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EXHIBIT 2.4
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement"), is executed as of
the 25th day of January 2000, by and among HealthStream, Inc., a Tennessee
corporation ("HealthStream"), HealthStream Acquisition II, Inc., a newly formed
Tennessee corporation and wholly owned subsidiary of HealthStream ("Merger
Sub"), Multimedia Marketing, Inc., a Texas corporation d/b/a m3 The Healthcare
Learning Company ("M3"), and each of the stockholders of M3 as identified on the
signature pages hereto (individually, a "Principal Stockholder," and,
collectively, the "Principal Stockholders").
RECITALS
WHEREAS, the Boards of Directors of HealthStream, Merger Sub, and M3
each have determined that a business combination between HealthStream, Merger
Sub, and M3 is in the best interests of their respective companies and
stockholders and presents an opportunity for their respective companies to
achieve long-term strategic and financial benefits, and accordingly have agreed
to effect the merger provided for herein upon the terms and subject to the
conditions set forth herein.
WHEREAS, for federal income tax purposes, it is intended that the
merger provided for herein shall qualify as a reorganization within the meaning
of Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986,
as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants, and agreements contained herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties, intending to be legally bound, hereby agree as
follows:
ARTICLE 1.
THE MERGER
1.1. The Merger. Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined in Section 1.3), M3 shall be merged with and
into Merger Sub in accordance with this Agreement and the separate corporate
existence of M3 shall thereupon cease (the "Merger"). Merger Sub shall be the
surviving corporation in the Merger (sometimes hereinafter referred to as the
"Surviving Corporation") and shall be a wholly owned subsidiary of HealthStream.
The Merger shall have the effects specified in Section 00-00-000 of the
Tennessee Business Corporation Act ("TBCA") and Section 5.06 of the Texas
Business Corporation Act ("Texas Act").
1.2. The Closing. Subject to the terms and conditions of this
Agreement, the closing of the Merger (the "Closing") shall take place at the
offices of HealthStream, 000 00xx Xxx. Xxxxx, Xxxxx 000, Xxxxxxxxx, Xxxxxxxxx,
at 11:00 a.m., local time, on the first business day immediately following the
day on which the last to be fulfilled or waived of the conditions set forth in
Article 7 herein shall be fulfilled or waived in accordance herewith or at such
other time, date, or place as HealthStream and M3 may agree. HealthStream shall
provide M3 with 5 days prior notice of the proposed date of Closing. The date on
which the Closing occurs is hereinafter referred to as the "Closing Date."
1.3. Effective Time. If all the conditions to the Merger set forth in
Article 7 herein shall have been fulfilled or waived in accordance herewith and
this Agreement shall not have been terminated as
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provided in Article 8 herein, the parties hereto shall cause Articles of Merger,
in the forms attached hereto as Exhibits A-1 and A-2, to be properly executed
and filed in accordance with the applicable provisions of the TBCA and the Texas
Act on the Closing Date. The Merger shall become effective at the time agreed
upon and designated in the Articles of Merger filed with the Secretaries of
State of Tennessee and Texas as the effective time of the Merger (the "Effective
Time").
ARTICLE 2.
CHARTER, BYLAWS,
AND OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION
2.1. Charter. The Charter of Merger Sub in effect immediately prior to
the Effective Time shall, except as amended immediately following the Effective
Time in accordance with the Articles of Merger attached as Exhibit A, be the
Charter of the Surviving Corporation.
2.2. Bylaws. The Bylaws of Merger Sub in effect immediately prior to
the Effective Time shall be the Bylaws of the Surviving Corporation.
2.3. Directors. The directors of Merger Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation as of the
Effective Time.
2.4. Officers. The officers of Merger Sub immediately prior to the
Effective Time shall be the officers of the Surviving Corporation as of the
Effective Time.
ARTICLE 3.
MERGER CONSIDERATION
3.1. Conversion of M3 Shares in the Merger. At the Effective Time, by
virtue of the Merger and without any action on the part of the M3 stockholders
("M3 Stockholders"), the outstanding shares of common stock, $0.01 par value, of
M3 (the "M3 Common Stock") shall be converted into, and become exchangeable for,
the right to receive 442,182 shares of validly issued, fully paid, and
nonassessable common stock, no par value, of HealthStream (the "HealthStream
Common Stock"). The 442,182 shares of HealthStream Common Stock issuable in
connection with the Merger are sometimes referred to herein as the
"Consideration Shares." The Consideration Shares and the Cash Consideration
defined in Section 3.5 herein shall be collectively referred to as the "Merger
Consideration." 7,162 of the Consideration Shares shall be issued to the
Principal Stockholders at the Closing. 36,818 of the Consideration Shares issued
to the Principal Stockholders under this Agreement shall be placed in the Escrow
Fund described in Section 3.2.1 below. The remaining 131,932 Consideration
Shares issued to the Principal Stockholders under this Agreement shall be
subject to a Stock Vesting Agreement, substantially in the form of Exhibit I
attached hereto. The Merger Consideration shall be issued to the remaining M3
Stockholders according to the schedule attached as Exhibit L hereto.
3.2. Escrow Shares.
3.2.1. At the Closing, pursuant to an Escrow Agreement,
substantially in the form attached hereto as Exhibit B (the "Escrow
Agreement"), the parties shall establish an escrow (the "Escrow Fund")
comprised of 36,818 of the Consideration Shares issuable to the
Principal Stockholders pursuant to Section 3.1 (the "Escrow Shares").
The Escrow Shares shall be maintained in escrow for
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the purposes of satisfying claims by HealthStream for indemnification
under Article 9 herein and the Escrow Agreement until the first
anniversary of the Closing Date (the "Escrow Period").
3.2.2. The right to receive Escrow Shares upon expiration of the
Escrow Period is an integral part of the Merger Consideration, and
shall not be transferable or assignable by, but shall inure to the
benefit of the heirs, representatives, or estate of, any Principal
Stockholder.
3.4. Fractional Shares. In lieu of the issuance of fractional shares of
HealthStream Common Stock, each M3 Stockholder, upon surrender of a certificate
which immediately prior to the Effective Time represented M3 Common Stock, shall
be entitled to receive a cash payment (without interest) equal to $16.00 per
share of any fraction of a share of HealthStream Common Stock to which such
holder would be entitled under Section 3.1 herein, but for this provision.
3.5. Adjustments of HealthStream Common Stock. In the event
HealthStream changes the number of shares of HealthStream Common Stock issued
and outstanding following the date of this Agreement but prior to the Effective
Time as a result of a stock split, stock dividend, recapitalization, conversion,
reorganization, or any other transaction in which any security of HealthStream
or any other entity or cash is issued or paid in respect of the outstanding
shares of HealthStream Common Stock and the record date therefor is after the
date of this Agreement and prior to the Effective Time, the Consideration Shares
shall be proportionately adjusted.
3.6. Cash Consideration. For purposes of this Agreement, the "Cash
Consideration" shall be six hundred thousand dollars (US$600,000). The Cash
Consideration shall be paid to the M3 Stockholders in accordance with Exhibit L
attached hereto in cash at Closing in immediately available funds.
3.7. Merger Sub Shares. Each share of capital stock of Merger Sub
issued and outstanding immediately before the Effective Time shall not be
converted or exchanged by virtue of the Merger and shall remain outstanding as
one share of capital stock of the surviving corporation.
3.8. Reservation of Shares. Simultaneously with the date of this
Agreement, the Board of Directors of HealthStream shall reserve for issuance a
sufficient number of shares of HealthStream Common Stock for the purpose of
issuing its shares to the M3 Stockholders in accordance herewith.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF M3 AND THE
PRINCIPAL STOCKHOLDERS
Except as set forth in the disclosure letter delivered prior to the
execution hereof to HealthStream (the "M3 Disclosure Letter"), M3 and the
Principal Stockholders, severally and not jointly, represent, warrant, and agree
as follows:
4.1. Existence; Good Standing; Corporate Power and Authority. M3 is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Texas. M3 is qualified to do business as a foreign
corporation and is in good standing under the laws of any state of the United
States in which the character of the properties owned or leased by them therein
or in which the transaction of business makes such qualification necessary,
except where the failure to be so qualified would not have a Material Adverse
Effect as defined in Section 10.15.3 herein. M3 has all requisite corporate
power and authority to own, operate, and lease its respective properties and to
carry on its respective business as now conducted.
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M3 has provided to HealthStream in the M3 Disclosure Letter complete and correct
copies of its articles of incorporation and bylaws each of which is in full
force and effect.
4.2. Authorization, Validity, and Effect of Agreements. M3 has the full
corporate power and authority to execute and deliver this Agreement and all
agreements and documents contemplated hereby. This Agreement and the Merger have
been approved by the Board of Directors of M3 and, upon the approval of the M3
Stockholders, the consummation by M3 of the transactions contemplated hereby
will have been duly authorized by all requisite corporate action. Subject to the
approval of the M3 Stockholders, this Agreement constitutes, and all agreements
and documents contemplated hereby (when executed and delivered pursuant hereto)
will constitute, the valid and legally binding obligations of M3 and the
Principal Stockholders, enforceable in accordance with their respective terms
subject to the effect of bankruptcy, insolvency, reorganization, moratorium and
other laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
4.3. Capitalization. The authorized capital stock of M3 consists of
10,000,000 shares of M3 Common Stock, 5,313,740 shares of which are issued and
outstanding as of the date of this Agreement and owned beneficially and of
record by the M3 Stockholders as set forth in the M3 Disclosure Letter. M3 has
no outstanding capital stock, bonds, debentures, notes, or other obligations the
holders of which have the right to vote (or which are convertible into or
exercisable for securities having the right to vote) with the stockholders of M3
on any matter. All issued and outstanding shares of M3 Common Stock are duly
authorized, validly issued, fully paid, nonassessable, and free of preemptive
rights. There are no options, warrants, calls, subscriptions, convertible
securities, or other rights, agreements, or commitments that obligate M3 to
issue, transfer, or sell any shares of its capital stock. To M3's or the
Principal Stockholders' Knowledge, as defined in Section 10.15.2 herein, none of
the outstanding shares of M3 Common Stock are subject to any voting trust
agreement, lien, encumbrance, security interest, restriction, or claim.
4.4. Other Interests. M3 does not own, directly or indirectly, or have
any obligation to acquire any interest or investment in any corporation,
partnership, joint venture, business, trust, or other entity.
4.5. No Violation. Subject to the approval of the M3 Stockholders,
neither the execution and delivery by M3 and the Principal Stockholders of this
Agreement nor the consummation by M3 and the Principal Stockholders of the
transactions contemplated hereby in accordance with the terms hereof, will: (i)
conflict with or result in a violation of any provisions of the Articles of
Incorporation or bylaws of M3; (ii) conflict with, result in a breach of any
provision of or the modification or termination of, constitute a default under,
or result in the creation or imposition of any lien, security interest, charge,
or encumbrance upon any of the assets of M3 or any Principal Stockholder
pursuant to any material commitment, lease, contract, or other material
agreement or instrument to which M3 or any Principal Stockholder is a party
(including, without limitation, "Material Contracts" as defined in Section 4.21
below and which could cause a Material Adverse Effect); or (iii) violate or
result in a change in any rights or obligations under any governmental permit or
license or any order, arbitration award, judgment, writ, injunction, decree,
statute, rule, or regulation applicable to M3 or any Principal Stockholder.
4.6. Regulatory Consents. No consent, approval, order, or authorization
of, or registration, declaration, or filing with, any governmental entity, is
required by or with respect to M3 or any Principal Stockholder in connection
with the execution and delivery of this Agreement by M3 or any Principal
Stockholder, or the consummation by M3 or any Principal Stockholder of the
transactions contemplated hereby, which the failure to obtain would have a
Material Adverse Effect.
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4.7. Financial Statements. M3 has delivered to HealthStream in the M3
Disclosure Letter its audited financial statements for the years ended December
31, 1997, 1998 and 1999. Each of the balance sheets provided, or to be provided
pursuant to Section 6.6 herein, to HealthStream by M3 (including the related
notes and schedules) fairly presents the financial condition of M3 as of their
respective dates and each of the statements of income, stockholders' equity, and
cash flows provided, or to be provided pursuant to Section 6.6 herein, to
HealthStream by M3 (including any related notes and schedules) fairly presents
the results of operations, stockholders' equity, and cash flows of M3 for the
periods set forth therein (subject, in the case of interim statements, to normal
year-end audit adjustments, none of which will constitute a Material Adverse
Effect), in each case in accordance with generally accepted accounting
principals consistently applied ("GAAP"). Such financial statements have been
prepared from the books and records of M3 which accurately and fairly reflect
the transactions and the acquisitions and dispositions of the assets of M3 in
all material respects. M3 does not have any liabilities, contingent or
otherwise, whether due or to become due, known or unknown, other than as
reflected in the December 31, 1999 financial statements or the M3 Disclosure
Letter, or those liabilities incurred in the ordinary course of business since
December 31, 1999.
4.8. No Material Adverse Changes. Since December 31, 1999, there has
not been (i) any material adverse change in the financial condition, results of
operations, business, assets, or liabilities (contingent or otherwise, whether
due or to become due, known or unknown) of M3; (ii) any dividend declared or
paid or distribution made on the capital stock of M3, or any capital stock
thereof redeemed or repurchased; (iii) any incurrence by M3 of long term debt;
(iv) any material salary, bonus, or compensation increases to any officers,
employees, or agents of M3 except for annual bonuses or raises which are
consistent with past practices of M3; (v) any pending or threatened labor
disputes or other labor problems against or potentially affecting M3 that could
cause a Material Adverse Effect; or (vi) any other transaction entered into by
M3 except in the ordinary course of business and consistent with past practice
excluding the incurrence of expenses in connection with this Agreement and the
transactions contemplated hereby.
4.9. Tax Matters.
4.9.1. For purposes of this Agreement, (i) "Tax" means any
federal, state, local, or foreign income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Section 59A of
the Code, customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration,
value added, alternative or add-on minimum, estimated, or other tax of
any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not, and (ii) "Tax Return" means any
return, report, information return, or other document (including any
related or supporting information) filed or required to be filed with
any taxing authority in connection with its determination, assessment,
collection, administration, or imposition of any Tax.
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4.9.2. M3 has duly and timely filed all Tax Returns and has duly
and timely paid all Taxes and other charges (whether or not shown on
any Tax Return) due or claimed to be due from any of them by federal,
foreign, state, or local taxing authorities or has set up an adequate
reserve for all Taxes payable. True and correct copies of all Tax
Returns relating to federal taxes and state income and sales taxes and
other charges for the period from organization through December 31,
1999 have been heretofore delivered to HealthStream. The accruals and
reserves for Taxes contained in the financial statements and carried on
the books of M3 (other than any reserve for deferred taxes established
to reflect timing differences between book and tax income) are adequate
to cover all material Tax liabilities. Since December 31, 1999, M3 has
not incurred any Tax liabilities other than in the ordinary course of
business. There are no Tax liens (other than liens for current Taxes
not yet due) upon any properties or assets of M3 (whether real,
personal, or mixed, tangible or intangible), and, except as reflected
in the financial statements, there are no pending or, to M3's
Knowledge, threatened audits or examinations relating to, or claims
asserted for, Taxes or assessments against M3 and M3 has no Knowledge
of any basis for any such claims. M3 has not granted or been requested
to grant any extension of the limitation period applicable to any claim
for Taxes or assessments with respect to Taxes. M3 is not a party to
any Tax allocation or sharing agreement. M3 has no liability for the
Taxes of any Affiliated Group under Treasury Regulation 1.1502-6 (or
any similar provision of state, local, or foreign law). M3 has withheld
and paid all material Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent
contractor, creditor, or stockholder.
4.9.3. The M3 Disclosure Letter lists each jurisdiction in which
M3 files Tax Returns for each period or portion thereof ending on or
before the date of this Agreement. Except as set forth in the M3
Disclosure Letter, to M3's or the Principal Stockholders' Knowledge,
there is no claim outstanding against M3 by any taxing authority in a
jurisdiction where M3 does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction.
4.9.4. All material elections with respect to Taxes affecting M3
as of the date hereof are set forth in the M3 Disclosure Letter.
4.9.5. All joint ventures, partnerships, or other arrangements or
contracts to which M3 is a party and that could be treated as a
partnership for federal income tax purposes are set forth in the M3
Disclosure Letter.
4.9.6. M3 has not (i) filed a consent pursuant to Section 341(f)
of the Code nor agreed to have Section 341(f)(2) apply to any
disposition of a subsection (f) asset (as such term is defined in
Section 341(f) of the Code) owned by M3; (ii) agreed, or is required to
agree, to make any adjustment under Section 481(a) of the Code by
reason of a change in accounting method or otherwise that will affect
the liability of M3 for Taxes; (iii) made an election, or is required
to make an election, to treat any asset of M3 as owned by another
person pursuant to the provisions of former Section 168(f)(8) of the
Code or as tax-exempt bond financed property or tax-exempt use property
within the meaning of Section 168 of the Code; and (iv) made any of the
foregoing elections or is required to apply any of the foregoing rules
under any comparable state or local tax provision.
4.9.7. As soon as practicable following the Effective Time, the
Principal Stockholders shall, on behalf of M3, timely file all Tax
Returns for, and pay all Taxes due with respect to, the period ending
December 31, 1999 and the short period beginning on January 1, 2000 and
ending on the Closing Date. The Principal Stockholders shall close M3's
books on the Closing Date and shall report on M3's federal corporate
income Tax Return for the short period ending on the Closing Date
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all items of income, loss, deduction, and credit arising during the
short period under M3's method of accounting.
4.10. Employees and Fringe Benefit Plans.
4.10.1. The M3 Disclosure Letter sets forth the names, ages, and
titles of all members of the Board of Directors and officers of M3 and
all employees of M3 earning in excess of $30,000 per year, and the
annual rate of compensation (including bonuses) being paid to each such
officer and employee as of the most recent practicable date.
4.10.2. The M3 Disclosure Letter lists each employment, bonus,
deferred compensation, pension, stock option, stock appreciation right,
profit-sharing or retirement plan, arrangement, or practice, each
medical, vacation, retiree medical, severance pay plan, and each other
agreement or fringe benefit plan, arrangement, or practice, of M3,
whether legally binding or not, that affects one or more of M3's
employees, including all "employee benefit plans" as defined by Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (collectively, the "Plans"). M3 neither has nor sponsors, nor
participates in any Plan that is subject to Title IV of ERISA or the
minimum funding standards of Section 412 of the Code.
4.10.3. For each Plan that is an "employee benefit plan" under
Section 3(3) of ERISA, M3 has delivered to HealthStream correct and
complete copies of the plan documents and summary plan descriptions,
the most recent determination letter received from the Internal Revenue
Service, the most recent Form 5500 Annual Report, and all related trust
agreements, insurance contracts, and funding agreements that implement
each such Plan.
4.10.4. M3 does not have any commitment, whether formal or
informal and whether legally binding or not, (i) to create any
additional Plan; (ii) to modify or change any Plan; or (iii) to
maintain for any period of time any Plan. The M3 Disclosure Letter
contains an accurate and complete description of the funding policies
(and commitments, if any) with respect to each existing Plan.
4.10.5. Except where failure to do so would not have a Material
Adverse Effect, M3 does not have any unfunded past service liability in
respect of any Plans; M3, nor any Plan nor any trustee, administrator,
fiduciary, or sponsor of any Plan has engaged in any prohibited
transaction as defined in Section 406 of ERISA or Section 4975 of the
Code for which there is no statutory exemption in Section 408 of ERISA
or Section 4975 of the Code; all filings, reports, and descriptions as
to such Plans (including Form 5500 Annual Reports, summary plan
descriptions, and summary annual reports) required to have been made or
distributed to participants, the Internal Revenue Service, the United
States Department of Labor, and other governmental agencies have been
made in a timely manner or will be made on or prior to the Closing
Date; there is no material litigation, disputed claim, governmental
proceeding, or investigation pending or to the best of M3's or the
Principal Stockholders' Knowledge, threatened with respect to any of
the Plans, the related trusts, or any fiduciary, trustee,
administrator, or sponsor of the Plans; the Plans have been
established, maintained, and administered in all material respects in
accordance with their governing documents and applicable provisions of
ERISA and the Code and Treasury Regulations promulgated thereunder; and
each Plan that is intended to be a qualified plan under Section 401(a)
of the Code has received a favorable determination letter from the
Internal Revenue Service with respect to the current terms of the Plan.
4.10.6. Except where failure to do so would not have a Material
Adverse Effect, M3 has to M3's or the Principal Stockholders'
Knowledge, complied in all respects with all applicable federal,
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state, and local laws, rules, and regulations relating to employees'
employment and employment relationships, including, without limitation,
wage related laws, anti-discrimination laws, employee safety laws, and
COBRA (defined herein to mean the requirements of Code Section 4980B,
Proposed Treasury Regulation Section 1.162-26 and Part 6 of Subtitle B
of Title I of ERISA).
4.10.7. The consummation of the transactions contemplated by this
Agreement will not (i) result in the payment or series of payments by
M3 to any employee or other person of an "excess parachute payment"
within the meaning of Section 280G of the Code; (ii) entitle any
employee or former employee of M3 to severance pay, unemployment
compensation, or any other payment; or (iii) accelerate the time of
payment or vesting of any stock option, stock appreciation right,
deferred compensation, or other employee benefits under any Plan
(including vacation and sick pay).
4.10.8. None of the Plans that are "welfare benefit plans," within
the meaning of Section 3(1) of ERISA, provide for continuing benefits
or coverage after termination or retirement from employment, except for
COBRA rights under a "group health plan" as defined in Code Section
4980B(g) and ERISA Section 607.
4.10.9. Neither M3 nor any member in a "controlled group" with M3
(as defined in ERISA) has ever contributed to, participated in, or
withdrawn from a multi-employer plan as defined in Section 4001(a)(3)
of Title IV of ERISA, and M3 has not incurred or owes any liability as
a result of any partial or complete withdrawal by any employer from
such a multi-employer plan as described under Section 4201, 4203, or
4205 of ERISA.
4.11. Assets. M3 owns the assets reflected in the December 31, 1999
balance sheet, including the leasehold estates, with good and indefeasible
title, free and clear of any and all claims, liens, mortgages, security
interests, or encumbrances whatsoever, and free and clear of any rights or
privileges capable of becoming claims, liens, mortgages, securities interests,
or encumbrances. The buildings, plants, structures, and equipment owned or
leased by M3 are in good operating condition and repair, and are adequate for
the uses for which they are being put, and none of such buildings, plants,
structures, or equipment is in need of maintenance or repairs except for
ordinary and routine maintenance and repairs that are not material in nature or
cost. The assets of the business of M3 reflected in the December 31, 1999
balance sheet are sufficient for the continued conduct of the business of M3
after the Closing Date in substantially the same manner as conducted prior to
the Closing Date.
4.12. Accounts Receivable. All accounts receivable of M3 that are
reflected on the balance sheet dated December 31, 1999 and on the accounting
records of M3 as of the Closing Date (collectively, the "Accounts Receivable")
represent or will represent valid obligations arising from sales actually made
or services actually performed in the ordinary course of business. Unless paid
prior to the Closing Date, the Accounts Receivable are or will be as of the
Closing Date current and collectible net of the respective reserves shown on the
balance sheet dated December 31, 1999, or on the accounting records of M3 as of
the Closing Date (which reserves are adequate and calculated consistent with
past practice and, in the case of the reserve as of the Closing Date, will not
represent a greater percentage of the Accounts Receivable as of the Closing Date
than the reserve reflected in the balance sheet dated December 31, 1999, and
will not represent a material adverse change in the composition of such Accounts
Receivable in terms of aging). Subject to such reserves, each of the Accounts
Receivable either has been or will be collected in full, without any set-off, on
or before the first anniversary of the Closing Date. There is no contest, claim,
or right of set-off with any maker of an Accounts Receivable relating to the
amount or validity of such Accounts Receivable.
4.13. Lawful Operations. To M3's or the Principal Stockholders'
Knowledge, M3 has been and currently is conducting its respective business, and
each of the premises leased or owned by M3 have been
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and now are being used and operated, in compliance with all statutes,
regulations, orders, covenants, restrictions, and plans of federal, state,
regional, county, or municipal authorities, agencies, or boards applicable to
the same, except where the failure to so comply would not have a Material
Adverse Effect.
4.14. Litigation. There is no suit, action, or proceeding pending or,
to the Knowledge of M3 or any of the Principal Stockholders, threatened against
or affecting M3. M3 is not subject to any currently existing order, writ,
injunction, or decree relating to its respective operations.
4.15. Corporate Records; Other Information. The minute books of M3,
copies of which have been provided to HealthStream, reflect all meetings of the
boards of directors, committees of the boards of directors, and the stockholders
thereof.
4.16. Intellectual Property Rights. M3 owns or possesses the right to
use all trademarks, service marks, trade names, slogans, copyrights in published
and unpublished works, patents, patent applications, rights in mask works, and
all trade secrets, it currently uses without any material conflict or alleged
conflict with the rights of others, except where any such conflict would not
have a Material Adverse Effect. All copyrights are valid and enforceable, and
are not subject to any maintenance fees, taxes, or actions falling due within
ninety days after the date of this Agreement. No copyright is infringed or has
been challenged or threatened in any way. None of the subject matter of any
copyright infringes or is alleged to infringe any copyright of any third party
or is a derivative work based on the work of a third party. All works
encompassed by a copyright from a third party have been marked with the proper
copyright notice.
4.17. Certain Business Practices and Regulations. Since 1996, neither
M3, nor to M3's Knowledge, any of its executive officers, directors, or
employees, has (i) made or agreed to make any contribution, payment, or gift to
any customer, supplier, landlord, political candidate, governmental official,
employee, or agent where either the contribution, payment, or gift or the
purpose thereof was illegal under any law or regulation; (ii) established or
maintained any unrecorded fund or asset for any purpose or made any false
entries on its respective books and records for any reason; (iii) made or agreed
to make any contribution, or reimbursed any political gift or contribution made
by any other person, to any candidate for federal, state, or local public office
in violation of any law or regulation; or (iv) submitted any claim for services
rendered or reimbursement for expenses to any person where the services were not
actually rendered or the expenses were not actually incurred.
4.18. Insurance. All policies and binders of insurance for professional
liability, directors and officers, fire, liability, workers' compensation, and
other customary matters held by or on behalf of M3 ("Insurance Policies") are
described in the M3 Disclosure Letter and copies of which have been made
available to HealthStream. The Insurance Policies (which term shall include any
insurance policy entered into after the date of this Agreement in replacement of
an Insurance Policy provided that such replacement policy shall insure against
risks and liabilities, and in amounts and under terms and conditions,
substantially the same as those provided in such replaced policy or binder) are
in full force and effect. M3 is not in default with respect to any material
provision contained in any Insurance Policy. M3 has not failed to give any
notice of any claim under any Insurance Policy in due and timely fashion, nor
has any coverage for current claims been denied which failure or denial could
cause a Material Adverse Effect.
4.19. No Brokers. M3 has not entered into any contract, arrangement, or
understanding with any person or firm that may result in the obligation of M3 or
HealthStream to pay any finder's fees, brokerage or agent's commissions, or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby.
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4.20. HealthStream Stock Ownership; Investment Intent. The Principal
Stockholders and M3 shall, at the Closing, cause the all of the M3 Stockholders
to, jointly and severally, represent, warrant, and agree as follows:
4.20.1. The shares of HealthStream Common Stock issuable in the
Merger are being acquired by the M3 Stockholders for investment and not
with a view to the distribution thereof, and each of the M3
Stockholders acknowledges and understands that the certificate(s)
representing such shares of HealthStream Common Stock will bear a
legend in substantially the following form:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY
STATE SECURITIES ACT AND CANNOT BE SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER SUCH ACTS OR UNLESS EXEMPTIONS FROM
REGISTRATION ARE AVAILABLE.
THE TRANSFERABILITY OF THE SHARES EVIDENCED BY THIS CERTIFICATE IS
RESTRICTED BY THE PROVISIONS OF A STOCKHOLDERS' AGREEMENT ENTERED INTO
BETWEEN THE HOLDER OF THIS CERTIFICATE AND THE COMPANY. A COPY OF THE
STOCKHOLDERS' AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE
COMPANY AND MAY BE REVIEWED AT SUCH OFFICE UPON REQUEST.
4.20.2. (i) Each of the M3 Stockholders is an "accredited
investor" as defined under Rule 501 of Regulation D promulgated under
the Securities Act of 1933, as amended (the "Securities Act") or each
of the M3 Stockholders has such knowledge and experience in financial
and business matters that they will be able to understand information
concerning HealthStream and to evaluate the risks in any investment in
HealthStream Common Stock.
(ii) Each of the M3 Stockholders confirms that
HealthStream has made available to him or her to his or her
representatives the opportunity to ask questions of HealthStream's
officers and directors and to acquire such information about the
shares of HealthStream Common Stock and the business and financial
condition of HealthStream as the M3 Stockholders have requested,
which additional information has been received.
(iii) In deciding to acquire shares of HealthStream Common
Stock pursuant to the Merger, the M3 Stockholders have consulted
with their legal, financial, and tax advisers with respect to the
Merger and the nature of the investment together with additional
information concerning HealthStream provided under subsection (ii)
above.
(iv) Each M3 Stockholder has adequate means of providing
for his or her current needs and personal contingencies and has no
need for liquidity in his or her investment in HealthStream. Each
of the M3 Stockholders, either alone or with his or her
representatives, has such knowledge and experience in financial
and business matters that he or she is capable of evaluating the
merits and risks of an investment in HealthStream.
(v) Each M3 Stockholder has discussed with counsel, to the
extent such M3 Stockholder felt necessary, the requirements,
limitations, and restrictions on his or her ability to sell,
transfer, or otherwise dispose of the HealthStream Common Stock to
be received in the Merger, and fully understands the requirements,
limitations, and restrictions on his or her ability to transfer,
sell, or otherwise dispose of the HealthStream Common Stock.
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(vi) Until the earlier of (i) the Effective Time or (ii)
the termination of this Agreement, each M3 Stockholder will not
sell, transfer, or otherwise dispose of, or reduce such person's
interest in or risk relating to, any M3 Common Stock or any
instrument exercisable for or convertible into M3 Common Stock
currently owned by the M3 Stockholder.
4.21. Contracts; No Defaults. The M3 Disclosure Letter contains a
complete and accurate list, and M3 has previously delivered to HealthStream
complete copies of, all contracts and agreements for the performance of services
or the purchase or leasing of property by M3 of an amount or value in excess of
ten thousand dollars (US$10,000) ("Material Contracts"). To the extent it
applies to M3, each of the Material Contracts is in full force and effect and is
valid and enforceable in accordance with its terms subject to the effect of
bankruptcy, insolvency, reorganization, moratorium and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles, and M3 is in full compliance with all applicable terms and
requirements thereof. No event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene, conflict with, or result in a
violation or breach of, or give any person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate, or modify, any Material Contract. There are no
renegotiations of, attempts to renegotiate, or outstanding rights to renegotiate
any material amounts paid or payable to M3 under any Material Contract with any
person, including any governmental authority, having the contractual or
statutory right to demand or require such renegotiation.
4.22. Affiliate Transactions. None of the M3 Stockholders has any
interest in any property (whether real, personal, or mixed, tangible or
intangible) used in or pertaining to M3 business. No M3 Stockholder owns, of
record or beneficially, any equity or other financial or profit interest in any
entity that has had business dealings with M3 (other than business dealings of
transactions conducted in the ordinary course of business with M3 at
substantially prevailing market prices and on substantially prevailing market
terms) or that has engaged in competition with M3.
4.23. Full Disclosure. All of the information provided by M3 and its
representatives herein or in the M3 Disclosure Letter is true, correct, and
complete in all material respects, and no representation, warranty, or statement
made by M3 or the Principal Stockholders in or pursuant to this Agreement or the
M3 Disclosure Letter contains any untrue statement of a material fact or omits
to state any material fact necessary to make such representation, warranty, or
statement, in light of the circumstances in which they were made, not
misleading.
4.24 Section 368 Representations.
4.24.1. The fair market value of the HealthStream Common Stock and
other consideration received by each M3 Stockholder will be
approximately equal to the fair market value of the M3 Common Stock
surrenders in the Merger.
4.24.2. There is no plan or intention by the M3 Stockholders to
sell, exchange or otherwise dispose of a number of shares of
HealthStream Common Stock received in the transaction that would reduce
the M3 Stockholders' ownership of HealthStream Common Stock to a number
of shares having a value, as of the date of the transaction, of less
than 50 percent (50%) of the value of all of the formerly outstanding
stock of M3 as of the same date. For purposes of this representation,
shares of M3 Common Stock exchanged for cash or other property,
surrendered by dissenters or exchanged for cash in lieu of fractional
shares of HealthStream Common Stock will be treated as outstanding
HealthStream Common Stock on the date of the transaction, moreover,
shares of HealthStream
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Common Stock and shares of HealthStream Common Stock held by the M3
Stockholders and otherwise sold, redeemed or disposed of prior or
subsequent to the transaction will be considered in making this
representation.
4.24.3. M3 has provided to HealthStream true and correct copies of
statements ("Section 368 Certificates") received from each M3
Stockholder with respect to his plan or intention to sell or otherwise
dispose of the HealthStream Common Stock to be received pursuant to the
Merger.
4.24.4. Merger Sub will acquire at least 90 percent (90%) of the
fair market value of the net assets and at least 70 percent (70%) of
the fair market value of the gross assets held by M3 immediately prior
to the transaction. For purposes of this representation, amounts paid
by M3 to dissenters, amounts paid by M3 to M3 Stockholders who receive
cash or other property, M3 assets used to pay its reorganization
expenses, and all redemptions and distributions (except for regular,
normal dividends) made by M3 immediately preceding the transfer, will
be included as assets of M3 held immediately prior to the transaction.
4.24.5. Neither HealthStream nor Merger Sub will assume any debts
or obligations of the holders of the M3 Common Stock as part of the
Merger.
4.24.6. Except as set forth in the M3 Disclosure Letter, there
have not been any sales or redemptions of M3's capital stock in
contemplation of the Merger. The M3 Disclosure Letter sets forth all
transactions in the capital stock of M3 Stockholders since January 1,
1999.
4.24.7. The liabilities of M3 assumed by Merger Sub and the
liabilities to which the transferred assets of M3 are subject were
incurred by M3 in the ordinary course of its business.
4.24.8. M3 and the M3 Stockholders will pay their respective
expenses, if any, which are incurred in connection with the Merger.
4.24.9. M3 has not disposed of any assets (either as a dividend or
otherwise) constituting more than ten percent (10%) of the fair market
value of all of its assets (ignoring any liabilities) at any time
either during the past twelve months or in contemplation of the Merger.
4.24.10. M3 is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
4.24.11. M3 is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
4.24.12. The fair market value of the assets of M3 transferred to
Merger Sub will equal or exceed the sum of the liabilities assumed by
Merger Sub, plus the amount of liabilities, if any, to which the
transferred assets are subject.
4.24.13. M3 has a valid business purpose for entering into the
Merger.
4.24.14. Any compensation paid or to be paid to any M3 Stockholder
who will be an employee of, or perform advisory services for,
HealthStream or any affiliate thereof after the Merger will be in
consideration for services rendered or to be rendered, and such
compensation will be commensurate with amounts paid to third parties
bargaining at arm's length for similar services and has been bargained
for independently of negotiations regarding consideration to be paid
for M3
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shares outstanding. None of the shares of HealthStream Common Stock
received by any M3 Stockholder is or will be separate consideration
for, or allocable to, any employment, consulting or other arrangement
which may be entered into between HealthStream or any affiliate thereof
and such shareholder for services rendered or to be rendered by any
shareholder.
4.24.15. No indebtedness between HealthStream or any of its
subsidiaries, on the one hand, and M3 or any of its subsidiaries, on
the other hand, exists or will exist prior to the Merger that (a) was
issued or acquired at a discount, or (b) will be settled, as a result
of the Merger, at a discount. No "installment obligation" (as the
quoted term is defined for purposes of Section 453B of the Code)
between HealthStream or any of its subsidiaries, on the one hand, and
M3 or any of its subsidiaries, on the other hand, exists or will exist
prior to the Merger that will be extinguished as a result of the
Merger.
4.25 NO WARRANTY OF CONDITION. The assets and properties of M3 are to
be taken as a part of the Merger AS IS, WHERE IS, AND WITH ALL FAULTS, AND
WITHOUT ANY REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED,
WRITTEN OR ORAL, EXCEPT SOLELY AS EXPRESSLY SET FORTH IN THIS AGREEMENT; IT
BEING THE INTENTION OF HEALTHSTREAM, M3 AND THE PRINCIPAL STOCKHOLDERS TO
EXPRESSLY REVOKE, RELEASE, NEGATE AND EXCLUDE ALL EXPRESS AND IMPLIED
REPRESENTATIONS AND WARRANTIES (EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT)
AS TO (I) THE CONDITION OF M3'S ASSETS OR ANY ASPECT THEREOF, INCLUDING, WITHOUT
LIMITATION, ANY AND ALL EXPRESS OR IMPLIED REPRESENTATIONS AND WARRANTIES
RELATED TO MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE; (II) THE
NATURE OR QUALITY OF CONSTRUCTION, STRUCTURAL DESIGN OR ENGINEERING OF THE
PROPERTIES OR ASSETS, INCLUDING ANY LATENT OR PATENT DEFECTS, IF ANY; (III) THE
QUALITY OF THE LABOR OR MATERIALS INCLUDED IN THE PROPERTIES OR ASSETS,
INCLUDING ANY LATENT OR PATENT DEFECTS; (IV) ANY FEATURES OR CONDITIONS,
INCLUDING ANY LATENT OR PATENT DEFECTS, AT OR WHICH AFFECT THE PROPERTIES OR
ASSETS WITH RESPECT TO ANY PARTICULAR PURPOSE, USE, POTENTIAL OR OTHERWISE; (V)
THE SIZE, SHAPE, CONFIGURATION, CAPACITY, QUANTITY, QUALITY, CASH FLOW,
EXPENSES, VALUE, MAKE, MODEL OR CONDITION OF THE PROPERTIES OR ASSETS; (VI) ALL
EXPRESS OR IMPLIED REPRESENTATIONS OR WARRANTIES CREATED BY ANY AFFIRMATION OF
FACT OR PROMISE OR BY ANY DESCRIPTION OF THE PROPERTIES OR ASSETS; (VII) ANY
ENVIRONMENTAL, STRUCTURAL OR OTHER CONDITION OR HAZARD OR THE ABSENCE THEREOF
HERETOFORE, NOW, OR HEREAFTER AFFECTING IN ANY MANNER ANY OF THE PROPERTIES OR
ASSETS; AND (VIII) ALL OTHER EXPRESS OR IMPLIED WARRANTIES AND REPRESENTATIONS
BY M3 OR THE PRINCIPAL STOCKHOLDERS WHATSOEVER, EXCEPT AS EXPRESSLY SET FORTH IN
THIS AGREEMENT. FURTHERMORE, NEITHER M3 NOR THE PRINCIPAL STOCKHOLDERS MAKE ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AS TO THE FUTURE
PROFITABILITY, FUTURE CASH FLOW OR VIABILITY OF M3, ALL OF WHICH HEALTHSTREAM
MUST DETERMINE FROM ITS INVESTIGATION OF THE BOOKS AND RECORDS OF M3 AND
HEALTHSTREAM'S OWN BUSINESS ACUMEN. HEALTHSTREAM ACKNOWLEDGES AND AGREES THAT
THE DOCUMENTATION AND INFORMATION PROVIDED BY M3 OR THE PRINCIPAL STOCKHOLDERS
TO HEALTHSTREAM ARE NOT THE SOLE SOURCE OF INFORMATION UPON WHICH ITS DECISION
TO ENTER INTO THIS AGREEMENT WAS BASED.
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ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF HEALTHSTREAM AND MERGER SUB
Except as set forth in the disclosure letter delivered at or prior to
the execution hereof to M3 and the Principal Stockholders (the "HealthStream
Disclosure Letter"), HealthStream and Merger Sub, jointly and severally,
represent, warrant, and agree as follows:
5.1. Existence; Good Standing; Corporate Authority. HealthStream is
duly incorporated, validly existing, and in good standing under the laws of the
State of Tennessee. Merger Sub is duly incorporated, validly existing, and in
good standing under the laws of the State of Tennessee. HealthStream is duly
licensed or qualified to do business as a foreign corporation and is in good
standing under the laws of any other state of the United States in which the
character of the properties owned or leased by it therein or in which the
transaction of its business makes such qualification necessary, except where the
failure to be so qualified would not have a Material Adverse Effect.
HealthStream and Merger Sub each have all requisite corporate power and
authority to own, operate, and lease their respective properties and carry on
their businesses as now conducted.
5.2. Authorization, Validity, and Effect of Agreements. Each of
HealthStream and Merger Sub has the requisite corporate power and authority to
execute and deliver this Agreement and all agreements and documents contemplated
hereby. This Agreement, the Merger and the transactions contemplated herein have
been approved by the Boards of Directors of HealthStream and Merger Sub and by
the shareholder of Merger Sub. The consummation by HealthStream and Merger Sub
of the transactions contemplated hereby has been duly authorized by all
requisite corporate action. This Agreement constitutes, and all agreements and
documents contemplated hereby (when executed and delivered pursuant hereto) will
constitute, the valid and legally binding obligations of HealthStream and Merger
Sub, enforceable in accordance with their respective terms. The issuance and
delivery by HealthStream of shares of HealthStream Common Stock in connection
with the Merger and this Agreement have been duly and validly authorized by all
necessary corporate action on the part of HealthStream. The shares of
HealthStream Common Stock to be issued in connection with the Merger and this
Agreement, when issued in accordance with the terms of this Agreement, will be
validly issued, fully paid, and nonassessable. Upon delivery of the HealthStream
Common Stock in exchange for the M3 Common Stock in accordance with the terms of
this Agreement, the holders of the HealthStream Common Stock will be the owners
of the HealthStream Common Stock.
5.3. Capitalization. The authorized capital stock of HealthStream
consists of 20,000,000 shares of Common Stock, no par value, 2,294,163 of which
are issued and outstanding, and 5,000,000 shares of Preferred Stock, no par
value, of which 76,000 shares have been designated as Series A Convertible
Preferred Stock, 1,376,360 shares have been designated as Series B Convertible
Preferred Stock, no par value, and 650,000 shares have been designated as Series
C Convertible Preferred Stock, no par value. The outstanding shares of Common
Stock and Convertible Preferred Stock have been duly authorized and validly
issued and are fully paid and nonassessable. All of the shareholders of the
capital stock of HealthStream are a party to the Shareholders' Agreement
attached as Exhibit F, the Co-Sale Agreement attached as Exhibit G, the Voting
Agreement attached as Exhibit H (collectively referred to herein as the
"Investor Agreements"). A true and complete copy of each of the Investor
Agreements with their amendments have been provided to M3 and the Principal
Stockholders. Each of the Investor Agreements is in full force and effect and is
valid and enforceable in accordance with its terms and HealthStream and each
stockholder or other person that has or had any obligation or liability under
the Investor Agreements are in full compliance with all applicable terms and
requirements thereof. No event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene, conflict with or result in a
violation or breach of, or give any person the right to declare a breach or
default or exercise any remedy under, or to cancel, terminate, or modify any
Investor
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Agreement. Except for the Investor Agreements, none of the outstanding shares of
capital stock are subject to any voting agreement, stockholder agreement,
co-sale agreement, registration rights agreement (except those registration
rights granted pursuant to the Investor Rights Agreement dated April 21, 1999
and amended August 11, 1999), voting trust agreement, buy-sell agreement or any
lien encumbrance, security interest, restriction, or claim.
5.4. Subsidiaries. The HealthStream Disclosure Letter sets forth the
outstanding capital stock of Merger Sub and each corporation, partnership, or
other entity of which at least a majority of the voting interest is owned
directly or indirectly by HealthStream (a "HealthStream Subsidiary"). Merger Sub
has not engaged in any activity other than in connection with the transactions
contemplated by this Agreement.
5.5. No Violation. Neither the execution and delivery by HealthStream
and Merger Sub of this Agreement, nor the consummation by HealthStream and
Merger Sub of the transactions contemplated hereby in accordance with the terms
hereof, will: (i) conflict with or result in a breach of any provisions of the
charter or bylaws of HealthStream or Merger Sub; (ii) conflict with, result in a
breach of any provision of or the modification or termination of, constitute a
default under, or result in the creation or imposition of any lien, security
interest, charge, or encumbrance upon any of the assets of HealthStream or
Merger Sub pursuant to any material commitment, lease, contract, or other
material agreement or instrument to which HealthStream or Merger Sub is a party;
or (iii) violate or result in a change in any rights or obligations, under any
governmental permit or license or any order, arbitration award, judgment, writ,
injunction, decree, statute, rule, or regulation applicable to HealthStream or
Merger Sub.
5.6. Litigation. There is no action, suit, or proceeding pending
against HealthStream or any HealthStream subsidiary (including, but not limited
to, Merger Sub) or, to the Knowledge of HealthStream or any HealthStream
subsidiary, threatened against or affecting HealthStream or any HealthStream
subsidiary, at law or in equity, or before or by any federal or state
commission, board, bureau, agency, or instrumentality, that is reasonably likely
to have a Material Adverse Effect. HealthStream is not subject to any currently
existing order, writ, injunction or decree relating to its operations or those
of its subsidiaries.
5.7. Absence of Certain Changes. Since December 31, 1999, there has not
been any material adverse change in the financial condition, results of
operations, business, assets or liabilities (contingent or otherwise, whether
due or to become due, known or unknown), of HealthStream, except for changes in
the ordinary course of business.
5.8. No Brokers. HealthStream has not entered into any contract,
arrangement, or understanding with any person or firm that may result in the
obligation of HealthStream to pay any finder's fees, brokerage or agent's
commissions, or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby.
HealthStream is not aware of any claim for payment of any finder's fees,
brokerage or agent's commissions, or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby.
5.9. Regulatory Consents. No consent, approval, order, or authorization
of, or registration, declaration, or filing with, any governmental entity, is
required by or with respect to HealthStream or Merger Sub in connection with the
execution and delivery of this Agreement by HealthStream or Merger Sub, or the
consummation by HealthStream or Merger Sub of the transactions contemplated
hereby, which the failure to obtain would have a Material Adverse Effect.
5.10. Full Disclosure. All of the information provided by HealthStream
and its representatives herein or in the HealthStream Disclosure Letter is true,
correct, and complete in all material respects, and no representation, warranty,
or statement made by HealthStream or Merger Sub in or pursuant to this Agreement
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or the HealthStream Disclosure Letter contains any untrue statement of a
material fact or omits to state any material fact necessary to make such
representation, warranty, or statement, in light of the circumstances in which
they were made, not misleading.
5.11. Securities Documents. HealthStream has previously delivered to M3
an accurate and complete copy of HealthStream's Registration Statement on Form
S-1 and related exhibits that it filed with the Securities and Exchange
Commission ("SEC") and a copy of Amendment No. 1 to such Form S-1 that it
intends to file. The information contained in that Form S-1 was true, complete
and correct in all material respects on the date it was filed and the
information contained in the Amendment No. 1 to such Form S-1 is true, complete
and correct in all material respects. HealthStream has timely filed with the SEC
and the National Association of Securities Dealers all Securities Documents as
defined in Section 10.15.4 herein required by the Securities Laws as defined in
Section 10.15.5 herein and such Securities Documents complied in all material
respects with the Securities Laws and, as of their respective dates, did not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
5.12. Financial Statements.
5.12.1. HealthStream has previously delivered or made available to
M3 accurate and complete copies of HealthStream's financial statements,
which are accompanied by the audit reports of Ernst & Young LLP,
independent certified public accountants with respect to HealthStream.
The HealthStream financial statements fairly present the consolidated
financial condition of HealthStream as of the respective dates set
forth therein, and the consolidated income, changes in stockholders
equity and cash flows of HealthStream for the respective periods or as
of the respective dates set forth therein.
5.12.2. Each of HealthStream's financial statements referred to in
Section 5.12(a) has been prepared in accordance with GAAP during the
periods involved, except as stated therein. The audits of HealthStream
have been conducted in all material respects in accordance with GAAP.
The books and records of HealthStream and it subsidiaries are being
maintained in material compliance with applicable legal and accounting
requirements, and all such books and records accurately reflect in all
material respects all dealings and transactions in respect of the
business, assets, liabilities and affairs of HealthStream and its
subsidiaries.
5.12.3. Except to the extent (i) reflected, disclosed or provided
for in the consolidated balance sheets of HealthStream as of December
31, 1999 (including related notes), (ii) of liabilities incurred since
December 31, 1999 in the ordinary course of business and (iii) of
liabilities incurred in connection with consummation of the
transactions contemplated by this Agreement, neither HealthStream nor
its subsidiaries have any liabilities, whether absolute, accrued,
contingent or otherwise, material to the financial condition, results
of operations or business of HealthStream on a consolidated basis.
5.13. Financial Resources. HealthStream has the financial wherewithal
and has, or will have prior to the Effective Time, sufficient funds to perform
its obligations under this Agreement.
5.14. Section 368 Representations.
5.14.1. Prior to the Merger, HealthStream will be in control of
Merger Sub within the meaning of Section 368(c)(1) of the Code.
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5.14.2. Following the Merger, Merger Sub will not issue additional
shares of its stock that would result in HealthStream losing control of
Merger Sub within the meaning of Section 368(c)(1) of the Code.
5.14.3. HealthStream has no plan or intention to reacquire any of
the HealthStream Common Stock issued in the Merger.
5.14.4. HealthStream has no plan or intention to liquidate Merger
Sub; to merge Merger Sub with and into another corporation; to sell or
otherwise dispose of the stock of Merger Sub; or to cause Merger Sub to
sell or otherwise dispose of any of the assets of the M3 acquired in
the transaction, except for dispositions made in the ordinary course of
business or transfers described in Section 368(a)(2)(C) of the Code.
5.14.5. Following the Merger, Merger Sub will continue the
historic business of M3 or use a significant portion of the M3 business
assets in a business.
5.14.6. HealthStream and Merger Sub will pay their respective
expenses, if any, incurred in connection with the Merger.
5.14.7. HealthStream and Merger Sub are not investment companies
as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
5.14.8. No stock of Merger Sub will be issued in the Merger.
5.14.9. HealthStream has a valid business purpose for entering
into the Merger.
5.14.10. Any compensation paid or to be paid to any M3 Stockholder
who will be an employee of, or perform advisory services for,
HealthStream or any affiliate thereof after the Merger and such
compensation will be commensurate with amounts paid to third parties
bargaining at arm's length for similar services and consideration to be
paid for M3 shares outstanding. None of the shares of HealthStream
Common Stock received by any M3 Stockholder is or will be separate
consideration for, or allocable to, any employment, consulting or other
arrangement which may be entered into between HealthStream or any
affiliate thereof and such shareholder for services rendered or to be
rendered by any shareholder.
5.14.11. No indebtedness between HealthStream or any of its
subsidiaries, on the one hand, and M3 or any of its subsidiaries, on
the other hand, exists or will exist prior to the Merger that (a) was
issued or acquired at a discount, or (b) will be settled, as a result
of the Merger, at a discount. No "installment obligation" (as the
quoted term is defined for purposes of Section 453B of the Code)
between HealthStream or any of its subsidiaries, on the one hand, and
M3 or any of its subsidiaries, on the other hand, exists or will exist
prior to the Merger that will be extinguished as a result of the
Merger.
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ARTICLE 6.
COVENANTS
6.1. Covenants of HealthStream and M3. During the period from the date
hereof and continuing until the Effective Time (except as expressly contemplated
or permitted hereby, or to the extent that the other parties shall otherwise
specifically consent in writing) each of HealthStream and M3 covenants with the
other that, insofar as the obligations relate to it:
6.1.1. Each of HealthStream and M3 shall carry on their respective
businesses in the usual, regular, and ordinary course in substantially
the same manner as heretofore conducted and shall use all reasonable
efforts to preserve intact their present business organizations,
maintain their rights and franchises, and preserve their relationships
with customers, suppliers, and others having business dealings with
them to the end that their goodwill and ongoing businesses shall not be
impaired in any material respect.
6.1.2. Each of HealthStream and M3 shall allow all designated
officers, attorneys, accountants, and other representatives of the
other access at all reasonable times during regular business hours to
the records and files, correspondence, audits, and properties, as well
as to all information relating to commitments, contracts, titles, and
financial position, or otherwise pertaining to the business and
affairs, of HealthStream and M3.
6.1.3. Each of HealthStream and M3 will promptly file or submit
and diligently prosecute any and all applications or notices with
public authorities, federal, state, or local, domestic or foreign, and
all other requests for approvals of any private persons, the filing or
granting of which is necessary or appropriate, or is deemed necessary
or appropriate by any party hereto, for the consummation of the
transactions contemplated hereby.
6.1.4. Except as and to the extent required by law, each of
HealthStream and M3 hereby agrees not to disclose or use, and each
shall cause its representatives not to disclose or use, any
confidential information with respect to any other party hereto
furnished, or to be furnished, by such other party or its
representatives in connection herewith at any time or in any manner
other than in connection with their respective evaluations of the
Merger.
6.2. Covenants of M3 and the Principal Stockholders. M3 and the
Principal Stockholders covenant and agree as follows:
6.2.1. (i) they shall, and shall direct and use their Best Efforts
to cause M3's directors, officers, employees, advisors, accountants,
and attorneys (the "Representatives"), not to, initiate, solicit, or
encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer with respect to a merger,
acquisition, consolidation, or similar transaction involving, or any
purchase of all or any significant portion of the assets or any equity
securities of M3 (any such proposal or offer being hereinafter referred
to as an "Acquisition Proposal") or engage in any negotiations
concerning, or provide any confidential information or data to, or have
any discussions with, any person relating to an Acquisition Proposal,
or otherwise facilitate any effort or attempt to make or implement an
Acquisition Proposal; provided, however, that the Board of Directors of
M3 may furnish such information or participate in such negotiations or
discussions if such Board of Directors, after having consulted with and
considered the advice of outside counsel, has determined that the
failure to do the same may cause the members of such Board of Directors
to breach their fiduciary duties under applicable law; (ii) they will
immediately cease and discontinue any existing activities, discussions,
or negotiations with any parties conducted heretofore with
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respect to any of the foregoing and will take the necessary steps to
inform the individuals or entities referred to above of the obligations
undertaken in this Section 6.2.1; and (iii) they will notify
HealthStream immediately if any such inquiries or proposals are
received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued
with, it.
6.2.2. M3 will make all normal and customary repairs,
replacements, and improvements to its facilities, properties, and
equipment and, without limiting the generality of the covenants set
forth in Section 6.1.1, will not:
(i) change its certificate of incorporation, bylaws, or
capitalization or merge or consolidate with or into or otherwise
acquire any interest in any entity except as provided herein;
(ii) declare, set aside, or pay any cash dividend or other
distribution on or in respect of shares of its capital stock, or
any redemption, retirement, or purchase with respect to its
capital stock or issue any additional shares or rights or options
or agreements to acquire shares of its capital stock, or reprice
any outstanding stock options;
(iii) discharge or satisfy any lien, charge, encumbrance,
or indebtedness outside the ordinary course of business, except
those required to be discharged or satisfied;
(iv) authorize, guarantee, or incur any indebtedness;
(v) make any capital expenditures or capital additions or
betterments, or commitments therefor, aggregating in excess of ten
thousand dollars (US$10,000);
(vi) loan funds to any person;
(vii) institute, settle, or agree to settle any
litigation, action, or proceeding before any court or governmental
body in an amount in excess of $10,000 in the aggregate;
(viii) sell, lease, mortgage, pledge, or subject to any
other encumbrance or otherwise dispose of any of its property or
assets, tangible or intangible, other than in the ordinary course
of business;
(ix) except in the ordinary course of business consistent
with past practice, authorize any compensation increases of any
kind whatsoever for any employee (provided M3 shall pay owing or
accrued deferred compensation) or adopt or amend any existing
severance plan or other Plan;
(x) make any new elections with respect to Taxes, or any
changes in current elections with respect to Taxes; or
(xi) enter into any contract, agreement, commitment, or
arrangement to do any of the foregoing.
6.2.3. neither M3 nor the Principal Stockholders shall take any
action that would cause or tend to cause the conditions upon the
obligations of the parties hereto to effect the transactions
contemplated hereby not to be fulfilled including, without limitation,
taking, causing to be taken, or
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permitting or suffering to be taken or to exist any action, condition,
or thing that would cause the representations and warranties made by
them herein not to be true, correct, complete, and accurate as of the
Closing Date.
6.2.4. M3 shall not (i) knowingly take any action, or knowingly
fail to take any action, that would jeopardize qualification of the
Merger as a reorganization within the meaning of Section 368(a)(2)(D)
of the Code; or (ii) enter into any contract, agreement, commitment, or
arrangement with respect to either of the foregoing.
6.2.5. M3 shall cooperate with HealthStream's audit firm for any
purpose that HealthStream deems reasonably necessary to effectuate the
terms of this Agreement, including, but not limited to providing
assistance with generating work papers and executing necessary
representation letters.
6.2.6. M3 shall comply with all reasonable requests of
HealthStream's audit firm and provide all the information required to
complete an audit for the year ending December 31, 1999 as soon as
possible.
6.3. Covenants of HealthStream. HealthStream covenants and agrees that:
6.3.1. HealthStream shall not (i) knowingly take any action, or
knowingly fail to take any action, that would jeopardize qualification
of the Merger as a reorganization within the meaning of Section
368(a)(2)(D) of the Code, or (ii) enter into any contract, agreement,
commitment, or arrangement with respect to either of the foregoing.
6.3.2. HealthStream shall not take any action that would cause or
tend to cause the conditions upon the obligations of the parties hereto
to effect the transactions contemplated hereby not to be fulfilled
including, without limitation, taking, causing to be taken, or
permitting or suffering to be taken or to exist any action, condition,
or thing that would cause the representations and warranties made by
them herein not to be true, correct, complete, and accurate as of the
Closing Date.
6.3.3. It is the intention of HealthStream that within a
reasonable period of time following the Effective Time (a) it will
provide former full time employees of M3 who remain employed by Merger
Sub following the Effective Time with employee benefit plans
substantially similar in the aggregate to those provided to similarly
situated employees of HealthStream (b) any such employees will receive
credit for years of service with M3 prior to the Effective Time for the
purpose of eligibility to the extent applicable (but not for the
purpose of accrual of benefits or allocation of employer contributions)
and (c) HealthStream shall cause any and all pre-existing condition
limitations and eligibility waiting periods under group health plans to
be waived with respect to participants and their eligible dependents
who have been continuously insured (either through M3 or a prior
employer) for twelve (12) months prior to the Closing Date.
6.3.4. Subject to the advice of underwriters, counsel and
accountants as well as then existing market conditions and alternative
means of raising capital that may better suit its needs, HealthStream
shall use all commercially reasonable efforts to cause its common stock
to be registered under the Securities Laws as promptly as possible and
to have such common stock to be approved for listing on the NASDAQ
Stock Market (or such other national securities exchange or stock
market on which such securities shall then be traded).
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6.3.5. HealthStream shall grant employees of M3 an option to
purchase the number of shares of HealthStream Common Stock designated
on Exhibit K attached hereto and an additional number of shares to make
the total grant to each such employee commensurate with similarly
situated current HealthStream employees.
6.3.6. HealthStream agrees to permit M3 to obtain a director's
and officer's liability policy and extended reporting period (otherwise
known as "tail coverage"); provided, however, that the premium expense
for such coverages shall not exceed $15,000.
ARTICLE 7.
CONDITIONS
7.1. Conditions to Each Party's Obligations to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions:
7.1.1. No action or proceeding shall have been instituted before a
court or other governmental body by any governmental agency or public
authority to restrain or prohibit the transactions contemplated by this
Agreement or to obtain an amount of damages or other material relief in
connection with the execution of the Agreement or the related
agreements or the consummation of the Merger; and no governmental
agency shall have given notice to any party hereto to the effect that
consummation of the transactions contemplated by this Agreement would
constitute a violation of any law or that it intends to commence
proceedings to restrain consummation of the Merger.
7.1.2. All consents, authorizations, orders, and approvals of (or
filings or registrations with) any governmental commission, board, or
other regulatory body required in connection with the execution,
delivery, and performance of this Agreement shall have been obtained or
made, except for filings in connection with the Merger and any other
documents required to be filed after the Effective Time, and except
where the failure to have obtained or made any such consent,
authorization, order, approval, filing, or registration would not have
a Material Adverse Effect on the business of HealthStream or M3
following the Effective Time.
7.1.3. HealthStream shall have received from M3 copies of all
resolutions adopted by the Board of Directors and stockholders of M3 in
connection with this Agreement and the transactions contemplated
hereby. M3 shall have received from HealthStream and Merger Sub copies
of all resolutions adopted by the Board of Directors and stockholders
of each respective company in connection with this Agreement and the
transactions contemplated hereby.
7.1.4. Each M3 Stockholder shall have signed a form of consent
which (a) consents to the terms of the Merger and to the taking of
stockholder action to approve the Merger without a meeting, (b)
acknowledges that he or she is aware of his or her rights to dissent to
the Merger and demand payment for his or her shares of M3 Common Stock
in accordance with the Texas Act, and (c) waives such rights to dissent
and demand payment.
7.2. Conditions to Obligations of M3 and the Principal Stockholders to
Effect the Merger. The obligations of M3 and the Principal Stockholders to
effect the Merger shall be subject to the fulfillment at or prior to the Closing
Date of the following conditions:
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7.2.1. HealthStream shall have performed its agreements contained
in this Agreement required to be performed on or prior to the Closing
Date and the representations and warranties of HealthStream and Merger
Sub contained in this Agreement and in any document delivered in
connection herewith shall be true and correct as of the Closing Date,
and M3 shall have received a certificate of the President or the Chief
Financial Officer of HealthStream, dated the Closing Date, certifying
to such effect.
7.2.2. From the date of this Agreement through the Effective Time,
there shall not have occurred any change in the financial condition,
business, or operations of HealthStream, that would have or would be
reasonably likely to have a HealthStream Material Adverse Effect.
7.2.3. M3 and the Principal Stockholders shall have received a
written opinion, dated as of the Closing Date, from counsel for
HealthStream substantially in the form of Exhibit C attached hereto.
7.2.4. HealthStream shall have executed Employment Agreements with
Xxxxxx Xxxxx and Xxxxxxx Xxxxx, substantially in the form of Exhibit E
attached hereto.
7.2.5. M3 shall have received an opinion of counsel satisfactory
to it that the Merger will qualify as a reorganization under Section
368(a) of the Code.
7.2.6. HealthStream shall have executed Stock Vesting Agreements
with Xxxxxx Xxxxx and Xxxxxxx Xxxxx, substantially in the form of
Exhibit I attached hereto.
7.2.7. HealthStream shall have granted either Xxxxxx Xxxxx or
Xxxxxxx Xxxxx visitation rights to its Board of Directors and shall
have executed the Visitation Rights Letter substantially in the form of
Exhibit J attached hereto.
7.3. Conditions to Obligations of HealthStream and Merger Sub to Effect
the Merger. The obligations of HealthStream and Merger Sub to effect the Merger
shall be subject to the fulfillment at or prior to the Closing Date of the
following conditions:
7.3.1. M3 and the Principal Stockholders shall have performed
their respective agreements contained in this Agreement required to be
performed on or prior to the Closing Date and the representations and
warranties of M3 and the Principal Stockholders contained in this
Agreement and in any document delivered in connection herewith shall be
true and correct as of the Closing Date to the same extent as if made
on the Closing Date, and HealthStream shall have received a certificate
of the Chief Executive Officer of M3 and each of the Principal
Stockholders dated the Closing Date, certifying to such effect.
7.3.2. From the date of this Agreement through the Effective Time,
there shall not have occurred any change in the financial condition,
business, operations, or prospects of M3, that would have or would be
reasonably likely to have a M3 Material Adverse Effect.
7.3.3 HealthStream shall have received a written opinion, dated as
of the Closing Date, from counsel for M3, substantially in the form of
Exhibit D attached hereto.
7.3.4. Xxxxxx Xxxxx and Xxxxxxx Xxxxx shall have executed
Employment Agreements, substantially in the form of Exhibit E attached
hereto.
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7.3.5. M3 Stockholders shall have executed a Shareholders'
Agreement, substantially in the form of Exhibit F attached hereto.
7.3.6. M3 Stockholders shall have executed a Co-Sale Agreement,
substantially in the form of Exhibit G attached hereto.
7.3.7. M3 Stockholders shall have executed a Voting Agreement,
substantially in the form of Exhibit H attached hereto.
7.3.8. Xxxxxx Xxxxx and Xxxxxxx Xxxxx shall have executed Stock
Vesting Agreements, substantially in the form of Exhibit I attached
hereto.
7.3.9. M3 shall not have more than one million two hundred
thousand dollars (US$1,200,000) in total debt excluding accounts
payable and other short term indebtedness incurred in the ordinary
course of business.
7.3.10. M3 Stockholders shall have approved the execution of this
Agreement.
7.4. Failure to Fulfill Conditions. In the event that either of the
parties hereto determines that a condition to its respective obligations to
consummate the transactions contemplated may not be fulfilled on or prior to the
termination of this Agreement, it will promptly notify the other party. Each
party will promptly inform the other party of any facts applicable to it that
would be likely to prevent or materially delay approval of the Merger or any of
the other transactions contemplated hereby by any Governmental Entity or third
party or which would otherwise prevent or materially delay consummation of such
transactions. Each party will promptly give notice to the other party of the
occurrence of any event or the failure of any event to occur that results in a
breach of any representation or warranty by that party contained herein or a
failure by that party to comply with any covenant, condition or agreement
contained herein.
ARTICLE 8.
TERMINATION
8.1. Termination by Mutual Consent. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time, by the
mutual written consent of HealthStream and M3.
8.2. Termination by Either HealthStream or M3. This Agreement may be
terminated and the Merger may be abandoned by action of the Board of Directors
of either HealthStream or M3 if (a) the Merger shall not have been consummated
by January 31, 2000 or (b) a United States federal or state court of competent
jurisdiction or United States federal or state governmental, regulatory, or
administrative agency or commission shall have issued an order, decree, or
ruling or taken any other action permanently restraining, enjoining, or
otherwise prohibiting the transactions contemplated by this Agreement and such
order, decree, ruling, or other action shall have become final and
non-appealable; provided, that the party seeking to terminate this Agreement
pursuant to this clause (b) shall have used all reasonable efforts to remove
such injunction, order, or decree.
8.3. Termination by M3. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time by action of the Board
of Directors of M3, if (a) there has been a breach by HealthStream or Merger Sub
of any representation or warranty contained in this Agreement which would have
or would be reasonably likely to have an HealthStream Material Adverse Effect,
or (b) there has
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been a material breach of any of the covenants or agreements set forth in this
Agreement on the part of HealthStream, which breach is not curable or, if
curable, is not cured within thirty (30) days after written notice of such
breach is given by M3 to HealthStream.
8.4. Termination by HealthStream. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, by action
of the Board of Directors of HealthStream, if (a) there has been a breach by M3
or the Principal Stockholders of any representation or warranty contained in
this Agreement which would have or would be reasonably likely to have a M3
Material Adverse Effect, or (b) there has been a material breach of any of the
covenants or agreements set forth in this Agreement on the part of M3 or the
Principal Stockholders, which breach is not curable or, if curable, is not cured
within thirty (30) days after written notice of such breach is given by
HealthStream to M3.
8.5. Effect of Termination and Abandonment. Upon termination of this
Agreement pursuant to this Article 8, other than the provisions of Sections
10.10 and 10.12, this Agreement shall be void and of no other effect, and there
shall be no liability by reason of this Agreement or the termination thereof on
the part of any party hereto (other than for breach of a covenant contained
herein), or on the part of the respective directors, officers, employees,
agents, or stockholders of any of them.
8.6. Extension; Waiver. At any time prior to the Effective Time, any
party hereto, by action taken by its Board of Directors, may, to the extent
legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto, and (c) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE 9.
SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; INDEMNIFICATION
9.1. Survival of Representations and Warranties. The representatives
and warranties of the parties contained in Articles 4 and 5 of this Agreement
shall survive the Merger for a period expiring on the first anniversary of the
Closing Date. Except as and to the extent set forth in Article 4 hereof, neither
M3 nor the Principal Stockholders makes any representations or warranties
whatsoever and disclaims all liability and responsibility for any other
representation, warranty, statement or information made or communicated (orally
or in writing) to HealthStream and Merger Sub (including, but not limited to,
any opinion, information or advice which may have been provided to HealthStream
or Merger Sub by any officer, stockholder, director, employee, agent,
consultant, attorney or representative of M3, its Principal Stockholders or any
of their affiliates). HealthStream and Merger Sub acknowledge and affirm that
they have had full access to the audited financial statements and other
information regarding M3 and that HealthStream and Merger Sub have made their
own independent investigation, analysis, evaluation and verification of M3, its
business, assets, properties, operations and its financial condition.
9.2. Indemnity Obligations of the Principal Stockholders. Subject to
the provisions of this Article 9 and the Escrow Agreement, the Principal
Stockholders, severally and not jointly, in accordance with the Escrow
Agreement, agree to indemnify and hold HealthStream and Merger Sub harmless
from, and to reimburse HealthStream and Merger Sub for, any losses, costs,
expenses, obligations, liabilities, damages, remedies and penalties, including
interest, and reasonable attorneys' fees and expenses actually incurred
(collectively "Losses") arising in connection with or attributable to the
inaccuracy or breach of any
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representation, warranty, or covenant made by M3 or the Principal Stockholders
in this Agreement as of the date of this Agreement and as of the Closing Date.
With regard to the representation and warranty regarding Accounts Receivable in
Section 4.12 herein, any Accounts Receivable that exists as of the Closing Date
that has not been collected in full, without any set-off, at the end of the
Escrow Period shall be included in the Retained Portion under the Escrow
Agreement and such accounts receivable shall be assigned to the Principal
Stockholders.
9.3. Indemnification by HealthStream. Subject to the provisions of this
Article 9, HealthStream and Merger Sub, jointly and severally, will indemnify,
defend, and hold harmless the Principal Stockholders and the other M3
Stockholders from, and reimburse the Principal Stockholders and the other M3
Stockholders for, any Losses arising in connection with or attributable to the
inaccuracy or breach of any representation, warranty, or covenant made by
HealthStream or Merger Sub in this Agreement as of the date of this Agreement
and as of the Closing Date.
9.4 Limitation on Liability. Notwithstanding the provisions of this
Agreement, neither M3, the Principal Stockholders nor any M3 Stockholder shall
be liable to HealthStream or any person under this Agreement or otherwise for
any Losses which are less than $10,000 in the aggregate. The maximum liability
of M3 for any Losses under this Agreement or any related document or instrument
shall not exceed $250,000. The maximum liability of each of the Principal
Stockholders for any Losses under this Agreement or any related document or
instrument shall not exceed $1,250,000. The parties agree that the sole source
for payment of the indemnity obligations of the Principal Stockholders under
this Agreement or otherwise will be the Merger Consideration paid to the
Principal Stockholders under this Agreement. For the purposes of this Article 9,
the Consideration Shares will be valued at $16.00 per share.
9.5 Notice; Procedure. If a claim in respect to this Article 9 is to be
made against an indemnifying party under this Section, the party to be
indemnified shall promptly notify the indemnifying party in writing of such
claim on or before the first anniversary of the Closing Date. In no case shall
an indemnifying party be liable under this Agreement with respect to any Loss or
settlement unless the indemnifying party shall have been notified in writing by
the indemnified party seeking indemnification, of the assertion or filing of the
claim or action giving rise to such Loss or settlement promptly after such
indemnified party shall have been advised of, or otherwise shall have received
information as to, the assertion or filing of such claim or action. In case any
action is brought against any indemnified party, and such indemnified party
notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it or he may
wish, jointly with all other indemnifying parties, similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party; provided, however, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded, based upon advice of its counsel, that there may be
legal defenses available to it or he and/or any other indemnified party which
are different from or additional to those available to the indemnifying party,
the indemnified party shall have the right to select separate counsel to assume
such legal defenses and to otherwise participate in the defense of such action
on behalf of such indemnified party. Upon receipt of notice from the
indemnifying party to such Indemnified Party of its election to assume the
defense of such action and approval by the Indemnified Party of counsel, the
indemnifying party will not be liable to such Indemnified Party under this
Section for any legal or other expenses subsequently incurred by such
Indemnified Party in connection with defense thereof unless:
(i) the Indemnified Party shall have employed such counsel in
connection with the assumption of legal defenses in accordance with the
proviso to the next preceding sentence (it being understood, however,
that the indemnifying party shall not be liable for the expenses of
more than one separate counsel);
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(ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the Indemnified Party to represent the
Indemnified Party within a reasonable time after notice or commencement
of the action; or
(iii) the indemnifying party has authorized the employment of
counsel at the expense of the indemnifying party.
ARTICLE 10.
GENERAL PROVISIONS
10.1. Notices. Any notice required to be given hereunder shall be
sufficient if in writing, by courier service (with proof of service), hand
delivery or certified or registered mail (return receipt requested and
first-class postage prepaid), addressed as follows:
If to HealthStream or Merger Sub:
Xxxxxx X. Xxxxx, Xx.
Vice President and General Counsel
000 00xx Xxx. Xxxxx
Xxxxx 000
Xxxxxxxxx, XX 00000
If to M3 or Principal Stockholders:
Xxxxxx Xxxxx
Chief Executive Officer
Multimedia Marketing, Inc.
0000 Xxxxxxxxx, Xxxxx 000
Xxxxxx, XX 00000
and
Xxxxxxx Xxxxx
000 Xxxxx Xxxx 0000
Xxxxx 000X
Xxxxxx, XX 00000
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
personally delivered or mailed.
10.2. Assignment; Binding Effect; Benefit. Neither this Agreement nor
any of the rights, interests, or obligations hereunder shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns.
10.3. Entire Agreement. This Agreement, the Exhibits, the M3 Disclosure
Letter, the HealthStream Disclosure Letter, and any documents delivered by the
parties in connection herewith
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constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior and contemporaneous term sheets,
agreements and understandings among the parties with respect thereto. No
addition to or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
10.4. Amendment. This Agreement may be amended by the parties hereto by
action taken by their respective Boards of Directors, if applicable. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
10.5. Governing Law. THE VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION
OF ITS TERMS AND THE DETERMINATION OF THE RIGHTS AND DUTIES OF THE PARTIES
HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TENNESSEE APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY
WITHIN SUCH STATE.
10.6. Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.
10.7. Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties,
covenants, or agreements contained in this Agreement. The waiver by any party
hereto of a breach of any provision hereunder shall not operate or be construed
as a waiver of any prior or subsequent breach of the same or any other provision
hereunder.
10.8. Incorporation of Exhibits. The M3 Disclosure Letter, the
HealthStream Disclosure Letter, and the Exhibits attached hereto and referred to
herein are hereby incorporated herein and made a part hereof for all purposes as
if fully set forth herein.
10.9. Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
10.10. Expenses. Each party to this Agreement shall bear its own
expenses in connection with the Merger and the transactions contemplated hereby.
10.11. Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of competent
jurisdiction, this being in addition to any other remedy to which they are
entitled by contract, at law, or in equity.
10.12 Arbitration. Any controversy or claim arising out of this
Agreement, or the breach thereof, shall be settled by arbitration in accordance
with the rules of the American Arbitration Association, and
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judgment upon the award rendered by the arbitration may be entered in any court
having jurisdiction thereof. The arbitration agreement set forth herein shall
not limit a court from granting a temporary restraining order or preliminary
injunction in order to preserve the status quo of the parties pending
arbitration. Further, the arbitrator(s) shall have power to enter such orders by
way of interim award, and they shall be enforceable in court. The place of such
arbitration shall be in Davidson County, Tennessee.
10.13 Delivery by Facsimile. This Agreement shall become effective upon
execution and delivery hereof by all the parties hereto; delivery of this
Agreement may be made by facsimile to the parties with original copies promptly
to follow by overnight courier.
10.14 Guarantee. HealthStream guarantees all of the obligations of
Merger Sub under this Agreement.
10.15 Certain Definitions. The following terms shall have the meanings
ascribed to them for all purposes of this Agreement:
10.15.1. "Best Efforts" shall mean the taking of all reasonable
steps to cause or prevent any event or condition which would have been
taken in similar circumstances by a reasonably prudent business person
engaged in a similar business for the advancement or protection of his
own economic interest in light of the consequences of failure to cause
or prevent the occurrence of such event or condition.
10.15.2. "Knowledge" or "known" shall mean that an individual
shall be deemed to have "knowledge" of or to have "known" a particular
fact or other matter if (i) such individual is actually aware of such
fact or other matter or (ii) a prudent individual possessing the
requisite knowledge and experience could be expected to discover or
otherwise become aware of such fact or other matter in the course of
conducting a reasonably comprehensive investigation concerning the
truth or existence of such fact or other matter. A corporation shall be
deemed to have "knowledge" of or to have "known" a particular fact or
other matter if any individual who is serving, or who has at any time
served, as a director or officer (or in any similar capacity) of the
corporation, has, or at any time had, knowledge of such fact or other
matter. Neither party is understood to have undertaken a separate
investigation in connection with the transactions contemplated hereby
to determine the existence or absence of facts or other matters in the
statement qualified as "known" by, or the "knowledge" of such party.
10.15.3. "Material Adverse Effect" shall mean, with respect to any
party, any effect that is material and adverse to the financial
condition, results of operations or business of that party and its
subsidiaries taken as whole, or that materially impairs the ability of
any party to consummate the Merger, or any of the other transactions
contemplated by this Agreement. Material Adverse Effect shall not,
however, be deemed to include the impact of (a) changes in laws and
regulations or interpretations thereof that are generally applicable to
the healthcare industry, (b) changes in GAAP that are generally
applicable to the healthcare industry, (c) expenses incurred in
connection with the transactions contemplated hereby, (d) actions or
omissions of a party (or any of its subsidiaries) taken with the prior
informed written consent of the other party or parties in contemplation
of the transactions contemplated hereby, or (e) changes attributable to
or resulting from changes in general economic conditions.
10.15.4. "Securities Documents" shall mean all reports, offering
circulars, proxy statements, registration statements and all similar
documents filed, or required to be filed, pursuant to the Securities
Laws.
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29
10.15.5. "Securities Laws" shall mean the Securities Act; the
Exchange Act; the Investment Company Act of 1940, as amended; the
Investment Advisers Act of 1940, as amended; the Trust Indenture Act of
1939, as amended, and the rules and regulations of the SEC promulgated
thereunder.
THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.
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IN WITNESS WHEREOF, the parties have executed this Agreement and caused the same
to be duly delivered on their behalf to be effective as of the day and year
first written above.
HEALTHSTREAM, INC.
By:
-------------------------------
Title:
-----------------------------
HEALTHSTREAM ACQUISITION II, INC.
By:
-------------------------------
Title:
-----------------------------
MULTIMEDIA MARKETING, INC.
By:
-------------------------------
Title:
-----------------------------
THE PRINCIPAL STOCKHOLDERS:
-----------------------------------
Xxxxxx Xxxxx
-----------------------------------
Xxxxxxx Xxxxx
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31
ATTACHMENTS AND EXHIBITS
M3 Disclosure Letter
HealthStream Disclosure Letter
Exhibit A - Articles of Merger
Exhibit B - Form of Escrow Agreement
Exhibit C - Form of HealthStream Counsel Legal Opinion
Exhibit D - Form of M3 Counsel Legal Opinion
Exhibit E - Form of Employment Agreement
Exhibit F - HealthStream Shareholders' Agreement
Exhibit G - HealthStream Co-Sale Agreement
Exhibit H - HealthStream Voting Agreement
Exhibit I - Stock Vesting Agreement
Exhibit J - Visitation Rights Letter
Exhibit K - M3 Employee Stock Options
Exhibit L - Merger Consideration Allocation
32
M3 OFFICER CERTIFICATE
The undersigned hereby certifies that Multimedia Marketing, Inc. ("M3")
and its Principal Stockholders have performed their respective agreements
contained in the Merger Agreement and the representations and warranties of M3
and the Principal Stockholders contained in the Merger Agreement and in any
document delivered in connection therewith are true and correct to the same
extent as if made on this date.
IN WITNESS WHEREOF, the undersigned has set his hand this the ___ day
of January 2000.
MULTIMEDIA MARKETING, INC.
By:
-----------------------------------
Title:
--------------------------------
33
HEALTHSTREAM DISCLOSURE LETTER
5.4 HEALTHSTREAM SUBSIDIARIES.
1. Merger Sub. The outstanding capital stock of Merger Sub is
1,000 shares, all of which are owned by HealthStream.
2. HealthStream Acquisition I, Inc. d/b/a Quick Study, Inc. The
outstanding capital stock of Quick Study is 1,000 shares, all
of which are owned by HealthStream.
34
EXHIBIT A
ARTICLES OF MERGER
In accordance with the provisions of Sections 00-00-000 and 00-00-000
of the Tennessee Business Corporation Act ("TBCA") and Section 5.04 of the Texas
Business Corporation Act ("Texas Act"), Multimedia Marketing, Inc., a Texas
corporation d/b/a m3 The Healthcare Learning Company ("M3"), and HealthStream
Acquisition II, Inc., a Tennessee corporation ("Merger Sub"), collectively
referred to as the "Merging Corporations," adopt the following Articles of
Merger for the purpose of merging M3 with and into Merger Sub.
1. The Plan of Merger that has been approved by each of the Merging
Corporations in the manner prescribed by TBCA and the Texas Act is set forth in
Appendix A attached hereto and is incorporated for all purposes into these
Articles of Merger.
2. Approval of the Plan of Merger by the shareholders of M3 and Merger
Sub is required by TBCA and the Texas Act.
3. The Plan of Merger was approved upon action by written consent of
the shareholders of M3 on January __, 2000 and upon action by written consent of
the shareholders of Merger Sub on January __, 2000.
4. The Plan of Merger was approved upon action by written consent of
the Board of Directors of M3 on January __, 2000, and by all action required by
the Board of Directors of Merger Sub on January __, 2000.
5. The effective time of the Merger shall be 12:00 a.m. Central
Standard Time on January __, 2000.
Dated as of January __, 2000.
HEALTHSTREAM ACQUISITION II, INC.
a Tennessee corporation
By:
-----------------------------------
Title:
--------------------------------
MULTIMEDIA MARKETING, INC.
a Texas corporation
By:
-----------------------------------
Title:
--------------------------------
35
EXHIBIT B
FORM OF ESCROW AGREEMENT
36
EXHIBIT C
FORM OF HEALTHSTREAM COUNSEL LEGAL OPINION
37
EXHIBIT D
FORM OF M3 COUNSEL LEGAL OPINION
38
EXHIBIT E
FORM OF EMPLOYMENT AGREEMENT
39
EXHIBIT F
HEALTHSTREAM SHAREHOLDERS' AGREEMENT
40
EXHIBIT G
HEALTHSTREAM CO-SALE AGREEMENT
41
EXHIBIT H
HEALTHSTREAM VOTING AGREEMENT
42
EXHIBIT I
STOCK VESTING AGREEMENT
43
EXHIBIT J
VISITATION RIGHTS LETTER
44
EXHIBIT K
M3 EMPLOYEE STOCK OPTIONS
HEALTHSTREAM
EMPLOYEE OPTION SHARES
Xxxxx Xxxxxxxxx 4,143
Xxxx Xxxxx 12,643
Xxxx Xxxxx 12,643
Xxxxx Xxxxx 2,071
Xxxx Xxxxxx 829
Xxxxxx Xxxxxx 829
Xxxxx Xxxxx 414
Xxxxxxx Xxxxxx 414
Xxxxxx Xxxxxxx 166
Xxxxx Xxxxxx 166
Xxxx Xxxxxxx 166
Xxxxxx Xxxxx 166
Xxxxx Xxxxxxx 166
Xxxx Xxxxxx 166
Xxxx Xxxx 166
Xxxxx Xxx 166
Xxxx Xxxxxx 166
Xxxxx Xxxxxxxx 166
------------------------------------------------
TOTAL 18,643
The shares under the above options shall have a strike price of $16.00 per share
and shall vest and become exercisable on the first anniversary of the Closing
Date except that 8,500 of the shares issued to each of Xxxx Xxxxx and Xxxx Xxxxx
under the above options shall vest and become exercisable upon the Closing. In
the event any of the above employees are terminated without cause during the
twelve (12) month period following the Closing Date, any portion of the
terminated employee's option granted under this Exhibit K not previously
exercisable and vested shall become fully exercisable and vested.
45
EXHIBIT L
MERGER CONSIDERATION ALLOCATION
TRANSACTION CONSIDERATION
M3 SHARES CASH HS SHARES
M3 STOCKHOLDERS
Xxxx Xxxxxxx 702,034 77,093 56,833
Xxxxxx Partnership 647,737 22,171 55,497
VHA 400,000 43,926 32,382
Xxxx Xxxxxx 201,231 22,098 16,291
Xxx Xxxxxx 187,500 20,590 15,179
JKTS Corp. 184,500 63,461 12,236
Xxxxx Xxxxx 150,000 16,472 12,143
Commerce Capital 148,373 16,293 12,011
Xxxxxx X. Xxxxxx 102,500 3,576 8,778
Xxxxxx X. Xxxxxx Trust 102,500 3,576 8,778
Xxxxx X. Xxxxxx Trust 102,500 3,576 8,778
Xxxxxxx Xxxx 62,500 6,863 5,060
Xxxxxx X. Xxxxxx 56,136 6,165 4,544
Xxxx X. Xxxxxx 56,136 6,165 4,544
W. Xxxxxxx Xxxxxx 41,000 14,102 2,719
Xxxxx X. Xxxxxx 41,000 14,102 2,719
C. Xxxx Xxxxxx 41,000 14,102 2,719
Xxxxxx Xxxxx Xxxxxxxx 15,625 1,716 1,265
Xxxxx Xxxxx Xxxxx 15,625 1,716 1,265
Xxxxx X. Xxxxx, Xx 15,625 1,716 1,265
Jordan Xxxx Xxxxx Trust 7,813 858 000
Xxxxxxxxxx Xxxxx Trust 7,812 858 632
This table does not reflect the HealthStream Common Stock issued to the
Principal Stockholders nor the $238,805 in cash paid to the Principal
Stockholders.
