================================================================================
----------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
----------
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
or
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ to ______
__________________________
Commission File No. 0-22947
HEALTHCORE MEDICAL SOLUTIONS, INC.
----------------------------------
(Name of Small Business Issuer)
DELAWARE 43-1771999
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
11904 BLUE RIDGE BOULEVARD, GRANDVIEW, MISSOURI 64030
- ----------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (816) 763-4900
Securities registered pursuant to Section 12(b) of the Act: NONE.
Securities registered pursuant to Section 12(g) of the Act: CLASS A COMMON
STOCK,$.01 PAR VALUE
CLASS A WARRANTS
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
twelve (12) months (or for such shorter period that the registrant was required
to file such report(s)), and (2) has been subject to the filing requirements for
the past ninety (90) days. YES [X] NO [ ]
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained in this form, and no disclosure will be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB [ ].
State issuer's revenues for its most recent fiscal year: $84,402
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of December 28, 1998 $2,892,000.
State the number of shares outstanding of each of the issuer's common equity as
of December 28, 1998 3,018,000 shares of Class A Common Stock, $.01 par value
and 216,000 shares of Class B Common Stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
See the Exhibit Index hereto.
===============================================================================
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The following table sets forth the names, ages and positions of the
executive officers and directors of the Company.
NAME AGE POSITION
- ---- --- --------
Neal J. Polan 47 Chairman of the Board and Chief Executive Officer
David L. Mullikin 43 President, Chief Operating Officer, acting Chief
Financial Officer and Director
Eli Levitin 34 Director
Norman H. Werthwein 55 Director
Neal J. Polan has served as the Chairman of the Board of the Company since
January 1997 and as Chief Executive Officer of the Company since April 1997. Mr.
Polan devotes approximately 50% of his business time to activities on behalf of
the Company. 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.
David L. Mullikin has served as the President, Chief Operating Officer and
a director of the Company since May 1998 and as the acting Chief Financial
Officer of the Company since December 1998. Prior to joining the Company, Mr.
Mullikin served as Chief Executive Officer of the Blue Advantage + Plus division
and the Heartland Card Services division of Blue Cross and Blue Shield of Kansas
City from December 1996 to June 1998 and as Vice President-Member Services of
Blue Cross and Blue Shield of Kansas City from January 1995 to December 1996.
Prior to joining Blue Cross and Blue Shield of Kansas City, Mr. Mullikin served
as a Vice President of Transamerica Insurance Finance Corporation from May 1992
to January 1995. Mr. Mullikin also spent more than 15 years with General
Electric, where he directed finance and service businesses.
Eli Levitin has served as a director of the Company since July 1997. Since
December 1993, Mr. Levitin has served as the General Counsel of Acta Realty
Corp., a real estate investment and management company. Prior to joining Acta
Realty, Mr. Levitin was an associate at White & Case, a New York law firm, from
October 1991 to December 1993. Mr. Levitin received his J.D. from Columbia
University School of Law.
-2-
<PAGE>
Norman H. Werthwein has served as a director of the Company since July
1997. Mr. Werthwein is the Chief Financial Officer of Beech Street Corporation,
a preferred provider organization, a position he has held since August 1994.
Prior to joining Beech Street in August 1994, Mr. Werthwein served as the Chief
Financial Officer of Curaflex Health Services, an alternate site health care
service provider, from January 1992 until August 1994.
All directors hold office until the next annual meeting of stockholders or
until their successors are elected and qualified; vacancies and any additional
positions created by board action are filled by action of the existing Board of
Directors. All officers serve at the discretion of the Board of Directors.
Pursuant to the terms of the Underwriting Agreement executed in connection
with the Company's initial public offering, the Company agreed, if requested by
D.H. Blair Investment Banking Corp. ("Blair"), to nominate a designee of Blair
to the Company's Board of Directors until October 14, 2002.
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee consists of Mr. Polan, Mr. Levitin
and Mr. Werthwein. The Audit Committee is responsible for reviewing, with the
Company's independent accountants, the results and scope of the audit and other
accounting related matters.
The Compensation Committee consists of Mr. Polan, Mr. Levitin and Mr.
Werthwein. The Compensation Committee is responsible for (i) reviewing and
recommending to the Board of Directors the compensation and benefits of all
officers of the Company and (ii) reviewing general policy matters relating to
compensation and benefits of employees of the Company.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers, directors and persons who beneficially own
more than 10% of a registered class of the Company's equity securities to file
with the Securities and Exchange Commission (the "SEC") initial reports of
ownership and reports of changes in ownership of common stock and other equity
securities of the Company. Such executive officers, directors, and greater than
10% beneficial owners are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms filed by such reporting persons.
Based solely on the Company's review of such forms furnished to the Company
and written representations from certain reporting persons, the Company believes
that all filing requirements applicable to the Company's executive officers,
directors and greater than 10% beneficial owners were complied with, except that
a report on Form 4 reporting the acquisition in May 1998 of shares of Class A
Common Stock and Class A Warrants by David L. Mullikin, the Company's President,
Chief Operating Officer and acting Chief Financial Officer, was filed on July 7,
1998.
-3-
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following summary compensation table sets forth the compensation paid
or accrued by the Company to Neal J. Polan, the Company's Chairman of the Board
and Chief Executive Officer, and to executive officers of the Company whose
annual compensation from the Company for services rendered in all capacities
during such fiscal year exceeded $100,000 (the "Named Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation Options Compensation
- ------------------ ---- ---------- ----- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Neal J. Polan ......... 1998 $148,958(1) -- $ 22,458(2) -- $5,942(3)
Chairman and 1997 $ 72,917 -- $663,902(4) -- --
Chief 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)
- -----------------
<FN>
(1) Pursuant to an employment agreement effective as of September 30, 1998
between Mr. Polan and the Company, as of December 1, 1998, Mr. Polan is
entitled to an annual salary of $200,000, plus a bonus to be approved by
the Board of Directors.
(2) Represents amounts paid by the Company to Mr. Polan for certain expenses,
including $17,114 for automobile and related expenses.
(3) Represents amounts paid by the Company 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 the Company; (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."
-4-
<PAGE>
(5) Mr. Mullikin joined the Company in May 1998 as its President and Chief
Operating Officer, and was also appointed as the acting Chief Financial
Officer of the Company upon the resignation of James H. Steinheider, the
Company'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 $100. See "Certain Relationships and Related
Transactions."
(7) Represents amounts paid by the Company for medical and disability insurance
premiums.
</FN>
</TABLE>
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table sets forth certain information regarding stock options
granted to the Named Executive Officers during fiscal 1998.
INDIVIDUAL GRANTS
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED FISCAL YEAR ($SH) DATE
- ---- ---------- ------------ ----------- ----------
(#)(1)
----------
Neal J. Polan -- -- -- --
David L. Mullikin 100,000 80% $.875 6/30/08
- -----------------
(1) The options listed in the table are exercisable on a cumulative basis as
follows: 40% on May 11, 1999; 40% on May 11, 2000, and 20% on May 11, 2001.
-5-
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The following table sets forth certain information with respect to the
exercise of stock options during fiscal 1998 by the Named Executive Officers and
the number and value of unexercised options held by each of the Named Executive
Officers as of September 30, 1998:
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Value Options at Fiscal Year-End at Fiscal Year-End
Acquired on Realized (#) (#)(1)
Name Exercise(#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Neal J. Polan -- -- -- -- -- --
David L. Mullikin -- -- -- 100,000 -- $12,500
- ----------
<FN>
(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.
</FN>
</TABLE>
DIRECTOR COMPENSATION
Non-employee directors are entitled to receive $500 for each Board and
committee meeting attended and are reimbursed for their expenses in attending
such meetings. Directors are not precluded from serving the Company in any other
capacity and receiving compensation therefor. In addition, directors may also
receive stock option grants under the Company's 1997 Stock Option Plan. In
October 1997, the Company granted warrants to purchase 15,000 shares of Class A
Common Stock to Mr. Levitin as compensation for performing investor relations
services for the Company. The warrants are currently exercisable at a price of
$5.00 per share and expire in October 2007.
EMPLOYMENT AGREEMENTS
In September 1998, the Company entered into an employment agreement with
Neal J. Polan, the Chairman and Chief Executive Officer of the Company. 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 the Company. 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,
-6-
<PAGE>
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 May 1998, the Company 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 the
Company 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 the Company,
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.)
The Company has entered into indemnification agreements with each of its
directors and executive officers. Each such agreement provides that the Company
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 the Company. 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 the Company and, with respect to any criminal proceeding, the
indemnitee had no reasonable cause to believe his conduct was unlawful.
-7-
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is information concerning stock ownership of all persons
known by the Company to own beneficially 5% or more of the outstanding shares of
the Company's Common Stock, each director of the Company, each executive officer
named under "Executive Compensation" and all directors and executive officers of
the Company as a group, based upon the number of outstanding shares of the
Company's Common Stock as of December 29, 1998.
<TABLE>
<CAPTION>
PERCENTAGE
COMMON OF PERCENTAGE
STOCK OUTSTANDING OF
BENEFICIALLY COMMON VOTING
NAMES AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) STOCK(3) STOCK(3)
- ---------------------------------------- ------------ ----------- ----------
<S> <C> <C> <C>
Neal J. Polan .............................. 383,000(4) 11.3% 29.2%
David L. Mullikin .......................... 12,000(5) * *
Eli Levitin ................................ 31,250(6) * *
Norman H. Werthwein ........................ 3,750(7) * *
SIGA Pharmaceuticals, Inc. ................. 300,800(8) 8.9 7.1
c/o Adam D. Eilenberg
Ehrenreich Eilenberg Krause & Zivian LLP
11 East 44th Street, 17th Floor
New York, New York 10017
Joel A. Stone .............................. 209,725(9) 6.5 5.0
45 Lakewood Drive
Glencoe, IL 60022
All executive officers and directors of
the Company as a group (4 persons) ....... 430,000(10) 12.5% 30.1%
- -----------------------
* Less than 1%
<FN>
(1) Unless otherwise indicated, the address of such individual is c/o
HealthCore Medical Solutions, Inc., 11904 Blue Ridge Boulevard, Grandview,
Missouri 64030.
(2) 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 exercisable within
-8-
<PAGE>
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.
(3) For purposes of this calculation, the shares of Class A Common Stock and
shares of Class B Common Stock are treated as a single class. The shares of
Class B Common Stock are entitled to five votes per share, whereas the
shares of Class A Common Stock are entitled to one vote per share.
(4) Includes (i) 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, (ii) 142,000 shares of Class A Common Stock
issuable upon exercise of warrants held by Mr. Polan that are exercisable
within 60 days and (iii) 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. Does not include Common Stock issuable
upon exercise of warrants which are not exercisable within 60 days. Mr.
Polan owns all of the issued and outstanding shares of Class B Common
Stock. Certain of Mr. Polan's shares of Class B Common Stock are held in
escrow and are subject to forfeiture and will be contributed to the capital
of the Company if the Company does not attain certain earnings levels or
the market price of the Class A Common Stock does not achieve certain
targets by December 31, 2000. See "Certain Relationships and Related
Transactions."
(5) Does not include 100,000 shares of Class A Common Stock issuable upon
exercise of options which are not exercisable within 60 days.
(6) Represents shares of Class A Common Stock issuable upon exercise of
warrants and options that are exercisable within 60 days. Does not include
3,750 shares of Class A Common Stock issuable upon exercise of options
which are not exercisable within 60 days.
(7) Represents shares of Class A Common Stock issuable upon exercise of options
that are exercisable within 60 days. Does not include 3,750 shares of Class
A Common Stock issuable upon exercise of options which are not exercisable
within 60 days.
(8) Based upon information provided by SIGA Pharmaceuticals, Inc. in a Schedule
13D, as amended, filed under the Securities Exchange Act of 1934, as
amended, dated January 11, 1999, SIGA Pharmaceuticals, Inc. beneficially
owns (i) 151,000 shares of Class A Common
-9-
<PAGE>
Stock and (ii) Class A Warrants that are exercisable within 60 days to
purchase 149,800 shares of Class A Common Stock.
(9) Based upon information provided by Mr. Stone to the Company 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.
(10) Includes 202,000 shares of Class A Common Stock that are issuable upon
exercise of outstanding options and warrants that are exercisable within 60
days. Does not include 249,500 shares of Class A Common Stock issuable upon
exercise of options and warrants that are not exercisable within 60 days.
</FN>
</TABLE>
ESCROW SHARES
In connection with the Company's initial public offering (the "Offering"),
the pre-offering holders of the Company's Class A and Class B Common Stock
agreed to place, on a pro rata basis, 900,000 shares, or three-quarters of the
outstanding shares of Common Stock of the Company before the offering (the
"Escrow Shares"), into escrow pursuant to an amended and restated escrow
agreement (the "Escrow Agreement") with American Stock Transfer & Trust Company,
as escrow agent. The Escrow Shares are not transferable or assignable, but may
be voted by the beneficial holders thereof.
400,000 of the Escrow Shares will be released from escrow if, and only if,
one or more of the following conditions is/are met:
(a) the Company's net income before provision for income taxes and
exclusive of any extraordinary earnings (all as audited by the
Company's independent public accountants in accordance with U. S.
generally accepted accounting principles) (the "Minimum Pretax
Income") amounts to at least $3,800,000 for the fiscal year ending
September 30, 1998;
(b) the Minimum Pretax Income amounts to at least $5,500,000 for the
fiscal year ending September 30, 1999;
(c) the Minimum Pretax Income amounts to at least $7,500,000 for the
fiscal year ending September 30, 2000;
(d) the Closing Price (as defined in the Escrow Agreement) of the 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 the
Offering;
(e) 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 the
Offering.
-10-
<PAGE>
The remaining 500,000 Escrow Shares will be released from escrow if, and
only if, one or more of the following conditions is/are met:
(a) the Minimum Pretax Income amounts to at least $4,600,000 for the
fiscal year ending September 30, 1998;
(b) the Minimum Pretax Income amounts to at least $6,600,000 for the
fiscal year ending September 30, 1999;
(c) the Minimum Pretax Income amounts to at least $9,000,000 for the
fiscal year ending September 30, 2000;
(d) the Closing Price (as defined in the Escrow Agreement) of the Class A
Common Stock averages in excess of $15.00 per share for 30 consecutive
business days during the 18-month period commencing on the date of the
Offering;
(e) the Closing Price of the Class A Common Stock averages in excess of
$18.00 per share for 30 consecutive business days during the 18-month
period commencing with the nineteenth month from the date of the
Offering.
The Minimum Pretax Income amount set forth above shall (i) be calculated
exclusively of any extraordinary earnings, including any charge to income
resulting from release of the Escrow Shares and (ii) be increased
proportionately, with certain limitations, in the event additional shares of
Class A Common Stock or securities convertible into, exchangeable for or
exercisable into Class A Common Stock are issued after the offering. The Closing
Price amounts set forth above are subject to adjustment in the event of any
stock splits, reverse stock splits or other similar events. The Escrow Agreement
can be amended by a two-thirds vote of the outstanding shares of Common Stock of
the Company, other than any shares held by the stockholders whose shares are
held in escrow.
Any money, securities, rights or property distributed in respect of the
Escrow Shares, including any property distributed as dividends or pursuant to
any stock split, merger, recapitalization, dissolution, or total or partial
liquidation of the Company, shall be held in escrow until release of the Escrow
Shares. If none of the applicable Minimum Pretax Income or Closing Price levels
set forth above have been met by December 31, 2000, the Escrow Shares, as well
as any dividends or other distributions made with respect thereto, will be
cancelled and contributed to the capital of the Company. The Company expects
that the release of the Escrow Shares to officers, directors, employees and
consultants of the Company will be deemed compensatory and, accordingly, will
result in a substantial charge to reportable earnings, which would equal the
fair market value of such shares and options on the date of release. Such charge
could substantially increase the loss or reduce or eliminate the Company's net
income, if any, for financial reporting purposes for the period during which
such shares and options are, or become probable of being, released from escrow.
Although the amount of compensation expense recognized by the Company will not
affect the Company's total stockholders' equity, it may have a negative effect
on the market price of the Company's securities.
-11-
<PAGE>
The Minimum Pretax Income and Closing Price levels set forth above were
determined by negotiation between the Company and the representative of the
underwriters in the Company's initial public offering and should not be
construed to imply or predict any future earnings by the Company or any increase
in the market price of its securities.
ITEM 12. 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) to Neal J. Polan, the Company's Chairman of
the Board and Chief Executive Officer, for $6,300 in cash and for certain
consulting services rendered by Mr. Polan.
Between January and February 1997, Mr. Polan loaned an aggregate of
approximately $67,000 to the Company for working capital purposes. Such loans
were repaid together with interest at 10% per annum in March 1997 with a portion
of the proceeds of the Bridge Financing.
Mr. Polan and his wife, jointly, and Eli Levitin, a director of the
Company, invested $50,000 and $25,000, respectively, in the Bridge Financing in
March 1997 (on the same terms as non-affiliated investors) and, accordingly,
each received a Bridge Note in such amount, which was repaid from the proceeds
of the Company'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 the
Company's initial public offering.
In June 1997, Mr. Polan and Theodore White, Jr., a former employee of the
Company, 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 the Company's Minimum Pretax
Income being less than $1,000,000.
For the period from January 1997 until July 1998, the Company 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, the Company 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 are currently exercisable and 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) the
Company's Minimum Pretax Income amounts to at least $3,800,000 for the fiscal
year
-12-
<PAGE>
ending September 30, 1998; (ii) the Company's Minimum Pretax Income amounts to
at least $5,500,000 for the fiscal year ending September 30, 1999; (iii) the
Company's Minimum Pretax Income amounts to at least $7,500,000 for the fiscal
year ending September 30, 2000; (iv) 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 the Company's initial public offering or (v) 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 the Company's initial public offering. See "Security Ownership
of Certain Beneficial Owners and Management -- Escrow Shares."
In October 1997, the Company granted warrants to purchase 15,000 shares of
Class A Common Stock to Mr. Levitin as compensation for performing investor
relations services for the Company. 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 and investments
outside of the Company, 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. In addition, we have entered into a
one-year consulting agreement with Practice Management, Inc., whereby Practice
Management, Inc. will market our business to labor groups, managed care
entities, preferred provider organizations and third party administrators for an
annual fee of $50,000. Mr. Polan has entered into a separate agreement with
Practice Management, Inc. whereby Practice Management, Inc. has agreed in
exchange for a one-time payment of $50,000 from Mr. Polan to present to Mr.
Polan, in preference to others certain business opportunities; provided, that
the agreement between Practice Management, Inc. and Mr. Polan provides that
Practice Management, Inc. shall be obligated to first present to the Company
prior to Mr. Polan, in his individual capacity, any business opportunities that
may be appropriate for our business. These arrangements and agreements may give
rise to certain conflicts of interest.
In connection with the employment of David L. Mullikin, the Company's
President, Chief Operating Officer and acting Chief Financial Officer, in May
1998, the Company sold 10,000 shares of Class A Common Stock to Mr. Mullikin for
$100 in cash in June 1998.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. The Company has adopted a policy that all future
transactions between the Company and its officers, directors, principal
stockholders and their affiliates will be approved by a majority of the Board of
Directors, including a majority of the independent and disinterested outside
directors on the Board of Directors, and will continue to be on terms no less
favorable to the Company than could be obtained from unaffiliated third parties.
-13-
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
3.1* -- Amended and Restated Certificate of Incorporation of the
Registrant
3.2* -- By-laws of the Registrant
4.1* -- Form of Bridge Note
4.2* -- Bridge Warrant Agreement
4.3* -- Form of Warrant Agreement
4.4* -- Form of Representative's Unit Purchase Option
10.1* -- 1997 Stock Option Plan
10.2* -- Amended and Restated Escrow Agreement dated as of July 31, 1997 by
and between the Registrant, American Stock Transfer & Trust
Company and certain stockholders of the Registrant
10.3* -- Form of Network Provider Agreement
10.4* -- Form of Indemnification Agreement
10.5* -- Lease Agreement for office space in Grandview, Missouri between
the Registrant and J.C. Nichols Company, as amended by an
Assignment and First Amendment of Lease dated July 18, 1997.
10.6* -- Voting Agreement dated June 5, 1997 by and between Theodore W.
White, Jr. and Neal J. Polan
10.7* -- Form of Broker Agreement
10.8* -- Agreement between M.K.D. Capital Corp. and the Registrant, as
amended.
10.9** -- Employment Agreement dated as of September 30, 1998 between the
registrant and Neal J. Polan.
-14-
<PAGE>
(a) Exhibits.--(continued)
10.10 -- Letter Agreement dated May 4, 1998 between the Registrant and
David L. Mullikin.
27.1 -- Financial Data Schedule**
- ----------
* Incorporated by reference to the Company's Registration Statement on Form
SB-2 (File No. 333-28233) declared effective by the Securities and Exchange
Commission on October 14, 1997.
** Previously Filed.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the quarter ended
September 30, 1998.
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: January 28, 1999 HEALTHCORE MEDICAL SOLUTIONS, INC.
By: /s/ NEAL J. POLAN
---------------------
Neal J. Polan
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons in the capacity and
as of the date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
/s/ NEAL J. POLAN Chairman of the Board and Chief January 28, 1999
- ------------------------------ Executive Officer (principal
Neal J. Polan executive officer)
/s/ DAVID L. MULLIKIN President, Chief Operating Officer, January 28, 1999
- ------------------------------ Interim Chief Financial Officer and
David L. Mullikin Director
/s/ ELI LEVITIN Director January 28, 1999
- ------------------------------
Eli Levitin
/s/ NORMAN H. WERTHWEIN Director January 28, 1999
- ------------------------------
Norman H. Werthwein
</TABLE>
EXHIBIT 10.10
HEALTHCORE
MEDICAL SOLUTIONS, INC.
NEAL J. POLAN
Chairman of the Board
Chief Executive Officer
May 4, 1998
Dave L. Mullikin
12817 Woodson
Overland Park, KS 66209
Dear Dave:
I am very pleased to take this opportunity to outline below my understanding of
the proposed terms and conditions for your employment by HealthCore Medical
Solutions.
Pursuant to our conversation and, to the best of my recollection, we have agreed
on the following:
Position: President with full operating responsibility for all current
HealthCore initiatives. You will have responsibility for all employees
at the Grandview and Springfield locations as well as supervisory
responsibility for the direct marketing. Toni Todres, my personal
assistant, will continue to report directly to me. We will discuss the
nature of my continuing activities with the Company and our respective
roles. You will be offered a seat on the Board of Directors.
Compensation: (a) Base Salary: $150,000 per annum
(b) Initial equity bonus: Subject to
underwriter approval, 10,000 shares of common
stock to be issued to you at a nominal ($0.01
per share) price.
(c) Performance Bonus: Annual evaluation
Y/E 1998: Maximum of $30,000. This will
be based upon certain agreed upon subjective
and financial targets to be defined by us
within the next 30 days. Future annual
performance bonus based on achieving hard
targets to be determined by our Business
Review.
Benefits: (a) You will be offered benefit participation
(i.e., medical, 401K, death and disability,
life insurance) on an equivalent basis with
our senior management, including myself.
(b) Vacation: 3 weeks paid vacation during the
initial 12 months of your employment.
1325 Avenue of the Americas o Suite 1200 o New York, NY 10019
212.399.9093 o Fax 212.399.9199
<PAGE>
HEALTHCORE
MEDICAL SOLUTIONS, INC.
NEAL J. POLAN
Chairman of the Board
Chief Executive Officer
Dave L. Mullikin
Page 2 of 3
Restrictive Covenants: The Company will request that you sign a
Confidentiality and Non-Solicitation
Agreement. In the event that you terminate
your employment by your own choice or you are
terminated for cause (which shall be narrowly
defined and mutually agreed) the Company may
enforce a non-compete provision for a period
of 1 year without compensation to you. In the
event of termination by the Company not for
cause, the Company will impose a
non-competition restriction on you for a
period of 1 year, which would require the
Company to pay your base salary during the
non-compete period. Notwithstanding, such
payment of base salary may be offset by the
lesser of 50% of any income earned by Mullikin
from a source other than HealthCore during the
restricted period or 50% of the compensation
to be paid during the restricted period.
Stock Options: Subject to a waiver of price restriction by
the underwriter in accordance with our
conversation, the Company will issue to you
upon the inception of your employment an
option to purchase 100,000 shares of common
stock at a price per share equal to the market
value on the date of your employment which
will vest over a 3 year period, at each
anniversary date of your employment. The
vesting schedule will be 40% in each of years
1 and 2 and 20% in year 3. Future options will
be issued as part of your annual performance
review on each anniversary date and will be
subject to the discretion of the Compensation
Committee or the Board of Directors.
Miscellaneous: Auto Allowance ($600 per month)
Cell phone allowance ($125 per month)
Pager ($200 per year)
1325 Avenue of the Americas o Suite 1200 o New York, NY 10019
212.399.9093 o Fax 212.399.9199
<PAGE>
HEALTHCORE
MEDICAL SOLUTIONS, INC.
NEAL J. POLAN
Chairman of the Board
Chief Executive Officer
Dave L. Mullikin
Page 3 of 3
I believe that the enclosed correctly reflects our understanding. Please advise
me if any of the information is inconsistent with your recollection. Upon your
confirmation that the proposal accurately reflects our mutual understanding, I
will present it to the Board of Directors for their approval and will
immediately seek the approval of the underwriters for the approval of the stock
options at the designated price.
I look forward to a long and successful working relationship and I am excited
and pleased that we will have the opportunity to build a profitable and
successful Company.
Very truly yours
/S/ NEAL J.POLAN /S/ DAVE L. MULLIKIN
- ------------------------------- -------------------------------
Neal J. Polan Accepted:
Chairman of the Board Dave L. Mullikin
Chief Executive Officer
NJP/rt
1325 Avenue of the Americas o Suite 1200 o New York, NY 10019
212.399.9093 o Fax 212.399.9199
