<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MAINSTREET IPO.COM INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7389 22-3656184
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
ORGANIZATION) CODE NUMBER)
</TABLE>
171 CHURCH LANE
NORTH BRUNSWICK, NJ 08902
(718) 227-6789
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JOSEPH M. SALVANI, CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND PRESIDENT
MAINSTREET IPO.COM INC.
171 CHURCH LANE
NORTH BRUNSWICK, NJ 08902
(718) 227-0789
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
Copies to:
<TABLE>
<S> <C>
RICHARD J. BLUMBERG, ESQ. LAWRENCE E. JAFFE, ESQ.
MCLAUGHLIN & STERN, LLP 777 TERRACE AVENUE
260 MADISON AVENUE HASBROUCK HEIGHTS, NJ 07604
NEW YORK, NY 10016 (201) 288-8282
(212) 448-1100
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: Upon consummation of the Merger described herein. If the securities
being registered on this Form are being offered in connection with the formation
of a holding company and there is compliance with General Instruction G, check
the following box. / /______
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /______
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /______
CONTINUED ON NEXT PAGE
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value....................... 1,395,722 6.45 $9,002,407 $2,377
Redeemable Common Stock
Purchase Warrants(3)........ 2,300,000 Not Applicable -- *
Common Stock, $.01 par
value(4).................... 2,300,000 4.50 10,350,000 2,732
Underwriters' Purchase Options 100,000 .0001 10 --
Units, each consisting of one
share of Common Stock, $.01
par value, and two
Redeemable Common Stock
Purchase Warrants(5)........ 100,000 4.50 450,000 119
Common Stock, $.01 par
value(6).................... 200,000 5.40 1,080,000 285
Common Stock, $.01 par
value(7).................... 3,419,027 6.45 22,052,724 5,822
Total......................... $11,335
</TABLE>
(1) Represents the maximum number of shares of common stock issuable upon
consummation of the Merger described herein.
(2) Pursuant to Rule 457(f) under the Securities Act of 1933, the proposed
maximum offering price is calculated as $8,988,450 (representing 1,395,722
shares of Dialysis Corporation of America ("DCA") common stock, multiplied
by $6.45, which is the average of the bid and asked price for such common
stock on February 4, 2000, as reported by the Nasdaq Stock Market).
(3) Previously registered by DCA on Form SB-2 in April, 1996 (Registration
No. 33-80877-A), as amended on Form S-3 effective July 1, 1999.
(4) Issuable upon exercise of the Redeemable Common Stock Purchase Warrants
("Warrants"). This Registration Statement also covers any additional shares
of common stock which may become issuable by virtue of the anti-dilutive
provisions of the Warrants. No additional registration fee is included for
these shares.
(5) Reserved for issuance upon exercise of the Underwriter's Purchase Options
("Underwriters' Options"), together with such indeterminate number of
Warrants and/or common stock as may be issuable pursuant to the
anti-dilution provisions of the Underwriters' Options, or the Warrants
issuable thereunder. See note (4)
(6) Reserved for issuance upon exercise of the Warrants obtained upon exercise
of the Underwriters' Options.
(7) Represents common stock being offered for sale by certain selling
shareholders from time to time at the market.
* Filing fees were paid for all Warrants at the time of filing of DCA's Form
SB-2 Registration Statement. See note (3) above.
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 9, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. WE MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE.
<PAGE>
DIALYSIS CORPORATION OF AMERICA
27 MILLER STREET
LEMOYNE, PENNSYLVANIA 17043
, 2000
Dear DCA Shareholder:
The board of directors of Dialysis Corporation of America ("DCA" or the
"Company") has approved two transactions. The first transaction involves the
sale of substantially all the assets, which includes the subsidiaries, of DCA
("DCA Assets") to Dialysis Acquisition Corp. ("Buyer"), a wholly-owned
subsidiary of DCA's parent, Medicore, Inc., which parent currently owns 68% of
DCA. Buyer will also assume all of the liabilities of DCA ("DCA Liabilities") up
through the closing of the transactions, except any tax liability of DCA by
virtue of the sale. The second transaction, which is to occur immediately after
the DCA Asset sale, is the merger of MainStreet Acquisition Inc., a wholly-owned
subsidiary of MainStreet IPO.com Inc., a Delaware corporation ("MainStreet"),
into DCA, with DCA as the surviving company and changing its name to MainStreet
Sub, Inc. (the "Merger"). The proposed DCA Asset sale and the Merger are
sometimes referred to in this document as the "Transactions." Upon the closing
of the Transactions, certain of the shareholders of MainStreet will transfer all
their interest in CEO Letter.com Inc., a Delaware corporation ("CEO Letter"), to
and which will become a subsidiary of MainStreet.
The end result of the proposed Transactions is that you, as a DCA
shareholder, will become a shareholder of MainStreet through the exchange of
your DCA common stock for MainStreet common stock, to be effected on a
one-for-one basis, and the Dialysis Assets and operations will be continued in
Buyer as a wholly-owned subsidiary of Medicore.
MainStreet is a private company with no operating history which has
established a website, www.MainStreetIPO.com, for companies to effect
self-underwritten offerings ("Direct Public Offerings") of their securities
through the process of a "Dutch Auction" for a flat fee. A Dutch Auction allows
investors to bid for the offered securities at prices and amounts the investors
believe are worth purchasing. The CEO Letter subsidiary also has a website
which, for a fee, will provide chief executive officers of public companies with
a forum to discuss their companies with the multitude of potential Internet
investors.
The board of DCA has determined that the growth of the dialysis operations,
and thereby shareholder value, has been slow and sporadic. The Internet industry
has reflected a more glamorous and rapid growth, which may provide faster
rewards for shareholders. This opportunity is provided to DCA shareholders with
the warning that there is no assurance that the Internet industry will continue
to be as glamorous and fast-growing as it is today, or even if it is, that
MainStreet, which is only in its initial development stage, will be able to
participate and adequately compete. See "Risk Factors" on pages 20 to 30.
One of the conditions for the completion of the proposed Transactions is
that MainStreet qualifies for and its securities trade on the Nasdaq SmallCap
Market.
The DCA Asset sale and the Merger will not be completed unless you, the DCA
shareholders, approve each one of the proposed Transactions. The MainStreet
directors and shareholders have already approved the Transactions. Medicore is
not voting its 68% equity ownership of DCA since it will own, assuming
completion of the Transactions, 100% of the dialysis operations; and based upon
certain commonality between officers and directors of Medicore and DCA, one of
whom is affiliated with MainStreet (see "The Merger--Interests of Certain
Persons in Matters to be Acted Upon"), the officers and directors of DCA and
Medicore, who own 2% of DCA (or approximately 18% of DCA if they exercise all of
their options and warrants) also will not be voting their DCA shares. Therefore,
the approval of the Transactions are subject to your (the public minority
shareholders') independent evaluation of the Transactions and your approval
without any recommendation of the Medicore or DCA boards, and without the vote
of Medicore or the officers and directors of DCA and Medicore.
We will hold a Special Meeting of our shareholders to vote on these proposed
Transactions. YOUR VOTE IS EXTREMELY IMPORTANT. Whether or not you plan to
attend the Special Meeting, please take the time to vote by completing and
mailing the enclosed proxy card to us. If you sign, date and mail your proxy
card without indicating how you want to vote, your proxy will be counted as a
vote in favor of the Transactions. Not returning your card or not instructing
your broker how to vote any DCA shares held for you in "street name" will have
the same effect as voting against the Transactions.
MainStreet is not a public company and there is no trading market for its
securities. Our Company's common stock and warrants trade on the Nasdaq SmallCap
Market under the symbol "DCAI" for the common stock and "DCAIW" for the
warrants. The closing prices of the common stock and warrants on February 4,
2000 were $6.38 and $1.97, respectively.
This document is the proxy statement/prospectus for DCA's Special Meeting of
shareholders. This proxy statement is being used in connection with the
solicitation of proxies by DCA's board of directors from DCA shareholders
regarding the proposed Transactions. The prospectus covers the MainStreet common
stock to be issued in connection with the Merger and resale by certain
affiliates of DCA and investors in MainStreet.
Thomas K. Langbein
Chairman and Chief Executive Officer
NEITHER THE SECURITIES AND EXCHANGE
COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED ANY OF THE
TRANSACTIONS OR DETERMINED IF THIS PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR
ADEQUATE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This proxy statement/prospectus is dated , 2000 and will be
first mailed to DCA shareholders on or about , 2000.
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 9, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. WE MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE.
<PAGE>
DIALYSIS CORPORATION OF AMERICA
27 MILLER STREET
LEMOYNE, PENNSYLVANIA 17043
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
DATE: , 2000
TIME: 10:00 A.M.
PLACE: HILTON HOTEL
650 TERRACE AVENUE
HASBROUCK HEIGHTS, NEW
JERSEY 07604
ROOM
TO THE SHAREHOLDERS OF
DIALYSIS CORPORATION OF AMERICA
You are cordially invited to attend a Special Meeting of shareholders of
Dialysis Corporation of America ("DCA" or the "Company") to be held at the
Room at the Hilton Hotel, 650 Terrace Avenue, Hasbrouck Heights, New
Jersey, on , 2000 at 10:00 a.m., local time, for the purpose of
considering and voting upon two separate proposals, EACH OF WHICH MUST BE
APPROVED OR NEITHER PROPOSED TRANSACTION WILL BE CONSUMMATED.
Proposal No. 1. To consider and approve the sale of substantially all the
assets (includes DCA's subsidiaries) and dialysis operations of DCA ("DCA
Assets") to Dialysis Acquisition Corp. ("Buyer"), a wholly-owned subsidiary of
the Company's parent, Medicore, Inc. ("Medicore"), under an Asset Purchase
Agreement dated October 20, 1999 ("Purchase Agreement"). Buyer is to assume all
the liabilities of DCA except any federal or state income taxes that may be due
by DCA as a result of the proposed Transactions ("DCA Liabilities") up to and
arising out of any circumstances to the closing date of the proposed
Transactions. The consideration includes Medicore's transfer to DCA of 2,150,622
shares of DCA common stock owned by Medicore, which will be cancelled; Buyer's
assumption of the DCA Liabilities; and Medicore's waiver of all net proceeds
from any exercise of (i) certain Underwriters' Purchase Options ("Underwriters'
Options") for 100,000 shares of DCA common stock and 200,000 DCA warrants, which
if exercised in full would aggregate $1,530,000 (no exercises to date), and
(ii) 2,300,000 DCA public warrants, which if exercised in full would aggregate
gross proceeds of $10,350,000, except for 20% of such net proceeds up to
$1,000,000 (no exercises to date), which would be retained by Medicore; and
Proposal No. 2. To consider and approve the Agreement and Plan of Merger
dated October 20, 1999 (the "Merger Agreement") under which, immediately
subsequent to the sale of the DCA Assets, MainStreet Acquisition Inc., a
wholly-owned subsidiary of MainStreet IPO.com Inc., a Delaware corporation
("MainStreet"), will merge with DCA. DCA will be the surviving company, change
its name to MainStreet Sub, Inc., and become a wholly-owned subsidiary of
MainStreet (the "Merger"). In consideration of the Merger, MainStreet will issue
its common stock to the DCA shareholders who have not dissented to the proposed
Transactions on a one-for-one share basis. Upon shareholder approval of the
Merger, the shareholders of MainStreet who own CEO Letter.com Inc., a Delaware
corporation ("CEO Letter"), will transfer all their interest and ownership of
CEO Letter to MainStreet. The sale of the DCA Assets and the Merger are
collectively referred to as the "Transactions."
Only shareholders of record at the close of business on , 2000
are entitled to notice of and to vote at the Special Meeting and any and all
adjournments and postponements thereof.
Under Florida law, appraisal rights will be available to record holders of
DCA common stock who dissent from the Transactions. In order for shareholders to
exercise such appraisal rights, they must
<PAGE>
follow the procedures provided by Florida law, which are summarized under
"Dissenters' Rights of Appraisal of DCA Shareholders" in the accompanying proxy
statement/prospectus.
The enclosed Notice and proxy statement/prospectus contain details
concerning the proposed Transactions. We urge you to read and consider these
documents carefully. Whether or not you plan to attend the Special Meeting,
please be sure to sign, date and return the enclosed proxy card in the enclosed,
postage-paid envelope as promptly as possible so that your shares may be
represented at the Special Meeting and voted in accordance with your wishes. It
is important that your shares be represented at the Special Meeting. Your vote
is important regardless of the number of shares you own.
THE BOARD OF DIRECTORS OF DCA HAS UNANIMOUSLY APPROVED EACH OF THE PROPOSED
TRANSACTIONS, BUT BASED UPON THE AFFILIATIONS WITH MEDICORE AND MAINSTREET,
(I) THE BOARD IS NOT MAKING ANY RECOMMENDATIONS AS TO HOW SHAREHOLDERS SHOULD
VOTE, (II) MEDICORE WILL NOT VOTE ITS 68% EQUITY INTEREST IN DCA, AND (III) NO
OFFICER OR DIRECTOR OF DCA OR MEDICORE WILL VOTE THEIR 2% INTEREST IN DCA (18%
IF THEY EXERCISE ALL OF THEIR OPTIONS AND WARRANTS) WITH RESPECT TO THE PROPOSED
TRANSACTIONS. THEREFORE, A MAJORITY OF THE PUBLICLY HELD DCA SHARES (530,112)
ARE REQUIRED TO APPROVE THE PROPOSED TRANSACTIONS. TO THE EXTENT ANY DCA
WARRANTS ARE EXERCISED, THE AMOUNT OF THE MAJORITY OF THE PUBLICLY HELD SHARES
WILL LIKEWISE INCREASE.
If you have any questions or need further assistance, please call our
Secretary and counsel, Lawrence E. Jaffe, at (201) 288-8282.
Very truly yours,
BART PELSTRING
PRESIDENT
, 2000
<PAGE>
TABLE OF CONTENTS
FOR YOUR CONVENIENCE, WE HAVE INCLUDED AN INDEX OF FREQUENTLY USED
CAPITALIZED TERMS IN THIS PROXY STATEMENT/PROSPECTUS UNDER THE HEADING "INDEX OF
DEFINED TERMS," WHICH IS PRINTED AT THE END OF THIS DOCUMENT.
<TABLE>
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<S> <C>
Questions and Answers About the Proposed Transactions....... 1
Cautionary Notice Regarding Forward-Looking Statements...... 4
Summary..................................................... 5
The Companies............................................. 5
The Asset Purchase Agreement.............................. 6
The Merger................................................ 7
Dissenters' Rights of Appraisal of DCA Shareholders....... 10
The Merger Agreement...................................... 10
The Special Meeting....................................... 11
Comparative Rights of DCA and MainStreet Shareholders..... 12
The MainStreet Shareholder Proxy.......................... 12
Restriction on Transfer by Certain MainStreet
Shareholders............................................ 12
About this Proxy Statement/Prospectus..................... 12
Summary Beneficial Ownership and DCA Minority Public
Interest Table.......................................... 13
Per Share Market Prices................................... 14
Selected Historical Financial Information................. 14
Unaudited Pro Forma Condensed Financial Statement
Information............................................. 17
Risk Factors................................................ 20
MAINSTREET
We are a start up company, which could result in
additional loss to the investor......................... 20
We are dependent on the market for initial public
offerings............................................... 20
The Internet faces uncertain acceptance as a commercial
medium.................................................. 20
Confidential information transactions via the Internet may
encounter security breaches and subject us to
liabilities............................................. 21
There is no assurance that a public market for our stock
will develop............................................ 21
We may issue additional series of shares which may
adversely affect the price and the rights of our common
shares.................................................. 21
We may be affected by regulatory changes and government
regulation.............................................. 21
We are subject to technological changes................... 22
We must establish brand and identity...................... 22
We are faced with significant competition................. 22
We face the risk of potential system failure subjecting us
to litigation and liabilities........................... 22
We face the risk of less than full payment................ 23
We will operate in a new market and are uncertain of our
acceptance.............................................. 23
We may not be able to meet the need for additional
significant capital..................................... 23
Our management has limited experience..................... 23
We may need to expand our business........................ 23
We have no protection for our technology.................. 24
Dividends are not likely to be paid to our shareholders... 24
DCA
Because we have experienced losses and expect our expenses
to increase, we may not be able to achieve profitability
in the near future...................................... 24
</TABLE>
i
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<S> <C>
Our dialysis operations are subject to extensive
government regulation................................... 24
Our revenues and financial stability are dependent on
fixed reimbursement rates under Medicare and Medicaid... 25
Our ability to grow is subject to our resources and
available locations..................................... 25
Our attempt to expand through development or acquisition
of dialysis facilities which are not currently
identified may entail risks which you will not have a
basis to evaluate....................................... 25
We are dependent on physician referrals for patients...... 26
Industry changes could adversely affect our business...... 26
Our business is subject to substantial competition........ 26
Medicore, our parent, owns 68% of our company, has some
common officers and directors, which presents the
potential for conflicts of interest..................... 26
There is a possibility of continued volatility in our
security price.......................................... 27
Warrant holders in jurisdictions where we are unable to
register or otherwise qualify the common stock for sale
will be unable to exercise their warrants and acquire
our common stock........................................ 27
DCA/MAINSTREET COMMON RISK FACTORS
Failure or delay in achieving the expected benefits of the
Merger.................................................. 28
Interests of certain persons in the Merger................ 28
Substantial market overhang from outstanding options and
warrants could adversely affect the market price of DCA
and ultimately Main Street common stock................. 28
Possible delisting and risks of low priced stocks......... 29
Year 2000 readiness....................................... 30
The Special Meeting......................................... 31
General................................................... 31
Date, time and place...................................... 31
Purpose................................................... 31
Record Date; Shares entitled to vote; Quorum.............. 31
Vote Required............................................. 32
No Recommendation by DCA and No Voting by Medicore and
Directors and Officers.................................. 32
Voting of Proxies......................................... 32
Revocability of Proxies................................... 33
Solicitation of Proxies................................... 33
PROPOSAL NO. 1
The Asset Purchase Agreement................................ 33
PROPOSAL NO. 2
The Merger.................................................. 34
Background................................................ 35
General Description....................................... 35
Interests of Certain Persons in Matters to be Acted
Upon.................................................... 35
Reasons for the Merger and Board of Directors
Considerations.......................................... 37
Effective Time of the Merger.............................. 39
Articles of Incorporation and By-laws..................... 39
Directors and Officers.................................... 39
Anticipated Accounting Treatment.......................... 39
Certain Federal Tax Considerations........................ 40
Ownership Interest of DCA Shareholders After the Merger... 41
Treatment of DCA Options and Warrants..................... 41
Listing MainStreet Shares on Nasdaq SmallCap Market....... 42
</TABLE>
ii
<PAGE>
<TABLE>
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<S> <C>
Delisting and Deregistration of DCA Common Stock.......... 42
Merger Consideration...................................... 42
Procedures for Exchange of Certificates................... 42
Resale of the Shares of MainStreet--DCA Affiliates and
MainStreet Investors 43
Dissenters' Rights of Appraisal of DCA Shareholders......... 44
The Merger Agreement........................................ 47
General................................................... 47
Corporate Governance...................................... 47
Registration of Securities................................ 47
Representations and Warranties............................ 48
Conditions to Consummate the Merger....................... 49
Covenants................................................. 49
Specific Covenants of MainStreet.......................... 50
Exclusivity............................................... 50
Confidentiality and Announcements......................... 51
Termination............................................... 51
Effect of Termination..................................... 51
Break up Fee.............................................. 51
Indemnification........................................... 52
Expenses.................................................. 52
Certain Agreements Related to the Merger.................... 52
Contribution Agreement Relating to CEO
Letter.com, Inc......................................... 52
MainStreet and Affiliates Agreement With Todd &
Company, Inc............................................ 52
The MainStreet Affiliates Lock-Up Agreements.............. 53
DCA--Selected Financial Data................................ 53
Consolidated Statements of Operations Data................ 54
Consolidated Balance Sheet Data........................... 54
DCA--Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 55
Liquidity and Capital Resources........................... 57
Year 2000 Readiness....................................... 58
Quantitative and Qualitative Disclosure About Market
Risk.................................................... 59
New Accounting Pronouncements............................. 60
Impact of Inflation....................................... 60
MainStreet--Selected Financial Data......................... 60
Statements of Operations Data............................. 60
Balance Sheet Data........................................ 60
MainStreet--Management's Discussion and Analysis of
Financial Condition and Results of Operations............... 61
Results of Operations..................................... 61
Liquidity and Capital Resources........................... 61
DCA--Business............................................... 62
Description............................................... 62
Properties................................................ 72
Legal Proceedings......................................... 73
Market Prices of DCA Common Stock and Warrants and Related
Shareholder Matters......................................... 74
</TABLE>
iii
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<TABLE>
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<S> <C>
DCA--Security Ownership of Certain Beneficial Owners and
Management.................................................. 75
MainStreet Business......................................... 76
General................................................... 76
Developmental Stage....................................... 76
Business Purpose.......................................... 77
Operations................................................ 77
Explanation of Dutch Auction.............................. 78
Business Technology....................................... 79
Our Prospective Subsidiary--CEO Letter.com Inc............ 80
Governmental Regulation................................... 81
Properties................................................ 81
Legal Proceedings......................................... 81
Marketing................................................. 81
Other Sources of Potential Income......................... 82
Management of MainStreet.................................... 84
Directors and Executive Officers.......................... 84
MainStreet Management Compensation.......................... 85
Summary Compensation Table................................ 85
Option/SAR Grants in Last Fiscal Year..................... 85
Aggregate Option/SAR Exercises in Last Fiscal Year and FY
End Option/SAR Values................................... 86
MainStreet--Security Ownership of Management and Certain
Beneficial Owners........................................... 86
MainStreet--Certain Relationships and Related
Transactions................................................ 87
Description of MainStreet Capital Stock..................... 88
General................................................... 88
Common Stock.............................................. 88
Preferred Stock........................................... 88
Liquidation and Other Rights.............................. 88
Advance Notice Requirements in Connection with Shareholder
Meetings................................................ 89
Section 203 of the Delaware General Corporation Law....... 89
Transfer Agent............................................ 89
Comparative Rights of DCA and MainStreet Shareholders....... 89
Liability of Directors.................................... 89
Indemnification of Directors and Officers................. 90
Shareholders' Derivative Actions.......................... 90
Dividends and Redemptions................................. 91
Shareholder Inspection of Books and Records............... 91
Appraisal Rights.......................................... 92
Special Meeting of Shareholders........................... 93
Business Combinations Involving Interested Shareholders... 93
Control Share Acquisitions................................ 94
Shareholder Voting Requirements........................... 94
Removal of Directors by Shareholders...................... 95
Board Vacancies........................................... 95
Amendments to Articles of Incorporation and By-Laws....... 95
Selling Shareholders........................................ 97
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Legal Matters............................................... 100
Experts..................................................... 100
Other Matters............................................... 101
Shareholder Proposals....................................... 101
Where You Can Find More Information......................... 101
Index of Defined Terms...................................... 103
Index to Financial Statements............................... F-1
APPENDICES
APPENDIX A The Asset Purchase Agreement..................... A-1
APPENDIX B Agreement and Plan of Merger..................... B-1
APPENDIX C Section 607.1320 of the Florida Business
Corporation Act............................................. C-1
</TABLE>
v
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE PROPOSED TRANSACTIONS
Q. WHAT ARE THE PROPOSED TRANSACTIONS?
A. There are two proposed Transactions: 1) Dialysis Acquisition Corp., referred
to in this proxy statement/prospectus as Buyer, a wholly-owned subsidiary of
Medicore, DCA's parent, will acquire substantially all the assets and assume
substantially all the liabilities of DCA; and 2) immediately thereafter,
MainStreet Acquisition Inc., a wholly-owned subsidiary of MainStreet
IPO.com Inc., a Delaware corporation ("MainStreet"), will merge with and into
DCA, the survivor being DCA, with DCA changing its name to MainStreet Sub, Inc.
and as a result will become a wholly-owned subsidiary of MainStreet.
Q. WHAT IS THE EFFECT OF ALL THE PROPOSED TRANSACTIONS?
A. You, as a present shareholder of DCA, will receive MainStreet shares in
exchange for your DCA shares, which exchange will be on a one-for-one basis, and
you will become a shareholder of MainStreet, which company will be engaged in a
totally different line of business than the DCA dialysis operations. MainStreet
is an operator of a website to provide companies with the tools to perform
self-underwritten offerings, Direct Public Offerings (or at their option, with
an investment banking firm) of their securities through the mechanics of a
"Dutch Auction." MainStreet also intends through other websites to offer
products and services of those companies which have used MainStreet's activities
to go public. MainStreet will earn fees for those services. MainStreet has no
operating history or experience.
MainStreet will also be operating through its wholly-owned subsidiary, CEO
Letter.com Inc., a website which provides CEOs of public companies with a
vehicle to describe over the Internet their companies, their investment worth,
and bring attention to their products and services.
Another effect of the proposed Transactions is that Medicore will own 100%
of the dialysis operations through its wholly-owned subsidiary, Dialysis
Acquisition Corp., rather than its present 68% ownership of DCA.
Q. WHY ARE THE COMPANIES INVOLVED CONSIDERING THESE TRANSACTIONS?
A. DCA has experienced slow and sporadic expansion with operational losses
since 1989. These proposed Transactions may provide you with the opportunity to
participate in the more glamorous and faster-growing Internet industry through
MainStreet's proposed Internet operations.
If you approve the proposed Transactions, the structure of Medicore will be
simplified, which may enable investors to better understand and evaluate its
operations and may be helpful in the trading of its shares. Medicore presently
owns 68% of DCA, as well as 73% of another public subsidiary, Techdyne, Inc.
("Techdyne"), engaged in the electronics industry. Therefore, investors are
faced with three separate but affiliated public companies. The medical services
of DCA compliments Medicore's medical products operations, and will be 100%
owned by Medicore through its subsidiary, the Buyer, with Medicore as the only
trading entity among its affiliated entities in the medical services and
products industry.
MainStreet will be a public company, with a minority of its shareholders
being the former DCA shareholders, and may be able to attract greater public
awareness with the potential for more ease of financing and growth than had it
remained a private company.
Q. WHAT ARE THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS?
A. Based upon the affiliation of Medicore owning 68% of DCA and its
contemplated 100% ownership of the dialysis operations as provided by the Asset
Purchase Agreement, Medicore is not voting its 68% equity ownership. Further,
because of the affiliations and certain relationships among DCA, Medicore and
MainStreet, the officers and directors of DCA and Medicore ("Affiliates") will
not be voting their DCA common stock, approximately 2% of the outstanding shares
(18% if they exercise all of their options and warrants). Therefore, although
the board of directors of Medicore and
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DCA have unanimously approved the proposed Transactions, Medicore and DCA
directors are remaining neutral and are not making any recommendation to you as
the minority public shareholders of DCA ("Minority Public Shareholders").
Accordingly, you, as the Minority Public Shareholders, must make your own
evaluation and decision as to whether to approve the proposed Transactions and
become shareholders in MainStreet, a development stage Internet company.
Q. MUST DCA SHAREHOLDERS APPROVE BOTH OF THE PROPOSED TRANSACTIONS?
A. Yes. Although there are different aspects to each proposed Transaction, it
is as if both were one proposal. You must approve Proposal No. 1, the Asset
Purchase Agreement, under which Medicore will own 100% of the dialysis
operations and Proposal No. 2, the Merger in order for the proposed Transactions
to be completed. If you reject either one of the proposed Transactions, then
neither the DCA Asset sale to Medicore nor the Merger will be consummated.
Q. DO I HAVE APPRAISAL RIGHTS?
A. Under Florida law, appraisal rights are available to record holders of DCA
common stock who dissent from the proposed Transactions. However, you must
strictly follow certain procedures. See "Dissenters' Rights of Appraisal of DCA
Shareholders."
Q. WHAT DO I NEED TO DO NOW?
A. Please carefully read this proxy statement/ prospectus. Then indicate on
your proxy card how you want to vote, and sign and mail the proxy card in the
enclosed prepaid return envelope as soon as possible. This way, you and your DCA
share ownership will be represented at the Special Meeting.
Holders of a majority of the public minority DCA share ownership, 1,060,222
shares of DCA common stock, representing approximately 30% of the outstanding
DCA shares ("Minority Public Interest"), must approve the Asset Purchase
Agreement and the Merger. Therefore, it is important that you return your signed
proxy card.
Q. SHOULD I SEND IN MY STOCK CERTIFICATE NOW?
A. No. If the proposed Transactions are approved and after the Merger is
completed we will send you written instructions for exchanging your DCA
certificates for MainStreet common stock. Each DCA share of common stock will be
exchanged for one share of MainStreet common stock.
Q. IF MY DCA SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE
MY SHARES FOR ME?
A. Your broker will vote your shares only if you provide your broker with
instructions on how to vote. You should follow the directions provided by your
broker regarding how to instruct your broker to vote your DCA shares. Without
instructions, your shares will not be voted, which will have the same effect as
voting against the proposed Transactions. If you mark your proxy "Abstain," your
shares will have the effect of a vote against the proposed Transactions.
Q. CAN I CHANGE MY VOTE AFTER I HAVE MAILED IN MY SIGNED PROXY?
A. Yes. You can change your vote at any time before we vote your proxy at the
Special Meeting. There are three ways to change your vote. First, you can send a
written notice to the Secretary of DCA at the address below stating that you
would like to revoke your proxy. Second, you can complete a new proxy card and
send it to the Secretary of DCA; the new proxy card will automatically replace
any earlier proxy card you returned. Third, you can attend the Special Meeting
and vote in person. You should send any written notice or new proxy card to the
Secretary of DCA at the following address:
Lawrence E. Jaffe, Esq.
Dialysis Corporation of America
777 Terrace Avenue
Hasbrouck Heights, New Jersey 07604
Q. WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A. We are working to complete the proposed Transactions as quickly as possible,
hopefully by , 2000, subject to certain timing issues, including obtaining
a declaration of effectiveness
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for the registration statement, of which this proxy statement/prospectus is a
part, from the Securities and Exchange Commission and from similar state
regulatory authorities where the MainStreet shares are to be offered and issued.
Q. WHAT ARE THE TAX CONSEQUENCES TO SHAREHOLDERS OF THE MERGER?
A. The Merger will be tax free to MainStreet and DCA and to DCA shareholders
for federal income tax purposes. The Asset Purchase Agreement will constitute a
taxable redemption of approximately 90% of Medicore's ownership of DCA based on
its 68% equity interest in DCA and its return of approximately 90% of those
shares in the DCA asset acquisition, as well as a federal income tax liability
to DCA upon its distribution of its Assets in redemption of its shares held by
Medicore equal to the excess of the gross consideration (the value of the Assets
deemed distributed to Medicore plus the sum of the DCA Liabilities assumed) over
DCA's tax basis in such Assets. See "The Merger--Certain Federal Tax
Considerations."
Q. ASSUMING I RECEIVE MAINSTREET SHARES IN THE MERGER, WILL MY RIGHTS AS A
SHAREHOLDER CHANGE?
A. Yes. For a summary of the material differences between the rights of DCA
shareholders and the rights of MainStreet shareholders, see "Comparative Rights
of DCA and MainStreet Shareholders."
Q. WHOM SHALL I CALL WITH QUESTIONS OR TO OBTAIN ADDITIONAL COPIES OF THE PROXY
STATEMENT/ PROSPECTUS?
A. Call Joanne Bertolini, Executive Vice President of Operations and director
of MainStreet at (718) 227-6789 (by fax: (718) 227-6780).
Q. WHERE CAN I FIND MORE INFORMATION ABOUT MEDICORE, DCA AND MAINSTREET?
A. Various sources described under "Where You Can Find More Information";
however, MainStreet is not a public company, and has not filed any reports or
financial statements with the Securities and Exchange Commission or any other
regulatory body; and information, including financial information, concerning
that company is contained in this proxy statement/prospectus.
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CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains certain forward-looking statements
that involve risk and uncertainty. Such statements are made with respect to the
financial condition, results of operations and business of DCA, Medicore and
MainStreet. These statements may be made directly in this document referring to
DCA, Medicore or MainStreet, or may be "incorporated by reference" to other
documents filed with the Securities and Exchange Commission. This document may
also include statements relating to the period following the completion of the
Asset Purchase Agreement and Merger. You can find many of these statements by
looking for words such as "believes," "expects," "anticipates," "estimates,"
"intends," or similar expressions in this proxy statement/prospectus or in
documents incorporated herein.
These forward-looking statements are subject to many assumptions, risks and
uncertainties. Factors that may cause actual results to differ from those
contemplated by such forward-looking statements include, among others, the
following:
- the fact that these forward-looking statements are based on information of
a preliminary nature, which may be subject to further and continuing
review and adjustment
- the risk of a significant delay in the expected completion of, and
unexpected consequences resulting from the DCA Asset sale and the Merger
- development stage of MainStreet's website operations (i) for companies to
make Direct Public Offerings of their securities through a "Dutch Auction"
process, (ii) to offer products and services of these companies through
other websites, and (iii) the CEO Letter website for executive officers to
present their companies to the public; no operating history for these
segments of MainStreet's proposed operations
- competitive pressures in the securities offering operations, both through
traditional means of retaining investment brokers or Internet offerings,
may significantly increase
- changes in technology may increase the number of MainStreet competitors,
and may require significant capital expenditures to keep up with its
proposed and competitors' similar services
- general economic or business conditions, particularly for public
offerings, may be less favorable than expected, resulting in, among other
things, lower than expected revenues
- legislative or regulatory changes may adversely affect the businesses in
which MainStreet proposes to engage, particularly Internet securities
offerings, and in which DCA is engaged, particularly the government
reimbursement rate for dialysis treatments
- availability of resources and available dialysis facility locations to
construct or acquire may be limited for DCA, particularly due to
competition from larger dialysis companies
- assuming business development and expansion, MainStreet and/or DCA may
experience losses due to less than optimal operations and increased
technical and operational costs
- other factors that could cause actual results of the DCA Asset sale and
Merger to differ materially are those detailed in the risks discussed in
"Risk Factors" found on pages 22 through 33.
Because forward-looking statements are subject to risks and uncertainties,
actual results may differ materially from those expressed or implied by such
forward-looking statements. Many of the above-described factors are beyond the
control of either DCA or MainStreet. You should not place undue reliance on such
statements, which speak only as of the date of this proxy statement/prospectus,
or, in the case of a document incorporated by reference, the date of such
document.
All subsequent written and oral forward-looking statements attributable to
DCA, MainStreet, or any person acting on their behalf, are expressly qualified
in their entirety by the cautionary statements contained or referred to in this
section. Neither DCA nor MainStreet undertakes any obligation to release
publicly any revisions to such forward-looking statements to reflect events or
circumstances after the date of this proxy statement/prospectus.
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SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT/PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. TO UNDERSTAND THE DCA ASSET SALE, THE MERGER AND RELATED
TRANSACTIONS MORE FULLY, AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS
OF THE ASSET PURCHASE AGREEMENT, THE MERGER AND RELATED TRANSACTIONS, YOU SHOULD
CAREFULLY READ THIS ENTIRE DOCUMENT, THE APPENDICES, AND THE DOCUMENTS TO WHICH
WE HAVE REFERRED YOU. SEE "WHERE YOU CAN FIND MORE INFORMATION" ON PAGE 101 OF
THIS PROXY STATEMENT/PROSPECTUS. EACH ITEM IN THIS SUMMARY INCLUDES A PAGE
REFERENCE DIRECTING YOU TO A MORE COMPLETE DESCRIPTION OF THAT ITEM.
THE COMPANIES
DCA (PAGE 62)
27 Miller Street
Lemoyne, Pennsylvania 17043
(717) 730-6164
DCA is a regional provider (New Jersey and Pennsylvania) of dialysis
services to patients suffering from chronic kidney failure known as end stage
renal disease. DCA also provides acute dialysis services through contractual
relationships with hospitals.
MEDICORE, INC. (SEE "INDEX OF DEFINED TERMS,"
PAGE 103)
2337 West 76(th) Street
Hialeah, Florida 33016
(305) 558-4000
Medicore is engaged in the distribution of medical supplies and produces a
line of lancets. It is also engaged in the operation of kidney dialysis centers
through DCA, its 68% owned public subsidiary. A third business segment of
Medicore is the international contract manufacturing of electronic and electro-
mechanical products, primarily for the data processing, telecommunications,
instrumentation and food preparation equipment industries. This segment of
Medicore's operations is accomplished through Techdyne, its 73% owned public
subsidiary.
DIALYSIS ACQUISITION CORP. (SEE "INDEX OF DEFINED
TERMS," PAGE 103)
27 Miller Street
Lemoyne, Pennsylvania 17043
(717) 730-6164
Dialysis Acquisition Corp., a Florida corporation, referred to in this
document as "Buyer"," is a wholly-owned subsidiary of Medicore recently
organized solely for the purpose of acquiring the DCA Assets and assuming the
DCA Liabilities under the Asset Purchase Agreement (see Appendix A), which will
occur immediately prior to the Merger.
MAINSTREETIPO.COM INC. (PAGE 76)
171 Church Lane
North Brunswick, New Jersey 08902
(718) 227-6789
MainStreet, originally a limited liability company, became a Delaware
corporation in October, 1999. It has developed a central website,
www.MainStreetIPO.com, that provides companies with the ability to perform
self-underwritten (or at their option, with an investment banking firm)
securities offerings, known as Direct Public Offerings, on the Internet. The
Direct Public Offerings would be conducted on the basis of a "Dutch Auction"
which allows investors to evaluate and bid for any number of the issuer's
securities at prices they are willing to pay, and through an algorithm, sorts
and ranks the bids and arrives at a "clearing price" which the investors will
pay and distributes the shares from the highest bidders (who obtain their
requested full amounts) down to lower bidders (pro-rated amounts). Two companies
have signed contracts with MainStreet for their Direct Public Offerings, but
actual use of the website will not commence until those companies have
registration statements declared effective by the federal and state securities
commissions. This segment is prepared to commence operations. MainStreet also
intends to offer its clients' products and services on other websites. A third
segment of its proposed operations is the CEO Letter, a website providing CEOs
the opportunity to introduce and discuss their companies with prospective
Internet investors.
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MAINSTREET ACQUISITION INC. (SEE "INDEX OF
DEFINED TERMS," PAGE 103)
171 Church Lane
North Brunswick, New Jersey 08902
(718) 227-6789
MainStreet Acquisition Inc. is a wholly-owned subsidiary of MainStreet,
recently formed for the purpose of consummating the Merger. In accordance with
the Merger Agreement (Appendix B), MainStreet Acquisition Inc. will merge with
and into DCA, its separate existence will cease, and DCA will change its name
and become a wholly-owned subsidiary of MainStreet.
CEO LETTER.COM INC (PAGE 80)
171 Church Lane
North Brunswick, New Jersey 08902
(718) 227-6789
CEO Letter is a Delaware corporation owned by certain MainStreet
shareholders. Upon approval of the Merger, CEO Letter will be transferred to
MainStreet as a wholly-owned subsidiary. Its proposed operations, which consist
of a central website, CEO Letter, provides chief executive officers of public
companies with a forum to introduce and discuss their companies to the millions
of Internet investors. CEO Letter has an exclusive arrangement with another
Internet company to access all of that company's members, currently
approximately 500,000, and to use that company's point rewards program as an
incentive for the members to review the CEO Letter website and provide it with a
brief investor profile. CEO Letter will also offer point rewards in connection
with offerings on MainStreet's website. The transfer of CEO Letter to MainStreet
by those certain shareholders of MainStreet, will be for consideration of
250,000 shares of MainStreet common stock.
THE ASSET PURCHASE AGREEMENT
(PAGE 33)
The Asset Purchase Agreement is attached as Appendix A to this proxy
statement/ prospectus. You are encouraged to read the Asset Purchase Agreement
carefully in its entirety.
PURCHASE OF ASSETS
Buyer is acquiring substantially all of the assets of DCA and its entire
dialysis operations, exclusive of any net proceeds from exercise of (i) DCA
Underwriters' Options; and (ii) 2,300,000 DCA warrants (publicly traded) except
for 20% of such exercises up to $1,000,000.
CONSIDERATION
Consideration for the purchase of the DCA Assets includes the following:
- Medicore transfers 2,150,622 shares of its DCA common stock to DCA, to be
cancelled
- Buyer assumes all DCA Liabilities, exclusive of any federal and state
taxes resulting from the sale of the DCA Assets
- Buyer's waiver of any proceeds from exercise of the DCA Underwriters'
Options and publicly traded DCA warrants
VALUATION OF ASSETS
DCA has the option to terminate the proposed Transactions if valuation of
the DCA Assets exceeds $8,000,000.
CONDITIONS TO THE DCA ASSET SALE
Same conditions as to completion of the Merger. See "The Merger Agreement--
Conditions to the Merger," except the Merger has to qualify as a tax-free
transaction under the Internal Revenue Code of 1986, as amended (the "Code");
DCA Asset sale will be taxable to DCA and Medicore, with any tax liability of
DCA to remain with it and its successor, MainStreet.
TERMINATION
Either Buyer or DCA may terminate without liability to the other if there is
any uncured default by the other party in the performance of the terms or
conditions of the Asset sale.
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THE MERGER (PAGE 34)
STRUCTURE OF THE MERGER
1) MainStreet Acquisition Inc., the wholly-owned subsidiary of MainStreet,
merges into DCA;
2) DCA is the surviving company, changes its name to and becomes a
wholly-owned subsidiary of MainStreet;
3) Immediately prior to the Merger, DCA sells its Assets to Buyer, a
wholly-owned subsidiary of Medicore, exclusive of certain proceeds upon any
potential exercise of DCA underwriters' purchase warrants and the DCA warrants,
and Buyer assumes the DCA Liabilities, exclusive of taxes attributable to the
sale.
4) Upon DCA shareholder approval and completion of the Merger, CEO Letter
will become a wholly-owned subsidiary of MainStreet by the transfer of the
shares to MainStreet by certain shareholders of MainStreet.
5) MainStreet issues its common stock to the DCA shareholders in an exchange
of shares on a one-for-one basis.
RESULTS OF THE TRANSACTIONS
Upon shareholder approval and completion of the Asset Purchase Agreement and
the Merger, DCA shareholders will become shareholders of MainStreet, a Delaware
corporation which will have MainStreet Sub, Inc. and CEO Letter as its
wholly-owned subsidiaries; and Medicore will engage in dialysis operations
through the Buyer, as a wholly-owned subsidiary as opposed to its present 68%
ownership of DCA; MainStreet securities are expected to trade on the Nasdaq
SmallCap Market, and DCA common stock and warrants will cease trading on the
Nasdaq SmallCap Market.
Outstanding DCA options and warrants will become options and warrants of
MainStreet with substantially the same terms and conditions except they will be
exercisable into MainStreet common stock rather than DCA common stock; provided,
proceeds from any exercises of DCA Underwriters' Options and their underlying
securities, and from the exercise of the DCA warrants (all of which will become
MainStreet purchase warrants and MainStreet warrants), will remain with
MainStreet except for 20% of the exercise of the DCA warrants up to $1,000,000,
which proceeds shall go to Medicore.
DCA SHAREHOLDERS WILL RECEIVE MAINSTREET COMMON STOCK
Non-dissenting shareholders of DCA will receive MainStreet common stock on a
one-for-one basis. DCA shareholders (including the officers and directors of DCA
and Medicore, hereinafter "Affiliates") will receive approximately 2,205,000
shares of MainStreet common stock (assumes exercise of all DCA options by
Affiliates, employees and related parties, and as part of the Asset Purchase
Agreement, Medicore's return to DCA of 2,150,622 DCA shares), which will
represent approximately 20% of MainStreet (assuming approximately 10,845,000
MainStreet shares are outstanding). If all the outstanding DCA options and
warrants are exercised, DCA shareholders would receive 4,805,222 shares of
MainStreet common stock, which would represent approximately 36% of the
MainStreet outstanding shares (assuming approximately 13,445,000 MainStreet
shares are outstanding). See "Summary Beneficial Ownership and DCA Minority
Public Interest Table" at page 13.
REASONS FOR THE TRANSACTIONS
The primary factor for the Asset Purchase Agreement and Merger is to provide
you, as a shareholder of DCA, with the opportunity to participate in the
currently more exciting Internet industry which has reflected substantial and
rapid growth. This would be accomplished through MainStreet's proposed
operations, which include three business segments. First is MainStreet's website
providing companies with the facility to perform registered primary and
secondary Direct Public Offerings through the mechanics of a "Dutch Auction"
(the investors bid for the number of shares they want at the prices they believe
the securities are worth acquiring), which can be accomplished on a
self-underwritten basis, or, at the option of the issuer, with an investment
banker. The second business segment is to be operated through MainStreet's
wholly-owned
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subsidiary, CEO Letter, which also has a website which provides chief executive
officers of public companies with the forum to introduce and to discuss their
companies to the multitude of potential Internet investors. The third segment is
MainStreet's intention to offer over separate websites the services and products
of clients who have used MainStreet's facilities for public offerings of their
securities. MainStreet will earn fees to be negotiated for the sale of such
services and products. Please note, MainStreet has no operating history and is
subject to substantial risks for new companies just establishing operations. See
"Risk Factors," pages 20 through 30.
The DCA Asset acquisition by Medicore's wholly-owned subsidiary, Dialysis
Acquisition Corp., the Buyer, combines the dialysis operations, which have
experienced slow and sporadic growth with operational losses since 1989, with
Medicore's medical products operations, a more natural fit. The DCA Asset
acquisition by Medicore also simplifies Medicore's business structure and
securities trading. Instead of three affiliated trading entities, Medicore, DCA,
and Techdyne (Medicore's 73% owned public subsidiary engaged in international
contract manufacturing of electronic components), the dialysis operations will
be wholly-owned by Medicore and will not separately trade as a 68% owned
subsidiary; rather, shareholders and investors will be able to focus on two
entities, Medicore, with the medical products and services (dialysis operations)
and Techdyne.
NO RECOMMENDATION TO SHAREHOLDERS
Based upon the affiliation of Medicore and DCA, certain commonality of
officers and directors, and Buyer's acquisition of the DCA Assets and assumption
of the DCA Liabilities, the board of directors of Medicore and DCA, although
having unanimously approved the Asset Purchase and Merger Agreements, is
remaining neutral. See below, "Interests of Certain Persons in Matters to be
Acted Upon" and "DCA Minority Public Shareholders--Sole Determining Vote." You,
as the Public Minority Shareholders, will be the sole determining factor as to
the approval of the Asset Purchase Agreement and the Merger. Medicore will not
be voting its 68% ownership of DCA nor will any of the Affiliates of DCA and
Medicore be voting their DCA shares, approximately 2%.
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Certain officers and directors of DCA and Medicore have interests in the
Merger that are different from, or in addition to, their interests as DCA
shareholders, including the following:
- options to acquire DCA common stock (exchangeable into MainStreet common
stock) at prices below current market prices; may exercise substantial portions
with long-term promissory notes consistent with the terms of the options or
option plans, which in past experience DCA and its parent have forgiven
- Thomas K. Langbein, Chairman of the Board and CEO of DCA and Medicore
(also President of Medicore) received slightly less than a 10% interest in
MainStreet for an agreement with his securities brokerage firm, Todd &
Company, Inc. ("Todd"), registered with the Securities and Exchange Commission
and a member of the NASD. MainStreet and its two executive officers have agreed
to refer MainStreet clients to Todd as an underwriter and/or selling group
member for a fee
- all of the officers and directors of DCA and Medicore have received
registration rights together with certain MainStreet investors, and as a result
their MainStreet shares are included for resale in this proxy
statement/prospectus. See "Selling Shareholders."
- the board of directors of DCA and Medicore knew about these interests and
considered them when they approved the Asset Purchase Agreement, the Merger
Agreement and the Merger.
- on January 27, 2000, Medicore acquired a 6% interest (option for another
2%) in The Linux Fund, Inc. ("Linux Fund"), a holding company investing in Linux
software companies, and loaned that company $1,500,000 at 10% annual interest,
with Medicore borrowing the funds for the loan from DCA; Thomas K. Langbein
became a director of the Linux Fund.
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The companies in which the Linux Fund invests intend to use The Linux Fund
IPO.com, Inc. ("Linux Fund IPO.com") website to affect any public offerings that
they may wish to accomplish in the future. The Linux Fund IPO.com is a 50%
subsidiary of the Linux Fund, with 50% owned by MainStreet.
These interests are described in "The Merger--Interests of Certain Persons
in Matters to be Acted Upon."
DCA MINORITY PUBLIC SHAREHOLDERS--SOLE DETERMINING VOTE
Based upon Medicore not voting its 68% equity interest in DCA and the
Affiliates not voting their approximately 2% interest in DCA (18% if they
exercise all of their options and warrants) due to affiliations and potential
conflicts of interest among and between them and the parties to the Merger, you,
as the DCA Minority Public Shareholders, will have the sole determining voice as
to whether these proposed Transactions will be approved and completed, subject
to satisfaction of the conditions of the Asset Purchase and Merger Agreements.
The DCA Minority Public Shareholders own 1,060,222, or approximately 30% of the
currently outstanding shares of DCA common stock ("Minority Public Interest"). A
majority of these shares, approximately a little more than 530,100 of the
Minority Public Interest, is required to approve the Transactions. It is solely
within your determination whether you wish to remain a shareholder of a company
engaged in dialysis operations, or whether you would rather become a shareholder
of MainStreet, a new entity establishing operations in the Internet industry.
Assuming no DCA Underwriters' Options or warrants are exercised, DCA Minority
Public Shareholders would have an approximately 10% interest in MainStreet
(approximately 8% assuming all remaining DCA options and warrants are
exercised).
ACCOUNTING TREATMENT
For financial reporting purposes, the proposed sale of the DCA Assets and
assumption of DCA Liabilities will be recorded as a sale of DCA's business and
reported as a discontinuance of operations, resulting in DCA becoming an
inactive company.
The Merger will be accounted for as a recapitalization of MainStreet and an
issuance of MainStreet's common stock, options and warrants in exchange for
DCA's common stock, options and warrants. See "Anticipated Accounting Treatment"
and "Treatment of DCA Options and Warrants" under the caption "The Merger."
FEDERAL INCOME TAX CONSEQUENCES OF THE DCA ASSET SALE AND THE MERGER
Upon consummation of the proposed sale of the DCA Assets to Medicore's
subsidiary, Dialysis Acquisition Corp., DCA will recognize a gain equal to the
gross consideration (the fair market value of the DCA Assets plus the amount of
DCA Liabilities assumed less expenses of the proposed DCA Asset sale) less the
tax basis of the DCA Assets sold. This tax liability will remain with DCA and
its successor, MainStreet, and is not part of the DCA Liabilities assumed by the
Buyer However, if the tax liability to DCA is greater than $500,000, MainStreet
has the option to terminate the Merger. Medicore will also recognize a tax
liability related to the transfer of its 2,150,622 DCA shares to DCA as part of
the DCA Asset Purchase consideration and the valuation of the DCA Assets
acquired. The proposed DCA Asset sale will not have any personal federal income
tax consequences on the DCA shareholders.
The Merger together with the transfer of the interests in the CEO Letter by
the MainStreet shareholders to MainStreet is intended to qualify as a tax free
transaction pursuant to Section 351 of the Code. DCA and MainStreet have
received opinions from their respective counsel stating that the Merger has been
structured for federal income tax purposes as a tax-free transfer described in
Section 351 of the Code. Accordingly, no gain or loss will be recognized by the
DCA shareholders as a result of the exchange of their DCA common stock for
MainStreet common stock in the Merger.
TAX MATTERS ARE VERY COMPLICATED AND THE CONSEQUENCES OF THE MERGER TO YOU
WILL DEPEND ON THE FACTS OF YOUR OWN PERSONAL SITUATION. YOU SHOULD CONSULT WITH
YOUR OWN TAX ADVISOR FOR FULL
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UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER TO YOU UNDER FEDERAL, STATE,
LOCAL AND OTHER APPLICABLE LAWS.
DISSENTERS' RIGHTS OF APPRAISAL
OF DCA SHAREHOLDERS (PAGE 44)
Florida law permits you to dissent from the DCA Asset sale and Merger and to
receive cash in the amount of the judicially determined fair value of your DCA
shares rather than the consideration, the MainStreet shares of common stock that
you would receive in the transaction under the Merger Agreement. In order to
obtain appraisal, you must follow certain procedures, including filing certain
notices and NOT VOTING YOUR DCA SHARES OF COMMON STOCK IN FAVOR OF THE DCA ASSET
SALE OR THE MERGER, and the proposed Transactions are eventually approved by the
majority of the other DCA Minority Public Shareholders. The relevant provisions
of Florida law covering this process are attached to this document as
Appendix C.
THE MERGER AGREEMENT (PAGE 47)
The Merger Agreement is attached as Appendix B to this proxy
statement/prospectus. We encourage you to read the Merger Agreement carefully in
its entirety. It is the principal document governing the Merger.
CONVERSION OF SHARES OF DCA COMMON STOCK
Each share of DCA common stock, upon completion of the Merger, will be
converted into the right to receive one share of MainStreet common stock. This
proxy statement/prospectus is part of the registration statement covering the
MainStreet shares of common stock to be issued to the DCA shareholders in the
Merger as well as including shares of certain selling shareholders.
CERTAIN COVENANTS
Each party to the Merger Agreement has agreed not to solicit or encourage
any proposal from any person to acquire their respective company, whether
through asset purchase, merger, consolidation or otherwise, except in limited
circumstances as may be required by their fiduciary duties, such as responding
to unsolicited proposals.
CONDITIONS TO THE MERGER
Completion of the Merger depends upon satisfaction of a number of
conditions. In addition to customary conditions relating to our compliance with
the Merger Agreement, these conditions include the following:
- approval of both Proposals, No. 1, the DCA Asset sale, and No. 2, the
Merger, by the DCA Minority Public Shareholders
- no legal restraints or prohibitions exist that would prevent the
completion of the Asset Purchase Agreement or the Merger
- MainStreet's common stock must have been approved for listing on the
Nasdaq SmallCap Market or American Stock Exchange
- the tax liability to DCA upon sale of its assets to Buyer does not exceed
$500,000
- independent evaluation of the DCA Assets shall not exceed $8,000,000
- DCA and MainStreet must satisfy the representations, warranties and
covenants contained in the Merger and Asset Purchase Agreements in all
material respects
- the Securities and Exchange Commission declaring effective, and the
absence of a subsequent suspension by the Securities and Exchange
Commission of the effectiveness of, the registration statement of which
this proxy statement/prospectus is a part with respect to the MainStreet
shares to be issued in the Merger
- attorneys for DCA and MainStreet furnish to their respective clients
opinions to the effect that the Merger will be treated as a tax-free
reorganization within the meaning of Section 368(a) and/or a transfer of
property (the CEO Letter interests) by the MainStreet shareholders to
MainStreet under Section 351 of the Code.
The Merger will occur, and your DCA common stock will be converted into the
right to receive the MainStreet shares as soon as practicable after shareholder
approval and DCA
10
<PAGE>
and MainStreet satisfy all the conditions of the Merger Agreement.
TERMINATION OF THE MERGER AGREEMENT
DCA and MainStreet may jointly agree to terminate the Merger Agreement, even
subsequent to shareholder approval.
DCA or MainStreet may terminate the Merger Agreement if:
- the Merger is not completed by May 31, 2000
- the minority public stockholders of DCA do not approve the Asset Purchase
and Merger Agreements
- a governmental authority or other legal action permanently prohibits the
completion of the Asset Purchase Agreement or the Merger
- the other party breaches in any material respect without timely cure any
of its representations, warranties or obligations under the Asset Purchase
or Merger Agreements.
TERMINATION FEE
In the event the Merger Agreement is terminated other than by mutual consent
or due to no fault of MainStreet, then DCA shall pay to MainStreet up to 20% of
the net proceeds from any exercise of the DCA Warrants to the date of any such
termination which will be consideration for an investment in MainStreet at a
pre-financing valuation of MainStreet of $22,500,000 or the lowest price per
share of MainStreet common stock paid by an investor within one year of the
break-up. Any such DCA equity interest in MainStreet shall be registered by
MainStreet at any time MainStreet has a public offering of securities.
EXPENSES
Each of DCA and MainStreet will bear their respective expenses incurred in
connection with the Transactions, provided each party will pay its pro rata
share of the fees and expenses incurred with the registration statement of which
this proxy statement/prospectus is a part.
EFFECTS OF MERGER ON RIGHTS OF DCA SHAREHOLDERS
Upon completion of the Asset Purchase Agreement and the Merger, you, as
non-dissenting DCA shareholders, will become minority shareholders in
MainStreet, a Delaware company, with your minority position being approximately
10% (approximately 8% if all DCA options and Warrants are exercised) in
MainStreet, as opposed to holding an approximately 30% minority position in DCA,
a Florida corporation. See "Summary Beneficial Ownership and DCA Public Minority
Interest Table" below.
Medicore, which previously had a 68% interest in the dialysis operations of
DCA, will own 100% of those operations, and DCA will cease being a public
company.
THE SPECIAL MEETING (PAGE 31)
The Special Meeting of DCA will be held at the Hilton Hotel, 650 Terrace
Avenue, Hasbrouck Heights, New Jersey 07604, at 10:00 a.m., local time, on
, 2000. At the Special Meeting you will be asked to vote upon two
proposals, one to approve the Asset Purchase Agreement with respect to the sale
of DCA Assets to Buyer, and the second to approve the Merger Agreement, both of
which proposed Transactions must be approved for the DCA Asset sale and the
Merger to be effected.
RECORD DATE; VOTING POWER
You are entitled to vote at the Special Meeting if you owned shares of DCA
common stock at the close of business on , 2000, the record date.
On the record date, there were 3,546,344 shares of DCA common stock
outstanding and entitled to vote at the Special Meeting. Based upon certain
relationships and interests in the Transactions, Medicore is not voting its
2,410,622 shares of DCA common stock (68% of the outstanding shares), and the
Affiliates of DCA and Medicore are not voting their 75,500 (approximately 2% of
the outstanding shares; approximately 18% if they exercise all of their DCA
options and warrants). You will have one
11
<PAGE>
vote at the Special Meeting for each share of DCA common stock you own on the
record date.
VOTE REQUIRED
The affirmative vote of 530,112, the majority of the Minority Public
Interest (1,060,222) is required to adopt the Asset Purchase and Merger. See
"Summary Beneficial Ownership and DCA Public Minority Interest Table" below.
TREATMENT OF DCA STOCK OPTIONS AND WARRANTS
When the Merger is effective, all outstanding options and warrants to
purchase shares of DCA common stock, whether or not exercisable, will be
converted into options or warrants, as the case may be, to purchase the same
number of shares of MainStreet's common stock at the same exercise price and on
terms and conditions substantially the same as those applicable to the options
or warrants to purchase DCA common stock prior to the Merger.
COMPARATIVE RIGHTS OF DCA AND
MAINSTREET SHAREHOLDERS (PAGE 89)
The rights of shareholders of DCA currently are governed by Florida law,
DCA's articles of incorporation and DCA's by-laws. Upon consummation of the
Merger, shareholders of DCA will become shareholders of MainStreet, which is a
Delaware corporation, and their rights as shareholders of MainStreet will be
governed by Delaware law, MainStreet's articles of incorporation and
MainStreet's by-laws. For a discussion of various differences between the rights
of shareholders of DCA and the rights of MainStreet shareholders, see
"Comparative Rights of DCA and MainStreet Shareholders."
THE MAINSTREET SHAREHOLDER PROXY
Certain officers and directors of MainStreet, who together own approximately
28% of the common stock of MainStreet, executed a proxy dated February 2, 2000,
providing Joseph Salvani, Chairman of the Board, CEO, President and Chief
Financial Officer of MainStreet with the right to vote their shares in
accordance with the directives as Mr. Salvani deems in the best interests of
MainStreet. Mr. Salvani owns approximately 31% of MainStreet. His interest,
combined with the proxy, gives him and the officers and directors providing the
proxy control over the affairs of MainStreet.
RESTRICTION ON TRANSFER BY CERTAIN
MAINSTREET SHAREHOLDERS
The principals of MainStreet, including the officers and directors, have
executed lock-up agreements with MainStreet, agreeing, subject to customary
exceptions, not to transfer or encumber any of their shares of common stock in
MainStreet that they hold or may acquire, whether independently or in connection
with the Merger. The lock-up restriction is for a period through December 31,
2000. See "Certain Agreements Related to the Merger--The MainStreet Affiliates
Lock-Up Agreements."
ABOUT THIS PROXY
STATEMENT/PROSPECTUS
This proxy statement/prospectus is part of a registration statement that
MainStreet has filed with the Securities and Exchange Commission relating to the
shares of MainStreet common stock being issued in connection with the Merger and
resale by Affiliates and certain MainStreet investors. This proxy
statement/prospectus provides you with a general description of the securities
MainStreet will offer. You should read this proxy statement/prospectus together
with the additional information described under the heading "Where You Can Find
More Information."
12
<PAGE>
SUMMARY BENEFICIAL OWNERSHIP AND DCA MINORITY PUBLIC INTEREST TABLE
The following table reflects the beneficial ownership by Medicore, the
Affiliates, employees and related parties and the Minority Public Interest (or
"Public Float," which is DCA outstanding shares minus Affiliates' ownership
(including Medicore) and any restricted shares, of which there are none) of DCA
common stock, options and warrants pre-Merger, and their ownership after the
Merger of what will then be MainStreet common stock, options and warrants. The
assumptions relating to the tabular information include:
(i) outstanding securities at February 4, 2000
<TABLE>
<CAPTION>
DCA MAINSTREET
--------- ----------
<S> <C> <C>
Common Stock........................................... 3,546,344 8,390,000
Warrants............................................... 2,300,000 1,015,000
Underwriters' Options.................................. 300,000 --
Options................................................ 809,500 --
</TABLE>
(ii) no exercise of DCA warrants or Underwriters' Options
(iii) All other options (809,500 shares) are exercised
(iv) no exercise of MainStreet warrants
(v) post-Merger outstanding shares of MainStreet (with assumptions (ii),
(iii) and
(iv) = 10,845,222
DCA SECURITIES
PRE-MERGER OWNERSHIP
<TABLE>
<CAPTION>
COMMON PUBLIC
STOCK % OPTIONS % WARRANTS %
------------ -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Medicore................................ 2,410,622(1) 68% -- -- -- --
Affiliates.............................. 75,500 2.1% 680,000 84% 8,000(2) *
Employees and related parties........... -- -- 129,500(3) 16% -- --
Minority Public Shareholders............ 1,060,222 29.9% -- -- 2,292,000 99.7%
</TABLE>
MAINSTREET SECURITIES
POST-MERGER OWNERSHIP
<TABLE>
<CAPTION>
COMMON PUBLIC
STOCK % OPTIONS % WARRANTS %
------------ -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Medicore.................................. 250,000(1) 2.3% -- -- -- --
Affiliates................................ 763,500 7.0% -- -- -- --
Employees and related parties............. 129,500 1.2% -- -- -- --
Minority Public Shareholders.............. 1,060,222 9.8% -- -- 2,292,000(2) 100%
</TABLE>
* less than 1%
- ------------------------
(1) Returning 2,150,622 shares to DCA for Asset Purchase; transferring 10,000
shares to a finder. See note (7) to "Selling Shareholders."
(2) Exercisable into DCA common stock at $4.50 per share through March 31, 2000.
If the warrant exercise period is extended and if this Merger is approved,
the warrants would be exercisable into MainStreet common stock.
13
<PAGE>
(3) Includes (i) a 1999 option exercisable into 25,000 DCA shares of common
stock at $1.25 per share through April 20, 2004 held by a part-time
financial administrator of DCA, (ii) 1999 options for 100,000 DCA shares of
common stock at $1.25 per share through April 20, 2000 held by the adult
children of Lawrence E. Jaffe, counsel and Secretary to DCA and Medicore
(see "Selling Shareholders"); and (iii) 1995 options for 4,500 DCA shares of
common stock exercisable at $1.50 per share through October 9, 2000 by DCA
employees.
PER SHARE MARKET PRICES
Since MainStreet is a private company, it has no trading securities, and we
cannot compare per share information. DCA common stock and warrants trade on the
Nasdaq SmallCap Market under the symbols "DCAI" and "DCAIW," respectively. A
summary of DCA trading information is provided in "Market Prices of DCA Common
Stock and Warrants and Related Shareholder Matters."
On February 4, 2000, the closing prices of the DCA common stock and warrants
were $6.38 and $1.97, respectively.
SELECTED HISTORICAL FINANCIAL INFORMATION
MAINSTREET
MainStreet was recently organized, originally as a limited liability
company, in April, 1999, and has established a website for companies with the
tools to perform registered self-underwritten securities offerings through the
mechanics of a "Dutch Auction" on the Internet. Assuming completion of the
Merger, it will have a wholly-owned subsidiary, CEO Letter, a company which
provides chief executive officers of public companies with a website to
introduce and discuss their companies to the vast amount of potential Internet
investors. MainStreet also intends through other websites to offer products and
services of those companies which have used MainStreet's facilities to go
public. To date, MainStreet has established its websites for Direct Public
Offerings and CEO Letter presentations, has entered into several contracts with
companies for their proposed offerings, but has not engaged in any operations
except for organization and development efforts. Therefore, MainStreet currently
has little financial history and accordingly, its financial statements are not
meaningful from an historical perspective. The financial information provided
below only cover the period from April 12, 1999 (inception) to October 31, 1999.
The following selected financial data of MainStreet should be read in
conjunction with the financial statements and the notes thereto and
"MainStreet--Management's Discussion and Analysis of Financial Condition and
Results of Operations "included elsewhere in this document. The statement of
operations data set forth below with respect to the approximately six month
period from inception to October 31, 1999, and the balance sheet data as of
October 31, 1999 are derived from and are referenced to the audited financial
statements of MainStreet included elsewhere in this proxy statement/prospectus.
14
<PAGE>
MAINSTREET--SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD APRIL 12, 1999
(INCEPTION) TO
OCTOBER 31, 1999
---------------------
<S> <C>
Statement of Operations Data:............................. $ --
Sales
Expenses:
Payroll expense....................................... 104,999
Consulting fees....................................... 57,479
General and administrative expenses................... 127,631
---------
Net loss................................................ $(290,109)
=========
Net loss per common share............................... $ (.04)
=========
Balance Sheet Data:
Working capital......................................... $ 107,397
Total assets............................................ 285,378
Long-term debt.......................................... --
Total liabilities....................................... --
Stockholders' equity...................................... $ 285,378
</TABLE>
DCA
In the table below, we provide you with selected historical consolidated
financial data of DCA. DCA prepared this information using its audited
consolidated financial statements for each of the fiscal years in the five-year
period ended December 31, 1998, and its unaudited consolidated financial
statements for the nine-month periods ended September 30, 1999 and 1998.
When you read this selected historical consolidated financial information,
you should read along with it the financial statements and accompanying notes,
and "DCA--Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this document. The financial data
of DCA as of September 30, 1999 and for the nine months ended September 30, 1999
and 1998 have been derived from unaudited financial statements, which, in the
opinion of DCA's management, include all adjustments, consisting of only normal
recurring adjustments necessary for a fair statement of the results of the
unaudited interim periods. The results of operations of the interim periods are
not necessarily indicative of results that may be expected for a year.
15
<PAGE>
DCA--SELECTED HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997(1) 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues.................................... $4,454 $2,873 $4,004 $ 9,221 $4,137 $2,668 $2,201
Net (loss) income........................... (467) (211) (204) 1,993 (23) (167) 75
(Loss) earnings per share
Basic..................................... (.13) (.06) (.06) .56 (.01) (.07) .03
Diluted................................... (.13) (.06) (.06) .55 (.01) (.07) .03
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997(1) 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital............................. $4,851 $5,551 $5,115 $ 7,062 $4,529 $ 651 $ 187
Total assets................................ 8,973 8,958 9,349 11,638 7,522 3,972 6,847
Intercompany receivable from Medicore (non-
current portion) (2)...................... 30 121 3,134
Long term debt, net of current portion(3)... 648 623 633 693 585 152
Stockholders' equity........................ 7,461 7,809 7,771 8,049 6,000 2,569 5,899
</TABLE>
- ------------------------
(1) Reflects the sale of substantially all the assets of its Florida subsidiary,
Dialysis Services of Florida, Inc.--Fort Walton Beach ("DSF") and related
Florida dialysis operations, including the homecare operations of another
subsidiary, Dialysis Medical, Inc. ("DMI"), to Renal Care Group, Inc. and
its affiliates ("RCG") for $5,065,000 of which consideration of $4,585,000
was cash with the balance consisting of 13,873 shares of RCG common stock.
DCA owned 80% of DSF and DMI and on February 20, 1998 the 20% interest of
DSF owned by its former medical director and his 20% interest in DMI were
redeemed for approximately $625,000 of which sum included 6,936 shares of
the RCG common stock valued at $240,000 with the balance paid in cash. See
"DCA--Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 9 to "DCA--Notes to Consolidated Financial
Statements."
(2) $1,000,000 repaid by Medicore on October 4, 1995; approximately $3,134,000
reduction effected through $1.30 per share dividend in November, 1995. See
note (1) above and "DCA--Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(3) Includes advances from Medicore.
16
<PAGE>
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
The following statement is based upon the unaudited condensed balance sheets
of DCA as of September 30, 1999, and MainStreet as of October 31, 1999 appearing
elsewhere herein. CEO Letter is an inactive entity under common control with
MainStreet and had no assets, liabilities or equity as of October 31, 1999. This
statement has been prepared to show the effect of the approval of both Proposal
No. 1, the DCA Asset sale, and Proposal No. 2, the Merger on the exchange of
shares by stockholders of DCA for shares of MainStreet.
The following unaudited pro forma condensed consolidated balance sheets as
of September 30, 1999 have been prepared as if these transactions had occurred
on September 30, 1999 giving effect to the pro forma adjustments described
below. This statement should be read in conjunction with the historical and
other financial statements and notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
MAINSTREET PROFORMA
DCA AND ------------------------------
HISTORICAL CEO LETTER ADJUSTMENTS MAINSTREET(1)
---------- ---------- ----------- -------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
ASSETS
Current Assets................................. $5,713 $ 107 $(5,713)(A) $ 107
Property and Equipment......................... 3,237 35 (3,237)(A) 35
Other.......................................... 23 143 (23)(A) 143
------ ----- ------- -----
$8,973 $ 285 $(8,973) $ 285
====== ===== ======= =====
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities............................ $ 861 $ -- $ (861)(A) $ --
Non-Current Debt and Minority Interest......... 650 -- (650)(A) --
Stockholders' Equity:
Common stock................................. 35 8 (32)(A) 11
Additional paid-in capital................... 3,972 567 (3,975) 564
Retained earnings (deficit).................. 3,455 (290) (3,455) (290)
------ ----- ------- -----
$8,973 $ 285 $(8,973) $ 285
====== ===== ======= =====
Tangible Book Value Per Share.................. $ 2.10 $ .03
====== =====
</TABLE>
- ------------------------
(1) Assumes no DCA dissenting shareholders.
See notes to pro forma financial statements.
17
<PAGE>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
The following statement is based upon the unaudited condensed statements of
operations of DCA for the nine months ended September 30, 1999 and MainStreet
for the period from inception to October 31, 1999 appearing elsewhere herein.
CEO Letter was an inactive entity under common control with MainStreet and had
no operations for the period from inception to October 31, 1999. This statement
has been prepared to show the effect of the approval of both Proposal No. 1, the
DCA Asset sale, and Proposal No. 2, the Merger, on the exchange of shares by the
stockholders of DCA for shares of MainStreet.
The following unaudited pro forma condensed consolidated statements of
operations for the nine months ended September 30, 1999 have been prepared as if
these transactions had occurred on January 1, 1999 giving effect to the pro
forma adjustments described below. This pro forma statement of operations should
be read in conjunction with the historical and other financial statements and
notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
MAIN STREET PROFORMA
DCA AND ----------------------------
HISTORICAL CEO LETTER ADJUSTMENTS MAIN STREET
---------- ----------- ----------- -----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues........................................ $4,454 $ -- $(4,454)(A) $ --
------ ----- ------- ------
Costs and Expenses:
Cost of medical services...................... 2,931 -- (2,931)(A) --
Selling general and administrative............ 2,065 290 (2,065)(A) (290)
Interest...................................... 51 -- (51)(A) --
------ ----- ------- ------
5,047 290 (5,047) (290)
------ ----- ------- ------
Loss Before Income Tax Benefit.................. (593) (290) 593 (290)
Income Tax Benefit.............................. (126) -- (126)(A) --
------ ----- ------- ------
Net Loss........................................ $ (467) $(290) $ (467) $ (290)
====== ===== ======= ======
Basic and Diluted Net Loss Per Share............ $ (.13) $ (.03)(B)
======
</TABLE>
See notes to pro forma financial statements.
18
<PAGE>
NOTES TO PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<S> <C>
NOTE A -- As indicated in Proposal Nos. 1 and 2 elsewhere herein, DCA
proposes to sell all of its Assets subject to all of its
Liabilities to Dialysis Acquisition Corp., the Buyer, a
wholly- owned subsidiary of Medicore, DCA's parent, in
exchange for Medicore transferring to DCA 2,150,622 shares
(approximately 90%) of ownership, converting DCA into an
inactive company. For accounting purposes, this transaction
is considered a nonreciprocal, nonmonetary transaction with
its owners. Accordingly, no gain or loss has been
recognized. MainStreet's shareholders who own all of the
outstanding shares of CEO Letter will, upon completion of
the Merger, transfer all of the CEO Letter Shares to
MainStreet, for 250,000 shares of MainStreet (CEO Letter to
become a subsidiary of MainStreet), which will be accounted
for as a combination of entities under common control. The
Merger of MainStreet Acquisition Inc. into DCA with DCA as
the surviving legal entity will be reported, for accounting
purposes, as MainStreet being the acquirer of DCA (a then
inactive company) with MainStreet being recapitalized into
DCA's capital structure. DCA's remaining outstanding shares
will be deemed issued as of the date of the Merger.
Accordingly, there will be no continuity of DCA's prior
operations after the transaction. Future operations will
consist solely of MainStreet's current and CEO's planned
operations.
NOTE B -- Pro forma loss per share assumes that the shares outstanding
after the transactions described above had been outstanding
at the beginning of the period. No effect has been given to
options or warrants that will remain outstanding following
these transactions.
Loss per share in terms of MainStreet stock is the same as
loss per share of DCA, as the shares of MainStreet will be
issued to DCA shareholders on a one for one basis.
NOTE C -- Does not include the tax liabilities on the sale of DCA
Assets sold which, if they exceed $500,000, provides
MainStreet with the option of terminating the Merger.
NOTE D -- These statements assume that all shareholders approve the
transactions. In the event only the minimum assent to
consummate the transactions, DCA would be required to pay
approximately $3,200,000 (at the quoted market price on
February 3, 2000) and stockholders' equity of DCA would be
correspondingly reduced. The effect of MainStreet's
stockholders' equity, tangible book value per share and loss
per share would be insignificant.
NOTE E -- In connection with these transactions, Medicore waives all
of net proceeds from any exercise of (i) certain
Underwriters' Options for 100,000 shares of DCA common stock
and 200,000 DCA warrants, which if exercised in full would
aggregate $1,530,000 (no exercises to date), and
(ii) 2,300,000 DCA public warrants, which if exercised in
full would aggregate gross proceeds of $10,350,000, except
for 20% of such net proceeds up to $1,000,000, which would
be retained by Medicore.
</TABLE>
19
<PAGE>
RISK FACTORS
IN CONSIDERING WHETHER TO VOTE IN FAVOR OF PROPOSAL NO. 1, THE SALE OF THE
DCA ASSETS TO THE BUYER, MEDICORE'S WHOLLY-OWNED SUBSIDIARY, DIALYSIS
ACQUISITION CORP., AND WHETHER TO VOTE PROPOSAL NO. 2, TO HAVE MAINSTREET,
THROUGH ITS WHOLLY-OWNED SUBSIDIARY, MAINSTREET ACQUISITION INC., MERGE WITH
DCA, AND YOU TO RECEIVE SHARES OF MAINSTREET COMMON STOCK FOR YOUR DCA SHARES
AND BECOME A SECURITY HOLDER IN A NEW DEVELOPMENT STAGE INTERNET COMPANY, YOU
SHOULD CONSIDER ALL THE INFORMATION WE HAVE INCLUDED IN THIS DOCUMENT AND ITS
APPENDICES AND ALL THE INFORMATION INCLUDED IN THE DOCUMENTS WE HAVE
INCORPORATED BY REFERENCE IN THIS DOCUMENT. IN ADDITION, YOU SHOULD PAY
PARTICULAR ATTENTION TO THE FOLLOWING RISK FACTORS RELATING TO MAINSTREET, DCA,
AND THE MERGER. THESE FACTORS ARE IMPORTANT, AND WE HAVE NOT BEEN ABLE TO
QUANTIFY THEIR POTENTIAL EFFECTS ON DCA OR MAINSTREET THAT WILL RESULT FROM THE
DCA ASSET SALE AND THE MERGER.
MAINSTREET
WE ARE A START UP COMPANY WHICH COULD RESULT IN A TOTAL LOSS TO THE INVESTOR.
MainStreet was originally organized as a Delaware limited liability company
in April, 1999, and then converted to a Delaware corporation in October, 1999.
As such, we are a start up company with no operating history. To date we have
incurred operating losses as a result of expenditures for website design,
purchases of equipment, testing and, to a lesser extent, marketing. In addition,
we have incurred significant legal and accounting expenses. We anticipate that
our losses will continue for the near future. Additionally, we are faced with
the normal uncertainties that any startup company is confronted with.
Accordingly, an investment in MainStreet could possibly result in a total loss
to the investor. Holders of DCA common stock who exchange their shares for the
MainStreet common stock could possibly lose the value of their entire
investment.
WE ARE DEPENDENT ON THE MARKET FOR INITIAL PUBLIC OFFERINGS.
Our primary business will be to provide a venue (website) to enable
privately held corporations to offer their securities for sale in Direct Public
Offerings or underwritten offerings to the general public through the use of the
Internet. As such our business is sensitive to general economic conditions. Any
downturn in the economy could result either in corporations delaying or
canceling proposed public offerings or a general lack of interest in initial
public offerings ("IPOs") on the part of the investing public. Additionally, and
putting aside economic sanctions, there can be no assurance that we will even be
able to induce or attract qualified companies to use our website services. These
companies could decide to utilize the more traditional IPO methods, especially
the utilization of investment bankers and underwriters. Therefore, if we cannot
attract qualified companies, our revenue and earnings could be severely
impacted.
THE INTERNET FACES UNCERTAIN ACCEPTANCE AS A COMMERCIAL MEDIUM.
The success of our services will depend upon the adoption of the Internet by
issuers of securities and investors as a mainstream medium for public offerings.
While we believe that our services offer significant advantages to issuers and
investors, there can be no assurance that widespread acceptance of Internet
commerce in general, or of our services in particular, will occur. Our success
assumes that issuers and investors, who have historically relied upon
traditional means of securities offerings to offer and sell securities and to
invest in securities, will accept alternative methods of doing business. If the
market fails to develop for our services, our business, results of operations
and financial condition will be materially and adversely affected.
20
<PAGE>
CONFIDENTIAL INFORMATION TRANSMITTED VIA THE INTERNET MAY ENCOUNTER SECURITY
BREACHES AND SUBJECT US TO LIABILITIES.
We rely on technology licensed from third parties that is designed to
facilitate the secure transmission of confidential information. Nevertheless,
our infrastructure is potentially vulnerable to physical or electronic computer
break-ins, viruses and similar disruptive problems. A party who is able to
circumvent our security measures could misappropriate proprietary information,
jeopardize the confidential nature of information over the Internet or cause
interruptions in our operations. Concerns over the security of Internet
transactions and the privacy of users could also inhibit the growth of the
Internet generally, particularly as a means of conducting commercial
transactions. To the extent that our activities, or those of third party
contractors, involve the storage and transmission of proprietary information
(such as personal financial information), security breaches could expose us to a
risk of financial loss, litigation and other liabilities. We do not currently
maintain insurance to protect against such losses. Any such occurrence could
reduce consumer satisfaction in our services and would have a material adverse
effect on our business, results of operations and financial condition.
THERE IS NO ASSURANCE THAT A PUBLIC MARKET FOR OUR STOCK WILL DEVELOP.
While we are required to register our shares for inclusion on the Nasdaq
SmallCap Market, there can be no assurance that upon completion of the merger a
public market for our stock will develop. Consequently, our shareholders may
have to hold their shares indefinitely, or for a longer period of time than
anticipated. Moreover, even if an active market develops, the market price is
likely to be highly volatile and could be subject to wide fluctuations in
response to factors such as actual or anticipated variations in our revenues or
earnings, or releases of new information or other factors, such as competitive
pressures, economic conditions and regulatory changes.
WE MAY ISSUE ADDITIONAL SERIES OF SHARES WHICH MAY ADVERSELY AFFECT THE PRICE
AND THE RIGHTS OF OUR COMMON SHARES.
Certain provisions of our certificate of incorporation allow us to issue
more than one series of preferred shares, one or more of which may have rights
senior to those of the common shares without any further vote or action by the
current holders of the common shares and impose various procedural and other
requirements which could make it more difficult for holders of common shares to
effect certain corporate actions. Such provisions could limit the price that
certain investors might be willing to pay in the future for shares of our common
or preferred shares and may have the effect of delaying or preventing a change
in control of MainStreet. The issuance of a senior series of preferred shares
also could decrease the amount of earnings and assets available for distribution
to the holders of common shares or could adversely affect the rights and powers,
including voting rights, of the holders of the common shares.
WE MAY BE AFFECTED BY REGULATORY CHANGES AND GOVERNMENT REGULATION.
We operate in a highly regulated industry, the financial services industry.
There is presently little regulatory guidance for the type of business that we
contemplate operating. Although presently there is no specific regulatory
framework materially restricting our operations, in the future such operations
may be subject, both directly and indirectly, to various laws and regulations.
Due to the increasing popularity and use of the Internet, it is likely that a
number of laws and regulations may be adopted at the local, state, national or
international levels with respect to commerce over the Internet, potentially
covering issues such as the pricing of services and products, advertising, user
privacy, intellectual property, information security, or anti-competitive
practices. In addition, tax authorities in a number of states are currently
reviewing the appropriate tax treatment of companies engaged in Internet
commerce. Because our business is dependent on the Internet, the adoption of any
such laws or regulations may decrease the growth of internet usage or the
acceptance of Internet commerce which
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could, in turn, decrease the demand for our services and increase our costs or
otherwise have a material adverse effect on our business, results of operations
and financial condition.
WE ARE SUBJECT TO TECHNOLOGICAL CHANGES.
Website providers such as MainStreet are challenged by rapid changes in
technology. As such it will require us to maintain our technical competence to
effectively offer services to our clients as well as to effectively compete with
other companies which may enter the same business as MainStreet. There can be no
assurance that we will be successful in dealing with technological changes. This
could result in our inability to attract new clients, which in turn could have a
material adverse effect on our financial condition, as well as our future
operating results.
WE MUST ESTABLISH BRAND AND IDENTITY.
Our business will be greatly dependent on our ability to establish identity
with both issuers seeking to effect Direct Public Offerings as well as with the
investing public. We will therefore be required to expend significant amounts
for advertising, marketing and brand identification. If our campaign is
unsuccessful or if we incur excessive expenses, our business and operating
results as well as our financial condition could be negatively impacted.
Additionally, while we are attempting to enter into strategic alliances with
existing.com enterprises which would advertise our services to their user base,
there is no assurance that we will be successful.
WE ARE FACED WITH SIGNIFICANT COMPETITION.
We are faced with significant competition at various distinct levels. First,
there are already existing brokerages such as E*TRADE, Charles Schwab & Co.,
DLJDIRECT (a Donaldson Lufkin and Jenrette company) and Wit Capital Corp. which
offer IPOs over the Internet. These brokerages are able to attract qualified
companies as well as a broad investor base. These brokerages do not use the
Dutch Auction process. We will have to compete with these brokerages which have
far greater financial resources than we do and which are better established than
we are. Additionally, there is nothing to prevent other companies from entering
the same business as ours. At the present time, there is also at least one other
brokerage, W. R. Hambrecht and Company ("Hambrecht"), offering IPOs over the
Internet and utilizing the Dutch Auction process. To some extent, it differs
from MainStreet in that Hambrecht is acting as an underwriter and has certain
threshold requirements before a customer may purchase an IPO, but it still
represents competition. Moreover, there is a likelihood that other brokerages
may emulate Hambrecht's business or copy our business. We will also have to
compete with corporations who will do self-underwritings on their own websites.
All of the foregoing presents significant competitive pressure on MainStreet and
could materially affect our operational results in the future.
WE FACE THE RISK OF POTENTIAL SYSTEM FAILURE SUBJECTING US TO LITIGATION AND
LIABILITIES.
While we have performed testing which indicates that our system (both
hardware and software) will function at the highest level of availability in the
industry (i.e., that the website will be fully available and operational 99.9%
of the time), it is possible that we may encounter system breakdowns and/or
power failures which could affect the ability of users to access our servers.
Our standard contract provides that if the system is not operational for more
than 48 consecutive hours, then an issuer who is then currently offering its
securities may withdraw the offering and receive a return of any payments to us.
Any such breakdowns could likewise affect our reputation and ability to attract
new business. In addition, system failures could subject our company to
litigation and substantial liabilities.
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WE FACE THE RISK OF LESS THAN FULL PAYMENT.
Our website services agreement provides for a fee divided into two separate
payments. The initial payment is due at the time of execution of our standard
contract. The balance is due upon the closing of the offering. If the offering
is successful the installment will automatically be deducted from the proceeds
due the issuer. In those cases where the offering is not successful payment is
due from the issuer within 30 days after the end of its public offering. It is
possible that clients who have not had successful offerings might attempt to
avoid or delay payment. We may therefore be required to initiate collection
proceedings which could be time consuming and costly. In the event we encounter
multiple non-payments, such occurrences could negatively impact our financial
condition.
WE WILL OPERATE IN A NEW MARKET AND ARE UNCERTAIN OF OUR ACCEPTANCE.
The market in which we intend to operate, that is, electronic commerce, is
still new and developing. We are uncertain of the level of acceptance of online
self underwritten IPOs by the general investing public. Should the growth of
electronic commerce suddenly stagnate or if on-line self underwritings are not
met with general acceptance, these occurrences could adversely impact our
operational results and financial condition.
WE MAY NOT BE ABLE TO MEET THE NEED FOR SIGNIFICANT ADDITIONAL CAPITAL.
We may need to raise significant additional capital for future liquidity,
capital requirements and possible future acquisitions. Such funding may be
available only in part, or not at all, or on terms adverse to us. Further, we
may have to sell stock which would lead to dilution of our shareholders'
interests, or we may have to sell stock or debt with rights superior to that of
holders of our common stock. If we are unable to raise additional capital, this
may curtail our growth and expansion into other Internet sectors or could impact
our ability to remain in business.
OUR MANAGEMENT HAS LIMITED EXPERIENCE.
Our management has no experience in establishing and operating Internet
websites. As such, management is dependent upon independent contractors with
whom we have contracted to provide the technical support necessary to manage,
upgrade and maintain the website and its functionality. While we believe that
our technical support independent contractors have the experience and ability to
fulfill their contractual obligations, their potential inability to do so would
result in injury and damage to our reputation, which could impact our future
viability. In addition, management has had no in-depth experience in operating a
business and therefore may not be able to meet the challenges that may arise. As
such, we may have to employ professional management to assist in expanding our
efforts and operations and to assist in effectively managing our growth. There
can be no assurance that we will be able to attract such competent personnel or
that we will have sufficient capital to hire such personnel.
WE MAY NEED TO EXPAND OUR BUSINESS.
The revenues we generate from the use of the MainStreet website by corporate
issuers and the use of the CEO Letter website may not be sufficient to sustain
our operations. Therefore, we intend to supplement our revenues by offering to
sell the services and products of those companies that contract to use our
websites. For such services, we intend to charge a commission or fee based upon
sales. There can be no assurance that we will be able to attract companies to
use our services, since there are already existing e-commerce businesses that
offer products and services of other companies. These e-commerce businesses are
much better established than we are and have far greater resources than we do.
Additionally, there can be no assurance that we will be successful in selling
the services and/or products of our clients.
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WE HAVE NO PROTECTION FOR OUR TECHNOLOGY.
The technology we use is available to anyone. The only safeguards are
contractual restrictions we place on our employees through non-disclosure and
development agreements. Therefore, there can be no assurance that such
agreements will provide meaningful protection of our proprietary information.
Further, we would have no legal recourse to prevent any other company from
establishing a website similar to ours and engaging in the same business.
DIVIDENDS ARE NOT LIKELY TO BE PAID TO OUR SHAREHOLDERS.
For the foreseeable future, it is anticipated that any earnings which may be
generated from our operations will be used to finance our growth, and cash
dividends will not be paid to holders of our equity.
DCA
BECAUSE WE HAVE EXPERIENCED LOSSES AND EXPECT OUR EXPENSES TO INCREASE, WE MAY
NOT BE ABLE TO ACHIEVE PROFITABILITY IN THE NEAR FUTURE
Since 1989, at which time we sold four of five dialysis centers we owned at
that time, we have experienced operational losses. We initiated an expansion
program in 1995, opening five dialysis centers through 1999, with the sixth new
center recently opened in New Jersey. However, some of these centers are in the
developmental stage and generate losses for at least 12 months, as has been our
experience with newly established dialysis facilities. This is due to
operational costs and time needed to reach full capacity of dialysis treatments.
Even though construction of new dialysis centers may generate greater revenues,
until their patient bases increase toward a fuller capacity, we may not show
profitable operations.
OUR DIALYSIS OPERATIONS ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION.
Our dialysis operations are subject to extensive federal and state
government regulations which include:
- false claims prohibitions for health care reimbursement
- patient referral prohibitions
- licensing requirements for each dialysis facility
- record keeping requirements
- health, safety and environmental compliance
Many of these laws and regulations are complex and open to differing
interpretations. Due to the extensive federal and state regulations and the
absence of court cases or government interpretations of these regulations,
certain of our practices in organization and providing of dialysis services may
be challenged. If we are forced to change our method of operations because of
these regulations, our earnings, financial condition and business might be
adversely affected. In addition, any violation of these governmental regulations
could involve substantial civil and criminal penalties and fines, and exclusion
from participating in Medicare and Medicaid programs. Any loss of federal or
state certifications or licenses would also adversely impact our business.
Neither our arrangements with the medical directors of our facilities nor
the minority ownership interests of referring physicians in certain of our
dialysis facilities meet all of the requirements of published safe harbors to
the illegal remuneration provisions of the Social Security Act and similar state
laws. These laws impose civil and criminal sanctions on persons who receive or
make payments for referring a patient for treatment that is paid for in whole or
in part by Medicare, Medicaid or
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similar state programs. Transactions that do not fall within the safe harbor may
be subject to greater scrutiny by enforcement agencies.
OUR REVENUES AND FINANCIAL STABILITY ARE DEPENDENT ON FIXED REIMBURSEMENT RATES
UNDER MEDICARE AND MEDICAID.
Approximately 74% of our patient revenues for the last two years were
derived from Medicare reimbursement. Decreases in the Medicare and Medicaid
rates and programs for our dialysis treatments would adversely affect our
revenues and opportunities for profitability and would increase our operating
losses. Furthermore, operating costs tend to increase over the years without any
comparable increase in the prescribed dialysis treatment rates, which remain
fixed and have decreased over the years.
We also administer an anemia drug, EPO, to most of our dialysis patients.
The reimbursement rate for this drug has been reduced over the last several
years.
OUR ABILITY TO GROW IS SUBJECT TO OUR RESOURCES AND AVAILABLE LOCATIONS.
To date, expansion of our operations has been through construction of
dialysis facilities rather than acquisition. This is due to the substantial
costs involved in an acquisition. We are a small company with limited resources.
Therefore, we look for areas with qualified and cost-effective nursing and
technical personnel, with a sufficient population to sustain a dialysis
facility. These opportunities are limited and we compete with much larger
dialysis companies for appropriate locations. Construction through commencement
of operations generally takes four to six months and sometimes longer. Once the
facility is operable, it generates revenues, but usually does not operate at
full capacity, thereby generating losses for up to approximately a 12 month
period. Our growth strategy based on construction also provides the risks of our
inability to identify suitable locations to develop additional facilities. Those
we do develop may never achieve profitability, and additional financing may not
be available to finance future development.
Our inability to acquire or develop facilities in a cost-effective manner
could adversely affect our ability to expand our business and our attempts to
generate operating profits, which we have not had over the last several years.
Growth places significant demands on our financial and management skills.
Inability on our behalf to meet the challenges of expansion and to manage any
such growth could have an adverse effect on our management, results of
operations and financial condition.
OUR ATTEMPT TO EXPAND THROUGH DEVELOPMENT OR ACQUISITION OF DIALYSIS FACILITIES
WHICH ARE NOT CURRENTLY IDENTIFIED MAY ENTAIL RISKS WHICH YOU WILL NOT HAVE A
BASIS TO EVALUATE.
We expand generally through seeking an appropriate location considering the
patient base, availability of a physician nephrologist to be our medical
director, and a skilled work force. Construction and equipment costs for a new
dialysis facility range from $600,000 to $750,000. The cost of acquiring a
center is usually much greater. We cannot assure you we will be successful in
effecting any acquisitions or developing dialysis facilities, or otherwise
successfully expanding our operations. We are negotiating with certain
nephrologists to establish new dialysis centers, but we cannot assure you these
negotiations will result in the development of new centers. Furthermore, even if
we continue in such development expansion, there is no basis for you to evaluate
the specific merits or risks of any potential acquisition or development of
dialysis facilities and locations that we may undertake.
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WE ARE DEPENDENT ON PHYSICIAN REFERRALS FOR PATIENTS.
Our dialysis facilities and those centers we seek to develop are dependent
upon referrals of end stage renal disease ("ESRD") patients for treatment by
physicians specializing in nephrology. Generally, the nephrologist or medical
professional association of physicians supervising a particular dialysis
center's operations, known as a medical director of that facility, account for
most of the patient base. The loss of these key referring physicians at a
particular center could have a material adverse effect on the operations of the
center and could adversely affect our operations.
Some of the referring physicians own minority interests in certain of our
dialysis facilities. If these interests are deemed to violate applicable federal
or state law, these physicians may be forced to dispose of their ownership
interests. We are unable to predict how this would affect our relationship with
these referring physicians, which could have an adverse effect on our business.
INDUSTRY CHANGES COULD ADVERSELY AFFECT OUR BUSINESS.
The healthcare industry is in a period of change and uncertainty. Healthcare
organizations, public and private, continue to change the manner in which they
operate and pay for services. Our business is designed to function within the
current healthcare financing and reimbursement system. In recent years, the
healthcare industry has been subject to increasing levels of government
regulation of reimbursement rates and capital expenditures, among other things.
In addition, proposals to reform the healthcare system have been considered by
Congress, and still remain a priority issue. Any new legislative initiatives, if
enacted, may further increase government regulation of or other involvement in
healthcare, lower reimbursement rates and otherwise change the operating
environment for healthcare companies. We cannot predict the likelihood of those
events or what impact they may have on our earnings, financial condition or
business.
OUR BUSINESS IS SUBJECT TO SUBSTANTIAL COMPETITION.
We are operating in a very competitive environment in terms of both
operations and acquisitions of existing dialysis centers. Our competition comes
from other dialysis centers, many of which are owned by much larger companies,
and from hospitals. The dialysis industry is rapidly consolidating. There are
some very large dialysis companies competing for the acquisition of existing
dialysis centers and the development of relationships with referring physicians.
Many of our competitors have much greater financial resources and more effective
operations, dialysis facilities and patient base.
We experience competition from physicians who open their own dialysis
facilities. Competition for existing centers has increased the costs of
acquiring such facilities. Competition is also intense for qualified nursing and
technical staff as well as for nephrologists with an adequate patient base.
Management can provide no assurance our company can compete effectively.
MEDICORE, OUR PARENT, WHICH OWNS 68% OF OUR COMPANY, HAS SOME COMMON OFFICERS
AND DIRECTORS, WHICH PRESENTS THE POTENTIAL FOR CONFLICTS OF INTEREST.
Medicore owns 68% of our company, and is able to elect all of our directors
and otherwise control our management and operations. Assuming all of our public
warrants are exercised, Medicore would have a 41% interest in our company. That
is a large enough percentage, although not mathematically a majority, to provide
Medicore with continued control of our management and operations. Such control
is also complemented with the fact that Thomas K. Langbein is Chairman of the
Board and Chief Executive Officer of both our company and Medicore, of which
company he is also the President, and Daniel R. Ouzts is Vice President and
Treasurer of both companies. Neither Mr. Langbein nor Mr. Ouzts devotes full
time to our management. In addition, certain other accounting personnel and
administrative facilities of our operations and Medicore are common. The costs
of executive and accounting salaries and other shared corporate overhead for
these companies are charged first on the
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basis of direct usage when identifiable, with the remainder allocated on the
basis of time spent. Expenses charged by Medicore to our company amounted to
approximately $150,000 for the nine months ended September 30, 1999 and $240,000
for each of the years ended December 31, 1998 and 1997.
Additionally, there have been past and there are current transactions
between our company and Medicore and their directors, including loans and
insurance coverage. We have been advancing funds to Medicore for working capital
requirements. As a net result of cash transfers and corporate overhead
allocations, there was an intercompany indebtedness due to us from Medicore of
approximately $37,000 at September 30, 1999 and approximately $121,000 at
December 31, 1998. This is part of the DCA Assets being sold to Buyer. See
"Proposal No. 1, The Asset Purchase Agreement."
Since Medicore has a majority interest in our company, there exists the
potential for conflicts between Medicore and us, and the responsibilities of our
management to our shareholders may conflict with the responsibilities owed by
management of Medicore to its shareholders. We cannot provide any assurance that
any further conflicts of interest will be resolved in our favor.
THERE IS A POSSIBILITY OF CONTINUED VOLATILITY IN OUR SECURITY PRICE.
Our common stock and warrants trade on the Nasdaq SmallCap Market. Over the
years the market price of our common stock has been as high as $6.88 in the
fourth quarter of 1999 to as low as $.56 in the fourth quarter of 1998 and the
second quarter of 1999. Similarly, the market prices for our warrants ranged
from a high of $2.88 in the fourth quarter of 1999 to a low of $.06 in the
fourth quarter of 1998. On February 4, 2000, the closing price of the common
stock was $6.31 and the closing price of the warrants was $1.47. The market
price of our common stock and warrants could fluctuate substantially based upon
announcements concerning our company, such as the Merger and sale of our Assets,
operating results, government regulatory changes, technological innovations, or
information concerning our competitors.
In addition, security prices fluctuate widely for reasons unrelated to
operations, usually general political, and worldwide and domestic economic
conditions, and the stock market's reaction. These fluctuations coupled with
reduced demand for our dialysis services or reimbursement rates could adversely
affect the market price of our common stock and public warrants.
WARRANTHOLDERS IN JURISDICTIONS WHERE WE ARE UNABLE TO REGISTER OR OTHERWISE
QUALIFY THE COMMON STOCK FOR SALE WILL BE UNABLE TO EXERCISE THEIR WARRANTS AND
ACQUIRE OUR COMMON STOCK.
Our warrants were originally sold in a 1996 underwritten public offering of
common stock and warrants. At that time the warrants and common stock issuable
upon their exercise were registered or otherwise qualified in approximately 12
states. The warrants presently trade on the Nasdaq SmallCap Market and are owned
by persons located in approximately 30 states and Washington, D.C. We have
registered or qualified the common stock issuable upon, or there is otherwise an
exemption from registration for, exercise of the warrants in approximately 70%
of the jurisdictions where we have warrantholders. You should understand the
warrants trade, and this results in different amounts of warrants held by
warrantholders in different states. We cannot give assurance we will be able to
register or qualify the common stock in all the states in which there are
warrantholders. In such event, warrantholders in those jurisdictions in which we
do not or otherwise are not able to register or qualify our common stock will
not be able to exercise their warrants.
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DCA/MAINSTREET COMMON RISK FACTORS
FAILURE OR DELAY IN ACHIEVING THE EXPECTED BENEFIT OF THE MERGER.
The purpose of the DCA Asset sale and the Merger is to provide an
opportunity for the DCA shareholders to have the opportunity to possibly realize
greater and more rapid shareholder value by replacing the dialysis operations,
which have experienced slow and sporadic growth with respect to additional
dialysis facilities and revenues and continued losses since 1989, with the
current burgeoning Internet market in which MainStreet intends to participate.
However, MainStreet's operations are prospective with no operating history and
with all the risks of a new venture. The proposed operations of MainStreet are
expectations, are forward-looking and are inherently uncertain. Therefore, you
should not unduly rely on our or MainStreet's estimates and/or optimism as to
MainStreet's proposed operations and possible faster growth and increased
shareholder value, which, in fact, may not be realized. Unforeseen costs,
expenses and delays in MainStreet developing its operations, increased
competition from those companies already operating in similar Internet
securities offerings, and changing and new legislation and regulations may not
only delay the implementation of MainStreet's proposed operations, but may
seriously limit or otherwise restrict its proposed operations, which could
seriously affect MainStreet's revenues, financial condition and results of
operations.
INTERESTS OF CERTAIN PERSONS IN THE MERGER.
In considering the approval of the board of directors of DCA, Medicore and
MainStreet of the DCA Asset sale and the Merger, and the related agreements, you
should be aware that certain officers and directors of DCA, Medicore and
MainStreet may have interests that are different from, or in addition to, your
interests as a DCA shareholder. An agreement among Todd, Thomas K. Langbein, its
owner and principal, MainStreet, and two officers and directors of MainStreet,
Joseph Salvani, Chairman, CEO and President (also holding those positions with
CEO Letter), and Ralph DeLuca, Vice President of MainStreet, provides for
Messrs. Salvani and DeLuca to recommend MainStreet clients which contract with
MainStreet to use the Internet for their direct public offerings, to the
investment banking services of Todd in connection with any public securities
offerings, and if such clients already have an investment banking firm, to
recommend Todd as a member of the selling dealer group. With respect to any such
introduced business by Messrs. Salvani and DeLuca, Todd would earn 10% of the
gross proceeds plus expenses, with the balance to be divided equally among Todd,
Salvani and DeLuca, provided such fee sharing is not in violation of NASD
regulations. As such, MainStreet would not receive any of such proceeds.
Mr. Langbein is also the Chairman and CEO of DCA and Medicore, and President of
the latter company, and an approximately 8% shareholder of MainStreet, an
approximately 7% beneficial owner (holds an option for 260,000 shares) of DCA,
and an approximately 17% shareholder of Medicore. The board of directors of DCA,
Medicore and MainStreet considered these interests together with other relevant
factors in deciding to approve the Merger, and submit them to you for approval.
Recently, Medicore acquired a 6% interest in and loaned $1,500,000 to a private
company, the Linux Fund, which invests in Linux software companies.
Mr. Langbein became a director of that company, and Medicore borrowed the funds
for the loan from DCA. The companies in which the Linux Fund invests may effect
public offerings of their shares over a website of The Linux Fund IPO.com, which
is 50% owned by MainStreet. See "The Merger--Interests of Certain Persons in
Matters to be Acted Upon."
SUBSTANTIAL MARKET OVERHANG FROM OUTSTANDING OPTIONS AND WARRANTS COULD
ADVERSELY AFFECT THE MARKET PRICE OF DCA AND ULTIMATELY MAINSTREET COMMON STOCK.
DCA has the following options and warrants outstanding:
- 1995 Options--9,500 options of which 4,500 options are exercisable through
November 9, 2000 at $1.50 per share, and 5,000 options are exercisable
through June 9, 2003 at $2.25 per share; there are 250,000 shares reserved
under the 1995 Plan.
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- 1999 Options--800,000 options (incentive and non-qualified) granted under
a 1999 Stock Option Plan exercisable at $1.25 per share, of which 365,000
options are exercisable through April 20, 2000 and 435,000 options are
exercisable through April 20, 2004.
- Former Underwriters' Options--300,000 options and warrants exercisable
through April 17, 2001 of which 100,000 are exercisable into common stock
at $4.50 per share and 200,000 are exercisable into warrants which may be
exercised for common stock at $5.40 per share.
- 2,300,000 publicly traded warrants exercisable through March 31, 2000 (may
be extended) at $4.50 per share.
Total shares of common stock issuable upon exercise of outstanding options
and warrants is 3,409,500 shares. The 1995 and 1999 options were granted over
the years at the then fair market value of the common stock to officers,
directors, employees, consultants and advisors of DCA, including certain of
Medicore's officers and directors. The 300,000 shares of DCA common stock
issuable under the Underwriters' Options have been registered for resale by the
former underwriters of our 1996 public offering of common stock and warrants and
their transferees.
Our Public Float is a little in excess of 1,060,000 shares of common stock.
See "Summary of Beneficial Ownership and DCA Minority Public Interest Table."
Upon completion of the Merger, the new company, MainStreet, shall have
approximately 10,845,000 (approximately 13,445,000 if all of our warrants and
options are exercised) outstanding shares, but the Public Float will be the same
as will the options and warrants (provided they will be exercisable into shares
of MainStreet). Holders of options and warrants are likely to exercise them at
such time as the market price exceeds the exercise price of the options and
warrants. Accordingly, if the market price of the common stock starts to rise,
the holders may most likely exercise their warrants and options, and the sale of
such common stock into the market could have an adverse effect on the market
price of DCA common stock if prior to the Merger and upon MainStreet upon
completion of the Merger. In fact, the mere potential of such sales could have
an adverse impact on the current market prices of our securities. In addition,
this proxy statement/prospectus includes the registration of an additional
3,419,027 shares of MainStreet common stock for resale by affiliates of DCA and
investors of MainStreet (see "Selling Shareholders"), which may also
substantially increase the market overhang and provide impact on the market
prices of the MainStreet common stock.
POSSIBLE DELISTING AND RISKS OF LOW PRICED STOCKS.
Our common stock and public warrants trade on the Nasdaq SmallCap Market,
and one of the conditions to the Merger is that MainStreet has to qualify for
and have its securities listed and trade on the Nasdaq SmallCap Market. There
are certain criteria for continued listing on the Nasdaq SmallCap Market, known
as maintenance requirements. Failure to satisfy any one of these maintenance
listing requirements could result in our securities being delisted whether or
not the Merger is completed, and if completed, could result in MainStreet's
securities being delisted from the Nasdaq SmallCap Market. These criteria
include two active market makers, maintenance of $2,000,000 of net tangible
assets (or a market capitalization of $35,000,000 or a net income of $500,000
for the company's most recently completed fiscal year or in two of the last
three most recently completed fiscal years), a minimum bid price for the common
stock of $1.00, and at least 500,000 publicly held shares, among others.
Usually, if a deficiency occurs for a period of 30 consecutive business days,
the particular company is notified by Nasdaq and has 90 days to achieve
compliance. If the company is unable to demonstrate compliance, the security is
subject to delisting. The security might be able to trade on the bulletin board,
a lower level trading market which may not provide the same visibility for the
company or liquidity for its securities, as does the Nasdaq SmallCap Market. As
a consequence, an investor may find it more difficult to dispose of or obtain
prompt quotations as to the price of the securities, and may be exposed to a
risk of decline in the market price of the common stock and public warrants.
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In December, 1998, DCA received notification from the Nasdaq Listing
Qualification Department of the Nasdaq Stock Market that our common stock failed
to maintain a closing bid price greater than or equal to $1.00. This situation
dealing with the trading market was beyond our control. Nevertheless, within the
90-day period from Nasdaq's notification, our securities traded for the required
period in excess of $1.00 and we maintained our Nasdaq SmallCap Market listing.
However, there can be no assurance that some other listing maintenance criteria
will not become deficient, whether within or beyond our control, and without a
timely cure, could cause our or MainStreet's securities to be delisted from the
Nasdaq SmallCap Market.
YEAR 2000 READINESS
DCA had evaluated its computerized systems and equipment, communicated with
its major vendors, and believed it had made its operations Year 2000 compliant.
At the millenium change we experienced no problems. One of the more significant
risks in DCA's operations with respect to the millenium change related to
billing and collection from third-party payors, and in particular Medicare,
since DCA receives approximately 74% of its revenues from Medicare for treatment
of dialysis patients and related services. In 1998, DCA installed a new
electronic billing software program developed in accordance with Medicare's
compliance guidelines, which has been used successfully.
Our critical suppliers have not had a millenium problem and there has been
no limit, delay or other inability to deliver supplies for patient treatment.
However, we have identified other sources of supplies and requested major
suppliers to carry more inventory earmarked for us.
Another area that could have significantly impacted our operations in
providing dialysis treatment to patients, which did not occur, related to
third-party providers, specifically, the utility companies providing water, a
necessary resource for dialysis treatments, and electricity. These providers and
services are beyond our control. Although we do not have separate generators for
electricity nor other sources for water, these utilities did not fail to provide
services. Nevertheless, we have continuing plans to reduce the impact of any
such utility shortages or outages which include notification to our utilities
companies of our dialysis center locations, schedules and emergency services
required and a 24-hour contact as well as notification to each of our landlords
to assure access to the facility for our staff and key service providers.
MainStreet has recently established its Internet systems which have been
tested to be Year 2000 compliant. MainStreet's proposed business is largely
dependent on its ability to conduct its operations through the Internet. Its
most significant area of exposure related to third parties such as other
Internet interconnected systems, third party computers, and the telephone
systems. There have been no known significant disruptions of such computer
infrastructure caused by the millenium change. However, with any new operations
and systems, there are risks that MainStreet's programs and systems will not
accomplish all they are supposed to accomplish.
We and MainStreet have not experienced any material unanticipated negative
consequences beginning in the Year 2000. We and MainStreet believe our
assessments were accurate and our implementation of the Year 2000 issues have
been satisfactorily completed. With respect to DCA, we have experienced
continual and uninterrupted dialysis operations since the millenium change.
However, we have only just entered the new millenium, and there may yet arise
Year 2000 problems of which we are not aware. Those unknowns do not allow us the
ability to predict with any significant accuracy or to qualify year 2000 issues'
impact upon us or MainStreet, since they would involve third party systems
beyond our control, and uncertainty of costs we might incur as a result of these
unknown Year 2000 failures that might yet occur despite what we believe to be
the successful implementation of our Year 2000 programs.
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THE SPECIAL MEETING
GENERAL
THIS PROXY STATEMENT/PROSPECTUS IS BEING FURNISHED TO YOU AS A DCA
SHAREHOLDER AS PART OF OUR SOLICITATION OF PROXIES BY THE DCA BOARD OF DIRECTORS
FOR USE AT A SPECIAL MEETING OF THE DCA MINORITY SHAREHOLDERS (EXCLUSIVE OF ANY
VOTING BY MEDICORE OF ITS 68% AND BY THE AFFILIATES OF DCA AND MEDICORE OF THEIR
2% (18% IF ALL THEIR OPTIONS AND WARRANTS ARE EXERCISED) EQUITY OWNERSHIP OF
DCA).
DATE, TIME AND PLACE
We will hold the Special Meeting at the Hilton, 650 Terrace Ave, Hasbrouck
Heights, New Jersey 07604, The Room, at 10 a.m. local time, ,
2000.
PURPOSE
At the Special Meeting, we are asking you:
Proposal No. 1. To consider and approve the proposed Asset Purchase
Agreement for the sale of the DCA Assets to Buyer, Dialysis Acquisition Corp., a
wholly-owned subsidiary of Medicore. See page 33.
Proposal No. 2. To consider and approve the proposed Merger Agreement and
the Merger (see pages 34 and 47).
The board of directors has unanimously approved the Transactions as provided
in Proposal Nos. 1 and 2, but is making no recommendation to DCA Minority Public
Shareholders. See "No Recommendation by DCA and No Voting by Medicore and
Directors and Officers" below.
PLEASE NOTE THAT EACH OF PROPOSAL NO. 1 (DCA ASSET SALE) AND PROPOSAL NO. 2
(MERGER) MUST BE APPROVED BY DCA MINORITY PUBLIC SHAREHOLDERS TO BE COMPLETED.
APPROVAL OF ONLY ONE OF THE PROPOSALS WILL DEFEAT BOTH AND THERE WILL BE NO DCA
ASSET SALE OR MERGER.
We do not expect that any matter other than Proposal Nos. 1 and 2 will be
brought before the Special Meeting. Pursuant to our by-laws, business that may
be conducted at the Special Meeting is confined to that referenced in the Notice
of Special Meeting of Shareholders that accompanies this proxy
statement/prospectus. If consideration of a motion to adjourn the Special
Meeting to another time or place (including for the purpose of submitting
additional proxies or allowing additional time for the satisfaction of
conditions of the DCA Asset sale or Merger) the persons named in the enclosed
form of proxy and acting thereunder generally will have discretion to vote on
these matters in accordance with their judgment.
RECORD DATE; SHARES ENTITLED TO VOTE; QUORUM
Only holders of record of DCA common stock of the close of business on
, 2000, the record date, are entitled to notice of and to vote at
the Special Meeting. On the record date 3,546,344 shares of DCA common stock
were issued and outstanding and held by approximately holders of records and
by approximately beneficial owners. The number of shares which will vote at
the Special Meeting is 1,060,222 shares which represents the Minority Public
Interest, the outstanding shares less Medicore's 2,410,622 share ownership and
the Affiliates' 75,500 share ownership (763,500 shares if they exercise all of
their options and warrants), which shares are not being voted. A quorum is
present at the Special Meeting if the majority of the Minority Public Interest
entitled to vote on the record date are represented in person or by proxy. In
the event the quorum is not present at the Special Meeting, it is expected that
the Special Meeting will be adjourned or postponed to solicit additional
persons. Holders of the Minority Public Interest on the record date are entitled
to one vote per share at the Special Meeting on the proposals to adopt the Asset
Purchase Agreement and the Merger. Each of the
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proposals relating to the DCA Asset sale and the Merger has to be approved
before the proposed Transactions may be completed. A DEFEAT OF EITHER PROPOSAL
WILL DEFEAT ALL THE TRANSACTIONS.
VOTE REQUIRED
The adoption of the DCA Asset sale and the Merger require the affirmative
vote of a majority (530,112 shares) of the Minority Public Interest of DCA
common stock outstanding on the record date. IF YOU, AS DCA MINORITY PUBLIC
SHAREHOLDER, ABSTAIN FROM VOTING OR DO NOT VOTE, IN PERSON OR BY PROXY, IT WILL
HAVE THE EFFECT OF A VOTE AGAINST ADOPTION OF THE DCA ASSET SALE AND THE MERGER.
NO RECOMMENDATION BY DCA AND NO VOTING BY MEDICORE AND DIRECTORS AND OFFICERS
Although the DCA board of directors unanimously approved the Asset Purchase
Agreement and the Merger Agreement, by virtue of the nature of the Transactions
which involve its parent and the interests in these matters to be acted upon and
the related transactions by Thomas K. Langbein, Chairman and CEO of DCA and
Medicore and President of Medicore, and the commonality of certain officers and
directors of DCA and Medicore, the DCA board is remaining neutral and not making
any recommendation as to how the DCA Minority Public Shareholders should vote on
either Proposal Nos. 1 or 2. The DCA board of directors wants the DCA Minority
Public Shareholders to make their own independent evaluation and determination
as to whether they wish to continue as a shareholder of our company, or would
rather become a shareholder in a newly formed company which is currently in the
developmental stage.
Neither Medicore, with its 68% ownership interest in DCA, nor the Affiliates
of DCA and Medicore with their approximately 2% ownership interest
(approximately 18% if they exercise all of their DCA options and warrants), will
vote their DCA common stock, leaving the approval of the proposed DCA Asset sale
and Merger solely up to the DCA Minority Public Shareholders.
VOTING OF PROXIES
All shares represented by properly executed proxies received in time for the
Special Meeting will be voted at the Special Meeting in the manner specified by
the holders. Properly executed proxies that do not contain voting instructions
will be voted "FOR" adoption of the Asset Purchase Agreement and the Merger
Agreement.
Shares of DCA common stock represented at the Special Meeting but not voting
(other than Medicore's 68% and the Affiliates' 2% ownership), including shares
of DCA common stock for which proxies have been received but for which holders
of shares have abstained, will be treated as present at the Special Meeting for
purposes of determining the presence or absence of a quorum for the transaction
of all business.
ONLY SHARES AFFIRMATIVELY VOTED FOR ADOPTION OF THE ASSET PURCHASE AND
MERGER AGREEMENTS, INCLUDING PROPERLY EXECUTED PROXIES THAT DO NOT CONTAIN
VOTING INSTRUCTIONS, WILL BE COUNTED AS FAVORABLE VOTES FOR PROPOSAL NOS. 1 AND
2. IF A DCA SHAREHOLDER ABSTAINS FROM VOTING OR DOES NOT VOTE, EITHER IN PERSON
OR BY PROXY, IT WILL COUNT AS IF THAT DCA SHAREHOLDER HAD VOTED AGAINST ADOPTION
OF PROPOSAL NO. 1, THE ASSET PURCHASE AGREEMENT, AND PROPOSAL NO. 2, THE MERGER
AGREEMENT. BROKERS WHO HOLD SHARES OF DCA COMMON STOCK IN STREET NAME FOR
CUSTOMERS WHO ARE THE BENEFICIAL OWNERS OF SUCH SHARES MAY NOT GIVE A PROXY TO
VOTE THOSE CUSTOMERS' SHARES IN THE ABSENCE OF SPECIFIC INSTRUCTIONS FROM THOSE
CUSTOMERS. ANY SUCH NON-VOTED SHARES ARE REFERRED TO AS BROKER NON-VOTES AND
HAVE THE EFFECT OF VOTES AGAINST ADOPTION OF THE ASSET PURCHASE AND MERGER
AGREEMENTS.
If you would like to attend the Special Meeting and your shares are held by
a broker, bank or other nominee, you must bring to the Special Meeting a copy of
your brokerage account or a letter from the nominee confirming your beneficial
ownership of the shares. You must also bring a form of
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personal identification. In order to vote your shares at the meeting, you must
obtain from the nominee a proxy in your name.
The persons named as proxies by a shareholder may propose and vote for one
or more adjournments of the Special Meeting, including adjournments to permit
further solicitations of proxies. No proxy voted against the Proposal Nos. 1 and
2 to adopt the Asset Purchase and Merger Agreements will be voted in favor of
any such adjournment or postponement.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed form of proxy does not preclude a
shareholder from voting in person at the Special Meeting. A shareholder may
revoke a proxy at any time prior to its exercise by:
- filing with Lawrence E. Jaffe, the Secretary of DCA, 777 Terrace Avenue,
Hasbrouck Heights, New Jersey 07604, a duly executed revocation of proxy,
- submitting a duly executed proxy to the Secretary of DCA bearing a later
date, or
- appearing at the Special Meeting and voting in person. Attendance at the
Special Meeting will not itself constitute revocation of a proxy.
SOLICITATION OF PROXIES
DCA will bear the cost of the solicitation of proxies from the DCA Minority
Public Shareholders, except that DCA and MainStreet intend to share on a
pro-rata basis the costs associated with the printing, filing, and mailing of
the proxy statement/prospectus. This proxy statement/prospectus and the enclosed
form of proxy are first being mailed to DCA stockholders on or about
, 2000. In addition to solicitation by mail, the directors, officers
and employees of DCA and its subsidiaries may solicit proxies from the DCA
Minority Public Shareholders for no additional compensation, by telephone or
other electronic means or in person. We will cause brokerage houses and other
custodians, nominees and fiduciaries to forward solicitation materials to the
beneficial owners of DCA shares held of record by such persons. We will
reimburse such custodians, nominees and fiduciaries for their reasonable
expenses.
SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXIES. If the
Proposals are approved, a transmittal form with instructions for the surrender
of your DCA common stock certificates will be mailed to you as soon as
practicable after completion of the Merger.
PROPOSAL NO. 1
THE ASSET PURCHASE AGREEMENT
The Asset Purchase Agreement was executed on October 20, 1999, among
Dialysis Acquisition Corp., otherwise referred to as the Buyer, Medicore, the
parent of Buyer, and DCA. The following description summarizes the material
terms of the DCA Asset sale under the Asset Purchase Agreement, contained in
Appendix A attached hereto and incorporated herein by reference. The information
provided below relating to the Asset Purchase Agreement is qualified in its
entirety by that Agreement attached as Appendix A. Please read the Asset
Purchase Agreement in full.
A key element to the Transactions is the sale by DCA of all of its Assets to
Buyer exclusive of proceeds from the potential exercise of certain options and
warrants, in particular: (i) any proceeds from the exercise of DCA's
Underwriters' Options for 100,000 shares of common stock exercisable at $4.50
per share (aggregate $450,000) and 200,000 warrants exercisable at $5.40 per
share (aggregate $1,080,000); and (ii) the net proceeds from the exercise of
DCA's publicly traded 2,300,000 warrants at $4.50 per share (gross proceeds of
$10,350,000), but exclusive of 20% of the net proceeds form such
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potential warrant exercises up to $1,000,000. The proceeds, if any, from the
exercise of all other DCA options, including 9,500 1995 options exercisable at
prices ranging from $1.50 to $2.25 per share, and the 800,000 1999 options
exercisable at $1.25 per share, all are included in the DCA Assets to be sold to
Buyer.
Consideration for the DCA Assets includes all of the following:
- 2,150,622 shares of Medicore's DCA common stock to be transferred to DCA,
leaving Medicore with a balance of 260,000 shares, of which Medicore will
transfer 10,000 shares to Michael Guiliano, a finder in these Transactions
- Buyer's assumption of all DCA Liabilities, which includes all of the
debts, liabilities and obligations of DCA, known or unknown, accrued,
liquidated, unliquidated or otherwise, existing or incurred up to the
closing or arising out of transactions or events occurring prior to the
closing of the Transactions (approximately $1,511,000 at September 30,
1999); but exclusive of any and all federal, state and local taxes arising
out of the sale and transfer of the DCA Assets which shall continue as a
liability of MainStreet
The Asset Purchase Agreement contains the customary representations and
conditions with the following special considerations:
- DCA is to obtain an independent valuation of its Assets, and if such
reflects a net value exceeding $8,000,000, DCA has the option to terminate
the Asset Purchase Agreement and the Merger Agreement
- Shareholder approval of the DCA Asset sale as provided in this proxy
statement/prospectus
- Buyer has indemnified DCA and MainStreet with respect to the DCA
Liabilities, including any tax impact upon Buyer's acquisition of the DCA
Assets, and Medicore shall be solely responsible for any tax liability
upon its return to DCA of Medicore's 2,150,622 DCA shares
- MainStreet has agreed to indemnify Buyer and Medicore with respect to any
taxes relating to the sale of the DCA Assets attributable to DCA, which is
the sole responsibility of MainStreet, provided, MainStreet has the right
to terminate the Asset Purchase and Merger Agreements if such tax
liability exceeds $500,000
If the Transactions are approved, Medicore will own 100% of the dialysis
operations rather than the 68% ownership it presently holds, and DCA will
become, under the name MainStreet Sub, Inc., a wholly-owned subsidiary of
MainStreet, with no foreseeable operations. You, as a DCA shareholder, upon
completion of the Merger, will become a minority shareholder of MainStreet, and
upon approval for listing on the Nasdaq SmallCap Market, MainStreet will become
a publicly traded company. However, there is no assurance that a public market
will develop, or if so, that such market will be maintained. See "DCA/MainStreet
Common Risk Factors--Possible Delisting and Risks of Low Priced Stocks."
PROPOSAL NO. 2
THE MERGER
We are furnishing this proxy statement/prospectus to you in connection with
the proposed Merger of our company with MainStreet because you are a DCA
Minority Public Shareholder who will consider the proposed Transactions for
adoption. If completed, the Merger will be carried out as provided in the Merger
Agreement, a copy of which is attached as Appendix B to this proxy statement/
prospectus.
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BACKGROUND
In an attempt to provide its shareholders with entry into the rapidly
growing and extensive Internet industry, the directors of DCA were looking for
an appropriate candidate to negotiate a reorganization similar to that presently
contemplated by the proposed Transactions.
In late 1998, negotiations commenced with a public company, Teleservices
International Group, Inc., which itself was refocusing its efforts. The
negotiations continued through and were terminated in the first quarter of 1999.
In March of 1999, preliminary negotiations commenced between Thomas K.
Langbein, Chairman of DCA, and Joseph Salvani, Chairman of MainStreet. The
purpose of the meetings was to discuss the business plan of MainStreet and
ascertain whether Todd, a small securities brokerage firm owned by
Mr. Langbein, would be interested in having an affiliation with MainStreet.
Mr. Langbein and the DCA board of directors thought MainStreet and its
proposed Internet operations could be an interesting opportunity for DCA
shareholders to consider, specifically, become shareholders in a new
developmental stage company in the exciting and rapidly growing Internet
industry, or remain with the established but slow-growing dialysis operations of
DCA, with operational losses since 1989. Discussions ensued regarding the
structure and the details of the proposed merger.
On June 4, 1999, a letter of intent was signed between DCA and MainStreet.
Over the next several months, management of each company discussed,
separately and jointly, resolving the final comments and questions. The boards
of all the companies, including DCA's parent, Medicore, approved the Merger
documents on October 18, 1999.
DCA will engage an independent appraisal firm to provide an independent
valuation of the DCA Assets to be sold to Buyer.
GENERAL DESCRIPTION
The Merger Agreement provides that MainStreet Acquisition Inc., a
wholly-owned subsidiary of MainStreet formed solely for the proposed Merger,
will be merged into DCA with DCA surviving the Merger, changing its name to
MainStreet Sub, Inc. and becoming a wholly-owned subsidiary of MainStreet.
Immediately prior to the Merger and pursuant to the Asset Purchase Agreement
(Proposal No. 1), DCA will have sold substantially all of its Assets to, and
will have substantially all of its DCA Liabilities assumed by, Buyer, a
wholly-owned subsidiary of Medicore. See above, "The Asset Purchase Agreement."
The only Assets DCA will have to provide MainStreet upon completion of the
Merger are proceeds from the potential exercises of certain DCA Underwriters'
Options and outstanding publicly traded warrants. The liability remaining with
DCA to be assumed by MainStreet will be federal and state taxes upon the
transfer and sale of the DCA Assets to Buyer. The consideration for the DCA
Asset sale is described in the section entitled "The Asset Purchase Agreement."
In the Merger, each outstanding share of DCA common stock (other than shares
held by shareholders who have not voted in favor of the Merger and have properly
demanded appraisal with respect to their DCA shares) will be converted into the
right to receive one share of common stock of MainStreet. Concurrently with the
Merger, the shareholders of MainStreet who own interests in CEO Letter under a
Contribution Agreement among these shareholders and MainStreet, will transfer
their CEO Letter stock to MainStreet in consideration for 250,000 shares of
MainStreet common stock.
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Thomas K. Langbein is the Chairman of the Board and CEO of DCA and Medicore
and President of Medicore, which positions he has held since 1980. He is an
executive officer and/or a director of Medicore's and DCA's subsidiaries.
Mr. Langbein is an approximately 17% shareholder of Medicore
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and the beneficial owner of approximately 7% of DCA outstanding shares (holds an
option for 260,000 shares). He is the sole owner, officer and director of Todd,
a small broker-dealer firm registered with the Securities and Exchange
Commission and a member of the NASD. He is also a director of the Linux Fund.
See below.
Pursuant to an agreement among Todd, MainStreet and Messrs. Salvani and
DeLuca, executive officers and directors of MainStreet, dated April 26, 1999
("Todd Agreement"), Mr. Langbein received 660,000 shares, approximately an 8%
interest, in MainStreet for MainStreet to have a working relationship with Todd
a registered securities brokerage firm. An additional 240,000 MainStreet shares
called for by the Todd Agreement were issued to the two brothers and the two
adult children of Mr. Langbein.
The Todd Agreement provides that for a 36 month period ending April 25,
2002, Messrs. Salvani and DeLuca shall recommend to all prospective MainStreet
clients that such clients use the services of Todd in connection with any of
such clients' public offerings of securities. If a MainStreet client already has
an underwriter for its securities offering, Messrs. Salvani and DeLuca will
recommend Todd for inclusion in the selected dealer group which participates in
the distribution of MainStreet's client's public offerings. In consideration,
Todd will retain 10% of the gross proceeds from any such referred business,
including reimbursement of its costs, with the balance divided equally between
Todd and Messrs. Salvani and DeLuca, provided that any such sharing goes not
violate any rules of the NASD.
Mr. Salvani owns approximately 31%, and Mr. DeLuca owns approximately 9%, of
MainStreet before the Merger; Mr. Salvani will own approximately 25% and
Mr. DeLuca 7% upon completion of the Merger. This assumes no exercises of the
DCA Underwriters' Options and the warrants, and includes MainStreet shares held
by Mr. Salvani's wife andminor daughter and a five year warrant exercisable into
250,000 MainStreet shares at an exercise price of $1.23 per share. Certain of
the officers and directors of MainStreet, representing an aggregate of
approximately 28% of the MainStreet outstanding common stock (approximately 22%
after the Merger), have provided Mr. Salvani with their proxy to vote their
MainStreet shares on all matters as determined by Joseph Salvani to be in the
best interests of MainStreet. Coupled with Mr. Salvani's ownership, this proxy
gives Mr. Salvani control over the affairs of MainStreet.
The Affiliates (11 persons) of DCA and Medicore, of which four are common to
each of DCA and Medicore, own options to acquire an aggregate of 680,000 shares
of DCA common stock, mostly exercisable at $1.25 per share, with 5,000 options
exercisable at $2.25 per share for periods ranging from April 20, 2000 to
April 20, 2004. Pursuant to the terms of the options and/or option plans, these
options may be exercised partly in cash and the balance with non-recourse
promissory notes secured by the common stock obtainable upon exercise of the
options. These options, if exercised prior to the proposed Merger, will provide
the Affiliates with additional shares of DCA common stock at prices currently
below the market, which shares will ultimately become rights to obtain the
MainStreet shares of common stock assuming the Merger is approved. If these DCA
options are exercised after the Merger, they will be exercisable directly into
MainStreet shares on the same terms as currently govern the DCA options.
It has been the experience, both with DCA and its parent, Medicore, that
promissory notes used in the exercise of options have been forgiven based on
past services or as an incentive award.
All of the Affiliates have their MainStreet common stock included in this
proxy statement/ prospectus for resale from time to time in the open market or
in negotiated transactions. Except for certain private investors in MainStreet
who have a portion of their MainStreet common stock included in this proxy
statement/prospectus for resale, the officers and directors of MainStreet have
entered into lock-up letters which preclude the encumbrance or sale of their
MainStreet common stock for one year from the closing of the proposed Merger.
See "Selling Shareholders."
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You should be aware that these interests in MainStreet, the DCA Asset sale
and Merger that may be considered different from, or in addition to, the
interests of the DCA shareholders generally, were disclosed to the board of
directors of DCA, Medicore, and MainStreet, and were considered by them, among
other matters, in approving the Asset Purchase Agreement, the Merger Agreement,
and the Merger.
On January 27, 2000, Medicore acquired a 6% ownership interest in the Linux
Fund and loaned that private company $1,500,000 at an annual interest rate of
10%. Medicore has the option to acquire an additional 2% of the Linux Fund and
loan it $500,000 more. Thomas K. Langbein, Chairman of the Board and Chief
Executive Officer of DCA and Medicore, and President and major shareholder of
the latter, became a director of the Linux Fund. Medicore borrowed the funds it
loaned to the Linux Fund from DCA at an annual interest rate of 10%. The Linux
Fund invests in developmental Linux software companies, and has entered into a
joint venture with MainStreet to establish The Linux IPO.com, an Internet
website to provide the facility to enable those Linux companies in which the
Linux Fund has invested to effect Direct Public Offerings of their securities
under the Dutch Auction process at such time any of these companies may wish to
publicly offer and sell their securities to the public. Linux IPO.com is a 50%
owned subsidiary of the Linux Fund, with the remaining 50% owned by MainStreet.
See "MainStreet--Business--Other Sources of Potential Income."
REASONS FOR THE MERGER AND BOARD OF DIRECTORS CONSIDERATIONS
The DCA board of directors determined that the Asset Purchase Agreement, the
Merger and the Merger Agreement and related transactions were matters that
should be submitted to the DCA Minority Public Shareholders, and accordingly
have unanimously approved the Asset Purchase Agreement, the Merger and the
Merger Agreement. In reaching that determination, the board consulted with
management and considered certain factors listed below. Although the list of
factors is not intended to be exhaustive, in view of the variety of factors
considered in connection with its evaluation of the Merger and related
Transactions, the board did not quantify or otherwise assign relative weight to
the specific factors considered in reaching its determination. Individual
members of the board may have given different weight to different factors.
The primary factor that swayed the board to proceed with and unanimously
approve the DCA Asset sale and Merger was to provide the DCA Minority Public
Shareholders with the opportunity to participate in the new trend of a high
technology Internet website company, in this case MainStreet, which websites are
poised to commence operations in very exciting areas of Internet service
providers: (i) one the facility to allow companies to accomplish direct public
offerings, primary and secondary, through MainStreet's website, through the
process of a Dutch Auction, to all prospective "main street" investors, rather
than a select few favored investors; (ii) the CEO Letter operations, which
provides a website as the forum for CEOs of public companies to present their
companies to the rapidly and vastly increasing numbers of Internet users and
potential investors; and (iii) an e-commerce business to offer and sell the
products and services of MainStreet clients. MainStreet, a new entity to be
involved in the rapidly expanding Internet industry, could provide DCA
shareholders with the opportunity to realize greater shareholder value at a
relatively quick pace, as opposed to the sporadic and much slower growth of our
dialysis operations, which have experienced increased revenues but also have
reflected operational losses since 1989. Included in its considerations was the
board's awareness that MainStreet is a development stage company with no
operating history, non-experienced management, and uncertainties that any
start-up company is faced with.
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In addition to the foregoing, in reaching its decision to approve the DCA
Asset sale and the Merger, the DCA board considered the following factors:
- the expectations of MainStreet's performance following the Merger, taking
into account, among other things:
-- the proposed business operations and prospects for MainStreet in the
ever growing Internet industry and the demand for IPOs
-- superior growth prospects over those of DCA, since MainStreet is
involved in the more glamorous and rapidly expansive Internet industry
relating to direct initial and secondary public offerings, CEO Letter
company presentations and e-commerce sale of client products and services
-- proposed operations maximize amount of capital for client companies;
lowers costs of the underwriting process; more democratic distribution of
public offerings--the average "main street" investor can participate in
initial and secondary public offerings
- the under-performance of DCA common stock over the last several years and
the inability to create greater value for DCA shareholders
- significant competition for new dialysis facilities driving the
acquisition price up and the limited financing available to DCA to be able
to acquire new centers, restricting its growth to the much slower but less
costly alternative of constructing new dialysis facilities, reflected by
the slow growth of DCA over the years with continued operational losses
since 1989
- the potential shareholder value that could be generated from the nature of
MainStreet's proposed operations, the relationships it should develop in
the capital market arena, and its involvement in the rapidly expanding
innovative global Internet industry
- the terms of the Merger Agreement, which were the product of arms-length
negotiations, including:
-- the representations of MainStreet with respect to its proposed
business and operations
-- the expense-reimbursement and termination fees
-- providing the DCA Minority Public Shareholders with the exclusive
right to determine whether to approve the proposed Transactions
-- the possible additional cash infusion to MainStreet from the exercise
of the DCA warrants, thus affording MainStreet with the ability to expand
its operations
The DCA board also considered the matters described in this proxy
statement/prospectus under the heading "Risk Factors," as well as the following
potentially negative factors in its deliberations concerning the Merger with
MainStreet and the related transactions:
- the lack of any trading history for the MainStreet common stock and no
approximate market value
- corporate and investor acceptance of MainStreet's proposed operations; the
absence of any operating history and basis for evaluating the ability of
its management; and the lack of experience of management in MainStreet's
proposed operations
- the newness of MainStreet's concept of Direct Public Offerings on the
Internet through a Dutch Auction process, with limited albeit much more
major company competition, making it difficult to use comparisons as an
indication of MainStreet's projected market value or general success
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- the risk that MainStreet's proposed operations may not be successful
- the risk that the potential benefits of the DCA Asset sale and the Merger
may not be fully realized
- the significant costs involved in consummating the DCA Asset sale and the
Merger, including the tax consequences to DCA and Medicore based upon the
DCA Asset sale and return to DCA by its parent, Medicore, of 90% of
Medicore's common stock of DCA, and the substantial management time and
effort required to effectuate the DCA Asset sale and the Merger.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective when the articles of merger are filed with
the Department of State of Florida in accordance with Section 1105 of the
Florida Business Corporation Act, or at such other time as DCA and MainStreet
will agree in writing and specify in the articles of merger (the date and the
time the Merger becomes effective being the "Effective Time").
The Effective Time will occur no earlier than the date of the Special
Meeting. If the DCA Asset sale and the Merger proposals are approved at the
Special Meeting, the Effective Time will occur as promptly as possible after
satisfaction or waiver of any remaining conditions to the Merger contained in
the Merger Agreement.
ARTICLES OF INCORPORATION AND BY-LAWS
The articles of incorporation of DCA as the surviving company in effect
immediately prior to the Effective Time will continue as its articles of
incorporation, except as will be amended in Article I, which will read "The name
of the corporation is "MainStreet Sub, Inc."' The by-laws of DCA in effect
immediately prior to the Effective Time will be the by-laws of the surviving
corporation until thereafter amended or as provided therein by applicable law.
DIRECTORS AND OFFICERS
The officers and directors of MainStreet Sub, Inc., currently the officers
and directors of MainStreet, after the Effective Time will remain as that
subsidiary's officers and directors until they resign, are removed from office
or they otherwise cease to be a director or officer, or until their respective
successors are duly elected and qualified. The officers and directors of DCA
will tender their resignations at the Effective Time.
ANTICIPATED ACCOUNTING TREATMENT
The DCA Asset sale will be, for financial reporting purposes, recorded as
the sale of the business, resulting in DCA becoming an inactive company. The
dialysis operations will be included with Medicore's consolidated results of
operations as it currently is, since Medicore owns 68% of DCA, and after the
Merger and sale of DCA Assets to Buyer, Medicore will own 100% of the dialysis
operations.
The Merger, pursuant to which MainStreet Acquisition Inc. will be merged
into DCA with DCA to be the surviving company, will be accounted for as a
recapitalization of MainStreet, and an issuance of MainStreet securities, to
wit, common stock, options and warrants, in exchange for DCA's securities, to
wit, common stock, options and warrants.
The contribution of the CEO Letter shares at the Effective Time by those
certain shareholders of MainStreet who own the CEO Letter common stock to
MainStreet in exchange for MainStreet shares on a one-for-one basis, resulting
in the CEO Letter becoming a wholly-owned subsidiary of MainStreet, will be
accounted for as a combination of entities under common control.
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CERTAIN FEDERAL TAX CONSIDERATIONS
The following is a summary of certain federal income tax consequences
applicable as a result of the DCA Asset sale and the Merger to DCA, Medicore and
the DCA shareholders. The discussion which follows is based on the Code,
Treasury regulations thereunder, administrative rulings and pronouncements and
judicial decisions as of the date hereof, all of which are subject to change,
possibly with retroactive effect. The discussion below does not address the
effects of any state, local or foreign tax laws on the Merger. The tax treatment
for a DCA shareholder may vary depending upon his or her particular situation,
and certain DCA shareholders (including tax-exempt organizations, financial
institutions and broker-dealers, persons who do not hold DCA common stock as
capital assets, individuals who receive DCA common stock pursuant to the
exercise of employee stock options or otherwise as compensation, and non-U.S.
persons) may be subject to special rules not discussed below. Each DCA
shareholder is urged to consult his or her tax advisor with respect to the tax
consequences to him or her of the Merger, including the effect of U.S. federal,
state and local, and foreign and other tax rules, and the effect of possible
changes in tax laws.
As to the DCA Asset sale, both DCA and Medicore will realize a tax impact.
DCA intends to obtain an independent evaluation as to the fair market value of
the DCA Assets by an independent appraisal firm under the Asset Purchase
Agreement. If the valuation of the DCA Assets exceeds $8,000,000, DCA has the
option to terminate the Merger and the DCA Asset sale. See "The Merger
Agreement--Conditions to Consummate the Merger."
DCA's tax liability will equal (i) the excess of the fair market value of
the DCA Assets transferred plus the amount of DCA Liabilities assumed over
(ii) DCA's tax basis in the DCA Assets. Any such tax liability upon the transfer
of the DCA Assets as it affects DCA shall remain with DCA, is not a DCA
Liability being assumed by Buyer, and upon completion of the Merger will become
the liability of MainStreet, for which MainStreet has indemnified Buyer and
Medicore under the Asset Purchase Agreement.
Based upon Medicore's 68% ownership of DCA and its return of 1,250,622
shares of its DCA common stock ownership to DCA, Medicore and its wholly-owned
subsidiary, Buyer, also will be subject to a tax impact upon the DCA Asset sale.
Medicore and Buyer have indemnified MainStreet as to any of their respective tax
liabilities under the Asset Purchase Agreement.
Neither the DCA shareholders nor MainStreet will not recognize gain or loss
as a result of the DCA Asset sale.
The completion of the Merger is contingent upon the receipt by DCA and
MainStreet from their respective tax counsel opinions to the effect that at the
Effective Time, the Merger together with the transfer of the CEO Letter interest
by the MainStreet shareholders to MainStreet shall qualify as a tax-free
transfer described in Section 351 of the Code.
No rulings have been or will be requested from the Internal Revenue Service
(the "IRS") with respect to any of the matters discussed in this proxy
statement/ prospectus, and the opinions of counsel described above are not
binding on the IRS. There can be no assurance that the IRS will not take a
contrary position or that future legislation, regulations, administrative
rulings, or court decisions will not adversely affect the accuracy of the
statements contained herein.
A holder of DCA common stock who, pursuant to the Merger, exchanges such
stock for MainStreet's common stock will not recognize gain or loss upon such
exchange. The tax basis for MainStreet's common stock received in the Merger by
such DCA shareholder will be equal to the tax basis of the DCA common stock
surrendered, and for tax purposes the holding period of MainStreet's common
stock will include the holding period of such DCA common stock surrendered.
Neither DCA nor MainStreet will recognize gain or loss as a result of the
Merger.
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DCA shareholders who elect to exercise their right to dissent from the
Merger pursuant to the Florida Business Corporation Act with respect to all of
their DCA shares and to be paid the fair value of those shares will recognize
gain or loss. The amount of this gain or loss will generally be equal to the
difference between the amount of cash received and the shareholder's adjusted
tax basis in the DCA shares of common stock transferred pursuant to the exercise
of dissenter's rights. Whether gain is treated as capital gain or as dividend
income and whether any gain subject to capital treatment is long term or short
term is determined on the length of the shareholder's holding period
surrendered. DCA dissenting shareholders should consult their tax advisors to
determine the amount and character of the income recognized in connection with
the cash received in connection with these appraisal rights.
OWNERSHIP INTEREST OF DCA SHAREHOLDERS AFTER THE MERGER
Based on 3,546,344 shares of DCA common stock outstanding on February 4,
2000, which will be exchanged for MainStreet common stock, and the return for
cancellation by Medicore to DCA of 2,150,622 shares of DCA common stock owned by
Medicore, there will be approximately 10,036,000 shares of MainStreet common
stock outstanding upon consummation of the Merger, assuming no DCA options or
warrants (including Affiliates') are exercised prior to the Closing. The former
DCA shareholders, assuming no dissenters, will own an aggregate of approximately
14% of MainStreet. If Affiliates and DCA employees and related purchasers
exercise their options and warrants, there will be approximately 10,845,000
MainStreet shares outstanding and the former DCA shareholders will own
approximately 20% of MainStreet. Assuming all outstanding DCA options and
warrants are exercised prior to the closing of the Merger, MainStreet will have
approximately 13,445,000 shares outstanding of which former DCA shareholders,
including Affiliates, will own approximately 36% of MainStreet.
TREATMENT OF DCA OPTIONS AND WARRANTS
The Merger Agreement provides that the DCA currently outstanding options and
warrants to acquire an aggregate of 3,409,500 shares issuable upon exercise of
such options and warrants, will, by virtue of the Merger and without any action
on the part of the holder thereof, be converted into MainStreet options and
warrants, as the case may be, to purchase the same number of shares of
MainStreet common stock at the same exercise prices and for the same exercise
periods (provided they have not yet expired at the Effective Time), and with the
same terms and provisions as applicable to the DCA options and warrants prior to
the Merger. As soon as practicable after the Merger, MainStreet will deliver to
each holder of an outstanding DCA option and warrant a notice setting forth such
holder's rights pursuant thereto.
The following chart provides the information concerning the different
classes of DCA options and warrants, their exercises prices, expirations, and
which company, MainStreet, DCA or Buyer, will realize the proceeds, whether
exercised pre- or post-Merger.
<TABLE>
<CAPTION>
OPTION OR WARRANT EXERCISE EXPIRATION
- ----------------- -------- ----------
<S> <C> <C>
2,300,000 Warrants(1) (publicly
traded)................................ $4.50 March 31, 2000
1995 Stock Option Plan(2)
4,500 options........................ $1.50 October 9, 2000
5,000 options........................ $2.25 June 6, 2003
1999 Stock Option Plan(2)
800,000 options...................... $1.25 April 20, 2000 (340,000 options--incentive)
April 20, 2004 (460,000 options--non-qualified)
DCA Underwriters' Options(2)
100,000 common stock................. $4.50 April 16, 2001
200,000 warrants..................... $5.40 April 16, 2001
</TABLE>
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- ------------------------
(1) Net proceeds after commissions, fees and related expenses remain with DCA;
if the Merger is completed, then all net proceeds go to MainStreet except
for 20% of the net proceeds, up to $1,000,000, which will go to Medicore.
(2) Proceeds to DCA; if the Merger is completed, then proceeds go to MainStreet.
LISTING MAINSTREET SHARES ON NASDAQ SMALLCAP MARKET
MainStreet has agreed to cause the shares of its common stock, including the
MainStreet common stock issued in connection with the Merger and common stock
issuable upon exercise of its options and warrants, to be listed on the Nasdaq
SmallCap Market. In that connection, MainStreet will have to register its
securities under Section 12(g) of the Exchange Act and become a reporting
company pursuant to Section 13(a) of the Exchange Act and the rules adopted
under the Exchange Act. It is also a condition to the obligations of DCA and
MainStreet to consummate the Merger that such Nasdaq SmallCap listing shall have
been obtained. MainStreet has reserved the symbol "MIPO." See "The Merger
Agreement--Conditions to Consummate the Merger." Assuming qualification,
MainStreet is also considering listing its securities for trading on the
American Stock Exchange ("Amex"), with the symbol "IPO." Should MainStreet list
its securities on the Amex, it would have to register its securities under
Section 12(b) of the Exchange Act.
DELISTING AND DEREGISTRATION OF DCA COMMON STOCK
If the Merger is consummated, the shares of DCA common stock and its
warrants will be delisted from the Nasdaq SmallCap Market, and will be
deregistered under the Securities Exchange Act of 1934 ("Securities Exchange
Act").
MERGER CONSIDERATION
Upon consummation of the Merger each share of DCA common stock shall be
converted into the right to receive one share of MainStreet's common stock, and
each DCA option and warrant outstanding at the Effective Time will become
MainStreet options and warrants exercisable into MainStreet common stock on the
same terms and conditions as applicable to the DCA options and warrants.
When the Merger is effective, all shares of DCA common stock outstanding
immediately prior to the Merger will automatically be canceled and retired and
will cease to exist, and each certificate previously representing any such
shares will thereafter represent only the right to receive the same number of
shares of MainStreet's common stock. At the Effective Time, MainStreet will be
the sole shareholder of DCA, which will change its name to MainStreet Sub, Inc.
PROCEDURES FOR EXCHANGE OF CERTIFICATES
DETAILED INSTRUCTIONS, INCLUDING A TRANSMITTAL LETTER, WILL BE MAILED TO DCA
COMMON SHAREHOLDERS AND WARRANT HOLDERS PROMPTLY FOLLOWING THE APPROVAL OF THE
MERGER AS TO THE METHOD FOR EXCHANGE OF CERTIFICATES FORMERLY REPRESENTING
SHARES OF DCA COMMON STOCK AND DCA WARRANTS. DCA COMMON SHAREHOLDERS AND WARRANT
HOLDERS SHOULD NOT SEND CERTIFICATES REPRESENTING THEIR SHARES OR WARRANTS TO
ANYONE PRIOR TO THE RECEIPT OF THE TRANSMITTAL LETTER.
EXCHANGE AGENT. At the closing of the Merger, MainStreet will deposit with
the Exchange Agent, American Stock Transfer & Trust Company, MainStreet's
transfer and warrant agent, certificates evidencing the shares of MainStreet's
common stock issuable in exchange for the shares of DCA common stock and new
warrants representing the right to purchase shares of MainStreet's common
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stock. The exchange of DCA options for MainStreet options will be handled
internally, since there are only a limited number of DCA option holders,
primarily Affiliates, and six non-Affiliate employees.
EXCHANGE PROCEDURES, NO FURTHER RIGHTS IN DCA COMMON STOCK. Following the
closing of the Merger, MainStreet will instruct the Exchange Agent to mail to
each holder of record of DCA common stock and warrants a letter of transmittal
and instructions to effect the surrender of the certificates representing DCA
common stock and/or warrants in exchange for certificates evidencing MainStreet
common stock and warrants, as the case may be. Upon surrender thereof with such
letter of transmittal, duly executed, and such other customary documents as may
be required pursuant to such instructions, the holder of such certificate or
warrant will receive in exchange therefor the certificate or certificates of
shares of MainStreet's common stock or a new warrant that such holder is
entitled to receive as a result of the Merger. The certificate representing the
DCA common stock or warrant, as the case may be, so surrendered will forthwith
be canceled. Until so surrendered, each outstanding certificate that previously
represented shares of DCA common stock or warrant will be deemed to evidence
only the right to receive upon such surrender the same number of shares of
MainStreet's common stock or warrants.
DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED DCA SHARES. Although none are
anticipated in the foreseeable future, no dividends or other distributions
declared or made with respect to MainStreet's common stock with a record date
after the Effective Time of the Merger will be paid to the holder of any
unsurrendered DCA stock certificate until such holder shall surrender such
certificate in exchange for a MainStreet certificate.
TRANSFERS OF OWNERSHIP. If any certificate for shares of MainStreet's
common stock or warrants is requested to be issued in a name other than that in
which the certificate representing shares of DCA common stock or warrants
surrendered in exchange therefore is registered, it will be a condition of the
issuance that the certificate surrendered will be properly endorsed and
otherwise in proper form for transfer. Also, the person requesting such exchange
will have to pay MainStreet or any designated agent any transfer or other taxes
required by reason of the issuance of a certificate for shares of MainStreet's
common stock or warrants, as the case may be, in any name other than that of the
registered holder of the certificate surrendered.
LOST, STOLEN OR DESTROYED CERTIFICATES. No one will receive a certificate
for shares of MainStreet's common stock or warrants in exchange for a
certificate for shares of DCA common stock or DCA warrants that has been lost,
stolen or destroyed without first delivering to the exchange agent an affidavit
and an indemnity bond.
RESALE OF THE SHARES OF MAINSTREET--DCA AFFILIATES AND MAINSTREET INVESTORS
All shares of MainStreet common stock and MainStreet warrants to be issued
in connection with the Merger will be freely transferable under the Securities
Act, except that the Securities and Exchange Commission rules restrict sales of
securities received by any person who may be deemed an "affiliate" of DCA prior
to the Merger. The Merger Agreement contractually obligated MainStreet to
include for resale all the MainStreet common stock held or obtainable upon
exercise of options and/or warrants by the Affiliates, which shares have been
included in this proxy statement/prospectus. See "Selling Shareholders." In
addition, MainStreet has also included in this proxy statement/prospectus an
aggregate of 1,270,527 shares (approximately 12% of the MainStreet shares to be
outstanding assuming no exercises of DCA or MainStreet options and warrants) of
MainStreet common stock owned by certain persons who had invested in MainStreet
prior to the Merger. See "Selling Shareholders." Thomas K. Langbein, an
affiliate of DCA and Medicore, in addition to the 260,000 shares of MainStreet
he will receive in exchange for his DCA common stock (all issuable under a DCA
option), has an additional 660,000 shares of MainStreet common stock, with an
additional 240,000 shares of MainStreet common stock held by two of his brothers
and his two adult children, received in
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connection with the Todd Agreement included in this proxy statement/prospectus.
MainStreet has agreed to include all of these shares in this proxy
statement/prospectus. See "The Merger--Interests of Certain Persons in Matters
to be Acted Upon" and "Selling Shareholders."
Pursuant to the Merger Agreement, the affiliates of MainStreet have provided
their written agreements precluding each of them from encumbering or reselling
their MainStreet common stock for one year from the Effective Time.
DISSENTERS' RIGHTS OF APPRAISAL OF DCA SHAREHOLDERS
Florida law entitles the holders of record of shares of DCA common stock who
follow the procedures specified in Section 607.1320 of the Florida Business
Corporation Act to have their shares appraised and to receive the "fair value"
of such shares, which means the value of the shares at the close of business on
the day prior to the DCA shareholders' approval, excluding any appreciation or
depreciation in anticipation of the corporate actions unless exclusion would be
inequitable. The right to dissent is provided in Section 607.1302, which
provides you, as a DCA common stockholder, to dissent if the corporate action
involves, among other things, the consummation of a plan of merger or the sale
of substantially all of the assets of the corporation. Accordingly, a
shareholder who dissents with respect to either Proposal No. 1 or No. 2 shall be
entitled to dissent. Throughout this section relating to DCA shareholders' right
to dissent, the reference to the Merger shall include the action concerning the
DCA Asset sale, since you, as a DCA shareholder, are entitled to vote on each of
Proposal Nos. 1 and 2, but as has been indicated throughout this proxy
statement/ prospectus, both Proposal Nos. 1 and 2 must be approved by DCA
shareholders or none of the Proposals can or will be consummated. A shareholder
may dissent as to less than all the shares of DCA common stock registered in his
or her name. Section 607.1302(5) of the Florida Business Corporation Act
provides that a shareholder entitled to dissent and obtain payment for his
shares may not challenge the corporate action unless the corporate action is
unlawful or fraudulent as to the shareholder or the corporation.
In order to exercise your rights as a dissenting DCA shareholder and obtain
appraisal of and the fair value for your DCA common stock, you must demand and
perfect the rights in accordance with Section 607.1320 of the Florida Business
Corporation Act. The following is a summary of that Section of the Florida
Business Corporation Act and is qualified in its entirety by reference to
Section 607.1320, a copy of which, including all the provisions relating to
dissenters and appraisal rights, is attached to this proxy statement/prospectus
as Appendix C. DCA shareholders should carefully review Section 607.1320 as well
as the information discussed below to determine your rights to an appraisal. It
is also suggested you seek the advice of counsel. IF YOU DO NOT COMPLY WITH THE
DEADLINES AND PROCEDURES SPECIFIED IN THE FLORIDA BUSINESS CORPORATION ACT, YOU
MAY LOSE YOUR DISSENTERS' RIGHTS OF APPRAISAL.
If a shareholder of DCA elects to exercise the right to an appraisal under
Section 607.1320 of the Florida Business Corporation Act, such shareholder must
do ALL of the following:
- deliver to the Secretary of DCA, Lawrence E. Jaffe, Esq., 777 Terrace
Avenue, Hasbrouck Heights, New Jersey 07604, before the vote is taken at
the Special Meeting written notice of your intent to demand payment for
your DCA shares of common stock if the proposed Transactions are effected;
and
- you must not vote in favor of the Merger.
You must deliver the notice of intent even if you submit a proxy or
otherwise vote against the Merger. MERELY VOTING AGAINST, ABSTAINING FROM
VOTING, OR FAILING TO VOTE IN FAVOR OF ADOPTION OF THE MERGER WILL NOT
CONSTITUTE A NOTICE OF INTENT TO EXERCISE DISSENTERS' RIGHTS OF APPRAISAL UNDER
THE FLORIDA BUSINESS CORPORATION ACT.
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If DCA Minority Public Shareholders approve the Merger at the Special
Meeting and you meet the requirements above, then DCA will send you, within
10 days of the approval of the Merger, written notice of such shareholder
approval of the Merger.
Within 20 days after DCA's notice to you of the Merger approval, any DCA
shareholder who elects to dissent shall file with DCA:
- a notice of such election, stating the shareholder's name and address and
the number of DCA shares of common stock to which he dissents;
- a demand for the payment of the fair value of his DCA shares; and
- deposit his DCA shares of common stock.
Failure to timely file your election to dissent shall subject you to the
terms of the Merger.
Filing of the notice of election to dissent entitles you only to payment of
the fair value of your DCA shares of common stock as provided in
Section 607.1320 of the Florida Business Corporation Act, and you shall not be
entitled to vote or exercise any other rights as a DCA shareholder.
You may withdraw in writing your notice of election to dissent any time
before DCA makes its offer to dissenting shareholders of its estimate of the
fair value of the DCA common stock (discussed below). After such offer, no
withdrawal of your election to dissent may be made without DCA's consent.
Your right to be paid the fair value of your DCA shares of common stock
shall cease and you will be reinstated to your status and rights of a DCA
shareholder as of the date of your filing of your notice of election to dissent
if:
- your demand for appraisal is withdrawn in accordance with
Section 607.1320 of the Florida Business Corporation Act;
- the proposed Transactions are abandoned, rescinded, or DCA Minority Public
Shareholders revoke the authority to effect the Transactions;
- no demand for a fair value determination by a court has been timely made;
or
- the court determines the shareholder is not entitled to relief provided by
the dissenting shareholder provisions of the Florida Business Corporation
Act.
IF YOU ARE CONSIDERING SEEKING DISSENTERS' RIGHTS OF APPRAISAL, YOU SHOULD
BE AWARE THAT THE FAIR VALUE OF YOUR SHARES AS DETERMINED UNDER THE APPLICABLE
PROVISIONS OF THE FLORIDA BUSINESS CORPORATION ACT COULD BE GREATER THAN, THE
SAME AS OR LESS THAN THE MERGER CONSIDERATION.
Within 10 days of the later of (i) expiration of the period in which you may
file your notice of election to dissent, or (ii) after the Transactions are
effected, i.e., the Effective Time (but no later than 90 days from the date of
shareholder approval of the Transactions), DCA shall make a written offer to
dissenting shareholders to pay an amount it estimates to be the fair value of
the DCA common stock. DCA's offer shall be accompanied by:
- DCA's balance sheet as of the latest available date but not more than
12 months prior to the DCA offer; and
- DCA's profit and loss statement for the 12-month period ended on the date
of such balance sheet.
If within 30 days from DCA's offer the dissenting shareholder accepts the
same, DCA shall make the payment within 90 days of the later of (i) its offer,
or (ii) the Effective Time. Upon payment of the agreed value, the dissenting
shareholder ceases to have any interest in the shares.
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If either:
- DCA fails to make a timely offer; or
- DCA's offer is rejected by the dissenting shareholder within 30 days of
such offer,
then DCA within 30 days of written denial by the dissenting shareholder given
within 60 days from the Effective Time shall, or at its election at any time
within such period of 60 days may, file an action in a Florida court of
appropriate jurisdiction requesting determination of the fair value of the DCA
common stock. The court shall also determine whether the shareholder is entitled
to payment. If DCA fails to initiate proceedings, the dissenting shareholder may
do so in the name of DCA. All dissenting shareholders shall be made parties to
the fair value proceedings other than those dissenting shareholders who have
accepted DCA's offer of payment. The court may appoint one or more appraisers to
receive evidence and recommend a decision on the fair value of the shares. The
court may indicate a fair interest rate. DCA shall pay each dissenting
shareholder the amount determined to be due such shareholder within 10 days of
the court's determination. Upon payment, the dissenting shareholder shall cease
to have any interest in the shares.
The court will determine all costs of the proceeding, including the
reasonable compensation and expenses of court-appointed appraisers. DCA
generally will pay these costs, but the court may order the dissenting
shareholders to pay some of them, in amounts the court finds equitable, if the
court finds that the shareholders acted arbitrarily, vexatiously or not in good
faith in demanding payment.
Shares of MainStreet common stock into which the DCA shares of such
dissenting shareholders would have been converted had they assented to the
Merger shall have the status of authorized but unissued shares.
The responsibility for any payments to dissenting shareholders and all costs
relating to any proceedings relating to dissenting shareholder payments are
included in the DCA Liabilities being assumed by Buyer.
The foregoing is only a summary of the applicable provisions of the Florida
Business Corporation Act, and is qualified in its entirety by reference to the
full text of such provisions, which is included in Appendix C.
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THE MERGER AGREEMENT
THE FOLLOWING DESCRIPTION OF THE MERGER AGREEMENT IS ONLY A SUMMARY AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT, A COPY OF WHICH
IS ATTACHED AS APPENDIX B TO THIS PROXY STATEMENT/ PROSPECTUS AND INCORPORATED
HEREIN BY REFERENCE. WE ENCOURAGE YOU TO READ THE MERGER AGREEMENT CAREFULLY AND
IN ITS ENTIRETY.
GENERAL
The Merger Agreement provides for the Merger of a newly-formed MainStreet
subsidiary, MainStreet Acquisition Inc., into DCA. Upon consummation of the
Merger, DCA will survive and become a wholly-owned subsidiary of MainStreet, and
will be renamed "MainStreet Sub, Inc." In the Merger, each issued and
outstanding share of DCA common stock shall be exchanged for one share of
MainStreet common stock; and all outstanding DCA options and warrants,
exercisable and convertible into DCA common stock, shall be converted into
MainStreet options and warrants and will be exercisable into MainStreet common
stock under the same terms and provisions of the current DCA options and
warrants.
Immediately prior to the Merger, under the Asset Purchase Agreement, DCA
will sell the DCA Assets to Buyer, a wholly-owned subsidiary of Medicore, the
parent to DCA, and Buyer will assume all the DCA Liabilities, exclusive of any
taxes imposed with respect to the DCA Asset sale. See "The Asset Purchase
Agreement."
The closing of the Merger will occur within five business days immediately
following the date upon which all conditions to the Merger have been satisfied
or waived, or at such other time as the parties agree. At the closing of the
Merger, the parties will deliver the articles of merger to the Department of
State of Florida for filing, at which time the Merger will become effective, or
at such later time as may be set forth in the articles of merger. We currently
expect that the closing of the Merger will take place within the third quarter
of the year 2000.
The DCA Asset sale will be taxable to DCA and will have tax consequences to
Medicore as a result of its transference of its 2,150,622 DCA shares to DCA and
Buyer's receipt of the DCA Assets, but the Merger is intended to be tax-free to
DCA and MainSteet and their shareholders. See "The Merger--Certain Federal Tax
Considerations."
CORPORATE GOVERNANCE
The officers and directors of DCA shall resign at the closing of the
Transactions, and the officers and directors of MainStreet Sub, Inc., formerly
DCA but renamed after the Merger and a wholly-owned subsidiary of MainStreet,
who are also the officers and directors of MainStreet, shall continue as the
officers and directors of MainStreet Sub, Inc. and MainStreet. See "Management
of MainStreet."
REGISTRATION OF SECURITIES
MainStreet has prepared this proxy statement/prospectus in conjunction with
DCA which is part of MainStreet's registration statement. The registration
statement covers the issuance of the MainStreet common stock and warrants to the
DCA common stock and warrant holders in exchange for their securities in
connection with the Merger. The registration statement also includes all of the
common stock of MainStreet held by the Affiliates and certain MainStreet
shareholders who had invested in MainStreet, and who will be free to sell their
shares if the Transactions are approved. See "Selling Shareholders."
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REPRESENTATIONS AND WARRANTIES
In the Merger Agreement, DCA, MainStreet and MainStreet Acquisition Inc.
make representations and warranties about themselves and their businesses,
including the following:
Mutual representations and warranties:
- proper organization, good standing and corporate power
- authority to enter the Merger Agreement and related agreements,
enforceability, noncontravention, and consents
- tax returns and payments
- no payments to public officials political parties in connection with
operations, nor any other unlawful payments
- brokers and finders
- absence of environmental liabilities
- accuracy of representations and warranties in the Merger Agreement and
related documents
Representations and warranties of MainStreet and MainStreet
Acquisition Inc.:
- operations comply with the law; hold all necessary licenses
- investment in others
- personal and real property
- patents, trademarks, trade names and copy rights; no infringements
- contracts; licenses for third party software
- no affiliate transactions
- capital structure
- financial statements
- absence of undisclosed liabilities
- employees; insurance; bank accounts
- litigation
- compliance with health and safety laws
- accuracy of information used in the registration statement and proxy
statement that must be filed with the Securities and Exchange Commission
Representations of DCA:
- capital structure
- filing of all reports required under the Securities Exchange Act; accuracy
and completeness of these filings
- litigation
- accuracy of information in the proxy statement
The representations and warranties made by the parties will survive for one
year from the Effective Time.
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CONDITIONS TO CONSUMMATE THE MERGER
The obligations of DCA, MainStreet and MainStreet Acquisition Inc. to
complete the Merger and the other transactions contemplated by the Merger
Agreement depend on the following conditions being fulfilled or waived at or
prior to the closing of the Merger:
- representations and warranties made by the other party being true in all
material respects at the time of the closing of the Merger
- all obligations and covenants of the other party duly performed in all
material respects at or before the closing
- certificates by executive officers of each party that certain conditions
have been fulfilled
- approval of the Merger Agreement and the Asset Purchase Agreement by the
security holders of MainStreet and DCA
- articles of merger filed with appropriate jurisdictions
- all consents, approvals and waivers received in connection with the Merger
with respect to each party's operations and agreements
- absence of any injunctions or restraints preventing the Merger and related
transactions
- all actions, certificates and documents to consummate the Merger are
satisfactory
- opinions of each party's counsel as to corporate matters and that Merger
is a tax-free transaction
- neither party determining the Merger is inadvisable due to litigation
affecting the Merger
- proxy statement and registration statement at closing not subject to any
Securities and Exchange Commission proceeding; no stop order relating to
the registration statement
- MainStreet is approved for listing its securities on Nasdaq SmallCap
Market
Additional conditions to obligations of DCA to complete the Merger:
- no material change in business of MainStreet
- net value of DCA Assets based upon independent valuation shall not exceed
$8,000,000
Additional conditions to obligations of MainStreet and MainStreet
Acquisition Inc.:
- DCA to provide current tax basis of DCA Assets; if federal tax liability
exceeds $500,000, option to MainStreet to terminate Merger
COVENANTS
- each party to advise the other parties of any material adverse changes in
that party's financial position, results of operations, assets,
liabilities, business or business prospects; deliver updated disclosure
schedules just prior to closing
- each company to use its best efforts to maintain its business
- DCA to provide its shareholders with this proxy statement/prospectus for
consideration of the proposed Transactions; MainStreet and MainStreet
Acquisition Inc. to provide necessary information; all material to comply
with federal securities laws
- each party to assist, if necessary, to obtain necessary governmental
consents and approvals in connection with the proposed Transactions
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- each party to use reasonable efforts to obtain other consents to allow for
consummation of the proposed Transactions and allow the appropriate party
to carry on its respective business after the closing
- notify other party with respect to any litigation
- provide other parties with access to its management and records to
accomplish due diligence
- satisfaction of all conditions
SPECIFIC COVENANTS OF MAINSTREET
- conduct its business and maintain its business relationships in ordinary
and usual course and will not, without written consent of DCA:
-- except in the ordinary course of its business
- borrow in excess of $200,000 per borrowing
- incur liabilities
- dispose of or encumber assets
- enter material leases
- pay bonuses or increase salaries
- amend or terminate contracts
- loan money or guarantee any obligation
- waive or release any material right or claim
- incur capital expenditures in excess of $50,000 except for website
construction and related software development costs
- fail to maintain equipment and assets
- change accounting methods, except as may lawfully be required
- declare or pay any dividend
- waive or release any material right or claim
- settle or commence any litigation
- issue any capital stock of any class, or issue options, warrants or
similar rights to obtain shares of its capital stock (except for rights
currently outstanding)
- recapitalize
- merge, consolidate or reorganize except for this Merger
- amend its certificate of incorporation or by-laws
- license its technology
- pay to Medicore 20% of the net proceeds up to $1,000,000 from the exercise
of the publicly traded warrants which after the Merger become MainStreet
warrants
EXCLUSIVITY
Until the earlier of termination of the Merger Agreement or the consummation
of the Merger, none of the parties to the Merger Agreement nor any of their
officers, directors, employees,
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representatives or agents shall arrange, solicit or otherwise conduct
discussions or negotiations or enter into any agreement with any other person
expressing an interest in or proposing any merger, consolidation,
reorganization, business combination, significant asset sale, exchange of
securities or similar transaction involving any of the companies participating
in the Merger Agreement, except to the extent required by their fiduciary duties
as determined by their board of directors.
CONFIDENTIALITY AND ANNOUNCEMENTS
- each party to keep confidential any non-public information obtained from
other parties
- no announcement relating to the Merger Agreement or Merger without the
prior approval of the other party, provided, DCA may make announcements
necessary to comply with the federal securities laws and Nasdaq
regulations; and MainStreet as it deems necessary to communicate with its
stockholders
TERMINATION
The Merger Agreement may be terminated in the following situations:
- by mutual consent of the parties at any time prior to the Effective Time,
even after shareholder approval, if any court or governmental body issues
any order, judgment, decision, injunction, restraining order or ruling
prohibiting either the Merger or the DCA Asset sale
- by DCA alone if (a) MainStreet or MainStreet Acquisition Inc. fails to
perform any material covenant required of them in the Merger Agreement, or
(b) the conditions to DCA completing the Merger as provided in the Merger
Agreement have not been satisfied by May 31, 2000 unless waived by DCA
- by MainStreet and MainStreet Acquisition Inc. if (a) DCA fails to perform
any material covenant required of it in the Merger Agreement, or (b) the
covenants to MainStreet and MainStreet Acquisition Inc. completing the
Merger as provided in the Merger Agreement have not been satisfied by
May 31, 2000 unless waived by MainStreet, or (c) MainStreet and MainStreet
Acquisition Inc. determine, based upon accounting and tax documentation,
that there is a significant probability that the tax liability of DCA as a
result of the proposed Transactions will be greater than $500,000
EFFECT OF TERMINATION
In the event of termination, the Merger Agreement becomes void with no
liability on the part of DCA, MainStreet or MainStreet Acquisition Inc., except
(i) for their representations as to the accuracy of documents furnished pursuant
to the Merger Agreement, and that no facts exist that reflect adverse
consequences to each parties' business and operations; (ii) maintenance of
confidentiality of non-public information, and (iii) the breakup fee (see
below). Termination of the Merger Agreement will not relieve any party for a
breach of the Merger Agreement.
BREAKUP FEE
In the event the Merger Agreement is terminated, other than by mutual
consent or due to no fault of MainStreet or MainStreet Acquisition Inc., then a
breakup fee will be paid by DCA to MainStreet. The breakup fee consists of an
investment in the equity of MainStreet of 20% of the net proceeds received from
the exercise of the DCA warrants, but only to the extent there are such
proceeds, which exercises occur from the date of the Merger Agreement,
October 20, 1999, to the date of the termination. This investment is based on a
pre-financing valuation of MainStreet of $22,500,000 or the lowest price per
share of MainStreet common stock paid by an investor within one year from the
date of termination of the Merger Agreement.
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INDEMNIFICATION
- Mutual indemnification: (i) Buyer to DCA and its successor, MainStreet,
and MainStreet Acquisition Inc. and their affiliates as to pre-Merger
events relating to DCA; and (ii) MainStreet and MainStreet
Acquisition Inc., jointly and severally, to DCA and its affiliates as to
pre-Merger events relating to MainStreet and MainStreet Acquisition Inc.,
as to their misrepresentations or breach of their respective
representations and warranties, or breach or nonperformance of any of
their respective covenants or agreements contained in the Merger Agreement
- Buyer also agreed and covenanted that the DCA Assets being acquired by it
as a wholly-owned subsidiary of Medicore shall not be upstreamed to
Medicore for one year following the Effective Time
EXPENSES
Whether or not the Merger is completed and executed as described above, DCA
and MainStreet will each pay their own expenses in connection with the Merger,
including legal, accounting and investment banking fees, except that the
expenses incurred in connection with the filing, printing and mailing of the
registration statement and the proxy statement/prospectus (including filing fees
relating thereto) will be shared on a pro-rata basis, including state filing
fees.
CERTAIN AGREEMENTS RELATED TO THE MERGER
CONTRIBUTION AGREEMENT RELATING TO CEO LETTER.COM INC.
Simultaneously with the execution of the Merger Agreement, MainStreet
entered into a Contribution Agreement with certain of its shareholders (the
"Contributors"), who own 100% of the common stock of CEO Letter, a Delaware
corporation. This Contribution Agreement provides for the Contributors to
transfer to MainStreet all of their CEO Letter common stock at the closing of
the Merger. Accordingly, CEO Letter will become a wholly-owned subsidiary of
MainStreet. In consideration for such transfer, the Contributors will receive
250,000 shares of MainStreet common stock.
The Contribution Agreement contains basic organizational and authority
representations, with Contributors coveting to conduct and maintain the business
of CEO Letter.
CEO Letter is a central website designed to provide executive officers of
publicly traded companies a facility and forum to discuss their companies to the
multitude of Internet users and investors. CEO Letter has an exclusive agreement
with an unaffiliated rewards incentive Internet company, FreeRide Media.com, to
participate in their rewards incentive program, which attracts the FreeRide
members, which FreeRide indicates is close to 500,000 people, to CEO Letter's
website. This awards program is also available to MainStreet for their clients'
use in their website securities offerings. See
"MainStreet--Business--Description."
MAINSTREET AND AFFILIATES AGREEMENT WITH TODD & COMPANY, INC.
Todd, a broker-dealer registered with the Securities and Exchange Commission
and a member of the NASD, entered into an agreement with MainStreet and two of
MainStreet's executive officers, Joseph Salvani, Chairman, CEO and President,
and Ralph DeLuca, Vice President. Both Messrs. Salvani and DeLuca hold these
positions with CEO Letter. The Todd Agreement provides that for a 36 month
period to April 25, 2002, Messrs. Salvani and DeLuca shall recommend to all
prospective MainStreet clients that choose to have an underwriter for their
securities offerings, that Todd act as their proposed underwriter, which Todd
has the option of accepting or rejecting. If such proposed MainStreet client has
already contracted with another broker-dealer other than Todd in connection with
its proposed public offering, Todd will be recommended to be part of the selling
group.
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There are no guaranties that Todd will receive any referrals or actual business,
nor does Todd have to accept any such referrals.
In consideration for the affiliation of MainStreet with Todd, MainStreet has
issued to Thomas K. Langbein and his designees an aggregate of 900,000 shares of
MainStreet common stock, of which Mr. Langbein retained 660,000 shares, and
45,000 shares each gifted to his two brothers, one of whom is employed by
Medicore, and 75,000 shares each gifted to his two children, who are of majority
age. See "Selling Shareholders."
With respect to any business Todd obtains under the Todd Agreement, Todd
will retain 10% of the gross proceeds and such sums for expense reimbursement,
with the balance to be shared equally between and among Todd and
Messrs. Salvani and DeLuca. No compensation shall be due or paid by Todd if any
such payments are in violation of the NASD rules. The board of directors of
MainStreet approved this transaction.
THE MAINSTREET AFFILIATES LOCK-UP AGREEMENTS
The affiliates and principal shareholders of MainStreet, owning
approximately 80% of the common stock, have executed lock-up agreements with
MainStreet. These lock-up agreements provide that until December 31, 2000 the
MainStreet affiliates and most of the principal shareholders (exclusive of
Thomas K. Langbein (660,000 shares with additional shares of DCA which will
entitle him to an additional 260,000 MainStreet shares upon completion of the
Merger) and Mmes. Hubertfeld and Bodner, who are each registering 250,000 of
their 500,000 MainStreet shares, see "MainStreet--Security Ownership of
Management and Certain Beneficial Owners" and "Selling Shareholders") will not
encumber, subject to customary exemptions such as pledges to lenders provided
the lenders will assume such lock-up restraints, sell, transfer, convey, write
or issue options or similar rights with respect to their MainStreet common
stock.
DCA--SELECTED FINANCIAL DATA
The following selected financial data for the five years ended December 31,
1998 is derived from the audited consolidated financial statements of DCA. The
consolidated financial data for the nine-month periods ended September 30, 1999
and 1998, which have not been audited by independent certified public
accountants, reflect, in the opinion of management, all adjustments (which
include only normal necessary adjustment) necessary to present fairly the
information set forth therein. The results of operations for the nine-month
period ending September 30, 1999 are not necessarily indicative of results to be
expected for the fiscal year ending December 31, 1999. This data is qualified in
its entirety by reference to and should be read in conjunction with the
Consolidated Financial Statements and Notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" which
are included elsewhere in this proxy statement/prospectus.
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CONSOLIDATED STATEMENTS OF OPERATIONS DATA
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997(1) 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues..................................... $4,454 $2,873 $4,004 $9,221 $4,137 $2,668 $2,201
Net (loss) income............................ (467) (211) (204) 1,993 (23) (167) 75
(Loss) earnings per share
Basic........................................ (.13) (.06) (.06) .56 (.01) (.07) .03
Diluted...................................... (.13) (.06) (.06) .55 (.01) (.07) .03
</TABLE>
CONSOLIDATED BALANCE SHEET DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997(1) 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
) (UNAUDITED
Working capital............................. $4,851 $5,551 $5,115 $7,062 $4,529 $ 651 $ 187
Total assets................................ 8,973 8,958 9,349 11,638 7,522 3,972 6,847
Intercompany receivable from Medicore (non-
current portion)(2)....................... 30 121 3,134
Long term debt, net of current portion(3)... 648 623 633 693 585 152
Stockholders' equity........................ 7,461 7,809 7,771 8,049 6,000 2,569 5,899
</TABLE>
- ------------------------
(1) Reflects the sale of substantially all the assets of DCA's Florida
subsidiary, Dialysis Services of Florida, Inc.--Fort Walton Beach ("DSF")
and related Florida dialysis operations, including the homecare operations
of another subsidiary, Dialysis Medical, Inc. ("DMI"), to Renal Care
Group, Inc. and its affiliates ("RCG") for $5,065,000 of which consideration
$4,585,000 was cash with the balance consisting of 13,873 shares of RCG
common stock. DCA owned 80% of DSF and DMI and on February 20, 1998 the 20%
interest of DSF owned by its former medical director and his 20% interest in
DMI were redeemed for approximately $625,000 of which sum included 6,936
shares of the RCG common stock valued at $240,000 with the balance in cash.
See "DCA--Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 9 to "DCA--Notes to Consolidated Financial
Statements."
(2) $1,000,000 repaid by Medicore on October 4, 1995; approximately $3,134,000
reduction effected through $1.30 per share dividend in November, 1995. See
Note (1) above and "DCA--Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(3) Includes advances from Medicore.
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DCA--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
Medical service revenue increased approximately $1,653,000 (66%) during the
nine months ended September 30, 1999 compared to the same period of the
preceding year. This increase reflected increased revenues of DCA's Pennsylvania
dialysis centers of approximately $1,222,000 for the nine months ended
September 30, 1999, including revenues of approximately $578,000 for DCA's
Chambersburg, Pennsylvania dialysis center which commenced operations in
January 1999. Also included in the increase in revenues are revenues of
approximately $431,000 from the Manahawkin, New Jersey center which commenced
operations in the fourth quarter of 1998. Although the operations of the new
centers have resulted in additional revenues, they are in the developmental
stage and, accordingly, their operating results will adversely affect DCA's
results of operations until they achieve a sufficient patient count to cover
fixed operating costs.
Interest and other income decreased approximately $72,000 for the nine
months ended September 30, 1999 compared to the same period of the preceding
year largely due to a decrease in interest earned as a result of a decrease in
invested funds.
Cost of medical services sales amounted to 70% for the nine months ended
September 30, 1999 compared to 72% for the same period of the preceding year
with improvements at existing centers more than offsetting higher costs at DCA's
new dialysis centers which are still in their developmental stage.
Selling, general and administrative expenses increased approximately
$674,000 for the nine months ended September 30, 1999 compared to the same
period of the preceding year. This increase reflected the commencement of
operations at DCA's new dialysis centers, costs in the second quarter of 1999 of
approximately $93,000 associated with management's decision not to go through
with plans to construct a facility in Toms river, New Jersey, and $153,000 in
compensation expense for issuance of stock options in April, 1999 (see Note 6 to
"DCA--Notes to Consolidated Condensed Financial Statements"). Selling general
and administrative expenses as a percent of medical services revenue amounted to
49% for the nine months ended September 30, 1999 compared to 55% for the same
period of the preceding year.
Interest expense decreased approximately $8,000 for the nine months ended
September 30, 1999 compared to the same period of the preceding year, which
included reductions in interest expense to Medicore of $6,000. The overall
decrease included increases in interest on equipment financing obligations,
which were more than offset by decreases in interest on other debt agreements
due to decreases in average outstanding borrowings.
1998 COMPARED TO 1997
Medical service revenues decreased approximately $823,000 (19%) for the year
ended December 31, 1998 compared to the preceding year. This decrease reflects
the loss of revenues, which amounted to approximately $1,663,000 for the
preceding year, from the sale of DCA's Florida dialysis operations on
October 31, 1997, which was offset to some degree by increased revenues of DCA's
Pennsylvania dialysis centers of approximately $782,000 including increased
revenues of approximately $510,000 at DCA's dialysis center located in Carlisle,
Pennsylvania, which commenced operations in July 1997 and $58,000 from a new
dialysis center located in Manahawkin, New Jersey, which received regulatory
approval in December, 1998. Although the operations of these centers have
resulted in additional revenues, they are in the developmental stage and,
accordingly, their operating results will
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adversely affect DCA's results of operations until they achieve a sufficient
patient count to cover fixed operating costs.
Interest and other income increased by approximately $37,000 for the year
ended December 31, 1998 compared to the preceding year. This increase is largely
due to interest earned on proceeds invested from the October 1997 sale of DCA's
Florida dialysis operations.
Revenues for 1997 included a gain of approximately $4,431,000 upon the sale
of substantially all of the assets of DCA's Florida subsidiary, and its related
operations.
Cost of medical services sales increased to 71% in 1998 compared to 62% in
1997 reflecting increases in healthcare salaries and supply costs as a
percentage of sales, including the operations of DCA's two new centers in
Carlisle, Pennsylvania and Manahawkin, New Jersey which are still in their
developmental stage. The preceding year included higher hospital treatment
revenues, which have a substantially lower cost of sales, with DCA's Florida
hospital operations having been sold on October 31, 1997.
Selling, general and administrative expenses decreased by approximately
$308,000 (14%) for 1998 compared to the preceding year. This decrease included a
decrease resulting from the sale of the Florida dialysis operations offset by
increases in expenses at the dialysis center in Carlisle, Pennsylvania, which
commenced operations in July, 1997, expenses in connection with the startup of
the new dialysis center in Manahawkin, New Jersey and the start up of a new
center in Chambersburg, Pennsylvania, which commenced operations in January,
1999, and another center presently under construction in New Jersey. Also,
contributing to the decrease was the fact that 1997 included an expense for
stock compensation of approximately $322,000 in conjunction with forgiveness of
notes from option exercises.
Interest expense decreased by approximately $5,000 during the comparable
periods largely as a result of reduced average outstanding borrowings.
1997 COMPARED TO 1996
Medical service revenues increased approximately $544,000 (14%) for the year
ended December 31, 1997 compared to the preceding year. This growth was largely
attributable to increased revenues of approximately $533,000 at DCA's Lemoyne,
Pennsylvania facility, which commenced operations in June 1995 and approximately
$329,000 from a new dialysis center located in Carlisle, Pennsylvania, which
commenced operations in July 1997. These increased revenues were offset by
approximately $312,000 of lost revenues from the sale of DCA's Florida dialysis
operations on October 31, 1997. Although the operations of the new Carlisle
center have resulted in additional revenues during 1997, it is in the
developmental stage and, accordingly, its operating results will likely
adversely affect DCA's results of operations until they achieve a sufficient
patient count to cover fixed operating costs.
Interest and other income increased by approximately $109,000 for the year
ended December 31, 1997 compared to the preceding year. This increase is largely
due to investment earnings derived from proceeds of (i) DCA's public offering
completed in the second quarter of 1996 and (ii) the October, 1997 sale of its
Florida dialysis operations.
1997 revenues included a gain of approximately $4,431,000 on the sale of
substantially all of the assets of Dialysis Services of Florida, Inc.--Fort
Walton Beach, and its related operations.
Cost of medical services increased by approximately $204,000 (8%) for the
year ended December 31, 1997 compared to the preceding year with the net
increase mainly attributable to the increase in revenues for the Lemoyne,
Pennsylvania facility and the commencement of operations at the new dialysis
center located in Carlisle, Pennsylvania offset by the cost decreases resulting
from the sale of the Fort Walton Beach, Florida facility. Cost of medical
services as a percentage of sales
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decreased to 62% for the year ended December 31, 1997 compared to 65% for the
preceding year. This decline was primarily attributable to diminuated supply
costs as a percentage of sales.
Selling, general and administrative expenses increased by approximately
$578,000 (37%) for 1997 compared to the preceding year. Selling, general and
administrative expenses as a percentage of medical services revenues amounted to
49% compared to 41% in the preceding year. This increase included expenses
involved in the opening of DCA's new Pennsylvania dialysis center in Carlisle
and expansion of the operations of its facility in Lemoyne, Pennsylvania offset
by decreases resulting from the sale of Florida dialysis operations. Also,
included in this increase was stock compensation expense during the fourth
quarter of 1997 of approximately $322,000 in conjunction with forgiveness of
notes from option exercises.
Interest expense showed no significant increases or decreases during the
comparable periods.
For fiscal 1998, DCA will adopt the provisions of Financial Accounting
Standards Board Statements No. 130, "Reporting Comprehensive Income" and
No. 131, "Disclosure About Segments of an Enterprise and Related Information,"
which it is anticipated will not have a material effect on its consolidated
financial statements or significantly change its segment reporting disclosures.
See Note 1 to "DCA--Notes to Consolidated Financial Statements."
LIQUIDITY AND CAPITAL RESOURCES
Working capital totaled $4,851,000 at September 30, 1999, which reflected a
decrease of approximately $264,000 during the nine months ended September 30,
1999. Included in the changes in components of working capital was a decrease in
cash and cash equivalents of $1,158,000, which included net cash used in
operating activities of $895,000, net cash used in investing activities of
$278,000 (including additions to property and equipment of $326,000 primarily
related to new centers) and net cash provided by financing activities of $16,000
(including an increase in advances from Medicore of $158,000 and debt repayments
of $142,000).
During 1988, DCA obtained mortgages totaling $1,080,000 on its two
buildings, one in Lemoyne, Pennsylvania and the other in Easton, Maryland, which
had a combined remaining balance of $300,000 at September 30, 1999 ($360,000 at
December 31, 1998). The bank has liens on the real and personal property of DCA,
including a lien on all rents due and security deposits from the rental of these
properties. An unaffiliated Maryland dialysis center, competitive with DCA,
continues to lease space from DCA in its building in Easton, Maryland. A
competitive Pennsylvania dialysis center relocated during 1995 and DCA
constructed its own dialysis facility at the property that commenced treatments
in June 1995. See Note 3 to "DCA--Notes to Consolidated Financial Statements."
DCA has an equipment purchase agreement for kidney dialysis machines for its
dialysis facilities which has a remaining balance of $507,000 at September 30,
1999 and $449,000 at December 31, 1998, which included additional equipment
financing of approximately $141,000 and $185,000 during the nine months ended
September 30, 1999 and September 30, 1998, respectively. See Note 3 to
"DCA--Notes to Consolidated Financial Statements."
Capital is needed primarily for the development of outpatient dialysis
centers. The construction of a 15 station facility, typically the size of DCA's
dialysis facilities, costs in the range of $600,000 to $750,000 depending on
location, size and related services to be provided, which includes equipment and
initial working capital requirements. Acquisition of an existing dialysis
facility is more expensive than construction, although acquisition provides for
an immediate ongoing operation, which most likely would be generating income.
Development of a dialysis facility to initiation of operations takes four to six
months and usually 12 months or longer to generate income. DCA has entered into
agreements with medical directors, and intends to establish additional
facilities in New Jersey, Pennsylvania, and Georgia.
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DCA, having operated on a larger scale in the past, is seeking to expand its
outpatient dialysis treatment facilities and inpatient dialysis care. Such
expansion, whether through acquisitions of existing centers or the development
of its own dialysis centers, requires capital, which was the basis for DCA's
security offering in 1996 and sale of its Florida dialysis operations in 1997.
DCA opened its fifth center in Chambersburg, Pennsylvania during the first
quarter of 1999, has recently opened its sixth center in Vineland, New Jersey,
and is in the initial development stage for a new dialysis center in Georgia.
The professional corporations and associations providing the medical director
services to its Manahawkin, New Jersey center, to another center presently under
development in New Jersey, and to its Carlisle and Chambersburg, Pennsylvania
facilities each have a 20% interest in the subsidiaries operating those dialysis
centers. No assurance can be given that DCA will be successful in implementing
its growth strategy or that remaining proceeds from its 1996 securities offering
and Florida dialysis operations sale in 1997 will be adequate or that sufficient
outside financing would be available to fund expansion. See Notes 7 and 9 to
"DCA--Notes to Consolidated Financial Statements."
Management believes that current levels of working capital will enable it to
successfully meet its liquidity demands for at least the next twelve months.
YEAR 2000 READINESS
The Year 2000 computer information processing challenge associated with the
recent millennium change concerned the ability of computerized information
systems to properly recognize date sensitive information, with which many
companies, public and private, were faced to ensure continued proper operations
and reporting of financial condition. Management was fully aware of the Year
2000 issues, made its assessments, which included testing each component of
software and hardware systems to insure each component operated properly with
the date advanced to the year 2000, developing awareness and educating employees
and patients regarding the Year 2000 issue and advising them of contingency
plans, in case of total operating failure, which would include transferring the
patients to our backup hospitals or referring to other non-affiliated dialysis
centers. The education phase was ongoing to assure staff and patients of the
nature of the Year 2000 issue and the contingency plans then available. Now that
the Year 2000 has arrived, we have not experienced any computer or other year
2000 problems within any of our systems or with third party suppliers or
providers.
In mid-year 1999, we installed a new Year 2000 compliant accounting package,
providing us with our own independent system of bookkeeping, accounting and
financial records and reducing our reliance on Medicore's system and staff. This
new system's cost, for equipment, software and training, was approximately
$40,000.
One of the most significant risks in our operations with respect to the
recent millenium change related to billing and collection from third-party
payors, and, in particular, Medicare. We receive a substantial portion of our
revenues from Medicare for treatment of dialysis patients and related services.
HCFA, through whom the Medicare program and payments are effected, has indicated
it has done and continues to accomplish all it can to insure the Medicare ESRD
program continues operating smoothly and that dialysis providers, like
ourselves, may continue to timely bill electronically for patient services with
Medicare payments to be made timely. In 1998, we installed a new electronic
billing software program that was developed according to Medicare's compliance
guidelines, which guidelines require not only system but also Year 2000
compatibility. We initiated electronic Medicare billing in January, 1999 without
any problems. Other third-party payors, such as insurance companies, are
presently billed with hard copy. The costs of the software modifications were
minimal, approximately $1,000, and we do not anticipate any further costs with
respect to Year 2000 compliance, and, if any, such would not be anticipated to
be material.
With respect to non-information technology systems, which typically include
embedded technology, such as microcontrollers, the major equipment used in
patient dialysis treatment is not date sensitive
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and did not pose any threat of a system breakdown due to the Year 2000 issue.
Most of our dialysis equipment is new. We retain technicians who test and
maintain dialysis operations equipment.
In addition to addressing our own internal software system and equipment, we
had communicated with all of our suppliers, service providers and other key
third parties, including banks, hospitals, insurance companies, drug and medical
equipment and soft good suppliers, utilities, waste removal and water and sewer
services with whom we deal to determine the extent of their Year 2000
compliance, what actions they were taking to assess and address that issue, and
whether they would be compliant. We received written assurances from these third
parties indicating that they were Year 2000 compliant, and, in fact, we have not
experienced any material adverse effects in entering into the Year 2000.
We assumed a worse case scenario that some of our critical suppliers might
experience a millenium problem and limit, delay or be unable to deliver supplies
for patient treatment. In response, we identified other sources of supplies and
maintained specific contacts with those suppliers, and had it been necessary,
which it was not, would have requested those suppliers to carry more inventory
earmarked for us. At the millenium change there were no supply problems.
Another area that could have significantly impacted our operations in
providing dialysis treatment to patients related to third-party providers,
specifically, the utility companies providing water, a necessary resource for
dialysis treatments, and electricity. These providers and services are beyond
our control, and we do not have a separate generator for electricity nor other
sources for water. None of these utilities have failed to provide services.
However, we had in place plans to reduce the impact of any such utility
shortages or outages which included notification to our utilities companies of
our dialysis center locations, schedules and emergency services required and a
24-hour contact as well as notification to each of our landlords to assure
access to the facility for our staff and key service providers.
We have not experienced any material unanticipated negative consequences
from the Year 2000 issues. We believe our assessment and implementation of our
Year 2000 issues were satisfactorily completed, as evidenced by our continued
and uninterrupted dialysis operations. However, we have only just entered the
new millenium, and there may yet arise Year 2000 problems that we are not aware
of. These unknowns do not allow us the ability to predict with any significant
accuracy or to quantify these Year 2000 issues' impact upon us, since they would
involve uncertainty of costs we might incur as a result of these unknown Year
2000 failures that might yet occur despite the successful implementation of our
program.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
DCA does not consider its exposure to market risks, principally changes in
interest rates, to be significant.
Sensitivity of results of operations to interest rate risks on the DCA's
investments is managed by conservatively investing liquid funds in short-term
government securities of which DCA held approximately $3,967,000 at
September 30, 1999 and approximately $5,000,000 at December 31, 1998.
Interest rate risk on debt is managed by negotiation of appropriate rates
for equipment financing obligations based on current market rates. There is an
interest rate risk associated with DCA's variable rate mortgage obligations
which totaled $300,000 at September 30, 1999 and $360,000 at December 31, 1998.
DCA has exposure to both rising and falling interest rates. A 1/2% decrease
in rates on its third quarter investments in government securities and a 1%
increase in rates on its year-end mortgage debt would result in a negative
annual impact of approximately $23,000 on its result of operations.
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DCA does not utilize financial instruments for trading or speculative
purposes and does not currently use interest rate derivatives.
NEW ACCOUNTING PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standards Board issued Financial
Accounting Standards Board Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). FAS 133 is effective for fiscal
quarters of fiscal years beginning after June 15, 2000. FAS 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities and requires, among other things, that all derivatives be recognized
as either assets or liabilities in the statement of financial position and that
these instruments be measured at fair value. The Company is in the process of
determining the impact that the adoption of FAS 133 will have on its
consolidated financial statements.
IMPACT OF INFLATION
Inflationary factors have not had a significant effect on DCA's operations,
although DCA has experienced increased costs of healthcare salaries and supply
costs. A substantial portion of the Company's revenue is subject to
reimbursement rates established and regulated by the federal government. These
rates do not automatically adjust for inflation. Any rate adjustments relate to
legislation and executive and Congressional budget demands, and have little to
do with the actual cost of doing business. See "Operations--Medicare
Reimbursement" and "Government Regulation" under "DCA--Business--Description."
Therefore, dialysis services revenues cannot be voluntary increased to keep pace
with increases in supply costs or nursing and other patient care costs.
Increased operating costs without a corresponding increase in reimbursement
rates may adversely affect DCA's earnings in the future.
MAINSTREET--SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD APRIL 12, 1999
(INCEPTION) TO
OCTOBER 31, 1999
---------------------
<S> <C>
Statement of Operations Data:............................. $ --
Sales
Expenses:
Payroll expense....................................... 104,999
Consulting fees....................................... 57,479
General and administrative expenses................... 127,631
---------
Net loss................................................ $(290,109)
=========
Net loss per common share............................... $ (.04)
=========
Balance Sheet Data:
Working capital......................................... $ 107,397
Total assets............................................ $ 285,378
Long-term debt.......................................... --
Total liabilities....................................... --
Stockholders' equity.................................... $ 285,378
</TABLE>
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MAINSTREET--MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
MainStreet has been essentially a development stage company since its
inception in April, 1999. MainStreet has devoted all of its resources and
attention to developing its Website whereby companies can, through Direct Public
Offerings (self-underwritings), offer their securities over the Internet to the
investing public.
To date, MainStreet has not realized any revenues from the sale of the use
of its websites and related services. Payroll costs amounted to approximately
$104,000 for the period April 12, 1999 (inception) to October 31, 1999.
MainStreet has also paid consultants $57,000 for services related to the
start-up of the business. In addition, MainStreet has incurred general and
administrative costs of approximately $128,000. Included in the general and
administrative costs is $59,000 for advertising and design costs for developing
promotional literature, $36,000 for legal costs, and $10,000 for promotional
materials. The balance of the general and administrative costs represents office
expenses, insurance and telephone costs.
LIQUIDITY AND CAPITAL RESOURCES
MainStreet has raised approximately $575,000 from its founders and other
qualified investors. It is anticipated that MainStreet will realize proceeds
from the exercise of outstanding options and warrants of its merger candidate,
DCA. The amount of such proceeds, if any, is unknown at this time. In addition,
MainStreet has made its significant investment in its beginning of operations
with the design of its Website and marketing efforts and, in the opinion of
management, the future operations will have a low overhead.
Joseph Salvani, the Chairman of the Board, Chief Executive Officer and
President of MainStreet, has granted MainStreet a stand-by letter of commitment
whereby he has agreed to lend MainStreet up to $1,000,000 to support its
operations for the next twelve months. It is anticipated that with the proceeds
from the exercise of outstanding options and warrants, its existing working
capital and the stand-by letter of commitment, MainStreet will have sufficient
resources to support its operations for the next year.
MainStreet anticipates that for the near future its revenues, if any, will
principally be derived from those fees paid by issuers for the use of the
Website. MainStreet also anticipates that it will receive revenues from the
operations of CEO Letter when that proposed subsidiary becomes operational;
however, there is no way of estimating the potential revenues, if any, that
might be derived from CEO Letter. Additionally, MainStreet is also seeking to
augment its revenues from the sale of products and services over the Internet
for those companies that have utilized MainStreet's Website for their public
offerings. To date, MainStreet has no contracts for such marketing of products
and services, and it is believed that it will take some time to develop this
proposed segment of its business.
The forward-looking information reflected above is based upon only those
commitments which are known as of October 31, 1999, and do not incorporate the
expected revenue to be derived by MainStreet during the course of the next
twelve months.
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DCA--BUSINESS
DESCRIPTION
GENERAL
DCA, organized in 1976, develops and operates six outpatient kidney dialysis
centers, four in Pennsylvania and two in New Jersey, that provide dialysis and
ancillary services to approximately 160 patients suffering from chronic kidney
failure, generally referred to as ESRD. For the nine months ended September 30,
1999, DCA performed approximately 21,300 dialysis treatments, of which
approximately 17,600 were for outpatients, 2,171 for peritoneal treatments, and
1,517 represented inpatient dialysis treatments. DCA's facilities are designed
for a maximum of 86 stations in the aggregate to render outpatient dialysis
treatment and training of home dialysis patients.
DCA's inpatient dialysis treatments are conducted under contractual
relationships currently with three hospitals located in areas serviced by three
of DCA's outpatient dialysis subsidiaries. Peritoneal dialysis, sometimes
referred to as Method II home patient treatment, requires DCA to provide
equipment and supplies, training, patient monitoring and follow-up assistance to
patients who are able to perform their treatments at home.
DCA's future growth depends primarily on the availability of suitable
dialysis centers for acquisition or development in appropriate and acceptable
areas. Growth also depends on DCA's ability to develop these new potential
dialysis centers at costs within its budget while competing with larger
companies, some of which are public companies or divisions of public companies
with much greater personnel and financial resources who have a significant
advantage in acquiring and/or developing facilities in areas targeted by DCA.
Additionally, there is intense competition for retaining qualified
nephrologists, who normally are a substantial if not the sole source of patient
referrals and are responsible for the supervision of the dialysis centers, and
assist in finding nursing and technical staff at reasonable rates.
DCA's net revenues are derived primarily from four sources: (i) outpatient
hemodialysis services; (ii) peritoneal dialysis services, including Method II
services; (iii) inpatient hemodialysis services for acute patient care provided
through agreements with hospitals and other healthcare entities; and
(iv) ancillary services associated with dialysis treatments, primarily certain
tests and the administration of erythropoietin ("EPO"), a bio-engineered protein
that stimulates the production of red blood cells, since a deteriorating kidney
looses its ability to regulate red blood cell count, resulting in anemia.
Dialysis is an ongoing and necessary therapy to sustain life for kidney dialysis
patients and utilization of DCA's services is substantially predictable. ESRD
patients normally receive 156 dialysis treatments each year. For the nine months
ended September 30, 1999 and for the year ended December 31, 1998, approximately
76% and 74%, respectively of DCA's revenues were derived from Medicare
reimbursement.
Essential to operations and income is Medicare reimbursement which is a
fixed rate determined by the Health Care Financing Administration ("HCFA") of
the Department of Health and Human Services ("HHS"). The level of DCA's revenues
and profitability may be adversely affected by future legislation that could
result in rate cuts. Additionally, operating costs tend to increase over the
years without any comparable increases, if any, in the prescribed dialysis
treatment rates, which usually remain fixed and have decreased over the years.
There also may be reductions in commercial third-party reimbursement rates. See
below "Operations--Medicare Reimbursement." The inpatient dialysis service
agreements for treating acute kidney disease are not subject to government fixed
rates, but rather are negotiated with the hospitals, and typically the rates are
higher on a per treatment basis. DCA's inpatient treatments have accounted for
approximately 10% of its Company's revenues for the nine months ended
September 30, 1999, compared to 11% for the year ended December 31, 1998.
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DIALYSIS INDUSTRY
Kidneys generally act as a filter removing harmful substances and excess
water from the blood, enabling the body to maintain proper and healthy balances
of chemicals and water. Chronic kidney failure (ESRD) which results from
chemical imbalance and buildup of toxic chemicals, is a state of kidney disease
characterized by advanced irreversible renal impairment. ESRD is a likely
consequence of complications resulting from diabetes, hypertension, advanced
age, and specific hereditary, cystic and urological diseases. ESRD patients, in
order to survive, must obtain a kidney transplant, which procedure is limited
due to lack of suitable kidney donors and ESRD patients and the incidence of
rejection of transplanted organs, or obtain regular dialysis treatment for the
rest of their lives.
ESRD TREATMENT OPTIONS
Treatment options for ESRD patients include (1) hemodialysis, performed
either at (i) an outpatient facility, or (ii) inpatient hospital facility, or
(iii) the patient's home; (2) peritoneal dialysis, either continuous ambulatory
peritoneal dialysis ("CAPD") or continuous cycling peritoneal dialysis ("CCPD"),
usually performed at the patient's home; and/or (3) kidney transplant. The
significant portion of ESRD patients receive treatments at non-hospital owned
outpatient dialysis facilities (approximately 83%) with the remaining patients
treated at home through hemodialysis or peritoneal dialysis. Patients treated at
home are monitored by a designated outpatient facility.
The most prevalent form of treatment for ESRD patients is hemodialysis,
which involves the use of an artificial kidney, known as a dialyzer, to perform
the function of removing toxins and excess fluids from the bloodstream. This is
accomplished with a dialysis machine, a complex blood filtering device which
takes the place of certain functions of the kidney and which machine also
controls external blood flow and monitors the toxic and fluid removal process.
The dialyzer has two separate chambers divided by a semi-permeable membrane, and
at the same time the blood circulates through one chamber, a dialyzer fluid is
circulated through the other chamber. The toxins and excess fluid pass through
the membrane into the dialysis fluid. On the average, patients usually receive
three treatments per week with each treatment taking three to five hours.
Dialysis treatments are performed by teams of licensed nurses and trained
technicians pursuant to the staff physician's instructions.
Home hemodialysis treatment requires the patient to be medically suitable
and have a qualified assistant. Additionally, home hemodialysis requires
training for both the patient and the assistant, which usually takes four to
eight weeks. DCA does not currently provide home hemodialysis service. The use
of conventional home hemodialysis has declined and is minimal due to the
patient's suitability and lifestyle, the need for the presence of a partner and
a dialysis machine at home, and the higher expense involved over CAPD.
A second home treatment for ESRD patients is peritoneal dialysis. There are
several variations of peritoneal dialysis, the most common being CAPD and CCPD.
All forms of peritoneal dialysis use the patient's peritoneal (abdominal) cavity
to eliminate fluid and toxins from the patient. CAPD utilizes dialysis solution
installed manually into the patient's peritoneal cavity, which does not require
the use of a mechanical device or an assistant. The patient uses a sterile
dialysis solution which is fed into the cavity through a surgically-placed
catheter. The solution is allowed to remain in the abdominal cavity for a three
to five hour period and is then drained. The cycle is then repeated. CCPD is
performed in a manner similar to CAPD, but utilizes a mechanical device to cycle
dialysis solution while the patient is sleeping. Peritoneal dialysis is the
third most common form of ESRD therapy following center hemodialysis and renal
transplant.
The third modality for patients with ESRD is kidney transplantation. While
this is the most desirable form of therapeutic intervention, the scarcity of
suitable donors and possibility of donor rejection limits the availability of
this surgical procedure as a treatment option.
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SAME CENTER GROWTH
DCA endeavors to increase same center growth by adding quality staff and
management and attracting new patients to its existing facilities. DCA seeks to
accomplish this objective by rendering high caliber patient care in convenient,
safe and serene conditions for everyone involved. DCA believes that it has
existing adequate space and stations within its facilities to accommodate
greater patient volume and maximize its treatment potential and is working to
achieve such increase, to lower its fixed costs, and operate at a greater
efficiency level.
ACQUISITION AND DEVELOPMENT OF FACILITIES
One of the primary elements in acquiring or developing facilities is
locating an area with an existing patient base under the current treatment of a
local nephrologist, since the facility is primarily going to serve such
patients. Other considerations in evaluating a proposed acquisition or
development of a dialysis facility are the availability and cost of qualified
and skilled personnel, particularly nursing and technical staff, the size and
condition of the facility and its equipment, the atmosphere for the patients,
the area's demographics and population growth estimates, state regulation of
dialysis and healthcare services, and the existence of competitive factors such
as hospital or proprietary non-hospital owned and existing outpatient dialysis
facilities within reasonable proximity to the proposed center.
Expansion of DCA's operations is currently through the development of its
own dialysis facilities. Acquisition of existing outpatient dialysis centers,
which DCA has not done in the past, is a faster but much more costly means of
growth. To construct and develop a new facility ready for operations may take an
average of four to six months, and approximately 12 months or longer to generate
income, all of which are subject to location, size and competitive elements.
Construction of a 15 station facility may cost in a range of $600,000 to
$750,000 depending on location, size and related services to be provided by the
proposed facility. Any significant expansion, whether through acquisition or
development of new facilities, is dependent upon existing funds or financing
from other sources. To date, no acquisitions have been made and should such
acquisition opportunities arise, there is no assurance that DCA would have
available or be able to raise the necessary financing to pursue or complete such
an acquisition.
There is no certainty as to when any new centers or service contracts will
be implemented, or the number of stations, or patient treatments such may
involve, or if such will ultimately be profitable. There is no assurance that
DCA will be able to enter into favorable relationships with physicians who would
become medical directors of such proposed dialysis facilities, or that it will
be able to acquire or develop any new dialysis centers within a favorable
geographic area. Newly established dialysis centers, although contributing to
increased revenues, also adversely affect results of operations due to start-up
costs and expenses with a smaller developing patient base. See
"DCA--Management's Discussion and Analysis of Financial Condition and Results of
Operations."
OPERATIONS
LOCATION, CAPACITY AND USE OF FACILITIES
DCA currently operates six outpatient dialysis facilities in Pennsylvania
and New Jersey, with a total designed capacity of 86 licensed stations. The
Company owns and operates those centers through its subsidiaries, four of which
are 80% owned and two are wholly-owned. The Lemoyne, Pennsylvania dialysis
facility is located on property owned by DCA and leased to that subsidiary. See
"DCA--Business--Properties."
DCA also provides acute care inpatient dialysis services to three hospitals
in areas serviced by three of its six dialysis facilities. Each of DCA's
dialysis facilities provides training, supplies and on-call support services for
home peritoneal patients. See "Dialysis Industry" above. The table below
indicates
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when each subsidiary commenced operations and the number of patient treatments
for the periods indicated.
<TABLE>
<CAPTION>
DIALYSIS TREATMENTS
-------------------
YEAR ENDED
DECEMBER 31,
COMMENCEMENT OF -------------------
SUBSIDIARY AND LOCATION OPERATIONS 1999 1998
- ----------------------- --------------- -------- --------
<S> <C> <C> <C>
Dialysis Services of PA., Inc.--Lemoyne.......... June, 1995 7,600 7,500
Dialysis Services of PA., Inc.--Wellsboro........ September, 1995 3,000 3,600
Dialysis Services of PA., Inc.--Carlisle......... September, 1997 3,000 3,500
250(1/2
Dialysis Services of NJ, Inc.--Manahawkin........ July, 1998 1,300 yr.)
Dialysis Services of PA., Inc.--Chambersburg..... January, 1999 2,900 --
DCA of Vineland, LLC............................. February, 2000 -- --
</TABLE>
DCA estimates that on average its centers are operating at approximately 56%
of capacity as of December 31, 1999, based on the assumption that a dialysis
center is able to provide up to three treatments a day per station, six days a
week. DCA believes it may increase the number of dialysis treatments at its
centers without making additional capital expenditures.
OPERATIONS OF DIALYSIS FACILITIES
DCA's dialysis facilities are designed specifically for outpatient
hemodialysis and generally contain, in addition to space for dialysis
treatments, a nurses' station, a patient weigh-in area, a supply room, water
treatment space used to purify the water used in hemodialysis treatments, a
dialyzer reprocessing room (where, with both the patient's and physician's
consent, the patient's dialyzer is sterilized for reuse), staff work area,
offices and a staff lounge. These facilities also have a designated area for
training patients in peritoneal dialysis. Each facility also offers amenities
for the patients, such as a color television with headsets for each dialysis
station, to ensure the patients are comfortable and relaxed.
DCA maintains a team of dialysis specialists to provide for the individual
needs of each patient. In accordance with participation requirements under the
Medicare ESRD program, each facility retains a medical director qualified and
experienced in the practice of nephrology and the administration of a renal
dialysis facility. See "Physician Relationships" below. Each facility is
overseen by a nurse administrator who supervises the daily operations and the
staff, which consists of registered nurses, licensed practical nurses, patient
care technicians, a part-time social worker to assist the patient and family to
adjust to dialysis treatment and to provide help in financial assistance and
planning, and a part-time registered dietitian. These individuals supervise the
patient's needs and treatments. See "Employees" below. DCA must continue to
attract and retain skilled nurses and other staff, competition for whom is
intense.
DCA's facilities offer high-efficiency and conventional hemodialysis, which,
in its experience, provides the most viable treatment for most patients. In
1999, DCA acquired an additional 32 dialysis machines which are more advanced
and include better safety features and updated technology. The addition of the
improved equipment enhances DCA's ability to provide more efficient treatment.
DCA's facilities also offer peritoneal dialysis, both CAPD and CCPD.
Training programs for CAPD or CCPD generally encompass two to three weeks at
each facility, and such training is conducted by the facility's home training
nurse. After the patient completes training, they are able to perform treatment
at home with equipment and supplies provided by DCA.
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INPATIENT DIALYSIS SERVICES
DCA presently provides inpatient dialysis services to three hospitals in
Pennsylvania under agreements with DCA's subsidiaries. Each agreement is for a
one-year term with automatic one-year renewal terms, subject to termination by
notice of either party. Inpatient services are typically necessary for patients
with acute kidney failure resulting from trauma or similar causes, patients in
the early stages of ESRD, and ESRD patients who require hospitalization for
other reasons.
ANCILLARY SERVICES
DCA's dialysis facilities provide certain ancillary services to ESRD
patients, including the administration of EPO upon a physician's prescription.
EPO is a bio-engineered protein which stimulates the production of red blood
cells and is used in connection with dialysis to treat anemia, a medical
complication frequently experienced by ESRD patients. EPO decreases the
necessity for blood transfusions in ESRD patients. Other ancillary services that
DCA provides to its patients include electrocardiograms and blood transfusions,
all of which are separately reimbursed by Medicare. See "Medicare Reimbursement"
below.
PHYSICIAN RELATIONSHIPS
An integral element to the success of a facility is its association with
area nephrologists. A dialysis patient generally seeks treatment at a facility
near the patient's home and where such patient's nephrologist has established
its practice. Consequently, DCA relies on its ability to develop affiliations
with area nephrologists who may provide additional patients and quality dialysis
care.
The conditions of a facility's participation in the Medicare ESRD program
mandate that treatment at a dialysis facility be under the general supervision
of a medical director who is a physician. DCA retains qualified physicians or
groups of qualified physicians to serve as medical directors for each of its
facilities. Generally, the medical directors are board eligible or board
certified in internal medicine by a professional board specializing in
nephrology and have had at least 12 months of experience or training in the care
of dialysis patients at ESRD facilities. The medical directors are typically a
significant source of referrals to the particular center served.
Agreements with medical directors are usually for a term of five years or
more with renewal provisions. Each agreement specifies the duties,
responsibilities and compensation of the medical director. Usually, physician's
fees for services are billed to the government payment authority on a direct
basis and paid directly to the physician or the professional corporation which
acts as the medical director for the facility. The agreements also provide for
non-competition in a limited geographic area surrounding that particular
dialysis center during the term of the agreement and upon termination for a
limited period. However, the agreements do not prohibit physicians providing
services at DCA's facility from providing direct patient care services at other
locations; and consistent with the federal and state law, such agreements do not
require a physician to refer patients to DCA's dialysis center.
DCA's ability to establish a dialysis facility in a particular area is
significantly geared to the availability of a qualified physician or
nephrologist with an existing patient base to serve as DCA's medical director.
The loss of a medical director who could not be readily replaced would have a
material adverse effect on the operations of that facility and DCA. Compensation
of medical directors is separately negotiated for each facility and generally
depends on competitive factors such as the local market, the physician's
qualifications and the size of the facility.
PATIENT REVENUES
A substantial amount of the fees for outpatient dialysis treatments are
funded under the ESRD Program established by the federal government under the
Social Security Act, and administered in
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accordance with rates set by HCFA. It has been reported by HCFA that 92% of all
dialysis patients were covered by Medicare. The balance of the outpatient
charges are paid by private payors including the patient's medical insurance,
private funds or state Medicaid plans. Pennsylvania and New Jersey, presently
the states in which DCA operates, provide Medicaid or comparable benefits to
qualified recipients to supplement their Medicare coverage.
Under the ESRD Program, payments for dialysis services are determined
pursuant to Part B of the Medicare Act which presently pays 80% of the allowable
charges for each dialysis treatment furnished to patients. The maximum payments
vary based on the geographic location of the center. The remaining 20% may be
paid by Medicaid if the patient is eligible, from private insurance funds or the
patient's personal funds. Medicare and Medicaid programs are subject to
regulatory changes, statutory limitations and government funding restrictions,
which may adversely affect DCA's revenues and dialysis services payments. See
"Medicare Reimbursement" below.
The inpatient dialysis services are paid for by the hospital pursuant to
contractual pre-determined fees for the different dialysis treatments. Inpatient
treatments accounted for approximately 10% of DCA's revenues for the nine months
ended September 30, 1999 and 11% for the same period last year.
MEDICARE REIMBURSEMENT
DCA is reimbursed primarily from third party payors including Medicaid,
commercial insurance companies, but substantially by Medicare under a
prospective reimbursement system for chronic dialysis services. Each of DCA's
dialysis facilities is certified to participate in the Medicare program. Under
that Medicare system, the reimbursement rates are fixed in advance and limit the
allowable charge per treatment, but provides DCA with predictable and recurring
per treatment revenues and allows DCA to retain any profit earned. An
established composite rate set by HCFA governs the Medicare reimbursement
available for a designated group of dialysis services, including dialysis
treatments, supplies used for such treatments, certain laboratory tests and
medications. HCFA eliminated routine Medicare coverage for such tests as nerve
conduction studies, electrocardiograms, chest x-rays and bone density
measurements, and will only pay for such tests when there is documentation of
medical necessity. The Medicare composite rate is subject to regional
differences in wage earnings.
DCA receives reimbursement for outpatient dialysis services provided to
Medicare-eligible patients at rates that are currently between $122 and $124 per
treatment, depending upon regional wage variations. The Medicare reimbursement
rate is subject to change by legislation and recommendations by the Medicare
Payment Advisory Commission ("MedPAC"), a commission mandated by the Balanced
Budget Act of 1997 and continuing the work of the Prospective Payment Assessment
Commission ("PROPAC"). An average ESRD reimbursement rate is $126 per treatment
for outpatient dialysis services. The current maximum composite reimbursement
rate is $134 per treatment.
Other ancillary services and items are eligible for separate reimbursement
under Medicare and are not part of the composite rate, including certain drugs
such as EPO, the allowable rate of which is currently $10 per 1000 units blood
for amounts in excess of three units per patient per year, and certain
physician-ordered tests provided to dialysis patients. These ancillary services
are not significant sources of income to DCA compared to reimbursement for
patient treatment. The Company routinely submits claims monthly and is usually
paid by Medicare within 30 days of the submission.
DCA is unable to predict what, if any, future changes may occur in the rate
of reimbursement. Any reduction in the Medicare composite reimbursement rate
could have a material adverse effect on DCA's business, revenues and net
earnings.
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MEDICAID REIMBURSEMENT
Medicaid programs are state administered programs partially funded by the
federal government. These programs are intended to provide coverage for patients
whose income and assets fall below state defined levels and who are otherwise
uninsured. The programs also serve as supplemental insurance programs for the
Medicare co-insurance portion and provide certain coverages (e.g., oral
medications) that are not covered by Medicare. State regulations generally
follow Medicare reimbursement levels and coverages without any co-insurance
amounts. Certain states, however, require beneficiaries to pay a monthly share
of the cost based upon levels of income or assets. Pennsylvania has a Medical
Assistance Program comparable to Medicaid, as well as New Jersey, with primary
and secondary insurance coverage to those who qualify. DCA is a licensed ESRD
Medicaid provider in Pennsylvania, and has applied to be an approved Medicaid
provider in New Jersey.
POTENTIAL LIABILITY AND INSURANCE
Participants in the health care industry are subject to lawsuits based upon
alleged negligence, many of which involve large claims and significant defense
costs. DCA, although involved in chronic and acute kidney dialysis services for
approximately 24 years, has never been subject to any suit relating to its
dialysis operations. DCA currently has in force general liability insurance,
including professional and products liability, with coverage limits of
$1 million per occurrence and $3 million in the aggregate annually. DCA's
insurance policies provide coverage on an "occurrence" basis and are subject to
annual renewal. A successful claim against DCA in excess of its insurance
coverage could have a material adverse effect upon its business and results of
operations. The medical directors supervising DCA's dialysis operations and
other physicians practicing at the facilities are required to maintain their own
professional malpractice insurance coverage.
GOVERNMENT REGULATION
GENERAL
Regulation of healthcare facilities, including dialysis centers, is
extensive with legislation continually proposed relating to safety, maintenance
of equipment and proper records, quality assurance programs, reimbursement
rates, licensing and other areas of operations. Each of the dialysis facilities
must be certified by HCFA, and DCA must comply with certain rules and
regulations established by HCFA regarding charges, procedures and policies. Each
dialysis center is also subject to periodic inspections by federal and state
agencies to determine if their operations meet the appropriate regulatory
standards. DCA is unable to predict the scope and effect of any changes in
government regulations, particularly any modifications in the reimbursement rate
for medical services or requirements to obtain certification from HCFA.
Enforcement may also become more stringent adding to compliance costs as well as
potential sanctions.
FRAUD AND ABUSE
The Social Security Act provides Medicare coverage to most persons
regardless of age or financial condition for dialysis treatments as well as
kidney transplants. The Social Security Act further prohibits, as do many state
laws, the payment of patient referral fees for treatments that are otherwise
paid for by Medicare, Medicaid or similar state programs under the Medicare and
Medicaid Patient and Program Protection Act of 1987, or the "Anti-kickback
Statute." The Anti-kickback Statute and similar state laws impose criminal and
civil sanctions on persons who knowingly and willfully solicit, offer, receive
or pay any remuneration, directly or indirectly, in return for, or to include,
the referral of a patient for treatment, among other things. Included in the
civil penalties is exclusion of the provider from participation in the Medicare
and Medicaid programs. The language of the Anti-kickback Statute has been
construed broadly by the courts. There are federal regulations that established
exceptions,
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"safe harbors," to the Anti-kickback Statute for certain business arrangements
that would not be deemed to violate the illegal remuneration provisions of the
federal statute. All conditions of the safe harbor must be satisfied to meet the
exception, but failure to satisfy all elements, which is the case with DCA, does
not mean the business arrangement violates the illegal remuneration provision of
the statute.
As required by Medicare regulations, each of DCA's dialysis centers is
supervised by a medical director, who is a licensed nephrologist or otherwise
qualified physician. The medical directors are in private practice and are one
of the most important sources of the dialysis center's business, since it is
each physician's patients that primarily utilize the services of the facility.
The compensation of the medical directors is fixed by a Medical Director
Agreement and reflects competitive factors in their respective location, and the
size of the center, and the physician's professional qualifications. The medical
director's fee is fixed in advance for periods of one to five years and does not
take into account the volume of patient treatments or amounts of referrals to
the dialysis center. Four of the outpatient dialysis centers are owned jointly
between DCA and groups of physicians, who hold a minority position and who also
act as the medical director for those facilities. DCA attempts to structure its
arrangements with its physicians to comply with the Anti-Kickback Statute.
However, many of these physicians refer patients to DCA facilities. DCA believes
that the value of the minority interest represented by securities of DCA's
subsidiaries issued to physicians has been consistent with the fair market value
of assets transferred to, or services performed by such physicians for DCA, and
in certain cases, monetary compensation, and there is no intent to induce
referrals to DCA's facilities. See "DCA--Business--Physician Relationships"
above. There can be no assurance that these relationships will not subject the
Company to investigation or prosecution by enforcement agencies.
In certain instances, medical directors of a DCA facility who have a
minority interest in that facility may refer patients to hospitals with which
DCA has an inpatient dialysis services arrangement. The federal Anti-kickback
Statute could apply, but DCA believes its acute inpatient hospital services are
in compliance with the law. See "Stark II" below.
DCA endeavors in good faith to comply with all governmental regulations.
However, there can be no assurance that DCA will not be required to change its
practices or experience a material adverse effect as a result of any such
potential challenge.
STARK II
The Physician Ownership and Referral Act ("Stark II") was adopted and
incorporated into the Omnibus Budget Reconciliation Act of 1993 and became
effective January 1, 1995. Stark II bans physician referrals, with certain
exceptions, for certain "designated health services" as defined in the statute
to entities in which a physician or an immediate family member has a "financial
relationship" which includes an ownership or investment interest in, or a
compensation arrangement between the physician and the entity. This ban is
subject to several exceptions including personal service arrangements,
employment relationships and group practices meeting specific conditions. If
Stark II is found to be applicable to the facility, the entity is prohibited
from claiming payment for such services under the Medicare or Medicaid programs,
is liable for the refund of amounts received pursuant to prohibited claims, can
be imposed with civil penalties per referral and can be excluded from
participation in the Medicare and Medicaid programs.
For purposes of Stark II, "designated health services" includes, among
others, clinical laboratory services, durable medical equipment, parenteral and
enteral nutrients, home health services, and inpatient and outpatient hospital
services. In HCFA's proposed rules, it clarified the definitions of designated
health services, delineating what supplies and services are intended to be
included and excepted from each category. In particular, dialysis equipment,
supplies and services were specifically excepted from the definitions of durable
medical equipment, and inpatient and outpatient health
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services. HCFA further indicated that the purpose behind the Stark II
prohibition on physician referral is to prevent Medicare program and patient
abuse, and that dialysis is a necessary medical treatment for those with
temporary or permanent kidney failure that is not susceptible to that type of
abuse. HCFA additionally excluded EPO (see "Operations--Ancillary Services"
above) from the definition of outpatient prescription drugs under the same
reasoning. DCA compensates its nephrologist-physicians as medical directors of
its dialysis centers pursuant to Medical Director Agreements, which DCA believes
meet the exception for personal service arrangements under Stark II.
Non-affiliated physicians who send or treat their patients at any of DCA's
facilities do not receive any compensation from DCA.
Medical directors of DCA's facilities in which they hold a minority
investment interest may refer patients to hospitals with which DCA has an acute
inpatient dialysis service arrangement. Stark II may be interpreted to apply to
these types of interests. According to HCFA's proposed rules, acute care
inpatient hospital arrangements for dialysis services are excluded from the
prohibition on physician referrals based upon the fact that the services
provided under these arrangements are rendered under emergency circumstances and
are necessary treatments.
HEALTH INSURANCE REFORM ACT
Congress has taken action in most recent legislative sessions to modify the
Medicare program for the purpose of reducing the amounts otherwise payable from
the program to healthcare providers, but there are no significant proposed cuts
in dialysis payments. The ESRD program received a five year waiver from
reduction in Medicare outlays to allow for the results of the HCFA project. See
"Medicare Reimbursement" above. However, future legislation or regulations may
be enacted that could significantly modify the ESRD program or substantially
reduce the amount paid to DCA for its services. Further, statutes or regulations
may be adopted which demand additional requirements in order for DCA to be
eligible to participate in the federal and state payment programs. Any new
legislation or regulations may adversely affect DCA's business operations, as
well as its competitors.
The Health Insurance Portability and Accountability Act of 1996 ("HIPA"),
established two programs that will coordinate federal, state and local
healthcare fraud and abuse activities. Under these programs, certain
governmental agencies will undertake a variety of monitoring activities,
including medical utilization and fraud review, cost report audits, secondary
payor determinations, reports of fraud and abuse actions against providers which
is encouraged by rewarding whistleblowers with money collected from civil fines.
The Incentive Program for Fraud and Abuse Information, a new program from HIPA,
began in January, 1999 rewarding Medicare recipients 10% of the overpayment up
to $1,000 for reporting Medicare fraud and abuse. HIPA further extends coverage
of the fraud and abuse laws to all federally funded health care programs and to
private health plans; but the Anti-kickback Statute does not apply to private
health plans.
HIPA significantly increased the civil and criminal penalties for offenses
related to healthcare fraud and abuse. However, HIPA creates a tougher burden of
proof for the government. As for criminal penalties, HIPA adds healthcare fraud,
theft, embezzlement, obstruction of investigations and false statements to the
general federal criminal code with respect to federally funded health programs,
thus subjecting such acts to criminal penalties. The Attorney General is also
provided with a greatly expanded subpoena power under HIPA to investigate
fraudulent criminal activities, and federal prosecutors may utilize asset
freezes, injunctive relief and forfeiture of proceeds to limit fraud during such
an investigation.
The healthcare service industry is and will continue to be subject to
substantial and continually changing regulation at the federal and state levels,
and the scope and effect of such and its impact on DCA's operations cannot be
predicted. No assurance can be given that DCA's activities will not be reviewed
or challenged by regulatory authorities. Any loss by DCA of its various federal
certifications, its approval as a certified provider under the Medicare or
Medicaid programs or its licenses under the
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laws of any state or other governmental authority from which a substantial
portion of its revenues is derived or a change resulting from healthcare reform,
a reduction of dialysis reimbursement or a reduction or complete elimination of
coverage for dialysis services, would have a material adverse effect on DCA's
business.
ENVIRONMENTAL AND HEALTH REGULATIONS
DCA's dialysis centers are subject to hazardous waste laws and non-hazardous
medical waste regulation. Most of DCA's waste is non-hazardous. HCFA requires
that all dialysis facilities have a contract with a licensed medical waste
handler for any hazardous waste. DCA also follows OSHA's Hazardous Waste
Communications Policy, which requires all employees to be knowledgeable of the
presence of and familiar with the use and disposal of hazardous chemicals in the
facility. Medical waste of each facility is handled by licensed local medical
waste sanitation agencies who are primarily responsible for compliance with such
laws.
There are a variety of regulations promulgated under OSHA relating to
employees exposed to blood and other potentially infectious materials requiring
employers, including dialysis centers, to provide protection. DCA adheres to
OSHA's protective guidelines, including regularly testing employees and patients
for exposure to hepatitis B and providing employees subject to such exposure
with hepatitis B vaccinations on an as-needed basis, protective equipment, a
written exposure control plan and training in infection control and waste
disposal.
OTHER REGULATION
There are also federal and state laws prohibiting anyone from presenting
false claims or fraudulent information for payments by Medicare, Medicaid and
other third-party payors. These laws provide for both criminal and civil
penalties, exclusion from Medicare and Medicaid participation, repayment of
previously collected amounts and other financial penalties under the False
Claims Act. The submission of Medicare cost reports and requests for payment by
dialysis centers are covered by these laws.
Certain states have anti-kickback legislation and laws dealing with
self-referral provisions similar to the federal Anti-kickback Statute and Stark
II. DCA has no reason to believe that it is not in compliance with such state
laws.
COMPETITION
The dialysis industry is highly competitive. There are numerous providers
who have facilities in the same areas as DCA. Many are owned by physicians or
major corporations which operate dialysis facilities regionally and nationally.
DCA's operations are small in comparison to many of those corporations. Some of
these major companies are public, including Fresenius AG, Gambro AG, Renal Care
Group, Inc., Total Renal Care Holdings, Inc., and Everest Healthcare Service
Corp., and most have substantially greater financial resources, many more
centers, patients and services than DCA, and by virtue of such have a
significant advantage over DCA in competing for nephrologists and acquisitions
of dialysis facilities in areas and markets targeted by DCA. Competition for
acquisitions has increased the cost of acquiring existing dialysis facilities.
DCA also faces competition from hospitals that provide dialysis treatments.
Competitive factors most important in dialysis treatment are quality of care
and service, convenience of location and pleasantness of the environment.
Another significant competitive factor is the ability to attract and retain
qualified nephrologists. These physicians are a substantial source of patients
for the dialysis centers, are required as medical directors of the dialysis
facility for it to participate in the Medicare ESRD program, and are responsible
for the supervision and operations of the center. DCA's medical directors
usually are subject to non-compete restrictions within a limited
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geographic area from the center they administer. Additionally, there is always
substantial competition for obtaining qualified, competent nurses and technical
staff at reasonable labor costs.
Based upon advances in surgical techniques, immune suppression and
computerized tissue typing, cross-matching of donor cells and donor organ
availability, renal transplantation in lieu of dialysis is becoming a
competitive factor. It is presently the second most commonly used modality in
ESRD therapy. With greater availability of kidney donations, currently the most
limiting factor, renal transplantations could become a more significant
competitive aspect to dialysis treatments provided by DCA. Although kidney
transplant is a preferred treatment for ESRD, certain patients who have
undergone such transplants have lost their transplant function and must return
to dialysis treatments.
EMPLOYEES
As of January 31, 2000, DCA had 63 full time employees, including nurse
administrators, clinical registered nurse managers, registered nurses, chief
technician, technical specialists, patient care technicians, and clerical
employees. DCA retains 31 part time employees consisting of registered nurses,
patient care technicians and clerical employees. Occasionally, DCA utilizes
employees on a "per diem" basis to supplement staffing.
DCA retains 8 part-time independent contractors who include the social
workers and dietitians at each facility. These are in addition to the medical
directors, who are independent contractors and who supervise patient treatment
at each facility.
DCA believes its relationship with its employees is good and it has not
suffered any strikes or work stoppages. None of DCA's employees is represented
by any labor union. DCA is an equal opportunity employer.
PROPERTIES
DCA owns two properties, one located in Lemoyne, Pennsylvania and the second
in Easton, Maryland. The Maryland property consists of approximately 7,400
square feet, most of which is leased to a competitor of DCA. The lease was
renewed for an additional five years through March 31, 2003. The lease is
guaranteed by the tenant's parent company.
The Lemoyne property of approximately 15,000 square feet houses DCA's
dialysis center of approximately 5,400 square feet, approved for 13 dialysis
stations with space available for expansion. DCA uses approximately 2,500 square
feet for its executive offices. DCA's Lemoyne subsidiary leases this facility
from DCA under a five year lease that commenced December 23, 1998 at an annual
rental of $43,088 per annum plus separately metered utilities, insurance and
additional rent of $5,386 per year covering common area maintenance expenses,
with two renewals of five years each at escalating base rent for each renewal
period.
The Easton, Maryland property is subject to two mortgages from affiliated
Maryland banking institutions. The Lemoyne, Pennsylvania property is also
subject to a mortgage from one of the Maryland banking institutions. As of
September 30, 1999, the remaining principal amount of the mortgage on the
Lemoyne property was approximately $133,000 and the first mortgage on the Easton
property was approximately $167,000. Each of these mortgages is under the same
terms and extends through November, 2003, bears interest at 1% over the prime
rate, and is secured by the real property and DCA's personal property at each
respective location. The bank also has a lien on rents due DCA and security
deposits from leases of the properties, and each tenant is required to sign a
tenant subordination agreement as part of its lease with DCA. Written approval
of the bank is required for all leases, assignments or subletting, alterations
and improvements and sales of the properties. The Easton property has recently
been subjected to another mortgage to secure a three year loan to DCA's
Vineland, New Jersey subsidiary for up to $700,000 at an annual interest rate of
8.75%, which lien is
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guaranteed by DCA and further secured by that subsidiary's personal property,
exclusive of its dialysis equipment.
DCA also leases space at its Lemoyne, Pennsylvania property to one other
unrelated party for its own business activities unrelated to dialysis services.
The lease for approximately 1,500 square feet through December 31, 2002, is at
an aggregate rental of approximately $13,500 per annum.
The dialysis facility in Wellsboro, Pennsylvania consists of approximately
3,500 square feet, with 12 dialysis stations and is leased by DCA's Wellsboro
subsidiary for five years through September, 27, 2000 at a rental of
approximately $25,000 per annum with two renewal options of five years each.
Presently, there is a rent abatement until June, 2000.
The Carlisle, Pennsylvania dialysis facility is leased by DCA's Carlisle
subsidiary under a five year lease through June 30, 2002, with two renewal
options of five years each. The facility consists of 4,340 square feet of space
accommodating 12 dialysis stations at an annual rental of $32,550.
DCA's Manahawkin subsidiary has a five year lease through November 30, 2003
for its dialysis facility in New Jersey for approximately 3,700 square feet at
an annual rate of approximately $34,760 per annum plus its proportionate share
of the real estate taxes and casualty insurance premiums. This lease is
renewable for two consecutive five year periods. An Addendum to that lease
provides for an additional 940 square feet of office space free of rent until
June 30, 2000, after which time that subsidiary will pay the agreed per square
foot price as stipulated in the original lease. The facility is designed for 12
dialysis stations.
DCA opened its Chambersburg, Pennsylvania facility on January 14, 1999. That
facility is designed for 18 dialysis stations, with initial approval to operate
nine stations. The facility is leased by DCA's Chambers-burg subsidiary for a
five year term with two consecutive renewal periods of five years each at an
annual rental of $52,500 plus utilities and additional rent representing the
facility's proportionate share of common area maintenance expenses. The term of
the lease commenced January 1, 1999 and is for 7,000 square feet of which
approximately 1,800 square feet was sublet to physicians.
DCA's new Vineland, New Jersey facility (became operational in February,
2000) is leased by DCA's Vineland subsidiary under a five year lease through
December 17, 2004,with two renewal options of five years. The Vineland facility
consists of approximately 6,360 square feet, accommodating 15 dialysis stations
at an annual rental of $74,000.
None of DCA's dialysis facilities are operating at full capacity. See
"DCA--Business--Description--Operations--Location, Capacity and Use of
Facilities." The existing dialysis facilities could accommodate greater patient
volume, particularly if DCA increases hours and/or days of operation without
adding additional dialysis stations or any additional capital expenditures. DCA
has the ability and space at each of its facilities to expand to increase
patient volume subject to obtaining appropriate governmental approval.
The dialysis stations are equipped with modern dialysis equipment under a
November, 1996 master-lease/purchase agreement with a $1.00 purchase option at
the end of the term.
DCA maintains executive offices at 27 Miller Street, Suite 2, Lemoyne,
Pennsylvania 17043 as well as with its parent, Medicore, at 2337 West 76th
Street, Hialeah, Florida 33016.
LEGAL PROCEEDINGS
DCA is not involved in or subject to any material pending legal actions.
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MARKET PRICES OF DCA COMMON STOCK AND WARRANTS
AND RELATED SHAREHOLDER MATTERS
DCA securities commenced trading on the Nasdaq SmallCap Market on April 17,
1996, the common stock under the symbol "DCAI" and the warrants under the symbol
"DCAIW." The table below includes the high and low bid prices for the four
quarters for the years ended December 31, 1998 and 1999, and the last trading
day before the public announcement of the execution of the Asset Purchase
Agreement and Merger Agreement, including the closing prices on that date, as
reported by Nasdaq.
<TABLE>
<CAPTION>
COMMON STOCK WARRANTS
------------------- -------------------
HIGH LOW HIGH LOW
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1998*
- --------------------------------------------------
1(st) Quarter..................................... $2.56 $1.31 $.69 $.25
2(nd) quarter..................................... 1.94 1.25 .56 .31
3(rd) Quarter..................................... 1.94 0.88 .50 .19
4(th) Quarter..................................... 1.25 0.56 .25 .06
1999
- --------------------------------------------------
1(st) Quarter..................................... $1.75 $ .69 $.28 $.09
2(nd) Quarter..................................... 3.30 .56 .44 .13
3(rd) Quarter..................................... 4.50 1.94 .25 .13
4(th) Quarter..................................... 6.88 1.34 2.88 .09
</TABLE>
- ------------------------
* The common stock did not trade actively in 1998.
The high and low bid and the closing prices of the DCA common stock and
warrants on October 20, 1999, the last trading day before the public
announcement of the execution of the Asset Purchase and Merger Agreements, were:
<TABLE>
<CAPTION>
EXECUTION OF MERGER MOST RECENT DATE
AND ASSET PURCHASE PRIOR TO PROXY
LETTER OF INTENT AGREEMENT STATEMENT/PROSPECTUS,
JUNE 4, 1999 OCTOBER 20, 1999 , 2000
------------------- ------------------- ---------------------
COMMON COMMON COMMON
STOCK WARRANTS STOCK WARRANTS STOCK WARRANTS
-------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
High Bid:.............. $1.63 * $2.13 $.34 $ $
Low Bid:............... 1.50 * 1.34 .34
Closing Price:......... 1.63 * 2.13 .34
</TABLE>
- ------------------------
* no trading
At February 4, 2000, the high and low bid prices of DCA common stock were
$6.66 and $6.25, respectively.
Bid and asked prices are without adjustments for retail mark-ups, mark-downs
or commissions, and may not necessarily represent actual transactions.
We urge you to obtain current market quotations for DCA common stock and
warrants.
At February 4, 2000, DCA had 118 shareholders of record and has
approximately 325 beneficial owners of its common stock. There were 27
warrantholders of record with approximately 300 beneficial owners of the
warrants.
DCA does not anticipate that it will pay dividends in the foreseeable
future. Dividends depend on DCA's earnings, capital requirements, financial
condition and other similar relevant factors. The board of directors intends to
retain earnings, if any, for use in the business.
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DCA--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth as of February 4, 2000 the names and
beneficial ownership of the equity securities of DCA and Medicore for directors
and executive officers of DCA, individually itemized, and for all of the
directors and executive officers of DCA as a group, without naming them, and for
shareholders known to DCA to beneficially own more than 5% of its voting
securities.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
-------------------------------------------------------------
DIALYSIS MEDICORE
POSITION COMMON COMMON
NAME WITH DCA STOCK(1) %(2) STOCK(3) %(4)
- ---- ------------ --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Medicore.................................. -- 2,410,622 68.0% -- --
2337 W. 76(th) Street
Hialeah, FL 33016
Thomas K. Langbein........................ Ch.Bd. & CEO 260,000(1) 6.8% 1,023,014 17.2%
c/o Medicore
777 Terrace Avenue
Hasbrouck Heights, NJ 07604
Bart Pelstring............................ President & 95,000 2.6% 85,000 1.5%
c/o DCA Director
27 Miller Street
Lemoyne, PA 17043
Robert W. Trause*......................... Director 40,000 1.1% -0- -0-%
431C Hackensack Street
Carlstadt, NJ 07072
Stephen Everett........................... Executive 35,000 ** -0- -0-%
c/o DCA Vice
27 Miller Street President
Lemoyne, PA 17043
Dr. Herbert I. Soller*.................... Director 35,000 ** -0- -0-%
100 Chestnut Street
P.O. Box 701
Harrisburg, PA 17108
Daniel R. Ouzts........................... Vice 32,500 ** 71,050 1.2%
c/o Medicore President
2337 W. 76(th) Street (Finance)
Hialeah, FL 33016
All directors and......................... 497,500 12.5% 1,179,064 19.6%
executive officers
as a group (6 persons)
</TABLE>
* Member of the Audit Committee
** less than 1%
- ------------------------
(1) Medicore owns 2,410,622 shares (68%) of DCA common stock. Officers and
directors of DCA, who may also be officers and/or directors of Medicore and
shareholders of each company, disclaim any indirect beneficial ownership of
DCA common stock through Medicore's 68% ownership of DCA. Thomas K.
Langbein, by virtue of his positions with DCA and Medicore and his stock
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ownership of Medicore, may be deemed to have beneficial ownership of such
shares through shared voting and investment power with respect to Medicore's
ownership of DCA. Mr. Langbein disclaims such beneficial ownership.
Includes the following shares that may be acquired upon exercise of DCA
options or warrants (see Note (2)) as of February 4, 2000 or within 60 days
after that date:
T. Langbein, 260,000 shares (1999 options); B. Pelstring, 45,000 shares
(1999 options); R. Trause, 40,000 shares (1995 and 1999 options);
S. Everett, 35,000 shares (1999 options); H. Soller, 35,000 shares (1999
options); and D. Ouzts, 25,000 shares (1999 options).
If Thomas K. Langbein included Medicore's ownership of DCA, then his
beneficial ownership would be 2,670,622 (70.2%). Mr. Langbein disclaims
such beneficial ownership.
(2) Based on 3,546,344 shares outstanding exclusive of (i) common stock issuable
under 2,300,000 public warrants exercisable at $4.50 per share through
March 31, 2000; (ii) DCA Underwriters' Options for 300,000 shares of common
stock exercisable through April 16, 2001; (iii) outstanding options for
809,500 shares of common stock for periods from October 9, 2000 to
April 20, 2004.
(3) Includes the following shares that may be acquired upon exercise of options
as of February 4, 2000 or within 60 days after that date:
Shares obtainable upon exercise of options under the 1989 Stock Option Plan:
Messrs. Langbein 250,000; Pelstring 30,000 and Ouzts, 30,000.
Does not include 400,000 shares for T. Langbein in his employment agreement
with Medicore issuable under certain wrongful termination (including change
in control) conditions.
(4) Based on 5,707,540 shares outstanding exclusive of (i) 841,000 shares of
common stock underlying options granted in 1995 and 1998 under Medicore's
1989 Stock Option Plan; (ii) 5,000 shares of common stock underlying options
granted in 1998 to a former investor relations firm; (iii) 400,000 shares of
common stock available for issuance under certain conditions of Thomas K.
Langbein's employment agreement with Medicore; and (iv) 98,000 shares of
common stock reserved for issuance under Medicore's key employee stock plan.
MAINSTREET--BUSINESS
GENERAL
MainStreet was originally organized in April 1999 as a Delaware limited
liability company. On October 15, 1999, the organizational structure was
converted to that of a Delaware corporation. We maintain executive offices at
171 Church Lane, North Brunswick, New Jersey 08902. Our telephone number is
(718) 227-6789. At present, we have three employees.
DEVELOPMENTAL STAGE
MainStreet was formed to afford a venue, i.e., a website, whereby companies
can offer over the Internet their securities to the investing public, either in
Direct Public Offerings (self-underwritings) or by utilizing the services of an
underwriter. Since June 1999, we have been engaged in developing the website,
"www.MainStreetIPO.com" (the "Website") as well as devoting our efforts to
completing the necessary technological steps to bring the Website online. Our
limited financial resources have been primarily used to purchase the necessary
equipment, pay for the services of independent technicians, and for other
developmental costs. See "MainStreet--Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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Our Website has undergone testing and we believe the Website is now fully
functional. Four clients have entered into contracts with us and we anticipate
commencing operations as soon as any of the four clients' registration
statements are declared effective. One client recently received a comment letter
from the staff of the Division of Corporations of the Securities and Exchange
Commission relating to its registration statement, which included a comment as
to whether our proposed operations fell within the definition of a broker-dealer
under the Securities Exchange Act. We are in discussions with the staff of the
Securities and Exchange Commission relating to this issue, and although we are
not of the opinion that our proposed operations would require us to register
under the Securities Exchange Act as a broker-dealer, if necessary, we would
make arrangements with Todd, a registered broker-dealer and member of the NASD,
with whom we have an affiliation, to pursue the Direct Public Offerings on the
Website.
Since we are in the development stage, we are faced with those risk factors
normally encountered by any company in the development stage. We may not be able
to attract sufficient interest by issuers in our services, or alternatively, we
may not be able to attract prospective Internet investors ("User(s)") to the
Website. See "Risk Factors--MainStreet."
BUSINESS PURPOSE
As previously stated, MainStreet was formed to provide a website to enable
companies to offer their securities to the investing public in either IPOs or
secondary offerings. The principals of MainStreet concluded that there is a need
for a more democratic method of distributing IPOs, since participation in IPOs,
especially those in greatest demand, has been limited to a relatively small
number of favored investors, usually major funds or individuals who have major
accounts with the investment banking firms participating in the public offering.
This situation has resulted in certain basic inequities. One is that many
investors who want to but are unable to participate in the IPO are required to
pay a premium price in order to obtain shares in aftermarket trading. This
occurs because the average "main street" investor can usually only purchase a
new issue in the aftermarket after trading has commenced. Another inequity is
that the issuing company does not obtain any of the premium paid by investors in
the aftermarket. This premium is reaped by those limited number of favored
investment banking clients who were afforded the opportunity to participate in
the IPO and who then take advantage of any immediate price rise to sell, i.e.,
"flip," their IPO shares which they acquired at the offering price.
MainStreet was established to eliminate these inequities because it affords
a larger number of investors with the opportunity to participate in an IPO.
Secondly, because of the use of a Dutch Auction process (described below) the
issuer obtains a more equitable price for its securities and those investors
participating in the IPO are all able to purchase at the same price.
Additionally, the issuer avoids having to pay underwriting fees and commissions
and costs associated with an IPO, other than a fee to us and the normal legal
and auditing costs.
As a result, we have established our Website, "www.MainStreetIPO.com," to
provide companies with a facility to offer either Direct Public Offerings
(self-underwritings) or underwritten offerings. Any company, i.e., issuer,
desiring to utilize our Website is required to enter into a standardized
contract with us.
OPERATIONS
In order for an issuer to be able to qualify for the use of the facilities
of the Website, it must first file the proposed offering with the Securities and
Exchange Commission and the offering must have been declared effective. The
issuer has the option to publish a preliminary prospectus on the Website;
however, no bids will be accepted until the registration statement has been
declared effective by the Securities and Exchange Commission and the final
prospectus is made available to Users of the
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Website. In addition, the securities must have been registered or qualified
("Blue Skied") in those states where the issuer intends to offer its securities.
The issuer is also required to make application to an exchange where it wants to
be listed, as, for example, the New York Stock Exchange ("NYSE"), AMEX, or the
NASDAQ National Market. If the issuer cannot qualify for any of the foregoing
exchanges, then the issuer must make application for listing to the NASDAQ
SmallCap Market. Any application for listing must become effective upon the
successful completion of the offering.
As additional conditions, the issuer must contract with American Stock
Transfer &Trust Company ("American Stock Transfer"), which will act as the
escrow agent for the issuer in connection with the receipt of funds representing
bids. In addition, American Stock Transfer will also act as the issuer's
transfer agent and will distribute and transfer the issuer's shares. The issuer
is further required to appoint an independent auditor ("Independent Auditor")
whose selection is to be approved by us. The Independent Auditor is to review
and confirm the bids and the allotment of the issuer's securities after the
Dutch Auction bidding process has been completed.
Provided the issuer can meet the foregoing initial conditions, we will
undertake to post either the issuer's preliminary and/or final prospectus on the
Website. A final prospectus will remain on the Website for an agreed period of
time, which can normally range from 30 to 60 days. Our sole function is to
provide the Website facility. We do not act as a sales agent, broker-dealer or
underwriter as those terms are defined pursuant to the Securities Act or the
Securities Exchange Act in connection with the issuer's offering. Our system
contains explicit instructions to the User on how to use the Website and how to
enter bids for shares and where and when to send funds.
In order for a User to utilize the Website, the User is first required to
register with the Website. Registration consists of the User supplying his or
her name, address, social security number, e-mail address and telephone. This
information becomes the exclusive property of the issuer and us. It is only
after registration by the User that the User is then entitled to view and
download either a preliminary or a final prospectus, and with respect to a final
prospectus, place a bid if the User so elects.
However, in order for the User to be able to bid, he/she must have read the
prospectus and acknowledge online that he/she has done so. The User is then
authorized to place a bid on the Website pursuant to the Dutch Auction
procedures described below. However, the system maintained by us contains an
automatic filtering system which will not accept any bid from a resident of a
state if the issuer has not registered or otherwise qualified the offering in
that particular state. In addition, no bids will be deemed accepted until
American Stock Transfer confirms to the Independent Auditor that it has received
cleared funds in its Escrow Account from the bidder. Bidders may pay for stock
by personal check, wired funds, bank check or credit card, assuming American
Stock Transfer and the issuer can make suitable arrangements.
As bids are placed by Users, they are recorded and stored in our database.
At the end of each day, we supply all of the bids received to the issuer's
Independent Auditor and to American Stock Transfer. At the completion of the
offering the Independent Auditor confirms the final selling price (the clearing
price) and confirms the allotments. Once confirmation is complete, American
Stock Transfer issues the certificates and returns any funds to those bidders
entitled to a refund.
As such, we do not participate either in the review to determine the
qualifying bids or the receipt of funds, allotment of the issue, delivery of
securities or the return of funds, if required. These matters are handled
exclusively by the Independent Auditor and American Stock Transfer. Neither of
these entities is directed or controlled by us.
EXPLANATION OF DUTCH AUCTION
Any shares offered on our Website must be bid for pursuant to a "Dutch
Auction" bidding procedure. The Website describes in detail how the Dutch
Auction process works, how a User must
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<PAGE>
bid, and how the final sales price and allotments are determined. The Dutch
Auction bidding procedure operates in the following manner: The issuer
establishes the number of shares it wishes to sell and the minimum per share
price. Each person who wishes to bid must bid at least the established minimum
price. If a bid is lower than the minimum, the bid will not be accepted. Each
bid must also indicate the number of shares bid for at that price. Once all the
shares have been bid for at or above the minimum price, the bidding is then
closed and an announcement of the closing is published on the Website.
Based upon all the bids, our Dutch Auction system, through an algorithm, a
mathematical formula, automatically sets the "clearing price" for all of the
shares by ranking the bids from the highest to the lowest. The clearing price is
the lowest received bid price either at or over the established minimum price.
The allocations are determined in the following order. The highest bids are
completely filled first. The lowest bids may not receive their full allocation.
In addition, those Users who have bid higher than the clearing price will
receive a refund representing the difference. The Independent Auditor is
required to certify the bidding results, as well as to certify the share
allotment and this certification is then presented to American Stock Transfer,
which in turn will distribute the shares, refund any excess payment and deliver
the net proceeds of the offering to the issuer.
The following is an example of how the Dutch Auction bidding process
operates. Assume that Company X offers to sell 1,000,000 shares in a public
offering and sets the offering price at $5.00 a share. Company X receives offers
to purchase the following shares in the following amounts:
<TABLE>
<CAPTION>
NUMBER OF SHARES SALE PRICE OR PERCENT OF BID ALLOCATED
REQUESTED BY BIDDERS BID PRICE CLEARING PRICE TO SUCCESSFUL BIDDERS
- --------------------- --------- -------------- ------------------------
<S> <C> <C> <C>
200,000 $9 $6 100%
150,000 $8 $6 100%
350,000 $7 $6 75%
400,000 $6 $6 75%
200,000 $5 $6 0%
</TABLE>
In the above table, there are offers to purchase 700,000 shares at prices
from $7 to $9 per share, and accordingly, there is a balance of 300,000 shares
available. Since 400,000 shares were bid for at $6 per share, this would have
the effect of clearing all of the remaining offered shares. Thus, $6 per share
is the clearing price. Everyone who bid $6 a share will receive an allocation of
75% of the number of shares so bid (300,000 shares DIVIDED BY 400,000 shares).
All of the 1,000,000 shares will be sold at $6 per share, and Company X would
receive $6,000,000. All bids at $5 would be rejected. Those individuals who sent
in funds for bids greater than $6 will receive a refund of the difference
between what they paid and $6 a share.
For its services in providing the Website to an issuer, we receive an
agreed-upon fee. Twenty-five percent (25%) of said fee is due upon execution of
our standard contract between us and the issuer. The balance is due upon
successful completion of the offering at which time the issuer is required to
authorize American Stock Transfer to deduct the balance from the proceeds of the
offering and remit said balance directly to us. In the event the offering is not
successful, the issuer still remains liable for the balance, which is due thirty
(30) days after the closing of the offering. We recognize that collection of the
balance of the fee from an issuer where there has been an unsuccessful offering
may prove difficult, time consuming and could possibly result in litigation. See
"Risk Factors--MainStreet."
BUSINESS TECHNOLOGY
We own our own bank of servers (five in number) which contain all of our
operating systems and application software programming for the functionality of
the Website. In addition, these servers send and receive information and data to
and from Users of the Website as well as to American Stock Transfer and the
Independent Auditors. As part of the server bank we maintain mirroring and
backup
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servers as well as a dedicated secure server for financial transactions. In
addition, we utilize uninterruptible power supplies for each server and for the
system as a whole. We believe that our hardware configuration is sufficient to
guard against any foreseeable contingencies. In addition, we also utilize state
of the art operating, data base, and archiving systems.
We do not maintain our own equipment, but have retained the services of an
independent contractor, Interactive Graphics ("Interactive") pursuant to a
one-year contract. Interactive is responsible for (i) maintaining our system and
bandwidth, (ii) administrating the system and (iii) providing us with upstream
access (direct connection through a switch to the Internet). Interactive is also
responsible for implementing any technological upgrades that may be required.
Interactive has retained the services of Globix Inc. ("Globix"), a major
regional Internet provider which maintains the switch at the network access
point ("NAP") in New York. Our present connection to the Internet uses a
bandwidth of 45 megabits per second ("MBPS"), which can be expanded to meet
increasing traffic. We estimate that we can service simultaneously 1,000 "bits"
to the Website. However, our system can be expanded to manage additional volume
because Globix has the capability to furnish us with unlimited bandwidth.
While we believe that Interactive has sufficient experience and expertise to
perform its duties pursuant to the contract, there could be unforeseen
occurrences which might affect the ability of Interactive to fulfill its duties.
See "Risk Factors--MainStreet". There are certain affiliations between members
of Interactive and the management of MainStreet. See "MainStreet--Certain
Relationships and Related Transactions." If we should have interruptions of
service for more than 48 hours, our Users are entitled to cancel their
agreements and would also be entitled to refunds. Interruptions to our service
could affect our reputation and thus our ability to attract business. See "Risk
Factors--MainStreet."
OUR PROSPECTIVE SUBSIDIARY--CEOLETTER.COM INC.
Upon approval of the Merger by the shareholders of DCA, the principals of
MainStreet will convey to MainStreet their security interest in
CEOLetter.com, Inc., referred to in this documents as "CEO Letter," and CEO
Letter will then become a wholly owned subsidiary of MainStreet. CEO Letter was
established to provide companies with a website, "www.TheCEOLetter.com" (the
"CEO Letter Website"), whereby the chief executive officers of companies will be
able to present and discuss their companies and publish shareholder letters and
other reports concerning their particular company. This service is not available
to those companies which are in registration or are engaged in a primary or
secondary offering of its securities through MainStreet's website. CEO Letter
will charge fees for such services on a per subscriber use. CEO Letter is not
currently operating, but it is anticipated that operations will commence shortly
after CEO Letter becomes a subsidiary of MainStreet.
CEO Letter has an existing agreement for a period of three years with
FreeRide Media, Inc. ("FreeRide"), which operates a reward program on the
Internet. FreeRide currently has approximately 500,000 members or subscribers.
The membership is free, and by simply registering with FreeRide over the
Internet, one becomes a member and is entitled to earn redeemable points by
interacting or transacting business with FreeRide sponsors. For example, the
specialty store Sharper Image is a sponsor, and offers FreeRide points if a
member calls up Sharper Image's ads online or orders merchandise online. The
points earned by the members are redeemable for a wide variety of products and
services nationwide. FreeRide has granted CEO Letter the exclusive right to
offer the FreeRide point system to its users in order to incentivize Users to
read a corporate communication appearing on the CEO Letter Website.
Additionally, CEO Letter has also been granted the exclusive right to offer the
FreeRide point system to corporations which elect to offer their securities
through the MainStreet Website. In this way, an issuer, if it elects, can
motivate a User into reading its prospectus by offering that User FreeRide
points as an incentive. If an issuer elects to use the FreeRide system, the
issuer
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must pay CEO Letter for the points actually utilized. CEO Letter retains a
portion of the funds received from the sale of the FreeRide points and remits
the balance to FreeRide. However, there can be no assurance that issuers will
elect to pay for points and offer these points to Users to induce them to read a
prospectus or to read a CEO Letter or publication.
GOVERNMENT REGULATION
The offer and sale of securities through the facilities of interstate
commerce is regulated by the Securities and Exchange Commission and the various
states' securities commissions. While the Securities and Exchange Commission has
recently moved towards making purely electronic offerings more feasible, the
Securities and Exchange Commission is still evaluating existing legal principles
and their application to the Internet and other information technologies. As the
law develops, new regulations and interpretations, both state and federal, may
impinge on us or affect our future business. Future regulations and/or
interpretations might very well have an adverse effect on our business and
future viability. See "Risk Factors--Main Street."
The basic procedure and regulation for public offerings of securities,
whether through the Internet or under traditional hard copy registration
statements and prospectuses accomplished by investment banking firms, remains
the same. Under the federal and state securities laws, no offer of any security
may be made until a registration statement covering those securities is filed
with the Securities and Exchange Commission and those states in which the offer
is authorized to be made. Once the filing is made, offers may be made orally and
in writing, but only in accordance with what is deemed to be a "preliminary
prospectus" that meets the statutory requirements. Any written document that may
be deemed an offer of the securities would be considered a prospectus, and may
be a violation of federal and state securities laws if that prospectus does not
meet the statutory requirements of what is to be included in a "preliminary
prospectus." No sales may be made until the registration statement is declared
effective by the Securities and Exchange Commission. Many states have concurrent
effectiveness of the registration statement with the effective date of the
Securities and Exchange Commission, but many states require their own review and
requirements for an offering to be declared effective.
PROPERTIES
At the present time we do not rent office space. Joanne Bertolini, Vice
President and a director of MainStreet, makes office space available to us and
CEO Letter free of any charge. This office space consists of 1,200 square feet
for administrative offices located at Ms. Bertolini's home at 171 Church Lane,
North Brunswick, New Jersey 08902. See "MainStreet--Certain Relationships and
Related Transactions." We anticipate leasing suitable office space in New York
City which will accommodate executive and administrative offices shortly after
operations commence.
LEGAL PROCEEDINGS
There are no legal proceedings, threatened or pending, against us.
MARKETING
In order for us to be successful we must develop a marketing program to
attract both prospective issuers and Users to the MainStreet and CEO Websites.
We have recently retained the services of a professional public relations firm
to formulate a marketing program. We utilize "banner" advertising on the
Internet, and we intend to advertise our services in newspapers and other
printed media. In addition, we are attempting to negotiate strategic alliances
with existing.com enterprises to advertise MainStreet and its services over the
Internet to their respective user bases. In this way, MainStreet can increase
the number of potential investors. On January 15, 2000, we entered into an
agreement with
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Track Data Corporation ("Track Data"), which is in the business of providing
investment services over the Internet to members of the public. The agreement
provides for cross-marketing of each party's services. We have agreed, subject
to approval by each User of our Website, to register such Users with Track Data,
which would enable such User to use Track Data's online trading services, and to
subscribe to its other marketing services. In return, Track Data will recommend
our Website to its subscribers and encourage its subscribers to register with
our Website. Pursuant to the agreement, Track Data will receive 1,050,000 shares
of our common stock and in return we will receive 370,000 shares of Track Data
common stock upon completion of the Merger. Track Data is a publicly held
company and the market price of its stock as of February 4, 2000, was $6.22. The
parties recognize that the cross marketing services will favor Track Data, and
Track Data has agreed to compensate MainStreet in the future for such services,
but no formula for such compensation has as yet been arrived at or agreed to.
We believe that there is a genuine need for a vehicle to enable issuers to
go public at a cost lower than the normal industry charge of seven percent (7%)
of the total offering. More important, the Dutch Auction process affords the
opportunity for the issuer to place stock in the hands of individual investors
who are not interested in "flipping" their stock for a quick premium within
hours of the IPO. We also recognize that we may encounter some opposition from a
segment of the investment community which is used to the more traditional
offering process that involves an underwriter, who normally estimates the market
and sets the offering price, sometimes in negotiations with the issuer, and who
brings an issuer public. However, there currently appears to be a trend to
self-reliance on the part of investors in utilizing the Internet to select
investments without the benefit of traditional brokers. Our marketing program
will be directed to those investors.
We recognize that our marketing program might not be successful in
attracting a sufficient number of issuers required to sustain our operations.
However, even if we do attract a sufficient number of issuers, the success of
our business will also be dependent on whether we can attract potential
investors to the Website. See "Risk Factors--MainStreet."
We have also entered into an exclusive agreement with a Canadian corporation
appointing that corporation as an exclusive agent to represent us in soliciting
issuers in Canada to utilize the Website for public offerings. To maintain the
exclusivity, the agency agreement requires the introduction by the agent of at
least four issuers a year who contract with us to use the Website. The agency
agreement is for a period of three years. We do not pay any fee to the agent for
its services; however, the agent may charge a fee to those issuers who it
introduces to us. These persons affiliated with the Canadian corporation are
also affiliated with a joint venture in which we participate, which is intending
to carry on the same business as MainStreet except outside of the United States,
China and Taiwan. See "Other Sources of Income" below and "MainStreet--Certain
Relationships and Related Transactions."
OTHER SOURCES OF POTENTIAL INCOME
We also intend to augment our income by utilizing our relationship with
issuers who have successfully gone public through our Website to contract with
us to allow us to offer their merchandise and services over the Internet through
other websites which we intend to establish. We will charge fees for such sales.
We have also entered into a joint venture agreement with a Canadian company
by which we will establish a new corporation in Canada, each party owning fifty
percent of the new corporation. We will license all intellectual property and
know-how to the new corporation, and the new corporation shall be authorized to
carry on the same business as MainStreet, except that it shall offer an
international website, "www.IPOinternational.com," to issuers who wish to go
public and whose securities are intended to trade on any market or exchange
outside of the United States, China and the Republic of China (Taiwan). We will
receive fifty percent (50%) of any profits from the operations of this new
company. In addition, the Canadian partner shall bear all costs related to the
establishment of the new
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company and the costs of a public offering of the new company in the event the
new company goes public. We believe that we will generate significant revenues
from this operation. See "Marketing" above and "MainStreet--Certain
Relationships and Related Transactions."
We have recently entered into a joint venture with the Linux Fund, a private
company which has investments in seven developmental Linux software companies.
Under the joint venture, Linux IPO.com, Inc., a 50% owned subsidiary of the
Linux Fund, with the other 50% owned by MainStreet, is to be established for the
purpose of providing its website for Direct Public Offerings of the Linux system
companies in which the Linux Fund has invested. Medicore holds a 6% interest in
the Linux Fund, and loaned that company $1,500,000 at an annual rate of interest
of 10%. Medicore has the option to increase its ownership in the Linux Fund by
2% and provide it with an additional $500,000. Medicore borrowed this financing
from DCA at an annual interest rate of 10%. The Linux Fund is using this
financing to acquire its interests in Linux software developmental companies.
See "The Merger--Interests of Certain Persons in Matters to be Acted Upon."
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<PAGE>
MANAGEMENT OF MAINSTREET
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Joseph M. Salvani 43 Chairman of the Board, Chief Executive Officer,
President, and Chief Financial Officer
Joanne Bertolini 38 Executive Vice President Operations, Secretary,
Treasurer and Director
Ralph De Luca 23 Vice President Sales and Marketing
Lara L. George 30 Director
Michael Nafash 38 Director
</TABLE>
Directors are elected to serve until our next meeting of shareholders. We
currently have one independent director, Michael Nafash. We are interviewing
possible candidates to act as an additional independent director.
The following is a discussion of the backgrounds of our officers and
directors:
JOSEPH M. SALVANI. Mr. Salvani has been involved in the investment banking
business for the last nineteen years. He is currently President of Salvani
Investments, Inc., a privately owned business engaged in financial consulting.
Mr. Salvani began his career as a Vice President and Senior Research Analyst
with Goldman Sachs & Co. in 1981. Between 1986 and 1989, Mr. Salvani was a
general partner of Steinhardt Partners. From 1990 to 1991, Mr. Salvani was a
general partner of EGS Associates, L.P., a private investment partnership.
Between 1991 and 1992, Mr. Salvani was associated with Brookehill
Equities, Inc., a registered broker-dealer and member of the NASD. Thereafter,
Mr. Salvani operated as an independent financial consultant. Between March 1997
and April 1997, Mr. Salvani was a limited partner of The Boston Group, L.P., a
registered broker-dealer and member of the NASD. From April 1997 until joining
MainStreet, Mr. Salvani has worked as an independent consultant. Mr. Salvani
holds proxies to vote the shares of Ms. Bertolini, Ms. George and Mr. DeLuca.
See "MainStreet--Certain Relationships and Related Transactions."
JOANNE BERTOLINI. Ms. Bertolini has worked as an assistant to Mr. Salvani
at various times since 1981. She was employed at Goldman Sachs & Co. between
1981 and 1986 as an assistant and statistician. She worked at Steinhardt
Partners as an associate research analyst between 1986 and 1990. From 1990 to
1991, she was in charge of operations at EGS Associates, L.P. Between
September 1992 and until 1997, she worked in operations at Brookehill
Equities, Inc. From 1992 and up until the present time, Ms. Bertolini has also
operated Portfolio Research Associates, Inc., a privately owned company
providing research consulting. She, together with Ms. George and Mr. DeLuca, has
provided Mr. Salvani a proxy to vote her shares of MainStreet. See
"MainStreet--Certain Relationships and Related Transactions."
RALPH R. DELUCA. Up and until the time he joined MainStreet, Mr. DeLuca has
been engaged in the brokerage business. From February 1995 until
September 1995, Mr. DeLuca was employed as a registered representative at Baron
Chase Securities, Inc. From September 1995 through May 1996, Mr. DeLuca was
managing his own securities account. From May 1996, until September 1996,
Mr. DeLuca was employed as a registered representative by Toluca Pacific
Securities, Inc. From September 1996 until June 1998, Mr. DeLuca was employed as
a registered representative by Lloyd Wade Securities, Inc. From approximately
June 1998 until May 1999, when Mr. DeLuca joined MainStreet, Mr. DeLuca was a
part owner of Grady and Hatch and Company, Inc. All of the foregoing firms that
Mr. DeLuca has been associated with are broker-dealers registered with the
Securities and Exchange Commission and members of the NASD. He has, together
with Mmes. Bertolini and George, provided Mr. Salvani a proxy to vote his shares
of MainStreet. See "MainStreet--Certain Relationships and Related Transactions."
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<PAGE>
LARA L. GEORGE. Ms. George is a certified public accountant. From 1992 to
September 1997, Ms. George was employed by Arthur Anderson working in the tax
and advisory areas. From September 1997 until September 1999, Ms. George was
employed first as an assistant vice-president and then as a vice-president by
Citibank, NA in the private banking area with focus in the technology sector.
Ms. George also renders consulting services to MainStreet under a two-year
contract through August 31, 2001, with compensation at the rate of $100,000 per
year. She has entered into a Shareholders Agreement with Ms. Bertolini and
Mr. DeLuca, providing Mr. Salvani a proxy to vote her shares of MainStreet. See
"MainStreet--Certain Relationships and Related Transactions."
MICHAEL NAFASH. Mr. Nafash has recently been appointed a director. Since
January, 1998, and to the present time, Mr. Nafash has been employed as a Vice
President and Chief Financial Officer of Mark Solutions, Inc. He is also a
director of that company. From February, 1994, to January, 1998, Mr. Nafash was
employed by Evolutions, Inc., a subsidiary of Pure Tech International, Inc.
("Puretech"), as Chairman of the Board, President and CEO. On January 5, 1998,
Evolutions filed bankruptcy proceedings. Mr. Nafash, while employed by
Evolutions (1994 to 1996), was also employed by Puretech as Chief Financial
Officer.
MAINSTREET--MANAGEMENT COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------------------------------- -------------------------------------
AWARDS PAYOUTS
---------- ------------------------
(A) (B) (C) (D) (E) (F) (G) (H)
SECURITIES
OTHER RESTRICTED UNDERLYING LTIP
ANNUAL STOCK OPTIONS/ PAY-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDED SARS(#) OUTS
- --------------------------- -------- -------- -------- ------------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Joseph Salvani(1).............. 1999 $40,000(2) $0 $0 $0 250,000 $0
Chairman, CEO, Pres. &
Ch. Fin. Officer
Joanne Bertolini(1)............ 1999 $40,000(2) $0 $0 $0 50,000(3) $0
Exec. V.P.--Operations
& director
Ralph R. DeLuca(1)............. 1999(2) $40,000(2) $0 $0 $0 200,000 $0
V.P.--Sales & Mktng.
<CAPTION>
(A) (I)
ALL OTHER
NAME AND PRINCIPAL POSITION COMPENSATION
- --------------------------- -------------
<S> <C>
Joseph Salvani(1).............. $0
Chairman, CEO, Pres. &
Ch. Fin. Officer
Joanne Bertolini(1)............ $0
Exec. V.P.--Operations
& director
Ralph R. DeLuca(1)............. $0
V.P.--Sales & Mktng.
</TABLE>
- ------------------------------
(1) We do not have employment agreements with any of our officers.
(2) All of the executives are receiving a salary of $120,000 per annum. They
only began receiving compensation in September, 1999, and accordingly, the
salary reflected above is only for four months, September through December,
1999.
(3) Owned by a company in which her husband has an interest. See
"MainStreet--Certain Relationships and Related Transactions."
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ---------------------------------------------------------
(1) (2) (3) (4) (5)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE
- ---- ------------ ------------ -------------- ----------
<S> <C> <C> <C> <C>
Joseph Salvani, CEO........................ 250,000(1) 55.6% $1.23 12/16/04
Joanne Bertolini........................... 50,000(2) (3) $1.23 12/16/04
Ralph DeLuca............................... 200,000 44.4% $2.70 8/31/04
</TABLE>
- ------------------------
(1) Mr. Salvani received these options for advancing loans to MainStreet
(2) Indirect beneficial ownership through husband's interest in company which
obtained the options. See "MainStreet--Certain Relationships and Related
Transactions."
(3) Not part of issuance to employees.
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AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED IN-
UNEXERCISED THE-MONEY
SHARES OPTIONS/SARS OPTIONS/SARS
ACQUIRED ON AT FY-END (#) AT FY-END ($)
EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ---- ----------- ------------ --------------- ---------------
<S> <C> <C> <C> <C>
Joseph Salvani, CEO...................... -0- -0- 250,000 (Exer.) (1)
Joanne Bertolini......................... -0- -0- 50,000 (Exer.) (1)
Ralph DeLuca............................. -0- -0- 200,000 (Exer.) (2)
</TABLE>
- ------------------------
(1) The exercise price of the options is $1.23 per share. MainStreet's shares
are not currently trading.
(2) The exercise price of the options is $2.70 per share. MainStreet's shares
are not currently trading.
MAINSTREET--SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of February 4, 2000 by (i) each person who is
known by us to own beneficially more than 5% of our outstanding common stock;
(ii) each of our officers and directors; and (iii) all officers and directors as
a group. No 5% beneficial owner, other than Thomas K. Langbein, or any officer
or director of MainStreet, owns any shares of common stock of DCA or its parent,
Medicore.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL
NAME AND ADDRESS OWNERSHIP PERCENTAGE(1)
- ---------------- --------------- -------------
<S> <C> <C>
Joseph M. Salvani*.......................................... 2,779,473(2) 31.2%
Joanne Bertolini*........................................... 1,040,000(3) 12.4%
Ralph R. DeLuca*............................................ 800,000(4) 9.3%
Thomas K. Langbein.......................................... 660,000(5) 7.9%
777 Terrace Avenue
Hasbrouck Heights, NJ 07604
Lara L. George*............................................. 600,000 7.1%
Laura Huberfeld**........................................... 500,000 6.0%
Naomi Bodner**.............................................. 500,000 6.0%
M & S Escrow................................................ 430,000 5.1%
Michael Nafash*............................................. -0- 0%
All of the officers and directors as a group (5 persons).... 5,229,473 58.8%
</TABLE>
- ------------------------
* c/o MainStreetIPO.com Inc., 171 Church Lane, North Brunswick, NJ 08009
** 152 West 57th Street, 54th Floor, New York, NY 10019
(1) Based on 8,390,000 shares of common stock outstanding.
(2) Includes (i) 250,000 shares held by Mr. Salvani's minor child; and
(ii) 250,000 shares issuable upon execution of a warrant exercisable at
$1.23 per share through December 16, 2004.
(3) Includes 50,000 shares of common stock issuable upon exercise of a warrant
exercisable at $1.23 per share through December 16, 2004 held by
Ms. Bertolini's husband as an owner of Interactive. See "MainStreet--Certain
Relationships and Related Transactions."
(4) Includes 200,000 shares issuable upon exercise of a warrant exercisable at
$2.70 per share through August 31, 2004.
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<PAGE>
(5) Mr. Langbein received 900,000 shares from us. See "The Merger--Interests of
Certain Persons in Matters to be Acted Upon" and "Certain Agreements Related
to the Merger--MainStreet and Affiliates Agreement with Todd &
Company, Inc.". Mr. Langbein has given 75,000 shares to each of his adult
children and 45,000 shares to each of his two brothers, one of whom is
employed by Medicore. Mr. Langbein disclaims any beneficial ownership in the
shares owned by his children and brothers. The 660,000 MainStreet shares
Mr. Langbein owns do not include the DCA option for 260,000 shares which
provides Mr. Langbein the right to obtain that amount of additional
MainStreet common stock upon approval of the Merger. See "DCA--Security
Ownership of Certain Beneficial Owners and Management."
MAINSTREET--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Joseph Salvani, our Chairman, owns 65,000 shares of FreeRide common stock,
which Mr. Salvani acquired in a private transaction. FreeRide is a private
company providing reward points to its members. FreeRide has provided CEO Letter
with an exclusive right to offer the FreeRide reward point system to companies
who elect to effect Direct Public Offerings through MainStreet. See
"MainStreet--Business--CEO Letter.com Inc."
MainStreet has contracted with Interactive Graphics, which provides us with
the maintenance and administration of our Website as well as implementation of
any technological upgrades. Sylvester Bertolini, the husband of Joanne
Bertolini, a director and Vice President of MainStreet, is a principal officer
of Interactive. Interactive holds warrants to acquire 200,000 shares of
MainStreet common stock at $1.23 per share through December 16, 2004, equally
divided among Interactive's four principals. See "MainStreet Business--Business
Technology," "Management of MainStreet" and "MainStreet--Security Ownership of
Management and Certain Beneficial Owners."
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DESCRIPTION OF MAINSTREET CAPITAL STOCK
GENERAL
The authorized capital stock of MainStreet consists of 20,000,000 shares of
common stock, par value $.001 per share, and 5,000,000 shares of preferred
stock, par value $.001 per share. As of February 4, 2000, there were 8,390,000
shares of Main Street common stock outstanding held of record by 40
stockholders. There are no shares of preferred stock outstanding.
COMMON STOCK
Holders of outstanding MainStreet common stock are entitled to such
dividends as may be declared by the MainStreet board out of the assets legally
available for that purpose, and are entitled to cast one vote per share on all
matters submitted to a vote of the stockholders of MainStreet. The holders of
shares of MainStreet common stock do not have cumulative voting rights.
Therefore, the holders of more than 50% of the outstanding shares of MainStreet
common stock voting for the election of directors can elect all the directors,
and the remaining holders will not be able to elect any directors. Three
officers and directors owning approximately 38% of the common stock of
MainStreet have given Joseph M. Salvani a proxy to vote their shares as
Mr. Salvani deems to be in the best interest of MainStreet. Mr. Salvani owns
approximately 31% of MainStreet, and therefore can elect all the MainStreet
directors and controls the company. See "Summary--The MainStreet Shareholder
Proxy" and "Management of MainStreet." The holders of MainStreet common stock
have no pre-emptive or other subscription rights, and there are no conversion or
redemption or sinking fund provisions with respect to such shares.
All of the outstanding shares of MainStreet common stock are, and those
shares to be issued in connection with the Merger will be, duly authorized,
validly issued, fully paid and non-assessable.
PREFERRED STOCK
The MainStreet board has authorized 5,000,000 shares of preferred stock
which may be issued in one or more series, from time to time, with such
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations and restrictions thereof, as may be
provided in a resolution or resolutions adopted by the MainStreet board. The
authority of the MainStreet board includes, but is not limited to, the
determination or fixing of the following with respect to shares of such class or
any series thereof: (1) the number of shares; (2) the dividend rate and the date
from which dividends are to be cumulative; (3) whether shares are to be
redeemable and, if so, the terms and amount of any sinking fund providing for
the purchase or redemption of such shares; (4) whether shares will be
convertible, and, if so, the terms and provisions thereof; (5) what restrictions
are to apply, if any, on the issue or reissue of any additional preferred stock;
and (6) whether shares have voting rights. Shares of preferred stock may be
issued with a preference over the MainStreet common stock as to the payment of
dividends. No shares of preferred stock have been issued.
Classes of preferred stock may be used, in certain circumstances, to create
voting impediments on extraordinary corporate transactions or to frustrate
persons seeking to effect a merger or otherwise to gain control of MainStreet.
For the foregoing reasons, any shares of preferred stock issued by MainStreet
could have an adverse effect on the rights of the holders of the MainStreet
common stock. MainStreet has no present plans to issue any shares of preferred
stock.
LIQUIDATION AND OTHER RIGHTS
Upon liquidation, the holders of MainStreet common stock are entitled to
share ratably in assets available for distribution to stockholders after
satisfaction of any liquidation preferences of any
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outstanding preferred stock. The issuance of any shares of series of preferred
stock in future financings, acquisitions or otherwise may result in dilution of
voting power and relative equity interest of the holders of shares of MainStreet
common stock and will subject the MainStreet common stock to the prior dividend
and liquidation rights of the outstanding shares of the series of preferred
stock.
ADVANCE NOTICE REQUIREMENTS IN CONNECTION WITH STOCKHOLDER MEETINGS
MainStreet's by-laws establish an advance notice procedure for bringing
business (other than by or at the direction of the MainStreet board) before an
annual meeting of stockholders and for nominating (other than by or at the
direction of the MainStreet board) candidates for election as directors at a
meeting of stockholders.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 of the Delaware General Corporation Law prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for three years after the stockholder becomes
an interested stockholder, unless (1) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding certain shares), (2) prior to the
stockholder becoming an interested stockholder, the board of directors of the
corporation approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder, or (3) at or
subsequent to the time that the stockholder became an interested stockholder,
the business combination is approved by the board of directors and authorized at
a meeting of stockholders, and not by written consent, by the affirmative vote
of at least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder. A "business combination" generally includes a merger, a
sale of 10% or more of the corporation's assets and any other transaction
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is generally defined as a person who, together with affiliates and
associates, owns 15% or more of the corporation's voting stock.
TRANSFER AGENT
The transfer agent for the MainStreet common stock is American Stock
Transfer & Trust Company.
COMPARATIVE RIGHTS OF DCA AND MAINSTREET SHAREHOLDERS
The material differences between the Florida Business Corporation Act (the
"Florida Act") and the articles of incorporation and by-laws of DCA on the one
hand, and the General Corporation Law of the State of Delaware (the "Delaware
Act") and the certificate of incorporation and by-laws of MainStreet on the
other, are summarized below.
LIABILITY OF DIRECTORS
The Florida Act provides that a director is not personally liable for
monetary damages to the corporation or any other person for any statement, vote,
decision, or failure to act, regarding corporate management or policy, unless
the director breached or failed to perform his or her duties as a director, and
the director's breach of, or failure to perform, those duties constitute:
- a violation of criminal law;
- a transaction from which the director derived an improper personal
benefit;
- voting or assenting to an unlawful distribution;
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- in a proceeding by or in the right of the corporation to procure a
judgment in its favor or by or in the right of a shareholder, conscious
disregard for the best interest of the corporation, or willful misconduct;
or
- in a proceeding by or in the right of someone other than the corporation
or shareholder, recklessness or an act or omission which was committed in
bad faith or with malicious purpose or in a manner exhibiting wanton and
willful disregard of human rights, safety or property.
The Delaware Act provides that a corporation's certificate of incorporation
may contain a provision which eliminates or limits the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision will not eliminate
or limit the liability of a director:
- for any breach of the director's duty of loyalty to the corporation or its
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a known violation of the law;
- for a violation that results in an unlawful distribution;
- for any transaction from which the director derives an improper personal
benefit.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Florida Act and Delaware Act both permit corporations to indemnify any
person who becomes involved in any proceeding because of their services as a
director, officer, employee, or agent of the corporation against expenses
(including attorneys' fees) if they acted in good faith and in a manner they
reasonably believed to be or not opposed to the best interest of the
corporation. In criminal proceedings, indemnification is also available if such
person had no reasonable cause to believe that their action was unlawful. With
respect to expenses actually and reasonably incurred in defense of any
proceeding, indemnification, in Florida and Delaware, is mandatory to the extent
that a director, officer, employee or agent is successful in such defense.
A similar standard is applicable in actions brought by or in the right of a
corporation (derivative actions) except that indemnification in Florida and
Delaware may only be made for (1) expenses (including attorney's fees) and
certain amounts paid in settlement, and (2) in the event the person seeking
indemnification has been found to be liable, the court of each jurisdiction
determines the proper amount which it may find to be fair and reasonable under
the circumstances. Additionally, the Florida Act provides that, unless a
corporation's articles of incorporation provide otherwise, if a corporation does
not indemnify such persons, they may seek a court order for indemnification even
if the board of directors or shareholders of the corporation have determined
that such persons are not entitled to indemnification. DCA's by-laws require
indemnification of its directors and officers to the fullest extent permitted
under Florida law. MainStreet's by-laws likewise provide for indemnification of
its officers and directors to the fullest extent possible under Delaware law.
SHAREHOLDERS' DERIVATIVE ACTIONS
In Florida and Delaware a person may not commence a proceeding on behalf of
the corporation to enforce the rights of that corporation unless that person was
a shareholder of the corporation when the transaction complained of occurred, or
unless the person became a shareholder through transfer by operation of law from
one who was a shareholder at that time.
A derivative action complaint in Florida must be verified and allege with
particularity the demand made to obtain action by the board of directors and
that the demand was refused or ignored. If the corporation commences an
investigation of the charges made in the demand or complaint, the court may stay
any proceedings until the investigation by the corporation is completed. In
Florida, derivative
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actions may be dismissed by the court if the court finds that certain
independent directors, or a committee of independent persons appointed by such
directors, or a panel of one or more independent persons appointed by the court,
have determined in good faith after conducting a reasonable investigation that
the maintenance of the action is not in the best interest of the corporation.
The Florida Act permits a court to require the plaintiff to pay the
corporation's reasonable expenses if it finds that the derivative action was
brought without reasonable cause.
To maintain a derivative action in Delaware, the plaintiff generally must be
a stockholder not only at the time of the transaction which is the subject of
the suit, but also through the duration of the derivative suit. Additionally,
derivative action plaintiffs in Delaware need not make a demand on the directors
of the corporation if they prove that such demand would be futile.
DIVIDENDS AND REDEMPTIONS
A Florida corporation may pay dividends to shareholders as long as, after
giving effect to such distribution, (1) the corporation will be able to meet its
debts as they become due in the usual course of business, and (2) the
corporation's total assets would not be less than the sum of its total
liabilities, plus the amount that would be needed if the corporation were to be
dissolved at the time of the distribution to satisfy the preferential rights
upon dissolution of shareholders whose preferential rights are superior to those
received in the distribution. Additionally, a corporation's redemption of its
own capital stock is deemed to be a distribution under Florida law.
The Delaware Act permits dividends to be paid out of (1) surplus, which is
the excess of net assets of the corporation over capital, or (2) if the
corporation does not have adequate surplus, net profits for the current or
immediately preceding fiscal year, unless the net assets are less that the
capital of any outstanding preferred stock. A Delaware corporation will be
prohibited from redeeming any of its capital stock if the redemption would
result in an impairment of the corporation's capital.
SHAREHOLDER INSPECTION OF BOOKS AND RECORDS
A shareholder under the Florida Act is entitled to inspect a copy of the
articles of incorporation, by-laws, certain board and shareholder resolutions,
certain written communications to shareholders, a list of names and business
addresses of the directors and officers, and the corporation's most recent
annual report, during regular business hours if the shareholder gives at least 5
business days' prior written demand to the corporation. Additionally, the
shareholder of a Florida corporation is entitled to inspect and copy certain
other books and records of the corporation during regular hours of business if
the shareholder gives at least 5 days prior written demand to the corporation
and:
- the shareholder's demand is made in good faith and for a proper purpose;
- the demand describes with particularity its purpose and the records to be
inspected or copied; and
- the requested records are directly connected with such purpose.
A Florida corporation may deny a demand for inspection if such demand is
made for an improper purpose, or if a demanding shareholder had, within two
years preceding such demand, sold or offered for sale any list of shareholders
of the corporation or any other corporation, and aided or abetted any person in
procuring a list of shareholders for such purpose, or improperly used any
information secured through any prior examination of the records of the
corporation or any other corporation.
The Delaware Act with respect to the inspection and copying of a
corporation's books and records is generally less restrictive than the Florida
Act. In Delaware, upon proper written demand under oath which states the purpose
of such demand, every shareholder may inspect the corporate books and records,
during normal business hours, as long as such inspection is for a proper
purpose. The
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Delaware Act defines a proper purpose as any purpose reasonably related to the
interests of the inspecting person as a stockholder.
APPRAISAL RIGHTS
The rights of stockholders to demand payment in cash by a corporation of the
fair value of their shares under certain circumstances are called "appraisal
rights." A shareholder of a Florida corporation, with certain exceptions, has
the right to dissent from, and obtain payment of the fair value for his shares
in the event of:
- a merger or consolidation to which the corporation is a party;
- a sale or exchange of all or substantially all of the corporation's
property other than in the usual and ordinary course of business;
- the approval of a controlled share acquisition;
- a statutory share exchange to which the corporation is a party as the
corporation whose shares will be acquired;
- an amendment to the articles of incorporation if the shareholder is
entitled to vote on the amendment and the amendment would adversely affect
the shareholder; and
- any corporate action taken to the extent that the articles of
incorporation provide for dissenters' rights with respect to such action.
In Florida, unless the corporation's articles of incorporation provide
otherwise, which DCA's articles of incorporation do not, a shareholder does not
have dissenter's rights with respect to a plan of merger, share exchange, or
proposed sale or exchange of property, if the shares held by the shareholder are
either registered on a national securities exchange, or designated as a national
market system security on an inter-dealer quotation system by the NASD, or held
of record by 2,000 or more shareholders. See "Dissenters' Rights of Appraisal of
DCA Shareholders."
A shareholder of a Delaware corporation is similarly entitled to certain
appraisal rights in the event that the corporation is involved in certain
mergers or consolidations to which the shareholder is not willing to consent to.
The certificate of incorporation of a Delaware corporation may also grant
dissenters' rights with respect to any amendment to the certificate of
incorporation, or in the event of any sale of all or substantially all of the
corporation's assets. Comparable, but not identical to the Florida Act,
dissenters' rights do not apply to a shareholder of a Delaware corporation if
the shares were listed on a national securities exchange or designated as a
national market system security on an inter-dealer quotation system by the NASD,
or held of record by more than 2,000 stockholders. Unlike a Florida corporation,
however, under the Delaware Act a shareholder does have dissenters' rights if
the shareholder is required by the terms of the agreement of merger or
consolidation to accept anything for his shares other than:
- shares of stock of the corporation surviving or resulting from the merger
or consolidation;
- shares of stock of any other corporation which is listed on a national
securities exchange or designated as a national market systems security on
an inter-dealer quotation system by the NASD or held of record by more
than 2,000 stockholders;
- cash in lieu of fractional shares; or
- any combination of the above.
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SPECIAL MEETING OF SHAREHOLDERS
Under the Florida Act, a special meeting of the corporation's shareholders
may be called by the board of directors, by the persons authorized to do so in
its articles of incorporation or by-laws, or by the holders of not less than 10%
of all the votes entitled to be cast on any issue proposed to be considered at
the special meeting, unless a greater percentage not to exceed 50% is required
by the articles of incorporation. DCA's by-laws have a 50% requirement for the
calling of special meetings by the shareholders. Additionally, DCA's by-laws
also provide that a special meeting may be called by the president or by the
majority of the board of directors.
Special meetings of the stockholders of a Delaware corporation may be called
by the board of directors or by the persons authorized in the corporation's
certificate of incorporation or by-laws. MainStreet's by-laws provide that
special meetings of shareholders may be held for any purpose and may be called
at any time by the board, or chairman of the board, chief executive officer, or
by a committee of the board. The board of directors is also required to call a
special meeting when requested by shareholders owning not less than 50.1% of the
outstanding shares of the corporation.
BUSINESS COMBINATIONS INVOLVING INTERESTED SHAREHOLDERS
The Florida Act requires that, in addition to any vote required by it and
the corporation's articles of incorporation, and subject to certain exceptions,
any "affiliated transaction" between a Florida corporation and any beneficial
owner of 10% or more of the corporation's outstanding voting shares be approved
by two-thirds of the voting shares, excluding the shares beneficially owned by
the interested shareholder, or that a statutory "fair price" be paid to
shareholders in the transaction. This requirement does not apply if:
- the transaction was approved by a majority of the corporation's
disinterested directors;
- the corporation did not have more than 300 shareholders of record at any
time during the preceding three years;
- the affiliated shareholder has been the beneficial owner of at least 80%
of the corporation's outstanding voting shares for the past five years;
- the affiliated shareholder is the beneficial owner of at least 90% of the
corporation's outstanding voting shares, exclusive of those required in a
transaction not approved by a majority of disinterested directors;
- the consideration be received by each shareholder in connection with the
transaction satisfies the "fair price" provisions of the statute.
The statute applies to any corporation governed by the Florida Act unless
the articles of incorporation or by-laws contain a provision expressly electing
not to be governed by this statute. Such an amendment to the articles of
incorporation or by-laws must be approved by the affirmative vote of a majority
of disinterested shareholders.
The Delaware Act prohibits a stockholder owning 15% or more of a Delaware
corporation's outstanding voting stock (an "interested stockholder") from
engaging in certain business combinations involving the corporation during the
three years after the date the person became an interested stockholder unless,
among other things:
- prior to such date the board of directors approved either the business
combination or the transaction which resulted in the stockholder becoming
an interested stockholder;
- upon the consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the stockholder owned at least 85% of
the voting stock outstanding at the time the transaction commenced;
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- on or subsequent to such date, the transaction is approved by the board of
directors and the stockholders by a vote of two-thirds of the
disinterested outstanding voting stock;
- the corporation's original certificate of incorporation provides that the
corporation shall not be governed by such statute;
- a majority of shares entitled to vote approve an amendment to the
corporation's certificate of incorporation or by-laws expressly electing
not to be governed by the statute (such amendment will not be effective
until one year after it was adopted and will not apply to any business
combination between the corporation and any person who became an
interested stockholder on or prior to such adoption);
- a stockholder becomes an interested stockholder inadvertently and as soon
as practicable divests itself of ownership of sufficient shares so that
the stockholder ceases to be an interested stockholder; or
- the corporation does not have a class of voting stock that is:
- listed on a national securities exchange;
- authorized for quotation on an inter-dealer quotation system of a
national securities association; or
- held of record by more than 2,000 stockholders.
The business combinations subject to such restrictions include, with certain
exceptions, mergers, consolidations, sales of assets, and transactions
benefiting the interested stockholder.
CONTROL SHARE ACQUISITIONS
The Florida Act has a control share acquisition provision which provides
that a person who acquires shares in an issuing public corporation in excess of
certain specified thresholds will generally not have any voting rights with
respect to such shares unless the voting rights are approved by a majority of
the shares entitled to vote, excluding interested shares. This provision does
not apply to acquisitions of shares of a corporation if, prior to the pertinent
acquisition of shares, the acquisition is approved by the board of directors or
the corporation's articles of incorporation or by-laws provide that the
corporation shall not be governed by the statute. This statute also permits a
corporation to adopt a provision in its articles of incorporation or by-laws
providing for the redemption by the corporation of such acquired shares in
certain circumstances. Unless otherwise provided in the corporation's articles
of incorporation or by-laws prior to the pertinent acquisition of shares, in the
event that such shares are accorded full voting rights by the shareholders and
the acquiring shareholder acquires a majority of the voting power of the
corporation, all shareholders who did not vote in favor of according voting
rights to such acquired shares are entitled to dissenters' rights to receive the
fair value of their shares.
Delaware does not have any provisions comparable to Florida's control share
acquisition statute.
SHAREHOLDER VOTING REQUIREMENTS
Under both the Florida and Delaware Acts, directors are generally elected by
a plurality of votes cast by the shareholders entitled to vote at a shareholder
meeting at which a quorum is present, unless a greater number of affirmative
votes is required by the articles of incorporation (in the case of a Florida
corporation), or the certificate of incorporation or by-laws (in the case of a
Delaware corporation). With regard to matters other than the election of
directors, unless a greater number of affirmative votes is required by Florida
law for a Florida corporation's articles of incorporation, if a quorum exists,
action on any matter generally is approved by the shareholders if the votes cast
by the holders of the shares represented at the meeting and entitled to vote on
the matter favoring the action
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exceed the votes opposing the action. Therefore, under Florida law, abstentions
generally do not have the same effect as a vote against a matter. However, in a
merger transaction, the required vote is a majority of the shares entitled to
vote, and therefore, abstentions and broker no votes have the effect of a vote
against the proposed transactions.
Under the Delaware Act, unless otherwise provided by the Delaware Act or a
Delaware corporation's certificate of incorporation or by-laws, if a quorum
exists, action on a matter is generally approved by an affirmative vote of the
majority of the shares represented at a meeting and entitled to vote on the
matter. Accordingly, abstentions by shareholders in Delaware have the same
effect as votes against the matter. DCA's by-laws do not contain a provision
requiring a greater vote than otherwise required by applicable law other than
provisions requiring the affirmative vote of at least two-thirds of the
outstanding shares with respect to actions relating to the removal of directors,
or the vote of two-thirds of the directors for any amendments to DCA's by-laws.
MainStreet's by-laws do not contain any provision requiring a greater vote than
otherwise required by applicable law. The removal of a director requires a vote
of not less than a majority of the shareholders entitled to vote.
REMOVAL OF DIRECTORS BY SHAREHOLDERS
Under the Florida Act, shareholders of a corporation may remove one or more
directors with or without cause unless the articles of incorporation provide
that the directors may be removed only for cause. DCA's by-laws provide that a
director may only be removed for cause, and only by a vote of the holders of at
least 75% of the shares of stock outstanding. The Delaware Act provides that a
director or directors may be removed with or without cause by the holders of a
majority of the shares then entitled to vote at an election of directors, except
that (1) members of a classified board may be removed only for cause, unless the
certificate of incorporation provides otherwise, and (2) in the case of a
corporation having cumulative voting, if less than the entire board is to be
removed, no director may be removed without cause if the votes cast against such
director's removal would be sufficient to elect such director if then
cumulatively voted at an election of the entire board of directors or of the
class of directors of which such director is a part.
BOARD VACANCIES
The Florida Act provides that whenever a vacancy occurs on a board of
directors, including a vacancy resulting from an increase in the number of
directors, it may be filled by the affirmative vote of the majority of the
remaining directors, though less than a quorum of the board of directors, or by
the shareholders, unless the articles of incorporation provide otherwise. DCA's
by-laws provide that any vacancy or newly created directorship resulting from an
increase in the authorized number of directors may be filled by the affirmative
vote of the majority of the directors then in office, or a vote less than a
quorum, or by a sole remaining director, and a director so chosen shall hold
office until the next annual election.
Under the Delaware Act, a vacancy on the board of directors generally may be
filled by a majority of the remaining directors, or in the manner specified in
the corporation's certificate of incorporation or by-laws. MainStreet's by-laws
provide that no reduction of the authorized directors shall have the effect of
removing any director prior to the expiration of that director's term of office.
AMENDMENTS TO ARTICLES OF INCORPORATION AND BY-LAWS
Amendments to a Florida corporation's articles of incorporation must be
approved by the corporation's shareholders, except that certain immaterial
amendments specified in the Florida Act may be made by the board of directors.
Unless a specific section of the Florida Act or a Florida corporation's articles
of incorporation requires a greater vote, an amendment to a Florida
corporation's
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articles of incorporation generally must be approved by a majority of the vote
entitled to be cast on the amendment. DCA's by-laws may be amended by a majority
of its shareholders.
A Delaware corporation's certificate of incorporation may be generally
amended only if approved by a majority of the outstanding stock entitled to vote
unless a greater number is specified in its certificate of incorporation. If any
such amendment would adversely affect the rights of any holders of shares of a
class or series of stock, the vote of the holders of a majority of all
outstanding shares of the class or series, voting as a class, is also necessary
to authorize such amendment. With respect to by-laws, under Delaware law, the
power to adopt, alter and repeal a corporation's by-laws is exclusively vested
in the shareholders. MainStreet's by-laws authorize the board of directors to
rescind, alter, amend or repeal any by-law subject to approval by the holders of
a majority of the outstanding stock of the corporation.
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SELLING SHAREHOLDERS
The selling shareholders consist of two groups, the Affiliates of DCA and
Medicore who hold DCA common stock and options which, upon the completion of the
Merger, will become MainStreet common stock and options exercisable under the
same terms into MainStreet common stock; and certain MainStreet investors who
currently hold MainStreet common stock, including Thomas K. Langbein, who falls
within both categories, an Affiliate of DCA and Medicore, and a current
shareholder of MainStreet. See "The Merger--Interests of Certain Persons in
Matters to be Acted Upon." Affiliates of and investors in MainStreet to the
extent their MainStreet common stock is not included in this proxy
statement/prospectus have executed and delivered to MainStreet lockup letters
restricting the encumbrance or disposition of their MainStreet common stock
through December 31, 2000, except under limited circumstances which do not
provide for any public sales of such common stock.
The following table sets forth certain information with respect to the
selling shareholders. MainStreet will not receive any of the proceeds from the
sale of the selling shareholders' MainStreet common stock. The DCA options, upon
completion of the Merger, will become MainStreet options, which will have the
same terms and conditions as the former DCA options. See "The Merger--Treatment
of DCA Options and Warrants." The notes to the table describe the relationship
of the selling shareholder to DCA, Medicore and/or MainStreet.
<TABLE>
<CAPTION>
BENEFICIAL
BENEFICIAL OWNERSHIP AMOUNT OF OWNERSHIP OF
BEFORE THE OFFERING MAINSTREET MAINSTREET
------------------------------------------------ COMMON STOCK AFTER THE
NAME DCA(3) %(4) MAINSTREET %(5) TO BE OFFERED OFFERING(1) %(2)
- ---- --------- -------- ---------- -------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
AFFILIATES
Medicore(6)..................... 2,410,622 67.9% -- -- 250,000(7) -0- 0%
Anthony C. D'Amore(8)........... 23,000 + -- -- 23,000 -0- 0%
Stephen Everett(9).............. 35,000 + -- -- 35,000 -0- 0%
Peter D. Fischbein(10).......... 20,000 + -- -- 20,000 -0- 0%
Seymour Friend(11).............. 23,000 + -- -- 23,000 -0- 0%
Lawrence E. Jaffe(12)........... 178,000 4.8% 100,000(13) 1.2% 278,000 -0- 0%
Josh Jaffe(14).................. 20,000 + -- -- 20,000 -0- 0%
Gila Jaffe(14).................. 20,000 + -- -- 20,000 -0- 0%
Beth Jaffe(14).................. 20,000 + -- -- 20,000 -0- 0%
Avi Jaffe(14)................... 20,000 + -- -- 20,000 -0- 0%
Michelle Jaffe(14).............. 20,000 + -- -- 20,000 -0- 0%
Thomas K. Langbein(15).......... 260,000 6.8% 660,000 7.9% 920,000 -0- 0%
Chris Langbein(16).............. -- -- 75,000 + 75,000 -0- 0%
Jeannine Langbein(16)........... -- -- 75,000 + 75,000 -0- 0%
George Langbein(17)............. -- -- 45,000 + 45,000 -0- 0%
William Langbein(18)............ -- -- 45,000 + 45,000 -0- 0%
Robert P. Magrann(19)........... 22,000 + -- -- 22,000 -0- 0%
Daniel R. Ouzts(20)............. 32,500 + -- -- 32,500 -0- 0%
Bart Pelstring(21).............. 95,000 2.6% -- -- 95,000 -0- 0%
Dr. Herbert I. Soller(22)....... 35,000 + -- -- 35,000 -0- 0%
Ronald Tornquist(23)............ 25,000 + -- -- 25,000 -0- 0%
Robert W. Trause(22)............ 40,000 1.1% -- -- 40,000 -0- 0%
MAINSTREET INVESTORS
Allied International Fund....... -- -- 40,000 + 40,000 -0- 0%
Naomi Bodner.................... -- -- 500,000 6.0% 250,000 250,000 2.3%
Carol Coppola................... -- -- 50,000 + 50,000 -0- 0%
Empire Ventures Ltd............. -- -- 100,000 1.2% 100,000 -0- 0%
Lucy T. Falco................... -- -- 30,000 + 30,000 -0- 0%
</TABLE>
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<TABLE>
<CAPTION>
BENEFICIAL
BENEFICIAL OWNERSHIP AMOUNT OF OWNERSHIP OF
BEFORE THE OFFERING MAINSTREET MAINSTREET
------------------------------------------------ COMMON STOCK AFTER THE
NAME DCA(3) %(4) MAINSTREET %(5) TO BE OFFERED OFFERING(1) %(2)
- ---- --------- -------- ---------- -------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Rita Folger..................... -- -- 220,325 2.4% 220,325 -0- 0%
Greta Freedman.................. -- -- 30,000 + 30,000 -0- 0%
Laura Huberfeld................. -- -- 500,000 6.0% 250,000 250,000 2.3%
Hyatt Capital................... -- -- 162,602 1.9% 162,602 -0- 0%
Debra Maynard................... -- -- 20,000 + 20,000 -0- 0%
Fred Merz....................... -- -- 34,600 + 34,600 -0- 0%
Frank Mullin.................... -- -- 3,000 + 3,000 -0- 0%
Lucia Mullin.................... -- -- 4,000 + 4,000 -0- 0%
Margaret Mullin................. -- -- 10,000 + 10,000 -0- 0%
Robert E. Mullin, III........... -- -- 3,000 + 3,000 -0- 0%
Old Oak Fund.................... -- -- 80,000 + 40,000 40,000 +
Matthew Radico.................. -- -- 1,000 + 1,000 -0- 0%
Richard Swift................... -- -- 1,000 + 1,000 -0- 0%
VAC Worldwide Consulting........ -- -- 20,000 + 20,000 -0- 0%
VATV Ltd........................ -- -- 1,000 + 1,000 -0- 0%
FINDERS
Michael Guiliano (7)............ -- -- 10,000 + 10,000 -0- 0%
</TABLE>
+ less than 1%
- --------------------------
(1) Assumes selling shareholders sell all of the MainStreet common stock they
are offering.
(2) Based on 10,845,722 shares outstanding including (i) 1,395,722 shares to be
issued to DCA shareholders in connection with the Merger; (ii) 250,000
shares to be issued to the MainStreet shareholders constituting their CEO
Letter interests (see "Certain Agreements Related to the
Merger--Contribution Agreement Relating to CEO Letter"); and (iii) 809,500
options assumed exercised by the Affiliates, related parties and employees
of DCA.
(3) Includes the following shares that may be acquired by the selling
shareholders upon exercise of their options and warrants as of the date of
this proxy statement/prospectus or within 60 days after that date:
D'Amore, 22,000 shares (20,000*; 2,000 warrants); S. Everett, 35,000
shares*; P. Fischbein, 20,000 shares*; S. Friend, 22,000 shares (20,000*;
2,000 warrants); L. Jaffe, 162,000 shares (160,000*; 2,000 warrants); Josh
Jaffe, Gila Jaffe, his wife, Beth Jaffe, Avi Jaffe and Michelle Jaffe, adult
children of L. Jaffe, each for 20,000 shares*: T. Langbein, 260,000 shares*;
R. Magrann, 22,000 shares (20,000*; 2,000 warrants); D. Ouzts, 25,000
shares*; B. Pelstring, 45,000 shares*; H. Soller, 35,000 shares*; and R.
Trause, 40,000 shares**.
* Issuable upon exercise of 1999 options
** Issuable upon exercise of 1995 options (5,000) and 1999 options
(35,000)
(4) Based on 3,546,344 shares of common stock outstanding exclusive of
outstanding options and warrants. See note (2) to "DCA--Security Ownership
of Certain Beneficial Owners and Management." Officers and directors of DCA
who may also be officers, directors and/or shareholders of Medicore disclaim
any indirect beneficial ownership of DCA common stock through Medicore's
ownership. See note (1) to "DCA--Security Ownership of Certain Beneficial
Owners and Management."
(5) Based on 8,390,000 shares of common stock outstanding, exclusive of any
outstanding warrants or issuances upon completion of the Merger. See
note (2) above. Includes a portion of the aggregate of 250,000 shares of
common stock to be issued to those MainStreet shareholders who own and will
transfer their interests in the CEO Letter to MainStreet upon completion of
the Merger. See "Summary--Federal Income Tax Consequences of the DCA Asset
Sale and the Merger" and "MainStreet--Business--Our Prospective
Subsidiary--CEO Letter.com Inc."
(6) Parent to DCA.
98
<PAGE>
(7) As part of the DCA Asset sale, Medicore is transferring 2,150,622 shares of
its DCA common stock to DCA and will be issuing 10,000 of its remaining DCA
shares to Michael Guiliano as a finder's fee in connection with the proposed
Transactions.
(8) Director of Medicore.
(9) Executive Vice President of DCA
(10) Director of Medicore and its public subsidiary, Techdyne.
(11) Vice President and Director of Medicore.
(12) Counsel and Secretary to DCA and Medicore.
(13) Includes warrants (i) 50,000 exercisable at $1.23 through December 16,
2004, and (ii) 50,000 exercisable at $3.00 through January 26, 2005.
(14) Adult children (Gila is daughter-in-law) of Lawrence E. Jaffe. Mr. Jaffe
disclaims any beneficial ownership of these shares. See note (12) above.
(15) Chairman of the Board and Chief Executive Officer of DCA and Medicore and
Todd, a securities broker-dealer with a referral agreement among and between
MainStreet and two of its principals and director of the Linux Fund (see
"The Merger--Interests of Certain Persons In Matters to be Acted Upon");
also President of Medicore and executive officer and director of the DCA and
Medicore subsidiaries.
(16) Adult children of Thomas K. Langbein. See note (15) above.
(17) Brother of Thomas K. Langbein. See note (15) above.
(18) Brother of Thomas K. Langbein. Employed by Medicore in its medical
division. See note (15) above.
(19) Director of Medicore. Member of the Audit Committee of Medicore.
(20) Vice President (Finance), Treasurer and Controller of DCA and Medicore and
certain of their subsidiaries.
(21) President and director of DCA and most of its subsidiaries.
(22) Director of DCA and member of its Audit Committee.
(23) Part-time accounting consultant to DCA.
The MainStreet common stock being offered by the selling shareholders,
whether owned directly or to be obtained upon exercise of their options and/or
warrants, may be sold by the selling shareholders, or their pledges, donees,
transferees or other successors in interest from time to time:
- in transactions (which may include block sales) on the Nasdaq SmallCap
Market;
- in negotiated transactions; or
- through a combination of such methods of sale, at fixed prices or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, or at negotiated prices.
The MainStreet common stock may be sold directly to purchasers or through
underwriters, agents or broker-dealers by one or more of the following means:
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
- purchases by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this proxy statement/prospectus; and
- a block trade in which the broker or dealer so engaged will attempt to
sell the common stock as agent but may position and resell a portion of
the block as principal to facilitate the transaction.
Any such underwriters, agents or broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the selling shareholders
and/or the purchasers of the shares
99
<PAGE>
for which such underwriters, agents or broker-dealers may act as agents or to
whom they sell as principals, or both (which compensation as to an underwriter,
agent or particular broker-dealer will be negotiated prior to the sale and may
be in excess of customary compensation). If required by applicable law at the
time a particular offer of MainStreet common stock is made, the terms and
conditions of such transaction will be set forth in a supplement to this proxy
statement/prospectus.
The selling shareholders and any underwriters, agents or broker-dealers who
act in connection with the sale of the shares of MainStreet common stock
hereunder may be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act, and any compensation received by them might
be deemed to be underwriting discounts and commissions under the Securities Act.
The selling shareholders will pay all applicable stock transfer taxes,
transfer fees and brokerage commissions or underwriting or other discounts. DCA
and MainStreet have agreed to bear the expenses in connection with the
registration of the shares being offered by such selling shareholders on a pro
rata basis. MainStreet has agreed to indemnify the selling shareholders against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the MainStreet shares of common stock to be issued in the
Merger by this proxy statement/prospectus will be passed upon by McLaughlin &
Stern, LLP, New York, New York.
Certain United States federal income tax consequences of the Merger will be
passed upon for DCA, Medicore and Buyer by , and for MainStreet and
MainStreet Acquisition Inc. by Wollmuth Maher & Deutsch, LLP, New York, New
York.
EXPERTS
MainStreet's financial statements as of October 31, 1999 and for the period
then ended appearing in this proxy statement/prospectus have been audited by
Holtz Rubenstein & Co., LLP, independent auditors, as set forth in their report
therein appearing elsewhere in this proxy statement/prospectus, and is included
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated balance sheets of DCA as of December 31, 1998 and 1997, and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1998, included in the proxy statement of DCA, which is referred to
and made a part of this prospectus and registration statement, have been audited
by Ernst & Young LLP, independent certified public accountants, as set forth in
their report therein appearing elsewhere herein, and are included in reliance
upon such report given on the authority of such firm as experts in accounting
and auditing.
Ernst & Young LLP was replaced as DCA's auditors in August, 1999 by Wiss &
Company, LLP. A representative of Wiss & Company, LLP is expected to be at the
Special Meeting, and will be available to respond to appropriate questions. No
representative of Ernst & Young LLP will be at that meeting.
100
<PAGE>
OTHER MATTERS
Pursuant to Florida law, the business that may be conducted at the Special
Meeting is confined to the purposes described in the Notice of Special Meeting
of Shareholders that accompanies this proxy statement/prospectus.
SHAREHOLDER PROPOSALS
If DCA shareholders approve the DCA Asset sale and the Merger, these
Transactions will be completed prior to the 2000 annual meeting of shareholders,
and DCA will no longer be a public company, but rather a 100% owned subsidiary
of MainStreet under the name MainStreet Sub, Inc., and DCA will no longer hold
any annual meeting. If the Transactions are not approved and completed, DCA will
hold its 2000 annual meeting some time in June, 2000. Proposals of DCA
shareholders for that annual meeting must have been received by Lawrence E.
Jaffe, Esq., Secretary to DCA, 777 Terrace Avenue, Hasbrouck Heights, New Jersey
07604 no later than , 2000 to be included in DCA's Notice of Annual
Meeting of Shareholders and Information Statement relating to that meeting.
Please note Medicore, the parent of DCA, owns 68% of DCA, and controls the vote
on all matters presented to a vote of DCA shareholders, except as to the
proposed Transactions, which are the subject of this Special Meeting for which
Medicore and the Affiliates of DCA and Medicore are not voting. See "The Special
Meeting--No Recommendation by DCA and No Voting by Medicore and Officers and
Directors."
WHERE YOU CAN FIND MORE INFORMATION
MainStreet has filed the registration statement on Form S-4 to register with
the Securities and Exchange Commission the shares of MainStreet common stock to
be issued to the DCA shareholders in the Merger, and to register the resale of
MainStreet common stock for Affiliates of DCA and Medicore who will receive
MainStreet securities in return for their DCA securities in connection with the
Merger, and on behalf of certain investors in MainStreet. See "Selling
Shareholders." The registration statement, including the attached exhibits and
schedules, contains additional relevant information about MainStreet and DCA. As
allowed by the Securities and Exchange Commission, this proxy
statement/prospectus does not contain all the information you can find in the
registration statement or the attachments and schedules to the registration
statement.
DCA files annual, quarterly and current reports, information statements and
other information with the Securities and Exchange Commission. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information at
the public reference room. You may read and copy any reports, statements or
other information DCA files at the following locations of the Securities and
Exchange Commission.
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, DC 20539 New York, NY 10048 Suite 1400
Chicago, IL 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Room 1024, Washington, DC 20549, at prescribed rates. DCA's filings are
also available to the public from commercial document retrieval services and at
the Internet world wide web site maintained by the Securities and Exchange
Commission at HTTP://WWW.SEC.GOV.
The Securities and Exchange Commission allows DCA to "incorporate by
reference" information into this proxy statement/prospectus, which means that
DCA can disclose important information to you
101
<PAGE>
by referring you to another document filed separately with the Securities and
Exchange Commission. The information incorporated by reference is deemed to be
part of this proxy statement/prospectus. This proxy statement/prospectus
incorporates by reference the documents set forth below that DCA has previously
filed with the Securities and Exchange Commission. These documents contain
important information about DCA and its financial condition.
<TABLE>
<S> <C>
Annual Report on Form 10-K.............. Year ended December 31, 1998
Quarterly Reports on Form 10-Q.......... Quarters ended March 31, 1999, June 30, 1999 and
September 30, 1999
Current Reports on Form 8-K............. Filed on March 9, 1999, August 13, 1999,
September 10, 1999, October 21, 1999 and December 8,
1999
Current Report on Form 8-K/A............ Filed on August 27, 1999
Information Statement................... Dated April 26, 1999
</TABLE>
DCA also incorporates by reference into this proxy statement/prospectus
additional documents that may be filed with the Securities and Exchange
Commission under the Securities Exchange Act, as amended, from the date of this
proxy statement/prospectus to the date of the Special Meeting. These include
periodic reports, such as annual reports on Form 10-K, quarterly reports on
Form 10-Q, and current reports on Form 8-K, as well as information statements.
DCA has supplied all information contained or incorporated by reference in
this proxy statement/ prospectus relating to DCA, and MainStreet has supplied
all information relating to it, MainStreet Acquisition Inc. and CEO Letter.
If you are a DCA shareholder, DCA may have sent you some of the documents
incorporated by reference, but you can obtain any of them through DCA, the
Securities and Exchange Commission or the Securities and Exchange Commission's
Internet world wide web site as described above. Documents incorporated by
reference are available from DCA without charge, excluding all exhibits unless
DCA has specifically incorporated by reference an exhibit in this proxy
statement/prospectus. Shareholders may obtain documents incorporated by
reference in this proxy statement/prospectus by requesting them in writing or by
telephone from DCA at Dialysis Corporation of America, 777 Terrace Avenue,
Hasbrouck Heights, New Jersey 07604, Attn: Lawrence E. Jaffe, Esq. (Secretary).
If you would like to request documents from DCA, please do so by
, 2000 to receive them before the Special Meeting. If you request
any incorporated documents, DCA will mail them to you by first class mail, or
another equally prompt means, within one business day after DCA receives your
request.
WE HAVE AUTHORIZED NO ONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ABOUT THE PROPOSED DCA ASSET SALE OR MERGER OR OUR COMPANIES THAT
DIFFERS FROM OR ADDS TO THE INFORMATION CONTAINED IN THIS DOCUMENT OR IN THE
DOCUMENTS DCA HAS PUBLICLY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
THEREFORE, IF ANYONE SHOULD GIVE YOU ANY DIFFERENT OR ADDITIONAL INFORMATION,
YOU SHOULD NOT RELY ON IT.
IF YOU LIVE IN A JURISDICTION WHERE IT IS UNLAWFUL TO OFFER TO EXCHANGE OR
SELL, OR TO ASK FOR OFFERS TO EXCHANGE OR BUY, THE SECURITIES OFFERED BY THIS
DOCUMENT, OR TO ASK FOR PROXIES, OR, IF YOU ARE A PERSON TO WHOM IT IS UNLAWFUL
TO DIRECT SUCH ACTIVITIES, THEN THE OFFER PRESENTED BY THIS DOCUMENT DOES NOT
EXTEND TO YOU.
THE INFORMATION CONTAINED IN THIS DOCUMENT SPEAKS ONLY AS OF ,
2000, THE DATE INDICATED ON THE COVER OF THIS DOCUMENT UNLESS THE INFORMATION
SPECIFICALLY INDICATES THAT ANOTHER DATE APPLIES. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY
OTHER DATE OTHER THAN THAT DATE. NEITHER THE MAILING OF THIS PROXY STATEMENT/
PROSPECTUS TO SHAREHOLDERS NOR THE ISSUANCE OF THE MAINSTREET COMMON STOCK IN
THE MERGER CREATES ANY IMPLICATION TO THE CONTRARY.
102
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE
- ---- --------
<S> <C>
Affiliates........................... 1
Blue Skied........................... 78
Buyer................................ cover
CEO Letter........................... cover
CEO Letter Website................... 80
Code................................. 6
Contributors......................... 52
DCA.................................. cover
Dialysis Acquisition Corp............ 5
Delaware Act......................... 89
Direct Public Offering............... cover
Dissenters' Shares................... 44
Dissenting Shareholder............... 44
Dutch Auction........................ 78
Effective Time....................... 39
Exchange Agent....................... 42
FreeRide............................. 80
IPO.................................. 20
MainStreet........................... 1
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- --------
<S> <C>
MainStreet Acquisition Inc........... 4
MainStreet Sub, Inc.................. 47
Medicore............................. cover
Merger............................... cover
Merger Agreement..................... cover
Minority Public Interest............. 2
Minority Public Shareholder.......... 2
Nasdaq............................... cover
Public Float......................... 13
Purchase Agreement................... cover
Record Date.......................... 11
Securities Act....................... cover
Securities Exchange Act.............. 42
Todd................................. 36
Underwriters' Options................ cover
User................................. 77
Warrants............................. cover
Website.............................. 76
</TABLE>
103
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
MAINSTREET IPO.COM INC.
(A DEVELOPMENT STAGE COMPANY)
Report of Holtz Rubenstein & Co., LLP, Independent
Auditors.................................................. F-2
Balance Sheet as of October 31, 1999........................ F-3
Statement of Operations from inception (Apri112, 1999)
through October 31, 1999.................................. F-4
Statement of Stockholders' Equity from inception (Apri112,
1999) through October 31, 1999............................ F-5
Statement of Cash flows from inception (Apri112, 1999)
through October 31, 1999.................................. F-6
Notes to Financial Statements............................... F-7
DIALYSIS CORPORATION OF AMERICA
Report of Ernst & Young LLP, Independent Certified Public
Accountants............................................... F-13
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... F-14
Consolidated Statements of Operations--Years ended December
31, 1998, 1997 and 1996................................... F-15
Consolidated Statements of Stockholder' Equity--Years ended
December 31, 1998, 1997 and 1996.......................... F-16
Consolidated Statements of Cash Flows--Years ended December
31, 1998, 1997 and 1996................................... F-17
Notes to Consolidated Financial Statements--December 31,
1998...................................................... F-18
Consolidated Condensed Balance Sheets as of September 30,
1999 (Unaudited) and December 31, 1998.................... F-30
Consolidated Condensed Statements of Operations for the nine
months ended September 30, 1999 and 1998 (Unaudited)...... F-31
Consolidated Condensed Statements of Cash Flows for the nine
months ended September 30, 1999 and 1998 (Unaudited)...... F-32
Notes to Consolidated Condensed Financial Statements for the
nine months ended September 30, 1999 (Unaudited).......... F-33
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
MainStreet IPO.com Inc.
We have audited the accompanying balance sheet of MainStreet IPO.com Inc. (a
development stage company) as of October 31, 1999, and the related statements of
operations, stockholders' equity and cash flows for the period April 12, 1999
(inception) through October 31, 1999. 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 referred to above present fairly,
in all material respects, the financial position of MainStreet IPO.com Inc. as
of October 31, 1999, and the results of its operations and its cash flows for
the period April 12, 1999 (inception) through October 31, 1999 in conformity
with generally accepted accounting principles.
HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
December 2, 1999
F-2
<PAGE>
MAINSTREET IPO.COM INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
OCTOBER 31, 1999
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 39,419
Note receivable (Note 4).................................. 25,000
Other receivables......................................... 42,978
---------
Total current assets.................................... 107,397
EQUIPMENT (Note 5).......................................... 35,000
WEBSITE DESIGN COSTS (Note 6)............................... 130,000
OTHER....................................................... 12,981
---------
$ 285,378
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
COMMITMENTS (Note 7)
STOCKHOLDERS' EQUITY: (Note 8)
Common stock, par value $.001; 20,000,000 shares
authorized; 8,990,000 share issued and outstanding...... $ 8,390
Additional paid-in capital................................ 567,109
Deficit accumulated during the development stage.......... (290,109)
---------
285,378
---------
$ 285,378
=========
</TABLE>
See notes to financial statements
F-3
<PAGE>
MAINSTREET IPO.COM INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
PERIOD APRIL 12, 1999 (INCEPTION) THROUGH OCTOBER 31, 1999
<TABLE>
<S> <C>
EXPENSES:
Payroll expense........................................... $ 104,999
Consulting fees........................................... 57,479
General and administrative expenses....................... 127,631
---------
NET LOSS.................................................... $(290,109)
=========
NET LOSS PER SHARE (Note 8)................................. $ (.04)
=========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (Note 8)...................................... 8,100,851
=========
</TABLE>
See notes to financial statements
F-4
<PAGE>
MAINSTREET IPO.COM INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD APRIL 12, 1999 (INCEPTION) THROUGH OCTOBER 31, 1999
(NOTE 4)
<TABLE>
<CAPTION>
DEFICIT
COMMON STOCK ACCUMULATED
AMOUNT -------------------- ADDITIONAL DURING THE
PER PAR PAID-IN DEVELOPMENTAL
SHARE SHARE VALUE CAPITAL STAGE TOTAL
-------- --------- -------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
ISSUANCE OF FOUNDERS' STOCK............ $.001 7,929,233 $7,929 $ -- $ -- $ 7,919
=====
ISSUANCE OF COMMON STOCK FOR CASH...... $1.23 460,767 461 567,097 -- 567,558
=====
NET LOSS............................... -- -- -- (290,109) (290,109)
--------- ------ -------- --------- ---------
BALANCE, October 31, 1999.............. 8,390,000 $8,390 $567,097 $(290,109) $ 285,378
========= ====== ======== ========= =========
</TABLE>
See notes to financial statements
F-5
<PAGE>
MAINSTREET IPO.COM INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
PERIOD APRIL 12, 1999 (INCEPTION) THROUGH OCTOBER 31, 1999
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(290,109)
---------
Net cash used in operating activities................... (290,019)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Note receivable........................................... (25,000)
Other receivable.......................................... (42,978)
Equipment................................................. (35,000)
Website design costs...................................... (130,000)
Increase in other assets.................................. (12,981)
---------
Net cash used in investing activities................... (245,959)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock........................... 575,487
---------
Net cash provided by financing activities............... 575,487
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 39,419
CASH AND CASH EQUIVALENTS, beginning of period.............. --
---------
CASH AND CASH EQUIVALENTS, end of period.................... $ 39,419
=========
</TABLE>
See notes to financial statements
F-6
<PAGE>
MAINSTREET IPO.COM INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
PERIOD APRIL 12, 1999 (INCEPTION) THROUGH OCTOBER 31, 1999
1. NATURE OF OPERATIONS:
MainStreet IPO.com Inc. (the "Company") was formed on April 12, 1999 to
engage in the development of a central website that will provide corporations
with the ability to perform a registered primary or secondary, securities
self-underwriting. The Company also intends to offer products and/or services
over other websites of those clients who have made offerings over the Company's
facilities.
The Company is in the development stage, as defined in Statement of
Financial Accounting Standards No. 7. To date, the Company has devoted its
efforts to the design of its websites and various organizational activities,
including developing its business strategy, hiring management personnel, raising
capital, and undertaking preliminary activities for the commencement of
operations. The Company has not generated any revenue to date. Although the
Company has substantially completed the design of its websites, there can be no
assurance that the Company will be successful in marketing its services.
As reflected in the accompanying financial statements, the Company has
incurred cumulative losses of approximately $290,000. Management is of the
opinion that the proceeds of private offerings of its securities will be
sufficient for the completion of its development activities and to meet the
working capital needs of the Company. The Company has also entered into merger
agreements with other entities (see Note 3). In addition, the Company's chief
executive officer has issued a stand-by letter of commitment making available
$1,000,000 of additional financing to the Company for the next twelve months.
There can be no assurance that additional financing will not be required to
significantly penetrate the market and for continued operations. If additional
financing is required, there is no assurance that such fund will be available to
the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
B. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
C. DEPRECIATION AND AMORTIZATION
Depreciation of equipment is computed using the straight-line method over
the estimated useful lives of the related asset. Amortization of website design
costs is computed using the straight-line method over its estimated useful life
(three years). Recurring maintenance of the website is charged to operations as
incurred.
F-7
<PAGE>
MAINSTREET IPO.COM INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD APRIL 12, 1999 (INCEPTION) THROUGH OCTOBER 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
The accompanying statement of operations reflects no charge for depreciation
and amortization as the related assets had not been placed in service as of
October 31, 1999.
D. INCOME TAXES
Effective October 15, 1999, the Company accounts for income taxes in
accordance with the provisions of SFAS No. 109, "Accounting for Income Taxes."
SFAS No. 109 requires the recognition of deferred tax assets and liabilities for
the expected future income tax consequences of events that have been recognized
in a company's financial statements or tax return. Deferred income taxes reflect
the net tax effect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts for
income tax purposes using enacted tax rates in effect in the years in which the
temporary differences are expected to reverse. At October 31, 1999, the
Company's deferred tax asset relating to its post October 15, 1999 net operating
loss $(10,000) has been reserved 100%.
Prior to October 15, 1999, the Company was not subject to federal, state or
local income taxes. The Company's loss for that period was reportable for income
tax purposes by the members.
E. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," an impairment loss is recognized whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
F. STOCK-BASED COMPENSATION
The Company applies APB Opinion No. 25 and related interpretations in
accounting for stock-based compensation to employees. Stock compensation to
non-employees is accounted for at fair value in accordance with Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation."
G. RESEARCH AND PRODUCT DEVELOPMENT COSTS
Research and product development costs, consisting of salaries and materials
related to software development, are expensed as incurred.
H. ADVERTISING COSTS
Advertising costs are charged to operations when the advertising first takes
place. Advertising and design costs approximated $59,000 for the period ended
October 31, 1999.
F-8
<PAGE>
MAINSTREET IPO.COM INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD APRIL 12, 1999 (INCEPTION) THROUGH OCTOBER 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
I. START-UP COSTS
In accordance with the American Institute of Statement of Position 98-5,
"Reporting on the Cost of Start-Up Activities," the Company expenses the costs
of start-up activities and organization costs, as incurred.
J. SOFTWARE DEVELOPMENT COSTS
The AICPA also issued SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," which requires that entities
capitalize certain costs related to internal-use software once certain criteria
have been met.
K. COMPREHENSIVE INCOME (LOSS)
Other comprehensive income refers to revenues, expenses, gains and losses
that under generally accepted accounting principles are included in
comprehensive income but are excluded from net income as these amounts are
recorded directly as an adjustment to stockholders' equity. The Company's other
comprehensive loss is equivalent to its net loss for the period April 12, 1999
(inception) through October 31, 1999. The tax benefit or expense, as well as any
reclassifications related to the components of other comprehensive income were
not significant.
3. PROPOSED BUSINESS COMBINATIONS:
A. DIALYSIS CORPORATION OF AMERICA
On October 20, 1999, the Company entered into a Merger Agreement with
Dialysis Corporation of America ("DCA"), a publicly traded company. The Merger
Agreement provides that MainStreet Acquisition Inc., a wholly-owned subsidiary
of MainStreet formed solely for the proposed Merger, will be merged into DCA
with DCA being the survivor of the Merger. Prior to the Merger, DCA will
exchange all of its business and assets for a substantial portion of the stock
of DCA held by its parent, as well as, assuming certain liabilities. The only
assets DCA will have to provide MainStreet upon completing the Merger are
proceeds from the potential exercise of certain DCA underwriters' purchase
options and outstanding publicly traded warrants. The liabilities, if any,
relating to the tax impact of the sale will be assumed by MainStreet upon the
transfer and sale of the DCA assets to its parent.
In the Merger, each outstanding share of DCA common stock (other than shares
held by shareholders who have not voted in favor of the Merger and have properly
demanded appraisal with respect to their DCA shares) will be converted into the
right to receive one share of common stock of MainStreet.
The consummation of the Merger is subject to a number of conditions,
including the approval of DCA's shareholders.
4. NOTE RECEIVABLE:
In August 1999, the Company advanced $25,000 to an unrelated third party
(the "borrower"). The loan is evidenced by a promissory note due on
February 18, 2000. The note bears interest at 10% per
F-9
<PAGE>
MAINSTREET IPO.COM INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD APRIL 12, 1999 (INCEPTION) THROUGH OCTOBER 31, 1999
4. NOTE RECEIVABLE: (CONTINUED)
annum, which is payable in the form of 2,500 shares of common stock of the
borrower. The Company has the right to convert the note into 50,000 shares of
the borrower's common stock. In the event the Company does not convert the note,
it is entitled to receive warrants to purchase 25,000 shares of the borrower's
common stock at an exercise price of $1.00 per share. The warrants will be
exercisable through February 18, 2002.
5. EQUIPMENT:
Equipment consists of computer servers and related data processing assets in
the amount of $35,000.
6. WEBSITE DESIGN COSTS:
The Company is party to an agreement whereby an unrelated third party was
engaged to design and maintain a website. The fee for the design work is
$200,000 cash and warrants to acquire 200,000 shares of the Company's common
stock at $2.00 per share, which expire in 2004. $165,000 of this fee had been
paid as of October 31, 1999. The Agreement also provides that the third party
will provide system administrative services for a twelve month period at $8,000
per month. The design of the website was essentially complete as of October 31,
1999.
7. COMMITMENTS:
A. CONSULTING AGREEMENT
In August 1999, the Company entered into a twenty-four month consulting
agreement with a third party that provides for a monthly compensation of $8,333.
Compensation under this agreement approximated $25,000 for the period April 12,
1999 (inception) through October 31, 1999.
B. INVESTMENT AGREEMENT
On April, 1999, the Company and two of its officers (the "officers") entered
into an agreement with Todd & Co. ("Todd"), a registered broker-dealer for an
affiliation. In consideration for this affiliation, the president of Todd and
members of his family were issued 900,000 shares of the Company's common stock,
whose value ($900) has been charged to operations in the accompanying financial
statements. The Agreement also provides that for the period ending October 19,
2002, the officers shall recommend to all prospective MainStreet clients that
such clients use the services of Todd in connection with any of such clients'
public offerings of securities. If a MainStreet client already has an
underwriter for its securities offering, the officers will recommend Todd for
inclusion in the selected dealer group which participates in the distribution of
MainStreet's client's public offerings. Further, Todd will take 10% of the group
proceeds from any such referred business plus its actual costs with the balance
divided equally between Todd and the officers provided that the sharing of the
proceeds is not in violation of the rules of the NASD.
F-10
<PAGE>
MAINSTREET IPO.COM INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD APRIL 12, 1999 (INCEPTION) THROUGH OCTOBER 31, 1999
8. STOCKHOLDERS' EQUITY:
A. CAPITALIZATION
Pursuant to an amendment of the Company's certificate of incorporation, the
Company has authorized shares of common stock of 20,000,000 at $.001 par value.
B. INITIAL CAPITALIZATION
In April 1999, the Company issued 7,929,233 shares of common stock
("Founders Stock") for services valued at $7,929.
C. ISSUANCE OF STOCK FOR CASH
The Company entered into subscription agreements with investors under which
it issued 460,767 shares of common stock for the proceeds of $567,558.
D. NET LOSS PER SHARE
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(SFAS No. 128) requires dual presentation of basic and diluted EPS. Basic EPS
excludes dilution and is computed by dividing net income available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if stock
options or convertible securities were exercised or converted into common stock.
Basic and diluted loss per share amounts were equivalent for the period
April 12, 1999 (inception) through October 31, 1999.
E. CEO LETTER, LLC
On October 20, 1999, the Company entered into an agreement to acquire CEO
Letter, LLC, a development stage entity engaged in the business of providing a
website designed to let chief executive officers of publicly traded companies
introduce and explain their companies. Under the terms of the agreement,
concurrent with the DCA Merger, the shareholders of MainStreet who own interests
in CEO Letter under a Contribution Agreement among these shareholders and
MainStreet, will transfer their CEO Letter interests to MainStreet in
consideration for 250,000 shares of MainStreet common stock, upon the completion
of the merger.
F-11
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
Dialysis Corporation of America
We have audited the accompanying consolidated balance sheets of Dialysis
Corporation of America and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1998. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Dialysis Corporation of America and subsidiaries at December 31, 1998 and 1997,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
March 22, 1999
Miami, Florida
F-12
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $5,366,837 $ 8,102,920
Marketable securities..................................... -- 443,936
Accounts receivable, less allowance of $144,000 at
December 31, 1998; $52,000 at December 31, 1997......... 460,786 494,163
Inventories............................................... 179,189 113,815
Prepaid expenses and other current assets................. 52,934 156,823
---------- -----------
Total current assets.................................... 6,059,746 9,311,657
Property and equipment:
Land...................................................... 168,358 168,358
Buildings and improvements................................ 1,404,573 1,402,319
Machinery and equipment................................... 1,381,460 949,749
Leasehold improvements.................................... 1,149,300 442,464
---------- -----------
4,103,691 2,962,890
Less accumulated depreciation and amortization.............. 1,003,995 679,870
---------- -----------
3,099,696 2,283,020
Advances to parent.......................................... 120,865 --
Deferred expenses and other assets.......................... 68,617 43,088
---------- -----------
$9,348,924 $11,637,765
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 243,968 $ 72,531
Accrued expenses.......................................... 292,594 370,099
Current portion of long-term debt......................... 175,902 151,844
Income taxes payable...................................... 232,306 1,655,164
---------- -----------
Total current liabilities............................... 944,770 2,249,638
Long-term debt, less current portion........................ 632,664 564,673
Advances from parent........................................ -- 128,727
Minority interest in subsidiaries........................... -- 645,809
Commitments
Stockholders' equity:
Common stock, $.01 par value, authorized 20,000,000
shares; 3,751,344 shares issued: 3,546,344 shares
outstanding in 1998; 3,651,344 shares outstanding in
1997.................................................... 37,513 37,513
Capital in excess of par value............................ 4,044,154 4,008,720
Retained earnings......................................... 4,004,763 4,208,935
Treasury stock at cost; 205,000 shares at December 31,
1998; 100,000 shares at December 31, 1997............... (314,940) (206,250)
---------- -----------
Total stockholders' equity.............................. 7,771,490 8,048,918
---------- -----------
$9,348,924 $11,637,765
========== ===========
</TABLE>
See notes to consolidated financial statements.
F-13
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Medical service revenue................................ $3,552,279 $4,375,165 $3,830,809
Gain on sale of subsidiaries' assets................... 4,430,663
--- ---
Interest and other income.............................. 451,656 414,970 305,706
---------- ---------- ----------
4,003,935 9,220,798 4,136,515
Cost and expenses:
Cost of medical services............................... 2,516,239 2,712,527 2,508,323
Selling, general and administrative expenses........... 1,847,175 2,155,459 1,577,487
Interest expense....................................... 81,531 86,129 86,694
---------- ---------- ----------
4,444,945 4,954,115 4,172,504
---------- ---------- ----------
(Loss) income before income taxes and minority
interest............................................... (441,010) 4,266,683 (35,989)
Income tax (benefit) provision........................... (236,838) 1,699,000
---
---------- ----------
----------
(Loss) income before minority interest................... (204,172) 2,567,683 (35,989)
Minority interest in income (loss) of consolidated
subsidiaries........................................... 574,303 (13,028)
---
---------- ----------
----------
Net (loss) income.................................... $ (204,172) $1,993,380 $ (22,961)
========== ========== ==========
(Loss) earnings per share:
Basic.................................................. $ (.06) $ .56 $ (.01)
========== ========== ==========
Diluted................................................ $ (.06) $ .55 $ (.01)
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-14
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL IN
COMMON EXCESS OF RETAINED TREASURY
STOCK PAR VALUE EARNINGS STOCK TOTAL
-------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996........... $24,328 $ 305,997 $2,238,516 $2,568,841
Net loss........................... (22,961) (22,961)
Net proceeds from security offering
with issuance of 1,150,000 common
shares........................... 11,500 3,433,658 3,445,158
Exercise of stock options.......... 60 8,940 9,000
------- ---------- ---------- --------- ----------
Balance at December 31, 1996......... 35,888 3,748,595 2,215,555 6,000,038
Net income......................... 1,993,380 1,993,380
Repurchase of 100,000 shares....... $(206,250) (206,250)
Exercise of stock options.......... 1,625 260,125 261,750
------- ---------- ---------- --------- ----------
Balance at December 31, 1997......... 37,513 4,008,720 4,208,935 (206,250) 8,048,918
Net loss........................... (204,172) (204,172)
Repurchase of 105,000 shares....... (108,690) (108,690)
Redemption of minority interest in
subsidiaries..................... 35,434 35,434
------- ---------- ---------- --------- ----------
Balance at December 31, 1998......... $37,513 $4,044,154 $4,004,763 $(314,940) $7,771,490
======= ========== ========== ========= ==========
</TABLE>
See notes to consolidated financial statements.
F-15
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Operating activities:
Net (loss) income..................................... $ (204,172) $ 1,993,380 $ (22,961)
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Gain on sale of subsidiaries' assets................ -- (4,430,663) --
Depreciation........................................ 332,697 278,761 199,315
Amortization........................................ 1,690 11,116 11,235
Bad debt expense.................................... 100,856 36,726 139,802
Deferred income taxes............................... 24,000 -- --
Gain on sale of securities.......................... (12,780) -- --
Minority interest................................... -- 574,303 (13,028)
Stock compensation expense.......................... -- 322,125 --
Increase (decrease) relating to operating activities
from:
Accounts receivable............................... (67,479) (357,280) (97,487)
Inventories....................................... (65,374) (5,223) (68,325)
Prepaid expenses and other current assets......... 43,825 (12,087) (64,257)
Accounts payable.................................. 171,437 (76,129) (177,505)
Accrued expenses.................................. (62,505) 58,341 (36,966)
Income taxes payable.............................. (1,422,858) 1,649,164 --
----------- ----------- ----------
Net cash (used in) provided by operating
activities.................................... (1,160,663) 42,534 (130,177)
Investing activities:
Proceeds from sale of subsidiaries' assets............ -- 4,583,662 --
Redemption of minority interest in subsidiaries....... (385,375) --
Additions to property and equipment,
net of minor disposals.............................. (904,873) (631,103) (159,180)
Proceeds from sale of securities...................... 252,780 -- --
Deferred expenses and other assets.................... (27,219) (23,429) 110,904
----------- ----------- ----------
Net cash (used in) provided by investing
activities.................................... (1,064,687) 3,929,130 (48,276)
Financing activities:
Net proceeds of securities offering................... -- -- 3,445,158
Advances (to) from parent............................. (249,592) (240,820) 369,547
Repurchase of stock................................... (108,690) (206,250) --
Payments on long-term debt............................ (152,451) (136,502) (113,856)
Exercise of stock options............................. -- 1,625 9,000
Dividend payments to minority shareholders............ -- (3,966) (7,467)
----------- ----------- ----------
Net cash (used in) provided by financing
activities.................................... (510,733) (585,913) 3,702,382
----------- ----------- ----------
(Decrease) increase in cash and cash equivalents........ (2,736,083) 3,385,751 3,523,929
Cash and cash equivalents at beginning of year.......... 8,102,920 4,717,169 1,193,240
----------- ----------- ----------
Cash and cash equivalents at end of period.............. $ 5,366,837 $ 8,102,920 $4,717,169
=========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
F-16
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The Company is in one business segment, kidney dialysis operations, and
operates five kidney dialysis centers, four located in Pennsylvania and one in
New Jersey, has agreements to provide inpatient dialysis treatments to various
hospitals and provides supplies and equipment for dialysis home patients.
CONSOLIDATION
The consolidated financial statements include the accounts of Dialysis
Corporation of America ("DCA") and its subsidiaries, collectively referred to as
the "Company". All material intercompany accounts and transactions have been
eliminated in consolidation. The Company is a 68.0% owned subsidiary of
Medicore, Inc. (the "Parent").
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
GOVERNMENT REGULATION
A substantial portion of the Company's revenues are attributable to payments
received under Medicare, which is supplemented by Medicaid or comparable
benefits in the state in which the Company operates. Reimbursement rates under
these programs are subject to regulatory changes and governmental funding
restrictions. Laws and regulations governing the Medicare and Medicaid programs
are complex and subject to interpretation. The Company believes that it is in
compliance with all applicable laws and regulations and is not aware of any
pending or threatened investigations involving allegations of potential
wrongdoing. While no such regulatory inquiries have been made, compliance with
such laws and regulations can be subject to future government review and
interpretations as well as significant regulatory action including fines,
penalties, and exclusions from the Medicare and Medicaid programs.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. The carrying amounts
reported in the balance sheet for cash and cash equivalents approximate their
fair values. The credit risk associated with cash and cash equivalents is
considered low due to the high quality of the financial institutions in which
these assets are invested.
MARKETABLE SECURITIES
The Company follows Financial Accounting Standards Board Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". Under this
Statement, the Company is required to classify its marketable equity securities
as either trading or available for sale. The Company does not purchase equity
securities for the purpose of short-term sales; accordingly, its securities are
classified as available for sale. Marketable securities are recorded at fair
value. The marketable securities at
F-17
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
December 31, 1997 resulted from the sale of the Company's Florida operations in
October 1997. Since the value of these securities was guaranteed by the
purchaser at their originally recorded valuation of $480,000, the $36,064
difference between the market value of $443,936 at December 31, 1997 and the
guaranteed value was recorded as a receivable and included in other current
assets at December 31, 1997. One-half of these securities were included in the
consideration to redeem the 20% minority interest in two of the subsidiaries
whose assets were sold in October 1997 and the remaining one-half were sold in
1998.
INVENTORIES
Inventories, which consist primarily of supplies used in dialysis
treatments, are valued at the lower of cost (first-in, first-out method) or
market value.
PROPERTY AND EQUIPMENT
Property and equipment is stated on the basis of cost. Depreciation is
computed by the straight-line method over the estimated useful lives of the
assets, which range from 5 to 34 years for buildings and improvements; 4 to
10 years for machinery, computer and office equipment, and furniture; and 5 to
10 years for leasehold improvements. Replacements and betterments that extend
the lives of assets are capitalized. Maintenance and repairs are expensed as
incurred upon the sale or retirement of assets, the related cost and accumulated
depreciation are removed and any gain on loss is recognized.
LONG-LIVED ASSET IMPAIRMENT
Pursuant to Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed of",
impairment of long-lived assets, including intangibles related to such assets,
is recognized whenever events or changes in circumstances indicate that the
carrying amount of the asset, or related groups of assets, may not be fully
recoverable from estimated future cash flows and the fair value of the related
assets is less than their carrying value. The Company, based on current
circumstances, does not believe any indicators of impairment are present.
DEFERRED EXPENSES
Deferred expenses, except for deferred loan costs, are amortized on the
straight-line method, over their estimated benefit period ranging to 60 months.
Deferred loan costs are amortized over the lives of the respective loans.
INCOME TAXES
Deferred income taxes are determined by applying enacted tax rates
applicable to future periods in which the taxes are expected to be paid or
recovered to differences between financial accounting and tax basis of assets
and liabilities.
F-18
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB25) and related Interpretations in accounting
for its employee stock options. Financial Accounting Standards Board Statement
No. 123, "Accounting for Stock-Based Compensation" permits a company to elect to
follow the accounting provisions of APB 25 rather than the alternative fair
value accounting provided under FAS 123 but requires pro forma net income and
earnings per share disclosures as well as various other disclosures not required
under APB 25 for companies following APB 25.
EARNINGS PER SHARE
Diluted earning per share gives effect to potential common shares that were
dilutive and outstanding during the period, such as stock options and warrants,
calculated using the treasury stock method and average market price.
Following is a reconciliation of amounts used in the basic and diluted
computations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
--------- ---------- ---------
<S> <C> <C> <C>
Net (loss) income.......................................... $(204,172) $1,993,380 $ (22,961)
========= ========== =========
Weighted average shares-denominator basic computation...... 3,626,330 3,531,584 3,237,243
Effect of dilutive stock options:
Stock options granted November 1995........................ -- 86,539 --
--------- ---------- ---------
Weighted average shares, as adjusted-denominator diluted
computation.............................................. 3,626,330 3,618,123 3,237,243
========= ========== =========
Earnings (loss) per share:
Basic...................................................... $ (.06) $ .56 $ (.01)
========= ========== =========
Diluted.................................................... $ (.06) $ .55 $ (.01)
========= ========== =========
</TABLE>
In addition to the dilutive stock options included in the reconciliation
above, which have an exercise price of $1.50 per share, there were 10,000
medical director options, 2,300,000 common stock purchase warrants and
underwriter options to purchase 100,000 shares of common of common stock and
200,000 common stock purchase warrants which have not been included in the
earnings per share computation since they are anti-dilutive.
F-19
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTEREST AND OTHER INCOME
Interest and other income is comprised as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Rental income................................. $121,835 $119,792 $101,161
Interest income............................... 296,943 227,789 168,950
Other......................................... 32,878 67,389 35,595
-------- -------- --------
$451,656 $414,970 $305,706
======== ======== ========
</TABLE>
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, accounts receivable and debt in the accompanying
financial statements approximate their fair value because of the short-term
maturity of these instruments, and in the case of debt because such instruments
bear variable interest rates which approximate market.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the 1998 presentation.
NEW PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standards Board issued Financial
Accounting Standards Board Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities (FAS 133). FAS 133 is effective for fiscal
quarters of fiscal years beginning after June 15, 1999. FAS 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities and requires, among other things, that all derivatives be recognized
as either assets or liabilities in the statement of financial position and that
these instruments be measured at fair value. The Company is in the process of
determining the impact that the adoption of FAS 133 will have on its
consolidated financial statements.
F-20
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 2--LONG-TERM DEBT
Long-term debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Mortgage note secured by land and building with a net
book value of $414,000 at December 31, 1998. Monthly
principal payments of $3,333 plus interest at 1% over
the prime rate through November 2003.................. $200,040 $240,036
Mortgage note secured by land and building with a net
book value of $706,000 at December 31, 1998. Monthly
principal payments of $2,667 plus interest at 1% over
the prime rate through November 2003.................. 159,960 191,963
Equipment financing agreement secured by equipment with
a net book value of $487,000 at December 31, 1998.
Monthly payments totaling $8,582 as of December 31,
1998 as described below pursuant to, various
schedules, including principal and interest, with
interest at rates ranging from 5.47% to 11.84%........ 448,566 284,518
-------- --------
808,566 716,517
Less current portion.................................... 175,902 151,844
-------- --------
$632,664 $564,673
======== ========
</TABLE>
The equipment financing agreement provides financing for kidney dialysis
machines for the Company's facilities in Pennsylvania and New Jersey and was
amended in 1996 to include equipment for the Company's Florida facility. The
initial principal balance was approximately $195,000. Additional financing
totaled approximately $124,000 in 1996, $190,000 in 1997 and $245,000 in 1998.
In conjunction with the Company's sale of its Florida dialysis operations on
October 31, 1997, the purchaser assumed approximately $112,000 of these
financing obligations. Payments under the agreement are pursuant to various
schedules extending through October 2003. Financing under the equipment purchase
agreement is a noncash financing activity which is a supplemental disclosure
required by Financial Accounting Standards Board Statement No 95, "Statement of
Cash Flows".
The prime rate was 7.75% as of December 31, 1998 and 8.50% as of
December 31, 1997.
Scheduled maturities of long-term debt outstanding at December 31, 1998 are
approximately: 1999--$176,000; 2000--$197,000; 2001--$177,000; 2002--$153,000;
2003--$106,000;. Interest payments on the above debt amounted to approximately
$64,000 in 1998, $77,000 in 1997, and $73,000 in 1996, respectively.
The Company's various debt agreements contain certain restrictive covenants
that, among other things, restrict the payment of dividends, rent commitments,
additional indebtedness and prohibit issuance or redemption of capital stock and
require maintenance of certain financial ratios. In 1998, the Company was in
default of certain covenants relating to its mortgage agreements totaling
$360,000. The
F-21
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 2--LONG-TERM DEBT (CONTINUED)
covenants principally related to debt service ratio requirements for which the
lender has waived compliance through December 31, 1998.
NOTE 3--INCOME TAXES
Subsequent to the completion of the Company's public offering in
April 1996, the Company files separate federal and state income tax returns. The
net operating loss carryforwards that were available at December 31, 1995 were
utilized prior to the completion of its public offering. The Company had net
operating loss carryforwards of approximately $6,000 at December 31, 1996 which
were fully utilized in 1997.
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Depreciation........................................... $ -- $27,000
-------- -------
Total deferred tax liabilities................... -- 27,000
Deferred tax assets:
Depreciation........................................... 3,000 --
Amortization........................................... 8,000 18,000
Accrued expenses....................................... 15,000 13,000
Bad debt allowance..................................... 54,000 20,000
-------- -------
Total deferred tax assets........................ 80,000 51,000
Valuation allowance for deferred tax assets.............. (80,000) --
-------- -------
Net deferred tax asset................................... $ -- $24,000
======== =======
</TABLE>
A valuation allowance has been provided that fully offsets the deferred tax
asset recorded at December 31, 1998 as management believes that it is more
likely than not that, based on the weight of the available evidence, the
deferred tax asset will not be realized.
Significant components of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ----------
<S> <C> <C>
Current:
Federal............................................. $(301,000) $1,488,000
State............................................... 40,162 235,000
--------- ----------
(260,838) 1,723,000
Deferred.............................................. 24,000 (24,000)
--------- ----------
$(236,838) $1,699,000
========= ==========
</TABLE>
F-22
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 3--INCOME TAXES (CONTINUED)
The reconciliation of income tax attributable to income (loss) before income
taxes computed at the U.S. federal statutory rate to income tax expense
(benefit) is:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
--------- ---------- ---------
<S> <C> <C> <C>
Statutory tax rate (34%) applied to income
(loss) before income taxes............... $(149,943) $1,450,700 $(120,200)
Adjustments due to:
State taxes, net of federal benefit...... 25,049 155,200 (1,300)
Change in valuation allowance............ 80,000 (17,300) 230,000
Benefits of net operating losses......... -- -- (213,000)
Non-deductible items..................... 2,973 2,900 --
Prior year tax return accrual
adjustment............................. (194,917) 107,500 (3,500)
--------- ---------- ---------
$(236,838) $1,699,000 $ --
========= ========== =========
</TABLE>
Income tax payments were approximately $1,162,000 in 1998, $50,000 in 1997
with no payments in 1996.
F-23
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 4--TRANSACTIONS WITH PARENT
The Parent provides certain administrative services to the Company including
office space and general accounting assistance. These expenses and all other
central operating costs are charged on the basis of direct usage, when
identifiable, or on the basis of time spent. In the opinion of management, this
method of allocation is reasonable. The amount of expenses allocated by the
Parent totaled approximately $240,000 for each of the years ended December 31,
1998, 1997 and 1996.
As of December 31, 1998, the Company had an intercompany advance receivable
from the Parent of approximately $121,000 and at December 31, 1997 had an
intercompany advance payable to the Parent of approximately $129,000,
respectively both of which bore interest at the short-term Treasury Bill rate.
Interest income on the intercompany advance receivable amounted to approximately
$1,000 for the year ended December 31, 1998. Interest on the intercompany
advance payable amounted to approximately $6,000 and 7,000 for the years ended
December 31, 1998 and December 31, 1997, respectively. Interest is included in
the intercompany advance balance. The Company has agreed not to require
repayment of the intercompany advance receivable from the Parent prior to
January 1, 2000, and therefore, the advance has been classified as long-term at
December 31, 1998.
NOTE 5--OTHER RELATED PARTY TRANSACTIONS
For the years ended December 31, 1998, 1997 and 1996, respectively, the
Company paid premiums of approximately $124,000, $87,000 and $80,000 for
insurance obtained through two persons, one a director of the Company and the
Parent, and the other a relative of an officer and director of the Company and
the Parent.
For the years ended December 31, 1998, 1997 and 1996, respectively, legal
fees of $80,000, $61,000 and $63,000 were paid to an attorney who acts as
counsel and Secretary for the Company and the Parent.
NOTE 6--STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as is
discussed below, the alternative fair value accounting provided for under
Financial Accounting Standard Board Statement No. 123 "Accounting for
Stock-Based Compensation", requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of the Company's stock options equals the market price of the
underlying stock on the date of grant, no compensation expense was recognized.
In November, 1995, the Company adopted a stock option plan for up to 250,000
options. Pursuant to this plan, in November, 1995, the board of directors
granted 210,000 options to certain of its officers, directors, and employees and
consultants of which 4,500 options were outstanding at December 31, 1998. These
options vested immediately and are exercisable for a period of five years
through November 9, 2000 at $1.50 per share. On June 10, 1998, the board of
directors granted an option under the 1995 plan to a new board member for 5,000
shares exercisable at $2.25 per share through June 9, 2003. On December 31, 1997
162,500 options were exercised by officers for which the Company received cash
payments of the par value and the Company forgave the remaining balance due and
recorded compensation expense of approximately $322,000.
F-24
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 6--STOCK OPTIONS (CONTINUED)
In August 1996, the board of directors granted options to medical directors
of its kidney dialysis centers, of which 10,000 options were outstanding at
December 31, 1998. These options vested immediately and were originally
exercisable for a period of three years through August 18, 1999 at $4.75 per
share, except the exercise price of 5,000 of the options was reduced to $2.25
per share, the fair market value on June 10, 1998.
Pro forma information regarding net income and earnings per share is
required by FAS 123, and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that Statement. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for options granted/modified during 1998 and the options granted
during 1996, respectively: risk-free interest rates of 5.55% and 5.75%; no
dividend yield; volatility factor of the expected market price of the Company's
common stock of .93 for the 1998 options and .50 for the 1996 options; and a
weighted-average expected life of the options of 2.0 years for options
granted/modified in 1998 and 1.5 years for the 1996 options.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective input assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of options
is amortized to expense over the options' vesting period, and since the options
vested immediately, the Company's pro forma disclosure recognizes expense upon
issuance of the options. No pro forma information is provided for 1997 as no
options were granted. The Company's pro forma information follows:
<TABLE>
<CAPTION>
1998 1996
--------- --------
<S> <C> <C>
Pro forma net loss.......................................... $(209,039) $(35,051)
========= ========
Pro forma loss per share.................................... $ (.06) $ (.01)
========= ========
</TABLE>
F-25
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 6--STOCK OPTIONS (CONTINUED)
A summary of the Company's stock option activity, and related information
for the options issued in 1998, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- ------------------------- -------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
-------- -------------- -------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of year...... 29,000 209,000 210,000
Granted............................ 10,000 $2.25 -- 15,000 $4.75
Cancellations...................... (5,000) 4.75 -- --
Exercised.......................... -- (162,500) $1.50 (6,000) 1.50
Forfeited.......................... -- -- --
Expired............................ (14,500) 1.50 (17,500) 2.43 (10,000) 1.50
------- -------- -------
Outstanding-end of year............ 19,500 29,000 209,000
======= ======== =======
Outstanding and exercisable at end
of year
November 1995 options............ 4,500 1.50 19,000 1.50 194,000 1.50
August 1996 and June 1998
options........................ 10,000 2.25 10,000 4.75 15,000 4.75
August 1996 options.............. 5,000 4.75 -- --
------- -------- -------
19,500 29,000 209,000
======= ======== =======
Weighted-average fair value of
options granted during the
year............................. $ .79 $ 1.30
======= =======
</TABLE>
The remaining contractual life at December 31, 1998 is 4.4 years, .6 years
and 1.9 years for the options issued in June 1998, August 1996 and
November 1995, respectively.
The Company has 2,619,500 shares reserved for future issuance, including:
2,300,000 shares for Warrants; 9,500 shares under the 1995 plan; 10,000 shares
for 1996 options; and 300,000 shares for underwriter options.
NOTE 7--COMMON STOCK
The Company completed a public offering of common stock and warrants during
the second quarter of 1996, providing it with net proceeds of approximately
$3,445,000.
Pursuant to the offering 1,150,000 shares of common stock were issued,
including 150,000 shares from exercise of the underwriters overallotment option,
and there are 2,300,000 redeemable common stock purchase warrants issued to
purchase one common share each at an exercise price of $4.50 exercisable from
April 17, 1997 through October 16, 1999, pursuant to an extension in March 1999
of the original expiration date of April 16, 1999. The underwriters received
options to purchase 100,000 units each consisting of one share of common stock
and two common stock purchase warrants, for a total of 100,000 shares of common
stock and 200,000 common stock purchase warrants, with the options exercisable
at $4.50 per unit from April 17, 1997 through April 16, 2001 with the underlying
F-26
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 7--COMMON STOCK (CONTINUED)
warrants being substantially identical to the public warrants except that they
are exercisable at $5.40 per share.
NOTE 8--COMMITMENTS
The Company has leases on facilities housing its dialysis operations. The
aggregate lease commitments at December 31, 1998 are approximately:
1999-$202,000; 2000-$182,000; 2001-$188,000; 2002-$174,000; 2003-$143,000. Total
rent expense was approximately $49,000, $73,000 and $65,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.
Effective January 1, 1997, the Company established a 401(k) savings plan
(salary deferral plan) with an eligibility requirement of one year of service
and 21 year old age requirement. The Company has made no contributions under
this plan as of December 31, 1998.
NOTE 9--SALE OF SUBSIDIARIES' ASSETS
On October 31, 1997, the Company concluded a sale ("Sale") of substantially
all of the assets of two of its 80% owned subsidiaries, Dialysis Services of
Florida, Inc.--Ft. Walton Beach ("DSF") (dialysis operations) and Dialysis
Medical, Inc. ("DMI") (Florida Method 2 home patient operations), and an
in-patient hospital service agreement of its 100% owned subsidiary, DCA Medical
Services, Inc. pursuant to an Asset Purchase Agreement. Consideration for the
assets sold was $5,065,000 consisting of $4,585,000 in cash and $480,000 of the
purchaser's common stock which the purchaser has agreed to register within one
year. Provided that the shares are sold within 30 days of their registration,
the purchaser agreed to make up any difference by which the sales proceeds were
less than $480,000 in cash or additional registered shares of the purchaser at
its discretion. These shares were carried at their market value of approximately
$444,000 at December 31, 1997 with the difference between the guaranteed value
and the market value reflected as a receivable from the purchaser. In
February 1998, the Company acquired, in a transaction accounted for as a
purchase, the remaining 20% minority interests in two of the subsidiaries whose
assets were sold. The purchase price, totaled $625,000, which included one-half
of the common shares originally received as part of the consideration of the
Sale. The remaining shares were sold in September 1998 for approximately
$253,000 resulting in a gain of approximately $13,000.
The pro forma consolidated condensed financial information presented below
reflects the Sale as if it had occurred on January 1, 1997. For purposes of pro
forma statement of operations information, no assumption has been made that
expenses have been eliminated which were included in corporate expense
allocations by the Company and its Parent, to the business operations sold and
which were included in the actual results of operations of these businesses.
Such expenses amounted to approximately $125,000 for the year ended
December 31, 1997. No assumption has been included in the pro forma information
as to investment income to be realized from investment of the proceeds of the
sale.
The summary pro forma financial information, which excludes the gain on the
Sale, is not necessarily representative of what the Company's results of
operations would have been if the Sale had actually occurred as of January 1,
1996 and may not be indicative of the Company's operating results for any future
periods.
F-27
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 9--SALE OF SUBSIDIARIES' ASSETS (CONTINUED)
SUMMARY PRO FORMA INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
---------- ----------
<S> <C> <C>
Total revenue................................ $3,079,000 $2,102,000
========== ==========
Net loss..................................... $ (530,000) $ (422,000)
========== ==========
Loss per share:
Basic........................................ $ (.15) $ (.13)
========== ==========
Diluted...................................... $ (.15) $ (.13)
========== ==========
</TABLE>
The Company recorded a gain on the Sale of approximately $2,747,000,
representing a pre-tax gain of $4,431,000, net of estimated income taxes of
approximately $1,684,000, of which approximately $537,000 of the net after tax
gain relates to the 20% minority interest in two of the subsidiaries whose
assets were sold. This gain is not reflected in the above pro forma information.
NOTE 10--REPURCHASE OF COMMON STOCK
In September 1998, the Company announced its intent to repurchase up to an
additional 300,000 shares of its common stock at current market prices after
having acquired 100,000 shares in June 1997 for approximately $206,000. The
Company repurchased 105,000 shares for approximately $109,000 during 1998.
NOTE 11--CAPITAL EXPENDITURES
Capital expenditures were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
$1,149,372 $825,427 $386,502
========== ======== ========
</TABLE>
F-28
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998(A)
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $4,208,900 $5,366,837
Accounts receivable, less allowance of $211,000 at
September 30, 1999; $144,000 at December 31, 1998....... 1,055,603 460,786
Inventories............................................... 244,885 179,189
Prepaid expenses and other current assets................. 203,410 52,934
---------- ----------
Total current assets.................................. 5,712,798 6,059,746
Property and equipment:
Land...................................................... 168,358 168,358
Buildings and improvements................................ 1,424,239 1,404,573
Machinery and equipment................................... 1,699,024 1,381,460
Leasehold improvements.................................... 1,278,896 1,149,300
---------- ----------
4,750,517 4,103,691
Less accumulated depreciation and amortization............ 1,333,733 1,003,995
---------- ----------
3,236,784 3,099,696
Advances to parent.......................................... 120,865
Deferred expenses and other assets.......................... 23,296 68,617
---------- ----------
$8,972,878 $9,348,924
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 285,367 $ 243,968
Accrued expenses.......................................... 380,174 292,594
Current portion of long-term debt......................... 195,833 175,902
Income taxes payable...................................... -- 232,306
---------- ----------
Total current liabilities............................. 861,374 944,770
Long-term debt, less current portion........................ 610,815 632,664
Advances from parent........................................ 37,203 --
Minority interest in subsidiaries........................... 2,080 --
Commitments
Stockholders' equity:
Common stock, $.01 par value, authorized 20,000,000
shares;
3,546,344 shares issued and outstanding at September 30,
1999;
3,751,344 shares issued and 3,546,344 shares outstanding
at
December 31, 1998....................................... 35,463 37,513
Capital in excess of par value............................ 3,971,514 4,044,154
Retained earnings......................................... 3,454,429 4,004,763
Treasury stock at cost; 205,000 shares.................... -- (314,940)
---------- ----------
Total stockholders' equity............................ 7,461,406 7,771,490
---------- ----------
$8,972,878 $9,348,924
========== ==========
</TABLE>
- ------------------------
(A) Reference is made to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998 filed with the Securities and Exchange Commission in
March 1999.
See notes to consolidated condensed financial statements.
F-29
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------
SEPTEMBER 30,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Revenues:
Medical service revenue................................... $4,174,208 $2,521,330
---------- ----------
Interest and other income................................. 279,641 351,590
---------- ----------
4,453,849 2,872,920
---------- ----------
Cost and expenses:
Cost of medical services.................................. 2,930,547 1,821,792
---------- ----------
Selling, general and administrative expenses.............. 2,065,166 1,390,942
---------- ----------
Interest expense.......................................... 50,887 58,837
---------- ----------
5,046,600 3,271,571
---------- ----------
Loss before income taxes.................................... (592,751) (398,651)
---------- ----------
Income tax benefit.......................................... (125,707) (187,363)
---------- ----------
Net loss............................................ $ (467,044) $ (211,288)
---------- ----------
Loss per share:
Basic..................................................... $ (.13) $ (.06)
---------- ----------
Diluted................................................... $ (.13) $ (.06)
---------- ----------
</TABLE>
See notes to consolidated condensed financial statements.
F-30
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
Operating activities:
Net loss.................................................. $ (467,044) $ (211,288)
----------- -----------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation............................................ 330,004 236,252
Amortization............................................ 1,267 1,267
Bad debt expense........................................ 72,119 104,754
Stock option compensation............................... 153,000 --
Gain on sale of securities.............................. -- (12,780)
Increase (decrease) relating to operating activities
from:
Accounts receivable................................... (666,936) 83,843
Inventories........................................... (65,696) (22,652)
Prepaid expenses and other current assets............. (148,476) (52,084)
Accounts payable...................................... 41,399 (22,589)
Accrued expenses...................................... 87,580 (42,104)
Income tax payable.................................... (232,306) (1,655,164)
----------- -----------
Net cash used in operating activities............... (895,089) (1,592,545)
----------- -----------
Investing activities:
Redemption of minority interest in subsidiaries........... -- (385,375)
Additions to property and equipment, net of minor
disposals............................................... (326,492) (571,446)
Proceeds from sale of securities.......................... -- 252,780
Sale of minority interest in subsidiaries................. 4,040 --
Deferred expenses and other assets........................ 44,054 (6,482)
----------- -----------
Net cash used in investing activities............... (278,398) (710,523)
----------- -----------
Financing activities:
Advances from parent...................................... 158,068 (158,859)
Repurchase of stock....................................... -- (63,605)
----------- -----------
Payments on long-term debt................................ (142,518) (115,118)
----------- -----------
Net cash provided by (used in) financing
activities........................................ 15,550 (337,582)
----------- -----------
Decrease in cash and cash equivalents....................... (1,157,937) (2,640,650)
Cash and cash equivalents at beginning of period............ 5,366,837 8,102,920
Cash and cash equivalents at end of period.................. $ 4,208,900 $ 5,462,270
</TABLE>
See notes to consolidated condensed financial statements.
F-31
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of Dialysis
Corporation of America ("DCA") and its subsidiaries, collectively referred to as
the "Company." All material intercompany accounts and transactions have been
eliminated in consolidation. The Company is a 68% owned subsidiary of
Medicore, Inc. (the "Parent"). See Note 5.
GOVERNMENT REGULATION
Most of the Company's revenues are attributable to payments received under
Medicare, which is supplemented by Medicaid or comparable benefits in the states
in which the Company operates. Reimbursement rates under these programs are
subject to regulatory changes and governmental funding restrictions. Although
the Company is not aware of any future rate changes, significant changes in
reimbursement rates could have a material effect on the Company's operations.
The Company believes that it is presently in compliance with all applicable laws
and regulations.
INTEREST AND OTHER INCOME
Interest and other income is comprised as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Rental income........................................... $106,848 $ 92,015
Interest income......................................... 148,350 235,299
Other income............................................ 24,443 24,276
-------- --------
$279,641 $351,590
======== ========
</TABLE>
EARNINGS PER SHARE
Diluted earning per share gives effect to potential common shares that were
dilutive and outstanding during the period, such as stock options and warrants,
calculated using the treasury stock method and average market price. No
potentially dilutive securities were included in the diluted earnings per share
computation for the nine months ended September 30, 1999 or for the same period
of the preceding year, as a result of exercise prices and the net loss, and to
include them would be anti-dilutive.
F-32
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Following is a reconciliation of amounts used in the basic and diluted
computations:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1999 1998
--------- ---------
<S> <C> <C>
Net loss.............................................. $(467,044) $(211,288)
========= =========
Weighted average shares............................... 3,546,344 3,650,245
========= =========
Loss per share:
Basic............................................... $ (.13) $ (.06)
========= =========
Diluted............................................. $ (.13) $ (.06)
========= =========
</TABLE>
The Company has various potentially dilutive securities, including stock
options and warrants. See Notes 6 and 7.
COMPREHENSIVE INCOME
In 1998, the Company adopted Financial Accounting Standards Board Statement
No. 130, "Reporting Comprehensive Income" (FAS 130). This statement establishes
rules for the reporting of comprehensive income (loss) and its components.
Comprehensive loss consists of the net loss for the nine months ended
September 30, 1999, and for the same period of the preceding year included the
net loss and an unrealized securities gain and related reclassification
adjustments.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1999 1998
--------- ---------
<S> <C> <C>
Net loss.............................................. $(467,044) $(211,288)
Other comprehensive income (loss), net of tax:
Unrealized holding gain (loss) arising during
period, net of tax.................................... -- 40,699
Less: reclassification adjustment, net of tax,
for gain included in net income....................... -- (40,699)
--------- ---------
Total other comprehensive income (loss)............... -- --
--------- ---------
Comprehensive loss.................................... $(467,044) $(211,288)
========= =========
</TABLE>
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 financial statements to
conform to the 1999 presentation.
F-33
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standards Board issued Financial
Accounting Standards Board Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). FAS 133 is effective for fiscal
years beginning after June 15, 2000. FAS 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities and
requires, among other things, that all derivatives be recognized as either
assets or liabilities in the statement of financial position and that these
instruments be measured at fair value. The Company is in the process of
determining the impact that the adoption of FAS 133 will have on its
consolidated financial statements.
NOTE 2--INTERIM ADJUSTMENTS
The financial summaries for the nine months ended September 30, 1999 and
September 30, 1998 are unaudited and include, in the opinion of management of
the Company, all adjustments (consisting of normal recurring accruals) necessary
to present fairly the earnings for such periods. Operating results for the nine
months ended September 30, 1999 are not necessarily indicative of the results
that may be expected for the entire year ending December 31, 1999.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these Consolidated
Condensed Financial Statements be read in conjunction with the financial
statements and notes included in the Company's audited financial statements for
the year ended December 31, 1998.
NOTE 3--LONG TERM DEBT
In December 1988, the Company obtained a $480,000 fifteen-year mortgage
through November 2003 on its building in Lemoyne, Pennsylvania with interest at
1% over the prime rate. The remaining principal balance under this mortgage
amounted to approximately $133,000 and $160,000 at September 30, 1999 and
December 31, 1998, respectively. Also in December 1988, the Company obtained a
$600,000 mortgage on its building in Easton, Maryland on the same terms as the
Lemoyne property. The remaining principal balance under this mortgage amounted
to approximately $167,000 and $200,000 at September 30, 1999 and December 31,
1998, respectively.
The Company has equipment purchase agreement for certain kidney dialysis
machines at its facilities with interest at rates ranging from 4.13% to 11.84%
pursuant to various schedules extending through May 2005. Additional financing
of $141,000 and $185,000 during the nine months ended September 30, 1999 and
September 30, 1998, respectively, represents a noncash financing activity which
is a supplemental disclosure required by FAS 95. The remaining principal balance
under this agreement amounted to approximately $507,000 and $449,000 at
September 30, 1999 and December 31, 1998, respectively.
The prime rate was 8.25% as of September 30, 1999 and 7.75% as of
December 31, 1998.
Interest payments on long-term debt amounted to approximately $40,000 for
the nine months ended September 30, 1999 and $49,000 for the same period of the
preceding year.
F-34
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
NOTE 4--INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. For financial reporting
purposes, a valuation allowance has been recognized to offset deferred tax
assets.
Income tax payments amounted to $223,000 for the nine months ended
September 30, 1999 and $1,561,000 for the same period of the preceding year.
NOTE 5--TRANSACTIONS WITH PARENT
The Parent provides certain administrative services to the Company including
office space and general accounting assistance, the costs of which are allocated
on the basis of direct usage, when identifiable, or on the basis of time spent.
The amount of expenses allocated by the Parent totaled approximately $150,000
for the nine months ended September 30, 1999, and $180,000 for the same period
of the preceding year.
The Company has an intercompany advance payable to the Parent of
approximately $37,000 at September 30, 1999 and had an intercompany advance
receivable from the Parent of approximately $121,000 at December 31, 1998, with
intercompany advance balances bearing interest at the short-term Treasury Bill
rate. Interest income on net intercompany advances amounted to approximately
$1,500 for the nine months ended September 30, 1999 and interest expense on net
intercompany advances amounted to approximately $6,000 for the nine months ended
September 30, 1998. Interest on intercompany balances is included in the
intercompany advance balance. The Parent has agreed not to require repayment of
the intercompany advance payable balance prior to October 1, 2000; therefore,
the advance has been classified as long-term at September 30, 1999.
NOTE 6--STOCK OPTIONS
In April 1999, the Company adopted a stock option plan pursuant to which the
board of directors granted 800,000 options exercisable at $1.25 per share to
certain of its officers, directors, employees and consultants with 340,000
options exercisable through April 20, 2000 and 460,000 options exercisable
through April 20, 2004. The Company recorded expense of $153,000 on 340,000 of
these options pursuant to FAS 123 and APB 25.
In November 1995, the Company adopted a stock option plan for up to 250,000
options. Pursuant to this plan, in November, 1995, the board of directors
granted 210,000 options to certain of its officers, directors, employees and
consultants of which 4,500 options were outstanding at September 30, 1999. These
options are exercisable for a period of five years through November 9, 2000 at
$1.50 per share. On June 10, 1998 the board of directors granted a five-year
non-qualified stock option to a new board member for 5,000 shares exercisable at
$2.25 per share through June 9, 2003.
In August 1996, the board of directors granted 15,000 options to the medical
directors at its three kidney dialysis centers of which 10,000 options were
outstanding at September 30, 1999. These options were originally exercisable for
a period of three years through August 18, 1999 at $4.75 per share with the
exercise price for 5,000 of the options having been reduced to $2.25 per share
on June 10, 1998.
F-35
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
NOTE 7--COMMON STOCK
Pursuant to a 1996 public offering, 1,150,000 shares of common stock were
issued, including 150,000 shares from exercise of the underwriters'
overallotment option, and there are 2,300,000 redeemable common stock purchase
warrants to purchase one common share each with an exercise price of $4.50
originally exercisable through April 16, 1999 and extended to March 31, 2000.
The underwriters received options to purchase 100,000 shares of common stock and
200,000 common stock purchase warrants, with the options exercisable at $4.50
per unit through April 16, 2001 with the underlying warrants being substantially
identical to the public warrants except that they are exercisable at $5.40 per
share through April 16, 2001.
NOTE 8--COMMITMENTS AND CONTINGENCIES
Effective January 1, 1997 the Company established a 401(k) savings plan
(salary deferral plan) with an eligibility requirement of one year of service
and a 21 year old age requirement. The Company has made no contributions under
this plan as of September 30, 1999.
NOTE 9--SALE OF SUBSIDIARIES' ASSETS
On October 31, 1997, the Company concluded a sale ("Sale") of its Florida
operations consisting of the assets of two subsidiaries and an inpatient
agreement of another subsidiary pursuant to an Asset Purchase Agreement.
Consideration for the assets sold was $5,065,000 consisting of $4,585,000 in
cash and $480,000 of the purchaser's common stock. In February 1998, the Company
acquired, in a transaction accounted for as a purchase, the remaining 20%
minority interests in two of the subsidiaries whose assets were sold for an
aggregate of $625,000, which included one-half of the common shares originally
received as part of the consideration of the Sale. The remaining shares were
sold in September 1998 for approximately $253,000 resulting in a gain of
approximately $13,000.
NOTE 10--REPURCHASE OF COMMON STOCK
In September 1998, the Company announced its intent to repurchase up to an
additional 300,000 shares of its common stock at current market prices after
having acquired 100,000 shares in June 1997 for $206,000. The Company
repurchased 105,000 shares for approximately $109,000 during 1998. The Company
did not repurchase any additional shares during the first half of 1999. All
treasury shares were cancelled during the second quarter of 1999 resulting in
reductions of $2,050 in common stock, $229,560 in capital in excess of par value
and $83,290 in retained earnings.
NOTE 11--PROPOSED MERGER AND ACQUISITION
On October 20, 1999, the Company entered into an Agreement and Plan of
Merger with MainStreet IPO.com, Inc. ("MSI") and its wholly-owned subsidiary,
MainStreet Acquisition Inc. ("MainStreet"). The merger will be effected by
MainStreet merging into DCA with DCA surviving, changing its name to MainStreet,
and becoming a wholly-owned subsidiary of MSI. The company's shareholders will
receive, on a one-for-one basis, shares of common stock of MSI, which company is
in the process of preparing a registration statement for filing with the SEC
covering the issuance of approximately 1,396,000 shares of its common stock,
plus an indeterminate number of shares for resale
F-36
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
NOTE 11--PROPOSED MERGER AND ACQUISITION (CONTINUED)
by certain affiliates of the Company, MSI and certain private investors of MSI.
The registration statement is to be filed in the near future in conjunction with
the Company's proxy statement seeking its shareholder approval of the merger and
related transactions.
Immediately prior to the proposed merger, the Company will be selling all of
its assets to Dialysis Acquisition Corp., a wholly-owned subsidiary of its
parent, Medicore, Inc., with this subsidiary also assuming all liabilities of
the Company. The proposed sale of assets and merger transactions are subject to
a variety of contingencies, most importantly shareholder approval. Should the
Company's shareholders approve the transactions, Medicore will own 100% of the
dialysis operations, and the Company's shareholders will become shareholders of
MSI.
MSI is a recently established company which has developed a central website
to provide business entities with the necessary tools to perform direct public
offering of their securities. Another company, CEO Letter, LLC, which will
become a wholly-owned subsidiary of MSI at the time of the merger, provides
chief executive officers of public companies the forum to discuss their
companies to the multitude of potential internet investors.
F-37
<PAGE>
APPENDIX A
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made as of October , 1999 between
DIALYSIS ACQUISITION CORP. ("Buyer"), a Florida corporation and wholly-owned
subsidiary of MEDICORE, INC. ("Medicore"), a Florida corporation, and DIALYSIS
CORPORATION OF AMERICA, a Florida corporation ("DCA" or "Seller") a 68% owned
subsidiary of Medicore.
WHEREAS, DCA has entered into an Agreement and Plan of Merger with
MainStreet Acquisition Inc. ("MainStreet") and MainStreet IPO.com, Inc. ("MSI"),
the parent of MainStreet, dated as of the date of this Agreement ("Merger
Agreement," except as may be defined in this Agreement, all capitalized terms
and phrases shall have the meaning as defined in the Merger Agreement) pursuant
to and under which the parties hereto and thereto contemplate (i) the merger of
MainStreet into DCA, with DCA as the surviving corporation and DCA stockholders
obtaining registered shares of MSI (the "Merger"), and immediately prior to the
Merger; (ii) Buyer's acquisition of the DCA Assets and assumption of all of
DCA's Liabilities up through the Closing Date of this Agreement, (the Merger and
DCA Asset Acquisition sometimes hereinafter collectively referred to as the
"Transactions"), all of which Transactions are subject to stockholder approval
of DCA and MainsStreet and become effective at the Effective Time; and
WHEREAS, Buyer desires to purchase from DCA and DCA desires to sell to
Buyer, the DCA Assets, all upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. Purchase and Sale of Assets. Upon the terms and provisions of this
Agreement, Buyer agrees to purchase and accept delivery from Seller of, and
Seller agrees to sell, convey, assign, transfer and deliver to Buyer, at the
Closing as provided for in Section 2.2 of the Merger Agreement, all the DCA
Assets, but excluding (i) 80% of the net proceeds after expenses, fees and
commissions, from the exercise of DCA's outstanding 2,300,000 public redeemable
common stock purchase warrants which expire March 31, 2000 ("Warrants"),
provided the exclusion, to the extent the DCA Warrants are exercised, of 100% of
the net proceeds from the Warrant exercise in excess of $5,000,000, and
(ii) any net proceeds from the exercise of the underwriters' purchase options
for 100,000 shares of DCA common stock exercisable at $4.50 per share and for
200,000 warrants exercisable for DCA common stock at $5.40 per share through
April 17, 2001; provided any proceeds from the exercise of DCA's 1995 options
(9,500 options of which 4,500 options are exercisable at $1.50 per share through
October 9, 2000 and 5,000 options exercisable at $2.25 per share through
June 9, 2003) and 1999 options (800,000 options exercisable at $1.25, 340,000
through April 20, 2000, and 460,000 through April 20, 2004), exercised prior to
the Closing of the Transactions, shall be included in the DCA Assets, and should
any exercise of such options occur subsequent to the Closing of the Transactions
then Seller and any successor to Seller, particularly MSI, will obtain the gross
proceeds and issue its securities for any such option exercises.
2. Consideration. Consideration for the DCA Assets includes all of the
following:
2.1 2,150,622 shares of Medicore's DCA common stock to be assigned, sold and
transferred to DCA;
2.2 Buyer's assumption of the DCA Liabilities as provided in Section 3;
2.3 Medicore's agreement, without recommendation and subject to DCA
shareholder approval, to the Merger of MainStreet with DCA, its 68% owned public
subsidiary; and
2.4 Buyer's waiver of any and all cash proceeds upon exercise of the
underwriters' purchase option (assuming full exercise represents $450,000 for
the common stock and $1,080,000 for the warrants), and
A-1
<PAGE>
(b) upon exercise of the DCA Warrants (assuming full exercise represents
$10,350,000 before expenses or commissions), provided, as to exercise of the DCA
Warrants, 20% of the net Warrant proceeds but not more than $1,000,000 shall be
included in the DCA Assets.
3. Assumption of Debts, Liabilities and Obligations. Buyer will assume all
of the DCA Liabilities, which include all of the debts, liabilities and
obligations of Seller and all the Subsidiaries (as defined in Section 5.4 of
this Agreement), known or unknown, accrued, liquidated, unliquidated or
otherwise, existing or incurred up to the Closing or arising out of transactions
or events occurring prior to the Closing, exclusive of all federal and state
taxes resulting from the sale of the DCA Assets to Buyer which tax liability
shall remain with DCA and continue as an obligation of any successor to DCA, in
particular MSI.
4. The Name "Dialysis Corporation of America." As part of the DCA Assets,
Buyer is acquiring and has the right to the name Dialysis Corporation of America
and any abbreviations or synonyms of that name.
5. Documents to be Delivered by Seller to Buyer. At the Closing, Seller will
deliver to Buyer:
5.1 A deed or deeds with full covenants of warranty as to Seller's good and
marketable fee simple title to all of the real property owned by Seller,
executed and acknowledged by Seller and in proper form for recording, with all
necessary revenue stamps attached, conveying to Buyer good and marketable fee
simple title to all such real property in the form of Exhibit A;
5.2 A general instrument of sale, conveyance, assignment, transfer and
delivery with full covenants of warranty as to Seller's good and marketable
title to all the DCA Assets in the form of Exhibit B;
5.3 All of Seller's contracts, books, records and other data relating to the
DCA Assets and Seller's operations and business, including copies of Seller's
minute and stock books (originals to be kept by Seller);
5.4 All of the stock certificates and membership units for the outstanding
shares of common stock or interests representing membership units if the
organization is a limited liability company, for the Seller's interest in all of
its subsidiaries as listed in Exhibit C (collectively "Subsidiaries"), including
each Subsidiary's original corporate or company's books, records and other
corporate or company data, minute and stock books and all other records; and
5.5 Such other certificates and documents as Buyer or its counsel may
reasonably request.
6. Documents to be Delivered by Buyer to Seller. At the Closing, Buyer will
deliver or cause to be delivered to Seller:
6.1 Stock certificate(s) for the 2,150,622 shares of Medicore's DCA common
stock, free and clear of all liens, claims, charges, restrictions, or
encumbrances of any kind, which stock certificate(s) shall be duly endorsed to
Seller or accompanied by a duly executed stock power in form satisfactory to
Seller for cancellation;
6.2 An instrument of assumption of the assumed DCA Liabilities in the form
of Exhibit D, with a separate assumption of mortgages, if necessary, with
respect to the Seller's real property;
6.3 Waiver of cash proceeds with respect to exercise of the underwriters'
purchase options and a certain portion of the exercise of the DCA Warrants as
per Section 2.4 of this Agreement in the form of Exhibit E; and
6.4 Such other certificates and documents as Seller or its counsel may
reasonably request.
7. Passage of Title at Closing. Upon DCA stockholder approval of the
Transactions and delivery of the instruments of sale, conveyance, assignment,
transfer and delivery, title to the DCA Assets shall pass to Buyer at the
Closing. At the Closing, Seller will put Buyer in full, complete and quiet
A-2
<PAGE>
possession and enjoyment of all of the DCA Assets, and from and after the
Closing the ownership and operation of the DCA Assets and the business of Seller
to be sold to Buyer pursuant to this Agreement shall be for the account and risk
of Buyer. Buyer shall be under no liability for any debt, liability or
obligation of Seller incurred after the Closing or arising out of any
transaction by Seller or any event occurring with respect to Seller after the
Closing.
8. Assignment of Seller's Contracts. Nothing in this Agreement shall be
deemed to constitute an assignment or an attempt to assign any contract or other
agreement to which Seller is a party if the attempted assignment thereof without
the consent of the other party to such contract or agreement would constitute a
breach thereof or affect in any way the rights of Seller thereunder. If after
Seller has used its best efforts to obtain the consent of any such other party
to such contract or agreement, such consent shall not be obtained at or prior to
the Closing, or an attempted assignment thereof at the Closing would be
ineffective and would affect the rights of Seller thereunder, Seller will
cooperate with Buyer in any reasonable arrangement designed to provide for Buyer
the benefits under any such contract or agreement, including the enforcement, at
the cost and for the benefit of Buyer, of any and all rights of Seller against
such other party thereto arising out of the breach or cancellation thereof by
such other party or otherwise.
9. Taxes and Adjustments. Seller shall pay all sales, use and transfer taxes
arising out of the transfer of the DCA Assets, and shall pay its portion, pro
rated as of the Closing Date, of state and local real and personal property
taxes of the DCA business being sold.
The sale of the DCA Assets by Seller to Buyer and the assumption of DCA
Liabilities by Buyer under this Agreement is not anticipated to be a tax-free
transaction under the Code, and the parties agree that the tax implications of
the sale of the DCA Assets will affect Seller upon sale of the DCA Assets, which
federal, state and local taxes of any kind shall be the responsibility of DCA
and shall remain with DCA and shall be the sole responsibility of MSI as
successor and shall not be assumed as DCA Liabilities by Buyer, and MSI hereby
agrees to indemnify and hold Buyer and Medicore and their respective officers,
directors, shareholders, employees, representatives and agents (for purposes of
this Section 9, included in the term "Buyer") harmless from and with respect to
any and all claims, liabilities, losses, damages, costs and expenses, including
without limitation, the reasonable fees and disbursements of Buyer's counsel and
Buyer's accountants, related to or arising, directly or indirectly, out of any
taxes or audit with respect to Seller's liability on its portion of the DCA
Assets, provided the Seller's and MSI's tax responsibility, liability and this
indemnification is subject to Section 10.3(c) of the Merger Agreement.
The parties further understand and agree that Buyer and Medicore, owning 68%
of DCA and 100% of Buyer, will also have certain federal and state tax
implications and any such tax implications of Medicore and Buyer acquiring the
DCA Assets and Buyer assuming the DCA Liabilities as contemplated in this
Agreement based upon Medicore's equity ownership of DCA and the payment of part
of the consideration for the acquisition of the DCA Assets through the return to
DCA of Medicore's 2,150,622 shares of DCA common stock, shall be the sole
responsibility of Medicore and Buyer, and Medicore with respect to its tax
liabilities and not Buyer's, and Buyer with respect to its tax liability and not
Medicore's, hereby agree to indemnify and hold Seller and MSI and their
respective officers, directors, shareholders, employees, representatives and
agents (for purposes of this Section 9, included in the term "Seller") harmless
from and with respect to any and all claims, liabilities, losses, damages, costs
and expenses, including without limitation, the reasonable fees and
disbursements of Seller's counsel and Seller's accountants, related to or
arising, directly or indirectly, out of any of their own (and not the other's)
taxes or audit.
10. Valuation of DCA Assets. Seller shall immediately prior to the
Transactions obtain an independent evaluation of its Assets, and such
determination and the completion of the Transactions is subject to Section 6.11
of the Merger Agreement.
A-3
<PAGE>
11. Representations and Warranties by Seller. Seller represents and warrants
to Buyer as follows:
11.1 Corporate Organization. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida, and has
the corporate power and authority to carry on its business as now being
conducted and to own and operate the properties and assets now owned and being
operated by it. Seller has delivered to Buyer complete and correct copies of its
articles of incorporation and by-laws as in effect on the date hereof.
11.2 Subsidiaries and Other Equity Investments. Except as set forth in
Exhibit C, Seller does not own, directly or indirectly, any shares of capital
stock of any corporation or any equity investment in any partnership, limited
liability company, association or other business organization. With respect to
each Subsidiary (collectively "Subsidiaries") that is an issuer of any shares of
capital stock owned beneficially or of record by Seller, Exhibit C sets forth a
true and complete list of (i) its name and jurisdiction of incorporation,
(ii) its authorized capital stock, (iii) the number of shares of each class
thereof outstanding, and (iv) the number of shares of each such class and
percentage of outstanding voting stock owned by Seller. Seller has delivered to
Buyer complete and correct copies of the certificate of incorporation and
by-laws of each Subsidiary as in effect on the date hereof. Except as set forth
in Exhibit C, no capital stock or any other security (including any debt
security) of any Subsidiary is held by any person other than Seller. Each
Subsidiary is a corporation or company duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization, has the corporate or company power and authority to carry on its
business as now being conducted and as proposed to be conducted, and to own and
operate the properties and assets now owned and being operated by it. All
outstanding shares of capital stock or ownership units of each Subsidiary owned
by Seller have been duly authorized, are validly issued, fully paid and
nonassessable, subject to no lien, claim, charge, restriction, equity or
encumbrance of any kind whatsoever and are freely transferable, subject to
limitations and restrictions of transfer as provided in the corporate documents
or separate agreements to which such Subsidiary is a party as set forth on
Exhibit C, and none of such shares were issued in violation of any preemptive or
other right. Except as set forth in Exhibit C, neither Seller nor any Subsidiary
is a party to or bound by any contract, agreement or arrangement to issue, sell
or otherwise dispose of or redeem, purchase or otherwise acquire any capital
stock or any other security or ownership unit of any Subsidiary or any other
security exercisable or exchangeable for or convertible into any capital stock
or any other security or ownership unit of any Subsidiary, except if such
Subsidiary were to be sold separately, and there is no outstanding option,
warrant or other right to subscribe for or to purchase, or any contract,
agreement or arrangement with respect to, any capital stock or other security of
any Subsidiary or any other security exercisable or convertible into any capital
stock or any other security of any Subsidiary, except if such Subsidiary were to
be sold separately.
11.3 Corporate Authority. Seller has the corporate power to enter into this
Agreement and to carry out its obligations hereunder. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by the board of directors of
Seller and, except for the approval of all the Transactions by its shareholders,
no other corporate proceeding on the part of Seller is necessary to authorize
the execution and delivery of this Agreement or the performance of any of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered on behalf of Seller, and when executed and delivered on behalf of
Seller will be a legal, valid and binding obligation of Seller enforceable
against Seller in accordance with its terms.
11.4 No Violation. Neither the execution, delivery or performance of this
Agreement nor consummation of any of the transactions provided for in this
Agreement (i) will violate or conflict with the articles of incorporation,
certificate of formation, by-laws or operating agreement of Seller or any
Subsidiary, or, except for consents required from Seller's bank, Mercantile-Safe
Deposit and Trust Company ("Mercantile") and equipment leasing and finance
company, B. Braun Medical, Inc.
A-4
<PAGE>
("Braun"), (ii) will result in any breach of or default under any provision of
any contract or agreement of any kind to which Seller or any Subsidiary is a
party or by which Seller or any Subsidiary is bound or to which any property or
asset of any of them is subject, (iii) is prohibited by or requires, other than
a proxy statement for Seller's shareholder approval as contemplated herein and
in the Merger Agreement, Seller or any Subsidiary to obtain or make any consent,
authorization, approval, registration or filing (except as provided in the
Merger Agreement) under any statute, law, ordinance, regulation, rule, judgment,
decree or order of any court or governmental agency, board, bureau, body,
department or authority, or of any other person, (iv) will cause any
acceleration of maturity of any note, instrument or other obligation to which
Seller or any Subsidiary is a party or by which Seller or any Subsidiary is
bound or with respect to which Seller or any Subsidiary is an obligor or
guarantor or (v) will result in the creation or imposition of any lien, claim,
charge, restriction, equity or encumbrance of any kind whatsoever upon or give
to any other person any interest or right (including any right of termination or
cancellation) in or with respect to any of the properties, assets, business,
agreements or contracts of Seller or any Subsidiary.
11.5 Title to DCA Assets. Except under the loan agreements, including
promissory notes, mortgages, trust and security agreements with Mercantile, and
equipment financing agreements with Braun (collectively "Secured Agreements" as
set forth on Exhibit F, which Exhibit also lists the "Encumbrances" as defined
below), the Seller is the lawful owner of, has good and valid record and
marketable title to, and has the full right to sell, convey, transfer, assign
and deliver the DCA Assets without any restrictions of any kind whatsoever.
Except for Secured Agreements and other Encumbrances described in the Seller's
annual report on Form 10-K for the year ended December 31, 1998, its quarterly,
current and other reports filed with the SEC under the 1934 Act (collectively
"DCA Reports") and which should continue unaffected after the Closing and which
Buyer shall assume as DCA Liabilities, all of the DCA Assets are free and clear
of any security interest, lien, claim, charge, option, mortgage, debt, lease,
sublease, conditional sales agreement, title restriction agreement, encumbrance
of any kind, or any restriction against the transfer or assignment thereof
(collectively "Encumbrances"), and except for the Secured Agreements and
scheduled Encumbrances, there are no filings in any registry of deeds in any
jurisdiction or under the Uniform Commercial Code or similar statute in any
jurisdiction showing the Seller as debtor which create or perfect or which
purport to create or perfect any Encumbrance in or on any of the DCA Assets. At
and as of the Closing, Seller will convey the DCA Assets to Buyer by deeds, bill
of sale, certificates of title, and instruments of assignment and transfer
effective to vest in Buyer, and the Buyer will have good and valid record and
marketable title to all of the DCA Assets, free and clear of Encumbrances except
as disclosed in the DCA Reports, Exhibit F, and except as may be assumed by
Buyer upon its assumption of all DCA Liabilities.
11.6 Litigation. There is no action, suit, proceeding or investigation
pending, or to the knowledge of Seller, threatened, relating to or affecting any
of the DCA Assets, the DCA Liabilities to be assumed by Buyer, or which
questions the validity of this Agreement or challenges the Transactions, nor is
there any basis for such action, suit, proceeding or investigation.
11.7 Conformity to Law. Seller has complied and is in compliance with
(a) all laws, statutes, governmental regulations, and all judicial or
administrative tribunal orders, judgments, writs, injunctions, decrees, or
similar commands applicable to its business or any of the DCA Assets; (b) all
unwaived terms and provisions of all contracts, agreements, and indentures to
which Seller is a party, or by which Seller or any of the DCA Assets is subject;
and (c) its charter documents and by-laws, each as amended to date. Seller has
not committed, been charged with, or been under investigation with respect to,
nor does there exist, any violation of any provision of any federal, state, or
local law or administrative regulation in respect of its business or any of the
DCA Assets.
11.8 Environmental Matters. Seller and the Subsidiaries have complied with
and are in compliance with all federal, state and local statutes, laws,
ordinances, regulations, rules, permits, judgments, orders
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and decrees applicable to any of them or any of their respective properties,
assets, operations and businesses relating to environmental protection
including, without limitation, standards relating to air, water, land and the
generation, storage, transportation, treatment or disposal of solid wastes,
hazardous wastes and medical wastes.
11.9 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Seller directly with
Buyer and without the intervention of any other person and in such manner as not
to give rise to any valid claim against any of the parties for any finder's fee,
brokerage commission or like payment.
11.10 No Untrue Statements. No statement by Seller contained in this
Agreement and no written statement contained in any certificate, document or
exhibit furnished by Seller, or any officer, employee, counsel or other agent of
Seller to Buyer pursuant to this Agreement contains or will contain any untrue
statement of a material fact, or omits or will omit to state a material fact
necessary in order to make the statements therein contained not misleading.
12. Representations and Warranties by Buyer. Buyer represents and warrants
to the Seller as follows:
12.1 Corporate Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida, and has
the corporate power and authority to carry on its business now being conducted,
and to acquire and own and operate the DCA Assets and to assume the DCA
Liabilities.
12.2 Authorization of Agreement; No Violation. Buyer has the corporate power
to enter into this Agreement and to carry out its obligations hereunder. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by its board of
directors, and no other corporate proceeding on the part of the Buyer is
necessary to authorize the execution and delivery and the performance of any of
the transactions contemplated hereby. This Agreement has been duly executed and
delivered on behalf of Buyer, and when executed and delivered on behalf of Buyer
will be a legal, valid and binding obligation of Buyer enforceable against Buyer
in accordance with its terms. Neither the execution, delivery or performance of
this Agreement by Buyer nor the consummation of any of the transactions provided
for in this Agreement (i) will violate or conflict with any provision of the
articles of incorporation or by-laws of Buyer, or (ii) will result in any breach
of or default under any provision of any contract or agreement of any kind to
which Buyer is bound or to which the property and assets of Buyer is subject.
12.3 Litigation. There are no actions, suits, proceedings or investigations,
either at law or in equity, or before any commission or other administrative
authority in the United States of any kind now pending or threatened or proposed
in any manner, or any circumstance which should or could reasonably form the
basis of any such action, suit, proceeding or investigation, involving Buyer or
any of its properties or assets that (i) questions the validity of this
Agreement or (ii) seeks to delay, prohibit or restrict in any manner any action
taken or contemplated to be taken by Buyer under this Agreement.
12.4 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Buyer directly with
Seller and without the intervention of any other person and in such manner as
not to give rise to any valid claim against any of the parties for a finder's
fee, brokerage commission or like payment.
12.5 No Untrue Statements. No statement by Buyer contained in this Agreement
and no written statement contained in any certificate, exhibit or other document
required to be furnished by any agent of Buyer to Seller pursuant to this
Agreement contains or will contain any untrue statement of a material fact, or
omits or will omit to state a material fact necessary in order to make the
statements therein contained not misleading.
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13. Consents and Approvals.
13.1 Approval by Seller's Shareholders. Seller will cause a meeting of its
stockholders to be called and held for the purpose of voting upon this Agreement
and the Merger Agreementas promptly as possible following the date of this
Agreement. Based upon the relationship between Medicore, Buyer and Seller,
Medicore will not vote its 68% ownership of Seller and Seller shall not
recommend to its shareholders, but rather will remain neutral, the approval of
this Agreement and the consummation of the Transactions, which will be left
solely to the determination and discretion of Seller's other shareholders.
13.2 Consents and Approvals. Seller and Buyer shall have obtained at or
before the Closing, all consents, authorizations and approvals under all
statutes, laws, ordinances, regulations, rules, judgments, decrees and orders of
any court or governmental agency, board, bureau, body, department or authority
or of any other person required to be obtained by Seller or Buyer, as the case
may be, in connection with the execution, delivery and performance of this
Agreement and the consummation of the Transactions.
14. Conditions to the Obligations of Buyer and Seller. The obligations of
each of the Buyer and Seller to consummate the purchase and sale of the DCA
Assets and Buyer's assumption of the DCA Liabilities is subject to the
fulfillment, at or before the Closing, of the conditions as provided for in
Articles VI and VII of the Merger Agreement except in lieu of DCA the reference
shall be Buyer, and in lieu of MainStreet and MSI the reference shall be Seller,
and in lieu of the Merger Agreement the reference shall be this Agreement, with
the exclusion of Sections 6.13 and 7.5, "Tax-Free Transaction," which, for
purposes of this Agreement, are replaced by Section 9 of this Agreement. Any one
or more of such conditions may be waived by the applicable party, provided
further, that no such waiver shall constitute a waiver by either party of any of
the other rights or remedies, at law or in equity, if the other party shall be
in default of any of its representations, warranties or covenants under this
Agreement.
15. Termination. This Agreement may be terminated as follows:
15.1 Buyer. Buyer may, without liability to Seller, terminate this Agreement
by written notice to Seller (i) at any time prior to the Closing if default
shall be made by Seller in the observance or in the due and timely performance
of any of the terms hereof to be performed by Seller that cannot be cured at or
prior to the Closing, or (ii) at the Closing, if any of the conditions precedent
to the performance of Buyer's obligations at the Closing shall not have been
fulfilled.
15.2 Seller. Seller may, without liability to Buyer, terminate this
Agreement by written notice to Buyer (i) at any time prior to the Closing if
default shall be made by Buyer in the observance or in the due and timely
performance of any of the terms hereof to be performed by Buyer that cannot be
cured at or prior to the Closing, or (ii) at the Closing, if any of the
conditions precedent to the performance of Seller's obligations at the Closing
shall not have been fulfilled.
15.3 Effect of Termination. If this Agreement is terminated, this Agreement
shall no longer be of any force or effect and there shall be no liability on the
part of any party or its respective directors, officers or shareholders, except
in the case of termination because of a material default or material breach
resulting from the willful fault of another party, the aggrieved party may
recover from the defaulting party.
16. Buyer's Indemnification.
16.1 Indemnity. Buyer agrees to indemnify and hold Seller and its successor,
MSI and their officers, directors, agents and representatives harmless from and
against any and all claims, liabilities, losses, damages, or other obligations
whatsoever, together with all reasonable costs and expenses,
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including reasonable fees and disbursements of counsel and expenses of
investigation (collectively "Losses"), arising out of, based upon or caused by:
(i) DCA Liabilities and Buyer's assumption of said DCA Liabilities or
any business carried on by Seller on or prior to the Closing Date;
(ii) The material inaccuracy of any representation or the material
breach of any warranty of Buyer contained in this Agreement;
(iii) Any material breach or nonperformance of Buyer of any of its
covenants or agreements contained in this Agreement or in any agreement,
certificate or other instrument delivered by Buyer pursuant to this
Agreement; or
(iv) The bulk sales laws of any jurisdiction in connection with the
Transactions contemplated by this Agreement; and in view of this
indemnification, Buyer waives Seller's compliance with any such bulk sales
laws as a condition to the Closing.
16.2 Claims. In the event that the Seller or MSI desires to make a claim
against the Buyer under Section 16.1 in connection with any action, suit,
proceeding, or demand at any time instituted against or made upon Seller or MSI
for which Seller or MSI may seek indemnification hereunder ("Claim"), Seller or
MSI, as the case may be, shall timely notify Buyer in writing of such Claim and
of the Seller's or MSI's claim of indemnification with respect thereto, provided
that failure of Seller or MSI to give such timely written notice shall not
relieve the Buyer of its obligations under this Section 16, except to the
extent, if at all, that the Buyer shall have been prejudiced thereby. Upon
receipt of such timely written notice from the Seller or MSI, the Buyer shall be
entitled to participate in the defense of such Claim, and if each of the
following conditions is satisfied, the Buyer may assume the defense of such
Claim, and in the case of such an assumption, the Buyer shall have the authority
to negotiate, compromise, and settle such Claim:
(i) The Buyer confirms in writing that it is obligated hereunder to
indemnify Seller or MSI with respect to such Claim; and
(ii) Seller or MSI does not give the Buyer written notice that either of
them has determined, in the exercise of its reasonable discretion, that
matters of corporate or management policy or a conflict of interest make
separate representation by Seller's or MSI's own counsel advisable.
Seller or MSI shall retain the right to employ its own counsel and to
participate in the defense of any Claim, the defense of which has been assumed
by the Buyer pursuant hereto, but Seller and MSI shall bear and shall be solely
responsible for its own costs and expenses in connection with such
participation.
16.3 Limitation. Notwithstanding anything in the Agreement or in Section 16
to the contrary, Buyer's indemnification is enforceable only to the extent all
the Transactions are completed without any default or breach by Seller,
MainStreet or MSI with respect to this Agreement, the Merger Agreement, and the
Transactions contemplated herein and therein.
17. Miscellaneous.
17.1 Expenses. All expenses of the preparation, execution, and consummation
of this Agreement and of the transactions contemplated hereby, including,
without limitation, attorneys', accountants', and outside advisers' fees and
disbursements, shall be borne by the party incurring such expenses.
17.2 Notices. All notices, demands, and other communications hereunder shall
be in writing or by written telecommunication, and shall be deemed to have been
duly given if delivered personally, or if
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mailed by certified mail, return receipt requested, postage prepaid, or sent by
written telecommunication, as follows:
If to the Seller, to:
Dialysis Corporation of America
777 Terrace Avenue
Hasbrouck Heights, NJ 07604
Attn: Thomas K. Langbein, Chairman of the Board and CEO
If to the Buyer, to:
Dialysis Acquisition Corp.
27 Miller Street
Lemoyne, PA 17043
Attn: Bart Pelstring, President
with a copy sent contemporaneously to:
Lawrence E. Jaffe, Esq.
777 Terrace Avenue
Hasbrouck Heights, NJ 07604
If to MainStreet Acquisition, Inc. or MainStreet IPO.com, Inc., to:
MainStreet IPO.com, Inc.
Commerce Center
U.S. Highway One, Suite 251
North Brunswick, NJ 08902
Attn: Joseph M. Salvani, CEO
with a copy sent contemporaneously to:
Conrad P. Rubin, Esq. or Rory M. Deutsch, Esq.
Wollmuth Maher & Deutsch LLP
500 Fifth Avenue, Suite 1200
New York, NY 10110
If to Medicore, Inc., to:
Medicore, Inc.
777 Terrace Avenue
Hasbrouck Heights, NJ 07604
Attn: Thomas K. Langbein, CEO
with a copy sent contemporaneously to:
Lawrence E. Jaffe, Esq.
777 Terrace Avenue
Hasbrouck Heights, NJ 07604
17.3 Entire Agreement. This Agreement contains the entire understanding of
the parties, supersedes all prior agreements and understandings relating to the
subject matter hereof, except the Merger Agreement, and shall not be amended
except by a written instrument hereafter signed by all of the parties hereto.
17.4 Governing Law. The validity and construction of this Agreement shall be
governed by the laws of the State of Florida.
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17.5 Assigns. This Agreement shall be binding upon and inure to the benefit
of the heirs and successors of each of the parties. Neither this Agreement nor
the obligations of any party hereunder shall be assignable or transferable by
such party without the prior written consent of the other party hereto.
17.6 No Implied Rights or Remedies. Except as otherwise expressly provided
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or to give any person, firm, or corporation, other than the Seller
and the Buyer and their respective shareholders, any rights or remedies under or
by reason of this Agreement, except as to MainStreet and MSI, which latter
company is entitled to all the indemnities as provided in this Agreement,
particularly Sections 9 and 16, and which company acknowledges and agrees to
Sections 3, 4, 9 and 16 of this Agreement, and except as to Medicore, which
company is entitled to the indemnities as provided in Section 9 of this
Agreement and which company acknowledges and agrees to Sections 9 and 13.1 of
this Agreement.
17.7 Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
17.8 Severability. If any provision of this Agreement is held to be
unenforceable for any reason, it shall be adjusted rather than voided, if
possible, in order to achieve the intent of the parties to the extent possible.
In any event, all other provisions of this Agreement shall be deemed valid and
enforceable to the full extent.
17.9 Termination of Representations and Warranties. All representations and
warranties contained in this Agreement shall terminate at the Effective Time.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties
hereto have caused this Agreement to be duly executed and delivered by their
respective duly authorized officers as an instrument under seal as of the date
and year first above written.
DIALYSIS CORPORATION OF AMERICA
By: /s/ THOMAS K. LANGBEIN
-----------------------------------
THOMAS K. LANGBEIN, Chairman
and Chief Executive Officer
DIALYSIS ACQUISITION CORP.
By: /s/ THOMAS K. LANGBEIN
-----------------------------------
THOMAS K. LANGBEIN, President
Acknowledges and agrees to Sections 1, 3, 4, 9 and 16
of this Agreement
MAINSTREET ACQUISITION, INC.
By: /s/ JOSEPH SALVANI
-----------------------------------
JOSEPH SALVANI, Chairman, Chief
Executive Officer and President
and
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MAINSTREET IPO.COM, INC.
By: /s/ JOSEPH SALVANI
-----------------------------------
JOSEPH SALVANI, Chairman, Chief
Executive Officer and President
Acknowledges and agrees to Sections 9 and 13.1
of this Agreement
MEDICORE, INC.
By: /s/ THOMAS K. LANGBEIN
-----------------------------------
THOMAS K. LANGBEIN, Chairman,
Chief Executive Officer and
President
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APPENDIX B
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger ("Agreement") is made as of October ,
1999 by and among DIALYSIS CORPORATION OF AMERICA, a Florida corporation
("DCA"), MAINSTREET ACQUISITION INC., a Delaware corporation ("MainStreet"), and
MAINSTREETIPO.COM INC., a Delaware corporation ("MSI"), and with respect to
certain provisions hereof, DIALYSIS ACQUISITION CORP., a Florida corporation
("Buyer").
W I T N E S S E T H
WHEREAS, the parties hereto desire that DCA shall be merged with MainStreet,
with DCA surviving; that DCA shall be the surviving corporation; and that each
share of DCA Common Stock which is outstanding immediately prior to the
Effective Time of the Merger be converted as set forth in this Agreement into
shares of the capital stock of MSI, which after giving effect to the Merger will
be the owner of all of the outstanding equity of DCA; and
WHEREAS, prior to the transaction described herein (i) MainStreet IPO, LLC
("LLC") merged with and into MSI with the former holders of LLC units receiving
MSI Common Stock and (ii) MSI formed MainStreet as a wholly-owned subsidiary;
and
WHEREAS, concurrent with the execution of this Agreement, Buyer and DCA
intend to enter into an asset purchase agreement (the "Asset Purchase
Agreement") pursuant to which, immediately prior to the consummation of the
Merger contemplated by this Agreement, DCA will distribute to Buyer all of the
then existing Business and assets of any kind and nature of DCA, including but
not limited to all of the securities of DCA subsidiaries owned by DCA, cash and
cash equivalents, inventories, property real, personal or mixed, tangible or
intangible, the name "Dialysis Corporation of America" or any synonym and
abbreviation thereof and equipment (collectively, the "DCA Assets") in exchange
for (i) 2,150,622 shares of DCA Common Stock held by Medicore, (ii) certain
proceeds from the exercise of warrants for common stock of DCA, and
(iii) Buyer's assumption of all of DCA's current and long-term debt and
liabilities, known and unknown, resulting from the Business of DCA prior to and
including the Closing Date of this Merger ("DCA Liabilities");
WHEREAS, MainStreet and DCA mutually agree that the jurisdiction for the
surviving entity shall be Florida;
WHEREAS, prior to the Merger, Joseph Salvani and the other members of CEO
Letter, LLC, a Delaware limited liability company, and MSI intend to enter into
an agreement (the "CEO Letter Agreement") in the form of Exhibit A pursuant to
which MSI will acquire 100% of the equity of CEO Letter, LLC in exchange for
shares of MSI Common Stock that will vest partly upon the closing of such
transaction and partly upon the occurrence of certain performance conditions;
and
WHEREAS, the parties intend that the Merger constitute a tax-free
transaction described in Section 351 or Section 368(a) of the Code.
NOW THEREFORE, in consideration of the premises and agreements set forth
herein, THE PARTIES AGREE AS FOLLOWS:
ARTICLE I
DEFINITIONS
The terms defined in this Article I shall, for purposes of this Agreement,
have the meanings specified in this Article I unless the context expressly or by
necessary implication otherwise requires:
Section 1.1 Affiliate. "Affiliate" shall have the meaning set forth in the
1933 Act.
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Section 1.2 Asset Purchase Agreement. "Asset Purchase Agreement" shall have
the meaning set forth in the Preamble to this Agreement.
Section 1.3 Balance Sheet. "Balance Sheet" shall have the meaning set forth
in Section 4.10 of this Agreement.
Section 1.4 Balance Sheet Date. "Balance Sheet Date" shall have the meaning
set forth in Section 4.10 of this Agreement
Section 1.5 Business. "Business" shall mean the properties, rights,
privileges, operations and franchises of a company, and with respect to MSI, its
currently proposed operations, including the posting of (i) direct public
offerings on its website and (ii) through CEO Letter, the posting of public
company press releases on a website.
Section 1.6 Business Day. "Business Day" shall mean any day the New York
Stock Exchange is open for trading.
Section 1.7 Buyer. "Buyer" shall mean Dialysis Acquisition Corp., a Florida
corporation wholly-owned by Medicore.
Section 1.8 CEO Letter. "CEO Letter" shall mean CEO Letter, LLC, an
affiliate of MainStreet and the owner and operator of the website
"TheCEOLetter.com".
Section 1.9 CEO Letter Agreement. "CEO Letter Agreement" shall have the
meaning set forth in the Preamble to this Agreement.
Section 1.10 Certificate. "Certificate" shall have the meaning set forth in
Section 2.6.3 of this Agreement.
Section 1.11 Certificates of Merger. "Certificates of Merger" shall mean the
Delaware Certificate of Merger and the Florida Articles of Merger.
Section 1.12 Closing. "Closing" shall mean the delivery by DCA and MSI of
the various documents contemplated by this Agreement or otherwise required in
order to consummate the Merger.
Section 1.13 Closing Date. "Closing Date" shall have the meaning set forth
in Section 2.2 of this Agreement.
Section 1.14 Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
Section 1.15 DCA Assets. "DCA Assets" shall have the meaning set forth in
the preamble to the Agreement.
Section 1.16 DCA Common Stock. "DCA Common Stock" shall mean the Common
Stock, $0.01 par value, of DCA.
Section 1.17 DCA Liabilities. "DCA Liabilities" shall have the meaning set
forth in the Preamble to this Agreement.
Section 1.18 DCA Warrants. "DCA Warrants" shall mean those certain
redeemable DCA common stock purchase warrants to purchase up to an aggregate of
2,300,000 shares of DCA Common Stock, exercisable through March 31, 2000, or as
may be extended, at $4.50 per share of DCA Common Stock and trading on the
Nasdaq SmallCap Market under the symbol "DCAIW," as may be amended.
Section 1.19 Delaware Certificate of Merger. "Delaware Certificate of
Merger" shall mean the certificate of merger between DCA and MainStreet required
under section 251 of the DGCL, in the form attached as Exhibit 1.19 hereto.
Section 1.20 DGCL. "DGCL" shall mean the General Corporation Law of the
State of Delaware, as amended.
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Section 1.21 Dissenters. "Dissenters" shall have the meaning set forth in
Section 2.7 hereof.
Section 1.22 Disclosure Statement. "Disclosure Statement" shall have the
meaning set forth in the first paragraph of Article III of this Agreement.
Section 1.23 Effective Time. "Effective Time" shall mean the time when the
Certificate of Merger, is filed with the Secretaries of State of the State of
Florida and Delaware and the Merger becomes effective.
Section 1.24 Exchange Agent. "Exchange Agent" shall have the meaning set
forth in Section 2.6.1 of this Agreement.
Section 1.25 Florida Act. "Florida Act" shall mean the Florida Business
Corporation Act.
Section 1.26 Florida Articles of Merger. "Florida Articles of Merger" shall
mean the articles of merger between DCA and MainStreet required under
Section 607.1109 of the Florida Act, in the form attached as Exhibit 1.26
hereto.
Section 1.27 Holders. "Holders" shall mean holders of DCA Common Stock
immediately prior to the Effective Time.
Section 1.28 MSI Financial Statements. "MSI Financial Statements" shall have
the meaning set forth in Section 4.10 of this Agreement.
Section 1.29 MainStreet. "MainStreet" shall mean MainStreet
Acquisition Inc., a Delaware corporation, a wholly owned subsidiary of MSI.
Section 1.30 Medicore. "Medicore" shall mean Medicore, Inc., a Florida
corporation, the holder of approximately 68% of the issued and outstanding
shares of DCA Common Stock and the holder of 100% of the issued and outstanding
shares of capital stock of Buyer.
Section 1.31 Merger. "Merger" shall mean the merger of MainStreet with and
into DCA in accordance with this Agreement, the Certificates of Merger and
applicable law, and all related transactions contemplated by such documents.
Section 1.32 MSI. "MSI" shall mean MainStreetIPO.com Inc., a Delaware
corporation, formerly MAINSTREETIPO, LLC, and holder of 100% of the capital
stock of MainStreet.
Section 1.33 MSI Common Stock. "MSI Common Stock" shall mean the common
stock, par value $0.001 per share, of MSI.
Section 1.34 Proxy Statement. "Proxy Statement" shall mean the Proxy
Statement to be provided to the stockholders of DCA in connection with the
Merger and to be part of and filed with the Registration Statement.
Section 1.35 Registration Statement. "Registration Statement" shall mean the
registration statement on Form S-4 that MSI shall file in respect of the MSI
Common Stock and securities convertible into MSI Common Stock in conjunction
with the Proxy Statement to be filed by DCA.
Section 1.36 SEC. "SEC" shall mean the United States Securities and Exchange
Commission.
Section 1.37 Subsidiary. "Subsidiary" shall mean, with respect to a
particular party hereto, any corporation or other organization, whether
incorporated or unincorporated, of which at least a majority of the securities
or interests having by the terms thereof ordinary voting power to elect a
majority of the board of directors or others performing similar functions with
respect to such corporation or other organization is directly or indirectly
owned by such party or by one or more Subsidiaries, or by such party and one or
more Subsidiaries.
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Section 1.38 1933 Act. "1933 Act" shall mean the Securities Act of 1933, as
amended, and the rules, regulations and forms thereunder.
Section 1.39 1934 Act. "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
Section 1.40 1995 Options. "1995 Options" shall mean the options to purchase
9,500 shares of DCA Common Stock pursuant to DCA's 1995 Option Plan.
Section 1.41 1999 Options. "1999 Options" shall mean the options to purchase
800,000 shares of DCA Common Stock pursuant to DCA's 1999 Option Plan.
ARTICLE II
MERGER, CLOSING AND CONVERSION OF SHARES
Section 2.1 Merger.
2.1.1 Subject to and in accordance with the terms and conditions of the
Agreement and the Certificates of Merger, on the Closing Date, MainStreet
shall merge with and into DCA and DCA and MainStreet shall execute and
file the Florida Articles of Merger with the Secretary of State of the
State of Florida and DCA and MainStreet shall execute and file the
Delaware Certificate of Merger with the Secretary of State of the State of
Delaware, evidencing DCA as the surviving company.
2.1.2 For purposes of this Agreement and the representations, warranties,
covenants and conditions contained herein, the acquisition of the DCA
Assets and the assumption of the DCA Liabilities by Buyer from DCA
pursuant to the Asset Purchase Agreement, subject to the terms of such
Asset Purchase Agreement, shall be deemed to occur immediately prior to
the Merger of MainStreet with and into DCA.
Section 2.2 Closing. The Closing shall take place at the offices of Lawrence
E. Jaffe, Esq., Attorney at Law, 777 Terrace Avenue, Hasbrouck Heights, New
Jersey, within two days of the later of (a) shareholder approval by DCA's
shareholders and (b) satisfaction or waiver of all conditions set forth in
Articles VI and VII hereof, but in no event later than May 31, 2000, after
satisfaction or waiver of such conditions (the "Closing Date").
Section 2.3 Effects of the Merger. The Merger shall have the effect as set
forth in the applicable sections of the Florida Act.
Section 2.4 Corporate Governance
2.4.1 The certificate of incorporation and by-laws of MainStreet, as in effect
immediately prior to the Effective Time, shall terminate at the Effective
Time and the certificate of incorporation and by-laws of DCA shall be the
certificate of incorporation of the surviving corporation and continue in
full force and effect after the Merger.
2.4.2 The members of the board of directors and the officers of MSI are listed
below:
Mr. Joseph Salvani--Chairman of the Board and Chief Executive Officer and
President
Ms. Joanne Bertolini--Executive Vice President, Secretary, Treasurer and
director
Mr. Ralph DeLuca--Vice President--Sales and Marketing and director
In addition, two Directors shall be elected prior to the date that the Proxy
Statement and Registration Statement are completed.
Section 2.5 Conversion of Shares. At the Effective Time, by virtue of the
Merger (and without any action on the part of MSI, MainStreet, DCA or any
stockholder of DCA): (i) each share of the DCA
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Common Stock then held by DCA or any subsidiary of DCA (or held in DCA's
treasury) shall be canceled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor; (ii) each share of DCA
Common Stock then held by MSI or MainStreet shall be canceled and retired and
shall cease to exist, and no consideration shall be delivered in exchange
therefor; and (iii) each of the 1,395,722 shares of DCA Common Stock then
outstanding shall be converted into the right to receive one (1) share of MSI
Common Stock.
Section 2.6 Exchange of Certificates.
2.6.1 Prior to the Closing Date, MSI shall appoint American Stock Transfer &
Trust Company to act as exchange agent (the "Exchange Agent") in the
Merger.
2.6.2 Promptly after the Closing Date, but in no event later than three Business
Days thereafter, the Exchange Agent shall make available for exchange the
shares of MSI Common Stock.
2.6.3 As soon as practicable after the Closing Date, the Exchange Agent shall
mail to each holder of record of a certificate that, immediately prior to
the Closing Date, represented outstanding DCA Common Stock (each, a
"Certificate") whose shares are being converted into MSI Common Stock,
(i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as MSI may reasonably specify),
and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates evidencing MSI Common Stock.
Upon surrender of a Certificate for cancellation to the Exchange Agent,
together with such letter of transmittal, duly executed, the holder of
such Certificate shall be entitled to receive in exchange therefor
(subject to this Section 2.6) one share of MSI Common Stock for each share
of DCA Common Stock held by the holders of such Certificate which is
represented by the Certificate so surrendered. The Certificate so
surrendered shall forthwith be cancelled. In the event of a transfer of
ownership of DCA Common Stock that is not registered in the transfer
records of DCA or its transfer agent, if applicable, MSI Common Stock may
be delivered to a transferee if the Certificate representing such DCA
Common Stock is presented to the Exchange Agent and accompanied by all
documents required to evidence and effect such transfer and to evidence
that any applicable stock transfer taxes have been paid. Until surrendered
as contemplated by this Section 2.6.3, each Certificate shall be deemed at
any time after the Closing Date to represent the right to receive upon
such surrender such whole number of shares of MSI Common Stock as provided
by Section 2.5 and the DGCL.
2.6.4 No dividends or distributions payable to Holders after the Effective Time,
or cash payable in lieu of fractional shares, shall be paid to the Holder
of any unsurrendered Certificate until the Holder of the Certificate shall
surrender such Certificate.
2.6.5 All MSI Common Stock delivered upon the surrender for exchange of shares
of DCA Common Stock in accordance with the terms hereof shall be deemed to
have been delivered in full satisfaction of all rights pertaining to such
DCA Common Stock. There shall be no further registration of issuances or
transfers on the stock transfer books of DCA or its transfer agent of the
DCA Common Stock that was outstanding immediately prior to the Effective
Time. If, after the Closing Date, Certificates are presented for any
reason, they shall be cancelled and exchanged as provided in this
Section 2.6.
Section 2.7 Dissenters' Shares or Appraisal Units. Holders of dissenters'
shares with respect to DCA shall have those rights, but only those rights, of
dissenters under Section 607.1320 of the Florida Act (such holders of DCA Common
Stock hereinafter shall be referred to as "Dissenters"). Until the Effective
Time, DCA shall give MSI prompt notice of any demand, purported demand or other
communication received by it with respect to any Dissenters or shares or units
claimed to be held by Dissenters. Subject to applicable law, Buyer agrees that
it shall make appropriate payments to the full
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extent of the DCA Assets with respect to, or settle or offer to settle, any
demand or purported demand respecting shares of Dissenters. The Buyer shall be
responsible for and shall assume completely all Dissenters' claims, known or
unknown, in connection with the Merger or any of the actions contemplated by
this Agreement.
Section 2.8 Registration of Securities; Proxy Statement.
2.8.1 In order to effect this Merger, MSI will file the Registration Statement
to register the MSI Common Stock to be issued pursuant to the Merger and
in connection with such Registration Statement, DCA shall file the Proxy
Statement. DCA and MSI jointly agree to use their best efforts to have the
Registration Statement declared effective under the 1933 Act as promptly
as practicable.
2.8.2 The parties agree that the Registration Statement and the Proxy Statement
shall be prepared and filed by Lawrence E. Jaffe, Esq., counsel to DCA,
with the cooperation of Wollmuth Maher & Deutsch LLP, counsel to MSI and
MainStreet. DCA and MSI, in connection with the transactions contemplated
by this Merger, shall also take any action required to be taken under any
applicable state securities or "blue sky" laws in connection with the
issuance of MSI Common Stock.
Section 2.09 Information Statement. MSI shall afford DCA a reasonable
opportunity to review and comment on solicitation materials, if any, including
solicitation of action by written consent, if any, that MainStreet (and MSI)
distributes to the holders of MSI Common Stock in connection with the Merger. To
the greatest extent practicable, information required to be disclosed in both
the Proxy Statement and any such solicitation materials shall be disclosed in an
identical manner.
Section 2.10 Tax Free Reorganization. The parties intend to adopt this
Agreement as a tax free plan of reorganization and to consummate the Merger in
accordance with the provisions of Section 351 or Section 368(a) of the Code.
Section 2.11 DCA Securities Not Affected. The rights of pre-Merger holders
of DCA options and warrants that may currently be converted into DCA Common
Stock will not be affected by the transactions contemplated by the Merger and
shall remain outstanding following the Closing Date. At the Effective Time, such
DCA options and warrants shall, by virtue of the Merger and without any further
action on the part of the DCA option or warrant holders, be assumed by MSI in
accordance with their terms and conditions as in effect at the Effective Time,
including the exercise price and the number of shares of MSI Common Stock
obtainable upon exercise, including all adjustments. MSI shall take all
necessary action to reserve for issuance a sufficient number of shares of MSI
Common Stock for delivery on exercise of such options and warrants. MSI will pay
over to Buyer all amounts received in connection with the exercise of DCA
options (other than DCA Warrants, except as provided in Section 2.12) and will
waive the payment of and cancel any promissory notes outstanding in connection
with the exercise of any such DCA options.
Section 2.12 DCA Warrants. In the event that any DCA Warrants are exercised
in accordance with their terms from the date hereof until their expiration,
whether prior or subsequent to the Closing Date, twenty percent (20%) of the net
proceeds to DCA of each such DCA Warrant exercise (after deducting from the
exercise price the commissions, if any, and related expenses) up to $1,000,000
shall be paid out to Medicore. The remaining eighty percent (80%) of the net
proceeds of the DCA Warrants (and all proceeds related to exercise of the DCA
Warrants in excess of $5,000,000 in the aggregate) shall be retained by DCA or,
following the Merger, MSI and shall not be subject to any payment or transfer to
Medicore or be included in the DCA Assets.
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ARTICLE III
MUTUAL REPRESENTATIONS AND WARRANTIES
Each of DCA, MSI and MainStreet is a "Company" as contemplated by this
Article III. Any disclosure delivered by one Company to the other hereto
pursuant to this Article shall have been delivered on or prior to the date
hereof shall specifically refer to this Agreement and shall identify the Section
of this Agreement requiring the delivery of such disclosure (each such
disclosure being referred to herein as a "Disclosure Statement"). Except as set
forth in the Disclosure Statement of such Company and except for the
transactions contemplated by this Agreement, DCA hereby represents and warrants
to MSI and MainStreet and MSI and MainStreet, jointly and severally, hereby
represent and warrant to DCA, that:
Section 3.1 Organization and Authority. The Company: (i) is a corporation,
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or formation, as the case may be; (ii) has all
necessary power and authority, corporate or otherwise, to own and lease its
properties, to carry on its Business as now being conducted and to enter into
and perform this Agreement and all agreements to which the Company is or will be
a party that are exhibits to this Agreement; and, with respect to DCA, except
such consents as are listed in Section 3.2.2 of the Disclosure Schedule,
(iii) is qualified to do business in all jurisdictions in which the failure to
so qualify would have a material adverse effect on its Business operations,
financial condition or business prospects. The Company has made available to the
other party for inspection complete and correct copies of its Certificate of
Incorporation and Bylaws as in effect on the date hereof and a record of any and
all proceedings and actions at all meetings of, or taken by written consent by,
its Board of Directors and stockholders since January 1, 1998 in the case of DCA
and since the date of its inception in the case of MSI or MainStreet, and in
each case, certified as true, complete and correct copies by the Company's
Secretary.
Section 3.2 Authority Relating to this Agreement; No Violation of Other
Instruments.
3.2.1 The execution and delivery of this Agreement and all agreements to which
the Company is or will be a party that are exhibits to this Agreement and
the performance hereunder and thereunder by the Company have been duly
authorized by all necessary action, corporate or otherwise, on the part of
the Company, other than stockholder or member approval, as the case may
be, as is contemplated by this Agreement, and, assuming execution of this
Agreement and such other agreements by the other party thereto, this
Agreement and such other agreements will constitute legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, subject as to enforcement: (i) to bankruptcy,
insolvency, reorganization, arrangement, moratorium and other laws of
general applicability relating to or affecting creditors' rights; and
(ii) to general principles of equity, whether such enforcement is
considered in a proceeding in equity or at law.
3.2.2 Neither the execution of this Agreement nor any other agreement to which
the Company is or will be a party that is an exhibit to this Agreement nor
the performance of any of them by the Company will: (i) conflict with or
result in any breach or violation of the terms of (a) any decree, judgment
or order of any court or other governmental body of which the Company has
knowledge or (b) any law or regulation now in effect applicable to the
Company; (ii) with respect to MainStreet and MSI only, conflict with, or
result in, with or without the passage of time or the giving of notice, a
material breach of any of the terms, conditions and provisions of, or
constitute a material default under or otherwise give another party the
right to terminate, or result in the creation of any lien, charge, or
encumbrance upon any of the material assets or properties of the Company
pursuant to, any indenture, mortgage, lease, agreement or other instrument
to which the Company is a party or by which it or any of its assets or
properties are bound, including all Contracts (as defined in Section 4.5)
and with respect to DCA, except such contracts as listed in
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Section 3.2.2 of the Disclosure Schedule; (iii) permit the acceleration of
the maturity of any material indebtedness of the Company or of any other
person secured by the assets or properties of the Company; or
(iv) violate or conflict with any provision of the Company's Certificate
of Incorporation, Bylaws or similar organizational instruments.
3.2.3 Except as contemplated and set forth in this Agreement, no consent from
any third party and no consent, approval or authorization of, or
declaration, filing or registration with, any government or regulatory
authority is required to be made or obtained by the Company in order to
permit the execution, delivery or performance of this Agreement or any
other agreement to which the Company is or will be a party that is an
exhibit to this Agreement by the Company, or the consummation of the
transactions contemplated by this Agreement and such other agreements.
Section 3.3 Tax Returns and Payments. Except as set forth in Section 3.3 of
the Disclosure Schedule, (a) all tax returns and reports with respect to the
Company required by law to be filed under the laws of any jurisdiction, domestic
or foreign, have been duly and timely filed and all taxes, fees or other
governmental charges of any nature which were required to have been paid have
been paid or provided for; (b) the Company has no knowledge of any unpaid taxes
or any actual or threatened assessment of deficiency or additional tax or other
governmental charge or a basis for such a claim against the Company; and
(c) the Company has no knowledge of any tax audit of the Company by any taxing
or other authority in connection with any of its fiscal years; the Company has
no knowledge of any such audit currently pending or threatened, and the Company
has no knowledge of any tax liens on any of the properties of the Company.
Section 3.4 Certain Payments. To the knowledge of the Company, neither the
Company, nor any director, officer, manager or member of the Company, has made
or caused to be made, directly or indirectly, the payment of any consideration
whatsoever to any public official, candidate for public office, political party,
or other third person in connection with the Business or operations of the
Company, or pertaining to the Company's relations with any customer, supplier,
or creditor, in contravention of the law of any applicable jurisdiction. The
Company has not made, offered or agreed to offer anything of value to any
government official, political party or candidate for government office nor has
it taken any action which would cause it to be in violation of the Foreign
Corrupt Practices Act of 1977.
Section 3.5 Brokers and Finders. Other than Mike Guiliano who acted as a
finder on behalf of DCA and whose fees shall be the sole responsibility of DCA,
neither the Company nor any stockholder, director, officer, manager, member,
employee or agent of the Company has retained any broker, finder or investment
banker in connection with the transactions contemplated by this Agreement. The
Company will indemnify and hold the other Company harmless against all claims
for brokers', finders' or investment bankers' fees made or asserted by any party
claiming to have been employed by the Company or any stockholder, director,
officer, employee or agent of the Company and all costs and expenses (including
the reasonable fees of counsel) of investigating and defending such claims.
Section 3.6 Absence of Environmental Liabilities. The Company has, and to
the Company's knowledge, all previous owners, lessees and occupants of real
property leased by the Company have complied with all applicable environmental
laws, orders, regulations, rules and ordinances adopted, imposed or promulgated
by any governmental or regulatory entity relating to such real property. The
Company is not in violation of any federal, state or local law, ordinance or
regulation relating to industrial hygiene, worker safety, environmental
hazardous materials or waste (including medical waste) or toxic materials on,
under or about such real property, including soil and waste water conditions. No
current use of the real property leased by the Company constitutes a public or
private nuisance. The environmental licenses, permits, clearances, covenants and
authorizations material to the operation of the Company are in full force and
effect. Any handling, transportation, storage, treatment or use of
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Hazardous Material (as defined below) by the Company or, to the Company's
knowledge, all previous owners, lessees and occupants of real property leased by
the Company, has been in compliance with all laws, regulations and orders
relating to Hazardous Material. As used herein, the term "Hazardous Material"
means any hazardous or toxic substance, material or waste which is or becomes
regulated by any local government authority, the State of California, any other
state or the United States Government.
Section 3.7 Accuracy of Documents and Information. The copies of all
instruments, agreements, other documents and written information set forth as,
or referenced in, schedules or exhibits to this Agreement or specifically
required to be furnished pursuant to this Agreement by the Company to the other
Company, including, without limitation, the Disclosure Statement of the Company,
are and will be complete and correct in all material respects. All information
in the Disclosure Statement of the Company is as of the date hereof or such
earlier date as is specified therein, which in no case is before July 31, 1999
and there have been no material changes in the information set forth therein
between the date so specified and the date of this Agreement. No representations
or warranties made by the Company in this Agreement, nor any document, written
information, statement, financial statement, certificate, schedule or exhibit
furnished directly to the other party hereto pursuant to this Agreement or in
the Disclosure Statement of the Company contains any untrue statement of a
material fact. There is no fact which materially and adversely affects the
Company, its financial position, assets, liabilities, Business, results of
operations or Business prospects known to the Company which has not been
expressly and fully set forth in the Proxy Statement and the Registration
Statement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MSI AND MAINSTREET
MSI and MainStreet hereby, jointly and severally, represent and warrant to
DCA that, except as set forth in the Disclosure Statement of MSI and MainStreet:
Section 4.1 Compliance with Law. Each of MSI and MainStreet holds, and has
at all times since its inception held, all material licenses, permits and
authorizations necessary for the lawful conduct of the Business of MSI and
MainStreet wherever conducted, and to own and operate its assets, all of which
are listed in Section 4.1 of the Disclosure Statement, pursuant to all
applicable statutes, laws, ordinances, rules and regulations of all governmental
bodies, agencies and subdivisions having, asserting or claiming jurisdiction
over MSI or MainStreet or over any part of MSI's or MainStreet's Business and
operations, and neither MSI nor MainStreet knows of any violation thereof.
Neither MSI nor MainStreet is in violation of any decree, judgment, or order
known to it, or any law or regulation of any court or other governmental body
(including without limitation, applicable environmental protection legislation
and regulations, equal employment and civil rights regulations, wages, hours and
the payment of social security taxes and occupational health and safety
legislation, federal, state, quasi-governmental and self-regulatory
organizations, including the SEC and NASD), which violation could have a
material adverse effect on the condition, financial or otherwise, assets,
liabilities, Business or operations of MSI or MainStreet.
Section 4.2 Investments in Others. Section 4.2 of the Disclosure Statement
of MSI and MainStreet contains a list of each corporation, association,
partnership, joint venture, limited liability company or other entity in which
MSI or MainStreet, directly or indirectly, owns an equity interest and sets
forth the relevant company's percentage interest by voting rights and by
profits, in each such entity. Except for the entities identified in such list,
neither MSI nor MainStreet conducts any part of its Business operations through
any subsidiaries or through any other entity in which MSI or MainStreet has an
equity investment.
Section 4.3 Real Property. Neither MSI nor MainStreet owns any real
property. Section 4.3 of the Disclosure Statement of MSI and MainStreet contains
a list of all leases for real property to which MSI
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is a party, the square footage leased with respect to each lease and the
expiration date of each lease. All such leases are valid and enforceable by MSI
and MainStreet and neither MSI, MainStreet, nor to MSI's or MainStreet's
knowledge any other party, is in material default under any such lease. The real
property leased or occupied by MSI and MainStreet, the improvements located
thereon, and the furniture, fixtures and equipment relating thereto (including
plumbing, heating, air conditioning and electrical systems), conform to any and
all applicable health, fire, safety, zoning, land use and building laws,
ordinances and regulations. There are no outstanding contracts made by MSI or
MainStreet for any improvements made to the real property owned, leased or
occupied by MSI or MainStreet that have not been paid for. No party has notified
MSI or MainStreet of its intention to cease to perform services required under
any lease. True, correct and complete copies of all leases, if any, of the real
property have been delivered to DCA.
Section 4.4 Patents, Trademarks, Trade Names and Copyrights. (a) All
patents, trademarks, trade names, copyrights, processes, designs, formulas,
inventions, trade secrets, know-how, technology or other proprietary rights
("Intellectual Property Rights") which are used by MSI or MainStreet and
material to MSI's or MainStreet's Business and operations, or proposed to be
used by MSI or MainStreet and that would be material to MSI's or MainStreet's
Business and operations, are owned or are licensed by MSI or MainStreet. The
conduct of any Business conducted by MSI or MainStreet does not, to MSI's or
MainStreet's knowledge, infringe any Intellectual Property Rights or other
proprietary right of any other person. No litigation is pending or, to the
knowledge of MSI or MainStreet, has been threatened against MSI, MainStreet or
any officer, director, manager or employee of either company, or to MSI's or
MainStreet's knowledge, any stockholder, member or agent of MSI or MainStreet,
for the infringement of any Intellectual Property Rights of any other party or
for the misuse or misappropriation of any Intellectual Property Rights or other
proprietary right owned by any other party nor, to the best knowledge of MSI and
MainStreet, does any basis exist for such litigation. To the best of MSI's and
MainStreet's knowledge, there has been no infringement or unauthorized use by
any other party of any Intellectual Property Rights or other proprietary right
belonging to MSI or MainStreet. Each license set forth in Section 4.4 of the
Disclosure Statement is valid and enforceable in accordance with its terms and
is not the subject of any notice of termination or nonrenewal. MSI and
MainStreet have taken reasonable and practicable steps designed to safeguard and
maintain the secrecy and confidentiality of, and their proprietary rights in,
any Intellectual Property Rights. Neither MSI nor MainStreet has granted any
licenses or rights to any other person with respect to any such Intellectual
Property Rights.
(b) Section 4.4(b) of the Disclosure Statement of MSI and MainStreet sets
forth a list of all Intellectual Property Rights owned or licensed by MSI or
MainStreet.
Section 4.5 Contracts. Section 4.5 of the Disclosure Statement lists all
oral or written agreements, notes, instruments, or contracts to which MSI or
MainStreet is a party or by which its assets or properties may be bound which
are material to the conduct of MSI's or MainStreet's Business or proposed
Business, or which involve Intellectual Property Rights, or which are employment
or consulting agreements other than those terminable at will (the "Contracts").
Neither MSI nor MainStreet is in breach or default in performance of its
obligations under any such Contracts. Neither MSI nor MainStreet has any
knowledge of any violation of any Contract by any other party thereto and has no
knowledge of any intent by any other party to a Contract not to perform its
obligations under such Contract. MSI and MainStreet will furnish or make
available accurate and complete copies of the Contracts. Except as set forth in
Section 4.5 of the Disclosure Statement, neither MSI nor MainStreet is a party
to any legally binding contract to sell or purchase goods or services which is
not terminable on less than six months' notice; any agreement containing
covenants by it not to compete or restricting the customers from whom or the
area in which it may solicit or conduct its Business; any contract or
arrangement or commitment for the acquisition of any other business or asset not
made in the ordinary
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course of business; or any contracts, arrangements or commitments for capital
expenditures in excess of $50,000.
Section 4.6 Stockholders, Members and Employees. Except as set forth in
Section 4.6 of the Disclosure Statement, none of the directors, officers or
shareholders of MSI or MainStreet is presently a party to any transaction with
MSI or MainStreet, including without limitation, any contract, agreement or
other arrangement: (i) providing for the furnishing of services to or by;
(ii) providing for rental of real or personal property to or from; or
(iii) otherwise requiring payments to or from, any member, stockholder, director
or management personnel, or any member of the family of any stockholder, member,
director or management personnel or any corporation, trust or other entity in
which any stockholder, member, director or management personnel has a
substantial interest or is an officer, director, investor or partner.
Section 4.7 Power of Attorney; Suretyships. Neither MSI nor MainStreet has
any power of attorney outstanding, nor has any obligation or liability, either
actual, accrued, accruing or contingent, as guarantor, surety, cosigner,
endorser, co-maker, indemnitor or otherwise in respect of the obligation of any
other person, corporation, partnership, joint venture, association, organization
or other entity.
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Section 4.8 CAPITALIZATION OF MSI AND MAINSTREET. The authorized equity of
MSI consists of 20,000,000 shares of MSI Common Stock, of which no more than
8,300,000 shares of MSI Common Stock will have been issued and outstanding as of
the Closing. All such issued and outstanding MSI Common Stock have been duly
authorized and validly issued, and are fully paid and non-assessable. There are
no outstanding warrants, options, agreements, convertible or exchangeable
securities or other commitments pursuant to which MSI is or may become obligated
to issue, sell, purchase, retire or redeem any equity interests of MSI or other
securities. There are no preemptive rights related to the MSI Common Stock. The
authorized equity of MainStreet consists of 100 shares of common stock, 100% of
which are outstanding and held by MSI. Section 4.8 of the Disclosure Schedule
contains a list of the shareholders of MSI.
Section 4.9 PERSONAL PROPERTY. Except as set forth in Section 4.9 of the
Disclosure Statement (which shall include all leased property of MSI and
MainStreet), each of MSI and MainStreet has good title, free and clear of all
title defects, objections and liens, including without limitation, leases,
chattel mortgages, conditional sales contracts, collateral security arrangements
and other title or interest-retaining arrangements, to all of its machinery,
equipment, furniture, inventory and other personal property, including all
"MainStreet Software," which shall include all of MSI's and MainStreet's
software and computer programs used in their Business, including software or
computer programs not wholly-owned by MSI or MainStreet ("Third Party Software")
embedded therein, in machine readable source code forms and in machine
executable object code forms and all related specifications (including, without
limitation, all logic architectures, algorithms and logic flows and all
physical, functional, operating and design parameters), operating systems and
procedures (including development methodology), designs, design revisions,
related applications software in any language, concepts, ideas, processes,
techniques, software design and test tools, third party software interfaces,
methods of implementation and packaging, all associated know-how and show-how
and all related programmer and user manuals, which are used and to be used by
MSI or MainStreet to install, operate, maintain, correct, test, repair, enhance,
extend, modify, prepare derivative works based upon, design, develop, reproduce
and package such Third Party Software and computer programs. All such personal
property is in good operating condition and fit for the purpose for which it has
been designed. All of the leases to personal property utilized in the Business
of MSI or MainStreet are valid and enforceable by MSI or MainStreet and neither
MSI, MainStreet nor, to MSI's or MainStreet's knowledge any other party, is in
material default under any such lease. Except as set forth in Section 4.9 of the
Disclosure Schedule, there are no restrictions on the use or transfer of any of
these assets, MainStreet and MSI Software or Third Party Software.
Section 4.10 FINANCIAL STATEMENTS. Prior to the completion of the
Proxy/Registration Statement, MSI shall prepare consolidated financial
statements as of September 30, 1999 and for the year then ended, certified by
Holtz Rubenstein & Co., MSI's independent public accountants (the "Financial
Statements"). Such Financial Statements, including the notes thereto, (i) shall
be true, complete and correct, (ii) shall have been prepared in conformity with
generally accepted accounting principles consistently maintained and applied
throughout the periods indicated, (iii) shall present fairly and accurately the
financial position of MSI at the date of the balance sheet included in the
Financial Statements, and the results of operations of MSI, and (iv) shall be in
accordance with the books and records of MSI.
Section 4.11 ABSENCE OF UNDISCLOSED LIABILITIES. As of September 30, 1999,
neither MSI nor MainStreet had any indebtedness, liability or obligation
(absolute, contingent, accrued, liquidated, unliquidated or otherwise) which
will not be shown or provided for in full on the Financial Statements.
Section 4.12 EMPLOYEES. Section 4.12 of the Disclosure Statement of MSI and
MainStreet contains a list of the names, current salary rates, bonuses and all
other remuneration and perquisites paid or accrued since inception, and accrued
vacation and sick leave for all the employees of MSI as of September 30, 1999.
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Section 4.13 INSURANCE. Section 4.13 of the Disclosure Statement of MSI and
MainStreet contains a list of all insurance policies and bonds in force with
respect to MSI or MainStreet showing for each such policy or bond: (i) the
owner; (ii) the coverage of such policy or bond; (iii) the amount of premium
properly allocable to such policy or bond; (iv) the name of the insurer; and
(v) the termination date of the policy or bond. Copies of all such insurance
policies and bonds have been furnished to DCA. All such insurance policies bonds
listed on the Disclosure Statement, unless otherwise noted, are in full force
and effect.
Section 4.14 BANK ACCOUNTS. Section 4.14 of the Disclosure Statement of MSI
and MainStreet contains a list of all bank accounts of MSI or MainStreet,
identifying the name of the bank, the account number, and the authorized
signatories to the account.
Section 4.15 LITIGATION. Neither MSI, MainStreet nor any officer, director
or manager of MSI or MainStreet is a party to any pending or, to MSI's
knowledge, threatened action, suit, proceeding or investigation, at law or in
equity or otherwise in, for or by any court or other governmental body which
could have a material adverse effect on: (i) the financial condition, results of
operations or Business or Business prospects of MSI or MainStreet; or (ii) the
transactions contemplated by this Agreement. Neither MSI nor MainStreet is or
has been subject to any pending or, to its knowledge, threatened product
liability or service provider claim; nor, to its knowledge, does any basis exist
for any such claim. Neither MSI nor MainStreet is subject to any decree,
judgment, or order, of any court or other governmental body of which it has
knowledge which is reasonably likely to have a material adverse effect on the
financial condition of the Business or operations of MSI or MainStreet or which
could prevent the transactions contemplated by this Agreement.
Section 4.16 HEALTH AND SAFETY. MSI and MainStreet and their respective
Businesses and proposed Businesses are in compliance with all federal, state,
local and foreign health and occupational safety laws and all federal, state,
local and foreign laws related to employment and employment practices,
compensation and benefits, which are applicable to the conduct of each such
Business and proposed Business.
Section 4.17 LICENSES FOR THIRD PARTY SOFTWARE. Set forth in Section 4.17
of the Disclosure Statement is a description of each license costing greater
than $2,000 under which MSI or MainStreet is the licensee of any Third Party
Software along with a description of such Third Party Software. MSI and
MainStreet have delivered to DCA a true, correct and complete copy of each
license agreement identified in Section 4.17 of the Disclosure Statement. The
software or computer programs described in said licenses are presently used by
MSI or MainStreet as licensee under the terms of said licenses. All royalties
due under said licenses have been paid and there exists no default under the
terms of said licenses and no event has occurred which, upon the passage of time
or the giving of notice, or both, would result in any event of default or
prevent MSI or MainStreet from exercising and obtaining the benefits of any
options contained therein. MSI or MainStreet has all rights, title and interest
of the licensee under the terms of said licensees, free of all liens, claims or
encumbrances, all such licenses are valid and in full force and effect and MSI
and MainStreet are in compliance with the applicable terms thereof. There will
be no default or basis for acceleration under any of said licenses as a result
of the transactions contemplated by this Agreement. Neither MSI nor MainStreet
has received any notice of infringement, violation or conflict with any
Intellectual Property Rights of third parties with respect to its use of any
Third Party Software.
Section 4.18 CONDUCT OF THE BUSINESS. MSI and MainStreet Software and
Intellectual Property Rights comprise all of the software, computer programs and
Intellectual Property Rights necessary for them to conduct their Business and
proposed Business.
Section 4.19 MAINSTREET NO BUSINESS OR ASSETS. MainStreet was formed for
purposes of this Merger and has no direct operations, Business, assets or
liabilities prior to the Merger contemplated by this Agreement.
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Section 4.20 REGISTRATION ON FORM S-4. Proxy Statement. None of the
information relating to MSI or MainStreet, or their respective officers and
directors included or incorporated by reference in the Registration Statement or
any amendments or supplements thereto, at the time of the mailing of the
Registration Statement and any amendments or supplements thereto, at the time of
the meeting of stockholders of DCA to vote upon this Agreement, the Merger and
the Asset Purchase Agreement and related transactions, and at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. The Registration Statement will comply as to form in all material
respects with the provisions of the 1933 Act and 1934 Act and the rules and
regulations thereunder. If at any time prior to the Effective Time any event
with respect to MSI, MainStreet, or their respective officers or directors
should occur which is or is required to be described in an amendment or a
supplement to the Registration Statement, MSI and MainStreet shall so amend or
supplement the Registration Statement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF DCA
DCA hereby represents and warrants to MSI and MainStreet that, except as set
forth in the Disclosure Statement of DCA:
Section 5.1 CAPITALIZATION. As of the date hereof, the authorized capital
stock of DCA is 20,000,000 shares of DCA Common Stock, of which 3,546,344 shares
are issued and outstanding.
All such issued and outstanding shares have been duly authorized and validly
issued, and are fully paid and non-assessable. As of the date hereof, DCA has
options and warrants outstanding to purchase an additional 3,409,500 shares of
DCA Common Stock. DCA's options and warrants may be exercised at any time in
accordance with their terms into such DCA Common Stock or MSI Common Stock, as
the case may be, whether prior or subsequent to the Closing hereof, and any
proceeds from the DCA Warrants shall be distributed as per Section 2.12 hereof.
A list of all options and warrants outstanding as of the date hereof, the
exercise prices and maturity dates under each such option and warrant, is set
forth in Section 5.1 of the Disclosure Statement of DCA. Except as set forth in
this Section 5.1 of the Agreement, there are no outstanding warrants, options,
agreements, convertible or exchangeable securities or other commitments pursuant
to which DCA is or may become obligated to issue, sell, purchase, retire or
redeem any shares of capital stock or other securities.
Section 5.2 1934 ACT FILINGS. All reports, schedules and statements
(including all exhibits and schedules thereto and all documents incorporated by
reference therein) required to be filed by DCA within the year prior to the date
of this Agreement under the 1934 Act, copies of which have been furnished to
MainStreet, have been duly filed, were in material compliance with the
requirements of their respective forms, and were complete and correct in all
material respects as of the dates at which the information was furnished. As of
the date of filing, no such report contained any untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. As of the date hereof, DCA is not aware of any inquiry by
the SEC with respect to any of the filings that DCA has made pursuant to the
1934 Act.
Section 5.3 PROXY STATEMENT. None of the information relating to DCA or its
respective officers and directors included or incorporated by reference in the
Proxy Statement or any amendments or supplements thereto, at the time of the
mailing of the Proxy Statement and any amendments or supplements thereto, at the
time of the meeting of stockholders of DCA to vote upon this Agreement, the
Merger, the Asset Purchase Agreement and related transactions, and at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they
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are made, not misleading. The Proxy Statement will comply as to form in all
material respects with the provisions of the 1934 Act and the rules and
regulations thereunder. If at any time prior to the Effective Time any event
with respect to DCA, its officers or directors should occur which is or is
required to be described in an amendment or a supplement to the Proxy Statement,
DCA shall so amend or supplement to Proxy Statement.
Section 5.4 LITIGATION. Neither DCA nor any officer or director of DCA is a
party to any pending or, to DCA's knowledge, threatened action, suit, proceeding
or investigation, at law or in equity or otherwise in, for or by any court or
other governmental body which could have a material adverse effect on the
transactions contemplated by this Agreement. DCA is not and has not been subject
to any pending or, to its knowledge, threatened product liability claim; nor, to
its knowledge, does any basis exist for any such claim. DCA is not subject to
any decree, judgment, or order, of any court or other governmental body of which
it has knowledge which could prevent the transactions contemplated by this
Agreement.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF DCA
The obligations of DCA to consummate the Merger is subject to the
fulfillment, at or before the Closing of all the following conditions, any one
or more of which may be waived in writing by DCA; provided, however, that unless
explicitly set forth in such waiver no such waiver of a condition shall
constitute a waiver by DCA of any of its other rights or remedies, at law or in
equity, if MSI or MainStreet shall be in default of any of its representations,
warranties or covenants under this Agreement.:
Section 6.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The
representations and warranties of MSI and MainStreet contained in this Agreement
shall be deemed to have been made again at and as of the Closing (including the
update of the Disclosure Statement of MSI and MainStreet referred to in
Section 8.1 of this Agreement) and shall be true in all material respects.
Section 6.2 COVENANTS PERFORMED. All of the obligations of MSI and
MainStreet to be performed at or before the Closing pursuant to the terms of
this Agreement shall have been duly performed in all material respects.
Section 6.3 CERTIFICATE. At the Closing, DCA shall have received a
certificate signed by the Chief Executive Officer or President of each of MSI
and MainStreet to the effect that the conditions set forth in Sections 6.1, 6.2,
6.4 and 6.6 have been satisfied.
Section 6.4 STOCKHOLDER APPROVAL. This Agreement and the Asset Purchase
Agreement shall have been duly approved by the members of MSI and MainStreet and
stockholders of DCA, in accordance with the Certificate of Incorporation and
By-laws of MainStreet and the Articles of Incorporation and By-laws of MSI and
DCA, and in accordance with the laws of Delaware and Florida, as applicable.
Section 6.5 CERTIFICATES OF MERGER. The Florida Articles of Merger shall
have been filed with the Secretary of State of the State of Florida and the
Delaware Certificate of Merger shall have been filed with the Secretary of State
of the State of Delaware.
Section 6.6 MATERIAL CHANGE IN THE BUSINESS OF MSI. There not shall have
occurred or been threatened any material adverse change in the Business of MSI
or MainStreet, nor shall MSI or MainStreet have become aware of any such fact.
Section 6.7 CONSENTS. DCA shall have received in writing all consents,
approvals, and waivers required in connection with the Merger (a) from parties
to MSI's and MainStreet's agreements, indentures, mortgages, franchises,
licenses, permits, leases, and other instruments set forth in Section 4.5 of the
Disclosure Statement of MSI and MainStreet, and (b) from all governmental
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authorities, except to the extent that the failure to receive any such consent
would not reasonably be expected to have a material adverse effect on the
Business of the corporation surviving the Merger.
Section 6.8 GOVERNMENT ORDER; INJUNCTION. No court, domestic or foreign,
shall have entered an injunction or other similar order enjoining consummation
of the transactions provided for herein, and no action or proceeding shall have
been threatened or instituted and remain pending before a court or other
governmental body by any governmental agency or public authority to restrain or
prohibit the transactions contemplated by this Agreement, nor shall any
governmental agency have notified any party to this Agreement that consummation
of the transactions contemplated herein would constitute a violation of the laws
of the United States and that it intends to commence proceedings to restrain the
consummation of the transactions contemplated hereby unless such agency shall
have withdrawn such notice prior to the Effective Time.
Section 6.9 DOCUMENTATION. All actions, proceedings, instruments,
resolutions, certificates, and documents reasonably requested by DCA to be
executed and delivered to DCA in order to carry out this Agreement and to
consummate the Merger and all relevant legal matters and the form and terms of
the CEO Letter Agreement shall be reasonably satisfactory to DCA and its
counsel.
Section 6.10 LEGAL OPINION OF MSI COUNSEL. DCA shall receive an opinion
dated the Closing Date of Wollmuth Maher & Deutsch LLP, counsel to MSI and
MainStreet, in substantially the form attached hereto as Exhibit 6.10.
Section 6.11 ASSETS OF DCA. Immediately prior to the Merger and
transactions contemplated hereby and the closing of Asset Purchase Agreement and
the transactions contemplated thereby, the net value of the assets of DCA, based
upon an independent evaluation to be performed at the expense of DCA, shall not
exceed $8,000,000.
Section 6.12 NO ACTION TO PREVENT COMPLETION. DCA shall not have
determined, in the reasonable exercise of its discretion, that the transactions
contemplated by this Agreement have become inadvisable or impractical by reason
of the institution of litigation or other proceedings with respect to or
affecting the transactions contemplated by this Agreement.
Section 6.13 TAX-FREE TRANSACTION. DCA shall have received the opinion of
its counsel to the effect that the Merger will constitute a tax-free transaction
as described in Section 351 or Section 368(a) of the Code. In preparing the tax
opinion, counsel may rely upon reasonable representations relating thereto.
Section 6.14 PROXY STATEMENT AND REGISTRATION STATEMENT. The Proxy
Statement and the Registration Statement shall as of the Closing not be subject
to any proceeding commenced or threatened by the SEC; the Registration Statement
shall have been declared effective and there shall not have been any stop order
issued with respect to the Registration Statement.
Section 6.15 NASDAQ APPROVAL. MSI shall satisfy the applicable listing
requirements for the Nasdaq SmallCap Market and shall file its Nasdaq SmallCap
Listing Application and all related documents and pay all necessary entry and
other Nasdaq listing fees and MSI shall be approved by Nasdaq for listing its
common stock on the Nasdaq SmallCap Market upon completion of the Merger. There
shall be no proceedings pending or threatened by Nasdaq that are reasonably
likely to result in the delisting of the common stock of DCA or MSI from the
Nasdaq SmallCap Market.
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ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF MSI AND MAINSTREET
The obligations of MSI and MainStreet to consummate the Merger are subject
to the fulfillment, at or before the Closing, of all of the following
conditions, any one or more of which may be waived by MSI and MainStreet:
Section 7.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The
representations and warranties of DCA contained in this Agreement shall be
deemed to have been made again at and as of the Closing (including the update of
the Disclosure Statement of DCA referred to in Section 8.1 of this Agreement)
and shall be true in all material respects.
Section 7.2 COVENANTS PERFORMED. All of the obligations of DCA to be
performed at or before the Closing pursuant to the terms of this Agreement shall
have been duly performed in all material respects.
Section 7.3 CERTIFICATE. At the Closing, MSI and MainStreet shall have
received a certificate signed by the Chief Executive Officer or President of DCA
to the effect that the conditions set forth in Sections 7.1, 7.2 and 7.4 have
been satisfied.
Section 7.4 STOCKHOLDER APPROVAL. This Agreement and the Asset Purchase
Agreement shall have been duly approved in accordance with the Articles of
Incorporation and By-laws of DCA and the Certificate of Incorporation and
By-laws of MSI and MainStreet, and in accordance with the laws of Florida and
Delaware, as applicable.
Section 7.5 TAX-FREE TRANSACTION. MSI shall have received the opinion of
its counsel to the effect that the Merger will constitute a tax-free transaction
as described in Section 351 or Section 368(a) of the Code. In preparing the tax
opinion, counsel may rely upon reasonable representations relating thereto.
Section 7.6 NASDAQ APPROVAL. MSI shall satisfy the applicable listing
requirements for the Nasdaq SmallCap Market and shall file its Nasdaq SmallCap
Listing Application and all related documents and pay all necessary entry and
other Nasdaq listing fees and MSI shall be approved by Nasdaq for listing its
common stock on the Nasdaq SmallCap Market upon completion of the Merger. There
shall be no proceedings pending or threatened by Nasdaq that are reasonably
likely to result in the delisting of the common stock of DCA or MSI from the
Nasdaq SmallCap Market.
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Section 7.7 PROXY STATEMENT AND REGISTRATION STATEMENT. The Proxy
Statement and the Registration Statement shall as of the Closing not be subject
to any proceeding commenced or threatened by the SEC; the Registration Statement
shall have been declared effective and there shall not have been any stop order
issued with respect to the Registration Statement or any other registration
statement of DCA.
Section 7.8 CERTIFICATES OF MERGER. The Florida Articles of Merger shall
have been filed with the Secretary of State of the State of Florida and the
Delaware Certificate of Merger shall have been filed with the Secretary of State
of the State of Delaware.
Section 7.9 NO ACTION TO PREVENT COMPLETION. MSI and MainStreet shall not
have determined, in the reasonable exercise of their discretion, that the
transactions contemplated by this Agreement have become inadvisable or
impractical by reason of the institution of litigation or other proceedings with
respect to or affecting the transactions contemplated by this Agreement.
Section 7.10 CONSENTS. MSI and MainStreet shall have received in writing
all consents, approvals, and waivers required in connection with the Merger from
all governmental authorities, except to the extent that the failure to receive
any such consent would not reasonably be expected to have a material adverse
effect on the Business of the corporation surviving the Merger.
Section 7.11 GOVERNMENT ORDER; INJUNCTION. No court, domestic or foreign,
shall have entered an injunction or other similar order enjoining consummation
of the transactions provided for herein, and no action or proceeding shall have
been threatened or instituted and remain pending before a court or other
governmental body by any governmental agency or public authority to restrain or
prohibit the transactions contemplated by this Agreement, nor shall any
governmental agency have notified any party to this Agreement that consummation
of the transactions contemplated herein would constitute a violation of the laws
of the United States and that it intends to commence proceedings to restrain the
consummation of the transactions contemplated hereby unless such agency shall
have withdrawn such notice prior to the Effective Time.
Section 7.12 DOCUMENTATION. All actions, proceedings, instruments,
resolutions, certificates, and documents reasonably requested by MSI and
MainStreet to be executed and delivered to MSI and MainStreet in order to carry
out this Agreement and to consummate the Merger, and all of the relevant legal
matters, and the form and terms of the Asset Purchase Agreement between DCA and
Medicore shall be reasonably satisfactory to MSI and MainStreet and its counsel.
Section 7.13 LEGAL OPINION OF DCA COUNSEL. MSI and MainStreet shall
receive an opinion dated the Closing Date of Lawrence E. Jaffe, Esq., counsel to
DCA, in substantially the form attached hereto as Exhibit 7.13.
Section 7.14 DCA ASSETS. DCA shall have provided MSI with the current tax
basis of the DCA Assets, reviewed by DCA's independent accountants.
ARTICLE VIII
PRE-CLOSING COVENANTS
During the period from the date of this Agreement until the Effective Time,
DCA, MSI and MainStreet (each sometimes referred to as a "Company" for the
purposes of this Article VIII) each covenants and agrees as follows:
Section 8.1 ADVICE OF CHANGES. Each Company will promptly advise the other
Company or Companies, as the case may be, in writing (i) of any event occurring
subsequent to the date of this Agreement that would render any representation or
warranty of such Company contained in this Agreement, if made on or as of the
date of such event or the Closing Date, untrue or inaccurate in any material
respect and (ii), with respect to MSI and MainStreet only, of any material
adverse change in
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such Company's financial position, results of operations, assets, liabilities or
Business, or Business prospects. Not less than four days before the Closing,
each Company shall deliver to the other Company hereto an update of the
Disclosure Statement previously delivered by such Company, showing any changes
which have occurred with respect to the information contained therein since it
was originally issued and containing a description of any representation or
warranty in this Agreement which is no longer true as of such date.
Section 8.2 MAINTENANCE OF BUSINESS. Each Company will use its reasonable
best efforts to carry on and preserve its Business and its relationships with
customers, suppliers, employees and others in substantially the same manner as
it has prior to the date hereof. If either Company becomes aware of a
deterioration in the relationship with any customer, supplier or key employee,
it will promptly bring such information to the attention of the other Company in
writing.
Section 8.3 CONDUCT OF BUSINESS. MSI will continue to conduct its Business
and use reasonable efforts to maintain its business relationships in the
ordinary and usual course and, except as provided in this Agreement, will not,
without the prior written consent of DCA:
8.3.1 borrow any money in excess of $200,000 per borrowing;
8.3.2 incur any liability except for those that may be incurred (i) in
the ordinary course of its Business, consistent with past practice, and are
not material in amount or (ii) in connection with the performance or
consummation of this Agreement;
8.3.3 incur any capital expenditures in excess of $50,000, except for
such capital expenditures necessary for the construction of the
MainStreetIPO.com (MSI) website and related software development costs;
8.3.4 encumber or permit to be encumbered any of its assets except in
the ordinary course of its Business consistent with past practice;
8.3.5 sell, lease or dispose of or make any contract for sale, lease or
disposition of any of its assets, except inventory in the ordinary course of
its Business, consistent with past practice;
8.3.6 enter into any material lease of more than six months or contract
for the purchase or sale of any property, real or personal, except in the
ordinary course of its Business, consistent with past practice;
8.3.7 fail to maintain its equipment and other assets in good working
condition and repair according to the standards it has maintained such
equipment and other assets to the date of this Agreement, subject only to
ordinary wear and tear;
8.3.8 pay any bonus, increased salary, or special remuneration to any
officer, employee (other than those paid in the ordinary course of its
Business, consistent with past practice) or consultant or enter into any new
employment or consulting agreement with any such person, except in the
ordinary course of its Business, consistent with past practice;
8.3.9 change accounting methods, except as required by any regulatory
authority or the Financial Accounting Standards Board;
8.3.10 declare, set aside or pay any cash or stock dividend or other
distribution in respect of capital stock or units, or redeem or otherwise
acquire any of its capital stock or units (except pursuant to employee stock
repurchase agreements upon termination of an employee consistent with its
past practice);
8.3.11 amend or terminate any contract, agreement or license to which
it is a party except those amended or terminated in the ordinary course of
its Business consistent with past practice, and which are not material in
amount;
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8.3.12 loan any amount to any person or entity, other than advances for
travel and expenses which are incurred in the ordinary course of its
Business consistent with past practice, not material in amount and
documented by receipts for the claimed amounts;
8.3.13 guarantee or act as a surety for any obligation except for the
endorsement of checks and other negotiable instruments in the ordinary
course of its Business, consistent with past practice, which are not
material in amount;
8.3.14 waive or release any material right or claim except in the
ordinary course of its Business, consistent with past practice;
8.3.15 settle or commence any litigation;
8.3.16 issue or sell any shares of its capital stock of any class
(except upon the exercise of an option currently outstanding, as disclosed
in Section 4.8, or granted in accordance with this Section), or any other of
its securities, or issue or create any warrants, obligations, subscriptions,
options, convertible securities, or other commitments to issue shares of
capital stock; provided, however, that DCA's consent shall not be withheld
unreasonably if options are being granted for the purpose of recruiting new
personnel in accordance with the past practices regarding the pricing, the
total number of options granted, the options awarded in relation to the job
title of the recipient and the timing of the option awards;
8.3.17 accelerate the vesting of any outstanding options;
8.3.18 split or combine the outstanding shares of its capital stock of
any class or enter into any recapitalization affecting the number of
outstanding shares of its capital stock of any class or affecting any other
of its securities;
8.3.19 merge, consolidate or reorganize with, or acquire any entity,
except for the Merger;
8.3.20 amend its Certificate of Incorporation or By-laws, except as
expressly contemplated by this Agreement;
8.3.21 license any of its technology, Intellectual Property Rights or
Third Party Software except in the ordinary course of its Business; or
8.3.22 agree to do any of the things described in the preceding clauses
8.3.1 through 8.3.21.
Section 8.4 MEETINGS OF STOCKHOLDERS OR MEMBERS. Each Company will submit
this Agreement and related matters for approval of their stockholders or
members, as the case may be. The parties hereto agree that it is not a condition
to this Agreement that the Board of Directors of DCA recommends this Merger to
its shareholders.
Section 8.5 PROXY STATEMENT. DCA will provide to its stockholders, for the
purpose of considering and voting upon the Merger, the Proxy Statement which
shall be filed with the SEC as part of the Registration Statement. MSI and
MainStreet shall promptly provide to DCA information in accordance with this
Agreement. Neither Company shall provide to its stockholders or publish any
material that violates the 1933 Act or 1934 Act with respect to the transactions
contemplated hereby.
Section 8.6 REGULATORY APPROVALS. Prior to the Closing, each Company shall
execute and file, or join in the execution and filing, of any application or
other document that may be necessary in order to obtain the authorization,
approval or consent of any governmental body, federal, state, local or foreign
which may be reasonably required, or which the other Company may reasonably
request, in connection with the consummation of the transactions contemplated by
this Agreement. Each Company shall use reasonable efforts to obtain all such
authorizations, approvals and consents.
Section 8.7 NECESSARY CONSENTS. Prior to the Closing, each Company will
use reasonable efforts to obtain such written consents and take such other
actions as may be necessary or appropriate in
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addition to those set forth in Section 8.6 to allow the consummation of the
transactions contemplated hereby and to allow such Company to carry on its
Business after the Closing.
Section 8.8 LITIGATION. Prior to the Closing, each Company will notify the
other Company in writing promptly after learning of any material actions, suits,
proceedings or investigations by or before any court, board or governmental
agency, initiated by or against it or any of its Subsidiaries, or known by it to
be threatened against it or any of its Subsidiaries.
Section 8.9 EXCLUSIVITY. From the date hereof until the earlier of
termination of this Agreement or consummation of the Merger, none of the
Companies or any of their officers, directors, employees, representatives
(including any investment banker, attorney or accountant retained by them),
agents or affiliates shall directly or indirectly encourage, solicit, initiate,
facilitate or conduct discussions or negotiations with, provide any information
to, or enter into any agreement with, any corporation, partnership, person or
other entity or group concerning or expressing an interest in or proposing any
merger, consolidation, reorganization, share exchange, business combination,
liquidation, dissolution sale of all or significant assets or securities or
other similar transaction involving any of the Companies, except to the extent
required by their fiduciary duties as determined by the Board of Directors of
the applicable Company after discussion with its counsel.
Section 8.10 DUE DILIGENCE. Until the Closing, each Company shall provide
the other Company (including, subject to the receipt of any necessary
confidentiality undertakings, accounting, legal, and investment banking
representatives) with reasonable access to its offices and its senior employees
for the purpose of due diligence, in accordance with procedures established by
the parties to minimize disruptions of their Businesses. Each party shall
provide the other party with all material documents requested in the course of
performing due diligence, including documents requested prior to execution of
this Agreement, within 30 days of such request.
Section 8.11 SATISFACTION OF CONDITIONS PRECEDENT. Subject to the
fiduciary obligations of its directors and officers or managers, as the case may
be, each Company will use its reasonable efforts to satisfy or cause to be
satisfied all the conditions precedent which are set forth in Articles VI and
VII, and each Company will use its reasonable efforts to cause the transactions
contemplated by this Agreement to be consummated, and, without limiting the
generality of the foregoing, to obtain all consents and authorizations of third
parties and to make all filings with, and give all notices to, third parties
that may be necessary or reasonably required on its part in order to effect the
transactions contemplated hereby.
Section 8.12 REPRESENTATIONS REGARDING TAX MATTERS. Each Company, and its
officers and directors, will make such representations as are reasonably
requested by counsel to both parties in order that such counsel may render the
opinions, tax or otherwise, required hereby.
Section 8.13 PAYMENT OF WARRANT PROCEEDS.
8.13.1 MSI shall pay over to Medicore any and all amounts received in
connection with the exercise of MSI Warrants which were formerly pre-Merger
DCA Warrants up to the amounts provided for and in accordance with
Section 2.12 of this Agreement.
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ARTICLE IX
CONFIDENTIALITY COVENANT AND ANNOUNCEMENTS
Section 9.1 CONFIDENTIALITY. Neither party to this Agreement shall use or
disclose any non-public information obtained from the other party for any
purpose unrelated to the Merger, and, if this Agreement is terminated for any
reason whatsoever, each party shall return to the other or destroy all originals
and copies of all documents and papers containing technical, financial, and
other information furnished to such party pursuant to this Agreement or during
the negotiations which preceded this Agreement, and shall neither use nor
disclose any such information except to the extent that such information is
available to the public, is rightfully obtained from third parties or is
independently developed or is required to be disclosed by law or legal process.
Section 9.2 ANNOUNCEMENTS. Neither party to this Agreement shall issue a
press release or other public communication relating to this Agreement, the
Certificates of Merger or the Merger without the prior approval of the other
party. Notwithstanding the foregoing, (i) DCA may make such announcements
regarding the Merger as, in the judgment of its management after consultation
with legal counsel, are necessary to comply with securities laws or Nasdaq
regulations (provided that MSI shall be afforded a reasonable opportunity to
review the same), and (ii) MainStreet may communicate with its holders regarding
the foregoing matters.
ARTICLE X
TERMINATION
Section 10.1 MUTUAL AGREEMENT. This Agreement may be terminated at any
time prior to the Effective Time by the consent of DCA, MSI and MainStreet, even
if and after the stockholders of MSI, MainStreet and DCA have approved this
Agreement and the Certificates of Merger, or if any court of competent
jurisdiction or other governmental body shall have issued, enacted, promulgated
or enforced an order, judgment, decree, injunction, restraining order or ruling
prohibiting the Merger or the Asset Purchase Agreement and such order, judgment,
decree, injunction, restraining order, ruling or other action shall have become
final and nonappealable.
Section 10.2 TERMINATION BY DCA. This Agreement may be terminated by DCA
alone, by means of written notice to MSI and MainStreet if (a) MSI or MainStreet
fails to perform any material covenant of MSI or MainStreet, respectively,
contained in this Agreement, or (b) any of the conditions set forth in
Article VI of this Agreement shall not have been satisfied by May 31, 2000, or
shall have become incapable of being satisfied by MSI and MainStreet unless
waived in writing by DCA.
Section 10.3 TERMINATION BY MSI AND MAINSTREET. This Agreement may be
terminated by MSI and MainStreet by means of written notice to DCA if (a) DCA
fails to perform any material covenant of DCA contained in this Agreement,
(b) any of the conditions set forth in Article VII of this Agreement shall not
have been satisfied by May 31, 2000, or shall have become incapable of being
satisfied by DCA unless waived in writing by MSI and MainStreet or (c) MSI and
MainStreet determine, based upon accounting and tax documentation that there is
a significant probability that the tax liability of DCA, or its successor
entity, will be, as a result of the Merger and/or the transactions contemplated
by the Asset Purchase Agreement, greater than $500,000 as determined by MSI and
MainStreet in consultation with their legal advisors and with DCA's accountants.
Section 10.4 BREAKUP FEE. In the event that this Agreement is terminated
(a) other than by mutual consent or (b) due to no fault of MSI or MainStreet,
then a break-up fee shall be paid by DCA to MSI consisting of an investment in
the equity of MSI of twenty percent (20%) of the net proceeds received from the
exercise of the DCA Warrants as set forth in Section 2.12 hereof, but only to
the extent there are net proceeds from the exercise of the DCA Warrants from the
date of this Agreement up to and including the date of the termination of this
Agreement, at a pre-financing valuation of MSI of $22,500,000, or the lowest
price per share of MSI Common Stock paid by an investor (excluding the
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exercise price for options and warrants issued to employees and consultants) in
MSI (or its predecessor) within one year from the date of termination of this
Agreement. All equity securities of MSI issued to DCA shareholders pursuant to
the transactions contemplated by this Agreement and the MSI shares of DCA
affiliates and certain MSI shareholders identified together with the number of
MSI shares to be included in the Registration Statement for resale as set for
the in Section 10.4 of the Disclosure Schedule shall be registered by MSI as
part of the Registration Statement.
Section 10.5 EFFECT OF TERMINATION. In the event of termination of this
Agreement pursuant to this Article X, this Agreement shall be void and have no
effect, without any liability on the part of any party or its directors,
officers or stockholders other than the provisions of Sections 3.7, 9.1 and
10.4, which shall survive any such termination. Nothing contained in this
Section 10.5 shall relieve any party from liability for any breach of this
Agreement.
ARTICLE XI
INDEMNIFICATION
Section 11.1 INDEMNIFICATION BY BUYER.
11.1.1 Subject to the other provisions of this Article XI, Buyer hereby
agrees to indemnify and hold DCA, and its successor entity, MainStreet, and
MSI and their affiliates, officers, directors, shareholders, employees,
agents and representatives harmless from and against any and all claims,
damages, liabilities, liens, losses or other obligations whatsoever,
together with costs and expenses, including fees and disbursements of
counsel and expenses of investigation (collectively, "Losses"), relating to
any pre-merger events involving DCA, whether known or unknown or contingent
on the Closing Date arising out of, based upon or caused by (i) the
inaccuracy of any representation or the breach of any warranty of DCA
contained in this Agreement or (ii) any breach or nonperformance by DCA of
any of its covenants or agreements contained in this Agreement or in any
agreement, certificate or other instrument delivered by DCA pursuant to this
Agreement.
11.1.2 Buyer agrees and covenants that the DCA Assets to be acquired by
Buyer pursuant to the Asset Purchase Agreement and any substitution of such
DCA Assets shall not be upstreamed to Medicore during the one year period
following the Effective Time (the "Asset Standstill Period"). In the event
that any assets of Buyer are sold during the Asset Standstill Period, all
proceeds from such sale shall be used by Buyer in its Business.
Section 11.2 Subject to the other provisions of this Article XI, MSI
and MainStreet, jointly and severally, hereby agree to indemnify and hold
DCA and its affiliates, officers, directors, shareholders, employees, agents
and representatives harmless from and against any and all Losses, relating
to any pre-merger events involving MSI or MainStreet, whether known or
unknown or contingent on the Closing Date arising out of, based upon or
caused by (i) the inaccuracy of any representation or the breach of any
warranty of MSI or MainStreet contained in this Agreement or (ii) any breach
or nonperformance by MSI or MainStreet of any of its covenants or agreements
contained in this Agreement or in any agreement, certificate or other
instrument delivered by MSI or MainStreet pursuant to this Agreement.
Section 11.3 NOTICE; COOPERATION; DEFENSE; ETC. The indemnified party
agrees to give the indemnifying party prompt written notice of any action,
claim, demand, discovery of fact, proceeding or suit (collectively, "Claims")
for which such indemnified party intends to assert a right to indemnification
under this Agreement; provided, however, that failure to give such notification
after such notice is required shall not adversely affect the indemnified party's
entitlement to indemnification hereunder except to the extent that the
indemnifying party shall have been actually prejudiced as a result of such
failure. The indemnified party shall take all reasonable or necessary steps to
resolve, defend or cooperate in the defense of such Claims, including retaining
and providing to the
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<PAGE>
indemnifying party all documents, records and other information that may be
relevant to such Claims and making employees available to the extent reasonably
requested to fully cooperate in the resolution or defense of such Claims and
provide any additional information (including explanations and interpretations
of any other materials or information provided) that they are able to provide
with respect thereto. The indemnifying party shall have the right to participate
jointly with the indemnified party in the indemnified party's defense,
settlement or other disposition of any Claim and, with respect to any Claim that
is not likely to result in the indemnified party's becoming subject to
injunctive or other similar relief, the indemnifying party shall have the sole
right (but not the obligation) to defend, settle or otherwise dispose of such
Claim on such terms as the indemnifying party, in its sole discretion, shall
deem appropriate; provided, however, that in each case the indemnifying party
shall acknowledge in writing its obligation to indemnify the indemnified party
hereunder with respect to such Claim prior to exercising any right to
participate in or control the defense, settlement or disposition of such Claim
hereunder. The indemnifying party shall obtain the written consent of the
indemnified party, which shall not be unreasonably withheld or delayed, prior to
ceasing to defend any Claim if it has theretofore elected to exercise its sole
right to defend, settle or otherwise dispose of such Claim.
Section 11.3 REIMBURSEMENT OF COSTS. The costs and expenses, including
fees and disbursements of counsel and expenses of investigation, incurred by any
indemnified party in connection with any Claim shall be reimbursed on a
quarterly basis by the indemnifying party, without prejudice to the indemnifying
party's right to contest the indemnified party's right to indemnification and
subject to refund in the event the indemnifying party is ultimately held not to
be obligated to indemnify the indemnified party.
ARTICLE XII
MISCELLANEOUS
Section 12.1 EXPENSES. Each of DCA, on the one hand, and MSI and
MainStreet, on the other hand, shall pay its own costs and expenses, including
legal, accounting and investment banking fees and expenses, relating to this
Agreement, the negotiations leading up to this Agreement and the transactions
contemplated by this Agreement, provided that, DCA shall pay all filing or other
fees due in connection with the transactions described herein (other than the
Registration Statement) and each party shall pay its pro rata share of the fees
and expenses incurred in connection with the Registration Statement as well as
Blue Sky fees and expenses.
Section 12.2 AMENDMENT. This Agreement shall not be amended except by a
writing duly executed by all parties.
Section 12.3 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of this State of New York as applied to
agreements entered into by New York residents and entirely to be performed
within the State of New York. In the event that a judicial proceeding is
necessary, the sole forum for resolving disputes arising out of or relating to
this Agreement is the supreme court of the State of New York in and for the
County of New York or the Federal Courts for such state and county, and all
related appellate courts, the parties hereby irrevocably consent to the
jurisdiction of such courts and agree to said venue.
Section 12.4 HEADINGS. The headings contained in this Agreement are
intended for convenience and shall not be used to determine the rights of the
parties.
Section 12.5 MUTUAL CONTRIBUTION. The parties to this Agreement and their
counsel have mutually contributed to its drafting. Should an occasion arise in
which interpretation of this Agreement becomes necessary, such construction or
interpretation shall not presume that the terms hereof be more strictly
construed against one party by reason of any rule of construction or authorship.
Section 12.6 NOTICES. All notices, requests, demands, and other
communications made in
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<PAGE>
connection with this Agreement shall be in writing and shall be deemed to have
been duly given on the date of delivery if delivered by hand delivery or by
facsimile to the persons identified below or five days after mailing if mailed
by certified or registered mail postage prepaid return receipt requested
addressed as follows:
If to DCA or Dialysis Acquisition Corp.:
777 Terrace Avenue
Hasbrouck Heights, New Jersey 07604
Attention: Thomas K. Langbein, Chairman of the Board of Directors
With a copy to:
Lawrence E. Jaffe, Esq.
777 Terrace Avenue
Hasbrouck Heights, New Jersey 07604
If to MainStreet or MSI:
MainStreetIPO.com, Inc.
Commerce Center
U.S. Highway One, Suite 251
North Brunswick, NJ 08902
Attention: Joseph M. Salvani, CEO
With a copy to:
Wollmuth Maher & Deutsch LLP
500 Fifth Avenue, Suite 1200
New York, New York 10110
Attention: David H. Wollmuth, Esq.
Conrad P. Rubin, Esq.
Rory M. Deutsch, Esq.
Such addresses may be changed, from time to time by means of a notice given
in the matter provided in this section.
Section 12.7 SEVERABILITY. If any provision of this Agreement is held to
be unenforceable for any reason, it shall be adjusted rather than voided, if
possible, in order to achieve the intent of the parties to the extent possible.
In any event, all other provisions of this Agreement shall be deemed valid and
enforceable to the full extent.
Section 12.8 TERMINATION OF REPRESENTATION AND WARRANTIES. All
representations and warranties contained in this Agreement, including the
exhibits, schedules and other documents delivered pursuant to this Agreement
shall terminate on the first anniversary of the Effective Time.
Section 12.9 WAIVER. Waiver of any term or condition of this Agreement by
any party shall not be construed as a waiver of a subsequent breach or failure
of the same term or condition, or a waiver of any other term or condition in
this Agreement.
Section 12.10 ASSIGNMENT. Neither party may assign, by operation of law or
otherwise, all or any portion of its rights or duties under this Agreement
without the prior written consent of the other party, which consent may be
withheld in the absolute discretion of the party asked to give consent.
Section 12.11 COUNTERPARTS. This Agreement may be signed in counterparts
with the same effect as if the signatures to each party were upon a single
instrument. All counterparts shall be deemed an original of this Agreement.
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<PAGE>
Section 12.12 OTHER REMEDIES. No remedies contained in this Agreement or
in any of the exhibits or schedules hereto shall be in lieu of, or constitute a
waiver of, any remedies at law or in equity (not based upon negligent
misrepresentation) that one party may otherwise have against the other party
hereto or against any present or former officer, director or controlling
stockholder of such party.
Section 12.13 NO SOLICITATION OF EMPLOYEES. Until the Effective Date or
six months after termination of this Agreement, whichever is later, each of DCA,
on the one hand, and MSI and MainStreet, on the other hand, agrees that it will
not solicit for hire any of the employees of the other.
Section 12.14 ENTIRE AGREEMENT. This Agreement, including the exhibit,
schedules, and other documents delivered pursuant to this Agreement, contains
all the terms and conditions agreed upon by the parties relating to the subject
matter of this Agreement and supersedes all prior agreements, negotiations,
correspondence, undertakings, and communications of the parties, whether oral or
written, respecting that subject matter, except the Asset Purchase Agreement and
the CEO Letter Agreement.
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<PAGE>
IN WITNESS WHEREOF, DCA, MSI and MainStreet have executed this Agreement as
of the date first above written.
<TABLE>
<S> <C> <C>
DIALYSIS CORPORATION OF AMERICA,
AS DCA
By: /s/ THOMAS K. LANGBEIN
-----------------------------------------
Name: Thomas K. Langbein
Title: Chief Executive Officer
MAINSTREET ACQUISITION INC.,
AS MAINSTREET
By: /s/ JOSEPH M. SALVANI
-----------------------------------------
Name: Joseph M. Salvani
Title: Chief Executive Officer
MAINSTREETIPO.COM INC.,
AS MSI
By: /s/ JOSEPH M. SALVANI
-----------------------------------------
Name: Joseph M. Salvani
Title: Chief Executive Officer
</TABLE>
For purposes of Sections 2.7, 5.1 and Article 11 only
<TABLE>
<S> <C>
DIALYSIS ACQUISITION CORP.,
AS BUYER
By: /s/ THOMAS K. LANGBEIN
--------------------------------------------
Name: Thomas K. Langbein
Title: President
</TABLE>
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<PAGE>
APPENDIX C
Section 607.1320 of the Florida Business Corporation Act
(1) (a) If a proposed corporate action creating dissenters' rights under s.
607.1302 is submitted to a vote at a shareholders' meeting, the meeting notice
shall state that shareholders are or may be entitled to assert dissenters'
rights and be accompanied by a copy of ss. 607.1301, 607.1302, and 607.1320. A
shareholder who wishes to assert dissenters' rights shall:
1. Deliver to the corporation before the vote is taken written notice
of the shareholder's intent to demand payment for his or her shares if
the proposed action is effectuated, and
2. Not vote his or her shares in favor of the proposed action. A
proxy or vote against the proposed action does not constitute such a
notice of intent to demand payment.
(b) If proposed corporate action creating dissenters' rights under s.
607.1302 is effectuated by written consent without a meeting, the
corporation shall deliver a copy of ss. 607.1301, 607.1302, and 607.1320 to
each shareholder simultaneously with any request for the shareholder's
written consent or, if such a request is not made, within 10 days after the
date the corporation received written consents without a meeting from the
requisite number of shareholders necessary to authorize the action.
(2) Within 10 days after the shareholders' authorization date the
corporation shall give written notice of such authorization or consent or
adoption of the plan of merger, as the case may be, to each shareholder who
filed a notice of intent to demand payment for his or her shares pursuant to
paragraph (1)(a) or, in the case of action authorized by written consent, to
each shareholder, excepting any who voted for, or consented in writing to, the
proposed action.
(3) Within 20 days after the giving of notice to him or her, any shareholder
who elects to dissent shall file with the corporation a notice of such election,
stating the shareholder's name and address, the number, classes, and series of
shares as to which he or she dissents, and a demand for payment of the fair
value of his or her shares. Any shareholder failing to file such election to
dissent within the period set forth shall be bound by the terms of the proposed
corporate action. Any shareholder filing an election to dissent shall deposit
his or her certificates for certificated shares with the corporation
simultaneously with the filing of the election to dissent. The corporation may
restrict the transfer of uncertificated shares from the date the shareholder's
election to dissent is filed with the corporation.
(4) Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided in this section and shall not
be entitled to vote or to exercise any other rights of a shareholder. A notice
of election may be withdrawn in writing by the shareholder at any time before an
offer is made by the corporation, as provided in subsection (5), to pay for his
or her shares. After such offer, no such notice of election may be withdrawn
unless the corporation consents thereto. However, the right of such shareholder
to be paid the fair value of his or her shares shall cease, and the shareholder
shall be reinstated to have all his or her rights as a shareholder as of the
filing of his or her notice of election, including any intervening preemptive
rights and the right to payment of any intervening dividend or other
distribution or, if any such rights have expired or any such dividend or
distribution other than in cash has been completed, in lieu thereof, at the
election of the corporation, the fair value thereof in cash as determined by the
board as of the time of such expiration or completion, but without prejudice
otherwise to any corporate proceedings that may have been taken in the interim,
if:
(a) Such demand is withdrawn as provided in this section;
(b) The proposed corporate action is abandoned or rescinded or the
shareholders revoke the authority to effect such action;
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<PAGE>
(c) No demand or petition for the determination of fair Value by a court
has been made or filed within the time provided in this section; or
(d) A court of competent jurisdiction determines that such shareholder
is not entitled to the relief provided by this section.
(5) Within 10 days after the expiration of the period in which shareholders
may file their notices of election to dissent, or within 10 days after such
corporate action is effected, whichever is later (but in, no case later than
90 days from the shareholders' authorization date), the corporation shall make a
written offer to each dissenting shareholder who has made demand as provided in
this section to pay an amount the corporation estimates to be the fair value for
such shares. If the corporate action has not been consummated before the
expiration of the 90-day period after the shareholders' authorization date, the
offer may be made conditional upon the consummation of such action. Such notice
and offer shall be accompanied by:
(a) A balance sheet of the corporation, the shares of which the
dissenting shareholder holds, as of the latest available date and not more
than 12 months prior to the making of such offer; and
(b) A profit and loss statement of such corporation for the 12-month
period ended on the date of such balance sheet or, if the corporation was
not in existence throughout such 12-month period, for the portion thereof
during which it was in existence.
(6) If within 30 days after the making of such offer any shareholder accepts
the same, payment for his or her shares shall be made within 90 days after the
making of such offer or the consummation of the proposed action, whichever is
later. Upon payment of the agreed value, the dissenting shareholder shall cease
to have any interest in such shares.
(7) If the corporation fails to make such offer within the period specified
therefor in subsection (6) or if it makes the offer and any dissenting
shareholder or shareholders fail to accept the same within the period of
30 days thereafter, then the corporation, within 30 days after receipt of
written demand from any dissenting shareholder given within 60 days after the
date on which such corporate action was effected, shall, or at its election at
any time within such period of 60 days may, file an action in any court of
competent jurisdiction in the county in this state where the registered office
of the corporation is located requesting that the fair value of such shares be
determined. The court shall also determine whether each dissenting shareholder,
as to whom the corporation requests the court to make, such determination, is
entitled to receive payment for his or her shares. If the corporation fails to
institute the proceeding as herein provided, any dissenting shareholder may do
so in the name of the corporation. All dissenting shareholders (whether or not
residents of this state), other than shareholders who have agreed with the
corporation as to the value of their shares, shall be made parties to the
proceeding as an action against their shares. The corporation shall serve a copy
of the initial pleading in such proceeding upon each dissenting shareholder who
is a resident of this state in the manner provided by law for the service of a
summons and complaint and upon each nonresident dissenting shareholder either by
registered or certified mail and publication or in such other manner as is
permitted by law. The jurisdiction of the court is plenary and exclusive. All
shareholders who are proper parties to the proceeding are entitled to judgment
against the corporation for the amount of the fair value of their shares. The
court may, if it so elects, appoint one or more persons as appraisers to receive
evidence and recommend a decision on the question of fair value. The appraisers
shall have such power and authority as is specified in the order of their
appointment or an amendment thereof. The corporation shall pay each dissenting
shareholder the amount found to be due him or her within 10 days after final
determination of the proceedings. Upon payment of the judgment, the dissenting
shareholder shall cease to have any interest in such shares.
(8) The judgment may, at the discretion of the court, include a fair rate of
interest, to be determined by the court.
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<PAGE>
(9) The costs and expenses of any such proceeding shall be determined by the
court and shall be assessed against the corporation, but all or any part of such
costs and expenses may be apportioned and assessed as the court deems equitable
against any or all of the dissenting shareholders who are parties to the
proceeding, to whom the corporation has made an offer to pay for the shares, if
the court finds that the action of such shareholders in failing to accept such
offer was arbitrary, vexatious, or not in good faith. Such expenses shall
include reasonable compensation for, and reasonable expenses of, the appraisers,
but shall exclude the fees and expenses of counsel for, and experts employed by,
any party. If the fair value of the shares, as determined, materially exceeds
the amount which the corporation offered to pay therefor or if no offer was
made, the court in its discretion may award to any shareholder who is a party to
the proceeding such sum as the court determines to be reasonable compensation to
any attorney or expert employed by the shareholder in the proceeding.
(10) Shares acquired by a corporation pursuant to payment of the agreed
value thereof or pursuant to payment of the judgment entered therefor, as
provided in this section, may be held and disposed of by such corporation as
authorized but unissued shares of the corporation, except that, in the case of a
merger, they may be held and disposed of as the plan of merger otherwise
provides. The shares of the surviving corporation into which the shares of such
dissenting shareholders would have been converted had they assented to the
merger shall have the status of authorized but unissued shares of the surviving
corporation.
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<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The by-laws of MainStreet provide that MainStreet shall indemnify its
officers and directors to the fullest extent under Delaware law.
See Item 22 with respect to the opinion of the Securities and Exchange
Commission relating to indemnification of officers, directors and controlling
persons of the company for liabilities arising under the Securities Act.
Section 145 of the Delaware Act provides for indemnification of officers,
directors, employees and agents as is itemized in pertinent part:
(a) power to indemnify any person who was or is a party to any action,
pending or threatened, by reason of that person is or was a director, officer,
employee or agent against expenses, judgments or fines incurred in connection
with such action if the person acted in good faith and in a manner he reasonably
believed to be in the best interests of the company;
(b) similar to (a) but relates to action being by or in the rights of the
company, except no indemnification if the person was adjudged liable to the
company;
(c) if successful on the merits or otherwise in defense, the officer or
director is indemnified against expenses reasonable and actually incurred;
(d) indemnification only as authorized in a specific case; determined by
majority vote of directors not parties to the action, by a committee of
directors, if no directors, by independent counsel or by the stockholders that
person met applicable standard of conduct under subparagraphs (a) and (b);
(e) expenses incurred may be paid in advance of final disposition of the
case upon receipt of undertaking by such officer or director to repay if
ultimately determined not entitled to indemnification;
(f) indemnification and advancement of expenses not exclusive of any other
rights for indemnification that might be available under by-laws, agreement,
vote of stockholders;
(g) corporation has power to purchase insurance against liability of
officers or directors whether or not the corporation would be entitled to
indemnify such person against such liability;
(h) and (i) definitions;
(j) indemnification and advancement of expenses inure to benefit of heirs;
and
(k) court of chancery vested with exclusive jurisdiction to determine
actions for advancement of expenses or indemnification.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS. A list of exhibits included as part of this registration
statement is set forth in the Exhibit Index which immediately precedes such
exhibits and is hereby incorporated herein by reference.
(b) FINANCIAL STATEMENT SCHEDULES. Schedules for MainStreet have been
omitted, since the required information is not present, or not present in
amounts sufficient to require submission of the schedule, or because the
information is included in the financial statements or notes thereto. With
respect to DCA, Schedule II--Valuation and qualifying accounts is included. All
other schedules relating to DCA for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
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<PAGE>
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the MainStreet prospectus
pursuant to Item 4, 10(b), 11, or 13 of this Form within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective day of the registration statement
through the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant and expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect tot he plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
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<PAGE>
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The registrant undertakes that every prospectus (i) that is filed pursuant
to paragraph (1) immediately preceding, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Securities Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 9th day of February, 2000.
<TABLE>
<S> <C> <C>
MAINSTREET IPO.COM, INC.
By: /s/ JOSEPH M. SALVANI
-----------------------------------------
JOSEPH M. SALVANI
Chairman of the Board, Chief Executive
Officer, President, and Chief Financial
Officer
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
We, the undersigned officers and directors of MAINSTREET IPO.COM, INC.,
hereby severally constitute and appoint Joseph M. Salvani and Joanne Bertolini
and each of them (with full power to each of them to act alone), our true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution for us and in our stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this registration
statement and all documents relating thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing necessary or advisable to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOSEPH M. SALVANI Chairman of the Board of Directors,
------------------------------- Chief Executive Officer, February 9, 2000
JOSEPH M. SALVANI President and Chief Financial Officer
/s/ JOANNE BERTOLINI
------------------------------- Executive Vice President--Operations, February 9, 2000
JOANNE BERTOLINI Secretary and Director
/s/ RALPH DELUCA
------------------------------- Vice President--Sales and Marketing February 9, 2000
RALPH DELUCA
/s/ LARA L. GEORGE
------------------------------- Director February 9, 2000
LARA L. GEORGE
/s/ MICHAEL NAFASH
------------------------------- Director February 9, 2000
MICHAEL NAFASH
</TABLE>
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<PAGE>
(d) Schedule II--Valuation and Qualifying Accounts
Dialysis Corporation of America, Inc. and Subsidiaries
December 31, 1998
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ----------------------------------- ---------- --------------------------------------- -------------- ---------
ADDITIONS
BALANCE AT ADDITIONS (DEDUCTIONS) CHARGED TO OTHER CHANGES BALANCE
BEGINNING CHARGED (CREDITED) TO OTHER ACCOUNTS ADD (DEDUCT) AT END OF
CLASSIFICATION OF PERIOD COST AND EXPENSES DESCRIBE DESCRIBE PERIOD
- ----------------------------------- ---------- ---------------------- -------------- -------------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectable
accounts....................... $ 52,000 $101,000 $ (9,000)(1) $144,000
Valuation allowance for deferred
tax asset...................... -- 80,000 -- 80,000
-------- -------- --- --------- --------
$ 52,000 $181,000 $ 0 $ (9,000) $224,000
======== ======== === ========= ========
YEAR ENDED DECEMBER 31, 1997:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectable
accounts....................... $154,000 $ 37,000 $ (93,000)(1) $ 52,000
(46,000)(2)
Valuation allowance for deferred
tax asset...................... 17,000 (17,000) -- --
-------- -------- --- --------- --------
$171,000 $ 20,000 $ 0 $(139,000) $ 52,000
======== ======== === ========= ========
YEAR ENDED DECEMBER 31, 1996:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectable
accounts....................... $128,000 $140,000 $(114,000)(1) $154,000
Valuation allowance for deferred
tax asset...................... 247,000 (230,000) -- 17,000
-------- -------- --- --------- --------
$375,000 $(90,000) $ 0 $(114,000) $171,000
======== ======== === ========= ========
</TABLE>
- ------------------------------
(1) Uncollectable accounts written off, net of recoveries.
(2) Sale of subsidiaries' assets.
S-1
<PAGE>
EXHIBIT INDEX
Where bracketed references [ ] appear, the document is incorporated by
reference to the prior filing.
Exhibit No. and Description below:
<TABLE>
<C> <S>
2.1 Asset Purchase Agreement between and among Dialysis
Acquisition Corp., Medicore, Inc. and Dialysis Corporation
of America dated October 20, 1999 [included as Appendix A in
the prospectus forming a part of this registration
statement].
2.2 Agreement and Plan of Merger between and among Dialysis
Corporation of America, MainStreet Acquisition Inc.,
MainStreet IPO.com Inc. and Dialysis Acquisition Corp. dated
October 20, 1999 [included as Appendix B in the prospectus
forming a part of this registration statement].
3.1 Articles of Incorporation of MainStreet IPO.com Inc.
3.2 By-laws of MainStreet IPO.com Inc.
4.1 Form of common stock certificate of MainStreet
IPO.com Inc.*
4.2 Form of warrant certificate of MainStreet IPO.com Inc.*
4.3 Form of redeemable common stock purchase warrant of
MainStreet IPO.com Inc.*
4.4 Form of Warrant Agreement between MainStreet IPO.com Inc.,
American Stock Transfer & Trust Company,, and Joseph
Dillon & Co., Inc. dated , 2000*
4.5 Proxy from certain officers and directors of MainStreet IPO.
com, Inc. to Joseph M. Salvani dated February 2, 2000.
5.1 Opinion of McLaughlin & Stern, LLP on securities being
registered.*
8.1 Opinion of Wollmuth Maher & Deutsch LLP with respect to tax
matters re: MainStreet IPO.com Inc.*
8.2 Opinion of , Esq. with respect to tax matters
re: Dialysis Corporation of America.*
10.1 Contribution Agreement between and among MainStreet
IPO.com Inc. and certain shareholders of MainStreet
IPO.com Inc. dated October 20, 1999.
10.2 Agreement between Todd & Company, Inc., Thomas K. Langbein,
MainStreet IPO, LLC, Joseph Salvani and Ralph DeLuca dated
April 26, 1999.
10.3 Form of Lock-Up Letter re: affiliates of MainStreet
IPO.com Inc.(1)
10.4 Form of Website Services Agreement.
10.5 Agreement between MainStreet IPO.com Inc. and Interactive
Graphics dated July 20, 1999.
10.6 Consulting Agreement between MainStreet IPO, LLC and Lara
George dated September 7, 1999.
21.1 Subsidiaries of the registrant.
23.1 Consent of McLaughlin & Stern LLP (included in its opinion
filed as Exhibit 5).*
23.2 Consent of Holtz Rubenstein & Co., LLP (included on Page
II-7).
23.3 Consent of Ernst & Young LLP (included on page II-8).
24.1 Power of Attorney (included on signature page, II-4).
</TABLE>
<PAGE>
<TABLE>
<C> <S>
99.1 Proxy card for use at Special Meeting of Shareholders of
Dialysis Corporation of America.
</TABLE>
- ------------------------
* To be filed by amendment.
(1) All the lock-up letters will be identical.
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
MAINSTREET ACQUISITION INC.
1) The name of the corporation is MainStreet Acquisition Inc. (the
"Corporation").
2): The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent of the
Corporation at such address is The Corporation Trust Company.
3): The purposes for which the Corporation is formed are to engage in
any lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware.
4):(a) The aggregate number of shares which the Corporation shall have
authority to issue shall be 100 shares of Common Stock, par value $.001 per
share.
(b) Shares of Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is hereby authorized, by adopting
appropriate resolutions and causing one or more certificates of amendment to be
signed, verified and delivered in accordance with the General Corporation Law,
to establish from time the number of shares to be included in such series, and
to fix the designations, relative rights, preferences and limitations of the
shares of each such series. Such designations, relative rights, preferences and
limitations may include, but are not limited to, the fixing or alteration of the
dividend rights, dividend rate, conversion rights, exchange rights, voting
rights, rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, and the liquidation preferences of any wholly
unissued series of shares of Preferred Stock, or any of them. In accordance with
the authority hereby granted, the Board of Directors may increase or decrease
the number of shares of any series subsequent to the issued of shares of that
series, but not above the total number of authorized shares of Preferred Stock
and not below the number of shares of such series then outstanding. In case the
number of shares of any series shall be so decreased, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series. Except as may
otherwise be required by law of this Certificate of Incorporation, the terms of
any series of Preferred Stock may be amended without the consent of the holders
of any other series of Preferred Stock, or Common Stock.
<PAGE>
5): The name and mailing of the incorporator is as follows:
Name Address
---- -------
Eben Strobos Wollmuth Maher & Deutsch
500 Fifth Avenue 12th Floor
New York, New York 10036
6) No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing, a director shall be
liable to the extent provided by applicable law, (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit. No amendment to or repeal of this Article shall apply
to or have any effect on the liability or alleged liability of any director of
the Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
7) From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered, or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
Certificate of Incorporation are granted subject to the provisions of this
Article Seven.
IN WITNESS WHEREOF, the undersigned being the incorporator hereinbefore
named executes, signs and acknowledges this Certificate of Incorporation, this
15th day of October, 1999 and affirms the statements contained herein as true
under penalty of perjury.
/s/ EBEN STROBOS
-------------------------
Name: Eben Strobos
Sole Incorporator
<PAGE>
Exhibit 3.2
BY-LAWS
OF
MAINSTREETIPO.COM INC.
(a Delaware Corporation)
(adopted October 20, 1999)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the
Corporation in the State of Delaware shall be at such place in the State of
Delaware as shall be designated by the Board of Directors (hereinafter called
the "Board").
SECTION 2. PRINCIPAL OFFICE. The principal office for the
transaction of the business of the Corporation shall be at such location, within
or without the State of Delaware, as shall be designated by the Board.
SECTION 3. OTHER OFFICES. The Corporation may also have
offices at other places, either within or without the State of Delaware, as the
Board of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. The annual meeting of the
stockholders for the election of directors and for the transaction of such other
business as may properly come before the meeting shall be held at such time,
date and place as shall be designated in the notice thereof, except that no
annual meeting need be held if all actions, including the election of directors,
required by the General Corporation Law of Delaware to be taken at a
stockholders' annual meeting are taken by written consent in lieu of a meeting
pursuant to Section 9 of this Article II.
SECTION 2. SPECIAL MEETINGS. Special meetings of the
stockholders, for any purpose or purposes (unless otherwise prescribed by law),
may be called at any time by the Board or the Chairman of the Board or the Chief
Executive Officer or the President, or by a
<PAGE>
2
committee of the Board which has been duly designated by the Board and whose
powers and authority as provided in a resolution of the Board or in the bylaws,
include the power to call such meetings. The Board of Directors shall call a
special meeting of the stockholders when requested in writing by stockholders
holding not less than 50.01% of the outstanding stock of the Corporation; such
written request shall state the purpose or purposes of the meeting proposed to
be held.
SECTION 3. NOTICE OF MEETINGS. Except as otherwise expressly
required by law, notice of each meeting of the stockholders shall be given not
less than 10 or more than 60 calendar days before the date of the meeting to
each stockholder entitled to vote at such meeting by mailing such notice first
class, postage prepaid, directed to each stockholder at the address of such
stockholder as it appears on the records of the Corporation.
Every such notice shall state the place, date and hour of the
meeting and, in the case of a special meeting, the purpose or purposes for which
the meeting is called. Except as provided in the immediately succeeding sentence
or as otherwise expressly required by law, notice of any adjourned meeting of
the stockholders need not be given if the time and place thereof are announced
at the meeting at which the adjournment is taken. If the adjournment is for more
than 30 calendar days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder entitled to vote at such adjourned meeting.
A written waiver of notice, signed by a stockholder entitled
to notice, whether signed before, at or after the time set for a given meeting,
shall be deemed to satisfy the notice requirements set forth in the preceding
paragraph for such stockholder with respect to such meeting. Attendance of a
stockholder in person or by proxy at a stockholders' meeting shall constitute
the equivalent of a written waiver of notice by such stockholder for such
meeting, except when such stockholder attends the meeting for the express
purpose of objecting at the beginning of the meeting to the transaction of any
business because the meeting is not lawfully called or convened.
Whenever notice is required to be given to any stockholder to
whom (i) notice of two consecutive annual meetings, and all notices of meetings
or of the taking of action by written consent without a meeting to such person
during the period between such two, payments (if sent by first class mail) of
dividends or interest on securities during a twelve month period, have been
mailed addressed to such person at his address as shown on the records of the
corporation and have been returned undeliverable, the giving of such notice to
such person shall not be required. Any action or meeting which shall have been
taken or held without notice had been taken or held without notice to such
person shall the same force and effect as if such notice had been duly given. If
any such person shall deliver to the corporation, a written notice setting forth
his then current address, the requirement that notice be given to such person
shall be reinstated.
No notice need be given to any person with whom communication
is unlawful, nor shall there be any duty to apply for any permit or license to
give notice to any such person.
<PAGE>
3
SECTION 4. LIST OF STOCKHOLDERS. It shall be the duty of the
Secretary or other officer of the Corporation who shall have charge of its stock
ledger to prepare and make, at least 10 calendar days before every meeting of
the stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 calendar days prior to the meeting either at a place specified in the notice
of the meeting within the city where the meeting is to be held, or, if not so
specified, at the place where the meeting is to be held. Such list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
SECTION 5. QUORUM. At each meeting of the stockholders, except
as otherwise expressly required by law, stockholders holding a majority of the
shares of stock of the Corporation issued, outstanding and entitled to be voted
at the meeting shall be present in person or by proxy in order to constitute a
quorum for the transaction of business. In the absence of a quorum at any such
meeting or any adjournment or adjournments thereof, a majority in voting
interest of those present in person or by proxy and entitled to vote thereat,
or, in the absence therefrom of all the stockholders, any officer entitled to
preside at, or to act as secretary of, such meeting may adjourn such meeting
from time to time until stockholders holding the amount of stock requisite for a
quorum shall be present in person or by proxy. At any such adjourned meeting at
which a quorum may be present, any business may be transacted that might have
been transacted at the meeting as originally called.
SECTION 6. ORGANIZATION. At each meeting of the stockholders,
one of the following shall act as chairman of the meeting and preside thereat,
in the following order of precedence:
(a) the Chairman of the Board;
(b) if there is no Chairman of the Board or if the Chairman of
the Board shall be absent from such meeting, the President;
(c) if the Chairman of the Board and the President shall be
absent from such meeting, any other officer or director of the
Corporation designated by the Board or the Executive Committee to act
as chairman of such meeting and to preside thereat; or
(d) a stockholder of record of the Corporation who shall be
chosen chairman of such meeting by a majority in voting interest of the
stockholders present in person or by proxy and entitled to vote
thereat.
The Secretary or, if the Secretary shall be presiding over the meeting in
accordance with the provisions of this Section or if he or she shall be absent
from such meeting, the person (who shall be an Assistant Secretary, if an
Assistant Secretary shall be present thereat) whom the chairman
<PAGE>
4
of such meeting shall appoint, shall act as secretary of such meeting and keep
the minutes thereof.
SECTION 7. ORDER OF BUSINESS. The order of business at each
meeting of the stockholders shall be determined by the chairman of such meeting,
but such order of business may be changed by a majority in voting interest of
those present or by proxy at such meeting and entitled to vote thereat.
SECTION 8. VOTING. Each holder of voting stock of the
Corporation shall, at each meeting of the stockholders, be entitled to one vote
in person or by proxy for each share of stock of the Corporation held by him or
her and registered in his or her name on the books of the Corporation
(a) on the date fixed pursuant to the provisions of Section 4
of Article VIII of these By-laws as the record date for the
determination of stockholders who shall be entitled to receive
notice of and to vote at such meeting.
(b) if no record date shall have been so fixed, then at the
close of business on the day next preceding the day on which
notice of the meeting shall be given or, if notice shall be
waived, at the close of business on the day next preceding the
day on which the meeting shall be held.
(c) Any such voting rights may be exercised by the stockholder
entitled thereto in person or by his proxy appointed by an
instrument in writing, subscribed by such stockholder or by
his attorney thereunto authorized and delivered to the
secretary of the meeting; PROVIDED, HOWEVER, that no proxy
shall be voted or acted upon after three years from its date
unless said proxy shall provide for a longer period. The
attendance at any meeting of a stockholder who may theretofore
have given a proxy shall not have the effect of revoking the
same unless he shall in writing so notify the secretary of the
meeting prior to the voting of they proxy. At any meeting of
the stockholders all matters, except as otherwise provided in
the Certificate of Incorporation, in these By-Laws or by law,
shall be decided by the vote of a majority in voting interest
of the stockholders present in person or by proxy and entitled
to vote thereat and thereon. The stockholders present at a
duly called or held meeting at which a quorum is present may
continue to do business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
The vote at any meeting of the stockholders on any question
need not be by ballot, unless so directed by the chairman of
the meeting. On a vote by ballot, each ballot shall be signed
by the stockholder voting, or by his proxy if there be such
proxy, and it shall state the number of shares voted.
Shares of its own stock belonging to the Corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held by the Corporation,
shall neither be entitled to vote nor be counted for quorum purposes. Any vote
of stock of the Corporation may be given at any meeting of the stockholders by
the
<PAGE>
5
stockholders entitled to vote thereon either in person or by proxy appointed by
an instrument in writing delivered to the Secretary or an Assistant Secretary of
the Corporation or the secretary of the meeting. The attendance at any meeting
of a stockholder who may previously have given a proxy shall not have the effect
of revoking the same unless he shall in writing so notify the secretary of the
meeting prior to the voting of the proxy. At all meetings of the stockholders,
all matters, except as otherwise provided by law or in these By-laws, shall be
decided by the vote of a majority of the votes cast by stockholders present in
person or by proxy and entitled to vote thereat, a quorum being present. Except
as otherwise expressly required by law, the vote at any meeting of the
stockholders on any question need not be by ballot, unless so directed by the
chairman of the meeting. On a vote by ballot, each ballot shall be signed by the
stockholder voting, or by his proxy, if there be such proxy, and shall state the
number of shares voted. Persons holding stock of the Corporation in a fiduciary
capacity shall be entitled to vote such stock. Persons whose stock is pledged
shall be entitled to vote, unless in the transfer by the pledgor on the books of
the corporation he shall have expressly empowered the pledgee to vote thereon,
in which case only the pledgee, or his proxy, may represent such stock and vote
thereon. Stock having voting power standing of record in the names of two or
more persons, whether fiduciaries, members of a partnership, joint tenants,
tenants in common, tenants by the entirety or otherwise, or with respect to
which two or more persons have the same fiduciary relationship, shall be voted
in accordance with the provisions of the General Corporation Law of Delaware.
SECTION 9. ACTION BY WRITTEN CONSENT. Except as otherwise
provided by law or by the Certificate of Incorporation, any action required or
permitted to be taken at any annual or special meeting of the stockholders may
be taken without a meeting, without prior notice and without a vote if a consent
or consents in writing, setting forth the action so taken, shall be signed by
the holders of all of the outstanding stock of the Corporation having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares of stock of the Corporation
entitled to vote thereon were present and voted, PROVIDED that prompt notice (in
the manner provided in Section 3 of this Article II) of the taking of the action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The property business and affairs
of the Corporation shall be managed by or under the direction of the Board of
Directors which may exercise all of the powers of the Corporation, except such
powers as are, by the Certificate of Incorporation, by these Bylaws or by law,
conferred upon or reserved to the stockholders.
SECTION 2. NUMBER AND TERM OF OFFICE. The Board shall consist
of one or more members increased or decreased from time to time thereafter by
resolution adopted by a majority of the whole Board. Each of the directors of
the Corporation shall hold office until his
<PAGE>
6
or her term expires and until his or her successor is elected and qualified or
until his or her earlier death or until his or her earlier resignation or
removal in the manner hereinafter provided.
SECTION 3. ELECTION. At each meeting of the stockholders for
the election of directors at which a quorum is present, the person or persons
receiving the greatest number of votes, up to the number of directors to be
elected, shall be the directors.
SECTION 4. RESIGNATION, REMOVAL AND VACANCIES. Any director of
the Corporation may resign at any time by giving written notice of his or her
resignation to the Board, the President or the Secretary of the Corporation. Any
such resignation shall take effect after the giving of such notice at the time
specified therein, or, if the time when it shall become effective shall not be
specified therein, when accepted by action of the Board. Except as aforesaid,
the acceptance of such resignation shall not be necessary to make it effective.
A director may be removed, either with or without cause, at
any time by the written action of holders of not less than a majority in voting
interest of the stockholders or by the vote of stockholders at a meeting of
stockholders of the Corporation duly held.
Any vacancy occurring on the Board for any reason may be
filled by a majority of the directors then in office, though less than a quorum,
or by a sole remaining director. The director elected to fill such vacancy shall
hold office until his successor shall have been elected and shall qualify or
until he shall resign or shall have been removed. No reduction of the authorized
number of directors shall have the effect of removing any director prior to the
expiration of his term of office.
SECTION 5. MEETINGS. (a) ANNUAL MEETINGS. As soon as
practicable after each annual election of directors, the Board shall meet for
the purpose of organization and the transaction of other business.
(b) REGULAR MEETINGS. Regular meetings of the Board shall be
held at such times and places as the Board shall from time to time by resolution
determine. If any day fixed for a meeting shall be a legal holiday at the place
where the meeting is to be held, then the meeting shall be held at the same hour
and place on the next succeeding business day which is not a legal holiday.
Except as provided by law, notice of regular meetings need not be given.
(c) SPECIAL MEETINGS. Special meetings of the Board shall be
held whenever called by the Chairman of the Board, the President or a majority
of the directors then in office. Any and all business may be transacted at a
special meeting that may be transacted at a regular meeting of the Board.
(d) PLACE OF MEETING. The Board may hold its meetings at such
place or places within or without the State of Delaware as the Board may from
time to time by resolution determine or as shall be designated in the respective
notices or waivers of notice thereof.
<PAGE>
7
(e) NOTICE OF MEETINGS. Notices of regular meetings of the
Board or of any adjourned meeting need not be given.
Notices of special meetings of the Board, or of any meeting of
any committee of the Board that has not been fixed in advance as to time and
place by such committee, shall be mailed by the Secretary or an Assistant
Secretary to each director or member of such committee, addressed to him at his
residence or usual place of business, so as to be received at least two calendar
days before the day on which such meeting is to be held, or shall be sent to him
by telegraph, cable or other form of recorded communication or be delivered
personally or by telephone not later than one calendar day before the day on
which such meeting is to be held. Such notice shall include the time and place
of such meeting. However, notice of any such meeting need not be given to any
director or member of any committee if such notice is waived by him in writing
or by telegraph, cable or other form of recorded communication, whether before,
at or after the time at which such meeting is held, or if he or she shall be
present at such meeting.
(f) QUORUM AND ACTION. Except as otherwise provided in these
By-laws or by law, a majority of the authorized number of directors shall be
present in person at any meeting of the Board in order to constitute a quorum
for the transaction of business at such meeting. In each case the vote of a
majority of those directors present at any such meeting at which a quorum is
present shall be necessary for the passage of any resolution or any act of the
Board, except as otherwise expressly required by law or these By-laws. Notice of
any adjourned meeting need not be given. The directors shall act only as a
Board, and the individual directors shall have no power as such.
(g) ACTION BY COMMUNICATION EQUIPMENT. The directors, or the
members of any committee of the Board, may participate in a meeting of the
Board, or of such committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence in
person at such meeting.
(h) ACTION BY CONSENT. Any action required or permitted to be
taken at any meeting of the Board, or of any committee thereof, may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing and such writing is filed with the minutes of the
proceedings of the Board or such committee. Such action by written consent shall
have the same force and effect as the unanimous vote of such directors.
(i) ORGANIZATION. At each meeting of the Board, one of the
following shall act as chairman of the meeting and preside thereat, in the
following order of precedence: (a) the Chairman of the Board; (b) the President;
or (c) any director chosen by a majority of the directors present thereat. The
Secretary or, in case of his or her absence, any person (who shall be an
Assistant Secretary, if an Assistant Secretary shall be present thereat) whom
the chairman shall appoint, shall act as secretary of such meeting and keep the
minutes thereof.
<PAGE>
8
SECTION 6. COMPENSATION. Directors, as such, shall not receive
any stated salary for their services, but by resolution of the Board may receive
a fixed sum and expenses incurred in performing the functions of director and
member of any committee of the Board. Nothing herein contained shall be
construed so as to preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor.
ARTICLE IV
COMMITTEES
(a) The Board may, by resolution passed by a majority of the
whole Board, designate one or more committees, each such committee to consist of
two or more of the directors of the Corporation. The Board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of the committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in place of any such absent or disqualified
member. Any such committee, to the extent permitted by law and provided in the
resolution of the Board, shall have and may exercise all the powers and
authority of the Board in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it. Each committee shall keep minutes of its
proceedings and shall report such minutes to the Board when required. All such
proceedings shall be subject to revision or alteration by the Board; PROVIDED,
HOWEVER, that third parties shall not be prejudiced by such revision or
alteration.
(b) Unless the Board otherwise provides, each committee
designated by the Board may make, alter and repeal rules for conducting its
business. In the absence of such rules each committee shall conduct its business
in the same manner as the Board conducts its business pursuant to these Bylaws.
ARTICLE V
OFFICERS
SECTION 1. ELECTION, APPOINTMENT AND TERM OF OFFICE. The
officers of the Corporation shall include a Chairman of the Board, a Chief
Executive Officer, a President, such number of Vice Presidents as the Board may
determine from time to time, a Secretary and a Treasurer. The Corporation may
also have at the discretion of the Board a Chairman of the Boards Vice
Presidents, a Corporate General Counsel and one or more Associate or Assistant
Corporate General Counsels, a Treasurer, Assistant Treasurers, a Controller,
Assistant Controllers and Assistant Secretaries. Officers shall be elected or
appointed as required from time to time by the Board or any Committee appointed
by the Board's and each such officer shall
<PAGE>
9
hold office until his or her successor is elected or until his or her earlier
death or until his or her earlier resignation or removal in the manner
hereinafter provided. Each such officer shall have such authority and shall
perform such duties as may be provided herein or as the Board or any Committee
appointed by the Board may prescribe. Any two or more offices may be held by the
same person except for the office of President and Secretary. Officers need not
be stockholders of the Corporation or citizens or residents of the United States
of America.
SECTION 2. RESIGNATION, REMOVAL AND VACANCIES. Any officer may
resign at any time by giving written notice to the President or the Secretary of
the Corporation, and such resignation shall take effect after the giving of such
notice at the time specified therein or, if the time when it shall become
effective shall not be specified therein, when accepted by action of the Board
or any Committee appointed by the Board. Except as aforesaid, the acceptance of
such resignation shall not be necessary to make it effective.
All officers and agents elected or appointed by the Board or
any Committee appointed by the Board shall be subject to removal at any time by
the Board or any Committee appointed by the Board, as the case may be, with or
without cause.
A vacancy in any office may be filled for the unexpired
portion of the term in the same manner as provided for election or appointment
to such office.
SECTION 3. DUTIES AND FUNCTIONS. (a) CHAIRMAN OF THE BOARD.
The Chairman of the Board, if any, shall be a member of the Board and shall
preside at all meetings of the Board and of the stockholders at which he or she
shall be present, and shall perform such other duties and exercise such powers
as may from time to time be prescribed by the Board or any Committee appointed
by the Board.
(b) PRESIDENT. The President [, subject to the control of the]
Board,] [or] [shall be a member of the Board and] shall perform such duties and
exercise such powers as are incident to the office of the president and chief
operating officer of the Corporation, and shall perform such other duties and
exercise such other powers as may from time to time be prescribed by the Board
or any Committee appointed by the Board. The President shall perform the duties
of the Chairman of the Board in the absence of the Chairman of the Board.
(c) VICE PRESIDENT. The Vice President(s), if any, shall
exercise and perform such powers and duties with respect to the administration
of the business and affairs of the Corporation as from time to time may be
assigned to each of them by the President, by the Chairman of the Board, if any,
by the Board or as is prescribed by the Bylaws. In the absence or disability of
the President, the Vice Presidents, in order of their rank as fixed by the
Board, or if not ranked, the Vice President designated by the Board, shall
perform all of the duties of the President and when so acting shall have all of
the powers of and be subject to all the restrictions upon the President.
(d) TREASURER. The Treasurer, if any, shall have charge and
custody of, and be responsible for, all funds and securities of the Corporation
and shall deposit all such funds to the
<PAGE>
10
credit of the Corporation in such banks, trust companies or other depositaries
as shall be selected in accordance with the provisions of these By-laws; he or
she shall disburse the funds of the Corporation as may be ordered by the Board
or any Committee appointed by the Board, making proper vouchers for such
disbursements; and, in general, he or she shall perform all the duties incident
to the office of Treasurer and such other duties as from time to time may be
assigned to him or her by the Board, any Committee or the President. The duties
of the Treasurer may be performed by one or more assistants, to be the Board or
any Committee of the Board.
(e) SECRETARY. The Secretary shall keep or cause to be kept,
the records of all meetings of the stockholders and of the Board and committees
of the Board. He or she shall affix the seal of the Corporation to all
instruments requiring the corporate seal when the same shall have been signed on
behalf of the Corporation by a duly authorized officer. The Secretary shall be
the custodian of all contracts, deeds, documents and all other indicia of title
to properties owned by the Corporation and of its other corporate records and in
general shall perform all duties and have all powers incident to the office of
Secretary and shall perform such other duties and exercise such other powers as
may from time to time be prescribed by the Board or any Committee of the Board.
The duties of the Secretary may be performed by one or more assistants, to be
appointed by the Board or any Committee appointed by the Board.
(f) CORPORATE GENERAL COUNSEL. The Corporate General Counsel,
if any, shall have supervision of such legal matters concerning the Corporation
and shall perform such duties as from time to time may be assigned to him or her
by the Board, any Committee appointed by the Board, the President or the
Secretary.
(g) CHIEF EXECUTIVE OFFICER/CHIEF OPERATING OFFICER/OFFICE OF
THE CHIEF EXECUTIVE. In the event the Board of Directors elects a Chief
Executive Officer and/or a Chief Operating Officer, or establishes an Office of
the Chief Executive, the person or persons so elected or the members of such
office shall individually or jointly, as the case may be, have general and
active management of the property, business and affairs of the Corporation,
subject to the supervision and control of the Board. The Chief Executive
Officer, the Chief Operating Officer, or members of the Office of the Chief
Executive, as the case may be, also shall have such powers and perform such
other duties as prescribed from time to time by the Board of Directors.
(h) ASSISTANT SECRETARIES. Except as may be otherwise provided
in these By-Laws, Assistant Secretaries, if there be any, shall perform such
duties and have such powers as from time to time may be assigned to them by the
Board of Directors, the President, any Vice President, if there be one, or the
Secretary, and in the absence of the Secretary, and when so acting, shall have
all the powers of and by subject to all the restrictions upon the Secretary.
(i) ASSISTANT TREASURERS. Assistant Treasurers, if there be
any, shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Treasurer, and in the absence of the Treasurer or in the
event of his disability or refusal to act, shall perform the duties of the
Treasurer, and when so acting, shall have all the powers of and be subject to
all the restrictions
<PAGE>
11
upon the Treasurer. If required by the Board of Directors, an Assistant
Treasurer shall give the Corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of his office and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
(j) OTHER OFFICERS. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE VI
CONTRACTS, CHECKS, DRAFTS,
BANK ACCOUNTS, PROXIES, ETC.
SECTION 1. EXECUTION OF DOCUMENTS. The President or any other
officer, employee or agent of the Corporation designated by the Board, or
designated in accordance with corporate policy as approved by the Board, shall
have power to execute and deliver deeds, leases, contracts, mortgages, bonds,
debentures, checks, drafts and other orders for the payment of money and other
documents for and in the name of the Corporation, and such power may be
delegated (including power to redelegate) by written instrument to other
officers, employees or agents of the Corporation.
SECTION 2. DEPOSITS. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the credit of the
Corporation or otherwise in accordance with corporate policy as approved by the
Board.
SECTION 3. PROXIES IN RESPECT OF STOCK OR OTHER SECURITIES OF
OTHER CORPORATIONS. The President or any other officer of the Corporation
designated by the Board shall have the authority (a) to exercise or appoint from
time to time an agent or agents of the Corporation to exercise in the name and
on behalf of the Corporation the powers and rights which the Corporation may
have as the holder of stock or other securities in any other corporation, (b) to
vote or consent in respect of such stock or securities and (c) to execute or
cause to be executed in the name and on behalf of the Corporation and under its
corporate seal, or otherwise, such written proxies, powers of attorney or other
instruments as he or she may deem necessary or proper in order that the
Corporation may exercise such powers and rights. The President or any such
designated officer may instruct any person or persons appointed as aforesaid as
to the manner of exercising such powers and rights.
SECTION 4. GENERAL AND SPECIAL BANK ACCOUNTS. The Board from
time to time may authorize the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositories as the Board may
select or as may be selected by an officer
<PAGE>
12
or officers, assistant or assistants, agent or agents, or attorney or attorneys
of the corporation to whom such power shall have been delegated by the Board.
The Board may make such special rules and regulations with respect to such bank
accounts, not inconsistent with the provisions of these Bylaws, as it may deem
expedient.
SECTION 5. AUDIT ACCOUNTS AND REPORTS. The books of account of
the Corporation shall be audited at least once during each year by a firm of
independent certified accountants. The initial independent auditors of the
Corporation shall be [ ].
SECTION 6. ACCESS. All books and records of the Corporation
shall be kept at the principal place of business of the Corporation. Each
shareholder may at its own expense, after giving written notice to the
Corporation, audit, investigate and familiarize itself with the operations of
the Corporation using its own employees or such certified public accounting
firm, qualified external auditor or other advisers at it may select. The
shareholders' rights under this Section, which shall including the right to make
copies of any relevant documents. shall be exercised such that the actions of
the shareholders or their respective agents do not interfere unreasonably with
the operation of the Corporation in its ordinary course of business.
SECTION 7. FISCAL YEAR. The fiscal year of the Corporation
shall end on the last day of each calendar year.
SECTION 8. ACCOUNTING POLICY. The Corporation shall maintain
accounting records, accounts and related financial statements in accordance with
United States generally accepted accounting principles applied on a consistent
basis.
SECTION 9. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
preparing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
ARTICLE VII
BOOKS AND RECORDS
The books and records of the Corporation may be kept at such
places within or without the State of New York as the Board may from time to
time determine; PROVIDED, HOWEVER, that the Corporation shall keep at its office
in the State of Delaware, or at the office of its transfer agent or registrar in
the State of Delaware, a record containing the names and addresses of all
stockholders of the Corporation, the number and class of shares held by each of
them and the dates when they respectively became owners of record of such
shares.
<PAGE>
13
ARTICLE VIII
SHARES AND THEIR TRANSFER; FIXING RECORD DATE
SECTION 1. STOCK CERTIFICATES. Every owner of stock of the
Corporation shall be entitled to have a certificate certifying the number of
shares owned by him or her in the Corporation and designating the class of stock
to which such shares belong, which shall otherwise be in such form as the Board
shall prescribe. Each such certificate shall be signed by, or in the name of the
Corporation by, the Chairman of the Board, the President or a Vice President and
by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary of the Corporation. In case any officer who has signed or whose
facsimile signature has been placed upon a certificate shall thereafter have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may nevertheless be issued by the Corporation with the same effect
as if he or she were such officer at the date of issue.
SECTION 2. RECORD; RESTRICTIONS ON TRANSFER. A record shall be
kept of the name of the person, firm or corporation owning the stock represented
by each certificate for stock of the Corporation issued, the number of shares
represented by each such certificate and the date thereof, and, in the case of
cancellation, the date of cancellation. Except as otherwise expressly required
by law, the person in whose name shares of stock stand on the books of the
Corporation shall be deemed the owner thereof for all purposes as regards the
Corporation.
SECTION 3. INDEMNIFICATION OF EMPLOYEES AND AGENTS.
Notwithstanding any other provision or provisions of this Article VIII, the
Corporation may indemnify (including, without limitation, by direct payment) any
person (other than a director or officer of the Corporation) who is or was
involved in any manner (including, without limitation, as a party or a witness)
or is threatened to be made so involved in any Proceeding (as such term is
defined herein) by reason of the fact that such person is or was an employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise (including, without limitation, any
employee benefit plan) against any or all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement incurred in connection with such
Proceeding.
SECTION 4. LOST, STOLEN, DESTROYED OR MUTILATED CERTIFICATES.
The holder of any stock of the Corporation shall immediately notify the
Corporation of any loss, theft, destruction or mutilation of the certificate
therefor. The Corporation may issue a new certificate for stock in the place of
any certificate theretofore issued by it and alleged to have been lost, stolen,
destroyed or mutilated, and the Board or the President or the Secretary may, in
its or his or her discretion, require the owner of the lost, stolen, mutilated
or destroyed certificate or his or her legal representatives to give the
Corporation a bond in such sum, limited or unlimited, in such form and with such
surety or sureties as the Board or the President or the Secretary shall in its
or his or her discretion determine, to indemnify the Corporation against any
claim that may be
<PAGE>
14
made against it on account of the alleged loss, theft, mutilation or destruction
of any such certificate or the issuance of any such new certificate.
SECTION 5. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF
RECORD. (a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board may fix a record date, which shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board, and which shall not be more than 60 nor less than 10 calendar days before
the date of such meeting. If no record date is fixed by the Board, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice of such meeting is given, or, if no notice is given, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
PROVIDED, HOWEVER, that the Board, in its discretion, may fix a new record date
for the adjourned meeting if it so elects to do so.
(b) In order that the Corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board and which date shall not be more than 10 calendar days after the date upon
which the resolution fixing the record date is adopted by the Board. If no
record date has been fixed by the Board, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board is otherwise required, shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of business, or
an officer or agent of the Corporation having custody of the book in which
proceedings of the meetings of stockholders are recorded. Delivery made to the
registered office of the Corporation shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board and prior action by the Board is required, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board adopts the resolution taking such prior action.
(c) In order that the Corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than 60 calendar days prior to
such action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board adopts the resolution relating thereto.
<PAGE>
15
ARTICLE IX
SEAL
The Board shall provide a corporate seal, which shall be in
the form of a circle and shall bear the full name of the Corporation, the words
"Corporate Seal Delaware" and figures showing that the Corporation was
incorporated in the State of its Delaware and showing the year of incorporation.
ARTICLE X
FISCAL YEAR
The fiscal year of the Corporation shall end on December 31
each year, or on such other date as the Board of Directors shall determine.
ARTICLE XI
INDEMNIFICATION
SECTION 1. INDEMNIFICATION The Corporation shall indemnify and
hold harmless, to the fullest extent permitted by law, each Director, former
Director and each Officer of the Corporation and any of such Director's or
former Director's Affiliates or attorney (in fact or at law) (individually, an
"Indemnified Party") with respect to such Indemnified Party's activities with
respect to the Corporation, as follows:
(a) The Corporation shall indemnify and hold harmless, to the
fullest extent permitted by law, any Indemnified Party from and against any and
all losses, claims, damages, liabilities, expenses (including reasonable legal
fees and expenses), judgments, fines, settlements and other amounts
("Indemnified Costs") arising from all claims, demands, actions, suits or
proceedings ("Actions"), whether civil, criminal, administrative or
investigative, in which the Indemnified Party may be involved, or threatened to
be involved, as a party or otherwise arising as a result of such Person's status
as an Indemnified Party, regardless of whether the Indemnified Party continues
in such capacity at the time any such liability or expense is paid or incurred,
and regardless of whether any such Action is brought by a third party, a
director, or by or in the name of the Corporation; provided, however, no
Indemnified Party shall be indemnified hereunder for any Indemnified Costs that
proximately result from such party's fraud, gross negligence or willful
misconduct.
(b) The Corporation shall pay or reimburse, to the fullest
extent allowed by law, in advance of the final disposition of the proceeding,
Indemnified Costs as incurred by the Indemnified Party in connection with any
Action that is the subject of Article XI Section 1 (a) above, (other than those
arising under the Section 1(a) proviso) provided that such Indemnified
<PAGE>
16
Party shall repay all amounts received from the Corporation pursuant hereto if
it shall ultimately be determined at the final disposition of the proceeding
that such Indemnified Party is not entitled to be indemnified by the Corporation
as authorized in Section 1 (a).
(c) Notwithstanding any other provision of this Article XI,
the Corporation shall pay or reimburse Indemnified Costs incurred by an
Indemnified Party in connection with such Person's appearance as a witness or
other participation in a proceeding involving or affecting the Corporation at a
time when the Indemnified Party is not a named defendant or respondent in the
proceeding.
(d) The Directors shall cause the Company to purchase and
maintain insurance or other arrangements on behalf of the Indemnified Parties
and/or the Company against any liability asserted against any Indemnified Party
and incurred by any Indemnified Party in such Person's capacity as such or
arising out of the Indemnified Party's status in such capacity, regardless of
whether the Company would have the power to indemnify the Indemnified Party
against that liability under Section 7.5, to the extent that such insurance is
available on commercially reasonable terms. The indemnification provided by this
Section 7.5 shall be in addition to any other rights to which the Indemnified
Parties may be entitled under any agreement, vote of the Members, as a matter of
law, or otherwise, and shall inure to the benefit of the heirs, successors,
assigns and administrators of the Indemnified Parties.
(e) An Indemnified Party shall not be denied indemnification
in whole or in part under this Section 7.5 because the Indemnified Party had an
interest in the transaction with respect to which the indemnification applies if
the transaction was otherwise permitted by the terms of this Agreement.
(f) The rights set forth in this Section 7.5 are contractual
in nature and may not be revised as applied to prior actions of an Indemnified
Party by a subsequent amendment of this Agreement without such Indemnified
Party's prior written approval.
SECTION 2. SEVERABILITY If any provision or provisions of this
Article XI shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Article XI (including, without limitation, all portions of
any paragraph of this Article XI containing any such provision held to be
invalid, illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; and (b) to
the fullest extent possible, the provisions of this Article XI (including,
without limitation, all portions of any paragraph of this Article XI containing
any such provision held to be invalid, illegal or unenforceable, that are not
themselves invalid, illegal or unenforceable) shall be construed so as to give
effect to the intent manifested by the provision or provisions held invalid,
illegal or unenforceable.
SECTION 3. LOST, STOLEN, DESTROYED OR MUTILATED CERTIFICATES.
The holder of any stock of the Corporation shall immediately notify the
Corporation of any loss, theft, destruction or mutilation of the certificate
therefor. The Corporation may issue a new certificate for stock in the place of
any certificate theretofore issued by it and alleged to have been lost, stolen,
<PAGE>
17
destroyed or mutilated, and the Board or the President or the Secretary may, in
its or his or her discretion, require the owner of the lost, stolen, mutilated
or destroyed certificate or his or her legal representatives to give the
Corporation a bond in such sum, limited or unlimited, in such form and with such
surety or sureties as the Board or the President or the Secretary shall in its
or his or her discretion determine, to indemnify the Corporation against any
claim that may be made against it on account of the alleged loss, theft,
mutilation or destruction of any such certificate or the issuance of any such
new certificate.
ARTICLE XII
AMENDMENTS
These By-laws may be rescinded, altered, amended or repealed
(subject to the restrictions, if any, contained herein) and new By laws may be
made by the Board at any regular or special meeting thereof or by consent in
accordance with the provisions of Section 5(h) of Article III of these By-laws,
subject to the power of the holders of a majority of the outstanding stock of
the Corporation entitled to vote in respect thereof, by their vote given at an
annual meeting or at any special meeting, to amend or repeal any By-law.
ARTICLE XIII
MISCELLANEOUS
SECTION 1. INTERESTED DIRECTORS. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction so long as (i) the material facts as to
his or her relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or (ii) the material
facts as to his or their relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the disinterested stockholders; or (iii) the contract or transaction
is fair as to the Corporation as of the time it is authorized, approved or
ratified, by the Board of Directors, a committee thereof or the stockholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which authorizes
the contract or transaction.
<PAGE>
18
SECTION 2. RATIFICATION. Any transaction questioned in any
stockholders' derivative suit on the grounds of lack of authority, defective or
irregular execution, adverse interest of director, officer or stockholder,
nondisclosure, miscomputation or the application of improper principles or
practices of accounting, may be ratified before or after judgment, by the Board
of Directors or by the stockholders in case less than a quorum of directors are
qualified, and, if so ratified, shall have the same force and effect as if the
questioned transaction had been originally duly authorized, and said
ratification shall be binding upon the Corporation and its stockholders, and
shall constitute a bar to any claim or execution of any judgment in respect of
such questioned transaction.
<PAGE>
EXHIBIT 4.5
IRREVOCABLE PROXY
KNOW ALL MEN BY THESE PRESENCE THAT, the undersigned being the holders
of the common stock of Main Street IPO.com, Inc. ("Main Street"), in the amounts
appearing after their signatures as set forth below, do hereby constitute and
appoint Joseph Salvani, President of Main Street as proxy to act for each of the
undersigned and to attend all meetings of the shareholders of said Corporation
or any continuations or adjournments thereof, with full powers to vote and act
on behalf of each of the undersigned, to the same extent and with the same
effect the undersigned might, were they personally present there at, giving to
said Joseph Salvani full power of substitution and revocation
Any proxy or proxies heretofore given by any of the undersigned to any
person or persons whatsoever are hereby revoked.
This proxy shall remain in full force and effect for the period of two
years from the date hereof.
DATED: New York, New York
February 2, 2000 /S/ LAURA GEORGE
-----------------------------------
Laura George (600,000 shares)
/S/ JOANNE BERTOLINI
-----------------------------------
Joanne Bertolini (1,000,000 shares)
/S/ RALPH DELUCA
-----------------------------------
Ralph DeLuca (600,000 shares)
<PAGE>
EXHIBIT 10.1
CONTRIBUTION AGREEMENT dated as of October __, 1999
between MainStreetIPO.com, Inc., a Delaware
corporation (the "PURCHASER"), and the Individuals
listed on Schedule A hereto (the "SELLERS").
WHEREAS, Purchaser has entered into an Agreement and Plan of
Merger between Purchaser and Dialysis Corporation of America ("DCA"), a Florida
corporation, pursuant to which MainStreet Acquisition Corp. ("Mainstreet"), a
wholly-owned subsidiary of Purchaser, shall merge with and into DCA and the
surviving entity, shall be DCA, ("the Merger"), which shall change its name to
MainStreet;
WHEREAS, CEO Letter, LLC, a Delaware limited liability company
("CEO Letter"), has entered into an exclusive arrangement with FreeRide Media,
L.L.C. ("FreeRide") pursuant to which CEO Letter has the exclusive right to post
certain forms of information on a website connected by hyperlink to FreeRide's
website;
WHEREAS, Purchaser desires to acquire all of the outstanding
equity of CEO Letter from the Sellers, on the following terms and conditions;
and
WHEREAS, the Sellers desire to transfer all of the outstanding
equity of CEO Letter to Purchaser, on the following terms and conditions.
NOW, THEREFORE, in consideration of the premises and the
respective agreements hereinafter set forth, the parties hereto agree as
follows:
ARTICLE I
DEFINED TERMS
Section 1.01 DEFINED TERMS. The following terms, not defined
elsewhere in this Agreement, shall have the following meanings:
"Assets" shall mean all assets of CEO Letter including cash,
accounts receivable, inventory, real property, equipment, supplies,
furniture, fixtures, work-in-progress, unprocessed orders, customer
lists, insurance policies and intellectual property rights, including,
but not limited to, all inventions, devices, methods, processes,
procedures, formulae, computer software, and other technology, whether
patented, patentable or unpatentable, together with all patents,
trademark, know-how, trade secrets, copyrights and proprietary
information owned by or licensed by CEO Letter, including intellectual
property rights relating to products or services of CEO Letter and CEO
Letter's shareholders which are not commercially viable as of the
Closing Date, goodwill, business information and any other assets,
tangible or intangible, used or useful in the
<PAGE>
operation of the business of CEO Letter on the Closing Date and used in
connection with the conduct of such business.
"Business Day" shall mean any day other than a Saturday,
Sunday or other day on which banks are authorized to be closed in New
York City.
"Common Stock" shall mean the common stock, par value $.001,
of Purchaser.
"Encumbrances" shall mean, to the extent applicable, all liens
(including liens for taxes), mortgages, security interests, charges,
claims, leases, survey exceptions, options, rights of first refusal or
first offer, easements, restrictions, rights-of-way or other similar
encumbrances of any nature whatsoever.
"Person" shall mean any natural person, corporation,
association, partnership, joint venture or other entity.
"Units" shall mean all issued and outstanding equity interests
of CEO Letter, LLC.
Section 1.02 OTHER RULES OF CONSTRUCTION. References in this
Agreement to sections, schedules and exhibits are to sections of, and schedules
and exhibits to, this Agreement unless otherwise indicated. Words in the
singular include the plural and in the plural include the singular. The word
"or" is not exclusive. The words "including", "includes", "included" and
"include", when used, are deemed to be followed by the words "without
limitation".
ARTICLE II
TRANSFER OF INTEREST
Section 2.01 TRANSFER. Upon the terms and subject to the
conditions set forth in this Agreement, the Sellers agree to assign, transfer,
convey and deliver the Units to the Purchaser described in Schedule 2.01, and
the Purchaser agrees to accept the Units from the Sellers on the Closing Date.
In exchange Sellers agree to accept as consideration for the transfer of the
Units to Purchaser the Consideration on the terms set forth in Section 2.03
below.
Section 2.02 DELIVERY OF INSTRUMENTS OF TRANSFER. On the
Closing Date, the Sellers shall deliver to the Purchaser such specific
assignments, bills of sale, endorsements, leases and other good and sufficient
instruments of conveyance and transfer, in form and substance satisfactory to
the Purchaser, the Sellers and their respective counsel, as shall be reasonably
requested by the Purchaser to effectively vest in the Purchaser title to all the
Units.
Section 2.03 TRANSFER PRICE; INCENTIVE PAYMENTS. The
consideration (the "Consideration") to Sellers for the Units shall be 1,000,000
shares of Common Stock, to be paid on the following schedule:
(a) 250,000 shares of Common Stock on the Closing Date;
<PAGE>
(b) 250,000 shares upon realization of (i) $1,000,000 in sales
and (ii) $400,000 in pre-tax earnings during any
consecutive 12 month period ended on or prior to the
Second Anniversary of the Closing Date (determined in
accordance with generally accepted accounting principles
("GAAP")); and
(c) 500,000 shares upon realization of (i) $2,000,000 in sales
and (ii) $800,000 in pre-tax earnings, during any
consecutive 12 month period ended on or prior to the
second anniversary of the Closing Date (determined in
accordance with GAAP).
Until the sales and earnings amounts set forth in clauses (b)
or (c) have been reached, the applicable shares of Common Stock shall be held in
escrow by Lawrence Jaffe (the "Escrowed Shares"). The shares referenced in
clauses (b) or (c) above shall be delivered to Sellers following delivery to Mr.
Jaffe of written notification that the applicable sales and earnings thresholds
have been met, together with an audited financial statement evidencing the
satisfaction of such threshold. No further evidence shall be necessary for the
release of the appropriate shares of Common Stock to Sellers. A certificate
evidencing the shares of Common Stock awarded to Sellers shall be delivered to
Sellers within ten days after receipt by Lawrence Jaffe of such notice and
evidence as set forth in the preceding sentence. In the event that the
conditions of clause (b) or (c) of this Section 2.03 are not satisfied by
Sellers prior to the Second anniversary of the Closing Date, the applicable
Escrowed Shares shall be returned to the Purchaser as treasury shares to be
retired by the Purchaser.
Section 2.04 THE CLOSING. The closing shall take place at
10:00 a.m. at the offices of Wollmuth Maher & Deutsch LLP on the date that the
Merger closes, or such date as may be mutually agreed by the parties (the
"CLOSING DATE"). For purposes, of this Agreement, "CLOSING" means the
consummation of the transactions contemplated by this Agreement.
Section 2.05 FURTHER ASSURANCES. From and after the Closing,
upon written request from the Purchaser, the Sellers shall execute, acknowledge
and deliver all such further acts, assurances, deeds, assignments, transfers,
conveyances and other instruments and papers as may be reasonably required to
sell, assign, transfer, convey and deliver the Assets to the Purchaser.
ARTICLE IIII
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers represent and warrant to the Purchaser as follows:
Section 3.01 ORGANIZATION AND GOOD STANDING. CEO Letter is a
limited liability company duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the requisite power and
authority to carry on its business as currently conducted by it and to own the
properties or Assets it now owns.
<PAGE>
Section 3.02 CAPITAL STRUCTURE; SUBSIDIARIES. (a) The
authorized, issued and outstanding Units of CEO Letter and a list of all holders
of issued and outstanding shares of Units (including holders of warrants,
options and similar instruments with rights to acquire shares of Units) is set
forth on Schedule 3.02. Sellers are the only holders of the issued and
outstanding Units of CEO Letter. Sellers own on the date hereof, and on the
Closing Date, the number of shares of Units set forth on Schedule 3.02, free and
clear of all Encumbrances.
(b) SUBSIDIARIES. There are no corporations,
partnerships or other entities in which CEO Letter owns, of record, beneficially
or otherwise, any direct or indirect equity or other interest or any right
(contingent or otherwise) to acquire the same. CEO Letter does not have any
obligation to invest in any other Person.
Section 3.03 AUTHORITY. The Sellers have full power and
authority to execute and deliver this Agreement and the other agreements and
instruments to be executed and delivered by the Sellers pursuant hereto and to
consummate the transactions contemplated hereby and thereby. This Agreement has
been duly executed and delivered by the Sellers and constitutes, and such other
agreements and instruments when duly executed and delivered by the Sellers will
constitute, legal, valid and binding obligations of the Sellers enforceable
against each of them in accordance with their respective terms. Except as set
forth in Schedule 3.03, the execution and delivery by the Sellers of this
Agreement and such other agreements and instruments, and the consummation by the
Sellers of the transactions contemplated hereby and thereby, will not violate
any law, or conflict with, result in any breach of, constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
accelerate the performance required under, or result in the creation of a lien
or Encumbrance on the Units or the Assets pursuant to, the corporate charter or
by-laws of CEO Letter or under any indenture, mortgage, lease, agreement or
other instrument to which the Sellers or CEO Letter is a party or by which the
Sellers or CEO Letter or their respective properties or Assets are bound. No
approval, authorization, consent or other order or action of or filing with any
court, administrative agency or other governmental body in the United States of
America is required for the execution and delivery by the Sellers of this
Agreement or such other agreements and instruments, or the consummation by the
Sellers of the transactions contemplated hereby or thereby, except as set forth
in Schedule 3.03. No consent of any third party is required to consummate any of
the transactions contemplated hereby, except as set forth in Schedule 3.03.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Sellers as
follows:
Section 4.01 ORGANIZATION AND GOOD STANDING. The Purchaser is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware.
<PAGE>
Section 4.02 AUTHORITY. The Purchaser has the full corporate
power and authority to execute and deliver this Agreement and the other
agreements and instruments to be executed and delivered by the Purchaser,
pursuant hereto and to consummate the transactions contemplated hereby and
thereby. All Common Stock, including the Common Stock to be transferred pursuant
to this Agreement to the Sellers, has been duly authorized. All corporate acts
and other proceedings required to be taken by or on the part of the Purchaser to
authorize such execution, delivery and consummation have been duly and properly
taken, and on or before the Closing Date all corporate acts and other
proceedings required to be taken by or on the part of the Purchaser to authorize
such execution, delivery and consummation will have been properly taken. This
Agreement has been duly executed and delivered by the Purchaser and constitutes,
and such other agreements and instruments when duly executed and delivered by
the Purchaser will constitute, legal, valid and binding obligations of the
Purchaser enforceable against it in accordance with their respective terms. The
execution and delivery by the Purchaser of this Agreement and the execution and
delivery by the Purchaser of such other agreements and instruments and the
consummation by the Purchaser of the transactions contemplated hereby and
thereby will not violate any law, or conflict with, result in any breach of,
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, accelerate the performance required under, or
result in the creation of a lien or Encumbrance on any of the properties or
assets of the Purchaser pursuant to, corporate charter or by-laws of the
Purchaser or any indenture, mortgage, lease, agreement or other instrument to
which the Purchaser is a party or by which the Purchaser or its properties or
assets, is bound. No approval, authorization, consent or other order or action
of or filing with any court, administrative agency or other governmental body in
the United States of America is required for the execution and delivery by the
Purchaser of this Agreement and the execution and delivery by the Purchaser of
such other agreements and instruments or the consummation by the Purchaser of
the transactions contemplated hereby or thereby, except as set forth in Schedule
4.02. No consent of any third party is required to consummate any of the
transactions contemplated hereby, except as set forth in Schedule 4.02.
Section 4.03 NO LEGAL PROCEEDINGS. There is no action, suit,
order, judgment or proceeding pending or, to the knowledge of the Purchaser,
threatened against or affecting the Purchaser that, individually or when
aggregated with one or more other actions, suits, orders, judgments or
proceedings, has or might reasonably be expected to have a material adverse
effect on the Purchaser's ability to perform any of its obligations hereunder or
under any of the other agreements and instruments to be executed and delivered
by the Purchaser in connection herewith.
ARTICLE V
FURTHER COVENANTS AND AGREEMENTS
Section 5.01 CONDUCT OF BUSINESS OF CEO LETTER. Prior to the
Closing Date, and except as otherwise contemplated by this Agreement or with the
specific prior written consent of the Purchaser, the Sellers covenant and agree
with respect to the business of CEO Letter as follows:
<PAGE>
(a) Sellers shall continue to conduct the business of CEO
Letter in the ordinary course, consistent with past practices; and shall make no
dividend payments or other distributions;
(b) Sellers will continue to use its reasonable efforts,
consistent with past practices, to preserve the business of CEO Letter intact
and the goodwill of customers and others having business relations with CEO
Letter;
(c) Sellers will continue to maintain the real and personal
properties of CEO Letter in good faith in accordance with past practices;
(d) Sellers will not terminate or modify any leases,
contracts, governmental licenses, permits, or other authorizations or agreements
affecting the real and/or personal properties of CEO Letter's business or the
operation thereof or any additional lease or contract of any nature affecting
such properties or the operation thereof, except in the ordinary course of
business consistent with past practice;
(e) No debts of or claims against others held by CEO Letter
and owing in respect of the business of CEO Letter shall be canceled or released
and no such rights shall be waived or abandoned, except in the ordinary course
of business consistent with past practice; and
(f) Sellers will not make any change in any method of
accounting principles or practices with respect to the business of CEO Letter.
Sellers will promptly notify the Purchaser of any material
adverse change, after the date hereof and prior to the Closing Date, in the
business, Assets, financial condition or results of operations of the business
of CEO Letter. For purposes of this Agreement a "material adverse change" means
any change likely to cost CEO Letter greater than $20,000 in cash or revenue, or
the loss of any key employee, customer, supplier, or any loss of any
governmental approval. From the date hereof to the Closing, the Sellers will not
take any action or engage in any transaction which would render any
representation and warranty of the Sellers inaccurate in any material respect as
of the Closing Date.
Section 5.02 CONSENTS AND CONDITIONS TO CLOSING. From the date
hereof to and including the Closing Date, each of the parties hereto agrees (i)
to take all reasonable actions necessary to obtain (and to cooperate with each
other in obtaining) all consents, authorizations, orders, exemptions and
approvals of any third parties, including governmental bodies, required to be
obtained by it in connection with any of the transactions contemplated hereby,
(ii) to take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on or applicable to it with respect to the
Closing and (iii) to promptly cooperate with and furnish information to each
other in connection with any such legal requirements.
Section 5.03 NOTIFICATION OF CERTAIN MATTERS. The Sellers
shall give prompt written notice to the Purchaser, and the Purchaser shall give
prompt written notice to the Sellers,
<PAGE>
as the case may be, of (i) the occurrence, or failure to occur, of any event
that would be likely to cause any representation or warranty by such notifying
party contained in this Agreement to be untrue or inaccurate in any material
respect at any time between or including the date of this Agreement and the
Closing Date, (ii) any knowledge of or discovery by the notifying party of the
inaccuracy of any representation or warranty by the non-notifying party
contained in this Agreement and (iii) any failure of the non-notifying party to
comply with or satisfy, in any material respect, any covenant condition or
agreement to be complied with or satisfied by it under this Agreement.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER
All obligations of the Purchaser to effect the Closing
hereunder are, at the option of the Purchaser, subject to the conditions
precedent that, at the Closing:
Section 6.01 PERFORMANCE BY THE SELLERS. All the terms,
covenants, agreements and conditions of this Agreement to be complied with and
performed by the Sellers on or before the Closing shall have been complied with
and performed in all material respects.
Section 6.02 REPRESENTATIONS AND WARRANTIES. The
representations and warranties made by the Sellers in this Agreement shall have
been true and correct in all material respects at the date hereof and as of the
Closing with the same force and effect as though all such representations and
warranties had been made as of the Closing.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLERS
All obligations of the Sellers to effect the Closing hereunder
are, at the option of the Sellers, subject to the conditions precedent that, at
the Closing:
Section 7.01 PERFORMANCE BY THE PURCHASER. All the terms,
covenants, agreements and conditions of this Agreement to be complied with and
performed by the Purchaser on or before the Closing shall have been complied
with and performed in all material respects.
Section 7.02 REPRESENTATIONS AND WARRANTIES. The
representations and warranties made by the Purchaser in this Agreement shall
have been true and correct in all material respects at the date hereof and as of
the Closing with the same force and effect as though all such representations
and warranties had been made as of the Closing.
ARTICLE VIII
MISCELLANEOUS
<PAGE>
Section 8.01 NOTICES. Any notice, request or other document to
be given hereunder to a party hereto shall be effective when received and shall
be given in writing and delivered in person or sent by overnight courier,
registered or certified mail, postage prepaid, or by telecopy (receipt
confirmed) as follows:
IF TO THE PURCHASER:
MainStreetIPO.com, Inc.
c/o Salvani Investments, Inc.
Commerce Center
US Highway One, Suite 251
North Brunswick, New Jersey 08902
Tel: (718) 227-6789
Fax: (718) 227-6780
WITH A COPY TO:
Wollmuth Maher & Deutsch LLP
500 Fifth Avenue, Suite 1200
New York, New York 10110
Tel: (212) 382-3300
Fax: (212) 382-0050
Attention: David H. Wollmuth, Esq.
Rory Deutsch, Esq.
Conrad Rubin, Esq.
AND
IF TO THE SELLERS PRIOR TO THE CLOSING:
c/o Salvani Investments, Inc.
Commerce Center
US Highway One, Suite 251
North Brunswick, New Jersey 08902
Tel: (718) 227-6789
Fax: (718) 227-6780
WITH A COPY TO:
Wollmuth Maher & Deutsch LLP
500 Fifth Avenue, Suite 1200
New York, New York 10110
Tel: (212) 382-3300
Fax: (212) 382-0050
Attention: David H. Wollmuth, Esq.
Rory Deutsch, Esq.
Conrad Rubin, Esq.
<PAGE>
Any party hereto may change its address for receiving notices, requests and
other documents by giving written notice of such change to the other parties
hereto.
Section 8.02 GOVERNING LAW; CHOICE OF FORUM. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York (without regard to conflict of laws doctrines). The parties agree that
the exclusive place of jurisdiction for any action, suit or proceeding relating
to this Agreement shall be in the courts of the United States of America sitting
in the Borough of Manhattan in the City of New York or, if such courts shall not
have jurisdiction over the subject matter thereof, in the courts of the State of
New York sitting therein, and each such party hereby irrevocably and
unconditionally agrees to submit to the jurisdiction of such courts for purposes
of any such action, suit or proceeding. If such state court also does not have
jurisdiction over the subject matter thereof, then such an action, suit or
proceeding may be brought in the federal or state courts located in the states
of the principal place of business of any party hereto. Each party irrevocably
waives any objection it may have to the venue of any action, suit or proceeding
brought in such courts or to the convenience of the forum. Final judgment in any
such action, suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment, a certified or true copy of which shall
be conclusive evidence of the fact and the amount of any indebtedness or
liability of any party therein described.
Section 8.03 PARTIAL INVALIDITY. In the event that any
provision of this Agreement shall be held invalid or unenforceable by any court
of competent jurisdiction, such holding shall not invalidate or render
unenforceable any other provision hereof.
Section 8.04 SECTION HEADINGS. The section headings and table
of contents contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
Section 8.05 COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall be deemed to be an original, but
both of which together shall constitute one and the same instrument.
Section 8.06 ENTIRE AGREEMENT. This Agreement, together with
the schedules and exhibits and the agreements, certificates and instruments
delivered pursuant hereto, contain the entire agreement among the parties
hereto, and supersede all prior agreements and undertakings (written and oral)
between the parties hereto, relating to the subject matter hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
MAINSTREETIPO.COM, INC.,
AS THE PURCHASER
By:
---------------------------------
Name: Joseph Salvani
Title: President
Sellers
---------------------------------
Joseph Salvani
---------------------------------
---------------------------------
---------------------------------
---------------------------------
<PAGE>
DISCLOSURE SCHEDULES TO
CONTRIBUTION AGREEMENT
BETWEEN MAINSTREETIPO.COM, INC.
AND THE SELLERS DATED AS OF OCTOBER __, 1999
<TABLE>
<CAPTION>
Disclosure Schedule:
<S> <C>
Schedule 2.01 1,000,000 of Common Equity Units of CEO Letter, LLC
Schedule 3.02 See Schedule A.
Schedule 3.03 None.
Schedule 4.02 None.
</TABLE>
<PAGE>
Exhibit 10.2
AGREEMENT
AGREEMENT made this 26th day of April, 1999 by and between
TODD & COMPANY, INC. ("Todd"), a broker-dealer registered with the Securities
and Exchange Commission (SEC) and a member of the NASD, with its principal
offices at 777 Terrace Avenue, Hasbrouck Heights, New Jersey 07604,
MAINSTREETIPO, LLC, a Delaware limited liability company ("LLC") to be
incorporated as MAINSTREETIPO.COM, INC., and to be referred to herein as "MSI",
with offices at Commerce Center, U.S. Highway 1, Suite 251, North Brunswick, New
Jersey 08902, THOMAS K. LANGBEIN ("Langbein"), principal and sole owner of Todd
and shareholder of MSI, JOSEPH SALVANI ("Salvani"), Chairman, CEO and President
of MSI, and RALPH DELUCA ("DeLuca"), Vice President of MSI.
WHEREAS, MSI is about to engage in the business of providing
posting space on its proprietary IP address (MainStreetIPO.com) to corporations
to enable such corporations to post prospectuses related to self-underwritten
public offerings or public offerings utilizing the services of a registered
broker-dealer and member of the NASD; and
WHEREAS, Salvani and DeLuca are executive officers and
shareholders of MSI and wish to offer Todd the opportunity to enable Todd to
offer broker-dealer services to clients of MSI in connection with said public
offerings; and
WHEREAS, Todd and Langbein are desirous of establishing a
relationship with MSI to enable Todd to offer broker-dealer services to clients
of MSI.
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained herein, the parties agree as follows.
1. Referrals. MSI, Salvani and DeLuca agree that for a period
of thirty-six (36) months from the date of execution of this Agreement, Salvani
and DeLuca shall recommend to all prospective MSI clients that such clients use
the services of Todd in connection with their
<PAGE>
proposed public security offerings and in connection with any such referrals
Todd shall have the right to accept or reject such business proposed or
introduced to Todd by Salvani and DeLuca.
2. Selling Group. Salvani and DeLuca further agree during the
term of this Agreement to recommend to MSI clients which have already contracted
with another broker-dealer other than Todd in connection with their public
security offerings that such client include Todd as part of the selling group.
Todd may accept or reject becoming part of a selling group.
3. No Warranties. Nothing contained herein is intended by MSI,
Salvani or DeLuca to warrant or guarantee that Todd will receive any referrals
or actual business from MSI clients and nothing contained herein shall bind Todd
to accept such business.
4. Compensation. In consideration of the affiliation of MSI,
Salvani and DeLuca with Todd, as a registered broker-dealer with the SEC and
member of the NASD, MSI shall issue 900,000 of its shares of common stock to
Langbein in accordance with Schedule A attached. Further, Todd agrees that in
connection with any business introduced by MSI, Salvani or DeLuca, Todd shall
first be entitled to receive and retain ten percent (10%) of the gross proceeds
from such business and such additional amount as will fully reimburse Todd for
its actual costs incurred in connection with such business. Thereafter, Todd,
Salvani and DeLuca shall each receive a distribution of one-third of the
balance. Nothing contained herein shall entitle Todd to retain Salvani's or
DeLuca's share and Todd shall promptly make all such distributions.
Notwithstanding anything herein to the contrary, no compensation as provided in
this Agreement shall be due or payable by Todd to either or both of Messrs.
Salvani or DeLuca if any such payments are in violation of the Rules and/or
Regulations of the NASD.
5. Arbitration. The parties agree that all disputed
controversies or claims arising out of this Agreement shall be arbitrated before
the American Arbitration Association
2
<PAGE>
pursuant to the Commercial Arbitration Rules of such Association in New York
City and judgment upon the award rendered by the Arbitration(s) may be entered
in any Court issuing jurisdiction thereof.
The parties waive any and all rights they may have to
arbitrate such disputes or claims before the Arbitration Department of the NASD.
IN WITNESS WHEREOF, the parties have hereunto set their hand
and seal as of the date first above written.
Todd & Company, Inc.
By: _______________________________
Thomas Langbein, President
-----------------------------------
Thomas Langbein, Individually
MainStreetIPO, LLC, to be
MainStreetIPO.com, Inc.
By: _______________________________
Joseph Salvani, Managing Member
and President
-----------------------------------
Joseph Salvani, Individually
-----------------------------------
Ralph DeLuca, Individually
3
<PAGE>
SCHEDULE A
Thomas Langbein 660,000
Jeannine Langbein 75,000
Chris Langbein 75,000
William Langbein 45,000
George Langbein 45,000
<PAGE>
EXHIBIT 10.3
February 7, 2000
MainStreet IPO.com., Inc.
171 Church Lane
North Brunswick, NJ 08902
Gentlemen:
The undersigned stockholder, officer and/or director of MainStreet
IPO.com., Inc. (the "Company"), in consideration of the issuance of the common
stock of MainStreet, hereby agrees that, until December 31, 2000, the
undersigned will not offer, sell, transfer or otherwise dispose of any shares of
Common Stock of the Company now owned or hereafter acquired, whether
beneficially or of record, by the undersigned, including, but not limited to,
shares of Common Stock acquired upon exercise of options or warrants or acquired
upon conversion of any other securities owned by the undersigned (collectively,
the "Shares"). Notwithstanding the foregoing, the undersigned may pledge such
Shares and may sell or otherwise transfer such Shares to any affiliate, any
family member, any trust for the benefit of the undersigned or any family member
or any charitable organization, provided that the transferee agrees in writing
to be bound by the foregoing restrictions to the same extent as the undersigned.
In addition, Shares may be transferred by will or the laws of descent and
distribution.
The undersigned acknowledges and agrees that:
1. A typed legend will be placed on the reverse side of each
stock certificate representing Shares which states that the
sale or transfer of the Shares is subject to the restrictions
set forth in this letter.
2. The undersigned will deliver his, her or its certificate(s)
representing shares of Common Stock so that the legend
referred to above may be placed on such certificate(s).
The terms and conditions contained in this letter can only be modified
(including premature termination of the transfer restrictions contained in this
letter) with the prior unanimous written consent of MainStreet and Todd and
Company, Inc.
Very truly yours,
------------------------------
<PAGE>
EXHIBIT 10.4
WEBSITE SERVICES AGREEMENT
AGREEMENT made this ___ day of _____________, 1999 by and
between __________________________ ("[__________]"), a ________corporation with
principal offices located at _________________________, and MAINSTREETIPO.COM,
INC. ("MainStreet"), a Delaware corporation with principal offices at 171 Church
Lane, North Brunswick, NJ 08902.
WHEREAS, MainStreet maintains a site on the World Wide Web
(the "Website") having a uniform resource locator address ("URL") at
www.MainStreetIPO.com or such other URLs as may hereinafter be registered, which
has been established to provide corporations with the opportunity to make public
offerings of their stock through a final prospectus covered by a registration
statement declared effective by the United States Securities and Exchange
Commission (a "Registered Prospectus") by way of electronic auction to members
of the public in states of the United States of America where such offerings are
duly authorized by the laws of the said respective states and of the United
States through the use of the space and technology of the Website; and
WHEREAS, [__________] is desirous of making an initial public
offering of its securities (the "Offering") and wishes to take advantage of the
facilities of the Website in connection with such Offering.
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained herein, the parties agree as follows:
1. MAINSTREET SERVICES. Subject to [__________]'s fulfilling all of the terms
and conditions hereinafter set forth, MainStreet shall provide the following
services (the "Services"):
<PAGE>
(a) PUBLICATION OF OFFERING MATERIALS. In order to enable [__________] to
offer and sell its securities to members of the public, MainStreet shall (i)
publish on the Website any preliminary or "red herring" prospectus (as the same
may be amended from time to time, the "Red Herring") of [__________] during the
period following the date on which [__________] files a registration statement
containing such Red Herring with the Securities and Exchange Commission (the
"SEC") until the date on which such registration statement is declared effective
by the SEC (such period, the "Waiting Period"), (ii) publish on the Website the
Registered Prospectus of [__________] for a period of at least 90 consecutive
calendar days following the effective date of such Registered Prospectus (such
period, the "Offering Period"), and (iii) from the commencement of the Waiting
Period until the end of the Offering Period (such period, the "Publication
Period"), publish the name of [__________] on the Home Page of the Website
together with a brief description of [__________]'s business, which description
shall be provided by [__________] and shall be consistent with the summary
portion of [__________]'s Registered Prospectus as filed with the SEC.
(b) TRAFFIC/SUPPORT. MainStreet shall design, maintain, administer and
manage the Website so that (i) during the Publication Period, users of the
Website shall have continual access to [__________]'s Red Herring and Registered
Prospectus, as the case may be, (ii) during the Publication Period, users of the
Website shall be unable to link to [__________]'s website from the Website, and
(iii) during the Offering Period, users of the Website shall be able to submit
bids on the securities of [__________] offered therein, and MainStreet shall
record and transmit all bidding information to [__________], its designated
independent auditors and transfer agent using its "Dutch Auction" technology in
the manner contemplated by the parties and timely deliver to [__________] the
results of such "Dutch Auction" bidding. Such maintenance, administration and
management shall include, but shall not be limited to, insuring sufficient
bandwidth equivalent to 45 megabytes per second ("MBPS") to facilitate
continuous data traffic on the Website of [__________]'s Red Herring and
Registered Prospectus, as the case may be, and any and all bids submitted by
users during the Offering Period for the purchase of [__________] stock.
2
<PAGE>
(c) INFORMATION TO BE PROVIDED. MainStreet shall provide to [__________]
and its designated representatives on a daily basis during the Offering Period,
in a format specified by [__________], access to all information regarding bids
placed through the Website on [__________] securities covered by the Offering
(the "Bid Data"), including each bidder's residential address, email address,
Social Security number, telephone number and bid price. MainStreet agrees to
obtain the affirmative consent of each bidder on [__________] stock on the
Website to the sharing of all information collected by MainStreet with respect
to such bidder with [__________]. At the end of the Offering Period, MainStreet
shall turn over the Bid Data to [__________], and the Bid Data shall be owned by
and be the exclusive property of [__________] and MainStreet shall be entitled
to receive copies thereof.
2. MAINSTREET'S RELATIONSHIP TO [__________]. MainStreet is acting
hereunder solely as a provider of website services to [__________] and, solely
for the purposes of this Agreement and the subject matter herein, shall not be
deemed an agent of [__________]. Nothing contained herein nor the provision of
the Services by MainStreet hereunder shall be construed or intended to mean or
imply that MainStreet is engaged in selling [__________]'s securities, or that
MainStreet is acting in any capacity as an underwriter as that term is defined
under Section 2(a)(11) of the Securities Act of 1933 (the "Act"), or that
MainStreet is acting as a broker, dealer or member of a selling group, or that
MainStreet is acting as an agent, affiliate, patron or joint venturer of
[__________] or as an underwriter as that term may be defined under any federal,
state or local law within the United States. In addition, nothing contained
herein shall constitute a representation or warranty by MainStreet that the
offering will be fully or partially sold within the Offering Period.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) MainStreet hereby represents and warrants to and agrees with
[__________] as follows:
(i) MainStreet is duly incorporated, validly existing and in good standing
under the laws of the State of Delaware, and has full corporate power and
authority to execute, deliver and perform this Agreement. This Agreement has
been duly and validly executed and delivered by MainStreet and constitutes the
legal, valid and binding obligation of MainStreet, enforceable against it in
accordance with its terms.
(ii) As of the date hereof, MainStreet has no reason to believe that the
execution, delivery and performance by MainStreet of this Agreement and the
consummation by it of the transactions contemplated hereby will conflict with or
violate any existing provision of law, rule or regulation, and such execution,
delivery, performance and consummation will not, with or without the giving of
notice, the lapse of time or both, conflict with or violate (A) any
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order, judgment or decree applicable to MainStreet or binding upon its assets or
properties, (B) any provision of the by-laws or certificate of incorporation of
MainStreet or (C) any agreement or other instrument applicable to MainStreet or
binding upon its assets or properties.
(iii) MainStreet is the sole and exclusive owner of or otherwise has the
right to use and distribute all materials and methodologies used in connection
with the Website and the Services, and the use of such materials and
methodologies and the provision of the Services do not and will not (A) breach,
conflict with or constitute a default under any agreement or other instrument
applicable to MainStreet or binding upon its assets or properties or (B)
infringe upon any trademark, trade name, service mark, patent, copyright or
other proprietary right of any other person or entity.
(iv) To the best of MainStreet's knowledge, the Website, as designed and as
hereafter modified, does not and will not violate any federal, state or local
law or regulation; neither MainStreet nor the Website is the subject of any
disciplinary proceeding; and MainStreet will comply with all applicable federal,
state and local laws in the performance of its obligations hereunder.
(v) MainStreet will operate the Website in such a manner as to be able to
determine and verify the state of residency of each bidder on [__________]
securities using the Website and will not accept any bids from any person
residing in a state where the securities have not been so registered or
qualified for sale.
(vi) To the best of MainStreet's knowledge, no consent, approval or
authorization of, or exemption by, or filing with, any governmental authority or
any third party is required to be obtained or made by MainStreet in connection
with the execution, delivery and performance of this Agreement, the provision to
[__________] of the Services hereunder or the taking by MainStreet of any other
action contemplated hereby.
(vii) There is no pending or, to the best knowledge of MainStreet,
threatened claim, action or proceeding against MainStreet, or any affiliate
thereof, with respect to the execution, delivery or consummation of this
Agreement or the provision of the Services hereunder, or with respect to the
Website and its contents and, to the best knowledge of MainStreet, there is no
basis for any such claim, action or proceeding.
(viii) MainStreet is, to the best of its knowledge, in compliance with all
federal and state privacy laws, is a member in good standing of the On Line
Privacy Alliance, and shall adhere to the information gathering, dissemination,
privacy protection and other practices specified by such organization.
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(ix) In connection with the Offering, MainStreet agrees that it shall not
(A) engage in selling [__________]'s securities or act in any capacity as an
underwriter, or agent of an underwriter, as that term is defined under any
federal, state or local securities law, (B) act as a broker, dealer or member of
a selling group, or as an agent thereof, or (C) act as an agent, affiliate,
patron or joint venturer of [__________]. MainStreet further represents and
warrants that it has not heretofore engaged in any of the activities described
in clauses (A), (B) and (C) of this Section 3(a)(ix) and that it has not
received, nor is it entitled to receive, any consideration from [__________] for
the Services hereunder other than the fee provided for in Section 6 of this
Agreement.
(x) MainStreet is familiar with Rules 134 and 135 promulgated under the
Securities Act of 1933, as amended, is not in violation of such rules, and shall
not knowingly take any action that will cause [__________] to be in violation of
such rules.
(xi) MainStreet shall not display any information regarding [__________] on
the Website other than the Red Herring and Registered Prospectus provided to
MainStreet by [__________] and such other information as shall from time to time
be provided or approved for display on the Website by [__________], and
MainStreet agrees not to modify or alter in any way any information provided to
MainStreet by [__________] for display on the Website.
(xii) MainStreet will render the Services using sound, professional
practices and in a competent, diligent and professional manner by knowledgeable,
trained and qualified personnel.
(b) [__________] hereby represents, warrants and covenants to MainStreet as
follows:
(i) [__________] is duly incorporated, validly existing and in good
standing under the laws of the State of Delaware, and has full corporate power
and authority to execute, deliver and perform this Agreement. This Agreement has
been duly and validly executed and delivered by [__________] and constitutes the
legal, valid and binding obligation of [__________], enforceable against it in
accordance with its terms.
(ii) As of the date hereof, [__________] has no reason to believe that the
execution, delivery and performance by [__________] of this Agreement and the
consummation by it of the transactions contemplated hereby will conflict with or
violate any existing provision of law, rule or regulation, and such execution,
delivery, performance and consummation will not, with or without the giving of
notice, the lapse of time or both, conflict with or violate (A) any order,
judgment or decree applicable to [__________] or binding upon its assets or
properties, (B) any provision of the by-laws or certificate of incorporation of
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[__________] or (C) any agreement or other instrument applicable to [__________]
or binding upon its assets or properties.
(iii) To the best of [__________]'s knowledge, no consent, approval or
authorization of, or exemption by, or filing with, any governmental authority or
any third party is required to be obtained or made by [__________] in connection
with the execution, delivery and performance of this Agreement, the receipt by
[__________] of the Services hereunder or the taking by [__________] of any
other action contemplated hereby.
(iv) There is no pending or, to the best knowledge of [__________],
threatened claim, action or proceeding against [__________], or any affiliate
thereof, with respect to the execution, delivery or consummation of this
Agreement or the receipt of the Services hereunder and, to the best knowledge of
[__________], there is no basis for any such claim, action or proceeding.
(v) With respect to the Offering, [__________] shall at all times fully
comply with all applicable present and future provisions of the laws of the
United States and Filing States, including but not limited to the filing of any
post-effective amendments to the registration statement covering the Offering,
including the Registered Prospectus.
(vi) At all times during the Offering Period, [__________] shall not
publish or disseminate through any medium information, including financial
information, concerning [__________] that is not fully consistent with
[__________]'s Registered Prospectus or that is not in compliance with Section 5
of the Securities Act of 1933, as amended.
4. CONDITIONS TO OBLIGATIONS OF THE PARTIES.
(a) COMPLIANCE WITH SEC. At least five (5) business days prior to the
publication of [__________]'s Registered Prospectus on the Website, a
registration statement filed by [__________] with the SEC with respect to the
Offering shall have been declared effective by the SEC. Proof thereof in form
satisfactory to MainStreet's counsel must be furnished to MainStreet's counsel
prior to the commencement of the Offering Period.
(b) DELIVERY OF RED HERRING AND REGISTERED PROSPECTUS. At least five (5)
business days before the publication of either [__________]'s Red Herring or
Registered Prospectus, as the case may be, on the Website, [__________] shall
deliver to MainStreet a printed and an electronic version (floppy diskette,
CD-ROM, or DVD) of such Red Herring or Registered Prospectus, as the case may
be.
(c) COMPLIANCE WITH FILING STATES. [__________] shall have (i) duly
completed all filings required by the laws of those states (the "Filing States")
in which [__________] intends to offer its securities and shall have notified
each Filing State of its plan of
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distribution and (ii) furnished to MainStreet's counsel, at least five business
days prior to the commencement of the Offering Period, satisfactory proof that
the Offering has been approved or qualified for sale in each of the Filing
States.
(d) APPOINTMENT OF TRANSFER AGENT.
(i) [__________] shall have retained American Stock Transfer & Trust
Company or such other transfer agent as reasonably approved by MainStreet to act
as transfer agent (the "Transfer Agent") for [__________] in connection with the
issuance of its shares pursuant to the Offering and to further act as escrow
agent (the "Escrow Agent") for the receipt of the funds representing bids for
the purchase of [__________] stock through the facilities of the Website.
[__________] shall furnish to counsel for MainStreet copies of the appointment
of such Transfer Agent and Escrow Agent together with all executed contracts as
may be required by such Transfer Agent and Escrow Agent.
(ii) MainStreet shall execute such contracts with such Transfer Agent and
Escrow Agent as may be required by such Transfer Agent and Escrow Agent and
shall deliver copies of the same to [__________].
(e) APPOINTMENT OF INDEPENDENT AUDITORS. [__________] shall appoint as
independent auditors the Independent Accountants named in [__________]'s
Registered Prospectus, or such other accountants as shall be reasonably
acceptable to MainStreet, for the purpose of examining and certifying the bids
received during the Offering Period. [__________] shall furnish MainStreet with
a written acknowledgment from said auditors that they agree to undertake such
examination and certification of all bids at the close of the Offering Period
and to furnish said certification to the Transfer Agent with instructions
regarding the delivery of securities, the refund of any bids and the delivery of
funds representing the proceeds of the offering to [__________].
(f) EXCHANGE LISTING. Prior to the commencement of the Offering Period,
[__________] shall have applied for listing on one of the following exchanges:
NASDAQ National Market, the American Stock Exchange ("AMEX") or the New York
Stock Exchange ("NYSE"). At or prior to the completion of the Offering Period,
[__________] shall have been formally accepted for listing on one of the
aforementioned exchanges, which listing shall take effect upon the completion of
the Offering. In the event [__________] is unable to obtain approval to list on
one of such exchanges, this Agreement shall automatically terminate, the parties
shall have no further obligations hereunder, and RCS shall be entitled to a full
refund of all monies paid to MainStreet through the date of such termination.
(g) SECRETARY'S CERTIFICATE. Contemporaneously with the execution of this
Agreement, each party shall have delivered to the other party a certificate
certifying as to such
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party's articles of incorporation, bylaws and resolutions attached thereto and
other corporate proceedings of such party relating to the authorization,
execution and delivery of this Agreement.
(h) LIMITATIONS ON TRAFFIC BETWEEN THE WEBSITE AND [__________]'S WEBSITE.
Prior to the commencement of the Publication Period, the parties shall
coordinate to ensure that the Website and [__________]'s website are designed
and function in such a manner that users of [__________]'s website shall be able
to link to the Website but that users of the Website shall not be able to link
to [__________]'s website.
5. SITE RESPONSIBILITY. MainStreet shall be solely responsible for the
development, operation and maintenance of the Website and for all materials that
appear on the Website, other than materials provided to MainStreet by
[__________] for posting on the Website. Such responsibilities include, but are
not limited to:
(a) ensuring the technical operation of the Website and all related
equipment;
(b) ensuring the accuracy and appropriateness of materials posted on the
Website;
(c) ensuring that materials posted on the Website do not violate any law,
rule or regulation, or infringe upon the rights of any third party (including,
for example, copyright, trademarks, privacy or other personal or proprietary
rights);
(d) providing technical support and customer service to [__________] and
users of the Website 24 hours a day, seven days a week; and
(e) ensuring that materials posted on the Website are not libelous or
otherwise illegal.
6. CONSIDERATION. In consideration for the Services to be provided by
MainStreet hereunder, [__________] shall pay MainStreet one hundred thousand
dollars ($100,000). Simultaneously with the execution of this Agreement by the
parties hereto, [__________] shall pay to MainStreet the sum of twenty-five
thousand ($25,000.00) dollars as initial payment on account of the full
consideration, receipt of which is hereby acknowledged by MainStreet. Upon the
completion of the Offering Period, [__________] shall instruct the Escrow Agent
to deduct from the proceeds of the Offering the sum of seventy-five thousand
dollars ($75,000.00) and remit such sum directly to MainStreet. In the event
that fewer than all of the shares offered in the Offering have been sold within
the Offering Period , the sum of seventy-five thousand ($75,000.00) shall
nonetheless be due and payable to MainStreet within ten (10) days after the
termination of the Offering Period. Notwithstanding anything to the contrary
contained herein, no portion of the balance payment of $75,000 shall be due
unless a [__________] Registered Prospectus is actually published on the
Website.
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7. COLLECTION OF FUNDS. In connection with the Offering, [__________] shall
be responsible for arranging for the collection of funds from bidders on the
shares offered, the return of any funds and the delivery of all securities
through its duly appointed Transfer Agent and Escrow Agent. Nothing contained
herein shall create any obligation on the part of MainStreet to insure the
collection of any funds, the return of any funds or the delivery of any
securities with respect to bids made on shares of [__________] stock. Bidders on
[__________] securities shall be directed to transmit all funds to the appointed
Transfer Agent or Escrow Agent. In the event MainStreet shall receive any funds
from any bidder on [__________] stock, MainStreet shall immediately transfer
such funds to the appointed Transfer Agent or Escrow Agent.
8. THE BIDDING PROCESS. It is understood and agreed that the bidding price
for [__________] stock shall be determined in accordance with a "Dutch style
auction," which for the purposes of this Agreement shall mean the following.
Prior to the Offering Period, [__________] shall, at the time of listing on the
Website, establish the number of shares to be offered and sold and the minimum
acceptable bid price to [__________] for each share. The winning bid price to be
paid by all bidders shall be the highest bid (the "Deciding Bid") received prior
to the termination of the Offering Period at which [__________] is able to
dispose of all the shares covered by the Offering; PROVIDED that such bid is
greater than or equal to the minimum acceptable bid price as established by
[__________]. Any bidder who bid in excess of the Deciding Bid shall be entitled
to a refund of the excess over the Deciding Bid.
9. SYSTEM FAILURE. In the event that the Website encounters technical
difficulties with hardware, software, or connectivity such that users are unable
to view [__________]'s Red Herring or Registered Prospectus and/or place bids,
MainStreet shall extend the Offering Period by the period of time that the
Website or the information on the Website was inaccessible to users; PROVIDED
that if such technical difficulties last for more than 48 consecutive hours,
[__________] shall have the right to cancel this Agreement and get a full refund
of all monies paid to MainStreet in connection herewith.
10. TERMINATION. This Agreement may be terminated and the transactions
contemplated herein abandoned at any time prior to the termination of the
Offering Period:
(a) By mutual written consent of the parties;
(b) By MainStreet in the event of:
(i) Any written representation by [__________] or its officers, directors,
agents, servants or employees that MainStreet is acting in any capacity other
than as a provider of Website hosting services.
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(ii) Any material misrepresentation or omission of a material fact in
[__________]'s Registered Prospectus.
(iii) Any material misrepresentation by [__________] regarding the
effectiveness of its Registered Prospectus.
(iv) Any material misrepresentation regarding the status of the State
Filings.
(v) Any failure by [__________] to file a post-effective amendment to its
registration statement covering the Offering where such post-effective amendment
is required by law.
(vi) Any misrepresentation or course of conduct by [__________] that causes
any material injury to the business reputation of MainStreet.
(c) By [__________] in the event of:
(i) MainStreet's dissemination of any information with respect to
[__________] other than [__________]'s Red Herring and Registered Prospectus and
any other information specifically approved by [__________] for dissemination by
MainStreet.
(ii) Any representation by MainStreet, its officers, directors, servants or
employees that MainStreet's relationship with [__________] is other than that of
a provider of Website hosting services.
(iii) Any material failure by MainStreet to provide the Services herein.
(iv) Any misrepresentation or course of conduct by MainStreet that causes
any material injury to the business or reputation of [___________].
(d) If the Agreement is terminated by [__________] for any of the above
reasons, [__________] shall be entitled to a full refund of all consideration
paid to MainStreet through the date of such termination.
(e) The termination of this Agreement shall in no way limit any obligation
or liability of either party based on or arising from a breach or default by
such party with respect to any of its representations, warranties, covenants or
agreements contained in this Agreement at or before the date of termination.
11. INDEMNIFICATION. In no event shall MainStreet be liable to [__________]
for any indirect, special or consequential damages or lost profits arising out
of or related to this Agreement or the performance or breach hereof, even if
MainStreet has been advised of the possibility thereof. Notwithstanding the
foregoing, each party shall indemnify, defend and hold
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harmless the other party, its officers, directors, shareholders, owners,
employees, agents, successors and assigns from and against all losses, damages,
liabilities, deficiencies or obligations, including, without limitation, all
claims, actions, suits, proceedings, demands, judgments, assessments, fines,
interest, penalties, costs and expenses (including settlement costs and
reasonable legal, accounting, experts and other fees, costs and expenses)
incident or relating to or resulting from the foregoing resulting from or
arising out of (A) any breach of any of such indemnifying party's
representation, warranty, covenant, obligation or agreement made herein or (B)
the negligence or wilful misconduct of such indemnifying party.
12. INTELLECTUAL PROPERTY RIGHTS.
(a) Subject to the terms and conditions of this Agreement, [__________]
hereby grants to MainStreet a non-exclusive, non-transferable, limited license
to reproduce and display the [__________] trademarks and logos provided by
[__________] to MainStreet hereunder (the "[__________] Trademarks") on the
Website solely in connection with MainStreet's fulfilling its obligations under
this Agreement; PROVIDED, HOWEVER, that MainStreet shall not make any specific
use of any [__________] Trademarks without first submitting a sample of such use
to [__________] and obtaining [__________]'s prior consent, which consent shall
not be unreasonably withheld, and further provided that any such [__________]
Trademarks are contained in the Registered Prospectus. Such license shall
terminate upon the earlier of the termination of this Agreement in accordance
with Section 10 or the end of the Offering Period, whereupon MainStreet shall
immediately remove all [__________] Trademarks from the Website.
(b) Subject to the terms and conditions of this Agreement, MainStreet
hereby grants to [__________] a non-exclusive, non-transferable, limited license
to reproduce and display the MainStreet trademarks and logos (the "MainStreet
Trademarks") solely in connection with the public offering of [__________]
stock. Such license shall terminate upon the effective date of the expiration or
termination of this Agreement, and [__________] shall immediately cease using
all MainStreet Trademarks.
(c) Each party agrees to reproduce, and agrees not to remove or obscure,
any proprietary rights legends (such as copyright and trademark notices, among
others) included with any content provided by the other party in connection with
this Agreement.
(d) Each party hereby covenants and agrees that the trademarks, trade
names, service marks, copyrights and other proprietary rights of the other party
are and shall remain the sole and exclusive property of that party and neither
party shall hold itself out as having any ownership rights with respect thereto
or, except as specifically granted hereunder, any other rights therein. In
addition, except as expressly permitted hereunder, each party hereby covenants
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and agrees that it will make no use of the trademarks, trade names, service
marks, copyrights and other proprietary rights of the other party. Any and all
goodwill associated with any such rights shall inure directly and exclusively to
the benefit of the owner thereof.
13. PUBLICITY. Neither party may (a) create, publish, distribute or permit
any written material that makes reference to the other party without first
submitting such material to the other party and receiving its prior written
consent, or (b) disclose to the public or any third party the relationship
between the parties or the terms of or the transactions contemplated by this
Agreement without receiving the other party's prior written consent, except as
may be required by law. Notwithstanding the foregoing, MainStreet is permitted
to disclose that it has entered into this Agreement but may not identify
[__________] as a party to the Agreement until such time as the Red Herring of
[__________] is published on the Website.
14. CONFIDENTIALITY. Except as otherwise provided or with the consent of
the other party hereto, each of the parties agrees that all information
concerning the other party or any of its affiliates provided by or on behalf of
any of them shall remain strictly confidential and secret unless such
information is generally known or available to the public through a source or
sources other than such party hereto or its affiliates. Notwithstanding the
foregoing, each party hereto is hereby authorized to deliver a copy of any such
information (a) to any person pursuant to a subpoena issued by any court or
administrative agency, (b) to its accountants, attorneys and other agents on a
confidential basis and (c) otherwise as required by applicable law, regulation
or legal process including, without limitation, the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder and the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.
15. ARBITRATION. Any claims or disputes arising out of or related to this
Agreement must be brought no later than one year after the date when the event,
act or omission upon which such claim or dispute is predicated first arises and
all such claims or disputes shall be resolved by binding arbitration to be held
in New York City before three arbitrators in accordance with the Commercial
Rules of Arbitration of the American Arbitration Association. Judgment upon the
award rendered by the arbitrators may be entered in any court.
16. GENERAL.
(a) This Agreement shall be deemed made under the internal laws of the
State of New York and shall be interpreted in accordance with the laws of such
state.
(b) This is the entire agreement between the parties relating to the
subject matter thereof, and it may not be modified, except by a written
amendment thereto executed by authorized representatives of both parties.
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(c) Where any statement made herein is limited as to the knowledge of the
party making such statement, such knowledge shall be based on the advice of
counsel and appropriate due diligence.
(d) This Agreement and all rights hereunder may not be assigned by
[__________] or MainStreet.
(e) All notices, requests, demands and other communications required or
permitted to be given under this Agreement shall be in writing and shall be
deemed given if (i) mailed, registered or certified mail, return receipt
requested, postage prepaid, (ii) delivered by hand, (iii) sent by facsimile
transmission, or (iv) delivered by courier, to the following addresses, or at
such other address as such party shall designate by like notice:
(i) If to [__________]:
To the address set forth on the first page
hereof, Facsimile: ____________, Attention:
____________
With copies to:
________________________, Facsimile:
____________, Attention: ________________
(ii) If to MainStreet:
to the address set forth on the first page
hereof, Facsimile: _________________, Attention:
_____________________
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized representatives and to be
effective as of the date first above written.
MAINSTREETIPO.COM, INC., a Delaware corporation
By: ________________________________
Joseph Salvani, President
______________________, a _________
corporation
By: ________________________________
Name:
Title:
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EXHIBIT 10.5
CONTRACT
This agreement made this 20th day of July 1999,by and between
MainStreetIPO.com, 171 Church Lane, North Brunswick, NJ 08902 and Interactive
Graphics, located at 300 East 74th Street, New York City, NY 10021.
FIRST: That MainStreetIPO.com, is a corporation which will
provide a website for the purposes of allowing emerging companies to engage in a
self underwritten Initial Public Offering (IPO).
SECOND: That Interactive Graphics is a website design,
programming and hosting firm.
THIRD: That Interactive Graphics has submitted a proposal to
create a web site for MainStreetIPO.com and MainStreetIPO.com has accepted the
proposal.
FOURTH: That Interactive Graphics shall provide the following
services to MainStreetIPO.com:
Html and Unix programming; SSL server configuration;
Security System; Database Design and implementation; Auction design and
implementation; Graphical design and implementation; multiple server back up
solution; System Management and Administration
FIFTH: That the content of the site shall be the sole and
exclusive responsibility of MainStreetIPO.com and MainStreetIPO.com shall hold
Interactive graphics harmless and indemnify from any and all liability for
improper or false information.
SIXTH: That the schedule for the completion of the project
shall be as follows:
All hardware on location within 3 weeks of execution of
the contract.
Within 3 weeks of execution of the contract a
demonstration site suitable for collecting prospective subscriber information
shall be in place.
Within 6 weeks of execution of the contract a semi
functional website shall be available for beta testing and de bugging. If
bandwidth is not available due to location limitations the site shall be
temporarily hosted at a suitable location at no extra charge.
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Target date for completion of fully functional
website is 8 weeks after execution of the contract.
Guaranteed date of completion of a fully functional
website is the 14th week after execution of the contract.
SEVENTH: That the schedule for payments due hereunder shall be
as follows:
<TABLE>
<S> <C>
Due on Contract............................$60,000.00
Due at 3 weeks after Contract..............$40,000.00
Due at 6 weeks after contract..............$40,000.00
Due upon completion of project.............$60,000.00
</TABLE>
(b) On completion deliver 200,000 warrants in MainStreetIPO
exercisable at Two Dollars ($2.00) each.
EIGHTH: The hardware to be purchased for this project shall be
the following, in accordance with the proposal accepted by MainStreetipo.com :
One (1) Router
Four (4) Servers
NINTH: That Interactive Graphics shall provide site management
and system administration services to Mainstreetipo.com at a monthly cost of:
$8,000.00
The management and administration contract represented hereby shall be effective
for a period of one year from the date of completion of the project and shall
thereafter be renewable on a year to year basis at the option of
MainStreetIPO.com at a monthly fee to be negotiated at the time of renewal.
(b) That written notice of renewal or non-renewal
must be forwarded to Interactive Graphics not less than 30 days prior to the
expiration date of the management and administration agreement.
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TENTH: That this document represents the full and complete
agreement of the parties hereto and there are no prior or contemporaneous oral
or written agreements the terms and conditions of which have any effect upon the
terms and conditions of this document.
ELEVENTH: This agreement may not be changed, altered, modified
or cancelled except in a writing provided to the non-canceling party not less
than 30 days prior to the date cancellation shall become effective. Such mailing
shall be sent by certified mail, return receipt requested and shall be effective
upon mailing at a facility maintained for such purposes by the United States
Postal Service.
TWELFTH: In the event either party shall breach any material
duty or obligation hereunder the other party shall have the right to declare
that party in breach and shall have the right to immediately cancel the contract
immediately.
(b) A failure of the non breaching party to assert
his right to cancel the contract shall not affect any right to enforce a
cancellation based on any further breach or to avail himself of remedies other
than canceling the contract.
THIRTEENTH: That each party has had the opportunity to review
the whole of this document and agrees to the specific paragraphs herein.
FOURTEENTH: That in the event of a breach hereof the non
breaching party shall have the right to bring an action at law or seek
alternative dispute resolution through the arbitration process. The non
breaching party shall pay all fees associated with the alternative dispute
resolution process.
FIFTEENTH: That jurisdiction and venue shall be set in the
Supreme Court of the State of New York, County of New York, located at 60 Centre
Street, New York City, New York.
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SIXTEENTH: That in the event any court of competent
jurisdiction shall find that any clause, clauses, paragraph or subparagraph
herein shall be illegal, unlawful, null, void, unenforceable because of
violation of any law, statute, rule, regulation, code or public policy, such a
finding shall have no effect on the legality or enforceability of any other
paragraph or paragraphs, clause or clauses herein and the offending paragraph or
paragraphs, clause or clauses shall be considered as severed from the whole
hereof.
SEVENTEENTH: That this agreement and all of its clauses and
paragraphs shall be construed in accordance with the laws of the State of New
York, exclusively.
WHEREFORE, the parties have hereunto affixed their hands and
seals the day and date first above written.
INTERACTIVE GRAPHICS:
/s/ Sal Bertolini, Pres.
By:________________________________________
Sal Bertolini, Pres.
MAINSTREETIPO.COM;
/s/ Joseph Salvani, Pres.
By:__________________________________________
Print Name & Title
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Exhibit 10.6
CONSULTING AGREEMENT
AGREEMENT made this 1st day of September, 1999, by and between
Main Street IPO LLC ("Main Street"), with principal offices at 171 Church Lane,
North Brunswick, New Jersey 08902, and LARA L. GEORGE ("Consultant"), residing
at 230 Central Park West, New York, New York 10024.
WHEREAS, Consultant is in the business of identifying
companies seeking to underwrite an offering of their securities; and
WHEREAS, Consultant desires to provide services to Main
Street; and
WHEREAS, Consultant and Main Street have agreed that
Consultant shall render the services set forth below to Main Street and its
affiliates until the terms and subject to the conditions set forth below.
NOW, THEREFORE, in consideration of mutual promises and
covenants contained herein, the parties agree as follows:
1. ENGAGEMENT. Main Street hereby engages the Consultant to
render to Main Street the services described herein for a period of twenty-four
(24) months commencing on the date hereof (the "Term"). The Term may be extended
or renewed upon the written agreement of Main Street and Consultant prior to the
expiration of the initial Term hereof on such terms as the parties may negotiate
at the time of extension or renewal. This Agreement may be terminated as set
forth in Section 7 hereof.
2. SERVICES. For the term of this Agreement, Consultant shall
render to Main Street services consisting of the identification, procurement and
introduction of potential clients to Main Street and its subsidiary, CEO Letter
Inc.; the performance of due diligence on investments by Main Street; strategic
planning opportunities for Main Street; assisting potential clients of Main
Street in structuring their offerings; and such other services as may reasonably
be requested by Main Street, provided such services are consistent with the
development of business by Consultant for Main Street.
3. COMPENSATION. In consideration for providing the services,
Consultant shall receive an annual fee of $100,000 payable in monthly
installments of $8,334 at the end of each month. Should Main Street utilize a
shorter pay period, then Consultant shall be paid pursuant to that shorter pay
period.
4. NOTICE. Any and all notices from either party to the other
which may be specified by, or otherwise deemed necessary or incident to this
Agreement shall, in the absence of hand delivery with return receipt requested,
be deemed to have been duly given when mailed if the same shall be sent to the
address of the party set out on the first page of this Agreement by registered
or certified mail, return receipt requested, or express delivery (e.g., Federal
Express).
5. ASSIGNABILITY. Neither this Agreement nor any of the rights
or obligations set forth herein shall be assignable.
<PAGE>
6. ENTIRE AGREEMENT; AMENDMENT. This Agreement contains the
entire agreement between Main Street and the Consultant with respect to the
subject matter hereof. This Agreement may not be amended, changed, modified or
discharged, nor may any provision hereof be waived, except by an instrument in
writing executed by or on behalf of the party against whom enforcement of any
amendment, waiver, change, modification or discharge is sought. No course of
conduct or dealing shall be construed to modify, amend or otherwise affect any
of the provisions hereof.
7. TERMINATION. Main Street may terminate this Agreement with
or without cause upon delivery of fifteen (15) days prior written notice thereof
to the Consultant. Such termination shall be effective as set forth in Section 4
above and shall terminate the Consultant's obligations hereunder and shall
terminate the Consultant's right to further compensation hereunder; provided,
however, that termination shall not impair the Consultant's right to receive the
compensation issuable to her up to and through the date of such termination.
8. CONFIDENTIAL INFORMATION. By reason of performance under
this Agreement, the Consultant may have access to and may obtain specialized
knowledge, trade secrets and confidential information about the business and
operation of Main Street, its subsidiaries and divisions thereof. Therefore, the
Consultant hereby agrees that she shall keep secret and retain in confidence and
shall not use, disclose to others, or publish, other than in connection with the
performance of services hereunder and in accordance herewith, any information
relating to the business, operation or other affairs of Main Street, its
subsidiaries and divisions thereof, which information is acquired in the course
of providing services for Main Street. To the extent that any of such
information may be deemed from time to time to be "material non-public
information" as construed under the Securities Exchange Act of 1934, the
Consultant hereby agrees not to purchase or sell (or offer to purchase or sell)
any of Main Street's securities while in possession of information which may be
so deemed to be "material non-public information".
9. APPLICABLE LAW. This agreement shall be construed and
enforced in accordance with the laws of the State of New York without regard to
the principles of conflicts of laws thereof and shall inure to the benefit of
and be binding upon the Consultant and Main Street and their respective legal
successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
--------------------------------
LARA L. GEORGE
MAIN STREET IPO LLC
By:
-----------------------------
Joseph Salvani, President
2
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION OF PERCENTAGE OWNED
SUBSIDIARIES INCORPORATION BY REGISTRANT
- ------------ ------------------------ ------------------------
<S> <C> <C>
MainStreet Acquisition Inc...... Delaware 100%
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this proxy statement/prospectus that is made part
of the registration statement of MainStreet IPO.com Inc. (Form S-4, No. 333-
) for the registration of its securities of our report dated
December 2, 1999 relating to the financial statements of MainStreet
IPO.com Inc. and to the reference to us under the heading "Experts" in such
proxy statement/ prospectus.
Holtz Rubenstein & Co., LLP
February 9, 2000
Melville, New York
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in the
Proxy Statement of Dialysis Corporation of America that is made a part of the
Registration Statement (Form S-4 No. 333- ) and Prospectus of MainStreet
IPO.com Inc. for the registration of 1,395,722 shares of its common stock and
2,300,000 warrants and common stock issuable upon exercise of the warrants, and
to the incorporation by reference therein of our report dated March 22, 1999,
with respect to the consolidated financial statements of Dialysis Corporation of
America included in its Annual Report on Form 10-K for the year ended
December 31, 1998, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
February 9, 2000
Miami, Florida
<PAGE>
EXHIBIT 99.1
FORM OF PROXY
THE BOARD OF DIRECTORS SOLICITS THIS PROXY
DIALYSIS CORPORATION OF AMERICA
SPECIAL MEETING OF SHAREHOLDERS
The undersigned shareholder(s) of DIALYSIS CORPORATION OF AMERICA, a Florida
corporation (the "Company") hereby acknowledges receipt of the Notice of Special
Meeting of Shareholders and the Proxy Statement/Prospectus, each dated
, 2000, and hereby appoint Thomas K. Langbein and Lawrence E. Jaffe,
and both of them, proxies and attorneys-in-fact, with full power to each of
substitution on behalf and in the name of the undersigned, to represent the
undersigned at the Special Meeting of Shareholders to be held on ,
2000 at 10:00 a.m., local time, at the Hilton Hotel, 650 Terrace Avenue,
Hasbrouck Heights, New Jersey, Room, and at any adjournment(s)
thereof, and to vote all shares of common stock which the undersigned would be
entitled to vote if then and there personally present, on the matters set forth
on the reverse side of this Proxy. Either of such attorneys or substitutes shall
have and may exercise all of the powers of said attorneys-in-fact hereunder.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1 AND 2.
The Board of Directors makes no recommendation as to how you should vote.
Neither Medicore, Inc., the Company's parent, which owns approximately 68% of
the Company's shares, nor any officer or director of the Company and Medicore
(in the aggregate owning approximately 2% of the Company's shares) are voting
their shares. The Board of Directors is leaving the determination as to the
proposed transactions solely up to the public shareholders of the Company.
(continued and to be signed on the reverse side)
<PAGE>
(reverse side of PROXY)
Please mark your vote as indicated in this example /X/
PROPOSAL NO. 1: To approve and adopt the Asset Purchase Agreement, dated
October 20, 1999, among the Company, its parent, Medicore, Inc., and Dialysis
Acquisition Corp. ("Buyer"), a wholly-owned subsidiary of Medicore, under which
the Company will sell substantially all of its assets to Buyer, which company
will assume substantially all of the liabilities of the Company.
FOR / / AGAINST / / ABSTAIN / /
AND
PROPOSAL NO. 2: To approve and adopt the Agreement and Plan of Merger dated
October 20, 1999, under which immediately subsequent to the Company's asset sale
to Buyer, MainStreet Acquisition Inc., a wholly-owned subsidiary of MainStreet
IPO.com Inc. ("MainStreet"), will merge with the Company, with MainStreet to
issue its shares of common stock to the Company's shareholders on a one-for-one
basis, resulting in the Company's shareholders becoming shareholders of
MainStreet, and no longer shareholders of the Company, as more fully described
in the Proxy Statement/Prospectus.
FOR / / AGAINST / / ABSTAIN / /
NOTE THAT APPROVAL OF EACH PROPOSAL IS CONDITIONED ON APPROVAL OF BOTH
PROPOSALS.
Date: ______________________, 2000
__________________________________
Signature
(When signing as an attorney,
executor, administrator, trustee,
guardian or conservator, designate
full title. All joint tenants must
sign.)
