U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
|X| ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934 For the fiscal year ended December 31, 1999
or
|_| TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ to _______
Commission File No. 0-22947
ADATOM.COM, INC.
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(Name of Small Business Issuer in its charter)
Delaware 43-1771999
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
920 Hillview Court, Suite 160, Milpitas, CA 95035
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number,: (408) 935-7979
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act: Common Stock par
value, $.01
Warrants
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past ninety (90) days.
YES [X] NO [_]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained herein, and no disclosure will be contained, to the best of
Adatom.com, Inc's ("The Company") 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 the Company's revenues for its most recent fiscal year: $956,000.
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked prices of such common equity, as of March
27, 2000 $53,550,000
State the number of shares outstanding of the Company's common equity as of
March 27, 2000 16,101,499 shares of Common Stock, $.01 par value.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive proxy statement relating to its
2000 Annual Meeting of Stockholders, which statement will be filed not later
than 120 days after the end of the fiscal year covered by this report, are
incorporated by reference in Part III hereof.
PART I
Statements in this Form 10-KSB that are not statements or descriptions
of historical facts are forward-looking statements that are subject to risks and
uncertainties. Words such as "expect," "intends," "believes," "plans,"
"anticipates" and "likely" also identify forward-looking statements. All
forward-looking statements are based on current facts and analyses. Actual
results may differ materially from those currently anticipated due to a number
of factors including, but not limited to history of operating losses,
anticipated future losses, competition, future capital needs, the need for
market acceptance, dependence upon third parties, disruption of vital
infrastructure and intellectual property rights, government regulation
dependence on third parties, and other risks. See the section entitled
"MANAGEMENT DISCUSSION AND ANALYSIS-Risk Factors" for a discussion of some of
those risks. Additional information on factors that may affect the business and
financial results of the Company can be found in filings of the Company with the
Securities and Exchange Commission. All forward-looking statements are made
pursuant to the Securities Litigation Reform Act of 1995. Additional information
on factors that may affect the business and financial results of the Company can
be found in filings of the Company with the Securities and Exchange Commission.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
The Company was established in October 1995 as MegaVision L.C., a
Missouri limited liability company. In February 1997, MegaVision merged into
HealthCore Medical Solutions, Inc. (HealthCore). In October 1999 HealthCore
merged with Adatom,Inc. and then changed its name to Adatom.com, Inc. (the
"Merger").
Adatom, Inc. was incorporated in 1996 by four people. Two of the
founders were Richard Barton and Sridhar Jagannathan, who are directors and
officers of the Company. Adatom, Inc. commenced business in 1997 as a retailer
which had no store sites and used a mobile sales force of franchisees enabled
with a CD-ROM electronic catalogue. The total revenues from its mobile sales
force were not significant and not profitable. We discontinued this form of
retailing and launched our Internet website, www.Adatom.com, in October 1998.
Since it shifted its focus to Internet e-commerce, Adatom.com has been
continuously attempting to maximize the convenience of on-line shopping by
incorporating selection, convenience, value, guarantee, warranty, security and
customer service onto the web. By leveraging its proprietary e-commerce
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infrastructure and efficient distribution system, the Company reaches both the
business-to-consumer and business-to-business markets. In addition to owning and
operating an Internet superstore, www.adatom.com, the Company has developed and
implemented a turnkey e-commerce solution that will provide individuals,
companies, and organizations with "instant" e-commerce capabilities, including
back-end fulfillment, web site development and a full-scale e-commerce
infrastructure. The Company believes that its cost efficient business model will
allow the Company to pass value on to consumers in the form of increased
customer service and price savings. The Company provides a comprehensive product
mix of name brand products for the individual, the home, and the office in 29
product categories. The Company provides access through its Internet store to
over 3 million Stock Keeping Units (SKUs) offered for sale. Products offered are
not limited solely to those products posted on the www.adatom.com site but can
also be sourced from virtually any manufacture or supplier.
THE MERGER
Effective October 12, 1999 ("Effective Date"), Adatom, Inc., a
California corporation ("Adatom, Inc."), merged (the "Merger") with and into
HealthCore a Delaware corporation, with HealthCore as the surviving corporation
which was renamed "Adatom.com, Inc.". The Merger was consummated pursuant to an
Agreement and Plan of Merger, dated as of July 1, 1999, among Adatom, Inc. and
the Company (the "Merger Agreement"). Pursuant to the Merger Agreement, the
Company acquired all of the assets and assumed all of the liabilities and
obligations of Adatom, Inc. Pursuant to the Merger Agreement, on the Effective
Date, each share of Adatom, Inc. common stock, no par value (the "Adatom, Inc.
Common Stock") was converted into the right to receive approximately 2.12 shares
of the Company's common stock ("Common Stock"). As a result of the Merger, there
were 14,448,769 shares of common stock of the Company outstanding on October 12,
1999. Since the date of the Merger, the Company has been conducting the business
that Adatom, Inc. conducted prior thereto. Since the stockholders of Adatom,Inc.
owned 76.4% of the Company after the merger, this transaction has been accounted
for as a reverse acquisition, whereby Adatom, Inc. acquired HealthCore.
RECENT DEVELOPMENTS
The Company is dependent upon raising additional capital to finance its
current operations and future plans for expansion. Recently in early March 2000,
the Company executed documents for a private placement of two million shares of
common stock yielding proceeds of $4 million. The remaining proceeds of this
capital will be exhausted within approximately three or four months. See
"Management's Discussion and Analysis or Plan of Operation" for further details.
In addition, in March 2000 the Company signed an exclusive agreement
with the China Product Trade Center (CPTNC). The Company and the CPTNC will
establish a joint venture company located in Beijing, China to work directly
with the CPTNC. The joint venture company will develop and implement the
systems, Internet applications and other services to enable the marketing and
sale of industrial and consumer goods produced in China into the U.S. as well as
goods produced in the U.S. into the Chinese marketplace exclusively through
Adatom.com. See the caption "China Joint Venture" under the this section for
further details.
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PRODUCTS AND SUPPLIERS
The Company has established relationships with over 1,000 suppliers
(manufacturers and distributors) encompassing a substantially complete breadth
of durable goods for the home and office. Most of its relationships with
suppliers are on a purchase order basis. The Company believes that there are
alternative sources of supply for each product category sold by it, and during
1999 no supplier furnished the Company with products that accounted for more
than 10% of its revenues. The Company's supplier relationships most often enable
drop shipment of goods directly from manufacturers to the consumer, allowing the
Company to operate on a low cost expense model. The Company's low cost business
model provides customers with savings on brand name products in some cases of up
to 50% off traditional retailers. Both the Company's wide selection of products
and product mix distinguish it from its competitors and include many
non-commodity, high quality and value added items that are not typically sold
over the Internet. Adatom.com intends to be the premier Internet site for
furniture and household items and has established relationships with many
leading manufacturers.
CURRENT PRODUCT CATEGORIES (EXCLUDES MULTIPLE SUB-CATEGORIES
WITHIN EACH CATEGORY)
Bathroom Furniture Household Music
Boys Garage Infant Outdoors
Education Girls Lawn & 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
REPRESENTATIVE MANUFACTURERS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Amana American Ames Archipelago Artisan House Bissel
Petronics
Black & Decker Bostonian Bradington Young Braun Carolina Mirror Cochran
Conair Crystal Clear Dexter Dewalt Eureka Fieldcrest 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
Sedgefield Sharp Electronics Spalding Spring Air Stiffel Swank
Toshiba Wrangler Sony Weber Mikasa Stanley
</TABLE>
Most items are dropped shipped from the manufacturer or
supplier to the customers, minimizing the cost of maintaining warehouses and
operating a distribution network. Shipping is outsourced to third parties and is
usually paid by the customer, but to attempt to build its customer base the
Company has offered free shipping for orders placed during certain promotional
periods. The Company 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.
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E-COMMERCE INFRASTRUCTURE
The Company has built a proprietary e-commerce infrastructure 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. The technical design
of the system enables affiliate accounts,( Affiliate is a revenue sharing
program)customer accounts, electronic charging and payment, efficient product
data uploads and exports, order processing, and order status reporting to
customers and affiliates. In particular, the Company has the ability to
concurrently host multiple e-commerce environments utilizing its master products
and customer database. The Company's information management system can monitor
and report on all aspects of the Company's interaction with its customers,
affiliated sites and suppliers.
Through its business-to-business e-commerce enabler business Adatom
E-commerce Solution Program (AESP), the Company intends to leverage its
e-commerce content, business architecture and processes and technical know-how
by providing end-to-end e-commerce solutions. This consists of site development,
infrastructure implementation, fulfillment, and customer service for others
seeking an "instant" on-line retail capability. The Company intends to serve as
the gateway for e-commerce for a large number of web sites and create new
"e-tailers."
Products can be sold at below many typical retail prices due to the
completely scaleable, low cost infrastructure and distribution system of the
Company. The goal is to provide the customer with superior value by combining
the best service with low prices. By selling via the Internet and shipping, in
most cases, directly from the manufacturer or supplier to the consumer, the
costs of intermediaries, maintaining large inventories and staffs, the
requirement of significant physical space fulfillment houses and resultant
overhead expense have been reduced or eliminated.
SALES
Adatom.com has a Multi-Channel Strategy. We believe the Internet is the
fastest growing means of communication, content, and commerce worldwide. During
this period of explosive growth, it is critical to establish a presence on the
Internet among consumers, create brand identity and develop a loyal customer
base. The Company has developed and implemented a dynamic multi-channel strategy
that can be adjusted to efficiently move the Company toward this objective.
A. Adatom.com Direct Channel
The Adatom Direct Channel features an E-commerce site www.adatom.com. This site,
trade-marked as "Home Dimensions", offers Adatom.com's entire product line.
These products are backed by a 30-day "Adatom.com 100% Satisfaction Guarantee",
in addition to the manufacturers warranty. The Company's value proposition to
the customer is "Selection, Price, Convenience, and Personal Service". The
Company offers its customers what it believes to be an attractive blend of cost
savings, quality products and excellent, personalized service to create loyalty
and trust.
Adatom.com offers its entire product line through its Internet
superstore and provides high quality color pictures and detailed information
relating to each product. Through the Direct channel, products are generally
organized by each room in a home where an individual might likely use that item,
by brand, and by category, such as house wares, consumer electronics, furniture
and gifts. Shoppers can browse and select products throughout the web site and
place merchandise in a
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virtual shopping cart that facilitates the processes of collecting items,
totaling, and confirming purchases.
Many customer-friendly features have been incorporated in the site to
develop loyalty and promote repeat business. These features include telephone or
chat-room communication with Personal Shopping Consultants ("PSC"), product
search systems, and an easy-to-navigate icon or "key word" architecture. The
Company's software will also allow customers to access bridal or shopper
registries and features an extensive offering of gifts for special occasions.
Adatom.com believes that a key to its success is enhanced customer
service effort. The primary focus is to provide each shopper with a comfortable,
non-threatening, easy environment in which to shop. For example, for the
customer who likes to browse and "window shop", the Company sets up its store by
department to facilitate the experience. For the shoppers who know what they
want, they can go directly to an item by using the search function. Finally, for
the person who hates shopping but must do it, he/she can contact a PSC by
e-mail, phone or fax, and ask for suggestions or make a special request and have
the leg work done by someone else.
The Personal Shopping Consultant (PSC) takes on the role of a
traditional retail salesperson assisting a customer's navigation through the
site, providing advice, suggesting additional items, placing a special order,
following up on delivery and facilitating the completion of a positive shopping
experience. When a special order is initiated, the request is researched and
sourced and a response is provided directly to the customer, generally within 24
hours, either by e-mail, fax or telephone.
Although the Company believes that its infrastructure is at the
forefront of current Internet and computer technology, it is not dependent on
the development of additional technology to succeed, and most Internet capable
computers can access Adatom.com's web site without additional hardware or
software.
B. Adatom.com Affiliate Channel
The Affiliate Channel is a revenue sharing program designed to develop
customer awareness of its e-commerce superstore and create market presence with
minimal acquisition costs. The Company has developed a revenue sharing
arrangement through an expanding number of strategic marketing arrangements.
These organizations generally receive a percentage of the proceeds generated
from sales of Adatom.com's products originating through its website and/or a
monthly fee. At certain sites, including AOL, Yahoo, Lycos, and Geocities the
Company is represented as a full store. Other Affiliate channels contain direct
links to Adatom.com's web site (www.adatom.com) or links for fulfillment of
specific product or product categories. The Affiliate Channel program provides
the Affiliates with the opportunity to dramatically increase their product
offering and earn significant income at no additional cost.
Commission rates are generally determined by the profitability of the specific
product sold.
Some of Adatom.com's marketing affiliates are shown below. The Company
intends to aggressively expand its marketing arrangements to include many of the
most highly trafficked sites on the Internet.
Organization:
AOL (Adatom Branded Store) E. Marketing & Publishing Group
Yahoo (Adatom Branded Store) Traffix.com
Geocities Webstop.net
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Lycos (Adatom Branded Store) The EMS Group
Inktomi Ivoice
Holiday Channel Professional Athletics Association
Knight Ridder Linic Share
Kason Corporation Gay.com
Direct Hit Cool Savings.com
Business Campus Alta Vista
My Simon Worldmall.com
Buyersedge.com Media in Motion
C. Adatom.com E-commerce Solution Program (AESP)
AESP is a business to business e-commerce program designed to work with
companies and individuals seeking to gain an instant presence in the e-commerce
marketplace by creating a branded store. The Company is an e-commerce enabler
and will provide all of the associated fulfillment services. The AESP affiliate
will receive a commission on sales which will allow companies to launch their
"own" stores without the start-up burdens and high development costs often
associated with such ventures. The responsibility and cost of customer
acquisition will be borne by the AESP affiliate while the costs incurred by the
Company will be relatively low. Products, order management systems, and customer
support representatives will be shared with other e-tailers, including
www.adatom.com. AESP is anticipated to receive significant attention in the
marketplace, through its ability to quickly and efficiently launch new
e-tailers. The AESP program was launched in January 2000, with the first
customer iEntertainment Network. To date the Company has signed 30 AESP
contracts.
We may choose to expand our operations by developing new departments or
product categories, promoting new or complementary products or sales formats,
expanding the breadth and depth of products and services offered or expanding
our market presence through relationships with third parties. In addition, we
may pursue the acquisition of new or complementary businesses, products or
technologies.
SERVICE
Adatom.com believes that quality customer service is critical to
attracting and retaining customers and distinguishing the Company from other
online shopping services. The Company is staffed with trained Personal Shopping
Consultants (PSCs) to assist customers navigating through the Internet
Superstore, answer questions, suggest additional items, and ensure a smooth
execution of the transaction. The Company uses third party evaluations of its
customer service, such as Bizrate. During the period of March 10th to the 15th,
2000 our rating was Four Stars.
Interaction between PSCs and customers can take place via the Internet
using the Company's Internet "chat" feature or special order web page that can
be activated directly from the Company's site. PSCs can also be accessed by
telephone or fax. PSCs provide customers with purchase and shipment information.
PSCs also perform "special order" functions when customers request products that
are not part of Adatom.com's product offering. PSCs will source, order and ship
such products to the customer, often at substantial discounts from traditional
retail prices. Customers can provide all billing, credit card and shipping
information to the PSC via the Internet or over the telephone. The Company has
implemented two-way interactive chat software that enables customers to obtain
immediate online responses from PSCs. This software allows the PSC to match
specific customer requests with items from Adatom.com's product offerings and
navigate the customer through the web site and showcase various products on the
customer's computer screen.
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The Company has created a customer tracking software package and
database that will enable it to maintain complete records of its customers'
purchases. This database will create a specific preference profile for each
customer and allow the Company to create a highly customized one-to-one
marketing and merchandising interface with its shoppers. Customer profiles will
be used to anticipate a customer's future purchases and enable Adatom.com to
customize web pages or web site navigation tools to highlight likely items of
interest. The Company will in the future remind customers via e-mail when it is
time to replace or replenish items that were previously purchased and cross-sell
complementary products. The Company will also e-mail customers regarding
upcoming special occasions such as birthdays and anniversaries, as well as
customize its web site for holidays and special events.
MANUFACTURER AND SUPPLIER NETWORK
The Company currently obtains its products from over 1,000 suppliers
(manufacturers and distributors). In order to offer a broader range of
competitively priced merchandise, the Company is attempting to expand this
network by up to 10 new suppliers each month. Suppliers play a crucial role in
the Company's business and are selected according to their ability to offer
quality merchandise that is not subject to widespread discounting or high rates
of customer returns. Suppliers must be able to quickly respond to the Company's
purchase orders, ship products in small quantities directly to customers,
provide the status on order delivery and continuous updates on merchandise
information. Finally, suppliers must offer a comprehensive quality assurance and
return policy that ensures customer satisfaction. Most merchandise is shipped
directly from suppliers or outsourced to third parties, which enables the
Company to avoid inventory-related risks, limit overhead costs and provide
timely delivery.
The Company is devoting a significant effort to enhancing its supplier
relationships by automating virtually all forms of information relating to
product availability, pricing, shipment and payment. This interface will greatly
enhance the "virtual value chain" the Company has created by providing an
efficient, streamlined ordering and fulfillment process with data updated in
real time. The Company has already made significant advances in catalog
automation and efficiency, which has enabled the high-speed entry of product
data to be processed and uploaded on to the site. Adatom.com plans to implement
this strategy over the next 18 months.
SHIPPING
Adatom.com has arranged for shipping to be outsourced to third parties,
usually at a profit to the Company. The shipping charges are paid by the
customers unless the purchase is made during a promotion where the Company
agrees to pay for shipping such as occurred in November and December and much of
the first quarter 2000. All shipments arranged by the Company are insured. The
Company has developed a network of primary and back-up shippers and handlers
that offer both standard and express services throughout the United States. The
Company has contracts with several national and regional shipping companies that
can accommodate both box items, typically shipped via UPS, and larger items
(i.e. refrigerators or furniture). The Company utilizes a network of deluxe
shippers for certain large ticket items that may require finishing. Deluxe
shippers will unwrap products from their original factory packaging in order to
inspect, polish and deliver them to their final destination for assembly and
installation.
The Company, like other Internet retailers, experienced shipping delays
of products during the 1999 holiday season and in many instances had to make
special arrangements to have orders delivered. In addition, the Company is
presently working with its suppliers to expedite the shipping time of non-bulk
items.
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STAGED FULFILLMENT
Through Adatom.com's advanced marketing data base and extensive
customer service efforts, analysis of customer buying patterns and knowledge of
the consumer marketplace, the Company believes that it can detect, with a high
degree of accuracy, which products are frequently ordered/requested and continue
to be in high demand. To respond and to exploit this valuable information, the
Company has initiated a program referred to as "Staged Fulfillment". This
program provides Adatom.com with an opportunity to pre-plan and order limited
quantities, in advance, of specific merchandise and store it on the Company's
premises. This enables the immediate, just-in-time delivery capabilities that
Internet shoppers are seeking and provides a competitive advantage. In this
program, the Company does assume some inventory risk.
TECHNICAL INFRASTRUCTURE
The Company's technological infrastructure services and supports the
business processes necessary to interface with its E-tail channels, customer
operations, manufacturers and suppliers and internal management operations.
Specifically, its Information Technology (IT) infrastructure provides the
interface between affiliate accounts, customer accounts, electronic charging and
payment, efficient product data uploads and exports, order processing, and order
status reporting to customers.
Adatom.com believes that its infrastructure provides it with the
following competitive advantages:
Efficient Supplier Management
The IT model is designed for the electronic interaction with its suppliers,
including obtaining product information, sending and querying for orders, and
supporting payment processes. Most of the Company's current suppliers utilize
paper and fax invoices. Adatom.com orders are placed and tracked with the
supplier electronically and the Company is currently evaluating the use of such
emerging standards as XML to improve operating efficiency.
UUNET
In order to enable high performance for its site for global access, Adatom.com
has signed co-location agreements with UUNET for siting its services at UUNETS
San Jose facility. UUNET has one of the best Internet communications
infrastructures.
Akamai
Adatom.com is focused on providing a high quality customer experience while
navigating its site. To facilitate this customer experience, Adatom.com has
signed agreements with Akamai to use its Free Flow(TM) technology. This enables
graphics heavy content to be located on about 2,000 Akamai servers located
world-wide. Thus customers receive images and video rapidly when accessing the
Adatom.com website.
India Based Development
Recognizing the need for timeliness in software development (for site and
internal functionality) and the shortage of talent in the U.S., Adatom.com has
signed an offshore software development agreement with Mastek, India. This
provides quick development turnaround, bug fixes, and leading edge research
relating to new capabilities.
Merchandise Updated in Real Time
The Company's product entry process is complex and automated. This process
entails the initial supplier acquisition, obtaining product details, pricing,
availability, variations, and related product information.
Streamlined Business Processes
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The IT infrastructure includes customized links between its business and
accounting processes so all operational information is transmitted immediately
to management systems, allowing for close supervision and control.
Easy Scalability
The IT infrastructure has been designed for high performance and rapid
scalability to handle any increase in customer volume as sales grow.
COMPETITION
The online e-commerce market is new, rapidly evolving and intensely
competitive. The Company expects competition to continue to intensify in the
future. Barriers to entry are minimal, and current and new competitors can
launch new Web sites at a relatively low cost. Many of our current and potential
traditional store-based and online competitors have longer operating histories,
larger customer or user bases, greater brand recognition and significantly
greater financial, marketing and other resources than we. Additionally the
larger retailers offer credit-financing plans, which the Company did not during
1999 but may offer in 2000. The Company currently or potentially competes with a
variety of other companies, including:
- - major "brick and mortar" retailers such as Macys, J.C. Penney's,
Nordstrom's, and Target;
- - online efforts of these traditional retailers, including the online stores
operated by Macy.com. J. C. Penney, Toys R Us, and Wal-Mart:
- - catalog retailers;
- - vendors or manufacturers that currently sell certain of their products
directly online, such as Mattel;
- - other online retailers such as Amazon.com, Tavolo.com, Furniture.com,
CDnow, Beyond.com and Reel.com;
- - on line stores that have a presence on Internet portals and online service
providers that feature shopping services, such as America On Line (AOL),
Yahoo!, Excite and Lycos;
- - various online retailers.
New technologies and the expansion of existing technologies may increase the
competitive pressures on us.
MARKETING AND ADVERTISING
Adatom.com's marketing strategy is designed to strengthen the Adatom
brand name, increase customer traffic to the Adatom.com website, build customer
loyalty, and encourage repeat business. The Company employs a variety of media,
business development, and promotional methods to achieve these goals including
online and traditional advertising, including radio and television.
Marketing Plan
A major focus of Adatom.com`s marketing strategy has been designed to
generate larger ticket item purchases, including furniture and major appliances,
which typically generate higher margins for the Company and provide customers
with greater savings. The Company plans to focus on demographic markets which
include individuals who are making significant lifestyle changes, such as
newlyweds and new home buyers, and are likely to be attracted to the value-added
service, time and cost savings and efficiencies offered by the Company's online
shopping service.
Advertising Strategy
Adatom.com has implemented a multi-channel approach to efficiently and
rapidly establish itself as a presence on the Internet, create brand identity,
and develop a loyal customer base. To direct its advertising strategy, the
Company hired an Internet-savvy advertising firm and will execute an aggressive
advertising campaign. This strategy combines a variety of venues and media
outlets and is targeted at well-defined, diversified target markets. The Company
believes that
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continuation of and growth in our online Affiliate relationships
with major portals, community sites and trade publications as well as
representation on the largest Internet search engines will bring exposure and
traffic to the Company's e-commerce web site. Additionally, the Company has
implemented an off line advertising campaign consisting of television, drive
time radio and coop ads in appropriately defined markets.
CHINA JOINT VENTURE
In March 2000, the Company signed an exclusive agreement with the China
Product Trade Net Center (CPTNC). The CPTNC is an organization officially
launched in 1998 with the support of several Chinese governmental and private
institutions to enable increased sales and ensure systematic and efficient
worldwide distribution of Chinese manufactured goods. The CPTNC has formal
recognition and participation of the following institutions:
1. National Economy and Trade Committee
2. Domestic Trade Ministry
3. Chinese and Foreign Economic and Trade Cooperation Ministry
4. Postal Service Bureau
5. Electronics Industry Ministry
6. National Industrial and Commercial Administration Management Bureau
7. National Census Bureau
8. China Industrial & Commercial Bank
The CPTNC initiative covers both consumer and industrial goods and aims
to use Internet technology as its primary information and distribution medium.
The Company and the CPTNC will establish a joint venture company
located in Beijing, China, to work directly with the CPTNC. The joint venture
company will develop and implement the systems, Internet applications, services
and support to enable the marketing and sale of industrial and consumer goods
produced in China into the U.S. as well as goods produced in the U.S. into the
Chinese marketplace exclusively through Adatom.com.
The scope of this agreement includes the establishment of an electronic
business-to-business and business-to-consumer marketing, selling and
distribution system with back-end factory quality and level of service
standards. This electronic system will be accessible in both English and
Chinese. Additional support will be provided by subsidiary CPTNC organizations
including the centers for transportation, trade, Internet and method of
payments.
The implementation of this joint venture is expected to take
approximately 60 days based on receipt of various China business licenses and is
also subject to submission of a mutually acceptable business plan.
EMPLOYEES
As of December 31, 1999, the Company had 37 full-time employees and 6
part-time employees. None of the Company's employees are represented by a labor
union. The Company has not experienced any work stoppages and considers its
relations with its employees to be good. As of March 20, 2000, we had 41
full-time employees and 8 part-time employees.
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently leases approximately 8,000 square feet of office
space in Milpitas, California for its offices pursuant to lease agreements that
provide for aggregate monthly rent of approximately $18,600. These leases end on
May 31,
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2000. The Company believes that additional office space will be needed for the
future needs of the Company and that rental expense will increase.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 11, 1999, the Company held a special stockholders meeting in
connection with approval of the merger of Adatom,Inc. with and into HealthCore,
the Company's predecessor and to vote on other matters. The vote was as follows:
1. Approval of the merger:
Broker
For Against Abstain Non-Votes
3,090,190 None None None
In addition, the stockholders of the Company voted on the following items at its
meeting:
2. Approval of the 1999 Stock Option Plan
Broker
For Against Abstain Non-Votes
3,090,190 28,000 None None
3. Approval of termination of Amended and Restated Escrow Agreement by and among
American Stock Transfer & Trust Company, HealthCore and certain stockholders of
HealthCore dated July 31, 1997
Broker
For Against Abstain Non-Votes
951,190 None None None
The third item, approval of termination of Amended and Restated Escrow Agreement
by and among American Stock Transfer & Trust Company, the Company and certain
stockholders did not receive 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 stockholder whether or not those shares are
subject to the Escrow Agreement.
Subsequently the termination of the Escrow Agreement was accomplished by written
consent of at least two-thirds of the outstanding shares of common stock of the
Company, other than shares held by Escrow Stockholders on January 6, 2000.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Between October 14, 1997, the date of the Company's initial public offering
(the "IPO"), and November 5, 1999 the Company's Units, each Unit consisting of
one share of Common Stock and one Warrant, have traded on the Nasdaq SmallCap
Market under the symbol HMSIU. Since November 5, 1999 the units have traded
under the symbol ADTMU. The Company's Common Stock and Warrants (referred to as
"Class A Common Stock" and "Class A Warrants," respectively, prior to the merger
with Adatom, Inc.) traded on the Nasdaq SmallCap Market under the symbols HMSI
and HMSIW, respectively, between February 10, 1998 and November 5, 1999. Since
November 5, 1999 they have traded under the symbols ADTM and ADTMW respectively.
The
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following sets forth the high and low bid prices of the Common Stock for the
two fiscal years ended December 31, 1998 and 1999 as reported by The Nasdaq
Stock Market, Inc. The quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not represent actual transactions.
___________BID PRICES_____________
_____HIGH_____ _____LOW_____
Year ended December 31, 1999
First Quarter 3.06 0.60
Second Quarter 3.88 1.00
Third Quarter 2.94 2.06
Fourth Quarter 8.63 2.31
Year ended December 31, 1998
First Quarter 3.25 3.25
Second Quarter 2.00 .63
Third Quarter 1.13 .63
Fourth Quarter 1.31 0.69
(a) The Company's Common Stock did not begin trading separately on the
Nasdaq Small Cap Market until February 10, 1998.
(b) As of March 23, 2000, the Company had 69 holders of record of its
Common Stock.
(c) During the quarter ended December 31, 1999, the remaining net
proceeds from the Company's IPO, which was approximately $1,800,000 on September
30, 1999 were used (i) to make principal and interest payments in the amount of
approximately $43,000 on capital leases; and (ii) for working capital purposes.
(d) The Company has never paid cash dividends on its Common Stock and
does not anticipate paying cash dividends in the foreseeable future. The Company
currently intends to retain all earnings, if any, for use in the expansion of
the Company's business. The declaration and payment of future dividends, if any,
will be at the sole discretion of the Board of Directors and will depend upon
the Company's profitability, financial condition, cash requirements, future
prospects and other factors deemed relevant by the Board of Directors.
(e) Sales of securities not registered under the Securities Act of 193
occurred as follows during the reporting period:
(i) In July 1999, Jesup & Lamont Acquisition Corp. loaned Adatom, Inc.
$500,000 pursuant to a convertible note. The note was convertible immediately
prior to the merger with the Company into 4.74% of the outstanding common stock
of Adatom, Inc. Jesup & Lamont Securities Corporation received a warrant for
common stock of Adatom, Inc. in consideration of making this loan.
In September 1999, the loan described in clause (i) above was
consolidated with an additional loan of $562,000 from various clients of Jesup &
Lamont Securities Corporation pursuant to convertible notes. These notes were
convertible immediately prior to the Merger into an aggregate of 10.2% of the
outstanding common stock of Adatom, Inc. Jesup & Lamont Securities Corporation
received a warrant for common stock of Adatom, Inc. in consideration for
arranging these loans.
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As a result of the merger of Adatom, Inc. into the Company, the lenders
received an aggregate of 517,983 shares of common stock of Adatom, Inc., which
at the time of the Merger converted into an aggregate of 1,124,023 shares of
common stock of the Company. The warrants held by Jesup & Lamont Securities
Corporation become warrants for an aggregate of 312,402 shares of common stock
of the Company with a term of five years and at an exercise price of $0.99 and
$1.00.
The foregoing transactions were done under Section 4(2) of the
Securities Act of 1933 based, INTER ALIA, on representations and warranties made
by the investors, the small numbers of investors solicited and the absence of
any advertising or general solicitation in the process of raising funds.
(ii) In October 1999, Adatom, Inc. issued to Richard Barton,
who was at that time the CEO of Adatom, Inc. and after the merger with the
Company became the CEO of the Company, 1,800,000 shares of common stock for
$1,800,000. Adatom, Inc. used the proceeds of this sale to repay loans Mr.
Barton had made to the Company for working capital since 1998 in an aggregate
amount of $1,800,000. This transaction was done under Section 4(2) of the
Securities Act of 1933 based, INTER ALIA, on representations and warranties made
by Mr. Barton, the fact that he was the only person involved in the transaction
and the absence of any advertising or general solicitation in the conversion
process.
(iii) In October 1999, Adatom, Inc. issued 172,828 shares of
its common stock to Neal Polan, who was then the President of the Company, in
consideration of his entering into an employment agreement with the Company for
services following the Merger and executing a promissory note in favor of the
Company in the amount of $320,760. (This note was subsequently forgiven pursuant
to its terms when Mr. Polan resigned from all of his positions with the Company
in March 2000.) This transaction was done under Section 4(2) of the Securities
Act of 1933 based, INTER ALIA, on representations and warranties made by Mr.
Polan, the fact that he was the only person involved in this transaction and the
absence of any advertising or general solicitation.
(iv) In October 1999, the Company issued 28,400 shares of
common stock to Mr. Polan in consideration for his surrender to the Company of a
warrant to purchase 142,000 shares of common stock of the Company. This
transaction was done under Section 4(2) of the Securities Act of 1933 based,
INTER ALIA, on representations and warranties made by Mr. Polan, the fact that
he was the only person involved in the transaction and the absence of any
advertising or general solitation in the conversion process.
(v) In October 1999, Adatom, Inc. issued 179,497 shares of
common stock to Hamilton Richardson & Associates (HRA) for services rendered in
connection with the Merger and the raising of capital. This transaction was done
under Section 4(2) of the Securities Act of 1933 based, INTER ALIA, on
representations and warranties made by HRA, the fact that HRA and one other
entity were the only entities involved in the transaction and the absence of any
advertising or general solicitation.
(vi) In October 1999, Adatom, Inc. issued 146,862 shares of
its common stock to ValueAdd Financial Corporation (VFC) for services rendered
in connection with the Merger and the raising of capital. This transaction was
done under Section 4(2) of the Securities Act of 1933, based, INTER ALIA, on
representations and warranties made by VFC, the fact that VFC and one other
entity were the only entities involved in the transaction and the absence of any
advertising or general solicitation.
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<PAGE>
(vii) In November 1999, the Company entered into an agreement
with Continental Capital & Equity Corporation (Continental) for various market
advisory services. In connection with this agreement, the Company granted
Continental a warrant to purchase 230,000 for a period of up to one year after
the warrants are first registered under the Securities Act of 1933 at an
exercise prices of between $4.00 and $9.10. This transaction was done under
Section 4(2) of the Securities Act of 1933, based, INTER ALIA, on
representations and warranties made by Continental, the fact that Continental
was the only entity involved in such an agreement and the absence of any
advertising or general solicitation.
(viii) During the fourth quarter of 1999, seven ex-employees
and ex-directors of the Company exercised stock options granted to them under
one of the Company's stock option plans which were about to expire. The total
number of shares of common stock issued to these ex-employees and ex-directors
was 233,750 and the exercise prices ranged from $0.10 per share to $1.09 per
share. These exercises were done under Section 4(2) of the Securities Act of
1933 based, INTER ALIA, on representations and warranties made by the optionees,
the small number of optionees involved and the absence of any advertising or
general solicitation in the option grant and exercise process.
(ix) In February 2000, the Company issued 172,057 shares of
common stock to Richard Barton in consideration of the cancellation by him of
loans made by him to the Company in the aggregate principal amount of $500,000.
This transaction was done under Section 4(2) of the Securities Act of 1933
based, INTER ALIA, on representations and warranties made by Mr. Barton, the
fact that he was the only person involved in the transaction and the absence of
any advertising or general solicitation in the conversion process.
(x) In March 2000, the Company issued two million shares of
common stock to a small number of outside investors yielding proceeds of $4
million. This transaction was done under Section 4(2) of the Securities Act of
1933 based, INTER ALIA, on the representations and warranties made by the
investors, the fact that such investors were almost exclusively the only parties
to which the stock was offered and sold and the absence of any advertising or
general solicitation in the process.
(xi) In March 2000, the Company agreed to issue warrants to
purchase up to 5 million shares of common stock to Dr. Victor Nee. Dr. Nee
assisted with the negotiation of the CPTNC agreement discussed in the
"Description of Business" section of this report. Most of these warrants are not
issuable until various investment and/or profitability benchmarks are met for
the China joint venture. The issuance of all of the warrants is also subject to
stockholder approval. When issued, the Company believes that this transaction
will qualify for the exemption from registration under Section 4(2) of the
Securities Act of 1933.
ITEM 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto appearing elsewhere in this
report.
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GENERAL
The Company has created an Internet-based retail system, www.adatom.com
superstore, where most goods flow directly from suppliers to the consumers. The
Company also outsources warehouse facilities for stocking certain products and
filling demand from this inventory where it is more practical to do so. The
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. The Company's
revenues are derived principally from the sale of goods to consumers and
businesses. All sales and their corresponding expenses are recognized as
revenues when the goods are shipped to the customer.
During the fiscal year ended December 31, 1999, the Company's primary
activities consisted of building brand name recognition through the superstore
with affiliate programs, agreements with web shopping portals, an advertising
campaign launched in October 1999, and promotions, including free shipping on
orders placed during the 1999 holiday season.
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto appearing elsewhere in this
report. Additionally, the following table indicates quarterly user sessions,
orders received, and revenue beginning with the fourth quarter of 1998 when the
Company launched its website.
- --------------------------------------------------------------------------------
No. of Orders
User Sessions Received Revenue
- --------------------------------------------------------------------------------
4th Quarter 1998 53,490 179 $62,731
- --------------------------------------------------------------------------------
1st Quarter 1999 62,743 271 $99,955
- --------------------------------------------------------------------------------
2nd Quarter 1999 366,607 1,611 $161,255
- --------------------------------------------------------------------------------
3rd Quarter 1999 517,548 1,533 $221,045
- --------------------------------------------------------------------------------
4th Quarter 1999 1,078,633 6,547 $473,745
- --------------------------------------------------------------------------------
While the Company started with a small base of 53,490 user sessions
during the fourth quarter 1998 the actual increase of over 1,000,000 user
session fourth quarter to fourth quarter shows a percentage growth of over
1,900%. Most encouraging is the steady quarter over quarter growth in both the
user sessions and in the revenue. During 1999 the revenue as a percentage has
increased from a low of 37% to a high of 114% quarter over quarter. The
Company's revenues for the first quarter of 2000 will most likely be below
fourth quarter 1999 levels due in large part to the seasonality of the retail
business.
RESULTS OF OPERATIONS:
FISCAL YEARS ENDED DECEMBER 31, 1998 AND 1999. Revenues of
approximately $956,000 were generated during the fiscal year ended December 31,
1999; an increase of approximately 229.7% compared to revenues of approximately
$290,000 during the fiscal year ended December 31, 1998. The increase was due to
the launch of marketing programs including affiliate programs, agreements with
web shopping portals, an advertising campaign launched in October 1999, and
promotions, including free shipping on orders placed during the 1999 holiday
season. At December 31, 1999, the Company had a backlog of orders received from
customers, which had not yet shipped, totaling 1,135 orders for approximately
$205,000. Management expects that the revenue related to these orders will be
recognized in early 2000 when the orders are shipped to customers.
Gross profit decreased 77.1% from approximately $48,000 in 1998 to
$11,000 in 1999. During the 1999 holiday shopping season, the Company offered
free shipping on orders to build the customer base and brand name recognition,
and to be competitive in the e-tail market place. The promotion was successful
in increasing order volume. The freight costs incurred during this promotion and
the need to use alternative sources at higher prices for some products to fill
the spike in demand
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reduced gross profit resulting in the decrease in gross profit from 1998.
Management anticipated this impact and believed that the expected increase in
customers, customer satisfaction, and brand name recognition justified the cost
incurred.
Selling, general, administrative and web development expenses increased
by approximately 216.% from approximately $1,322,000 in 1998 to approximately
$4,183,000 in 1999. This amount is exclusive of a non-cash charge, which will be
explained, in greater detail below. This increase in 1999 over 1998 is primarily
as a result of increased salaries and related expenses due to increased
headcount to handle the business growth, increased advertising and promotions to
grow business volume, and costs of $429,000 related to the Merger. The following
table depicts staffing levels at quarter ending dates in 1999. Staffing
increased from seven total employees on December 31, 1998 to 43 total employees
on December 31, 1999. This is an increase of over 500%
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Q1 1999 Q2 1999 Q3 1999 Q4 1999
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Employees (both full and part time) 9 14 30 43
- -----------------------------------------------------------------------------------------
</TABLE>
The compensation increases were mainly attributable to the addition of
executive and middle management positions including a Chief Technology Officer,
Vice President of Operations, Controller, and other staff positions.
The compensatory charge of $8,542,000, which occurred during 1999, and
not at all in 1998, was related to the issuance of common stock and non-employee
stock options. This charge relates to the following:
(i) in October 1999 the Chairman of the board of Adatom,Inc purchased
1,800,000 shares of Adatom, Inc which were subsequently converted in the Merger
into 3,815,000 shares of common stock of the Company. The proceeds from the sale
of these shares was used to repay loans to the Chairman in an aggregate
principal amount of $1,800,000. The Company recognized a charge to operations
for the difference between the estimated fair value of the stock and the amount
of the note repaid, or $7,469,000;
(ii) in connection with the merger between the Company and Adatom, Inc.
Adatom,Inc. entered into an agreement with HealthCore's chairman of the board
that provided among other things, that he receive 175,828 shares of Adatom, Inc.
common stock, which was subsequently converted into 350,000 shares of common
stock of the Company, in exchange for a note payable which was cancelable at the
earlier of his resignation from the Company or six months from October 12, 1999.
Since there was no risk of forfeiture, the Company recognized a charge to
operations for the estimated fair value of the stock of $851,000;
(iii) in connection with the conversion of 142,000 warrants into 28,400
shares of common stock, the Company recognized a charge of $69,000; and
(iv) in accordance with the Company's Stock option plan, non-employee
consultants were issued stock options. Since they are not employees, operations
has been charged for the estimated fair value of the options granted or
$153,000.
Other income (expense) decreased approximately 97.4% to approximately
$3,000 in 1999 from approximately $118,000 in 1998.
Net loss increased by approximately 999.6% from approximately
$1,156,000 in 1998 to approximately $12,711,000 in 1999. The table below shows
the major changes in cost from 1998 to 1999. The $8,542,000 is described above.
In addition the payroll cost increased from $257,000 in 1998 to $961,000 in
1999. That is an increase of 274%. There is the one time Merger cost of $429,000
and there was an increase of $890,000 in advertising and promotion which
includes affiliate costs.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
1999 1998 Difference % Change
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Payroll 961,000 257,000 704,000 273.9%
- --------------------------------------------------------------------------------------
Merger Costs 429,000 0 429,000
- --------------------------------------------------------------------------------------
Issuance of compensatory Common
- --------------------------------------------------------------------------------------
</TABLE>
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- --------------------------------------------------------------------------------
Stock 8,542,000 0 8,542,000
- --------------------------------------------------------------------------------
Advertising & Promotion 1,084,000 194,000 890,000 458.8%
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
The Company utilized capital resources primarily for general corporate
purposes and to support anticipated growth. At December 31, 1999, the Company
had cash of approximately $109,000.
Since its inception, the business of Adatom, Inc. has incurred
significant losses, and as of December 31, 1999, had an approximate accumulated
deficit of $14,653,000. As a result, there is an uncertainty about the Company's
ability to continue as a going concern, which was stated in this Auditor's
report. The Company is expected to incur substantial operating losses for the
foreseeable future due to a high level of expenditures in the areas of
operations, website development and other investments designed to enhance the
Company's products and services and maintain Internet capabilities. The Company
intends to substantially increase marketing and promotional spending in an
effort to increase revenues. However, we can not be sure that the Company will
generate sufficient revenues to ever achieve profitability or otherwise sustain
its profitability in the future.
The operations of the Company are still subject to all the risks
inherent in the establishment of a new business enterprise, including the
absence of a substantial operating history. The likelihood of the success of the
Company must be considered in light of the uncertainties, expenses, and delays
frequently encountered in connection with the development of any new business.
Net cash used in operating activities was approximately $2,972,000 for
1999. Net cash used in operating activities primarily consisted of the Company's
net loss of approximately $12,711,000 including the $8,542,000 non-cash
adjustment relating to certain stock and option transactions during 1999.
Additionally, accounts payable increased by $1,407,000, and other uses of cash
and non-cash items netted to a reduction of $210,000 resulting in a Net Cash
used in operations of approximately $2,972,000.
Net cash used in investing activities was approximately $450,000 for
1999. The Company's uses of cash in investing activities related to acquisition
of fixed assets of $110,000 and website development cost of $340,000.
Net cash from financing activities was approximately $3,440,000 for
1999. The Company's receipt of cash from financing activities came from three
primary sources. The first was loans from stockholders for $836,000, the next
was the cash received in the Merger of $1,527,000 and the last was proceeds from
convertible notes of $1,040,000.
The Company is dependent upon raising additional capital to finance its
current operations and future plans for expansion. At June 30, 1999, Adatom,
Inc. owed Richard Barton the President and C.E.O. approximately $1,800,000 for
working capital loans made by Mr. Barton to Adatom. Prior to the Merger, Mr.
Barton purchased shares of stock of Adatom, Inc. and the proceeds of this
purchase were used to repay the loan to him. In late August and early September,
Mr. Barton loaned Adatom, Inc. an aggregate principal amount of $225,000, which
was used for working capital purposes and repaid in October after the
consummation of the Merger. The interest rate on these loans was 7 percent per
annum.
Additionally, on December 3rd and 29th 1999, Mr. Barton, the President
and CEO, made short-term non-interest bearing loans to the Company in the
amounts of $200,000 and $300,000, respectively, for working capital purposes.
Mr. Barton also
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made an additional non-interest bearing loan on February 1, 2000 in the amount
of $200,000, also for working capital purposes. In February 2000, Adatom.com
issued 172,057 shares of Common Stock to Mr. Barton in settlement of $500,000 of
these notes payable. In March 2000 the remaining $200,000 was repaid. Mr. Barton
does not intend to make loans to the Company in the future.
On March 2, 2000, the Company executed documents for a private
placement of two million shares of common stock yielding proceeds of $4 million.
The sale was made to several accredited investors. Adatom will use the proceeds
for working capital, including the payment of accrued liabilities of
approximately $1.5 million, and a sales and marketing campaign focusing on its
business-to-business offering, Adatom's E-commerce Solution (AESP), as well as
to create further consumer awareness of its Web site, www.adatom.com. The
Company further estimates that it will require an additional minimum of at least
$12,000,000 to adequately implement its business plan and sustain and expand its
sales and marketing activities through December 31, 2000. The Company cannot be
sure that it will be able to raise this money.
Additional funds will be needed, particularly in light of the existence
of a number of well-financed competitors. Adequate funds for these and other
purposes on terms acceptable to the Company, whether through additional equity
financing or other sources, may not be available when needed or may result in
significant dilution to existing stockholders. Furthermore, the Company's lack
of tangible assets to pledge as security for debt financing could prevent the
Company from obtaining bank or similar debt financing. Failure to obtain
adequate financing would have a material adverse effect on the Company and could
result in cessation of the Company's business.
At this time the Company anticipates that an investment of $20,000,000
will be needed to fund the CPTNC, joint venture. The Company is attempting to
raise these funds through the sale of equity but can not provide any assurance
that it will be able to raise these funds.
RISK FACTORS
Forward-looking statements are not guarantees of performance. They
involve risks, uncertainties and assumptions. The future results and stockholder
values of the company 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, the Company do not have any intention or obligation to update
forward-looking statements, even if new information, future events or other
circumstances have made them incorrect or misleading. For those statements, the
Company is 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 company, and could cause results to differ materially from
those expressed in such forward-looking statements.
THE COMPANY HAS A HISTORY OF LOSSES AND EXPECTS CONTINUED LOSSES FOR THE
FORESEEABLE FUTURE. Adatom, Inc was incorporated in October in 1996 but did not
begin to generate any Internet revenues until October 1998. Accordingly, the
Company has only a limited operating history upon which to evaluate our business
and prospects. The Company will encounter risks and difficulties that are
frequently encountered by early stage companies in new and rapidly evolving
markets. Many of these risks are described in more detail in this section. If
the Company is unsuccessful in addressing these risks and uncertainties, its
business, results of operations and financial condition will be harmed. The
Company has
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<PAGE>
incurred significant losses, and as of December 31 1999, had an approximate
accumulated deficit of $14,653,000. There is an uncertainty about its ability to
continue as a going concern. The Company incurred net losses of $12,711,000 for
the year ended December 31, 1999 and $1,156,000 for the year ended December 31,
1998. The Company anticipates its losses will increase from current levels
because we intend to substantially increase our costs and expenses related to:
- - brand development, marketing and other promotional activities to increase our
revenue;
- - the expansion of our inventory management and order fulfillment
infrastructure;
- - the continued development of our Web site, transaction-processing systems and
network infrastructure;
- - the expansion of our product offerings and Web site content; and
- - strategic relationship development.
Our ability to become profitable depends on our ability to generate
and sustain substantially higher net sales while maintaining reasonable expense
levels. If the Company does achieve profitability, it cannot be certain that it
would be able to sustain or increase profitability on a quarterly or annual
basis in the future. The Company is an early stage company and expects to incur
substantial operating losses for the foreseeable future as it incurs significant
operating expenses and research and development expenses and makes investments,
to enhance its line of products and services and establish Internet
capabilities. The Company may never generate sufficient revenues to achieve
profitability. Even if the Company does achieve profitability, it may not be
able to sustain or increase profitability on a quarterly or annual basis in the
future.
THE COMPANY WILL NEED ADDITIONAL FINANCING TO FUND ITS BUSINESS AND THE
FAILURE TO OBTAIN FINANCING WOULD MOST LIKELY RESULT IN CESSATION OF ITS
BUSINESS. The Company is dependent upon raising additional capital for working
capital and to finance its future plans for expansion. Based on current market
conditions, the Company currently has on hand working capital to sustain its
business for approximately three or four months. The Company further estimates
that it will require a minimum of $12,000,000 to adequately implement its
business plan and sustain and expand its sales and marketing activities through
December 31, 2000. Adatom.com, Inc. has experienced negative cash flow from
operations from its inception and expects to experience significant negative
cash flow from operations for the foreseeable future. The Company needs
additional funds to sustain and expand its sales and marketing activities and
its marketing arrangements, particularly 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 would most likely result in cessation
of our business. Our lack of tangible assets to pledge has to date prevented us
from obtaining bank or similar debt financing, and will probably continue to do
so in the future. In their reports on the audits of Adatom.com's financial
statements for each of the years in the two-year period ended December 31, 1999,
our independent auditors included an explanatory paragraph in each of their
reports because of the uncertainty that Adatom.com could continue in business as
a going concern. Unless it raises additional capital, the Company expects it
will exhaust the $4 million received from the recent sale of the Company's
securities in approximately four months. Any raise of additional capital will
dilute all stockholders of the Company.
THE COMPANY DEPENDS HEAVILY UPON MARKETING ARRANGEMENTS. WITHOUT THEM,
ITS BUSINESS WILL BE ADVERSELY AFFECTED. The Company relys heavily on certain
marketing arrangements with other companies that have websites to attract
shoppers to purchase our products. Adatom.com 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
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increased traffic, purchases, advertising and sponsorships that it generates
through our marketing arrangements. The Company cannot be sure that other
companies will continue these relationships with it, or, if continued that they
will be on terms favorable to it. Our inability to enter into new marketing
arrangements or to maintain our existing arrangements would have a material
adverse effect on us.
THE COMPANY RELIES ON SUPPLIERS FOR ITS 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. The Company also relies on most of
its suppliers to process and ship merchandise directly to customers and where
required to install merchandise on our customers premises. The Company has
limited control over the shipping procedures of its 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.
OUR FUTURE OPERATING RESULTS ARE UNPREDICTABLE AND FLUCTUATIONS IN OUR
QUARTERLY RESULTS MAY CAUSE VOLATILITY IN OUR STOCK VALUATION. As a result of
our limited operating history, it is difficult to accurately forecast our net
sales and we have limited meaningful historical financial data upon which to
base planned operating expenses. We base our current and future expense levels
on our operating plans and estimates of future net sales, and our expenses are
to a large extent fixed. Sales and operating results are difficult to forecast
because they generally depend on the volume and timing of the orders we receive.
As a result, the Company may be unable to adjust our spending in a timely manner
to compensate for any unexpected revenue shortfall. The Company may also be
unable to increase its spending and expand its operations in a timely manner to
adequately meet customer demand to the extent it exceeds its expectations. The
Company expects to experience significant fluctuations in our future quarterly
operating results due to a variety of factors, many of which are outside of its
control which, include without limitation:
- - our ability to attract new customers at reasonable cost and at a steady rate,
retain existing customers, or encourage repeat purchases and maintain
customer satisfaction;
- - decreases in the number of visitors to our Web site or our inability to
convert visitors to our Web site into customers;
- - seasonality;
- - our ability to manage inventory levels and to manage fulfillment operations;
- - our inability to adequately maintain, upgrade and develop our Web site,
transaction-processing systems or network infrastructure;
- - the announcement or introduction of new sites, services and products by our
competitors;
- - price competition in the industry;
- - the level of merchandise returns experienced by us;
- - the level of traffic on our web site;
- - fluctuations in the amount of consumer spending;
- - the termination of existing, or failure to develop new, strategic marketing
relationships pursuant to which we receive exposure to traffic on third-party
Web sites;
- - increases in the cost of online or offline advertising;
- - our ability to upgrade and develop our systems and infrastructure and attract
new personnel in a timely and effective manner or retain existing personnel;
- - the amount and timing of operating costs and capital expenditures relating to
expansion of our business, operations, and infrastructure;
- - unexpected increases in shipping costs or delivery times, particularly during
the holiday season;
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- - 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;
- - technical difficulties, system downtime or Internet brownouts;
- - changes in gross profit margins or product mix;
- - effects of acquisitions and other business combinations and related
integration issues;
- - failure to maintain good relationships with our business partners and
suppliers;
- - government regulations related to use of the Internet for commerce;
- - general economic conditions and economic conditions specific to the Internet,
online commerce.
A number of factors will cause our gross margins to fluctuate in future periods,
including the mix of product sold by us, inventory management, inbound and
outbound shipping and handling costs, the level of product returns and the level
of discount pricing and promotional activity. Any change in one or more of these
factors could materially and adversely affect our gross margins and operating
results in future periods. The Company expects that it will experience
seasonality in its 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, The Company believes that quarter-to-quarter
comparisons of its operating results are not a good indication of its future
performance. Additionally it is likely that 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 our Common Stock would likely be
materially adversely affected.
THE COMPANY MAY NOT BE ABLE TO EFFECTIVELY MANAGE THE GROWTH OF ITS
BUSINESS. Our ability to successfully offer products and services and implement
our business plan in a rapidly evolving market requires an effective planning
and management process. The Company continues to increase the scope of its
operations and has grown the headcount substantially. At December 31, 1998, The
Company had a total of 7 employees full and part time combined and at December
31, 1999, it had a total of 43 employees full and part time combined. This
growth has placed, and our anticipated future operations will continue to place,
a strain on our management, information systems and resources. As a result,
during 2000, the Company intends to increase its headcount and to install new
ERP systems with new Accounting and Financial Reporting Systems. The Company
anticipates expanding its financial and management information systems to
accommodate new data. If the Company fails to successfully implement and
integrate its new financial reporting and management information systems with
its existing systems or if we are not able to expand these systems to
accommodate our growth, we may not have adequate, accurate or timely financial
information. Our failure to have such information would hinder our ability to
manage our business and operating results. If we grow rapidly, we will face
additional challenges in upgrading and maintaining our financial and reporting
systems. A failure to successfully implement and integrate these systems would
adversely affect our business. The Company expects that it will need to continue
to improve its financial and managerial controls and reporting systems and
procedures. In addition, the Company will need to continue to expand, train and
manage its already growing employee base. Furthermore, the Company expects that
it will be required to manage multiple relationships with various vendors and
other third parties. To manage the expected growth of our operations and
personnel, the Company will be required to improve existing and implement new
transaction-processing, operational and financial systems, procedures and
controls. Further, the Company will be required to maintain and expand its
relationships with various merchandise manufacturers, distributors, Internet and
other online service providers and other third parties necessary to its
business. If the Company is unable to manage growth effectively, its business
will be materially adversely affected.
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IF THE COMPANY EXPERIENCES PROBLEMS WITH OUR THIRD-PARTY SHIPPING
SERVICES, THE COMPANY COULD LOSE CUSTOMERS. The Company relies upon third-party
carriers, primarily UPS, for product shipments, including shipments to and from
its warehouse. The Company is therefore subject to the risks, including employee
strikes and inclement weather associated with these carriers' ability to provide
delivery services to meet its shipping needs. In addition, failure to deliver
products to our customers in a timely manner would damage our reputation and
brand identity.
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,
President, Chief Executive Officer, and Chairman of the Board, and Sridhar
Jagannathan, Chief Technical Officer and Executive Vice President. Two of our
senior management team joined us during the last half of 1999. They are the
Controller and the Vice President of Operations. Our future success depends on
these officers effectively working together with our original management team.
Other than the President none of our officers or key employees is bound by an
employment agreement for any specific term. Our relationships with these
officers and key employees are at will. The Company does not have any "key
person" life insurance policies covering any of its employees. Our performance
depends on our ability to retain and motivate our 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 officers and technical, managerial, editorial, merchandising, marketing
and customer service personnel. Competition for such personnel is intense, and
the Company may not be able to successfully attract, assimilate or retain
sufficiently qualified personnel. This inability could have a material adverse
effect on us.
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." The Company cannot be
sure that it will be able to secure significant protection for these trademarks.
It is possible that competitors of Adatom.com 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 limit access to
and distribution of our 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 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 our
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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 is licensed 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.
PROTECTION OF DOMAIN NAME IS UNCERTAIN. We currently hold various Web
domain names relating to our brand, including the "ADATOM.com" domain name.
Governmental agencies and their designees generally regulate the acquisition and
maintenance of domain names. For example, in the United States, the National
Science Foundation has appointed Network Solutions, Inc. as the current
exclusive registrar for the ".com", ".net" and ".org" generic top-level domains.
The regulation of domain names in the United States and in foreign countries is
subject to change. Such changes in the United States are presendly expected to
include a transition from the current system to a system that is controlled by a
non-profit corporation and the creation of additional top-level domains.
Governing bodies may establish additional top-level domains, appoint additional
domain name registrars or modify the requirements for holding domain names. As a
result, we may be unable to acquire or maintain relevant domain names in all
countries in which we conduct business. Furthermore, the relationship between
regulations governing domain names and laws protecting trademarks and similar
proprietary rights is unclear. Therefore, we may be unable to prevent third
parties from acquiring domain names that are similar to, infringe upon or
otherwise decrease the value of our trademarks and other proprietary rights.
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 our store on the Internet and the
volume of orders we fulfill. 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
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customer service, largely depends on the efficient and uninterrupted operation
of our 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 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
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 our
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.
YEAR 2000 UPDATE. Through the first two and one half months of the
calendar year 2000, we have not experienced any significant problems associated
with the Year 2000 issue. Although it appears that the Year 2000 issue will not
have a significant adverse affect on us, we continue to monitor the Year 2000
compliance of our internal systems. Undetected errors in our internal systems
that may be discovered in the future could have a material adverse affect on our
business, operating results or financial condition.
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 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,
privacy, 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.
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OUR MARKETS ARE HIGHLY COMPETITIVE The online commerce market is new,
rapidly evolving and intensely competitive. We expect competition to intensify
in the future. Barriers to entry are minimal, and current and new competitors
can launch new Web sites at a relatively low cost. We currently or potentially
compete with a variety of other companies, including:
- - major "brick and mortar" retailers such as Macys, J.C. Penney's, Nordstrom's,
and Target;
- - online efforts of these traditional retailers, including the online stores
operated by Macy, J. C. Penny, Toys R Us, and Wal-Mart:
- - catalog retailers;
- - vendors or manufacturers that currently sell certain of their products
directly online, such as Mattel;
- - other online retailers such as Amazon.com, Taydo.com, Furniture.com, CDnow,
Beyond.com and Reel.com;
- - on line stores that have a presence on Internet portals and online service
providers that feature shopping services, such as AOL, Yahoo!, Excite and
Lycos;
- - various online retailers.
Many of our current and potential traditional store-based and online competitors
have longer operating histories, larger customer or use r bases, greater brand
recognition and significantly greater financial, marketing and other resources
than us. Many of these current and potential competitors can devote
substantially more resources to Web site and systems development than we can. 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. Many of our competitors may be able to secure merchandise from
manufacturers on more favorable terms, fulfill customer orders more efficiently
and adopt more aggressive pricing or inventory availability policies, and devote
greater resources to marketing than we can. Traditional store-based retailers
also enable customers to see and feel products in a manner that is not possible
over the Internet. Our online competitors are able to use the Internet as a
marketing medium to reach significant numbers of potential customers. Finally,
new technologies and the expansion of existing technologies, such as price
comparison programs that select specific titles from a variety of Web sites may
direct customers to other online retailers, and may increase competition.
Increased competition may result in reduced operating margins, loss of market
share and a diminished brand franchise. New technologies and the expansion of
existing technologies may increase the competitive pressures on us.
WE MAY ENTER NEW BUSINESS CATEGORIES We may choose to expand our
operations by developing new departments or product categories, promoting new or
complementary products or sales formats, expanding the breadth and depth of
products and services offered or expanding our market presence through
relationships with third parties. In addition, we may pursue the acquisition of
new or complementary businesses, products or technologies. We may not be
successful in our efforts to expand our operations, and potential customers may
not react favorably to these efforts. Furthermore, any new department or product
category that is launched by us but not favorably received by consumers could
damage our brand or reputation. An expansion of our business in this manner
would also require significant additional expenses, expose us to additional
inventory risk and development, operations and editorial resources and would
strain our management, financial and operational resources and subject us to
increased inventory risk.
WE FACE FULFILLMENT OPERATIONS RISKS Our success depends on our ability
to rapidly scale our fulfillment operations in order to accommodate a
significant increase in customer orders. Our current fulfillment operations are
not adequate to accommodate significant increases in customer demand that may
occur during the fourth calendar quarter of 2000. We must also be able to
rapidly scale our fulfillment operations and information systems to accommodate
significant increases in demand, which may require us to automate tasks that are
currently performed
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manually. If we do not successfully scale our fulfillment operations to
accommodate demand generally and, in particular, increased demand during the
fourth calendar quarter of each year, due to the seasonal nature of our
business, our business will be adversely affected.
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 our reputation and us. 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. Furthermore, our servers
may be vulnerable to computer viruses, physical or electronic break-ins and
similar disruptions. We may be required to expend significant additional capital
and other resources to protect against such security breaches or to alleviate
problems caused by such breaches. Our business may be adversely affected if our
security measures do not prevent security breaches and we cannot assure that we
can prevent all security breaches.
CREDIT CARD FRAUD. During 1999 the Company has suffered less than
$4,000 as a result of orders placed with fraudulent credit card data even though
the associated financial institution approved payment of the orders. Under
current credit card practices, a merchant is liable for fraudulent credit card
transactions where, as is the case with the transactions we process, that
merchant does not obtain a cardholder's signature. A failure to adequately
control fraudulent credit card transactions would adversely affect our business.
GROWING CONCERNS ABOUT THE USE OF "COOKIES" AND DATA COLLECTION MAY
LIMIT OUR ABILITY TO DEVELOP USER PROFILES. Our current technology uses small
files of information, commonly known as "cookies", on a users hard drive to
collect information about our customers' movements through our Website. Most
Internet browsers allow users to modify their browsers settings to prevent
cookies from being stored on their hard drive, and small minorities of users are
currently choosing to do so. Users can also delete cookies from their hard drive
at any time. Some Internet commentators and privacy advocates have suggested
limiting or eliminating the use of cookies. The reduction or limitation in the
use of cookies could:
- - reduce the effectiveness of our technology to gather data on our customers;
- - require us to switch to other potentially less effective technology in order
to gather demographic or behavioral information; and
- - require us to expend financial and technological resources, originally
allocated to other purposes, to create alternatives that might be
unsuccessful.
THE COMPANY 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
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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.
THE COMPANY MAY BE SUBJECT TO SALES AND OTHER TAXES. We do not
currently collect sales or other similar taxes for physical shipments of goods
into states other than California. However, one or more local, state or foreign
jurisdictions may seek to impose sales tax collection obligations on us. In
addition, any new operation in states outside California could subject our
shipments in such states to state sales taxes under current or future laws. If
one or more states or any foreign country successfully asserts that we should
collect sales or other taxes on the sale of our products, it could adversely
affect our business.
THE COMPANY 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.
INTELLECTUAL PROPERTY CLAIMS AGAINST US CAN BE COSTLY AND RESULT IN THE
LOSS OF SIGNIFICANT RIGHTS Other parties may assert infringement or unfair
competition claims against us. We cannot predict whether third parties will
assert claims of infringement against us, or whether any future assertions or
prosecutions will adversely affect our business. If we are forced to defend
against any such claims, whether they are with or without merit or are
determined in our favor, then we may face costly litigation, diversion of
technical and management personnel, or product shipment delays. As a result of
such a dispute, we may have to develop non-infringing technology or enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may be unavailable on terms acceptable to us, or at all. If there is a
successful claim of product infringement against us and we are unable to develop
non-infringing technology or license the infringed or similar technology on a
timely basis, it could adversely affect our business.
OUR COMMON STOCK PRICE MAY BE VOLATILE The market price for our Common
Stock is likely to be highly volatile and subject to wide fluctuations in
response to factors including the following:
- - actual or anticipated variations in our quarterly operating results;
- - announcements of technological innovations or new products or services by us
or our competitors;
- - changes in financial estimates by securities analysts;
- - conditions or trends in the Internet and/or online commerce industries;
- - changes in the economic performance and/or market valuations of other
Internet, online commerce or retail companies;
- - announcements by us or our competitors of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;
- - additions or departures of key personnel;
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- - release of lock-up on April 12, 2000 or other transfer restrictions on our
outstanding shares of Common Stock or sales of additional shares of Common
Stock;
- - potential litigation.
The market prices of the securities of Internet-related and online commerce
companies have been especially volatile. Broad market and industry factors may
adversely affect the market price of our Common Stock, regardless of our actual
operating performance. In the past, following periods of volatility in the
market price of their stock, many companies have been the subject of securities
class action litigation. If we were sued in a securities class action, it could
result in substantial costs and a diversion of management's attention and
resources and would adversely affect our stock price.
OUR PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS COULD
CONTROL STOCKHOLDER VOTES AND OUR MANAGEMENT AND AFFAIRS. Our executive
officers, directors and 5% or greater stockholders, and their respective
affiliates, in the aggregate, own approximately 52.5% 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.
THE COMPANY 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. If the Company does not continue to meet the listing
requirements of the NASDAQ Small Cap Market 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 the securities.
ITEM 7. FINANCIAL STATEMENTS
Report of Independent Accountants of Adatom.com, Inc.
Report of Independent Accountants of Adatom, Inc.
Balance Sheet as of December 31, 1999
Statement of Operations for the years ended December 31, 1999 and 1998
Statement of Stockholders' Equity for the years ended December 31, 1999
and 1998
Statements of Cash Flows for the years ended December 31, 1999 and 1998
This information appears in a separate section of this Report following Part
III.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
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ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required by this item is contained in the
Registrant's definitive proxy statement which the Registrant
will file with the Commission no later than April 29, 2000
(120 days after the Registrant's fiscal year end covered by
this Report) and is incorporated herein by reference.
ITEM 10 EXECUTIVE COMPENSATION
The information required by this item is contained in the
Registrant's definitive proxy statement which the Registrant
will file with the Commission no later than April 29, 2000
(120 days after the Registrant's fiscal year end covered by
this Report) and is incorporated herein by reference.
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is contained in the
Registrant's definitive proxy statement which the Registrant
will file with the Commission no later than April 29, 2000
(120 days after the Registrant's fiscal year end covered by
this Report) and is incorporated herein by reference.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is contained in the
Registrant's definitive proxy statement which the Registrant
will file with the Commission no later than April 29, 2000
(120 days after the Registrant's fiscal year end covered by
this Report) and is incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) LIST OF EXHIBITS. An Exhibit Index has been filed starting on page
E-1 of this Report and is incorporated herein by reference.
(b) REPORTS ON FORM 8-K. A report on Form 8-K was filed on October 22,
1999 reporting information under Items 1, 2 and 7 of that report, and
incorporating financial statements of the Company by reference to the
Registration Statement on Form S-4 of Healthcore Medical Solutions, Inc.
(Registration No. 333-87207, filed September 16, 1999). Amendment No. 1 to the
Report was filed on November 23, 1999, reporting additional information under
Item 8 of Form 8-K.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 28, 2000 ADATOM.COM, INC.
By: /S/ RICHARD S. BARTON
----------------------------------------
Richard S. Barton
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities 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/ RICHARD S. BARTON
- ---------------------- Chairman of the Board March 28, 2000
Richard S. Barton and Chief Executive Officer
(principal executive officer)
/S/MICHAEL M. WHEELER
- - ---------------------- Secretary, Principal Financial Officer March 28, 2000
Michael M. Wheeler and Principal Accounting Officer
/S/ Sridhar Jagannathan Director March 28, 2000
- - ----------------------
Sridhar Jagannathan
/S/ Ralph K. Fraiser Director March 28, 2000
- - -----------------------
Ralph K, Fraiser
S/ Sylvia Dresner Director March 28, 2000
- -------------------------
Sylvia Dresner
</TABLE>
31
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
Report of Independent Auditors.......................................... F-2
Report of Independent Auditors.......................................... F-3
Balance Sheet as of December 31, 1999................................... F-4
Statements of Operations for the years ended December 31, 1999 and 1998. F-5
Statements of Changes in Capital Deficiency for the years ended
December 31, 1999 and 1998.............................................. F-6
Statements of Cash Flows for the years ended December 31, 1999 and 1998 F-7
Notes to Financial Statements........................................... F-8
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Adatom.com, Inc.
We have audited the accompanying balance sheet of Adatom.com, Inc. as of
December 31, 1999 and the related statements of operations, changes in capital
deficiency and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the financial position of Adatom.com, Inc. as of December 31,
1999 and the results of its operations and its cash flows for the year ended
December 31, 1999, 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 A to the
financial statements, the Company has suffered recurring losses from operations
and has a 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 A. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Richard A. Eisner & Company, LLP
Florham Park, New Jersey
February 11, 2000
With respect to Note K
February 23, 2000
With respect to Note A
March 15, 2000
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Adatom.com, Inc.
Milpitas, CA
We have audited the balance sheet (not included herein) of Adatom.com, Inc. (a
California corporation in the development stage formerly known as Adatom, Inc.),
as of December 31, 1998, and the related accompanying statements of operations,
changes in capital deficiency, and cash flows for the year then ended. These
financial statements are the responsibility of the management of Adatom.com,
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 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 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.com, Inc. as of December
31, 1998, and the results of its operations and its cash flows for the year then
ended 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 A 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 A. 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
F-3
<PAGE>
ADATOM.COM, INC
Balance Sheet
DECEMBER 31, 1999
ASSETS
Current assets:
Cash $ 109,000
Accounts receivable - net 77,000
Notes receivable 148,000
Inventory 240,000
Prepaid expenses and other 155,000
------------
Total current assets 729,000
------------
Other assets:
Fixed assets, net 340,000
Website development costs, net 255,000
Other assets 21,000
------------
Total other assets 616,000
------------
$ 1,345,000
============
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 1,685,000
Current portion of obligations under capital leases 66,000
Customer deposits 201,000
------------
Total current liabilities 1,952,000
Long-term liabilities:
Obligations under capital leases 81,000
Note payable to stockholder 500,000
------------
Total liabilities 2,533,000
------------
Commitment
CAPITAL DEFICIENCY
Preferred stock, $.01 par value; authorized 5,000,000 shares,
issued and outstanding - none
Common stock, $.01 par value; 50,000,000 shares authorized;
14,705,269 issued; 14,690,269 outstanding 147,000
Additional paid-in capital 13,354,000
Accumulated deficit (14,653,000)
Notes receivable (21,000)
Treasury stock, at cost (15,000 shares) (15,000)
------------
(1,188,000)
------------
$ 1,345,000
=============
F-4
Attention is directed to the foregoing auditors' report
and to the accompanying notes to financial statements
<PAGE>
ADATOM.COM, INC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Product revenue $ 956,000 $ 285,000
Franchise fee revenue 5,000
------------ ------------
Total revenue 956,000 290,000
Cost of product revenue 945,000 242,000
------------ ------------
11,000 48,000
------------ ------------
Operating expenses:
Website development 343,000 406,000
Selling, general and administrative 3,840,000 916,000
Issuance of compensatory common stock and options 8,542,000 0
------------ ------------
12,725,000 1,322,000
------------ ------------
Loss from operations (12,714,000) (1,274,000)
------------ ------------
Other income (expense):
Miscellaneous income 40,000 0
License income 0 250,000
Write off of franchise notes receivable 0 (79,000)
Interest expense, net (37,000) (53,000)
------------ ------------
3,000 118,000
------------ ------------
NET LOSS $(12,711,000) $ (1,156,000)
============ ============
NET LOSS PER SHARE BASIC AND DILUTED $ (1.83) $ (0.23)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 6,956,829 5,053,784
============ ============
</TABLE>
F-5
Attention is directed to the foregoing auditors' report
and to the accompanying notes to financial statements
<PAGE>
ADATOM.COM, INC
STATEMENTS OF CHANGES IN CAPITAL DEFICIENCY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID-IN ACCUMULATED NOTES TREASURY
SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE STOCK TOTAL
---------- -------- ----------- ------------ -------- -------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1997,
BEFORE STOCK SPLIT 2,384,600 $345,000 $ (786,000) $(33,000) $(474,000)
2.12 for 1 stock split and
changing from no par value
to par value 2,669,184 (294,000) $ 294,000 0
---------- -------- ----------- ------------ -------- -----------
Balance - December 31, 1997,
as restated 5,053,784 51,000 294,000 (786,000) (33,000) (474,000)
Repayment of notes receivable 8,000
Net loss (1,156,000) (1,156,000)
---------- -------- ----------- ------------ -------- -------- -----------
BALANCE - DECEMBER 31, 1998 5,053,784 51,000 294,000 (1,942,000) (25,000) (1,622,000)
Sale of common stock 3,814,817 38,000 9,231,000 9,269,000
Shares deemed issued in
connection with reverse
acquisition 4,100,495 41,000 1,599,000 $(15,000) 1,625,000
Conversion of bridge notes
into common stock 1,124,023 11,000 1,029,000 1,040,000
Compensatory common stock and
options 378,400 4,000 1,069,000 1,073,000
Issuance of common stock upon
exercise of HCMS options 233,750 2,000 132,000 134,000
Repayment of notes receivable 4,000 4,000
Net loss (12,711,000) (12,711,000)
---------- -------- ----------- ------------ -------- -------- -----------
BALANCE - DECEMBER 31, 1999 14,705,269 $147,000 $13,354,000 $(14,653,000) $(21,000) $(15,000) $(1,188,000)
========== ======== =========== ============ ======== ======== ===========
</TABLE>
Attention is directed to the foregoing auditors' report and to the accompanying
notes to financial statements.
F-6
<PAGE>
ADATOM.COM, INC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(12,711,000) $ (1,156,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 57,000 29,000
Amortization 85,000
Compensatory common stock and options 8,542,000
Write-off of franchisee notes receivable 79,000
Change in:
Notes receivable (136,000)
Accounts receivable (60,000) 16,000
Inventory (235,000) 11,000
Prepaid expenses and other (77,000) 5,000
Accounts payable and accrued expenses 1,407,000 181,000
Customer deposits 156,000 4,000
------------ ------------
Net cash used in operating activities (2,972,000) (831,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments received on franchisee notes receivable 12,000
Acquisition of fixed assets (110,000) (45,000)
Website development costs (340,000)
------------ ------------
Net cash used in investing activities (450,000) (33,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,800,000
Repayments of notes payable to stockholder (1,800,000)
Proceeds from bridge notes 1,040,000
Proceeds from notes payable to stockholder 836,000 861,000
Net borrowings (repayments) on line of credit (46,000) 46,000
Payments received on notes receivable 4,000 8,000
Principal payments on obligations under capital leases (55,000) (20,000)
Cash received from reverse acquisition 1,527,000
Proceeds from exercise of options 134,000
------------ ------------
Net cash provided by financing activities 3,440,000 895,000
------------ ------------
NET INCREASE IN CASH 18,000 31,000
Cash - beginning of year 91,000 60,000
------------ ------------
CASH - END OF YEAR $ 109,000 $ 91,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 37,000 $ 2,000
Income taxes $ 1,000
</TABLE>
F-7
Attention is directed to the foregoing auditors' report
and to the accompanying notes to financial statements
<PAGE>
ADATOM.COM, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998
NOTE A - ORGANIZATION
Adatom.com, Inc. (the "Company"), formerly known as Adatom, Inc. was founded in
October 1996 and was in the development stage through December 31, 1998. The
year ended December 31, 1999 is the first year during which it is considered an
operating entity. The Company is an Internet retailer and offers household and
other goods on its website.
On October 12, 1999, Adatom, Inc. merged with HealthCore Medical Solutions, Inc.
("HCMS"), a nonoperating public company which had 3,391,750 shares of common
stock outstanding prior to the merger. Pursuant to the merger, HCMS acquired all
of the outstanding common stock of Adatom, Inc. in exchange for 11,036,369
shares of HCMS common stock. The merger has been accounted for as a purchase of
HCMS by Adatom, Inc. ("reverse acquisition"). The 3,391,750 shares of HCMS
outstanding were valued at $1,625,000 which represents the estimated fair value
of the net assets (substantially cash) of HCMS as of October 12, 1999, resulting
in an increase in Adatom, Inc.'s stockholders equity. Immediately following the
merger, HCMS changed its name to Adatom.com, Inc.
The historical financial statements prior to the date of the reverse acquisition
are those of Adatom, Inc. with the accounting acquiror's capital deficiency
prior to the merger retroactively restated to reflect a 2.12 for 1 stock
exchange received in the transaction and the difference between the par value of
HCMS's and stated value of Adatom, Inc.'s stock recorded as an offset to
additional paid-in capital. The historical deficit accumulated during the
development stage of Adatom, Inc. is being carried forward after the
acquisition. Loss per share has similarly been restated for all periods prior to
the acquisition to include the number of equivalent shares received by Adatom,
Inc.'s stockholders.
The Company has incurred substantial losses since its inception in October 1996,
and management estimates this will continue for at least the next two years. In
addition, as of December 31, 1999, the Company has a negative working capital
position and a capital deficiency. In February and March 2000, the Company
raised $4,000,000 through the sale of 2,000,000 shares of its common stock.
However, the Company will continue to require the infusion of capital until
operations become profitable. There is still substantial doubt about the ability
of the Company to continue as a going concern. These financial statements
include no adjustments to assets and liabilities reflecting this possible
uncertainty.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] WEBSITE DEVELOPMENT COSTS:
The Company accounts for its website development costs in a manner
consistent with the American Institute of Certified Public Accountants
Statements of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
requires all costs related to the development of internal use software
other than those incurred during the application development stage to be
expensed as incurred. Costs incurred during the application development
stage are required to be capitalized and amortized over the estimated
useful life of
F-8
<PAGE>
ADATOM.COM, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998
the software. The Company is amortizing its capitalized website
development costs over 24 months.
[2] INVENTORY:
Inventory consists of consumer goods available for sale and is stated
at the lower of first-in, first-out cost or market. During 1999, one supplier
accounted for 10% of all purchases.
[3] FURNITURE AND EQUIPMENT:
Furniture and equipment are stated at cost less accumulated
depreciation and amortization, which includes amortization of assets acquired
under capital leases. Furniture and equipment are depreciated on a straight-line
basis over the estimated useful life of the assets.
[4] FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of the Company's cash, accounts receivable, notes
receivable, prepaid expenses and other assets, accounts payable and accrued
expenses approximate fair value.
[5] REVENUE RECOGNITION:
The Company recognizes revenue from product sales, net of discounts,
when the products are shipped to customers. Outbound shipping and handling
charges are included in net sales. The Company provides an allowance for sales
returns, which has been insignificant.
[6] ADVERTISING COSTS:
Advertising costs are expensed as incurred. During the years ended
December 31, 1999 and 1998, advertising costs approximated $856,000 and
$153,000, respectively.
[7] NET LOSS PER COMMON SHARE:
Basic and diluted net loss per common share has been computed on the
basis of the net loss for the year divided by the weighted average shares of
common stock outstanding during the year excluding 900,000 shares placed in
escrow (see Note F). All warrants and stock options have been excluded from the
calculation since they would be anti-dilutive.
[8] INCOME TAXES:
Through October 12, 1999, the Company had elected for both federal and
state purposes to be treated as an S corporation and incurred only minimal taxes
at the state level. Consequently, the net losses of the Company were available
to the stockholders rather than the Company. Effective with the merger with HCMS
on October 12, 1999, the Company terminated its S corporation status and is
subject to corporate income taxes.
F-9
<PAGE>
ADATOM.COM, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at year end based on enacted tax laws and statutory
tax rates applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established when necessary, to
reduce deferred tax assets to the amount expected to be realized.
[9] 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 to 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.
[10] 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.
NOTE C - FURNITURE AND EQUIPMENT
Furniture and equipment as of December 31, 1999 consist of the following:
ASSET
LIVES
------
Computers and equipment 3-5 Years $152,000
Computers and equipment subject
to capital lease 3-5 Years 178,000
Purchased software 3 Years 89,000
Furniture and fixtures 7 Years 16,000
----------
435,000
Accumulated depreciation and amortization (95,000)
----------
$340,000
==========
Included in depreciation expense for the year ended December 31, 1999, is
amortization of equipment under capital lease. During the year ended December
31, 1999, the Company acquired $178,000 of computers and equipment subject to
capital leases.
F-10
<PAGE>
ADATOM.COM, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998
NOTE D - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
As of December 31, 1999, accounts payable and accrued expenses consists of the
following:
Accounts payable $ 1,250,000
Accrued consulting expense 136,000
Accrued insurance expense 126,000
Other accrued expenses 173,000
------------
$ 1,685,000
============
NOTE E - OBLIGATIONS UNDER CAPITAL LEASE
As of December 31, 1999, the future minimum lease payments under capital leases
are as follows:
YEAR ENDING
DECEMBER 31,
-------------
2000 $86,000
2001 70,000
2002 21,000
-----------
177,000
Less amount representing
Interest 30,000
-----------
147,000
Current portion 66,000
-----------
$81,000
===========
NOTE F - NOTE PAYABLE TO STOCKHOLDER
In February 2000, the note was converted into 172,000 shares of the Company's
common stock.
NOTE G - STOCKHOLDERS' EQUITY
[1] COMMON STOCK:
Upon consummation of HCMS's initial public offering in 1997, certain
shareholders deposited 900,000 shares of common stock (the "Escrow Shares") into
an escrow account. Some or all of these shares were to be released upon the
Company meeting certain performance goals or the stock price exceeding certain
targets. If these goals were not met the shares would be canceled. As of
December 31, 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. In January 2000, the Company's stockholders approved a plan to
F-11
<PAGE>
ADATOM.COM, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998
terminate the escrow agreement, cancel 720,000 of the escrow shares and release
180,000 shares from the escrow.
In connection with the reverse acquisition, the Company issued 693,745
shares of common stock to investment bankers. Additionally, the Company issued
28,400 shares of common stock to the chairman of HCMS's board of directors in
exchange for cancellation of an outstanding warrant to purchase 142,000 shares
of common stock which was subject to an escrow agreement. Accordingly,
operations has been charged $69,000, the fair value of the shares at the time of
the agreement to release them from escrow.
Concurrent with the reverse acquisition, the chairman of HCMS's board
entered into an employment agreement, which included the issuance of 350,000
shares of common stock valued at $850,000 subject to a $321,000 note that was
cancellable at the earlier of his termination or six months of employment.
Operations has been charged for the fair value of the shares as of the date of
the agreement. Additionally, approximately $1,062,000 of bridge notes payable
less unamortized expenses of $22,000, in accordance with the terms of the notes,
converted into 1,124,023 shares of the Company's common stock.
In December 1999, the Company adopted an employee Stock Bonus Plan to
reward Company personnel for performance during December 1999. In February 2000,
3,969 shares of common stock were issued under this Plan.
In September 1999, the chairman of the board of the Company purchased
3,814,817 shares of the Company's common stock for $1,800,000. Operations has
been charged for the differential between the fair market value at the date of
the transaction and $1,800,000. The proceeds were used to repay a $1,800,000
note payable to him.
[2] WARRANTS:
During the year ended December 31, 1999, the Company issued warrants to
purchase 112,402 shares of common stock for professional services
rendered in connection with the issuance of the bridge notes and warrants
to purchase 230,000 shares of common stock for financial public relations
service. Additionally, HCMS had warrants outstanding to purchase
3,895,500 shares of the Company's common stock at exercise prices ranging
from $0.99 to $6.50 per share expiring through 2007. These have been
converted to Adatom.com warrants.
[3] STOCK OPTION PLAN:
In October 1999, the Company adopted a stock option plan ("the Plan")
pursuant to which 1,400,000 shares of common stock are reserved for issuance
upon exercise of incentive and non-qualified stock options which may be granted
from time to time by the board of directors to employees and others. Of the
options granted in 1999, options on 36,000 shares were granted to non-employees.
Accordingly, operations was charged $153,000 in 1999.
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 197%, risk-free interest
rates of 5.30% and expected lives of approximately 10 years. The weighted
average fair value of options granted during 1999 were $4.24 per share.
F-12
<PAGE>
ADATOM.COM, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998
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. 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 and net loss
per share for 1999 would have been approximately $12,838,000 and $1.84,
respectively. The effect of applying FAS 123 on the Company's pro forma
results is not likely to be representative of the effects on reported net
income for future years.
The following table summarizes stock option transactions under the Plan:
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------- ----------
Options granted in 1999 and
outstanding at the end of year 883,000 $4.25
======= =====
The following table summarizes information about stock options outstanding as of
December 31, 1999:
<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>
$4.25 883,000 10 $4.25 -0- $4.25
</TABLE>
[4] SHARES RESERVED FOR ISSUANCE:
The Company has reserved 5,613,000 shares of its common stock for
issuance upon exercise of the outstanding warrants and options and issuance
under the Stock Bonus Plan.
[5] TREASURY STOCK:
Prior to the reverse acquisition, HCMS acquired 15,000 shares of common
stock in settlement of a loan. The treasury stock has been recorded at
the net book value of the loan which was less than the market value of
the shares received.
F-13
<PAGE>
ADATOM.COM, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998
NOTE H - INCOME TAXES
The Company's deferred tax asset as of December 31, 1999 represents primarily
the future benefit from net operating loss carryforwards of $3,305,000 which is
reduced by a valuation allowance of $3,305,000 since the future realization of
such tax benefit is not presently determinable.
As of December 31, 1999, the Company has a net operating loss carryforward of
approximately $9,722,000 expiring in 2019. As a result of the change in tax year
end, usage of this net operating loss carryforward is limited to approximately
$1,621,000 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 December 31, 1999 and 1998 is summarized as follows:
YEAR ENDED
DECEMBER 31,
----------------------
1999 1998
-------- --------
Statutory federal income tax rate 34.0% 34.0%
Loss available to S corporation
shareholders (8.0) (34.0)
Increase in valuation allowance (26.0)
------ -----
Effective income tax rate 0.0% 0.0%
====== =====
NOTE I - RETIREMENT PLAN
The Company has a 401(k) savings plan (the "Savings Plan") which enables
employees to make contributions on a pre-tax salary basis in accordance with the
provisions of Section 401(k) of the Internal Revenue Code. The Savings Plan
provides for a discretionary company contribution to be determined annually. The
Company did not make any contributions.
NOTE J - COMMITMENTS
[1] LEASES:
The Company leases its facilities and furniture under operating lease
agreements, expiring through May 2000. Minimum future rents aggregate
$47,000. Rent expense for the years ended December 31, 1999 and 1998 was
approximately $147,000 and $86,000, respectively.
[2] EMPLOYMENT AGREEMENT:
Concurrent with the reverse acquisition, the Company entered into an
employment agreement with the President, Chief Executive Officer and Chairman of
the Board expiring in December 2002. Under the terms of the agreement, his
initial annual compensation is $200,000. Additionally, the agreement includes
F-14
<PAGE>
ADATOM.COM, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998
a provision for a bonus of up to $100,000, based on the attainment of certai
goals.
NOTE K - SUBSEQUENT EVENT
In February 2000, in connection with the establishment of a joint venture to
establish a marketing, sales, and distribution channel between China Product
Trade Net Center and the Company has agreed to issue warrants to purchase
5,000,000 shares of the Company's common stock subject to stockholders approval,
contingent upon the joint venture meeting certain milestones. The Company has
estimated when each milestone will most likely be met. Accordingly, beginning in
2000, there will be charges to operations based upon the fair value of the
warrants at the date of stockholder approval and the anticipated timing of
vesting periods. Additionally the Company has made an initial investment of
$500,000 in the joint venture.
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EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
2 Merger Agreement and Plan of Merger dated as of July 1, 1999 between
Registrant and Adatom, Inc. (1)
2.1 Asset Purchase Agreement dated July 28, 1999 between Registrant and
Randolph & Associates, Inc. (2)
3.1 Amended and Restated Certificate of Incorporation of Registrant (3)
3.2 By-laws of Registrant (4)
4.1 Form of Bridge Note (4)
4.2 Bridge Warrant Agreement (4)
4.3 Form of Warrant Agreement (4)
4.4 Form of Representative's Unit Purchase Option (4)
4.5 Warrant Agreement with Neal J. Polan (5)
4.6 Warrant Agreement with Eli Levitin (6)
4.7 Warrant (restated) to purchase shares of Common Stock issued to Jesup
& Lamont Securities Corporation dated July 8, 1999 (3)
4.8 Secured Convertible Promissory Note issued to Jesup & Lamont
Acquisition Company, LLC on July 8, 1999 (7)
4.9 Warrant (restated) to purchase shares of Common Stock issued to Jesup
& Lamont Securities Corporation dated September 15, 1999 (3)
4.10 Warrant to purchase shares of Common Stock issued to Jesup & Lamont
Partners L.L.C. dated October 12, 1999 (3)
4.11 Securities Purchase Agreement among the Registrant and various
investors dated as of March 15, 2000
4.12 Registration Rights Agreement among the Registrant and various
investors dated as of March 15, 2000
4.13 Registration Rights Agreement between the Registrant and Neal Polan
dated October 12, 1999
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4.14 Market Access Program Marketing Agreement Between the Registrant and
Continental Capital & Equity Corporation, dated November 8, 1999
4.15 Warrant issuance Agreement between the Registrant and Victor W. Nee,
dated February 25, 2000.
10.1 Joint Venture Marketing and Distribution Agreement between
the Registrant and China Product Trade Net Center, dated
February 23, 2000
10.2 Amended and Restated Escrow Agreement dated as of July 31, 1997 by
and between Registrant, American Stock Transfer & Company and certain
stockholders of Registrant (4)
10.4 Form of Indemnification Agreement (4)
10.5 Lease Agreement for office space in Grandview, Missouri between
Registrant and J.C. Nichols Company, as amended by Assignment and
First Amendment of Lease dated July 18,1997 (4)
10.9 Employment Agreement dated as of September 30, 1998 between
Registrant and Neal J. Polan (8), (11)
10.10(a) 1997 Stock Option Plan, as amended (9), (11)
10.11 Letter Amendment dated April 27, 1999 between Registrant and Neal J.
Polan (10), (11)
10.12 Engagement Letter dated April 27, 1999 among Registrant, Adatom, Inc.
and Jesup & Lamont (10)
10.13 Negotiable Promissory Note for $250,000 dated April 28, 1999 from
Adatom, Inc. to Registrant (7)
10.14 Security Agreement between Registrant and Adatom, Inc. dated April
28, 1999 (7)
10.15 Form of Escrow Termination Agreement between Registrant and escrow
shareholders acknowledged by Adatom, Inc. (7)
10.16 Form of Irrevocable Proxy granted by escrow shareholders to Neal J.
Polan (7)
10.17 Engagement Letter between Registrant and Kaufman Bros., L.P. dated
July 26, 1999 (7)
10.18 1999 Incentive and Non-Qualified Stock Option Plan (7), (11)
10.19 Employment Agreement dated as of October 11, 1999 between Registrant
and Neal J. Polan (3), (11)
10.20 Form of Employment Agreement for Richard Barton (11), (12)
23.1 Consent of Richard A. Eisner & Company, LLP, Independent Public
Auditors of Adatom.com, Inc.
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23.2 Consent of Ireland San Filippo, LLP, Independent Public Auditors of
Adatom.com, Inc.
27 Financial Data Schedule
- -------------------------------
(1) Incorporated by reference to exhibit of same number filed with
Registrant'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
Registrant's Current Report on Form 8-K filed with the Securities and
Exchange Commission on August 11, 1999.
(3) Incorporated by reference to exhibit of same number filed with
Registrant's Annual Report on Form 10-KSB for the year ended
September 30, 1999.
(4) Incorporated by reference to exhibit of same number filed with
Registrant's Registration Statement on Form SB-2 (File No.
333-28233) declared effective by the Securities and Exchange
Commission on October 14, 1997.
(5) Incorporated by reference to exhibit number 4.1 filed with
Registrant's Registration Statement on Form S-3 (File No. 333-68557)
filed with the Securities and Exchange Commission on December 8,
1998.
(6) Incorporated by reference to exhibit number 4.2 filed with
Registrant's Registration Statement on Form S-3 (File No. 33-68557)
filed with the Securities and Exchange Commission on December 8,
1998.
(7) Incorporated by reference to exhibit of same number filed with
Registrant's Registration Statement on Form S-4 (File No. 33-87207)
declared effective by the Securities and Exchange Commission on
September 20, 1999.
(8) Incorporated by reference to exhibit of same number filed with
Registrant's Annual Report on Form 10-KSB for the year ended
September 30, 1998.
(9) Incorporated by reference to exhibit of same number filed with
Registrant's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1999.
(10) Incorporated by reference to exhibit of same number filed with
Registrant's Current Report on Form 8-K filed with the Securities and
Exchange Commission on May 3, 1999.
(11) Management contract or compensatory plan, contract, or arrangement.
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(12) Incorporated by reference to Exhibit 10.20 filed with Registrant's
Annual Report on Form 10-KSB for the year ended September 30, 1999.
E-4
EXHIBIT 4.11
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of
February __, 2000 is made by and among ADATOM.COM, INC., a Delaware corporation,
with headquarters located at 920 Hillview Court, Milpitas, CA 95035 (the
"COMPANY"), and the investor named on the signature page hereto, together with
his or her permitted transferees (the "INVESTOR").
RECITALS:
A. The Company and the Investor are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act and Rule 506 under Regulation D.
B. The Investor desires, upon the terms and conditions stated in this
Agreement, to subscribe to purchase shares of the Company's Common Stock, for a
per share purchase price of $2.00. The Company is offering up to 2,000,000
shares of Common Stock (with the right exercisable by the Company in its sole
discretion to increase the offering by an additional 400,000 shares) until the
earlier of the date on which securities purchase agreements for all 2,000,000
shares of Common Stock have been executed by Investors and the Company or March
3, 2000, subject to acceptance or rejection of the subscriptions and to earlier
termination or extension of the offering period in the Company's sole discretion
(the date of termination of the offering being the "Termination Date"). Persons
who subscribe for the shares so offered shall execute and deliver an agreement
in the form of this Agreement (each such agreement, an "Agreement") and upon
acceptance of their respective subscriptions, the Company shall countersign and
deliver the Agreements to such persons.
C. Contemporaneously with the execution and delivery of this Agreement,
the Investor is executing and delivering a Registration Rights Agreement under
which, upon acceptance of the Investor's subscription at a Closing, the Company
shall agree to provide certain registration rights under the Securities Act, the
rules and regulations promulgated thereunder and applicable state securities
laws to the Investor.
D. The capitalized terms used herein and not otherwise defined have the
meanings given them in Article IX hereof.
In consideration of the premises and the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and the Investor hereby agree as
follows:
ARTICLE I
PURCHASE AND SALE OF SECURITIES
PURCHASE AND SALE OF SECURITIES. AT A CLOSING, SUBJECT TO THE TERMS OF THIS
AGREEMENT AND THE SATISFACTION OR WAIVER OF THE CONDITIONS SET FORTH IN ARTICLES
VI AND VII HEREOF, THE COMPANY WILL ISSUE AND SELL TO THE INVESTOR WHOSE
SUBSCRIPTION IS THEN BEING ACCEPTED BY THE COMPANY, AND THE INVESTOR WILL (ON A
SEVERAL AND NOT A JOINT BASIS) PURCHASE FROM THE COMPANY, THE AGGREGATE NUMBER
OF SHARES OF COMMON STOCK SET FORTH BENEATH THE INVESTOR'S NAME ON THE SIGNATURE
PAGE HEREOF. THE COMPANY HAS THE RIGHT TO REJECT ANY SUBSCRIPTION FOR
SECURITIES, IN WHOLE OR IN PART FOR ANY REASON AND AT ANY TIME PRIOR TO A
CLOSING, NOTWITHSTANDING RECEIPT BY THE INVESTOR OR ANY OTHER INVESTOR OF NOTICE
OF ACCEPTANCE OF A SUBSCRIPTION. IN THE EVENT OF A REJECTION OF A SUBSCRIPTION
BY THE INVESTOR, ANY PAYMENT OF THE PURCHASE PRICE MADE BY THE INVESTOR SHALL BE
RETURNED TO THE INVESTOR WITHOUT INTEREST OR DEDUCTION AND THIS AGREEMENT WITH
RESPECT TO THE INVESTOR SHALL HAVE NO FORCE OR EFFECT.
PAYMENT. UPON EXECUTION AND DELIVERY OF THIS AGREEMENT, THE INVESTOR SHALL PAY
THE PURCHASE PRICE FOR THE AGGREGATE NUMBER OF SECURITIES SET FORTH BENEATH ITS
NAME ON THE SIGNATURE PAGE HEREOF AT THE PER SHARE PRICE AS DESCRIBED ABOVE, BY
WIRE TRANSFER OF IMMEDIATELY AVAILABLE FUNDS IN ACCORDANCE WITH THE COMPANY'S
WRITTEN WIRE INSTRUCTIONS, AND IN THE EVENT THE SUBSCRIPTION BY THE INVESTOR FOR
SECURITIES IS ACCEPTED AND THERE IS A CLOSING, THE PURCHASE PRICE PAID BY THE
INVESTOR SHALL BECOME NON-REFUNDABLE AND THE CERTIFICATES REPRESENTING
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THE SECURITIES SO PURCHASED WILL BE DELIVERED TO THE INVESTOR. THE COMPANY MAY
CLOSE ON ANY SUBSCRIPTION IN WHOLE OR IN PART IN THE ABSENCE OF ANY OTHER
SUBSCRIPTIONS BEING ACCEPTED IN WHOLE OR IN PART.
CLOSING. SUBJECT TO THE SATISFACTION OR WAIVER OF THE CONDITIONS SET FORTH IN
ARTICLES VI AND VII HEREOF, THE INITIAL CLOSING WILL TAKE PLACE AT 10:00 A.M.
NEW YORK TIME ON FEBRUARY 14, 2000 OR AT ANOTHER DATE OR TIME AGREED UPON BY THE
PARTIES TO THIS AGREEMENT (THE "INITIAL CLOSING DATE"). AFTER THE INITIAL
CLOSING, SUBSEQUENT CLOSINGS WITH RESPECT TO THE SALE OF ADDITIONAL SECURITIES
MAY TAKE PLACE AT ANY TIME PRIOR TO THE TERMINATION DATE (EACH SUCH CLOSING,
TOGETHER WITH THE INITIAL CLOSING BEING REFERRED TO AS A "CLOSING" AND THE DATE
OF A CLOSING, A "CLOSING DATE") EACH CLOSING WILL BE HELD AT THE OFFICES OF
DORSEY & WHITNEY LLP, 250 PARK AVENUE, NEW YORK, NEW YORK OR AT SUCH OTHER PLACE
AS THE PARTIES AGREE.
ARTICLE II
INVESTOR'S REPRESENTATIONS AND WARRANTIES
The Investor represents and warrants to the Company, severally and
solely with respect to itself and its purchase hereunder and not with respect to
any other investor of Securities, that:
2.1. INVESTMENT PURPOSE. THE INVESTOR IS PURCHASING THE SECURITIES FOR
ITS OWN ACCOUNT AND NOT WITH A PRESENT VIEW TOWARD THE PUBLIC SALE OR
DISTRIBUTION THEREOF, EXCEPT PURSUANT TO SALES REGISTERED OR EXEMPTED FROM
REGISTRATION UNDER THE SECURITIES ACT; PROVIDED, HOWEVER, THAT BY MAKING THE
REPRESENTATION HEREIN, THE INVESTOR DOES NOT AGREE TO HOLD ANY OF THE SECURITIES
FOR ANY MINIMUM OR OTHER SPECIFIC TERM AND RESERVES THE RIGHT TO DISPOSE OF THE
SECURITIES AT ANY TIME IN ACCORDANCE WITH OR PURSUANT TO A REGISTRATION
STATEMENT OR AN EXEMPTION UNDER THE SECURITIES ACT.
2.2. ACCREDITED INVESTOR STATUS. THE INVESTOR IS AN "ACCREDITED
INVESTOR" AS DEFINED IN RULE 501(A) OF REGULATION D.
2.3. RELIANCE ON EXEMPTIONS. THE INVESTOR UNDERSTANDS THAT THE
SECURITIES ARE BEING OFFERED AND SOLD TO IT IN RELIANCE UPON SPECIFIC EXEMPTIONS
FROM THE REGISTRATION REQUIREMENTS OF UNITED STATES FEDERAL AND STATE SECURITIES
LAWS AND THAT THE COMPANY IS RELYING UPON THE TRUTH AND ACCURACY OF, AND THE
INVESTOR'S COMPLIANCE WITH, THE REPRESENTATIONS, WARRANTIES, AGREEMENTS,
ACKNOWLEDGMENTS AND UNDERSTANDINGS OF THE INVESTOR SET FORTH HEREIN IN ORDER TO
DETERMINE THE AVAILABILITY OF SUCH EXEMPTIONS AND THE ELIGIBILITY OF THE
INVESTOR TO ACQUIRE THE SECURITIES.
2.4. INFORMATION. THE INVESTOR AND ITS ADVISORS, IF ANY, HAVE BEEN
FURNISHED WITH ALL MATERIALS RELATING TO THE BUSINESS, FINANCES AND OPERATIONS
OF THE COMPANY, AND MATERIALS RELATING TO THE OFFER AND SALE OF THE SECURITIES,
THAT HAVE BEEN REQUESTED BY THE INVESTOR OR ITS ADVISORS, IF ANY. THE INVESTOR
AND ITS ADVISORS, IF ANY, HAVE BEEN AFFORDED THE OPPORTUNITY TO ASK QUESTIONS OF
THE COMPANY. NEITHER SUCH INQUIRIES NOR ANY OTHER DUE DILIGENCE INVESTIGATION
CONDUCTED BY INVESTOR OR ANY OF ITS ADVISORS OR REPRESENTATIVES MODIFY, AMEND OR
AFFECT THE INVESTOR'S RIGHT TO RELY ON THE COMPANY'S REPRESENTATIONS AND
WARRANTIES CONTAINED IN ARTICLE III BELOW. THE INVESTOR ACKNOWLEDGES AND
UNDERSTANDS THAT ITS INVESTMENT IN THE SECURITIES INVOLVES A SIGNIFICANT DEGREE
OF RISK, INCLUDING THE RISKS REFLECTED IN THE SEC DOCUMENTS, COPIES OF WHICH
HAVE BEEN MADE AVAILABLE TO THE INVESTOR.
2.5. GOVERNMENTAL REVIEW. THE INVESTOR UNDERSTANDS THAT NO UNITED
STATES FEDERAL OR STATE AGENCY OR ANY OTHER GOVERNMENT OR GOVERNMENTAL AGENCY
HAS PASSED UPON OR MADE ANY RECOMMENDATION OR ENDORSEMENT OF THE SECURITIES OR
AN INVESTMENT THEREIN.
2.6. TRANSFER OR RESALE. THE INVESTOR UNDERSTANDS THAT:
(a) except as provided in the Registration Rights Agreement,
the Securities have not been and are not being registered under the Securities
Act or any applicable state securities laws and, consequently, the Investor may
have to bear the risk of owning the Securities for an indefinite period of time
because the Securities may not be transferred unless (i) the resale of the
Securities is registered pursuant to an effective registration statement under
the Securities Act; (ii) the Investor has delivered to the Company an opinion of
counsel (in form, substance and scope customary for opinions of counsel in
comparable transactions) to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration; (iii) the Securities are sold or transferred pursuant to Rule 144
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<PAGE>
or (iv) the Securities are sold or transferred to an affiliate (as defined in
Rule 144) of the Investor;
(b) any sale of the Securities made in reliance on Rule 144
may be made only in accordance with the terms of Rule 144 and, if Rule 144 is
not applicable, any resale of the Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the SEC thereunder; and
(c) except as set forth in the Registration Rights Agreement,
neither the Company nor any other person is under any obligation to register the
Securities under the Securities Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder.
2.7. LEGENDS. THE INVESTOR UNDERSTANDS THAT UNTIL SUCH TIME AS PROVIDED
IN SECTION 5.2, THE CERTIFICATES REPRESENTING THE SECURITIES WILL BEAR A
RESTRICTIVE LEGEND IN SUBSTANTIALLY THE FOLLOWING FORM (AND A STOP-TRANSFER
ORDER MAY BE PLACED AGAINST TRANSFER OF THE CERTIFICATES FOR SUCH SECURITIES):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
2.8. AUTHORIZATION; ENFORCEMENT. THIS AGREEMENT AND THE REGISTRATION
RIGHTS AGREEMENT HAVE BEEN DULY AND VALIDLY AUTHORIZED, EXECUTED AND DELIVERED
ON BEHALF OF THE INVESTOR AND ARE VALID AND BINDING AGREEMENTS OF THE INVESTOR
ENFORCEABLE IN ACCORDANCE WITH THEIR TERMS, SUBJECT TO THE EFFECT OF ANY
APPLICABLE BANKRUPTCY, INSOLVENCY, REORGANIZATION, MORATORIUM OR SIMILAR LAWS
AFFECTING THE RIGHTS OF CREDITORS GENERALLY AND THE APPLICATION OF GENERAL
PRINCIPLES OF EQUITY.
2.9. RESIDENCY. THE INVESTOR IS A RESIDENT OF THE JURISDICTION SET
FORTH IMMEDIATELY BELOW THE INVESTOR'S NAME ON THE SIGNATURE PAGES HERETO.
2.10. NO BROKER OR PLACEMENT AGENT. THE INVESTOR HAS TAKEN NO ACTION,
WHICH WOULD GIVE RISE TO ANY CLAIM BY ANY PERSON FOR BROKERAGE COMMISSIONS,
FINDER'S FEES OR SIMILAR PAYMENTS RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that:
3.1. ORGANIZATION AND QUALIFICATION. THE COMPANY IS DULY INCORPORATED,
VALIDLY EXISTING AND IN GOOD STANDING UNDER THE LAWS OF THE JURISDICTION IN
WHICH IT IS INCORPORATED, WITH FULL POWER AND AUTHORITY (CORPORATE AND OTHER) TO
OWN, LEASE, USE AND OPERATE ITS PROPERTIES AND TO CARRY ON ITS BUSINESS AS AND
WHERE NOW OWNED, LEASED, USED, OPERATED AND CONDUCTED. THE COMPANY IS DULY
QUALIFIED TO DO BUSINESS AND IS IN GOOD STANDING IN EVERY JURISDICTION IN WHICH
THE NATURE OF THE BUSINESS CONDUCTED BY IT MAKES SUCH QUALIFICATION NECESSARY,
EXCEPT WHERE THE FAILURE TO BE SO QUALIFIED OR IN GOOD STANDING WOULD NOT HAVE A
MATERIAL ADVERSE EFFECT.
3.2. AUTHORIZATION; ENFORCEMENT. (A) THE COMPANY HAS ALL REQUISITE
CORPORATE POWER AND AUTHORITY TO ENTER INTO AND TO PERFORM ITS OBLIGATIONS UNDER
THIS AGREEMENT AND THE REGISTRATION RIGHTS AGREEMENT, TO CONSUMMATE THE
TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY AND TO ISSUE THE SECURITIES IN
ACCORDANCE WITH THE TERMS HEREOF AND THEREOF; (B) THE EXECUTION, DELIVERY AND
PERFORMANCE OF THIS AGREEMENT AND THE REGISTRATION RIGHTS AGREEMENT BY THE
COMPANY AND THE CONSUMMATION BY IT OF THE TRANSACTIONS CONTEMPLATED HEREBY AND
THEREBY (INCLUDING WITHOUT LIMITATION THE ISSUANCE OF THE SECURITIES) HAVE BEEN
DULY AUTHORIZED BY THE COMPANY'S BOARD OF DIRECTORS AND NO FURTHER CONSENT OR
AUTHORIZATION OF THE COMPANY, ITS BOARD OR DIRECTORS, OR ITS SHAREHOLDERS IS
REQUIRED; (C) THIS AGREEMENT AND THE REGISTRATION RIGHTS AGREEMENT HAVE BEEN
DULY EXECUTED BY THE COMPANY; AND (D) EACH OF THIS AGREEMENT AND THE
REGISTRATION RIGHTS AGREEMENT CONSTITUTES A LEGAL, VALID AND BINDING OBLIGATION
OF THE COMPANY ENFORCEABLE AGAINST THE COMPANY IN ACCORDANCE WITH ITS TERMS,
SUBJECT TO THE EFFECT OF ANY APPLICABLE BANKRUPTCY, INSOLVENCY, REORGANIZATION,
OR
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<PAGE>
MORATORIUM OR SIMILAR LAWS AFFECTING THE RIGHTS OF CREDITORS GENERALLY AND
THE APPLICATION OF GENERAL PRINCIPLES OF EQUITY.
3.3. CAPITALIZATION. AS OF FEBRUARY 9, 2000, THE AUTHORIZED CAPITAL
STOCK OF THE COMPANY CONSISTS OF (A) 50,000,000 SHARES OF COMMON STOCK, $.01 PAR
VALUE PER SHARE, OF WHICH 13,974,238 SHARES ARE ISSUED AND OUTSTANDING,
1,400,000 SHARES ARE RESERVED FOR ISSUANCE UNDER THE COMPANY'S STOCK OPTION
PLANS, AND 4,007,902 ARE RESERVED FOR ISSUANCE PURSUANT TO SECURITIES
EXERCISABLE FOR, OR CONVERTIBLE INTO OR EXCHANGEABLE FOR SHARES OF COMMON STOCK;
(B) 5,000,000 SHARES OF PREFERRED STOCK, PAR VALUE $0.01 PER SHARE, OF WHICH NO
SHARES ARE DESIGNATED AND NONE ARE ISSUED AND OUTSTANDING. ALL OF SUCH
OUTSTANDING SHARES OF CAPITAL STOCK ARE, OR UPON ISSUANCE WILL BE, DULY
AUTHORIZED, VALIDLY ISSUED, FULLY PAID AND NONASSESSABLE. NO SHARES OF CAPITAL
STOCK OF THE COMPANY, INCLUDING THE SECURITIES ISSUABLE PURSUANT TO THIS
AGREEMENT, ARE SUBJECT TO PREEMPTIVE RIGHTS OR ANY OTHER SIMILAR RIGHTS OF THE
STOCKHOLDERS OF THE COMPANY OR ANY LIENS OR ENCUMBRANCES IMPOSED THROUGH THE
ACTIONS OR FAILURE TO ACT OF THE COMPANY. EXCEPT AS DISCLOSED IN SCHEDULE 3.3
AND EXCEPT FOR THE TRANSACTIONS CONTEMPLATED HEREBY, (I) THERE ARE NO
OUTSTANDING OPTIONS, WARRANTS, SCRIP, RIGHTS TO SUBSCRIBE FOR, PUTS, CALLS,
RIGHTS OF FIRST REFUSAL, AGREEMENTS, UNDERSTANDINGS, CLAIMS OR OTHER COMMITMENTS
OR RIGHTS OF ANY CHARACTER WHATSOEVER RELATING TO, OR SECURITIES OR RIGHTS
CONVERTIBLE INTO, EXERCISABLE FOR, OR EXCHANGEABLE FOR ANY SHARES OF CAPITAL
STOCK OF THE COMPANY, OR ARRANGEMENTS BY WHICH THE COMPANY IS OR MAY BECOME
BOUND TO ISSUE ADDITIONAL SHARES OF CAPITAL STOCK OF THE COMPANY; (II) THERE ARE
NO AGREEMENTS OR ARRANGEMENTS (OTHER THAN THE REGISTRATION RIGHTS AGREEMENT)
UNDER WHICH THE COMPANY IS OBLIGATED TO REGISTER THE SALE OF ANY OF ITS
SECURITIES UNDER THE SECURITIES ACT; AND (III) THERE ARE NO ANTI-DILUTION OR
PRICE ADJUSTMENT PROVISIONS CONTAINED IN ANY SECURITY ISSUED BY THE COMPANY (OR
IN ANY AGREEMENT PROVIDING RIGHTS TO SECURITY HOLDERS) THAT WILL BE TRIGGERED BY
THE ISSUANCE OF THE SECURITIES.
3.4. ISSUANCE OF SECURITIES. THE SECURITIES ARE DULY AUTHORIZED AND,
UPON ISSUANCE IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT, WILL BE VALIDLY
ISSUED, FULLY PAID AND NON-ASSESSABLE, FREE FROM ALL TAXES, LIENS, CLAIMS,
ENCUMBRANCES AND CHARGES WITH RESPECT TO THE ISSUE THEREOF, WILL NOT BE SUBJECT
TO PREEMPTIVE RIGHTS OR OTHER SIMILAR RIGHTS OF STOCKHOLDERS OF THE COMPANY, AND
WILL NOT IMPOSE PERSONAL LIABILITY ON THE HOLDERS THEREOF.
3.5. NO CONFLICTS; NO VIOLATION.
(a) The execution, delivery and performance of this Agreement
and the Registration Rights Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the issuance of the Securities) will not (i) conflict with or result
in a violation of any provision of the Certificate of Incorporation or By-laws
or (ii) violate or conflict with, or result in a breach of any provision of, or
constitute a default (or an event which with notice or lapse of time or both
could become a default) under, or give to others any rights of termination,
amendment (including without limitation, the triggering of any anti-dilution
provision), acceleration or cancellation of, any agreement, indenture, or
instrument to which the Company is a party, or (iii) result in a violation of
any law, rule, regulation, order, judgment or decree (including U.S. federal and
state securities laws and regulations and regulations of any self-regulatory
organizations to which the Company or its securities are subject) applicable to
the Company or by which any property or asset of the Company is bound or
affected (except for such conflicts, breaches, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect).
(b) The Company is not in violation of its Certificate of
Incorporation, By-laws or other organizational documents and the Company is not
in default (and no event has occurred which with notice or lapse of time or both
could put the Company in default) under any agreement, indenture or instrument
to which the Company is a party or by which any property or assets of the
Company is bound or affected, except for possible defaults as would not,
individually or in the aggregate, have a Material Adverse Effect.
(c) Except as specifically contemplated by this Agreement and
as required under the Securities Act and any applicable state securities laws or
any listing agreement with any securities exchange or automated quotation
system, the Company is not required to obtain any consent, authorization or
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order of, or make any filing or registration with, any court or governmental
agency or any regulatory or self regulatory agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or the
Registration Rights Agreement, in each case in accordance with the terms hereof
or thereof, or to issue and sell the Securities in accordance with the terms
hereof. All consents, authorizations, orders, filings and registrations which
the Company is required to obtain pursuant to the preceding sentence shall be
obtained or effected as required.
3.6. SEC DOCUMENTS, FINANCIAL STATEMENTS. SINCE JUNE 30, 1999, THE
COMPANY ( OR ITS PREDECESSOR, HEALTHCORE MEDICAL SOLUTIONS, INC.) HAS TIMELY
FILED ALL REPORTS, SCHEDULES, FORMS, STATEMENTS AND OTHER DOCUMENTS REQUIRED TO
BE FILED BY IT WITH THE SEC PURSUANT TO THE REPORTING REQUIREMENTS OF THE
EXCHANGE ACT (ALL OF THE FOREGOING FILED PRIOR TO THE DATE HEREOF AND ALL
EXHIBITS INCLUDED THEREIN AND FINANCIAL STATEMENTS AND SCHEDULES THERETO AND
DOCUMENTS (OTHER THAN EXHIBITS) INCORPORATED BY REFERENCE THEREIN, BEING
HEREINAFTER REFERRED TO HEREIN AS THE "SEC DOCUMENTS"). THE COMPANY HAS
DELIVERED TO THE INVESTOR, OR THE INVESTOR HAS HAD ACCESS TO, TRUE AND COMPLETE
COPIES OF THE SEC DOCUMENTS, EXCEPT FOR SUCH EXHIBITS AND INCORPORATED
DOCUMENTS. AS OF THEIR RESPECTIVE DATES, THE SEC DOCUMENTS COMPLIED IN ALL
MATERIAL RESPECTS WITH THE REQUIREMENTS OF THE EXCHANGE ACT OR THE SECURITIES
ACT, AS THE CASE MAY BE, AND THE RULES AND REGULATIONS OF THE SEC PROMULGATED
THEREUNDER APPLICABLE TO THE SEC DOCUMENTS, AND NONE OF THE SEC DOCUMENTS, AT
THE TIME THEY WERE FILED WITH THE SEC, CONTAINED ANY UNTRUE STATEMENT OF A
MATERIAL FACT OR OMITTED TO STATE A 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. AS OF THEIR RESPECTIVE
DATES, THE FINANCIAL STATEMENTS OF THE COMPANY INCLUDED IN THE SEC DOCUMENTS
COMPLIED AS TO FORM IN ALL MATERIAL RESPECTS WITH APPLICABLE ACCOUNTING
REQUIREMENTS AND THE PUBLISHED RULES AND REGULATIONS OF THE SEC WITH RESPECT
THERETO. SUCH FINANCIAL STATEMENTS HAVE BEEN PREPARED IN ACCORDANCE WITH U.S.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, CONSISTENTLY APPLIED, DURING THE
PERIODS INVOLVED (EXCEPT (I) AS MAY BE OTHERWISE INDICATED IN SUCH FINANCIAL
STATEMENTS OR THE NOTES THERETO, OR (II) IN THE CASE OF UNAUDITED INTERIM
STATEMENTS, TO THE EXTENT THEY MAY NOT INCLUDE FOOTNOTES OR MAY BE CONDENSED OR
SUMMARY STATEMENTS) AND FAIRLY PRESENT IN ALL MATERIAL RESPECTS THE FINANCIAL
POSITION OF THE COMPANY AS OF THE DATES THEREOF AND THE RESULTS OF ITS
OPERATIONS AND CASH FLOWS FOR THE PERIODS THEN ENDED (SUBJECT, IN THE CASE OF
UNAUDITED STATEMENTS, TO NORMAL YEAR-END AUDIT ADJUSTMENTS). EXCEPT AS SET FORTH
IN THE FINANCIAL STATEMENTS INCLUDED IN THE SEC DOCUMENTS OR IN THE COMPANY'S
PRESS RELEASES OR IN SCHEDULE 3.6, THE COMPANY HAS NO LIABILITIES, CONTINGENT OR
OTHERWISE, OTHER THAN LIABILITIES INCURRED IN THE ORDINARY COURSE OF BUSINESS
SUBSEQUENT TO JUNE 30, 1999, AND LIABILITIES OF THE TYPE NOT REQUIRED UNDER
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO BE REFLECTED IN SUCH FINANCIAL
STATEMENTS. SUCH LIABILITIES INCURRED SUBSEQUENT TO JUNE 30, 1999, ARE NOT, IN
THE AGGREGATE, MATERIAL TO THE FINANCIAL CONDITION OR OPERATING RESULTS OF THE
COMPANY.
3.7. ABSENCE OF CERTAIN CHANGES. EXCEPT AS DISCLOSED IN THE SEC
DOCUMENTS, IN THE COMPANY'S PRESS RELEASES OR IN SCHEDULE 3.6, SINCE JUNE 30,
1999, THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN THE ASSETS, LIABILITIES,
BUSINESS, PROPERTIES, OPERATIONS, FINANCIAL CONDITION, OR RESULTS OF OPERATIONS
OF THE COMPANY.
3.8. ABSENCE OF LITIGATION. THERE IS NO ACTION, SUIT, CLAIM,
PROCEEDING, INQUIRY OR INVESTIGATION BEFORE OR BY ANY COURT, PUBLIC BOARD,
GOVERNMENT AGENCY, SELF-REGULATORY ORGANIZATION OR BODY PENDING OR, TO THE
KNOWLEDGE OF THE COMPANY, THREATENED AGAINST OR AFFECTING THE COMPANY OR ANY OF
ITS OFFICERS OR DIRECTORS ACTING AS SUCH THAT COULD, INDIVIDUALLY OR IN THE
AGGREGATE, HAVE A MATERIAL ADVERSE EFFECT.
3.9. TAX STATUS. THE COMPANY HAS MADE OR FILED ALL FEDERAL, STATE AND
FOREIGN INCOME AND ALL OTHER TAX RETURNS, REPORTS AND DECLARATIONS REQUIRED BY
ANY JURISDICTION TO WHICH IT IS SUBJECT (UNLESS AND ONLY TO THE EXTENT THAT THE
COMPANY HAS SET ASIDE ON ITS BOOKS PROVISIONS REASONABLY ADEQUATE FOR THE
PAYMENT OF ALL UNPAID AND UNREPORTED TAXES) AND HAS PAID ALL TAXES AND OTHER
GOVERNMENTAL ASSESSMENTS AND CHARGES THAT ARE MATERIAL IN AMOUNT, SHOWN OR
DETERMINED TO BE DUE ON SUCH RETURNS, REPORTS AND DECLARATIONS, EXCEPT THOSE
BEING CONTESTED IN GOOD FAITH, AND HAS SET ASIDE ON ITS BOOKS PROVISIONS
REASONABLY ADEQUATE FOR THE PAYMENT OF ALL TAXES FOR PERIODS SUBSEQUENT TO THE
PERIODS TO WHICH SUCH RETURNS, REPORTS OR DECLARATIONS APPLY. TO THE KNOWLEDGE
OF THE COMPANY, THERE ARE NO UNPAID TAXES IN ANY MATERIAL AMOUNT CLAIMED TO BE
DUE BY THE TAXING AUTHORITY OF ANY JURISDICTION, AND THE OFFICERS OF THE COMPANY
KNOW OF NO BASIS FOR ANY SUCH CLAIM. THE COMPANY HAS NOT EXECUTED A WAIVER WITH
RESPECT TO THE STATUTE OF LIMITATIONS RELATING TO THE ASSESSMENT OR COLLECTION
OF ANY FOREIGN, FEDERAL, STATE OR LOCAL TAX. NONE OF THE COMPANY'S TAX RETURNS
IS PRESENTLY BEING AUDITED BY ANY TAXING AUTHORITY.
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3.10. NO BROKERS. THE COMPANY HAS TAKEN NO ACTION, WHICH WOULD GIVE
RISE TO ANY CLAIM BY ANY PERSON FOR BROKERAGE COMMISSIONS, FINDER'S FEES OR
SIMILAR PAYMENTS RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
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ARTICLE IV
COVENANTS
4.1. BEST EFFORTS. EACH PARTY WILL USE ITS BEST EFFORTS TO SATISFY IN A
TIMELY FASHION EACH OF THE CONDITIONS TO BE SATISFIED BY IT UNDER ARTICLES VI
AND VII OF THIS AGREEMENT
4.2. FORM D; BLUE SKY LAWS. THE COMPANY WILL FILE A NOTICE OF SALE OF
SECURITIES ON FORM D WITH RESPECT TO THE SECURITIES, AS REQUIRED UNDER
REGULATION D, AND TO PROVIDE A COPY THEREOF TO THE INVESTOR PROMPTLY AFTER SUCH
FILING. THE COMPANY WILL TAKE SUCH ACTION AS IT REASONABLY DETERMINES TO BE
NECESSARY TO QUALIFY THE SECURITIES FOR SALE ON SUCH CLOSING DATE TO THE
INVESTORS UNDER THIS AGREEMENT UNDER APPLICABLE SECURITIES (OR "BLUE SKY") LAWS
OF THE STATES OF THE UNITED STATES (OR TO OBTAIN AN EXEMPTION FROM SUCH
QUALIFICATION), AND WILL PROVIDE EVIDENCE OF ANY SUCH ACTION SO TAKEN TO THE
INVESTORS ON OR PRIOR TO SUCH CLOSING DATE. THE COMPANY WILL FILE WITH THE SEC A
CURRENT REPORT ON FORM 8-K DISCLOSING THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREBY WITHIN 10 BUSINESS DAYS AFTER THE INITIAL CLOSING DATE AND
EACH ADDITIONAL CLOSING DATE.
4.3. REPORTING STATUS; ELIGIBILITY TO USE FORM S-3. THE COMPANY'S
COMMON STOCK IS REGISTERED UNDER SECTION 12 OF THE EXCHANGE ACT. THROUGHOUT THE
REGISTRATION PERIOD (AS DEFINED IN THE REGISTRATION RIGHTS AGREEMENT), THE
COMPANY WILL TIMELY FILE ALL REPORTS, SCHEDULES, FORMS, STATEMENTS AND OTHER
DOCUMENTS REQUIRED TO BE FILED BY IT WITH THE SEC UNDER THE REPORTING
REQUIREMENTS OF THE EXCHANGE ACT. THE COMPANY CURRENTLY MEETS THE "REGISTRANT
ELIGIBILITY" REQUIREMENTS SET FORTH IN THE GENERAL INSTRUCTIONS TO FORM S-3.
4.4. EXPENSES. THE COMPANY AND THE INVESTOR IS LIABLE FOR, AND WILL
PAY, ITS OWN EXPENSES INCURRED IN CONNECTION WITH THE NEGOTIATION, PREPARATION,
EXECUTION AND DELIVERY OF THIS AGREEMENT AND THE OTHER AGREEMENTS TO BE EXECUTED
IN CONNECTION HEREWITH, INCLUDING, WITHOUT LIMITATION, ATTORNEYS' AND
CONSULTANTS' FEES AND EXPENSES.
4.5. FINANCIAL INFORMATION. THE FINANCIAL STATEMENTS OF THE COMPANY
WILL BE PREPARED IN ACCORDANCE WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES, CONSISTENTLY APPLIED, AND WILL FAIRLY PRESENT IN ALL MATERIAL
RESPECTS THE CONSOLIDATED FINANCIAL POSITION OF THE COMPANY AND RESULTS OF ITS
OPERATIONS AND CASH FLOWS FOR THE PERIODS THEN ENDED (SUBJECT, IN THE CASE OF
UNAUDITED STATEMENTS, TO NORMAL YEAR-END AUDIT ADJUSTMENTS).
4.6. LISTING. ON OR BEFORE THE TENTH BUSINESS DAY AFTER THE DATE OF
THIS AGREEMENT, THE COMPANY WILL SECURE THE LISTING OF THE SECURITIES UPON EACH
NATIONAL SECURITIES EXCHANGE OR AUTOMATED QUOTATION SYSTEM, IF ANY, UPON WHICH
SHARES OF COMMON STOCK ARE THEN LISTED (SUBJECT TO OFFICIAL NOTICE OF ISSUANCE)
AND, SO LONG AS ANY INVESTOR OWNS ANY OF THE SECURITIES, WILL MAINTAIN SUCH
LISTING OF THE SECURITIES. THE COMPANY WILL USE ITS BEST EFFORTS TO OBTAIN AND,
SO LONG AS ANY INVESTOR OWNS ANY OF THE SECURITIES, MAINTAIN THE LISTING AND
TRADING OF ITS COMMON STOCK ON NASDAQ, THE AMERICAN STOCK EXCHANGE OR THE NEW
YORK STOCK EXCHANGE AND WILL COMPLY IN ALL RESPECTS WITH THE COMPANY'S
REPORTING, FILING AND OTHER OBLIGATIONS UNDER THE BYLAWS OR RULES OF THE
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. AND SUCH EXCHANGES, AS
APPLICABLE. UNTIL THE INVESTOR TRANSFERS, ASSIGNS OR SELLS ALL OF THE SECURITIES
OWNED BY IT, THE COMPANY WILL PROMPTLY PROVIDE TO THE INVESTOR COPIES OF ANY
NOTICES IT RECEIVES REGARDING THE CONTINUED ELIGIBILITY OF THE COMMON STOCK FOR
LISTING ON NASDAQ OR OTHER PRINCIPAL EXCHANGE OR QUOTATION SYSTEM ON WHICH THE
COMMON STOCK IS LISTED OR TRADED.
4.7. SALES BY INVESTORS. THE INVESTOR WILL SELL ANY SECURITIES SOLD BY
IT IN COMPLIANCE WITH APPLICABLE PROSPECTUS DELIVERY REQUIREMENTS, IF ANY, OR
OTHERWISE IN COMPLIANCE WITH THE REQUIREMENTS FOR AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER.
NO INVESTOR WILL MAKE ANY SALE, TRANSFER OR OTHER DISPOSITION OF THE SECURITIES
IN VIOLATION OF FEDERAL OR STATE SECURITIES LAWS.
4.8. DEBT REPAYMENT RESTRICTIONS. FOR A PERIOD OF 120 DAYS FOLLOWING
THE INITIAL CLOSING DATE, THE COMPANY SHALL NOT REPAY ANY AFFILIATE ANY PORTION
OF THE PRINCIPAL DUE UNDER ANY INDEBTEDNESS OWED TO SUCH AFFILIATE WITHOUT THE
CONSENT OF THE INVESTORS; PROVIDED, HOWEVER, THAT SUCH REPAYMENT SHALL BE
PERMITTED (A) FROM THE PROCEEDS RECEIVED BY THE COMPANY UPON EXERCISE OF
OUTSTANDING WARRANTS OR (B) TO THE EXTENT OF THE COMPANY'S POSITIVE EBITDA FOR
ANY CALENDAR QUARTER COMMENCING WITH THE THREE MONTHS ENDING MARCH 31, 2000.
EBITDA SHALL MEAN EARNINGS BEFORE INCOME TAXES, DEPRECIATION AND AMORTIZATION.
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ARTICLE V
TRANSFER AGENT INSTRUCTIONS; REMOVAL OF LEGENDS
5.1. ISSUANCE OF CERTIFICATES. THE COMPANY WILL INSTRUCT ITS TRANSFER
AGENT TO ISSUE CERTIFICATES, REGISTERED IN THE NAME OF THE INVESTOR OR ITS
NOMINEE, FOR THE SECURITIES. ALL SUCH CERTIFICATES WILL BEAR THE RESTRICTIVE
LEGEND DESCRIBED IN SECTION 2.7, EXCEPT AS OTHERWISE SPECIFIED IN THIS ARTICLE
V. THE COMPANY WILL NOT GIVE TO ITS TRANSFER AGENT ANY INSTRUCTION OTHER THAN AS
DESCRIBED IN THIS ARTICLE V AND STOP TRANSFER INSTRUCTIONS TO GIVE EFFECT TO
SECTION 2.7 HEREOF (PRIOR TO REGISTRATION OF THE SECURITIES UNDER THE SECURITIES
ACT). NOTHING IN THIS SECTION WILL AFFECT IN ANY WAY THE INVESTOR'S OBLIGATIONS
AND AGREEMENT SET FORTH IN SECTION 2.7 HEREOF TO COMPLY WITH ALL APPLICABLE
PROSPECTUS DELIVERY REQUIREMENTS, IF ANY, UPON RESALE OF THE SECURITIES.
5.2. UNRESTRICTED SECURITIES. IF, UNLESS OTHERWISE REQUIRED BY
APPLICABLE STATE SECURITIES LAWS, (A) THE SECURITIES REPRESENTED BY A
CERTIFICATE HAVE BEEN REGISTERED UNDER AN EFFECTIVE REGISTRATION STATEMENT FILED
UNDER THE SECURITIES ACT AND SOLD UNDER SUCH REGISTRATION STATEMENT, (B) SUCH
HOLDER PROVIDES THE COMPANY AND THE TRANSFER AGENT WITH REASONABLE ASSURANCES
THAT SUCH SECURITIES CAN BE SOLD UNDER RULE 144, OR (C) THE SECURITIES
REPRESENTED BY A CERTIFICATE CAN BE SOLD WITHOUT RESTRICTION AS TO THE NUMBER OF
SECURITIES SOLD UNDER RULE 144(K), THE COMPANY WILL PERMIT THE TRANSFER OF THE
APPLICABLE SECURITIES, AND THE TRANSFER AGENT WILL ISSUE ONE OR MORE
CERTIFICATES, FREE FROM ANY RESTRICTIVE LEGEND, IN SUCH NAME AND IN SUCH
DENOMINATIONS AS SPECIFIED BY SUCH HOLDER. NOTWITHSTANDING ANYTHING HEREIN TO
THE CONTRARY, THE SECURITIES MAY BE PLEDGED AS COLLATERAL IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LENDING ARRANGEMENT; PROVIDED THAT SUCH PLEDGE
WILL NOT ALTER THE PROVISIONS OF THIS ARTICLE V WITH RESPECT TO THE REMOVAL OF
RESTRICTIVE LEGENDS.
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ARTICLE VI
CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
The obligation of the Company to issue and sell the Securities to the
Investor at a Closing is subject to the satisfaction by the Investor, on or
before the Closing Date of such Closing, of each of the following conditions.
These conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:
6.1. THE INVESTOR WILL HAVE EXECUTED THIS AGREEMENT AND THE REGISTRATION RIGHTS
AGREEMENT AND WILL HAVE DELIVERED THOSE AGREEMENTS TO THE COMPANY.
6.2. THE INVESTOR WILL HAVE DELIVERED THE PURCHASE PRICE FOR THE SECURITIES TO
THE COMPANY IN ACCORDANCE WITH THIS AGREEMENT.
6.3. THE REPRESENTATIONS AND WARRANTIES OF THE INVESTOR MUST BE TRUE AND CORRECT
IN ALL MATERIAL RESPECTS AS OF SUCH CLOSING DATE AS THOUGH MADE AT THAT TIME
(EXCEPT FOR REPRESENTATIONS AND WARRANTIES THAT SPEAK AS OF A SPECIFIC DATE,
WHICH REPRESENTATIONS AND WARRANTIES MUST BE CORRECT AS OF SUCH DATE), AND THE
INVESTOR WILL HAVE PERFORMED AND COMPLIED IN ALL MATERIAL RESPECTS WITH THE
COVENANTS AND CONDITIONS REQUIRED BY THIS AGREEMENT TO BE PERFORMED OR COMPLIED
WITH BY THE INVESTOR AT OR PRIOR TO SUCH CLOSING.
6.4. NO STATUTE, RULE, REGULATION, EXECUTIVE ORDER, DECREE, RULING OR INJUNCTION
WILL HAVE BEEN ENACTED, ENTERED, PROMULGATED OR ENDORSED BY OR IN ANY COURT OR
GOVERNMENTAL AUTHORITY OF COMPETENT JURISDICTION OR ANY SELF-REGULATORY
ORGANIZATION HAVING AUTHORITY OVER THE MATTERS CONTEMPLATED HEREBY WHICH
PROHIBITS THE CONSUMMATION OF ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT.
ARTICLE VII
CONDITIONS TO THE INVESTOR'S OBLIGATION TO PURCHASE
The obligation of the Investor hereunder to purchase the Securities
from the Company at a Closing is subject to the satisfaction, on or before the
Closing Date of such Closing, of each of the following conditions. These
conditions are for the Investor's respective benefit and may be waived by any
Investor at any time in its sole discretion:
7.1. THE COMPANY WILL HAVE EXECUTED THIS AGREEMENT AND THE REGISTRATION RIGHTS
AGREEMENT AND WILL HAVE DELIVERED THOSE AGREEMENTS TO THE INVESTOR
7.2. THE COMPANY WILL HAVE DELIVERED TO THE INVESTORS DULY EXECUTED CERTIFICATES
REPRESENTING THE SECURITIES IN THE AMOUNTS SPECIFIED IN SECTION 1.1 HEREOF.
7.3. THE REPRESENTATIONS AND WARRANTIES OF THE COMPANY MUST BE TRUE AND CORRECT
IN ALL MATERIAL RESPECTS AS OF SUCH CLOSING AS THOUGH MADE AT THAT TIME (EXCEPT
FOR REPRESENTATIONS AND WARRANTIES THAT SPEAK AS OF A SPECIFIC DATE, WHICH
REPRESENTATIONS AND WARRANTIES MUST BE TRUE AND CORRECT AS OF SUCH DATE) AND THE
COMPANY MUST HAVE PERFORMED AND COMPLIED IN ALL MATERIAL RESPECTS WITH THE
COVENANTS AND CONDITIONS REQUIRED BY THIS AGREEMENT TO BE PERFORMED OR COMPLIED
WITH BY THE COMPANY AT OR PRIOR TO SUCH CLOSING. THE INVESTOR MUST HAVE RECEIVED
A CERTIFICATE OR CERTIFICATES DATED AS OF THE CLOSING DATE AND EXECUTED BY THE
CHIEF EXECUTIVE OFFICER OR THE CHIEF FINANCIAL OFFICER OF THE COMPANY CERTIFYING
AS TO THE MATTERS IN CONTAINED IN THIS SECTION 7.3 AND AS TO SUCH OTHER MATTERS
AS MAY BE REASONABLY REQUESTED BY THE INVESTOR, INCLUDING, BUT NOT LIMITED TO,
THE COMPANY'S CERTIFICATE OF INCORPORATION, BY-LAWS, BOARD OF DIRECTORS'
RESOLUTIONS RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY AND THE INCUMBENCY
AND SIGNATURES OF EACH OF THE OFFICERS OF THE COMPANY WHO MAY EXECUTE ON BEHALF
OF THE COMPANY ANY DOCUMENT DELIVERED AT SUCH CLOSING.
7.4. NO LITIGATION, STATUTE, RULE, REGULATION, EXECUTIVE ORDER, DECREE, RULING
OR INJUNCTION WILL HAVE BEEN ENACTED, ENTERED, PROMULGATED OR ENDORSED BY OR IN
ANY COURT OR GOVERNMENTAL AUTHORITY OF COMPETENT JURISDICTION OR ANY
SELF-REGULATORY ORGANIZATION HAVING AUTHORITY OVER THE MATTERS CONTEMPLATED
HEREBY WHICH PROHIBITS THE CONSUMMATION OF ANY OF THE TRANSACTIONS CONTEMPLATED
BY THIS AGREEMENT.
7.5. TRADING AND LISTING OF THE COMMON STOCK ON NASDAQ MUST NOT HAVE BEEN
SUSPENDED BY THE SEC OR NASDAQ.
7.6. THE IRREVOCABLE TRANSFER AGENT INSTRUCTIONS, IN FORM AND SUBSTANCE
SATISFACTORY TO THE INVESTORS, WILL HAVE BEEN DELIVERED TO THE COMPANY'S
TRANSFER AGENT AND ACKNOWLEDGED IN WRITING BY SUCH TRANSFER AGENT.
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ARTICLE VIII
INDEMNIFICATION
In consideration of the Investor's execution and delivery of this
Agreement and its acquisition of the Securities hereunder, and in addition to
all of the Company's other obligations under this Agreement and the Registration
Rights Agreement, the Company will defend, protect, indemnify and hold harmless
the Investor and each other holder of the Securities and all of their
stockholders, officers, directors, employees and direct or indirect investors
and any of the foregoing person's agents or other representatives (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "INDEMNITEES") from and
against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(regardless of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by an Indemnitee as
a result of, or arising out of, or relating to (a) any breach of any
representation or warranty made by the Company herein or in any other
certificate, instrument or document contemplated hereby or thereby, (b) any
breach of any covenant, agreement or obligation of the Company contained herein
or in any other certificate, instrument or document contemplated hereby or
thereby or (c) any cause of action, suit or claim brought or made against such
Indemnitee and arising out of or resulting from the execution, delivery,
performance, breach or enforcement of this Agreement or the Registration Rights
Agreement by the Company. To the extent that the foregoing undertaking by the
Company is unenforceable for any reason, the Company will make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities that is permissible under applicable law.
ARTICLE IX
DEFINITIONS
9.1. "CLOSING" MEANS A CLOSING OF THE PURCHASE AND SALE OF THE SECURITIES
UNDER THIS AGREEMENT.
9.2. "CLOSING DATE" HAS THE MEANING SET FORTH IN SECTION 1.3.
9.3. "COMMON STOCK" MEANS THE COMMON STOCK, PAR VALUE $.01 PER SHARE, OF
THE COMPANY.
9.4. "COMPANY" MEANS ADATOM.COM, INC.
9.5. "EXCHANGE ACT" MEANS THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
9.6. "INDEMNIFIED LIABILITIES" HAS THE MEANING SET FORTH IN ARTICLE VIII.
9.7. "INDEMNITEES" HAS THE MEANING SET FORTH IN ARTICLE VIII.
9.8. "INVESTORS" MEANS THE INVESTORS WHOSE NAMES ARE SET FORTH ON THE
SIGNATURE PAGES OF THIS AGREEMENT, AND THEIR PERMITTED TRANSFEREES.
9.9. "MATERIAL ADVERSE EFFECT" MEANS A MATERIAL ADVERSE EFFECT ON (A) THE
BUSINESS, OPERATIONS, ASSETS, PROSPECTS OR FINANCIAL CONDITION OF THE
COMPANY OR
(B) THE ABILITY OF THE COMPANY TO PERFORM ITS OBLIGATIONS PURSUANT TO THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR UNDER THE AGREEMENTS OR
INSTRUMENTS TO BE ENTERED INTO OR FILED IN CONNECTION HEREWITH.
9.10. "NASDAQ" MEANS THE NASDAQ SMALLCAP MARKET.
9.11. "REGISTRATION RIGHTS AGREEMENT" MEANS THE REGISTRATION RIGHTS AGREEMENT,
DATED AS OF THE DATE OF THIS AGREEMENT AND AMONG THE PARTIES TO THIS AGREEMENT,
IN THE FORM ATTACHED HERETO AS EXHIBIT A.
9.12. "REGULATION D" MEANS REGULATION D AS PROMULGATED UNDER BY THE SEC UNDER
THE SECURITIES ACT.
9.13. "RULE 144" AND "RULE 144(K)" MEAN RULE 144 AND RULE 144(K), RESPECTIVELY,
PROMULGATED UNDER THE SECURITIES ACT, OR ANY SUCCESSOR RULE.
9.14. "SEC" MEANS THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION.
9.15. "SEC DOCUMENTS" HAS THE MEANING SET FORTH IN SECTION 3.8.
9.16. "SECURITIES" MEANS THE COMMON STOCK SOLD PURSUANT TO THIS AGREEMENT.
9.17. "SECURITIES ACT" MEANS THE SECURITIES ACT OF 1933, AS AMENDED, AND THE
RULES AND REGULATIONS THEREUNDER, OR ANY SIMILAR SUCCESSOR STATUTE.
ARTICLE X
GOVERNING LAW; MISCELLANEOUS
10.1. GOVERNING LAW; JURISDICTION. THIS AGREEMENT WILL BE GOVERNED BY AND
INTERPRETED IN
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ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL AND STATE COURTS LOCATED IN
THE STATE OF NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT,
THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.
10.2. COUNTERPARTS; SIGNATURES BY FACSIMILE. THIS AGREEMENT MAY BE EXECUTED IN
TWO OR MORE COUNTERPARTS, ALL OF WHICH ARE CONSIDERED ONE AND THE SAME AGREEMENT
AND WILL BECOME EFFECTIVE WHEN COUNTERPARTS HAVE BEEN SIGNED BY EACH PARTY AND
DELIVERED TO THE OTHER PARTIES. THIS AGREEMENT, ONCE EXECUTED BY A PARTY, MAY BE
DELIVERED TO THE OTHER PARTIES HERETO BY FACSIMILE TRANSMISSION OF A COPY OF
THIS AGREEMENT BEARING THE SIGNATURE OF THE PARTY SO DELIVERING THIS AGREEMENT.
10.3. HEADINGS. THE HEADINGS OF THIS AGREEMENT ARE FOR CONVENIENCE OF REFERENCE
ONLY, ARE NOT PART OF THIS AGREEMENT AND DO NOT AFFECT ITS INTERPRETATION.
10.4. SEVERABILITY. IF ANY PROVISION OF THIS AGREEMENT IS INVALID OR
UNENFORCEABLE UNDER ANY APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION
WILL BE DEEMED MODIFIED IN ORDER TO CONFORM WITH SUCH STATUTE OR RULE OF LAW.
Any provision hereof that may prove invalid or unenforceable under any
law will not affect the validity or enforceability of any other provision
hereof.
10.5. ENTIRE AGREEMENT; AMENDMENTS. THIS AGREEMENT AND THE REGISTRATION RIGHTS
AGREEMENT (INCLUDING ALL SCHEDULES AND EXHIBITS THERETO) CONSTITUTE THE ENTIRE
AGREEMENT AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND
THEREOF. THERE ARE NO RESTRICTIONS, PROMISES, WARRANTIES OR UNDERTAKINGS, OTHER
THAN THOSE SET FORTH OR REFERRED TO HEREIN OR THEREIN. THIS AGREEMENT SUPERSEDES
ALL PRIOR AGREEMENTS AND UNDERSTANDINGS AMONG THE PARTIES HERETO WITH RESPECT TO
THE SUBJECT MATTER HEREOF. NO PROVISION OF THIS AGREEMENT MAY BE WAIVED OR
AMENDED OTHER THAN BY AN INSTRUMENT IN WRITING SIGNED BY THE PARTY TO BE CHARGED
WITH ENFORCEMENT.
NOTICES. ANY NOTICES REQUIRED OR PERMITTED TO BE GIVEN UNDER THE TERMS
OF THIS AGREEMENT MUST BE SENT BY CERTIFIED OR REGISTERED MAIL (RETURN
RECEIPT REQUESTED) OR DELIVERED PERSONALLY OR BY COURIER (INCLUDING A
RECOGNIZED OVERNIGHT DELIVERY SERVICE) OR BY FACSIMILE AND WILL BE
EFFECTIVE FIVE DAYS AFTER BEING PLACED IN THE MAIL, IF MAILED BY
REGULAR U.S. MAIL, OR UPON RECEIPT, IF DELIVERED PERSONALLY, BY COURIER
(INCLUDING A RECOGNIZED OVERNIGHT DELIVERY SERVICE) OR BY FACSIMILE, IN
EACH CASE ADDRESSED TO A PARTY. THE ADDRESSES FOR SUCH COMMUNICATIONS
ARE:
IF TO THE COMPANY: ADATOM.COM, INC.
920 Hillview Court
Milpitas, CA 95035
Attention: Chief Executive Officer
FACSIMILE: (408) 935-7970
With a copy to: Dorsey & Whitney LLP
250 Park Avenue
New York, NY 10177
Attention: Seth I. Truwit, Esq.
Facsimile: (212) 953-7201
If to the Investor: To the address set forth immediately below the
Investor's name on the signature pages hereto. Each party will provide written
notice to the other parties of any change in its address.
10.6. SUCCESSORS AND ASSIGNS. THIS AGREEMENT IS BINDING UPON AND INURES TO THE
BENEFIT OF THE PARTIES AND THEIR SUCCESSORS AND ASSIGNS. THE COMPANY WILL NOT
ASSIGN THIS AGREEMENT OR ANY RIGHTS OR OBLIGATIONS HEREUNDER WITHOUT THE PRIOR
WRITTEN CONSENT OF THE INVESTORS, AND NO INVESTOR MAY ASSIGN THIS AGREEMENT OR
ANY RIGHTS OR OBLIGATIONS HEREUNDER WITHOUT THE PRIOR WRITTEN CONSENT OF THE
COMPANY. NOTWITHSTANDING THE FOREGOING, THE INVESTOR MAY ASSIGN ALL OR PART OF
ITS RIGHTS AND OBLIGATIONS HEREUNDER TO ANY OF ITS "AFFILIATES," AS THAT TERM IS
DEFINED UNDER THE SECURITIES ACT, WITHOUT THE CONSENT OF THE COMPANY SO LONG AS
THE AFFILIATE IS AN ACCREDITED INVESTOR (WITHIN THE MEANING OF REGULATION D
UNDER THE SECURITIES ACT) AND AGREES IN WRITING TO BE BOUND BY THIS AGREEMENT.
THIS PROVISION DOES NOT LIMIT THE INVESTOR'S RIGHT TO TRANSFER THE SECURITIES
PURSUANT TO THE TERMS OF THIS AGREEMENT OR TO ASSIGN THE INVESTOR'S RIGHTS
HEREUNDER TO ANY SUCH TRANSFEREE PURSUANT TO THE TERMS OF THIS AGREEMENT.
10.7. THIRD PARTY BENEFICIARIES. THIS AGREEMENT IS INTENDED FOR THE
BENEFIT OF THE PARTIES HERETO
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AND THEIR RESPECTIVE PERMITTED SUCCESSORS AND ASSIGNS, AND IS NOT FOR THE
BENEFIT OF, NOR MAY ANY PROVISION HEREOF BE ENFORCED BY, ANY OTHER PERSON.
10.8. SURVIVAL. THE REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
AGREEMENTS AND COVENANTS SET FORTH HEREIN WILL SURVIVE THE CLOSING HEREUNDER.
THE COMPANY MAKES NO REPRESENTATIONS OR WARRANTIES IN ANY ORAL OR WRITTEN
INFORMATION PROVIDED TO INVESTORS, OTHER THAN THE REPRESENTATIONS AND WARRANTIES
INCLUDED HEREIN.
10.9. FURTHER ASSURANCES. EACH PARTY WILL DO AND PERFORM, OR CAUSE TO BE DONE
AND PERFORMED, ALL SUCH FURTHER ACTS AND THINGS, AND WILL EXECUTE AND DELIVER
ALL OTHER AGREEMENTS, CERTIFICATES, INSTRUMENTS AND DOCUMENTS, AS ANOTHER PARTY
MAY REASONABLY REQUEST IN ORDER TO CARRY OUT THE INTENT AND ACCOMPLISH THE
PURPOSES OF THIS AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED
HEREBY.
10.10. NO STRICT CONSTRUCTION. THE LANGUAGE USED IN THIS AGREEMENT IS DEEMED TO
BE THE LANGUAGE CHOSEN BY THE PARTIES TO EXPRESS THEIR MUTUAL INTENT, AND NO
RULES OF STRICT CONSTRUCTION WILL BE APPLIED AGAINST ANY PARTY.
10.11. EQUITABLE RELIEF. THE COMPANY RECOGNIZES THAT, IF IT FAILS TO PERFORM OR
DISCHARGE ANY OF ITS OBLIGATIONS UNDER THIS AGREEMENT, ANY REMEDY AT LAW MAY
PROVE TO BE INADEQUATE RELIEF TO THE INVESTORS. THE COMPANY THEREFORE AGREES
THAT THE INVESTORS ARE ENTITLED TO TEMPORARY AND PERMANENT INJUNCTIVE RELIEF IN
ANY SUCH CASE WITHOUT THE NECESSITY OF PROVING ACTUAL DAMAGES.
[The remainder of this page has been intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, the undersigned Investors and the Company have
caused this Agreement to be duly executed as of the date first above written.
COMPANY:
ADATOM.COM, INC.
By: _______________________
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
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INVESTOR:
--------------------------
[NAME OF INVESTOR]
By: _______________________
Name:
Its: Chairman
AGGREGATE SUBSCRIPTION AMOUNT: $__________
Number of Shares of Common Stock: ___________
RESIDENCE:
ADDRESS:
- ----------------------------------
- ----------------------------------
- ----------------------------------
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Exhibit 4.11
SCHEDULE 3.3
CAPITALIZATION
As of February 9, 2000, there were 13,974,238 shares of common stock issued and
outstanding, 1,400,000 shares reserved for issuance under the Company's stock
options plans, and 4,007,902 are reserved for issuance pursuant to outstanding
warrants or unit purchase options:
Registered Warrants IPO *** 3,174,000
Registered Neal Polan 142,000
Unregistered Levitin 15,000
** D. H. Blair *** 176,000
** D. H. Blair *** 176,000
Randall 12,500
* Jesup & Lamont 200,000
* Jesup & Lamont 112,402
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Total Warrants 4,007,902
==============
* Have piggyback registration rights.
** Have demand and piggyback registration rights.
***Subject to adjustment as a result of a financing at below fair market value,
such as this private placement offering.
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EXHIBIT 4.11
SCHEDULE 3.6
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ABSENCE OF CHANGES
In addition to the disclosures made in the Company's SEC Documents and press
releases, investors should be aware of the following risks:
HISTORICAL AND FUTURE LOSSES OF THE COMPANY: Since its inception, the business
of Adatom, Inc. ("AI") has incurred significant losses, and as of September 30,
1999, had an approximate accumulated deficit of $3,846,000. As a result, there
is an uncertainty about the Company's ability to continue as a going concern.
Additionally, because AI was a development stage company prior to consummation
of the merger, the acquisition of AI through the consummation of the Merger may
result in the surviving Company being classified as a development stage company.
The Company is expected to incur substantial operating losses for the
foreseeable future due to a high level of expenditures in the areas of
operations, research and development and other investments designed to enhance
the Company's products and services and establish Internet capabilities. The
Company intends to substantially increase marketing and promotional spending in
an effort to increase revenues. However, there can be no assurance that the
Company will generate sufficient revenues to ever achieve profitability or
otherwise sustain its profitability in the future.
NEED FOR ADDITIONAL FINANCING: The Company is dependent upon raising additional
capital to finance its current operations and future plans for expansion. The
Company does not currently have on hand working capital sufficient to sustain
its business without additional capital.
Between December 1999 and February 2000 Mr. Richard Barton the President made
short-term non interest-bearing loans in the amount of $200,000 and $500,000 to
the Company for working capital purposes. On February 10, 2000 the Company
agreed to repay the working capital loans of $500,000 from Mr. Barton with
common stock of the Company based on the closing market price of the common
stock on that date of $2.906 per share, accordingly the Company will issue
172,057 shares of common stock to Mr. Barton. Further the $200,000 loan from Mr.
Barton remains outstanding.
The Company estimates that it will require a minimum of $8,000,000 to implement
its business plan and sustain its sales and marketing activities through
December 31, 2000. Additional funds will be needed, particularly in light of the
existence of a number of well financed competitors and the possibility that
there may be a shift in the type of internet services that are developed and
ultimately receive consumer acceptance. Adequate funds for these and other
purposes on terms acceptable to the Company, 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. Furthermore, the
Company's lack of tangible assets to pledge as security for debt financing could
prevent the Company from obtaining bank or similar debt financing. Failure to
obtain adequate financing would have a material adverse effect on the Company
and could result in cessation of the Company's business.
The Company believes that the net proceeds of this Offering, together with its
available cash, cash equivalents, short-term investments and investment income
will be sufficient to meets its operating expenses and capital expenditures
through the next six months. The Company anticipates that it will have to raise
additional capital during 2000. The Company can give no assurance that it will
be able to raise such capital or that the terms thereof will be favorable to the
Company.
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EXHIBIT 4.12
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of February __, 2000 (this
"AGREEMENT"), is made by and among ADATOM.COM, INC., a Delaware corporation,
with headquarters located at 920 Hillview Court, Milpitas, CA 95035 (the
"COMPANY"), and the investor named on the signature page hereto (the
"SUBSCRIBER").
RECITALS
A. The Company is offering up to 2,000,000 Common Shares (subject to
the Company's right to increase the offering in its sole discretion by an
additional 400,000 Common Shares) to investors at $2.00 per share in a private
placement offering that commenced on February 11, 2000 and shall terminate on
the earlier of the date on which all such Common Shares have been sold and March
3, 2000, subject to earlier termination or extension in the sole discretion of
the Company. Under a Securities Purchase Agreement dated February __, 2000,
between the Subscriber and the Company, the Company has agreed, upon the terms
and subject to the conditions of the Purchase Agreement, to issue and sell to
the Subscriber shares of the Company's Common Stock (the "COMMON SHARES").
Subscribers for additional Common Shares offered in this offering also shall
execute and deliver a securities purchase agreement on terms and conditions and
in the form of the securities purchase agreement executed and delivered by the
Subscriber (each such securities purchase agreement, including that executed and
delivered by the Subscriber, a "Purchase Agreement"). THE COMPANY HAS THE RIGHT
TO REJECT ANY SUBSCRIPTION FOR SECURITIES, IN WHOLE OR IN PART FOR ANY REASON
AND AT ANY TIME PRIOR TO A CLOSING, NOTWITHSTANDING RECEIPT BY THE SUBSCRIBER OR
ANY OTHER INVESTOR OF NOTICE OF ACCEPTANCE OF A SUBSCRIPTION.
B. In order to induce the Subscriber to execute and deliver a Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act and applicable state securities laws with respect to the
Common Shares.
In consideration of the premises and the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and the Subscriber hereby agree as
follows:
ARTICLE I
DEFINITIONS
Capitalized terms used and not otherwise defined herein have the
respective meanings given them set forth in the Purchase Agreement. In addition,
as used in this Agreement, the following terms have the following meanings:
1.1 "COMMON SHARES" means the shares of Common Stock sold pursuant to a
Purchase Agreement.
1.2 :INITIAL INVESTORS" shall mean the subscribers who are parties to a
Purchase Agreement and a related registration rights agreement in the form of
this Agreement, whose subscriptions are accepted at a Closing.
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1.3 "INVESTORS" means the Initial Investors and any of their
transferees or assignees that agree to become bound by the provisions of this
Agreement in accordance with Article IX hereof.
1.4 "REGISTRABLE SECURITIES" means the Common Shares sold pursuant to
the Purchase Agreement and any shares of capital stock issued or issuable from
time to time (with any adjustments) in exchange for or otherwise with respect to
the Common Shares.
1.5 "REGISTRATION PERIOD" means the period between the date of this
Agreement and the earlier of (i) the date on which all of the Registrable
Securities have been sold and no further Registrable Securities may be issued in
the future, (ii) the date on which all the Registrable Securities (in the
opinion of the Investors' counsel) may be immediately sold without registration
and without restriction (including without limitation as to volume by each
holder thereof) as to the number of Registrable Securities to be sold, pursuant
to Rule 144 or otherwise, or (iii) the second anniversary of the date of this
Agreement.
1.6 "REGISTRATION STATEMENT" means a Registration Statement of the
Company filed under the Securities Act
1.7 The terms "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a Registration Statement or
statements in compliance with the Securities Act and pursuant to Rule 415 and
the declaration or ordering of effectiveness of such Registration Statement by
the SEC.
1.8 "RULE 415" means Rule 415 under the Securities Act, or any
successor Rule providing for offering securities on a continuous basis, and
applicable rules and regulations thereunder.
ARTICLE II
REGISTRATION
2.1 MANDATORY REGISTRATION. The Company will use best efforts to file
with the SEC a Registration Statement on Form S-3 registering the Registrable
Securities and no other securities for resale within 60 days after the Initial
Closing Date of the purchase of the Common Shares under the Purchase Agreement.
If Form S-3 is not available at that time, then the Company will file a
Registration Statement on such form as is then available to effect a
registration of the Registrable Securities, subject to the consent of the
Initial Investors, which consent will not be unreasonably withheld.
2.2 EFFECTIVENESS OF THE REGISTRATION STATEMENT. The Company will use
its best efforts to cause the Registration Statement to be declared effective by
the SEC within 90 days after filing or if the SEC reviews the Registration
Statement within 120 days after filing. The Company's best efforts will include,
but is not limited to, promptly responding to all comments received from the
staff of the SEC. If the Company receives notification from the SEC that the
Registration Statement will receive no action or review from the SEC, then the
Company will cause the Registration Statement to become effective within five
business days after such SEC notification. Once the Registration Statement is
declared effective by the SEC, the Company will cause the Registration Statement
to remain effective throughout the Registration Period, except as permitted
under Section 3.
2.3 PIGGYBACK REGISTRATIONS. (a) If, at any time prior to the
expiration of the Registration Period, a Registration Statement is not effective
with respect to all of the Registrable Securities and the Company decides to
register any of its securities for its own account or for the account of others,
then the Company will promptly give the Investors written notice thereof and
will use its best efforts to include in such registration all or any part of the
Registrable Securities requested by such Investors to be
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included therein (excluding any Registrable Securities previously included in a
Registration Statement). This requirement does not apply to Company
registrations on Form S-4 or S-8 or their equivalents relating to equity
securities to be issued solely in connection with an acquisition of any entity
or business or equity securities issuable in connection with stock option or
other employee benefit plans. Each Investor must give its request for
registration under this paragraph to the Company in writing within 15 days after
receipt from the Company of notice of such pending registration. If the
registration for which the Company gives notice is a public offering involving
an underwriting, the Company will so advise the Investors as part of the
above-described written notice. In that event, if the managing underwriter(s) of
the public offering impose a limitation on the number of shares of Common Stock
that may be included in the Registration Statement because, in such
underwriter(s)' judgment, such limitation would be necessary to effect an
orderly public distribution, then the Company will be obligated to include only
such limited portion, if any, of the Registrable Securities with respect to
which such Investors have requested inclusion hereunder. Any exclusion of
Registrable Securities will be made pro rata among all holders of the Company's
securities seeking to include shares of Common Stock in proportion to the number
of shares of Common Stock sought to be included by those holders. However, the
Company will not exclude any Registrable Securities unless the Company has first
excluded all outstanding securities the holders of which are not entitled by
right to inclusion of securities in such Registration Statement or are not
entitled pro rata inclusion with the Registrable Securities.
(b) No right to registration of Registrable Securities under
this Section 2.3 limits in any way the registration required under Section 2.1
above. The obligations of the Company under this Section 2.3 expire upon the
earlier of (i) the effectiveness of the Registration Statement filed pursuant to
Section 2.1 above, (ii) after the Company has afforded the opportunity for the
Investors to exercise registration rights under this Section 2.3 for two
registrations (provided, however, that any Investor that has had any Registrable
Securities excluded from any Registration Statement in accordance with this
Section 2.3 may include in any additional Registration Statement filed by the
Company the Registrable Securities so excluded), (iii) when all of the
Registrable Securities held by any Investor may be sold by such Investor under
Rule 144 without being subject to any volume restrictions, or (iv) the second
anniversary of the date of this Agreement.
2.4 ELIGIBILITY TO USE FORM S-3. The Company represents and warrants
that it currently meets the requirements for the use of Form S-3 for
registration of the sale by the Investors of the Registrable Securities. The
Company will use its best efforts to file all reports required to be filed by
the Company with the SEC in a timely manner so as to preserve its eligibility
for the use of Form S-3.
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ARTICLE III
ADDITIONAL OBLIGATIONS OF THE COMPANY
3.1 CONTINUED EFFECTIVENESS OF REGISTRATION STATEMENT. Subject to the
limitations set forth in Section 3.6, the Company will use its best efforts to
keep the Registration Statement covering the Registrable Securities effective
under Rule 415 at all times during the Registration Period.
3.2 ACCURACY OF REGISTRATION STATEMENT. Any Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) filed by the Company covering Registrable Securities will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading. The Company
will prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to the Registration Statement and the prospectus
used in connection with the Registration Statement as may be necessary to permit
sales pursuant to the Registration Statement at all times during the
Registration Period, and, during such period, will comply with the provisions of
the Securities Act with respect to the disposition of all Registrable Securities
of the Company covered by the Registration Statement until the termination of
the Registration Period, or if earlier, until such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof as set forth in the
Registration Statement.
3.3 FURNISHING DOCUMENTATION. The Company will furnish to each Investor
whose Registrable Securities are included in a Registration Statement, and to
its legal counsel, (a) promptly after each document is prepared and publicly
distributed, filed with the SEC or received by the Company, one copy of any
Registration Statement filed pursuant to this Agreement and any amendments
thereto, each preliminary prospectus and final prospectus and each amendment or
supplement thereto; and, in the case of a Registration Statement filed under
Section 2.1 above, each letter written by or on behalf of the Company to the SEC
and each item of correspondence from the SEC or the staff of the SEC, in each
case relating to such Registration Statement (other than any portion of any item
thereof which contains information for which the Company has sought confidential
treatment); and (b) a number of copies of a prospectus, including a preliminary
prospectus, and all amendments and supplements thereto, and such other documents
as the Investor may reasonably request in order to facilitate the disposition of
the Registrable Securities owned by the Investor. The Company will immediately
notify by facsimile each Investor whose Registrable Securities are included in
any Registration Statement of the effectiveness of the Registration Statement
and any post-effective amendment.
3.4 ADDITIONAL OBLIGATIONS. The Company will use its best efforts to
(a) register and qualify the Registrable Securities covered by a Registration
Statement under such other securities or blue sky laws of such jurisdictions as
each Investor who holds (or has the right to hold) Registrable Securities being
offered reasonably requests, (b) prepare and file in those jurisdictions any
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain their
effectiveness during the Registration Period, (c) take any other actions
necessary to maintain such registrations and qualifications in effect at all
times during the Registration Period, and (d) take any other actions reasonably
necessary or advisable to qualify the Registrable Securities for sale in such
jurisdictions. Notwithstanding the foregoing, the Company is not required, in
connection such obligations, to (i) qualify to do business in any jurisdiction
where it would not otherwise be required to qualify but for this
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Section 3.4, (ii) subject itself to general taxation in any such jurisdiction,
(iii) file a general consent to service of process in any such jurisdiction,
(iv) provide any undertakings that cause material expense or burden to the
Company, or (v) make any change in its charter or bylaws, which in each case the
Board of Directors of the Company determines to be contrary to the best
interests of the Company and its stockholders.
3.5 UNDERWRITTEN OFFERINGS. If the Investors who hold a majority in
interest of the Registrable Securities being offered in an offering pursuant to
a Registration Statement or any amendment or supplement thereto under this
Agreement select underwriters reasonably acceptable to the Company for such
offering, the Company will enter into and perform its obligations under an
underwriting agreement in usual and customary form including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering.
3.6 SUSPENSION OF REGISTRATION. (a) The Company will notify (by
telephone and also by facsimile and reputable overnight courier) each Investor
who holds Registrable Securities being sold pursuant to a Registration Statement
of the happening of any event of which the Company has knowledge as a result of
which the prospectus included in the Registration Statement as then in effect
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. The
Company will make such notification as promptly as practicable after the Company
becomes aware of the event (but in no event, without the prior written consent
of the Investor, will the Company disclose to any Investor any of the facts or
circumstances regarding the event), will promptly (but in no event more than ten
business days) prepare a supplement or amendment to the Registration Statement
to correct such untrue statement or omission, and will deliver a number of
copies of such supplement or amendment to each Investor as such Investor may
reasonably request.
(b) Notwithstanding the obligations under Section 3.6(a), if
in the good faith judgment of the Company, following consultation with legal
counsel, resales of Registrable Securities made pursuant to the Registration
Statement (i) would be detrimental to the Company and its stockholders due to
the existence of a material development or potential material development
involving the Company which the Company would be obligated to disclose in the
Registration Statement, which disclosure would be premature or otherwise
inadvisable at such time or would have a Material Adverse Effect upon the
Company and its stockholders, or (ii) would adversely affect or require
premature disclosure of the filing of a Company-initiated registration of any
class of its equity securities, the Company will have the right to suspend the
use of the Registration Statement for a period of not more than sixty days,
PROVIDED, HOWEVER, that the Company may so defer or suspend the use of the
Registration Statement no more than one time in any twelve-month period, and
PROVIDED, FURTHER, that, after deferring or suspending the use of the
Registration Statement, the Company may not again defer or suspend the use of
the Registration Statement until a period of thirty days has elapsed after
resumption of the use of the Registration Statement.
(c) Subject to the Company's rights under this Section 3, the
Company will use its best efforts to prevent the issuance of any stop order or
other suspension of effectiveness of a Registration Statement and, if such an
order is issued, will use its best efforts to obtain the withdrawal of such
order at the earliest possible time and to notify each Investor that holds
Registrable Securities being sold (or, in the event of an underwritten offering,
the managing underwriters) of the issuance of such order and the resolution
thereof.
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(d) Notwithstanding anything to the contrary contained herein
or in the Purchase Agreement, if the use of the Registration Statement is
suspended by the Company, the Company will promptly give notice of the
suspension to all Investors whose securities are covered by the Registration
Statement, and will promptly notify each such Investor as soon as the use of the
Registration Statement may be resumed. Notwithstanding anything to the contrary
contained herein or in the Purchase Agreement, the Company will cause the
Transfer Agent to deliver unlegended shares of Common Stock to a transferee of
an Investor in accordance with the terms of the Purchase Agreement in connection
with any sale of Registrable Securities with respect to which such Investor has
entered into a contract for sale prior to receipt of notice of such suspension
and for which such Investor has not yet settled
3.7 INFORMATION. The Company will make generally available to its
security holders as soon as practicable, but not later than 90 days after the
close of the period covered thereby, an earnings statement (in a form complying
with the provisions of Rule 158 under the Securities Act) covering a 12-month
period beginning not later than the first day of the Company's fiscal quarter
next following the effective date of the Registration Statement.
3.8 LISTING. The Company will (i) cause all of the Registrable
Securities covered by each Registration Statement to be listed on each national
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) to the
extent the securities of the same class or series are not then listed on a
national securities exchange, secure the designation and quotation of all of the
Registrable Securities covered by each Registration Statement on Nasdaq.
3.9 TRANSFER AGENT; REGISTRAR. The Company will provide a transfer
agent and registrar, which may be a single entity, for the Registrable
Securities not later than the effective date of the Registration Statement.
3.10 SHARE CERTIFICATES. The Company will cooperate with the Investors
who hold Registrable Securities being sold and with the managing underwriter(s),
if any, to facilitate the timely preparation and delivery of certificates (not
bearing any restrictive legends) representing Registrable Securities to be
offered pursuant to a Registration Statement and will enable such certificates
to be in such denominations or amounts as the case may be, and registered in
such names as the Investors or the managing underwriter(s), if any, may
reasonably request, all in accordance with Article V of the Purchase Agreement.
3.11 PLAN OF DISTRIBUTION. At the request of the Investors holding a
majority in interest of the Registrable Securities registered pursuant to a
Registration Statement, the Company will promptly prepare and file with the SEC
such amendments (including post-effective amendments) and supplements to the
Registration Statement, and the prospectus used in connection with the
Registration Statement, as may be necessary in order to change the plan of
distribution set forth in such Registration Statement.
3.12 SECURITIES LAWS COMPLIANCE. The Company will comply with all
applicable laws related to any Registration Statement relating to the sale of
Registrable Securities and to offering and sale of securities and with all
applicable rules and regulations of governmental authorities in connection
therewith (including, without limitation, the Securities Act, the Exchange Act
and the rules and regulations promulgated by the SEC).
3.13 FURTHER ASSURANCES. The Company will take all other reasonable
actions as any Investor or the underwriters, if any, may reasonably request to
expedite and facilitate disposition by such Investor of the Registrable
Securities pursuant to the Registration Statement.
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ARTICLE IV
OBLIGATIONS OF THE INVESTORS
4.1 INVESTOR INFORMATION. As a condition to the obligations of the
Company to complete any registration pursuant to this Agreement with respect to
the Registrable Securities of each Investor, such Investor will furnish to the
Company such information regarding itself, the Registrable Securities held by it
and the intended method of disposition of the Registrable Securities held by it
as is reasonably required by the Company to effect the registration of the
Registrable Securities. At least 10 business days prior to the first anticipated
filing date of a Registration Statement for any registration under this
Agreement, the Company will notify each Investor of the information the Company
requires from that Investor if the Investor elects to have any of its
Registrable Securities included in the Registration Statement. If, within three
business days prior to the filing date, the Company has not received the
requested information from an Investor, then the Company may file the
Registration Statement without including Registrable Securities of that
Investor.
4.2 FURTHER ASSURANCES. Each Investor will cooperate with the Company,
as reasonably requested by the Company, in connection with the preparation and
filing of any Registration Statement hereunder, unless such Investor has
notified the Company in writing of such Investor's election to exclude all of
such Investor's Registrable Securities from the Registration Statement.
4.3 SUSPENSION OF SALES. Upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 3.6, each Investor
will immediately discontinue disposition of Registrable Securities pursuant to
the Registration Statement covering such Registrable Securities until it
receives copies of the supplemented or amended prospectus contemplated by
Section 3.6. If so directed by the Company, each Investor will deliver to the
Company (at the expense of the Company) or destroy (and deliver to the Company a
certificate of destruction) all copies in the Investor's possession (other than
a limited number of file copies) of the prospectus covering such Registrable
Securities that is current at the time of receipt of such notice.
4.4 UNDERWRITTEN OFFERINGS. (a) If Investors holding a majority in
interest of the Registrable Securities being registered determine to engage the
services of an underwriter, each Investor will enter into and perform such
Investor's obligations under an underwriting agreement, in usual and customary
form, including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering, and will take such
other actions as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of its Registrable
Securities from such Registration Statement.
(b) Without limiting any Investor's rights under Section 2.1
hereof, no Investor may participate in any underwritten distribution hereunder
unless such Investor (a) agrees to sell such Investor's Registrable Securities
on the basis provided in any underwriting arrangements approved by the Investors
entitled hereunder to approve such arrangements, (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements, and (c) agrees to pay its pro rata share of all underwriting
discounts and commissions and other fees and expenses of investment bankers and
any manager or managers of such underwriting, and legal expenses of the
underwriter, applicable with respect to its Registrable Securities, in each case
to the extent not payable by the Company under the terms of this Agreement.
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ARTICLE V
EXPENSES OF REGISTRATION
The Company will bear all reasonable expenses, other than underwriting
discounts and commissions, transfer taxes, if any, and legal fees and
disbursements of legal counsel to the Investors, incurred in connection with
registrations, filings or qualifications pursuant to Articles II and III of this
Agreement, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees, the fees and disbursements of
counsel for the Company.
ARTICLE VI
INDEMNIFICATION
In the event that any Registrable Securities are included in a
Registration Statement under this Agreement:
6.1 To the extent permitted by law, the Company will indemnify and hold
harmless each Investor that holds such Registrable Securities, any underwriter
(as defined in the Securities Act) for the Investors, any directors or officers
of such Investor or such underwriter and any person who controls such Investor
or such underwriter within the meaning of the Securities Act or the Exchange Act
(each, an "INDEMNIFIED PERSON") against any losses, claims, damages, expenses or
liabilities (joint or several) (collectively, and together with actions,
proceedings or inquiries by any regulatory or self-regulatory organization,
whether commenced or threatened in respect thereof, "CLAIMS") to which any of
them become subject under the Securities Act, the Exchange Act or otherwise,
insofar as such Claims arise out of or are based upon any of the following
statements, omissions or violations in a Registration Statement filed pursuant
to this Agreement, any post-effective amendment thereof or any prospectus
included therein: (a) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any post-effective
amendment thereof or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, (b) any untrue statement or alleged untrue statement of
a material fact contained in the prospectus (as it may be amended or
supplemented) or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading, or
(c) any violation or alleged violation by the Company of the Securities Act, the
Exchange Act or any other law, including without limitation any state securities
law or any rule or regulation thereunder (the matters in the foregoing clauses
(a) through (c) being, collectively, "VIOLATIONS"). Subject to the restrictions
set forth in Section 6.3 with respect to the number of legal counsel, the
Company will reimburse the Investors and each such underwriter or controlling
person and each such other Indemnified Person, promptly as such expenses are
incurred and are due and payable, for any legal fees or other reasonable
expenses incurred by them in connection with investigating or defending any
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6.1 (i) does not apply to a
Claim arising out of or based upon a Violation that occurs in reliance upon and
in conformity with information furnished in writing to the Company by any
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto, if
such prospectus was timely made available by the Company pursuant to Section 3.3
hereof; and (ii) does not apply to amounts paid in settlement of any Claim if
such settlement is made without the prior written consent of the Company, which
consent will not be unreasonably withheld. This indemnity obligation will remain
in full force and effect regardless of any investigation made by or on behalf of
the Indemnified Persons and will survive
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the transfer of the Registrable Securities by the Investors under Article IX of
this Agreement.
6.2 In connection with any Registration Statement in which an Investor
is participating, each such Investor will indemnify and hold harmless, to the
same extent and in the same manner set forth in Section 6.1 above, the Company,
each of its directors, each of its officers who signs the Registration
Statement, each person, if any, who controls the Company within the meaning of
the Securities Act or the Exchange Act, and any other stockholder selling
securities pursuant to the Registration Statement or any of its directors or
officers or any person who controls such stockholder within the meaning of the
Securities Act or the Exchange Act (each an "INDEMNIFIED PERSON") against any
Claim to which any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such Claim arises out of or is based upon
any Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in connection with
such Registration Statement. Subject to the restrictions set forth in Section
6.3, such Investor will promptly reimburse any legal or other expenses (promptly
as such expenses are incurred and due and payable) reasonably incurred by them
in connection with investigating or defending any such Claim. However, the
indemnity agreement contained in this Section 6.2 does not apply to amounts paid
in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent will not be unreasonably
withheld, and no Investor will be liable under this Agreement (including this
Section 6.2 and for the amount of any Claim that exceeds the net proceeds
actually received by such Investor as a result of the sale of Registrable
Securities pursuant to such Registration Statement. This indemnity will remain
in full force and effect regardless of any investigation made by or on behalf of
an Indemnified Party and will survive the transfer of the Registrable Securities
by the Investors under Article IX of this Agreement.
6.3 Promptly after receipt by an Indemnified Person under this Article
VI of notice of the commencement of any action (including any governmental
action), such Indemnified Person will, if a Claim in respect thereof is to be
made against any indemnifying party under this Article VI, deliver to the
indemnifying party a written notice of the commencement thereof. The
indemnifying party may participate in, and, to the extent the indemnifying party
so desires, jointly with any other indemnifying party similarly given notice,
assume control of the defense thereof with counsel mutually satisfactory to the
indemnifying parties and the Indemnified Person. In that case, the indemnifying
party will diligently pursue such defense. If, in the reasonable opinion of
counsel retained by the indemnifying party, the representation by such counsel
of the Indemnified Person and the indemnifying party would be inappropriate due
to actual or potential conflicts of interest between the Indemnified Person and
any other party represented by such counsel in such proceeding or the actual or
potential defendants in, or targets of, any such action including the
Indemnified Person, and any such Indemnified Person reasonably determines that
there may be legal defenses available to such Indemnified Person that are
different from or in addition to those available to the indemnifying party, then
the Indemnified Person is entitled to assume such defense and may retain its own
counsel, with the fees and expenses to be paid by the indemnifying party. The
Company will pay for only one separate legal counsel for the Investors
collectively, and such legal counsel will be selected by the Investors holding a
majority in interest of the Registrable Securities. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action does not relieve an indemnifying party of any
liability to an Indemnified Person under this Article VI, except to the extent
that the indemnifying party is prejudiced in its
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ability to defend such action. The indemnification required by this Article VI
will be made by periodic payments of the amount thereof during the course of
the investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.
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ARTICLE VII
CONTRIBUTION
To the extent that any indemnification provided for herein is
prohibited or limited by law, the indemnifying party will make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Article VI to the fullest extent permitted by law. However, (a) no
contribution will be made under circumstances where the maker would not have
been liable for indemnification under the fault standards set forth in Article
VI, (b) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any seller of Registrable Securities who
was not guilty of such fraudulent misrepresentation, and (c) contribution
(together with any indemnification or other obligations under this Agreement) by
any seller of Registrable Securities will be limited in amount to the net amount
of proceeds received by such seller from the sale of such Registrable
Securities.
ARTICLE VIII
EXCHANGE ACT REPORTING
In order to make available to the Investors the benefits of Rule 144 or
any similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration,
the Company will:
(a) File with the SEC in a timely manner, and make and keep
available, all reports and other documents required of the Company under the
Securities Act and the Exchange Act so long as the Company remains subject to
such requirements (it being understood that nothing herein limits the Company's
obligations under Section 4.3 of the Purchase Agreement) and the filing and
availability of such reports and other documents is required for the applicable
provisions of Rule 144; and
(b) Furnish to each Investor, so long as such Investor holds
Registrable Securities, promptly upon the Investor's request, (i) a written
statement by the Company that it has complied with the reporting requirements of
Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents filed by the Company with the SEC and (iii) such other information as
may be reasonably requested to permit the Investors to sell such securities
pursuant to Rule 144 without registration.
ARTICLE IX
ASSIGNMENT OF REGISTRATION RIGHTS
The rights of the Investors hereunder, including the right to have the
Company register Registrable Securities pursuant to this Agreement, will be
automatically assigned by the Investors to transferees or assignees of all or
any portion of the Registrable Securities, but only if (a) the Investor agrees
in writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment, (b) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being transferred or assigned, (c) after such transfer
or assignment, the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act and applicable state securities
laws, (d) at or before the time the Company received the written notice
contemplated by clause (b) of this sentence, the transferee or assignee agrees
in writing with the Company to be bound by all of the provisions contained
herein, (e) such transfer is made in accordance with the applicable requirements
of the Purchase Agreement, and (f) the transferee is an "accredited investor" as
that term is defined in Rule 501 of Regulation D.
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<PAGE>
ARTICLE X
AMENDMENT OF REGISTRATION RIGHTS
This Agreement may be amended and the obligations hereunder may be
waived (either generally or in a particular instance, and either retroactively
or prospectively) only with the written consent of the Company and of the
Investors who then hold a majority in interest of the Registrable Securities
(but not including any Investor who is not affected by such amendment or
waiver). Any amendment or waiver effected in accordance with this Article X is
binding upon each Investor and the Company. Notwithstanding the foregoing, no
amendment or waiver will retroactively affect any Investor without its consent,
or will prospectively adversely affect any Investor who no longer owns any
Registrable Securities without its consent. Neither Article VI nor Article VII
hereof may be amended or waived in a manner adverse to an Investor without its
consent.
ARTICLE XI
MISCELLANEOUS
11.1 CONFLICTING INSTRUCTIONS. A person or entity is deemed to be a
holder of Registrable Securities whenever such person or entity owns of record
such Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with respect to the
same Registrable Securities, the Company will act upon the basis of
instructions, notice or election received from the registered owner of such
Registrable Securities
11.2 NOTICES. Any notices required or permitted to be given under the
terms of this Agreement will be given as set forth in the Purchase Agreement.
11.3 WAIVER. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, does not operate as a waiver thereof.
11.4 GOVERNING LAW. This Agreement will be governed by and interpreted
in accordance with the laws of the State of New York without regard to the
principles of conflict of laws. The parties hereto hereby submit to the
exclusive jurisdiction of the United States federal and state courts located in
the State of New York with respect to any dispute arising under this Agreement,
the agreements entered into in connection herewith or the transactions
contemplated hereby or thereby.
11.5 SEVERABILITY. If any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such provision
will be deemed modified in order to conform with such statute or rule of law.
Any provision hereof that may prove invalid or unenforceable under any law will
not affect the validity or enforceability of any other provision hereof.
11.6 ENTIRE AGREEMENT. This Agreement and the Purchase Agreement
(including all schedules and exhibits thereto) constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein or therein. This Agreement supersedes all
prior agreements and understandings among the parties hereto with respect to the
subject matter hereof.
11.7 SUCCESSORS AND ASSIGNS. Subject to the requirements of Article IX
hereof, this Agreement inures to the benefit of and is binding upon the
successors and assigns of each of the parties hereto. Notwithstanding anything
to the contrary herein, including, without limitation, Article IX, the rights of
an Investor hereunder are assignable to and exercisable by a bona fide pledgee
of the Registrable Securities in connection with an Investor's margin or
brokerage accounts.
11.8 USE OF PRONOUNS. All pronouns refer to the masculine, feminine or
neuter, singular or plural, as the context may require
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<PAGE>
11.9 HEADINGS. The headings of this Agreement are for convenience of
reference only, are not part of this Agreement and do not affect its
interpretation.
11.10 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which is deemed an original but all of which constitute
one and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission, and facsimile
signatures are binding on the parties hereto.
11.11 FURTHER ASSURANCES. Each party will do and perform, or cause to
be done and performed, all such further acts and things, and will execute and
deliver all other agreements, certificates, instruments and documents, as
another party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
11.12 CONSENTS. All consents and other determinations to be made by the
Investors pursuant to this Agreement will be made by the Initial Investors or
the Investors holding a majority in interest of the Registrable Securities.
11.13 NO STRICT CONSTRUCTION. The language used in this Agreement is
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
IN WITNESS WHEREOF, the undersigned Subscriber and the Company have
caused this Agreement to be duly executed as of the date first above written.
COMPANY:
ADATOM.COM, INC.
- ---------------------------------
By:
Name:
Title: Chief Executive Officer
SIGNATURES CONTINUED ON NEXT PAGE]
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<PAGE>
SUBSCRIBER:
[Name of Entity]
- ---------------------------------
By:
Name:
Title:
Address:
- ---------------------------------
- ---------------------------------
- ---------------------------------
[Name of Person]
- ---------------------------------
Name:
Address:
- ---------------------------------
- ---------------------------------
- ---------------------------------
E-34
Exhibit 4.13
REGISTRATION RIGHTS AGREEMENT
by and among
HEALTHCORE MEDICAL SOLUTIONS, INC.
and
NEAL J. POLAN, individually and
as custodian for BARRETT POLAN
October 12, 1999
REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT, dated as of October 12, 1999, is entered into
by and among HealthCore Medical Solutions, Inc., a corporation organized under
the laws of Delaware (the "COMPANY") and Neal J. Polan, individually and as
custodian for Barrett Polan and residing at 20 Cameron Drive, Greenwich,
Connecticut 06831 (collectively, the "SHAREHOLDER").
WITNESSETH:
WHEREAS, on the date hereof, the Company is consummating a
merger with Adatom, Inc., a California corporation; and
WHEREAS, as a condition to the closing of the merger, the
Company has agreed to grant to the Shareholder the registration rights provided
for herein.
NOW, THEREFORE, in consideration of the premises, mutual
covenants and agreements herein contained and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto hereby agree as follows:
ARTICLE I. CERTAIN DEFINITIONS.
For the purposes of this Agreement, the following terms shall
have the respective meanings set forth below:
"Advice" is as defined in Section 2.05.
"Agreement" means this Agreement, as from time to time
assigned, supplemented, amended or modified in accordance with the terms hereof.
"Company" is as defined in the preamble.
"Demand Registration" is as defined in Section 2.01.
"Demand Request" is as defined in Section 2.01.
"Exchange Act" means the United States Securities Exchange Act
of 1934, as amended, or any similar federal law then in force.
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"Indemnified Person" is as defined in Section 2.09(a).
"Material Adverse Effect" is as defined in Section 2.03(a).
"NASD" is as defined in Section 2.04(p).
"Polan Shares" means (i) the 165,000 shares of Class A Common
Stock $.01 par value, of the Company issued to Shareholder on September 10,
1999; (ii) the shares issued or issuable upon exercise of the warrant to
purchase 142,000 shares of Class A Common Stock $.01 par value of the Company,
which warrant is currently exercisable in full at an exercise price of $1.00 per
share and was issued to Shareholder in September 1997 and expires on September
2007; (iii) the 28,400 shares of Class A Common Stock, $.01 par value, of the
Company issuable upon exchange of a separate warrant to purchase 142,000 shares
of Class A Common Stock $-.01 par value, of the Company, at $1.00 per share,
which warrant IS NOT currently exercisable and was issued to Shareholder in
September, 1997; (iv) 25,200 shares of Class B Common Stock, $.01 par value,
owned by Shareholder, which shares are being released from escrow pursuant to an
escrow termination agreement dated July 1, 1999 between the Company and
Shareholder; and (v) 7,200 shares of Class B Common Stock, $.01 par value, owned
by Shareholder as custodian for Barrett Polan, which shares also are being
released from escrow pursuant to such escrow termination agreement (together
with any Shares or other securities into which such shares or other securities
may be changed, converted or exchanged).
"Proposed Registration" is as defined in Section 2.02(a).
"SEC" means the United States Securities and Exchange
Commission.
"Securities Act" means the United States Securities Act of
1933, as amended, or any similar federal law then in force.
"Shareholder" is as defined in the preamble.
"Shares" means common stock of the Company, par value $.01 per
share issued or issuable upon exercise of convertible securities, warrants or
options.
"Suspension Notice" is as defined in Section 2.05.
ARTICLE II. REGISTRATION RIGHTS.
SECTION 2.01 DEMAND REGISTRATION.
(a) At any time after February 9, 2000, provided the Company
shall not prior to such date have caused a registration statement to have been
declared effective by the SEC pursuant to Section 2.02 covering all of the Polan
Shares, the Shareholder may require the Company (pursuant to a written notice to
the Company) to effect the registration under the Securities Act of Polan Shares
of the Company other than pursuant to a registration statement on Form S-1 (a
"DEMAND REGISTRATION"). Such request (a "DEMAND REQUEST") by the Shareholder
shall (i) specify the class and number of Polan Shares which the Shareholder
intends to sell or dispose of, and (ii) state the intended method or methods by
which the Shareholder intends to sell or dispose of such Polan Shares. In
connection with any underwritten public offering, the underwriter thereof shall
be selected by the Shareholder, subject to the consent of the Company, which
shall not be unreasonably withheld, Upon receipt of a Demand Request, the
Company shall (as requested) cause to be filed, within thirty (30) calendar days
of the date of delivery to the Company of the request, a registration statement
covering such Polan Shares which the Company has been so requested to register,
providing for the registration under the Securities Act of such Polan Shares to
the extent necessary to permit the disposition of such Polan Shares to be
registered in accordance with the intended method of distribution specified in
such request. The Shareholder shall have the right to exercise only one such
Demand Registration; provided, however, if the Shareholder shall not be entitled
to include all of its Polan Shares in a Demand Registration, the Shareholder may
be entitled to make an additional Demand Request, notwithstanding the
registration of certain of the Polan Shares pursuant to the then pending Demand
Registration.
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<PAGE>
(b) Notwithstanding the foregoing, the Company shall not be
required to effect any registration statement pursuant to this Section 2.01 (i)
within 90 days after the effective date of any other registration statement of
the Company's securities or (ii) during the pendency of any Demand Blackout
Period.
(c) If any of the Company's investment banker or any
underwriter determines in good faith that the registration statement and
distribution of the Polan Shares (or the use of the registration statement or
related prospectus) would materially interfere with any pending financing,
merger, acquisition or corporate reorganization involving the Company (or would
require premature disclosure thereof), and promptly gives the Shareholder
written notice of such determination following its Demand Request, the Company
shall be entitled to postpone the filing of the registration statement otherwise
required to be prepared and filed by the Company pursuant to Section 2.01 for a
reasonable period of time, not to exceed 90 days (a "Demand Blackout Period").
The Company shall promptly notify the Shareholder of the expiration or earlier
termination of any Demand Blackout Period, and upon such expiration or
termination the Company shall immediately file the registration statement
pursuant to Section 2.01. The rights under this Section 2.01 shall be separate
and distinct from any other rights the Shareholder may have under Section 2.02.
SECTION 2.02 PIGGYBACK RIGHTS.
(a) Each time that the Company proposes for any reason to
register any of its securities under the Securities Act (a "PROPOSED
REGISTRATION"), other than pursuant to a registration statement on Form S-4 or
similar or successor form, the Company shall promptly give written notice of
such Proposed Registration to the Shareholder (which notice shall be given not
less than thirty (30) calendar days prior to the effective date of the Company's
registration statement) and the Shareholder shall have the right to request
inclusion of any of the Polan Shares in the Proposed Registration, unless, in
the case of a Proposed Registration on Form S-8, the Polan Shares are ineligible
for registration on Form S-8. No registration pursuant to this Section 2.02
shall relieve the Company of its obligation to register Polan Shares pursuant to
Section 2.01.
(b) The Shareholder shall have twenty-five (25) calendar days
from the receipt of such notice to deliver to the Company a written request
specifying the number of Polan Shares the Shareholder intends to sell and the
Shareholder's intended method of disposition. The Shareholder shall have the
right to withdraw its request for inclusion of all or a portion of such Polan
Shares in any registration statement pursuant to this Section 2.02 by giving
written notice to the Company of such withdrawal. Subject to Section 2.03 below,
the Company shall include in such registration statement all such Polan Shares
so requested to be included therein; PROVIDED, HOWEVER, that the Company may at
any time withdraw or cease proceeding with any such piggyback registration if it
shall at the same time withdraw or cease proceeding with the registration of all
other equity securities originally proposed to be registered.
(c) In the event that the Proposed Registration by the Company
is, in whole or in part, an underwritten public offering of securities of the
Company, any request under Section 2.02(b) hereof must specify that the Polan
Shares be included in the underwriting on the same terms and conditions as the
shares otherwise being sold through underwriters under such registration.
SECTION 2.03 PRIORITY ON REGISTRATIONS.
(a) If the managing underwriter advises the Company that the
inclusion of such Polan Shares in a proposed Registration pursuant to Section
2.02 would materially and adversely affect the price or success of the offering
(a "MATERIAL ADVERSE EFFECT"), the Company will be obligated to include in such
registration statement, as to the Shareholder (subject to the priority rules set
forth below), that portion of the Polan Shares the Shareholder has requested to
be registered equal to the ratio which the Shareholder's requested Polan Shares
bears to the total number of shares requested to be included in such
registration statement by all other persons (other than the Company, if such
registration has been initiated by the Company for securities to be offered by
the Company) who have requested that their shares be included in such
registration statement, provided, however, if in the judgment of the managing
underwriter no such reduction would eliminate such Material Adverse Effect, then
the Company shall have the right to exclude all such Polan Shares from such
registration statement provided no other securities are included and offered for
the account of any other person in such registration statement. It is
acknowledged by the Shareholder that pursuant to the foregoing provision, the
securities to be included in such registration shall be allocated, (1) first, to
the Company if
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<PAGE>
it initiated the Proposed Registration or to such other third party who is
exercising demand registration rights, and (2) second, to the Shareholder and to
all other persons requesting securities to be included therein (in accordance
with the above-described ratio). If as a result of the provisions of this
Section 2.03(a) the Shareholder shall not be entitled to include all of its
Polan Shares in a registration that the Shareholder has requested to be so
included, the Shareholder may withdraw the Shareholder's request to include
Polan Shares in such registration statement.
(b) The Shareholder may not participate in any registration
statement hereunder unless the Shareholder completes, executes and delivers all
questionnaires, powers of attorney, indemnities, underwriting agreements, and
other documents reasonably required under the terms of such underwriting
arrangements, including an opinion of its counsel, as are required of any other
shareholders registering shares who are not affiliates of the Company, and shall
furnish such information regarding the Polan Shares and the intended method of
distribution of the Polan Shares as shall be reasonably required to effect such
registration.
SECTION 2.04 REGISTRATION PROCEDURES. Whenever the Shareholder
has requested that any Polan Shares be registered pursuant to the provisions of
this Article II, the Company will use its commercially reasonable efforts to
effect the registration and the sale of such Polan Shares in accordance with the
intended method of disposition thereof as set forth in the written request, and
pursuant thereto the Company shall:
(a) prepare and file with the SEC a registration statement
with respect to such securities on the appropriate forms, and use commercially
reasonable efforts to cause such registration statement(s) to become and remain
effective in accordance with Section 2.04(b) hereof and in accordance with all
laws, rules and regulations applicable thereto;
(b) prepare and file with the SEC such amendments and
supplements to such registration statements and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective until the earlier of (i) the sale of all Polan Shares covered thereby
or (ii) the expiration of twelve months from the effective date of the
registration statement, and to comply with the provisions of the Securities Act
with respect to the sale or other disposition of all Polan Shares covered by
such registration statement;
(c) furnish to the Shareholder pursuant to Section 2.01 or
Section 2.02 such number of copies of any summary prospectus or other
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as the Shareholder
may reasonably request in order to facilitate the public sale or other
disposition of such Polan Shares;
(d) use commercially reasonable efforts to register or qualify
the Shares covered by such registration statement under the securities or blue
sky laws of such jurisdictions as the Shareholder shall reasonably request;
PROVIDED, HOWEVER, that the Company shall not be required to consent to general
service of process for all purposes in any jurisdiction where it is not then
subject to process, qualify to do business as a foreign company where it would
not be otherwise required to qualify or submit to liability for state or local
taxes where it is not otherwise liable for such taxes;
(e) at any time when a prospectus relating thereto covered by
such registration statement is required to be delivered under the Securities Act
within the appropriate period mentioned in Section 2.04(b) hereof, promptly
notify the Shareholder and each underwriter and (if requested by the
Shareholder) confirm such notice in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed and, with
respect to a registration statement or any post-effective amendment, when the
same has become effective, (ii) of the issuance by any state securities or other
regulatory authority of any order suspending the qualification or exemption from
qualification of any of the Polan Shares under state securities or blue sky laws
or the initiation of any proceedings for that purpose, and (iii) of the
happening of any event as a result of which the prospectus included in such
registration, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing and, at the request of the Shareholder, prepare, file and furnish to
the Shareholder a reasonable number of copies of a supplement to or an amendment
of such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus shall not include an untrue statement
of a
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<PAGE>
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing;
(f) if the Company has delivered preliminary or final
prospectuses to the Shareholder and after having done so the prospectus is
amended to comply with the requirements of the Securities Act, the Company shall
promptly notify the Shareholder and, if requested, the Shareholder shall
immediately cease making offers of Polan Shares and return all prospectuses to
the Company. The Company shall promptly provide the Shareholder with revised
prospectuses and, following receipt of the revised prospectuses, the Shareholder
shall be free to resume making offers of the Polan Shares;
(g) if any proposed registration effected pursuant to Section
2.01 or Section 2.02 involves an underwritten public offering cause all Shares
to be listed for trading on the principal national securities exchange (if any)
where the Company's common stock is listed for trading;
(h) before filing a registration statement or amendment
thereto, furnish to each Shareholder and its counsel and other representatives
and the underwriters, if any, copies of each such registration statement or
amendment proposed to be filed, which documents shall be made available on a
timely basis for review and comment by the Shareholder, the underwriters (if
any) and their respective representatives;
(i) cooperate with the Shareholder and the managing
underwriter to facilitate the timely preparation and delivery of certificates
(which shall not bear any restrictive legends unless required under applicable
law) representing securities sold under any registration statement (if any), and
enable such securities to be in such denominations and registered in such names
as the managing underwriter or such sellers may request and keep available and
make available to the Company's transfer agent prior to the effectiveness of
such registration statement a supply of such certificates;
(j) in the event that the Shareholder may be considered to be
a "control person," promptly make available for inspection by the Shareholder,
any underwriter participating in any disposition pursuant to any registration
statement, and any attorney, accountant or other agent or representative
retained by any the Shareholder or underwriter (collectively, the "Inspectors"),
all financial and other records, pertinent corporate documents and properties of
the Company (collectively, the "Records"), as shall be reasonably necessary to
enable them to exercise their due diligence responsibility, and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such Inspector in connection with such registration statement;
PROVIDED, that, unless the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in the registration statement or the release
of such Records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction, the Company shall not be required to provide any
information under this subparagraph (n) if (i) the Company believes, after
consultation with counsel for the Company, that to do so would cause the Company
to forfeit an attorney-client privilege that was applicable to such information
or (ii) if either (A) the Company has requested and been granted from the SEC
confidential treatment of such information contained in any filing with the SEC
of documents provided supplementally or otherwise or (B) the Company reasonably
determines in good faith that such Records are confidential and so notifies the
Inspectors in writing unless prior to furnishing any such information with
respect to (i) or (ii) the Shareholder requesting such information agrees to
enter into a confidentiality agreement in customary form and subject to
customary exceptions; and PROVIDED, FURTHER, that the Shareholder agrees that it
will, upon learning that disclosure of such Records is sought in a court of
competent jurisdiction, give notice to the Company and allow the Company at its
expense, to undertake appropriate action and to prevent disclosure of the
Records deemed confidential;
(k) provide, if required, a CUSIP number for the Shares
included in any registration statement not later than the effective date of such
registration statement;
(l) cooperate with the Shareholder and each underwriter
participating in the disposition of such Shares and their respective counsel in
connection with any filings required to be made with the National Association of
Securities Dealers, Inc. ("NASD");
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(m) during the period when the prospectus is required to be
delivered under the Securities Act, promptly file all documents required to be
filed with the SEC pursuant to Sections 13(a), 13(c) or 14 of the Exchange Act;
(n) notify the Shareholder promptly of any request by the SEC
for the amending or supplementing of such registration statement or prospectus
or for additional information;
(o) prepare and file with the SEC promptly any amendments or
supplements to such registration statement or prospectus which, in the opinion
of counsel for the Company is required in connection with the distribution of
the Shares;
(p) advise the Shareholder, promptly after it shall have
received notice or obtain knowledge thereof, of the issuance of any stop order
by the SEC suspending the effectiveness of such registration statement or the
initiation or threatening of any proceeding for such purpose and promptly use
its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal at the earliest possible moment if such stop order should be issued;
and
(q) in the case of a Demand Request pursuant to Section 2.01
if the Shareholder so requests, to request acceleration of effectiveness of the
registration statement from the SEC, PROVIDED at the time of such request the
Company does not, in good faith, believe it is necessary to amend further the
registration statement in order to comply with the provisions of Section 2.04.
If the Company wishes to further amend the registration statement prior to
requesting acceleration, it shall have such time as is reasonable given the
nature of the amendment to so amend prior to requesting acceleration.
SECTION 2.05 SUSPENSION OF DISPOSITIONS. The Shareholder
agrees that upon receipt of any notice (a "SUSPENSION NOTICE") from the Company
of the happening of any event of the kind described in Section 2.04(e)(iii), the
Shareholder will forthwith discontinue disposition of Polan Shares that have
been registered under this Article 2 until the Shareholder's receipt of the
copies of the supplemented or amended prospectus, or until it is advised in
writing (the "ADVICE") by the Company that the use of the prospectus may be
resumed, and has received copies of any additional or supplemental filings which
are incorporated by reference in the prospectus, and, if so directed by the
Company, the Shareholder will deliver to the Company all copies, other than
permanent file copies then in the Shareholder's possession, of the prospectus
covering such Shares current at the time of receipt of such Suspension Notice.
In the event the Company shall give any such Suspension Notice, the time period
regarding the effectiveness of registration statements set forth in Section
2.04(b) hereof shall be extended by the number of days during the period from
and including the date of the giving of the Suspension Notice to and including
the date when each seller of Shares covered by such registration statement shall
have received the copies of the supplemented or amended prospectus or the
Advice. The Company shall use its commercially reasonable efforts and take such
actions as are reasonably necessary to render the Advice as promptly as
practicable.
SECTION 2.06 COOPERATION UPON A REGISTRATION. The Shareholder
and the Company agree that, in connection with any exercise of registration
rights pursuant to this Article 2, the Shareholder will authorize, and will
authorize and direct the Company to take, such actions as are necessary or
appropriate to effectuate such registration. In addition, the Shareholder agrees
to cooperate fully with the Company and the underwriters of any underwritten
public offering in the preparation of all documentation necessary or desirable
to effectuate any registration of any Polan Shares under the Securities Act
pursuant to this Article 2, or registration or qualification of any Polan Shares
pursuant to Section 2.04(d) hereof. In addition, the Shareholder shall notify
the Company, at any time when a prospectus is required to be delivered under
applicable law, of the happening of any event as a result of which the
prospectus included in the applicable registration statement, as then in effect,
in each case with respect to the information provided by the Shareholder,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing. The Shareholder
shall thereafter take the actions required by Section 2.05.
SECTION 2.07 EXPENSES. The Company shall pay all expenses
incurred by the Company in complying with Sections 2.01, 2.02 and 2.04 hereof,
including, without limitation, all registration and filing fees (including all
expenses incident to filing with the NASD), fees and expenses of complying with
the securities or blue sky
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laws of all such jurisdictions in which the Shares are proposed to be offered
and sold (including reasonable fees and disbursements of counsel in connection
with blue sky qualification of Shares), rating agency fees, printing expenses,
messenger and delivery expenses, the Company's internal expenses (including
without limitation all salaries and expenses of its officers and employees
performing legal or accounting duties), fees and expenses incurred in connection
with any listing of the Shares, fees and expenses of counsel for the Company and
its independent certified public accountants (including the expenses of any
special audit or cold comfort letters required by or incident to such
performance), securities act liability insurance (if the Company elects to
obtain such insurance) and fees and disbursements of underwriters (to the extent
the Company is liable therefor under the terms of any underwriting agreement),
whether or not any registration statement becomes effective; PROVIDED, HOWEVER,
that all underwriting discounts and selling commissions applicable to the Shares
covered by registrations effected pursuant to Section 2.01 or Section 2.02
hereof shall be borne by the Shareholder, in proportion to the number of Shares
sold by the Shareholder, and except as expressly provided in this Section 2.07,
in no event shall the Company pay any fees or expenses of or attributable to the
Shareholder or any counsel, accountants or other persons retained or employed by
the Shareholder.
SECTION 2.08 INDEMNIFICATION.
(a) In the event of any registration of any Shares under the
Securities Act pursuant to this Article 2 or registration or qualification of
any Shares pursuant to Section 2.04(d) hereof, the Company shall indemnify and
hold harmless the Shareholder, each director, officer, employee, trustee, and
partner of the Shareholder and each other person, if any, who controls any of
the foregoing persons, within the meaning of the Securities Act (each, an
"INDEMNIFIED PERSON"), against any losses, claims, damages, liabilities or
expenses, joint or several, to which any of the foregoing persons may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of, are related
to, result from or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any registration statement under which
such Shares were registered under the Securities Act, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereto,
or any document incident to registration or qualification of any Shares pursuant
to Section 2.04(d) hereof, or arise out of, are related to, result from or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading or, with respect to any prospectus, necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or any violation by the Company of the state securities or blue sky
laws applicable to the Company and relating to action or inaction required of
the Company in connection with such registration or qualification under such
state securities or blue sky laws. The Company shall reimburse on demand each
Indemnified Person for any legal or any other costs and expenses reasonably
incurred by any of them in connection with investigating, preparing for,
defending or settling any such loss, claim, damage, liability or action by any
governmental agency or body; PROVIDED, HOWEVER, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in said
registration statement, preliminary or final prospectus or amendment or
supplement thereto or any document incident to registration or qualification of
any Shares pursuant to Section 2.04(d) hereof, in reliance upon and in
conformity with written information furnished to the Company by the Shareholder,
underwriter, broker, other person or controlling person specifically for use in
the preparation thereof or arises out of or is based upon the Indemnified
Person's failure to deliver a copy of the registration statement or prospectus
or any amendments or supplements thereto after the Company has furnished such
Indemnified Person with a sufficient number of copies of the same.
(b) Before Shares shall be included in any registration
pursuant to this Article II, the Shareholder will furnish to the Company in
writing such information and affidavits as the Company reasonably requests for
use in connection with any such registration statement and prospectus, and the
Shareholder shall have agreed to indemnify and hold harmless (in the same manner
and to the same extent as set forth in paragraph (a) above) the Company, each
member of the Board of Directors of the Company, each officer of the Company who
signs such registration statement, every other participating shareholder and any
person who controls the Company within the meaning of the Securities Act, with
respect to any untrue statement or omission from such registration statement,
any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto, if such untrue statement or omission was made
in reliance upon and in conformity with such written information furnished to
the
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Company by the Shareholder or such underwriter for use in the preparation of
such registration statement, preliminary prospectus, final prospectus or
amendment or supplement; PROVIDED, HOWEVER, that the maximum amount of liability
in respect of such indemnification shall be limited to an amount equal to the
net proceeds actually received by the Shareholder from the sale of Shares
effected pursuant to such registration.
(c) Promptly after receipt by an Indemnified Person of notice
of the commencement of any action involving a claim referred to in Section
2.08(a) or (b) hereof, such Indemnified Person will, if a claim in respect
thereof is to be made against the indemnifying party under this Section 2.08,
give written notice to the latter of the commencement of such action (provided
that the failure to give such notice shall not limit the rights of such
Indemnified Person to the extent that such failure or delay in notifying the
indemnifying party does not prevent the indemnifying party from presenting a
proper defense against the claim). In case any such action is brought against an
Indemnified Person, the indemnifying party will be entitled to participate in
and to assume the defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory to such Indemnified Person, and, after notice to such Indemnified
Person from the indemnifying party of its election to assume the defense
thereof; PROVIDED, HOWEVER, that, if any Indemnified Person shall have
reasonably concluded that there may be one or more legal defenses available to
such Indemnified Person which are different from, in conflict with or additional
to those available to the indemnifying party, or that such claim or litigation
involves or could have an effect upon matters beyond the scope of the indemnity
agreement provided in this Section 2.08, or if the indemnifying party fails to
take diligent action to defend such claim within twenty (20) calendar days
following notice thereof from the Indemnified Person, the indemnifying party
shall not have the right to assume the defense of such action on behalf of such
Indemnified Person, and such indemnifying party shall reimburse such Indemnified
Person and any person controlling such Indemnified Person for the fees and
expenses of counsel retained by the Indemnified Person which are reasonably
related to the matters covered by the indemnity agreement provided in this
Section 2.08. If the indemnifying party does assume its own defense as permitted
hereunder, from such time the Indemnified Person shall bear the expenses of its
own separate counsel. If such defense is not assumed by the indemnifying party
as permitted hereunder, the indemnifying party will not be subject to any
liability for any settlement made by the Indemnified Person without its written
consent, which consent shall not be unreasonably withheld. If such defense is
assumed by the indemnifying party pursuant to the provisions hereof, such
indemnifying party shall not make any settlement of the applicable claim
indemnified against hereunder without the written consent of the Indemnified
Person or persons, which consent shall not be unreasonably withheld. An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any Indemnified Person, a
conflict of interest may exist between such Indemnified Person and any other
such Indemnified Person with respect to such claim, in which event the
indemnifying party shall be obligated to pay the reasonable fees and
disbursements of such additional counsel or counsels.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which an Indemnified
Person makes a claim for indemnification pursuant to this Section 2.08, but it
is judicially determined that such indemnification may not be enforced in such
case notwithstanding the fact that this Section 2.08 provides for
indemnification in such case, then the Company and the Shareholder will
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject as is appropriate to reflect, as between the Company and the
Shareholder, on the one hand, and the underwriter on the other hand, the
relative fault of the Company and the Shareholder in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, it being understood that the parties acknowledge that the
overriding equitable consideration to be given effect in connection with this
provision is the ability of one party or the other to correct the statement or
omission which resulted in such losses, claims, damages or liabilities, and that
it would not be just and equitable if contribution pursuant hereto were to be
determined by pro rata allocation or by any other method of allocation which
does not take into consideration the foregoing equitable considerations.
Notwithstanding the foregoing, (i) the Shareholder will not be required to
contribute any amount in excess of the net proceeds to it of all Shares sold by
it pursuant to such registration statement, and (ii) no person guilty of
fraudulent misrepresentation, within the meaning of Section 11(f) of the
Securities Act, shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. If indemnification is available
under this Section 2.08, the indemnifying parties shall indemnify each
Indemnified Person to the full extent provided in Section 2.08(a) and Section
2.08(b) without regard to the relative
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<PAGE>
fault of said indemnifying party or Indemnified Person or any other equitable
consideration provided for in this Section 2.08(d).
(e) Notwithstanding any of the foregoing, if in connection
with an underwritten public offering of any Shares, the Company, the Shareholder
and the underwriters enter into an underwriting or purchase agreement relating
to such offering which contains provisions covering indemnification among the
parties, the indemnification provided thereunder shall be in lieu of the
indemnification provided to the Shareholders hereunder.
(f) The indemnification and contribution required by this
Section 2.09 shall be made by periodic payment of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred; PROVIDED, that the party
receiving such indemnification or contribution provides a bond or other form of
security reasonably acceptable to the indemnifying or contributing party and
PROVIDED, FURTHER, if a court of competent jurisdiction finally determines that
any Indemnified Person which has received payments hereunder does not have an
indemnification right under this Section 2.08 for any reason, then such
Indemnified Person shall within five (5) calendar days of such final
determination, refund all amounts received hereunder to the Company or the
Shareholder, as the case may be.
(g) The indemnification and contribution provided for
hereunder will remain in full force and effect regardless of any investigation
made by or on behalf of any Indemnified Person and will survive the transfer of
Shares.
ARTICLE III. MISCELLANEOUS.
SECTION 3.01 NOTICES. Any and all notices, consents, offers,
acceptances, or any other communication provided for herein shall be sufficient
if given in writing and deemed received when delivered by first class,
registered or certified mail, postage prepaid or overnight courier or hand
delivery, or when sent by facsimile transmission (confirmed by facsimile machine
report and with a confirmation letter sent by first class mail, postage prepaid)
which shall be addressed, or sent to the address or telecopier number of the
party set forth below its signature hereto or, in each case, such other address
or telecopier number, as the case may be, as such party may from time to time
designate in writing to the other parties.
SECTION 3.02 AMENDMENT AND WAIVER. No change or modification
of, or waiver of compliance with, this Agreement shall be valid unless the same
shall be in writing and signed by all of the parties hereto.
SECTION 3.03 TERMINATION. This Agreement will terminate at the
earlier of the date on which all the Polan Shares have been sold by the
Shareholder (or a permitted assignee hereunder) or the second anniversary of the
date hereof.
SECTION 3.04 NO WAIVER. No failure or delay on the part of the
Company or the Shareholder in exercising any right, between the Company and the
Shareholder shall operate as a waiver thereof nor shall any single or partial
exercise of any right, power or privilege hereunder preclude the simultaneous or
later exercise of any other right, power or privilege. The rights and remedies
herein expressly provided are cumulative and not exclusive of any rights or
remedies which the Company or the Shareholder would otherwise have. No notice to
or demand on the Company or the Shareholder, as the case may be, in any case
shall entitle the Company or the Shareholder, as the case may be, to any other
or further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the Company or the Shareholder to take any other or
further action in any circumstances without notice or demand.
SECTION 3.05 SPECIFIC PERFORMANCE. Each party to this
Agreement acknowledges that the other parties will suffer irreparable injury in
the event of any breach of any provision of this Agreement and that therefore
the remedy at law for any breach or threatened breach of any such provision of
this Agreement will be inadequate. Accordingly, upon a breach or threatened
breach of any such provision of this Agreement by any party hereto, the other
parties shall, in addition and without prejudice to any of the rights and
remedies they may have, be entitled as a matter of right, without proof of
actual damages, to seek specific performance of such provisions of this
Agreement and to
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such other injunctive or equitable relief to enforce, or prevent any violations
(whether anticipatory, continuing or future) of, such provisions of this
Agreement.
SECTION 3.06 COUNTERPARTS AND HEADINGS. This Agreement may be
executed in two or more counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and the same
instrument. All headings and any cover page are inserted for convenience or
reference only and shall not affect its meaning or interpretation.
SECTION 3.07 NOUNS AND PRONOUNS. Whenever the context may
require, any pronouns used herein shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns and pronouns shall
include the plural and vice-versa.
SECTION 3.08 EXPENSES. Except as provided in Section 2.08
hereto, each of the parties to this Agreement shall bear its own expenses,
including, without limitation, the fees and disbursements of its respective
counsel, in connection with the negotiation and execution of this Agreement and
the consummation of the transactions contemplated hereby.
SECTION 3.09 GOVERNING LAW. This Agreement will be governed
by, and construed and enforced in accordance with, the laws of the State of New
York, U.S.A., without regard to its conflict of law rules.
SECTION 3.10 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and shall inure to the benefit of the Company and its successors,
and the Shareholder and its successors and assigns; PROVIDED that the rights and
obligations of the Shareholder hereunder shall inure to the benefit of and be
binding upon any transferee of the Shareholder only if such transferee (i) is a
spouse or child or a trust established for the benefit of the Shareholder's
spouse, child or children, or a limited liability company or limited
partnership, the members or partners of which are members of the Shareholder's
immediate family, and (ii) agrees in writing to be bound by the provisions of
this Agreement.
SECTION 3.11 SEVERABILITY. In the event that any provision of
this Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, invalid or unenforceable, the remaining provisions hereof shall
nevertheless continue in full force and effect as though the illegal, invalid or
unenforceable provisions were not a part hereof, and the parties shall exert
their best efforts to amend this Agreement to include a provision which is
legal, valid and enforceable, or to take such other action, which in either case
carries out the original intent of the parties.
SECTION 3.12 COMPLETE AGREEMENT. This Agreement contains the
entire agreement among the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous arrangements or understandings, whether
written or oral, between or among any of the parties hereto, with respect to the
subject matter hereof.
SECTION 3.13 FURTHER ASSURANCES. Each of the parties to this
Agreement agrees to execute such other documents and take such other action as
may be reasonably necessary to implement and carry out the intent of this
agreement.
IN WITNESS WHEREOF, the parties hereto have signed this
Agreement as of the day and year first above written.
HEALTHCORE MEDICAL SOLUTIONS, INC.
By:
-------------------------------
Name: David L. Mullikin
Title: President
Notice Address:
11904 Blue Ridge Boulevard
Grandview, Missouri 64030
Attention: Chairman
Telecopier:
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with a copy to:
Richard S. Barton
Adatom, Inc.
920 Hillview Court
Milpitas, CA 95035
NEAL J. POLAN,
individually and as custodian
for Barrett Polan
-----------------------------------
----------------------
Notice Address:
20 Cameron Drive
Greenwich, CT 06831
AGREED AND ACCEPTED
ADATOM, INC.
By:
------------------------------------------
Name: Richard S. Barton
Title: Chief Executive Officer
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EXHIBIT 4.14
MARKET ACCESS PROGRAM
MARKETING AGREEMENT
THIS AGREEMENT (the "Agreement") made and entered into this
8th day of November 1999, by and between CONTINENTAL CAPITAL & EQUITY
CORPORATION, located at 195 Wekiva Springs Road, Suite 200, Longwood, FL 32779
(hereinafter referred to as "CCEC,") and ADATOM.COM, INC., located at 920
Hillview Court, Suite 160, Milpitas, California 95035 (hereinafter referred to
as the "Company").
WITNESSETH:
For and consideration of the mutual promises and covenants
contained herein, the parties hereto agree as follows:
1. EMPLOYMENT. Company hereby hires and employs CCEC as an
independent contractor; and CCEC does hereby accept its position as an
independent contractor to the Company upon the terms and conditions hereinafter
set forth.
2. TERM. The term of this Agreement shall be for twelve
(12) months.
3. DUTIES AND OBLIGATIONS OF CCEC. CCEC shall have the
following duties and obligations under this Agreement:
3.1 Establish a financial public relations
methodology designed to increase awareness of the Company within the investment
community.
3.2 Assist the Company in the implementation of
its business plan and in accurately disseminating information to the market
place, which information has been provided by the Company.
3.3 To expose the Company to a broad network of
active retail brokers, financial analysts, institutional fund managers, private
investors and active financial newsletter writers.
3.4 Prepare Company due diligence reports, corporate
profile and fact sheets.
3.5 Conduct a tele-marketing campaign to th
investment community and brokerage community and conduct tele-conferences with
a CCEC moderator, Company executive(s), brokers, financial analysts, fund
managers and other interested participants.
3.6 Feature the Company's corporate profile or fact
sheet on CCEC's web site(s).
3.7 Assist the Company in the preparation of all
press releases and coordinate the releases via a Company paid account with P
NewsWire or BusinessWire.
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3.8 Create, build and continually enhance a fax
database of all brokers, investors, analysts and media contacts who have
expressed an interest in receiving on-going information on the Company. Assist
the Company in setting up an account with a fax broadcasting agency to manage
the actual broadcasting in the event Company does not have this
capability-in-house. Further, CCEC will, at its election, mass-fax broadcast
select releases to its extensive network of U.S. stockbrokers, analysts and
institutional investors.
3.9 E-mail press releases, corporate
announcements, broker updates, Company news developments to CCEC's e-mail
database of brokers, institutional fund managers, financial analysts, and
industry professionals.
3.10 Serve as the Company's external publicist
and endeavor to obtain media coverage on the Company in both trade and industry
press, on local and national radio and/or TV programming, in subscription-based
financial newsletters, and on the worldwide web.
3.11 At the Company's request, strive to obtai
the Company analyst coverage and/or investment banking sponsorship.
3.12 Introduce Company to various fund managers
and institutional investors.
ALL OF THE FOREGOING CCEC PREPARED DOCUMENTATION CONCERNING THE COMPANY,
INCLUDING, BUT NOT LIMITED TO, DUE DILIGENCE REPORTS, CORPORATE PROFILE, FACT
SHEETS, AND QUARTERLY NEWSLETTERS, SHALL BE PREPARED BY CCEC FROM MATERIALS
SUPPLIED TO IT BY THE COMPANY AND SHALL BE APPROVED BY THE COMPANY PRIOR TO
DISSEMINATION BY CCEC.
4. CCEC'S COMPENSATION. Upon the execution of this Agreement,
Company hereby covenants and agrees to pay CCEC as follows:
4.1 Fifteen thousand dollars ($15,000.00) cash
per month, payable quarterly in advance for the term of the Agreement.
4.2 Further, CCEC has the option to purchase two
hundred thirty thousand (230,000) shares of the Company's common stock as
follows: forty thousand (40,000) shares at a price per share of four dollars
($4.00) per share; fifty thousand (50,000) shares at a per share price of five
dollars ($5.00); sixty thousand (60,000) shares at a per share price of seven
dollars fifty cents ($7.50); and eighty thousand (80,000) shares at a per share
price of nine dollars ten cents ($9.10). The option to purchase 80,000 shares at
a purchase price of $9.10 shall only be exercisable if the closing price of the
Company's common stock averages in excess of $9.10 for 30 consecutive trading
days. The options shall expire twelve (12) months from the day the Registration
Statement registering the underlying shares of the option is deemed effective.
The Company agrees to issue piggy-back registration rights to the Common Shares
referenced above for resale by CCEC pursuant to its filing of an SEC
Registration Statement on Form S-3, or such other applicable form as may be
appropriate. The Company shall keep such Registration Statement effective for
the lesser of twelve (12) months or such period when all options are exercised.
CCEC accepts such options and will purchase any of the shares
underlying such options for investment and not with a view for resales or
distribution. All purchases of shares by CCEC shall be accompanied by such
representations as are necessary to establish an exemption from federal and any
applicable state securities laws. All options shall be non-transferable.
5. CCEC'S EXPENSES AND COSTS. Company shall pay all reasonable
costs and expenses incurred by CCEC, its directors, officers, employees and
agents, in carrying out its duties and obligations pursuant to the provisions of
this Agreement, excluding CCEC's general and administrative expenses and costs,
but including and not limited to the following costs and expenses; provided all
costs and expense items in excess of $500.00 (Five Hundred U.S. Dollars) must be
approved by the Company in writing prior to CCEC's incurrence of the same:
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5.1 Travel expenses, including but not limited
to transportation, lodging and food expenses, when such travel is conducted on
behalf of the Company.
5.2 Seminars, expositions, money and investment
shows.
5.3 Radio and television time and print media
advertising costs, when applicable.
5.4 Subcontract fees and costs incurred in
preparation of research reports when applicable.
5.5 Cost of travel to on-site due diligence
meetings, if applicable.
5.6 Printing and publication costs of brochures
and marketing materials which are not supplied by the
Company.
5.7 Corporate web site development costs.
5.8 Printing and publication costs of Company
annual reports, quarterly reports, and/or other shareholder communication
collateral material which are not supplied by Company.
5.9 Creation, production, and mailing of Inside
Wall Street lead generation pieces and associated fulfillment material and
services, i.e. corporate profiles, presidential cover letters, pre-printed
envelopes, 1-800 numbers, postage, list selection, lead distribution, etc., at
an established price of $2.00 per Inside Wall Street piece mailed, with a
minimum of 25,000 pieces.
5.10 Cost of mass-fax broadcasts as related to in
Section 3.8.
5.11 Company shall pay to CCEC reasonable costs
and expenses incurred within twenty (20) days of receipt of CCEC's written
invoice for the same, excluding any costs associated with material and services
defined in Section 5.9 above, which are due and payable in advance of material
production.
6. COMPANY'S DUTIES AND OBLIGATIONS. Company shall have
the following duties and obligations under this Agreement:
6.1 Cooperate fully and timely with CCEC so as
to enable CCEC to perform its obligations under this Agreement.
6.2 Within ten (10) days of the date of
execution of this Agreement to deliver to CCEC a complete due diligence package
on the Company including all the Company's filings with the Securities and
Exchange Commission within the last twelve months, the last twelve months of
press releases on the Company and all other relevant materials with respect to
such filings, including but not limited to corporate reports, brochures, and the
like; a list of the names and addresses of all of the Company's shareholders
known to the Company; and a list of the brokers and market makers in the
Company's securities and a list of analysts or fund managers which have been
following the Company.
6.3 The Company will act diligently and promptl
in reviewing materials submitted to it from time to time by CCEC and inform CCEC
of any inaccuracies contained therein prior to the dissemination of such
materials.
6.4 Immediately give written notice to CCEC of
any change in Company's financial condition or in the nature of its business or
operations which had or might have an adverse material effect on its operations,
assets, properties or prospects of its business at such time as the information
is to be made available to the public.
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6.5 Pay all costs and expenses incurred by
CCEC under the provisions of this Agreement when presented with invoices for the
same CCEC in accordance with Section 5.11.
6.6 Give full disclosure of all material fact
concerning the Company to CCEC and update such information on a timely basis.
6.7 Promptly pay the compensation due CCEC as
required under the provisions of this Agreement.
7. NONDISCLOSURE. Except as may be required by law, Company,
its officers, directors, employees, agents and affiliates shall not disclose the
contents and provisions of this Agreement to any individual or entity without
CCEC's expressed written consent subject to disclosing same further to Company
counsel, accountants and other persons performing investment banking, financial,
or related functions for Company.
8. COMPANY'S DEFAULT. In the event of any default in the
payment of CCEC's compensation to be paid to it pursuant to this Agreement, or
any other charges or expenses on the Company's part to be paid or met, or any
part or installment thereof, at the time and in the manner herein prescribed for
the payment thereof and as when the same becomes due and payable, and such
default shall continue for twenty five (25) days after CCEC's notice thereof is
received by Company, in the event of any default in the performance of any of
the other covenants, conditions, restrictions, agreements, or other provisions
herein contained on the part of the Company to be performed, kept, complied with
or abided by, and such default shall continue for twenty five (25) days after
CCEC has given Company written notice thereof, or if a petition in bankruptcy is
filed by the Company, or if the Company is adjudicated bankrupt, or if the
Company shall compromise all its debts or assign over all its assets for the
payment thereof, or if a receiver shall be appointed for the Company's property,
then upon the happening of any of such events, CCEC shall have the right, at its
option, forthwith or thereafter to terminate this Agreement and recover all
amounts then due from the Company by suit or otherwise. The Company covenants
and agrees to pay all reasonable attorney fees, paralegal fees, costs and
expenses of CCEC, including court costs (including such attorney fees, paralegal
fees, costs and expenses incurred on appeal), if CCEC employs an attorney to
collect the aforesaid amounts or to enforce other rights of CCEC provided for in
this Agreement in the event of any default as set forth above and CCEC prevails
in such litigation. Further, until CCEC has received the first cash payment as
described above in Section 4.1, CCEC shall not be required to commence
performing hereunder.
9. COMPANY'S REPRESENTATIONS AND WARRANTIES. Company
represents and warrants to CCEC for the purpose of inducing CCEC to enter into
and consummate this Agreement as follows:
9.1 Company has the power and authority to execute,
deliver and perform this Agreement.
9.2 The execution and delivery by the Company of
this Agreement have been duly and validly authorized by all requisite action by
the Company. No license, consent or approval of any person is required for the
Company's execution and delivery of this Agreement.
9.3 This Agreement has been duly executed an
delivered by the Company. This Agreement is the legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
respective terms, subject to the effect to any applicable bankruptcy,
insolvency, reorganization, moratorium or similar law affecting creditors'
rights generally and to general principles of equity.
9.4 The execution and delivery by the Company of
this Agreement do not conflict with, constitute a breach of or a default under:
(i) any applicable law, or any applicable rule, judgment, order, writ,
injunction, or decree of any court; (ii) any applicable rule or regulation of
any administrative agency or other governmental authority; (iii) the certificate
of incorporation and By-Laws of the Company; (iv) any agreement, indenture,
instrument or contract to which the Company is now a party or by which it is
bound.
E-49
<PAGE>
9.5 No representation or warranty by the Company
in this Agreement and no information in any statement, certificate, exhibit,
schedule or other document furnished, or to be furnished by the Company to CCEC
pursuant hereto, or in connection with the transactions contemplated hereby,
contains or will knowingly contain any untrue statement of a material fact, or
knowingly omits or will omit to state a material fact necessary to make the
statements contained herein or therein not misleading. There is no fact known to
the Company which the Company has not disclosed to CCEC, in writing, or in SEC
filings or press releases, which as of the date hereof materially adversely
affects, nor, so far as the Company can now reasonably foresee as of the date
hereof, may adversely affect the business, operations, prospects, properties,
assets, profits or condition (financial or otherwise) of the Company.
10. LIMITATION OF CCEC LIABILITY. If CCEC fails to perform its
services hereunder, its entire liability to the Company shall not exceed the
lesser of (a) the amount of cash compensation CCEC has received from the Company
under Section 4 of this Agreement or (b) the actual damage to the Company as a
result of such non-performance. IN NO EVENT WILL CCEC BE LIABLE FOR ANY
INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES NOR FOR ANY CLAIM AGAINST THE COMPANY
BY ANY PERSON OR ENTITY ARISING FROM OR IN ANY WAY RELATED TO THIS AGREEMENT,
UNLESS SUCH DAMAGES RESULT FROM THE USE, BY CCEC, OF INFORMATION NOT AUTHORIZED
BY THE COMPANY.
11. MISCELLANEOUS.
11.1 NOTICES. Any notice or other communication
required or permitted to be given hereunder shall be in writing, and shall be
deemed to have been duly given when delivered personally or sent by registered
or certified mail, return receipt requested, postage prepaid to the parties
hereto at their addresses indicated hereinafter. Either party may change his or
its address for the purpose of this paragraph by written notice similarly given.
11.2 ENTIRE AGREEMENT. This Agreement represents
the entire agreement between the Parties in relation to its subject matter and
supersedes and voids all prior agreements between such Parties relating to such
subject matter.
11.3 AMENDMENT TO AGREEMENT. This Agreement may
be altered or amended, in whole or in part, only in a writing signed by both
Parties.
11.4 WAIVER. No waiver of any breach or
condition of this Agreement shall be deemed to be a waiver of any other
subsequent breach or condition, whether of a like or different nature, unless
such shall be signed by the person making such waiver and/or which so provides
by its terms.
11.5 CAPTIONS. The captions appearing in this
Agreement are inserted as a matter of convenience and for reference in no way
affect this Agreement, define, limit or describe its scope or any of its
provisions.
11.6 SITUS. This Agreement shall be governed by
and construed in accordance with the laws of the State of Florida. Venue shall
be located in Seminole County, Florida.
11.7 BENEFITS. This Agreement shall inure to the
benefit of and be binding upon the Parties hereto, their heirs, personal
representatives, successors and assigns.
11.8 SEVERABILITY. If any provision of this
Agreement shall be held to be invalid or unenforceable, such invalidity or
unenforceability shall attach only to such provision and shall not in any way
affect or render invalid or unenforceable any other provision of this Agreement,
and this Agreement shall be carried out as if such invalid or unenforceable
provision were not contained herein.
11.9 ARBITRATION. Except as to a monetary
default by Company hereunder, any controversy, dispute or claim arising out of
or relating to this Agreement or the breach thereof shall be settled by
E-50
<PAGE>
arbitration. Arbitration proceedings shall be conducted in accordance with the
rules then prevailing of the American Arbitration Association or any successor.
The award of the Arbitration shall be binding on the Parties. Judgment may be
entered upon an arbitration award of in a court of competent jurisdiction and
confirmed by such court. Venue for Arbitration proceedings shall be Seminole
County, Florida. The costs of arbitration, reasonable attorneys' fees of the
Parties, together with all other expenses, shall be paid as provided in the
Arbitration award.
11.10 CURRENCY. In all instances, references to
monies used in this Agreement shall be deemed to be United States dollars.
11.11 MULTIPLE COUNTERPARTS. This Agreement may
be executed in any number of counterparts, each of which shall be deemed an
original, and all of such counterparts shall constitute one (1) instrument.
12. CANCELLATION. This is a non-cancelable Agreement, except
that after one hundred eighty (180) days, the Company has the right to issue a
written notification of any material problem regarding CCEC's performance,
citing the specific contractual obligation breached by CCEC. Upon receipt of
written notification, CCEC will have thirty (30) days to correct or formally
address the Company's written concerns. If an amicable solution cannot be
achieved within sixty (60) days of the Company's letter, the contract becomes
cancelable immediately. During the written notification and correction review
period CCEC shall continue to receive full compensation, and such cancellation
shall not relieve the Company of any fees or compensation earned by or owed to
CCEC, including irrevocable rights to the options referenced in Section 4.2. In
no event will such proceedings be initiated by Company prior to the first one
hundred eighty (180) days of the Agreement.
E-51
<PAGE>
13. This Agreement may be executed in counterparts and by fax
transmission, each counterpart being deemed an original.
IN WITNESS WHEREOF, the Parties have executed this Agreement
on the day and year first above written.
CONFIRMED AND AGREED ON THIS ___ DAY OF __________ 1999.
CONTINENTAL CAPITAL & EQUITY CORPORATION
- --------------------------------------- -----------------------------
Corporate Officer Witness
- --------------------------------------- -----------------------------
Company Representative Witness
CONFIRMED AND AGREED ON THIS ___ DAY OF __________ 1999.
ADATOM.COM, INC.
- --------------------------------------- -----------------------------
Corporate Officer Witness
E-52
EXHIBIT 4.15
WARRANT ISSUANCE AGREEMENT
Adatom.com, Inc. agrees to issue 5,000,000 warrants in accordance with the
attached Schedule A for the total joint venture specifically for the individual
herein defined, U.S. stock market regulations and based on the approval of its
shareholders to Victor W. Nee.
Agreed and accepted on behalf of Adatom.com, Inc. by:
- ------------------------------------
NAME
- ------------------------------------
PRINT
- ------------------------------------
TITLE
- ------------------------------------
DATE
E-53
<PAGE>
EXHIBIT 4.15
Schedule A, Victor W. Nee
CHINA / ADATOM.COM JOINT VENTURE
Warrants Issuance Agreement
5,000,000 warrants @ closing price per share on 2/23/2000
Anti Dilution provisions **
Life of Warrants 3/1/2004
VESTING SCHEDULE
<TABLE>
<CAPTION>
% VESTED NUMBER OF VESTING EVENT COST WHEN GROSS VALUE AT NET PROFIT AT GROSS VALUE AT
WARRANTS EXERCISED $10.00 PER SHARE 10.00 PER SHARE $20.00 PER SHARE
ISSUED
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10% 500,000 Upon signing of Exclusive $2,187,500 $ 5,000,000 $2,812,500 $10,000,000
Agreement
30% 1,500,000 Upon funding of a minimum $6,562,500 $15,000,000 $8,437,500 $30,000,000
of $20,000,000.
20% 1,000,000 Upon achieving $10,000,000 $4,375,000 $10,000,000 $5,625,000 $20,000,000
in Gross Sales *
20% 1,000,000 Upon achieving first $4,375,000 $10,000,000 $5,625,000 $20,000,000
profitable quarter *
20% 1,000,000 Upon achieving $4,375,000 $10,000,000 $5,625,000 $20,000,000
$250,000,000 in Gross
Sales *
-------------------------------------------------------------------------
5,000,000 TOTAL $21,875,000 $50,000,000 $28,125,000 $100,000,000
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
NET PROFIT AT GROSS VALUE AT NET PROFIT AT GROSS VALUE AT NET PROFIT AT 40.00
20.00 PER SHARE $30.00 PER SHARE 30.00 PER SHARE $40.00 PER SHARE PER SHARE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 7,812,500 $15,000,000 $12,812,500 $20,000,000 $17,812,500
$23,437,500 $45,000,000 $38,437,500 $60,000,000 $53,437,500
$15,625,000 $30,000,000 $25,625,000 $40,000,000 $35,625,000
$15,625,000 $30,000,000 $25,625,000 $40,000,000 $35,625,000
$15,625,000 $30,000,000 $25,625,000 $40,000,000 $35,625,000
- ------------------------------------------------------------------------------------------------
$78,125,000 $150,000,000 $128,125,000 $200,000,000 $178,125,000
================================================================================================
</TABLE>
assumes price of $4.375
* All events based on accounting in a separate Adatom.com, Inc.
division or subsidiary.
** In case Adatom.com Inc. shall hereafter pay a dividend or make a
distribution on its Common Stock in shares of its capital stock,
subdivide its outstanding shares of Common Stock, or combine its
outstanding shares of Common Stock into a smaller number of
shares, the holder of these warrants shall be entitled to
receive the number of Warrant shares which the holder would have
owned immediately following such action had such Warrant been
exercised immediately prior thereto.
E-54
EXHIBIT 10.1
JOINT VENTURE MARKETING AND DISTRIBUTION AGREEMENT
This exclusive agreement is established between Party A, China Product Trade
Net Center (CPTNC), No.35 Financial Street, Xicheng District, Beijing
100032 China Representative: Liang Xi and Party B, Adatom.com, Inc., 920
Hillview Court Suite 190, Milpitas CA 95035.
China Product Trade Net Center, China Product Firm (CPTNC) (Party A) and
Adatom.com, Inc. (Party B) based on mutually beneficiary and friendly
discussions agree to establish a joint venture company in China to work
directly with the CPTNC to market industrial and consumer products
produced by Chinese factories into the U.S. exclusively through Party B;
as well as, U.S products into the Chinese marketplace exclusively through
China Adatom, Inc.. This agreement will be in force for thirty years from
the date of execution and can be extended by the agreement of both
parties. This agreement can only be canceled within 180 days, written
notice by both parties. In case of such cancellation, any deals in
progress shall be honored by the parties and brought to a speedy
conclusion.
2.1 This joint venture will include the establishment of a newly
formed company in China, China Adatom, Inc. The equity
distribution will be Party A 51%, Party B 49 %. The profit
distribution based on equity/ownership will be Party A 51%, Party
B 49%.
2.2 China Adatom, Inc.'s offices will be located in Beijing, China.
2.3 The duration of the corporation is 30 years. The starting date is
effective on the day of obtaining the business permi
2.4 The Board is comprised of five (5) members - Two (2) Board
members will be appointed by Party A and two (2) board members
will be appointed by Party B. Both parties will agree on the
fifth member. The Chairman of the Board will be appointed by
Party A. The Deputy Chairman will be appointed by Party B. Every
board member has one vote according to the regulation. Party A
will appoint the CFO. Party B will appoint the Chief Accountant
The scope of this Agreement cannot be fully defined at this time
because the parties have not drafted the definitive business plan
contemplated by the Agreement. The parties will proceed
expeditiously within 20 days to draft the business plan in good
faith in accordance with their prior discussions
E-55
<PAGE>
and, among other matters, the business plan will set forth in
detail the rights and obligations of each party and the
anticipated level of investment required by Party B. If the
parties cannot agree on all of the terms of the business plan,
then either party may terminate this Agreement upon 10 days'
notice and Party's B's deposit shall be returned
immediately.Party A acknowledges that Party B must raise the
funds that the parties will need to implement the business plan.
It is presently anticipated that this funding level will
initially be approximately $7,000,000, but additional funding may
be required. If Party B is unable to raise all or any substantial
part of such funds in the U.S. capital markets on terms
satisfactory to Party B, then Party B may terminate this
Agreement upon 10 days ` notice and Party B's deposit will be
returned immediately. The equity in China Adatom, Inc. may be
adjusted to 50%/50% or beyond with respect to Adatom.com, Inc's
equity/ownership if permitted by Chinese government or law in the
future. Neither Party A nor China Adatom, Inc. shall have any
rights in any intellectual property or technology of Party B used
in connection with the performance of this Agreement or the
business plan.
2.5 Scope of corporation: Establish the marketing, sale and
distribution system between China and the U.S. and develop the
integrated system for commerce, based on the existing current
system; to be connected with the U.S. system in both English and
Chinese. Participation in the technology development in China.
2.6 Party A will provide its integrated system and resources in China
to cooperate with Party B through China Adatom, Inc. and agree
not to work with any person or entity to use its interconnected
integrated system between Party A and Party B and resources for
relevant and similar business and agree not to engage in any
business conflicting with China Adatom, Inc.'s or Adatom.com,
Inc's business.
2.7 CPTNC represents that there is no restriction or limitation as to
any buyer whom the product may be sold.
2.8 Adatom.com, Inc will receive orders backed by letter of credit or
other methods of secured funds, retain a sales commission, and
forward to China Adatom, Inc. funds necessary to cover the price
of the goods, and a mark up (production profit) for China Adatom,
Inc.
2.9 After 30 years for the termination of the company or for whatever
reason it has to be terminated before 30 years, then the company
should do the closing according to the law, then the resources
will be divided according to the equity/ownership ratio.
2.10 This agreement can only be canceled within 180 days, written
notice by both parties. In case of such cancellation, any deals
in progress shall be honored by the parties and brought to a
speedy conclusion.
Party A will be responsible for the establishment and operation of the new
company to obtain all the needed permits and certificates and do the
necessary work to fulfill the requirement in obtaining the permit;
Party B agrees to provide the necessary documents to support this
effort.
Party B agrees to deposit $500,000 in a bank in China within 15 days as initial
seed funding for the implementation of the China Adatom, Inc. company,
including legal fees, permits, and general expenses. These initial seed
monies may be dispersed only upon approval of an individual agreed by
both parties A and B. The $500,000 initial seed funding will count
towards any subsequent total funding requirements for the project.
Subsequent funding will be forthcoming based on a business plan which
will enumerate use of proceeds for the implementation and execution of
the China Adatom, Inc. company. This plan should include requirements
for the electronic integration of the Chinese factories associated with
CPTNC, the develop and implementation of
E-56
<PAGE>
business and quality processes for the business venture, executive and
administrative offices in Beijing, and logistical and warehousing
capabilities in Shanghai and other ports of export. Dispersal of monies
will begin within 30 days subsequent to China Adatom, Inc's board
approval.
During the period of corporation, if Party A can not provide the integrated
system, resources, and services, then Party B has the right to
terminate the contract and require Party A to reimburse Party B for its
losses. If Party B can not provide the agreed total amount of capital
defined in the business plan of China Adatom, Inc., then Party A will
keep the paid portion as reimbursement for time and effort and has a
right to terminate the contract. Each party will be excused in the
event of uncontrollable circumstances such as war, change in government
policy, etc.
Support from its subsidiary organizations to provide complete e-commerce,
center of transportation and logistics, center of trade, center of
internet and center of methods of payments
The interpretation of this agreement will go with the law in China.
Any dispute between the two parties should be resolved with friendly discussion.
In case the dispute can not be resolved in thirty (30 days), either
party can take it to the Beijing International Business
Commission to resolve. The dispute should be explained in both English
and Chinese and will be applicable to both parties.
9. All the other supplements to this agreement including the business plan
will consist as part of this agreement.
10. There will be two versions of this agreement, one in Chinese and one in
English. Both versions should have the same legal effectiveness. Party A
and Party B will have copies of both versions
11. Any item not included in the agreement can be added as a supplement with
mutual agreement
12. Both parties agree to keep the agreement confidential until permission for
a press release from the Chinese government is obtained. Agreement on the
release shall be in writing from both parties and shall specify the date
for the release and is expected to be secured within one week following
the signing of this Agreement.
13. This agreement will be enforced after the signing of both sides by the
legal representatives or authorized legal representatives
14. This Agreement will be finalized pending Adatom.com, Inc. board approval.
This agreement constitutes the entire understanding of the parties as to its
matter, and supersedes all discussions, negotiations, and agreements, whether
written or oral, between the parties with respect to its subject matter. This
agreement may not be modified, superseded or terminated, and no provisions may
be waived except by written agreement signed by all of the parties.
If the above meets with your acceptance and approval, please sign in the space
provided below.
AGREED AND ACCEPTED
CHINA PRODUCT TRADE NET CENTER (CPTNC)
CHINA PRODUCT FIRM
Date:
Mr. Liang Xi
President
Party A
China Product Trade Net Center
E-57
<PAGE>
No. 35 Financial Street, Xicheng District, Beijing 100032 China
AGREED AND ACCEPATED
ADATOM.COM, INC.
Date:
Richard Barton
President and CEO
Party B
Adatom.Com
920 Hillview Court Suite 190
Milpitas, CA 95035
E-58
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (333-93707) and Registration Statement on Form S-3 (333-68557) of our
report dated February 11, 2000 (with respect to Note K February 23, 2000, with
respect to Note A March 15, 2000) on the financial statements of Adatom.com,
Inc. included in the Annual Report on Form 10-KSB of Adatom.com, Inc. for the
year ended December 31, 1999.
Richard A. Eisner & Company, LLP
Florham Park, New Jersey
March 29, 2000
E-59
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in the Registration Statement on Form S-8 (333-93707) and in the
Registration Statement on Form S-3 (333-68557) of our report dated March 18,
1999, with respect to the financial statements of Adatom.com, Inc. as of
December 31, 1998, and for the year then ended included in the Annual Report on
Form 10-KSB of Adatom.com, Inc. for the year ended December 31, 1999. Exhibit
23.1
IRELAND SAN FILIPPO, LLP
March 29, 2000
E-60
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED December 31, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 109,000
<SECURITIES> 0
<RECEIVABLES> 84,000
<ALLOWANCES> 7,000
<INVENTORY> 240,000
<CURRENT-ASSETS> 729,000
<PP&E> 435,000
<DEPRECIATION> 95,000
<TOTAL-ASSETS> 1,345,000
<CURRENT-LIABILITIES> 1,952,000
<BONDS> 0
0
0
<COMMON> 147,000
<OTHER-SE> (1,335,000)
<TOTAL-LIABILITY-AND-EQUITY> 1,345,000
<SALES> 956,000
<TOTAL-REVENUES> 956,000
<CGS> 945,000
<TOTAL-COSTS> 945,000
<OTHER-EXPENSES> 12,718,000
<LOSS-PROVISION> 7,000
<INTEREST-EXPENSE> 37,000
<INCOME-PRETAX> (12,711,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,711,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,711,000)
<EPS-BASIC> (1.83)
<EPS-DILUTED> (1.83)
</TABLE>
