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EXHIBIT 2.2
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), is executed as
of the 5th day of January, 2000, by and among HealthStream, Inc., a Tennessee
corporation ("HealthStream"), HealthStream Acquisition I, Inc., a newly formed
Tennessee corporation and wholly owned subsidiary of HealthStream ("Merger
Sub"), Quick Study, Inc., a California corporation ("QS"), and each shareholder
of QS (individually, a "QS Shareholder," and, collectively, the "QS
Shareholders").
RECITALS
WHEREAS, the Boards of Directors of HealthStream, Merger Sub, and QS
each have determined that a business combination between HealthStream, Merger
Sub, and QS is in the best interests of their respective companies and
shareholders 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 Section 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, the
parties hereto 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), QS shall be
merged with and into Merger Sub in accordance with this Agreement and the
separate corporate existence of QS 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").
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 QS may agree. 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 provided in Article 8
herein, the parties hereto shall cause Articles of Merger, substantially in the
form attached hereto as Exhibit A, to be properly executed and filed in
accordance with the applicable provisions of the TBCA and the California
General Corporation Law on the Closing Date. The Merger shall become effective
at the time of filing of the Articles of Merger with the Tennessee Secretary of
State and the California Secretary of State or at such later time that the
parties hereto shall have agreed upon and designated in such filing as the
effective time of the Merger (the "Effective Time").
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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 QS Shares in the Merger. At the Effective Time,
by virtue of the Merger and without any action on the part of the QS
Shareholders, the outstanding shares of common stock, no par value, of QS
outstanding immediately prior to the Effective Time (the "QS Common Stock")
shall be converted into, and become exchangeable for, the right to receive
33,188 shares of validly issued, fully paid, and nonassessable common stock, no
par value, of HealthStream (the "HealthStream Common Stock"). The 33,188 shares
of HealthStream Common Stock issuable in connection with the Merger are
sometimes referred to herein as the "Consideration Shares." The Consideration
Shares, the Earn Out Shares defined in Section 3.2 and the Cash Consideration
defined in Section 3.6 herein shall be collectively referred to as the "Merger
Consideration."
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3.2. Earn Out Shares. The QS Shareholders shall also be eligible
to receive (up to an aggregate of 18,750 shares of HealthStream Common Stock)
as additional consideration (i) one (1) share of HealthStream Common Stock for
each sixteen dollars (US$16.00) of gross revenue recognized from existing QS
customers within 180 days after the Closing Date; plus (ii) one (1) share of
HealthStream Common Stock for each sixteen dollars (US$16.00) of gross revenue
recognized by Merger Sub or HealthStream from QS branded products sold or
licensed to any customer other than the entities listed in Exhibit B attached
hereto within 180 days after the Closing Date; plus (iii) one (1) share of
HealthStream Common Stock for each thirty-two dollars (US$32.00) of gross
revenue recognized by Merger Sub or HealthStream from QS branded products sold
or licensed to any of the entities listed in Exhibit B attached hereto within
180 days after the Closing Date (collectively, the "Earn Out Shares"). The Earn
Out Shares shall constitute a portion of the Merger Consideration for all
purposes and have been calculated (along with the Consideration Shares and the
Cash Consideration) to provide the QS Shareholders with the agreed upon value
of the QS Common Stock. The Earn Out Shares shall be allocated among the QS
Shareholders in the same proportion as the Consideration Shares. On or before
the day that is 210 days after the Closing Date, HealthStream will prepare and
deliver to the QS Shareholders a statement of the revenue recognized by
HealthStream and Merger Sub according to (i) through (iii) above during the 180
day period following the Closing Date, prepared in accordance with generally
accepted accounting principles ("GAAP") consistently applied, provided that
gross revenue recognized from the licensing of QS branded CD-ROMs shall be
recognized upon receipt of a purchase order by Merger Sub or HealthStream from
a customer. The Earn Out Shares, if any, due based on such revenue in
accordance with this Section 3.2 shall be placed in the Escrow Fund as
described in Section 3.3 herein.
3.3. Escrow. At the Closing, pursuant to an Escrow Agreement,
substantially in the form attached hereto as Exhibit C (the "Escrow
Agreement"), the parties shall establish an escrow (the "Escrow Fund")
comprised of fifty percent (50%) of the Consideration Shares issued to the QS
Shareholders pursuant to Section 3.1 above and all of the Earn Out Shares, if
any, issuable to the QS Shareholders pursuant to Section 3.2 above
(collectively the "Escrow Shares"). The Escrow Shares will be maintained in
escrow for sole purpose of satisfying claims by HealthStream for
indemnification under Article 9 below.
3.4. Fractional Shares. In lieu of the issuance of fractional
shares of HealthStream Common Stock, each QS Shareholder, upon surrender of a
certificate which immediately prior to the Effective Time represented QS Common
Stock, shall be entitled to receive a cash payment (without interest) equal to
the value of any fraction of a share of HealthStream Common Stock (based on a
value of $16.00 per share) to which such holder would be entitled under
Sections 3.1 and 3.2 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,
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 and Earn Out Shares shall be proportionately adjusted.
3.6. Cash Consideration. For purposes of this Agreement, the "Cash
Consideration" shall be fifty nine thousand dollars (US$59,000), less any fees
of accountants and attorneys for QS, which will be payable at the Closing. The
Cash Consideration shall be paid to the QS Shareholders in proportion to their
ownership in cash at Closing in immediately available funds.
3.7. Consent to Merger; Waiver of Dissenters' Rights. By their
execution of this Agreement each QS Shareholder (a) consents to the terms of
the Merger and to the taking of shareholder action to approve the
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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
QS Common Stock in accordance with Section 1300 of the California Corporations
Code, and (c) waives such rights to dissent and demand payment.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF QS AND THE
PRINCIPAL SHAREHOLDERS
Except as set forth in the disclosure letter delivered prior to the
execution hereof to HealthStream (the "QS Disclosure Letter"), QS and the QS
Shareholders, jointly and severally, represent, warrant, and agree as follows:
4.1. Existence; Good Standing; Corporate Power and Authority. QS
is a corporation duly organized, validly existing, and in good standing under
the laws of the State of California. QS 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 on the business, results of operations, financial
condition or prospects of QS (a "QS Material Adverse Effect"). QS 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.
QS has provided to HealthStream 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. QS 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 QS and the QS Shareholders and
the consummation by QS 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
QS and the QS Shareholders, enforceable in accordance with their respective
terms.
4.3. Capitalization. The authorized capital stock of QS consists
of 750,000 shares of QS Common Stock, 677,340 shares of which are issued and
outstanding as of the date of this Agreement and owned beneficially and of
record by the QS Shareholders as set forth in the QS Disclosure Letter. QS 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 shareholders of
QS on any matter. All issued and outstanding shares of QS 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 QS to
issue, transfer, or sell any shares of its capital stock. None of the
outstanding shares of QS Common Stock are subject to any voting trust
agreement, lien, encumbrance, security interest, restriction, or claim.
4.4. Other Interests. QS 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. Neither the execution and delivery by QS and
the QS Shareholders of this Agreement nor the consummation by QS and the QS
Shareholders 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 articles of
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incorporation or bylaws of QS; (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 QS or any QS Shareholder pursuant to
any material commitment, lease, contract, or other material agreement or
instrument to which QS or any QS Shareholder is a party (including, without
limitation, "Material Contracts" as defined in Section 4.21 below); 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 QS or any QS
Shareholder.
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 QS or any QS Shareholder
in connection with the execution and delivery of this Agreement by QS or any QS
Shareholder, or the consummation by QS or any QS Shareholder of the
transactions contemplated hereby, which the failure to obtain would have a QS
Material Adverse Effect.
4.7. Financial Statements. Prior to the date hereof, QS has
delivered to HealthStream its audited financial statements for the nine months
ended September 30, 1999 and its audited financial statements for the years
ended December 31, 1997 and 1998. Each of the balance sheets provided to
HealthStream by QS (including the related notes and schedules) fairly presents
the financial position of QS as of their respective dates and each of the
statements of income, shareholders' equity, and cash flows provided to
HealthStream by QS (including any related notes and schedules) fairly presents
the results of operations, shareholders' equity, and cash flows of QS for the
periods set forth therein (subject, in the case of interim statements, to
normal year-end audit adjustments, none of which will be material in amount or
effect), in each case in accordance with GAAP consistently applied. Such
financial statements have been prepared from the books and records of QS which
accurately and fairly reflect the transactions and the acquisitions and
dispositions of the assets of QS. QS does not have any liabilities, contingent
or otherwise, whether due or to become due, known or unknown, other than as
reflected on the September 30, 1999 balance sheet or the QS Disclosure Letter.
4.8. No Material Adverse Changes. Since September 30, 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 QS; (ii) any
dividend declared or paid or distribution made on the capital stock of QS, or
any capital stock thereof redeemed or repurchased; (iii) any incurrence by QS
of long term debt; (iv) any salary, bonus, or compensation increases to any
officers, employees, or agents of QS; (v) any pending or threatened labor
disputes or other labor problems against or potentially affecting QS; or (vi)
any other transaction entered into by QS except in the ordinary course of
business and consistent with past practice.
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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.
4.9.2. QS has duly and timely filed all Tax Returns and has
duly and timely paid all material Taxes (whether or not shown on any
Tax Return) due to any federal, foreign, state, or local taxing
authorities prior to the Effective Time or has set up an adequate
reserve for all material Taxes payable. True and correct copies of all
Tax Returns relating to federal Taxes and state income and sales Taxes
for the period from organization through September 30, 1999 have been
heretofore delivered to HealthStream. The accruals and reserves for
Taxes contained in the financial statements and carried on the books
of QS (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 September 30, 1999, QS
has not incurred any material 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 QS
(whether real, personal, or mixed, tangible or intangible), and,
except as reflected in the financial statements, there are no pending
or, to QS's knowledge, threatened audits or examinations relating to,
or claims asserted for, Taxes or assessments against QS and QS is
aware of no basis for any such claims. QS 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. QS is not
a party to any Tax allocation or sharing agreement. QS 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). QS has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, or shareholder.
4.9.3. The QS Disclosure Letter lists each jurisdiction in
which QS files Tax Returns for each period or portion thereof ending
on or before the Closing Date. Except as set forth in the QS
Disclosure Letter, there is no claim outstanding against QS by any
taxing authority in a jurisdiction where QS 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
QS as of the date hereof are set forth in the QS Disclosure Letter.
4.9.5. All joint ventures, partnerships, or other
arrangements or contracts to which QS is a party and that could be
treated as a partnership for federal income tax purposes are set forth
in the QS Disclosure Letter.
4.9.6. QS 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 QS; (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
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affect the liability of QS for Taxes; (iii) made an election, or is
required to make an election, to treat any asset of QS 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 QS Shareholders shall, on behalf of QS, timely file all Tax
Returns for, and pay all Taxes due with respect to the period ending
December 31, 1999 as well as the short period beginning January 1,
2000 and ending on the Closing Date. The QS Shareholders shall close
QS's books on the Closing Date and shall report on QS's federal
corporate income Tax Return for the short period ending on the Closing
Date all items of income, loss, deduction, and credit arising during
the short period under QS's method of accounting.
4.10. Employees and Fringe Benefit Plans.
4.10.1. The QS Disclosure Letter sets forth the names, ages,
and titles of all members of the Board of Directors and officers of QS
and all employees of QS 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 QS 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 QS, whether legally binding or not, that affects one or
more of QS'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"). QS 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, QS 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. QS 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 QS 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. QS does not have any unfunded past service liability
in respect of any Plans; QS, 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
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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 QS
Material Adverse Effect, QS has complied in all respects with all
applicable federal, 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 QS 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 QS 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 QS nor any member in a "controlled group"
with QS (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 QS 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. QS owns the assets reflected in the September 30, 1999
balance sheet, including the leasehold estates, with good and marketable title,
free and clear of any and all claims, liens, mortgages, security interests, or
encumbrances whatsoever, and, to the best of QS's knowledge, 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 QS 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 QS reflected in the
September 30, 1999 balance sheet are sufficient for the continued conduct of
the business of QS after the Closing Date in substantially the same manner as
conducted prior to the Closing Date.
4.12. Accounts Receivable. All accounts receivable of QS that are
reflected on the balance sheet dated September 30, 1999 and on the accounting
records of QS 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 September 30, 1999, or on the accounting records of QS
as of the Closing
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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 September 30, 1999, and will not
represent a material adverse change in the composition of such Accounts
Receivable in terms of aging). Subject to such reserves, to the best of QS's
knowledge, each of the Accounts Receivable either has been or will be collected
in full, without any set-off, within one hundred and twenty (120) days after
the day on which it first becomes due and payable. 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. QS has been and currently is conducting its
business, and each of the premises leased or owned by QS has been and now is
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 QS Material Adverse Effect.
4.14. Litigation. There is no suit, action, or proceeding pending
or, to the knowledge of QS or any of the QS Shareholders, threatened against or
affecting QS. QS 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 QS,
copies of which have been provided to HealthStream, reflect all meetings of the
boards of directors, committees of the boards of directors, and the
shareholders thereof. All documents and other written information as to
existing facts relating to QS and its respective assets and liabilities which
have been provided to HealthStream in connection with this Agreement are true,
correct, and complete in all material respects except to the extent that any
such documents or other written information were later specifically
supplemented or corrected prior to the date of this Agreement with additional
documents or written information that were provided to HealthStream.
4.16. Intellectual Property Rights. QS owns or possesses the right
to use all trademarks, service marks, trade names, slogans, copyrights in
published and unpublished works, patents, patent applications, inventions and
discoveries that may be patentable, rights in mask works, and all trade
secrets, it currently uses without any conflict or alleged conflict with the
rights of others, except where any such conflict would not have a QS Material
Adverse Effect. All copyrights have been registered and are currently in
compliance with formal legal requirements, are valid and enforceable, and are
not subject to any maintenance fees, taxes, or actions falling due within
ninety days after the Closing Date. To the best of QS's knowledge, no copyright
is infringed or has been challenged or threatened in any way. To the best of
QS's knowledge, 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 have
been marked with the proper copyright notice.
4.17. Certain Business Practices and Regulations. Neither QS, nor
to QS'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.
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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 QS
("Insurance Policies") are described in the QS Disclosure Letter and 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. QS is not in default with respect to any
material provision contained in any Insurance Policy. QS 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.
4.19. No Brokers. Other than fees to be paid by QS to Xxxx Xxxxx, QS
has not entered into any contract, arrangement, or understanding with any
person or firm that may result in the obligation of QS 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.
4.20. HealthStream Stock Ownership; Investment Intent.
4.20.1. The shares of HealthStream Common Stock issuable in
the Merger are being acquired by the QS Shareholders for investment
and not with a view to the distribution thereof, and each of the QS
Shareholders 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 SHAREHOLDERS' AGREEMENT ENTERED INTO
BETWEEN THE HOLDER OF THIS CERTIFICATE AND THE COMPANY. A COPY OF THE
SHAREHOLDERS' AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE
COMPANY AND MAY BE REVIEWED AT SUCH OFFICE UPON REQUEST.
4.20.2. Each QS Shareholder, severally and not jointly,
represents, warrants, and agrees as follows:
(i) Each of the QS Shareholders 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
QS Shareholders have requested, which additional information
has been received.
(ii) In deciding to acquire shares of HealthStream
Common Stock pursuant to the Merger, the QS Shareholders have
consulted with their legal, financial, and tax advisers with
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respect to the Merger and the nature of the investment
together with additional information concerning HealthStream
provided under subsection (i) above.
(iii) Each QS Shareholder 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 QS Shareholders,
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.
(iv) Each QS Shareholder has discussed with counsel,
to the extent such QS Shareholder 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.
(v) Until the earlier of (i) the Effective Time or
(ii) the termination of this Agreement, each QS Shareholder
will not sell, transfer, or otherwise dispose of, or reduce
such person's interest in or risk relating to, any QS Common
Stock or any instrument exercisable for or convertible into
QS Common Stock currently owned by the QS Shareholder.
4.21. Contracts; No Defaults. The QS Disclosure Letter contains a
complete and accurate list, and QS has previously delivered to HealthStream
complete copies of, all contracts and agreements for the performance of
services on the purchase or leasing of property by QS of an amount or value in
excess of ten thousand dollars (US$10,000) ("Material Contracts"). To the best
of QS's knowledge, each of the Material Contracts is in full force and effect
and is valid and enforceable in accordance with its terms, and QS, and to the
best of QS's knowledge, each other person that has or had any obligation or
liability under a Material Contract 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 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 QS 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 QS Shareholders has any
interest in any property (whether real, personal, or mixed, tangible or
intangible) used in or pertaining to QS business. No QS Shareholder owns, of
record or beneficially, any equity or other financial or profit interest in any
entity that has had business dealings with QS or that has engaged in
competition with QS.
4.23. Full Disclosure. All of the information provided by QS and
its representatives herein or in the QS Disclosure Letter is true, correct, and
complete in all material respects, and no representation, warranty, or
statement made by QS or the QS Shareholders in or pursuant to this Agreement or
the QS Disclosure Letter contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary to
make such representation, warranty, or statement not misleading.
4.24. Accreditation. QS' continuing education product line complies
with the rules and regulations of California State Board of Nursing. QS has no
knowledge of any acts or omissions by QS in its business practices that would
impede continued accreditation in the nearfuture and QS Shareholders shall, for
up to one
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12
year following the Closing Date, use reasonable efforts to assist Merger Sub in
securing the accreditation of QS' current titles in California going forward.
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 QS and the QS Shareholders (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 on the
business, results of operations, or financial condition of HealthStream, taken
as a whole (a "HealthStream Material Adverse Effect"). HealthStream has all
requisite corporate power and authority to own, operate, and lease its
properties and carry on its business 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. 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.
5.3. Capitalization. The authorized capital stock of HealthStream
consists of 20,000,000 shares of Common Stock, no par value, 2,245,743 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.
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.
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13
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. As of the date of this Agreement, there is no
action, suit, or proceeding pending against HealthStream or any HealthStream
Subsidiary 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
HealthStream Material Adverse Effect.
5.7. Absence of Certain Changes. Since September 30, 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.
ARTICLE 6.
COVENANTS
6.1. Covenants of HealthStream and QS. 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 QS
covenants with the other that, insofar as the obligations relate to it:
6.1.1. Each of HealthStream and QS 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 QS shall allow all designated
officers, attorneys, accountants, and other representatives of the
other access at all reasonable times during regular
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14
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 QS.
6.1.3. Each of HealthStream and QS 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 QS 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. Neither QS nor any of the QS Shareholders or representatives
shall make any public statements regarding the Merger or this
Agreement without the prior written approval of HealthStream.
6.2. Covenants of QS and the QS Shareholders. QS and the QS
Shareholders covenant and agree as follows:
6.2.1. (i) they shall, and shall direct and use their best
efforts to cause QS'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 QS (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; (ii) they will immediately
cease and cause to be terminated any existing activities, discussions,
or negotiations with any parties conducted heretofore with 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. QS 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 articles of incorporation, bylaws,
or capitalization or merge or consolidate with or into or
otherwise acquire any interest in any entity;
(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;
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(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;
(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
QS 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 QS nor the QS Shareholders 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 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. QS shall promptly provide to HealthStream monthly and
quarterly unaudited financial statements of QS for periods from and
after September 30, 1999, prepared in accordance with generally
accepted accounting principles consistently applied.
6.2.5. QS 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.
6.2.6. QS 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.
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6.3. Covenants of HealthStream. HealthStream covenants and agrees
that 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.
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 and QS,
taken as a whole, following the Effective Time.
7.1.3. HealthStream shall have received from QS copies of all
resolutions adopted by the Board of Directors and shareholders of QS
in connection with this Agreement and the transactions contemplated
hereby. QS shall have received from HealthStream and Merger Sub copies
of all resolutions adopted by the Board of Directors and shareholders
of each respective company in connection with this Agreement and the
transactions contemplated hereby.
7.2. Conditions to Obligations of QS and the QS Shareholders to
Effect the Merger. The obligations of QS and the QS Shareholders to effect the
Merger shall be subject to the fulfillment at or prior to the Closing Date of
the following conditions:
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 QS shall have received a certificate of the
President or the Chief Financial Officer of HealthStream, dated the
Closing Date, certifying to such effect.
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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. QS and the QS Shareholders shall have received a
written opinion, dated as of the Closing Date, from counsel for
HealthStream substantially in the form of Exhibit D attached hereto.
7.2.4. HealthStream and Merger Sub shall have executed the
Tax Representation Certificate, substantially in the form of Exhibit L
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. QS and the QS Shareholders 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 QS and the QS Shareholders 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 President of QS 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 QS, that would have
or would be reasonably likely to have a QS Material Adverse Effect.
7.3.3. HealthStream shall have received a written opinion,
dated as of the Closing Date, from counsel for QS, substantially in
the form of Exhibit E attached hereto.
7.3.4. Xxxxx Xxxxxxx shall have executed an Employment
Agreement, substantially in the form of Exhibit F attached hereto.
7.3.5. QS shall have complied with all reasonable requests of
HealthStream's audit firm and provided all the information required to
complete audits for the years ending December 31, 1996, 1997 and 1998.
7.3.6. Xxxxxx Xxxxxx shall have executed a Consulting
Agreement, substantially in the form of Exhibit G attached hereto.
7.3.7. The QS Shareholders shall have executed a
Shareholders' Agreement, substantially in the form of Exhibit H
attached hereto.
7.3.8. The QS Shareholders shall have executed a Co-Sale
Agreement, substantially in the form of Exhibit I attached hereto.
7.3.9. The QS Shareholders shall have executed a Voting
Agreement, substantially in the form of Exhibit J attached hereto.
7.3.10. QS shall not have more than one hundred twenty
thousand dollars (US$120,000) in total debt.
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7.3.11. QS Shareholders shall only be Xxxxx Xxxxxxx and
Xxxxxx Xxxxxx.
7.3.12. QS shall have executed the Tax Representation
Certificate, substantially in the form of Exhibit K attached hereto.
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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 QS.
8.2. Termination by Either HealthStream or QS. This Agreement may
be terminated and the Merger may be abandoned by action of the Board of
Directors of either HealthStream or QS if (a) the Merger shall not have been
consummated by January 15, 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 QS. 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 QS, 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 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 QS 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 QS or the QS Shareholders of any representation or warranty contained
in this Agreement which would have or would be reasonably likely to have a QS
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 QS or the QS
Shareholders, 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 QS.
8.5. Effect of Termination and Abandonment. Upon termination of
this Agreement pursuant to this Article 8, 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 shareholders 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.
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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.
9.2. Indemnity Obligations of the QS Shareholders. Subject to the
provisions of this Article 9 and the Escrow Agreement, the QS Shareholders,
jointly and severally, 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
attorneys' fees and expenses actually incurred (collectively "Losses") arising
in connection with or attributable to the inaccuracy or breach of any
representation, warranty, or covenant made by QS or the QS Shareholders in this
Agreement.
9.3 Limitation on Source and Amount of Payment of Indemnity Claims
by QS Shareholders. The parties agree that the sole source for payment of the
indemnity obligations of the QS Shareholders under Section 9.2 above will be
the Consideration Shares and the Earn Out Shares. For the purposes of this
Article 9, the Consideration Shares and the Earn Out Shares will be valued at
Fair Market Value, but in no case less than $16.00 per share. In no event will
the total aggregate liability of the QS Shareholders under this Article 9
exceed the total aggregate value of the Consideration Shares and the Earn Out
Shares, so calculated. "Fair Market Value" of a share of HealthStream Common
Stock as of that date shall mean:
(a) If traded on a securities exchange or the Nasdaq National
Market, the Fair Market Value shall be deemed to be the average of the
closing prices of the Common Stock of the Company on such exchange or
market over the 5 business days ending immediately prior to the
applicable date of valuation;
(b) If actively traded over-the-counter, the Fair Market
Value shall be deemed to be the average of the closing bid prices over
the 30-day period ending immediately prior to the applicable date of
valuation; and
(c) If there is no active public market, the Fair Market
Value shall be the value thereof, as agreed upon by HealthStream and
the QS Shareholders; provided, however, that if HealthStream and the
QS Shareholders cannot agree on such value, such value shall be
determined by an independent valuation firm experienced in valuing
businesses such as HealthStream and jointly selected in good faith by
HealthStream and the QS Shareholders. Fees and expenses of the
valuation firm shall be paid for by HealthStream.
9.4. Indemnification by HealthStream. Subject to the provisions of
this Article 9, HealthStream will indemnify, defend, and hold harmless the QS
Shareholders from, and reimburse the QS Shareholders 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.
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21
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 QS or QS Shareholders:
Xxxxx Xxxxxxx
Chief Executive Officer
Quick Study, Inc.
00 Xxxxxxx
Xxxxxxx 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 QS
Disclosure Letter, the HealthStream Disclosure Letter, and any documents
delivered by the parties in connection herewith constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior and contemporaneous 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.
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22
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 QS 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; provided, however, that all expenses of QS in connection with the
negotiation, execution, delivery, and performance of this Agreement (except
audit expenses) shall be borne by the QS Shareholders.
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.
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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 1 ACQUISITION, INC.
By:
-----------------------------------
Title:
--------------------------------
QUICK STUDY, INC.
By:
-----------------------------------
Title:
--------------------------------
THE QS SHAREHOLDERS:
--------------------------------------
Xxxxx Xxxxxxx
--------------------------------------
Xxxxxx Xxxxxx
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ATTACHMENTS AND EXHIBITS
QS Disclosure Letter
HealthStream Disclosure Letter
Exhibit A - Articles of Merger
Exhibit B - Fifty Percent Earn out Customers
Exhibit C - Form of Escrow Agreement
Exhibit D - Form of HealthStream Counsel Legal Opinion
Exhibit E - Form of QS Counsel Legal Opinion
Exhibit F - Form of Employment Agreement
Exhibit G - Form of Consulting Agreement
Exhibit H - HealthStream Shareholders' Agreement
Exhibit I - HealthStream Co-Sale Agreement
Exhibit J - HealthStream Voting Agreement
Exhibit K - QS Tax Representation Certificate
Exhibit L - HealthStream and Merger Sub Tax Representation Certificate
