(c) Upon execution of this Agreement, Warrant Certificates representing the
number of Class A Warrants sold pursuant to the Underwriting Agreement shall be
executed by the Company and delivered to the Warrant Agent. Upon written order
of the Company signed by its President or Chairman or a Vice President and by
its Secretary or an Assistant Secretary, the Warrant Certificates shall be
countersigned, issued and delivered by the Warrant Agent as part of the Units.
(d) From time to time, up to the Warrant Expiration Date, the Transfer
Agent shall countersign and deliver stock certificates in required whole number
denominations representing up to an aggregate of 3,086,000 shares of Common
Stock, subject to adjustment as described herein, upon the exercise of Warrants
in accordance with this Agreement.
(e) From time to time, up to the Warrant Expiration Date, the Warrant Agent
shall countersign and deliver Warrant Certificates in required whole number
denominations to the persons entitled thereto in connection with any transfer or
exchange permitted under this Agreement; provided that no Warrant Certificates
shall be issued except (i) those initially issued hereunder, (ii) those issued
on or after the Initial Warrant Exercise Date, upon the exercise of fewer than
all Warrants represented by any Warrant Certificate, to evidence any unexercised
Warrants held by the exercising Registered Holder, (iii) those issued upon any
transfer or exchange pursuant to Section 6; (iv) those issued in replacement of
lost, stolen, destroyed or mutilated Warrant Certificates pursuant to Section 7;
(v) those issued pursuant to the Unit Purchase Option; and (vi) at the option of
the Company, in such form as may be approved by the its Board of Directors, to
reflect any adjustment or change
-3-
<PAGE>
in the Purchase Price, the number of shares of Class A Common Stock purchasable
upon exercise of the Warrants or the Target Price(s) therefor made pursuant to
Section 8 hereof.
(f) Pursuant to the terms of the Unit Purchase Options, the Underwriter or
its designees may purchase up to 176,000 Units, which include up to 176,000
Class A Warrants. Notwithstanding anything to the contrary contained herein, the
Warrants underlying the Unit Purchase Option shall not be subject to redemption
by the Company except under the terms and conditions set forth in the Unit
Purchase Options.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the form annexed
hereto as Exhibit A (the provisions of which are hereby incorporated herein) and
may have such letters, numbers or other marks of identification or designation
and such legends, summaries or endorsements printed, lithographed or engraved
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which the Class A Warrants may be listed, or to conform
to usage or to the requirements of Section 2(d). The Warrant Certificates shall
be dated the date of issuance thereof (whether upon initial issuance, transfer,
exchange or in lieu of mutilated, lost, stolen, or destroyed Warrant
Certificates) and issued in registered form. Warrant Certificates shall be
numbered serially with the letters AW on Class A Warrants of all denominations.
(b) Warrant Certificates shall be executed on behalf of the Company by its
Chairman of the Board, President or any Vice President and by its Secretary or
an Assistant Secretary, by manual signatures or by facsimile signatures printed
thereon, and shall have imprinted thereon a facsimile of the Company's seal.
Warrant Certificates shall be manually countersigned by the Warrant Agent and
shall not be valid for any purpose unless so countersigned. In case any officer
of the Company who shall have signed any of the Warrant Certificates shall cease
to be an officer of the Company or to hold the particular office referenced in
the Warrant Certificate before the date of issuance of the Warrant Certificates
or before countersignature by the Warrant Agent and issue and delivery thereof,
such Warrant Certificates may nevertheless be countersigned by the Warrant
Agent, issued and delivered with the same force and effect as though the person
who signed such Warrant Certificates had not ceased to be an officer of the
Company or to hold such office. After countersignature by the Warrant Agent,
Warrant Certificates shall be delivered by the Warrant Agent to the Registered
Holder without further action by the Company, except as otherwise provided by
Section 4(a) hereof.
SECTION 4. Exercise.
(a) Each Warrant may be exercised by the Registered Holder thereof at any
time on or after the Initial Warrant Exercise Date, but not after the Warrant
Expiration Date, upon the terms and subject to the conditions set forth herein
and in the applicable Warrant Certificate. A Warrant shall be deemed to have
been exercised immediately prior to the close of business on the Exercise Date
and the person entitled to receive the securities
-4-
<PAGE>
deliverable upon such exercise shall be treated for all purposes as the holder
of those securities upon the exercise of the Warrant as of the close of business
on the Exercise Date. As soon as practicable on or after the Exercise Date, the
Warrant Agent shall deposit the proceeds received from the exercise of a Warrant
and shall notify the Company in writing of the exercise of the Warrants.
Promptly following, and in any event within five days after the date of such
notice from the Warrant Agent, the Warrant Agent, on behalf of the Company,
shall cause to be issued and delivered by the Transfer Agent, to the person or
persons entitled to receive the same, a certificate or certificates for the
securities deliverable upon such exercise, (plus a Warrant Certificate for any
remaining unexercised Warrants of the Registered Holder) unless prior to the
date of issuance of such certificates the Company shall instruct the Warrant
Agent to refrain from causing such issuance of certificates pending clearance of
checks received in payment of the Purchase Price pursuant to such Warrants.
Notwithstanding the foregoing, in the case of payment made in the form of a
check drawn on an account of the Underwriter or such other investment banks and
brokerage houses as the Company shall approve in writing to the Warrant Agent,
certificates shall immediately be issued without prior notice to the Company or
any delay. Upon the exercise of any Warrant and clearance of the funds received,
the Warrant Agent shall promptly remit the payment received for the Warrant (the
"Warrant Proceeds") to the Company or as the Company may direct in writing,
subject to the provisions of Sections 4(b) and 4(c) hereof.
(b) If, at the Exercise Date in respect of the exercise of any Warrant
after ____________, 1998, (i) the market price of the Company's Class A Common
Stock is greater than the then Purchase Price of the Warrant, (ii) the exercise
of the Warrant was solicited by a member of the National Association of
Securities Dealers, Inc. ("NASD"), (iii) the warrantholder designates in writing
that the exercise of the Warrant was solicited by a member of the NASD and
designates in writing the broker-dealer to receive compensation for such
exercise, (iv) the Warrant was not held in a discretionary account, (v)
disclosure of compensation arrangements was made both at the time of the
original offering and at the time of exercise; and (vi) the solicitation of the
exercise of the Warrant was not in violation of Regulation M (as such regulation
or any successor regulation may be in effect as of such time of exercise)
promulgated under the Securities Exchange Act of 1934, then the Warrant Agent,
simultaneously with the distribution of the Warrant Proceeds to the Company
shall, on behalf of the Company, pay from the Warrant Proceeds, a fee of 5% (the
"Exercise Fee") of the Purchase Price to the Underwriter (of which a portion may
be reallowed by the Underwriter to the dealer who solicited the exercise, which
may also be the Underwriter or D.H. Blair & Co., Inc.). In the event the
Exercise Fee is not received within five days of the date on which the Company
receives Warrant Proceeds, then the Exercise Fee shall begin accruing interest
at an annual rate of prime plus four percent (4%), payable by the Company to the
Underwriter at the time the Underwriter receives the Exercise Fee. Within five
days after exercise the Warrant Agent shall send to the Underwriter a copy of
the reverse side of each Warrant exercised. The Underwriter shall reimburse the
Warrant Agent, upon request, for its reasonable expenses relating to compliance
with this Section 4(b). The Company shall pay all fees and expenses including
all blue sky fees and expenses and all out-of-pocket expenses of the
Underwriter, including legal fees, in connection with the solicitation,
redemption or exchange of the Warrants. In addition, the Underwriter and the
Company may at any time during business hours, examine the records of the
Warrant Agent, including its ledger of original Warrant Certificates returned to
the Warrant Agent upon exercise of
-5-
<PAGE>
Warrants. The provisions of this paragraph may not be modified, amended or
deleted without the prior written consent of the Underwriter.
(c) In order to enforce the provisions of Section 4(b) above, in the event
there is any dispute or question as to the amount or payment of the Exercise
Fee, the Warrant Agent is hereby expressly authorized to withhold payment to the
Company of the Warrant Proceeds unless and until the Company establishes an
escrow account for the purpose of depositing the entire amount of the Exercise
Fee, which amount will be deducted from the net Warrant Proceeds to be paid to
the Company. The funds placed in the escrow account may not be released to the
Company without a written agreement from the Underwriter that the required
Exercise Fee has been received by the Underwriter.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Class A Common Stock, solely for the purpose of
issue upon exercise of Warrants, such number of shares of Class A Common Stock
as shall then be issuable upon the exercise of all outstanding Warrants. The
Company covenants that all shares of Class A Common Stock which shall be
issuable upon exercise of the Warrants shall, at the time of delivery, be duly
and validly issued, fully paid, nonassessable and free from all taxes, liens and
charges with respect to the issue thereof, (other than those which the Company
shall promptly pay or discharge) and that upon issuance such shares shall be
listed on each national securities exchange, on which the other shares of
outstanding Common Stock of the Company are then listed or shall be eligible for
inclusion in the Nasdaq National Market or the Nasdaq SmallCap Market if the
other shares of outstanding Common Stock of the Company are so included.
(b) The Company covenants that if any securities to be reserved for the
purpose of exercise of Warrants hereunder require registration with, or approval
of, any governmental authority under any federal securities law before such
securities may be validly issued or delivered upon such exercise, then the
Company will in good faith and as expeditiously as reasonably possible, endeavor
to secure such registration or approval. The Company will use reasonable efforts
to obtain appropriate approvals or registrations under state "blue sky"
securities laws. With respect to any such securities, however, Warrants may not
be exercised by, or shares of Class A Common Stock issued to, any Registered
Holder in any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and other
governmental charges that may be imposed with respect to the issuance of
Warrants, or the issuance or delivery of any shares upon exercise of the Class A
Warrants; provided, however, that if the shares of Class A Common Stock are to
be delivered in a name other than the name of the Registered Holder of the
Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to requisition the
Company's Transfer Agent from time to time for certificates representing shares
of Class A
-6-
<PAGE>
Common Stock issuable upon exercise of the Warrants, and the Company will
authorize the Transfer Agent to comply with all such proper requisitions. The
Company will file with the Warrant Agent a statement setting forth the name and
address of the Transfer Agent of the Company for shares of Class A Common Stock
issuable upon exercise of the Warrants.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant Certificates
representing an equal aggregate number of Warrants of the same class or may be
transferred in whole or in part. Warrant Certificates to be exchanged shall be
surrendered to the Warrant Agent at its Corporate Office, and upon satisfaction
of the terms and provisions hereof, the Company shall execute and the Warrant
Agent shall countersign, issue and deliver in exchange therefor the Warrant
Certificate or Certificates which the Registered Holder making the exchange
shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which, subject to
such reasonable regulations as it may prescribe, it shall register Warrant
Certificates and the transfer thereof in accordance with its regular practice.
Upon due presentment for registration of transfer of any Warrant Certificate at
such office, the Company shall execute and the Warrant Agent shall issue and
deliver to the transferee or transferees a new Warrant Certificate or
Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for registration or
transfer, or for exchange or exercise, the subscription form on the reverse
thereof shall be duly endorsed, or be accompanied by a written instrument or
instruments of transfer and subscription, in form satisfactory to the Company
and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for any exchange
or registration of transfer of Warrant Certificates. In addition, the Company
may require payment by such holder of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange in
case of mutilated Warrant Certificates shall be promptly canceled by the Warrant
Agent and thereafter retained by the Warrant Agent until termination of this
Agreement or resignation as Warrant Agent, or, with the prior written consent of
the Underwriter, disposed of or destroyed, at the direction of the Company.
(f) Prior to due presentment for registration of transfer thereof, the
Company and the Warrant Agent may deem and treat the Registered Holder of any
Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary. The Warrants, which are being publicly offered in Units with
shares of Common Stock pursuant to the Underwriting Agreement, will be
immediately detachable from the Common Stock and transferable separately
therefrom.
-7-
<PAGE>
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the Warrant
Agent of evidence satisfactory to them of the ownership of and loss, theft,
destruction or mutilation of any Warrant Certificate and (in case of loss, theft
or destruction) of indemnity satisfactory to them, and (in the case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall (in the absence of notice to the Company and/or
Warrant Agent that the Warrant Certificate has been acquired by a bona fide
purchaser) countersign and deliver to the Registered Holder in lieu thereof a
new Warrant Certificate of like tenor representing an equal aggregate number of
Class A Warrants. Applicants for a substitute Warrant Certificate shall comply
with such other reasonable regulations and pay such other reasonable charges as
the Warrant Agent may prescribe.
SECTION 8. Redemption.
(a) Subject to the provisions of Section 2(g) hereof, on not less than
thirty (30) days notice given at any time after ___________, 1998, (the
"Redemption Notice"), to Registered Holders of the Warrants being redeemed at
any time after ____________, 1998, the Warrants may be redeemed, at the option
of the Company, at the Redemption Price per Warrant, provided the Market Price
shall exceed $9.10 with respect to the Class A Warrants (the "Target Prices"),
subject to adjustment as set forth in Section 8(f), below. All Warrants of a
class must be redeemed if any of that class are redeemed, provided that the
Warrants underlying the Unit Purchase Option may not be redeemed by the Company.
For purposes of this Section 8, the Calculation Date shall mean a date within 15
days of the mailing of the Redemption Notice. The date fixed for redemption of
the Warrants is referred to herein as the "Redemption Date."
(b) If the conditions set forth in Section 8(a) are met, and the Company
desires to exercise its right to redeem the Warrants, it shall request the
Underwriter to mail a Redemption Notice to each of the Registered Holders of the
Warrants to be redeemed, first class, postage prepaid, not later than the
thirtieth day before the Redemption Date, at their last address as shall appear
on the records maintained pursuant to Section 6(b). Any notice mailed in the
manner provided herein shall be conclusively presumed to have been duly given
whether or not the Registered Holder receives such notice.
(c) The Redemption Notice shall specify (i) the redemption price, (ii) the
Redemption Date, (iii) the place where the Warrant Certificates shall be
delivered and the redemption price paid, (iv) that the Underwriter will assist
each Registered Holder of a Warrant in connection with the exercise thereof and
(v) that the right to exercise the Warrant shall terminate at 5:00 P.M. (New
York time) on the business day immediately preceding the Redemption Date. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of the proceedings for such redemption except as to a
Registered Holder (a) to whom notice was not mailed or (b) whose notice was
defective. An affidavit of the Warrant Agent or of the Secretary or an Assistant
Secretary of the Underwriter or the Company that notice of redemption has been
mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
-8-
<PAGE>
(d) Any right to exercise a Warrant shall terminate at 5:00 P.M. (New York
time) on the business day immediately preceding the Redemption Date. On and
after the Redemption Date, Registered Holders of the Warrants shall have no
further rights except to receive, upon surrender of the Warrant, the Redemption
Price.
(e) From and after the Redemption Date, the Company shall, at the place
specified in the Redemption Notice, upon presentation and surrender to the
Company by or on behalf of the Registered Holder thereof of one or more Warrant
Certificates evidencing Warrants to be redeemed, deliver or cause to be
delivered to or upon the written order of such Registered Holder a sum in cash
equal to the Redemption Price of each such Warrant. From and after the
Redemption Date and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Warrants called for redemption, such Warrants shall
expire and become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the Redemption Price, shall
cease.
(f) If the shares of the Company's Common Stock are subdivided or combined
into a greater or smaller number of shares of Common Stock, the Target Prices
shall be proportionally adjusted by the ratio which the total number of shares
of Common Stock outstanding immediately prior to such event bears to the total
number of shares of Common Stock to be outstanding immediately after such event.
SECTION 9. Adjustment of Exercise Price and Number of Shares of Common
Stock or Warrants.
(a) Subject to the exceptions referred to in Section 9(g) below, in the
event the Company shall, at any time or from time to time after the date hereof,
sell any shares of Common Stock for a consideration per share less than the
Market Price on the date of the sale or issue any shares of Common Stock as a
stock dividend to the holders of Common Stock, or subdivide or combine the
outstanding shares of Common Stock into a greater or lesser number of shares
(any such sale, issuance, subdivision or combination being herein called a
"Change of Shares"), then, and thereafter upon each further Change of Shares,
the Purchase Price in effect immediately prior to such Change of Shares shall be
changed to a price (including any applicable fraction of a cent) determined by
multiplying the Purchase Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares and the number of shares of Common Stock which the aggregate
consideration received (determined as provided in subsection 9(f)(F) below) for
the issuance of such additional shares would purchase at the Market Price and
the denominator of which shall be the sum of the number of shares of Common
Stock outstanding immediately after the issuance of such additional shares. Such
adjustment shall be made successively whenever such an issuance is made. For
purposes of this Section 9, the Calculation Date shall mean the date of the
sale, issuance, modification or other transaction referred to in this Section 9.
Upon each adjustment of the Purchase Price pursuant to this Section 9, the
total number of shares of Common Stock purchasable upon the exercise of each
Class A Warrant shall (subject to the provisions contained in Section 9(b)
hereof) be
-9-
<PAGE>
such number of shares (calculated to the nearest one-hundredth; provided,
however, that in no event shall the Class A Aggregate Per Share Price increase
as a result of such rounding calculation) purchasable at the Purchase Price in
effect immediately prior to such adjustment multiplied by a fraction, the
numerator of which shall be the Purchase Price in effect immediately prior to
such adjustment and the denominator of which shall be the Purchase Price in
effect immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the Purchase Price
hereunder, to adjust the number of Class A Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Class A Warrant
outstanding after such adjustment shall represent the right to purchase one
share of Common Stock. Each Warrant held of record prior to such adjustment of
the number of Warrants shall become that number of Warrants (calculated to the
nearest tenth) determined by multiplying the number one by a fraction, the
numerator of which shall be the Purchase Price in effect immediately prior to
such adjustment and the denominator of which shall be the Purchase Price in
effect immediately after such adjustment. Upon each adjustment of the number of
Warrants pursuant to this Section 9, the Company shall, as promptly as
practicable, cause to be distributed to each Registered Holder of Warrant
Certificates on the date of such adjustment Warrant Certificates evidencing,
subject to Section 10 hereof, the number of additional Warrants to which such
Holder shall be entitled as a result of such adjustment or, at the option of the
Company, cause to be distributed to such Holder in substitution and replacement
for the Warrant Certificates held by him prior to the date of adjustment (and
upon surrender thereof, if required by the Company) new Warrant Certificates
evidencing the number of Warrants to which such Holder shall be entitled after
such adjustment.
(c) In case of any reclassification, capital reorganization or other change
of outstanding shares of Common Stock, or in case of any consolidation or merger
of the Company with or into another corporation (other than a consolidation or
merger in which the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock), or in case of any sale or conveyance to
another corporation of the property of the Company as, or substantially as, an
entirety (other than a sale/leaseback, mortgage or other financing transaction),
the Company shall cause effective provision to be made so that each holder of a
Warrant then outstanding shall have the right thereafter, by exercising such
Warrant, to purchase the kind and number of shares of stock or other securities
or property (including cash) receivable upon such reclassification, capital
reorganization or other change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock that might have been purchased
upon exercise of such Warrant immediately prior to such reclassification,
capital reorganization or other change, consolidation, merger, sale or
conveyance. Any such provision shall include provision for adjustments that
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 9. The Company shall not effect any such consolidation,
merger or sale unless prior to or simultaneously with the consummation thereof
the successor (if other than the Company) resulting from such consolidation or
merger or the corporation purchasing assets or other appropriate corporation or
entity shall assume, by written instrument executed and delivered to the Warrant
Agent, the obligation to deliver to the holder of each Warrant such shares of
-10-
<PAGE>
stock, securities or assets as, in accordance with the foregoing provisions,
such holders may be entitled to purchase and the other obligations of the
Company under this Agreement. The foregoing provisions shall similarly apply to
successive reclassifications, capital reorganizations and other changes of
outstanding shares of Common Stock and to successive consolidations, mergers,
sales or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase Price or the
number of shares of Common Stock purchasable upon exercise of the Warrants, the
Warrant Certificates theretofore and thereafter issued shall, unless the Company
shall exercise its option to issue new Warrant Certificates pursuant to Section
2(f) hereof, continue to express the Purchase Price per share, the number of
shares purchasable thereunder and the Redemption Price therefor as the Purchase
Price per share, and the number of shares purchasable and the Redemption Price
therefor were expressed in the Warrant Certificates when the same were
originally issued.
(e) After each adjustment of the Purchase Price pursuant to this Section 9,
the Company will promptly prepare a certificate signed by the Chairman or
President, and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, of the Company setting forth: (i) the Purchase Price as so
adjusted, (ii) the number of shares of Common Stock purchasable upon exercise of
each Warrant after such adjustment and, if the Company shall have elected to
adjust the number of Warrants, the number of Warrants to which the Registered
Holder of each Warrant shall then be entitled, and the adjustment in Redemption
Price resulting therefrom, and (iii) a statement showing in detail the method of
calculation and the facts upon which such adjustment or readjustment is based,
including a statement of (a) the consideration received or to be received by the
Company for any securities issued or sold or deemed to have been issued, (b) the
number of shares of Common Stock outstanding or deemed to be outstanding, and
(c) the Purchase Price in effect immediately prior to such issue or sale and as
adjusted and readjusted (if required by Section 9) on account thereof. The
Company will promptly file such certificate with the Warrant Agent and furnish a
copy thereof to be sent no later than thirty (30) days after the adjustment by
ordinary first class mail to the Underwriter and to each Registered Holder of
Warrants at his last address as it shall appear on the registry books of the
Warrant Agent. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity thereof except as to the holder to
whom the Company failed to mail such notice, or except as to the holder whose
notice was defective. If such mailing is not made within such 30-day period the
Warrant Expiration Date shall be extended by the period of time equal to the
period commencing on the 31st day and expires on the date such mailing is
effectuated. The Company will, upon the written request at any time of the
Underwriter, furnish to the Underwriter a report by independent public
accountants of recognized national standing (which may be the regular auditors
of the Company) selected by the Company to verify such computation and setting
forth such adjustment or readjustment and showing in detail the method of
calculation and the facts upon which such adjustment or readjustment is based.
The Company will also keep copies of all such certificates and reports at its
principal office.
(f) For purposes of Section 9(a) and 9(b) hereof, the following provisions
(A) to (G) shall also be applicable:
-11-
<PAGE>
(A) The number of shares of Common Stock outstanding at any given time
shall include shares of Common Stock owned or held by or for the account of the
Company and the sale or issuance of such treasury shares or the distribution of
any such treasury shares shall not be considered a Change of Shares for purposes
of said sections.
(B) No adjustment of the Purchase Price shall be made unless such
adjustment would require an increase or decrease of at least $.05 in the
Purchase Price; provided that any adjustments which by reason of this clause (B)
are not required to be made shall be carried forward and shall be made at the
time of and together with the next subsequent adjustment which, together with
any adjustment(s) so carried forward, shall require an increase or decrease of
at least $.05 in the Purchase Price then in effect hereunder.
(C) In case of (1) the sale by the Company for cash (or as a component
of a unit being sold for cash) of any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or any securities
convertible into or exchangeable for Common Stock without the payment of any
further consideration other than cash, if any (such securities convertible,
exercisable or exchangeable into Common Stock being herein called "Convertible
Securities"), or (2) the issuance by the Company, without the receipt by the
Company of any consideration therefor, of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, in each case, if (and only if) the consideration payable to the
Company upon the exercise of such rights, warrants or options shall consist of
cash, whether or not such rights, warrants or options, or the right to convert
or exchange such Convertible Securities, are immediately exercisable, and the
price per share for which Common Stock is issuable upon the exercise of such
rights, warrants or options or upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the minimum aggregate
consideration payable to the Company upon the exercise of such rights, warrants
or options, plus the consideration, if any, received by the Company for the
issuance or sale of such rights, warrants or options, plus, in the case of such
Convertible Securities, the minimum aggregate amount of additional
consideration, other than such Convertible Securities, payable upon the
conversion or exchange thereof, by (y) the total maximum number of shares of
Common Stock issuable upon the exercise of such rights, warrants or options or
upon the conversion or exchange of such Convertible Securities issuable upon the
exercise of such rights, warrants or options) is less than the Market Price on
the Calculation Date, then the total maximum number of shares of Common Stock
issuable upon the exercise of such rights, warrants or options or upon the
conversion or exchange of such Convertible Securities (as of the date of the
issuance or sale of such rights, warrants or options) shall be deemed to be
outstanding shares of Common Stock for purposes of Sections 9(a) and 9(b) hereof
and shall be deemed to have been sold for cash in an amount equal to such price
per share.
(D) In case of the sale by the Company for cash of any Convertible
Securities, whether or not the right of conversion or exchange thereunder is
immediately exercisable, and the price per share for which Common Stock is
issuable upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the total amount of consideration received by the
Company for the sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by (y) the
-12-
<PAGE>
total maximum number of shares of Common Stock issuable upon the conversion or
exchange of such Convertible Securities) is less than the Market Price on the
Calculation Date, then the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of such Convertible Securities (as of
the date of the sale of such Convertible Securities) shall be deemed to be
outstanding shares of Common Stock for purposes of Sections 9(a) and 9(b) hereof
and shall be deemed to have been sold for cash in an amount equal to such price
per share.
(E) In case the Company shall modify the rights of conversion,
exchange or exercise of any of the securities referred to in (C) or (D) above or
any other securities of the Company convertible, exchangeable or exercisable for
shares of Common Stock, for any reason other than an event that would require
adjustment to prevent dilution, so that the consideration per share received by
the Company after such modification is less than the Market Price on the
Calculation Date, the Purchase Price to be in effect after such modification
shall be determined by multiplying the Purchase Price in effect immediately
prior to such event by a fraction, of which the numerator shall be the number of
shares of Common Stock outstanding on the date prior to the modification plus
the number of shares of Common Stock which the aggregate consideration
receivable by the Company for the securities affected by the modification would
purchase at the Market Price and of which the denominator shall be the number of
shares of Common Stock outstanding on such date plus the number of shares of
Common Stock to be issued upon conversion, exchange or exercise of the modified
securities at the modified rate. Such adjustment shall become effective as of
the date upon which such modification shall take effect. On the expiration of
any such right, warrant or option or the termination of any such right to
convert or exchange any such Convertible Securities referred to in Paragraph (C)
or (D) above, the Purchase Price then in effect hereunder shall forthwith be
readjusted to such Purchase Price as would have obtained (a) had the adjustments
made upon the issuance or sale of such rights, warrants, options or Convertible
Securities been made upon the basis of the issuance of only the number of shares
of Common Stock theretofore actually delivered (and the total consideration
received therefor) upon the exercise of such rights, warrants or options or upon
the conversion or exchange of such Convertible Securities and (b) had
adjustments been made on the basis of the Purchase Price as adjusted under
clause (a) for all transactions (which would have affected such adjusted
Purchase Price) made after the issuance or sale of such rights, warrants,
options or Convertible Securities.
(F) In case of the sale for cash of any shares of Common Stock, any
Convertible Securities, any rights or warrants to subscribe for or purchase, or
any options for the purchase of, Common Stock or Convertible Securities, the
consideration received by the Company therefore shall be deemed to be the gross
sales price therefor without deducting therefrom any expense paid or incurred by
the Company or any underwriting discounts or commissions or concessions paid or
allowed by the Company in connection therewith.
(G) In case any event shall occur as to which the provisions of
Section 9 are not strictly applicable but the failure to make any adjustment
would not fairly protect the purchase rights represented by the Warrants in
accordance with the essential intent and principles of Section 9, then, in each
such case, the Board of Directors of the Company shall in good faith by
resolution provide for the adjustment, if any, on a basis
-13-
<PAGE>
consistent with the essential intent and principles established in Section 9,
necessary to preserve, without dilution, the purchase rights represented by the
Warrants. The Company will promptly make the adjustments described therein.
(g) No adjustment to the Purchase Price of the Warrants or to the number of
shares of Common Stock purchasable upon the exercise of each Warrant will be
made, however,
(i) upon the exercise of any of the options presently outstanding
under the Company's Stock Option Plan (the "Plan") for officers, directors and
certain other key personnel of the Company; or
(ii) upon the issuance or exercise of any other securities which may
hereafter be granted or exercised under the Plan or under any other employee
benefit plan of the Company approved by the Company's stockholders; or
(iii) upon the sale or exercise of the Warrants, including without
limitation the sale or exercise of any of the Warrants comprising the Unit
Purchase Option or upon the sale or exercise of the Unit Purchase Option; or
(iv) upon the sale of any shares of Common Stock and/or Convertible
Securities in a firm commitment underwritten public offering, including, without
limitation, shares sold upon the exercise of any over-allotment option granted
to the underwriters in connection with such offering; or
(v) upon the sale by the Company of any shares of Common Stock and/or
Convertible Securities in a private placement for which the Underwriter is the
Placement Agent; or
(vi) upon the issuance or sale of Common Stock or Convertible
Securities upon the exercise of any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, whether or not such rights, warrants or options were outstanding on
the date of the original sale of the Warrants or were thereafter issued or sold;
or
(vii) upon the issuance or sale of Common Stock upon conversion or
exchange of any Convertible Securities, whether or not any adjustment in the
Purchase Price was made or required to be made upon the issuance or sale of such
Convertible Securities and whether or not such Convertible Securities were
outstanding on the date of the original sale of the Warrants or were thereafter
issued or sold.
(h) As used in this Section 9, the term "Common Stock" shall mean and
include the Company's Common Stock authorized on the date of the original issue
of the Units and shall also include any capital stock of any class of the
Company thereafter authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to participate in
dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that
-14-
<PAGE>
the shares issuable upon exercise of the Warrants shall include only shares of
such class designated in the Company's Certificate of Incorporation as Common
Stock on the date of the original issue of the Units or (i), in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities or property
provided for in such section or (ii), in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or consisting of a change
in par value, or from par value to no par value, or from no par value to par
value, such shares of Common Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment in the Purchase Price in
effect hereunder is required pursuant to Section 9, or as to the amount of any
such adjustment, if required, shall be binding upon the holders of the Warrants
and the Company if made in good faith by the Board of Directors of the Company.
(j) If and whenever the Company shall grant to the holders of Common Stock,
as such, rights or warrants to subscribe for or to purchase, or any options for
the purchase of, Common Stock or securities convertible into or exchangeable for
or carrying a right, warrant or option to purchase Common Stock, the Company
shall concurrently therewith grant to each Registered Holder as of the record
date for such transaction of the Warrants then outstanding, the rights, warrants
or options to which each Registered Holder would have been entitled if, on the
record date used to determine the stockholders entitled to the rights, warrants
or options being granted by the Company, the Registered Holder were the holder
of record of the number of whole shares of Common Stock then issuable upon
exercise (assuming, for purposes of this Section 9(j), that exercise of Warrants
is permissible during periods prior to the Initial Warrant Exercise Date) of his
Warrants. Such grant by the Company to the holders of the Warrants shall be in
lieu of any adjustment which otherwise might be called for pursuant to this
Section 9.
SECTION 10. Fractional Warrants and Fractional Shares.
(a) If the number of shares of Common Stock purchasable upon the exercise
of each Warrant is adjusted pursuant to Section 9 hereof, the Company
nevertheless shall not be required to issue fractions of shares, upon exercise
of the Warrants or otherwise, or to distribute certificates that evidence
fractional shares. With respect to any fraction of a share called for upon the
exercise of any Warrant, the Company shall pay to the Holder an amount in cash
equal to such fraction multiplied by the current market value of such fractional
share, determined as follows:
(1) If the Common Stock is listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange or is traded on the
Nasdaq National Market, the current market value shall be the last reported sale
price of the Common Stock on such exchange or market on the last business day
prior to the date of exercise of this Warrant or if no such sale is made on such
day, the average of the closing bid and asked prices for such day on such
exchange or market; or
-15-
<PAGE>
(2) If the Common Stock is not listed or admitted to unlisted trading
privileges on a national securities exchange or is not traded on the Nasdaq
National Market, the current market value shall be the mean of the last reported
bid and asked prices reported by the Nasdaq SmallCap Market or, if not traded
thereon, by the National Quotation Bureau, Inc. on the last business day prior
to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
market value shall be an amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
SECTION 11. Warrant Holders Not Deemed Stockholders. No holder of Warrants
shall, as such, be entitled to vote or to receive dividends or be deemed the
holder of Common Stock that may at any time be issuable upon exercise of such
Warrants for any purpose whatsoever, nor shall anything contained herein be
construed to confer upon the holder of Warrants, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any recapitalization,
issue or reclassification of stock, change of par value or change of stock to no
par value, consolidation, merger or conveyance or otherwise), or to receive
notice of meetings, or to receive dividends or subscription rights, until such
holder shall have exercised such Warrants and been issued shares of Common Stock
in accordance with the provisions hereof.
SECTION 12. Rights of Action. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, in his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of shares of Common Stock in the manner provided in the Warrant Certificate and
this Agreement.
SECTION 13. Agreement of Warrant Holders. Every holder of a Warrant, by his
acceptance thereof, consents and agrees with the Company, the Warrant Agent and
every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books of the Warrant
Agent by the Registered Holder thereof in person or by his attorney duly
authorized in writing and only if the Warrant Certificates representing such
Warrants are surrendered at the office of the Warrant Agent, duly endorsed or
accompanied by a proper instrument of transfer satisfactory to the Warrant Agent
and the Company in their sole discretion, together with payment of any
applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the person in
whose name the Warrant Certificate is registered as the holder and as the
absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.
-16-
<PAGE>
SECTION 14. Cancellation of Warrant Certificates. If the Company shall
purchase or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be delivered to the Warrant
Agent and canceled by it and retired. The Warrant Agent shall also cancel the
Warrant Certificate or Warrant Certificates following exercise of any or all of
the Warrants represented thereby or delivered to it for transfer or exchange.
SECTION 15. Concerning the Warrant Agent. The Warrant Agent acts hereunder
as agent and in a ministerial capacity for the Company, and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall not, by
issuing and delivering Warrant Certificates or by any other act hereunder be
deemed to make any representations as to the validity, value or authorization of
the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any stock issued upon exercise of any Warrant is fully paid and nonassessable.
The Warrant Agent shall not at any time be under any duty or responsibility to
any holder of Warrant Certificates to make or cause to be made any adjustment of
the Purchase Price or the Redemption Price provided in this Agreement, or to
determine whether any fact exists which may require any such adjustments, or
with respect to the nature or extent of any such adjustment, when made, or with
respect to the method employed in making the same. It shall not (i) be liable
for any recital or statement of facts contained herein or for any action taken,
suffered or omitted by it in reliance on any Warrant Certificate or other
document or instrument believed by it in good faith to be genuine and to have
been signed or presented by the proper party or parties, (ii) be responsible for
any failure on the part of the Company to comply with any of its covenants and
obligations contained in this Agreement or in any Warrant Certificate, or (iii)
be liable for any act or omission in connection with this Agreement except for
its own negligence or wilful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to it (who
may be counsel for the Company) and shall incur no liability or responsibility
for any action taken, suffered or omitted by it in good faith in accordance with
the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order or demand of the
Company shall be sufficiently evidenced by an instrument signed by the Chairman
of the Board, President, any Vice President, its Secretary, or Assistant
Secretary, (unless other evidence in respect thereof is herein specifically
prescribed). The Warrant Agent shall not be liable for any action taken,
suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation for its
services hereunder and to reimburse it for its reasonable expenses hereunder; it
further agrees to indemnify the Warrant Agent and save it harmless against any
and all losses, expenses and liabilities, including judgments, costs and counsel
fees, for anything done or omitted by the Warrant Agent in the execution of its
duties and powers hereunder except losses, expenses and liabilities arising as a
result of the Warrant Agent's negligence or wilful misconduct.
-17-
<PAGE>
The Warrant Agent may resign its duties and be discharged from all further
duties and liabilities hereunder (except liabilities arising as a result of the
Warrant Agent's own negligence or wilful misconduct), after giving 30 days'
prior written notice to the Company. At least 15 days prior to the date such
resignation is to become effective, the Warrant Agent shall cause a copy of such
notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability of
the Warrant Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such appointment
within a period of 15 days after it has been notified in writing of such
resignation by the resigning Warrant Agent, then the Registered Holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company that is a registered
transfer agent under the Securities Exchange Act of 1934. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment the Company
shall file notice thereof with the resigning Warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant agent may be
converted or merged or any corporation resulting from any consolidation to which
the Warrant Agent or any new warrant agent shall be a party or any corporation
succeeding to the trust business of the Warrant Agent shall be a successor
warrant agent under this Agreement without any further act, provided that such
corporation is eligible for appointment as successor to the Warrant Agent under
the provisions of the preceding paragraph. Any such successor warrant agent
shall promptly cause notice of its succession as warrant agent to be mailed to
the Company and to the Registered Holder of each Warrant Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of its or their
officers or directors, may buy and hold or sell Warrants or other securities of
the Company and otherwise deal with the Company in the same manner and to the
same extent and with like effects as though it were not Warrant Agent. Nothing
herein shall preclude the Warrant Agent from acting in any other capacity for
the Company or for any other legal entity.
SECTION 16. Modification of Agreement. Subject to the provisions of Section
4(b), the parties hereto and the Company may by supplemental agreement make any
changes or corrections in this Agreement (i) that they shall deem appropriate to
cure any ambiguity or to correct any defective or inconsistent provision or
manifest mistake or error herein contained; (ii) to reflect an increase in the
number of Class A Warrants which are to be governed by this Agreement resulting
from (a) a subsequent public offering of Company securities which includes Class
A Warrants or (b) a subsequent private placement
-18-
<PAGE>
of Company securities which includes Class A Warrants, in either case having the
same terms and conditions as the Class A Warrants, originally covered by or
subsequently added to this Agreement under this Section 16, provided, however,
that in the case of a private placement, the amendment to this Agreement will be
effective only at such time as the resale of such Warrants, as well as the
securities underlying such Warrants is covered by an effective registration
statement under the Act; or (iii) that they may deem necessary or desirable and
which shall not adversely affect the interests of the holders of Warrant
Certificates; provided, however, that this Agreement shall not otherwise be
modified, supplemented or altered in any respect except with the consent in
writing of the Registered Holders of Warrant Certificates representing not less
than 50% of the Warrants then outstanding; and provided, further, that no change
in the number or nature of the securities purchasable upon the exercise of any
Warrant, or the Purchase Price therefor, or the acceleration of the Warrant
Expiration Date, shall be made without the consent in writing of the Registered
Holder of the Warrant Certificate representing such Warrant, other than such
changes as are specifically prescribed by this Agreement as originally executed
or are made in compliance with applicable law.
SECTION 17. Notices. 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 registered or certified mail, postage
prepaid as follows: if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company, at 11904 Blue Ridge Boulevard, Grandview, Missouri
64030, Attention: Neal J. Polan, or at such other address as may have been
furnished to the Warrant Agent in writing by the Company; if to the Warrant
Agent, at its Corporate Office; if to the Underwriter, at D.H. Blair Investment
Banking Corp., 44 Wall Street, New York, New York 10005.
SECTION 18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws.
SECTION 19. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the Company and, the Warrant Agent and their respective
successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
SECTION 20. Termination. This Agreement shall terminate at the close of
business on the earlier of the Warrant Expiration Date or the date upon which
all Warrants (including the warrants issuable upon exercise of the Unit Purchase
Options) have been exercised, except that the Warrant Agent shall account to the
Company for cash held by it and the provisions of Section 15 hereof shall
survive such termination.
SECTION 21. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
-19-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
HEALTHCORE MEDICAL SOLUTIONS, INC.
By: ______________________________
AMERICAN STOCK TRANSFER & TRUST COMPANY
By: ______________________________
Authorized Officer
D.H. BLAIR INVESTMENT BANKING CORP.
By: ______________________________
Authorized Officer
-20-
<PAGE>
EXHIBIT A
[FORM OF FACE OF CLASS A WARRANT CERTIFICATE]
No. AW Class A Warrants
VOID AFTER __________, 2002
CLASS A WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
HEALTHCORE MEDICAL SOLUTIONS, INC.
This certifies that FOR VALUE RECEIVED __________________ or registered
assigns (the "Registered Holder") is the owner of the number of Class A Warrants
("Class A Warrants") specified above. Each Class A Warrant represented hereby
initially entitles the Registered Holder to purchase, subject to the terms and
conditions set forth in this Warrant Certificate and the Warrant Agreement (as
hereinafter defined), one fully paid and nonassessable share of Class A Common
Stock, $.01 value ("Common Stock"), of HEALTHCORE MEDICAL SOLUTIONS, INC., a
Delaware corporation (the "Company"), at any time between ____________, 1997 and
the Expiration Date (as hereinafter defined), upon the presentation and
surrender of this Warrant Certificate with the Subscription Form on the reverse
hereof duly executed, at the corporate office of AMERICAN STOCK TRANSFER & TRUST
COMPANY, as Warrant Agent, or its successor (the "Warrant Agent"), accompanied
by payment of $6.50 for each Warrant (the "Purchase Price") in lawful money of
the United States of America in cash or by official bank or certified check made
payable to _________________.
This Warrant Certificate and each Class A Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated
______________, 1997 by and among the Company, the Warrant Agent and D.H. Blair
Investment Banking Corp.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Class A Warrant represented hereby are
subject to modification or adjustment.
Each Class A Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Class A Warrants represented
hereby, the Company shall cancel this Warrant Certificate upon the surrender
hereof and shall execute and deliver a new
A-1
<PAGE>
Warrant Certificate or Warrant Certificates of like tenor, which the Warrant
Agent shall countersign, for the balance of such Class A Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York time) on
_________________, 2002 or such earlier date as the Class A Warrants shall be
redeemed. If such date shall in the State of New York be a holiday or a day on
which banks are authorized to close, then the Expiration Date shall mean 5:00
P.M. (New York time) the next following day which in the State of New York is
not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of the Class A Warrants represented hereby unless a registration
statement under the Securities Act of 1933, as amended, with respect to such
securities is effective. The Company has covenanted and agreed that it will file
a registration statement and will use its best efforts to cause the same to
become effective and to keep such registration statement current while any of
the Class A Warrants are outstanding. The Class A Warrants represented hereby
shall not be exercisable by a Registered Holder in any state where such exercise
would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Class A Warrants, each of such new Warrant Certificates to
represent such number of Class A Warrants as shall be designated by such
Registered Holder at the time of such surrender. Upon due presentment with a
$_____________ transfer fee per certificate in addition to any tax or other
governmental charge imposed in connection therewith, for registration of
transfer of this Class A Warrant Certificate at such office, a new Warrant
Certificate or Warrant Certificates representing an equal aggregate number of
Class A Warrants will be issued to the transferee in exchange therefor, subject
to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Class A Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
The Class A Warrants represented hereby may be redeemed at the option of
the Company, at a redemption price of $.05 per Class A Warrant at any time after
__________, 1998, provided the Market Price (as defined in the Warrant
Agreement) for the Common Stock shall exceed $9.10 per share. Notice of
redemption shall be given not later than the thirtieth day before the date fixed
for redemption, all as provided in the Warrant Agreement. On and after the date
fixed for redemption, the Registered Holder shall have no rights with respect to
the Class A Warrants represented hereby except to receive the $.05 per Class A
Warrant upon surrender of this Warrant Certificate.
A-2
<PAGE>
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Class A Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
The Company has agreed to pay a fee of 5% of the Purchase Price upon
certain conditions as specified in the Warrant Agreement upon the exercise of
the Class A Warrants represented hereby.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
A-3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile, by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
HEALTHCORE MEDICAL SOLUTIONS, INC.
By:__________________________________
Name:
Title:
Dated:__________
[seal]
Countersigned:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By:___________________________
Authorized Officer
A-4
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
TRANSFER FEE: $_______ PER CERTIFICATE ISSUED
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
_______ Class A Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Class A Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
________________________
________________________
________________________
________________________
[please print or type name and address]
and be delivered to
________________________
________________________
________________________
________________________
[please print or type name and address]
and if such number of Class A Warrants shall not be all the Class A Warrants
evidenced by this Warrant Certificate, that a new Class A Warrant Certificate
for the balance of such Class A Warrants be registered in the name of, and
delivered to, the Registered Holder at the address stated below.
A-5
<PAGE>
The undersigned represents that the exercise of the Class A Warrants
evidenced hereby was solicited by a member of the National Association of
Securities Dealers, Inc. If not solicited by an NASD member, please write
"unsolicited" in the space below. Unless otherwise indicated by listing the name
of another NASD member firm, it will be assumed that the exercise was solicited
by D.H. Blair Investment Banking Corp. or D.H. Blair & Co., Inc.
____________________________________
(Name of NASD Member)
Dated: X______________________________
____________________________________
____________________________________
Address
____________________________________
Taxpayer Identification Number
____________________________________
Signature Guaranteed
____________________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
A-6
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, __________________ hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
OF TRANSFEREE
__________________________
__________________________
__________________________
[please print or type name and address]
_________________ of the Class A Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
____________________________________ Attorney to transfer this Warrant
Certificate on the books of the Company, with full power of substitution in the
premises.
Dated:________________ X______________________________
Signature Guaranteed
_________________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
A-7
<PAGE>
B-1
Option to Purchase
176,000 Units
HEALTHCORE MEDICAL SOLUTIONS, INC.
Unit Purchase Option
Dated: ___________, 1997.
THIS CERTIFIES THAT D.H. BLAIR INVESTMENT BANKING CORP. (the "Holder") is
entitled to purchase from HEALTHCORE MEDICAL SOLUTIONS, INC., a Delaware
corporation (the "Company"), at the prices and during the periods as hereinafter
specified, up to One Hundred Seventy Six Thousand (176,000) Units ("Units"),
each Unit consisting of one share of the Company's Class A Common Stock, $.01
par value, as now constituted ("Class A Common Stock"), and one Class A Warrant
("Class A Warrants or Warrants"). Each Class A Warrant is exercisable to
purchase one share of Class A Common Stock at an exercise price of $____ until
_______ , 2002.
The Units have been registered under a Registration Statement on Form SB-2,
(File No. 333-_______) declared effective by the Securities and Exchange
Commission on _______, 1997 (the "Registration Statement"). This Unit Purchase
Option (the "Option") to purchase One Hundred Seventy Six Thousand (176,000)
Units, subject to adjustment in accordance with Section 8 of this Option (the
"Option Units"), was originally issued pursuant to an underwriting agreement
between the Company and D.H. BLAIR INVESTMENT BANKING CORP., as underwriter (the
"Underwriter") in connection with a public offering (the "Offering") of One
Million Seven Hundred Sixty Thousand (1,760,000) Units (the "Public Units")
through the Underwriter, in consideration of $176 received for the Options.
Except as specifically otherwise provided herein, the Class A Common Stock
and the Warrants issued pursuant to the Option shall bear the same terms and
conditions as described under the caption "Description of Securities" in the
Registration Statement, and the Warrants shall be governed by the terms of the
Warrant Agreement dated as of _______, 1997 executed in connection with such
Offering (the "Warrant Agreement"), except that (i) the Holder shall have
registration rights under the Securities Act of 1933, as amended (the "Act"),
for the Option, the Class A Common Stock and the Warrants included in the Option
Units, and the shares of Class A Common Stock underlying the Warrants, as more
fully described in Section 6 of this Option and (ii) the Warrants issuable upon
exercise of the Option will be subject to redemption by the Company pursuant to
the Warrant Agreement at any time after the Option has been exercised and the
Warrants underlying the Option Units are outstanding. Any such redemption shall
be on the same terms and conditions as the Warrants included in the Public Units
(the "Public Warrants"). The Company will list the
<PAGE>
Class A Common Stock underlying this Option and, at the Holder's request the
Warrants, on the Nasdaq Small Cap Market or such other exchange or market as the
Class A Common Stock or Public Warrants may then be listed or quoted. In the
event of any extension of the expiration date or reduction of the exercise price
of the Public Warrants, the same changes to the Warrants included in the Option
Units shall be simultaneously effected.
1. The rights represented by this Option shall be exercised at the prices,
subject to adjustment in accordance with Section 8 of this Option (the "Exercise
Price"), and during the periods as follows:
(a) During the period from _______, 1997 to _______, 2000 inclusive, the
Holder shall have no right to purchase any Option Units hereunder, except that
in the event of any merger, consolidation or sale of all or substantially all
the capital stock or assets of the Company or in the case of any statutory
exchange of securities with another corporation (including any exchange effected
in connection with a merger of another corporation into the Company) subsequent
to _______, 1997, the Holder shall have the right to exercise this Option and
the Warrants included herein at such time and receive the kind and amount of
shares of stock and other securities and property (including cash) which a
holder of the number of shares of Class A Common Stock underlying this Option
and the Warrants included in this Option would have owned or been entitled to
receive had this Option been exercised immediately prior thereto.
(b) Between _______, 2000 and _______, 2002 inclusive, the Holder shall
have the option to purchase Option Units hereunder at a price of $6.00 per Unit.
(c) After _________, 2002 the Holder shall have no right to purchase any
Units hereunder.
2. Mechanics.
(a) The rights represented by this Option may be exercised at any time
within the period above specified, in whole or in part, by (i) the surrender of
this Option (with the purchase form at the end hereof properly executed) at the
principal executive office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company); and (ii) payment to the
Company of the exercise price then in effect for the number of Option Units
specified in the above-mentioned purchase form together with applicable stock
transfer taxes, if any. This Option shall be deemed to have been exercised, in
whole or in part to the extent specified, immediately prior to the close of
business on the date this Option is surrendered and payment is made in
accordance with the foregoing provisions of this Section 2, and the person or
persons in whose name or names the certificates for shares of Class A Common
Stock and Warrants shall be issuable upon such exercise shall become the holder
or holders of record of such Class A Common Stock and Warrants at that time and
date. The certificates for the Class A Common Stock and Warrants so purchased
shall be delivered to the Holder as soon as practicable but not later than ten
(10) days after the rights represented by this Option shall have been so
exercised.
-2-
<PAGE>
(b) At any time during the period above specified, during which this Option
may be exercised, the Holder may, at its option, exchange this Option, in whole
or in part (an "Option Exchange"), into the number of Option Units determined in
accordance with this Section (b), by surrendering this Option at the principal
office of the Company or at the office of its stock transfer agent, accompanied
by a notice stating such Holder's intent to effect such exchange, the number of
Option Units into which this Option is to be exchanged and the date on which the
Holder requests that such Option Exchange occur (the "Notice of Exchange"). The
Option Exchange shall take place on the date specified in the Notice of Exchange
or, if later, the date the Notice of Exchange is received by the Company (the
"Exchange Date"). Certificates for the shares of Class A Common Stock and
Warrants issuable upon such Option Exchange and, if applicable, a new Option of
like tenor evidencing the balance of the Option Units remaining subject to this
Option, shall be issued as of the Exchange Date and delivered to the Holder
within seven (7) days following the Exchange Date. In connection with any Option
Exchange, this Option shall represent the right to subscribe for and acquire the
number of Option Units (rounded to the next highest integer) equal to (x) the
number of Option Units specified by the Holder in its Notice of Exchange up to
the maximum number of Option Units subject to this option (the "Total Number")
less (y) the number of Option Units equal to the quotient obtained by dividing
(A) the product of the Total Number and the existing Exercise Price by (B) the
Fair Market Value. "Fair Market Value" shall mean first, if there is a trading
market as indicated in Subsection (i) below for the Units, such Fair Market
Value of the Units and if there is no such trading market in the Units, then
Fair Market Value shall have the meaning indicated in Subsections (ii) through
(v) below for the aggregate value of all shares of Class A Common Stock and
Warrants which comprise a Unit:
(i) If the Units are listed on a national securities exchange or
listed or admitted to unlisted trading privileges on such exchange or listed for
trading on the Nasdaq National Market or the Nasdaq Small Cap Market, the Fair
Market Value shall be the average of the last reported sale prices or the
average of the means of the last reported bid and asked prices, respectively, of
the Units on such exchange or market for the twenty (20) business days ending on
the last business day prior to the Exchange Date; or
(ii) If the Class A Common Stock or Warrants are listed on a national
securities exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the Nasdaq National Market or the Nasdaq Small Cap
Market, the Fair Market Value shall be the average of the last reported sale
prices or the average of the means of the last reported bid and asked prices,
respectively, of Class A Common Stock or Warrants, respectively, on such
exchange or market for the twenty (20) business days ending on the last business
day prior to the Exchange Date; or
(iii) If the Class A Common Stock or Warrants are not so listed or
admitted to unlisted trading privileges, the Fair Market Value shall be the
average of the means of the last reported bid and asked prices of the Class A
Common Stock or Warrants, respectively, for the twenty (20) business days ending
on the last business day prior to the Exchange Date; or
(iv) If the Class A Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
Fair Market
-3-
<PAGE>
Value shall be an amount, not less than book value thereof as at the end of the
most recent fiscal year of the Company ending prior to the Exchange Date,
determined in such reasonable manner as may be prescribed by the Board of
Directors of the Company; or
(v) If the Warrants are not so listed or admitted to unlisted trading
privileges, and bid and asked prices are not so reported for Warrants, then Fair
Market Value for the Warrants shall be an amount equal to the difference between
(i) the Fair Market Value of the shares of Class A Common Stock and Warrants
which may be received upon the exercise of the Warrants, as determined herein,
and (ii) the Warrant Exercise Price.
3. Neither this Option nor the underlying securities shall be transferred,
sold, assigned, or hypothecated for a period of three years commencing from the
date hereof except that they may be transferred to successors of the Holder, and
may be assigned in whole or in part to any person who is an officer of the
Holder, any member participating in the selling group relating to the Offering
or any officer of such selling group member. Any such assignment shall be
effected by the Holder (i) executing the form of assignment at the end hereof
and (ii) surrendering this Option for cancellation at the office or agency of
the Company referred to in Section 2 hereof, accompanied by a certificate
(signed by an officer of the Holder if the Holder is a corporation), stating
that each transferee is a permitted transferee under this Section 3; whereupon
the Company shall issue, in the name or names specified by the Holder (including
the Holder) a new Option or Options of like tenor and representing in the
aggregate rights to purchase the same number of Option Units as are purchasable
hereunder.
4. The Company covenants and agrees that all shares of Class A Common Stock
which may be issued as part of the Option Units purchased hereunder and the
Class A Common Stock which may be issued upon exercise of the Warrants will,
upon issuance, be duly and validly issued, fully paid and nonassessable and no
personal liability will attach to the holder thereof. The Company further
covenants and agrees that during the periods within which this Option may be
exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of its Class A Common Stock to provide for the
exercise of this Option and that it will have authorized and reserved a
sufficient number of shares of Class A Common Stock for issuance upon exercise
of the Warrants included in the Option Units.
5. This Option shall not entitle the Holder to any voting rights or any
other rights, or subject to the Holder to any liabilities, as a stockholder of
the Company.
6. Registration Rights.
(a) The Company shall advise the Holder or its transferee, whether the
Holder holds the Option or has exercised the Option and holds Option Units or
any of the securities underlying the Option Units, by written notice at least
four weeks prior to the filing of any post-effective amendment to the
Registration Statement or of any new registration statement or post-effective
amendment thereto under the Act covering any securities of the Company, for its
own account or for the account of others, and will for a period of seven years
from the effective date of the Registration Statement, upon the request of the
Holder, include in any such post-effective amendment or registration statement,
such information as
-4-
<PAGE>
may be required to permit a public offering of the Option, all or any of the
Option Units, the Class A Common Stock or Warrants included in the Option Units
or the Class A Common Stock issuable upon the exercise of the Warrants (the
"Registrable Securities"); provided, however, the right of any Holder to include
its Registrable Securities in any such post-effective amendment or registration
statement may be waived by the written consent of D.H. Blair Investment Banking
Corp., D.H. Blair & Co. Inc. or J. Morton Davis.
(b) If any 50% holder (as defined below) or D.H. Blair Investment Banking
Corp., if applicable, shall give notice to the Company at any time to the effect
that such holder desires to register under the Act this Option, the Option Units
or any of the underlying securities contained in the Option Units under such
circumstances that a public distribution (within the meaning of the Act) of any
such securities will be involved then the Company will promptly, but no later
than two weeks after receipt of such notice, file a post-effective amendment to
the current Registration Statement or a new registration statement on Form S-1
or such other form as the holder requests pursuant to the Act, to the end that
the Option, the Option Units and/or any of the securities underlying the Option
Units may be publicly sold under the Act as promptly as practicable thereafter
and the Company will use its best efforts to cause such registration to become
and remain effective (including the taking of such steps as are necessary to
obtain the removal of any stop order); provided, that such holder shall furnish
the Company with appropriate information in connection therewith as the Company
may reasonably request in writing. The 50% holder or D.H. Blair Investment
Banking Corp., if applicable, may, at its option, request the filing of a
post-effective amendment to the current Registration Statement or a new
registration statement under the Act on two occasions during the three year
period beginning two years from the effective date of the Registration
Statement. The Holder may, at its option request the registration of the Option
and/or any of the securities underlying the Option in a registration statement
made by the Company as contemplated by Section 6(a) or in connection with a
request made pursuant to this Section 6(b) prior to acquisition of the Option
Units issuable upon exercise of the Option and even though the Holder has not
given notice of exercise of the Option. The 50% holder or D.H. Blair Investment
Banking Corp., if applicable, may, at its option, request such post-effective
amendment or new registration statement during the described period with respect
to the Option, the Option Units as a unit, or separately as to the Class A
Common Stock and/or Warrants included in the Option Units and/or the Class A
Common Stock issuable upon the exercise of the Warrants, and such registration
rights may be exercised by the 50% holder or D.H. Blair Investment Banking
Corp., if applicable, prior to or subsequent to the exercise of the Option.
Within ten days after receiving any such notice pursuant to this Section 6(b),
the Company shall give notice to the other holders of the Options, advising that
the Company is proceeding with such post-effective amendment or registration
statement and offering to include therein the securities underlying the Options
of the other holders, provided that they shall furnish the Company with such
appropriate information (relating to the intentions of such holders) in
connection therewith as the Company shall reasonably request in writing. In the
event the registration statement is not filed within the period specified herein
and in the event the registration statement is not declared effective under the
Act prior to ________, 2002, then, at the holders' request, the Company shall
purchase the Options from the holder for a per option price equal to the
difference between (i) the Fair Market Value of the Class A Common Stock on the
date of notice multiplied by the number of shares of Class A Common Stock
-5-
<PAGE>
issuable upon exercise of the Option and the underlying Warrants and (ii) the
average per share purchase price of the Option and each share of Class A Common
Stock underlying the Option. All costs and expenses of the post-effective
amendment or new registration statement under this paragraph 6(b) shall be borne
by the Company, except that the holders shall bear the fees of their own counsel
and any underwriting discounts or commissions applicable to any of the
securities sold by them. If the Company determines to include securities to be
sold by it in any registration statement originally requested pursuant to this
Section 6(b), such registration shall instead be deemed to have been a
registration under Section 6(a) and not under this Section 6(b).
The Company will maintain such registration statement or post-effective
amendment current under the Act for a period of at least six months (and for up
to an additional three months if requested by the Holder) from the effective
date thereof.
(c) The term "50% holder" as used in this Section 6 shall mean the holder
of at least 50% of the Class A Common Stock and the Warrants underlying the
Options (considered in the aggregate) and shall include any owner or combination
of owners of such securities, which ownership shall be calculated by determining
the number of shares of Class A Common Stock held by such owner or owners as
well as the number of shares then issuable upon exercise of the Warrants.
(d) Whenever pursuant to Section 6 a registration statement relating to any
Registrable Securities is filed under the Act, amended or supplemented, the
Company shall (i) supply prospectuses and such other documents as the Holder may
request in order to facilitate the public sale or other disposition of the
Registrable Securities, (ii) use its best efforts to register and qualify any of
the Registrable Securities for sale in such states as such Holder designates,
(iii) furnish indemnification in the manner provided in Section 7 hereof, (iv)
notify each Holder of Registrable Securities at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, contains an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and, at the request of
any such Holder, prepare and furnish to such Holder a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be necessary
so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not included an untrue statement of a material
fact or omit to state material fact required to be stated therein or necessary
to make the statements therein not misleading and (v) do any and all other acts
and things which may be necessary or desirable to enable such Holders to
consummate the public sale or other disposition of the Registrable Securities,
The Holder shall furnish appropriate information in connection therewith and
indemnification as set forth in Section 7.
(e) The Company shall not permit the inclusion of any securities other than
the Registrable Securities to be included in any registration statement filed
pursuant to Section 6(b) hereof without the prior written consent of the 50%
holder or D.H. Blair Investment Banking Corp., if applicable.
-6-
<PAGE>
(f) The Company shall furnish to each Holder participating in the offering
and to each underwriter, if any, a signed counterpart, addressed to such Holder
or underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of such registration statement (or, if such registration includes an
underwritten public offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) if such registration includes an underwritten
public offering, a "cold comfort" letter dated the effective date of such
registration statement and dated the date of the closing under the underwriting
agreement signed by the independent public accountants who have issued a report
on the Company's financial statements included in such registration statement,
in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case of
such accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(g) The Company shall deliver promptly to each Holder participating in the
offering requesting the correspondence and memoranda described below and to the
managing underwriter copies of all correspondence between the Commission and the
Company, its counsel or auditors and all memoranda relating to discussions with
the Commission or its staff with respect to the registration statement and
permit each Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonable necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such investigation shall include access to
non-confidential books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times as any such Holder shall
reasonably request.
7. Indemnification.
(a) Whenever pursuant to Section 6 a registration statement (as amended or
supplemented) relating to the Registrable Securities is filed under the Act, the
Company will indemnify and hold harmless each holder of the Registrable
Securities covered by such registration statement, amendment or supplement (such
holder being hereinafter called the "Distributing Holder"), and each person, if
any, who controls (within the meaning of the Act) the Distributing Holder, and
each underwriter (within the meaning of the Act) of such securities and each
person, if any, who controls (within the meaning of the Act) any such
underwriter, against any losses, claims, damages or liabilities, joint or
several, to which the Distributing Holder, any such controlling person or any
such underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any such registration statement or any preliminary
prospectus or final prospectus constituting a part thereof or any amendment or
supplement thereto, or arise out of or are based upon the omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; and will reimburse the Distributing Holder
and each such controlling person and underwriter for any legal or other expenses
reasonably incurred by the Distributing Holder or such controlling person or
underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such
-7-
<PAGE>
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
said registration statement, said preliminary prospectus, said final prospectus
or said amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder specifically for use in the
preparation thereof.
(b) If requested by the Company prior to the filing of any registration
statement covering the Registrable Securities, each Distributing Holder will
agree, severally but not jointly, to indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities arise out of or are based upon any untrue or alleged
untrue statement of any material fact contained in said registration statement,
said preliminary prospectus, said final prospectus, or said amendment or
supplement, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in said registration
statement, said preliminary prospectus, said final prospectus or said amendment
or supplement in reliance upon and in conformity with written information
furnished by such Distributing Holder specifically for use in the preparation
thereof; except that the maximum amount which may be recovered from the
Distributing Holder pursuant to this Section 7 or otherwise shall be limited to
the amount of net proceeds received by the Distributing Holder from the sale of
the Registrable Securities.
(c) Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party, give the
indemnifying party notice of the commencement thereof; but the omission so to
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under this Section 7.
(d) In case any such action is brought against any indemnified party, and
it notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 7 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation.
(8) In addition to the provisions of Section 1(a) of this Option, the
Exercise Price in effect at any time and the number and kind of securities
purchasable upon the exercise of the Options shall be subject to adjustment from
time to time upon the happening of certain events as follows:
-8-
<PAGE>
(a) In case the Company shall (i) declare a dividend or make a distribution
on its outstanding shares of Class A Common Stock in shares of Class A Common
Stock, (ii) subdivide or reclassify its outstanding shares of Class A Common
Stock into a greater number of shares, or (iii) combine or reclassify its
outstanding shares of Class A Common Stock into a smaller number of shares, the
Exercise Price in effect at the time of the record date for such dividend or
distribution or of the effective date of such subdivision, combination or
reclassification shall be adjusted so that it shall equal the price determined
by multiplying the Exercise Price by a fraction, the denominator of which shall
be the number of shares of Class A Common Stock outstanding after giving effect
to such action, and the numerator of which shall be the number of shares of
Class A Common Stock outstanding immediately prior to such action. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(b) Whenever the Exercise Price payable upon exercise of each Option is
adjusted pursuant to Subsection (a) above, (i) the number of shares of Class A
Common Stock included in an Option Unit shall simultaneously be adjusted by
multiplying the number of shares of Class A Common Stock included in Option Unit
immediately prior to such adjustment by the Exercise Price in effect immediately
prior to such adjustment and dividing the product so obtained by the Exercise
Price, as adjusted and (ii) the number of shares of Class A Common Stock or
other securities issuable upon exercise of the Warrants included in the Option
Units and the exercise price of such Warrants shall be adjusted in accordance
with the applicable terms of the Warrant Agreement.
(c) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least five cents ($0.05)
in such price; provided, however, that any adjustments which by reason of this
Subsection (c) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment required to be made hereunder. All
calculations under this Section 8 shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything in this Section 8
to the contrary notwithstanding, the Company shall be entitled, but shall not be
required, to make such changes in the Exercise Price, in addition to those
required by this Section 8, as it shall determine, in its sole discretion, to be
advisable in order that any dividend or distribution in shares of Class A Common
Stock, or any subdivision, reclassification or combination of Class A Common
Stock, hereafter made by the Company shall not result in any Federal Income tax
liability to the holders of Class A Common Stock or securities convertible into
Class A Common Stock (including Warrants issuable upon exercise of this Option).
(d) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly but no later than 10 days after any request for such an
adjustment by the Holder, cause a notice setting forth the adjusted Exercise
Price and adjusted number of Option Units issuable upon exercise of each Option
and, if requested, information describing the transactions giving rise to such
adjustments, to be mailed to the Holders, at the address set forth herein, and
shall cause a certified copy thereof to be mailed to its transfer agent, if any.
The Company may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular accountants employed
by the Company) to make any computation required by this Section 8, and a
-9-
<PAGE>
certificate signed by such firm shall be conclusive evidence of the correctness
of such adjustment.
(e) In the event that at any time, as a result of an adjustment made
pursuant to Subsection (a) above, the Holder of this Option thereafter shall
become entitled to receive any shares of the Company, other than Class A Common
Stock, thereafter the number of such other shares so receivable upon exercise of
this Option shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Class A Common Stock contained in Subsections (a) through (d), inclusive above.
(f) In case any event shall occur as to which the other provisions of this
Section 8 or Section 1(a) hereof are not strictly applicable but as to which the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Option in accordance with the essential intent and
principles hereof then, in each such case, the Holders of Options representing
the right to purchase a majority of the Option Units may appoint a firm of
independent public accountants reasonably acceptable to the Company, which shall
give their opinion as to the adjustment, if any, on a basis consistent with the
essential intent and principles established herein, necessary to preserve the
purchase rights represented by the Options. Upon receipt of such opinion, the
Company will promptly mail a copy thereof to the Holder of this Option and shall
make the adjustments described therein. The fees and expenses of such
independent public accountants shall be borne by the Company.
9. This Agreement shall be governed by and in accordance with the laws of
the State of New York, without giving effect to the principles of conflicts of
law thereof.
-10-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Option to be signed by its
duly authorized officers under its corporate seal, and this Option to be dated
____________, 1997.
HEALTHCORE MEDICAL SOLUTIONS, INC.
By:____________________________
Name:
Title:
(Corporate Seal)
Attest:
________________________
-11-
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of option)
The undersigned, the holder of the foregoing Option, hereby irrevocably
elects to exercise the purchase rights represented by such Option for, and to
purchase thereunder, _______ Units of HEALTHCORE MEDICAL SOLUTIONS, INC. (the
"Company"), each Unit consisting of one share of Class A Common Stock, $.01 par
value, of the Company, and one Class A Warrant to purchase one share of Class A
Common Stock and herewith makes payment of $_________ thereof
Dated: _________, 19__.
Instructions for Registration of Stock
and Warrants
________________________________________________________________________________
Print Name
_____________________________________________
Address
_____________________________________________
Signature
<PAGE>
OPTION EXCHANGE
The undersigned, pursuant to the provisions of the foregoing Option, hereby
elects to exchange its Option for _________ Units of HEALTHCORE MEDICAL
SOLUTIONS, INC. (the "Company"), each Unit consisting of one share of Class A
Common Stock, $.01 par value, of the Company, and one Class A Warrant to
purchase one share of Class A Common Stock, pursuant to the Option Exchange
provisions of the Option.
Dated: _____________, 19__.
_____________________________________________
Print Name
_____________________________________________
Address
_____________________________________________
Signature
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns, and transfers
unto the right to purchase Units represented by the foregoing Option to the
extent of Units, and appoints attorney to transfer such rights on the books of
HEALTHCORE MEDICAL SOLUTIONS, INC. with full power of substitution in the
premises.
Dated: _______________, 19__
[HOLDER]
By:_________________________________
________________________________________________________________________________
Address
In the presence of:
HEALTHCORE MEDICAL SOLUTIONS, INC.
1997 STOCK OPTION PLAN
1. Purpose.
The purpose of this plan (the "Plan") is to secure for HealthCore Medical
Solutions, Inc. (the "Company") and its shareholders the benefits arising from
capital stock ownership by employees, officers and directors of, and consultants
or advisors to, the Company who are expected to contribute to the Company's
future growth and success. Except where the context otherwise requires, the term
"Company" shall include all present and future subsidiaries of the Company as
defined in Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as
amended or replaced from time to time (the "Code"). Those provisions of the Plan
which make express reference to Section 422 shall apply only to Incentive Stock
Options (as that term is defined in the Plan).
2. Type of Options and Administration.
(a) Types of Options. Options granted pursuant to the Plan shall be
authorized by action of the Board of Directors of the Company (or a Committee
designated by the Board of Directors) and may be either incentive stock options
("Incentive Stock Options") meeting the requirements of Section 422 of the Code
or non-statutory options which are not intended to meet the requirements of
Section 422 of the Code.
(b) Administration. The Plan will be administered by a committee (the
"Committee") appointed by the Board of Directors of the Company, whose
construction and interpretation of the terms and provisions of the Plan shall be
final and conclusive. The delegation of powers to the Committee shall be
consistent with applicable laws or regulations (including, without limitation,
applicable state law and Rule 16b-3 promulgated under the Securities Exchange
Act of 1934 (the "Exchange Act"), or any successor rule ("Rule 16b-3")). The
Committee may in its sole discretion grant options to purchase shares of the
Company's Class A Common Stock, $.01 par value per share ("Common Stock"), and
issue shares upon exercise of such options as provided in the Plan. The
Committee shall have authority, subject to the express provisions of the Plan,
to construe the respective option agreements and the Plan, to prescribe, amend
and rescind rules and regulations relating to the Plan, to determine the terms
and provisions of the respective option agreements, which need not be identical,
and to make all other determinations in the judgment of the Committee necessary
or desirable for the administration of the Plan. The Committee may correct any
defect or supply any omission or reconcile any inconsistency in the Plan or in
any option agreement in the manner and to the extent it shall deem expedient to
carry the Plan into effect and it shall be the sole and final judge of such
expediency. No director or person acting pursuant to authority delegated by the
Board of Directors shall be liable for any action or determination under the
Plan made in good faith. Subject to adjustment as provided in Section 15 below,
the aggregate number of shares of
<PAGE>
Common Stock that may be subject to Options granted to any person in a calendar
year shall not exceed 35% of the maximum number of shares which may be issued
and sold under the Plan, as set forth in Section 4 hereof, as such section may
be amended from time to time.
(c) Applicability of Rule 16b-3. Those provisions of the Plan which make
express reference to Rule 16b-3 shall apply to the Company only at such time as
the Company's Common Stock is registered under the Exchange Act, subject to the
last sentence of Section 3(b), and then only to such persons as are required to
file reports under Section 16(a) of the Exchange Act (a "Reporting Person").
3. Eligibility.
(a) General. Options may be granted to persons who are, at the time of
grant, employees, officers or directors of, or consultants or advisors to, the
Company or any subsidiaries of the Company as defined in Sections 424(e) and
424(f) of the Code ("Participants") provided, that Incentive Stock Options may
only be granted to individuals who are employees of the Company (within the
meaning of Section 3401(c) of the Code). A person who has been granted an option
may, if he or she is otherwise eligible, be granted additional options if the
Committee shall so determine.
(b) Grant of Options to Reporting Persons. The selection of a director or
an officer who is a Reporting Person (as the terms "director" and "officer" are
defined for purposes of Rule 16b-3) as a recipient of an option, the timing of
the option grant, the exercise price of the option and the number of shares
subject to the option shall be determined either (i) by the Board of Directors,
(ii) by a committee consisting of two or more directors having full authority to
act in the matter, each of whom shall be an "Independent Director" as defined by
Rule 1.62-27 of the Code or (iii) pursuant to provisions for automatic grants
set forth in Section 3(c) below.
4. Stock Subject to Plan.
The stock subject to options granted under the Plan shall be shares of
authorized but unissued or reacquired Common Stock. Subject to adjustment as
provided in Section 15 below, the maximum number of shares of Common Stock of
the Company which may be issued and sold under the Plan is 200,000 shares. If an
option granted under the Plan shall expire, terminate or is cancelled for any
reason without having been exercised in full, the unpurchased shares subject to
such option shall again be available for subsequent option grants under the
Plan.
5. Forms of Option Agreements.
As a condition to the grant of an option under the Plan, each recipient of
an option shall execute an option agreement in such form not inconsistent with
the Plan as may be approved by the Board of Directors. Such option agreements
may differ among recipients.
-2-
<PAGE>
6. Purchase Price.
(a) General. The purchase price per share of stock deliverable upon the
exercise of an option shall be determined by the Board of Directors at the time
of grant of such option; provided, however, that in the case of an Incentive
Stock Option, the exercise price shall not be less than 100% of the Fair Market
Value (as hereinafter defined) of such stock, at the time of grant of such
option, or less than 110% of such Fair Market Value in the case of options
described in Section 11(b). "Fair Market Value" of a share of Common Stock of
the Company as of a specified date for the purposes of the Plan shall mean the
closing price of a share of the Common Stock on the principal securities
exchange (including the Nasdaq National Market) on which such shares are traded
on the day immediately preceding the date as of which Fair Market Value is being
determined, or on the next preceding date on which such shares are traded if no
shares were traded on such immediately preceding day, or if the shares are not
traded on a securities exchange, Fair Market Value shall be deemed to be the
average of the high bid and low asked prices of the shares in the
over-the-counter market on the day immediately preceding the date as of which
Fair Market Value is being determined or on the next preceding date on which
such high bid and low asked prices were recorded. If the shares are not publicly
traded, Fair Market Value of a share of Common Stock (including, in the case of
any repurchase of shares, any distributions with respect thereto which would be
repurchased with the shares) shall be determined in good faith by the Board of
Directors. In no case shall Fair Market Value be determined with regard to
restrictions other than restrictions which, by their terms, will never lapse.
(b) Payment of Purchase Price. Options granted under the Plan may provide
for the payment of the exercise price by delivery of cash or a check to the
order of the Company in an amount equal to the exercise price of such options,
or by any other means which the Board of Directors determines are consistent
with the purpose of the Plan and with applicable laws and regulations
(including, without limitation, the provisions of Rule 16b-3 and Regulation T
promulgated by the Federal Reserve Board).
7. Option Period.
Subject to earlier termination as provided in the Plan, each option and all
rights thereunder shall expire on such date as determined by the Board of
Directors and set forth in the applicable option agreement, provided, that such
date shall not be later than (10) ten years after the date on which the option
is granted.
8. Exercise of Options.
Each option granted under the Plan shall be exercisable either in full or
in installments at such time or times and during such period as shall be set
forth in the option agreement evidencing such option, subject to the provisions
of the Plan. Subject to the requirements in the immediately preceding sentence,
if an option is not at the time of grant immediately exercisable, the Board of
Directors may (i) in the agreement evidencing such
-3-
<PAGE>
option, provide for the acceleration of the exercise date or dates of the
subject option upon the occurrence of specified events, and/or (ii) at any time
prior to the complete termination of an option, accelerate the exercise date or
dates of such option.
9. Transferability of Options
No incentive stock option granted under this Plan shall be assignable or
otherwise transferable by the optionee except by will or by the laws of descent
and distribution or pursuant to a qualified domestic relations order as defined
in the Code or Title I of the Employee Retirement Income Security Act, or the
rules thereunder. The Board of Directors or any committee thereof may, in its
discretion, authorize all or a portion of any non-statutory options to be
granted to an optionee to be on terms which permit transfer by such optionee to
(i) the spouse, children or grandchildren of the optionee ("Immediate Family
Members"), (ii) a trust or trusts for the exclusive benefit of such Immediate
Family Members, (iii) a partnership in which such Immediate Family Members are
the only partners or (iv) any non-profit charitable organization; provided that
(w) the options must be held by the optionee for a period of at least one month
prior to transfer, (x) there may be no consideration for any such transfer, (y)
the stock option agreement pursuant to which such options are granted must be
approved by the Committee; and must expressly provide for transferability in a
manner consistent with this Section, and (z) subsequent transfers of transferred
options shall be prohibited except by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined in
the Code or Title I of the Employee Retirement Income Security Act, or the rules
thereunder. Following transfer, any such options shall continue to be subject to
the same terms and conditions as were applicable immediately prior to transfer,
provided that for purposes of the Plan the term "optionee" shall be deemed to
refer to the transferee. The events of termination of employment of Section 10
hereof shall continue to be applied with respect to the original optionee. In
the event an optionee dies during his employment by the Company or any of its
subsidiaries, or during the three-month period following the date of termination
of such employment, his option shall thereafter be exercisable, during the
period specified in the option agreement, by his executors or administrators to
the full extent to which such option was exercisable by the optionee at the time
of his death during the periods set forth in Section 10 or 11(d).
10. Effect of Termination of Employment or Other Relationship.
Except as provided in Section 11(d) with respect to Incentive Stock Options
and except as otherwise determined by the Committee at the date of grant of an
Option, and subject to the provisions of the Plan, an optionee may exercise an
option at any time within three months following the termination of the
optionee's employment or other relationship with the Company or within one (1)
year if such termination was due to the death or disability of the optionee but,
except in the case of the optionee's death, in no event later than the
expiration date of the Option. If the termination of the optionee's employment
is for cause or is otherwise attributable to a breach by the optionee of an
employment or confidentiality or non-disclosure agreement, the option shall
expire immediately upon such termination. The Board of Directors shall have the
-4-
<PAGE>
power to determine what constitutes a termination for cause or a breach of an
employment or confidentiality or non-disclosure agreement, whether an optionee
has been terminated for cause or has breached such an agreement, and the date
upon which such termination for cause or breach occurs. Any such determinations
shall be final and conclusive and binding upon the optionee.
11. Incentive Stock Options.
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(a) Express Designation. All Incentive Stock Options granted under the Plan
shall, at the time of grant, be specifically designated as such in the option
agreement covering such Incentive Stock Options.
(b) 10% Shareholder. If any employee to whom an Incentive Stock Option is
to be granted under the Plan is, at the time of the grant of such option, the
owner of stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company (after taking into account the attribution
of stock ownership rules of Section 424(d) of the Code), then the following
special provisions shall be applicable to the Incentive Stock Option granted to
such individual:
(i) The purchase price per share of the Common Stock subject to such
Incentive Stock Option shall not be less than 110% of the Fair Market Value
of one share of Common Stock at the time of grant; and
(ii) The option exercise period shall not exceed five years from the
date of grant.
(c) Dollar Limitation. For so long as the Code shall so provide, options
granted to any employee under the Plan (and any other incentive stock option
plans of the Company) which are intended to constitute Incentive Stock Options
shall not constitute Incentive Stock Options to the extent that such options, in
the aggregate, become exercisable for the first time in any one calendar year
for shares of Common Stock with an aggregate Fair Market Value, as of the
respective date or dates of grant, of more than $100,000.
(d) Termination of Employment, Death or Disability. No Incentive Stock
Option may be exercised unless, at the time of such exercise, the optionee is,
and has been continuously since the date of grant of his or her option, employed
by the Company, except that:
(i) an Incentive Stock Option may be exercised within the period of
three months after the date the optionee ceases to be an employee of the
Company (or within such lesser period as may be specified in the applicable
option agreement), provided, that the agreement with respect to such option
may
-5-
<PAGE>
designate a longer exercise period and that the exercise after such
three-month period shall be treated as the exercise of a non-statutory
option under the Plan;
(ii) if the optionee dies while in the employ of the Company, or
within three months after the optionee ceases to be such an employee, the
Incentive Stock Option may be exercised by the person to whom it is
transferred by will or the laws of descent and distribution within the
period of one year after the date of death (or within such lesser period as
may be specified in the applicable option agreement); and
(iii) if the optionee becomes disabled (within the meaning of Section
22(e)(3) of the Code or any successor provisions thereto) while in the
employ of the Company, the Incentive Stock Option may be exercised within
the period of one year after the date the optionee ceases to be such an
employee because of such disability (or within such lesser period as may be
specified in the applicable option agreement).
For all purposes of the Plan and any option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
12. Additional Provisions.
(a) Additional Option Provisions. The Board of Directors may, in its sole
discretion, include additional provisions in option agreements covering options
granted under the Plan, including without limitation restrictions on transfer,
repurchase rights, rights of first refusal, commitments to pay cash bonuses, to
make, arrange for or guaranty loans or to transfer other property to optionees
upon exercise of options, or such other provisions as shall be determined by the
Board of Directors; provided, that such additional provisions shall not be
inconsistent with any other term or condition of the Plan and such additional
provisions shall not cause any Incentive Stock Option granted under the Plan to
fail to qualify as an Incentive Stock Option within the meaning of Section 422
of the Code.
(b) Acceleration, Extension, Etc. The Board of Directors may, in its sole
discretion, (i) accelerate the date or dates on which all or any particular
option or options granted under the Plan may be exercised or (ii) extend the
dates during which all, or any particular, option or options granted under the
Plan may be exercised; provided, however, that no such extension shall be
permitted if it would cause the Plan to fail to comply with Section 422 of the
Code or with Rule 16b-3 (if applicable).
-6-
<PAGE>
13. General Restrictions.
(a) Investment Representations. The Company may require any person to whom
an Option is granted, as a condition of exercising such option, to give written
assurances in substance and form satisfactory to the Company to the effect that
such person is acquiring the Common Stock subject to the option or award, for
his or her own account for investment and not with any present intention of
selling or otherwise distributing the same, and to such other effects as the
Company deems necessary or appropriate in order to comply with federal and
applicable state securities laws, or with covenants or representations made by
the Company in connection with any public offering of its Common Stock,
including any "lock-up" or other restriction on transferability.
(b) Compliance With Securities Law. Each Option shall be subject to the
requirement that if, at any time, counsel to the Company shall determine that
the listing, registration or qualification of the shares subject to such option
upon any securities exchange or automated quotation system or under any state or
federal law, or the consent or approval of any governmental or regulatory body,
or that the disclosure of non-public information or the satisfaction of any
other condition is necessary as a condition of, or in connection with the
issuance or purchase of shares thereunder, such option may not be exercised, in
whole or in part, unless such listing, registration, qualification, consent or
approval, or satisfaction of such condition shall have been effected or obtained
on conditions acceptable to the Board of Directors. Nothing herein shall be
deemed to require the Company to apply for or to obtain such listing,
registration or qualification, or to satisfy such condition.
14. Rights as a Stockholder.
The holder of an option shall have no rights as a stockholder with respect
to any shares covered by the option (including, without limitation, any rights
to receive dividends or non-cash distributions with respect to such shares)
until the date of issue of a stock certificate to him or her for such shares. No
adjustment shall be made for dividends or other rights for which the record date
is prior to the date such stock certificate is issued.
15. Adjustment Provisions for Recapitalizations, Reorganizations and Related
Transactions.
(a) Recapitalizations and Related Transactions. If, through or as a result
of any recapitalization, reclassification, stock dividend, stock split, reverse
stock split or other similar transaction, (i) the outstanding shares of Common
Stock are increased, decreased or exchanged for a different number or kind of
shares or other securities of the Company, or (ii) additional shares or new or
different shares or other non-cash assets are distributed with respect to such
shares of Common Stock or other securities, an appropriate and proportionate
adjustment shall be made in (x) the maximum number and kind of shares reserved
for issuance under or otherwise referred to in the Plan, (y) the number and kind
of shares or other securities subject to any then outstanding options under the
Plan, and (z) the price for each share subject to
-7-
<PAGE>
any then outstanding options under the Plan, without changing the aggregate
purchase price as to which such options remain exercisable. Notwithstanding the
foregoing, no adjustment shall be made pursuant to this Section 15 if such
adjustment (i) would cause the Plan to fail to comply with Section 422 of the
Code or with Rule 16b-3 or (ii) would be considered as the adoption of a new
plan requiring stockholder approval.
(b) Reorganization, Merger and Related Transactions. All outstanding
Options under the Plan shall become fully exercisable for a period of sixty (60)
days following the occurrence of any Trigger Event, whether or not such Options
are then exercisable under the provisions of the applicable agreements relating
thereto. For purposes of the Plan, a "Trigger Event" is any one of the following
events:
(i) the date on which shares of Common Stock are first purchased
pursuant to a tender offer or exchange offer (other than such an offer by
the Company, any Subsidiary, any employee benefit plan of the Company or of
any Subsidiary or any entity holding shares or other securities of the
Company for or pursuant to the terms of such plan), whether or not such
offer is approved or opposed by the Company and regardless of the number of
shares purchased pursuant to such offer;
(ii) the date the Company acquires knowledge that any person or group
deemed a person under Section 13(d)-3 of the Exchange Act (other than the
Company, any Subsidiary, any employee benefit plan of the Company or of any
Subsidiary or any entity holding shares of Common Stock or other securities
of the Company for or pursuant to the terms of any such plan or any
individual or entity or group or affiliate thereof which acquired its
beneficial ownership interest prior to the date the Plan was adopted by the
Board), in a transaction or series of transactions, has become the
beneficial owner, directly or indirectly (with beneficial ownership
determined as provided in Rule 13d-3, or any successor rule, under the
Exchange Act), of securities of the Company entitling the person or group
to 30% or more of all votes (without consideration of the rights of any
class or stock to elect directors by a separate class vote) to which all
shareholders of the Company would be entitled in the election of the Board
of Directors were an election held on such date;
(iii) the date, during any period of two consecutive years, when
individuals who at the beginning of such period constitute the Board of
Directors of the Company cease for any reason to constitute at least a
majority thereof, unless the election, or the nomination for election by
the stockholders of the Company, of each new director was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such period; and
-8-
<PAGE>
(iv) the date of approval by the stockholders of the Company of an
agreement (a "reorganization agreement") providing for:
(A) The merger of consolidation of the Company with another
corporation where the stockholders of the Company, immediately prior to the
merger or consolidation, do not beneficially own, immediately after the
merger or consolidation, shares of the corporation issuing cash or
securities in the merger or consolidation entitling such shareholders to
80% or more of all votes (without consideration of the rights of any class
of stock to elect directors by a separate class vote) to which all
stockholders of such corporation would be entitled in the election of
directors or where the members of the Board of Directors of the Company,
immediately prior to the merger or consolidation, do not, immediately after
the merger or consolidation, constitute a majority of the Board of
Directors of the corporation issuing cash or securities in the merger or
consolidation; or
(B) The sale or other disposition of all or substantially all the
assets of the Company.
(c) Board Authority to Make Adjustments. Any adjustments under this Section
15 will be made by the Board of Directors, whose determination as to what
adjustments, if any, will be made and the extent thereof will be final, binding
and conclusive. No fractional shares will be issued under the Plan on account of
any such adjustments.
16. Merger, Consolidation, Asset Sale, Liquidation, etc.
(a) General. In the event of any sale, merger, transfer or acquisition of
the Company or substantially all of the assets of the Company in which the
Company is not the surviving corporation, and provided that after the Company
shall have requested the acquiring or succeeding corporation (or an affiliate
thereof), that equivalent options shall be substituted and such successor
corporation shall have refused or failed to assume all options outstanding under
the Plan or issue substantially equivalent options, then any or all outstanding
options under the Plan shall accelerate and become exercisable in full
immediately prior to such event. The Committee will notify holders of options
under the Plan that any such options shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the options will terminate
upon expiration of such notice.
(b) Substitute Options. The Company may grant options under the Plan in
substitution for options held by employees of another corporation who become
employees of the Company, or a subsidiary of the Company, as the result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one of its subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options be granted on such terms and
conditions as the Board of Directors considers appropriate in the circumstances.
-9-
<PAGE>
17. No Special Employment Rights.
Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment by
the Company or interfere in any way with the right of the Company at any time to
terminate such employment or to increase or decrease the compensation of the
optionee.
18. Other Employee Benefits.
Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares received
upon such exercise will not constitute compensation with respect to which any
other employee benefits of such employee are determined, including, without
limitation, benefits under any bonus, pension, profit-sharing, life insurance or
salary continuation plan, except as otherwise specifically determined by the
Board of Directors.
19. Amendment of the Plan.
(a) The Board of Directors may at any time, and from time to time, modify
or amend the Plan in any respect; provided, however, that if at any time the
approval of the stockholders of the Company is required under Section 422 of the
Code or any successor provision with respect to Incentive Stock Options, the
Board of Directors may not effect such modification or amendment without such
approval; and provided, further, that the provisions of Section 3(c) hereof
shall not be amended more than once every six months, other than to comport with
changes in the Code, the Employer Retirement Income Security Act of 1974, as
amended, or the rules thereunder.
(b) The modification or amendment of the Plan shall not, without the
consent of an optionee, affect his or her rights under an option previously
granted to him or her. With the consent of the optionee affected, the Board of
Directors may amend outstanding option agreements in a manner not inconsistent
with the Plan. The Board of Directors shall have the right to amend or modify
(i) the terms and provisions of the Plan and of any outstanding Incentive Stock
Options granted under the Plan to the extent necessary to qualify any or all
such options for such favorable federal income tax treatment (including deferral
of taxation upon exercise) as may be afforded incentive stock options under
Section 422 of the Code and (ii) the terms and provisions of the Plan and of any
outstanding option to the extent necessary to ensure the qualification of the
Plan under Rule 16b-3.
20. Withholding.
(a) The Company shall have the right to deduct from payments of any kind
otherwise due to the optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan. Subject to
-10-
<PAGE>
the prior approval of the Company, which may be withheld by the Company in its
sole discretion, the optionee may elect to satisfy such obligations, in whole or
in part, (i) by causing the Company to withhold shares of Common Stock otherwise
issuable pursuant to the exercise of an option or (ii) by delivering to the
Company shares of Common Stock already owned by the optionee. The shares so
delivered or withheld shall have a Fair Market Value equal to such withholding
obligation as of the date that the amount of tax to be withheld is to be
determined. An optionee who has made an election pursuant to this Section 20(a)
may only satisfy his or her withholding obligation with shares of Common Stock
which are not subject to any repurchase, forfeiture, unfulfilled vesting or
other similar requirements.
(b) The acceptance of shares of Common Stock upon exercise of an Incentive
Stock Option shall constitute an agreement by the optionee (i) to notify the
Company if any or all of such shares are disposed of by the optionee within two
years from the date the option was granted or within one year from the date the
shares were issued to the optionee pursuant to the exercise of the option, and
(ii) if required by law, to remit to the Company, at the time of and in the case
of any such disposition, an amount sufficient to satisfy the Company's federal,
state and local withholding tax obligations with respect to such disposition,
whether or not, as to both (i) and (ii), the optionee is in the employ of the
Company at the time of such disposition.
(c) Notwithstanding the foregoing, in the case of a Reporting Person whose
options have been granted in accordance with the provisions of Section 3(b)
herein, no election to use shares for the payment of withholding taxes shall be
effective unless made in compliance with any applicable requirements of Rule
16b-3.
21. Cancellation and New Grant of Options, Etc.
The Board of Directors shall have the authority to effect, at any time and
from time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option exercise price
per share which may be lower or higher than the exercise price per share of the
cancelled options or (ii) the amendment of the terms of any and all outstanding
options under the Plan to provide an option exercise price per share which is
higher or lower than the then-current exercise price per share of such
outstanding options.
22. Effective Date and Duration of the Plan.
(a) Effective Date. The Plan shall become effective when adopted by the
Board of Directors, but no Incentive Stock Option granted under the Plan shall
become exercisable unless and until the Plan shall have been approved by the
Company's stockholders. If such stockholder approval is not obtained within
twelve months after the date of the Board's adoption of the Plan, no options
previously granted under the Plan shall be deemed to be Incentive Stock Options
and no Incentive Stock Options shall be granted thereafter. Amendments to the
Plan not requiring stockholder approval shall become effective when
-11-
<PAGE>
adopted by the Board of Directors; amendments requiring shareholder approval (as
provided in Section 21) shall become effective when adopted by the Board of
Directors, but no Incentive Stock Option granted after the date of such
amendment shall become exercisable (to the extent that such amendment to the
Plan was required to enable the Company to grant such Incentive Stock Option to
a particular optionee) unless and until such amendment shall have been approved
by the Company's stockholders. If such stockholder approval is not obtained
within twelve months of the Board's adoption of such amendment, any Incentive
Stock Options granted on or after the date of such amendment shall terminate to
the extent that such amendment to the Plan was required to enable the Company to
grant such option to a particular optionee. Subject to this limitation, options
may be granted under the Plan at any time after the effective date and before
the date fixed for termination of the Plan.
(b) Termination. Unless sooner terminated in accordance with Section 16,
the Plan shall terminate upon the earlier of (i) the close of business on the
day next preceding the tenth anniversary of the date of its adoption by the
Board of Directors, or (ii) the date on which all shares available for issuance
under the Plan shall have been issued pursuant to the exercise or cancellation
of options granted under the Plan. If the date of termination is determined
under (i) above, then options outstanding on such date shall continue to have
force and effect in accordance with the provisions of the instruments evidencing
such options.
23. Provision for Foreign Participants.
The Board of Directors may, without amending the Plan, modify awards or
options granted to participants who are foreign nationals or employed outside
the United States to recognize differences in laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, securities, currency,
employee benefit or other matters.
24. Governing Law.
The provisions of this Plan shall be governed and construed in accordance
with the laws of the State of Delaware without regard to the principles of
conflicts of laws.
Adopted by the Board of Directors on February 20, 1997
-12-
AMENDED AND RESTATED ESCROW AGREEMENT
AMENDED AND RESTATED ESCROW AGREEMENT, dated as of the 30th day of April,
1997 and effective as of the Effective Date (as defined herein), amending and
restating the Escrow Agreement, dated as of the 27th day of February, 1997, by
and among American Stock Transfer & Trust Company, a New York corporation
(hereinafter referred to as the "Escrow Agent"), HealthCore Medical Solutions,
Inc., a Delaware corporation (the "Company"), and the stockholders of the
Company who have executed the Escrow Agreement (collectively called the
"Stockholders"), is entered into by and among the Escrow Agent, the Company and
the Stockholders.
WHEREAS, the Company contemplates a public offering ("Public Offering") of
Units ("Units"), each Unit consisting of one share of its Class A Common Stock,
par value $.01 per share (the "Class A Common Stock"), and one redeemable Class
A Warrant (the "Class A Warrant") through D.H. Blair Investment Banking Corp. as
underwriter (the "Underwriter") pursuant to a Registration Statement (the
"Registration Statement") on Form SB-2 to be filed with the Securities and
Exchange Commission ("SEC"); and
WHEREAS, the Stockholders have agreed to deposit in escrow an aggregate of
900,000 shares of Class A Common Stock and Class B Common Stock, par value $.01
per share (the "Class B Common Stock" and, together with the Class A Common
Stock, the "Common Stock"), upon the terms and conditions set forth herein.
In consideration of the mutual covenants and promises herein contained, the
parties hereto agree as follows:
<PAGE>
1. The Stockholders and the Company hereby appoint American Stock Transfer
& Trust Company as Escrow Agent and agree that the Stockholders will, prior to
the filing of the Registration Statement relating to the Public Offering,
deliver to the Escrow Agent to hold in accordance with the provisions hereof,
certificates representing an aggregate of 900,000 shares of Common Stock owned
of record by the Stockholders in the respective amounts set forth on Exhibit A
hereto (the "Escrow Shares"), together with stock powers executed in blank. The
Escrow Agent, by its execution and delivery of this Agreement hereby
acknowledges receipt of the Escrow Shares and accepts its appointment as Escrow
Agent to hold the Escrow Shares in escrow, upon the terms, provisions and
conditions hereof.
2. This Agreement shall become effective upon the date on which the
Securities and Exchange Commission declares effective the Registration Statement
("Effective Date") and shall continue in effect until the earlier of (i) the
date specified in paragraph 4(e) hereof or (ii) the distribution by the Escrow
Agent of all of the Escrow Shares in accordance with the terms hereof (the
"Termination Date"). The period of time from the Effective Date until the
Termination Date is referred to herein as the "Escrow Period."
3. During the Escrow Period, the Escrow Agent shall receive all of the
money, securities, rights or property distributed in respect of the Escrow
Shares then held in escrow, including any such property distributed as dividends
or pursuant to any stock split, merger, recapitalization, dissolution, or total
or partial liquidation of the Company, such property to be held and distributed
as herein provided and hereinafter referred to collectively as the "Escrow
Property."
-2-
<PAGE>
4. (a) The Escrow Shares are subject to release to the Stockholders only in
the event the conditions set forth herein are met. The Escrow Agent, upon notice
to such effect from the Company as provided in paragraph 5 hereof, shall deliver
the Escrow Shares, together with stock powers executed in blank, and the Escrow
Property deposited in escrow with respect to such Escrow Shares, to the
respective Stockholders, if, and only if, one of the following conditions is
met:
(i) 400,000 of the Escrow Shares and Escrow Property related to such
Escrow Shares will be released in the event that:
(A) the Company's net income before provision for Federal, state and
local income taxes (the "Minimum Pretax Income") equals or
exceeds $3,800,000 for the fiscal year ending June 30, 1998; or
(B) the Minimum Pretax Income equals or exceeds $5,500,000 for the
fiscal year ending June 30, 1999; or
(C) the Minimum Pretax Income equals or exceeds $7,500,000 for the
fiscal year ending June 30, 2000; or
(D) The Closing Price (as defined herein) of the Company's Class A
Common Stock shall average in excess of $12.50 per share for any
30 consecutive business days during the period commencing on the
Effective Date and ending 18 months from the Effective Date; or
(E) The Closing Price (as defined herein) of the Company's Class A
Common Stock shall average in excess of $16.50 per share for any
30 consecutive business days during the period commencing 18
months after the Effective Date and ending 36 months from the
Effective Date; or
(F) The Company is acquired by or merged into another entity in a
transaction in which stockholders of the Company receive per
share consideration at least equal to the levels set forth in (D)
or (E) above during the respective time periods set forth in (D)
or (E) above.
(ii) The remaining 500,000 of the Escrow Shares and Escrow Property related
to such Escrow Shares will be released in the event that:
-3-
<PAGE>
(A) the Company's net income before provision for Federal, state and
local income taxes (the "Minimum Pretax Income") equals or
exceeds $4,600,000 for the fiscal year ending June 30, 1998; or
(B) the Minimum Pretax Income equals or exceeds $6,600,000 for the
fiscal year ending June 30, 1999; or
(C) the Minimum Pretax Income equals or exceeds $9,000,000 for the
fiscal year ending June 30, 2000; or
(D) The Closing Price (as defined herein) of the Company's Class A
Common Stock shall average in excess of $15.00 per share for any
30 consecutive business days during the period commencing on the
Effective Date and ending 18 months from the Effective Date; or
(E) The Closing Price (as defined herein) of the Company's Class A
Common Stock shall average in excess of $18.00 per share for any
30 consecutive business days during the period commencing 18
months after the Effective Date and ending 36 months from the
Effective Date; or
(F) The Company is acquired by or merged into another entity in a
transaction in which stockholders of the Company receive per
share consideration at least equal to the levels set forth in (D)
or (E) above during the respective time periods set forth in (D)
or (E) above.
(b) As used in this Section 4, the term "Closing Price" shall be subject to
adjustments in the event of any stock dividend, stock distribution, stock split
or other similar event and shall mean:
(i) If the principal market for the Class A Common Stock is a national
securities exchange or the Nasdaq National Market, the closing sales
price of the Class A Common Stock as reported by such exchange or
market, or on a consolidated tape reflecting transactions on such
exchange or market; or
(ii) if the principal market for the Class A Common Stock is not a national
securities exchange or the Nasdaq National Market and the Class A
Common Stock is quoted on the Nasdaq SmallCap Market, the closing bid
price of the Class A Common Stock as quoted on the Nasdaq SmallCap
Market; or
-4-
<PAGE>
(iii) if the principal market for the Class A Common Stock is not a
national securities exchange or the Nasdaq National Market and the
Class A Common Stock is not quoted on the Nasdaq SmallCap Market, the
closing bid for the Class A Common Stock as reported by the National
Quotation Bureau, Inc. ("NQB") or at least two market makers in the
Class A Common Stock if quotations are not available from NQB but are
available from market makers.
(c) The determination of Minimum Pretax Income shall be determined by the
Company's independent public accountants in accordance with U.S. generally
accepted accounting principles provided that such determination is calculated
exclusive of any extraordinary earnings or charges (including any charges
incurred by the Company in connection with the release from escrow of the Escrow
Shares and any Escrow Property in respect thereof pursuant to the provisions of
this paragraph 4).
(d) In the event of any issuance (such issuance being herein called a
"Change of Shares") of additional shares of Class A Common Stock (or securities
convertible into or exchangeable for Class A Common Stock without the payment of
additional consideration, referred to as "Convertible Securities") after the
Effective Date, then each of the Minimum Pretax Income amounts set forth in
subparagraph (a) above shall be increased to an amount (the "Adjusted Minimum
Pretax Income") calculated in accordance with the formula set forth in
subparagraph (ii) below.
(i) For purposes of the foregoing paragraph, a Change of Shares shall
exclude shares of Class A Common Stock sold in the Public Offering or
Class A Common Stock or Convertible Securities issued in connection
with a stock split or stock dividend or distribution but shall include
any shares of Class A Common Stock or Convertible Securities that are
issued upon the exercise of the Class A Warrants or any other options
or warrants outstanding as of the Effective Date or granted after the
Effective Date by the Company (excluding options granted under the
Company's 1997 Stock Option Plan which, in the aggregate, do not
exceed 10% of the then
-5-
<PAGE>
outstanding shares of Class A Common Stock and Convertible Securities,
including Escrow Shares).
(ii) Each Adjusted Minimum Pretax Income amount shall be calculated by
multiplying the applicable Minimum Pretax Income amount prior to the
Change of Shares by a fraction, the numerator of which shall be the
weighted average number of shares of Class A Common Stock outstanding
during the fiscal year for which the determination is being made
(including the Escrow Shares and any shares of Class A Common Stock
issuable upon conversion of any Convertible Securities, but excluding
treasury stock), and the denominator of which shall be the sum of (x)
the number of shares of Class A Common Stock outstanding on the
Effective Date (including the Escrow Shares and any shares of Class A
Common Stock issuable upon conversion of Convertible Securities
outstanding immediately prior to the Effective Date) plus (y) the
number of shares of Class A Common Stock sold by the Company pursuant
to the Prospectus included in the Registration Statement, after
adjustment for any stock dividends, stock splits or similar events.
The Adjusted Minimum Pretax Income amounts shall be calculated
successively whenever such a Change of Shares occurs.
(f) If the Escrow Agent has not received the notice provided for in
Paragraph 5 hereof and delivered all of the Escrow Shares and related Escrow
Property in accordance with the provisions of this Paragraph 4 on or prior to
the earlier of (i) the date of the closing of a transaction referred to in
Subparagraph 4(a)(i)(F) or 4(a)(ii)(F) or (ii) September 30, 2000, the Escrow
Agent shall deliver the certificates representing all or the remaining Escrow
Shares, together with stock powers executed in blank, and any related Escrow
Property to the Company to be placed in the Company's treasury for cancellation
thereof as a contribution to capital. After such date, the Stockholders shall
have no further rights as a stockholder of the Company with respect to any of
the cancelled Escrow Shares.
5. Upon the occurrence or satisfaction of any of the events or conditions
specified in Paragraph 4 hereof, the Company shall promptly give appropriate
notice to the Escrow Agent, the Underwriter (and if the transfer agent of the
Company's Common Stock is
-6-
<PAGE>
different from the Escrow Agent, such transfer agent) and present such
documentation as is reasonably required by the Escrow Agent to evidence the
satisfaction of such conditions.
6. It is understood and agreed by the parties to this Agreement as follows:
(a) The Escrow Agent is not and shall not be deemed to be a trustee
for any party for any purpose and is merely acting as a depository and in a
ministerial capacity hereunder with the limited duties herein prescribed.
(b) The Escrow Agent does not have and shall not be deemed to have any
responsibility in respect of any instruction, certificate or notice delivered to
it or of the Escrow Shares or any related Escrow Property other than faithfully
to carry out the obligations undertaken in this Agreement and to follow the
directions in such instruction or notice provided in accordance with the terms
hereof.
(c) The Escrow Agent is not and shall not be deemed to be liable for
any action taken or omitted by it in good faith and may rely upon, and act in
accordance with, the advice of its counsel without liability on its part for any
action taken or omitted in accordance with such advice. In any event, its
liability hereunder shall be limited to liability for gross negligence, willful
misconduct or bad faith on its part.
(d) The Escrow Agent may conclusively rely upon and act in accordance
with any certificate, instruction, notice, letter, telegram, cablegram or other
written instrument believed by it to be genuine and to have been signed by the
proper party or parties.
(e) The Company agrees (i) to pay the Escrow Agent's reasonable fees
and to reimburse it for its reasonable expenses including attorney's fees
incurred in connection with duties hereunder and (ii) to save harmless,
indemnify and defend the Escrow Agent for,
-7-
<PAGE>
from and against any loss, damage, liability, judgment, cost and expense
whatsoever, including counsel fees, suffered or incurred by it by reason of, or
on account of, any misrepresentation made to it or its status or activities as
Escrow Agent under this Agreement except for any loss, damage, liability,
judgment, cost or expense resulting from gross negligence, willful misconduct or
bad faith on the part of the Escrow Agent. The obligation of the Escrow Agent to
deliver the Escrow Shares to either the Stockholders or the Company shall be
subject to the prior satisfaction upon demand from the Escrow Agent, of the
Company's obligations to so save harmless, indemnify and defend the Escrow Agent
and to reimburse the Escrow Agent or otherwise pay its fees and expenses
hereunder.
(f) The Escrow Agent shall not be required to defend any legal
proceeding which may be instituted against it in respect of the subject matter
of this Agreement unless requested to do so by the Stockholders and indemnified
to the Escrow Agent's satisfaction against the cost and expense of such defense
by the party requesting such defense. If any such legal proceeding is instituted
against it, the Escrow Agent agrees promptly to give notice of such proceeding
to the Stockholders and the Company. The Escrow Agent shall not be required to
institute legal proceedings of any kind.
(g) The Escrow Agent shall not, by act, delay, omission or otherwise,
be deemed to have waived any right or remedy it may have either under this
Agreement or generally, unless such waiver be in writing, and no waiver shall be
valid unless it is in writing, signed by the Escrow Agent, and only to the
extent expressly therein set forth. A waiver by the Escrow Agent under the term
of this Agreement shall not be construed as a bar to, or waiver of, the same or
any other such right or remedy which it would otherwise have on any other
occasion.
-8-
<PAGE>
(h) The Escrow Agent may resign as such hereunder by giving 30 days
written notice thereof to the Stockholders and the Company. Within 20 days after
receipt of such notice, the Stockholders and the Company shall furnish to the
Escrow Agent written instructions for the release of the Escrow Shares and any
related Escrow Property (if such shares and property, if any, have not yet been
released pursuant to Paragraph 4 hereof) to a substitute Escrow Agent which
(whether designated by written instructions from the Stockholders and the
Company jointly or in the absence thereof by instructions from a court of
competent jurisdiction to the Escrow Agent) shall be a bank or trust company
organized and doing business under the laws of the United States or any state
thereof. Such substitute Escrow Agent shall thereafter hold any Escrow Shares
and any related Escrow Property received by it pursuant to the terms of this
Agreement and otherwise act hereunder as if it were the Escrow Agent originally
named herein. The Escrow Agent's duties and responsibilities hereunder shall
terminate upon the release of all shares then held in escrow according to such
written instruction or upon such delivery as herein provided. This Agreement
shall not otherwise be assignable by the Escrow Agent without the prior written
consent of the Company.
7. The Stockholders shall have the sole power to vote the Escrow Shares and
any securities deposited in escrow under this Agreement while they are being
held pursuant to this Agreement.
8. (a) Each of the Stockholders agrees that during the term of this
Agreement he will not sell, transfer, hypothecate, negotiate, pledge, assign,
encumber or otherwise dispose of any or all of the Escrow Shares set forth
opposite his name on Exhibit A hereto, unless and until the Company shall have
given the notice as provided in Paragraph 5.
-9-
<PAGE>
This restriction shall not be applicable to transfers upon death, by operation
of law, to family members of the Stockholders or to any trust for the benefit of
the Stockholders, provided that such transferees agree to be bound by the
provisions of this Agreement.
(b) The Stockholders will take any action necessary or appropriate,
including the execution of any further documents or agreements, in order to
effectuate the transfer of the Escrow Shares to the Company if required pursuant
to the provisions of this Agreement.
9. Each of the certificates representing the Escrow Shares will bear
legends to the following effect, as well as any other legends required by
applicable law:
(a) "The sale, transfer, hypothecation, negotiation, pledge, assignment,
encumbrance or other disposition of the shares evidenced by this
certificate are restricted by and are subject to all of the terms,
conditions and provisions of a certain Amended and Restated Escrow
Agreement entered into among HealthCore Medical Solutions, Inc. and
its Stockholders, dated as of April __, 1997, a copy of which may be
obtained from the Company. No transfer, sale or other disposition of
these shares may be made unless specific conditions of such agreement
are satisfied.
(b) "The shares evidenced by this certificate have not been registered
under the Securities Act of 1933, as amended. No transfer, sale or
other disposition of these shares may be made unless a registration
statement with respect to these shares has become effective under said
act, or the Company is furnished with an opinion of counsel
satisfactory in form and substance to it that such registration is not
required."
Upon execution of this Agreement, the Company shall direct the transfer
agent for the Company to place stop transfer orders with respect to the Escrow
Shares and to maintain such orders in effect until the transfer agent and the
Underwriter shall have received written notice from the Company as provided in
Paragraph 5.
-10-
<PAGE>
10. Each notice, instruction or other certificate required or permitted by
the terms hereof shall be in writing and shall be communicated by personal
delivery, fax or registered or certified mail, return receipt requested, to the
parties hereto at the addresses set forth below, or at such other address as any
of them may designate by notice to each of the others:
(i) If to the Company, to:
HealthCore Medical Solutions, Inc.
11904 Blue Ridge Boulevard
Grandview, Missouri 64030
Att: Neal J. Polan, Chairman
(ii) If to the Stockholders to their respective addresses
as set forth on Exhibit A hereto.
(iii) If to the Escrow Agent, to:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(iv) If to the Underwriter, to:
D.H. Blair Investment Banking Corp.
44 Wall Street
New York, New York 10005
Att: Martin A. Bell, Esq.
Fax: 212-514-7837
All notices, instructions or certificates given hereunder to the Escrow Agent
shall be effective upon receipt by the Escrow Agent. All notices given hereunder
by the Escrow Agent shall be effective and deemed received upon personal
delivery or transmission by fax or, if mailed, five (5) calendar days after
mailing by the Escrow Agent.
A copy of all communications sent to the Company, the Stockholders or the
Escrow Agent shall be sent by ordinary mail to Bachner, Tally, Polevoy & Misher
LLP, 380
-11-
<PAGE>
Madison Avenue, New York, NY 10017, Attention: Marc S. Goldfarb, Esq. A copy of
all communications sent to the Underwriter shall be sent by ordinary mail to
Paul, Hastings, Janofsky & Walker LLP, 399 Park Avenue, 31st Floor, New York, NY
10022, Attention: Barry A. Brooks, Esq.
11. Except as set forth in paragraph 12 hereof, this Agreement may not be
modified, altered or amended in any material respect or cancelled or terminated
except with the prior consent of the holders of two-thirds of the outstanding
shares of Common Stock of the Company, other than shares held by the
Stockholders.
12. In the event that (i) the Registration Statement is not declared
effective by the SEC within one year from the date of the filing of the
Registration Statement with the SEC or (ii) the Registration Statement is not
declared effective by the SEC within six months from the date of the filing of
the Registration Statement with the SEC and such delay was caused by the failure
of the Underwriter to reasonably and in good faith proceed diligently to
consummate the Public Offering or (iii) the Public Offering is not consummated
within twenty-five (25) days of the Effective Date of the Registration
Statement, this Agreement shall terminate and be of no further force and effect
and the Escrow Agent, upon written notice from both the Company and the
Underwriter in accordance with paragraph 10 hereof of such termination, will
return the Escrow Shares and any Escrow Property in respect thereof to the
Stockholders.
13. This Agreement shall be governed by and construed in accordance with
the laws of New York and shall be binding upon and inure to the benefit of all
parties hereto and their respective successors in interest and assigns.
-12-
<PAGE>
14. This Agreement may be executed in several counterparts, which taken
together shall constitute a single instrument.
-13-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Escrow Agreement to be executed by their duly authorized officers on
the day and year first above written.
HEALTHCORE MEDICAL SOLUTIONS, INC.
By: /s/ Neal J. Polan
------------------------------
Title: Chairman
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By: /s/ Herbert J. Lemmer
------------------------------
Title: Vice President
STOCKHOLDERS:
/s/ Neal J. Polan /s/ Neal J. Polan
- ---------------------------------- ----------------------------------
Neal J. Polan Neal J. Polan, as Custodian
for Barrett Polan
/s/ Theodore W. White, Jr. /s/ Ben E. Randall
- ---------------------------------- ----------------------------------
Theodore W. White, Jr. Ben E. Randall
/s/ Ronald F. Torchia /s/ Robert E. Hunter
- ---------------------------------- ----------------------------------
Ronald F. Torchia Robert E. Hunter
/s/ Orville C. Walker /s/ Mary C. Walker
- ---------------------------------- ----------------------------------
Orville C. Walker Mary C. Walker
/s/ Donald Umbach /s/ Patricia L. Umbach
- ---------------------------------- ----------------------------------
Donald Umbach, Trustee under the Patricia L. Umbach, Trustee under
Donald E. Umbach Revocable Trust the Patricia L. Umbach Revocable Trust
<PAGE>
/s/ Michael J. Reichert /s/ Jean A. Reichert
- ---------------------------------- ----------------------------------
Michael J. Reichert, Co-Trustee under Jean A. Reichert, Co-Trustee under the
the Michael J. Reichert Revocable Trust Michael J. Reichert Revocable Trust
/s/ George DiCostanzo /s/ Howard Walfish
- ---------------------------------- ----------------------------------
George DiCostanzo 1164 Associates
/s/ Annette Lebor
- ----------------------------------
Annette Lebor
<PAGE>
EXHIBIT A
STOCKHOLDERS' LIST
Name and Address Stock
of Stockholder (1) Certificate Nos. Number of Escrow Shares
- -------------------- ---------------- -----------------------
[Tier 1] Tier 2] [Tier 1] [Tier 2]
Neal J. Polan 1 2 56,000* 70,000*
Neal J. Polan, as Custodian 3 4 16,000* 20,000*
for Barrett Polan
Theodore W. White, Jr. 5 6 48,000* 60,000*
Ben E. Randall 7 8 38,000 47,500
Ronald F. Torchia 9 10 38,000 47,500
Donald E. Umbach, 11 12 22,000 27,500
Trustee under the
Donald E. Umbach
Revocable Trust
Patricia L. Umbach, 13 14 22,000 27,500
Trustee under the
Patricia L. Umbach
Revocable Trust
Michael J. Reichert and 15 16 44,000 55,000
Jean A. Reichert,
Trustees under the
Michael J. Reichert
Revocable Trust
Robert Hunter 17 18 44,000 55,000
Orville C. Walker and 19 20 12,000 15,000
Mary C. Walker
George DiCostanzo 21 22 8,000 10,000
1164 Associates 23 24 8,000 10,000
<PAGE>
Annette Lebor 25 26 44,000 55,000
====== ======
TOTAL 400,000 500,000
- ----------------
* Constitutes Class B Common Stock
AGREEMENT
THIS AGREEMENT is made on the _______ day of ___________, 199_, between
HealthCore Medical Solutions, Inc., a Delaware corporation with its principal
offices located in Grandview, Missouri ("HealthCore") ______________ and
_____________, a corporation ("Provider").
WHEREAS, Provider has developed and operates a system of ___________; and
WHEREAS, HealthCore has developed a program (the "Program") to provide
reduced prices and/or other benefits for various products and services to its
enrollees through certain provider networks selected by HealthCore, and the
parties desire that Provider provide certain services for HealthCore's enrollees
as described herein.
NOW, THEREFORE, for and in consideration of the mutual agreements contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. As used herein, the term "Participant" means an enrollee in HealthCore's
Program regarding whom HealthCore has notified Provider that the enrollee is
entitled to receive the rights, prices and benefits to be provided by and/or
through Provider hereunder.
2. Effective as of _______ __, 19__, Provider shall act as a provider in
HealthCore's Program. Among other things, Provider, at its sole cost, shall
provide the following services:
A. Provide to all Participants all rights, prices and benefits described on
the Provider Benefit Schedule, attached hereto as Exhibit A and by
reference incorporated herein, unless HealthCore and Provider mutually
agree upon a change therein;
B. Provide all personnel, equipment, and facilities necessary to ensure
that all Participants receive all services, rights and benefits to which
they are entitled hereunder;
C. Maintain complete, current and accurate listings of provider locations
and make the information on that list reasonably available to HealthCore,
who may then disclose such portions of that information as it considers
appropriate to the Participants;
D. Reasonably cooperate with HealthCore with respect to the services that
Participants are to receive;
1
<PAGE>
E. Supply HealthCore with usage data at least every calendar quarter
beginning with the quarter starting _____________, 19___ which shall
specifically include the names of all Participants receiving benefits
hereunder, their membership and group numbers, the dates of usage and
benefits received, the amount paid for the benefits and the usual and
customary charge for those benefits;
F. Refer to HealthCore any Participants who have a controversy regarding
HealthCore's Program;
G. Train appropriate Provider personnel regarding HealthCore's Program;
H. Supply HealthCore with information deemed by Provider and HealthCore to
be appropriate for describing to Participants, and potential Participants,
the services to be provided by Provider;
I. Such other services as may be mutually agreed upon from time to time by
HealthCore and Provider.
3. HealthCore, at its sole cost, shall provide the following services
regarding the Program:
A. Market its Program to potential Participants through sources selected by
HealthCore, enroll Participants, and collect enrollment fees in amounts
determined by HealthCore which, except as specifically provided herein,
shall be the sole property of HealthCore;
B. Establish a method for Provider to determine the identity of
Participants and provide to Provider, in a format mutually agreed upon by
Provider and HealthCore, information reasonably required by Provider to
include Participants within Provider's system;
C. Provide to each Participant a card in a format reasonably acceptable to
Provider, which Provider will honor to permit the Participant to access
Provider's benefits system; and
D. Such other services as may be mutually agreed upon by HealthCore and
Provider from time to time.
4. HealthCore's Program shall operate under the name or names selected by
HealthCore from time to time.
5. This Agreement shall not create a partnership, joint venture or similar
relationship between HealthCore and Provider, who for all purposes shall be
independent contractors. Nothing contained herein shall be construed to the
contrary.
2
<PAGE>
6. HealthCore shall be the sole owner of all trademarks, tradenames, and
similar names and marks used regarding its Program, and uses of any such names
and marks by Provider shall accrue to the benefit of HealthCore. Furthermore,
HealthCore shall remain the sole owner of all equipment, information, data,
materials, and enrollments in the Program, all of which shall be promptly
returned by Provider to HealthCore if for any reason this Agreement terminates,
subject to any rights Provider may have pursuant to this Agreement.
7. Provider shall be the sole owner of trademarks, tradenames, and similar
names and marks used regarding its system, and uses of any such names and marks
by HealthCore shall accrue to the benefit of Provider.
8. Subject to Paragraph 9 below, this Agreement shall remain in effect
until terminated as provided below. Subject to the following sentence, either
party may terminate this Agreement with or without cause at any time upon ninety
(90) days written notice to the other party, but neither party shall be
permitted to give such termination notice earlier than _________ (_____) years
after the execution date of this Agreement. Notwithstanding the foregoing,
HealthCore may sooner terminate this Agreement at such time, if any, as it
generally terminates the benefits portion of its Program.
9. Notwithstanding any termination of HealthCore's Program, or of this
Agreement, HealthCore and Provider shall continue to perform their duties
hereunder with regard to Participants who enroll in HealthCore's Program prior
to the termination of this Agreement, specifically including but not limited to
Provider continuing to provide benefits for the entire term of each
Participant's enrollment.
10. A. Provider shall not use the name HealthCore, HealthCare Solutions
Card, or any other trademark (whether or not registered) now or in the
future associated with HealthCore's Program, or any materials,
literature, brochures, or other documents regarding that Program,
without the prior written approval of HealthCore, which approval shall
not be unreasonably withheld.
B. HealthCore shall not use the name , or any other tradename (whether
or not registered) now or in the future associated with Provider's
system, or any materials, literature, brochures, or other documents
regarding that system, without the prior written approval of Provider,
which approval shall not be unreasonably withheld.
3
<PAGE>
11. Except as otherwise required by law or this Agreement all material,
forms, data, manuals, records, reports and other information regarding
Participants and their participation in HealthCore's Program shall be the
property of HealthCore, and shall constitute confidential proprietary business
information of HealthCore which shall be maintained in confidence by Provider on
behalf of HealthCore. Upon termination of participation in the Program for any
reason by Provider, Provider shall promptly return to HealthCore all material
regarding HealthCore's Program, including brochures, reports, data, supplies,
equipment and manuals which are still in Provider's possession or control, but
Provider shall specifically not be obligated to retrieve and/or return any such
material which has already been distributed by it. However, Provider shall have
the right, both during and after any termination of this Agreement, to use data
derived from its performance under this Agreement as part of cumulative
summaries of data for general business purposes, but in no event shall any such
use include names, addresses, or any other information regarding specific
Participants or groups of Participants, transactions or other such noncumulative
uses.
12. Except as otherwise required by law or this Agreement all material,
forms, data, manuals, records, reports and other information regarding
Provider's system shall be the property of Provider, and shall constitute
confidential proprietary business information of Provider which shall be
maintained in confidence by HealthCore on behalf of Provider. Upon termination
of Provider's participation in HealthCore's Program for any reason, HealthCore
shall promptly return to Provider all material regarding Provider's system,
including brochures, reports, data, supplies, equipment and manuals, which are
still in HealthCore's possession or control, but HealthCore shall specifically
not be obligated to retrieve and/or return any such material which has already
been distributed by it. However, HealthCore shall have the right, both during
and after any termination of this Agreement, to use data regarding Provider's
system derived from its performance under this Agreement as part of cumulative
summaries of data for general business purposes.
13. HealthCore shall indemnify, defend and hold harmless Provider and its
officers, directors, shareholders, employees, attorneys and agents from and
against any claims, liabilities, damages, expenses, duties, obligations, actions
and causes of action directly or indirectly relating to or resulting from any
negligence, actions, transactions, occurrences, omissions or other failure by
HealthCore and/or its agents, representatives or subcontractors to properly
perform their obligations hereunder or with regard to the services to be
provided as described herein, which is not materially contributed to by the
negligence or failure to perform its obligations hereunder by Provider.
14. Provider shall indemnify, defend and hold harmless HealthCore and its
assignee, if any, and their officers, directors,
4
<PAGE>
shareholders, employees, attorneys and agents from and against any claims,
liabilities, damages, expenses, duties, obligations, actions and causes of
action directly or indirectly relating to or resulting from any negligence,
actions, transactions, occurrences, omissions or other failure by Provider
and/or its agents, representatives, subcontractors or pharmacies to properly
perform their obligations hereunder or with regard to the services to be
provided as described herein (specifically including, but not limited to their
duties under Paragraph 15 below) which is not materially contributed to by the
negligence or failure to perform its obligations hereunder by HealthCore (or its
assignee).
15. Provider shall be solely responsible for ensuring that all aspects of
its system fully and timely comply with all legal obligations and requirements
in all jurisdictions and all other applicable requirements and standards.
16. Throughout the term of this Agreement, Provider shall maintain in
effect the following insurance coverage with insurance companies acceptable to
HealthCore: ___________________________________________________________________
___________________________________. Provider shall cause HealthCore to be
included as an additional named insured on such insurance, and shall deliver
certificates of the insurance to HealthCore.
17. This Agreement is non-exclusive. Both parties reserve the right to
enter into agreements for and with, and to participate in, other benefit
programs and discount programs, whether or not the other party to this Agreement
is affiliated with such other programs.
18. Under no circumstance shall HealthCore be obligated to pay to Provider,
or reimburse Provider for, the cost of any purchases or claims relating to any
Participant, or any other amount whatsoever, which HealthCore does not
specifically agree to pay hereunder.
19. During the term of this Agreement, and for a period of eighteen (18)
months after the termination hereof, or for so long as HealthCore's Program is
still in existence, whichever is shorter, Provider shall not knowingly solicit,
directly or indirectly, other than through HealthCore, any of the following to
participate in any manner in Provider's system:
A. Any employer or other representative of a group of persons who were
Participants during the term of this Agreement;
B. Any broker, agent or other representative that assisted with marketing
HealthCore's Program during the term of this Agreement to an entity
mentioned
5
<PAGE>
in Sub-Paragraph A above and solely with regard to such entity; or
C. Any individual who is or was a Participant.
20. In the event that any provision of this Agreement shall be held to be
illegal or otherwise unenforceable for any reason whatsoever, such provision
shall be severed and the entire Agreement shall not fail on account thereof and
the balance of the Agreement shall continue in full force and effect provided,
however, if the severing of such provision results in a material alteration of
this Agreement, the remaining provisions of this Agreement shall be adjusted
equitably so that no party benefits disproportionately.
21. This Agreement may not be assigned by either party without the written
consent of the other party, except that the rights and duties of HealthCore may
be assigned to any subsidiary or parent entity or any other entity to which
substantially all of the assets of HealthCore may be transferred.
22. This Agreement shall supersede and replace all prior agreements between
the parties, all of which shall be deemed canceled as of the effective date of
this Agreement.
23. All notices hereunder shall be considered sufficiently given when
actually delivered or when sent and received by facsimile transmission; or three
(3) business days after being deposited in the U.S. Mail, postage prepaid,
certified mail return receipt requested; addressed as follows:
A. To Provider:
_____________________________________________
_____________________________________________
_____________________________________________
_____________________________________________
B. To HealthCore:
HealthCore Medical Solutions, Inc.
Attn: Chief Operating Officer
11904 Blue Ridge Blvd.
Grandview, Missouri 64030
Facsimile No. (816) 765-6573
Either party, by notice to the other party, may change the address(es)
and/or number(s) to which notices to it are to be given.
6
<PAGE>
24. This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their successors and permitted assigns, and shall be governed
by the laws of, and for all purposes considered to have been entered into in,
the State of Missouri.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year written above.
HEALTHCORE MEDICAL SOLUTIONS, INC.
By ___________________________
___________________________________
By ___________________________
7
<PAGE>
EXHIBIT A
PROVIDER BENEFIT SCHEDULE
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT, made and entered into as of the _______ day
of ________________, 1997 ("Agreement"), by and between HealthCore Medical
Solutions, Inc., a Delaware corporation (the "Corporation"), and
__________________________ ( Indemnitee ):
WHEREAS, highly competent persons have become more reluctant to serve
corporations as directors, officers, or in other capacities, unless they are
provided with better protection from the risk of claims and actions against them
arising out of their service to and activities on behalf of such corporations;
and
WHEREAS, the Board of Directors of the Corporation (the "Board") has
determined that the ability to attract and retain such persons is in the best
interests of the Corporation's shareholders and that such persons should be
assured that they will have better protection in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Corporation to
obligate itself contractually to indemnify such persons to the fullest extent
permitted by applicable law, so that such persons will serve or continue to
serve the Corporation free from undue concern that they will not be adequately
indemnified; and
WHEREAS, this Agreement is a supplement to and in furtherance of Article
Nine of the Certificate of Incorporation of the Corporation (the "Certificate");
any rights granted under the Certificate and any resolutions adopted pursuant
thereto shall not be deemed to be a substitute therefor nor to diminish or
abrogate any rights of Indemnitee thereunder; and
WHEREAS, Indemnitee may serve, continue to serve and to take on additional
service for or on behalf of the Corporation;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Corporation and Indemnitee do hereby covenant and agree as
follows:
Section 1. Definitions. For purposes of this Agreement:
(a) "Change in Control" means a change in control of the Corporation of a
nature that would be required to be reported in response to Item 6(e) of
Schedule l4A of Regulation l4A (or in response to any similar item on any
similar schedule or form) promulgated under the Securities Exchange Act of 1934
(the "Act"), whether or not the Corporation is then subject to such reporting
requirement; provided, however, that, without limitation, such a Change in
Control shall be deemed to have occurred if (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial
owner" (as defined in Rule l3d-3 under the Act), directly or indirectly, of
securities of the Corporation representing 20% or
<PAGE>
more of the combined voting power of the Corporation's then outstanding
securities without the prior approval of at least two-thirds of the members of
the Board in office immediately prior to such person attaining such percentage
interest; (ii) the Corporation is a party to a merger, consolidation, sale of
assets or other reorganization, or a proxy contest, as a consequence of which
members of the Board in office immediately prior to such transaction or event
constitute less than a majority of the Board thereafter; or (iii) during any
period of two consecutive years, individuals who at the beginning of such period
constituted the Board (including for this purpose any new director whose
election or nomination for election by the Corporation's shareholders was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of such period) cease for any reason to
constitute at least a majority of the Board.
(b) "Corporate Status" means the status of a person who is or was a
director, officer, employee, agent or fiduciary of the Corporation or any
majority owned subsidiary or of any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise which such person is
or was serving at the request of the Corporation.
(c) "Disinterested Director" means a director of the Corporation who is not
and was not a party to the Proceeding in respect of which indemnification is
sought by Indemnitee.
(d) "Expenses" means all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating, or being or preparing to be a witness in a
Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a law firm, that
is experienced in matters of corporation law and neither presently is, nor in
the past five years has been, retained to represent: (i) the Corporation or
Indemnitee in any other matter material to either such party, or (ii) any other
party to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the
Corporation or Indemnitee in an action to determine Indemnitee's rights under
this Agreement.
(f) "Proceeding" means any action, suit, arbitration, alternate dispute
resolution mechanism, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, except one
initiated by an Indemnitee pursuant to Section 11 of this Agreement to enforce
his rights under this Agreement.
Section 2. Services by Indemnitee. Indemnitee may at any time and for any
reason resign from any position (subject to any other contractual obligation or
any obligation
-2-
<PAGE>
imposed by operation of law), without affecting the indemnification hereunder,
except as specifically provided in this agreement.
Section 3. Indemnification - General. The Corporation shall indemnify, and
advance Expenses to, Indemnitee as provided in this Agreement to the fullest
extent permitted by applicable law in effect on the date hereof and to such
greater extent as applicable law may thereafter from time to time permit. The
rights of Indemnitee provided under the preceding sentence shall include, but
shall not be limited to, the rights set forth in the other Sections of this
Agreement.
Section 4. Proceedings Other Than Proceedings by or in the Right of the
Corporation. Indemnitee shall be entitled to the rights of indemnification
provided in this Section if, by reason of his Corporate Status, he is, or is
threatened to be made, a party to any threatened, pending, or completed
Proceeding, other than a Proceeding by or in the right of the Corporation.
Pursuant to this Section, Indemnitee shall be indemnified against Expenses,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by his or on his behalf in connection with any such
Proceeding or any claim, issue or matter therein, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal Proceeding, had no
reasonable cause to believe his conduct was unlawful.
Section 5. Proceedings by or in the Right of the Corporation. Indemnitee
shall be entitled to the rights of indemnification provided in this Section if,
by reason of his Corporate Status, he is, or is threatened to be made, a party
to any threatened, pending, or completed Proceeding brought by or in the right
of the Corporation to procure a judgment in its favor. Pursuant to this Section,
Indemnitee shall be indemnified against Expenses, judgments, penalties, fines
and amounts paid in settlement actually and reasonably incurred by his or on his
behalf in connection with any such Proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Corporation. Notwithstanding the foregoing, no indemnification against such
Expenses shall be made in respect of any claim, issue or matter in any such
Proceeding as to which Indemnitee shall have been adjudged to be liable to the
Corporation if applicable law prohibits such indemnification unless the Chancery
Court of the State of Delaware or the court in which such Proceeding shall have
been brought or is pending, shall determine that indemnification against
Expenses may nevertheless be made by the Corporation.
Section 6. Indemnification for Expenses of a Party Who is Wholly or Partly
Successful. Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by his or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the Corporation
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by his or on his behalf in
-3-
<PAGE>
connection with each successfully resolved claim, issue or matter. For the
purposes of this Section and without limiting the foregoing, the termination of
any claim, issue or matter in any such Proceeding by dismissal, with or without
prejudice, shall be deemed to be a successful result as to such claim, issue or
matter.
Section 7. Indemnification for Expenses of a Witness. Notwithstanding any
other provision of this Agreement, to the extent that Indemnitee is, by reason
of his Corporate Status, a witness in any Proceeding, he shall be indemnified
against all Expenses actually and reasonably incurred by his or on his behalf in
connection therewith.
Section 8. Advancement of Expenses. The Corporation shall advance all
Expenses incurred by or on behalf of Indemnitee in connection with any
Proceeding within twenty days after the receipt by the Corporation of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses.
Section 9. Procedure for Determination of Entitlement to Indemnification.
(a) To obtain indemnification under this Agreement in connection with any
Proceeding, and for the duration thereof, Indemnitee shall submit to the
Corporation a written request, including therein or therewith such documentation
and information as is reasonably available to Indemnitee and is reasonably
necessary to determine whether and to what extent Indemnitee is entitled to
indemnification. The Secretary of the Corporation shall, promptly upon receipt
of any such request for indemnification, advise the Board in writing that
Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification
pursuant to Section 9(a) hereof, a determination, if required by applicable law,
with respect to Indemnitee's entitlement thereto shall be made in such case: (i)
if a Change in Control shall have occurred, by Independent Counsel (unless
Indemnitee shall request that such determination be made by the Board or the
shareholders, in which case in the manner provided for in clauses (ii) or (iii)
of this Section 9(b)) in a written opinion to the Board, a copy of which shall
be delivered to Indemnitee; (ii) if a Change of Control shall not have occurred,
(A) by the Board by a majority vote of a quorum consisting of Disinterested
Directors, or (B) if a quorum of the Board consisting of Disinterested Directors
is not obtainable, or even if such quorum is obtainable, if such quorum of
Disinterested Directors so directs, either (x) by Independent Counsel in a
written opinion to the Board, a copy of which shall be delivered to Indemnitee,
or (y) by the shareholders of the Corporation, as determined by such quorum of
Disinterested Directors, or a quorum of the Board, as the case may be; or (iii)
as provided in Section 10(b) of this Agreement. If it is so determined that
Indemnitee is entitled to indemnification, payment to Indemnitee shall be made
within twenty (20) days after such determination. Indemnitee shall cooperate
with the person,
-4-
<PAGE>
persons or entity making such determination with respect to Indemnitee's
entitlement to indemnification, including providing to such person, persons or
entity upon reasonable advance request any documentation or information which is
not privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such
determination shall be borne by the Corporation (irrespective of the
determination as to Indemnitee's entitlement to indemnification) and the
Corporation hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) If required, Independent Counsel shall be selected as follows: (i) if a
Change of Control shall not have occurred, Independent Counsel shall be selected
by the Board, and the Corporation shall give written notice to Indemnitee
advising his of the identity of Independent Counsel so selected; or (ii) if a
Change of Control shall have occurred, Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board, in which event (i) shall apply), and Indemnitee shall give written notice
to the Corporation advising it of the identity of Independent Counsel so
selected. In either event, Indemnitee or the Corporation, as the case may be,
may within 7 days after such written notice of selection shall have been given,
deliver to the Corporation or to Indemnitee, as the case may be, a written
objection to such selection. Such objection may be asserted only on the grounds
that Independent Counsel so selected does not meet the requirements of
"Independent Counsel" as defined in Section 1 of this Agreement, and the
objection shall set forth with particularity the factual basis of such
assertion. If such written objection is made, Independent Counsel so selected
may not serve as Independent Counsel unless and until a court has determined
that such objection is without merit. If, within 20 days after submission by
Indemnitee of a written request for indemnification pursuant to Section 9(a)
hereof, no Independent Counsel shall have been selected and not objected to,
either the Corporation or Indemnitee may petition the Chancery Court of the
State of Delaware, or other court of competent jurisdiction, for resolution of
any objection which shall have been made by the Corporation or Indemnitee to the
other's selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by such court or by such other person
as such court shall designate, and the person with respect to whom an objection
is so resolved or the person so appointed shall act as Independent Counsel under
Section 9(b) hereof. The Corporation shall pay any and all reasonable fees and
expenses of Independent Counsel incurred by such Independent Counsel in
connection with its actions pursuant to this Agreement, and the Corporation
shall pay all reasonable fees and expenses incident to the procedures of this
Section 9(c), regardless of the manner in which such Independent Counsel was
selected or appointed. Upon the due commencement date of any judicial proceeding
or arbitration pursuant to Section 11(a)(iii) of this Agreement, Independent
Counsel shall be discharged and relieved of any further responsibility in such
capacity (subject to the applicable standards of professional conduct then
prevailing).
-5-
<PAGE>
Section 10. Presumption and Effects of Certain Proceedings.
(a) If a Change of Control shall have occurred, in making a determination
with respect to entitlement to indemnification hereunder, the person or persons
or entity making such determination shall presume that Indemnitee is entitled to
indemnification under this Agreement if Indemnitee has submitted a request for
indemnification in accordance with Section 9(a) of this Agreement, and the
Corporation shall have the burden of proof to overcome that presumption in
connection with the making by any person, persons or entity of any determination
contrary to that presumption.
(b) If the person, persons or entity empowered or selected under Section 9
of this Agreement to determine whether Indemnitee is entitled to indemnification
shall not have made a determination within 60 days after receipt by the
Corporation of the request therefor, the requisite determination of entitlement
to indemnification shall be deemed to have been made and Indemnitee shall be
entitled to such indemnification, absent (i) a misstatement by Indemnitee of a
material fact, or an omission of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the request for
indemnification, or (ii) prohibition of such indemnification under applicable
law; provided, however, that such 60-day period may be extended for a reasonable
time, not to exceed an additional 30 days, if the person, persons or entity
making the determination with respect to entitlement to indemnification in good
faith require(s) such additional time for the obtaining or evaluating of
documentation and/or information relating thereto; and provided, further, that
the foregoing provisions of this Section 10(b) shall not apply (i) if the
determination of entitlement to indemnification is to be made by the
shareholders pursuant to Section 9(b) of this Agreement and if (A) within 15
days after receipt by the Corporation of the request for such determination the
Board has resolved to submit such determination to the shareholders for their
consideration at an annual meeting thereof to be held within 75 days after such
receipt and such determination is made thereat, or (B) a special meeting of
shareholders is called within 15 days after such receipt for the purpose of
making such determination, such meeting is held for such purpose within 60 days
after having been so called and such determination is made thereat, or (ii) if
the determination of entitlement to indemnification is to be made by Independent
Counsel pursuant to Section 9(b) of this Agreement.
Section 11. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to Section 9 of
this Agreement, (ii) advancement of Expenses is not timely made pursuant to
Section 8 of this Agreement, (iii) the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 9(b) of
this Agreement and such determination shall not have been made and delivered in
a written opinion within 90 days after receipt by the Corporation of the request
for indemnification, (iv) payment of indemnification is not made pursuant to
Section 7 of this Agreement within ten (10) days after receipt by the
Corporation of a written request therefor, or (v) payment of indemnification is
not made within ten (10) days after a determination has been made that
Indemnitee is entitled to indemnification or such
-6-
<PAGE>
determination is deemed to have been made pursuant to Section 9 or 10 of this
Agreement, Indemnitee shall be entitled to an adjudication in the Chancery Court
of the State of Delaware, or in any other court of competent jurisdiction, of
his entitlement to such indemnification or advancement of Expenses.
Alternatively, Indemnitee, at his option, may seek an award in arbitration to be
conducted by a single arbitrator in Delaware. Indemnitee shall commence such
proceeding seeking an adjudication or an award in arbitration within 180 days
following the date on which Indemnitee first has the right to commence such
proceeding pursuant to this Section 11(a). The Corporation shall not oppose
Indemnitee's right to seek any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made pursuant to
Section 9 of this Agreement that Indemnitee is not entitled to indemnification,
any judicial proceeding or arbitration commenced pursuant to this Section shall
be conducted in all respects as a de novo trial or arbitration on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination. If a
Change of Control shall have occurred in any judicial proceeding or arbitration
commenced pursuant to this Section, the Corporation shall have the burden of
proving that Indemnitee is not entitled to indemnification or advancement of
Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have been made
pursuant to Section 9 or 10 of this Agreement that Indemnitee is entitled to
indemnification, the Corporation shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section, absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii)
prohibition of such indemnification under applicable law.
(d) In the event that Indemnitee, pursuant to this Section, seeks a
judicial adjudication of, or an award in arbitration to enforce, his rights
under, or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Corporation, and shall be indemnified by the
Corporation against, any and all expenses (of the kinds described in the
definition of Expenses) actually and reasonably incurred by his in such judicial
adjudication or arbitration, but only if he prevails therein. If it shall be
determined in such judicial adjudication or arbitration that Indemnitee is
entitled to receive part but not all of the indemnification or advancement of
expenses sought, the expenses incurred by Indemnitee in connection with such
judicial adjudication or arbitration shall be appropriately prorated.
Section 12. Non-Exclusivity; Survival of Rights; Insurance; Subrogation.
(a) The rights of indemnification and to receive advancement of Expenses as
provided by this Agreement shall not be deemed exclusive of any other rights to
which Indemnitee may at any time be entitled under applicable law, the
certificate of incorporation or by-laws of the Corporation, any agreement, a
vote of shareholders for a resolution of directors, or otherwise. No termination
of this Agreement pursuant to Section 13 herein shall be effective
-7-
<PAGE>
as to any Indemnitee with respect to any action taken or omitted by such
Indemnitee in his Corporate Status prior to such termination and he shall
continue to be fully indemnified for such actions or omissions in accordance
with the terms of this Agreement.
(b) To the extent that the Corporation maintains an insurance policy or
policies ("an O&D Policy") providing liability insurance for directors,
officers, employees, agents or fiduciaries of the Corporation or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person serves at the request of the Corporation,
Indemnitee shall be covered by such policy or policies in accordance with its or
their terms to the maximum extent of the coverage available for any such
director, officer, employee, agent or fiduciary under such policy or policies.
(c) In the event of any payment under this Agreement, the Corporation shall
be subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and take all action necessary
to secure such rights, including execution of such documents as are necessary to
enable the Corporation to bring suit to enforce such rights.
(d) The Corporation shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
Section 13. Duration of Agreement. This Agreement shall continue until and
terminate upon the later of (i) three (3) years after the date that Indemnitee
shall have ceased to serve as a director, officer, employee, agent or fiduciary
of the Corporation or of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which Indemnitee served at the
request of the Corporation; or (b) the final termination of all pending
Proceedings in respect of which Indemnitee is granted rights of indemnification
or advancement of Expenses hereunder and of any proceeding commenced by
Indemnitee pursuant to Section 11 of this Agreement. This Agreement shall be
binding upon the Corporation and its successors and assigs and shall inure to
the benefit of Indemnitee and his heirs, executors and administrators.
Section 14. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining provisions of
this Agreement (including, without limitation, each portion of any Section of
this Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
-8-
<PAGE>
Section 15. Exception to Right of Indemnification or Advancement of
Expenses. Except as provided in Section 11(d), Indemnitee shall not be entitled
to indemnification or advancement of Expenses under this Agreement with respect
to any Proceeding, or any claim therein, brought or made by him against the
Corporation.
Section 16. Identical Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.
Section 17. Headings. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
Section 18. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
Section 19. Notice by Indemnitee. Indemnitee agrees promptly to notify the
Corporation in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder.
Section 20. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom such
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, to:
(b) If to the Corporation, to:
HealthCore Medical Solutions, Inc.
11904 Blue Ridge Boulevard
Grandview, Missouri 64030
-9-
<PAGE>
or to such other address as may have been furnished to Indemnitee (address) by
the Corporation or to the Corporation by Indemnitee, as the case may be.
Section 21. Governing Law. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware.
Section 22. Miscellaneous. Use of the masculine pronoun shall be deemed to
include usage of the feminine pronoun where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
CORPORATION
HEALTHCORE MEDICAL SOLUTIONS, INC.
By:_______________________
Name:
Title:
INDEMNITEE
________________________
SUMMARY/SIGNATURE PAGE FOR
COMMERCIAL LEASE
THIS COMMERCIAL LEASE consists of: (i) this Summary/Signature Page, (ii)
the 14-page General Provisions of the Lease, and (iii) Special Provisions,
consisting of two (2) pages, together with the attached Corporate or Personal
Guarantees and Exhibits (if any), all of which are hereby incorporated as an
integral part of this Lease.
CENTER: GRANDVIEW VILLAGE in the City of GRANDVIEW, State of MISSOURI.
THIS LEASE IF VOID, UNLESS EXECUTED BY BOTH PARTIES WITHIN TEN (10) DAYS FROM
THE FOLLOWING DATE: JULY 30, 1995.
LANDLORD NAME: J.C. Nichols Company
TENANT NAME: TED WHITE AND RON TORCHIN d/b/a Invision TYPE OF ENTITY: _______
FEDERAL TAX I.D. OR SOCIAL SECURITY NUMBER(S):_________________________________
TENANT'S HOME OFFICE ADDRESS___________________________________________________
ITEM 1. PREMISES: a retail space known as 11904 So. Blue Ridge Extension, in the
Grandview Village Shopping Center, Grandview, Missouri, containing
approximately 4, 085 square feet.
ITEM 2. APPROXIMATE TERM: two (2) YEARS, three (3) MONTHS AND no(0) DAYS.
POSSESSION DATE: AUGUST 1, 1995
COMMENCEMENT DATE: The EARLIER of November 1, 1995 or the date Tenant
opens for business in the Premises.
EXPIRATION DATE: October 31, 1997
ITEM 3. RENT: MINIMUM OR BASE RENT: $1,365.00 PER MONTH FROM COMMENCEMENT DATE
THROUGH October 31, 1997.
(SEE SPECIAL PROVISIONS RIDER FOR RENT ABATEMENT)
PERCENTAGE RENT (IF ANY): NONE percent.
ITEM 4. RECEIPTED SUM: $722.00, as initial rent/consideration for this Lease.
(Commencing November 1, 1996)
ITEM 5. PERMITTED USE: telephone marketing office
ITEM 7. ESTIMATED OPERATING COSTS FOR CALENDAR YEAR 1995: $722.00 PER MONTH
COMMENCING NOVEMBER 1, 1995.
ITEM 8. SECURITY DEPOSIT: $ NONE
ITEM 9. SECTIONS OF THE GENERAL PROVISIONS NOT APPLICABLE TO THIS LEASE AND
THEREFORE DELETED: 4.1, 4.2, 6.1, 6.2, & 7.2.
IN CONSIDERATION FOR the mutual benefits and obligations described herein,
the parties have executed and entered into this Lease by and through their duly
authorized representatives or agents intending to be legally bound.
TENANT: LANDLORD
J.C. NICHOLS COMPANY
/s/ Ted White By: /s/ Michael T. Shields
- --------------------------- ------------------------------------
Ted White Michael T. Shields
Vice President
/s/ Ron Torchia
- ---------------------------
Ron Torchia
Date Signed: 8-2-95, 1995. Date Signed: August 3, 1995.
<PAGE>
SPECIAL PROVISIONS RIDER
The provisions of this Rider are incorporated as an integral part of that
certain Lease dated August 3, 1995, by and between J.C. NICHOLS COMPANY, as
landlord, and TED WHITE AND RON TORCHIN, as Tenant.
1. RENT ABATEMENT. (a) Except as otherwise provided in Subparagraph (b) below,
Tenant shall pay Landlord on the first day of each month, without notice or
demand, $1,365.00 per month as Base Rent specified in Item 3 of the
Summary/Signature Page.
(b) Notwithstanding the provisions in Subparagraph (a) above or elsewhere
in this Lease to the contrary, no Base Rent shall be payable for the months of
November, 1995, through and including October 1996 (the "Abatement Months");
provided that Tenant shall arrange to place all utilities serving the Premises
in its name effective on the earlier of August 1, 1995, or the date Tenant
receives the keys to the Premises; and provided further that Tenant continues to
fulfill all its other obligations under the Lease throughout the term. However,
the full amount of the Base Rent that would otherwise be due and payable during
the Abatement Months shall immediately become due and payable at Landlord's sole
option upon the occurrence of any event of default by Tenant under this Lease.
2. TENANT CONSTRUCTION. Except for Landlord's work specified in Paragraph 3
below, Tenant agrees to take the Premises and all existing improvements and
fixtures in their present condition, "AS IS" and without any improvements or
modifications of the part of Landlord. Tenant also agrees to perform or contract
for the interior renovation and updating of the Premises for Tenant's use, at
Tenant's sole cost and expense; provided that such work shall comply with all
applicable federal, state and local codes, statutes and regulations and that no
such renovation work shall be started unless or until: (a) Landlord has approved
in writing Tenant's plans and specifications for the work (for aesthetic and
non-code purposes), (b) Tenant and its contractor and subcontractors have
secured all necessary permits and approvals from the City of Grandview,
Missouri, and other applicable governmental authorities, and (c) Tenant has
furnished Landlord certificates of insurance naming Landlord as and additional
insured and evidencing coverage for worker's compensation and for liability
insurance in the minimum sum of FIVE HUNDRED THOUSAND DOLLARS ($500,000) for
bodily injury and ONE HUNDRED THOUSAND DOLLARS ($100,000) for property damage.
Tenant further covenants that, except for any good faith dispute, it will not
permit or suffer the filing of any claim for a mechanic's or materialmen's lien
against the property and that it will promptly pay when due all bills and
invoices for labor done and materials delivered to the Premises. The filing of
any notice to Landlord of any such lien shall constitute a default under this
Lease, unless or until Tenant secures its release of record (or posts with
Landlord an acceptable surety bond endorsement, letter of credit, or cash in the
minimum amount of 1 1/2 times the amount claimed by the mechanic or materialman)
within sixty (60) days after the filing of any such lien notice. In any event,
Tenant shall defend, indemnify and hold harmless the Landlord from all costs
(including attorneys' fees) in connection with any and all such lien claims. In
no event and under no
1
<PAGE>
circumstances shall Tenant be deemed to be an agent or partner of Landlord for
purposes of improvements or otherwise.
3. LANDLORD'S WORK. Landlord shall arrange and pry for the remodeling of the
Premises using building standard materials as follows:
a) Install two restrooms in the existing rough-in locations within the
Premises.
b) Paint all existing perimeter walls a white egg color.
c) Confirm the existing air conditioning and electrical system is in
working order.
In the event of a default by Tenant under this Lease, then the unamortized
balance of Landlord's costs for such improvements [amortized at twelve percent
(12%) per annum over the twenty-four (24) month term of this Lease] shall
immediately become due and payable by Tenant as Additional Rent, notwithstanding
any other provisions herein.
4. SIGNAGE. All signage shall be the responsibility of Tenant and shall be
subject to Landlord's approval.
5. BROKERAGE. Tenant hereby acknowledges and understands that J.C. Nichols
Company ("Broker") and William P. Service, Jr., its agent, have represented the
property owner in this transaction and that they do not (and have not purported
to) represent Tenant in any manner. Landlord hereby agrees to indemnify and hold
Tenant harmless from all claims for a commission or finder's fee by said Broker
and its agents. Tenant agrees to indemnify and hold Landlord harmless from all
other claims for a commission or finder's fee arising from contacts with Tenant.
(Tenant) (Landlord)
J.C. NICHOLS COMPANY
/s/ Ted White By /s/ Michael T. Shields
- ----------------------------- ------------------------------------
Ted White Michael T. Shields
Social Security # ###-##-#### Vice President
/s/Ron Torchin
- -----------------------------
Ron Torchin
Social Security # 070 40-4401
2
<PAGE>
EXHIBIT A
[FLOOR PLAN]
<PAGE>
GENERAL PROVISIONS OF THE LEASE
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
ARTICLE 1 LOCATION 1
Section 1.1 Premises 1
Section 1.2 Gross Rentable Area 1
Section 1.3 Center 1
ARTICLE 2 TERM 1
Section 2.1 Lease Year 1
Section 2.2 Early Commencement 1
Section 2.3 Delay of Commencement 1
ARTICLE 3 RENT 1
Section 3.1 Minimum and Percentage Rents 1
Section 3.2 Rent Escalation of Minimum or Base Rents 1
Section 3.3 Payment of Rent 1
ARTICLE 4 GROSS SALES 2
Section 4.1 Definition 2
Section 4.2 Annual Adjustment 2
ARTICLE 5 OPERATING COSTS 2
Section 5.1 Tenant's Pro Rata Portion 2
Section 5.2 Types of Expenses 2
Section 5.3 Real Estate - Related Expenses 3
Section 5.4 Special Allocations 3
Section 5.5 Operating Cost Exclusions 3
ARTICLE 6 VERIFICATION OF SALES 4
Section 6.1 Records 4
Section 6.2 Reports 4
ARTICLE 7 INITIAL RENT AND SECURITY DEPOSIT 4
Section 7.1 Receipt of Consideration 4
Section 7.2 Security Deposit 4
ARTICLE 8 OTHER CHARGES 4
Section 8.1 Late Charges and Interest 4
Section 8.2 Additional Rent 5
Section 8.3 Marketing Fund or Merchants' Association 5
ARTICLE 9 CARE OF PREMISES 5
Section 9.1 General Requirments 5
Section 9.2 Exterior of Premises 5
Section 9.3 Lienable Items 5
Section 9.4 Acceptance of Premises 5
Section 9.5 Parking and Loading 5
Section 9.6 Tenant Construction 5
Section 9.7 Signs and Accessories 5
ARTICLE 10 MAINTENANCE 6
Section 10.1 Interior 6
Section 10.2 Exterior 6
Section 10.3 Public Requirements 6
ARTICLE 11 ALTERATIONS AND ACCESS TO PREMISES 6
Section 11.1 Access to Premises 6
Section 11.2 Alterations and Improvements 6
ARTICLE 12 UTILITES AND SERVICES 6
Section 12.1 Utility Payments 6
Section 12.2 Metering or Pro Rata Allocations 6
Section 12.3 Termination of Utilites 6
ARTICLE 13 INSURANCE, INDEMNITY AND WAIVER OF SUBROGATION 6
Section 13.1 Liabilty and Worker's Compensation Insurance 6
Section 13.2 Fire and Casualty Insurance 7
Section 13.3 Other Requirements 7
Section 13.4 Tenant's Indemnification 7
Section 13.5 Landlord's Indemnification 7
Section 13.6 Waiver of Subrogation; Limits of Liabilty 7
Section 13.7 Electrical Installations 7
Section 13.8 Casualty 7
ARTICLE 14 EXAMINATION OF PREMISES AND LIMITATIONS OF LIABILITY 7
Section 14.1 Examination of Premises 7
Section 14.2 Assumption of Risks 8
Section 14.3 Tenant's Negligence 8
Section 14.4 Other Risks 8
ARTICLE 15 ASSIGNMENTS, SUBLEASE OR CHANGE OF MANAGEMENT CONTROL 8
Section 15.1 Consent to Transfer 8
Section 15.2 Request for Approval 8
Section 15.3 Landlord's Election 8
Section 15.4 Noncompliance 8
Section 15.5 Assumption of Lease 8
Section 15.6 Delay or Refusal 8
Section 15.7 Successors; Joint Liability 9
Section 15.8 Processing Charge 9
Section 15.9 Landlord's Comsideration 9
ARTICLE 16 USE AND OPERATION 9
Section 16.1 Permitted Use 9
Section 16.2 Business Hours and Continuous Operation 9
Section 16.3 Prior Vacation 10
ARTICLE 17 BANKRUPTCY AND INSOLVENCY 10
Section 17.1 Events of Bankruptcy or Insolvency 10
Section 17.2 Assignment of Lease 10
ARTICLE 18 FIXTURES AND PROPERTY REMOVAL 10
Section 18.1 Tenant's Property 10
Section 18.2 Landlord's Property 10
ARTICLE 19 LANDLORD'S LIEN, WAIVER AND SECURITY AGREEMENT 11
Section19.1 Landlord's Lien 11
Section 19.2 Optional Waiver 11
Section 19.3 Non-Waivable Security Interest 11
ARTICLE 20 EMINENT DOMAIN 11
Section 20.1 Effects of Condemnation 11
Section 20.2 Awards 11
ARTICLE 21 DEFAULT 11
Section 21.1 Events of Default 11
Section 21.2 Remedies 12
Section 21.3 Consequential Damages and Other Provisions 12
Section 21.4 Attorneys' Fees 12
Section 21.5 Waiver of Jury Trail 12
ARTICLE 22 SALE AND MORTGAGE OF THE PREMISES 12
Section 22.1 Mortgage 12
Section 22.2 Sale of Premises 12
Section 22.3 Estoppel Certificates 13
Section 22.4 Quiet Possession 13
ARTICLE 23 NOTICES AND SERVICE 13
Section 23.1 Receipt of Notice 13
Section 23.2 Consent to Service 13
ARTICLE 24 EXPIRATION OR TERMINATION 13
Section 24.1 Surrender of Premises 13
Section 24.2 Holding Over 13
Section 24.3 Re-Letting the Premises 13
ARTICLE 25 TIME AND FORCE MAJEURE 13
Section 25.1 Force Majeure 13
Section 25.2 Timely Performance 13
ARTICLE 26 REAL ESTATE LEASING COMMISSIONS 14
Section 26.1 Broker Contacts by Tenant 14
ARTICLE 27 INTERPRETATION AND CONSTRUCTION 14
Section 27.1 Reasonable Consents 14
Section 27.2 Waiver 14
Section 27.3 No Accord and Satisfaction 14
Section 27.4 Severability 14
Section 27.5 Automatic Termination 14
Section 27.6 Survival of Tenant's Obligations 14
Section 27.7 No Partnership 14
Section 27.8 Non-Binding Effects and Amendments 14
Section 27.9 Headings 14
Section 27.10 Entire Agreement; Amendments 14
Section 27.11 Integration 14
<PAGE>
GENERAL PROVISIONS OF THE LEASE
Article 1
Location
Section 1.1. Premises. Landlord does hereby lease, demise, rent and let to
Tenant the described Premises, and Tenant does hereby take and accept the same
subject to the conditions and covenants described herein. The "Premises" consist
of the commercial area within the shopping or business center described below at
the address listed on the Summary/Signature Page of this Lease. The Premises may
be more particularly described in drawings (if any) attached hereto or in the
Special Provisions of the Lease.
Section 1.2. Gross Rentable Area. The "Gross Rentable Area" of the Premises
shall mean the aggregate floor areas within the exterior faces of all exterior
walls, but only to the centerline of any common party walls between two leasable
areas, including the main floors, basements, mezzanines and upper floors, if
any, with no reductions or exclusions for stairways, elevators, escalators,
support columns, interior partitions or other improvements or equipment of any
kind. Further, the floor area of any mezzanines constructed within the Premises
shall be added to said Gross Rentable Area upon completion of construction. Any
changes in the Gross Rentable Area of the Premises occurring during any calendar
month shall become effective on the first day of the following month. The Gross
Rentable Area of the Center shall mean all similar areas within the Center owned
by Landlord and constructed for occupancy by tenants.
Section 1.3. Center. For purposes of this Lease, the "Center" shall mean
the shopping center, business park, commercial district or other designated
property owned by Landlord within geographic areas defined by Landlord from time
to time, including (without limitations) all buildings, improvements and parking
facilities (including any off-site or satellite parking facilities), private
drives, sidewalks and alleys [but excluding public streets, rights-of-way,
utility lines, easements and parks to the extent (if any) maintained by local
public authorities]. The Center shall also include any and all fountains,
statuary, monument markets and entryways, towers, kiosks, murals and art works
(if any), together with all private courtyards, lawns, median strips and parks.
Article 2
Term
Section 2.1. Lease Year. Except as provided in Sections 2.2 and 2.3 below,
the "Term" of this Lease, the "Commencement Date" and Expiration Date" shall be
as specified in Item 2 of the Summary/Signature Page. A "Lease Year" shall mean
the period of twelve (12) consecutive months beginning with the Commencement
Date and extending to each anniversary of the Commencement Date; but, if the
Commencement Date should be any day other than the first day of the month, the
Lease Year shall begin on the first day of the following month, and the
scheduled Expiration Date of this Lease shall always be the last day of the
month.
Section 2.2. Early Commencement. If for any reason and with Landlord's
approval in all respects Tenant should occupy and open for business in the
Premises prior to the scheduled Commencement Date, all terms of this Lease shall
then and there take effect, and the rents and charges hereunder shall commence
immediately (prorated on a daily basis, if commenced on a day other than the
first of the month), unless otherwise provided in the Special Provisions of this
Lease.
Section 2.3. Delay of Commencement. In the event Landlord is unable to give
Tenant possession of the Premises for any reason at the time specified in Item 2
of the Summary/Signature Page of this Lease, then the Commencement Date shall be
postponed and the Term shall be extended commensurate with the period of delay
in possession. Landlord shall determine when the Premises are reasonably ready
for occupancy, and in no event shall Landlord have any liability for damages (if
any) to Tenant on account of any delays in delivering possession of the
Premises.
Article 3
Rent
Section 3.1. Minimum Rents. For the use and availability of the Premises,
Tenant shall pay Landlord each month throughout the Term of this Lease:
(a) The Minimum or Base Rents prescribed in Item 3 of the Summary/Signature
Page of this Lease (prorated on a daily basis for any partial month); plus
(b) The amount (if any) by which the percentage(s) of Tenant's Gross Sales
of Merchandise stipulated in Item 3 of the Summary/Signature Page exceeds the
Minimum Rent for the applicable period, subject to annual adjustment based upon
the Lease Year as provided in Section 4.2 below.
Section 3.2. Rent Escalation of Minimum or Base Rents. (a)
(b) Upon each Assignment of this Lease or Sublease of the Premises, the
Minimum or Base Rents shall also be increased (if necessary), so that said
Minimum or Base Rents are no less than eighty percent (80%) of the aggregate of
the Minimum or Base Rents payable during the pervious Lease Year in any event.
Section 3.3. Payment of Rent. Tenant shall pay all sums required to be paid
to Landlord promptly without prior notice or demand at the office of J.C.
Nichols Company, 310 Ward Parkway, Kansas City, Missouri 64112, or at such other
place as Landlord may designate from time to time in writing. Minimum or Base
Rents shall be payable monthly, in advance, on the Commencement Date and on the
first (1st) day of each successive month throughout the Lease Term. Tenant shall
pay as "Additional Rent" all other charges or sums of money required to be paid
by Tenant under this Lease. All sums required to be paid pursuant to this Lease
shall be paid independently of and without regard for any obligation on the part
of Landlord and without any right of set-off or deduction whatsoever. Rents
shall be prorated on a daily basis for any partial calendar months.
-1-
<PAGE>
Article 5
Operating Costs
Section 5.1. Tenant's Pro Rate Portion. (a) In addition to the Percentage
and Minimum or Base Rents, Tenant agrees to pay a "Pro Rata Portion" of the
Operating Costs of the Center, computed as of January 1st of each year and
prorated on a daily basis for any partial Lease Year. For purposes of this
Article, the following phrases have the following meanings:
(i) "Pro Rata Portion" shall mean the percentage determined by
dividing the Gross Rentable Area of the Premises by the Gross Rentable Area
of the Center; and
(ii) "Net Costs" shall mean Landlord's costs and expenses incurred in
the operation of the Center as described in Section 5.2 below.
(b) Tenant's Pro Rata Portion of such Operating Costs shall be estimated at
the beginning of the Term and annually thereafter. Tenant shall pay the
estimated Pro Rata Portion in equal monthly installments on or before the first
day of each month, or within ten (10) days thereafter, throughout the Lease Term
or until notice of a new monthly estimate. Within sixty (60) days after the end
of each calendar year, Landlord shall determine its actual Net Costs for the
previous calendar year (and Tenant's Pro Rata Portion thereof) and shall furnish
a copy of such computations and an itemized statement of such costs in writing
to Tenant. If the estimated monthly payments made by Tenant for the previous
calendar year exceed Tenant's actual Pro Rata Portion of such Net Costs,
Landlord shall rebate the excess to Tenant; but if Tenant's actual Pro Rata
Portion exceeds the estimated monthly payments made by Tenant for the previous
calendar year, Tenant shall pay the difference within thirty (30) days after
annual adjustment billing by Landlord. Tenant's obligation to pay actual Net
Costs in excess of those estimated shall survive the expiration of this Lease,
together with Tenant's obligation to pay all other accrued sums due hereunder,
and the accrual of any such excess actual Net Costs shall relate back in equal
monthly installments over the calendar year period. Landlord shall provide
Tenant copies of supporting documentation substantiating its Net Costs upon
request by Tenant.
Section 5.2. Types of Expenses. Landlord will provide for the maintenance,
repair, operation and management of the Center outside the Premises, including
all facilities, improvements and areas determined by Landlord from time to time
to comprise the Center. Tenant agrees to pay a Pro Rata Portion of all such
costs (hereafter referred to as "Operating Costs") which, for purposes of this
Lease, shall include, but not be limited to, the costs and expenses of items
such as those described below:
(a) Snow removal; maintenance, repair and replacement of all parking lot
structures and surfaces (whether surface parking or multi-level garages),
service areas and courts, including cleaning, sweeping, painting, striping and
repaving; maintenance and repair of sidewalks, access roads, pathways, grass
plots, plantings, curbs, guardrails, bumpers, fences, screens, monuments,
towers, markers, plaques, murals, fountains, statues, art works, banners,
flagpoles, bicycle racks, decorative newspaper vending racks, signs of all
kinds, kiosks, traffic signals and other traffic markers;
(b) Maintenance, repair and capital improvement of all structures,
facilities, systems and equipment of the Center, including (without limitation):
(i) the storm sewer and sanitary drainage systems, including disposal plants,
lift stations and retention ponds or basins; (ii) automatic sprinkling and
irrigation systems; (iii) electrical, gas and waters systems; (iv) exterior
lighting, light poles and bulbs, street lights, lanterns, fixtures and other
lighting systems; (v) music, sound and speaker systems and equipment; (vi)
heating, ventilating and air-conditioning systems; (vii) security systems,
vehicles, radios and other equipment; and (viii) paving, curbs, walkways, roofs,
building exteriors, ceilings and structural supports;
(c) Planting, replanting and replacing flowers, shrubbery, plants, grasses,
trees and other landscaping, including those in walkways, median strips,
courtyards and alleys;
(d) Maintenance, operation, repair, janitorial services, supplies and
utilities for the Center including, but not limited to, roofs, roof flashing,
parking lot control, canopies, skylights, walkways, courts, and alleys, signs,
retaining walls, ornaments, statuary, planters, benches, fountains, loading
docks, stairs, fire exits, doors and hardware and all other areas and
improvements; and charges for electricity, gas, water and sewer services to
common areas of the Center;
(e) Premiums for insurance coverage of all kinds, including, without
limitation, liability insurance for personal injury, death and property damage,
including excess liability coverage (if any); insurance against liability for
defamation and claims of false arrest occurring in and about the Center;
worker's compensation; broad form casualty and all-peril insurance, which may
include (without limitation) flood insurance, glass insurance, earthquake
insurance, parking garage insurance, boiler insurance and rent insurance;
(f) Maintenance and repair of all vehicles, security devices, machinery and
equipment used in the operation and maintenance of the Center and all license
fees, personal property taxes and other charges incurred in connection with such
vehicles, security devices, machinery and equipment, together with the costs of
employing personnel for security and parking control purposes (if Landlord
elects to provide such services);
-2-
<PAGE>
(g) Governmental licenses and permit fees of every kind and nature, and all
surcharges and other cost that result from complying with environmental or other
governmental laws, rules, regulations, guidelines or orders;
(h) Installing and operating music programs, services and loudspeaker
systems, together with the costs of applicable dues and fees payable to
organizations formed to act as agents for songwriters and performers in
enforcing their clients' copyrights;
(i) Personnel salaries and related taxes and employment benefits for
on-site property management, security and maintenance employees;
(j) Users fees, taxes, assessments, special assessments, substitution
taxes, gross receipts taxes, taxes on rents and other governmental charges,
whether levied by federal, state, county, municipal or any other taxing
authority, which are charged against the Center, real property, street lights,
fixtures, personal property, rents or on the right or privilege of owning or
leasing real estate or collecting rents thereon, and any other taxes,
assessments and fees attributable to the Center or its operation whether now or
hereafter assessed, including (without limitation) the other types of taxes
described in Section 5.3 below; and
(k) Property management and off-site administrative, supervisory and
overhead costs, whether payable to third party or to Landlord or its affiliates,
as compensation for administrative, accounting, bookkeeping and property
management services for the Center; provided that the amount of such costs and
expenses shall not exceed the fees that third-party professional management
companies would charge for managing similar properties in the metropolitan area.
Section 5.3. Real Estate-Related Taxes.
(a) Except as provided in Subsection (b) below, the following kinds of
taxes are expressly included among those assessable to Tenant as part of the
Operating Costs of the Center:
(i) Special Assessments. The Operating Costs shall include "Special
Assessments" imposed upon the Premises or Center by a governmental
authority for improvements directly or indirectly benefiting the Premises
or Center, including (without limitation): (a) assessments for utility
improvements serving the Premises or Center; (b) "transportation
assessments"; (c) "impact fees" for public improvements; and (d) "benefit
assessments" for such things as flood control, street and sidewalk
improvements, and refuse and sewer treatment. Special Assessments shall not
include other capital expenditures relating to new improvements, the net
effect of which is to finance or construct other commercial developments
for or on behalf of Landlord, or which expand or increase the Gross
Rentable Area of the Center. Nor shall Special Assessments include sewer
hook-up fees or similar charges assessed to one specific user.
(ii) Taxes Payable in Installments. In the event that any Taxes may,
or are required to, be paid in installments over a period longer than one
(1) year, then the same shall be deemed paid in installments over the
maximum period permitted by the taxing authority, and Tenant's obligation
to pay its Pro Rata Portion of such Taxes for any one (1) tax fiscal year
shall only apply to those installments which actually become due and
payable (i.e., failing which, payment of the same would become delinquent),
together with the interest charged thereon by the taxing authority, during
that same fiscal year, EXCEPT, HOWEVER, that Tenant shall not be obligated
to pay any portion of Taxes or installments thereof which actually become
due and payable during any period prior or subsequent to the Lease Term.
Taxes for any fraction of a tax year at the commencement or expiration of
the Lease Term shall be apportioned pro rata on a daily basis between the
parties.
(iii) Substitution Taxes. A "Substitution Tax" means a fee, charge or
levy, which is enacted on a Substitution Basis (as defined below),
following a change in a method of taxation or assessment related to real
property, or the granting of tax benefits or reductions for the property,
including (without limitation) payments in lieu of taxes following approval
of plans for tax increment financing, urban redevelopment or other tax
benefits. A change in such methods may refer to an event or combination of
events by which real estate taxes, assessments or valuations are "frozen"
[i.e., no longer increased], and/or reduced or "rolled back," and/or future
increases are limited in amount, by statute. If, following such change and
as a result thereof, there shall be levied, assessed or imposed: (a) a tax
on the rents received from the Premises; (b) a license fee or other tax
measured by or based wholly or partially upon the Premises or any portion
thereof, and which taxes are expressly declared by the taxing legislation,
legislative history or taxing authority to be imposed as a result of the
foregoing limitations on real estate taxes, or in substitution therefor,
then such resultant enactment shall be on a "Substitution Basis." All other
provisions of this Lease notwithstanding, the term Substitution Taxes shall
also include fees paid to property tax consultants, on a contingency basis
for securing reductions in tax assessments.
(b) Exclusions. The term "Taxes" shall not, however, include corporation,
inheritance, estate, succession, transfer, realty transfer gains taxes, gift,
franchise, income or profit taxes (whether gross or net) imposed upon Landlord;
nor shall Taxes include business or gross receipts taxes, except to the extent
based purely on rentals receivable from real estate unless the same are enacted
on a Substitution Basis. Further, Taxes shall not include penalties or interest
on Taxes caused by the failure of Landlord to make timely payment (and not due
to any failure of Tenant to make timely payment of Tenant's Pro Rata Portion of
Taxes to Landlord), nor shall Taxes include mortgage lien taxes, documentary
stamp taxes, recording fees or the like.
Section 5.4. Special Allocations. Notwithstanding the general allocation of
Operating Costs as described in Section 5.1 above, Landlord shall have the
option in its discretion to make special allocations of certain Operating Costs
and assess the same among particular tenants, as follows:
(a) Charges for utility service and usage (where the utility is not
separately metered) may be allocated and billed "pro rata" on a gross leasable
square footage basis amount those tenants whose premises utilize a common
utility system; and
(b) If the Center consists of more than one tax parcel, real estate taxes
may be allocated and billed "pro rata" on a gross square foot basis among those
tenants whose premises are situated within the same tax parcel.
Section 5.5. Operating Cost Exclusions. Notwithstanding Sections 5.1 and
5.4 above, the following items shall be excluded in calculating the total
Operating Costs of the Center:
(a) Costs of repairs, replacements or utility services for which other
tenants pay, or are obligated to pay, or for which Landlord received insurance
proceeds or condemnation awards;
(b) Leasing commissions, legal fees and other expenses incurred by Landlord
in dealings with other tenants and prospective tenants, and costs to improve or
make space "tenant-ready";
-3-
<PAGE>
(c) The costs of any special services, operations or accommodations for the
benefit of specified tenants (as opposed to all tenants of the Center and their
customers or the public generally);
(d) The costs of governmental compliance, remediation of hazardous
materials, and capital improvements relating to buildings and premises available
for lease to tenants or which expand or increase the Gross Rentable Area of the
Center; and
(e) The costs of governmental compliance, remediation of hazardous
materials, and capital improvements relating to any other facilities, structures
or improvements in the Center, including parking facilities and ornamental
structures or other improvements in public or common areas or not comprising
premises available for lease, except to the extent that such costs are
deductible in the current year on a straight-line basis in accordance with
generally accepted accounting practices.
Article 7
Initial Rent and Security Deposit
Section 7.1. Receipt of Consideration. The Receipted Sum in Item 4 of the
Summary/Signature Page of this Lease constitutes a payment of the Minimum or
Base Rents and/or other sums required to be paid by Tenant, as consideration for
this Lease. And in the event no Receipted Sum is submitted by Tenant or required
by Landlord, this Lease shall be voidable at Landlord's sole option and
discretion until such time as Tenant pays and Landlord accepts such an initial
payment of rent, notwithstanding any other provisions of this Lease or other
agreements of the parties.
Article 8
Other Charges
Section 8.1. Late Charges and Interest. In the event Tenant fails to pay
any sum of money required under this Lease within fifteen (15) days of the
stipulated due date, then Tenant shall pay Landlord a late charge equal to Ten
Dollars ($10.00) per day from the due date until all delinquent sums (regardless
of amount) are paid in full, plus interest on all such delinquent sums at
fifteen percent (15%) per annum or the maximum rate allowable by law, whichever
is less, likewise commencing from the original due date and continuing until all
such delinquent sums are paid in full. The foregoing daily late charges and all
others prescribed in this Lease are intended to offset Landlord's unanticipated
administrative costs associated with delinquencies, including (but not limited
to) the costs of additional direct contacts and correspondence with principals
and employees of Tenant, investigators, credit reporting agencies, attorneys,
collection agencies, bookkeepers and accountants, as well as referral and
contingent fees to collection agencies, among others. The parties agree that the
precise amounts of all such unanticipated costs would be difficult, if not
impossible, to ascertain in advance and that the late charges described in this
Section and elsewhere in this Lease are therefore a reasonable approximation of
such costs in the nature of liquidated damages and shall be payable to Landlord
in addition to all other rental obligations hereunder. No such late charges,
however, are intended, nor shall be deemed, to cover
-4-
<PAGE>
any consequential damages arising from Tenant's breach of this Lease, or the
unamortized balance of the costs of any improvements made by Landlord to
accommodate Tenant's occupancy, or any clean-up or repair costs or other
expenses suffered by Landlord as a result of any physical damage to the Premises
or other property caused by Tenant or its employees, contractors or agents.
Section 8.2. Additional Rent. Any and all charges required to be paid by
Tenant to Landlord or other persons or entities hereunder, other than the
Minimum or Base Rents, shall be considered Additional Rent, including (without
limitation) the charges described in Sections 5.2, 6.2, 7.2, 8.1, 8.3, 9.5,
11.1, 12.1, 15.8, 21.2, 21.3, 21.4 and 22.3. And a default in the payment of any
such sums shall be subject to the assessment of late charges and shall be a
default under this Lease.
Section 8.3. Marketing Fund or Merchants' Association. If Landlord at any
time during the Lease Term organizes or approves the organization of an
association of merchants or tenants of the Center, or, alternatively, if
Landlord establishes or approves the establishment of a marketing fund for the
Center, Tenant agrees to maintain a membership in said association or to
actively participate in and contribute to such marketing fund, promptly paying
dues and assessments for such association or marketing fund, whether determined
by Landlord, an advisory board or a board of directors. Such dues or assessments
shall also be Additional Rent hereunder, and Tenant's failure to pay the same
when due shall constitute a default under this Lease, whether payable directly
to Landlord or to a separate association or marketing fund administrator.
Article 9
Care of Premises
Section 9.1. General Requirements. Tenant shall not perform any acts or
carry on any practices which may damage the Center, the building that houses the
Premises or the Premises, or are a nuisance to the public or other tenants in
the Center. Tenant shall keep the Premises clean and free from rubbish, dirt,
insects, rodents and other vermin at all times; and, if Landlord deems
necessary, Tenant shall join with Landlord and other tenants and pay a
proportionate share of the expenses of a general extermination from time to
time. Tenant shall not use or permit the use of any portion of the Premises as
sleeping quarters, for lodging of any kind, for cooking (unless permitted
pursuant to Article 16), for any unlawful purposes, or any other use or uses not
expressly permitted under this Lease. If Tenant is permitted under this Lease to
handle foodstuffs, garbage and refuse shall be removed in leak-proof containers;
and, if there should be any leakage, Tenant shall clean and remove any evidence
of such leakage at its expense. Tenant shall also keep all sewer lines serving
the Premises in free and clear condition. Tenant shall maintain the public
entryways and display or store windows in a neat and clean condition. Tenant
shall not burn trash of any kind in or about the building or Premises.
Section 9.2. Exterior of Premises. Except for Tenant's initial construction
work, Tenant shall not paint or decorate any part of the exterior of the
Premises, display merchandise outside the Premises, or attach or install
awnings, signs, equipment or improvements of any kind on the roof or exterior of
the building or Premises without Landlord's expressed written permission in each
instance in its sole and absolute discretion. Tenant agrees not to use any area
outside the Premises for the sale or display of merchandise or equipment, or for
any other business, occupation or undertaking. Tenant further agrees to receive
and ship articles only through the rear door of the Premises or other loading
areas designated by Landlord.
Section 9.3. Lienable Items. In no event shall any materials or equipment
which are subject to any lien, encumbrance or security interest be incorporated
in or affixed to the Premises without the expressed written permission of
Landlord; provided that Tenant may install its own movable equipment,
furnishings, inventory and other personal property on the Premises without
Landlord's consent. Under not circumstances shall Tenant ever permit any lien
for labor, services or materials claimed to have been performed for or furnished
to Tenant, its agents, contractors or subcontractors, to be filed against the
Premises, the building that houses the Premises, or the Center. If notice of any
such lien is filed, Tenant shall discharge such lien within ten (10) days;
provided that, if Tenant in good faith desires to contest the validity of any
such lien, it may do so by appropriate legal proceedings after first depositing
with Landlord, within ten (10) days after the filing of such lien notice, a
surety bond, cash or an unconditional letter of credit in the sum of one hundred
fifty percent (150%) of the lien, or such other security as Landlord, in its
sole judgment, deems sufficient to insure payment and discharge of such lien,
together with interest and penalties thereon. In any such event, Tenant shall
defend, indemnify and hold harmless Landlord from all costs and expenses,
including court costs and reasonable attorneys' fees, in connection with work
and improvements allegedly ordered or contracted by Tenant or its agents,
contractors, subcontractors and employees. If Tenant fails to discharge any such
lien or deposit the required security within such ten (10) day period, Landlord
may (but shall not be obligated to) pay and discharge such lien without
inquiring into the validity thereof, and Tenant shall, upon demand and as
Additional Rent, reimburse Landlord for the full amount so paid, including
attorneys' fees, regardless of whether or not such lien is valid. For its breach
of any obligations herein, Tenant shall be deemed to be in default under this
Lease. Nothing in this Lease or Landlord's approval of Tenant's plans for
construction or improvements in the Premises shall in any way be construed to
constitute a consent, order or request by Landlord, expressed or implied, by
inference or otherwise, for any contractor, subcontractor, laborer or
materialman, to perform labor or furnish materials for any specific improvement,
alteration or repair to the Premises or the building or any improvements
thereon.
Section 9.4. Acceptance of Premises. By occupying the Premises, Tenant
formally accepts the same in their present condition, "as is" and acknowledges
that Landlord has complied with all requirements imposed upon it under this
Lease. No minor change, alteration or variance from plans upon which the parties
have agreed shall change or otherwise affect this Lease.
Section 9.5. Parking and Loading. Tenant and its employees shall park their
cars and other motorized and non-motorized vehicles in areas as designated by
Landlord from time to time. Tenant shall also furnish the state automobile
license numbers assigned to its vehicles and those of all its employees and the
name and home addresses of such employees within five (5) days after written
notice from Landlord. Following at least one (1) prior written notice of
violation, Tenant shall pay Landlord, when billed, a fee of Ten Dollars ($10.00)
per day per vehicle parked in violation of this Section.
Section 9.6. Tenant Construction. Tenant may from time to time perform or
contract for the interior renovation and updating of the Premises for Tenant's
use, at Tenant's sole cost and expense; provided that such work shall comply
with all applicable federal, state and local codes, statutes and regulations and
that no such renovation work shall be started unless or until: (a) Landlord has
approved in writing Tenant's plans and specifications for the work (for
aesthetic and non-code purposes); (b) Tenant and its contractor and
subcontractors have secured all necessary permits and approvals from the all
applicable governmental authorities; and (c) Tenant has furnished Landlord
certificates of insurance naming Landlord as an additional insured and
evidencing coverage for worker's compensation and for liability insurance. The
limits of such coverage shall be not less than Five Hundred Thousand Dollars
($500,000.00) each occurrence [combined single limit bodily injury, property
damage, products/completed operations aggregate, personal and advertising
injury, general aggregate, fire damage and medical expenses]. Tenant further
covenants that, except for any good faith dispute, it will not permit or suffer
the filing of any claim for a mechanic's or materialmen's lien against the
property and that it will promptly pay when due all bills and invoices for labor
done and materials delivered to the Premises.
Section 9.7. Signs and Accessories. No mechanical signs, neon signs, signs
with flashing lights, or signs illuminated in any other manner shall be placed
on the exterior of the Premises or within twelve (12) inches of the windows or
doors to the Premises. Further, Tenant shall not place any signs, placards or
advertising media on the exterior of the Premises or on [or within six inches
(6") of] the windows or doors to the Premises; nor shall Tenant place or install
speakers, recording devices, stereos, radios, television monitors, video
equipment or other media visible in windows or doors to the Premises or audible
outside the Premises -- without Landlord's prior written
-5-
<PAGE>
consent in each instance in its sole and absolute discretion. No lighting or
plumbing fixtures, awnings or other ornamentation or decorations may be
installed on the exterior of the Premises, nor may Tenant paint the exterior of
the Premises, without similar prior written consent from Landlord. Tenant may
place its store name and business hours on the entry doors to the Premises in
lettering no more than three (3) inches in height.
Article 10
Maintenance
Section 10.1. Interior. Tenant agrees to maintain the Premises and keep it
in good repair, including interior cleaning, painting and decorating of every
kind, and to replace the fixtures and equipment within the Premises as necessary
including (but not limited to) heating and air-conditioning equipment, lighting
and electrical fixtures (including light bulbs), plumbing fixtures and
equipment, hardware, floor coverings, doors, windows and broken or damaged
glass, specifically including safety or plate glass display windows, together
with those portions of the storefront and other exterior improvements (if any)
originally installed by Tenant.
Section 10.2. Exterior. Tenant shall not install equipment of any kind on
the roof or exterior of the Premises without prior written approval of Landlord;
and Tenant shall pay for any and all damage resulting from such installations,
together with the costs of removal, maintenance or lack of maintenance thereof.
Section 10.3. Public Requirements. Tenant shall comply with all laws,
orders, ordinances and other public requirements now or hereafter affecting the
cleanliness, health, safety, occupancy or use of the Premises and the physical
accommodations, facilities and equipment therein (including, without limitation,
the doors for ingress and egress to and from the Premises and the plumbing
fixtures and sewer line), and Tenant shall indemnify and save Landlord harmless
from all costs, expenses or damages resulting from failure to do so. Landlord
shall be responsible for compliance with all such public requirements in the
common areas of the Center outside the Premises, and Landlord shall indemnify
and save Tenant harmless from all costs, expenses or damages resulting form
Landlord's failure to comply with such requirements.
Article 11
Alterations and Access to Premises
Section 11.1. Access to Premises. Landlord shall have the right, if it so
elects, to enter upon the Premises at reasonable hours, with advance notice to
Tenant except in emergencies, for the purpose of inspecting the same,
determining Tenant's compliance with this Lease, repairing or maintaining any
pipes, conduits or ducts (whether same are used in the supply of services to
Tenant or to other occupants of the building or adjacent buildings) or in
connection with construction work or any other improvements, repairs or
alterations in and about the building. If Landlord deems it necessary to make
and repairs or replacements necessary for which Tenant is responsible under this
Lease, Landlord may demand in writing that Tenant make the same, and if Tenant
refuses or neglects to commence such repairs or replacements in good faith or
fails to complete the same with reasonable dispatch, Landlord may make or cause
such repairs or replacements to be made; and, in so doing, Landlord shall not be
responsible to Tenant for any loss or damage that may accrue to Tenant's
business by reason thereof. If Landlord makes or causes such repairs or
replacements to be made, Tenant shall forthwith pay landlord upon demand the
full costs thereof as Additional Rent hereunder with late charges and interest
as prescribed in Section 8.1 above; and, if Tenant shall default in such
payment, Landlord shall have all the remedies provided in Article 21 and
elsewhere in this Lease.
Section 11.2. Alterations and Improvements. Landlord reserves the right at
any time to build additional stories upon and/or to otherwise expand the
building that houses the Premises. Landlord further reserves the right to close
skylights, windows or doors of the Premises and to run pipes, conduits, ducts or
electrical lines through the Premises; and to alter the size, area, level and
location of hallways, entrances, parking areas, common areas of the Center
reserved for general usage, driveways, sidewalks, landscaped areas and all other
portions of the Center. Landlord shall also have the right to close the
Premises, the building which houses the Premises or any portions of the Center,
whenever necessary to comply with any law or regulation issued by any lawful
authority, in cases of public disturbance, or for any other reasons deemed right
and proper in its discretion, and Tenant hereby waives all claims for damage or
inconvenience caused by any such closings.
Article 12
Utilities and Services
Section 12.1. Utility Payments. Tenant agrees to pay or reimburse Landlord
for all electric current, gas, water and other utility services, whether
furnished to the Premises by utility companies or by Landlord, and in any event
Tenant shall furnish and pay for heating and air-conditioning equipment and
service to the Premises. Such utility services (if any) actually furnished by
Landlord shall be billed at rates not exceeding those charged by applicable
utility companies; provided that Landlord may allocate such billings on a
square-foot basis unless service is separately metered or submetered.
Section 12.2. Metering or Pro Rata Allocations. Landlord or Tenant may
install separate meters or submeters on or about the Premises, or Tenant shall
utilize existing separate meters or submeters (if any) already in place; and
Tenant shall pay any such separately metered utility charges attributable to the
Premises including (without limitation) charges for electricity, gas and water,
directly to the appropriate municipality, utility or service company, or shall
reimburse Landlord for such charges based on submeter readings. The costs for
heating and cooling the Premises [from any central boiler or heating,
ventilating and air-conditioning (HVAC) system serving the building], plus all
other utility services furnished by Landlord, and not separately metered or
submetered, shall be allocated by Landlord and be payable by Tenant on the basis
of Tenant's "Pro Rata Portion" of the gross floor space of the Center or those
portions of the Center which utilize a common utility system, as provided in
Sections 5.1 or 5.4 above.
Section 12.3. Termination of Utilities. Landlord shall not in any way be
responsible or liable to Tenant, or to any other party occupying any part of the
Premises, for any failure or defect in the supply or character of water,
electric energy or any other utility service furnished to the Premises or to the
common areas of the Center (whether furnished by Landlord or by others), or by
reason of any requirement, act or omission of the public utility company serving
the Premises, the building that houses the premises or the Center with
electricity, water or other utility service, or because of necessary repairs or
improvements or the lack thereof.
Article 13
Insurance, Indemnity and Waiver of Subrogation
Section 13.1. Liability and Worker's Compensation Insurance. (a) Tenant
shall keep in force policies of comprehensive public liability insurance, with
respect to the Premises and the businesses operated by Tenant and any other
occupant. The limits of such coverage shall be not less than Five Hundred
Thousand Dollars ($500,000) each occurrence [combined single limit for bodily
injury, property damage, products/completed operations aggregate, personal and
advertising injury, general aggregate, fire damage and medical expenses]. In
addition to Tenant, the policy shall name Landlord and any lenders or mortgagees
designated by Landlord as additional insureds.
-6-
<PAGE>
(b) Tenant's employees and any and all contractors, subcontractors and
their agents and employees shall also be covered under worker's compensation
insurance in the minimum amounts required by law, and Tenant shall deliver to
Landlord certificates evidencing such coverage upon request and prior to the
start of any leasehold construction or improvements by Tenant.
Section 13.2. Fire and Casualty Insurance. Tenant shall also keep in force
a broad form "all risk" fire and casualty insurance policy (with extended
coverage, vandalism, malicious mischief, water damage and sprinkler leakage
coverage) on the standard forms, insuring all improvements and betterments on
the Premises in an amount equal to their full replacement costs. During the
course of Tenant's construction of any improvements and betterments, the
foregoing policy shall be on a builder's risk completed value, non-reporting
form. The proceeds of such insurance policies shall be held in trust by Tenant
for use in repairing and restoring the items covered. Tenant also agrees to
maintain insurance on its contents and personal property within the Premises.
Section 13.3. Other Requirements. The foregoing policies shall be issued by
an insurance company authorized to do business in the state in which the
Premises are situated and which has a Best's Insurance Guide rating of
"A+:VIII." Tenant shall deliver to Landlord certificates evidencing the
foregoing insurance prior to moving in and commencing any construction work on
the Premises. Tenant's insurance carrier shall provide in its policies,
certificates or endorsements that it will give Landlord at least ten (10) days'
written notice before any cancellation, lapse or material change in coverage.
The insurance required in this Lease may be covered under a so-called "blanket"
policy including other stores of Tenant or its affiliates.
Section 13.4. Tenant's Indemnification. Subject to the provisions in
Section 13.1 above and Section 13.6 below, Tenant shall indemnify and hold
harmless Landlord and it, partners, officers, agents, contractors and employees
from and against all claims, actions, liability and expenses in connection with
any loss of life, bodily injury and damage to property: (a) arising out of any
occurrence in, upon or at the Premises, [or otherwise resulting from the
occupancy or use by Tenant, its gents, contractors, subcontractors, subtenants,
licensees, concessionaires or employees], unless the same be caused by willful
or negligent act or omission of Landlord, its agents, contractors or employees;
and (b) arising from any occurrence outside the Premises which is occasioned
wholly or in part by any willful or negligent act or omission of Tenant, its
agents, contractors, subcontractors, subtenants, licensees, concessionaires or
employees. If any action or proceeding is brought against Landlord, or its
partners, officers, agents, contractors, or employees by reason of the
aforementioned causes, Tenant also agrees to defend such action or proceeding by
adequate counsel at its own expense, upon receiving notice thereof from
Landlord.
Section 13.5. Landlord's Indemnification. Likewise subject to the
provisions in Section 13.1 above and Section 13.6 below, Landlord shall
indemnify and hold harmless Tenant and it partners, officers, agents,
contractors and employees from and against all claims, actions, liability and
expenses in connection with any loss of life, bodily injury and damage to
property: (a) arising out of any occurrence in, upon or at the Premises which is
occasioned wholly or partially by any willful or negligent act or omission of
Landlord, its agents, contractors or employees and (b) arising from any
occurrence upon the common facilities of the Center outside the Premises, unless
the same be caused by the willful or negligent act or omission of Tenant, its
agents, contractor, subcontractors, subtenants, licensees, concessionaires or
employees. If any action or proceeding is brought against Tenant, its parties,
officers, agents, contractors or employees, by reason of the aforementioned
causes, Landlord also agrees to defend such action or proceeding by adequate
counsel at its own expense, upon receiving notice thereof from Tenant.
Section 13.6. Waiver of Subrogation; Limits of Liability. (a) Anything in
this Lease to the contrary notwithstanding, each party (hereafter called the
"Releasing Party") hereby releases the other (hereinafter called the "Released
Party") from all liability for property damage which the Released Party would
have, but for this Section 13.6, to the Releasing Party, resulting from the
occurrence of any accident or casualty during the Lease Term: (i) which is or
could be covered by fire and extended coverage or other insurance policies (with
a vandalism and malicious mischief endorsement attached) or by a sprinkler
leakage or water damage policy (irrespective of whether such coverage is
actually being carried by the Releasing Party); or (ii) covered by any other
casualty or property damage insurance being carried by the Releasing Party at
the time of such occurrence -- regardless of whether such accident or casualty
may have resulted wholly or partially from and act or neglect of the Released
Party, its officers, agents, contractors or employees.
(b) Landlord and Tenant shall cause each insurance policy carried by either
of them respectively on or relating to the Premises, its improvements,
betterments, fixtures and contents, to be written in a manner so as to provide
that the insurance company waives all right of recovery by way of subrogation
against Tenant or Landlord (as the case may be) in connection with any loss or
damage. Except as specifically provided herein, neither party shall be liable to
the other for any loss or damage caused by fire or any other risk or risks
against which any such policy insures or against any risk or casualty described
herein, regardless of deductible amounts.
(c) Anything in this Lease to the contrary notwithstanding, neither
Landlord not Tenant shall have any responsibility or liability whatsoever for
any damages arising from the willful or negligent act or omissions of any third
party, including other tenants or occupants of the Center or any customer,
guest, invitee or intruder.
Section 13.7. Electrical Installations. In the event Tenant installs any
electrical equipment or fixtures that overload the lines in the Premises, Tenant
shall, at its own expense, make the changes necessary to comply with Landlord's
requirements and those of insurance underwriters and applicable local
governmental code administrators. Tenant agrees not to use any electric irons,
electric grills or other equipment that contains an electric heating element,
unless such electrical equipment also includes a red pilot light, connected and
operated in compliance with Underwriters' Laboratory specifications.
Section 13.8. Casualty. In the event the Premises are destroyed or so
damaged by fire, tornado, flood, storm, explosion, earthquake or other casualty
as to become untenantable in Landlord's judgement, then Landlord may elect
either to rebuild and put said Premises in good condition and fit for occupancy
within a reasonable time thereafter, or to give Tenant notice in writing
terminating this Lease. If Landlord elects to repair or rebuild the Premises, it
shall give Tenant reasonably prompt notice after the casualty of its intention
to do so. As to any part of the Premises determined by Landlord to be
untenantable or unfit for occupancy, the rent shall abate in proportion to the
untenantable area of the Premises from the time of such casualty until the
Premises have been repaired by Landlord and delivered to Tenant for its
occupancy. In no event and under no circumstances shall Landlord be responsible
to Tenant, its agents, employees or any other person or entity for any loss of
business or profits, loss of income or other loss or damage to any merchandise
or personal property of Tenant, regardless of whether Landlord cancels this
Lease or elects to rebuild or repair the Premises. In any event, Tenant shall be
responsible for obtaining its own business interruption insurance with
appropriate coverages.
Article 14
Examination of Premises and
Limitations of Liability
Section 14.1. Examinations of Premises. Tenant has had ample opportunity to
thoroughly examine the Premise and/or architectural plans therefor, including
the sidewalks and alleyways adjacent to the Premises, and Tenant hereby
acknowledges that there is in and about them nothing dangerous to life, limb,
health or property, and waives any claim for damages that may arise from defects
of any character after occupancy or the Commencement Date of this Lease, and
Tenant takes the Premises "as is" or as they will be when specified improvements
and betterments (if any) are completed, and is fully informed, independently of
Landlord, as to the character of the building,
-7-
<PAGE>
its construction and structure.
Section 14.2. Assumption of Risks. Tenant specifically assumes all risks of
installing and moving it personal property into the Premises and occupying the
same. Neither Landlord nor it employees or agents shall have any liability for
damage to property of Tenant or of others entrusted to Tenant or its agents, nor
for loss or damage to any property by theft or otherwise, not for any injury or
damage to persons or property resulting from fire, explosion, falling plaster,
steam, gas, electricity, water, dust, smoke, rain, snow, dampness, or leaks
from: (a) any part of the building; (b) the pipes, appliances or plumbing; or
(c) the roof, street or subsurface or any other place; or by any other cause of
whatsoever nature, whether or not due to the negligence of Landlord, its agents
or employees; nor shall Landlord or its employees or agents be liable for any
damage caused by other tenants or persons in the building, or caused by
construction operations or activities relating to any private, public or
quasi-public work.
Section 14.3. Tenant's Negligence. Tenant agrees to indemnify, defend
(through counsel acceptable to Landlord) and hold harmless Landlord and it
partners, contractors, agent and employees from and against any statutory or
other liabilities, claims, damages, injuries (including death), suits, demands,
damages, judgements, costs, fines, penalties, interest and expenses (including,
without limitation, legal fees, court costs, investigation and discovery
expenses, and disbursements incurred in any action or proceeding) by reason of
any claim of liability for death, personal injury or damage to property
(including any loss of use thereof) or otherwise arising from or in connection
with the use and occupancy of the Premises at any time, or arising from any
condition of the Premises or from any act, omission or negligence of Tenant or
any agents, contractors, subcontractors, subtenants, licensees, concessionaires,
employees, guests or invitees.
Section 14.4. Other Risks. Tenant shall also insure all its inventory,
furnishings, trade fixtures and other personal property on the Premises against
losses of all kinds. All personal property of every kind and description
whatsoever in the Premises shall be on or about the Premises at Tenant' sole
risk, and Landlord shall not be liable for any damage done to, or loss of, such
personal property; or for damage to or loss of business income or occupation of
Tenant caused in any manner whatsoever or arising from: (a) any act of neglect
of third parties, co-tenants or other occupants of the building or their
employees; (b) bursting, overflowing or leaking of water, sewer or steam pipes;
(c) rain, wind, tornadoes, flood, surface or subsurface water; (d) overflows of
drainage facilities; (e) backup or stoppage of any drain, sewer or other water
runoff facility or device; (f) heating or plumbing fixtures; (g) noise or dust;
(h) electrical wires; (i) gas, odors, natural disasters, riots or acts of
violence; or (j) leaking roofs. Tenant shall give Landlord prompt notice of any
accident to, defect in or problem in the Premises or building that houses the
Premises of which Tenant has knowledge or notice.
Article 15
Assignment, Sublease or Change of Management Control
Section 15.1. Consent to Transfer. Except upon Landlord's written consent
in each instance, Tenant shall not directly or indirectly, voluntarily, by
operation of law, or otherwise: (a) sell, assign, encumber, pledge or otherwise
transfer or hypothecate all or any part of this Lease, the Premises or Tenant's
leasehold interest hereunder; nor (b) allow or permit any sale or transfer
(including by consolidation, merger or reorganization) of a majority of the
voting stock or management control of Tenant, if Tenant is a corporation; nor
(c) allow or permit any sale or other transfer of controlling general
partnership interests in Tenant, if Tenant is a partnership; nor (d) allow or
permit a change of present controlling executive management by management
contract, license, franchise agreement or other arrangement [all of the
foregoing items (a), (b), (c) and (d) are hereafter collectively referred to as
an "Assignment"]; nor (e) permit subtenants, concessionaires, licensees or
others to occupy all or any portion of the Premises; nor (f) sublease the
Premises or any portion thereof [items (e) and (f) are hereafter collectively
referred to as a "Sublease"].
Section 15.2. Request for Approval. If Tenant desires at any time to enter
into an Assignment or Sublease as described above, it shall first give written
notice to Landlord of its desire to do so, which notice shall contain or
include: (a) the name of the proposed successor, assignee, subtenant or occupant
(hereafter referred to as the "transferee"); (b) the nature of the proposed
transferee's business to be conducted in the Premises; (c) the terms, provisions
and economic considerations of the proposed Assignment or Sublease; (d) the
identity of proposed principals and lease guarantors (if any); (e) signed
current financial statements of the proposed transferee and guarantors (if any),
reviewed or prepared by a major local or national certified public accounting
firm; and (f) the business plan of the proposed transferee or other written
statements of purpose, proposed operating policies and the background and
experience of the principals.
Section 15.3. Landlord's Election. At any time within thirty (30) days
after receipt of the notice specified in Section 15.2 above, Landlord may
request additional information or may, in its sole discretion, by written notice
to Tenant: (a) consent to the Sublease or Assignment; or (b) disapprove the
Sublease or Assignment. If Landlord consents to the Sublease or Assignment
within thirty (30) day period, Tenant shall within thirty (30) days thereafter
enter into such Sublease or Assignment of the Premises or portion thereof, upon
the terms and conditions set for the in the notice previously furnished by
Tenant to Landlord pursuant to Section 15.2 above, otherwise Landlord's consent
shall be void and of no force or effect.
Section 15.4. Noncompliance. No consent by Landlord to any Assignment or
Sublease by Tenant shall relieve Tenant of any obligation to be performed by
Tenant under this Lease, whether arising before or after the Assignment or
Sublease. Landlord's consent to any Assignment or Sublease shall not relieve
Tenant, or the transferee, from the obligation to obtain Landlord's express
written consent to any other Assignment or Sublease. Following Landlord's
consent to an Assignment or Sublease, said Assignment instrument or Sublease
shall not be subsequently amended or modified without written notice to and the
consent of Landlord, if Landlord would have been entitled to notice thereof in
the first instance pursuant to Section 15.2. Any purported Assignment or
Sublease not in compliance with this Article shall be void and, at the option of
Landlord, shall constitute a material default by Tenant under this Lease. The
acceptance of rent or additional charges by Landlord from a proposed transferee
shall not constitute Landlord's consent to any such Assignment or Sublease.
Section 15.5. Assumption of Lease. Each transferee, other than Landlord,
shall expressly assume all obligation of Tenant under this Lease and shall be
and remain liable jointly and severally with Tenant for the payment of rent and
additional charges, and for the performance of all the terms, covenants,
conditions and agreement herein contained with respect to that portion of the
Premises identified in Tenant's notice to Landlord pursuant to Section 15.2
above. No Assignment or Sublease shall be binding on Landlord, unless the
transferee or Tenant shall deliver to Landlord an executed counterpart of the
Assignment or Sublease which contains covenants of assumption satisfactory in
substance and form to Landlord, and consistent with the requirements of this
Article; provided that the failure or refusal of such party to execute such
instrument or assumption shall not release or discharge the transferee from its
liability as set forth above.
Section 15.6. Delay or Refusal. (a) Notwithstanding the fact that Landlord
reserves the right to withhold its approval or consent in its reasonable
discretion and for whatever reason in connection with any aspect of the
provisions of this Article, in the event Tenant should claim that Landlord has
been wrongful in withholding or delaying consent or requesting information as to
a proposed Sublease or Assignment, or otherwise that Landlord has wronged Tenant
or its proposed transferee in its exercise of any rights reserved to Landlord
under this Lease, then Tenant's remedies and those of the proposed transferee
shall be restricted to a declaratory judgement and/or an injunction for relief
sought, and no monetary or punitive damages may be claimed. In consideration
thereof, Landlord agrees that any application for a declaratory judgement and/or
injunctive relief may be treated as such and relief may be granted accordingly
on the pleadings in favor of either Landlord or Tenant as determined by the
court, this agreement by Landlord being a special inducement to Tenant and
proposed transferees restricting their remedies as above provided and waiving
all others. By the execution of this Lease and by the application to Landlord
for any consents or approvals as required under this Article or elsewhere in
this Lease, Tenant specifically waives and
-8-
<PAGE>
relinquishes any rights, claims or causes of action by way of damages, loss of
profits or advantages, tortious interference with contractual obligations,
disparagement or any other remedies other than that of declaratory judgement
and/or injunction as described above. Where under the provisions of this Article
a consent is required, such consent shall be defined as a written consent, and
no inference that a consent has been given shall be drawn from Landlord's
conduct or inaction in any event.
(b) In each case the reasonableness of Landlord's election regarding a
proposed Assignment or Sublease shall be deemed conclusive, unless Tenant shall,
within sixty (60) days after notice from Landlord of its determination, file an
equitable action in the appropriate state court seeking injunctive relief from
Landlord's determination, which injunctive relief shall be Tenant's sole remedy
for any claim that Landlord wrongfully withheld or delayed its consent or
approval. In the event that any action for injunctive relief shall be filed by
Tenant pursuant to the provisions of this Section, the sole issue to be
submitted to the Court shall be the determination as to whether the withholding
or delaying of consent or approval by Landlord shall have been reasonable or
unreasonable, and in the event that a determination shall be made that the
withholding or delaying of consent or approval by Landlord was unreasonable,
then the Court's decision or order shall annul such withholding or delaying of
consent or approval, such annulment being the sole remedy of Tenant. It is the
intention of the parties hereto (as to which they are conclusively bound) that
in no event shall Landlord's withholding or delaying of consent or approval, or
any decision of any Court with respect thereto: (i) impose any financial
liability upon or result in any damages being recoverable from Landlord; or (ii)
create any recognizable right or enforceable remedy in favor of Tenant and
against Landlord in law or equity, except as expressly provide herein.
Section 15.7. Successors; Joint Liability. All rights and liabilities
herein given or imposed upon the respective parties hereto shall, except as may
be otherwise herein provided, extend to and bind the respective heirs,
executors, administrators, successors and assigns of the said parties; and if
there shall be more than one (1) Tenant, they shall all be bound jointly and
severally by the terms, covenants and agreements herein contained. No rights,
however, shall inure to the benefit of any transferee or assignee of Tenant
unless the Assignment or Sublease has been made in accordance with the
provisions in this Article.
Section 15.8. Processing Charge. Tenant agrees to reimburse Landlord for
reasonable attorneys' fees incurred by Landlord in connection with the
processing, review and documentation of any Assignment, Sublease, license,
concession, creation of a security interest, granting of a collateral
assignment, change of ownership or transfer for which Landlord's consent is
required or sought under this Article. Landlord shall not be required to take
any action thereon until Tenant pays such amounts.
Section 15.9. Landlord's Consideration. Whenever its consent to a proposed
Assignment or Sublease is required hereunder, Landlord may request additional
supporting documentation and assurances and may reasonably consider all relevant
factors, including (without limitation):
(a) Whether the use of the Premises and trade name of the proposed
transferee will be identical to (or substantially the same as) those of Tenant,
or will otherwise be compatible with Landlord's efforts to enhance the image,
reputation, trade name and long-term profitability of the Center;
(b) Whether the addition of the proposed new tenant or subtenant will be
compatible with the tenant mix of the Center generally and specifically among
business operators specializing in particular kinds of merchandise, services and
products; or conflict with Landlord's marketing plans for the Center and the
consumer groups being targeted by Landlord and its leading tenants in the
Center;
(c) Whether the quantity, kind, variety and quality of the merchandise sold
will remain substantially the same;
(d) Whether the level and quality of customer services on the Premises will
be consistent with those of the leading tenants of the Center and will remain
high;
(e) Whether the net worth and liquidity of the proposed transferee and
lease guarantors (if any) are adequate in relation to the assets held and to
current and anticipated future financial obligations, as revealed by current
signed financial statements reviewed by a major local or national certified
public accounting firm;
(f) Whether the proposed transferee and its principals, affiliates and
guarantors (if any) have a sufficient credit history and reputation for honesty
and fair dealing;
(g) Whether the business plan and operating procedures for the business on
the Premises are reasonably coherent, lucid, credible and economically feasible;
(h) Whether the proposed transferee and its management team have sufficient
education, specifically applicable business experienced, and successful track
records in marketing and managing businesses similar in size, scope and scale to
that on the Premises together with any other stores, offices or businesses
proposed to be acquired by the transferee and its affiliates; and
(i) Whether the amounts to be invested in the business on the Premises are
actually invested, and whether the proposed transferee and its principals and
guarantors (if any) have sufficient personal financial interest and potential
personal liabilities to assure proper motivation for success.
Article 16
Use and Operations
Section 16.1. Permitted Use. Tenant may use and occupy the Premises during
the continuance of this Lease only for the "Permitted Use" described on the
Summary/Signature Page of this Lease [and/or in the Special Provisions], and for
no other purpose without the prior written consent of Landlord. Unless otherwise
authorized herein or expressly provided by applicable laws or regulations, the
Premises shall not constitute or be used as a "place of public accommodation" as
defined in the Americans with Disabilities Act of 1990 and applicable federal
regulations. Tenant shall promptly comply with all laws, ordinances and
governmental orders and regulations in any way affecting the cleanliness,
occupation or use of the Premises or the physical accommodations, facilities and
equipment therein. No auctions, fire sales, truckload sales, sidewalk sales,
inventory reduction sales, liquidation sales, bankruptcy sales, "going out of
business" sales or sales of similar import any be conducted on or about the
premises except upon Landlord's prior written consent in each instance. Tenant
agrees to conduct its business in the Premises during the regular and customary
hours for such type business in a lawful manner, in good faith and in such a
manner that Landlord will at all times received the maximum amount of Rent
consistent with the profitable operation of Tenant's business on the Premises.
Tenant shall not conduct wholesale, factory outlet or warehouse business on the
Premises, or operate as a discount store, or otherwise engage in heavily
discounted sales from the Premises. For purposes of this Lease, "heavily
discounted" sales shall mean those advertised or promoted at reductions of
greater than fifty percent (50%) from retail prices. Tenant further agrees to
maintain the interior of its Premises with tastefully decorated and appointed
furnishings and store fixtures, and with top-quality display racks, counters,
shelving, floor and wall coverings.
Section 16.2. Business Hours and Continuous Operation. Tenant covenants and
agrees that it will conduct its business on the Premises, operating continuously
and without interruption during the entire Term under Tenant's trade name (or
such other trade name as Landlord may approve in writing), remaining open for
business to the public on the Premises and being staffed with sufficient
employees to handle anticipated sales during all hours and on all days set forth
on the Summary/Signature Page of this Lease.
-9-
<PAGE>
In the event Tenant fails to open for business for more than five (5) days in
any Lease Year when it is otherwise required to be open (except due to an
unavoidable casualty to the Premises or other nonmonetary reasons beyond
Tenant's control), then Tenant shall pay one hundred and twenty percent (120%)
of the Minimum or Base Rents last established for the remainder of the Lease
Term.
Section 16.3. Prior Vacation. In the vent that Tenant ceases to operate a
business on the Premises for the purpose authorized herein and as described in
Section 16.2 above, or if Tenant surrenders the keys to the Premises, then
Landlord shall have all rights and remedies under Article 21 below. In case of
any such prior vacation of the Premises, the Lease shall continue unless or
until terminated by express action of Landlord pursuant to Article 21 of these
General Provisions or until its Term expires, and Tenant shall remain liable for
the payment of rents and other charges, notwithstanding Landlord's acceptance of
the keys or attempts to re-let the Premises.
Article 17
Bankruptcy and Insolvency
Section 17.1. Events of Bankruptcy or Insolvency. The following shall
automatically constitute "Events of Bankruptcy or Insolvency" by Tenant: (a) the
fling of any voluntary petition or entry of an order for relief against Tenant,
under Chapter 7, 11 or 13 of the United States Bankruptcy Code [unless dismissed
within thirty (30) days]; (b) the conversion of a proceeding against Tenant
under any other chapter of the Bankruptcy Code to a Chapter 7, 11 or 13 action;
(c) the making of a voluntary assignment by Tenant for the benefit of its
creditors; (d) the appointment of a receiver or trustee to take charge of
Tenant's business, or the take-over of Tenant's business by any federal or state
banking, insurance or regulatory authority having jurisdiction; (e) the filing
of any other petition or application seeking relief under federal or state laws
now or hereafter providing for the relief of debtors; (f) any garnishment,
attachment, exception or action in aid of pre-judgement or post-judgement
assessment or execution, or any local, state or federal tax sale or tax levy, or
(g) any other transfer of this Lease by operation of law. All such Events of
Bankruptcy or Insolvency shall also constitute defaults under this Lease, and
Landlord may, at any time thereafter, exercise any of the remedies available to
Landlord for such a default by Tenant. Notwithstanding anything to the contrary,
any such involuntary proceeding against Tenant shall not constitute an Event of
Default or Insolvency if dismissed or stayed with thirty (30) days of its
institution.
Section 17.2. Assignment of Lease. If an Event of Bankruptcy or Insolvency
occurs, the trustee, receiver or regulatory authority in charge of Tenant's
business may temporarily assume the obligations of the Lease by curing all
monetary defaults within ten (10) days from such occurrence, and curing all
other defaults within thirty (30) days, and by timely paying all rents
throughout the period of receivership, trust or regulatory control. Said
trustee, receiver or regulatory authority may then: (a) reject and cancel the
Lease by written order or notice to Landlord within sixty (60) days after the
occurrence of such Event of Bankruptcy or Insolvency, or such longer period as
may be afforded by court order or notice to Landlord within sixty (60) days
after the occurrency of such Event of Bankruptcy or Insolvency, or such longer
period as may be afforded by court order or applicable law; or (b) permanently
assume and assign the Lease, subject to Landlord's prior written consent in
accordance with Article 15 above, and subject also to the proposed assignee
providing Landlord "adequate assurances of future performance" as described
below. For purposes of this Lease, "adequate assurances of future performance"
shall mean substantial and convincing objective documentation or contractually
binding commitments: (i) that the proposed assignment will in no way breach or
violate Landlord's obligations to its creditors or to other tenants of the
Center, or require the prior written consent of any third party, or require the
waiver of rights under any agreement between Landlord and any third party; (ii)
that the proposed transferee or assignee has adequately addressed Landlord's
legitimate concerns as to the effects of the proposed assignment or sublease
upon the long-term profitability and tenant mix of the Center, has provided all
documentation and information requested pursuant to Section 15.2 above, and
reasonably satisfied the burdens and criteria described in Section 15.9 above;
(iii) that the proposed transferee or assignee has cured or will promptly cure
all defaults under the Lease; has deposited or will promptly deposit with
Landlord, as security for the timely payment and performance of all future Lease
obligations pursuant to Section 7.2 above, a cash sum equal to at least three
(3) months' Minimum or Base Rents at current levels under the Lease plus three
(3) months' Operating Expenses and other charges due hereunder; and (iv) that
the proposed transferee or assignee has sufficient experience, managerial and
marketing skills to reasonably assure that Landlord will receive the Minimum or
Base Rents (adjusted as provided in Section 3.2 above) throughout the remaining
Lease Term.
Article 18
Fixtures and Property Removal
Section 18.1. Tenant's Property. For the purpose of this Article 18, the
following shall be deemed to be Tenant's property: (a) all furniture, trade
fixtures, equipment and movable personal property, other than those installed by
or at the expense of Landlord; and (b) all inventory and stock in trade
furnished by or at the expense of Tenant. Such property may be removed from the
Premises by Tenant at any time, provided that items essential to the conduct of
Tenant's business shall be replaced with items of similar purpose and quality
during the Lease Term. All of Tenant's property except those items, if any,
which Landlord may have given Tenant specific written permission to leave in the
Premises, shall be removed upon expiration or termination of this Lease. Tenant
shall: (i) repair any damage to the Premises, building, Center or tract caused
by the removal of Tenant's property; (ii) have all utility lines professional
capped or plugged; and (iii) restore the Premises, building, Center and tract to
substantially the same order and condition as existed immediately prior to the
time Tenant entered into possession of the Premises, ordinary wear and tear and
damage by casualty and the elements excepted. Such repairs and restoration work
shall be made promptly, and in any event prior to expiration or termination of
this Lease. Any of Tenant's property not so removed may, at Landlord's election
and without limiting Landlord's right to compel removal thereof, be deemed
abandoned, and Landlord may remove and dispose of the same and restore the
Premises to good order and condition, and Tenant shall reimburse Landlord for
all reasonable costs and expenses in connection with the restoration as
Additional Rent within thirty (30) days after written notice thereof from
Landlord. And Tenant hereby releases Landlord from any and all liability in
connection with the removal and disposition of any of Tenant's property not so
removed by Tenant prior to expiration or termination of this Lease.
Section 18.2. Landlord's Property. Regardless of which party may have
installed or paid for them, or may own or have insurable interest in them during
the Lease Term, any and all plumbing lines and fixtures, light fixtures,
heating, ventilating and air conditioning equipment, carpeting and suspended
ceilings, and other improvements, betterments, materials, fixtures and
equipment, affixed in any manner to the Building or Premises (except trade
fixtures and equipment installed and paid for by Tenant) shall become Landlord's
sole property upon expiration or termination of this Lease; and no such property
may be removed from the Premises except upon the expressed written consent of
Landlord; provided that Landlord shall have the right, at its option, upon
expiration or termination of the Lease Term, to demand that Tenant remove any
specific improvements, betterments or other items previously installed and paid
for by Tenant and to restore the Premises to substantially the same condition as
existed prior to Tenant originally taking possession of the Premises, all at
Tenant's cost and expense; and Tenant shall promptly comply. By way of
illustration and not in limitation, the following kinds of fixtures,
improvements, betterments and other items shall be deemed to be Landlord's
property unless otherwise determined by Landlord; attached carpeting and floor
coverings; paneling, woodwork and moldings; doors and windows; attached mirrors;
fixed walls and partitions; pipes, faucets, sinks, disposals, commodes and
plumbing fixtures of all kinds; lighting fixtures and electrical outlets;
heating, ventilating and air conditioning ductwork, compressors, condensers,
furnaces, boilers and other equipment; hot water heaters; floors, decks and
mezzanines; built-in ovens, stoves, walk-in or nonremovable freezers or
refrigerators and other kitchen equipment; suspended and fixed ceilings; fixed
cabinetry and shelving; wall coverings; ceiling and attic fans and humidifiers;
blinds, drapes, curtain rods and other window treatments; gazebos, gates,
fences, trellises, trees, shrubs and plantings of all kinds; all similar items
and all improvements and betterments to the building, Premises and appurtenant
tract.
-10-
<PAGE>
Article 19
Landlord's Lien, Waiver and Security Agreement
Section 19.1. Landlord's Lien. All property of Tenant which is now or
hereafter may be in or upon the Premises, whether or not exempt from execution,
shall be bound by and subject to lien and also to the encumbrance of a security
interest in said property, which hereby Tenant grants to Landlord in accordance
with the provisions of Uniform Commercial Code ("UCC") in the state in which the
Premises are located for the payment of all rents and charges herein reserved
and for the payment of any damages arising from Tenant's breach of any of the
covenants or agreements of this Lease; provided that the provisions hereof shall
not apply to inventory stock-in-trade kept by Tenant, but the lien and security
interest hereby created shall apply as to all other property of Tenant now or
hereafter in or upon said Premises. Tenant hereby appoints Landlord as its agent
and attorney-in-fact to execute any and all financing statements, amendments and
extensions thereof on UCC forms on behalf of Tenant, and to file the same on
behalf of Tenant or without Tenant's signature, at Landlord's option. In case of
default in the payment of any installment of rents or any other sums required to
be paid by Tenant when the same become due, which default continues for a period
of ten (10) days after written notice from Landlord to Tenant, Landlord may take
possession of all or any parts of such property and sell or cause the same to be
sold at public or private sale, with or without notice, to the highest bidder
for cash, and apply the proceeds of said sale toward the costs thereof and then
toward the debt and/or damages as aforesaid. Landlord's exercise of the security
interest herein created shall cause Landlord's interest in said property to be
senior to Tenant's interest therein for proposes of any replevin action brought
against Landlord by Tenant.
Section 19.2. Optional Waiver. Landlord may elect, in its sole discretion,
to release or subordinate any and all rights it may have to claim a lien or
other rights in or to Tenant's property described in Section 18.1 of these
General Provisions above except as expressly provided therein in the case of
abandonment. All banks and other lenders claiming a security interest in any or
all Tenant's property may give Landlord written notice of their security
interests upon or prior to expiration or termination of this Lease; and Landlord
will contract said lender if any such items remain in the Premises following
expiration or termination, provided that the lender promptly removes the same
upon demand by Landlord. Any items not so removed by the lender shall be deemed
abandoned, and Landlord shall dispose of the same as it sees fit and retain all
proceeds (if any).
Section 19.3. Non-Waivable Security Interest. Regardless of who may have
installed or paid for them, or who may own or have insurable interests in them
during the Lease Term, Landlord hereby affirms and asserts its lien rights in
and to full ownership of all Landlord's property described in Section 18.2 above
upon expiration or termination of this Lease, together with all replacements
thereof and substitutions therefor. The provisions of this Lease shall
constitute a security agreement under the Uniform Commercial Code in the state
in which the Premises are located, for the payment of all rents and other
charges reserved hereunder and damages arising from the breach (if any) by
Tenant of the covenants, terms or conditions of this Lease; and such security
interest shall attach and apply to any and all improvements, betterments,
equipment and other items installed by Tenant in the Premises (except Tenant's
property described in Section 18.1 above), or otherwise comprising Landlord's
property as described in Section 18.2 above. In the event of default by Tenant
in the payment of rents or performance of any other covenant of this Lease, then
Landlord shall have all rights and remedies prescribed in Article 20 below.
Further, if Tenant fails to timely cure any such default after written notice
from Landlord, then Landlord or its successors or assigns, shall also have the
further right to take possession of the encumbered property or any part thereof
and sell or cause the same to be sold at any public or private sale with or
without further notice to Tenant, to the highest bidder for cash; and Landlord
may thereupon apply proceeds of such sale toward the costs of sale and then to
Tenant's rental obligations and Landlord's damages as aforesaid. Landlord's
security interest herein created shall be first and paramount over the interests
of the Tenant and any lender of Tenant and specifically shall be senior to any
claim by Tenant or its lenders for replevin of such property brought against
Landlord. No action of Landlord in expressly waiving any security or lien rights
against Tenant's property shall ever be deemed to extend such waiver to
Landlord's property as described in Section 18.2 above. Further, no officer,
employee or agent of Landlord shall have any authority to waive Landlord's
security and lienable interests in Landlord's property described herein and in
Section 18.2 above; such interests being waivable only by means of an expressed
written resolution of Landlord's board of directors (or executive committee of
the board of directors, if they are expressly empowered to so act). Nothing
herein, however, is intended to preclude Tenant from securing proper leasehold
financing of Tenant's property and Tenant's leasehold interests in the Premises;
provided that upon expiration or termination of this Lease Landlord's property
shall remain Landlord's, free and clear of any encumbrance on the part of Tenant
or its lenders.
Article 20
Eminent Domain
Section 20.1. Effects of Condemnation. If all or any part of the Premises
shall be taken by any public or quasi-public authority under the power of
eminent domain, or conveyed to a public or quasi-public authority under the
threat of the power of eminent domain, then the terms of this Lease shall cease
as to that part of the Premises so taken or conveyed (hereafter referred to as
the "condemned portion") from the date possession of the condemned portion shall
be taken by the condemning authority. Unless this Lease is cancelled as
hereafter provided, the Minimum or Base Rents and other charges provided for
herein shall be reduced in proportion to the amount of the Premises taken,
commencing with the date possession is acquired by the condemning authority. If
the loss of the condemned portion will, in landlord's sole judgement based upon
generally accepted standards applicable to Tenant's business on the Premises,
have a significantly impairing effect on such business as to render the Premises
unfit for intended use, the Tenant may cancel this entire Lease. Such right to
cancel may be exercised by Tenant only:
(a) If Tenant gives Landlord at least ten (10) days' prior written notice
of such cancellation;
(b) The effective date of such cancellation of the entire Lease is the same
as the date possession was obtained of the condemned portion by the condemning
authority; and
(c) Rent and all other charges are paid in full to the effective date of
such cancellation.
Section 20.2. Awards. All damages awarded for any such taking shall belong
to Landlord as its property, whether such damages shall be awarded as
compensation for diminution in value to the leasehold or to the fee interest in
the Premises; provided, however, that Landlord shall not be entitled to any
portion of the award made to Tenant for loss of business, damage and
depreciation to its inventory, stock, furnishings and trade fixtures, and the
costs of removing and relocation the same.
Article 21
Default
Section 21.1. Events of Default. Tenant shall be in default under this
Lease if any of the following events shall occur:
(a) If Tenant fails to pay any rent or other sum of money required
hereunder within ten (10) days after written notice or billing from Landlord
[hereafter referred to as a "monetary breach or default"].
-11-
<PAGE>
(b) If Tenant closes its business on the Premises when required to be open,
or vacates and removes its personal property therefrom, or abandons its personal
property therein [hereafter collectively referred to as a "closing"], and
further fails to re-open for business in the Premises within ten (10) days after
written notice from Landlord.
(c) If any Event of Bankruptcy or Insolvency occurs as defined in Section
17.1 above, or if Tenant violates, breaches or fails to perform any other act,
covenant or condition required or prohibited under this Lease [hereafter
collectively referred to as a "non-monetary breach"], and fails to cure such
non-monetary breach within thirty (30) days after written notice from Landlord,
or fails to promptly and timely commence the cure of any such non-monetary
breach not capable of being cured within such thirty (30) day period and to
diligently pursue the same to completion within reasonable period of time.
Section 21.2. Remedies. In the event Tenant is in default under this Lease,
or if Tenant voluntarily gives up possession of the Premises by delivering keys
or written notice to that effect to Landlord, then Landlord may at any time
thereafter undertake any or all of the following remedies:
(a) Cancel and terminate this Lease by written notice to Tenant expressly
stipulating the effective date thereof.
(b) Re-enter and take possession of the Premises, remove all Tenant's
property therefrom and store or dispose of the same as Landlord sees fit
(applying the proceeds to Tenant's costs and obligations hereunder), and evict
any persons therein from the Premises -- and Tenant shall be liable for all
costs and expenses thereof as Additional Rent hereunder.
(c) Accelerate Tenant's obligations to pay Rents by written notice to
Tenant and demand immediate payment of all Rents that accrue throughout the
remainder of the Lease Term.
(d) Re-let the Premises or any part thereof upon such terms and for such
use or uses as Landlord deems appropriate for the tenant mix of the Center, to
such parties (and with such experience, financial worth and guarantees) as
Landlord in its discretion shall deem sufficient to protect its interests in the
Premises; provided that Landlord shall have no obligation to re-let the
Premises.
(e) Seek payment of all rents and other charges under the Lease, together
with monetary damages suffered by Landlord as a result of Tenant's default, by
any action at law or in equity against Tenant and/or its principals and
guarantors (if any).
(f) Seek possession of the Premises by any action at law or in equity
against Tenant's and/or its principals and guarantors (if any).
Section 21.3. Consequential Damages and Other Provisions. Landlord shall
have no obligations to accept keys to the Premises from Tenant, but (if it does
so) such actions shall not constitute a surrender of the Premises by Tenant and
shall not cancel or terminate this Lease (except upon specific written notice to
that effect from Landlord), No re-entry or re-taking of possession of the
Premises by Landlord shall under any circumstances be construed as an election
to terminate or cancel this Lease unless Landlord expressly elects to do so as
provided in Section 21.2(a) above or unless so ordered by a court of competent
jurisdiction. In addition to the rents and other charges required to be paid
hereunder, Landlord's damaged as a result of Tenant's default shall include
(without limitation): (a) the unamortized balance of the costs of any
improvements (if any) made or paid for by Landlord to accommodate Tenant's
occupancy of the Premises; (b) the reasonable costs of any clean-up and repair
work necessary or desirable to show the Premises to prospective new tenants; (c)
the reasonable costs of removing, storing, and/or disposing of Tenant's
inventory, furnishings and trade fixtures, as well as any improvements and
betterments in the Premises that are not suitable for a new tenant; (d) the
reasonable costs of re-letting the Premises, including advertising and other
out-of-pocket expenses and real estate leasing commissions or finders' fees; and
(e) court costs, filling fees, investigation costs, reasonable attorney's fees,
late charges and interest on all sums payable by Tenant. In its discretion at
any time or under any circumstances, Landlord's rights and remedies hereunder
shall be cumulative and may be exercised and enforced concurrently. No right or
remedies under this Lease shall be exclusive of any other right or remedy.
Landlord may undertake one or more remedies while not exercising others that
remain available. Specifically, Landlord may undertake any of the remedies
described in Section 21.2(b), (c), (d) or (e) above without terminating the
Lease as provided in Section 21.2(a) above, as to all or any part of the
Premises or the rents and obligations under this Lease. If Landlord shall re-let
the Premises or any portion thereof, all rentals received therefrom during the
remaining Lease Term shall be applied to reduce Tenant's obligations hereunder;
but Landlord shall determine the acceptable amount of rent for any new tenant,
without regard for Tenant's obligations.
Section 21.4. Attorney's Fees. In the event the parties hereto become
involved in any proceeding to enforce this Lease or the rights, duties or
obligations hereunder, the prevailing party in such proceedings shall be
entitled to receive, as part of any reward, reasonable attorneys' fees, expenses
and court costs, and the non-prevailing party shall pay the same upon demand.
Section 21.5. Wavier of Jury Trial. Each of the parties hereby waives the
right to trail by jury in action, proceeding or counterclaim brought by either
party (or any affiliates) against the other (or any affiliates) on any matter
arising out of or in any way connected with or related to this Lease, the
Premises, the Center or the relationship of the parties.
Article 22
Sales and Mortgage of the Premises
Section 22.1. Mortgage. Landlord reserves the right to subject and
subordinate this Lease at all times to the lien of any mortgage or deed of trust
loan now or hereafter placed upon Landlord's interest in the Premises or on the
Center and land of which the Premises form a part. Upon written request of the
holder of any mortgage or deed of trust (the "Mortgagee") now or hereafter
encumbering the Premises, Tenant shall subordinate its rights under this Lease
to the lien of such mortgage or deed of trust. Notwithstanding the foregoing, if
the Mortgagee elects to have this lease superior to its mortgage or deed of
trust, then upon Mortgagee's request, Tenant shall execute, acknowledge and
deliver an instrument, in the form used by said Mortgagee, effecting such
priority. In the event proceedings are brought for foreclosure of, or the
exercise of a power of sale under any such mortgage or deed of trust, Tenant
shall, upon request, adorn to the purchaser at any such foreclosure or sale and
recognize such purchaser as Landlord under this lease. Upon Landlord's request,
Tenant shall promptly execute, acknowledge and deliver such instruments as are
required to effect the intent of this section.
Section 22.2. Sale of Premises. Landlord further reserves the right to sell
or otherwise assign its interests in this Lease or the Premises, and no such
action shall affect or otherwise impair this Lease. If Landlord conveys
ownership of the Center or Premises or if Landlord assigns its interests in this
Lease, then upon such conveyance or assignment, Landlord (and the grantor or
assignor, in the case of any subsequent conveyances or assignments) shall be
entirely released from all liability with respect to the performance of any
obligations on the part of Landlord to be performed hereunder from and after the
date of such conveyance or assignment; subject, however, to the new Landlord's
accepting the responsibility for the performance of all obligations of this
Lease to be performed by Landlord.
-12-
<PAGE>
Section 23.3. Estoppel Certificates. Tenant agrees to execute, acknowledge
and deliver to and in favor of any proposed Mortgagee or purchaser of the
Premises or Center, within fifteen (15) days after written request by Landlord,
any estoppel certificate that may be requested. If such certificate is not
returned during that period of time, then commencing on the sixteenth (16th) day
and continuing each day thereafter, Tenant agrees to pay as Additional Rent, the
sum of Twenty-Five Dollars ($25.00) per day, until such certificate is returned.
The estoppel certificate shall state, among other things: (a) whether this Lease
is in full force and effect; (b) whether this Lease has been modified or amended
and, if so, identifying and describing any such modification or amendment; (c)
the date to which rents and any other charges have been paid; and (d) whether
Tenant knows of any default on the part of Landlord or has any claim against
Landlord and, if so, specifying the nature of such default or claim.
Section 22.4. Quiet Possession. All other provisions of the Lease
notwithstanding, so long as Tenant shall not default in the payment of rents or
performance of the covenants of this Lease, Landlord shall not disturb Tenant's
possession of the of the Premises; and Tenant's obligations to subordinate this
Lease, provide estoppel certificates and adorn to any purchaser or successor in
interest to Landlord, as required pursuant to Sections 22.1 and 22.2 above,
shall be conditional upon the mortgagee, purchaser or successor providing Tenant
with an appropriate non-disturbance agreement.
Article 23
Notices and Service
Section 23.1. Receipt of Notice. Any notice which either party desires or
is required to deliver to the other shall be in writing and shall be effective
and deemed received: (a) three (3) business days after being deposited in
regular United States Mail, postage prepaid, addressed as provided below; or (b)
one (1) business day after deposit with a nationally recognized overnight
courier service; or (c) upon delivery to Landlord or to Tenant or Tenant's
manager in person; or (d) upon receipt or refusal, after being delivered in
person or deposited in certified United States mail, return receipt requested,
addressed as follows:
To Tenant: At Tenant's home office address shown on the Summary/ Signature
Page of the Lease or at the last known post office address of
Tenant or at the address of the Premises; or
To Landlord: J.C. Nichols Company
310 Ward Parkway
Kansas City, Missouri 64112
Attention: Legal Department;
or to such other or additional addresses of which either party may, from time to
time, give written notice to the other.
Section 23.2. Consent to Service. Tenant agrees that any action brought in
connection with this Lease may be maintained in any court of competent
jurisdiction in the country and state where the Premises are located. Tenant
hereby appoints Landlord as agent for the purpose of accepting service of any
legal process, subject only to the condition that Landlord promptly send notice
of such process to Tenant as provided in Section 23.1 above or at such other
address of Tenant as set forth elsewhere in this Lease or of which Tenant may
give Landlord notice at a later date.
Article 24
Expiration or Termination
Section 24.1. Surrender of Premises. Upon expiration of the primary Term or
any extension or renewal term of this Lease, or upon earlier termination or
cancellation of this Lease, unless the parties are negotiating in good faith for
a lease renewal, Tenant shall surrender the Premises in substantially the same
condition (subject to the removals herein allowed) as the Premises were on the
date Tenant opened the Premises for business to the public, ordinary wear and
tear and fire or other casualty damage expected. Tenant shall also surrender all
keys for the Premises to Landlord at the place then fixed for the payment of
rent and shall give Landlord all combinations and keys for locks, safes, and
vaults, if any, in the Premises. Prior to the expiration or termination of the
Term, Tenant shall remove all Tenant's property and, to the extent required or
allowed by Landlord, any other installations, alterations or improvements
provided for in Article 18 hereof, before surrendering the Premises as aforesaid
and shall repair any damage to the Premises caused thereby. Tenant's obligation
to observe or perform this covenant shall survive the expiration or termination
of this Lease.
Section 24.2. Holding Over. In the event Tenant remains in possession of
the Premises after the expiration or termination date of this Lease and without
the execution of a new lease or an extension or renewal agreement, Tenant shall
be deemed to be occupying said Premises from month-to-month, subject to all of
the conditions, provisions and obligations of this Lease insofar as the sale are
applicable month-to-month tenancy; provided that during such holdover period,
Tenant shall pay Landlord twice the monthly rents and other charges last
established under this Lease, unless the parties are negotiating in good faith
for a lease renewal.
Section 24.3. Re-Letting the Premises. Landlord may at any time within
sixty (60) days before the expiration date of this Lease enter the Premises at
all reasonable hours for the purpose of showing the Premises to prospective new
tenants and offering the same for rent and may place and keep on the windows and
doors of the Premises signs advertising the Premises for rent.
Article 25
Time and Force Majeure
Section 25.1. Force Majeure. In the event either party shall be delayed,
hindered or prevented from performing any act required under this Lease by
reason of strikes, lockouts, labor troubles, inability to produce materials,
failure of power, restrictive governmental laws or regulations, vandalism, riot,
insurrection, war, civil disobedience, or reasons of like nature, which are not
the fault of the party delayed in performing, then performance of such act shall
be excused for the reasonable period of the delay, and the period for the
performance of any such act shall be extended for a period equivalent to the
reasonable period of such delay.
Section 25.2. Timely Performance. Except as expressly authorized pursuant
to Section 25.1 above, TIME IS OF THE ESSENCE OF THIS LEASE. All other
provisions of this Lease notwithstanding, no force majeure event or other
circumstance shall justify or excuse a delay or failure to make any payment
required hereunder in a timely manner; provided that the commencement of the
Lease or opening of the Premises for business may be postponed as provided in
Section 23 above.
-13-
<PAGE>
Article 26
Real Estate Leasing Commissions
Section 26.1. Broker Contacts by Tenant. (a) Except as may be otherwise
described in the Special Provisions of this Lease, Tenant represents and
warrants to Landlord that Tenant has had no dealings with any broker or agent in
connection with this Lease, and Tenant agrees to indemnify and hold Landlord
harmless from and against any and all claims, liabilities and expenses
(including reasonable attorneys' fees) imposed upon, asserted or incurred by
Landlord as a consequence of any breach of this representation.
(b) Tenant further agrees that Landlord shall have no obligation to pay (or
reimburse Tenant) for any real estate commission, finder's fee or other
remuneration payable to any broker, consultants or lawyer contracted or retained
by Tenant or its affiliates in connection with the renewal or extension of this
Lease.
Article 27
Interpretation and Construction
Section 27.1. Reasonable Consents. Whenever the consent of either party is
required hereunder, such consent shall not be unreasonable withheld.
Reasonableness under all such circumstances shall mean on the basis of rational,
objective facts and information sought and considered in good faith in order to
make a decision on the matter at hand which adequately protects the interests of
the party making the decision. Moreover, it is the intent and purpose of the
parties that no judge, hearing examiner or arbitrator shall substitute his or
her judgement for that of Tenant or Landlord hereunder, unless clear and
convincing evidence exists which shows that such party is not acting in good
faith.
Section 27.2. Waiver. The waiver by Landlord or Tenant of the breach of any
term, covenant or condition in this Lease shall not be deemed to be a waiver of
any subsequent breach of the same or any other term, covenant or condition. No
covenant, term or condition of this Lease shall be deemed to have been waived,
unless such waiver is in writing signed by the party charged therewith.
Section 27.3. No Accord and Satisfaction. No payment by Tenant or receipt
by Landlord of a lesser amount than actual rents and other charges herein
reserved shall be deemed to be a compromise or agreement to accept such lesser
sum in full satisfaction, nor shall any endorsement or statement on any check,
or in any letter accompanying a check, be deemed an accord and satisfaction as
to such lesser amount.
Section 27.4. Severability. If any term, covenant or condition of this
Lease or the application thereof to any person or circumstance shall to any
extent be invalid or enforceable, the remainder of this Lease or the application
of such term covenant or condition to persons or circumstances other than those
as to which it is held invalid or enforceable, shall not be affected thereby;
and each term, covenant and condition of this Lease shall be severable, valid
and enforceable independently to the fullest extent permitted by law.
Section 27.5. Automatic Termination. Notwithstanding anything in this Lease
to the contrary, if this Lease has not previously been terminated and the Term
has not commenced within one (1) year from the date hereof, this Lease shall
automatically terminate at the expiration of said period, and neither party
shall be liable to or have any rights against the other by reason thereof.
Section 27.6. Survival of Tenant's Obligations. All obligations of Tenant
which by their nature involve performance, in any particular, after the end of
the Term, or which cannot be ascertained to have been fully performed until
after end of the Term, shall survive the expiration or termination of the Lease.
Likewise, utility bills, taxes and other items payable by Tenant hereunder, the
amounts of which may not have been ascertained or billed to Tenant upon the
expiration or termination date, shall nonetheless be payable in full by Tenant
within ten (10) days after written notice thereof from Landlord.
Section 27.7. No Partnership. Nothing in this Lease shall be deemed or
construed by the parties hereto, nor by any third party, to create a
relationship between the parties hereto other than that of Landlord and Tenant,
nor does Landlord in any way or for any purpose become a partner in the conduct
of Tenant's business, nor a joint venturer or a member of a joint enterprise of
any kind with Tenant.
Section 27.8. Non-Binding Effects and Amendments. The submission of this
Lease for examination or execution shall not constitute a reservation or an
option for the Premises, and this Lease shall become effective only upon
execution, delivery and acceptance hereof by both parties, subject to receipt of
the consideration described in Section 7.1 above. Except as otherwise expressly
provided herein, no subsequent alteration, amendment, change or addition to this
Lease, nor any surrender of the Term shall be binding upon Landlord or Tenant
unless reduced to writing and signed by them.
Section 27.9. Headings. The article and section headings used throughout
this Lease are for convenience of reference only and shall in no way be held to
explain, modify, amplify or aid in the interpretation, construction or meaning
of the provisions of this Lease.
Section 27.10. Entire Agreement; Amendments. This Lease comprises the
entire agreement and understanding of the parties; and all prior negotiations,
correspondence, proposals, verbal understandings and other prior documents are
hereby merged into this Lease, which shall not be amended or modified except by
a formal written instrument executed by both parties.
Section 27.11. Integration. It is the expressed intent of the party that
the provisions of this Lease be construed and interpreted in harmony as an
integrated whole to the maximum extent possible. However, in the event of an
irreconcilable conflict between the language in the Special Provisions and the
language in the General Provisions of this Lease, the Special Provisions shall
govern.
END OF GENERAL PROVISIONS OF THE LEASE.
THE ATTACHED SPECIAL PROVISIONS RIDER IS
INCORPORATED AS AN INTEGRAL PART OF THIS
LEASE.
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,394,319
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,396,538
<PP&E> 107,191
<DEPRECIATION> 48,633
<TOTAL-ASSETS> 1,531,515
<CURRENT-LIABILITIES> 2,163,127
<BONDS> 0
0
0
<COMMON> 12,000
<OTHER-SE> (643,612)
<TOTAL-LIABILITY-AND-EQUITY> 1,513,515
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 860,982
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 154,233
<INCOME-PRETAX> (1,015,315)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,015,315)
<EPS-PRIMARY> (3.47)
<EPS-DILUTED> (3.47)
</TABLE>
