As filed with the Securities and Exchange Commission on August 5, 1997
Registration Statement No. 333-28233
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
To
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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HEALTHCORE MEDICAL SOLUTIONS, INC.
(Exact name of Small Business Issuer as specified in its charter)
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<TABLE>
<S> <C> <C>
Delaware 7299 43-1771999
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of incorporation) classification code number) identification number)
</TABLE>
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11904 Blue Ridge Boulevard
Grandview, Missouri 64030
(816) 763-4900
(Address and telephone number of principal executive offices
and principal place of business)
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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)
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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
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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>
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Proposed
Proposed Maximum
Maximum Aggregate Amount of
Title of Each Class of Amount to be Offering Price Offering Registration
Securities to be Registered Registered Per Unit (1) Price (1) Fee
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units, each consisting of one share of
Class A Common Stock, $.01 par
value, and one Class A Warrant (2)................. 2,024,000 $5.00 $10,120,000 $3,067
- -------------------------------------------------------------------------------------------------------------------
Shares of Class A Common Stock,
$.01 par value (2)(3).............................. 2,024,000 6.50 13,156,000 3,987
- -------------------------------------------------------------------------------------------------------------------
Unit Purchase Option (4)........................... 176,000 .001 176 --
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Units, each consisting of one share of
Class A Common Stock, $.01 par value,
and one Class A Warrant (5)........................ 176,000 6.00 1,056,000 320
- -------------------------------------------------------------------------------------------------------------------
Shares of Class A Common Stock,
$.01 par value (5)................................. 176,000 6.50 1,144,000 347
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Total.......................................... $25,476,176 $7,721(6)
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</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.
(6) Previously paid.
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.
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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 AUGUST 5, 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.
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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE 7 AND "DILUTION."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=====================================================================================================
Underwriting Discounts and Proceeds to
Price to Public Commissions (1) Company (2)
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<S> <C> <C> <C>
Per Unit.......................... $ $ $
- -----------------------------------------------------------------------------------------------------
Total (3)......................... $ $ $
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</TABLE>
(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."
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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 following paragraph describes a graphic in the printed material]
The artwork is a collage of pictures depicting (i) health care professionals
performing services on patients, (ii) an individual ordering a prescription over
the telephone and (iii) a picture of the Company's HealthCare Solutions Card.
The artwork also contains the following caption: "HealthCare Solutions Card
holders simply present the card to any of our network of thousands of healthcare
professionals around the country to receive savings on the spot on many products
and services."
The Company intends to furnish its stockholders and holders of Class A
Warrants with annual reports containing financial statements audited by its
independent auditors.
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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>
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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") 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 50,000
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, health maintenance organizations
("HMOs") and business and other associations (collectively, "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, 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, the Employee Benefit Research
Institute estimates that in 1995, approximately 40 million Americans, or
approximately 17% 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, based upon a 1995 Blue Cross Blue
Shield Survey, it is estimated that in 1995, approximately $140 billion was
spent on ancillary health care services, including eye care, dental, and
pharmaceutical services, and that only approximately $50 billion of such amount
was reimbursed by a third party. 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, (iii) expanding the Company's sales and marketing
capabilities and (iv) the possible development of a physician and hospital
network.
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3
<PAGE>
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Since its inception, the Company's activities have consisted of (i)
designing and developing a network administration and management system which
the Company believes will facilitate data processing and enhance its customer
service capabilities (the "Network Administration System"), (ii) negotiating
contracts with Networks of Providers, (iii) organizing an initial marketing
force to market the HealthCare Solutions Card and (iv) test marketing. The
Company has only recently begun to market the HealthCare Solutions Card and is
currently focusing its initial marketing efforts in the states of Illinois,
Indiana, Missouri and Texas. 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.
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4
<PAGE>
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The Offering
<TABLE>
<S> <C>
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, plus accrued
interest thereon; 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."
</TABLE>
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(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 57,500 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.
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5
<PAGE>
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Summary Financial Information
<TABLE>
<CAPTION>
June 1, 1995
(Inception) Nine Months Ended June 1, 1995
Through Year Ended June 30, (Inception)
September 30, September 30, ------------------------ Through
1995 1996 1996 1997 June 30, 1997
--------- ---------- --------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
General and administrative
expenses........................... $ 78,105 $ 900,177 $ 745,123 $ 1,140,828 $ 2,119,110
Selling and marketing expenses....... 34,158 277,845 59,624 251,731 563,734
Interest expense..................... -- 36,071 3,028 514,598 550,669
--------- ---------- --------- ---------- ----------
Net loss............................. $(112,263) $(1,214,093) $(807,775) $(1,907,157) $(3,233,513)
========= =========== ========= =========== ===========
Net loss per share(1)................ $ (0.53) $ (4.83) $ (3.24) $ (6.52)
========= =========== ========= ===========
Weighted average number of
shares outstanding................. 211,183 251,525 249,633 292,345
========= =========== ========= ===========
</TABLE>
At June 30, 1997
----------------------------
Actual As Adjusted(2)
----------- -------------
(Unaudited)
Balance Sheet Data:
Working capital (deficit)......................... $(1,864,163) $5,172,444
Total assets...................................... 1,124,046 5,905,046
Total liabilities................................. 2,647,500 551,166
Deficit accumulated during the development stage.. (3,233,513) (3,437,179)
Total stockholders' equity (capital deficiency)... (1,523,454) 5,353,880
- ----------------
(1) The Escrow Shares are excluded from the computation of net loss per share.
See Notes B(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 June 30, 1997) and the corresponding additional
charge to operations of approximately $204,000. See "Risk Factors --
Potential Charges to Earnings," "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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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 Prospectus 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
June 30, 1997, the Company had an accumulated deficit of approximately $3.2
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 the 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 individuals,
employers, HMOs, business and other 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 $2,405,000, or
approximately 34%, 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,
as well as any other potential medical benefits related products the Company may
offer in the future. Except as described herein, the Company has no present
intention to
7
<PAGE>
offer additional medical benefits related products. The commercial viability of
the Company will be determined in large part by the acceptance of the HealthCare
Solutions Card by individuals, employers, HMOs, business and other associations,
providers of medical benefits and Members and will require the Company to secure
marketing and Network provider alliances within the highly competitive medical
benefits industry. 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. 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. Although the Company
has entered into numerous agreements with independent brokers, substantially all
of these brokers are affiliated with American Family Life Assurance Company
("AFLAC") and are concentrated in the states of Illinois, Indiana, Missouri and
Texas. Accordingly, the Company's initial marketing efforts will be focused in
such states. There can be no assurance that the Company will be able to hire
experienced marketing personnel or establish any additional arrangements with
independent brokers or that any current or 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 provider Networks 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) the providers affiliated with such Networks 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 and has entered into a new,
non-binding letter of intent to establish a joint venture with a preferred
provider organization ("PPO") that maintains a nationwide network of
approximately 250,000 physicians and hospitals. There can be no assurance that
the letter of intent will result in the execution of definitive agreements or
that any such physician and hospital network will be established. See "Business
- -- The HealthCare Solutions Card -- Possible Physician and Hospital Services."
The development by the Company of a physician and hospital network business is
subject to numerous risks, including (i) risks similar to
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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 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. The Company does not maintain errors and omissions insurance, but
does maintain general liability insurance in the amount of $2,000,000 which
provides general coverage for property damage, business liability and medical
payments. 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 referral fees and fee splitting and certain regulations applicable
to insurance companies and certain organizations that provide or arrange for
health care services. The Company believes that certain registration and
licensing laws and regulations in certain states in which the Company intends to
operate may apply to the Company's operations. In addition, statutes and
regulations applicable to other health care organizations with which the Company
may contract, including without limitation those relating to fee splitting,
referral fees, patient freedom of choice, provider rights to participate and
antidiscrimination, may impact the Company and may result in the delay or denial
of any such organization's participation in the Company's Networks. The
utilization fees received by the Company in connection with the pharmacy
benefits program might be construed to contravene the literal provisions of
these statutes and regulations in a number of states in which the Company
intends to operate. Although the Company has not obtained any rulings from any
governmental authorities or an opinion of counsel with regard to any of these
matters, the Company believes that the extent of its compliance with such laws
and regulations as they are currently enforced and applicable to the Company is
consistent with current industry practices and will not have a material adverse
affect on its business. However, legislation in these areas continues to evolve
and there can be no assurance that changes in enforcement and compliance
practices will not occur in the future, or that existing legislation will not be
expanded. In any such event, the Company could be required to effect
registration in various additional states and/or post substantial fidelity or
surety bonds in connection therewith. Alternatively, the Company could be
required to modify the products and services offered by it, modify its
contractual arrangements with Networks and Sponsors or be precluded from
providing some or all of its products and services in certain states. Any or all
of the foregoing consequences, or a determination that the Company is in
violation of any applicable laws or regulations, could have a material adverse
effect on the Company. 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,
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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 has applied 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."
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 Networks. Any difficulties in the payment of such commissions and fees
could adversely affect the Company's ability to attract and retain brokers and
Networks.
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."
Broad Discretionary Use of Proceeds. The Company has broad discretion with
respect to the specific application of approximately $2,176,000, or
approximately 31%, of the net proceeds of the Offering. Such amounts are
intended to be used for working capital, including salaries of current executive
officers and significant employees. Thus, purchasers of the Units will be
entrusting their funds to the Company's management, upon whose judgment the
investors must depend, with only limited information concerning management's
specific intentions. See "Use of Proceeds."
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 has not entered into any employment agreement with Mr.
Polan, although 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 16
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.
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Control by Management and Principal Stockholders; Potential Anti-Takeover
Effect of Shares Having Disproportionate Voting Rights. 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 granted from Mr. White to Mr. Polan, Mr.
Polan has the power to vote all of such shares. As a result, upon completion of
the Offering, Mr. Polan will have the ability to vote shares of Common Stock
representing approximately 40.9% of the total voting power of the Company, and
therefore influence significantly or control the outcome of substantially all
matters submitted to a vote of the stockholders. Mr. White has tendered his
resignation to the Company, which resignation will become effective August 15,
1997 and at which time the shares of Class B Common Stock held by Mr. White will
automatically convert into shares of Class A Common Stock. As a result, Mr.
Polan will control 32.0% of the total voting power of the Company upon
completion of the Offering. 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."
Potential Adverse Effects of Preferred Stock; Possible Anti-Takeover
Provisions. 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. The Company is also
subject to a Delaware statute regulating business combinations that could
discourage, hinder or preclude an unsolicited acquisition of the Company and
make it less likely that stockholders receive a premium for their shares as a
result of such attempt, which may adversely affect the market price of the
Company's securities. See "Description of Securities -- Preferred Stock" and "--
Business Combination Protections."
Immediate Dilution. The purchasers of the Units in the Offering will incur
immediate dilution of approximately $2.38 or 47.6% in the pro forma per share
net tangible book value of their Class A Common Stock ($2.18 or 43.6% 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. As a condition to 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, to be released
only upon the attainment by the Company of certain earnings or market price
thresholds determined by negotiation between the Company and the Underwriter.
The Securities and Exchange Commission (the "Commission") has taken the position
with respect to such escrow arrangements 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.
The Company incurred a non-cash charge to operations of approximately
$438,000 during the nine months ended June 30, 1997 and expects to incur
additional non-cash charges to operations aggregating approximately $204,000
through the closing of the Offering relating to the unamortized debt discount
and debt issuance costs
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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 Influence of Underwriter. The Underwriter has the right, for a
period of five years after the completion of the Offering, to designate one
individual for nomination to the Company's Board of Directors, although it has
not yet selected any such designee. In addition, 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 Company has also agreed
to sell to the Underwriter and its designees, for nominal consideration, the
Unit Purchase Option to purchase up to 176,000 Units and has agreed to grant to
the holders of the Unit Purchase Option registration rights with respect to the
securities issuable upon exercise thereof. Such rights may enable the
Underwriter to exert a degree of influence over the Company during the period
such rights are outstanding.
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 immediately after the 90th day following the
date of this Prospectus and a portion of the remaining 44,500 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
57,500 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 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."
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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 D.H. Blair Investment Banking Corp. and D.H. Blair & Co., Inc.
by the Securities and Exchange Commission. The Commission is conducting an
investigation concerning various business activities of the Underwriter and D.H.
Blair & Co., Inc. ("Blair & Co."), a selling group member which will distribute
a substantial portion of the Units offered hereby. The investigation appears to
be broad in scope, involving numerous aspects of the Underwriter's and Blair &
Co.'s compliance with the Federal securities laws and compliance with the
Federal securities laws by issuers whose securities were underwritten by the
Underwriter or Blair & Co., or in which the Underwriter or Blair & Co. made
over-the-counter markets, persons associated with the Underwriter or Blair &
Co., 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 Blair & Co., or, if so, whether any such action might
have an adverse effect on the Underwriter or the securities offered hereby. The
Company has been advised that Blair & Co. intends to make a market in the
securities following the Offering. An unfavorable resolution of the Commission's
investigation could have the effect of limiting such firm's ability to make a
market in the Company's securities, which could adversely affect the liquidity
or price of such securities. See "Underwriting."
Possible Restrictions on Market-Making Activities in Company's Securities.
The Underwriter has advised the Company that Blair & Co. intends to make a
market in the Company's securities. Regulation M under the Securities Act of
1934, as amended (the "Exchange Act"), may prohibit Blair & Co. from engaging in
any market-making activities with regard to the Company's securities for the
period from five business days (or such other applicable period as Regulation M
may provide) prior to any solicitation by the Underwriter of the exercise of
Class A Warrants until the later of the termination of such solicitation
activity or the termination (by waiver or otherwise) of any right that the
Underwriter may have to receive a fee for the exercise of Class A Warrants
following such solicitation. As a result, Blair & Co. may be unable to provide a
market for the Company's securities during certain periods while the Class A
Warrants are exercisable. In addition, the Company has agreed to register for
resale the Bridge Warrants and the underlying Class A Common Stock within one
year from the closing of the Offering. Under applicable rules and regulations
under the Exchange Act, any person engaged in the distribution of the Bridge
Warrants may not simultaneously engage in market-making activities with respect
to any securities of the Company for the applicable "cooling off" period (which
is likely to be five business days) prior to the commencement of such
distribution. Accordingly, in the event the Underwriter or Blair & Co. is
engaged in a
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distribution of the Bridge Warrants, neither of such firms will be able to make
a market in the Company's securities during the applicable restrictive period.
Any temporary cessation of such market-making activities could have an adverse
effect on the market price of the Company's securities. 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 and
recently proposed 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.
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." The Underwriter and Blair & Co. are currently
permitted to make a market in securities traded on the "Electronic Bulletin
Board," although neither the Underwriter nor Blair & Co. has committed to do so
in the event the Company's securities were traded thereon. 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 or "Penny" 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.
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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)............... $2,405,000 34.0%
Marketing and Sales (2)..................... 2,000,000 28.2
Acquisition of Computer Equipment (3)....... 500,000 7.1
Working Capital (4)......................... 2,176,000 30.7
---------- -----
Total............................... $7,081,000 100.0%
========== =====
- ----------------
(1) Represents the principal amount and accrued interest at the rate of 10% per
annum (estimated at approximately $105,000 through August 15, 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 outstanding indebtedness and for working capital
purposes. The outstanding indebtedness repaid with the proceeds of the
Bridge Financing included (a) approximately $171,000, plus accrued interest
ranging from 8.5% to 10% per annum, owed to several stockholders of the
Company, including Neal J. Polan, the Company's Chairman of the Board and
Chief Executive Officer, which loans had varying maturity dates and (b)
approximately $32,000, plus accrued interest ranging from 9.5% to 11% owed
to a financial institution and two individuals, which loans had varying
maturity dates. Approximately $126,000 of such indebtedness was incurred
for working capital purposes and approximately $77,000 of such indebtedness
was incurred in connection with the satisfaction of a consulting
arrangement with a stockholder of the Company who beneficially owns two
percent of the outstanding Common Stock prior to the Offering. See
"Capitalization -Bridge Financing" and "Certain Transactions."
(2) Includes the design and production of marketing materials, salaries of the
Company's four current 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 general and administrative expenses, including approximately
$524,000 for salaries of four current executive officers and significant
employees (other than significant employees who are members of the
Company's in-house sales personnel) for the 18-month period following the
date of this Prospectus. In the event the Company's proposed joint venture
to establish a physician and hospital network is consummated, the Company
anticipates that it will make an initial capital contribution to the joint
venture vehicle in an amount not to exceed $250,000.
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 18 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
15
<PAGE>
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, investment-grade
securities.
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.
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 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>
June 30, 1997
-------------------------
Actual As Adjusted
------ ----------
<S> <C> <C>
Bridge Notes, net of discount(1)......................................... $2,096,334 --
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...................... (3,233,513) (3,437,179)(4)
--------- ----------
Total stockholders' equity (capital deficiency)................... (1,523,454) 5,353,880
--------- ----------
Total capitalization.............................................. $ 572,880 $5,353,880
========= ==========
</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 57,500 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 $204,000 of unamortized discount and debt issuance costs
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 Underwriter acted as the placement agent for such financing and
received from the Company 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.
17
<PAGE>
DILUTION
The following discussion and tables allocate no value to the Class A
Warrants included in the Units.
At June 30, 1997, the Company had a negative net tangible book value of
$(1,679,895) or $(5.60) 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 June 30,
1997 would have been $5,401,105 or $2.62 per share. This represents an immediate
increase in net tangible book value of $8.22 per share to existing stockholders
and an immediate dilution of $2.38 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.................................. $ (5.60)
Increase per share attributable to New Investors..... $ 8.22
------
Net tangible book value per share after Offering..... $ 2.62
------
Dilution per share to New Investors.................. $ 2.38
======
If the over-allotment option is exercised in full, the net tangible book
value after the Offering would be approximately $2.82 per share, resulting in
dilution to New Investors in the Offering of $2.18 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."
18
<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 nine
month period ended June 30, 1996 and June 30, 1997 and the period June 1, 1995
to June 30, 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 nine months ended June 30, 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) Nine Months Ended June 1, 1995
Through Year Ended June 30, (Inception)
September 30, September 30, ------------------------- Through
1995 1996 1996 1997 June 30, 1997
---------- ------------ ---------- ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
General and administrative
expenses........................... $ 78,105 $ 900,177 $ 745,123 $ 1,140,828 $ 2,119,110
Selling and marketing expenses....... 34,158 277,845 59,624 251,731 563,734
Interest expense..................... -- 36,071 3,028 514,598 550,669
---------- ------------ ---------- ------------ ------------
Net loss............................. $ (112,263) $ (1,214,093) $ (807,775) $ (1,907,157) $ (3,233,513)
========== ============ ========== ============ ============
Net loss per share(1)................ $ (0.53) $ (4.83) $ (3.24) $ (6.52)
========== ============ ========== ============
Weighted average number of
shares outstanding................. 211,183 251,525 249,633 292,345
========== ============ ========== ============
</TABLE>
At September At June 30,
30, 1996 1997
----------- -------------
(Unaudited)
Balance Sheet Data:
Working capital (deficit)..........................$ (233,206) $(1,864,163)
Total assets....................................... 160,200 1,124,046
Total liabilities.................................. 235,278 2,647,500
Deficit accumulated during the development stage... (1,326,356) (3,233,513)
Total capital deficiency........................... (75,078) (1,523,454)
- ----------------
(1) The Escrow Shares are excluded from the computation of net loss per share.
See Notes B[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, 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 June 30,
1997) and the corresponding charge to operations of approximately $204,000.
See "Risk Factors -- Potential Charges to Earnings," "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
19
<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 contracts with Networks of Providers, (iii)
organizing a marketing force to market the HealthCare Solutions Card and (iv)
test marketing. The Company has only recently begun to market the HealthCare
Solutions Card and is currently focusing its initial marketing efforts in the
states of Illinois, Indiana, Missouri and Texas. 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
Nine Months Ended June 30, 1996 and 1997. No revenues were generated during
either the nine month period ended June 30, 1997 (the "1997 Nine Months") or the
nine month period ended June 30, 1996 (the "1996 Nine Months").
Selling, general and administrative expenses increased by 73% from
approximately $805,000 in the 1996 Nine Months to approximately $1,393,000 in
the 1997 Nine 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
$95,000 relating to the fair market value adjustment of certain shares of
capital stock issued to two stockholders of the Company, (iv) a non-cash charge
of approximately $33,000 related to the write-off of certain equipment,
primarily
20
<PAGE>
computer hardware and phone system equipment abandoned upon the installation of
the Company's Network Adminstration System and phone system in May 1997 and (v)
approximately $77,000 incurred in connection with the cancellation of an
outstanding consulting agreement, of which $67,000 was repaid during the 1997
Nine Months.
Interest expense increased from approximately $3,000 in the 1996 Nine
Months to approximately $515,000 in the 1997 Nine Months primarily as a result
of (i) accrued interest of approximately $75,000 recorded on the Bridge Notes,
(ii) accretion of the discount related to the Bridge Financing of approximately
$438,000, and (iii) approximately $13,000 related to various other borrowings by
the Company. Interest income increased by approximately $14,000 as a direct
result of the short term investment of the balance of proceeds received by the
Company from the Bridge Financing.
Net loss increased by approximately 136% from approximately $808,000 in the
1996 Nine Months to approximately $1,907,000 in the 1997 Nine 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
equity and debt securities. As of June 30, 1997, the Company had a working
capital deficit of $1,864,163. 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. 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.
The Company has entered into certain equipment leases relating to computer
hardware and telecommunications systems requiring it to pay an aggregate of
approximately $396,000 through June 2000. In addition, during the 18-month
period following the Offering, the Company has agreed to pay approximately
$726,000 in compensation to its current executive officers and significant
employees and approximately $70,000 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,
all of which is expected to be financed with the proceeds of this Offering. The
Company does not have any commitments for the purchase or lease of additional
computer equipment required for the Network Administration System, although the
Company believes that such equipment is commercially available. The Company
21
<PAGE>
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.
The Company incurred non-cash charges to operations of approximately
$438,000 during the nine months ended June 30, 1997 and expects to incur
additional non-cash charges to operations aggregating approximately $204,000
through the closing of the Offering relating to the Bridge Financing and the
repayment of the Bridge Notes.
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, which financing could be in
the form of equity or debt financing or money received in connection with
collaberative arrangements that may be entered into in the future. The Company
has no commitments for any future financing and 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. 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. 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." See "Principal Stockholders -- Escrow Shares."
The recognition of the potential charges to income described above may have
a depressive effect on the market price of the Company's securities.
22
<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 50,000
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, health maintenance organizations
("HMOs") and business and other associations (collectively, "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 management system which
the Company believes will facilitate data processing and enhance its customer
service capabilities (the "Network Administration System"), (ii) negotiating
contracts with Networks of Providers, (iii) organizing a marketing force to
market the HealthCare Solutions Card and (iv) test marketing. The Company has
only recently begun to market the HealthCare Solutions Card and is currently
focusing its initial marketing efforts in the states of Illinois, Indiana,
Missouri and Texas. 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, (iii) expanding the Company's sales and marketing
capabilities and (iv) 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 Networks that offer 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
Networks that offer 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 Networks 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.
23
<PAGE>
Expand Sales and Marketing Capabilities. The Company intends to establish
relationships with additional independent sales representatives to market the
HealthCare Solutions Card. The Company believes that such arrangements will
allow it to leverage its resources by providing potential access to the
extensive contacts and relationships maintained by such representatives.
Although the Company has entered into numerous contracts with independent
brokers, substantially all of such brokers concentrate their efforts in the
states of Illinois, Indiana, Missouri and Texas. The Company believes that
additional relationships that it may establish with independent sales
representatives will enable the Company to expand its focus into additional
states throughout the United States. See "-- Sales and Marketing."
Develop Physician and Hospital Network. The Company is currently exploring
the possibility of developing a product that will offer a national network of
physicians and hospitals and has entered into a non-binding letter of intent to
establish a joint venture with a preferred provider organization ("PPO") that
maintains a nationwide network of approximately 250,000 physicians and
hospitals. There can be no assurance that the letter of intent will result in
the execution of definitive agreements or that any such physician and hospital
network will be established. See "Risk Factors -- Risks Related to Possible
Entry into Physician and Hospital Network Business" and "-- The HealthCare
Solutions Card -- Potential Physician and Hospital Services."
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, the Employee Benefit Research
Institute estimates that in 1995, approximately 40 million Americans, or
approximately 17% 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, based upon a 1995 Blue Cross Blue
Shield Survey it is estimated that in 1995, approximately $140 billion was spent
on ancillary health care services, including eye care, dental and pharmaceutical
services and that approximately only $50 billion of such amount was reimbursed
by a third party.
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 certain 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 Networks
with which the Company has contracted were generally created to provide
individuals with access to medical services at reduced costs and to provide such
individuals with broader geographical access to such providers. Pursuant to
agreements entered into between the Networks health care and providers,
providers have agreed to provide health care services to members of the Network
at reduced costs and, in exchange, providers are given access to additional
patients and additional sources of revenue.
The Company's agreements with Networks 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
Providers participating in such Networks will continue to provide services to
individuals, for the term of
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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 Network 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 Network a
stipulated commission for each prescription ordered by a Member.
The Company recently completed test marketing of the HealthCare Solutions
Card in the Kansas City, Missouri area and distributed approximately 12,000
cards for such purpose. The test marketing was designed primarily to test the
Company's customer service capabilities and the Network Administration System.
The Company will be required to purchase certain additional hardware and
software necessary to implement on a commercial scale the Network Administration
System.
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 6,000 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 radial
keratotomy (RK) surgical procedures, a surgical procedure designed to correct
nearsightedness and a procedure which is typically not covered by traditional
health insurance.
Based on industry data, the Company believes that approximately 65% 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 20,000 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.
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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 19,000 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 small commission from PCI for each prescription order filled by PCI through
the Mail-Order Pharmaceutical Plan.
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 a portion of these 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 agreements with
Miracle Ear and Beltone Managed Care, Inc. ("Beltone"), national networks of
hearing products and service providers (the "Hearing Providers"), the Hearing
Plan will initially be comprised of an aggregate of approximately 2,000 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 contracts with Miracle Ear and Beltone, the
Hearing Providers 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 and Beltone
providers throughout the United States, and as the Company expands the Hearing
Plan, Miracle Ear and Beltone have agreed to market the Company's plan and
encourage additional Miracle Ear franchises and Beltone providers to participate
in the Networks. Miracle Ear and Beltone have agreed to continue to manage and
provide administrative services to their respective providers.
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
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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.
Potential Physician and Hospital Services. The Company is currently
exploring the possibility of developing a product that will offer a network of
physicians and hospitals and has entered into a non-binding letter of intent to
establish a joint venture with a PPO that maintains a nationwide network of
approximately 250,000 physicians and hospitals. As currently proposed, the joint
venture would involve the establishment of a new entity, to be owned 50% by each
party, that would serve as the parties' exclusive vehicle for the development of
a physician and hospital network business. There can be no assurance that the
letter of intent will result in the execution of definitive agreements or that
any such physician and hospital network will be established. 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.
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 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 discounted 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 it will enable 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. Similarly,
as competition between HMOs for participants continues to intensify, the Company
believes that the HealthCore Solutions Card will enable HMOs to offer a more
complete, and therefore more attractive, array of potential health care
benefits. 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.
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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,
which commission is expected to range from 20% to 50% of the aggregate sales
price. 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 numerous agreements with individuals,
substantially all of whom are affiliated with AFLAC, who are expected to serve
as independent brokers. The Company 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 four 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 also 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 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 and will be critical to
the Company's sales and marketing efforts. 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 the 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 Networks. 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
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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 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 may 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
referral fees and fee splitting and certain regulations applicable to insurance
companies and certain organizations that provide or arrange for health care
services. The Company believes that certain registration and licensing laws and
regulations in certain states in which the Company intends to operate may apply
to the Company's operations. In addition, statutes and regulations applicable to
other health care organizations with which the Company may contract, including
without limitation those relating to fee splitting, referral fees, patient
freedom of choice, provider rights to participate and antidiscrimination,
may impact the Company and may result in the delay or denial of any such
organization's participation in the Company's Networks. The utilization fees
received by the Company in connection with the Mail-Order Pharmaceutical Plan
might be construed to contravene the literal provisions of these statutes and
regulations in a number of states in which the Company intends to operate.
Althouth the Company has not obtained
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any rulings from any governmental authorities or anopinion of counsel with
regard to any of these matters, the Company believes that the extent of its
compliance with such laws and regulations as they are currently enforced and
applicable to the Company is consistent with current industry practices and will
not have a material adverse affect on its business. However, legislation in
these areas continues to evolve and there can be no assurance that changes in
enforcement and compliance practices will not occur in the future, or that
existing legislation will not be expanded. In any such event, the Company could
be required to effect registration in various additional states and/or post
substantial fidelity or surety bonds in connection therewith. Alternatively, the
Company could be required to modify the products and services offered by it,
modify its contractual arrangements with Networks and Sponsors or be precluded
from providing some or all of its products and services in certain states. Any
or all of the foregoing consequences, or a determination that the Company is in
violation of any applicable laws or regulations, could have a material adverse
effect on the Company.
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 has applied 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 16 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.
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 $2,300 and expires in
October 1999 and approximately 1,000 square feet of office space in Springfield,
Missouri for the development of the Network Administration System pursuant to a
lease agreement that provides for monthly rent of approximately $1,100 and
expires in May 1998. 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.
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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
Eli Levitin............... 33 Director
Norman H. Werthwein....... 52 Director
Significant Employees
Thomas J. Pitzenberger.... 42 National Marketing Director-- HealthCare
Division
Ben E. Randall............ 52 Vice President-- Information Systems
Terrence R. Reigers....... 49 Vice President-- Sales and Marketing
Services
Ronald F. Torchia......... 59 Vice President and Secretary
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.
ELI LEVITIN has served as a director of the Company since July 1997. Since
December 1993, Mr. Levitin has served as the General Counsel of Acta Realty
Corp., a real estate investment and management company. Prior to joining Acta
Realty, Mr. Levitin was an associate at White & Case, a New York law firm, from
October 1991 to December 1993. Mr. Levitin received his J.D. from Columbia
University School of Law.
NORMAN H. WERTHWEIN has served as a director of the Company since July
1997. Mr. Werthwein is the Chief Financial Officer of Beech Street Corporation,
a preferred provider organization, a position he has held since August 1994.
Prior to joining Beech Street in August 1994, Mr. Werthwein served as the Chief
Financial Officer of Curaflex Health Services, an alternate site health care
service provider, from January 1992 until August 1994.
THOMAS J. PITZENBERGER has been the National Marketing Director -
HealthCare Division of the Company since July 1997. From July 1996 to July 1997
Mr. Pitzenberger served as the National Director of Medaphis Corporation, a
corporation providing software and services in the healthcare industry. From
February 1994 to July 1996, Mr. Pitzenberger served as the Region Manager of
QuadraMed Corporation, an electronic data interchange corporation in the health
care industry and a publicly traded company. In 1987, Mr. Pitzenberger founded
MediQuest Inc., a provider of software and services to the health care industry.
Mr. Pitzenberger sold MediQuest in September 1991 and served as the Vice
President -- Marketing of MediQuest until February 1994.
BEN E. RANDALL has been the 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.
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<PAGE>
TERRENCE R. REIGERS has been the Vice President - Sales and Marketing
Services of the Company since June 1997. From December 1992 to May 1997, Mr.
Reigers served as the Director of Managed Vision Care of National Vision
Associates, Ltd., a retail optical company. From December 1991 to October 1992,
Mr. Reigers served as a Marketing and Sales Manager of Pearle Managed Vision
Care, a retail optical company.
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.
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
officer"):
Summary Compensation Table
<TABLE>
<CAPTION>
Compensation Annual Compensation Long-Term
Name and Present ------------------------------ Other Annual Awards
Principal Position Year Salary Bonus Compensation Options
----------------- ---- ------ ------ ------------- -------
<S> <C> <C> <C> <C> <C>
Theodore W. White, Jr. (1)............... 1996 125,000 -- -- --
</TABLE>
- ----------------
(1) For a portion of 1996, Mr. White acted in the capacity of the Chief
Executive Officer for MegaVision, the predecessor of the Company. Mr. White
is currently an employee of the Company, although he has tendered his
resignation to the Company, which resignation will become effective August
15, 1997.
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
32
<PAGE>
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 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
33
<PAGE>
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 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 57,500 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 and July 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
34
<PAGE>
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.
35
<PAGE>
CERTAIN TRANSACTIONS
In late 1995, the Company's predecessor, MegaVision, L.C., entered into an
agreement with Ben Randall, the Vice President - Information Systems of the
Company, to purchase certain computer software for $37,500 in cash and the
issuance of 170 units of limited liability company interest. The Company paid
$8,500 in cash to Mr. Randall in early 1996 and in September 1996 issued an
additional 20 units of limited liability company interest in exchange for the
remaining $29,000 owed to Mr. Randall under the agreement. In connection with
the Merger, the 190 units of limited liability interest issued to Mr. Randall
were converted into 114,000 shares of Class A Common Stock.
In September 1996, Robert E. Hunter, Michael J. Reichert and Donald Umbach,
each a principal stockholder of the Company, agreed to contribute to the capital
of the Company's predecessor, MegaVision, L.C., $125,000, $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 October 1996, MegaVision, L.C. entered into an agreement with M.K.D.
Capital Corp. ("M.K.D."), which agreement was amended in January and July 1997.
Annette Lebor, the spouse of the President of M.K.D., is the beneficial owner of
11% of the outstanding shares of Common Stock of the Company prior to the
Offering. The agreement, as amended, provides that M.K.D. will receive a
commission equal to 3% of any payments collected by the Company for sales of the
Company's products originated by M.K.D., less direct manufacturing costs
incurred by the Company in the production of such products and any broker's
commission payable in connection with the sale; provided that in connection with
sales of the Company's products by agents of AFLAC with whom the Company has
contracted, M.K.D. will receive a commission of $1.25 for annual HealthCare
Solutions Cards sold by such agents. In addition, M.K.D. will also receive a
commission for introducing additional networks of health care providers to the
Company, if such networks enter into a contract with the Company. The actual
commission to be paid to M.K.D., if any, will be negotiated in connection with
any such transaction.
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.
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.
Mr. Polan and his wife, jointly, and Eli Levitin, a director of the
Company, invested $50,000 and $25,000, respectively, in the Bridge Financing in
March 1997 (on the same terms as non-affiliated investors) and, accordingly,
each received a Bridge Note in such amount, which will be repaid from the
proceeds of the Offering, and 25,000 and 12,500 warrants, respectively, which
will be exchanged for 25,000 and 12,500 Bridge Warrants, respectively, upon the
completion of the Offering. See "Use of Proceeds."
In June 1997, Mr. Polan and Theodore White, Jr., an employee of the
Company, entered into a voting agreement pursuant to which Mr. Polan is entitled
to vote all of the shares of Class B Common Stock held by Mr. White. The voting
proxy will expire upon the earlier of (i) June 5, 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 year ending December 31, 1998, the Minimum Pretax
Income is less than $1,000,000 or if, for any subsequent year through the year
ending December 31, 2001, 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. Mr. White has
tendered his resignation to the Company, which resignation will become effective
August 15, 1997 and at which time the shares of Class B Common Stock held by Mr.
White will convert into shares of Class A Common Stock. As a result, Mr. Polan
will control 32.0% of the total voting power of the Company upon completion of
the Offering.
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<PAGE>
The Company reimburses an entity affiliated with Mr. Polan approximately
$1,000 per month for the use of certain office space in New York, New York.
In June 1997, the Company loaned Mr. White $30,000 as evidenced by a
promissory note bearing interest at a rate of 10% per annum. The loan matures in
September 1998 or upon demand by the Company in the event Mr. White's employment
with the Company is terminated for any reason. Pursuant to the note, Mr. White
is required to make monthly payments of principal and interest in the amount of
$750. As security for the loan, Mr. White pledged 15,000 shares of Class B
Common Stock to the Company.
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.
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<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>
Class A Class B Percent of Shares
Common Common Beneficially Owned
Stock Stock ------------------------ Percent of
Beneficially Beneficially Before After Voting Power
Name and Address of Beneficial Owner(1) Owned(2) Owned(2) Offering Offering After Offering (3)
- ------------------------------------ --------- ---------- ------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Neal J. Polan............................. -- 216,000 (4)(5) 18.0% 7.3% 40.9%(5)
James H. Steinheider...................... 4,000 (6) -- * * *
Eli Levitin............................... -- (7) -- * * *
Norman H. Werthwein....................... -- (7) -- * * *
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)(8) 12.0 4.9 *
Robert Hunter (9)......................... 132,000 -- 11.0 4.5 3.0
Annette Lebor (10)........................ 132,000 -- 11.0 4.5 3.0
Michael J. Reichert Revocable Trust (11).. 132,000 -- 11.0 4.5 3.0
Donald E. Umbach Revocable Trust (12)..... 66,000 -- 5.5 2.2 1.5
Patricia L. Umbach Revocable Trust (13)... 66,000 -- 5.5 2.2 1.5
All executive officers and directors
as a group (4 persons) ................. 4,000 (14) 216,000 18.0% 7.3% 40.9%(5)
</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) 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
granted from Mr. White to Mr. Polan, Mr. Polan has the power to vote all of
the issued and outstanding shares of Class B Common Stock. Mr. White has
tendered his resignation to the Company, which resignation will become
effective August 15, 1997 and at which time the shares of Class B Common
Stock held by Mr. White will convert into shares of Class A Common Stock.
As a result, Mr. Polan will control 32.0% of the total voting power of the
Company upon completion of the Offering.
(6) Represents shares issuable upon exercise of outstanding options that are
currently exercisable. Does not include 6,000 shares of Class A Common
Stock issuable upon exercise of options that are not exercisable within 60
days.
(7) Does not include 7,500 shares of Class A Common Stock issuable upon
exercise of options that are not exercisable within 60 days.
(8) Mr. White has pledged 15,000 shares of Class B Common Stock to the Company
in connection with a loan from the Company to Mr. White. See "Certain
Transactions."
(9) The address of Mr. Hunter is 6301 Trust Avenue, Kansas City, Missouri
64131.
(10) The address of Ms. Lebor is 114 East 32nd Street, New York, New York 10037.
Ms. Lebor is the spouse of Avram Lebor, the President of M.K.D. Capital
Corp. See "Certain Transactions."
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<PAGE>
(11) 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.
(12) 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.
(13) 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.
(14) Represents shares issuable upon exercise of outstanding options that are
currently exercisable. Does not include 21,000 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
September 30, 1998;
(b) the Minimum Pretax Income amounts to at least $5,500,000 for the
fiscal year ending September 30, 1999;
(c) the Minimum Pretax Income amounts to at least $7,500,000 for the
fiscal year ending September 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 September 30, 1998;
(b) the Minimum Pretax Income amounts to at least $6,600,000 for the
fiscal year ending September 30, 1999;
(c) the Minimum Pretax Income amounts to at least $9,000,000 for the
fiscal year ending September 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.
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<PAGE>
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.
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 December 31, 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.
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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
ending September 30, 1999, the Minimum Pretax
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Income is less than $1,000,000 or if, for any subsequent fiscal year through the
fiscal year ending September 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.
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The 1,150,000 warrants issued in the Bridge Financing 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.
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 (120% 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 (a) prior to such date the board of directors of the
corporation approved either the "business combination" or the transaction which
resulted in the stockholder becoming an "interested stockholder," (b) upon
consummation of the transaction which resulted in the stockholder becoming an
"interested stockholder," the "interested stockholder" owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned
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by (i) persons who are directors and also officers and (ii) employee stock plans
in which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer, or (c) on or subsequent to such date the "business combination" is
approved by the board of directors and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 662/3% of the
outstanding voting stock which is not owned by the "interested stockholder." 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.
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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 immediately after the 90th day
following the date of this Prospectus and a portion of the remaining 44,500
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.
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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. It is expected that Blair & Co. will distribute as a selling
group member a substantial portion of the Units offered hereby. Blair & Co. is
substantially owned by family members of J. Morton Davis. Mr. Davis is the sole
stockholder of the Underwriter.
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 initial 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.
Regulation M may prohibit Blair & Co. or any other soliciting broker-dealer
from engaging in any market making activities with regard to the Company's
securities for the period from five business days (or such other applicable
period as Regulation M may provide) prior to any solicitation by the Underwriter
of the exercise of Warrants until the later of the termination of such
solicitation activity or the termination (by waiver or otherwise) of any right
that the Underwriter may have to receive a fee for the exercise of Warrants
following such solicitation. As a result, Blair & Co. may be unable to provide a
market for the Company's securities during certain periods while the Warrants
are exercisable.
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
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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.
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 and Blair & Co., a selling group member which will
distribute a substantial portion of the Units offered hereby. The investigation
appears to be broad in scope, involving numerous aspects of the Underwriter's
and Blair & Co.'s compliance with the Federal securities laws and compliance
with the Federal securities laws by issuers whose securities were underwritten
by the Underwriter or Blair & Co., or in which the Underwriter or Blair & Co.
made over-the-counter markets, persons associated with the Underwriter or Blair
& Co., 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 Blair & Co., or, if so, whether any such action might
have an adverse effect on the Underwriter or the securities offered hereby. The
Company has been advised that Blair & Co. will make a market in the securities
following this offering. An unfavorable resolution of the Commission's
investigation could have the effect of limiting such firm's ability to make a
market in the Company's securities, which could affect the liquidity or price of
such securities.
In connection with the Offering, the Underwriter and certain selling group
members may engage in certain transactions that stabilize, maintain or otherwise
affect the market price of the Units, the Class A Common Stock and the Class A
Warrants. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M, pursuant to which such persons may bid
for or purchase the Units, the Class A Common Stock and the Class A Warrants for
the purpose of pegging, fixing or maintaining the market price of such
securities. The Underwriter may also create a short position in the Units by
selling more Units in connection with the Offering than it is committed to
purchase from the Company, and in such case the Underwriter may reduce all or a
portion of 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 also elect
to reduce any short position by exercising all or any portion of the
over-allotment option described herein. In addition, the Underwriter may impose
"penalty bids" whereby selling commissions allowed to selling group members or
other broker-dealers in respect of the Units sold in the Offering for their
account may be reclaimed by the Underwriter if the securities comprising the
Units are repurchased by the Underwriter or any selling group member in
stabilizing or covering transactions. Any of the transactions described in this
paragraph may stabilize or maintain the market price of the Units, the Class A
Common Stock and the Class A Warrants at a level above that which might
otherwise prevail in the open market.
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 or any selling group members will engage
in such transactions or that such transactions, once commenced, will not be
discontinued without notice.
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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. Although the statements contained in this Prospectus as to
the contents of any contract or other document referred to are accurate in all
material respects, such statements do not purport to be 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.
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INDEX TO FINANCIAL STATEMENTS
PAGE
------
REPORT OF INDEPENDENT AUDITORS........................................... F-2
BALANCE SHEETS AS OF SEPTEMBER 30, 1996 AND JUNE 30, 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 NINE MONTH PERIODS ENDED
JUNE 30, 1997 AND 1996 (UNAUDITED) AND THE PERIOD
FROM JUNE 1, 1995 (INCEPTION) THROUGH JUNE 30, 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 NINE MONTH PERIOD ENDED JUNE 30, 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 NINE MONTH PERIODS ENDED
JUNE 30, 1997 AND 1996 (UNAUDITED) AND THE PERIOD
FROM JUNE 1, 1995 (INCEPTION) THROUGH JUNE 30, 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 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, H, I and J
March 13, 1997
F-2
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
Successor to MegaVision, L.C.
(a development stage company)
BALANCE SHEETS
(Note A)
September 30, June 30,
1996 1997
----------- ------------
(Unaudited)
A S S E T S
Current assets:
Cash and cash equivalents ...................... $ 668,203
Prepaid expenses and other
current assets ............................... $ 2,072 14,475
----------- -----------
Total current assets ....................... 2,072 682,678
----------- -----------
Property and equipment, net ...................... 73,985 190,180
Deferred offering costs .......................... 40,000 156,441
Other assets ..................................... 44,143 94,747
----------- -----------
158,128 441,368
----------- -----------
T O T A L .................................. $ 160,200 $ 1,124,046
=========== ===========
L I A B I L I T I E S
Current liabilities:
Bank overdraft ................................. $ 9,914
Accounts payable and accrued expenses .......... 106,077 $ 288,098
Current portion of obligation under
capital lease ............................... 45,977
Notes payable - bank ........................... 56,300 103,600
Notes payable - bridge units ................... 2,096,334
Notes payable - others ......................... 54,494
Notes payable - related parties ................ 10,000
Other liabilities .............................. 8,493 2,832
----------- -----------
Total current liabilities .................. 235,278 2,546,841
----------- -----------
Obligation under capital lease ................... 100,659
----------- -----------
Total liabilities .......................... 235,278 2,647,500
----------- -----------
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 June 30, 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 June 30, 1997 ........................... 1,440 3,600
Additional paid-in capital ....................... 1,242,998 1,698,059
Deficit accumulated during the
development stage ............................ (1,326,356) (3,233,513)
----------- -----------
Total capital deficiency ................... (75,078) (1,523,454)
----------- -----------
T O T A L .................................. $ 160,200 $ 1,124,046
=========== ===========
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) Nine Months Ended (Inception) (Inception)
Through Year Ended June 30, Through Through
September 30, September 30, ------------------- September 30, June 30,
1995 1996 1996 1997 1996 1997
------------- ------------- ---- ---- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Operating expenses:
General and administrative ....... $ 78,105 $ 900,177 $ 745,123 $1,140,828 $ 978,282 $ 2,119,110
Selling and marketing ............ 34,158 277,845 59,624 251,731 312,003 563,734
Interest-net 36,071 3,028 514,598 36,071 550,669
--------- ----------- --------- ----------- ----------- -----------
NET LOSS ........................... $(112,263) $(1,214,093) $(807,775) $(1,907,157) $(1,326,356) $(3,233,513)
========= =========== ========= =========== =========== ===========
Net loss per share ................. $ (0.53) $ (4.83) $ (3.24) $ (6.52)
========= =========== ========= ===========
Weighted average number of shares
outstanding .................... 211,183 251,525 249,633 292,345
========= =========== ========= ===========
</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 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 ................ 105,000 1,050 410,417 411,467
Compensatory common stock issued ... 24,000 240 54,760 55,000
Conversion of debt into common
stock ........................... 228,000 2,280 42,000 420 482,943 485,643
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 ........................... (1,907,157) (1,907,157)
------- ------ ------- ------- ---------- ----------- ------------
BALANCE - JUNE 30, 1997
(Unaudited) ..................... 840,000 $8,400 360,000 $ 3,600 $1,698,059 $(3,233,513) $ (1,523,454)
======= ====== ======= ======= ========== =========== ============
</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) Nine Months Ended (Inception) (Inception)
Through Year Ended June 30, Through Through
September 30, September 30, --------------------- September 30, June 30,
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) $(807,775) $(1,907,157) $(1,326,356) $(3,233,513)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization ........... 33,206 27,628 36,741 33,206 69,947
Amortization of discount on note
payable - bridge units ................. 437,857 437,857
Noncash compensation and expense
charges ................................ 124,917 22,000 94,729 124,917 219,646
Write down of worthless equipment ....... 32,865 32,865
Changes in assets and liabilities:
(Increase) decrease in prepaid
expenses and other assets ........... (18,627) 9,258 (1,468) (104,929) (9,369) (114,298)
Increase in accounts payable and
accrued expenses .................... 8,402 147,592 60,112 182,021 155,994 338,015
Increase in due to related party ...... 29,000 29,000 29,000 29,000
Increase (decrease) in other
liabilities ......................... 8,493 6,370 (5,661) 8,493 2,832
--------- ----------- --------- ----------- ----------- ------------
Net cash used in operating
activities ........................ (122,488) (861,627) (664,133) (1,233,534) (984,115) (2,217,649)
--------- ----------- --------- ----------- ----------- ------------
Cash flows from investing activities:
Acquisition of property and equipment .... (88,499) (18,692) (12,243) (30,749) (107,191) (137,940)
--------- ----------- --------- ----------- ----------- ------------
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 .............................. 110,794 63,652 41,031 110,794 151,825
Net change in notes payable to related
parties ................................ 31,152 434,491 96,248 10,000 465,643 475,643
Principal payments on obligation under
capital lease ........................... (3,340) (3,340)
Net proceeds from issuance of common
stock .................................. 299,168 282,633 400,000 10,150 581,801 591,951
Proceeds from issuance of warrants ....... 305,677 305,677
Deferred bridge unit costs ............... (36,846) (36,846) (36,846)
Deferred offering costs .................. (40,000) (116,441) (40,000) (156,441)
--------- ----------- --------- ----------- ----------- ------------
Net cash provided by financing
activities ........................ 330,320 760,986 559,900 1,932,486 1,091,306 3,023,792
--------- ----------- --------- ----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH ............ 119,333 (119,333) (116,476) 668,203 - 0 - 668,203
Cash - beginning of period ................. 119,333 119,333
--------- ----------- --------- ----------- ----------- ------------
CASH - END OF PERIOD ....................... $ 119,333 $ - 0 - $ 2,857 $ 668,203 $ - 0 - $ 668,203
========= =========== ========= =========== =========== ============
Supplemental information:
Interest paid during the period .......... $ 1,114 $ 15,397 $ 1,114 $ 16,511
</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 June 30, 1997
and the nine-month periods ended June 30, 1997
and June 30, 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 June 30, 1997, the Company,
exclusive of test marketing, 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 I, 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.
Equipment under capital leases are recorded at the lesser of the present
value of the lease payments or fair value of the equipment. Such equipment is
amortized on a straight-line basis over the shorter of the lease term or its
estimated useful life.
(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 June 30, 1997
and the nine-month periods ended June 30, 1997
and June 30, 1996 is unaudited)
(NOTE B)--Summary of Significant Accounting Policies: (continued)
[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.
[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 nine months ended June 30, 1997 would have been $(4.65) based upon an
additional weighted average number of shares outstanding for the nine months
ended June 30, 1997 of 86,026.
[5] Interim financial statements:
The accompanying interim financial statements at June 30, 1997 and for each
of the nine-month periods ended June 30, 1997 and June 30, 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.
F-8
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
Successor to MegaVision, L.C.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to June 30, 1997
and the nine-month periods ended June 30, 1997
and June 30, 1996 is unaudited)
(NOTE B)--Summary of Significant Accounting Policies: (continued)
[7] Recently issued accounting standards: (continued)
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 June
30, 1997.
(NOTE C)--Property and Equipment:
Property and equipment (at cost) consists of:
September 30, June 30,
1996 1997
------------ ---------
Equipment ........................ $ 60,800 $195,407
Leasehold improvements ........... 46,391 46,391
-------- --------
107,191 241,798
Less accumulated depreciation
and amortization ............... 33,206 51,618
-------- --------
Total ...................... $ 73,985 $190,180
======== ========
In April 1997, the Company acquired equipment under capital lease
aggregating $175,865. Depreciation expense on this equipment totaled $8,793 for
the nine months ended June 30, 1997.
(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
$156,441 through June 30, 1997. The deferred costs will either be charged
against the gross proceeds of the offering, 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 September 30, 1998, $5,500,000 for the year ending September 30,
1999 or $7,500,000 for the year ending September 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 September 30, 1998,
(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 June 30, 1997
and the nine-month periods ended June 30, 1997
and June 30, 1996 is unaudited)
(NOTE D)--Deferred Offering Costs:
$6,600,000 for the year ending September 30, 1999 or $9,000,000 for the year
ending September 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 102,000 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.
During the nine months ended June 30, 1997, stockholders loaned the Company
$160,553. Interest expense, at rates ranging from 8.5% to 11% per annum,
aggregated $2,231. Additionally, beginning in November 1996, the Company has
rented office space for $1,000 per month from an affiliate of the chairman.
In February 1997, a minority stockholder agreed to cancel a consulting
agreement with the Company in exchange for a $17,000 non interest bearing note,
due and paid in March 1997 and a $60,000 note bearing interest at 8.5% per
annum. At June 30, 1997, $10,000 remains outstanding.
From April through June 1997, the Company loaned $37,200 to an
officer/stockholder. Loans totaling $7,200 are unsecured and are due in August
1997 with interest at 8% per annum. The remaining $30,000 is due in monthly
installments of $750 through August 1998 and the remaining balance plus any
unpaid interest due in September 1998. This loan bears interest at 10% per annum
and is secured by 15,000 shares of the Company's Class B common stock. Prepaid
expenses and other current assets includes $13,523 of such balance with the
remaining $23,677, included in other assets, respectively.
(NOTE F)--Obligation Under Capital Lease:
In April 1997, the Company entered into an obligation under a capital
lease, with an affiliate of a stockholder, due in monthly installments of
$6,472, including imputed interest at 25%, through January 2000. The following
are the minimum future lease payments:
Twelve Months
Ending June 30, Amount
--------------- --------
1998 ................................................... $ 77,665
1999 ................................................... 77,665
2000 ................................................... 45,305
--------
200,635
Less amount representing interest. ..................... 53,999
--------
Present value of net minimum lease payments ............ 146,636
Less present value of net minimum
lease payments due within one year ................... 45,977
--------
$100,659
========
(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 June 30, 1997
and the nine-month periods ended June 30, 1997
and June 30, 1996 is unaudited)
(NOTE G)--Notes Payable--Bank:
At September 30, 1996, the Company has 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 nine
months ended June 30, 1997, the maturity dates on these loans were extended to
November 1997 and the Company borrowed an additional $61,674 under the same
terms.
(NOTE H)--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, originally due
September 24, 1996 and February 28, 1997, were restructured in October 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 I)--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 Bridge Unit was purchased by the chairman of the board
and his wife and one-half of a Bridge Unit was purchased by a director, 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 August 15, 1997, the anticipated maturity date.
(NOTE J)--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 effect the results of operations.
(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 June 30, 1997
and the nine-month periods ended June 30, 1997
and June 30, 1996 is unaudited)
(NOTE J)--Capital Deficiency: (continued)
[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. In May and July 1997, the
Company granted options to purchase 57,500 shares of Class A common stock at $5
per share. The options become exercisable during the period from August 1997
through July 2000 and expire in May through July 2007.
[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 K)--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 June 30, 1997 represents a benefit from
net operating loss carryforward of $423,000 which is reduced by a valuation
allowance of $423,000 since the likelihood of realization of such tax benefit is
not presently determinable. The Company's provision for income taxes for the
nine months ended June 30, 1997 are comprised of the deferred tax items.
(continued)
F-12
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
Successor to MegaVision, L.C.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to June 30, 1997
and the nine-month periods ended June 30, 1997
and June 30, 1996 is unaudited)
(NOTE K)--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 nine
month period ended June 30, 1997 is summarized as follows:
Statutory federal income tax rate....... 34.0%
Loss available to members............... (11.8)
Increase in valuation allowance......... (22.2)
-----
Effective income tax rate............... 0.0%
=====
(NOTE L)--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 June 30, 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 June
30, 1997.
(NOTE M)--Commitments, Contingency and Other Matters:
[1] Operating leases:
The Company leases office space and equipment under operating leases with
initial or remaining terms of one year or more expiring through June 2000.
Certain leases obligate the Company for property taxes, insurance and
maintenance. Future minimum rental payments under these leases are as follows:
Twelve Months
Ending June 30, Amount
--------------- --------
1998 ...................................... $ 73,900
1999 ...................................... 87,082
2000 ...................................... 65,795
--------
$226,777
========
Rent expense inclusive of taxes, maintenance and insurance, aggregated
$43,312 for the year ended September 30, 1996, $45,273 for the nine months ended
June 30, 1997 and $22,223 for the nine months ended June 30, 1996.
In May 1997, the Company entered into an operating equipment lease which
requires, among other things, a $70,000 initial payment and, until certain
covenants are met, an $85,000 irrevocable stand by letter of credit. As of June
30, 1997, the Company has not accepted the equipment and the lease has not
commenced, however, the Company paid the initial $70,000 payment which has been
included in other assets. Additionally, the Company is in the process of
obtaining the stand by letter of credit and has been informed by its bank that
the bank will require an $85,000 certificate of deposit as security.
(continued)
F-13
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
Successor to MegaVision, L.C.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to June 30, 1997
and the nine-month periods ended June 30, 1997
and June 30, 1996 is unaudited)
(NOTE M)--Commitments, Contingency and Other Matters: (continued)
[2] Broker agreement:
In October 1996, the Company entered into an agreement with M.K.D. which
was modified January 16, 1997 that provides for M.K.D. to introduce the Company
to businesses that may be interested in either purchasing products or services
from the Company or providing services under the HealthCare Solutions Card. In
the event the introductions lead to the purchase of the Company's products,
M.K.D. will receive a commission 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, in connection with the January 1997 modification, 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.
F-14
<PAGE>
[The following paragraph describes a graphic in the printed material]
The artwork contains pictures of (i) the Company's HealthCare Solutions Card,
(ii) a caduceus, (iii) pharmaceutical pills and (iv) a health care professional.
The artwork also contains the following legends: "It's a savings card. Not an
insurance plan." and "The simplicity of the HealthCare Solutions Card makes it
easy to market to consumers." The second legend also describes the benefits of
the HealthCare Solutions Card.
<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 ......................................................... 15
Dividend Policy ......................................................... 16
Capitalization .......................................................... 17
Dilution ................................................................ 18
Selected Financial Data ................................................. 19
Management's Discussion and Analysis of
Financial Condition and Results of Operations .......................... 20
Business ................................................................ 23
Management .............................................................. 31
Certain Transactions .................................................... 36
Principal Stockholders .................................................. 38
Description of Securities ............................................... 41
Shares Eligible for Future Sale ......................................... 45
Underwriting ............................................................ 46
Legal Matters ........................................................... 48
Experts ................................................................. 48
Additional Information .................................................. 48
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............................................... 18,000
Printing and Engraving Expenses.................................. 100,000
Accounting Fees and Expenses..................................... 150,000
Legal Fees and Expenses.......................................... 200,000
Blue Sky Fees and Expenses....................................... 25,000
Transfer Agent's Fees and Expenses............................... 10,000
Miscellaneous Expenses........................................... 61,231
--------
Total.................................................... $ 575,000
========
Item 14. Indemnification of Directors and Officers
The Amended and Restated Certificate of Incorporation and By-Laws of the
Registrant provide that the Company shall indemnify any person to the full
extent permitted by the General Corporation Law of the State of Delaware (the
"DGCL"). Section 145 of the DGCL, relating to indemnification, is hereby
incorporated herein by reference.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers or controlling persons of the Company pursuant
to the Company's Amended and Restated Certificate of Incorporation, By-Laws and
the DGCL, the Company has been informed that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
The Company's Amended and Restated Certificate of Incorporation includes
certain provisions permitted pursuant to Delaware law whereby officers and
directors of the Company are to be indemnified against certain liabilities. The
Company's Amended and Restated Certificate of Incorporation also limits, to the
fullest extent permitted by Delaware law, a director's liability for monetary
damages for breach of fiduciary duty, including gross negligence, except
liability for (i) breach of the director's duty of loyalty, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law, (iii) the unlawful payment of a dividend or unlawful stock
purchase or redemption and (iv) any transaction from which the director derives
an improper personal benefit. Delaware law does not eliminate a director's duty
of care and this provision has no effect on the availability of equitable
remedies such as injunction or rescission based upon a director's breach of the
duty of care.
In accordance with Section 102(a) (7) of the DGCL, the Amended and Restated
Certificate of Incorporation of the Registrant eliminates the personal liability
of directors to the Company or its stockholders for monetary damages for breach
of fiduciary duty as a director with certain limited exceptions set forth in
Section 102(a) (7).
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.
II-1
<PAGE>
In February 1997, the Registrant sold 132,000 and 24,000 shares of Class A
Common Stock to MKD Capital Corp. and DHF International Inc., respectively, at a
purchase price of approximately $.03 and $2.01, respectively, per share. In
connection with the sale of shares of Class A Common Stock sold to M.K.D.,
M.K.D. agreed to modify an existing contract with the Registrant and reduce the
commissions it will be entitled to receive from the Registrant for sales of the
Registrant's products originated by M.K.D. and for introducing the Registrant to
additional networks of health care providers, if such networks enter into a
contract with the Registrant.
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. All of the foregoing recipients of Common Stock of the Registrant were
either (i) accredited investors, as defined in Rule 501 of Regulation D
promulgated under Section 4(2) of the Securities Act, (ii) officers or directors
of the Registrant or (iii) sophisticated investors capable of evaluating an
investment in the Registrant. All of the sophisticated investors had adequate
access to information about the Registrant. In addition, the recipients of
securities in each such transaction represented their intention to acquire the
securities for investment purposes only and not with a view to or for sale in
connection with any distribution thereof.
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.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
1.1* -- Form of Underwriting Agreement
3.1 -- Amended and Restated 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 as of July
31, 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, as
amended by an Assignment and First Amendment of Lease
dated July 18, 1997.
10.6 -- Voting Agreement dated June 5, 1997 by and between
Theodore W. White, Jr. and Neal J. Polan
10.7 -- Form of Broker Agreement
10.8 -- Agreement between M.K.D. Capital Corp. and the
Registrant, as amended.
II-2
<PAGE>
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
- -----------
* Previously filed.
* * 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
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
5th day of August, 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 August 5, 1997
- ----------------------------- and Chief Executive Officer
Neal J. Polan (principal executive officer)
/s/ JAMES H. STEINHEIDER Chief Operating Officer August 5, 1997
- ----------------------------- Chief Financial Officer and
James H. Steinheider Director (principal financial
and accounting officer)
/s/ NORMAN H. WERTHWEIN Director August 5, 1997
- -----------------------------
Norman H. Werthwein
/s/ ELI LEVITIN Director August 5, 1997
- -----------------------------
Eli Levitin
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, H, I and J 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
August 5, 1997
II-6
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
HEALTHCORE MEDICAL SOLUTIONS, INC.
----------
(Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
HealthCore Medical Solutions, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify as follows:
A. The name of the Corporation is HealthCore Medical Solutions, Inc.
The date of filing of the original Certificate of Incorporation with the
Secretary of State of the State of Delaware was February 11, 1997.
B. Such amendments and additions made by this Amended and Restated
Certificate of Incorporation are set forth herein and have been duly adopted
pursuant to the provisions of Sections 242 and 245 of the General Corporation
Law of the State of Delaware.
C. The Certificate of Incorporation is hereby amended and restated in
its entirety to read as follows:
FIRST: The name of the corporation is HEALTHCORE MEDICAL SOLUTIONS,
INC.
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.
<PAGE>
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.
(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
2
<PAGE>
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,
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
3
<PAGE>
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.
(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 ending September 30, 1999, 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 ending
September 30, 2002, 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
4
<PAGE>
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, 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
5
<PAGE>
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
(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 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.
SIXTH: 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.
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
6
<PAGE>
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 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.
EIGHTH: 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.
NINTH: 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.
7
<PAGE>
IN WITNESS THEREOF, I have hereunto signed my name and affirm that the
statements made herein are true under the penalties of perjury, this 31st day of
July, 1997.
HEALTHCORE MEDICAL SOLUTIONS, INC.
By: /s/ Neal J. Polan
-------------------------------------
Neal J. Polan
Chairman and Chief Executive Officer
AMENDED AND RESTATED ESCROW AGREEMENT
AMENDED AND RESTATED ESCROW AGREEMENT, dated as of the 31st day of July,
1997 and effective as of the Effective Date (as defined herein), amending and
restating the Amended and Restated Escrow Agreement, dated as of April 30, 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."
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<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 September 30, 1998;
or
(B) the Minimum Pretax Income equals or exceeds $5,500,000 for the
fiscal year ending September 30, 1999; or
(C) the Minimum Pretax Income equals or exceeds $7,500,000 for the
fiscal year ending September 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.
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<PAGE>
(ii) The remaining 500,000 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 $4,600,000 for the fiscal year ending September 30, 1998;
or
(B) the Minimum Pretax Income equals or exceeds $6,600,000 for the
fiscal year ending September 30, 1999; or
(C) the Minimum Pretax Income equals or exceeds $9,000,000 for the
fiscal year ending September 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
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<PAGE>
(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
(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
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<PAGE>
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 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) December 31, 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.
-6-
<PAGE>
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 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.
-7-
<PAGE>
(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, 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,
-8-
<PAGE>
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.
(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.
-9-
<PAGE>
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. 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 July __, 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."
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<PAGE>
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. 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
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<PAGE>
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 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.
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<PAGE>
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.
14. This Agreement may be executed in several counterparts, which taken
together shall constitute a single instrument.
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<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 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 Michael J. Reichert Revocable Trust the Michael J. Reichert Revocable
Trust
/s/ Howard Walfish
___________________________________ ----------------------------------
George DiCostanzo 1164 Associates
/s/ Annette Lebor
- -----------------------------------
Annette Lebor
<PAGE>
EXHIBIT A
STOCKHOLDERS' LIST
<TABLE>
<CAPTION>
Name and Address Stock
of Stockholder (1) Certificate Nos. Number of Escrow Shares
- -------------------- --------------------- -----------------------
[Tier 1] [Tier 2] [Tier 1] [Tier 2]
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Annette Lebor 25 26 44,000 55,000
====== ======
TOTAL 400,000 500,000
</TABLE>
- ----------------
* Constitutes Class B Common Stock
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 TORCHIA 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 Torchia
- -----------------------------
Ron Torchia
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";
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(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
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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
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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.
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(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,
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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
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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.
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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.
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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"].
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(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.
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<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.
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<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.
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<PAGE>
ASSIGNMENT AND FIRST AMENDMENT OF LEASE
THIS ASSIGNMENT AND FIRST AMENDMENT OF LEASE ("Assignment and Amendment")
is made and entered into this 18th day of July, 1997, by and among J.C. NICHOLS
COMPANY, a Missouri corporation (as "Landlord"); TED WHITE and RON TORCHIA,
d/b/a Invision (as "Assignor-Tenant"); and HEALTHCORE MEDICAL SOLUTIONS, INC., a
Delaware corporation (as "Assignee-Tenant").
RECITALS
A. By written Lease dated August 3, 1995 (the "Lease"), Landlord leased to
Tenant for a term expiring October 31, 1997, the following described premises
("Premises"):
That certain retail space known and numbered as 11904 South Blue
Ridge Extension, located in the Grandview Village Shopping Center
("Center"), in Grandview, Jackson County, Missouri, containing
approximately Four Thousand Eighty Five (4,085) square feet.
B. Assignor-Tenant desires to assign the Lease to Assignee-Tenant, and
Landlord is willing to approve such assignment, subject to the terms provided
herein.
AGREEMENT:
NOW THEREFORE, in consideration of these Recitals and other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. Assignment of Lease. For value received, Assignor-Tenant does hereby assign,
grant, bargain, sell, transfer and convey to Assignee-Tenant all of its rights,
title and interests in and to the Lease. This Assignment and Amendment shall
take effect as of August 1, 1997 ("Assignment Effective Date").
2. Acceptance of Assignment. In consideration for Landlord's approval of the
foregoing assignment and the benefits and advantages accruing under the Lease,
the undersigned Assignee-Tenant hereby attorns to Landlord, accepts the
foregoing assignment of Lease, and agrees and covenants with Landlord to keep
and perform all of the obligations and covenants of Tenant contained in said
Lease as it may be amended from time to time hereafter. Assignee-Tenant further
covenants and agrees to timely pay all rents and other charges due under the
Lease. Assignee-Tenant accepts the Premises "as is".
3. Approval of Assignment. In consideration for the Assignor-Tenant's agreements
and the Assignee-Tenant's acceptance and covenants set forth in Section 2,
above, Landlord hereby approves the foregoing assignment of Lease and accepts
the Assignee-Tenant as Tenant. Landlord further reserves the right to approve or
disapprove any future assignments or subleases on the part of the
Assignee-Tenant in Landlord's sole discretion pursuant to Article 15 of the
Lease.
<PAGE>
4. Release of Assignor-Tenant. Assignor-Tenant shall be released from all
obligations under the Lease which arise on or after the Assignment Effective
Date. Nothing contained herein shall be construed to release Assignor-Tenant
from any obligations which arise under the Lease prior to the Assignment
Effective Date.
5. Term. The term of the Lease is hereby extended for an additional two (2)
years, beginning on and including the 1st day of November, 1997, through and
including the 31st day of October, 1999 (the "Extended Term") upon the same
terms and conditions as set forth in the Lease, except as provided herein.
6. Minimum Rent. For use and availability of the Premises, Tenant shall and
hereby agrees to pay Landlord Minimum Rent, without notice or demand, on the
first day of each month during the Extended Term of the Lease as follows:
$1,465.00 shall be due and payable on November 1, 1997, and on the first
day of each month thereafter, through and including October 1, 1998.
$1,535.00 shall be due and payable on November 1, 1998, and on the first
day of each month thereafter, through and including October 1, 1999.
7. Renewal Option. Provided Tenant is not then in default of any of the terms or
conditions of this Lease, Tenant shall have the right to extend the Term of this
Lease for one (1) two (2) year period ("Renewal Term") commencing the day
immediately following the expiration date of the initial Term of the Lease
("Expiration Date"). Tenant shall provide Landlord with written notice of
Tenant's intent to exercise said renewal option ("Renewal Notice") at least one
hundred twenty (120) days prior to the Expiration Date. All covenants, terms and
conditions of this Lease shall continue in effect during the Renewal Term,
except that the amount of Minimum Rent to be paid during the Renewal Term shall
be that rate that Landlord determines is the fair market rate for the Premises
at the time of renewal. Landlord shall notify Tenant of the Minimum Rent to be
paid during the Renewal Term within thirty (30) business days after Landlord
receives Tenant's Renewal Notice. In the event that Tenant is unwilling to
accept the Minimum Rent determined by Landlord for the Renewal Term, Tenant
shall so notify Landlord within ten (10) days of receipt of Landlord's Minimum
Rent notice ("Rejection Notice"). If the parties are unable to reach agreement
within thirty (30) days after Landlord receive Tenant's Rejection Notice as to
what the Minimum Rent will be during the Renewal Term, then Tenant's election to
renew shall be deemed cancelled, and the Term shall expire on the Expiration
Date.
8. Environmental Liability. Tenant covenants not to introduce any hazardous or
toxic materials or hazardous substances into any portion of the Premises or
Center without complying with all applicable Federal, state and local laws,
ordinances, regulations or orders (whether now existing or hereafter enacted)
pertaining to the transportation, storage, use or disposal of such materials
(collectively, "Environmental Laws"), including, but not limited to, obtaining
proper
2
<PAGE>
permits. If Tenant's transportation, storage, use or disposal of hazardous or
toxic materials or hazardous substances into the Premises or Center results in
the contamination of the soil or surface or ground water, the violation of any
Environmental Laws or loss or damage to any person or property, then Tenant
shall (i) immediately notify Landlord of any contamination, claim of
contamination, violation of Environmental Laws, loss or damage; and (ii) after
consultation with Landlord, clean up the contamination in full compliance with
Environmental Laws. Tenant further agrees to and shall indemnify, defend and
hold harmless Landlord, its successors and assigns against any and all
liability, loss or expense, including, but not limited to, reasonable attorneys'
fees, arising from or connected with any such contamination, claim of
contamination, violation of Environmental Laws, judgment, loss or damage related
to the existence, disposal or release of contaminants or pollutants introduced
into the Premises or Center. This provision shall survive the termination of the
Lease. Tenant agrees that the indemnity herein contained shall extend to any
actions caused by Tenant and its agents, employees, contractors or invitees.
9. Ratification. Except as specifically amended hereby, each and every other
term and condition of the Lease shall remain unchanged and in full force and
effect without modification, and Landlord and Tenant hereby ratify and affirm
the same. The Lease as amended to date constitutes the entire agreement and
understanding of the parties; and all prior negotiations, correspodence,
proposals, prior documents and verbal understandings are hereby merged into the
Lease, as amended.
WITNESSING THEIR AGREEMENT and intending to be legally bound, the parties
have executed this Assignment and Amendment as of the date first written above,
by and through their duly authorized representatives.
(Assignor-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
(Assignee-Tenant)
HEALTHCORE MEDICAL SOLUTIONS, INC.
By: /s/ James H. Steinheider
- ----------------------------------
Print Name: James H. Steinheider
Title: Chief Operating Officer
3
VOTING AGREEMENT
VOTING AGREEMENT dated as of this 5th day of June 1997 by and between
THEODORE W. WHITE, JR. ("White") and NEAL J. POLAN ("Polan").
W I T N E S S E T H
WHEREAS, White beneficially owns and holds an aggregate of 144,000
shares of Class B Common Stock, par value $.01 per share (the "Class B
Common Stock"), of HealthCore Medical Solutions, Inc. (the "Company"); and
WHEREAS, as a condition to the bridge financing and public offering
pursuant to the letter of intent dated September 24, 1996 between the Company
and D.H. Blair Investment Banking Corp., as amended, White has agreed to give
Polan a voting proxy on the shares of Class B Common Stock beneficially owned by
White on the date hereof and any shares of Class B Common Stock and Class A
Common Stock, par value $.01 per share (the "Class A Common Stock"), acquired by
White subsequent to the date hereof, as set forth under the terms and conditions
of this Voting Agreement (the "Agreement").
NOW THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements hereinafter set forth, the
parties hereto do hereby agree as follows:
1. Grant of Proxy.
(a) White hereby appoints Polan to act as the proxy of White, and
grants Polan the power to vote cumulatively or otherwise, (i) the shares of
Class B Common Stock beneficially owned by White on the date hereof; (ii) any
shares of Class B Common Stock or Class A Common Stock acquired subsequent to
the date hereof and (iii) any shares of Class A Common Stock received by White
upon conversion of the Class B Common Stock into Class A Common Stock prior to
the termination of this Agreement (collectively, the "Shares") at any annual or
special meeting of stockholders of the Company, or any adjournment or
adjournments thereof at which the Shares would be entitled to vote. Polan shall
have the right to exercise, in person or by his nominees or proxies, all voting
rights and powers granted under the Delaware General Corporation Law in respect
of all Shares, and to take part in or consent to any corporate or shareholder
action of any kind whatsoever permissible under the Delaware General Corporation
Law. The right to vote shall include the right to vote for the election of
directors and in favor of or against any reoslution or proposed action of any
character whatsoever that may be presented at any meeting or require the consent
of shareholders of the Company.
(b) This proxy is coupled with an interest and is irrevocable, except
as specifically hereinafter set forth.
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<PAGE>
(c) Without limiting the generality of the proxy granted pursuant to
Section 1(a) above, Polan may vote the Shares subject to this Agreement in favor
of the election of himself as a director of the Company and of, and in favor of,
the ratification and approval of the acts of himself as a director and officer
in the general conduct of the business and affairs of the Company.
2. Dividends and Distributions.
White shall be entitled to receive payments of all dividends and other
distributions with respect to the Shares and upon the declaration of any
dividend White shall receive all such dividends or other distributions to be
distributed by the Company. Any dividends or other distributions consisting of
(i) Class B Common Stock or Class A Common Stock or (ii) distributions of or
conversions into additional shares of Class B Common Stock or Class A Common
Stock shall be subject to the terms of this Agreement on the same basis as the
respective Shares on which such dividends were declared.
3. Term.
The term of this Agreement shall commence on the date first above set
forth and continue until the earlier of:
(a) 5:00 p.m., New York time, on the fifth anniversary of the date
first above set forth;
(b) the death of Polan;
(c) Polan's termination of employment with the Company for any reason;
or
(d) if, for the fiscal year ended December 31, 1998, the Company does
not report net income before provision for income taxes and exclusive of any
extraordinary earnings (all as audited by the Company's independent public
accountants) 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 Company'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%).
4. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to agreements made and to be performed
therein.
-2-
<PAGE>
5. Counterparts.
This Agreement may be executed in any number of counterparts and all such
counterparts taken together shall be deemed to constitute one and the same
Agreement.
6. Notices.
All notices hereunder shall be in writing and delivered personally or sent
by registered or certified mail, postage prepaid.
If to White: at his address shown on the books and records of the Company.
If to Polan: at his address shown on the books and records of the Company
Either party may change the address to which notices are to be sent to it
by giving 10 days written notice of such change of address to the other parties
in the manner above provided for giving notice. If delivered in person, then
such notice shall be effective immediately; if mailed, then 72 hours after
deposit, postage prepaid.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have execute this instrument as
of the date and year first above written.
THEODORE W. WHITE, JR.
/s/ THEODORE W. WHITE, JR.
------------------------------
NEAL J. POLAN
/s/ NEAL J. POLAN
------------------------------
-4-
BROKER NAME ________________________
BROKER AGREEMENT # _______________________
This Agreement entered into on the ___ day of _________________, 1997, (the
"Effective Date") by and between ____________________, a
__________________________ located in _________________ ("Broker") and
HealthCore Medical Solutions, Inc., a Delaware Corporation with its principal
offices located in Grandview, Missouri ("HealthCore").
WHEREAS, HealthCore has developed a system to allow individuals and families who
enroll in a program (the "Enrollees") to obtain vision care, dental care,
hearing, pharmacy and other benefits at reduced prices through provider networks
selected by HealthCore (the "Program); and
WHEREAS, Broker is an entity that does business primarily as a marketing
organization and has extensive dealings with those certain individuals,
associates, agents and representatives listed on Exhibit B attached hereto and
by reference incorporated herein and certain future associates to be nominated
in writing by Broker to HealthCore to be included as part of this Agreement,
subject to HealthCore's sole option to accept or reject said nominated
associates (collectively the "Associates"); and
WHEREAS, Broker and Associates have or desire to establish dealings with
organizations, corporations, groups, associations and others whose employees,
members and customers may decide to become Enrollees (collectively the "Broker's
Contacts"); and
WHEREAS, certain of Broker's Contacts (including all Broker's Contacts'
subsidiaries, sub-groups, affiliated entities and branch offices, wherever
located) may have a total number of potential Enrollees of every kind, including
but not limited to employees, agents, members or others, that exceeds 2,500 (a
"Major Account"); and
WHEREAS, HealthCore and Broker desire for Broker and Associates to solicit
Enrollees for the Program pursuant to the terms hereof;
NOW, THEREFORE, for and in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. Commencing on the Effective Date, Broker shall use its best efforts to
solicit Enrollees for the Program through Broker, Broker's Associates and
other related sources as shall be mutually agreed upon by HealthCore and/or
Broker. However, neither Broker and Associates nor anyone acting though
Broker and Associates shall solicit any Major Account or commence
enrollment of any Enrollees affiliated with any Major Account unless Broker
shall first have submitted in writing and received back in writing, in form
reasonably acceptable and approved in writing by HealthCore, that the
Broker (or the party operating through Broker) is approved to market the
Program to said Major Account. HealthCore, in its sole discretion, may
place certain restrictions, including but not limited to a requirement for
Broker to obtain an agent of record letter from said Major Account, or
reject any such request from Broker and/or Associates without disclosing
the reasons for such action. In addition, HealthCore, in its sole
discretion, may waive the requirement for such request regarding a Major
Account. If prior approval to market to a Major Account is not obtained
from HealthCore and this requirement has not been waived, then, not
withstanding anything else in this Agreement, neither Broker nor Associates
nor anyone acting though Broker and Associates shall be entitled to any
compensation regarding said Major Account and, in addition, such failure to
obtain prior approval shall authorize HealthCore, in its sole discretion,
to terminate this Agreement. The request to market to Major Accounts from
HealthCore shall include, but not be limited to, a description of the
relationship between the Broker and the Major Account (or one of its
representatives) and any other information that may be requested by
HealthCore from time to time.
2. All Program enrollment forms solicited by Broker shall be submitted to
HealthCore. Any enrollment forms received by HealthCore without proper
payment or that are illegible, incomplete or that have any similar type of
problem so as to not allow them to be properly processed by HealthCore, or
which for any other business reason are not acceptable to HealthCore, may
be rejected by HealthCore without notice and all monies
<PAGE>
received by HealthCore from said rejected Enrollee shall be returned to the
party from whom payment was received.
3. The annual renewable Enrollment Fee payable to HealthCore for all Enrollees
submitted by or through Broker to HealthCore shall be payable in a single
annual payment by check, bank draft, money order, credit card or other form
acceptable to HealthCore and shall be in the amount of ________________
each or such other amount as shall be designated from time-to-time by
HealthCore (the "Annual Payment Fee"). The monthly renewable Enrollment Fee
payable to HealthCore for all Enrollees submitted by or through Broker to
HealthCore shall be payable only by bank draft or other form acceptable to
HealthCore, except for checks from employers for payroll deduction types of
payment, and shall be _________________ per month each or such other amount
as shall be designated from time-to-time by HealthCore (the "Monthly
Payment Fee"). (collectively the "Enrollment Fee(s)").
4. The appropriate Enrollment Fee for each proposed Enrollee shall be
submitted directly to HealthCore with the Program enrollment form by Broker
or Enrollee or, in the case of payroll deduction Enrollees, by the
Enrollee's employer. If any proposed Enrollee is rejected for any reason
whatsoever, HealthCore shall promptly refund the Enrollment Fee received
pertaining to the rejected Enrollee to the party from whom payment was
received.
5. HealthCore shall pay to Broker, as compensation for the services to be
rendered by Broker hereunder, such amount or amounts calculated in
accordance with Exhibit A attached hereto and by reference incorporated
herein. All Broker's compensation shall be paid monthly to Broker, or, in
the event of Broker's death, to Broker's designated heir(s), on or before
the last day of each calendar month for each Enrollee for whom the proper
payment in full was received by HealthCore during the previous calendar
month.
6. Broker shall be solely responsible for paying all compensation, expenses
and costs of any kind whatsoever incurred by Broker and/or Associates in
performing its obligations herein or as a result of this Agreement, whether
or not such compensation, expenses and costs are greater than or less than
the Broker's compensation. If HealthCore is required to directly pay any
compensation, expenses and costs of any kind whatsoever incurred by Broker
as a result of this Agreement to any entity or individual other than
Broker, and if HealthCore pays any fees directly to any Association,
employer or any other entity as a result of this Agreement, then the total
amount of such payments shall be deducted from Broker's compensation by
HealthCore, provided however that said deduction shall not limit any other
rights HealthCore may have. Broker shall also be solely responsible for
providing all governmental and other reporting documents to Associates
and/or any other entities to whom Broker may be responsible as a result of
this Agreement. The parties shall reasonably cooperate to provide to each
other any necessary documentation as each shall need to comply with the
provisions of the preceding sentence of this paragraph 6.
7. Notwithstanding the foregoing or anything else contained in this Agreement,
HealthCore may, for promotional or other purposes, distribute enrollments
in its Program to certain Enrollees of HealthCore's choice without charge
("Promotional Enrollees"), including Enrollees enrolled by Broker under the
terms of this Agreement. With respect to those Promotional Enrollees, no
Broker's compensation or other amount whatsoever shall be payable to Broker
pursuant to this Agreement. However, all such Promotional Enrollees shall
otherwise be governed by all other provisions of this Agreement.
8. Also, notwithstanding the foregoing or anything else contained in this
Agreement, if for any reason an Enrollee's enrollment in HealthCore's
Program terminates prior to the end of the term of said enrollment, and if
for that or any other reason HealthCore reimburses all or a portion of the
Enrollment Fee to the Enrollee, then Broker shall reimburse to HealthCore
(or allow a credit for) the same percentage of the amount paid to Broker as
provided above as the percentage of the Enrollment Fee reimbursed by
HealthCore to the Enrollee.
9. During the term of this Agreement and for a period of one year after
termination hereof for any reason, Broker shall specifically not market,
solicit enrollments for, promote or otherwise directly or indirectly assist
in the sale or marketing of any other healthcare benefit discount program
which is in competition with the HealthCore Program without the express
prior written consent of HealthCore. HealthCore hereby reserves
<PAGE>
the right to enter into agreements for and with, and to participate in
other agreements of all kinds, including but not limited to agreements with
other Brokers which may directly or indirectly compete with Broker.
10. Notwithstanding the terms and conditions of this Agreement contained
herein, but subject to paragraph 9, if, at any time during this Agreement,
or at any time after termination of this Agreement, Broker markets,
solicits enrollments for, promotes or otherwise directly or indirectly
assists in the sale or marketing of any other healthcare benefit discount
program which is in competition with the HealthCore Program to any known
existing Enrollees without the express prior written consent of HealthCore,
or if HealthCore terminates this Agreement based on failure of Broker to
obtain prior approval to market to a Major Account as provided in paragraph
1, or if this Agreement is terminated by HealthCore for cause, then, at
HealthCore's sole option, this Agreement (if this Agreement is still in
effect) shall terminate immediately without notice and, in any such
termination event, Broker shall no longer be entitled to be receive any
future Broker's compensation for any Enrollees. This right by HealthCore to
cease paying any future Broker's compensation shall be in addition to all
other rights and remedies available to HealthCore by law or in equity.
11. Broker shall market the Program using only materials which have been
approved in advance in writing by HealthCore and for a price which has been
approved in advance in writing by HealthCore. Without limiting the
generality of the foregoing, Broker shall make no statement, promise,
agreement or representation regarding the Program or the benefits
thereunder which is not accurate and consistent with the benefits of the
Program which have been specifically represented in writing to Broker by
HealthCore.
12. Broker shall train all personnel working on its behalf regarding the
Program, including but not limited to the price reductions available
thereunder, and the proper methods of marketing.
13. As part of the operation of HealthCore's Program, HealthCore shall provide
to Broker, in reasonable quantities as determined solely by HealthCore to
be sufficient to enable Broker and its Associates to solicit Enrollees in
the Program, certain generic selling pieces and enrollment forms.
HealthCore shall also provide a fulfillment package to all Enrollees and a
toll-free number for customer service.
14. The HealthCore Program shall operate under such name or names as shall be
selected by HealthCore from time-to-time.
15. 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 Broker and/or anyone on its behalf or as a result of its
performance of its obligations hereunder 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 to HealthCore by Broker and anyone else
working through Broker hereunder if for any reason this Agreement
terminates.
16. Notwithstanding any termination of the Program, or of this Agreement,
HealthCore and Broker shall continue to perform their duties hereunder with
regard to Enrollees and/or organizations who have enrolled in the Program
as a direct enrollment from or through Broker prior to the termination of
this Agreement.
17. Neither Broker and its Associates nor any of their agents or other
representatives operating hereunder, shall use the names HealthCore,
HealthCore Medical Solutions, Inc., Healthcare Solutions Card or any other
name currently or in the future associated with the Program, or any
materials, literature, brochures or other documents regarding the Program,
without the prior written consent of HealthCore.
18. All materials, forms, data, manuals, records, reports and other
information, including but not limited to Enrollment Fees and the amount
and calculation of Broker's compensation, regarding the Program and
Enrollees in the Program and their participation in the Program shall be
the property of HealthCore and shall constitute confidential proprietary
business information of HealthCore which shall be maintained in strictest
confidence by Broker on behalf of HealthCore. Upon termination of
participation in the Program for any reason by Broker, Broker shall
promptly return to HealthCore all material regarding the Program, including
brochures, reports, data, supplies, equipment and manuals.
<PAGE>
19. This Agreement shall not create a partnership, joint venture or similar
relationship between HealthCore and Broker or Broker's Associates, who for
all purposes shall be independent contractors. Nothing contained herein
shall be construed to the contrary.
20. In the event that any provision of this Agreement shall be held to be
illegal or otherwise unenforceable by any court of competent jurisdiction
for any reason whatsoever, such provision shall be severed and the
remainder of the entire Agreement shall continue in full force and effect,
provided however that if the severing of such provision shall result in in
a material alteration of this Agreement, the remaining provisions of this
Agreement shall be adjusted equitably so that no party benefits
disproportionately.
21. No omission or delay by either party at any time to enforce any right or
remedy reserved to it or to require performance of the terms, covenants or
provisions of this Agreement shall be a waiver of any such right or remedy
to which either party is entitled, nor shall it in any way effect the right
of either party to enforce such terms, covenants or provisions therafter.
22. This Agreement shall represent the sole and binding understanding between
the parties and shall supercede and replace all prior agreements, whether
written or oral, between the parties, and all such prior agreements shall
be deemed cancelled as of the Effective Date. This Agreement may not be
altered, modified or changed in any manner except by mutual written consent
of the parties.
23. HealthCore reserves the right to change any present or future provider
discounts, benefits, or other aspects of its Program from time-to-time
without prior consent of Broker.
24. HealthCore shall indemnify, defend and hold harmless Broker and its
officers, directors, members, shareholders, employees and agents from and
against any claims, liabilities, damages, expenses, duties, obligations and
causes of action directly or indirectly relating to or resulting from any
negligence, actions, transactions, occurrences, representations,
misrepresentations, omissions or other failure by HealthCore to properly
perform its obligations hereunder which is not materially contributed to by
the negligence or failure to perform its obligations hereunder by either
Broker or its Associates or anyone assisting in the performance by Broker
or its Associates of their obligations hereunder. Notwithstanding the
foregoing, under no circumstance shall HealthCore have any liability to any
Enrollee or potential Enrollee in its Program, other than the refund of the
current annual Enrollment Fee already paid by the Enrollee to Healthcore.
25. Broker and its Associates shall each indemnify, defend and hold harmless
HealthCore and its officers, directors, members, shareholders, employees,
agents, Enrollees and providers of services in the Program from and against
any claims, liabilities, damages, expenses, duties, obligations and causes
of action directly or indirectly relating to or resulting from any
negligence, actions, transactions, occurrences, representations,
misrepresentations, omissions or other failure by either Broker or its
Associates to properly perform its obligations hereunder which is not
materially contributed to by the negligence or failure to perform its
obligations hereunder by HealthCore.
26. The terms of this Agreement shall be in full force and effect as of the
Effective Date and shall continue for a period of one year thereafter
unless terminated earlier by HealthCore for cause. Thereafter, this
Agreement shall automatically renew and continue in effect until terminated
by either party upon 60 days written notice.
27. This agreement may not be assigned by either party without the express
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.
28. All notices hereunder shall be considered sufficiently given when actually
delivered or when sent or received by facsimile transmission; or three (3)
business days after being deposited in the US mail, postage prepaid,
certified mail, return receipt requested; addressed as follows:
<PAGE>
A. To Broker:
________________________________
________________________________
________________________________
Fax Number: (____)_____-_______
B. To HealthCore:
HealthCore Medical Solutions, Inc.
Attn: Chief Operating Officer
11904 Blue Ridge Boulevard
Grandview, Missouri 64030
Fax Number: (816) 765-6573
With a Copy to: Mr. Robert R. Bartunek
Swanson, Midglen, Gangwere,
Kitchin & McLarney
922 Walnut, Suite 1500
Kansas City, Missouri 64106
Fax Number: (816) 842-0013
Either party, by notice to the other party, may change the address(es)
and/or number to which notices to it are to be given.
29. This Agreement shall inure to the benefit of the parties hereto and their
successors and permitted assigns, and shall be governed by the laws of, and
for all purposes deemed to have been entered into in, the State of
Missouri. Any action or other judicial proceeding for the enforcement of
this Agreement or any of its provisions shall be instituted only in a court
of competent jurisdiction in the County of Jackson, State of Missouri, and
each party hereby waives the right to change venue.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first written above.
HealthCore Medical Solutions, Inc.: Broker:
By____________________ By_________________________
James H Steinheider
Chief Operating Officer Fed Tax I.D.# ________________
<PAGE>
EXHIBIT A
PAYMENTS TO BE MADE TO BROKER
BROKER NAME: ______________________
With respect to collecting Enrollment Fees from all new or existing Enrollees in
HealthCore's Program identified at the time of enrollment as originating from
Broker under the terms of this Agreement, HealthCore shall pay to Broker as
compensation the amounts determined from the calculations below:
1. During the initial one-year term of this Agreement, the portion of the
Enrollment Fees received from those prospective Enrollees identified at the
time of enrollment as having originated from the sales and marketing
activities of Broker or Broker's Associates that shall be retained by
HealthCore from the Enrollment Fees received (the "Retainage"), shall be
____________________ each for all Single Payment Fees received by
HealthCore and __________________ per month each for all Monthly Payment
Fees received by HealthCore. Enrollment Fees received by HealthCore from
all new or existing Enrollees in HealthCore's Program identified at the
time of enrollment as originating from Broker under the terms of this
Agreement in excess of the Retainage shall be paid to Broker as Broker's
sole compensation calculated and payable to Broker under the terms of this
Agreement.
2. Beginning the first day of the month immediately following first
anniversary of the Effective Date of this Agreement and continuing
thereafter until this Agreement is terminated, the calculation of Broker's
compensation shall be determined in the same manner as described in
paragraph 1 of this Exhibit A, except that HealthCore shall have the sole
option to change the Retainage amounts to reflect HealthCore's then current
Retainage rate structure, provided however that in no event shall the
Retainage be increased to an amount that is greater than 70% of the then
current HealthCore standard Enrollment Fee and that at least 15 days prior
to such change, HealthCore shall have notified Broker in writing of any
such change.
3. After termination of this Agreement, subject to the provisions of paragraph
10, for Enrollees who remain enrolled in the Program through the same group
through which they were initially enrolled in the Program through Broker,
Broker shall continue to be paid Broker's compensation for a period of time
equal to the duration that this Agreement was in effect. Said Broker's
compensation shall be calculated on all Enrollment Fees and renewals
thereof which Broker identified at the time of enrollment as originating
from Broker under the terms of this Agreement. The calculation of Broker's
compensation shall be determined in the same manner as described in
paragraph 1 of this Exhibit A, except that HealthCore shall have the sole
option to change the Retainage amounts to reflect HealthCore's then current
Retainage rate structure, provided however that in no event shall the
Retainage be increased to an amount that is greater than 70% of the then
current HealthCore standard Enrollment Fee and that at least 15 days prior
to such change, HealthCore shall have notified Broker in writing of any
such change.
<PAGE>
EXHIBIT B
BROKER'S NAME _____________________
BROKER'S ASSOCIATES LIST
1. _________________________
2. _________________________
3. _________________________
4. _________________________
5. _________________________
6. _________________________
AGREEMENT
THIS AGREEMENT, is made and entered into as of the 29 day of October, 1996
b y and between M.K.D. CAPITAL CORP., a New York corporation ("MKD") and
MEGAVISION, L.C., Missouri limited liability company (the "Company").
WITNESSETH:
WHEREAS, the Company retained MKD to provide certain advisory services to
the Company which MKD has provided; and
WHEREAS, in consideration of such services, the Company has agreed to
issue, or cause any Successor (defined below) (the Company and any such
Successor being hereinafter referred to as the "Issuer") to issue, to MKD or
any of its permitted assigns, on the terms and conditions hereinafter set forth,
equity interests or rights to acquire equity representing 18% of the outstanding
equity interests of the Issuer; and
WHEREAS, the Company desires to retain MKD, on the term and conditions
hereinafter set forth, to introduce it to certain of MKD's other business
contacts who may be interested in either purchasing the Company's "Invision"
card product or serving as sources of benefits that can be offered to holders of
the "Invision" card.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the parties hereto agree as follows:
ARTICLE I
Equity Participation
1.1 Issuance of Equity. The Issuer shall issue to MKD or its permitted
assigns on or before the Issuance Date (defined below) equity interests or
rights to acquire equity interests in the Issuer representing on a fully diluted
basis on the Issuance Date 18% of the outstanding equity interests of the
interests of the Issuer (the "Securities"). The Securities to be issued shall be
in the same form and shall contain the same rights as the securities proposed to
be issued by the Issuer to Mr. Ted White and shall provide that, if the Issuer
consummates an initial public offering or otherwise issues any equity,
interests or rights to acquire equity interests, to any one or more investors
not affiliated with any of the initial investors in the Issuer, the Securities
shall represent (assuming
<PAGE>
the exercise of any rights or warrants included as part of the Securities), on a
fully diluted basis, not less than 9% of the outstanding common equity of the
Issuer. On the same date as the Securities are issued to MKD or its permitted
assigns hereunder, the Issuer shall enter into with MKD and/or its permitted
assigns a registration rights agreement providing for unlimited piggyback
registration rights. The registration rights agreement shall contain customary
terms and provisions and shall provide that all expenses of any such
registration (other than the payment of underwriting commissions relating to any
Securities to be sold pursuant thereto) shall be borne by the Issuer, that no
person shall be granted more favorable registration rights than those set forth
in the agreement and that, in the event the total number of shares to be
registered pursuant to such registration exceeds the number that the Issuer is
advised by the lead investment bank underwriting the offering, the number of
shares by which the offering is to be reduced shall be apportioned among all
parties seeking to register shares pro rata according to the total number of
shares sought to be registered by each such party.
As used herein "Issuance Date" shall mean the earlier of (i) the date the
Company files a registration statement for its IPO with the Securities and
Exchange Commission and (ii) the date the Successor is formed. The term
"Successor" shall mean any corporation or other company with which the Company
merges or otherwise combines or to which the Company transfers substantially all
of its assets or to which a majority of the equity interests of the Company are
transferred.
1.2 Representation and Warranty of the Issuer. The Issuer hereby represents
and warrants that all Securities (other than Securities constituting warrants or
rights) issued to the Acquiror will when issued be validly issued, fully paid
and non-assessable, and in the event warrants or rights are issued, such
warrants or rights will when issued be validly issued and sufficient number of
the Securities into which such warrants or rights may be exercised will have
been reserved for issuance upon any such exercise and, upon exercise of such
warrants or rights, the Securities issued pursuant to such exercise will be
validly issued, fully paid and non-assessable.
1.3 Representations and Warranties to be made by the Acquiror. At the time
the Securities are issued, MKD understands and agrees that it and/or its
permitted assigns (collectively, the "Acquiror") will be required to make the
following representations and warranties to the Company:
(a) The Acquiror understands that the Securities have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and the Securities are being transferred to the Acquiror under an exemption from
registration provided by the Securities Act and the rules and regulations
thereunder.
2
<PAGE>
(b) The Acquiror is able (i) to bear the economic risk of an
investment in the Securities, (ii) to hold the Securities for an indefinite
period of time, and (iii) to afford a complete loss of such investment.
(c) The Acquiror has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of an
investment in the Securities and of making an informed investment decision with
respect thereto.
(d) The Acquiror has been given the opportunity to obtain information
and to ask questions of, and to receive answers from, the Issuer or any person
acting on its behalf concerning the Securities and the Issuer and to obtain any
additional information to verify the accuracy of any information furnished. All
such questions have been answered to the Acquiror's full satisfaction.
(e) The Securities are being acquired solely for the Acquiror's own
account for investment and not with a view to a distribution thereof. The
Acquiror has no agreement or other arrangement with any person to sell, transfer
or pledge any part of the Securities.
(f) The Acquiror understands that:
(i) All certificates evidencing the Securities will bear the
following legend:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE AND MAY
NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF
EXCEPT IN COMPLIANCE WITH, OR PURSUANT TO AN EXEMPTION FROM, THE
REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
(ii) The Acquiror's investment in the Company involves certain
risks in that, among other factors, (a) successful operation of the
Company may depend on factors beyond the control of the Company, and
(b) the investment in the Company is a speculative investment and
involves a high degree of risk of loss, and accordingly, it may not be
possible for the Acquiror to liquidate its investment in case of
imminent need of funds or any other emergency, if at all.
(iii) The Company is recently formed and has no history of
operations. There is no assurance that the Company will be able to
complete and implement its proposed business plan successfully, or
that it will be able to negotiate acceptable contractual relationships
necessary to make the business profitable.
(iv) The Issuer will be subject to all of the risks inherent in
the establishment of a business and the
3
<PAGE>
operation of a business in general, including, without limitation,
those related to local and national economic conditions, uninsured
losses, inflation, changes in market conditions and costs, management,
changes in consumer preferences and demographics, competition, and
government laws and regulations.
ARTICLE II
Invision Card Solicitation
2.1 Solicitation of Business Contacts. The Company hereby retains MKD for
the purpose of introducing the Company to any of MKD's Business Contacts
(defined below) that MKD believes may be interested in either purchasing the
Company's "Invision Card" or other products (or any successor to any such
products) or providing services or other benefits which may be included as part
of the "Invision Card" or the Company's other products. The foregoing
notwithstanding, MKD shall have no obligation to introduce the Company to any
Business Contact.
2.2 Fees.
(a) In the event MKD introduces the Company to any Business Contact
that elects to purchase any of the Company's products, including without
limitation, the Invision Card, the Company agrees to pay MKD a fee equal to 20%
of Gross Payments (defined below).
(b) In the event MKD introduces the Company to any Business Contact
that elects to provide services or other benefits that are included as part of
any of the Company's products, including, without limitation, the Invision Card,
the Company agrees to pay MKD a fee equal to 20% of Revenue Payments (defined
below).
(c) All fees payable hereunder shall be paid to MKD in cash within 10
days after the end of each month in which any Gross Payments or Revenue Payments
are received.
2.3 Agreements of the Company.
(a) The Company shall deliver to MKD, not later than 10 days after the
end of each month, a statement setting forth in reasonable detail the Company's
calculation of Gross Revenues and Revenue Payments and the amount due to MKD
hereunder.
(b) The Company agrees to keep such books and records as may be
necessary to calculate, in accordance with the terms hereof, Gross Payments and
Revenue Payments. The Company shall permit representatives of MKD, from time to
time, as often as may be reasonably requested, but only during normal business
hours and upon not less than one (1) Business Day's prior notice, to inspect,
audit and make extracts from such books and records.
4
<PAGE>
(c) The Company will take no action intended to or actually having the
effect of reducing or avoiding payments due to MKD under this agreement.
2.4 Definitions.
(a) As used herein "Business Contact" shall mean any person or entity
introduced by MKD to the Company with which the Company shall do business within
a one-year period following such introduction.
(b) As used herein "Gross Payments" shall mean the dollar value of all
consideration in whatever form paid to the Company by or on behalf of any
Business Contact for any of the Company's products less any direct manufacturing
costs (which shall not include any allocation of the Company's overhead)
incurred by the Company in the production of such products.
ARTICLE III
Representations and Warranties
3.1 Representations and Warranties of the Company. The Company represents
and warrants as follows:
(a) The Company is, and the Issuer will be, duly formed, validly
existing and in good standing under the laws of the jurisdiction of its
organization.
(b) The Company has, and the Issuer will have, all necessary power and
authority to conduct its business as proposed to be conducted and to enter into
this Agreement and the other agreements and instruments contemplated hereby and
to carry out the transactions contemplated hereby and thereby. All actions
necessary to authorize the Company and the Issuer to enter into this Agreement
and the other agreements and instruments contemplated hereby and carry out the
transactions contemplated hereby and thereby have been or will be taken.
(c) The Company has duly executed and delivered the Agreement and this
Agreement constitutes a legal, valid, binding and enforceable obligation of the
Company and will constitute a legal, valid, binding and enforceable obligation
of any Successor.
(d) Neither the execution or delivery of this Agreement or of any
other agreement or instrument to be delivered in accordance with this Agreement
nor the consummation of the transactions contemplated hereby or thereby does or
will violate, result in a breach of, or constitute a default (or an event which,
with notice or lapse of time or both will constitute a default)
5
<PAGE>
under, (i) any agreement or instrument to which the Company or any its
subsidiaries is, or to which any Successor will be, a party or by which the
Company or any of its subsidiaries is, or to which any Successor will be, bound,
(ii) the constitutive documents of the Company or any Successor, (iii) any law,
or (iv) any order, rule or regulation of any court or governmental agency or
other regulatory or self-regulatory organization having jurisdiction over the
Company, any of its subsidiaries or any Successor.
(e) No governmental filings, authorizations, approvals or consents, or
other governmental action, are required to permit the Company, or any Successor
to carry out transactions contemplated by this Agreement.
(f) The Company may not cancel, terminate or revoke this Agreement,
and this Agreement shall be binding upon the Company and the Company's
successors, assigns, legal representatives, heirs, legatees, and distributees.
ARTICLE IV
Indemnification
The Company shall indemnify, hold harmless and defend MKD, any Acquiror and
their representatives, officers, directors and affiliates from and against any
and all loss, damage, expense, claim, action or liability any of them may incur
as a result of the breach or untruth of any of the representations, warranties
and agreements of the Company or any Successor set forth in this Agreement.
ARTICLE V
Miscellaneous
5.1 Termination. This Agreement may be terminated only by mutual consent of
the parties. All obligations of the Company and its successors and assigns,
hereunder, including, without limitation, the obligation to pay the fees due MKD
under Article II hereof shall continue until such time as this Agreement is
terminated by mutual consent.
5.2 No Broker/Finder Fee. The parties hereto acknowledge that the services
provided by MKD do not include finding or introducing to the Company potential
investors in the Company, nor do such services include commissions or fees
payable based upon funds that may be invested in the Company. The Company shall
not be obligated to make any payments, finder fees or commissions to MKD
relating to dollars that may be raised in public or private offerings of any
interest in the Company. Compensation earned by MKD hereunder relates strictly
to assistance in providing advice on restructuring the Company and introduction
to broker/dealers and other contacts who may provide assistance in raising
capital and to contacts who may enter into contractual relationships that will
generate income for the Company in the ordinary course of its business.
6
<PAGE>
5.3 Governing Law. This Agreement shall be governed by the laws of the
State of Missouri.
5.4 Successors and Assigns. This Agreement shall be binding upon the
parties hereto and their respective successors and permitted assigns. Except for
any transfer to the Successor, the Company cannot assign any of its obligations
under this agreement without MKD's consent.
MKD may transfer or assign any or all of its rights under this Agreement,
in whole or in part to any of its affiliates, which may include any officer or
director of MKD or their spouses or, with respect to its right to receive
Securities, to any other person, provided such person is an accredited investor
as defined in Rule 501 under the Securities Act.
5.4 Severability. Should any part or portion of this Agreement be found
invalid, the balance of the provisions of this Agreement shall remain unaffected
and shall continue in full force and effect.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and date first above written.
MKD CAPITAL CORP.
By: /s/Avram Lebor
-----------------------
Title:President
--------------------
Printed Avram Lebor
Name: --------------------
MEGAVISION, L.C.
By:/s/Theodore W. White, Jr.
-----------------------
Theodore W. White, Jr.
Manager
By:/s/Ronald F. Torchia
------------------------
Ronald F. Torchia
Manager
8
<PAGE>
MODIFICATION AGREEMENT
This Agreement is made and entered into as of the 16 day of January, 1997,
by and between Megavision, L.C. (the "Company"), a Missouri limited liability
company and M.K.D. Capital Corp., a New York corporation ("MKD").
WHEREAS, the Company and MKD entered into that certain Agreement dated
October 29, 1996 (the "Original Agreement"), and the parties desire to modify
such Agreement.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the parties hereto agree as follows:
1. Equity Interest in the Company. The parties acknowledge that the Company
anticipates restructuring the Company into a Delaware Corporation (the "Delaware
Corporation"). The restructuring will be followed by a private offering of stock
in the Delaware Corporation (the "Bridge Financing") and an initial public
offering of such corporation's stock, all in accordance with a letter of intent
executed by D. H. Blair. MKD acknowledges that such restructuring and financing
will not occur without a modification of the interest in the Company to be
acquired by MKD as identified in the Original Agreement. In furtherance thereof,
Section 1.1 of the Original Agreement is hereby deleted in its entirety. In lieu
thereof, and in consideration of the payment by MKD of Three Thousand Eight
Hundred Fifty Dollars ($3,850.00), the Company agrees that MKD or its permitted
assign shall receive two hundred twenty (220) units of limited liability company
interest in the Company, which units shall represent eleven percent (11%) of the
equity of the Company at the date immediately preceding conversion to the
Delaware Corporation.
2. Assignment of Interest. MKD has requested and the Company has agreed,
that the units described in Section 1 above shall be issued to Annette Lebor. In
connection with such issuance, MKD agrees that it shall cause Lebor to make such
representations and warranties and execute such additional documents as may be
reasonably requested by the Company in connection with compliance by the Company
with applicable federal and state securities laws and regulations. Upon
execution of such representations, warranties and documents, Annette Lebor shall
be deemed a "permitted assign" within the meaning of Section 1 above.
3. The following shall be added as a new Section 1.3(f):
(f) The Acquiror has not been furnished with or solicited by any offering
literature, leaflet, public promotional meeting, circular, newspaper
or magazine article, radio or television advertisement, or any other
form of general advertising.
<PAGE>
4. Section 2.1 of the Agreement is hereby modified to read as follows:
2.1 Solicitation of the Business Contact. From time to time at the
Company's request, MKD shall introduce Company to such of MKD's
Business Contacts (defined below) that MKD believes may be interested
in either purchasing the Company's "Invision Card" or other products
(or any successors to any such products) or providing services or
other benefits which may be included as part of the Invision card or
the Company's other products. Notwithstanding the foregoing, MKD shall
have no obligations to introduce the Company to any such Business
Contact.
5. Section 2.2(a) is hereby modified by changing "twenty percent (20%)" in
the fourth line to "three percent (3%)." Section 2.2 (b) is hereby deleted in
its entirety.
6. Section 2.3 (a) is hereby modified to change "10" at the end of the
first line of such subsection to "30" and to delete the reference to "Revenue
Payments."
7. Section 2.4 (a) is hereby modified to read as follows:
(a) As used herein "Business Contact" shall mean any person or entity
introduced by MKD to the Company which purchases the Company's
Invision Card or other products or which enters into a binding
contract with the Company to provide services or other benefits to be
included as part of any of the Company's products, within a one year
period following such introduction.
8. Section 2.4 (b) is hereby modified to read as follows:
(b) As used herein, "Gross Payments" shall mean payments collected by the
Company 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.
9. Section 2.4 (c) is hereby deleted in its entirety.
10. The following is hereby added at the end of Article IV:
MKD shall indemnify, hold harmless and defend the Company and its
successors and assigns and their representatives, officers, directors and
affiliates, from and against any and all loss, damage, expense, claim,
action or liability any of them may incur, as a result of the breach or
untruth of any of the representations, warranties and agreements of MKD or
the Acquiror set forth in this
-2-
<PAGE>
Agreement or in such other documents executed by MKD or the Acquiror as
contemplated herein.
11. Section 5.4 is hereby modified to read as follows:
Section 5.4 Successors and Assigns. This Agreement shall be binding upon
the parties hereto and their respective successors and permitted assigns.
Except for any transfer to the Successor, neither party may assign any of
its obligations under this Agreement without the other parties' consent.
12. No Further Modification. Except as expressly provided herein, the
Original Agreement shall continue in full force and effect.
13. Governing Law. This Agreement shall be governed by the laws of the
state of Missouri.
14. Successors and Assigns. This Agreement shall be binding on the parties
hereto and their respective successors and assigns.
15. Prior Agreements. The parties agree that this Agreement shall supersede
all prior agreements between MKD Capital and the Company, written or oral, and
except as expressly provided in the original agreement, as modified herein, the
Company shall have no obligations to MKD under any prior agreements. MKD
acknowledges and agrees that the issuance of units described in Section 1 above
shall satisfy all obligations of the Company to issue or grant an equity
interest in the Company to MKD.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
MKD Capital Corp.
By: /s/ Avram Lebor
--------------------------------
Name: Avram Lebor
-----------------------------
Title: President
----------------------------
Megavision, L.C.
By: /s/ : Ronald F. Torchia
--------------------------------
Name: Ronald F. Torchia, Manager
--------------------------------
-3-
<PAGE>
SECOND MODIFICATION AGREEMENT
THIS SECOND MODIFICATION AGREEMENT is made on the 22nd day of July, 1997,
between HealthCore Medical Solutions, Inc., a Delaware corporation with its
principal office located in Grandview, Missouri ("HealthCore"), and M.K.D.
Capital Corp., a New York corporation ("MKD").
WHEREAS, MKD and MegaVision, L.L.C. a Missouri limited liability company
("MegaVision"), entered into an agreement dated October 29, 1996 and
subsequently modified said agreement by a Modification Agreement dated January
16, 1997 (as so modified, the "Agreement") pursuant to which MKD was, among
other things, to receive certain fees equal to 3% of Gross Payments as defined
in the Agreement; and
WHEREAS, as permitted by the Agreement, MegaVison has assigned to
HealthCore substantially all of its assets and specifically all of its rights
and liabilities under the Agreement; and
WHEREAS, HealthCore has begun to sell its Healthcare Solutions Discount
Cards through AFLAC agents and the collection of revenue from said sales will
result in a liability for fees to be paid to MKD by HealthCore in the future
under the terms of Section 2.2(a) of the Agreement as previously modified; and
WHEREAS, the parties desire to further amend the Agreement and clarify the
fees and payment terms as provided 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. MKD acknowledges and agrees the assignment by MegaVision to HealthCore of
all of MegaVision's rights under the Agreement, and the assumption by
HealthCore of all of MegaVision's obligations under the Agreement, and
agrees that the Agreement shall remain in full force and effect, as amended
herein, as if HealthCore had been the original party thereto. HealthCore
hereby confirms that it has expressly assumed all obligations of MegaVision
under the Agreement and agrees to be bound by all the terms and conditions
of the Agreement as modified hereby.
2. The parties agree that, for the purpose of calculating the fees due MKD by
HealthCore related to the sales of the HealthCore Solutions Discount Card
sold to AFLAC or by or through AFLAC agents, the fee due MKD for each
HealthCore Solutions Discount Card sold to AFLAC or by or through an AFLAC
agent or any renewal of any such card so sold (any such sale or renewal
being hereinafter referred to as a "Sale) in lieu of the terms of Section
2.2 (a) of the Agreement shall be a fixed amount of One Dollar and
Twenty-Five Cents ($1.25) per Sale (the "Fee"). If payment on account of
any Sale is received by HealthCore in monthly installments, then the Fee
due MKD in respect of such Sale shall likewise by payable in installments.
3. All fees due MKD shall be paid monthly to MKD on or before the last day of
each calendar month for each Sale for which proper payment was received by
HealthCore during the previous calendar month.
4. Notwithstanding anything else contained in the Agreement, if for any reason
HealthCore reimburses all or a portion of the payment received by it on
account of any Sale, then MKD shall reimburse to
<PAGE>
HealthCore (or allow a credit for) the same percentage of the Fee paid to
MKD as the percentage of the payment reimbursed by HealthCore.
5. MKD shall be solely responsible for all expenses incurred in performing its
obligations hereunder, including, but not limited to, all fees due by MKD
to any agents, including Jim Harrold, Indiana AFLAC State Coordinator, that
may arise as a result of the Agreement, as modified hereby.
6. Except as specifically amended herein, the Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties have executed this Second Modification
Agreement on the date and year written above.
HEALTHCORE MEDICAL SOLUTIONS, INC. M.K.D. CAPITAL CORP.
By:/s/ James H. Steinheider By:/s/ Avram Lebor
------------------------------------------ -------------------------
James H. Steinheider, Chief Operating Officer Avram Lebor, President
2
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 668,203
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 682,678
<PP&E> 241,798
<DEPRECIATION> 51,618
<TOTAL-ASSETS> 1,124,046
<CURRENT-LIABILITIES> 2,546,841
<BONDS> 0
0
0
<COMMON> 12,000
<OTHER-SE> (1,535,454)
<TOTAL-LIABILITY-AND-EQUITY> 1,124,046
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,392,559
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 514,598
<INCOME-PRETAX> (1,907,157)
<INCOME-TAX> 0
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (1,907,157)
<NET-INCOME> 0
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