<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 16, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HEALTHCORE MEDICAL SOLUTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7200 43-1771999
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
11904 BLUE RIDGE BOULEVARD
GRANDVIEW, MISSOURI 64030
(816) 763-4900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
<TABLE>
<CAPTION>
WITH A COPY TO:
<S> <C>
SETH I. TRUWIT, ESQ. HENRY EVANS, ESQ.
EPSTEIN BECKER & GREEN, P.C. MCCUTCHEN, DOYLE, BROWN & ENERSEN, LLP
250 PARK AVENUE THREE EMBARCADERO CENTER
NEW YORK, NEW YORK 10177-0077 SAN FRANCISCO, CA 94111
(212) 351-4709 (415) 393-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE FOR REGISTRANT)
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective and upon
consummation of the merger described herein.
------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
- ------------------
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
/ /
- ------------------
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER UNIT(2) OFFERING PRICE FEE(3)
<S> <C> <C> <C> <C>
Common Stock................................ 10,689,489 $2.56 $27,365,092 $1,984
</TABLE>
(1) Based on the sum of (a) 2,384,600 shares of common stock of Adatom, Inc.
outstanding on September 10, 1999 and 2,511,620 shares of Adatom, Inc. to be
issued prior to consummation of the transaction to which this Registration
Statement relates and (b) warrants to purchase 23,315 shares of common stock
of Adatom, Inc. outstanding on such date, multiplied by (c) the exchange
ratio of approximately 2.17.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) based on the average of the high and low sales
prices of the Common Stock on the Nasdaq National Market on September 10,
1999.
(3) Representing the registration fee of $7,608, reduced by $5,624 that was
previously paid in connection with the filing of preliminary joint
proxy/prospectus materials pursuant to Section 14(g) of the Securities
Exchange Act of 1934, as amended.
------------------------
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>
[LOGO] [LOGO]
PRELIMINARY COPIES
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
We are seeking your approval of the merger of Adatom, Inc. with and into
HealthCore Medical Solutions, Inc. The combined company will be named
Adatom.com, Inc. and will operate Adatom's existing business of an Internet
retailer. Adatom is currently a privately-owned company.
HealthCore has two classes of common stock outstanding: class A common
stock and class B common stock. In connection with the merger, the sole holder
of class B common stock has agreed to convert his shares into class A common
stock and we will eliminate the authorization of the class B common stock,
change the name of the class A common stock to "Common Stock" and increase the
authorized Common Stock to 50 million shares.
In the merger, Adatom stockholders will receive approximately 2.17 shares
of HealthCore common stock for each share of Adatom common stock they own, or an
aggregate of 10,689,489 shares, subject to adjustment, and assuming termination
of the escrow agreement described below. Following the merger, Adatom
stockholders will hold approximately 77.5% of the combined company's outstanding
common stock, subject to adjustment.
The foregoing calculations give effect to the issuance of 2,511,620 shares
of Adatom common stock before the merger and assumes exercise of 396,000 options
and warrants to purchase HealthCore class A common stock at an exercise price of
not greater than $1.25 per share, and exercise of a warrant to purchase 23,315
shares of Adatom common stock.
Thirteen holders of class A and class B common stock placed an aggregate of
900,000 shares of class A common stock in escrow in connection with HealthCore's
initial public offering in 1997. These holders have agreed, subject to
stockholder approval, to terminate the escrow agreement. The effect of that
termination will be to cancel and return to HealthCore 80% of the holders'
shares held in escrow or an aggregate of 720,000 shares, with the remaining 20%
or an aggregate of 180,000 shares being returned to the holders.
The merger is subject to various conditions, including the adoption of a
new stock option plan by the stockholders of HealthCore.
The Boards of Directors of HealthCore and Adatom have determined that the
merger is in the best interests of their stockholders, and each Board
unanimously recommends voting FOR adoption of the merger agreement. In addition,
the HealthCore Board unanimously recommends voting FOR adoption of the new stock
option and the termination of the escrow agreement.
THE MERGER CANNOT BE COMPLETED UNLESS THE STOCKHOLDERS OF BOTH COMPANIES
APPROVE THE MERGER. You are cordially invited to attend the special meeting of
stockholders to consider and vote on the proposals. Whether or not you plan to
attend the special meeting, it is important that your shares be voted. Please
take the time to vote by completing and mailing the enclosed proxy card to us.
If you sign, date and mail your proxy card without indicating how you want to
vote, your proxy will be counted as a vote in favor of the proposals. IF YOUR
SHARES ARE HELD IN "STREET NAME," YOU MUST INSTRUCT YOUR BROKER IN ORDER TO
VOTE. IF YOU FAIL TO VOTE OR TO INSTRUCT YOUR BROKER TO VOTE YOUR SHARES, THE
EFFECT WILL BE THE SAME AS A VOTE AGAINST THE PROPOSALS.
YOUR VOTE IS VERY IMPORTANT.
The date, times and places of the special meetings are as follows:
For HealthCore stockholders:
Monday, October 11,1999, 11:00 a.m., local time
Marriott Hotel
Kansas City Airport
775 Brasilia Avenue
Kansas City, Missouri 64153
For Adatom stockholders:
Monday, October 11, 1999, 9:00 a.m., local time
920 Hillview Court, Suite 160
Milpitas, California 95035
This joint proxy statement/prospectus provides you with detailed
information about the proposed merger. We encourage you to read this document
carefully.
/s/ Neal J. Polan /s/ Richard S. Barton
- ------------------------- -------------------------
Neal J. Polan Richard S. Barton
Chairman of the Board, Chairman of the Board
HealthCore Medical Adatom, Inc.
Solutions, Inc.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT YOU SHOULD CONSIDER BEFORE YOU DETERMINE HOW TO VOTE ON THE PROPOSALS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE HEALTHCORE COMMON STOCK TO BE
ISSUED IN THE MERGER OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS JOINT
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This joint proxy statement/prospectus is dated September , 1999, and is
first being mailed to stockholders on or about September , 1999.
<PAGE>
[LOGO]
11904 Blue Ridge Boulevard, Grandview, Missouri 64030
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
A special meeting of stockholders of HealthCore Medical Solutions, Inc.
will be held at the Marriott Hotel, Kansas City Airport, 775 Brasilia Avenue,
Kansas City, Missouri 64153, on Monday, October 11, 1999 at 11:00 a.m. (local
time), to consider and vote upon the following:
1. to approve and adopt the Agreement and Plan of Merger, dated as of
July 1, 1999, as amended, between HealthCore and Adatom, Inc. and the
transactions contemplated thereby, including:
o the issuance of HealthCore common stock to holders of Adatom common
stock pursuant to the merger;
o the amendments to HealthCore's certificate of incorporation to
change the name of HealthCore to Adatom.com, Inc., to eliminate the
authorization of class B common stock, to rename the class A common
stock to common stock, and to increase the authorized number of
shares of HealthCore's common stock from 20 million to 50 million
shares; and
o the designation of a new Board of Directors for the surviving
company;
2. to approve the 1999 Stock Option Plan;
3. to approve the termination of the Amended and Restated Escrow Agreement
dated July 31, 1997 by and among HealthCore, certain stockholders of
HealthCore and American Stock Transfer & Trust Company; and
4. to transact such other business as may properly come before the special
meeting.
The approval of the first proposal is a condition to the consideration of
all subsequent proposals. In addition, approval of the 1999 Stock Option Plan is
a condition to Adatom's obligations to consummate the merger.
The Board of Directors has set the close of business (5:00 p.m., local
time) on September 10, 1999, as the record date for determining stockholders
entitled to notice of and to vote at the special meeting. A list of holders of
record of HealthCore's class A common stock, and class B common stock entitled
to vote at the special meeting will be available for inspection for ten days
preceding the meeting at HealthCore's headquarters, at 11904 Blue Ridge
Boulevard, Grandview, Missouri, 64030, and will also be available for inspection
at the meeting itself.
The Board of Directors of HealthCore has determined that the merger
agreement, the 1999 Stock Option Plan and the termination of the escrow
agreement are in the best interests of the stockholders of HealthCore. The Board
has unanimously approved these proposals and unanimously recommends that the
HealthCore stockholders vote to adopt them at the special meeting.
By order of the Board of Directors,
/s/ David L. Mullikin
David L. Mullikin
Secretary
September , 1999
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD BE SIGNED, DATED AND
PROMPTLY RETURNED IN THE ENCLOSED ENVELOPE, SO THAT YOUR SHARES WILL BE
PRESENTED WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
YOU SHOULD NOT SEND STOCK CERTIFICATES WITH YOUR PROXY CARD.
<PAGE>
[LOGO]
920 Hillview Court, Suite 160, Milpitas, CA 95030
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
A special meeting of stockholders of Adatom, Inc. will be held at 920
Hillview Court, Suite 160, Milpitas, California 95035, on Monday, October 11,
1999 at 9:00 a.m. (local time), to consider and vote upon the following:
1. to approve and adopt the Agreement and Plan of Merger, dated as of July 1,
1999, as amended, between HealthCore Medical Solutions, Inc. and Adatom; and
2. to transact such other business as may properly come before the special
meeting.
The Board of Directors has set the close of business (5:00 p.m., local
time) on September 13, 1999, as the record date for determining stockholders
entitled to notice of and to vote at the special meeting.
Stockholders of Adatom on the record date have agreed to vote all the
shares they own in favor of the merger and merger agreement.
The Board of Directors of Adatom has determined that the merger and the merger
agreement are in the best interests of the stockholders of Adatom, has
unanimously approved the merger and the merger agreement and unanimously
recommends that the Adatom stockholders vote to adopt the merger and the merger
agreement at the special meeting.
By order of the Board of Directors,
Richard S. Barton
Chairman of the Board
September , 1999
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD BE SIGNED, DATED AND
PROMPTLY RETURNED IN THE ENCLOSED ENVELOPE, SO THAT YOUR SHARES WILL BE
PRESENTED WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
YOU SHOULD NOT SEND STOCK CERTIFICATES WITH YOUR PROXY CARD.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY.............................................................................................. 1
The Companies...................................................................................... 1
Reasons for the Merger............................................................................. 1
Consideration to be Received by Adatom Stockholders................................................ 1
Recent Market Prices for HealthCore Stock.......................................................... 2
Tax Consequences of the Merger..................................................................... 2
Issues That You Are Asked to Vote Upon............................................................. 2
Opinion of Financial Advisor to HealthCore......................................................... 2
Record Date; Voting Power.......................................................................... 3
Votes Required..................................................................................... 3
What You Need to Do Now............................................................................ 3
Stock Certificates................................................................................. 4
Share Ownership of Management and Certain Stockholders............................................. 4
Interests of Certain Persons in the Merger......................................................... 4
Directors and Executive Officers of Adatom Following the Merger.................................... 6
Listing and Trading of HealthCore Common Stock..................................................... 6
Resale of HealthCore Common Stock Received in the Merger........................................... 6
Other Conditions................................................................................... 6
Cancellation of the Merger......................................................................... 6
Forward-Looking Statements May Prove Inaccurate.................................................... 7
Comparative Rights of Stockholders of HealthCore and Adatom........................................ 7
Adatom Stockholders Will Not Have Dissenters' Rights............................................... 7
PER SHARE MARKET PRICE INFORMATION................................................................... 8
Market Price Data.................................................................................. 8
SUMMARY FINANCIAL DATA OF HEALTHCORE MEDICAL SOLUTIONS INC........................................... 9
SUMMARY FINANCIAL DATA OF ADATOM, INC................................................................ 9
SUMMARY PRO FORMA FINANCIAL DATA OF HEALTHCORE MEDICAL SOLUTIONS INC. AND ADATOM, INC................ 10
SUMMARY COMPARATIVE DATA............................................................................. 11
RISK FACTORS......................................................................................... 12
We have a history of losses and expect future losses............................................... 12
We need additional financing to fund our business and the failure to obtain financing could result
in cessation of our business.................................................................... 12
We depend heavily upon marketing arrangements. Without them, our business will be adversely
affected........................................................................................ 13
We rely on suppliers for our retail merchandise and shipments to customers. Loss of these
relationships could have a material adverse effect on our business.............................. 13
We may not be able to effectively manage the growth of our business................................ 13
The loss of key personnel could have a material adverse effect on us............................... 13
Potential fluctuations in our quarterly results may cause volatility in our stock valuation........ 14
We may be unable to protect our trademarks and proprietary rights which would have a material
adverse effect on our business.................................................................. 14
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
We may experience capacity constraints due to our reliance on internally developed
transaction-processing systems.................................................................. 15
Our business may suffer if our systems fail or if the systems of our business partners fail........ 15
If we are not able to sustain rapid technological changes, our business may suffer................. 15
We May Encounter Material Costs Relating to Year 2000 Compliance................................... 16
Online commerce is a very competitive industry. We expect the competition to intensify in the
future and we risk failure due to that competition.............................................. 16
Our business strategy requires continued growth of online commerce. If on-line commerce does not
continue to grow, our business could be materially adversely affected........................... 16
Our business may be materially adversely affected if the security measures we have implemented to
protect confidential information prove to be inadequate......................................... 17
We may become subject to burdensome government regulation.......................................... 17
We may be liable for information retrieved from the Internet....................................... 17
The merger consideration to be received by Adatom stockholders will not be affected by any change
in HealthCore class A common stock prices....................................................... 18
Our principal stockholders, executive officers and directors could control stockholder votes and
our management and affairs...................................................................... 18
We may not have an active public market for our common stock. The absence of an active trading
market would likely make the common stock an illiquid investment................................ 18
THE MERGER........................................................................................... 19
General............................................................................................ 19
Background of the Merger........................................................................... 19
HealthCore's Reasons for the Merger; Recommendation of its Board of Directors...................... 21
Opinion of the HealthCore Board of Directors' Financial Advisor.................................... 22
Adatom's Reasons for the Merger; Recommendation of its Board of Directors.......................... 24
Form of the Merger................................................................................. 25
Merger Consideration............................................................................... 25
Amendments to HealthCore's Certificate of Incorporation............................................ 25
Conversion of Shares; Procedures for Exchange of Certificates...................................... 26
Effective Time..................................................................................... 26
Federal Income Tax Consequences of the Merger...................................................... 27
Regulatory and Third Party Approvals............................................................... 27
Interests of Certain Persons in the Merger......................................................... 27
Restrictions on Resales by Affiliates.............................................................. 28
THE STOCKHOLDERS' MEETINGS........................................................................... 30
Purpose, Time and Place............................................................................ 30
Record Date; Voting Power.......................................................................... 30
Votes Required..................................................................................... 31
Share Ownership of Management...................................................................... 32
Voting of Proxies.................................................................................. 32
Revocability of Proxies............................................................................ 32
Solicitation of Proxies............................................................................ 33
THE MERGER AGREEMENT................................................................................. 34
General............................................................................................ 34
Closing; Effective Time............................................................................ 34
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Certificate of Incorporation of Surviving Company.................................................. 34
By-laws of Surviving Company....................................................................... 34
Board and Officers of Surviving Company............................................................ 34
Consideration to be Received in the Merger......................................................... 34
Representations and Warranties..................................................................... 35
Certain Covenants.................................................................................. 35
Conditions to the Consummation of the Merger....................................................... 36
No Solicitation.................................................................................... 37
Termination........................................................................................ 38
Expenses........................................................................................... 38
Amendment, Extension and Waiver.................................................................... 38
HEALTHCORE MEDICAL SOLUTIONS, INC. SELECTED FINANCIAL DATA........................................... 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF HEALTHCORE
MEDICAL SOLUTIONS INC.............................................................................. 40
Recent Developments................................................................................ 40
General............................................................................................ 40
Results of Operations.............................................................................. 41
Liquidity and Capital Resources.................................................................... 42
Year 2000.......................................................................................... 42
ADATOM, INC. SELECTED FINANCIAL DATA................................................................. 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF ADATOM, INC............................................................... 45
Results of Operations.............................................................................. 45
Liquidity and Capital Resources.................................................................... 46
Year 2000 Compliance............................................................................... 47
Comparative Data................................................................................... 54
INFORMATION CONCERNING HEALTHCORE MEDICAL SOLUTIONS INC.............................................. 55
General............................................................................................ 55
Products........................................................................................... 55
Advantages of the Solutions Card................................................................... 58
Sales and Marketing................................................................................ 59
The Proprietary Database Information Management System............................................. 59
Competition........................................................................................ 60
Government Regulation.............................................................................. 60
Proprietary Rights................................................................................. 61
Employees.......................................................................................... 61
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND OFFICERS OF HEALTHCORE................ 62
INFORMATION CONCERNING ADATOM, INC................................................................... 64
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND OFFICERS OF ADATOM.................... 70
WHERE YOU CAN FIND MORE INFORMATION.................................................................. 71
MANAGEMENT........................................................................................... 72
Directors and Executive Officers................................................................... 72
Committees of the Board of Directors............................................................... 73
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Directors Compensation............................................................................. 73
Indemnification.................................................................................... 73
Executive Compensation............................................................................. 73
Employment Agreements.............................................................................. 75
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................................................... 76
DESCRIPTION OF HEALTHCORE COMMON STOCK FOLLOWING THE MERGER.......................................... 77
HealthCore Common Stock............................................................................ 77
Nasdaq Small Cap Market Matters.................................................................... 79
1999 STOCK OPTION PLAN............................................................................... 81
General............................................................................................ 81
Summary of the 1999 Stock Option Plan.............................................................. 81
Federal Income Tax Consequences.................................................................... 83
TERMINATION OF THE ESCROW AGREEMENT.................................................................. 84
COMPARISON OF RIGHTS OF HOLDERS OF ADATOM COMMON STOCK AND HEALTHCORE COMMON STOCK................... 85
General............................................................................................ 85
Size of the Board of Directors..................................................................... 85
Cumulative Voting.................................................................................. 85
Classified Board of Directors...................................................................... 85
Written Consent of Stockholders.................................................................... 85
Power To Call Special Stockholders' Meetings....................................................... 86
Stockholder Approval of Business Combinations...................................................... 86
Removal of Directors............................................................................... 87
Filling Vacancies on the Board of Directors........................................................ 87
Loans to Officers and Employees.................................................................... 87
Indemnification and Limitation of Liability........................................................ 87
Inspections of Stockholders List................................................................... 89
Dividends and Repurchases of Shares................................................................ 89
Stockholder Voting................................................................................. 90
Amendment of By-laws............................................................................... 90
Amendment of Certificate or Articles of Incorporation.............................................. 91
Interested Director Transactions................................................................... 91
Stockholder Derivative Suits....................................................................... 91
Appraisal Rights................................................................................... 92
Dissolution........................................................................................ 92
Authorized Capital................................................................................. 92
EXPERTS.............................................................................................. 93
LEGAL MATTERS........................................................................................ 93
INDEX TO FINANCIAL STATEMENTS OF HEALTHCORE.......................................................... F-1
INDEX TO FINANCIAL STATEMENTS OF ADATOM.............................................................. G-1
ANNEXES
Annex A Agreement and Plan of Merger, dated July 1, 1999, as amended................................ A-1
Annex B Opinion of HealthCore Board of Directors' Financial Advisor................................. B-1
Annex C Form of Amended and Restated HealthCore Certificate of Incorporation........................ C-1
</TABLE>
iv
<PAGE>
SUMMARY
This summary highlights selected information from this document and may not
contain all the information that is important to you. For a more complete
understanding of the merger and for a more complete description of the legal
terms of the merger, you should read this entire document carefully, as
well as the additional documents to which we refer you. See "Where You Can Find
More Information" (page 70).
THE COMPANIES
HealthCore Medical Solutions Inc.
11904 Blue Ridge Boulevard
Grandview, Missouri 64030
816-736-4900
Until July 28, 1999, HealthCore developed, marketed and administered a
health care benefit services program designed to enable members to obtain
discounts on purchases of medical products and services through networks of
providers with which HealthCore has executed provider agreements. HealthCore
offered three products: the HealthCare Solutions card, offering discounts for
ancillary medical services; the Medical Solutions Card, providing discounts on
major medical expenses; and the Saving Solutions Card, offering discounts on
ancillary medical and consumer purchases. As a condition to the merger, on
July 28, 1999, we sold this business. While HealthCore's Board of Directors does
not believe stockholder approval of the sale was required, approval of the
merger agreement by HealthCore's stockholders will constitute ratification of
the sale of HealthCore's health care benefits business.
Adatom, Inc.
920 Hillview Court
Suite 160
Milipitas, CA 95035
408-935-7979
Adatom, Inc. has created an Internet-based retail system, the
www.Adatom.com catalogue superstore site, where goods flow directly from
suppliers to the consumers. This system attempts to reduce costs and expenses by
removing the need for middlemen. In addition to its superstore site, Adatom
provides ancillary services such as website development, administrative support
and e-commerce infrastructure to other retailers who desire to sell their
products on the Internet.
After the merger, the combined company will operate the business currently
operated by Adatom.
REASONS FOR THE MERGER (PAGES 21 AND 24)
Our companies are proposing the merger because we believe the combination
of our two companies will provide significant benefits to our stockholders. The
merger will change the focus of HealthCore's business from healthcare benefits
to Internet commerce. We believe significant new growth opportunities are
available on the Internet. The merger will provide Adatom with access to the
capital markets as a publicly-held company and to the cash assets currently held
by HealthCore. The Boards of Directors of both Adatom and HealthCore have voted
unanimously FOR the merger.
CONSIDERATION TO BE RECEIVED BY ADATOM STOCKHOLDERS (PAGE 33)
Adatom stockholders will receive approximately 2.17 shares of HealthCore
common stock in exchange for each share of Adatom common stock they hold or an
aggregate of 10,689,489 shares, subject to adjustment, and assuming termination
of the escrow agreement. After the merger, Adatom stockholders will own
approximately 77.5% of the common stock of the combined company, subject to
adjustment. The foregoing calculations give effect to the issuance of an
additional 2,511,620 shares of Adatom common stock before the merger and assumes
exercise of 396,000 options and warrants to purchase HealthCore class A common
stock at an exercise price not greater than $1.25 per share, and exercise of a
warrant to purchase 23,315 shares of Adatom common stock. The number of shares
to be received by Adatom stockholders for each share of Adatom common stock they
own will be increased by an additional .018 of a share or an aggregate of
approximately 195,000 shares for every $100,000 by which the HealthCore cash
assets fail to meet the $2.80 million threshold at the time of closing.
HealthCore's cash assets mean all cash and prepaid expenses plus $996,981,
representing the estimates below:
o $300,000 in expenses paid by HealthCore in connection with the Merger;
1
<PAGE>
o $296,981 representing the aggregate exercise price of outstanding options
and warrants to purchase class A common stock at an exercise price of not
greater than $1.25 per share;
o $150,000 payable to Neal J. Polan upon termination of his HealthCore
employment agreement; and
o $250,000 previously advanced by HealthCore to Adatom.
RECENT MARKET PRICES FOR HEALTHCORE STOCK (PAGE 8)
April 26, 1999 was the last full trading day prior to our announcement of
the signing of a letter of intent to merge our companies. The closing price for
HealthCore class A common stock on this day was $2.00. September 10, 1999 was
the last practicable trading day prior to the mailing of this joint proxy
statement/prospectus for which stock prices were available. The closing price
for HealthCore class A common stock on that date was $2.47. See page 8 for
information concerning market price data for HealthCore common stock. Similar
information is not available for Adatom since it is a privately held company.
TAX CONSEQUENCES OF THE MERGER
(PAGE 26)
We expect that the exchange of shares by Adatom stockholders will be
tax-free to Adatom stockholders for federal income tax purposes.
ISSUES THAT YOU ARE ASKED TO VOTE UPON
HealthCore stockholders: You are being asked to approve the merger
agreement that includes:
o the issuance of HealthCore common stock to Adatom stockholders;
o the amendments to the HealthCore certificate of incorporation, subject to
adjustment, to change our name, to eliminate the authorized class B
common stock, to rename the class A common stock to "Common Stock" and to
increase the authorized common stock from 20 million to 50 million
shares; and
(c) the designation of a new board of directors.
You are also being asked to adopt the 1999 Stock Option Plan reserving an
aggregate of 1,400,000 shares of common stock for options granted under that
plan and the termination of the escrow agreement.
There are 900,000 shares of class A and class B common stock in escrow and
those shares are subject to forfeiture unless certain market price thresholds or
operating performance-based criteria of HealthCore are met by October 2000. None
of these thresholds or criteria has been met to date. HealthCore's management
believed that under its operation of the health care benefits business, it was
unlikely that these thresholds or criteria of the escrow agreement would be met.
The termination of the escrow agreement will result in the cancellation of
720,000 shares held in escrow. In the absence of this cancellation, Adatom
stockholders would have received an additional 2,480,000 shares of HealthCore
common stock in the merger and the stockholders who had placed their 900,000
shares in escrow would continue to be subject to the risk of forfeiture of those
shares in the event the combined company failed to meet the market price
thresholds and operating performance-based criteria.
HEALTHCORE'S BOARD OF DIRECTORS HAS UNANIMOUSLY FOUND THESE PROPOSALS TO BE
ADVISABLE AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSALS DETAILED IN
THIS PROXY STATEMENT.
Adatom stockholders: You are being asked to approve the merger and the
merger agreement. ADATOM'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE
MERGER AND THE MERGER AGREEMENT AND RECOMMENDS VOTING FOR APPROVAL OF THE MERGER
AND THE MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR TO HEALTHCORE
(PAGE 22)
HealthCore. The HealthCore Board of Directors has obtained an opinion
dated August 30, 1999, from its independent financial advisor, Kaufman Bros.,
L.P. to the effect that, at that date and based upon and subject to certain
matters stated therein, the exchange ratio of approximately 2.17 shares of
HealthCore common stock for each share of Adatom common stock, subject to
adjustment, is fair to the HealthCore stockholders from a financial point of
view. A copy of the written opinion from Kaufman Bros., L.P. is attached to this
joint proxy
2
<PAGE>
statement/ prospectus as Annex B. HealthCore has paid Kaufman Bros., L.P. a fee
of $65,000 for this opinion.
RECORD DATE; VOTING POWER (PAGE 29)
You are entitled to vote at the stockholders' meeting if you owned shares
entitled to vote as of the close of business on September 10, 1999, the record
date for the meetings.
On the record date, there were 3,183,000 shares of class A common stock
entitled to vote at the HealthCore special meeting and 216,000 shares of
HealthCore class B common stock entitled to vote at the HealthCore special
meeting. HealthCore stockholders owning class A common stock will be entitled to
one vote at the special meeting for each share held of record on the record
date. HealthCore stockholders owning class B common stock will be entitled to
five votes at the special meeting for each share held of record on the record
date.
On the record date, there were 2,384,600 shares of Adatom common stock
entitled to vote at the Adatom special meeting. Adatom stockholders will be
entitled to one vote at the special meeting for each share of Adatom common
stock held of record on the record date.
VOTES REQUIRED (PAGE 30)
Approval by HealthCore stockholders of the merger agreement requires the
affirmative vote of more than 50% of the votes of class A common stock and
class B common stock outstanding on the record date voting as a single class or
2,131,501 votes of a total of 4,263,000 votes of the combined classes. That
approval will include the issuance of HealthCore common stock, the amendments to
HealthCore's certificate of incorporation and the designation of a new board of
directors.
In addition, unless waived by Adatom, the merger must be approved by more
than 50% of the shares of class A common stock outstanding on the record date
excluding the 165,000 shares of class A common stock beneficially owned by
Mr. Polan other than proxies he has obtained from non-family members, or
1,509,001 shares of a total of 3,018,000 shares of class A common stock.
While HealthCore's Board of Directors does not believe that stockholder
approval was required for the sale of its healthcare benefits business, approval
of the merger agreement by HealthCore's stockholders will constitute
ratification of the sale.
The approval of the 1999 Stock Option Plan will require the affirmative
vote of more than 50% of the votes of class A and class B common stock voting as
a single class, represented in person or by proxy at the special meeting.
Approval of the termination of the escrow agreement will require the
approval of at least two-thirds of the shares of class A common stock
outstanding on the record date excluding all shares of class A common stock held
by escrow stockholders whether or not those shares are subject to the escrow
agreement.
In the event the stockholders of HealthCore fail to approve the termination
of the escrow agreement, Adatom stockholders have agreed to vote all of their
shares of the combined company to approve the termination of the escrow
agreement at the first annual or special meeting of the stockholders of the
combined company following the merger.
Approval by Adatom stockholders of the merger and the merger agreement will
require the approval of more than 50% of the shares of Adatom common stock
outstanding on the record date, or 1,192,301 shares of the 2,384,600 shares
outstanding. All Adatom stockholders have agreed to vote for the merger.
WHAT YOU NEED TO DO NOW (PAGE 31)
Just indicate on your proxy card how you want to vote, sign it and mail it
in the enclosed return envelope as soon as possible, so that your shares will be
represented at your stockholders' meeting.
If you sign and send in your proxy and do not indicate how you want to
vote, your proxy will be counted as a vote in favor of the proposals. If you do
not vote or you abstain, it will have the effect of a vote against the
proposals.
The HealthCore special meeting and the Adatom special meeting will take
place on Monday, October 11, 1999, at 9:00 a.m. (local time). You may attend
your stockholders' meeting and vote your shares in person, rather than signing
and mailing your proxy card. In addition, you may withdraw your proxy up to and
including the day of your stockholders' meeting by following the directions on
page 31 and either change your vote or attend your stockholders' meeting and
vote in person.
3
<PAGE>
Your broker will vote your HealthCore and Adatom shares only if you provide
instructions on how to vote. WITHOUT INSTRUCTIONS, YOUR SHARES WILL NOT BE
VOTED. WE WILL COUNT SHARES THAT YOU DO NOT VOTE AS VOTES AGAINST THE PROPOSALS.
YOUR VOTE IS VERY IMPORTANT.
STOCK CERTIFICATES
If you are an Adatom common stockholder, after the merger is completed we
will send you written instructions for exchanging your Adatom common stock
certificates. If you are a HealthCore stockholder, you should retain your stock
certificates as the merger will not require surrender of HealthCore stock
certificates at any time. See page 31 for further details.
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN STOCKHOLDERS (PAGES 61 AND 69)
On the record date, directors and executive officers of HealthCore and
their affiliates may be deemed to be the beneficial owners of 187,000 shares of
HealthCore class A common stock or approximately 5.9% of the HealthCore class A
common stock outstanding. Excluding Mr. Polan's 165,000 shares of class A common
stock, these other directors and executive officers and their affiliates own
approximately 22,000 shares of class A common stock representing less than 1% of
the 3,018,000 shares of class A common stock so outstanding.
On the record date, Neal Polan, Chairman and Chief Executive Officer of
HealthCore may be deemed to be the beneficial owner of all of the 216,000 shares
of HealthCore class B common stock, outstanding. Accordingly, on the record
date, directors and executive officers of HealthCore and their affiliates held
approximately 29.7% of the voting power of the combined class A and class B
common stock. This voting power percentage does not take into account the shares
of class A common stock that Mr. Polan has the right to vote under proxies given
to him by the escrow stockholders, as described below.
Neal Polan has agreed to vote all his 165,000 shares of class A common
stock and 216,000 shares of class B common stock in favor of the merger and
related transactions.
In addition, all the other directors and executive officers of HealthCore
have indicated that they intend to vote the class A common stock owned by them
for all the HealthCore proposals detailed in this proxy statement.
All escrow stockholders have given Neal Polan a proxy to vote all shares of
class A common stock they own, including all shares held in escrow, in favor of
all proposals that come before the special meeting. After giving effect to these
proxies, the executive officers and directors of HealthCore and their affiliates
have the right to vote at least 47% of the voting power of the combined class A
and class B common stock.
On the record date, there were four holders of Adatom common stock
outstanding. These holders, all of whom are directors of Adatom, have agreed to
vote the Adatom common stock owned by them for the approval of the merger and
the merger agreement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE 27)
A number of directors, executive officers and stockholders of HealthCore
and Adatom have interests in the merger that are different from, or in addition
to, yours as a stockholder.
These interests include the following:
o HealthCore stockholders who have placed shares in escrow will, subject to
stockholder approval of the termination of the escrow agreement,
surrender and forfeit 80% of their shares or an aggregate of 720,000
shares and receive at the time of the merger or after if the termination
occurs subsequent to the merger 20% of their shares or an aggregate of
180,000 shares, free of the risk of forfeiture and other transfer
restrictions imposed by the escrow. agreement.
o Richard Barton, the President and CEO of Adatom, will enter into a
three-year employment agreement with the combined company at an annual
base salary of $200,000 plus a $100,000 bonus based upon the attainment
of performance goals.
o David Mullikin, HealthCore's President, will obtain the following
benefits:
o At the closing of the merger, HealthCore will terminate the employment
of David Mullikin. He will receive a severance
4
<PAGE>
package from HealthCore which provides for a payment of $100,000 plus
100,000 options to purchase shares of HealthCore at $.10 per share.
Mr. Mullikin will also receive registration rights for the shares of
stock underlying those options. This severance is in lieu of the
severance to which he was previously entitled under his existing
employment agreement, namely $150,000 reduced by 50% of any
compensation he receives from other employment during the one year
period following termination, but in no event less than $75,000.
o Neal J. Polan, HealthCore's Chairman of the Board and Chief Executive
Officer, will obtain the following benefits:
o At the closing of the merger, Mr. Polan will enter into a two-year
employment agreement with the Adatom which provides for an annual
salary of $50,000. Mr. Polan will be required to work up to 60 hours
per month as an advisor for the surviving company in mergers,
acquisitions and strategic alliances. Mr. Polan will receive a right to
purchase stock in Adatom in an amount equal to that number of Adatom
shares convertible into 350,000 shares of HealthCore common stock in
the merger in exchange for a promissory note in the amount of $320,760.
As partial consideration for his services rendered under the employment
agreement, the promissory note will be forgiven six months after the
closing date of the merger.
o On April 27, 1999, Mr. Polan agreed to amend his existing employment
agreement with HealthCore to permit HealthCore to terminate his
employment without cause and to revise the terms of his severance
package. Mr. Polan's original employment agreement provided that in the
event that Mr. Polan's employment is terminated without cause,
HealthCore would be required to pay him all sums that would have been
paid under the agreement. The amended employment agreement reduces the
amount of severance upon termination of employment and provides that
HealthCore would only have to pay Mr. Polan the lesser of $150,000 or
60% of the remaining value of the contract at the time of termination.
In consideration for agreeing to the amended employment agreement,
Mr. Polan received 165,000 shares of HealthCore class A common stock.
o Mr. Polan owns shares that are subject to the escrow agreement, and
will be treated identical to those held by the other escrow
stockholders described above.
o Mr. Polan will receive registration rights covering 367,800 shares,
including 142,000 shares underlying warrants.
o In September 1997, in connection with his employment with HealthCore,
Mr. Polan received a warrant to purchase 142,000 shares of HealthCore
class A common stock at $1.00 per share. The warrant becomes
exercisable if certain market price thresholds or operating
performance-based criteria of HealthCore are met. In connection with
the merger, Mr. Polan has agreed to exchange that warrant for 28,400
shares of HealthCore class A common stock at the closing of the merger.
o Mr. Polan will also be designated a member of the initial Board of
Directors of the combined company.
On July 8, 1999 Eli Levitin, a director of HealthCore, purchased $50,000 of
convertible debt of Adatom through Jesup & Lamont Acquisition Corporation, a
company in which Mr. Levitin has a 10% interest. These securities will be
converted into shares of Adatom common stock immediately prior to the merger and
will then be exchanged for 50,661 shares of common stock of Adatom.com, Inc.
pursuant to the merger.
The Boards of Directors of HealthCore and Adatom recognized these interests
and determined that they did not affect the benefits of the merger to the
stockholders. Please refer to pages 26 through 28 for more information
concerning these interests.
5
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF ADATOM FOLLOWING THE MERGER (PAGE 71)
If we complete the merger, the Board of Directors of the combined company
will initially consist of the following five members:
o Richard Barton, the Chairman of the Board and Chief Executive Officer of
Adatom and Sridhar Jagannathan, both of whom are currently members of the
Adatom Board of Directors; and
o Ralph Kennedy Frasier and Sylvia A. Dresner who have been appointed as
outside directors have been designated by Adatom;
o Neal J. Polan, HealthCore's Chairman and Chief Executive Officer.
Your vote to approve the merger agreement will include the designation of
the foregoing members to the Board of Directors of the combined company.
The officers of Adatom at the effective time of the merger will be the
officers of the combined company.
LISTING AND TRADING OF HEALTHCORE COMMON STOCK (PAGE 76)
HealthCore class A common stock is currently listed on the Nasdaq Small Cap
Market. The surviving company will be deemed to be a new company for listing
purposes and will be required to meet the initial listing qualification criteria
of the Nasdaq Small Cap Market.
These initial listing criteria generally include a minimum of:
o $4 million in net tangible assets, or
o $50 million in market capitalization.
If the surviving company does not meet the relevant criteria which we
expect it will not, immediately following the merger, its common stock risks
being delisted. If this occurs, trading in the common stock would be conducted
in the over-the-counter market in the so-called "pink sheets" or, if available,
the "OTC Bulletin Board Service." As a result, an investor would likely find it
significantly more difficult to dispose of, or to obtain accurate quotations as
to the value of, HealthCore's securities.
RESALE OF HEALTHCORE COMMON STOCK RECEIVED IN THE MERGER (PAGE 28)
All of the shares of HealthCore common stock issued in the merger to Adatom
directors and executive officers and owned by Mr. Polan will be subject to
resale restrictions under the federal securities laws. This totals 9,722,373
shares of the 13,346,228 shares of the combined company's common stock
outstanding after the merger, or 73% of the shares of the surviving company's
common stock outstanding after the merger.
In addition, all former holders of Adatom securities, Neal Polan, and David
Mullikin, have entered into lock-up agreements that prohibit transfer of some or
all of their respective shares of Adatom.com, Inc.'s common stock for up to a
period of six months. This totals an aggregate of 11,628,289 shares, including
317,661 shares issuable upon exercise of options or warrants.
Please refer to page 28 for more information concerning restrictions on
resales.
OTHER CONDITIONS (PAGE 35)
The obligation of each of us to consummate the merger is subject to the
satisfaction or waiver of various typical conditions, including the absence at
any time after the date of the merger agreement of any material adverse change
relating to the other party.
Among other things, Adatom is not obligated to consummate the merger if
HealthCore's closing cash amount, as calculated in the manner described earlier,
is less than $2 million.
CANCELLATION OF THE MERGER (PAGE 37)
We can jointly agree to call off the merger at any time before completing
the merger. Either of us can call off the merger if:
o the other party has not complied with or has breached in any material
respect any of its covenants, agreements, warranties or representations
contained in the merger agreement, which has not been cured within 10
business days following notice of such breach;
o if the merger is not consummated before November 30, 1999, provided,
however that the terminating party can not have caused the failure to
consummate the merger due to a material breach;
6
<PAGE>
o the stockholders of either party do not approve the merger;
o if the Board of Directors of HealthCore recommends an alternative
transaction to its stockholders, within limits detailed in the merger
agreement; or
o there is a legal prohibition preventing the consummation of the merger
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (PAGE 12)
We have made forward-looking statements in this document that are subject
to risks and uncertainties. Forward-looking statements include information
concerning possible or assumed future results of operations of our company.
Also, when we use words such as "believes," "expects," "anticipates," or similar
expressions, we are making forward-looking statements. You should note that many
factors, some of which are discussed elsewhere in this document, could affect
the future financial results of the combined company and could cause those
results to differ materially from those expressed in our forward-looking
statements contained in this joint proxy statement. These factors include but
are not limited to:
o trends affecting our financial condition or results of operations;
o our business and growth strategies;
o the Internet; and
o our financing plans.
COMPARATIVE RIGHTS OF STOCKHOLDERS OF HEALTHCORE AND ADATOM (PAGE 81)
HealthCore is incorporated under the laws of the State of Delaware and
Adatom is incorporated under the laws of the State of California. Adatom
stockholders will, upon consummation of the merger, become stockholders of
HealthCore and their rights will be governed by Delaware law, the certificate of
incorporation of HealthCore and the by-laws of HealthCore. The Delaware
corporate law differs in some respects from California corporate law. For
example, the stockholders of the surviving company will not have the right to
cumulative voting that Adatom stockholders had. Please refer to pages 82 through
89 for more information concerning these differences.
STOCKHOLDERS WILL NOT HAVE
DISSENTERS' RIGHTS
Under California law, Adatom stockholders who do not vote in favor of the
merger would normally have the right to demand that Adatom purchase their shares
at fair market value. The Adatom stockholders, however, have agreed to vote
their shares in favor of the merger. Therefore, Adatom stockholders will not
have dissenters' rights.
Under Delaware law, HealthCore stockholders are not entitled to dissenters'
rights because the stock is designated as a national market system security on
an interdealer quotation system by the NASD.
ADDITIONAL INFORMATION
If you would like additional copies of this joint proxy
statement/prospectus, or if you have questions about the merger, you should
contact the person listed below:
For HealthCore:
David Mullikin
President
HealthCore Medical Solutions Inc.
11904 Blue Ridge Boulevard
Grandview, Missouri 64030
816-736-4900
For Adatom:
Richard Barton
Chairman of the Board and Chief Executive Officer
Adatom, Inc.
920 Hillview Court
Suite 160
Milipitas, CA 95035
408-935-7979
7
<PAGE>
PER SHARE MARKET PRICE INFORMATION
MARKET PRICE DATA
The following table presents information for HealthCore common stock on the
Nasdaq Small Cap Market on April 26, 1999 and September 3, 1999. April 26, 1999
was the last full trading day prior to the announcement of the signing of the
letter of intent. September 3, 1999 was the latest practicable trading day for
which information was available prior to the date of this joint proxy
statement/prospectus.
HEALTHCORE COMMON STOCK
(DOLLARS PER SHARE)
-------------------------
HIGH LOW CLOSE
---- ---- -----
April 26, 1999 2.00 1.75 2.00
September 3, 1999 2.50 2.50 2.50
On the record date, there were approximately _____ holders of record of
HealthCore class A common stock and approximately ____ holders of record of
HealthCore class B common stock, and four holders of record of Adatom common
stock.
Adatom is a privately held company and there is no public market for its
capital stock.
HISTORICAL MARKET PRICES
Since October 14, 1997, the date of HealthCore's initial public offering
(the "IPO"), HealthCore's Units, each Unit consisting of one share of class A
common stock and one class A warrant, have traded on the Nasdaq SmallCap Market
under the symbol HMSIU. HealthCore's class A common stock and class A warrants
have traded on the Nasdaq SmallCap Market under the symbols HMSI and HMSIW,
respectively, since February 10, 1998. The following sets forth the average of
the high and low bid prices of the class A common stock for the fiscal year
ended September 30, 1998 and for the fiscal quarters since such date as reported
by The Nasdaq Stock Market.
<TABLE>
<CAPTION>
HEALTHCORE
CLASS A
COMMON STOCK
--------------
BID PRICE
--------------
HIGH LOW
----- -----
<S> <C> <C>
1998
Second Quarter (commencing February 10, 1998).................... $3.25 $3.25
Third Quarter.................................................... 2.00 0.63
Fourth Quarter................................................... 1.13 0.63
1999
First Quarter.................................................... 1.31 0.69
Second Quarter................................................... 3.06 0.60
Third Quarter.................................................... 3.88 1.00
Fourth Quarter (through September 3, 1999)....................... 2.94 2.06
</TABLE>
HealthCore has never paid cash dividends during the periods described
above.
Post-Merger Dividend Policy. The payment of dividends by the surviving
company following the merger is not anticipated in the foreseeable future
because the surviving company intends to retain all earnings, if any, for use in
the expansion of its business.
8
<PAGE>
SUMMARY FINANCIAL DATA OF
HEALTHCORE MEDICAL SOLUTIONS INC.
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, YEAR ENDED
---------------- SEPTEMBER 30,
1999 1998 1998
------ ------ -------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................ $ 85 $ 36 $ 84
Loss from operations............................ (1,194) (856) (2,169)
Net loss........................................ (1,162) (779) (1,987)
Basic and diluted net loss per common share..... $(0.50) $(0.37) $ (.89)
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1999
--------------
<S> <C>
BALANCE SHEET DATA:
Working capital.................................... $2,873
Total assets....................................... 3,330
Stockholders' equity............................... $3,098
</TABLE>
SUMMARY FINANCIAL DATA OF
ADATOM, INC
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1999 1998
---------------- ------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................................... $ 261 $ 290
Loss from operations.............................. (883) (1,273)
Loss.............................................. (878) (1,156)
Basic and diluted net loss per common share....... $(0.37) $ (0.48)
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1999
--------------
<S> <C>
BALANCE SHEET DATA:
Working capital (deficit)............................ $ (822)
Total assets......................................... 185
Long-term debt, net of current portion............... 1,801
Stockholders' equity (deficit)....................... $ (2,501)
</TABLE>
9
<PAGE>
SUMMARY PRO FORMA FINANCIAL DATA OF
HEALTHCORE MEDICAL SOLUTIONS INC. AND
ADATOM, INC.
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1999 1998
---------------- ------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................ $ 261 $ 290
Loss from operations............................ (1,133) (1,773)
Net loss........................................ (1,096) (1,474)
Basic and diluted loss per share................ $ (0.08) $ (0.11)
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1999
----------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital................................... $1,624
Total assets...................................... 2,642
Long-term debt, net of current portion............ 1
Stockholders' equity.............................. $1,756
</TABLE>
10
<PAGE>
SUMMARY COMPARATIVE DATA
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
12 MONTHS 6 MONTHS
ENDED(1, 2) ENDED(1, 2)
<S> <C> <C>
HEALTHCORE--HISTORICAL(1)
Net loss........................................................................... $ (1,987) $ (1,162)
Basic and diluted loss per common share.......................................... (0.89) (0.50)
Book value per basic common share.................................................. $ 1.31 $ 0.96
ADATOM--HISTORICAL(2)
Net loss......................................................................... $ (1,156) $ (878)
Basic and diluted loss per common share.......................................... (0.48) (0.37)
Book value per basic common share.................................................. (0.68) (1.05)
Adatom shares adjusted for exchange ratio(3)....................................... 5,180,110 5,180,110
PRO FORMA COMBINED(4)
HealthCore Adjusted Net loss(5).................................................... $ (200) $ (68)
Adatom Historical Net loss......................................................... (1,156) (878)
Pro Forma Combined Net loss........................................................ (1,474) (1,096)
Basic and Diluted Net loss per common share...................................... (0.11) (0.08)
HealthCore historical book value................................................... $ 4,233 $ 3,098
Adatom historical book value(6).................................................... (1,622) (2,501)
Pro forma book value............................................................... 1,756
Pro forma Book value per basic common share........................................ $ 0.13
Total pro forma shares outstanding(7).............................................. 13,792,889 13,792,889
</TABLE>
- ------------------
(1) HealthCore: (i) fiscal year ending September 30, 1998; (ii) six months ended
March 31, 1999.
(2) Adatom: (i) fiscal year ending December 31, 1998; (ii) six months ended June
30, 1999.
(3) Assumes an exchange ratio of 2.173 shares of HealthCore common stock for
each share of Adatom, subject to adjustment as herein described.
(4) Pro Forma Combined: (i) Matches HealthCore fiscal year ending September 30,
1998 with Adatom fiscal year ending December 31, 1998; (ii) Matches
HealthCore six months ended March 31, 1999 with Adatom six months ended
June 30, 1999.
(5) Assumes the costs included in HealthCore Net Income (loss) consist solely of
those costs associated with maintaining a publicly traded shell corporation
and includes the SEC related expenses, D&O Insurance, Investor Relations
and Legal.
(6) The current Adatom book value will be increased by approximately $1,800,000
prior to the close of merger due to the capitalization of a shareholders
loan(s).
(7) Assumes 2,707,400 shares for HealthCore shareholders and 396,000 shares
issuable upon exercise of options at an exercise price of no greater than
$1.25 per share, plus 10,689,489 shares for Adatom shareholders and its sole
warrantholder, subject to adjustment as herein described. Does not include
warrants to purchase 200,000 shares of HealthCore common stock at $1.00 per
share to be issued to Jesup & Lamont Securities or outstanding warrants to
purchase an aggregate of 3,590,500 HealthCore common stock at a weighted
average price of $6.45 per share.
11
<PAGE>
RISK FACTORS
Before determining whether to approve the merger, you should be aware that
there are various risks, including those described below. You should consider
carefully these risk factors together with all of the other information included
in this joint proxy statement/prospectus.
We have each made forward-looking statements in this document that are
subject to risks and uncertainties. These statements are based on the beliefs
and assumptions of the respective company's management, and on information
currently available to such management. Forward-looking statements include the
information concerning possible or assumed future results of our operations set
forth under "Summary," "The Merger--Background of the Merger," "--HealthCore's
Reasons for the Merger; Recommendation of its Board of Directors," "--Opinion of
HealthCore Board of Directors' Financial Advisor," "--Adatom's Reasons for the
Merger; Recommendation of its Board of Directors," and "HealthCore and Adatom
Unaudited Pro Forma Condensed Combined Financial Statements," and statements
preceded by, followed by or that include the words "believes," "expects,"
"anticipates," "intends," "plans," "estimates" or similar expressions.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. The future results and stockholder values
of the combined company following the merger may differ materially from those
expressed in these forward-looking statements. Many of the factors that will
determine these results and values are beyond our ability to control or predict.
Stockholders are cautioned not to put undue reliance on any forward-looking
statements. In addition, we do not have any intention or obligation to update
forward-looking statements after we distribute this joint proxy
statement/prospectus, even if new information, future events or other
circumstances have made them incorrect or misleading. For those statements, we
are relying on the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995.
You should understand that the following important factors could affect the
future results of the combined company following the merger, and could cause
results to differ materially from those expressed in such forward-looking
statements.
RISKS THAT AFFECT THE COMBINED COMPANY. THESE RISKS RELATE TO ADATOM'S
BUSINESS AS WE WILL BE OPERATING THAT BUSINESS AFTER THE MERGER.
WE HAVE A HISTORY OF LOSSES AND EXPECT FUTURE LOSSES.
Since inception in 1996, Adatom has incurred significant losses, and as of
June 30, 1999, had an approximate accumulated deficit of $2,821,000 and there is
an uncertainty about our ability to continue as a going concern. We are a
development stage company and expect to incur substantial operating losses for
the foreseeable future as we incur significant operating expenses and research
and development expenses and make investments, to enhance our line of products
and services and establish internet capabilities. We intend to substantially
increase our marketing and promotional spending to increase our revenues. We may
never generate sufficient revenues to achieve profitability. Even if we do
achieve profitability, we may not be able to sustain or increase profitability
on a quarterly or annual basis in the future.
WE NEED ADDITIONAL FINANCING TO FUND OUR BUSINESS AND THE FAILURE TO OBTAIN
FINANCING COULD RESULT IN CESSATION OF OUR BUSINESS.
We need additional funds to sustain and expand our sales and marketing
activities and our marketing arrangements, particularly if a well-financed
competitor emerges or if there is a shift in the type of Internet services that
are developed and ultimately receive customer acceptance. Adequate funds for
these and other purposes on terms acceptable to us, whether through additional
equity financing, debt financing or other sources, may not be available when
needed or may result in significant dilution to existing stockholders. Failure
to obtain financing could result in cessation of our business.
HealthCore has retained Jesup & Lamont Securities Corporation to raise
$5.5 million through the private placement of the combined company's equity
securities in order to satisfy its short term financing needs. The equity
securities have not yet been sold, and we cannot be sure that any of the equity
securities will be sold,
12
<PAGE>
or if sold on terms favorable to us, or that the funds received, if any, will be
sufficient to fund operations until we are profitable, if at all.
Our lack of tangible assets to pledge could prevent us from obtaining bank
or similar debt financing. In addition, we cannot be sure that such financing
will be available in amounts or on terms acceptable to us, if at all. The
inability to obtain sufficient funds from operations and external sources would
have a material adverse effect on us and could result in cessation of our
business.
In its report on its audit of Adatom's financial statements for the year
ended December 31, 1998, its independent accountants included an explanatory
paragraph in their report because of the uncertainty that Adatom could continue
in business as a going concern. Unless it raises additional capital, the
combined company expects it will exhaust its working capital in approximately
four months after the merger. Any raise of additional capital will dilute all
stockholders of the combined company.
WE DEPEND HEAVILY UPON MARKETING ARRANGEMENTS. WITHOUT THEM, OUR BUSINESS WILL
BE ADVERSELY AFFECTED.
We rely on certain marketing arrangements with other companies that have
websites to attract shoppers to purchase our products. Adatom has entered into
marketing arrangements with a number of existing organizations with a definable
user base. Our ability to generate revenues from online commerce depends, among
other things, upon the increased traffic, purchases, advertising and
sponsorships that we generate through our marketing arrangements. We cannot be
sure that other companies will continue these relationships with us, or, if
continued, that they will be on terms favorable to us. Our inability to enter
into new marketing arrangements or to maintain our existing arrangements would
have a material adverse effect on us.
WE RELY ON SUPPLIERS FOR OUR RETAIL MERCHANDISE AND SHIPMENTS TO CUSTOMERS. LOSS
OF THESE RELATIONSHIPS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
Our current suppliers may not continue to sell merchandise to us on current
terms. We may not be able to maintain our current arrangements with suppliers or
be able to establish new or extend current supplier relationships to ensure
acquisition of merchandise in a timely and efficient manner and on acceptable
commercial terms. Loss of these relationships could have a material adverse
effect on us. We also rely on most of our suppliers to process and ship
merchandise directly to customers. We have limited control over the shipping
procedures of our suppliers, and shipments by these suppliers have at times been
subject to delays. If the quality of service provided by such suppliers falls
below a satisfactory standard or if our level of returns exceeds our
expectations, our business will be materially adversely affected.
WE MAY NOT BE ABLE TO EFFECTIVELY MANAGE THE GROWTH OF OUR BUSINESS.
To manage the expected growth of our operations and personnel, we will be
required to improve existing and implement new transaction-processing,
operational and financial systems, procedures and controls, and to expand, train
and manage our already growing employee base. Further, we will be required to
maintain and expand our relationships with various merchandise manufacturers,
distributors, Internet and other online service providers and other third
parties necessary to our business. If we are unable to manage growth
effectively, our business will be materially adversely affected.
THE LOSS OF KEY PERSONNEL COULD HAVE A MATERIAL ADVERSE EFFECT ON US.
Our performance will be substantially dependent on the continued services
and on the performance of our senior management, particularly Richard Barton,
Adatom's President, Chief Executive Officer and Chairman of the Board, and
Sridhar Jagannathan, Chief Technical Officer and Executive Vice President. Our
performance also depends on our ability to retain and motivate our other
officers and key employees. The loss of the services of any of our executive
officers or other key employees could have a material adverse effect on us. Our
future success also depends on our ability to identify, attract, hire, train,
retain and motivate other highly skilled technical, managerial, editorial,
merchandising, marketing and customer service personnel.
13
<PAGE>
Competition for such personnel is intense, and we may not be able to
successfully attract, assimilate or retain sufficiently qualified personnel.
This inability could have a material adverse effect on us.
POTENTIAL FLUCTUATIONS IN OUR QUARTERLY RESULTS MAY CAUSE VOLATILITY IN OUR
STOCK VALUATION.
We expect to experience significant fluctuations in our future quarterly
operating results due to a variety of factors, many of which are outside of our
control. Factors that may adversely affect our quarterly operating results
include, without limitation:
o Our ability to retain existing customers, attract new customers at a
steady rate and maintain customer satisfaction,
o the announcement or introduction of new sites, services and products by
us and our competitors,
o price competition in the industry,
o the level of use of the Internet and online services and increasing
consumer acceptance of the Internet and other online services for the
purchase of consumer products such as those offered by us,
o Our ability to upgrade and develop our systems and infrastructure and
attract new personnel in a timely and effective manner,
o the level of traffic on our web site,
o technical difficulties, system downtime or Internet brownouts,
o the amount and timing of operating costs and capital expenditures
relating to expansion of our business, operations and infrastructure,
o the implementation of strategic alliances,
o the level of merchandise returns experienced by us, and
o governmental regulation
We expect that we will experience seasonality in our business, reflecting a
combination of seasonal fluctuations in Internet usage and traditional retail
seasonality patterns. Internet usage and the rate of Internet growth may be
expected to decline during the summer. Further, sales in the traditional retail
industry are significantly higher in the fourth calendar quarter of each year
than in the preceding three quarters. Due to the foregoing factors, in one or
more future quarters our operating results may fall below the expectations of
securities analysts and investors. In such event, the trading price of the
common stock would likely be materially adversely affected.
WE MAY BE UNABLE TO PROTECT OUR TRADEMARKS AND PROPRIETARY RIGHTS WHICH WOULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
Our performance and ability to compete are dependent to a significant
degree on our proprietary technology. We regard our copyrighted material,
service marks, trademarks, trade secrets and similar intellectual property as
critical to our success, and rely on trademark and copyright law, trade secret
protection and confidentiality and/or license agreements with our employees,
customers, partners and others to protect our proprietary rights. We have the
registered trademarks "Adatom" and "Discovering New Shopping Dimensions" in the
United States and have a trademark application pending for the mark "Adatom Home
Dimensions." We cannot be sure that we will be able to secure significant
protection for these trademarks. It is possible that competitors of Adatom or
others will adopt product or service names similar to "Adatom" and our other
trademarks, thereby impeding our ability to build brand identity and possibly
leading to customer confusion.
We generally have entered into agreements containing confidentiality and
non-disclosure provisions with our employees and consultants and limits access
to and distribution of its software, documentation and other proprietary
information. We cannot be sure that the steps taken by us will prevent
misappropriation of our technology or that agreements entered into for that
purpose will be enforceable. Notwithstanding the
14
<PAGE>
precautions taken by us, it might be possible for a third party to copy or
otherwise obtain and use our software or other proprietary information without
authorization or to develop similar software independently. Policing
unauthorized use of our technology is difficult, particularly because the global
nature of the Internet makes it difficult to control the ultimate destination or
security of software or other data transmitted. The laws of other countries may
afford us little or no effective protection of our intellectual property.
Effective trademark, service mark, copyright and trade secret protection may not
be available in every country in which our products and services are made
available online. In the future, we may also need to file lawsuits to enforce
our intellectual property rights, protect its trade secrets, and determine the
validity and scope of the proprietary rights of others. Such litigation, whether
successful or unsuccessful, could result in substantial costs and diversion of
resources, which could have a material adverse effect on us.
We also rely on a variety of technology that we license from third parties,
including our database and Internet server software, which is used in our web
site to perform key functions. These third party technology licenses may not
continue to be available to us on commercially reasonable terms. Our loss of or
inability to maintain or obtain upgrades to any of these technology licenses
could result in delays in completing our proprietary software enhancements and
new developments until equivalent technology could be identified, licensed or
developed and integrated. Any such delays would have a material adverse effect
on us.
WE MAY EXPERIENCE CAPACITY CONSTRAINTS DUE TO OUR RELIANCE ON INTERNALLY
DEVELOPED TRANSACTION-PROCESSING SYSTEMS.
If we suffer any system interruptions that result in the unavailability of
our store on the Internet or reduced order fulfillment capability, such
interruptions would reduce the volume of goods sold and the attractiveness of
our product offerings. We have experienced periodic system interruptions, which
we believe will continue to occur from time to time. The satisfactory
performance, reliability and availability of our store on the Internet,
transaction-processing systems and network infrastructure are critical to our
reputation and our ability to attract and retain customers and maintain adequate
customer service levels. Our revenues depend on the number of visitors who shop
at its store on the Internet and the volume of orders it fulfills.
There will be a significant need to upgrade the capacity of our store on
the Internet in order to handle thousands of simultaneous shoppers. Our
inability to add additional software and hardware or to develop and upgrade
further our existing technology, transaction-processing systems or network
infrastructure to accommodate increased traffic on our store on the Internet or
increased sales volume through our transaction-processing systems may cause
unanticipated system disruptions, slower response times, degradation in levels
of customer service and impaired quality and speed of order fulfillment, any of
which could have a material adverse effect on us.
OUR BUSINESS MAY SUFFER IF OUR SYSTEMS FAIL OR IF THE SYSTEMS OF OUR BUSINESS
PARTNERS FAIL.
We presently have limited redundant systems. We do not have a complete
disaster recovery plan and carry limited business interruption insurance to
compensate us for losses that may occur. Despite our implementation of network
security measures, our servers are vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions, which could lead to interruptions,
delays, loss of data or the inability to accept and fulfill customer orders. Our
ability to successfully receive and fulfill orders and provide high-quality
customer service, largely depends on the efficient and uninterrupted operation
of its computer and communications hardware systems. Our systems and operations
are vulnerable to damage or interruption from fire, flood, power loss,
telecommunications failure, break-ins, earthquake and similar events. In
addition, any disruptions of those web sites or at the web sites of other
companies where we market goods or have a website link could have a material
adverse effect on us and the volume of sales generated. The occurrence of any of
the foregoing risks could have a material adverse effect on us.
IF WE ARE NOT ABLE TO SUSTAIN RAPID TECHNOLOGICAL CHANGES, OUR BUSINESS MAY
SUFFER.
We may not successfully use new technologies effectively or adapt our store
on the Internet, proprietary technology and transaction-processing systems to
customer requirements or emerging industry standards. Our failure to adapt in a
timely manner for technical, legal, financial or other reasons, to changing
market
15
<PAGE>
conditions or customer requirements, could have a material adverse effect on us.
To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our online stores. The Internet
and the online commerce industry are characterized by rapid technological
change, changes in user and customer requirements and preferences, frequent new
product and service introductions embodying new technologies and the emergence
of new industry standards and practices that could render our existing store on
the Internet and proprietary technology and systems obsolete. Our success will
depend, in part, on our ability to license leading technologies useful in its
business, enhance our existing services, develop new services and technology
that address the increasingly sophisticated and varied needs of our prospective
customers, and respond to technological advances and emerging industry standards
and practices on a cost-effective and timely basis.
WE MAY ENCOUNTER MATERIAL COSTS RELATING TO YEAR 2000 COMPLIANCE.
Although we have tested our currently installed computer systems and
software products for year 2000 problems and we believe that our computer
systems and software products are fully year 2000 compatible, it is possible
that certain computer systems or software products of our suppliers or customers
may not accept input of, store, manipulate and output dates prior to the year
2000 or thereafter without error or interruption. We have conducted a review of
our computer systems, to attempt to identify ways in which our systems could be
affected by problems of our customers and suppliers in correctly processing date
information. In addition, we are requesting assurances from all software vendors
from which we have purchased or from which we may purchase software that such
software will correctly process all date information at all times. Furthermore,
we are querying our customers and suppliers as to their progress in identifying
and addressing problems that their computer systems will face in correctly
processing date information as the year 2000 approaches. However, we may not be
able to identify all date-handling problems of our customers and suppliers in
advance of their occurrence,. We may be unable to successfully remedy problems
that are discovered. The expenses of our efforts to identify and address such
problems could be high and we could become subject to liabilities as a result of
such problems. Any of the foregoing issues could have a material adverse effect
on us.
WE ARE AFFECTED BY THE FOLLOWING INDUSTRY RISKS.
ONLINE COMMERCE IS A VERY COMPETITIVE INDUSTRY. WE EXPECT THE COMPETITION TO
INTENSIFY IN THE FUTURE AND WE RISK FAILURE DUE TO THAT COMPETITION.
Many of our current and potential competitors have longer operating
histories, larger customer bases, greater brand recognition and significantly
greater financial, marketing and other resources than us. In addition, online
retailers may be acquired by, receive investments from or enter into other
commercial relationships with larger, well-established and well-financed
companies as use of the Internet and other online services increases. Certain of
our competitors may be able to secure merchandise from manufacturers on more
favorable terms and devote greater resources to marketing.
Barriers to entry are minimal, and current and new competitors can launch
new sites at a relatively low cost. Increased competition may result in reduced
operating margins, loss of market share and a diminished brand franchise. We are
not sure that we will be able to compete successfully against current and future
competitors. New technologies and the expansion of existing technologies may
increase the competitive pressures on us.
OUR BUSINESS STRATEGY REQUIRES CONTINUED GROWTH OF ONLINE COMMERCE. IF ON-LINE
COMMERCE DOES NOT CONTINUE TO GROW, OUR BUSINESS COULD BE MATERIALLY ADVERSELY
AFFECTED.
Our future revenues and any future profits are substantially dependent upon
the widespread acceptance and use of the Internet and online services as a
significant medium of commerce by consumers. Rapid growth in the use of and
interest in the Internet and online services is a recent phenomenon, and we can
not be sure that acceptance and use will continue to develop or that a
sufficiently broad base of consumers will adopt, and continue to use, the
Internet and online services as a medium of commerce. We rely on consumers who
have historically used traditional means of commerce to purchase merchandise.
For us to be successful, these
16
<PAGE>
consumers must accept and utilize novel ways of conducting business and
exchanging information. Moreover, critical issues concerning the commercial use
of the Internet, such as ease of access, security, reliability, cost and quality
of service, remain unresolved and may affect the growth of Internet use or the
attractiveness of conducting commerce online.
In addition, the Internet and online services may not be accepted as a
viable commercial marketplace for reasons relating to the adequacy of
technology. To the extent that the Internet and online services continue to
experience significant growth, we can not be sure that the infrastructure of the
Internet and online services will prove adequate to support increased user
demands. Difficulties with the telecommunications used to support the Internet
or online services also could result in slower response times and adversely
affect usage of the Internet.
OUR BUSINESS MAY BE MATERIALLY ADVERSELY AFFECTED IF THE SECURITY MEASURES WE
HAVE IMPLEMENTED TO PROTECT CONFIDENTIAL INFORMATION PROVE TO BE INADEQUATE.
Advances in computer capabilities, new discoveries in the field of
cryptography, or other developments may result in a compromise or breach of the
algorithms used by us to protect customer transaction data. Any compromise of
our security could have a material adverse effect on us and our reputation. We
rely on encryption and authentication technology licensed from third parties to
provide the security and authentication necessary to effect secure transmission
of confidential information, such as customer credit card numbers. A party who
is able to circumvent our security measures could misappropriate proprietary
information or cause interruptions in our operations. We may be required to
expend significant capital and other resources to protect against such security
breaches or to alleviate problems caused by such breaches.
WE MAY BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATION.
Due to the increasing popularity and use of the Internet and other online
services, it is possible that a number of laws and regulations may be adopted
with respect to the Internet covering issues such as user privacy, pricing,
content, copyrights, distribution and quality of products and services. We are
not currently subject to regulation by any domestic or foreign governmental
agency, other than regulations applicable to businesses generally, and laws or
regulations directly applicable to access to online commerce. The adoption of
any additional laws or regulations may decrease the growth of the Internet or
other online services, which could, in turn, decrease the demand for our
products and services and increase our cost of doing business, or otherwise have
a material adverse effect on us.
Moreover, the applicability to the Internet and other online services of
existing laws in various jurisdictions governing issues such as property
ownership, sales and other taxes and personal privacy is uncertain and may take
years to resolve. In addition, as our service is available over the Internet in
multiple states and foreign countries, and as we sell to numerous consumers
residing in such states and foreign countries, such jurisdictions may claim that
we are required to qualify to do business as a foreign corporation in each such
state and foreign country. We could be subject to taxes and penalties for
failure to qualify as a foreign corporation in a jurisdiction where we are
required to do so. Any such new legislation or regulation, the application of
laws and regulations from jurisdictions whose laws do not currently apply to our
business, or the application of existing laws and regulations to the Internet
and other online services could have a material adverse effect on us.
WE MAY BE LIABLE FOR INFORMATION RETRIEVED FROM THE INTERNET.
Due to the fact that material may be downloaded from web sites and
subsequently distributed to others, there is a potential that claims will be
made against us for negligence, copyright or trademark infringement or other
theories based on the nature and content of such material. Although we carry
general liability insurance, our insurance may not cover potential claims of
this type or may not be adequate to cover all costs incurred in defense of
potential claims or to indemnify us for all liability that may be imposed. Any
costs or imposition of liability that is not covered by insurance or in excess
of insurance coverage could have a material adverse effect on us.
17
<PAGE>
RISKS RELATING TO THE COMMON STOCK TO BE ISSUED IN THE MERGER.
THE MERGER CONSIDERATION TO BE RECEIVED BY ADATOM STOCKHOLDERS WILL NOT BE
AFFECTED BY ANY CHANGE IN HEALTHCORE CLASS A COMMON STOCK PRICES.
Upon completion of the merger, and subject to the HealthCore closing cash
adjustment, each share of Adatom common stock will be converted into the right
to receive approximately 2.17 shares of HealthCore class A common stock. This
exchange ratio will not be adjusted to reflect an increase or decrease in the
price of HealthCore class A common stock. The price of HealthCore class A common
stock when the merger takes place may vary from its price at the date of this
joint proxy statement/prospectus and at the date of the special meeting of our
stockholders. For example, during the twelve month period ended on September 3,
1999, the closing price of HealthCore class A common stock varied from a low of
$0.594 to a high of $3.875 and ended that period at $2.50 (see "Comparative Per
Share Market Price Information" on page 8 for further information). Variations
in the relative values of the shares of HealthCore and Adatom common stock may
be the result of changes in the business, operations or prospects of Adatom,
market assessments of the likelihood that the merger will be consummated and the
timing thereof, regulatory considerations, general market and economic
conditions and other factors. At the time of the special meeting, you will not
know the exact value of the HealthCore class A common stock that the holders of
Adatom common stock will receive when the merger is completed.
You are urged to obtain current market quotations for HealthCore class A
common stock.
OUR PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS COULD CONTROL
STOCKHOLDER VOTES AND OUR MANAGEMENT AND AFFAIRS.
Upon completion of this merger, our executive officers, directors and 5% or
greater stockholders, and their respective affiliates, will, in the aggregate,
own approximately 68% of our outstanding common stock. As a result, they could
act together to control all matters submitted to stockholders for approval
(including the election and removal of directors and any merger, consolidation
or sale of all or substantially all of our assets). Accordingly, such
concentration of ownership may delay, defer or prevent a change in control,
impede a merger, consolidation, takeover or other business combination involving
us or discourage a potential acquirer from making a tender offer or otherwise
attempting to obtain control of us. This could, in turn, have an adverse effect
on the market price of our common stock. See "Security Ownership of Certain
Beneficial Owners, Directors and Officers."
WE MAY NOT HAVE AN ACTIVE PUBLIC MARKET FOR OUR COMMON STOCK. THE ABSENCE OF AN
ACTIVE TRADING MARKET WOULD LIKELY MAKE THE COMMON STOCK AN ILLIQUID INVESTMENT.
After the merger, and despite the possible $5.5 million sale of equity
securities of HealthCore, the surviving company may not be able to meet the
criteria for initial listing of securities on the Nasdaq Small Cap Market. If
the surviving company does not meet the initial listing criteria which we expect
it will not, immediately following the merger, its common stock risks being
delisted. If this occurs, trading in the common stock would be conducted in the
over-the-counter market in the so-called "pink sheets" or, if available, the
"OTC Bulletin Board Service." As a result, an investor would likely find it
significantly more difficult to dispose of, or to obtain accurate quotations as
to the value of, HealthCore's securities.
18
<PAGE>
THE MERGER
The discussion in this joint proxy statement/prospectus of the merger and
the principal terms of the merger agreement is subject to, and qualified in its
entirety by reference to, the merger agreement, a copy of which is attached to
this joint proxy statement/prospectus as Annex A.
GENERAL
We are furnishing this joint proxy statement/prospectus to holders of
shares of class A and class B common stock of HealthCore and to holders of
shares of Adatom common stock, in connection with the solicitation of proxies by
the Boards of Directors of HealthCore and Adatom for use at the special meetings
of stockholders to be held on October 11, 1999 and at any adjournments or
postponements of the meetings.
At their special meeting, the stockholders of HealthCore will be asked to
vote upon the following:
1. to approve and adopt the Agreement and Plan of Merger, dated as of
July 1, 1999, as amended, between HealthCore and Adatom and the
transaction contemplated thereby, including:
o the issuance of HealthCore common stock to holders of Adatom common
stock pursuant to the merger;
o the amendments to HealthCore's certificate of incorporation to
change the name of HealthCore to Adatom.com, Inc., to eliminate the
authorization of class B common stock, to rename the class A common
stock to common stock, and to increase the authorized number of
shares of HealthCore's common stock from 20 million to 50 million
shares; and
o the designation of a new Board of Directors for the surviving
company;
2. to approve the 1999 Stock Option Plan; and
3. to approve the termination of the Amended and Restated Escrow Agreement
dated July 31, 1997 by and among HealthCore, certain stockholders of
HealthCore and American Stock Transfer & Trust Company dated July 31,
1997.
The approval of the first proposal is a condition to the consideration of
all subsequent proposals. In addition, the merger may not be consummated if
proposal number two is not approved.
At their special meeting, the stockholders of Adatom will be asked to
approve the merger and the merger agreement.
This joint proxy statement/prospectus also constitutes a prospectus of
HealthCore, which is a part of the Registration Statement on Form S-4 filed by
HealthCore with the Securities and Exchange Commission under the Securities Act
of 1933, in order to register the shares of HealthCore common stock to be issued
to Adatom stockholders in the merger.
In the merger, each share of Adatom common stock issued and outstanding
immediately prior to the effective time of the merger will automatically be
converted in the merger into the right to receive approximately 2.17 shares of
HealthCore common stock, subject to adjustment and assuming termination of the
escrow agreement.
BACKGROUND OF THE MERGER
During the third quarter of 1998, Neal Polan, Chief Executive Officer of
HealthCore and David Mullikin, President and Chief Operating Officer of
HealthCore held several meeting to review the business prospects of HealthCore.
At that time, Messrs. Polan and Mullikin believed that HealthCore could
successfully execute its business plan. During the fourth quarter of 1998, the
management of HealthCore continued to evaluate the changes in the healthcare
marketplace, new strategies to sell healthcare discount cards and the cash that
may be required to successfully market and sell Healthcare Solutions cards.
Management developed significant doubts that HealthCore could execute its
business plan with the financial resources available to it. During this time,
Mr. Polan, with the consent of the Board of Directors, began looking for
potential acquisition or merger candidates which would be a good fit for the
HealthCore business
19
<PAGE>
strategy and would leverage the existing assets of HealthCore. Among the
potential acquisition candidates we evaluated was a preferred provider
organization or PPO based in New Jersey. A PPO provides employers and third
party payors, like insurance companies, access to networks of medical providers
and hospitals. HealthCore negotiated with this PPO for several months, from the
fall of 1998 into early 1999, but was unable to reach an agreement. HealthCore
continued to look for other merger or acquisition candidates to strengthen
HealthCore's business.
During November 1998 Mr. Polan was contacted by Judson Cooper, Chairman of
SIGA Pharmaceutical. On October 15, 1998 SIGA filed a document with the
Securities and Exchange Commission disclosing its ownership of 151,000 shares of
HealthCore. On November 17, 1998, Mr. Cooper signed a confidentiality agreement
with HealthCore and requested a meeting to discuss possible business
combinations between SIGA and HealthCore. Mr. Polan met with Mr. Cooper on
several occasions and on January 6, 1999, SIGA sent a letter to HealthCore
proposing a possible combination of the two companies and outlining proposed
terms.
On January 15, 1999, HealthCore's Board of Directors met to discuss the
SIGA letter. In order to better understand and evaluate SIGA's business, and a
possible transaction with SIGA, HealthCore retained a consultant to assist in
the evaluation. Based on the Board of Directors' analysis of a proposed
transaction with SIGA, including the review report delivered by the consultant,
the Board of Directors determined that HealthCore would not proceed with a
transaction with SIGA. During the January 15, 1999 meeting of the Board of
Directors, David Mullikin reviewed HealthCore's operations, business plans and
prospects including HealthCore's ability to execute its business plan.
Mr. Polan reviewed various alternatives to HealthCore's business plan, including
several healthcare and non-healthcare related alternatives and opportunities.
The Board determined it was appropriate for HealthCore to consider various
business alternatives and opportunities and directed the management of
HealthCore to explore alternative business opportunities.
The Board determined that it would re-convene in approximately 60 days to
discuss and take action on whether it was in the best interest of HealthCore and
its stockholders to discontinue HealthCore's business plan and consider various
business alternatives intended to increase stockholder value. During this period
of time, HealthCore evaluated 15-20 business opportunities, including both
healthcare and non-healthcare related businesses. These included a professional
employer organization which contracts employees for employers, a mirror
manufacturer, a telephone call center business, a South American pager business,
an outpatient cancer care center business, a visiting physician service and
several others. Extensive conversations were held with many of these potential
acquisition or merger candidates.
On January 12, 1999, Mr. Polan received a letter from Richardson and
Associates, the investment bankers representing Adatom. Mr. Polan reviewed the
letter and the executive summary that discussed the Adatom business. The next
day, Mr. Polan spent several hours on the telephone with Mr. Richard Barton,
Chairman and Chief Executive Officer of Adatom, and Adatom's investment bankers.
Upon informal discussions with the members of the Board of Directors, Mr.
Polan reported on the Adatom meeting and the possibility of exploring Adatom
further. HealthCore was assisted by its accountants, Richard A. Eisner &
Company, LLP who provided one of its designated internet industry specialists to
help HealthCore management better understand and evaluate Adatom's business. On
January 19, 1999 Mr. Polan and a partner from Eisner had an extended telephone
conference with the Adatom management team and investment bankers. Subsequent to
this telephone conference, HealthCore management and its consultants and
advisors continued to evaluate Adatom including several meetings with Richard
Barton and an extended due diligence visit by Mr. Polan to Adatom's
headquarters. At the same time, HealthCore continued to evaluate other business
opportunities, including several Internet and electronic commerce businesses,
including an internet retailer of digital video discs, an interactive business
network, which provides business to business communication, and a business which
provides high resolution satellite imagery on the Internet. HealthCore also
evaluated a business which operates multimedia children's learning centers and
provides interactive children's software and an internet company which has
"community" web sites of special interest to different demographic groups of
people.
On March 11, 1999 a special meeting of the Board of Directors was held to
evaluate the existing HealthCore business and several acquisition or merger
opportunities. Mr. Mullikin presented an overview of the HealthCore business and
the likelihood of its ability to successfully execute its business plan. The
Board
20
<PAGE>
concluded that HealthCore should seek merger candidates as the most viable means
of maximizing stockholder value and should determine how to proceed with the
sale or discontinuance of its healthcare business. Mr. Polan reviewed and
evaluated several healthcare opportunities for the Board, none of which were
determined by the Board to be viable merger or acquisition candidates.
Mr. Polan also reviewed opportunities in unrelated industries including Internet
opportunities. Summaries of three potential merger opportunities were presented
to the Board; all were internet or internet related. After evaluation of the
three potential opportunities and analysis of the probability of completing a
transaction, the potential of the merger candidates' businesses, the cash
requirements of the potential merger candidates and the potential to provide
HealthCore stockholders with the most value, the Board authorized Mr. Polan to
use his best efforts to negotiate a transaction with Adatom.
During the next several weeks, HealthCore negotiated a transaction with
Adatom while continuing to perform a due diligence review of its business.
During this time, HealthCore retained Jessup & Lamont to advise on the merger.
On April 27, 1999 HealthCore executed a letter of Intent to merge with Adatom.
On July 1, 1999 HealthCore entered into an Agreement and Plan of Merger with
Adatom.
HEALTHCORE'S REASONS FOR THE MERGER; RECOMMENDATION OF ITS BOARD OF DIRECTORS
HealthCore's Board of Directors has unanimously approved the merger and the
merger agreement and recommends that the HealthCore stockholders approve the
merger and merger agreement and the related transactions including the issuance
of stock to the Adatom stockholders. HealthCore's Board believes the
consideration to be paid by HealthCore is fair from a financial point of view
and that the merger is in the best interest of its stockholders. The Board
considered the advice and analysis of management, its financial advisor, Kaufman
Bros., L.P., its investment banker, Jessup and Lamont, and its legal counsel and
accountants.
The Board also considered the following potential benefit of the merger and
the discontinuance of its healthcare discount business to the HealthCore
stockholders:
o To date, HealthCore has not been successful in executing its
business plan. Management believed that there may not have been
sufficient capital reserve in HealthCore to fulfill its business
plan and the Board of Directors was uncertain of HealthCore's
ability to raise more money.
o Healthcare regulations throughout the country continued to change
which may have had a continued adverse affect on HealthCore's
business. For example, many states have begun to require HMOs to
include chiropractic services as a mandatory part of their health
plan to their members. As well, there have been proposals and
discussions to offer drug coverage to Medicare recipients which had
not been included in Medicare before.
o Adatom's stockholders have invested almost $2 million to develop its
business and the Board believes Adatom is well positioned among
Internet companies to begin its efforts to commercialize its
business.
o Adatom has experienced management in Mr. Barton and
Mr. Jagannathan. Mr. Barton has demonstrated in the past successful
leadership of business.
o The market capitalization of the combined company could be larger
than the market capitalization of HealthCore, and if so it might
create the opportunity for increased research coverage by financial
analysts and increased institutional ownership as well as a larger
trading "float" that could provide increased liquidity for
stockholders. As a result, the combined company would likely have
greater access to debt and equity financing.
o The financial terms of the merger agreement, including an exchange
ratio that provides relative certainty about the number of shares of
HealthCore common stock that will be issued in the merger.
o The presentations and financial analysis of Kaufman Bros., L.P.'s
opinion dated August 30, 1999, that, as of the date of the opinion
and based upon and subject to certain matters, the merger and
21
<PAGE>
the transactions contemplated thereby were fair, from a financial
point of view, to the HealthCore stockholders;
o The potential that Adatom might have more success raising the money
it may need to fulfill its business plan than HealthCore would for
its business.
o The potential positive impact of the merger on the general long-term
interests, prospects and objectives of HealthCore and its
stockholders.
HealthCore's Board also considered certain countervailing factors in its
discussions of the merger. These factors are described under "Risk Factors" on
page 12.
HealthCore's Board of Directors, after review of all of the information
available to it, determined that the benefits of the merger and related
transactions outweighed the countervailing factors.
HealthCore's Board of Directors has unanimously approved the merger and the
merger agreement and recommends that the HealthCore stockholders approve the
merger and merger agreement and the related transactions including the issuance
of stock to the Adatom stockholders.
THE HEALTHCORE BOARD UNANIMOUSLY FOUND THE MERGER AND MERGER AGREEMENT
INCLUDING THE ISSUANCE OF HEALTHCORE COMMON STOCK TO ADATOM STOCKHOLDERS TO BE
IN THE BEST INTERESTS OF THE HEALTHCORE STOCKHOLDERS AND RECOMMENDS THAT THE
HEALTHCORE STOCKHOLDERS VOTE "FOR" APPROVAL OF THE MERGER.
OPINION OF THE HEALTHCORE BOARD OF DIRECTORS' FINANCIAL ADVISOR
The HealthCore Board retained Kaufman Bros., L.P. to render to the Board a
fairness opinion in connection with the Adatom Merger (the "Kaufman Opinion").
On August 29, 1999, Kaufman delivered to HealthCore's Board its oral opinion
(which opinion was subsequently confirmed by delivery of a written opinion,
dated August 30, 1999) to the effect that, as of such date and based upon and
subject to certain factors and assumptions stated therein, the consideration to
be paid in the Merger to Adatom's shareholders in the form of Common Stock of
HealthCore was fair, from a financial point of view, to the shareholders of
HealthCore.
Kaufman is a investment banking firm specializing in the technology
industry which, as a part of its investment banking business, regularly engages
in the evaluation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of
securities, private placements of public and private companies and valuations
for corporate and other purposes. HealthCore's Board selected Kaufman based on
its independence and experience. Kaufman in the normal course of its business,
may hold and actively trade in securities of HealthCore for its own account or
for the accounts of its customers and, accordingly, may at any time hold a long
or short position in such securities.
THE FULL TEXT OF THE KAUFMAN OPINION, WHICH SETS FORTH A DESCRIPTION OF
THE ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED, FACTORS CONSIDERED AND
LIMITATIONS OF THE REVIEW UNDERTAKEN, IS ATTACHED HERETO AS ANNEX B AND IS
INCORPORATED HEREIN BY REFERENCE. THE SUMMARY OF THE KAUFMAN OPINION SET FORTH
IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF SUCH OPINION.
The summary set forth below does not purport to be a complete description
of the analyses underlying the Kaufman Opinion or the presentation made by
Kaufman to the HealthCore Board. The preparation of a fairness opinion is a
complex analytical process involving various determinations as to the most
appropriate quantitative and qualitative factors to consider in the particular
circumstances and, therefore, such an opinion is not readily susceptible to
partial analysis or summary description. In arriving at its opinion, Kaufman did
not attribute any particular weight to any analysis or factor but instead made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, Kaufman's opinion should be considered
22
<PAGE>
as a whole and particular analyses or portions of its judgments, without
considering all of the factors collectively, may create an incomplete view of
the process underlying the Kaufman Opinion. In its analysis, Kaufman made
numerous assumptions with respect to industry performance, existing market
conditions, general business and economic conditions, the proposed terms of the
transaction and other matters, many of which were beyond the control of Adatom
and HealthCore. Any estimates contained in arriving at the opinion are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. In addition, analyses relating to the value of businesses do not
purport to be appraisals or reflect the prices at which businesses actually may
be sold or the price at which stock would be bought/sold in a public offering.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty.
HealthCore agreed, among other things, to pay Kaufman $65,000 for its
investment banking services in connection with rendering the Kaufman Opinion. In
addition, HealthCore agreed to reimburse Kaufman for its reasonable
out-of-pocket expenses, including the reasonable fees and disbursements of
Kaufman's legal counsel incurred in connection with Kaufman's engagement.
HealthCore also agreed to indemnify Kaufman and its officers, employees and
agents for any losses incurred in connection with its engagement, including
certain liabilities under the Federal securities laws.
In arriving at its opinion, Kaufman assumed and relied upon the accuracy
and completeness of the material and other information provided to it by Adatom
and HealthCore without assuming any responsibility for independent verification
of such information and further relied upon the assurances of the managements of
Adatom and HealthCore that they are not aware of any facts or circumstances that
would make such information inaccurate or misleading. With respect to the
financial projections of Adatom, Kaufman assumed that such projections were
reasonably prepared on a basis reflecting the best currently available estimates
and judgment of Adatom's management as to the future financial performance of
Adatom and that Adatom will perform substantially in accordance with such
projections. In arriving at its opinion, Kaufman visited the Mipitas, California
headquarters of Adatom but did not conduct a physical inspection of such
facility. Kaufman did not make or obtain any evaluations or appraisals of the
assets or liabilities of Adatom or HealthCore, nor was Kaufman furnished with
any such evaluations or appraisals.
Kaufman has relied on the information contained in the materials described
in the Kaufman Opinion which describes the Merger as a result of which the
HealthCore will issue 10,689,489 shares of its Common Stock to Adatom's
shareholders, an exchange ratio of 2.17 shares of Common Stock for each share of
Adatom's common stock (the "Exchange Ratio"), at which time Adatom's
shareholders will hold approximately 77.5% of the combined company's outstanding
Common Stock, subject to adjustment. The Exchange Ratio will be increased by
.0179 of a share or an aggregate of 195,000 shares of Common Stock for every
$100,000 by which the HealthCore's cash assets fail to meet the $2.85 million
threshold at the time of closing.
In connection with the Kaufman Opinion, Kaufman reviewed and analyzed,
among other things:
o The Agreement and Plan of Merger dated July 1, 1999, by and between
the Company and Adatom;
o a draft of this Form S-4 Registration Statement and Proxy;
o certain documents and reports filed by HealthCore with the
Securities and Exchange Commission;
o certain internal information and documents relating to the Company
and Adatom provided to us by their respective managements, including
historical financial information and financial forecasts;
o the reported prices and trading activity of the Company's common
stock;
o the financial and business prospects for the merged entity and the
industry in which it competes;
23
<PAGE>
o certain publicly available information concerning certain other
companies engaged in businesses which it believed to be comparable
to Adatom and the trading markets for such other companies'
securities;
o information concerning recent private equity investments in
pre-public e-commerce companies we believe to be comparable to
Adatom; and
o information concerning certain other business transactions which we
believe to be relevant to the Merger.
In addition, Kaufman had discussions with certain officers and employees of
Adatom and HealthCore concerning their respective businesses, operations,
assets, financial conditions and prospects and potential strategic benefits from
a combination of the businesses of Adatom and HealthCore, and undertook such
other studies, analyses and investigations as Kaufman deemed appropriate.
In performing its analysis, Kaufman took into account a number of factors
relating to HealthCore, Adatom and the Merger. Among these factors pertaining to
HealthCore were the current status of any business activity, its current
financial position, including cash balance, and the trading activity of its
Common Stock both before and after the announcement of the Merger. In performing
its analysis with respect to Adatom, Kaufman took into account, among other
things, Adatom's current business opportunities and growth plans, its small base
of historical revenue, Adatom's participation in the fast growing and rapidly
changing online retailing industry and its need for additional capital.
Kaufman noted that its opinion was necessarily based upon financial,
economic, market and other conditions as they existed and could be evaluated by
Kaufman on, and the information made available to it as of, the date of its
opinion. Kaufman has disclaimed any undertaking or obligation to advise any
person of any change in any fact or matter affecting its opinion that is brought
to its attention after the date of its opinion. Although Kaufman evaluated the
consideration paid to the shareholders of Adatom from a financial point of view,
it was not asked to and did not recommend the specific consideration payable in
the Merger, which was determined through negotiations between HealthCore and
Adatom.
The Kaufman Opinion is for the information of HealthCore's Board of
Directors for its use in evaluation the fairness from a financial point of view
to the shareholders of HealthCore of the consideration to be paid in the Merger
to shareholders of Adatom. Such opinion does not constitute a recommendation as
to any action the Board of Directors or any shareholder of HealthCore should
take in connection with the Merger or any aspect thereof. The Kaufman Opinion is
not an opinion as to the structure, terms or effect of any aspect of the Merger
or of any transactions contemplated in connection therewith or as to the merits
of the underlying decision to enter into the Merger or any such transaction.
Conclusion. Based on and subject to the foregoing, Kaufman delivered its
opinion, as investment bankers, that, as of August 30, 1999, the consideration
to be paid to the Adatom shareholders in the merger with HealthCore was fair
from a financial point of view, to HealthCore's shareholders.
ADATOM'S REASONS FOR THE MERGER; RECOMMENDATION OF ITS BOARD OF DIRECTORS
The Adatom Board believes that the merger will have two principal benefits
to Adatom. First, Adatom will have access to the cash and cash equivalents owned
by HealthCore to expand Adatom's business. Second, it will be easier (and less
dilutive to Adatom's stockholders) to raise capital necessary for the growth of
Adatom's business as a public company. The Adatom Board has approved the merger
and the transactions contemplated thereby and recommends approval of the merger
by the stockholders of Adatom. In reaching its conclusion, the Board considered
the structure of the merger, the fact that Mr. Neal Polan will be added to the
Board and have an employment agreement with Adatom, the results of its due
diligence, the results of a review of alternatives to the merger and the pro
forma financial information.
THE ADATOM BOARD UNANIMOUSLY FOUND THE MERGER TO BE ADVISABLE AND
RECOMMENDS THAT THE ADATOM STOCKHOLDERS VOTE "FOR" APPROVAL OF THE MERGER.
24
<PAGE>
FORM OF THE MERGER
Subject to the terms and conditions of the merger agreement and in
accordance with the Delaware General Corporation Law, at the effective time,
Adatom will be merged with and into HealthCore. HealthCore will be the surviving
company in the merger and will be renamed Adatom.com, Inc. The certificate of
incorporation of HealthCore, will be amended, and adopted as the certificate of
incorporation of the surviving company in the merger and the HealthCore By-laws
will be adopted as the by-laws of the surviving company. At the effective time,
HealthCore will change its name to Adatom.com, Inc.
MERGER CONSIDERATION
At the effective time, each outstanding share of Adatom common stock will
be converted into the right to receive approximately 2.17 fully paid and
nonassessable shares of HealthCore common stock, subject to adjustment and
assuming termination of the escrow agreement by all parties to that agreement.
The number of shares to be received by Adatom stockholders for each share of
Adatom common stock they own will be increased by an additional .018 of a share
or an aggregate of approximately 195,000 shares for every $100,000 by which the
Healthcare cash assets fail to meet the $2.80 million threshold at the time of
closing. See "The Merger Agreement--Consideration To Be Received In The Merger."
As of the effective time, the shares of Adatom common stock will no longer be
outstanding and will automatically be cancelled and cease to exist and each
holder of shares of Adatom common stock will cease to have any rights in respect
of those shares, except the right to receive the consideration set forth in the
immediately preceding sentence. See "--Conversion of Shares; Procedures for
Exchange of Certificates." The exchange ratio was determined through
arm's-length negotiations between Adatom and HealthCore.
AMENDMENTS TO HEALTHCORE'S CERTIFICATE OF INCORPORATION
HealthCore presently is authorized to issue the following capital stock:
o 20,000,000 shares of common stock, consisting of 19,640,000 shares
of class A common stock, $.01 par value; and 360,000 shares of class B
common stock, $.01 par value; and
o 5,000,000 shares of preferred stock, $.01 par value.
On the record date, there were 3,183,000 shares of class A common stock
issued and outstanding, 216,000 shares of class B common stock issued and
outstanding and no shares of preferred issued and outstanding.
The Board of Directors of HealthCore has approved, subject to adoption by
its stockholders, an amendment to Article FOURTH of HealthCore's Amended and
Restated Certificate of Incorporation which would make the following changes in
the capital structure of HealthCore:
o eliminate the authorization of class B common stock and rename the
class A common stock to common stock
o increase the authorized number of shares of common stock to
50 million shares.
In the merger, Adatom stockholders will receive approximately 2.17 shares
of HealthCore common stock for each share of Adatom common stock they own,
subject to adjustment and assuming termination of the escrow agreement. This
equals an aggregate of 10,689,489 shares of HealthCore common stock. This
calculation gives effect to the issuance of an additional 2,511,620 shares of
Adatom common stock before the merger and assumes exercise of 396,000 options
and warrants to purchase HealthCore Class A common stock at an exercise price
not greater than $1.25 per share and exercise of a warrant to purchase Adatom
common stock which will be exercisable to purchase 50,661 shares of Adatom.com,
Inc. common stock. On a fully diluted basis there would be 17,583,389 shares of
common stock of the combined company outstanding. The number of shares to be
received by Adatom stockholders for each share of Adatom common stock they own
will be increased by an additional .018 of a share or an aggregate of
approximately 195,000 shares for every $100,000 by which the Healthcare cash
assets fail to meet the $2.80 million threshold at the time of closing.
HealthCore has agreed to issue Jesup & Lamount Securities, at the close of the
merger, warrants to purchase 200,000 shares at $1.00 per share. In addition,
HealthCore has outstanding warrants to purchase an aggregate of 3,590,500 shares
at a weighted average price of $6.45 per share. These warrants are not given
effect in the
25
<PAGE>
negotiation of the exchange ratio in the merger. The increase in the number of
authorized shares of HealthCore common stock to 50 million is required to
provide HealthCore sufficient stock to consummate the merger, issue shares upon
exercise of stock options, issue stock dividends and for other corporate
purposes.
The Board of Directors has proposed the elimination of the authorization of
the class B common stock. The class B common stock has voting rights of five
votes per share, as opposed to the one vote per share voting rights of the
class A common stock. In connection with the merger, the sole owner of class B
common stock has agreed to convert all of the shares of HealthCore class B
common stock held by him into HealthCore class A common stock in accordance with
the relevant provisions of HealthCore's Certificate of Incorporation. Once this
occurs, there will be no outstanding class B common stock, and the distinction
between class A and class B will become meaningless.
A copy of the form of the Amendment to the Certificate of Incorporation is
attached as Exhibit C.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
The conversion of Adatom common stock into HealthCore common stock will
occur automatically at the effective time. Upon each Adatom stockholder's
surrender of a certificate representing Adatom common stock to the surviving
company for cancellation, each such Adatom stockholder will be entitled to
receive certificates representing shares of the common stock of the surviving
company, rounded up to the nearest whole number.
ADATOM STOCKHOLDERS AND HEALTHCORE STOCKHOLDERS SHOULD NOT RETURN STOCK
CERTIFICATES WITH THE ENCLOSED PROXY CARD.
Holders of certificates previously representing Adatom common stock will
not be paid dividends or distributions on the HealthCore common stock into which
such shares have been converted with a record date after the effective time
until such certificates are surrendered for exchange. When such certificates are
surrendered, any unpaid dividends or distributions will be paid without
interest.
In the event of a transfer of ownership of Adatom common stock which is not
registered in the records of Adatom, a certificate representing the proper
number of shares of HealthCore common stock may be issued and any cash or other
dividends or distributions to be paid upon surrender of the certificate may be
paid to a person other than the person in whose name the certificate so
surrendered is registered if the certificate is presented, accompanied by all
documents required to evidence the transfer and the person requesting such
issuance pays any transfer or other taxes required for the issuance of shares to
a person other than the registered holder of such certificate or establishes to
the satisfaction of HealthCore that such tax has been paid or is not applicable.
All shares of HealthCore common stock issued upon conversion of shares of
Adatom common stock, will be deemed to have been issued in full satisfaction of
all rights pertaining to such shares of Adatom common stock, subject, however,
to HealthCore's obligation to pay any dividends or make any other distributions
with a record date prior to the effective time that may have been declared by
Adatom on such shares of Adatom common stock and which remain unpaid at the
effective time.
EFFECTIVE TIME
The effective time will be the time of the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware or such later time
as is agreed upon by Adatom and HealthCore and specified in the Certificate of
Merger. The filing of the Certificate of Merger will occur as soon as
practicable following the closing of the merger. The closing will occur no later
than the first business day after satisfaction or waiver of the conditions to
the consummation of the merger set forth in the merger agreement unless another
date is agreed to in writing by Adatom and HealthCore.
26
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
We expect that the exchange of shares by Adatom stockholders will be
tax-free to Adatom stockholders for federal income tax purposes. However, this
expectation is based on laws, regulations, rulings and decisions in effect on
the date hereof, all of which are subject to change (possibly with retroactive
effect) and to differing interpretations. This discussion does not address all
aspects of federal taxation that may be relevant to particular Adatom
stockholders in light of their personal circumstances or to Adatom stockholders
subject to special treatment under the Internal Revenue Code of 1986, including,
without limitation, banks, tax-exempt organizations, insurance companies,
dealers in securities or foreign currency, Adatom stockholders who received
their Adatom common stock through the exercise of employee stock options or
otherwise as compensation, Adatom stockholders who are not U.S. persons (as
defined in Section 7701(a)(30) of the Internal Revenue Code) and Adatom
stockholders who hold Adatom common stock as part of a hedge, straddle or
conversion transaction. In addition, the discussion does not address any state,
local or foreign tax consequences of the merger.
EACH HOLDER OF ADATOM COMMON STOCK IS URGED TO CONSULT ITS TAX ADVISOR
WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES OF THE MERGER TO SUCH
HOLDER.
REGULATORY AND THIRD PARTY APPROVALS
Third-Party Approvals. Each of HealthCore and Adatom is a party to certain
contracts and other agreements. Consummation of the merger may require the
consent of, or waiver from, the other parties to some of these agreements.
HealthCore and Adatom do not believe that the failure to obtain such consents,
approvals or waivers would have a material adverse effect on HealthCore.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain stockholders of HealthCore class A and class B common stock are
subject to an escrow agreement, which restricts the stockholders from
transferring those and to forfeiture unless certain market price thresholds of
operating performance-based criteria of HealthCore are met. None of these
thresholds or criteria has been met to date. If these thresholds or criteria are
not met by October 2000, the shares subject to the escrow agreement will be
returned to HealthCore and cancelled. HealthCore's management believed that
under its operations of the health care benefits business, it was unlikely that
these thresholds or criteria of the escrow agreement would be met. In connection
with the merger, all holders of shares in escrow agreed to terminate the escrow
agreement, subject to stockholder approval of the termination, and under the
termination agreement have agreed to surrender 80% of their shares and will
receive at the time of the merger or after if the termination occurs subsequent
to the merger 20% of their shares held in escrow free of the risk of forfeiture
and other transfer restrictions imposed by the escrow agreement.
In connection with the merger, Richard Barton, the President and the CEO of
Adatom, who now holds a majority of the Adatom shares, will enter into an
employment agreement with the surviving company. The employment agreement will
be for a term of three years, and will provide for an annual salary of $200,000,
a bonus in the amount of $100,000 tied to the performance of the surviving
company, a vehicle, reimbursement of business expenses, health insurance and
related benefits.
At the closing of the merger, HealthCore will terminate the employment of
David Mullikin, President of HealthCore. Mr. Mullikin will receive a severance
package from HealthCore which provides for a payment of $100,000 plus 100,000
options to purchase shares of HealthCore at $.10 per share. This severance is in
lieu of the severance to which he was previously entitled under his existing
employment agreement, namely $150,000 reduced by 50% of any compensation he
receives from other employment during the one year period following termination,
but in no event less than $75,000. Mr. Mullikin will also receive registration
rights for the shares of stock underlying those options. If HealthCore files a
registration statement with the Securities and Exchange Commission after the
closing of the merger, Mr. Mullikin may include his shares in
27
<PAGE>
that registration statement. If HealthCore does not file a registration
statement within 120 days, then Mr. Mullikin may demand that HealthCore register
his shares on an appropriate registration statement.
Neal J. Polan, HealthCore's Chairman of the Board, will enter into a
two-year employment agreement with the Adatom which provides for an annual
salary of $50,000, reimbursement of business expenses, health insurance and
related benefits. Mr. Polan will be required to work up to 60 hours per month as
an advisor for the surviving company in mergers, acquisitions and strategic
alliances. In connection with the employment agreement, Mr. Polan will receive a
right to purchase stock in Adatom in an amount equal to that number of Adatom
shares convertible into 350,000 shares of HealthCore common stock in the merger
in exchange for a promissory note in the amount of $320,760. As partial
consideration for his services rendered under the employment agreement, the
promissory note will be forgiven six months after the closing date of the
merger.
On April 27, 1999, Mr. Polan agreed to amend his existing employment
agreement with HealthCore, dated September 30, 1998, to permit HealthCore to
terminate his employment without cause and to revise the terms of his severance
package. Mr. Polan's original employment agreement provides that in the event
that Mr. Polan's employment is terminated without cause, HealthCore would be
required to pay him all sums that would have been paid under the agreement. The
amended employment agreement reduces the amount of severance upon termination of
employment and provides that HealthCore would only have to pay Mr. Polan the
lesser of $150,000 or 60% of the remaining value of the contract at the time of
termination. In consideration for agreeing to the amended employment agreement,
Mr. Polan received 165,000 shares of HealthCore class A common stock.
Mr. Polan owns shares which are subject to the escrow agreement and will be
treated identical to the shares held in escrow by the other escrow stockholders
described above.
Mr. Polan will receive registration rights covering 367,800 shares,
including 142,000 shares underlying warrants.
In September 1997, in connection with his employment with HealthCore,
Mr. Polan received a warrant to purchase 142,000 shares of HealthCore common
stock at $1.00 per share. The warrant becomes exercisable if certain market
price thresholds or operating performance-based criteria of HealthCore are met.
In connection with the merger, Mr. Polan entered into an agreement with
HealthCore to exchange that warrant for 28,400 shares of HealthCore common stock
at the closing of the merger.
On July 8, 1999 Eli Levitin, a director of HealthCore, purchased $50,000 of
convertible debt of Adatom through Jesup & Lamont Acquisition Corporation, a
company in which Mr. Levitin has a 10% interest. These securities will be
converted into shares of Adatom common stock immediately prior to the merger and
will then be exchanged for 50,661 shares of common stock of Adatom.com, Inc.
pursuant to the merger.
In connection with the merger, all holders of Adatom securities, Neal
Polan, and David Mullikin, have entered into lock-up agreements that prohibit
transfer of some or all of their respective shares of Adatom.com, Inc.'s common
stock for up to a period of six months. The holders of Adatom securities have
agreed to a lock-up covering all of their shares of Adatom.com, Inc. Mr. Polan
has agreed to lock-up 796,800 shares, including 167,000 shares issuable upon
exercise of warrants and Mr. Mullikin has agreed to lock up the 100,000 shares
underlying the options being issued to him upon termination of employment.
Mr. Polan's lock-up agreement differs slightly from those of the other parties
to lock-up agreements in that it provides that 125,000 of his shares, which
represents a portion of the shares he owned prior to the merger, will be subject
to the lock-up agreement for a period of two months following the closing and
the remaining 671,800 shares will be subject to the lock-up agreement for a
period of six months following the closing. Certain non-affiliates of Adatom,
who will receive an aggregate of 557,272 shares of HealthCore in the merger,
including 50,661 shares issuable upon exercise of a warrant, will be freed from
the lock-up restrictions with respect to 20% of those shares, commencing two
months after the closing of the merger.
RESTRICTIONS ON RESALES BY AFFILIATES
Affiliates of Adatom. The shares of HealthCore stock to be issued to
Adatom stockholders in the merger have been registered under the Securities Act.
These shares may be traded freely and without restriction, other than those
restrictions imposed by lock-up agreements, by those stockholders not deemed to
28
<PAGE>
be "affiliates" of Adatom as that term is defined under the Securities Act. An
affiliate of a corporation, as defined by the rules promulgated under the
Securities Act, is a person who directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
that corporation. Any transfer by an affiliate of Adatom must be one permitted
by the resale provisions of Rule 145 promulgated under the Securities Act or as
otherwise permitted under the Securities Act. These restrictions are expected to
apply to the executive officers and directors of Adatom.
29
<PAGE>
THE STOCKHOLDERS' MEETINGS
PURPOSE, TIME AND PLACE
This joint proxy statement/prospectus is being furnished to you in
connection with the solicitation of proxies by the Adatom Board and HealthCore
Board from holders of Adatom common stock and HealthCore class A and class B
common stock for use at special meetings to be held on October 11, 1999 and at
any adjournments or postponements thereof. The HealthCore special meeting will
take place at the Marriott Hotel, Kansas City Airport, 775 Brasilia Avenue,
Kansas City, Missouri 64153 at 11:00 a.m., local time. The Adatom special
meeting will take place at the Adatom offices at 920 Hillview Court, Suite 160,
Malipitas, California 95035 at 9:00 a.m. local time. At the HealthCore special
meeting, holders of HealthCore class A and class B common stock will be asked to
consider and vote on the following:
1. to approve and adopt the Agreement and Plan of Merger, dated as of
July 1, 1999, as amended, between HealthCore and Adatom and the
transaction contemplated thereby, including:
o the issuance of HealthCore common stock to holders of Adatom common
stock;
o the amendments to HealthCore's certificate of incorporation to
change the name of HealthCore to Adatom.com, Inc., to eliminate the
authorization of class B common stock, to rename the class A common
stock to common stock, and to increase the authorized number of
shares of HealthCore's common stock from 20 million shares to
50 million shares; and
o the designation of a new Board of Directors for the surviving
company;
2. to approve the 1999 Stock Option Plan; and
3. to approve the termination of the Amended and Restated Escrow Agreement
by and among American Stock Transfer & Trust Company, HealthCore and
certain stockholders of HealthCore dated July 31, 1997.
The approval of the first proposal is a condition to the consideration of
all subsequent proposals. In addition, the merger may not be consummated if
proposal number two is not adopted.
At the Adatom special meeting, the holders of Adatom common stock will be
asked to consider and vote upon a proposal to approve the merger as set forth in
the merger agreement.
RECORD DATE; VOTING POWER
HealthCore. The HealthCore Board has fixed the close of business (5:00
p.m., local time) on September 10, 1999, as the record date for determining the
holders of HealthCore class A and class B common stock entitled to notice of,
and to vote at, the HealthCore special meeting. At the close of business on the
record date, 3,183,000 shares of HealthCore class A common stock were issued and
outstanding and entitled to vote at the HealthCore special meeting and 216,000
shares of HealthCore class B common stock were issued and outstanding and
entitled to vote at the HealthCore special meeting. Only holders of record of
HealthCore class A and class B common stock at the close of business on the
record date will be entitled to notice of, and to vote at, the HealthCore
special meeting. Holders of record of HealthCore class A common stock are
entitled to one vote per share on any matter which may properly come before the
HealthCore special meeting. Holders of class B common stock are entitled to five
votes per share on any matter which may properly come before the HealthCore
special meeting. Votes may be cast at the HealthCore special meeting in person
or by proxy. See "The Stockholders' Meeting--Voting of Proxies."
The presence at the HealthCore special meeting, either in person or by
proxy of the holders of a majority of the voting power represented by the
HealthCore class A and class B common stock as a single class is necessary to
constitute a quorum in order to transact business at the HealthCore special
meeting. In the event that a quorum is not present at the HealthCore special
meeting, such meeting will be adjourned or postponed in order to solicit
additional proxies.
Adatom. The Adatom Board has fixed the close of business (5:00 p.m., local
time) on September 13, 1999, as the record date for determining the holders of
Adatom common stock entitled to notice of, and to
30
<PAGE>
vote at, the Adatom special meeting. Only holders of record of Adatom common
stock at the close of business on the record date will be entitled to notice of,
and to vote at, the Adatom special meeting.
At the close of business on the record date, 2,384,600 shares of Adatom
common stock were issued and outstanding and entitled to vote at the Adatom
special meeting. Holders of record of Adatom common stock are entitled to one
vote per share on any matter which may properly come before the Adatom special
meeting. Votes may be cast at the Adatom special meeting in person or by proxy.
See "-- Voting of Proxies."
The presence at the Adatom special meeting, either in person or by proxy of
the holders of a majority of the outstanding Adatom common stock entitled to
vote, is necessary to constitute a quorum in order to transact business at the
Adatom special meeting.
VOTES REQUIRED
HealthCore. Approval by HealthCore stockholders of the merger agreement
requires the affirmative vote of more than 50% of the votes of class A common
stock and class B common stock outstanding on the record date voting as a single
class or 2,131,501 votes of a total of 4,263,000 votes of the combined classes.
That approval will include the issuance of HealthCore common stock, the
amendments to HealthCore's certificate of incorporation and the designation of a
new board of directors.
In addition, unless waived by Adatom, the merger must be approved by more
than 50% of the shares of class A common stock outstanding on the record date
excluding the 165,000 shares of class A common stock beneficially owned by
Mr. Polan other than proxies he has obtained from non-family members, or
1,509,001 shares of a total of 3,018,000 shares of class A common stock.
While HealthCore's Board of Directors does not believe that stockholder
approval was required for the sale of its healthcare benefits business, approval
of the merger agreement by HealthCore's stockholders will constitute
ratification of the sale.
The approval of the 1999 Stock Option Plan will require the affirmative
vote of more than 50% of the votes of class A and class B common stock voting as
a single class, represented in person or by proxy at the special meeting.
Approval of the termination of the escrow agreement will require the
approval of at least two-thirds of the shares of class A common stock
outstanding on the record date excluding all shares of class A common stock held
by escrow stockholders whether or not those shares are subject to the escrow
agreement.
In the event the stockholders of HealthCore fail to approve the termination
of the escrow agreement, Adatom stockholders have agreed to vote all of their
shares of the combined company to approve the termination of the escrow
agreement at the first annual or special meeting of the stockholders of the
combined company following the merger.
Under Delaware law, in determining whether the proposal to approve and
adopt the merger agreement and the transactions contemplated thereby have
received the requisite number of affirmative votes, abstentions will be counted
and have the same effect as a vote against the proposals. Brokers who hold
shares of HealthCore common stock as nominees will not have the discretionary
authority to vote such shares in the absence of instructions from the beneficial
owners thereof. Any shares which are not voted because the nominee-broker lacks
discretionary authority will be counted and have the same effect as a vote
against the proposals.
Adatom. Approval by Adatom stockholders of the merger and the merger
agreement will require the approval of more than 50% of the shares of Adatom
common stock outstanding on the record date, or 1,192,301 shares of the
2,384,600 shares outstanding. All Adatom stockholders have agreed to vote for
the merger. Under California law, in determining whether the proposal to approve
the merger has received the requisite number of affirmative votes, abstentions
will be counted and have the same effect as a vote against the proposal. Brokers
who hold shares of Adatom common stock as nominees will not have discretionary
authority to vote such shares in the absence of instructions from the beneficial
owners thereof. Any shares
31
<PAGE>
which are not voted because the nominee-broker lacks such discretionary
authority will be counted and have the same effect as a vote against the
proposal.
SHARE OWNERSHIP OF MANAGEMENT
HealthCore. On the record date, directors and executive officers of
HealthCore and their affiliates may be deemed to be the beneficial owners of
187,000 shares of HealthCore class A common stock or approximately 5.9% of the
HealthCore class A common stock outstanding on the record date. Excluding
Mr. Polan's 165,000 shares of class A common stock, these other directors and
executive officers and their affiliates own approximately 22,000 shares of less
than 1% of the 3,018,000 shares of class A common stock so outstanding.
On the record date, Neal Polan, Chairman and Chief Executive Officer of
HealthCore may be deemed to be the beneficial owner of all of the 216,000 shares
of HealthCore class B common stock, outstanding. Accordingly, on the record
date, directors and executive officers of HealthCore and their affiliates held
approximately 29.7% of the voting power of the combined class A and class B
common stock. This voting power percentage does not take into account the shares
of class A common stock that Mr. Polan has the right to vote under proxies given
to him by the escrow stockholders, as described below.
Neal Polan has agreed to vote all his 165,000 shares of class A common
stock and 216,000 shares of class B common stock in favor of the merger and
related transactions. Class B common stock has voting rights of five votes per
share.
In addition, all the other directors and executive officers of HealthCore
have indicated that they intend to vote the class A common stock owned by them
for all the HealthCore proposals detailed in this proxy statement.
All escrow stockholders have given Neal Polan a proxy to vote all shares of
class A common stock they own, including all shares held in escrow, in favor of
all proposals that come before the special meeting. After giving effect to these
proxies, the executive officers and directors of HealthCore and their affiliates
have the right to vote at least 47% of the voting power of the combined class A
and class B common stock.
Adatom. On the record date, there were four holders of Adatom common stock
outstanding on the record date. These holders, all of whom are directors of
Adatom, have agreed to vote the Adatom common stock owned by them for the
approval of the merger and the merger agreement.
VOTING OF PROXIES
Shares represented by properly executed proxies received in time for a
special meeting will be voted at such special meeting in the manner specified by
such proxies. HealthCore and Adatom stockholders should be aware that, if your
proxy is properly executed but does not contain voting instructions, your proxy
will be voted FOR approval of the merger. It is not expected that any matter
other than as described herein will be brought before the special meetings. If
other matters are properly presented before the special meetings, the persons
named in such proxy will have authority to vote in accordance with their
judgment on any other such matter.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed Adatom or HealthCore proxy card does
not preclude a stockholder from voting in person. A stockholder of HealthCore
may revoke a proxy at any time prior to its exercise by (i) delivering, prior to
the HealthCore special meeting, to David Mullikin Secretary, HealthCore, 11904
Blue Ridge Boulevard, Grandview, Missouri, 64030, a written notice of revocation
bearing a later date or time than the proxy; (ii) delivering to the Secretary of
HealthCore a duly executed proxy bearing a later date or time than the revoked
proxy; or (iii) attending the HealthCore special meeting and voting in person. A
stockholder of Adatom may revoke a proxy at any time prior to its exercise by
(i) delivering, prior to the Adatom special meeting, to Richard Barton,
President, Adatom, Inc., 920 Hillview Court, Suite 160, Milipitas, CA 95035, a
written notice of revocation bearing a later date or time than the proxy;
(ii) delivering to the President of Adatom a duly executed proxy bearing a later
date or time than the revoked proxy; or
32
<PAGE>
(iii) attending the Adatom special meeting and voting in person. Attendance at
the relevant special meeting will not by itself constitute revocation of a
proxy. Neither Adatom nor HealthCore expects to adjourn the relevant special
meeting for a period of time long enough to require the setting of a new record
date for such meeting. If an adjournment occurs, it will have no effect on the
ability of either Adatom's or HealthCore's stockholders of record as of the
record date to exercise their voting rights or to revoke any previously
delivered proxies unless the relevant meeting is adjourned to a date that, under
applicable law, requires the setting of a new record date.
SOLICITATION OF PROXIES
Each of Adatom and HealthCore will bear the cost of solicitation of proxies
from its own stockholders, including related filing fees, however, the cost will
be allocated as a post-closing expense. In addition to solicitation by mail, the
directors, officers and employees of each of Adatom and HealthCore and their
respective subsidiaries may solicit proxies from stockholders of such company by
telephone, telegram or in person. Arrangements will also be made with brokerage
houses and other custodians, nominees and fiduciaries for the forwarding of
solicitation material to the beneficial owners of stock held of record by such
persons, and Adatom and HealthCore will reimburse such company's custodians,
nominees and fiduciaries for their reasonable out-of-pocket expenses in
connection therewith.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
33
<PAGE>
THE MERGER AGREEMENT
GENERAL
The HealthCore Board and the Adatom Board have each unanimously approved
the merger agreement. The merger agreement contemplates the merger of Adatom
with and into HealthCore, with HealthCore, renamed Adatom.com, Inc., continuing
as the surviving company. This section of the joint proxy statement/prospectus
describes material provisions of the merger agreement. The description of the
merger agreement contained in this joint proxy statement/prospectus does not
purport to be complete and is qualified in its entirety by reference to the
merger agreement, a copy of which is attached as Annex A to this joint proxy
statement/prospectus and is incorporated herein by reference. Capitalized terms
in this section have the meanings assigned to them in the merger agreement or,
if not so assigned in the merger agreement, the meanings assigned to them in
this joint proxy statement/prospectus. All stockholders of HealthCore and Adatom
are urged to read the merger agreement carefully and in its entirety.
CLOSING; EFFECTIVE TIME
The closing of the merger will take place at the offices of Epstein Becker
& Green, P.C., 250 Park Avenue, New York, New York 10177 at 9:00 a.m. on the
first business day after the day on which the last condition to the merger is
satisfied or waived or at such other place and time and/or on such other date as
Adatom and HealthCore may agree in writing.
As soon as practicable following the closing, HealthCore and Adatom will
cause certificate of merger to be filed with, and accepted by, the Secretary of
State of the State of Delaware as provided in Section 252 of the Delaware
General Corporation Law. The merger will become effective at the time the
certificate of merger is filed with the Secretary of State of the State of
Delaware or at a later time agreed by Adatom and HealthCore and established
under the certificate of Merger.
CERTIFICATE OF INCORPORATION OF SURVIVING COMPANY
The certificate of incorporation of HealthCore as amended will be adopted
as the certificate of incorporation of the surviving company at the closing.
BY-LAWS OF SURVIVING COMPANY
The by-laws of HealthCore will be adopted as the by-laws of the surviving
company at the closing.
BOARD AND OFFICERS OF SURVIVING COMPANY
The officers of the surviving company will be the current officers of
Adatom until their successors have been appointed and qualified or until their
earlier death, resignation or removal.
The directors of the surviving company will be Richard S. Barton and
Sridhar Jagannathan, both of whom are current board members of Adatom and Neal
J. Polan, the current Chairman and Chief Executive Officer of HealthCore. In
addition, Ralph Kennedy Frasier and Sylvia A. Dresner have been appointed by
Adatom pursuant to the merger agreement to be directors to the Board on
Directors of the surviving company.
CONSIDERATION TO BE RECEIVED IN THE MERGER
At the effective time, Adatom stockholders will receive approximately 2.17
shares of HealthCore common stock in exchange for each share of Adatom common
stock they hold or an aggregate of 10,689,489 shares, subject to adjustment, and
assuming termination of the escrow agreement. After the merger Adatom
stockholders will own approximately 77.5% of the common stock of the combined
company, subject to adjustment. The foregoing calculations give effect to the
issuance of 2,511,620 shares of Adatom common stock before the merger and
assumes exercise of 396,000 options and warrants to purchase HealthCore class A
common stock at an exercise price not greater than $1.25 per share and exercise
of a warrant to purchase 23,315 shares of Adatom common stock. The number of
shares to be received by Adatom stockholders for
34
<PAGE>
each share of Adatom common stock they own will be increased by an additional
.018 of a share or an aggregate of approximately 195,000 shares for every
$100,000 by which the HealthCore cash assets fail to meet the $2.80 million
threshold at the time of closing. HealthCore's cash assets mean all cash and
prepaid expenses plus $996,981, representing the estimates below:
o $300,000 in expenses paid by HealthCore in connection with the Merger;
o $296,981 representing the aggregate exercise price of outstanding options
and warrants to purchase class A common stock at an exercise price of not
greater than $1.25 per share;
o $150,000 payable to Neal J. Polan upon termination of his HealthCore
employment agreement; and
o $250,000 previously advanced by HealthCore to Adatom.
ADATOM STOCK CERTIFICATES SHOULD NOT BE RETURNED WITH THE ENCLOSED PROXY
CARD. A TRANSMITTAL FORM WILL BE PROVIDED TO HOLDERS FOLLOWING THE EFFECTIVE
TIME.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains certain customary mutual representations and
warranties by HealthCore and/or Adatom relating to, among other things:
o Corporate organization, structure and power;
o Capitalization;
o The accuracy of information supplied by each of us in connection with the
merger agreement;
o Accounting, financial and tax matters;
o Authorization, execution, delivery, performance and enforceability of
consents, approvals, orders and authorizations of governmental
authorities relating to, and noncontravention of certain agreements as a
result of the merger agreement;
o Title to tangible property, real property and leases;
o Intellectual property matters;
o Compliance with applicable laws and litigation;
o Material contracts;
o Benefit plans and matters relating to the Employee Retirement Income
Security Act of 1974;
o Insurance matters;
o Absence of material changes or events with respect to each of us since
December 31, 1998;
o Affiliated transactions;
o Engagement of and payment of fees to brokers, investment bankers, finders
and financial advisors in connection with the merger agreement;
o Environmental matters;
o Documents filed by HealthCore with the SEC and other regulatory entities,
the accuracy of information contained therein and the absence of
undisclosed liabilities of each of us; and
o Permits and licenses.
CERTAIN COVENANTS
We have agreed that, except as otherwise expressly contemplated by the
merger agreement, during the period from the date of the merger agreement to the
effective time, each party will carry on its respective businesses in the
ordinary course and in compliance in all material respects with all applicable
laws and regulations and use all reasonable efforts to preserve intact its
current business organizations, and use all
35
<PAGE>
reasonable efforts to keep available the services of its current officers and
other key employees and preserve its business relationships to the end that each
parties' goodwill and ongoing businesses will be unimpaired at the effective
time.
The merger agreement provides that neither HealthCore nor Adatom take any
action outside of the parameters specified in the merger agreement, including,
with certain exceptions:
o amending its organizational documents;
o issuing, selling or encumbering any shares of capital stock or options to
acquire any shares of such capital stock;
o selling, leasing or encumbering property or assets, except in the
ordinary course of business; declaring or paying dividends or
recapitalizing or redeeming its capital stock;
o changing any accounting principle;
o amending compensation plans or bonus arrangement;
o making specified types of acquisitions;
o taking any action that would cause the representations and warranties
regarding absence of certain changes or events in the merger agreement to
no longer be true and correct; or
o in the case of Adatom, incurring any debt in excess of $1,250,000,
inclusive of debt incurred in connection with the issuance of convertible
notes and no more than $250,000 of debt due to affiliates.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The obligation of HealthCore to consummate the merger is subject to the
following conditions:
o the representations and warranties of Adatom are true and correct as of
the closing date;
o Adatom performed all obligations and agreements contained in the merger
agreement;
o no change or event has occurred which has had or could reasonably be
expected to have a material adverse effect with respect to Adatom;
o the stockholders of Adatom have executed lock-up agreements;
o HealthCore received a fairness opinion rendering an opinion that the
merger is fair and reasonable from a financial point of view to
HealthCore's stockholders;
The obligation of Adatom to consummate the merger is subject to the
following conditions:
o the representations and warranties of HealthCore are true and correct as
of the closing date;
o HealthCore performed all obligations and agreements contained in the
merger agreement;
o no change or event has occurred which has had or could reasonably be
expected to have a material adverse effect with respect to HealthCore;
o HealthCore consummated the sale or liquidation of the HealthCore
business, terminated all of HealthCore's existing employment
relationships, and terminated all material contractual commitments in
connection with the HealthCore business;
o each officer and director of HealthCore has tendered his or her
resignation, or been terminated by HealthCore;
o HealthCore's closing cash amount, as previously defined, is not less than
$2,000,000;
o Messrs. Polan and Mullikin have executed lock-up agreements;
o HealthCore has recapitalized its capital structure;
36
<PAGE>
The obligations of HealthCore and Adatom to consummate the merger are
subject to the following conditions:
o the transactions contemplated by the merger are approved by the
affirmative vote of a majority of the outstanding shares of HealthCore
entitled to vote on the merger, excluding the vote of shares held by Neal
Polan;
o the S-4 Registration Statement has become effective under the Securities
Act;
o HealthCore received all state securities or "Blue Sky" permits and other
authorizations necessary to issue the shares of HealthCore common stock;
o no temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction restraining or
preventing the consummation of the merger is in effect;
o all filings required to be made prior to the effective time with, and all
consents, approvals, permits and authorizations required to be obtained
prior to the effective time from, Governmental Entities, including,
without limitation, those set forth in the Adatom Disclosure Schedule, in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by Adatom will have
been made or obtained (as the case may be).
NO SOLICITATION
The merger agreement provides that Adatom will not authorize or permit any
of their respective Agents to:
o solicit, initiate, encourage or facilitate, any inquiry or the making of
any proposal which constitutes, any transaction involving Adatom the
consummation of which would or could reasonably be expected to impede,
interfere with, prevent or materially delay the merger, or
o propose, enter into or participate in any discussions or negotiations
regarding any of the foregoing, or furnish to any other person any
information with respect to its business, properties or assets or any of
the foregoing, or otherwise cooperate in any way with, or assist or
participate in, facilitate or encourage, any effort or attempt by any
other person to do or seek any of the foregoing.
The merger agreement provides that HealthCore will not authorize or permit
any of its Agents to:
o solicit, initiate, encourage or facilitate, any inquiry or the making of
any proposal which constitutes, any transaction involving Adatom the
consummation of which would or could reasonably be expected to impede,
interfere with, prevent or materially delay the merger, or
o propose, enter into or participate in any discussions or negotiations
regarding any of the foregoing, or furnish to any other person any
information with respect to its business, properties or assets or any of
the foregoing, or otherwise cooperate in any way with, or assist or
participate in, facilitate or encourage, any effort or attempt by any
other person to do or seek any of the foregoing; provided, however, that
the foregoing clauses (i) and (ii) shall not prohibit HealthCore from:
(a) furnishing information pursuant to an appropriate confidentiality
letter concerning HealthCore and its businesses, properties or
assets to a third party who the Board of Directors of HealthCore
has a reasonable basis for determining is likely to make a
qualified transaction proposal,
(b) engaging in discussions or negotiations with such a third party
who has made a qualified transaction proposal, or
(c) following receipt of a qualified transaction proposal, taking and
disclosing to its stockholders a position contemplated by
Rule 14e-2(a) under the Exchange Act or changing the HealthCore
recommendation, but in each case referred to in the foregoing
clauses (a) through (c) only after the Board of Directors of
HealthCore concludes in good faith following receipt of a written
opinion addressed to HealthCore from outside counsel to HealthCore
that such action is
37
<PAGE>
reasonably necessary for the Board of Directors of HealthCore to
comply with its fiduciary obligations to stockholders under
applicable law.
TERMINATION
The merger agreement may be terminated by mutual written consent, or by
either HealthCore or Adatom:
o if there has been a material breach of any representation, warranty,
covenant or agreement by the other party;
o if the merger is not consummated before the November 30, 1999;
o if the stockholders of HealthCore do not vote to approve the merger;
o if the Board of Directors of HealthCore recommends an alternative
transaction to the stockholders of HealthCore; or
o if a court of competent jurisdiction or other governmental entity issues
an order, decree or ruling or taken any other action restraining,
enjoining the consummation of the merger.
EXPENSES
The out-of-pocket expenses incurred by each party in connection with the
merger shall be paid by, the surviving company following the closing; however,
the aggregate sum of expenses paid by HealthCore prior to the closing are deemed
to be included in the closing cash amount. In the event the merger is not
consummated other than by reason of a termination pursuant to Section 9.1(b) of
the merger agreement, relating to breach of contract, each party shall bear that
portion of the expenses incurred by it in connection with the merger.
In the event the merger is not consummated by reason of a termination by
either party pursuant to Section 9.1(b) of the merger agreement, relating to
breach of contract, the breaching party shall reimburse the other party for all
transaction expenses, including, without limitation, all of its reasonable
legal, accounting and investment banking fees and expenses relating to the
merger (other than fees, if any, payable to the brokers). In addition, the
non-breaching party will retain all rights and remedies available to it, whether
at law or in equity.
AMENDMENT, EXTENSION AND WAIVER
Subject to the provisions of the applicable law, the merger agreement may
be modified or amended by the parties at any time prior to the effective time,
by written agreement executed and delivered by duly authorized officers of the
respective parties.
The conditions to each of the parties' obligations to consummate the merger
may be waived by such party in whole or in part to the extent permitted by
applicable law.
DISSENTERS' RIGHTS
Under California law, Adatom stockholders who do not vote in favor of the
merger would normally have the right to demand that Adatom purchase their shares
at fair market value. The Adatom stockholders, however, have agreed to vote
their shares in favor of the merger. Therefore, Adatom stockholders will not
have dissenters' rights.
Under Delaware law, HealthCore stockholders are not entitled to dissenters'
rights because the stock is designated as a national market system security on
an interdealer quotation system by the NASD.
38
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS INC.
SELECTED FINANCIAL DATA
(in thousands, except per share amounts)
The information below has been derived from the audited financial
statements of HealthCore Medical Solutions Inc. as of and for its fiscal years
ended September 30, 1998 and 1997 and the unaudited financial statements as of
and for the nine months ended June 30, 1999 and 1998. The financial data as of
and for the nine-month periods ended June 30, 1999 and 1998 reflect all
adjustments necessary for a fair presentation of the results for these periods.
You should not expect the results for the nine-month periods to be an indication
of the results to be expected for the full year or any other interim period.
This information is only a summary and should be read in conjunction with
HealthCore Medical Solutions Inc.'s historical financial statements (and related
notes) contained in its report included elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
JUNE 30, SEPTEMBER 30,
-------------------- --------------------
1999 1998 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues....................................................... $ 146 $ 69 $ 84 $ --
Cost of revenue................................................ (111) (46) (74) --
Selling, general and administrative expenses................... (1,628) (1,504) (2,180) (2,489)
Operating loss................................................. (1,593) (1,481) (2,169) (2,489)
Other expense.................................................. (531)
Interest income (expense), net................................. 99 132 182 (753)
Loss from disposal of business................................. (66) -- -- --
Income tax expense (benefit)................................... -- --
Net loss....................................................... $(2,091) $(1,349) $(1,987) $(3,242)
Basic and diluted loss per share............................... $ (0.89) $ (0.61) $ (0.89) $(12.07)
<CAPTION>
AS OF JUNE 30, AS OF SEPTEMBER 30,
-------------------- --------------------
1999 1998 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Working capital (deficiency)................................... $ 2,444 $ 4,687 $ 4,025 $(2,787)
Total assets................................................... 2,907 5,112 4,430 891
Long-term debt, net of current portion......................... -- 36 19 87
Stockholders' equity/(Capital deficiency)...................... $ 2,594 $ 4,871 $ 4,233 $(2,164)
</TABLE>
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF
HEALTHCORE MEDICAL SOLUTIONS INC.
RECENT DEVELOPMENTS
On July 1, 1999, HealthCore Medical Solutions, Inc., a Delaware
corporation, and Adatom, Inc., a privately held California corporation, entered
into an Agreement and Plan of Merger under which Adatom will be merged with and
into HealthCore with HealthCore being the surviving corporation under the name
Adatom.com, Inc. All existing Class A common stock and warrants of HealthCore
will remain outstanding. The Class B common stock of HealthCore will be
eliminated and the Class A common stock of HealthCore will be retitled as common
stock. Adatom stockholders will receive common stock of the surviving
corporation representing approximately 77.5% of the surviving corporation
subject to adjustment in certain circumstances. Consummation of the merger is
subject to a number of conditions including, without limitation, approval of the
merger by the stockholders of HealthCore and Adatom, and sale or liquidation of
the healthcare discount benefits business operated by HealthCore.
To satisfy the condition to consummation of the merger that HealthCore
liquidate or sell its discount healthcare business, on July 28, 1999 HealthCore
sold certain of its assets related to its discount healthcare business to
Randolph & Associates, Inc., a Texas corporation and discontinued the operation
of its healthcare discount benefits business. The assets sold included
membership contracts, network access agreements, broker contracts, a computer
hardware lease, certain other miscellaneous contracts, furniture and fixtures,
software and trade names. Randolph agreed to assume performance of HealthCore's
obligations under the assigned contracts as of August 1, 1999. The purchase
price for the purchase of the assets was $4,090.64 in cash, the assumption of a
computer hardware lease for $45,909.36 and the assumption of HealthCore's
obligations under the other assigned contracts arising on or after August 1,
1999 together with all refund obligations due members requested on or after
August 1, 1999 (regardless of the date(s) to which such refunds relate).
While HealthCore expects to complete the merger in the next several months,
it cannot assure that it will be completed in a timely manner or at all. In the
event the merger is not consummated, HealthCore intends to seek other merger
candidates.
GENERAL
THE FOLLOWING DISCUSSION RELATES TO THE BUSINESS THAT HEALTHCORE HAS
OPERATED SINCE 1995. AS A CONDITION OF THE MERGER, IN JULY 1999 HEALTHCORE SOLD
THIS BUSINESS. APPROVAL OF THE MERGER AGREEMENT CONSTITUTES RATIFICATION OF THE
SALE OF THIS BUSINESS.
HealthCore developed, marketed and administered a benefit services program
designed to enable members to obtain discounts on purchases of medical and
consumer products and services through networks of providers with which
HealthCore has executed provider agreements. HealthCore offered three products:
The HealthCare Solutions card, offering discounts for ancillary medical
services; the Medical Solutions Card, providing discounts on major medical
expenses: and the Saving Solutions Card, offering discounts on ancillary medical
and consumer purchases.
HealthCore's revenues were derived from the receipt of annual or monthly
enrollment fees paid by or on behalf of Members for the right to obtain
discounts from providers in the Networks. HealthCore received a significant
portion of its revenue 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, are recognized in the monthly periods for which
they are billed. Since the initial cost of delivering the cards to the customers
is incurred and expensed in the first month, the gross profit associated with
each new individual card issued was 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 were subject to the same costs of issuance, this twelve-month
pattern of lower gross profits in the first month continued for renewal periods.
40
<PAGE>
In those instances when a sale of HealthCore's discount cards is collected
as a single annual fee, HealthCore recognized 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
commission, provider fees, and an provision for cancellations from potential
guarantee-related refunds, are incurred by HealthCore at the time of sale.
HealthCore incurred 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 was obligated to continue to provide
discounts to all cardholders until the annual card expires, even if the provider
network contract has been terminated. HealthCore also offered a money-back
guarantee to Members who, within ninety days or after twelve months (depending
on the product), are not satisfied with the discount card and HealthCore has
established reserves therefor.
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto appearing elsewhere in this joint
prospectus/proxy statement.
RESULTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1999 COMPARED TO THE NINE MONTHS ENDED JUNE 30,
1998. Operating revenues for the nine months ended June 30, 1999 (the "1999 Nine
Months") increased by approximately 111% from approximately $69,000 for the nine
months ended June 30, 1998 (the "1998 Nine Months") to approximately $146,000.
Operating revenue for the 1999 Nine Months does not include approximately
$42,000 in annual membership fees received that were deferred until after the
expiration of the money back guarantee period. In addition, operating income
does include recognition of approximately $20,000 in revenues that were deferred
from Fiscal Year 1998. The deferred revenue is being deferred as a result of an
SEC position that income cannot be recognized until after the expiration of the
guarantee period and income from annual contracts must be recognized ratably
over the life of the membership. The overall increase in revenue was a result of
increased sales and marketing efforts to promote HealthCore's products. Selling,
general and administrative expenses increased by approximately 8% from
approximately $1,504,000 in the 1998 Nine Months to approximately $1,628,000 in
the 1999 Nine Months. The increase was due primarily to management level
staffing increases in the sales, marketing and customer service departments and
increased program development costs. Interest expense decreased by approximately
82% from approximately $66,000 for the 1998 Nine Months to approximately $12,000
for the 1999 Nine Months due to the completion of the bridge financing in the
1998 Nine Months and the repayment of the notes issues in the bridge financing
in October 1997. Interest income decreased approximately 44% from approximately
$197,000 for the 1998 Nine Months to approximately $111,000 for the 1999 Nine
Months due to decreased investments effected by corporate needs. Other expense
(in addition to the entries made in the 3rd quarter, see above), also included
additional settlement costs related to proprietary software purchase from a
former employee . Net Loss increased 55% from approximately $1,349,000 for the
1998 Nine Months to approximately $2,091,000 for the 1999 Nine Months as a
result of the foregoing factors.
FISCAL YEARS ENDED SEPTEMBER 30, 1997 AND 1998. Revenues of approximately
$84,000 were generated during the fiscal year ended September 30, 1998 compared
to no revenues during the fiscal year ended September 30, 1997. This increase
resulted primarily from the commencement of HealthCore's sales and marketing of
its HealthCare Solution Card following the IPO.
Selling, general and administrative expenses decreased by approximately
12.4% from approximately $2,489,000 in Fiscal 1997 to approximately $2,180,000
in Fiscal 1998 primarily as a result of non-recurring, non-cash charges of
approximately $789,000 relating to the fair market value adjustments of certain
warrants and shares of capital stock issued to two stockholders of HealthCore in
Fiscal 1997. This decrease was partially offset by (i) an increase in
compensation paid as a result of an increase in the number of employees at
HealthCore following the IPO (ii) an increase in sales and marketing expenses to
support growth in provider Networks and customer and sales support and (iii) an
increase in rent expense due to the installation of HealthCore's telephone
system.
Interest expense decreased by approximately 91% from approximately $778,000
in Fiscal 1997 to approximately $71,000 in Fiscal 1998. This decrease was due to
the repayment of certain notes issued in a bridge financing completed in
February and March 1997 and amortization of approximately $610,000 being
41
<PAGE>
recognized in Fiscal 1997. Interest income increased by approximately 912% from
approximately $25,000 in Fiscal 1997 to approximately $253,000 in Fiscal 1998
primarily as a result of the investment of the net proceeds of HealthCore's IPO.
Net loss decreased by approximately 39% from approximately $3,242,000 in
Fiscal 1997 to approximately $1,987,000 in Fiscal 1998 as a result of the
foregoing factors.
LIQUIDITY AND CAPITAL RESOURCES
HealthCore utilizes capital resources primarily for general corporate
purposes and to support anticipated growth. As of June 30, 1999, HealthCore had
working capital of approximately $2,444,000 including cash and cash equivalents
of approximately $2,330,000.
Net cash used in operating activities was approximately $1,437,000 for the
1999 Nine Months compared to approximately $1,756,000 for the 1998 Nine Months.
Net cash used in investing activities was approximately $227,000 for 1999 Nine
Months compared to approximately $82,000 for the 1998 Nine Months. Net cash used
in investing activities includes a Notes Receivable to Adatom that was executed
on April 28th and is payable upon demand 90 days after the termination of the
merger agreement should that agreement be terminated.
Net cash provided by financing activities for the Fiscal 1998 was
approximately $6,376,000. HealthCore realized net proceeds of approximately
$8,748,000 in connection with its IPO which was completed in November 1997 in
which it sold to the public 2,024,000 units at $5.00 per unit (which consisted
of one share of class A common stock and one redeemable class A warrant to
purchase one share of class A common stock at an exercise price of $6.50 at any
time until October 2002), of which approximately $2,300,000 was utilized to
repay the Bridge Notes issued in the Bridge Financing which was completed in
February and March 1997, approximately $104,000 was utilized in repayment of
other notes payables, and approximately $54,000 was used in principal payments
under capital lease obligations.
YEAR 2000 COMPLIANCE
Certain aspects of HealthCore's business, including its customer service
capabilities, HealthCore's ability to timely pay brokers their commissions and
pay network providers their fees, are dependent upon the ability to store,
retrieve, process and manage data and to maintain and upgrade the data
processing system HealthCore currently relies on. Although HealthCore believed
that it had established 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 affected its ability to
attract and retain brokers and networks, which in turn may have negatively
affected its business.
HealthCore commenced review of its computer systems to identify the systems
that could be affected by the "Year 2000" issue and was developing an
implementation plan to resolve the issue. The Year 2000 issue is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of HealthCore's programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. The
Year 2000 issue could arise at any point in HealthCore's processing,
distribution and financial chains and could have resulted in a major system
failure or miscalculations, affected its ability to pay commissions and fees to
its brokers and networks, as well as its ability to review network providers in
a timely manner and on the whole disrupt its business operations.
HealthCore was utilizing internal personnel, contract programmers and
vendors to review its information and operational systems, including the DBIM
System, for purposes of identifying Year 2000 non-compliance problems.
HealthCore had identified two specific areas of risks relating to the Year 2000
problem: internal business systems and software and external noncompliance by
third parties including suppliers of participating providers data, suppliers
requiring information about our eligibility, financial vendors and HealthCore's
members.
Internal Business Systems and Software. HealthCore's systems, including
the DBIM System, were developed utilizing program source code and off-the-shelf
software that was Year 2000 compliant. The total estimated cost of the hardware,
software and installation cost of HealthCore's system, including the DBIM
42
<PAGE>
System, was approximately $600,000, a portion of which was allocated to Year
2000 compliance. All available upgrades for off-the-shelf products (which
include Year 2000 compliance) had been loaded and were in active use.
HealthCore's telephone system vendors indicated Year 2000 compliance including
services relating to long distance, local, 1-800, telephone switch and audix.
External Non-Compliance by Third Parties--Suppliers of Participating
Providers Data. A survey of all suppliers of participating providers data was
begun and was 90% completed. Of the suppliers who had responded to our survey,
all have indicated that they are Year 2000 compliant.
External Non-Compliance by Third Parties--Suppliers Requiring Information
About Eligibility. A survey of all suppliers requiring information about
HealthCore's eligibility was conducted with an 85% response rate. Two pharmacy
benefits management suppliers with whom HealthCore had contracts have indicated
that they are Year 2000 compliant. To the extent that HealthCore determined that
any of its suppliers' responses to the Year 2000 issue was unsatisfactory, it
considered alternate sources of suppliers.
External Non-Compliance by Third Parties--Financial Vendors. Financial
vendors such as HealthCore's merchant bank and credit card processor have not
yet been surveyed. HealthCore expected that such surveys would be conducted no
later than the first quarter of 1999. To the extent that HealthCore's financial
vendors were not Year 2000 compliant, HealthCore would have considered alternate
sources of financial vendors who were Year 2000 compliant.
External Noncompliance by Third Parties--Sponsors. HealthCore did not
currently have any formal information about the status of its sponsors and the
Year 2000 issue. HealthCore received indications that most of its sponsors were
in the process of becoming Year 2000 compliant.
Through September 30, 1998, HealthCore incurred costs of approximately
$600,000 to update HealthCore's systems, a portion of which was allocated to
Year 2000 compliance. In addition, HealthCore incurred additional costs in
connection with HealthCore's review of internal and external systems compliance,
none of which was material.
The impact of the Year 2000 problem on HealthCore's business as presented
was based on the management's best estimates at the time. Such estimates were
based on the results of HealthCore's internal review of its information and
operational systems and formal surveys received from third parties to date. The
estimates were made using assumptions of future events including the continued
availability of certain resources, Year 2000 modification plans, implementation
success by key third-parties, and other factors.
Release of Escrow Shares. In connection with the IPO, the pre-IPO
stockholders of HealthCore placed, on a pro rata basis, a portion of their
shares into escrow pending HealthCore'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 HealthCore, the release will be treated, for financial reporting
purposes, as compensation expense to HealthCore. Accordingly, in the event of
the release of the Escrow Shares, HealthCore 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
HealthCore's loss or reduce or eliminate earnings, if any, at such time. The
amount of compensation expense recognized by HealthCore will not affect
HealthCore's total stockholders' equity. In addition, a portion of the warrants
issued to Neal J. Polan will become exercisable only upon the attainment by
HealthCore of certain earnings or market price thresholds. In the event that
such warrants become exercisable, HealthCore will recognize during the period in
which the earnings thresholds are probable of being met or such stock levels
achieved, an additional non-cash charge to earnings equal to the fair market
value of the portion of the warrants subject to such earnings or market price
thresholds, which could have the effect of significantly increasing HealthCore's
loss or reducing or eliminating earnings, if any, at such time.
43
<PAGE>
ADATOM, INC.
SELECTED FINANCIAL DATA
(in thousands, except per share amounts)
The information below has been derived from the audited financial
statements of Adatom Inc. as of and for its fiscal years ended December 31, 1998
and 1997 and the unaudited financial statements for the six-months ended June
30, 1999 and June 30, 1998. The financial data for the six-month periods ended
June 30, 1999 and 1998 reflect all adjustments necessary for a fair presentation
of the results for these periods. You should not expect the results for the
six-month periods to be an indication of the results to be expected for the full
year or any other interim period. This information is only a summary and should
be read in conjunction with Adatom Inc.'s historical financial statements (and
related notes) included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------------------------------- ------------------
1999 1998 1998 1997
---------------- ---------------- ------- ------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues..................................................... $ 261 $ 207 $ 290 $ 244
Cost of revenue.............................................. (237) (177) (243) (129)
Research and Development..................................... (279) (188) (405) (296)
Selling, general and administrative expenses................. (628) (402) (915) (451)
Operating loss............................................... (883) (560) (1,273) (632)
Other income/expense, net.................................... 6 230 118 (20)
Loss before provision for income taxes....................... (877) (330) (1,155) (652)
Provision for income tax..................................... (1) (1) (1) (1)
Net loss..................................................... $ (878) $ (331) $(1,156) $ (653)
-------- ------ ------- ------
-------- ------ ------- ------
Net basic and diluted loss per share:........................ $ (0.37) $(0.14) $ (0.48) $(0.27)
-------- ------ ------- ------
BALANCE SHEET DATA:
Working capital (deficit).................................... $ (822) $ 45 $ (239) $ (36)
Total assets................................................. 185 408 251 328
Long-term debt, net of current portion....................... 1,801 1,056 1,514 630
Stockholders' equity (deficit)............................... $ (2,501) $ (805) $(1,622) $ (474)
</TABLE>
44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF ADATOM, INC.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1998 and 1999.
Revenues of approximately $261,000 were generated during the six months
ended June 30, 1999, compared to revenues of approximately $207,000 during the
six months ended June 30, 1998. The quarter ended June 30, 1999 is the third
quarter in which Adatom's website was established and functioning. Revenues in
the corresponding 1998 period were generated predominantly by inbound telephonic
contact by customers.
Research and development expenses increased from approximately $188,000 in
the period ended June 30, 1998 to approximately $279,000 in the period ended
June 30, 1999, principally due to the ongoing development efforts related to
Adatom's website and to the systems and software development effort to automate
its order submission and status tracking capabilities with the various
manufacturers. These costs were predominantly in the nature of fees paid to
outside software developers and website designers.
Selling, general, and administrative expenses increased from approximately
$402,000 in the six month period ended June 30, 1998 to approximately $628,000
in the six month period ended June 30, 1999, principally due to the increase in
advertising expenses (which during the six-month period ended June 30, 1999
consisted almost exclusively of fees paid to organizations with internet sites
which provided Adatom with space on the site or a link to Adatom's website). In
addition salaries and legal fees increased by approximately $102,000 from
$175,000 for the six months ended June 30, 1998 to $277,000 for the six months
ended June 30, 1999.
Net loss increased approximately 165% from approximately $331,000 in the
six months ended June 30, 1998, to approximately $878,000 in the six months
ended June 30, 1999, primarily due to the absence of $250,000 nonrecurring other
income in 1999 as there had been in 1998 and expenses increasing faster than
revenue..
Fiscal Years Ended December 31, 1997 and 1998.
In 1997, approximately 50% of Adatom's total revenue of approximately
$244,000 was derived from the sale of franchise rights. Adatom's business plan
at that time identified franchisees as principal points of contact with
prospective customers, and in pursuing that strategy, Adatom sold eight
franchises in 1997. Substantially all of the purchase price for the franchises
was financed by Adatom under 60-month, 9%, unsecured notes. The balance of
Adatom's revenue in 1997 was derived from "direct sales" to customers who
contacted Adatom via its toll-free telephone number. Adatom had established
relationships with several manufacturers of consumer products, and fulfilled
customer orders by placing its own order with the manufacturer and arranging for
direct shipment of the product to the customer. Customers paid for their orders
via credit card and the direct shipment of goods directly to the customer from
the manufacturer for the vast majority of sales eliminated the need for Adatom
to carry significant inventory.
Although total revenue in 1998 increased by nearly 19% over 1997, the mix
of revenue shifted almost exclusively to direct sales to customers, since the
franchise concept was terminated by Adatom. Adatom's business plan evolved
through the year to one that was based on retailing via the Internet.
Internet-generated sales commenced in the fourth quarter of 1998 and are
estimated to account for less than $40,000 of Adatom's annual revenue for 1998.
Direct sales to customers from both inbound telephonic inquiries and from
Internet-generated contacts accounted for approximately $285,000 of the $290,000
in total revenue for 1998.
The research and development effort undertaken by Adatom in 1997 was
principally directed at establishing the computer-based order entry/tracking
function and its interface to the financial reporting function. Costs were also
incurred initially to support the franchisee network, by enabling dial-up order
download from the remote franchisee locations. This development effort included
both the customization of "off-the-shelf" software and the creation of new
software for the desired functions and interface capabilities.
45
<PAGE>
With the shift in the strategic direction of Adatom undertaken in 1998,
research and development expenses increased by approximately 37% over 1997, due
principally to the costs incurred in the development of Adatom's Internet site.
These costs were predominantly in the nature of fees paid to outside software
developers and web-site designers. Additionally, having focused its efforts in
1997 at the customer order end of the shopping process, Adatom began to address
the need to automate its order submission and status tracking capabilities with
the various manufacturers. This effort continues in 1999. By the fourth quarter
of 1998, the website development effort had been completed to the point that
some revenues were being generated from it. Maintenance of the website, however,
is a constant operational need and is an ongoing source of significant expense
by Adatom.
Selling, general and administrative expenses increased approximately 103%
in 1998 to approximately $915,000 from $451,000. Principal reasons for this
increase include the increase in salary expense of approximately $110,000 due to
the addition of several personnel throughout the year, and the increase in
advertising expense of approximately $140,000 mainly due to development,
production, and mailing costs of the brochure which was mass-mailed to several
thousand prospective customers.
In 1998, Adatom earned $250,000 from a technology-sharing license agreement
under which Adatom licensed the use of its technology to one of its vendors.
Additionally, in 1998 Adatom terminated the franchise portion of its business
and offered to cancel the remaining balance of notes receivable due from
franchisee. As a result of this termination, Adatom took a charge of
approximately $79,000 for the write-off of the notes.
Interest expense increased approximately 165% from approximately $20,000 in
1997 to $53,000 in 1998 primarily as a result of increased loans from the
principal shareholder.
Net loss increased approximately 77% from approximately $653,000 in 1997 to
approximately $1,156,000 in 1998 as a result of spending for research and
development expenses and for selling, general and administrative expenses
increasing at significantly greater amounts than did revenues.
LIQUIDITY AND CAPITAL RESOURCES
Adatom utilizes capital primarily for research and development, for general
corporate purposes and to support anticipated growth. At December 31, 1998 and
June 30, 1999, Adatom had negative working capital of approximately $239,000 and
$822,000 respectively. Net cash used in operating activities for 1998 was
approximately $831,000. Adatom estimates the ongoing maintenance, operations and
development costs for its website will be approximately $2.5 million in the
fiscal year 2000 and anticipates that these costs will increase in the future.
In addition, Adatom estimates that planned enhancements to its website and
back-end capabilities required over the next 16 months will cost approximately
$1.4 million. Although no commitments exist requiring the expenditure of these
amounts, Adatom expects to pursue these efforts through 1999 and 2000.
To date, Adatom has funded its cash needs almost exclusively by loans from
Richard Barton, its majority shareholder. These loans have an outstanding
balance of approximately $1,800,000. In connection with the merger, it is
anticipated that these loans will be converted to equity. Mr. Barton does not
intend to make further loans to Adatom.
In April 1999, after execution of the letter of intent with HealthCore
relating to the merger, HealthCore loaned Adatom $250,000. This loan was used
for working capital purposes and will be discharged as part of the merger. In
early July, Jesup & Lamont Acquisition Corporation loaned Adatom $500,000. The
note signed by Adatom for this loan provided that it will convert immediately
prior to the merger into the number of shares of Adatom common stock equal to
4.74% of the outstanding common stock of Adatom. This loan was used for working
capital purposes. In connection with this loan, Jesup & Lamont Securities
Corporation received a warrant from Adatom for approximately 23,315 shares of
Adatom common stock at an exercise price of $2.14 per share. In late August and
early September, Richard Barton loaned Adatom an aggregate principal amount of
$250,000, which will be repaid within 60 days. The interest rate on these loans
is 6%. The proceeds of both the $500,000 and $250,000 loans have been exhausted
by Adatom and Jesup is currently attempting to raise an additional $500,000 of
working capital for Adatom. It is anticipated that this additional working
capital will be combined with the prior loan into a $1,000,000 convertible note
that would convert immediately prior to the merger into the number of shares of
Adatom equal to 9.48% of the outstanding stock of Adatom (and which, at the
assumed exchange ratio in the merger prior to the adjustment, will equal
approximately 7.35% of the post-merger stock of HealthCore). It is anticipated
that these funds will be exhausted by the closing of the merger).
46
<PAGE>
After the merger, Adatom will have approximately $2 million of cash and
cash equivalents currently held by HealthCore and will use this money for
general corporate purposes. Adatom also intends to raise at least $5.5 million
in new equity during the fourth quarter of 1999, which will dilute all
stockholders. However, no assurance can be given that Adatom will be successful
in raising this capital and, if it is not, the business of Adatom will be
materially and adversely affected.
Adatom has been unable to obtain bank financing to fund its business and is
therefore dependent on internal cash flow and the ability to raise equity. Under
its current business plan, the cash and cash equivalents of HealthCore available
to Adatom after the merger will provide funds for Adatom for approximately two
months and the cash and cash equivalents combined with the proposed $5 million
equity infusion will provide funds for Adatom for approximately six months.
Adatom estimates that its total cash requirements between the date hereof and
December 31, 2000 will be approximately $16 million.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs using only the last
two digits to indicate the year. If uncorrected, such computer programs will not
be able to interpret dates correctly beyond the year 1999 and, in some cases
prior to that time (as some computer experts believe), which could cause
computer system failures or other computer errors disrupting business
operations. Recognizing the potentially severe consequences of the failure to be
Year 2000-compliant, Adatom has begun to review its hardware and software
systems in order to identify and remedy the Year 2000 issues.
The scope of Adatom's Year 2000 readiness program includes the review and
evaluation of (i) Adatom's technology ("IT") such as hardware and software
utilized in the operation of the company's business and (ii) Adatom's non-IT
systems or embedded technology such as microcontrollers contained in various
equipment and facilities. If needed modifications and conversions are not made
on a timely basis, the Year 2000 issue could have a material adverse effect on
Adatom's operations.
Adatom is currently conducting a review of its hardware and software
systems in an effort to ensure Year 2000 compliance. Adatom's hardware systems
and some software systems were acquired from reliable third party vendors and
Adatom will attempt to verify that these products are certified to be Year
2000-compliant, and will also attempt to verify that its internally developed
software is Year 2000-compliant. Remediation of these systems is expected to be
completed by November 1999 except for Adatom's general corporate systems,
consisting principally of its accounting system, which are already Year
2000-compliant.
Adatom has not contacted key suppliers, vendors and customers to assess
their Year 2000 readiness. If third parties do not convert their systems in a
timely manner and in a way compatible with Adatom's systems, the arrival of the
Year 2000 could have an adverse effect on the company's operations.
Adatom has not yet developed a contingency plan specifying what the company
will do if it or important third parties are not Year 2000-compliant by the
required dates, although it expects to begin development of such a plan shortly.
Adatom anticipates that any contingency plan developed will be based almost
exclusively on manual back-up systems, procedures and practices. The contingency
plan is estimated to be completed by November 1999.
Through July 1999, Adatom estimates that incremental costs of approximately
$20,000 have been incurred and expensed related to Year 2000 issues. Since many
systems are being modified to provide significant enhanced capabilities, the
Year 2000 expenses have not been and are not planned to be specifically tracked.
The current estimated cost to complete remediation is expected to be less than
$50,000. Adatom expects that a portion of these costs will be capitalized, as
they are principally related to adding functionality. Other costs will continue
to be expensed as incurred.
Adatom's current estimates of the amount of time and costs necessary to
remediate and test its computer systems are based on the facts and circumstances
existing at this time. The estimates were made using assumptions of future
events including the continued availability of existing resources, Year 2000
modification plans, implementation success by third-parties, and other factors.
New developments may occur that could affect Adatom's estimates of the amount of
time and costs necessary to modify and test its IT and non-IT systems for Year
2000 compliance. These developments include, but are not limited to: (i) the
availability and cost of personnel trained in this area, (ii) the ability to
locate and correct all relevant computer codes and equipment and (iii) the
planning and Year 2000 compliance success that key suppliers, vendors and
customers attain.
47
<PAGE>
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements give
effect to the proposed merger of HealthCore and Adatom pursuant to the merger
agreement.
The unaudited pro forma condensed financial statements are based on the
respective historical financial statements and notes thereto of HealthCore and
Adatom. The unaudited pro forma condensed combined balance sheet assumes that
the merger took place on June 30, 1999 and combines HealthCore's and Adatom's
June 30, 1999 balance sheets. The unaudited pro forma condensed statements of
operations assume that the merger took place as of the beginning of the periods
presented and combines HealthCore's statements of operations for the six months
ended March 31, 1999 and the fiscal year ended September 30, 1998 with Adatom's
statements of operations for the six months ended June 30, 1999 and the calendar
year ended December 31, 1998, respectively.
The merger will be treated as a recapitalization for accounting purposes.
In a recapitalization of this type, HealthCore's retained deficit is permanently
eliminated, its permanent capital is reduced by the amount of its former
retained deficit and its assets and liabilities are revalued at fair market
value. Although HealthCore will be the surviving corporate entity, Adatom's
current stockholders will own approximately 77.5% of the merged entity. The
unaudited pro forma condensed combined financial statements have been prepared
on the basis of assumptions described in the notes thereto. In the opinion of
HealthCore and Adatom, all adjustments necessary to present fairly the unaudited
pro forma condensed combined financial statements have been made based on the
proposed terms and structure of the merger.
The pro forma adjustments have been made solely for purposes of developing
such pro forma information for illustrative purposes necessary to comply with
the disclosure requirements and is not necessarily indicative of the operating
results or financial position that would have occurred if the merger had been
consummated on the dates indicated, nor is it necessarily indicative of future
operating results or financial position.
These unaudited pro forma condensed financial statements should be read in
conjunction with the historical financial statements and the related notes
thereto of HealthCore and Adatom which are included herein and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
48
<PAGE>
HEALTHCORE AND ADATOM
Unaudited Pro forma Condensed Balance Sheet
($ in thousands)
<TABLE>
<CAPTION>
HEALTHCORE ADATOM PRO FORMA PRO FORMA
JUNE 30, 1999 JUNE 30, 1999 ADJUSTMENTS COMBINED
-------------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
Cash and cash equivalents $2,331 $ 4 (A)
(300)(B)
(150)(C)
(90)(D)
287 (F)
(150)(I)
250 (J)
500 (K)
(235 )(L) $ 2,447
Accounts receivable, net 28 28
Inventories 13 13
Notes receivable--current 250 3 (250)(M) 3
Prepaid expenses and other assets 176 19 (176)(A) 19
------ ------ -------
Total current assets 2,757 63 2,510
Fixed assets, net 147 103 (137)(A) 113
Notes receivable--non current 7 7
Other assets 3 12 (3)(A) 12
------ ------ -------
TOTAL ASSETS $2,907 $ 185 2,642
------ ------ -------
------ ------ -------
Accounts payable and accrued expenses $ 169 $ 558 (169)(L) $ 558
Deferred income 42 (42)(A)
Capital leases payable--current 36 (36)(A)
Deferred business disposal costs 66 (66)(L)
Notes and lease payable--current 268 (250)(M) 18
Notes payable to shareholder 250 (J) 250
Other current liabilities 59 59
------ ------ -------
Total current liabilities 313 885 885
Note payable to shareholder 1,800 (1,800)(H)
Notes and leases payable--non current 1 1
------ ------ -------
Total liabilities 313 2,686 886
Common stock 34* 345**
4 (C)
1 (D)
3 (F)
(300)(G)
39 (H)
7 (I)
1 (J)
5 (K) 138
Additional paid in capital 11,208 (300)(B)
753 (C)
199 (D)
360 (E)
284 (F)
(8,580)(G)
7,149 (H)
(157)(I)
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
HEALTHCORE ADATOM PRO FORMA PRO FORMA
JUNE 30, 1999 JUNE 30, 1999 ADJUSTMENTS COMBINED
------ ------ ------- -------
95 (J)
<S> <C> <C> <C> <C>
1,110 (K) 12,024
Note receivable from stockholder (25) (25)
(Deficit) (8,646) (2,821)
(234)(A)
(907)(C)
(290)(D)
(360)(E)
8,880 (G)
(5,388)(H)
(615)(K) (10,381)
------ ------ -------
Total stockholders' equity (deficit) 2,594 (2,501) 1,756
------ ------ -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,907 $ 185 $ 2,642
------ ------ -------
------ ------ -------
</TABLE>
<TABLE>
<S> <C> <C>
* Includes HealthCore's Class A and Class B common stock
** No par value common stock
(A) Reflects the disposal of certain HealthCore's assets, liabilities and operations for $4.
(B) Reflects estimated merger related costs of $300.
(C) Reflects a) 350,000 shares issuable to HealthCore's Chairman and principal stockholder
pursuant to Adatom employment agreement $700
b) 28,400 shares issuable on cancellation of 142,000 warrants. 57
c) Severance payment pursuant to employment agreement 150
-------
$907
-------
(D) Reflects, net, estimated severance payment of $100 and value and proceeds from assumed exercise of an option
for 100,000 shares granted pursuant to severance agreement.
(E) Reflects charge for shares released from escrow.
(F) Reflects exercise of outstanding options and warrants.
(G) Reflects the elimination of HealthCore's cumulative deficit and adjustments to the stockholders' equity
accounts pursuant to accounting for the merger as a recapitalization.
(H) Reflects a) sale of Adatom's 1,800,000 shares of common stock to Adatom's Chairman and principal stockholder
including related compensation charge on bargain purchase on an as converted basis, and b) repayment of notes
payable and accrued interest to Adatom's Chairman and principal stockholder of $1,800.
(I) Reflects brokerage fees paid of approximately $150 in cash and the issuance of 317,389 Adatom shares, on an
as converted basis.
(J) Reflects loans received from Adatom's chairman and principal stockholder subsequent to June 30, 1999.
(K) Reflects proceeds and assumed exercise of Bridge financing received subsequent to June 30, 1999.
(L) Reflects payment of HealthCore's payables.
(M) Reflects elimination of intercompany note receivable/payable.
</TABLE>
50
<PAGE>
HEALTHCORE AND ADATOM
Unaudited Pro forma Condensed Statement of Operations
($ in thousands except per share data)
<TABLE>
<CAPTION>
ADATOM
HEALTHCORE SIX MONTHS
SIX MONTHS ENDED
ENDED JUNE 30, PRO FORMA PRO FORMA
MARCH 31, 1999 1999 ADJUSTMENTS COMBINED
-------------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenue:
Membership revenue $ 85 $ (85)(N)
Product revenue $ 261 $ 261
-------- ------ -------
85 261 261
-------- ------ -------
Cost of revenue 66 237 (66)(N) 237
Research and development 279 279
Selling, general and administrative 1,213 628 (1,113)(N)
150 (O) 878
-------- ------ -------
1,279 1,144 1,394
-------- ------ -------
Loss from operations (1,194) (883) (1,133)
Interest income and other income 82 39 121
Interest (expense) (8) (33) (41)
Other (expense) (42) (42)
Income tax (provision) (1) (1)
-------- ------ -------
Net loss $ (1,162) $ (878) $(1,096)
-------- ------ -------
-------- ------ -------
Loss per share--basic and diluted $ (0.50) $(0.17) $ (0.08)
-------- ------ -------
-------- ------ -------
Weighted average shares outstanding
2,334 5,193 @ 13,793
-------- ------ -------
</TABLE>
@ converted to reflect the revised number of shares
(N) Reflects elimination of HealthCore's operating income and expenses
(O) Reflects compensation to Chairman pursuant to employment agreement
51
<PAGE>
HEALTHCORE AND ADATOM
Unaudited Pro forma Condensed Statement of Operations
($ in thousands except per share data)
<TABLE>
<CAPTION>
HEALTHCORE ADATOM
YEAR ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, PRO FORMA PRO FORMA
1998 1998 ADJUSTMENTS COMBINED
------------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenue:
Membership revenue $ 84 $ (84)(P)
Product revenue $ 285 $ 285
Franchise fees 5 5
------- -------- -------
84 290 290
------- -------- -------
Cost of revenue 73 243 (73)(P) 243
Research and development 405 405
Selling, general and administrative 2,180 915 (1,980)(P)
300 (Q) 1,415
------- -------- -------
2,253 1,563 2,063
------- -------- -------
Loss from operations (2,169) (1,273) (1,773)
Interest income and other income 253 250 503
Interest (expense) (71) (53) (124)
Other (expense) (79) (79)
Income tax (provision) (1) (1)
------- -------- -------
Net loss $(1,987) $ (1,156) $(1,474)
------- -------- -------
------- -------- -------
Loss per share--basic and diluted $ (0.89) $ (0.22) $ (0.11)
------- -------- -------
------- -------- -------
Weighted average shares outstanding 2,220 5,193 @ 13,793
------- -------- -------
------- -------- -------
</TABLE>
@ converted to reflect the revised number of shares
(P) Reflects elimination of HealthCore's operating income and expenses
(Q) Reflects compensation to Chairman pursuant to employment agreement
52
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
NOTE 1
The unaudited pro forma condensed balance sheet of HealthCore and Adatom
has been prepared as if the merger was completed as of June 30, 1999. The merger
will be accounted for as a recapitalization as Adatom's current stockholders
will own approximately 77.5% of the merged entity. Notwithstanding, HealthCore
will be the surviving corporate entity. Pursuant to terms of the merger, each
Adatom common share will be exchanged for approximately 2.17 shares of
HealthCore's common share.
NOTE 2
The unaudited pro forma condensed statements of operations of HealthCore
and Adatom have been prepared as if the merger was completed as of January 1,
1998 and January 1, 1999, respectively. The condensed statements of operations
reflects adjustments related to the sale of HealthCore's operations and reflects
compensation to the Chairman pursuant to an employment agreement. Non-recurring
charges are not reflected in the pro forma condensed statements of operations.
NOTE 3
Pro forma net loss per share--basic and diluted, for the six month periods
ended June 30, 1999 and the year ended December 31, 1998 is computed using the
historical weighted average number of HealthCore's common stock outstanding plus
the number of shares issuable to Adatom's stockholders pursuant to the merger.
Potential common shares are not included, (except where in the money conversion
is assumed) as their effect would be antidilutive.
All pro forma adjustments regarding potential common shares and share
issuances have been reflected as outstanding for the presentation of loss per
share as if outstanding from the beginning of the periods presented.
53
<PAGE>
COMPARATIVE DATA
The following tables set forth certain data for HealthCore on a historical
basis, Adatom, on an adjusted historical basis, HealthCore and Adatom on a
supplemental pro forma combined basis and on a per share equivalent pro forma
basis for Adatom. The supplemental unaudited pro forma combined and equivalent
financial data do not reflect any cost savings or other synergies anticipated by
HealthCore or Adatom management as a result of the merger. You should not rely
on the pro forma information as being indicative of the historical results the
combined companies would have had or the results that they will experience in
the future. The following information should be read in conjunction with the
unaudited pro forma financial data of HealthCore and Adatom and the historical
financial statements included elsewhere herein. See "Unaudited Pro Forma
Condensed Combined Financial Statements."
<TABLE>
<CAPTION>
YEAR ENDED(1),(2)
------------------------------------ SIX MONTHS
1996 1997 1998 ENDED(1),(2)
------- ------- ------------ ------------
<S> <C> <C> <C> <C>
HEALTHCORE-HISTORICAL(1)
Net loss............................................. $(1,124) $(3,242) $ (1,987) $ (1,162)
Basic and Diluted Net loss per common share.......... $ (3.95) $(12.07) $ (0.89) $ (0.50)
Book value per basic common share.................... $ (0.09) $ (1.80) $ 1.31 $ 0.96
ADATOM--HISTORICAL ADJUSTED(2)
Net loss............................................. $ (1,156) $ (878)
Basic and Diluted.................................. (0.48) (0.37)
Cash dividends declared per common share............. -- --
Book value per basic common share.................... $ (0.68) $ (1.05)
PRO FORMA COMBINED(4)
HealthCore Adjusted Net loss(5)...................... $ (200) $ (68)
Adatom Historical Net loss........................... (1,156) (878)
Pro Forma Combined Net loss.......................... (1,474) (1,096)
Basic and Diluted pro forma net loss
per common share................................... (0.11) (0.08)
HealthCore historical book value..................... $ 4,233 $ 3,098
Adatom historical book value(6)...................... (1,622) (2,501)
Pro Forma combined book value........................ 2,823 1,756
Book value per common share.......................... $ 0.20 0.13
Total Post Merger shares outstanding(7).............. 13,792,889 13,792,889
</TABLE>
(1) HealthCore: (i) fiscal year ending September 30, 1998; (ii) six months ended
March 31, 1999.
(2) Adatom: (i) fiscal year ending December 31, 1998; (ii) six months ended
June 30, 1999.
(3) Assumes an exchange ratio of 2.173 shares of HealthCore common stock for
each share of Adatom, subject to adjustment as herein described.
(4) Pro Forma Combined: (i) Matches HealthCore fiscal year ending September 30,
1998 with Adatom fiscal year ending December 31, 1998; (ii) Matches
HealthCore first six months ended March 31, 1999 with Adatom first six
months ending June 30, 1999.
(5) Assumes the costs included in HealthCore Net Income (loss) consist solely of
those costs associated with maintaining a publicly traded shell corporation
and includes the SEC related expenses, D&O Insurance, Investor Relations
and Legal.
(6) The current Adatom book value will be increased by approximately $1,800,000
prior to the close of merger due to the capitalization of a shareholder's
loan(s).
(7) Assumes 2,707,400 shares for HealthCore shareholders and 396,000 shares
payable upon exercise of options at an exercise price of no greater than
$1.25 per share plus 10,689,489 shares for Adatom shareholders, subject to
adjustment as herein described. Does not include warrants to purchase
200,000 shares of HealthCore common stock at $1.00 per share to be issued to
Jesup & Lamont securities or outstanding warrants to purchase an aggregate
of 3,590,500 HealthCore common stock at a weighted average price of $6.45
per share.
54
<PAGE>
INFORMATION CONCERNING
HEALTHCORE MEDICAL SOLUTIONS INC.
GENERAL
THE FOLLOWING DISCUSSION RELATES TO THE BUSINESS THAT HEALTHCORE HAS BEEN
OPERATING SINCE 1995. AS A CONDITION OF THE MERGER, HEALTHCORE SOLD THIS
BUSINESS AND, AT THE TIME OF THE MERGER, WILL COMMENCE OPERATIONS OF ADATOM'S
INTERNET RETAILING BUSINESS. APPROVAL OF THE MERGER AGREEMENT CONSTITUTES
RATIFICATION OF THE SALE OF THIS BUSINESS.
HealthCore marketed and administered a health care benefit services program
which was designed to enable participants to obtain discounts on purchases of
health care products and services through certain networks of health care
providers. For an annual fee of approximately $55 to $100, individuals could
join HealthCore's card membership program and use their HealthCare Solutions
Card to receive discounts of up to 5% to 60% off the retail price of health care
services and products including retail and mail-order eye care, pharmaceutical
and durable medical equipment, retail dental, hearing, physical and occupational
therapy and chiropractic, and retail mail-order vitamins and supplements. In
addition to the HealthCare Solutions Card, HealthCore began marketing two new
products: the Savings Solutions Card, which was customized for an organization
to offer discounted ancillary health care services as well as non-medical
consumer products to certain subscribers in the New York metropolitan area, and
the Medical Solutions Card, which provided nationwide discounts to enrollees for
hospital and physician services. As of December 29, 1998, HealthCore had
contracts with approximately 40 different networks which consisted of
approximately 450,000 participating providers.
HealthCore's target market included uninsured individuals who, whether
because of their medical history, age or occupation, either did not have
insurance or had limited insurance coverage but who seek to access health care
products and services at discounted costs. Acceptance into HealthCore's
membership programs was unrestricted, and HealthCore's membership card products
were used by any member of the cardholder's household. HealthCore primarily used
brokers, insurance agents and consumer marketing organizations to sell its
maintenance organizations and other organizations or sponsors who purchase
HealthCore's products for their employees or members.
HealthCore was established in October 1995 as MegaVision L.C., a Missouri
limited liability company. In February 1997, MegaVision merged into HealthCore
Medical Solutions, Inc. Except as otherwise required by the context, all
references to HealthCore and its operations include MegaVision and its
operations. HealthCore's executive offices were located at 11904 Blue Ridge
Boulevard, Grandview, Missouri 64030 and its telephone number was (816)
763-4900.
PRODUCTS
The HealthCare Solutions Card. The HealthCare Solutions Card enabled
members to obtain discounts of approximately 5% to 50% on purchases of ancillary
health care products and services through certain networks of providers.
For an annual fee of approximately $55 to $100, members had access to
participating providers, and automatically received a discount at the
point-of-purchase upon presentation of the HealthCare Solutions Card. HealthCore
entered into non-exclusive agreements with national networks of eye care service
providers, dental service providers, pharmaceutical providers, a hearing service
provider, a national network of chiropractic service providers, a national
network of providers of durable medical equipment and providers of mail-order
vitamins and supplements, pharmacy and eye care to participate in HealthCore's
networks. The networks with which HealthCore has contracted were generally
created to provide individuals with access to health care products and services
at reduced costs and to provide such individuals with broader geographical
access to such providers. Pursuant to agreements entered into between the
networks and the providers, the providers agreed to provide health care services
to members of the networks at reduced costs and, in exchange, providers are
given access to additional patients and additional sources of revenue.
55
<PAGE>
HealthCore's agreements with its networks were generally for a term of one
to three years and provided 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 three years)
upon 60 to 90 days prior written notice. The agreements also provided that upon
termination of an agreement for any reason, HealthCore and the Providers
participating in such networks would continue to provide services to members,
for the term of their enrollment, if they purchased the HealthCare Solutions
Card for access to such Provider's network prior to such termination. In
addition, under certain agreements, HealthCore paid a stipulated access fee per
member per year to the representative network in exchange for access by members
to such networks. In the case of HealthCore's agreement with one of its
pharmaceutical networks, HealthCore also received a stipulated commission from
such network for each prescription ordered by a member.
Eye Care Services. HealthCore's networks included 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. Pursuant to
non-exclusive agreements with several national networks of eye care providers,
as of December 28, 1998, the Eye Care Plan was comprised of an aggregate of
approximately 16,000 opticians, optometrists and ophthalmologists located
throughout the United States. Under the Eye Care Plan, members were entitled to
receive eye care services and products, at a pre-determined discount off the
usual and customary amounts charged by the providers. Members were also eligible
to receive a discount on radial keratonomy surgical procedures, a surgical
procedure designed to correct nearsightedness and which was typically not
covered by traditional health care insurance. In addition, members could
purchase contact lenses and non-prescription eyeglasses by mail.
Pursuant to HealthCore's contracts with its Eye Care Plan networks,
providers agreed to provide eye care services and products to members in
HealthCore's Eye Care Plan at discounts ranging from 5% to 30% off retail prices
and discounts ranging from 20% to 60% off retail prices for mail-order contacts
and non-prescription eyeglasses. Such services and products were provided by
opticians, optometrists and ophthalmologists working at vision care centers
managed and administered by the Eye Care Plan networks. The Eye Care Plan
networks were expected to solicit and contract with additional providers to
participate in the eye care segment of HealthCore's networks and agreed to
continue to manage and provide administrative services to providers in their
respective network.
Dental Services. HealthCore's networks included dental services and
products designed to provide savings to members by reducing the cost of dental
examinations and products. Pursuant to non-exclusive agreements with several
national networks of dental service providers, as of December 28, 1998, the
Dental Plan was comprised of an aggregate of approximately 20,000 dentists
located throughout the United States. Under the Dental Plan, members were
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.
Pursuant to HealthCore's contracts with its Dental Plan networks, providers
agreed to provide dental services and products to members in the Dental Plan at
discounts of up to 40% off usual and customary prices. Members in the Dental
Plan had access to networks of dentists throughout the United States, and as
HealthCore expanded the Dental Plan, the Dental Plan networks agreed to solicit
and contract with additional dental providers to participate in the networks.
The Dental Plan networks agreed to continue to manage and provide administrative
services to providers in their respective network.
Pharmaceutical Plans. HealthCore's networks included a retail
pharmaceutical plan and a mail-order pharmaceutical plan. Pursuant to
non-exclusive agreements with several networks of national pharmacy chains, as
of December 28, 1998, the Retail Pharmaceutical Plan was comprised of
approximately 44,000 pharmacies throughout the United States.
Members enrolling in the Retail Pharmaceutical Plan were able to obtain
discounts of up to 50%. Members enrolling in the Mail-Order Pharmaceutical Plan
were able to obtain discounts of up to 60%. HealthCore also receives a small
commission from one of its Mail-Order Pharmaceutical networks for each
prescription order filled by such network, which to date generated only minimum
commissions.
56
<PAGE>
Hearing Services. HealthCore's networks included hearing services and
products designed to provide savings to members by reducing the cost of hearing
examinations and products. Pursuant to agreements with two national networks of
hearing products and service providers, as of December 28, 1998, the Hearing
Plan was comprised of an aggregate of approximately 2,000 retail locations
throughout the United States. Under the Hearing Plan, members were entitled to
receive hearing services and products, including routine check-ups and hearing
aid products and accessory products, at a pre-determined discount off the usual
and customary amount charged by the providers.
Pursuant to HealthCore's contracts with its Hearing Plan networks, the
providers agreed to provide hearing examinations and certain other services at
no cost to members in the Hearing Plan and hearing aid products and accessory
purchases at discounts of 15% to 20% off retail prices. Members in the Hearing
Plan had access to participating providers throughout the United States, and as
HealthCore expanded the Hearing Plan, the Hearing Plan networks agreed to
solicit and contract with additional providers to participate in the networks.
The Hearing Plan networks agreed to continue to manage and provide
administrative services to providers in their respective network.
Chiropractic Services. HealthCore's networks included chiropractic services
designed to provide savings to members by reducing the cost of chiropractic
examinations and related services. Pursuant to agreements with national networks
of chiropractic service providers, as of December 28, 1998, the Chiropractic
Plan was comprised of an aggregate of approximately 5,000 providers throughout
the United States. Under the Chiropractic Plan, members were entitled to receive
chiropractic services, many of which HealthCore believed were not covered by
traditional healthcare insurance, including chiropractic examinations and
related services, at a pre-determined discount off the usual and customary
amount charged by the providers.
Pursuant to HealthCore's contracts with its Chiropractic Plan networks,
providers agreed to provide chiropractic examinations and related services at
discounts ranging from 30% to 50% off usual and customary prices. Members in the
Chiropractic Plan had access to participating chiropractors throughout the
United States. The Chiropractic Plan networks agreed to solicit additional
providers to participate in the chiropractic segment of HealthCore's networks
and agreed to continue to manage and provide administrative services to
providers in their respective networks.
Physical and Occupational Therapy Services. HealthCore's networks included
physical and occupational therapy services designed to provide savings to
members by reducing the cost of physical and occupational therapy related
services. Pursuant to agreements with two national networks of physical and
occupational therapy service providers, as of December 28, 1998, the Physical
Therapy Plan was comprised of an aggregate of approximately 6,500 providers
throughout the United States. Under the Physical Therapy Plan, members were
entitled to receive physical and occupational therapy services, including
examinations and related services, at a pre-determined discount off the usual
and customary amount charged by the providers.
Pursuant to HealthCore's contracts with its Physical Therapy Plan networks,
providers agreed to provide physical and occupational therapy services at
discounts of up to 20% off usual and customary prices. Members in the Physical
Therapy Plan had access to participating providers throughout the United States.
The Physical Therapy networks agreed to solicit additional providers to
participate in the physical and occupational therapy segment of HealthCore's
networks and agreed to continue to manage and provide administrative services to
the providers in their respective network.
Vitamins and Supplements. HealthCore's networks included access to
mail-order vitamin and supplement products. Pursuant to an agreement with a
national mail-order network provider of vitamins and supplements, members were
entitled to purchase vitamins and supplements at discounts of up to 60% off
retail prices.
Durable Medical Equipment. HealthCore's networks included access to durable
medical equipment. As of December 28, 1998, the Durable Medical Equipment Plan
was comprised of an aggregate of approximately 500 locations through the United
States. Under the Durable Medical Equipment Plan and pursuant to an agreement
with a national network provider of durable medical equipment, members could
receive home delivery of durable medical equipment by purchasing such equipment
by mail at discounts of up to 15% off retail prices.
57
<PAGE>
The Medical Solutions Card. HealthCore contracted with a national network
of physicians and hospitals to provide discounts ranging from 15-60% on hospital
and physician visits, home health care, cardiovascular care and nursing home or
long-term care. HealthCore began marketing this product as the Medical Solutions
Card. As of December 28, 1998, the Physician and Hospital Plan was comprised of
an aggregate of approximately 350,000 physicians and 3,500 hospitals throughout
the United States. HealthCore marketed the Medical Solutions Card on a
nationwide basis.
The Savings Solutions Card. HealthCore launched a Savings Solutions Card,
offering discounts on medical services and products, pharmacy products, vitamins
and supplements, veterinary services and pet products, long-term care and
assisted living, home health care, and certain consumer purchases including
jewelry, furniture and travel. This product was developed specifically for an
organization in the New York and New Jersey area. As of December 28, 1998, the
network was comprised of providers in the New York and New Jersey area and
HealthCore anticipated marketing the Savings Solution Card in certain regions
throughout the United States.
ADVANTAGES OF THE SOLUTIONS CARD
Advantages to Members. In addition to providing access to health care
products and services on a discounted fee-for-service basis at the point of
purchase, HealthCore believed the HealthCare Solutions Card, the Savings
Solution Card and the Medical Solutions Card were attractive to members because
of their flexibility and ease of use. HealthCore's target market included
uninsured individuals who, whether because of their medical history, age or
occupation, either did not have insurance or had limited insurance coverage but
who sought to access health care products and services at discounted costs.
Acceptance into our membership program was unrestricted, and our Savings Cards
was used by any member of the cardholder's household. The Savings Cards covered
each person in the member's immediate household and could be used as often as
each participant wished. In addition, unlike many traditional indemnity or
managed care programs, members had no paperwork or claims to prepare, no waiting
periods, and no prior authorizations are required. Moreover, in certain cases,
membership in HealthCore's programs entitled members to benefits that would
otherwise be unavailable or difficult to obtain. In addition, even where a
member already had insurance for a particular product or service, the Savings
Cards entitled 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. HealthCore believed that health care
providers were attracted to HealthCore's programs because it enabled them to
obtain additional patients who were members while allowing providers to retain
their existing practices. Although members generally paid fees and charges less
than those of non-members, the incremental business from members could be an
important source of revenue to the providers, with little or no increase in
their overhead costs. However, there was no assurance that providers would
continue to participate in the networks even if their participation resulted in
such an increase in revenues since the member portion of their business may be
relatively less profitable. In addition, HealthCore believed that its programs
were attractive to provider networks because it could increase the likelihood
that providers would affiliate with provider networks in order to have access to
members, and accordingly, provider networks may have realized increased revenues
from such affiliations. Further, HealthCore believed that its programs were
attractive to provider networks for the following reasons: (i) providers
received cash at the time services are rendered; (ii) providers were not
required to file claims; and (iii) providers were not subject to a waiting
period for payment from a third party payor.
Advantages to Sponsors. HealthCore believed that the Savings Cards assisted
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 continued to intensify, HealthCore believed that
the Savings Cards enabled 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 Savings Cards, sponsors could choose to offer it to part-time
employees, who often were not eligible for health care benefits offered to
full-time employees. Moreover, because the Savings Cards were discount cards and
not insurance products, Sponsors could offer
58
<PAGE>
discounts to their employees or members without bearing any economic risk over
the annual cost of the cards.
SALES AND MARKETING
HealthCore relied primarily upon the services of independent sales
representatives, including brokers, agents, consumer marketing organizations and
associations, to market the Savings Cards. These arrangements generally provided
for commissions based upon a percentage of sales of the Savings Cards, which
commissions ranged from 20% to 50% of the aggregate sales price. HealthCore
believed that there are a large number of independent brokers and other agents
nationwide with whom HealthCore could establish relationships. To date,
HealthCore entered into numerous agreements with individuals, including
individuals affiliated with American Family Life Assurance Company, who were
expected to serve as independent brokers. HealthCore intended to continue to
contract with additional independent brokers in the future and believed that
certain of its networks could provide HealthCore with access to additional
independent brokers. In addition, HealthCore maintained an in-house sales force
that consisted of three persons.
HealthCore marketed the Savings Cards principally to potential Sponsors,
including insurance carriers, third party administrators, corporations, HMOs,
preferred provider organizations, Blue Cross and Blue Shield organizations and
unions, which had, or had access to, a large number of potential members.
HealthCore believed that its use of independent brokers and third party
administrators would not only provide immediate access to specific organizations
with potential members, but would also enable HealthCore to establish
relationships with these individuals and entities who might have been
gatekeepers to even greater numbers of potential members through their extensive
contacts in their respective industries.
HealthCore anticipated that Sponsors would either fund the Savings Card
program on behalf of their members or employees so that every eligible
individual in the organization becomes a member or they would offer the Savings
Cards to their members or employees as an option where each individual would be
responsible for purchasing the Savings Cards and paying the annual fee (either
directly or through a payroll deduction plan). HealthCore also marketed the
Savings Cards directly to potential members, particularly in cases where a
Sponsor offered the Savings Cards as an unpaid option to its members or
employees.
HealthCore also marketed the Savings Cards as "affinity" cards 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 Savings Cards. In certain
cases, HealthCore's name may not appear on the cards, although HealthCore would
provide access to its networks, as well as all required fulfillment services.
HealthCore believed that affinity cards would be attractive to certain Sponsors
because they would enable the Sponsor to more closely identify itself with the
benefit provided to the member. Moreover, HealthCore believed that the
preexisting relationship, or affinity, between the Sponsor and its employees or
members would enhance the likelihood that a potential member would purchase the
cards.
THE PROPRIETARY DATABASE INFORMATION MANAGEMENT SYSTEM
HealthCore believed its proprietary database information management system
(i) facilitated HealthCore's ability to process member applications and access
member and provider data, (ii) enhanced HealthCore's customer service
capabilities and (iii) facilitated HealthCore's ability to process and pay
commissions to brokers and fees to certain networks. The DBIM System contained
information relating to members, such as eligibility in the respective plan,
services and products available to members, the discounts available to the
member for services and products, locations of providers and utilization data
provided to HealthCore on a regular basis by each of the providers in the
networks. HealthCore believed that the DBIM System enabled 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.
HealthCore developed an internet web site at www.solutionscard.com which
was accessible by existing and potential providers, members and independent
sales representatives. Individuals accessing the web site were able to review
the health care benefit plans offered by HealthCore, a list of providers in the
networks and their locations, and products and services provided by the
providers, the discounts available to members
59
<PAGE>
for services and products and any special promotions. Individuals accessing
HealthCore's internet web site were able to immediately apply for any of
HealthCore's Savings Cards by filling out an application online.
COMPETITION
HealthCore believed that a critical element of its business was the
competition for a portion of the benefit dollars allocated by various
organizations for employee benefit programs. HealthCore competed for a portion
of those dollars with various other cost-containment marketing organizations,
pharmacy indemnity programs, retail pharmacies, mail-order prescription, and
vitamin and supplement companies, preferred provider organizations, HMOs, health
care membership programs and other health care insurance programs for members
and providers. With respect to its health care services, HealthCore competed 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 a number of companies with longer
operating histories and substantially greater financial and other resources than
HealthCore and entities that had developed discount membership cards which
provide only regional coverage. HealthCore also competed with various
organizations which provided services and products in specific areas of health
care such as eye care services, pharmacy indemnity programs, independent and
chain-operated retail pharmacy outlets, retail medical/surgical supply companies
and other mail order prescription and, vitamin and supplement companies, HMOs
and health care membership programs. Most of these competitors had longer
operating histories and had significantly greater financial, marketing and
administrative resources than HealthCore. There was no assurance that HealthCore
would develop products that achieved greater market acceptance than competitive
products or that HealthCore's competitors would not succeed in developing
products that would render HealthCore's products less competitive or obsolete.
HealthCore believed that the broad range of choices of health care benefit
packages, its customer service capabilities resulting from the DBIM System, its
broad provider base, independent broker market (as opposed to multilevel
marketing) and its competitive pricing differentiated it from its competitors
and enabled it to offer a more comprehensive and cost effective solution to its
customers' needs.
GOVERNMENT REGULATION
The delivery of health care products and services was 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. HealthCore believed that certain registration and licensing laws and
regulations in certain states in which HealthCore operated may have applied to
HealthCore's operations. In addition, statutes and regulations applicable to
other health care organizations with which HealthCore contracted, including
without limitation those relating to fee splitting, referral fees, patient
freedom of choice, provider rights to participate and anti-discrimination, may
have impacted HealthCore and resulted in the delay or denial of any such
organization's participation in HealthCore's networks.
The utilization fees received by HealthCore in connection with the
Mail-Order Pharmaceutical Plan might be construed to have contravened the
literal provisions of these statutes and regulations in a number of states in
which HealthCore operated. In addition, certain states in which HealthCore
offered the Savings Cards took the position that certain of the discounted
services offered by HealthCore's networks could be interpreted as prepaid
insurance and in some states, HealthCore and its networks modified the services
offered in order to comply with such state laws.
Although HealthCore did not obtain any rulings from any governmental
authorities or an opinion of counsel with regard to any of these matters,
HealthCore believed that the extent of its compliance with such laws and
regulations as they were currently enforced and applicable to HealthCore was
consistent with current industry practices and would not have a material adverse
effect on its business.
60
<PAGE>
PROPRIETARY RIGHTS
The DBIM System was a critical component of HealthCore's ability to provide
customer service and process other data. HealthCore relied on trade secrets to
establish and protect its proprietary rights to its DBIM System. However, trade
secrets were difficult to protect and there could be no assurance that others
would not independently develop substantially equivalent proprietary technology
or otherwise gain access to HealthCore's trade secrets or disclose such
technology, or that HealthCore could meaningfully protect its rights to
non-patented trade secrets.
HealthCore applied for federal registrations of the service marks
"Healthcare Solutions," "The Solutions Card," "Healthcare Savings Guaranteed,"
and "HealthCore Medical Solutions, Inc.," intended to apply for registration of
the service marks "Savings Solutions," "Medical Solutions" and certain other
service marks from the United States Patent and Trademark Office, but there
could be no assurance that such rights would be granted. HealthCore was aware of
several companies who may have been using variations of HealthCore's trade names
or service marks in connection with certain health care activities and at least
one other company who may have been using certain of HealthCore's trade names or
service marks in connection with a business that is competitive with
HealthCore's business.
EMPLOYEES
HealthCore had 3 full-time employees and 2 part-time employees. None of
HealthCore's employees was represented by a labor union. HealthCore did not
experience any work stoppages and considered its relations with its employees to
be good.
61
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND OFFICERS OF HEALTHCORE
The following table sets forth certain information as of September 10,
1999, based on information obtained from the persons named below, with respect
to the beneficial ownership of shares of HealthCore common stock by (i) each
person known by HealthCore to beneficially own more than 5% of the outstanding
shares of HealthCore common stock, (ii) each executive officer and director of
HealthCore, and (iii) all officers and directors of HealthCore as a group.
Beneficial ownership is defined in accordance with the rules of the SEC and
generally means the power to vote and/or to dispose of the securities regardless
of any economic interest therein. In computing the number and percentage
ownership of shares of common stock beneficially owned by a person, shares of
common stock subject to options or warrants held by that person that are
excisable within 60 days are deemed outstanding. Such shares of common stock,
however, are not deemed outstanding for purposes of computing the percentage
ownership of stockholders other than such person. In calculating beneficial
ownership of HealthCore after the merger, we have assumed that there will be
13,346,228 shares outstanding based on the number of shares of Adatom common
stock to be outstanding immediately prior to the merger, after giving effect
immediately prior to the merger to the issuance of certain shares of Adatom
common stock, including certain new issuances, shares issued upon conversion of
Adatom convertible debentures and upon conversion of $1,800,000 of shareholder
debt and shares issued upon exercise of warrants to purchase Adatom common stock
and the fixed exchange ratio in the merger of approximately 2.17 shares for each
share of Adatom.com, Inc. common stock for each share of Adatom common stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE MERGER AFTER THE MERGER
------------------------------------------- -------------------------------------------
NUMBER OF NUMBER OF
SHARES SHARES
ISSUABLE UPON ISSUABLE UPON
EXERCISE OF EXERCISE OF
CONVERSION OF CONVERSION OF
COMMON CONVERTIBLE COMMON CONVERTIBLE
STOCK SECURITIES PERCENTAGE STOCK SECURITIES PERCENTAGE
NAME AND ADDRESS OF BENEFICIALLY WITHIN 60 OF VOTING BENEFICIALLY WITHIN 60 OF VOTING
BENEFICIAL OWNER OWNED DAYS STOCK(2) OWNED DAYS STOCK(2)
- ---------------------------- ------------ ------------- ---------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Neal J. Polan(1)............ 381,000(3) 167,000(4) 31.87% 629,800(5) 167,000 5.90%
David L. Mullikin........... 22,000 40,000 1.93 22,000 200,000 1.57
Eli Levitin................. 50,000 1.55 50,660 50,000 0.37
Norman H. Werthwein......... 22,500 0.70 -- 22,500 *
Donald Drapkin ............. 285,810 242,660 15.43 285,810 242,660 3.89
35 East 62nd Street
New York, NY 10021
Joel A. Stone .............. 119,725(6) 90,000 6.59 119,725 90,000 1.57
45 Lakewood Drive
Glencoe, IL 60022
All executive officers and
directors of HealthCore as
a group (4 persons)....... 403,000 279,500 34.93% 651,800 439,500 7.84%
</TABLE>
- ------------------
* Less than 1%
(1) Address is c/o HealthCore Medical Solutions, Inc., 11904 Blue Ridge
Boulevard, Grandview, Missouri 64030.
(2) Assumes no adjustment in the exchange ratio.
(Footnotes continued on next page)
62
<PAGE>
(Footnotes continued from previous page)
(3) Includes 216,000 shares of Class B Common Stock, of which 48,000 shares are
held by Mr. Polan as custodian for his child and therefore Mr. Polan is the
beneficial owner of such shares by virtue of his authority to vote and/or
dispose of such shares.
(4) Includes (i) 142,000 shares of Class A Common Stock issuable upon exercise
of warrants held by Mr. Polan that are exercisable within 60 days and
(ii) 25,000 shares of Class A Common Stock issuable upon exercise of
Class A warrants held jointly by Mr. Polan and his wife that are exercisable
within 60 days. Mr. Polan owns all of the issued and outstanding shares of
Class B Common Stock.
(5) Gives effect to the cancellation of 129,600 shares of Class B common stock
held in escrow, and the issuance of 28,400 shares in exchange for
cancellation of a warrant to purchase an additional 142,000 shares of
Class A common stock at $1.00 per share, subject to the satisfaction of
certain milestones, and the issuance of shares of Adatom common stock which
will be converted into 350,000 shares of HealthCore common stock in the
merger.
(6) Based upon information provided by Mr. Stone to HealthCore in a
questionnaire, Mr. Stone beneficially owns (i) 119,725 shares of Class A
Common Stock and (ii) Class A Warrants that are exercisable within 60 days
to purchase 90,000 shares of Class A Common Stock.
63
<PAGE>
INFORMATION CONCERNING
ADATOM, INC.
CORPORATE STRUCTURE
Adatom Inc. was founded in 1996 by a team of seasoned, motivated, and
dedicated executives, who met at and graduated from the Sloan Fellowship Program
of Stanford University Business School. The team has a well-balanced mixture of
managerial, marketing, and technical experience. Richard Barton, President and
Chief Executive Officer, has 24 years of marketing, sales and general management
experience. Dr. Sridhar Jagannathan, Chief Technology Officer and Executive Vice
President, has 15 years of software development, consulting and program
management experience, knowledge of database systems and associated
applications, and an incisive understanding of emerging technologies. Adatom's
management has invested a total of approximately $1.85 million in Adatom.
After commencing business as a retailer which had no store sites and used a
mobile sales force of franchisees, Adatom shifted its focus to internet
e-commerce. Adatom has built an Internet E-tail System which has the capability
to acquire, market, order, fulfill, ship and install a broad range of goods on
the Internet. This Internet E-tail System is used by Adatom to run its online
business (www.adatom.com) and is intended to be used in the future to launch and
manage other web site e-commerce initiatives. This system significantly reduces
costs and expenses, removes intermediate distribution layers, and integrates
manufacturers with consumers.
Adatom is working to position itself to become a significant retailer in
Internet retail e-commerce. According to Jupiter Communications, e-commerce is
expected to grow to $108 billion by the year 2003. Adatom has in place a
strategy to seize the opportunities in this space. Adatom has built one of the
largest (in terms of products offered) Internet stores (www.adatom.com) on the
web with over 3 million Stock Keeping Units (SKUs) offered for sale. In
addition, Adatom is not limited solely to those products posted on the
www.adatom.com site but has the ability to source any product from virtually any
brand. Adatom's "Brand Equity" is presently expected to expand to over 1,000
direct shipment manufacturing and distributor suppliers, from the current number
of about 700 by the end of 1999.
Adatom further intends to leverage its e-commerce content, business
architecture and processes and technical know-how by providing end-to-end
e-commerce solutions and enablement. This consists of site development,
infrastructure implementation, fulfillment and customer service for others
seeking an "instant" on-line retail capability. Adatom intends to serve as the
gateway for e-commerce for a large number of web sites and create new
"e-tailers." Adatom's strategy permits customers to access products through
three distinct channels: direct, indirect and virtual.
Adatom sells its products at low prices due to its completely scaleable,
low cost infrastructure and distribution system. Adatom's goal is to provide the
customer with superior value by combining the best service with low prices.
Adatom is able to reduce operating costs due to the unique dynamics of
e-commerce. By selling via the Internet and shipping, in most cases, directly
from the manufacturer or supplier, Adatom has eliminated the costs of
intermediaries, maintaining large inventories and staffs, the requirement of
significant physical space fulfillment houses and resultant overhead expense.
This allows Adatom to reduce operating costs and pass value on to the consumer
in the form of increased customer service and price savings.
The Internet E-tail System is built on four distinct foundations:
A) CONTENT
Adatom has established relationships with over 700 qualified suppliers
(manufacturers and distributors) encompassing the complete breadth of durable
goods for home and the office. The aggregated content of product data, images,
prices, shipping detail, etc. constitutes a substantive virtual inventory of
consumer and retail goods. Adatom's supplier relationship most often enables
drop shipment of goods directly from manufactures to the consumer, allowing
Adatom to operate on a lean cost and expense model. Adatom's low cost business
model provides customers with savings on brand name products in some cases of up
to 50% off traditional and Internet retailers. Both Adatom's huge selection of
products and product mix distinguish it
64
<PAGE>
from its competitors and includes many non-commodity, high quality and value
added items that are not typically sold over the Internet. Adatom intends to be
the premier Internet site for furniture and has established close relationships
with many leading manufacturers.
Current Product Categories (excludes multiple sub-categories within each
category)
<TABLE>
<S> <C> <C> <C>
Bathroom Furniture Household Music
Boys Garage Infant Outdoors
Education Girls Law & Garden Pets
Electronics Gift & Decorative Linens & Textiles Sporting Goods
Entertainment Health & Beauty Luggage Toys
Female Personal Home Improvement Male Personal
Food & Spirits Home Office Major Appliances
</TABLE>
Representatives Manufacturers
<TABLE>
<S> <C> <C> <C> <C> <C>
Amana American Ames Archipelago Artisan Bissel
Petronics House
Bradington
Black & Decker Bostonian Young Braun Carolina Mirror Cochran
Fieldcrest
Conair Crystal Clear Dexter Dewalt Eureka Cannon
Graco Hoover Huffy Intershoe Jezebel MacGregor
Lee's Jeans Mikasa Minolta Mont Blanc Noble Watch PBS Home Video
Pfaltzgraff Rawlings RCA Royal Samsonite Selby
Sharp
Sedgefield Electronics Spalding Spring Air Stiffel Swank
Toshiba Wrangler Sony Weber
</TABLE>
Most items are shipped from the manufacturer or supplier directly to the
customer, eliminating the cost of maintaining warehouses and operating a
distribution network. All shipping is outsourced to third parties and is paid by
the customer, with a reasonable profit to Adatom on a number of items. Adatom
has also developed a network of deluxe shippers whereby certain large ticket
items will be unwrapped from the original factory packaging, inspected,
polished, and delivered to the home where it will be assembled and installed.
B) e-COMMERCE INFRASTRUCTURE
Adatom has built a proprietary e-commerce infrastructure from the ground
up, designed to stage and enable the sale of millions of products online. The
underlying architecture is scaleable and modular, enabling aggregation as well
as rapid partitioning by product categories as needed. The openness of the
system ensures easy interactions with suppliers, affiliates and customers, and
the system is portable to re-launch in alternate environments. The technical
design of the system enables affiliate accounts, customer accounts, electronic
charging and payment, efficient product data uploads and exports, order
processing, and order status reporting to customers and affiliates. In
particular, Adatom has the ability to concurrently host multiple e-commerce
environments utilizing its master products and customer database. Closely linked
to the Adatom e-commerce engine is a proprietary Adatom Information Management
System, which monitors and reports on all aspects of Adatom's interaction with
the customer and partners. One important component of customer interaction is
65
<PAGE>
a web-based software program called R2I which is integrated into every aspect of
Adatom's operation and is designed to catalog and satisfy a customer's
requirements. Finally, Adatom is in the process of developing new standards for
interactions with portal partners using XML (Extensible Markup Language).
C) BUSINESS PROCESSES
The third foundation to Adatom's Internet E-tail System is the
standardization of business processes within Adatom to ensure operational
efficiency in the processing and servicing of customer needs. Each aspect of a
business process is rigorously analyzed and implemented as a system. The
activities of each process are detailed and the specific tasks identified.
Metrics are then associated with each task to quantify its usage of resources.
This ensures that there is a clear understanding of the costs of each process,
so that continuous refinement, automation and other efficiencies can be targeted
and implemented. The intent is to enable rapid scalability for fulfillment
without the proportional need for human resources.
D) CHANNELS
With the above three foundations of Adatom's Internet E-tail System in
place, Adatom believes it is well positioned to deploy its products and services
in the following three channels:
(1) Adatom.com Direct
Adatom's Direct channel links to Adatom's web site (www.adatom.com)
directly. This site trademarked as "Home Dimensions" contains one of the largest
selections online for consumer durable goods. These products are backed by a 30
day "Adatom.com 100% Satisfaction Guarantee," in addition to the manufacturer
warranty. Adatom's value proposition to the customer is "Selection, Price and
Personal Service." The heart of Adatom's strategy is to offer the customer a
blend of cost savings, a friendly shopping experience, personal interaction,
quality products and excellent service that will create loyalty and trust. To
help generate repeat sales, Adatom intends to institute a system where points
awarded with each purchase can be used for discounts on future purchases.
Adatom is staffed with company trained Personal Shopping Consultants who
assist customers in their shopping experience. The PSC performs many of the
functions typically associated with a sales person in the traditional retail
environment such as helping the customer navigate through a store, answering
questions regarding products, suggesting additional items, and generally
assisting with the mechanics of a transaction. The PSC will also update the
customers on purchase or shipment information as well as notify them of items of
special interest that becomes available. Finally, the PSC can also perform a
"special order" function whereby products that are not part of Adatom's
electronic product inventory can be located in many cases, ordered, and shipped
to the customer, often at substantial discounts to traditional retail prices. In
order to encourage and enhance customer interaction, Adatom has developed a
proprietary two-way interactive keyboard chat software. This enables the
customer to obtain immediate responses from a PSC. The software also allows the
PSC to identify specific customer needs within the Adatom product offerings and
guide the customer through a "push" technology, which showcases the relevant
products on the customer's computer screen.
Once at Adatom's Internet site, many customer friendly features are
designed to develop loyalty and ensure repeat business. These features include
telephone or chat-room communication with Personal Shopping Consultants, product
search systems, and easy-to-navigate icon or "key word" architecture. Adatom's
software will also allow customers to access bridal or shopper registries.
Finally, Adatom has a special section that features gifts for special occasions
and holidays. Although Adatom believes that its infrastructure is in the
forefront of current Internet and computer technology, it is not dependent on
developing additional new or proprietary technology to succeed, and most
Internet capable computers can access Adatom's web site without additional
hardware or software.
(2) Affiliate Channel
Adatom's Affiliate Channel is a revenue sharing program designed to develop
its customer base and create an immediate market presence with minimal
acquisition costs. Adatom has developed revenue sharing arrangement with
organizations through an expanded network of strategic marketing arrangements.
These organizations generally receive a percentage of the proceeds generated
from sales to the partners' customer
66
<PAGE>
base and/or a monthly fee. This strategy is intended not only to develop a large
customer base for Adatom, but also to offer these organizations the opportunity
to receive income at no additional cost.
Adatom considers these organizations an important strategic alliance and
believes that this strategy will generate a high volume of sales as well as
create brand awareness and Internet visibility for Adatom.com. In addition,
Adatom's close affiliation with these organizations is intended to build
customer loyalty as Adatom becomes associated with an organization and not
merely considered a retail site. Finally, this strategy will also enhance
Adatom's first mover advantage and help to prevent competitors from accessing
Adatom's client base. Some of Adatom's marketing affiliates are shown below:
<TABLE>
<S> <C>
AOL (Adatom Branded Store) Yahoo (Adatom Branded Store)
Bay Area Gold (Adatom Branded Store) Thinkbid (Adatom Branded Store)
Excite (Adatom Branded Store) Lycos (Adatom Branded Store)
Angel Walk Designs Inktomi
Arzoo! Inc. Knight-Ridder
Buildscape Loyalty Plus
BuyersUnite.com Imall
Card Express Media in Motion
Countrywide National Association of Minority Contractors
Emmanuel Baptist Church Sharpman.com
FTSBN, Inc. Sheppard Foundation Inc.
GeoCities Three Smart Heads
</TABLE>
At the Yahoo, Lycos and Excite sites, Adatom is represented as a branded
store, which enables Adatom to gain and enhance its brand identity. Other
affiliate models include linkages to the Adatom store site or links for
fulfillment of specific products or product categories.
(3) Adatom Virtual E-Tail Channel (AVEC)
AVEC is a program intended to create Internet stores on web sites of other
organizations. Adatom through its AVEC program will work with others to create
and manage their e-tail business. This is a template-driven automated program
leading to a branded custom store for the other organization from the mix of
products available to Adatom. The partner can chose the particular set of
products to sell under its own brand name, with Adatom providing all the
associated hosting and fulfillment services. This allows companies to launch
their "own" stores with their own name as the host brand name on the web site
with the name "Adatom" completely absent, all without the burden of engaging
suppliers, creating a shopping environment and providing fulfillment and
customer service. Adatom fulfills all purchase, hosting, back office and
customer support operations. The responsibility and cost of customer acquisition
falls to the other organization. The cost to Adatom to enable an e-tailer is
quite low, as the products and order management systems are shared with other
e-tailers including Adatom. Customer support representatives are scaled upon
need, but shared amongst all of Adatom's e-tailers. Computer telephone system
will enable automatic call routing and identification of a specific e-tailer to
the customer service representative.
The following are the specific features available to AVEC partners:
1. Ability to select categories, sub-categories and products from Adatom's
online selection for stocking a new store
2. Create a store with pre-built design templates
3. Ability to create a custom store (with Adatom consulting services)
67
<PAGE>
4. Ability to integrate the store with any existing web presence
5. Store administration utility (check/change store content, change
prices, create discounts and promotions, check orders, view user
sessions)
6. Customer service provided by Adatom
7. Ability to follow order history
8. Flexibility to include new content (products not in Adatom) for
inclusion
9. Enablement of Common Adatom Services (two-way chat, feedback systems,
product queries, special requests, advanced telephony)
10. Auditing rights to review orders and commissions
AVEC is anticipated to receive significant attention in the marketplace,
given its ability to launch a new e-tailer very easily. AVEC implementation is
presently intended to be complete in the fourth quarter of 1999. In the
meantime, Adatom is able to implement Virtual Stores as a one-off implementation
for specific clients.
ADATOM AND THE EMERGING MARKETPLACE
Consumer spending fuels two-thirds of the economy, and the Internet is
quickly becoming a noteworthy component of this spending. With increasing
frequency, customers are embracing the Internet as a means to find information
and purchase a wide range of products and services. Forrester Research, based on
reports from retailers and anecdotal evidence, indicates that Internet retail
shopping is growing significantly and will continue to grow as consumers opt to
browse the Web for purchases. Furthermore, Forrester projects that in 2003,
Internet shopping revenues will increase to $108 billion, or 6% of total
domestic consumer spending, which is estimated to be $1.8 trillion.
Shopping on the Internet offers both consumers and retailers distinct
advantages over their traditional "off-line" brick-and-mortar or catalogue
competitors. Consumers benefit from the growing sophistication of the Internet,
and its e-commerce capabilities are making it possible to find the right product
or service quickly and efficiently from their computer. Much of the acceptance
and proliferation of e-commerce has to do with the growing sophistication and
reliability of the Internet itself and the usefulness of the software that runs
on it, which allow shoppers to do intricate searches, view merchandise from a
variety of angles, and unearth key buying information. By analyzing consumer
requirements for acquiring goods and services, Adatom believes it has developed
its own innovative retail business model and created a superior shopping
environment that has the potential to become the market leader.
[BAR CHART]
US WWW Users and Shoppers, 1997-20001E
Total On-Line Adults Total On-line Shoppers
1997 40 10
1998 51 15
1999 66 23
2000 85 34
2001 99 43
68
<PAGE>
According to Jupiter Communications, 77% of buyers are going online with a
specific purchase in mind, and 79% of those shoppers visit several sites before
making a purchase. The ability to reduce costs and lower prices while preserving
quality, service, and selection, will facilitate Adatom's success since in
nearly every product category, pricing is the single most important driver
behind a consumer's buying decision. Pricing flexibility is an important feature
that will be exploited by Adatom to generate sales revenues and maximize
profitability. The revenue benefit resulting from a price change must outweigh
the costs incurred in changing the price. The Internet greatly reduces the costs
associated with price changes.
Traditional off-line brick-and-mortar merchants, as well as direct mail
businesses, do not alter prices frequently because it is too costly to do so.
Adatom on the other hand has an advantage over these off line merchants in that
it can rapidly change prices in response to the competitive dynamics of the
market. Adatom is also able to gather competitive information and monitor price
movements with less difficulty than these off line merchants. The speed and ease
with which Adatom can gather pricing data and alter their own prices enables
Adatom to determine the most efficient price to sell a particular product,
thereby maximizing profitability. Many methods to vary price are available to
Adatom to generate sales and maximize profits. Among them are: change the base
list price, discount the base list price, discount shipping, offer volume
discounts or cross promotions. Finally, new information, such as supply, demand,
competitive alternatives and the stage of the product in its lifecycle can be
incorporated into pricing decisions.
[BAR CHART]
Primary Concern Among Online Shippers
Presentation of Product 15%
Ordering Systems 16%
Delivery Time 25%
Comparative Info 31%
Credit Card Security 39%
Searchability 48%
Price 80%
69
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND OFFICERS OF ADATOM
The following table sets forth certain information as of September 13,
1999, based on information obtained from the persons named below, with respect
to the beneficial ownership of shares of Adatom common stock by (i) each person
known by Adatom to beneficially own more than 5% of the outstanding shares of
Adatom common stock, (ii) each executive officer and director of Adatom, and
(iii) all officers and directors of Adatom as a group.
Beneficial ownership is defined in accordance with the rules of the SEC and
generally means the power to vote and/or to dispose of the securities regardless
of any economic interest therein. In computing the number and percentage
ownership of shares of common stock beneficially owned by a person, shares of
common stock subject to options or warrants held by that person that are
excisable within 60 days are deemed outstanding. Such shares of common stock,
however, are not deemed outstanding for purposes of computing the percentage
ownership of stockholders other than such person. In calculating beneficial
ownership of HealthCore after the merger, we have assumed that there will be
13,346,228, shares outstanding based on the number of shares of Adatom common
stock to be outstanding immediately prior to the merger, after giving effect
immediately prior to the merger to the issuance of certain shares of Adatom
common stock, including certain new issuances, shares issued upon conversion of
Adatom convertible debentures and upon conversion of $1,800,000 of shareholder
debt and shares issued upon exercise of warrants to purchase Adatom common stock
and the fixed exchange ratio in the merger of approximately 2.17 shares for each
share of Adatom.com, Inc. common stock for each share of Adatom common stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP OF ADATOM.COM, INC.
PRIOR TO THE MERGER AFTER THE MERGER
------------------------------------------- -------------------------------------------
NUMBER OF NUMBER OF
SHARES SHARES
ISSUABLE UPON ISSUABLE UPON
EXERCISE OF EXERCISE OF
CONVERSION OF CONVERSION OF
COMMON CONVERTIBLE COMMON CONVERTIBLE
STOCK SECURITIES STOCK SECURITIES PERCENTAGE
NAMES AND ADDRESS OF BENEFICIALLY WITHIN 60 PERCENTAGE BENEFICIALLY WITHIN 60 OF
BENEFICIAL OWNER OWNED DAYS OF STOCK OWNED DAYS STOCK(2)
- --------------------- ------------ ------------- ---------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard Barton(1).... 1,865,894 -- 78.2% 7,965,494(4) 59.7%
Chia-Chieh Chen(1)... 256,400 -- 10.8 557,123 4.2
Sridhar
Jagannathan......... 190,768 -- 8.0 414,513 3.1
Frank Madkins........ 71,538 -- 3.0 155,442 1.2
All executive
officers and
directors of Adatom
as a group
(4 persons)(3)...... 2,384,600 -- 100% 9,733,930 72%
</TABLE>
- ------------------
* Less than 1%
(1) Unless otherwise indicated, the address of such individual is c/o Adatom,
Inc., 920 Hillview Court, Suite 160, Milipitas, California 95035.
(2) Assumes no adjustment in merger exchange ratio.
(3) Includes 629,800 shares of common stock and 167,000 options owned by Neal J.
Polan who will become a director of Adatom pursuant to the merger.
(4) Gives effect to conversion of $1,800,000 of indebtedness into shares of
Adatom common stock which are convertible into 3,911,157 shares of
HealthCore common stock.
70
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
HealthCore files annual, quarterly and current reports, proxy statements
and other information with the SEC. You may read and copy any reports,
statements or other information that HealthCore files at the SEC's public
reference rooms at 450 Fifth Street, N.W., Washington, D.C., 20549, 7 World
Trade Center Suite 1300, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. HealthCore public filings are
also available to the public from commercial document retrieval services and at
the Internet World Wide Web site maintained by the SEC at "http://www.sec.gov."
HealthCore has filed the registration statement to register with the SEC
the shares of HealthCore class A common stock to be issued to Adatom
stockholders in the merger. This joint proxy statement/prospectus is a part of
the registration statement and constitutes a prospectus of HealthCore, a proxy
statement of HealthCore for the HealthCore special meeting and a proxy statement
of Adatom for the Adatom special meeting.
As allowed by SEC rules, this joint proxy statement/prospectus does not
contain all the information that stockholders can find in the registration
statement or the exhibits to the registration statement.
HealthCore has supplied all information contained in this joint proxy
statement/prospectus relating to HealthCore, and Adatom has supplied all such
information relating to Adatom.
You should rely only on the information contained in this joint proxy
statement/prospectus to vote your shares at the HealthCore special meeting
and/or Adatom special meeting. HealthCore and Adatom have not authorized anyone
to provide you with information that is different from what is contained in this
joint proxy statement/prospectus. This joint proxy statement/prospectus is dated
September , 1999. You should not assume that the information contained in the
joint proxy statement/prospectus is accurate as of any date other than that
date, and neither the mailing of this joint proxy statement/prospectus to
stockholders nor the issuance of HealthCore's securities in the merger shall
create any implication to the contrary.
71
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the proposed composition of the Board of
Directors and executive officers of HealthCore following the Effective Time of
the merger:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH HEALTHCORE
- ---------------------------------------------- --- ----------------------------------------------
<S> <C> <C>
Richard S. Barton............................. 50 Chairman, Chief Executive Officer and Director
Sridhar Jagannathan........................... 42 Director
Ralph Kennedy Frasier......................... 63 Director
Sylvia A. Dresner............................. 52 Director
Neal J. Polan................................. 48 Director
</TABLE>
- ------------------
(1) Member of Audit, Compensation and Stock Option Committees.
Richard S. Barton founded Adatom in September 1996 after completing a Sloan
Fellowship at Stanford University in Palo Alto, California. From 1993 to 1995,
Mr. Barton was President of the U.S. Customer Operations Division of Xerox
Corporation. From 1991 to 1993, Mr. Barton served as Chairman, CEO and President
of Xerox Canada, Inc. Mr. Barton serves on the boards of directors of Avon
Products, Inc., and the United States Chamber of Commerce. Mr. Barton holds a
Masters Degree in Business Management from Stanford University in Palo Alto,
California. He has also completed the Wharton International Forum's China,
Japan, Europe and United States segments at the University of Pennsylvania.
Sridhar Jagannathan is a co-founder of Adatom and has had extensive
experience in information technology implementation, software development
coordination, project management and technology consulting. Dr. Jagannathan
serves as a Technical Director for the Advanced Technology Solutions Group of
Oracle Corporation. From 1996 to 1999, Dr. Jagannathan was Director of
Applications Technology at the Applications Center for Excellence at Oracle.
From 1985 to 1995, Dr. Jagannathan was Group Manager and Director at Glosten
Associates located in Seattle, Washington where he managed software development
and a consulting team. Dr. Jagannathan has a Ph.D. Degree in engineering from
the University of California, Berkeley (1985). He has a Masters Degree in
Management from the Stanford Business School (Sloan Fellow, 1996), where he
specialized in Internet technologies and implications for e-commerce.
Ralph Kennedy Frasier was appointed a director of Adatom in September 1999.
Since July 1998, Mr. Frasier has been Of Counsel at Porter, Wright, Morris &
Arthur law firm. Prior to that, from November 1975 to June 1998, he was General
Counsel and Secretary at Huntington Bancshares Incorporated. Mr. Frasier earned
his law degree from North Carolina Central University, School of Law and a
Bachelor of Science in Business Administration from North Carolina Central
University.
Sylvia A. Dresner was appointed a director of Adatom in September 1996.
Since 1996 Ms. Dresner is a Senior Vice President of corporate communications
and investor relations at VMW, Inc. From 1994 to 1996 she was the Director of
Corporate Investor Relations for Uncpix Entertainment. Ms. Dresner earned a
masters degree from Harvard University and a bachelors degree from Barnard
College.
Neal J. Polan has served as the Chairman of the Board of HealthCore since
January 1997 and as Chief Executive Officer of HealthCore since April 1997.
Mr. Polan devotes approximately 50% of his business time to activities on behalf
of HealthCore. Mr. Polan has served as President and Chief Executive Officer of
Insight Management Corp., a consulting and investment company, since 1978.
Mr. Polan served as the Managing Director of National Financial Co., a middle
market merchant bank, from April 1996 to July 1998. 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.
All directors hold office until the next annual meeting of stockholders and
until their successors have been duly elected and qualified. There are no family
relationships between any of the directors, executive officers or persons
nominated or chosen by HealthCore to become directors or executive officers.
HealthCore's officers are elected annually by the Board of Directors and serve
at the discretion of the Board.
72
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an audit committee, a compensation committee and
a stock option committee. The Board of Directors does not have a nominating
committee or a committee performing the functions of a nominating committee. The
HealthCore Board of Directors held two meetings during the year ended September
30, 1998 and acted three times by unanimous consent.
The members of the HealthCore Audit Committee were Neal J. Polan, David L.
Mullikin, Eli Levitin and Norman H. Werthwein. The members of the Audit
Committee of the combined company will be Ralph Kennedy Frasier and Sylvia A.
Dresner. The HealthCore Audit Committee held two meetings during the year ended
September 30, 1998 and acted three times by unanimous consent. The functions of
the Audit Committee are to recommend annually to the Board of Directors the
appointment of HealthCore's independent public accountants, discuss and review
the scope and the fees of the prospective annual audit and review the results
thereof with the independent public accountants, review and approve non-audit
services of the independent public accountants, review compliance with existing
major accounting and financial policies of HealthCore, review the adequacy of
the financial organization of HealthCore and review management's procedures and
policies relative to the adequacy of HealthCore's internal accounting controls.
Neal J. Polan, David L. Mullikin, Eli Levitin and Norman H. Werthwein
served on the Compensation Committees. The members of the Compensation Committee
of the combined company will be Ralph Kennedy Frasier and Sylvia A. Dresner. The
HealthCore Compensation Committee held 4 meetings during the year ended
September 30, 1998. The function of the Compensation Committee is to determine
the compensation of HealthCore's executives.
DIRECTORS COMPENSATION
Employee-directors of HealthCore received no compensation for serving on
the Board of Directors other than reimbursement of expenses incurred in
attending meetings. Non-employee directors elected or appointed to the
HealthCore Board of Directors received $500 for each Board and committee meeting
attended. In addition, all non-employee directors participated in HealthCore's
1997 Director Stock Option Plan and were reimbursed for expenses incurred in
attending meetings.
INDEMNIFICATION
HealthCore has entered into indemnification agreements with each of its
directors and executive officers. Each such agreement provides that HealthCore
will indemnify the indemnitee against expenses, including reasonable attorney's
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 the performance of his duties as an
officer, director, employee or agent of HealthCore. Such indemnification will be
available if the acts of the indemnitee were in good faith, if the indemnitee
acted in a manner he reasonably believes to be in or not opposed to the best
interests of HealthCore and, with respect to any criminal proceeding, the
indemnitee had no reasonable cause to believe his conduct was unlawful.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by
HealthCore during the three fiscal years ended September 30, 1998, 1997 and 1996
to HealthCore's Chief Executive Officer and to HealthCore's three most highly
compensated executive officers whose total cash compensation for such periods
exceeded $100,000:
73
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
----------------------------------------------- NUMBER OF
OTHER ANNUAL SECURITIES
NAME AND COMPENSATION UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) OPTIONS COMPENSATION
- ------------------------------------ ---- ---------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Neal J. Polan....................... 1998 $148,958(1) $ 22,458(2) $5,942(3)
Chairman and Chief 1997 72,917 663,902(4)
Executive Officer
David L. Mullikin................... 1998 59,134(5) 8,650(6) 100,000 801(7)
President, Chief
Operating Officer and
Acting Chief
Financial Officer(5)
</TABLE>
- ------------------
(1) Pursuant to an employment agreement effective as of September 30, 1998
between Mr. Polan and HealthCore, as of December 1, 1998, Mr. Polan is
to an annual salary of $200,000, plus a bonus to be approved by the
Board of Directors.
(2) Represents amounts paid by HealthCore to Mr. Polan for certain
expenses, including $17,114 for automobile and related expenses.
(3) Represents amounts paid by HealthCore for medical and disability
insurance premiums ($3,781) and contributions to a defined contribution
plan ($2,161).
(4) Includes: (i) $20,000 paid as management consulting fees prior to
becoming an employee of HealthCore; (ii) non-cash compensation of
$226,980 in November 1996 resulting from the estimated fair market
value difference of the issuance of 216,000 shares of Class B Common
Stock for $6,300; and (iii) non-cash compensation of $416,922 relating
to the estimated fair market value of warrants to purchase 284,000
shares of Class A Common Stock for $1.00 per share issued in September
1997. See "Certain Relationships and Related Transactions."
(5) Mr. Mullikin joined HealthCore in May 1998 as its President and Chief
Operating Officer, and was also appointed as the acting Chief Financial
Officer of HealthCore upon the resignation of James H. Steinheider,
HealthCore's former Chief Financial Officer, in December 1998.
Mr. Mullikin is entitled to an annual salary of $150,000, plus a bonus
to be approved by the Board of Directors.
(6) Represents non-cash compensation of $8,650 in June 1998 resulting from
the estimated fair market value difference of the issuance of 10,000
shares of Class A Common Stock for $100. See "Certain Relationships and
Related Transactions."
(7) Represents amounts paid by HealthCore for medical and disability
insurance premiums.
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table sets forth certain information regarding stock options
granted to the Named Executive Officers during fiscal 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED EXERCISE OR
UNDERLYING TO EMPLOYEES BASE PRICE EXPIRATION
OPTIONS GRANTED IN FISCAL YEAR ($SH) DATE
--------------- --------------- ----------- ----------
(#) (1)
---------------
<S> <C> <C> <C> <C>
Neal J. Polan......................................... -- -- -- --
David L. Mullikin..................................... 100,000 80% $.875 6/30/08
</TABLE>
(1) The options listed in the table are exercisable on a cumulative basis
as follows: 40% on May 11, 1999; 40% on May 11, 2000, and 20% on
May 11, 2001.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The following table sets forth the value of unexercised stock options held
by the Named Executives. No options were exercised by the Named Executives in
1998.
74
<PAGE>
OPTION VALUES AT SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
VALUE OF IN-THE-MONEY
NUMBER OF SHARES UNDERLYING OPTIONS AT YEAR END
OPTIONS AT YEAR END EXERCISABLE
NAME EXERCISABLE/UNEXERCISABLE UNEXERCISABLE(1)
- -------------------------------------------------- --------------------------- -------------------------
<S> <C> <C>
Neal J. Polan.....................................
David L. Mullikin................................. 0/100,000 0/$12,500
</TABLE>
-----------------------
(1) Calculated by multiplying the number of unexercised in-the-money
options outstanding at September 30, 1998 by the difference between the
fair market value of the Class A Common Stock at September 30, 1998
($1.00) and the option exercise price.
EMPLOYMENT AGREEMENTS
In September 1998, HealthCore entered into an employment agreement with
Neal J. Polan, the Chairman and Chief Executive Officer of HealthCore. The
initial term of the agreement expires on November 30, 2000 and is automatically
renewable for successive one year terms unless terminated by either party.
Pursuant to the agreement, Mr. Polan is not required to devote more than 50% of
his working time to his responsibilities at HealthCore. The employment agreement
with Mr. Polan provides for an annual base salary of $200,000 plus an annual
bonus to be approved by the Board of Directors. The agreement also provides that
Mr. Polan is entitled to certain expenses, including an automobile and the costs
related thereto and the costs of the yearly premium on a term life insurance
policy in the amount of $2,000,000. During the initial term, Mr. Polan's
employment can only be terminated for cause or in the event of Mr. Polan's death
or incapacity. In connection with the merger, Mr. Polan amended his existing
employment agreement with HealthCore. The amended employment agreement reduces
the amount of severance upon termination of employment and provides that
HealthCore would only have to pay Mr. Polan the lesser of $150,000 or 60% of the
remaining value of the contract at the time of termination. In consideration for
agreeing to the amended employment agreement, Mr. Polan received 165,000 shares
of HealthCore class A common stock. to provide that he may be terminated without
cause. Mr. Polan will receive registration rights covering these shares. It is a
condition to the closing that HealthCore terminate this agreement. In addition,
Mr. Polan will receive registration rights covering the shares of HealthCore
common stock he received.
In May 1998, HealthCore and David L. Mullikin, the President, Chief
Operating Officer and acting Chief Financial Officer, entered into a letter
agreement. The letter agreement provides for an annual base salary of $150,000,
plus a performance related bonus at the discretion of the Board of Directors. In
addition, as part of Mr. Mullikin's compensation, Mr. Mullikin received 10,000
shares of class A common stock at a purchase price of $.01 per share. Pursuant
to the agreement, Mr. Mullikin has the right to receive certain medical,
retirement and other benefits. Mr. Mullikin has agreed not to compete with
HealthCore for a period of one year following the termination of his employment
for any reason. In the event Mr. Mullikin's employment is terminated by
HealthCore, other than for cause, Mr. Mullikin will be entitled to receive his
base salary for a period of one year following the date of termination (subject
to certain offsets for income received by Mr. Mullikin from subsequent
employment during such one year period). In connection with the merger,
Mr. Mullikin amended his existing employment agreement with HealthCore to
provide that he may be terminated without cause. Mr. Mullikin will receive a
lump sum cash payment of $100,000 and options to purchase 100,000 shares of
class A common stock at $.10 per share. It is a condition to the closing that
HealthCore terminate this agreement. In addition, Mr. Mullikin will receive
registration rights covering the shares underlying these options.
If the merger is consummated, Richard Barton will become the President and
CEO of the combined company. Under an employment agreement to be effective at
the time of the merger, he will receive a salary of $200,000 per year and will
be eligible for a bonus of up to $100,000 per year based on attainment of
performance criteria to be established by the Board of Directors. If there is a
change of control of the combined company, under certain circumstances Mr.
Barton may resign and will be entitled to up to three years of severance pay.
The other two executive officers of the combined company, Sridhar Jagannathan
and Michael Wheeler, will not have employment agreements. It is presently
anticipated that their annual salaries will be $120,000 and $100,000,
respectively.
75
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 of MegaVision into HealthCore) to Neal J. Polan,
HealthCore'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, Mr. Polan loaned an aggregate of
approximately $67,000 to HealthCore 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 HealthCore,
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 was repaid from the proceeds of
HealthCore's initial public offering, and 25,000 and 12,500 bridge warrants,
respectively, which were exchanged for 25,000 and 12,500 Class A Warrants to
purchase Class A Common Stock, respectively, upon the completion of HealthCore's
initial public offering.
In June 1997, Mr. Polan and Theodore White, Jr., a former employee of
HealthCore, entered into a voting agreement pursuant to which Mr. Polan was
entitled to vote all of the shares of common stock held by Mr. White. The voting
proxy expired on December 31, 1998 as a result of HealthCore's minimum pretax
income being less than $1,000,000.
For the period from January 1997 until July 1998, HealthCore paid an entity
formerly affiliated with Mr. Polan approximately $1,000 per month as rent for
the use of certain space in New York, New York.
In September 1997, HealthCore granted warrants to purchase 284,000 shares
of Class A Common Stock to Mr. Polan. The warrants are exercisable at a price of
$1.00 per share and expire in September 2007. Warrants to purchase 142,000 of
such shares of Class A Common Stock will become exercisable if, and only if, one
or more of the following conditions are met: (i) HealthCore's Minimum Pretax
Income amounts to at least $5,500,000 for the fiscal year ending September 30,
1999; (ii) HealthCore's Minimum Pretax Income amounts to at least $7,500,000 for
the fiscal year ending September 30, 2000; (iii) the Closing Price (as defined
in the Escrow Agreement) of the Class A 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 HealthCore's initial public offering or (iv) the
Closing Price of the Class A 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 HealthCore's initial public offering. See
"Security Ownership of Certain Beneficial Owners and Management--Escrow Shares."
In October 1997, HealthCore granted warrants to purchase 15,000 shares of
Class A Common Stock to Mr. Levitin as compensation for performing investor
relations services for HealthCore. The warrants are immediately exercisable at a
price of $5.00 per share and expire in October 2007.
Mr. Polan devotes approximately 50% of his business time to our business
activities. Mr. Polan devotes approximately 50% of his business time to
investments outside of HealthCore, some of which are or may be in the health
care services field. In the course of his activities, Mr. Polan may occasionally
be presented with various business opportunities in the health care services
industry. Mr. Polan may present certain of these opportunities to our business,
although Mr. Polan has no agreement to do so and we can not be certain that any
such opportunities will ever be presented to us. These arrangements and
agreements may give rise to certain conflicts of interest.
In connection with the employment of David L. Mullikin, HealthCore's
President, Chief Operating Officer and acting Chief Financial Officer, in May
1998, HealthCore sold 10,000 shares of Class A Common Stock to Mr. Mullikin for
$100 in cash in June 1998.
HealthCore believes that all of the transactions set forth above were made
on terms no less favorable to HealthCore than could have been obtained from
unaffiliated third parties. HealthCore has adopted a policy that all future
transactions between HealthCore 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 HealthCore than could be obtained from unaffiliated third parties.
76
<PAGE>
DESCRIPTION OF HEALTHCORE CAPITAL STOCK FOLLOWING THE MERGER
Upon consummation of the merger, the certificate of incorporation of
HealthCore will become the certificate of incorporation of the surviving company
and HealthCore will issue shares of common stock to holders of Adatom common
stock. The shares of Adatom common stock outstanding prior to the merger will
automatically become shares of HealthCore and are referred to in this section as
HealthCore common stock.
HEALTHCORE COMMON STOCK
The HealthCore certificate of incorporation currently authorizes the
issuance of 20,000,000 shares of common stock consisting of 19,640,000 shares of
HealthCore class A common stock 360,000 share of HealthCore class B common stock
and 5,000,000 shares of preferred stock. On the record date, there were
3,183,000 shares of HealthCore class A common stock and 216,000 shares of class
B common stock issued and outstanding. As part of the merger, the authorization
of class B common stock will be eliminated and class A common stock will be
renamed common stock.
The Board of Directors of HealthCore has approved, subject to adoption by
its stockholders, an amendment to Article FOURTH of HealthCore's Amended and
Restated Certificate of Incorporation which would make the following changes in
the capital structure of HealthCore:
o eliminate the authorization of class B common stock and rename the
class A common stock to common stock
o increase the authorized number of shares of common stock to 50
million shares.
HealthCore is expected to issue approximately 10,689,489 shares of
HealthCore common stock to holders of Adatom common stock in the merger,
including 50,661 shares issuable upon exercise of a warrant. Based upon such
number and the number of shares of HealthCore class A and class B common stock
outstanding on the record date, there would be approximately 13,346,228 shares
of HealthCore common stock outstanding immediately following consummation of the
merger and transactions contemplated thereby.
Holders of shares of HealthCore common stock will be entitled to one vote
per share and for each matter to be voted on generally by the stockholders.
Subject to the rights of the holders of preferred stock, holders of shares of
HealthCore common stock have equal rights to participate in dividends when
declared and, in the event of liquidation, in the net assets of HealthCore
available for distribution to stockholders.
The shares of HealthCore common stock, when issued to holders of
outstanding shares of Adatom common stock in connection with the merger, will be
duly authorized, validly issued, fully paid and non-assessable. The holders of
shares of HealthCore common stock have no preemptive rights or preferential
rights of subscription for any shares of HealthCore common stock or other
securities of HealthCore.
American Stock Transfer & Trust Company is the transfer agent and registrar
for the HealthCore common stock.
REDEEMABLE CLASS A WARRANTS
HealthCore currently has outstanding Class A Warrants for the purchase of
3,766,500 shares of Class A common stock. 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 October 14,
2002. Commencing on October 14, 1998, the Class A Warrants became redeemable by
HealthCore on 30 days' written notice at a redemption price of $.05 per Class A
Warrant if the "closing price" of HealthCore's Class A Common Stock for any 30
consecutive trading days ending within 15 days of the notice of redemption
averaged in excess of $9.10 per share. The "closing price" is 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 were issued pursuant to a warrant agreement (the
"Warrant Agreement") among HealthCore, D.H. Blair Investment Banking Corp.
("Blair") and American Stock Transfer & Trust Company, New York, New York, as
warrant agent (the "Warrant Agent"), and was evidenced by warrant certificates
in registered form. The Class A Warrants provide for adjustment of the exercise
price and for a change in the
77
<PAGE>
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 HealthCore and Blair and should not be construed to be predictive of or
to imply that any price increases in HealthCore's securities will occur.
HealthCore 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 HealthCore) 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 HealthCore
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 HealthCore
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 HealthCore. Upon notice to the Warrantholders,
HealthCore has the right to reduce the exercise price or extend the expiration
date of the Class A Warrants.
PREFERRED STOCK
HealthCore is authorized to issue up to 5,000,000 shares of "blank-check"
preferred stock (the "Preferred Stock"). The Board of Directors has 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 HealthCore'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 HealthCore 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. HealthCore currently has no plans to
issue any Preferred Stock.
UNIT PURCHASE OPTION
HealthCore has issued to Blair, a Unit Purchase Option to purchase up to
176,000 Units. Each Unit consists of one share of Class A Common Stock and one
redeemable Class A Warrant. The Warrants included in the Unit Purchase Option
are only subject to redemption by HealthCore after the Unit Purchase Option is
exercised and the underlying Warrants are outstanding. The Unit Purchase Option
is not transferable until October 14, 2000, except to any officer of Blair or
members of the selling group or their respective officers. The Unit Purchase
Option is exercisable during the two-year period commencing October 14, 2000 at
an exercise price of $6.00 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.
78
<PAGE>
OTHER WARRANTS
In September 1997, HealthCore granted warrants to purchase 284,000 shares
of Class A Common Stock to Mr. Polan. The warrants are exercisable at a price of
$1.00 per share and expire in September 2007. Warrants to purchase 142,000 of
such shares of Class A Common Stock will become exercisable if, and only if, one
or more of the following conditions are met: (i) HealthCore's Minimum Pretax
Income amounts to at least $5,500,000 for the fiscal year ending September 30,
1999; (ii) HealthCore's Minimum Pretax Income amounts to at least $7,500,000 for
the fiscal year ending September 30, 2000; (iii) the Closing Price (as defined
in the Escrow Agreement) of the Class A 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 HealthCore's initial public offering or (iv) the
Closing Price of the Class A 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 HealthCore's initial public offering.
In October 1997, HealthCore granted warrants to purchase 15,000 shares of
Class A Common Stock to Mr. Levitin as compensation for performing investor
relations services for HealthCore. The warrants are immediately exercisable at a
price of $5.00 per share and expire in October 2007.
In April 1999, HealthCore agreed to grant to Jesup & Lamont Securities
Corporation, as compensation for acting as financial advisor to HealthCore, a
warrant to purchase 200,000 shares of HealthCore common stock at an exercise
price of $1.00 per share. One half of these warrants was granted in April 1999
upon the execution of the engagement letter with Jesup & Lamont, and the
remaining one half will be granted upon the closing of the merger with Adatom.
The warrants will be immediately exercisable and expire five years from the date
of issue. The holders of the warrants will have unlimited "piggyback"
registration rights, subject to standard underwriters' approval and contain,
among other things, a cashless exercise provision.
In July 1999, Adatom agreed to grant to Jesup & Lamont Securities
Corporation, as compensation for acting as placement agent in the recent
convertible debt financing by Adatom, a warrant to purchase 23,315 shares of
Adatom common stock at an exercise price of $2.1447 per share. Upon consummation
of the merger with HealthCore, this warrant will be converted into a warrant to
purchase 50,661 shares of HealthCore at an exercise price of $.99 per share. The
warrants are immediately exercisable and expire on July 8, 2004. The holders of
the warrants have unlimited "piggyback" registration rights, subject to standard
underwriters' approval and contain, among other things, a cashless exercise
provision.
NASDAQ SMALL CAP MARKET MATTERS
It is a covenant of the merger that HealthCore and Adatom use their
respective best efforts to cause the shares of HealthCore common stock that will
be issued in connection with the merger to be approved for listing on the Nasdaq
Small Cap Market, subject to official notice of issuance. Application has been
made to list the HealthCore common stock to be issued in the merger on the
Nasdaq Small Cap Market, subject to official notice of issuance.
After the merger, the surviving company may be deemed to be a new company
required to meet the criteria for initial listing of securities on the Nasdaq
Small Cap Market. These initial listing criteria generally include either a
minimum of $4 million in net tangible assets, or $50 million in market
capitalization or $750,000 in net income in the latest fiscal year or two of the
last three fiscal years. In addition, the common stock must have at least three
registered and active market makers, be held by at least 300 round lot holders,
have a public float of at least one million shares, and have a minimum bid price
of $4.00. Finally, the market value of the public float must be at least $5
million. Jesup & Lamont Securities Corporation has been engaged to raise
$5.5 million through an equity securities offering which, if accomplished, will
dilute all stockholders.
If the surviving company does not meet the initial inclusion criteria,
which we expect it will not, immediately following the merger, it risks having
its common stock delisted. If this occurs, trading in the common stock would be
conducted in the over-the-counter market in the so-called "pink sheets" or, if
available, the "OTC Bulletin Board Service." As a result, an investor would
likely find it more difficult to dispose of, or to obtain accurate quotations as
to the value of, HealthCore's securities. Even if Jesup & Lamont is successful
in raising the money mentioned above, the common stock may be delisted before
the money is raised.
In addition, if HealthCore's securities were delisted, they would be
subject to Rule 15c2-6 under the Securities Exchange Act of 1934, which imposes
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and "accredited
investors." For transactions covered by this Rule, the broker-dealer must make a
special suitability determination for the customer and have received the
customer's written consent to the transaction prior to sale. Consequently, such
Rule may affect the ability of broker-dealers to sell HealthCore's securities
and may affect the ability of stockholders to sell any of the securities
acquired in the merger in the secondary market.
79
<PAGE>
1999 STOCK OPTION PLAN
GENERAL
In connection with the merger, the Board of Directors, subject to
stockholder approval, adopted the 1999 Stock Option Plan under which an
aggregate of 1,400,000 shares of surviving company common stock is reserved for
issuance upon exercise of options granted to selected employees, consultants,
officers, directors, independent contractors and other persons who contribute
and are expected to contribute materially to the success of the surviving
company. Incentive stock options that qualify under Section 422 of the Internal
Revenue Code and/or non-qualified stock options that do not so qualify may be
granted under the 1999 Stock Option Plan.
The purpose of the 1999 Stock Option Plan is to further the growth and
development of the surviving company by encouraging those granted options to
obtain a proprietary interest in the surviving company through the ownership of
stock, thereby providing such persons with an added incentive to promote the
long-term financial interests of the surviving company and enhancement of
long-term stockholder return. The 1999 Stock Option Plan is further intended to
afford the surviving company a means of attracting to its service persons of
outstanding ability.
SUMMARY OF THE 1999 STOCK OPTION PLAN
Administration of the 1999 Stock Option Plan
The authority to manage and control the operation and administration of the
1999 Stock Option Plan is vested in the Compensation Committee of the Board of
Directors, which shall consist of not less than two, non-employee, independent
directors.
Eligibility
Incentive Stock Options may be granted only to employees (including
officers) of the surviving company and/or any of its subsidiaries. To qualify as
an ISO under the Internal Revenue Code, among other things, the aggregate fair
market value, determined as at the date of grant, of the shares exercisable
under the ISO for the first time by the employee during any calendar year
(inclusive of shares under any other ISOs granted to the employee) can not
exceed $100,000; any excess will not qualify for treatment as an ISO. In the
event an ISO or a portion thereof no longer qualifies as such under the Code,
such former ISO, or portion thereof, as applicable, shall be deemed a
Non-Qualified Stock Option under the 1999 Stock Option Plan.
Non-Qualified Stock Options may be granted to any person (including
employees who have been granted ISOs) whom the Committee determines will
contribute to the success of the surviving company or its subsidiaries.
Grant of Options
Pursuant to the 1999 Stock Option Plan, the Committee selects those persons
to be granted options and determines (i) whether the respective option is to be
an ISO or NQSO, (ii) the number of shares of common stock purchasable
thereunder, (iii) the time or times when the option becomes exercisable, (iv)
the exercise price per share, which for ISOs cannot be less than 100% and for
NQSOs cannot be less than 75% of the fair market value on the date of grant, and
(v) the duration of the option, which cannot exceed ten years. For purposes of
the 1999 Stock Option Plan, "fair market value" of a share of common stock as of
a specified date is the closing sales price of the common stock on the Nasdaq
Small Cap Market (or on such other public market on which the common stock may
then be traded) on the trading day immediately preceding the specified date.
Each grant of an option will be evidenced by a written stock option
agreement setting forth the terms and conditions of the option, including
whether it is an ISO or NQSO. Nothing in the 1999 Stock Option Plan nor in the
stock option agreement evidencing the grant of the ISO and/or NQSO shall confer
upon the
81
<PAGE>
holder any right to continue in the employ of the surviving company or obligate
the surviving company to continue the engagement of the holder.
Section 162 (m) of the Code places limits on the deductibility for federal
income tax purposes of compensation paid to certain executive officers of the
surviving company. In order to preserve the surviving company's ability to
deduct the compensation income associated with options, the 1999 Stock Option
Plan limits the number of shares as to which options may be granted under the
Plan to any employee during any calendar year to a maximum of 700,000 shares.
Exercise of Options
Options shall become exercisable on the terms and conditions established by
the Committee as set forth in the written option agreement.
Payment for the shares may be made (i) in cash, or (ii) by surrender of
shares of common stock having a fair market value equal to the aggregate
exercise price of the shares being purchased. Prior to the issuance of shares
upon exercise of an option, the exercising holder shall be required to pay or
make adequate provision for payment of any federal, state or local withholding
tax obligations. Until the option has been validly exercised, the holder of an
option shall not have any rights of a stockholder of the surviving company with
respect to the shares purchasable thereunder.
ISOs may be exercised by the holder only while in the employ of the
surviving company or a subsidiary or within three months following termination
of employment unless the termination is due to death or disability, in which
event the ISO may be exercised within twelve (12) months of such event to the
extent the option could have been exercised at the date of termination, but in
no event subsequent to the option's expiration date. The Committee, in its sole
discretion, may extend the time during which an ISO or NQSO may be exercised,
which could have the effect of changing an ISO into a NQSO, and may permit an
ISO or NQSO to be transferred, without consideration, to family members of the
holder of the option or entities for his or their benefit.
Adjustments
The 1999 Stock Option Plan contains customary anti-dilution provisions that
provide that in the event of any stock dividend, stock split, reverse stock
split, combination, reclassification or similar change in the capital structure
of the surviving company without consideration, the number of shares of common
stock available under the 1999 Stock Option Plan and the number of shares
subject to outstanding options and the related exercise price per share shall be
proportionately adjusted.
Amendments to the 1999 Stock Option Plan
The Committee may at any time amend the 1999 Stock Option Plan in any
respect (including, but not limited to, any form of grant, agreement or
instrument to be executed pursuant thereto); provided, however, that stockholder
approval shall be required to be obtained to increase the number of shares
purchasable under the 1999 Stock Option Plan or if otherwise required by the
Nasdaq Small Cap Market or other entity on which the common stock may then be
traded, and no amendment may adversely affect any then outstanding options or
any unexercised portions thereof without the written consent of the affected
holders.
Termination of 1999 Stock Option Plan; Successors
No options may be granted under the 1999 Stock Option Plan subsequent to
September 7, 2009 but options theretofore granted may extend beyond that date
and the terms of the 1999 Stock Option Plan shall continue to apply to such
options and to any shares acquired upon exercise thereof. The 1999 Stock Option
Plan may be sooner terminated at the discretion of the Committee.
82
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options (ISOs)
No taxable income is recognized by the recipient of an ISO upon either the
grant or exercise of the ISO (except that the alternative minimum tax may apply
upon exercise) and no expense deduction is available to the surviving company
upon either such event. If the exercising holder of an ISO holds the shares so
acquired for at least two years from the date of grant of the ISO and for at
least one year from the date of exercise, any gain (the excess of the sales
price over the exercise price) on the subsequent sale of such shares will be
long-term capital gain. However, in the event the holder sells the shares prior
to the expiration of either such two-year or one-year period (referred to as a
"disqualifying disposition") the holder will recognize taxable income at
ordinary tax rates in an amount equal to the lesser of (i) the excess of the
fair market value of the shares on the date of exercise over the exercise price,
or (ii) the excess of the sales price over the exercise price, and the surviving
company will receive a corresponding business expense deduction. The balance of
any gain recognized on the disqualifying disposition will be capital gain,
either long-term or short-term depending on the period the shares were held
prior to the sale. The two-year and one year holding periods do not apply to a
holder's estate or heirs in the event of the holder's death.
Non-Qualified Stock Options (NQSOs)
As in the case of ISOs, the grant of a NQSO will not result in taxable
income to the recipient. However, unlike the situation with ISOs, the exercising
holder will recognize ordinary income upon the exercise of a NQSO, the amount of
such income being equal to the excess of the fair market value of the shares
received upon exercise over the exercise price, and the surviving company will
be entitled to a corresponding business expense deduction if federal income tax
attributable to such excess is withheld. The fair market value of the shares on
the date income is required to be recognized will constitute the tax basis for
such shares for computing gain or loss on any subsequent sale, which will be
capital gain or loss, either long-term or short-term depending on the holding
period.
The foregoing is only a summary of the federal income tax consequences with
respect to ISOs and NQSOs which may be granted under the 1999 Stock Option Plan
and does not purport to be complete. Reference should be made to applicable
provision of the Internal Revenue Code. In addition, the summary does not
discuss the tax consequences of the income tax laws of any municipality, state
or foreign country in which the recipient of an option may reside.
83
<PAGE>
TERMINATION OF THE ESCROW AGREEMENT
In connection with HealthCore's IPO, the pre-IPO stockholders of HealthCore
placed, on a pro rata basis, a portion of their shares into escrow pending
HealthCore's attainment of certain earnings thresholds or per share stock price
thresholds. If these thresholds are not met, the shares subject to the escrow
agreement will be returned to HealthCore and cancelled. HealthCore's management
believed that while operating the healthcare benefits business, it was unlikely
that the conditions of the escrow agreement would be met. In connection with the
merger, and subject to stockholder approval, the escrow agreement will be
terminated, the escrow stockholders will receive 20% of their shares free of the
escrow agreement trading restrictions and the remaining 80% of the shares will
be cancelled and returned to HealthCore.
Approval of the termination of the escrow agreement will require the
approval of at least two-thirds of the shares of class A common stock
outstanding on the record date excluding all shares of class A common stock held
by escrow stockholders whether or not those shares are subject to the escrow
agreement. The termination of the escrow agreement will result in the
cancellation of 720,000 shares held in escrow. In the absence of this
cancellation, Adatom stockholders would have received an additional 3,200,000
shares of HealthCore common stock in the merger and the stockholders who had
placed their 900,000 shares in escrow would continue to be subject to the risk
of forfeiture of those shares in the event the combined company failed to meet
the market price thresholds and operating performance-based criteria.
In the event the stockholders of HealthCore fail to approve the termination
of the escrow agreement, Adatom stockholders have agreed to vote all of their
shares of the combined company to approve the termination of the escrow
agreement at the first annual or special meeting of the stockholders of the
combined company following the merger.
In the event the stockholders of HealthCore fail to approve the termination
of the escrow agreement, Adatom stockholders will approve termination of the
escrow agreement at the first annual or special meeting of the stockholders of
the combined company following the merger, which will be called by the combined
company as soon as practicable following the merger.
84
<PAGE>
COMPARISON OF RIGHTS OF HOLDERS
OF ADATOM COMMON STOCK AND HEALTHCORE COMMON STOCK
GENERAL
If the merger agreement is approved and the merger becomes effective,
Adatom stockholders will become stockholders of Adatom.com, Inc. Their rights as
stockholders will be determined by the Delaware General Corporation Law and
HealthCore's Restated certificate of incorporation and by-laws since they will
be adopted as the certificate of incorporation and by-laws of the surviving
company. Differences between the DGCL and the California Corporation Code, as
well as those between the certificate of incorporation and by-laws of HealthCore
and the articles of incorporation and the by-laws of Adatom, are summarized
below. This summary is not intended to be complete and is qualified in its
entirety by reference to the DGCL, the CCC, and the certificate of incorporation
and by-laws of HealthCore and the articles of incorporation and by-laws of
Adatom.
SIZE OF THE BOARD OF DIRECTORS
Under California law, the number of directors of a corporation may be fixed
in the articles of incorporation or by-laws of a corporation, or a range may be
established for the number of directors, with the board of directors given
authority to fix the exact number of directors within such range. The Adatom by-
laws provide that there be five directors on the board of directors. Under
Delaware law, the number of directors of a corporation, or the range of
authorized directors, may be fixed or changed by the board of directors acting
alone, by amendment to the corporation's by-laws, unless the directors are not
authorized to amend the by-laws or the number of directors is fixed in the
certificate of incorporation, in which cases stockholder approval is required.
The HealthCore by-laws provides that the number of directors be fixed by the
vote of a majority of the entire board then in office. The exact number is
currently set at four, and HealthCore's by-laws authorize the HealthCore board
to make, alter, amend or repeal the HealthCore by-laws. Accordingly, a majority
of HealthCore's board of directors will have the power to change the authorized
number of directors.
CUMULATIVE VOTING
Under California law, if any stockholder has given notice of his or her
intention to cumulate votes for the election of directors, any other stockholder
of the corporation also is entitled to cumulate his or her votes at such
election. Cumulative voting is not available under Delaware law unless
specifically provided for in a corporation's certificate of incorporation. The
HealthCore certificate of incorporation does not provide for cumulative voting
and, therefore, the stockholders of the surviving company will no longer have
cumulative voting rights. The elimination of cumulative voting would limit the
ability of minority stockholders to obtain representation on a corporation's
board of directors.
CLASSIFIED BOARD OF DIRECTORS
A classified board is one on which a certain number, but not all, of the
directors are elected on a rotating basis each year. Under California law,
directors generally are elected annually. Delaware law permits, but does not
require, a classified board of directors, with staggered terms under which
one-half or one-third of the directors are elected for terms of two or three
years, respectively. This method of electing directors makes a change in the
composition of the board of directors, and a potential change in control of a
corporation, a lengthier and more difficult process.
WRITTEN CONSENT OF STOCKHOLDERS
Both the CCC and the DGCL provide that the stockholders of a corporation
may take action by written consent without a meeting, unless the corporation's
charter documents provide otherwise. The certificate of incorporation of
HealthCore does not contain such a provision.
85
<PAGE>
POWER TO CALL SPECIAL STOCKHOLDERS' MEETINGS
Under California law, a special meeting of stockholders may be called by
the board of directors, the chairman of the board, the president, the holders of
shares entitled to cast not less than 10% of the votes at such meeting and such
additional persons as are authorized by the articles of incorporation or the
by-laws. Under Delaware law, a special meeting of stockholders may be called by
the board of directors or by any other person authorized to do so in the
certificate of incorporation or the by-laws. The by-laws of HealthCore allow the
board or the holders of at least 20% of the outstanding stock of HealthCore to
call special meetings of the stockholders. This might delay stockholder
proposals until the next annual meeting of stockholders.
STOCKHOLDER APPROVAL OF BUSINESS COMBINATIONS
In the last several years, a number of states, but not California, have
adopted special laws designed to subject to stockholder approval certain kinds
of "unfriendly" corporate takeovers, or other transactions involving a
corporation and one or more of its significant stockholders.
Under Section 203 of the DGCL, "business combinations" with "interested
stockholders" of Delaware corporations are subject to a three-year moratorium
unless specified conditions are met. With exceptions, an interested stockholder
is a person or group who or which owns 15% or more of the corporation's
outstanding voting stock, or is an affiliate or associate of the corporation and
was the owner of 15% or more of such voting stock at any time within the
previous three years. Such voting stock includes any rights to acquire stock
pursuant to an option, warrant, agreement, arrangement or understanding, or upon
the exercise of conversion or exchange rights, and stock with respect to which
the person has voting rights only.
For purposes of Section 203, the term "business combination" is defined
broadly to include:
1. mergers with or caused by the interested stockholder,
2. sales or other dispositions to the interested stockholder, except
proportionately with the corporation's other stockholders, of assets of
the corporation or a subsidiary equal to 10% or more of the aggregate
market value of the corporation's consolidated assets or its outstanding
stock,
3. the issuance or transfer by the corporation or a subsidiary of stock of
the corporation or such subsidiary to the interested stockholder, except
for transfers in a conversion or exchange or a pro rata distribution or
other transactions, none of which increase the interested stockholder's
proportionate ownership of any class or series of the corporation's or
such subsidiary's stock
4. any increase in the proportionate share of the stock of any class or
series of the corporation, except as a result of immaterial changes due
to fractional share adjustments or as a result of any purchase or
redemption of any shares of stock not caused, directly or indirectly, by
the interested stockholder, or
5. receipt by the interested stockholder except proportionately as a
stockholder, directly or indirectly, of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the
corporation or a subsidiary.
The three-year moratorium imposed on business combinations by Section 203
does not apply if:
1. prior to the date on which such stockholder becomes an interested
stockholder the board of directors approves either the business
combination or the transaction which resulted in the person becoming an
interested stockholder;
2. the interested stockholder owns 85% of the corporation's voting stock
upon consummation of the transaction which made him or her an interested
stockholder, excluding from the 85% calculation shares owned by
directors who are also officers of the target corporation and shares
held by employee stock plans which do not permit employees to decide
confidentially whether to accept a tender or exchange offer; or
3. on or after the date such person becomes an interested stockholder, the
board approves the business combination and it also is approved at a
stockholder meeting by 66 2/3% of the voting stock not owned by the
interested stockholder.
86
<PAGE>
Section 203 only applies to Delaware corporations which have a class of
voting stock that is listed on a national securities exchange, such as the
Nasdaq Small Cap Market or are held of record by more than 2,000 stockholders.
However, a Delaware corporation may elect not to be governed by Section 203 by a
provision in its original certificate of incorporation or an amendment thereto
or to the by-laws, which amendment must be approved by majority stockholder vote
and may not be further amended by the board of directors. HealthCore is
currently subject to Section 203.
REMOVAL OF DIRECTORS
Under California law, any director or the entire board of directors may be
removed, with or without cause, with the approval of a majority of the
outstanding shares entitled to vote; however, no individual director may be
removed unless the entire board is removed if the number of votes cast against
such removal would be sufficient to elect the director under cumulative voting
and the entire number of directors authorized at the time of the directors most
recent election were then being elected. Under Delaware law, a director of a
corporation that does not have a classified board of directors or cumulative
voting may be removed with or without cause with the approval of a majority of
the outstanding shares entitled to vote. In the case of a Delaware corporation
having cumulative voting, if less than the entire board is to be removed, a
director may not be removed without cause unless the number of shares voted
against such removal would not be sufficient to elect the director under
cumulative voting. A director of a corporation with a classified board of
directors may be removed only for cause, unless the certificate of incorporation
otherwise provides. The by-laws of the surviving company provides for removal of
directors, either with or without cause, by a majority of the votes of the
issued and outstanding shares of stock entitled to vote, or by a majority of the
vote of the Board of Directors at a meeting called for such purpose.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Under California law, any vacancy on the board of directors other than one
created by removal of a director may be filled by the board. If the number of
directors then in office is less than a quorum, a vacancy may be filled by
(1) the unanimous written consent of the directors then in office, (2) the
affirmative vote of a majority of the directors at a meeting held pursuant to
notice or waivers of notice or, (3) a sole remaining director. A vacancy created
by removal of a director may be filled by the board only if so authorized by a
corporation's articles of incorporation or by a bylaw approved by the
corporation's stockholders, and if not so authorized, then by approval of the
stockholders. Under Delaware law, vacancies and newly created directorships may
be filled by a majority of the directors then in office, even though less than a
quorum, unless otherwise provided in the certificate of incorporation or by-laws
and unless the certificate of incorporation directs that a particular class is
to elect such director, in which case any other directors elected by such class,
or a sole remaining director, shall fill such vacancy.
LOANS TO OFFICERS AND EMPLOYEES
Under California law, any loan or guaranty to or for the benefit of a
director or officer of the corporation or its parent requires approval of a
majority of the stockholders unless such loan or guaranty is provided under an
employee benefit plan approved by stockholders owning a majority of the
outstanding shares of the corporation. In addition, under California law,
stockholders of any corporation with 100 or more stockholders of record may
approve a bylaw authorizing the board of directors alone to approve loans or
guaranties to or on behalf of officers, whether or not such officers are
directors, if the board determines that any such loan or guaranty may reasonably
be expected to benefit the corporation. Under Delaware law, a corporation may
make loans to, guarantee the obligations of or otherwise assist its officers or
other employees and those of its subsidiaries, including directors who are also
officers or employees, when such action, in the judgment of the directors, may
reasonably be expected to benefit the corporation.
INDEMNIFICATION AND LIMITATION OF LIABILITY
California and Delaware have similar laws respecting indemnification by a
corporation of its officers, directors, employees and other agents. The laws of
both states also permit corporations to adopt a provision in their articles of
incorporation eliminating the liability of a director to the corporation or its
stockholders for
87
<PAGE>
monetary damages for breach of the director's fiduciary duty of care. There are
differences between the laws of the two states respecting indemnification and
limitation of liability.
The Articles of Incorporation of Adatom eliminate the liability of
directors to Adatom to the fullest extent permissible under California law.
California law does not permit the elimination of monetary liability where such
liability is based on:
1. intentional misconduct or knowing and culpable violation of law;
2. acts or omissions that a director believes to be contrary to the best
interest of the corporation or its stockholders, or that involve the
absence of good faith on the part of the director;
3. receipt of an improper personal benefit;
4. acts or omissions that show reckless disregard for the director's duty
to the corporation or its stockholders where the director in the
ordinary course of performing a director's duties should be aware of
risks of serious injury to the corporation or its stockholders;
5. acts or omissions that constitute an unexcused pattern of inattention
that amounts to an abdication of the director's duty to the corporation
and its stockholders;
6. interested transactions between the corporation and a director in which
a director has a material financial interest; and
7. liability for improper distributions, loans or guarantees.
The certificate of incorporation of HealthCore also eliminates the
liability of directors to the fullest extent permissible under Delaware law, as
such law exists currently or as it may be amended in the future. Under Delaware
law, such provision may not eliminate or limit director monetary liability for:
1. breaches of the director's duty of loyalty to the corporation or its
stockholders;
2. acts or omissions not in good faith or involving intentional misconduct
or knowing violations of law;
3. the payment of unlawful dividends or unlawful stock repurchases or
redemptions; or
4. transactions in which the director received an improper personal
benefit.
Such limitation of liability provision also may not limit a director's
liability for violation of, or otherwise relieve HealthCore or its directors
from the necessity of complying with, federal or state securities laws, or
affect the availability of non-monetary remedies such as injunctive relief or
rescission.
California law permits indemnification of expenses incurred in derivative
or third-party actions, except that with respect to derivative actions:
1. no indemnification may be made without court approval when a person is
adjudged liable to the corporation in the performance of that person's
duty to the corporation and its stockholders, unless a court determines
such person is entitled to indemnity for expenses, and then such
indemnification may be made only to the extent that such court shall
determine; and
2. no indemnification may be made without court approval in respect of
amounts paid or expenses incurred in settling or otherwise disposing of
a threatened or pending action or amounts incurred in defending a
pending action which is settled or otherwise disposed of without court
approval.
Delaware allows indemnification of such expenses without court approval.
Delaware law generally permits indemnification of expenses incurred in the
defense or settlement of a derivative or third-party action, provided there is a
determination by a disinterested quorum of the directors, by independent legal
counsel or by a majority vote of a quorum of the stockholders that the person
seeking indemnification acted in good faith and in a manner reasonably believed
to be in or, in contrast to California law, not opposed to the best interests of
the corporation. Without court approval, however, no indemnification may be made
in respect of any derivative action in which such person is adjudged liable for
negligence or misconduct in the performance of his or her duty to the
corporation. Delaware law requires indemnification of expenses when the
individual being indemnified has successfully defended the action on the merits
or otherwise.
88
<PAGE>
Indemnification is permitted by California law only for acts taken in good
faith and believed to be in the best interests of the corporation and its
stockholders, as determined by a majority vote of a disinterested quorum of the
directors, independent legal counsel, if a quorum of independent directors is
not obtainable, a majority vote of a quorum of the stockholders excluding shares
owned by the indemnified party, or the court handling the action. California law
requires indemnification when the individual successfully has defended the
action on the merits as opposed to Delaware law which requires indemnification
relating to a successful defense on the merits or otherwise.
California corporations may include in their articles of incorporation a
provision which extends the scope of indemnification through agreements, by-laws
or other corporate action beyond that specifically authorized by statute.
Delaware law states that the indemnification provided by statute shall not be
deemed exclusive of any other rights under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise. Under Delaware law,
therefore, any indemnification agreements entered into by Adatom with its
officers and directors may be assumed by HealthCore upon completion of the
merger.
Currently, there are no actions pending against any officers of Adatom in
their capacities as such.
INSPECTIONS OF STOCKHOLDERS LIST
Both California and Delaware law allow any stockholder to inspect the
stockholders list for a purpose reasonably related to such person's interest as
a stockholder. California law provides, in addition, for an absolute right to
inspect and copy the corporation's stockholder list by persons holding an
aggregate of 5% or more of a corporation's voting shares, or stockholders
holding an aggregate of 1% or more of such shares who have filed a Schedule 14B
with the SEC relating to the election of directors. Delaware law does not
provide for any such absolute right of inspection, and no such right is granted
under the certificate of incorporation or By-laws of HealthCore. Lack of access
to stockholder records, even though unrelated to the stockholder's interest as a
stockholder, could result in impairment of the stockholder's ability to
coordinate opposition to management proposals, including proposals with respect
to a change in control of HealthCore.
DIVIDENDS AND REPURCHASES OF SHARES
California law dispenses with the concepts of par value of shares as well
as statutory definitions of capital, surplus and the like. The concepts of par
value, capital and surplus are retained under Delaware law. Under California
law, a corporation may not make any distribution, including dividends, whether
in cash or other property, and repurchases of its shares, unless either the
corporation's retained earnings immediately prior to the proposed distribution
equal or exceed the amount of the proposed distribution or, immediately after
giving effect to such distribution, the corporation's assets, exclusive of
goodwill, capitalized research and development expenses and deferred charges,
would be at least equal to 1.25 times its liabilities, not including deferred
taxes, deferred income and other deferred credits, and the corporation's current
assets would be at least equal to its current liabilities or 1.25 times its
current liabilities if the average pre-tax and pre-interest expense earnings for
the preceding two fiscal years were less than the average interest expense for
such years. Such tests are applied to California corporations on a consolidated
basis.
Delaware law permits a corporation to declare and pay dividends out of
surplus or, if there is no surplus, out of net profits for the fiscal year in
which the dividend is declared and/or for the preceding fiscal year as long as
the amount of capital of the corporation following the declaration and payment
of the dividend is not less than the aggregate amount of the capital of the
corporation represented by the issued and outstanding stock of all classes
having a preference upon the distribution of assets. In addition, Delaware law
generally provides that a corporation may redeem or repurchase its shares only
if such redemption or repurchase would not impair the capital of the
corporation.
89
<PAGE>
STOCKHOLDER VOTING
Both California and Delaware law generally require that a majority of the
stockholders of both acquiring and target corporations approve statutory
mergers. Unless the corporation provides otherwise in its certificate of
incorporation, Delaware law does not require a stockholder vote of the surviving
company in a merger if:
1. the merger agreement does not amend the existing certificate of
incorporation;
2. each share of the surviving company outstanding before the merger is an
identical outstanding or treasury share after the merger; and
3. the number of shares to be issued by the surviving company in the merger
does not exceed 20% of the shares outstanding immediately prior to the
merger.
California law contains a similar exception to its voting requirements for
reorganizations where stockholders or the corporation itself, or both,
immediately prior to the reorganization will own immediately after the
reorganization equity securities constituting more than five-sixths of the
voting power of the surviving or acquiring corporation or its entity. Both
California and Delaware law also require that a sale of all or substantially all
of the assets of the corporation be approved by a majority of the voting shares
of the corporation transferring such assets. With exception, California law also
requires that mergers, reorganizations and similar transactions be approved by a
majority vote of each class of shares outstanding. In contrast, Delaware law
generally does not require class voting, except in transactions involving an
amendment to the certificate of incorporation which adversely affects a specific
class of shares. Should HealthCore authorize and issue shares of a new class of
capital stock, the holders of such shares would vote with the holders of the
HealthCore common stock on proposals not adversely affecting the HealthCore
common stock. In such event the holders of HealthCore common stock, if in the
minority, would be unable to control the outcome of a vote and, if in the
majority, would be able to control the outcome of such a vote.
California law also requires that holders of non-redeemable common stock
receive non-redeemable common stock in a merger of the corporation with the
holders of more than 50% but less than 90% of such common stock or its affiliate
unless all of the holders of such common stock consent to the transaction. This
provision of California law may have the effect of making a "cash-out" merger by
a majority stockholder more difficult to accomplish. Although Delaware law does
not parallel California law in this respect, under some circumstances
Section 203 of the DGCL does provide similar protection against coercive
two-tiered bids for a corporation in which the stockholders are not treated
equally.
California law also provides that, circumstances when a tender offer or a
proposal for a reorganization or for a sale of assets is made by an interested
party, which is generally a controlling or managing party of the target
corporation, an affirmative opinion in writing as to the fairness of the
consideration to be paid to the stockholders must be delivered to stockholders.
This fairness opinion requirement does not apply to a corporation which does not
have shares held of record by at least 100 persons, or to a transaction which
has been qualified under California state securities laws. Furthermore, if a
tender of shares or vote is sought pursuant to an interested party's proposal
and a later proposal is made by another party at least ten days prior to the
date of acceptance of the interested party proposal, the stockholders must be
informed of the later offer and be afforded a reasonable opportunity to withdraw
any vote, consent or proxy, or to withdraw any tendered shares. Delaware law has
no comparable provision, and the stockholders of Adatom might, therefore, be
deprived of an opportunity to consider such other proposal.
AMENDMENT OF BY-LAWS
Under California law, by-laws may be amended by stockholders holding a
majority of the outstanding shares, or by the board, except that if the number
or a range of directors are specified in the by-laws, this provision can be
changed only with the approval of the stockholders. Stockholders can adopt or
amend by-law provisions to limit the ability of the board to amend the by-laws.
Under Delaware law, the by-laws may be amended only by the stockholders, unless
the corporation's certificate of incorporation confers the power to amend the
by-laws on the directors also. The certificate of incorporation of the surviving
company provides that the by-laws may be amended by the board of directors or
the holders of at least a majority of the outstanding stock.
90
<PAGE>
AMENDMENT OF CERTIFICATE OR ARTICLES OF INCORPORATION
Under both Delaware and California law, amendments to a corporation's
certificate or articles of incorporation must be approved by a corporation's
board of directors and by a majority of the stockholders. In addition, under
both Delaware and California law, if a corporation has more than one class or
series of stock outstanding, amendments that would affect the rights of such
class or series require the vote of a majority of the shares of such class or
series. "Supermajority" requirements, which are requirements of a vote of more
than a majority of the shares, are permitted under both California and Delaware
law. However, California law provides that, for a corporation with outstanding
shares held of record by 100 or more persons, such provision:
1. cannot require a vote higher than 66 2/3%;
2. must be approved by at least as large a proportion of the outstanding
shares as the supermajority provision requires; and
3. automatically expires after two years unless renewed pursuant to a
stockholder vote.
The proposed amended and restated certificate of incorporation of
HealthCore provides that it may be amended as provided in Delaware law.
INTERESTED DIRECTOR TRANSACTIONS
Under both California and Delaware law, contracts or transactions in which
one or more of a corporation's directors has an interest are not void or
voidable because of such interest provided that conditions, such as obtaining
the required approval and fulfilling the requirements of good faith and full
disclosure, are met. With exceptions, the conditions are similar under
California and Delaware law. Under California and Delaware law:
1. either the stockholders or the board of directors must approve any such
contract or transaction after full disclosure of the material facts, and
2. in the case of board approval, the contract or transaction must also be
"just and reasonable" in California or "fair" in Delaware to the
corporation; or
3. the contract or transaction must have been just and reasonable or fair
as to the corporation at the time it was approved.
In the latter case, California law explicitly places the burden of proof on
the interested director. Under California law, if stockholder approval is
sought, the interested director is not entitled to vote his shares at a
stockholder meeting with respect to any action regarding such contract or
transaction. If board approval is sought, the contract or transaction must be
approved by a majority vote of a quorum of the directors, without counting the
vote of any interested directors, except that interested directors may be
counted for purposes of establishing a quorum. Under Delaware law, if board
approval is sought, the contract or transaction must be approved by a majority
of the disinterested directors, even though less than a majority of a quorum.
STOCKHOLDER DERIVATIVE SUITS
California law provides that a stockholder bringing a derivative action on
behalf of a corporation have been a stockholder at the time of the transaction
in question, provided that appropriate tests are met. Under Delaware law, a
stockholder only may bring a derivative action on behalf of the corporation if
the stockholder was a stockholder of the corporation at the time of the
transaction in question or his or her stock thereafter devolved upon him or her
by operation of law. California law also provides that the corporation or the
defendant in a derivative suit may make a motion to the court for an order
requiring the plaintiff stockholder to furnish a security bond. Delaware does
not have a similar bonding requirement.
91
<PAGE>
APPRAISAL RIGHTS
Under both California and Delaware law, a stockholder of a corporation
participating in major corporate transactions may, under varying circumstances,
be entitled to appraisal rights pursuant to which such stockholder may receive
cash in the amount of the "fair value" (Delaware) or "fair market value"
(California) of his or her shares, as determined by a court, in lieu of the
consideration he or she would otherwise receive in the transaction. Under
Delaware law, such appraisal rights are not available:
1. with respect to the sale, lease or exchange of all or substantially all
of the assets of a corporation;
2. with respect to a merger or consolidation by a corporation the shares of
which either are listed on a national securities exchange or are held of
record by more than 2,000 holders if such stockholders receive only
shares of the surviving company or shares of any other corporation which
either are listed on a national securities exchange or held of record by
more than 2,000 holders, plus cash in lieu of fractional shares; or
3. to stockholders of a corporation surviving a merger if no vote of the
stockholders of the surviving company is required to approve the merger
because the merger agreement does not amend the existing certificate of
incorporation, each share of the surviving company outstanding prior to
the merger is an identical outstanding or treasury share after the
merger, and the number of shares to be issued in the merger does not
exceed 20% of the shares of the surviving company outstanding
immediately prior to the merger and if other conditions are met.
The limitations on the availability of appraisal rights under California
law are different from those under Delaware law. Stockholders of a California
corporation whose shares are listed on a national securities exchange or on a
list of over-the-counter margin stocks issued by the Board of Governors of the
Federal Reserve System generally do not have such appraisal rights unless the
holders of at least 5% of the class of outstanding shares claim the right or the
corporation or any law restricts the transfer of such shares. California law
also generally affords appraisal rights in sale of asset reorganizations.
Appraisal rights are unavailable, however, if the stockholders of a corporation
or the corporation itself, or both, immediately prior to the reorganization will
own immediately after the reorganization equity securities constituting more
than five-sixths of the voting power of the surviving or acquiring corporation
or its parent entity.
DISSOLUTION
Under California law, stockholders holding 50% or more of the total voting
power may authorize a corporation's dissolution, with or without the approval of
the corporation's board of directors, and this right may not be modified by the
articles of incorporation. Under Delaware law, unless the board of directors
approves the proposal to dissolve, in which case a simple majority may approve
the dissolution, the dissolution must be approved by stockholders holding 100%
of the total voting power of the corporation. In the event of such a
board-initiated dissolution, Delaware law allows a Delaware corporation to
include in its certificate of incorporation a supermajority voting requirement
in connection with dissolutions.
AUTHORIZED CAPITAL
Adatom. The authorized capital stock of Adatom consists of
10,000,000 shares of Adatom common stock, of which there were 2,384,600 shares
outstanding as of the record date.
HealthCore. The authorized capital stock of HealthCore prior to the merger
consisted of 19,640,000 shares of HealthCore class A common stock, of which
there were 3,183,000 shares outstanding as of the record date, 360,000 shares of
HealthCore class B common stock, of which there were 216,000 outstanding as of
the record date and 5,000,000 shares of HealthCore preferred stock, of which
there were no shares outstanding as of the record date. If the amendments to
HealthCore's Certificate of Incorporation are approved by the stockholders, the
authorized capital stock of HealthCore will be 50,000,000 shares of HealthCore
common stock and 5,000,000 shares of HealthCore preferred stock.
92
<PAGE>
EXPERTS
The financial statements of HealthCore Medical Solutions, Inc. as of
September 30, 1998, and for each of the years in the two-year period ended
September 30, 1998, included in this joint proxy statement/prospectus have been
audited by Richard A. Eisner & Company, LLP, independent accountants, as set
forth in their report appearing herein, and are included herein in reliance upon
the report given upon the authority of said firm as experts in accounting and
auditing.
The financial statements of Adatom as of December 31, 1998 and 1997, and
for each of the years then ended and for the period from inception, October 10,
1996, to December 31, 1998 included in this joint proxy statement/prospectus
have been audited by Ireland, San Filippo, LLP, independent public accountants,
as indicated in their report with respect thereto, and are included herein on
reliance upon the authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters with respect to the validity of the HealthCore common
stock will be passed upon for HealthCore by Epstein Becker & Green, P.C.
93
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditors' Report........................................................................... F-2
Balance Sheet as of September 30, 1998................................................................. F-3
Statements of Operations for the years ended September 30, 1998 and 1997............................... F-4
Statements of Changes in Stockholders' Equity/Capital Deficiency for the years ended September 30, 1998
and 1997............................................................................................. F-5
Statements of Cash Flows for the years ended September 30, 1998, and 1997.............................. F-6
Notes to Financial Statements.......................................................................... F-7-14
Balance Sheet as of June 30, 1999 (unaudited).......................................................... F-15
Statements of Operations for the three and nine months ended June 30, 1999 and 1998 (unaudited)........ F-16
Statements of Cash Flows for the nine months ended June 30, 1999 and 1998 (unaudited).................. F-17
Notes to Financial Statements (unaudited).............................................................. F-18-22
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
HealthCore Medical Solutions, Inc.
Grandview, Missouri
We have audited the accompanying balance sheet of HealthCore Medical
Solutions, Inc. (the business successor to MegaVision, L.C.) as of
September 30, 1998 and the related statements of operations, changes in
stockholders' equity/(capital deficiency) and cash flows for the years ended
September 30, 1998 and 1997. 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, 1998 and the results of its operations and
its cash flows for the years ended September 30, 1998 and 1997, 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
Florham Park, New Jersey
December 2, 1998
F-2
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
SUCCESSOR TO MEGAVISION, L.C.
BALANCE SHEET
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents......................................................................... $ 4,040,449
Prepaid expenses and other current assets......................................................... 163,453
------------
Total current assets........................................................................... 4,203,902
------------
Property and equipment, net......................................................................... 210,841
Other assets...................................................................................... 15,570
------------
226,411
------------
$ 4,430,313
------------
------------
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses............................................................. $ 114,886
Current portion of obligation under capital lease--affiliate...................................... 63,988
------------
Total current liabilities...................................................................... 178,874
Obligation under capital lease--affiliate........................................................... 18,632
------------
Total liabilities.............................................................................. 197,506
------------
Commitment and other matters........................................................................
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized 5,000,000 shares
Common stock, $.01 par value:
Class A, authorized, 19,784,000 shares;
issued and outstanding 3,018,000 shares........................................................ 30,180
Class B, authorized, 216,000 shares;
issued and outstanding 216,000 shares.......................................................... 2,160
Additional paid-in capital.......................................................................... 10,755,932
Accumulated deficit................................................................................. (6,555,465)
------------
Total stockholders' equity........................................................................ 4,232,807
------------
$ 4,430,313
------------
------------
</TABLE>
See notes to financial statements
F-3
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
SUCCESSOR TO MEGAVISION, L.C.
STATEMENTS OF OPERATIONS (NOTE A)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1998 1997*
----------- -----------
<S> <C> <C>
Revenues:
Membership revenues............................................................... $ 84,402
-----------
Costs and expenses:
Costs of membership............................................................... 73,506
General and administrative........................................................ 1,794,457 $ 2,183,067
Selling and marketing............................................................. 385,462 306,213
Interest expense.................................................................. 71,463 778,136
----------- -----------
Total.......................................................................... 2,324,888 3,267,416
----------- -----------
Loss before other income.......................................................... (2,240,486) (3,267,416)
Other income--interest............................................................ 253,302 25,491
----------- -----------
Net loss............................................................................ $(1,987,184) $(3,241,925)
----------- -----------
Basic and diluted net loss per common share......................................... $ (.89) $ (12.07)
----------- -----------
----------- -----------
Weighted average number of common shares outstanding................................ 2,220,466 268,677
----------- -----------
----------- -----------
</TABLE>
- ------------------
* Reclassified to conform to current year's presentation.
See notes to financial statements
F-4
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
SUCCESSOR TO MEGAVISION, L.C.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY/CAPITAL DEFICIENCY (NOTE A)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------------------
CLASS A CLASS B ADDITIONAL
-------------------- -------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE--SEPTEMBER 30, 1996.................................... 684,000 $ 6,840 144,000 $ 1,440 $ 1,242,998
Common stock issued............................................ 132,000 1,320 216,000 2,160 378,960
Conversion of debt to common stock............................. 24,000 240 47,985
Warrants issued in connection with the bridge units,
net of costs of $4,823....................................... 305,677
Compensatory warrants issued................................... 416,922
Conversion of Class B shares to Class A shares................. 144,000 1,440 (144,000) (1,440)
Net loss.......................................................
--------- ------- -------- -------- -----------
BALANCE--SEPTEMBER 30, 1997.................................... 984,000 9,840 216,000 2,160 2,392,542
Compensatory common stock issued............................... 10,000 100 8,650
Common stock issued............................................ 2,024,000 20,240 8,354,740
Net loss.......................................................
--------- ------- -------- -------- -----------
BALANCE, SEPTEMBER 30, 1998.................................... 3,018,000 $30,180 216,000 $ 2,160 $10,755,932
--------- ------- -------- -------- -----------
--------- ------- -------- -------- -----------
See notes to financial statements
<CAPTION>
ACCUMULATED
DEFICIT TOTAL
----------- -----------
<S> <C> <C>
BALANCE--SEPTEMBER 30, 1996.................................... $(1,326,356) $ (75,078)
Common stock issued............................................ 382,440
Conversion of debt to common stock............................. 48,225
Warrants issued in connection with the bridge units,
net of costs of $4,823....................................... 305,677
Compensatory warrants issued................................... 416,922
Conversion of Class B shares to Class A shares.................
Net loss....................................................... (3,241,925) (3,241,925)
----------- -----------
BALANCE--SEPTEMBER 30, 1997.................................... (4,568,281) (2,163,739)
Compensatory common stock issued............................... 8,750
Common stock issued............................................ 8,374,980
Net loss....................................................... (1,987,184) (1,987,184)
----------- -----------
BALANCE, SEPTEMBER 30, 1998.................................... $(6,555,465) $ 4,232,807
----------- -----------
----------- -----------
See notes to financial statements
</TABLE>
F-5
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
SUCCESSOR TO MEGAVISION, L.C.
STATEMENTS OF CASH FLOWS (NOTE A)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.......................................................................... $(1,987,184) $(3,241,925)
Adjustments to reconcile net loss to net cash (used in) operating activities:
Depreciation and amortization.................................................. 52,462 52,055
Amortization of discount on notes payable--bridge units........................ 31,764 609,759
Common stock and warrants issued for services.................................. 8,650 789,212
Write-down of worthless equipment.............................................. 32,865
Changes in:
Prepaid expenses and other assets............................................ (68,824) (105,906)
Accounts payable and accrued expenses........................................ (431,744) 440,553
Other liabilities............................................................ (8,493)
----------- -----------
Net cash (used in) operating activities................................... (2,394,876) (1,431,880)
----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment............................................. (87,672) (31,512)
Cash flows from financing activities:
Decrease in bank overdraft........................................................ (9,914)
Decrease (increase) in restricted cash............................................ 85,000 (85,000)
Proceeds (repayment) of notes payable--bridge units............................... (2,300,000) 1,695,323
Proceeds from notes payable....................................................... 41,031
Repayment of notes payable........................................................ (103,600)
Principal payments on obligation under capital lease.............................. (53,567) (13,791)
Net proceeds from issuance of common stock........................................ 8,747,814 10,150
Proceeds from issuance of warrants................................................ 305,677
Deferred offering costs........................................................... (332,734)
----------- -----------
Net cash provided by financing activities................................. 6,375,647 1,610,742
----------- -----------
Net increase in cash and cash equivalents........................................... 3,893,099 147,350
Cash and cash equivalents--beginning of year........................................ 147,350
----------- -----------
Cash and cash equivalents--end of year.............................................. $ 4,040,449 $ 147,350
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information:
Cash paid for:
Interest....................................................................... $ 177,700 $ 30,377
</TABLE>
See Notes C and H for information regarding noncash investing and financing
activities
See notes to financial statements
F-6
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
SUCCESSOR TO MEGAVISION, L.C.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
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 and was in the development
stage through September 30, 1997. The year ended September 30, 1998 is the first
year during which it is considered an operating company. The Company markets and
administers health care service discount programs 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, dentists, physical therapists,
physicians and hospitals. The Company is the business successor to MegaVision,
L.C.
In February 1997, MegaVision, L.C. ("MegaVision" or the "Predecessor"), a
Missouri limited liability company in the development stage, merged into
HealthCore, a newly formed entity. 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.
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. As of September 30, 1998, $4,007,700 was held in a money market mutual
fund.
[2] PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Depreciation and amortization
are 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 is 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.
[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 and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
SUCCESSOR TO MEGAVISION, L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
[4] REVENUE RECOGNITION:
Membership revenues are recognized ratably over the life of the membership
for the period subsequent to the expiration of the money back guarantee, if any.
[5] NET LOSS PER COMMON SHARE:
In February 1997, the Financial Accounting Standards Board Issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128")
which is effective for periods ended after December 15, 1997 and requires that,
upon adoption, all prior periods be restated. As a result of the adoption of FAS
128 and related interpretations the net loss per share for the year ended
September 30, 1997 increased by $3.29.
Basic per common share data has been computed on the basis of the loss for
the period dividend by the weighted average shares outstanding during the period
excluding 900,000 shares placed in escrow (see Note H[1]). All warrants and
stock options which are potentially dilutive securities have been excluded from
the calculation since they would be anti-dilutive.
[6] STOCK-BASED COMPENSATION:
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("FAS 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.
NOTE C--PROPERTY AND EQUIPMENT
Property and equipment (at cost) as of September 30, 1998 consists of:
<TABLE>
<S> <C>
Equipment......................................................................... $283,844
Leasehold improvements............................................................ 46,391
--------
330,235
Less accumulated depreciation and amortization.................................... 119,394
--------
$210,841
--------
--------
</TABLE>
In April 1997, the Company acquired equipment under capital leases
aggregating $175,865. Depreciation expense on this equipment totaled $35,173 and
$17,587 for the years ended September 30, 1998 and 1997, respectively.
NOTE D--DEFERRED OFFERING COSTS
As of September 30, 1997, the Company incurred $372,734 of incremental
costs in connection with the initial public offering ("IPO") of its common
stock. Upon consummation of the offering during the year ended September 30,
1998, the deferred offering costs were charged against the gross proceeds of the
offering.
NOTE E--RELATED PARTY TRANSACTIONS
During the year ended September 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
F-8
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
SUCCESSOR TO MEGAVISION, L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
NOTE E--RELATED PARTY TRANSACTIONS--(CONTINUED)
Company has rented office space from an affiliate of the Chairman of the Board.
Rent expense related to this office space amounted to $21,500 and $10,000 for
the years ended September 30, 1998 and 1997, respectively.
From April through June 1997, the Company loaned $37,200 to a former
officer bearing interest from 8% to 10% per annum, collateralized by 15,000
shares of the Company's Class A common stock. Principal payments were payable
through March 1999. During the year ended September 30, 1998, principal payments
aggregated $400. As of September 30, 1998, the outstanding principal balance of
$36,800 is in default and, during 1998, the Company established an allowance of
$22,000.
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 interest imputed at 25%, through January 2000. The following
are the minimum future lease payments:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30,
-------------
<S> <C>
1999........................................................................ $71,192
2000........................................................................ 25,888
-------
97,080
Less amount representing interest.................................................. 14,460
-------
Present value of net minimum lease payments........................................ 82,620
Less present value of net minimum lease payments
due within one year.............................................................. 63,988
-------
$18,632
-------
-------
</TABLE>
Interest expense for the years ended September 30, 1998 and 1997 aggregated
$30,570 and $12,099, respectively.
NOTE G--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 (aggregating $2.3 million principal
amount) were paid from the proceeds of the IPO in October 1997. Effective with
the IPO, the warrants were converted into IPO warrants. The Company received
$1,964,154, net of offering costs, in the Bridge Unit offering. One Bridge Unit
was purchased by the chairman of the board and his wife and one-half of one
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 has been amortized as additional interest expense from the date of
issuance to October 1997, when these notes were repaid.
F-9
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
SUCCESSOR TO MEGAVISION, L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
NOTE H--STOCKHOLDERS' EQUITY
[1] INITIAL PUBLIC OFFERING:
On October 17 1997, the Company, in its IPO, sold 1,760,000 units. Each
unit consists of one share of Class A common stock and one redeemable warrant to
purchase a share of Class A common stock at $6.50, expiring October 2002. On
November 10, 1997, the underwriter executed its option to sell an additional
264,000 shares of the Company's common stock. Proceeds from the IPO, net of
expenses of $1,745,000, approximated $8,355,000. In connection with the IPO, the
underwriter was granted an option to purchase up to 176,000 units at $6.00 per
unit and a director was granted a warrant to purchase 15,000 shares at $5.00 per
share.
Upon consummation of the Company's initial public offering, certain
shareholders deposited 900,000 shares of common stock (the "Escrow Shares") into
an escrow account. Some or all of these shares are to 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 owned by officers, directors and
consultants aggregating 432,000 shares of the 900,000 shares in escrow 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 are to 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 and ending 36 months after the IPO. All shares of common stock held in
escrow are to 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,
$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 and ending 36 months after the IPO.
As of September 30, 1998, the Company did not attain the income level nor
did the stock price meet or exceed the per share value necessary for the release
of the escrow shares.
[2] ISSUANCE OF CLASS A COMMON STOCK:
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. 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 canceled 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.
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
$149,160. The shares were valued at their fair value at the date of issuance.
M.K.D. paid $3,850 in cash, and the remaining $145,310 has been charged to
operations for services rendered.
F-10
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
SUCCESSOR TO MEGAVISION, L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
NOTE H--STOCKHOLDERS' EQUITY--(CONTINUED)
[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 and Chief
Executive Officer. The Company valued these shares at $233,280, their estimated
fair value at the date of issuance, and charged $226,980 to operations as
compensation in the year ended September 30, 1997.
[4] ISSUANCE OF WARRANTS:
In September 1997, the Company granted warrants to purchase 284,000 shares
of Class A Common Stock to its Chairman of the Board and Chief Executive
Officer. The warrants are exercisable at $1.00 per share and expire in September
2007. The Company valued these warrants at $416,922, the estimated fair market
value of the warrants at the date of grant and incurred a noncash charge to
operations of $416,922. Warrants for 142,000 shares are immediately exercisable
and the remaining 142,000 will become exercisable upon the Company meeting
certain performance goals or the stock price exceeding certain targets. If these
targets are not met the warrants will be canceled. However, should the goals be
met, the Company will recognize an additional expense equal to the fair market
value of the portion of the warrants subject to such targets. The warrants will
become exercisable 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 day trading 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.
As of September 30, 1998, the Company did not attain the income level nor
did the stock price meet or exceed the per share value necessary for the
remaining warrants to become exercisable.
[5] 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. The options have a term of
10 years and outstanding options expire between May through June 2007.
The fair value of each option granted has been estimated on the date of
grant using the Black-Scholes options pricing model with the following
assumptions; no dividend yield, expected volatility of 40%, risk-free interest
rates ranging from 6.00% and 6.75%, and expected lives of approximately
10 years. The weighted average fair value of options granted during 1998 and
1997 were $0.73 and $1.20 per share, respectively.
The Company applies APB 25 in accounting for its stock option incentive
plan and, accordingly, recognizes compensation expense for the difference
between fair value of the underlying common stock and the exercise price of the
option at the date of grant. The effect of applying FAS 123 on 1998 and 1997 pro
forma net loss and net loss per common share is not necessarily representative
of the effect on reported net loss in future years due to, among other things
(1) the vesting period of the stock options and (2) the fair value of additional
stock options in future years. Had compensation cost for the Company's stock
option plan been determined based upon the fair value at the grant date for
awards under the plan consistent with the methodology prescribed under FAS 123,
the Company's proforma net loss for 1998 and 1997 would have been approximately
$(2,057,000) and $(3,311,000), respectively, and net loss per share would have
been approximately $(0.93) and $(12.32), respectively.
F-11
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
SUCCESSOR TO MEGAVISION, L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
NOTE H--STOCKHOLDERS' EQUITY--(CONTINUED)
The following table summarizes stock option transactions under the Plans:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------
1998 1997
------------------- ------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------- -------- ------ --------
<S> <C> <C> <C> <C>
Outstanding options at the beginning of year............ 57,500 $ 5.00
Options granted......................................... 125,000 1.37 57,500 $ 5.00
Options forfeited....................................... (23,000) 5.00
------- ------ ------ ------
Outstanding options at the end of year.................. 159,500 $ 2.16 57,500 $ 5.00
------- ------ ------ ------
------- ------ ------ ------
</TABLE>
The following table summarizes information about stock options outstanding
as of September 30, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ------------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER, CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
$0.875 110,000 9.75 $0.875 0
$5.00 49,500 8.99 $5.00 21,300 $ 5.00
</TABLE>
[6] SHARES RESERVED FOR ISSUANCE:
The Company has reserved 4,025,000 shares of its Class A common stock for
issuance upon exercise of the outstanding warrants and options, including
warrants issued in connection with the IPO.
[7] COMMON AND PREFERRED STOCK:
The shares authorized aggregate 19,784,000 shares of Class A common stock,
216,000 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. Class B shares automatically convert to
Class A shares on a one-for-one basis upon (i) the sale, gift or transfer,
(ii) death of the original stockholder, (iii) termination of employment of the
stockholder by the Company or (iv) if, for the year ended September 30, 1999,
the minimum pretax income, as defined, is less than $1,000,000 or if, for any
subsequent year through September 30, 2002, the Company's minimum pretax income
does not equal or exceed 110% of the prior year's minimum pretax income.
NOTE I--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 was required
to be recognized by the members and taxed on their individual income tax
returns. Accordingly, the losses incurred through February 1997 are not
available to offset the Company's future taxable income, if any.
The Company's deferred tax asset as of September 30, 1998 represents a
benefit from net operating loss carryforwards of $1,504,500 which is reduced by
a valuation allowance of $1,504,500 since the future realization of such tax
benefit is not presently determinable.
F-12
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
SUCCESSOR TO MEGAVISION, L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
NOTE I--INCOME TAXES--(CONTINUED)
As of September 30, 1998, the Company has a net operating loss carryforward
of approximately $3,946,000 expiring in 2012 and 2018. As a result of the IPO,
usage of approximately $2,000,000 of this net operating loss carryforward is
limited to approximately $789,000 per year.
The difference between the statutory federal income tax rate applied to the
Company's net loss and the Company's effective income tax rate for the years
ended September 30, 1998 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Statutory federal income tax rate........................................... 34.0% 34.0%
Loss available to members................................................... (6.1)
Compensation charge......................................................... (2.4)
Increase in valuation allowance............................................. (33.7) (25.5)
Miscellaneous............................................................... (0.3)
----- -----
Effective income tax rate................................................... 0.0% 0.0%
----- -----
----- -----
</TABLE>
NOTE J--COMMITMENT 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 October 2001.
Certain leases obligate the Company for property taxes, insurance and
maintenance. Future minimum rental payments (including maintenance costs) under
these leases are as follows:
YEAR ENDING
SEPTEMBER 30,
- --------------
1999................................................ $ 88,400
2000................................................ 61,970
2001................................................ 4,971
--------
$155,341
--------
--------
Rent expense inclusive of taxes, maintenance and insurance, aggregated
$153,790 for the year ended September 30, 1998 and $78,000 for the year ended
September 30, 1997.
[2] BROKER AGREEMENTS:
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 H[2]).
F-13
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
SUCCESSOR TO MEGAVISION, L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
NOTE J--COMMITMENT AND OTHER MATTERS--(CONTINUED)
In August 1998, the Company entered into an agreement with Practice
Management, Inc. ("PMI") that provides for PMI to market the discount programs
to labor groups, managed care facilities, preferred provider organizations and
third party providers for one year for an annual fee of $50,000. Concurrently,
the Chairman of the Board entered into an agreement with PMI whereby PMI will
present business opportunities to the Chairman. However, this agreement requires
that business opportunities appropriate to the Company be presented to the
Company prior to the chairman of the board.
[3] EMPLOYMENT AGREEMENT:
On September 30, 1998, the Company entered into an employment agreement
with an executive of the Company which expires in November 2000. Under the terms
of the agreement, the base salary effective December 1, 1998 increased to
$200,000.
[4] AGREEMENTS WITH CERTAIN PROVIDER NETWORKS:
Under certain agreements, the Company is required to pay an access fee per
member per year.
F-14
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
SUCCESSOR TO MEGAVISION, L.C.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------
<S> <C>
ASSETS
Current assets:
Cash & cash equivalents.......................................................................... $ 2,330,495
Note receivable--Adatom.......................................................................... 250,000
Prepaid expenses and other current assets........................................................ 176,376
-----------
Total current assets.......................................................................... 2,756,871
-----------
Property and equipment, net........................................................................ 146,760
Other assets....................................................................................... 3,570
-----------
150,330
-----------
Total......................................................................................... $ 2,907,201
-----------
-----------
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses............................................................ $ 169,175
Deferred income.................................................................................. 41,672
Current portion-obligation under capital lease................................................... 36,260
Deferred business disposal costs................................................................. 66,251
-----------
Total current liabilities..................................................................... 313,358
-----------
Total liabilities............................................................................. $ 313,358
-----------
Commitments and other matters......................................................................
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized 5,000,000 shares
Common stock, $.01 par value:
Class A, authorized, 19,784,000 shares:
Issued and outstanding 3,183,000 shares....................................................... 31,830
Class B, authorized, 216,000 shares:
Issued and outstanding 216,000 shares......................................................... 2,160
Additional paid in capital....................................................................... 11,206,313
Accumulated deficit.............................................................................. (8,646,460)
-----------
Total shareholders' equity.................................................................... 2,593,843
-----------
Total......................................................................................... $ 2,907,201
-----------
-----------
</TABLE>
See notes to financial statements
F-15
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
SUCCESSOR TO MEGAVISION, L.C.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED, NINE MONTHS ENDED,
------------------------------ ------------------------------
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Membership revenues................................. $ 61,894 $ 32,948 $ 146,478 $ 69,281
Costs & Expenses:
Costs of membership................................. 44,722 20,460 110,918 46,184
Selling and marketing............................... 76,818 264,125 548,653 523,692
General and administrative.......................... 338,779 373,480 1,079,466 980,253
Interest expense.................................... 4,366 8,934 11,977 65,714
----------- ----------- ----------- -----------
Total............................................ 464,685 666,999 1,751,014 1,615,843
----------- ----------- ----------- -----------
Loss before other income.............................. (402,791) (634,051) (1,604,537) (1,546,562)
Other income--interest................................ 28,914 63,695 110,645 197,478
Gain/Loss from disposal of business................... (66,251) (66,251)
Other Expenses........................................ (489,228) (530,853)
----------- ----------- ----------- -----------
Net other income/expense......................... (526,565) 63,695 (486,459) 197,478
----------- ----------- ----------- -----------
Net loss.............................................. $ (929,356) $ (570,356) $(2,090,995) $(1,349,084)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net loss per share.................................... $ (.38) $ (.25) $ (0.89) $ (0.61)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of common shares
outstanding......................................... 2,424,396 2,324,110 2,361,181 2,194,113
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
F-16
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
SUCCESSOR TO MEGAVISION, L.C.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD ENDED JUNE 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities................................................ $(2,090,995) $(1,349,084)
Net loss:
Adjustments to reconcile net loss to net cash (used in) operating activities:
Depreciation and amortization.................................................. 41,049 38,975
Amortization of discount on note payable--bridge units......................... 0 31,764
Common stock and warrants issued for services.................................. 452,031 8,650
Changes in:
Prepaid expenses and other assets............................................ (923) (85,236)
Accounts payable and accrued expenses........................................ 54,289 (401,109)
Other liabilities............................................................ 107,923 (708)
----------- -----------
Net cash (used in) operating activities................................... (1,436,626) (1,756,748)
Cash flows from investing activities:
Acquisition of property and equipment............................................. (4,790) (82,398)
Notes receivable--Adatom.......................................................... (250,000)
Write off of obsolete equipment................................................... 27,822
----------- -----------
Net cash used in investing activities..................................... (226,968) (82,398)
Cash flows from financing activities:
Decrease (increase) in restricted cash............................................ 85,000
Principal payments on notes payable--bridge units................................. (2,300,000)
Net change in notes payable--banks................................................ (103,600)
Principal payments on obligation under capital lease.............................. (46,360) (38,899)
Proceeds from private stock transactions.......................................... 100
Net proceeds from initial public offering......................................... 8,747,714
----------- -----------
Net cash used in financing activities..................................... (46,360) 6,389,315
----------- -----------
Net increase in cash and cash equivalents........................................... (1,709,954) 4,550,169
Cash and cash equivalents--beginning of period...................................... 4,040,449 147,350
----------- -----------
Cash and cash equivalents--end of period............................................ $ 2,330,495 $ 4,697,519
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information:
Cash paid for:
Interest....................................................................... $ 11,977 $ 171,372
</TABLE>
See Notes C and H for information regarding noncash investing and financing
activities
See notes to financial statements
F-17
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
SUCCESSOR TO MEGAVISION, L.C.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE A--THE COMPANY AND BASIS OF PRESENTATION
GENERAL
These financial statements have been prepared by HealthCore Medical
Solutions, Inc. ("HealthCore" or the "Company") in accordance with generally
accepted accounting principles for interim financial reporting and in accordance
with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, the unaudited
financial statements include all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial position, the
results of operations and the statement of cash flows for the periods presented.
The unaudited financial statements presented herein were prepared using the
underlying accounting principles utilized in the Company's September 30, 1998
audited financial statements filed on Form 10-KSB with the Securities and
Exchange Commission on December 29, 1998. Operating results for the nine months
ended June 30, 1999 are not necessarily indicative of the results that may be
expected for the year ending September 30, 1999.
HealthCore was organized as a Delaware corporation in February 1997 as a
business successor to MegaVision, L.C. ("MegaVision"). The Company is an early
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 ("Networks") of health care providers ("Providers").
On July 1, 1999, HealthCore Medical Solutions, Inc., a Delaware corporation
("HealthCore"), and Adatom, Inc., a privately held California corporation
("Adatom"), entered into an Agreement and Plan of Merger (the "Merger
Agreement"), under which Adatom will be merged with and into HealthCore (the
"Merger"), with HealthCore being the surviving corporation under the name
Adatom.com, Inc. (the "Surviving Corporation"). All existing Class A common
stock and warrants of HealthCore will remain outstanding. The Class B common
stock of HealthCore will be eliminated and the Class A common stock of
HealthCore will be retitled as common stock. Adatom stockholders will receive
common stock of the Surviving Corporation representing approximately 77.5% of
the Surviving Corporation subject to adjustment in certain circumstances.
Consummation of the Merger is subject to a number of conditions including,
without limitation, approval of the Merger by the stockholders of HealthCore and
Adatom, and sale or liquidation of the healthcare discount benefits business
operated by HealthCore.
To satisfy the condition to consummation of the Merger that HealthCore
liquidate or sell its discount healthcare business, on July 28, 1999 HealthCore
sold certain of its assets related to its discount healthcare business to
Randolph & Associates, Inc., a Texas corporation ("Randolph") and discontinued
the operation of its healthcare discount benefits business. The assets sold
included membership contracts, network access agreements, broker contracts, a
computer hardware lease, certain other miscellaneous contracts, furniture and
fixtures, software and trade names. Randolph agreed to assume performance of
HealthCore's obligations under the assigned contracts as of August 1, 1999. The
purchase price for the purchase of the assets was $4,090.64 in cash, the
assumption of a computer hardware lease for $45,909.36 and the assumption of
HealthCore's obligations under the other assigned contracts arising on or after
August 1, 1999 together with all refund obligations due Members requested on or
after August 1, 1999 (regardless of the date(s) to which such refunds relate).
The Networks with which the Company maintained contracts as of August 1,
1999 comprised an aggregate of approximately 450,000 participating Providers of
eye care, dental, hearing, pharmacy, physical and
F-18
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
SUCCESSOR TO MEGAVISION, L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1999
(UNAUDITED)
NOTE A--THE COMPANY AND BASIS OF PRESENTATION--(CONTINUED)
occupational therapy, chiropractic benefits, hospital and physician services and
retail consumer purchases throughout the United States. Members can access the
Networks through the use of discount membership cards. These discount membership
cards have been marketed, directly and through independent brokers, insurance
agents and consumer marketing organizations, to individuals and to employers,
health maintenance organizations and businesses and other associations who may
either purchase the cards for, or offer it to, their employees or members.
In February 1997, MegaVision, L.C., 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.
HealthCore and MegaVision have been principally devoted to organizational
activities, raising capital, marketing, building a sales network and negotiating
provider agreements.
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] 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 and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
[3] REVENUE AND COST OF SALES RECOGNITION:
All monthly and single annual payment sales and their corresponding
expenses, including the costs of issuance of HealthCare Solutions Cards, sales
commissions, provider fees and a provision for cancellations from potential
guarantee-related refunds incurred by the Company at the time of sale, are
recognized in the monthly period after the expiration of the guarantee period
which the card sale is billed. Annual card sales are recognized ratably over the
term of the membership. The Company currently offers a full money-back guarantee
to Members who are not satisfied with the HealthCare Solutions Card.
[4] PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Depreciation and amortization
are 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.
F-19
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
SUCCESSOR TO MEGAVISION, L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1999
(UNAUDITED)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Equipment under capital leases is 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.
[5] NET LOSS PER SHARE:
Net loss per share was computed based upon the weighted average number of
shares of common stock outstanding during each year presented, excluding the
900,000 shares placed in escrow. Upon the Company exceeding certain income
levels or the common stock exceeding certain market prices per share, some or
all of the common shares held in escrow are to be released (see Note F).
NOTE C--NOTES PAYABLE--BRIDGE UNITS
In February and March 1997, the Company sold 46 Bridge Units, each
consisting of (i) a $50,000 10% subordinated note and (ii) warrants to purchase
25,000 shares of Class A common stock. The notes, aggregating $2.3 million in
principal amount and $142,979 in accrued interest, were repaid on October 17,
1997 from the proceeds of the Company's initial public offering ("IPO").
Concurrently with the IPO, the warrants were converted into IPO warrants. The
Company received $1,964,154, net of offering costs, in the Bridge Unit offering.
One Bridge Unit was purchased by the Chairman of the Board and his wife and
one-half of one 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
notes were discounted by the value of the warrants and the offering costs. The
discount was amortized as additional interest expense from the date of issuance
to October 17, 1997, when these notes were repaid.
NOTE D--CAPITAL STOCK
[1] STOCK OPTION PLAN:
In February 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 non-incentive stock options which may be granted from
time to time by the board of directors to officers, directors, employees and
others. The Company has granted options to purchase 172,500 shares of Class A
common stock at prices ranging from $.875 per share to $5.00 per share. Of the
options granted, 15,000 have been forfeited by resignation of the grantees and
are available for future grants. The remaining 157,500 options granted and
outstanding will fully vest during the period from August 1997 through June 2001
and will expire ten years from the date of grant.
[2] SHARES RESERVED FOR ISSUANCE:
The Company has reserved 3,849,000 shares of its Class A common stock for
issuance upon exercise of the outstanding warrants and options, including
warrants issued in connection with the IPO.
[3] COMMON AND PREFERRED STOCK:
The shares authorized aggregate 19,784,000 shares of Class A common stock,
216,000 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 stockholder has the
right to cast five votes per share. Class B shares
F-20
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
SUCCESSOR TO MEGAVISION, L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1999
(UNAUDITED)
NOTE D--CAPITAL STOCK--(CONTINUED)
automatically convert to Class A shares on a one-for-one basis upon (i) the
sale, gift or transfer, (ii) death of the original stockholder thereof,
(iii) termination of employment of the stockholder by the Company for any reason
or (iv) if, for the year ended September 30, 1999, the minimum pretax income, as
defined, is less than $1,000,000 or if, for any subsequent year through
September 30, 2002, the Company's minimum pretax income does not equal or exceed
110% of the prior year's minimum pretax income.
Prior to the execution of a non-binding letter of intent on April 27, 1999,
relative to the Adatom, Inc. merger the Company employed Polan under an
employment agreement (the "Employment Agreement") expiring on November 30, 2000,
providing for an annual base salary of two hundred thousand ($200,000) dollars,
together with other compensation and benefits. The Employment Agreement made no
provision for the termination thereof without cause. In furtherance of the
transaction contemplated by the letter, by letter amendment dated April 27,
1999, the Employment Agreement was amended to provide the Company with the right
to terminate the Employment Agreement at any time, without cause, upon the
expiration of one hundred twenty (120) days following the date of the execution
of the letter amendment, whereupon the Company will pay to Polan the lesser of
(a) one hundred fifty thousand ($150,000) dollars, or (b) sixty (60%) percent of
the present value of the remaining compensation and benefits due under the terms
of the employment agreement on the date of its termination. In consideration for
the amendment, the Company issued Polan 165,000 shares of Class A Common Stock
of the Company.
On April 27, 1999, the Company engaged Jesup & Lamont as exclusive
financial adviser to the Company in connection with the Merger, and as the
Company's exclusive placement agent with respect to a contemplated private
placement (the "Placement") of approximately six million ($6,000,000) dollars in
equity securities of the Company following the consummation of the Merger, the
Company, pursuant to the terms of an engagement letter (the "Engagement Letter")
among the Company, Adatom, and Jesup & Lamont. As partial consideration for such
services, the Company has agreed to issue to Jesup & Lamont (a) upon the signing
of the Engagement Letter, five-year warrants to purchase two hundred thousand
(200,000) shares of the Class A Common Stock of the Company at an exercise price
of one ($1.00) per share (one hundred thousand (100,000), of which vested upon
the execution of the Engagement Letter, and the remaining one hundred thousand
(100,000) to vest only upon the closing of the Merger), and (b) five-year
warrants to purchase up to ten (10%) percent of the securities sold in the
Placement at an exercise price equal to the price at which the securities are
sold in the Placement.
NOTE E--INCOME TAXES
The Company's deferred tax asset as of September 30, 1998 represented a
benefit from net operating loss carryforward of $1,504,500. This deferred tax
asset has been reduced by a valuation allowance of $1,504,500 since the future
realization of such tax benefit is not presently determinable. As of
September 30, 1998, the Company had a net operating loss carryforward of
approximately $3,946,000 expiring in 2012 and 2018. As a result of the IPO,
usage of approximately $2,000,000 of this net operating loss carryforward is
limited to approximately $789,000 per year.
NOTE F--INITIAL PUBLIC OFFERING
On October 17 1997, the Company, in its IPO, sold 1,760,000 units. Each
unit consists of one share of Class A common stock and one redeemable warrant to
purchase a share of Class A common stock at $6.50, expiring October 2002. On
November 10, 1997, the underwriter executed its option to sell an additional
264,000 shares of the Company's common stock. Proceeds from the IPO, net of
expenses of $1,745,000, approximated $8,355,000. In connection with the IPO, the
underwriter was granted an option to purchase up to 176,000 units at $6.00 per
unit and a director was granted a warrant to purchase 15,000 shares at $5.00 per
share.
F-21
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
SUCCESSOR TO MEGAVISION, L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1999
(UNAUDITED)
NOTE F--INITIAL PUBLIC OFFERING--(CONTINUED)
Upon consummation of the Company's initial public offering, certain
shareholders deposited 900,000 shares of common stock (the "Escrow Shares") into
an escrow account. Some or all of these shares are to 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 owned by officers, directors and
consultants aggregating 432,000 shares of the 900,000 shares in escrow 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 are to 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 and ending 36 months after the IPO. All shares of common stock held in
escrow are to 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,
$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 and ending 36 months after the IPO.
As of June 30, 1999, the Company did not attain the income level nor did
the stock price meet or exceed the per share value necessary for the release of
the escrow shares.
NOTE G--NOTE RECEIVABLE FROM ADATOM, INC.:
On April 28, 1999 a note in the value of $250,000 was executed with Adatom,
Inc. The note is payable on demand 90 days after the termination of the merger
agreement should that agreement be terminated.
F-22
<PAGE>
ADATOM, INC.
FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Report of Independent Certified Public Accountants..................................................... G-2
Balance Sheets as of December 31, 1998 and 1997........................................................ G-3
Statement of operations of the years ended December 31, 1998 and 1997 and for the period from inception
to December 31, 1998................................................................................. G-4
Statement of Stockholders' Equity for the years ended December 31, 1998, 1997
and 1996............................................................................................. G-5
Statements of Cash Flows for the years ended December 31, 1998, and 1997 and for the period from
inception to December 31, 1998....................................................................... G-6-7
Notes to Financial Statements.......................................................................... G-8-10
Balance Sheet, as of June 30, 1999 (unaudited)......................................................... G-11
Statement of Operations for the three months and six months ended June 30, 1999 and 1998 and for the
period from inception to June 30, 1999 (unaudited)................................................... G-12
Statement of Stockholders' Deficit..................................................................... G-13
Statement of Cash Flows for the six months ended June 30, 1999 and 1998 and for the period from
inception to June 30, 1999 (unaudited)............................................................... G-14
Notes to Financial statements (unaudited).............................................................. G-15-17
</TABLE>
G-1
<PAGE>
[IRELAND SAN FILIPPO, LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Adatom, Inc.
Milpitas, CA
We have audited the accompanying balance sheet of Adatom, Inc. (a California
corporation in the development stage), as of December 31, 1998 and 1997, and the
related statements of operations, stockholders' equity, and cash flows for the
years then ended and for the period from inception to December 31, 1998. These
financial statements are the responsibility of the management of Adatom, Inc.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted audited 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Adatom, Inc. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended and for the period from inception to December 31, 1998,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 8 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 8. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
IRELAND SAN FILIPPO, LLP
San Jose, California
March 18, 1999
G-2
<PAGE>
ADATOM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
------------ ----------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................................... $ 44,716 $ 59,614
Restricted cash.................................................................... 45,873 --
Accounts receivable................................................................ 17,059 33,431
Notes receivable from franchisees.................................................. 2,782 18,474
Inventory.......................................................................... 5,038 16,479
Prepaid expenses and other......................................................... 4,765 8,100
------------ ----------
Total current assets.......................................................... 120,233 136,098
Other assets:
Fixed assets, net.................................................................. 108,750 90,312
Notes receivable from franchisees.................................................. 9,073 84,659
Deposits........................................................................... 6,772 8,272
Organization expense, net.......................................................... 6,280 8,496
------------ ----------
Total other assets............................................................ 130,875 191,739
------------ ----------
$ 251,108 $ 327,837
------------ ----------
------------ ----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Lease contracts payable............................................................ $ 19,362 $ 16,883
Accounts payable................................................................... 199,095 89,626
Accrued expenses................................................................... 96,016 25,267
Customer deposits.................................................................. 44,605 40,385
------------ ----------
Total current liabilities..................................................... 359,078 172,161
Long-term liabilities:
Notes and lease contracts payable.................................................. 50,590 27,679
Note payable to shareholder........................................................ 1,463,799 602,393
------------ ----------
Total liabilities............................................................. 1,873,467 802,233
------------ ----------
Commitments
Stockholders' deficit:
Common stock, no par value, 10,000,000 shares authorized........................... 344,717 344,717
Common stock notes receivable...................................................... (24,633) (32,752)
Deficit accumulated during the development stage................................... (1,942,443) (786,361)
------------ ----------
(1,622,359) (474,396)
------------ ----------
$ 251,108 $ 327,837
------------ ----------
------------ ----------
</TABLE>
The accompanying notes are an integral part of these financial statements
G-3
<PAGE>
ADATOM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED FROM
DECEMBER 31, INCEPTION TO
------------------------ DECEMBER 31,
1998 1997 1998
----------- --------- ------------
<S> <C> <C> <C>
Product revenue........................................................ $ 285,385 $ 119,184 $ 404,569
Franchise fee revenue.................................................. 4,918 124,500 129,418
----------- --------- ------------
Total revenue........................................................ 290,303 243,684 533,987
----------- --------- ------------
Cost of product revenue................................................ 242,618 90,862 333,480
Cost of franchise fee revenue.......................................... -- 38,271 38,271
----------- --------- ------------
Total cost of revenue................................................ 242,618 129,133 371,751
----------- --------- ------------
47,685 114,551 162,236
----------- --------- ------------
Operating expenses:
Research and development............................................. 405,516 295,774 786,446
Selling, general and administrative.................................. 915,452 450,907 1,414,874
----------- --------- ------------
1,320,968 746,681 2,201,320
----------- --------- ------------
Loss from operations.............................................. (1,273,283) (632,130) (2,039,084)
Other income (expense):
License income....................................................... 250,000 -- 250,000
Write off of franchisee notes receivable............................. (78,921) -- (78,921)
Interest expense, net................................................ (53,078) (20,248) (72,038)
----------- --------- ------------
118,001 (20,248) 99,041
----------- --------- ------------
Loss before provision for income taxes............................ (1,155,282) (652,378) (1,940,043)
Provision for income taxes, all current................................ 800 800 2,400
----------- --------- ------------
Net loss.......................................................... $(1,156,082) $(653,178) $ (1,942,443)
----------- --------- ------------
----------- --------- ------------
Net loss per share basic and diluted.............................. $ (0.48) $ (0.27) $ (0.81)
----------- --------- ------------
----------- --------- ------------
Weighted average number of common shares outstanding.............. 2,384,600 2,410,240 2,401,693
----------- --------- ------------
----------- --------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements
G-4
<PAGE>
ADATOM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------
NOTES ACCUMULATED
SHARES AMOUNT RECEIVABLE DEFICIT TOTAL
--------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance October 10, 1996....................... -- $ -- $ -- $ -- $ --
Shares issued upon incorporation............... 2,435,880 243,588 (39,281) -- 204,307
Net loss....................................... -- -- -- (133,183) (133,183)
--------- -------- -------- ----------- -----------
Balance December 31, 1996...................... 2,435,880 243,588 (39,281) (133,183) 71,124
Recission of stock purchase agreement.......... (51,280) (5,128) 4,667 -- (461)
Return of shares by majority shareholder for no
consideration................................ (134,106) -- -- -- --
Sale of stock at $0.10 per share............... 62,568 6,257 (6,257) -- --
Sale of stock at $1.40 per share............... 71,538 100,000 -- -- 100,000
Repayment on notes receivable.................. -- -- 8,119 -- 8,119
Net loss....................................... -- -- -- (653,178) (653,178)
--------- -------- -------- ----------- -----------
Balance December 31, 1997...................... 2,384,600 344,717 (32,752) (786,361) (474,396)
Repayment on notes receivable.................. -- -- 8,119 -- 8,119
Net loss....................................... -- -- -- (1,156,082) (1,156,082)
--------- -------- -------- ----------- -----------
Balance December 31, 1998...................... 2,384,600 $344,717 $(24,633) $(1,942,443) $(1,622,359)
--------- -------- -------- ----------- -----------
--------- -------- -------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements
G-5
<PAGE>
ADATOM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
YEAR ENDED FROM
DECEMBER 31, INCEPTION TO
-------------------------- DECEMBER 31,
1998 1997 1998
------------ ---------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................................... $ (1,156,082) $ (653,178) $ (1,942,443)
Adjustments to reconcile net (loss) to net cash provided (used) by
operating activities:
Depreciation and amortization................................... 29,210 15,168 45,121
Revenues from franchisee notes receivable....................... -- (105,000) (105,000)
Lease costs included in cost of franchise fee revenue........... -- 31,105 31,105
Write-off of franchisee notes receivable........................ 78,921 -- 78,921
Decrease (increase) in operating assets:
Accounts receivable........................................... 16,372 (33,431) (17,059)
Inventory..................................................... 11,441 (16,479) (5,038)
Prepaid expenses and other.................................... 3,335 (8,100) (4,765)
Deposits...................................................... 1,500 (2,363) (6,772)
Increase (decrease) in operating liabilities:
Accounts payable.............................................. 109,469 89,625 199,094
Accrued expenses.............................................. 70,749 (1,683) 96,016
Customer deposits............................................. 4,220 40,385 44,605
------------ ---------- ------------
Net cash used by operating activities................................ (830,865) (643,951) (1,586,215)
------------ ---------- ------------
Cash flows from investing activities:
Organizational costs............................................... -- -- (11,081)
Payments received on franchisee notes receivable................... 12,358 1,867 14,225
Acquisition of fixed assets........................................ (45,433) (38,501) (112,359)
------------ ---------- ------------
Net cash used by investing activities................................ 33,075 36,634 109,215
------------ ---------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements
G-6
<PAGE>
ADATOM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS--(CONTINUED)
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
YEAR ENDED FROM
DECEMBER 31, INCEPTION TO
--------------------- DECEMBER 31,
1998 1997 1998
-------- --------- ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from long-term debt............................................ $861,407 $ 486,458 $1,463,800
Net borrowings on line of credit........................................ 45,873 -- 45,873
Payments received on stock notes receivable............................. 8,119 8,119 16,238
Repayments of notes and contracts payable............................... (20,484) (23,716) (44,200)
Issuance of common stock................................................ -- 100,000 304,308
-------- --------- ----------
Net cash provided by financing activities................................. 894,915 570,861 1,786,019
-------- --------- ----------
Net increase (decrease) in cash........................................... 30,975 (109,724) 90,589
Cash and restricted cash, beginning of period............................. 59,614 169,338 --
-------- --------- ----------
Cash and restricted cash, end of period................................... $ 90,589 $ 59,614 $ 90,589
-------- --------- ----------
-------- --------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest............................................................. $ 1,728 $ 4,391 $ 6,119
Income taxes......................................................... $ 800 $ 800 $ 1,608
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
Assets acquired for debt................................................ $ -- $ 37,000 $ 37,000
Common stock issued for notes........................................... $ -- $ 6,257 $ 45,538
</TABLE>
The accompanying notes are an integral part of these financial statements
G-7
<PAGE>
ADATOM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1--ORGANIZATION AND OPERATIONS
Adatom, Inc. (the "Company") is a development stage enterprise founded
October 1996 for the purpose of developing and marketing an electronic product
distribution system using proprietary computer technologies. Using the Company's
technology, consumers may place orders through an agent, directly on an internet
site, or with a Company salesperson. The orders so placed are typically routed
directly to the manufacturer so that the goods may be delivered directly to the
consumer.
The future success of the Company is dependent upon several factors
including its ability to continue to expand and enhance its array of available
products and to attract and retain qualified agents and salespersons. To date
substantially all capital has been obtained from the Company's majority
shareholder.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Inventory--Inventory consists of consumer goods available for sale and is
stated at the lower of first-in, first-out cost or market.
Fixed assets--Fixed assets are stated at cost and are being depreciated
over their estimated useful lives using the straight-line method. Various
accelerated methods are used for computing depreciation for income tax purposes.
At December 31, 1998 and 1997, fixed assets consisted of:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Equipment................................................... $126,924 $ 84,344
Furniture and fixtures...................................... 22,147 19,295
-------- --------
149,071 103,639
Accumulated depreciation.................................... (40,321) (13,327)
-------- --------
Net fixed assets............................................ $108,750 $ 90,312
-------- --------
-------- --------
</TABLE>
Intangible assets--Organization costs are being amortized over five years
using the straight-line method. At December 31, 1998 accumulated amortization
totals approximately $4,800.
Software development costs--The Company classifies the costs of planning
and developing software products as research and development and charges those
costs to expense when incurred.
During 1998, the Company received approximately $130,000 as a contract
reimbursement for part of its software development activities. This
reimbursement is included with research and development expenses in the
accompanying statement of operations.
Income taxes--The Company is taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under those provisions, the Company pays no Federal
income taxes but is taxed at the state level using the statutory rates in effect
for S-Corporations. Additionally, the stockholders are individually taxed on
their proportionate share of the Company's taxable income.
Advertising costs--Advertising costs include the costs of brochures, print
advertisements and radio commercials, and are expensed when incurred. During the
years ended December 31, 1998 and 1997 and for the period from inception to
December 31, 1998, advertising costs of approximately $153,000, $15,000 and
$180,000, respectively, were charged to expense.
G-8
<PAGE>
ADATOM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Reclassification--Certain 1997 balances have been reclassified to conform
to the 1998 financial statement presentation. These reclassifications have no
effect on previously reported net income.
NOTE 3--NOTES RECEIVABLE FROM FRANCHISEES
During 1997, the Company entered into seven franchise and agency agreements
for which it had recognized $124,000 in initial franchise fees. Of this amount,
$105,000 had been financed by the Company under unsecured notes receivable.
During 1998, the Company modified its business strategy toward one more oriented
to internet-based commerce. Accordingly, the Company offered to cancel the
franchise agreements and to forgive the balance of the franchisees' indebtedness
to the Company. Six of the Company's franchisees elected to terminate their
agreements resulting in a charge to income of approximately $79,000,
representing the write off of the remaining balances due from these franchisees.
The remaining note is due in equal monthly installments of approximately $310,
including interest at 9% per annum, and matures September 2002.
NOTE 4--LINE OF CREDIT
The Company has a line of credit agreement, expiring in December 2001, with
Wells Fargo Bank. Borrowings under the agreement are secured by the Company's
certificate of deposit at the same bank, bear interest at the bank's index rate
plus 1% (8.75% at December 31, 1998), and are limited to $50,000. At
December 31, 1998, $45,873 is outstanding under this agreement and is included
with long-term notes and lease contracts payable in the accompanying balance
sheets.
NOTE 5--NOTE PAYABLE TO SHAREHOLDER
This note is unsecured, bears interest at 7% per year, and is due
January 1, 2000.
NOTE 6--INCOME TAXES
At December 31, 1998 and 1997, net deferred taxes include the following:
<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
NON- NON-
CURRENT CURRENT CURRENT CURRENT
------- -------- ------- --------
<S> <C> <C> <C> <C>
STATE
Deferred tax assets................................................ $ 1,000 $ 28,000 $ -- $ 12,000
Valuation allowance................................................ (1,000) (26,000) -- (11,000)
Deferred tax liabilities........................................... -- (2,000) -- (1,000)
------- -------- ------- --------
$ -- $ -- $ -- $ --
------- -------- ------- --------
------- -------- ------- --------
</TABLE>
The book basis of property and equipment exceeds its tax basis by the
cumulative amount that accelerated depreciation exceeds straight-line
depreciation. The excess will be taxable in future periods through decreased
depreciation deductions. Certain expenses recognized currently for financial
reporting purposes are not deductible for income tax purposes until paid in
future periods.
At December 31, 1998, the Company has approximately $1,870,000 in net
operating loss carryforwards, expiring in 2004, available to offset future state
taxable income. The deferred tax asset related to these operating loss
carryforwards has been fully reserved.
G-9
<PAGE>
ADATOM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
NOTE 7--COMMITMENTS
The Company leases its facilities under operating lease agreements,
expiring in May 2000, which currently require monthly payments totaling
approximately $7,800. Rent expense paid under these leases for the years ended
December 31, 1998 and 1997 and for the period from inception to December 31,
1998, was approximately $87,000, $44,000 and $137,000, respectively.
NOTE 8--GOING CONCERN
As shown in the accompanying financial statements, the Company incurred a
net loss of approximately $1,200,000 during the year ended December 31, 1998,
and, as of that date, the Company's total liabilities exceeded its total assets
by approximately $1,600,000. Those factors create an uncertainty about the
Company's ability to continue as a going concern. Management's plans to generate
profitable operations include creation of joint marketing programs with
identified consumer and business product wholesalers and distributors, and the
selective licensing of its proprietary technology to producers, wholesalers and
distributors. The ability of the Company to continue as a going concern is
dependent on the success of future operations and the continued financial
support of its majority stockholder. The accompanying financial statements do
not include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
G-10
<PAGE>
ADATOM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------
1999 1998
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash.......................................................................... $ -- $ 110,798
Restricted cash............................................................... -- 20,265
Accounts receivable........................................................... 27,886 32,241
Notes receivable from franchisees............................................. 2,910 19,097
Inventory..................................................................... 12,592 10,500
Prepaid expenses and other.................................................... 19,217 9,865
------------ -----------
Total current assets..................................................... 62,605 202,766
------------ -----------
Other assets:
Fixed assets, net............................................................. 102,778 113,958
Notes receivable from franchisees............................................. 7,585 77,497
Deposits...................................................................... 6,772 6,772
Organization expense, net..................................................... 5,172 7,388
------------ -----------
Total other assets....................................................... 122,307 205,615
------------ -----------
$ 184,912 $ 408,381
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes and lease contracts payable............................................. $ 267,908 $ 18,079
Accounts payable.............................................................. 485,304 80,100
Accrued expenses.............................................................. 72,699 56,734
Customer deposits............................................................. 59,174 2,928
------------ -----------
Total current liabilities................................................ 885,085 157,841
Long-term liabilities:
Notes and lease contracts payable............................................. 533 35,576
Note payable to shareholder................................................... 1,800,000 1,020,282
------------ -----------
Total liabilities........................................................ 2,685,618 1,213,699
------------ -----------
Commitments
Stockholders' deficit:
Common stock, no par value, 10,000,000 shares authorized...................... 344,717 344,717
Common stock notes receivable................................................. (24,633) (32,752)
Deficit accumulated during the development stage.............................. (2,820,790) (1,117,283)
------------ -----------
(2,500,706) (805,318)
------------ -----------
$ 184,912 $ 408,381
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
G-11
<PAGE>
ADATOM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED FROM
JUNE 30, JUNE 30, INCEPTION TO
------------------------ -------------------------- JUNE 30,
1999 1998 1999 1998 1999
---------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Product revenue.......................... $ 161,255 $ 138,219 $ 261,210 $ 206,354 $ 665,779
Franchise fee revenue.................... -- 336 -- 836 129,418
---------- ---------- ----------- ----------- ------------
Total revenue....................... 161,255 138,555 261,210 207,190 795,197
---------- ---------- ----------- ----------- ------------
Cost of product revenue.................. 149,664 120,229 237,266 177,287 574,751
Cost of franchise fee revenue............ -- -- -- -- 38,271
---------- ---------- ----------- ----------- ------------
Total cost of revenue............... 149,664 120,229 237,266 177,287 613,022
---------- ---------- ----------- ----------- ------------
11,591 18,326 23,944 29,903 182,175
---------- ---------- ----------- ----------- ------------
Operating expenses:
Research and development............... 146,835 166,065 279,067 188,104 1,065,513
Selling, general and administrative.... 441,060 89,096 628,304 402,287 2,039,173
---------- ---------- ----------- ----------- ------------
587,895 255,161 907,371 590,391 3,104,686
---------- ---------- ----------- ----------- ------------
Loss from operations........... (576,304) (236,835) (883,427) (560,488) (2,922,511)
---------- ---------- ----------- ----------- ------------
Other income (expense):
Internet support income................ 655 -- 38,846 -- 38,846
License income......................... -- -- -- 250,000 250,000
Write off of franchisee notes
receivable.......................... -- -- -- -- (78,921)
Interest expense, net.................. (5,081) (9,178) (32,966) (19,634) (105,004)
---------- ---------- ----------- ----------- ------------
(4,426) (9,178) 5,880 230,366 104,921
---------- ---------- ----------- ----------- ------------
Loss before provision for
income taxes................. (580,730) (246,013) (877,547) (330,122) (2,817,590)
Provision for income taxes, all current.. -- -- 800 800 3,200
---------- ---------- ----------- ----------- ------------
Net loss....................... $ (580,730) $ (246,013) $ (878,347) $ (330,922) $ (2,820,790)
---------- ---------- ----------- ----------- ------------
---------- ---------- ----------- ----------- ------------
Net loss per share, basic and
diluted...................... $ (0.24) $ (0.10) $ (0.37) $ (0.14) $ (1.18)
---------- ---------- ----------- ----------- ------------
---------- ---------- ----------- ----------- ------------
Weighted average number of
common shares outstanding ... 2,384,600 2,384,600 2,384,600 2,384,600 2,398,585
---------- ---------- ----------- ----------- ------------
---------- ---------- ----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
G-12
<PAGE>
ADATOM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------
NOTES ACCUMULATED
SHARES AMOUNT RECEIVABLE DEFICIT TOTAL
--------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance October 10, 1996....................... -- $ -- $ -- $ -- $ --
Shares issued upon incorporation............... 2,435,880 243,588 (39,281) -- 204,307
Net loss for the three months.................. -- -- -- (133,183) (133,183)
--------- -------- -------- ----------- -----------
Balance December 31, 1996...................... 2,435,880 243,588 (39,281) (133,183) 71,124
Rescission of stock purchase agreement......... (51,280) (5,128) 4,667 -- (461)
Return of shares by majority shareholder for no
consideration................................ (134,106) -- -- -- --
Sale of stock at $0.10 per share............... 62,568 6,257 (6,257) -- --
Sale of stock at $1.40 per share............... 71,538 100,000 -- -- 100,000
Repayment on notes receivable.................. -- -- 8,119 -- 8,119
Net loss for the year.......................... -- -- -- (653,178) (653,178)
--------- -------- -------- ----------- -----------
Balance December 31, 1997...................... 2,384,600 344,717 (32,752) (786,361) (474,396)
Net loss for the six months.................... -- -- -- (330,922) (330,922)
--------- -------- -------- ----------- -----------
Balance June 30, 1998.......................... 2,384,600 344,717 (32,752) (1,117,283) (805,318)
Repayment on notes receivable.................. -- -- 8,119 -- 8,119
Net loss for the six months.................... -- -- -- (825,160) (825,160)
--------- -------- -------- ----------- -----------
Balance December 31, 1998...................... 2,384,600 344,717 (24,633) (1,942,443) (1,622,359)
Net loss for the six months.................... -- -- -- (878,347) (878,347)
--------- -------- -------- ----------- -----------
Balance June 30, 1999 (unaudited).............. 2,384,600 $344,717 $(24,633) $(2,820,790) $(2,500,706)
--------- -------- -------- ----------- -----------
--------- -------- -------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
G-13
<PAGE>
ADATOM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED FROM
JUNE 30, INCEPTION
------------------------ TO JUNE 30,
1999 1998 1999
----------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................................. $ (878,347) $(330,922) $(2,820,790)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization..................................... 15,903 14,605 61,024
Revenues from franchisee notes receivable......................... -- -- (105,000)
Lease costs included in cost of franchise fee revenue............. -- -- 31,105
Write off of franchisee notes receivable.......................... -- -- 78,921
Decrease (increase) in operating assets:
Accounts receivable............................................. (10,827) 1,190 (27,886)
Inventory....................................................... (7,554) 5,979 (12,592)
Prepaid expenses and other...................................... (14,452) (1,765) (19,217)
Deposits........................................................ -- 1,500 (6,772)
Increase (decrease) in operating liabilities:
Accounts payable................................................ 286,209 (9,526) 485,303
Accrued expenses................................................ 58,270 31,467 154,286
Customer deposits............................................... 14,569 (37,457) 59,174
----------- --------- -----------
Net cash used by operating activities.................................. (536,229) (324,929) (2,122,444)
----------- --------- -----------
Cash flows from investing activities:
Organizational costs................................................. -- -- (11,081)
Payments received on franchisee notes receivable..................... 1,360 6,539 15,585
Acquisition of fixed assets.......................................... (8,823) (37,143) (121,182)
----------- --------- -----------
Net cash used by investing activities.................................. (7,463) (30,604) (116,678)
----------- --------- -----------
Cash flows from financing activities:
Proceeds from notes and contracts payable............................ 250,000 -- 250,000
Proceeds from shareholder............................................ 254,614 417,889 1,718,414
Net borrowings on line of credit..................................... (45,873) 20,265 --
Payments received on stock notes receivable.......................... -- -- 16,238
Repayments of notes and contracts payable............................ (5,638) (11,172) (49,838)
Issuance of common stock............................................. -- -- 304,308
----------- --------- -----------
Net cash provided by financing activities.............................. 453,103 426,982 2,239,122
----------- --------- -----------
Net increase (decrease) in cash........................................ (90,589) 71,449 --
Cash and restricted cash, beginning of period.......................... 90,589 59,614 --
----------- --------- -----------
Cash and restricted cash, end of period................................ $ -- $ 131,063 $ --
----------- --------- -----------
----------- --------- -----------
<CAPTION>
Supplemental disclosure of cash flow information
<S> <C> <C> <C>
Cash paid during the year for:
Interest.......................................................... $ 47,557 $ 1,728 $ 53,676
Income taxes...................................................... $ 800 $ 800 $ 3,200
<CAPTION>
Supplemental disclosure of non-cash transactions
<S> <C> <C> <C>
Assets acquired for debt............................................... $ -- $ -- $ 37,000
Common stock issued for notes.......................................... $ -- $ -- $ 45,538
</TABLE>
The accompanying notes are an integral part of these financial statements.
G-14
<PAGE>
ADATOM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1--ORGANIZATION AND OPERATIONS:
Adatom, Inc. (the "Company") is a development stage enterprise founded in
October 1996 for the purpose of developing and marketing an electronic product
distribution system using proprietary computer technologies. Using the Company's
technology, consumers may place orders through an agent, directly on an Internet
site, or with a Company salesperson. The orders so placed are typically routed
directly to the manufacturer so that the goods may be delivered directly to the
consumer.
The future success of the Company is dependent upon several factors
including its ability to continue to expand and enhance its array of available
products and to attract and retain qualified agents and salespersons. To date,
substantially all capital has been obtained from the Company's majority
shareholder.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Inventory--Inventory consists of consumer goods available for sale and is
stated at the lower of first-in, first-out cost or market.
Fixed assets--Fixed assets are stated at cost and are being depreciated
over their estimated useful lives using the straight-line method. Various
accelerated methods are used for computing depreciation for income tax purposes.
At June 30, 1999 and June 30, 1998, fixed assets consisted of:
<TABLE>
<CAPTION>
1999 1998
-------- ----------
<S> <C> <C>
Equipment...................................... $135,747 $ 118,636
Furniture and fixtures......................... 22,147 22,147
-------- ----------
157,894 140,783
Accumulated depreciation....................... (55,116) (26,825)
-------- ----------
Net fixed assets............................... $102,778 $ 113,958
-------- ----------
-------- ----------
</TABLE>
Intangible assets--Organization costs are being amortized over five years
using the straight-line method. At June 30, 1999 accumulated amortization totals
approximately $5,900.
Software development costs--The Company classifies the costs of planning
and developing software products as research and development and charges those
costs to expense when incurred.
During the six months ended June 30, 1998, the Company received
approximately $112,000 as a contract reimbursement for part of its software
development activities. This reimbursement is included with research and
development expenses in the accompanying statement of operations.
Income taxes--The Company is taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under those provisions, the Company pays no Federal
income taxes but is taxed at the state level using the statutory rates in effect
for S-Corporations. Additionally, the stockholders are individually taxed on
their proportionate share of the Company's taxable income.
Advertising costs--Advertising costs include the costs of brochures, print
advertisements and radio commercials, and are expensed when incurred. During the
six months ended June 30, 1999, and 1998 and the
G-15
<PAGE>
ADATOM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1999
(UNAUDITED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
period from inception to June 30, 1999, advertising costs of approximately
$138,000, $42,000 and $318,000, respectively, were charged to expense.
NOTE 3--NOTES RECEIVABLE FROM FRANCHISEES:
At June 30, 1999, the Company held a note receivable from one franchisee.
This note is due in equal monthly installments of approximately $310, including
interest at 9% per annum, and matures September 2002. In December 1998, the
Company ceased its franchising operations and offered to cancel the notes
receivable from its existing franchisees. Six of the Company's franchisees
accepted this offer, resulting in the cancellation of $78,921 of notes
receivable and a charge to income of $78,921.
NOTE 4--NOTES PAYABLE:
The $1,800,000 note payable to shareholder is unsecured, non-interest
bearing, and is due July 1, 2000. Additionally, Adatom has a $250,000 note
payable to HealthCore Medical Solutions, Inc., the company with which Adatom
plans to merge (see Note 8). This note is secured by Adatom's assets, is
non-interest bearing, and is due upon closing of the merger transaction
discussed at Note 8 or within 90 days of the termination of the related letter
of intent to merge.
NOTE 5--INCOME TAXES:
At June 30, 1999 and June 30, 1998, net deferred taxes consist of the
following:
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
CURRENT NON-CURRENT CURRENT NON-CURRENT
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
State
Deferred tax assets.................................. $-- $ 41,000 $ 1,000 $ 16,000
Valuation allowance.................................. -- (39,000) (1,000) (14,000)
Deferred tax liabilities............................. -- (2,000) -- (2,000)
--- --------- ------- ---------
$-- $ -- $ -- $ --
--- --------- ------- ---------
--- --------- ------- ---------
</TABLE>
The book basis of property and equipment exceeds its tax basis by the
cumulative amount that accelerated depreciation exceeds straight-line
depreciation. The excess will be taxable in future periods through decreased
depreciation deductions. Certain expenses recognized currently for financial
reporting purposes are not deductible for income tax purposes until paid in
future periods.
At June 30, 1999, the Company has approximately $2,700,000 in net operating
loss carryforwards, expiring in 2004, available to offset future state taxable
income. The deferred tax asset related to these operating loss carryforwards has
been fully reserved.
NOTE 6--COMMITMENTS:
The Company leases its facilities under operating lease agreements,
expiring in May 2000, which currently require monthly payments totaling
approximately $7,800. Rent expense paid under these leases for the six months
ended June 30, 1999 and 1998 and for the period from inception to June 30, 1999,
was approximately $49,000, $45,000 and $186,000, respectively.
G-16
<PAGE>
ADATOM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1999
(UNAUDITED)
NOTE 7--GOING CONCERN:
As shown in the accompanying financial statements, the Company incurred a
net loss of approximately $880,000 for the six months ended June 30, 1999 and
has incurred an aggregate loss of $2,820,790 since its inception. At June 30,
1999, the Company's total liabilities exceeded its total assets by approximately
$2,500,000. Those factors create an uncertainty about the Company's ability to
continue as a going concern. Management's plans to generate profitable
operations principally involve the development and establishment of its Internet
commerce website. The ability of the Company to continue as a going concern is
dependent on the success of future operations and the continued financial
support of its majority stockholder. The accompanying financial statements do
not include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
NOTE 8--SUBSEQUENT EVENTS:
The Company has filed a proxy with the Securities and Exchange Commission
dated August 11, 1999. The proxy provides for the merger of the Company with and
into HealthCore Medical Solutions, Inc. pursuant to the Agreement and Plan of
Merger among the Company and HealthCore dated as of July 1, 1999. The combined
company will be named Adatom.com, Inc. and will operate Adatom's existing
business of an Internet retailer. In the merger, Adatom's stockholders will
receive approximately 2.17 shares of HealthCore common stock, subject to
adjustment, as defined in the agreement.
G-17
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
HEALTHCORE MEDICAL SOLUTIONS INC.
AND
ADATOM, INC.
DATED AS OF JULY 1, 1999
A-1
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement") dated July 1, 1999, by and
between HEALTHCORE MEDICAL SOLUTIONS, INC., a Delaware corporation
("HealthCore"), and ADATOM, INC., a California corporation ("Adatom").
W I T N E S S E T H:
WHEREAS, the respective boards of directors of HealthCore and Adatom have
determined that the consummation of the merger (the "Merger") of Adatom with and
into HealthCore upon the terms and subject to the conditions set forth in this
Agreement would be in the best interest of both HealthCore and Adatom and their
respective shareholders, and each such board has duly approved the Merger.
NOW, THEREFORE, the parties hereby agree as follows:
All terms used but not otherwise defined herein shall have the meanings
ascribed to them in Section 10.1 hereof.
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the applicable provisions of the Delaware
General Corporation Law (the "DGCL") and the California General Corporation Law
(the "CGCL"), at the Effective Time (as hereinafter defined), the Merger shall
be effectuated. Upon and after the Effective Time, the separate corporate
existence of Adatom shall cease and HealthCore shall be the surviving
corporation in the Merger (the "Surviving Corporation"). All of the rights,
privileges, powers, immunities, purposes and franchises of Adatom shall vest in
the Surviving Corporation, and all of the debts, liabilities, obligations and
duties of Adatom shall become the debts, liabilities, obligations and duties of
the Surviving Corporation.
1.2 Closing. The closing of the Merger (the "Closing") will take place at
the offices of Epstein Becker & Green, P.C., 250 Park Avenue, New York, New York
10177, at 10:00 a.m. on the third Business Day following the satisfaction, or
waiver by the party entitled to the benefit of such condition, of each of the
conditions set forth in Article VII, or at such other place, time and date as
Adatom and HealthCore may agree in writing. The time and date upon which the
Closing occurs is referred to herein as the "Closing Date".
1.3 Effective Time. On the Closing Date, Adatom and HealthCore shall cause
a certificate of merger (the "Certificate of Merger") to be prepared, executed
and filed with the Secretary of State of the States of Delaware and California
in accordance with the applicable provisions of the DGCL and the CGCL, and shall
make all other filings or recordings as may be required under the DGCL and the
CGCL. The Merger shall become effective at such time as the Certificate of
Merger is duly filed with the Secretary of State of the States of Delaware and
California (the "Effective Time").
1.4 Certificate of Incorporation and By-laws. The Certificate of
Incorporation of HealthCore shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter changed or amended as provided herein or
therein, or by applicable laws, except that (i) Article FIRST of the Certificate
of Incorporation shall be amended and restated in its entirety as follows:
"FIRST: The name of the Corporation is Adatom.com, Inc.", and (ii) Article
FOURTH, with respect to the designation of the various classes, and rights
associated therewith, of the capital stock of HealthCore, shall be amended and
restated in its entirety as set forth on Schedule 1.4 hereof. The By-laws of
HealthCore shall be the By-laws of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law.
1.5 Directors and Officers. At the Effective Time, the number of directors
on the Board of Directors of the Surviving Corporation shall be increased to
five (5), and shall consist of (i) the three (3) directors on the
A-2
<PAGE>
Board of Directors of Adatom at the Effective Time, (ii) one (1) Adatom
designee, and (iii) the Chairman of the Board and Chief Executive Officer of
HealthCore, Neal J. Polan ("Polan"). The officers of Adatom at the Effective
Time shall be the officers of the Surviving Corporation. The directors and
officers of the Surviving Corporation shall hold office until their respective
successors are duly elected or appointed and qualified or until their earlier
death, resignation or removal in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation.
ARTICLE II
EFFECT OF MERGER ON CAPITAL STOCK
2.1 Effect on Adatom Capital Stock, Options and Warrants. At the Effective
Time, by virtue of the Merger and without any action on the part of the holder
thereof:
(a) Conversion of Shares of Adatom Common Stock. Each issued and
outstanding share of Adatom common stock, no par value per share (the
"Adatom Common Stock") shall be converted into the right to receive the Per
Share Merger Consideration (as hereinafter defined), subject, however, to
the execution by each of the holders (other than Polan) of the shares of
Adatom Common Stock of a lock-up agreement in form and substance reasonably
satisfactory to Adatom (the "Adatom Lock-up Agreement") covering the shares
received by such Adatom shareholders in respect of the Per Share Merger
Consideration (collectively, the "Adatom Newly Issued Shares"), other than
the Polan Adatom Shares (as hereinafter defined), which shall be subject to
a lock-up period pursuant to the terms of the HealthCore Lock-up Agreements
(as hereinafter defined). The Adatom Lock-Up Agreement shall provide, among
other things, that the Adatom Newly Issued Shares shall be subject to a six
(6) month lock-up, prohibiting the sale, assignment or transfer thereof
during such six (6) month period. The holders of certificates representing
shares of Adatom Common Stock (each a "Certificate", and collectively, the
"Certificates") shall cease to have any rights with respect to such shares
except the right to receive the applicable Per Share Merger Consideration,
without interest, upon surrender of the Certificate in accordance with
Article IV hereof.
(b) Treasury Shares. Each share of Adatom Common Stock, if any, held
in the treasury by Adatom shall be canceled and retired and cease to exist,
without any conversion thereof.
(c) Adatom Options and Warrants. Each issued and outstanding option
(each an "Adatom Option") and warrant (each an "Adatom Warrant")
exercisable for shares of Adatom Common Stock shall be converted into an
option or warrant, as applicable, exercisable for shares of HealthCore
Common Stock, $.01 par value per share (the "HealthCore Common Stock") with
the same terms and conditions as the Adatom Option or the Adatom Warrant,
as the case may be, except that the exercise price and the number of shares
of HealthCore Common Stock issuable upon exercise of such options and
warrants shall be divided and multiplied, respectively, by the Per Share
Merger Consideration.
2.2 Effect on Capital Stock of HealthCore. At the Effective Time (a) each
issued and outstanding share of HealthCore Class A Common Stock, par value $.01
per share (the "HealthCore Common Stock"), and each option and warrant
exercisable for shares of HealthCore Common Stock, shall remain outstanding with
the same rights, terms and conditions attendant thereto immediately prior to the
Effective Time; provided that such HealthCore Class A Common Stock shall be
reclassified as "Common Stock" in accordance with the provisions of Section 1.4
hereof; and (b) each issued and outstanding share of HealthCore Class B Common
Stock, par value $.01 (the "HealthCore Class B Common Stock") shall be converted
into one (1) share of HealthCore Common Stock. Notwithstanding anything
contained herein to the contrary, if a Certificate is held by a Dissenting
Shareholder (as hereinafter defined), such Dissenting Shareholder shall have the
rights with respect thereto as set forth in Section 4.4 hereof and as provided
by applicable law.
A-3
<PAGE>
ARTICLE III
CALCULATION OF PER SHARE MERGER CONSIDERATION;
ADJUSTED PER SHARE MERGER CONSIDERATION
3.1 Calculation of Per Share Merger Consideration.
(a) Base Calculation. The "Per Share Merger Consideration" shall be
defined as that number of shares of HealthCore Common Stock equal to
(i) the difference between (A) (1) the Outstanding HealthCore Common Stock
(as hereinafter defined), divided by (2) .225, and (B) the Outstanding
HealthCore Common Stock, divided by (ii) the Outstanding Adatom Common
Stock (as hereinafter defined), subject to adjustment as hereinafter set
forth (the total number of shares of HealthCore Common Stock issuable
hereunder, the "Merger Consideration").
(b) Adatom Common Stock Outstanding. For purposes of calculating the
Per Share Merger Consideration, the "Outstanding Adatom Common Stock" shall
be defined as the total number of shares of Adatom Common Stock outstanding
immediately prior to the Closing which shall be deemed to include (i) all
outstanding shares of Adatom Common Stock (including, without limitation,
the shares of Adatom Common Stock issuable to Polan as described in
Section 6.1(c) hereof), and (ii) all shares of Adatom Common Stock
underlying (A) the options and warrants to purchase such shares of Adatom
Common Stock, (B) the shares of Adatom Common Stock into which the
convertible bridge notes (the "Convertible Notes") placed by Jesup & Lamont
Securities Corporation ("Jesup & Lamont") are convertible prior to or
simultaneously with the Closing, and the shares issuable upon exercise of
warrants to purchase the Adatom Common Stock issued by Adatom to Jesup &
Lamont as compensation under the terms of the Adatom Engagement Letter (as
hereinafter defined), and (C) shares of Adatom Common Stock issued or
issuable to the Brokers (as defined in Section 5.1(u) hereof).
(c) HealthCore Common Stock Outstanding. For purposes of calculating
the Per Share Merger Consideration, the "Outstanding HealthCore Common
Stock" shall be defined as the total number of shares of HealthCore Common
Stock outstanding immediately prior to the Closing which shall be deemed to
include (i) all outstanding shares of HealthCore Common Stock (other than,
and specifically excluding, eighty (80) percent of the shares of HealthCore
Common Stock owned by the Escrow Shareholders who have executed and
delivered to HealthCore, as of the Closing Date, the Termination
Agreements, and which are held in escrow pursuant to the terms of the
Escrow Agreement, as such capitalized terms are defined in Section 6.5
hereof), and (ii) all shares of HealthCore Common Stock underlying (A) the
options and warrants to purchase such shares of Class A Common Stock with
an exercise price of $1.25 or less, other than the warrants issued to Jesup
& Lamont as compensation pursuant to the terms of that certain engagement
letter (the "HealthCore Engagement Letter"), dated April 27, 1999, between
HealthCore and Jesup & Lamont, a copy of which is attached hereto as
Exhibit A, and other than, and specifically excluding, eighty (80) percent
of the shares of HealthCore Common Stock underlying that certain warrant to
purchase 142,000 shares of HealthCore Common Stock held by Polan, provided
Polan shall have executed and delivered to HealthCore, as of the Closing
Date, an agreement in substantially the form of the Termination Agreements,
and (B) the options or warrants issued on or after the date hereof in
consideration for the settlement of certain obligations of HealthCore to
employees and third party creditors of HealthCore in accordance with the
provisions of Section 6.2(d) hereof.
3.2 Adjustment to Per Share Merger Consideration. The Per Share Merger
Consideration shall be subject to adjustment as follows:
(a) Closing Cash Amount. In the event the cash assets of HealthCore
immediately prior to the Closing (the "Closing Cash Amount") are less than
Two Million Eight Hundred Fifty Thousand ($2,850,000) Dollars, then the
number of shares of HealthCore Common Stock issued to the holders of record
on the Closing Date of Outstanding Adatom Common Stock other than Polan
(the "Adatom Former Shareholders") shall be increased as follows: first,
subtract from twenty-two and one-half (22.5%) percent (the "HealthCore Post
Merger Percentage") the product of the difference between (i) $2,850,000
and (2) the Closing Cash Amount, multiplied by .00000309 (such difference
being the "New HPMP"); second, calculate the percentage obtained by
dividing the HealthCore Post Merger Percentage by the New HPMP and
subtracting one hundred (100%) percent (the difference being the "Margin
Percentage"); and third,
A-4
<PAGE>
multiply the Margin Percentage by the number of shares of HealthCore Common
Stock which would have been outstanding immediately after the Merger
pursuant to Section 3.1 (such product being the "Increased Shares"). For
purposes of calculating the new Per Share Merger Consideration, divide the
number of Increased Shares by the Outstanding Adatom Common Stock, and add
that number to the Per Share Merger Consideration. At the time of the
Merger, and without necessity of any further action, Polan shall transfer
and shall be deemed to have transferred to the Adatom Former Shareholders,
on a pro rata basis, the number of shares of HealthCore Common Stock that
he would have received as his pro rata percentage of the Increased Shares
had he been included in the adjustment to the Per Share Merger
Consideration described above. Polan shall have no ownership interest of
any kind in such shares at any time, but shall hold them in trust for the
other holders of Outstanding Adatom Common Stock. For the purposes of this
section the Closing Cash Amount shall be deemed to include (i) all cash on
hand, (ii) the aggregate consideration payable to HealthCore upon the
exercise of all outstanding options and warrants of HealthCore as of the
date hereof having an exercise price not greater than $1.25 per share;
(iii) the aggregate consideration payable to HealthCore for the purchase of
shares of HealthCore Common Stock upon the exercise of options and warrants
to purchase the same, up to an aggregate maximum of Thirty Thousand
(30,000) shares, issued on or after the date hereof in consideration for
the settlement of certain obligations of HealthCore to employees and third
party creditors of HealthCore, provided that only $1.25 shall be includable
in the Closing Cash Amount for options and warrants with an exercise price
in excess of $1.25, (iv) the aggregate amount of prepaid expenses paid by
HealthCore for the benefit of the Surviving Corporation, (v) the principal
amount loaned by HealthCore to Adatom for bridge financing as evidenced by
that certain Promissory Note (the "Note"), dated April 27, 1999, executed
by Adatom in favor of HealthCore, (vi) the aggregate amount of any cash
payments made to Polan pursuant to the terms of Paragraph 4(c) of that
certain Employment Agreement, dated September 30, 1998, between HealthCore
and Polan, as amended, (vii) the aggregate sum of any and all reasonable
Transaction Expenses (as defined in Section 10.5 hereof) paid by HealthCore
through the Closing Date; provided, however, that Adatom shall have
approved of any Transaction Expense (other than legal, accounting and
investment banker fees and expenses, provided that the fees payable in
connection with the preparation of a fairness opinion shall be commensurate
with the fair market value for such services) incurred and paid by
HealthCore following the execution hereof, which, individually, is in
excess of Twenty-Five Thousand ($25,000) Dollars; and (viii) the aggregate
sum of any deferred payments to be received by HealthCore within one
hundred twenty (120) days following the Closing in connection with the sale
of the HealthCore Business (as hereinafter defined). The Closing Cash
Amount shall be reduced by the liquidated sum of the accrued but unpaid
liabilities of HealthCore on the Closing Date other than, and specifically
excluding, (i) any and all reasonable Transaction Expenses incurred by
HealthCore prior to the Closing Date, and (ii) any liabilities that Adatom
and HealthCore mutually agree shall be excluded as set forth on Schedule
3.2(a) hereof, as amended on the Closing Date. The adjustment to the Per
Share Merger Consideration set forth in this Section 3.2(a) shall be made
on the Closing Date.
(b) Indemnification Obligations. In the event the Surviving
Corporation shall be obligated to indemnify (i) the holders of record on
the Closing Date of the shares of Outstanding Adatom Common Stock other
than Polan (the "Adatom Former Shareholders"), or (ii) the holders of
record on the Indemnification Adjustment Date (as hereinafter defined) of
the shares of Common Stock in the Surviving Corporation, other than, and
specifically excluding, the Adatom Former Shareholders (the "HealthCore
Former Shareholders"), as the case may be, in respect of the Net
Indemnification Amount (as defined in Section 8.5 hereof), the Surviving
Corporation shall issue to such party, on a pro rata basis, the number of
shares of Common Stock of the Surviving Corporation calculated as follows:
first, subtract from the HealthCore Post Merger Percentage the product of
the Net Indemnification Amount multiplied by .00000309 (such difference
being the "Indemnification HPMP"); second, calculate the percentage
obtained by dividing the HealthCore Merger Percentage by the
Indemnification HPMP and subtracting one hundred (100%) percent (the
difference being the "Indemnification Margin Percentage"); and third,
multiply the Indemnification Margin Percentage by the number of shares of
HealthCore Common Stock which were outstanding immediately after the Merger
purcuant to Section 3.1, including any adjustment in respect of the Closing
Cash Amount pursuant to Section 3.2(a) hereof (such product being the "Net
Indemnification Shares"). The Net Indemnification Shares shall be divided
among, in the case of the Surviving Corporation's indemnification of the
(A) Adatom Former Shareholders, the Adatom Former Shareholders based on the
A-5
<PAGE>
number of shares of Common Stock of the Surviving Corporation held by the
Adatom Former Shareholders on the Indemnification Adjustment Date, or
(B) HealthCore Former Shareholders, the HealthCore Former Shareholders
based on the number of shares of Common Stock of the Surviving Corporation
outstanding on the Indemnification Adjustment Date, excluding the shares of
Common Stock of the Surviving Corporation held by the Adatom Former
Shareholders. The indemnification adjustment set forth in this
Section 3.2(b) shall be made thirteen (13) months following the Closing
Date (the "Indemnification Adjustment Date") in accordance with the
provisions of Article VIII hereof.
ARTICLE IV
PAYMENT OF MERGER CONSIDERATION
4.1 Delivery of Certificates. As soon as reasonably practicable after the
Effective Time, and upon surrender of a Certificate for cancellation to the
Surviving Corporation, together with such documents as may reasonably be
required by the Surviving Corporation, each holder of a Certificate shall be
entitled to receive, and the Surviving Corporation shall issue and deliver to
such holder, in exchange therefor certificates representing shares of HealthCore
Common Stock, rounded up to the nearest whole number, equal to the product of
(A) the number of shares of Adatom Common Stock represented by such Certificate,
multiplied by (B) the Per Share Merger Consideration, and the Certificate so
surrendered shall forthwith be canceled. If certificates for the HealthCore
Common Stock deliverable hereunder are to be issued in a name other than that in
which the Certificate surrendered for exchange is registered, it shall be a
condition of such issuance that the Certificate so surrendered shall be properly
endorsed, with the signature guaranteed, or otherwise in proper form for
transfer and that the party requesting such issuance shall pay to the Surviving
Corporation any transfer or other taxes required by reason thereof, and shall be
deemed (other than Polan) to be an Adatom Former Shareholder for the purposes of
this Agreement, including, without limitation, under the indemnification
provisions set forth in Sections 3.2(b) and Article VIII of this Agreement.
Until surrendered as contemplated by this Section 4.1, after the Effective Time,
each Certificate shall represent only the right to receive, upon such surrender,
the applicable Per Share Merger Consideration.
4.2 Distributions. Each holder, upon surrender of a Certificate as herein
provided and acceptance thereof by the Surviving Corporation, shall be entitled
to payment of all dividends or other distributions or payments made or payable
with respect to HealthCore Common Stock with a record date after the Effective
Time and prior to the date of surrender of the Certificate, all without
interest, based upon the number of shares of HealthCore Common Stock issued to
such holder in payment of the Per Share Merger Consideration.
4.3 No Further Transfers. After the Effective Time, there shall be no
further transfer of Certificates on the books and records of Adatom or its
transfer agent
4.4 Appraisal Rights. Notwithstanding anything contained herein to the
contrary, in the event that holders of shares of HealthCore Common Stock
outstanding immediately prior to the Effective Time shall not have voted in
favor of the Merger, in person or by proxy, or consented thereto in writing,
(such holders, the "Dissenting Shareholders"), then, in such event the shares of
HealthCore Common Stock held by such Dissenting Shareholders shall entitle the
holders thereof to receive payment of the fair value of such shares of
HealthCore Common Stock in accordance with the provisions of Section 262 of the
DGCL. Nothing contained herein shall be construed to relieve a Dissenting
Shareholder from compliance with all of the provisions of the DGCL.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of Adatom. Adatom represents and
warrants to HealthCore as follows:
(a) Organization and Authority. Adatom is a corporation duly
organized, validly existing and in good standing under the laws of the
State of California, has all requisite corporate power and authority to
own, lease and operate its properties and carry on its business as now
conducted, is duly qualified, authorized and in good standing to transact
business in the states listed in Section 5.1(a) of the disclosure schedule
delivered to HealthCore by Adatom on or prior to the date hereof (the
"Adatom Disclosure Schedule"), and is not
A-6
<PAGE>
required to be qualified as a foreign corporation in any other jurisdiction
where failure to qualify would have a Material Adverse Effect on Adatom.
(b) Capitalization. As of the date hereof, the authorized capital
stock of Adatom consists of 10,000,000 shares of Adatom Common Stock of
which, (A) 2,384,600 shares are issued and outstanding, (B) no shares are
held in the treasury of Adatom, and (C) no shares are reserved for future
issuance upon the exercise of Adatom Options and Adatom Warrants, which
options and warrants have a term, exercise price, vesting schedule and
other material terms set forth in Section 5.1(b) of the Adatom Disclosure
Schedule. The outstanding shares of Adatom Common Stock have been duly
authorized and are validly issued, fully paid and nonassessable, and,
except as set forth in this Section 5.1(b) or in Section 5.1(b) of the
Adatom Disclosure Schedule, there are no outstanding rights, subscriptions,
warrants, calls, preemptive rights, options or other agreements or
commitments of any kind or character to purchase or otherwise to acquire
from Adatom any shares of its capital stock or any other security, and no
security or obligation of any kind convertible into the capital stock or
other security of Adatom exists in favor of any Person (as hereinafter
defined). Except as set forth in Section 5.1(b) of the Adatom Disclosure
Schedule, Adatom has no outstanding bonds, debentures, notes or other such
obligations the holders of which have the right to vote or which are
convertible into or exercisable for securities having the right to vote
with the shareholders of Adatom on any matter. Other than as contemplated
by this Agreement or as set forth in Section 5.1(b) of the Adatom
Disclosure Schedule, there are no outstanding contractual obligations,
commitments, understandings or arrangements of Adatom to repurchase, redeem
or otherwise acquire or make any payment in respect of any shares of
capital stock or other equity securities or ownership interests of Adatom.
(c) Articles of Incorporation, By-Laws, Corporate Records and
Committees. The copies of the Articles of Incorporation and By-Laws or
equivalent organizational documents, each as amended to date, of Adatom
delivered to HealthCore on or prior to the date hereof are correct and
complete. The stock transfer, minute books and corporate records of Adatom
which have been made available to HealthCore, are correct and complete and
constitute the only written records and minutes of the meetings,
proceedings, and other actions of the Board of Directors and the
shareholders of Adatom from its date of incorporation.
(d) Financial Statements. The audited balance sheet of Adatom as at
December 31, 1998 (the "Adatom Audited Balance Sheet"), the unaudited
balance sheet of Adatom as at March 31, 1999 (the "Adatom Unaudited Balance
Sheet", and, together with the Adatom Audited Balance Sheet, the "Adatom
Balance Sheets" ) and, with respect to the Adatom Audited Balance Sheet,
the related audited statements, and, with respect to the Adatom Unaudited
Balance Sheet, the related unaudited statements, of income, capital and
cash flows for the three years then ended (as such documents may have been
amended to date) heretofore delivered to HealthCore, have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied
on a consistent basis during the periods involved (except as may be
indicated in the notes thereto subject), subject to year end audit
adjustments for the Adatom Unaudited Balance Sheet, and are true and
correct in all material respects and fairly present the financial condition
and the results of operations and cash flow of Adatom as at the date and
for the periods covered thereby. Section 5.1(d) of the Adatom Disclosure
Schedule contains a description (specifying obligation, obligee and amount)
of all Debt (as defined in Section 10.1) of Adatom as of the date hereof.
(e) Authority. The Board of Directors and shareholders of Adatom have
each unanimously approved this Agreement, the Merger and the other
transactions contemplated hereby. Adatom has all requisite corporate power
and authority to enter into this Agreement and to perform its obligations
hereunder and to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by Adatom and
constitutes a valid and binding obligation of Adatom enforceable against
Adatom in accordance with its terms.
(f) Governmental Authorizations and Other Consents. No consent,
order, license, approval or authorization of, or exemption by, or
registration or declaration or filing with, any Governmental Entity (as
hereinafter defined), and no consent or approval of any other Person, is
required to be obtained or made by Adatom in connection with the
performance by Adatom of this Agreement or the consummation of the
transactions contemplated to be performed by it hereunder.
A-7
<PAGE>
(g) Non-Contravention. The performance of this Agreement will not
(i) violate any provision of the Articles of Incorporation or By-Laws or
equivalent organizational document of Adatom; (ii) violate, conflict with
or result in the breach or termination of, or constitute an amendment to,
or otherwise give any Person the right to terminate, or constitute (or with
notice or lapse of time or both would constitute) a default (by way of
substitution, novation or otherwise) under the terms of, any contract,
mortgage, lease, bond, indenture, agreement, franchise or other instrument
or obligation to which Adatom is a party or by which Adatom or any of its
assets or properties are bound; (iii) result in the creation of any lien,
mortgage, claim, charge, security interest, encumbrance, restriction or
limitation (collectively, "Liens") upon the properties or assets of Adatom
pursuant to the terms of any contract, mortgage, lease, bond, indenture,
agreement, franchise or other instrument or obligation to which Adatom is a
party or by which Adatom or any of its assets or properties are bound;
(iv) violate any judgment, order, injunction, decree or award of any court,
arbitrator, administrative agency or Governmental Entity against, or
binding upon, Adatom or any of its securities, properties, assets or
businesses; (v) constitute a violation by Adatom of any statute, law, rule
or regulation of any jurisdiction as such statute, law, rule or regulation
relates to any of its securities, properties, assets or business; or
(vi) violate any Permit (as herein defined).
(h) Tangible Property. Adatom has good title to all of the assets
reflected on its books and records and on the Adatom Balance Sheets, free
and clear of all Liens, except for those assets leased by Adatom under
those leases listed in Section 5.1(h) of the Adatom Disclosure Schedule.
All furniture, fixtures and equipment owned or used by Adatom
(collectively, the "Fixed Assets") will be in substantially the same
condition at Closing as existed on the date of this Agreement, reasonable
wear and tear excepted.
(i) Real Property and Leases. Section 5.1(i) of the Adatom Disclosure
Schedule sets forth a true and correct list of all leases, subleases or
other agreements under which Adatom is lessee or lessor of any real
property or has any interest in real property and, except as set forth in
Section 5.1(i) of the Adatom Disclosure Schedule, there are no rights or
options held by Adatom or any contractual obligations on its part to
purchase or otherwise acquire (including by way of lease or sublease) any
interest in or use of any real property, nor any rights or options granted
by Adatom, or any contractual obligations entered into by it, to sell or
otherwise dispose of (including by way of lease or sublease) any interest
in or use of any real property. All such leases, subleases and other
agreements are in full force and effect and constitute legal, valid and
binding obligations of Adatom and, to the knowledge of Adatom, the other
parties thereto, with no existing or, to the knowledge of Adatom, claimed
default or event of default, or event which with notice or lapse of time or
both would constitute a default or event of default, by Adatom or, to the
knowledge of Adatom, by any other party thereto, which would have a
Material Adverse Effect on Adatom. Adatom is not in violation of any
building, zoning, health, safety, environmental or other law, rule or
regulation the violation of which would have a Material Adverse Effect on
Adatom and no notice from any Person has been served upon Adatom claiming
any such violation.
(j) Intellectual Property. Section 5.1(j) of the Adatom Disclosure
Schedule sets forth all material trademarks, trade names, trade secrets,
patents, inventions, processes, registered copyrights, or other
intellectual property rights (or applications therefor) used by Adatom in
connection with its business.
(k) Tax Matters. Adatom has timely filed all federal, state, county
and local tax returns, estimates and reports (collectively, "Returns")
required to be filed by it through the date hereof, copies of which have
been delivered to HealthCore, which Returns accurately reflect, in all
material respects, the taxes due for the periods indicated, and Adatom has
paid in full all income, gross receipts, value added, excise, property,
franchise, sales, use, employment, payroll and other taxes of any kind
whatsoever (collectively, "Taxes") shown to be due by such Returns, and has
established adequate reserves with respect to any liabilities for Taxes
accrued through March 31, 1999, which are reflected on the Adatom Balance
Sheets. Adatom does not know of any unassessed deficiency for Taxes
proposed or threatened against Adatom, and, to Adatom's knowledge, no
taxing authority has raised any issue with respect to Adatom which, if
adversely determined, would result in a liability for any Tax which has not
been reserved against on the Adatom Balance Sheets. No extensions with
respect to the dates on which any Return was or is due to be filed by
Adatom nor any waivers or agreements by Adatom for the extension of time
for the assessment or payment of any Taxes are in force. Adatom has not
been, and, to Adatom's knowledge, currently is not being, audited by any
federal, state or local tax authority.
A-8
<PAGE>
(l) Compliance with Laws. Adatom is in compliance with all applicable
laws, rules and regulations, the violation of which could have a Material
Adverse Effect on its assets, properties, liabilities, business, results of
operations, condition (financial or otherwise) or prospects, nor does
Adatom know of the enactment, promulgation or adoption of any such law,
rule or regulation which is not yet effective.
(m) Permits and Licenses. Except as set forth in Section 5.1(m) of
the Adatom Disclosure Schedule, Adatom (including, without limitation, its
employees) has duly obtained and holds in full force and effect all
consents, authorizations, permits, licenses, orders or approvals of, and
has made all declarations and filings with, all Governmental Entities that
are material in the conduct of its business (collectively, the "Permits");
all the Permits were duly obtained and are in full force and effect; no
violations have been recorded by any Governmental Entity in respect of any
such Permit and no proceeding is pending or, to Adatom's knowledge,
threatened to revoke, deny or limit any such Permit.
(n) Contracts and Agreements. Section 5.1(n) of the Adatom Disclosure
Schedule lists all material written or oral contracts, agreements, leases,
mortgages and commitments to which Adatom is a party or by which it may be
bound (individually a "Material Contract", and collectively, "Material
Contracts"). All Material Contracts constitute legal, valid and binding
obligations of Adatom and, to the knowledge of Adatom, the other parties
thereto, and are in full force and effect on the date hereof, and Adatom
has paid in full all amounts due thereunder which are due and payable and
is not in default under any such Material Contract nor, to the knowledge of
Adatom, is any other party to any such Material Contract in default
thereunder, nor does any condition exist that, with notice or lapse of
time, or both, would constitute a default or event of default thereunder by
Adatom or, to the knowledge of Adatom, by any other Person. Except as set
forth in Section 5.1(n) of the Adatom Disclosure Schedule, no Material
Contract requires the consent or approval of a third party in connection
with the performance by Adatom of this Agreement or the transactions
contemplated to be performed by it hereunder.
(o) Employee Compensation and Benefits and Relations.
(i) Section 5.1(o) of the Adatom Disclosure Schedule lists all
current employees of Adatom, setting forth their respective salaries,
whether they are employed under contract or at will, and the expiration
date of each contract.
(ii) Notwithstanding anything contained in this Agreement to the
contrary, Adatom has no liabilities of any kind or nature to any of its
employees in connection with their employment by Adatom other than
(A) for compensation payable to such employees arising in the ordinary
course, provided that (x) all employee salaries have been paid by Adatom
other than that portion of employee salaries, if any, accruing in the
current pay period, and (y) Adatom has no existing severance obligations
to any of its employees, and (B) the Shareholder Indebtedness (as such
term is hereinafter defined), which Shareholder Indebtedness shall be
discharged by Adatom prior to the Closing Date.
(iii) Except as set forth in Section 5.1(o) of the Adatom
Disclosure Schedule, there are no pension, retirement, savings,
disability, medical, dental or other health plans, life insurance
(including any individual life insurance policy as to which Adatom makes
premium payments whether or not Adatom is the owner, beneficiary or both
of such policy) or other death benefit plans, profit sharing, deferred
compensation, stock option, bonus or other incentive plans, vacation
benefit plans, severance plans, or other employee benefit plans or
arrangements (whether written or arising from custom), and Adatom does
not have any employee pension benefit plan as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or any employee welfare benefit plan as defined in
Section 3(1) of ERISA.
(iv) Adatom has, in all material respects, complied with the
requirements, to the extent applicable, of the Consolidated Omnibus
Budget Reconciliation Act of 1985 ("COBRA") with respect to the
continuation of employer-provided health benefits following a
"qualifying event" which would otherwise terminate such benefits, as
provided in Section 4980B of the Internal Revenue Code of 1986, as
amended, and applicable regulations and Internal Revenue Service
rulings, notices and other pronouncements.
A-9
<PAGE>
(v) Adatom has not at any time during the last five years had, or
is there now threatened, a strike, picket, work stoppage, work slowdown,
or other labor trouble or dispute, and Adatom does not know of any
employee's proposed resignation whose annual salary exceeds $25,000.
(p) Insurance. Section 5.1(p) of the Adatom Disclosure Schedule lists
all policies of property, theft, fire, liability, workers' compensation,
title, professional liability or life insurance or other insurance owned or
maintained by Adatom or in which Adatom is a named insured, or additional
insured, or on which Adatom or is paying any premiums. Except as set forth
in Section 5.1(p) of the Adatom Disclosure Schedule, all such policies are
in full force and effect as of the date hereof, and Adatom is not in
default with respect to any provision contained in any such insurance
policy nor failed to give any notice or present any claim thereunder in due
and timely fashion. Section 5.1(p) of the Adatom Disclosure Schedule sets
forth a list of the claims history for Adatom under such policies since
January 1, 1999 and, except as set forth in Section 5.1(p) of the Adatom
Disclosure Schedule, there are no claims outstanding by Adatom under any
such policies.
(q) Liabilities. There are no material liabilities or obligations of
Adatom, either accrued, absolute, contingent or otherwise, whether or not
of a kind required by GAAP to be set forth on a financial statement
(collectively, "Liabilities"), except (i) those accrued, reflected or
otherwise provided for on the Adatom Balance Sheets, provided that the
Shareholder Indebtedness (as hereinafter defined) and any and all
indebtedness to any lending institutions reflected thereon (collectively,
the "Adatom Bank Debt") shall have been fully paid, performed and
discharged prior to the Closing Date, (ii) those incurred in the ordinary
course of Adatom's business since December 31, 1998, provided that such
liabilities have been paid, performed and discharged(or will be paid,
performed and discharged) by Adatom in the ordinary course of business,
consistent with past practice, (iii) reasonable Transaction Expenses
incurred by Adatom, (iv) amounts payable to HealthCore under the Note, and
(v) the Jesup Convertible Notes not exceeding, in the aggregate, Seven
Hundred Fifty Thousand ($750,000) Dollars.
(r) Actions and Proceedings. Except as provided in Section 5.1(r) of
the Adatom Disclosure Schedule, there are no claims actions, suits,
arbitrations, proceedings, investigations or inquiries, whether at law or
in equity and whether or not before any court, private body or group or
Governmental Entity (collectively, "Actions"), pending or, to Adatom's
knowledge, threatened against, or reasonably involving or affecting, to
Adatom's knowledge, having performed no investigation, Adatom nor any of
its assets, whether or not fully or partially covered by insurance or which
would give rise to any right of indemnification by any Person from Adatom,
and there are, to Adatom's knowledge, no outstanding orders, writs,
injunctions, awards, sentences or decrees of any court, private body or
group or Governmental Entity against, reasonably involving or affecting, to
Adatom's knowledge, having performed no investigation, Adatom.
(s) Absence of Changes. Except as set forth in Section 5.1(s) of the
Adatom Disclosure Schedule, since December 31, 1998, Adatom has carried on
its business in the ordinary course, and there has not been:
(i) any material adverse change in its business condition
(financial or otherwise), results of operations or liabilities, other
than operating losses sustained by Adatom;
(ii) any pending or, to Adatom's knowledge, threatened adverse
amendment, adverse modification, or termination of any agreement,
license or permit which is material to its business, and which cannot be
replaced by an agreement, license or permit containing substantially all
of the same material terms thereof;
(iii) any disposition or acquisition of any of its assets or
properties other than in the ordinary course which exceeds $50,000 in
the aggregate, other than under the terms of that certain Security
Agreement, dated April 27, 1999, between Adatom and HealthCore;
(iv) any damage, destruction or other casualty loss (whether or
not covered by insurance) having a Material Adverse Effect, or that
could reasonably be expected to have a Material Adverse Effect, on its
business or assets;
(v) any increase in the compensation of any of its employees; or
A-10
<PAGE>
(vi) except in the ordinary course, the incurrence of any
obligation or liability (whether matured, unmatured, absolute, accrued,
contingent or otherwise) which exceeds $50,000 in the aggregate, other
than amounts owed to (x) HealthCore under the Note, and (y) under the
Jesup Convertible Notes to be issued under the terms of the Adatom
Engagement Letter not in excess of Seven Hundred Fifty ($750,000)
Dollars, which Jesup Convertible Notes, by their terms, shall be
converted into shares of Adatom Common Stock immediately prior to the
Closing.
(t) Affiliated Transactions. For purposes of this Section 5.1(t), an
"Affiliate" means any Adatom shareholder or any employee, officer or
director of Adatom or any spouse or family member (including in-laws) of,
or any corporation or other entity "controlled by" (as such term is defined
in Rule 405 of the General Rules and Regulations under the Securities Act
of 1933, as amended (the "Securities Act")), any such persons or in which
any such person has an equity or ownership interest exceeding five percent.
(i) Except as specifically set forth (including dollar amounts) in
Section 5.1(v) of the Adatom Disclosure Schedule, as of the date hereof,
no Affiliate is indebted to, or is a creditor of, Adatom.
(ii) During the past three (3) years, except as set forth on
Section 5.1(t) of the Adatom Disclosure Schedule, Adatom has not,
directly or indirectly, purchased, leased from or otherwise acquired any
property or obtained any services from, or sold, leased to or otherwise
disposed of any property or furnished any services to, or otherwise
dealt with, any Affiliate nor is Adatom a party to any contract,
agreement, license, commitment or other arrangement, written or oral,
express or implied, with an Affiliate except as disclosed on the Adatom
Disclosure Schedule.
(u) Brokers or Finders. No agent, broker, investment banker,
financial advisor or other Person retained by or on behalf of Adatom is or
will be entitled to any broker's or finder's fee or any other commission or
similar fee in connection with any of the transactions contemplated by this
Agreement, except Richardson & Associates and ValueAdd Financial
Corporation (collectively, the "Brokers"). The Surviving Corporation's
maximum aggregate liability to the Brokers is limited to a cash fee equal
to the sum of (i) five (5%) percent of the cash on-hand of HealthCore as at
the Closing Date, (ii) five (5%) percent of the principal amount of the
Note, and (iii) five (5%) percent of up to an aggregate maximum of Seven
Hundred Fifty Thousand ($750,000) Dollars in respect of the Jesup
Convertible Notes. The Brokers shall also receive that number of shares of
Adatom Common Stock which shall be convertible (in accordance with the
provisions of Section 2.1(a) hereof) into five (5%) percent of the total
outstanding shares of common stock in the Surviving Corporation on the
Closing Date, subject to adjustment based on any adjustment to the Per
Share Merger Consideration in accordance with the terms of Section 3.2
hereof.
(v) Environmental Matters. Except as set forth in Section 5.1(v) of
the Adatom Disclosure Schedule: (i) Adatom has obtained and is in material
compliance with the terms and conditions of all permits, licenses and other
authorizations required under applicable federal, state, local and foreign
laws, regulations and codes as currently in effect relating to pollution
and protection of the environment ("Environmental Laws"); (ii) to Adatom's
knowledge, no asbestos in a friable condition or equipment containing
polychlorinated biphenyls or leaking underground or above-ground storage
tanks is contained in or located at any facility owned, leaned or
controlled by Adatom; (iii) Adatom is in material compliance with all
applicable Environmental Laws, and has fully disclosed to HealthCore all
known material past and present non-compliance with Environmental Laws, and
all known past discharges of emissions, leaking or releases known to Adatom
of any substance or waste regulated under or defined by Environmental Laws
that could reasonably be expected to form the basis of any claim, action,
suit, proceeding, hearing or investigation under any applicable
Environmental Laws; and (iv) Adatom has not received notice of any past or
present events, conditions, circumstances, activities, practices,
incidents, actions or plans that have resulted in or threaten to result in
any common law or legal liability, or otherwise form the basis of any
claim, action, suit, proceeding, hearing or investigation under any
applicable Environmental Laws; provided, however, that clauses (i) through
(iv) address only those matters that would have a Material Adverse Effect
with respect to Adatom.
(w) Investment Company Act. Adatom either (i) is not an "investment
company," or a company "controlled" by an "affiliated company" with respect
to an "investment company," required to register under the Investment
Company Act of 1940, as amended (the "Investment Company Act") or
(ii) satisfies
A-11
<PAGE>
all conditions for an exemption from the Investment Company Act, and,
accordingly, Adatom is not required to be registered under the Investment
Company Act.
(x) Compliance with Securities Laws, Rules and Regulations. Adatom
has complied with all applicable state and federal securities laws, rules
and regulations in connection with the offer and sale of any and all of its
securities.
5.2 Representations and Warranties of HealthCore. HealthCore represents
and warrants to Adatom as follows:
(a) Organization and Authority. HealthCore is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware, has all requisite corporate power and authority to own,
lease and operate its properties and carry on its business as now
conducted, is duly qualified, authorized and in good standing to transact
business in the states listed in Section 5.2(a) of the disclosure schedule
delivered to Adatom by HealthCore on or prior to the date hereof (the
"HealthCore Disclosure Schedule"), and is not required to be qualified as a
foreign corporation in any other jurisdiction.
(b) Capitalization. As of the date hereof, the authorized capital
stock of HealthCore consists of (i) 19,640,000 shares of HealthCore Common
Stock, of which 3,348,000 shares are issued and outstanding, (ii) 216,000
shares of HealthCore Class B Common Stock, of which 216,000 shares are
issued and outstanding, (iii) no shares are held in the treasury of
HealthCore, (iv) no shares of HealthCore Common Stock are reserved for
issuance upon exercise of outstanding stock options, and (v) no shares are
reserved for issuance upon the exercise of outstanding warrants. The shares
of HealthCore Common Stock have been duly authorized and are validly
issued, fully paid and nonassessable and are not subject to preemptive
rights. Except as set forth in this Section 5.2(b) or in
Section 5.2(b) of the HealthCore Disclosure Schedule, there are no
outstanding rights, subscriptions, warrants, calls, preemptive rights,
options or other agreements or commitments of any kind or character to
purchase or otherwise to acquire from HealthCore any shares of its capital
stock or any other security, and no security or obligation of any kind
convertible into the capital stock or other security of HealthCore exists
in favor of any Person (as hereinafter defined). Except as set forth in
Section 5.2(b) of the HealthCore Disclosure Schedule, HealthCore has no
outstanding bonds, debentures, notes or other such obligations the holders
of which have the right to vote or which are convertible into or
exercisable for securities having the right to vote with the shareholders
of HealthCore on any matter. Other than as contemplated by this Agreement
or as set forth in Section 5.2(b) of the HealthCore Disclosure Schedule,
there are no outstanding contractual obligations, commitments,
understandings or arrangements of HealthCore to repurchase, redeem or
otherwise acquire or make any payment in respect of any shares of capital
stock or other equity securities or ownership interests of HealthCore.
(c) Certificate of Incorporation, By-Laws, Corporate Records and
Committees. The copies of the Certificate of Incorporation and By-Laws or
equivalent organizational documents, each as amended to date, of HealthCore
delivered to Adatom on or prior to the date hereof are correct and
complete. The stock transfer, minute books and corporate records of
HealthCore which have been made available to Adatom, are correct and
complete and constitute the only written records and minutes of the
meetings, proceedings, and other actions of the Board of Directors and the
shareholders of HealthCore from its date of incorporation to the date
hereof.
(d) SEC Documents. HealthCore has made available to Adatom a true and
complete copy of each form, report, schedule and registration statement
filed with the SEC by HealthCore since September 30, 1998 (as such
documents have since the time of their filing been amended or supplemented,
the "HealthCore SEC Documents") which are all the documents (other than
preliminary material) that HealthCore was required to file with the SEC
since such date. As of their respective dates, the HealthCore SEC Documents
(other than preliminary material) complied in all material respects with
the requirements of the Securities Act or the Exchange Act of 1934 (the
"Exchange Act") as applicable, and the rules and regulations of SEC
thereunder applicable to such HealthCore SEC Documents, and none of the
HealthCore SEC Documents, as such documents have been amended to date
(including all financial statements included therein and exhibits and
schedules thereto and documents incorporated by reference therein),
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not
A-12
<PAGE>
misleading. HealthCore (i) has filed in a timely manner all reports
required to be filed during the twelve (12) calendar months immediately
preceding the date of the execution of this Agreement, and (ii) has not
been in default, in any material respect, in the payment of (A) any
installment or installments on indebtedness for borrowed money, or (B) any
rental on one or more long term leases, which defaults, in the aggregate
have had a Material Adverse Effect on the financial condition of
HealthCore.
(e) Financial Statements. The audited balance sheet of HealthCore as
at September 30, 1998 (the "HealthCore Audited Balance Sheet"), the
unaudited balance sheet of HealthCore as at March 31, 1999 (the "HealthCore
Unaudited Balance Sheet", and, together with HealthCore Audited Balance
Sheet, the "HealthCore Balance Sheets"), and, with respect to the
HealthCore Audited Balance Sheet the related audited statements, and, with
respect to the HealthCore Unaudited Balance Sheet, the related unaudited
statements, of income, capital and cash flows for the three years then
ended, included in HealthCore SEC Documents (as such documents may have
been amended to date) and heretofore delivered to Adatom, comply as to form
in all material respects with applicable accounting requirements and with
the rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto or, in
the case of the unaudited financial statements, as permitted by Exchange
Act Form 10-Q) and are true and correct and fairly present (subject, in the
case of the unaudited financial statements, to normal, recurring audit
adjustments that, individually and in the aggregate, were not material) the
consolidated financial condition and the results of operations and cash
flows of HealthCore as at the respective dates and for the respective
periods covered thereby and the consolidated results of their operations
and cash flows for the periods then ended. The sum of all cash on hand of
HealthCore as at June 1, 1999 is estimated to be approximately Two Million
Four Hundred Fifty Thousand ($2,450,000) Dollars, after giving effect to
the sums loaned by HealthCore to Adatom pursuant to the Note.
(f) Authority. The Board of Directors of HealthCore has unanimously
approved this Agreement, the Merger and the other transactions contemplated
hereby and has recommended that its shareholders vote in favor of the
adoption and approval of this Agreement and the Merger (the "HealthCore
Recommendation"). The affirmative vote of a majority of the votes that the
holders of the outstanding shares of HealthCore Common Stock are entitled
to cast with respect to the adoption and approval of this Agreement and the
Merger is the only vote of the holders of any class or series of the
capital stock of HealthCore necessary to approve this Agreement, the Merger
and the transactions contemplated hereby, and HealthCore has all other
requisite corporate power and authority to enter into this Agreement and to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by HealthCore and constitutes a valid and binding obligation of
HealthCore enforceable against HealthCore in accordance with its terms,
subject to the approval of this Agreement, the Merger and the transactions
contemplated hereby by the shareholders of HealthCore.
(g) Merger Shares. The HealthCore Common Stock to be delivered
hereunder, when issued in accordance with the terms of this Agreement, will
be validly issued, fully paid and non-assessable.
(h) Governmental Authorizations and Other Consents. Except as set
forth in Section 5.2(h) of the HealthCore Disclosure Schedule, no consent,
order, license, approval or authorization of, or exemption by, or
registration or declaration or filing with, any Governmental Entity, and no
consent or approval of any other Person, is required to be obtained or made
by HealthCore in connection with the performance by HealthCore of this
Agreement or the consummation of the transactions contemplated to be
performed by it hereunder.
(i) Non-Contravention. Except as set forth in Section 5.2(i) of the
HealthCore Disclosure Schedule, as amended on the Closing Date with respect
to Subsection (ii) hereof in connection with the Merger or the transactions
contemplated thereby, on the Closing Date, the performance of this
Agreement will not (i) violate any provision of the Certificate of
Incorporation or By-Laws or equivalent organizational document of
HealthCore; (ii) violate, conflict with or result in the breach or
termination of, or constitute an amendment to, or otherwise give any Person
the right to terminate, or constitute (or with notice or lapse of time or
both would constitute) a default (by way of substitution, novation or
otherwise) under the terms of, any contract, mortgage, lease, bond,
indenture, agreement, franchise or other instrument or obligation to
A-13
<PAGE>
which HealthCore is a party or by which HealthCore or any of its assets or
properties are bound, all as set forth on Schedule 3.2(a) hereof;
(iii) result in the creation of any Liens upon the properties or assets of
HealthCore pursuant to the terms of any contract, mortgage, lease, bond,
indenture, agreement, franchise or other instrument or obligation to which
HealthCore is a party or by which HealthCore or any of its assets or
properties are bound (iv) violate any judgment, order, injunction, decree
or award of any court, arbitrator, administrative agency or Governmental
Entity against, or binding upon, HealthCore or any of its securities,
properties, assets or businesses; (iv) constitute a violation by HealthCore
of any statute, law, rule or regulation of any jurisdiction as such
statute, law, rule or regulation relates to any of its securities,
properties, assets or business; or (v) violate any Permit.
(j) Tangible Property. HealthCore has good title to all of the assets
reflected on its books and records and on the HealthCore Balance Sheets
that have not been sold or liquidated as contemplated by this Agreement,
free and clear of all Liens, except for those assets leased by HealthCore
under those leases listed in Section 5.2(j) of the HealthCore Disclosure
Schedule as amended on the Closing Date in connection with this Agreement,
the Merger or the transactions contemplated hereby or thereby. All Fixed
Assets of HealthCore that have not been sold or liquidated as of the
Closing Date as contemplated by this Agreement will be in substantially the
same condition at Closing as existed on the date of this Agreement,
reasonable wear and tear excepted.
(k) Real Property and Leases. Section 5.2(k) of the HealthCore
Disclosure Schedule sets forth a true and correct list of all leases,
subleases or other agreements under which HealthCore is lessee or lessor of
any real property or has any interest in real property and, except as set
forth in Section 5.2(k) of the HealthCore Disclosure Schedule, there are no
rights or options held by HealthCore or any contractual obligations on its
part to purchase or otherwise acquire (including by way of lease or
sublease) any interest in or use of any real property, nor any rights or
options granted by HealthCore, or any contractual obligations entered into
by it, to sell or otherwise dispose of (including by way of lease or
sublease) any interest in or use of any real property. Except as set forth
in Section 5.2(k) of the HealthCore Disclosure Schedule, as amended on the
Closing Date in connection with the Merger or the transactions contemplated
thereby, all such leases, subleases and other agreements that are set forth
on Schedule 3.2(a) hereof are in full force and effect and constitute
legal, valid and binding obligations of HealthCore and, to the knowledge of
HealthCore, the other parties thereto, with no existing or, to the
knowledge of HealthCore, claimed default or event of default, or event
which with notice or lapse of time or both would constitute a default or
event of default, by HealthCore or, to the knowledge of HealthCore, by any
other party thereto, which would have a Material Adverse Effect on
HealthCore. HealthCore is not in violation of any building, zoning, health,
safety, environmental or other law, rule or regulation the violation of
which would have a Material Adverse Effect on HealthCore and no notice from
any Person has been served upon HealthCore claiming any such violation.
(l) Tax Matters. HealthCore has timely filed all federal, state,
county and local Returns required to be filed by it through the date
hereof, copies of which have been delivered to Adatom, which Returns
accurately reflect, in all material respects, the taxes due for the periods
indicated, and HealthCore has paid in full all Taxes shown to be due by
such Returns, and has established adequate reserves with respect to any
liabilities for Taxes accrued through March 31, 1999, which are reflected
on the HealthCore Balance Sheets. HealthCore does not know of any
unassessed deficiency for Taxes proposed or threatened against HealthCore,
and, to HealthCore's knowledge, no taxing authority has raised any issue
with respect to HealthCore which, if adversely determined, would result in
a liability for any Tax which has not been reserved against on the
HealthCore Balance Sheets. No extensions with respect to the dates on which
any Return was or is due to be filed by HealthCore nor any waivers or
agreements by HealthCore for the extension of time for the assessment or
payment of any Taxes are in force. HealthCore has not been, and, to
HealthCore's knowledge, currently is not being, audited by any federal,
state or local tax authority.
(m) Compliance with Laws. HealthCore is in compliance with all
applicable laws, rules and regulations, the violation of which could have a
Material Adverse Effect on its assets, properties, liabilities, condition
(financial or otherwise) or prospects, nor does HealthCore know of the
enactment, promulgation or adoption of any such law, rule or regulation
which is not yet effective.
A-14
<PAGE>
(n) Permits and Licenses. Except as set forth in Section 5.2(n) of
the HealthCore Disclosure Schedule, HealthCore (including, without
limitation, its employees) duly obtained all Permits that were material in
the conduct of its business, and no violations have been recorded by any
Governmental Entity in respect of any such Permit.
(o) Contracts and Agreements. Section 5.2(o) of the HealthCore
Disclosure Schedule lists all written and oral Material Contracts to which
HealthCore is a party or by which it may be bound. Except as set forth in
Section 5.2(o) of the HealthCore Disclosure Schedule, as amended on the
Closing Date, all Material Contracts set forth on Schedule 3.2(a) hereof
constitute legal, valid and binding obligations of HealthCore and, to the
knowledge of HealthCore, of the other parties thereto, and are in full
force and effect on the date hereof, and HealthCore has paid in full all
amounts due thereunder which are due and payable and is not in default
under any such Material Contract nor, to the knowledge of HealthCore, is
any other party to any such Material Contract in default thereunder, nor
does any condition exist that, with notice or lapse of time, or both, would
constitute a default or event of default thereunder by HealthCore or, to
the knowledge of HealthCore, by any other Person. Except as set forth in
Section 5.2(o) of the HealthCore Disclosure Schedule, as amended on the
Closing Date, no Material Contract set forth on Schedule 3.2(a) of this
Agreement requires the consent or approval of a third party in connection
with the performance by HealthCore of this Agreement or the transactions
contemplated to be performed by it hereunder.
(p) Employee Compensation and Benefits and Relations.
(i) Section 5.2(p) of the HealthCore Disclosure Schedule lists all
current employees of HealthCore, setting forth their respective
salaries, whether they are employed under contract or at will, and the
expiration date of each contract.
(ii) Notwithstanding anything contained in this Agreement to the
contrary, HealthCore has no liabilities of any kind or nature to any of
its employees in connection with their employment by HealthCore other
than (A) for compensation payable to such employees accruing in the
current pay period and arising in the ordinary course, and
(B) severance arrangements or contract settlements entered into by
HealthCore in connection with the sale or liquidation of the HealthCore
Business (as hereinafter defined) or as contemplated by this Agreement.
(iii) Except as set forth in Section 5.2(p) of the HealthCore
Disclosure Schedule, as of the Closing Date all pension, retirement,
savings, disability, medical, dental or other health plans, life
insurance (including any individual life insurance policy as to which
HealthCore makes premium payments whether or not HealthCore is the
owner, beneficiary or both of such policy) or other death benefit plans,
profit sharing, deferred compensation, stock option, bonus or other
incentive plans, vacation benefit plans, severance plans, or other
employee benefit plans or arrangements (whether written or arising from
custom) maintained by HealthCore shall have been terminated. Other than
HealthCore's 401(k) plan, HealthCore does not have any employee pension
benefit plan as defined in Section 3(2) of ERISA, or any employee
welfare benefit plan as defined in Section 3(1) of ERISA.
(iv) HealthCore has, in all material respects, complied with the
requirements, to the extent applicable, of COBRA with respect to the
continuation of employer-provided health benefits following a
"qualifying event" which would otherwise terminate such benefits, as
provided in Section 4980B of the Internal Revenue Code of 1986, as
amended, and applicable regulations and Internal Revenue Service
rulings, notices and other pronouncements.
(v) HealthCore has not at any time during the last five years had,
or is there now threatened, a strike, picket, work stoppage, work
slowdown, or other labor trouble or dispute, and HealthCore does not
know of any employee's proposed resignation whose annual salary exceeds
$25,000, other than as contemplated by this Agreement. HealthCore has
not been, and is currently not, a party to any collective bargaining
agreements.
(q) Insurance. Section 5.2(q) of the HealthCore Disclosure Schedule
lists all policies of property, theft, fire, liability, workers'
compensation, title, professional liability or life insurance or other
insurance owned or maintained by HealthCore or in which HealthCore is a
named insured, or additional insured, or on which HealthCore or is paying
any premiums. Except as set forth in Section 5.2(q) of the HealthCore
A-15
<PAGE>
Disclosure Schedule, all such policies are in full force and effect as of
the date hereof, and HealthCore is not in default with respect to any
provision contained in any such insurance policy nor failed to give any
notice or present any claim thereunder in due and timely fashion.
Section 5.2(q) of the HealthCore Disclosure Schedule sets forth a summary
of the claims history for HealthCore under such policies since January 1,
1999 and, except as set forth in Section 5.2(q) of the HealthCore
Disclosure Schedule, there are no claims outstanding by HealthCore under
any such policies.
(r) Liabilities. There are no material Liabilities of HealthCore,
except (a) those accrued, reflected or otherwise provided for on the
HealthCore Balance Sheets, (b) those incurred in the ordinary course of
HealthCore's business since December 31, 1998, consistent with past
practices, no one of which exceeds $25,000, (c) reasonable Transaction
Expenses incurred by HealthCore, and (d) those listed in
Section 5.2(r) of the HealthCore Disclosure Schedule.
(s) Actions and Proceedings. Except as provided in Section 5.2(s) of
the HealthCore Disclosure Schedule, there are no Actions, pending or, to
HealthCore's knowledge, threatened against, or reasonably involving or
affecting, to HealthCore's knowledge, having performed no investigation,
HealthCore nor any of its assets, whether or not fully or partially covered
by insurance or which would give rise to any right of indemnification by
any Person from HealthCore, and there are, to HealthCore's knowledge, no
outstanding orders, writs, injunctions, awards, sentences or decrees of any
court, private body or group or Governmental Entity against, reasonably
involving or affecting, to HealthCore's knowledge, having performed no
investigation, HealthCore.
(t) Absence of Changes. Except as set forth in Section 5.2(t) of the
HealthCore Disclosure Schedule, or in connection with the sale or
liquidation of the HealthCore Business, since December 31, 1998, HealthCore
has carried on its business in the ordinary course, and there has not been:
(i) except in the ordinary course, or as contemplated or permitted
by this Agreement, the incurrence of any obligation or liability
(whether matured, unmatured, absolute, accrued, contingent or otherwise)
which exceeds $50,000 in the aggregate, other than: (A) under the terms
of that certain letter amendment, dated April 26, 1999, between Polan
and HealthCore, (B) under the terms of the HealthCore Engagement Letter,
and (C) to David Mullikin ("Mullikin"), HealthCore's President, in
severance of his employment with HealthCore consisting of (x) cash in
the amount of One Hundred Thousand ($100,000) Dollars, and (y) options
to purchase up to one hundred thousand (100,000) shares of HealthCore
Common Stock at an exercise price of $.10 per share.
(u) Affiliated Transactions. For purposes of this Section 5.1(u), an
"Affiliate" means any HealthCore shareholder or any employee, officer or
director of HealthCore or any spouse or family member (including in-laws)
of, or any corporation or other entity "controlled by" (as such term is
defined in Rule 405 of the General Rules and Regulations under the
Securities Act), any such persons or in which any such person has an equity
or ownership interest exceeding five percent.
(i) Except as specifically set forth (including dollar amounts) in
Section 5.2(u) of the HealthCore Disclosure Schedule or disclosed in the
HealthCore SEC Documents, as of the date hereof, no Affiliate is
indebted to, or is a creditor of, HealthCore.
(ii) Except as set forth on Section 5.2(u) of the HealthCore
Disclosure Schedule or disclosed in the HealthCore SEC Documents, during
the past three (3) years, HealthCore has not, directly or indirectly,
purchased, leased from or otherwise acquired any property or obtained
any services from, or sold, leased to or otherwise disposed of any
property or furnished any services to, or otherwise dealt with, any
Affiliate nor is HealthCore a party to any contract, agreement, license,
commitment or other arrangement, written or oral, express or implied,
with an Affiliate except as disclosed on the HealthCore Disclosure
Schedule.
(v) Brokers or Finders. No agent, broker, investment banker,
financial advisor or other Person retained by or on behalf of HealthCore is
or will be entitled to any broker's or finder's fee or any other commission
or similar fee in connection with any of the transactions contemplated by
this Agreement.
A-16
<PAGE>
(w) Environmental Matters. Except as set forth in Section 5.2(w) of
the HealthCore Disclosure Schedule: (i) HealthCore has obtained and is in
material compliance with the terms and conditions of all permits, licenses
and other authorizations required under applicable Environmental Laws;
(ii) to HealthCore's knowledge, no asbestos in a friable condition or
equipment containing polychlorinated biphenyls or leaking underground or
above-ground storage tanks is contained in or located at any facility
owned, leaned or controlled by HealthCore; (iii) HealthCore is in material
compliance with all applicable Environmental Laws, and has fully disclosed
to Adatom all known material past and present non-compliance with
Environmental Laws, and all known past discharges of emissions, leaking or
releases known to HealthCore of any substance or waste regulated under or
defined by Environmental Laws that could reasonably be expected to form the
basis of any claim, action, suit, proceeding, hearing or investigation
under any applicable Environmental Laws; and (iv) HealthCore has not
received notice of any past or present events, conditions, circumstances,
activities, practices, incidents, actions or plans that have resulted in or
threaten to result in any common law or legal liability, or otherwise form
the basis of any claim, action, suit, proceeding, hearing or investigation
under any applicable Environmental Laws; provided, however, that clauses
(i) through (iv) address only those matters that would have a Material
Adverse Effect with respect to HealthCore.
(x) Investment Company Act. HealthCore either (i) is not an
"investment company," or a company "controlled" by an "affiliated company"
with respect to an "investment company," required to register under the
Investment Company Act of 1940, as amended (the "Investment Company Act")
or (ii) satisfies all conditions for an exemption from the Investment
Company Act, and, accordingly, HealthCore is not required to be registered
under the Investment Company Act.
(y) Compliance with Securities Laws, Rules and
Regulations. HealthCore has complied with all applicable state and federal
securities laws, rules and regulations in connection with the offer and
sale of any and all of its securities.
ARTICLE VI
COVENANTS
6.1 Covenants of Adatom. Adatom hereby covenants and agrees that, except
as expressly contemplated or permitted by this Agreement, from the date hereof
through earlier of the Closing Date or the Termination Date (as hereinafter
defined) it shall comply with the following covenants:
(a) Ordinary Course. Adatom shall carry on its businesses in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and use its commercially reasonable, good faith
efforts to preserve intact its current business organizations, keep
available the services of its current officers and employees and preserve
its relationships with material customers, suppliers, contractors,
distributors, licensors, licensees and others having business dealings with
it to the end that its goodwill and ongoing business shall not be impaired
in any material respect at the Closing Date. Without limiting the
generality of the foregoing, and except as contemplated by this Agreement,
or as otherwise required by law, Adatom shall not:
(i) (A) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock, (B) split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, or (C) purchase, redeem or
otherwise acquire any shares of capital stock of Adatom or any other
securities thereof or any rights, warrants or options to acquire any
such shares or other securities;
(ii) except as contemplated by this Agreement or the Transaction
Documents, authorize for issuance, issue, deliver, sell or agree or
commit to issue, sell or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise), pledge or otherwise encumber any shares of its
capital stock, any other voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any such shares,
voting securities or convertible securities or any other securities or
equity equivalents (including without limitation stock appreciation
rights) other than (A) issuances upon exercise of employee and director
stock options
A-17
<PAGE>
issued pursuant to employee and non-employee director stock option plans
outstanding on the date hereof and listed in Section 5.1(b) of the
Adatom Disclosure Schedule; (B) the securities contemplated to be issued
by Adatom pursuant the terms of that certain engagement letter (the
"Adatom Engagement Letter"), dated April 27, 1999, between Adatom and
Jesup & Lamont, a copy of which is attached hereto as Exhibit B, (C) to
Richard Barton ("Barton"), the President of Adatom, or an IRA of Barton,
securities of Adatom in connection with the discharge of Adatom's
existing indebtedness to Barton (the "Shareholder Indebtedness"),
(D) to the Brokers pursuant to contracts between the Brokers and Adatom,
and (E) to Polan under the terms of the Letter Agreement (as hereinafter
defined);
(iii) except with respect to bonuses made in the ordinary course
of business consistent with past practice, and except as contemplated by
this Agreement, adopt or amend in any material respect any bonus, profit
sharing, compensation, severance, termination, stock option, stock
appreciation right, pension, retirement, employment or other employee
benefit agreement, trust, plan or other arrangement for the benefit or
welfare of any director, officer or employee of Adatom or increase in
any manner the compensation or fringe benefits of any director, officer
or employee of Adatom or pay any benefit not required by any existing
agreement or place any assets in any trust for the benefit of any
director, officer or employee of Adatom (in each case, except with
respect to employees in the ordinary course of business consistent with
past practice);
(iv) amend its Articles of Incorporation, By-laws or equivalent
organizational documents or alter through merger, liquidation,
reorganization, restructuring or in any other fashion the corporate
structure of Adatom;
(v) sell, lease, license, mortgage or otherwise encumber (except
to secure the incurrence of Debt permitted hereunder) or subject to any
Lien or otherwise dispose of any of its material properties or assets;
(vi) acquire or agree to acquire (x) by merging or consolidating
with, or by purchasing a substantial portion of the stock or assets of,
or by any other manner, any business or any corporation, partnership,
joint venture, association or other business organization or division
thereof or (y) any assets that are material, individually or in the
aggregate, to Adatom taken as a whole;
(vii) incur any Debt in excess of Seven Hundred Fifty Thousand
($750,000) Dollars (inclusive of Debt incurred in connection with the
Jesup Convertible Notes), exclusive of the sums loaned to Adatom by
HealthCore pursuant to the terms of the Note, issue or sell any debt
securities or warrants or other rights to acquire any debt securities of
Adatom other than as contemplated in the Adatom Engagement Letter, or
permitted in accordance with the terms of this Agreement, guarantee any
debt securities of another person, enter into any "keep well" or other
agreement to maintain any financial condition of another Person or enter
into any arrangement having the economic effect of any of the foregoing,
or make any loans, advances or capital contributions to, or investments
in, any other Person, other than to Adatom;
(viii) change any accounting principle used by it, unless required
by the Financial Accounting Standards Board; and
(ix) except as set forth in Section 6.1(b)(ii) hereof, enter into
any transaction or series of transactions with any Affiliate of Adatom
other than on terms and conditions substantially as favorable to Adatom
as would be obtainable by Adatom at the time of such transaction with a
Person that is not an Affiliate of Adatom.
(b) Shareholder Indebtedness. Adatom shall discharge all of Adatom's
monetary obligations to Adatom's shareholders, employees and the Adatom
Affiliates, including, without limitation, the Shareholder Indebtedness.
(c) Polan Employment Agreement; Issuance of Adatom
Shares. Immediately prior to the Closing, Adatom shall enter into the
employment agreement with Polan heretofore executed by Polan, only, in
accordance with the terms of that certain letter agreement (the "Letter
Agreement"), dated as of the date hereof, between Adatom and Polan a copy
of which is attached hereto as Exhibit C (the "Polan
A-18
<PAGE>
Employment Agreement"), and shall, as contemplated by, and in accordance
with the terms of, the Letter Agreement, issue to Polan immediately prior
to the Closing such number of shares of Adatom Common Stock which in the
Merger shall be convertible (in accordance with the provisions of
Section 2.1(a) hereof) into three hundred fifty thousand (350,000) shares
of the HealthCore Common Stock (such shares being the "Polan Adatom
Shares").
(d) No Solicitation. Adatom shall not authorize or permit any of
their respective Agents to, (i) solicit, initiate, encourage (including by
way of furnishing information) or take any other action to facilitate, any
inquiry or the making of any proposal which constitutes, or may reasonably
be expected to lead to, any acquisition or purchase of a substantial amount
of assets of, or any equity interest in, or any tender offer (including a
self tender offer) or exchange offer, merger, consolidation, business
combination, sale of substantially all assets, sale of securities,
recapitalization, liquidation, dissolution or similar transaction involving
Adatom (other than the transactions contemplated by this Agreement) or any
other material corporate transaction, the consummation of which would or
could reasonably be expected to impede, interfere with, prevent or
materially delay the Merger (each a "Transaction Proposal," and
collectively, the "Transaction Proposals") or agree to or endorse any
Transaction Proposal or (ii) propose, enter into or participate in any
discussions or negotiations regarding any of the foregoing, or furnish to
any other Person any information with respect to its business, properties
or assets or any of the foregoing, or otherwise cooperate in any way with,
or assist or participate in, facilitate or encourage, any effort or attempt
by any other Person to do or seek any of the foregoing.
6.2 Covenants of HealthCore. HealthCore hereby covenants and agrees that,
except as expressly contemplated or permitted by this Agreement, from the date
hereof through earlier of the Closing Date or the Termination Date it shall
comply with the following covenants:
(a) Closing Cash Amount. HealthCore shall use its commercially
reasonable, good faith efforts to secure a minimum of Three Million
($3,000,000) Dollars in cash, calculated based upon the same formula set
forth in Section 3.2(a) hereof;
(b) Sale or Liquidation of the HealthCore Business. HealthCore shall
endeavor to consummate the sale or liquidation, in HealthCore's sole
discretion, of HealthCore's existing health discount card business and any
other business being conducted by HealthCore (the "HealthCore Business"),
the agreements relating to such sale or liquidation to be in form and
substance reasonably acceptable to Adatom, and shall, in connection
therewith, (i) terminate all of HealthCore's existing employment
relationships with all of its employees, including, but not limited to, its
key executives, Polan and Mullikin, and (ii) terminate, cancel or assign
all material contractual commitments and other material obligations arising
in connection with the HealthCore Business (including HealthCore's office
lease). In addition, HealthCore shall take all commercially reasonable
steps necessary to achieve the maximum valuation of the HealthCore Business
in any such sale or liquidation thereof;
(c) Stock Option Plan. HealthCore shall adopt a Stock Option Plan
(the "Stock Option Plan") in form and substance reasonably satisfactory to
Adatom covering an amount of shares of HealthCore Common Stock equal to ten
(10%) percent of the Surviving Corporation's issued and outstanding capital
stock on a fully-diluted basis immediately following the Closing, for
issuance of options to employees, contractors and directors of the
Surviving Corporation.
(d) Ordinary Course. Except as contemplated by this Agreement, or
otherwise required by law, HealthCore shall not:
(i) (A) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock, (B) split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (C) purchase, redeem or
otherwise acquire any shares of capital stock of HealthCore or any other
securities thereof or any rights, warrants or options to acquire any
such shares or other securities;
(ii) except as contemplated by this Agreement, authorize for
issuance, issue, deliver, sell or agree or commit to issue, sell or
deliver (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise), pledge or
otherwise encumber any shares
A-19
<PAGE>
of its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible securities or any other
securities or equity equivalents (including without limitation stock
appreciation rights) other than (A) issuances upon exercise of employee
and director stock options issued pursuant to employee and non-employee
director stock option plans outstanding on the date hereof and listed in
Section 5.2(b) of the HealthCore Disclosure Schedule, (B) the securities
contemplated to be issued by HealthCore pursuant the terms of the
HealthCore Engagement Letter, and (C) options or warrants issued in
consideration for the settlement of certain obligations of HealthCore to
its employees and third party creditors of HealthCore up to an aggregate
maximum of Thirty Thousand (30,000) shares;
(iii) except with respect to annual bonuses accrued or reflected
on the HealthCore Unaudited Balance Sheet, and except as contemplated by
this Agreement, adopt or amend in any material respect any bonus, profit
sharing, compensation, severance, termination, stock option, stock
appreciation right, pension, retirement, employment or other employee
benefit agreement, trust, plan or other arrangement for the benefit or
welfare of any director, officer or employee of HealthCore or increase
in any manner the compensation or fringe benefits of any director,
officer or employee of HealthCore or pay any benefit not required by any
existing agreement or place any assets in any trust for the benefit of
any director, officer or employee of HealthCore, other than (A) options
or warrants issued in consideration for the settlement of certain
obligations of HealthCore to its employees and third party creditors of
HealthCore up to an aggregate maximum of Thirty Thousand (30,000)
shares, and (B) severance packages not in excess of an aggregate of
Eighty Thousand ($80,000) Dollars other than to Polan and Mullikin;
(iv) amend its Certificate of Incorporation, By-laws or equivalent
organizational documents or alter through merger, liquidation,
reorganization, restructuring or in any other fashion the corporate
structure of HealthCore;
(v) sell, lease, license, mortgage or otherwise encumber or
subject to any Lien or otherwise dispose of any of its material
properties or assets;
(vi) acquire or agree to acquire (x) by merging or consolidating
with, or by purchasing a substantial portion of the stock or assets of,
or by any other manner, any business or any corporation, partnership,
joint venture, association or other business organization or division
thereof or (y) any assets that are material, individually or in the
aggregate, to HealthCore taken as a whole;
(vii) incur any Debt, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of HealthCore,
guarantee any debt securities of another person, enter into any "keep
well" or other agreement to maintain any financial condition of another
Person or enter into any arrangement having the economic effect of any
of the foregoing, or make any loans, advances or capital contributions
to, or investments in, any other Person, other than to HealthCore;
(viii) change any accounting principle used by it, unless required
by the SEC or the Financial Accounting Standards Board; and
(ix) enter into any transaction or series of transactions with any
Affiliate of HealthCore or otherwise that would be required to be
disclosed pursuant to Item 404 of Regulation S-K other than on terms and
conditions substantially as favorable to HealthCore as would be
obtainable by HealthCore at the time of such transaction with a Person
that is not an Affiliate of HealthCore.
(e) No Solicitation. HealthCore shall not authorize or permit any of
its Agents to, (i) solicit, initiate, encourage (including by way of
furnishing information) or take any other action to facilitate, any inquiry
or the making of any Transaction Proposal, or agree to or endorse any
Transaction Proposal, or (ii) propose, enter into or participate in any
discussions or negotiations regarding any of the foregoing, or furnish to
any other Person any information with respect to its business, properties
or assets or any of the foregoing, or otherwise cooperate in any way with,
or assist or participate in, facilitate or encourage, any effort or attempt
by any other Person to do or seek any of the foregoing; provided, however,
that the foregoing clauses (i) and (ii) shall not prohibit HealthCore from
(A) furnishing information pursuant to an appropriate confidentiality
letter concerning HealthCore and its businesses, properties or assets to a
third party who the Board of
A-20
<PAGE>
Directors of HealthCore has a reasonable basis for determining is likely to
make a Qualified Transaction Proposal, (B) engaging in discussions or
negotiations with such a third party who has made a Qualified Transaction
Proposal, or (C) following receipt of a Qualified Transaction Proposal,
taking and disclosing to its shareholders a position contemplated by
Rule 14e-2(a) under the Exchange Act or changing the HealthCore
Recommendation, but in each case referred to in the foregoing clauses
(A) through (C) only after the Board of Directors of HealthCore concludes
in good faith following receipt of a written opinion addressed to
HealthCore from outside counsel to HealthCore that such action is
reasonably necessary for the Board of Directors of HealthCore to comply
with its fiduciary obligations to shareholders under applicable law. If the
Board of Directors of HealthCore receives a Transaction Proposal, then
HealthCore shall immediately inform Adatom of the terms and conditions of
such proposal and the identity of the Person making it and shall keep
Adatom fully informed of the status and details of any such Transaction
Proposal and of all steps it is taking in response to such Transaction
Proposal. For purposes of this Agreement, the term "Qualified Transaction
Proposal" shall mean a Transaction Proposal that the Board of Directors of
HealthCore determines in good faith, after consultation with its outside
financial advisor, is reasonably capable of being consummated, is not
subject to any material contingencies relating to financing and will result
in a transaction materially more favorable to the shareholders of
HealthCore, from a financial point of view, than the Merger.
(f) HealthCore Recommendation. The Board of Directors of HealthCore
shall not withdraw or modify or propose to withdraw or modify in a manner
adverse to Adatom, the HealthCore Recommendation, unless the Board of
Directors of HealthCore concludes in good faith following receipt of a
written opinion addressed to it from outside counsel to HealthCore that
such action is necessary for the Board of Directors of HealthCore to comply
with its fiduciary obligations to shareholders under applicable law.
HealthCore shall use its best efforts to solicit from its shareholders
proxies in favor of the approval and adoption of this Agreement and the
transactions contemplated hereby, and to secure the vote or the consent of
the shareholders required by the DGCL to approve and adopt this Agreement
and the transactions contemplated hereby.
6.3 Mutual Covenants of Adatom and HealthCore.
(a) Pre-Closing Covenants. Adatom and HealthCore each hereby covenant
and agree that, except as expressly contemplated or permitted by this
Agreement, from the date hereof through earlier of the Closing Date or the
Termination Date, it shall comply with the following:
(i) Confidentiality. Each party shall, and shall use its best
efforts to cause its Affiliates and its and their respective Agents (as
hereinafter defined) to keep secret and hold in strictest confidence any
and all documents and information relating to the other party and its
respective Affiliates furnished to such first party (whether before or
after the date hereof) in connection with the transactions contemplated
hereunder, other than the following: (A) information that has become
generally available to the public other than as a result of a disclosure
by such first party, its Affiliates or its Agents; (B) information that
becomes available to such first party or an Agent of such party on a
nonconfidential basis from a third party having no obligation of
confidentiality to a party to this Agreement and which has not itself
received such information directly or indirectly in breach of any such
obligation of confidentiality; (C) information that such first party is
required to disclose by applicable law, judicial order or pursuant to
any listing agreement with, or the rules or regulations of, any
securities exchange or automated quotation system on which securities of
such party or any such Affiliate are listed or traded; provided that the
first party shall notify the other party as promptly as practicable
(and, if possible, prior to making such disclosure) and shall use its
reasonable best efforts to limit the scope of such disclosure and seek
confidential treatment of the information to be disclosed; and
(D) disclosures made by such first party as shall be reasonably
necessary in connection with obtaining the HealthCore Required Consents
or the Adatom Required Consents, as the case may be.
(ii) Publicity. Except as otherwise required by applicable law or
the rules or regulations of any securities exchange or automated
quotation system on which the securities of such party or any Affiliate
of such party are listed or traded, until the earlier of (A) the date on
which this Agreement ceases to be in effect or (B) the Closing Date, no
party shall issue or cause the publication of any press
A-21
<PAGE>
release or other public announcement with respect to the transactions
contemplated by this Agreement without the consent of the other party
and in any event each party agrees that it will give the other party
reasonable opportunity to review and comment upon any such release or
announcement prior to publication of the same.
(iii) Access to Information. Upon reasonable notice, each party
shall afford to the other party and its Agents, access, during normal
business hours during the period prior to the Closing Date, to all its
properties, books, Contracts, commitments and records and, during such
period, each party shall promptly furnish or otherwise make available to
the other party (A) a copy of each report, schedule, registration
statement and other document filed or received by any of them during
such period pursuant to the requirements of Federal and applicable state
securities laws and (B) all other information concerning its business,
properties and personnel as the other party may reasonably request.
(iv) Satisfaction of Conditions. Subject to the terms and
conditions of this Agreement, each party hereto agrees to use its
reasonable best efforts, subject to their respective fiduciary duties,
to cause the conditions set forth in Article VII of this Agreement to be
satisfied, and to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement,
including cooperating fully with the other party.
(v) Information Supplied. Each of Adatom and HealthCore agree
that none of the information supplied or to be supplied by it for
inclusion or incorporation by reference in (a) the Registration
Statement on Form S-4 to be filed with the SEC by HealthCore in
connection with the issuance of shares of HealthCore Common Stock in the
Merger (including the joint proxy statement and prospectus (the
"Prospectus/Proxy Statement") constituting a part thereof) (the "S-4
Registration Statement") will, at the time the S-4 Registration
Statement becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, not
misleading, and (b) the Prospectus/Proxy Statement and any amendment or
supplement thereto will, at the date of mailing to stockholders and at
the times of the meetings of stockholders of Adatom and HealthCore to be
held in connection with the Merger, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
(vi) Stockholder Meetings. Adatom will take, in accordance with
its articles of incorporation and bylaws, all action necessary to
convene a meeting of holders of Adatom Common Stock (the "Stockholders
Meeting"), to be held as promptly as practicable after the S-4
Registration Statement is declared effective, to consider and vote upon
the approval of the Merger, and shall take all lawful action to solicit
such approval. HealthCore will take, in accordance with its certificate
of incorporation and bylaws, all action necessary to convene a meeting
of holders of HealthCore Common Stock and HealthCore Class B Common
Stock (the "HealthCore Stockholders Meeting"), to be held as promptly as
practicable after the S-4 Registration Statement is declared effective,
to consider and vote upon the approval of the Merger and the
transactions contemplated thereby, including, without limitation,
(A) the issuance of the HealthCore Common Stock in the Merger, (B) the
election to the Board of Directors of those individuals described in
Section 1.5 hereof, (C) the approval of the termination of the Escrow
Agreement in accordance with the terms of the Termination Agreements,
and (D) adoption of the Stock Option Plan, and HealthCore's Board of
Directors, subject to fiduciary obligations under applicable law or as
otherwise permitted under this Agreement, will recommend the HealthCore
Recommendation, will not withdraw or modify the HealthCore
Recommendation and will take all lawful action to solicit such approval.
(vii) Filings; Other Actions; Notification.
(A) Adatom and HealthCore shall promptly prepare and file with
the SEC the Prospectus/Proxy Statement, and HealthCore shall prepare
and file with the SEC the S-4 Registration Statement as promptly as
practicable. Adatom and HealthCore each shall use its reasonable best
efforts to have the S-4 Registration Statement declared effective
under the
A-22
<PAGE>
Securities Act as promptly as practicable after such filing, and
promptly thereafter mail the Prospectus/Proxy Statement to the
respective stockholders of each of Adatom and HealthCore. HealthCore
shall also use its reasonable best efforts to obtain prior to the
effective date of the S-4 Registration Statement all necessary state
securities law or "blue sky" permits and approvals required in
connection with the Merger and to consummate the other transactions
contemplated by this Agreement.
(B) Adatom and HealthCore each shall use all reasonable efforts
to cause to be delivered to the other party and its directors a
letter of its independent auditors, dated (i) the date on which the
S-4 Registration Statement shall become effective and (ii) the
Closing Date, and addressed to the other party and its directors, in
form and substance customary for "comfort" letters delivered by
independent public accountants in connection with registration
statements similar to the S-4 Registration Statement.
(viii) Accounting and Taxation.
(A) Neither Adatom nor HealthCore shall nor shall they permit
either of their respective Affiliates to, take or cause to be taken
any action, whether before or after the Effective Time, that would
disqualify the Merger as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code of 1989, as amended (the
"Code"). Each of Adatom and HealthCore agrees to use its reasonable
best efforts to cure any impediment to the qualification of the
Merger as a "reorganization" within the meaning of
Section 368(a) of the Code.
(B) Adatom shall instruct its accountants to deliver and shall
use its reasonable best efforts to cause such accountants to deliver
to HealthCore letters dated as of the Closing Date, addressed to
HealthCore, containing such matters as are customarily contained in
auditors' letters regarding information about Adatom included in the
Proxy/Registration Statement, which auditors' letters shall be in
form and substance reasonably satisfactory to HealthCore.
(C) All Returns required to be filed by or with respect to each
party (or any of them) after the date hereof and on or before the
Effective Time shall be prepared and timely filed, in a manner
consistent with prior years and applicable laws and regulations other
than such Returns for which the failure to file would not have a
Material Adverse Effect with respect to such party.
(ix) Affiliates. Attached hereto as Exhibit D is a list of names
and addresses of those Persons who may, in the opinion of Adatom (after
consultation with outside legal counsel), "Affiliates" of Adatom within
the meaning of Rule 145 under the Securities Act. Adatom shall exercise
its best efforts to deliver or cause to be delivered to HealthCore,
prior to the Effective Time, from each affiliate of Adatom identified in
the foregoing list, a letter in the form attached as Exhibit E (the
"Adatom Affiliates Letter"). The certificates representing HealthCore
Common Stock received by such Affiliates shall bear a customary legend
regarding applicable Securities Act restrictions.
(x) Other Actions. HealthCore and Adatom shall not take any
action that would or is reasonably likely to result in any of the
representations and warranties of HealthCore or Adatom, as the case may
be, set forth in this Agreement being untrue in any material respect as
of the date made, or in any of the conditions to the Closing set forth
in Article VII of this Agreement not being satisfied.
(xi) Registration Rights Agreements. Simultaneously with the
Closing, the Surviving Corporation shall enter into a registration
rights agreement with each of Polan and Mullikin (collectively, the
"Registration Rights Agreements") in form and substance reasonably
satisfactory to Polan and Mullikin, as the case may be, and Adatom, and
each of their respective counsel, covering the shares of stock in the
Surviving Corporation issued or issuable (A) to Polan (x) in connection
that certain Letter Amendment, dated April 27, 1999, between Polan and
HealthCore, (y) upon the exercise (or conversion in accordance with the
provisions of the Termination Agreement contemplated to be executed by
Polan, as the case may be) of warrants to purchase shares to HealthCore
Common Stock heretofore issued to Polan, and (z) currently held in
escrow in accordance with the terms of the Escrow Agreement (the "Polan
Escrowed Shares"); and (B) Mullikin upon the exercise of options to
purchase shares of HealthCore Common Stock issued in connection with the
severance of Mullikin's
A-23
<PAGE>
employment with HealthCore (the aggregate shares described in clause
(A) and (B) hereof being the "Registration Shares"). The Registration
Rights Agreement shall provide that (A) Polan and Mullikin shall have
piggy-back registration rights for the Registration Shares with respect
to all registration statements filed by the Surviving Corporation other
than registration statements on Forms S-4 and S-8, it being acknowledged
and agreed that the Polan Adatom Shares shall be registered on the S-4
Registration Statement, and (B) in the event a registration statement
subject to piggy-back registration as described in clause (A) above has
not been declared effective by the SEC with one hundred twenty (120)
days following the Closing, Polan and Mullikin shall have the right to
demand registration of such shares on any appropriate form registration
statement other than, and specifically excluding, on a Form S-1
registration statement, pursuant to the terms of the Registration Rights
Agreements; provided, however, that with respect to the Polan Escrowed
Shares, Polan shall only be permitted to demand such registration
thereof in accordance with clause (B) above in the event the Polan
Escrowed Shares shall have been released from escrow prior to the
registration of all of the other Registration Shares allocable to Polan.
The Registration Rights Agreement shall further provide that any and all
registration statements on which any or all of the Registration Shares
are included shall be updated and kept current for a minimum period of
one (1) year following the date on which such registration statement is
declared effective by the SEC.
(xii) Barton Employment Agreement. Simultaneously with the
Closing, the Surviving Corporation shall enter into an employment
agreement with Barton on terms mutually agreeable to Barton and the
Surviving Corporation, including, without limitation, (A) an annual
salary of Two Hundred Thousand ($200,000) Dollars, (B) an annual bonus
equal to One Hundred Thousand ($100,000) Dollars (which bonus shall be
based upon certain goals set forth in the Surviving Corporation's
business plan), and (C) the use during the term of his employment of a
luxury automobile leased by the Surviving Corporation.
(xiii) Advice of Changes; SEC Documents. Each party shall confer
on a regular and frequent basis with the other, report on operational
matters and promptly advise the other orally and in writing of (A) any
material notice or other communication from any third party alleging
that the consent of such third party is or may be required in connection
with the transactions contemplated by this Agreement; (B) any material
notice or other communication from any regulatory authority or national
securities exchange in connection with the transactions contemplated by
this Agreement; (C) any claims, actions, proceedings or investigations
commenced or, to the best of such party's knowledge, threatened,
involving or affecting such party, or any of its property or assets, or,
to the best of such party's knowledge, any employee, consultant,
director or officer, in his or her capacity as such, of such party,
which, if pending on the date hereof, would have been required to have
been disclosed in a HealthCore SEC Document or the Adatom Disclosure
Schedule, as the case may be, or which relates to the consummation of
the Merger or the other transactions contemplated by this Agreement; and
(D) any change or event that would have a Material Adverse Effect with
respect to such party. Each party shall promptly provide the other (or
its counsel) copies of all filings made by such party with any
Governmental Entity in connection with this Agreement and the
transactions contemplated hereby.
(xiv) Compliance with Laws. Each party agrees to conduct its
business in compliance with all applicable laws and regulations except
where failure to comply would not have a Material Adverse Effect on such
party.
(xv) Regulatory Matters. Each party agrees to promptly, and in
any event no later than ten business days after the date hereof, prepare
and file all applications, notices, consents and other documents
necessary or advisable to obtain the state regulatory approvals
specified in the Adatom Disclosure Schedule or the HealthCore Disclosure
Schedule, as the case may be, promptly file all supplements or
amendments thereto and use all reasonable efforts to obtain the
regulatory approvals specified in the Adatom Disclosure Schedule or the
HealthCore Disclosure Schedule, as the case may be, as promptly as
practicable. Each party shall provide to the other party and its counsel
(A) the opportunity to review in advance and comment on all such filings
with regulatory authorities and rating agencies relating to this
transaction and all written communications with respect thereto a
reasonable time prior to such filings or written communications,
(B) prompt notice of all contacts by such
A-24
<PAGE>
regulatory authorities and rating agencies, and (C) with respect to any
regulatory approval or review required by any state, the right to
approve any filings, written communications and the substance of any
oral communications and to participate in any meetings. Each party will
keep the other party informed of the status of matters relating to
obtaining the regulatory approvals specified in the Adatom Disclosure
Schedule and will promptly furnish such party with copies of all written
communications with respect thereto.
(b) NASDAQ Listing and Trade Symbols. HealthCore and Adatom shall use
their respective best efforts to cause the HealthCore Common Stock to be
issued in the Merger to be approved for listing on the NASDAQ Small Cap
Market, subject to official notice of issuance, prior to the Closing Date.
HealthCore and Adatom shall use their respective best efforts to maintain
HealthCore's current NASDAQ Small-Cap listing under its trading symbols
"HMSI", "HMSIU", and "HMSIW".
(c) Post-Closing Covenants. Adatom hereby covenants and agrees
subsequent to the Closing of the Merger, the Surviving Corporation shall
comply with the following:
(i) Special Meeting of Shareholders. In the event two-thirds
(2/3) of the shareholders of HealthCore eligible to vote thereon fail to
approve the termination of the Escrow Agreement and the approval and
adoption of the Termination Agreements (as such terms are defined in
Section 6.5 hereof) the Board of Directors of the Surviving Corporation
shall call a special meeting of the shareholders as soon as reasonably
practicable following the Closing Date, and shall recommend that the
shareholders of the Surviving Corporation vote in favor of (A) the
termination of the Escrow Agreement, and (B) the approval and adoption
of the Termination Agreement.
(ii) S-8 Registration. The Surviving Corporation shall use its
best efforts, but in no event later than thirty (30) days following the
Closing, to file with the SEC a registration statement on Form S-8 (or
any successor or other appropriate forms) to register all shares of the
Surviving Corporation eligible for registration thereunder, including,
without limitation, and if eligible to be placed on a Form S-8, the
Polan Shares, and the shares issued to Mullikin upon his exercise of
options to purchase such shares described hereinabove.
6.4 Covenants of Polan. In order to induce Adatom to execute and deliver
this Agreement, Polan hereby irrevocably covenants and agrees that, except as
expressly contemplated or permitted by this Agreement, (i) simultaneously with
the Closing, Polan shall elect to convert all of the shares of HealthCore
Class B Common Stock held by him into HealthCore Common Stock in accordance with
the relevant provisions of HealthCore's Certificate of Incorporation,
(ii) Polan shall vote all of the shares of stock in HealthCore entitled to be
voted on the Merger beneficially owned by him in favor of the consummation of
the Merger and the other transactions contemplated by this Agreement (iii) from
the execution of this Agreement and until the Closing Date or earlier
termination hereof, Polan shall not sell or otherwise transfer more than fifty
thousand (50,000) shares of HealthCore Common Stock or HealthCore Class B Common
Stock.
6.5 Covenants of the Adatom Shareholders. In order to induce HealthCore to
execute and deliver this Agreement, each of the shareholders of Adatom
irrevocably covenants and agrees to vote the shares of stock in the Surviving
Corporation held thereby (i) in favor of the consummation of the Merger and the
other transactions contemplated by this Agreement, and (ii) in the event
two-thirds (2/3) of the shareholders of HealthCore entitled to vote thereon fail
to approve and adopt the Termination Agreements (as hereinafter defined), in
favor of terminating that certain Amended and Restated Escrow Agreement (the
"Escrow Agreement"), dated July 31, 1997, among HealthCore, American Stock
Transfer and Trust Company and the stockholders of HealthCore who have executed
the Escrow Agreement, in accordance with the terms of the Termination Agreements
(each a "Termination Agreement", and collectively, the "Termination
Agreements")) in substantially the form attached hereto as Exhibit F to be
executed by each of the holders of the shares of HealthCore Common Stock held in
escrow pursuant to the Escrow Agreement (such holders being the "Escrow
Shareholders").
A-25
<PAGE>
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to the Obligations of Adatom to Effect the Merger. The
obligations of Adatom to consummate the transactions contemplated hereby are
subject to the satisfaction of the following conditions, the imposition of which
is solely for the benefit of Adatom and any one or more of which may be
expressly waived by Adatom, in its sole discretion, except as otherwise required
by law:
(a) Accuracy of Representations and Warranties. The representations
and warranties of HealthCore contained herein shall have been true and
correct in all material respects when made, and shall be true and correct
in all material respects at and as of the Closing Date as though made on
and as of the Closing Date (except to the extent that any such
representation and warranty had by its terms been made as of a specific
date, in which case such representation and warranty shall have been true
and correct in all material respects as of such specific date), other than
inaccuracies in the representations and warranties contained in
Sections 5.2 (j), (k), (l), (o), (p), (q) and/or (t), arising as a result
of, or in connection with, HealthCore's sale or liquidation of the
HealthCore Business as contemplated by this Agreement. Adatom shall have
received a certificate dated the Closing Date signed by an executive
officer of HealthCore certifying to the fulfillment of this condition.
(b) Performance of Agreements. HealthCore shall have performed in all
material respects all obligations and agreements and complied in all
material respects with all covenants and conditions contained in this
Agreement to be performed and complied with by it at or prior to the
Closing Date. Adatom shall have received a certificate dated the Closing
Date signed by an executive officer of HealthCore certifying to the
fulfillment of this condition.
(c) No Material Adverse Change. Since the date hereof, except as
contemplated by this Agreement, no change or event shall have occurred
which has had or could reasonably be expected to have a Material Adverse
Effect with respect to HealthCore; it being understood that HealthCore
shall sell or liquidate the HealthCore Business in accordance with
Section 6.2(b) of this Agreement.
(d) Sale or Liquidation of HealthCore Business. HealthCore shall have
consummated the sale or liquidation, or have entered into a binding
contract for the sale (which contract shall be in a form reasonably
satisfactory to Adatom), of the HealthCore Business, and shall, in
connection therewith, (i) have terminated all of HealthCore's existing
employment relationships with all of its employees, including, but not
limited to, its key executives, Polan and Mullikin, and (ii) terminate,
cancel or assign all material contractual commitments and other material
obligations arising in connection with the HealthCore Business.
(e) Resignation of Officers and Directors. Each officer and director
of HealthCore shall have tendered his or her resignation, or have been
terminated by HealthCore.
(f) Minimum Closing Cash Amount. The Closing Cash Amount, as
calculated in accordance with the terms of Section 3.2(a) hereof, shall be
no less than Two Million ($2,000,000) Dollars.
(g) HealthCore Lock-Up Agreements. Polan and Mullikin shall each have
executed a lock-up agreement in form and substance reasonably satisfactory
to Polan and Mullikin, as the case may be, and Adatom, and each of their
respective counsel (collectively, the "HealthCore Lock-up Agreements")
covering any and all shares of HealthCore Common Stock owned directly by,
or issuable (upon exercise of options or warrants to purchase the same) to,
(i) Polan as of the Closing Date (such shares being the "Polan Shares"),
and (ii) Mullikin in severance of his employment relationship with
HealthCore (the "Mullikin Shares"). The HealthCore Lock-Up Agreements shall
provide that the shares covered thereby shall be subject to a six
(6) month lock-up, prohibiting the sale, assignment or transfer thereof
during such six (6) month period; provided that, notwithstanding the
foregoing, Polan shall be permitted to transfer up to a maximum of one
hundred twenty-five thousand (125,000) Polan Shares at any time upon the
expiration of two (2) months following the Closing Date.
(h) Recapitalization of HealthCore Capital Structure. HealthCore
shall have recapitalized its capital structure such that the holders of
shares of HealthCore Class B Common Stock shall have converted the
HealthCore Class B Common Stock into shares of HealthCore Common Stock. As
a result of the foregoing,
A-26
<PAGE>
immediately prior to the Closing the capitalization of HealthCore shall
consist of HealthCore Common Stock, the rights set forth in
Section 5.2(b) hereof or in Section 5.2(b) of the HealthCore Disclosure
Schedule, and the Stock Option Plan.
7.2 Conditions to the Obligations of HealthCore to Effect the Merger. The
obligations of HealthCore under this Agreement to consummate the transactions
contemplated hereby are subject to the satisfaction of the following conditions,
the imposition of which is solely for the benefit of HealthCore and any one or
more of which may be expressly waived by HealthCore, in its sole discretion,
except as otherwise required by law:
(a) Accuracy of Representations and Warranties. The representations
and warranties of Adatom contained herein shall have been true and correct
in all material respects when made, and shall be true and correct in all
material respects at and as of the Closing Date as though made on and as of
the Closing Date (except to the extent that any such representation and
warranty had by its terms been made as of a specific date in which case
such representation and warranty shall have been true and correct as of
such specific date). HealthCore shall have received a certificate dated the
Closing Date signed by an executive officer of Adatom certifying to the
fulfillment of this condition.
(b) Performance of Agreements. Adatom shall have performed in all
material respects all obligations and agreements and complied in all
material respects with all covenants and conditions contained in this
Agreement or otherwise contemplated hereby to be performed and complied
with by it at or prior to the Closing Date. HealthCore shall have received
a certificate dated the Closing Date signed by an executive officer of
Adatom certifying to the fulfillment of this condition.
(c) No Material Adverse Change. Since December 31, 1998, no change or
event shall have occurred which has had or could reasonably be expected to
have a Material Adverse Effect with respect to Adatom, other than losses
sustained by Adatom in connection with the operation of its business.
(d) Adatom Lock-Up Agreement. Each of the Adatom shareholders shall
have executed the Adatom Lock-up Agreement covering the Adatom Newly Issued
Shares.
(e) Fairness Opinion. HealthCore shall have received a fairness
opinion from an investment banking firm mutually agreeable to HealthCore
and Adatom rendering an opinion that the Merger is fair and reasonable from
a financial point of view to HealthCore's shareholders as of the date the
Board of Directors of HealthCore approves this Agreement and as of the date
the HealthCore Proxy is mailed to HealthCore's shareholders.
7.3 Conditions to the Obligations of HealthCore and Adatom to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction prior to the Closing Date of the following
conditions:
(a) Shareholder Approval. This Agreement, the Merger and the
transaction contemplated hereby and thereby, other than the termination of
the Escrow Agreement in accordance with the terms of the Termination
Agreements, shall have been approved and adopted by the affirmative vote of
a majority of the outstanding shares of HealthCore entitled to vote on the
Merger, which majority (i) shall not include the vote of the shares of the
Common Stock of HealthCore owned directly by Polan, and
(ii) notwithstanding the foregoing, shall include Polan's vote as proxy of
the shares of the Common Stock of HealthCore held by the Escrow
Shareholders; the proxies to vote such shares having been granted pursuant
to the terms of the Exchange Agreements.
(b) Appraisal Rights. The holders of no more than five (5%) percent
of the outstanding shares of HealthCore entitled to vote on the Merger
shall have exercised their appraisal rights under Section 262 of the DGCL.
(c) S-4 Registration Statement. The S-4 Registration Statement shall
have become effective under the Securities Act. No stop order suspending
the effectiveness of the S-4 Registration Statement shall have been issued,
and no proceeding for that purpose shall have been initiated or threatened
by the SEC.
(d) Blue Sky Laws. HealthCore shall have received all state
securities or "Blue Sky" permits and other authorizations necessary to
issue the shares of HealthCore Common Stock.
A-27
<PAGE>
(e) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition (an
"Injunction") restraining or preventing the consummation of the Merger or
subjecting any party or any of its Affiliates to substantial damages as a
result of the consummation of the Merger shall be in effect; provided,
however, that the party invoking this condition shall have used reasonable
best efforts to have vacated such Injunction.
(f) Governmental and Regulatory Consents. All filings required to be
made prior to the Effective Time with, and all consents, approvals, permits
and authorizations required to be obtained prior to the Effective Time
from, Governmental Entities, including, without limitation, those set forth
in the Adatom Disclosure Schedule, in connection with the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby by Adatom will have been made or obtained (as the case
may be).
ARTICLE VIII
SURVIVAL AND INDEMNIFICATION
8.1 Survival. All representations and warranties made in this Agreement
shall survive the delivery of this Agreement for a period of one (1) year
following the Closing Date. Notwithstanding the foregoing, any claim for
indemnification that is asserted by written notice as provided in Section 8.4
within the survival period shall survive until resolved pursuant to a final
non-appealable judicial determination or otherwise.
8.2 Indemnification of HealthCore. The Surviving Corporation shall
indemnify, defend and hold the HealthCore Former Shareholders from and against
any and all loss, damage, cost or expense, including reasonable attorneys' fees
and expenses (collectively, "Losses"), caused by any misrepresentation, breach
of warranty or failure to fulfill any covenant or agreement made by Adatom
contained herein (the aggregate monetary sum of such indemnification obligations
being the "Adatom Indemnification Amount").
8.3 Indemnification of Adatom. The Surviving Corporation shall indemnify,
defend and hold harmless the Adatom Former Shareholders from and against any and
all Losses caused by any misrepresentation, breach of warranty or failure to
fulfill any covenant or agreement made by HealthCore contained herein (the
aggregate monetary sum of such indemnification obligations being the "HealthCore
Indemnification Amount").
8.4 Basket; Limitation of Liability. The Surviving Corporation's
obligation to indemnify the Adatom Former Shareholders or the HealthCore Former
Shareholders, as the case may be, from and against any Losses shall not arise
unless and until the Adatom Former Shareholders or the HealthCore Former
Shareholders, as the case may be, shall have suffered aggregate Losses in excess
of One Hundred Thousand ($100,000) Dollars (the "Indemnification Threshold"). In
the event the Losses suffered by the Adatom Former Shareholders or the
HealthCore Former Shareholders, as the case may be, exceed the Indemnification
Threshold, the Surviving Corporation shall only be obligated to indemnify the
Adatom Former Shareholders or the HealthCore Former Shareholders, as the case
may be, from and against aggregate Losses in excess of the Indemnification
Threshold. In no event shall the Surviving Corporation's obligation to indemnify
the Adatom Former Shareholders and the HealthCore Former Shareholders exceed, in
each case, the aggregate sum of Five Hundred Thousand ($500,000) Dollars.
8.5 Net Indemnification Amount. Notwithstanding anything contained herein
to the contrary, the Surviving Corporation's indemnification obligations
hereunder shall, subject to the provisions of Section 8.4 hereof, be limited to
the difference (such difference being the "Net Indemnification Amount"), if any,
as at the Indemnification Adjustment Date, between the Surviving Corporation's
obligation to indemnify (i) the Adatom Former Shareholders pursuant to
Section 8.2 hereof (the aggregate monetary sum of such indemnification
obligations being the "Adatom Indemnification Amount"), and (ii) the HealthCore
Former Shareholders pursuant to Section 8.2 hereof (the aggregate monetary sum
of such indemnification obligations being the "HealthCore Indemnification
Amount"). The Net Indemnification Shares shall be issuable, in accordance with
the provisions of Section 3.2(b) hereof, to (i) the Adatom Former Shareholders
in the event the Adatom Indemnification Amount is greater than the HealthCore
Indemnification Amount, or to (ii) the HealthCore
A-28
<PAGE>
Former Shareholders in the event the HealthCore Indemnification Amount is
greater than the Adatom Indemnification Amount.
8.6 General Provisions Related to Indemnification.
(a) The party entitled to indemnification shall take all reasonable
steps to mitigate all indemnifiable liabilities and damages upon and after
becoming aware of any event which reasonably could be expected to give rise
to any liabilities and damages that are indemnifiable hereunder. No party
shall be entitled to indemnification to the extent of any available
insurance relating to any indemnifiable claim.
(b) The party seeking indemnification shall give written notice to the
indemnifying party of the facts and circumstances giving rise to any claim
for indemnification as soon as reasonably possible but in any event within
thirty (30) days after obtaining knowledge of the basis for a claim for
indemnification hereunder. With respect to each third party claim subject
to this Article 8 (a "Third Party Claim"), the party seeking
indemnification shall give prompt written notice to the indemnifying party
of the Third Party Claim.
ARTICLE IX
TERMINATION AND AMENDMENT
9.1 Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time
whether before or after approval by the shareholders of Adatom and HealthCore:
(a) by mutual written consent of HealthCore and Adatom;
(b) by either HealthCore or Adatom if there has been a material breach
of any representation, warranty, covenant or agreement on the part of
Adatom, on the one hand, or HealthCore, on the other hand, as the case way
be, set forth in this Agreement which breach, if not a willful breach has
not been cured within ten (10) Business Days following receipt by the
breaching party of written notice of such breach;
(c) by either HealthCore or Adatom if the Merger shall not have been
consummated before the Termination Date (or such later date as may be
agreed to by HealthCore and Adatom); provided, however, that neither party
may terminate this Agreement under this Section 9.1(c) if the failure has
been caused by such party's material breach of this Agreement;
(d) by either HealthCore or Adatom if this Agreement shall fail to
receive the requisite vote for approval and adoption by the shareholders of
HealthCore at the HealthCore Shareholders' Meeting;
(e) by either HealthCore or Adatom if (i) the Board of Directors of
HealthCore shall have recommended to the shareholders of HealthCore a
Qualified Transaction Proposal; (ii) a tender offer (not including a
self-tender offer) or exchange offer for shares of capital stock of
HealthCore, which would result in the beneficial ownership by any Person or
any "group" (as defined in Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder) of more than 25% of the outstanding
shares of any class of capital stock of HealthCore, is commenced, and the
Board of Directors of HealthCore recommends that the shareholders of
HealthCore tender their shares in such tender or exchange offer; or
(iii) any Person shall have acquired beneficial ownership or the right to
acquire beneficial ownership of, or any "group" shall have been formed
which beneficially owns, or has the right to acquire "beneficial ownership"
of, more than 25% of the then outstanding shares of any class of capital
stock of HealthCore; or
(f) by HealthCore or Adatom if a court of competent jurisdiction or
other Governmental Entity shall have issued an order, decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
consummation of the Merger and such order, decree, ruling or other action
shall have become final and nonappealable.
9.2 Effect of Termination. In the event this Agreement is terminated and
the Merger abandoned pursuant to Section 9.1, all further obligations of the
parties hereunder shall terminate except that the obligations set forth in
Sections 6.3(a)(i) and this Section 9.2 shall survive, the Note shall become due
and payable in accordance with the terms thereof; provided that, if this
Agreement is so terminated by a party because one or more of the conditions to
such party's obligations hereunder is not satisfied as a result of the other
party's willful or knowing
A-29
<PAGE>
failure to comply with its obligations under this Agreement, the terminating
party's right to pursue all legal remedies for breach of contract or otherwise,
including, without limitation, damages relating thereto, shall also survive such
termination unimpaired.
ARTICLE X
GENERAL PROVISIONS
10.1 Definitions. As used in this Agreement, the following terms shall
have the meanings set forth in this Section 10.1:
(a) "Affiliate" means, with respect to any Person, any other Person
that, directly or indirectly, through one or more intermediaries, controls,
is controlled by, or is under common control with, such first Person.
(b) "Agent" means, with respect to any Person, such Person's officers,
directors, employees, attorneys, accountants, investment bankers, financial
advisors or other representatives or agents.
(c) "Business Day" means any day other than a day on which (i) banks
in the State of New York are authorized or obligated to be closed or
(ii) the NASDAQ National Market is closed.
(d) "Debt" of any Person means, without duplication, (i) all
indebtedness of such Person for borrowed money (whether on-balance sheet or
off-balance sheet); (ii) all obligations of such Person evidenced by notes,
bonds, debentures or other similar instruments; (iii) all obligations of
such Person as lessees under leases that have been or should be, in
accordance with GAAP, recorded as capital leases; (iv) all obligations,
contingent or otherwise, of such Person under banker's acceptance, letter
of credit or similar facilities; (v) all Debt of others referred to in
clauses (i) through (iv) above guaranteed directly or indirectly in any
manner by such Person; and (vi) all Debt of others referred to in clauses
(i) through (v) above secured by (or for which the holder of such Debt has
an existing right, contingent or otherwise, to be secured by) any Lien on
property (including, without limitation, accounts and contract rights)
owned by such Person, even though such Person has not assumed or become
liable for the payment of such Debt.
(e) "Governmental Entity" and "Governmental Entities" shall mean any
foreign, federal, state, municipal or other governmental or regulatory
department, commission, board, bureau, agency or instrumentality.
(f) "Material Adverse Effect" means, with respect to any Person, any
change or effect that is or is reasonably likely to be materially adverse
to the business, assets, properties, operations or condition (financial or
otherwise) of such Person taken as a whole or adversely affects the ability
of such Person to consummate the transactions contemplated by this
Agreement in any material respect. For the purposes of this Agreement,
where "Material" can be expressed as a monetary sum, any sum in excess of
One Hundred Twenty-Five Thousand $125,000 Dollars shall be deemed to
"Material".
(g) "Person" means any individual, corporation, partnership, firm,
group (as such term is used in Section 13(d)(3) of the Exchange Act), joint
venture, association, trust, limited liability company, unincorporated
organization, estate, trust or other entity.
(h) "SEC" means the Securities and Exchange Commission.
(i) "Subsidiary"' of any Person means any corporation, partnership,
joint venture or other legal entity of which such Person (either directly
or through or together with any other Subsidiary of such Person), owns,
directly or indirectly, 50% or more of the stock or other equity interests
the holders of which are generally entitled to vote for the election of the
board of directors or similar governing body of such corporation,
partnership, joint venture or other legal entity.
(j) "Termination Date" shall mean September 30, 1999.
10.2 All notices and other communications hereunder shall be in writing and
shall be deemed given when delivered personally, upon a receipt of a transmittal
confirmation if sent by facsimile or like transmission, and on the next Business
Day when sent by Federal Express, Express Mail or similar overnight courier
service to the parties at the following addresses or facsimile numbers (or at
such other address or facsimile number for a party as shall be specified by like
notice):
A-30
<PAGE>
If to HealthCore:
HealthCore Medical Solutions, Inc.
405 Lexington Avenue, 50th Floor
New York, NY 10174
Attn: Mr. Neal Polan, Chief Executive Officer
Facsimile: (917) 368-3601
with a copy to:
HealthCore Medical Solutions, Inc.
11904 Blue Ridge Ext.
Grandview, MO 64030
Facsimile: (816) 765-6573
Attn: David L. Mullikin, President
and to:
Epstein Becker & Green, P.C.
250 Park Avenue
New York, NY 10177
Attn: Seth I. Truwit, Esq.
Facsimile: (212) 351-4709
If to Adatom:
Adatom, Inc.
920 Hillview Court, Suite 160
Milipitas, Ca 95035
Attn: Mr. Richard Barton, President
Facsimile: (561) 364-0771
with a copy to:
McCutchen, Doyle, Brown & Enersen, LLP
Three Embarcadero Center
San Francisco, CA 94111
Attention: Hank Evans, Esq.
Facsimile: (415) 393-2286
10.3 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." The phrase "made available" in this
Agreement shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available. Dollar
amounts referred to in this Agreement shall not be deemed to establish any
standard of materiality.
10.4 Waivers and Amendments. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only by
written instruments signed by the parties to this Agreement, or in the case of a
waiver, by the party waiving compliance. Except where a specific period for
action or inaction in provided herein, no delay on the part of a party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof. Neither any waiver on the part of a party of any such right, power or
privilege, nor any single or partial exercise of any such right, power or
privilege, shall preclude any further exercise thereof or the exercise of any
other such right, power or privilege.
10.5 Expenses and Other Payments.
(a) Any brokers fees and/or commissions payable in connection with the
Merger shall be paid immediately following the Closing by the Surviving
Corporation, other than any required equity payments
A-31
<PAGE>
to the Brokers which shall be includable in the number of shares of Adatom
Common Stock outstanding prior to the Closing as provided in
Section 3.1(b) hereof, which equity payments shall be included within the
aggregate number of shares of HealthCore Common Stock received by the
Adatom shareholders in accordance with the provisions of Articles II and
III hereof. The out-of-pocket expenses (including, without limitation,
professionals' fees and expenses and investment banking fees and expenses
and fees and expenses relating to the fairness opinion referred to herein)
incurred by each party in connection with the Merger and the transactions
contemplated thereby (collectively, the "Transaction Expenses") shall be
deemed to be a liability of, and shall be paid by, the Surviving
Corporation following the Closing; it being understood that the aggregate
sum of any and all reasonable Transaction Expenses paid by HealthCore prior
to the Closing shall be deemed to be included in the Closing Cash Amount.
In the event the Merger is not consummated other than by reason of a
termination pursuant to Section 9.1(b) hereof, each party shall bear that
portion of the Transaction Expenses incurred by it in connection with the
Merger and the transactions contemplated thereby and hereby. In the event
this Agreement is terminated (i) by HealthCore pursuant to Section 9.1(b),
Adatom shall reimburse HealthCore for all of HealthCore's Transaction
Expenses, including, without limitation, all of its reasonable legal,
accounting and investment banking fees and expenses relating to the Merger,
or (ii) by Adatom pursuant to Section 9.1(b), HealthCore shall reimburse
Adatom for all of Adatom's Transaction Expenses, including, without
limitation, all of its reasonable legal, accounting and investment banking
fees and expenses relating to the Merger (other than fees, if any, payable
to the Brokers).
(b) Any payment required to be made pursuant to Section 10.5(a) shall
be made an promptly as practicable but not later than ten (10) Business
Days after termination of this Agreement and shall be made by wire transfer
of immediately available funds to an account designated by the party
entitled to receipt of such payment.
10.6 Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by either of the parties hereto
(whether by operation of law or otherwise) without the prior written consent of
the other party. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
10.7 Entire Agreement; No Third Party Beneficiaries. This Agreement
(including the documents and the instruments referred to herein)
(a) constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof and (b) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.
10.8 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be performed entirely within such state.
10.9 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be an original and all of which, when
taken together, shall constitute one and the same instrument.
A-32
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first above written.
HEALTHCORE MEDICAL SOLUTIONS, INC.
By: /s/ Neal J. Polan
----------------------------------
Name: Neal J. Polan
Title: Chairman and CEO
ADATOM, INC.
By: /s/ Richard Barton
----------------------------------
Name: Richard Barton
Title: President
Accepted and agreed with respect to Section 6.4 hereof only:
/s/ Neal J. Polan
- --------------------------------------
Neal J. Polan
Accepted and agreed with respect to Section 6.5 hereof only:
/s/ Richard Barton
- --------------------------------------
Richard Barton
/s/ Chris-Chich Chen
- --------------------------------------
Chris-Chich Chen
/s/ Sridhar Jagannathan
- --------------------------------------
Sridhar Jagannathan
- --------------------------------------
Frank Madkins
A-33
<PAGE>
FIRST AMENDMENT
TO AGREEMENT AND PLAN OF MERGER
This First Amendment (the "Amendment") to the Agreement and Plan of Merger,
dated as of July 1, 1999, by and between HealthCore Medical Solutions, Inc., and
Adatom, Inc., (the "Merger Agreement"), is entered into as of this 6th day of
August, 1999.
WHEREAS, the parties desire to amend the Merger Agreement to address
certain issues.
NOW, THEREFORE, in consideration of the covenants and agreements contained
herein, the Merger Agreement is hereby amended as set forth below.
1. Section 6.1(a)(vii). The reference to "Seven Hundred Fifty Thousand
($750,000) Dollars" in Section 6.1(a)(vii) shall be deleted and replaced with a
reference to "One Million ($1,000,000) Dollars".
2. Section 10.1(j). The reference to "September 30, 1999" in
Section 10.1(j) shall be deleted and replaced with a reference to "November 30,
1999".
3. Counterparts. This Amendment may be executed in counterparts, each of
which shall constitute one agreement, binding on the parties, and each party
hereby covenants and agrees to execute all duplicates or replacement
counterparts of this Amendment as may be required.
4. Merger Agreement. The terms and provisions of the Merger Agreement, as
amended hereby, shall remain in full force and effect. All references to the
Merger Agreement contained therein shall refer to the Merger Agreement as
amended hereby.
5. No Conflict. In the event of any conflict in the provisions of the
Merger Agreement and the provisions of this Amendment, the provisions of this
Amendment shall control.
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered by
the undersigned as of the date first written above.
HEALTHCORE MEDICAL SOLUTIONS, INC.
By: /s/ NEAL J. POLAN
--------------------------------
Name: Neal J. Polan
Title: Chairman and CEO
ADATOM, INC.
By: /s/ RICHARD BARTON
--------------------------------
Name: Richard Barton
Title: President
A-34
<PAGE>
Accepted and agreed:
By: /s/ NEAL J. POLAN
--------------------------------
Neal J. Polan
By: /s/ RICHARD BARTON
--------------------------------
Richard Barton
By: /s/ CHRIS-CHICH CHEN
--------------------------------
Chris-Chich Chen
By: /s/ SRIDHAR JAGANNATHAN
--------------------------------
Sridhar Jagannathan
By: /s/ FRANK MADKINS
--------------------------------
Frank Madkins
A-35
<PAGE>
SECOND AMENDMENT
TO AGREEMENT AND PLAN OF MERGER
The Second Amendment (the "Amendment") to the Agreement and Plan of Merge,
dated as of July 1, 1999, by and between HealthCore Medical Solutions, Inc., and
Adatom, Inc., (the "Merger Agreement"), as amended, is entered into as of this
14th day of September, 1999.
WHEREAS, the parties desire to amend the Merger Agreement to address
certain issues.
NOW, THEREFORE, in consideration of the covenants and agreements contained
herein, the Merger Agreement is hereby amended asset forth below.
1. Section 3.2(a). The reference to "Two Million Eight Hundred Fifty
Thousand ($2,850,000) Dollars" in Section 3.2 (a) shall be deleted and replaced
with a reference to "Two Million Eight Hundred Thousand ($2,800,000) Dollars."
The reference to "$2,850,000" in clause (1) of Section 3.2 (a) shall be deleted
and replaced with a reference to "$2,800,000."
2. Section 6.1(a)(vii). The reference to "One Million ($1,000,000)
Dollars" in Section 6.1 (a)(vii) shall be deleted and replaced with a reference
to "One Million Two Hundred Fifty Thousand ($1,250,000) Dollars."
3. Section 6.1(b). The following proviso shall be added at the end of
Section 6.1 (b): "provided, however, Adatom shall not be required to discharge
Adatom's obligations for indebtedness due to Adatom's shareholders, employees or
the Adatom Affiliates for money borrowed subsequent to August 1, 1999 in an
amount not to exceed Two Hundred Fifty Thousand ($250,000) Dollars."
4. Counterparts. This Amendment may be executed in counterparts, each of
which shall constitute one agreement, binding on the parties, and each party
hereby covenants and agrees to execute all duplicates or replacement
counterparts of this Agreement as may be required.
5. Merger Agreement. The terms and provisions of the Merger Agreement, as
amended hereby, shall remain in full force and effect. All references to the
Merger Agreement contained therein shall refer to the Merger Agreement as
amended hereby.
6. No Conflict. In the event of any conflict in the provisions of the
Merger Agreement and the provisions of this Amendment, the provisions of this
Amendment shall control.
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered by
the undersigned as of the date first written above.
HEALTHCORE MEDICAL SOLUTIONS, INC.
By: /s/ NEAL J. POLAN
-----------------------------------
Name: Neal J. Polan
Title: Chairman and CEO
ADATOM, INC.
By: /s/ RICHARD BARTON
-----------------------------------
Name: Richard Barton
Title: President
A-36
<PAGE>
ACCEPTED AND AGREED:
/s/ NEAL J. POLAN
-----------------------------------
Neal J. Polan
/s/ RICHARD BARTON
-----------------------------------
Richard Barton
/s/ CHRIS-CHICH CHEN
-----------------------------------
Chris-Chich Chen
/s/ SRIDHAR JAGANNATHAN
-----------------------------------
Sridhar Jagannathan
/s/ FRANK MADKINS
-----------------------------------
Frank Madkins
A-37
<PAGE>
ANNEX B
OPINION OF HEALTHCORE BOARD OF
DIRECTORS' FINANCIAL ADVISOR
August 30, 1999
The Board of Directors
HealthCore Medical Solutions, Inc.
11904 Blue Ridge Boulevard
Grandview, Missouri 64030
Gentlemen:
HealthCore Medical Solutions, Inc. (the "Company") has under consideration
a transaction pursuant to which the Company would engage in a business
combination (the "Merger") with Adatom, Inc. ("Adatom") as a result of which the
Company will issue 10,689,489 shares of the Company's common stock (the "Common
Stock") to Adatom's shareholders, an exchange ratio of 2.17 shares of Common
Stock for each share of Adatom's common stock (the "Exchange Ratio"), at which
time Adatom's shareholders will hold approximately 77.5% of the combined
company's outstanding Common Stock, subject to adjustment. The Exchange Ratio
will be increased by 0.0179 of a share or an aggregate of 195,000 shares of
Common Stock for every $100,000 by which the Company's cash assets fail to meet
the $2.85 million threshold at the time of closing. The Merger is subject to,
among other things, the approval of the Board of Directors and the shareholders
of the Company.
In connection with its review and analysis of the Merger, you have
requested our opinion, as investment bankers, as to the fairness to the
shareholders of the Company, from a financial point of view, of the
consideration to be paid in the Merger to Adatom's shareholders in the form of
Common Stock of the Company.
Kaufman Bros., L.P. as part of its investment banking business is
experienced in valuation of businesses. We are continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of securities,
private placements of public and private companies and valuations for corporate
and other purposes.
In conducting our analysis and arriving at our opinion as expressed herein,
we have reviewed and analyzed, among other things, the following:
o The Agreement and Plan of Merger dated July 1, 1999, by and between
the Company and Adatom;
o a draft of this Form S-4 Registration Statement and Proxy;
o certain documents and reports filed by HealthCore with the
Securities and Exchange Commission;
o certain internal information and documents relating to the Company
and Adatom provided to us by their respective managements, including
historical financial information and financial forecasts;
o the reported prices and trading activity of the Company's common
stock;
o the financial and business prospects for the merged entity and the
industry in which it competes;
o certain publicly available information concerning certain other
companies engaged in businesses which it believed to be comparable
to Adatom and the trading markets for such other companies'
securities;
o information concerning recent private equity investments in
pre-public e-commerce companies we believe to be comparable to
Adatom; and
o information concerning certain other business transactions which we
believe to be relevant to the Merger.
B-1
<PAGE>
We have also met with or spoken to certain officers and employees of the
Company and Adatom concerning their respective businesses and operations,
assets, present condition and future prospects, and performed such analyses as
we deemed appropriate.
In arriving at our opinion, we have visited certain of the properties and
facilities of Adatom but have not conducted a physical inspection of such
properties and facilities, nor have we made or obtained any independent
evaluation or appraisal of such properties and facilities or of any of the
assets or liabilities of the Company or Adatom (contingent or otherwise). We
have assumed and relied upon the accuracy and completeness of the financial and
other information used by us in arriving at our opinion, and upon the assurances
of the managements of the Company or Adatom that they are not aware of any
information that would make the information provided to us incomplete or
misleading, and have not attempted to independently verify such information.
With respect to financial forecasts, we were advised by the management of the
Company and Adatom, and we assumed without independent investigation, that they
were reasonably prepared and reflected, as of the times they were delivered to
us, the best currently available estimates and judgment as to the expected
future financial performance of the Company or Adatom, as the case may be.
This opinion is necessarily based upon financial, economic, market and
other conditions as they existed, and, except as set forth in the preceding
paragraph, the information available to us, as of the date hereof. We disclaim
any undertakings or obligation to advise any person of any change in any fact or
matter affecting this opinion which may come or be brought to our attention
after the date hereof.
In the ordinary course of our business, we may hold and actively trade
securities of the Company for our own account and for the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities.
This opinion does not constitute a recommendation as to any action the
Board of Directors or any shareholder of the Company should take in connection
with the Merger or any aspect thereof and is not a recommendation to any person
on how such person should vote on the consideration of the Merger. This opinion
relates solely to the fairness to the shareholders of the Company, as of the
date hereof, from a financial point of view, of the consideration to be paid in
the Merger to Adatom's shareholders in the form of Common Stock of the Company.
We express no opinion herein as to the structure, terms or effect of any other
aspect of the Merger or as to the merits of the underlying decision of the
Company to enter into the Merger. Without limiting the foregoing, we express no
opinion as to the financial treatment, audit procedures or other financial
aspects of the Merger or as to any aspect of any arrangements agreed to between
the Company and its officers, directors or shareholders prior to or concurrent
with the Merger.
This letter is for the information of the Board of Directors of the Company
for its use in evaluating the fairness to the shareholders of the Company as of
the date hereof, from a financial point of view, of the consideration to be paid
in the Merger to Adatom's shareholders in the form of Common Stock of the
Company. It may not be used for any other purpose, published, reproduced,
summarized, described or referred to or given to any other person or otherwise
made public without our prior written consent.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, as of the date hereof, the consideration to be paid by the Company
in the form of Common Stock of the Company to Adatom's shareholders is fair to
the shareholders of the Company, from a financial point of view.
Very truly yours,
KAUFMAN BROS., L.P.
B-2
<PAGE>
ANNEX C
FORM OF AMENDMENT TO HEALTHCORE
CERTIFICATE OF INCORPORATION
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 Adatom.com, 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.
FOURTH:
A. The aggregate number of shares which the Corporation shall have
authority to issue is Fifty-five Million (55,000,000) shares, consisting of
(i) Fifty Million (50,000,000) shares of common Stock, $.01 par value per share
(the "Common Stock") and (ii) Five Million (5,000,000) shares of Preferred
Stock, $.01 par value per share (the "Preferred Stock").
B. 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 its 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;
C-1
<PAGE>
(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 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, retirement or other
corporate purposes and the terms and provisions relating to the operation
thereof;
(7) whether the shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or any other series of
Preferred Stock or any other securities and, if so, the price or prices or
the 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. and
(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 the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware, may, on application on a summary way
of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the 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 the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting or the creditors of class of creditors, and/or of the
stockholders or a class of stockholders of the 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 the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the 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
C-2
<PAGE>
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 the Corporation, as
the case may be, and also on the 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.
IN WITNESS THEREOF, I have hereunto signed my name and affirm that the
statements made herein are true under the penalties of perjury, this day
of , 1999.
HEALTHCORE MEDICAL SOLUTIONS, INC.
By: __________________________________
Neal J. Polan
Chairman and Chief Executive Officer
C-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation and By-Laws of Registrant provide that
Registrant shall indemnify any person to the full extent permitted by the
Delaware General Corporation Law. Reference is hereby made to Section 145 of the
Delaware General Corporation Law relating to the indemnification of officers and
directors which Section is hereby incorporated herein by reference.
Registrant also has Indemnification Agreements with each of its officers
and directors.
Registrant presently maintains directors' and officers' liability insurance
coverage with an aggregate policy limit of $7,000,000 for each policy year.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or controlling persons pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the 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.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<S> <C> <C>
2 -- Merger Agreement dated as of July 1, 1999 between HealthCore and Adatom, Inc. (1)
2.1 -- Asset Purchase Agreement dated July 28, 1999, between HealthCore and Randolph & Associates, Inc. (2)
3.1 -- Amended and Restated Certificate of Incorporation of HealthCore (3)
3.2 -- By-laws of HealthCore (3)
3.3 -- Form of Amended and Restated Certificate of Incorporation of HealthCore
4.1 -- Form of Bridge Note (3)
4.2 -- Bridge Warrant Agreement (3)
4.3 -- Form of Warrant Agreement (3)
4.4 -- Form of Representative's Unit Purchase Option (3)
4.5 -- Warrant Agreement with Neal J. Polan (4)
4.6 -- Warrant Agreement with Eli Levitan (5)
4.7 -- Warrant to purchase shares of Common Stock issued to Jesup & Lamont Securities Corporation
4.8 -- Secured Convertible Promissory Note issued to Jesup & Lamont Acquisition Company, LLC on July 8,
1999
5.1 -- Opinion of Epstein Becker & Green, P.C.
10.2 -- Amended and Restated Escrow Agreement dated as of July 31, 1997 by and between HealthCore, American
Stock Transfer & Company and certain stockholders of HealthCore (3)
10.4 -- Form of Indemnification Agreement (3)
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C> <C>
10.5 -- Lease Agreement for office space in Grandview, Missouri between HealthCore and J.C. Nichols Company,
as amended by Assignment and First Amendment of Lease dated July 18, 1997 (3)
10.9 -- Employment Agreement dated as of September 30, 1998 between HealthCore
and Neal J. Polan (6)
10.10 -- Letter Agreement dated May 4, 1998 between HealthCore and David L. Mullikin (6)
10.10(a) -- 1997 Stock Option Plan, as amended (7)
10.11 -- Letter Amendment dated April 27, 1999 between HealthCore and Neal J. Polan (8)
10.12 -- Engagement Letter dated April 27, 1999 among HealthCore, Adatom, and Jessup & Lamont (8)
10.13 -- Negotiable Promissory Note for $250,000 dated April 28, 1999 from Adatom to HealthCore
10.14 -- Security Agreement between HealthCore and Adatom dated April 28, 1999
10.15 -- Form of Escrow Termination Agreement between HealthCore and escrow shareholders acknowledged by
Adatom
10.16 -- Form of Irrevocable Proxy granted by escrow shareholders to Neal J. Polan
10.17 -- Engagement Letter between HealthCore and Kaufman Bros., L.P. dated July 26, 1999
10.18 -- 1999 Stock Option Plan
23.1 -- Consent of Ireland San Filippo, LLP, Adatom's independent public auditors
23.2 -- Consent of Richard A. Eisner & Company, LLP, HealthCore's independent public auditors.
23.3 -- Consent of Epstein Becker & Green, P.C., counsel to HealthCore (Included as part of Exhibits 5.1)
24 -- Power of Attorney (Included as part of Signature Page)
27.1 -- Financial Data Schedule (9)
99 -- Press release dated July 1, 1999 (1)
99.2 -- Press release, dated July 30, 1999 (2)
99.3 -- Form of proxy card to be mailed to holders of HealthCore common stock
99.4 -- Form of proxy card to be mailed to holders of Adatom common stock
99.5 -- Consent of Ralph Kennedy Frasier, pursuant to Rule 438 of the Securities Act.
99.6 -- Consent of Sylvia A. Dresner, pursuant to Rule 438 of the Securities Act.
</TABLE>
- ------------------
(1) Incorporated by reference to exhibit of same number filed with HealthCore's
Current Report on Form 8-K filed with the Securities and Exchange Commission
on July 9, 1999.
(2) Incorporated by reference to exhibit of same number filed with HealthCore's
Current Report on Form 8-K filed with the Securities and Exchange Commission
on August 12, 1999.
(3) Incorporated by reference to exhibit of same number filed with HealthCore's
Registration Statement on Form SB-2 (File No. 333-28233) declared effective
by the Securities and Exchange Commission on October 14, 1997.
(4) Incorporated by reference to exhibit of same number filed with HealthCore's
Annual Report on Form 10KSB for the year ended September 30, 1998.
(5) Incorporated by reference to exhibit of same number filed with HealthCore's
Quarterly Report on Form 10QSB for the quarter ended June 30, 1999.
(6) Incorporated by reference to exhibit of same number filed with HealthCore's
Current Report on Form 8-K filed with the Securities and Exchange Commission
on May 3, 1999.
(8) Incorporated by reference to exhibit number 4.1 filed with HealthCore's
Registration Statement on Form S-3 (File No. 333-68557) filed with the
Securities and Exchange Commission on December 8, 1998.
II-2
<PAGE>
(9) Incorporated by reference to exhibit number 4.2 filed with Registration
Statement on Form S-3 (File No. 333-68557) declared effective by the
Securities and Exchange Commission on December 8, 1998.
(b) Financial Statement Schedules:
Schedules have been omitted for the reason that they are not required or
are not applicable or because the required information is included in the
financial statements or the notes thereto.
(c) Report, Opinion or Appraisal
The fairness opinion of Kaufman Bros., L.P., the financial advisor of
HealthCore, is included as Annex B of the Joint Proxy Statement/Prospectus which
forms a part of this Registration Statement.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by an person or party
who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(b) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of this registration statement through the date
of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below does hereby constitute and appoint NEAL J. POLAN, his true and lawful
attorney-in-fact and agent for him and in his name, place and stead, in any and
all capacities, to sign any or all amendments to this Registration Statement 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 agent, 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
in order to effectuate the same, 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 agent, may lawfully do or cause to be done by virtue
hereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW
YORK, ON THE 14TH DAY OF SEPTEMBER, 1999.
HEALTHCORE MEDICAL SOLUTIONS, INC.
By: /s/ NEAL J. POLAN
-----------------------------
Neal J. Polan
Chief Executive Officer and
Chairman of the Board
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ NEAL J. POLAN Chief Executive Officer, Chairman of the September 14, 1999
- ------------------------------------------ Board and Director (Principal Executive
Neal J. Polan Officer)
/s/ DAVID L. MULLIKIN President, Chief Operating Officer and September 14, 1999
- ------------------------------------------ Chief Financial Officer (Principal
David L. Mullikin Financial and Accounting Officer)
/s/ ELI LEVITIN Director September 14, 1999
- ------------------------------------------
Eli Levitin
/s/ NORMAN H. WERTHWEIN Director September 14, 1999
- ------------------------------------------
Norman H. Werthwein
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<S> <C> <C>
2 -- Merger Agreement dated as of July 1, 1999 between HealthCore and Adatom, Inc. (1)
2.1 -- Asset Purchase Agreement dated July 28, 1999, between HealthCore and Randolph & Associates, Inc. (2)
3.1 -- Amended and Restated Certificate of Incorporation of HealthCore (3)
3.2 -- By-laws of HealthCore (3)
3.3 -- Form of Amended and Restated Certificate of Incorporation of HealthCore
4.1 -- Form of Bridge Note (3)
4.2 -- Bridge Warrant Agreement (3)
4.3 -- Form of Warrant Agreement (3)
4.4 -- Form of Representative's Unit Purchase Option (3)
4.5 -- Warrant Agreement with Neal J. Polan (4)
4.6 -- Warrant Agreement with Eli Levitan (5)
4.7 -- Warrant to purchase shares of Common Stock issued to Jesup & Lamont Securities Corporation
4.8 -- Secured Convertible Promissory Note issued to Jesup & Lamont Acquisition Company, LLC on July 8,
1999
5.1 -- Opinion of Epstein Becker & Green, P.C.
10.2 -- Amended and Restated Escrow Agreement dated as of July 31, 1997 by and between HealthCore, American
Stock Transfer & Company and certain stockholders of HealthCore (3)
10.4 -- Form of Indemnification Agreement (3)
10.5 -- Lease Agreement for office space in Grandview, Missouri between HealthCore and J.C. Nichols Company,
as amended by Assignment and First Amendment of Lease dated July 18, 1997 (3)
10.9 -- Employment Agreement dated as of September 30, 1998 between HealthCore
and Neal J. Polan (6)
10.10 -- Letter Agreement dated May 4, 1998 between HealthCore and David L. Mullikin (6)
10.10(a) -- 1997 Stock Option Plan, as amended (7)
10.11 -- Letter Amendment dated April 27, 1999 between HealthCore and Neal J. Polan (8)
10.12 -- Engagement Letter dated April 27, 1999 among HealthCore, Adatom, and Jessup & Lamont (8)
10.13 -- Negotiable Promissory Note for $250,000 dated April 28, 1999 from Adatom to HealthCore
10.14 -- Security Agreement between HealthCore and Adatom dated April 28, 1999
10.15 -- Form of Escrow Termination Agreement between HealthCore and escrow shareholders acknowledged by
Adatom
10.16 -- Form of Irrevocable Proxy granted by escrow shareholders to Neal J. Polan
10.17 -- Engagement Letter between HealthCore and Kaufman Bros., L.P. dated July 26, 1999
10.18 -- 1999 Stock Option Plan
23.1 -- Consent of Ireland San Filippo, LLP, Adatom's independent public auditors
23.2 -- Consent of Richard A. Eisner & Company, LLP, HealthCore's independent auditors.
23.3 -- Consent of Epstein Becker & Green, P.C., counsel to HealthCore (Included as part of Exhibits 5.1)
24 -- Power of Attorney (Included as part of Signature Page)
27.1 -- Financial Data Schedule (9)
99 -- Press release dated July 1, 1999 (1)
99.2 -- Press release, dated July 30, 1999 (2)
99.3 -- Form of proxy card to be mailed to holders of HealthCore common stock
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
99.4 -- Form of proxy card to be mailed to holders of Adatom common stock
99.5 -- Consent of Ralph Kennedy Frasier, pursuant to Rule 438 of the Securities Act.
99.6 -- Consent of Sylvia A. Dresner, pursuant to Rule 438 of the Securities Act.
</TABLE>
- ------------------
(1) Incorporated by reference to exhibit of same number filed with HealthCore's
Current Report on Form 8-K filed with the Securities and Exchange Commission
on July 9, 1999.
(2) Incorporated by reference to exhibit of same number filed with HealthCore's
Current Report on Form 8-K filed with the Securities and Exchange Commission
on August 12, 1999.
(3) Incorporated by reference to exhibit of same number filed with HealthCore's
Registration Statement on Form SB-2 (File No. 333-28233) declared effective
by the Securities and Exchange Commission on October 14, 1997.
(4) Incorporated by reference to exhibit of same number filed with HealthCore's
Annual Report on Form 10KSB for the year ended September 30, 1998.
(5) Incorporated by reference to exhibit of same number filed with HealthCore's
Quarterly Report on Form 10QSB for the quarter ended June 30, 1999.
(6) Incorporated by reference to exhibit of same number filed with HealthCore's
Current Report on Form 8-K filed with the Securities and Exchange Commission
on May 3, 1999.
(8) Incorporated by reference to exhibit number 4.1 filed with HealthCore's
Registration Statement on Form S-3 (File No. 333-68557) filed with the
Securities and Exchange Commission on December 8, 1998.
(9) Incorporated by reference to exhibit number 4.2 filed with Registration
Statement on Form S-3 (File No. 333-68557) declared effective by the
Securities and Exchange Commission on December 8, 1998.
<PAGE>
NEITHER THIS WARRANT NOR THE WARRANT STOCK HAS BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THE COMPANY WILL NOT TRANSFER THIS
WARRANT OR THE WARRANT SHARES UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION
COVERING SUCH WARRANT OR SUCH WARRANT SHARES, AS THE CASE MAY BE, UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATES SECURITIES LAWS, (ii)
IT FIRST RECEIVES A LETTER FROM AN ATTORNEY, ACCEPTABLE TO THE BOARD OF
DIRECTORS OR ITS AGENTS, STATING THAT IN THE OPINION OF THE ATTORNEY THE
PROPOSED TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED AND UNDER ALL APPLICABLE STATE SECURITIES LAWS, OR (iii) THE TRANSFER
IS VALIDLY MADE PURSUANT TO RULE 144 UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.
Warrant No. 23,313 Shares
------
Void after 5:00 p.m. New York City Time, on July 8, 2004.
Warrant to Purchase 23,313 Shares of Common Stock, no par value per share
WARRANT TO PURCHASE SHARES OF COMMON STOCK
OF
ADATOM, INC.
This Is To Certify That, FOR VALUE RECEIVED, Jesup & Lamont Securities
Corporation ("Holder") having an address at 650 Fifth Avenue, New York, New York
10019, is entitled to purchase, subject to the provisions of this Warrant
("Warrant"), from Adatom, Inc., a California corporation (the "Company"),
Twenty-Three Thousand Three Hundred Thirteen (23,313) fully paid, validly issued
and non-assessable shares of Common Stock (the "Common Stock"), no par value per
share, of the Company at an exercise price of $ 2.1447 per share at any
- 1 -
<PAGE>
time or from time to time during the period from the date hereof to July 8,
2004, but not later than 5:00 p.m. New York City Time, on July 8, 2004. This
Warrant is being issued pursuant to the terms of a Letter Agreement, dated April
27, 1999, by and between Holder and the Company (the "Engagement Letter") in
connection with the placement of $500,000 of convertible bridge notes of the
Company, dated as of the date hereof (the "Note"). The number of shares of
Common Stock to be received upon the exercise of this Warrant and the price to
be paid for each share of Common Stock may be adjusted from time to time as
hereinafter set forth. The shares of Common Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter sometimes referred
to as "Warrant Shares" and the exercise price of a share of Common Stock in
effect at any time and as adjusted from time to time is hereinafter sometimes
referred to as the "Exercise Price."
(1) EXERCISE OF WARRANT. This Warrant may be exercised in whole or in
part at any time or from time to time on or after the date hereof and until July
8, 2004 (the "Exercise Period"); provided, however, that if such day is a day on
which banking institutions in the State of New York are authorized by law to
close, then on the next succeeding day which shall not be such a day. This
Warrant may be exercised by presentation and surrender hereof to the Company at
its principal office or to the Company's warrant agent, if any has been so
appointed, with the Purchase Form annexed hereto duly executed and accompanied
by payment of the Exercise Price, in cash or by certified or bank cashier's
check, for the number of Warrant Shares specified in such form. Notwithstanding
the foregoing, in lieu of any cash payment required hereunder, the Holder of
this Warrant shall have the right at any time during the Exercise Period to
exercise the Warrant in full or in part by surrender of this Warrant (with the
election at the end hereof duly executed) to the Company at its principal office
or to the Company's warrant agent, if any has been so
- 2 -
<PAGE>
appointed, in exchange for the number of Warrant Shares equal to the product of
(a) the number of Warrant Shares as to which the Warrant is being exercised
multiplied by (b) a fraction, the numerator of which is the Current Market Price
(as defined in Section (11) below) of the Common Stock less the Exercise Price
and the denominator of which is the Current Market Price. As soon as practicable
after each such exercise of the Warrants, the Company shall issue or cause to be
issued and delivered to the Holder a certificate or certificates for the Warrant
Shares issuable upon such exercise, registered in the name of the Holder. The
Warrant shall be deemed to have been exercised immediately prior to the close of
business on the date of any such exercise, provided such exercise is in
accordance with the provisions set forth herein. If this Warrant should be
exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the Warrant Shares purchasable
thereunder. Upon receipt by the Company of this Warrant at its office in proper
form for exercise, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of the Company shall then be closed or that certificates
representing such shares of Common Stock shall not then be physically delivered
to the Holder.
(2) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrants.
(3) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. If more
than one Warrant shall be exercised at one time by the Holder, the number of
full shares which shall be issuable upon
- 3 -
<PAGE>
exercise thereof shall be computed on the basis of the aggregate number of full
shares issuable upon such exercise. No adjustment shall be made in respect of
cash dividends on Warrant Shares delivered upon exercise of any Warrant. With
respect to any fraction of a share called for upon exercise hereof, the Company
shall pay to the Holder an amount in cash equal to such fraction multiplied by
the average closing bid and asked prices of the Common Stock on the last
available date for which quotations are available immediately preceding the date
of exercise of this Warrant, or if the bid and asked prices are not so reported,
then the current market value shall be an amount, not less than the book value
thereof as at the end of the most recent fiscal year of the Company ending prior
to the date of the exercise of the Warrant, determined in such reasonable manner
as may be prescribed by the Board of Directors of the Company.
(4) EXCHANGE OR LOSS OF WARRANT. This Warrant is exchangeable, without
expense, at the option of the Holder, upon presentation and surrender hereof to
the Company for other Warrants of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Common Stock
purchasable hereunder. This Warrant may be divided or combined with other
Warrants which carry the same rights upon presentation hereof at the principal
office of the Company with a written notice specifying the denominations in
which new Warrants are to be issued and signed by the Holder hereof. The term
"Warrant" as used herein includes any Warrants into which this Warrant may be
divided or exchanged. Upon receipt by the Company or its warrant agent, if any,
of evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date.
- 4 -
<PAGE>
(5) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein
and in any warrant agreement entered into by and between the Company and a
warrant agent with respect to the Warrants. In the event the Company enters into
a warrant agreement with a warrant agent, the terms of the Warrant shall be
embodied in the warrant agreement; and the acceptance of this Warrant by the
Holder shall be deemed consent by the Holder for the Company to enter into any
such warrant agreement, upon such terms and conditions mutually agreeable
between the Company and any such warrant agent, provided such warrant agreement
does not adversely affect any of the rights of the Holder, as set forth in this
Warrant.
(6) ANTI-DILUTION PROVISIONS. (a) After each adjustment of the Exercise
Price pursuant to this Section (6), the number of shares of Common Stock
purchasable upon the exercise of the Warrant shall be the number of Warrant
Shares receivable upon exercise thereof prior to such adjustment multiplied by a
fraction the numerator of which shall be the original Exercise Price as defined
above and the denominator of which shall be such adjusted Exercise Price.:
(b) In case the Company shall hereafter (A) pay a dividend or make
a distribution on its Common Stock in shares of its capital stock (whether
shares of Common Stock or of capital stock of any other class), (B) subdivide
its outstanding shares of Common Stock, (C) combine its outstanding shares of
Common Stock into a smaller number of shares, or (D) issue by reclassification
of its shares of Common Stock any shares of capital stock of the Company, the
Exercise Price in effect immediately prior to such action shall be adjusted so
that the Holder of any Warrant thereafter exercised shall be entitled to receive
the number of Warrant Shares which the
- 5 -
<PAGE>
Holder would have owned immediately following such action had such Warrant been
exercised immediately prior thereto. An adjustment made pursuant to this
subsection shall become effective immediately after the record date in the case
of a dividend and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification.
(c) No adjustment in the Exercise Price shall be required to be
made unless such adjustment would require an increase or decrease of at least
$.01; provided, however, that any adjustments which by reason of this subsection
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section (6) shall be made
to the nearest cent or to the nearest one-one hundredth of a share, as the case
may be, but in no event shall the Company be obligated to issue fractional
shares upon the exercise of any Warrant.
(d) The provisions of this Section 6 shall not apply to any
Common Stock issuable: (i) to any person pursuant to any stock option, stock
purchase, stock purchase or similar plan or arrangement for the benefit of the
Company's employees, consultants or directors or (ii) pursuant to options,
warrants, conversion rights, and rights to acquire Common Stock in existence on
the date of issuance hereof.
(e) In case of any reclassification or change of outstanding
shares of Common Stock issuable upon exercise of the Warrants (other than a
change in par value or from par value to no par value or from no par value to
par value or as a result of a subdivision or combination), or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with a Subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification or change of the
then outstanding shares of Common Stock
- 6 -
<PAGE>
or other capital stock issuable upon exercise of the Warrants other than a
change in par value or from par value to no par value or from no par value to
par value) or in the case of any sale or conveyance to another corporation of
the property of the Company as an entirety or substantially as an entirety,
then, as a condition of such reclassification, change, consolidation, merger,
sale or conveyance, the Company, or such successor or purchasing corporation, as
the case may be, shall make lawful and adequate provision whereby the Holder of
the Warrant shall have the right thereafter to receive on exercise of such
Warrant the kind and amount of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock issuable upon
exercise of such Warrant immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance. Such provisions shall include
provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided elsewhere in this Section (6). The above
provisions of this Section (6) shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
(f) Before taking any action which would cause an adjustment
reducing the Exercise Price below the then par value of the shares of Common
Stock issuable upon exercise of the Warrants, the Company will take any
corporate action which may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully paid and non-assessable
shares of such the Company at such adjusted Exercise Price.
(g) Upon any adjustment of the Exercise Price and any increase or
decrease in the number of shares of Common Stock purchasable upon the exercise
of this Warrant, the Company
- 7 -
<PAGE>
promptly shall give written notice thereof to the Holder, which shall state the
Exercise Price resulting from such adjustment and increase or decrease, if any,
in the number of shares of Common Stock purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
(h) If at any time:
(i) the Company shall declare any cash dividend upon
its Common Stock;
(ii) the Company shall declare any dividend upon its
Common Stock payable in stock (other than a
dividend payable solely in shares of Common Stock
or make any special dividend or other distribution
to the holders of its Common stock;
(iii) there shall be any consolidation or merger of the
Company with another corporation, or a sale of all
or substantially all of the Company's assets to
another corporation; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the
Company;
then, in any one or more of said cases, the Company shall give the Holder (A) at
least ten (10) calendar days' prior written notice of the date on which the
books of the Company shall close or a record date shall have occurred for such
dividend or distribution or for determining rights to vote in respect of any
such consolidation, merger, sale, dissolution, liquidation or winding-up, and
(B) in the case of any such consolidation, merger, sale, dissolution,
liquidation or winding-up, at least ten (10) calendar days' written notice of
the date when the same shall take place. Any notice given in accordance with
clause (A) above shall also specify, in the case of any such dividend or
- 8 -
<PAGE>
distribution, the date on which the holders of Common Stock shall be entitled
thereof. Any notice given in accordance with clause (B) above shall also specify
the date on which the holders of Common Stock shall be entitled to exchange
their Common Stock for securities or other property deliverable upon such
consolidation, merger, sale, dissolution, liquidation or winding-up, as the case
may be.
(7) ADJUSTMENT OF WARRANT SHARES. In the event that the shares of
common stock of the Company underlying the Note (the "Conversion Shares") shall
be adjusted in accordance with the terms of Section (8) of the Note, then the
Warrant Shares issuable upon the exercise of this Warrant shall also be adjusted
so that the number of Warrant Shares into which this Warrant converts shall
equal 10% of the aggregate amount of the Conversion Shares issuable upon the
conversion of the Note after giving effect to such adjustment. This Section (7)
shall similarly apply to any successive adjustments in the Conversion Shares in
accordance with Section (8) under the Note. This Section (7) shall terminate
upon the conversion of the Note.
(8) INVESTMENT REPRESENTATION. By accepting this Warrant, the Holder
acknowledges that it has been advised by the Company that this Warrant and the
Warrant Shares underlying this Warrant have not been registered under the
Securities Act of 1933, as amended (the "Act"), and that this Warrant is being
issued on the basis of the statutory exemption provided by section 4(2) of the
Act relating to transactions by an issuer not involving any public offering.
Holder hereby represents and warrants to the Company that (I) it is acquiring
this Warrant for its own account, for investment purposes only and not with a
view toward the distribution or resale thereof, (ii) it is a sophisticated
investor and had access to the same kind of information which would be available
in a registration statement filed under the Act, and (iii) it understands that
it
- 9 -
<PAGE>
may not sell or otherwise dispose of this Warrant in the absence of either a
registration statement under the Act or an exemption from the registration
provisions thereunder and in accordance with the transfer provisions set forth
in this Section 10 of this Warrant.
(9) REGISTRATION RIGHTS. The Company hereby grants the Holder the right
to "piggy back" the Warrant Shares on each Registration Statement for the sale
of Common Stock filed by the Company (or any securities of a successor company
of the Company) at the Company's cost and expense (except those incurred by the
Holder for legal fees and commissions). In this connection, the Company shall
give the Holder at least 30 days' prior notice of its intent to file a
Registration Statement. The Company shall use its best efforts to keep any
Registration Statement onto which Holder has "piggy backed" his shares effective
for a period of not less than 180 days from the date whereby the Holder is first
entitled to sell thereunder, or such shorter period terminating when the Holder
has sold all of his shares. Such "piggy back" rights are subject to standard
underwriters' approval and holdback, whereby the Holder's rights to sell in an
initial public offering may be limited pro rata with the other stockholders and
shall not apply to any Warrant Shares that can be sold under SEC Rule 144. For
purposes of this Section (9), the term Registration Statement shall mean any
registration statement for the sale of common stock or other securities filed by
the Company or any selling shareholder or filed by any successor entity (in the
case of merger, reclassification, change, consolidation, sale or conveyance of
the Company) under the Act (except for a Registration Statement on Form S-4,
Form S-8 or any successor form thereto), which shall include, but not be limited
to, any Registration Statement filed by Healthcore Medical Solutions, Inc.
("Healthcore") in connection with, relating to or subsequent to the effective
date of the merger of the Company into Healthcore (the "Merger") as contemplated
by that certain
- 10 -
<PAGE>
Letter of Intent, dated April 27, 1999, by and between the Company and/or
Healthcore;
(i) The Company shall also grant to Holder such additional
"piggyback" rights and demand registration rights relative to the Warrant Shares
as shall be granted and included in a subsequent warrant that may be granted to
Holder.
(10) TRANSFER. (i) The Holder acknowledges that it has been informed by
the Company of, or is otherwise familiar with, the nature of the limitations
imposed by the Act and the rules and regulations thereunder on the transfer of
this Warrant and the Warrant Shares. In particular, the Holder agrees that no
sale, assignment, or transfer of this Warrant shall be valid or effective, and
the Company shall not be required to give any effect to any such sale,
assignment, or transfer, unless (A) the sale, assignment, or transfer of this
Warrant or the Warrant Shares is registered under the Act, it being understood
that this Warrant or the underlying Warrant Shares is not currently registered
under the Act and that the Company has no obligation to register this Warrant
and is only obligated to register the Warrant Shares to the extent set forth in
Section 9 of this Warrant, (B) this Warrant or the underlying Warrant Shares are
sold, assigned or transferred in accordance with all of the requirements and
limitations of Rule 144 under the Act, it being understood that Rule 144 is not
available at the present time for the sale of the Warrant or underlying Warrant
Shares and that there can be no assurance that Rule 144 will be available at any
time in the future, or (C) such sale, assignment, or transfer is otherwise
exempt from registration under the Act. The Holder and each transferee hereof
further agrees that in any distribution of this Warrant or the underlying
Warrant Shares is proposed to be made by them otherwise than by delivery of a
prospectus meeting the requirements of Section 10 of the Act, such action shall
be taken only after submission to the Company of an opinion of counsel,
reasonably
- 11 -
<PAGE>
satisfactory in form and substance to the Company's counsel, to the effect that
the proposed distribution will not be in violation of the Act or applicable
state law.
(ii) Prior to any such proposed transfer, and as a condition
thereto, if such transfer is not made pursuant to an effective registration
statement under the Act, the Holder will, if requested by the Company, deliver
to the Company (i) an investment covenant signed by the proposed transferee,
(ii) an agreement by such transferee, that such transferee will be bound by the
terms of this Warrant and that the restrictive investment legend set forth above
be placed on the certificate or certificates representing the securities
acquired by such transferee, and (iii) an agreement by such transferee that the
Company may place a "stop transfer order" with its transfer agent or registrar.
(iii) Except as specifically restricted hereby, this Warrant
and the Warrant Shares issued hereunder may be transferred by the Holder in
whole or in part at any time or from time to time. Upon surrender of this
Warrant certificate to the Company or at the office of its stock transfer agent,
if any, with the Assignment Form annexed hereto duly executed and funds
sufficient to pay any transfer tax, and upon compliance with the foregoing
provisions, the Company shall without charge, execute and deliver a new Warrant
certificate in the name of the assignee named on such instrument of assignment,
and this Warrant certificate shall promptly be canceled. An assignment,
transfer, pledge, hypothecation or other disposition of this Warrant attempted
contrary to the provisions of this Warrant, or any levy of execution, attachment
or other process attempted upon this warrant, shall be null and void and without
effect.
(11) NOTICES. All notices and other communications which are required
or may be given under this Warrant shall be in writing and shall be deemed to
have been duly given when
- 12 -
<PAGE>
delivered in person or transmitted by telex or three (3) days after being
mailed, postage prepaid, in the case of the Company to Adatom, Inc., 920
Hillview Court, Suite 160, Milipitas, CA 95035, Attention: President, and in the
case of the Holder to the address set forth herein, or to such other address as
such party shall have specified by notice to the other party hereto. If notice
is given by registered or certified first class mail, postage prepaid, return
receipt requested, the return receipt shall be conclusive evidence of the notice
having been mailed on the date set forth.
(12) DEFINITION. The "Current Market Price" per share of Common Stock
on any date shall be deemed to be the average of the daily closing prices for
the thirty (30) consecutive trading days immediately preceding the date in
question. The closing price for each day shall be the last reported sales price
regular way or, in case no such reported sale takes place on such day, the
closing bid price regular way, in either case on the principal national
securities exchange (including, for purposes hereof, the NASDAQ Stock Market,
Inc. ("NASDAQ") on which the shares of Common Stock are listed or admitted to
trading, or, if the shares of Common Stock are not listed or admitted to trading
on any national securities exchange, the highest reported bid price for the
Common Stock as furnished by the National Association of Securities Dealers,
Inc. (the "NASD") or a similar organization if the NASD is no longer reporting
such information (including for purposes hereof NASDAQ). If on any such date the
shares of Common Stock are not listed or admitted to trading on any national
securities exchange and is not quoted by NASDAQ or any similar organization, the
fair value of a share on such date, as determined in good faith by the Board of
Directors of the Company, whose determination shall be conclusive, shall be
used.
- 13 -
<PAGE>
(13) MISCELLANEOUS. This Agreement contains the entire Agreement and
supersedes all prior agreements and understandings, oral or written, between the
parties hereto with respect to the subject matter hereof. This Warrant may not
be changed orally, but only by an agreement in writing signed by the party
against whom any waiver, change, amendment, modification or discharge is sought,
provided however, that this Warrant may be amended or modified without the
consent of the Holder if such amendment or modification does not adversely
affect the rights of the Holder hereunder. This Agreement may be assigned by
Holder in accordance with Section (i) of this Agreement. This Agreement will not
be assigned by the Company and shall be interpreted under the laws of the State
of New York without application to the principles of conflicts of laws.
ADATOM, INC.
By: /s/ Richard S. Barton
--------------------------------
Richard S. Barton
President & CEO
[SEAL]
Dated:
Attest:
- 14 -
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the attached Warrant.)
FOR VALUE RECEIVED, _____________________ hereby sells,
assigns, and transfers unto ________________________ a warrant (the "Warrant")
to purchase __________ shares of Common Stock, no par value per share, of
Adatom, Inc. (the "Company"), together with all right, title, and interest
therein, and does hereby irrevocably constitute and appoint
__________________________________________________ as attorney to transfer such
Warrant on the books of the Company, with full power of substitution.
Dated:
-----------------------
Signature:
---------------------
NOTICE
The signature on the foregoing Assignment must correspond to
the name as written upon the face of this Warrant in every particular, without
alteration or enlargement or any change whatsoever.
- 15 -
<PAGE>
PURCHASE FORM
Dated
------------, ----
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing shares of Common Stock and hereby (i)
tenders payment herewith in the amount of $_____________ or (ii) surrender the
Warrant in the amount of _________, in payment of the actual exercise price
thereof, and requests that certificates for such securities be issued in the
name of, and delivered to, and, if such number of Warrant Shares shall not be
all the Warrant Shares covered by the within Warrant, that a new Warrant for the
balance of the Warrant Shares be registered in the name of, and delivered to,
the undersigned at the address stated below.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name:
---------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address:
------------------------------------------------------------------------
Signature:
----------------------------------------------------------------------
- 16 -
<PAGE>
SECURED CONVERTIBLE PROMISSORY NOTE
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), NOR UNDER ANY STATE SECURITIES LAW AND SUCH SECURITIES MAY
NOT BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED, OR OTHERWISE TRANSFERRED UNTIL (1)
A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAW OR (2) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE COMPANY OR COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH
COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
SECURITIES MAY BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED, OR TRANSFERRED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS.
$500,000.00 New York, New York
July 8, 1999
FOR VALUE RECEIVED, Adatom, Inc., a California corporation with
offices at 920 Hillview Court, Suite 160, Milipitas, CA 95035, (the "Company"),
promises to pay to Jesup & Lamont Acquisition Company, LLC and its successors
and assigns (the "Holder") at 650 Fifth Avenue, 3rd Floor, New York, New York
10019, or at such other place within the continental United States as the Holder
may from time to time designate by written notice to the Company, in lawful
money of the United States of America, the aggregate sum of Five Hundred
Thousand ($500,000.00) Dollars (the "Principal Amount"). All principal, premiums
and interest are to be paid without setoff or counterclaim as set forth below.
The Company further agrees as follows:
Section 1. Engagement Agreement.
This Note is being issued in connection with a letter agreement, dated April 27,
1999 (the "Engagement Agreement"), between the Company and Jesup & Lamont
Securities Corporation.
Section 2. Payments.
(a) Unless this Note shall be converted in accordance with the
provisions of Section 7 or redeemed earlier in accordance with Section 2(b)
hereof, the Principal Amount, together with the redemption premium described
below, shall be due and payable on June 8, 2000 as set forth in Section 2(c)
hereof.
(b) The Company shall have the right to prepay this Note in full
or in part at any time in an amount equal to the unpaid Principal Amount
multiplied by the Premium Percentage set forth below which corresponds to the
date of such prepayment, it being
<PAGE>
understood that if such prepayment occurs prior to any given date set forth
below, then the Premium Percentage at the immediately preceding date shall
apply.
Date Premium Percentage
---- ------------------
Prior to November 30, 1999 100.00%
November 30, 1999 111.80%
December 31, 1999 113.90%
January 31, 2000 116.04%
February 28, 2000 118.22%
March 31, 2000 120.44%
April 30, 2000 122.70%
(c) The Company shall redeem this Note on June 8, 2000 in an
amount equal to 125% multiplied by the unpaid Principal Amount of this Note.
(d) In the event that all or part of the principal of this Note is
not paid timely, interest shall accrue from the date of such default on the
unpaid Principal Amount at the rate of fifteen percent (15%) per annum, and
shall be due and payable on the first day of each month until the repayment of
this Note.
(e) The Company and the Holder intend that this Note comply with
any applicable usury laws from time to time in effect. In furtherance thereof,
the Company and the Holder stipulate and agree that none of the items and
provisions contained in this Note shall be construed to create a contract to
pay, as consideration for the use, forbearance or detention of money, interest
at a rate in excess of the highest lawful rate under applicable law.
Section 3. Representations, Warranties and Covenants of the Company.
The Company represents, warrants and covenants to the Holder as
follows:
(a) Due Organization, etc. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation or organization.
(b) Authority. The Company has all requisite corporate power and
authority to own, lease, license and use its properties and assets to conduct
the business in which it is engaged. The Company has full power and authority to
execute and deliver this Note and to grant the Security Interest (as defined
herein) granted herein, and the execution and delivery by the Company of this
Note, and the performance of its obligations hereunder, have been duly
authorized by all necessary corporate or other action. This Note is the legal,
valid and binding obligation of the Company enforceable against it in accordance
with the terms hereof.
2
<PAGE>
(c) Qualification. The Company is duly licensed or qualified and
in good standing as a foreign corporation in each jurisdiction wherein the
nature of the business transacted by it or the nature of the property owned or
leased by it makes such licensing or qualification necessary, the failure of
which would have a material adverse effect on the business, operations,
properties or condition (financial or otherwise) of the Company.
(d) Capitalization. The Company's authorized capital stock
consists of 10,000,000 shares of common stock, no par value per share (the
"Common Stock") of which approximately 2,384,600 shares of Common Stock are
issued and outstanding (excluding approximately 1,800,000 shares issuable upon
the repayment and/or the conversion of outstanding indebtedness in favor of
Richard Barton, approximately 317,364 shares issuable to Hamilton F. Richardson
and E.M. Davidson and approximately 160,733 shares issuable to Neal J. Polan).
The total shares of capital stock of the Company used to calculate the fully
diluted shares outstanding prior to this Note is 4,662,697, as described in
Schedule 1. There are no other outstanding subscriptions, options, warrants
(other than warrants issued to the Holder in connection with this Note, as
contemplated by the Engagement Agreement or otherwise) rights, pre-emptive
rights or other contracts, commitments, undertakings or arrangements, including
any right of conversion or exchange under any outstanding security, promissory
note, instrument or option (collectively "Options"), obligating the Company to
issue or sell any share of its capital stock or grant, extend or enter into any
Option.
(e) No Dividends, Redemptions. The Company will not (i) declare or
pay any dividend or make any other distribution on any equity securities of the
Company, except dividends or distributions payable in equity securities of the
Company, or (ii) purchase, redeem or otherwise acquire or retire for value any
equity securities of the Company, if, upon giving effect to such dividend,
distribution, purchase, redemption, or other acquisition, the net worth of the
Company would be reduced to less than an amount equal to the remaining
indebtedness outstanding under this Note.
(f) Related Transactions. The Company will not engage in any
transaction of any kind or nature with any affiliate of the Company unless such
transaction, or in the case of a course of related or similar transactions or
continuing transactions is or are upon terns which are fair to the Company and
which are reasonably similar to, or more beneficial to the Company than the
terms deemed likely to occur in similar transactions with unrelated persons
under the same circumstances.
(g) (i) No Liens. Except as set forth on Exhibit C annexed
hereto, the Company has not created, incurred, assumed or suffered to exist any
Lien (as hereinafter defined). Except for the Liens described in Exhibit C, the
Company shall not, without the prior written consent of Holder, create, incur,
assume or suffer to exist (collectively, "incur") any mortgage, pledge, security
interest, assignment, lien (statutory or other), claim, encumbrance of any kind,
license or sublicense or security interest (collectively, "Lien") in or upon any
of the Collateral (as defined herein), except for liens for taxes, assessments
or similar charges incurred in the ordinary course of business that are not yet
due and payable.
(ii) Except for the secured and unsecured indebtedness
incurred to the persons and/or entities listed and described on Exhibit B
annexed hereto, the Company does not
3
<PAGE>
have any outstanding indebtedness for borrowed money. The Company shall not,
without prior written consent of Holder, incur any liability in respect of
borrowed monies in excess of $250,000.00, after the date hereof.
(h) Maintenance of Collateral. The Company will maintain the
Collateral in good operating condition and repair.
(i) Sale or Disposition. The Company will not sell, contract for
sale or otherwise dispose of any of the Collateral or any interest therein,
other than in the ordinary course of business or except as may be contemplated
in the Letter of Intent, dated April 27, 1999, between the Company and
Healthcore Medical Solutions, Inc., a Delaware corporation ("Healthcore"),
pursuant to which Healthcore and the Company have agreed to effectuate a merger
whereby Healthcore will become the surviving entity (the "Merger").
(j) Taxes. The Company will pay promptly when due all taxes
incurred in its use or operation, except for taxes and assessments which are
being contested in good faith.
(k) Further Assurances. The Company will promptly execute and
deliver to the Holder such financing statements, certificates, notices and other
documents or instruments as may be necessary to enable the Holder to perfect or
from time to time perfect, renew or continue the Security Interest granted
herein, including, without limitation, such financing statements, certificates
and other documents as may be necessary to perfect a security interest in any
additional Collateral hereafter acquired by the Company or in any replacements
or proceeds thereof. The Company hereby authorizes Holder to take all action
(including, without limitation, the filing of any Uniform Commercial Code
Financing Statements or amendments thereto without the signature of the Company
or the notification of any account debtor or payor) that Holder may deem
necessary or desirable to perfect or otherwise protect the Security Interest
described hereunder and to obtain the benefits of this Note.
(l) No Conflict. The Company is not in default under any material
indenture, mortgage, deed of trust, agreement or other instrument to which it is
a party or by which it or any of its assets may be bound; and (ii) the execution
and delivery of this Note and compliance with the provisions hereof shall not
violate any provision of law applicable to the Company nor shall the same
conflict with or result in a breach of any of the terms, conditions or
provisions of, or constitute a default under, the certificate of incorporation
or by-laws of the Company or result in the breach of, constitute any default
under, or conflict with the terms of any indenture, mortgage, agreement or other
instrument to which the Company is party or by which they or any of their assets
may be bound or result in the creation or imposition of any Lien upon any of the
Collateral, other than for the Security Interest granted hereunder.
(m) Consents. No consent, approval, order, authorization of, or
registration, qualification or filing with, any governmental authority or any
other party is required on the part of the Company in connection with the
execution and delivery of this Note, the granting of the Security Interest
granted herein, and the performance and consummation of the transactions
contemplated hereby, other than (i) such consents that have been obtained and
(ii) the filing of any financing statement or similar instrument that is
required to perfect Holder's Security Interest.
4
<PAGE>
(n) Litigation. There are no suits, proceedings or investigations
pending or, to the Company's knowledge, threatened, against the Company or
Subsidiary which questions the validity of this Note or which, individually or
in the aggregate, if determined adversely, would have a material adverse effect
on the Collateral or the business, operation or condition (financial or
otherwise) of the Company.
(o) Title. The Company is the sole owner of, and has good title
to, the Collateral, free and clear of any Lien, except for the Security Interest
granted hereby and any liens set forth on Exhibit C hereto and for taxes,
assessments and other liens for which the obligations represented thereby are
not yet due and payable. There is no financing statement or similar filing now
on file in any public office covering any part of the Collateral, other than in
favor of Healthcore.
(p) Locations. The chief executive office of the Company is
located at the address set forth above. All inventory and equipment held on the
date hereof by the Company is located at one of the locations shown on Exhibit A
hereto.
(q) Use of Proceeds. The Company shall use the proceeds of the
loan evidenced by this Note solely for general working capital purposes. In no
event shall any portion of the proceeds of the loan evidenced hereby be used for
the repayment of indebtedness of the Company to management, officers, directors,
shareholders and/or any other affiliate of the Company.
(r) Ordinary Course. While all or any portion of this Note is
outstanding, the Company shall conduct its operations according to the ordinary
and usual course of the business consistent with past practice, and use its
commercially reasonable efforts to preserve intact its present business
organization and structure, to keep available the services of its present
officers, to preserve and maintain its assets and the goodwill of the business
and to preserve its relationships with customers and others having business
dealings with the Company..
Section 4. Security Interest.
(a) The Company hereby grants to the Holder a continuing priority
security interest in and lien on (the "Security Interest") the Collateral to
secure performance and payment of this Note, and (ii) all other obligations and
indebtedness of the Company to Holder of whatever kind and whenever or however
created or incurred, whether absolute or contingent, matured or unmatured,
direct or indirect, in connection with this and related transactions (all of the
foregoing being the "Secured Indebtedness"). The Security Interest granted
herein shall continue in full force and effect until all of the Secured
Indebtedness has been discharged or converted into Common Stock in accordance
with the terms hereof.
(b) The Secured Indebtedness shall be secured by the Security
Interest in the Collateral, and shall be senior to all other the indebtedness of
the Company, except with respect to any liens of Healthcore Medical Solutions,
Inc. set forth on Exhibit C hereto, which the Company acknowledges shall be pari
passu with the Security Interest granted hereby.
5
<PAGE>
(c) As used herein, the term "Collateral" shall mean and include
all of the Company's right, title and interest in and to all tangible and
intangible property of the Company whether now or hereafter existing, of every
kind and description, now owned or hereafter acquired and wherever located and
the proceeds (including any insurance proceeds), products and accessions of and
to any thereof, and all books and records pertaining to all of the foregoing,
all of which are and shall at all times be and remain, free and clear of any and
all Liens.
Section 5. Events of Default.
It shall be an Event of Default with respect to this Note upon the
occurrence and, where applicable, continuation uncured, of any of the following
events:
(a) Default in Payment, etc.
(i) a default in the payment of the Principal Amount or
redemption premium on this Note, when and as the same shall become due and
payable, either by the terms hereof or upon redemption or otherwise, which
default shall continue uncured for a period of three (3) days after receipt by
the Company of notice of such default; or
(ii) a material default in the performance, or material
breach, of any representation, warranty or covenant of the Company in this Note
and continuance of such default or breach uncured for a period of ten (10) days
after receipt by the Company of notice as to such breach.
(b) Bankruptcy, Insolvency, etc. The entry of a decree or order
by a court having jurisdiction adjudging the Company bankrupt or insolvent, or
approving a petition seeking reorganization, arrangement, adjustment, or
composition of or in respect of the Company, under federal or other applicable
bankruptcy law, as now or hereafter constituted, or any other applicable federal
or state bankruptcy, insolvency, dissolution, liquidation or other similar law,
or the commencement by the Company of a voluntary case under federal or other
applicable bankruptcy law, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency, dissolution, liquidation or
other similar law, or the consent by the Company to the institution of
bankruptcy, dissolution, liquidation or insolvency proceedings against it, or
the filing by either of them of a petition or answer or consent seeking
reorganization or relief under federal or other applicable bankruptcy law or any
other applicable federal, state or other law, or the consent by either of them
to the filing of such petition or to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator, or similar official, of the Company or of any
substantial part of either of their property, or the making by either of them of
an assignment for the benefit of creditors, or the admission by either of them
in writing of the inability to pay their debts generally as they become due, or
the taking of corporate action by the Company in furtherance of any such action.
(c) Acceleration on Other Indebtedness, etc.
(i) The acceleration (prior to its stated maturity) of
principal of or interest on any other indebtedness for borrowed money owed by
the Company by any holder of any such indebtedness.; or
6
<PAGE>
(ii) Payment of any indebtedness of the Company in excess
of $100,000 prior to the payment in full of the Principal Amount or redemption
premium of the Note.
Section 6. Remedies Upon Default.
(a) Acceleration. Upon an Event of Default and at any time during
the continuation thereof, the Holder, by notice given to the Company, may
declare the entire unpaid Principal Amount, plus any redemption premium that
would be paid in full on the date of such declaration of this Note then
outstanding to be due and payable immediately, and upon any such declaration the
same shall become and be due and payable immediately, anything herein contained
to the contrary notwithstanding.
(b) Remedies Regarding Security Interest in Collateral. Upon the
occurrence of any Event of Default, the Holder shall have the following
additional rights and remedies:
(i) All rights and remedies provided by law, including,
without limitation, those provided by the Uniform Commercial Code as in effect
in the State of California from time to time (the "UCC").
(ii) The right to take possession of the Collateral and,
in addition thereto, the right to enter upon any premises on which the
Collateral or any part thereof may be situated, without notice, and remove the
same therefrom. The Holder may require the Company to make the Collateral (to
the extent the same is moveable) available to the Holder at a place to be
designated by the Holder which is reasonably convenient to both parties at the
Company's expense. Unless the Collateral threatens to decline speedily in value
or is of a type customarily sold on a recognized market, the Holder will give
the Company at least two (2) days' prior written notice at the address of the
Company set forth above (or at such other address or addresses as the Company
shall specify in writing to the Holder) of the time and place of any public sale
thereof or of the time after which any private sale or any other intended
disposition thereof is to be made. Any such notice shall be deemed to meet any
requirement hereunder or under any applicable law (including the UCC) that
reasonable notification be given of the time and place of such sale or other
disposition. After deducting all reasonable costs and expenses of collection,
storage, custody, sale or other disposition and delivery (including reasonable
legal costs and attorneys' fees, expenses and disbursements) and all other
charges against the Collateral, the remaining proceeds of any such sale or
disposition shall be applied to the payment of the Secured Indebtedness in such
order of priority as the Holder shall determine and any surplus shall be
returned to the Company or to any person or party lawfully entitled thereto. In
the event the proceeds of any sale, lease or other disposition of the Collateral
hereunder are insufficient to pay all of the Secured Indebtedness in full, the
Company will be liable for the deficiency, together with interest thereon at the
highest rate of interest provided in this Note, and the costs and expenses of
collection of such deficiency, including (to the extent permitted by law),
without limitation, reasonable attorneys' fees, expenses and disbursements.
(c) Proceedings and Actions. During the continuation of any Event
of Default, the Holder may institute such actions and proceedings in law or
equity as it shall deem expedient for the protection of its rights and may
prosecute and enforce its claims against all assets of the Company, and in
connection with any such action or proceeding shall be entitled to
7
<PAGE>
receive from the Company payment of the Principal Amount of this Note plus, as
applicable, the redemption premium referred to in subsection (a) above, to the
date of payment plus reasonable expenses of collection including, without
limitation, reasonable attorneys' fees and expenses. All rights and remedies
available to the Holder pursuant to the provisions of this Note, applicable law
and otherwise are cumulative, not exclusive and are enforceable alternatively
and/or concurrently by Holder.
Section 7. Automatic Conversion.
This Note shall automatically convert into 233,135 fully
registered and freely tradable shares of Common Stock immediately prior to the
effective time of the Merger (the "Conversion Shares") which shall be equal to
4.74% of the total shares of capital stock of the Company outstanding (on a
fully diluted basis) prior to the effective date of the Merger.
Section 8. Anti-Dilution Provisions.
In the event of any of the foregoing circumstances, the number of
Conversion Shares shall be subject to adjustment as follows:
(a) In case the Company shall hereafter (i) pay a dividend or make
a distribution on its Common Stock in shares of its capital stock (whether
shares of Common Stock or of capital stock of any other class); (ii) subdivide
its outstanding shares of Common Stock; (iii) combine its outstanding shares of
Common Stock into a smaller number of shares; (iv) issue by reclassification of
its shares of Common Stock any shares of capital stock of the Company; or (v)
issue additional shares of its common stock, which dividend, subdivision,
combination, reclassification or issuance shall result in the aggregate amount
of the Conversion Shares being less than 4.74% of the total issued and
outstanding shares of the Company (on a fully diluted basis) after giving effect
to (i), (ii), (iii), (iv) or (v), as the case may be, then the number of
Conversion Shares issuable to Holder upon the conversion of this Note shall be
adjusted so that Holder shall receive such number of Conversion Shares as shall
equal 4.74% of the total issued and outstanding shares of the Company (on a
fully diluted basis). An adjustment made pursuant to this subsection shall
become effective immediately after the record date in the case of a dividend,
subdivision, combination, reclassification, or issuance of additional stock of
the Company.
(b) All calculations under this Section 8 shall be made to the
nearest one-one hundredth of a share but in no event shall the Company be
obligated to issue fractional shares hereunder.
(c) In case of any reclassification or change of the Conversion
Shares (other than a change in par value or from par value to no par value or
from no par value to par value or as a result of a subdivision or combination),
or in case of any consolidation or merger of the Company with or into another
corporation (other than a merger with a Subsidiary in which merger the Company
is the continuing corporation and which does not result in any reclassification
or change of the then outstanding shares of Common Stock or other capital stock
issuable upon the conversion of this Note other than a change in par value or
from par value to no par value or from no par value to par value) or in the case
of any sale or conveyance to
8
<PAGE>
another corporation of the property of the Company as an entirety or
substantially as an entirety, then, as a condition of such reclassification,
change, consolidation, merger, sale or conveyance, the Company, or such
successor or purchasing corporation, as the case may be, shall make lawful and
adequate provision whereby the Holder of the Note shall have the right
thereafter to receive on the conversion thereof the kind and amount of shares of
stock and other securities and property receivable upon such reclassification,
change, consolidation, merger, sale or conveyance by a holder equal to 4.74% of
the total outstanding Shares of the Company. Such provisions shall include
provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided elsewhere in this Section (8). The above
provisions of this Section 8 shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances;
(d) Notwithstanding the foregoing, the Company shall, from time
to time, adjust the number of Conversion Shares, if necessary, so that the
Holder hereof shall receive such number of Conversion Shares as shall equal
4.74% of the total issued and outstanding capital stock of the Company (on a
fully diluted basis) immediately prior to the Effective Date of the Merger;
(e) Before taking any action which would cause an adjustment in
the number of Conversion Shares issuable hereunder, the Company will take any
corporate action which may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully paid and non-assessable
shares of the Company at such adjusted Exercise Price.
Section 9. Restrictions on Transfer.
The Holder acknowledges that it has been advised by the Company
that this Note has not been registered under the Securities Act of 1933, as
amended (as amended, the "Act"), and that the Note is being issued on the basis
of the statutory exception provided by section 4(2) of the Act and/or Regulation
D promulgated thereunder relating to transactions by an issuer not involving any
public offering. Holder hereby represents and warrants to the Company that (I)
it is acquiring the Note for its own account, for investment purposes only and
not with a view toward the distribution or resale thereof, (ii) it is a
sophisticated investor and had access to the same kind of information which
would be available in a registration statement filed under the Act, and (iii) it
understands that it may not sell or otherwise dispose of this Note in the
absence of either a registration statement under the Act or an exemption from
the registration provisions thereunder and in accordance with the transfer
provisions set forth in this Section 9 of this Note. The Holder acknowledges
that it has been informed by the Company of, or is otherwise familiar with, the
nature of the limitations imposed by the Act and the rules and regulations
thereunder on the transfer of Note. In particular, the Holder agrees that no
sale, assignment or transfer of any Note shall be valid or effective, and the
Company shall not be required to give any effect to any such sale, assignment or
transfer, unless (i) the sale, assignment, or transfer of the Note is registered
under the Act, it being understood that the Note is not currently registered
under the Act and that the Company has no obligation or intention to register
the Note, or (ii) the Note is sold, assigned, or transferred in accordance with
all the requirements and limitations of Rule 144 under the Act, it being
understood that Rule 144 is not available at the present time for the sale of
the Note and that there can be no assurance that Rule
9
<PAGE>
144 sales will be available at any time in the future, or (iii) such sale,
assignment, or transfer is otherwise exempt from registration under the Act. The
Holder and each transferee hereof further agrees that if any distribution of the
Note is proposed to be made by them otherwise than by delivery of a prospectus
meeting the requirements of Section 10 of the Act, such action shall be taken
only after submission to the Company of an opinion of counsel, reasonably
satisfactory in form and substance to the Company's counsel, to the effect that
the proposed distribution will not be in violation of the Act or of applicable
state law. Furthermore, it shall be a condition to the transfer of the Note that
any transferee thereof deliver to the Company his written agreement to accept
and be bound by all of the terms and conditions contained in this Note.
Notwithstanding the foregoing, (i) no sale, assignment or transfer of this Note
shall be made on or prior to September 30, 1999, and (ii) after September 30,
1999, no assignment or transfer of this Note or any Notes into which this Note
has been exchanged shall be made if such assignment or transfer would result in
more than 10 holders of Notes.
Section 10. Miscellaneous.
(a) This Note may be altered only by prior written agreement
signed by the party against whom enforcement of any waiver, change,
modification, or discharge is sought. This Note may not be modified by an oral
agreement, even if supported by new consideration.
(b) Subject to subsection (a) above, the obligations under this
Note may not be assigned by the Company without the prior written consent of the
Holder (or all of the Holders). The covenants, terms and conditions contained in
this Note apply to and bind the heirs, successors, executors, administrators and
assigns of the parties.
(c) Upon receipt by the Company of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Note, and of indemnity or security reasonably satisfactory to the Company,
and upon reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Note, if mutilated, the
Company will make and deliver a new Note of like tenor and of the same series,
in lieu of this Note.
(d) This Note constitutes a final written expression of all of the
terms of the agreement between the parties regarding the subject matter hereof,
and supersedes all prior agreements, understandings, and representations between
the parties (except the Engagement Agreement). If any provision or any word,
term, clause, or other part of any provision of this Note shall be invalid for
any reason, the same shall be ineffective, but the remainder of this Note shall
not be affected and shall remain in full force and effect.
(e) This Note shall be governed by and construed in accordance
with the laws of the State of New York without giving effect to its conflicts of
law principles. The Company agrees that any dispute or controversy arising out
of this Note shall be adjudicated in a court located in New York City, and
hereby submits to the exclusive jurisdiction of the courts of the State of New
York located in New York, New York, and of the federal courts in the Southern
District of New York, and irrevocably waives any objection it now or hereafter
may have respecting the venue of such action or proceeding brought in such a
court or respecting the fact that such court is an inconvenient forum, and
consents to the service of process in any such
10
<PAGE>
action or proceeding by means of registered or certified mail, return receipt
requested, to the address set forth below.
(f) All notices, consents, or other communications provided for in
this Note or otherwise required by law shall be in writing and may be given to
or made upon the respective parties at the following mailing address:
Holder: Jesup & Lamont Acquisition Company, LLC
650 Fifth Avenue
3rd Floor
New York, New York 10019
Attention: Howard F. Curd
Company Adatom, Inc.
920 Hillview Court
Milipitas, CA 95305
Attention: Richard Barton
Such addresses may be changed by notice given as provided in this
subsection. Notices shall be effective upon the date of receipt; provided,
however, that a notice (other than a notice of a changed address) sent by
certified or registered U.S. mail, with postage prepaid, shall be presumed
received no later than three (3) business days following the date of sending.
IN WITNESS WHEREOF, the Company has executed this Note effective as of
the date first set forth above.
ADATOM, INC.
By: /s/ Richard S. Barton
-------------------------------------
Name: Richard S. Barton
Title: President & CEO
Schedules
Schedule 1: Capitalization Calculation
Exhibits
- --------
Exhibit A: Location of Inventory and Equipment
Exhibit B: Senior Indebtedness
Exhibit C: Existing Liens
11
<PAGE>
Schedule 1
Capitalization Calculation
TABLE NOT IN E-MAIL AND SET NEW IMPOSSIBLE
<PAGE>
Exhibit A
Location of Inventory and Equipment
Adatom, Inc.
920 Hillview Court
Milpitas, CA 95308
13
<PAGE>
Exhibit B
Indebtedness
1. Unsecured loan in the principal amount of $1,800,000 in favor of Richard
Barton which will be converted directly and indirectly into 1,800,000
shares of common stock, as set forth on Schedule 1 hereto, prior to the
effective date of the Merger.
2. Secured promissory note in the principal amount of $250,000 in favor of
Healthcore Medical Solutions, Inc.
14
<PAGE>
Exhibit C
Existing Liens
1. Healthcore security interest in all assets of Adatom
15
<PAGE>
September 16, 1999
HealthCore Medical Solutions, Inc.
11904 Blue Ridge Boulevard
Grandview, MO 64030
Ladies and Gentlemen:
We have acted as counsel to HealthCore Medical Solutions, Inc.
(the "Company") in connection with its filing on September 16, 1999 with the
Securities and Exchange Commission of a registration statement on Form S-4
(which registration statement, as amended at the time of its effectiveness is
hereinafter referred to as the "Registration Statement") covering shares
("Shares") of common stock, $.01 par value, which shall be authorized by an
amendment to the Company's certificate of incorporation prior to issuance of
the Shares.
As such counsel, we have examined original copies, or copies
certified to our satisfaction, of the corporate records of the Company,
agreements and other instruments, certificates of public officials and such
other documents as we deemed necessary as a basis for the opinion hereinafter
set forth.
On the basis of the foregoing, we are of the opinion that the
Shares have been validly authorized and, when issued in the manner referred to
in the Registration Statement, will be legally issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference made to us under the caption
"Legal Matters" in the prospectus constituting part of such Registration
Statement.
Very truly yours,
EPSTEIN BECKER & GREEN, P.C.
<PAGE>
NEGOTIABLE PROMISSORY NOTE
$ 250,000 April 28, 1999
FOR VALUE RECEIVED, the undersigned, Adatom, Inc., a
California corporation with an address at 920 Hillview Court, Suite 160,
Milipitas, California (the "Maker"), hereby promises to pay to the order of
HealthCore Medical Solutions, Inc. (the "Payee") the sum of Two Hundred Fifty
Thousand ($250,000) Dollars (the "Principal Amount"), together with annual
interest payable from the date funds hereunder are advanced at the applicable
federal short term rate on such date, in lawful money of the United States of
America, and without set-off, defense, or counterclaim, of any kind whatsoever,
upon the following terms and conditions:
1. Maturity and Payment. The Maker shall pay the Principal Amount and
all accrued interest to the Payee at 405 Lexington Avenue, 50th Floor, New York,
NY 10174, or at such other place as the Payee shall have designated to Maker in
writing, as follows: (a) in the event the merger of the Maker with and into and
the Payee (the "Merger") shall be consummated by August 31, 1999, or such later
date as the Maker and the Payee mutually agree in writing, the Maker shall pay
the total Principal Amount of this Negotiable Promissory Note (the "Note") ,
together with all accrued interest, on demand by the Payee following the
consummation of the Merger; or (b) in the event the Merger is not consummated,
the Maker shall pay the Principal Amount of this Note, together with all accrued
interest, on the earlier of ninety (90) days following the termination of (i)
that certain Letter of Intent (the "Letter"), dated as of the date hereof,
between the Maker and the Payee, or (ii) if one shall have been executed by the
parties, a definitive agreement setting forth the terms and conditions of the
Merger. Notwithstanding anything contained herein to the contrary, the Maker
shall have the right to prepay all or any portion of the Principal Amount then
outstanding at any time without penalty or premium.
2. Events of Default. An event of default shall be deemed to have
occurred under this Note upon the occurrence of any of the following (each an
"Event of Default"):
(a) Non-Performance. Failure on the part of the Maker to
perform (following the expiration of any applicable grace and/or cure
period) any of the terms or covenants, or satisfy any conditions
(within the applicable time limitations), contained in either this
Note, that certain Security Agreement (the "Security Agreement"), or
the Letter, each of which is being executed and delivered
simultaneously, and in connection, herewith by the Maker and the Payee
(provided, however, that if such failure relates to any term, covenant
or condition not involving the payment of money, such failure must
continue for ten (10) days after notice of such failure is given to the
Maker by the Payee);
<PAGE>
(b) Misrepresentation. A material breach of any of the
representations or warranties made by the Maker in this Note, the
Security Agreement or the Letter;
(c) Insolvency. (i) The Maker shall have applied for or
consented to the appointment of a custodian, receiver, trustee or
liquidator of all or a substantial part of its assets, with or without
consent of the Payee; (ii) the Maker is generally not paying its debts
as they become due, has made a general assignment for the benefit of
creditors, has been adjudicated insolvent, or has filed a voluntary
petition in bankruptcy, or a petition or an answer seeking
reorganization or an arrangement with creditors or to take advantage of
any insolvency law, or an answer admitting the material allegations of
a petition in any bankruptcy, reorganization or insolvency proceeding;
(iii) the Maker has taken corporate action for the purpose of effecting
any of the foregoing; (iv) an order, judgment or decree shall have been
entered, with or without the application, approval or consent of the
Payee by any court of competent jurisdiction (which is not dismissed
within 45 days) approving a petition seeking reorganization of the
Maker, or appointing a receiver, trustee, custodian or liquidator of
the Maker, or a substantial part of its assets; or a petition in
bankruptcy shall have been filed against the Maker (which is not
dismissed within 45 days); or (v) an Order for Relief has been entered
under Title XI of the United States Code Annotated, as amended and
restated, by, for, or on behalf of, the Maker; and
(d) Material Adverse Change. The determination in good faith
by the Payee that a material adverse change has occurred, or is
reasonably likely to occur from and after the date hereof, in the
management or financial condition of the Maker.
3. Acceleration. If an Event of Default shall occur and be continuing,
the Payee may (in addition to any rights and remedies available to the Payee at
law or in equity, including, without limitation, those set forth in the Note,
Security Agreement or the Letter, as applicable), in its sole option, declare
the entire unpaid portion of the Principal Amount and all accrued interest
thereon to be immediately due and payable by the Maker. The Payee, by notice to
the Maker, may rescind any such declaration of the acceleration of the payment
of the Principal Amount and the accrued interest thereon.
4. Waiver. The Maker hereby waives diligence, presentment, protest,
demand for payment, and notice of any kind whatsoever.
5. Fees and Expenses. The Maker hereby agrees to pay and reimburse the
Payee for any fees or expenses incurred by the Payee in connection with its
enforcement of the provisions of this Note, including, without limitation, fees
and expenses of counsel.
6. Binding Effect. The obligations of the Maker hereunder shall be
binding on its legal representatives, successors and assigns. The Maker's rights
and obligations under this Note shall not be assigned or delegated without the
express written consent of the Payee, and any purported delegation without such
consent shall be void. The Payee's rights and obligations hereunder shall not,
prior to the expiration or earlier termination of the Letter, or such subsequent
date to which the Payee and the Maker extend the deadline by which the Merger
must be
2
<PAGE>
consummated, be assigned or delegated without the express written consent of the
Maker, and any purported assignment or delegation without such consent shall be
void.
7. Notices. All notices and other communications hereunder shall be of
no force or effect unless in writing and shall be deemed given when delivered
personally (including by express courier) or, if mailed by registered or
certified mail (return receipt requested), five (5) days after having been so
mailed, to the parties at their respective addresses set forth below (or at such
other address for a party as shall be specified by like notice):
If to the Payee:
HealthCore Medical Solutions, Inc.
405 Lexington Avenue, 50th Floor
New York, NY 10174
Attention: Neal Polan, President
with a copy to:
Epstein Becker & Green, P.C.
250 Park Avenue
New York, NY 10017
Attention: Seth Truwit, Esq.
If to the Maker:
Adatom, Inc.
920 Hillview Court, Suite 160
Milipitas, CA 95035
Attention: Richard Barton, President
with a copy to:
McCutchen, Doyle, Brown & Enersen, LLP
Three Embarcadero Center
San Francisco, CA 94111
Attention: Henry D. Evans, Jr., Esq.
8. Amendment; No Waiver. This Note may be amended, or any term hereof
waived, only in a writing signed by the Maker and the Payee. No failure to
exercise, or any delay in exercising, on the part of the Payee any right, power
or privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof, or the exercise of any other right, power or
privilege. A waiver by the Payee of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the Payee
would otherwise have on any future occasion.
3
<PAGE>
9. Severability. The provisions of this Note are severable and the
invalidity or unenforceability of any provision shall not alter or impair the
remaining provisions of this Note.
10. Jurisdiction. The Maker hereby irrevocably consents to the
nonexclusive jurisdiction of the Courts of the State of New York or any Federal
Court in such State in connection with any action or proceeding arising out of
or related to this Agreement or the Note. In any such litigation, the Maker
waives personal service of any summons, complaint or other process and agrees
that service of any summons, complaint or other process may be made by certified
or registered mail to it, at the address provided herein. THE MAKER WAIVES TRIAL
BY JURY IN ANY LITIGATION ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE
NOTE.
11. Governing Law. This Note shall be governed by and construed solely
in accordance with the laws of the State of New York (without giving effect to
Principles of conflicts of law).
ADATOM, INC.
By: /s/ Richard Barton
-------------------------------
Richard Barton, President
4
<PAGE>
SECURITY AGREEMENT
This Security Agreement (this "Agreement") is made as of April
28, 1999, between HealthCore Medical Solutions, Inc. (the "Secured Party") and
Adatom, Inc. (the "Debtor").
W I T N E S S E T H :
WHEREAS, the Secured Party and the Debtor have entered into a
certain Letter of Intent (the "Letter"), dated as of the date hereof, which
contemplates the merger of the Debtor with and into the Secured Party (the
"Merger");
WHEREAS, in accordance with the terms of the Letter, the
Secured Party and the Debtor have entered into a negotiable promissory note of
even date herewith (the "Note"), in the aggregate principal amount of Two
Hundred Fifty Thousand ($250,000) Dollars; and
WHEREAS, the Debtor desires to grant the Secured Party a
security interest in its assets to secure payment of all amounts due or to
become due under the Note (such amounts being the "Indebtedness"), upon the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of these premises and other
good and valuable consideration, the parties hereto agree as follows:
I. Certain Definitions
1.1 "Collateral" means all of those present or future assets,
real or personal, tangible or intangible, of the Debtor in which a security
interest is granted under Section 2.1 hereof.
1.2 "Event of Default" shall mean any Event of Default as
defined in the Note.
1.3 "UCC" means the Uniform Commercial Code as adopted and in
effect from time to time under the laws of the State of California.
II. Collateral
2.1 Grant of Security Interest. In order to secure the payment
in full of all Indebtedness of the Debtor to the Secured Party, the Debtor
hereby grants to the Secured Party a security interest in the Collateral,
consisting of: (i) all of the Debtor's accounts, equipment, inventory,
intellectual property rights, general intangibles, chattel paper, instruments,
documents and other property and assets (real or personal), whether presently
owned by the Debtor or hereafter acquired and wherever located; (ii) all of the
products and proceeds of all of the foregoing Collateral (including all proceeds
of insurance policies covering the Collateral) as well as all accessions,
additions, substitutions, replacements and increments thereto; and (iii) all
books and records, including, without limitation, customer lists, credit files,
computer programs, print-outs, and other computer materials and records of the
Debtor pertaining to any of the foregoing items described in clauses (i) and
(ii).
<PAGE>
2.2 UCC Terms. As used herein, the terms accounts, equipment,
inventory, general intangibles, chattel paper, instruments, documents and
account debtor, shall have the respective meanings ascribed to the terms in the
UCC.
2.3 Continuing Perfection. The Debtor will perform any and all
steps requested by the Secured Party to create and maintain in the Secured
Party's favor a valid and perfected, first-priority security interest in the
Collateral, including, without limitation, the execution, delivery, filing and
recording of financing statements and any other documents necessary or desirable
to protect the Secured Party's interest in the Collateral or to enable the
Secured Party to enforce its rights or remedies hereunder. The Secured Party is
hereby appointed the Debtor's attorney-in-fact to do all acts and things which
the Secured Party may deem necessary to perfect and to continue the perfected
security interests and liens provided for in this Agreement, including, but not
limited to, executing financing statements on behalf of the Debtor. The Secured
Party shall provide notice to the Debtor of any financing statements that it
executes on behalf of the Debtor.
III. Representations, Covenants And Warranties
To induce the Secured Party to enter into this Agreement and
to make the loan evidenced by the Note, the Debtor represents covenants and
warrants to the Secured Party as follows:
3.1 Good Standing. The Debtor is a corporation duly organized,
validly existing and in good standing under the laws of the State of California.
3.2 Intellectual Property. Schedule 3.2 sets forth all
trademarks, trade names, patents and copyrights (or applications thereof) used
by the Debtor in connection with its businesses.
3.3 Collateral. There is no item of Collateral located outside
of the State of California, and all item of Collateral are owned by the Debtor
free and clear of any mortgage, lien, security interest, encumbrance or charge
of any character (other than the security interest granted hereunder).
3.4 Sales and Encumbrances. Without the prior written consent
of the Secured Party the Debtor shall not: (i) other than in the ordinary course
of business, sell, loan, lease, assign, transfer, convey or alienate the
Collateral or any portion thereof, or any interest therein; and (ii) suffer or
permit any mortgage, lien, security interest, encumbrance or charge of any
character upon or against the Collateral (other than the security interest
granted herein).
3.5 No Violation. The execution of this Agreement and the
Note, and the performance by the Debtor of its obligations hereunder and
thereunder, do not, at the date of execution hereof, violate the charter or
by-laws of the Debtor or any agreement or undertaking to which it is a party or
by which it is bound.
3.6 No Litigation. There are no judgments against the Debtor
as of the date of this Agreement and no material litigation or administrative
proceeding before any governmental body is presently pending now, or to the
knowledge of the Debtor threatened, against the Debtor or any of its property.
2
<PAGE>
3.7 Good Title. On the date of this Agreement, the Debtor has
good and valid title to all of its properties and assets, real, personal and
mixed, and none of said properties or assets is subject to any mortgage, pledge,
lien, security interest, encumbrance, charge or title retention or other
security agreement or arrangement of any character whatsoever.
3.8 Inspection. The Secured Party or its designated
representatives shall have the right, at any time or times during the Debtor's
usual business hours, to inspect the Collateral, all records related thereto
(and to make extracts from such records at the Debtor's expense) and the
premises upon which any of the Collateral is located, to discuss the Debtor's
affairs and finances with any officer or employee and to verify in any manner
the Secured Party deem reasonably advisable, the amount, quality, quantity,
value and condition of, or any other matter relating to, the Collateral.
3.9 Duty to Update. In the event that any of the
representations or warranties of the Debtor contained herein ceases to be true
in any respect, the Debtor shall immediately inform the Secured Party of such
situation and provide all details relating thereto.
IV. Remedies Upon Event of Default
Upon the occurrence of any Event of Default and during the
continuation thereof, or at any time thereafter, the Secured Party shall have
all rights and remedies of a secured party under the UCC or other applicable
statute or rule, and may, at its sole option, and without limitation to any
other permissible actions, take any one or more of the following actions:
4.1 Control of Accounts. (i) the Secured Party shall have the
right at any time and from time to time, without notice, to notify account
debtors of the Debtor to make payments to the Secured Party; to endorse all
items of payment which may come into its hands payable to the Debtor; to take
control of any cash or non-cash proceeds of accounts and of any returned or
repossessed goods; to compromise, extend or renew any account or deal with it as
it may deem advisable; to make exchanges, substitutions or surrenders of
Collateral and to notify the postal authorities to deliver all mail,
correspondence or parcels addressed to the Debtor to the Secured Party at such
address as the Secured Party may designate; and (ii) the Debtor hereby appoints
each of the Secured Party or its designee as attorney-in-fact to endorse the
Debtor's name on any checks, notes, acceptances, drafts or any other instrument
or document requiring said endorsement and to sign the Debtor's name on any
invoice or bills of lading relating to any account, or drafts against its
customers, or schedules or confirmatory assignment on accounts, or notices of
assignment, financing statements under the UCC, and other public records, and in
verification of accounts and in notices to account debtors.
4.2 Possession of Collateral. Proceed with or without judicial
process to take possession of all or any part of the Collateral, and the Debtor
agrees that upon receipt of notice of the Secured Party's intention to take
possession of all or any part of said Collateral, the Debtor will do everything
reasonably necessary to assemble the Collateral and make the same available to
the Secured Party at a place to be designated by the Secured Party. The Debtor
hereby waives any and all rights it may have, by statute, constitution or
otherwise to notice or a hearing to determine the probable cause of the Secured
Party to obtain possession, by court proceedings or otherwise, of the
Collateral.
3
<PAGE>
4.3 Methods Of Sale. So long as the Secured Party acts in a
commercially reasonable manner, the Secured Party may assign, transfer and
deliver at any time or from time to time the whole or any portion of the
Collateral or any rights or interest therein in accordance with the UCC, and
without limiting the scope of the Secured Party's rights thereunder, the Secured
Party may sell the Collateral at public or private sale, or in any other manner,
at such price or prices as the Secured Party may deem best, and either for cash
or credit, or for future delivery, at the option of the Secured Party, in bulk
or in parcels and with or without having the Collateral at the sale or other
disposition. The Secured Party shall have the right to conduct such sales for
the Debtor's account on the Debtor's premises or elsewhere and shall have the
right to use the Debtor's premises without charge for such sales for such time
or times as the Secured Party may see fit. In connection with the exercise of
the Secured Party's rights and remedies under this Section 5, the Secured Party
is hereby granted a license or other right to use, without charge, the Debtor's
patents, copyrights, rights of use of any name, trade secrets, trade names,
trademarks and advertising matter, or any property of a similar nature, as it
pertains to the Collateral, in advertising for sale and selling any Collateral
and the Debtor's rights under all licenses shall inure to the Secured Party's
benefit. The Debtor agrees that a reasonable means of disposition of accounts
shall be for the Secured Party to hold and liquidate any and all accounts. In
the event of a sale of the Collateral, or any other disposition thereof, the
Secured Party shall apply all proceeds first to all costs and expenses of
disposition, including attorneys' fees, and then to the Indebtedness of the
Debtor to the Secured Party.
4.4 Attorneys' Fees And Expenses. The Secured Party may
include to the Indebtedness of the Debtor the Secured Party's expenses to obtain
or enforce payment of any Indebtedness and to exercise any of its other rights
under the Note, including, without limitation, reasonable fees and expenses of
counsel.
V. Miscellaneous
5.1 Entire Agreement. This Agreement represents the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes any and all prior agreements and understandings between the
parties with respect thereto.
5.2 No Waiver. The Debtor agrees that no delay on the part of
the Secured Party in exercising any power or right hereunder or under the Letter
or the Note shall operate as a waiver of any such power or right, preclude any
other or further exercise thereof, or the exercise of any other power or right.
No waiver of any provision of any this Agreement shall be valid unless in a
writing signed by the party entitled to the benefit of such provision.
5.3 Certain Actions; Exculpation; Amendment. The Secured Party
shall not have any liability to the Debtor for any action taken in its capacity
as Secured Party in the exercise of its remedies hereunder, except, where
applicable, to the extent the Secured Party fails to act in a commercially
reasonable manner (i.e., in accordance with the applicable provisions of the
UCC). Any amendment to this Agreement must be set forth in a writing executed by
each of the parties hereto.
5.4 Waiver of Notice. The Debtor waives presentment, dishonor
and notice of dishonor, protest and notice of protest by the Secured Party.
4
<PAGE>
5.5 Governing Law. This Agreement and the rights of the
parties hereto shall be governed by and construed solely in accordance with the
internal laws of the State of New York, except to the extent the UCC is
applicable.
5.6 Jurisdiction. The Debtor hereby irrevocably consents to
the nonexclusive jurisdiction of the Courts of the State of New York or any
Federal Court in such State in connection with any action or proceeding arising
out of or related to this Agreement or the Note. In any such litigation, the
Debtor waives personal service of any summons, complaint or other process and
agrees that service of any summons, complaint or other process may be made by
certified or registered mail to it, at the address provided herein. THE DEBTOR
WAIVES TRIAL BY JURY IN ANY LITIGATION ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR THE NOTE.
5.7 Successors or Assigns. This Agreement and the Note shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective legal representatives, successors and assigns. This Agreement may not
be assigned by the parties hereto, provided, however, that the Secured Party may
assign this Agreement to any person or entity (or person or entity affiliated
therewith) to whom the Secured Party concurrently assigns the Note.
5.8 Rights Cumulative. The rights and remedies expressed
herein or in the Note to be vested in or conferred upon the Secured Party shall
be cumulative and shall be in addition to and not in substitution for or in
derogation of the rights and remedies conferred upon secured creditors by the
UCC or any other applicable law.
5.9 Notification of Disposition of Collateral. Any
notification of a sale or other disposition of the Collateral or of any other
action by the Secured Party required to be given by the Secured Party to the
Debtor will be sufficient if given personally or mailed to the Debtor, by
registered or certified mail (return receipt requested), to the address set
forth for the Debtor in Section 5.10 hereof, not less than five (5) days prior
to the day on which such sales or other disposition will be made and such
notification shall be deemed reasonable notice.
5.10 Address For Notice. All notices and other communications
hereunder shall be of no force or effect unless in writing and shall be deemed
given when delivered personally (including by express courier) or, if mailed by
registered or certified mail (return receipt requested), five (5) days after
having been so mailed, to the parties at their respective addresses set forth
below (or at such other address for a party as shall be specified by like
notice):
If to the Secured Party:
HealthCore Medical Solutions, Inc.
405 Lexington Avenue, 50th Floor
New York, NY 10174
Attention: Neal Polan, President
with a copy to:
Epstein Becker & Green, P.C.
250 Park Avenue
5
<PAGE>
New York, NY 10017
Attention: Seth Truwit, Esq.
If to the Debtor:
Adatom, Inc.
920 Hillview Court, Suite 160
Milipitas, CA 95035
Attention: Richard Barton, President
with a copy to:
McCutchen, Doyle, Brown & Enersen, LLP
Three Embarcadero Center
San Francisco, CA 94111
Attention: Henry D. Evans, Jr., Esq.
5.11 Titles. The titles and headings indicated herein are
inserted for convenience only and shall not be considered a part of this
Agreement or in any way limit the construction or interpretation of this
Agreement.
5.12 Counterparts. This Agreement may be signed in one or more
counterparts which, taken together, shall constitute one and the same document.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above written.
HEALTHCORE MEDICAL SOLUTIONS, INC.
By: /s/ Neal Polan
------------------------------------
Neal Polan, President & CEO
ADATOM, INC.
By: /s/ Richard Barton
------------------------------------
Richard Barton, President
6
<PAGE>
TERMINATION AGREEMENT
TERMINATION AGREEMENT (the "Agreement") made as of this ___
day of July, 1999, by and among HealthCore Medical Solutions, Inc., a Delaware
corporation ("HealthCore"), and those shareholders of HealthCore who have
executed this Agreement on the signature page hereof (each a "Participating
Escrow Shareholder", and collectively, the "Participating Escrow Shareholders").
W I T N E S S E T H:
WHEREAS, HealthCore and the Participating Escrow Shareholders
are parties to that certain Amended and Restated Escrow Agreement (the "Escrow
Agreement"), dated as of July 31, 1997, among HealthCore, the Participating
Escrow Shareholders, the other stockholders of HealthCore who are signatories to
the Escrow Agreement (collectively, the "Non-Participating Escrow Shareholders"
and, together with the Participating Escrow Shareholders, collectively, the
"Escrow Shareholders") and American Stock Transfer & Trust Company (the "Escrow
Agent"), pursuant to which certain of the shares of Common Stock of HealthCore
(collectively, the "HealthCore Common Stock") owned beneficially and of record
by the Escrow Shareholders (such shares being collectively referred to as the
"Escrow Shares") are held in escrow; and
<PAGE>
WHEREAS, HealthCore is a party to that certain Agreement and
Plan of Merger, dated July 1, 1999, between HealthCore and Adatom, Inc.
("Adatom"), a California corporation, which contemplates, among other things,
the merger of Adatom with and into HealthCore (the "Merger"); and
WHEREAS, in connection with the Merger, and subject to the
terms and conditions of this Agreement, HealthCore and the Participating Escrow
Shareholders desire to terminate the Escrow Agreement as to each Participating
Escrow Shareholder, and, in connection therewith, cancel four (4) Escrow Shares
for every five (5) Escrow Shares (i.e., eighty (80%) percent of the Escrow
Shares) owned beneficially and of record by each of the Participating Escrow
Shareholders (the remaining shares held by the Participating Escrow Shareholders
following such cancellation being collectively referred to as the "Released
Shares"); and
WHEREAS, the affirmative vote of the holders of two-thirds
(2/3) of the outstanding shares of HealthCore Common Stock entitled to vote with
respect to the adoption and approval of this Agreement and the transactions
contemplated hereby, excluding the vote of the shares of HealthCore Common Stock
held by the Participating Escrow Shareholders (such vote being the "Required
Stockholder Vote") is required to, among other things, terminate the Escrow
Agreement.
2
<PAGE>
NOW, THEREFORE, HealthCore and the Participating Escrow
Shareholders hereby agree as follows:
ARTICLE 1
SURRENDER OF SHARES;
TERMINATION OF ESCROW AGREEMENT; GRANT OF PROXIES
1.1 Surrender of Shares. Subject to the terms and conditions
of this Agreement, and in reliance upon the representations, warranties and
covenants contained herein, on the Termination Closing Date (as defined in
Section 5.1 hereof), the number of Escrow Shares set forth opposite each
Participating Escrow Shareholder's name on Schedule 1.1 hereto, constituting
eighty (80%) percent of the Escrow Shares owned beneficially and of record by
such Participating Escrow Shareholder, shall be and be deemed cancelled, without
the necessity of any further action on the part of the Participating Escrow
Shareholder, and such Participating Escrow Shareholders shall have no rights of
any kind or nature in or to such Escrow Shares.
1.2 Termination of Escrow Agreement.
(a) Notwithstanding anything in the Escrow Agreement to
the contrary, and subject to HealthCore's receipt of the Required Stockholder
Vote, on the Termination Closing Date the Escrow Agreement shall be deemed
terminated, and of no further force or effect, with respect to the Participating
Escrow Shareholders, only, and all of the Released Shares shall be distributed
to
3
<PAGE>
the Participating Escrow Shareholders, without the restrictive legend described
in Section 9(a) of the Escrow Agreement that is currently contained on the
certificates representing the Escrow Shares shall be deleted. By the execution
of this Agreement, each Participating Escrow Shareholder authorizes and directs
the Escrow Agent under the Escrow Agreement to deliver all certificates for the
Escrow Shares to HealthCore, at a location in New York City specified by
HealthCore upon receipt from HealthCore of a letter verifying that the Required
Stockholder Vote has been obtained. Upon its receipt thereof, HealthCore shall,
within ten (10) business days thereafter, deliver to each Participating Escrow
Shareholders the number of Released Shares to which such Participating Escrow
Shareholder is entitled as more particularly set forth on Schedule 1.1 hereto.
(b) Notwithstanding anything contained herein to the
contrary, this Agreement shall be binding upon, and shall inure to the benefit
of only those parties who have executed this Agreement. The Non-Participating
Escrow Shareholders shall have no rights, of any kind or nature, under this
Agreement, and such Non-Participating Escrow Shareholders and the shares of
HealthCore Common Stock owned by the Non-Participating Escrow Shareholders that
are held in escrow, shall remain subject to the all of terms and conditions of
the Escrow Agreement.
4
<PAGE>
1.3 Grant of Proxies. Contemporaneously with the execution
hereof, each of the Participating Escrow Shareholders shall execute and deliver
to HealthCore an irrevocable proxy (collectively, the "Voting Proxies")
appointing Neal J. Polan ("Polan"), the Chairman of the Board and Chief
Executive Officer of HealthCore, as proxy to vote all of the shares of
HealthCore Common Stock owned beneficially and of record by such Participating
Escrow Shareholder, including, without limitation, the Released Shares, for a
period expiring on the earliest of (a) the first date by which both (i) the
closing of the transactions contemplated by the Merger Agreement shall have
occurred ("Merger Closing"), and (ii) HealthCore shall have received the
Required Stockholder Vote, (b) the termination of the agreements contained in
the Merger Agreement, and (c) with respect to those shares of HealthCore Common
Stock other than the Escrow Shares sold by the Participating Escrow
Shareholders, HealthCore's receipt of notice of the consummation of the sale of
such shares of HealthCore Common Stock.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF PARTICIPATING ESCROW SHAREHOLDERS
Each Participating Escrow Shareholder represents and warrants
to HealthCore as follows:
5
<PAGE>
2.1 Authority. Such Participating Escrow Shareholder has the
right, power, authority and legal capacity to enter into and perform such
Participating Escrow Shareholder's obligations under this Agreement and to
consummate the transactions contemplated hereby to be performed by such
Participating Escrow Shareholder, and this Agreement has been duly executed and
delivered by such Participating Escrow Shareholder and is a valid and binding
agreement of such Participating Escrow Shareholder enforceable against such
Participating Escrow Shareholder in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies.
2.2 Title to the Escrow Shares. Such Participating Escrow
Shareholder owns, beneficially and of record, the number of Escrow Shares set
opposite the name of such Participating Escrow Shareholder on Schedule 1.1, free
and clear of any and all liens, claims or encumbrances, of any kind or nature,
and upon delivery to HealthCore of the certificate or certificates evidencing
such Escrow Shares, duly endorsed for transfer to HealthCore, HealthCore will
acquire good, valid, indefeasible and marketable title thereto, free and clear
of any and all liens, claims or encumbrances, of any kind or nature.
2.3 Examination of Documents. HealthCore has delivered to such
Participating Escrow Shareholder, and such Participating Escrow Shareholder has
examined, the Annual Report of Form 10-KSB of HealthCore for the fiscal year
6
<PAGE>
ended September 30, 1998 (the "1998 Form 10-KSB"), HealthCore's Quarterly Report
on Form 10-QSB for each of the quarters ended December 31, 1998 and March 31,
1999, including the financial statements contained therein, and HealthCore's
Current Report on Form 8-K, filed with SEC on July 9, together with the exhibits
thereto, and has had the opportunity to discuss HealthCore's operations with
HealthCore's officers and employees.
2.4 Acknowledgment. Each of the Participating Escrow
Shareholders acknowledges that in the event the Merger is not consummated, and
HealthCore continued its current business activities as more particularly
described in HealthCore's most recent 10QSB, it is highly unlikely as of the
date hereof that the conditions in the Escrow Agreement for release of the
Escrow Shares would be satisfied prior to the last possible date for the
attainment thereof, and thus each Participating Escrow Shareholder may be
required to forfeit all of his or her Escrow Shares pursuant to the terms of the
Escrow Agreement. Each Participating Escrow Shareholder further acknowledges
that, in light of the foregoing, he or she carefully considered whether or not
to enter into this Agreement and has concluded that to do so is prudent and
provides the best opportunity at this time to realize ownership of even a
portion of the Escrow Shares.
7
<PAGE>
ARTICLE 3
REPRESENTATIONS AND
WARRANTIES OF HEALTHCORE
HealthCore represents and warrants to the Participating Escrow
Shareholders as follows:
3.1 Authority. The Board of Directors of HealthCore has
unanimously approved this Agreement and the transactions contemplated hereby.
The Required Stockholder Vote is the only vote of the holders of any class or
series of the capital stock of HealthCore necessary to approve this Agreement
and the transactions contemplated hereby, and HealthCore has all other requisite
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by HealthCore
and constitutes a valid and binding obligation of HealthCore enforceable against
HealthCore in accordance with its terms, subject to HealthCore's receipt of the
Required Stockholder Vote.
ARTICLE 4
CONDITIONS TO CLOSING
4.1 Conditions to Obligations of HealthCore. The obligations
of HealthCore hereunder are conditioned upon the following:
(a) HealthCore shall have received the Required
Stockholder Vote;
8
<PAGE>
(b) The Merger and the transactions contemplated
thereby shall have been consummated by September 30, 1999, or such later date as
HealthCore and Adatom shall have agreed to in writing;
(c) All warranties and representations of the
Participating Escrow Shareholders contained in this Agreement or in any schedule
or instrument delivered hereunder or otherwise made in connection with the
transactions contemplated hereby shall be true and correct, on and as of the
Termination Closing Date, with the same force and effect as if made on and as of
the Termination Closing Date;
(d) The Participating Escrow Shareholders shall have
performed and complied with all of the covenants and agreements required by or
pursuant to this Agreement, and any schedule or instrument delivered hereunder,
to be performed or complied with on or prior to the Termination Closing Date;
and
(e) All documents delivered and action taken pursuant
hereto shall be satisfactory in form and substance to HealthCore and its
counsel.
4.2 Conditions to Obligations of the Participating Escrow
Shareholders. The obligations of the Participating Escrow Shareholders hereunder
are conditioned upon the following:
(a) All warranties and representations of HealthCore
contained in this Agreement shall be true and correct on and as of the
Termination
9
<PAGE>
Closing Date with the same force and effect as if made on and as of the
Termination Closing Date.
(b) HealthCore shall have performed and complied with
all of the covenants and agreements required by or pursuant to this Agreement,
and any schedule or instrument delivered hereunder, to be performed or complied
with on or prior to the Termination Closing Date.
ARTICLE 5
CLOSING; DELIVERIES
5.1 Closing Date. The closing of the transactions contemplated
by this Agreement (the "Termination Closing") shall be deemed to occur on the
first date by which both (i) the Merger Closing shall have occurred, and (ii)
HealthCore shall have received the Required Stockholder Vote (such date being
the "Termination Closing Date").
5.2 Deliveries by the Participating Escrow Shareholders.
(a) Contemporaneously with the execution hereof, the
Participating Escrow Shareholders shall deliver to HealthCore the Voting Proxies
more particularly described in Section 1.2 hereof.
(b) At the Termination Closing, the Participating
Escrow Shareholders shall deliver to HealthCore, in accordance with terms of
Section 1.2(a) hereof, Certificates representing the Escrow Shares,; and
10
<PAGE>
5.3 Deliveries of HealthCore. At the Termination Closing,
HealthCore shall have no items to deliver to the Participating Escrow
Shareholders.
ARTICLE 6
SURVIVAL AND INDEMNIFICATION
6.1 Survival. The representations and warranties contained
herein shall survive the Termination Closing for a period six (6) months
following the Termination Closing Date.
6.2 Indemnification of HealthCore and Participating Escrow
Shareholders.
(a) Indemnification by Participating Escrow
Shareholders. The Participating Escrow Shareholders hereby agree to indemnify
and hold harmless HealthCore from and against any and all losses, liabilities,
damages, obligations, costs and expenses, including, without limitation, amounts
paid in settlement and reasonable costs and expenses of investigating, preparing
to defend and defending any claim, action, suit, proceeding, inquiry or
investigation in respect thereof (such losses, liabilities, damages,
obligations, costs and expenses as hereinabove set forth, collectively
"Damages") resulting from, relating to, or arising out of the inaccuracy of any
representation or warranty herein by such Participating Escrow Shareholder or
the breach of any covenant herein by such Participating Escrow Shareholder.
11
<PAGE>
(b) Indemnification by HealthCore. HealthCore hereby
agrees to indemnify and hold harmless the Participating Escrow Shareholders from
and against any and all Damages incurred by the Participating Escrow
Shareholders resulting from, relating to, or arising out of the inaccuracy of
any representation or warranty herein by HealthCore or the breach of any
covenant contained herein by HealthCore.
(c) Procedure. If any action, suit, proceeding or
claim shall be brought against the party to be indemnified by any third party,
which action, suit, proceeding or claim, if determined adversely to the interest
of the party to be indemnified and which would entitle the party to be
indemnified to indemnity pursuant to this Section 6.2, the party to be
indemnified shall promptly notify the indemnifying party of the same in writing
and, if the indemnifying party so elects, the indemnifying party shall assume
the defense thereof, including the employment of counsel satisfactory to the
party to be indemnified and the payment of all reasonable costs and expenses in
respect thereof. The party to be indemnified shall have the right to employ
counsel separate from any counsel employed by the indemnifying party in any
action, suit, proceeding or claim and to control (or, if the party to be
indemnified has elected to allow the indemnifying party to assume the defense
thereof, participate in) the defense thereof and the fees and expenses of such
counsel employed by the party to be indemnified shall be at the expense of the
party to be indemnified. The indemnifying party shall not
12
<PAGE>
be liable for any settlement of any such action, suit, proceeding or claim
effected without his or its written consent (which shall not be unreasonably
withheld), but if settled with the written consent of the indemnifying party, or
if there shall be a final judgment for plaintiff in any such action, the
indemnifying party agrees to indemnify and hold harmless the party to be
indemnified from and against any loss, liability, obligation, damage, cost or
expense by reason of such settlement or judgment.
6.3 Hold Harmless; Indemnification of Polan. Polan shall have
no liability of any kind or nature to the parties hereto in connection with the
exercise of the rights granted to Polan pursuant to the Voting Proxies, and the
parties hereto, jointly and severally, shall indemnify, defend and hold harmless
Polan from and against any and all Damages arising out of or in connection with
the exercise of the rights granted to Polan pursuant to the Voting Proxies.
ARTICLE 7
TERMINATION
7.1 Termination. Unless otherwise agreed to by HealthCore and
all of the Participating Escrow Shareholders, in writing, this Agreement shall
terminate and be of no further force or effect immediately upon the termination
of the agreements contained in the Merger Agreement.
13
<PAGE>
ARTICLE 8
MISCELLANEOUS PROVISIONS
8.1 Amendment and Modification. This Agreement may be amended,
modified and supplemented only by a writing signed by HealthCore and the
Participating Escrow Shareholders.
8.2 Waiver of Compliance. Any failure of HealthCore or the
Participating Escrow Shareholders to comply with any obligation, covenant,
agreement or condition herein contained may be expressly waived, in writing
only, by (i) HealthCore in the case of any failure of the Participating Escrow
Shareholders, or (ii) the Participating Escrow Shareholders in the case of any
failure of HealthCore. Such waiver shall be effective only in the specific
instance and for the specific purpose for which made or given.
8.3 Expenses. The parties hereto shall each pay their own
respective expenses incurred in connection with this Agreement and the
transactions contemplated by this Agreement. The foregoing shall not be
construed as limiting any other rights which any party may have as a result of
misrepresentation of or breach by any other party.
8.4 Further Assurance. HealthCore and each Participating
Escrow Shareholder agree to cooperate and execute all documents required to
effectuate the transactions contemplated hereby and to perform all actions as
reasonably may be required thereby. Without limiting the generality of the
14
<PAGE>
foregoing, HealthCore and each of the Participating Escrow Shareholders agrees
to execute and deliver any and all such documents and instruments as may be
required by the Escrow Agent in connection with the termination of the Escrow
Agreement and the release and delivery of the Escrow Shares.
8.5 Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered by hand, or when mailed by
certified or registered mail (return receipt requested), postage prepaid or when
delivered by fax (evidenced by confirmation of successful transmission), as
follows:
A. If to HealthCore:
HealthCore Medical Solutions, Inc.
405 Lexington Avenue, 50th Floor
New York, NY 10174
Attn: Mr. Neal Polan, Chief Executive Officer
Facsimile: (917) 368-3601
B. If to the Participating Escrow Shareholders,
to the address set forth under each such
Participating Escrow Shareholder's name on
Schedule 1.1 hereto, of, if not included
thereon, the address designated by notice to
HealthCore.
or to such other person or place as the parties may designate by notice in the
manner provided in this Section 8.4.
15
<PAGE>
8.6 Assignment. This Agreement shall be binding upon and inure
to the benefit of HealthCore and its respective successors and assigns, and to
the Participating Escrow Shareholders and their respective heirs, executors,
administrators and personal representatives, but neither this Agreement nor any
of the rights, interests and obligations hereunder shall be assigned by any of
HealthCore or the Participating Escrow Shareholders without the prior written
consent of the other parties.
8.7 Third Parties.This Agreement is not intended to and shall
not be construed to give any person other than the parties hereto any interest
or rights (including, without limitation, any third party beneficiary rights)
with respect to or in connection with any agreement or provision contained
herein or contemplated hereby.
8.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of laws.
8.9 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same instrument.
8.10 Headings. The headings of the sections, schedules and
articles of this Agreement are inserted for the sake of convenience only and
shall not constitute a part hereof.
16
<PAGE>
8.11 Entire Agreement. This Agreement, including the schedules
and exhibits, contains the entire understanding of the parties in respect of the
subject matter contained herein and therein and there are no other terms or
conditions, representations or warranties, written or oral, express or implied,
except as set forth herein.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the day and year first above written.
HEALTHCORE MEDICAL
SOLUTIONS, INC.
By: /s/ Neal J. Polan
---------------------------------------
Neal J. Polan, Chairman and CEO
/s/ Neal J. Polan
---------------------------------------
Neal J. Polan
/s/ Neal J. Polan
---------------------------------------
Neal J. Polan, as Custodian for
Barrett Polan
17
<PAGE>
/s/ Myrna White
---------------------------------------
Myrna White, as Attorney-In-Fact
For Theodore W. White, Jr.
/s/ Ben E. Randall
---------------------------------------
Ben E. Randall
/s/ Ronald F. Torchia
---------------------------------------
Ronald F. Torchia
/s/ Donald E. Umbach
---------------------------------------
Donald E. Umbach, Trustee under the
Donald E. Umbach Revocable Trust
/s/ Patricia L. Umbach
---------------------------------------
Patricia L. Umbach, Trustee under the
Patricia L. Umbach Revocable Trust
18
<PAGE>
/s/ Michael J. Reichert
---------------------------------------
Michael J. Reichert, Trustee under the
Michael J. Reichert Revocable Trust
/s/ Jean A. Reichert
---------------------------------------
Jean A. Reichert, Trustee under the
Michael J. Reichert Revocable Trust
/s/ Robert Hunter
---------------------------------------
Robert Hunter
/s/ Orville C. Walker
---------------------------------------
Orville C. Walker
/s/ Mary C. Walker
---------------------------------------
Mary C. Walker
/s/ George DiCostanzo
---------------------------------------
George DiCostanzo
/s/ 1164 Associates
---------------------------------------
1164 Associates
19
<PAGE>
/s/ Annette Lebor
---------------------------------------
Annette Lebor
Acknowledged and Agreed
as of the Merger Closing
ADATOM, INC.
By: /s/ Richard Barton Date:
--------------------------------- -----------------------
Richard Barton, President
20
<PAGE>
SCHEDULE 1.1
Intentionally left blank
21
<PAGE>
IRREVOCABLE PROXY
IRREVOCABLE PROXY (this "Proxy"), dated July ____, 1999, given
by _______________ with an office at/residing at (the "Grantor"), the holder of
_____ shares of the Class A Common Stock, par value $.01 per share (such shares
being the "Grantor Shares") of HealthCore Medical Solutions, Inc.
("HealthCore").
W I T N E S S E T H:
WHEREAS, HealthCore is a party to that certain Agreement and Plan of
Merger (the "Merger Agreement"), dated July 1, 1999, between HealthCore and
Adatom, Inc., a California corporation ("Adatom"), pursuant to which Adatom is
to be merged with and into HealthCore (the "Merger"), subject to the
satisfaction of certain conditions, including, without limitation, the
affirmative vote of a majority of the outstanding shares of Common Stock of
HealthCore (other than the shares owned by Neal J. Polan, the Chief Executive
Officer of HealthCore (the "Grantee")) in favor of the Merger; and
WHEREAS, HealthCore and the Grantor are parties to that
certain Amended and Restated Escrow Agreement (the "Escrow Agreement"), dated as
of July 31, 1997, among HealthCore, the Grantor, the other stockholders of
HealthCore who are signatories to the Escrow Agreement (together with the
Grantor, the "Escrow Shareholders") and American Stock Transfer & Trust Company,
pursuant to which certain of the shares of Common Stock of HealthCore owned
beneficially and of record by the Escrow Shareholders are held in escrow; and
WHEREAS, as contemplated by the Merger Agreement, the Grantor
and HealthCore are simultaneously herewith executing and delivering that certain
Termination Agreement, pursuant to which the Grantor and HealthCore have agreed
that, in the event of the consummation of the Merger, and subject to the
affirmative vote of two-thirds of the outstanding shares of HealthCore Class A
Common Stock (the "Common Stock"), excluding the shares held by the Escrow
Stockholders, in favor of the termination of the Escrow Agreement (the "Required
Stockholder Vote"), the Escrow Agreement shall be terminated with respect to the
Grantor and that portion of the Grantor Shares held in escrow (collectively, the
"Escrowed Grantor Shares"), and, in connection therewith, eighty percent (80%)
of the Escrowed Grantor Shares shall be cancelled with the remaining twenty
percent (20%) shall be released from escrow to the Grantor; and
WHEREAS, in accordance with the terms of the Termination
Agreement, and subject to the terms and conditions of this Proxy, the Grantor
desires to grant to the Grantee, as Chief Executive Officer of HealthCore, the
right to vote all of the Grantor Shares.
NOW THEREFORE, the Grantor and the Grantee hereby agree as
follows:
<PAGE>
1. Appointment. The Grantor hereby irrevocably appoints the Grantee as
proxy to vote the Grantor Shares and/or deliver written consents as a
stockholder of HealthCore in respect of the Grantor's ownership of the Grantor
Shares, for and on behalf of the Grantor. The proxy to vote the Grantor Shares
granted hereunder shall apply with respect to any and all actions of the
stockholders of HealthCore taken on or after the date hereof (whether taken at a
meeting or by written consent), for any and all purposes and on any and all
matters with respect to which the Grantor Shares are entitled to be cast,
including, without limitation, the approval of the Merger and the transactions
contemplated thereby. The Grantor grants this Proxy in consideration of
HealthCore's execution and delivery of the Termination Agreement. The Grantor
acknowledges and agrees that the Board of Directors of HealthCore believes that
the consummation of the Merger and the transactions contemplated thereby are in
the best interest of HealthCore and its shareholders, and this Proxy shall be
deemed to be coupled with an interest and irrevocable.
2. General Provisions. This Proxy may be voted or acted upon by the
Grantee until this Proxy is amended, modified or terminated as provided herein.
(a) Amendment and Modification. This Proxy shall only be amended or
modified only with the express written consent of the Grantor, the Grantee and
HealthCore.
(b) Termination. This Proxy shall terminate and be of no further
force or effect immediately upon the earliest of (a) the first date by which
both (i) the closing of the transactions contemplated by the Merger Agreement
shall have occurred, and (ii) HealthCore shall have received the Required
Stockholder Vote, (b) the termination of the agreements contained in the Merger
Agreement, and (c) with respect to the Grantor Shares other than the Escrowed
Grantor Shares, the receipt by both the Grantee and HealthCore of written notice
of the consummation of the sale of such shares.
3. No Duty. The Grantee may act in any manner, and may take into
account such factors (including, without limitation, the objectives and best
interest of the Grantee) as may the Grantee may deem appropriate, in his sole
and absolute discretion, and therefore the Grantee shall have no obligation in
exercising this Proxy to act as a fiduciary for or in the best interest of the
Grantor, HealthCore or any of the employees, officers, directors or other
shareholders thereof.
4. Binding Effect. This Proxy shall be binding upon, and inure to the
benefit of the Grantor, the Grantee and HealthCore, and their respective
successors, assigns, heirs, executors and administrators.
Dated: July ____, 1999.
[Grantor]
By:
-------------------------------
Name:
Title
<PAGE>
Acknowledged and Agreed:
HEALTHCORE MEDICAL SOLUTIONS, INC.
By: Date:
------------------------------------- ---------------------
Neal J. Polan, CEO
---------------------------------------- Date:
Neal J. Polan, as Proxy ---------------------
<PAGE>
[LETTERHEAD OF KAUFMAN BROS., L.P.]
July 26, 1999
Mr. Neal J. Polan
Chairman & CEO
HealthCore Medical Solutions, Inc.
405 Lexington Avenue
50th Floor
New York, NY 10174
Dear Mr. Polan:
You have informed us that HealthCore Medical Solutions, Inc. (the
"Company") has under consideration a transaction pursuant to which the Company
would engage in a business combination (the "Transaction") with Adatom, Inc.
("Target") as a result of which the Company's current shareholders would own
approximately 22.5% of the common stock (subject to adjustment in certain
circumstances) of the combined entity after the Transaction. The Transaction is
subject to, among other things, the approval of the Board of Directors and the
shareholders of the Company.
In connection with its review and analysis of the Transaction, the Board of
Directors of the Company has requested Kaufman Bros., L.P. ("Kaufman") to advise
it and to render a written opinion (the "Opinion") as to the fairness to the
shareholders of the Company from a financial point of view of the consideration
to be received in the Transaction. Kaufman agrees to conduct such financial
review of the Company and Target, and their respective businesses and operations
as Kaufman shall deem appropriate and feasible. The Company agrees to provide or
cause to be provided to Kaufman such financial and other information concerning
the Company as Kaufman may request, and to use its best efforts to obtain
financial and other information concerning the Target as Kaufman may request, in
connection with the services performed or to be performed hereunder. In
rendering the Opinion, Kaufman will be assuming and relying, without independent
verification, upon the accuracy and completeness of the financial and other
information used by it in arriving at its Opinion.
In consideration for the services to be performed by Kaufman pursuant to
this agreement, the Company agrees to pay Kaufman a fee of $65,000, of which
$32,500 is payable in cash on the date of this letter and $32,500 is payable in
cash on the date Kaufman delivers the Opinion. In addition, Kaufman shall be
reimbursed by the Company for its reasonable out-of-pocket expenses (including
legal fees and disbursements) in connection with its services hereunder, limited
to $5,000. Such fees and reimbursements shall be payable irrespective of either
the conclusions reached in the Opinion or the consummation of the Transaction.
<PAGE>
HealthCore Medical Solutions, Inc.
July 26, 1999
Page 2
Kaufman will consent to a description and inclusion of the Opinion in a
proxy statement to be used in connection with a meeting (if needed) of the
Company's shareholders to be held for the purpose of voting on the Transaction
and to references to Kaufman in such proxy statement provided that any such
description is acceptable to Kaufman. In addition to the meeting of
stockholders, or otherwise in connection with providing information to
stockholders regarding the Transaction, the Company may provide to stockholders
a copy of the Opinion in the form delivered to the Company's Board of Directors.
Except as otherwise provided above, the Opinion is solely for the use and
benefit of the Company and shall not be described publicly or made available to
third parties without Kaufman's prior approval, except as otherwise required by
law.
The Company agrees to indemnify and hold Kaufman harmless from and against
any losses, claims, damages or liabilities (or actions, including securityholder
actions, in respect thereof) related to or arising out of Kaufman's engagement
hereunder or its role in connection herewith, and will reimburse Kaufman for all
reasonable expenses (including reasonable counsel fees) as they are incurred by
Kaufman in connection with investigating, preparing for or defending any such
action or claim, whether or not in connection with pending or threatened
litigation in which Kaufman is a party. The Company will not, however, be
responsible for any claims, liabilities, losses, damages or expenses which are
finally judicially determined to have resulted from the bad faith, willful
misconduct or gross negligence of Kaufman. The Company also agrees that Kaufman
shall not have any liability (whether direct or indirect, in contract or tort or
otherwise) to the Company for or in connection with such engagement, except for
any such liability for losses, claims, damages, liabilities or expenses incurred
by the Company that result from the bad faith, willful misconduct or gross
negligence of Kaufman. In the event that the foregoing indemnity is unavailable
(except by reason of the bad faith, willful misconduct or gross negligence of
Kaufman), then the Company shall contribute to amounts paid or payable by
Kaufman in respect of its losses, claims, damages and liabilities in such
proportion as appropriately reflects the relative benefits received by, and
fault of, the Company and Kaufman in connection with the matters as to which
such losses, claims, damages or liabilities relate and other equitable
considerations; provided, however, that in no event shall the amount to be
contributed by Kaufman exceed the amount of the fee actually received by
Kaufman. The foregoing shall be in addition to any rights that Kaufman or any
other indemnified person may have at common law or otherwise and shall extend to
and inure to the benefit of any director, officer, employee, agent or
controlling person of Kaufman.
This Agreement may not be amended or modified except in writing and shall
be governed by and construed in accordance with the laws of the State of New
York.
2
<PAGE>
HealthCore Medical Solutions, Inc.
July 26, 1999
Page 3
Please confirm that the foregoing is in accordance with your understandings
and agreements with Kaufman by signing and returning to us the duplicate of this
letter enclosed herewith.
Very truly yours,
KAUFMAN BROS., L.P.
By: /s/ Bradford W. Harries
-----------------------------------
Bradford W. Harries
Managing Director
Accepted and Agreed to as of the date first above written.
HEALTHCORE MEDICAL SOLUTIONS, INC.
By: /s/ Neal J. Polan -- CEO
-------------------------------
Neal J. Polan
Chairman & CEO
3
<PAGE>
1999 INCENTIVE AND NON-QUALIFIED
STOCK OPTION PLAN
OF
HEALTHCORE MEDICAL SOLUTIONS, INC.
1. Purpose of Plan. The purpose of this 1999 Incentive and
Non-Qualified Stock Option Plan ("Plan") is to further the growth and
development of HealthCore Medical Solutions, Inc. (the "Company") and its
subsidiaries by encouraging selected employees, consultants, officers,
directors, independent contractors and other persons who contribute and are
expected to contribute materially to the success of the Company or any
subsidiary to obtain a proprietary interest in the Company through the ownership
of stock, thereby providing such persons with an added incentive to promote the
long-term financial interests of the Company and enhancement of long-term
stockholder return. The Plan is further intended to afford the Company and any
subsidiary a means of attracting to its service persons of outstanding ability.
Unless otherwise defined elsewhere in the Plan, capitalized terms used herein
are defined in Section 17 hereof.
2. Stock Subject to the Plan. An aggregate of 1,400,000 shares of
Common Stock, $.01 of par value per share ("Common Stock") of the Company,
subject to adjustment or change pursuant to Section 10 hereof, shall be reserved
for issuance upon the exercise of options which may be granted from time to time
in accordance with the Plan ("Options"). Such shares may be, in whole or in
part, authorized but unissued shares or issued shares which have been reacquired
by the Company as the Compensation Committee ("Committee") of the Board of
Directors ("Board") shall from time to time determine. If, for any reason, an
Option shall lapse, expire or terminate without having been exercised in full,
the unpurchased shares covered thereby shall again be available for purposes of
the Plan. If, for any reason, any shares of Common Stock purchased upon exercise
of an Option are repurchased by the Company, such shares shall again be
available for purposes of the Plan. If the exercise price of an Option granted
under the Plan is satisfied by tendering shares of Common Stock, only the number
of shares of Common Stock issued, net of the shares of Common Stock so tendered,
shall be deemed delivered for purposes of calculating the maximum number of
shares of Common Stock reserved for issuance under the Plan.
3. Administration. The authority to manage and control the operation
and administration of the Plan shall be vested in the Committee which shall at
all times consist of two or more Board members. The Board shall have power at
any time to fill vacancies in, to change the membership of, or to discharge the
Committee. The Committee shall select one of its members as its chairman and
shall hold its meetings at such time and at such places as it shall deem
advisable. A majority of the Committee shall constitute a quorum and such
majority shall determine its action. Any action may be taken without a meeting
by written consent of all the members of the Committee. The Committee shall keep
minutes of its proceedings and shall report the same to the Board at the next
succeeding meeting of the Board. The members of the Committee shall be "outside
directors" as defined in the regulations under Section 162(m)
<PAGE>
of the Internal Revenue Code of 1986, as amended (the "Code"), and
"non-employee directors" as defined by Regulation 240.16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Committee's authority shall be subject to the following:
(a) subject to the provisions of the Plan, the Committee shall have
authority in its sole discretion to select from among those persons eligible
to receive Options under the Plan those persons who shall receive Options, to
determine the time or times at which Options shall be granted and the number
of shares of Common Stock to be subject to each such Option; to establish the
terms, conditions, performance criteria, restrictions and other provisions of
each Option, including but not limited to whether all or any portion of each
Option shall be incentive stock options ("Incentive Options") qualifying under
Section 422 of the Code or stock options which do not so qualify
("Non-Qualified Options"); the time or times when the Option may be exercised;
the term of such Option; the events of termination of such Option; the
transferability of such Option; and any voting, transfer or other restrictions
on the shares of Common Stock issuable upon exercise of the Option. Both
Incentive Options and Non-qualified Options may be granted to the same person
at the same time, provided each type of Option is clearly designated. Options
may be granted as alternatives to or replacements of Options outstanding under
the Plan or of options or other awards under any other plan or arrangement of
the Company or any subsidiary (including a plan or arrangement of a business
or entity, all or a portion of which is acquired by the Company or a
subsidiary). In making such determinations, the Committee may take into
account the nature of the services rendered by such persons, their present and
potential contribution to the success of the Company or a subsidiary and such
other factors as the Committee in its sole discretion may deem relevant.
(b) the Committee shall also have authority to interpret the Plan, to
establish, amend and rescind rules and regulations relating to the Plan, to
determine the terms and provisions of the respective agreements evidencing the
grant of Options ("Option Agreements"), and to make all other determinations
that may be necessary or advisable for the administration of the Plan.
(c) except as otherwise provided in the Plan, where the Committee
shall be authorized to make a determination with respect to any Option, such
determination shall be made at the time of the grant of the Option, except
that the Committee reserves the authority to have such determination made by
the Committee in the future (but only if such reservation is made at the time
the Option is granted and is expressly stated in the Option Agreement relating
to such Option).
(d) Any interpretation of the Plan by the Committee and any decision
made by it under the Plan shall be final and not subject to review.
2
<PAGE>
4. Eligibility for Receipt of Options.
(a) Incentive Options. Incentive Options may be granted only to
employees (including officers) of the Company and/or any of its subsidiaries.
A director of the Company or any subsidiary who is not an employee of the
Company or of one of its subsidiaries is not eligible to receive Incentive
Options under the Plan. Further, Incentive Options may not be granted to any
person who, at the time the Incentive Option is granted, owns (or is
considered as owning within the meaning of Section 424(d) of the Code) stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any subsidiary ("10% Owner"), unless at the time the
Incentive Option is granted to the 10% Owner, the option price is at least
110% of the fair market value of the Common Stock subject thereto and such
Incentive Option by its terms is not exercisable subsequent to five years from
the date of grant. In the event an outstanding Incentive Option or a portion
thereof no longer qualifies as an incentive stock option under Section 422 of
the Code, such Option or portion thereof, as applicable, thereafter shall be
deemed a Non-Qualified Option under the Plan.
(b) Non-Qualified Options. Non-Qualified Options may be granted to
any person eligible to receive Options under the Plan (including any
individual who has been granted Incentive Options) whom the Committee
determines will contribute to the success of the Company or a subsidiary.
(c) Maximum Number of Options Granted Annually to any Person. The
maximum number of shares that may be subject to Options under this Plan
granted during any calendar year to any employee of the Company or its
subsidiaries is 700,000 shares.
5. Exercise Price; Date of Grant.
(a) Exercise Price. The exercise price of each Option shall be
determined by the Committee, in its sole discretion, which determination shall
be conclusive and not subject to review, but in no event shall the exercise
price for Incentive Stock Options be less than 100% of the Fair Market Value
of the Common Stock on the date of grant (or 110% of Fair Market Value with
respect to Incentive Options granted to a 10% Owner) and for Non Qualified
Stock Options, 75% of the Fair Market Value of the Common Stock on the date of
grant.
(b) Date of Grant. For purposes of the Plan, the date of grant of an
Option shall be the date on which the Committee (or Board) shall duly
authorize the Option.
6. Term of Option.
(a) The term of each Option shall be such number of years as the
Committee shall determine, subject to earlier termination as herein provided
or as determined by the Committee, but in no event more than ten years from
the date the Option is granted (or five years in the case of an Incentive
Option granted to a 10% Owner).
(b) If the employment of the holder of an Incentive Option shall be
terminated for any reason other than such holder's disability (as such term is
defined in Section
3
<PAGE>
22(e)(3) of the Code) or death, the Option shall terminate no later than three
months from the date of termination of employment or at such earlier date as
determined by the Committee and set forth in the Option Agreement.
(c) If the employment of the holder of an Incentive Option shall be
terminated by reason of such holder's disability (as such term is defined in
Section 22(e)(3) of the Code) or death, the Option shall terminate no later
than twelve months from the date of such termination of employment or at such
earlier date as determined by the Committee and set forth in the Option
Agreement.
(d) Any Option exercisable after the date of termination of
employment shall be exercisable only to the extent such Option was exercisable
at the date of termination of employment.
(e) Notwithstanding anything to the contrary contained herein, no
Option may be exercised following the termination or expiration of such
Option.
7. Exercise of Options.
(a) Each Option shall be exercisable in accordance with the terms and
conditions and during such periods as may be established by the Committee.
However, the aggregate fair market value (determined as of the time an
Incentive Option is granted) of the shares of Common Stock initially
purchasable upon exercise of Incentive Options by the holder thereof during
any calendar year may not exceed $100,000. In the event that the aggregate
fair market value of stock with respect to which Incentive Options are
exercisable for the first time by you during any calendar year exceeds
$100,000, any Incentive Options with respect to stock in excess of such
$100,000 amount shall be automatically converted and treated as Non-Qualified
Options.
(b) An Option may not be exercised for fractional shares of the
Company's Common Stock.
(c) The exercise of an Option shall be contingent upon receipt from
the holder thereof of a written representation that at the time of such
exercise it is the optionee's then present intention to acquire the Option
shares for investment and not with a view to the distribution or resale
thereof (unless a Registration Statement covering the shares purchasable upon
exercise of the Options shall have been declared effective by the Securities
and Exchange Commission) and upon receipt by the Company of cash, or a check
to its order, for the full purchase price of such shares. The Committee may,
in its discretion, include a "cashless exercise" provision in the applicable
Option Agreement, in which event the optionee will be permitted (i) to deliver
previously owned shares of Common Stock with a Fair Market Value as of the
date of exercise equal to the exercise price in payment of the full purchase
price of such shares; provided, however, any such tendering shares, if
purchased upon exercise of a stock option, shall have been held for at least
six (6) months, or (ii) to request that the Company withhold shares of Common
Stock issuable upon exercise of such Option with a Fair Market
4
<PAGE>
Value as of the date of exercise equal to the exercise price of the shares
being purchased under the Option (thereby reducing the number of shares
issuable upon exercise of the Option).
(d) An Option may not be exercised for fractional shares of the
Common Stock.
(e) The holder of an Option shall have none of the rights of a
stockholder with respect to the shares purchasable upon exercise of the Option
until a certificate for such shares shall have been issued to the holder upon
due exercise of the Option.
(f) The proceeds received by the Company upon exercise of an Option
shall be added to the Company's working capital and be available for general
corporate purposes.
8. Transferability of Options. Except as otherwise provided by the
Committee in an Option Agreement, no Option shall be transferable otherwise
than by will or the laws of descent or distribution. The Committee shall have
the authority to provide in the Option Agreement for transferability of an
Option by the holder of the Option for no consideration to or for the benefit
of the holder's Family Group, subject to such conditions or limitations as the
Committee may establish and the transferee shall remain subject to all of the
terms and conditions applicable to the Option prior to such transfer.
9. No Rights of Employment. Nothing in the Plan or in any Option
Agreement granted hereunder shall confer upon any holder of an Option any
right to continue in the employ of the Company or any subsidiary or obligate
the Company or any subsidiary to continue the engagement of any holder of an
Option or interfere in any way with the right of the Company or any subsidiary
to terminate the employment or engagement of the holder of an Option at any
time.
10. Adjustments Upon Changes in Capitalization. If at any time after
the date of grant of an Option, the Company shall by stock dividend, split-up,
combination, reclassification or exchange, or through merger or consolidation
or otherwise, change its shares of Common Stock into a different number or
kind or class of shares or other securities or property, then the number of
shares covered by such Option and the price per share thereof shall be
proportionately adjusted for any such change by the Committee, whose
determination thereon shall be conclusive.
11. Vesting of Rights Under Options. Neither anything contained in
the Plan nor in any resolution adopted or to be adopted by the Committee or
the stockholders of the Company shall constitute the vesting of any rights
under any Option. The vesting of such rights shall take place only (i) when a
written Option Agreement shall be duly executed and delivered by and on behalf
of the Company and the person to whom the Option shall be granted, and (ii) on
the terms and conditions set forth in such Option Agreement.
12. Withholding Taxes. The Company shall have the right to require
the exercising holder of an Option to remit to the Company an amount
sufficient to satisfy any
5
<PAGE>
federal, state and local withholding tax requirements resulting from or
attributable to such exercise.
13. Compliance with Laws. The grant of Options and the issuance of
Common Stock upon exercise thereof shall be subject to and conditioned upon
compliance with all applicable requirements of law, including without
limitation compliance with the Securities Act of 1933, compliance with
applicable state securities laws and compliance with the requirements of any
stock exchange on which the Common Stock may then be listed. The Company shall
have no obligation to register the Common Stock under the Securities Act or
any state securities laws.
14. Applicable Law. The validity, interpretation and enforcement of
this Plan shall be governed in all respects by the laws of the State of
California (without giving effect to any choice of law or conflict of law
rules or provisions that would cause the application of the laws of any
jurisdiction other than the State of California) and the United States of
America.
15. Termination and Amendment; Successors. The Plan, which was
adopted by the Board on September __, 1999, subject to stockholder approval,
shall terminate on September __, 2009 and no Option shall be granted under the
Plan after such date. The Committee may at any time terminate or amend this
Plan in any respect (including, but not limited to, any form of Grant,
agreement or instrument to be executed pursuant to this Plan); provided,
however, that shareholder approval shall be required to be obtained by the
Company if required to comply with the provisions of Section 162(m) of the
Code, or the listed company requirements of The Nasdaq National Market or of a
national securities exchange on which the Shares are traded, or other
applicable provisions of state or federal law or self-regulatory agencies;
provided, further, that no amendment of this Plan may adversely affect any
then outstanding Options or any unexercised portions thereof without the
written consent of the Optionee.
The obligations of the Company under the Plan shall be
binding upon any successor corporation or organization resulting from the
merger, consolidation or other reorganization of the Company, or any successor
corporation or organization succeeding to all, or substantially all, of the
assets and business of the Company. In the event of any of the foregoing, the
Committee may, at its discretion prior to the consummation of the transaction
and subject to the first paragraph of this section, cancel, offer to purchase,
exchange, adjust or modify any outstanding Options, at such time and in such
manner as the Committee deems appropriate and in accordance with applicable
law.
Upon the reorganization, merger or consolidation of the
Company as a result of which the Company is not the surviving corporation, or
upon a sale of substantially all the property of the Company to another
corporation, the Plan shall terminate and any outstanding unexercised Options
shall terminate, unless provision be made in connection with such transaction
for the assumption of such Options, or the substitution of such Options for
new options covering the stock of a successor employer corporation or a parent
or subsidiary thereof with appropriate adjustments as to the number and kind
of shares and purchase prices. The Company shall provide each holder of an
Option fifteen (15) days' prior written notice of any transaction which would
cause the termination of outstanding Options under this paragraph.
6
<PAGE>
16. Definitions. The following terms shall have the meanings set
forth below for purposes of this Plan.
(a) "Fair Market Value" of a share of Common Stock as of a specified
date shall mean (i) the closing sale price of the Common Stock on the Nasdaq
Small Cap Market (or on such other body on which the Common Stock is then
traded) on the trading day immediately preceding the date as of which the Fair
Market Value is being determined, (ii) if the closing sale price of the Common
Stock is not so quoted, then the mean between the high and low quoted sale
prices of the Common Stock on the last preceding date on which sales were
reported, or (iii) if neither of the above is available, then the mean between
the most recent bid and asked prices of the Common Stock quoted by a market
maker or other recognized specialist in the Common Stock.
(b) "Family Group" shall mean the descendants (whether natural or
adopted) spouse, parents, siblings and their respective descendants (whether
natural or adopted) of the recipient of an Option and any trust solely for the
benefit of the recipient and/or such other persons and any partnership or
limited liability company, the partners or member of which include one or more
individuals within the Family Group.
7
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
INCENTIVE STOCK OPTION AGREEMENT
To: _____________
We are pleased to notify you that by the determination of
the Compensation Committee (hereinafter the "Committee") an incentive stock
option to purchase _______ shares of the Common Stock of HealthCore Medical
Solutions, Inc. (herein called the "Company") at a price of $._____ per share
has this ___ day of ____, ____ been granted to you under the Company's 1999
Stock Option Plan, as amended (herein called the "Plan"). This option may be
exercised only upon the terms and conditions set forth below.
1. Purpose of Option.
The purpose of the plan under which this incentive stock
option has been granted is to secure to the Company and its shareholders the
benefits arising from capital stock ownership by employees, officers and
directors of, and consultants or advisors to, the Company and any subsidiary
corporations who are expected to contribute to the Company's future growth and
success.
2. Acceptance of Option Agreement.
Your execution of this incentive stock option agreement will
indicate your acceptance of and your willingness to be bound by its terms and
the terms of the Plan, a copy of which has been or is simultaneously herewith
being delivered to you; Your execution of this incentive stock option
agreement imposes no obligation upon you to purchase any of the shares subject
to this option. Your obligation to purchase shares can arise only upon your
exercise of the option in the manner set forth in paragraph 4 hereof.
3. When Option May Be Exercised.
The option granted you hereunder shall become exercisable as
follows, except as otherwise provided in the Plan [determine exercise
schedule].
This option may not be exercised for less than [number]
shares at any one time (or the remaining shares then purchasable if less than
[number]) and expires at the end of ten (10) years from the date of grant
whether or not it has been duly exercised (hereinafter, the "Option Expiration
Date"), unless sooner terminated as provided in the Plan.
4. How Option May Be Exercised.
This option is exercisable by a written notice substantially
in the form of Exhibit A signed by you and delivered to the Company at its
executive offices, signifying your election to exercise the option. The notice
must state the number of shares of Common Stock as to which your option is
being exercised, must contain a statement by you (in a form acceptable to the
Company) that such shares are being acquired by you for investment and not
with a view to their distribution or resale (unless a Registration Statement
covering the shares purchasable has been declared effective by the Securities
and Exchange Commission) and must be accompanied by cash or a check to the
order of the Company for the full purchase price of the shares being
8
<PAGE>
purchased, unless exercised pursuant to the "cashless exercise" provisions of
the Plan.
If notice of the exercise of this option is given by a
person or persons other than you, the Company may require, as a condition to
the exercise of this option, the submission to the Company of appropriate
proof of the right of such person or persons to exercise this option.
Certificates for shares of the Common Stock so purchased
will be issued as soon as practicable. The Company, however, shall not be
required to issue or deliver a certificate for any shares until it has
complied with all requirements of the Securities Act of 1933, the Securities
Exchange Act of 1934, any stock exchange on which the Company's Common Stock
may then be listed and all applicable state laws in connection with the
issuance or sale of such shares or the listing of such shares on said
exchange. Until the issuance of the certification for such shares, you or such
other person as may be entitled to exercise this option shall have none of the
rights of a stockholder with respect to shares subject to this option.
The Company shall have the right to require you, or such
other person as may be permitted to exercise this option, to remit to the
Company an amount sufficient to satisfy federal, state and local withholding
tax requirements prior to the delivery of any certificate or certificates for
shares of Common Stock issuable upon exercise of this option.
5. Non-Transferability of Option.
This option shall not be transferable except by will or the
laws of descent and distribution, and may be exercised during your lifetime
only by you.
6. Notification of Early Disposition.
You agree to notify the Company in the event you dispose of
any shares purchased upon exercise of the option at any time prior to the
later of the date falling one year from the date of exercise of the option or
two years from the date of grant.
9
<PAGE>
7. Subject to Terms of the Plan.
This incentive stock option agreement shall be subject in
all respects to the terms and conditions of the Plan and in the event of any
question or controversy relating to the terms of the Plan, the decision of the
Committee shall be conclusive.
Sincerely yours,
HEALTHCORE MEDICAL SOLUTIONS, INC.
By:_______________________________
Name:
Title:
Agreed to and accepted this
____ day of ______, _____.
- ------------------------
Signature of Optionee
10
<PAGE>
Exhibit A
EXERCISE FORM
(To be signed and delivered to
HealthCore Medical Solutions, Inc.
upon exercise of the Option)
I am the holder of an Option to purchase _______ shares of
Common Stock, par value $.01, of HealthCore Medical Solutions, Inc. I hereby
irrevocably elect to purchase _______ shares pursuant to such Option, and
herewith make payment of $_______________ ($____________ per Share) therefor,
and request that the Certificates for Shares be issued in the name(s) of, and
delivered to ______________ whose address(es) is/are __________________________.
I hereby represent that the Shares to be purchased upon the
exercise of this Option are being purchased for investment only, and not with
a view towards the sale, transfer or distribution thereof.
I hereby agrees to notify HealthCore Medical Solutions, Inc.
in the event I dispose of the shares purchased upon exercise of the option at
any time prior to the date falling one year from the date of exercise of the
option.
________________________
Dated:______________, _____
11
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
To: _____________
We are pleased to notify you that by the determination of
the Compensation Committee (hereinafter the "Committee") a Non-Qualified stock
option to purchase _______ shares of the Common Stock of HealthCore Medical
Solutions, Inc. (herein called the "Company") at a price of $_____ per share
has this ___ day of ____, ____ been granted to you under the Company's 1999
Stock Option Plan, as amended (herein called the "Plan"). This option may be
exercised only upon the terms and conditions set forth below.
1. Purpose of Option.
The purpose of the plan under which this Non-Qualified stock option
has been granted is to secure to the Company and its shareholders the benefits
arising from capital stock ownership by employees, officers and directors of,
and consultants or advisors to, the Company and any subsidiary corporations
who are expected to contribute to the Company's future growth and success.
2. Acceptance of Option Agreement.
Your execution of this Non-Qualified stock option agreement will
indicate your acceptance of and your willingness to be bound by its terms and
the terms of the Plan, a copy of which has been or is simultaneously herewith
being delivered to you; Your execution of this Non-Qualified stock option
agreement imposes no obligation upon you to purchase any of the shares subject
to this option. Your obligation to purchase shares can arise only upon your
exercise of the option in the manner set forth in paragraph 4 hereof.
3. When Option May Be Exercised.
The option granted you hereunder shall become exercisable as follows,
except as otherwise provided in the Plan [determine vesting schedule].
This option may not be exercised for less than [number] shares at any
one time (or the remaining shares then purchasable if less than [number]) and
expires at the end of ten (10) years from the date of grant whether or not it
has been duly exercised (hereinafter, the "Option Expiration Date"), unless
sooner terminated as provided in the Plan.
4. How Option May Be Exercised.
This option is exercisable by a written notice substantially in the
form of Exhibit A signed by you and delivered to the Company at its executive
offices, signifying your election to exercise the option. The notice must
state the number of shares of Common Stock as to which your option is being
exercised, must contain a statement by you (in a form acceptable to the
Company) that such shares are being acquired by you for investment and not
with a view to their
12
<PAGE>
distribution or resale (unless a Registration Statement covering the shares
purchasable has been declared effective by the Securities and Exchange
Commission) and must be accompanied by cash or a check to the order of the
Company for the full purchase price of the shares being purchased, plus such
amount, if any, as is required for withholding taxes. Notwithstanding the
foregoing, this option may also be exercised pursuant to the "cashless
exercise" provision.
If notice of the exercise of this option is given by a person or
persons other than you, the Company may require, as a condition to the
exercise of this option, the submission to the Company of appropriate proof of
the right of such person or persons to exercise this option.
Certificates for shares of the Common Stock so purchased will be
issued as soon as practicable. The Company, however, shall not be required to
issue or deliver a certificate for any shares until it has complied with all
requirements of the Securities Act of 1933, the Securities Exchange Act of
1934, any stock exchange on which the Company's Common Stock may then be
listed and all applicable state laws in connection with the issuance or sale
of such shares or the listing of such shares on said exchange. Until the
issuance of the certification for such shares, you or such other person as may
be entitled to exercise this option shall have none of the rights of a
stockholder with respect to shares subject to this option.
The Company shall have the right to require you, or such other person
as may be permitted to exercise this option, to remit to the Company an amount
sufficient to satisfy federal, state and local withholding tax requirements
prior to the delivery of any certificate or certificates for shares of Common
Stock issuable upon exercise of this option.
5. Non-Transferability of Option.
This option shall not be transferable except to members of your
family or to your family trust(s), and by will or the laws of descent and
distribution.
6. Subject to Terms of the Plan.
This Non-Qualified stock option agreement shall be subject in all
respects to the terms and conditions of the Plan and in the event of any
question or controversy relating to the terms of the Plan, the decision of the
Committee shall be conclusive.
13
<PAGE>
7. Tax Status.
This option does not qualify as an "incentive stock option" under the
provisions of Section 422 of the Internal Revenue Code of 1986, as amended,
and the income tax implications of your receipt of a Non-Qualified stock
option and your exercise of such an option should be discussed with your tax
counsel.
Sincerely yours,
HEALTHCORE MEDICAL SOLUTIONS, INC.
By:_______________________________
Name:
Title:
Agreed to and accepted this
____ day of ______, _____
_____________________
Signature of Optionee
14
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated March 18, 1999, with respect to the financial statements of Adatom, Inc.
as of December 31, 1998 and 1997, and for each of the years then ended and for
the period from inception, October 10, 1996 to December 31, 1998, included in
this Registration Statement on Form S-4 of HealthCore Medical Solutions, Inc.,
dated September 15, 1999, and to the use of our name as it appears under the
caption "Experts" in said Registration Statement.
/s/ Ireland San Filippo, LLP
IRELAND SAN FILIPPO, LLP
September 14, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in the registration statement on Form S-4 of
our report dated December 2, 1998 on our audit of the financial statements of
HealthCore Medical Solutions, Inc. as at September 30, 1998 and for each of the
years in the two-year period ended September 30, 1998. We also consent to the
reference to our firm under the caption "Selected Financial Data" and "Experts."
/s/ Richard A. Eisner & Company, LLP
Florham Park, New Jersey
September 16, 1999
<PAGE>
Preliminary Copies
Confidential, For Use of the Securities and Exchange Commission Only
PROXY
HEALTHCORE MEDICAL SOLUTIONS, INC.
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
HEALTHCORE MEDICAL SOLUTIONS, INC., 11904 BLUE RIDGE BOULEVARD, GRANDVIEW,
MISSOURI 64030.
The undersigned hereby appoints [Proxy], and [Proxy], and each of them,
as proxies of the undersigned, each with the power of substitution, to attend
and act for the undersigned at the Special Meeting of Stockholders of HealthCore
Medical Solutions, Inc. to be held at the Marriott Hotel, Kansas City Airport,
775 Brasilia Avenue, Kansas City, Missouri 64153 on Monday, October 1, 1999, at
11:00am and at any and all adjournments and postponements thereof, and in
connection therewith, to vote and represent all of the shares of common stock of
HealthCore which the undersigned would be entitled to vote in any capacity if
personally present at the special meeting. Said proxies, and each of them, shall
have all the powers that the undersigned would have if voting in person. The
undersigned hereby revokes any other proxies to vote at such meeting and hereby
ratifies and confirms all that said proxies, and each of them, may lawfully do
by virtue hereof.
YOUR PROXY CANNOT BE VOTED UNLESS YOU SIGN, DATE AND RETURN THIS CARD.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSAL
(1) To approve the merger of Adatom, Inc., with and into HealthCore Medical
Solutions, Inc. pursuant to the Agreement and Plan of Merger among
Adatom and HealthCore dated as of July 1, 1999, as amended.
/ / FOR / / AGAINST / / ABSTAIN
(2) to approve the 1999 Stock Option Plan; and
/ / FOR / / AGAINST / / ABSTAIN
(3) to approve the termination of the Amended and Restated Escrow Agreement
by and among American Stock Transfer & Trust Company, HealthCore and
certain stockholders of HealthCore dated July 31, 1997
/ / FOR / / AGAINST / / ABSTAIN
Each of the above-named proxies present at the special meeting, either
in person or by substitute, shall have and exercise all the powers of said
proxies hereunder. This proxy, when properly executed, will be voted in the
manner directed herein by the undersigned stockholder with respect to the
proposal and in the discretion of the proxies hereunder on any other business as
may properly come before the special meeting. IF NO INSTRUCTIONS ARE INDICATED
HEREIN, THIS PROXY WILL BE TREATED AS A GRANT OF AUTHORITY TO VOTE "FOR" THE
PROPOSALS.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Stockholders and of the joint proxy statement/prospectus (with all
enclosures and attachments) dated [Date], 1999, relating to the special meeting.
Dated: , 1999
Note: Please sign this proxy exactly as your name
appears hereon. Joint owners should each
sign personally. Attorneys, administrators,
trustees, guardians and others signing in a
representative or fiduciary capacity should
indicate this capacity. An authorized
officer may sign on behalf of a corporation
and should indicate the name of the
corporation and his or her capacity.
<PAGE>
Preliminary Copies
Confidential, For Use of the Securities and Exchange Commission Only
PROXY
ADATOM, INC.
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
ADATOM, INC., 920 HILLVIEW COURT, SUITE 160, MILIPITAS, CALIFORNIA 95035.
The undersigned hereby appoints [Proxy], and [Proxy], and each of them,
as proxies of the undersigned, each with the power of substitution, to attend
and act for the undersigned at the Special Meeting of Stockholders of Adatom,
Inc. to be held at 920 Hillview Court, Suite 160, Milpitas, California, 95035 on
Monday, October 11, 1999, at 9:00am and at any and all adjournments and
postponements thereof, and in connection therewith, to vote and represent all of
the shares of common stock of HealthCore which the undersigned would be entitled
to vote in any capacity if personally present at the special meeting. Said
proxies, and each of them, shall have all the powers that the undersigned would
have if voting in person. The undersigned hereby revokes any other proxies to
vote at such meeting and hereby ratifies and confirms all that said proxies, and
each of them, may lawfully do by virtue hereof.
YOUR PROXY CANNOT BE VOTED UNLESS YOU SIGN, DATE AND RETURN THIS CARD.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSAL
(1) To approve the merger of Adatom, Inc. with and into HealthCore Medical
Solutions, Inc., pursuant to the Agreement and Plan of Merger among
Adatom and HealthCore dated as of July 1, 1999, as amended.
/ / FOR / / AGAINST / / ABSTAIN
Each of the above-named proxies present at the special meeting, either
in person or by substitute, shall have and exercise all the powers of said
proxies hereunder. This proxy, when properly executed, will be voted in the
manner directed herein by the undersigned stockholder with respect to the
proposal and in the discretion of the proxies hereunder on any other business as
may properly come before the special meeting. IF NO INSTRUCTIONS ARE INDICATED
HEREIN, THIS PROXY WILL BE TREATED AS A GRANT OF AUTHORITY TO VOTE "FOR" THE
PROPOSALS.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Stockholders and of the joint proxy statement/prospectus (with all
enclosures and attachments) dated [Date], 1999, relating to the special meeting.
Dated: , 1999
Note: Please sign this proxy exactly as your
name appears hereon. Joint owners should each
sign personally. Attorneys, administrators,
trustees, guardians and others signing in a
representative or fiduciary capacity should
indicate this capacity. An authorized officer
may sign on behalf of a corporation and should
indicate the name of the corporation and his
or her capacity.
<PAGE>
Ex. 99.5
September 9, 1999
HealthCore Medical Solutions, Inc.
11904 Blue Ridge Boulevard
Grandview, MO 64030
Form S-4 Registration Statement for Registration of
Approximately 10,700,000 Shares of HealthCore Medical
Solutions, Inc. Common Stock
Ladies and Gentlemen:
I hereby consent to the use of my name in the above-referenced
registration statement as a member of the Board of Directors of HealthCore
Medical Solutions, Inc., to be renamed Adatom.com, Inc. upon completion of the
merger described in such registration statement.
/s/ Ralph Kennedy Frasier
--------------------------
Name: Ralph Kennedy Frasier
<PAGE>
Ex. 99.6
September 9, 1999
HealthCore Medical Solutions, Inc.
11904 Blue Ridge Boulevard
Grandview, MO 64030
Form S-4 Registration Statement for Registration of
Approximately 10,700,000 Shares of HealthCore Medical
Solutions, Inc. Common Stock
Ladies and Gentlemen:
I hereby consent to the use of my name in the
above-referenced registration statement as a member of the Board of
Directors of HealthCore Medical Solutions, Inc., to be renamed Adatom.com,
Inc. upon completion of the merger described in such registration
statement.
/s/ Sylvia Dresner
---------------------
Name: Sylvia Dresner
