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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED ,
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM APRIL 1, 1999 TO DECEMBER 31,
1999
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COMMISSION FILE NUMBER 0-26962
ADAM.COM, INC.
(Exact name of registrant as specified in its charter)
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GEORGIA 58-1878070
(State of incorporation) (IRS Employer Identification No.)
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1600 RIVEREDGE PARKWAY, SUITE 800
ATLANTA, GEORGIA 30328
(Address of Principal Executive Offices--Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(770) 980-0888
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, par value $.01 NONE
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INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES /X/ NO / /
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. / /
The aggregate market value of the common equity held by non-affiliates of
the Registrant (assuming for these purposes, but without conceding, that all
executive officers and directors are "affiliates" of the Registrant) as of
March 29, 2000 (based on the closing sale price of the Registrant's common
stock, par value $.01, as reported on the Nasdaq National Market on such date)
was $47,292,359. 5,414,838 shares of common stock were outstanding as of March
29, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE DEFINITIVE PROXY STATEMENT RELATING TO THE 2000 ANNUAL MEETING
OF SHAREHOLDERS OF ADAM.COM, INC. ARE INCORPORATED INTO PART III OF THIS REPORT.
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TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 13
Item 3. Legal Proceedings........................................... 13
Item 4. Submission of Matters to a Vote of Security Holders......... 13
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................ 14
Item 6. Selected Financial Data..................................... 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 17
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk....................................................... 24
Item 8. Financial Statements and Supplementary Data................. 24
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................... 24
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 25
Item 11. Executive Compensation...................................... 25
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................. 25
Item 13. Certain Relationships and Related Transactions.............. 25
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K........................................................ 26
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PART I.
ITEM 1. BUSINESS
IN THIS REPORT, THE TERMS "ADAM.COM," "THE COMPANY" AND "WE" REFER TO
ADAM.COM, INC., (FORMERLY A.D.A.M. SOFTWARE, INC.). IN ADDITION, THE TERM FISCAL
2000, UNLESS OTHERWISE SPECIFICALLY INDICATED, REFERS TO THE NINE-MONTH PERIOD
ENDING DECEMBER 31, 1999. THE TERMS FISCAL 1999 AND 1998 REFER TO THE FISCAL
YEARS ENDED MARCH 31, 1999 AND 1998, RESPECTIVELY.
GENERAL
adam.com is a business-to-business content service provider of health and
medical information products. The Company's primary markets are Internet-based
health information sites, health organizations, education and other vertical
markets engaged in providing or using health and medical information. Founded in
1990, adam.com is headquartered in Atlanta, Georgia and has historically
created, published and marketed medical and health-related information content
that was delivered to end-users primarily through multimedia CD-ROM, but also
included a variety of other second-tier distribution mediums, including
broadcast, print and Internet-ready applications. Historically, adam.com has
marketed its CD-ROM products in education, consumer retail and professional
markets. Since January 1999, adam.com has taken significant steps to transition
itself to a content service provider of health, medical and wellness information
primarily distributed online. In connection with this redirected strategy, we
decided to substantially reduce further sales and marketing efforts, including
product updates and upgrade support, for certain of our historical products.
During the nine months ended December 31, 1999, adam.com made the strategic
decision to focus the majority of its efforts on the online distribution of
consumer health information, resulting in the May 1999 launch of www.adam.com,
adam.com's consumer health destination. As our Internet strategy evolved during
the year, we shifted our focus to marketing adam.com's highly recognized health
related content to the growing number of health and medically-oriented sites on
the Web instead of the online distribution of consumer health information
through our own Web site. Today, our Internet business model is based primarily
on the online syndication of adam.com's award winning health and medical content
to a variety of Web-based and other businesses including health sites, Internet
portals, e-commerce sites, media sites, health plans, governments and
institutions.
The e-health market sector is estimated to grow to more than $200 billion by
2003 according to industry estimates. In addition, the number of health-related
Internet sites has proliferated to more than 20,000 and includes a growing
number of online consumer health destinations and Web sites hosted by healthcare
providers, payors and health information technology organizations. adam.com
believes this market provides the greatest marketing opportunity for its
products growth going forward. adam.com has adopted an Internet strategy that
emphasizes syndication of its powerful medical and health content to tap into
this market. Instead of competing with established Web sites, adam.com has
chosen to become the content provider for such Web sites. By doing so, the
Company eliminates some of the costs of advertising and promotion and can
concentrate its resources on further developing content, products and enhancing
its content management technology.
adam.com's vast repository of proprietary health and medical content
includes:
- the 4,000 topic adam.com HEALTH ILLUSTRATED ENCYCLOPEDIA, a web-enabled,
hyperlinked collection of articles, photographs and illustrations on
diseases, symptoms, injuries, tests, nutrition and other preventive health
topics;
- HEALTH PRESENTATIONS, a library of interactive, multimedia presentations
that include surgeries, medical procedures and a collection of general
patient education documents;
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- the adam.com HEALTH IMAGE CATALOG, an indexed database of more than 40,000
medical illustrations, 3-D images, interactive animations and broadcast
quality video segments;
- VISUAL HEALTH TOOLS, a collection of interactive, Web-enabled tools and
applications that includes adam.com's signature dissectible anatomy; and
- ILIAD, an expert knowledge base that calculates differential diagnosis
options for medical conditions.
These content assets have taken us more than 20 years to develop, and we
believe that collectively they represent the single largest collection of
proprietary medical content anywhere in the world.
In the past nine months, adam.com has signed numerous syndication contracts
with many organizations including the National Library of Medicine, Merck-Medco,
Albertsons/Sav-on Drugs, Third Age, InLight Interactive, HealthAnswers.com,
Broadcast Health and HealthCentral.com. Additionally, in calendar year 2000
adam.com has already signed syndication contracts that are expected to generate
minimum aggregate revenues of approximately $2 million per year over their
contract terms.
Finally, adam.com continues to build on important strategic relationships
that we believe significantly strengthen our distribution capabilities,
including relationships with leading Internet portal companies like Yahoo!, and
with Healtheon/WebMD and the CNN Newsource Sales.
STRATEGY
Our strategy is to establish adam.com as the leading source of health
information content over the Internet. We will pursue this strategy by producing
health information products, derived from our proprietary repository of health
information, and syndicating these products in multi-year, recurring revenue
agreements to our target markets.
In early 1999 we made a decision to enter the Internet market through the
creation of a consumer destination Web site. To accomplish this, we opened and
staffed an office in San Francisco to take advantage of the many
Internet-related resources available there. In response to rapidly changing
market conditions in the consumer e-health market, we made a strategic decision
in December of 1999 to move away from our business-to-consumer model and pursue
a business-to-business content syndication model. This resulted in a revision to
our personnel requirements, mainly affecting our San Francisco operations. We
believe that consolidating our production, editorial and marketing teams at our
corporate headquarters in Atlanta will allow us to accomplish our current
business objectives by streamlining our ability to produce and distribute new
health information products. The key elements of our strategy are:
GROW OUR BUSINESS-TO-BUSINESS SYNDICATION NETWORK. Our revenue model is
based on the syndication of adam.com's health and medical content to a
variety of businesses engaged in distributing health and medical
information. In addition to guaranteed minimum page view fees, licensing and
platform fees, under some agreements, we share in advertising, e-commerce
and sponsorship revenue with our syndication network customers. This revenue
sharing enables us to capitalize on their growth. We believe that the need
for online health information will continue to increase as more
consumer-based content sites look to providing health information as either
their predominant content offering or as a value-added content offering. We
also believe that there will be an increased demand for our online health
information as more healthcare providers look to the Internet for
efficiencies in providing health education services to their customers. More
importantly, we believe that we can offer each of our target customers
solutions for reducing their infrastructure investments and speeding their
time to market.
EXPAND INTO NEW MARKETS. We plan to aggressively continue marketing our
content to health-related Web sites, and we are evaluating our ability to
expand the reach of adam.com's content into other areas of the e-health
market. For example, we believe our health-content, which includes our
visuals,
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patient education materials and tools, can provide health information
technology businesses a solution to delivering relevant health information
between a provider and patient at the point of care.
We plan to increase our presence in the international marketplace by
engaging additional international resellers in an effort to increase unit
volume sales of adam.com product outside the United States. Following the
strategy of our domestic markets we plan to grow our international
syndication network through business-to-business partnerships.
LIDO.com, a subscribable database of more than 10,000 of adam.com's
medical illustrations for legal professionals, is an example of how our
image content can be offered to other vertical markets outside of e-health.
We plan to leverage the architecture and business model that was developed
for LIDO.com, a business unit of adam.com created in April 1999, to other
vertical businesses such as educational and pharmaceutical companies and to
the broadcast market who may have a need for medically-related clip media
LEVERAGE OUR CURRENT EDUCATION MARKET FOR ONLINE OPPORTUNITIES. In the
education market, we expect a rapid shift towards e-Learning, online course
management systems and Web-based curriculum. We anticipate our strength and
brand awareness in the education market to allow us to quickly capitalize on
these new and growing opportunities. Our existing education CD-ROM products
form a content basis for online product offerings that we expect to allow us
to continue to expand our existing relationships in the traditional
education community while increasing our ability to reach other education
markets such as online continuing education and distance learning programs.
In addition, we will continue to work with our educational distributors to
develop programs to allow us to enter into new educational markets with our
adam.com content. We are also evaluating opportunities to assist companies
that produce Web-based curriculum and offer Internet-based solutions for
virtual e-courses.
ENHANCE OUR CONTENT. adam.com has created a repository of over 700
gigabytes of health and medical information. Harvesting this content and
creating new products to meet our customers needs is a major focus of
adam.com's long-term strategy. In addition, we believe that having a strong
technology platform upon which to distribute our content is vital to
providing new products and up-to-date information to our customers. We are
developing a content management system that will manage workflow from
creation to delivery of adam.com content and provide the necessary
infrastructure we will need to rapidly deploy and manage these products
across our syndication network.
INCREASE PRODUCTION, DEVELOPMENT, SALES TEAMS, CAPITAL BASE AND
BUSINESS. In order to service the broader customer base we are developing,
increase our focus on new markets and products and develop infrastructure,
we plan to hire additional employees, most notably in the production,
development, and sales and marketing areas. Additionally, we will actively
seek opportunities for strategic transactions intended to raise capital to
develop our emerging business strategy, potentially including the issuance
of additional equity or debt instruments. Finally, we will continue to
evaluate and may enter into strategic transactions, including mergers and
acquisitions. We currently have no agreements or understandings relating to
any such strategic transactions.
MARKETS
INTERNET
For the nine months ended December 31, 1999, sales of products into the
Internet market accounted for approximately 23% of our revenues. This was the
first time period during which adam.com actively pursued revenue in the Internet
arena, and we expect the proportion of Internet revenues to total revenues to
increase during calendar 2000 as we continue to execute on our Internet
strategies.
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Currently, our Internet-related revenues are derived from activities related
to providing adam.com health information to Web-based, third parties which
currently includes online syndication, page view-based user fees and
advertising, and subscription-based license fees.
The assets and tools adam.com uses in this market are:
- The Health Illustrated Series, consisting of:
--HEALTH ILLUSTRATED ENCYCLOPEDIA, providing definitions, symptoms,
causes and remedies for thousands of medical conditions and information
on injuries, surgeries, tests, nutrition and preventative measures.
Containing approximately 4,000 articles covering more than 1,500 medical
topics, the Encyclopedia is enhanced with over 85,000 hyperlinks between
articles and dozens of medical specialty areas.
--HEALTH CENTERS, topical information centers that cover broad, commonly
referenced health subjects. Currently, we plan to offer five Health
Centers: Children's Health, Pregnancy Health, Cardiovascular Health,
Outdoor Health and Child Safety Health.
--HEALTH PRESENTATIONS, includes a series of more than 100 interactive
Web-enabled presentations on common surgeries, tests and procedures and a
library of more than 1,100 patient education documents that cover a
variety of medical and healthcare topics such as treatments, after care,
and associated gains and risks.
--VISUAL HEALTH TOOLS, a collection of interactive tools and applications
including a Web-enabled version of adam.com's dissectible anatomy
- The Health Image Catalog, consisting of:
--More than 40,000 medical illustrations, 3D images, animations and
broadcast quality digital video segments
--An e-commerce platform that allows for licensing and subscriptions to
the content
- The Health Content Platform is an XML-based content management platform
and delivery system used for creation and delivery of our products to
customers and the subsequent administration of the content across the
network.
EDUCATION
For the nine months ended December 31, 1999, sales of CD-ROM products to the
education market accounted for approximately 65% of our revenues. While sales of
these products still represent a significant portion of adam.com's revenues, we
expect this percentage to decrease during calendar 2000 as we focus on the
migration of our educational CD-ROM business to Internet-based products.
We have historically created software products with varying levels of
content, functionality and price for the education market. Our educational
products serve the medical school, undergraduate, allied health (nursing,
physical therapy, occupational therapy, etc.) and K-12 markets. Some of the
products that contribute to our education market revenues are:
A.D.A.M. INTERACTIVE ANATOMY ("AIA") is our flagship product released in
April 1997, that provides an integrated environment for the teaching and
study of human anatomy at the higher education and professional levels.
Powerful tools and search capabilities offer the user access to over 20,000
anatomical structures in six different views. Three-dimensional images based
on the Visible Human data set, cadaver photographs from the Bassett
collection, pinned anatomical images and Slide Show (a built-in curriculum
integration and authoring tool) augment AIA's digital medical illustrations.
Also, one-button Internet access provides solutions for distance learning as
well as offering seamless integration of the Internet and its capabilities.
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A.D.A.M. BENJAMIN/CUMMINGS INTERACTIVE PHYSIOLOGY ("IP") is a series of
seven co-developed products between adam.com and Pearson Education ("AWL"),
which were designed for the undergraduate health sciences curriculum and
completed in stages during 1996, 1997 and early 1999. Each module is
designed to integrate anatomical structures with physiological functions. IP
uses animation, audio, narration and video to explain difficult and
complicated physiology concepts and processes. Its organization and
self-test features provide the methodology for curriculum integration.
A.D.A.M. AT HOME SERIES--SCHOOL EDITIONS include A.D.A.M. The Inside
Story-School Edition, Nine Month Miracle-School Edition and Life's Greatest
Mysteries-School Edition. These products include comprehensive teachers'
guides to meet the needs of a classroom setting. A.D.A.M. The Inside Story-
School Edition enables study of human anatomy and physiology in a middle
school biology or life sciences course, while, Nine Month Miracle-School
Edition is designed to supplement the study of human reproduction at the
high school level. The teachers' guides for each product include student
worksheets, ideas for classroom activities, laboratory exercises, a
bibliography of additional learning resources and teacher reference
materials.
A.D.A.M. MEDIA PRO contains over 2,000 anatomical clinical illustrations
and A.D.A.M. MEDIA contains close to 500 anatomical illustrations and 65
animation for use in presentations and on web pages displayed on an
Intranet. All of the images are in a JPEG format, making them compatible
with the most popular presentation packages available, such as PowerPoint,
Adobe PhotoShop and AIA.
PROFESSIONAL
For the nine months ended December 31, 1999, sales of products to the
professional market accounted for approximately 5% of our revenues. We have
historically marketed our software, as well as licensed our content and software
technologies to other potential software developers in the healthcare and health
information markets. Our professional market products serve the healthcare,
pharmaceutical, and legal markets. We do not plan to focus any resources in this
market in the future except as can be developed through our Internet online
syndication strategy.
CONSUMER
For the nine months ended December 31, 1999, sales of CD-ROM products to the
consumer market accounted for approximately 5% of our revenues. We have created
several products specifically for the general consumer market which consists of
our At-Home Series of CD-ROM products sold through distributors to consumer
retail outlets. adam.com does not intend to continue to focus any resources in
this market except in connection with our Internet online syndication strategy.
PRODUCT AND CONTENT DEVELOPMENT
We seek to expand our syndication network and leverage our position with our
current syndication customers by developing additional content, products and
technologies. We are developing complimentary product offerings that are derived
from our proprietary repository of health information and from content and
products that we acquire in strategic transactions. In addition, we are
developing an advanced distribution platform that will manage the workflow of
our content production from creation to delivery of the information to our
customers. The platform itself will become a value-added component to our
product offerings as more and more opportunities surface where there is a need
for our customers to maintain their own content management systems. Additional
products that we develop may be provided to our current network as content
enhancements or sold as add-ons to existing agreements.
Our repository of health information consists of a vast medical image
database called the Health Image Catalog, the adam.com Health Encyclopedia and
numerous other reference products including Health Presentations, Health
Centers, and Visual Health Tools. The repository is layered with an indexing
scheme and medical professional vocabularies that will communicate with the
platform so that data from
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the repository may be easily extracted, packaged, licensed and managed for a
customer. By maintaining the repository and the platform in this way, we are
able to efficiently develop new products and streamline our time to market for
them. In addition, the use of various vocabularies and indexing terms will allow
us to achieve the broadest possible reach for our content. Development of these
enabling technologies will allow us to create highly targeted products with
different strategic purposes. Examples include:
- Low-cost, text-only versions of the Health Encyclopedia that would expand
our reach into the health site market;
- Additional health centers that are focused on particular disease states;
and
- Image libraries that can be harvested for various purposes such as medical
and pharmaceutical sales training.
We believe that the combination of a one-of-a-kind health information
repository, a vast majority of which we consider to be "evergreen" in nature,
and a tightly integrated content management system will allow us to achieve a
considerable competitive advantage in the Internet content provider market.
SALES, MARKETING AND DISTRIBUTION
During the nine months ended December 31, 1999, we began to transition the
majority of our marketing efforts towards creating greater awareness for
adam.com, our newly launched consumer health destination Web site. Our
integrated marketing approach included market research, online and offline
advertising campaigns, and end-user promotional activities such as contests and
registration incentives. Media and consumer research allowed us to refine our
targeting and messaging, evaluate ad placement and develop product enhancements.
Internal and external resources were used for research, including site use
statistics, ad tracking, focus groups, and both online and offline surveys. We
also launched advertising campaigns in both online and offline media that
included placing advertisements on other Web sites, in newspapers and magazines
and on the radio.
As the year progressed, our Internet focus and sales and marketing
strategies transitioned as we became a business-to-business content solution
provider. We expect this business model to be much more sustainable over time.
Along with this change in focus, future sales and marketing expenditures should
decrease with the largest portion of our marketing efforts directed toward
building awareness for adam.com content solutions in our target markets. As such
we have teamed up with several outside consulting firms that will assist us in
branding, awareness and promotion of adam.com in the business-to-business,
e-Health content service provider space.
As a fundamental part of our transition from a business-to-consumer to a
business-to-business model, we developed a syndication strategy that allows us
to pursue multi-year, contractually recurring licensing agreements with other
Internet-based companies. Accordingly, we are able to span the entire range of
businesses in the e-Health sector, from consumer health sites, to health
organizations to educational markets and other vertical businesses connected to
health and medical information. As of December 31, 1999, we had content license
agreements with a major portal web site, numerous other well established
consumer health oriented sites and a government agency, the effect of which has
created awareness of the adam.com brand and quality of content while generating
revenue.
During the twelve months ended March 31, 1999, we changed our distribution
model for CD-ROM based software into the education market. As a result, we began
transitioning much of the direct sales activity to an indirect distribution
model, relying mostly on our third party distributors and resellers. During the
second quarter of fiscal 1999, we began reducing our direct sales and marketing
operations, and increased our emphasis on enhancing our distribution and
reseller network. We were able to leverage our strong relationships with leading
educational resellers, resulting in a transition to a 100% indirect sales force
by the end of fiscal 1999. In the future, we will realize smaller margins from
this approach than we have historically achieved.
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STRATEGIC ALLIANCES
We have established a number of important relationships with various
companies that operate in the markets adam.com serves. A summary of our
significant alliances is set forth below:
HEALTHEON/WEBMD--Healtheon/WebMD Corp. has designed and developed an
Internet-based information and transaction platform that facilitates and
streamlines interactions among the participants in the healthcare industry.
Healtheon/WebMD offers to members of the medical profession, the health care
industry and the public on a commercial basis a unique integrated medical
communications platform and extensive online health care information
resource that enables its customers to obtain a broad range of medical and
related information from a single source. Since February 1998, adam.com has
signed numerous agreements with Healtheon/WebMD including an agreement
whereby Healtheon/WebMD distributes our adam.com Interactive Anatomy product
as a premium to its subscribers. Revenues from Healtheon/WebMD comprised 17%
of our overall revenues for the nine months ended December 31, 1999.
CNN NEWSOURCE, A DIVISION OF CNN--During the twelve months ended
March 31, 1998, we signed an agreement with CNN Newssource, a division of
CNN, for distribution of a special compilation of our content into the
broadcast news marketplace. CNN Newssource was granted exclusive domestic
rights to represent our image database to television news broadcasters for
use in enhancing health and medical news coverage. CNN Newssource is
responsible for the sales, marketing and distribution of our content into
the local and national broadcast news market. CNN Networks, including CNN,
CNN Headline News and CNN International were initial customers for this new
service. The agreement between adam.com and CNN Newssource expires in
January 2002.
PEARSON EDUCATION, A SUBSIDIARY OF PEARSON PLC--Addison Wesley Longman
(AWL) is a major publisher for the undergraduate market for science, health
science, nursing and allied health. AWL is a major shareholder and it has
product development and distribution relationships with us. AWL worked with
us to and co-developed a series of multimedia products, known as A.D.A.M.
Benjamin/ Cummings Interactive Physiology, for the undergraduate health
science market. Both companies sell these products, with adam.com focused on
the institutional market and AWL focused on the student market. AWL and
adam.com are currently Web enabling the seven physiology series products.
YAHOO!--Yahoo!, a leading global internet company, licenses adam.com
content for its new Yahoo! health site. The adam.com content is highly
branded and each page of our content on Yahoo! offers a link to the adam.com
Web site. We believe the Yahoo! visibility will allow us to broaden our
brand awareness and increase interest in our content products. adam.com and
Yahoo! have a two-year licensing agreement that expires in May 2001.
MANUFACTURING
The production of our software products includes CD-ROM pressing, assembly
of purchased product components, printing of product packaging and user manuals
and shipping of finished goods, which is performed by third-party vendors in
accordance with our specifications and forecasts. We believe that there are
alternate sources of these services that could be implemented without material
delay.
PROPRIETARY RIGHTS AND LICENSES
We regard our software and the adam.com content repository as proprietary.
We rely primarily on a combination of copyright, trademark, trade secret and
confidential information laws, employee and third-party nondisclosure agreements
and other methods to protect our proprietary rights. There can be no assurance
that these protections will be adequate to protect our intellectual property
rights or that our competitors will not independently develop technologies that
are substantially equivalent or superior to our technologies. We have obtained
federal registrations of the trademarks "A.D.A.M.," "Scholar Series,"
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"Nine Month Miracle," and the "Walking Man" logo in the United States. We have
applied for registration of approximately ten additional trademarks in the
United States. We have also obtained registrations of the "A.D.A.M." trademark
in 22 foreign countries. We have applications for registration of the mark
pending in an additional five countries. We do not currently hold any patents or
have any patent applications pending. We believe that, due to the rapid pace of
innovation within the multimedia and software industries, factors such as the
technological and creative skills of our personnel and the quality of the
content of our products are more important in establishing and maintaining a
leadership position within the industry than are the various legal protections
of its technology.
We license certain software programs from third-party developers and
incorporate them into our products. Such software products are widely licensed
by the respective developers thereof for incorporation by other developers (like
adam.com) in their products and provide specific functionality required in order
to operate the product. For example, we license Macromind Director, a program
distributed by Macromedia, which permits a product to display animated
sequences. This product is incorporated in several adam.com products. Generally,
the licenses grant to us non-exclusive, worldwide rights with respect to the
subject program and terminate only upon a material breach by us. Certain of the
licenses require payment of annual license fees (not exceeding $25,000 per annum
in the aggregate). If a third-party agreement for licensed software expires or
terminates and we are unable to renew or extend the agreement, we could be
required to engage in independent development of replacement software or to
obtain a suitable replacement. We generally believe that licenses for
alternative software programs are available on commercial terms from a number of
licensors. We own and do not license the anatomical illustrations included in
the adam.com image database, but we license certain additional multimedia
content from various third parties that we incorporate into our products,
including video, photographs, music and text. Such licenses generally provide us
with fully-paid perpetual, worldwide licenses to include the licensed content in
a designated product.
We believe that our products, trademarks and other proprietary rights do not
infringe upon the proprietary rights of third parties. However, as the number of
software products in the multimedia industry increases and the functionality of
these products further overlaps, software developers may become increasingly
subject to infringement claims. There can be no assurance that third parties
will not assert infringement claims against us in the future with respect to
current or future products, trademarks or other works of adam.com or that any
assertion will not require us to enter into royalty arrangements or result in
costly litigation.
COMPETITION
The market for the delivery of healthcare content services and products on
the Internet is relatively new, intensely competitive and rapidly changing. With
no substantial barriers to entry, over 20,000 Web sites presently offer users
healthcare content, products and services, and we expect that the number of
these sites will continue to grow.
While we do not directly compete with these consumer-oriented Web sites for
user traffic, we do compete with health content providers that are currently
distributing health information in either online or through traditional
distribution channels.
Presently, we consider our competitors to be the following types of
companies:
- Publishers and distributors of traditional print media targeted to
healthcare professionals, patients and health-conscious consumers, many of
which have established or may establish their own Web sites or decide to
license their content to others;
- Large healthcare information systems companies, such as McKesson HBOC;
- Online services or Web sites that are currently offering health
information to the healthcare industry generally, such as Healtheon/WebMD
and Intelihealth;
8
<PAGE>
- Public sector and non-profit Web sites that provide healthcare information
without advertising or commercial sponsorships, such as the American
Medical Association;
- Web sites such as Yahoo! and America Online, which provide access to
healthcare related information and services; and
- Vendors of healthcare information, products and services distributed
through other means.
Many of our competitors enjoy significant competitive advantages including:
greater resources that can be devoted to the development, promotion and sale of
their products and services; longer operating histories; greater brand
recognition; and larger customer bases. Due to such factors, there can be no
assurances that we will be able to continue to compete effectively in this
market.
We believe that the primary competitive factors in our target markets are:
- comprehensiveness of content;
- integration with existing technologies;
- brand name recognition;
- reliability;
- scalability; and
- quality of support.
We believe that we are the only provider among our competitors to serve all
of our target markets with an integrated solution for multimedia-based health
information. We expect that the size, uniqueness, and high barrier to
competitive entry for replication of our repository will allow us to compete
favorably in each of our markets.
We presently syndicate our content to other competing Web sites, including
Yahoo! and Healtheon/ WebMD. We believe that the benefits of content
syndication, including increased awareness of the adam.com brand and additional
revenue from page view traffic and advertising opportunities, outweigh the
disadvantages of a potential increase in competition that may result from our
content syndication to these competitors.
EMPLOYEES
As of December 31, 1999, adam.com had 103 employees. Of these, 59 were
engaged primarily in product development, 23 in sales and marketing and 21 in
finance and administration with 44 employees located in Atlanta and 59 located
in San Francisco. In February 2000 the decision was made to relocate the
production group from San Francisco to Atlanta in accordance with the current
business plan and strategy. We expect the relocation of these production
resources to be complete no later than June 30, 2000.
Our employees are not covered by a collective bargaining agreement and we
have experienced no work stoppages. We consider our employee relations to be
good. We believe that our future growth and success will depend upon our ability
to retain and continue to attract highly skilled and motivated personnel in all
areas of our operations.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Certain statements made in this report, and other written or oral statements
made by or on behalf of adam.com, may constitute "forward-looking statements"
within the meaning of the federal securities laws. When used in this report, the
words "believes," "expects," "estimates," "intends" and similar expressions are
intended to identify forward-looking statements. Statements regarding future
events and developments and our future performance, as well as our expectations,
beliefs, plans, intentions, estimates or projections
9
<PAGE>
relating to the future, are forward-looking statements within the meaning of
these laws. Examples of such statements in this report include descriptions of
our plans and strategies with respect to developing the site, our plans to
develop additional strategic partnerships, our intention to add e-commerce to
our business strategy, and our continuing growth. All forward-looking statements
are subject to certain risks and uncertainties that could cause actual events to
differ materially from those projected. We believe that these forward-looking
statements are reasonable; however, you should not place undue reliance on such
statements. These statements are based on current expectations and speak only as
of the date of such statements. We undertake no obligation to publicly update or
revise any forward-looking statement, whether as a result of future events, new
information or otherwise.
The following are some of the factors that could cause our actual results to
differ materially from the expected results described in the our forward-looking
statements:
WE ARE A YOUNG COMPANY WITH A NEW INTERNET-BASED STRATEGY AND WE MAY
CONTINUE TO INCUR LOSSES. We have experienced substantial losses of
$9.6 million for the nine months ended December 31, 1999, $2.1 million in the
twelve months ended March 31, 1999, $5.4 million in the twelve months ended
March 31, 1997, $3.9 million in the twelve months ended March 31, 1996 and
$3.2 million in the twelve months ended March 31, 1994. We may incur future
losses in connection with implementing our new Internet-based strategy. We
cannot be certain that we can obtain profitability in any future period.
WE MAY BE UNABLE TO OBTAIN SUFFICIENT CAPITAL TO PURSUE OUR NEW
INTERNET-BASED STRATEGY, WHICH WOULD HURT OUR FINANCIAL RESULTS. Since
inception we have funded operations with debt and equity capital. In the nine
months ended December 31, 1999, our total costs and expenses increased to
$13.1 million from $5.2 million in the nine months ended December 31, 1998. This
increase was caused in large part by our decision to focus on becoming an online
provider of healthcare information. We except to continue to have significant
cash needs as we continue to pursue and expand our Internet-based strategy and
offerings, and the funds currently available to us may be inadequate. There can
be no assurance that capital will be available to us on satisfactory terms or at
all.
Under the terms of the Company's $6 million debenture issued to Fusion
Capital Fund I, LLC in January 2000, the cash received was pledged as security
to Fusion to secure the Company's obligation to convert the principal amount of
the debenture to common stock under the terms of the agreement. Even if the
Company is able to access all $12 million available under the agreement with
Fusion, we may still need additional capital to fully implement our business,
operating and development plans.
In addition, one result of the raising of additional capital through the
conversion of the debenture issued to Fusion would be the issuance of additional
shares of our common stock. The issuance of additional shares to Fusion pursuant
to the conversion the currently outstanding debenture or an additional debenture
sold to Fusion could result in substantial dilution to our existing
shareholders.
WE MAY BE UNABLE TO COMPETE EFFECTIVELY WITH OTHER ONLINE PROVIDERS OF
HEALTHCARE INFORMATION, WHICH WOULD CAUSE OUR INTERNET-BASED STRATEGY TO BE
UNSUCCESSFUL. The market for providing healthcare information online is
intensely competitive, and we expect competition to increase in the future. As a
new entrant into this market, we expect our sensitivity to competitive pressures
to be especially strong until we can firmly establish ourselves. Our current
competitors include Dr. Koop.com and Healtheon/WebMD. We may not be able to
compete effectively against these companies, and if we fail to compete
effectively we may suffer reduced gross margins and loss of market share.
Our competitors are generally larger and more established than we are and
therefore may have advantages over us because of their longer operating
histories, greater name recognition, or greater financial, technical and
marketing resources. As a result, they may be able to adapt more quickly to new
or emerging technologies and changes in customer requirements. They can also
devote greater resources to the promotion and sale of their products or services
than we can. Furthermore, mergers and acquisitions
10
<PAGE>
among our competitors, such as the November 1999 merger of Healtheon, WebMD,
MEDE America Corporation and Medcasi to form Healtheon/WebMD, could intensify
our existing competition.
STRATEGIC RELATIONSHIPS WILL BE AN IMPORTANT PART OF OUR FUTURE
SUCCESS. The success of our business is and will be due in part to our ability
to enter into successful strategic marketing alliances and other strategic
relationships. There can be no assurance that:
- such existing or contemplated relationships will be commercially
successful;
- we will be able to find additional strategic partners;
- we will be able to negotiate terms acceptable to us with potential
strategic partners; or
- potential strategic relationships, if established, will be commercially
successful.
The potential increased revenues from such relationships may be reduced by
requirements to provide volume price discounts and other allowances and
potential significant costs incurred in customizing products. In addition, there
can be no assurance that parties with whom strategic relationships are
established will not pursue alternative technologies or develop their alternate
products in addition to or in lieu of ours, either on their own or in
collaboration with others, including our competitors. Such alternative
technologies or products may be in direct competition with our products and may
significantly erode the benefits of such strategic relationships.
WE FACE RAPID TECHNOLOGICAL CHANGE IN THE ONLINE HEALTH INFORMATION INDUSTRY
AND OUR BUSINESS WILL SUFFER IF WE CANNOT QUICKLY ADAPT TO THIS CHANGE. Rapid
changes in technology pose significant risks to us. As a new entrant into the
market of Internet-based health information, we will be required to adapt
quickly, and without significant prior experience, to rapid changes in
technologies related to the Internet. Any failure by us to timely develop and
disseminate new content or to update and enhance our current content in the face
of changing technologies could aversely affect our ability to maintain market
share.
WE MAY BE UNABLE TO SUCCESSFULLY ACQUIRE COMPLEMENTARY BUSINESSES, WHICH
WOULD LIMIT OUR POTENTIAL GROWTH TO INTERNALLY GENERATED GROWTH ONLY. As part
of our growth strategy, we have recently acquired all of the assets of
Informational Medical Systems, Inc. and drgreene.com. We may continue to acquire
or make investments in, companies with products, technologies or professional
services that we determine to be useful in pursuing our business of providing
health-related information over the Internet. In acquiring companies in the
future, we could encounter difficulties in assimilating their personnel and
operations into our Company. These difficulties could disrupt our ongoing
business, distract our management and employees, increase our expenses and
adversely affect our results of operations. Future acquisitions may also cause
us to incur expenses such as the amortization of goodwill or in-process research
and development expenses which may affect our earnings. We cannot be certain
that we will successfully overcome these risks with respect to any future
acquisitions. In addition, in the past, we have paid a portion of the
consideration for some our acquisitions by issuing common stock. The issuance of
additional common stock or other securities convertible into common stock in
connection with future acquisitions could dilute the ownership interests of our
existing shareholders.
WE MAY BE UNABLE TO ATTRACT NEW PERSONNEL, WHICH WOULD ADVERSELY AFFECT
IMPLEMENTATION OF OUR NEW INTERNET-BASED STRATEGY. In order to promote the
development of our new Website, we will need to identify, attract and retain
software engineers, web designers and content editors. We will compete with
other companies both within and outside our market for such employees and we may
be unable to attract these employees. If we do not succeed in attracting these
types of new employees, we may be unable to fully implement our new
Internet-based strategy and our business will suffer.
OUR STOCK PRICE IS EXTREMELY VOLATILE AND COULD DECLINE SIGNIFICANTLY. Our
common stock has been publicly traded since our initial public offering on
November 15, 1995. Since that date, the closing price of the common stock has
ranged from a low price of $1.875 per share to a high price of $40 per share,
and there
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<PAGE>
has been significant volatility in the price of our common stock in the past
year. There can be no assurance that the market price of our common stock will
be maintained or that the volume of trading in our shares will not decrease.
The stock prices for many high technology companies, especially those that
base their businesses on the Internet, recently have experienced wide
fluctuations and extreme volatility. This volatility has often been unrelated to
the operating performance of such companies, so our stock price could decline
even if our Internet-based strategy is successful. Such fluctuations have
adversely affected and may in the future adversely affect the market price of
our common stock.
Furthermore, following periods of volatility in the market price of a
company's securities, securities class action claims frequently are brought
against the subject company. To the extent that the market price of our shares
falls dramatically in any period of time, shareholders may bring claims, with or
without merit, against us. Such litigation would be expensive to defend and
would divert management attention and resources regardless of outcome.
WE HAVE ADOPTED CERTAIN ANTI-TAKEOVER PROVISIONS THAT MAY DETER A
TAKEOVER. Our articles of incorporation and bylaws contain the following
provisions that may deter a takeover, including a takeover on terms that many of
our shareholders might consider favorable, such as:
- the authority of our board of directors to issue common stock and
preferred stock and to determine the price, rights (including voting
rights), preferences, privileges and restrictions of each series of
preferred stock, without any vote or action by our shareholders;
- the existence of large amounts of authorized but unissued common stock and
preferred stock;
- staggered, three-year terms for our board of directors; and
- advance notice requirements for board of directors nominations and for
shareholder proposals.
The rights and preferences of any series of preferred stock could include a
preference over the common stock on the distribution of our assets upon a
liquidation or sale of our company, preferential dividends, redemption rights,
the right to elect one or more directors and other voting rights. The rights of
the holders of any series of preferred stock that may be issued in the future
may adversely affect the rights of the holders of the common stock. We have no
current plans to issue preferred stock. In addition, certain provisions of
Georgia law and our stock option plan may also discourage, delay or prevent a
change in control of our company or unsolicited acquisition proposals.
MANY OF OUR SHARES ARE ELIGIBLE FOR FUTURE SALE AND ARE SUBJECT TO
REGISTRATION RIGHTS THAT COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON
STOCK. adam.com has recently registered or is in the process of registering a
significant number of adam.com common stock to certain shareholders pursuant to
a financing transaction with Fusion Capital Fund I, LLC and the asset purchase
agreements for International Medical Systems and DrGreene.com. When registered,
these shares will be freely tradable. The sale of a significant amount of these
shares at any given time could cause the trading price of our common stock to
decline and to be highly volatile.
If our shareholders sell substantial additional amounts of common stock
(including shares issued upon the exercise of outstanding stock options) in the
public market following this offering, the market price of our common stock
could fall. Such sales also could make it more difficult for us to sell equity
or equity-related securities in the future at a time and price that we deem
appropriate.
Certain shareholders may have the right, subject to certain conditions, to
include their shares in certain registration statements relating to our
securities. By exercising their registration rights and causing a large number
of shares to be registered and sold in the public market, these holders may
cause the price of our common stock to fall. In addition, any demand by holders
of registration rights to include shares of
12
<PAGE>
common stock held by them in a registration initiated by us could adversely
affect our ability to raise needed capital.
OUR PRINCIPAL SHAREHOLDERS HAVE SUBSTANTIAL INFLUENCE AND THEIR INTEREST MAY
DIFFER FROM THOSE OF OUR REMAINING SHAREHOLDERS. As of December 31, 1999, our
executive officers, directors and persons who beneficially more than 10% of our
outstanding common stock controlled approximately 25% of the combined
outstanding voting power of our common stock. As a result, these holders exert
substantial influence with respect to all matters submitted to a vote of holders
of common stock, including election of our directors. If our remaining
shareholders have interests that differ from these holders, their needs may not
be met.
ITEM 2. PROPERTIES
Our headquarters are located in approximately 26,000 square feet of leased
office space in Atlanta, Georgia. The space is leased for a term ending in 2002.
In February 1999, we sub-leased approximately 3,400 square feet of our leased
space to another company through the remainder of our lease term.
In January 1999, we leased approximately 2,700 square feet of office space
in San Francisco, California to accommodate the expansion of our Web site
management and production teams. In June 1999 another 1,468 square feet of space
was leased near the existing San Francisco location. By December 1999, all
employees in San Francisco were consolidated in one location consisting of
12,258 square feet of space. In February 2000 we relocated the production unit
back to Atlanta in accordance with the current business plan and strategy.
Currently, only the original lease for 2,700 square feet of office space remains
in effect. The space is leased for a term ending in 2001. If additional
facilities are required, we believe that suitable facilities will be available
at market rates.
ITEM 3. LEGAL PROCEEDINGS
On April 25, 1996, a shareholders' class action lawsuit in Fulton County
Superior Court in Atlanta, Georgia was filed against A.D.A.M. Software, Inc. and
certain of its then officers and directors. The complaint alleges violations of
sections 11, 12(2) and 15 of the Securities Act of 1933, violations of the
Georgia Securities Act and negligent misrepresentation arising out of alleged
disclosure deficiencies in connection with our initial public offering of common
stock which was completed on November 10, 1995. The complaint seeks compensatory
damages and reimbursements for plaintiff's fees and expenses. We and the other
named defendants have filed a motion to dismiss the claim, which is pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the last
quarter of fiscal 2000.
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PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is quoted on the NASDAQ National Market system under the
symbol "ADAM." The following table sets forth the high and low sales prices of
our common stock as reported by NASDAQ for the twelve months ended March 31,
1999 and the nine months ended December 31, 1999.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
TWELVE MONTHS ENDED MARCH 31, 1999
Quarter ended June 30, 1998............................... 6 5/8 2 7/8
Quarter ended September 30, 1998.......................... 4 1/2 2 1/2
Quarter ended December 31, 1998........................... 5 1/2 2 1/8
Quarter ended March 31, 1999.............................. 7 5/8 2 15/16
NINE MONTHS ENDED DECEMBER 31, 1999
Quarter ended June 30, 1999............................... 40 5 1/2
Quarter ended September 30, 1999.......................... 22 9
Quarter ended December 31, 1999........................... 19 1/4 8 1/8
</TABLE>
At March 29, 2000 there were 153 record holders of our common stock.
We have never paid or declared any cash dividends on our common stock and we
do not intend to pay dividends on our common stock in the near future. We
presently expect to retain its future anticipated earnings to finance
development of and expansion of our business. The payment by adam.com of
dividends, if any, on our common stock in the future is subject to the
discretion of our board of directors and will depend on our earnings, financial
condition, capital requirements and other relevant factors.
(B) RECENT SALES OF UNREGISTERED SECURITIES
On November 15, 1999 adam.com executed a securities purchase agreement with
Fusion Capital Fund I, LLC pursuant to which it agreed to issue to Fusion up to
two 0% senior secured convertible debentures, each with an aggregate principal
amount of $6.0 million. The first debenture was issued on January 28, 2000, and
the purchase price for the first debenture was $6.0 million in cash. The
issuance of the first debenture was made pursuant to Rule 506 under the
Securities Act of 1933, as amended ("Rule 506").
Subject to certain limits on conversion and the redemption rights, each
month during the term of the first debenture Fusion has the right to convert up
to $1.0 of the principal amount of the first debenture, plus any amounts for any
prior month that have not been converted, into shares of our common stock at the
applicable conversion price. The conversion price per share is equal to the
lesser of:
- the closing bid price of our common stock on the day of submission of a
conversion notice by Fusion;
- the average of the two lowest closing bid prices of our common stock
during the 10 trading days prior to the submission of a conversion notice
by Fusion; or
- $16.76, which is 130% of the average of the closing bid prices of our
common stock for the 10 trading days immediately preceding January 28,
2000, the closing date. This is referred to as the "Fixed Conversion
Price".
If the closing sale price of our common stock is below the Fixed Conversion
Price for any three consecutive trading days, we have the unconditional right to
suspend conversions until the earlier of (1) our revocation of such suspension
and (2) when the closing sale price of our common stock is above the Fixed
Conversion Price for any three consecutive trading days.
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<PAGE>
Additionally, under the terms of the purchase agreement with Fusion, in
connection with the issuance of the first debenture, Fusion received 59,542
shares of our common stock as a commitment fee. The sale of these shares to
Fusion was also made in reliance on Rule 506.
The first debenture was be secured by a pledge of $6.0 million in cash by
adam.com, which was considered restricted cash of adam.com. adam.com is the
legal and beneficial owner of the cash and is also be the legal and beneficial
owner of all interest and investment income earned with respect to the proceeds
while held as restricted cash. adam.com will direct the investment of the cash.
Fusion has a security interest on customary terms in the cash. We expect that
the amount of cash subject to Fusion's security interest will be reduced at a
rate of at least $1.0 million per month as the outstanding principal amount of
the debenture is reduced upon conversion into common stock. The corresponding
amount of cash will become unrestricted cash of adam.com.
As of March 30, 2000, Fusion has converted approximately $4.1 million of the
principal amount of the first debenture into shares of our common stock.
Consequently, $4.1 million of the $6.0 million in cash pledged by us to secure
our obligations with respect to the first debenture has become unrestricted and
freely available to us.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS
ENDED TWELVE MONTHS ENDED MARCH 31,
DECEMBER 31, -----------------------------------------
1999 1999 1998 1997 1996
------------ -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net revenues.................................... $ 3,144 $ 5,242 $6,888 $ 4,591 $ 6,447
Cost and expenses:
Cost of revenues.............................. 559 1,421 1,178 1,280 1,491
General and administrative.................... 3,087 1,571 1,293 2,369 2,008
Product and content development............... 5,607 2,074 1,512 2,260 2,847
Sales and marketing........................... 2,754 2,704 2,778 4,494 4,090
Restructuring................................. 1,049 47 -- 490 --
------- ------- ------ ------- -------
Total costs and expenses.................... 13,056 7,817 6,761 10,893 10,436
------- ------- ------ ------- -------
Income (Loss) before interest income............ (9,912) (2,575) 127 (6,302) (3,989)
Interest income (expense), net.................. 158 395 526 861 98
------- ------- ------ ------- -------
Income (loss) before income taxes, minority
interest and extraordinary item............. $(9,754) $(2,180) $ 653 $(5,441) $(3,891)
Income taxes.................................... -- -- (75) -- --
------- ------- ------ ------- -------
Net income (loss) before minority interest and
extraordinary item.......................... $(9,754) $(2,180) $ 578 $(5,441) $(3,891)
Minority interest in consolidated subsidiary.... 175 -- -- -- --
------- ------- ------ ------- -------
Net income (loss) before extraordinary item... $(9,579) $(2,180) $ 578 $(5,441) $(3,891)
Extraordinary loss from early extinguishment of
debt, net of income tax benefit of $29........ -- -- -- -- (46)
------- ------- ------ ------- -------
Net income (loss)............................. $(9,579) $(2,180) $ 578 $(5,441) $(3,937)
======= ======= ====== ======= =======
Net income (loss) per share..................... $ (2.04) $ (0.48) $ 0.12 $ (1.03) $ (1.14)
======= ======= ====== ======= =======
Weighted average number of common shares and
share equivalents outstanding, basic.......... 4,707 4,528 4,916 5,258 3,673
======= ======= ====== ======= =======
Weighted average number of common shares and
share equivalents outstanding, diluted........ 4,707 4,528 4,959 5,258 3,673
======= ======= ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, -----------------------------------------
1999 1999 1998 1997 1996
------------ -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................... 1,477 2,369 704 2,422 5,352
Working capital (deficiency)................... (815) 6,393 9,011 9,982 15,354
Total assets................................... 7,736 8,970 11,900 13,662 18,871
Short-tem debt................................. 733 -- -- -- 250
Total shareholders' equity (deficit)........... 3,377 7,796 10,713 11,555 16,896
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND NOTES THERETO PRESENTED ELSEWHERE IN THIS ANNUAL REPORT ON FORM
10-K.
OVERVIEW
adam.com, Inc. is a leading business-to-business content service provider of
health and medical information products. The Company's primary markets are
Internet-based health information sites, health organizations, education, and
other vertical markets engaged in providing or using health and medical
information. Founded in 1990, adam.com is headquartered in Atlanta, Georgia and
has historically created, published and marketed medical and health-related
information content that was delivered to end-users primarily through multimedia
CD-ROM, but also included a variety of other second-tier distribution mediums,
including broadcast, print and Internet-ready applications. Historically,
adam.com has marketed its products in education, consumer retail and
professional markets. Since January 1999, adam.com has taken significant steps
to transition itself as a content service provider of health, medical and
wellness information primarily distributed online. During 1999 the Company
changed its year end from March 31 to December 31.
During the nine months ended December 31, 1999, adam.com made the strategic
decision to focus the majority of its efforts on the online distribution of
consumer health information, resulting in the May 1999 launch of www.adam.com,
adam.com's consumer health destination. In connection with this redirected
strategy, we decided to reduce substantially further sales and marketing
efforts, including product updates and upgrade support, for certain of our
historical products as of April 1, 1999. As our Internet strategy evolved during
the year, adam.com refined its focus further to concentrate efforts where the
company found its highly recognized content in demand by the growing number of
health and medically oriented sites on the Web. Today, adam.com's Internet
business model is based on the syndication of adam.com's award winning health
and medical content to a variety of Web-based and other businesses including
health sites, Internet portals, e-commerce sites, media sites, health plans,
governments, and institutions.
Revenue from sales of software products are generally recognized at the time
of shipment to customers, distributors and resellers. Revenues from royalty
agreements are recognized as earned based upon performance or product shipments.
Licensing revenue is recognized when we have determined that:
(1) contracts are finalized in cases where no further performance by us is
required; or
(2) over the term of the contract in cases where further performance by us
is required;
(3) there are no significant return or acceptance provisions; and
(4) fees from the arrangement are fixed and determinable.
Internet revenues consist of platform license fees and page view/advertising
fees. Platform license fees are recognized ratably over the term of the license
agreement and page view/advertising fees are recognized as earned based on page
hits by users. We record allowances for product returns based on historical
experience and anticipated returns. Payments received in advance of shipments
are recorded as deferred revenue in the balance sheet and are recognized as
revenue when the related software is shipped and all applicable obligations are
fulfilled.
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RESULTS OF OPERATIONS
The following table sets forth for the periods indicated selected financial
data and the percentages of our net revenues represented by each line item and
the percentage change in each line item.
<TABLE>
<CAPTION>
NINE MONTHS TWELVE MONTHS
ENDED ENDED
DECEMBER 31, MARCH 31,
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues................................................ 100% 100% 100% 100%
Cost and expenses:
Cost of revenues........................................ 17.8% 23.9% 27.1% 17.1%
General and administrative.............................. 98.2% 48.3% 30.0% 18.8%
Product and content development......................... 178.3% 26.1% 39.6% 22.0%
Sales and marketing..................................... 87.6% 24.4% 51.6% 40.3%
Restructuring........................................... 33.4% 0.0% 0.9% 0.0%
------ ----- ----- ----
Total costs and expenses............................ 415.3% 122.7% 149.1% 98.2%
====== ===== ===== ====
Operating income (loss)..................................... (315.3%) (22.7%) (49.1%) 1.8%
</TABLE>
The following table sets forth for the periods indicated the revenues
derived by us from product sales, license fees and royalty income in the
academic, consumer, professional, online syndication, and from other sources.
Other revenues include support services, such as training, and other non-market
specific sales. We expect future revenues from the sales of products to the
academic, consumer and professional markets to decrease significantly as we
focus on our Internet strategies.
<TABLE>
<CAPTION>
NINE MONTHS TWELVE MONTHS
ENDED ENDED
DECEMBER 31, MARCH 31,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Education.................................................. $2,053 $3,474 $4,068 $ 5,357
Consumer................................................... 146 227 289 652
Professional............................................... 132 423 695 821
Internet................................................... 732 -- -- --
Other revenues............................................. 81 140 190 58
------ ------ ------ -------
$3,144 $4,264 $5,242 $26,888
====== ====== ====== =======
</TABLE>
NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1998
Total net revenues decreased $1,120,000, or 26.3%, to $3,144,000 for the
nine months ended December 31, 1999 compared to $4,264,000 for the nine months
ended December 31, 1998. The decrease is primarily attributable to a $1,421,000
decrease in net revenues from the education market as we moved our focus to the
online health market.
Net revenues from the online syndication market increased to $732,000 for
the nine months ended December 31, 1999 compared to $0 for the nine months ended
December 31, 1998. During the nine months ended December 31, 1999, we began to
generate revenue from our Internet strategy through co-branding, advertising,
sponsorship, and LIDO.com subscriptions. As a percent of total net revenues, net
revenues from the online syndication market were 23.3% for the nine months ended
December 31, 1999.
Net revenues from the education market decreased $1,421,000, or 40.9%, to
$2,053,000 for the nine months ended December 31, 1999 compared to $3,474,000
for the nine months ended December 31, 1998. The decrease is primarily due to
decreased selling prices for products and decreased number of units sold. As a
percent of total net revenues, net revenues from the education market decreased
to 65.3% for the nine months ended December 31, 1999 compared to 81.5% for the
nine months ended December 31, 1998.
18
<PAGE>
Net revenues from the professional market decreased $291,000, or 68.8%, to
$132,000 for the nine months ended December 31, 1999 compared to $423,000 for
the nine months ended December 31, 1998. The decrease is attributable to (1) a
decrease in revenue of $130,000 related to MLI series products, which decreased
to $14,000 for the nine months ended December 31, 1999 from $144,000 for the
nine months ended December 31, 1998 and (2) a decrease in revenue of $161,000
related to custom services and license fees, which decreased to $118,000 for the
nine months ended December 31, 1999 from $279,000 for the nine months ended
December 31, 1998. As a percent of total net revenues, net revenues from the
professional market decreased to 4.2% for the nine months ended December 31,
1999 compared to 9.9% for the nine months ended December 31, 1998.
Net revenues from the consumer market decreased $81,000, or 35.7%, to
$146,000 for the nine months ended December 31, 1999 compared to $227,000 for
the nine months ended December 31, 1998. This decrease was due to our decision
in 1997 to leave the consumer market. As such we experienced continued reduced
sales activity, insignificant consumer product marketing expenditures, and
incurred no product upgrade costs for the consumer market during the nine months
ended December 31, 1999 compared to the nine months ended December 31, 1998. As
a percent of total net revenues, net revenues from the consumer market decreased
to 4.6% for the nine months ended December 31, 1999 compared to 5.3% for the
nine months ended December 31, 1998.
Average net revenue for the 30,000 units of software sold for the nine
months ended December 31, 1999 increased to approximately $61.00 per unit
compared with approximately $47.00 per unit for 70,000 units sold for the nine
months ended December 31, 1998. This was the result of (1) reduced unit sales of
our lower priced consumer products for the nine months ended December 31, 1999
and (2) increased unit sales of higher priced multi-SKU products as a proportion
of total units. Unit shipments of lower priced, lower margin consumer products
were approximately 4,000 for the nine months ended December 31, 1999 compared to
5,000 for the nine months ended December 31, 1998. Approximately 58% of revenues
for the nine months ended December 31, 1999 were derived from product shipments,
compared to 77% for the nine months ended December 31, 1998. We expect future
sales of our CD-ROM products to decrease as we focus on our Internet strategies.
Cost of revenues decreased $458,000, or 45.0%, to $559,000 for the nine
months ended December 31, 1999 compared to $1,017,000 for the nine months ended
December 31, 1998. Cost of revenues, which includes the cost of support,
packaging, documentation, royalties and amortization of capitalized software
development costs, decreased primarily due the lower volumes of products sold
and reduced amortization expenses for capitalized software development costs.
Amortization of capitalized software development costs decreased $286,000, or
70.6%, to $119,000 for the nine months ended December 31, 1999 from $405,000 for
the nine months ended December 31, 1998. The decrease in amortization is the
result of previously capitalized costs having become fully amortized in prior
years.
Sales and marketing expense increased $693,000, or 33.6%, to $2,754,000 for
the nine months ended December 31, 1999 from $2,061,000 for the nine months
ended December 31, 1998. We experienced large increases in Advertising, Trade
Show expenses and Public Relations costs for the nine months ended December 31,
1999 compared to the nine months ended December 31, 1998 as a result of
executing our transition from an education company to an Internet company. The
decreases we expected in sales costs due to the release of the majority of our
sales staff in March 1999, did materialize but were offset by the increases
listed above plus the costs associated with starting up the LIDO.com Web site.
As a percent of total net revenues, sales and marketing expense increased to
87.6% for the nine months ended December 31, 1999 compared to 48.3% for the nine
months ended December 31, 1998 due to the lower sales amounts reported during
the current period.
Product and content development costs increased $4,495,000, or 404.2%, to
$5,607,000 for the nine months ended December 31, 1999 from $1,112,000 for the
nine months ended December 31, 1998. To implement our plan of becoming an online
content provider, we added substantial production and engineering personnel,
through direct hire or by short-term contract, during the nine months ended
19
<PAGE>
December 31, 1999 resulting in large increases in consulting expenses and
salaries. We also increased our purchases of or license of additional content
during the nine months ended December 31, 1999 compared to the nine months ended
December 31, 1998. As a percent of total net revenues, product development costs
increased to 178.3% for the nine months ended December 31, 1999 compared to
26.1% for the nine months ended December 31, 1998.
General and administrative expenses increased $2,046,000, or 196.5%, to
$3,087,000 for the nine months ended December 31, 1999 from $1,041,000 for the
nine months ended December 31, 1998. This increase is primarily attributable to
increases in rent, salaries, and other general and administrative costs related
to the expansion of the office in San Francisco during the nine months ended
December 31, 1999. As a percent of total net revenues, general and
administrative costs increased to 98.2% for the nine months ended December 31,
1999 compared to 24.4% for the nine months ended December 31, 1998.
During the nine months ended December 31, 1999, the Company recorded a
restructuring charge of $1,049,000 due to the cost of severance agreements for
several executives that were released due to our re-focused Internet strategy.
Interest income, net, decreased $158,000, or 50%, to $158,000 for the nine
months ended December 31, 1999 from $316,000 for the nine months ended
December 31, 1998 due to reduced average cash and short-term securities balances
during the nine months ended December 31, 1999. The lower balances during the
nine months ended December 31, 1999 are the result of the loss during the nine
months ended December 31, 1999.
The Company's consolidated subsidiary ThePort.com, a software development
company, incurred operating losses of $383,000 for the nine month period ended
December 31, 1999. The full amount of this loss is included in Income (loss)
before income taxes and minority interest. The Company is required to recognize
these losses on its financial statements due to the interest in ThePort.com
owned by the Company's Chairman and CEO. The financial statements also reflect a
$175,000 benefit in Minority interest in consolidated subsidiary to account for
the other shareholders' share of the operating loss of ThePort.com.
As a result of the above, we incurred a net loss of $9.6 million for the
nine month period ended December 31, 1999 compared to a net loss of $651,000 for
the nine month period ended December 31, 1998.
FISCAL 1999 COMPARED TO FISCAL 1998
Total net revenues decreased $1,646,000, or 23.9%, to $5,242,000 in fiscal
1999 compared to $6,888,000 in fiscal 1998. The decrease is primarily
attributable to (1) a $750,000 one time, 99-year international license agreement
executed in fiscal 1998, (2) decreased consumer product revenues and
(3) decreased product sales in international markets, reflective of the
downturned economic environments in overseas markets during fiscal 1999. In
March 1997, we ceased direct sales of product to the consumer market and
outsourced distribution. Total unit shipments of our CD-ROM products decreased
to approximately 85,000 units in fiscal 1999 from approximately 120,000 units in
fiscal 1998, but average revenue per unit increased 36% during this same period
resulting from higher priced, education market CD-ROM products and decreased
unit sales of lower priced consumer products.
Net revenues from the education market decreased $1,289,000, or 24.0% to
$4,068,000 in fiscal 1999 from $5,357,000 in fiscal 1998 primarily due to the
one-time international license agreement in fiscal 1998 and decreased selling
prices for products not offset by increases in units sold. Additionally,
international unit product sales decreased $549,000, or 62.1% to $335,000 from
$884,000 in fiscal 1998 reflective of downturned economic markets abroad. As a
percent of total net revenues, net revenues from the education market remained
steady at 78% in fiscal 1999 compared to fiscal 1998.
Net revenues from the professional market decreased $126,000, or 15.3%, to
$695,000 in fiscal 1999 from $821,000 in fiscal 1998. The decrease is primarily
attributable to a decrease in revenue related to MLI
20
<PAGE>
series products introduced during fiscal 1997, which decreased 57% to $156,000
in fiscal 1999 compared to $363,000 in fiscal 1998. The revenue was derived from
sales of custom services, license fees for software components developed by us,
and product sales, each of which accounted for 15%, 63% and 22% of total
professional market net revenues, respectively, in fiscal 1999, compared to 15%,
41% and 44% in fiscal 1998. As a percent of total net revenues, net revenues
from the professional market increased to 13.3% in fiscal 1999 compared to 11.9%
in fiscal 1998.
Net revenues from the consumer market decreased $363,000, or 55.7% to
$289,000 in fiscal 1999 compared to $652,000 in fiscal 1998 due to reduced sales
activity, insignificant consumer product marketing expenditures, and
discontinued product upgrade for fiscal 1999. As a percent of total net
revenues, net revenues from the consumer market decreased to 5.5% in fiscal 1999
compared to 9.5% in fiscal 1998.
Average net revenue for the 85,000 units software sold for the twelve months
ended March 31, 1999 increased to approximately $49.00 per unit compared with
approximately $36.00 per unit for 120,000 units sold for the twelve months ended
March 31, 1998. This was the result of (1) reduced unit sales of our lower
priced consumer products for the year ended March 31, 1999 and (2) increased
unit sales of higher priced multi-SKU products. Unit shipments of lower priced,
lower margin consumer products were approximately 6,000 for the twelve months
ended March 31, 1999 compared to 48,000 for the twelve months ended March 31,
1998. Unit shipments of higher priced multi-SKU products were approximately
3,000 for the nine months ended December 31, 1999 compared to 1,000 for the nine
months ended December 31, 1998. Unit shipments of higher priced multi-SKU
products were approximately 1,500 for the twelve months ended March 31, 1999
compared to 1,000 for the twelve months ended March 31, 1998.
Cost of revenues increased $243,000, or 20.6%, to $1,421,000 in fiscal 1999
compared to $1,178,000 in fiscal 1998. Cost of revenues, which includes the cost
of support, packaging, documentation, royalties and amortization of capitalized
software development costs, increased almost exclusively due to amortization of
capitalized software development costs which increased $220,000, or 64.7%, to
$560,000 in fiscal 1999 from $340,000 in fiscal 1998. The increase in
amortization is primarily the result of reductions in previously recorded
capitalized development costs in order to bring levels closer to expected future
revenues to be generated, or net realizable value (NRV). Reductions in net
realizable value are the result of our decision not to support certain products
moving forward and instead to focus on development and execution of our Internet
strategies. As a percent of total net revenues, cost of revenues increased to
27.1% in fiscal 1999 compared to 17.1% in fiscal 1998.
Sales and marketing expenses decreased $74,000, or 2.7%, to $2,704,000 in
fiscal 1999 from $2,778,000 in fiscal 1998. The elimination of our direct sales
force as a result of a more indirect distribution model at the end of fiscal
1999 did not significantly reduce costs for that year, and other staffing levels
and costs remained consistent with fiscal 1998 levels. As a percent of total net
revenues, sales and marketing expenses increased to 51.6% in fiscal 1999 from
40.3% in fiscal 1998 resulting from the decrease in revenues described above.
Product development costs increased $562,000, or 37.2%, to $2,074,000 in
fiscal 1999 compared to $1,512,000 in fiscal 1998. The increase in product
development costs is primarily attributable to (1) the shift in production
activity to research and development of the Web site, which is not subject to
capitalization of development costs and (2) our $1.2 million grant from the
National Institute of Science and Technology (NIST). As a percentage of total
net revenues, product development expenses increased to 39.6% in fiscal 1999
compared to 22.0% in fiscal 1998. Total expenditures for product development,
including capitalized expenses, increased 6.2% to $2,182,000 in fiscal 1999
compared to $2,054,000 in fiscal 1998. We capitalized product development
expenses of $108,000 and $542,000 in fiscal 1999 and fiscal 1998, which
represented 5.0% and 26.4% of total expenditure for product development for
these respective periods. Amortization of capitalized product development costs
totaled $560,000 and $340,000 in fiscal 1999 and fiscal 1998, and is included in
cost of revenues described above.
21
<PAGE>
General and administrative expenses increased $278,000, or 21.5%, to
$1,571,000 in fiscal 1999 from $1,293,000 in fiscal 1998. As a percentage of
total net revenues, general and administrative expenses increased to 30.0% in
fiscal 1999 compared to 18.8% in fiscal 1998. The increase was mainly due to
increased legal, bad debt, investor relations, and compensation expenses.
Net interest income decreased $131,000, or 24.9%, to $395,000 in fiscal 1999
from $526,000 in fiscal 1998 due to reduced average cash and short-term
securities balances during fiscal 1999. The lower balances during fiscal 1999
are the result of our net loss during fiscal 1999 and the repurchase of our
common stock during both fiscal 1999 and fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, adam.com had cash and cash equivalents of
$1,477,000, and a working capital deficit of $815,000. Cash used in operating
activities was $6,365,000 for the nine months ended December 31, 1999, as
compared to $161,000 for the nine months ended December 31, 1998.
During 1999 we used existing working capital to finance ongoing operations,
fund the development and introduction of new products and acquire capital
equipment. As of March 31, 1999, we held 847,240 shares of common stock
purchased on the open market during the years ended March 31, 1999 and 1998 at
an average price of approximately $2.58 per common share for an aggregate
purchase price of approximately $2,186,000. During the nine months ended
December 31, 1999, we reissued 349,028 shares related to option and warrant
exercises and intangible asset acquisitions. Remaining repurchased shares
represent approximately 9.2% of the shares of common stock issued and
outstanding as of December 31, 1999. adam.com is not authorized to repurchase
additional shares at this time.
We incurred a significant increase in our expenditures during the nine
months ended December 31, 1999 compared to the same period in 1998. This
increase was a result of our strategy to enter the business to consumer Internet
market with development of our consumer oriented web site launched in
March 1999. We hired additional personnel and opened an office in San Francisco
to execute this strategy. The Internet business space changed rapidly in 1999
and we addressed this change by changing our Internet focus from business to
consumer to a business to business focus. As a result, we discontinued incurring
costs to improve our consumer site and consolidated operations back to the
Atlanta headquarters. While this will reduce future expenses, such savings will
be offset by our plan to hire additional personnel and incur additional costs in
2000 to enhance our business to business Internet strategy focusing on the
syndication of our content. Certain of these additional expenses in 2000 are
discretionary and subject to factors such as the timing of hiring qualified
individuals of which the availability is tight.
In December 1999, adam.com issued two notes payable of $500,000 each to an
officer and director of the Company and an outside institutional investor. Both
notes bear interest at 10%, payable upon the maturity date. These notes payable
each included 25,000 warrants exercisable into an equal number of shares of
common stock for $11.11 per share. These notes are scheduled to mature on
December 31, 2000, however, the term may be extended to June 30, 2001, at the
option of each holder. The Company is also required to issue 25,000 additional
warrants to the holders with an exercise price of 80% of the then current value
in the event that the debt is not repaid as of June 30, 2000.
On November 15, 1999 adam.com signed an agreement with a Chicago-based
institutional investor, Fusion Capital Fund I, LLC. In exchange for $6,000,000,
Fusion Capital received a debenture which is convertible into common shares of
adam.com at either 130% of the fair value on the date of closing, or the average
of the two lowest bid prices in the previous 10 trading days to conversion. The
debenture allows for either the Company or Fusion to initiate conversions into
common stock. Through March 30, 2000 the Company has issued 353,600 shares at an
average conversion price of $11.55 to satisfy the conversion obligation and in
exchange for $4,083,000. The unconverted funds are being held in a custodial
account and will be reported as restricted cash. The funds become unrestricted
and available to adam.com as the debenture is converted into common stock. The
debenture does not bear any interest or premium accrual. We believe that this
financing agreement gives adam.com the necessary funds to continue our expansion
22
<PAGE>
and development of our Internet strategies. With this agreement adam.com has the
resources necessary to continue our deployment of our business-to-business
strategy. Additionally, adam.com has the right to sell another $6,000,000
debenture with the same terms within six months of the closing of the first
debenture. The company currently intends to sell the second debenture as a
component of its overall plans to raise capital.
Upon the sale of this second $6,000,000 debenture to Fusion, we anticipate
that our available cash resources will be sufficient to meet our anticipated
needs for working capital and capital expenditures at least through the end of
calendar 2000. We may raise additional funds, however, in order to fund more
rapid expansion, to develop new and enhance existing services and products, to
respond to competitive pressures and to possibly acquire complementary products,
businesses or technologies. There can be no assurance that any required
additional financing will be available in terms favorable to us, or at all. If
additional funds are raised by the issuance of equity securities, our
shareholders may experience dilution of their ownership interest and these
securities may have rights senior to those of the holders of the common stock.
If additional funds are raised by the issuance of debt securities, we may be
subject to certain limitations on its operations, including limitations on the
payment of dividends. If adequate funds are not available or not available on
acceptable terms, we may be unable to fund our expansion, successfully promote
our brand name, take advantage of acquisition opportunities, develop or enhance
services or respond to competitive pressures, any of which could have a material
adverse effect on our business, financial condition and results of operations.
YEAR 2000 COMPLIANCE
adam.com previously recognized the material nature of the business issues
surrounding computer processing of dates into and beyond the Year 2000 and began
taking corrective action. adam.com's efforts included replacing and testing
three basic aspects of its business operations: internal information technology
("IT") systems, including sales order processing, contract management, financial
systems and service management; internal non-IT systems, including office
equipment and test equipment products; and material third-party relationships.
Management believes adam.com has completed all of the activities within its
control to ensure that adam.com's systems are Year 2000 compliant and adam.com
has experienced no interruptions to normal operations due to the start of the
Year 2000.
adam.com's Year 2000 readiness costs were approximately $50,000, none of
which was incurred in 2000. adam.com funded these costs through funds generated
from operations and such costs were generally not incremental to existing IT
budgets; internal resources were re-deployed and timetables for implementation
of replacement systems were accelerated. adam.com does not currently expect to
apply any further funds to address Year 2000 issues.
As of March 29, 2000, adam.com has not experienced any material disruptions
of its internal computer systems or software applications, and has not
experienced any problems with the computer systems or software applications of
its third party venders, suppliers or service providers. adam.com will continue
to monitor these third parties to determine the impact, if any, on the business
of adam.com and the actions adam.com must take, if any, in the event of
non-compliance by any of these third parties. Based upon adam.com's assessment
of compliance by third parties, there appears to be no material business risk
posed by any such noncompliance. Moreover, adam.com generally believes that the
vendors that supply products to adam.com for resale are responsible for the
products' Year 2000 functionality.
In addition, adam.com currently does not know of any material difficulties
encountered by consumers of its products as a result of the Year 2000 issue.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999 the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in financial statements
("SAB 101"). This bulletin summarizes certain of the staff's views in apply
generally accepted accounting principles to revenue recognition in financial
statements. Management of the Company does not believe that SAB 101 will have a
significant effect on the Company's results of operations.
23
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 1999, the Company had cash and cash equivalents of
$1.5 million invested in liquid money market funds or bank accounts with average
maturities of less than 90 days. The cash and cash equivalents are subject to
interest rate risk and we may receive higher or lower interest income if market
interest rates increase or decrease. A hypothetical increase or decrease in
market interest rates by 10 percent from levels at December 31, 1999 would not
have a material impact on our future earnings, fair values or cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This information is set forth under Item 14(a)(1) and (2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
24
<PAGE>
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The sections under the headings "Election of Directors" entitled "Nominees
for Election--Term Expiring 2003, "Directors Continuing in Office until 2001"
and "Directors Continuing in Office until 2002" and under the heading "Executive
Compensation--Executive Officers" of the proxy statement for the 2000 Annual
Meeting of Shareholders (the "Proxy Statement") are incorporated herein by
reference. The section under the heading "Other Matters" entitled
"Sections 16(a) Beneficial Ownership Reporting Compliance" of the Proxy
Statement is incorporated herein the reference.
ITEM 11. EXECUTIVE COMPENSATION
The section under the heading "Election of Directors" entitled "Compensation
of Directors" of the Proxy Statement is incorporated herein by reference. The
section Executive Compensation of the Proxy Statement is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF MANAGEMENT
The section under the heading "Common Stock Ownership by Management and
Principal Shareholders" of the Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN TRANSACTIONS
The section under the heading "Certain Transactions" of the Proxy Statement
is incorporated herein by reference.
25
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) THE FOLLOWING DOCUMENTS ARE INCLUDED AS PART OF THIS REPORT:
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
(1) FINANCIAL STATEMENTS:
Report of Independent Accountants........................... F-1
Consolidated Balance Sheet at December 31, 1999 and March
31, 1999.................................................. F-2
Consolidated Statement of Operations for the nine months
ended December 31, 1999 and 1998 (unaudited) and the two
years ended March 31, 1999 and 1998....................... F-3
Consolidated Statement of Changes in Shareholders' Equity
for the nine months ended December 31, 1999 and the two
years ended March 31, 1999 and 1998....................... F-4
Consolidated Statement of Cash Flows for the nine months
ended December 31, 1999 and 1998 (unaudited) and the two
years ended March 31, 1999 and 1998....................... F-5
Notes to Consolidated Financial Statements.................. F-6
(2) FINANCIAL STATEMENT SCHEDULE:
For the nine months ended December 31, 1999 and the two
years ended March 31, 1999 and 1998
II--Valuation and Qualifying Accounts
</TABLE>
All other schedules have been omitted because they are not applicable or are not
required or the information required to be set forth therein is included in the
Financial Statements or Notes thereto.
(b) EXHIBITS. THE FOLLOWING EXHIBITS ARE FILED AS PART OF, OR ARE INCORPORATED
BY REFERENCE INTO, THIS REPORT ON FORM 10-K:
The Company hereby agrees to furnish to the Commission upon request any
additional instruments defining the rights of the holders of long-term debt of
the Company.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- - --------------------- ------------------------------------------------------------
<S> <C>
3.1(a) Articles of Restatement of the Articles of Incorporation of
A.D.A.M. Software, Inc.
3.2(a) Amendment to the Articles of Incorporation of A.D.A.M.
Software, Inc. filed September 30, 1999
3.2(b) Amended and Restated By-Laws of the Company.
4.1 Amended and Restated Articles of Incorporation of the
Company (incorporated by reference to Exhibit 3.1).
4.2 Amended and Restated By-Laws of the Company (incorporated by
reference to Exhibit 3.2).
4.3(b) Specimen Common Stock Certificate
4.4(b) Form of Option Certificate relating to the Company's 1992
Stock Option Plan
4.5(b) Form of Warrants to Purchase shares of Common Stock, dated
April through November 1994
4.6(c) Form of Debenture to be issued to Fusion Capital Fund I, LLC
4.7 Form of Warrant to be issued to Union Street Partners, L.P
and Robert S. Cramer, Jr.
10.1(b) Amended and Restated 1992 Stock Option Plan
10.2(b) 401(k) Adoption Agreement and Trust.
10.3(b) Employment Agreement between the Company and Robert S.
Cramer, Jr., dated December 21, 1994.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- - --------------------- ------------------------------------------------------------
<S> <C>
10.4(b) Employment Agreement between the Company and Gregory M.
Swayne, dated December 19, 1994.
10.5(b) Publishing Agreement by and between Williams & Wilkins and
the Company, dated February 22, 1994
10.6(b)(d) Software Reseller Agreement among the Company, Addison
Wesley Longman, through its Addison Wesley/Benjamin Cummings
Group Sales Force Division, Benjamin/Cummings, and Addison
Wesley Publishers Ltd., dated as of August 4, 1994.
10.7(b)(d) Software Reseller Agreement among the Company and Addison
Wesley Longman, through its Addison Wesley School Division,
dated as of February 9, 1995.
10.8(e) Localization Agreement between ZEMI Corp. and the Company
dated June 7, 1996.
10.9(f) Asset Purchase and Sale agreement between Mosby, Inc. and
the Company dated October 16, 1998.
10.10(f) Copyright License Agreement between Kainos Laboratories,
Inc. and the Company, dated December 29, 1997
10.11(f) License Agreement between CNN Newsource, Inc. and the
Company dated January 15, 1998.
10.12(c) Securities Purchase Agreement dated as of November 15, 1999,
between the Company and Fusion Capital Fund, LLC
10.13 Bridge Note and Warrant Purchase Agreement between Union
Street Partners, L.P and Robert S. Cramer, Jr. and the
Company dated December 31, 1999
10.14 Registration Rights Agreement between Union Street Partners,
L.P and Robert S. Cramer, Jr. and the Company dated
December 31, 1999
23.1 Consent of PricewaterhouseCoopers LLP
27.1 Financial Data Schedule--December 31, 1999 (for SEC use
only)
</TABLE>
- - ------------------------
(a) Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999
(b) Incorporated by reference to the Company's Registration Statement on
Form S-1, File No. 33-96864, dated September 12, 1995, as amended).
(c) Incorporated by reference to the Company's Current Report on
Form 8-K filed November 30, 1999
(d) The Company has been granted confidential treatment of portions of
this Exhibit. Accordingly, portions thereof have been omitted and
filed separately.
(e) Incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1996.
(f) Incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1998
(c) REPORTS ON FORM 8-K
The Company filed a report on Form 8-K on November 30, 1999 relating to the
execution of a Securities Purchase Agreement between the Company and Fusion
Capital Fund I, LLC.
The Company filed a report on Form 8-K on December 30, 1999 announcing the
change in its fiscal year end from March 31 to December 31.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
Date: March 30, 2000 ADAM.COM, INC.
(Registrant)
By: /s/ ROBERT S. CRAMER, JR.
-----------------------------------------
Robert S. Cramer, Jr.
CHAIRMAN OF THE BOARD,
CO-FOUNDER, CHIEF EXECUTIVE OFFICER, AND
DIRECTOR
</TABLE>
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Robert S. Cramer, Jr. and Michael S. Fisher, and
each of them, his or her true and lawful attorney-in-fact and agents, with full
power of substitution and resubstitution, from such person and in each person's
name, place and stead, in any and all capacities, to sign any and all amendments
to this Form 10-K, 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, full power and authority to do
and perform each and every act and thing requisite and necessary to be done as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, on March 30, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/S/ ROBERT S. CRAMER, JR. Chairman of the Board, Co-Founder, Chief
------------------------------------------- Executive Officer, and Director (Principal
Robert S. Cramer, Jr. Executive Officer)
/S/ MICHAEL S. FISHER Corporate Secretary, Vice President of
------------------------------------------- Finance and Administration (Principal
Michael S. Fisher Financial Officer)
------------------------------------------- Director
Linda Davis
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/S/ DANIEL S. HOWE
------------------------------------------- Director
Daniel S. Howe
/S/ JOHN W. MCCLAUGHERTY
------------------------------------------- Director
John W. McClaugherty
------------------------------------------- Director
Francis J. Tedesco, M.D.
</TABLE>
29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
adam.com, Inc.
In our opinion, the accompanying consolidated financial statements listed in
the index appearing under item 14(a)(1) on page 26 present fairly, in all
material respects, the financial position of adam.com, Inc. and its subsidiary
at December 31, 1999 and March 31, 1999, and the results of their operations and
their cash flows for the nine months ended December 31, 1999, and the years
ended March 31, 1999 and 1998, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule listed
in the accompanying index under item 14(a)(2) on page 26 presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Atlanta, GA
February 28, 2000, except as to the
second paragraph of Note 17 which is
as of
March 30, 2000
F-1
<PAGE>
ADAM.COM, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 1999
------------ ---------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 1,477 $ 2,369
Investment securities..................................... -- 3,792
Accounts receivable, net of allowances of $103 and $373... 828 950
Inventories............................................... 314 292
Prepaids and other........................................ 925 164
------- -------
Total current assets.................................. 3,544 7,567
Property and equipment, net................................. 1,749 644
Intangible assets, net...................................... 1,827 237
Restricted time deposits.................................... 449 522
Other non-current assets.................................... 167 --
------- -------
Total assets.......................................... $ 7,736 $ 8,970
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses..................... $ 2,877 $ 1,052
Deferred revenue.......................................... 749 122
Note payable.............................................. 386 --
Note payable to related party............................. 347 --
------- -------
Total current liabilities............................. 4,359 1,174
------- -------
Commitments and contingencies
Shareholders' equity
Preferred stock, no par value; 10,000,000 shares
authorized; no shares issued and outstanding............ -- --
Common stock, $.01 par value; 20,000,000 shares
authorized; 5,400,581 and 5,285,747 shares issued and
outstanding, respectively............................... 54 53
Common stock warrants..................................... 366 135
Additional paid-in capital................................ 37,938 33,911
Treasury stock at cost, 498,212 and 847,240 shares,
respectively............................................ (1,285) (2,186)
Accumulated deficit....................................... (33,696) (24,117)
------- -------
3,377 7,796
------- -------
Total liabilities and shareholders' equity.................. $ 7,736 $ 8,970
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
ADAM.COM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS NINE MONTHS YEAR ENDED
ENDED ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -------------------
1999 1998 1999 1998
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
Internet revenues, net.............................. $ 732 $ -- $ -- $ --
Product revenues, net............................... 2,412 4,264 5,242 6,888
------- ------ ------- -----
Total revenues.................................. 3,144 4,264 5,242 6,888
------- ------ ------- -----
Cost and expenses
Cost of revenues.................................. 559 1,017 1,421 1,178
Sales and marketing............................... 2,754 2,061 2,704 2,778
Product and content development................... 5,607 1,112 2,074 1,512
General and administrative........................ 3,087 1,041 1,571 1,293
Restructuring charges............................. 1,049 -- 47 --
------- ------ ------- -----
13,056 5,231 7,817 6,761
------- ------ ------- -----
Operating income (loss)......................... (9,912) (967) (2,575) 127
Interest income, net................................ 158 316 395 526
------- ------ ------- -----
Income (loss) before income taxes and minority
interest...................................... (9,754) (651) (2,180) 653
Income taxes........................................ -- -- -- (75)
Minority interest in consolidated subsidiary........ 175 -- -- --
------- ------ ------- -----
Net income (loss)............................. $(9,579) $ (651) $(2,180) $ 578
======= ====== ======= =====
Net income (loss) per share Basic and diluted....... $ (2.04) $(0.14) $ (0.48) $0.12
======= ====== ======= =====
Weighted average shares outstanding
Basic............................................. 4,707 4,559 4,528 4,916
======= ====== ======= =====
Diluted........................................... 4,707 4,559 4,528 4,959
======= ====== ======= =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
ADAM.COM, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL COMMON
-------------------- PAID-IN STOCK ACCUMULATED TREASURY
SHARES AMOUNT CAPITAL WARRANTS DEFICIT STOCK TOTAL
--------- -------- ---------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1997......... 5,274,647 $ 52 $33,883 $135 $(22,515) $ -- $11,555
Repurchase of stock............... -- -- -- -- -- (1,420) (1,420)
Net income........................ -- -- -- -- 578 -- 578
--------- ------ ------- ---- -------- ------- -------
BALANCE AT MARCH 31, 1998......... 5,274,647 52 33,883 135 (21,937) (1,420) 10,713
Exercise of common stock
options......................... 11,100 1 28 -- -- -- 29
Repurchase of stock............... -- -- -- -- -- (766) (766)
Net loss.......................... -- -- -- -- -- (2,180) (2,180)
--------- ------ ------- ---- -------- ------- -------
BALANCE AT MARCH 31, 1999......... 5,285,747 53 33,911 135 (24,117) (2,186) 7,796
Exercise of common stock options
and warrants.................... 114,834 1 1,540 (36) -- 620 2,125
Issuance of common stock
warrants........................ -- -- -- 267 -- -- 267
Issuance of treasury stock........ -- -- 1,797 -- -- 281 2,078
Modifications to common stock
options......................... -- -- 690 -- -- -- 690
Net loss.......................... -- -- -- -- (9,579) -- (9,579)
--------- ------ ------- ---- -------- ------- -------
BALANCE AT DECEMBER 31, 1999...... 5,400,581 $ 54 $37,938 $366 $(33,696) $(1,285) $ 3,377
========= ====== ======= ==== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
ADAM.COM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS NINE MONTHS
ENDED ENDED YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, ----------------------
1999 1998 1999 1998
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss).............................. $(9,579) $ (651) $(2,180) $ 578
Adjustments to reconcile net income (loss) to
net cash used in operating activities
Depreciation and amortization................ 883 673 906 707
Loss on sale of assets....................... 106 (4) -- --
Minority interest share of loss.............. (175) -- -- --
Stock compensation charges................... 730 -- -- --
Changes in assets and liabilities
Accounts receivable........................ 122 105 288 (601)
Inventories................................ (22) 58 175 (92)
Prepaids and other assets.................. (451) (17) (39) (16)
Accounts payable and accrued liabilities... 1,395 (293) (95) (468)
Deferred revenue........................... 626 (32) 84 (452)
------- ------- ------- -------
Net cash used in operating activities.... (6,365) (161) (861) (344)
------- ------- ------- -------
Cash flows from investing activities
Purchases of short-term investments............ -- (18,720) (22,475) (32,116)
Proceeds from maturities of short-term
investments.................................. 3,762 20,858 26,343 32,998
Purchases of property and equipment............ (1,589) (243) (494) (134)
Redemption of restricted time deposit.......... 345 160 160 --
Purchase of restricted time deposit............ (271) (162) (162) (160)
Software development costs..................... (4) (383) (108) (542)
Content acquisition............................ (52) -- -- --
------- ------- ------- -------
Net cash provided by investing
activities............................. 2,191 1,510 3,264 46
------- ------- ------- -------
Cash flows from financing activities
Sale of common stock to a related party by the
consolidated subsidiary...................... 175 -- -- --
Proceeds from exercise of common stock options
and warrants................................. 2,107 13 28 --
Repurchase of common stock..................... -- (766) (766) (1,420)
Proceeds from notes payable.................... 1,000 -- -- --
------- ------- ------- -------
Net cash provided by (used) in financing
activities............................. 3,282 (753) (738) (1,420)
------- ------- ------- -------
Increase (decrease) in cash and cash
equivalents.................................... (892) 596 1,665 (1,718)
Cash and cash equivalents, beginning of period... 2,369 704 704 2,422
------- ------- ------- -------
Cash and cash equivalents, end of period......... $ 1,477 $ 1,300 $ 2,369 $ 704
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
ADAM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
adam.com, Inc. ("adam.com" or the "Company") is a developer of health
education content and software technologies, and since January 1999, the Company
has taken steps to become a leading provider of health, medical and wellness
information online. The Company creates, publishes and markets multimedia
software products, content and Internet-ready applications providing anatomical,
medical, and health-related information for the education, consumer and
professional markets.
BASIS OF PRESENTATION
During 1999, the Company changed its year end from March 31 to December 31.
Accordingly, the financial position and results of operations as of and for the
nine month period ended December 31, 1999 are presented in the accompanying
financial statements. The accompanying financial statements include the accounts
of the Company and a controlled subsidiary. The Company controls the operations
of its subsidiary through its effective 63% voting interest, common management
and Board of Directors position.
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 net revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues are derived from the sale of software products, license agreements,
royalty agreements and Internet licensing agreements. Revenues from product
sales are generally recognized at the time of shipment to customers,
distributors or resellers or, in the case of consignment arrangements, at the
time of shipment from the consignee to its customers. Revenues from royalty
agreements are recognized as earned based upon performance or product shipment.
Revenues from license sales are recognized after delivery when the Company has
determined that the fees from the agreement are fixed and determinable and there
are no significant return or acceptance provisions. Payments received in advance
of shipments are recorded as deferred revenue in the accompanying balance sheets
and are recognized as revenue when the related software is shipped.
Internet revenues consist primarily of platform license fees and page
view/advertising fees. Platform license fees are recognized ratably over the
term of the license agreement and page view/advertising fees are recognized as
earned based on page hits by users. Internet fees billed and received in advance
of the performance of services are recorded as deferred revenue in the
accompanying balance sheets and are recognized as revenue when the services are
performed.
Allowances for estimated product returns are provided at the time of sale.
The Company evaluates the adequacy of allowances for returns and doubtful
accounts primarily based upon its evaluation of historical and expected sales
experience and by channel of distribution. To the extent the future market, sell
through experience, channels of distribution and general economic conditions
change, the estimated reserves required for returns and allowances may also
change.
F-6
<PAGE>
ADAM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of marketable securities and trade receivables.
The Company restricts investment of marketable securities to short-term
investment grade securities and direct or guaranteed obligations of the United
States government.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, accounts payable, accrued expenses
and other liabilities, approximate fair value due to their short maturities.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and or deposit and highly
liquid investments with an original maturity of three months or less.
INVENTORIES
Inventories consist principally of computer software media and related
shipping materials and are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, less accumulated depreciation
and amortization. Depreciation and amortization are provided using the
straight-line method for financial reporting purposes and accelerated methods
for income tax purposes over the estimated useful lives of three to five years.
INTANGIBLE ASSETS
Intangible assets consist of purchased intellectual content and internal
capitalized software development costs. Purchased intellectual content
represents intangible assets acquired from the Company's I.M.S. and
dr.greene.com asset acquisitions. The Company acquired these assets for cash of
$52,000 and through the issuance of 104,000 shares of common stock valued at
$2,038,000. The Company is amortizing these amounts to product and content
development expense over two to five years. Amortization expense for the nine
month period ended December 31, 1999 approximated $385,000.
Capitalized software consists principally of salaries and certain other
expenses directly related to the development and modifications of software
products capitalized in accordance with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed". Amortization of capitalized
software development costs is provided at the greater of the ratio of current
product revenue to the total of current and anticipated product revenue or on a
straight-line basis over the estimated economic life of the software, which the
Company has determined to generally be twenty-four months.
F-7
<PAGE>
ADAM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
PRODUCT DEVELOPMENT
Product development includes costs incurred in the development of the
Company's web sites, deployment of content to these sites, and maintenance of
the web page content. These costs have been charged to expense as incurred.
RESTRICTED TIME DEPOSITS
In connection with the Company's noncancelable operating leases for its
office space and telephone system, the Company is required to purchase time
deposits to secure letters of credit with the bank guaranteeing payments under
the leases. The time deposits bear interest at an average rate of approximately
5.50% and are carried at cost which approximates market. The classification of
these investments is determined based on the expected term of the collateral
requirement and not necessarily the maturity date of the underlying securities.
INCOME TAXES
The Company accounts for income taxes utilizing the liability method and
deferred income taxes are determined based on the estimated future tax effects
of differences between the financial reporting and income tax basis of assets
and liabilities given the provisions of the enacted tax laws. A valuation
allowance is provided against deferred tax assets for which it is more likely
than not that the asset will not be realized.
STOCK-BASED COMPENSATION
The Company has chosen to continue to account for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations and to elect the disclosure option of SFAS No. 123, "Accounting
for Stock-Based Compensation". Accordingly, compensation cost for stock options
issued to employees is measured as the excess, if any, of the quoted market
price of the Company's stock at the date of the grant over the amount an
employee must pay to acquire the stock.
EARNINGS (LOSS) PER SHARE
The computation of basic earnings (loss) per share is based on the weighted
average number of common shares outstanding during the period. The computation
of diluted earnings per share is based on the weighted average number of common
shares outstanding plus, when their effect is dilutive, potential common stock
consisting of shares subject to stock options and stock warrants. For the year
ended March 31, 1998, potential common stock shares of 43,620 have been included
in computing diluted earnings per share.
COMPREHENSIVE INCOME
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS 130), to be
effective for all fiscal years beginning after December 15, 1997. This Statement
requires that all items which are to be recognized as components of
comprehensive income be reported on a financial statement that is displayed with
the same prominence as other financial statements. The Company's comprehensive
income is the same as its net income.
F-8
<PAGE>
ADAM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
RECLASSIFICATIONS
Certain comparative amounts have been reclassified to conform with current
year presentation.
2. INVESTMENT SECURITIES
There were no held-to-maturity investments at December 31, 1999, and there
were no realized gains or losses for the nine month periods ended December 31,
1999 and December 31, 1998 (unaudited), and the years ended March 31, 1999 and
March 31, 1998.
As of March 31, 1999, the Company held commercial paper which it classified
as held-to-maturity. Held-to-maturity securities represent those securities that
the Company has both the positive intent and ability to hold to maturity and are
carried at amortized cost. Securities with a maturity date within one year are
classified as short-term investments and are stated at cost plus accrued
interest.
3. INVENTORIES
The components of inventory are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 1999
------------ ---------
<S> <C> <C>
Raw materials......................................... $213 $173
Finished goods........................................ 101 119
---- ----
$314 $292
==== ====
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 1999
------------ ---------
<S> <C> <C>
Computers............................................. $1,965 $1,364
Equipment............................................. 374 234
Furniture and fixtures................................ 580 532
Leasehold improvements................................ 670 174
------ ------
3,589 2,304
Less--Accumulated depreciation and amortization....... (1,840) (1,660)
------ ------
$1,749 $ 644
====== ======
</TABLE>
Depreciation and amortization of property and equipment totaled
approximately $379,000 and $269,000 for the nine month periods ended
December 31, 1999 and 1998 (unaudited), respectively, and approximately $349,000
and $367,000 for the years ended March 31, 1999 and 1998, respectively.
F-9
<PAGE>
ADAM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PRODUCT AND CONTENT DEVELOPMENT EXPENDITURES
Product and content development expenditures are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS NINE MONTHS YEAR ENDED
ENDED ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -------------------
1999 1998 1999 1998
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
Total development expenditures...................... $5,226 $1,495 $2,182 $2,054
Amortization of content acquisition................. 385
Less: Additions to capitalized software
development....................................... (4) (383) (108) (542)
------ ------ ------ ------
Product development expense......................... $5,607 $1,112 $2,074 $1,512
====== ====== ====== ======
</TABLE>
Intangible assets include purchased intellectual content of $1,705,000 (net
of accumulated amortization and capitalized software development). The activity
in the capitalized software development account is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS NINE MONTHS YEAR ENDED
ENDED ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -------------------
1999 1998 1999 1998
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
Balance at beginning of year, net...................... $237 $689 $689 $487
Additions, net of impairment........................... 4 383 108 542
Amortization expense................................... (119) (405) (560) (340)
---- ---- ---- ----
Balance at end of year, net............................ $122 $667 $237 $689
==== ==== ==== ====
</TABLE>
Additions, net of impairment, for the year ended March 31, 1999 includes a
$316,000 impairment of capitalized software for certain products under
development that the Company is no longer supporting.
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 1999
------------ ---------
<S> <C> <C>
Accounts payable...................................... $ 714 $ 332
Accrued severance costs............................... 293 47
Accrued financing costs............................... 496 --
Accrued compensation and employee benefits............ 130 161
Accrued professional fees............................. 534 120
Deferred rent......................................... 123 160
Other accrued expenses................................ 587 232
------ ------
$2,877 $1,052
====== ======
</TABLE>
F-10
<PAGE>
ADAM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. NOTES PAYABLE
On December 31, 1999, the Company issued notes payable of $500,000 each to a
director and officer of the Company and a commercial bank. This debt bears
interest at 10% per annum with principal and interest due on December 31, 2000.
The term of this debt may be extended for six months to June 30, 2001 at the
option of the holders.
The Company issued 25,000 common stock warrants to each lender in
conjunction with the issuance of the notes. The warrants are exercisable at any
time at the option of the holders through December 31, 2003 and entitle the
holders to purchase an equal number of shares of common stock at $11.11 per
share. The Company is required to issue an additional 25,000 warrants to each
lender at 80% of the then fair market value of the common stock price if the
notes are not repaid by June 30, 2000. The Company estimated the fair value of
the warrants issued at the date of issuance using the Black-Scholes pricing
model and recorded a debt discount based on the relative fair value of the
warrants and the related debt. The discount on the notes payable of $267,000
will be amortized as additional interest expense using the straight-line method
over the twelve-month term of the notes.
On November 15, 1999, the Company entered into a securities purchase
agreement whereby the Company agreed to issue up to two senior secured
convertible debentures, each with an aggregate principal amount of $6,000,000.
The closing and issuance of the convertible debentures can not occur until the
effective date of a Registration statement by the Company to register the
underlying common stock. Each debenture will be convertible into shares of
common stock of the Company at a price equal to the lessor of (1) 130% of the
fair value at the time of issuance (2) the closing bid price at the date of
conversion, or (3) average of the two lowest closing bid prices for the
Company's common stock during the 10 trading days prior to a conversion of the
debenture. The Company also may redeem the security for 106% of the remaining
principal. As of December 31, 1999, neither of these debentures had been issued.
In February 2000, the Company issued commitment shares at the closing of the
agreement that have a fair value equal to approximately $780,000. This amount
includes shares with a fair value of $180,000 to secure the Company's right to
sell the second $6 million debenture. Additional commitment shares with a fair
value of $420,000 will be issued at the sale of the second $6 million debenture,
if issued.
F-11
<PAGE>
ADAM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES
The provision for income taxes differs from the amount computed by applying
the applicable U.S. statutory federal income tax rate of 34 percent to income
(loss) before income taxes as a result of the following (in thousands):
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS NINE MONTHS YEAR ENDED
ENDED ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -------------------
1999 1998 1999 1998
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
Federal tax provision (benefit) on
income (loss) before income taxes at
statutory federal income tax rate... $(3,316) $(221) $ (741) $222
Change in valuation allowance....... 3,452 654 1,416 (205)
State taxes, net of federal
benefit........................... (369) (25) (131) 26
Research and development credits.... (230) (58) (77) (37)
Stock compensation charges.......... 266 --
Foreign taxes withheld.............. -- -- -- 75
Other................................. 197 (350) (467) (6)
------- ----- ------ ----
$ -- $ -- $ -- $ 75
======= ===== ====== ====
</TABLE>
The components of the Company's deferred tax assets and liabilities are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 1999
------------ ---------
<S> <C> <C>
DEFERRED TAX ASSETS
Accrued expenses and other liabilities.................... $ 210 $ 209
Allowance for doubtful accounts........................... 13 126
Intangible assets......................................... 124 --
Fixed assets.............................................. 100 145
Research and development credits.......................... 531 301
Net operating loss carryforwards.......................... 12,338 9,127
------- ------
13,316 9,908
------- ------
Deferred tax liabilities
Software development costs................................ (46) (90)
------- ------
(46) (90)
------- ------
Net deferred tax asset before valuation allowance........... 13,270 9,818
Valuation allowance......................................... (13,270) (9,818)
------- ------
$ -- $ --
======= ======
</TABLE>
At December 31, 1999, the Company had net operating loss and general
business credit carryforwards available for tax purposes of approximately
$32,470,000 and $531,000, respectively, which will expire in years 2012 through
2019 and 2007 through 2014, respectively. Under the Tax Reform Act of 1986, the
amounts of, and the benefit from net operating loss carryforwards may be
impaired or limited in certain
F-12
<PAGE>
ADAM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
circumstances, including ownership changes (as defined by the Internal Revenue
Service). At December 31, 1999 and March 31, 1999, the Company has recorded a
valuation allowance equal to its net deferred tax assets as management believes
it is more likely than not that the net deferred tax assets will not be
realized. Management's estimate of the valuation allowance could be effected in
the near term based on taxable income generated in future periods.
9. TREASURY STOCK
In April 1997, the Company's Board of Directors adopted a stock repurchase
program. The program authorized repurchase of the Company's common stock from
time to time in open market transactions on the Nasdaq Stock market. During the
year ended March 31, 1999, the Company repurchased common stock at various times
with an aggregate cost of $766,000. The Company used cash on hand to fund the
repurchase program. The repurchased stock is held as treasury stock. There were
no repurchases of common stock during the nine month period ended December 31,
1999. However, the Company reissued 349,028 shares of treasury stock to satisfy
the exercise of common stock options and other stock issuances during the nine
months ended December 31, 1999.
F-13
<PAGE>
ADAM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMON STOCK OPTIONS AND WARRANTS
The Company has two stock option plans (the 1992 Option Plan and the 1991
Option Plan) under which the Company may grant incentive or non-qualified stock
options to full-time employees and key persons. Options are granted at an
exercise price as determined by the Company's Board of Directors which is not
less than fair market value of the Company's common stock and vest ratably over
a three-year period. Options granted under the 1992 Option Plan expire ten years
from the date of grant. With respect to the 1991 Option Plan, all options
granted under the plan were exercised or expired. No further grants under the
1991 Option Plan are authorized.
The Company has reserved 3,000,000 shares of common stock for issuance under
the 1992 Option Plan.
The notes payable issued during 1999 (see Note 7) include 50,000 warrants
exercisable into an equal number of shares of common stock for $11.11 per share.
These warrants are exercisable beginning on December 31, 1999 and expire four
years thereafter. No warrants were exercised prior to December 31, 1999.
Additionally, as of December 31, 1999, there are 75,875 warrants outstanding
with an exercise price of $8.00 per share related to various debt and equity
financings of the Company which occurred prior to March 31, 1998. The warrants
are fully vested and exercisable, and they expire in fiscal 2000. (See
Note 13).
The Company has adopted the disclosure only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation ("SFAS 123")". Had compensation cost
for the Company's stock option grants been determined based on the fair value at
the grant date for awards in the nine month period ended December 31, 1999 and
the years ended March 31, 1999 and 1998 consistent with the provisions of
SFAS 123, the Company's net income (loss) and net income (loss) per share would
have been changed to the pro forma amounts indicated below (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED MARCH 31,
DECEMBER 31, -------------------
1999 1999 1998
------------ -------- --------
<S> <C> <C> <C>
Net income (loss)
As reported......................................... $ (9,579) $(2,180) $578
Pro forma........................................... (10,116) (2,560) 380
Basic and diluted net income (loss) per share
As reported......................................... $ (2.04) $ (0.48) $.12
Pro forma........................................... (2.15) (0.57) .07
</TABLE>
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in the nine month period ended December 31, 1999 and
the fiscal years ended March 31, 1999 and March 31, 1998, respectively: Dividend
yield of 0% for all years; expected volatility of 81%, 70% and 56%,
respectively; average risk-free interest rates of 5.74%, 4.94% and 6.01%,
respectively; and an expected life of 3.5 for the period ended December 31, 1999
and the years ended March 31, 1999 and 1998 with the exception of options
granted during the period ended December 31, 1999 and the year ended March 31,
1999 with one-year vesting periods, which have an expected life of two years.
F-14
<PAGE>
ADAM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMON STOCK OPTIONS AND WARRANTS (CONTINUED)
The following table summarizes stock option activity for the nine month
period ended December 31, 1999 and the years ended March 31, 1999 and March 31,
1998:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE PRICE EXERCISE FAIR
SHARES PER SHARE PRICE VALUE
--------- ------------------ -------- --------
<S> <C> <C> <C> <C>
Outstanding at March 31, 1997..................... 653,027 $ 2.25-12.00 $6.06
Granted......................................... 515,600 2.00-10.00 4.96 $0.95
Exercised....................................... -- -- --
Canceled or expired............................. (214,893) 2.00-11.11 5.10
---------
Outstanding at March 31, 1998..................... 953,734 2.00-12.00 5.73
Granted......................................... 706,000 2.75-5.25 4.15 2.02
Exercised....................................... (11,100) 2.00-2.38 2.04
Canceled or expired............................. (550,434) 2.00-11.11 5.60
---------
Outstanding at March 31, 1999..................... 1,098,200 2.00-12.00 5.37
Granted......................................... 701,750 7.94-21.00 12.13 6.65
Exercised....................................... (222,101) 2.00-8.00 4.65
Canceled or expired............................. (196,527) 13.00-20.63 15.25
---------
Outstanding at December 31, 1999.................. 1,381,322 2.00-21.00 6.81
=========
Options exercisable at December 31, 1999........ 266,892
=========
</TABLE>
The following table summarizes additional information about stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- -------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICE 1999 LIFE PRICE 1999 PRICE
- - -------------------------------------- -------------- ----------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
$2.00 to 2.94......................... 174,204 6.35 $2.25 117,852 $2.23
$3.25 to 4.75......................... 115,668 7.59 3.59 38,523 3.60
$5.00 to 5.25......................... 517,444 8.00 5.22 59,139 5.04
$7.00 to 12.00........................ 415,034 7.49 8.51 49,156 7.74
$12.00 to 21.00....................... 158,972 9.47 14.91 2,222 20.63
--------- -------
1,381,322 7.77 $6.81 266,892 $4.22
========= =======
</TABLE>
In April 1997, the Company granted non-qualified stock options to two
officers of the Company to acquire 120,000 shares each of the Company's common
stock. The vesting period for 60,000 of the options granted to each officer is
one-third per year for three years. The vesting period of the remaining 60,000
options granted to each officer is one-third per year for three years or, if the
Company's stock price reaches certain targets, vesting will occur in blocks of
20,000 options for each target price met. The exercise price for the first
20,000 options granted to each officer is $5.00 per share. The exercise price
for the remaining options increases by $1.00 for each block of 20,000 options.
F-15
<PAGE>
ADAM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMON STOCK OPTIONS AND WARRANTS (CONTINUED)
In January 1999, the Company provided employee holders of options with
exercise prices from $3.50 and higher the opportunity to cancel such options in
exchange for an equal number of options with a vesting period of one year at the
then current market price of $5.25. As a result of this election, 423,400
options were canceled and reissued in January 1999. The new option exercise
price equals the market price on the date of the repricing and, correspondingly,
compensation expense was not recognized. The vesting period of these options is
one year.
11. CONSOLIDATED SUBSIDIARY
ThePort.com, a software development company, began its operations in
May 1999. The Company and its CEO and chairman as of December 31, 1999 are the
only outside investors. The Company acquired a preferred stock interest in
ThePort.com, for $250,000 in cash representing a 40% voting interest, and the
Company's CEO and chairman invested $125,000 to acquire common stock
representing a 20% voting interest. During November 1999, the Company's CEO and
chairman invested an additional $50,000 decreasing the Company's direct interest
to 37%. The results of this entity have been consolidated due to the combined
voting interest of the Company and its CEO and chairman as well as common
management and the Board of Director position. The loss from operations of
ThePort.com for the nine-month period ended December 31, 1999 of $208,000, net
of the minority interest, is included in the consolidated financial statements
of the Company.
12. EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution plan that provides all permanent
employees of the Company an opportunity to accumulate funds for their
retirement. In January 1999, the Company began to match the contributions of
participating employees to the extent of 50% of the first 6% contributed by the
participant. Company matching contributions to the plan were approximately
$70,000 and $17,000 for the nine month period ended December 31, 1999 and the
year ended March 31, 1999, respectively.
13. RELATED PARTY TRANSACTIONS
During December 1999, the Company issued a note payable in the amount of
$500,000 to an officer and director of the Company. This note bears interest at
10%, payable upon the maturity date. This note payable included 25,000 warrants
exercisable into an equal number of shares of common stock for $11.11 per share
(see Note 7). This note is scheduled to mature on December 31, 2000, however,
the term may be extended to June 30, 2001, at the option of the holder.
During the periods ended December 31, 1999 and 1998 (unaudited) and the
years ended March 31, 1999 and 1998, the Company sold approximately $6,000,
$334,000, $353,000 and $17,000, respectively, of product to Addison Wesley
Longman, Inc., a shareholder in the Company. During the periods ended
December 31, 1999 and 1998 (unaudited) and the years ended March 31, 1999 and
1998, the Company sold approximately $6,000, $0, $0 and $42,000, respectively,
of product to Benjamin/ Cummings (BC), a subsidiary of a shareholder of the
Company. The Company earned royalty revenues of approximately $218,000,
$200,000, $248,000 and $217,000 related to BC during the periods ended
December 31, 1999 and 1998 (unaudited) and the years ended March 31, 1999 and
1998, respectively. Additionally, the Company purchased approximately $10,000,
$3,000, $6,000 and $43,000 of product from BC during the periods ended
December 31, 1999 and 1998 (unaudited) and the years ended March 31, 1999 and
1998,
F-16
<PAGE>
ADAM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. RELATED PARTY TRANSACTIONS (CONTINUED)
respectively, and paid royalty expenses to BC of approximately $164,000,
$157,000, $217,000 and $215,000, respectively.
As of December 31, 1999, there are 24,000 warrants that remain outstanding
which were issued in connection with various debt and equity financings (see
Note 10). Such warrants are held by an officer and shareholder of the Company.
The Company received approximately $356,000 during the nine-month period ended
December 31, 1999 from the exercise of 44,438 warrants issued in connection with
these financing transactions.
14. COMMITMENTS AND CONTINGENCIES
The Company leases office space and equipment under noncancelable lease
agreements expiring on various dates through 2002. In February 1999, the Company
entered into a noncancelable agreement to sublease a portion of its office
space. At December 31, 1999, future minimum rentals, net of sublease rental
income, for noncancelable leases with terms in excess of one year were as
follows (in thousands):
<TABLE>
<CAPTION>
MINIMUM SUBLEASE NET
YEAR ENDING ANNUAL ANNUAL MINIMUM
DECEMBER 31, RENTALS RENTALS RENTALS
------------ -------- -------- --------
<S> <C> <C> <C>
2000............................................. $ 963 $ (70) $ 893
2001............................................. 932 (70) 862
2002............................................. 656 (35) 621
2003............................................. 390 -- 390
2004............................................. 367 -- 367
Thereafter 1,770 -- 1,770
------ ----- ------
$5,078 $(175) $4,903
====== ===== ======
</TABLE>
Rent expense for the nine-month periods ended December 31, 1999 and 1998
(unaudited) was $473,000 and $285,000, respectively, and $403,000 and $417,000
for the years ended March 31, 1999 and 1998, respectively.
On April 25, 1996 the Company and certain of its officers and directors were
named in a class action lawsuit. The complaint alleges violations of
Section 11, 12(2) and 15 of the Securities Act of 1933, violations of the
Georgia Securities Act and negligent misrepresentation arising out of alleged
disclosure deficiencies in connection with the Company's initial public offering
which was completed on November 10, 1995. The complaint seeks compensatory
damages and reimbursements for plaintiff's fees and expenses. The Company and
its officers and directors are vigorously defending against the allegations. The
Company cannot estimate the impact of the outcome of the lawsuit on the
financial condition or results of operations.
The Company is subject to legal proceedings and claims which have arisen in
the ordinary course of its business. Management believes, based upon the advice
of counsel, that ultimate resolution of these matters will not have a material
adverse effect on the financial statements taken as a whole.
15. SEGMENT INFORMATION
During June 1997, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (FAS 131). The
F-17
<PAGE>
ADAM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SEGMENT INFORMATION (CONTINUED)
statement requires detailed disclosures surrounding operating segments and
certain enterprise-wide disclosures. Management believes that it has only a
single operating segment that is focused on the development and distribution of
anatomy/medical content. The enterprise-wide disclosures required by FAS 131 are
presented in the tables below (in thousands):
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS NINE MONTHS YEAR ENDED
ENDED ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -------------------
REVENUES BY MARKET 1999 1998 1999 1998
- - ------------------ ------------ ------------ -------- --------
<S> <C> <C> <C> <C>
Education........................................... $2,053 $3,474 $4,068 $5,357
Consumer............................................ 146 227 289 652
Professional........................................ 132 423 695 821
Internet............................................ 732 -- -- --
Other............................................... 80 140 190 58
------ ------ ------ ------
$3,144 $4,264 $5,242 $6,888
====== ====== ====== ======
</TABLE>
The Company exports its products through agreements with international and
domestic distributors which grant territorial rights. During the nine-month
periods ended December 31, 1999 and 1998 (unaudited) and the years ended
March 31, 1999 and 1998, the Company had net revenue from international sales of
approximately $222,000, $305,000, $355,000 and $1,643,000, respectively. A
summary of revenues based on geographic location of the customer is as follows
(in thousands):
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS NINE MONTHS YEAR ENDED
ENDED ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -------------------
1999 1998 1999 1998
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
United States....................................... $2,922 $3,959 $4,887 $5,245
Europe.............................................. 105 129 150 371
Pacific Rim and Asia................................ 36 40 56 1,003
Other............................................... 81 136 148 269
------ ------ ------ ------
$3,144 $4,264 $5,242 $6,888
====== ====== ====== ======
</TABLE>
For the nine-month period ended December 31, 1999 and 1998 (unaudited), the
Company had sales to a single customer which totalled 17% and 11.5% of net
revenues, respectively.
For the year ended March 31, 1999, two customers accounted for approximately
11.5% and 11.1% of net sales. For the year ended March 31, 1998, the Company had
sales to a single customer which totalled 10.9% of net revenues.
16. RESTRUCTURING CHARGES
During the last quarter of the period ended December 31, 1999, the Company
terminated three key executives which resulted in a pre-tax charge to
compensation totaling approximately $1 million. Approximately $690,000 of this
charge related to compensation expense associated with the modification of the
employees' stock options. As of December 31, 1999, the Company has approximately
$300,000 of other accrued severance costs.
F-18
<PAGE>
ADAM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. RESTRUCTURING CHARGES (CONTINUED)
During the fourth quarter of the year ended March 31, 1999, the Company
implemented a plan to release substantially all of its direct sales force. This
restructuring plan resulted in a pre-tax charge of approximately $47,000
relating to the severance costs for the employees terminated. During
April 1999, additional employees were terminated with a severance cost of
approximately $35,000.
17. SUBSEQUENT EVENTS
In January 2000, the Company substantially reduced its workforce in San
Francisco. On February 24, 2000, the Company canceled the lease associated with
the San Francisco location for no penalty and arranged for the sale of the
related leasehold improvements and certain furniture and fixtures to a new
tenant.
As of March 30, 2000, the Company has issued 353,600 shares of its common
stock at an average price of $11.55 to satisfy the conversion obligation and in
exchange for $4,083,000 pursuant to the convertible debentures described in
Note 7.
F-19
<PAGE>
EXHIBIT 4.7
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED, NOR
WILL ANY ASSIGNEE OR ENDORSEE HEREOF BE RECOGNIZED AS AN OWNER OR HOLDER
HEREOF BY THE ISSUER FOR ANY PURPOSE, UNLESS A REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES LAWS
WITH RESPECT TO THIS WARRANT SHALL THEN BE IN EFFECT OR UNLESS THE AVAILABILITY
OF AN EXEMPTION FROM REGISTRATION WITH RESPECT TO ANY PROPOSED TRANSFER OR
DISPOSITION OF THIS WARRANT SHALL BE ESTABLISHED TO THE REASONABLE SATISFACTION
OF COUNSEL FOR THE ISSUER.
WARRANT
to Purchase up to 25,000 Shares of Common Stock of
ADAM.COM, INC.
December 31, 1999
THIS IS TO CERTIFY THAT, for good and valuable consideration received,
("Warrant Holder" or, with its successors and assigns, "Holder"), is entitled to
purchase from adam.com, Inc., a Georgia corporation (the "Company"), at any time
or from time to time after the date hereof, through and including December 31,
2004, at 1600 River Edge Parkway, Suite 800, Atlanta, Georgia 30328, or at such
other place as the Company may request by written notice given at least fifteen
(15) days before the applicable exercise date (the "Warrant Office"), for a
purchase price equal to the "Price Per Share" (as defined below), a total number
of duly authorized, validly issued, fully paid and nonassessable shares of
Common Stock of the Company up to the "Number of Available Shares" (as defined
below). This Warrant may not be exercised after December 31, 2004.
This Warrant is one of a series of warrants being issued pursuant to the
terms of that certain Bridge Note and Warrant Purchase Agreement, dated December
31, 1999, among the Company, the Holder and certain other purchasers of the
notes and warrants of the Company under that agreement, and this Warrant is
subject to the terms and conditions of that Bridge Note and Warrant Purchase
Agreement.
ARTICLE I
CERTAIN DEFINITIONS
For all purposes of this Warrant, unless the context otherwise requires,
the following terms have the following respective meanings:
<PAGE>
"Act" means the Securities Act of 1933, as amended, or any similar federal
statute, and the rules and regulations of the Commission promulgated thereunder,
as then in effect.
"Capital Stock" means and includes (i) any and all shares, interests,
participations or other equivalents of or interests in (however designated)
corporate stock, including, without limitation, shares of preferred or
preference stock, (ii) all partnership interests (whether general or limited)
in any Person that is a partnership, (iii) all membership interests or
limited liability company interests in any limited liability company, and
(iv) all equity or ownership interests in any Person of any other type.
"Commission" means the Securities and Exchange Commission, or any other
federal agency then administering the Act.
"Common Stock" means the Company's common stock, par value $.01 per share,
and any other Capital Stock into which such stock may hereafter be changed.
"Company" means adam.com, Inc., a Georgia corporation, and any other
corporation assuming or required to assume the Warrant pursuant to this
Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any similar federal statute, and the rules and regulations of the Commission
promulgated thereunder, as then in effect.
"Note Purchase Agreement" means the Bridge Note and Warrant Purchase
Agreement, dated December 31, 1999, among the Company, the Holder and certain
other purchasers of notes and warrants of the Company under that agreement.
"Number of Available Shares" means the number of shares of Common Stock
that the Holder is entitled to purchase under this Warrant. Initially, the
Number of Available Shares will be equal to 25,000 shares. The Number of
Available Shares will be subject to adjustment as provided in Article IV.
"Options" means any rights to subscribe for or to purchase, or any options
for the purchase of, Common Stock, or any other securities that are convertible
or exchangeable into Common Stock.
"Person" means any individual, corporation, limited liability company,
partnership, trust, unincorporated organization, government, or any political
subdivision, instrumentality or agency of any government.
"Price Per Share" means the Price Per Share determined in accordance with
Section 2.1 of the Note Purchase Agreement. The Price Per Share is subject to
adjustment as provided in Article IV.
"State Securities Laws" means any applicable state securities laws that may
restrict or prohibit the issuance or purchase of shares of Common Stock upon
exercise of the Warrant.
2
<PAGE>
"Transfer" means distribute, sell, transfer, pledge, hypothecate or
otherwise dispose.
"Warrant" means this Warrant and any warrants issued in substitution,
combination or subdivision therefor.
ARTICLE II
EXERCISE OF WARRANTS
2.1 METHOD OF EXERCISE. To exercise this Warrant in whole or in part, the
Holder will deliver to the Company at the Warrant Office: (a) a written notice,
in substantially the form of the subscription notice attached as EXHIBIT A
(modified, as appropriate, to reflect any conditional exercise or change in the
terms of exercise as described below) of Holder's election to exercise this
Warrant, which notice will specify the number of shares of Common Stock to be
purchased not exceeding, on a cumulative basis, the Number of Available Shares
(the "Notice"), (b) this Warrant, and (c) a check payable to the order of the
Company in an amount equal to the product of the Price Per Share multiplied by
the number of shares of Common Stock being purchased. Upon receipt of the
Notice, the Company will promptly execute and deliver a certificate or
certificates representing the aggregate number of shares of Common Stock
specified in the Notice. The stock certificate or certificates will be in the
denominations as specified in the Notice and will be registered in the name of
Holder or such other name or names as designated in the Notice; PROVIDED,
HOWEVER, the Company has no obligation to issue such shares in any manner which
would result in a violation of the registration requirements of the Act or any
applicable State Securities Laws. Such certificate or certificates will be
deemed to have been issued and the Holder or any other person so designated to
be named therein will be deemed for all purposes to have become a holder of
record of such shares as of the date the Notice and payment is received by the
Company. If this Warrant is exercised only in part, the Company will, at the
time of delivery of the certificate or certificates, deliver to the Holder a new
Warrant evidencing the rights to purchase the remaining shares of Common Stock
called for by this Warrant. The new Warrant will in all other respects be
identical with this Warrant, or, at the request of the Holder, appropriate
notation may be made on this Warrant which will then be returned to the Holder.
The Company will pay all expenses, transfer (but not income) taxes and other
charges payable in connection with the preparation, issuance and delivery of
stock certificates and new Warrants, except that, in case stock certificates or
new Warrants will be registered in a name or names other than the name of the
Holder, funds sufficient to pay all transfer taxes which are payable upon the
issuance of stock certificates or new Warrants will be paid by the Holder
promptly upon receipt of a written request of the Company for payment.
2.2 CASHLESS EXERCISE. In lieu of exercising the Warrant for cash
pursuant to Section 2.1(a) above, the Holder shall have the right to require
the company to convert the Warrant, in whole or in part and at any time or
times (the "Conversion Right"), into Warrant Shares, by surrender to the
Company of this Warrant and the Notice of Exercise attached hereto, duly
completed and executed by the Holder to evidence the exercise of the
Conversion Right. Upon exercise of the Conversion Right, the Company shall
deliver to the Holder a certificate(s) representing that number of Warrant
Shares which is equal to the quotient obtained by dividing
3
<PAGE>
(x) the value of the Warrant at the date the Conversion Right is exercised
(determined by subtracting (A) the aggregate Price Per Share for all Warrant
Shares immediately prior to the exercise of the Conversion Right from (B) the
aggregate fair market value of all Warrant Shares purchasable upon exercise
of such Warrant immediately prior to the exercise of the Conversion Right)
(determined on the basis of the fair market value per share of the Warrant
Shares purchasable upon exercise of such Warrants immediately prior to the
exercise of the Conversion Right)), by (y) the fair market value per share of
one share of Common Stock on the date of the exercise of the Conversion
Right. For purpose of this calculation, the fair market value per share of
Common Stock shall be, (i) if a public market for the Company's Common Stock
exists at the time of such exercise, the average of the closing bid and asked
prices of the Common Stock quoted in the Over-The-Counter Market Summary or
the last reported sale price of the Common Stock or closing price quoted on
the Nasdaq National Market or on any exchange on which the Common Stock is
listed, whichever is applicable, as published in the Wall Street Journal for
the five (5) trading days prior to the date of determination of fair market
value; or (ii) if there is no public market for the Company's Common Stock,
determined by the Company's Board of Directors in good faith. Any references
in this Warrant to the "exercise" of any Warrants, and the use of the term
"exercise" herein, shall be deemed to include (without limitation) any
exercise of the Conversion Right. If this Warrant is exercised only in part,
the Company will, at the time of delivery of the certificate or certificates,
deliver to the Holder a new Warrant evidencing the rights to purchase the
remaining shares of Common Stock called for by this Warrant. The new Warrant
will in all other respects be identical with this Warrant, or, at the request
of the Holder, appropriate notation may be made on this Warrant which will
then be returned to the Holder. The Company will pay all expenses, transfer
(but not income) taxes and other charges payable in connection with the
preparation, issuance and delivery of stock certificates and new Warrants,
except that, in case stock certificates or new Warrants will be registered in
a name or names other than the name of the Holder, funds sufficient to pay
all transfer taxes which are payable upon the issuance of stock certificates
or new Warrants will be paid by the Holder promptly upon receipt of a written
request of the Company for payment.
2.3 SHARES TO BE FULLY PAID AND NONASSESSABLE. All shares of Common Stock
issued upon the exercise of this Warrant will be duly authorized, validly
issued, fully paid and nonassessable.
2.4 LEGEND ON WARRANT AND STOCK CERTIFICATES. This Warrant and any
certificates or other instruments which evidence the shares issued upon exercise
of the Warrant will bear a legend substantially to the following effect
(together with any other legends required under applicable state laws):
THIS WARRANT [OR, AS APPLICABLE, THE STOCK EVIDENCED BY THIS
CERTIFICATE] HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS
AND MAY NOT BE TRANSFERRED, NOR WILL ANY ASSIGNEE OR ENDORSEE
HEREOF BE RECOGNIZED AS AN OWNER OR HOLDER HEREOF BY THE
COMPANY FOR ANY PURPOSE, UNLESS A REGISTRATION STATEMENT
4
<PAGE>
UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND ANY APPLICABLE
STATE SECURITIES LAWS WITH RESPECT TO THIS WARRANT [OR, AS
APPLICABLE, THE STOCK EVIDENCED BY THIS CERTIFICATE] SHALL
THEN BE IN EFFECT OR UNLESS THE AVAILABILITY OF AN EXEMPTION
FROM REGISTRATION WITH RESPECT TO ANY PROPOSED TRANSFER OR
DISPOSITION OF THIS WARRANT [OR, AS APPLICABLE, THE STOCK
EVIDENCED BY THIS CERTIFICATE] SHALL BE ESTABLISHED TO THE
REASONABLE SATISFACTION OF COUNSEL FOR THE COMPANY.
ARTICLE III
TRANSFER OF WARRANT
This Warrant may be transferred, in whole or in part, to any Person by
presentation to the Company of the Warrant and an assignment, in form reasonably
acceptable to the Company and its counsel, duly executed by the Holder or its
duly authorized agent or attorney along with written instructions for such
Transfer; PROVIDED, HOWEVER, the Holder agrees not to transfer the Warrant, any
Common Stock issued upon exercise of the Warrant, except pursuant to (i) an
effective registration statement under the Act and any applicable State
Securities Laws or (ii) an opinion, of counsel satisfactory to the Company and
its counsel, that such Transfer is exempt from registration under the Act and
any applicable State Securities laws. The Company will not be required to take
any action which would result in a violation of such provisions. Upon
presentation for Transfer in compliance with the terms of this Warrant, the
Company will promptly execute and deliver a new Warrant or Warrants identical to
this Warrant in the name or names of the transferee or transferees and in the
denominations specified in such instructions. The Company will pay all expenses,
taxes (other than income taxes) and other charges payable in connection with the
preparation, issuance and delivery of Warrants under this Article III, except
that funds sufficient to pay all transfer taxes pertaining to the Transfer which
are payable upon the issuance of such new Warrants will be paid by the Holder
promplty upon receipt of written request of the Company for payment.
ARTICLE IV
ADJUSTMENTS
4.1 ADJUSTMENTS OF PRICE PER SHARE. In order to prevent dilution of the
rights granted to Holder, the Price Per Share will be subject to adjustment from
time to time in accordance with this Article IV.
4.2 PRICE REDUCTION FORMULA. Except as provided in Sections 4.3, 4.4 or 4.5
below, if the Company (i) issues or sells any shares of its Common Stock for
consideration per share that is less than the Price Per Share in effect
immediately prior to the time of such issue or sale, or (ii) issues or sells any
Options with an exercise price per share of Common Stock less than the Price
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Per Share in effect immediately prior to the time of such issue or sale, then
upon such issue or sale (the "Triggering Transaction"), the Price Per Share
will, subject to this Article IV, be reduced to Price Per Share equal to the
consideration per share received by the Company in such issue or sale of Common
Stock. If any shares of Common Stock are issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor will be deemed to
be the amount received by the Company therefor. If any shares of Common Stock
are issued or sold for a consideration other than cash, the amount of
consideration other than cash received by the Company will be the fair value of
such consideration, as reasonably determined by the Company's Board of
Directors. If any shares of Common Stock are issued in connection with any
merger in which the Company is the surviving corporation, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving corporation attributable to
such Common Stock, as the case may be, as reasonably determined by the Board of
Directors of the Company.
4.3 STOCK DIVIDENDS, SPLITS, ETC. To the extent not theretofore exercised,
the Price Per Share and the Number of Available Shares will be subject to
appropriate decrease or increase, as the case may be, if the Company at any time
after the date hereof either (i) declares any dividend or distribution payable
in shares of Common Stock or in securities directly or indirectly convertible
into or exchangeable for shares of Common Stock, or (ii) subdivides or combines
outstanding shares of Common Stock.
4.4 EXCEPTIONS. The provisions of this Article IV will not apply to any
Common Stock (or rights with respect thereto) issued or issuable to any person
pursuant to (1) any stock option, stock purchase or similar plan or arrangement
for the benefit of the officers, directors and employees of or consultants to
the Company or its subsidiaries adopted by the Board of Directors of the
Company, or (2) stock (or rights with respect thereto) issued or issuable to
Fusion Capital Fund LLC ("Fusion") pursuant to the Securities Purchase Agreement
dated November 15, 1999 between the Company and Fusion.
4.5 RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of any
reclassification, change or exchange of the Common Stock (other than a change in
par value, or as a result of a subdivision or combination of such shares), or in
case of any consolidation or merger of the Company with or into another
corporation (other than a merger with another corporation in which the Company
is a continuing corporation and that does not result in any reclassification,
change or exchange of outstanding securities issuable upon exercise of this
Warrant), or in case of any sale of all of substantially all of the assets of
the Company, or if the Company shall declare a dividend or distribution (except
in shares of Common Stock or in securities directly or indirectly convertible
into or exchangeable for shares of Common Stock) upon the shares of Common Stock
payable otherwise than in cash out of earned surplus, the Company, or such
successor or purchasing corporation as the case may be, will execute a new
Warrant, providing that Holder will have the right to exercise such new Warrant,
and procure upon such exercise and payment of the same aggregate exercise price,
in lieu of the shares of Common Stock previously issuable upon exercise of this
Warrant, the kind and amount of shares of stock, other securities, money and
property receivable upon such reclassification, change, consolidation, dividend
or distribution, sale of all or substantially all of the Company's assets or
merger by a holder of an
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equivalent number of shares of Common Stock. Such new Warrant will provide for
adjustments that will be as nearly equivalent as practicable to the adjustments
provided for in this Article IV.
ARTICLE V
MISCELLANEOUS
5.1 NOTICE OF CERTAIN EVENTS. In case:
(a) the Company shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive any dividend or other distribution, or
any right to subscribe for or purchase any shares of Capital Stock of any class,
or to receive any other rights; or
(b) of any capital reorganization, any reclassification of shares of
Capital Stock of the Company, or any consolidation or merger of the Company or
the sale or transfer of all or substantially all of the assets of the Company;
or
(c) of any voluntary dissolution, liquidation, or winding up of the
Company; then the Company shall mail (at least twenty (20) days prior to the
applicable date referred to in subclause (x) or in subclause (y) below, as the
case may be), to the Holder at the address set forth in the Company's stock
records, a notice stating (x) the date on which a record is to be taken for the
purpose of such dividend, distribution, or rights, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution, or rights are to be determined, or (y) the date
on which such reclassification, capital reorganization, consolidation, merger,
sale, transfer, dissolution, liquidation, or winding up is expected to become
effective, and, if applicable, the date as of which it is expected that holders
of Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reclassification,
capital reorganization, consolidation, merger, sale, transfer, dissolution,
liquidation, or winding up.
5.2 SUCCESSORS. This Warrant will be binding upon any corporation
succeeding to the Company by merger, consolidation or sale or transfer of all or
substantially all of the Company's assets.
5.3 GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of Deleware without regard to its conflict
of laws provisions.
5.4 Waiver and Amendment. Any term or provision of this Warrant may be
waived at any time by the party that is entitled to the benefits thereof and any
term or provision of this Warrant may be amended or supplemented at any time by
agreement of the Holder and the Company, except that any waiver of any term or
condition, or any amendment or supplementation, of this Warrant must be in
writing. A writer of any breach or failure to enforce any of the terms or
conditions of this Warrant will not in any way affect, limit or waive a party's
rights under this Warrant at any time to enforce strict compliance thereafter
with any term or condition of this Warrant.
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5.5 SEVERABILITY. If any one or more of the provisions contained in this
Warrant is determined to be invalid, illegal or unenforceable in any respect for
any reason, the validity, legality and enforceability of any such provision in
any other respect and the remaining provisions of this Warrant will not, at the
election of the party for whom the benfit of the provision exists, be in any way
impaired.
5.6 FILING OF WARRANT. A copy of this Warrant will be filed in the records
of the Company.
5.7 NOTICE. Any notice or other document required or permitted to be given
or delivered to the Holder will be delivered personally, or sent by certified or
registered mail, to the Holder at the last address shown on the books of the
Company maintained at the Warrant Office for the registration of, and the
registration of transfer of, the Warrant or at any more recent address of which
the holder will have notified the Company in writing. Any notice or other
document required or permitted to be given or delivered to the Company, other
than such notice or documents required to be delivered to the Warrant Office,
will be delivered at, or sent by certified or registered mail to, the office of
the Company described above or such other address within the United States of
America as will have been furnished by the Company to the Holder.
5.8 LOSS, DESTRUCTION, ETC. OF WARRANT. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of the
Warrant, and in the case of any such loss, theft or destruction, upon delivery
of a bond of indemnity in such form and the amount as is reasonably satisfactory
to the Company, or in the event of such mutilation, upon surrender and
cancellation of the Warrant, the Company will make and deliver a new Warrant, in
lieu of such lost, stolen, destroyed or mutilated Warrant. Any Warrant issued
under the provisions of this Section 5.7 in lieu of any Warrant alleged to be
lost, destroyed or stolen, or in lieu if any mutilated Warrant, will constitute
an original contractual obligation on the part of the Company.
5.9 LIMITATION OF LIABILITY; NOT STOCKHOLDERS. No provision of this
Warrant will be construed as conferring upon the Holder the right to vote,
consent, receive dividends or receive notice, other than as expressly provided
in this Warrant, in respect of meetings of stockholders for the election of
directors of the Company or any other matter whatsoever as a stockholder of the
Company. No provision of this Warrant, in the absence of affirmative action by
the Holder to purchase shares of Common Stock, and no mere enumeration in this
Warrant of the rights or privileges of the Holder hereof, will give rise to any
liability of such Holder for the purchase price of any Common Stock issuable
upon exercise of the Warrant or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer on the date specified below.
Dated: December 31, 1999
ADAM.COM, INC.
By: ________________________________
________________________________
Its: ________________________________
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EXHIBIT A
FORM OF SUBSCRIPTION NOTICE
adam.com, Inc.
1. The undersigned, the holder of the foregoing Warrant, hereby elects to
exercise purchase rights represented by said Warrant for, and to purchase
thereunder, ________________ shares of the Common Stock covered by said Warrant
and herewith makes payment in full therefor of $ _________ by check payable to
the order of the Company, and requests (a) that certificates for such shares
(and any securities or other property issuable upon such exercise) be issued in
the name of and delivered to _________________________________ whose address is
____________________________________________________________________ and whose
federal taxpayer identification number is _____________________; and (b) if such
shares do not include all of the shares issuable as provided in said Warrant,
that a new Warrant of like tenor and date for the balance of the shares of
Common Stock issuable thereunder be delivered to the undersigned.
Warrant Holder
By: _______________________
Dated: ________________
<PAGE>
EXHIBIT 10.13
BRIDGE NOTE
AND WARRANT PURCHASE AGREEMENT
adam.com, Inc.
Sale of
10% Promissory Notes Due 2000
December 31, 1999
<PAGE>
adam.com, Inc.
BRIDGE NOTE
AND WARRANT PURCHASE AGREEMENT
THIS BRIDGE NOTE AND WARRANT PURCHASE AGREEMENT (this "AGREEMENT"), dated
December 31, 1999, is among adam.com, Inc., a Georgia corporation (the
"COMPANY"), and those individuals and entities listed on Schedule 1.1 (referred
to individually as a "PURCHASER" and collectively as the "PURCHASERS")
BACKGROUND
The Company wishes to issue and sell to Purchasers, and the Purchasers wish
to purchase from the Company, (1) promissory notes of the Company with an
aggregate principal amount of $1,000,000, in the form of the 10% Promissory Note
attached to this Agreement as EXHIBIT A, and (2) warrants to purchase shares of
the common stock, par value $.01 per share, of the Company, in the form attached
to this Agreement as EXHIBIT B.
The Company and the Purchasers wish to make certain agreements with respect
to the issuance and sale by the Company to the Purchasers of the Notes (as
defined below) and Warrants (as defined below).
The parties hereto agree as follows:
SECTION 1. PURCHASE AND SALE OF PROMISSORY NOTES.
1.1 PURCHASE AND SALE OF PROMISSORY NOTES. The Company will issue and sell
to each Purchaser, and each Purchaser will purchase form the Company, a
Promissory Note in the form of the 10% Promissory Note attached to this
Agreement as Exhibit A. (collectively, the "Notes"), in the respective stated
principal amounts specified on Schedule 1.1, subject to the terms and conditions
of this Agreement.
1.2 FUNDING OF THE PRINCIPAL AMOUNTS OF NOTES. At the Closing, each
Purchaser will pay to the Company the stated principal amount of such
Purchaser's Note (as specified in SCHEDULE 1.1) in accordance with Section 3.2.
1.3 PREPAYMENT OF NOTES. A note may be prepaid by the Company prior to its
maturity date, without the consent of the holder of the Note; provided that the
prepayment must include all accrued interest on the amount of the principal
obligation being prepaid.
1.4 SEVERAL OBLIGATIONS. The obligations of the Purchasers under this
Section 1 are several and not joint.
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SECTION 2 WARRANTS.
2.1 WARRANT TERMS. The "NUMBER OF AVAILABLE SHARES" under each Warrant is
specified in SCHEDULE 1.1. The "INITIAL WARRANT EXERCISE PERIOD" is specified on
Schedule 1.1 and is equal to eight percent (80.0%) of the average closing price
of the common stock of the Company (the "COMMON STOCK") as reported in The Wall
Street Journal for the consecutive trading days immediately prior to the day
preceding the Closing.
2.3 ADDITIONAL WARRANTS. If the Notes remain outstanding for a period of
more than 180 days from the Closing Date, then the Purchasers shall be granted
additional non-registered Warrants to purchase a "Number of Available Shares"
equal to five percent (5%) of the principal amount of the respective Purchasers
Note (that is, each Purchaser will receive Warrants to purchase an additional
25,000 shares of the Company's Common Stock). The "Additional Warrant Exercise
Price" will be equal to the lesser of (a) eighty percent (80.0%) of the average
closing price for the Company's Common Stock as reported in The Wall Street
Journal during the last five consecutive trading days of such 180 day period or
(b) the Initial Warrant Exercise Price. The Warrants issued by the Company in
accordance with Sections 2.1 and 2.2 are referred to in this Agreement
collectively as the "Warrants. In addition, the Company shall use its best
efforts to register the shares of Common Stock issuable upon exercise of such
Additional Warrants under the same terms and conditions as the shares of Common
Stock issuable upon exercise of the Warrants issued pursuant to Section 2.1 are
being registered.
SECTION 3. CLOSING.
3.1 CLOSING DATE. The closing ("CLOSING") of the purchase and sale of the
Notes and the Warrants will take place at the offices of King & Spalding, 191
Peachtree Street, Atlanta, Georgia 30303 at 10:00 A.M., Atlanta time, on
December 31, 1999, or on such other date and time as may be mutually agreed upon
by the Purchasers and the Company (the date and time of Closing is referred to
as the "CLOSING DATE").
3.2 DELIVERY OF PROMISSORY NOTES, WARRANTS AND PAYMENT OF PURCHASE PRICE.
At the Closing, (1) the Company will issue and deliver to each Purchaser the
Note purchased by such Purchaser hereunder, in the name of that Purchaser, and
the Warrant being purchased by such Purchaser hereunder, in the name of such
Purchaser, and (2) each Purchaser will pay to the Company the amount specified
on SCHEDULE 1.1. Payment will be made by wire transfer to an account of the
Company in accordance with written instructions received by the Purchasers from
the Company prior to the Closing Date.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Purchasers to purchase the Notes and Warrants, the
Company represents and warrants to the Purchasers that:
4.1 ORGANIZATION AND QUALIFICATION. The Company and its "SUBSIDIARIES"
(which
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for purchases of this Agreement means any entity in which the Company, directly
or indirectly, owns 50% or more of the voting stock or capital stock or other
similar equity interests) are corporations duly organized and validly existing
in good standing under the laws of the jurisdiction in which they are
incorporated, and have the requisite corporate power and authorization to own
their properties and to carry on their business as now being conducted. Each of
the Company and its Subsidiaries is duly qualified as a foreign corporation to
do business and is in good standing in every jurisdiction in which its ownership
of property or the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to be so
qualified or be in good standing could not reasonably be expected to have a
Material Adverse Effect. As used in this Agreement, "MATERIAL ADVERSE EFFECT"
means any material adverse effect on any of : (i) the business, properties,
assets, operations, results of operations or financial condition of the Company
and its Subsidiaries, if any, taken as whole, (ii) the value of the Common Stock
or (iii) on the transactions contemplated hereby or by the agreements and
instruments to be entered into in connection herewith. The Company has no
Subsidiaries except as set forth on SCHEDULE 4.1.
4.2 AUTHORIZATION; ENFORCEMENT; VALIDITY. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Notes, the Warrants, the Registration Rights Agreement and each of the other
agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the "TRANSACTION
DOCUMENTS"), and to issue the Notes, Warrants and shares of Common Stock
issuable upon exercise of the Warrants (the "SECURITIES") in accordance with the
terms hereof and thereof, (ii) the execution and delivery of the Transaction
Documents by the Company and consummation by it of the transactions contemplated
hereby and thereby, have been duly authorized by the Company's Board of
Directors and no further consent or authorization is required by the Company,
its Board of Directors or its shareholders, (iii) each Transaction Document has
been duly executed and delivered by the Company, and (iv) each Transaction
Document constitutes the valid and binding obligations of the Company
enforceable against the Company in accordance with the terms, except as such
enforceability may limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights and
remedies.
4.2 CAPITALIZATION. As of the date hereof, the authorized capital stock of
the Company consists of (i) 20,000,000 shares of Common Stock, of which as of
the date hereof, ____________ shares are issued and outstanding, 3,000,000
shares are reserved for issuance pursuant to the Company's stock option plan and
_____________ shares are issuable and reserved for issuance pursuant to
securities (other than the Warrants or stock options issued pursuant to the
Company's stock option) exercisable or exchangeable for, or convertible into,
shares of Common Stock, and (ii) 10,000,000 shares of preferred stock of which
as of the date hereof no shares are issued and outstanding. All of such
outstanding shares have been, or upon issuance will be duly authorized, validly
issued and are fully paid and nonassessable. Except as disclosed in SCHEDULE
4.3, (i) no shares of the Company's capital stock are subject to preemptive
rights or any other similar rights or any liens or encumbrances suffered or
permitted by the Company, nor is any holder of the capital stock of the Company
entitled to preemptive or similar rights arising out of any agreement or
understanding with the Company by virtue of any
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of the Transaction Documents, (ii) there are no outstanding debt securities,
(iii) there are no outstanding options, warrants, scrip, rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities or
right convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries. (iv) there
are no agreements or arrangements under which the Company or any of its
Subsidiaries is obligated to register the sale of any of their securities under
the 1993 Act, (v) there are no outstanding securities or instruments of the
Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of the Subsidiaries, (vi) there
are no securities or instruments containing anti-dilution or similar provisions
that will be triggered by the issuance of the Securities as described in this
Agreement, and (vii) the Company does not have any stock appreciation rights or
"phantom stock" plans or agreements or any similar plan or agreement. To the
best knowledge of the Company, no Person or group of related Persons
beneficially owns (as determined pursuant to Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended (The "EXCHANGE ACT")) or has the
right to acquire by agreement with or by obligation binding upon the Company
beneficial ownership of in excess of 5% of the Common Stock. A "PERSON" means an
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any kind.
The Common Stock is quoted and is listed for trading on the NASDAQ National
Market. The Company has received no notice, either oral or written, with respect
to the continued eligibility of the Common Stock for such listing, and the
Company has maintained all requirements for the continuation of such listing.
The Company had furnished to the Purchasers true and correct copies of the
Company's Articles of Incorporation, as amended and as in effect on the date
hereof (the "ARTICLES OF INCORPORATION"), and the Company's By-laws, as amended
and as in effect on the date hereof (the "BY-LAWS"), and the terms of all
securities convertible into or exercisable for Common Stock, if any, and the
material rights of the holders thereof in respect thereto.
4.3 ISSUANCE OF SECURITIES. The Securities have been duly authorized and,
upon issuance in accordance with the terms hereof, shall be (i) validly issued,
fully paid and non-assessable, and (ii) free from all taxes, liens,
encumbrances, rights of first refusal, and charges with respect to the issue
thereof. 100,000 shares of Common Stock have been duly authorized and reserved
for issuance upon existence of the Warrants. The Company has, and at all times
while the Warrants are outstanding will maintain, an adequate reserve of duly
authorized shares of Common Stock to enable the Company to perform its
obligations under this Agreement and the Warrants. Upon exercise in accordance
with the terms and conditions of the Warrants, the shares of Common Stock so
issued (the "WARRANT SHARES") will be duly authorized, validly issued, fully
paid and nonassessable and free from all taxes, liens, encumbrances, rights of
first refusal, and charges with respect to the issue thereof, with the holders
being entitled to all rights accorded to a holder of Common Stock.
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4.4 NO CONFLICTS. Except as disclosed in SCHEDULE 4.5, the execution,
delivery and performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including without limitation, the reservation for issuance and issuance of the
Warrant Shares) will not (i) result in violation of the Articles of
Incorporation , any Certification of Designations, Preferences and Rights of any
outstanding series of preferred stock of the Company or the By-laws or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration, or cancellation of, any material
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or by which any property or asset of the Company or any
of its Subsidiaries is bound or affected, or result in a violation of any law,
rule, regulation, order, judgement or decree (including federal and state
securities laws and regulations and the rules and regulations of the principal
market on which the Company's Common Stock is traded) that are applicable to the
Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected, or (iii) result in the
creation or imposition if any lien, encumbrance or charge of any kind upon any
of the Securities or any of the assets of the Company, or any of its Affiliates
(as such term is defined under Rule 405 promulgated under the Securities Act).
Except as disclosed in SCHEDULE 4.5, neither the Company nor its Subsidiaries is
in violation of any term of or in default under its Articles of Incorporation,
any Certificate of Designation, Preferences and Rights of any outstanding series
of preferred stock of the Company or By-laws or their organizational charter or
by-laws, respectively. Except as disclosed in SCHEDULE 4.5, neither the Company
or any of its Subsidiaries is in violation of any term of or in default under
any material contract, agreement, mortgage, indebtedness, indenture, instrument,
judgement, decree or order or any statute, rule or regulation applicable to the
Company or its Subsidiaries or by which any property or asset of the Company or
any of its Subsidiaries is bound or affected, except for possible conflicts,
defaults, terminations, amendments which could not reasonably be expected to
have a Material Adverse Effect. The business of the Company and its Subsidiaries
is not being conducted, and shall not be conducted, in violation of any order of
any court, arbitrator or governmental body applicable to it, any law, statute,
ordinance, rule or regulation of any governmental entity, except for possible
violations to the sanctions for which either individually or in the aggregate
could not reasonably be expected to have a Material Adverse Effect. Except as
specifically contemplated by this Agreement and as required under the 1933 Act,
the Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self-regulatory agency in order for it to execute, deliver or
perform any of its obligations under or contemplated by this Agreement, the
Notes or the Warrants in accordance with the terms hereof or thereof. Except as
disclosed in SCHEDULE 4.5, all consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. The
Company is not and has not been since January 1, 1998, in violation of the
listing requirements of the principal market on which the Company's Common Stock
is traded.
4.6 SEC DOCUMENTS; FINANCIAL STATEMENTS. Since January 1, 1997, the Company
has filed all reports, schedules, forms, statements and other documents required
to be filed by it with the SEC pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "1934 ACT") including pursuant
to Section 13(a) or 15(d) thereof for the three
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years preceding the date hereof (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements and schedules
thereto and documents incorporated by reference therein being hereinafter
referred to as the "SEC DOCUMENTS"). As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC Documents, at the time they were
filed with the SEC, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. All material agreements to which the Company is a party or
to which the property or assets of the Company are subject have been filed as
exhibits to the SEC Documents as required; neither the Company nor any of its
Subsidiaries is in breach of any such agreement where such breach would
reasonably be expected to , individually or in the aggregate, have a Material
Adverse Effect. AS of their respective dates, the financial statements of the
Company included in the SEC Documents complied in all material respect with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto as in effect at the time of filing. Such financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (I) as may
be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
4.7 ABSENCE OF CERTAIN CHANGES. Except as disclosed in SCHEDULE 4.7, since
January 1, 1999 there has been no event, occurrence or development that has had,
or would reasonably be expected to have, a Material Adverse Effect which has not
been specifically disclosed to the Purchasers by the Company. The Company has
not taken any steps, and does not currently expect to take any steps, to seek
protection pursuant to any bankruptcy law nor does the Company or any of its
Subsidiaries have any knowledge or reason to believe that its creditors intend
to initiate involuntary bankruptcy proceedings.
4.8 ABSENCE OF LITIGATION. Except as disclosed in SCHEDULE 4.8 there is no
action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self regulatory organization or body pending
or, to the knowledge of the Company or any of its Subsidiaries, threatened
against or affecting the Company, the Common Stock or any of the Company's
Subsidiaries or any of the Company's or the Company's Subsidiaries' officers or
directors in their capacities as such, which could reasonably be expected to
have a Material Adverse Effect. A description of each action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body which, as of the date of this
Agreement, is pending or threatened in writing against or affecting the Company,
the Common Stock or any of the company's Subsidiaries or any of the Company's or
the Company's Subsidiaries' officers or directors in their capacities as such,
is set forth in SCHEDULE 4.8.
4.9 ACKNOWLEDGMENT REGARDING PURCHASER'S PURCHASE OF THE SECURITIES. The
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Company acknowledges and agrees that the Purchasers are acting solely in the
capacity of arm's length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that the
Purchasers are not acting as a financial advisor or fiduciary of the Company (or
in any similar capacity) with respect to this Agreement and the transactions
contemplated hereby. The Company further represents to the Purchasers that the
Company's decision to enter into this Agreement has been based solely on the
independent evaluation by the Company and its representatives and advisors.
4.10 NO GENERAL SOLICITATION. Neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
4.11 NO INTEGRATED OFFERING. Neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable shareholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated, nor will
the company or any of its Subsidiaries take any action or steps that would
require registration of nay of the Securities under the 1933 Act or cause the
offering of the Securities to be integrated with other offerings. The Company
has not conducted any offering that will be integrated with the issuance of the
Securities solely for purpose of Rule 4460(i) of The Nasdaq Stock Market, Inc.'s
Marketplace Rules.
4.12 DILUTIVE EFFECT. The Company understands and acknowledges that the
number of Warrant Shares issuable upon exercise of the Warrants will increase in
certain circumstances. The Company further acknowledges that its obligation to
issue Warrant Shares upon exercise of the Warrants in accordance with the
Agreement and the Warrants is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
shareholders of the Company.
4.13 INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own or
possess adequate rights or licenses to use all material trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respectful
businesses as now conductive. Except as set forth on SCHEDULE 4.13, none of the
Company's material trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, government authorizations, trade secrets or other
intellectual property rights have expired or terminated, or, by the terms and
conditions thereof, could expire or terminate within two years, from the date of
this Agreement. The Company and its Subsidiaries do not have any knowledge of
any infringement by the Company or its Subsidiaries of any material trademark,
trade name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service mark registrations, trade secret or other
similar rights of others, or of any such development of
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similar or identical trade secrets or technical information by others and,
except as set forth on SCHEDULE 4.13, there is no material claim, action, or
proceeding being made or brought against, or to the company's knowledge, being
threatened against, the Company or its Subsidiaries regarding trademark, trade
name, patents, patent rights, invention, copyright, license, service names,
service marks, service mark registrations, trade secret or other infringement.
4.14 ENVIRONMENTAL LAWS. The Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license, or approval, except where, in each of
the three foregoing clauses, the failure to so comply could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
4.15 TITLE. The Company and its Subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as are described in SCHEDULE 4.15 or such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and any of its Subsidiaries.
Any real property and facilities held under lease by the Company and any of its
Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
Subsidiaries.
4.16 INSURANCE. The Company and each Subsidiary maintains property and
casualty, general liability, workers' compensation, environmental hazard,
personal injury and other similar types of insurance with financially sound and
reputable insurers that is adequate, consistent with industry standards. Neither
the Company nor any Subsidiary as received notice from, or has any knowledge of
any threat by, any insurer (that has issued any insurance policy to the Company
or any Subsidiary) that such insurer intends to deny coverage under or cancel
discontinue or not renew any insurance policy presently in force. Neither the
Company nor any such Subsidiary has been refused any insurance coverage sought
or applied for and neither the company nor any such Subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not materially
and adversely affect the condition, financial or otherwise, or the earnings,
business or operations of the Company and its Subsidiaries, taken as a whole.
4.17 REGULATORY PERMITS. The Company and its Subsidiaries possess all
material franchises, certificates, authorizations, licenses, and permits issued
by the appropriate federal, state or foreign regulatory authorities necessary to
conduct their respective businesses, and neither the Company nor any such
Subsidiary has received any notice of proceedings relating to the revocation or
modification of any such franchise, certificate, authorization, license, or
permit.
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4.18 TAX STATUS. The Company and each of its Subsidiaries has made or filed
all federal and state income and all other material tax returns, reports, and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
4.19 TRANSACTIONS WITH AFFILIATES. Except as set forth on SCHEDULE 4.19 and
other than the grant of stock options disclosed on SCHEDULE 4.19, none of the
officers, directors, or employees of the Company is presently a party to any
transaction with the Company or any of its Subsidiaries (other than for services
as employees, officers, and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has an interest or is an officer,
director, trustee or partner.
4.20 APPLICATION OF TAKEOVER PROTECTIONS. The Company and its board of
directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Articles of Incorporation or the laws of the
state of its incorporation which is or could become applicable to the Purchasers
as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company's issuance of the Securities and the Purchasers'
ownership of the Securities.
4.21 RIGHTS AGREEMENT. The Company has not adopted a shareholder rights
plan or similar arrangement relating to accumulations of beneficial ownership of
Common Stock or a change in control of the Company.
4.22 FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of it
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other lawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended; or made any unlawful bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.
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4.23 PRIVATE OFFERING. The offer and sale by the Company to the Purchasers
of the Notes and the Warrants and the issuance of the Warrant Shares are exempt
from the registration requirements of the Securities Act.
4.24 SENIORITY. No class of debt securities or other indebtedness of the
Company is senior to or pari passu with the Notes in right of payment, wither
upon liquidation, dissolution or otherwise, except as set for in SCHEDULE 4.24.
4.25 INVESTMENT COMPANY. The Company is not, and is not controlled by or
under common control with an affiliate of , an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
4.26 CERTAIN FEES. No fees or commissions will be payable by the Company to
any broker, financial advisor, finder, investment banker, or bank with respect
to the transaction contemplated by this Agreement. The Purchasers shall have no
obligation with respect to any fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this Section 4.26
that may be due in connection with the transactions contemplated by this
Agreement.
4.27 SOLICITATION MATERIALS. The Company has not distributed any offering
materials in connection with the offering and sale of the Securities. The
Company understands and confirms that the Purchasers shall be relying on this
representation in effecting transactions in securities of the Company.
4.28 FORM S-3 ELIGIBILITY. The Company is, and at each Closing Date will
be, eligible to register securities (including the Warrant Shares) for resale
with the Commission under Form S-3 promulgated under the Securities Act.
4.29 EXCLUSIVITY. The Company shall not issue and sell the Notes and the
Warrants to any Person other than the Purchasers pursuant to this Agreement
other than with the specific prior written consent of each of the Purchasers;
except that the Company may issue and sell Notes with an aggregate principal
amount of up to additional $2,000,000 and Warrants, on provided for under the
Transaction Documents, with the prior written consent of each of the Purchasers
(which consent will not be reasonably withheld).
4.30 LISTING AND MAINTENANCE REQUIREMENTS COMPLIANCE. The Company has not
in the three years preceding the date thereof received notice (written or oral)
from any stock exchange, market or trading facility on which the Common Stock is
or has been listed (or on which it has been quoted) to the effect that the
Company is not in compliance with the listing or maintenance requirements of
such exchange or market.
4.31 REGISTRATION RIGHTS; RIGHTS OF PARTICIPATION. Except as described on
SCHEDULE 4.31, (A) the Company has not granted or agreed to grant to any Person
any rights (including "piggy-back" registration rights) to have any securities
of the Company registered with the Commission or any other governmental
authority which has not been satisfied and (B) no
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Person, including current or former shareholders of the Company, underwriters,
brokers, or agents, has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by this Agreement or any other Transaction Documents.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE
PURCHASERS.
Each Purchaser, severally and not jointly, represents and warrants to the
Company as follows:
5.1 EXISTENCE AND POWER. With respect to such Purchaser, that Purchaser is
(i) duly incorporated and organized, validly existing and in good standing under
the laws of, (ii) duly formed and in good standing under the laws of, or (iii) a
resident of, as applicable, its respective state of incorporation or formation
or residency (as described in SCHEDULE 5.1). Each has the necessary power and
authority to execute, deliver and perform this Agreement.
5.2 AUTHORIZATION. The execution, delivery and performance by such
Purchaser of this Agreement has been duly authorized by all requisite action on
the part of such Purchaser and will not violate the articles of incorporation,
bylaws, partnership agreement or other governing instruments, as the case may
be, of such Purchaser, or any provision of any indenture, mortgage deed of
trust, loan agreement, lease or other agreement or instrument to which such
Purchaser is a party to or which or any of its properties or assets is subject.
5.3 NO CONFLICTS. The execution, delivery and performance by such Purchaser
of this Agreement and the consummation of the transaction contemplated by this
Agreement do not and will not (with or without notice or lapse of time of both)
(a) violate or conflict with, constitute a breach or a default under, or require
the consent of any party under, any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which such Purchaser is a
party to which any of its properties or assets is subject, except for possible
violations, conflicts, breaches or defaults which could not reasonably be
expected to have a material adverse effect on such Purchaser or (b) conflict
with or violate any provision of the articles of incorporation or bylaws or
partnership agreement of such Purchaser, as the case may be, or any statute,
rule or regulation or any order, judgment or decree of any court or governmental
agency or body having jurisdiction over such Purchaser or any of its properties
or assets, except for possible conflicts or violations which could not
reasonably be expected to have a material adverse effect on such Purchaser.
5.4 BINDING EFFECT. This Agreement has been, and on or prior to the Closing
Date will be, duly executed and delivered by such Purchaser and does or will
constitute, as the case may be, the legal, valid and binding obligation of such
Purchaser, enforceable against such Purchaser in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, general equitable principles and the discretion of courts in granting
equitable
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remedies.
5.4 INVESTMENT INTENT. Such Purchaser is acquiring the Notes and Warrants
for its own account for the purpose of investment and not with a view to or for
sale in connection with any distribution thereof. Such Purchaser is an
"ACCREDITED INVESTOR" as defined in Regulation D under the Securities Act. Such
Purchaser understands that (a) none of the Notes, the Warrants or the Warrant
Shares have been registered under the Securities Act by reason of their issuance
in a transaction exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof or Regulation D promulgated thereunder., (b)
the Notes, the Warrants, and, upon exercise of the Warrants, the Warrant Shares,
may not be transferred and must be held indefinitely unless a subsequent
disposition thereof either is registered under the Securities Act and under any
applicable state securities law or is exempt from such registration, (c) the
Notes, the Warrants and the Warrant Shares will bear a legend to such effect,
and (d) the Company will make a notation on its transfer books to such effect.
Such Purchaser has had the opportunity to ask questions and to receive answers
concerning the terms and conditions of the offering of the Notes and the
Warrants and to obtain any information which the Company possessed or could
acquire without unreasonable effort or expense. Such Purchaser has such
knowledge and experience in business and financial matter with respect to
investments and form an investment decision with respect thereto. Such Purchaser
has no need for liquidity in its investment in the Company and is able to bear
the economic risk of such investment for an indefinite period and to afford a
complete loss thereof.
SECTION 6. ACTIONS PRIOR TO THE CLOSING.
The Company agrees that it will use its good faith efforts to take, or
cause to be taken or do, or cause to be done, all things necessary, proper or
advisable under applicable law or otherwise to obtain all approvals and satisfy
all conditions to the obligations of the Purchasers set forth in Section 9.1.
Purchasers covenant and agree to use good faith efforts to take, or cause to be
taken or do, or cause to be done, all things necessary, proper, or advisable
under applicable law or otherwise to obtain all approvals and satisfy all
conditions to the obligations of the Company set forth in Section 9.2.
SECTION 7. COVENANTS.
So long as the Notes and Warrants remain outstanding, the Company will
comply with each of the covenants specified in this Section 7:
7.1 PRESERVATION OF CORPORATE EXISTENCE. The Company will do or cause to be
done all things necessary to (a) preserve and maintain its corporate existence
and all material rights and franchises and (b) qualify and remain qualified to
conduct business in each jurisdiction where the nature of its business or the
ownership or lease of its property requires such qualification and where failure
to be so qualified would have a material adverse effect on the Company.
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7.2 COMPLIANCE WITH LAWS. The Company will comply with all applicable laws,
noncompliance with which would have a Material Adverse Effect.
7.3 RECORDS AND ACCOUNTS. The Company will keep true records and books of
account in which entries will be made in accordance with generally accepted
accounting principles.
7.4 MAINTENANCE OF PROPERTIES. The Company will cause all of its properties
used or useful in the conduct of its business to be maintained and kept in good
condition, repair and working order and cause to be made all necessary repairs,
renewals, replacements, and improvements thereof, all as in the judgment of the
Company are necessary in order to permit the Company to continue to conduct its
business in the ordinary course.
7.5 STOP TRANSFER ORDERS; SUSPENSION OF QUALIFICATION. The Company will
advise the Purchasers, promptly after it receives notice of issuance by the
Commission, any state securities commission or any other regulatory authority of
any stop order or of any order preventing or suspending the use of any offering
materials for any securities of the Company, or of the suspension of the
qualification of the Common Stock for offer or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
7.6 FURNISHING OF INFORMATION. As long as any Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act and to promptly furnish the Purchasers with true and complete
copies of all such filings. As long as any Purchaser owns Securities, if the
Company is not required to file reports pursuant to Section 13(a) or 15(d) of
the Exchange Act, it will prepare an dfunish to the Purchasers and make publicly
available in accordance with Rule 144(c) promulgated under the Securities Act
annual and quarterly financial statements, together with a discussion and
analysis of such financial statements in form and substance substantially
similar to those that would otherwise be required to be included in reports
required by Section 13(a) or 15(d) of the Exchange Act, as well as any other
information required thereby, in the time period that such filings would have
been required to have been made under the Exchange Act. The Company further
covenants that it will take such further action as any holder of Securities may
reasonably request, all to the extent required from time to time to enable such
Person to sell Warrant Shares without registration under the Securities Act
within the limitation of the exemptions provided by Rule 144 promulgated under
the Securities Act. Upon the written request of any such Person, the Company
shall deliver to such Person a written certification of a duly authorized
officer as to whether it has complied with such requirements.
7.7 BLUE SKY LAWS. In accordance with the Registration Rights Agreement,
the Company shall qualify the Warrant Shares under the securities or Blue Sky
laws of such jurisdictions as the Purchasers may reasonably request and shall
continue such qualification at all times through the third anniversary of the
Closing Date.
7.8 INTEGRATION. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that
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would be integrated with the offer or sale of the Securities in a manner that
would require the registration under the Securities Act of the sale of any or
all of such securities to any Purchaser.
7.9 CERTAIN AGREEMENTS. As long as any Purchaser owns Securities, the
Company shall not and shall cause the Subsidiaries not to, without the consent
of the holders of all of the Shares then outstanding, (i) amend its certificate
of incorporation, bylaws or other charter documents so as to adversely affect
any rights of any Purchaser; (ii)declare, authorize, set aside or pay any
dividend or other distribution with respect to the Common Stock that would
adversely affect the rights of any Purchaser hereunder; (iii) repay, repurchase
or offer to repay, repurchase or otherwise acquire shares of its Common Stock in
any manner; (iv) issue any series of preferred stock or other securities with
rights senior (in respect of liquidations, dividends, preferences and similar
rights) to those of the Securities; or (v) enter into any agreement with respect
to any of the foregoing.
7.10 LISTING AND RESERVATION OF WARRANT SHARES; COMPLIANCE WITH LAW.
(a) The Company shall (i) not later than the tenth Business Day
following the Closing Date prepare and file with The Nasdaq National market
(as well as any other national securities exchange or market on which the
Common Stock is then listed) an additional shares listing application or a
letter applicable to The Nasdaq National Market covering and listing a
number of shares of Common Stock which is at least equal to the maximum
number of Warrant Shares then issuable, (ii) take all steps necessary to
cause the Warrant Shares to be approved for listing in The Nasdaq National
Market (as well as on any other national securities exchange or market on
which the Common Stock is then listed) as soon as possible thereafter, and
(iii) provide to the Purchasers evidence of such listing, and the Company
shall maintain the listing of its Common Stock on such market. As used
herein, "BUSINESS DAY" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banding institutions in
the State of New York generally are authorized or required by law or other
government actions to close.
(b) The Company shall at all times have authorized and reserved for
issuance upon exercise of the Warrants pursuant to the Warrant the number
of shares of Common Stock required to provide for the exercise of the
Warrants.
(c) Until at lease two (2) years after the last of the Warrants has
been exercised for the Warrant Shares, (I) the Company will cause its
Common Stock to continue to be registered under Sections 12(b) or 12(g) of
the Exchange Act, will comply in all respects with its reporting and filing
obligations under such Exchange Act, will comply with all requirements
related to any registration statement filed pursuant to this Agreement or
the Registration Rights Agreement and will not take any action or file any
document (whether or not permitted by the Securities Act or the Exchange
Act or the rules and regulations thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing
obligations under the Securities Act and Exchange Act, except as permitted
herein and (ii) the Company will take all action within its power to
continue the listing or trading of its Common Stock on The Nasdaq National
Market and
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will comply in all material respect with the Company's reporting, filing,
and other obligations under the bylaws or rules of the NASD and The Nasdaq
Stock Market.
7.11 NOTICE OF BREACHES.
(a) Each of the Company and each Purchaser shall give prompt written
notice to the other of any breach of any representation, warranty or other
agreement contained in this Agreement, the Notes, the Warrants or the
Registration Rights Agreement as well as any events or occurrences arising
after the date thereof and prior to the Closing Date, which would
reasonably be likely to cause any representation or warranty or other
agreement of such party, as the case may be, contained herein to be
incorrect or breached as of the Closing Date. However, no disclosure by any
party pursuant to this Section 7.11 shall be deemed to cure any breach of
any representation, warranty or other agreement contained herein or in the
Registration Rights Agreement.
(b) Notwithstanding the generality of Section 7.11(a), the Company
shall promptly notify each Purchaser of any notice or claim (written or
oral) that it receives from any lender of the Company to the effect that
the consummation of the transactions contemplated hereby, by the Notes, by
the Warrants and by the Registration Rights Agreement violates or would
violate any written agreement or understanding between such lender and the
Company, and the Company shall promptly furnish by facsimile to each
Purchaser a copy of any written statement in support of or relating to such
claim or notice.
(c) The default by any Purchaser of any of its obligations,
representations or warranties under any Transaction Document shall not be
imputed to, and shall have no effect upon, any other Purchaser or affect
the Company's obligations under the Transaction Documents to any
non-defaulting Purchaser or to the defaulting Purchaser with respect to any
outstanding Notes, Warrants, or Warrant Shares.
7.12 USE OF PROCEEDS. The Company shall use all of the proceeds from the
sale of the Securities for working capital and general corporate purposes and
not for the satisfaction of any portion of Company borrowings outside the normal
course of business, including any obligation or liability of any kind owed to a
shareholder, officer or director of the Company, or to redeem Company equity or
equity-equivalent securities. Pending application of the proceeds of this
placement in the manner permitted hereby, the Company will invest such proceeds
in interest bearing accounts and/or short-term, investment grade interest
bearing securities.
7.13 ADDITIONAL INDEBTEDNESS. The Company agrees that, so long as the Notes
remain outstanding and unpaid, the Company will not, nor will it permit any of
its Subsidiaries to incur, or permit to exist any indebtedness for borrowed
money except (I) indebtedness incurred pursuant to the Notes (subject to the
provisions of Section 4.24), (ii) obligations to Fusion Capital Partners in
connection with the Securities Purchase Agreement between the Company and Fusion
Capital Fund LLC dated November 15, 1999, and (iii) subordinated indebtedness of
up to $5,000,000, but only if no payments of principal, interest or other cash
amounts thereon would be required or allowed while the Notes are outstanding and
unpaid, and (iv) indebtedness
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incurred in the ordinary course of business with respect to customer deposits,
trade payables and other unsecured current liabilities not the result of
borrowing and not evidenced by any note or other evidence of indebtedness. The
provisions of this Section 7.13 will expire and have no further force or effect
upon payment in full of all amounts outstanding under the Notes.
SECTION 8. REGISTRATION RIGHTS.
8.1 REGISTRATION RIGHTS. The Purchasers shall have the registration rights
provided for the in the Registration Rights Agreement in the form attached to
this Agreement as EXHIBIT C (the "Registration Rights Agreement").
SECTION 9. CONDITIONS TO THE CLOSING.
9.1 CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS. The obligations of
each Purchaser to purchase and pay for the Notes and Warrants on the Closing
Date are subject to the satisfaction or waiver on or before the Closing Date of
the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT. The
representations and warranties of the Company contained in Section 4 will be
true and correct in all material respects as of the date when made and on and as
of the Closing Date, as though such representations and warranties had been made
on and as of such date, and the Company has certified to such effect to the
Purchasers in writing.
(b) CONDITIONS PERFORMED. The Company has performed and complied
in all material aspects with all agreements contained in the Agreement required
to be performed or complied with by the Company prior to or as of the Closing
Date, and the Company has certified to such effect to the Purchasers in writing.
(c) ALL PROCEEDINGS TO BE SATISFACTORY. All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated by this Agreement and all documents required to be delivered under
this Agreement will be reasonably satisfactory in form and substance to the
Purchasers, and the Purchasers have received all such counterpart originals or
certified or other copies of such documents as they may reasonably request.
9.2 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligation of the
Company to issue and deliver the Notes and the Warrants to the Purchasers on the
Closing Date is subject to the satisfaction or waiver on or before the Closing
Date of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT. The
representations and warranties of the Purchasers contained in Section 5 will be
true and correct in all material respects as of the date when made and on and as
of the Closing Date, as though such representations and warranties had been made
on and as of such date, and the Purchasers have certified to such effect to the
Company in writing.
(b) CONDITIONS PERFORMED. The Purchasers have performed and
complied in all material respects with all agreements contained in the Agreement
required to be performed or
17
<PAGE>
complied with by the Purchasers on or prior to the Closing Date, and the
Purchasers have certified to such effect to the Company in writing.
SECTION 10. TERMINATION
10.1 TERMINATION AND ABANDONMENT. This Agreement may be terminated at any
time prior to the Closing Date as follows:
(a) by mutual agreement of the Company and the Purchasers;
(b) by the Purchasers, if the conditions set forth in Section 9.1
have not been complied with and such noncompliance or nonperformance has not
been waived by the Purchasers or cured or eliminated by the Company on or before
December 31, 1999.
(c) by the Company, if the conditions set for the in Section 9.2
have not been complied with and such noncompliance or nonperformance has not
been waived by the Company or cured or eliminated by the Purchasers on or before
December 31, 1999.
10.2 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
this Section 10, this Agreement will terminate and there will be no liability on
the part of any party or its respective officers, directors or shareholders
under this Agreement.
SECTION 11. INDEMNIFICATION.
11.1 COMPANY. The Company will defend, indemnify and hold the Purchasers
and their respective partners, directors, officers, stockholders, employees and
agents harmless from and against any loss, damage, liability and expense
whatsoever (including reasonable attorneys' fees and court costs) incurred by
any such parties as a result of or arising out of (I) any material breach of any
representation or warranty of the Company contained in this Agreement or any
certificate or instrument delivered pursuant to this Agreement, or (ii) any
material breach of or noncompliance with any covenant or agreement of the
Company contained in this Agreement.
11.2 DEFENSE OF CLAIMS. Promptly after receipt by an indemnified party
under Section 11.1 above of notice of the commencement of any action for which
it may be entitled to indemnification hereunder, such indemnified party will, if
a claim in respect thereof is to be made against the indemnifying party under
such subsection, notify the indemnifying party in writing of the commencement
thereof; provided, that the failure of any indemnified party to give such notice
shall not relieve the indemnifying party of its obligations or liabilities
pursuant to this Agreement, except (and only) to the extent that such failure
has materially and adversely prejudiced the indemnifying party. In case any such
action is brought against any indemnified party indemnifying party will be
entitled to participate therein and, to the extent that it wishes, jointly with
any other indemnifying party similarly notified, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party; provide,
however, that if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party has reasonably
concluded that there may be one or more legal defenses
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<PAGE>
available to it or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnifying party
will not have the right to assume the defense of such action on behalf of such
indemnified party and such indemnified party will have the right to select
separate counsel to defend such action on behalf of such indemnified party.
After such notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof and approval by such indemnified party
of counsel appointed to defend such action, the indemnifying party will not be
liable to such indemnified party under this Section 11 for any legal or other
expenses, other than reasonable costs of investigation, subsequently incurred by
such indemnified party in connection with the defense thereof, unless (i) the
indemnified party has employed separate counsel in accordance with the provision
to the next preceding sentence or (ii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. Nothing in this Section 11.3 precludes an indemnified party
from participating at its own expense in the defense of any such action so
assumed by the indemnifying party.
SECTION 12. RESTRICTIVE LEGEND.
12.1 NOTES. Each certificate representing any Notes will be stamped or
otherwise imprinted with a legend substantially in the following form:
THIS PROMISSORY NOTE (THIS "NOTE") WILL BE ISSUED IN RELIANCE
ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND THE
APPLICABLE STATE SECUTIES LAWS, AND MAY NOT BE SOLD, ASSIGNED,
PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENSE OF AN
EFFECTIVE REGISTRATION UNDER THE ACT AND SUCH STATE LAWS
COVERING THE TRANSFER OR AN OPINION OF COUNSEL, SATISFACTORY,
TO ADAM.COM, INC., THAT REGISTRATION UNDER THE ACT AND SUCH
STATE LAWS IS NOT REQUIRED. INVESTORS SHOULD BE AWARE THAT
THEY MAY BE REQUIRED TO BEAT THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
12.2 WARRANTS. Each certificate representing any Warrants will be stamped
or otherwise imprinted with a legend substantially in the following form:
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS
AND MAY NOT BE TRANSFERRED, NOR WIL ANY ASSIGNEE OR ENDORSEE
HEREOF BE RECOGNIZED AS AN OWNER OR HOLDER THEREOF BY THE
ISSUER FOR ANY PURPOSE, UNLESS A REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE
STATE SECURITIES LAWS WITH RESPECT TO THIS WARRANT SHALL THEN
BE IN EFFECT OR UNLESS THE AVAILABILITY OF AN EXEMPTION FROM
REGISTRATION WITH RESPECT TO ANY PROPOSED TRANSFER OR
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<PAGE>
DISPOSITION OF THIS WARRANT SHALL BE ESTABLISHED TO THE
REASONABLE SATISFACTION OF COUNSEL FOR THE ISSUER.
SECTION 13. MISCELLANEOUS.
13.1 AMENDMENT AND WAIVER. The provisions of this Agreement may be amended
or waived only by a written document executed by all of the parties to this
Agreement.
13.2 SCHEDULES AND EXHIBITS. The Schedules and Exhibits to this Agreement
are incorporated into this Agreement and made a part of this Agreement as if set
out in full in this Agreement.
13.3 EXPENSES. The Company will pay all fees and expenses incurred by it in
connection with the transactions contemplated by this Agreement, including legal
fees. The Company will pay the reasonable fees and expenses of the Purchasers
including reasonable due diligence expenses and legal and consulting fees, up to
a maximum of $35,000. Except as provided in the preceding sentence, the
Purchasers will pay all fees and expenses incurred by Purchasers in connection
with the transactions contemplated by this Agreement, including legal fees.
13.4 SURVIVAL OF AGREEMENTS. All covenants and agreements made in this
Agreement will survive the execution and delivery of this Agreement and the
issuance, sale and delivery of the Notes and the Warrants. All representations,
warranties and statements contained in this Agreement or in any certificate
delivered by the Company under this Agreement will survive the execution and
delivery for a period of one year from the date of this Agreement.
13.5 BROKERAGE. No party to this Agreement has any liability to any broker,
finder or agent for any brokerage fees, finders' fee or other commissions with
respect to the transactions contemplated by this Agreement. Each party to this
Agreement will indemnify and hold harmless the other against and in respect of
any claim for brokerage or other commissions relative to this Agreement or to
the transactions contemplated by this Agreement, based in any way on agreements,
arrangements or understandings made or claimed to have been made by such party
with any third party.
13.6 SUCCESSORS AND ASSIGNS. All covenants and agreements contained in this
Agreement by or on behalf of any of the parties to this Agreement will bind and
inure to the benefit of the respective successors and assigns of the parties to
this Agreement whether so expressed or not. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of each Purchaser. No Purchaser will sell, assign, transfer or otherwise
dispose of any Notes, Warrants or any Warrant Shares except in compliance with
all of the applicable provisions of the applicable instrument for the same. To
the extent that any Purchaser sell, assigns, transfers or otherwise disposes of
any Notes or any Warrant Shares, any reference to such Purchaser in this
Agreement will be deemed to include any such transferee for the purpose of
determining the rights and obligations of such transferee under this Agreement.
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<PAGE>
13.7 NOTICES. All notices, requests, consents and other communications
under this Agreement will be in writing and will be delivered personally or
mailed by first class, registered or certified mail, postage prepaid, sent by
facsimile, or sent by commercial courier guaranteeing next business day
delivery, in any such case addressed as set forth on SCHEDULE 13.7., or at such
other address or addresses as have been furnished in writing by such party to
the others or, if to any subsequent holder of Notes or Warrants (or shares
issuable upon exercise thereof), to such holder at its address appearing on the
transfer records of the Company. Any such communication will be deemed given
when actually delivered to the address indicated.
13.8 LAW GOVERNING. This Agreement will be governed by and construed in
accordance with the laws of the State of Delaware without regard to conflict of
law principles.
13.9 ENTIRE AGREEMENT. This Agreement and the other documents delivered
pursuant to this Agreement constitute the entire agreement of the parties with
respect to the subject matter of this Agreement and may not be modified or
amended except in writing in accordance with Section 13.1.
13.10 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument, and each of which may be
executed by less than all of the parties to this Agreement.
13.11 INTERPRETATION. This Agreement is to be interpreted in accordance
with the following rules of construction:
(a) The definitions contained in this Agreement apply equally to
both the singular and plural forms of the terms defined.
(b) The words "include," "includes" and "including" are deemed to be
followed by the phrase "without limitation."
(c) All references in this Agreement to Articles, Sections and
Exhibits are references to Articles and Sections of, and exhibits to, this
Agreement, unless otherwise specified.
(d) All references to any agreement or other instrument or statue or
regulation are to the respective agreement or other instrument or statute or
regulation as amended and supplemented from time to time (and, in the case of a
statute or regulation, to any corresponding provisions of successor statutes or
regulations), unless otherwise specified.
(e) Any reference in this Agreement to a "day" or number of "days"
(without the explicit qualification of "business") is a reference to a calendar
day or number of calendar days. If any action or notice is to be taken or given
on or by a particular calendar day, and such calendar day is not a business day,
then such action or notice may be taken or given on the next business day.
21
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
adam.com, Inc.
By: /s/ Robert S. Cramer, Jr.
--------------------------------
--------------------------------
Its: Chairman & CFO
----------------------------
/s/ Michael Fisher
----------------------------
Corp. Secretary
UNION STREET PARTNERS, L.P.
By: _______________________________
Title:_____________________________
/s/ Robert S. Cramer, Jr.
------------------------------------
ROBERT S. CRAMER, JR., AN INDIVIDUAL
22
<PAGE>
LIST OF SCHEDULES
23
<PAGE>
SCHEDULE 1.1
PURCHASERS OF NOTES AND WARRANTS
<TABLE>
<CAPTION>
- - ------------------------------- ---------------------------- ---------------------------- ----------------------------
PURCHASER STATED PRINCIPAL NUMBER OF AVAILABLE INITIAL WARRANT
AMOUNT OF NOTE SHARES UNDER EXERCISE PRICE
WARRANTS
- - ------------------------------- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
UNION STREET $500,000 $25,000 $11.11
PARTNERS, L.P.
- - ------------------------------- ---------------------------- ---------------------------- ----------------------------
ROBERT S. CRAMER, $500,000 $25,000 $11.11
JR.
- - ------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>
24
<PAGE>
SCHEDULE 13.7
NOTICE
(f) if to the Company, at
adam.com, Inc.
1600 RiverEdge Parkway
Suite 800
Atlanta, Georgia 30328
Attention: Michael Fisher
Telephone: 770-980-0888
Telecopier: 770-980-
with a copy to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303-1763
Telephone: 404-572-4600
Telecopier: 404-572-5145
Attention: William G. Roche
(g) if to the Purchasers, to:
Union Street Partners, L.P.
800 Nashville City Center
Nashville, TN 37219
Attention: _______________________
Telephone: ______________________
Telecopier: ______________________
Robert S. Cramer, Jr.
1600 RiverEdge Parkway
Suite 800
Atlanta, Georgia
Telephone: 770-980-0888
Telecopier:
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<PAGE>
EXHIBIT 10.14
REGISTRATION RIGHTS AGREEMENT
This registration Rights Agreement (this "AGREEMENT") is made and entered
into as of December 31, 1999, among adam.com, Inc., a Georgia corporation (the
"COMPANY"), and the parties set forth on SCHEDULE 1 hereto (each a "PURCHASER"
and collectively the "PURCHASER").
This Agreement is being entered into pursuant to the Note and Warrant
Purchase Agreement, dated as of the date hereof among the Company and the
Purchaser (the "PURCHASE AGREEMENT").
The Company and the Purchasers hereby agree as follows:
1. DEFINITIONS
Capitalized terms used and not otherwise defined herein shall have the
meanings given such terms in the Purchase Agreement. As used in this Agreement,
the following terms shall have the following meanings:
"ADVICE" shall have meaning set forth in Section 3(m).
"AFFILIATE" means, with respect to any Person, and other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "CONTROL", when used with
respect to any Person, means the possession, direct or indirect, of the power or
direct or cause the direction of the management ad policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "AFFILIATED", "controlling" and "CONTROLLED" have meanings
correlative to the foregoing.
"BOARD" shall have meaning set forth in Section 3(n).
"BUSINESS DAY", means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State of
Georgia generally are authorized or required by law or other government actions
to close.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Company's Common Stock, par value $.01 per share.
"EFFECTIVENESS PERIOD" shall have the meaning set forth in Section 2.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
<PAGE>
"FILING DATE" means the date that is five months following the Closing
Date.
"HOLDER" or "HOLDERS" means the holder or holders, as the case may be, from
time to time of Registrable Securities.
"INDEMNIFIED PARTY" shall have the meaning set forth in Section 5 (c).
"INDEMNIFYING PARTY" shall have the meaning set forth on Section 5 (c).
"LOSSES" shall have the meaning set forth in Section 5 (c).
"PERSON" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"PROCEEDING" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"PROSPECTUS" means the prospectus included in the Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any other amendments and supplements to the Prospectus,
including post-effective amendments, and all materials incorporated by reference
in such Prospectus.
"REGISTRABLE SECURITIES" means (1) the shares of Common Stock issuable upon
exercise of the Warrants (including, without limitation, shares of Common Stock
issuable upon exercise of the Warrants, if any, issued to the Purchasers
pursuant to Section 2.2 of the Purchaser Agreement), and (2) any shares of
Common Stock issued as a divided, stock split, or in connection with t a
combination of shares, reclassification, recapitalization, merger or
consolidation or reorganization of other distribution with respect to or in
exchange for or replacement of the shares referred to in (1) above.
Notwithstanding anything herein contained to the contrary, such registered
shares of Common Stock shall be allocated among the Holders pro rata based on
the total number of Registrable Securities issued or issuable to a Holder as of
each date that a Registration Statement, as amended, relating to the resale of
the Registrable Securities is declared effective by the Commission.
"REGISTRATION STATEMENT" means the registration statement and any
additional registration statements contemplated by Section 2, including (in each
case) the Prospectus, amendments and supplements to such registration statement
or Prospectus, including pre-and
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<PAGE>
post-effective amendments, all exhibits thereto, and all material incorporated
by reference in such registration statement.
"RULE 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"RULE 158" means Rule 158 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"RULE 415" means Rule 158 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SPECIAL COUNSEL" means any special counsel to the Holders, for which the
Holders will be reimbursed by the Company pursuant to Section 4.
"WARRANTS" means the warrants to purchase Common Stock issued to the
Purchasers pursuant to the Purchase Agreement.
"WARRANT SHARES" means the shares of Common Stock issuable upon exercise of
the Warrants.
2. SHELF REGISTRATION
On or prior to the Filing Date the Company shall prepare and file with the
Commission a "shelf" Registration Statement covering all Registrable Securities
for an offering to be made on a continuous basis pursuant to Rule 415. The
Registration Statement shall be on Form S-3 (except if the Company is not then
eligible to register for resale the Registrable Securities on Form S-3, in which
case such registration shall be on another appropriate from in accordance with
this Agreement). If the Company shall have been required to issue Warrants
pursuant to Section 2.2 of the Purchase Agreement and the shelf Registration
Statement referred to in this Section 2 shall not yet have been declared
effective, the Company shall file a pre-effective amendment to such shelf
Registration Statement to include the additional shares on Common Stock issuable
upon exercise of such Warrants. The Company shall (i) not permit any securities
other than the Registrable Securities to be included in the Registration
Statement and (ii) use its best efforts to cause the Registration Statement to
be declared effective under the Securities Act as promptly as practicable after
the filing thereof, and to keep such Registration Statement, continuously
effective under the Securities Act until such date as is the earlier of (x) the
date when all Registrable Securities covered by such Registration Statement have
been sold or (y) the date on which all of the Registrable Securities may be sold
without any restriction pursuant to Rule 144 as determined by counsel to the
Company pursuant to a written opinion letter, addressed to the
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<PAGE>
Company's transfer agent to such effect (the "EFFECTIVENESS PERIOD"). IF one or
more additional Registration Statements are required to be filed because (i) the
Company shall have been required to issue additional Warrants pursuant to
Section 2.2 of the Purchase Agreement, and/or (ii) the holders of Warrants are
entitled to additional Warrant Shares due to a divided, stock split, combination
of shares, reclassification, recapitalization, merger or consolidation or
reorganization or other distribution with respect to or in exchange for or in
replacement of the Warrant Shares, then the Company shall have twenty (20)
Business Days to file such additional Registration Statements, and the Company
shall use its best efforts to cause such additional Registration Statements to
be declared effective by the Commission as soon as practicable.
3. REGISTRATION PROCEDURES
In connection with the Company's registration obligations hereunder, the
Company shall:
(a) Prepare and file with the Commission on or prior to the Filing Date, a
Registration Statement of Form S-3 (or if the Company is not then eligible to
register for resale the Registrable Securities of Form S-3 such registration
shall be on another appropriate from in accordance with this Agreement) in
accordance with the method or methods of distribution thereof as specified by
the Holders (except if otherwise directed by the Holders) and as permitted by
this Agreement, and cause the Registration Statement to become effective and
remain effective as provided herein; PROVIDED, HOWEVER, that nor less than five
(5) Business Days prior to the filing of the Registration Statement or any
related Prospectus or any amendment or supplement thereto (including any
document that would be incorporated therein by reference), the Company shall (i)
furnish to the Holders and any Special Counsel, copies of all such documents
proposed to be filed, which documents (other than those incorporated by
reference) will be subject to the review of such Holders and any Special
Counsel, and (ii) cause its officers and directors, counsel and independent
certified public accountants to respond to such inquiries as shall be necessary,
in the reasonable opinion of counsel to such Holders, to conduct a reasonable
investigation within the meaning of the Securities Act. The Company shall not
file the Registration Statement or any such Prospectus or any amendments or
supplements thereto to which the Holders of a majority of the Registrable
Securities or any Special Counsel shall reasonably object in writing within
three (3) Business Days of their receipt thereof.
(b) (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to the Registration Statement as may be necessary to
keep the Registration Statement continuously effective as to the applicable
Registrable Securities for the Effectiveness Period and prepare and file with
the Commission such additional Registration Statements in order to register for
resale under the Securities Act all of the Registrable Securities; (ii) caused
the related Prospectus to be amended or supplemented by any required Prospectus
supplement, and as so supplemented or amended to be filed pursuant to Rule 424
(or any similar provisions then in force) promulgated under the Securities Act;
(iii) respond as promptly as possible to any comments received from the
Commission with respect to the Registration Statement or any amendment thereto
and as promptly as possible provide to the Registration Statement or any
amendment thereto and as promptly as possible to the Holders true and compete
copies of all correspondence from and to the Commission relating to the
Registration Statement; and (iv) comply in all material respects with the
provisions of the Securities Act and
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<PAGE>
the Exchange Act with respect to the disposition of al Registration Securities
covered by the Registration Statement during the applicable period in accordance
with the intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold and any Special
Counsel as promptly as possible (and, in the case of (i)(A) below, not less than
five (5) Business Days prior to such filing) and (if requested by any such
Person) confirm such notice in writing no later than one (1) Business Day
following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement is proposed to be filed;
(B) when the Commission notifies the Company whether there will be a "review" of
such Registration Statement and whenever the Commission comments in writing on
such Registration Statement and (C) with respect to the Registration Statement
or any post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) of the receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction, or the initiation or
threatening of any Proceeding for such purpose; and (v) of the occurrence of any
event that makes any statement made in the Registration Statement or Prospectus
or any document incorporated is deemed to be incorporated therein by reference
untrue in any material respect or that requires any revisions to the
Registration Statement, Prospectus or other documents so that , in the case of
the Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued, obtain
the withdrawal of, (i) any order suspending the effectiveness of the
Registration Statement or (ii) any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.
(e) If requested by the Holders of a majority in interest of the
Registrable Securities, (i) promptly incorporated in a Prospectus supplement of
post-effective amendment to the Registration Statement such information as the
Company reasonably agrees should be included therein and (ii) make all required
filings of such Prospectus supplement or such post-effective amendment as soon
as practicable after the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment.
(f) Furnish to each Holder and any Special Counsel, without charge, at
least one conformed copy of each Registration Statement and each amendment
thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all exhibits
to the extent reasonably requested by such Person
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<PAGE>
(including those previously furnished or incorporated by reference) promptly
after the filing of such documents with the Commission.
(g) Promptly deliver to each Holder and any Special Counsel, without
charge, as many copies of the Prospectus or Prospectuses (including each form or
prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities, use its best
efforts to register or qualify or cooperate with the selling Holders and any
Special Counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities of Blue Sky laws of such
jurisdictions within the United States as any Holder requests in writing, to
keep each such registration or qualification (or exemption therefrom) effective
during the Effectiveness Period and to do any and all other acts or things
necessary or advisable to enable the deposition in such jurisdictions of the
Registrable Securities covered by a Registration Statement; PROVIDED, HOWEVER,
that the Company shall not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified or to take any actin that
would subject it to general service of process in any such jurisdiction where it
is not then so subject or subject the Company to any material tax in any such
jurisdiction where it is not then so subject.
(i) Cooperate with the Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold pursuant
to a Registration Statement, which certificates shall be free of all restrictive
legends, and to enable such Registrable Securities to be in such denominations
and registered in such names as any Holder may reasonably request at lease two
(2) Business Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section 3(c)(v), as
promptly as possible, prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
(k) Use its best efforts to cause all Registrable Securities relating to
such Registration Statement to be listed on The NASDAQ National Market and any
other securities exchange, quotation system, market or over-the-counter bulletin
board, if any, on which similar securities issued by the Company are then listed
as and when required pursuant to the Purchase Agreement.
(l) Comply in all material respects with all applicable rules and
regulations of the Commission and make generally available to its security
holders earnings statements
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<PAGE>
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158
not later than 45 days after the end of any 12-month period (or 90 days after
the end of any 12-month period of such period is a fiscal-year) commencing on
the first day of the first fiscal quarter of the Company after the effective
date of the Registration Statement, which statement shall conform t the
requirements of Rule 158.
(m) The Company may require each selling Holder to furnish to the Company
information regarding such Holder and the distribution oaf such Registrable
Securities as is required by law to be disclosed in the Registration Statement,
and the Company may exclude from such registration the Registrable Securities of
any such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or otherwise as
the holder of any securities of the Company, then such Holder shall have the
right to require (if such reference to such Holder by name or otherwise is not
required by the Securities Act or any similar federal statue then in force) the
deletion of the reference to such Holder in any amendment or supplement to the
Registration Statement filed or prepared subsequent to the time that such
reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any Registrable
Securities under the Statement until it has received copies of the Prospectus as
then amended or supplemented as contemplated by Section 3 (g) and notice from
the Company that such Registration Statement and any post-effective amendments
thereto have become effective as contemplated by Section 3 (c) and (ii) it and
its officers, directors or Affiliates, if any, will comply with the prospectus
delivery requirements of the Securities Act as applicable to them in connection
with sales of Registrable Securities pursuant to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable Securities that,
upon receipt of a notice from the Company of the occurrence of any event of the
kind described in Section 3 (c)(ii), 3 (c)(iv) or 3 (c)(v), such Holder will
forthwith discontinue disposition of such Registrable Securities under the
Registration Statement until such Holder's receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement contemplated by
Section 3(j), or until it is advised in writing (the "ADVICE") by the Company
that the use of the applicable Prospectus may be resumed, and, in either case,
has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.
(n) If (i) there is material non-public information regarding the Company
with the Company's Board of Directors (the "BOARD") reasonably determines to be
in the Company's best interest not to disclosure and which the Company is not
otherwise required to disblise by law, or (ii) there is a significant business
opportunity (including, but not limited to, the acquisition or disposition of
assets (other than in the ordinary course of business) or any mergers
consolidation, tender offer or other similar transaction) available to the
Company which the Board reasonably determines to be in the Company's best
interest not to disclosure, then the Company may postpone or suspend filing or
effectiveness of a Registration Statement for a
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<PAGE>
period not to exceed k20 consecutive days, provided that the Company may nor
postpone or suspend its obligation under this Section 3 (n) for more than 45
days in the aggregate during any 12 month period; PROVIDED, HOWEVER, that no
such postponement or suspension shall be permitted for consecutive 20 day
periods, arising out of the same set of facts, circumstances or transactions.
(o) The Company shall not be required to facilitate a sale of the
Registrable Securities in an underwritten offering.
4. REGISTRATION EXPENSES
All fees and expenses incident to the performance of or compliance with
this Agreement by the Company shall be borne by the Company whether or not the
Registration Statement is filed or becomes effective and whether or not any
Registrable Securities are sold pursuant to the Registration Statement. The fees
and expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without limitation,
fees and expenses (A) with respect to filings required to be made with The
NASDAQ National Market and each other securities exchange or market on which
Registrable Securities are required hereunder to be listed, (B) with respect to
filings required to be made with the National Association of Securities Dealers,
Inc. and the NASD Regulation, Inc. and (C) in compliance with state securities
or Blue Sky laws (including, without limitation, fees and disbursements of
counsel for the Holders in connection with Blue Sky qualifications of the
Registrable Securities and determination of the eligibility of the Registrable
Securities for investment under the laws of such jurisdictions as the Holders of
a majority of Registrable Securities may designate)), (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is requested by the holders of a majority of the Registrable
Securities included in the Registration Statement), (iii) messengers, telephone
and delivery expenses, (iv) fees and disbursements if counsel for the Company
and Special Counsel for the Holders, in the case of the Special Counsel, to a
maximum amount $10,000, (v) Securities Act liability insurance, if the Company
so desires such insurance, and (vi) fees and expenses of all other Persons
retained by the Company in connection with the consumption of the transactions
contemplated by this Agreement, including, without limitation, the Company's
independent public accountants (including the expenses of any comfort letter or
comfort letters). In addition, the Company shall be responsible for all of its
internal expenses incurred in connection with the consumption of the
transactions contemplated by this Agreement (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expenses of any annual audit, the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.
-8-
<PAGE>
5. INDEMNIFICATION
(a) INDEMNIFICATION BY THE COMPANY The Company, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Holder, the
officers, directors, agents, brokers (including brokers who offer and sell
Registrable Securities as principal as a result of a pledge or any failure to
perform under a margin call of Common Stock), investment advisors and employees
of each of them, each Person who controls any such Holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, agents and employees of each such controlling Person, to
the fullest extent permitted by applicable law, from and against any and all
losses, claims, damages, liabilities, costs (including, without limitation,
costs of preparation and attorney's fees) and expenses (collectively, "LOSSES"),
as incurred, arising out of or relating to any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising our of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus of form
of prospectus or supplement thereto, in the light of the circumstances under
which they were made) not misleading, except to the extent, but only to the
extent, that such untrue statements or omissions are based solely upon
information regarding such Holder furnished in writing to the Company by such
Holder expressly for use therein, which information was reasonably relied on by
the Company for use therein or to the extent that such information relates to
such Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus of in any amendment or supplement thereto. The Company shall notify
the Holders promptly of the institution, threat or assertion of any Proceeding
of which the Company is aware in connection with the transactions contemplated
by this Agreement.
(b) INDEMNIFICATION BY HOLDERS Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, the directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses, as
incurred, arising solely out of or based upon any untrue statement of a material
fact contained in the Registration Statement, any Prospectus, or any form of
prospectus, or arising solely out of or based upon any omission of a material
fact required to be stated therein or supplement thereto, in the light of the
circumstances under which they were made) nor misleading, to the extent, but
only to the extent, that such untrue statement or omission is contained in any
information so furnished in writing by such Holder to the Company specifically
for inclusion in the Registration Statement or such Prospectus and that such
information was reasonably relied upon by the Company for use in the
Registration Statement, such Prospectus or such form of prospectus or tot he
extent that such information related to such Holder or such Holder's proposed
method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration
Statement,
-9-
<PAGE>
such Prospectus or such form of Prospectus; PROVIDED in no event shall any
indemnity by any Holder under this Agreement exceed the net proceeds received by
such Holder in such registration.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS In any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
"INDEMNIFIED PARTY"), such Indemnified Party promptly shall notify the Person
from whom indemnity is sought (the "INDEMNIFYING PARTY" in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in any
such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless; (1) the Indemnifying Party had agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest in likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof, and such counsel shall not be unreasonably
withheld. No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending Proceedings in respect
of which any Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified party (including reasonable fees
and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten (10)
Business Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitles to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder.)
-10-
<PAGE>
(d) CONTRIBUTION If a claim for indemnification under Section 5(a) or 5(b)
is unavailable to an Indemnified Party because if a failure or refusal of a
governmental authority to enforce such indemnification in accordance with its
terms (by reason of public policy or otherwise), then each Indemnifying Party,
in lieu of indemnifying such Indemnified party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions, statements or
omissions that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact, has been taken
or made by, or relates to information supplied by, such Indemnifying Party or
Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action, statement or
omission. The amount paid or payable be a party as a result of any Losses shall
be deemed to include, subject to the limitations set forth in Section5 (c), any
reasonable attorneys' or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for in
this Section was available to such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6. RULE 144
As long as any Holder owns Warrants or Warrant Shares, the Company
covenants to timely file (or obtain extensions in respect thereof and file
within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to Section 13 (a) or 15 (d) of the
Exchange Act and to promptly furnish the Holders with true and complete copies
of all such filings. As long as any Holder owns Warrants or Warrant Shares, if
the Company is not required to file reports pursuant to Section 13 (a) or 15 (d)
if the Exchange Act, it will prepare and furnish to the Holders and make
publicly available in accordance with Rule 144 (c) promulgated under the
Securities Act annual and quarterly financial statements, together with a
discussion and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be included
in reports required thereby, in the time period that such filings would have
been required to have been made under the Securities Act. The Company further
covenants that it will take such further actin as any Holder may reasonably
request, all to
-11-
<PAGE>
the extent required from time to time to enable such Person to sell Warrant
Shares without registration under the Securities Act within the limitation of
the exemptions provided by Rule 144 promulgated under the Securities Act. Upon
the request of any Holder, the Company shall deliver to such Holder a written
certification of a duly authorized officer as to whether it ahas complied with
such requirements.
7. MISCELLANEOUS
(a) REMEDIES. In the event of a breach by the Company or by a Holder, of
any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted
by law and under this Agreement, including recovery of damages, will be
entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide
adequate compensation for any losses incurred by reason of a breach by it of
any of the provisions of this Agreement and hereby further that, in the event
of any action for specific performance in respect of such breach, it shall
waive the defense that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. Neither the Company nor any of its
subsidiaries has, as of the date hereof entered into and currently in effect,
nor shall the Company or any of its subsidiaries, on or after the date of this
Agreement, enter into any agreement with respect to its securities that is
consistent with the rights granted to the Holders in this Agreement, neither the
Company nor any of its subsidiaries has previously entered into any agreement
currently in effect granting any registration rights with respect to any of its
securities to any Person. Without limiting the generality of the foregoing,
without the written consent of the Holders of a majority of the then outstanding
Registrable Securities, the Company shall not grant to any Person the right to
request the Company to register any securities of the Company under the
Securities Act unless the rights so granted are subject in all respects to the
prior rights in full of the Holders set forth herein, and are not otherwise in
conflict with the provisions of this Agreement.
(c) NO PIGGYBACK ON REGISTRATIONS. Neither the Company nor any of its
securities holders (other than the Holders in such capacity pursuant hereto or
as disclosed in the Purchase Agreement ) may include securities of the Company
in the Registration Statement, and the Company shall not after the date hereof
enter into any agreement providing such right to any of its securityholders,
unless the right so granted is subject in all respects to the prior rights in
full of the Holders set forth herein, and is not otherwise in conflict with the
provisions of this Agreement.
(d) PIGGY-BACK REGISTRATIONS. If at any time when there is not an effective
Registration Statement covering Registrable Securities, the Company shall
determine to prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others under the
Securities Act of any of its equity securities, other than (1) on Form S-4 or
Form S-8 (each as promulgated under the Securities Act) or their then
equivalents
-12-
<PAGE>
relating to equity securities to be issued solely in connection with any
acquisition on any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, or (2) a
Registration Statement filed on behalf of Fusion Capital Fund LLC in connection
with the Securities Purchase Agreement between the Company and Fusion Capital
Fund LLC dated November 15, 1999, the Company shall send to each Holder of
Registrable Securities written notice of such determination and, it within
thirty (30) days after receipt of such notice, any such Holder shall so request
in writing, (which request shall specify the Registrable Securities intended to
be disposed of by the Holders), the Company will cause the registration under
the Securities Act of all Registrable Securities which the Company has been so
requested to register by the Holder, to the extent requisite to permit the
disposition of the Registrable Securities so to be registered, provided that if
at any time after giving written notice of its intention to register any
securities and prior to the effective date of the registration statement filed
in connection with such registration, the Company shall determine for any reason
not to register or to delay registration of such securities, the Company may, at
its election, give written notice of such determination to such holder and,
thereupon, (i) in the case of a determination not to register, shall be relieved
of its obligation to register any Registrable Securities in connection with such
registration (but not from its obligation to pay expenses in accordance with
Section 4 hereof), and (ii) in the case of a determination to delay registering
, shall be permitted to delay registering any Registrable Securities being
registered pursuant to this Section 7(d) for the same period as the delay in
registering such other securities. The Company shall include in such
registration statement all or any part of such Registrable Securities such
Holder requests to be registered; PROVIDED, HOWEVER, that the Company shall not
be required to register any Registrable Securities pursuant to this Section 7(d)
that are eligible for sale pursuant to Rule 144(k) of the Securities Act. In the
case of an underwritten public offering, if the managing underwriter(s) or
underwriter(s) should reasonably determine that the inclusion in such
registration statement of fewer or none of the Registrable Securities of the
Holders, then (x) the number of Registrable Securities of the Holders included
in such registration statement shall be reduced pro-rata among such Holders
(based upon the number of Registrable Securities requested to be included in the
registration), if the Company after consultation with the underwriter(s)
recommends the inclusion of fewer Registrable Securities, or (y) none of the
Registrable Securities of the Holders shall be included in such registration
statement, if the Company after consultation with the underwriter(s) recommends
the inclusion of none of such Registrable Securities; PROVIDED, HOWEVER, that if
securities are being offered for the account of other number of Registrable
Securities intended to be offered by the Holders than the fraction of similar
reductions imposed on such other persons or entities (other than the Company).
(e) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the same shall be in writing and signed by the Company and each of the
Holders. Notwithstanding the foregoing, a
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<PAGE>
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of Holders and that does not directly or
indirectly affect the rights of other Holders may be given by Holders of at
least a majority of the Registrable Securities to which such waiver or consent
relates; PROVIDED, HOWEVER, that the provisions of this sentence may not be
amended, modified, or supplemented except in accordance with the provisions of
the immediately preceding sentence.
(f) NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., New York City time, on
a Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice later than 5:00 p.m., New York City time, on any
date and earlier than 11:59 p.m., New York City, on such date, (iii) the
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be
with respect to each Holder at its address set forth under its name on SCHEDULE
2 attached hereto, or with respect with the Company, addressed to:
adam.com, Inc.
1600 RiverEdge Parkway, Suite 800
Atlanta, Georgia 30328
Attention: Robert S. Cramer, Jr.
Facsimile: (770)989-4970
or to such other address or addresses or facsimile number of numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to any Holder shall be sent to Stroock &
Stroock & Lavan LLP, 180 Maiden Lane, New York New York 10038-4982, Attention:
James R. Tanenbaum, Esq., Facsimile No: (212)806-6006. Copies of notices to the
Company shall be sent to King & Spalding, 191 Peachtree Street, Atlanta, Georgia
30303, Attention: William G. Roche, Esq., Facsimile No: (404)572-5100.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns and
shall inure to the benefits of each Holder and its successors and assigns. The
Company may not assign this Agreement or any of its rights or obligations
hereunder without the prior written consent of each Holder. Each Purchaser may
assign its rights hereunder in the manner and to the Persons as permitted under
the Purchase Agreement.
(h) ASSIGNMENT OF REGISTRATION RIGHTS The rights of each Holder hereunder,
including the right to have the Company register for resale Registrable
Securities in accordance with the terma of this Agreement, shall be
automatically assignable by each Holder to any Affiliate of such Holder to any
other Holder or Affiliate of any other Holder of all or a portion of the shares
of Warrants or the Registrable Securities if: (i) the Holder agrees in writing
with the
-14-
<PAGE>
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such agreement is
furnished to the Company within a reasonable time after such assignment, (ii)
the Company is, promptly after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or assignee, and
(b) the securities with respect to which such registration rights are being
transferred or assigned, (iii) following such transfer or assignment the further
disposition of such securities by the transferee or assignees is restricted
under the Securities Act and applicable state securities laws, (iv) at or before
the time the Company received the written notice contemplated by clause (ii) of
this Section, the transferee or assignee agrees in writing with the Company to
be bound by all of the provisions of this Agreement, and (v) such transfer shall
have been made in accordance with the applicable requirements of the Purchase
Agreement. In addition, each Holder shall have the right to assign its rights
hereunder to any other Person with the prior written consent of the Company,
which consent shall not be unreasonably withheld. The rights to assignment shall
apply to the Holders (and to subsequent) successors and assigns.
(i) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
(j) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Sate of Delaware, without regard to principles
of conflicts of law thereof.
(k) CUMULATIVE REMEDIES. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law.
(l) SEVERABILITY. If any term, provision, covenant or restriction of this
Agreement is held to be invalid, illegal, void or unenforceable in any respect,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(m) HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
-15-
<PAGE>
(n) Shares Held by the Company and its Affiliates. Whenever the consent or
approval of Holders of a specified percentage of Registrable Securities is
required hereunder, Registrable Securities held by the Company or its Affiliates
(other than any Holder or transferees or successors or assigns thereof if such
Holder is deemed to be an affiliate solely by reason of its holdings of such
Registrable Securities) shall no to be counted in determining whether such
consent or approval was given by the Holders of such required percentage.
[Remainder of Page Intentionally Left Blank]
-16-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.
ADAM.COM, INC.
By: ______________________________
Name:
Title:
UNION STREET PARTNERS, L.P.
By: ______________________________
Name:
Title:
__________________________________
Robert S. Cramer, Jr. an individual
-17-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (No. 333-91685 and No. 333-92403) and the Registration
Statements on Form S-8 (No. 333-92403 and No. 333-07785) of adam.com, Inc. of
our report dated February 28, 2000, except as to the second paragraph of Note
17 which is as of March 30, 2000, appearing on page 26 of this Form 10-K.
PricewaterhouseCoopers LLP
Atlanta, Georgia
March 30, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ADAM.COM, INC. AS OF DECEMBER 31, 1999 AND FOR THE NINE
MONTHS THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US$
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 0.00001
<CASH> 1,477
<SECURITIES> 0
<RECEIVABLES> 931
<ALLOWANCES> 103
<INVENTORY> 314
<CURRENT-ASSETS> 3,544
<PP&E> 3,589
<DEPRECIATION> 1,840
<TOTAL-ASSETS> 7,736
<CURRENT-LIABILITIES> 4,359
<BONDS> 0
0
0
<COMMON> 54
<OTHER-SE> 3,323
<TOTAL-LIABILITY-AND-EQUITY> 7,736
<SALES> 3,144
<TOTAL-REVENUES> 3,144
<CGS> 559
<TOTAL-COSTS> 13,056
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> (9,579)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,579)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,579)
<EPS-BASIC> (2.04)
<EPS-DILUTED> (2.04)
</TABLE>
